-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ORAQ0ddKBFl61CxLYz+wj1LF+cj0ULnt5frDR/oIMu3wW4mrc+9JjKvmJSFcgSbV efUI3nBJ7+XTdDIjgybw2A== 0000853665-98-000038.txt : 19980318 0000853665-98-000038.hdr.sgml : 19980318 ACCESSION NUMBER: 0000853665-98-000038 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19971228 FILED AS OF DATE: 19980317 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: APPLEBEES INTERNATIONAL INC CENTRAL INDEX KEY: 0000853665 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 431461763 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-17962 FILM NUMBER: 98567581 BUSINESS ADDRESS: STREET 1: 4551 W 107TH ST STE 100 CITY: OVERLAND PARK STATE: KS ZIP: 66207 BUSINESS PHONE: 9139674000 MAIL ADDRESS: STREET 1: 4551 W 107TH STREET STREET 2: SUITE 100 CITY: OVERLAND PARK STATE: KS ZIP: 66207 10-K 1 FOR THE FISCAL YEAR ENDED DECEMBER 28, 1997 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 28, 1997 ----------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------- ------------------- Commission File Number: 000-17962 Applebee's International, Inc. -------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 43-1461763 ------------------------------- ------------------------------------ (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 4551 W. 107th Street, Suite 100, Overland Park, Kansas 66207 ------------------------------------------------------------------------------ (Address of principal executive offices and zip code) (913) 967-4000 -------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 9, 1998 was $697,802,316 based upon the closing sale price on March 9, 1998. The number of shares of the registrant's common stock outstanding as of March 9, 1998 was 30,257,011. DOCUMENTS INCORPORATED BY REFERENCE Proxy statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 is incorporated into Part III hereof. 1 APPLEBEE'S INTERNATIONAL, INC. FORM 10-K FISCAL YEAR ENDED DECEMBER 28, 1997 INDEX
Page PART I Item 1. Business................................................................................ 3 Item 2. Properties.............................................................................. 16 Item 3. Legal Proceedings....................................................................... 18 Item 4. Submission of Matters to a Vote of Security Holders..................................... 18 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...................................................... 19 Item 6. Selected Financial Data................................................................. 20 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 21 Item 8. Financial Statements and Supplementary Data............................................. 29 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................ 29 PART III Item 10. Directors and Executive Officers of the Registrant...................................... 30 Item 11. Executive Compensation.................................................................. 30 Item 12. Security Ownership of Certain Beneficial Owners and Management.......................... 30 Item 13. Certain Relationships and Related Transactions.......................................... 30 PART IV Item 14. Exhibits and Reports on Form 8-K........................................................ 31 Signatures.............................................................................................. 32
2 PART I Item 1. Business General Applebee's International, Inc. and its subsidiaries (the "Company") develops, franchises and operates casual dining restaurants principally under the names "Applebee's Neighborhood Grill & Bar" and "Rio Bravo Cantina." The Company opened its first restaurant in 1986 and initially developed and operated six restaurants as a franchisee of the Applebee's Neighborhood Grill & Bar Division (the "Applebee's Division") of an indirect subsidiary of W.R. Grace & Co. In March 1988, the Company acquired substantially all the assets of its franchisor. At the time of this acquisition, the Applebee's Division operated 14 restaurants and had ten franchisees, including the Company, operating 41 franchise restaurants. As of December 28, 1997, there were 960 Applebee's restaurants, of which 770 were operated by franchisees and 190 were owned or operated by the Company. The restaurants were located in 48 states, Canada, Europe, and the Caribbean. During 1997, 145 new restaurants were opened, including 113 franchise restaurants and 32 Company restaurants. The Company acquired the Rio Bravo Cantina chain of Mexican casual dining restaurants in March 1995 and began franchise expansion in 1996. As of December 28, 1997, there were 55 Rio Bravo Cantina restaurants located in 18 states, of which 24 were operated by franchisees and 31 were owned by the Company. During 1997, 26 new restaurants were opened, including 16 franchise restaurants and 10 Company restaurants. The Company also owns four other specialty restaurants. 3 The following table sets forth certain unaudited financial information and other restaurant data relating to Company and franchise restaurants, as reported to the Company by franchisees.
Fiscal Year Ended ----------------------------------------------------- December 28, December 29, December 31, 1997 1996 1995 ----------------- ---------------- ----------------- Number of restaurants: Applebee's: Company(1): Beginning of year............................ 148 128 97 Restaurant openings.......................... 32 29 27 Restaurant closings.......................... (1) (3) (1) Restaurants acquired from (by) franchisees... 11 (6) 5 ----------------- ---------------- ----------------- End of year.................................. 190 148 128 ----------------- ---------------- ----------------- Franchise: Beginning of year............................ 671 538 408 Restaurant openings.......................... 113 134 135 Restaurant closings.......................... (3) (7) -- Restaurants acquired by (from) franchisees... (11) 6 (5) ----------------- ---------------- ----------------- End of year.................................. 770 671 538 ----------------- ---------------- ----------------- Total Applebee's: Beginning of year............................ 819 666 505 Restaurant openings.......................... 145 163 162 Restaurant closings.......................... (4) (10) (1) ----------------- ---------------- ----------------- End of year.................................. 960 819 666 ================= ================ ================= Rio Bravo Cantinas: Company: Beginning of year............................ 21 16 12 Restaurant openings.......................... 10 5 4 ----------------- ---------------- ----------------- End of year.................................. 31 21 16 ----------------- ---------------- ----------------- Franchise: Beginning of year............................ 9 -- -- Restaurant openings.......................... 16 9 -- Restaurant closings.......................... (1) -- -- ----------------- ---------------- ----------------- End of year.................................. 24 9 -- ----------------- ---------------- ----------------- Total Rio Bravo Cantinas: Beginning of year............................ 30 16 12 Restaurant openings.......................... 26 14 4 Restaurant closings.......................... (1) -- -- ----------------- ---------------- ----------------- End of year.................................. 55 30 16 ================= ================ ================= Specialty Restaurants................................ 4 4 4 ================= ================ ================= Total number of restaurants: Beginning of year............................ 853 686 521 Restaurant openings.......................... 171 177 166 Restaurant closings.......................... (5) (10) (1) ----------------- ---------------- ----------------- End of year.................................. 1,019 853 686 ================= ================ =================
4
Fiscal Year Ended ----------------------------------------------------- December 28, December 29, December 31, 1997 1996 1995 ----------------- ---------------- ----------------- Weighted average weekly sales per restaurant: Applebee's: Company(1).................................. $ 41,176 $ 40,366 $ 39,977 Franchise................................... $ 39,513 $ 39,870 $ 40,922 Total Applebee's............................ $ 39,826 $ 39,961 $ 40,737 Rio Bravo Cantinas: Company(2).................................. $ 60,946 $ 66,743 $ 66,158 Franchise................................... $ 49,288 $ 67,371 $ -- Total Rio Bravo Cantinas.................... $ 56,206 $ 66,741 $ 66,158 Change in comparable restaurant sales:(3) Applebee's: Company(1).................................. 0.1 % 1.1 % 0.3% Franchise................................... 0.6 % (1.2)% 0.5% Total Applebee's............................ 0.5 % (0.8)% 0.5% Rio Bravo Cantinas (Company).................... (1.6)% 3.9 % 0.9% Total system sales (in thousands): Applebee's...................................... $ 1,818,503 $ 1,539,277 $ 1,248,383 Rio Bravo Cantinas.............................. 128,196 66,663 48,135 Specialty restaurants........................... 14,435 14,374 14,339 ----------------- ---------------- ----------------- Total system sales.......................... $ 1,961,134 $ 1,620,314 $ 1,310,857 ================= ================ =================
- -------- (1)Includes certain Texas restaurants operated by the Company under a management agreement since July 1990 (two at the end of 1995 and one at the end of 1996 and 1997). (2)Excludes one restaurant which is open for dinner only. (3)When computing comparable restaurant sales, restaurants open for at east 18 months are compared from period to period. 5 The Applebee's System Concept. Each Applebee's restaurant is designed as an attractive, friendly, neighborhood establishment featuring moderately priced, high quality food and beverage items, table service and a comfortable atmosphere. Applebee's restaurants appeal to a wide range of customers including families with children, young adults and senior citizens. Applebee's restaurants are designed according to Company specifications and are located in free-standing buildings, end caps of strip shopping centers, and shopping malls. The Company's two current free-standing restaurant prototypes, which were introduced during 1997, are approximately 4,700 and 5,000 square feet and seat approximately 165 and 200 patrons, respectively. Each Applebee's restaurant has a centrally located bar and many restaurants offer patio seating. The decor of each restaurant incorporates artifacts and memorabilia such as old movie posters, musical instruments and sports equipment along with photographs and magazine and newspaper articles highlighting local history and personalities, giving each restaurant an individual, neighborhood identity. Each Applebee's restaurant is required to be remodeled every six years to embody the design elements of the current prototype. Menu. Each Applebee's restaurant offers a diverse menu of high quality, moderately priced food and beverage items consisting of traditional favorites and innovative dishes. The restaurants feature a broad selection of entrees, including beef, chicken, seafood and pasta items prepared in a variety of cuisines, as well as appetizers, salads, sandwiches, specialty drinks and desserts. Substantially all restaurants offer beer, wine, liquor and premium specialty drinks. During 1997, alcoholic beverages accounted for 15.2% of Company owned Applebee's restaurant sales. The Company continuously develops and tests new menu items through regional consumer tastings and additional tests in selected Company and franchise restaurants. Franchisees are required to present a menu consisting of approximately 65% of selections from the Company approved list of national core items and approximately 35% of additional items selected from the Company approved list of optional items. The Company launched a major new food and menu initiative in 1997 for all Applebee's restaurants which was designed to enhance both food quality and presentation. The initiative included enhanced food offerings and upgraded food specifications, new plateware, additional menu item selections and side dish alternatives. The rollout of this initiative was completed for most Applebee's restaurants in the system by the end of November 1997. Restaurant Operations. All restaurants are operated in accordance with uniform operating standards and specifications relating to the quality and preparation of menu items, selection of menu items, maintenance and cleanliness of premises, and employee conduct. All standards and specifications are developed by the Company, with input from franchisees, and applied on a system-wide basis. Training. The Company has an operations training course for general managers, kitchen managers and other restaurant managers. The course consists of in-store task-oriented training and formal administrative, customer service, and financial training which may last from 10 to 12 weeks. A team of Company employed trainers is provided for new restaurants to conduct hands-on training for all restaurant employees to ensure compliance with Company standards. The Company also operates Applebee University, which offers restaurant managers specialized training programs, and conducts regular meetings that emphasize leadership, quality of food preparation, and service. In 1997, the Company conducted 110 Applebee University sessions consisting of one day of continuing education in a classroom setting. The Company, generally through in-restaurant seminars and video presentations, provides periodic training for its restaurant employees regarding topics such as the responsible service of alcohol and food sanitation and storage. 6 Advertising. The Company has historically concentrated its advertising and marketing efforts primarily on four food-specific promotions each year, with each promotion featuring a specific theme or ethnic cuisine. The Company added two optional promotions in 1997 and will add an additional food promotion in 1998. The Company advertises on a national, regional and local basis, utilizing primarily television, radio and print media. In 1997, approximately 4.0% of sales for Company Applebee's restaurants was spent on advertising, including 1.5% contributed to the national advertising pool which develops and funds the specific national promotions. All franchisees are also required to contribute 1.5% of sales to the national advertising pool. The remainder of the Company's advertising expenditures are focused on local advertising in areas with Company owned restaurants. Purchasing. Maintaining high food quality and system-wide consistency is a central focus of the Company's purchasing program. The Company mandates quality standards for all products used in the restaurants and maintains a limited list of approved suppliers from which the Company and its franchisees must select. The Company has negotiated purchasing agreements with most of its approved suppliers which result in volume discounts for the Company and its franchisees, and when necessary, purchases and maintains inventories of Riblets, a specialty item on the Applebee's menu, to assure sufficient supplies for the system. Company Applebee's Restaurants Company Restaurant Openings and Acquisitions. The Company's expansion strategy is to cluster restaurants in targeted markets, thereby increasing consumer awareness and enabling the Company to take advantage of operational, distribution, and advertising efficiencies. The Company's experience in developing markets indicates that the opening of multiple restaurants within a particular market results in increased market share. In order to maximize overall system growth, the Company's expansion strategy through 1992 emphasized franchise arrangements with experienced, successful and financially capable restaurant operators. Although the Company continues to expand the Applebee's system across the United States through franchise operations, commencing in 1992, the system growth strategy also included increasing the number of Company restaurants through the direct development of strategic territories and, if available under acceptable financial terms, by selectively acquiring existing franchise restaurants and terminating related development rights held by the selling franchisee. In that regard, the Company has expanded from a total of 31 owned or operated restaurants as of December 27, 1992 to a total of 190 as of December 28, 1997 through the opening of 125 new restaurants and the acquisition of 48 franchise restaurants over the last five years, including 11 franchise restaurants in the St. Louis metropolitan area that were acquired during 1997. On December 23, 1997, the Company entered into an agreement with Apple South, Inc. ("Apple South"), its largest franchisee, to acquire 31 Applebee's restaurants plus one restaurant under construction in the Virginia markets of Norfolk, Richmond, Roanoke and Charlottesville for approximately $93,400,000, subject to certain closing adjustments, referred to herein as the "Virginia Acquisition." The Virginia Acquisition is anticipated to close in late March 1998, subject to obtaining financing, operating licenses and third-party consents. 7 In addition to the pending acquisition of the Virginia restaurants, the Company anticipates opening approximately 32 new Applebee's restaurants in 1998, although it may open more restaurants depending upon the availability of appropriate new sites. The areas in which the Company's restaurants are located and the areas where the Company opened new restaurants during 1997 are set forth in the following table.
Company Company Restaurants Restaurants as of Opened in December 28, Area 1997 1997 ------------------------------------------------------------ -------------------- -------------------- New England (includes Massachusetts, Vermont, New Hampshire, Rhode Island and Maine).................... 9 33 Detroit/Southern Michigan................................... 6 29 Minneapolis/St. Paul, Minnesota............................. 3 28 North/Central Texas......................................... 1 21 Kansas City, Missouri/Kansas................................ 2 20 St. Louis, Missouri/Illinois................................ 3 14 Las Vegas/Reno, Nevada...................................... 1 10 Philadelphia, Pennsylvania.................................. 2 8 San Diego/Southern California............................... 1 8 Atlanta, Georgia............................................ -- 7 Albuquerque, New Mexico..................................... 2 6 Long Island, New York....................................... 2 6 ------------------- ------------------- 32 190 ==================== ==================
In February 1998, the Company entered into an agreement to sell its six restaurants located in the Long Island, New York area for approximately $10,000,000 in cash. The operations of the restaurants and future restaurant development in the market area will be assumed by an existing Applebee's franchisee. The Company expects the sale to close in the second quarter of 1998 with minimal effect, if any, on its consolidated net earnings or financial position. The Company continues to assess its strategic direction with respect to the operations of its seven Company owned Applebee's restaurants in the San Diego market area, and future restaurant development in this territory. The Company's alternatives for the San Diego market may include continued operation of the restaurants and development of new restaurants, a franchisee alliance for future development of the remainder of the market, or the possible sale of the existing restaurants to a franchisee. Restaurant Operations. The staff for a typical Applebee's restaurant consists of one general manager, one kitchen manager, two or three assistant managers and approximately 75 hourly employees. All managers of Company owned restaurants receive a salary and performance bonus based on restaurant sales, profits and adherence to Company standards. As of December 28, 1997, the Company employed eight regional Directors of Operations and 31 District Managers, whose duties include regular restaurant visits and inspections and the ongoing maintenance of the Company standards of quality, service, cleanliness, value, and courtesy. In addition to providing a significant contribution to revenues and operating earnings, Company restaurants are used for many purposes which are integral to the development of the entire system, including testing of new menu items and training of franchise restaurant managers and operating personnel. In addition, the operation of Company restaurants enables the Company to develop and refine its operating standards and specifications further and to understand and better respond to day-to-day management and operating concerns of franchisees. 8 The Applebee's Franchise System Franchise Territory and Restaurant Openings. The Company currently has exclusive franchise arrangements with approximately 55 franchise groups, including nine international franchisees. The Company has generally selected franchisees that are experienced multi-unit restaurant operators who have been involved with other restaurant concepts. The Company's franchisees operate Applebee's restaurants in 41 states, Canada, Europe, and the Caribbean. Virtually all territories in the contiguous 48 states have been granted to franchisees or designated for Company development. As of December 28, 1997, there were 770 franchise restaurants. Franchisees opened 135 restaurants in 1995, 134 restaurants in 1996, and 113 restaurants in 1997. The Company anticipates between 85 to 100 franchise restaurant openings in 1998. As part of the agreement with Apple South relating to the Virginia Acquisition, Apple South has also agreed to use its best efforts to sell its other Applebee's restaurants as soon as practical, resulting in its exit as an Applebee's franchisee. The reduction in expected franchise restaurant openings in 1998 is a result of probable delays in development that will occur during the transition of restaurants and territories from Apple South to new franchisees. To the extent any restaurants are not divested by Apple South by December 31, 1999, the Company has an option to purchase the remaining restaurants at a predetermined formula. The Company and Apple South have committed to work together to identify and approve qualified franchise groups to acquire the remaining Apple South restaurants and to effect an efficient transition of ownership. Development of Restaurants. The Company makes available to franchisees the physical specifications for a typical restaurant, retaining the right to prohibit or modify the use of any plan. Each franchisee, with assistance from the Company, is responsible for selecting the site for each restaurant within its territory, subject to Company approval. The Company conducts a physical inspection, reviews any proposed lease or purchase agreement, and makes available demographic studies. Domestic Franchise Arrangements. Each Applebee's franchise arrangement consists of a development agreement and separate franchise agreements. Development agreements grant the exclusive right to develop a number of restaurants in a designated geographical area. The term of a domestic development agreement is generally 20 years. A separate franchise agreement is entered into by the franchisee relating to the operation of each restaurant which has a term of 20 years and permits renewal for up to an additional 20 years in accordance with the terms contained in the then current franchise agreement (including the then current royalty rates and advertising fees) and upon payment of an additional franchise fee. For each restaurant developed, a franchisee is currently obligated to pay to the Company a royalty fee equal to 4% of the restaurant's monthly gross sales. The Company's current form of development agreement requires an initial franchise fee of $35,000 for each restaurant developed during its term. The terms, royalties and advertising fees under a limited number of franchise agreements and the franchise fees under older development agreements vary from the currently offered arrangements. 9 Advertising. Domestic franchisees are required to spend at least 1.5% of gross sales on local advertising and promotional activities, in addition to their contribution of 1.5% of gross sales to the national advertising account. Franchisees also promote the opening of each restaurant and the Company, subject to certain conditions, reimburses the franchisee for 50% of the out-of-pocket opening advertising expenditures, up to a maximum of $2,500. The Company can increase the combined amount of the advertising fee and the amount required to be spent on local advertising and promotional activities to a maximum of 5% of gross sales. Training and Support. The Company provides ongoing advice and assistance to franchisees in connection with the operation and management of each restaurant through training sessions, meetings, seminars, on-premises visits, and by written or other material. Such advice and assistance relates to revisions to operating manual policies and procedures, and new developments, techniques, and improvements in restaurant management, food and beverage preparation, sales promotion, and service concepts. Quality Control. The Company continuously monitors franchisee operations and inspects restaurants, principally through its full-time franchise consultants (24 at December 28, 1997) who report to the Company's Executive Director of Franchise Operations. The Company makes both scheduled and unannounced inspections of restaurants to ensure that only approved products are in use and that Company prescribed practices and procedures are being followed. A minimum of three planned visits are made each year, during which a representative of the Company conducts an inspection and consultation at each restaurant. The Company has the right to terminate a franchise if a franchisee does not operate and maintain a restaurant in accordance with the Company's requirements. Franchise Business Council. The Company maintains a Franchise Business Council which provides advice to the Company regarding operations, marketing, product development and other aspects of restaurant operations for the purpose of improving the franchise system. As of December 28, 1997, the Franchise Business Council consisted of eight franchisee representatives and three members of the Company's senior management. One franchisee representative is a permanent member, one franchisee representative must be a franchisee with five or less restaurants, and any franchisee who operates 10% or more of the total number of system restaurants is reserved a seat. Although Apple South operates more than 10% of the total number of system restaurants, in connection with the Virginia Acquisition, it relinquished its seat on the Franchise Business Council as of December 23, 1997. The remaining franchisee representatives are elected by franchisees prior to and announced at the annual franchise convention. International Franchise Agreements. The Company has begun pursuing international franchising of the Applebee's concept under a long-term strategy of controlled expansion. This strategy includes seeking highly qualified franchisees with the resources to open multiple restaurants in each territory and the familiarity with the specific local business environment. The Company is currently focusing on international franchising in Canada, the United Kingdom, Australia, continental Europe and the Mediterranean region. In this regard, the Company currently has development agreements with nine international franchisees. Seven restaurants were opened during 1997 - two each in Canada and the Netherlands, and one each in Germany, Greece and Sweden. The success of further international expansion will be dependent upon, among other things, local acceptance of the Applebee's concept, and the Company's ability to attract qualified franchisees and operating personnel, to comply with the regulatory requirements of the local jurisdictions, and to supervise international franchisee operations effectively. 10 Franchise Financing. Although financing is the sole responsibility of the franchisee, the Company makes available to franchisees the names and addresses of financial institutions interested in financing the costs of restaurant development for qualified franchisees. None of these financial institutions is an affiliate or agent of the Company, and the Company has no control over the terms or conditions of any financing arrangement offered by these financial institutions. Under a previous franchise financing program, the Company provided a limited guaranty of loans made to certain franchisees. To assist in the transition of the Apple South restaurants to other franchisees, the Company has agreed to provide the availability of guarantees up to 10% of the borrowings of qualified franchise groups, up to a maximum of $10,000,000 in the aggregate. See Notes to Consolidated Financial Statements of the Company included elsewhere herein. On infrequent occasions, when the Company believes it is necessary to support franchise development in a strategic territory, the Company has made secured loans to franchisees, agreed to defer collection of royalties, or guaranteed equipment leases. Rio Bravo Cantina Restaurants General. In March 1995, a wholly-owned subsidiary of the Company merged with and into Innovative Restaurant Concepts, Inc. ("IRC"), referred to herein as the "IRC Merger," through which the Company acquired the Rio Bravo Cantina chain of Mexican casual dining restaurants. As a result of the IRC Merger, IRC became a wholly-owned subsidiary of the Company. At the time of the IRC Merger, IRC operated 17 restaurants, including 13 Rio Bravo Cantina restaurants, and four other specialty restaurants. Expansion. As of December 28, 1997, the Company operated 31 Rio Bravo Cantina restaurants and franchisees operated 24 Rio Bravo Cantina restaurants in 18 states. During 1997, the Rio Bravo Cantina concept was expanded into seven new states. The Company opened ten Rio Bravo Cantina restaurants in 1997, and expects to open 11 Rio Bravo Cantina restaurants in 1998. In addition, the Company has identified 17 Rio Bravo Cantina franchisees, all of whom are experienced Applebee's franchisees. The development territories of the 17 franchisees encompass all or parts of 28 states. The Company expects between 8 to 10 franchise Rio Bravo Cantina restaurants to open in 1998. Concept. Rio Bravo Cantina restaurants offer generous portions of Mexican cuisine at attractive prices. The restaurants feature tortillas made on the premises, fresh daily specials, a variety of signature margaritas and distinctive Mexican architecture and interior decor which create a festive atmosphere reminiscent of an authentic Mexican cantina. The design of the restaurants incorporates materials such as exposed brick, barn wood, Mexican tile floors and stucco walls embellished with various signs, inscriptions and other items depicting a rustic border motif. Rio Bravo Cantina restaurants can be located in either free-standing buildings, strip shopping centers, or shopping malls. Existing locations, many of which are conversions of other restaurants, range in size from 5,600 to 10,300 square feet and seat between 210 and 450 customers. Most of the restaurants have a patio area providing additional seating during much of the year. The current free-standing prototype, which was introduced during 1997, is approximately 5,600 square feet and seats approximately 210 people with an optional outdoor patio area that seats 36 patrons. Menu. All but one Rio Bravo Cantina restaurant are open for lunch and dinner seven days a week. The menu includes traditional Mexican food items such as burritos, enchiladas, tamales and tacos. In addition, the menu offers a wide variety of other favorites such as beef, chicken and shrimp fajitas, quesadillas, shrimp dishes, and a variety of salads and desserts. A large variety of Mexican and domestic beers, Sangria, and signature margaritas are also featured. The menu offers lunch entrees priced from $4.79 to $7.79 and dinner entrees priced from $5.99 to $12.99. During 1997, alcoholic beverages accounted for approximately 29% of total Company restaurant sales. 11 The Rio Bravo Franchise System Franchise Arrangements. Each Rio Bravo Cantina franchise arrangement consists of a development agreement and separate franchise agreements. Development agreements grant the exclusive right to develop a number of restaurants in a designated geographical area. The term of a domestic development agreement is generally 15 years. A separate franchise agreement is entered into by the franchisee relating to the operation of each restaurant which has a term of 15 years and permits renewal for up to an additional 15 years in accordance with the terms contained in the then current franchise agreement (including the then current royalty rates and advertising fees) and upon payment of an additional franchise fee. For each restaurant developed, a franchisee is obligated to pay to the Company a royalty fee equal to 4% of the restaurant's gross sales. Beginning in 2000, the royalty fee will increase to 4.25%. The development agreement requires an initial franchise fee of $40,000 for each restaurant developed during its term. Franchisees are currently required to spend at least 1.5% of gross sales on local advertising and promotional activities, in addition to a contribution of 2.0% of gross sales to the national advertising account. Rio Bravo Roundtable. The Company maintains a Rio Bravo Roundtable which provides advice to the Company regarding operations, marketing, product development, and other aspects of restaurant operations for the purpose of improving the franchise system. As of December 28, 1997, the Rio Bravo Roundtable consisted of five franchisee representatives and two members of the Company's senior management. Franchisee representatives are elected by franchisees at an annual meeting. Specialty Restaurants In connection with the acquisition of the Rio Bravo Cantina concept, the Company also acquired four specialty restaurants, comprised of two Green Hills Grille restaurants in Nashville, Tennessee and Huntsville, Alabama, an upscale Rio Bravo Cantina called the Rio Bravo Grill in Atlanta, Georgia and Ray's on the River in Atlanta, Georgia. The Company currently has no expansion plan for these specialty restaurant concepts. Competition Competition in the casual dining segment of the restaurant industry is expected to remain intense with respect to price, service, location, concept, and the type and quality of food. There is also intense competition for real estate sites, qualified management personnel, and hourly restaurant staff. The Company's competitors include national, regional and local chains, as well as local owner-operated restaurants. There are a number of well-established competitors, some of which have been in existence for a longer period than the Company and may be better established in the markets where the Company's restaurants are or may be located. The Company has begun to experience increased competition in attracting and retaining qualified management level operating personnel. Service Marks The Company owns the rights to the "Applebee's Neighborhood Grill & Bar(R)" and "Rio Bravo Cantina(R)" service marks and certain variations thereof in the United States and, with respect to the Applebee's mark, in various foreign countries. The Company is aware of names and marks similar to the service marks of the Company used by third parties in certain limited geographical areas. The Company intends to protect its service marks by appropriate legal action where and when necessary. 12 Government Regulation The Company's restaurants are subject to numerous federal, state, and local laws affecting health, sanitation and safety standards, as well as to state and local licensing regulation of the sale of alcoholic beverages. Each restaurant requires appropriate licenses from regulatory authorities allowing it to sell liquor, beer, and wine, and each restaurant requires food service licenses from local health authorities. The Company's licenses to sell alcoholic beverages must be renewed annually and may be suspended or revoked at any time for cause, including violation by the Company or its employees of any law or regulation pertaining to alcoholic beverage control, such as those regulating the minimum age of patrons or employees, advertising, wholesale purchasing, and inventory control. The failure of a restaurant to obtain or retain liquor or food service licenses could have a material adverse effect on its operations. In order to reduce this risk, each restaurant is operated in accordance with standardized procedures designed to facilitate compliance with all applicable codes and regulations. The Company's employment practices are governed by various governmental employment regulations, including minimum wage, overtime, immigration, family leave and working condition regulations. The Company is subject to a variety of federal and state laws governing franchise sales and the franchise relationship. In general, these laws and regulations impose certain disclosure and registration requirements prior to the sale and marketing of franchises. Recent decisions of several state and federal courts and recently enacted or proposed federal and state laws demonstrate a trend toward increased protection of the rights and interests of franchisees against franchisors. Such decisions and laws may limit the ability of franchisors to enforce certain provisions of franchise agreements or to alter or terminate franchise agreements. Due to the scope of the Company's business and the complexity of franchise regulations, minor compliance issues may be encountered from time to time; however, the Company does not believe any such issues will have a material adverse effect on its business. Under certain court decisions and statutes, owners of restaurants and bars in some states in which the Company owns or operates restaurants may be held liable for serving alcohol to intoxicated customers whose subsequent conduct results in injury or death to a third party, and no assurance can be given that the Company will not be subject to such liability. The Company believes its insurance presently provides adequate coverage for such liability. Employees At December 28, 1997, the Company employed approximately 18,150 full and part-time employees, of whom approximately 370 were corporate personnel, 1,130 were restaurant managers or managers in training and 16,650 were employed in non-management full and part-time restaurant positions. Of the 370 corporate employees, 100 were in management positions and 270 were general office employees, including part-time employees. The Company considers its employee relations to be good. Most employees, other than restaurant management and corporate personnel, are paid on an hourly basis. The Company believes that it provides working conditions and wages that compare favorably with those of its competition. The Company has never experienced a work stoppage due to labor difficulty and the Company's employees are not covered by a collective bargaining agreement. 13 Executive Officers of the Registrant The executive officers of the Company as of December 28, 1997 are shown below.
Name Age Position Abe J. Gustin, Jr................63 Chairman of the Board of Directors and Co-Chief Executive Officer (Chairman effective January 1, 1998) Lloyd L. Hill....................53 Co-Chief Executive Officer (Chief Executive Officer effective January 1, 1998), President, Chief Operating Officer and Member of the Board of Directors George D. Shadid.................43 Executive Vice President, Chief Financial Officer and Treasurer Robert A. Martin.................67 Executive Vice President of Marketing and Member of the Board of Directors Louis A. Kaucic..................46 Senior Vice President of Human Resources Steven K. Lumpkin................43 Senior Vice President of Strategic Development Ronald J. Marks..................42 Senior Vice President of Research & Development (resigned in March 1998) Stuart F. Waggoner...............52 President and Chief Executive Officer of Rio Bravo International, Inc. (a wholly-owned subsidiary of Applebee's International, Inc.)
Abe J. Gustin, Jr. 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. Gustin retained his position as the Chairman of the Board and Mr. Hill assumed the full duties of Chief Executive Officer. From 1983 to 1990, he also served as Chairman of Juneau Holding Co., a Kansas City, Missouri-based franchisee which operated Taco Bell restaurants. Lloyd L. Hill was elected a director of the Company in August 1989 and was appointed Executive Vice President and Chief Operating Officer of the Company in January 1994. In December 1994, he assumed the role of President in addition to his role as Chief Operating Officer. Effective January 1, 1997, Mr. Hill assumed the role of Co-Chief Executive Officer along with Mr. Gustin. In January 1998, Mr. Gustin retained his position as the Chairman of the Board and Mr. Hill assumed the full duties of Chief Executive Officer. From 1990 to 1994, he served as President of Kimberly Quality Care, a home health care and nurse personnel staffing company, where he also served as a director from 1988 to 1994, having joined that organization in 1980. George D. Shadid was employed by the Company in August 1992, and served as Senior Vice President and Chief Financial Officer until January 1994 when he was promoted to Executive Vice President and Chief Financial Officer. He also became Treasurer in March 1995. From 1985 to 1987, he served as Corporate Controller of Gilbert/Robinson, Inc., at which time he was promoted to Vice President, and in 1988 assumed the position of Vice President and Chief Financial Officer, which he held until joining the Company. From 1976 until 1985, Mr.Shadid was employed by Deloitte & Touche LLP. 14 Robert A. Martin was elected a director of the Company in August 1989. In April 1991, he became Vice President of Marketing, and in January 1994, he was promoted to Senior Vice President of Marketing. In January 1996, Mr. Martin was promoted to Executive Vice President of Marketing. From January 1990 to April 1991, he served as President of Kayemar Enterprises, a Kansas City-based marketing consulting firm. From 1983 to January 1990, he served as the President, Chief Operating Officer and a director of Juneau Holding Co., of which Mr. Gustin was Chairman. From July 1977 to June 1981, he served as President of United Vintners Winery and prior to that time was employed for 25 years by Schlitz Brewing Company, most recently in the position of Senior Vice President of Sales and Marketing. Louis A. Kaucic was employed by the Company in November 1997 as Senior Vice President of Human Resources. From July 1992 until November 1997, Mr. Kaucic was Vice President of Human Resources and later promoted to Senior Vice President of Human Resources with DAKA International 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. 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. From July 1993 until January 1995, Mr. Lumpkin was a Senior Vice President with a division of the Olsten Corporation, Olsten Kimberly Quality Care. From June 1990 until July 1993, Mr. Lumpkin was an Executive Vice President and a member of the board of directors of Kimberly Quality Care. From January 1978 until June 1990, Mr. Lumpkin was employed by Price Waterhouse LLP, where he served as a management consulting partner and certified public accountant. Ronald J. Marks has been an employee of the Company since March 1988 and served as Director of Product Development until March 1991, when he became Director of Menu Development. In February 1992, he was promoted to Executive Director of Research and Development, and in February 1993, Mr. Marks was promoted to Vice President of Research and Development. He was promoted to Senior Vice President of Research and Development in January 1997. Mr. Marks resigned as an officer and employee of the Company in March 1998. Stuart F. Waggoner has been an employee of the Company since December 1988 and served as the Executive Director of Franchise Operations until March 1991, when he became Vice President of Franchise Operations. In December 1994, Mr. Waggoner assumed the newly created position of Senior Vice President of Operations, with overall responsibility for franchise and Company owned Applebee's restaurant operations. In October 1997, Mr. Waggoner was appointed President and Chief Executive Officer of Rio Bravo International, Inc., a wholly-owned subsidiary of Applebee's International, Inc. From October 1987 to December 1988, Mr. Waggoner was a Vice President of Operations for Eateries', Inc., a restaurant company based in Oklahoma City, Oklahoma. From 1985 to July 1987, Mr. Waggoner was President of Pendleton's Bar & Grill in Dallas, Texas. From October 1974 to March 1985, Mr. Waggoner was Vice President of Restaurant Administration for TGI Friday's, Inc., in Dallas, Texas. 15 Item 2. Properties At December 28, 1997, the Company owned or operated 225 restaurants, of which it leased the land and building for 70 sites, owned the building and leased the land for 78 sites, and owned the land and building for 77 sites. In addition, as of December 28, 1997, the Company owned 13 sites for future development of restaurants and had entered into 24 lease agreements for restaurant sites the Company plans to open during 1998. The Company's leases generally have an initial term of 15 to 20 years, with renewal terms of 5 to 20 years, and provide for a fixed rental plus, in certain instances, percentage rentals based on gross sales. The Company owns an 80,000 square foot office building in which its corporate offices are headquartered in Overland Park, Kansas, located in the metropolitan Kansas City area. The Company also leases office space in certain of the regions in which it operates restaurants. Under its franchise agreements, the Company has certain rights to gain control of a restaurant site in the event of default under the lease or the franchise agreement. The following table sets forth the 48 states and the six international countries in which Applebee's and Rio Bravo Cantina restaurants are located and the number of restaurants operating in each state or country as of December 28, 1997: 16
Number of Restaurants ---------------------------------------------------------------------------------------- State or Country Franchise Company Total System - ----------------------- ----------------------------- ----------------------------- ----------------------------- Applebee's Rio Bravo Applebee's Rio Bravo Applebee's Rio Bravo -------------- -------------- -------------- -------------- -------------- -------------- Domestic: Alabama................ 15 1 -- -- 15 1 Arizona................ 17 -- -- -- 17 -- Arkansas............... 6 1 -- -- 6 1 California............. 48 -- 8 -- 56 -- Colorado............... 22 -- -- -- 22 -- Connecticut............ 1 -- -- -- 1 -- Delaware............... 3 -- -- -- 3 -- Florida................ 62 1 -- 10 62 11 Georgia................ 37 4 7 8 44 12 Idaho.................. 3 -- -- -- 3 -- Illinois............... 39 1 3 -- 42 1 Indiana................ 36 2 -- -- 36 2 Iowa................... 17 -- -- -- 17 -- Kansas................. 8 2 9 2 17 4 Kentucky............... 21 1 -- -- 21 1 Louisiana.............. 15 -- -- -- 15 -- Maine.................. -- -- 2 -- 2 -- Maryland............... 14 -- -- -- 14 -- Massachusetts.......... -- -- 16 -- 16 -- Michigan............... 6 -- 29 4 35 4 Minnesota.............. -- -- 28 2 28 2 Mississippi............ 10 -- -- -- 10 -- Missouri............... 7 1 22 1 29 2 Montana................ 5 -- -- -- 5 -- Nebraska............... 8 -- -- -- 8 -- Nevada................. -- -- 10 -- 10 -- New Hampshire.......... -- -- 9 -- 9 -- New Jersey............. 12 -- -- -- 12 -- New Mexico............. 4 -- 6 -- 10 -- New York............... 27 2 6 -- 33 2 North Carolina......... 34 2 -- -- 34 2 North Dakota........... 5 1 -- -- 5 1 Ohio................... 50 3 -- -- 50 3 Oklahoma............... 9 -- -- -- 9 -- Oregon................. 7 -- -- -- 7 -- Pennsylvania........... 17 -- 8 -- 25 -- Rhode Island........... -- -- 4 -- 4 -- South Carolina......... 35 1 -- -- 35 1 South Dakota........... 2 -- -- -- 2 -- Tennessee.............. 40 -- -- 4 40 4 Texas.................. 20 -- 21 -- 41 -- Utah................... 6 -- -- -- 6 -- Vermont................ -- -- 2 -- 2 -- Virginia............... 41 1 -- -- 41 1 Washington............. 11 -- -- -- 11 -- West Virginia.......... 9 -- -- -- 9 -- Wisconsin.............. 23 -- -- -- 23 -- Wyoming................ 2 -- -- -- 2 -- International: Canada................. 6 -- -- -- 6 -- Germany................ 3 -- -- -- 3 -- Greece................. 1 -- -- -- 1 The Netherlands........ 4 -- -- -- 4 -- Sweden................. 1 -- -- -- 1 Curacao................ 1 -- -- -- 1 -- -------------- -------------- ------------- -------------- --------------- -------------- 770 24 190 31 960 55 ============== ============== ============== ============== ============== ==============
17 Item 3. Legal Proceedings As of December 28, 1997, the Company was using assets owned by a former franchisee in the operation of one restaurant under a purchase rights agreement which required the Company to make certain payments to the franchisee's lender. In 1991, a dispute arose between the lender and the Company over the amount of the payments due the lender. Based upon a then current independent appraisal, the Company offered to settle the dispute and purchase the assets for $1,000,000 in 1991. In November 1992, the lender was declared insolvent by the FDIC and has since been liquidated. The Company closed one of the three restaurants in 1994 and one of the two remaining restaurants in February 1996. In the fourth quarter of 1996, the Company received information indicating that the franchisee's indebtedness to the FDIC had been acquired by a third party. In June 1997, the third party filed a lawsuit against the Company seeking approximately $3,800,000. The lawsuit remains in the discovery phase. The Company believes it has meritorious defenses and will vigorously defend this lawsuit. In the event that the Company were to pay an amount determined to be in excess of the fair market value of the assets, the Company will recognize a loss at the time of such payment. In addition, the Company is involved in various legal actions arising in the normal course of business. While the resolution of any of such actions or the matter described above may have an impact on the financial results for the period in which it is resolved, the Company believes that the ultimate disposition of these matters will not, in the aggregate, have a material adverse effect upon its business or consolidated financial position. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. 18 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 1. The Company's common stock trades on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol APPB. The table below sets forth for the fiscal quarters indicated the reported high and low sale prices of the Company's common stock, as reported on The Nasdaq Stock Market.
1997 1996 ------------------------------- ------------------------------- High Low High Low --------------- --------------- --------------- --------------- First Quarter $ 31.13 $ 23.88 $ 25.75 $ 17.75 Second Quarter $ 27.50 $ 20.13 $ 32.50 $ 25.00 Third Quarter $ 30.38 $ 24.00 $ 34.25 $ 25.00 Fourth Quarter $ 25.44 $ 18.00 $ 30.00 $ 23.12
2. Number of stockholders of record at December 28, 1997: 1,282 3. An annual dividend of $0.07 per common share was declared on November 25, 1996 for stockholders of record on December 6, 1996, and the dividend was payable on January 13, 1997. An annual dividend of $0.08 per common share was declared on December 10, 1997 for stockholders of record on December 22, 1997, and the dividend was payable on January 26, 1998. The Company presently anticipates continuing the payment of cash dividends based upon its annual net income. The actual amount of such dividends will depend upon future earnings, results of operations, capital requirements, the financial condition of the Company and certain other factors. There can be no assurance as to the amount of net income that the Company will generate in 1998 or future years and, accordingly, there can be no assurance as to the amount that will be available for the declaration of dividends, if any. 19 Item 6. Selected Financial Data The following table sets forth for the periods and the dates indicated selected financial data of the Company. All amounts reflect the mergers with Pub Ventures of New England, Inc. and Innovative Restaurant Concepts, Inc., which were accounted for as poolings of interests. The fiscal year ended December 31, 1995 contained 53 weeks, and all other periods presented contained 52 weeks. The following should be read in conjunction with the Consolidated Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Form 10-K.
Fiscal Year Ended -------------------------------------------------------------------------------- December 28, December 29, December 31, December 25, December 26, 1997 1996 1995 1994 1993 --------------- --------------- --------------- ---------------- --------------- (in thousands, except per share amounts) STATEMENT OF EARNINGS DATA: Company restaurant sales.............. $ 452,173 $ 358,990 $ 299,824 $ 222,445 $ 159,482 Franchise income...................... 63,647 54,141 43,739 31,419 21,324 --------------- --------------- --------------- ---------------- --------------- Total operating revenues......... $ 515,820 $ 413,131 $ 343,563 $ 253,864 $ 180,806 =============== =============== =============== ================ =============== Operating earnings.................... $ 71,283 $ 58,833 $ 45,712 $ 29,311 $ 19,677 Net earnings.......................... $ 45,091 $ 38,014 $ 27,420 $ 17,823 $ 12,551 Basic net earnings per common share.............................. $ 1.44 $ 1.22 $ 0.94 $ 0.64 $ 0.46 Diluted net earnings per common share.............................. $ 1.43 $ 1.21 $ 0.92 $ 0.63 $ 0.45 Dividends per share................... $ 0.08 $ 0.07 $ 0.06 $ 0.05 $ 0.04 Basic weighted average shares outstanding........................ 31,401 31,188 29,319 27,970 27,543 Diluted weighted average shares outstanding........................ 31,640 31,533 29,860 28,472 27,932 BALANCE SHEET DATA (AT END OF FISCAL YEAR): Total assets.......................... $ 377,474 $ 314,111 $ 270,680 $ 180,014 $ 138,680 Long-term obligations, including current portion..................... $ 29,105 $ 25,843 $ 27,427 $ 38,697 $ 19,845 Stockholders' equity.................. $ 290,443 $ 244,764 $ 203,993 $ 108,788 $ 92,680
20 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations General The Company's revenues are generated from two primary sources: Company restaurant sales (food and beverage sales) and franchise income consisting of franchise restaurant royalties (generally 4% of each franchise restaurant's monthly gross sales) and franchise fees (which typically range from $30,000 to $35,000 for each Applebee's restaurant opened and $40,000 for each Rio Bravo Cantina restaurant opened). Beverage sales include sales of alcoholic beverages, while non-alcoholic beverages are included in food sales. Certain expenses (food and beverage, labor, direct and occupancy costs, and pre-opening expenses) relate directly to Company restaurants, and other expenses (general and administrative and amortization expenses) relate to both Company restaurants and franchise operations. The Company operates on a 52 or 53 week fiscal year ending on the last Sunday in December. The Company's fiscal years ended December 28, 1997 and December 29, 1996 contained 52 weeks, and the fiscal year ended December 31, 1995 contained 53 weeks, and are referred to hereafter as 1997, 1996 and 1995, respectively. Acquisitions On March 23, 1995, a wholly-owned subsidiary of the Company merged with and into Innovative Restaurant Concepts, Inc. ("IRC"), referred to herein as the "IRC Merger." As a result of the IRC Merger, IRC became a wholly-owned subsidiary of the Company. The IRC Merger was accounted for as a pooling of interests and, accordingly, the accompanying consolidated financial statements include the accounts and operations of the merged entities for all periods presented. At the time of the IRC Merger, IRC operated 17 restaurants, including 13 Rio Bravo Cantina restaurants, and four other specialty restaurants, comprised of Ray's on the River, two Green Hills Grille restaurants, and the Rio Bravo Grill. The combined earnings of IRC included earnings of limited partnerships which were not taxable entities for federal and state income tax purposes. The accompanying consolidated statements of earnings reflect provisions for income taxes on a pro forma basis as if the Company had been liable for federal and state income taxes on the earnings of IRC's limited partnerships at statutory rates. On April 3, 1995, the Company acquired the operations and assets of five franchise restaurants in the Philadelphia metropolitan area, referred to herein as the "Philadelphia Acquisition." The Philadelphia Acquisition was accounted for as a purchase and, accordingly, the results of operations of such restaurants have been reflected in the consolidated financial statements subsequent to the date of acquisition. On April 14, 1997, the Company acquired the operations and assets of 11 franchise restaurants in the St. Louis metropolitan area, referred to herein as the "St. Louis Acquisition." The St. Louis Acquisition was accounted for as a purchase and, accordingly, the results of operations of such restaurants have been reflected in the consolidated financial statements subsequent to the date of acquisition. 21 On December 23, 1997, the Company entered into an agreement with Apple South, Inc. ("Apple South"), its largest franchisee, to acquire 31 Applebee's restaurants plus one restaurant under construction in the Virginia markets of Norfolk, Richmond, Roanoke and Charlottesville for approximately $93,400,000, subject to certain closing adjustments, referred to herein as the "Virginia Acquisition." The Virginia Acquisition is anticipated to close in late March 1998, subject to obtaining financing, operating licenses and third-party consents, and will be accounted for as a purchase. Results of Operations The following table sets forth, for the periods indicated, information derived from the Company's consolidated statements of earnings expressed as a percentage of total operating revenues, except where otherwise noted. Percentages may not add due to rounding.
Fiscal Year Ended ------------------------------------------------ December 28, December 29, December 31, 1997 1996 1995 --------------- --------------- --------------- Revenues: Company restaurant sales......................... 87.7% 86.9% 87.3% Franchise income................................. 12.3 13.1 12.7 --------------- --------------- --------------- Total operating revenues...................... 100.0% 100.0% 100.0% =============== =============== =============== Cost of sales (as a percentage of Company restaurant sales): Food and beverage................................ 27.5% 28.0% 28.3% Labor............................................ 32.1 31.5 31.7 Direct and occupancy............................. 25.3 24.4 24.1 Pre-opening expense.............................. 0.8 1.0 0.8 --------------- --------------- --------------- Total cost of sales........................... 85.7% 84.9% 84.8% =============== =============== =============== General and administrative expenses................... 10.2% 10.6% 11.3% Merger costs.......................................... -- -- 0.5 Amortization of intangible assets..................... 0.6 0.6 0.7 Loss on disposition of restaurants and equipment...... 0.2 0.8 0.2 --------------- --------------- --------------- Operating earnings.................................... 13.8 14.2 13.3 --------------- --------------- --------------- Other income (expense): Investment income................................ 0.4 0.7 0.5 Interest expense................................. (0.3) (0.4) (0.7) Other income..................................... 0.1 0.1 0.1 --------------- --------------- --------------- Total other income (expense).................. 0.1 0.5 (0.1) --------------- --------------- --------------- Earnings before income taxes.......................... 13.9 14.7 13.2 Income taxes (including pro forma provision for income taxes).................................... 5.2 5.5 5.2 --------------- --------------- --------------- Net earnings.......................................... 8.7% 9.2% 8.0% =============== =============== ===============
22 Fiscal Year Ended December 28, 1997 Compared With Fiscal Year Ended December 29, 1996 Company Restaurant Sales. Overall Company restaurant sales increased $93,183,000 (26%) from $358,990,000 in 1996 to $452,173,000 in 1997. Sales for Company Applebee's restaurants increased $69,350,000 (24%) from $285,093,000 in 1996 to $354,443,000 in 1997, due primarily to Company restaurant openings and sales from the 11 St. Louis restaurants acquired in April 1997. Sales for Company Rio Bravo Cantina restaurants were $59,523,000 and $83,295,000 in 1996 and 1997, respectively, and sales for the specialty restaurants were $14,374,000 and $14,435,000 in 1996 and 1997, respectively. The increase in sales for the Rio Bravo Cantina restaurants resulted primarily from Company restaurant openings. Comparable restaurant sales at Company Applebee's restaurants increased by 0.1% in 1997. Weighted average weekly sales at Company Applebee's restaurants increased 2.0% from $40,366 in 1996 to $41,176 in 1997. Comparable restaurant sales and weighted average weekly sales at Company Applebee's restaurants in 1997 were positively affected by menu price increases. In addition, weighted average weekly sales in 1997 increased as a result of the sale of six lower than average volume restaurants in southern California in October 1996 and the purchase of 11 higher than average volume restaurants in St. Louis in April 1997. Excluding these restaurants, weighted average weekly sales decreased 0.2% in 1997. Price increases were implemented during the fourth quarter of 1996 and the fourth quarter of 1997 for certain menu items. The Company does not expect significant comparable restaurant sales increases and may experience comparable restaurant sales decreases for the 1998 fiscal year for Company Applebee's restaurants, as many of its restaurants operate near sales capacity and various markets continue to experience competitive pressures. Although the Company's experience in developing markets indicates that the opening of multiple restaurants within a particular market results in increased market share, decreases in comparable restaurant sales may result. Comparable restaurant sales for Company Rio Bravo Cantina restaurants decreased by 1.6% in 1997 due primarily to increased competition in the Atlanta market. Weighted average weekly sales (excluding one restaurant that is open for dinner only) decreased from $66,743 in 1996 to $60,946 in 1997. Weighted average weekly sales in 1997 were impacted by new restaurant openings in new markets, as well as the addition of a new smaller prototype restaurant. When entering new markets where the Company has not yet established a market presence, sales levels are expected to be lower than in the Georgia and Florida markets where the Company has a concentration of Rio Bravo Cantina restaurants and high customer awareness. Franchise Income. Overall franchise income increased $9,506,000 (18%) from $54,141,000 in 1996 to $63,647,000 in 1997. This increase was due primarily to the increased number of franchise Applebee's and Rio Bravo Cantina restaurants operating during 1997 as compared to 1996. In addition, comparable restaurant sales for franchise Applebee's restaurants increased 0.6% in 1997. Such increases were partially offset by a decrease in weighted average weekly sales for franchise Applebee's restaurants of 0.9% in 1997. 23 Cost of Company Restaurant Sales. Food and beverage costs decreased from 28.0% in 1996 to 27.5% in 1997 due primarily to operational improvements, purchasing efficiencies resulting from the Company's rapid growth, and menu price increases. Such decreases were partially offset by an increase in food costs during the implementation of the Company's food and menu initiative. Beverage sales, as a percentage of Company restaurant sales, declined from 18.3% in 1996 to 17.8% in 1997 which had a negative impact on overall food and beverage costs, as a percentage of Company restaurant sales. Management believes that the reduction in beverage sales is due in part to the continuation of the overall trend toward increased awareness of responsible alcohol consumption. Labor costs increased from 31.5% in 1996 to 32.1% in 1997. Such increases were due primarily to the adverse impact on restaurant labor costs during, and for a number of months following, the implementation of the Company's food and menu enhancement initiative in its Applebee's restaurants. The Company expects labor costs, as a percentage of sales, to continue to be impacted during the first half of the 1998 fiscal year as a result of this implementation. Increases in the minimum wage as well as the highly competitive nature of the restaurant industry continue to exert pressure on both hourly labor and management costs. An increase in the Federal minimum wage went into effect on October 1, 1996, and a second increase became effective on September 1, 1997. In addition, the 1997 fiscal year was negatively impacted by an increase in group medical insurance costs. Direct and occupancy costs increased from 24.4% in 1996 to 25.3% in 1997. Such increases were due, in part, to the new plateware costs relating to the Company's food and menu enhancement initiative in its Applebee's restaurants. In addition, such increases were partially due to an increase in repairs and maintenance expense relating to maintenance contracts on restaurant point-of-sale systems as well as the aging of the Company's restaurants, higher depreciation expense associated with new restaurants, and increases in utility costs and property taxes. General and Administrative Expenses. General and administrative expenses decreased from 10.6% in 1996 to 10.2% in 1997 due primarily to the absorption of general and administrative expenses over a larger revenue base as well as the additional leverage resulting from the St. Louis Acquisition. A portion of the decrease in 1997 was due to a decrease in executive bonuses. General and administrative expenses increased by $8,692,000 during 1997 compared to 1996 due primarily to the costs of additional personnel associated with the Company's development efforts and system-wide expansion, including costs related to the franchising and expansion of the Rio Bravo Cantina concept. Loss on Disposition of Restaurants and Equipment. Loss on disposition of restaurants and equipment decreased from $3,318,000 in 1996 to $1,209,000 in 1997. In October 1996, the Company completed the sale of six of its eight Company owned Applebee's restaurants located in the San Bernardino and Riverside counties of southern California. The operations of the six restaurants and future restaurant development in the market area were assumed by an existing Applebee's franchisee. The sales price was $8,500,000 and a loss on the disposition of the properties of $75,000 was recorded in the third quarter of 1996. During the fourth quarter of 1996, the Company recognized a loss of $2,500,000 primarily relating to the intended disposition of the two remaining restaurants in the territory. Investment Income. Investment income decreased in 1997 compared to 1996 primarily as a result of decreases in cash and cash equivalents and short-term investments due to capital expenditures and acquisitions. Interest Expense. Interest expense increased in 1997 compared to 1996 primarily as a result of interest on capitalized leases associated with the St. Louis Acquisition. Income Taxes. The effective income tax rate, as a percentage of earnings before income taxes, was 37.2% in 1997 compared to 37.4% in 1996. The decrease in the Company's overall effective tax rate in 1997 was due primarily to a reduction in state income taxes and an increase in credits resulting from FICA taxes on tips. 24 Fiscal Year Ended December 29, 1996 Compared With Fiscal Year Ended December 31, 1995 Company Restaurant Sales. Overall Company restaurant sales increased $59,166,000 (20%) from $299,824,000 in 1995 to $358,990,000 in 1996. Sales for Company Applebee's restaurants increased $47,743,000 (20%) from $237,350,000 in 1995 to $285,093,000 in 1996, due primarily to Company restaurant openings and sales from the five Philadelphia restaurants acquired in April 1995, as well as an increase in comparable restaurant sales. Sales for Company Rio Bravo Cantina restaurants were $48,135,000 and $59,523,000 in 1995 and 1996, respectively, and sales for the specialty restaurants were $14,339,000 and $14,374,000 in 1995 and 1996, respectively. The increase in sales for the Rio Bravo Cantina restaurants resulted primarily from Company restaurant openings and an increase in comparable restaurant sales. Comparable restaurant sales at Company owned or operated Applebee's restaurants increased by 1.1% in 1996. Weighted average weekly sales at Company owned or operated Applebee's restaurants increased 1.0% from $39,977 in 1995 to $40,366 in 1996. The Company believes these increases were due, in part, to successful food-specific promotions backed by an increase in advertising spending, as a percentage of sales, in 1996. A menu price increase was implemented during the fourth quarter of 1996 for certain menu items. Although the Company's experience in developing markets indicates that the opening of multiple restaurants within a particular market results in increased market share, decreases in comparable restaurant sales may result. Comparable restaurant sales for Company owned Rio Bravo Cantina restaurants increased by 3.9% in 1996. Weighted average weekly sales (excluding one restaurant that is open for dinner only) increased slightly from $66,158 in 1995 to $66,743 in 1996 and were impacted by the expected lower sales volumes at new restaurants. Franchise Income. Overall franchise income increased $10,402,000 (24%) from $43,739,000 in 1995 to $54,141,000 in 1996. This increase was due primarily to the increased number of franchise Applebee's restaurants operating during 1996 as compared to 1995. The remaining increase in franchise income resulted primarily from franchise fees earned relating to the opening of the first nine franchise Rio Bravo Cantina restaurants during 1996. These increases were partially offset by decreases in weighted average weekly sales and comparable sales for franchise Applebee's restaurants which decreased 2.6% and 1.2%, respectively, in 1996. Cost of Company Restaurant Sales. Food and beverage costs decreased from 28.3% in 1995 to 28.0% in 1996, due primarily to operational improvements, purchasing efficiencies resulting from the Company's rapid growth and early payment discounts, and the menu price increase implemented in the fourth quarter of 1996. In addition, the Company experienced an increase in food costs in the second quarter of 1995 as a result of winter flooding in California which caused shortages of certain produce items and a significant increase in related costs. Beverage sales, as a percentage of Company restaurant sales, declined from 18.9% in 1995 to 18.3% in 1996, which had a negative impact on overall food and beverage costs. Management believes that the reduction in beverage sales is due in part to the continuation of the overall trend toward increased awareness of responsible alcohol consumption. 25 Labor costs decreased from 31.7% in 1995 to 31.5% in 1996. Labor costs, as a percentage of sales, were positively affected by an overall reduction in workers' compensation costs due to favorable historical claims experience and improved hourly labor efficiency. Such decreases were partially offset by higher management costs in 1996. Overall labor costs continue to be adversely affected by the lower sales volumes in the southern California market. Direct and occupancy costs increased from 24.1% in 1995 to 24.4% in 1996 due primarily to higher advertising expense and depreciation expense which were partially offset by lower rent expense. The southern California market continues to have a negative impact on overall direct and occupancy costs due to the absorption of such expenses, which are primarily fixed in nature, over a lower sales base in those markets. Pre-opening expense increased from $2,234,000 in 1995 to $3,557,000 in 1996 due primarily to the opening of two additional Applebee's restaurants and one additional Rio Bravo Cantina restaurant in 1996 and costs incurred relating to the reopening of two Applebee's restaurants after being rebuilt. The Company also incurred higher pre-opening costs for each of the five Rio Bravo Cantina restaurants that were opened in 1996 as compared to those opened in 1995. General and Administrative Expenses. General and administrative expenses decreased in 1996 to 10.6% from 11.3% in 1995, due primarily to the absorption of general and administrative expenses over a larger revenue base. General and administrative expenses increased by $5,134,000 during 1996 compared to 1995 due primarily to the costs of additional personnel associated with the Company's development efforts and system-wide expansion, including costs related to the franchising and expansion of the Rio Bravo Cantina concept. Merger Costs. The Company incurred merger costs of $1,770,000 in 1995 relating to the IRC Merger. The impact of these costs on net earnings per common share was approximately $0.06 in 1995. Loss on Disposition of Restaurants and Equipment. In October 1996, the Company completed the sale of six of its eight Company owned Applebee's restaurants located in the San Bernardino and Riverside counties of southern California. The operations of the six restaurants and future restaurant development in the market area were assumed by an existing Applebee's franchisee. The sales price was $8,500,000 and a loss on the disposition of the properties of $75,000 was recorded in the third quarter of 1996. During the fourth quarter of 1996, the Company recognized a loss of $2,500,000 primarily relating to the intended disposition of the two remaining restaurants in the territory. During 1995, the Company recognized a loss of $615,000 relating to the planned disposition of two restaurants in 1996, including $275,000 relating to one restaurant managed under a purchase rights agreement. The Company continues to operate one restaurant under this agreement. Investment Income. Investment income increased in 1996 compared to 1995 primarily as a result of increases in cash and cash equivalents and short-term investments resulting from the proceeds of the Company's stock offering in July 1995. Interest Expense. Interest expense decreased in 1996 compared to 1995 primarily as a result of a decrease in interest related to the revolving credit facility incurred in 1995 and a decrease in long-term debt resulting from the payoff in August 1995 of the debt assumed in connection with the IRC Merger. Income Taxes. The effective income tax rate, as a percentage of earnings before income taxes, was 37.4% in 1996 compared to 39.5% in 1995. Excluding non-deductible merger costs, the effective income tax rate would have been 38.0% in 1995. The remaining decrease in the Company's overall effective tax rate in 1996 was due primarily to a reduction in state income taxes. 26 Liquidity and Capital Resources The Company's need for capital resources historically has resulted from, and for the foreseeable future is expected to relate primarily to, the construction and acquisition of restaurants. Such capital has been provided by public stock offerings, debt financing, and ongoing Company operations, including cash generated from Company and franchise operations, credit from trade suppliers, real estate lease financing, and landlord contributions to leasehold improvements. The Company has also used its common stock as consideration in the acquisition of restaurants. In addition, the Company assumed debt or issued new debt in connection with certain mergers and acquisitions. Capital expenditures were $65,672,000 in 1996 and $128,155,000 in 1997 (which includes $36,150,000 related to the St. Louis Acquisition and $1,525,000 related to the purchase of the remaining 50% interest in a joint venture arrangement with the Company's franchisee in Nevada). The Company currently expects to open 32 Applebee's restaurants and 11 Rio Bravo Cantina restaurants in 1998. Capital expenditures in fiscal 1998 are expected to be between $85,000,000 and $90,000,000 (excluding $93,400,000 relating to the Virginia Acquisition), primarily for the development of new restaurants, refurbishments of and capital replacements for existing restaurants, and enhancements to information systems for the Company's restaurants and corporate office. The amount of actual capital expenditures will be dependent upon, among other things, the proportion of leased versus owned properties as the Company expects to continue to purchase a portion of its sites. In addition, if the Company opens more restaurants than it currently anticipates or acquires additional restaurants, its capital requirements will increase accordingly. The Company has certain debt agreements containing various covenants and restrictions which, among other things, require the maintenance of a stipulated fixed charge coverage ratio and minimum consolidated net worth, as defined, and also limit additional indebtedness in excess of specified amounts. The debt agreements also restrict the amount of retained earnings available for the payment of cash dividends. At December 28, 1997, retained earnings were not restricted for the payment of cash dividends. The Company is currently in compliance with the covenants of all of its debt agreements. As of December 28, 1997, the Company held liquid assets totaling $19,814,000, consisting of cash and cash equivalents ($8,908,000) and short-term investments ($10,906,000). No amounts were outstanding under the revolving credit facility; however, standby letters of credit issued under the facility totaling $1,887,000 were outstanding as of December 28, 1997. On January 22, 1998, the Company entered into a loan commitment with Merrill Lynch Capital Corporation to provide $225,000,000 in senior secured credit facilities, consisting of an eight-year senior secured term loan of $125,000,000 and a five-year secured revolving credit facility of $100,000,000. 27 The Company anticipates that it will use the proceeds of the facilities approximately as follows: (i) $105,000,000 to fund the Virginia Acquisition (including related transaction fees and expenses); (ii) $20,000,000 to refinance certain existing indebtedness currently bearing interest at 7.70%; and (iii) $100,000,000 for ongoing working capital needs and general corporate purposes (including stock repurchases as described below). Up to $50,000,000 of the facilities will be available to fund repurchases of the Company's common stock. Since December 28, 1997 and through March 9, 1998, the Company has repurchased 1,270,000 shares of its common stock at an aggregate value of $25,000,000, pursuant to plans approved by the Company's Board of Directors. The Company contemplates further purchases of up to $25,000,000 subject to the completion of the financing discussed above. The senior term loan is expected to bear interest at LIBOR plus 2.25% and require semi-annual principal payments aggregating $1,250,000 per year for each of the first seven years, with the remaining $116,250,000 due during the eighth year. The revolving credit facility is expected to bear interest at LIBOR plus 1.375%. Both the senior term loan and the revolving credit facility will be subject to standard other terms, conditions, covenants, and fees and will be secured by the stock of each of the Company's present and future subsidiaries and all intercompany debt of the Company and such subsidiaries. The loan commitment is anticipated to close concurrently with the Virginia Acquisition. The Company believes that its liquid assets and cash generated from operations, combined with borrowings available under its new $225,000,000 senior secured credit facilities, will provide sufficient funds for its capital requirements for the foreseeable future. Inflation Substantial increases in costs and expenses, particularly food, supplies, labor and operating expenses, could have a significant impact on the Company's operating results to the extent that such increases cannot be passed along to customers. The Company does not believe that inflation has materially affected its operating results during the past three years. A majority of the Company's employees are paid hourly rates related to federal and state minimum wage laws and various laws that allow for credits to that wage. An increase in the Federal minimum wage went into effect on October 1, 1996, and a second increase became effective on September 1, 1997. In addition, increases in the minimum wage are also being discussed by various state governments. Although the Company has been able to and will continue to attempt to pass along increases in costs through food and beverage price increases, there can be no assurance that all such increases can be reflected in its prices or that increased prices will be absorbed by customers without diminishing, to some degree, customer spending at its restaurants. 28 New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. This statement is effective for fiscal years beginning after December 15, 1997. The Company does not believe the reporting and display of comprehensive income will materially impact the financial statements. In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. This statement is effective for financial statements for periods beginning after December 15, 1997. In the initial year of application, comparative information for earlier years is to be presented. This statement need not be applied to interim financial statements in the initial year of its application, but comparative information for interim periods in the initial year of application is to be reported in financial statements for interim periods in the second year of application. Forward-Looking Statements The statements contained herein regarding future sales, operating costs, restaurant development and capital expenditures are forward-looking and based on current expectations. There are several risks and uncertainties that could cause actual results to differ materially from those described. For a discussion of the principal factors that could cause actual results to be materially different, refer to the Company's current report on Form 8-K filed with the Securities and Exchange Commission on February 9, 1998. Impact of the Year 2000 The Year 2000 will have a broad impact on the business environment in which the Company operates due to the possibility that many computer systems across all industries will be unable to process information containing dates beginning in the Year 2000. The Company has conducted a preliminary assessment of the impact of the Year 2000 on its accounting, finance, and other systems, as well as the impact on its external business partners, in order to identify and address potential business issues relating to the Year 2000. Based on this preliminary assessment, the Company believes that its significant systems are Year 2000 compliant, and the costs associated with such compliance have not had, and will not have, a material impact on the Company's results of operations. Item 8. Financial Statements and Supplementary Data See the Index to Consolidated Financial Statements on Page F-1. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. 29 PART III Item 10. Directors and Executive Officers of the Registrant For information with respect to the executive officers of the Company, see "Executive Officers of the Registrant" in Part I of this report. For information with respect to the Directors of the Company, see the Proxy Statement for the Annual Meeting of Stockholders to be held on or about May 6, 1998, which is incorporated herein by reference. Item 11. Executive Compensation The information set forth under the caption "Executive Compensation" in the Proxy Statement for the Annual Meeting of Stockholders to be held on or about May 6, 1998, is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The information set forth under the caption "Security Ownership of Officers, Directors and Certain Beneficial Owners" in the Proxy Statement for the Annual Meeting of Stockholders to be held on or about May 6, 1998, is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The information set forth under the caption "Certain Transactions" in the Proxy Statement for the Annual Meeting of Stockholders to be held on or about May 6, 1998, is incorporated herein by reference. 30 PART IV Item 14. Exhibits and Reports on Form 8-K (a) List of documents filed as part of this report: 1. Financial Statements: The financial statements are listed in the accompanying "Index to Financial Statements" on Page F-1. 2. Exhibits: The exhibits filed with or incorporated by reference in this report are listed on the Exhibit Index beginning on page E-1. (b) Reports on Form 8-K: The Company filed a report on Form 8-K on October 7, 1997 in accordance with the Private Securities Litigation Reform Act of 1995 listing factors that could cause actual results to differ materially from those projected in forward-looking statements made by the Company. The Company filed a report on Form 8-K on December 11, 1997, announcing the declaration of a dividend on its common stock to stockholders of record as of December 22, 1997, payable on January 26, 1998. 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. APPLEBEE'S INTERNATIONAL, INC. Date: March 17, 1998 By: /s/ Lloyd L. Hill ----------------- ----------------------------------- Lloyd L. Hill Chief Executive Officer POWER OF ATTORNEY KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Lloyd L. Hill and Robert T. Steinkamp, and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any amendments to this Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Lloyd L. Hill Date: March 17, 1998 ---------------------------- ----------------- Lloyd L. Hill Director and Chief Executive Officer (principal executive officer) By: /s/ George D. Shadid Date: March 17, 1998 ---------------------------- ----------------- George D. Shadid Executive Vice President and Chief Financial Officer (principal financial officer) By: /s/ Mark A. Peterson Date: March 13, 1998 ---------------------------- ----------------- Mark A. Peterson Vice President and Controller (principal accounting officer) By: /s/ Abe J. Gustin, Jr. Date: March 17, 1998 ---------------------------- ----------------- Abe J. Gustin, Jr. Director, Chairman of the Board 32 By: /s/ D. Patrick Curran Date: March 11, 1998 ---------------------------- ----------------- D. Patrick Curran Director By: /s/ Eric L. Hansen Date: March 15, 1998 ---------------------------- ----------------- Eric L. Hansen Director By: /s/ Jack P. Helms Date: March 17, 1998 ---------------------------- ----------------- Jack P. Helms Director By: /s/ Kenneth D. Hill Date: March 11, 1998 ---------------------------- ----------------- Kenneth D. Hill Director By: /s/ Robert A. Martin Date: March 13, 1998 ---------------------------- ----------------- Robert A. Martin Director By: /s/ Burton M. Sack Date: March 11, 1998 ---------------------------- ----------------- Burton M. Sack Director 33 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page Independent Auditors' Report............................................................................. F-2 Consolidated Balance Sheets as of December 28, 1997 and December 29, 1996 .................................................................................. F-3 Consolidated Statements of Earnings for the Fiscal Years Ended December 28, 1997, December 29, 1996 and December 31, 1995.......................................... F-4 Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended December 28, 1997, December 29, 1996 and December 31, 1995..................................... F-5 Consolidated Statements of Cash Flows for the Fiscal Years Ended December 28, 1997, December 29, 1996 and December 31, 1995........................................... F-6 Notes to Consolidated Financial Statements............................................................... F-8
F-1 INDEPENDENT AUDITORS' REPORT Applebee's International, Inc.: We have audited the accompanying consolidated balance sheets of Applebee's International, Inc. and subsidiaries (the "Company") as of December 28, 1997 and December 29, 1996, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three fiscal years in the period ended December 28, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Applebee's International, Inc. and subsidiaries at December 28, 1997 and December 29, 1996, and the consolidated results of their operations and cash flows for each of the three fiscal years in the period ended December 28, 1997 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Kansas City, Missouri February 13, 1998 (March 9, 1998 as to the third paragraph of Note 16) F-2 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share amounts)
December 28, December 29, 1997 1996 ------------- -------------- ASSETS Current assets: Cash and cash equivalents................................................... $ 8,908 $ 17,346 Short-term investments, at market value..................................... 10,906 40,064 Receivables, net of allowance............................................... 16,390 19,245 Inventories................................................................. 4,788 4,557 Prepaid and other current assets............................................ 2,962 2,780 ------------- -------------- Total current assets..................................................... 43,954 83,992 Property and equipment, net...................................................... 276,082 196,950 Goodwill, net.................................................................... 48,065 22,607 Franchise interest and rights, net............................................... 4,667 5,236 Deferred income taxes............................................................ -- 1,366 Other assets..................................................................... 4,706 3,960 ------------- -------------- $ 377,474 $ 314,111 ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt........................................... $ 6,306 $ 968 Current portion of obligations under noncompetition and consulting agreement 220 220 Accounts payable............................................................ 19,731 11,949 Accrued expenses and other current liabilities.............................. 28,547 25,597 Accrued dividends........................................................... 2,518 2,191 Accrued income taxes........................................................ 5,166 918 ------------- -------------- Total current liabilities................................................ 62,488 41,843 ------------- -------------- Non-current liabilities: Long-term debt - less current portion....................................... 22,579 24,435 Franchise deposits.......................................................... 1,532 1,793 Obligations under noncompetition and consulting agreement - less current portion.................................................................. -- 220 Deferred income taxes....................................................... 432 -- ------------- -------------- Total non-current liabilities............................................ 24,543 26,448 ------------- -------------- Total liabilities........................................................ 87,031 68,291 Minority interest in joint venture............................................... -- 1,056 Commitments and contingencies (Notes 7, 8 and 12) Stockholders' equity: Preferred stock - par value $0.01 per share: authorized - 1,000,000 shares; no shares issued......................................................... -- -- Common stock - par value $0.01 per share: authorized - 125,000,000 shares; issued - 31,744,009 shares in 1997 and 31,580,955 shares in 1996......... 317 316 Additional paid-in capital.................................................. 156,165 153,028 Retained earnings........................................................... 134,654 92,081 Unrealized gain on short-term investments, net of income taxes.............. 95 188 ------------- -------------- 291,231 245,613 Treasury stock - 261,629 shares in 1997 and 281,772 shares in 1996, at cost. (788) (849) ------------- -------------- Total stockholders' equity............................................... 290,443 244,764 ------------- -------------- $ 377,474 $ 314,111 ============= ==============
See notes to consolidated financial statements. F-3 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share amounts)
Fiscal Year Ended -------------------------------------------------- December 28, December 29, December 31, 1997 1996 1995 ------------- ------------- ------------- Revenues: Company restaurant sales................................ $ 452,173 $ 358,990 $ 299,824 Franchise income........................................ 63,647 54,141 43,739 ------------- ------------- ------------- Total operating revenues............................. 515,820 413,131 343,563 ------------- ------------- ------------- Cost of Company restaurant sales: Food and beverage....................................... 124,469 100,534 84,776 Labor................................................... 145,165 112,969 94,935 Direct and occupancy.................................... 114,196 87,740 72,228 Pre-opening expense..................................... 3,661 3,557 2,234 ------------- ------------- ------------- Total cost of Company restaurant sales............... 387,491 304,800 254,173 ------------- ------------- ------------- General and administrative expenses.......................... 52,579 43,887 38,753 Merger costs................................................. -- -- 1,770 Amortization of intangible assets............................ 3,258 2,293 2,305 Loss on disposition of restaurants and equipment............. 1,209 3,318 850 ------------- ------------- ------------- Operating earnings........................................... 71,283 58,833 45,712 ------------- ------------- ------------- Other income (expense): Investment income....................................... 1,834 2,863 1,764 Interest expense........................................ (1,705) (1,571) (2,507) Other income............................................ 389 600 357 ------------- ------------- ------------- Total other income (expense)......................... 518 1,892 (386) ------------- ------------- ------------- Earnings before income taxes................................. 71,801 60,725 45,326 Income taxes................................................. 26,710 22,711 17,906 ------------- ------------- ------------- Net earnings................................................. $ 45,091 $ 38,014 $ 27,420 ============= ============= ============== Basic net earnings per common share.......................... $ 1.44 $ 1.22 $ 0.94 ============= ============= ============= Diluted net earnings per common share........................ $ 1.43 $ 1.21 $ 0.92 ============= ============= ============= Basic weighted average shares outstanding.................... 31,401 31,188 29,319 ============= ============= ============= Diluted weighted average shares outstanding.................. 31,640 31,533 29,860 ============= ============= =============
See notes to consolidated financial statements. F-4 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (dollars in thousands, except per share amounts)
Unrealized Gain (Loss) Common Stock Additional on Total ------------------------- Paid-In Retained Short-Term Treasury Stockholders' Shares Amount Capital Earnings Investments Stock Equity -------------- ---------- ------------ ----------- ---------- ----------- ------------- Balance, December 25, 1994......... 28,295,479 $ 283 $ 78,675 $ 30,775 $ (96) $ (849) $ 108,788 Issuance of common stock from public offering............... 2,415,000 24 60,410 -- -- -- 60,434 Dividends on common stock, $0.06 per share............... -- -- -- (1,861) -- -- (1,861) Stock options exercised: Company....................... 588,038 6 4,649 -- -- -- 4,655 IRC........................... -- -- 1,333 -- -- -- 1,333 Income tax benefit upon exercise of stock options.............. -- -- 2,615 -- -- -- 2,615 Change in unrealized gain on short-term investments, net of income taxes.................. -- -- -- -- 286 -- 286 Adjustment related to tax basis of pooled entities............ -- -- 250 -- -- -- 250 Pro forma provision for income taxes of pooled company....... -- -- -- 73 -- -- 73 Reclassification of net income of IRC partnerships........... -- -- 149 (149) -- -- -- Net earnings.................... -- -- -- 27,420 -- -- 27,420 -------------- ---------- ------------ ----------- ---------- ----------- ------------- Balance, December 31, 1995......... 31,298,517 313 148,081 56,258 190 (849) 203,993 Dividends on common stock, $0.07 per share............... -- -- -- (2,191) -- -- (2,191) Stock options exercised......... 282,438 3 3,798 -- -- -- 3,801 Income tax benefit upon exercise of stock options.............. -- -- 1,149 -- -- -- 1,149 Change in unrealized gain on short-term investments, net of income taxes.................. -- -- -- -- (2) -- (2) Net earnings.................... -- -- -- 38,014 -- -- 38,014 -------------- ---------- ------------ ----------- ---------- ------------------------- Balance, December 29, 1996......... 31,580,955 316 153,028 92,081 188 (849) 244,764 Dividends on common stock, $0.08 per share............... -- -- -- (2,518) -- -- (2,518) Stock options exercised......... 163,054 1 2,193 -- -- -- 2,194 Shares sold under employee stock purchase plan........... -- -- 396 -- -- 61 457 Income tax benefit upon exercise of stock options.............. -- -- 548 -- -- -- 548 Change in unrealized gain on short-term investments, net of income taxes.................. -- -- -- -- (93) -- (93) Net earnings.................... -- -- -- 45,091 -- -- 45,091 -------------- ---------- ------------ ----------- ---------- ----------- ------------- Balance, December 28, 1997......... 31,744,009 $ 317 $ 156,165 $134,654 $ 95 $ (788) $ 290,443 ============== ========== ============ =========== ========== =========== =============
See notes to consolidated financial statements. F-5 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
Fiscal Year Ended ---------------------------------------------- December 28, December 29, December 31, 1997 1996 1995 --------------- --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings.................................................. $ 45,091 $ 38,014 $ 27,420 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization.............................. 20,877 15,652 11,964 Amortization of intangible assets.......................... 3,258 2,293 2,305 Loss (gain) on sale of investments......................... 20 27 (67) Deferred income tax provision (benefit).................... 1,001 128 (179) Loss on disposition of restaurants and equipment........... 1,209 3,318 850 Pro forma provision for income taxes of pooled company..... -- -- 73 Changes in assets and liabilities (exclusive of effects of acquisitions other than pooled company): Receivables................................................ 2,451 (2,702) (2,447) Inventories................................................ (66) 5,479 (4,877) Prepaid and other current assets........................... 671 (898) 155 Accounts payable........................................... 7,782 766 433 Accrued expenses and other current liabilities............. 2,400 2,806 5,307 Accrued income taxes....................................... 4,248 (723) (328) Franchise deposits......................................... (261) 625 (187) Other...................................................... (1,302) (139) 356 --------------- --------------- --------------- NET CASH PROVIDED BY OPERATING ACTIVITIES.................. 87,379 64,646 40,778 --------------- --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short-term investments........................... (19,150) (49,487) (16,809) Maturities and sales of short-term investments................ 48,117 31,149 4,392 Purchases of property and equipment........................... (90,480) (65,672) (51,899) Acquisitions of restaurants................................... (33,650) -- (9,682) Acquisition of minority interest in joint venture............. (1,525) -- -- Proceeds from sale of restaurants and equipment............... 988 4,314 104 --------------- --------------- --------------- NET CASH USED BY INVESTING ACTIVITIES...................... (95,700) (79,696) (73,894) --------------- --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock........................ -- -- 60,434 Dividends paid................................................ (2,191) (1,861) (1,269) Issuance of common stock upon exercise of stock options....... 2,194 3,801 5,988 Income tax benefit upon exercise of stock options............. 548 1,149 2,615 Shares sold under employee stock purchase plan................ 457 -- -- Proceeds from issuance of long-term debt...................... -- -- 8,087 Payments on long-term debt.................................... (974) (945) (22,179) Payments under noncompetition and consulting agreement........ (220) (220) (220) Minority interest in net earnings of joint venture............ 69 284 214 --------------- --------------- --------------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES........... (117) 2,208 53,670 --------------- --------------- --------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............... (8,438) (12,842) 20,554 CASH AND CASH EQUIVALENTS, beginning of period..................... 17,346 30,188 9,634 --------------- --------------- --------------- CASH AND CASH EQUIVALENTS, end of period........................... $ 8,908 $ 17,346 $ 30,188 =============== =============== ===============
See notes to consolidated financial statements. F-6 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued) (dollars in thousands)
Fiscal Year Ended ----------------------------------------------------- December 28, December 29, December 31, 1997 1996 1995 ----------------- ----------------- ----------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Income taxes.................................... $ 20,613 $ 22,437 $ 15,537 ================= ================= ================= Interest........................................ $ 2,573 $ 1,061 $ 3,060 ================= ================= =================
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: Capitalized leases of $2,610,000 were recorded in April 1995 when the Company acquired the operations and assets of five franchise restaurants (see Note 4). A capitalized lease of $424,000 was recorded in July 1995 when the Company entered into a lease for a new restaurant. This lease was transferred to a franchisee in connection with the sale of six restaurants in October 1996. The Company received a $5,000,000 promissory note in connection with the sale of six restaurants in October 1996 (see Note 10), which was paid in full in January 1997. Capitalized leases of $4,055,000 were recorded in April 1997 when the Company acquired the operations and assets of 11 franchise restaurants. In connection with this acquisition, the Company issued $2,500,000 of promissory notes (see Note 4). DISCLOSURE OF ACCOUNTING POLICY: For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. See notes to consolidated financial statements. F-7 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization Applebee's International, Inc. and its subsidiaries (the "Company") develops, franchises and operates casual dining restaurants principally under the names "Applebee's Neighborhood Grill & Bar" and "Rio Bravo Cantina." As of December 28, 1997, there were 960 Applebee's restaurants, of which 770 were operated by franchisees and 190 were operated by the Company, and 55 Rio Bravo Cantina restaurants, of which 24 were operated by franchisees and 31 were operated by the Company. The Company also operated four other specialty restaurants. Such restaurants were located in 48 states, Canada, Europe and the Caribbean. 2. Summary of Significant Accounting Policies Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany profits, transactions and balances have been eliminated. Fiscal year: The Company's fiscal year ends on the last Sunday of the calendar year. The fiscal years ended December 28, 1997 and December 29, 1996 contained 52 weeks, and the fiscal year ended December 31, 1995 contained 53 weeks, and are referred to hereafter as 1997, 1996 and 1995, respectively. Short-term investments: Short-term investments are comprised of U.S. government and agency securities, certificates of deposit, state and municipal bonds, and preferred stocks. Gains and losses from sales are determined using the specific identification method. As of December 28, 1997, all short-term investments have been classified as available-for-sale. Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market. Pre-opening expense: The Company expenses direct training and other costs related to opening new or relocated restaurants in the month of opening. Property and equipment: Property and equipment are stated at cost. Depreciation is provided primarily on a straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the lease term, including renewal options, or the estimated useful life of the related asset. The general ranges of original depreciable lives are as follows: Years Buildings.................................................... 20 Leasehold improvements....................................... 15-20 Furniture and equipment...................................... 3-7 Interest has been capitalized in connection with the development of new restaurants and is amortized over the estimated useful life of the related asset. Interest costs of $755,000, $618,000 and $624,000 were capitalized during 1997, 1996 and 1995, respectively. Goodwill: Goodwill represents the excess of cost over fair market value of net assets acquired by the Company. Goodwill is being amortized over periods ranging from 15 to 20 years on a straight-line basis. Accumulated amortization at December 28, 1997 and December 29, 1996 was $7,595,000 and $5,155,000, respectively. F-8 Impairment of long-lived assets: Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Franchise interest and rights: Franchise interest and rights represent allocations of purchase price to either the purchased restaurants or franchise operations acquired. The allocated costs are amortized over the estimated life of the restaurants or the franchise agreements on a straight-line basis ranging from 7 to 20 years. Accumulated amortization at December 28, 1997 and December 29, 1996 was $6,263,000 and $5,695,000, respectively. Franchise revenues: Franchise revenues are deferred until substantial performance of franchisor obligations is complete. Initial franchise fees, included in franchise income in the consolidated statements of earnings, totaled $4,263,000, $4,615,000 and $4,162,000 for 1997, 1996 and 1995, respectively. Advertising costs: The Company expenses advertising costs for Company owned restaurants as incurred except for production costs of advertising which are expensed the first time the advertising takes place. Advertising expense related to Company restaurants was $20,752,000, $16,470,000 and $12,749,000 for 1997, 1996 and 1995, respectively. Stock-based compensation: The Company has adopted the disclosure provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." The Statement encourages rather than requires companies to adopt a method that accounts for stock compensation awards based on their estimated fair value at the date they are granted. Companies are permitted, however, to account for stock compensation awards under Accounting Principles Board ("APB") Opinion No. 25 which requires compensation cost to be recognized based on the excess, if any, between the quoted market price of the stock at the date of grant and the amount an employee must pay to acquire the stock. The Company has elected to continue to apply APB Opinion No. 25 and has disclosed the pro forma net earnings and earnings per share, determined as if the fair value method had been applied, in Note 14. Earnings per share: The Company adopted SFAS No. 128, "Earnings Per Share," during 1997. SFAS No. 128 requires presentation of basic and diluted earnings per share. Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the reporting period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. All prior period weighted average and per share information has been restated in accordance with SFAS No. 128. Outstanding stock options issued by the Company represent the only dilutive effect on weighted average shares. A reconciliation between basic and diluted weighted average shares outstanding and the related earnings per share calculation is presented below (in thousands, except per share amounts):
1997 1996 1995 --------------- ---------------- ----------------- Net earnings....................................... $ 45,091 $ 38,014 $ 27,420 ================ ================ ================ Basic weighted average shares outstanding.......... 31,401 31,188 29,319 Dilutive effect of stock options................... 239 345 541 ---------------- ---------------- ---------------- Diluted weighted average shares outstanding........ 31,640 31,533 29,860 ================ ================ ================ Basic net earnings per common share................ $ 1.44 $ 1.22 $ 0.94 ================ ================ ================ Diluted net earnings per common share.............. $ 1.43 $ 1.21 $ 0.92 ================ ================ ================
F-9 Stock options with exercise prices greater than the average market price of the Company's common stock for the applicable periods are excluded from the computation of diluted weighted average shares outstanding. Such options totaled approximately 1,625,000, 1,368,000 and 374,000 for 1997, 1996 and 1995, respectively. Pervasiveness of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. New accounting pronouncements: In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. This statement is effective for fiscal years beginning after December 15, 1997. The Company does not believe the reporting and display of comprehensive income will materially impact the financial statements. In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. This statement is effective for financial statements for periods beginning after December 15, 1997. In the initial year of application, comparative information for earlier years is to be presented. This statement need not be applied to interim financial statements in the initial year of its application, but comparative information for interim periods in the initial year of application is to be reported in financial statements for interim periods in the second year of application. 3. Disclosures about Fair Value of Financial Instruments The following methods were used in estimating fair value disclosures for significant financial instruments of the Company. The carrying amount of cash and cash equivalents approximates fair value because of the short maturity of those instruments. The carrying amount of short-term investments is based on quoted market prices. The fair value of the Company's long-term debt, excluding capitalized lease obligations, is estimated based on quotations made on similar issues. The estimated fair values of the Company's financial instruments are as follows (in thousands):
December 28, 1997 December 29, 1996 ----------------------------------- ---------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ----------------- ----------------- ----------------- ---------------- Short-term investments................. $ 10,906 $ 10,906 $ 40,064 $ 40,064 Long-term debt, excluding capitalized lease obligations........ $ 24,306 $ 24,941 $ 22,780 $ 23,099
F-10 4. Acquisitions IRC Merger: On March 23, 1995, a wholly-owned subsidiary of the Company merged with and into Innovative Restaurant Concepts, Inc. ("IRC"), referred to herein as the "IRC Merger." Immediately prior to the IRC Merger, IRC's affiliated limited partnerships, Cobb/Gwinnett Rio, Ltd., Rio Real Estate, L.P. and CG Restaurant Partners, Ltd., were liquidated, and contemporaneously with the IRC Merger, the Company acquired the interests of the limited partners in the distributed assets of these partnerships. As a result of the IRC Merger, IRC became a wholly-owned subsidiary of the Company. A total of approximately 2,630,000 shares of the Company's newly-issued common stock was issued to the shareholders and limited partners of IRC, including IRC shares issued in 1995 upon the exercise of IRC stock options prior to the IRC Merger. IRC employees also exchanged pre-existing stock options for options to purchase approximately 147,000 shares of the Company's common stock. In addition, the Company assumed approximately $13,700,000 of IRC indebtedness, of which $1,270,000 was repaid at closing and the remainder was repaid during 1995. At the time of the IRC Merger, IRC operated 17 restaurants, 13 of which were Rio Bravo Cantinas, a Mexican restaurant concept, and four were other specialty restaurants. The IRC Merger was accounted for as a pooling of interests. Merger costs of $1,770,000 relating to the IRC Merger were expensed in 1995. Merger costs include investment banking fees, legal and accounting fees, and other merger related expenses. The impact of these costs on net earnings per common share was approximately $0.06 in 1995. Other restaurant acquisitions: On April 3, 1995, the Company acquired the operations of five franchise restaurants and the related furniture and fixtures, certain land and leasehold improvements, and rights to future development of restaurants for a total purchase price of $9,682,000. The acquisition was accounted for as a purchase, and accordingly, the purchase price has been allocated to the fair value of net assets acquired and resulted in an allocation to goodwill of $6,432,000. In connection with this acquisition, the Company also recorded capitalized leases of $2,610,000. The 1995 financial statements reflect the results of operations of such restaurants subsequent to the date of acquisition. Results of operations of such restaurants prior to acquisition were not material in relation to the Company's operating results for the periods shown. In 1997, the Company exercised its option to purchase the remaining 50% interest in a joint venture arrangement with its franchisee in Nevada for $1,525,000. On April 14, 1997, the Company acquired the operations of 11 franchise Applebee's restaurants located in the St. Louis metropolitan area and the related furniture and fixtures, certain land and leasehold improvements, and rights to future development of restaurants for a total purchase price of $36,150,000. The purchase price was paid in a combination of $33,650,000 in cash and $2,500,000 of promissory notes, of which $1,500,000 was payable in January 1998 and $1,000,000 is payable in December 1998. One of the principals of the franchisee was related to a person who was a director of the Company until May 1997. The acquisition was accounted for as a purchase, and accordingly, the purchase price has been allocated to the fair value of net assets acquired and resulted in an allocation to goodwill of approximately $27,000,000 which is being amortized on a straight-line basis over 20 years. In connection with this acquisition, the Company also recorded capitalized leases of $4,055,000. The results of operations of such restaurants have been reflected in the consolidated financial statements subsequent to the date of acquisition. Results of operations of such restaurants prior to acquisition were not material in relation to the Company's operating results for the periods shown. On December 23, 1997, the Company entered into an agreement with Apple South, Inc. ("Apple South"), its largest franchisee, to acquire 31 Applebee's restaurants plus one restaurant under construction in the Virginia markets of Norfolk, Richmond, Roanoke and Charlottesville for approximately $93,400,000, subject to certain closing adjustments, referred to herein as the "Virginia Acquisition." The Virginia Acquisition is anticipated to close in late March 1998, subject to obtaining financing, operating licenses and third-party consents, and will be accounted for as a purchase. See Note 12 for additional commitments and contingencies relating to the agreement with Apple South. F-11 5. Short-Term Investments The amortized cost, estimated market value and unrealized gains or losses on short-term investments are as follows (in thousands):
December 28, 1997 December 29, 1996 ------------------------------------------ ------------------------------------------ Amortized Unrealized Market Amortized Unrealized Market Cost Gain Value Cost Gain Value -------------- ------------- ------------- ------------- ------------- -------------- Certificates of deposit........ $ 19 $ -- $ 19 $ 19 $ -- $ 19 Preferred stocks............... 402 56 458 1,374 52 1,426 U.S. government and agency securities........... 4,496 -- 4,496 19,829 150 19,979 State and local municipal securities........ 5,837 96 5,933 18,541 99 18,640 -------------- ------------- ------------- ------------- ------------- -------------- $ 10,754 $ 152 $ 10,906 $ 39,763 $ 301 $ 40,064 ============== ============= ============= ============= ============= ==============
The amortized cost and estimated market value of debt securities as of December 28, 1997, by contractual maturity, are shown below (in thousands). Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized Market Cost Value ------------------ ----------------- Due within one year or less...................................... $ 2,911 $ 2,911 Due after one year through five years............................ 7,422 7,518 ------------------ ----------------- $ 10,333 $ 10,429 ================== =================
6. Receivables Receivables are comprised of the following (in thousands):
December 28, December 29, 1997 1996 ----------------- ----------------- Franchise royalty, advertising and trade receivables............. $ 12,406 $ 9,801 Notes receivable................................................. 1,150 6,305 Credit card receivables.......................................... 2,272 1,636 Interest and dividends receivable................................ 288 833 Franchise fee receivables........................................ 743 425 Other............................................................ 368 515 ----------------- ----------------- 17,227 19,515 Less allowance for bad debts..................................... 837 270 ----------------- ----------------- $ 16,390 $ 19,245 ================= =================
Included in notes receivable as of December 29, 1996 was a $5,000,000 promissory note which was received from a franchisee in connection with the sale of six restaurants in October 1996 (see Note 10), which was paid in full in January 1997. The provision for bad debts totaled $635,000 for 1997 and $250,000 for 1995. No provision for bad debts was recorded during 1996. Write-offs against the allowance for bad debts totaled $68,000, $453,000 and $267,000 during 1997, 1996 and 1995, respectively. F-12 7. Property and Equipment Property and equipment, net is comprised of the following (in thousands):
December 28, December 29, 1997 1996 ----------------- ------------------ Land............................................................. $ 52,638 $ 38,340 Buildings and leasehold improvements............................. 176,517 125,486 Furniture and equipment.......................................... 106,125 77,034 Construction in progress......................................... 10,238 7,882 ----------------- ------------------ 345,518 248,742 Less accumulated depreciation and capitalized lease amortization............................................ 69,436 51,792 ----------------- ------------------ $ 276,082 $ 196,950 ================= ==================
Property under capitalized leases in the amount of $4,540,000 and $2,610,000 at December 28, 1997 and December 29, 1996, respectively, is included in buildings and leasehold improvements. Accumulated amortization of such property amounted to $235,000 and $225,000 at December 28, 1997 and December 29, 1996, respectively. Capitalized leases relate to the buildings on certain restaurant properties. The land portions of the restaurant property leases are accounted for as operating leases. Depreciation and capitalized lease amortization expense relating to property and equipment totaled $20,877,000, $15,652,000 and $11,964,000 for 1997, 1996 and 1995, respectively. Of these amounts, $210,000, $145,000 and $105,000 related to capitalized lease amortization during 1997, 1996 and 1995, respectively. The Company leases certain of its restaurants. The leases generally provide for payment of minimum annual rent, real estate taxes, insurance and maintenance and, in some cases, contingent rent (calculated as a percentage of sales) in excess of minimum rent. Total rental expense for all operating leases is comprised of the following (in thousands):
1997 1996 1995 ------------------ ------------------ ----------------- Minimum rent................................. $ 10,452 $ 8,138 $ 7,300 Contingent rent.............................. 1,298 1,451 1,520 ------------------ ------------------ ----------------- $ 11,750 $ 9,589 $ 8,820 ================== ================== =================
The present value of capitalized lease payments and the future minimum lease payments under noncancelable operating leases (including leases executed for sites to be developed in 1998) as of December 28, 1997 are as follows (in thousands):
Capitalized Operating Leases Leases ------------------ ----------------- 1998............................................................. $ 642 $ 12,483 1999............................................................. 664 12,754 2000............................................................. 691 12,159 2001............................................................. 717 11,900 2002............................................................. 741 11,764 Thereafter....................................................... 11,308 103,691 ------------------ ------------------ Total minimum lease payments..................................... 14,763 $ 164,751 ================== Less amounts representing interest............................... 10,184 ------------------ Present value of minimum lease payments.......................... $ 4,579 ==================
F-13 8. Long-Term Debt Long-term debt, including capitalized lease obligations, is comprised of the following (in thousands):
December 28, December 29, 1997 1996 ------------------ ------------------ Unsecured notes payable; 7.70% interest per annum, with principal payments beginning in 1998; due May 2004........... $ 20,000 $ 20,000 Secured bank note; 6.69% interest per annum; due in quarterly installments of principal and interest through October 1998................................................. 600 1,200 Unsecured promissory notes issued in connection with the acquisition of restaurants; 8.00% interest per annum; due in annual installments of principal and interest through February 2000................................................ 1,187 1,544 Unsecured promissory notes issued in connection with the acquisition of restaurants; 8.00% interest per annum; due in two installments of principal and interest in January and December 1998............................................ 2,500 -- Capitalized lease obligations.................................... 4,579 2,623 Other............................................................ 19 36 ------------------ ------------------ Total long-term debt............................................. 28,885 25,403 Less current portion of long-term debt........................... 6,306 968 ------------------ ------------------ Long-term debt - less current portion............................ $ 22,579 $ 24,435 ================== ==================
During 1995, the Company obtained a $20,000,000 unsecured bank revolving credit facility that was to expire on December 31, 1997. In September 1997, the terms of the facility were amended to extend the expiration date to December 31, 1998. Of this amount, $5,000,000 can be utilized for standby letters of credit. The revolving credit facility bears interest at LIBOR plus 0.60% or the prime rate, at the Company's option, and requires the Company to pay a commitment fee of 0.15% on any unused portion of the facility. As of December 28, 1997, no amounts were outstanding under the facility. Standby letters of credit issued under the facility totaling $1,887,000 and $1,324,000 were outstanding as of December 28, 1997 and December 29, 1996, respectively. The debt agreements contain various covenants and restrictions which, among other things, require the maintenance of a stipulated fixed charge coverage ratio and minimum consolidated net worth, as defined, and limit additional indebtedness in excess of specified amounts. The debt agreements also restrict the amount available for the payment of cash dividends. At December 28, 1997, retained earnings were not restricted for the payment of cash dividends. The Company is currently in compliance with the covenants of all of its debt agreements. Maturities of long-term debt, including capitalized lease obligations, for each of the five fiscal years subsequent to December 28, 1997, ending during the years indicated, are as follows (in thousands): 1998.................................................. $ 6,306 1999.................................................. 3,199 2000.................................................. 3,249 2001.................................................. 2,853 2002.................................................. 2,874 F-14 The Company entered into a financing commitment in January 1998 (see Note 16). As a result of this commitment, the Company expects to refinance the $20,000,000 unsecured notes payable due in 2004, and to cancel the $20,000,000 unsecured bank revolving credit facility. 9. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities are comprised of the following (in thousands):
December 28, December 29, 1997 1996 ------------------ ----------------- Compensation and related taxes.................................... $ 9,060 $ 9,828 Gift certificates................................................. 4,129 3,826 Sales and use taxes............................................... 2,790 2,006 Insurance......................................................... 4,473 1,596 Rent.............................................................. 2,782 2,477 Other............................................................. 5,313 5,864 ------------------ ------------------ $ 28,547 $ 25,597 ================== =================
10. Loss on Disposition of Restaurants and Equipment In October 1996, the Company completed the sale of six of its eight Company owned Applebee's restaurants located in the San Bernardino and Riverside counties of southern California. The operations of the six restaurants and future restaurant development in the market area were assumed by an existing Applebee's franchisee. The sales price was $8,500,000 and a loss on the disposition of the properties of $75,000 was recorded in the third quarter of 1996. During the fourth quarter of 1996, the Company recognized a loss of $2,500,000 primarily relating to the intended disposition of the two remaining restaurants in the territory. 11. Income Taxes The Company and its subsidiaries file a consolidated federal income tax return. The combined earnings of IRC, a pooled company, included earnings of limited partnerships which were not taxable entities for federal and state income tax purposes. The accompanying consolidated statements of earnings reflect provisions for income taxes on a pro forma basis as if the Company were liable for federal and state income taxes on the earnings of IRC's limited partnerships for periods prior to the IRC Merger at a statutory rate of 39%. The income tax provision consists of the following (in thousands):
1997 1996 1995 --------------- --------------- ---------------- Current provision: Federal............................................ $ 22,016 $ 18,783 $ 15,163 State.............................................. 3,693 3,800 2,849 Deferred provision (benefit)........................... 1,001 128 (179) Pro forma provision for income taxes of pooled company.................................. -- -- 73 -------------- --------------- ---------------- Income taxes........................................... $ 26,710 $ 22,711 $ 17,906 =============== =============== ================
F-15 The deferred income tax provision is comprised of the following (in thousands):
1997 1996 1995 --------------- --------------- ---------------- Depreciation........................................... $ 2,270 $ 617 $ 13 Franchise deposits..................................... (534) 77 85 Allowance for bad debts................................ (111) 345 (72) Accrued expenses....................................... (758) 203 (125) Property and equipment writedown....................... 671 (935) -- Other.................................................. (537) (179) (80) --------------- --------------- ---------------- Deferred income tax provision (benefit)................ 1,001 128 (179) Adjustment to tax basis of pooled company.............. -- -- (1,350) Deferred income taxes related to change in unrealized gain (loss) on investments.............. 57 (3) 173 --------------- --------------- ---------------- Net change in deferred income taxes.................... $ 1,058 $ 125 $ (1,356) =============== =============== ================
A reconciliation between the income tax provision and the expected tax determined by applying the statutory federal income tax rates to earnings before income taxes follows (in thousands):
1997 1996 1995 --------------- --------------- ---------------- Federal income tax at statutory rates.................. $ 25,130 $ 21,254 $ 15,864 Increase (decrease) to income tax expense: Amortization of goodwill .......................... 280 276 281 State income taxes, net of federal benefit......... 2,625 2,470 1,852 Merger costs....................................... -- -- 625 Tax exempt investment income....................... (310) (338) (169) Meals and entertainment disallowance............... 278 317 258 FICA tip tax credit................................ (1,598) (1,136) (985) Other.............................................. 305 (132) 180 --------------- --------------- ---------------- Income taxes........................................... $ 26,710 $ 22,711 $ 17,906 =============== =============== ================
The net current deferred income tax asset amounts are included in "prepaid and other current assets" in the accompanying consolidated balance sheets. The significant components of deferred income tax assets and liabilities and the related balance sheet classifications are as follows (in thousands):
December 28, December 29, 1997 1996 ----------------- ------------------ Classified as current: Allowance for bad debts..................................... $ 126 $ 15 Accrued expenses............................................ 1,003 245 Other, net.................................................. (624) (495) ----------------- ------------------ Net deferred income tax asset (liability)................... $ 505 $ (235) ================= ================== Classified as non-current: Depreciation................................................ $ (1,786) $ 484 Franchise deposits.......................................... 900 366 Other, net.................................................. 454 516 ----------------- ------------------ Net deferred income tax asset (liability)................... $ (432) $ 1,366 ================= ==================
F-16 12. Commitments and Contingencies Litigation, claims and disputes: As of December 28, 1997, the Company was using assets owned by a former franchisee in the operation of one restaurant under a purchase rights agreement which required the Company to make certain payments to the franchisee's lender. In 1991, a dispute arose between the lender and the Company over the amount of the payments due the lender. Based upon a then current independent appraisal, the Company offered to settle the dispute and purchase the assets for $1,000,000 in 1991. In November 1992, the lender was declared insolvent by the FDIC and has since been liquidated. The Company closed one of the three restaurants in 1994 and one of the two remaining restaurants in February 1996. In the fourth quarter of 1996, the Company received information indicating that the franchisee's indebtedness to the FDIC had been acquired by a third party. In June 1997, the third party filed a lawsuit against the Company seeking approximately $3,800,000. The lawsuit remains in the discovery phase. The Company believes it has meritorious defenses and will vigorously defend this lawsuit. In the event that the Company were to pay an amount determined to be in excess of the fair market value of the assets, the Company will recognize a loss at the time of such payment. In addition, the Company is involved in various legal actions arising in the normal course of business. While the resolution of any of such actions or the matter described above may have an impact on the financial results for the period in which it is resolved, the Company believes that the ultimate disposition of these matters will not, in the aggregate, have a material adverse effect upon its business or consolidated financial position. Franchise financing: The Company entered into an agreement in 1992 with a financing source to provide up to $75,000,000 of financing to Company franchisees to fund development of new franchise restaurants. The Company provided a limited guaranty of loans made under the agreement. The Company's maximum recourse obligation of 10% of the amount funded is reduced beginning in the second year of each long-term loan and thereafter decreases ratably to zero after the seventh year of each loan. At December 28, 1997, approximately $48,000,000 had been funded through this financing source, of which approximately $19,000,000 was outstanding. This agreement expired on December 31, 1994 and was not renewed, although some loan commitments as of the termination date were thereafter funded through December 31, 1995. Severance agreements: The Company has severance and employment agreements with certain officers providing for severance payments to be made in the event the employee resigns or is terminated related to a change in control (as defined in the agreements). If the severance payments had been due as of December 28, 1997, the Company would have been required to make payments aggregating approximately $4,900,000. In addition, the Company has severance and employment agreements with certain officers which contain severance provisions not related to a change in control, and such provisions would have required aggregate payments of approximately $3,900,000 if such officers had been terminated as of December 28, 1997. Apple South divestiture plan: As part of the agreement with Apple South relating to the Virginia Acquisition (see Note 4), Apple South has also agreed to use its best efforts to sell its other Applebee's restaurants as soon as practical, resulting in its exit as an Applebee's franchisee. To the extent any restaurants are not divested by Apple South by December 31, 1999, the Company has an option to purchase the remaining restaurants at a predetermined formula. The Company and Apple South have committed to work together to identify and approve qualified franchise groups to acquire the remaining Apple South restaurants and to effect an efficient transition of ownership. To assist in this transition, the Company has agreed to provide the availability of guarantees up to 10% of the borrowings of qualified franchise groups, up to a maximum of $10,000,000 in the aggregate. F-17 13. Stockholders' Equity On July 28, 1995, the Company completed a public offering of its common stock consisting of 2,100,000 shares sold by the Company and 300,000 shares sold by certain stockholders of the Company. In addition, the Company and the selling stockholders granted the underwriters an option to purchase 315,000 and 45,000 shares, respectively, to cover over-allotments, which was exercised on August 9, 1995. Net proceeds of $60,434,000, after expenses, were received from the offering. A portion of the net proceeds of the offering was used to retire approximately $12,500,000 of secured debt assumed in certain acquisitions and to repay the outstanding balance of the Company's revolving credit facility of $5,000,000. On September 7, 1994, the Company's Board of Directors adopted a Shareholder Rights Plan (the "Rights Plan") and declared a dividend, issued on September 19, 1994, of one Right for each outstanding share of Common Stock of the Company (the "Common Shares"). The Rights become exercisable if a person or group acquires more than 15% of the outstanding Common Shares, other than pursuant to a Qualifying Offer (as defined) or makes a tender offer for more than 15% of the outstanding Common Shares, other than pursuant to a Qualifying Offer. Upon the occurrence of such an event, each Right entitles the holder (other than the acquiror) to purchase for $75 the economic equivalent of Common Shares, or in certain circumstances, stock of the acquiring entity, worth twice as much. The Rights will expire on September 7, 2004 unless earlier redeemed by the Company, and are redeemable prior to becoming exercisable at $0.01 per Right. 14. Employee Benefit Plans Employee stock option plan: During 1989, the Company's Board of Directors approved the 1989 Employee Stock Option Plan (the "1989 Plan") which provided for the grant of both qualified and nonqualified options as determined by a committee appointed by the Board of Directors. At the 1995 Annual Meeting of Stockholders, the 1989 Employee Stock Option Plan was terminated, and the 1995 Equity Incentive Plan (the "1995 Plan") was approved. Stock options outstanding under the existing 1989 Stock Option Plan were not affected by the termination of that plan. Options under the 1989 Plan were granted for a term of three to ten years and were generally exercisable one year from date of grant. The 1995 Plan allows the granting of stock options, stock appreciation rights, restricted stock awards, performance unit awards and performance share awards (collectively, "Awards") to eligible participants. The number of shares authorized to be issued pursuant to the 1995 Plan is 2,300,000. Options granted under the 1995 Plan during 1995 have a term of five to ten years and are generally exercisable three years from date of grant. Options granted under the 1995 Plan during 1996 and 1997 have a term of ten years and are generally 50% exercisable three years from date of grant, 25% exercisable four years from date of grant, and 25% exercisable five years from date of grant. Subject to the terms of the 1995 Plan, the Committee has the sole discretion to determine the employees who shall be granted Awards, the size and types of such Awards, and the terms and conditions of such Awards. Under both plans, the option price for both qualified and nonqualified options as of the date granted cannot be less than the fair market value of the Company's common stock. The Company accounts for both plans in accordance with APB Opinion No. 25 which requires compensation cost to be recognized based on the excess, if any, between the quoted market price of the stock at the date of grant and the amount an employee must pay to acquire the stock. Under this method, no compensation cost has been recognized for stock option awards. F-18 Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value as prescribed by SFAS No. 123 (see Note 2), the Company's net earnings and net earnings per common share would have been reduced to the pro forma amounts indicated below (in thousands, except per share amounts):
1997 1996 1995 --------------- --------------- -------------- Net earnings, as reported................................ $ 45,091 $ 38,014 $ 27,420 Net earnings, pro forma.................................. $ 41,119 $ 32,863 $ 25,613 Basic net earnings per common share, as reported......... $ 1.44 $ 1.22 $ 0.94 Basic net earnings per common share, pro forma........... $ 1.31 $ 1.05 $ 0.87 Diluted net earnings per common share, as reported....... $ 1.43 $ 1.21 $ 0.92 Diluted net earnings per common share, pro forma......... $ 1.30 $ 1.04 $ 0.86
The weighted average fair value at date of grant for options granted during 1997, 1996 and 1995 was $12.76, $15.14 and $14.77 per share, respectively, which, for the purposes of this disclosure, is assumed to be amortized over the respective vesting period of the grants. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1997, 1996 and 1995: dividend yield of 0.3% for all years; expected volatility of 56.0%, 58.1% and 63.4%, respectively; risk-free interest rate of 5.7%, 6.2% and 6.4%, respectively; and expected lives of 4.6, 4.9 and 4.0 years, respectively. Transactions relative to both plans are as follows:
1995 Plan 1989 Plan ------------------------------------- ------------------------------------- Weighted Weighted Number of Average Number of Average Options Exercise Price Options Exercise Price ------------------ ----------------- ----------------- ------------------ Options outstanding at December 25, 1994............ -- -- 1,594,679 $ 11.29 Granted.................. 891,300 $ 28.01 163,000 $ 18.80 Exercised................. -- -- (588,038) $ 7.92 Canceled.................. (15,000) $ 28.50 (71,100) $ 15.59 ------------------ ----------------- Options outstanding at December 31, 1995............ 876,300 $ 28.00 1,098,541 $ 13.92 Granted.................. 1,073,701 $ 27.99 -- -- Exercised................. -- -- (282,438) $ 27.46 Canceled.................. (120,658) $ 28.39 (4,400) $ 13.73 ------------------ ----------------- Options outstanding at December 29, 1996............ 1,829,343 $ 27.97 811,703 $ 14.09 Granted.................. 142,825 $ 24.98 -- -- Exercised................. (2,167) $ 25.88 (160,887) $ 13.29 Canceled.................. (228,902) $ 28.03 (10,804) $ 20.52 ------------------ ----------------- Options outstanding at December 28, 1997............ 1,741,099 $ 27.72 640,012 $ 14.17 ================== ================= Options exercisable at December 28, 1997............ 214,000 $ 26.23 640,012 $ 14.17 ================== ================= Options available for grant at December 28, 1997............ 556,734 -- ================== =================
F-19 The following table summarizes information relating to fixed-priced stock options outstanding for both plans at December 28, 1997:
Options Outstanding Options Exercisable ------------------------------------------------ -------------------------------- Weighted Average Weighted Weighted Remaining Average Average Number Contractual Exercise Number Exercise Range of Exercise Prices Outstanding Life Price Exercisable Price -------------------------- --------------- --------------- -------------- --------------- --------------- 1989 Plan: $ 3.02 to $ 7.63 28,562 3.9 years $ 4.62 28,562 $ 4.62 $ 11.83 to $ 14.69 521,950 3.7 years $ 13.74 521,950 $ 13.74 $ 19.25 to $ 21.88 89,500 2.6 years $ 19.78 89,500 $ 19.78 --------------- --------------- $ 3.02 to $ 21.88 640,012 3.5 years $ 14.17 640,012 $ 14.17 =============== =============== 1995 Plan: $ 22.75 to $ 25.75 258,358 6.0 years $ 24.98 130,000 $ 24.97 $ 28.00 to $ 29.25 1,482,741 8.1 years $ 28.19 84,000 $ 28.18 --------------- --------------- $ 22.75 to $ 29.25 1,741,099 7.8 years $ 27.72 214,000 $ 26.23 =============== ===============
Employee retirement plans: During 1992, the Company established a profit sharing plan and trust in accordance with Section 401(k) of the Internal Revenue Code. Prior to 1997, the Company matched 25% of employee contributions, not to exceed 2% of the employee's total annual compensation, with the Company contributions vesting at the rate of 20% each year beginning after the employee's second year of service. The Company adopted amendments to the 401(k) plan which were effective beginning in 1997. The Company's matching contributions were increased to 35% and 50% of employee contributions in 1997 and 1998, respectively, not to exceed 2.8% and 4.0%, respectively, of the employee's total annual compensation, and will be made in shares of the Company's common stock. The Company's contributions vest at the rate of 60% after the employee's third year of service, 80% after four years of service and 100% after five years of service. The number of common shares authorized pursuant to the 401(k) plan is 50,000. During 1994, the Company established a non-qualified defined contribution retirement plan for key employees. The Company's contributions under both plans in 1997, 1996 and 1995 were $702,000, $570,000 and $312,000, respectively. Employee stock purchase plan: During 1996, the Company established an employee stock purchase plan in accordance with Section 423 of the Internal Revenue Code, and the plan was approved at the 1997 Annual Meeting of Stockholders. The plan allows employees to purchase shares of the Company's common stock at a 10% discount through payroll deductions. The number of common shares authorized pursuant to the plan is 200,000. During 1997, employees purchased 20,143 shares under this plan. Employee stock ownership plan: The Company's Board of Directors approved an employee stock ownership plan in January 1997. The Company's contributions to this plan are completely discretionary and will be made in shares of the Company's common stock. The Company's contribution to the plan was $500,000 for 1997. 15. Related Party Transactions The Company and certain franchisees have obtained restaurant equipment from a company owned by an individual who is related to a person who was a director of the Company until May 1997. During 1997, 1996 and 1995, the Company paid $264,000, $426,000 and $3,128,000, respectively, for equipment and services purchased from this company. F-20 The Company leases a restaurant site from a corporation whose ownership is composed of certain current and former stockholders, directors and officers of the Company. The lease has a term of 20 years with two renewal options. The lease provides for rentals in an amount equal to approximately 7% of gross sales of the restaurants. During 1995, the Company entered into an agreement with this party to lease additional parking space at the same site. Rents incurred under both leases totaled $166,000, $185,000 and $186,000 for 1997, 1996 and 1995, respectively, and are included in direct and occupancy costs in the consolidated statements of earnings. The Company leases a restaurant site from a partnership in which a former director, who is related to a person who was a director of the Company until May 1997, holds a 50% interest. The lease has a term of 20 years with two options to renew. The lease provides for rentals in an amount equal to approximately 7% of gross sales of the restaurant. Rents incurred under the lease were $128,000 for 1997 and $113,000 for both 1996 and 1995, and are included in direct and occupancy costs in the consolidated statements of earnings. The Company leases certain office space under an operating lease from a partnership in which a person, who was a director of the Company until August 1997 and who remains a significant stockholder of the Company, holds a 37.5% interest. The lease expires in December 1998 and is renewable for one-year terms at the Company's option. Rents incurred under the lease were $120,000, $104,000, and $84,000 for 1997, 1996 and 1995, respectively, and are included in general and administrative expenses in the consolidated statements of earnings. 16. Subsequent Events On January 22, 1998, the Company entered into a loan commitment with Merrill Lynch Capital Corporation to provide $225,000,000 in senior secured credit facilities, consisting of an eight-year senior secured term loan of $125,000,000 and a five-year secured revolving credit facility of $100,000,000. The Company anticipates that it will use the proceeds of the facilities approximately as follows: (i) $105,000,000 to fund the Virginia Acquisition (including related transaction fees and expenses); (ii) $20,000,000 to refinance certain existing indebtedness currently bearing interest at 7.70% (see Note 8); and (iii) $100,000,000 for ongoing working capital needs and general corporate purposes (including stock repurchases as described below). Up to $50,000,000 of the facilities will be available to fund repurchases of the Company's common stock. Since December 28, 1997 and through March 9, 1998, the Company has repurchased 1,270,000 shares of its common stock at an aggregate value of $25,000,000, pursuant to plans approved by the Company's Board of Directors. The Company contemplates additional purchases of up to $25,000,000 subject to the completion of the financing discussed above. The senior term loan is expected to bear interest at LIBOR plus 2.25% and require semi-annual principal payments aggregating $1,250,000 per year for each of the first seven years, with the remaining $116,250,000 due during the eighth year. The revolving credit facility is expected to bear interest at LIBOR plus 1.375%. Both the senior term loan and the revolving credit facility will be subject to standard other terms, conditions, covenants, and fees and will be secured by the common stock of each of the Company's present and future subsidiaries and all intercompany debt of the Company and such subsidiaries. The loan commitment is anticipated to close concurrently with the Virginia Acquisition (see Note 4). F-21 In February 1998, the Company entered into an agreement to sell its six restaurants located in the Long Island, New York area for approximately $10,000,000 in cash. The operations of the restaurants and future restaurant development in the market area will be assumed by an existing Applebee's franchisee. The Company expects the sale to close in the second quarter of 1998 with minimal effect, if any, on its consolidated net earnings or financial position. 17. Quarterly Results of Operations (Unaudited) The following presents the unaudited consolidated quarterly results of operations for 1997 and 1996 (in thousands, except per share amounts).
1997 --------------------------------------------------------------- Fiscal Quarter Ended --------------------------------------------------------------- March 30, June 29, September 28, December 28, 1997 1997 1997 1997 ------------- -------------- ------------- ------------- Revenues: Company restaurant sales....................... $100,843 $ 114,775 $117,607 $118,948 Franchise income............................... 15,409 15,917 16,260 16,061 ------------- -------------- ------------- ------------- Total operating revenues.................... 116,252 130,692 133,867 135,009 ------------- -------------- ------------- ------------- Cost of Company restaurant sales: Food and beverage.............................. 27,721 31,661 32,228 32,859 Labor.......................................... 32,101 36,025 37,914 39,125 Direct and occupancy........................... 26,022 28,419 28,884 30,871 Pre-opening expense............................ 510 902 864 1,385 ------------- -------------- ------------- ------------- Total cost of Company restaurant sales...... 86,354 97,007 99,890 104,240 ------------- -------------- ------------- ------------- General and administrative expenses................. 12,446 13,109 13,060 13,964 Amortization of intangible assets................... 568 857 913 920 Loss on disposition of restaurants and equipment.... 233 251 262 463 ------------- -------------- ------------- ------------- Operating earnings.................................. 16,651 19,468 19,742 15,422 ------------- -------------- ------------- ------------- Other income (expense): Investment income.............................. 933 446 180 275 Interest expense............................... (359) (473) (407) (466) Other income................................... 148 90 58 93 ------------- -------------- ------------- ------------- Total other income (expense)................ 722 63 (169) (98) ------------- -------------- ------------- ------------- Earnings before income taxes........................ 17,373 19,531 19,573 15,324 Income taxes........................................ 6,497 7,305 7,320 5,588 ------------- -------------- ------------- ------------- Net earnings........................................ $ 10,876 $ 12,226 $ 12,253 $ 9,736 ============= ============== ============= ============= Basic net earnings per common share................. $ 0.35 $ 0.39 $ 0.39 $ 0.31 ============= ============== ============= ============= Diluted net earnings per common share............... $ 0.34 $ 0.39 $ 0.39 $ 0.31 ============= ============== ============= ============= Basic weighted average shares outstanding........... 31,310 31,370 31,444 31,478 ============= ============== ============= ============= Diluted weighted average shares outstanding......... 31,606 31,611 31,692 31,654 ============= ============== ============= =============
F-22
1996 --------------------------------------------------------------- Fiscal Quarter Ended --------------------------------------------------------------- March 31, June 30, September 29, December 29, 1996 1996 1996 1996 ------------- -------------- ------------- ------------- Revenues: Company restaurant sales....................... $ 82,640 $ 91,116 $ 92,969 $ 92,265 Franchise income............................... 12,401 13,469 14,105 14,166 ------------- -------------- ------------- ------------- Total operating revenues.................... 95,041 104,585 107,074 106,431 ------------- -------------- ------------- ------------- Cost of Company restaurant sales: Food and beverage.............................. 23,351 25,549 26,172 25,462 Labor.......................................... 26,859 28,292 29,027 28,791 Direct and occupancy........................... 20,463 22,865 22,049 22,363 Pre-opening expense............................ 249 925 865 1,518 ------------- -------------- ------------- ------------- Total cost of Company restaurant sales...... 70,922 77,631 78,113 78,134 ------------- -------------- ------------- ------------- General and administrative expenses................. 10,385 11,109 11,152 11,241 Amortization of intangible assets................... 588 570 570 565 Loss on disposition of restaurants and equipment.... 115 424 183 2,596 ------------- -------------- ------------- ------------- Operating earnings.................................. 13,031 14,851 17,056 13,895 ------------- -------------- ------------- ------------- Other income (expense): Investment income.............................. 801 597 694 771 Interest expense............................... (446) (434) (363) (328) Other income................................... 105 200 205 90 ------------- -------------- ------------- ------------- Total other income (expense)................ 460 363 536 533 ------------- -------------- ------------- ------------- Earnings before income taxes........................ 13,491 15,214 17,592 14,428 Income taxes........................................ 5,126 5,639 6,598 5,348 ------------- -------------- ------------- ------------- Net earnings........................................ $ 8,365 $ 9,575 $ 10,994 $ 9,080 ============= ============== ============= ============= Basic net earnings per common share................. $ 0.27 $ 0.31 $ 0.35 $ 0.29 ============= ============== ============= ============= Diluted net earnings per common share............... $ 0.27 $ 0.30 $ 0.35 $ 0.29 ============= ============== ============= ============= Basic weighted average shares outstanding........... 31,033 31,148 31,277 31,295 ============= ============== ============= ============= Diluted weighted average shares outstanding......... 31,338 31,553 31,680 31,600 ============= ============== ============= =============
------------------------- F-23 APPLEBEE'S INTERNATIONAL, INC. EXHIBIT INDEX Exhibit Number Description of Exhibit - --------------- --------------------------------------------------------------- 3.1 Certificate of Incorporation, as amended, of Registrant (incorporated by reference to Exhibit 3.1 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 3.2 Restated and Amended By-laws of the Registrant (incorporated by reference to Exhibit 3.2 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1996). 4.1 Shareholder Rights Plan contained in Rights Agreement dated as of September 7, 1994, between Applebee's International, Inc. and Chemical Bank, as Rights Agent (incorporated by reference to Exhibit 4.1 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 25, 1994). 4.2 Certificate of the Voting Powers, Designations, Preferences and Relative Participating, Optional and Other Special Rights and Qualifications of Series A Participating Cumulative Preferred Stock of Applebee's International, Inc. (incorporated by reference to Exhibit 4.2 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 25, 1994). 9.1 Voting Agreement, dated as of July 15, 1989, among John Hamra, Abe J. Gustin, Jr. and Johyne Hamra Reck, as amended by Acknowledgment and Amendment to Stockholders' Voting Agreement dated February 11, 1992 (incorporated by reference to Exhibit 9.1 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 25, 1994). 9.2 Amendment to Stockholder's Voting Agreement dated March 17, 1995 (incorporated by reference to Exhibit 9.1 of the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 26, 1995). 10.1 Indemnification Agreement, dated March 16, 1988, between John Hamra and Applebee's International, Inc. (incorporated by reference to Exhibit 10.1 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 25, 1994). 10.2 Indemnification Agreement, dated March 16, 1988, between Abe J. Gustin, Jr. and Applebee's International, Inc. (incorporated by reference to Exhibit 10.2 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 25, 1994). 10.3 Indemnification Agreement, dated March 16, 1988, between Johyne Reck and Applebee's International, Inc. (incorporated by reference to Exhibit 10.3 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 25, 1994). 10.4 Form of Applebee's Development Agreement (incorporated by reference to Exhibit 10.4 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). E-1 Exhibit Number Description of Exhibit - --------------- --------------------------------------------------------------- 10.5 Form of Applebee's Franchise Agreement (incorporated by reference to Exhibit 10.5 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.6 Schedule of Applebee's Development and Franchise Agreements as of December 28, 1997. 10.7 Form of Rio Bravo Cantina Development Agreement (incorporated by reference to Exhibit 10.7 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1996). 10.8 Form of Rio Bravo Cantina Franchise Agreement (incorporated by reference to Exhibit 10.8 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1996). 10.9 Schedule of Rio Bravo Cantina Development and Franchise Agreements as of December 28, 1997. 10.10 Purchase Rights Agreement dated January 17, 1990 by and between Applebee's International, Inc. and Apple Star, Inc. (incorporated by reference to Exhibit 10.7 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 25, 1994). 10.11 Note Purchase Agreement, dated as of June 1, 1994, for $20,000,000 7.70% Senior Notes due May 31, 2004 (incorporated by reference to Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 26, 1994). 10.12 Asset Purchase Agreement dated December 23, 1997 by and among Applebee's International, Inc. and Apple South, Inc. (incorporated by reference to the Registrant's Current Report on Form 8-K dated December 23, 1997). Management Contracts and Compensatory Plans or Arrangements 10.13 1995 Equity Incentive Plan, as amended. 10.14 Employee Stock Purchase Plan. 10.15 Employment Agreement, dated January 1, 1996, with Abe J. Gustin, Jr. (incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1996). 10.16 Employment Agreement, dated January 27, 1994, with Lloyd L. Hill (incorporated by reference to Exhibit 10.4 of the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 27, 1994). 10.17 Severance and Noncompetition Agreement, dated January 27, 1994, with Lloyd L. Hill (incorporated by reference to Exhibit 10.5 of the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 27, 1994). E-2 Exhibit Number Description of Exhibit - --------------- --------------------------------------------------------------- 10.18 Employment Agreement, dated March 1, 1995, with George D. Shadid (incorporated by reference to Exhibit 10.3 of the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 26, 1995). 10.19 Amended Consulting Agreement, dated March 1, 1996, between Applebee's International, Inc. and Kenneth D. Hill (incorporated by reference to Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 1997). 10.20 Form of Indemnification Agreement (incorporated by reference to Exhibit 10.29 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 25, 1994). 10.21 Schedule of parties to Indemnification Agreement. 10.22 Form of Severance Agreement (incorporated by reference to Exhibit 10.30 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 25, 1994). 10.23 Schedule of parties to Severance Agreement. 21 Subsidiaries of Applebee's International, Inc. 23.1 Consent of Deloitte & Touche LLP. 24 Power of Attorney (see page 32 of the Form 10-K). 27 Financial Data Schedule. E-3 EX-10.6 2 SCHEDULE OF APPB DEVELOPMENT AND FRANCHISE AGRMT. APPLEBEE'S INTERNATIONAL, INC. DEVELOPMENT AND FRANCHISE AGREEMENT SCHEDULE AS OF DECEMBER 28, 1997
(3) (5) DATE OF DEVELOPMENT DEVELOPMENT (4) SCHEDULE (1) AGREEMENT OR TERRITORY (all or part (total DEVELOPER NAME (2) FRANCHISE of the states/countries restaurants/ AND ADDRESS PRINCIPALS AGREEMENT listed) OR LOCATION deadline) AB ENTERPRISES Joseph K. Wong 09-24-93 CA, OR 7/12-30-00 804 E. Cypress Anna Wong Amended: 03-10-95 Suite B Redding, CA 96002 A. 09-20-94 1801 Hilltop Drive Redding, CA B. 04-30-96 2030 Business Lane Chico, CA C. 11-26-96 1388 Biddle Road Medford, OR A.N.A., INC. Glenn D. Durham 10-10-91 AL, TN 12/04-30-99 822 Columbiana Road Fred W. Gustin Amended: 06-01-93 Birmingham, AL 35209 06-06-95 05-01-97 A. 02-14-89 601 Brookwood Village Mall Homewood, AL B. 10-09-90 1240 Eastdale Mall Montgomery, AL C. 02-26-92 3028 S. Memorial Parkway Huntsville, AL D. 11-19-92 100 Century Plaza 7520 Crestwood Boulevard Birmingham, AL E. 10-12-93 1700 Rainbow Drive Gadsden, AL F. 05-03-94 62 McFarland Boulevard Northport, AL G. 10-31-94 2041-A Beltline Road, S.W. Decatur, AL H. 01-24-95 302 Hughes Road Madison, AL I. 02-28-95 3001 Carter Hill Road -1- Montgomery, AL J. 10-04-95 360 Cahaba Valley Pelham, AL APPLE AMERICAN Donald W. Strang, Jr. 04-10-96 DE 4/12-31-98 OF DELAWARE Allen S. Musikantow 8905 Lake Avenue MCM Investments of A. 04-22-97 909 N. DuPont Highway Cleveland, OH 44102 Delaware, L.L.C. Dover, DE APPLE AMERICAN Donald W. Strang, Jr. 06-25-89 IN 23/12-31-98 LIMITED Allen S. Musikantow Amended: 01-15-90 PARTNERSHIP OF 04-24-91 INDIANA 06-24-92 8905 Lake Avenue 07-19-93 Cleveland, OH 44102 01-01-95 01-02-97 A. 10-16-89 5046 W. Pike Plaza Indianapolis, IN B. 06-18-90 4040 E. 82nd Street Indianapolis, IN C. 12-18-90 1436 W. 86th Street Indianapolis, IN D. 05-12-92 1050 Broad Ripple Avenue Indianapolis, IN E. 08-08-92 2415 Sagamore Pkwy., South Lafayette, IN F. 11-10-92 1241 U.S. 31 North, #L-5 Greenwood, IN G. 12-14-93 1900 25th Street Columbus, IN H. 06-08-94 14711 U.S. 31 North Carmel, IN I. 11-03-94 1423 W. McGalliard Road Muncie, IN J. 05-02-95 119 N. Baldwin Marion, IN K. 05-09-95 1922 E. 53rd Street Anderson, IN -2- L. 05-31-95 3720 S. Reed Road Kokomo, IN M. 06-12-95 2894 E. 3rd Street Bloomington, IN N. 11-21-95 5664 Crawfordsville Road Indianapolis, IN O. 02-13-96 700 N. Morton Street Franklin, IN P. 02-27-96 8310 East 96th Fishers, IN Q. 08-13-96 109 S. Memorial Drive New Castle, IN R. 10-15-96 2659 E. Main Street Plainfield, IN S. 12-12-96 1516 S. Washington Street Crawfordsville, IN T. 01-28-97 7345 E. Washington Street Indianapolis, IN U. 12-16-97 3009 Northwestern Avenue West Lafayette, IN APPLE AMERICAN Donald W. Strang, Jr. 04-10-96 NJ 8/12-31-99 LIMITED Allen S. Musikantow PARTNERSHIP OF A. 02-04-97 880 Berlin Road NEW JERSEY Voorhees, NJ 8905 Lake Avenue Cleveland, OH 44102 APPLE AMERICAN Donald W. Strang, Jr. 11-11-92 OH 24/12-31-98 LIMITED Allen S. Musikantow Amended: 07-19-93 PARTNERSHIP OF 12-01-94 OHIO 03-10-95 8905 Lake Avenue 07-31-95 Cleveland, OH 44102 08-01-97 A. 04-02-90 5658 Mayfield Road Lyndhurst, OH B. 06-26-90 5010 Great Northern Plaza South North Olmstead, OH -3- C. 11-20-91 3000 Westgate Mall Fairview Park, OH D. 01-19-93 4981 Dressler Road N. Canton, OH E. 08-31-93 508 Howe Avenue Cuyahoga Falls, OH F. 09-24-93 6871 Pearl Road Middlesburg Heights, OH G. 12-07-93 3989 Burbank Road Wooster, OH H. 12-06-94 8174 Mentor Avenue Mentor, OH I. 12-13-94 1023 N. Lexington-Springmill Rd. Ontario, OH J. 12-15-94 6140 S.O.M. Center Road Solon, OH K. 01-24-95 7159 Macedonia Commons Blvd. Macedonia, OH L. 05-23-95 4800 Ridge Road Brooklyn, OH M. 06-06-95 5503 Milan Road Sandusky, OH N. 10-31-95 1540 W. River Road Elyria, OH O. 02-20-96 4115 Pearl Street Medina, OH P. 03-05-96 411 Northfield Road Bedford Heights, OH Q. 08-07-96 233 Graff Road, S.E. New Philadelphia, OH R. 09-04-96 17771 S. Park Center Strongsville, OH S. 11-18-96 4296 Kent Road Stow, OH -4- T. 04-22-97 3938 W. Market Street Copley Township, OH U. 11-11-97 1020 High Street Wadsworth, OH APPLE AMERICAN Donald W. Strang, Jr. 05-07-91 WA 14/01-31-00 LIMITED Allen S. Musikantow Amended: 03-01-92 PARTNERSHIP OF 07-19-93 WASHINGTON 12-01-94 8905 Lake Avenue 02-12-96 Cleveland, OH 44102 A. 12-03-92 1842 S. SeaTac Mall Federal Way, WA B. 03-11-93 4626 196th Street, Southwest Lynnwood, WA C. 06-08-94 806 S.E. Everett Mall Way Everett, WA D. 11-30-94 3510 S. Meridian Puyallup, WA E. 07-18-95 17790 Southcenter Parkway Tukwila, WA F. 01-02-96 1919 S. 72nd Street Tacoma, WA G. 12-08-97 1300A N. Miller Street Wenatchee, WA APPLE Joe S. Thomson 04-09-96 AR, LA, OK, TX 8/05-31-98 ARKANSAS, INC. El Chico Restaurants P.O. Box 1867 of Arkansas Texarkana, TX 75504 A. 06-15-93 5110 Summerhill Road Texarkana, TX B. 10-19-93 9088 Mansfield Road Shreveport, LA C. 03-08-94 6818 Rogers Avenue Ft. Smith, AR D. 04-09-96 2126 Airline Drive Bossier City, LA -5- E. 05-29-96 4078 N. College Fayetteville, AR APPLE-BAY EAST, INC. Richard L. Winders 12-18-92 CA 9/12-31-99 2263 South Shore Center Howard L. Hatfield Amended: 02-19-94 Alameda, CA 94501 A. 06-14-94 2263 South Shore Center Alameda, CA B. 09-27-94 4301 N. 1st Street Livermore, CA C. 01-08-96 24041 Southland Drive Hayward, CA D. 12-17-96 2819 Ygnacio Valley Road Walnut Creek, CA E. 07-28-97 1369 Fitzgerald Drive Pinole, CA APPLE BY Ronald A. Caselli 12-24-92 CA 12/12-31-97 THE BAY, INC. Christian J. Knox Amended: 06-30-94 2200 Laurelwood Road 05-01-95 Santa Clara, CA 95054 A. 03-15-94 1041 Admiral Callaghan Lane Vallejo, CA B. 07-26-94 9105 E. Stockton Boulevard Elk Grove, CA C. 11-08-94 2170 Golden Centre Lane Gold River, CA D. 04-04-95 160 Nut Tree Parkway Vacaville, CA E. 10-02-95 2442 N. Kettleman Lane Lodi, CA F. 03-05-96 3900 Sisk Road Modesto, CA G. 08-18-97 6700 Stanford Ranch Road Roseville, CA H. 12-08-97 2659 W. March Lane Stockton, CA -6- APPLE BY Ronald A. Caselli 12-24-92 CA 9/12-31-98 THE BAY, INC. Christian J. Knox Amended: 02-28-94 2200 Laurelwood Road 05-01-95 Santa Clara, CA 95054 A. 05-05-94 8200 Arroyo Circle Gilroy, CA B. 08-22-95 84 Ranch Drive Milpitas, CA APPLE DESERT, L.C. Louis J. Burnett 12-07-94 AZ, CA 4/12-31-99 255 E. Brown Street Susan Burnett Amended: 05-01-95 Suite 210 David B. Pisaneschi Birmingham, MI 48009 Glenn W. Gray Robert L. Gray A. 04-16-96 3101 S. Fourth Avenue Yuma, AZ B. 08-12-97 32400 Date Palm Drive Cathedral City, CA APPLE DEVELOPMENT Peter W. Feldman 06-08-92 Curacao No Development ASSOCIATES I Henry DeRooy Amended: 01-24-94 Rights 777 Yamato Road 08-25-94 Suite 135 12-15-94 Boca Raton, FL 33431 Terminated: 12-01-95 A. 10-18-94 Oude Caracasbaaiweg NST 93 Closed Curacao, Netherlands Antilles APPLE EAST, INC. Edwin F. Scheibel, Jr. 08-05-94 CT 4/12-01-98 89 Taunton Hill Road Cynthia H. Scheibel Amended: 02-28-95 Newtown, CT 06470 01-04-96 11-01-96 A. 10-21-97 57 Federal Road Danbury, CT APPLE GOLD, INC. Michael D. Olander 07-01-94 NC, VA 29/01-31-98 170 Windchime Court Amended: 02-01-96 Raleigh, NC 27615 A. 06-10-85 1389 Kildair Farm Road Cary, NC B. 06-28-85 7471 Six Forks Road Raleigh, NC -7- C. 01-28-87 4004 Capital Boulevard Raleigh, NC D. 01-28-87 1508 E. Franklin Road Chapel Hill, NC E. 08-21-87 3400 Westgate Drive Durham, NC F. 09-10-87 2001 N. Main High Point, NC G. 06-13-88 476 Western Boulevard Jacksonville, NC H. 02-01-89 1120 N. Wesleyan Boulevard Rocky Mount, NC I. 01-22-90 3103 Garden Road Burlington, NC J. 07-31-90 202 S.W. Greenville Blvd. Greenville, NC K. 12-18-90 9616 E. Independence Blvd. Matthews, NC L. 01-03-91 3625 Hillsborough Street Raleigh, NC M. 07-01-91 10921 Carolina Place Pkwy. Pineville, NC N. 03-24-92 4406 W. Wendover Avenue Greensboro, NC O. 05-18-93 2180 Highway 70, Southeast Hickory, NC P. 09-29-93 1115 Glenway Drive Statesville, NC Q. 07-19-94 901 N. Spence Avenue Goldsboro, NC R. 10-18-94 8700 J.W. Clay Charlotte, NC S. 01-10-95 3200 Battleground Avenue Greensboro, NC T. 05-16-95 2239 W. Roosevelt Boulevard Monroe, NC -8- U. 09-19-95 5120 New Center Drive Wilmington, NC V. 11-07-95 1990 Griffin Road Winston-Salem, NC W. 12-19-95 1403 N. Sand Hills Blvd. Aberdeen, NC X. 03-05-96 1240 U.S. Highway 29 North Concord, NC Y. 04-29-96 3400 Clairndon Blvd. New Bern, NC Z. 11-12-96 2300 Forest Hills Road Wilson, NC a. 02-11-97 501 E. Six Forks Road Raleigh, NC b. 04-22-97 2702 Raeford Road Fayetteville, NC c. 10-07-97 1165 Highway 70 Garner, NC d. 12-16-97 205 Faith Road Salisbury, NC APPLE-METRO, INC. Roy Raeburn 03-23-94 NY 8/11-01-99 640 E. Boston Post Road Zane Tankel Amended: 04-01-95 Mamaroneck, NY 10543 A. 10-25-94 Staten Island Mall 2655 Richmond Avenue Staten Island, NY B. 06-06-95 640 E. Boston Post Road Mamaroneck, NY C. 11-07-95 430 New Dorp Lane Staten Island, NY D. 04-29-97 185 Bedford Road Mt. Kisco, NY E. 11-18-97 1 Mall Walk West Yonkers, NY -9- APPLE MIDDLE EAST Abdel Mohsen Al Homaizi 09-28-96 Bahrain, Egypt, Kuwait, 12/08-01-01 RESTAURANTS Apple Middle East LLC Lebanon, United Arab COMPANY, LLC Emirates P.O. Box 42 Safat 13001 KUWAIT A. 09-28-96 (to be determined) APPLE NORTH, INC. Martin Hittinger 08-30-91 NY No Development 80 Palisade Avenue Eddie G. Hittinger Amended: 11-27-92 Rights Cliffside Park, NJ 07010 Kenneth Brolin Terminated: 12-01-93 A. 03-11-92 Wappinger Plaza 1271 Route 9 Wappinger Falls, NY B. 08-10-93 194 Colonie Center Mall Albany, NY C. 11-21-95 18 Park Avenue Clifton Park, NY APPLE PARTNERS Thomas K. DeNomme 03-15-91 IL, MO No Development LIMITED Richard H. Adler Amended: 01-26-93 Rights PARTNERSHIP 10-21-94 Corporate Plaza II Terminated: 04-14-97 6480 Rockside Woods Boulevard, South Suite 380 Cleveland, OH 44131 A. 03-15-91 Orchard Bend 11977 St. Charles Rock Road Bridgeton, MO* B. 03-15-91 2921 S. Service Road St. Charles, MO* C. 06-17-91 11077 New Halls Ferry Road Florissant, MO* D. 03-17-92 Fairview Heights Plaza Shopping Center #47 Ludwig Drive Fairview Heights, IL* E. 06-02-92 9031 Watson Road St. Louis, MO* - -------- * Acquired by Applebee's International, Inc. 04/14/97 -10- F. 09-22-92 6734 Clayton Road Richmond Heights, MO* G. 04-06-93 1110 Big Bill Road Arnold, MO* H. 12-14-93 13560 N. Barrett Pkwy. Dr. Des Peres, MO* I. 08-23-94 105 Potomac Boulevard Mt. Vernon, IL* J. 04-08-96 2309 N. U.S. Highway 67 Florissant, MO* K. 04-22-96 14830 Manchester Road Ballwin, MO* APPLE PARTNERS Thomas K. DeNomme 01-26-93 OR, WA No Development LIMITED Richard H. Adler Amended: 06-17-93 Rights PARTNERSHIP 10-21-94 Corporate Plaza II 03-10-95 6480 Rockside Woods Terminated: 04-30-97 Boulevard, South Suite 380 Cleveland, OH 44131 APPLE William F. Palmer 02-01-89 GA 10/08-01-94 RESTAURANTS, INC. Theresa J. Palmer Amended: 04-08-92 4219 Pleasant Hill Road 07-31-92 Building 12-D, Suite B 03-25-93 Duluth, GA 30136 04-05-94 A. 02-01-89 655 Georgia Highway 120 Lawrenceville, GA B. 10-01-89 2445 Mall Boulevard Kennesaw, GA C. 10-15-90 1152 Old Salem Road Conyers, GA D. 03-11-91 Perimeter Mall, Suite 2054 4400 Ashford-Dunwoody Rd. Atlanta, GA E. 11-25-91 826 Turner McCall Boulevard Rome, GA F. 08-10-92 1705 Browns Bridge Road Gainesville, GA -11- G. 05-03-93 504 Lakeland Plaza Cumming, GA H. 02-21-94 2728 Spring Road Smyrna, GA I. 12-19-94 3676 Highway 138 Stockbridge, GA J. 03-21-95 226 W. Broad Street Athens, GA K. 05-08-95 1925 Highway 124 Snellville, GA L. 02-05-96 185 Cherokee Place Cartersville, GA M. 06-17-96 971 Bullsboro Drive Newnan, GA N. 02-24-97 1105 S. Park Street Carrollton, GA APPLE RESTAURANTS Benoit Wesley 07-01-94 The Netherlands, Belgium, 24/07-31-04 EUROPE, B.V. Roger L. Cohen Amended: 05-04-95 Luxembourg One Main Plaza 12-28-95 Suite 1000 12-09-96 Kansas City, MO 64111 A. 07-04-94 In De Cramer 169 6412 PM Heerlen The Netherlands B. 05-17-96 Gevers Deynootplein 32 2586CK Scheveningen HOLLAND C. 09-03-96 Wychenseweg 174 6538SX Nijmegen HOLLAND D. 06-30-97 Pierre de Coubertinweg 1 6225 XT Maastricht HOLLAND -12- APPLE RESTAURANTS William F. Palmer 03-25-93 FL No Development OF CENTRAL Theresa J. Palmer Amended: 04-22-93 Rights FLORIDA, L.P., LTD. 05-01-95 4219 Pleasant Hill Road Terminated: 04-30-97 Building 12-D, Suite B Duluth, GA 30136 APPLE SAUCE, INC. W. Curtis Smith 02-11-92 IN, OH 17/03-01-99 207 Grandview Drive James Paul Borke Amended: 10-20-92 Suite 125 08-25-94 Ft. Mitchell, KY 41017 10-05-94 03-02-97 A. 11-03-92 650 W. Lincoln Highway Schererville, IN B. 08-24-93 5788 Coventry Lane Ft. Wayne, IN C. 12-21-93 4510 N. Clinton Street Ft. Wayne, IN D. 11-15-94 4057 S. Franklin Street Michigan City, IN E. 04-25-95 670 Morthland Valparaiso, IN F. 07-04-95 6615 N. Main Street Granger, IN G. 09-19-95 266 E. Alexis Road Toledo, OH H. 11-07-95 3241 Interchange Drive Elkhart, IN I. 12-05-95 531 Dussel Road Maumee, OH J. 06-11-96 4702 Monroe Street Toledo, OH K. 06-17-96 8425 Broadway Merrillville, IN L. 07-30-96 3296 Elida Road Lima, OH M. 09-10-97 6525 Lima Road Ft. Wayne, IN -13- N. 10-28-97 2531 Tiffan Avenue Findlay, OH O. 11-25-97 1150 Ireland Road South Bend, IN P. 12-09-97 330 Ridge Road Munster, IN APPLE SAUCE, INC. W. Curtis Smith 09-09-92 FL 13/12-31-98 207 Grandview Drive James Paul Borke Amended: 09-30-93 Suite 125 10-05-94 Ft. Mitchell, KY 41017 03-28-95 A. 04-12-94 10135 Pines Boulevard Pembroke Pines, FL B. 07-12-94 12719 W. Sunrise Boulevard Sunrise, FL C. 02-15-95 1179 S. University Drive Plantation, FL D. 09-12-95 2729 University Drive Coral Springs, FL E. 10-10-96 9815 N.W. 41st Street Miami, FL APPLE SOUTH, INC. Tom E. DuPree, Jr. 01-06-85 GA, NC, SC */12-31-00 Hancock @ Washington Amended: 03-04-91 Madison, GA 30650 01-10-92 05-14-93 01-26-94 06-22-94 02-24-95 See Footnote Below A. 01-13-86 430 Congaree Road Greenville, SC B. 07-31-86 2344 Broad River Rd. @ I-20 Columbia, SC C. 01-28-87 7818 Rivers Avenue N. Charleston, SC - -------- *In the Spring of 1995, Apple South, Inc. acquired from Marcus Restaurants, Inc. territories previously held by it. As a part of the approval of that transaction, the development obligations under the Development Agreements granted to Apple South, Inc. have been generally combined for all territories. Apple South, Inc. is to have open for operation a total of 361 restaurants by 12/31/00. -14- (3) D. 01-28-87 3441 Clemson Boulevard Anderson, SC E. 01-28-87 9 Park Lane Hilton Head, SC F. 06-01-87 1859 Sam Rittenburg Charleston, SC G. 10-19-87 811 S. Irby Street Florence, SC H. 10-18-87 4505 Devine Street Columbia, SC I. 10-19-87 7602 Greenville Highway Spartanburg, SC J. 01-15-88 841 Broad Street Sumter, SC K. 06-01-89 24 N. Market Street Charleston, SC L. 04-11-89 1635 Four Seasons Boulevard Hendersonville, NC M. 01-08-90 1922 Augusta Street Greenville, SC N. 05-21-90 1360 Whiskey Road Aiken, SC O. 06-25-90 88 Old Trolley Road Summerville, SC P. 11-17-90 5055 Calhoun Memorial Blvd. Easley, SC Q. 12-30-90 115 Tunnel Road Asheville, NC R. 11-23-91 245 O'Neil Court Columbia, SC S. 06-27-92 704 Wade Hampton Blvd. Greer, SC T. 11-25-92 696 Bypass 123 Seneca, SC U. 06-27-93 1617 Bypass 72 Northeast Greenwood, SC -15- V. 07-28-93 227 Dave Lyle Boulevard Rock Hill, SC W. 09-24-93 3944 Grandview Drive Simpsonville, SC X. 11-22-93 1486 Stuart Engles Boulevard Mt. Pleasant, SC Y. 05-23-94 7915 N. Kings Highway Myrtle Beach, SC Z. 05-30-94 64 Beacon Drive Greenville, SC a. 07-25-94 1512 W. Floyd Baker Avenue Gaffney, SC b. 09-12-94 1268 Highway 9 Bypass Lancaster, SC c. 09-26-94 5185 Fernadina Road Columbia, SC d. 10-31-94 605 Columbia Avenue Lexington, SC e. 11-07-94 1655 Hendersonville Road Asheville, NC f. 12-05-94 1065 S. Big A Road Toccoa, GA g. 01-30-95 2360 Chestnut Street Orangeburg, SC h. 06-19-95 2338 Boundary Street Beaufort, SC i. 06-26-95 1271 Folly Road Charleston, SC j. 08-07-95 1221 Woodruff Road Greenville, SC k. 07-26-96 4910 Ashley Phosphate Road North Charleston, SC l. 11-17-97 1647 Church Street Conway, SC -16- APPLE SOUTH, INC. Tom E. DuPree, Jr. 09-24-86 FL */12-31-00 Hancock @ Washington Amended: 05-31-90 Madison, GA 30650 03-04-91 01-10-92 01-26-94 A. 02-09-87 13550 S. Tamiami Trail Ft. Myers, FL B. 05-16-88 10501 S. U.S. Highway 1 Port St. Lucie, FL C. 04-17-89 701 N. Congress Avenue Boynton Beach, FL D. 05-10-90 3971 S. Tamiami Trail Sarasota, FL E. 01-18-93 6775 W. Indiantown Road Jupiter, FL F. 10-12-93 6706 Forrest Hill Boulevard Green Acres, FL G. 01-31-94 4890 Okeechobee Road Ft. Pierce, FL H. 03-21-94 15151 N. Cleveland Avenue N. Ft. Myers, FL I. 03-28-94 20 Electric Drive Sarasota, FL J. 10-31-94 4329 S. Tamiami Trail Venice, FL K. 12-12-94 1975 Military Trail W. Palm Beach, FL L. 03-28-95 5082 Airport Pulling Rd., N. Naples, FL M. 05-01-95 3373 S.E. Federal Highway Stuart, FL N. 12-04-95 19010 Murdock Circle Port Charlotte, FL - -------- *See Footnote, Page 14. -17- O. 02-21-96 5335 20th Street Vero Beach, FL P. 03-05-96 2228 Del Prado Blvd. South Cape Coral, FL Q. 04-29-96 26801 S. Tamiami Trail Bonita Springs, FL R. 09-05-96 1720 S. Federal Highway Delray Beach, FL S. 09-05-96 100 U.S. Highway 441 Royal Palm Beach, FL T. 05-05-97 3167 N. Lake Blvd. Lake Park, FL APPLE SOUTH, INC. Tom E. DuPree, Jr. 06-06-88 AL, AR, MO, MS, TN */12-31-00 Hancock @ Washington Amended: 03-04-91 Madison, GA 30650 01-10-92 01-01-94 01-26-94 A. 05-26-88 2114 Union Avenue Memphis, TN B. 08-15-88 6025 Winchester Road Memphis, TN C. 12-19-88 900 E. County Line Road Ridgeland, MS D. 04-15-89 4835 American Way Memphis, TN E. 01-02-90 3703 Hardy Street Hattiesburg, MS F. 06-11-90 2890 Bartlett Road Bartlett, TN G. 05-25-92 3448 Poplar Avenue Memphis, TN H. 10-19-92 584 Carriage House Drive Jackson, TN - -------- *See Footnote, Page 14. -18- I. 11-16-92 1106 Germantown Parkway Cordova, TN J. 03-28-93 885 Barnes Crossing Road Tupelo, MS K. 09-10-93 2332 Highway 45 North Columbus, MS L. 09-24-93 6482 Poplar Avenue Memphis, TN M. 08-15-94 710 DeSoto Cove Horn Lake, MS N. 03-20-95 814 Highway 12 West Starkville, MS O. 04-29-95 9319 Highway 49 Gulfport, MS P. 05-23-95 929 Poplar Collierville, TN Q. 08-07-95 3954 Austin Peay Highway Memphis, TN R. 11-06-95 2389 Lakeland Drive Flowood, MS S. 01-15-96 106 Hwy 11 & 80 Meridian, MS T. 03-25-96 2700 Lake Road Dyersburg, TN U. 04-08-96 2019 Highway 15 North Laurel, MS APPLE SOUTH, INC. Tom E. DuPree, Jr. 06-19-88 IN, KY, MD, NC, OH, PA, */12-31-00 Hancock @ Washington Amended: 03-04-91 VA, WV, District of Madison, GA 30650 01-10-92 Columbia 01-26-94 12-23-94 02-24-95 A. 06-19-88 2159 Coliseum Drive Hampton, VA - -------- *See Footnote, Page 14. -19- B. 08-15-88 900 Moorefield Park Drive Richmond, VA C. 08-22-88 808 Lynnhaven Parkway Virginia Beach, VA D. 05-01-89 12235 Jefferson Avenue Newport News, VA E. 04-14-89 9601 W. Broad Street Glen Allen, VA F. 05-01-89 4535 Outer Loop Louisville, KY G. 04-11-89 9201 Hurstbourne Lane Louisville, KY H. 09-24-90 2225 Taylorsville Road Louisville, KY I. 07-15-91 Greentree Mall Hwy. 131 & Greentree Blvd. Clarksville, IN J. 12-14-91 3624 Candlers Mountain Road Lynchburg, VA K. 03-27-92 4717 Dixie Highway Louisville, KY L. 03-29-92 5400 W. Broad Street Richmond, VA M. 06-27-92 4942 Valley View Blvd., N/NW Roanoke, VA N. 09-21-92 2611 Hundred Road West Chester, VA O. 09-26-92 10823 Hull Street Richmond, VA P. 12-21-92 449 S. Park Circle Colonial Heights, VA Q. 01-29-93 12913 Shelbyville Road Louisville, KY R. 04-09-93 Regency Square Mall 1404 Parham Road Richmond, VA -20- S. 06-27-93 2790 Market Street, Northeast Christianburg, VA T. 08-16-93 4132 Portsmouth Boulevard Chesapeake, VA U. 09-07-93 14441 Brookfield Tower Dr. Chantilly, VA V. 09-20-93 12970 Fair Lakes Shopping Center Fairfax, VA W. 11-29-93 4340 Electric Road Roanoke, VA X. 12-13-93 5750 Virginia Beach Blvd. Norfolk, VA Y. 02-08-94 10600 Dixie Highway Louisville, KY Z. 02-28-94 1520 Sam's Circle Chesapeake, VA a. 02-28-94 410 Old Mountain Crossroad Danville, VA b. 04-18-94 281 W. Commonwealth Martinsville, VA c. 06-13-94 9625 Lee Highway Fairfax, VA d. 06-26-94 6310 Richmond Highway Alexandria, VA e. 07-11-94 7913 Sudley Road Manassas, VA f. 08-29-94 10151 Brook Road Glen Allen, VA g. 12-05-94 4040 Virginia Beach Blvd. Virginia Beach, VA h. 12-19-94 4100 N.W. Crain Highway Bowie, MD i. 02-06-95 3610 Crain Highway Waldorf, MD -21- j. 02-06-95 1426 Kempsville Road Virginia Beach, VA k. 05-22-95 571 Branchlands Boulevard Charlottesville, VA l. 05-29-95 5000 Shelbyville Road Louisville, KY m. 07-24-95 1496 Greenville Avenue Staunton, VA n. 07-31-95 755 Foxcroft Drive Martinsburg, WV o. 09-18-95 1206 N. Main Street Suffolk, VA p. 10-16-95 13850 Noblewood Plaza Woodbridge, VA q. 10-26-95 45480 Miramar Way California, MD r. 11-06-95 1756 General Booth Boulevard Virginia Beach, VA s. 11-13-95 4306 S. Lauburnum Avenue Richmond, VA t. 11-27-95 955 Edwards Ferry Road Leesburg, VA u. 12-04-95 1050 Wayne Avenue Chambersburg, PA v. 02-05-96 1481 Wesel Boulevard Hagerstown, MD w. 05-31-96 561 First Colonial Road Virginia Beach, VA x. 06-17-96 5613 Spectrum Drive Frederick, MD y. 06-17-96 7272 Baltimore Avenue College Park, MD z. 06-17-96 19 Mall Road Barboursville, WV AA. 09-05-96 389 S. John Scott Avenue Steubenville, OH -22- BB. 09-05-96 2851 Plank Road Fredericksburg, VA CC. 09-22-96 3 Dudley Farms Lane Charleston, WV DD. 10-07-96 1000 Largo Center Drive Largo, MD EE. 10-14-96 127 E. Broad Street Falls Church, VA FF. 10-14-96 50655 Valley Frontage Road St. Clairsville, OH GG. 10-21-96 21048 Frederick Road Germantown, MD HH. 11-18-96 802 Grand Central Avenue Vienna, WV II. 12-09-96 45979 Denizen Plaza Sterling, VA JJ. 05-20-97 100 Hylton Lane Beckley, WV KK. 05-20-97 791 N. Dual Highway Seaford, DE LL. 06-23-97 611 S. Hughes Blvd. Elizabeth City, NC MM. 06-23-97 60 Liberty Square Hurricane, WV NN. 07-28-97 105 West Lee Highway Warrenton, VA OO. 09-15-97 123 Meadowfield Lane Princeton, WV PP. 11-17-97 555 N. Solomons Island Road Prince Frederick, MD QQ. 11-24-97 1135 Third Avenue Huntington, WV RR. 12-15-97 1640 Richmond Road Williamsburg, VA SS. 12-15-97 1270 Ocean Outlet Rehoboth Beach, DE -23- APPLE SOUTH, INC. Tom E. DuPree, Jr. 04-24-91 KY, TN */12-31-00 Hancock @ Washington Amended: 01-10-92 Madison, GA 30650 01-26-94 07-27-94 A. 04-24-91 335 Harding Place Nashville, TN B. 04-24-91 718 Thompson Lane Nashville, TN C. 04-24-91 7645 U.S. Highway 70 South Nashville, TN D. 04-24-91 5270 Hickory Hollow Pkwy. Antioch, TN E. 12-31-91 2400 Elliston Place (Management Nashville, TN Agreement-- effective 01-23-92) F. 09-14-92 1720 Old Fort Parkway Suites C170 & C180 Murfreesboro, TN G. 11-25-92 5055 Old Hickory Boulevard Hermitage, TN H. 06-07-93 1420 Interstate Drive Cookeville, TN I. 11-22-93 2545 Scottsville Road Bowling Green, KY J. 05-30-94 230 E. Main Street Hendersonville, TN K. 12-19-94 1915 N. Jackson Street Tullahoma, TN L. 03-27-95 3066 Wilma Rudolph Blvd. Clarksville, TN M. 06-19-95 1557 N. Gallatin Pike Madison, TN - -------- *See Footnote, Page 14. -24- N. 09-26-95 1656 Westgate Circle Brentwood, TN O. 01-29-96 705 S. James Campbell Blvd. Columbia, TN P. 11-17-97 4089 Fort Campbell Blvd. Hopkinsville, KY APPLE SOUTH, INC. Tom E. DuPree, Jr. 05-12-92 FL, GA */12-31-00 Hancock @ Washington Amended: 01-26-94 Madison, GA 30650 07-27-94 A. 05-12-92 10502 San Jose Boulevard Jacksonville, FL B. 05-12-92 492 Blanding Boulevard Orange Park, FL C. 05-12-92 4194 S. 3rd Street Jacksonville Beach, FL D. 05-12-92 9498 Atlantic Boulevard Jacksonville, FL E. 05-12-92 9485 Bay Meadows Road Jacksonville, FL F. 06-07-93 225 State Road 312 St. Augustine, FL G. 03-31-94 177 Altama Connector Brunswick, GA H. 09-26-94 1901 Memorial Drive Waycross, GA I. 03-13-95 574 Busch Drive Jacksonville, FL J. 05-22-95 113 The Lake Boulevard Kingsland, GA K. 08-16-95 Route 17, Box 2219 Lake City, FL - -------- *See Footnote, Page 14. -25- L. 08-16-95 6251 103rd Street Jacksonville, FL M. 12-02-96 13201 Atlantic Blvd. Jacksonville, FL APPLE SOUTH, INC. Tom E. DuPree, Jr. 11-28-89 GA, KY, NC, TN, VA */12-31-00 Hancock @ Washington Amended: 08-23-91 Madison, GA 30650 04-15-92 04-12-94 07-27-94 A. 05-17-88 261 N. Peters Road Knoxville, TN B. 10-01-88 6928 Kingston Pike Knoxville, TN C. 02-14-89 1213 Oak Ridge Turnpike Oak Ridge, TN D. 07-24-90 1661 E. Stone Drive Kingsport, TN E. 09-11-90 1322 W. Walnut Avenue Dalton, GA F. 02-12-91 2342 Shallowford Village Rd. Chattanooga, TN G. 04-14-92 2100 N. Roane Street Johnson City, TN H. 01-12-93 358 Northgate Mall Chattanooga, TN I. 08-10-93 2564 Alcoa Highway Alcoa, TN J. 05-23-94 5316 Central Avenue Pike Knoxville, TN K. 08-29-94 168 Paul Huff Parkway Cleveland, TN L. 02-27-95 3216 E. Towne Circle Mall Knoxville, TN - -------- *See Footnote, Page 14. -26- M. 03-21-95 5536 Decatur Pike Athens, TN N. 03-27-95 2771 E. Andrew Johnson Hwy. Greeneville, TN O. 09-26-95 437 Parkway Gatlinburg, TN P. 10-23-95 2328 W. Andrew Jackson Morristown, TN Q. 09-23-97 425 Volunteer Pkwy. Bristol, TN APPLE SOUTH, INC. Tom E. DuPree, Jr. 04-25-95 IA, IL, MO, WI */12-31-00 Hancock @ Washington Amended: See Footnote, Madison, GA 30650 Page 14 A. 12-27-90 6845 E. State Street Rockford, IL B. 03-29-92 3024 Milton Avenue Janesville, WI C. 01-19-93 6301 University Avenue Cedar Falls, IA D. 08-24-93 105 Chestnut Ames, IA E. 12-14-93 3838 Elmore Avenue Davenport, IA F. 02-08-94 11410 Forest Clive, IA G. 07-26-94 6301 S.E. 14th Street W. Des Moines, IA H. 11-01-94 303 Collins Road Cedar Rapids, IA I. 09-18-95 3900 Merle Hay Road Des Moines, IA J. 06-04-96 6844 N. War Memorial Peoria, IL - -------- *See Footnote, Page 14. -27- K. 07-30-96 1771 Riverside Road Rockford, IL L. 08-12-96 1802 S. West Street Freeport, IL M. 09-05-96 1001 E. First Street Ankeny, IA N. 09-16-96 3805 41st Avenue Moline, IL O. 10-14-96 3920 E. Lincoln Way Sterling, IL P. 12-09-96 306 Cleveland Muscatine, IA Q. 01-01-97 3101 S. Center Street Marshalltown, IA R. 02-18-97 2810 5th Avenue South Fort Dodge, IA S. 07-21-97 3006 Fourth Street S.W. Mason City, IA T. 05-20-97 2414 Lincoln Way Clinton, IA U. 12-15-97 200 12th Avenue Center Coralville, IA APPLE SOUTH, INC. Tom E. DuPree, Jr. 07-11-90 MI, MN, WI */12-31-00 Hancock @ Washington Amended: 04-08-93 Madison, GA 30650 08-03-94 A. 09-19-90 2500 N. Mayfair Road Wauwatosa, WI B. 05-06-91 20101 W. Bluemound Road Waukesha, WI C. 09-06-91 5100 S. 76th Street Greendale, WI D. 08-04-92 5900 N. Port Washington Rd. Glendale, WI E. 04-13-93 660 S. Whitney Way Madison, WI - -------- *See Footnote, Page 14. -28- F. 05-18-93 4710 E. Towne Boulevard Madison, WI G. 08-16-93 3730 W. College Avenue Appleton, WI H. 05-30-94 900 Hansen Road Ashwaubenon, WI I. 11-28-94 4745 Golf Road Eau Claire, WI J. 01-23-95 2521 S. Greenbay Road Racine, WI K. 06-30-95 2221 W. Stewart Avenue Wausau, WI L. 02-19-96 1700 S. Koeller Road Oshkosh, WI M. 07-29-96 2420 W. Mason Street Greenbay, WI N. 09-05-96 4435 Calumet Avenue Manitowoc, WI O. 09-16-96 5609 Hwy. 10 East Stevens Point, WI P. 10-28-96 841 W. Johnson Street Fond Du Lac, WI Q. 11-11-96 2510 W. Washington West Bend, WI R. 02-11-97 3040 E. College Avenue East Appleton, WI S. 06-23-97 526 S. Taylor Drive Sheboygan, WI T. 07-01-97 9364 Highway 16 Onalaska, WI U. 11-17-97 W 180 N 9469 Premier Lane Menomonee Falls, WI -29- APPLE SOUTH, INC. Tom E. DuPree, Jr. IL, WI */12-31-00 Hancock @ Washington Madison, GA 30650 A. 11-22-91 One Schaumburg Place 601 Martingale Road Schaumburg, IL B. 09-09-92 354 W. Army Trail Road Bloomingdale, IL C. 02-16-93 60 Waukegan Road Deerfield, IL D. 03-23-93 Randhurst Shopping Center 999 Elmhurst Road Mt. Prospect, IL E. 11-15-93 880 S. Barringon Road Streamwood, IL F. 12-16-93 9380 Joliet Road Hodgkins, IL G. 04-08-94 5690 Northwest Highway Crystal Lake, IL H. 04-08-94 1191 E. Ogden Avenue Naperville, IL I. 06-30-95 4937 W. Cal-Sag Road Crestwood, IL J. 10-30-95 1040 N. Kenzie Bradley, IL K. 01-29-96 2411 Sycamore Road DeKalb, IL L. 02-05-96 6950 75th Street Kenosha, WI M. 02-26-96 1296 West Booughton Road Bolingbrook, IL N. 03-05-96 125 S. Randall Road Elgin, IL O. 06-04-96 2795 Plainfield Road Joliet, IL - -------- *See Footnote, Page 14. -30- P. 11-18-96 1690 S. Randall Road Geneva, IL Q. 12-10-96 6447 Grand Avenue Gurnee, IL R. 01-21-97 1700 N. Richmond Road McHenry, IL S. 01-21-97 251 N. Randall Road Lake in the Hills, IL T. 02-04-97 351 Rice Lake Square Wheaton, IL U. 06-24-97 16200 S. Harlem Avenue Tinley Park, IL V. 07-21-97 17575 Halsted Homewood, IL W. 08-18-97 741 E. Dundee Palatine, IL X. 09-22-97 400 Town Center Matteson, IL Y. 12-08-97 449 S. Route 59 Aurora, IL Z. 12-16-97 6656 W. Grand Avenue Chicago, IL APPLEBAY Leonard E. Rhode 03-18-93 CA 5/12-31-00 FOODS, INC. Beverly A. Rhode Amended: 05-27-94 100 W. El Camino Real 07-27-94 Suite 76 03-07-95 Mountain View, CA 94040 A. 12-19-95 2250 Santa Rosa Avenue Santa Rosa, CA B. 06-07-96 5301 Old Redwood Hwy. Petaluma, CA -31- APPLEJAM, INC. Frank DeAngelo 08-01-88 AL, FL, GA 8/10-01-98 P.O. Box 956308 Amended: 11-18-91 Duluth, GA 30136-9506 08-20-93 03-10-94 10-12-94 10-01-96 A. 12-01-88 1170 Appalachee Parkway Tallahassee, FL B. 02-14-89 1400 Village Square Blvd. Tallahassee, FL C. 04-17-90 637 Westover Boulevard Albany, GA D. 06-25-91 678 W. 23rd Street Panama City, FL E. 12-08-92 3050 Ross Clark Circle, S.W. Dothan, AL F. 05-10-94 1301 S. Augustine Road Valdosta, GA G. 08-23-94 1005 N.W. 13th Street Gainesville, FL H. 05-21-96 1401 Capital Circle, N.W. Tallahassee, FL APPLEJAM, INC. Frank DeAngelo 01-15-92 TX 6/12-31-98 P.O. Box 956308 Amended: 06-24-93 Duluth, GA 30136-9506 02-28-95 02-12-96 A. 07-19-93 5809 Loop 410 Northwest San Antonio, TX B. 04-12-94 97 Loop 410 Northeast San Antonio, TX C. 09-19-95 995 I-35 New Braunfels, TX D. 03-18-97 7880 Interstate Hwy. 35 N. San Antonio, TX E. 11-24-97 8224 Fredericksburg San Antonio, TX -32- APPLERAY, INC. E. Ray Morris 04-03-85 FL No Development 5660 Peachtree Bruce W. German Amended: 08-05-86 Rights Industrial Boulevard Alvin G. Kruse Terminated: 03-16-88 Venture Park, Bldg. #3 Norcross, GA 30071 A. 10-18-85 220 Wekiva Springs Road Closed: 09-23-97 Longwood, FL APPLEROCKET Cees Toor 01-22-96 Kingdom of Sweden 04/04-01-99 FRANCHISING AB Gerard Toor Hotel Restaurant Toor A. 01-22-96 Infra City Stationsplein 2 Uplands-Vasby 2405 Bk Alphen a/d Rijn SWEDEN HOLLAND BROOKLYN- Nicholas Katos 12-07-94 NY 4/06-30-98 APPLE, LTD. Michael Katos 164-17 Union Turnpike Stephen Katos Flushing, NY 11367 BRUNSWICK, GMbH Daniel Meyer 03-11-96 Berlin, Sachsen and 5/12-31-97 Brunswick Recreation Sachsen-Anhalt in Centers Federal Republic of 1 North Field Court Germany Lake Forest, IL 60045 A. 03-11-96 lm US-Play im Elebe Park Peschel Strasse 31 Dresden, GERMANY B. 08-26-96 AM Pfalberg 3 Magdeberg, GERMANY C. 09-02-96 Handelsstrasse 4 Leipzig, GERMANY B.T. WOODLIPP, INC. Larry Brown 11-15-95 PA, WV 11/12-31-98 Towne Centre Offices James T. Thomas 1789 S. Braddock Avenue Apple-Penn, Inc. Suite 340 John L. Turley Pittsburgh, PA 15218 Dan B. Turley, Jr. Larry Graves A. 06-11-90 The Bourse Shops 2101 Greentree Road Pittsburgh, PA -33- B. 05-28-91 North Hills Village Mall 4801 McKnight Road Pittsburgh, PA C. 11-12-91 Edgewood Towne Centre 1601 S. Braddock Avenue Pittsburgh, PA D. 08-09-93 2045 Lebanon Church Road West Mifflin, PA E. 01-10-94 4039 Washington Road McMurray, PA F. 10-21-96 425 Galleria Drive Johnstown, PA G. 01-13-97 110 Logan Valley Road Altoona, PA CAFE VENTURES, INC. William F. Palmer 04-11-83 GA 5/04-11-93 4219 Pleasant Hill Road Mickey Munir (Employment Building 12-D, Suite B Lovay Sharif Agreement) Duluth, GA 30136 A. 10-01-85 490 Franklin Road Marietta, GA B. 05-12-86 2095 Pleasant Hill Duluth, GA C. 07-18-87 11070 Alpharetta Roswell, GA D. 05-26-88 5200 Highway 78 Stone Mountain, GA CALABEE'S, INC. John R. Bifone 08-27-92 CA 2/09-01-94 444 N. Amelia Ave., #3C Amended: 09-29-92 San Dimas, CA 91773 09-30-93 08-01-94 05-01-95 A. 08-10-93 674 W. Arrow Highway San Dimas, CA B. 10-31-94 300 S. California West Covina, CA -34- C. 09-17-96 502 W. Huntington Drive Monrovia, CA D. 12-16-96 9241 Monte Vista Avenue Montclair, CA CAN-APPLE Joseph Mandolfo 05-19-93 Manitoba, Canada 5/12-31-96 INVESTMENTS INC. Nancy Mandolfo Amended: 03-24-94 P.O. Box 280 10-24-94 Plattsmouth, NE 68048 12-30-94 02-28-95 A. 06-24-94 2065 Pembina Highway Winnipeg, Manitoba CANADA B. 11-03-95 1150 Grant Avenue Winnipeg, Manitoba CANADA C. 12-09-97 1598 Regent Avenue Winnipeg, Manitoba CANADA CAN-APPLE Joseph Mandolfo 03-01-95 Alberta, Canada 12/06-30-01 INVESTMENTS INC. Nancy Mandolfo P.O. Box 280 Plattsmouth, NE 68048 A. 03-01-95 10338 109th Street Edmonton, Alberta Canada B. 01-05-96 13006 50th Street Edmonton, Alberta Canada CASUAL RESTAURANT Franklin W. Carson 06-23-89 FL CONCEPTS, INC. Terminated: 08-23-91 Tampa Bay Marina Center 205 S. Hoover St., #402 Tampa, FL 33609 A. 01-23-90 5110 East Bay Drive Clearwater, FL B. 05-15-90 30180 U.S. Highway 19 N. Clearwater, FL -35- CASUAL RESTAURANT Franklin W. Carson 08-11-92 FL 11/06-30-99 CONCEPTS, INC.* Amended: 05-14-93 Tampa Bay Marina Center 11-15-93 205 S. Hoover St., #402 02-02-94 Tampa, FL 33609 08-03-94 02-28-95 03-01-97 07-01-97 A. 06-07-93 5779 E. Fowler Avenue Temple Terrace, FL B. 02-02-94 4301 Cortez Road Bradenton, FL C. 01-16-95 4700 4th Street, North St. Petersburg, FL D. 07-03-95 10911 Starkey Road Largo, FL E. 06-18-96 3255 University Pkwy. Bradenton, FL F. 06-18-96 3702 W. McKay Avenue, S. Tampa, FL G. 04-14-97 829 Providence Road Brandon, FL H. 07-21-97 4835 S. Florida Avenue Lakeland, FL I. 09-29-97 1465 McMullen Booth Road Clearwater, FL CONCORD Lawrence S. Bird 07-01-91 KS, MO, NE 8/08-31-99 HOSPITALITY, INC. Amended: 07-05-91 P.O. Box 6212 11-27-94 Lincoln, NE 68516 01-31-95 09-01-95 09-01-97 A. 04-07-92 100 Manhattan Town Center 3rd & Poyntz, Suite P-5 Manhattan, KS - -------- * Casual Restaurant Concepts II, Inc. merged into Casual Restaurant Concepts, Inc. 12/30/96 -36- B. 06-03-92 5928 S.W. 17th Street Topeka, KS C. 04-20-93 3730 Village Drive Lincoln, NE D. 08-09-94 4004 Frederick Boulevard St. Joseph, MO E. 08-15-95 102 Platte Oasis Parkway North Platte, NE F. 07-30-96 6100 O Street Lincoln, NE CONCORD Lawrence S. Bird 09-07-93 OK, NM, TX 5/09-30-98 HOSPITALITY, INC. Amended: 09-01-94 P.O. Box 6212 11-27-94 Lincoln, NE 68516 11-29-95 A. 04-22-94 2714 Soncy Road Amarillo, TX B. 05-27-94 4025 S. Loop 289 Lubbock, TX C. 10-16-95 2911 Kemp Boulevard Wichita Falls, TX D. 09-16-96 6211 N.W Cache Road Lawton, OK CONCORD Lawrence S. Bird 10-25-95 NE, WY 3/06-30-99 HOSPITALITY, INC. P.O. Box 6212 Lincoln, NE 68516 A. 08-03-94 2621 5th Avenue Scottsbluff, NE B. 10-22-96 3209 Grand Avenue Laramie, WY -37- EHI REALTY, INC. Edward W. Doherty 08-30-91 NJ 10/06-30-99 7 Pearl Court William A. Johnson Amended: 12-10-92 Allendale, NJ 07401 07-31-93 08-03-94 07-01-97 A. 10-26-93 1282 Centennial Avenue Piscataway, NJ B. 12-07-93 14 Park Road Tinton Falls, NJ C. 11-09-94 Fashion Center Mall 17 North & Ridgewood East Paramus, NJ D. 06-13-95 1599 Route 22, West Watchung, NJ E. 11-21-95 52 Brick Plaza Brick, NJ F. 04-16-96 Rt. 46 @ Riverview Drive Totowa, NJ G. 11-12-96 251 Woodbridge Ctr. Drive Woodbridge, NJ H. 08-19-97 112 Eisenhower Parkway Livingston, NJ I. 08-09-96 1057 Route 46 East Parsippany, NJ EHI REALTY, INC. Edward W. Doherty 11-06-96 NJ 3/08-31-99 7 Pearl Court William A. Johnson Allendale, NJ 07401 EJM Myron Thompson 06-29-90 MN, ND No Development ENTERPRISES, INC. Joseph J. Deck Amended: 09-03-90 Rights P.O. Box 0969 Engen Eckmann Terminated: 08-16-93 Minot, ND 58702-0969 A. 11-13-90 2302 15th Street, S.W. Minot, ND B. 04-14-92 434 S. 3rd Bismarck, ND -38- EL APPLE, INC. John M. Verlander 05-23-94 NM, TX 6/05-31-98 5835 Onix, Suite 300 James J. Gore Amended: 03-07-95 El Paso, TX 79912 A. 05-27-94 5800 N. Mesa El Paso, TX B. 03-13-95 1766 Airway Boulevard El Paso, TX C. 11-01-95 7956 Gateway East El Paso, TX D. 06-27-96 2501 E. Lohman Las Cruces, NM E. 08-29-96 4700 Woodrow Bean El Paso, TX F. 03-25-97 1985 George Dieter El Paso, TX GRANDAPPLE, L.L.C. Myron Thompson 12-07-93 MN, ND 4/10-31-98 P.O. Box 0969 Engen Eckmann Amended: 03-27-95 Minot, ND 58702-0969 03-28-95 11-01-96 A. 12-07-93 2351 S. Columbia Road Grand Forks, ND B. 11-08-94 2800 13th Avenue, Southwest Fargo, ND C. 12-19-95 289 15th Street, West Dickinson, ND GULF COAST Thomas G. Kellogg 04-30-96 LA, MS 7/03-31-99 RESTAURANTS, INC. Kathryn G. Kellogg Amended: 02-19-97 2320 Oak Road 04-01-97 Building G, Suite 202 Snellville, GA 30278 A. 08-14-89 1000 W. Esplanada Avenue Kenner, LA B. 06-18-90 3701 Veterans Memorial Boulevard Metarie, LA -39- C. 04-07-92 850 I-10 Service Road Slidell, LA D. 03-02-93 315 N. Highway 190 Covington, LA E. 12-21-93 5630 Johnston Street Lafayette, LA F. 11-14-95 4005 General DeGaulle New Orleans, LA G. 01-14-97 1220 Clearview Pkwy. Harahan, LA GULF COAST Thomas G. Kellogg 01-30-96 LA, MS 6/12-31-98 RESTAURANTS, INC. Kathryn G. Kellogg Amended: 02-19-97 2320 Oak Road Building G, Suite 202 Snellville, GA 30278 A. 07-18-94 3006 College Drive Baton Rouge, LA B. 05-09-95 4808 S. Sherwood Forest Baton Rouge, LA C. 01-30-96 9702 Airline Highway Baton Rouge, LA D. 06-04-96 1500 MacArthur Drive Alexandria, LA E. 07-29-97 3624 Ryan Lake Charles, LA J.S. VENTURES, INC. James H. Stevens 10-10-92 IA, KS, MO, NE 12/12-31-98 1130 Haskell Amended: 05-14-93 Wichita, KS 67213 10-20-93 02-28-95 01-01-97 A. 08-07-89 6730 W. Central Wichita, KS B. 01-15-91 2035 N. Rock Road, Ste. 101 Wichita, KS C. 09-22-92 3350 S. 143rd Place Omaha, NE -40- D. 12-14-93 2875 S. 9th Salina, KS E. 07-05-94 4760 S. Broadway Wichita, KS F. 11-08-94 7450 W. Dodge Street Omaha, NE G. 02-28-95 1609 E. 17th Street Hutchinson, KS H. 06-04-96 13208 W. Maple Road Omaha, NE I. 01-21-97 4101 N. Vine Hays, KS J. 08-11-97 1230 N. Washington Omaha, NE KEYSTONE Stephen H. Davenport 05-14-93 PA 7/12-31-00 APPLE, INC. Amended: 03-28-95 P.O. Box 616 Lemoyne, PA 17043-0616 A. 05-04-94 4401 Jonestown Road Harrisburg, PA B. 05-16-95 1181 Mae Street Hummelstown, PA C. 06-17-97 2321 Lincoln Highway Lancaster, PA D. 08-19-97 6055 Carlisle Pike Mechanicsburg, PA CHRISTIAN J. KNOX Christian J. Knox 2200 Laurelwood Road Santa Clara, CA 95054 A. 12-19-94 311 Lake Merced Daly City, CA K.S. APPLE, INC. Nicholas Katos 12-07-94 NY 6/06-30-99 164-17 Union Turnpike Michael S. Shaevitz Amended: 03-07-95 Flushing, NY 11367 A. 04-30-97 213-29 26th Avenue Bayside, NY -41- MARANO Leon J. Marano 06-25-91 CA 5/12-31-95 ENTERPRISES, INC. Amended: 03-01-93 96 Shaw Avenue 06-30-94 Suite 232 Clovis, CA 93612 A. 06-23-92 Fig Garden Village 5126 N. Palm Avenue Fresno, CA B. 08-31-93 98 Shaw Avenue Clovis, CA C. 12-12-94 1665 W. Lacey Boulevard Hanford, CA D. 06-20-95 7007 N. Cedar Fresno, CA E. 03-05-96 3604 West Shaw Fresno, CA F. 06-10-97 5325 Avenida De Los Robles Visalia, CA G. 08-12-97 9000 Ming Avenue, Suite M Bakersfield, CA MERCER ROSE, L.P. Harold T. Rose 02-01-96 NJ 127 South State Street Assigned: 01-01-97 Newton, PA 18940 MILLER APPLE William M. Wentworth 07-20-92 MI, WI 9/12-31-98 LIMITED Elizabeth Wentworth Amended: 11-04-92 PARTNERSHIP 09-28-93 G-4488 Bristol Road 07-18-94 Flint, MI 48507 02-28-95 05-15-97 A. 11-16-93 G3131 Miller Road Flint, MI B. 12-15-94 2260 Tittabawassee Saginaw, MI C. 11-28-95 4135 N. Court Street Burton, MI D. 06-04-96 2384 U.S. 31 South Traverse City, MI -42- E. 07-01-97 3500 Wilder Bay City, MI F. 10-28-97 8800 Main Street Birch Run, MI MILOMEL, GEKAT General 10-27-96 Bulgaria, Serbia & 9/12-31-02 THESSALONIKI, LTD. Constructions, S.A. Scopia, Romania 1050 Crown Pointe Pkwy. Nikos Koubatis Hellenic Rep. of Greece Crown Pointe Tower 2000 Mihalis Papaloupulos Greece controlled Island Suite 310 Island of Cyprus Atlanta, GA 30338 A. 10-27-96 11th Kilometer National Rd. Thessaloniki - Airport GREECE O.K. APPLE, INC. Michael D. Olander 03-01-96 KS, OK 10/12-31-98 P.O. Box 1291 Lumberton, NC 28359 A. 01-26-93 3900 S. Elm Place Broken Arrow, OK B. 06-15-93 4733 S. Yale Avenue Tulsa, OK C. 09-21-93 9409 E. 71st Street Tulsa, OK D. 06-20-95 3521 S. Broadway Edmond, OK E. 05-01-96 317 N. Perkins Stillwater, OK F. 07-30-96 500 Ed Noble Pkwy. Norman, OK G. 03-04-97 415 W. Shawnee Muskogee, OK H. 05-13-97 3616 W. Garriot Enid, OK O.K. APPLE, INC. Michael D. Olander 10-29-96 AR, MO 6/12-31-99 P.O. Box 1291 Lumberton, NC 28359 -43- A. 09-13-93 4333 Warden Road Little Rock, AR B. 11-09-94 4426 Central Avenue Hot Springs, AR C. 06-19-95 12110 Chenal Parkway Little Rock, AR PACIFIC APPLE Joseph J. Lal 01-01-96 CA 4/12-31-98 CALIFORNIA, INC. Renu Lal 7311 Greenhaven Drive Suite 270 Sacramento, CA 95831 A. 03-18-94 1415 S. Bradley Santa Maria, CA B. 09-26-95 305 Madonna Road San Luis Obispo, CA PACIFIC APPLE FOODS Joseph J. Lal 09-24-93 ID, OR, WA 4/04-30-96 CORPORATION Renu Lal Amended: 10-11-93 7311 Greenhaven Drive 02-28-95 Suite 270 Sacramento, CA 95831 A. 10-03-95 280 Hanley Coeur D'Alene, ID B. 11-10-95 12217 E. Mission Avenue Spokane, WA C. 01-04-96 606 N. Columbia Ctr. Blvd. Kennewick, WA D. 06-04-96 4007 29th Street Spokane, WA PACIFIC APPLE Joseph J. Lal 04-30-97 OR, WA 8/12-31-00 OREGON, INC. 7311 Greenhaven Drive A. 07-13-93 1220 N.W. 185th Avenue Suite 270 Beaverton, OR* Sacramento, CA 95831 B. 11-09-93 6325 S.W. Meadows Road Lake Oswego, OR* - -------- * Acquired from Apple Partners Limited Partnership 04/30/97 -44- C. 12-22-95 Lancaster Mall 747 Lancaster Drive, N.E. Salem, OR* D. 04-24-96 12717 S.E. 2nd Circle Vancouver, MA* E. 11-18-96 1439 N.E. Halsey Portland, OR* F. 04-10-97 10004 NE Halsey Portland, OR G. 09-08-97 10172 SE 82nd Street Clakamas, OR PACIFIC GOLD, INC. Michael Olander 04-03-96 CA 10/06-30-01 170 Windchime Court Raleigh, NC 27614 A. 11-15-94 18279 Brookhurst Street Fountain Valley, CA B. 04-03-96 1238 W. Imperial Highway La Habra, CA PACIFIC GOLD, INC. Michael Olander 10-14-96 CA 11/12-31-99 170 Windchime Court Raleigh, NC 27615 A. 01-01-96 4070 E. Highland Avenue Highland, CA B. 01-01-96 2046 Redlands Blvd. Redlands, CA C. 01-01-96 3820 Mulberry Riverside, CA D. 01-01-96 521 N. McKinley Corona, CA E. 01-01-96 3956 Grand Avenue Chino, CA F. 01-01-96 10709 Foothill Blvd. Rancho Cucamonga, CA G. 10-07-97 26531 Aliso Creek Road Aliso Viejo, CA -45- PORTER Todd G. Porter 10-09-92 IA, MN, MT, NE, SD, WY 5/09-29-98 APPLE COMPANY Amended: 03-28-94 4305 S. Louise Avenue 10-01-97 Suite 101-B Sioux Falls, SD 57106 A. 06-05-91 3800 S. Louise Avenue Sioux Falls, SD B. 08-17-93 1700 Hamilton Boulevard Sioux City, IA C. 08-09-94 4555 Southern Hills Dr., #106 Sioux City, IA D. 12-05-95 2160 Haines Avenue Rapid City, SD RCI IDAHO, LLC Stephen A. Grove 08-29-96 ID, OR 4/06-30-99 400 Interstate N. Parkway Suite 1200 A. 06-02-97 635 N. Utah Avenue Atlanta, GA 30339 Idaho Falls, ID B. 07-28-97 1587 Blue Lake Blvd. Twin Falls, ID RCI NEW Stephen A. Grove 08-10-96 NM 6/07-31-99 MEXICO, LLC 400 Interstate N. Parkway Suite 1200 Atlanta, GA 30339 A. 12-16-96 2212 North Main Roswell, NM 88201 B. 09-22-97 4246 Cerrillos Road Santa Fe, NM C. 10-27-97 4601D E. Main St. Farmington, NM R.C.I. WEST, INC. Stephen A. Grove 12-21-88 CO 19/12-31-98 400 Interstate N. Pkwy. Amended: 03-18-91 Suite 970 01-02-92 Atlanta, GA 30339 12-04-92 01-01-95 01-01-97 -46- A. 10-02-89 3301 Tamarac Drive Denver, CO B. 10-23-90 5250 S. Wadsworth Boulevard Lakewood, CO C. 06-08-92 4306 S. College Avenue Ft. Collins, CO D. 09-07-92 14091 E. Iliff Avenue Aurora, CO E. 10-05-92 8292 S. University Boulevard Littleton, CO F. 04-12-93 410 S. Colorado Boulevard Glendale, CO G. 11-15-93 100 W. 104th Avenue Northglenn, CO H. 01-24-94 9010 N. Wadsworth Parkway Westminster, CO I. 03-21-94 6405 W. 120th Avenue Broomfield, CO J. 05-30-94 1250 S. Hover Road Building 10-A Longmont, CO K. 08-29-94 1906 28th Street Boulder, CO L. 10-31-94 10625 W. Colfax Avenue Lakewood, CO M. 12-19-94 297 E. 120th Avenue Thornton, CO N. 03-13-95 592 S. McCaslin Boulevard Louisville, CO O. 06-26-95 10440 E. Arapahoe Road Englewood, CO P. 10-23-95 5265 Wadsworth Boulevard Arvada, CO Q. 12-08-97 213 E. 29th Loveland, CO -47- R.C.I. WEST, INC. Stephen A. Grove 12-22-92 CO 8/12-01-99 400 Interstate N. Pkwy. Amended: 03-19-93 Suite 970 07-19-94 Atlanta, GA 30339 03-07-95 09-01-95 09-01-97 A. 10-03-94 1360 Cragin Road Colorado Springs, CO B. 04-03-95 3428 N. Elizabeth Pueblo, CO C. 07-10-95 3708 E. Galley Colorado Springs, CO D. 11-27-95 711 Horizon Drive Grand Junction, CO E. 05-06-96 4100 West 10th Street Greeley, CO RENAISSANT Anthony R. Alvarez 08-27-92 TX 3/03-31-95 DEVELOPMENT Estella M. Alvarez Amended: 10-20-93 CORPORATION 05-01-95 8000 I-10 West Suite 1150 San Antonio, TX A. 12-07-93 514 E. Expressway 83 McAllen, TX B. 08-25-94 4601 N. 10th Street N. McAllen, TX C. 10-18-94 7601 San Dario Laredo, TX D. 07-25-95 2960 Boca Chica Boulevard Brownsville, TX E. 10-23-95 1519 W. Harrison Harlingen, TX RENAISSANT Anthony R. Alvarez 10-23-95 TX 2/10-31-97 DEVELOPMENT Estella M. Alvarez CORPORATION 8000 I-10 West Suite 1150 San Antonio, TX 78230 -48- A. 12-19-95 6490 N. Navarro Victoria, TX RESTAURANT Stephen A. Grove 11-02-90 AL, GA 9/06-30-96 CONCEPTS, INC. Amended: 10-10-93 400 Interstate N. Pkwy. 07-01-94 Suite 970 Atlanta, GA 30339 A. 06-17-85 2301 Airport Thruway, #F-1 Columbus, GA B. 06-17-85 3150 Wrightsboro Road Augusta, GA C. 01-28-87 3117 Washington Road Augusta, GA D. 08-21-87 480 Mall Boulevard Savannah, GA E. 04-01-91 595 Bobby Jones Expressway Augusta, GA F. 06-28-92 165 Tom Hill, Sr. Boulevard Macon, GA G. 05-17-93 3229 Gentian Boulevard Columbus, GA H. 07-26-93 1627-34 Opelika Road Auburn, AL I. 10-25-93 11120 Abercorn Savannah, GA J. 04-04-94 314 Russell Parkway Warner Robbins, GA K. 09-05-94 4705 Highway 80 Savannah Island, GA L. 12-05-94 612 E. Hamric Avenue Oxford, AL M. 06-05-95 2574 Riverside Drive Macon, GA N. 10-30-95 3652 Eisenhower Macon, GA -49- ROSE CASUAL Harold T. Rose 08-04-93 MD 10/06-30-00 DINING, L.P. Amended: 09-09-94 127 S. State Street 02-28-95 Newtown, PA 18940 A. 01-17-95 2141 Generals Highway Annapolis, MD B. 10-31-95 2703 N. Salisbury Boulevard Salisbury, MD C. 05-13-96 6505 Baltimore National Pike Catonsville, MD D. 12-10-96 8610 LaSalle Road Towson, MD E. 11-11-97 634 Baltimore Blvd. Westminster, MD ROSE CASUAL Harold T. Rose *02-01-96 NJ 03/08-31-99 DINING, L.P. Amended: 09-01-97 127 S. State Street Newtown, PA 18940 A. 01-21-97 3330 Brunswick Pike Lawrenceville, NJ B. 03-04-97 333 State Route 33 Trenton, NJ ROSE CASUAL Harold T. Rose **02-01-96 PA 04/12-31-99 DINING, L.P. Amended: 09-01-97 127 S. State Street Newtown, PA 18940 A. 06-02-97 939 New Berwick Highway Bloomsburg, PA RYAN RESTAURANT William O. Ryan 03-05-96 MT 5/12-31-97 CORPORATION Beverly R. Ryan 790 King Park Drive Billings, MT 59102 A. 11-23-93 740 24th Street, West Billings, MT - -------- * Assigned from Mercer Rose, L.P. 01/01/97 ** Assigned from Scranton Rose, L.P. 01/01/97 -50- B. 03-05-96 1108 North 7th Avenue Bozeman, MT C. 07-24-96 4041 Highway 93 South Missoula, MT D. 12-10-96 1200 E. Idaho Kalispell, MT E. 09-02-97 1212 Custer Helena, MT SCOTT'S APPLE, INC. Nicholas C. Scott 08-26-92 PA 2/10-31-94 4045 W. 12th Street Amended: 10-30-93 Erie, PA 16505 A. 01-24-94 7790 Peach Street Erie, PA B. 03-21-95 2911 W. 12th Street Erie, PA C. 12-12-97 11227 Shaw Avenue Meadville, PA SCRANTON ROSE, L.P. Harold T. Rose 02-01-96 PA 127 South State Street Assigned: 01-01-97 Newton, PA 18940 SPECTRUM APPLE, L.P. John D. Gantes 08-11-94 CA 10/11-30-00 P.O. Box 80340 Linda B. Gantes Amended: 03-28-95 Rancho Santa Margarita, CA 92688 A. 09-05-95 23626 Valencia Boulevard Santa Clarita, CA B. 04-16-96 39720 N. 10th Street West Palmdale, CA C. 07-30-96 291 Ventura Blvd. Camarillo, CA D. 08-26-97 3980 Thousand Oaks Blvd. Thousand Oaks, CA -51- SUNSHINE APPLE Lois J. Sedowicz 03-20-97 FL 11/12-31-00 (GEORGIA), LIMITED PARTNERSHIP A. 07-26-93 1545 Palm Bay Road 5555 Oakbrook Pkwy. Melbourne, FL* Suite 355 Norcross, GA 30093 B. 11-22-93 100 Sykes Creek Pkwy. North Merritt Island, FL* C. 04-18-94 12103 Collegiate Way Orlando, FL* D. 06-26-95 2599 Enterprise Road Orange City, FL* E. 10-23-95 3001 W. Eau Gellie Blvd. Melbourne, FL* F. 02-12-96 150 Williamson Blvd. Ormond Beach, FL* G. 08-19-96 1390 Dunlawton Avenue Port Orange, FL* T.L. CANNON Matthew J. Fairbairn 06-22-90 NY, PA 13/12-01-98 CORPORATION David Stein Amended: 01-17-92 201 ATP Tour Blvd. 03-01-94 Suite 120 10-03-94 Ponte Vedra Beach, FL 32082 07-01-96 A. 03-12-91 3050 Winton Road South Rochester, NY B. 09-30-91 5017 Transit Road Williamsville, NY C. 06-23-92 3 Builders Square 4405 Milestrip Road Hamburg, NY D. 07-21-92 585 Moseley Road Fairport, NY E. 08-24-93 200 Paddy Creek Circle Rochester, NY F. 08-23-94 1683 E. Ridge Road Rochester, NY - -------- * Acquired from Apple Restaurants of Central Florida, L.P., Ltd. -52- G. 10-04-94 1900 Military Road Niagara Falls, NY H. 11-22-94 1641 Niagara Falls Boulevard Amherst, NY I. 06-20-95 1955 Empire Boulevard Webster, NY J. 08-29-95 5822 S. Transit Road Lockport, NY K. 04-02-96 340 E. Fairmount Avenue Lakewood, NY L. 07-30-96 2656 Delaware Avenue Buffalo, NY M. 04-22-97 3637 Union Road Checktowaga, NY T.L. CANNON Matthew J. Fairbairn 12-22-92 NY 7/06-30-99 CORPORATION David Stein Amended: 02-03-93 201 ATP Tour Blvd. 04-08-94 Suite 120 05-01-95 Ponte Vedra Beach, FL 32082 05-15-97 A. 09-28-93 3189 Erie Boulevard, East De Witt, NY B. 07-06-94 628 S. Main Street N. Syracuse, NY C. 02-13-95 3975 Route 31 Liverpool, NY D. 01-10-96 877 Country Route 64 Elmira, NY T.L. CANNON Matthew J. Fairbairn 08-14-96 NY, PA 6/12-31-00 CORPORATION David Stein 201 ATP Tour Blvd. A. 09-09-97 3701 Vestal Parkway East Suite 120 Vestal, NY Ponte Vedra Beach, FL 32082 -53- T.L. CANNON Matthew J. Fairbairn 05-15-97 NY 4/12-31-00 CORPORATION David Stein 201 ATP Tour Blvd. Suite 120 Ponte Vedra Beach, FL 32082 T.S.S.O., INC. Lois J. Sedowicz 01-15-92 AL, FL, MS 7/06-30-99 5555 Oakbrook Parkway Amended: 08-30-93 Suite 320 03-28-95 Norcross, GA 30093 08-01-95 07-01-97 A. 04-30-85 5760 Airport Boulevard Mobile, AL B. 03-31-86 5091 Bayou Boulevard Pensacola, FL C. 08-15-88 330 Mary Esther Cutoff Mary Esther, FL D. 01-24-91 5701 Emerald Coast Parkway - Sandestin Destin, FL E. 12-06-93 4940 Government Boulevard Mobile, AL F. 07-10-95 165 E. Nine Mile Road Pensacola, FL T.S.S.O., INC. Frank C. Sedowicz 11-20-91 IA, IL, MO 6/12-31-97 5555 Oakbrook Parkway Lois J. Sedowicz Amended: 04-07-93 Suite 320 08-16-93 Snellville, GA 30278 A. 11-02-92 3335 Veterans Parkway Springfield, IL B. 08-16-93 1966 N. Henderson Street Galesburg, IL C. 08-29-94 405 N. Main E. Peoria, IL D. 10-17-94 1275 S. Route 51 Forsyth, IL E. 11-07-94 502 N. Veterans Parkway Bloomington, IL -54- F. 08-28-95 116 S. Roosevelt Burlington, IA G. 02-26-96 3827 Broadway Quincy, IL H. 06-09-97 3540 Vermilion Street Danville, IL I. 10-27-97 3540 Court Street Pekin, IL THE OZARK Gregory R. Walton 05-21-92 AR, MO 5/12-31-98 APPLES, INC. Amended: 04-21-93 3252 Roanoke 07-01-93 Kansas City, MO 64111 11-15-93 01-29-96 01-01-97 A. 06-15-93 1855 E. Primrose Springfield, MO B. 01-03-94 2010 I-70 Drive, Southwest Columbia, MO C. 06-01-94 1836 W. Highway 76 Branson, MO D. 06-27-95 2319 Missouri Boulevard Jefferson City, MO THE OZARK Gregory R. Walton 01-29-96 AR, KS, MO, OK 3/12-31-97 APPLES, INC. 3252 Roanoke Kansas City, MO 64111 A. 07-19-94 2825 E. 32nd Street Joplin, MO B. 06-19-96 528 N. 47th Street Rogers, AR THOMAS & KING, INC. Michael J. Scanlon 05-31-88 IN, KY, OH 33/05-30-99 1065 Newtown Pike Ronald T. Reynolds Amended: 05-31-91 Lexington, KY 40511 Douglas M. Wilson 08-06-93 06-07-95 07-30-96 05-30-97 -55- A. 08-01-88 2573 Richmond Road Lexington, KY B. 11-14-88 7383 Turfway Road Florence, KY C. 02-24-89 105 N. Springsboro Pike W. Carrollton, OH D. 05-11-89 340 Glensprings Drive Springdale, OH E. 10-09-89 4009 Nicholasville Road Block B Lexington, KY F. 04-11-89 10635 Techwood Circle Blue Ash, OH G. 03-12-90 9660 Mason-Montgomery Mason, OH H. 05-11-90 2755 Brice Road Reynoldsburg, OH I. 08-20-90 2555 Shiloh Springs Road Trotwood, OH J. 12-11-90 6669 Dublin Center Drive Dublin, OH K. 07-15-91 967 Hebron Road Heath, OH L. 12-16-91 5050 Crookshank Cincinnati, OH M. 08-17-92 4440 Glen Este- Withamsville Road Batavia, OH N. 11-09-92 4600 East Broad Street White Hall, OH O. 03-01-93 1389 U.S. 127 South Frankfort, KY P. 04-05-93 30 Crestview Hills Mall Road Crestview Hills, KY Q. 06-21-93 480 Ackerman Road Columbus, OH -56- R. 09-06-93 700 Washington Blvd., N.W. Hamilton, OH S. 10-04-93 853 Eastern Bypass Richmond, KY T. 01-17-94 Northgate Mall 9595 Colrain Avenue Cincinnati, OH U. 04-11-94 910 Beaumont Center Pkwy. Lexington, KY V. 06-13-94 3240 Towne Boulevard Middletown, OH W. 10-03-94 8331 Old Troy Pike Huber Heights, OH X. 12-02-94 1800 W. 1st Street Springfield, OH Y. 05-29-95 4425 National Road East Richmond, IN Z. 08-07-95 1615 Rivervalley Circle North Lancaster, OH a. 01-29-96 1525 N. Lexington Avenue Winchester, KY b. 01-30-96 1 Madison Avenue Covington, KY c. 05-20-96 3894 Morse Road Columbus, OH d. 07-25-96 1759 W. Main Street Troy, OH e. 09-23-96 1514 Mt. Vernon Avenue Marion, OH THOMAS & KING, INC. Michael J. Scanlon 02-24-94 OH, PA 3/12-31-98 1065 Newtown Pike Ronald T. Reynolds Amended: 02-28-95 Lexington, KY 40511 Douglas M. Wilson 05-01-95 A. 08-28-95 904 Great East Plaza Niles, OH B. 02-25-97 201 S. Hermitage Road Hermitage, PA -57- THOMAS & KING, INC. Michael J. Scanlon 10-23-90 AZ 18/08-15-98 1065 Newtown Pike Ronald T. Reynolds Amended: 10-21-94 Lexington, KY 40511 Douglas M. Wilson 06-01-95 08-16-96 A. 03-31-93 2053 S. Alma School Road Mesa, AZ B. 12-18-90 2720 W. Bell Road Phoenix, AZ C. 07-08-91 565 E. Wetmore Tucson, AZ D. 12-08-92 6259 E. Southern Avenue Mesa, AZ E. 05-17-93 Park Mall, Building E 5870 East Broadway Tucson, AZ F. 06-14-93 2032 E. Baseline Road Mesa, AZ G. 09-27-93 8001 W. Bell Road Peoria, AZ H. 06-26-94 1655 W. Elliott Tempe, AZ I. 12-12-94 10460 N. 90th Street Closed: 11-18-97 Scottsdale, AZ J. 05-22-95 2547 N. 44th Street Phoenix, AZ K. 10-09-95 2 East Camelback Phoenix, AZ L. 11-20-95 4924 E. Shea Boulevard Phoenix, AZ M. 02-26-96 1881 West Highway 69 Prescott, AZ N. 08-19-96 5880 W. Peoria Glendale, AZ O. 03-24-97 2230 W. Ina Road Tucson, AZ -58- P. 04-22-97 909 E. Broadway Tempe, AZ Q. 11-18-97 1245 W. Chandler Blvd. Chandler, AZ THOMAS & KING, INC. Michael J. Scanlon 11-14-94 IL, IN, KY, MO, TN 8/09-30-99 1065 Newton Pike Ronald T. Reynolds Lexington, KY 40511 Douglas M. Wilson A. 09-26-91 202 S. Broadview Cape Girardeau, MO B. 10-27-92 3990 Hinkleville Roady Paducah, KY C. 07-06-93 5120 Frederica Owensboro, KY D. 12-13-94 2506 S. 3rd Street Terre Haute, IN E. 04-04-95 1125 E. Main Carbondale, IL F. 08-01-95 5100 E. Morgan Evansville, IN G. 07-22-97 1475 Chelsa Drive Madisonville, KY THUNDER APPLE Robert A. Syroid 08-08-94 City of Thunder Bay, 1/06-29-97 NORTH, INC. Brenda Syroid Amended: 09-20-95 Ontario, Canada 920 Tungsten Street 08-29-96 Thunder Bay, ON CAN P7B 5Z6 A. 08-08-94 1155 Alloy Drive Thunder Bay, Ontario CANADA TRUE NORTH Ian A. Mackay 04-24-97 Ontario, Canada 1/12-01-97 RESTAURANTS, INC. Michael J. Lewis 46 Dawlish Avenue A. 04-24-97 (to be determined) Toronto, Ontario M4N 1H1 Canada -59- WILD WEST APPLE Calvin E. Keller 10-21-94 ID, NE, OR, WY No Development VENTURES, A Linda A. Keller Amended: 02-28-95 Rights LIMITED LIABILITY Terminated: 11-01-95 COMPANY 2220 Dell Range Blvd. Suite 102 Cheyenne, WY 82009 A. 07-07-92 1401 Dell Range Boulevard Cheyenne, WY WILLIAM TELL, INC. John B. Prince 05-14-93 ID, NV, UT 8/07-01-98 71 W. Apricot Avenue Amended: 03-01-95 Salt Lake City, UT 84103 12-01-97 A. 04-12-94 6123 S. State Street Murray, UT B. 12-19-94 5678 S. Redwood Road Taylorsville, UT C. 01-22-96 1622 N. 1000 West Layton, UT D. 04-29-96 1125 W. Riverdale Road Riverdale, UT E. 08-19-96 680 West 1300 South Orem, UT F. 11-11-96 7047 S. 1300 East Midvale, UT -60-
EX-10.9 3 SCHEDULE OF RIO DEVELOPMENT AND FRANCHISE AGRMT. RIO BRAVO INTERNATIONAL, INC. DEVELOPMENT AND FRANCHISE AGREEMENT SCHEDULE AS OF DECEMBER 28, 1997
(3) (5) DATE OF DEVELOPMENT DEVELOPMENT (4) SCHEDULE (1) AGREEMENT OR TERRITORY (all or part (total DEVELOPER NAME (2) FRANCHISE of the states/countries restaurants/ AND ADDRESS PRINCIPALS AGREEMENT listed) OR LOCATION deadline) APPLE CANTINAS Frank C. Sedowicz Terminated: 11-01-97 IL, IA, MO, WI (GEORGIA), INC. Lois J. Sedowicz 5555 Oakbrook Parkway Apple Cantinas, Inc. Suite 355 Norcross, GA 30093 APPLE-METRO, INC. Roy Raeburn 03-26-97 NY 5/05-15-01 640 East Boston Post Rd. Zane Tankel Mamaronek, NY 10543 A. 03-26-97 2690 Hylan Blvd. Staten Island, NY B. 08-26-97 2655 Richmond Ave. Staten Island, NY APPLE SAUCE, INC. W. Curtis Smith 08-15-96 IN, OH 5/01-31-01 207 Grandview Drive James P. Borke Suite 125 A. 08-15-96 500 E. 81st Avenue Ft. Mitchell, KY 41017 Merrillville, IN APPLE SAUCE, INC. W. Curtis Smith 08-15-96 FL 5/01-31-01 207 Grandview Drive James P. Borke Suite 125 A. 08-15-96 (to be determined) Ft. Mitchell, KY 41017 BRAVO AMERICAN Donald W. Strang, Jr. 04-22-97 IL 5/07-15-01 CHICAGO LIMITED Allen S. Musikantow LIABILITY COMPANY A. 04-22-97 3080 Warrenville Road 8905 Lake Avenue Lisle, IL Cleveland, OH 44102 BRAVO AMERICAN Donald W. Strang, Jr. 11-11-96 IN 5/01-31-01 INDIANA LIMITED Allen S. Musikantow LIABILITY COMPANY A. 11-11-96 2525 Sagamore Pkwy. S. 8905 Lake Avenue Lafayette, IN Cleveland, OH 44102 BRAVO AMERICAN Donald W. Strang, Jr. 02-07-96 OH 5/06-30-00 OHIO LIMITED Allen S. Musikantow LIABILITY COMPANY A. 02-07-96 1541 Golden Gate Plaza 8905 Lake Avenue Mayfield Heights, OH Cleveland, OH 44102 1 B. 03-25-97 17227 SouthPark Center Strongsville, OH BRAVO HOSPITALITY, Edward W. Doherty 08-06-97 NJ 4/03-31-01 LLC William A. Johnsen 7 Pearl Court A. 08-06-97 (to be determined) Allendale, NJ 07401 CONCORD Larry S. Bird (Franchisee KS, MO, NE HOSPITALITY, INC. withdrew) 1701 Windhoek Drive P.O. Box 6212 Lincoln, NE 68512 DAKOTA RIO, INC. Todd G. Porter 06-25-97 SD, MT, WY, NE, MN, IA 3/08-15-99 101B Empire Office Ctr. 4305 S. Louise Avenue A. 06-25-97 2801 S. Louise Ave. Sioux Falls, SD 57106 Sioux Falls, SD HEARTLAND RIO, INC. James H. Stevens 01-16-96 KS, IA, MO, NE 3/10-31-98 2400 N. Woodlawn Suite 140 A. 01-16-96 8310 E. 21st Street Wichita, KS 67220 Wichita, KS B. 12-09-97 8406 W. Central Avenue Wichita, KS MANZANA GRANDE, Myron Thompson 01-15-97 ND, SD, MN 3/08-15-99 INC. Engen Eckmann 1225 S. Broadway A. 01-15-97 3000 32nd Ave. South Minot, ND 58701 Grand Forks, ND MISS-ALA-RIO, INC. Glenn D. Durham 01-24-96 AL, GA, TN, FL, MS 5/06-30-00 822 Columbiana Raod Fred Gustin Birmingham, AL 35209 A. 01-24-96 2070 Eastern Blvd. Montgomery, AL OZARK RIO, INC. Gregory R. Walton 02-29-96 MO, AR, OK, KS 4/08-31-99 3252 Roanoke Kansas City, MO 64111 A. 02-29-96 2040 E. Independence Ave. Springfield, MO 2 B. 08-26-97 Hwy. 71 Bypass & College Fayetteville, AR RCI CANTINA, LLC Stephen A. Grove 02-01-96 AL, GA, SC 4/08-31-99 400 Interstate N. Pkwy. Suite 1200 A. 02-01-96 2128 Washington Road Atlanta, GA 30339 Augusta, GA B. 12-03-96 169 Tom Hill Senior Macon, GA C. 06-25-97 3327 Gentian Blvd. Columbus, GA RIO ROSE, L.P. Harry T. Rose 09-16-97 NJ, PA 5/04-14-02 3 Terry Drive Suite 103 A. 09-16-97 (to be determined) Newtown, PA 18940 RIORO, INC. Michael Olander 02-29-96 NC, SC 5/06-30-00 170 Windchime Court Raleigh, NC 27615 A. 02-29-96 US 521 & I-485 Charlotte, NC RIORO, INC. Michael Olander 02-29-96 WV, NC 5/06-30-00 170 Windchime Court Amended: 08-29-96 Raleigh, NC 27615 A. 02-29-96 9813 South Blvd. Pineville, NC SOUTH COAST William F. Palmer 02-22-96 FL 5/06-30-00 CANTINAS, INC. Amended: 03-13-97 6620 McGinnis Ferry Road Suite B A. 02-29-96 (to be determined) Duluth, GA 30155 SOUTH COAST William F. Palmer 02-22-96 NC, SC, GA 5/06-30-00 CANTINAS, INC. Amended: 03-13-97 6620 McGinnis Ferry Road Suite B A. 02-22-96 34 Tunnel Road Duluth, GA 30155 Asheville, NC B. 06-30-97 21 Roper Mountain Road Greenville, SC C. 09-09-97 838 Turner McCall Blvd. Rome, GA 3 T & K PARTNERS, LTD. Michael J. Scanlon 02-29-96 KY, OH, IN 5/06-30-00 249 E. Main Street Amended: 08-15-96 Suite 101 Lexington, KY A. 02-29-96 2349 Richmond Road Lexington, KY B. 08-15-96 7980 Hosbrook Road Madeira, OH T & K PARTNERS, LTD. Michael J. Scanlon 02-29-96 OH, IN, PA 5/06-30-00 249 E. Main Street Amended: 08-14-96 Suite 101 Lexington, KY A. 02-29-96 Closed: 11-24-97 THE RIO TRIO Frank DeAngelo 01-17-96 FL, GA 4/08-31-99 CORPORATION P.O. Box 956308 A. 01-17-96 1926 Capital Circle, N.E. Duluth, GA 30136 Tallahassee, FL THE RIO TRIO Frank DeAngelo 08-10-96 VA, WV, NC 5/01-31-01 CORPORATION P.O. Box 956308 A. 08-10-96 4105 Chesapeake Square Blvd. Duluth, GA 30136 Chesapeake, VA TLC-EAST, INC. Matthew J. Fairbairn 02-06-97 NY, PA 5/04-15-01 201 ATP Tour Blvd. David Stein Suite 120 A. 02-06-97 (to be determined) Ponte Vedra Beach, FL (fka DSMF, INC.) 4
EX-10.13 4 1995 EQUITY INCENTIVE PLAN, AS AMENDED APPLEBEE'S INTERNATIONAL, INC. 1995 EQUITY INCENTIVE PLAN SECTION 1 PURPOSE AND DURATION 1.1 Effective Date. This Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock, Performance Units and Performance Shares. This Plan shall become effective upon the affirmative vote of the holders of a majority of the Shares which are present in person or by proxy and entitled to vote at the 1995 Annual Meeting of Stockholders. 1.2 Purpose of this Plan. This Plan is intended to attract, motivate, and retain (a) employees of the Company and its Affiliates, (b) consultants who provide significant services to the Company and its Affiliates, and (c) directors of the Company who are employees of neither the Company nor any Affiliate. This Plan also is designed to further the growth and financial success of the Company and its Affiliates by aligning the interests of the Participants, through the ownership of Shares and through other incentives, with the interests of the Company's stockholders. SECTION 2 DEFINITIONS The following words and phrases shall have the following meanings unless a different meaning is plainly required by the context: "1934 Act" means the Securities Exchange Act of 1934, as amended. Reference to a specific section of the 1934 Act or regulation thereunder shall include such section or regulation, any valid regulation promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation. "Affiliate" means any corporation or any other entity (including, but not limited to, partnerships and joint ventures) controlling, controlled by or under common control with the Company. "Affiliated SAR" means an SAR that is granted in connection with a related Option, and that automatically will be deemed to be exercised at the same time that the related Option is exercised. 1 "Award" means, individually or collectively, a grant under this Plan of Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock, Performance Units or Performance Shares. "Award Agreement" means the written agreement setting forth the terms and provisions applicable to each Award granted under this Plan. "Board" or "Board of Directors" means the Board of Directors of the Company. "Change in Control" shall have the meaning assigned to such term in Section 13.2. "Code" means the Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or regulation thereunder shall include such section or regulation, any valid regulation promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation. "Committee" means the committee appointed by the Board (pursuant to Section 3.1) to administer this Plan. "Company" means Applebee's International, Inc., a Delaware corporation, and any successor thereto. With respect to the definitions of the Performance Goals, the Committee in its sole discretion may determine that "Company" means Applebee's International and its consolidated subsidiaries. "Consultant" means any consultant, independent contractor or other person who provides significant services to the Company or its Affiliates, but who is neither an Employee nor a Director. "Director" means any individual who is a member of the Board of Directors of the Company. "Disability" means a permanent and total disability within the meaning of Code section 22(e)(3), provided that in the case of Awards other than Incentive Stock Options, the Committee in its sole discretion may determine whether a permanent and total disability exists in accordance with uniform and non-discriminatory standards adopted by the Committee from time to time. "Earnings Per Share" means as to any Fiscal Year, the Company's Net Income or a business unit's Pro Forma Net Income, divided by a weighted average number of Shares outstanding and dilutive equivalent Shares deemed outstanding. "Employee" means any employee of the Company or of an Affiliate, whether such employee is so employed at the time this Plan is adopted or becomes so employed subsequent to the adoption of this Plan. 2 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. Reference to a specific section of ERISA or regulation thereunder shall include such section or regulation, any valid regulation promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation. "Exercise Price" means the price at which a Share may be purchased by a Participant pursuant to the exercise of an Option. "Fair Market Value" means the last quoted per share selling price at which Shares are traded on any given date, or if no Shares are traded on such date, the most recent prior date on which Shares were traded, as reported in The Wall Street Journal. Notwithstanding the preceding, for federal, state and local income tax reporting purposes, fair market value shall be determined by the Committee (or its delegate) in accordance with uniform and nondiscriminatory standards adopted by it from time to time. "Fiscal Year" means the fiscal year of the Company. "Freestanding SAR" means a SAR that is granted independently of any Option. "Grant Date" means, with respect to an Award, the date that the Award was granted. "Incentive Stock Option" means an Option to purchase Shares which is designated as an Incentive Stock Option and is intended to meet the requirements of section 422 of the Code. "Individual MBOs" means as to a Participant, the objective and measurable goals set by a "management by objectives" process and approved by the Committee (in its sole discretion). "Net Income" means as to any Fiscal Year, the income after taxes of the Company for the Fiscal Year determined in accordance with generally accepted accounting principles; provided, however, that prior to the Fiscal Year, the Committee shall determine whether any significant item(s) shall be included or excluded from the calculation of Net Income with respect to one or more Participants. "Nonemployee Director" means a Director who is not an employee of the Company or of any Affiliate. "Nonqualified Stock Option" means an Option to purchase Shares which is not an Incentive Stock Option. "Option" means an Incentive Stock Option or a Nonqualified Stock Option. "Participant" means an Employee, Consultant or Nonemployee Director who has an outstanding Award. 3 "Performance Goals" means the goal(s) (or combined goal(s)) determined by the Committee (in its sole discretion) to be applicable to a Participant with respect to an Award. As determined by the Committee, the Performance Goals applicable to an Award may provide for a targeted level or levels of achievement using one or more of the following measures: (a) Earnings Per Share, (b) Individual MBOs, (c) Net Income, (d) Pro Forma Net Income, (e) Return on Designated Assets, (f) Return on Revenues, and (g) Satisfaction MBOs. The Performance Goals may differ from Participant to Participant and from Award to Award. "Performance Period" shall have the meaning assigned to such term in Section 8.3. "Performance Share" means an Award granted to a Participant pursuant to Section 8. "Performance Unit" means an Award granted to a Participant pursuant to Section 8. "Period of Restriction" means the period during which the transfer of Shares of Restricted Stock are subject to restrictions and, therefore, the Shares are subject to a substantial risk of forfeiture. As provided in Section 7, such restrictions may be based on the passage of time, the achievement of target levels of performance or the occurrence of other events as determined by the Committee in its sole discretion. "Plan" means the Applebee's International, Inc. 1995 Equity Incentive Plan, as set forth in this instrument and as hereafter amended from time to time. "Pro Forma Net Income" means as to any business unit for any Fiscal Year, the portion of Company's Net Income allocable to such business unit; provided, however, that prior to such Fiscal Year, the Committee shall determine the basis on which such allocation shall be made. "Restricted Stock" means an Award granted to a Participant pursuant to Section 7. "Retirement" means, in the case of an Employee, a Termination of Service by reason of the Employee's retirement at or after age sixty-five (65). With respect to a Consultant, no Termination of Service shall be deemed to be on account of "Retirement". With respect to a Nonemployee Director, "Retirement" means termination of service on the Board at or after age seventy (70). "Return on Designated Assets" means as to any Fiscal Year, (a) the Pro Forma Net Income of a business unit, divided by the average of beginning and ending business unit designated assets, or (b) the Net Income of the Company, divided by the average of beginning and ending designated corporate assets. "Return on Revenues" means as to any Fiscal Year, the percentage equal to the Company's Net Income or the business unit's Pro Forma Net Income, divided by the Company's or the business unit's Annual Revenue. 4 "Rule 16b-3" means Rule 16b-3 promulgated under the 1934 Act, and any future regulation amending, supplementing or superseding such regulation. "Satisfaction MBOs" means as to any Participant, the objective and measurable individual goals set by a "management by objectives" process and approved by the Committee, which goals relate to the satisfaction of external or internal requirements. "Section 16 Person" means a person who, with respect to the Shares, is subject to section 16 of the 1934 Act. "Shares" means the shares of common stock of the Company. "Stock Appreciation Right" or "SAR" means an Award, granted alone or in connection with a related Option, that is designated as a SAR pursuant to Section 7. "Subsidiary" means any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "Tandem SAR" means an SAR that is granted in connection with a related Option, the exercise of which shall require forfeiture of the right to purchase an equal number of Shares under the related Option (and when a Share is purchased under the Option, the SAR shall be canceled to the same extent). "Termination of Service" means (a) in the case of an Employee, a cessation of the employee-employer relationship between an employee and the Company or an Affiliate for any reason, including, but not limited to, a cessation by resignation, discharge, death, Disability, Retirement or the disaffiliation of an Affiliate, but excluding any such cessation where there is a simultaneous reemployment by the Company or an Affiliate, and (b) in the case of a Consultant, a cessation of the service relationship between a Consultant and the Company or an Affiliate for any reason, including, but not limited to, a cessation by resignation, discharge, death, Disability or the disaffiliation of an Affiliate, but excluding any such cessation where there is a simultaneous reengagement of the Consultant by the Company or an Affiliate. SECTION 3 ADMINISTRATION 3.1 The Committee. This Plan shall be administered by the Committee. The Committee shall consist of not less than two (2) Directors. The members of the Committee shall be appointed from time to time by, and shall serve at the pleasure of, the Board of Directors. The Committee shall be comprised solely of Directors who both are (a) "non-employee directors" under Rule 16b-3, and (b) "outside directors" under section 162(m) of the Code. 5 3.2 Authority of the Committee. It shall be the duty of the Committee to administer this Plan in accordance with its provisions. The Committee shall have all powers and discretion necessary or appropriate to administer this Plan and to control its operation, including, but not limited to, the power to (a) determine which Employees and Consultants shall be granted Awards, (b) prescribe the terms and conditions of the Awards (other than the Options granted to Directors pursuant to Section 9), (c) interpret this Plan and the Awards, (d) adopt rules for the administration, interpretation and application of this Plan as are consistent therewith, and (e) interpret, amend or revoke any such rules. 3.3 Delegation by the Committee. The Committee, in its sole discretion and on such terms and conditions as it may provide, may delegate all or any part of its authority and powers under this Plan to one or more directors or officers of the Company; provided, however, that the Committee may not delegate its authority and powers (a) with respect to Section 16 Persons, or (b) in any way which would jeopardize this Plan's qualification under section 162(m) of the Code or Rule 16b-3. 3.4 Nonemployee Director Options. Notwithstanding any contrary provision of this Section 3, the Board shall administer Section 9 of this Plan, and the Committee shall exercise no discretion with respect to Section 9. In the Board's administration of Section 9 and the Options granted to Nonemployee Directors, the Board shall have all authority and discretion otherwise granted to the Committee with respect to the administration of this Plan. 3.5 Decisions Binding. All determinations and decisions made by the Committee, the Board and any delegate of the Committee pursuant to Section 3.3 shall be final, conclusive, and binding on all persons, and shall be given the maximum deference permitted by law. SECTION 4 SHARES SUBJECT TO THIS PLAN 4.1 Number of Shares. Subject to adjustment as provided in Section 4.3, the total number of Shares available for grant under this Plan shall not exceed 2,000,000. Shares granted under this Plan may be either authorized but unissued Shares or treasury Shares, or any combination thereof. 4.2 Lapsed Awards. If an Award is settled in cash, or is cancelled, terminates, expires or lapses for any reason (with the exception of the termination of a Tandem SAR upon exercise of the related Option, or the termination of a related Option upon exercise of the corresponding Tandem SAR), any Shares subject to such Award thereafter shall be available to be the subject of an Award. 4.3 Adjustments in Awards and Authorized Shares. In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, stock split, Share combination, or other change in the corporate structure of the Company affecting the Shares, the Committee shall 6 adjust the number and class of Shares which may be delivered under this Plan, the number, class and price of Shares subject to outstanding Awards, and the numerical limits of Sections 4.1, 5.1, 6.1, 7.1 and 8.1, in such manner as the Committee (in its sole discretion) shall determine to be advisable or appropriate to prevent the dilution or diminution of such Awards. In the case of Options granted to Nonemployee Directors pursuant to Section 9, the foregoing adjustments shall be made by the Board with respect to Options granted and that may be granted thereafter from time to time pursuant to Section 9. Notwithstanding the preceding, the number of Shares subject to any Award always shall be a whole number. SECTION 5 STOCK OPTIONS 5.1 Grant of Options. Subject to the terms and provisions of this Plan, Options may be granted to Employees and Consultants at any time and from time to time as determined by the Committee in its sole discretion. The Committee, in its sole discretion, shall determine the number of Shares subject to each Option; provided, however, that during any Fiscal Year, no Participant shall be granted Options covering more than 100,000 Shares. The Committee may grant Incentive Stock Options, Nonqualified Stock Options, or any combination thereof. 5.2 Award Agreement. Each Option shall be evidenced by an Award Agreement that shall specify the Exercise Price, the expiration date of the Option, the number of Shares to which the Option pertains, any conditions to exercise of the Option and such other terms and conditions as the Committee, in its sole discretion, shall determine. The Award Agreement also shall specify whether the Option is intended to be an Incentive Stock Option or a Nonqualified Stock Option. 5.3 Exercise Price. Subject to the provisions of this Section 5.3, the Exercise Price for each Option shall be determined by the Committee in its sole discretion. 5.3.1 Nonqualified Stock Options. In the case of a Nonqualified Stock Option, the Exercise Price shall be not less than one hundred percent (100%) of the Fair Market Value of a Share on the Grant Date. 5.3.2 Incentive Stock Options. In the case of an Incentive Stock Option, the Exercise Price shall be not less than one hundred percent (100%) of the Fair Market Value of a Share on the Grant Date; provided, however, that if on the Grant Date, the Employee (together with persons whose stock ownership is attributed to the Employee pursuant to section 424(d) of the Code) owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries, the Exercise Price shall be not less than one hundred ten percent (110%) of the Fair Market Value of a Share on the Grant Date. 7 5.3.3 Substitute Options. Notwithstanding the provisions of Sections 5.3.1 and 5.3.2, in the event that the Company or an Affiliate consummates a transaction described in section 424(a) of the Code (e.g., the acquisition of property or stock from an unrelated corporation), persons who become Employees or Consultants on account of such transaction may be granted Options in substitution for options granted by such former employer or recipient of services. If such substitute Options are granted, the Committee, in its sole discretion and consistent with section 424(a) of the Code, may determine that such substitute Options shall have an exercise price less than one hundred (100%) of the Fair Market Value of the Shares on the Grant Date. 5.4 Expiration of Options. 5.4.1 Expiration Dates. Each Option shall terminate upon the earlier of the first to occur of the following events: (a) The date for termination of the Option set forth in the Award Agreement; or (b) The expiration of ten (10) years from the Grant Date; or (c) The expiration of one (1) year from the date of the Optionee's Termination of Service for a reason other than the Optionee's death, Disability or Retirement (except as provided in Section 5.8.2 regarding Incentive Stock Options); or (d) The expiration of three (3) years from the date of the Optionee's Termination of Service by reason of Disability (except as provided in Section 5.8.2 regarding Incentive Stock Options) or death; or (e) The expiration of three (3) years from the date of the Optionee's Retirement (except as provided in Section 5.8.2 regarding Incentive Stock Options). 5.4.2 Committee Discretion. Subject to the limits of Section 5.4.1, the Committee, in its sole discretion, (a) shall provide in each Award Agreement when each Option expires and becomes unexercisable, and (b) may, after an Option is granted, extend the maximum term of the Option (subject to Section 5.8.4 regarding Incentive Stock Options). 5.5 Exercisability of Options. Options granted under this Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall determine in its sole discretion. After an Option is granted, the Committee, in its sole discretion, may accelerate the exercisability of the Option. 8 5.6 Payment. Options shall be exercised by the Participant's delivery of a written notice of exercise to the Secretary of the Company (or its designee), setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares. Upon the exercise of any Option, the Exercise Price shall be payable to the Company in full in cash or its equivalent. The Committee, in its sole discretion, also may permit exercise (a) by tendering previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the total Exercise Price, or (b) by any other means which the Committee, in its sole discretion, determines (i) to provide legal consideration for the Shares, and (ii) to be consistent with the purposes of this Plan. As soon as practicable after receipt of a written notification of exercise and full payment for the Shares purchased, the Company shall deliver to the Participant (or the Participant's designated broker), Share certificates (which may be in book entry form) representing such Shares. 5.7 Restrictions on Share Transferability. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option as it may deem advisable or appropriate in its sole discretion, including, but not limited to, restrictions related to applicable Federal securities laws, the requirements of any national securities exchange or system upon which Shares are then listed or traded, and any blue sky or state securities laws. 5.8 Certain Additional Provisions for Incentive Stock Options. 5.8.1 Exercisability. The aggregate Fair Market Value (determined on the Grant Date(s)) of the Shares with respect to which Incentive Stock Options are exercisable for the first time by any Employee during any calendar year (under all plans of the Company and its Subsidiaries) shall not exceed $100,000. 5.8.2 Termination of Service. No Incentive Stock Option may be exercised more than three (3) months after the Participant's Termination of Service for any reason other than Disability or death, unless (a) the Participant dies during such three-month period, and (b) the Award Agreement or the Committee permits later exercise. No Incentive Stock Option may be exercised more than one (1) year after the Participant's termination of employment on account of Disability, unless (a) the Participant dies during such one-year period, and (b) the Award Agreement or the Committee permits later exercise. 5.8.3 Company and Subsidiaries Only. Incentive Stock Options may be granted only to persons who are employees of the Company or a Subsidiary on the Grant Date. 5.8.4 Expiration. No Incentive Stock Option may be exercised after the expiration of ten (10) years from the Grant Date; provided, however, that if the Option is granted to an Employee who, together with persons whose 9 stock ownership is attributed to the Employee pursuant to section 424(d) of the Code, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries, the Option may not be exercised after the expiration of five (5) years from the Grant Date. SECTION 6 STOCK APPRECIATION RIGHTS 6.1 Grant of SARs. Subject to the terms and conditions of this Plan, an SAR may be granted to Employees and Consultants at any time and from time to time as shall be determined by the Committee, in its sole discretion. The Committee may grant Affiliated SARs, Freestanding SARs, Tandem SARs, or any combination thereof. 6.1.1 Number of Shares. The Committee shall have complete discretion to determine the number of SARs granted to any Participant, provided that during any Fiscal Year, no Participant shall be granted SARs covering more than 100,000 Shares. 6.1.2 Exercise Price and Other Terms. The Committee, subject to the provisions of this Plan, shall have complete discretion to determine the terms and conditions of SARs granted under this Plan; provided, however, that the exercise price of a Freestanding SAR shall be not less than one hundred percent (100%) of the Fair Market Value of a Share on the Grant Date. The exercise price of Tandem or Affiliated SARs shall equal the Exercise Price of the related Option. 6.2 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then exercisable. With respect to a Tandem SAR granted in connection with an Incentive Stock Option: (a) the Tandem SAR shall expire no later than the expiration of the underlying Incentive Stock Option; (b) the value of the payout with respect to the Tandem SAR shall be for no more than one hundred percent (100%) of the difference between the Exercise Price of the underlying Incentive Stock Option and the Fair Market Value of the Shares subject to the underlying Incentive Stock Option at the time the Tandem SAR is exercised; and (c) the Tandem SAR shall be exercisable only when the Fair Market Value of the Shares subject to the Incentive Stock Option exceeds the Exercise Price of the Incentive Stock Option. 6.3 Exercise of Affiliated SARs. An Affiliated SAR shall be deemed to be exercised upon the exercise of the related Option. The deemed exercise of an Affiliated SAR shall not necessitate a reduction in the number of Shares subject to the related Option. 10 6.4 Exercise of Freestanding SARs. Freestanding SARs shall be exercisable on such terms and conditions as the Committee, in its sole discretion, shall determine. 6.5 SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement that shall specify the exercise price, the term of the SAR, the conditions of exercise, and such other terms and conditions as the Committee, in its sole discretion, shall determine. 6.6 Expiration of SARs. An SAR granted under this Plan shall expire upon the date determined by the Committee, in its sole discretion, as set forth in the Award Agreement. Notwithstanding the foregoing, the terms and provisions of Section 5.4 also shall apply to SARs. 6.7 Payment of SAR Amount. Upon exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying: (a) The positive difference between the Fair Market Value of a Share on the date of exercise over the exercise price; by (b) The number of Shares with respect to which the SAR is exercised. At the sole discretion of the Committee, the payment upon SAR exercise may be in cash, in Shares of equivalent value, or in any combination thereof. SECTION 7 RESTRICTED STOCK 7.1 Grant of Restricted Stock. Subject to the terms and provisions of this Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock to Employees and Consultants in such amounts as the Committee, in its sole discretion, shall determine. The Committee, in its sole discretion, shall determine the number of Shares to be granted to each Participant; provided, however, that during any Fiscal Year, no Participant shall receive more than 100,000 Shares of Restricted Stock. 7.2 Restricted Stock Agreement. Each Award of Restricted Stock shall be evidenced by an Award Agreement that shall specify the Period of Restriction, the number of Shares granted, and such other terms and conditions as the Committee, in its sole discretion, shall determine. Unless the Committee, in its sole discretion, determines otherwise, Shares of Restricted Stock shall be held by the Company as escrow agent until the end of the applicable Period of Restriction. 11 7.3 Transferability. Except as provided in this Section 7, Shares of Restricted Stock may not be sold, transferred, gifted, bequeathed, pledged, assigned, or otherwise alienated or hypothecated, voluntarily or involuntarily, until the end of the applicable Period of Restriction. 7.4 Other Restrictions. The Committee, in its sole discretion, may impose such other restrictions on Shares of Restricted Stock as it may deem advisable or appropriate in accordance with this Section 7.4. 7.4.1 General Restrictions. The Committee may set restrictions based upon (a) the achievement of specific performance objectives (Company-wide, divisional or individual), (b) applicable Federal or state securities laws, or (c) any other basis determined by the Committee in its sole discretion. 7.4.2 Section 162(m) Performance Restrictions. For purposes of qualifying grants of Restricted Stock as "performance-based compensation" under section 162(m) of the Code, the Committee, in its sole discretion, may set restrictions based upon the achievement of Performance Goals. The Performance Goals shall be set by the Committee on or before the latest date permissible to enable the Restricted Stock to qualify as "performance-based compensation" under section 162(m) of the Code. In granting Restricted Stock that is intended to qualify under Code section 162(m), the Committee shall follow any procedures determined by it in its sole discretion from time to time to be necessary, advisable or appropriate to ensure qualification of the Restricted Stock under Code section 162(m) (e.g., in determining the Performance Goals). 7.4.3 Legend on Certificates. The Committee, in its sole discretion, may legend the certificates representing Restricted Stock to give appropriate notice of such restrictions. For example, the Committee may determine that some or all certificates representing Shares of Restricted Stock shall bear the following legend: "THE SALE OR OTHER TRANSFER OF THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE, WHETHER VOLUNTARY, INVOLUNTARY, OR BY OPERATION OF LAW, IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN THE APPLEBEE'S INTERNATIONAL, INC. 1995 EQUITY INCENTIVE PLAN, AND IN A RESTRICTED STOCK AGREEMENT. A COPY OF THIS PLAN AND SUCH RESTRICTED STOCK AGREEMENT MAY BE OBTAINED FROM THE SECRETARY OF APPLEBEE'S INTERNATIONAL, INC." 7.5 Removal of Restrictions. Except as otherwise provided in this Section 7, Shares of Restricted Stock covered by each Restricted Stock grant made under this Plan shall be released from escrow as soon as practicable after the end of 12 the applicable Period of Restriction. The Committee, in its sole discretion, may accelerate the time at which any restrictions shall lapse and remove any restrictions; provided, however, that the Period of Restriction on Shares granted to a Section 16 Person may not lapse until at least six (6) months after the Grant Date (or such shorter period as may be permissible while maintaining compliance with Rule 16b-3). After the end of the applicable Period of Restriction, the Participant shall be entitled to have any legend or legends under Section 7.4.3 removed from his or her Share certificate, and the Shares shall be freely transferable by the Participant. 7.6 Voting Rights. During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares, unless the applicable Award Agreement provides otherwise. 7.7 Dividends and Other Distributions. During the Period of Restriction, Participants holding Shares of Restricted Stock shall be entitled to receive all dividends and other distributions paid with respect to such Shares unless otherwise provided in the applicable Award Agreement. If any such dividends or distributions are paid in Shares, the Shares shall be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid. 7.8 Return of Restricted Stock to Company. On the date set forth in the applicable Award Agreement, the Restricted Stock for which restrictions have not lapsed shall revert to the Company and thereafter shall be available for grant under this Plan. SECTION 8 PERFORMANCE UNITS AND PERFORMANCE SHARES 8.1 Grant of Performance Units/Shares. Performance Units and Performance Shares may be granted to Employees and Consultants at any time and from time to time, as shall be determined by the Committee, in its sole discretion. The Committee shall have complete discretion in determining the number of Performance Units and Performance Shares granted to each Participant; provided, however, that during any Fiscal Year, (a) no Participant shall receive Performance Units having an initial value greater than $250,000, and (b) no Participant shall receive more than 100,000 Performance Shares. 8.2 Value of Performance Units/Shares. Each Performance Unit shall have an initial value that is established by the Committee on or before the Grant Date. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the Grant Date. 13 8.3 Performance Objectives and Other Terms. The Committee shall set performance objectives in its sole discretion which, depending on the extent to which they are met, will determine the number or value of Performance Units or Performance Shares, or both, that will be paid out to the Participants. The time period during which the performance objectives must be met shall be called the "Performance Period". Performance Periods of Awards granted to Section 16 Persons shall, in all cases, exceed six (6) months in length (or such shorter period as may be permissible while maintaining compliance with Rule 16b-3). Each Award of Performance Units or Performance Shares shall be evidenced by an Award Agreement that shall specify the Performance Period, and such other terms and conditions as the Committee, in its sole discretion, shall determine. 8.3.1 General Performance Objectives. The Committee may set performance objectives based upon (a) the achievement of Company-wide, divisional or individual goals, (b) applicable Federal or state securities laws, or (c) any other basis determined by the Committee in its discretion. 8.3.2 Section 162(m) Performance Objectives. For purposes of qualifying grants of Performance Units or Performance Shares as "performance-based compensation" under section 162(m) of the Code, the Committee, in its sole discretion, may determine that the performance objectives applicable to Performance Units or Performance Shares, as the case may be, shall be based on the achievement of Performance Goals. The Performance Goals shall be set by the Committee on or before the latest date permissible to enable the Performance Units or Performance Shares, as the case may be, to qualify as "performance-based compensation" under section 162(m) of the Code. In granting Performance Units or Performance Shares which are intended to qualify under Code section 162(m), the Committee shall follow any procedures determined by it from time to time to be necessary or appropriate in its sole discretion to ensure qualification of the Performance Units or Performance Shares, as the case may be, under Code section 162(m) (e.g., in determining the Performance Goals). 8.4 Earning of Performance Units/Shares. After the applicable Performance Period has ended, the holder of Performance Units or Performance Shares shall be entitled to receive a payout of the number of Performance Units or Performance Shares, as the case may be, earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance objectives have been achieved. After the grant of a Performance Unit or Performance Share, the Committee, in its sole discretion, may reduce or waive any performance objectives for such Performance Unit or Performance Share; provided, however, that Performance Periods of Awards granted to Section 16 Persons shall not be less than six (6) months (or such shorter period as may be permissible while maintaining compliance with Rule 16b-3). 8.5 Form and Timing of Payment of Performance Units/Shares. Payment of earned Performance Units or Performance Shares shall be made as soon as practicable after the end of the applicable Performance Period. The Committee, 14 in its sole discretion, may pay earned Performance Units or Performance Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Performance Units or Performance Shares, as the case may be, at the end of the applicable Performance Period), or in any combination thereof. 8.6 Cancellation of Performance Units/Shares. On the earlier of date set forth in the Award Agreement or the Participant's Termination of Service (other than by death, Disability or, with respect to an Employee, Retirement), all unearned or unvested Performance Units or Performance Shares shall be forfeited to the Company, and thereafter shall be available for grant under this Plan. In the event of a Participant's death, Disability or, with respect to an Employee, Retirement, prior to the end of a Performance Period, the Committee shall reduce his or her Performance Units or Performance Shares proportionately based on the date of such Termination of Service. SECTION 9 DIRECTOR OPTIONS The provisions of this Section 9 are applicable only to Options granted to Nonemployee Directors. The provisions of Section 5 are applicable to Options granted to Employees and Consultants (and to the extent provided in Section 9.2.6, to Director Options). 9.1 Granting of Options. 9.1.1 Nonemployee Director Grants. Each Nonemployee Director shall receive an annual grant of Director Options to purchase 5,000 shares of Stock. Such amount shall automatically increase (i) by 2,000 shares in the event that Net Income for the Fiscal Year immediately preceding the year in which the Director Option is granted (the "Measurement Year") exceeded by at least 20% the Net Income for the Fiscal Year immediately preceding the Measurement Year, and (ii) by 100 shares for each additional increment of 1% above 20% by which the Net Income for the Measurement Year exceeded the Net Income for the Fiscal Year immediately preceding the Measurement Year. In no event shall the number of Director Options granted in any Fiscal Year exceed 9,000 shares. 9.1.2 Employee Director Grants. Employee Directors shall only receive Options in their capacity as Employees and not in their capacity as Directors. 9.1.3 Date of Grant. All Director Options shall be granted at the annual meeting of the Board. 9.2 Terms of Options. 9.2.1 Option Agreement. Each Option granted pursuant to this Section 9 shall be evidenced by a written stock option agreement which shall be executed by the Optionee and the Company. 9.2.2 Exercise Price. The Exercise Price for the Shares subject to each Option granted pursuant to this Section 9 shall be 100% of the Fair Market Value of such Shares on the Grant Date. 9.2.3 Exercisability. Each Option granted pursuant to Section 9.1.1 shall become immediately exercisable on the first anniversary of the Grant Date. Notwithstanding the preceding, once an optionee ceases to be a Director, his or her Options which are not exercisable shall not become exercisable thereafter. 15 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. 16 SECTION 10 MISCELLANEOUS 10.1 Deferrals. The Committee, in its sole discretion, may permit a Participant to defer receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant under an Award. Any such deferral election shall be subject to such rules and procedures as shall be determined by the Committee in its sole discretion. 10.2 No Effect on Employment or Service. Nothing in this Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's employment or service at any time, with or without cause. For purposes of this Plan, transfer of employment of a Participant between the Company and any of its Affiliates (or between Affiliates) shall not be deemed a Termination of Service. Employment with the Company and its Affiliates is on an at-will basis only, unless otherwise provided by an applicable employment agreement between the Participant and the Company or its Affiliate, as the case may be. 10.3 Participation. No Employee or Consultant shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award. 10.4 Indemnification. Each person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from (a) any loss, cost, liability or expense (including attorneys' fees) that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under this Plan or any Award Agreement, and (b) from any and all amounts paid by him or her in settlement thereof, with the Company's prior written approval, or paid by him or her in satisfaction of any judgment in any such claim, action, suit or proceeding against him or her; provided, however, that he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Certificate of Incorporation or Bylaws, by contract, as a matter of law or otherwise, or under any power that the Company may have to indemnify them or hold them harmless. 10.5 Successors. All obligations of the Company under this Plan, with respect to Awards granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business or assets of the Company. 10.6 Beneficiary Designations. If permitted by the Committee, a Participant under this Plan may name a beneficiary or beneficiaries to whom any vested but 17 unpaid Award shall be paid in the event of the Participant's death. Each such designation shall revoke all prior designations by the Participant and shall be effective only if given in a form and manner acceptable to the Committee. In the absence of any such designation, any vested benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate and, subject to the terms of this Plan and of the applicable Award Agreement, any unexercised vested Award may be exercised by the administrator or executor of the Participant's estate. 10.7 Transferability. No Award granted under this Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will, by the laws of descent and distribution, or to the limited extent provided in Section 10.6; provided, however, that an Award granted under this Plan may be transferred to a holder's family members, to trusts created for the benefit of the holder or the holder's family members, or to charitable entities. 10.8 No Rights as Stockholder. Except to the limited extent provided in Sections 7.6 and 7.7, no Participant (nor any beneficiary thereof) shall have any of the rights or privileges of a stockholder of the Company with respect to any Shares issuable pursuant to an Award (or the exercise thereof), unless and until certificates representing such Shares shall have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to the Participant (or his or her beneficiary). SECTION 11 AMENDMENT, TERMINATION, AND DURATION 11.1 Amendment, Suspension, or Termination. The Board, in its sole discretion, may amend or terminate this Plan, or any part thereof, at any time and for any reason; provided, however, that if and to the extent required to maintain this Plan's qualification under Rule 16b-3, any such amendment shall be subject to stockholder approval; further provided, however, that as required by Rule 16b-3, the provisions of Section 9 regarding the manner for determining the amount, exercise price, and timing of Director Options shall in no event be amended more than once every six (6) months, other than to comport with changes in the Code or ERISA. (ERISA currently is inapplicable to this Plan.) The amendment, suspension or termination of this Plan shall not, without the consent of the Participant, alter or impair any rights or obligations under any Award theretofore granted to such Participant. No Award may be granted during any period of suspension or after termination of this Plan. 11.2 Duration of this Plan. This Plan shall become effective on the date specified herein, and subject to Section 11.1 (regarding the Board's right to amend or terminate this Plan), shall remain in effect thereafter; provided, however, that without further stockholder approval, no Incentive Stock Option may be granted under this Plan after the tenth anniversary of the effective date of this Plan. 18 SECTION 12 TAX WITHHOLDING 12.1 Withholding Requirements. Prior to the delivery of any Shares or cash pursuant to an Award (or the exercise thereof), the Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy Federal, state and local taxes (including the Participant's FICA obligation) required to be withheld with respect to such Award (or the exercise thereof). 12.2 Withholding Arrangements. The Committee, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit a Participant to satisfy such tax withholding obligation, in whole or in part, by (a) electing to have the Company withhold otherwise deliverable Shares, or (b) delivering to the Company Shares then owned by the Participant having a Fair Market Value equal to the amount required to be withheld. The amount of the withholding requirement shall be deemed to include any amount that the Committee agrees may be withheld at the time any such election is made, not to exceed the amount determined by using the maximum federal, state or local marginal income tax rates applicable to the Participant with respect to the Award on the date that the amount of tax to be withheld is to be determined. The Fair Market Value of the Shares to be withheld or delivered shall be determined as of the date that the taxes are required to be withheld. SECTION 13 CHANGE IN CONTROL 13.1 Change in Control. In the event of a Change in Control of the Company, all Awards granted under this Plan that then are outstanding and not then exercisable or are subject to restrictions, shall, unless otherwise provided for in the Agreements applicable thereto, become immediately exercisable, and all restrictions shall be removed, as of the first date that the Change in Control has been deemed to have occurred, and shall remain as such for the remaining life of the Award as provided herein and within the provisions of the related Agreements. 13.2 Definition. For purposes of Section 13.1 above, a Change in Control of the Company shall be deemed to have occurred if the conditions set forth in any one or more of the following shall have been satisfied, unless such condition shall have received prior approval of a majority vote of the Continuing Directors, as defined below, indicating that Section 13.1 shall not apply thereto: (a) any "person", as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding securities; 19 (b) during any period of two consecutive years (not including any period prior to the Effective Date of this Plan), individuals ("Existing Directors") who at the beginning of such period constitute the Board of Directors, and any new director (an "Approved Director") (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in paragraph (a), (b) or (c) of this Section 13.2) whose election by the Board of Directors or nomination for election by the Company's shareholders was approved by a vote of a least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election previously was so approved (Existing Directors together with Approved Directors constituting "Continuing Directors"), cease for any reason to constitute at least a majority of the Board of Directors; or (c) the stockholders of the Company approve a merger or consolidation of the Company with any other person, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities for the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (ii) a merger in which no "person" (as defined in Section 13.2(a)) acquires more than thirty percent (30%) of the combined voting power of the Company's then outstanding securities; or (d) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets (or any transaction having a similar effect). SECTION 14 LEGAL CONSTRUCTION 14.1 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular, and the singular shall include the plural. 14.2 Severability. In the event any provision of this Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of this Plan, and this Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 20 14.3 Requirements of Law. The grant of Awards and the issuance of Shares under this Plan shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required from time to time. 14.4 Securities Law Compliance. With respect to Section 16 Persons, Awards under this Plan are intended to comply with all applicable conditions of Rule 16b-3. To the extent any provision of this Plan, Award Agreement or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable or appropriate by the Committee in its sole discretion. 14.5 Governing Law. This Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State of Kansas (excluding its conflict of laws provisions). 14.6 Captions. Captions are provided herein for convenience of reference only, and shall not serve as a basis for interpretation or construction of this Plan. 21 AMENDMENT NO. 3 1995 EQUITY INCENTIVE PLAN The following amendment to the 1995 Equity Incentive Plan was approved by the Stockholders of Applebee's International, Inc. at their Annual Meeting of Stockholders held on May 14, 1997: "That Section 4.1 of the Plan be amended so that the number of shares authorized under the Plan is increased to 2,300,000 shares." IN WITNESS WHEREOF, I, as Secretary of Applebee's International, Inc. and as Secretary of the aforesaid Annual Meeting of Stockholders, have executed this amendment this 14th day of May, 1997. Robert T. Steinkamp Secretary EX-10.14 5 EMPLOYEE STOCK PURCHASE PLAN APPLEBEE'S INTERNATIONAL, INC. EMPLOYEE STOCK PURCHASE PLAN ARTICLE 1 - PURPOSE OF THE PLAN The Company has established this Plan to provide eligible employees of the Company and its Subsidiaries a method to purchase shares of common stock of the Company by payroll deduction at a discount. The Plan is intended to qualify as an "employee stock purchase plan" under Section 423 of the Code and shall be construed and operated consistently with the requirements of that Section. ARTICLE 2 - DEFINITIONS 2.1 "Beneficiary" means the person designated by the Participant on a form provided by and acceptable to the Committee to receive the Participant's Payroll Deduction Account in the event of his death. In the absence of any such designation, "Beneficiary" shall mean the Participant's estate. 2.2 "Board" means the Board of Directors of the Company. 2.3 "Brokerage Account" means the general securities brokerage account, or such other account or record determined appropriate by the Company, established and maintained for the Plan with any entity selected by the Company, in its discretion, to assist in the administration of, and purchase of Shares under the Plan. 2.4 "Code" means the Internal Revenue Code of 1986, as amended. 2.5 "Commencement Date" means the January 1, April 1, July 1 or October 1, as the case may be, on which a particular Offering begins. 2.6 "Committee" means the committee of persons appointed by the Company for the purpose of administering the Plan. 2.7 "Company" means Applebee's International, Inc. 2.8 "Designated Person" means the person designated by the Committee to receive any forms or agreements required or permitted under the Plan. More than one person may be designated by the Committee. Different persons may be designated for different forms or agreements. The Designated Person may be an individual or an entity. The Committee shall notify Participants in writing of the identity of each Designated Person and the forms or agreements to be sent to each such person. 2.9 "Effective Date" means January 1, 1997. 2.10 "Ending Date" means the March 31, June 30, September 30 or December 31, as the case may be, on which a particular Offering concludes. 2.11 "Enrollment Agreement" means the enrollment form acceptable to the Committee that a Participant who wishes to participate in the Plan must submit to the Designated Person prior to the Commencement Date. 2.12 "Offering" means each three (3) consecutive month offering period for the purchase and sale of Shares under the Plan. 2.13 "Participant" means an employee who has satisfied the eligibility requirements of Article 3 and who has complied with the requirements of Article 4. 2.14 "Pay" means and includes (i) a Participant's regular salary or earnings; (ii) a Participant's overtime pay; and (iii) bonuses designated by the Committee as being eligible to be used to purchase Shares under this Plan. "Pay" shall not include any other compensation, taxable or otherwise, including without limitation employee tips, moving/relocation expenses, imputed income, option income, tax-gross-ups and taxable benefits. 2.15 "Payroll Deduction Account" shall mean the Company's bookkeeping entry that reflects the amount deducted from each Participant's Pay for the purpose of purchasing Shares under the Plan, reduced by amounts refunded to the Participant and amounts applied to purchase Shares hereunder. Amounts deducted from each Participant's Pay may be commingled with the general funds of the Company. No interest shall be paid or allowed on a Participant's payroll deductions. 2.16 "Plan" means the Applebee's International, Inc. Employee Stock Purchase Plan. 2.17 "Purchase Price" means the price per Share as set forth in Article 6 paid by a Participant to acquire Shares hereunder. 2.18 "Shares" means shares of the Company's common stock. 2.19 "Subsidiaries" shall mean any present or future domestic or foreign corporation that would be a "subsidiary corporation" of the Company as that term is defined in Section 424(f) of the Code. 2.20 "Withdrawal" means a Participant's election to withdraw from an Offering pursuant to Article 11. ARTICLE 3 - ELIGIBILITY Any regular employee of the Company or any of its Subsidiaries shall be eligible to participate in the Plan as of the Commencement Date coinciding with or next following the completion of twelve (12) consecutive months of employment following his date of hire. For the purpose of determining an employee's initial eligibility, an employee's period of employment with any business entity, the assets, business or stock of which has been acquired, in whole or in part by the Company or any of its Subsidiaries through purchase, merger or otherwise ("Acquired Business"), shall be taken into account. An employee's period of employment with the Company, any of its Subsidiaries, or any Acquired Business prior to the Effective Date shall be taken into account. If an employee terminates employment with the Company or any of its Subsidiaries for any reason and is later rehired, such employee, regardless of whether he is eligible to participate in the Plan prior to his termination, shall be treated as a new employee and will be eligible to participate in the Plan as of the Commencement Date coinciding with or next following the completion of twelve (12) consecutive months of employment following his date of rehire. For purposes of this Article, an employee's employment with the Company or any of its Subsidiaries shall not be considered interrupted or terminated in the case of a leave of absence or suspension, provided that such leave is approved by the Company or the employee's reemployment with the Company or any of its Subsidiaries upon the expiration of such leave is guaranteed by contract or statute. ARTICLE 4 - PARTICIPATION An eligible employee may become a Participant by completing an Enrollment Agreement provided by the Company and filing it with the Designated Person prior to the deadline set by the Committee that precedes the Commencement 2 Date of the Offering to which it relates. Participation in one Offering under the Plan shall neither limit, nor require, participation in any other Offering; provided, however, that at the conclusion of each Offering, the Company shall automatically re-enroll each Participant in the next Offering at the same rate of payroll deduction, unless the Participant has advised the Designated Person otherwise in a written form acceptable to the Committee. ARTICLE 5 - OFFERINGS Each Offering shall be for three (3) consecutive months. The first Offering shall commence on January 1, 1997. Thereafter, Offerings shall commence on each subsequent April 1, July 1, October 1 and January 1, and shall continue until the Plan is terminated in accordance with Section 15.5. ARTICLE 6 - PURCHASE PRICE The "Purchase Price" per Share pursuant to an Offering shall be the lesser of (a) 90% of the fair market value per Share on the Commencement Date of such Offering or, if the Commencement Date is not a business day, the nearest subsequent business day; or (b) 90% of the fair market value of such Share on the Ending Date of such Offering or, if the Ending Date is not a business day, the nearest prior business day. "Fair market value" for this purpose shall mean the closing price as reported on the National Association of Securities Dealers Automated Quotation National Market System (the "NASDAQ-NMS") or, if the Shares are not reported on the NASDAQ-NMS, on the stock exchange, market, or system on which the Shares are traded as reported that is designated by the Committee as controlling for purposes of the Plan. In the event shares are not so traded or reported, no purchase shall be made and each Participant's interest in the amount credited to the Payroll Deduction Account shall be returned to each Participant without interest. ARTICLE 7 - LIMITATIONS ON SHARE OWNERSHIP 7.1 The maximum number of Shares that a Participant may acquire during an Offering shall be the amount credited to such Participant's Payroll Deduction Account as of the Ending Date of such Offering, divided by the Purchase Price per Share. 7.2 The maximum, aggregate number of Shares that will be offered under the Plan is two hundred thousand (200,000). If, as of any Ending Date, the total number of Shares to be purchased exceeds the number of Shares then available under this Article (after deduction of all Shares that have been previously purchased under the Plan), the Committee shall make a pro rata allocation of the Shares that remain available in as nearly a uniform manner as shall be practicable and as it shall determine, in its sole judgment, to be equitable. In such event, any amount credited to each Participant's Payroll Deduction Account that remains after purchase of such reduced number of Shares shall be refunded as soon as reasonably practicable, and no further payroll deductions or Offerings shall occur under this Plan unless and until additional shares are authorized. 7.3 Notwithstanding anything herein to the contrary, the maximum number of Shares that may be purchased by any Participant as of any Ending Date shall be reduced to that number which, when the voting power or value thereof is added to the total combined voting power or value of all classes of shares of capital stock of the Company or its Subsidiaries the person is already deemed to hold (excluding any number of Shares which such person would be entitled to purchase under the Plan), is one share less than five percent (5%) of the total combined voting power or value of all classes of shares of capital stock of the Company or its Subsidiaries. For purposes of the foregoing, the rules of Section 424(d) of the Code shall apply. In addition, no Participant shall be allowed to purchase Shares as of any Ending Date to the extent such purchase would cause the sum of the fair market value of all Shares purchased by such Participant under this Plan and any other plan qualified under Code Section 423 during the calendar year during which such Ending Date occurs to exceed $25,000. For purposes of the preceding sentence, "fair market value" shall be the value as of the date of grant of each such Offering and the rules of Section 423(b)(8) of the Code shall apply. 3 ARTICLE 8 - PAYROLL DEDUCTIONS 8.1 At the time the Enrollment Agreement is filed with the Designated Person and for so long as a Participant participates in the Plan, each Participant may authorize the Company to make payroll deductions of either (a) a fixed dollar amount per pay period; or (b) a whole percentage (in 1% increments) of Pay per pay period, provided, however, that no payroll deduction shall exceed 15% of Pay per pay period. The Committee, in its discretion, may establish from time to time a minimum fixed dollar deduction that a Participant must authorize under this Plan; provided, however, that a Participant's existing rights under any Offering that has already commenced may not be adversely affected thereby. 8.2 The amount of each Participant's payroll deductions shall be credited to his Payroll Deduction Account. No interest or other amount shall be credited to a Payroll Deduction Account. 8.3 Commencing with respect to the first payroll period beginning on or after the Plan's Effective Date, a Participant's authorized payroll deductions shall be deducted from each paycheck paid during an Offering and shall continue until changed by the Participant or by amendment or termination of this Plan. A Participant may elect to increase or decrease his authorized payroll deductions effective as of January 1 or July 1 of each year upon prior notice acceptable to the Company. Except for a Withdrawal and discontinuance of payroll deductions permitted under this Plan, no change in payroll deductions may be effective on a date other than January 1 or July 1, including without limitation, any change in the amount or rate of payroll deductions during an Offering. 8.4 With respect to each payroll period during an Offering, a Participant's authorized payroll deductions shall be deducted from Pay only after all other discretionary and nondiscretionary payroll deductions attributable to such Participant have first been deducted from Pay for such period. To the extent a Participant's Pay after such discretionary and nondiscretionary payroll deductions have been deducted is less than the Participant's authorized payroll deductions hereunder, the Participant's remaining Pay, if any, shall be credited on his behalf to the Payroll Deduction Account and the difference between the authorized and actual deduction shall be disregarded and never deducted from payroll or credited to the Payroll Deduction Account. ARTICLE 9 - PURCHASE OF SHARES 9.1 As of the Ending Date of each Offering, each Participant shall be deemed to have elected to purchase at the Purchase Price, the maximum number of Shares (including fractional Shares) that may be purchased with such Participant's Payroll Deduction Account in accordance with the terms of this Plan, unless the Designated Person has received timely and proper notice of a Withdrawal. The Shares purchased hereunder will be credited to the Brokerage Account. Any cash remaining in the Participant's Payroll Deduction Account which is not applied toward the purchase of Shares shall be carried forward and applied in subsequent Offerings. No Participant shall have any rights of a shareholder with respect to any Shares until the Shares have been purchased in accordance herewith. Shares purchased hereunder may be treasury or newly issued shares acquired from the Company or shares acquired on the open market. 9.2 Any cash dividends paid on Shares credited to the Brokerage Account shall be automatically applied to purchase, at Company expense, additional Shares from the Company at the fair market value (as defined in Article 6) of such Shares as of the business day immediately preceding the date of purchase, or on the open market at the market price at the time of purchase, and such additional shares shall be credited to the Brokerage Account. 9.3 Notwithstanding the preceding provisions of this Article or any other provision to the contrary, no Shares shall be purchased hereunder or credited to the Brokerage Account until the Plan is approved by the stockholders of the Company as provided in Section 15.1. 4 ARTICLE 10 - EVIDENCE OF OWNERSHIP OF SHARES Following the Ending Date of each Offering, the Shares that are purchased by each Participant shall be recorded in book entry form and credited to the Brokerage Account. ARTICLE 11 - WITHDRAWAL 11.1 A Participant may "Withdraw" from an Offering, in whole but not in part, by notifying the Designated Person, in writing on a form acceptable to the Committee, in which event (i) the Participant's payroll deductions shall stop as soon as is reasonably practicable following receipt of such notice by the Designated Person, (ii) the Company shall refund the amount credited to the Participant's Payroll Deduction Account as soon as reasonably practicable, and (iii) no Shares shall be purchased on behalf of the Participant with respect to such Offering. The notice described in this Section must be received by the Designated Person prior to the deadline set by the Committee, provided that if the Committee fails to set such a deadline, such notice must be received by the Ending Date (or the immediately preceding business day if the Ending Date is not a business day). 11.2 An eligible employee who has previously withdrawn from the Plan may re-enter by complying with the Participation requirements. Upon compliance with such requirements, an employee's re-entry into the Plan will be effective as of the Commencement Date coinciding with or next following the satisfaction of such requirements. 11.3 A Participant hereunder may elect at any time on a form acceptable to the Committee (i) to have all or part of the Shares credited to the Brokerage Account on his behalf (including fractional Shares) sold at the Participant's expense and cash paid to the Participant, (ii) to have any whole Shares transferred to the Participant's individual brokerage account established at the Participant's expense, or (iii) to have a stock certificate issued to the Participant or his designee for any whole Shares credited to the Brokerage Account on his behalf. ARTICLE 12 - RIGHTS NOT TRANSFERABLE No Participant shall be permitted to sell, assign, transfer, pledge, or otherwise dispose of or encumber such Participant's interest in the Payroll Deduction Account or any rights to purchase or to receive Shares under the Plan other than by will or the laws of descent and distribution, and such rights and interests shall not be subject to, a Participant's debts, contracts, or liabilities. If a Participant purports to make a transfer, or a third party makes a claim in respect of a Participant's rights or interests, whether by garnishment, levy, attachment or otherwise, such purported transfer or claim shall be treated as a Withdrawal. ARTICLE 13 - TERMINATION OF EMPLOYMENT As soon as reasonably practicable following termination of a Participant's employment with the Company or any of its Subsidiaries for any reason whatsoever, including, but not limited to, by reason of death, disability or retirement, (i) the amount credited to the Payroll Deduction Account on behalf of the Participant shall be returned to the Participant or the Participant's Beneficiary, as the case may be, subject to Section 15.1 and (ii) the Participant's interest in the Brokerage Account shall be liquidated in the manner described below. As part of the procedure to liquidate the Participant's interest in the Brokerage Account, the Participant may elect in writing on a form acceptable to the Committee and received by the Designated Person by the deadline set by the Committee, to have the number of Shares credited to the Brokerage Account on behalf of the Participant sold at the Participant's expense and cash paid to the Participant, or to have such Shares transferred to the Participant's individual brokerage account established at the Participant's expense. If the Participant does not request a sale or transfer by the deadline established by the Committee or requests to receive a stock certificate, a certificate for the whole Shares credited to the Brokerage Account on his behalf will be issued to the Participant and the Participant will receive cash for any fractional Shares credited to the Brokerage Account on his behalf. 5 ARTICLE 14 - ADMINISTRATION The Plan shall be administered by the Committee, which may engage such persons, entities or agents as it shall deem advisable to assist in the administration of the Plan. The Company may from time to time appoint or dismiss members of the Committee. A majority of the members of the Committee shall constitute a quorum and the acts of a majority of the members present at a meeting or the consent in writing signed by all the members of the Committee shall constitute the acts of the Committee. The Committee shall be vested with full authority to make, administer, and interpret such rules and regulations as it deems necessary to administer the Plan, and any determination, decision, or action of the Committee in connection with the construction, interpretation, administration or application of the Plan shall be final, conclusive, and binding upon all parties, including the Company, the Participants and any and all persons that claim rights or interests under or through a Participant. The Committee may delegate all or part of its authority to one or more of its members. AMENDMENT 15 - MISCELLANEOUS 15.1 Approval of the Plan. Notwithstanding any provision in this Plan to the contrary, if the Plan is not approved by the stockholders of the Company within twelve (12) months after the Effective Date of the Plan, the balance of each Participant's Payroll Deduction Account shall be refunded in its entirety, without interest, as soon as reasonably practicable. If an eligible employee terminates employment after the Ending Date of any Offering but prior to the approval of the Plan by the stockholders of the Company, then such employee may elect in writing on a form acceptable to the Committee, which form must be received by the Designated Person by the deadline set by the Committee, to have the balance credited to the Payroll Deduction Account on his behalf as of any such Ending Date retained and applied to purchase Shares following the subsequent approval of the Plan by the stockholders of the Company, or returned to the employee at a later date in the event the stockholders do not approve the Plan. If such election is not timely made or if such employee elects to receive cash, such employee shall receive the balance credited to the Payroll Deduction Account on his behalf as of any such Ending Date as soon as reasonably practicable after the passage of such deadline or making such election. 15.2 Amendment or Discontinuance of the Plan. The Board shall have the right to amend, modify or terminate the Plan at any time without notice, provided that (i) no Participant's existing rights under any Offering that is in progress may be adversely affected thereby, and (ii) in the event that the Board desires to retain the favorable tax treatment under Sections 421 and 423 of the Code, no such amendment of the Plan shall increase the number of Shares that were reserved for issuance hereunder unless the Company's shareholders approve such an increase. 15.3 Changes in Capitalization. In the event of reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, offerings of rights, or any other change in the capital structure of the Company, the number, kind and price of the Shares that are available for purchase under the Plan and the number of Shares that an employee is entitled to purchase shall be automatically adjusted to reflect the change in capital structure; provided, however, that the Board shall retain the right to modify any such adjustment in the manner it deems appropriate. 15.4 Notices. All notices or other communications by a Participant under or in connection with the Plan, including but not limited to Enrollment Agreements, shall be deemed to have been duly given when received by the Designated Person in the form specified by the Committee. 15.5 Termination of the Plan. This Plan shall terminate at the earliest of the following: (a) The date of the filing of a "Statement of Intent to Dissolve" by the Company or the effective date of a merger or consolidation wherein the Company is not to be the surviving corporation, which merger or consolidation is not between or among corporations affiliated with the Company; 6 (b) The date the Board acts to terminate the Plan; and (c) The date when all of the Shares that were reserved for issuance hereunder have been purchased. Prior to termination of the Plan, the Company may change the Ending Date of a pending Offering. Upon termination of the Plan, the Company shall refund to each Participant the remaining amount credited to each Participant's Payroll Deduction Account after all purchases have been made. 15.6 Notice of, and Limitations on Sale of Stock Purchased Under the Plan. The Plan is intended to provide Shares for investment and not for resale. The Company does not, however, intend to restrict or influence the conduct of any employee's affairs beyond established Company policies. A current or former Participant may, therefore, sell Shares that are purchased under the Plan at any time at his expense, subject to compliance with any applicable federal or state securities laws and Company policies. Each current and former Participant assumes the risk of any market fluctuations in the price of the Shares. Each current or former Participant must notify the Company of any disposition of Shares purchased under this Plan that is described in Section 423(a)(1) of the Code, which is any disposition within two years after the date of grant of the option to purchase or any disposition within one year after the transfer of the Share to him. 15.7 Governmental Regulation. The Company's obligation to sell and deliver Shares under this Plan is subject to any governmental approval that is required in connection with the authorization, issuance or sale of such Shares. 15.8 No Employment Rights. This Plan does not, directly or indirectly, create in any employee or class of employees any right with respect to continuation of employment by the Company, and it shall not be deemed to interfere in any way with the Company's right to terminate, or otherwise modify, an employee's employment at any time. 15.9 Governing Law. The law of the state of Kansas shall govern all matters that relate to this Plan except to the extent it is superseded by the laws of the United States. 15.10 Text of Plan Documents Controls. Titles of Articles and Sections in this Plan are inserted for convenience of reference only and in the event of any conflict, the text of this instrument, rather than such titles, shall control. 15.11 Non-gender Clause. Any words herein used in the masculine shall read and be construed in the feminine where they would so apply. Words in the singular shall be read and be construed as though used in the plural in all cases where they would so apply. IN WITNESS WHEREOF, Applebee's International, Inc. has caused this Plan to be adopted effective as of January 1, 1997. APPLEBEE'S INTERNATIONAL, INC. "Company" By: /s/ Abe J. Gustin, Jr. ------------------------------------ Title: Chairman and Chief Executive Officer ------------------------------------ 7 EX-10.21 6 SCHEDULE OF PARTIES TO INDEMNIFICATION AGREEMENT SCHEDULE OF PARTIES RECEIVING INDEMNIFICATION AGREEMENTS D. Patrick Curran Eric L. Hansen Jack P. Helms Kenneth D. Hill Lloyd L. Hill Ronald J. Marks Robert A. Martin Steven K. Lumpkin George D. Shadid Robert T. Steinkamp Stuart F. Waggoner John A. Weber EX-10.23 7 SCHEDULE OF PARTIES TO SEVERANCE AGREEMENT SCHEDULE OF OFFICERS RECEIVING SEVERANCE AGREEMENTS Robert A. Martin Ronald J. Marks Steven K. Lumpkin Robert T. Steinkamp Stuart F. Waggoner John A. Weber EX-21 8 SUBSIDIARIES OF APPLEBEE'S INTERNATIONAL, INC. APPLEBEE'S INTERNATIONAL, INC. SUBSIDIARY CORPORATIONS (100% owned unless indicated) Revised: 1/15/98 AII Services, Inc. 1 Apple American Limited Partnership of Minnesota 2 Apple Vermont Restaurants, Inc. 3 Applebee's Beverage, Inc. Applebee's Neighborhood Grill & Bar of Georgia, Inc. Applebee's Northeast, Inc. (formerly known as Pub Ventures of New England, Inc.) Applebee's of Michigan, Inc. Applebee's of Minnesota, Inc. Applebee's of Nevada, Inc. Applebee's of New Mexico, Inc. Applebee's of New York, Inc. Applebee's of Pennsylvania, Inc. Applebee's of Texas, Inc. Applebee's of Virginia, Inc. Gourmet Systems, Inc. Gourmet Systems of Arizona, Inc. Gourmet Systems of California, Inc. Gourmet Systems of Georgia, Inc. Gourmet Systems of Kansas, Inc. Gourmet Systems of Minnesota, Inc. Gourmet Systems of Nevada, Inc. Gourmet Systems of Tennessee, Inc. (formerly known as Applebee's of Tennessee, Inc.) 4 GourmetWest of Nevada, Limited-Liability Company 5 Innovative Restaurant Concepts, Inc. 6 IRC Kansas, Inc. Rio Bravo International, Inc. 7 Rio Bravo Restaurant, Inc. 8 Rio Bravo Services, Inc. 9 Summit Restaurants, Inc. 1 A Limited Partnership in which Gourmet Systems of Minnesota, Inc. is as general partner and Applebee's of Minnesota, Inc. is a limited partner. 2 This company is a wholly-owned subsidiary of Applebee's Northeast, Inc. 3 49% owned by Applebee's International, Inc. 4 50% owned by Gourmet Systems of Nevada, Inc./50% owned by Applebee's of Nevada, Inc. 5 This company is a wholly-owned subsidiary of Rio Bravo International, Inc. 6 This company is a wholly-owned subsidiary of Innovative Restaurant Concepts, Inc. 7 This company is a wholly-owned subsidiary of Rio Bravo International, Inc. 8 This company is a wholly-owned subsidiary of Rio Bravo International, Inc. 9 This company is a wholly-owned subsidiary of Innovative Restaurant Concepts, Inc. EX-23.1 9 CONSENT OF DELOITTE & TOUCHE LLP INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 33-72282 of Applebee's International, Inc. on Form S-8 of our report dated February 13, 1998, appearing in this Annual Report on Form 10-K of Applebee's International, Inc. for the year ended December 28, 1997, and to the reference to us under the heading "Experts" in such Registration Statement. We consent to the incorporation by reference in Registration Statement No. 33-59421 of Applebee's International, Inc. on Form S-3 of our report dated February 13, 1998, appearing in this Annual Report on Form 10-K of Applebee's International, Inc. for the year ended December 28, 1997, and to the reference to us under the heading "Experts" in such Registration Statement. We consent to the incorporation by reference in Registration Statement No. 33-62419 of Applebee's International, Inc. on Form S-3 of our report dated February 13, 1998, appearing in this Annual Report on Form 10-K of Applebee's International, Inc. for the year ended December 28, 1997, and to the reference to us under the heading "Experts" in such Registration Statement. We consent to the incorporation by reference in the Registration Statement No. 333-01969 of Applebee's International, Inc. on Form S-8 of our report dated February 13, 1998, appearing in this Annual Report on Form 10-K of Applebee's International, Inc. for the year ended December 28, 1997, and to the reference to us under the heading "Experts" in such Registration Statement. We consent to the incorporation by reference in the Registration Statement No. 333-17823 of Applebee's International, Inc. on Form S-8 of our report dated February 13, 1998, appearing in this Annual Report on Form 10-K of Applebee's International, Inc. for the year ended December 28, 1997, and to the reference to us under the heading "Experts" in such Registration Statement. We consent to the incorporation by reference in the Registration Statement No. 333-17825 of Applebee's International, Inc. on Form S-8 of our report dated February 13, 1998, appearing in this Annual Report on Form 10-K of Applebee's International, Inc. for the year ended December 28, 1997, and to the reference to us under the heading "Experts" in such Registration Statement. DELOITTE & TOUCHE LLP Kansas City, Missouri March 17, 1998 EX-27 10 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THIS FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-28-1997 DEC-30-1996 DEC-28-1997 8,908 10,906 17,227 837 4,788 43,954 345,518 69,436 377,474 62,488 22,579 0 0 317 290,126 377,474 452,173 515,820 387,491 440,070 4,467 0 1,705 71,801 26,710 45,091 0 0 0 45,091 1.44 1.43
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