21
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant
Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-12
THE STEAK N SHAKE COMPANY
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
THE STEAK N SHAKE COMPANY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 11, 2004
TO THE SHAREHOLDERS OF THE STEAK N SHAKE COMPANY
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of The Steak
n Shake Company (the "Company") will be held at the Company's Corporate Office,
4th Floor, Century Building, 36 South Pennsylvania Street, Indianapolis, Indiana
46204, on Wednesday, February 11, 2004 at 1:30 p.m., Eastern Standard Time, for
the following purposes:
1. To elect nine directors to serve until the next Annual Meeting of
Shareholders and until their respective successors shall be elected and
qualified.
2. To act upon the approval of the Company's Amended and Restated 1997 Capital
Appreciation Plan, as adopted by the Board of Directors.
3. To act upon the approval of the 2004 Director Stock Option Plan, as adopted
by the Board of Directors.
4. To ratify the selection by the Audit Committee of the Board of Directors of
Deloitte & Touche, LLP as the Company's independent auditors for the fiscal
year ending September 29, 2004.
5. To transact such other business as may properly come before the meeting and
any adjournment thereof.
The Board of Directors has fixed the close of business on December 5, 2003,
as the record date for the determination of shareholders entitled to notice of
and to vote at the Annual Meeting.
We urge you to sign, date and mail the enclosed proxy in the envelope
provided whether or not you expect to be present in person. You may revoke the
proxy at any time prior to the time the proxy is exercised by filing with the
Secretary of the Company a properly executed instrument revoking such proxy, or
by filing a properly executed proxy bearing a later date, or by attending the
Annual Meeting and withdrawing your proxy and voting in person.
By Order of the Board of Directors
Mary E. Ham, Secretary
December 19, 2003
Indianapolis, Indiana
PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE
THE STEAK N SHAKE COMPANY
500 CENTURY BUILDING
36 SOUTH PENNSYLVANIA STREET
INDIANAPOLIS, INDIANA 46204
(317) 633-4100
PROXY STATEMENT
For the Annual Meeting of Shareholders
To be held February 11, 2004
This proxy statement is furnished to the shareholders of The Steak n Shake
Company in connection with the solicitation by the Company of proxies to be
voted at the Annual Meeting of Shareholders (the "Annual Meeting") to be held at
the Company's Corporate Office, 4th Floor, Century Building, 36 South
Pennsylvania Street, Indianapolis, Indiana 46204, on Wednesday, February 11,
2004, at 1:30 p.m., Eastern Standard Time, and at any adjournment thereof. This
proxy statement and the accompanying form of proxy were first mailed to
shareholders on or about December 19, 2003.
Each properly executed proxy returned prior to the meeting will be voted in
accordance with the directions contained therein. The enclosed proxy may be
revoked by the person giving it at any time before it is voted by giving written
notice to the Secretary of the Company.
OUTSTANDING COMMON STOCK
The record date for shareholders entitled to vote at the Annual Meeting was
December 5, 2003. At the close of business on that date, the Company had issued
and outstanding 27,265,073 shares of Common Stock entitled to vote at the Annual
Meeting. Unless otherwise stated, all references herein to numbers and prices
of shares of Common Stock, options and capital appreciation shares of the
Company have been adjusted to reflect all stock dividends and stock splits
heretofore distributed by the Company.
ACTION TO BE TAKEN AT THE ANNUAL MEETING
Unless the shareholder otherwise specifies in the proxy, the accompanying
proxy will be voted (i) FOR the election, as directors of the Company, of the
nine persons named under the caption "Election of Directors"; (ii) FOR the
approval of the Amended and Restated 1997 Capital Appreciation Plan; (iii) FOR
the approval of the 2004 Director Stock Option Plan and (iv) FOR the approval of
Deloitte & Touche, LLP as the Company's independent auditors for the fiscal year
ending September 29, 2004.
QUORUM AND VOTING
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum at the
Annual Meeting. In deciding all questions, a holder of Common Stock is entitled
to one vote, in person or by proxy, for each share registered in his/her/its
name on the record date. Directors of the Company are elected by a plurality of
the votes cast by the holders of the shares represented at the meeting.
Abstentions, broker non-votes and instructions on the enclosed form of proxy to
withhold authority to vote for one or more of the nominees will result in the
nominee receiving fewer votes; however, the number of shares present for
purposes of determining a quorum will not be reduced by such action. The
Amended and Restated 1997 Capital Appreciation Plan and the 2004 Director Stock
Option Plan will be approved if they receive the affirmative vote of the holders
of a majority of the Company's Common Stock present or represented and voting at
the Annual Meeting. Abstentions and broker non-votes with respect to any
proposal will not be counted as votes for or against that proposal.
SHAREHOLDER PROPOSALS
The bylaws of the Company require shareholders to provide advance notice in
order to bring business before an annual meeting. In order for a shareholder to
properly bring business before the 2005 Annual Meeting, the shareholder must
give written notice to the Company at the address on the front page of this
proxy statement. To be timely, a shareholder's notice must be received by the
Company on or before August 21, 2004 or in the event that the date of the
meeting is changed more than 30 days from February 9, 2005 such notice must be
delivered or mailed to and received by the Company not later than 120 days prior
to the date the Company begins to print and mail proxy materials for the 2005
Annual Meeting. These procedures apply to any matter that a shareholder wishes
to raise at the 2005 Annual Meeting, including those matters raised other than
pursuant to 17 C.F.R. 240.14a-8 of the Rules and Regulations of the SEC. A
shareholder proposal that does not meet the above requirements will be
considered untimely, and any proxy solicited by the Company may confer
discretionary authority to vote on such proposal.
OWNERSHIP OF COMMON STOCK
The following table shows the number and percentage of outstanding shares
of Common Stock beneficially owned as of December 5, 2003 by each person or
entity known to be the beneficial owner of more than 5% of the Common Stock of
the Company:
Name & Address of Amount and Nature of
Beneficial Owner Beneficial Ownership(1) Percent of Class
--------------------------------------------------------------------------------
MSD Capital, Inc. 2,053,100 7.5%
645 Fifth Avenue,
21st Floor
New York, NY 10022-5910
(1) This table is based upon information supplied by MSD Capital, Inc. on
Schedule 13G filed with the Securities and Exchange Commission on April 11,
2003 and information supplied thereafter by MSD Capital, Inc.
The following table shows the total number of shares of Common Stock
beneficially owned as of December 5, 2003, and the percentage of Common Stock so
owned as of that date, with respect to (i) each director, (ii) each executive
officer named in the Summary Compensation Table, and (iii) all directors and
executive officers, as a group:
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership(1) Percent of Class
--------------------------------------------------------------------------------
S. Sue Aramian 605,666 (2) 2.2%
James W. Bear 437,225 (3) 1.4%
Peter M. Dunn 62,000 (4) *
Alan B. Gilman 459,010 (5) 1.7%
Stephen Goldsmith 9,180 (6) *
Wayne L. Kelley 390,867 (7) 1.5%
Charles E. Lanham 410,480 (8) 1.5%
Ruth J. Person 2,000 (9) *
Gary T. Reinwald 394,625 (10) 1.5%
J. Fred Risk 115,299 (11) *
John W. Ryan 18,382 (12) *
Gary S. Walker 41,600 (13) *
James Williamson, Jr. 327,352 (14) 1.2%
All directors and executive officers
as a group (19 persons) 3,137,140 (15) 11.5%
*Less than 1%.
(1) Includes shares which may be acquired pursuant to stock options exercisable
within 60 days under the Company's stock option plans.
(2) Includes 5,000 shares which may be acquired pursuant to stock options
exercisable within 60 days. Also includes 305,334 shares owned by Kelley &
Partners, L.P., of which Ms. Aramian is the Managing General Partner.
(3) Includes 59,518 shares which may be acquired pursuant to stock options
exercisable within 60 days. Also includes 97,259 shares owned of record and
beneficially by Mr. Bear's wife, with respect to which he disclaims beneficial
ownership, and 90,000 shares owned by Mr. Bear's affiliate, Bear Family Limited
Partnership.
(4) Includes 12,000 shares which may be acquired pursuant to stock options
exercisable with in 60 days.
(5) Includes 120,866 shares which may be acquired pursuant to stock options
exercisable within 60 days.
(6) Includes 8,300 shares which may be acquired pursuant to stock options
exercisable within 60 days.
(7) Includes 1,200 shares which may be acquired pursuant to stock options
exercisable within 60 days. Also includes 305,334 shares owned by Kelley &
Partners, L.P. of which Mr. Kelley is a General Partner.
(8) Includes 8,300 shares which may be acquired pursuant to stock options
exercisable within 60 days. Also includes 10,928 shares owned of record and
beneficially by Mr. Lanham's wife, with respect to which he disclaims beneficial
ownership, and 26,750 shares owned by Mr. Lanham's affiliate, Hartford Heritage,
LLC.
(9) Includes 2,000 shares which may be acquired pursuant to stock options
exercisable within 60 days.
(10) Includes 76,511 shares which may be acquired pursuant to stock options
exercisable within 60 days.
(11) Includes 8,300 shares which may be acquired pursuant to stock options
exercisable within 60 days. Also includes 7,726 shares owned of record and
beneficially by Mr. Risk's wife, with respect to which he disclaims beneficial
ownership.
(12) Includes 8,300 shares which may be acquired pursuant to stock options
exercisable within 60 days.
(13) Includes 17,600 shares which may be acquired pursuant to stock options
exercisable within 60 days and 300 shares owned of record and beneficially by
Mr. Walker's minor children, with respect to which he disclaims beneficial
ownership.
(14) Includes 8,300 shares which may be acquired pursuant to stock options
exercisable within 60 days. Also includes 19,011 shares owned of record and
beneficially by Mr. Williamson's wife, with respect to which he disclaims
beneficial ownership.
(15) Includes 417,112 shares which may be acquired pursuant to stock options
exercisable within 60 days held by all directors and officers as a group.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 sets forth certain
filing requirements relating to securities ownership by directors, executive
officers and ten percent shareholders of a publicly held company. To the
Company's knowledge, based on the representations of its directors and executive
officers and copies of their respective reports filed with the Securities and
Exchange Commission, all filing requirements were satisfied by each such person
during the fiscal year ended September 24, 2003, with the exception of filings
by Kevin Dooley, Vice President of Construction, and William Hart, Vice
President of Purchasing. Forms 4 recording the transfer of shares to a family
limited partnership and a trust, respectively, were not filed in a timely
manner, although the Company has since filed forms setting forth these
transfers. Additionally, Mr. Gilman and Mr. Reinwald exercised and timely
reported options during the year. However, due to an administrative oversight,
the Company failed to include on the reports the automatic grant of reload
options they received pursuant to the Company's 1997 Employee Stock Option Plan.
The Company has filed amended reports reflecting the grant of these reload
options to them.
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
All persons standing for election as director were unanimously nominated by
the Board of Directors. No person being nominated as a director is being
proposed for election pursuant to any agreement or understanding between any
such person and the Company.
MISCELLANEOUS
a) CREATION AND DISTRIBUTION OF PROXIES
--------------------------------------------
The entire cost of soliciting proxies will be paid by the Company. In addition
to the solicitation of proxies by use of the mails, certain officers, directors
and employees of the Company, none of whom receive additional compensation
therefor, may solicit proxies by telephone, facsimile or personal interview at
the expense of the Company. The Company will also request brokers, dealers,
banks and voting trustees, and their nominees, to forward this proxy statement
and the accompanying form of proxy to beneficial owners and will reimburse such
record holders for their reasonable expense in forwarding solicitation material.
b) CODE OF BUSINESS CONDUCT AND ETHICS
---------------------------------------------
The Company has in place a long-standing code of ethics that applies to its
principal executive officer, principal financial officer and principal
accounting officer. A copy of the code of ethics can be obtained without charge
by written request to the Company at the address on the front page of this proxy
statement. As a result of the passage of revised listing standards for the New
York Stock Exchange that will become effective as of the date of the Annual
Meeting, the Board of Directors is reviewing and considering revisions to the
code of ethics. Once this process is completed, the code of ethics will be
posted on the Company's website at www.steaknshake.com. If the Company makes any
substantive amendment of, or grants any waiver to, the code of ethics, the
Company will disclose the nature of such amendment or waiver either via its
website or a current report on Form 8-K.
1. ELECTION OF DIRECTORS
Nine directors will be elected to serve until the next Annual Meeting and
until their respective successors shall have been duly elected and qualified.
Eight of the nominees are currently directors of the Company. Seven were
elected at the Annual Meeting of Shareholders held February 12, 2003. Mr. Wayne
L. Kelley was elected as a director by the Board of Directors effective August
18, 2003. The ninth nominee, Mr. Peter Dunn, has not served on the Board of
Directors in the past. The Board of Directors has affirmatively determined that
a majority of the director nominees are independent and have no material
relationship with the Company (either directly or as a partner, shareholder or
officer of an organization that has a relationship with the Company).
If any of the nominees named below is not available to serve as a director
at the time of the Annual Meeting (an event which the Board of Directors does
not now anticipate), the proxies will be voted for the election as directors of
such other person or persons as the Board of Directors may designate, unless the
Board of Directors, in its discretion, amends the Company's Bylaws to reduce the
number of directors.
The nominees for the Board of Directors of the Company are listed below,
along with the age, tenure as director and business background for at least the
last five years for each:
Served As
Name Age Director Since Business Experience
--------------------------------------------------------------------------------
Peter M. Dunn 48 N/A President and Chief Operating
Officer of the Company since 2002;
formerly President, Borden Foods
Co., 1997-2001.
Alan B. Gilman 73 1992 President and Chief Executive
Officer of the Company from 1992
to September 30, 2002; Chief
Executive Officer and Co-Chairman
of the Company from September 30,
2002 through August 11, 2003;
Chief Executive Officer and
Chairman of the Company since
August 11, 2003.
Stephen Goldsmith 57 1999 Chairman of the Corporation for
National and Community Service;
Senior Vice President, Strategic
Initiatives and e-Government, for
ACS, a national business process
outsourcer; Faculty Director,
Innovations in American Government
Harvard University; Chairman of
the Manhattan Institute's Center
for Civic Innovation; member of
the Board of Directors of the
Finish Line, Inc.; Mayor of
Indianapolis, Indiana from 1992
through 1999.
Wayne L. Kelley 59 2003 Director of Steak n Shake
Operations, Inc., a subsidiary of
the Company, since 1999; President
of Kelley Restaurants, Inc. since
1991.
Charles E. Lanham 71 1971 Chairman of the Board of Directors
Of Overhead Door Company of
Indianapolis, Inc.; Vice Chairman
of Klipsch Lanham Investments, a
private investment company;
Trustee of Windrose Medical
Properties Trust, a publicly
traded real estate investment
trust.
Ruth J. Person 58 2002 Chancellor, Indiana University
Kokomo and Professor of Management
President, American Association of
University Administrators 2003 to
2004.
J. Fred Risk 75 1971 Chairman of the Board of Directors
of Security Group, Inc.
John W. Ryan 74 1996 Private investor; Chancellor of
the State University of New York
Systems from 1996 through 1999;
President of Indiana University
from 1971 through 1987.
James Williamson, Jr. 72 1985 Private investor; former President
And Chief Executive Officer of the
Company from 1985 to 1990.
There is no family relationship among any of the nominees for director.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE NOMINEES
NAMED IN THIS PROXY STATEMENT.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors held four meetings during fiscal year 2003. The
Board has, or during fiscal year 2003 had, eight standing committees: an
Executive Committee, a Personnel/Benefits Committee, an Audit Committee, a Stock
Option Committee, an Employee Stock Purchase Plan Committee, a Compensation
Committee, an Investment Committee, and a Nominating/Corporate Governance
Committee.
The Executive Committee may exercise all of the powers of the Board of
Directors in the management of the affairs of the Company to the extent
permitted by law. During the fiscal year ended September 24, 2003, the
Executive Committee did not meet. Mr. Williamson serves as Chairman and Mr.
Risk and Dr. Ryan serve as members of the Executive Committee.
The Audit Committee, among other duties, serves in an oversight role
intended to ensure the integrity and objectivity of the Company's financial
reporting process. The Committee meets with representatives of management and
the independent auditors to review matters of a material nature related to
auditing, financial reporting, internal accounting controls and audit results.
The Audit Committee is also responsible for making determinations regarding the
independence and selection of the Company's independent auditors. See "Report
of the Audit Committee," below. During the fiscal year ended September 24,
2003, the Audit Committee met six times. Mr. Risk serves as Chairman of the
Committee and Messrs. Goldsmith, Lanham and Ryan serve as members. The Chairman
and each member of the Audit Committee are "independent" as that term is defined
in Section 301 of the Sarbanes-Oxley Act of 2002 and the listing standards for
the New York Stock Exchange. In addition, the Board of Directors has determined
that J. Fred Risk qualifies as an "audit committee financial expert" as that
term is defined in Item 401(h)(2) of Regulation S-K.
The Compensation Committee is a newly-created committee charged with
establishing the compensation for the Company's Chief Executive Officer and the
other executive officers as well as guidelines for the administration of
incentive and equity-based compensation plans. Effective November, 2003 it also
began to oversee the administration of the Company's stock option plans and
Employee Stock Purchase Plan. See "Report of the Compensation Committee" below.
The Compensation Committee met once during fiscal 2003. Mr. Williamson serves
as chairman of the Compensation Committee and Mr. Lanham, Dr. Person and Dr.
Ryan serve on the committee. The Compensation Committee was formed in August,
2003. Prior to its formation, the compensation of the Company's executive
officers was determined by the Executive Committee.
The Investment Committee did not meet in fiscal 2003. During the November
12, 2003 Board of Directors meeting, its duties, which consisted of making
investment decisions regarding the Company's 401k and Profit Sharing Plan, were
assigned to the Executive Committee.
The Nominating/Corporate Governance Committee was formed in August, 2003 to
make recommendations regarding the nomination of appropriate individuals for
election to the Board of Directors, to oversee the Company's Corporate
Governance Guidelines, to allocate Board resources to various committees and to
evaluate the performance of the Board and its individual members. Dr. Ryan is
the Chairman of the Committee and Messrs. Goldsmith, Lanham and Risk serve on
the Committee.
The Stock Option Committee directs the administration of the Company's
employee stock option plans in accordance with the terms of the plans. The
Stock Option Committee did not meet during fiscal year 2003. Dr. Ryan serves as
Chairman of the Committee and Messrs. Lanham and Williamson are members of the
Committee. At the November 12, 2003 Board of Directors meeting, the duties of
the Stock Option Committee were transferred to the Company's newly-created
Compensation Committee.
The Personnel/Benefits Committee makes determinations and recommendations
to the Board of Directors regarding personnel policies and employee benefit
plans, administers the Company's 401k and Profit Sharing Plan and performs such
other functions with respect to personnel and benefit matters as may be
requested by the Board. The Personnel/Benefits Committee met two times during
fiscal 2003. Mr. Lanham is Chairman of the Committee and Ms. Aramian and Dr.
Person are members, together with Mr. Bear, Senior Vice President and Chief
Financial Officer, Mr. Reinwald, Senior Vice President, Ms. Roxanne Crosby,
Senior Vice President of Human Resources and Ms. B. Charlene Boog, Associate
Vice President, Administration. Mr. Gilman and Mr. Dunn are ex officio members
of the Committee.
The Employee Stock Purchase Plan Committee directs the administration of
the Company's Employee Stock Purchase Plan in accordance with the terms of the
Plan. Mr. Risk serves as Chairman of the Committee and Mr. Lanham and Dr.
Person are members of the Committee. The Employee Stock Purchase Plan Committee
did not meet but acted once by written consent in fiscal 2003. At the November
12, 2003 Board of Directors meeting, the duties of the Employee Stock Purchase
Plan Committee were transferred to the Company's newly-created Compensation
Committee.
No director attended less than 75% in the aggregate of: (i) the total
meetings of the Board of Directors, and (ii) the total number of meetings held
by all Board committees on which he or she served.
Pursuant to the listing requirements of the New York Stock Exchange, the
non-management directors of the Company will meet in at least one executive
session without management during the 2004 fiscal year. Mr. Williamson, the
Lead Outside Director, will preside over these executive sessions. Interested
parties may communicate directly with the presiding director or with the
non-management directors as a group via letter directed to Mr. Williamson at the
address shown on the first page of this Proxy.
As a result of the passage of the Sarbanes-Oxley Act of 2002 and revised
listing standards for the New York Stock Exchange that will become effective as
of the date of the Annual Meeting, the Board of Directors is reviewing and
considering revisions to the charters of its standing committees and code of
business ethics. Once this process is completed, such documents will be posted
on the Company's website and will also be available without charge upon written
request.
COMPENSATION OF DIRECTORS
Directors receive an annual fee of $18,000. They receive $2,500 per board
meeting attended and $1,000 per telephonic board meeting attended. They also
receive $1,000 for each committee meeting attended that is not held in
conjunction with a Board of Directors' meeting and $500 for each committee
meeting attended that is held in conjunction with a Board of Directors' meeting.
Mr. Risk is paid an additional annual fee of $20,000 for his services as
Chairman of the Audit Committee. Mr. Williamson is paid an additional annual
fee of $25,000 for his services as Chairman of the Executive Committee, Chairman
of the Compensation Committee and Lead Outside Director. Dr. Ryan is paid an
additional annual fee of $15,000 for his services as Chairman of the
Nominating/Corporate Governance Committee. Dr. Ryan also received a payment of
$2,400 during fiscal 2003 for his assistance in the search for a new president
of the Company. Directors who are officers of the Company are not paid for
their services as directors. In the fiscal year ended September 24, 2003, the
total compensation paid to non-employee directors was $274,250. This figure
includes $37,471 paid to non-employee directors who served on boards of
subsidiaries of the Company. In addition, the ordinary and necessary expenses
of members of the Board of Directors incurred in attending board and committee
meetings are paid by the Company.
The Company believes in compensating its non-employee directors partly on
the basis of the Company's success in increasing the value of its stock so a
portion of a director's compensation comes from stock options. The Company has
had director stock option plans (the "Director Plans") in place since 1990,
which provide for non-discretionary grants of nonqualified stock options to the
directors of the Company at a price equal to the fair market value of the Common
Stock on the date of grant. Options currently outstanding under the Director
Plans are exercisable as to 20% on the date of grant and 20% on each anniversary
of the date of grant until fully exercisable. The current options expire five
years from the date of grant.
Options for the non-employee directors to purchase an aggregate of 43,000
shares of Common Stock were conditionally granted by the Board of Directors on
November 12, 2003, subject to shareholder approval at the 2004 Annual Meeting of
Shareholders. The conditional grants were made to Ms. Aramian, Dr. Person and
Messrs. Kelley, Goldsmith, Lanham, Risk, Ryan and Williamson for 5,000 shares
each, and to Mr. Frank G. Regas, a director of a subsidiary of the Company, for
3,000 shares, at an option price of $17.98 per share. See "Approval of the 2004
Director Stock Option Plan," below.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company granted franchise rights in 1991 to Kelley Restaurants, Inc.
("KRI"), for development of Steak n Shake restaurants in the Atlanta, Georgia
and Charlotte, North Carolina markets. KRI currently operates twelve
restaurants in Atlanta, Georgia and three in Charlotte, North Carolina. The
Company recorded $1,392,000 in revenues from KRI during fiscal 2003. Mr. Kelley
serves as an officer and director, and Mr. Williamson and Mr. Gilman serve as
directors of KRI. The Board of Directors believes that the transactions with KRI
described above were on terms no less favorable to the Company than would have
been available in the absence of the relationships described.
Ms. Aramian retired as an employee of the Company on March 1, 2003. The
Board of Directors has approved a retirement benefit for Ms. Aramian, which
consists of an annual payment of $93,000, payable in monthly installments
commencing upon her retirement, for the remainder of her life. In addition, the
Company will continue to provide medical insurance coverage for Ms. Aramian for
the remainder of her life.
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows the compensation paid to the Company's Chief
Executive Officer and its other four most highly compensated executive officers
(the "Named Executive Officers") for the last three fiscal years:
SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation Long-Term Compensation
Restricted All Other
Fiscal Salary ($) Bonus ($) Stock Awards Stock Options Compensation
Year ($) (1) (#) (2) ($) (3)
-----------------------------------------------------------------------------------------------------------
Alan B. Gilman (4) 2003 $497,692 $349,344 None 10,000 $14,906
Chairman and Chief 2002 $425,000 $137,500 None 66,681 $16,777
Executive Officer 2001 $425,000 $108,500 $ 98,500 20,995 $18,522
-----------------------------------------------------------------------------------------------------------
Peter M. Dunn (5) 2003 $340,577 $244,541 $214,000 20,000 $ 1,442
President and Chief 2002 0 None None None $ 0
Operating Officer 2001 0 None None None $ 0
-----------------------------------------------------------------------------------------------------------
James W. Bear 2003 $222,500 $ 67,751 None None $12,282
Senior Vice President 2002 $216,670 $ 59,990 None 23,275 $12,111
and Chief Financial 2001 $215,000 $ 38,880 $ 55,160 13,122 $11,703
Officer
-----------------------------------------------------------------------------------------------------------
Gary T. Reinwald 2003 $245,000 $92,226 None 3,239 $11,386
Senior Vice President 2002 $221,690 $64,070 None 40,341 $ 9,084
2001 $215,000 $38,880 $ 66,980 13,122 $ 9,606
-----------------------------------------------------------------------------------------------------------
Gary S. Walker 2003 $205,000 $78,244 None None $ 6,915
Senior Vice President 2002 $185,580 $55,270 None 22,000 $10,150
2001 $180,000 $38,295 $ 55,160 None $10,141
-----------------------------------------------------------------------------------------------------------
(1) The amounts shown in this column represent the market value of the
restricted stock awarded under the Company's Capital Appreciation Plan and were
calculated by multiplying the closing market price of the Company's Common Stock
on the date of award by the number of shares awarded. The number and value of
the aggregate unvested restricted stock holdings of each of the Named Executive
Officers are as follows: Mr. Gilman, 12,500 shares ($98,500); Mr. Dunn, 20,000
shares ($214,000); Mr. Bear, 7,000 shares ($55,160); Mr. Reinwald, 8,500 shares
($66,980) and Mr. Walker, 7,000 shares ($55,160). The shares of Common Stock
are issued at the time of the award; however, these shares may not be
transferred for a period of three years thereafter and are forfeited to the
Company if the grantee is not employed by the Company (except for reasons of
retirement, permanent disability or death) at the end of the period. The
amounts do not reflect the cash value of Book Units awarded in tandem with the
restricted Common Stock, which provide for a cash payment at the end of the
three-year period equal to the sum of the net change in book value per share and
the dividends paid per share during the period, as adjusted for stock
dividends/splits. The recipient of the award is entitled to any dividends paid
on outstanding Common Stock subsequent to the date of the award.
(2) Options granted under the Employee Stock Option Plans provide for a reload
option (the "Reload Option") in the event the optionee surrenders other shares
of the Company's Common Stock in payment for option shares, in whole or in part.
Any such Reload Option (i) will be for a number of shares equal to the number of
shares so surrendered; (ii) will have an expiration date which is 5 years from
the Reload Option issuance date; (iii) will be fully exercisable on the date of
grant, and (iv) will have an exercise price equal to the average market price of
the Company's Common Stock on the five (5) business days before the shares were
surrendered to exercise the option. There is no Reload Option with respect to
the exercise of a Reload Option. Mr. Gilman's 2001 stock option grant was the
grant of a Reload Option for 20,995 shares on April 12, 2001. His 2002 stock
option grants include the grant of options for 25,000 shares on each of October
1, 2001 and June 21, 2002, and the grant of a Reload Option for 16,681 shares on
January 29, 2002. His 2003 grant was the grant of a Reload Option for 10,000
shares on July 2, 2003. Mr. Dunn's 2003 option grant was the grant of options
for 20,000 shares on September 30, 2002. Mr. Bear's 2001 stock option grant
was the grant of a Reload Option for 13,122 shares on April 12, 2001. His 2002
stock option grants include the grant of options for 11,000 shares on October 1,
2001 and 5,000 shares on June 21, 2002, and the grant of a Reload Option for
7,275 shares on March 4, 2002. Mr. Reinwald's 2001 stock option grant was the
grant of a Reload Option for 13,122 shares on April 12, 2001. His 2002 stock
option grants include the grant of options for 16,000 shares on each of October
1, 2001 and June 21, 2002, and the grant of a Reload Option for 8,341 shares on
January 29, 2002. His 2003 option grant was the grant of a Reload Option for
3,239 shares on July 2, 2003. Mr. Walker's 2002 option grants include the grant
of options for 11,000 shares on each of October 1, 2001 and June 21, 2002. More
information regarding the fiscal 2003 stock option grants to the Named Executive
Officers is set forth in the Option/SAR Grants in Last Fiscal Year table, which
follows.
(3) Includes (i) amounts payable pursuant to the Company's executive medical
reimbursement plan which provides for payment of certain medical expenses, as
defined, up to $3,500 for each plan year ending October 31, (ii) amounts paid by
the Company for or on behalf of each executive with respect to group life
insurance premiums for coverage in excess of $50,000, and (iii) amounts of
annual profit sharing contributions by the Company to the accounts of the Named
Executive Officers under the Company's Employee 401k and Profit Sharing Plan.
(4) The Company has agreed that if Mr. Gilman leaves the Company's
employment for any reason other than retirement or termination by the Company
for cause, he will be paid at his base compensation rate on the date of
termination for a period of nine months thereafter.
(5) The Company has agreed that if Mr. Dunn leaves the Company's employment
for any reason other than termination for malfeasance or retirement, he will be
paid at his base compensation rate on the date of termination for a period of 12
months thereafter.
The following table presents information for the Named Executive Officers
who received stock options during fiscal 2003 under the Company's Employee Stock
Option Plans:
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
--------------------------------------
Percentage of Potential Realizable
Total Options Value at Assumed Annual
Number of Granted to Rates of Stock Price
Options Employees in Exercise Price Expiration Appreciation for Option Term (1)
Name Granted Fiscal 2003 ($ per share) Date 5% ($) 10% ($)
------------------------------------------------------------------------------------------------------------------
Alan B. Gilman
(Reload Option) 10,000 10.0% $14.93 7/2/08 41,200 91,100
James W. Bear 0 N/A N/A N/A N/A N/A
Peter M. Dunn 20,000 19.9% $10.70 9/30/07 59,200 130,600
Gary T. Reinwald
(Reload Option) 3,239 3.2% $14.93 7/2/08 13,345 29,507
Gary S. Walker 0 N/A N/A N/A N/A N/A
(1) The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates as required by the Securities and Exchange Commission
and should not be considered a reliable forecast of future appreciation, if
any, of the Company's stock price. As an example, the Company's per share
stock price would be $13.66 and $17.23 if increased by 5% and 10%,
respectively, compounded annually over a five-year option term on a grant
price of $10.70.
The following table presents certain information for the Named Executive
Officers relating to exercises of stock options during fiscal year 2003 and, in
addition, information relating to the valuation of unexercised stock options:
AGGREGATED OPTION EXERCISES IN
------------------------------
FISCAL 2003 AND FISCAL YEAR END OPTION VALUES
---------------------------------------------
Number of Shares Underlying Value of Shares Underlying
Number of Dollar Unexercised Options On Unexercised Options On
Shares Acquired Value September 24, 2003 September 24, 2003 (2)
Name On Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
----------------------------------------------------------------------------------------------------------
Alan B. Gilman 23,750 $85,700 120,866 25,000 $227,833 $57,500
Peter M. Dunn 0 $ 0 8,000 12,000 $ 36,960 $55,440
James W. Bear 0 $ 0 59,518 7,400 $133,996 $24,508
Gary T. Reinwald 4,000 $11,520 76,511 16,000 $208,660 $36,800
Gary S. Walker 0 $ 0 17,600 11,000 $ 36,740 $25,300
(1) Based on the New York Stock Exchange closing price of the Company's Common
Stock on the date of exercise.
(2) Based on the New York Stock Exchange closing price of the Company's Common
Stock on September 24, 2003, of $15.32 per share.
The following table presents certain information for the Named Executive
Officers relating to Capital Appreciation Plan grants during fiscal year 2003
and, in addition, information relating to the valuation of those grants:
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
------------------------------------------------------
Number of Shares, Performance or Other Period Estimated Future Payouts Under Non-
Name Units or Other Rights Until Maturation or Payout Stock Price-Based Plans
Threshold Target Maximum
---------------------------------------------------------------------------------------------------------
Peter Dunn 20,000 3 years - September 30, 2005 N/A N/A N/A
REPORT OF THE COMPENSATION COMMITTEE
The compensation of the Company's executive officers is determined by the
Compensation Committee of the Board of Directors (the "Committee"). The
following report with respect to certain cash and stock compensation paid or
awarded to the Company's executive officers, including the Named Executive
Officers, during fiscal 2003 is furnished by the directors who comprise the
Compensation Committee.
GENERAL POLICIES
The Company's compensation programs are intended to enable the Company to
attract, motivate, reward and retain the high level management talent required
to achieve corporate objectives and, thereby, increase shareholder value. It is
the Company's policy to provide cash and stock incentives to its senior
management to achieve both short-term and long-term objectives and to reward
exceptional performance and contributions to the success of the Company's
business. To attain these objectives, the Company's executive compensation
program includes a competitive base salary, coupled with an added cash incentive
bonus, which is "at risk" based on the performance of the Company's business, as
reflected in the achievement of predetermined financial and operational
objectives. In addition, awards may be made under the Company's Capital
Appreciation Plan to a select group of executives and under the Company's
Employee Stock Option Plans to a broader group of management employees based
upon the potential contributions of each to the long-term profitability and
growth of the Company's business. As a general matter, as an executive
officer's level of management responsibility in the Company increases, a greater
portion of his or her potential total compensation depends upon the Company's
performance as measured by the attainment of defined financial and operational
performance objectives. In addition, all eligible Company employees, including
its eligible executive officers, participate in the profit sharing component of
the Company's Employee 401k and Profit Sharing Plan. Subject to the discretion
of the Board of Directors, the Company makes annual contributions to a trust for
the benefit of employees participating in the Plan.
RELATIONSHIP OF COMPENSATION TO PERFORMANCE
From time to time, the Committee establishes the salaries which will be
paid to the Company's executive officers. In setting base salaries, the
Committee takes into account a number of factors, including competitive
compensation data, the extent to which an individual may participate in the
incentive compensation plans maintained by the Company, and qualitative factors
bearing on an individual's experience, responsibilities, management and
leadership abilities and job performance.
In connection with the compensation determinations to be made, the Company
utilizes the Hay Guide Chart- Profile Method of Job Evaluation developed by Hay
Management Consultants, a nationally recognized compensation consulting firm, to
evaluate and rank executive and management positions within the Company. This
method of measuring job difficulty and importance, as updated from time to time,
together with the Towers Perrin Annual Chain Restaurant Compensation survey and
other studies that become available, serve as reference points for the Committee
and the Board of Directors in establishing compensation programs for the
Company's executive officers and other management which are appropriate and
competitive within the industry.
The Committee also determines, with the approval of the Board of Directors,
the terms of the Company's Incentive Bonus Plan in which the executive officers
participate. In doing so, the Committee reviews management's plans for the
Company's growth and profitability, determines the criteria for bonus awards,
including the bonus percentage level for each executive, and recommends to the
Board the level of attainment of financial performance objectives by the Company
for awards to be made under the Plan.
During fiscal 2003, each of the Company's executive officers received
compensation pursuant to the Company's annual Incentive Bonus Plan. Each year
the Board establishes, in advance, targeted earnings and sales growth goals.
Each executive job classification has a specific bonus percentage level based on
the job rating (as explained above). Bonuses are determined based on the
Company's actual earnings and sales results as compared to the targeted goals.
No bonus is paid for performance more than a small percentage below either
target, and the percentage paid to each participant is reduced substantially for
performance below the targets. The maximum amount payable under the bonus plan
is 2.5 times the individual bonus percentage level if increases are
substantially above the targeted earnings and sales goals.
STOCK OPTION AWARDS
Stock options are granted to key employees by the Board, upon the
recommendation of the Committee, under the Company's Employee Stock Option Plans
(the "Plans"). The number of shares subject to options granted to each
individual generally depends upon his or her level of management responsibility.
The largest grants are awarded to the employees who, in the view of the Board,
have the greatest potential to impact the Company's profitability and growth.
Options under the Plans may be either incentive stock options or nonqualified
stock options at the discretion of the Committee and are granted at an exercise
price equal to 100% of the fair market value on the date of grant. The Committee
has discretion, as limited by the Plans, as to the duration of the option
exercise period and the vesting of the right to exercise within that period.
Options currently outstanding under the Plans are exercisable as to 20% on the
date of grant and 20% on each anniversary of the date of grant thereafter until
fully exercisable, with the exception of Reload Options, which are fully
exercisable on the date of grant. The majority of outstanding options expire
five years from the date of grant, with the exception of options granted on
April 29, 1998 and May 6, 1999, which expire ten years from the date of grant.
Stock option awards to the Named Executive Officers over the past three fiscal
years are disclosed in the Summary Compensation Table.
There are two stock option plans currently in effect that were not approved
by the Company's shareholders, the 2000 Director Stock Option Plan and the 2002
Director Stock Option Plan. The 2000 Director Stock Option Plan called for an
award to each director of the Company of 3,000 options to purchase shares of
Company stock for $12.19 per share (unadjusted for dividends). The 2002
Director Stock Option Plan called for an award of 5,000 options to each director
of the Company to purchase shares of Company stock for $9.99 per share.
RESTRICTED STOCK AWARDS
Restricted stock awards under the Company's Capital Appreciation Plan may
be granted by the Board of Directors, upon recommendation by the Committee, to
executive officers and other key employees of the Company. The number of
restricted shares and book units awarded are intended to serve as a retention
vehicle and are based on the Board's evaluation of the contributions of each
grantee to the long-term profitability and growth of the Company. The grantee
holds all of the ownership rights to the stock from the date of grant, including
the right to vote the stock and receive dividends thereon, if paid, but may not
transfer or assign the stock during a period of three years following the date
of the grant. These shares are forfeited to the Company if the grantee is not
employed by the Company (except for reasons of retirement, permanent disability
or death) at the end of the period. Book units granted in conjunction with the
shares are paid in cash at the end of the forfeiture period in an amount equal
to the sum of the net change in book value per share and the dividends paid per
share during the period, as adjusted for stock dividends/splits. Restricted
stock awards granted to the Named Executive Officers over the past three fiscal
years are disclosed in the Summary Compensation Table.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Alan B. Gilman was elected as President and Chief Executive Officer of the
Company in 1992 and is currently Chairman and Chief Executive Officer. The
total compensation paid to Mr. Gilman during fiscal year 2003 was determined by
the Committee and the Board of Directors in accordance with the criteria
described in the "Relationship of Compensation to Performance," "Stock Option
Awards" and "Restricted Stock Awards" sections in this report. He received a
base compensation of $497,692 in fiscal 2003 and an incentive bonus of $349,344,
representing 70.2% of his fiscal 2003 base salary.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Williamson was the President and Chief Executive Officer of the Company
from 1985 until 1990.
The foregoing report is respectfully submitted by the members of the
Compensation Committee:
James Williamson, Jr., Chairman Charles E. Lanham Ruth J. Person John W. Ryan
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board is responsible for providing independent,
objective oversight of the Company's accounting functions and internal controls.
The Audit Committee operates under a written charter approved by the Board of
Directors. A copy of the charter was attached to the 2003 Proxy Statement as
Appendix A.
Management is responsible for the Company's internal controls and financial
reporting process. The independent auditors are responsible for performing an
independent audit of the Company's consolidated financial statements in
accordance with auditing standards generally accepted in the United States of
America and issuing a report thereon. The Audit Committee's responsibility is
to monitor and oversee these processes.
The Audit Committee fulfills its responsibilities through periodic meetings
with the Company's independent auditors, internal auditors and the Company's
management. During fiscal year 2003, the Audit Committee met six times. In
addition, the chairman of the Audit Committee, as a representative of the Audit
Committee, discussed the interim financial information contained in each
quarterly 10-Q filing with the Company's independent auditors and management
prior to public release.
The Audit Committee has reviewed the Company's audited financial statements
for the fiscal year ended September 24, 2003, and discussed them with management
and the Company's independent auditors. The Audit Committee's review included
discussion with the independent auditors of the matters required to be discussed
pursuant to the Statement on Auditing Standards No. 61 (Communication with Audit
Committees). The Audit Committee also received written disclosures from the
independent auditors as required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) and discussed with the
independent auditors that firm's independence. More information regarding the
Company's independent auditors is attached to this Proxy Statement as Appendix
A.
Based upon the Audit Committee's discussions with management and the
independent auditors and the Audit Committee's review of the representations of
management and the independent auditors, the Audit Committee recommended that
the Board of Directors include the audited financial statements in the Company's
Annual Report on Form 10-K for the year ended September 24, 2003, to be filed
with the Securities and Exchange Commission.
Pursuant to its charter, the Audit Committee selected Deloitte & Touche,
LLP as the Company's auditors for fiscal year 2003.
The foregoing report is respectfully submitted by the members of the Audit
Committee.
J. Fred Risk, Chairman Stephen Goldsmith Charles E. Lanham John W. Ryan
COMPANY PERFORMANCE
The graph below compares for each of the last five fiscal years the
cumulative total return of the Company, the S&P 500, the S&P SmallCap 600 and
the S&P Restaurants Indices. The Company is included among the companies
comprising the S&P SmallCap 600, a major market index. The S&P Restaurants
Index is included in the graph in order to provide a more direct comparison of
the Company's returns to those of other companies in the restaurant business.
The cumulative total returns displayed below have assumed $100 invested on
September 30, 1998, in the Company's Common Stock, the S&P 500, the S&P SmallCap
600 and the S&P Restaurants Indices, and reinvestment of dividends paid since
September 30, 1998.
2. APPROVAL OF THE AMENDED AND RESTATED 1997 CAPITAL APPRECIATION PLAN
The Company has had a Capital Appreciation Plan (the "Plan") in effect
since 1982. The purpose of these Plans has always been to foster and enhance
the long-term profitability of the Company for the benefit of its shareholders
by offering the incentive of long-term rewards to those corporate officers and
key executives who have principal responsibility for long-term profitability.
Pursuant to the Plans, executive officers of the Company and other key employees
may receive restricted shares of the Company's stock. Awards to employees are
based on the evaluation of the Compensation Committee and the Board of each
employee's contribution to the long-term growth and profitability of the Company
and are intended to serve as both compensation and as a retention tool. The
purpose of the current amendment and restatement to the existing 1997 Capital
Appreciation Plan (the "1997 Plan") is to make 500,000 additional shares of the
Company's stock eligible for grants to key employees during the coming years.
As of September 24, 2003, the 1997 Plan had only 14,122 shares remaining
available for grants, 7,000 of which were issued on December 1, 2003.
Subject to approval by the vote in favor of the amendment and restatement
of the 1997 Plan by persons holding a majority of the shares of Company stock in
attendance and voting at the Annual Meeting of Shareholders, the Board of
Directors of the Company has approved amendments to the 1997 Plan which would
enable the board to make tandem awards to the Company's executives of up to
514,122 shares of Company stock ("restricted shares") and up to 514,122 book
units over a four-year period ending on December 31, 2007. The shares of common
stock are issued at the time of the award, however the transfer of these shares
is restricted during a period of 3 years, and the shares are forfeited to the
Company if the grantee is not employed by the Company (except for reasons of
retirement, permanent disability, or death) at the end of the period. A copy of
the amended and restated 1997 Plan is included as Appendix B to this proxy
statement. The foregoing discussion is qualified in its entirety by reference
to that Appendix.
The following table provides certain information with respect to all grants
which have been made under the 1997 Plan to specific individuals and groups of
individuals, specifying the amounts granted to Named Executive Officers
individually, all director nominees who are employees individually, all current
executive officers as a group and all employees, including current officers who
are not executive officers as a group. Directors who are not employees of the
Company are not eligible to participate in the 1997 Plan. The amount and terms
of any future grants of to the above individuals or groups of individuals is not
determinable.
PLAN BENEFITS
1997 CAPITAL APPRECIATION PLAN
------------------------------
Name and Position Dollar Value (1) Number of Units (2)
---------------------------------------------------------------------------------------
Alan B. Gilman, Chairman and
Chief Executive Officer $ 829,781 71,063
Peter M. Dunn, President and
Chief Operating Officer $ 512,000 40,000
James W. Bear, Senior Vice
President and Chief Financial Officer $ 405,000 36,597
Gary T. Reinwald, Senior
Vice President $ 550,913 47,097
Gary S. Walker, Senior Vice
President $ 306,488 25,000
All current executive officers
as a group $3,378,581 280,469
All employees, including current
officers who are not executive
officers, as a group $6,631,337 560,065
(1) The amounts shown in this column represent the aggregate market value of
the restricted stock awarded under the Capital Appreciation Plan and were
calculated by multiplying the closing market price of the Company's Common
Stock on the date of award by the number of shares awarded. The amounts do
not reflect the cash value of Book Units awarded in tandem with the
restricted shares, which provide for a cash payment at the end of the
three-year restricted period equal to the sum of the net change in book
value per share and the dividends paid per share during the period, as
adjusted for stock dividends/splits.
(2) Represents the aggregate number of tandem awards of restricted shares and
corresponding Book Units granted under the 1997 Plan to each specific
individual or group of individuals as of December 5, 2003.
THE BOARD OF DIRECTORS AND MANAGEMENT RECOMMEND A VOTE "FOR" THE PROPOSAL TO
APPROVE THE AMENDMENT AND RESTATEMENT OF THE 1997 CAPITAL APPRECIATION PLAN AS
DESCRIBED ABOVE.
3. APPROVAL OF THE 2004 DIRECTOR STOCK OPTION PLAN
Subject to approval by the vote in favor of adoption of the 2004 Director
Stock Option Plan (the "Director Plan") by persons holding a majority of the
shares of Common Stock in attendance and voting at the Annual Meeting, the Board
of Directors of the Company approved, on November 12, 2003, the Director Plan
for non-employee members of the Board of Directors. Pursuant to the Director
Plan, non-discretionary, non-qualified stock options have been granted to
non-employee directors of the Company to purchase an aggregate of 43,000 shares
of the Company's Common Stock. The options have a term of five years from the
date of grant and are exercisable in annual increments of 20% commencing on the
date of grant. All options were conditionally granted effective November 12,
2003, at an option price of $17.98, which is equal to the closing price of the
Company's Common Stock on the New York Stock Exchange on the date of the grant.
Options are not transferable except by will or the laws of descent and
distribution.
FEDERAL INCOME TAX CONSEQUENCES OF NONQUALIFIED STOCK OPTIONS
An optionee will not be subject to tax at the time a nonqualified option is
granted; however, a director who exercises a nonqualified option must include in
income as of the date of exercise the difference between (a) the amount paid for
Common Stock upon exercise of the option and (b) the fair market value of the
Common Stock. The recognized income may be subject to withholding for federal,
state and local income and other payroll taxes. The optionee's federal income
tax cost basis for the Common Stock will be the amount paid for the Common Stock
plus the income recognized. If an optionee uses Common Stock in full or partial
payment of the exercise price of a nonqualified option, the exchange should not
affect the federal income tax treatment of the exercise. The optionee will
realize no gain or loss with respect to the Common Stock so used. The net
additional shares of Common Stock received upon such exercise by the optionee
will have a federal income tax cost basis equal to the ordinary income
recognized as a result of the option exercise (plus the amount of any cash used
in the option exercise) and a holding period commencing upon the date such
income is recognized. Subsequent sale of such Common Stock will result in a
capital gain or loss equal to the difference between the optionee's federal
income tax cost basis for the Common Stock and the sale price.
The Company will be entitled to a federal income tax deduction in the
amount of the ordinary income recognized by the optionee as of the date the
optionee recognizes ordinary income.
The options were conditionally granted to eight of the Company's directors.
Ms. Aramian, Dr. Person and Messrs. Kelley, Goldsmith, Lanham, Risk, Williamson
and Dr. Ryan conditionally received 5,000 shares, and the director of a
subsidiary of the Company, Mr. Frank G. Regas, conditionally received 3,000
shares, for a total of 43,000 shares, being all of the shares authorized under
the Director Plan. No further options will be granted under the Director Plan
and, if any outstanding options expire or terminate for any reason without
having been exercised in full, the forfeited options will not become eligible
for further grant under the Director Plan. A copy of the Director Plan has been
included as Appendix C to this proxy statement, and the foregoing discussion is
qualified in its entirety by reference to that Appendix. The following table
regarding the Director Plan is provided as required by regulations:
NEW PLAN BENEFITS
2004 DIRECTOR STOCK OPTION PLAN
-------------------------------
Name and Position Number of Options
------------------- -------------------
Executive Group 0
Non-Executive Director Group (1) 43,000
Non-Executive Officer Employee Group 0
(1) Includes one director of a subsidiary corporation as stated above.
The following table provides information regarding the Company's current
equity compensation plans as of September 24, 2003. The information provided in
the table does not include the number of securities to be issued under the
Director Plan or the 500,000 additional shares to be issued under the 1997 Plan,
which are subject to shareholder approval at the Annual Meeting and discussed
more fully above. The table does include, however, all securities previously
approved for issuance under the 1997 Plan.
EQUITY COMPENSATION PLAN INFORMATION
------------------------------------
Weighted-Average Number of Securities
Number of Securities Exercise Price of Remaining Available for
To be Issued Upon Outstanding Future Issuance Under
Exercise of Options Equity Compensation Plans
Outstanding Options Warrants and (Excluding Securities
Plan Category Warrants and Rights Rights Reflected in FirstColumn)
---------------------------------------------------------------------------------------------------
Equity compensation plans
Approved by shareholders (1) 1,275,989 $12.92 1,319,227 (2)
Equity compensation plans
not approved by shareholders (3) 51,500 $10.34 0
---------- ------ ---------
Total 1,327,489 $12.82 1,319,227
(1) Consists of 1995 and 1997 ESOP plans, 2003 Director Stock Option Plan, 1997
Capital Appreciation Plan and the 1992 Employee Stock Purchase Plan.
(2) The Capital Appreciation Plan provides for tandem awards of restricted
stock and book units. As of September 24, 2003, 14,122 shares remained
available for issuance pursuant to awards under that plan.
(3) Consists of the 2000 and 2002 Director Stock Option Plans.
THE BOARD OF DIRECTORS AND MANAGEMENT RECOMMEND A VOTE "FOR" THE PROPOSAL
TO APPROVE THE STEAK N SHAKE COMPANY'S 2004 DIRECTOR STOCK OPTION PLAN AS
DESCRIBED ABOVE.
4. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
In light of changes in audit requirements mandated by the Sarbanes-Oxley
Act of 2002 and recommendations regarding the rotation of audit firms from
several sources, the Audit Committee of the Company solicited proposals to audit
the Company's financial statements for its 2003 fiscal year from several
auditing firms, including the firm that had been the Company's auditors since
1982, Ernst & Young LLP ("E&Y"). As a result of this process, the Audit
Committee decided to change the Company's independent auditor and replaced E&Y
with Deloitte & Touche LLP ("Deloitte").
The reports of E&Y for the past two fiscal years ended September 25, 2002
and September 26, 2001, contained no adverse opinion or disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope or accounting
principles.
E&Y's report dated December 3, 2002, makes reference to the restatement of
the Company's previously issued 2001 and 2000 consolidated financial statements.
As more fully described in the Notes to Consolidated Financial Statements of the
Company as of and for the period ended September 25, 2002, during 2002, the
Company changed its accounting for sale and leaseback transactions and
build-to-suit leases to more fully reflect the provisions of Statement of
Financial Accounting Standards No. 98, "Accounting for Leases".
In connection with its audits for the two most recent fiscal years ended
September 25, 2002 and September 26, 2001, and through the date Deloitte was
retained, there have been no disagreements with E&Y on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of E&Y,
would have caused them to make reference to the subject matter of the
disagreement in connection with their report on the financial statements for
such periods.
During the two most recent fiscal years ended September 25, 2002 and
September 26, 2001, and through February 12, 2003, there have been no reportable
events (as defined in Regulation S-K, Item 304(a)(1)(v)).
The Company requested that E&Y furnish it with a letter addressed to the
Securities and Exchange Commission stating whether or not it agreed with the
above statements. A copy of such letter, dated February 18, 2003, was filed as
Exhibit 16.1 to the Company's Current Report on Form 8-K filed with the
Commission on February 19, 2003.
The Company engaged Deloitte as its new independent auditors on February
12, 2003. During the two most recent fiscal years ended September 25, 2002 and
September 26, 2001, and through February 12, 2003, the Company has not consulted
with Deloitte regarding either (i) the application of accounting principles to a
specified transaction, either completed or proposed; or the type of audit
opinion that might be rendered on the Company's financial statements; or (ii)
any matter that was either the subject of a disagreement (as that term is
defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to
that Item) or a reportable event (as that term is defined in Item 304(a)(1)(v)
of Regulation S-K).
Deloitte was our independent auditor for the year ended September 24, 2003
and will serve in that capacity for the 2004 fiscal year unless the audit
committee deems it advisable to change the independent auditor. Representatives
of Deloitte will be present at the Annual Meeting, will have an opportunity to
make a statement, and will be available to respond to appropriate questions. A
synopsis of the fees paid to Deloitte and services provided by the firm, as well
as fees charged by E&Y are set forth in Appendix A to this proxy statement.
THE BOARD OF DIRECTORS AND MANAGEMENT RECOMMEND A VOTE "FOR" THE RATIFICATION OF
DELOITTE & TOUCHE, LLP AS INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL
YEAR ENDING SEPTEMBER 29, 2004.
5. OTHER MATTERS
As of the date of this proxy statement, the Board of Directors of the Company
has no knowledge of any matters to be presented for consideration at the Annual
Meeting other than those set forth above. If any other matters should properly
come before the meeting, the proxies will be voted in accordance with the
recommendations of the Board of Directors of the Company.
APPENDIX A
----------
RELATIONSHIP WITH INDEPENDENT AUDITORS
On February 12, 2003, Ernst & Young ("E&Y") was succeeded as the Company's
independent auditor by Deloitte & Touche, LLP, ("Deloitte"). Deloitte examined
the Company's financial statements for the fiscal year ended September 24, 2003.
Representatives of Deloitte will be present at the Annual Meeting, will have the
opportunity to make a statement, and will be available to respond to appropriate
questions.
Deloitte and E&Y have advised the Company that they have billed or will bill the
Company the below indicated amounts for the following categories of services for
each of the Company's last two fiscal years.
2003 FISCAL YEAR
AUDIT FEES Ernst & Young Deloitte & Touche Total Amount
------------------------------------------------- -------------- ------------------ -------------
Audit Fees (1) $ 6,400 $ 155,000 $ 161,400
Audit-Related Fees (2) $ 25,500 $ 25,500
Tax Fees (3) $ 10,824 $ 1,000 $ 11,824
All Other Fees (4) $ 2,500 $ 17,390 $ 19,890
Total Fees for the Year Ended September 24, 2003 $ 19,724 $ 198,890 $ 218,614
2002 FISCAL YEAR
AUDIT FEES Ernst & Young
------------------------------------------------- --------------
Audit Fees (1). . . . . . . . . . . . . . . . . . $ 202,000
Audit-Related Fees (2). . . . . . . . . . . . . . $ 12,285
Tax Fees (3). . . . . . . . . . . . . . . . . . . $ 88,900
All Other Fees (4). . . . . . . . . . . . . . . . $ 19,859
Total Fees for the Year Ended September 25, 2002. $ 323,044
(1) Audit fees include fees for services performed for the audit of the
Company's annual financial statements and review of financial statements
included in the Company's 10-Q filings, and services that are normally provided
in connection with statutory or regulatory filings or engagements.
(2) Audit-Related Fees include fees for assurance and related services
performed that are reasonably related to the performance of the audit or review
of the Company's financial statements. This includes the audit of the Company's
401k and Profit Sharing Plan.
(3) Tax Fees are fees for services performed with respect to tax
compliance, tax advice and tax planning. This includes: WOTC administration,
sales & use tax assistance and tax planning work.
(4) All Other Fees are fees for other permissible work that does not meet
the above category descriptions. This includes: preparation and information
related to Section 404 of the Sarbanes-Oxley Act, an on-line research
subscription, consultation regarding employee benefit programs, the Company's
Uniform Franchise Offering Circulars, unclaimed property and the liquidation of
Consolidated Specialty Restaurants, one of the Company's subsidiaries.
PRE-APPROVAL POLICY
The Audit Committee's policy is to pre-approve all audit and permissible
non-audit services provided by the independent auditor. These services may
include audit services, audit-related services, tax services and other services.
Pre-approval is generally provided for up to one year and any pre-approval is
detailed as to the particular service or category of services and is generally
subject to a specific budget. The independent auditor and management are
required to periodically report to the Audit Committee regarding the extent of
services provided by the independent auditor in accordance with this
pre-approval, and the fees for the services performed to date. The Audit
Committee may also pre-approve particular services on a case-by-case basis. In
fiscal 2003, the Audit Committee approved the non-audit services performed by
Ernst & Young and Deloitte & Touche described on the prior page.
APPENDIX B
THE STEAK N SHAKE COMPANY AMENDED AND RESTATED
1997 CAPITAL APPRECIATION PLAN
1. PURPOSE.
The purpose of the Amended and Restated 1997 Capital Appreciation Plan (the
"Plan") is to foster and enhance the long-term profitability of The Steak n
Shake Company (the "Company") for the benefit of its shareholders by offering
the incentive of long-term rewards to those corporate officers and key
executives who have principal responsibility for long-term profitability.
2. ELIGIBILITY.
Eligibility for grants under the Plan shall be limited to those key executive
employees, whether or not such employees are officers or directors of the
Company, or its subsidiaries, recommended by the Compensation Committee and
selected by the Board of Directors from among those who are in a position to
contribute materially to the success of the Company and who have significant
opportunities to influence long-term profit performance. Subject to such
selection, these would normally include key employees in executive,
administrative, professional, operating and technical positions. The Board of
Directors may, in its discretion, also make an award to any other employee who
has made an unusual contribution outside the ordinary course of their duties.
3. RESTRICTED STOCK GRANTS.
(a) The Board of Directors may grant shares of the Common Stock of the Company
which are subject to restrictions ("Restricted Shares") to participating
employees ("Participants") pursuant to the Plan over a period ending
December 31, 2007. The number of Restricted Shares, if any, granted
hereunder to Participants shall be within the discretion of the Board of
Directors; provided, however, that the number of Restricted Shares which
may be granted after November 11, 2003 shall not exceed an aggregate of
514,122 shares except as may be adjusted pursuant to Section 5 below.
Restricted Shares which are forfeited or canceled under 3(d) or (e) hereof
shall be available for further grants. In making grants, the Board of
Directors shall take into account such factors as the Participant's level
of responsibility, previous performance, rate of compensation and the
potential value of the grant.
(b) Grants made by the Board of Directors may consist in whole or in part of
authorized but unissued or treasury shares, and shall be subject to the
provisions of the Plan and to such other terms and conditions, not
inconsistent with the Plan, as the Board of Directors determine.
(c) Subject to the provisions contained in 3(d) and (e) hereof, the Restricted
Shares granted hereunder shall be conditionally owned by the Participant as
of the grant date, and such Participant shall be entitled to the receipt of
cash dividends and voting rights with respect thereto.
(d) In the event of termination of Participant's employment with the Company
for any reason other than death, retirement under the normal or disability
provisions of a retirement plan of the Company, or retirement under the
early retirement provisions of such retirement plan with the consent of the
Company, during a period of three (3) years following the grant date
("Forfeiture Period"), the Restricted Shares so granted shall be thereupon
forfeited by Participant and transferred to the Company as of the date of
termination. The Restricted Shares granted hereunder may not be sold,
transferred or pledged by the Participant during the Forfeiture Period.
(e) If a Participant's employment has terminated because of death, disability
or retirement under a retirement plan of the Company as set out in 3(d)
above prior to the end of the Forfeiture Period, the number of Restricted
Shares such Participant or such Participant's beneficiary or estate would
be entitled to retain shall be the number of Restricted Shares determined
as though such Participant's employment had not been terminated, multiplied
by a fraction, the numerator of which is the number of months such
Participant was employed during the Forfeiture Period (including the month
during which employment terminated) and the denominator of which is the
number of months in the Forfeiture Period. The balance of Restricted Shares
shall be transferred to the Company as of the termination date.
4. BOOK UNIT GRANTS.
(a) In conjunction with the Restricted Share grants, the Board of Directors
shall simultaneously grant each Participant an equivalent number of book
value units ("Book Units") which are equal to the book value per share of
the Common Stock of the Company. The aggregate number of Book Units granted
hereunder after November 11, 2003 shall not exceed 514,122 units as
adjusted for splits and stock dividends. Units forfeited or canceled under
paragraphs 4 (c) or (d) hereof shall be thereafter available for further
grants.
(b) Book Units shall be valued on the basis of book value of the Common Stock
of the Company, as determined in accordance with 5 (c) hereof on the last
day of the fiscal quarter next preceding the date of grant ("Value Date")
and again on the third anniversary of the Value Date, said three (3) year
period hereafter referred to as the "Accumulation Period". The increase, if
any, in book value during the Accumulation Period plus an amount equal to
the dividends paid during the Accumulation Period on an equal number of
shares of Common Stock of the Company, shall be paid to such Participant in
cash within ninety (90) days following the expiration of the Accumulation
Period; provided, however, the Book Units have not been forfeited under
paragraph 4 (c) hereof.
(c) In the event of termination of Participant's employment with the Company
for any reason other than death, retirement under the normal or disability
provisions of a retirement plan of the Company, or retirement under the
early retirement provisions of such retirement plan with the consent of the
Company during the Accumulation Period, the appreciation and dividend
equivalents shall be forfeited by the Participant.
(d) If a Participant's employment has terminated because of death, disability
or retirement under a retirement plan of the Company as set out in 4 (c)
above prior to the end of the Accumulation Period, the number of Book Units
such Participant or such Participant's beneficiary or estate shall be
entitled to receive shall be the number of Book Units determined as though
such Participant's employment had not been terminated, multiplied by a
fraction, the numerator of which is the number of months such Participant
was employed during the Accumulation Period (including the month during
which employment terminated) and the denominator of which is the number of
months in the Accumulation Period. In such event, the Board of Directors
shall determine the book value as of the last day of the quarter next
preceding the date of termination.
(e) Any payment made with respect to a Participant who has died shall be paid
to the beneficiary designated by the Participant to receive the proceeds of
any group life insurance coverage provided for the Participant by the
Company. A Participant who has not designated such beneficiary, or who
desires to designate a different beneficiary, may file with the Secretary
of the Company, a written designation of a beneficiary under the Book Unit
plan, which designation may be changed or revoked only by the participant.
If no designation of a beneficiary has been made under such life insurance
coverage or filed with the Secretary of the Company, distribution shall be
made to the Participant's spouse, if surviving, and if not, to the
Participant's estate.
5. ADJUSTMENTS.
(a) In the event that there are changes in the capitalization of the Company
affecting in any manner the number or kind of outstanding shares of Common
Stock, whether such changes have been occasioned by declaration of stock
dividends, stock splits, reclassification or recapitalization, or because
the Company has merged or consolidated with another corporation, or for any
reason whatsoever, then the number and kind of shares then subject to
Restricted Share grants and thereafter to become subject to such grants,
and the Book Unit values, shall be proportionally adjusted by the Board of
Directors of the Company to whatever extent the Board of Directors
determines, in its sole and absolute discretion, that any such change
equitably requires an adjustment.
(b) If the Company at any time should elect to dissolve, undergo a
reorganization or split-up its stock or merge or consolidate with any other
corporation and The Steak n Shake Company is not the surviving corporation,
then (unless in the case of a reorganization, stock split, merger or
consolidation where one or more of the surviving corporations assumes the
obligations to Participants hereunder or replaces this Plan with a
reasonably equivalent plan in all respects), the Board of Directors may
thereupon accelerate grants of Restricted Shares and Book Units hereunder,
reduce the applicable Forfeiture Periods and Accumulation Periods, or take
such other action as the Board of Directors, in its sole and absolute
discretion deems equitable.
(c) The Board of Directors shall determine book value of the Common Stock under
4 above based on generally accepted accounting principles, and shall have
the right, in its sole and absolute discretion, to proportionally adjust
such book values for sales or purchases by the Company of Common Stock,
acquisitions or divestitures, accounting changes or other actions of the
Company taken during the Accumulation Period affecting book value, to
whatever extent the Board of Directors determines that any such action
equitably requires an adjustment.
6. AMENDMENT AND TERMINATION.
The Board of Directors shall have the power to amend, suspend or terminate the
Plan at any time except that, subject to the conditions of 5 above, (i) no such
action shall cancel, reduce or adversely affect any grant theretofore made
without the consent of the Participant or the Participant's beneficiary or
estate; or (ii) without the approval of the shareholders of the Company, the
Board of Directors may not increase the aggregate number of Restricted Shares
and Book Units to be granted.
7. RESTRICTED SHARE AND BOOK UNIT AGREEMENT.
Each grant of Restricted Shares and Book Units under the Plan shall be evidenced
by a written agreement executed by the Company and accepted by the Participant,
and shall contain such terms and conditions as the Board of Directors may deem
desirable which are not inconsistent with the Plan.
8. FINALITY OF DETERMINATION.
The Compensation Committee of the Board of Directors shall have the power to
interpret the Plan, and all interpretations, determinations and actions by the
Compensation Committee shall be final, conclusive and binding upon all parties.
9. TERMINATION OF EMPLOYMENT.
Nothing in the Plan or any grant made under the Plan, shall confer upon any
Participant any right to continue in the employ of the Company or affect in any
way the right of the Company to terminate the Participant's employment at any
time.
10. EFFECTIVE DATE.
This Plan became effective on December 31, 1996 and will continue to December
31, 2007, subject to approval of the amendment and restatement of the Plan by
the holders of a majority of the shares of Common Stock of the Company which are
represented in person or by proxy at the 2004 Annual Meeting of Shareholders.
APPENDIX C
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THE STEAK N SHAKE COMPANY
2004 DIRECTOR STOCK OPTION PLAN
1. PURPOSE.
The purpose of The Steak n Shake Company 2004 Director Stock Option Plan
(the "Plan") is to provide those non-employee directors of The Steak n Shake
Company (the "Company") and its subsidiaries (the "Directors"), a favorable
opportunity to acquire shares of Common Stock of the Company, (the "Common
Stock"), thereby providing them with an increased incentive to work for the
success of the Company and better enabling the Company to attract and retain
directors.
2. ADMINISTRATION OF THE PLAN.
It is intended that the Plan be administered as a non-discretionary plan,
and no person shall have any discretion as to:
(a) the selection of Directors to whom stock options under the Plan shall be
granted, and
(b) the number of shares granted to each Director under the Plan.
3. TAX STATUS.
Options granted under the Plan will not be entitled to special tax
treatment under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code").
4. ELIGIBILITY.
Options may be granted only to non-employee Directors of the Company or its
subsidiaries. Such Directors are not eligible to participate in any of the
employee stock option plans sponsored by the Company.
5. STOCK SUBJECT TO THE PLAN.
There shall be reserved for issuance upon the exercise of options granted
under the Plan 43,000 shares of Common Stock of the Company, with a stated value
of $.50 per share, which may be authorized but unissued shares or treasury
shares of the Company. Subject to Section 8 hereof, the shares for which
options may be granted under the Plan shall not exceed that number. If any
option shall expire or terminate for any reason without having been exercised in
full, the unpurchased shares subject thereto shall not become available for
other options under the Plan.
6. OPTION GRANTS AND OPTION PERIOD.
Without further action by the Board of Directors (the "Board"), each
Director listed below shall automatically receive an option to purchase the
shares of Common Stock indicated, subject to approval by the shareholders of the
Company at the 2004 Annual Meeting. Each option shall have a grant date of
November 12, 2003 and shall be immediately exercisable as to 20% of the option
grant. Thereafter, the grant shall be exercisable to an additional 20% on each
anniversary of the date of grant. Each option shall expire 5 years after date
of grant and shall be subject to earlier termination as hereinafter provided.
S. Sue Aramian 5,000 shares
Stephen Goldsmith 5,000 shares
Wayne L. Kelley 5,000 shares
Charles E. Lanham 5,000 shares
Ruth J. Person 5,000 shares
J. Fred Risk 5,000 shares
John W. Ryan 5,000 shares
James Williamson, Jr. 5,000 shares
Frank G. Regas 3,000 shares
7. TERMS OF OPTION.
Each option granted under the Plan shall be evidenced by a Stock Option
Agreement between the Company and the optionee and shall be subject to the
following terms and conditions:
(a) Option Price - The price to be paid for shares of Common Stock upon
the exercise of each option shall be the fair market value on the
date of grant. As used herein, fair market value shall be the closing
sales price for the Common Stock on the New York Stock Exchange on the
date of grant.
(b) Period for Exercise of Option - An option shall not be exercisable
after five (5) years from the date on which such option is granted.
(c) Purchase of Shares - The option price of each share of Common Stock
purchased upon exercise of an option shall be paid in full, in cash,
at the time of exercise; provided, however, that an optionee may
exercise an option in whole or in part by tendering to the Company
whole shares of the Company's Common Stock owned by him or her having
a fair market value equal to the cash exercise price of the shares
with respect to which the option is being exercised. For this purpose,
any shares so tendered by an optionee shall be deemed to have a fair
market value equal to the average of the closing sales price for the
stock on the New York Stock Exchange for the five trading days
preceding the date of exercise of the option. An option may be
exercised at any time and from time to time during the term of the
option as to any or all whole shares which have become subject to
purchase pursuant to the terms of the option or the Plan, but not at
any time as to fewer than 100 shares. An option may be exercised only
by written notice to the Company, mailed to the attention of the
Secretary of the Company, signed by the optionee (or such other
persons as shall demonstrate to the Company his or her right to
exercise the option), specifying the number of shares in respect of
which it is being exercised, and accompanied by payment of the option
price for such shares. The certificate or certificates for the shares
as to which the option is exercised shall be registered in the name of
the person or persons exercising the option and shall be delivered to
or upon the order of that person or persons as soon as practicable
after such written notice is received by the Company. An optionee
shall not have any rights of a shareholder in respect to the shares
subject to an option until a certificate representing such shares has
been issued.
(d) Termination of Option - If an optionee ceases to be a director of the
Company for any reason other than retirement, permanent and total
disability (within the meaning of Section 105(d)(4) of the Code), or
death, any option granted to him or her shall forthwith terminate.
Leave of absence approved by the Board of Directors shall not
constitute cessation of directorship. If an optionee ceases to be a
director of the Company by reason of permanent or total disability
(within the meaning of Section 105(d)(4) of the Code), any option
granted to him or her may be exercised by him or her in whole or in
part within one year after the date of termination as a director by
reason of such disability. In the event of death of an optionee while
serving as a director, any option granted to him or her may be
exercised in whole or in part at any time after the date of death by
the executor or administrator of his or her estate or by the person or
persons entitled to the option by will or by applicable laws of
descent and distribution until the expiration of the option term. In
the event of retirement, any option granted to him or her may be
exercised in whole or in part at any time until the expiration of the
option term. This provision applies regardless of whether an option
was exercisable at the time of retirement. Notwithstanding the
foregoing provisions of this subsection (d), no option shall, in any
event, be exercisable after the expiration of the period set out in
subsection (b) above.
(e) Nontransferability of Option - An option may not be transferred by the
optionee other than by will or the laws of descent and distribution
and, during the lifetime of the optionee, shall be exercisable only by
him or her.
(f) Investment Representations - Unless the shares subject to an option
are registered under the applicable federal and state securities laws,
each optionee by accepting an option shall be deemed to agree for
himself or herself and his or her legal representatives that any
option granted to him or her and any and all shares of Common Stock
purchased upon the exercise of the option shall be acquired for
investment and not with a view to, or for the sale in connection with,
any distribution thereof. Any shares issued pursuant to an exercise of
an option may bear a legend evidencing these limitations on transfer.
8. ADJUSTMENT OF SHARES.
In the event of any change after the effective date of the Plan in the
outstanding shares of Common Stock of the Company by reason of any
reorganization, recapitalization, stock split, stock dividend, combination of
shares, exchange of shares, merger or consolidation, liquidation, or any other
change after the effective date of the Plan in the nature of the shares of
Common Stock of the Company, the Company shall make a corresponding adjustment
in the number and kind of shares reserved under the Plan, and in the option
price and the number and kind of shares covered by outstanding options granted
and to be granted under the Plan as determined by the Board. Any determination
by the Board hereunder shall be conclusive.
9. AMENDMENT.
The Board may amend the Plan from time to time and, with the consent of the
optionee, the terms and provisions of an option, except that:
(a) the number of shares of stock which may be reserved for issuance under
the Plan may not be increased except as provided in Section 8 hereof;
(b) the option price under any option may not be reduced to less than the
fair market value of the Common Stock on the date such option is
granted except as provided in Section 8 hereof;
(c) the number of shares subject to options granted to any individual
Director, the date of such grants and the period during which an
option may be exercised may not be modified except as provided in
Section 8 hereof, and
(d) the class of persons to whom options may be granted under the Plan may
not be modified.
No amendment of the Plan may, without the consent of optionees, make any
changes in any outstanding options theretofore granted under the Plan that would
adversely affect the rights of such optionees.
10. TERMINATION.
The Plan shall terminate upon the earlier to occur of (a) the date on which
all shares available for issuance under the Plan have been issued pursuant to
the exercise of options granted hereunder or (b) at any time upon determination
by the Board of Directors. Any termination by the Board of Directors shall not
affect the validity of any option theretofore granted under the Plan.
11. GOVERNING LAW.
The terms of any options granted hereunder and the rights and obligations
hereunder of the Company, the Directors and their successors in interest shall,
except to the extent governed by federal law, be governed by Indiana law.
12. GOVERNMENT AND OTHER REGULATIONS.
The obligations of the Company to issue or transfer and deliver shares
under the options granted under the Plan shall be subject to compliance with all
applicable laws, governmental rules and regulations, and administrative actions.
13. EFFECTIVE DATE.
The Plan became effective when adopted by the Board on November 12, 2003;
provided, however, that the effectiveness of any grant of options pursuant to
the Plan prior to the 2004 Annual Meeting of Shareholders shall be conditional
upon the approval of the Plan by the holders of at least a majority of the
outstanding shares of the Company's stock entitled to vote at the 2004 Annual
Meeting.