UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE 14A
(Rule
14a-101)
INFORMATION
REQUIRED IN PROXY STATEMENT
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed
by the Registrant [X]
Filed
by a party other than the Registrant [ ]
Check
the appropriate box:
| [ ] | Preliminary Proxy Statement |
| [ ] | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| [X] | Definitive Proxy Statement |
| [ ] | Definitive Additional Materials |
| [ ] | Soliciting Material Pursuant to §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-16(i)(1) and 0-11. |
| 1) Title of each class of securities to which transaction applies: | |
| 2) Aggregate number of securities to which transaction applies: | |
|
3) Per unit
price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
|
|
| 4) Proposed maximum aggregate value of transaction: | |
| 5) Total fee paid: | |
| [ ] | Fee paid previously with preliminary materials. |
| [ ] |
Check box
if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
|
| 1) Amount Previously Paid: | |
| 2) Form, Schedule or Registration Statement No.: | |
| 3) Filing Party: | |
| 4) Date Filed: |
Dear
Fellow Shareholder:
It is my
pleasure to invite you to attend the annual meeting of shareholders of the Steak
n Shake Company to be held on Friday, March 7, 2008, at 1:30 p.m.,
Indianapolis time, at the Marriott Indianapolis Downtown, 350 West Maryland
Street, First Floor, Florida/Illinois Room, Indianapolis,
Indiana 46225. The accompanying notice explains the matters that
will be submitted to a vote of shareholders at the meeting. One of
those items is the proposal to elect nine directors to serve until the next
annual meeting of shareholders. Your Board urges you to re-elect your
Directors by voting the WHITE proxy card today. As
always, your vote is very important.
The nine
nominees named in the accompanying proxy statement are the current members of
the Board. You may know that The Lion Fund L.P., a hedge fund and its
affiliates, are attempting to install two nominees in opposition to the Board’s
slate of nine nominees.
As
explained in the proxy statement, the results of the activities of the Board’s
special committee over the past six months have convinced the Board of Directors
that this is not the right time to sell the company or pursue any other
strategic transaction. Indeed, your Board believes that, in order to
maximize shareholder value over the long-term, the company must pursue an
operational turnaround and improve unit economics. We have started
that process and are conducting a public, nationwide search for the best
candidate to become the next Chief Executive Officer to continue the
turnaround.
In order
to avoid the expense and disruption of this proxy contest, the Board made an
offer to the Lion nominees to join an expanded slate of eleven nominees that
would have the full support of the Board. The Lion nominees rejected
that offer. The Board believes that the rejection of that offer and
the January 23, 2008 letter in which Lion disclosed plans to conduct
another disruptive proxy contest seeking to replace a majority of the directors,
reveals an intent to acquire control of the
company (without the payment of any premium to shareholders) and pursue a
short-term agenda that is not in the best interests of all
shareholders.
YOUR BOARD URGES YOU TO NOT SIGN ANY
PROXY CARDS SENT TO YOU BY LION OR ITS AFFILIATES. IF YOU HAVE
PREVIOUSLY SIGNED A PROXY CARD SENT TO YOU BY LION OR ITS AFFILIATES, YOU CAN
REVOKE IT BY SIGNING, DATING AND MAILING THE ENCLOSED WHITE PROXY CARD
IN THE ENVELOPE PROVIDED.
Please
review the accompanying proxy statement carefully and the enclosed instruction
card accompanying the WHITE proxy card for
specific voting instructions.
Thank you
for your support.
Sincerely,
Alan B.
Gilman
Chairman,
Interim President and Chief
Executive Officer
2
THE
STEAK N SHAKE COMPANY
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
TO
BE HELD MARCH 7, 2008
TO
THE SHAREHOLDERS OF THE STEAK N SHAKE COMPANY
The annual meeting of shareholders of
The Steak n Shake Company (the “Company”) will be held at the Marriott Indianapolis
Downtown, 350 West Maryland Street, First Floor, Florida/Illinois
Room, Indianapolis, IN 46225 on Friday, March 7,
2008 at 1:30 p.m., Indianapolis time, for the following purposes:
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1.
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To
elect nine directors to serve until the next annual meeting of
shareholders and until their respective successors are elected and
qualified;
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2.
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To
ratify the selection by the Audit Committee of the Board of Directors of
Deloitte & Touche, LLP as the independent registered public accounting
firm for the fiscal year ending September 24,
2008;
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|
3.
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To
approve the 2008 Equity Incentive Plan;
and
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4.
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To
transact such other business as may properly come before the meeting and
any adjournment thereof.
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The Board
of Directors has fixed the close of business on January 21, 2008 as the record
date for the determination of shareholders entitled to notice of and to vote at
the meeting.
The company has received a notice from
The Lion Fund L.P. and certain of its affiliates for the nomination of two
individuals to the Board of Directors at the annual meeting. We do
not believe this is in your best interest. THE BOARD URGES YOU TO NOT SIGN ANY
PROXY CARDS SENT TO YOU BY LION OR ITS AFFILIATES. IF YOU HAVE
PREVIOUSLY SIGNED A PROXY CARD SENT TO YOU BY LION OR ITS AFFILIATES, YOU CAN
REVOKE IT BY SIGNING, DATING AND MAILING THE ENCLOSED WHITE PROXY CARD IN THE ENVELOPE
PROVIDED.
By Order of the Board of
Directors
David C. Milne, Secretary
February
21, 2008
Indianapolis,
Indiana
PLEASE
SIGN AND DATE THE ENCLOSED WHITE PROXY CARD AND
RETURN
IT
PROMPTLY IN THE ENCLOSED ENVELOPE OR CAST YOUR
VOTE
VIA TELEPHONE OR INTERNET IN ACCORDANCE
WITH
THE INSTRUCTIONS ON THE WHITE PROXY
CARD
3
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 March 7, 2008
This proxy
statement and the accompanying WHITE proxy card are
being furnished to the shareholders of The Steak n Shake Company (“we,” “us,”
“our” or the “company”) in connection with the solicitation by our Board of
Directors of proxies to be voted at the Annual Meeting of Shareholders to be
held at the Marriott Indianapolis
Downtown, 350 West Maryland Street, First Floor, Florida/Illinois
Room, Indianapolis, IN 46225 on Friday,
March 7, 2008 at 1:30 p.m., Indianapolis Time, and at any adjournment
thereof. This proxy statement and the accompanying WHITE proxy card are
being first mailed to shareholders on or about February 21,
2008.
VOTING
RELATED INFORMATION
Voting
Procedures
Each properly
executed proxy returned prior to the meeting will be voted in accordance with
the directions contained therein. You can vote your proxy by mailing
the enclosed WHITE proxy card in
the envelope provided or by voting via the telephone or internet (pursuant to
the instructions contained on the WHITE proxy
card).
The record
date for the meeting is January 21, 2008. At the close of business on
that date, we had 28,492,799
shares of common stock that were issued and outstanding and are entitled
to vote at the meeting.
Actions
To Be Taken At The Annual Meeting
If your WHITE proxy card is
signed and returned without specifying choices, the shares represented will be
voted as recommended by the Board of Directors of the company. The
Board recommends a vote “FOR” the election of the nine director nominees named
in this proxy statement, “FOR” the ratification of the appointment of Deloitte
& Touche LLP as independent registered public accounting firm for the 2008
fiscal year, and “FOR” the approval of the 2008 Equity Incentive
Plan.
Revoking
Your Proxy
Shares
Held in Shareholder’s Name
If your
shares are held in your name, whether you vote by mail, the internet or by
telephone, you may later revoke your proxy by delivering a written statement to
that effect to the Secretary of the company prior to the date of the annual
meeting, by a later-dated electronic vote via the internet, by telephone, by
submitted a properly signed proxy with a later date, or by voting in person at
the annual meeting.
Shares
Held in “Street Name” Through A Bank or Broker
If you hold
your shares through a bank or broker, the methods available to you to revoke
your proxy are determined by your bank or broker, so please see the instructions
provided by your bank or broker.
4
Quorum
And Required Votes
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 meeting. In
deciding all matters presented for approval, 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 are elected by a
plurality of the votes cast by the holders of the shares of common stock
represented at the meeting. Broker non-votes and instructions to
withhold authority to vote for one or more of the nominees will result in the
nominee receiving fewer votes; however, it will not affect the outcome of the
election. Approval of the proposal to ratify the selection of
Deloitte & Touche LLP will occur if it receives more votes cast in its favor
than are cast in opposition to it. Abstentions and broker non-votes
with respect to this proposal will not be counted as votes for or against
it. The approval of the 2008 Equity Incentive Plan will require that
the number of votes cast on such proposal represent more than 50% of the votes
entitled to be cast, and a majority of the votes cast must vote in favor of such
proposal, in accordance with the listing standards of the New York Stock
Exchange. Abstentions with respect to this proposal will be counted
as votes cast and will have the same effect as a vote against this
proposal. Broker non-votes will not be considered as votes cast on
this proposal but could affect the requirement that the number of votes cast on
such proposal represent more than 50% of the votes entitled to be
cast.
Interests
Of Certain Persons In Matters To Be Acted Upon
All persons
standing for election as director were nominated by the Nominating/Corporate
Governance Committee of the Board of Directors. No nominee is being proposed for
election pursuant to any agreement or understanding with us.
Confidential
Voting Policy
It is our
policy that any proxy, ballot or other voting material that identifies the
particular shareholder’s vote and contains the shareholder’s request for
confidential treatment will be kept confidential, except in the event of a
contested proxy solicitation or as may be required by law. We may be
informed whether or not a particular shareholder has voted and will have access
to any comment written on a proxy, ballot or other material and to the identity
of the commenting shareholder. The inspectors of election at the
annual meeting will be independent parties unaffiliated with the
company.
5
OWNERSHIP
OF COMMON STOCK
The following
table shows, as of the most recent practicable date, the number and percentage
of outstanding shares of our common stock beneficially owned by each person or
entity known to be the beneficial owner of more than 5% of our common
stock:
|
Name & Address
of Beneficial Owner
|
Amount and Nature
of Beneficial Ownership
|
Percent of
Class
|
||||||
|
MSD Capital,
L.P.
MSD SBI,
L.P.
645
Fifth Avenue, 21stFloor
New York,
NY 10022-5910
|
2,782,300 | (1) | 9.8 | % | ||||
|
T. Rowe Price
Associates, Inc.
100 E. Pratt
Street
Baltimore,
MD 21202
|
1,827,700 | (2) | 6.4 | % | ||||
|
Keeley Asset
Management Corp.
401 South LaSalle
St. Suite 1201
Chicago, IL
60605
|
2,498,632 | (3) | 8.8 | % | ||||
|
The Lion Fund,
L.P.
9311 San Pedro
Ave. Suite 1440
San Antonio, TX
78216
|
2,423,945 | (4) | 8.5 | % | ||||
|
HBK Master Fund,
L.P.
HBK Investments
L.P.
300 Crescent Ct.
Suite 700
Dallas, TX
75201
|
2,703,726 | (5) | 9.5 | % | ||||
|
Barclay’s Global
Investors, N.A.
45 Fremont
Street
San
Francisco, CA 94105
|
1,448,689 | (6) | 5.1 | % | ||||
|
Dimensional
Fund Advisors LP
1299 Ocean Avenue
Santa Monica, CA 90401
|
2,014,935 | (7) | 7.1 | % | ||||
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(1)
|
This
information was supplied on a Schedule 13G/A filed with the Securities and
Exchange Commission on February 14, 2007. MSD Capital, L.P. and MSD
SBI, L.P. share voting and investment power over the reported
shares.
|
|
(2)
|
This
information was supplied on a Schedule 13G filed with the Securities and
Exchange Commission on February 12, 2008. These securities are owned
by various individual and institutional investors including T. Rowe Price
Associates, Inc. ("Price Associates") which serves as investment adviser
with power to direct investments and/or sole power to vote the
securities. For purposes of the reporting requirements of the
Securities Exchange Act of 1934, Price Associates is deemed to be a
beneficial owner of such securities; however, Price Associates expressly
disclaims that it is, in fact, the beneficial owner of such
securities.
|
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(3)
|
This
information was supplied on a Schedule 13G/A filed with the Securities and
Exchange Commission on February 14,
2008.
|
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(4)
|
This
information was supplied on a Schedule 13D/A filed with the
Securities and Exchange Commission on February 4, 2008. The Lion
Fund, L.P., Biglari Capital Corp., Western Acquisitions, L.P., Western
Investments, Inc., Sardar Biglari, Western Sizzlin Corp., and Philip
Cooley share voting power over the
shares.
|
6
|
(5)
|
This
information was supplied on a Schedule 13D/A filed with the Securities and
Exchange Commission on July 3, 2007. HBK Master Fund L.P., HBK
Fund L.P., HBK Investments L.P., HBK Services LLC, HBK Partners II L.P.,
HBK Management LLC, LSF5 Indy Investments, LLC, LSF5 Indy Holdings, LLC,
LSF5 REOC VII, L.P., LSF5 GenPar VII, LLC, Lone Star Fund V (U.S.), Lone
Star Partners V, L.P., Lone Star Management Co. V, Ltd., John P. Grayken,
and Robert J. Stetson, share voting power over the
shares.
|
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(6)
|
This
information was obtained from a Schedule 13G/A filed with the
Securities and Exchange Commission on February 6, 2008. Barclays
Global Investors, NA, Barclays Global Fund Advisors, and Barclays Global
Investors, LTD, share voting power over the shares.
|
| (7) | This information was obtained from a Schedule 13G filed with the Securities and Exchange Commission on February 6, 2008. |
7
The following
table shows the total number of shares of Common Stock beneficially owned as of
the record date, January 21, 2008, and the percentage of percentage of
outstanding shares so owned as of that date, for (i) each director and
nominee for director, (ii) each executive officer named in the Summary
Compensation Table, and (iii) all directors and executive officers, as a
group:
|
Name of Beneficial
Owner
|
Amount and Nature of Beneficial Ownership(1)
|
Percent of
Class
|
|||||
|
Geoffrey
Ballotti
|
1,000 | * | |||||
|
Jeffrey
Blade
|
80,625 | (2) | * | ||||
|
Peter M.
Dunn
|
79,251 | (3) | * | ||||
|
Duane E.
Geiger
|
51,547 | (4) | * | ||||
|
Alan B.
Gilman
|
528,010 | (5) | 1.9 | % | |||
|
Wayne L.
Kelley
|
53,185 | (6) | * | ||||
|
Ruth J.
Person
|
17,750 | (7) | * | ||||
|
Gary T.
Reinwald
|
132,777 | (8) | * | ||||
|
J. Fred
Risk
|
95,431 | (9) | * | ||||
|
John W.
Ryan
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25,991 | (10) | * | ||||
|
Steven
Schiller
|
38,725 | (11) | * | ||||
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Steven M.
Schmidt
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7,750 | (12) | * | ||||
|
Gary
Walker
|
28,392 | (13) | * | ||||
|
Edward
Wilhelm
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5,500 | (14) | * | ||||
|
James Williamson,
Jr.
|
232,292 | (15) | * | ||||
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All directors and
executive officers as a group (18 persons)
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1,452,560 | (16) | 5.0 | % | |||
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*Less than
1%.
|
|||||||
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(1)
|
Includes shares that
may be acquired pursuant to stock options exercisable within 60
days.
|
|
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(2)
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Includes
37,325 shares that may be acquired pursuant to stock options exercisable
with in 60 days.
|
|
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(3)
|
This
is the last reported
level of share ownership by Mr. Dunn.
|
| (4) | Includes 22,389 shares that may be acquired pursuant to stock options exercisable within 60 days. |
|
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(5)
|
Includes
144,164 shares that may be acquired pursuant to stock options exercisable
within 60 days.
|
|
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(6)
|
Includes
9,000 shares that may be acquired pursuant to stock options exercisable
within 60 days.
|
|
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(7)
|
Includes
12,750 shares that may be acquired pursuant to stock options exercisable
within 60 days.
|
|
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(8)
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Includes
67,719 shares that may be acquired pursuant to stock options exercisable
within 60 days.
|
8
|
|
(9)
|
Includes
12,750 shares that may be acquired pursuant to stock options exercisable
within 60 days. Also includes 723 shares owned of record and beneficially
by Mr. Risk’s wife, with respect to which he disclaims beneficial
ownership.
|
|
|
(10)
|
Includes
12,750 shares that may be acquired pursuant to stock options exercisable
within 60 days.
|
|
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(11)
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Includes
15,425 shares that may be acquired pursuant to stock options exercisable
within 60 days.
|
|
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(12)
|
Includes
6,750 shares that may be acquired pursuant to stock options exercisable
within 60 days.
|
| (13) |
Includes
300
shares owned by Mr. Walker's minor children.
|
|
|
(14)
|
Includes
2,500 shares that may be acquired pursuant to stock options exercisable
within 60 days.
|
|
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(15)
|
Includes
12,750 shares that 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.
|
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(16)
|
Includes
328,073 shares that may be acquired pursuant to stock options exercisable
within 60 days held by all directors and executive officers as a group.
|
9
CORPORATE
GOVERNANCE
Director
Independence
The Board has
determined that all of the nominees, other than Messrs. Gilman and Kelley, are
“independent” within the meaning of the listing standards of The New York Stock
Exchange because none of those nominees has, directly or indirectly, any
material relationship with us. The Board has made these
determinations after considering the following:
|
1)
|
None
of the independent nominees is our officer or employee or an officer or
employee of our subsidiaries or affiliates, nor has been such an employee
within the prior three years.
|
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2)
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None
of the independent nominees has received, nor has an immediate family
member of such nominees received, during any twelve month period in the
last three years more than $100,000 in direct compensation from us, other
than director and committee fees and pension or other forms of deferred
compensation for prior service.
|
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3)
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None
of the independent nominees or any member of their immediate family is or
within the past five years has been affiliated with Deloitte & Touche
LLP.
|
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4)
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None
of the independent nominees or any member of their immediate family have
within the last three years been employed as an executive officer of
another company on whose compensation committee one of our present
executive officers served.
|
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5)
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None
of the independent nominees is a current employee or has an immediate
family member who is a current executive officer of a company that in any
of the last three fiscal years has done business with us in an amount in
excess of $1 million or 2% of such other company’s consolidated gross
revenues.
|
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6)
|
None
of the independent nominees serves as a director, trustee, executive
officer or similar position of a charitable or non-profit organization to
which we or our subsidiaries made charitable contributions or payments in
fiscal 2007 in excess of $1 million or 2% of the organization’s
consolidated gross revenues.
|
Committees
and Meetings of the Board of Directors
The Board of
Directors held 10 meetings during fiscal 2007. The Board has
five standing committees—Executive Committee, Audit Committee, Compensation
Committee, Nominating/Corporate Governance Committee and Personnel/Benefits
Committee. It also appointed a Special Committee in July
2007 to evaluate opportunities by which we could maximize shareholder
value. A description of the activities of those committees
follows.
Executive
Committee
The Executive
Committee may, between meetings of the Board of Directors, exercise all of the
powers of the Board of Directors except as otherwise provided by
law. During fiscal 2007, the Executive Committee met
once. Mr. Williamson serves as Chairman; Messrs. Risk and Schmidt and
Dr. Ryan serve as members of the Executive Committee.
10
Audit
Committee
The Audit
Committee, among other duties, serves in an oversight role intended to ensure
the integrity and objectivity of our financial reporting process. It
operates under a written charter which was approved by the Board, a copy of
which is available at our web site (www.steaknshake.com)
or by written request to the Corporate Secretary at the address on the first
page of this proxy statement. 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 our
independent registered public accounting firm. See “Report of the
Audit Committee” below. In addition, as set forth in the Audit
Committee charter, the Board has delegated to the Committee the responsibility
to review, ratify and approve any related person transactions. During
fiscal 2007, the Audit Committee met nine times. Mr. Wilhelm served
as Chairman of the Committee and Messrs. Risk, Schmidt, Ballotti and Dr. Ryan
served as members of the Committee. Each member of the Audit
Committee is “independent” as that term is defined in Rule 10A-3 of the Exchange
Act and the listing standards for the New York Stock Exchange. In
addition, the Board of Directors has determined that Messrs. Wilhelm and Risk
qualify as “audit committee financial experts” as that term is defined in Item
407(d)(5)(ii) of Regulation S-K.
Compensation
Committee
The
Compensation Committee is charged with establishing the compensation for our
Chief Executive Officer and the other executive officers, as well as
administering incentive and equity-based compensation plans. See
“Report of the Compensation Committee” below. The Compensation
Committee met six times during fiscal 2007. Mr. Ballotti is Chairman
of the Compensation Committee and Drs. Person and Ryan as well as Messrs.
Wilhelm and Schmidt are the current members of the committee. Each
member of the Committee is “independent” as that term is defined in the listing
standards of the New York Stock Exchange. The Committee operates
under a written charter approved by the Board of Directors, a copy of which is
available on our web site (www.steaknshake.com)
or by written request to the Corporate Secretary at the address on the first
page of this proxy statement.
For
information on the role of the President and Chief Executive in setting the
compensation of our other executive officers and the role of the third party
compensation consultant retained by the Committee, see “Compensation Discussion
and Analysis - Executive Compensation Philosophy.”
During fiscal
2007, James Williamson, Jr. also served on the Compensation
Committee. Mr. Williamson was an officer of the Company from 1985
through 1991. During fiscal 2007:
|
●
|
No
member of the Compensation Committee served as a member of the
compensation committee of another entity, one of whose executive officers
served on our compensation committee;
|
|
●
|
None
of our executive officers served as a director of another entity, one of
whose executive officers served on our compensation committee;
and
|
|
●
|
None
of our executive officers served as a member of the compensation committee
of another entity, one of whose executive officers served as our
director.
|
11
Nominating/Corporate
Governance Committee
The
Nominating/Corporate Governance Committee is charged with making recommendations
regarding the nomination of appropriate individuals for election to the Board of
Directors, overseeing our Corporate Governance Guidelines, allocating Board
resources to various committees and evaluating the performance of the Board, its
Committees and its individual members. Dr. Ryan was the Chairman of
the Committee and Messrs. Risk, Schmidt and Ballotti as well as Dr. Person
served on the Committee during fiscal 2007. During fiscal 2007, the
Committee met four times. The Committee operates under a written
charter that was approved by the Board of Directors, a copy of which may be
obtained on our web site (www.steaknshake.com)
or by written request to the Corporate Secretary at the address on the first
page of this proxy statement. Each member of the Committee is
“independent” as that term is defined in the listing standards of the New York
Stock Exchange.
Our Corporate
Governance Guidelines are available on our web site at www.steaknshake.com. Shareholders
may also obtain a copy free of charge by directing a request to the Corporate
Secretary at the address on the first page of this proxy statement. The
Board granted a one-year waiver of Section 9 of the Corporate Goverance
Guidlines to Fred Risk so that he may be elected to the Board of Directors at
the 2008 Annual Meeting of Shareholders.
Personnel/Benefits
Committee
The
Personnel/Benefits Committee makes determinations and recommendations to the
Board of Directors regarding personnel policies and employee benefit plans,
administers our 401(k) Savings Plan and Nonqualified Deferred Compensation 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 four times during fiscal 2007. Mr. Kelley is Chairman of the
Committee and Dr. Person and Mr. Ballotti are members, together with Mr. Blade,
Executive Vice President and Chief Financial Officer, Mr. Reinwald, Executive
Vice President and Mr. Thomas Murrill, Senior Vice President of Human
Resources. Mr. Gilman serves as an ex officio member of the
Committee.
Special
Committee
The Board of
Directors appointed the Special Committee to evaluate opportunities by which the
company could maximize shareholder value. The committee is comprised
of three of our independent directors, Messrs. Risk, Wilhelm and
Williamson. The committee engaged Merrill Lynch & Co. to act as
its financial advisor. We publicly announced the formation of the
committee and the engagement of the financial advisor in August
2007.
The Special
Committee met 20 times since its appointment, including several joint
sessions with the full Board of Directors.
The committee
analyzed the outcome of various alternative future scenarios, including
executing the company’s current strategic plan, modifying the strategic plan,
increasing growth through more aggressive franchising, pursuing a leveraged
recapitalization through a sale/leaseback of company-owned real estate and
selling the company to a third party—either a strategic or private
buyer.
In October
2007, the Special Committee instituted a process to determine if shareholder
value could be enhanced through a sale of the Company. Twenty parties
have executed confidentiality agreements with the company and a number of these
parties conducted various levels of due diligence investigations of the
company. However, none of the offers received in the process to date
reflect what the committee or Board believes is the full underlying value of the
company. The committee believes that the process is being adversely
affected by unfavorable trends in the casual dining segment of the restaurant
industry, our recent disappointing operating performance and volatility in the
financing markets for private equity.
The Committee
continues to receive inquiries from interested parties. At this point
we do not know whether these inquiries will result in an offer that the
Committee and Board could recommend to the shareholders.
We continue
to focus our attention on continuing our turnaround plan and hiring a permanent
Chief Executive Officer. We will, however, continue to evaluate
opportunities to enhance shareholder value, including a potential sale of the
Company.
12
Nominations
for Director
The
Nominating/Corporate Governance Committee identifies nominees for director from
various sources, including, without limitation, its members, other directors,
senior management, shareholders and third party
consultants. Candidates are evaluated based on their credentials and
the needs of the Board. Of particular importance are the candidate's
experience, judgment, integrity, ability to make independent inquiries,
understanding of our business environment and willingness and ability to devote
adequate time to Board activities. The Nominating/Corporate
Governance Committee will also identify nominees who meet specific objectives in
terms of the composition of the Board, such as financial expertise, and may take
into account such factors as geographic, occupational, gender, race and age
diversity.
In fiscal
2007, the Committee used a third party search firm to identify qualified
individuals to serve on our Board. Mr. Ballotti was identified
by the search firm. The search firm supplied the Board with Mr.
Ballotti’s resume and other background information regarding his business and
other relevant experience. Messrs. Gilman and Williamson interviewed
Mr. Ballotti and reviewed the information provided by the search firm, and
concluded that he would bring several attributes that would strengthen the
Board, including executive experience at a large public company and in the
hospitality industry. The Nominating/Governance Committee recommended
his candidacy and the Board of Directors appointed Mr. Ballotti on
April 23, 2007.
As a result
of the disappointing performance of the company, the Board of Directors
concluded that it would be in the company’s best interests to invite
Mr. Risk to rejoin the Board. Mr. Risk has years of
executive and financial experience and had served as a director from 1971 to
2007 when he decided not to seek re-election. The
Nominating/Governance Committee recommended his candidacy and the Board of
Directors appointed Mr. Risk on July 11, 2007.
Shareholders
who wish to recommend to the Nominating/Corporate Governance Committee a
candidate for election to the Board of Directors at the annual meeting should
send their suggestions to the Corporate Secretary at the address shown on the
first page of this proxy statement. The Corporate Secretary will
promptly forward all such letters to the members of the committee. In
order for director nominations to be properly brought before an annual meeting
by a shareholder, timely notice must be given by the shareholder to the
Corporate Secretary. To be timely, the notice must be delivered at
the above address not less than 120 days prior to the date we mailed proxy
materials for the preceding year's annual meeting.
Nominations
for directors must include the following information: (i) a statement of the
nominee’s qualifications; (ii) all information required to be disclosed in the
solicitation of proxies for elections of directors pursuant to Regulation 14A of
the Securities Exchange Act of 1934; (iii) the name and address of the
shareholder making the nomination; (iv) a representation that the shareholder is
a holder of our common stock and intends to appear at the meeting to make the
nomination; (v) a description of all arrangements or understandings among the
shareholder and the nominee; and (vi) the written consent of the nominee to
serve as a director if so elected. Other than the submission
requirements set forth above, there are no differences in the manner in which
the Nominating/Corporate Governance Committee evaluates a nominee for director
recommended by a shareholder.
13
Miscellaneous
During fiscal
2007, 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. Directors are
expected to attend the annual meeting of shareholders, and all attended the 2007
annual meeting.
Pursuant to
the listing requirements of the New York Stock Exchange, the non-management
directors met in four sessions without management during fiscal
2007. Mr. Williamson, the Lead Outside Director, presides over
meetings of the Outside Directors. Interested parties may communicate
directly with the Mr. Williamson, 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 statement.
Code
of Business Conduct and Ethics
We have a code of
ethics which applies to our principal executive officer,
principal financial officer and principal accounting officer, as well as all
officers, directors and employees. A copy of the Code of Business Conduct and Ethics can be obtained without charge on
our web site (www.steaknshake.com)
or by written request to the Corporate Secretary at the address on the first
page of this proxy statement. If we make any substantive amendment
of, or grant any waiver of a provision of the code, we will
disclose the nature of such amendment or waiver via our web site or in a Current
Report on Form 8-K.
Shareholder
Communications with the Board
The Board has
implemented a process by which our shareholders and other interested parties may
send communications to the Board's attention. Any shareholder or
interested party desiring to communicate with the Board or any members, should
communicate in a writing addressed to the Board, or specified directors, to the
Corporate Secretary at the address shown on the first page of this proxy
statement. The Secretary has been instructed by the Board to promptly
forward all such communications to the specified addressees
thereof.
Stock Ownership
Guidelines
The Board
of Directors has established stock ownership guidelines under which non-employee directors must achieve and maintain ownership of 1,000 shares of
our common stock within three years of their
appointment or election to the Board. All current directors and
nominees for director positions have satisfied this
requirement.
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 10
percent shareholders of a publicly held company. To the Company’s
knowledge, based on the representations of our 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
fiscal 2007 except a final Form 4 for Gary Walker which was filed late as a
result of an administrative oversight.
14
CERTAIN
RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Reinwald
Franchise
As previously
reported, on September 21,
2005, our wholly owned subsidiary, Steak n Shake
Operations, Inc. (“SNS
Operations”), entered into a Multiple Unit Franchise Agreement, a Contract for the Sale and Use of Real Estate
and a Personal Property Sales Agreement
with Reinwald
Enterprises Emory, LLC, and Reinwald
Enterprises Wild Geese, LLC. Gary T. Reinwald, who is
one of our executive offices, is a member of both limited liability companies and
is the majority owner of the franchisee.
Kelley Restaurants, Inc.
Acquisition
As previously
reported, we acquired Kelley Restaurants, Inc. (“KRI”) on December 29, 2004 for
$16,082,000, after adjustment for working capital and debt
repayment. Ten percent of the adjusted purchase price was deposited
in escrow for up to 24 months from the closing. In fiscal 2007, the
remainder of the escrow, in the amount of $199,634.66, was distributed to the
shareholders of KRI. Wayne Kelley, one of our directors, served as
President and a director, and Mr. Williamson and Mr. Gilman served as directors,
of KRI and all were shareholders of KRI.
Kelley
Employment Agreement
Pursuant to
an employment agreement entered into in connection with the KRI transaction, Mr.
Kelley became a full-time employee of the Company for 28 months, ending on April
20, 2007. Under the agreement, Mr. Kelley received an annual
salary of $205,000 per year and received a bonus of $57,000 because he met the
requirement for being employed on April 20, 2007. As disclosed in the
Form 8-K filed on March 30, 2006, we extended Mr. Kelley’s employment through
and including July 13, 2009. During the extended term, Mr. Kelley
will earn an annual salary of $75,000, receive other employee benefits provided
to other employees and the use of a Chrysler Pacifica mini van or similarly
priced vehicle.
Policy
Regarding Related Person Transactions
The policy
of the Board is for it, or one of its committees,
to review each related
person transaction (as defined below) and determine whether it will approve or
ratify that transaction. Any Board member who has any interest (actual or
perceived) will not be involved in the consideration.
For purposes of the
policy, a "related person transaction" is any transaction, arrangement or
relationship in which we
are a participant, the related person (defined below) had, has or will
have a direct or indirect material interest and the aggregate amount involved is
expected to exceed $120,000 in any calendar year. “Related person” includes (a) any person who is or
was (at any time during the last fiscal year) an officer, director or nominee
for election as a director; (b) any person or group who is a beneficial owner of
more than 5% of our
voting securities; (c) any
immediate family member of a person described in provisions (a) or (b) of this
sentence; or (d) any entity in which any of the foregoing persons is employed,
is a partner or has a greater than 5% beneficial ownership
interest.
In determining
whether a related person transaction will be approved or ratified, the
Board, or committee,
may consider factors such
as (a) the extent of the
related person’s interest in the transaction; (b) the
availability of other sources of comparable products or services; (c) whether
the terms are competitive with terms generally available in similar
transactions with persons
that are not related persons; (d) the benefit to us; and (e) the aggregate value of the
transaction.
15
1.
ELECTION OF DIRECTORS
Nine
directors will be elected to serve until the next annual meeting of shareholders
and until their respective successors shall have been duly elected and
qualified. All of the nominees are currently
directors. Seven of these were elected at the 2007 annual meeting of
shareholders, while Messrs. Ballotti and Risk were appointed to the Board
on April 23, 2007 and July 11, 2007, respectively.
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, acts to reduce the number of directors.
THE COMPANY
HAS RECEIVED A NOTICE FROM THE LION FUND, L.P. AND CERTAIN OF ITS AFFILIATES
THAT LION INTENDS TO SOLICIT PROXIES FOR AND NOMINATE AT THE ANNUAL MEETING ITS
OWN SLATE OF TWO NOMINEES FOR ELECTION AS DIRECTORS. YOUR BOARD DOES
NOT BELIEVE THIS IS IN YOUR BEST INTEREST. THE BOARD URGES YOU NOT TO
VOTE FOR ANY INDIVIDUALS WHO MAY BE NOMINATED BY LION OR ITS AFFILIATES AND TO
EXECUTE AND RETURN THE ENCLOSED WHITE PROXY CARD
VOTING FOR THE NOMINEES SET FORTH BELOW.
16
The nominees
are listed below, along with the age, tenure as director and business background
for at least the last five years for each. There are no family
relationships, of first cousins or closer, among our directors and executive
officers, by blood, marriage or adoption.
|
Name
|
Age
|
Director
Since
|
Business
Experience
|
|
Alan B.
Gilman
|
77
|
1992
|
Chairman of the
Board of Directors and Interim President and Chief Executive Officer of
the Company from August 2007 to the present; Non-Executive Chairman of the
Board from February 2007 through August 2007; Executive Chairman from
February 2004 through February 2007; President and Chief Executive Officer
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, from August 11, 2003
through February 11, 2004.
|
|
Geoffrey
Ballotti
|
45
|
2007
|
Mr. Ballotti is a
graduate of Colby College and Harvard Business School. He has
served in various senior executive capacities with Starwood Hotels &
Resorts Worldwide, Inc. since joining in 1989, including, the Presidency
of its North American division from 2003 to the present. From 2002 to
2003, he served as Executive Vice President, Operations North America
Division.
|
|
Wayne L.
Kelley
|
63
|
2003
|
Director of Steak
n Shake Operations, Inc., a subsidiary of the Company, from 1999 through
2006; President of Kelley Restaurants, Inc., the Company's
largest franchisee, from 1988 through 2005; currently employed by the
Company in a senior real estate advisory role.
|
|
Ruth J.
Person
|
62
|
2002
|
Chancellor,
Indiana University Kokomo and Professor of Management; President, American
Association of University Administrators 2003-2004; President, Board of
Directors, Workforce Development Strategies, Inc.; Member, Key Bank
Advisory Board – Central Indiana.
|
|
J. Fred
Risk
|
79
|
1971
|
Private investor;
Chairman of the Board of Directors of Security Group,
Inc.
|
|
John W.
Ryan
|
78
|
1996
|
Private investor;
Chancellor of the State University of New York Systems from 1996 through
1999; President of Indiana University from 1971 through
1987.
|
|
Steven M.
Schmidt
|
53
|
2005
|
Currently
President, Business Solutions Division - Office Depot; formerly, President
& CEO, ACNielsen; EVP, VNU Marketing Information New York, NY;
formerly President of Pillsbury Foods, Canada; also held senior executive
posts with Pepsi-Cola and Procter & Gamble.
|
|
Edward W.
Wilhelm
|
49
|
2006
|
Currently Chief
Financial Officer of Borders Group, Inc.; held a number of senior
financial positions at Borders Group, Inc. since
1994.
|
|
James Williamson,
Jr.
|
76
|
1985
|
Private
investor.
|
THE
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF EACH OF THE
NOMINEES.
17
REPORT
OF THE COMPENSATION COMMITTEE
The
compensation of the Company’s executive officers is determined by the
Compensation Committee of the Board of Directors, which is comprised of the
persons identified below. We have reviewed and discussed with
management the Compensation Discussion and Analysis that follows this
report. Based on our review and discussions with management, we
recommended to the Board of Directors that the Compensation Discussion and
Analysis be included in the Company’s Annual Report on Form 10-K for the fiscal
year ended September 26, 2007 and this proxy statement.
The foregoing
report is respectfully submitted by the members of the Compensation
Committee:
Geoff
Ballotti, Chairman, Drs. Ruth J. Person and John W. Ryan and Messrs. Steven M.
Schmidt and Edward W. Wilhelm.
COMPENSATION
DISCUSSION AND ANALYSIS
Introduction
This Compensation
Discussion and Analysis is designed to provide shareholders with a better understanding of our compensation
philosophy, core principles, and decision making process. It
explains the compensation-related actions taken with respect to the executive officers who are identified
in the Summary Compensation Table (the “Named Executive
Officers”). Detail on the compensation we paid to
the Named Executive Officers for fiscal 2007 are found in the tables and
narrative which follows them.
Executive Compensation
Philosophy
Our long-term success
depends on our ability to operate effectively and efficiently, offer appealing products for our customers and invest
wisely for present and
future success. To achieve these goals, we must attract, motivate, and retain highly
talented individuals at all levels of the organization. The Compensation Committee strives to
provide compensation which is appropriate to attract and retain such
individuals.
All decisions
relating to the compensation of the Named Executive Officers are made by the Compensation Committee in
executive session, without management present. In assessing the
compensation of the President and Chief Executive Officer, the Compensation
Committee makes a
qualitative assessment of our performance, his contribution to that
performance, his expected
performance in the future, and other factors (including tenure and
experience, retention
concerns, historical
compensation and the
relationship of his compensation to other executives in the Company). In evaluating the
performance of other executive officers, the Compensation Committee considers the evaluations provided by
the President and Chief Executive Officer.
As a general matter,
over 50% of targeted annual compensation to executive officers takes
the form of
performance-dependent, incentive cash and equity programs. We believe that putting a
significant portion of compensation at risk provides an incentive to better
performance and more closely align the executives’ perspective with that of our
shareholders.
18
As part of making any
compensation decision, the Compensation Committee reviews market compensation levels for
executive officers at other
restaurant companies (for
positions that are unique to our industry) or similarly-sized companies (for
other positions) to determine whether the
compensation components for our executive officers remain in the targeted ranges
described in the following
paragraph. With the assistance of our Human
Resources department
and a third party
compensation consultant retained by the Compensation Committee, management collects and presents
compensation data for our
executive officers,
including the Named
Executive Officers. Information
regarding the restaurant
industry is obtained from the Chain Restaurant Compensation
Association and the committee’s
consultant. Information regarding the compensation for executives at
similarly-sized companies is obtained from the committee’s consultant and from published
compensation
surveys. The compensation surveys provide data on pay practices for executive
positions at companies with similar revenue size, although they do not provide names of
the reported companies. The compensation assessment
that is presented to the
Compensation Committee includes an evaluation of base salary,
target annual incentive opportunities, long-term incentive grant
values, and benefits for
each executive officers
relative to similar positions in the market.
The Compensation
Committee sets total targeted compensation for executives who hold positions
unique to the restaurant industry (such as EVP of Development) between the 50th
and 75th
percentiles of a set of restaurant companies of
similar size. For other executive positions where both restaurant and
general industry pay levels are relevant for staffing and retention (such as
Chief Financial Officer), the Compensation Committee sets targeted total
compensation the 50th
and 75th
percentiles of comparable
restaurant companies and the 50th
percentile of
non-restaurant companies
of a similar revenue
size. The
committee may vary from
these percentiles based on
such factors as historic
compensation, individual
skills, experience, contribution and performance, internal equity, retention concerns and other factors
relevant to the individual
executive. In addition, actual compensation (e.g.,
amounts earned and paid each year) may be higher or lower than targeted total compensation based
on our performance or the assessment of the executive’s performance.
Components of Total
Compensation
Base Salary
We believe
base salaries should
be sufficient to attract
and retain the executive talent needed to run our
business. The Compensation Committee sets base salaries at market median levels for positions that are unique to the
restaurant industry, and between the 50th
and 75th
percentile in the
restaurant industry for other executive positions.
19
In setting base salaries for fiscal 2007, the Compensation Committee considered the following
factors:
|
·
|
Internal
analysis. This
is the relative pay difference for different job levels. The Compensation
Committee believes that the President and Chief Executive Officer position
has the greatest opportunity to impact the Company, and so has typically
set the base salary for this position at approximately two times that of
the next highest executive. Similarly, the Compensation
Committee has concluded that Mr. Blade, the Chief Financial Officer, is
vital to our success, as he supervises not only the Finance and Accounting
departments, but the Franchise and Supply Chain departments as
well. Accordingly the Compensation Committee has typically set
Mr. Blade’s salary at approximately 20% above the next most highly
compensated executive.
|
|
·
|
Individual
performance. Increases to base salaries can result from individual performance
assessments as well
as an evaluation of the market and the mix among various components of
compensation. In setting Mr. Dunn’s
base salary for
fiscal 2007, the committee considered that, although we had
decreased employee turnover and drive-thru wait times and increased
customer satisfaction as Mr. Dunn planned, improvement in these areas
did not translate into improved sales or earnings. Accordingly,
the Compensation Committee made no change to Mr. Dunn’s base salary from
fiscal 2006. This meant that his base salary was below the 50th
percentile for Chief
Executive Officers of similarly sized companies. When Mr. Dunn resigned in August 2007 and
Mr. Gilman
was appointed
the Interim
President and Chief
Executive Officer,the
Compensation
Committee set
Mr. Gilman’s
base salary
at the same level as
Mr. Dunn’s.
The Compensation Committee also reviewed the performance of the other Named
Executive
Officers, ultimately
concluding that, while their individual performances had been
satisfactory, our overall disappointing performance in fiscal 2006 did not
warrant an increase in base salaries. Instead, the Compensation
Committee chose to focus more attention on increasing the
incentive-related components of compensation. A discussion of
the mix between the two components is in the “Annual Incentive Bonus”
section below.
|
|
·
|
Market
data. As noted above, while the
Compensation Committee uses industry and general market data
to test for the
reasonableness and
competitiveness of base salaries, committee members exercise
subjective judgment
within the ranges in
this data in view of
our compensation objectives
and individual
performance and circumstances.
|
Annual Incentive
Bonus
For fiscal 2007 the
Compensation Committee
intentionally allocated a greater portion of targeted total
compensation to the
performance-dependent
elements. One way in which it did this
was to set what it believed to be aggressive, but reachable, targets for fiscal
2007 under our Incentive Bonus Plan.
20
Over 100 employees,
including the Named Executive Officers, participated in the Incentive Bonus Plan
in fiscal 2007. The Compensation Committee
established a target incentive opportunity for each participant,
expressed as a percent of
base salary. Mr. Dunn’s target bonus opportunity
was set at 70% of his base salary, which weighted his pay mix more heavily
toward performance-based
compensation. The other
executive officers had target bonus opportunities set at 30% - 40% of their base
salaries. For
the Named Executive Officers, the target annual incentives for
fiscal 2007 were as
follows:
|
Named Executive
Officer
|
Target Bonus Incentive
as a % of Base
Salary
|
|
Mr.
Gilman
|
70%a
|
|
Mr.
Dunn
|
70%
|
|
Mr.
Blade
|
40%
|
|
Mr.
Schiller
|
40%
|
|
Mr.
Reinwald
|
40%
|
|
Mr.
Geiger
|
30%
|
|
Mr.
Walker
|
40%
|
a Mr.
Gilman was not eligible for the Bonus Plan until August 2007, when he became
Interim President
and Chief
Executive Officer. Had we
met the thresholds for paying a bonus in fiscal 2007 he would have received a
payment based
on the 70% opportunity for the pro rata
portion of the fiscal year in which he served in that
role.
To arrive at a payout
number under the Incentive
Bonus Plan, the target
bonus opportunity
for each participant is multiplied by a formula based on
our performance as
determined by targets for objective performance and measures and individual performance goals.
In fiscal 2007 the
corporate performance measures were growth in earnings before interest and taxes
(“EBIT”) and same store sales over the prior year. Individual performance
was based on the successful completion of defined projects during the fiscal
year. The individual performance modifier may result in further modification of the
payout, since any
upward adjustment
for one participant
must be offset by downward
adjustments for others. The formula used to compute bonus payouts
is set forth below:
|
Target Bonus
Amount
|
X
|
Corporate
Performance
Modifier
(0%
- 250%)
|
X
|
Individual
Performance
Modifier
(75% -125%)
|
After the end of the
fiscal year, the
Compensation Committee evaluates the Company’s performance against the specific targets set at the beginning of
the year and modifies the
bonus payout to 0% to 250%
of the target. For fiscal
2007, the targets for growth in EBIT and same store
sales were as
follows:
|
Factors
|
Threshold
(0%)
|
Target
(100%)
|
Maximum
(250%)
|
|
Same Store
Sales
|
-1.4%
|
.6%
|
2.6%
|
|
EBIT
|
$52.4M
|
$55.2M
|
$61M
|
In fiscal 2007, we
did not achieve
the targets at the threshold level for either the Same Store Sales or EBIT
performance measures. Consequently, we made no payments under the Incentive
Bonus Plan to any participant in fiscal 2007.
21
Long-Term
Incentives
Equity-based incentives are a significant element of total executive
officer compensation, as we believe these forms of compensation align the
interests of executives with those of our shareholders for periods greater than the single year
focus of the Incentive Bonus Plan. They also encourage retention of employees. These equity-based incentives consist of stock options and restricted stock.
In making equity-based awards, the Compensation Committee also
considers the executive’s
level of responsibility,
prior experience, internal
equity, retention concerns, individual performance, and market data for the particular position. The
committee uses the value of these incentives as determined by accounting
principles to provide targeted total compensation at the levels discussed
above. If our
shareholder returns exceed industry averages, our executives’ compensation
will likewise exceed
industry averages. Likewise, if the
shareholders do not realize competitive returns on their investments, our
executives’ compensation will fall below the industry
average.
Stock
Options
Stock options reward
the recipient
for the increase
in our stock price during
the holding
period. Options represent the high-risk and potential high-return
component of our total long-term incentive program, as the potential value of
each option can fall to zero if the price of our stock is lower than the exercise price when
the options expire.
The size of stock
option grants for executive officers is based primarily on the target dollar
value of the award, translated into a number of option shares based on the
estimated economic value of the award, as determined using the Black-Scholes
option pricing formula. As a result, the number of shares underlying
stock option awards will typically vary from year to year, as it is dependent on
the price of our
stock. Subject to limits imposed by
Section 422 of the Internal Revenue Code, options granted to all
employees are incentive stock options.
In February 2007, the
Compensation Committee approved annual grants of stock options to each of the
Named Executive Officers. These options had an exercise price equal
to the fair market value of our stock on the date of
grant. They were granted under the 2006 Employee Stock Option Plan, which
was approved by shareholders in February
2006. These options vest over four years, at a rate of 25% per year, beginning on
the first anniversary of
the grant. They
expire ten years from the date of grant.
Stock options granted
prior to February 2006 vest
over a four year period, at
a rate of 20% per year
beginning on the date of
grant. These
options expire five years from the date of grant and contain a reload option feature. Reload
options represent an option to purchase the same number of shares of our stock
that were used by the grantee to pay the exercise price of any original
option. We do not grant additional reload options upon the exercise
of a reload option.
In the event of the
death of an option recipient, then his/her estate may exercise the option in
full at any time prior to its expiration. In the event of an option
recipient’s retirement, he/she may exercise any vested options within three
months from the date of retirement. Should an option recipient’s
employment end as a result of a disability, then he/she would be able to
exercise the options as if the recipient had remained with the Company through:
(i) cessation of payments under a disability pay plan of the Company,
(ii) the recipient’s death, or (iii) the recipient’s 65th
birthday.
We do not backdate
options or grant options or other equity awards retroactively. In
addition, we do not purposely schedule option awards or other equity grants
prior to the disclosure of
favorable information or after the announcement of unfavorable
information. In general, equity-based incentive awards are made during the February Board
meeting, with mid-year
grants limited to newly hired or promoted employees.
22
Restricted
Stock
Restricted stock awards provide the
recipient with shares of our stock, which the recipient may vote and for which he may receive dividends during the vesting period. The recipient may not
transfer or assign the restricted shares for a period of three years after the
date of grant, however, and if the recipient ceases to be our employee for any reason other than
death, disability or retirement during that period the shares will be
forfeited. If
the recipient ceases being our employee during the vesting period as a result of retirement,
death or disability then
the recipient (or his/her estate) will receive a pro rata
amount of shares reflective
of the percent of the vesting period during which the recipient was
employed.
Each award of
restricted stock is issued in conjunction with a book unit. A
book unit has a vesting schedule concurrent with the associated share of
restricted stock. It provides for a cash payment at the end of the
three-year vesting period equal to: (i) the aggregate of our earnings per
share over the vesting period and (ii) any dividends paid over the vesting
period. The cash provided by the book units is typically used by the
recipient of restricted stock to pay the tax obligation that he/she incurs upon
its vesting.
The plan under which
the Compensation Committee made restricted stock awards expired in 2007.
Shareholders are being asked to approve a new plan at the annual
meeting.
Perquisites and
Benefits
Perquisites
provided to executive officers include: (i) reimbursement for medical
expenses of up to $3,500 annually, (ii) amounts we pay to group life
insurance premiums for coverage in excess of $50,000, (iii) matching
contributions we make under the 401(k) Plan and Deferred Compensation Plan,
which equal 50% of up to 6% of total cash compensation deferred into these
plans, (iv) personal use of a company car, (v) 75% of the cost of
preparing tax returns, and (vi) amounts incurred for travel for service on
charitable boards. See
footnote (c) to the Summary
Compensation Table below for the perquisites provided to each Named Executive
Officer in fiscal 2007.
Our executive
officers receive the same
benefits provided to all employees. They include: participation in the 401(k) and deferred compensation
plan, life insurance equal to their
annual salary, group medical &
dental plans, short- and long-term disability insurance, and a lunch discount of 50% at Steak n Shake restaurants
on work
days.
23
Employment Agreements, Severance, and
Change-in-Control Arrangements
Change in Control
Agreements
In fiscal 2007,
the Compensation Committee
approved agreements with certain executive officers, including the Named
Executive Officers, that provide for benefits in the event we experience a
change in control (the “CIC Agreements”). The committee obtained
benchmarking information from its compensation consultant, considered which
individuals were vital to retain during any period of uncertainty, and evaluated
the potential costs and benefits of the CIC Agreements. All of the
Named Executive Officers except Mr. Gilman received a CIC Agreement in fiscal
2007. Mr. Reinwald received a CIC agreement that does not provide for
the “stay payment” described below.
The primary terms of
the CIC Agreements are provided below:
|
·
|
Stay
Payment. On the
date of a Change in Control the CIC Agreements provide that Messrs. Blade,
Schiller and Geiger will receive an immediate payment equal to 30% of
their base salary.
|
|
·
|
Termination
Following Change in Control. In the event that the employment
of the recipient of a CIC Agreement is terminated within one year of a change in control without “cause” by us or “good reason” by the employee, they
will receive: (a) a severance payment equal to one year of their
base
salary,
(b) coverage under the group medical plan for one year,
(c) use
of their Company-provided car for up to 60 days, (d) payment of a pro rata amount of
the bonus to which they would have been entitled had they
been employed through the applicable bonus computation period,
and (e) reimbursement of up to $15,000 for outplacement
services.
|
|
·
|
Executive’s
Obligations. Prior to obtaining any
benefits under a CIC Agreement, the recipient must waive any claims
against us. We may recover any benefits paid under the CIC
Agreements if the recipient breaches any of his obligations under the CIC
Agreement.
|
Other Severance
Agreements
Effect of a Change in
Control, Death, Disability or Retirement on Equity Grants
A description of the
impact of death, disability or retirement on vesting or exercise of options or
restricted stock is under the “Long-Term Incentives”
section.
All restricted stock
plans and the 2006 Steak n Shake Employee Stock Option Plan contain provisions that accelerate the vesting
of the awards upon a change
in control. Options granted under prior stock option
plans may be accelerated upon a change in control at the discretion of the Board
of Directors.
The number of
unvested shares that would vest on a change in control, and the value of those
shares as of the end of the fiscal year, is set forth in the table below
entitled “Outstanding Stock and Option Awards” under the column entitled
“Shares or Units of Stock
that Have Not Vested.”
Deductibility Cap on Executive
Compensation
Section 162(m) of the
Internal Revenue Code prohibits publicly-held companies from taking a tax deduction for certain
compensation paid in excess
of $1 million to any of the five most highly compensated
employees. Performance-based compensation
remains deductible. To qualify as
performance-based compensation, the program under which it is provided must be
approved by shareholders
and meet other requirements. Our policy is, where feasible, to
attempt to qualify our compensation plans for full
deductibility. Pursuant to that policy, we have taken steps to qualify compensation
under the 2006 Incentive
Bonus Plan and all stock option plans as “performance-based
compensation.”
We may make payments that are not fully
deductible if, in the
judgment of the Compensation Committee, such payments are otherwise necessary to achieve compensation objectives. In fiscal 2007, we did not pay compensation that was
not deductible under Section 162(m).
Summary
Compensation Information
The following
table shows the compensation paid to the two individuals who served as Chief
Executive Officer during fiscal 2007, the Chief Financial Officer, the other
three most highly compensated executive officers and a former executive officer
who would have been among the three most highly compensated employees had he
been employed at the end of fiscal 2007 (the “Named Executive Officers”) in
fiscal 2007:
SUMMARY COMPENSATION
TABLE
|
Name and Principal
Position
|
Fiscal
Year
|
Salary
|
Stock
Awards
|
Option
Awardsa
|
All
Other
Compensationc
|
Total
|
|||||||||||||||
|
Alan
Gilman,
Chairman, Interim
President and Chief Executive Officer
|
2007
|
$ | 331,731 | d | $ | 12,903 | $ | 308,078 | $ | 26,547 | $ | 679,259 | |||||||||
|
Peter
Dunn,
Former President and Chief Executive Officer
|
2007
|
$ | 600,000 | $ | 376,863 | e | $ | 144,968 | e | $ | 675,998 | f | $ | 1,797,829 | |||||||
|
Jeff
Blade, EVP, Chief
Financial Officer, Chief Administrative
Officer
|
2007
|
$ | 305,885 | $ | 163,536 | $ | 85,341 | $ | 18,250 | $ | 573,012 | ||||||||||
|
Steven
Schiller, SVP, Chief
Marketing Officer
|
2007
|
$ | 254,903 | $ | 122,320 | $ | 45,271 | $ | 17,780 | $ | 440,274 | ||||||||||
|
Gary
Reinwald, EVP,
Development
|
2007
|
$ | 191,490 | $ | 92,099 | $ | 200,328 | $ | 12,034 | $ | 495,951 | ||||||||||
|
Duane
Geiger, Vice President,
Controller
|
2007
|
$ | 185,596 | $ | 74,426 | $ | 48,910 | $ | 15,455 | $ | 324,387 | ||||||||||
|
Gary
Walker, Former Senior Vice
President, Operations Support
|
2007
|
$ | 243,692 | $ | 127,617 | h | $ | 120,331 | h | $ | 257,859 | $ | 749,499 | g | |||||||
25
|
a.
|
Represents
the dollar
amount of equity compensation cost recognized for financial reporting
purposes with respect to stock
awards in fiscal
2007, computed in accordance with SFAS 123(R),
excluding the impact of estimated forfeitures for service-based vesting
conditions,
as follows:
|
|
Name
|
Date of
Grant
|
Number of
Shares
|
Fiscal 2007 Expense
($)
|
||||||
|
Mr.
Gilman
|
8/17/2007
|
17,000 | 12,903 | ||||||
|
Total
|
$ | 12,903 | |||||||
|
Mr.
Dunn
|
10/4/04
|
20,000 | 116,667 | ||||||
|
10/3/05
|
20,000 | 111,692 | |||||||
|
2/8/06
|
17,500 | 94,069 | |||||||
|
2/6/07
|
17,000 | 54,435 | |||||||
| Total | $ | 376,863 | |||||||
|
Mr.
Blade
|
3/15/04
|
8,500 | 25,199 | ||||||
|
9/14/05
|
3,000 | 19,750 | |||||||
|
2/8/06
|
12,000 | 69,880 | |||||||
|
2/6/07
|
13,400 | 48,707 | |||||||
|
Total
|
$ | 163,536 | |||||||
|
Mr.
Schiller
|
5/11/05
|
8,000 | 50,293 | ||||||
|
2/8/06
|
7,500 | 43,675 | |||||||
|
2/6/07
|
7,800 | 28,352 | |||||||
|
Total
|
$ | 122,320 | |||||||
|
Mr.
Reinwald
|
10/4/04
|
9,000 | 52,500 | ||||||
|
2/8/06
|
6,800 | 39,599 | |||||||
|
8/14/07
|
8,000 | — | |||||||
|
Total
|
$ | 92,099 | |||||||
|
Mr.
Geiger
|
10/4/04
|
5,500 | 32,083 | ||||||
|
2/8/06
|
4,400 | 25,623 | |||||||
|
2/6/07
|
4,600 | 16,720 | |||||||
|
Total
|
$ | 74,426 | |||||||
|
Mr.
Walker
|
10/4/04
|
7,000 | 37,692 | ||||||
|
9/14/05
|
1,500 | 9,115 | |||||||
|
2/8/06
|
10,300 | 55,366 | |||||||
|
2/6/07
|
8,000 | 25,444 | |||||||
|
Total
|
$ | 127,617 | |||||||
See Note 15 of Notes to
Consolidated Financial Statements included in Part II, Item 8 of
our Annual Report on Form 10-K for fiscal 2007 filed December 10, 2007
for
a description of the assumptions
made in the valuation. The
actual value realized by the Named Executive Officer with respect to stock
awards will depend on the market value of our stock
on
the date the restricted stock vests, as well as the date on which the stock is
subsequently sold.
26
|
b.
|
Represents
the dollar amount of equity compensation cost recognized for financial
reporting purposes with respect to nonqualified stock option awards in
fiscal 2007, computed in accordance with SFAS 123(R), excluding the
impact of estimated forfeitures for service-based vesting conditions, as
follows:
|
|
Name
|
Date of
Grant
|
Number of Shares Underlying
Options
|
Fiscal 2007 Expense
($)
|
||||||
|
Mr.
Gilman
|
8/4/04
|
25,000 | 17,197 | ||||||
|
9/14/05
|
25,000 | 32,780 | |||||||
|
5/8/07
|
5,000 | 2,388 | |||||||
|
5/15/2007
|
23,787 | 92,867 | |||||||
|
8/17/2007
|
26,900 | 162,846 | |||||||
|
Total
|
$ | 308,078 | |||||||
|
Mr.
Dunn
|
10/1/03
|
20,000 | 5,418 | ||||||
|
8/4/04
|
25,000 | 17,197 | |||||||
|
9/14/05
|
25,000 | 32,780 | |||||||
|
2/8/06
|
30,000 | 49,021 | |||||||
|
2/7/07
|
26,900 | 40,552 | |||||||
|
Total
|
$ | 144,968 | |||||||
|
Mr.
Blade
|
3/15/04
|
12,000 | 6,773 | ||||||
|
9/14/05
|
16,500 | 21,635 | |||||||
|
2/8/06
|
20,200 | 33,007 | |||||||
|
2/6/07
|
21,300 | 23,926 | |||||||
|
Total
|
$ | 85,341 | |||||||
|
Mr.
Schiller
|
5/11/05
|
10,000 | 10,702 | ||||||
|
2/8/06
|
12,700 | 20,752 | |||||||
|
2/6/07
|
12,300 | 13,817 | |||||||
|
Total
|
$ | 45,271 | |||||||
|
Mr.
Reinwald
|
8/4/04
|
16,000 | 11,006 | ||||||
|
9/14/05
|
7,400 | 9,703 | |||||||
|
2/8/06
|
11,500 | 18,791 | |||||||
|
9/29/06
|
9,225 | 41,259 | |||||||
|
2/19/07
|
13,504 | 62,958 | |||||||
|
8/15/07
|
10,000 | 56,611 | |||||||
|
Total
|
$ | 200,328 | |||||||
|
Mr.
Geiger
|
8/4/04
|
7,500 | 5,159 | ||||||
|
9/14/05
|
4,000 | 5,245 | |||||||
|
2/8/06
|
7,500 | 12,255 | |||||||
|
9/29/06
|
4,036 | 18,051 | |||||||
|
2/6/07
|
7,300 | 8,200 | |||||||
| $ | 48,910 | ||||||||
|
Mr.
Walker
|
8/4/04
|
11,000 | 7,567 | ||||||
|
9/14/05
|
12,500 | 16,390 | |||||||
|
2/8/06
|
17,300 | 28,269 | |||||||
|
9/29/06
|
2,536 | 11,342 | |||||||
|
2/16/07
|
9,315 | 43,283 | |||||||
|
2/6/07
|
12,000 | 13,480 | |||||||
|
Total
|
$ | 120,331 | |||||||
See Note 15 of Notes to
Consolidated Financial Statements included in Part II, Item 8 of
our Annual Report on Form 10-K for fiscal 2007 filed December 10, 2007 for a
description of the assumptions made in the valuation. The actual value
realized by the Named Executive Officer with respect to option awards will
depend on the difference between the market value of our stock on the date the
option is exercised and the exercise price.
27
|
c.
|
The
type and amount of the components of the figures in the “All Other
Compensation” column above are detailed
below:
|
|
Mr.
Gilman
|
Mr.
Dunn
|
Mr.
Blade
|
Mr.
Schiller
|
Mr.
Reinwald
|
Mr.
Geiger
|
Mr.
Walker
|
||||||||||||||||
|
401(k) matching
contributions
|
$ | 2,661 | $ | 3,375 | $ | 1,074 | $ | 1,264 | $ | 2,668 | $ | 882 | $ | 1,071 | ||||||||
|
Nonqualified
Deferred Compensation Plan matching
contributions
|
$ | 7,291 | $ | 14,625 | $ | 8,103 | $ | 6,383 | $ | 3,021 | $ | 4,640 | $ | 6,000 | ||||||||
|
Excess life
insurance
|
$ | 4,302 | $ | 759 | $ | 461 | $ | 246 | $ | 725 | $ | 223 | $ | 342 | ||||||||
|
Travel to
charitable board meetings
|
$ | 3,942 | $ | 1,353 | — | — | — | — | — | |||||||||||||
|
Tax
preparation
|
$ | 1,075 | $ | 2,000 | — | — | $ | 713 | — | — | ||||||||||||
|
Automobile
expenses – personal use
|
$ | 3,776 | $ | 10,386 | $ | 5,112 | $ | 6,387 | $ | 1,407 | $ | 6,210 | $ | 6,946 | ||||||||
|
Executive Medical
Reimbursement Plan
|
$ | 3,500 | $ | 3,500 | $ | 3,500 | $ | 3,500 | $ | 3,500 | $ | 3,500 | $ | 3,500 | ||||||||
|
d.
|
Mr.
Gilman’s salary was reduced
from $500,000 per year to $150,000
per year effective February 6, 2007 when he assumed the role of
Non-executive Chairman. His salary was increased to $600,000 on
August 13, 2007 when he assumed the role of Interim President and Chief
Executive Officer.
|
|
e.
|
Mr.
Dunn forfeited all equity awards which vested after October 5, 2007, the
effective date of his resignation. The specific awards that
were forfeited are set forth below:
|
|
Restricted Stock
|
|
|
Grant
Date
|
Number
of Shares
|
|
10/4/04
|
7,000
|
|
9/14/05
|
1,500
|
|
2/8/06
|
10,300
|
|
2/6/07
|
8,000
|
|
Stock Options
|
|
|
Grant
Date
|
Number
of Options
|
|
10/1/03
|
20,000
|
|
8/4/04
|
25,000
|
|
9/14/05
|
25,000
|
|
2/8/06
|
30,000
|
|
2/6/07
|
26,900
|
As a result of the
forfeiture, we will not report the amount of equity compensation costs shown for
these awards in the Summary Compensation Table.
|
f.
|
This
includes the items listed in footnote c above as well as $40,000 in
outplacement assistance and $600,000 in severance
payments.
|
|
g.
|
This
includes the items listed in footnote c above as well as $240,000 in
severance payments.
|
28
|
h.
|
Mr.
Walker forfeited all equity awards which vested after September 19, 2007,
the date of his separation. The specific awards that were forfeited
are set forth below:
|
|
Restricted Stock
|
|
|
Grant
Date
|
Number
of Shares
|
|
10/3/05
|
20,000
|
|
2/8/06
|
17,500
|
|
2/6/07
|
17,000
|
|
Stock Options
|
|
|
Grant
Date
|
Number
of Options
|
|
8/4/04
|
11,000
|
|
9/14/05
|
12,500
|
|
2/8/06
|
17,300
|
|
9/29/06
|
2,536
|
|
2/16/07
|
9,315
|
|
2/6/07
|
12,000
|
As a result of the
forfeiture, we will not report the amount of equity compensation costs shown for
these awards in the Summary Compensation Table.
29
Plan-Based
Award Grants
The following
table sets forth specific information regarding all grants from equity and
non-equity plans in fiscal 2007.
GRANTS OF PLAN-BASED
AWARDS
|
Estimated Possible Payouts Under Non-Equity
Incentive Plan Awardsa
|
||||||||||||
|
Name
|
Grant
Date
|
Threshold
|
Target
|
Max
|
All Other Stock Awards: Number of Shares of Stock
or Unitsd
|
All
Other Option Awards: Number of Securities Underlying Options
(#)
|
Exercise
or Base Price of Option Awards ($/share)
|
Grant Date Fair
Value of Stock and Option Awards ($)g
|
||||
|
Mr.
Gilman
|
11/7/2006
|
$0
|
$420,000
|
$1,050,000
|
||||||||
|
5/8/2007
|
5,000b
|
$16.51
|
$24,168
|
|||||||||
|
5/15/2007
|
23,787c
|
$15.87
|
$92,867
|
|||||||||
|
8/17/2007
|
26,900e
|
$14.80
|
$162,846
|
|||||||||
|
8/17/2007
|
17,000
|
$251,600
|
||||||||||
|
Mr. Dunnf
|
11/7/2006
|
$0
|
$420,000
|
$1,050,000
|
||||||||
|
2/6/2007
|
17,000
|
$303,280
|
||||||||||
|
2/6/2007
|
26,900e
|
$17.72
|
$187,553
|
|||||||||
|
Mr.
Blade
|
11/7/2006
|
$0
|
$123,600
|
$309,000
|
||||||||
|
2/6/2007
|
13,400
|
$237,448
|
||||||||||
|
2/6/2007
|
21,300e
|
$17.72
|
$147,609
|
|||||||||
|
Mr.
Schiller
|
11/7/2006
|
$0
|
$103,000
|
$257,000
|
||||||||
|
2/6/2007
|
7,800
|
$138,216
|
||||||||||
|
2/6/2007
|
12,300e
|
$17.72
|
$85,239
|
|||||||||
|
Mr.
Reinwald
|
11/7/2006
|
$0
|
$104,000
|
$260,000
|
||||||||
|
2/9/2007
|
13,504c
|
$17.89
|
$62,958
|
|||||||||
|
8/14/2007
|
10,000e
|
$13.84
|
$56,611
|
|||||||||
|
8/14/2007
|
8,000
|
$110,720
|
||||||||||
|
9/29/2007
|
9,225c
|
$17.17
|
$41,236
|
|||||||||
|
Mr.
Geiger
|
11/7/2006
|
$0
|
$56,250
|
$140,625
|
||||||||
|
2/6/2007
|
4,600
|
$81,512
|
||||||||||
|
2/6/2007
|
7,300e
|
$17.72
|
$50,589
|
|||||||||
|
5/11/2007
|
6,982c
|
$16.22
|
$18,041
|
|||||||||
|
Mr. Walkerh
|
11/7/2006
|
$0
|
$96,000
|
$240,000
|
||||||||
|
9/29/06
|
2,536c
|
$17.17
|
$11,336
|
|||||||||
|
2/6/07
|
8,000
|
$110,720
|
||||||||||
|
2/6/07
|
12,000e
|
$17.72
|
$83,160
|
|||||||||
|
2/16/07
|
9,315c
|
$17.83
|
$43,315
|
|||||||||
30
|
a.
|
Because
we did not
achieve either the threshold for same store sales growth or EBIT, no
annual incentive
payouts were made for fiscal
2007. See
“Compensation Discussion and Analysis – Components of Total Compensation –
Annual Incentive
Bonus”
|
|
b.
|
These
awards were made to Mr. Gilman in his capacity as a member of the
Board of Directors prior to his becoming an executive officer. These
awards vest over four years at a rate of 20% per year beginning on the
date of grant and expire five years after the date of grant. So
long as he is an executive officer he will not receive additional
compensation for serving on the Board of
Directors.
|
|
c.
|
These
are reload options, which were
granted pursuant to the 1997 Employee Stock Option Plan in an amount equal
to the number of shares used to pay the exercise price of the underlying
stock options. Reload options vest immediately and expire five years
from the
date
of grant. Beginning
in February 2006, we ceased issuing
options with a reload
feature.
|
|
d.
|
Represents
restricted stock that vests three years after the date of grant. See
“Compensation
Discussion and Analysis –Equity
Incentives – Restricted
Stock and Book
Units” for further information regarding these shares, the associated book
units and the treatment of these shares in the event of death, disability
or retirement.
|
|
e.
|
These
options have an exercise price equal to the closing price of a share of
our common
stock
on the New
York Stock
Exchange on
the day preceding the date of grant. These
options vest and become exercisable over four years, at a rate of 25% per
year, beginning on the first anniversary of the date of grant. See
“Compensation
Discussion and Analysis–
Equity Incentives – Stock
Options” above for further information regarding these
options.
|
|
f.
|
All
equity grants to Mr. Dunn were forfeited on October 5, 2007 when he left
the Company.
|
|
g.
|
Amounts represent the
grant date fair value of stock options and restricted stock granted to
each Named Executive Officer in fiscal 2007. For a discussion
of the assumptions made in the valuation, see Note 15 of Notes to
Consolidated Financial Statements included in
Part II, Item 8 of our Annual Report on Form 10-K for
fiscal 2007 filed December 10, 2007.
|
|
h.
|
All
equity grants to Mr. Walker were forfeited on September 19, 2007 when he
left the Company.
|
31
The following table
sets forth certain information about outstanding option and stock awards held by
the Named Executive
Officers as of the end of fiscal 2007.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR
END
|
Option
Awards
|
Stock
Awards
|
||||||||||||||
|
Unexercised
Options
|
Equity Incentive
Plan Awards
|
||||||||||||||
|
Name
|
Number of
Securities Underlying Unexercised Options Exercisable
|
Number of
Securities Underlying Unexercised Options Unexercisable
|
Option
Exercise Price
($)
|
Option Expiration
Date
|
Number of
Shares or Units of
Stock that Have Not Vested (#)
|
Market Value of
Shares or Units of Stock that Have Not Vestedg
|
Number of Unearned
Shares, Units or Other
That Have Not
Vested
|
Market
Or
Payout
Value
of Unearned Shares, Units or Other Rights That
Have Not Vested
|
|||||||
|
Mr.
Gilman
|
27,500c
|
14.14
|
4/29/2008
|
||||||||||||
|
27,500c
|
16.25
|
5/6/2009
|
|||||||||||||
|
10,000b
|
14.93
|
7/2/2008
|
|||||||||||||
|
7,877e
|
18.85
|
1/12/2009
|
|||||||||||||
|
20,000b
|
5,000
|
17.14
|
8/4/2009
|
||||||||||||
|
15,000b
|
10,000
|
19.75
|
9/14/2010
|
||||||||||||
|
6,250d
|
18,750
|
17.47
|
2/8/2016
|
||||||||||||
|
23,787e
|
15.87
|
5/15/2012
|
|||||||||||||
|
0d
|
26,900
|
14.80
|
8/17/2017
|
||||||||||||
|
17,000
|
$259,590
|
||||||||||||||
|
1,000f
|
4,000
|
16.51
|
5/8/2012
|
||||||||||||
|
Mr.
Dunnh
|
20,000
|
$305,400
|
|||||||||||||
|
Mr.
Blade
|
9,600b
|
2,400
|
19.27
|
3/15/2009
|
|||||||||||
|
9,900b
|
6,600
|
19.75
|
9/14/2010
|
||||||||||||
|
5,050d
|
15,150
|
17.47
|
2/8/2016
|
||||||||||||
|
0d
|
23,000
|
17.72
|
2/6/2017
|
||||||||||||
|
3,000
|
$45,810
|
||||||||||||||
|
12,000
|
$183,240
|
||||||||||||||
|
13,400
|
|||||||||||||||
|
Mr.
Schiller
|
8,000
|
$122,160
|
|||||||||||||
|
7,500
|
$114,525
|
||||||||||||||
|
7,800
|
$119,106
|
||||||||||||||
|
6,000b
|
4,000
|
18.86
|
5/11/2010
|
||||||||||||
|
3,175d
|
9,525
|
17.47
|
2/8/2016
|
||||||||||||
|
0d
|
12,300
|
17.72
|
2/6/2017
|
||||||||||||
|
Mr.
Reinwald
|
6,800
|
$103,836
|
|||||||||||||
|
8,000
|
$122,160
|
||||||||||||||
|
11,000c
|
14.14
|
4/29/2008
|
|||||||||||||
|
11,000c
|
16.25
|
5/6/2009
|
|||||||||||||
|
12,800b
|
3,200
|
17.14
|
8/4/2009
|
||||||||||||
|
4,440b
|
2,960
|
19.75
|
9/14/2010
|
||||||||||||
|
2,875d
|
8,625
|
17.47
|
2/8/1016
|
||||||||||||
|
9,225e
|
17.17
|
9/29/2011
|
|||||||||||||
|
13,504e
|
17.89
|
2/10/2012
|
|||||||||||||
|
0d
|
10,000
|
13.84
|
8/15/1017
|
||||||||||||
|
Mr.
Geiger
|
1,875d
|
5,625
|
17.47
|
2/8/2016
|
4,400
|
$67,188
|
|||||||||
|
3,438c
|
14.14
|
4/29/2008
|
|||||||||||||
|
3,300c
|
16.25
|
5/6/2009
|
|||||||||||||
|
1,339e
|
15.52
|
10/11/2008
|
|||||||||||||
|
6,000b
|
1,500
|
17.14
|
8/4/2009
|
||||||||||||
|
2,400b
|
1,600
|
19.75
|
9/14/2010
|
||||||||||||
|
0d
|
7,300
|
17.72
|
2/6/2017
|
4,600
|
$70,242
|
||||||||||
|
Mr.
Walker
|
N/A
|
||||||||||||||
32
|
a.
|
Market
value is computed based on a price of $15.27, which was the closing price
of our
common stock on
the last day of fiscal
2007.
|
|
b.
|
These
options vest at a rate of 20% per year, beginning on the date of grant and
expire five years from the date of grant; they also contain a reload
feature.
|
|
c.
|
These
options vested at a rate of 20% per year and expire ten years from the
date of grant; they also contain a reload
feature.
|
|
d.
|
These
options vest at a rate of 25% per year beginning on the first anniversary
of the date of grant and expire ten years from the date of grant; they do
not contain a reload
feature.
|
|
e.
|
These
are “reload” options which were granted pursuant
to the 1997 Employee Stock Option Plan. Reload options are granted in
an amount equal to the number of shares used to pay the exercise price on
the underlying stock options. They are vested immediately and expire
five years from date of grant. Beginning in February 2006 we
ceased issuing
options
with a reload
feature.
|
|
f.
|
These
awards were made to Mr. Gilman in his capacity as a member of the
Board of Directors prior to his becoming an executive officer. These
options vest at a rate of 20% per year beginning on the date of
grant. As long as he remains an executive officer, he will not
receive additional compensation for serving on the Board of
Directors.
|
|
g.
|
All
restricted stock grants have a three-year cliff vesting period and are
granted with an equal amount of book units. See “Compensation
Discussion and Analysis – Restricted Stock and Book
Units” for additional information regarding these
shares.
|
|
h.
|
Mr.
Dunn forfeited all other equity awards
that vested after the effective date of his resignation.
|
33
Award
Exercise and Vesting
The following
table sets forth the number of options exercised in fiscal 2007, along with the
value received as a result of the exercise. It also shows the number of
shares of restricted stock that vested during the year, with concurrent vesting
of book units, and the resulting value realized by the Named Executive
Officer.
|
OPTION EXERCISES AND STOCK
VESTED
|
|||||||
|
Option
Awards
|
Stock
Awards
|
||||||
|
Name
|
Number of Shares
Acquired on Exercise
|
Value Realized
upon Exercisea
|
Number of Shares
Acquired on Vesting
|
Value Realized on
Vestingb
|
|||
|
Mr.
Gilman
|
41,681
|
$112,004
|
12,500
|
$248,625
|
|||
|
Mr.
Dunn
|
—
|
—
|
20,000
|
$397,800
|
|||
|
Mr.
Blade
|
—
|
—
|
8,500
|
$170,170
|
|||
|
Mr.
Geiger
|
7,500
|
—
|
4,000
|
$79,560
|
|||
|
Mr.
Schiller
|
—
|
—
|
—
|
—
|
|||
|
Mr.
Reinwald
|
32,000
|
$160,320
|
9,000
|
$179,010
|
|||
|
Mr.
Walker
|
15,400
|
$61,226
|
7,000
|
$139,230
|
|||
|
a.
|
This
amount reflects the difference between the exercise price and the closing
price on the date of exercise. The exercise price of Mr. Geiger’s options
was slightly above the fair value on the date of the exercise of the
option, as he exercised the options to receive the reload associated with
them.
|
|
b. |
Mr.
Blade’s stock awards vested on March 15, 2007; all others vested on
October 1, 2006. The amount in this column includes the value of the
restricted stock on the date of vesting, based on the closing price of our
common stock which on both dates was $16.89, and the value of book units
which vested in conjunction with the shares of restricted stock. The
book units associated with Mr. Blade’s shares were $3.13; the remainder of
the book units were valued at $3.00
each.
|
Retirement
Benefits
We maintain two plans
that provide retirement
income to all eligible
employees, including the
Named Executive Officers:
401(k) Plan
The 401(k) Plan is available to all qualified
associates, including the
Named Executive Officers. We match participant contributions in an amount
equal to 50% of each
participant’s voluntary contributions to the 401(k) Plan up to 6% of the participant’s
total cash compensation. Participant contributions
may consist of salary or cash compensation from the 2006 Incentive Bonus
Plan. Matching contributions vest over the first six years of employment at a rate of 20% per year, beginning on the second
anniversary of a
participant’s employment. Participants may invest
their contributions and the matching contributions in a variety of
investment options provided
by Fidelity Investments and their partner funds. The Named Executive Officers
and other “highly compensated employees” are limited to contributing 1% of their
cash compensation.
34
Deferred
Compensation Plan
The Deferred
Compensation Plan is
available to all highly
compensated employees including the Named Executive
Officers. Investment options offered under the Deferred Compensation
Plan are identical to those offered in the 401(k) Plan. Before a
participant may make contributions under the Deferred Compensation Plan, the
participant must first contribute 1% of their earnings to the 401(k)
Plan. We will match participant contributions in the amount of 50% of
the aggregate deferrals into both plans, up to 6% of the participant’s cash
compensation. Deferrals under both plans are limited to 20% of the
aggregate of a participant’s salary and annual incentive bonus, which means that as a result of the 1%
of compensation deferred to the 401(k) Plan, the most a participant may defer to
the Deferred Compensation Plan is 19% of total cash compensation. Matching contributions under the
Deferred Compensation Plan vest over the first six years of employment, at a rate of 20% per year beginning on
the second anniversary of employment. A participant’s account balance will be
distributed at a time directed by the participant at
the time the deferrals are made. Participants may elect that
distributions be made in a lump sum or in equal annual installments over a
period of up to ten (10) years. Withdrawals from the Deferred
Compensation Plan are limited to the withdrawal of participant contributions in
cases of financial hardship.
The following table
describes the contributions, earnings, and balance at the end of fiscal 2007 for each of the Named
Executive Officers who participate in the Deferred Compensation
Plan.
NON-QUALIFIED DEFERRED
COMPENSATION
|
Name
|
Executive
Contributions in Last Fiscal Yeara
|
Company
Contributions in Last Fiscal Yearb
|
Aggregate Earnings
in Last Fiscal Year
|
Aggregate Balance
at Last Fiscal
Year-endc
|
|||||||||
|
Mr.
Gilman
|
$
|
33,173 | $ | 7,291 | $ | 29,173 | $ | 259,370 | |||||
|
Mr.
Dunn
|
$
|
49,615 | $ | 14,625 | $ | 22,145 | $ | 266,275 | |||||
|
Mr.
Blade
|
$ | 58,118 | $ | 8,103 | $ | 29,528 | $ | 256,385 | |||||
|
Mr.
Schiller
|
$ | 15,294 | $ | 6,383 | $ | 12,150 | $ | 66,427 | |||||
|
Mr.
Reinwald
|
$ | 13,660 | $ | 3,021 | $ | 23,659 | $ | 137,209 | |||||
|
Mr.
Geiger
|
$ | 9,280 | $ | 4,640 | $ | 4,720 | $ | 44,747 | |||||
|
Mr.
Walker
|
$ | 12,000 | $ | 6,000 | $ | 17,696 | $ | 128,801 | |||||
|
a.
|
The
amounts in this column are also included in the Summary Compensation Table
in the “Salary”column.
|
|
b.
|
The
amounts in this column are also included in the Summary Compensation Table
in the “All
Other
Compensation”column.
|
|
c.
|
The
following amounts were included in this or prior years’ summary
compensation tables: Mr. Gilman ($210,792), Mr. Dunn ($231,076), Mr. Blade
($211,680), Mr. Schiller ($51,152), Mr. Reinwald ($100,719), Mr. Geiger
($38,071), Mr. Walker
($103,729).
|
35
Potential
Payments Upon Termination of Employment
As discussed above in
“Compensation Discussion and Analysis – Employment Agreements, Severance and
Change-in-Control Arrangements,” some of our equity awards accelerate upon a
change in control or upon the retirement, death or disability of the
holder. Also, some of the Named Executive Officers have agreements that
would provide them with benefits upon the occurrence of one or more of these
events. The following table sets forth, for each of the Named Executive
Officers other than Messrs. Dunn and Walker, the aggregate value that the
individual would receive as a result of any of the foregoing events if they had
occurred on September 26, 2007. For amounts that were paid, or are payable,
to Messrs. Dunn and Walker in connection with their termination of employment,
see the "All Other Compensation" column of the Summary Compensation
Table.
|
Resignation
|
Death, Disability or
Retirement
|
Terminationa
|
Change in
Controlb
|
Qualifying Termination Within One Year of a Change in Controlc
|
|
|
Mr.
Gilman
|
|||||
|
Restricted Stocke
|
--
|
8,061
|
--
|
260,440
|
--
|
|
Stock Optionsd
|
--
|
--
|
--
|
47,118
|
--
|
|
Severance Payment (non-CIC)h
|
--
|
--
|
345,000
|
--
|
--
|
|
Mr.
Blade
|
|||||
|
Restricted Stocke
|
--
|
192,751
|
--
|
589,177
|
--
|
|
Stay Paymentf
|
--
|
--
|
--
|
92,700
|
--
|
|
Severance Payment (CIC)g
|
--
|
--
|
--
|
--
|
309,000
|
|
Severance Payment (non-CIC)h
|
--
|
--
|
254,904
|
--
|
--
|
|
Health Care Coveragei
|
--
|
--
|
--
|
--
|
11,365
|
|
Company Carj
|
--
|
--
|
--
|
--
|
1,625
|
|
Outplacement Servicesk
|
--
|
--
|
--
|
--
|
15,000
|
|
Mr.
Schiller
|
|||||
|
Restricted Stocke
|
--
|
114,405
|
--
|
383,199
|
--
|
|
Stay Paymentf
|
--
|
--
|
--
|
76,200
|
--
|
|
Severance Payment (CIC)g
|
--
|
--
|
--
|
--
|
254,000
|
|
Severance Payment (non-CIC)h
|
--
|
--
|
212,420
|
--
|
--
|
|
Health Care Coveragei
|
--
|
--
|
--
|
--
|
9,828
|
|
Company Carj
|
--
|
--
|
--
|
--
|
1,775
|
|
Outplacement Servicesk
|
--
|
--
|
--
|
--
|
15,000
|
|
Mr.
Reinwald
|
|||||
|
Restricted Stocke
|
--
|
227,640
|
--
|
399,258
|
--
|
|
Stock Optionsd
|
--
|
--
|
--
|
26,730
|
--
|
|
Severance Payment (CIC)g
|
--
|
--
|
--
|
--
|
260,000
|
|
Health Care Coveragei
|
--
|
--
|
--
|
--
|
7,948
|
|
Company Carj
|
--
|
--
|
--
|
--
|
1,566
|
|
Outplacement Servicesk
|
--
|
--
|
--
|
--
|
15,000
|
|
Mr.
Geiger
|
|||||
|
Restricted Stocke
|
--
|
153,923
|
--
|
244,567
|
--
|
|
Stock Optionsd
|
--
|
--
|
--
|
3,884
|
--
|
|
Stay Paymentf
|
--
|
--
|
--
|
56,250
|
--
|
|
Severance Payment (CIC)g
|
--
|
--
|
--
|
--
|
187,500
|
|
Health Care Coveragei
|
--
|
--
|
--
|
--
|
11,365
|
|
Company Carj
|
--
|
--
|
--
|
--
|
1,481
|
|
Outplacement Servicesk
|
--
|
--
|
--
|
--
|
15,000
|
36
|
|
|
|
|
a.
|
Amounts
in this column exclude payments made upon or following a change in
control.
|
|
|
b.
|
Amounts
in this column reflect payments or acceleration of benefits upon a change
in control without termination of employment.
|
|
|
c.
|
Amounts
in this column are payable only if the Named Executive Officer is
terminated by us without cause or if the Named Executive Officer leaves
for good reason within one year following a change in control.
|
|
|
d.
|
Reflects
the excess of the closing price of $15.27 for our stock on the last day of
fiscal 2007, over the exercise price of outstanding options currently
vested and any unvested stock options, the vesting of which would
accelerate as a result of the Named Executive Officer's termination of
employment on September 26, 2007 as a result of the specified termination
event, multiplied by the number of shares of our stock underlying the
stock options.
|
|
|
e.
|
Reflects
the closing price of $15.27 for our stock on the last day of fiscal 2007,
multiplied by the number of shares of restricted stock that would vest as
a result of the Named Executive Officer's termination of employment on
September 26, 2007 as a result of the specified termination event, plus
the value of accrued book units through September 26, 2007.
|
|
|
f.
|
Reflects
the payment of 30% of the Named Executive Officer's salary immediately
upon a change in control.
|
|
|
g.
|
Amounts
represent one year of salary payable to the Named Executive Officers.
|
|
|
h.
|
Amounts
represent 10 months of salary payable to Messrs. Blade and Schiller under
their severance agreements. They would also be entitled to reimbursement
for up to 10 months of outplacement services. Mr. Gilman's amount
represents nine months of salary payable under his severance agreement; he
has indicated it should be applicable to his prior salary of $500,000 and
would not apply it to the current $600,000
salary.
|
|
|
i.
|
Amounts
represent one year of coverage under our group medical plans at the level
currently elected by the individual.
|
|
|
j.
|
Amounts
represent the use of the Named Executive Officer's company car for up to
60 days after termination of employment.
|
|
|
k.
|
Reflects
the maximum amount of outplacement services for which the Named Executive
Officer may be reimbursed by us.
|
37
Compensation of
Directors
We compensate
non-employee directors with annual cash retainers, cash meeting attendance fees
and grants of stock options and restricted stock, as well as reimbursement of
certain expenses as explained in this section. With the exception of the
Chairmen of the Audit, Compensation and Nominating/Corporate Governance
Committees, (whose retainers are summarized below) we paid retainers of $22,000
for fiscal 2007. Meeting fees for non-employee directors were set as
follows:
|
·
|
$3,500
for each in-person Board meeting attended;
|
|
·
|
$1,250
for each Committee meeting attended that was not held in conjunction with
a Board meeting;
|
|
·
|
$1,000
for meetings, travel and interviews with candidates for Board
positions;
|
|
·
|
$500
for each Committee meeting attended that was held in conjunction with a
Board of Directors’ meeting; and
|
|
·
|
$500
for any meeting (Board or Committee) held
telephonically.
|
The Chairman
of the Audit Committee receives an annual retainer of $42,000. The Chairman
of the Executive Committee and Lead Outside Director receives a retainer of
$47,000. The Chairman of the Compensation Committee receives an annual
retainer of $37,000. The Chairman of the Nominating/Corporate Governance
Committee receives an annual retainer of $37,000. Because directors who are
employees are not paid for their services on the Board, Messrs. Gilman and
Kelley do not receive compensation for their Board service.
In addition,
the ordinary and necessary expenses the members of the Board of Directors
incurred in attending board and committee meetings are reimbursed by
us. All non-employee directors are also eligible to participate in our
medical reimbursement plan, which provides reimbursement for unreimbursed
medical bills in an amount of up to $3,500 per year, which amount is increased
or “grossed up” in an amount equal to the estimated taxes payable by the
directors for this benefit. Finally, all non-employee directors are
entitled to reimbursement of 75% of the cost of their personal tax preparation,
up to a maximum reimbursable amount of $1,000.
In addition
to the foregoing payments, directors may participate in the Nonqualified
Deferred Compensation Plan. There are no matching payments made to
Directors under the Nonqualified Deferred Compensation Plan and no guaranteed
return is offered. Instead, it provides directors with an opportunity to
defer the receipt of retainer and/or meeting fees and obtain them at a later
date together with the gains or losses associated with investments against which
they choose to track their accounts.
38
The chart
below shows the compensation received by our directors during fiscal
2007.
DIRECTOR
COMPENSATION
|
Name
|
Fees Earned or
Paid in Cash
|
Stock
Awardsa
|
Stock Option
Awardsb
|
Change in Pension
Value and Nonqualified Deferred Compensation Plan Earnings
|
All
Other Compensationc
|
Total
|
|||||||||||||
|
Geoffrey
Ballotti
|
$ | 24,916 | $ | 2,591 | $ | 5,330 | $ | 3,500 | $ | 36,337 | |||||||||
|
Ruth
J. Person
|
$ | 51,083 | $ | 18,327 | $ | 66 | $ | 5,259 | $ | 74,735 | |||||||||
|
J.
Fred Risk
|
$ | 61,000 | $ | 18,327 | $ | 445 | $ | 5,961 | $ | 85,733 | |||||||||
|
John
W. Ryan
|
$ | 68,333 | $ | 18,327 | $ | 5,792 | $ | 92,452 | |||||||||||
|
Steven
M. Schmidt
|
$ | 49,083 | $ | 3,660 | $ | 21,271 | $ | 5,136 | $ | 79,150 | |||||||||
|
Edward
Wilhelm
|
$ | 67,917 | $ | 3,660 | $ | 15,297 | $ | 4,727 | $ | 91,601 | |||||||||
|
James
Williamson, Jr.
|
$ | 79,583 | $ | 18,327 | $ | 5,136 | $ | 103,046 | |||||||||||
|
a.
|
Represents
the dollar amount of equity compensation cost recognized for financial
reporting purposes with respect to grants of restricted stock under our
Non-Employee Restricted Stock Plan in fiscal 2007, computed in accordance
with SFAS 123(R). Messrs.
Schmidt and Wilhelm received a grant of 1,000 shares
of restricted stock
each on February 6, 2007, the
grant date
fair value of which was $17,848. Mr. Ballotti received a grant of
1,000 shares
of restricted stock
on April 23, 2007, the
grant date
fair value of which was $16,840. These are all of the shares of
restricted stock held by our
directors.
|
39
|
b.
|
Represents
the dollar amount of equity compensation cost recognized for financial
reporting purposes with respect to grants of stock options under our
Non-Employee Director Stock Option Plan in fiscal 2007, computed in
accordance with SFAS 123(R), as
follows:
|
|
Fiscal
2007 Expense for Stock Option Grants to Non-Employee
Directors
|
|||||||||
|
Name
|
Grant
Date
|
Number
of Shares Underlying Option Grant
|
Fiscal
2007 Expense($)
|
||||||
|
Mr.
Ballotti
|
4/20/07
|
5,000
|
2,739 | ||||||
|
Total
|
$
|
2,739 | |||||||
|
Dr.
Person
|
11/13/02
|
5,000
|
128 | ||||||
|
11/12/03
|
5,000
|
1,925 | |||||||
|
11/18/04
|
5,000
|
4,014 | |||||||
|
11/8/05
|
5,000
|
7,823 | |||||||
|
2/6/07
|
5,000
|
4,437 | |||||||
|
Total
|
$
|
18,327 | |||||||
|
Mr.
Risk
|
11/13/02
|
5,000
|
128 | ||||||
|
11/12/03
|
5,000
|
1,925 | |||||||
|
11/18/04
|
5,000
|
4,014 | |||||||
|
11/8/05
|
5,000
|
7,823 | |||||||
|
2/6/07
|
5,000
|
4,437 | |||||||
|
Total
|
$
|
18,327 | |||||||
|
Dr.
Ryan
|
11/13/02
|
5,000
|
128 | ||||||
|
11/12/03
|
5,000
|
1,925 | |||||||
|
11/18/04
|
5,000
|
4,014 | |||||||
|
11/8/05
|
5,000
|
7,823 | |||||||
|
2/6/07
|
5,000
|
4,437 | |||||||
|
Total
|
$
|
18,327 | |||||||
|
Mr.
Schmidt
|
5/11/05
|
5,000
|
5,351 | ||||||
|
11/8/05
|
5,000
|
7,823 | |||||||
|
2/6/07
|
5,000
|
4,437 | |||||||
|
Total
|
$
|
17,611 | |||||||
|
Mr.
Wilhelm
|
5/9/06
|
5,000
|
7,200 | ||||||
|
2/6/07
|
5,000
|
4,437 | |||||||
|
Total
|
$
|
11,637 | |||||||
|
Mr.
Williamson
|
11/13/02
|
5,000
|
128 | ||||||
|
11/12/03
|
5,000
|
1,925 | |||||||
|
11/18/04
|
5,000
|
4,014 | |||||||
|
11/8/05
|
5,000
|
7,823 | |||||||
|
2/6/07
|
5,000
|
4,437 | |||||||
|
Total
|
$
|
18,327 | |||||||
See Note 15 of Notes to
Consolidated Financial Statements included in
Part II, Item 8 of our Annual Report on Form 10-K for
fiscal 2007 filed December 10, 2007 for a description of the assumptions made in
the valuation.
Mr.
Ballotti received a grant of 5,000 options on April 23, 2007, with a grant date
fair value of $24,150. The other directors received a grant of 5,000 options
each on February 6, 2007, with a grant date fair value of
$27,350.
The
preceding table sets forth the shares of
our stock underlying unexercised stock options held by
each of our non-employee directors as of
September 26, 2007.
In the aggregate that number is 130,000.
|
c.
|
This
column includes the medical reimbursement plan ($3,500 per year), tax
gross up for the medical reimbursement plan and reimbursement for tax
preparation.
|
40
We compensate
our non-employee directors with equity-based awards, the value of which are tied
to increases in the value of our common stock. We have had director stock
option plans in place since 1990. These plans provide for non-discretionary
grants of nonqualified stock options to our non-employee directors at a price
equal to the fair market value of our common stock on the date of
grant. Options granted prior to November 7, 2005 are exercisable at a rate
of 20% on the date of grant and on each anniversary thereof until fully
exercisable and expire five years from the date of grant. Options granted
after November 7, 2005 are exercisable at a rate of 25% on the first anniversary
of the grant and each year thereafter until fully vested. Finally, newly
appointed or elected directors receive a grant of 1,000 shares of restricted
stock. These shares have a three year restriction on transfer, and if a
recipient ceases serving as a director for any reason other than death,
disability or retirement during this period he/she will forfeit the
stock.
Equity
Compensation Plan Information
The
following table provides information regarding our current equity compensation
plans as of September 26, 2007.
|
EQUITY
COMPENSATION PLAN INFORMATION
|
|||
|
Plan
Category
|
Number
of Securities to be Issued Upon Exercise of Outstanding Options, Warrants
and Rights
|
Weighted
Average Exercise Price of Outstanding Options, Warrants and
Rights
|
Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans (Excluding Securities Reflected in First
Column)
|
|
Equity Compensation
Plans approved by Shareholders(1)
|
1,657,612
|
$14.15
|
1,053,807(2)
|
|
Equity
Compensation Plans not approved by Shareholders
|
—
|
N/A
|
N/A
|
|
Totals
|
1,657,612
|
$14.15
|
1,053,807
|
|
|
(1)
|
Consists
of 1997 and 2006 Employee Stock Option Plans, 2003, 2004 and 2005 Director
Stock Option Plans, the 2007 Non-Employee Director Restricted Stock Plan,
the 1997 Capital Appreciation Plan, as amended and restated, and the
1992 and 2006 Employee Stock Purchase
Plans.
|
|
|
(2)
|
The
1997 Capital Appreciation Plan, as amended, which provided for tandem
awards of restricted stock and book units, had 238,372 shares available
for issuance when it expired following the end of fiscal
2007.
|
41
REPORT
OF THE AUDIT COMMITTEE
The Audit
Committee of the Board of Directors is responsible for providing independent,
objective oversight of the Company’s accounting functions and internal
controls. 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 reports thereon
and on the Company’s internal controls. The Audit Committee’s
responsibility is to monitor and oversee these processes.
During fiscal
2007 the Audit Committee fulfilled its responsibilities generally as outlined in
the charter through periodic meetings with the Company’s independent auditors,
internal auditors and the Company’s management. It also reviewed and
discussed the Company’s quarterly earnings press releases, consolidated
financial statements and related periodic reports filed with the Securities and
Exchange Commission. It also reviewed the effectiveness of the
Company’s internal control over financial reporting and the independent
auditor’s attestation opinion about management’s assessment of the effectiveness
of its internal control over financial reporting. Finally, it
reviewed with the independent auditors the audit plan and scope. In
addition, J. Fred Wilhelm, the chairman of the Audit Committee, as a
representative of the Audit Committee, discussed the interim financial
information contained in each quarterly filing on Form 10-Q with the
Company’s independent auditors and management prior to the public release of
each.
The Audit
Committee has reviewed the Company’s audited financial statements for the fiscal
year ended September 26, 2007 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.
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 26, 2007, to be filed with the
Securities and Exchange Commission.
The Audit
Committee selected Deloitte & Touche, LLP as the Company’s auditors for
fiscal year 2008.
The foregoing
report is respectfully submitted by the members of the Audit
Committee:
Messrs. Ed
Wilhelm, Chairman, J. Fred Risk, Steven M. Schmidt, Geoff Ballotti and Dr. John
W. Ryan.
42
2. RATIFICATION
OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit
Committee has selected Deloitte & Touche LLP ("Deloitte") as our
independent registered public accounting firm for the 2008 fiscal
year. Deloitte has served in that capacity since fiscal
2004.
If a majority
of shareholders voting do not ratify the selection of Deloitte, the Audit
Committee will reconsider its choice, taking into consideration the views of the
shareholders, and may (but will not be required to) appoint a different firm to
serve in that capacity for fiscal 2008.
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 it are set forth below.
Independent
Auditors’ Fees
Deloitte has
advised us that they have billed or will bill us the following amounts for
services for each of the last two fiscal years.
|
Type of
Fee
|
Fiscal
2007
|
Fiscal
2006
|
|||||
|
Audit
Fees(1)
|
$ | 403,350 | $ | 341,839 | |||
|
Audit-Related
Fees(2)
|
$ | 15,000 | $ | 15,000 | |||
|
Tax
Fees(3)
|
$ | 103,019 | $ | — | |||
|
All
Other Fees(4)
|
$ | — | $ | 19,525 | |||
|
Total
Fees for the Applicable Fiscal Year
|
$ | 521,369 | $ | 376,364 | |||
|
|
(1)
|
Audit
fees include fees for services performed for the audit of our annual
financial statements including services related to Section 404 of the
Sarbanes-Oxley Act and review of financial statements included in our 10-Q
filings, 10-K filing and S-8 Registration statement, comment letters 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 our
financial statements. This includes the audit of our 401(k) Plan. These
fees are partially paid through 401(k) Plan
forfeitures.
|
|
(3)
|
Tax
Fees are fees for services performed with respect to tax compliance, tax
advice and other tax review.
|
|
|
|
(4)
|
All
Other Fees are fees for other permissible work that does not meet the
above category descriptions. This includes an online research subscription
and sales and use tax
software.
|
43
Pre-approval
Policy
The Audit
Committee's policy is to pre-approve all audit and permissible non-audit
services provided by the independent registered public accounting
firm. 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 report periodically 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 2007, the Audit Committee pre-approved the services reported above as
audit-related services and tax fees and Deloitte did not provide any non-audit
services during such year.
THE
BOARD OF DIRECTORS AND MANAGEMENT RECOMMEND A VOTE “FOR” THE RATIFICATION OF
DELOITTE & TOUCHE, LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FOR FISCAL 2008.
44
3. APPROVAL
OF THE 2008 EQUITY INCENTIVE PLAN
The Board of
Directors unanimously adopted The Steak n Shake Company 2008 Equity Incentive
Plan, which we refer to in this proxy statement as the 2008 plan, and directed
that it be submitted to our shareholders for consideration at the annual
meeting. The following is a summary of the principal features of the
plan. The summary is qualified in its entirety by reference to the
complete text set forth as Appendix A to this proxy
statement. Shareholders are encouraged to read the plan in its
entirety.
If approved,
the 2008 plan will replace all of our prior equity-based incentives. There
was an aggregate of 297,250 shares of our common stock available for awards
under those plans on January 21, 2008.
The closing
sale price of our common stock on February 19, 2008, as reported by the New
York Stock Exchange, was $8.45 per share.
General
The purpose
of the 2008 plan is to promote our long-term interests by providing a means of
attracting, retaining and motivating qualified key employees and directors and
aligning their interests more closely with our shareholders through
opportunities that are determined in some measure by the value of our common
stock.
The 2008 plan
permits awards in the form of stock options and restricted
shares. The Compensation Committee has discretion
to: (1) determine the officers, directors and key employees who will
be granted awards; (2) designate the number of shares subject to each
award; (3) determine the terms and conditions upon which awards will be
granted; (4) prescribe the form and terms of award agreements;
(5) establish procedures and regulations for administration of the plan;
(6) interpret the plan; and (7) make all determinations necessary or
advisable for the administration of the plan.
The
Compensation Committee will select key employees who, in the opinion of the
committee, have the capacity for contributing in a substantial measure to our
achievement of our long-term objectives. There are approximately 175
employees and all directors who are currently eligible to receive awards under
the 2008 plan.
The total
number of shares of our common stock that may be issued as awards under the 2008
plan is 900,000. No more than 700,000 shares may be awarded in the
form of restricted shares. The total number of shares which may be
granted to any single participant during any one calendar year under all forms
of awards may not exceed 100,000 shares. The source of the shares
used may be authorized and unissued shares or otherwise. The number
of shares covered by an award will reduce the number of shares available for
future awards. If an award expires, terminates, or is surrendered or
canceled without having been exercised in full, or in the case of restricted
shares is forfeited, in whole or in part, those shares will be added back to the
remaining available shares. Additionally, shares withheld or
delivered to satisfy payment of the exercise price or any tax withholding
obligation may be subject to new awards. The market value of a share
of our common stock, for purposes of the plan, will be the closing sale price as
reported by the New York Stock Exchange on the date in question or, if not a
trading day, on the last preceding trading date.
45
Performance
Goals
The
Compensation Committee may make any award subject to the achievement of one or
more performance measures. This may permit the award to qualify as
“performance-based compensation” within the meaning of Section 162(m) of the
Internal Revenue Code and related regulations. Performance measures
will be based on an objective formula or standard consisting of one or any
combination of the following financial criteria:
|
·
|
Earnings
before interest, taxes and
amortization
|
|
·
|
Return
on assets
|
|
·
|
Return
on equity
|
|
·
|
Return
on capital
|
|
·
|
Return
on revenue
|
|
·
|
Cash
return on tangible equity
|
|
·
|
Cash
flow or free cash flow
|
|
·
|
Brand
recognition/acceptance
|
|
·
|
Book
value
|
|
·
|
Stock
price performance
|
|
·
|
Earnings
per share
|
|
·
|
Net
income
|
|
·
|
Operating
income
|
|
·
|
Total
shareholder return
|
|
·
|
Same
store sales
|
|
·
|
Customer
satisfaction
|
Any of these
financial criteria may be determined on a corporate, regional, departmental or
divisional basis. They may be measured on an absolute or average
basis, by changes to the financial criteria for a previous period or in
comparison to a peer group of other companies selected by the Compensation
Committee. The Compensation Committee may amend or adjust the
financial criteria or other terms and conditions of an outstanding award in
recognition of unusual or nonrecurring events affecting us or our financial
statements or changes in law or accounting except that any amendments or
modifications must also comply with Section 162(m).
46
Types
of Awards
Stock options
represent rights to purchase a specified number of shares of our common stock at
a designated exercise price for a specified exercise period. Stock
options intended to qualify as “incentive stock options” under Section 422 of
the Internal Revenue Code must have an exercise price of not less than 100% (or,
in the case of a holder of 10% or more of our common stock, 110%) of the market
value of a share on the date of the grant. The aggregate market value
(determined on the date of grant) of the shares subject to incentive stock
options that become exercisable for the first time by a grantee in any calendar
year may not exceed $100,000. The exercise price of options that do
not qualify as incentive stock options (“non-qualified stock options”) will be
not less than 100% of the fair market value of a share on the date of
grant.
No stock
option granted may be exercised more than ten years after the date of grant (or,
in the case of incentive stock options granted to a holder of 10% of our voting
stock, five years) or such shorter period as the Compensation Committee may
determine.
Stock options
will become exercisable in the manner and at the time or times specified by the
Compensation Committee at the time of grant. Generally, if employment
or service is terminated by the participant for any reason other than death,
disability or retirement, vested options may be exercised for up to three months
after termination. In the event of death or disability, unvested
options will become exercisable for one year, but not beyond the expiration
date. If employment is terminated for cause, all stock options
terminate immediately and, unless the Compensation Committee determines
otherwise, the participant will have to repay any gains realized from the
exercise of stock options in the preceding 90 days. If employment is
terminated by reason of retirement or without cause, vested options may be
exercised for up to three months, but not beyond the expiration date, except for
termination without cause within twelve months after a “change in control” in
which case options may be exercised for twelve months, but not beyond the
expiration date.
The exercise
price of a stock option and any amount sufficient to satisfy any tax withholding
requirement must be paid in full at the time of exercise. The
Compensation Committee may permit payment by tendering shares already owned or
withholding shares issuable under the award. Except as required in
connection with a change in capitalization or reorganization, no outstanding
options may be repriced without the prior approval of the
shareholders.
Restricted
shares represent shares of our common stock that are subject to forfeiture
provisions and transfer restrictions. Pending the lapse of such
provisions and restrictions, certificates representing restricted shares are
held by us, but the grantee generally has all of the rights of a shareholder,
including the right to vote the shares and the right to receive all dividends
thereon.
While
restricted shares are subject to forfeiture provisions and transfer restrictions
for a period of time, there are no minimum or maximum durations for such
provisions and restrictions. The Compensation Committee has the
authority to accelerate or remove any or all of these forfeiture provisions and
transfer restrictions. If employment is terminated for any reason
other than death or disability prior to the lapse of the forfeiture provisions
and transfer restrictions, the unvested portion of the restricted shares will be
terminated and returned to us. In the event of death or disability
prior to the expiration of the forfeiture provisions and transfer restrictions,
the restricted shares will become fully vested.
47
Change
of Control, Transfer and Termination
In the event
of a tender offer or exchange offer for our common stock or if a “change in
control” occurs, all option awards become exercisable in full, unless previously
exercised or terminated. If employment is involuntarily terminated
within twelve months following a “change in control,” options may be exercised
for one year and the forfeiture provisions and transfer restrictions applicable
to restricted shares will lapse and the shares will become fully
vested.
Except as
otherwise expressly provided by the Compensation Committee, awards granted under
the 2008 plan may not be assigned, encumbered or transferred, other than by will
or by the applicable laws of descent and distribution.
Unless
previously terminated by the Board of Directors, the 2008 plan will terminate on
March 7, 2012. The Board may amend the 2008 plan at any time;
however, shareholder approval shall be obtained to the extent necessary and
desirable to comply with applicable laws or regulations.
Federal
Income Tax Consequences
The following
is a brief summary of the principal federal income tax consequences of awards
under the 2008 plan. The summary is based on current federal income
tax laws and interpretations thereof, all of which are subject to change at any
time, possibly with retroactive effect. The summary is not intended
to be exhaustive.
We will be
entitled to a tax deduction for awards under the 2008 plan only to the extent
that the participants recognize ordinary income from the
award. Section 162(m) of the Internal Revenue Code contains special
rules regarding the deductibility of compensation paid to our Chief Executive
Officer and to each of our other four most highly compensated executive officers
who we refer to as Section 162(m) participants. The general rule is
that annual compensation paid to any Section 162(m) participant will be
deductible only to the extent that it does not exceed $1,000,000 or it qualifies
as “performance-based compensation” under Section 162(m). It is
intended that the 2008 plan will permit the Compensation Committee to make
awards which qualify as performance-based compensation.
A grantee who
receives a non-qualified stock option does not recognize taxable income upon the
grant of the option, and we will not be entitled to a tax deduction at that
time. The grantee will recognize ordinary income upon the exercise of
the option in an amount equal to the excess of the fair market value of the
option shares on the exercise date over the option price. Such income
will be treated as compensation to the grantee subject to applicable withholding
requirements. We are generally entitled to a tax deduction in an
amount equal to the amount taxable to the grantee as ordinary income in the year
the income is taxable to the grantee. Any appreciation in value after
the time of exercise will be taxable to the grantee as capital gain and we will
not be entitled to a deduction for the appreciation.
A grantee who
receives an incentive stock option does not recognize taxable income upon the
grant or exercise of the option, and we will not be entitled to a tax
deduction. The difference between the option price and the fair
market value of the option shares on the date of exercise, however, will be
treated as a tax preference item for purposes of determining the alternative
minimum tax liability, if any, of the grantee in the year of
exercise. We will not be entitled to a deduction with respect to any
item of tax preference.
48
A grantee
will recognize gain or loss upon the disposition of shares acquired from the
exercise of incentive stock options. The nature of the gain or loss
depends on how long the option shares were held. If the option shares
are not disposed of pursuant to a “disqualifying disposition” (i.e., no
disposition occurs within two years from the date the option was granted nor one
year from the date of exercise), the grantee will recognize long-term capital
gain or capital loss depending on the selling price of the shares. If
option shares are sold or disposed of as part of a disqualifying disposition,
the grantee must recognize ordinary income in an amount equal to the lesser of
the amount of gain recognized on the sale, or the difference between the fair
market value of the option shares on the date of exercise and the option
price. Any additional gain will be taxable to the grantee as a
long-term or short-term capital gain, depending on how long the option shares
were held. We will generally be entitled to a deduction in computing
our federal income taxes for the year of disposition in an amount equal to any
amount taxable to the grantee as ordinary income.
A grantee who
receives a restricted stock award generally will not realize taxable income at
the time of the grant, and we will not be entitled to a tax deduction at the
time of the grant. When the restrictions lapse, the grantee will
recognize income, taxable at ordinary income tax rates, in an amount equal to
the excess of the fair market value of the shares at such time over the amount,
if any, paid for such shares. We would then be entitled to a
corresponding tax deduction. Dividends paid to the grantee during the
restriction period will be compensation income to the grantee and deductible as
such by us. The holder of restricted stock may elect to be taxed at
the time of grant of the restricted stock award on the fair market value of the
shares, in which case (1) we will be entitled to a deduction at the same time
and in the same amount, (2) dividends paid to the grantee during the restriction
period will be taxable as dividends to him or her and not deductible by us and
(3) there will be no further federal income tax consequences when the
restrictions lapse.
Plan
Benefits
The grant of
awards under the 2008 plan is entirely within the discretion of the Compensation
Committee. Accordingly, it is not possible to determine at this time
the benefits or amounts that will be awarded under the plan.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE PROPOSAL TO APPROVE THE 2008
EQUITY INCENTIVE PLAN.
49
SHAREHOLDER
PROPOSALS
Our Bylaws
require shareholders to provide advance notice prior to bringing business before
an annual meeting or to nominate a candidate for director at the meeting. To
properly bring business or propose a director at the 2009 annual meeting, the
shareholder must give written notice to the address on the first page of this
proxy statement. To be timely, a shareholder’s notice must be received on or
before October 14, 2008, or in the event that the date of the meeting associated
with this notice is changed more than 30 days from March 7, 2008, by a date
not later than 120 days prior to March 7, 2009 or 10 calendar days
following the date on which public announcement of the date of the meeting is
first made. These procedures apply to any matter that a shareholder
wishes to raise at the 2009 annual meeting, other than those raised pursuant to
17 C.F.R. §240.14a-8 of the Rules and Regulations of the Securities and Exchange
Commission. A shareholder proposal that does not meet the above
requirements will be considered untimely, and any proxy solicited by the Board
of Directors may confer discretionary authority to vote on such
proposal.
PROXY
SOLICITATION
The cost of
soliciting proxies pursuant to this proxy statement will be borne by the
company. We have retained MacKenzie Partners, Inc. to aid in
soliciting proxies for a fee estimated not to exceed $175,000 plus
expenses. We have also agreed to indemnify MacKenzie Partners against
certain liabilities arising under the federal securities
laws. MacKenzie Partners has informed us that it intends to employ
approximately 35 persons to solicit proxies. The transfer agent and
registrar for the company’s common stock, Computershare, as a part of its
regular services and for no additional compensation other than reimbursement for
out-of-pocket expenses, has been engaged to assist in the proxy
solicitation. Proxies may be solicited through the mail and through
telephonic or telegraphic communications to, or by meetings with, shareholders
or their representatives by directors, officers, and other employees of the
company who will receive no additional compensation therefor. The
company’s expenses related to the solicitation (in excess of those normally
spent for an annual meeting with an uncontested director election and excluding
salaries and wages of our regular employees and officers) currently are expected
to be approximately $350,000, of which approximately $25,000 has been spent to
date.
We request
persons such as brokers, nominees, and fiduciaries holding stock in their names
for the benefit of others, or holding stock for others who have the right to
give voting instructions, to forward proxy material to their principals and to
request authority for the execution of the proxy, and we will reimburse such
persons for their reasonable expenses.
ANNUAL
REPORT ON FORM 10-K
We filed our
Annual Report on Form 10-K for the fiscal year ended September 26, 2007
with the Securities and Exchange Commission. Shareholders may obtain
a copy of the Form 10-K by writing our Corporate Secretary at the address
on the first page of this proxy statement. A copy of the Annual
Report on Form 10-K can also be obtained on our web site (www.steaknshake.com)
or at www.sec.gov.
OTHER
MATTERS
As of the
date of this proxy statement, the Board of Directors 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.
50
APPENDIX
A
THE
STEAK N SHAKE COMPANY
2008
EQUITY INCENTIVE PLAN
1.
Plan
Purpose. The purpose of the Plan is to promote the long-term
interests of the Company and its shareholders by providing a means for
attracting and retaining officers, directors and key employees of the Company
and its Affiliates.
2. Definitions. The
following definitions are applicable to the Plan:
“Affiliate” means any
“parent corporation” or “subsidiary corporation” of the Company as such terms
are defined in Code Sections 424(e) and (f), respectively.
“Award” means the
grant by the Committee of Incentive Stock Options, Non-Qualified Stock Options,
Restricted Shares, or any combination thereof, as provided in the
Plan.
“Award Agreement”
means the written agreement setting forth the terms and provisions applicable to
each Award granted under the Plan.
“Board” means the
Board of Directors of the Company.
“Cause” means, in
connection with a Participant’s termination of service, theft or embezzlement
from the Company or any Affiliate, violation of a material term or condition of
employment, disclosure of confidential information of the Company or any
Affiliate, conviction of the Participant of a crime of moral turpitude, stealing
of trade secrets or intellectual property owned by the Company or any Affiliate,
any act by the Participant in competition with the Company or any Affiliate, or
any other act, activity or conduct of a Participant which in the opinion of the
Board is adverse to the best interests of the Company or any
Affiliate.
51
“Change in Control”
means each of the events set forth
in any one of the following paragraphs:
(i)
The acquisition, within a 12-month period ending on the date of the most recent
acquisition, by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act (a “Person”) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act as in effect from time to time) of thirty percent (30%) or more
of the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors; provided,
however, that the following acquisitions shall not constitute an acquisition of
control: (A) any acquisition by a Person who, immediately before the
commencement of the 12-month period, already held beneficial ownership of thirty
percent (30%) or more of that combined voting power, (B) any acquisition
directly from the Company (excluding an acquisition by virtue
of the exercise of a conversion privilege), (C) any acquisition by the
Company, (D) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation controlled by
the Company, or (E) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (A), (B)
and (C) of subsection (iii) of this definition are
satisfied;
(ii)
The replacement of a majority of members of the Board during any 12-month
period, by members whose appointment or election is not endorsed by a majority
of the members of the Board prior to the date of the appointment or
election;
(iii)
A Reorganization, merger or consolidation, in each case, unless, following such
Reorganization, merger or consolidation, (A) more than sixty percent (60%)
of, respectively, the then outstanding shares of common stock of the corporation
resulting from such Reorganization, merger or consolidation and the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the outstanding
Company common stock and outstanding Company voting securities immediately prior
to such Reorganization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such Reorganization, merger
or consolidation, of the outstanding Company stock and outstanding Company
voting securities, as the case may be, (B) no Person (excluding the
Company, any employee benefit plan or related trust of the Company or such
corporation resulting from such Reorganization, merger or consolidation and any
Person beneficially owning, immediately prior to such Reorganization, merger or
consolidation, directly or indirectly, twenty-five percent (25%) or more of the
outstanding Company common stock or outstanding voting securities, as the case
may be) beneficially owns, directly or indirectly, twenty-five percent (25%) or
more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Reorganization, merger or consolidation or the
combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and
(C) at least a majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or consolidation were
members of the Board at the time of the execution of the initial agreement
providing for such Reorganization, merger or consolidation;
52
(iv)
A complete liquidation or dissolution of the Company; or
(v)
The sale or other disposition of all or substantially all of the assets of the
Company, other than any of the following dispositions: (A) to a corporation with
respect to which following such sale or other disposition (x) more than
sixty percent (60%) of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the election
of directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the outstanding Company common stock and outstanding
Company voting securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the outstanding Company common stock and
outstanding Company voting securities, as the case may be, (y) no Person
(excluding the Company and any employee benefit plan or related trust of the
Company or such corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or indirectly, twenty-five
percent (25%) or more of the outstanding Company common stock or outstanding
Company voting securities, as the case may be) beneficially owns, directly or
indirectly, twenty-five percent (25%) or more of, respectively, the then
outstanding shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (z) at least a majority of
the members of the board of directors of such corporation were members of the
Board at the time of the execution of the initial agreement or action of the
Board providing for such sale or other disposition of assets of the Company;
(B) to a shareholder of the Company in exchange for or with respect to its
stock; (C) to a Person that owns, directly or indirectly, fifty percent
(50%) or more of the total value or voting power of all outstanding stock of the
Company; or (D) to an entity, at least fifty percent (50%) or more of the
total value or voting power of which is owned, directly or directly, by the
Company or by a Person described in (C).
Despite
any other provision of this definition to the contrary, an occurrence shall not
constitute a Change in Control if it does not constitute a change in the
ownership or effective control, or in the ownership of a substantial portion of
the assets of, the Company within the meaning of Code Section 409A(a)(2)(A)(v)
and its interpretive regulations.
53
“Code” means the
Internal Revenue Code of 1986, as amended, and its interpretive
regulations.
“Committee” means the
Compensation Committee appointed by the Board pursuant to Section 3 of the
Plan.
“Company” means The
Steak n Shake Company, an Indiana corporation.
“Continuous Service”
means, in the case of an Employee, the absence of any interruption or
termination of service as an Employee of the Company or an Affiliate; and in the
case of an individual who is not an Employee, the absence of any interruption or
termination of the service relationship between the individual and the Company
or an Affiliate. Service will not be considered interrupted in the
case of sick leave, military leave or any other leave of absence approved by the
Company or in the case of a Participant’s transfer between the Company and an
Affiliate or any successor to the Company.
“Director” means any
individual who is a member of the Board.
“Disability” means
total and permanent disability as determined by the Committee pursuant to Code
Section 22(e)(3).
“Employee” means any
person, including an officer, who is employed by the Company or any
Affiliate.
“Exchange Act” means
the Securities Exchange Act of 1934, as amended.
“Exercise Price” means
the price per Share at which the Shares subject to an Option may be purchased
upon exercise of the Option which may not be less than the Market Value of a
Share on the date of grant of the Option.
“Incentive Stock
Option” means an option to purchase Shares granted by the Committee
pursuant to the terms of the Plan that is intended to qualify under Code Section
422.
“Market Value” means
the price at which the Shares were last sold on the date in question (or, if
there is no reported sale on such date, on the last preceding date on which any
reported sale occurred) of Shares on the New York Stock Exchange, or, if the
Shares are not listed on the New York Stock Exchange, on the principal exchange
on which the Shares are listed for trading, or, if the Shares are not then
listed for trading on any exchange, the mean between the closing high bid and
low asked quotations of one Share on the date in question as reported by NASDAQ
or any similar system then in use, or, if no such quotations are available, the
fair market value on such date of one Share as the Committee shall
determine.
“Non-Qualified Stock
Option” means an option to purchase Shares granted by the Committee
pursuant to the terms of the Plan, which option is not intended to qualify under
Code Section 422.
“Option” means an
Incentive Stock Option or a Non-Qualified Stock Option.
54
“Participant” means
any individual selected by the Committee to receive an Award.
“Performance Cycle”
means the period of time, designated by the Committee, over which the
achievement of any Performance Goals are to be measured.
“Performance Goals”
means any one or more of the following financial criteria which may be
determined on a Company-wide, departmental, divisional or regional basis and
which may be measured by using average amounts for the criteria, in absolute
terms, by reference to internal targets or by comparison to a group of other
companies designated by the Committee:
|
·
|
Earnings
before interest, taxes and
amortization
|
|
·
|
Return
on assets
|
|
·
|
Return
on equity
|
|
·
|
Return
on capital
|
|
·
|
Return
on revenue
|
|
·
|
Cash
return on tangible equity
|
|
·
|
Cash
flow or free cash flow
|
|
·
|
Brand
recognition/acceptance
|
|
·
|
Book
value
|
|
·
|
Stock
price performance
|
|
·
|
Earnings
per share
|
|
·
|
Net
income
|
|
·
|
Operating
income
|
|
·
|
Total
shareholder return
|
|
·
|
Same
store sales
|
|
·
|
Customer
satisfaction
|
55
“Plan” means this The
Steak n Shake Company 2008 Equity Incentive Plan.
“Reorganization” means
the liquidation or dissolution of the Company, or any merger, consolidation or
combination of the Company (other than a merger, consolidation or combination in
which the Company is the continuing entity and which does not result in the
outstanding Shares being converted into or exchanged for different securities,
cash or other property or any combination thereof).
“Restricted Period”
means the period of time selected by the Committee for the purpose of
determining when restrictions are in effect under Section 12 of the Plan with
respect to Restricted Shares.
“Restricted Shares”
means Shares that have been contingently awarded to a Participant by the
Committee subject to the restrictions referred to in Section 12 of the Plan, so
long as such restrictions are in effect.
“Retirement” means, in
the case of an Employee, a termination of Continuous Service by reason of the
Employee’s retirement on or after the Employee’s 65th
birthday or such other age, if any, set forth in any retirement plan maintained
by the Company as in effect from time to time and, with respect to a Director
who is not an Employee, such time as the Director no longer serves on the
Board.
“Securities Act” means
the Securities Act of 1933, as amended.
“Shares” means the
shares of common stock, no par value, of the Company.
3. Administration;
Performance Conditions. The Plan will be
administered by the Compensation Committee (the “Committee”) of the Board, which
will consist of two or more members of the Board, each of whom will be a
“non-employee director” as provided under Rule 16b-3 of the Exchange Act, and an
“outside director” as provided under Code Section 162(m). The members
of the Committee will be appointed by the Board. Except as limited by
the express provisions of the Plan, the Committee will have sole and complete
authority to (a) select Participants and grant Awards; (b) determine
the number of Shares to be subject to types of Awards generally, as well as to
individual Awards granted under the Plan; (c) determine the terms and
conditions upon which Awards will be granted under the Plan; (d) prescribe
the form and terms of Award Agreements; (e) establish procedures and
regulations for the administration of the Plan; (f) interpret the Plan; and (g)
make all determinations deemed necessary or advisable for the administration of
the Plan.
A majority of
the Committee will constitute a quorum, and the acts of a majority of the
members present at any meeting at which a quorum is present, or acts approved in
writing by all members of the Committee without a meeting, will be acts of the
Committee. All determinations and decisions made by the Committee
pursuant to the provisions of the Plan will be final, conclusive, and binding on
all persons, and will be given the maximum deference permitted by
law.
56
The Committee
may delegate to one or more other Directors, including Directors who do not
qualify as “non-employee directors,” the authority, subject to such terms and
limitations as the Committee shall determine and guidelines set forth in Plan to
grant Awards to, to cancel, modify, waive rights with respect to, or to alter,
discontinue, suspend or terminate Awards held by, Employees who are not officers
or Directors of the Company for purposes of Section 16 of the Exchange Act;
provided, however, that any delegation shall conform with the requirements of
applicable law and with the requirements, if any, of the New York Stock Exchange
or any other stock exchange on which the Company’s Shares are
traded.
The Committee
may condition any Award, other than an Award of Incentive Stock Options, upon
the achievement of any one or more of the Performance Goals measured over a
Performance Cycle designated by the Committee.
4.
Participants. The Committee may
select from time to time Participants in the Plan from those officers,
Directors, and Employees of the Company or its Affiliates who, in the opinion of
the Committee, have the capacity for contributing in a substantial measure to
the successful performance of the Company or its Affiliates.
5. Substitute
Options. In the event the Company or an Affiliate consummates
a transaction described in Code Section 424(a), persons who become Employees or
Directors on account of such transaction may be granted Options in substitution
for options granted by the former employer. The Committee, in its
sole discretion and consistent with Code Section 424(a), shall determine the
Exercise Price of the substitute Options, but in no event shall the ratio of the
Exercise Price to the Market Value of the Shares subject to the Substitute
Options immediately after the substitution be greater than the ratio of the
exercise price to the fair market value of the shares subject to the former
employer’s options immediately before the substitution.
6. Shares
Subject to Plan, Limitations on Grants. Subject to
adjustment by the operation of Section 14 hereof:
(a) The
maximum number of Shares that may be issued with respect to Awards made under
the Plan is 900,000 Shares, no more than
700,000 of which may be issued pursuant to Awards granted in the form of
Restricted Shares. The number of Shares that may be granted under the
Plan to any Participant during any one calendar year under all forms of Awards
will not exceed 100,000 Shares.
(b) The
Shares with respect to which Awards may be made under the Plan may either be
authorized and unissued Shares or issued Shares heretofore or hereafter
reacquired and held as treasury Shares. Any Award that expires,
terminates or is surrendered for cancellation, or with respect to Restricted
Shares, which is forfeited (so long as any cash dividends paid on such Shares
are also forfeited), may be subject to new Awards under the Plan with respect to
the number of Shares as to which a termination or forfeiture has
occurred. Shares that are withheld by the Company or delivered by the
Participant to the Company in order to satisfy payment of the Exercise Price or
any tax withholding obligation and Shares granted pursuant to an Award Agreement
which is subsequently settled in cash rather than Shares will not be subject to
new Awards under the Plan.
(c) In
connection with the granting of an Award, the number of Shares available for
issuance under this Plan shall be reduced by the number of Shares in respect of
which the Award is granted or denominated.
57
7. General
Terms and Conditions of Options.
(a) The
Committee will have full and complete authority and discretion, except as
expressly limited by the Plan, to grant Options and to prescribe the terms and
conditions (which need not be identical among Participants) of the Options;
provided, however, that the Committee shall not enter into any Award Agreement
that includes terms or conditions that would subject the Participant to gross
income inclusion, interest, or additional tax pursuant to Code Section
409A. Each Option will be evidenced by an Award Agreement that will
specify: (i) the Exercise Price, (ii) the number of Shares
subject to the Option, (iii) the expiration date of the Option, (iv) the
manner, time and rate (cumulative or otherwise) of exercise of the Option,
(v) the restrictions, if any, to be placed upon the Option or upon Shares
that may be issued upon exercise of the Option, (vi) the conditions, if
any, under which a Participant may transfer or assign Options, and (vii) any
other terms and conditions as the Committee, in its sole discretion, may
determine.
(b) The
Committee shall not, without the further approval of the shareholders of the
Company, authorize the amendment of any outstanding Option Award Agreement to
reduce the Exercise Price. Furthermore, no Option shall be cancelled
and replaced with an Option having a lower Exercise Price without further
approval of the shareholders of the Company.
8. Exercise
of Options.
(a) Except as
provided in Section 16, an Option granted under the Plan will be exercisable
only by the Participant, and except as provided in Section 9 of the Plan, no
Option may be exercised unless at the time the Participant exercises the Option,
the Participant has maintained Continuous Service since the date of the grant of
the Option.
(b) To
exercise an Option under the Plan, the Participant must give written notice to
the Company specifying the number of Shares with respect to which the
Participant elects to exercise the Option together with full payment of the
Exercise Price. The date of exercise will be the date on which the
notice is received by the Company. Payment may be made either
(i) in cash (including check, bank draft or money order), (ii) by
tendering Shares already owned by the Participant for at least six (6)
months prior to the date of exercise and having a Market Value on the date of
exercise equal to the Exercise Price, (iii) through the delivery of a notice
that the Participant has placed a market sell order with a broker with respect
to Shares issuable upon exercise of the Option and the broker has been directed
to pay a sufficient portion of the net proceeds of the sale to the Company to
cover the Exercise Price (a “cashless exercise”), or (iv) by any other means
determined by the Committee in its sole discretion.
58
9. Termination
of Options. Unless otherwise
specifically provided elsewhere in the Plan or by the Committee in the Award
Agreement or any amendment thereto, Options will terminate as provided in this
Section.
(a) Unless
sooner terminated under the provisions of this Section, Options will expire on
the earlier of the date specified in the Award Agreement or the expiration of
ten (10) years from the date of grant.
(b) If the
Continuous Service of a Participant is terminated for Cause, all rights under
any Options granted to the Participant will terminate immediately upon the
Participant’s cessation of Continuous Service, and the Participant will (unless
the Committee, in its sole discretion, waives this requirement) repay to the
Company within ten (10) days the amount of any gain realized by the Participant
upon any exercise of an Option, awarded under the Plan, within the 90-day period
prior to the cessation of Continuous Service.
(c) If the
Continuous Service of a Participant is terminated voluntarily by the Participant
for any reason other than death, Disability, or Retirement, the Participant may
exercise outstanding Options to the extent that the Participant was entitled to
exercise the Options at the date of cessation of Continuous Service, but only
within the period of three (3) months immediately succeeding the
Participant’s cessation of Continuous Service, and in no event after the
applicable expiration dates of the Options.
(d) If the
Continuous Service of a Participant is terminated by reason of Retirement or
terminated by the Company without Cause, the Participant may exercise
outstanding Options to the extent that the Participant was entitled to exercise
the Options at the date of cessation of Continuous Service, but only within the
period of three (3) months immediately succeeding the Participant’s cessation of
Continuous Service, and in no event after the applicable expiration dates of the
Options; provided, however, that if a Participant is terminated by the Company
without Cause within twelve months after a Change in Control, such Participant
may exercise outstanding Options to the extent he or she was entitled to
exercise the Options at the date of cessation of Continuous Service, within the
period of one (1) year immediately succeeding the cessation of Continuous
Service but in no event after the applicable expiration dates of the
Options.
(e) In the
event of the Participant’s death or Disability, all Options heretofore granted
and not fully exercisable will become exercisable in full and the Participant or
the Participant’s beneficiary, as the case may be, may exercise such Options
within the period of one (1) year immediately succeeding the Participant’s
cessation of Continuous Service by reason of death or Disability, and in no
event after the applicable expiration dates of the Options.
(f) Notwithstanding
the provisions of the foregoing paragraphs of this Section 9, the Committee may,
in its sole discretion, establish different terms and conditions pertaining to
the effect of the cessation of Continuous Service, to the extent permitted by
applicable federal and state law. Additionally, notwithstanding the
provisions of the foregoing paragraphs of this Section 9, the Committee may, in
its sole discretion, allow the exercise of an expired Option if the Committee
determines that: (i) the expiration was solely the result of the Company’s
inability to execute the exercise of an Option due to conditions beyond the
Company’s control, and (ii) the Participant made valid and reasonable efforts to
exercise the Award. In the event the Committee makes such a
determination, the Company shall allow the exercise to occur as promptly as
possible following its receipt of exercise instructions subsequent to such
determination.
59
10. Restrictive
Covenants. In its
discretion, the Committee may condition the grant of any Option under the Plan
upon the Participant agreeing to reasonable covenants in favor of the Company
and/or any Affiliate (including, without limitation, covenants not to compete,
not to solicit Employees and customers, and not to disclose confidential
information) that may have effect following the termination of employment with
the Company or any Affiliate, and after the Option has been exercised,
including, without limitation, the requirement to disgorge any profit, gain or
other benefit received upon exercise of the Option prior to any breach of any
covenant.
11. Stock
Options.
(a) Incentive Stock
Options.
(i) Incentive
Stock Options may be granted only to Participants who are
Employees. Any provisions of the Plan to the contrary
notwithstanding, (i) no Incentive Stock Option will be granted more than
ten (10) years from the earlier of the date the Plan is adopted by the Board or
approved by the Company’s shareholders, (ii) no Incentive Stock Option will be
exercisable more than ten (10) years from the date the Incentive Stock Option is
granted, (iii) the Exercise Price of any Incentive Stock Option will not be
less than the Market Value per Share on the date such Incentive Stock Option is
granted, (iv) any Incentive Stock Option will not be transferable by the
Participant to whom such Incentive Stock Option is granted other than by will or
the laws of descent and distribution and will be exercisable during the
Participant’s lifetime only by such Participant, (v) no Incentive Stock
Option will be granted that would permit a Participant to acquire, through the
exercise of Incentive Stock Options in any calendar year, under all plans of the
Company and its Affiliates, Shares having an aggregate Market Value (determined
as of the time any Incentive Stock Option is granted) in excess of $100,000
(determined by assuming that the Participant will exercise each Incentive Stock
Option on the date that such Option first becomes exercisable), and (vi) no
Incentive Stock Option may be exercised more than three (3) months after the
Participant’s cessation of Continuous Service (one (1) year in the case of
Disability) for any reason other than death. Notwithstanding the
foregoing, in the case of any Participant who, at the date of grant, owns Shares
possessing more than 10% of the total combined voting power of all classes of
capital stock of the Company or any Affiliate, the Exercise Price of any
Incentive Stock Option will not be less than 110% of the Market Value per Share
on the date such Incentive Stock Option is granted and such Incentive Stock
Option shall not be exercisable more than five (5) years from the date such
Incentive Stock Option is granted.
(ii) Notwithstanding
any other provisions of the Plan, if for any reason an Option granted under the
Plan that is intended to be an Incentive Stock Option fails to qualify as an
Incentive Stock Option, such Option will be deemed to be a Non-Qualified Stock
Option, and such Option will be deemed to be fully authorized and validly issued
under the Plan.
(b) Nonqualified
Stock Options. Nonqualified Stock Options may be granted to
any Participant. Any provisions of the Plan to the contrary
notwithstanding, (i) no Nonqualified Stock Option will be exercisable more
than ten (10) years from the date the Nonqualified Stock Option is granted,
(ii) the Exercise Price of any Nonqualified Stock Option will not be less
than the Market Value per Share on the date such Nonqualified Stock Option is
granted.
60
12. Terms and
Conditions of Restricted Shares. The Committee
will have full and complete authority, subject to the limitations of the Plan,
to grant Awards of Restricted Shares and to prescribe the terms and conditions
(which need not be identical among Participants) in respect of the
Awards. Unless the Committee otherwise specifically provides in the
Award Agreement, an Award of Restricted Shares will be subject to the following
provisions:
(a) At the
time of an Award of Restricted Shares, the Committee will establish for each
Participant a Restricted Period during which, or at the expiration of which, the
Restricted Shares will vest. Subject to paragraph (f) of this
Section, the Participant will have all the rights of a shareholder with respect
to the Restricted Shares, including, but not limited to, the right to receive
all dividends paid on the Restricted Shares and the right to vote the Restricted
Shares. The Committee will have the authority, in its discretion, to
accelerate the time at which any or all of the restrictions will lapse with
respect to any Restricted Shares prior to the expiration of the Restricted
Period, or to remove any or all restrictions, whenever it may determine that
such action is appropriate by reason of changes in applicable tax or other laws
or other changes in circumstances occurring after the commencement of the
Restricted Period.
(b) Subject
to Section 15, if a Participant ceases Continuous Service for any reason other
than death or Disability before the Restricted Shares have vested, a
Participant’s rights with respect to the unvested portion of the Restricted
Shares will terminate and be returned to the Company.
(c) Subject
to Section 15, if a Participant ceases Continuous Service by reason of death or
Disability before any Restricted Period has expired, the Restricted Shares will
become fully vested.
(d) Each
certificate issued in respect to Restricted Shares will be registered in the
name of the Participant and deposited by the Participant, together with a stock
power endorsed in blank, with the Company and will bear the following (or a
similar) legend:
“The
transferability of this certificate and the shares represented hereby are
subject to the terms and conditions (including forfeiture) contained in The
Steak n Shake Company 2008 Equity Incentive Plan, and an Award Agreement entered
into between the registered owner and The Steak n Shake
Company. Copies of the Plan and Award Agreement are on file in the
office of the Secretary of The Steak n Shake Company.”
(e) At the
time of an Award of Restricted Shares, the Participant will enter into an Award
Agreement with the Company in a form specified by the Committee agreeing to the
terms and conditions of the Award.
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(f) At the
time of an Award of Restricted Shares, the Committee may, in its discretion,
determine that the payment to the Participant of dividends declared or paid on
the Restricted Shares by the Company, or a specified portion thereof, will be
deferred until the earlier to occur of (i) the lapsing of the restrictions
imposed with respect to the Restricted Shares, or (ii) the forfeiture of such
Restricted Shares under paragraph (b) of this Section, and will be held by the
Company for the account of the Participant until such time. In the
event of deferral, there will be credited at the end of each year (or portion
thereof) interest on the amount of the account at the beginning of the year at a
rate per annum as the Committee, in its discretion, may
determine. Payment of deferred dividends, together with accrued
interest, will be made upon the earlier to occur of the events specified in (i)
and (ii) of this paragraph. The Committee’s authority, however, to
accelerate the lapse of restrictions or to remove restrictions on Restricted
Shares, pursuant to paragraph (a) of this Section, shall not apply to accelerate
the payment of any deferred dividends on the Restricted Shares.
(g) At the
expiration of the restrictions imposed by this Section, the Company will
redeliver to the Participant the certificate(s) and stock powers, deposited with
the Company pursuant to paragraph (d) of this Section, and the Shares
represented by the certificate(s) will be free of all restrictions.
(h) No Award
of Restricted Shares may be assigned, transferred or encumbered until after they
have vested.
13.
Adjustments
Upon Changes in Capitalization. In the event of any change in
the outstanding Shares subsequent to the effective date of the Plan by reason of
any Reorganization, recapitalization, stock split, stock dividend, combination
or exchange of shares, merger, consolidation or any change in the corporate
structure or Shares of the Company, the maximum aggregate number and class of
Shares as to which Awards may be granted under the Plan and the number and class
of Shares, and the Exercise Price of Options, with respect to which Awards
theretofore have been granted under the Plan will be appropriately adjusted by
the Committee to prevent the dilution or diminution of Awards. The
Committee’s determination with respect to any adjustments will be
conclusive. Any Shares or other securities received, as a result of
any of the foregoing, by a Participant with respect to Restricted Shares will be
subject to the same restrictions and the certificate(s) or other instruments
representing or evidencing the Shares or other securities will be legended and
deposited with the Company in the manner provided in Section 12 of this
Agreement.
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14. Effect of
Reorganization. Unless otherwise provided by the Committee in
the Award Agreement, Awards will be affected by a Reorganization as
follows:
(a) If the
Reorganization is a dissolution or liquidation of the Company then (i) the
restrictions on Restricted Shares will lapse and (ii) each outstanding
Option Award will terminate, but each Participant to whom the Award was granted
will have the right, immediately prior to the dissolution or liquidation, to
exercise the Option in full, notwithstanding the provisions of Section 11,
and the Company will notify each Participant of such right within a reasonable
period of time prior to any dissolution or liquidation.
(b) If the
Reorganization is a merger or consolidation, upon the effective date of the
Reorganization (i) each Participant will be entitled, upon exercise of an
Option in accordance with all of the terms and conditions of the Plan, to
receive in lieu of Shares, shares or other securities or consideration as the
holders of Shares are entitled to receive pursuant to the terms of the
Reorganization; and (ii) each holder of Restricted Shares will be entitled
to receive shares or other securities as the holders of Shares received which
will be subject to the restrictions set forth in Section 12 (unless the
Committee accelerates the lapse of such restrictions) and the certificate(s) or
other instruments representing or evidencing the shares or other securities
shall be legended and deposited with the Company in the manner provided in
Section 12 of this Plan.
The
adjustments contained in this Section and the manner of application of such
provisions will be determined solely by the Committee.
15.
Effect of
Change of Control.
(a) If the
Continuous Service of any Participant of the Company or any Affiliate is
involuntarily terminated, for whatever reason, at any time within twelve (12)
months after a Change in Control, unless the Committee has otherwise provided in
the Award Agreement, (i) any Restricted Period with respect to an Award of
Restricted Shares will lapse upon the Participant’s termination of Continuous
Service and all Restricted Shares will become fully vested in the Participant to
whom the Award was made.
(b) If a
tender offer or exchange offer for Shares (other than such an offer by the
Company) is commenced, or if a Change in Control occurs, unless the Committee
has otherwise provided in the Award Agreement, all Option Awards theretofore
granted and not fully exercisable will become exercisable in full upon the
happening of such event and will remain exercisable in accordance with their
terms; provided, however, that no Options which have previously been exercised
or otherwise terminated will become exercisable.
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16.
Assignments
and Transfers. No Award nor any right or interest of a
Participant in any Award under the Plan may be assigned, encumbered or
transferred otherwise than by will or the laws of descent and distribution.
Notwithstanding the foregoing, the Committee may, in its sole discretion, set
forth in an Award Agreement at the time of grant or thereafter, that the Award
(other than Incentive Stock Options) may be transferred to members of the
Participant’s immediate family, to one or more trusts solely for the benefit of
such immediate family members and to partnerships in which such family members
or trusts are the only partners. For this purpose, immediate family
means the Participant’s spouse, parents, children, step-children, grandchildren
and legal dependents. Any transfer of an Award under this provision
will not be effective until notice of such transfer is delivered to the
Company.
17.
Employee
Rights Under the Plan. No officer, Director, Employee or other
person will have a right to be selected as a Participant nor, having been so
selected, to be selected again as a Participant, and no officer, Director,
Employee or other person will have any claim or right to be granted an Award
under the Plan or under any other incentive or similar plan of the Company or
any Affiliate. Neither the Plan nor any action taken under the Plan
will be construed as giving any Employee any right to be retained in the employ
of the Company or any Affiliate.
18.
Delivery
and Registration of Shares. The Company’s obligation to
deliver Shares with respect to an Award will, if the Committee requests, be
conditioned upon the receipt of a representation as to the investment intention
of the Participant to whom such Shares are to be delivered, in such form as the
Committee will determine to be necessary or advisable to comply with the
provisions of the Securities Act or any other applicable federal or state
securities laws. It may be provided that any representation
requirement will become inoperative upon a registration of the Shares or other
action eliminating the necessity of the representation under the Securities Act
or other state securities laws. The Company will not be required to
deliver any Shares under the Plan prior to (a) the admission of such Shares
to listing on any stock exchange or system on which Shares may then be listed,
and (b) the completion of any registration or other qualification of the
Shares under any state or federal law, rule or regulation, as the Company
determines to be necessary or advisable.
19.
Withholding
Tax. Prior to the delivery of any Shares or cash pursuant to
an Award, the Company has the right and power to deduct or withhold, or require
the Participant to remit to the Company, an amount sufficient to satisfy all
applicable tax withholding requirements. The Committee, in its sole
discretion and pursuant to such procedures as it may specify from time to time,
may permit or require a Participant to satisfy all or part of the tax
withholding obligations in connection with an Award by (a) having the Company
withhold otherwise deliverable Shares, or (b) delivering to the Company
Shares already owned for a period of at least six months and having a value
equal to the amount required to be withheld. The amount of the
withholding requirement will be deemed to include any amount that the Committee
determines, not to exceed the amount determined by using the maximum federal,
state or local marginal income tax rates applicable to the Participant with
respect to the Award on the date that the amount of tax to be withheld is to be
determined for these purposes. For these purposes, the value of the
Shares to be withheld or delivered will be equal to the Market Value as of the
date that the taxes are required to be withheld.
20.
Deferrals. Notwithstanding
any other provision of the Plan, the Committee may permit (upon timely election
by the Participant) or require a Participant to defer such Participant’s receipt
of the payment of cash or the delivery of Shares that would otherwise be due to
such Participant by virtue of the lapse or waiver of restrictions with respect
to Restricted Shares. If any such deferral election is required or
permitted, the Committee shall establish rules and procedures for such payment
deferrals that satisfy the applicable standards for nonqualified deferred
compensation plans established by Code Section 409A and its interpretive
regulations and other regulatory guidance.
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21. Termination,
Amendment and Modification of Plan. The Board may at any time
terminate, and may at any time and from time to time and in any respect amend or
modify, the Plan; provided, however, that to the extent necessary and desirable
to comply with Rule 16b-3 under the Exchange Act or Code Section 422
(or any other applicable law or regulation, including requirements of any stock
exchange or quotation system on which the Company’s common stock is listed or
quoted), shareholder approval of any Plan amendment will be obtained in the
manner and to the degree as is required by the applicable law or regulation; and
provided further, that no termination, amendment or modification of the Plan
will in any manner affect any Award theretofore granted pursuant to the Plan
without the consent of the Participant to whom the Award was granted or the
transferee of the Award or without complying with the applicable standards of
Code Section 409A.
22.
Effective
Date and Term of Plan.
The Plan will become effective upon its adoption by the Board and
shareholders of the Company. Unless sooner terminated pursuant to
Section 21, no further Awards may be made under the Plan after March 7,
2012.
23.
Code
Section 409A.
(a) If as of
the date his employment terminates, a Participant is a “key employee” within the
meaning of Code Section 416(i), without regard to paragraph 416(i)(5) thereof,
and if the Company has stock that is publicly traded on an established
securities market or otherwise, any deferred compensation payments otherwise
payable under this Plan because of his termination of Continuous Service (for
reasons other than death or Disability) will be suspended until, and will be
paid to the Participant on, the first day of the seventh month following the
month in which the Participant’s last day of employment occurs. For
purposes of this Plan, “deferred compensation” means compensation provided under
a nonqualified deferred compensation plan as defined in, and subject to, Code
Section 409A.
(b) The Plan
and Award Agreements shall be interpreted and applied in a manner consistent
with the applicable standards for nonqualified deferred compensation plans
established by Code Section 409A and its interpretive regulations and other
regulatory guidance. To the extent that any terms of the Plan or an
Award Agreement would subject the Participant to gross income inclusion,
interest, or additional tax pursuant to Code Section 409A, those terms are to
that extent superseded by, and shall be adjusted to the minimum extent necessary
to satisfy, the applicable Code Section 409A standards.
24.
Governing
Law. Except as
provided in Section 23, the Plan and Award Agreements will be construed in
accordance with and governed by the internal laws of the State of
Indiana. The Committee may provide that any dispute as to any Award
shall be presented and determined in such forum as the Committee may specify,
including through binding arbitration.
25.
Repricing
of Options. Nothing in this Plan
shall permit the repricing of any outstanding Options other than (a) with the
prior approval of the Company’s shareholders, or (b) pursuant to Sections 13 and
14. The foregoing restriction shall also apply to any other
transaction which would be treated as a repricing of outstanding Options under
generally accepted accounting principles.
26. Prior
Plans. Following the
effective date of this Plan, the Company shall not make any additional awards
under the 1995 Employee Stock Option Plan, the 1997 Employee Stock Option Plan,
the 1997 Capital Appreciation Plan, the 2006 Employee Stock Option Plan, the
Non-Employee Director Stock Option Plan and the Non-Employee Director Restricted
Stock Plan.
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