SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant
Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-12
THE STEAK N SHAKE COMPANY
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
THE STEAK N SHAKE COMPANY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 9, 2005
TO THE SHAREHOLDERS OF THE STEAK N SHAKE COMPANY
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of The Steak
n Shake Company (the "Company") will be held at the Company's Corporate Office,
4th Floor, Century Building, 36 South Pennsylvania Street, Indianapolis, Indiana
46204, on Wednesday, February 9, 2005 at 1:30 p.m., Eastern Standard Time, for
the following purposes:
1. To elect nine directors to serve until the next Annual Meeting of
Shareholders and until their respective successors shall be elected and
qualified.
2. To act upon the approval of the 2005 Director Stock Option Plan, as
adopted by the Board of Directors.
3. To ratify the selection by the Audit Committee of the Board of Directors
of Deloitte & Touche, LLP as the Company's independent auditors for the fiscal
year ending September 28, 2005.
4. To transact such other business as may properly come before the meeting
and any adjournment thereof.
The Board of Directors has fixed the close of business on December 1, 2004,
as the record date for the determination of shareholders entitled to notice of
and to vote at the Annual Meeting.
We urge you to sign, date and mail the enclosed proxy in the envelope
provided whether or not you expect to be present in person. You may revoke the
proxy at any time prior to the time the proxy is exercised by filing with the
Secretary of the Company a properly executed instrument revoking such proxy, by
filing a properly executed proxy bearing a later date, or by attending the
Annual Meeting and withdrawing your proxy and voting in person.
By Order of the Board of Directors
David C. Milne, Secretary
December 20, 2004
Indianapolis, Indiana
PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE
THE STEAK N SHAKE COMPANY
500 CENTURY BUILDING
36 SOUTH PENNSYLVANIA STREET
INDIANAPOLIS, INDIANA 46204
(317) 633-4100
PROXY STATEMENT
For the Annual Meeting of Shareholders
To be held February 9, 2005
This proxy statement is furnished to the shareholders of The Steak n Shake
Company (the "Company") in connection with the solicitation by the Company of
proxies to be voted at the Annual Meeting of Shareholders (the "Annual Meeting")
to be held at the Company's Corporate Office, 4th Floor, Century Building, 36
South Pennsylvania Street, Indianapolis, Indiana 46204, on Wednesday, February
9, 2005, at 1:30 p.m., Eastern Standard Time, and at any adjournment thereof.
This proxy statement and the accompanying form of proxy were first mailed to
shareholders on or about December 20, 2004.
Each properly executed proxy returned prior to the meeting will be voted in
accordance with the directions contained therein. The enclosed proxy may be
revoked by the person giving it at any time before it is voted by giving written
notice to the Secretary of the Company.
OUTSTANDING COMMON STOCK
The record date for shareholders entitled to vote at the Annual Meeting was
December 1, 2004. At the close of business on that date, the Company had issued
and outstanding 27,622,964 shares of Common Stock entitled to vote at the Annual
Meeting. Unless otherwise stated, all references herein to numbers and prices
of shares of Common Stock, options and capital appreciation shares of the
Company have been adjusted to reflect all stock dividends and stock splits
heretofore distributed by the Company.
ACTION TO BE TAKEN AT THE ANNUAL MEETING
Unless the shareholder otherwise specifies in the proxy, the accompanying
proxy will be voted (i) FOR the election, as directors of the Company, of the
nine persons named under the caption "Election of Directors"; (ii) FOR the
approval of the 2005 Director Stock Option Plan and (iii) FOR the approval of
Deloitte & Touche, LLP as the Company's independent auditors for the fiscal year
ending September 28, 2005.
QUORUM AND VOTING
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum at the
Annual Meeting. In deciding all questions, a holder of Common Stock is entitled
to one vote, in person or by proxy, for each share registered in his/her/its
name on the record date. Directors of the Company are elected by a plurality of
the votes cast by the holders of the shares represented at the meeting.
Abstentions, broker non-votes and instructions on the enclosed form of proxy to
withhold authority to vote for one or more of the nominees will result in the
nominee receiving fewer votes; however, the number of shares present for
purposes of determining a quorum will not be reduced by such action. The 2005
Director Stock Option Plan and the ratification of the selection of the auditors
will be approved if the proposal receives more votes cast in favor of the
proposal than are cast in opposition to it. Abstentions and broker non-votes
with respect to those proposals will not be counted as votes for or against
those proposals.
SHAREHOLDER PROPOSALS
The bylaws of the Company require shareholders to provide advance notice in
order to bring business before an annual meeting or to nominate a candidate for
director at the meeting. In order for a shareholder to properly bring business
or propose a director at the 2006 Annual Meeting, the shareholder must give
written notice to the Company at the address on the front page of this proxy
statement. To be timely, a shareholder's notice must be received by the Company
on or before August 19, 2005 or in the event that the date of the meeting is
changed more than 30 days from February 9, 2005 such notice must be delivered or
mailed to and received by the Company not later than 120 days prior to the date
the Company mailed proxy materials for the preceding year's annual meeting 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 2006 Annual Meeting, including those matters raised other
than pursuant to 17 C.F.R. 240.14a-8 of the Rules and Regulations of the SEC.
A shareholder proposal that does not meet the above requirements will be
considered untimely, and any proxy solicited by the Company may confer
discretionary authority to vote on such proposal.
OWNERSHIP OF COMMON STOCK
The following table shows the number and percentage of outstanding shares
of Common Stock beneficially owned as of December 1, 2004 by each person or
entity known to be the beneficial owner of more than 5% of the Common Stock of
the Company:
Name & Address Amount and Nature of
of Beneficial Owner Beneficial Ownership(1) Percent of Class
---------------------- ------------------------ ------------------
MSD Capital, Inc. 2,053,100 7.4%
645 Fifth Avenue, 21st Floor
New York, NY 10022-5910
(1) This table is based upon information supplied by MSD Capital, Inc. on
Schedule 13G filed with the Securities and Exchange Commission on April 11,
2003 and information supplied thereafter by MSD Capital, Inc.
The following table shows the total number of shares of Common Stock
beneficially owned as of December 1, 2004, and the percentage of Common Stock so
owned as of that date, with respect to (i) each director, (ii) each executive
officer named in the Summary Compensation Table, and (iii) all directors and
executive officers, as a group:
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership(1) Percent of Class
------------------------ ------------------------ ------------------
Peter M. Dunn 98,400(2) *
Alan B. Gilman 468,910(3) 1.7%
Roxanne Crosby 18,400(4) *
Stephen Goldsmith 13,180(5) *
Wayne L. Kelley 82,308(6) *
Charles E. Lanham 390,480(7) 1.4%
Ruth J. Person 5,000(8) *
Gary T. Reinwald 399,539(9) 1.4%
J. Fred Risk 119,299(10) *
John W. Ryan 22,382(11) *
Gary S. Walker 55,200(12) *
James Williamson, Jr. 327,558(13) 1.2%
All directors and
executive officers
as a group (17 persons) 2,046,570(14) 7.4%
*Less than 1%.
(1) Includes shares which may be acquired pursuant to stock options
exercisable within 60 days under the Company's stock option plans.
(2) Includes 25,000 shares which may be acquired pursuant to stock options
exercisable with in 60 days.
(3) Includes 114,558 shares which may be acquired pursuant to stock options
exercisable within 60 days.
(4) Includes 4,400 shares which may be acquired pursuant to stock options
exercisable within 60 days.
(5) Includes 9,000 shares which may be acquired pursuant to stock options
exercisable within 60 days.
(6) Includes 3,800 shares which may be acquired pursuant to stock options
exercisable within 60 days.
(7) Includes 9,000 shares which may be acquired pursuant to stock options
exercisable within 60 days. Also includes 30,928 shares owned of record and
beneficially by Mr. Lanham's wife, with respect to which he disclaims beneficial
ownership, and 21,750 shares owned by Mr. Lanham's affiliate, Hartford Heritage,
LLC.
(8) Includes 5,000 shares which may be acquired pursuant to stock options
exercisable within 60 days.
(9) Includes 81,896 shares which may be acquired pursuant to stock options
exercisable within 60 days.
(10) Includes 9,000 shares which may be acquired pursuant to stock options
exercisable within 60 days. Also includes 7,726 shares owned of record and
beneficially by Mr. Risk's wife, with respect to which he disclaims beneficial
ownership.
(11) Includes 9,000 shares which may be acquired pursuant to stock options
exercisable within 60 days.
(12) Includes 24,200 shares which may be acquired pursuant to stock options
exercisable within 60 days and 300 shares owned of record and beneficially by
Mr. Walker's minor children, with respect to which he disclaims beneficial
ownership.
(13) Includes 9,000 shares which may be acquired pursuant to stock options
exercisable within 60 days. Also includes 19,011 shares owned of record and
beneficially by Mr. Williamson's wife, with respect to which he disclaims
beneficial ownership.
(14) Includes 345,329 shares which may be acquired pursuant to stock options
exercisable within 60 days held by all directors and officers as a group.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 sets forth certain
filing requirements relating to securities ownership by directors, executive
officers and ten percent shareholders of a publicly held company. To the
Company's knowledge, based on the representations of its directors and executive
officers and copies of their respective reports filed with the Securities and
Exchange Commission, all filing requirements were satisfied by each such person
during the fiscal year ended September 29, 2004 with the exception of a Form 4
regarding the sale of stock filed late by James W. Bear, the Company's former
Senior Vice President and CFO. Also, the Company files Form 4 reports for the
Company's Directors, and the Company filed a Form 4 late for the receipt of
options under the 2004 Director Stock Option Plan by Messrs. Goldsmith, Kelley,
Lanham, Regas, Risk and Williamson and Drs. Ryan and Person.
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
All persons standing for election as director were unanimously nominated by
the Board of Directors. No person being nominated as a director is being
proposed for election pursuant to any agreement or understanding between any
such person and the Company.
MISCELLANEOUS
a) CREATION AND DISTRIBUTION OF PROXIES
----------------------------------------
The entire cost of soliciting proxies will be paid by the Company. In
addition to the solicitation of proxies by use of the mails, certain officers,
directors and employees of the Company, none of whom receive additional
compensation therefor, may solicit proxies by telephone, facsimile or personal
interview at the expense of the Company. The Company will also request brokers,
dealers, banks and voting trustees, and their nominees, to forward this proxy
statement and the accompanying form of proxy to beneficial owners and will
reimburse such record holders for their reasonable expense in forwarding
solicitation material.
b) CODE OF BUSINESS CONDUCT AND ETHICS
----------------------------------------
The Company has in place a long-standing code of ethics, which was updated
and revised in the past year. It applies to its 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 (the "Code") can be obtained without charge on the Company's web site
(www.steaknshake.com) or by written request to the Company at the address on the
front page of this proxy statement. If the Company makes any substantive
amendment of, or grants any waiver to the Code, the Company will disclose the
nature of such amendment or waiver via its website and in a current report on
Form 8-K.
1. ELECTION OF DIRECTORS
Nine directors will be elected to serve until the next Annual Meeting and
until their respective successors shall have been duly elected and qualified.
All of the nominees are currently directors of the Company and were elected at
the Annual Meeting of Shareholders held February 11, 2004. The Board of
Directors has affirmatively determined that a majority of the director nominees
are independent and have no material relationship with the Company (either
directly or as a partner, shareholder or officer of an organization that has a
relationship with the Company).
If any of the nominees named below is not available to serve as a director
at the time of the Annual Meeting (an event which the Board of Directors does
not now anticipate), the proxies will be voted for the election as directors of
such other person or persons as the Board of Directors may designate, unless the
Board of Directors, in its discretion, amends the Company's Bylaws to reduce the
number of directors.
The nominees for the Board of Directors of the Company are listed below,
along with the age, tenure as director and business background for at least the
last five years for each:
Served As
Name Age Director Since Business Experience
---- --- --------------- --------------------
Peter M. Dunn 49 2004 Currently President and Chief
Executive Officer; President and
Chief Operating Officer of the
Company from 2002 to February 11,
2004; formerly President, Borden
Foods Co., 1997-2001.
Alan B. Gilman 74 1992 Currently Chairman of the Board of
Directors; President and Chief
Executive Officer of the Company
from 1992 to September 30, 2002;
Chief Executive Officer and Co-
Chairman of the Company from
September 30, 2002 through August
11, 2003; Chief Executive Officer
and Chairman of the Company from
August 11, 2003 through February
11, 2004.
Stephen Goldsmith 58 1999 Chairman of the Corporation for
National and Community Service;
Senior Vice President, Strategic
Initiatives and e-Government, for
ACS, a national business process
outsourcer; Faculty Director,
Innovations in American Government
Harvard University; Chairman of
the Manhattan Institute's Center
for Civic Innovation; member of
the Board of Directors of the
Finish Line, Inc.; Trustee of
Windrose Medical Properties Trust,
a publicly traded real estate
investment trust; Mayor of
Indianapolis, Indiana from 1992
through 1999.
Wayne L. Kelley 60 2003 Director of Steak n Shake
Operations, Inc., a subsidiary of
the Company, since 1999; President
of Kelley Restaurants, Inc. since
1991.
Charles E. Lanham 72 1971 Chairman of the Board of Directors
of Overhead Door Company of
Indianapolis, Inc. from 1960 until
February, 2004; Vice Chairman of
Klipsch Lanham Investments, a
private investment company;
Trustee of Windrose Medical
Properties Trust, a publicly
traded real estate investment
trust.
Ruth J. Person 59 2002 Chancellor, Indiana University
Kokomo and Professor of Management
President, American Association of
University Administrators 2003-
2004; Member of the Board of
Directors, Workforce Development
Strategies, Inc.
J. Fred Risk 76 1971 Private investor; Chairman of the
Board of Directors of Security
Group, Inc.
John W. Ryan 75 1996 Private investor; Chancellor of
the State University of New York
Systems from 1996 through 1999;
President of Indiana University
from 1971 through 1987.
James Williamson, Jr. 73 1985 Private investor.
There is no family relationship among any of the nominees for director.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE NOMINEES
NAMED IN THIS PROXY STATEMENT.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors held four meetings during fiscal year 2004. The
Board has, or during fiscal year 2004 had, five standing committees: an
Executive Committee, a Personnel/Benefits Committee, an Audit Committee, a
Compensation Committee, and a Nominating/Corporate Governance Committee. The
Board also had a temporary Committee, the Acquisitions Committee, during fiscal
year 2004.
The Executive Committee may exercise all of the powers of the Board of
Directors in the management of the affairs of the Company to the extent
permitted by law. During the fiscal year ended September 29, 2004, the
Executive Committee met 4 times. Mr. Williamson serves as Chairman and Mr. Risk
and Dr. Ryan serve as members of the Executive Committee.
The Audit Committee, among other duties, serves in an oversight role
intended to ensure the integrity and objectivity of the Company's financial
reporting process. It operates under a written charter that may be found at
www.steaknshake.com. The Committee meets with representatives of management and
the independent auditors to review matters of a material nature related to
auditing, financial reporting, internal accounting controls and audit results.
The Audit Committee is also responsible for making determinations regarding the
independence and selection of the Company's independent auditors. See "Report
of the Audit Committee," below. During the fiscal year ended September 29,
2004, the Audit Committee met 4 times. Mr. Risk serves as Chairman of the
Committee and Messrs. Goldsmith, Lanham and Ryan serve as members. The Chairman
and each member of the Audit Committee are "independent" as that term is defined
in Section 301 of the Sarbanes-Oxley Act of 2002 and the listing standards for
the New York Stock Exchange. In addition, the Board of Directors has determined
that Mr. Risk qualifies as an "audit committee financial expert" as that term is
defined in Item 401(h)(2) of Regulation S-K.
The Compensation Committee is charged with establishing the compensation
for the Company's Chief Executive Officer and the other executive officers, as
well as guidelines for the administration of incentive and equity-based
compensation plans. See "Report of the Compensation Committee" below. The
Compensation Committee met 4 times during fiscal 2004. Mr. Williamson serves as
Chairman of the Compensation Committee and Mr. Lanham, Dr. Person and Dr. Ryan
serve on the committee. The Chairman and each member of the Committee are
"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 the charter is available on the Company's web
site, www.steaknshake.com.
The Nominating/Corporate Governance Committee is charged with making
recommendations regarding the nomination of appropriate individuals for election
to the Board of Directors, overseeing the Company's Corporate Governance
Guidelines, allocating Board resources to various committees and evaluating the
performance of the Board, its Committees and its individual members. Dr. Ryan
is the Chairman of the Committee and Messrs. Goldsmith, Lanham and Risk serve on
the Committee. During fiscal year 2004 the Committee met 4 times. The
Committee operates under a written charter that was approved by the Board of
Directors. A copy may be obtained on the Company's web site,
www.steaknshake.com. The Chairman and all members of the Committee are
"independent" as that term is defined in the listing standards of the New York
Stock Exchange.
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
and the Company at the time. Of particular importance are the candidate's
experience, judgment, integrity, ability to make independent inquiries,
understanding of the Company's business environment and willingness and ability
to devote adequate time to Board activities. The Nominating/Corporate
Governance Committee will 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.
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. 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 the Company mailed proxy materials for the preceding
year's annual meeting.
Nominations for directors must include the following information (i) a
statement of the qualifications of the nominee; (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 giving notice; (iv) a representation that the
shareholder is a holder of Company's 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.
The Personnel/Benefits Committee makes determinations and recommendations
to the Board of Directors regarding personnel policies and employee benefit
plans, administers the Company's 401k and Profit Sharing Plan and performs such
other functions with respect to personnel and benefit matters as may be
requested by the Board. The Personnel/Benefits Committee met one time during
fiscal 2004. Mr. Lanham is Chairman of the Committee and Dr. Person and Mr.
Kelley are members, together with Mr. Blade, Senior Vice President and Chief
Financial Officer, Mr. Reinwald, Executive Vice President, Ms. Roxanne Crosby,
Senior Vice President of Human Resources, and Ms. B. Charlene Boog, Associate
Vice President, Administration. Mr. Gilman and Mr. Dunn serve as ex officio
members of the Committee.
During fiscal year 2004 the Board of Directors formed the Acquisitions
Committee to explore, negotiate and, if appropriate, finalize the merger of
Kelley Restaurants, Inc. ("KRI") into a subsidiary of Steak n Shake Operations,
Inc. Mr. Risk served as chairman of the Committee, and Mr. Goldsmith, Dr. Ryan,
Dr. Person and Mr. Dunn served on the Committee. Messrs. Kelley, Gilman,
Williamson and Lanham were specifically excluded from any involvement with the
Acquisitions Committee as a result of their status as shareholders in KRI. The
Acquisitions Committee met two times during fiscal 2004.
During fiscal year 2004 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. All Directors
attended the 2004 Annual Meeting of Shareholders.
Pursuant to the listing requirements of the New York Stock Exchange, the
non-management directors of the Company met in four executive sessions without
management during the 2004 fiscal year. Mr. Williamson, the Lead Outside
Director, presides over these executive sessions. Interested parties may
communicate directly with the presiding director or with the non-management
directors as a group via letter directed to Mr. Williamson at the address shown
on the first page of this Proxy.
SHAREHOLDER COMMUNICATION WITH THE BOARD
The Board has implemented a process whereby shareholders of the Company may
send communications to the Board's attention. Any shareholder desiring to
communicate with the Board, or one or more specified members thereof, 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. The
Secretary has been instructed by the Board to promptly forward all such
communications to the specified addressees thereof.
COMPENSATION OF DIRECTORS
During fiscal year 2004 directors received an annual fee of $18,000. They
received $2,500 per board meeting attended and $1,000 per telephonic board
meeting attended. They also received $1,000 for each committee meeting attended
that was not held in conjunction with a Board of Directors' meeting and $500 for
each committee meeting attended that was held in conjunction with a Board of
Directors' meeting. Mr. Risk was paid an additional annual fee of $20,000 for
his services as Chairman of the Audit Committee. Mr. Williamson was paid an
additional annual fee of $25,000 for his services as Chairman of the Executive
Committee, Chairman of the Compensation Committee and Lead Outside Director.
Dr. Ryan was paid an additional annual fee of $15,000 for his services as
Chairman of the Nominating/Corporate Governance Committee. Directors who were
also officers of the Company were not paid for their services on the Board. In
the fiscal year ended September 29, 2004, the total compensation paid to
non-employee directors was $343,500. This figure includes $38,000 paid to
non-employee directors who served on boards of subsidiaries of the Company
(including Mr. Kelley, who serves on the Board of Steak n Shake Operations, Inc.
and was elected to the Company's Board on February 11, 2004). In addition, the
ordinary and necessary expenses of members of the Board of Directors incurred in
attending board and committee meetings are paid by the Company.
The Company believes in compensating its non-employee directors partly on
the basis of the Company's success in increasing the value of its stock so a
portion of a non-employee director's compensation comes from stock options. The
Company has had director stock option plans (the "Director Plans") in place
since 1990, which provide for non-discretionary grants of nonqualified stock
options to the directors of the Company at a price equal to the fair market
value of the Common Stock on the date of grant. Options currently outstanding
under the Director Plans are exercisable as to 20% on the date of grant and 20%
on each anniversary of the date of grant until fully exercisable. The current
options expire five years from the date of grant.
Options for the non-employee directors to purchase an aggregate of 38,000
shares of Common Stock were conditionally granted by the Board of Directors on
November 17, 2004, subject to shareholder approval at the 2005 Annual Meeting of
Shareholders. The conditional grants were made to Dr. Person and Dr. Ryan and
Messrs. Goldsmith, Kelley, Lanham, Risk and Williamson for 5,000 shares each,
and to Mr. Frank G. Regas, a director of a subsidiary of the Company, for 3,000
shares, at an option price equal to $18.26, the closing per share price on the
New York Stock Exchange on November 17, 2004. See "Approval of the 2005
Director Stock Option Plan," below.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company granted franchise rights in 1991 to KRI for development of
Steak n Shake restaurants in the Atlanta, Georgia and Charlotte, North Carolina
markets. KRI currently operates 13 restaurants in Atlanta, Georgia and 3 in
Charlotte, North Carolina. The Company recorded $1,706,000 in revenues from KRI
during fiscal year 2004. Mr. Kelley serves as President and director, and Mr.
Williamson and Mr. Gilman serve as directors of KRI and all are likewise
shareholders in KRI. Mr. Lanham is also a shareholder in KRI.
As described in its November 11, 2004 Form 8-K and press release, the
Company has entered into a merger agreement to merge SNS Merger Corporation, a
subsidiary of Steak n Shake Operations, Inc., into KRI, with closing of the
merger scheduled to occur on December 29, 2004.
Pursuant to the merger agreement, the issued and outstanding shares of KRI
common stock will be converted into the right to receive cash having an
aggregate value of approximately $20.5 million at closing, subject to
adjustment. The net value transferred at closing is anticipated to be
approximately $17.5 million, which includes adjustments for debt repayment,
working capital and other items. In addition, ten percent (10%) of the adjusted
purchase price will be deposited in escrow for up to 24 months from the closing
of the transaction in order to satisfy indemnification claims. Any amounts
remaining in escrow after the escrow period will be distributed to shareholders
of KRI.
The amount of cash each shareholder will receive as their initial payment
pursuant to the merger agreement will be determined by multiplying the number of
shares of KRI common stock owned by each such shareholder by the per share
exchange amount. It is currently anticipated that the per share exchange amount
will be $165. However, the actual per share exchange amount will not be
determined until the completion of the merger. Messrs. Kelley, Williamson,
Gilman and Lanham own (directly or beneficially) 8,942, 3,222, 1,000 and 3,616
shares, respectively, of KRI common stock.
In addition, the consummation of the merger is conditioned, among other
things, upon Steak n Shake Operations, Inc. entering into an employment
agreement with Wayne Kelley in his capacity as the President of KRI. Pursuant
to the employment agreement, Mr. Kelley would remain a full-time employee of KRI
for a period of two years and sixteen weeks. Mr. Kelley will receive an annual
salary of $205,000 per year and shall be entitled to a bonus of $57,000 if he is
still employed at the end of the employment period.
The negotiations for the merger were conducted between the Company's
Acquisitions Committee and Wayne Kelley. Messrs. Gilman, Williamson and Lanham
did not participate in negotiations or provide any input to either party
regarding the terms of the merger, other than to the extent they voted in favor
of the merger in their capacity as shareholders and directors of KRI.
The Company has obtained an independent fairness opinion and has reviewed
The terms of the merger and believes that the terms of the merger are on terms
no less favorable to the Company than would have been available in the absence
of the relationships described.
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows the compensation paid to the Company's Chief
Executive Officer and its other four most highly compensated executive officers
(the "Named Executive Officers") for the last three fiscal years:
SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation Long-Term Compensation
------------------- -----------------------
Restricted All Other
Fiscal Stock Awards Stock Options Compensation
Year Salary ($) Bonus ($) ($) (1) (#) (2) ($) (3)
-------------------------------------------------------------------------------------------
Alan B. Gilman (4) 2004 $500,000 $335,023 186,250 32,877 $20,692
Chairman 2003 $497,692 $349,344 None 10,000 $14,906
2002 $425,000 $137,500 None 66,681 $16,777
Peter M. Dunn(5) 2004 $463,846 $335,023 298,000 45,000 $16,237
President and 2003 $340,577 $244,541 214,000 20,000 $ 1,442
Chief Executive 2002 $ 0 None None None $ 0
Officer
Gary T. Reinwald 2004 $245,000 $ 84,871 134,100 17,166 $12,903
Executive Vice 2003 $245,000 $ 92,226 None 3,239 $11,386
President 2002 $221,690 $ 64,070 None 40,341 $ 9,084
Gary S. Walker 2004 $205,000 $ 74,477 104,300 11,000 $16,808
Senior Vice 2003 $205,000 $ 78,244 None None $ 6,915
President 2002 $185,580 $ 55,270 None 22,000 $10,150
Roxanne Crosby (6) 2004 $176,077 $ 71,147 123,200 11,000 $ 4,825
Senior Vice 2003 $ 0 None None None $ 0
President 2002 $ 0 None None None $ 0
(1) The amounts shown in this column represent the market value of the restricted stock awarded under the
Company's Capital Appreciation Plan and were calculated by multiplying the closing market price of the
Company's Common Stock on the date of award by the number of shares awarded. The number and value of the
aggregate unvested restricted stock holdings of each of the Named Executive Officers as of September 29,
2004 are as follows: Mr. Gilman, 12,500 shares ($186,250); Mr. Dunn, 40,000 shares ($512,000); Ms. Crosby,
7,000 shares ($123,200); Mr. Reinwald, 9,000 shares ($123,200) and Mr. Walker, 7,000 shares ($104,300).
The shares of Common Stock are issued at the time of the award; however, these shares may not be transferred
for a period of three years thereafter and are forfeited to the Company if the grantee is not employed by
the Company (except for reasons of retirement, permanent disability or death) at the end of the period.
The amounts do not reflect the cash value of Book Units awarded in tandem with the restricted Common Stock,
which provide for a cash payment at the end of the three-year period equal to the sum of the net change in
book value per share and the dividends paid per share during the period, as adjusted for stock
dividends/splits. The recipient of the award is entitled to any dividends paid on outstanding Common Stock
subsequent to the date of the award.
(2) Options granted under the Employee Stock Option Plans provide for a reload option (the "Reload Option")
in the event the optionee surrenders other shares of the Company's Common Stock in payment for option
shares, in whole or in part. Any such Reload Option (i) will be for a number of shares equal to the number
of shares so surrendered; (ii) will have an expiration date which is 5 years from the Reload Option issuance
date; (iii) will be fully exercisable on the date of grant, and (iv) will have an exercise price equal to
the average market price of the Company's Common Stock on the five (5) business days before the shares were
surrendered to exercise the option. There is no Reload Option with respect to the exercise of a Reload
Option. Mr. Gilman's 2002 stock option grants include the grant of options for 25,000 shares on each of
October 1, 2001 and June 21, 2002, and the grant of a Reload Option for 16,681 shares on January 29, 2002.
His 2003 grant was the grant of a Reload Option for 10,000 shares on July 2, 2003. His 2004 grant was
25,000, with a reload option granted in an amount of 7,877. Mr. Dunn's 2003 option grant was the grant of
options for 20,000 shares on September 30, 2002. His 2004 grant was the grant of 45,000 options. Ms.
Crosby's 2004 grant was the grant of 11,000 options. Mr. Reinwald's 2002 stock option grants include the
grant of options for 16,000 shares on each of October 1, 2001 and June 21, 2002, and the grant of a Reload
Option for 8,341 shares on January 29, 2002. His 2003 option grant was the grant of a Reload Option for
3,239 shares on July 2, 2003. His 2004 grant was the grant of 16,000, with a reload grant of 1,166. Mr.
Walker's 2002 option grants include the grant of options for 11,000 shares on each of October 1, 2001 and
June 21, 2002. His 2004 grant was the grant of 11,000 options. More information regarding the fiscal 2004
stock option grants to the Named Executive Officers is set forth in the Option/SAR Grants in Last Fiscal
Year table, which follows.
(3) Includes (i) amounts payable pursuant to the Company's executive medical reimbursement plan which
provides for payment of certain medical expenses, as defined, of up to $3,500 for each plan year ending
October 31, (ii) amounts paid by the Company for or on behalf of each executive with respect to group life
insurance premiums for coverage in excess of $50,000, and (iii) amounts of annual profit sharing
contributions by the Company to the accounts of the Named Executive Officers under the Company's Employee
401k and Profit Sharing Plan.
(4) The Company has agreed that if Mr. Gilman leaves the Company's employment for any reason other than
retirement or termination by the Company for cause, he will be paid at his base compensation rate on the
date of termination for a period of nine months thereafter.
(5) The Company has agreed that if Mr. Dunn leaves the Company's employment for any reason other than
termination for malfeasance or retirement, he will be paid at his base compensation rate on the date of
termination for a period of 12 months thereafter.
(6) The Company has agreed that if Ms. Crosby leaves the Company for any reason except termination for
just cause she will be paid at her base compensation rate at the time of the termination for ten (10) months
thereafter.
The following table presents information for the Named Executive Officers
who received stock options during fiscal 2004 under the Company's Employee Stock
Option Plans:
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
--------------------------------------
Percentage of Potential Realizable
Total Options Value at Assumed Annual
Number of Granted to Rates of Stock Price
Options Employees in Exercise Price Expiration Appreciation for Option Term (1)
Name Granted Fiscal 2004 ($ per share) Date 5% ($) 10% ($)
--------------------------------------------------------------------------------------------------------------------
Alan B. Gilman
(Reload Option) 7,877 2.0% 18.85 01/12/09 41,023 90,649
Alan Gilman 25,000 6.4% 17.14 08/04/09 118,387 261,604
Peter Dunn 20,000 5.1% 14.90 10/01/08 82,332 181,932
Peter Dunn 25,000 6.4% 17.14 08/04/09 118,387 261,604
Gary Reinwald
(Reload Option) 1,166 0.3% 15.55 10/09/08 5,009 11,069
Gary Reinwald 16,000 4.1% 17.14 08/04/09 75,767 167,426
Gary Walker 11,000 2.8% 17.14 08/04/09 52,090 115,106
Roxanne Crosby 11,000 2.8% 17.60 12/01/08 53,488 118,195
(1) The dollar amounts under these columns are the result of calculations at the 5% and 10% rates as required by the
Securities and Exchange Commission and should not be considered a reliable forecast of future appreciation, if any, of the
Company's stock price. As an example, the Company's per share stock price would be $24.06 and $30.36 if increased by 5%
and 10%, respectively, compounded annually over a five-year option term on a grant price of $18.85.
The following table presents certain information for the Named Executive
Officers relating to exercises of stock options during fiscal year 2004 and, in
addition, information relating to the valuation of unexercised stock options:
AGGREGATED OPTION EXERCISES IN
FISCAL 2004 AND FISCAL YEAR END OPTION VALUES
---------------------------------------------
Number of Shares Underlying Value of Shares Underlying
Number of Dollar Unexercised Options On Unexercised Options On
Shares Acquired Value September 29, 2004 September 29, 2004(2)
Name On Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---------------------------------------------------------------------------------------------------------------
Alan Gilman 29,185 266,421 114,558 35,000 252,033 54,500
Peter Dunn 0 0 25,000 40,000 92,400 75,600
Gary Reinwald 1,500 4,980 81,896 22,400 348,419 34,880
Gary Walker 0 0 24,200 15,400 79,970 23,980
Roxanne Crosby 0 0 4,400 6,600 0 0
(1) Based on the New York Stock Exchange closing price of the Company's Common
Stock on the date of exercise.
(2) Based on the New York Stock Exchange closing price of the Company's Common
Stock on September 29, 2004, of $17.00 per share.
The following table presents certain information for the Named Executive
Officers relating to Capital Appreciation Plan grants during fiscal year 2004
and, in addition, information relating to the valuation of those grants:
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
------------------------------------------------------
Estimated Future
Number of Shares Performance or Other Payouts Under Non-
Units or Period Until Maturation Stock Price-Based
Name Other Rights or Payout Plans
--------------------------------------------------------------------------------
Threshold Target Maximum
--------------------------------------------------------------------------------
Alan B. Gilman 12,500 3 years - October 1, 2006 N/A N/A N/A
Peter Dunn 20,000 3 years - October 1, 2006 N/A N/A N/A
Gary T. Reinwald 9,000 3 years - October 1, 2006 N/A N/A N/A
Gary S. Walker 7,000 3 years - October 1, 2006 N/A N/A N/A
Roxanne Crosby 7,000 3 years - December 1, 2006 N/A N/A N/A
REPORT OF THE COMPENSATION COMMITTEE
The compensation of the Company's executive officers is determined by the
Compensation Committee of the Board of Directors (the "Committee"). The
Compensation Committee operates under a written charter approved by the Board of
Directors. A copy of its charter is available on the Company's web site,
www.steaknshake.com. The following report with respect to certain cash and
stock compensation paid or awarded to the Company's executive officers,
including the Named Executive Officers, during fiscal 2004 is furnished by the
directors who comprise the Compensation Committee.
GENERAL POLICIES
The Company's compensation programs are intended to enable the Company to
attract, motivate, reward and retain the high level management talent required
to achieve corporate objectives and, thereby, increase shareholder value. It is
the Company's policy to provide cash and stock incentives to its senior
management to achieve both short-term and long-term objectives and to reward
exceptional performance and contributions to the success of the Company's
business. To attain these objectives, the Company's executive compensation
program includes a competitive base salary, coupled with an added cash incentive
bonus, which is "at risk" based on the performance of the Company's business, as
reflected in the achievement of predetermined financial and operational
objectives. In addition, awards may be made under the Company's Capital
Appreciation Plan to a select group of executives and under the Company's
Employee Stock Option Plans to a broader group of management employees based
upon the potential contributions of each to the long-term profitability and
growth of the Company's business. As a general matter, as an executive
officer's level of management responsibility in the Company increases, a greater
portion of his or her potential total compensation depends upon the Company's
performance as measured by the attainment of defined financial and operational
performance objectives. In addition, all eligible Company employees, including
its eligible executive officers, participate in the matching component of the
Company's Employee 401k Savings Plan and the Company's Deferred Compensation
Plan.
RELATIONSHIP OF COMPENSATION TO PERFORMANCE
From time to time, the Committee establishes the salaries which will be
paid to the Company's executive officers. In setting base salaries, the
Committee takes into account a number of factors, including competitive
compensation data, the extent to which an individual may participate in the
incentive compensation plans maintained by the Company, and qualitative factors
bearing on an individual's experience, responsibilities, management and
leadership abilities and job performance.
In connection with the compensation determinations to be made, the Company
utilizes the Towers Perrin Annual Chain Restaurant Compensation survey and other
studies that become available to serve as reference points for the Committee and
the Board of Directors in establishing compensation programs for the Company's
executive officers and other management which are appropriate and competitive
within the industry.
The Committee also determines, with the approval of the Board of Directors,
the terms of the Company's Incentive Plan, in which the executive officers
participate. In doing so, the Committee reviews management's plans for the
Company's growth and profitability, determines the criteria for bonus awards,
including the bonus percentage level for each executive, and recommends to the
Board the level of attainment of financial performance objectives by the Company
for awards to be made under the Plan.
During fiscal 2004, each of the Company's executive officers received
compensation pursuant to the Company's annual Incentive Plan. Each year the
Board establishes, in advance, targeted earnings and sales growth goals. Each
executive job classification has a specific bonus percentage level based on the
level of responsibility that it requires, the impact it can have on the business
and prior performance by the associate. Bonuses are determined based on the
Company's actual earnings and sales results as compared to the targeted goals.
No bonus is paid for performance below a minimum threshold, and the payment is
reduced substantially for performance below the targets. The maximum amount
payable under the bonus plan is 2.5 times the individual bonus percentage level,
if increases are substantially above the targeted earnings and sales goals.
STOCK OPTION AWARDS
Stock options are granted to key employees by the Board, upon the
recommendation of the Committee, under the Company's Employee Stock Option Plans
(the "Plans"). The number of shares subject to options granted to each
individual generally depends upon his or her level of management responsibility.
The largest grants are awarded to the employees who, in the view of the Board,
have the greatest potential to impact the Company's profitability and growth and
increased shareholder value. Options under the Plans may be either incentive
stock options or nonqualified stock options at the discretion of the Committee
and are granted at an exercise price equal to 100% of the fair market value of
the Company's common stock on the date of the grant. The Committee has
discretion, as limited by the Plans, as to the duration of the option exercise
period and the vesting of the right to exercise within that period. Options
currently outstanding under the Plans are exercisable as to 20% on the date of
grant and 20% on each anniversary of the date of grant thereafter until fully
exercisable, with the exception of Reload Options, which are fully exercisable
on the date of grant. Reload Options represent an option to repurchase shares
used to pay the exercise price of any original option grant. A Reload Option is
not granted upon the exercise of a Reload Option, however. The majority of
outstanding options expire five years from the date of grant, with the exception
of options granted on April 29, 1998 and May 6, 1999, which expire ten years
from the date of grant. Stock option awards to the Named Executive Officers
over the past three fiscal years are disclosed in the Summary Compensation
Table.
There are two stock option plans currently in effect that were not approved
by the Company's shareholders, the 2000 Director Stock Option Plan and the 2002
Director Stock Option Plan. The 2000 Director Stock Option Plan called for an
award to each director of the Company of 3,000 options to purchase shares of
Company stock for $12.19 per share (unadjusted for dividends). The 2002
Director Stock Option Plan called for an award of 5,000 options to each director
of the Company to purchase shares of Company stock for $9.99 per share.
RESTRICTED STOCK AWARDS
Restricted stock awards under the Company's Capital Appreciation Plan may
be granted by the Board of Directors, upon recommendation by the Committee, to
executive officers and other key employees of the Company. The number of
restricted shares and book units awarded are intended to serve as a retention
vehicle and are based on the Board's evaluation of the contributions of each
grantee to the long-term profitability and growth of the Company. The grantee
holds all of the ownership rights to the stock from the date of grant, including
the right to vote the stock, but may not transfer or assign the stock during a
period of three years following the date of the grant. These shares are
forfeited to the Company if the grantee is not employed by the Company (except
for reasons of retirement, permanent disability or death) at the end of the
period. Book units granted in conjunction with the shares are paid in cash at
the end of the forfeiture period in an amount equal to the sum of the net change
in book value per share and the dividends paid per share during the period, as
adjusted for stock dividends/splits. Restricted stock awards granted to the
Named Executive Officers over the past three fiscal years are disclosed in the
Summary Compensation Table.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Peter M. Dunn was elected as President and Chief Executive Officer of the
Company in 2004. The total compensation paid to Mr. Dunn during fiscal year
2004 was determined by the Committee and the Board of Directors in accordance
with the criteria described in the "Relationship of Compensation to
Performance," "Stock Option Awards" and "Restricted Stock Awards" sections in
this report. His base compensation was raised to $500,000 in February, 2004,
and he received an incentive bonus of $335,023, representing 67% of his fiscal
2004 base salary.
The foregoing report is respectfully submitted by the members of the
Compensation Committee:
James Williamson, Jr., Chairman Charles E. Lanham
Dr. Ruth J. Person Dr. John W. Ryan
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board is responsible for providing independent,
objective oversight of the Company's accounting functions and internal controls.
The Audit Committee operates under a written charter approved by the Board of
Directors. A copy of the charter is available on the Company's web site,
www.steaknshake.com.
Management is responsible for the Company's internal controls and financial
reporting process. The independent auditors are responsible for performing an
independent audit of the Company's consolidated financial statements in
accordance with auditing standards generally accepted in the United States of
America and issuing a report thereon. The Audit Committee's responsibility is
to monitor and oversee these processes.
The Audit Committee fulfills its responsibilities through periodic meetings
with the Company's independent auditors, internal auditors and the Company's
management. During fiscal year 2004, the Audit Committee met 4 times. In
addition, J. Fred Risk, the chairman of the Audit Committee, as a representative
of the Audit Committee, discussed the interim financial information contained in
each quarterly 10-Q filing with the Company's independent auditors and
management prior to public release.
The Audit Committee has reviewed the Company's audited financial statements
for the fiscal year ended September 29, 2004, and discussed them with management
and the Company's independent auditors. The Audit Committee's review included
discussion with the independent auditors of the matters required to be discussed
pursuant to the Statement on Auditing Standards No. 61 (Communication with Audit
Committees). The Audit Committee also received written disclosures from the
independent auditors as required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) and discussed with the
independent auditors that firm's independence. More information regarding the
Company's independent auditors is attached to this Proxy Statement as Appendix
A.
Based upon the Audit Committee's discussions with management and the
independent auditors and the Audit Committee's review of the representations of
management and the independent auditors, the Audit Committee recommended that
the Board of Directors include the audited financial statements in the Company's
Annual Report on Form 10-K for the year ended September 29, 2004, to be filed
with the Securities and Exchange Commission.
Pursuant to its charter, the Audit Committee selected Deloitte & Touche,
LLP as the Company's auditors for fiscal year 2004.
The foregoing report is respectfully submitted by the members of the Audit
Committee.
J. Fred Risk, Chairman Stephen Goldsmith
Charles E. Lanham Dr. John W. Ryan
COMPANY PERFORMANCE
The graph below compares for each of the last five fiscal years the
cumulative total return of the Company, the S&P 500, the S&P SmallCap 600 and
the S&P Restaurants Indices. The Company is included among the companies
comprising the S&P SmallCap 600, a major market index. The S&P Restaurants
Index is included in the graph in order to provide a more direct comparison of
the Company's returns to those of other companies in the restaurant business.
The cumulative total returns displayed below have assumed $100 invested on
September 30, 1999, in the Company's Common Stock, the S&P 500, the S&P SmallCap
600 and the S&P Restaurants Indices, and reinvestment of dividends paid since
September 30, 1999.
9/99 9/00 9/01 9/02 9/03 9/04
--------------------------------------------
Steak n Shake Company 100 90 112 124 168 193
S&P 500 100 113 83 66 82 94
S&P SmallCap 600 100 124 111 109 138 172
S&P Restaurants Index 100 124 111 99 122 159
1. APPROVAL OF THE 2005 DIRECTOR STOCK OPTION PLAN
Subject to approval by the vote in favor of adoption of the 2005 Director
Plan by persons holding a majority of the shares of Common Stock in attendance
and voting at the Annual Meeting, the Board of Directors of the Company
approved, on November 17, 2004, the 2005 Director Stock Option Plan for
non-employee members of the Board of Directors. Pursuant to the 2005 Director
Plan, discretionary, non-qualified stock options will be eligible for grant to
non-employee directors of the Company to purchase an aggregate of 150,000 shares
of the Company's Common Stock through and including December 31, 2012 or as
otherwise terminated in accordance with the Director Plan. The options have a
term of five years from the date of grant and are exercisable in annual
increments of 20% commencing on the date of grant. A total of 38,000 options
were conditionally granted on November 17, 2004, at an option price equal to
$18.26, the closing price of the Company's Common Stock on the New York Stock
Exchange on that date. Options are not transferable except by will or the laws
of descent and distribution.
The options were conditionally granted to seven of the Company's directors.
Dr. Person and Messrs. Goldsmith, Kelley, Lanham, Risk, Williamson and Dr. Ryan
conditionally received 5,000 shares, and the director of a subsidiary of the
Company, Mr. Frank G. Regas, conditionally received 3,000 shares, for a total of
38,000 shares. Further options may be granted to the Company's non-employee
directors under the 2005 Director Plan in subsequent years, in individual grants
to each director in increments of no more than 7,500 options. If any outstanding
options expire or terminate for any reason without having been exercised in
full, the forfeited options will not become eligible for further grant under the
2005 Director Plan. A copy of the 2005 Director Plan has been included as
Appendix B to this proxy statement, and the foregoing discussion is qualified in
its entirety by reference to that Appendix. The following table regarding the
2005 Director Plan is provided as required by regulations:
NEW PLAN BENEFITS
2005 DIRECTOR STOCK OPTION PLAN
-------------------------------
Name and Position Number of Options
------------------- -------------------
Alan B. Gilman 0
Peter M. Dunn 0
Gary T. Reinwald 0
Gary S. Walker 0
Roxanne Crosby 0
Executive Group 0
Non-Executive Director Group (1) 38,000
Non-Executive Officer Employee Group 0
(1) Includes one director of a subsidiary corporation as described above.
The following table provides information regarding the Company's current
equity compensation plans as of September 29, 2004. The information provided in
the table does not include the number of securities to be issued under the 2005
Director Plan, which is subject to shareholder approval at the Annual Meeting
and discussed more fully above. The table does include, however, all securities
previously approved for issuance.
EQUITY COMPENSATION PLAN INFORMATION
------------------------------------
Number of Securities
Remaining Available
Weighted-Average for Future Issuance
Number of Securities Exercise Price Under Equity
To be Issued Upon of Outstanding Compensation Plans
Exercise of Options (Excluding Securities
Outstanding Options Warrants and Reflected in
Plan Category Warrants and Rights Rights First Column)
--------------------------------------------------------------------------------
Equity compensation
plans approved
by shareholders (1) 1,330,530 $14.36 1,329,974(2)
Equity compensation
plans not approved
by shareholders (3) 46,500 $10.38 0
------------ ------ ------------
Total 1,377,030 $14.22 1,329,974
(1) Consists of 1995 and 1997 ESOP plans, 2003 and 2004 Director Stock Option
Plans, 1997 Capital Appreciation Plan, as amended and restated, and the 1992
Employee Stock Purchase Plan.
(2) The Capital Appreciation Plan provides for tandem awards of restricted
stock and book units. As of September 29, 2004, 526,622 shares remained
available for issuance pursuant to awards under that plan.
(3) Consists of the 2000 and 2002 Director Stock Option Plans.
FEDERAL INCOME TAX CONSEQUENCES OF NONQUALIFIED STOCK OPTIONS
An optionee will not be subject to tax at the time a nonqualified option is
granted; however, a director who exercises a nonqualified option must include in
income as of the date of exercise the difference between (a) the amount paid for
Common Stock upon exercise of the option and (b) the fair market value of the
Common Stock. The recognized income may be subject to withholding for federal,
state and local income and other payroll taxes. The optionee's federal income
tax cost basis for the Common Stock will be the amount paid for the Common Stock
plus the income recognized. If an optionee uses Common Stock in full or partial
payment of the exercise price of a nonqualified option, the exchange should not
affect the federal income tax treatment of the exercise. The optionee will
realize no gain or loss with respect to the Common Stock so used. The net
additional shares of Common Stock received upon such exercise by the optionee
will have a federal income tax cost basis equal to the ordinary income
recognized as a result of the option exercise (plus the amount of any cash used
in the option exercise) and a holding period commencing upon the date such
income is recognized. Subsequent sale of such Common Stock will result in a
capital gain or loss equal to the difference between the optionee's federal
income tax cost basis for the Common Stock and the sale price. The Company will
be entitled to a federal income tax deduction in the amount of the ordinary
income recognized by the optionee as of the date the optionee recognizes
ordinary income.
THE BOARD OF DIRECTORS AND MANAGEMENT RECOMMEND A VOTE "FOR" THE PROPOSAL
TO APPROVE THE STEAK N SHAKE COMPANY'S 2005 DIRECTOR STOCK OPTION PLAN AS
DESCRIBED ABOVE.
2. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Audit Committee replaced Ernst & Young, LLP ("E&Y") with Deloitte &
Touche LLP ("Deloitte") relative to the audit of the Company's 2003 financial
statements. The Audit Committee has also retained Deloitte for the Fiscal 2004
audit.
In connection with its audits for the two most recent fiscal years ended
September 29, 2004 and September 24, 2003, and through the present time, there
have been no disagreements with E&Y or Deloitte on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of E&Y or
Deloitte, would have caused them to make reference to the subject matter of the
disagreement in connection with their report on the financial statements for
such periods.
During the two most recent fiscal years ended September 29, 2004 and
September 24, 2003, and through December 1, 2004, there have been no reportable
events (as defined in Regulation S-K, Item 304(a)(1)(v)).
Deloitte was the Company's independent auditor for the years ended
September 24, 2003 and September 29, 2004 and will serve in that capacity for
the 2005 fiscal year unless the Audit Committee deems it advisable to change the
independent auditor. Representatives of Deloitte will be present at the Annual
Meeting, will have an opportunity to make a statement, and will be available to
respond to appropriate questions. A synopsis of the fees paid to Deloitte and
services provided by it, as well as fees charged by E&Y in fiscal 2003 are set
forth in Appendix A to this proxy statement.
THE BOARD OF DIRECTORS AND MANAGEMENT RECOMMEND A VOTE "FOR" THE RATIFICATION OF
DELOITTE & TOUCHE, LLP AS INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL
YEAR ENDING SEPTEMBER 28, 2005.
3. OTHER MATTERS
As of the date of this proxy statement, the Board of Directors of the
Company has no knowledge of any matters to be presented for consideration at the
Annual Meeting other than those set forth above. If any other matters should
properly come before the meeting, the proxies will be voted in accordance with
the recommendations of the Board of Directors of the Company.
APPENDIX A
----------
RELATIONSHIP WITH INDEPENDENT AUDITORS
On February 12, 2003, Ernst & Young ("E&Y") was succeeded as the Company's
independent auditor by Deloitte & Touche, LLP, ("Deloitte"). Deloitte examined
the Company's financial statements for the fiscal years ended September 24, 2003
and September 29, 2004. Representatives of Deloitte will be present at the
Annual Meeting, will have the opportunity to make a statement, and will be
available to respond to appropriate questions.
Deloitte and E&Y have advised the Company that they have billed or will bill the
Company the below indicated amounts for the following categories of services for
each of the Company's last two fiscal years.
2004 FISCAL YEAR
AUDIT FEES. . . . . . . . . . . . . . . . . . . . Deloitte & Touche
------------------------------------------------- ------------------
Audit Fees (1). . . . . . . . . . . . . . . . . . $ 171,635
Audit-Related Fees (2). . . . . . . . . . . . . . $ 13,000
Tax Fees (3). . . . . . . . . . . . . . . . . . . $ 6,290
All Other Fees (4). . . . . . . . . . . . . . . . $ 30,832
Total Fees for the Year Ended September 29, 2004. $ 221,757
2003 FISCAL YEAR
AUDIT FEES. . . . . . . . . . . . . . . . . . . . Ernst & Young Deloitte & Touche Total Amount
------------------------------------------------- -------------- ------------------ -------------
Audit Fees (1) $ 6,400 $ 155,000 $ 161,400
Audit-Related Fees (2) $ 25,500 $ 25,500
Tax Fees (3) $ 10,824 $ 1,000 $ 11,824
All Other Fees (4) $ 2,500 $ 17,390 $ 19,890
Total Fees for the Year Ended September 24, 2003 $ 19,724 $ 198,890 $ 218,614
(1) Audit fees include fees for services performed for the audit of the Company's annual
financial statements and review of financial statements included in the Company's 10-Q filings, S-3
and S-8 Registration statements, 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 the Company's financial statements.
This includes the audit of the Company's 401k and Profit Sharing Plan.
(3) Tax Fees are fees for services performed with respect to tax compliance, tax advice and tax
return review.
(4) All Other Fees are fees for other permissible work that does not meet the above category
descriptions. This includes: preparation and information related to Section 404 of the
Sarbanes-Oxley Act, an on-line research subscription, technical financial consulting and sales and
use tax software.
PRE-APPROVAL POLICY
The Audit Committee's policy is to pre-approve all audit and permissible
non-audit services provided by the independent auditor. These services may
include audit services, audit-related services, tax services and other services.
Pre-approval is generally provided for up to one year and any pre-approval is
detailed as to the particular service or category of services and is generally
subject to a specific budget. The independent auditor and management are
required to 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 2004, the Audit Committee approved the non-audit services performed by
Deloitte & Touche described on the prior page.
APPENDIX B
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THE STEAK N SHAKE COMPANY
2005 DIRECTOR STOCK OPTION PLAN
1. PURPOSE.
The purpose of The Steak n Shake Company 2005 Director Stock Option Plan
(the "Plan") is to provide those non-employee directors of The Steak n Shake
Company (the "Company") and its subsidiaries (the "Directors"), an opportunity
to acquire shares of Common Stock of the Company, (the "Common Stock"), thereby
providing them with an increased incentive to work for the success of the
Company and better enabling the Company to attract and retain directors.
2. ADMINISTRATION OF THE PLAN.
It is intended that the Plan be administered as a discretionary plan, with
the Board of Directors of the Company (the "Board") having discretion as to:
(a) the selection of Directors to whom stock options under the Plan shall be
granted, and
(b) the number of shares subject to options granted to each Director and the
terms of the options, subject to the limitations set forth herein.
The Board shall have the power to construe the Plan, to determine all
questions arising thereunder and to adopt and amend such rules and regulations
for the administration of the Plan as it may deem desirable. Any decision of
the Board in the administration of the Plan, as described herein, shall be final
and conclusive. No member of the Board shall be liable for anything done or
omitted to be done by such member or by any other member of the Board in
connection with the Plan, except for such member's own willful misconduct or as
expressly provided by statute.
3. TAX STATUS.
Options granted under the Plan will not be entitled to special tax
treatment under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code").
4. ELIGIBILITY.
Options may be granted only to persons who serve as Directors of the
Company or its subsidiaries and who are not employees or eligible to participate
in any of the employee stock option plans sponsored by the Company.
5. STOCK SUBJECT TO THE PLAN.
There shall be reserved for issuance upon the exercise of options granted
under the Plan 150,000 shares of Common Stock of the Company, with a stated
value of $.50 per share, which may be authorized but unissued shares or treasury
shares of the Company. Subject to Section 8 hereof, the shares for which
options may be granted under the Plan shall not exceed that number. If any
option shall expire or terminate for any reason without having been exercised in
full, the unpurchased shares subject thereto shall not become available for
other options under the Plan.
6. INITIAL OPTION GRANTS AND SUBSEQUENT GRANTS.
(a) Subject to the approval of this Plan by the shareholders as provided in
Section 14, each person listed below shall receive an option to purchase the
number of shares of Common Stock indicated. Each option shall have a grant date
of November 17, 2005 and shall be immediately exercisable as to 20% of the
option grant. Thereafter, the grant shall become exercisable with respect to an
additional 20% on each anniversary of the date of grant. Each option shall
expire 5 years after the date of grant and shall be subject to earlier
termination as hereinafter provided.
Stephen Goldsmith 5,000 shares
Wayne L. Kelley 5,000 shares
Charles E. Lanham 5,000 shares
Ruth J. Person 5,000 shares
J. Fred Risk 5,000 shares
John W. Ryan 5,000 shares
James Williamson, Jr. 5,000 shares
Frank G. Regas 3,000 shares
(b) Subsequent Grants. Further grants under the Plan may be made no
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more frequently than annually by the Board to eligible persons. No individual
grant in any calendar year shall cover more than 7,500 shares.
7. TERMS OF OPTION.
Each option granted under the Plan shall be evidenced by a Stock Option
Agreement between the Company and the optionee and shall be subject to the
following terms and conditions:
(a) Option Price - The price to be paid for shares of Common Stock upon the
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exercise of each option shall be the fair market value on the date of grant. As
used herein, fair market value shall be the closing sales price for the Common
Stock on the New York Stock Exchange on the date of grant.
(b) Period for Exercise of Option - An option shall not be exercisable
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after five (5) years from the date on which such option is granted.
(c) Purchase of Shares - The option price of each share of Common Stock
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purchased upon exercise of an option shall be paid in full, in cash, at the time
of exercise; provided, however, that an optionee may exercise an option in whole
or in part by tendering to the Company whole shares of the Company's Common
Stock owned by him or her having a fair market value equal to the cash exercise
price of the shares with respect to which the option is being exercised. For
this purpose, any shares so tendered by an optionee shall be deemed to have a
fair market value equal to the average of the closing sales prices for the stock
on the New York Stock Exchange for the five trading days preceding the date of
exercise of the option. Shares of Common Stock used to exercise an option shall
have been held by the optionee for the requisite period of time to avoid adverse
accounting consequences to the Company with respect to the option. An option
may be exercised at any time and from time to time during the term of the option
as to any or all whole shares which have become subject to purchase pursuant to
the terms of the option or the Plan, but not at any time as to fewer than 100
shares. An option may be exercised only by written notice to the Company,
mailed to the attention of the Secretary of the Company, signed by the optionee
(or such other persons as shall demonstrate to the Company his or her right to
exercise the option), specifying the number of shares in respect of which it is
being exercised, and accompanied by payment of the option price for such shares.
The certificate or certificates for the shares as to which the option is
exercised shall be registered in the name of the person or persons exercising
the option and shall be delivered to or upon the order of that person or persons
as soon as practicable after such written notice is received by the Company. An
optionee shall not have any rights of a shareholder in respect to the shares
subject to an option until a certificate representing such shares has been
issued.
(d) Termination of Option - If an optionee ceases to be a director of
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the Company for any reason other than retirement, permanent and total disability
(within the meaning of Section 105(d)(4) of the Code), or death, any option
granted to him or her shall forthwith terminate. Leave of absence approved by
the Board of Directors shall not constitute cessation of directorship. If an
optionee ceases to be a director of the Company by reason of permanent or total
disability (within the meaning of Section 105(d)(4) of the Code), any option
granted to him or her may be exercised by him or her in whole or in part within
one year after the date of termination as a director by reason of such
disability. In the event of death of an optionee while serving as a director,
any option granted to him or her may be exercised in whole or in part at any
time after the date of death by the executor or administrator of his or her
estate or by the person or persons entitled to the option by will or by
applicable laws of descent and distribution until the expiration of the option
term. In the event of retirement, any option granted to him or her may be
exercised in whole or in part at any time until the expiration of the option
term. This provision applies regardless of whether an option was exercisable at
the time of retirement. Notwithstanding the foregoing provisions of this
subsection (d), no option shall, in any event, be exercisable after the
expiration of the period set out in subsection (b) above.
(e) Nontransferability of Option - An option may not be transferred by
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the optionee other than by will or the laws of descent and distribution and,
during the lifetime of the optionee, shall be exercisable only by him or her.
8. ADJUSTMENT OF SHARES.
In the event of any change after the effective date of the Plan in the
outstanding shares of Common Stock of the Company by reason of any
reorganization, recapitalization, stock split, stock dividend, combination of
shares, exchange of shares, merger or consolidation, liquidation, or any other
change after the effective date of the Plan in the nature of the shares of
Common Stock of the Company, the Company shall make a corresponding adjustment
in the number and kind of shares reserved under the Plan, and in the option
price and the number and kind of shares covered by outstanding options granted
and to be granted under the Plan as determined by the Board. Any determination
by the Board hereunder shall be conclusive.
9. TERMINATION.
The Plan shall terminate upon the later to occur of (a) the date on which
all shares available for issuance under the Plan have been issued pursuant to
the exercise of options granted hereunder; or (b) December 31, 2012; or (c) at
any other time upon determination by the Board.
10. AMENDMENT OR DISCONTINUANCE.
The Plan may be amended at any time and from time to time by the Board
as the Board shall deem advisable, including, but not limited to amendments
necessary to qualify for any exemption or to comply with applicable law or
regulations; provided, however, that except as provided in Section 8 above, the
Board may not, without further approval by the shareholders of the Company,
increase the maximum number of shares of Common tock as to which options may be
granted under the plan, reduce the option exercise price described in Section
7(a) above, or change the class of persons eligible to receive options under the
Plan. No amendment of the Plan shall materially and adversely affect any right
of any participant with respect to any options theretofore granted without such
participant's written consent.
11. GOVERNING LAW.
The terms of any options granted hereunder and the rights and obligations
hereunder of the Company, the Directors and their successors in interest shall
be governed by Indiana law, without giving effect to the conflict of laws
providing hereof.
12. GOVERNMENT AND OTHER REGULATIONS.
The obligations of the Company to issue or transfer and deliver shares
under the options granted under the Plan shall be subject to compliance with all
applicable laws, governmental rules and regulations, and administrative actions.
13. 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 Section 8. 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.
14. EFFECTIVE DATE.
The Plan shall become effective if adopted by the shareholders at the 2005
Annual Meeting of Shareholders by the holders of at least a majority of the
outstanding shares of the Common Stock represented in person or by proxy at the
2005 Annual Meeting.