Things are heating up at Applebee's (NASDAQ:APPB). A proxy battle has broken out, now that a team led by Breeden Capital Management is looking to replace four of the casual dining chain's dozen board members.

Citing four straight years of deteriorating operating performance, Breeden had Applebee's ear at first. In a statement issued last night, Applebee's CEO Dave Goebel points out how Applebee's tried to meet Breeden in the middle. It agreed to add one of Breeden's four replacements -- the only one with restaurant and transaction experience -- to the board.

Breeden declined. Applebee's offered up a second seat, as well as the opportunity for Breeden to sign a confidentiality agreement to observe the strategic committee in action. The overtures were rebuffed, so now it's up to the shareholders.

Breeden's funds own more than 4 million shares of Applebee's, but that amounts to just more than 5% of the total outstanding shares. Breeden will have to win the backing of institutional and retail investors to replace a third of the struggling eatery's boardroom.

Goebel indicates that this has been the toughest casual dining environment in 15 years. Comps had risen for 31 consecutive quarters before skidding to a halt during last year's quarter that ended in June. It's been rough ever since.


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Rival Brinker (NYSE:EAT) has followed Applebee's lead in posting significant dips in comps in January and February, but spunkier concepts have survived. BJ's Restaurants (NASDAQ:BJRI), IHOP (NYSE:IHP), and Chipotle (NYSE:CMG) are all working on store-level winning streaks in this environment.

This doesn't mean that Applebee's should start serving deep-dish pizzas, Swedish pancakes, or overstuffed burritos, but obviously folks are still eating out somewhere.

Applebee's is trying. It's closing down two dozen poorly performing restaurants and is reviewing its advertising agency. These steps, and its initial concessions to Breeden, show that the company isn't afraid to mix things up to snap out of its rut. Will that be enough? Now it's up to you, Applebee's shareholders.

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Longtime Fool contributor Rick Munarriz needs to drive 7.2 miles to get to his nearest Applebee's -- but he'll do it gladly if he's hungry enough. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.