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 (Amendment No. ___)
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 Rule 14a-11(c) or Rule 14a-12
TOTAL ENTERTAINMENT RESTAURANT CORP.
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
|X| No Fee Required
|_| Fee computed on table below per Exchange Act Rulrs 14a-6(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 in 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 No.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
300 Crescent Court
Building 300, Suite 850
Dallas, Texas 75201
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held on May 26, 1998
----------
To the Stockholders:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders (the
"Meeting") of TOTAL ENTERTAINMENT RESTAURANT CORP., a Delaware corporation (the
"Company"), will be held at the Fox & Hound English Pub & Grille, 18918 Midway
Rd., Dallas, Texas, 75287, 10:00 a.m. local time, for the following purposes:
1. To elect two (2) members of the Board of Directors to serve until the
2001 Annual Meeting of Stockholders and until their successors have
been duly elected and qualified;
2. To ratify the appointment of Ernst & Young, LLP as the Company's
independent auditors for the fiscal year ending December 29, 1998; and
3. To transact such other business as may properly be brought before the
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on April 21, 1998 as
the record date for the Meeting. Only stockholders of record on the stock
transfer books of the Company at the close of business on that date are entitled
to notice of, and to vote at, the Meeting.
By Order of the Board of Directors
/s/ JAMES K. ZIELKE
--------------------------
JAMES K. ZIELKE, Secretary
Dated: April 27, 1998.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, YOU ARE URGED TO FILL
IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE THAT IS PROVIDED,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
300 Crescent Court
Building 300, Suite 850
Dallas, Texas 75201
----------
PROXY STATEMENT
FOR
1998 ANNUAL MEETING OF STOCKHOLDERS
May 26, 1998
----------
INTRODUCTION
This Proxy Statement is being furnished to stockholders by the Board of
Directors of Total Entertainment Restaurant Corp., a Delaware corporation (the
"Company"), in connection with the solicitation of the accompanying Proxy for
use at the 1998 Annual Meeting of Stockholders of the Company (the "Meeting") to
be held at the Fox & Hound English Pub & Grille, 18918 Midway Rd., Dallas,
Texas, 75287, 10:00 a.m. local time, or at any adjournments thereof.
The principal executive offices of the Company are located 300 Crescent
Court, Building 300, Suite 850, Dallas, Texas 75201. The approximate date on
which this Proxy Statement and the accompanying Proxy will first be sent or
given to stockholders is April 27, 1998.
RECORD DATE AND VOTING SECURITIES
Only stockholders of record at the close of business on April 21, 1998, the
record date (the "Record Date") for the Meeting, will be entitled to notice of,
and to vote at, the Meeting and any adjournments thereof. As of the close of
business on the Record Date, there were outstanding 10,415,000 shares of the
Company's common stock, $.01 par value (the "Common Stock"). Each outstanding
share of Common Stock is entitled to one vote. There was no other class of
voting securities of the Company outstanding on the Record Date. A majority of
the outstanding shares of Common Stock present in person or by proxy is required
for a quorum.
ATTENDANCE AT THE ANNUAL MEETING
For admission to the Meeting, stockholders who own shares of Common Stock
in their own names should come to the stockholders check-in table, where their
ownership will be verified. Those who have beneficial ownership of Common Stock
that is held of record by a bank or broker (often referred to as "holding in
street name") should also come to the stockholders check-in table; they must
bring acccount statements or letters from their banks or brokers indicating that
they owned the Company's Common Stock as of the Record Date.
The doors to the Fox & Hound English Pub & Grille will be opened at 9:30
a.m. and the Meeting will begin at 10:00 a.m.
VOTING OF PROXIES
Shares of Common Stock represented by Proxies, which are properly executed,
duly returned and not revoked, will be voted in accordance with the instructions
contained therein. If no specification is indicated on the Proxy, the shares of
Common Stock represented thereby will be voted (i) for the election as Directors
of the persons who have been nominated by the Board of Directors, (ii) for the
ratification of the appointment of Ernst & Young, LLP as the Company's
independent auditors for the fiscal year ending December 29, 1998 and (iii) for
any other matter that may properly be brought before the Meeting in accordance
with the judgment of the person or persons voting the Proxy. The execution of a
Proxy will in no way affect a stockholder's right to attend the Meeting and vote
in person. Any Proxy executed and returned by a stockholder may be revoked at
any time thereafter if written notice of revocation is given to the Secretary of
the Company prior to the vote to be taken at the Meeting, or by execution of a
subsequent proxy which is presented to the Meeting, or if the stockholder
attends the Meeting and votes by ballot, except as to any matter or matters upon
which a vote shall have been cast pursuant
<PAGE>
to the authority conferred by such Proxy prior to such revocation. For purposes
of determining the presence of a quorum for transacting business at the Meeting,
abstentions and broker "non-voters" (i.e., proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owner or other persons entitled to vote shares on a particular matter with
respect to which the brokers or nominees do not have discretionary power) will
be treated as shares that are present but which have not been voted.
The cost of solicitation of the Proxies being solicited on behalf of the
Board of Directors will be borne by the Company. In addition to the use of the
mails, proxy solicitation may be made by telephone, telegraph and personal
interview by officers, directors and employees of the Company. The Company will,
upon request, reimburse brokerage houses and persons holding Common Stock in the
names of their nominees for their reasonable expenses in sending soliciting
material to their principals.
SECURITY OWNERSHIP
The following table sets forth information concerning ownership of the
Company's Common Stock, as of April 21, 1998, by each person known by the
Company to be the beneficial owner of more than five percent of the Common
Stock, each director, each executive officer as defined in Item 402(a)(3) of
Regulation S-K ("Item 402(a)(3)") and by all directors and executive officers of
the Company as a group. Unless otherwise indicated, the address for five percent
stockholders, directors and executive officers of the Company is 300 Crescent
Court, Building 300, Suite 850, Dallas, Texas 75201.
<TABLE>
<CAPTION>
Name and Address Shares Percentage
of Beneficial Owner Beneficially Owned of Class
------------------- ------------------ ----------
<S> <C> <C>
Jamie B. Coulter ................................................... 2,080,000 20.0
Gary M. Judd ....................................................... 140,000 1.3
James K. Zielke .................................................... 50,000 *
Dennis L. Thompson(1)............................................... 539,800 5.2
Thomas A. Hager(2) ................................................. 725,600 7.0
Steven Wolosky ..................................................... 29,920 *
William F. Orthwein ................................................ 20,000 *
Christopher Goldsbury .............................................. -- --
Stephen P. Hartnett(3) ............................................. 361,240 3.5
4504 Winewood Court
Colleyville, Texas 76034
United Strategic Trading II, Inc ................................... 494,240 4.7
4504 Winewood Court
Colleyville, Texas 76034
Organized Capital II, Ltd .......................................... 526,800 5.1
4504 Winewood Court
Colleyville, Texas 76034
All directors and executive officers as a group (8) persons(1)(2).. 3,585,320 34.4
</TABLE>
- --------------
* Less than 1%
(1) Includes 244,900 shares held by Mr. Thompson's wife, Sharon K. Thompson.
Mr. Thompson disclaims beneficial ownership of these shares.
(2) Includes (i) 72,000 shares held by Mr. Hager as custodian for the benefit
of his two children and (ii) 326,800 shares of Common Stock held by Mr.
Hager's wife, Karen P. Hager. Mr. Hager disclaims beneficial ownership of
the shares held by his wife.
(3) Excludes 494,240 shares held by United Strategic Trading II, Inc. and
526,800 shares held by Orgainzed Capital II, Ltd. Mr. Hartnett is a trading
advisor to these entities, certain members of Mr. Hartnett's family are
stockholders or partners of such entities and Mr. Hartnett is the sole
stockholder of the corporate general partner of Organized Capital II, Ltd.
Mr. Hartnett's wife, Sandra Hartnett, holds approximately 34% and 20% of
the issued and outstanding stock or partnership interests of such
companies, respectively. Mr. Hartnett disclaims beneficial ownership of
these shares.
2
<PAGE>
PROPOSAL I -- ELECTION OF DIRECTORS
Article Fifth, Paragraph B of the Certificate of Incorporation of the
Company, and Article Two, Section 2.1 of its By-Laws provide for the
organization of the Board of Directors into three classes. The number of
Directors is established by the By-Laws pursuant to Board authorization.
Currently the By-Laws provide for seven (7) Directors. All nominees for Director
are currently directors of the Company. Dennis L. Thompson and Thomas A. Hager
were appointed to the Board of Directors in February 1997 and July 1997,
respectively. All Directors are chosen for a full three-year term to succeed
those whose terms expire. It is therefore proposed that two (2) Directors be
elected to serve until the Annual Meeting of Stockholders to be held in 2001 and
until their successors are elected and shall have qualified.
Unless otherwise specified, all Proxies received will be voted in favor of
the election of Dennis L. Thompson and Thomas A. Hager, the two (2) nominees.
Directors shall be elected by a plurality of the votes cast, in person or by
proxy, at the Meeting. Abstentions from voting and broker nonvotes on the
election of directors will have no effect since they will not represent votes
cast at the Meeting for the purpose of electing directors. The terms of the
nominees expire at the Meeting and when their successors are duly elected and
shall have qualified. Management has no reason to believe that either of the
nominees will be unable or unwilling to serve as a director, if elected. Should
either of the nominees not remain a candidate for election at the date of the
Meeting, the Proxies will be voted in favor of the nominee who remains a
candidate and may be voted for a substitute nominee selected by the Board of
Directors.
The following table sets forth the ages and terms of office of the
Directors of the Company:
Term of Office
Name Age as Director Expires
---- ---- -------------------
Jamie B. Coulter .................. 57 2000
Gary M. Judd ...................... 39 1999
Dennis L. Thompson ................ 54 1998
Thomas A. Hager ................... 49 1998
Steven Wolosky .................... 42 1999
William F. Orthwein ............... 37 2000
Christopher Goldsbury ............. 54 2000
Jamie B. Coulter has served as Chairman of the Board since March 1997. Mr.
Coulter has served as Chairman and Chief Executive Officer of Lone Star
Steakhouse and Saloon, Inc. ("Lone Star") since January 1992 and was president
of Lone Star from 1992 through 1995 (and a director and executive officer of
various subsidiaries of Lone Star since 1991). Between 1965 and 1980, Mr.
Coulter and his partners developed and operated Pizza Hut and Kentucky Fried
Chicken restaurants as one of the largest franchisees of both systems. From 1980
to May 1997, Mr. Coulter had been the sole stockholder, chairman, chief
executive officer and president of various Pizza Hut entities operating more
than 80 Pizza Hut restaurants in 11 states. Since 1980, Mr. Coulter has been the
sole stockholder and president of Coulter Enterprises, Inc. ("Coulter
Enterprises"), a management and consulting company that provides management,
accounting and administrative services for Mr. Coulter's Pizza Hut franchises
and other affiliated and non-affiliated businesses.
Gary M. Judd has served as Chief Executive Officer, President and Chief
Operating Officer and Director since June 1997. Mr. Judd served as vice
president of special projects with Coulter Enterprises from October 1993 to May
1997. From March 1989 to September 1993, Mr. Judd was employed by Western
Sizzlin, Inc. in various capacities, most recently as director of franchise
operations. From March 1984 to February 1989, Mr. Judd served as a director of
operations with Coulter Enterprises.
Dennis L. Thompson has been a Director of the Company since February 1997
and from 1989 to 1997 was an investor with Bailey Sports Grille, Inc., of which
he was co-founder. Since January 1998, Mr. Thompson has been a private investor.
Mr. Thompson served as senior vice president of real estate of Lone Star from
January 1992 to December 1997 and has been a director of Lone Star since January
1992. Mr. Thompson's term as director of Lone Star expires in May 1998, and he
is not seeking re-election. From 1989 to December 1997, Mr. Thompson was an
executive officer and a director of various subsidiaries of Lone Star. From 1985
to August 1995, he was an executive officer, director and stockholder of
Creative Culinary Concepts Inc., a company that owned and operated Lone Star
Steakhouse and Saloons and certain other restaurants.
3
<PAGE>
Thomas A. Hager has been a Director of the Company since July 1997. Mr.
Hager was a co-founder of Bailey's Sports Grille, Inc. and served as its
president from inception in November 1989 until February 1997. Prior to founding
Bailey's Sports Grille, Inc., Mr. Hager owned and operated a restaurant in
Charlotte, North Carolina. Mr. Hager is also the founder of Thomas Advertising,
Inc., a national billboard advertising agency, where he has served as president
since its inception in 1983.
Steven Wolosky has been a Director of the Company since July 1997. Mr.
Wolosky has been a partner of the law firm of Olshan Grundman Frome & Rosenzweig
LLP since January 1987. Mr. Wolosky is also a director of Uniflex, Inc., a
company that designs, manufactures and sells a variety of plastic products, and
assistant secretary of WHX Corp., a holding company for an integrated steel
manufacturer.
William F. Othwein has been a Director of the Company since July 1997. Mr.
Orthwein has been an independent floor trader in the Standard and Poor's 500 pit
at the Chicago Mercantile Exchange since 1984.
Christopher Goldsbury has been a Director of the Company since July 1997.
Mr. Goldsbury has been the president and chief executive officer of Silver
Ventures, a San Antonio, Texas based private investment company since March
1995. Prior thereto, Mr. Goldsbury was employed by Pace Foods, Inc., a San
Antonio, Texas based company that produces Pace Picante Sauce. Mr. Goldsbury
joined Pace Foods in 1969, held positions in both production and sales from 1969
to 1979, was president from 1979 to 1982 and chairman of the board and chief
executive officer from 1982 to March 1995.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES.
Meetings
For the fiscal year ended December 30, 1997, there were two meetings of the
Board of Directors. All directors attended each meeting other than Mr.
Goldsbury. From time to time, the members of the Board of Directors act by
unanimous written consent pursuant to the laws of the State of Delaware. The
Board of Directors does not have a standing nominating committee.
The Board of Directors has created an Audit Committee, a Compensation
Committee and a Stock Option Committee. The Audit Committee is composed of
independent directors and is charged with reviewing the Company's annual audit
and meeting with the Company's independent auditors to review the Company's
internal controls and financial management practices. The Compensation
Committee, which is also composed of independent directors, recommends to the
Board of Directors compensation for the Company's key employees. The Stock
Option Committee is also composed of independent directors and administers the
Company's 1997 Incentive and Nonqualified Stock Option Plan (the "Plan") and
awards stock options thereunder. The members of the Audit Committee are Messrs.
Hager, Orthwein and Wolosky. The members of the Compensation Committee are
Messrs. Goldsbury, Orthwein and Wolosky. The members of the Stock Option
Committee are Messrs. Goldsbury, Orthwein and Thompson. During 1997, there was
one meeting of the Audit Committee and no meetings of the Compensation Committee
or Stock Option Committee. From time to time, such committees act by written
consent in lieu of a meeting.
Other Executive Officers
James K. Zielke, 33, has served as Chief Financial Officer and Secretary
since April 1997. From January 1997 until April 1997, Mr. Zielke was the senior
director-tax for PepsiCo Restaurant Services Group, Inc. Mr. Zielke was employed
by Pizza Hut, Inc. from March 1993 until January 1997, most recently as
director-tax from March 1995 until January 1997. Prior to his employment by
Pizza Hut, Inc., Mr. Zielke was employed by Ernst & Young, LLP from June 1986
until March 1993.
4
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to all executive officers with respect to the fiscal year ended December
30, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
--------------------------- ----------------------------------------
Number of
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus($) Compensation Options(#) Compensation(1)
- ---------------------- ---- ------ -------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Jamie B. Coulter ...................... 1997 -- -- -- 500,000 --
Chairman of the Board
Gary M. Judd .......................... 1997 $95,538 -- -- 100,000 --
Chief Executive Officer,
President and Chief
Operating Officer
Michael A. Nahkunst ................... 1997 $13,720 -- -- --(2) --
Chief Executive Officer,
President and Chief
Operating Officer
James K. Zielke ....................... 1997 $91,127 -- -- 50,000 --
Chief Financial Officer
</TABLE>
- ----------
(1) Perquisites and other personal benefits, securities or property received by
each executive officer did not exceed the lesser of $50,000 or 10% of such
executive officer's annual salary and bonus.
(2) 100,000 options granted to Mr. Nahkunst were cancelled as a result of the
termination of his employment.
Option Grant Table
The following table sets forth certain information regarding stock option
grants made to the executive officers for services performed during the fiscal
year ended December 30, 1997.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Value at Assumed Rates of Stock
Price Appreciation for Option Term
Individual Grants (1)(2)
------------------------------------ ---------------------------------------------------
% of Total
Number of Options
Securities Granted to Exercise
Underlying Employees in or Base Expiration
Name Options(#) Fiscal Year Price ($/Sh) Date 5% 10%
----- ---------- ----------- ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jamie B. Coulter ................... 500,000 60.3% $9.000 07/17/07 $2,830,000 $7,172,000
Gary M. Judd ....................... 100,000 12.1% $9.000 07/17/07 $566,000 $1,434,000
James K. Zielke .................... 50,000 6.0% $9.000 07/17/07 $283,000 $717,000
</TABLE>
- ----------
(1) The options indicated vest ratably over a five-year period that commences
on July 17, 1998.
(2) The potential realizable portion of the foregoing table illustrates value
that might be realized upon exercise of options immediately prior to the
expiration of their term, assuming the specified compounded rates of
appreciation on the Company's Common Stock over the term of the options.
These numbers do not take into account provisions of certain options
providing for termination of the option following termination of
employment, nontransferability or differences in vesting periods.
Regardless of the theoretical value of an option, its ultimate value will
depend on the market value of the Common Stock at a future date, and that
value will depend on a variety of factors, including the overall condition
of the stock market and the Company's results of operations and financial
condition. There can be no assurance that the values reflected in this
table will be achieved.
5
<PAGE>
Option Exercise Table
No options were exercised by the executive officers during the fiscal year
ended December 30, 1997. The following table sets forth certain information
concerning unexercised options held as of December 30, 1997 by the executive
officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options at In-the Money Options at
December 30, 1997 December 30, 1997 ($)(1)
--------------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ----- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jamie B. Coulter ............... -- 500,000 -- --
Gary M. Judd ................... -- 100,000 -- --
James K. Zielke ................ -- 50,000 -- --
</TABLE>
- ----------
(1) Such amounts are based on the closing price of a share of Common Stock
($4.500) as reported by the Nasdaq National Market ("NASDAQ") on December
30, 1997.
Directors Compensation
Directors who are not employees of the Company ("Eligible Directors")
receive an annual fee of $3,000 and a fee of $500 for each Board of Directors
meeting attended and are reimbursed for their expenses. Employees who are
Directors are not entitled to any compensation for their service as a Director.
Eligible Directors are also entitled to receive grants of options under the
Company's 1997 Directors Stock Option Plan (the "Directors Plan"). Each Eligible
Director will receive a grant of an option to purchase 10,000 shares of Common
Stock upon election to the Board of Directors, and will be granted another
option to purchase 3,000 shares of Common Stock annually thereafter so long as
he remains an Eligible Director. The exercise price for such shares is equal to
the closing sale price of the Common Stock as reported on the NASDAQ on the
closing date of grant. Currently, options to purchase 50,000 shares of Common
Stock are outstanding under the Directors Plan at an exercise price of $9.00 per
share.
Employment Agreements
The Company has entered into separate employment agreements, with each of
Messrs. Judd and Zielke, dated as of June 11, 1997 and April 7, 1997,
respectively, providing for the employment of such individuals as Chief
Executive Officer, President and Chief Operating Officer, and Chief Financial
Officer, respectively. Each employment agreement provides that the officer shall
devote substantially all of his professional time to the business of the
Company. The agreements provide for annual base salaries of $175,000 and
$125,000, respectively, for Messrs. Judd and Zielke, subject to increases as
determined by the Board of Directors. Each agreement terminates in April 2002
with an option by the Company to extend the term for an additional one-year
period and contains non-competition and non-solicitation provisions. Messrs.
Coulter, Hager and Thompson have also entered into non-competition,
confidentiality and non-solicitation agreements with the Company.
Joint Report by the Compensation Committee and the Stock Option Committee on
Executive Compensation
General
The Compensation Committee determines the cash and other incentive
compensation (with the exception of stock options which are granted by the Stock
Option Committee), if any, to be paid to the Company's executive officers and
key employees. Messrs. Goldsbury, Orthwein and Wolosky, independent directors of
the Company, serve as members of the Compensation Committee and the Messrs.
Goldsbury, Orthwein and Thompson, non-employee directors of the Company, serve
as members of the Stock Option Committee and are "non-employee directors"
(within the meaning of Rule 16b-3 under the Act). During fiscal 1997, there were
no meetings of the Compensation Committee or the Stock Option Committee.
6
<PAGE>
Compensation Philosophy
The Compensation Committee's executive compensation philosophy is to base
management's pay, in part, on the achievement of the Company's annual and
long-term performance goals, to provide competitive levels of compensation, to
recognize individual initiative, achievement and length of service to the
Company, and to assist the Company in attracting and retaining qualified
management. The Compensation Committee established executives' base salaries at
relatively low levels. It is the philosophy of the Compensation Committee in
tandem with the Stock Option Committee to provide officers with the opportunity
to realize potentially significant financial gains through the grants of stock
options. The Compensation Committee also believes that the potential for equity
ownership by management is beneficial in aligning management's and stockholders'
interest in the enhancement of stockholder value. However, the decision to
ultimately grant stock options is based primarily on the criteria set forth
under "Stock Option Plan" below.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), prohibits a publicly held corporation, such as the Company, from
claiming a deduction on its federal income tax return for compensation in excess
of $1 million paid in a given fiscal year to the chief executive officer (or
person acting in that capacity) at the close of the corporation's fiscal year
and the four most highly compensated officers of the corporation, other than the
chief executive officer, at the end of the corporation's fiscal year. The $1
million compensation deduction limitation does not apply to "performance-based
compensation." The Company believes that any compensation received by executive
officers in connection with the exercise of options granted under the Plan
qualifies as "performance-based compensation." Accordingly, the Company has not
established a policy with respect to Section 162(m) of the Code because the
Company has not and does not currently anticipate paying compensation in excess
of $1 million per annum to any employee.
Salaries
Base salaries for the Company's executive officers are determined initially
by evaluating the responsibilities of the position held and the experience of
the individual, food service and management experience, and by reference to the
competitive marketplace for management talent, including a comparison of base
salaries for comparable positions at comparable companies within the Company's
industry, which includes companies which comprise the Company's Peer Group, as
defined herein. Such companies are comparable in that they are fast-growth
companies. The Company believes salaries for its officers are below average as
compared to the companies reviewed. Annual salary adjustments are determined in
descending level of importance by (i) evaluating the financial results achieved
by the Company, which includes revenues, earnings, unit growth and profit
margins of the Company, (ii) the performance of the executive particularly with
respect to the ability to manage growth and profitability of the Company, (iii)
the length of the executive's service to the Company and (iv) any increased
responsibilities assumed by the executive. There are no restrictions on salary
adjustments of the Company. The Company has employment agreements, which were
approved by the Board of Directors, with Messrs. Judd and Zielke which set the
base salaries for such individuals. These base salaries are based on and are
reviewed annually in accordance with the factors described in this paragraph and
the terms of the employment agreements. See "Summary Compensation Table --
Employment Agreements."
Annual Bonuses
The Company does not currently have a formal bonus plan for its executives
and no bonuses were paid to executives for the 1997 fiscal year. The Company may
in the future adopt an executive bonus plan. As indicated under "Stock Option
Plan" below, the Company has granted options to its executive officers in part
to incentivize management by aligning management's and stockholders' interest in
the enhancement of stockholder value.
Compensation of Chief Executive Officer
Mr. Judd's base annual salary in 1997 was $125,000. Mr. Judd's base salary
is based upon the factors described in the "Salaries" paragraph above. Mr.
Judd's salary, by design, is below average as compared to the salaries of
executive officers of companies reviewed by the Company. As noted above, the
Company does not presently have a formal bonus plan for executives and no bonus
was paid to Mr. Judd for the 1997 fiscal year. See "Option Grant Table" for
options granted to Mr. Judd in July 1997.
7
<PAGE>
Stock Option Plan
It is the philosophy of the Stock Option Committee to tie a significant
portion of an executive's total opportunity for financial gain to increases in
stockholder value, thereby aligning the long-term interest of the stockholders
with the executives and to retain such key employee.
All salaried employees, including executives and part-time employees, of
the Company and its subsidiaries, are eligible for grants of stock options
pursuant to the Plan. In addition, because the executives' base salaries are
currently set below the average of similar positions in comparable companies
within the Company's industry, which includes companies which comprise the
Company's Peer Group, and because the Company presently maintains neither a
qualified retirement program nor a bonus plan for executives, the Plan is
intended to provide executives with opportunities to supplement their base
compensation.
Compensation Committee: Christopher Goldsbury
William F. Orthwein
Steven Wolosky
Stock Option Committee: Christopher Goldsbury
William F. Orthwein
Dennis L. Thompson
Compensation Committee Interlocks
The Compensation Committee consists of Messrs. Goldsbury, Orthwein and
Wolosky. Except as set forth in "Certain Relationships and Related Transactions
- -- Other Affiliated Transactions," none of such Directors was a party to any
transaction with the Company which requires disclosure under Item 402(j) of
Regulation S-K.
8
<PAGE>
Common Stock Performance
The following graph compares the total return on the Company's Common Stock
from the commencement of trading of the Company's Common Stock on July 18, 1997
to the total returns of the Standard & Poor's Mid-Cap 400 Index and the Standard
& Poor's Restaurant Industry Index (the "Peer Group").
COMPARISON OF TOTAL RETURN
FROM JULY 18, 1997 TO DECEMBER 30, 1997
AMONG
TOTAL ENTERTAINMENT RESTAURANT CORP.,
THE STANDARD & POOR'S MID-CAP 400 INDEX AND THE PEER GROUP
TOTAL SHAREHOLDER RETURNS
-------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Base
Period
Company/Index 17 Jul 97 Dec 97
================================================================================
Total Entertainment
Restaurant Corp. 100 44.51
S&P Restaurants Index 100 95.42
S&P MidCap 400 Index 100 109.79
Assumes $100 invested on July 18, 1997 in the Company's Common Stock, the
Standard & Poor's Mid-Cap 400 Index and the Peer Group. The calculations in the
table were made on a dividends reinvested basis.
There can be no assurance that the Company's Common Stock performance will
continue with the same or similar trends depicted in the above graph.
PROPOSAL II -- RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young, LLP as the Company's
independent auditors for the fiscal year ending December 29, 1998. Although the
selection of independent auditors does not require ratification, the Board of
Directors has directed that the appointment of Ernst & Young, LLP be submitted
to stockholders for ratification due to the significance of their appointment to
the Company. If stockholders do not ratify the appointment of Ernst & Young, LLP
as the Company's independent auditors, the Board of Directors will consider the
appointment of other certified public accountants. A representative of Ernst &
Young, LLP will be present at the Meeting and will be available to respond to
appropriate questions. The approval of the proposal to ratify the appointment of
Ernst & Young, LLP requires the affirmative vote of a majority of the votes cast
by all stockholders represented and entitled to vote thereon. An abstention,
withholding of authority to vote or broker non-vote, therefore, will not have
the same legal effect as an "against" vote and will not be counted in
determining whether the proposal has received the required stockholder vote.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG, LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 29, 1998.
9
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Services Agreement
The Company has entered into a services agreement with Coulter Enterprises,
pursuant to which the Company utilizes certain accounting and administrative
services provided by Coulter Enterprises. The services agreement initially
expired on December 30, 1997 and is renewable thereafter on a year-to-year
basis. For fiscal year 1997, the fixed annual charge, which was pro rated for
1997, was $94,000 and the per unit per 28-day accounting period fee was $426
plus reimbursement of all direct out-of-pocket costs and expenses. For the
fiscal year ended December 30, 1997, the Company incurred fees of $77,155 under
the services agreement. For fiscal year 1998, the fixed annual charge is
$194,500 and the per unit per 28-day accounting period fee is $466 plus
reimbursement of all direct out-of-pocket costs and expenses. The amount of the
services fee will be reviewed annually and will be subject to approval by a
majority of the disinterested directors of the Company.
Other Affiliated Transactions
Mr. Steven Wolosky, a Director of the Company, is a member of the law firm
of Olshan Grundman Frome & Rosenzweig LLP, which law firm has been retained by
the Company during the last fiscal year. Fees received from the Company by such
firm during the last fiscal year did not exceed 5% of such firm's or the
Company's gross revenues.
STOCKHOLDER PROPOSALS
In order to be considered for inclusion in the proxy materials to be
distributed in connection with the next Annual Meeting of Stockholders of the
Company, stockholder proposals for such meeting must be submitted to the Company
no later than December 28, 1998.
ANNUAL REPORT
All stockholders of record as of April 21, 1998 have been sent, or are
concurrently herewith being sent, a copy of the Company's Annual Report for the
fiscal year ended December 30, 1997. Such report contains certified consolidated
financial statements of the Company and its subsidiaries for the fiscal year
ended December 30, 1997.
By Order of the Company,
/s/ JAMES K. ZIELKE
--------------------------
JAMES K. ZIELKE, Secretary
Dallas, Texas
Dated: April 27, 1998
The Company will furnish, without charge, a copy of its Annual Report on Form
10-K for the fiscal year ended December 30, 1997 (without exhibits) as filed
with the Securities and Exchange Commission to stockholders of record on the
Record Date who make written request therefor to James K. Zielke, Secretary,
Total Entertainment Restaurant Corp., 300 Crescent Court, Building 300, Suite
850, Dallas, Texas 75201.
11
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
ANNUAL MEETING OF STOCKHOLDERS
MAY 26, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, a stockholder of Total Entertainment Restaurant Corp., a
Delaware Corporation (the "Company"), does hereby appoint Jamie B. Coulter and
Gary M. Judd and each of them, the true and lawful attorneys and proxies with
full power of substitution, for and in the name, place and stead of the
undersigned, to vote all of the shares of Common Stock of the Company which the
undersigned would be entitled to vote if personally present at the 1998 Annual
Meeting of Stockholders of the Company to be held at the Fox & Hound English Pub
& Grille restaurant located at 18918 Midway Road, Dallas, Texas 75287, on
Tuesday, May 26, 1998 at 10:00 a.m. local time, or at any adjournment or
adjournments thereof.
The undersigned hereby instructs said proxies or their substitutes:
1. ELECTION OF DIRECTORS: The election of the following directors: Dennis L.
Thompson and Thomas A. Hager, to serve until the 2001 annual meeting of
stockholders and until their successors have been duly elected and qualified.
[ ] FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY to vote for any
nominee(s), print names(s) below
---------------------------------
2. RATIFICATION OF APPOINTMENT OF AUDITORS: To ratify the appointment of Ernst &
Young, LLP as the independent auditors of the Company for the fiscal year
ending December 29, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed and dated, on the reverse side)
<PAGE>
(Continued from other side)
3. DISCRETIONARY AUTHORITY: To vote with discretionary authority with respect
to all other matters which may come before the Meeting.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH ANY DIRECTIONS HEREINBEFORE GIVEN.
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED TO ELECT THE NOMINEES AS
DIRECTORS, TO RATIFY THE APPOINTMENT OF ERNST & YOUNG, LLP AS THE COMPANY'S
INDEPENDENT AUDITORS AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXIES OR
PROXY WITH RESPECT TO ANY OTHER BUSINESS TRANSACTED AT THE ANNUAL MEETING.
The undersigned hereby revokes any proxy
or proxies heretofore given and ratifies
and confirms that all the proxies
appointed hereby, or any of them, or
their substitutes, may lawfully do or
cause to be done by virtue hereof. The
undersigned hereby acknowledges receipt
of a copy of the Notice of Annual Meeting
and Proxy Statement, both dated April 27,
1998, and a copy of the Company's Annual
Report for the fiscal year ended December
30, 1997.
DATED: _________________________, 1998
________________________________, (L.S.)
________________________________, (L.S.)
Signature(s)
NOTE: Your signature should appear the same as your name appears hereon. In
signing as attorney, executor, administrator, trustee or guardian, please
indicate the capacity in which signing. When signing as joint tenants, all
parties in the joint tenancy must sign. When a proxy is given by a corporation,
it should be signed by an authorized officer and the corporate seal affixed. No
postage is required if mailed in the United States.
