<PAGE>
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
BUFFETS, INC.
- --------------------------------------------------------------------------------
(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:(1)
----------------------------------------------------------------------
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:
----------------------------------------------------------------------
(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
M1:0243862.01
<PAGE>
BUFFETS, INC.
10260 VIKING DRIVE
EDEN PRAIRIE, MINNESOTA 55344-7229
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
MAY 13, 1997
To the Shareholders of Buffets, Inc.
The annual meeting of shareholders of Buffets, Inc., a Minnesota
corporation, will be held in accordance with the By-laws of the Company on
Tuesday, May 13, 1997, at 9:00 a.m. at the Company's Old Country Buffet
restaurant, 4808 Highway 101, Minnetonka, Minnesota, for the following purposes:
1. Electing a board of six directors for the ensuing year;
2. Approving Deloitte & Touche LLP as independent auditors for the
Company for the current fiscal year; and
3. Transacting such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on March 28, 1997
will be entitled to notice of and to vote at the annual meeting.
You are cordially invited to attend the meeting. However, whether or
not you plan to be personally present at the meeting, please mark, date and sign
the enclosed proxy and return it promptly in the enclosed envelope. If you
later desire to revoke your proxy, you may do so at any time before it is
exercised.
BY ORDER OF THE BOARD OF DIRECTORS
H. Thomas Mitchell, Secretary
Eden Prairie, Minnesota
March 31, 1997
<PAGE>
BUFFETS, INC.
10260 VIKING DRIVE
EDEN PRAIRIE, MINNESOTA 55344-7229
PROXY STATEMENT
The approximate date on which this proxy statement and the
accompanying form of proxy are being first sent to shareholders is April 4,
1997.
SOLICITATION AND REVOCABILITY OF PROXY
The enclosed proxy is solicited on behalf of the Board of Directors of
Buffets, Inc., a Minnesota corporation, for use at the annual meeting of
shareholders to be held on May 13, 1997. The Company will bear the cost of
preparing and mailing the proxy, proxy statement and any other material
furnished to shareholders by the Company in connection with the annual meeting.
Proxies will be solicited by use of the mails, and officers and employees of the
Company may also solicit proxies by telephone or personal contact. Officers and
employees of the Company will receive no special remuneration for any such
solicitation activities. The Company will inquire of any record holders known
to be brokers, dealers, banks or their nominees whether other persons are the
beneficial owners of shares held in their names and, if so, will take steps
necessary to supply copies of solicitation materials to such beneficial owners.
All valid proxies will be voted at the annual meeting in accordance with the
instructions set forth in the proxies.
A shareholder executing a proxy may revoke it at any time before its
exercise by filing with the Secretary of the Company, before or at the meeting,
a written instrument of revocation or a duly executed proxy bearing a later
date.
The Common Stock of the Company, par value $.01 per share, is the only
authorized and outstanding voting security of the Company. Only those holders
of the Company's Common Stock whose names appear of record on the Company's
books at the close of business on March 28, 1997 will be entitled to notice of
and to vote at the annual meeting. At the close of business on March 28, 1997,
there were 45,204,504 shares of Common Stock outstanding, each entitled to one
vote per share. Holders of Common Stock do not have cumulative voting rights.
The Annual Report of the Company, including financial statements, for
the year ended January 1, 1997 is being furnished to each shareholder with this
proxy statement.
ITEM 1: NUMBER AND ELECTION OF DIRECTORS
GENERAL
The By-laws of the Company provide that at each annual meeting the
shareholders shall determine the number of directors to constitute the Board of
Directors and shall elect such directors. Each director elected serves until
the next annual meeting of shareholders and until his or her successor is
elected and qualified.
2
<PAGE>
NOMINEES
The Board of Directors recommends that the shareholders set the number
of directors at six and that the nominees named below be elected as directors of
the Company for the ensuing year. It is intended that the persons named as
proxies in the enclosed form of proxy will vote the proxies received by them for
the election as directors of the nominees named in the table below except as
specifically directed otherwise. Each nominee has indicated a willingness to
serve, but in case any nominee is not a candidate at the annual meeting, for
reasons not now known to the Company, the proxies named in the enclosed form of
proxy may vote for a substitute nominee in their discretion. Information
regarding these nominees is set forth in the table below.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
NAME (AGE) DIRECTOR SINCE FOR LAST FIVE YEARS
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Walter R. Barry, Jr. (63) 1995 Private investor since 1985; Executive
Vice President of General Mills Inc. from
June 1979 to December 1986; Director of
Interactive Technologies Inc. since May
1995 (1)
Roe H. Hatlen (53) 1983 Co-Founder of the Company; Chairman and
Chief Executive Officer of the Company
since 1983; President of the Company from
May 1989 to September 1992
Dr. Christian F. Horn (69) 1996 Director of the Company since September
1996; Director of HomeTown Buffet, Inc.
("HomeTown") from 1991 to 1996; President
and Chief Executive Officer of Horn
Investment Corp., a venture capital firm,
since 1991; President of Grace Ventures
Corporation, also a venture capital firm,
from 1983 to 1996; Managing Partner since
1987 of Horn Venture Partners, L.P. and
Horn Venture Partners II, L.P., the
general partners of Cupertino Ventures
Partnership II, L.P. and Cupertino
Ventures Partnership III, L.P.
respectively; Director of Roadhouse Grill,
Inc. since January 1994 and Chairman of
the Board since August 1996 (2) (3)
Alan S. McDowell (58) 1984 Private investor since 1983; Director of
AGCO Corporation (4)
C. Dennis Scott (50) 1996 Vice Chairman and Chief Operating Officer
of the Company since September 1996;
Co-Founder of HomeTown; Director and Chief
Executive Officer of HomeTown since 1989;
Co-Founder of the Company; President of
the Company from 1983 to 1989 (2)
3
<PAGE>
PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
NAME (AGE) DIRECTOR SINCE FOR LAST FIVE YEARS
- ----------------------------------------------------------------------------------------
David Michael Winton (68) 1990 Managing Partner, Winton Partners and
Parsnip River Company since early 1980s (5)
</TABLE>
- ----------------------
(1) General Mills Inc. markets consumer foods. Interactive Technologies Inc.
designs, markets and manufactures wireless security systems, access-control
systems and monitoring equipment.
(2) HomeTown was a publicly held operator of buffet-style restaurants until its
merger with Country Delaware, Inc., a wholly-owned subsidiary of the
Company, in September 1996 (the "HomeTown Merger"); it is now a wholly-
owned subsidiary of the Company.
(3) Roadhouse Grill, Inc. is a publicly held company that owns, operates,
licenses and franchises full-service, casual dining restaurants under the
name "Roadhouse Grill".
(4) AGCO Corporation is a publicly held farm equipment manufacturer and
distributor.
(5) Winton Partners and Parsnip River Company are investment partnerships.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock of the Company present in person or by proxy and entitled
to vote at the annual meeting is required for the election of each nominee. For
this purpose, a shareholder (including a broker) who does not give a proxy
authority to vote, or withholds authority to vote with respect to the election
of directors, shall not be considered present and entitled to vote on such
election. If a shareholder does not otherwise direct, the shares represented by
the proxy solicited hereby will be voted in favor of each of the above-named
nominees.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY VOTE
FOR THE ELECTION OF EACH NOMINEE NAMED ABOVE.
CERTAIN INFORMATION REGARDING
THE BOARD OF DIRECTORS OF THE COMPANY
During fiscal 1996, the Board of Directors of the Company met five
times and otherwise conducted business by written action. During this period
each director attended 75% or more of the aggregate of the total number of Board
meetings and total number of meetings held by all committees of the Board on
which he served. Board members who are not also officers or employees of the
Company receive a fee of $1,000 for each regular meeting attended, $500 for each
special meeting attended and a $2,000 quarterly fee. In addition, Board members
are reimbursed for travel expenses incurred in connection with Board and
committee meetings.
The Board of Directors has an Audit Committee consisting during
fiscal 1996 of Messrs. Barry, McDowell, Winton and Lipkin (who is not
standing for re-election as a director at the annual meeting). The principal
functions of the Audit Committee are to (i) recommend to the Board of
Directors the independent public accountants to act as the Company's
independent auditors; (ii) discuss with representatives of management and the
independent auditors the scope and procedures used in auditing the records of
the Company; and (iii) review the financial statements of the Company. The
Audit Committee met once during fiscal 1996. Audit Committee members receive
a fee of $500 for each special meeting attended.
4
<PAGE>
The Company also has a Compensation and Stock Option Committee (the
"Compensation Committee") consisting of Messrs. Lipkin, McDowell and Winton,
three of the five non-employee directors of the Company during fiscal 1996. The
principal functions of the Compensation Committee are to review and recommend
compensation for executive personnel and to administer the Company's stock
option plans. The Compensation Committee met three times during fiscal 1996 and
otherwise conducted business by written action. Compensation Committee members
receive a fee of $500 for each special meeting attended.
At the February 18, 1997 meeting of its Board of Directors, the
Company formed a Director Candidate Search Committee comprised of Messrs. Barry,
McDowell and Winton. The principal function of the Director Candidate Search
Committee is to identify suitable candidates to stand for election to the
Company's Board of Directors. The Director Candidate Search Committee has not
yet met as of the date of this proxy statement and has not yet formed a policy
regarding nominees recommended by shareholders.
Alan S. McDowell, a director of the Company, was paid $100,000 for
services rendered to the Company in his capacity as a director in connection
with the HomeTown Merger.
COMPENSATION OF EXECUTIVE OFFICERS
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
GENERAL
The Compensation Committee establishes the general compensation
policies of the Company and specific compensation for each executive officer of
the Company, and administers the Company's stock option plans. The Compensation
Committee attempts to structure the compensation packages of the executive
officers of the Company to attract and retain persons of exceptional quality and
to include effective incentives to motivate Company executives to continue the
success and growth of the Company.
The Company's executive compensation packages, the terms of which
generally are established early each year, consist of three principal
components: (i) base salaries, (ii) cash bonuses and (iii) stock options. The
Compensation Committee's basic compensation philosophy is that a significant
portion of each executive officer's compensation should be tied directly to the
Company's fortunes, and it accordingly provides cash bonuses tied to net pre-tax
profits that may approach and frequently exceed each such officer's annual base
compensation, and stock options with significant long-term appreciation
potential.
BASE SALARIES AND CASH BONUSES
In order to set the base salary and bonus formula for each executive
officer, including the Chief Executive Officer, the Compensation Committee
reviews the financial performance of the Company over the most recently
completed fiscal year (principally revenues, net income and return on equity),
the responsibilities and performance of each individual officer and the
compensation levels of personnel with similar responsibilities at other
comparable companies within the restaurant industry. Apart from the factors
described in the preceding sentence, members of the Compensation Committee also
take into account various other factors considered by them to be relevant in
evaluating the
5
<PAGE>
performance and appropriate compensation of each individual officer
(principally the rate of operating management turnover, the number and cost
of new restaurants opened during the preceding fiscal year, the performance
of both those restaurants and older restaurants, the level of various
categories of expenses and the general effectiveness of asset utilization).
All factors are evaluated subjectively in the sense that the Compensation
Committee does not attempt as part of its deliberations to rigorously weight,
quantify or otherwise relate them to specific levels of compensation. The
Compensation Committee believes that the inherent flexibility and
administrative simplicity of this approach outweigh the benefits of a more
elaborate quantitative approach.
In 1996, the Compensation Committee established the formulas for cash
bonuses to be paid to each executive officer of the Company (excluding the
executive officers appointed by the Company following the HomeTown Merger),
including the Chief Executive Officer, at the same time it determined base
salaries. Each such executive officer's cash bonus was computed as a percentage
of the Company's net pre-tax profits (excluding certain merger, asset impairment
and site closing costs). The Compensation Committee selected a percentage for
each such executive officer intended to result in bonus compensation which, if
the Company met profit objectives, would constitute a significant portion of
such executive officer's total cash compensation for the year, ranging from
.025% to 0.5% of net pre-tax profits.
The Compensation Committee selected higher percentages for more senior
executive officers, in part to reflect higher base salaries, but also to ensure
that a greater portion of such officers' total cash compensation was exposed to
the risk of Company performance. Accordingly, in 1996, the cash bonus paid to
the Chief Executive Officer represented approximately 56% of his total 1996 cash
compensation, and the aggregate bonuses paid to all of the executive officers of
the Company as a group (excluding the executive officers appointed by the
Company following the HomeTown Merger), including the Chief Executive Officer,
represented approximately 44% of the group's total 1996 cash compensation.
The Compensation Committee determined to maintain the 1996 salaries and
cash bonus formulas of the Company's executive officers (excluding the executive
officers appointed by the Company following the HomeTown Merger), including the
Chief Executive Officer, at 1995 levels.
STOCK OPTION PROGRAM
The Compensation Committee believes that compensation through the
Company's stock option program, which provides the opportunity for stock
ownership (and significant long-term appreciation in value), should represent
the most significant component of executive officer compensation. The
Compensation Committee believes that the use of such a stock option program is
the most effective means to align the long-term interests of its executive
officers with those of the Company's shareholders.
The Company's stock option plans authorize the Compensation Committee
to award key employees, including the Chief Executive Officer and the other
executive officers, options to purchase Common Stock of the Company. The stock
option plans provide the Compensation Committee with broad discretion to
determine the recipients of such awards and the terms of the options awarded.
The Compensation Committee has exercised such discretion in implementing a
program of annual stock option grants to Company employees. The annual grant
program, which has been in place for the past five years, consists of annual
grants of specified numbers of options to employees in specified job positions,
ranging from 500 options to restaurant level and certain
6
<PAGE>
administrative employees to 15,000 options to the Chief Executive Officer and
Chief Operating Officer, 12,500 options to the President, 10,000 options to
each Executive Vice President, and 5,000 options to each Vice President of
the Company. The Compensation Committee has established the number of options
to be granted to each participating employee after considering the same
factors considered in setting base salary and bonuses, as well as additional
factors such as the number of options available under the Company's stock
option plans and the historical performance of the Company's stock. The
number established for various levels of participating employees generally
increases with their authority and responsibility for Company affairs. Grants
are made at the time a person first qualifies for options under the program
(for example, when promoted to a new position) and then again annually in
each succeeding year. Employees may receive two option grants in any fiscal
year in which they have been promoted. The annual stock option grant program
is subject to change from time to time by the Compensation Committee.
In addition to the annual stock option grant program, the Compensation
Committee has made in the past, and may make in the future, further stock option
grants to employees, including executive officers. Additional information about
stock option awards made to each executive officer of the Company named in the
Summary Compensation Table is set forth in the tables below.
The Compensation Committee believes that its approach to compensation,
as represented by the different components of each executive officer's
compensation package, and the resulting levels of compensation paid to the
Company's executive officers, continues to be appropriate.
EXECUTIVE OFFICERS APPOINTED FOLLOWING THE HOMETOWN MERGER
A number of former executive officers of HomeTown were appointed as
executive officers of the Company following the HomeTown Merger on September 20,
1996. In general, such executive officers continued to be compensated at the
same salary levels at which they had been compensated at HomeTown, except where
the executive officer's new position represented a promotion, in which case the
salary payable by the Company was increased commensurately. Cash bonuses were
paid to such executive officers based on the performance of HomeTown up to
September 20, 1996 and bonus criteria that had been set by HomeTown prior to the
HomeTown Merger. In addition, the compensation of Kerry A. Kramp, who was
appointed as President of the Company following the HomeTown Merger, was
negotiated with Mr. Kramp in connection with the Employment Agreement dated
September 20, 1996 by and between the Company and Mr. Kramp (the "Employment
Agreement"). Pursuant to the Employment Agreement, Mr. Kramp received an
incentive stock option to purchase 75,000 shares of the Company's Common Stock.
See "Employment Agreements," below. With the exception of such options granted
to Mr. Kramp, no options were granted to such executive officers in 1996 other
than options granted by HomeTown prior to the HomeTown Merger. The salary, cash
bonuses and stock options of such executive officers for 1997 have been or will
be determined by the Compensation Committee on the same basis as all the other
executive officers of the Company.
OTHER ANNUAL COMPENSATION
The Company also provides certain executive officers (including the
Chief Executive Officer) with automobile allowances and pays certain travel
expenses. In addition, the Company occasionally defrays moving expenses of
executive officers (as well as other management employees) when such a move is
made at the Company's request. The Compensation Committee considers such
7
<PAGE>
payments, which are administered by the Company, to be incidental to the primary
compensation objectives described above, and the amounts of such payments are
for the most part unrelated to Company performance. The Company paid Mr. Kramp
and David Goronkin, previously Vice President of Operations of HomeTown who was
appointed as an Executive Vice President of Operations of the Company following
the HomeTown Merger, relocation expenses in the amounts of $44,830 and $51,300,
respectively.
POLICY AS TO NONDEDUCTIBLE COMPENSATION
Internal Revenue Code Section 162(m) limits the deductibility of
compensation over $1,000,000 paid by a company to an executive officer. Other
than limiting the maximum number of shares that may be awarded to any employee
under the 1995 Stock Option Plan in any calendar year to 100,000 shares, the
Compensation Committee currently does not have a policy with respect to Section
162(m) because it is unlikely that such limit will apply to compensation paid by
the Company to any of the Company's executive officers for at least the current
year.
Raymond A. Lipkin
Alan S. McDowell
David Michael Winton
8
<PAGE>
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth the cash and
noncash compensation for each of the last three fiscal years awarded to or
earned by the Chief Executive Officer and each of the four other highest paid
executive officers of the Company at the end of fiscal 1996. Amounts shown
indicate compensation paid for service to the Company in all capacities.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------
LONG TERM
COMPENSATION
ANNUAL COMPENSATION (1) AWARDS
----------------------- ------------
SHARES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION(S) YEAR SALARY BONUS OPTIONS (#) COMPENSATION
---------------------- ---- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Roe H. Hatlen, Chairman of the 1996 $150,000 $189,576 15,000
Board and Chief Executive Officer 1995 152,885 219,605 15,000
1994 140,615 194,585 15,000
C. Dennis Scott, Chief Operating 1996 194,231 114,245 35,100
Officer (2) 1995 164,600 87,500 58,500
1994 127,000 46,900 46,800
Kerry A. Kramp, 1996 159,423 98,980 110,100 $48,086(3)
President (2) 1995 128,100 53,000 17,550
1994 115,400 25,000 11,700
Neal L. Wichard, 1996 152,212 96,745 35,100
Senior Vice President of 1995 131,700 70,000 58,500
Real Estate (2) 1994 101,500 46,900 23,400
Rick H. White, Executive Vice 1996 100,000 86,999 10,000
President of Operations (4) 1995 101,923 87,842 40,000
1994 73,846 77,833 10,000
</TABLE>
- ---------------------------------
(1) 1995 base salaries are for a 53 week fiscal year.
(2) Position held since the HomeTown Merger on September 20, 1996; includes
compensation paid by HomeTown through that date.
(3) Includes $44,830 in relocation expenses paid to Mr. Kramp in connection
with the HomeTown Merger.
(4) Position held since December 1994. From September 1992 to December 1994 Mr.
White served as a Vice President of Operations.
9
<PAGE>
OPTIONS GRANTED IN FISCAL 1996
The following table sets forth, as to each executive officer named in
the Summary Compensation Table, certain information with respect to stock
options granted during the fiscal year ended January 1, 1997.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
- ------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
- ------------------------------------------------------------------------------- ASSUMED ANNUAL
PERCENT OF TOTAL RATES OF STOCK PRICE
NUMBER OF SHARES OPTIONS GRANTED TO EXERCISE APPRECIATION FOR OPTION TERM (1)
UNDERLYING EMPLOYEES IN PRICE EXPIRATION 5% ($) 10% ($)
NAME OPTIONS GRANTED FISCAL YEAR ($/SH) DATE
---- --------------- ----------- ------ ----- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Roe H. Hatlen 15,000 1.16 % $ 12.88 5/20/06 $ 121,455 $ 307,792
C. Dennis Scott 35,100(2) 2.71 11.86 5/14/06 261,800 663,453
Kerry A. Kramp 35,100(2) 2.71 11.86 5/14/06 261,800 663,453
75,000 5.79 10.50 9/20/06 495,255 1,255,072
Neal L. Wichard 35,100(2) 2.71 11.86 5/14/06 261,800 663,453
Rick H. White 10,000 .77 12.00 2/26/06 75,467 191,249
</TABLE>
- -----------------------------
(1) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price.
(2) Options granted under the HomeTown Buffet, Inc. 1991 Stock Incentive Plan,
as amended (the "HomeTown Plan").
These options, other than those identified above as granted under the
HomeTown Plan (as to which see below), were granted under the Company's 1988 or
1995 Stock Option Plan as discussed in "Compensation Committee Report on
Executive Compensation--Stock Option Program" set forth above. Such options have
ten year terms, have exercise prices per share equal to fair market value, as
determined under the Plan, of a share of Common Stock on the date of grant, and
are exercisable in 20% increments on the five anniversary dates after the date
of grant. Such options are exercisable only while the named executive officer is
an employee of the Company or, if such officer has been continuously employed by
the Company (or a parent or subsidiary thereof) for at least twelve full
calendar months following the grant of the option, during a limited period after
cessation of such officer's employment (and then only to the extent such options
were exercisable immediately prior to such cessation), the duration of which
period ranges from three months to one year depending on the timing of and
reason for such cessation. Such options expire when they cease to become
exercisable. Such options are automatically accelerated (and become exercisable
in full) in the event of a friendly or hostile "change in control" of the
Company. A "change in control" will result if certain changes in the Board of
Directors, certain concentrations of voting power or certain mergers, sales of
corporate assets or similar transactions occur. The grants to each named
executive officer are conditioned upon such officer agreeing not to compete with
the Company during such officer's employment and for a period of two years
thereafter.
10
<PAGE>
In connection with the HomeTown Merger on September 20, 1997, the Company
assumed options to purchase 1,533,059 shares of HomeTown Common Stock issued to
HomeTown's directors, officers, employees and consultants under the HomeTown
Plan. Each option outstanding under the HomeTown Plan was converted into an
option to acquire 1.17 shares of Company Common Stock, at a proportionally
adjusted exercise price per share, and the Company assumed the HomeTown Plan.
The Company also assumed 58,333 non-qualified stock options granted outside of
the HomeTown Plan; each such option was also converted into an option to acquire
1.17 shares of Company Common Stock, at a proportionally adjusted exercise price
per share.
Incentive stock options granted under the HomeTown Plan have ten-year terms
and were granted at the fair market value of HomeTown Common Stock on the date
of grant. The options vest in 20% increments on each of the first through fifth
anniversaries of the grant date. If the recipient's relationship with the
Company terminates, then all currently vested options must be exercised within
thirty days; if the relationship ends because of death or disability, however,
the recipient's options must be exercised within twelve months. Options that
are not exercised within these periods and those that are not yet vested
terminate. Options are not transferable except following the recipient's death.
In the event of a merger or similar transaction, the Company's Board of
Directors may provide that all options issued under the HomeTown Plan shall
become immediately exercisable within thirty days. There are no "change-of-
control" provisions under the HomeTown Plan. The non-qualified stock option
agreements referred to above have similar provisions.
ADDITIONAL INFORMATION ABOUT OPTIONS
The following table sets forth, as to each executive officer named in
the Summary Compensation Table, certain information with respect to stock
options exercised during the last fiscal year and unexercised options held as of
the end of the fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT FISCAL IN THE MONEY OPTIONS AT
ACQUIRED VALUE YEAR-END (#) FISCAL YEAR-END (2)
ON REALIZED (1) ----------------------------- ----------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Roe H. Hatlen 0 0 453,000 72,000 $ 328,125 $ 0
C. Dennis Scott 0 0 58,500 117,000 164,268 41,067
Kerry A. Kramp 0 0 57,330 159,240 274,096 152,650
Neal L. Wichard 0 0 49,140 102,960 172,411 43,103
Rick H. White 0 0 51,350 63,200 862 0
</TABLE>
- ------------------------
(1) Market value of underlying securities on date of exercise minus the
exercise price.
(2) Market value of underlying securities at year-end minus the exercise price.
11
<PAGE>
PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return,
assuming the reinvestment of all dividends, on the Common Stock of the Company
for the last five fiscal years with the cumulative total return on the Standard
& Poor's 500 Stock Index and the Standard & Poor's Restaurant Index for the same
periods.
[GRAPH]
Fiscal Year
- --------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996
- --------------------------------------------------------------------------------
S&P 500 INDEX $100 $107.62 $118.46 $120.03 $165.13 $203.05
- --------------------------------------------------------------------------------
BUFFETS, INC. 100 102.73 160.94 61.72 85.94 57.03
- --------------------------------------------------------------------------------
RESTAURANTS 100 128.10 149.55 149.09 223.60 220.93
- --------------------------------------------------------------------------------
12
<PAGE>
EMPLOYMENT AGREEMENTS
In connection with the HomeTown Merger, the Company entered into an
Employment Agreement dated September 20, 1996 with Kerry A. Kramp, formerly
President of HomeTown, pursuant to which the Company engaged Mr. Kramp as
President of the Company (the "Employment Agreement"). The Employment Agreement
continues until September 20, 1998 or earlier termination by the Company or
Mr. Kramp; provided, however, that if the Company terminates the Employment
Agreement prior to September 20, 1998, other than for cause or inability to work
(in each case, as defined in the Employment Agreement), or if Mr. Kramp
terminates the Employment Agreement for certain reasons specified therein, Mr.
Kramp will be entitled to receive his base salary for the greater of (i) the
period commencing on the date of termination and ending on September 20, 1998,
or (ii) the 12-month period commencing on the date of termination. The
Employment Agreement entitles Mr. Kramp to an annual minimum base salary of
$200,000 and to participate in the Company's cash bonus program with the
opportunity, based on meeting established performance criteria, to earn bonus
compensation equal to at least 50% of his base compensation. Mr. Kramp also
received a grant under the Company's 1988 Stock Option Plan of stock options to
purchase 75,000 shares of the Company's Common Stock, exercisable at the fair
market value on the date of grant. The Employment Agreement contains certain
restrictive covenants, including certain covenants not to compete for a period
following termination and limitations on the disclosure or use of proprietary
information.
In connection with the HomeTown Merger, the Company also agreed that
if Messrs. Scott or Wichard is terminated by the Company prior to September 20,
1997 without cause, such terminated executive officer will be entitled to a
severance payment from the Company equal to nine months of such person's base
salary at HomeTown immediately prior to the HomeTown Merger.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
SUMMARY OF OWNERSHIP
The following table shows ownership of the Common Stock of the Company
as of March 24, 1997 (unless otherwise indicated), by each person who, to the
knowledge of the Company, owned beneficially more than five percent of such
stock, by each director, by each executive officer named in the Summary
Compensation Table and by all directors and executive officers as a group.
Shares are held directly with sole investment and voting power unless otherwise
indicated.
NAME AND ADDRESS OF INDIVIDUAL OR APPROXIMATE
IDENTITY OF GROUP NUMBER OF SHARES PERCENT
- --------------------------------------------------------------------------------
Roe H. Hatlen 1,718,461 (1) 3.8%
10260 Viking Drive
Eden Prairie, MN 55344
C. Dennis Scott 1,168,770 (2) 2.6
Kerry A. Kramp 92,676 (3) *
Neal L. Wichard 542,002 (4) 1.2
Rick H. White 77,910 (5) *
Walter R. Barry, Jr. 36,124 (6) *
Christian F. Horn 529,071 (7) 1.2
Raymond A. Lipkin 20,300 (8) *
Alan S. McDowell 255,680 (9) *
David Michael Winton 1,288,941 (10) 2.9
The Capital Group Companies. Inc. 4,564,100 (11) 10.1
333 South Hope Street
Los Angeles, CA 90071
Capital Guardian Trust Company (11)
333 South Hope Street
Los Angeles, CA 90071
Massachusetts Financial Services Company 3,818,487 (12) 8.4
500 Boylston Street
Boston, MA 02116
MFS Series Trust II - MFS Emerging
Growth Fund (12)
500 Boylston Street
Boston, MA 02116
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NAME AND ADDRESS OF INDIVIDUAL OR APPROXIMATE
IDENTITY OF GROUP NUMBER OF SHARES PERCENT
- --------------------------------------------------------------------------------
All directors and executive officers 6,017,180 (13) 13.0%
as a group (16 persons)
- ------------------------
* Less than one percent.
(1) Includes 132,026 shares owned of record by members of Mr. Hatlen's family
sharing his household and 93,744 shares owned of record by Mr. Hatlen's
wife as trustee for their children, as to all of which Mr. Hatlen disclaims
beneficial ownership, and 71,000 shares owned of record by the Hatlen
Foundation (of which Mr. Hatlen is an officer) and 474,000 shares subject
to stock options exercisable within 60 days.
(2) Includes 87,750 shares owned of record by Mr. Scott's wife, as to which Mr.
Scott disclaims beneficial ownership, and 87,750 shares subject to stock
options exercisable within 60 days.
(3) Includes 157 shares owned of record by Mr. Kramp as custodian for his
nephew and nieces, and 87,750 shares subject to stock options exercisable
within 60 days.
(4) Includes 447,525 shares owned of record by Mr. Wichard's family trust with
respect to which Mr. Wichard shares both voting and dispositive power with
his wife, 17,550 shares owned of record by Mr. Wichard's wife and 877
shares owned of record by Mr. Wichard's wife as custodian for their
daughter, as to all of which Mr. Wichard disclaims beneficial ownership,
and 76,050 shares subject to stock options exercisable within 60 days.
(5) Includes 10 shares owned by Mr. White's wife, as to which Mr. White
disclaims beneficial ownership, and 69,950 shares subject to stock options
exercisable within 60 days.
(6) Includes 6,000 shares subject to stock options exercisable within 60 days.
(7) Includes 493,971 shares owned of record by two partnerships with respect to
which Mr. Horn has sole voting and dispositive power.
(8) Includes 300 shares owned of record by Mr. Lipkin as custodian for his
daughter.
(9) Includes 19,680 shares owned of record by Mr. McDowell's daughter and son
and 13,000 shares owned of record by the McDowell Foundation (of which Mr.
McDowell is an officer), as to all of which Mr. McDowell disclaims
beneficial ownership.
(10) Includes 1,251,874 shares over which Mr. Winton shares both voting and
dispositive discretion as a general partner of Parsnip River Company and
36,383 shares over which Mr. Winton shares voting and dispositive power as
trustee of certain trusts for the benefit of his children.
(11) The Capital Group Companies, Inc. is the parent holding company of a group
of investment management companies which, in the aggregate, have sole power
to vote 4,165,100 of such shares and
15
<PAGE>
sole power to dispose of all of such shares. The Capital Group Companies,
Inc. does not itself exercise investment or voting power over any such
shares but may be deemed to beneficially own such shares by virtue of Rule
13d-3 under the Securities Exchange Act of 1934, as amended. Such shares
include 3,424,800 shares over which Capital Guardian Trust Company, a
wholly-owned subsidiary of The Capital Group Companies, Inc., exercises
voting and/or dispositive power. Of such 3,424,800 shares, which represent
approximately 7.6% of the Company's outstanding Common Stock, Capital
Guardian Trust Company has sole power to vote 3,025,800 shares and sole
power to dispose of all of such shares. The Capital Group Companies, Inc.
and Capital Guardian Trust Company disclaim beneficial ownership with
respect to all of the shares referred to herein. The information relating
to the beneficial ownership of The Capital Group Companies, Inc. and
Capital Guardian Trust Company has been derived from the Schedule 13G dated
February 12, 1997 filed by such companies with the Securities and Exchange
Commission. The number of shares beneficially owned by The Capital Group
Companies, Inc. and Capital Guardian Trust Company, respectively, is stated
as of December 31, 1996.
(12) Massachusetts Financial Services Company has sole power to vote 3,673,090
of such shares and sole power to dispose of all of such shares. These
shares include 2,953,050 shares, which represent approximately 6.5% of the
Company's outstanding Common Stock, over which MFS Series Trust II - MFS
Emerging Growth Fund exercises voting and/or dispositive power. The
information relating to the beneficial ownership of Massachusetts Financial
Services Company and MFS Series Trust II - MFS Emerging Growth Fund has
been derived from the Schedule 13G dated February 12, 1997 filed by
Massachusetts Financial Services Company with the Securities and Exchange
Commission. The number of shares beneficially owned by Massachusetts
Financial Services Company and MFS Series Trust II - MFS Emerging Growth
Fund, respectively, is stated as of December 31, 1996.
(13) Includes an aggregate of 1,014,595 shares subject to stock options
exercisable within 60 days held by all directors and executive officers as
a group.
16
<PAGE>
BENEFICIAL OWNERSHIP REPORTING
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than ten
percent of the Company's Common Stock, to file periodic reports of ownership and
changes in ownership with the Securities and Exchange Commission. Based solely
on its review of the copies of such reports received by it and of written
representations from certain reporting persons regarding filings required to be
made by such persons, the Company believes that, subject to the exception
described below, all persons required under Section 16(a) to file beneficial
ownership reports with respect to the Company's Common Stock during the fiscal
year ended January 1, 1997 or prior years complied with all such reporting
requirements. Dr. Christian F. Horn, a director of the Company, was late in
filing his Form 5 with respect to the fiscal year ended January 1, 1997; the
Form 5 reported two transactions.
CERTAIN TRANSACTIONS
In 1995, the Company committed to make charitable contributions
aggregating $250,000 to Minnesota Life College, a Minnesota nonprofit
corporation. Of this sum, $145,000 has been paid to Minnesota Life College
through December 31, 1996, with the remainder expected to be paid in 1997,
although the entire amount was expensed in 1995. In addition, the Company
donated a further sum of $32,192 to Minnesota Life College in January 1997,
representing 1% of the value of Old Country Buffet and HomeTown Buffet gift
certificates sold by the Company during its Christmas promotion in November and
December 1996. Minnesota Life College is organized and operated to help young
adults with learning disabilities make the transition to independent living.
Roe H. Hatlen, the Chairman and Chief Executive Officer of the Company, is a
founder and a director of Minnesota Life College; his wife, Beverly T. Hatlen,
is a founder and Chair of the Board; Marguerite C. Nesset, the Vice President of
Accounting and Controller of the Company, is the Treasurer and a director. The
Company is entitled to appoint two directors of Minnesota Life College. The
directors currently appointed by the Company are Mr. Hatlen and Ms. Nesset.
Kerry A. Kramp, Thomas F. Hubbard and K. Michael Schrader, the
Company's President, Executive Vice President of Real Estate and Development and
Vice President of Human Resources, respectively, were indebted to the Company
during 1996 in the maximum amounts of $204,731, $108,781 and $67,438,
respectively. As of March 28, 1997, the amount outstanding under such loans
were $173,904, $110,633 and $68,855, respectively. Mr. Kramp's loan is
evidenced by a promissory note in favor of the Company dated December 31, 1996
in the principal sum of $173,904 and is secured by the pledge by Mr. Kramp of
certain Company Common Stock and stock options. The promissory note includes
loans previously made to Mr. Kramp by HomeTown Buffet, Inc. under promissory
notes dated August 23, 1993 and April 13, 1995, as well as $86,400 advanced to
Mr. Kramp by the Company in 1996. Interest accrues on the unpaid principal
balance of Mr. Kramp's loan at the rate of 8% per annum. Mr. Hubbard's loans
are evidenced by two promissory notes in favor of HomeTown Buffet, Inc., one
dated November 9, 1993 in the principal sum of $21,000 (interest accrues on the
unpaid principal balance at the rate of 7% per annum), and the other dated
August 13, 1996 in the principal sum of $85,000 (interest accrues on the unpaid
principal balance at a rate equal to the prevailing prime rate of First Bank of
Minneapolis plus 1% per annum). Mr. Hubbard's loans are secured by the pledge
by Mr. Hubbard of certain Company Common Stock and stock options. Mr.
Schrader's loan is evidenced by a promissory note in favor of HomeTown Buffet,
Inc. dated August 7, 1996 in the principal sum of $65,000 and is secured by the
pledge by Mr. Schrader of certain Company Common Stock and stock options.
Interest accrues on the unpaid principal balance of Mr. Schrader's loan at the
prevailing prime rate of First Bank of Minneapolis plus 1% per annum. All of
the amounts advanced to Messrs. Kramp,
17
<PAGE>
Hubbard and Schrader in 1996 were in connection with, or in anticipation of, the
relocation of such persons to Minneapolis.
ITEM 2: SELECTION OF AUDITORS
The Board of Directors has appointed Deloitte & Touche LLP as
independent auditors of the Company for the year ending December 31, 1997, it
being intended that such appointment would be presented for ratification by the
shareholders. Deloitte & Touche LLP has audited the financial statements of the
Company for the fiscal year ended January 1, 1997. Deloitte & Touche LLP will
have representatives at the meeting who will have an opportunity to make a
statement and will be available to respond to appropriate questions.
In the event the shareholders do not ratify the appointment of
Deloitte & Touche LLP, the selection of other independent auditors will be
considered by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP.
SHAREHOLDER PROPOSALS AND OTHER MATTERS
All shareholder proposals to be presented at the next annual meeting
of the Company and to be included in the Company's proxy statement and form of
proxy must be received by the Company no later than December 5, 1997. The
Company suggests that all such proposals be sent to the Company by certified
mail return receipt requested.
Please mark, sign, date and return promptly the enclosed proxy
provided. The signing of a proxy will not prevent you from attending the
meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS
H. Thomas Mitchell, Secretary
Dated: March 31, 1997.
18
<PAGE>
[Front of proxy card]
BUFFETS, INC.
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS
The undersigned hereby appoints Clark C. Grant and H. Thomas Mitchell,
and each of them, with full power of substitution, as proxies to vote on behalf
of the undersigned all shares which the undersigned may be entitled to vote at
the Annual Meeting of Shareholders of the Company to be held at the Company's
Old Country Buffet restaurant, 4808 Highway 101, Minnetonka, Minnesota at
9:00 a.m. on Tuesday, May 13, 1997, and at any adjournments thereof, with all
powers the undersigned would possess if personally present, upon the matters set
forth in the Notice of Annual Meeting and Proxy Statement, as directed on the
reverse side hereof.
Any proxy heretofore given by the undersigned with respect to such
shares is hereby revoked. Receipt of the Notice of Annual Meeting and Proxy
Statement is hereby acknowledged.
(To be Completed, Signed and Dated on Reverse Side)
20
<PAGE>
[Reverse of proxy card]
/X/ Please mark your votes as in this example.
The Board of Directors shall consist of six members.
Nominees: Walter R. Barry, Jr. Alan S. McDowell
Roe H. Hatlen C. Dennis Scott
Dr. Christian F. Horn D. Michael Winton
1. Election of Directors FOR WITHHOLD
/ / / /
(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name below)
- ---------------------------------------------------
2. Approving Deloitte & Touche FOR AGAINST ABSTAIN
LLP as independent auditors / / / / / /
for the current fiscal year.
3. Transaction of such other business as may properly come before the meeting
and any adjournments thereof.
NOTE: THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, IT
WILL BE VOTED FOR ALL NOMINEES IN PROPOSAL 1, AND FOR PROPOSAL 2. THE PROXIES
ARE AUTHORIZED TO VOTE IN THEIR DISCRETION WITH RESPECT TO OTHER MATTERS WHICH
MAY COME BEFORE THE MEETING.
PLEASE RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
- ------------------------------------------- -------------
SIGNATURE DATE
- ------------------------------------------- -------------
SIGNATURE (SIGNATURE IF HELD JOINTLY) DATE
NOTE: Please mark, date and sign exactly as name appears hereon, including
designation as executor, trustee, etc. if applicable. A corporation must sign
in its name by the President or other authorized officer. All co-owners must
sign.
M1:0234650.05
