<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 (Chech 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.
<PAGE>
BUFFETS, INC.
10260 VIKING DRIVE
EDEN PRAIRIE, MINNESOTA 55344-7229
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
MAY 12, 1998
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 12, 1998, at 9:00 a.m. at the Company's Old Country
Buffet(R) restaurant, 4808 Highway 101, Minnetonka, Minnesota, for the following
purposes:
1. Electing a board of six directors for the ensuing year;
2. Amending the Buffets, Inc. 1995 Stock Option Plan to increase the
number of shares authorized for issuance thereunder from 1,000,000 to
2,500,000;
3. Approving the Buffets, Inc. Non-Employee Director Stock Option Plan,
as amended;
4. Approving Deloitte & Touche LLP as independent auditors for the
Company for the current fiscal year; and
5. Transacting such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on March
16, 1998 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, 1998
<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 March 31,
1998.
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 12, 1998. 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. In addition, the Company has engaged Corporate Investor
Communications, Inc. to assist in the solicitation of proxies for a base fee of
$7,500, plus $3.00 per shareholder contacted and out-of-pocket expenses. 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. A shareholder voting through a proxy who abstains with respect to
a certain proposal is considered to be present and entitled to vote on such
proposal at the meeting, and is in effect a negative vote, but a shareholder
(including a broker) who does not give a proxy authority to vote, or withholds
authority to vote, on a certain proposal shall not be considered present and
entitled to vote on such proposal.
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 16, 1998 will be entitled to
notice of and to vote at the annual meeting. At the close of business on March
16, 1998, there were 45,398,981 shares of Common Stock outstanding, each
entitled to one vote per share. Holders of Common Stock do not have cumulative
voting rights.
2
<PAGE>
The Annual Report of the Company, including financial
statements, for the year ended December 31, 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.
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>
NAME (AGE) DIRECTOR SINCE PRINCIPAL OCCUPATION AND BUSINESS
EXPERIENCE FOR LAST FIVE YEARS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Walter R. Barry, Jr. (64) 1995 Private investor since 1985; Executive Vice
President of General Mills Inc. from June 1979
to December 1986; Director of Interactive
Technologies Inc.(1)
Marvin W. Goldstein (54) 1997 Currently a financial consultant; Executive Vice
President and Chief Operating Officer of Regis
Corporation from April 1997 to August 1997;
Chairman, Chief Executive Officer and President
of Pet Food Warehouse, Inc. from July 1995 to
December 1996; President and Chief Operating
Officer of the Department Store Division of
Dayton Hudson Corporation from 1992 to
September 1994; Director of Greenspring
Company and Paper Warehouse, Inc. (2)
3
<PAGE>
NAME (AGE) DIRECTOR SINCE PRINCIPAL OCCUPATION AND BUSINESS
EXPERIENCE FOR LAST FIVE YEARS
- ----------------------------------------------------------------------------------------------------------
Roe H. Hatlen (54) 1983 Co-Founder of the Company; Chairman and
Chief Executive Officer of the Company
since 1983; and President of the Company
from May 1989 to September 1992
Alan S. McDowell (59) 1984 Private investor since 1983; Director of AGCO
Corporation
C. Dennis Scott (51) 1996 Co-Founder of the Company; Vice Chairman and
Chief Operating Officer of the Company since
September 1996; President of the Company from
1983 to 1989; Co-Founder of HomeTown Buffet,
Inc. ("HomeTown"); Director and Chief
Executive Officer of HomeTown Buffet, Inc.
since 1989 (3)
Michael T. Sweeney (40) 1998 Chief Executive Officer of The Minnesota Pizza
Company since December 1995; President and
CEO of Blockbuster Mid-America from
September 1991 to July 1995(4)
</TABLE>
(1) General Mills Inc. markets consumer foods.
(2) Regis Corporation is a publicly held operator and franchisor of hair
and retail product salons. Pet Food Warehouse, Inc. was a publicly held
retailer of pet supplies until its merger with Petco Animal Supplies,
Inc. in December 1996. Dayton Hudson Corporation is a national general
merchandise company operating Target, Mervyn's, Daytons and Hudson
stores.
(3) 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.
(4) The Minnesota Pizza Company is a privately held franchisee of Papa
John's pizzerias. Blockbuster Corporation is an operator of video
rental and retail stores.
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. 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.
4
<PAGE>
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 1997, 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 $1,500 for each regular meeting attended, $500
for each special meeting attended and a $3,000 quarterly fee. Non-employee
directors that are members of the Audit Committee or the Compensation Committee
receive fees for their participation on those committees as described below. The
Company does not have a standing Nominating Committee.
AUDIT COMMITTEE
The Board of Directors has an Audit Committee consisting
during fiscal 1997 of Messrs. Barry, McDowell and David Michael Winton. Mr.
Winton served through the date of his resignation from the Board of Directors on
March 3, 1998. 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 1997. Audit Committee
members receive a fee of $500 for each Committee meeting attended on a day other
than a regularly scheduled Board of Directors meeting.
COMPENSATION COMMITTEE
The Company also has a Compensation and Stock Option Committee
(the "Compensation Committee") consisting of Messrs. Barry, McDowell, and
Winton. Mr. Winton served through the date of his resignation from the Board of
Directors on March 3, 1998. 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 (other than the Director Plan (as
defined below)). The Compensation Committee met six times during fiscal 1997 and
otherwise conducted business by written action. Compensation Committee members
receive a fee of $500 for each Committee meeting attended on a day other than a
regularly scheduled Board of Directors meeting.
5
<PAGE>
DIRECTOR STOCK OPTION PROGRAM
On May 13, 1997, the Board of Directors of the Company
approved the adoption of the Buffets, Inc. Non-Employee Director Stock Option
Plan (the "Director Plan"), more fully described under Item 3 below, captioned
"APPROVING THE BUFFETS, INC. NON- EMPLOYEE DIRECTOR STOCK OPTION PLAN, AS
AMENDED." The primary purpose of the Director Plan is to provide for the
availability of stock options to assist in the recruitment of qualified
candidates for directorship positions with the Company and, secondarily, to
compensate non-employee directors for their contributions to the Company. Of the
25,000 shares of the Company Common Stock presently allocated to the Director
Plan, 10,000 shares were utilized in an Initial Grant (as defined in the
Director Plan) to Mr. Marvin W. Goldstein upon his appointment to the Board of
Directors in August 1997, and 10,000 shares were utilized in an Initial Grant to
Mr. Michael T. Sweeney upon his appointment to the Board of Directors in
February 1998. Mr. Goldstein's options have an exercise price of $10.0625 per
share, while Mr. Sweeney's are exercisable at $11.8125 per share, and otherwise
contain the terms of an Initial Grant, as set forth below under Item 3. No other
grants have been made under the Director Plan.
OTHER DIRECTOR COMPENSATION
Directors are reimbursed for travel expenses incurred in
connection with Board and committee meetings.
ITEM 2: AMENDING THE BUFFETS, INC. 1995 STOCK OPTION PLAN
As described in detail below, the Board of Directors has
determined that it is advisable to increase the maximum number of shares of the
Company's Common Stock that may be made subject to options granted under the
Buffets, Inc. 1995 Stock Option Plan (the "1995 Plan") from 1,000,000 to
2,500,000, and is therefore submitting such proposed increase to the Company's
shareholders for their approval.
BACKGROUND
The 1995 Plan is intended to assist the Company in attracting
and retaining key employees of outstanding ability, and encourage their maximum
commitment to the continued success and growth of the Company by giving them the
opportunity to share in ownership of the Company on favorable terms. In order to
achieve these purposes more uniformly and systematically, the Company's
Compensation Committee in 1990 began to make regular annual grants to restaurant
general managers and associate managers. The annual grant program was expanded
in 1991 and 1993 to cover essentially all key restaurant and administrative
management employees of the Company, including executive officers (as of
February 1, 1998, approximately 1,668 persons, including 10 executive officers
are eligible to receive awards under the 1995 Plan). The current annual grant
program of the Company is described below, under "COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION -- STOCK OPTION PROGRAM."
6
<PAGE>
As of March 16, 1998, options for only 8,193 and 34,181
shares, respectively, remained available for new grants under the Company's
existing 1988 and 1995 Stock Option Plans. Therefore, the Board of Directors
intends to increase the number of shares available under the 1995 Plan in order
to permit the Compensation Committee to continue to utilize stock options as a
major element of management compensation. For further information about options
recently granted to certain executive officers under the Company's option plans,
please refer to the tables captioned "SUMMARY COMPENSATION TABLE" and "OPTION
GRANTS IN LAST FISCAL YEAR".
In their review of the proposed amendment of the 1995 Plan,
the Board of Directors and the Compensation Committee considered the dilutive
effect that the increase in the number of shares available for option grants
under the 1995 Plan and continuation of an annual grant program would have on
the existing shareholders of the Company, and concluded that the benefits of
continuing such an option program would outweigh the drawbacks of dilution.
Options granted under the program to many employees may further assist in their
retention by the inclusion in their option agreements of a provision limiting
such employees' ability to accept employment with competitors.
SUMMARY OF THE 1995 PLAN
The 1995 Plan was approved by the shareholders of the Company
at the Company's Annual Meeting held on May 9, 1995, at which time 1,000,000
shares of the Company's Common Stock were allocated for purposes of making
option grants under the plan.
The 1995 Plan provides that both non-statutory stock options
("NSSOs") and options that qualify as incentive stock options ("ISOs") under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), to
purchase shares of the Company's Common Stock may be granted to key employees of
the Company or any subsidiary of the Company. For further information regarding
the tax treatment of ISOs and NSSOs, see "Tax Effects" below. Limited stock
appreciation rights ("Limited Rights") also may be granted to holders of stock
options under the 1995 Plan.
The 1995 Plan limits to 100,000 the number of shares for which
any single participant may be granted options in any calendar year. This
limitation is designed to conform the 1995 Plan to certain requirements of the
Omnibus Budget Reconciliation Act of 1993 ("OBRA"), which amended the Code to
limit the allowable deduction for compensation paid to or accrued with respect
to the Chief Executive Officer, and each of the four other most highly
compensated employees, of a publicly held corporation to no more than $1 million
per employee per year. Stock options granted pursuant to a stock option plan are
exempt from the deduction limitation, provided that certain requirements are
met, including the requirement that the stock option plan specifies the maximum
number of shares subject to options that can be awarded to any single employee
during a specified period. The Company does not expect that this share
limitation will affect the number of options it will grant, as shares subject to
options granted in any single calendar year under the Company's plans have
historically been significantly below
7
<PAGE>
100,000, except as described below under the caption "COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION - PRICE SENSITIVE STOCK OPTIONS".
The 1995 Plan is administered by the Compensation Committee.
The Compensation Committee decides, among other things, to which employees
options should be granted, how many options each employee receives, and whether
an employee will be granted ISOs or NSSOs, or a combination of both. In general,
the Compensation Committee makes such determinations based on such employee's
job responsibilities and on the recommendations of the executive officers of the
Company concerning individual employees' contributions (both historical and
potential) to the success of the Company.
The 1995 Plan currently provides that an aggregate of
1,000,000 shares of Common Stock of the Company may be made subject to options,
which amount would be increased to 2,500,000 shares if the proposed amendment is
approved by the Shareholders. If an option lapses or terminates for any reason
before having been completely exercised, however, the shares covered by the
unexercised portion of the option may again be made subject to options and
Limited Rights under the 1995 Plan.
The Compensation Committee determines the exercise price for
each option, subject to certain minimum prices. The minimum exercise price for
each share covered by a NSSO is 85%, and for each share covered by an ISO is
100% (or 110% if the optionee owns more than 10% of the voting stock of the
Company on the date of grant), of the "Fair Market Value" (as defined in the
1995 Plan) of the Common Stock on the date of grant. Fair Market Value is
currently determined by reference to the closing price of a share of Common
Stock as reported on The Nasdaq Stock Market on the date the grant becomes
effective. As of March 16, 1998, the closing price of the Company's Common Stock
was $12.3125 per share.
The Compensation Committee may, in its sole discretion, make
appropriate adjustments ("Antidilutive Adjustments") in the number of shares
subject to options and in the option price per share to give effect to changes
made in the number of outstanding shares of Common Stock of the Company through
a merger, consolidation, recapitalization, reclassification, combination, stock
dividend, stock split or other relevant change.
The 1995 Plan does not specify a schedule as to when options
will become exercisable; however, there are two limitations on the
exercisability schedule. First, the Code requires that the aggregate fair market
value of ISOs that may become exercisable by any individual employee in any
given year may not exceed $100,000. Second, subject to the acceleration
provisions of the 1995 Plan, the 1995 Plan requires that no option become
exercisable, in whole or in part, less than twelve months after the grant of
such option. Options generally have been, and are expected to continue to be,
granted so as to become exercisable in 20% increments on the five anniversary
dates after the date of grant.
8
<PAGE>
Paragraph 11 of the 1995 Plan provides for the automatic
acceleration of the exercisability of an option in the event of either a
friendly or hostile "Change in Control." 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.
Paragraph 12 of the 1995 Plan enables the Committee, in its
discretion, to accelerate the exercisability of the options if certain specified
"Events" are anticipated to occur. The specified "Events" which may result in
acceleration include any proposed dissolution or liquidation of the Company,
sale of substantially all of the assets of the Company, merger or consolidation
of the Company with or into any other corporation, regardless of whether the
Company is the surviving corporation, or any statutory share exchange involving
capital stock of the Company. If an Event is anticipated to be imminent, the
Compensation Committee may (i) arrange to substitute options to acquire such
numbers of shares of the voting common stock of the surviving corporation (or,
if appropriate, of the parent corporation of the Company or such surviving
corporation) as the Committee deems equitable or, alternatively, to deliver such
number of shares of such stock as have, as to each option respectively, a Fair
Market Value as of the date of the Event equal to the Fair Market Value as of
the date of the Event of the Common Stock covered by the option; or (ii) arrange
to cancel such unexercised options in exchange for a cash payment per share
equal to the amount (if any) by which the cash plus fair market value of the
non-cash consideration to be received per share of Common Stock by the
shareholders of the Company upon the occurrence of the Event exceeds the
exercise price per share covered by such canceled option.
The acceleration provisions discussed above are meant to
encourage optionees to continue their employment at the Company during the
uncertain period of negotiations or the hostile contest, as the case may be.
Since the options will not be accelerated until the Change in Control actually
takes place, or until the occurrence of an Event is imminent and the Committee
has voted to accelerate exercisability of the options, it will benefit the
optionee to stay in his or her position at least until that time.
The exercise rights granted under both Paragraphs 11 and 12 of
the 1995 Plan are subject to adjustment if they would trigger "golden parachute"
penalties under the Code. In general, Section 280G of the Code defines
"Parachute Payment" to mean any payment (excluding payments to or from certain
qualified plans and certain other payments) in the nature of compensation to an
officer, shareholder, or highly compensated individual who performs personal
services for the corporation, which payment is contingent upon a change in the
control or ownership of the corporation, or upon a change in the ownership of a
substantial portion of the corporation's assets, if the aggregate present value
of such payments equals or exceeds three times the individual's "Base Amount"
(defined as his or her average annual taxable compensation computed over the
five-year period preceding the taxable year of the event causing the payment).
An "Excess Parachute Payment," in turn, is the amount by which a Parachute
Payment to any such individual exceeds that individual's Base Amount. Excess
Parachute Payments are subject
9
<PAGE>
to a 20% excise tax, payable by the optionee, and the corporation may not deduct
any Excess Parachute Payment. The 1995 Plan provides for an automatic reduction
in Parachute Payments to the maximum level which will not trigger the "golden
parachute" tax penalties. Any option or Limited Right subject to such a
reduction will be treated as if it has not yet been exercised by the optionee
and will remain outstanding subject to the terms of the 1995 Plan.
The Limited Rights which the 1995 Plan authorizes the
Compensation Committee to grant are stock appreciation rights that are activated
only upon a Change in Control. A Limited Right allows an optionee, within 30
days after a Change in Control, to elect to receive cash equal to the difference
between the Fair Market Value at the time of exercise and the option exercise
price relating to the underlying option (minus any amount required for tax
withholding) instead of exercising the option for the purchase of stock. A
Limited Right can be granted at any time in relation to a NSSO, but as to ISOs,
it must be granted, if at all, concurrently with the original grant of the
option. A Limited Right may not be exercised within six months of its grant, and
is terminated if the Compensation Committee declares an acceleration under
Paragraph 12 of the 1995 Plan and the anticipated Event occurs. To date, the
Committee has not granted any such Limited Rights, and does not presently intend
to do so in the future.
To exercise an option, an optionee may elect either to pay the
full exercise price in cash or to deliver to the Company unencumbered shares of
Common Stock having a Fair Market Value on the date of exercise equal to the
purchase price of the Common Stock being purchased, or to use a combination of
cash and unencumbered shares. The simultaneous tendering of Common Stock
acquired upon the exercise of an ISO is a disqualifying disposition which will
result in the option being converted into a NSSO for tax purposes.
Delivery of shares upon the exercise of a NSSO will be subject
to any required withholding taxes relating to the income arising from the
exercise of the option. The Compensation Committee may permit the optionee to
elect, subject to certain conditions, to cover the required withholdings, in
whole or in part, through a reduction of the number of shares delivered to the
optionee upon exercise or through a subsequent return to the Company of shares
delivered to the optionee.
Options granted pursuant to the 1995 Plan are non-assignable
and non-transferable except according to the laws of descent, and generally
expire if not exercised within three months after termination of the optionee's
employment with the Company, or within twelve months after termination due to
the optionee's disability or death. In the event of the optionee's death or
disability, an option becomes immediately exercisable in full. Each option will
expire ten years (five years if the option is an ISO granted to a holder of more
than 10% of the voting stock of the Company) after the date of its grant or such
date prior thereto as may be fixed by the Compensation Committee on or before
the date such option is granted.
The Board of Directors may amend, suspend or discontinue the
1995 Plan, but it may not, without approval of the Company's shareholders, (a)
change the class of employees
10
<PAGE>
eligible to receive options or Limited Rights; (b) except for Antidilutive
Adjustments, increase the total number of shares of Common Stock of the Company
which may be made subject to options granted under the 1995 Plan; (c) except for
Antidilutive Adjustments, change the minimum purchase price for the exercise of
an option; (d) increase the maximum period during which options or Limited
Rights may be exercised; (e) extend the term of the 1995 Plan beyond March 31,
2005; or (f) permit the granting of options to employees who are then members of
the Compensation Committee. No amendment to the 1995 Plan can, without the
consent of the holder of the option, alter or impair any options previously
granted under the 1995 Plan.
Similarly, the Committee has reserved the discretion to modify
or terminate the annual grant program currently in effect at any time without
further action by the shareholders or directors of the Company and without
liability or obligation to any participant then eligible to receive option
grants in the future under the program, but such modification or termination
will not affect any option granted prior to such modification or termination.
OPTIONS GRANTED AND TO BE GRANTED IN FISCAL 1998
The following table indicates with respect to each person or
group identified therein stock options which have been granted, and which are
proposed to be granted, in fiscal 1998 under the 1995 Plan and under the
Director Plan described in Item 3 below. All of such options granted have, and
all options to be granted are expected to have, an exercise price equal to Fair
Market Value on the date of grant as determined under the respective plans, and
to expire ten years after the date of grant.
1998 STOCK OPTION GRANTS
------------------------
NUMBER OF COMMON SHARES UNDERLYING OPTIONS
------------------------------------------
NAME OR GROUP 1995 PLAN(1) DIRECTOR PLAN
- ------------- ------------ -------------
Roe H. Hatlen, Chairman of the Board 15,000 (2) N/A
Chief Executive Officer
C. Dennis Scott, Vice Chairman of the 15,000 (2) N/A
Board and Chief Operating Officer
Kerry A. Kramp, President 12,500 (2) N/A
Thomas F. Hubbard, Executive Vice 10,000 (2) N/A
President of Real Estate and Development
Neal L. Wichard, Senior Vice President 7,500 (2) N/A
of Real Estate
11
<PAGE>
1998 STOCK OPTION GRANTS
------------------------
NUMBER OF COMMON SHARES UNDERLYING OPTIONS
------------------------------------------
NAME OR GROUP 1995 PLAN(1) DIRECTOR PLAN
- ------------- ------------ -------------
All current executive officers 110,000 (3) N/A
as a group (10 persons)
All employees, excluding 568,800 (5) N/A
executive officers, as a
group (658) persons (4)
All current directors who are N/A 10,000(6)
not executive officers as
a group
(1) Column may also include options to be made under the Company's 1988
Stock Option Plan, to the extent that shares become available in 1998
as the result of employee separations, surrenders, or as otherwise
provided under such plan.
(2) ISOs proposed to be granted under the Company's 1988 or 1995 Stock
Option Plans, in accordance with the Company's annual grant program.
The exercise price of all such options is expected to be the Fair
Market Value on the date of grant, and all such options are expected to
expire ten years after the date of grant. Additional options, the
number of which is not presently determinable, may be granted pursuant
to discretionary grants by the Compensation Committee.
(3) Includes, in addition to the grants to individual named executive
officers in the above table, 10,000 ISOs proposed to be granted to each
Executive Vice President not otherwise named above, under the Company's
1988 or 1995 Stock Option Plans, in accordance with the Company's
annual grant program. Such options are expected to have an exercise
price equal to the Fair Market Value on the date of grant, and are
expected to expire ten years after the date of grant. A number of
additional options, which number is not presently determinable, may be
granted in connection with promotions or additions of Executive
Officers, or in the event of any discretionary grants by the
Compensation Committee.
(4) This excludes approximately 24,200 employees that are not eligible
under the stock options plans.
(5) Comprised of 386,900 ISOs having an exercise price of $11.00 per share
which were granted under the Company's 1988 Stock Option Plan and the
1995 Plan on February 23, 1998, and an aggregate of 374,200 ISOs which
are currently scheduled to be granted, in the remainder of the
Company's 1998 fiscal year. All options granted and proposed to be
granted were or are expected to be granted in accordance with the
Company's annual
12
<PAGE>
grant program, and will expire or are expected to expire ten years
after the date of grant. A number of additional options, which number
is not presently determinable, will likely be granted in connection
with promotions and hiring of additional employees, or in the event of
any discretionary grants by the Compensation Committee.
(6) Represents the grant of Initial Options to Mr. Sweeney upon his initial
appointment to the Board of Directors in February 1998. If additional
non-employee directors join the Board during 1998, they would receive
Initial Options to purchase 10,000 shares of the Company's Common
Stock. Options may also be granted in connection with discretionary
grants by the Board of Directors, although no current plans exist for
the award of such grants.
TAX EFFECTS
If an option is an ISO, the optionee will not recognize
taxable income until the shares acquired upon exercise of the option are sold
(assuming the optionee holds onto the option shares long enough to satisfy all
holding period requirements); however, the difference between the Fair Market
Value at the time of exercise and the option exercise price will be included in
the optionee's alternative minimum taxable income. The Company will not receive
a tax deduction for shares issued upon exercise of an ISO. However, the Company
does receive a deduction for ISO shares which are disposed of without complying
with holding period requirements. These shares are treated as NSSO shares for
tax purposes.
In contrast, upon exercise of a NSSO, the optionee will
recognize ordinary income equal to the difference between Fair Market Value at
the time of exercise and the option exercise price. The Company is generally
entitled to a deduction in connection with the exercise of an NSSO equal to the
amount taxable to the optionee, at the time the optionee must recognize such
amount as taxable income.
OTHER INFORMATION
The Company intends to take such actions as may be required to
register and maintain the registration of the additional Common Stock reserved
for purposes of the requested amendment of the 1995 Plan under the Securities
Act of 1933, as amended, and any applicable state securities laws.
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 approval of the
proposed amendment to the 1995 Plan. If a shareholder does not otherwise direct,
the shares represented by the proxy solicited hereby will be voted in favor of
approval of the proposed amendment to the 1995 Plan.
13
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE
COMPANY VOTE FOR THE APPROVAL OF THE REQUESTED AMENDMENT TO THE BUFFETS, INC.
1995 STOCK OPTION PLAN DESCRIBED ABOVE.
ITEM 3: APPROVING THE BUFFETS, INC. NON-EMPLOYEE DIRECTOR
STOCK OPTION PLAN, AS AMENDED
On May 13, 1997, the Board of Directors adopted the Buffets, Inc.
Non-Employee Director Stock Option Plan (the "Director Plan"). The initial
adoption of the Director Plan did not require shareholder approval because only
25,000 shares of the Company's Common Stock were authorized for issuance
thereunder. Under the rules of The Nasdaq Stock Market, issuers with shares
listed thereon are required to obtain shareholder approval of certain option
plans, but only if the amount issuable thereunder is in excess of 25,000 shares.
The Board of Directors has since determined that it is advisable to increase the
maximum number of shares that may be made subject to options granted under the
Director Plan to 150,000. The Board of Directors therefore amended the Director
Plan on February 18, 1998 to provide for such increase in the shares available
for issuance thereunder, subject to the approval of shareholders in accordance
with the rules of The Nasdaq Stock Market. If the Director Plan, as amended, is
not approved by the shareholders, the Director Plan as adopted by the Board of
Directors on May 13, 1997 will remain in effect.
BACKGROUND
The Director Plan is intended to promote the interests of the Company
and its shareholders by providing non-employee directors of the Company with an
opportunity to acquire a proprietary interest in the Company and thereby provide
an additional incentive to put forth maximum effort for the continued success
and growth of the Company. In addition, the opportunity to acquire a proprietary
interest in the Company has proven successful in attracting and retaining
non-employee directors of outstanding ability. There are currently four
non-employee directors on the Board of Directors, all of whom are eligible to
participate in the Director Plan.
On May 13, 1997, the Board of Directors adopted the Director Plan as
shown in "Exhibit A" hereto, allocating 25,000 shares of the Company's Common
Stock for use under the plan. Two grants have been made under the Director plan,
both of which were "Initial Options," as defined in the Director Plan, for
10,000 shares each which were granted to Mr. Marvin W. Goldstein and Mr. Michael
T. Sweeney on their respective appointments to the Board of Directors. With only
5,000 shares remaining available under the Director Plan, the Board deems it
advisable to increase the number of available shares to a total of 150,000 and
to obtain shareholder approval of the Director Plan, as so amended.
14
<PAGE>
In reviewing the advisability of adopting, and subsequently amending
the Director Plan, the Board of Directors considered the dilutive effect that
shares issued in connection with grants made under the Director Plan would have
on the existing shareholders of the Company, and concluded that the benefits of
implementing and continuing such an option program outweigh the drawbacks of
dilution.
SUMMARY OF THE DIRECTOR PLAN
The Director Plan, as amended, is attached as Exhibit A, to which
reference is made for a complete statement of its provisions. The following
summary of certain of its provisions is not intended as an exhaustive discussion
of the Director Plan and is qualified in its entirety by reference to the
Director Plan.
The Director Plan does not contemplate that any stock options granted
thereunder will qualify as ISOs under the Code, and all are consequently
considered NSSOs, as defined in Item 2 above. For further information regarding
the tax treatment of NSSOs, see "TAX EFFECTS" below.
The Director Plan contemplates two types of stock option grants: (a)
"Initial Options" of 10,000 underlying shares that shall be granted at the time
of the initial appointment of any non-employee director, and (b) "Discretionary
Grants" of no more than 10,000 underlying shares per recipient per year
(including Initial Options) that may be granted by the Board of Directors on a
purely discretionary basis from time to time during the term of the Director
Plan. In either instance, grants may only be made to non-employee Directors of
the Company. As described above, to date two Initial Option grants have been
made under the Director Plan. No Discretionary Grants have been made. The Board
of Directors currently intends that the Director Plan be used principally, if
not exclusively, for the granting of Initial Options, although the Board
reserves the ability to make Discretionary Grants in its discretion. The
Director Plan is administered by the Board of Directors.
The Director Plan currently provides that an aggregate of 25,000 shares
of Common Stock of the Company may be made subject to options, which amount
would be increased to 150,000 shares if the requested amendment is approved by
the shareholders. If an option lapses or terminates for any reason before having
been completely exercised, however, the shares covered by the unexercised
portion of the option may again be made subject to options under the Director
Plan.
The exercise price for each option is 100% of the "Fair Market Value"
(as defined in the Director Plan) of the Common Stock on the date of grant. For
purposes of the Director Plan, "Fair Market Value" is currently determined by
reference to the closing sale price of a share of Common Stock as reported on
The Nasdaq Stock Market on the date immediately preceding the date the grant
becomes effective. As of March 16, 1998 the closing price of the Company's
Common Stock was $12.3125 per share. The Director Plan specifies that Initial
Options become exercisable as of the date of Grant and expire ten years
thereafter.
15
<PAGE>
Paragraph 10 of the Director Plan provides for the automatic
acceleration of the exercisability of an option in the event of either a
friendly or hostile "Change in Control." 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.
Paragraph 11 of the Director Plan enables the Board of Directors, in
its discretion, to accelerate the exercisability of the options if certain
specified "Events" are anticipated to occur. The specified "Events" which may
result in acceleration include any proposed dissolution or liquidation of the
Company, sale of substantially all of the assets of the Company, merger or
consolidation of the Company with or into any other corporation, regardless of
whether the Company is the surviving corporation, or any statutory share
exchange involving capital stock of the Company. The alternatives available to
the Board of Directors upon the occurrence of such an Event, and the purpose of
such provisions, are substantially the same as with respect to the 1995 Plan,
discussed in Item 2 above.
The exercise rights granted under both Paragraphs 10 and 11 of the
Director Plan are subject to adjustment if they would trigger "golden parachute"
penalties under the Code. See the description of the 1995 Plan in Item 2 above
for a discussion of parachute rights.
To exercise an option, an optionee may elect either to pay the full
exercise price in cash or to deliver to the Company unencumbered shares of
Common Stock having a Fair Market Value on the date of exercise equal to the
purchase price of the Common Stock being purchased, or to use a combination of
cash and unencumbered shares.
Delivery of shares upon the exercise of an option under the Director
Plan will be subject to any required withholding taxes relating to the income
arising from the exercise of the option. The Board of Directors may permit the
optionee to elect, subject to certain conditions, to cover the required
withholdings, in whole or in part, through a reduction of the number of shares
delivered to the optionee upon exercise or through a subsequent return to the
Company of shares delivered to the optionee.
Options granted pursuant to the Director Plan are non-assignable and
non-transferable except according to the laws of descent, although assignment to
certain immediate family members is permitted if explicitly authorized at the
time of the option grant. Generally, the options expire if not exercised within
five years after the optionee ceases to be a director of Company. Each option
will expire ten years after the date of its grant or such date prior thereto as
may be fixed by the Board of Directors on or before the date such option is
granted.
The Board of Directors may amend, suspend or discontinue the Director
Plan, but it may not, without approval of the Company's shareholders, increase
the total number of shares of Common Stock of the Company which may be made
subject to options granted under the Director Plan. No amendment to the Director
Plan can, without the consent of the holder of the option, alter or impair any
options previously granted under the Director Plan.
16
<PAGE>
OPTIONS GRANTED AND TO BE GRANTED IN FISCAL 1998
See the table captioned "New Plan Benefits" in the discussion of the 1995
Plan in Item 2 above.
TAX EFFECTS
Upon exercise of a Director Option, the optionee will recognize
ordinary income equal to the difference between Fair Market Value at the time of
exercise and the option exercise price. The Company is generally entitled to a
deduction in connection with the exercise of a Director Option equal to the
amount taxable to the optionee, at the time the optionee must recognize such
amount as taxable income.
OTHER INFORMATION
The Company intends to take such actions as may be required to register and
maintain the registration of the Common Stock reserved for purposes of the
requested approval of the Director Plan, as amended, under the Securities Act of
1933, as amended, and any applicable state securities laws.
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 approval of the Director Plan
as amended. If a shareholder does not otherwise direct, the shares represented
by the proxy solicited hereby will be voted in favor of approval of the Director
Plan, as amended. If the Director Plan, as amended, is not approved by
shareholders, the Director Plan as adopted by the Board of Directors on May 13,
1997 will remain in effect.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY
VOTE FOR THE APPROVAL OF THE DIRECTOR PLAN, AS AMENDED, AS DESCRIBED ABOVE.
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
17
<PAGE>
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. Cash bonuses are indexed to earnings per share, and may
approach or equal each officer's annual base compensation. Stock options with
incremental vesting provide the opportunity for long-term appreciation. The
separate compensation components are described in more detail below.
BASE SALARIES
In order to set the base salary for each executive officer in 1997,
including the Chief Executive Officer, the Compensation Committee reviewed 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 took into account
various other factors considered by them to be relevant in evaluating the
performance and appropriate compensation of each individual officer (principally
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).
In setting base salaries and total cash compensation for executive
officers in 1997, the Compensation Committee reviewed total compensation
information derived from three restaurant industry studies. While highly
influential in the Compensation Committee's deliberations, such information was
not determinative in the setting of executive officer base salaries. Instead,
the information was only one factor considered along with the elements described
in the preceding paragraph, all of which were evaluated subjectively in the
sense that the Compensation Committee did 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.
CASH BONUSES
In 1997, the Compensation Committee established the formulas for cash
bonuses to be paid to each executive officer of the Company, including the Chief
Executive Officer, at the same time it determined base salaries, utilizing the
same criteria discussed above. Each such
18
<PAGE>
executive officer's cash bonus was computed as a percentage of base salary
depending on the Company's earnings per share. The Compensation Committee
selected a percentage for each such executive officer intended to result in
bonus compensation which, if the Company met certain identified profit
objectives, would constitute a significant portion of such executive officer's
total cash compensation for the year, ranging from 20% to 100% of base salary
depending on position. The Compensation Committee selected higher percentages
for more senior executive officers to ensure that a greater portion of such
officers' total cash compensation was exposed to the risk of Company
performance. There were no cash bonuses paid to executive officers in 1997 other
than to Mr. Hubbard, who received $27,990 as an adjustment to his total
compensation in 1997.
EMPLOYEE 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 potential 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 six years, consists of annual
grants of specified numbers of options to employees in specified job positions,
currently ranging from 500 options to restaurant level and certain
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, 7,500 options to each Senior 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
(other than compensation studies), 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.
19
<PAGE>
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.
PRICE SENSITIVE STOCK OPTIONS
On May 13, 1997 the Compensation Committee approved stock option grants
(the "Price Sensitive Options") for the three most senior executive officers,
including the Chief Executive Officer, who were excluded from participation in
the repricing program (described below under the caption "STOCK OPTION PARTIAL
SURRENDER AND REPRICING"). The Committee believes that the Price Sensitive
Options will provide an additional incentive for such officers to focus on
enhancing shareholder value, by rewarding increased share price with accelerated
option vesting. The grants provided the three officers with the option to
purchase an aggregate of 275,000 shares (Roe H. Hatlen -- 100,000 shares, C.
Dennis Scott -- 100,000 shares, and Kerry A. Kramp -- 75,000 shares) for $9.00
per share, the Fair Market Value on the date of grant of the stock options. The
options vest one third at such time as the sale price of the Company's Common
Stock as of the close of trading exceeds $12 per share for thirty consecutive
calendar days, an additional one third at the time the sale price exceeds $16
per share for thirty consecutive calendar days, and the final one third at the
time the price exceeds $20 per share for thirty consecutive calendar days. The
grants also provide that all options become exercisable on May 19, 2006 if they
have not become exercisable prior to that date as a consequence of achieving the
trading price thresholds described above. The options are reflected in the
accompanying tables captioned "SUMMARY COMPENSATION TABLE" and "OPTION GRANTS IN
LAST FISCAL YEAR."
OTHER OFFICER COMPENSATION
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 Company paid Mr. Kramp $48,086 in 1996 and $15,494 in
1997 to defray personal relocation expenses associated with the Company's merger
with HomeTown Buffet, Inc. The Company provides certain executive officers
(including the Chief Executive Officer) with automobile allowances and pays
certain travel expenses. The Compensation Committee considers such 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.
20
<PAGE>
The Company maintains certain broad based employee benefit plans in
which its executive officers are permitted to participate, including retirement,
term life, and health insurance plans. It also subsidizes the expense of annual
executive health screenings for each executive officer that elects to
participate in this program. The Company's retirement plan is a 401(k) plan
which allows certain employees meeting length-of-service and other eligibility
criteria to make pre-tax contributions, and in which the Company has the
discretionary option to match employee contributions in an amount less than or
equal to the employee's contribution up to a maximum of 4% of the employee's
base salary. The matching contributions made by the Company to each named
executive officers' 401(k) plan accounts is reflected in the "Summary
Compensation Table" accompanying this report.
STOCK OPTION PARTIAL SURRENDER AND REPRICING
On May 13, 1997, at the recommendation of the Chairman and Chief
Executive Officer, the Compensation Committee approved the partial surrender and
repricing of stock options to substantially all employees with outstanding
options, including executive officers but specifically excluding the Chief
Executive Officer, Chief Operating Officer and President. The Compensation
Committee's action was in response to the decline in the market price of the
Company's shares during the preceding months, which had effectively eliminated
the incentive value of options with a significantly higher exercise price. The
Compensation Committee's decision was also based on a number of other factors,
including a concern that the Company's ability to retain employees in the highly
competitive restaurant industry had been impaired by the declining value of
outstanding options. The repricing program was open between May 23, 1997 and
June 30, 1997, with eligible options repriced from their original grant price to
the higher of (i) $9.00 per share or (ii) the fair market value of the Company's
Common Stock on the effective date of the repricing. The Compensation Committee
deemed it important to involve the employees in the repricing decision by
providing both risk and benefit factors for consideration. Specifically, the
employees were required to surrender one-half of any options that they elected
to reprice. Consequently, although participating employees typically benefitted
in the short term by having half of their options closer to being "in the
money," they also had to weigh whether they would be in a better position should
they refuse to reprice and hold 100% of their options at the higher original
exercise price. The surrender feature of the repricing program had the secondary
benefit of returning a significant number of shares to the Company's stock
option plans to be made available for reissue. Options for 907,226 shares were
ultimately submitted for repricing by eligible employees, including executive
officers, resulting in 453,613 shares (or 50%) being returned to the Company's
stock option plans. The following table presents information on the repricing of
stock options by executive officers in 1997. No other option repricings have
occurred in the past ten year period.
21
<PAGE>
<TABLE>
<CAPTION>
TEN YEAR OPTION REPRICING
# OF SHARES MARKET PRICE EXERCISE LENGTH OF
UNDERLYING AT TIME PRICE AT NEW ORIGINAL TERM
REPRICING OPTIONS OF TIME OF EXERCISE REMAINING AT
NAME DATE REPRICED (1) REPRICING REPRICING PRICE REPRICING DATE
- ------------------ ----------- ------------ --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Clark C. Grant 5/27/97 5,000 $8.8750 $17.3125 $9.00 4yr 8mth
Executive Vice 5/27/97 7,500 $8.8750 $14.9375 $9.00 5yr 11mth
President of Finance/ 5/27/97 2,500 $8.8750 $24.6250 $9.00 6yr 10mth
Administration and 5/27/97 5,000 $8.8750 $16.1250 $9.00 5yr 8mth
Treasurer
Jean C. Rostollan, 5/27/97 5,000 $8.8750 $17.3125 $9.00 4yr 8mth
Executive Vice 5/27/97 5,000 $8.8750 $16.1250 $9.00 5yr 8mth
President of Purchasing 5/27/97 7,500 $8.8750 $14.9375 $9.00 5yr 11mth
and Assistant Secretary 5/27/97 2,500 $8.8750 $24.6250 $9.00 6yr 10mth
Rick H. White, 5/23/97 5,325 $8.9375 $12.5000 $9.00 4yr 5mth
Formerly Executive Vice 5/23/97 5,000 $8.9375 $13.4375 $9.00 5yr 6mth
President of Operations 5/23/97 4,000 $8.9375 $16.1250 $9.00 5yr 8mth
5/23/97 12,500 $8.9375 $14.9375 $9.00 5yr 11mth
5/23/97 2,500 $8.9375 $24.2500 $9.00 6yr 8mth
5/23/97 2,500 $8.9375 $24.6250 $9.00 6yr 10mth
5/23/97 20,000 $8.9375 $10.7500 $9.00 7yr 9mth
5/23/97 5,000 $8.9375 $12.0000 $9.00 8yr 9mth
</TABLE>
(1) The number of shares shown as underlying the repriced options is 50% of
those originally underlying such options; a result of the Compensation
Committee's requirement that the participants surrender 50% of the options
subject to the repricing as set forth above.
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.
Walter R. Barry, Jr.
Alan S. McDowell
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<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 1997. 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
----------------------- -----------
OTHER SHARES
NAME AND PRINCIPAL ANNUAL UNDERLYING ALL OTHER
POSITION(S) YEAR SALARY BONUS COMPENSATION(2) OPTIONS (#) COMPENSATION
- -------------------------- ---- ------ ----- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Roe H. Hatlen, Chairman of the 1997 $250,000 $ 0 -- 115,000
Board and Chief Executive Officer 1996 150,000 189,576 -- 15,000
1995 152,885 219,605 -- 15,000
C. Dennis Scott, Vice Chairman 1997 250,000 0 -- 115,000
of the Board and Chief Operating 1996 194,231 114,245 -- 35,100
Officer(3) 1995 164,600 87,500 -- 58,500
Kerry A. Kramp, President (3) 1997 225,000(4) 0 -- 87,500 $16,706(5)
1996 159,423 98,980 -- 110,100 48,086(5)
1995 128,100 53,000 -- 17,550
Thomas F. Hubbard, 1997 200,000 27,990 -- 10,000
Executive Vice President of 1996 115,096 22,500 -- 36,700
Real Estate and Development (3) 1995 105,800 55,000 -- 11,700
Neal L. Wichard, 1997 155,000(4) 0 -- 7,500 1,688(6)
Senior Vice President of 1996 152,212 96,745 -- 35,100
Real Estate (3) 1995 131,700 70,000 -- 58,000
</TABLE>
- --------------------------------
(1) 1995 base salaries are for a 53 week fiscal year.
(2) The Company provides standard employee medical, dental, term life and
disability coverage to its executive officers, and subsidizes the
expense of an annual executive health screening for each officer. It
also provides company car and travel benefits to certain officers. The
value of all such "Other Annual Compensation" is less than the minimum
of $50,000 or 10% of the total cash compensation for each person
reported above.
(3) Position held since the HomeTown Merger on September 20, 1996; includes
compensation paid by HomeTown through that date.
(4) Annual compensation for 1997 includes amounts deferred under the
Company's 401(k) retirement savings plan.
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<PAGE>
(5) Includes $15,494 in 1997 and $48,086 in 1996 for relocation expenses
paid to Mr. Kramp in connection with the HomeTown Merger. Includes
$1,212 in Company matching contributions to the 401(k) retirement
savings plan. This amount was paid on March 16, 1998.
(6) Includes Company matching contributions to the 401(k) retirement
savings plan of $1,688. This amount was paid on March 16, 1998.
OPTIONS GRANTED IN FISCAL 1997
The following table sets forth, as to each executive officer
named in the Summary Compensation Table, certain information with respect to
stock options granted during the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
- ----------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
----------------- POTENTIAL REALIZABLE VALUE AT
PERCENT OF TOTAL ASSUMED ANNUAL
NUMBER OF SHARES OPTIONS GRANTED TO EXERCISE RATES OF STOCK PRICE
UNDERLYING EMPLOYEES IN PRICE EXPIRATION APPRECIATION FOR OPTION TERM (1)
NAME OPTIONS GRANTED FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- --------------- ----------- ------ ---- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Roe H. Hatlen 15,000 .82% $ 9.00 5/19/07 $ 84,901 $ 215,155
100,000 5.47 9.00 5/19/07 566,005 1,434,368
C. Dennis Scott 15,000 .82 9.00 5/19/07 84,901 215,155
100,000 5.47 9.00 5/19/07 566,005 1,434,368
Kerry A. Kramp 75,000 4.10 9.00 5/19/07 424,504 1,075,776
12,500 .68 9.75 8/11/07 76,647 194,237
Thomas F. Hubbard 10,000 .55 10.50 11/3/07 65,016 165,722
Neal L. Wichard 7,500 .41 9.00 5/19/07 42,450 107,578
</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.
These options to executive officers were granted under the
Company's 1988 or 1995 Stock Option Plans as discussed in "COMPENSATION
COMMITTEE REPORT ON EXECUTIVE COMPENSATION--EMPLOYEE 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 plans, of a share of Common
Stock on the date of grant, and (other than in the instance of the Price
Sensitive Options described in the section referenced in the preceding sentence)
are exercisable in 20% increments on the five anniversary dates after the date
of grant. Such options
24
<PAGE>
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, 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.
On May 13, 1997, the Compensation Committee approved stock
option grants (the "Price Sensitive Options") for the three most senior
executive officers, including the Chief Executive Officer. The grants provided
the three officers with the option to purchase an aggregate of 275,000 shares
(Roe H. Hatlen -- 100,000 shares, C. Dennis Scott -- 100,000 shares, and Kerry
A. Kramp -- 75,000 shares) for $9.00 per share, the Fair Market Value on the
date the grant of the stock options became effective. The options vest one third
if the fair market value as of the close of trading exceeds $12 per share for
thirty consecutive calendar days, an additional one third if the price exceeds
$16 per share for thirty consecutive calendar days, and the final one third if
the price exceeds $20 per share for thirty consecutive calendar days. The grants
also provide that all options become exercisable on May 19, 2006 if they have
not become exercisable prior to that date as a consequence of achieving the
trading price thresholds described above.
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.
25
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT FISCAL IN THE MONEY OPTION 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 $ 0 483,000 157,000 $356,625 $43,688
C. Dennis Scott 35,100 231,660 58,500 196,900 1,299 43,991
Kerry A. Kramp 10,530 91,901 92,220 201,320 318,287 84,829
Thomas F. Hubbard 20,475 195,321 33,080 54,570 76,855 23,901
Neal L. Wichard 0 0 79,560 80,040 228,677 2,812
</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.
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. Coinciding with the
1996 merger, 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.
26
<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
-----------
1992 1993 1994 1995 1996 1997
- -----------------------------------------------------------------------------
S&P 500 INDEX $100 $110.08 $111.53 $153.45 $188.68 $251.63
- -----------------------------------------------------------------------------
BUFFETS, INC. 100 156.66 60.08 83.65 55.51 57.04
- -----------------------------------------------------------------------------
RESTAURANTS 100 116.74 116.38 174.55 172.45 185.17
- -----------------------------------------------------------------------------
27
<PAGE>
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 16, 1998 (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 APPROXIMATE
OR IDENTITY OF GROUP NUMBER OF SHARE PERCENT
- --------------------------------------------------------------------------------
Roe H. Hatlen 1,730,211 (1) 3.8%
C. Dennis Scott 1,203,260 (2) 2.7
Kerry A. Kramp 104,166 (3) *
Thomas F. Hubbard 34,878 (4) *
Neal L. Wichard 561,892 (5) 1.2
Walter R. Barry, Jr. 47,124 (6) *
Marvin W. Goldstein 10,000 (7) *
Alan S. McDowell 266,180 (8) *
Michael T. Sweeney 10,000 (7) *
Massachusetts Financial Services Company 3,960,087 (9) 8.7
500 Boylston Street
Boston, MA 02116
MFS Series Trust II - MFS Emerging
Growth Fund (9)
500 Boylston Street
Boston, MA 02116
28
<PAGE>
NAME AND ADDRESS OF INDIVIDUAL APPROXIMATE
OR IDENTITY OF GROUP NUMBER OF SHARE PERCENT
- --------------------------------------------------------------------------------
The Capital Group Companies. Inc. 4,586,600 (10) 10.1
333 South Hope Street
Los Angeles, CA 90071
Capital Guardian Trust Company (10)
333 South Hope Street
Los Angeles, CA 90071
All directors and executive officers
as a group (14 persons) 4,161,083 (11) 9.0
- --------------------------------
* 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 61,750 shares owned of
record by the Hatlen Foundation (of which Mr. Hatlen is an officer) and
504,000 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 49,140 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 88,710 shares subject to stock options
exercisable within 60 days.
(4) Includes 14,360 shares subject to stock options exercisable within 60
days.
(5) 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, 877 shares owned of record by Mr. Wichard's wife as custodian for
their daughter and 95,940 shares subject to stock options exercisable
within 60 days. Mr. Wichard disclaims beneficial ownership with regard
to the 17,550 and 877 share holdings.
(6) Includes 7,000 shares subject to stock options exercisable within 60
days.
(7) Includes 10,000 shares subject to stock options exercisable within 60
days.
29
<PAGE>
(8) Includes 19,680 shares owned of record by Mr. McDowell's daughter and
son and 10,500 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.
(9) Massachusetts Financial Services Company has sole power to vote
3,924,524 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, 1998 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, 1997.
(10) 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 4,246,600 of such shares and 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
3,594,800 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 3,594,800 shares, which
represent approximately 7.9% of the Company's outstanding Common Stock,
Capital Guardian Trust Company has sole power to vote 3,254,800 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 10, 1998 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,
1997.
(11) Includes an aggregate of 950,540 shares subject to stock options
exercisable within 60 days held by all directors and executive officers
as a group.
30
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 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 December 31, 1997 or prior years
complied with all such reporting requirements.
CERTAIN TRANSACTIONS
In 1995, the Company made charitable contributions aggregating
$250,000 to Minnesota Life College ("MLC"), a Minnesota nonprofit corporation.
Of this sum, $145,000 was paid through December 31, 1996, and the remaining
$105,000 was paid in 1997, although the entire amount was expensed in 1995. The
Company also contributed $82,192 to MLC in 1997 beyond the original commitment.
MLC 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 MLC; 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 MLC. The
directors currently appointed by the Company are Mr. Hatlen and Ms. Nesset.
Kerry A. Kramp, Thomas F. Hubbard, and K. Michael Shrader, the
Company's President, Executive Vice President of Real Estate and Development,
and Executive Vice President of Human Resources, respectively, were indebted to
the Company during 1997 in the maximum amounts of $173,904, $120,028 and
$73,572, respectively. As of March 16, 1998, the amount outstanding under such
loans were $171,571, $122,017 and $71,793, 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
31
<PAGE>
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. Shrader'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. Shrader of certain Company Common
Stock and stock options. Interest accrues on the unpaid principal balance of Mr.
Shrader's loan at the prevailing prime rate of First Bank of Minneapolis plus 1%
per annum. All of the amounts advanced to Messrs. Kramp, Hubbard and Shrader in
1996 were in connection with, or in anticipation of, the relocation of such
persons to Minneapolis. Certain obligations due under Messrs. Hubbard and
Shrader's notes are due and unpaid at this time. The Company anticipates that
suitable repayment arrangements will be resolved with these officers in due
course.
ITEM 4: SELECTION OF AUDITORS
The Board of Directors has appointed Deloitte & Touche LLP as
independent auditors of the Company for the fiscal year ending December 30,
1998, 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 December 31, 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
The enclosed proxy confers upon the person or persons entitled
to vote the shares represented thereby discretionary authority to vote such
shares in accordance with their best judgment with respect to all matters which
may properly come before the meeting in addition to the scheduled items of
business, including the approval of the minutes of the prior annual meeting of
the Company's shareholders. It is intended that proxies solicited by the Board
of Directors, unless otherwise specified therein, will be voted in accordance
with the recommendations of the Board of Directors.
The Management knows of no other matters that may properly be
presented at the annual meeting, but if other matters do properly come before
the meeting, it is intended that the persons named in the proxy will vote
according to their best judgement.
32
<PAGE>
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 1, 1998.
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, 1998
33
<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(R) restaurant, 4808 Highway 101, Minnetonka, Minnesota at
9:00 a.m. on Tuesday, May 12, 1998, 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)
34
<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
Marvin W. Goldstein C. Dennis Scott
Roe H. Hatlen Michael T. Sweeney
1. Election of Directors FOR WITHHOLD
o o
(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name below)
- --------------------------------------------------
2. Amending the Buffets, Inc. 1995 Stock Option FOR AGAINST ABSTAIN
Plan to increase the number of shares authorized o o o
thereunder from 1,000,000 to 2,500,000
3. Approving the Buffets, Inc. 1997 Non-Employee FOR AGAINST ABSTAIN
Director Stock Option Plan, as amended o o o
4. Approving Deloitte & Touche LLP as independent FOR AGAINST ABSTAIN
auditors for the current fiscal year. o o o
5. 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 PROPOSALS 2, 3, AND 4.
THE PROXIES ARE AUTHORIZED TO VOTE IN THEIR DISCRETION WITH RESPECT TO OTHER
MATTERS WHICH MAY COME BEFORE THE MEETING.
- ------------------------------------- ---------
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.
PLEASE RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
35
<PAGE>
EXHIBIT A
BUFFETS, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. PURPOSE. The purpose of this Non-Employee Director Stock Option Plan
(the "Plan") is to promote the interests of Buffets, Inc., a Minnesota
corporation (the "Company"), and its shareholders by providing non-employee
directors of the Company with an opportunity to acquire a proprietary interest
in the Company and thereby provide an additional incentive to put forth maximum
effort for the continued success and growth of the Company. In addition, the
opportunity to acquire a proprietary interest in the Company will aid in
attracting and retaining non-employee directors of outstanding ability.
2. ADMINISTRATION.
(a) General. This Plan shall be administered by the Company's
Board of Directors (the "Board"). The Board shall have the power,
subject to the limitations contained in this Plan, to fix any terms and
conditions for the grant or exercise of any award under this Plan.
Subject to the provisions of this Plan, the Board may from time to time
adopt such rules for the administration of this Plan as it deems
appropriate. The decision of the Board on any matter affecting this
Plan or the rights and obligations arising under this Plan or any award
granted hereunder, shall be final, conclusive and binding upon all
persons, including without limitation the Company, shareholders and
optionees.
(b) Indemnification. To the full extent permitted by law, (i)
no member of the Board shall be liable for any action or determination
taken or made in good faith with respect to this Plan or any award
granted hereunder and (ii) the members of the Board shall be entitled
to indemnification by the Company against and from any loss incurred by
such member or person by reason of any such actions and determinations.
3. SHARES. The shares that may be made subject to options granted under
this Plan shall be authorized and unissued shares of Common Stock of the
Company, par value $.0l per share ("Shares," and each individually a "Share"),
and they shall not exceed 25,000 Shares in the aggregate, subject to adjustment
as provided in paragraph 12 below, except that if any option lapses or
terminates for any reason before such option has been completely exercised, the
Shares covered by the unexercised portion of such option may again be made
subject to options granted under this Plan.
A-1
<PAGE>
4. ELIGIBLE PARTICIPANTS. Stock options may be granted under this Plan
to any director of the Company who is not an employee of the Company or any
parent or subsidiary thereof (a "non-employee director"). References herein to
"employed," "employment" and similar terms (except "employee") shall refer to
the providing of services as a director.
5. TERMS AND CONDITIONS OF DIRECTOR OPTIONS.
(a) Discretionary Grants. Subject to the terms and conditions
of this Plan, the Board may, from time to time during the term of this
Plan, grant to any non-employee director options to purchase such
number of Shares of the Company on such terms and conditions as the
Board may determine. In determining the non-employee directors to whom
options shall be granted and the number of Shares to be covered by each
option, the Board may take into account the nature of the services
rendered by the respective non-employee directors, their present and
potential contributions to the success of the Company, and such other
factors as the Board in its sole discretion may deem relevant. The date
and time of approval by the Board of the granting of an option shall be
considered the date and the time of the grant of such option. The
maximum number of Shares subject to options that may be granted to any
one non-employee director under the Plan in any fiscal year of the
Company (including options granted under paragraph 5(b)) may not exceed
10,000 Shares (subject to adjustment pursuant to paragraph 12 hereof).
(b) Initial Options (New Director). With respect to any
non-employee director who is first elected or appointed to the Board on
a date after the date of the 1997 shareholders Meeting, the Company
shall grant to such non-employee director on the day following his or
her first being so elected or appointed to the Board an option to
purchase 10,000 Shares ("Initial Options"). If a non-employee director
is first elected or appointed to the Board at an Annual Meeting of the
shareholders of the Company, such non-employee director shall be
granted an Initial Option at such time. Subject to the limitation
contained in paragraph 5(a) as to the maximum annual aggregate grant to
any one Individual, the Board may increase or decrease the number of
shares to be granted to non-employee directors on any date pursuant to
this said paragraph 5(b).
(c) Purchase Price. The purchase price of each Share subject
to an option granted pursuant to this paragraph 5 shall be 100% of the
Fair Market Value of a Share on the date of grant.
(d) Vesting. With respect to any option granted under
paragraph 5(a), the option agreement provided for in paragraph 6
relating to such option shall specify when such option shall become
exercisable. With respect to any Initial Options, such options shall be
exercisable immediately on the date of grant.
(e) Termination. Each option granted pursuant to this
Paragraph 5 shall expire, and all rights to purchase Shares thereunder
shall terminate, on the earliest of:
A-2
<PAGE>
(i) ten years after the date such option is granted
or on such date prior thereto as may be fixed by the Board on
or before the date such option is granted;
(ii) the expiration of the period after the
termination of the optionee's service as a non-employee
director within which the option is exercisable as specified
in paragraph 9(b) provided that the Board may, in any option
agreement provided for in paragraph 6 or by Board action with
respect to any outstanding option, extend the periods
specified in paragraph 9(b); or
(iii) the date, if any, fixed for cancellation pursuant
to paragraph 10(c) or 11 below.
(f) Allocation of Common Shares. If as of a date on which
Initial Option or Options are to be awarded pursuant to the provisions
of this paragraph 5, the number of Shares available for issuance under
the Plan as of such date are less than the number of options to
purchase Shares that otherwise would be awarded, then the following
formula shall determine how the remaining number of Shares are to be
allocated:
(i) if only one non-employee director is to receive
an option on such date, then such non-employee director shall
receive an option to purchase Shares equal to the number of
Shares remaining.
(ii) if two or more non-employee directors are to
receive options on such date:
A. all Initial Options shall first be
awarded; if, however, the number of Shares available
is less than the number of options to purchase Shares
that would otherwise be awarded as Initial Options
then each such non-employee director eligible to
receive an Initial Option shall receive the number of
options which results from the following equation:
the whole number of Shares available divided by the
number of non-employee directors eligible to receive
such an option, provided, however, that no fractional
shares shall be awarded; and if such allocation
occurs, any remaining Shares shall not be awarded and
shall be deemed not subject to distribution for
purposes of paragraph 16; and
B. if on such date all Initial Options to be
awarded are awarded in the full amount of Shares or
if no Initial Options are to be awarded then each
non-employee director eligible for a discretionary
option grant shall receive a discretionary option to
purchase Shares in the amount that results from the
following equation: the whole number of Shares
available divided by the number of non-employee
directors eligible
A-3
<PAGE>
for discretionary options based on the relative
proportion of their intended grant of options,
provided, however, that no fractional shares shall be
awarded; and any remaining Shares shall not be
awarded and shall be deemed not subject to
distribution for purposes of paragraph 16.
6. OPTION AGREEMENTS. All options granted under this Plan shall be
evidenced by a written agreement in such form or forms as the Board may from
time to time determine.
7. FAIR MARKET VALUE. For Purposes of this Plan, the "Fair Market
Value" of a Share at a specified date shall, unless otherwise expressly provided
in this Plan, mean the closing sale price of a Share on the date immediately
preceding such date or, if no sale of Shares shall have occurred on that date,
on the next preceding day on which a sale of Shares occurred, on the Composite
Tape for New York Stock Exchange listed shares or, if Shares are not quoted on
the Composite Tape for New York Stock Exchange listed shares, on the Nasdaq
National Market or any similar system then in use or, if Shares are not included
in the Nasdaq National Market or any similar system then in use, the mean
between the closing "bid" and the closing "asked" quotation of a Share on the
date immediately preceding the date as of which such Fair Market Value is being
determined, or, if no closing bid or asked quotation is made on that date on the
next preceding day on which a quotation is made, on the Nasdaq Small Cap Market
or any similar system then in use, provided that if the Shares in question are
not quoted on any such system, Fair Market Value shall be what the Board
determines in good faith to be 100% of the fair market value of a Share as of
the date in question. Notwithstanding anything stated in this paragraph 7, if
the applicable securities exchange or system has closed for the day by the time
the determination is being made, all references in this paragraph to the date
immediately preceding the date in question shall be deemed to be references to
the date in question.
8. MANNER OF EXERCISE OF OPTIONS. A person entitled to exercise an
option granted under this Plan may, subject to its terms and conditions and the
terms and conditions of this Plan, exercise it in whole at any time, or in part
from time to time, by delivery to the Company at its principal executive office,
to the attention of its Chief Financial Officer, of written notice of exercise,
specifying the number of Shares with respect to which the option is being
exercised. The purchase price of the Shares with respect to which an option is
being exercised shall be payable in full at the time of exercise, provided that,
to the extent permitted by law, the holder of an option may simultaneously
exercise an option and sell all or a portion of the Shares thereby acquired
pursuant to a brokerage or similar relationship and use the proceeds from such
sale to pay the purchase price of such Shares. The purchase price of each Share
on the exercise of any option shall be paid in full in cash (including check,
bank draft or money order) or, at the discretion of the person exercising the
option, by delivery to the Company of unencumbered Shares, by a reduction in the
number of Shares delivered upon exercise of the option, or by a combination of
cash and such Shares (in each case such Shares having an aggregate Fair Market
Value on the date of exercise equal to the amount of the purchase price being
paid through such delivery or reduction of Shares); provided, however, that no
person shall
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be permitted to pay any portion of the purchase price with Shares if the Board,
in its sole discretion, determines that payment in such manner is undesirable.
The granting of an option to a person shall give such person no rights as a
shareholder except as to Shares issued to such person.
9. TRANSFERABILITY AND TERMINATION OF EMPLOYMENT
(a) Transferability. During the lifetime of an optionee, only
such optionee or his or her guardian or legal representative may
exercise options granted under this Plan, and no option granted under
this Plan shall be assignable or transferable by the optionee otherwise
than by will or the laws of descent and distribution or pursuant to a
domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder;
provided, however, that any optionee may transfer a non-statutory stock
option granted under this Plan to a member or members of his or her
immediate family (i.e., his or her children, grandchildren and spouse)
or to one or more trusts for the benefit of such family members or
partnerships in which such family members are the only partners, if (i)
the option agreement with respect to such options expressly so provides
either at the time of initial grant or by amendment to an outstanding
option agreement and (ii) the optionee does not receive any
consideration for the transfer. Any options held by any such transferee
shall continue to be subject to the same terms and conditions that were
applicable to such options immediately prior to theft transfer and may
be exercised by such transferee only as and to the extent that such
option has become exercisable and has not terminated in accordance with
the provisions of the Plan and the applicable option agreement. For
purposes of any provision of this Plan relating to notice to an
optionee or to vesting or termination of an option upon the death,
disability or termination of employment of an optionee, the references
to "optionee" shall mean the original grantee of an option and not any
transferee.
(b) Termination of Employment. In the event that an optionee
ceases to be employed as a non-employee director by reason of :
(i) death,
(ii) disability preventing continued service,
(iii) retirement from the Board in accordance with
the policy of the Company, if any, on retirement of
non-employee directors then in effect, or
(iv) termination of service as a non-employee
director by reason of (x) resignation at the request of the
Board (other than for gross misconduct, as determined by the
Board) (y) the director's failure to have been nominated for
re-election to the Board (unless such failure results from the
non-employee director's unwillingness to continue to serve) or
to have been re-elected by the shareholders of the Company, or
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(v) the director's removal by the shareholders of the
Company; then any option granted to such optionee that was not
previously exercisable shall become immediately exercisable in full if
the optionee shall have been continuously employed by the Company or a
parent or subsidiary thereof between the date such option was granted
and the date of such termination of service and such option shall
continue to be exercisable for five years after termination of such
optionee's employment. If an optionee's employment terminates in any
manner other than as provided for in the preceding sentence, any option
granted to such optionee shall terminate immediately upon such
termination of employment.
(c) Right to Terminate Employment. Nothing contained in this
Plan, or in any option granted pursuant to this Plan, shall confer upon
any optionee any right to continued employment by the Company or limit
in any way the right of the Company to terminate such optionee's
employment at any time.
(d) Expiration Date. In no event shall any option be
exercisable at any time after the time it shall have expired in
accordance with paragraph 5(e) of this Plan. When an option is no
longer exercisable, it shall be deemed to have lapsed or terminated and
will no longer be outstanding.
10. CHANGE IN CONTROL.
(a) Subject to paragraph 10(c), but anything else to the
contrary in this Plan notwithstanding, in the event of a "Change in
Control" of the Company, as defined in paragraph 10(b), an option held
by a person under this Plan that shall not have expired shall become
immediately exercisable in full.
(b) A "Change in Control," for Purposes for this Plan, means:
(i) a majority of the directors of the Company
shall be persons that are not Continuing Directors.
"Continuing Directors" shall mean directors:
(A) for whose election proxies shall have
been solicited by the Board of Directors of the
Company, or
(B) who are then serving as directors
appointed by the Board of Directors to fill vacancies on the
Board of Directors caused by death or resignation (but not
by removal) or to fill newly-created directorships;
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(ii) 30% or more of the outstanding voting stock of
the Company shall have been acquired or beneficially owned (as
defined in Rule 13d-3 under the Exchange Act) by any person
(other than the Company, a subsidiary of the Company or the
person holding the option) or group of persons (which group
does not include the person holding the option) acting in
concert; or
(iii) The shareholders of the Company shall have
approved a definitive agreement or plan to:
(A) merge or consolidate the Company with or
in to another corporation (other than (1) a merger or
consolidation with a subsidiary of the Company or (2)
a merger in which the Company is the surviving
corporation and either (a) no outstanding voting
stock of the Company (other than fractional shares)
held by shareholders immediately prior to the merger
is converted into cash, securities, or other property
or (b) all holders of outstanding voting stock of the
Company (other than fractional shares) immediately
prior to the merger have substantially the same
proportionate ownership of the voting stock of the
Company or of its parent corporation immediately
after the merger);
(B) exchange, pursuant to a statutory
exchange of shares of voting stock of the Company
held by shareholders of the Company immediately prior
to the exchange, shares of one or more classes or
series of voting stock of the Company for cash
securities or other property;
(C) sell or otherwise dispose of all or
substantially all of the assets of the Company (in
one transaction or a series of transactions); or
(D) liquidate or dissolve the Company;
provided, however, that if the transaction contemplated by
such definitive agreement or plan approved by the shareholders
of the Company is not actually consummated, a Change in
Control shall retroactively be deemed not to have occurred and
the acceleration of the exercise dates of options pursuant to
paragraph 11(a) shall be deemed null and void;
unless a majority of the voting stock (or the voting equity interest)
of the surviving corporation or of any corporation (or other entity)
acquiring all or substantially all of the
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assets of the Company (in the case of a merger, consolidation or
disposition of assets) or the Company or its parent corporation (in the
case of a statutory share exchange) is beneficially owned by the person
holding the option or a group of persons that includes the person
holding the option acting in concert.
(c) Cash Payment. If a Change in Control of the Company shall
occur, then, so long as a majority of the members of the Board are
Continuing Directors, the Board, in its sole discretion, and without
the consent of the holder of any option affected thereby, may determine
that some or all outstanding options shall be canceled as of the
effective date of any such Change in Control and that the holder or
holders of such canceled options shall receive, with respect to some or
all of the Shares subject to such options, as of the date of such
cancellation, cash in an amount, for each Share subject to an option,
equal to the excess of the per Share Fair Market Value of such Shares
immediately prior to such Change in Control of the Company over the
exercise price per Share of such options.
(d) Limitation on Change in Control Payments. Notwithstanding
anything in paragraph 10(a) or 10(c) above or paragraph 11 below to the
contrary, if, with respect to an optionee, the acceleration of the
exercisability of an option or the payment of cash in exchange for all
or part of an option as provided in paragraph 10(a) or 10(c) above or
paragraph 11 (which acceleration or payment could be deemed a "payment"
within the meaning of Section 280G(b)(2) of the Code), together with
any other payments which such optionee has the right to receive from
the Company or any corporation which is a member of an "affiliated
group" (as defined in Section 1504(a) of the Code without regard to
Section 1504(c) of the Code) of which the Company is a member, would
constitute a "parachute payment" (as defined in Section 280G(b)(2) of
the Code), then such acceleration of exercisability and payments
pursuant to paragraph 10(a) or 10(c) above or paragraph 11 shall be
reduced to the largest amount as, in the sole judgment of the Board,
will result in no portion of such payments being subject to the excise
tax imposed by Section 4999 of the Code.
11. DISSOLUTION, LIQUIDATION, MERGER. In the event of the proposed
dissolution or liquidation of the Company or in the event of a proposed sale of
substantially all of the assets of the Company or in the event of a proposed
merger or consolidation of the Company with or into any other corporation,
regardless of whether the Company is the surviving corporation, or a statutory
share exchange involving capital stock of the Company (such dissolution,
liquidation, sale, merger, consolidation or exchange being herein called an
"Event"), the Board may, but shall not be obligated to:
(a) if the Event is a merger or consolidation or statutory
share exchange, make appropriate provision for the protection of the
outstanding options granted under this Plan by the substitution, in
lieu of such options, of options to purchase appropriate voting
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common stock (the "Survivor's Stock") of the corporation surviving any
merger or consolidation or, if appropriate, the parent corporation of
the Company or such surviving corporation, or, alternatively, by the
delivery of a number of shares of the Survivor Stock which has a Fair
Market Value as of the effective date of the Event equal to the Fair
Market Value as of such effective date of the Shares covered by the
option, or
(b) At least ten (10) days prior to the actual effective date
of an Event, declare, and provide written notice to each optionee of
the declaration, that each outstanding option, whether or not then
exercisable, shall be canceled at the time of or immediately prior
to the occurrence of, the Event (unless it shall have been exercised
prior to the occurrence of the Event) in exchange for payment to each
option holder, within ten days after the Event, of cash equal to the
amount (if any), for each share covered by the canceled option, by
which the Event Proceeds per Share (as hereafter defined) exceeds the
exercise price per Share covered by such option. At the time of the
declaration provided for in the immediately preceding sentence,
except as otherwise set forth in paragraph 10(d), each option shall
immediately become exercisable in full and each person holding an
option shall have the right, during the period preceding the time of
cancellation of the option, to exercise his or her option as to all or
any part of the Shares covered thereby. In the event of a declaration
pursuant to this paragraph 11(b), each outstanding option granted
pursuant to this Plan that shall not have been exercised prior to
the Event shall be canceled at the time of, or immediately prior to,
the Event, as provided in the declaration, and this Plan shall
terminate at the time of such cancellation, subject to the payment
obligations of the Company provided in this paragraph 11(b). For
purposes of this paragraph, "Event Proceeds" per share shall mean the
cash plus the fair market value, as determined in good faith by the
Board, of the non-cash consideration to be received per Share by the
shareholders of the Company upon the occurrence of the Event.
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12. ADJUSTMENTS. In the event of any reorganization, merger,
consolidation, recapitalization, liquidation, reclassification, stock dividend,
stock split, combination of shares, rights offering, or extraordinary dividend
or divestiture (including a spin-off), or any other change in the corporate
structure or Shares of the Company, the Board (or if the Company does not
survive any such transaction, the Board of Directors of the surviving
corporation) may, without the consent of any holder of an option, make such
adjustment as it determines in its discretion to be appropriate as to the number
and kind of securities subject to and reserved under this Plan and, in order to
prevent dilution or enlargement of rights of participants in this Plan, the
number and kind of securities issuable upon exercise of outstanding options and
the exercise price thereof.
13. COMPLIANCE WITH LEGAL REQUIREMENTS. No certificate for Shares
distributable under this Plan shall be issued and delivered unless the issuance
of such certificate complies with all applicable legal requirements including,
without limitation, compliance with the provisions of applicable state
securities laws, the Securities Act of 1933, as amended, and the Exchange Act.
14. GOVERNING LAW. To the extent that federal laws do not otherwise
control, this Plan and all determinations made and actions taken under this Plan
shall be governed by the laws of the State of Minnesota, without regard to the
conflicts of law provisions thereof, and construed accordingly.
15. AMENDMENT AND DISCONTINUANCE OF PLAN. The Board may at any time
amend, suspend or discontinue this Plan; provided, however, that no amendment to
this Plan shall, without the consent of the holder of the option, alter or
impair any option previously granted under this Plan. To the extent considered
necessary to comply with applicable provisions of the Code, any such amendments
to this Plan may be made subject to approval by the shareholders of the Company.
16. TERM.
(a) Effective Date. This Plan shall be effective as
of May 13, 1997.
(b) Termination. This Plan shall remain in effect
until all Shares subject to it are distributed or this Plan is
terminated under paragraph 15 above.
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