<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 11, 1999
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 11, 1999, at 9:00 a.m. at the Company's Old Country
Buffet(R) restaurant, 13603 Grove Drive, Maple Grove, Minnesota, for the
following purposes:
1. Electing a board of six directors for the ensuing year;
2. Approving Deloitte & Touche LLP as independent
auditors for the Company for the current fiscal year;
and
3. Transacting such other business as may properly come
before the meeting.
Only shareholders of record at the close of business on March
19, 1999 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, 1999
<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,
1999.
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 11, 1999. The Company will bear the
cost of preparing and mailing the proxy, proxy statement and any other material
furnished to shareholders by the Company in connection with the annual meeting.
Proxies will be solicited by use of the mails, and officers and employees of the
Company may also solicit proxies by telephone or personal contact. Officers and
employees of the Company will receive no special remuneration for any such
solicitation activities. The Company will inquire of any record holders known to
be brokers, dealers, banks or their nominees whether other persons are the
beneficial owners of shares held in their names and, if so, will take steps
necessary to supply copies of solicitation materials to such beneficial owners.
All valid proxies will be voted at the annual meeting in accordance with the
instructions set forth in the proxies.
A shareholder executing a proxy may revoke it at any time
before its exercise by filing with the Secretary of the Company, before or at
the meeting, a written instrument of revocation or a duly executed proxy bearing
a later date. 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 19, 1999 will be entitled to
notice of and to vote at the annual meeting. At the close of business on March
19, 1999, there were 43,898,284 shares of Common Stock outstanding, each
entitled to one vote per share. Holders of Common Stock do not have cumulative
voting rights.
The Annual Report of the Company, including financial
statements, for the year ended December 30, 1998 is being furnished to each
shareholder with this proxy statement.
2
<PAGE>
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>
<S> <C> <C>
Principal Occupation and Business Experience
Name (Age) Director Since for Last Five Years
- -------------------------------------------------------------------------------------------------------------------
Walter R. Barry, Jr. (65) 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 (55) 1997 Private Investor since 1997; 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, Wilson's The Leather Experts,
Appliance Recycling Centers of America, Inc. and
Paper Warehouse, Inc. (2)
Roe H. Hatlen (55) 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
3
<PAGE>
Principal Occupation and Business Experience
Name (Age) Director Since for Last Five Years
- -------------------------------------------------------------------------------------------------------------------
Alan S. McDowell (60) 1984 Private investor since 1983; Director of AGCO
Corporation
C. Dennis Scott (52) 1996 Co-Founder of the Company; Vice Chairman of the
Company since September 1996; Chief Operating
Officer of the Company from September 1996 to
August 1998; President of the Company from 1983
to 1989; Co-Founder of HomeTown Buffet, Inc.
("HomeTown"); Director and Chief Executive
Officer of HomeTown since 1989 (3)
Michael T. Sweeney (41) 1998 President of Starbucks Coffee Company (U.K.)
Ltd. since November 1998; Chief Executive
Officer of The Minnesota Pizza Company, L.L.C.
from December 1995 to November 1998; 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) Starbucks Coffee Company (U.K.) Ltd. is a wholly-owned subsidiary of
Starbucks Corporation. 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.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE
COMPANY VOTE FOR THE ELECTION OF EACH NOMINEE NAMED ABOVE.
4
<PAGE>
CERTAIN INFORMATION REGARDING
THE BOARD OF DIRECTORS OF THE COMPANY
During fiscal 1998, 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 comprising four
independent directors during fiscal 1998. Prior to the annual meeting of
shareholders on May 12, 1998, the Audit Committee consisted of Messrs. Barry,
McDowell, and Michael Winton. Mr. Winton served through the date of his
resignation from the Board of Directors on March 3, 1998. Following May 12,
1998, the Audit Committee was comprised of Messrs. Barry, Goldstein, McDowell
and Sweeney. 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 1998. 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
comprising four independent directors (the "Compensation Committee"). Prior to
the annual meeting of shareholders on May 12, 1998, the Compensation Committee
consisted of Messrs. Barry, McDowell, and Michael Winton. Mr. Winton served
through the date of his resignation from the Board of Directors on March 3,
1998. Following May 12, 1998, the Compensation Committee was comprised of
Messrs. Barry, Goldstein, McDowell and Sweeney. 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 five times
during fiscal 1998. 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"). 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. On May 12, 1998, the shareholders of the Company approved the Director
Plan and authorized an increase in the number of shares available for grant from
25,000 shares to 150,000 shares. Of the 150,000 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. 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.
COMPENSATION OF EXECUTIVE OFFICERS
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
GENERAL
The Compensation Committee establishes the general
compensation policies of the Company and specific compensation for each
executive officer of the Company, and administers the Company's stock option
plans. The Compensation Committee attempts to structure the compensation
packages of the executive officers of the Company to attract and retain persons
of exceptional quality and to include effective incentives to motivate Company
executives to continue the success and growth of the Company.
The Company's executive compensation packages, the terms of
which generally are established early each year, consist of three principal
components: (i) base salaries, (ii) cash bonuses and (iii) stock options. The
Compensation Committee's basic compensation philosophy is that a significant
portion of each executive officer's compensation should be tied directly to the
Company's fortunes. 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.
6
<PAGE>
BASE SALARIES
In order to set the base salary for each executive officer in
1998, 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) and the
responsibilities and performance of each individual officer. These factors were
given greater consideration in 1998 than industry compensation practices in
general. All factors 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 1998, 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 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 90% of base salary depending on position. The Compensation
Committee selected higher percentages for certain senior executive officers,
reflecting their greater ability to influence Company results, and in order to
ensure that a greater portion of such officers' total cash compensation was
exposed to the risk of Company performance.
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. An annual grant
program has been in place for several years consisting of annual grants of
specified numbers of options to employees
7
<PAGE>
in specified job positions. This currently ranges from 500 options to restaurant
level and certain administrative employees to 15,000 options to the Chief
Executive Officer and the Vice Chairman, 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.
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.
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 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.
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.
8
<PAGE>
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.
Marvin W. Goldstein
Alan S. McDowell
Michael T. Sweeney
9
<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 1998. Amounts shown
indicate compensation paid for service to the Company in all capacities.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
OTHER SHARES
NAME AND PRINCIPAL ANNUAL UNDERLYING ALL OTHER
POSITION(S) YEAR SALARY BONUS COMPENSATION(1) OPTIONS (#) COMPENSATION
- -------------------------- ---- ------ ----- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Roe H. Hatlen, Chairman of the 1998 $250,000 $117,000 -- 65,000
Board and Chief Executive Officer 1997 250,000 0 -- 115,000
1996 150,000 189,576 -- 15,000
C. Dennis Scott, Vice Chairman 1998 250,000 117,000 -- 65,000
of the Board(2) 1997 250,000 0 -- 115,000
1996 194,231 114,245 -- 35,100
Kerry A. Kramp, President (3) 1998 246,635(6) 64,375 -- 50,000
and Chief Operating Officer(4) 1997 225,000(6) 0 -- 87,500 $16,706(7)
1996 159,423 98,980 -- 110,100 48,086(7)
David Goronkin, Executive 1998 170,000 44,375 -- 25,750
Vice President of Operations(3) 1997 145,654 0 -- 20,000
1996 100,385 26,159 -- 36,700 51,300(8)
Thomas F. Hubbard, Formerly 1998 200,000 10,500 -- 10,000
Executive Vice President of 1997 200,000 27,990 -- 10,000
Real Estate and Development (5) 1996 115,096 22,500 -- 36,700
</TABLE>
- --------------------------------
(1) 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.
(2) Position held since the HomeTown Merger on September 20, 1996; includes
compensation paid by HomeTown through that date; formerly Chief
Operating Officer from September 20, 1996 through August 1998.
(3) Position held since the HomeTown Merger on September 20, 1996; includes
compensation paid by HomeTown through that date.
(4) Position held since August 1998.
(5) Position held since the HomeTown Merger on September 20, 1996 through
December 30, 1998; includes compensation paid by HomeTown through
September 20, 1996.
10
<PAGE>
(6) Annual compensation for 1997 and 1998 includes amounts deferred under
the Company's 401(k) retirement savings plan.
(7) 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 1997 in Company matching contributions to the 401(k)
retirement savings plan. This amount was paid on March 16, 1998. The
Company matching contribution to the 401(k) retirement savings plan for
1998 has not been determined.
(8) Includes $51,300 in 1996 for relocation expenses paid to Mr. Goronkin
in connection with the HomeTown Merger.
OPTIONS GRANTED IN FISCAL 1998
The following table sets forth, as to each executive officer
named in the Summary Compensation Table, certain information with respect to
stock options granted during the fiscal year ended December 30, 1998.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
- -------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
- -------------------------------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
PERCENT OF TOTAL ASSUMED ANNUAL
NUMBER OF SHARES OPTIONS GRANTED TO EXERCISE RATES OF STOCK PRICE
UNDERLYING EMPLOYEES IN PRICE EXPIRATION APPRECIATION FOR OPTION TERM (1)
NAME OPTIONS GRANTED FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- --------------- --------------- ------------------ ------ ---------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Roe H. Hatlen 15,000 1.14% $15.69 5/18/08 $147,987 $ 375,028
50,000 3.79 12.63 12/7/08 396,989 1,006,050
C. Dennis Scott 15,000 1.14 15.69 5/18/08 147,987 375,028
50,000 3.79 12.63 12/7/08 396,989 1,006,050
Kerry A. Kramp 12,500 .95 13.81 8/10/08 108,583 275,170
37,500 2.84 12.63 12/7/08 297,742 754,537
David Goronkin 25,750 1.95 15.69 5/18/08 254,044 643,797
Thomas F. Hubbard 10,000 .76 11.63 11/2/08 73,109 185,273
</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 effective date of grant, and are exercisable in 20%
11
<PAGE>
increments on the five anniversary dates after the date of grant. Such options
are exercisable only while the named executive officer is an employee of the
Company or, if such officer has been continuously employed by the Company (or a
parent or subsidiary thereof) for at least twelve full calendar months following
the grant of the option, during a limited period after cessation of such
officer's employment, 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.
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.
<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 OPTIONS AT
ACQUIRED VALUE YEAR-END (#) FISCAL YEAR-END (2)
ON REALIZED (1) ----------------------------- ------------------------------
NAME EXERCISE (#) $ EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Roe H. Hatlen 0 $ 0 543,000 162,000 $625,313 $210,625
C. Dennis Scott 0 0 122,580 197,820 182,664 248,161
Kerry A. Kramp 39,040 416,854 119,080 185,420 326,008 201,119
David Goronkin 0 0 31,550 68,450 34,630 54,690
Thomas F. Hubbard 14,040 91,400 36,570 47,040 66,993 52,845
</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
expired on September 20, 1998. It contains certain
12
<PAGE>
severance provisions which no longer apply since the expiration of the
agreement. For the duration of the agreement, the Employment Agreement entitled
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 (which continue to apply following the expiration of the
Agreement), including certain covenants not to compete for a period following
termination and limitations on the disclosure or use of proprietary information.
13
<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
1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
S&P 500 INDEX $100 $101.32 $139.40 $171.40 $228.59 $293.91
- --------------------------------------------------------------------------------
BUFFETS, INC. 100 38.35 53.40 35.44 36.41 46.36
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RESTAURANTS 100 99.69 149.51 147.72 158.61 248.57
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14
<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 19, 1999 (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.
<TABLE>
<CAPTION>
Approximate
Name and Address of Individual or Identity of Group Number of Shares Percent
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Roe H. Hatlen 1,712,438 (1) 3.9%
C. Dennis Scott 494,690 (2) 1.1
Kerry A. Kramp 163,946 (3) *
David Goronkin 38,879 (4) *
Thomas F. Hubbard 47,088 (5) *
Walter R. Barry, Jr. 48,124 (6) *
Marvin W. Goldstein 20,000 (7) *
Alan S. McDowell 262,180 (8) *
Michael T. Sweeney 10,500 (9) *
Massachusetts Financial Services Company 4,823,857 (10) 11.0
500 Boylston Street
Boston, MA 02116
MFS Series Trust II - MFS Emerging
Growth Fund (10)
500 Boylston Street
Boston, MA 02116
15
<PAGE>
Approximate
Name and Address of Individual or Identity of Group Number of Shares Percent
- -------------------------------------------------------------------------------------------
Capital Guardian Trust Company 2,236,000 (11) 5.1
333 South Hope Street
Los Angeles, CA 90071
All directors and executive officers as a group (14 persons) 3,412,450 (12) 7.6
</TABLE>
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* 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, 61,750 shares owned of record by
the Hatlen Foundation (of which Mr. Hatlen is an officer) and 549,000
shares subject to stock options exercisable within 60 days.
(2) Includes 148,320 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 131,950 shares subject to stock options
exercisable within 60 days.
(4) Includes 35,060 shares subject to stock options exercisable within 60
days.
(5) Includes 36,570 shares subject to stock options exercisable within 60
days. Mr. Hubbard ceased to be an executive officer at the end of 1998.
The shares beneficially owned by Mr. Hubbard are therefore not included
in the "All directors and officers as a group" total.
(6) Includes 8,000 shares subject to stock options exercisable within 60
days.
(7) Includes 10,000 shares subject to stock options exercisable within 60
days.
(8) Includes 19,680 shares owned of record by Mr. McDowell's daughter and
son and 6,500 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) Includes 500 shares owned of record by the Sweeney Family Educational
Trust, with respect to which Mr. Sweeney disclaims beneficial
ownership, and 10,000 shares subject to stock options exercisable
within 60 days.
16
<PAGE>
(10) Massachusetts Financial Services Company has sole power to vote
4,780,294 of such shares and sole power to dispose of all of such
shares. These shares include 3,124,450 shares, which represent
approximately 7.1% 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 11, 1999 filed by Massachusetts Financial Services
Company and MFS Series Trust II - MFS Emerging Growth Fund 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, 1998.
(11) Capital Guardian Trust Company has sole power to vote 2,071,000 of such
shares and sole power to dispose of all of such shares. Capital
Guardian Trust Company disclaims beneficial ownership with respect to
all of such shares. The information relating to the beneficial
ownership of Capital Guardian Trust Company has been derived from the
Schedule 13G dated February 8, 1999 filed by Capital Guardian Trust
Company, Capital International Limited and Capital International S.A.
with the Securities and Exchange Commission. The number of shares
beneficially owned by Capital Guardian Trust Company is stated as of
December 31, 1998.
(12) Includes an aggregate of 1,161,630 shares subject to stock options
exercisable within 60 days held by all directors and executive officers
as a group.
17
<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, except as set forth below, all
persons required under Section 16(a) to file beneficial ownership reports with
respect to the Company's Common Stock during the fiscal year ended December 30,
1998 or prior years complied with all such reporting requirements. Neal L.
Wichard, Senior Vice President of Real Estate, failed to file an amended Form 3
to correct two reporting errors contained in previously filed beneficial
ownership reports.
CERTAIN TRANSACTIONS
Since 1995, the Company has made charitable contributions
aggregating $382,192 to Minnesota Life College ("MLC"), a Minnesota nonprofit
corporation. Of this sum, $50,000 was paid in 1998. 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 and Chief Operating Officer, former Executive Vice President
of Real Estate and Development, and Executive Vice President of Human Resources
and Training, respectively, were indebted to the Company during 1998 in the
maximum amounts of $172,466, $124,521 and $73,844, respectively. As of March 16,
1999, the amount outstanding under such loans were $169,571, $21,550 and
$59,552, 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 loan is evidenced by a promissory note in favor
of HomeTown Buffet, Inc., dated November 9, 1993 in the principal sum of $21,000
with interest accruing on the unpaid principal balance at the rate of 7% per
annum. Mr. Hubbard's loan is secured by the pledge by Mr. Hubbard of certain
Company Common Stock and stock options. Mr. Hubbard paid off the loan dated
August 13, 1996 in the principal sum of $85,000 plus accrued interest on June
23, 1998. Mr. Shrader's loan is evidenced by a promissory note in favor of
HomeTown Buffet, Inc. dated
18
<PAGE>
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 USBank 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.
ITEM 2: SELECTION OF AUDITORS
The Board of Directors has appointed Deloitte & Touche LLP as
independent auditors of the Company for the fiscal year ending December 29,
1999, 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 30, 1998.
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.
19
<PAGE>
All shareholder proposals intended to be presented at the next
annual meeting of the Company in 2000 and desired to be included in the
Company's proxy statement and form of proxy for that meeting must be received by
the Company at its principal executive office no later than December 1, 1999. If
notice of any other shareholder proposal intended to be presented at that
meeting is not received by the Company on or before February 14, 2000, the proxy
solicited by the Board of Directors of the Company for use in connection with
that meeting may confer authority on the proxies named in such proxy to vote in
their discretion on such proposal without any discussion in the Company's proxy
statement for that meeting of either the proposal or how such proxies intend to
exercise their voting discretion. 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, 1999
20
<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, 13603 Grove Drive, Maple Grove, Minnesota at
9:00 a.m. on Tuesday, May 11, 1999, 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)
<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. Approving Deloitte & Touche LLP as independent FOR AGAINST ABSTAIN
auditors for the current fiscal year. o o o
3. Transaction of such other business as may properly come before the
meeting and any adjournments thereof.
NOTE: THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, IT
WILL BE VOTED FOR ALL NOMINEES IN PROPOSAL 1 AND FOR PROPOSALS 2 AND 3. 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.
