GARDEN FRESH RESTAURANT CORP.
January 13, 1997
Dear Stockholder:
This year's Annual Meeting of Stockholders will be held on February
26, 1997 at 9:00 a.m. local time, at the offices of the Company. You are
cordially invited to attend.
The Notice of Annual Meeting of Stockholders and a Proxy Statement,
which describe the formal business to be conducted at the meeting, follow this
letter.
After reading the Proxy Statement, please promptly mark, sign, and
return the enclosed Proxy in the postage-prepaid envelope to ensure that your
shares will be represented. Your shares cannot be voted unless you date, sign,
and return the enclosed Proxy or attend the Annual Meeting in person.
Regardless of the number of shares you own, your careful consideration of, and
voting upon, the matters before our stockholders are important.
A copy of the Company's Annual Report is also enclosed.
The Board of Directors and Management look forward to seeing you at
the Annual Meeting.
Very truly yours,
Michael P. Mack
Chief Executive Officer and President
<PAGE>
GARDEN FRESH RESTAURANT CORP.
17180 Bernardo Center Drive
San Diego, CA 92128
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 26, 1997
Dear Stockholder:
You are invited to attend the Annual Meeting of the Stockholders of
Garden Fresh Restaurant Corp. (the "Company"), which will be held on February
26, 1997 at 9:00 a.m., local time, at the principal offices of the Company
located at 17180 Bernardo Center Drive, San Diego, California 92128 for the
following purposes:
1. To elect one (1) director to hold office for a three-year term and
until his successor is elected and qualified.
2. To ratify the appointment of Price Waterhouse LLP as the Company's
independent accountants for the fiscal year ending September 30,
1997.
3. To transact such other business as may properly come before the
meeting.
Stockholders of record at the close of business on January 2, 1997
are entitled to notice of and to vote at this meeting and any continuation or
adjournments thereof. For ten days prior to the meeting, a complete list of
the stockholders entitled to vote at the meeting will be available for
examination by any stockholder for any purpose relating to the meeting during
ordinary business hours at the principal office of the Company.
By order of the Board of Directors,
DAVID W. QUALLS
Chief Financial Officer
Executive Vice President-Finance and Real Estate
Secretary
San Diego, California
January 13, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO SIGN AND
PROMPTLY MAIL THE ENCLOSED PROXY IN THE RETURN ENVELOPE SO THAT YOUR STOCK MAY
BE REPRESENTED AT THE MEETING. IF YOU ARE ABLE TO ATTEND THE MEETING, AND WISH
TO VOTE YOUR SHARES PERSONALLY, YOU MAY DO SO AT ANY TIME BEFORE THE PROXY IS
EXERCISED.
IMPORTANT: Please fill in, date, sign and promptly mail the enclosed proxy
card in the accompanying postage-prepaid envelope to ensure that your shares
are represented at the meeting. If you attend the meeting, you may choose to
vote in person even if you have previously sent in your proxy card.
<PAGE>
TABLE OF CONTENTS
Page
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Annual Report. . . . . . . . . . . . . . . . . . . . . . . . . . .1
Voting Securities. . . . . . . . . . . . . . . . . . . . . . . . .1
Solicitation of Proxies. . . . . . . . . . . . . . . . . . . . . .1
Voting of Proxies. . . . . . . . . . . . . . . . . . . . . . . . .1
Stock Ownership of Certain Beneficial Owners and Management. . . .1
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . .2
ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Board of Director Nominee. . . . . . . . . . . . . . . . . . . . .4
COMMITTEES OF THE BOARD OF DIRECTORS. . . . . . . . . . . . . . . . . . . . .4
EXECUTIVE COMPENSATION AND OTHER MATTERS. . . . . . . . . . . . . . . . . . .5
Summary Compensation Table . . . . . . . . . . . . . . . . . . . .5
Option Grants in Last Fiscal Year. . . . . . . . . . . . . . . . .6
Aggregate Option Exercises and Fiscal Year-Ended Values. . . . . .6
Compensation of Directors. . . . . . . . . . . . . . . . . . . . .7
Section 16(a) Beneficial Ownership Reporting Compliance. . . . . .7
CERTAIN TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Arrangements with Directors and Executive Officers . . . . . . . .7
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION . . . . . . . . . . .7
Deductibility of Executive Compensation. . . . . . . . . . . . . .8
COMPARISON OF STOCKHOLDER RETURN. . . . . . . . . . . . . . . . . . . . . . .9
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS. . . . . . . . . . . 10
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING. . . . . . . . 10
TRANSACTION OF OTHER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . 10
<PAGE>
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
Garden Fresh Restaurant Corp.
17180 Bernardo Center Drive
San Diego, CA 92128
(619) 675-1600
The accompanying proxy is solicited by the Board of Directors of
Garden Fresh Restaurant Corp., a Delaware corporation (the "Company"), for use
at the Annual Meeting of Stockholders to be held February 26, 1997 or any
adjournment thereof, for the purposes set forth in the accompanying Notice of
Annual Meeting. The date of this Proxy Statement is January 13, 1997, the
approximate date on which this Proxy Statement and the accompanying form of
proxy were first sent or given to stockholders.
GENERAL INFORMATION
Annual Report. An annual report for the fiscal year ended September
30, 1996 is enclosed with this Proxy Statement.
Voting Securities. Only stockholders of record as of the close of
business will be entitled to vote at the meeting and any adjournment thereof.
As of that date, there were 4,155,103 shares of Common Stock of the Company,
par value $.01 per share, issued and outstanding. Stockholders may vote in
person or in proxy. Each holder of shares of Common Stock is entitled to one
(1) vote for each share of stock held on the proposals presented in this Proxy
Statement. The Company's Bylaws provide that a majority of all of the shares
of the stock entitled to vote, whether present in person or represented by
proxy, shall constitute a quorum for the transaction of business at the
meeting.
Solicitation of Proxies. The cost of soliciting proxies will be
borne by the Company. In addition to soliciting stockholders by mail through
its regular employees, the Company will request banks and brokers, and other
custodians, nominees and fiduciaries, to solicit their customers who have stock
of the Company registered in the names of such persons and will reimburse them
for their reasonable, out-of- pocket costs. The Company may use the services
of its officers, directors, and others to solicit proxies, personally or by
telephone, without additional compensation. The Company may determine to use a
proxy solicitor, and if it does, it would pay a fee, which it reasonably
expects would not exceed $2,500.
Voting of Proxies. All valid proxies received prior to the meeting
will be voted. All shares represented by a proxy will be voted, and where a
stockholder specifies by means of the proxy a choice with respect to any matter
to be acted upon, the shares will be voted in accordance with the specification
so made. If no choice is indicated on the proxy, the shares will be voted in
favor of the proposal. A stockholder giving a proxy has the power to revoke
his or her proxy, at any time prior to the time it is voted, by delivery to the
Secretary of the Company of a written instrument revoking the proxy or a duly-
executed proxy with a later date, or by attending the meeting and voting in
person.
Stock Ownership of Certain Beneficial Owners and Management. The
following table sets forth certain information, as of September 30, 1996, with
respect to the beneficial ownership of the Company's Common Stock by (i) all
persons known by the Company to be the beneficial owners of more than 5% of the
outstanding Common Stock of the Company; (ii) each director and
director-nominee of the Company; (iii) each officer of the Company whose salary
and incentive compensation for the fiscal year ended September 30, 1996
exceeded $100,000; and (iv) all executive officers and directors of the Company
as a group.
1
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STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Shares Beneficially
Owned
Names of Beneficial Owner* Number Percent**
Bank of America . . . . . . . . . . . . . . . . . . . . . 221,000 5.4%
D3 Family Fund 309,310 7.5%
11150 Santa Monica Blvd., Suite 1200
Los Angeles, California, 90025
Sorrento Associates . . . . . . . . . . . . . . . . . . . . . 281,529 6.8%
St. Paul Venture Capital, Inc. . . . . . . . . . . . . . . . 455,346 11.1%
8500 Normandale Lake Blvd., Suite 1940
Bloomington, Minnesota 55437
Michael P. Mack (1) . . . . . . . . . . . . . . . . . . . . . 200,073 4.8%
David W. Qualls (2) . . . . . . . . . . . . . . . . . . . . . 87,930 2.1%
R. Gregory Keller (3) . . . . . . . . . . . . . . . . . . . . 65,184 1.6%
Edgar F. Berner . . . . . . . . . . . . . . . . . . . . . . 4,300 .1%
Robert A. Gunst . . . . . . . . . . . . . . . . . . . . . . . 5,000 .1%
Michael M. Minchin, Jr (4) . . . . . . . . . . . . . . . . . 61,667 1.5%
John M. Robbins . . . . . . . . . . . . . . . . . . . . . . 1,500
All directors and executive officers as a
group (8 persons) (5) . . . . . . . . . . . . . . . . . . . 427,654 9.6%
* Except as otherwise indicated, the address of each beneficial owner is
c/o the Company, 17180 Bernardo Center Drive, San Diego, California
92128.
** Percent of the outstanding shares of Common Stock, treating as
outstanding all shares of Common Stock issuable on exercise of options
within 60 days of September 30, 1996, held by the particular
beneficial owner that are included in the first column.
(1) Includes 90,611 shares issuable upon exercise of stock options and
375 shares held by his wife, Ruth Mack.
(2) Includes 74,999 shares issuable upon exercise of stock options and
1,148 shares held by his wife, Janet Qualls.
(3) Includes 63,824 shares issuable upon exercise of options.
(4) Includes 61,667 shares issuable upon exercise of option.
(5) Includes 291,101 shares issuable upon exercise of options.
2
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ELECTION OF DIRECTORS
The Company has a classified Board of Directors consisting of one
Class A director (Michael P. Mack), two Class B directors (Edgar F. Berner
and John M. Robbins, Jr.), and two Class C directors (Michael M. Minchin, Jr.
and Robert A. Gunst) who will serve until the Annual Meetings of Stockholders
to be held in 1997, 1999 and 1998, respectively, and until their respective
successors are duly elected and qualified. At each Annual Meeting of
Stockholders, directors are elected for a full term of three years to succeed
those directors whose terms expire on the Annual Meeting dates.
On December 12, 1996, the Board voted unanimously, in accordance
with the Bylaws, of the Company to reduce the size of the Board from seven
members to five effective January 2, 1997 with the resignation of Patrick A.
Hopf, who had been serving as a Class C Director.
Management's nominee for election at the Annual Meeting of
Stockholders to Class A of the Board of Directors is Michael P. Mack. If
elected, the nominee will serve as director until the Company's Annual Meeting
of Stockholders in 2000, and until his successor is elected and qualified. If
the nominee declines to serve or becomes unavailable for any reason, or if a
vacancy occurs before the election (although management knows of no reason to
anticipate that this will occur), the proxies may be voted for such substitute
nominee as management may designate.
If a quorum is present and voting, the one nominee for Class A
director receiving the highest number of votes will be elected as Class A
director. Abstentions and shares held by brokers that are present but not
voted, because the brokers are prohibited from exercising discretionary
authority (i.e., "broker non-votes"), will be counted as present for purposes
of determining whether a quorum is present.
The table below sets forth the current directors, including the
Class A nominee to be elected at this meeting and certain information with
respect to age and background:
NAME AGE POSITION/TITLE DIRECTOR SINCE
Class A director whose term expires at
the 1997 Annual Meeting of Stockholders:
Michael P. Mack 45 Director, Chief Executive 1984
Officer, and President
Class B directors whose terms expire at
the 1999 Annual Meeting of Stockholders:
Edgar F. Berner 65 Director 1996
John M. Robbins, Jr. 49 Director 1996
Class C directors whose terms expire at
the 1998 Annual Meeting of Stockholders:
Michael M. Minchin, Jr. 70 Chairman of the Board 1994
Director 1993
Robert A. Gunst 48 Director 1993
3
<PAGE>
Michael M. Minchin, Jr. joined the Company's Board of Directors in
November 1993 and assumed the role of Chairman of the Board in February 1994.
From May 1992 to November 1993, Mr. Minchin served as an independent
consultant to Sizzler International, a restaurant company, and several other
publicly-held restaurant chains. Prior to that, Mr. Minchin served as the
Executive Vice President of Sizzler International from May 1980 to May 1992.
Mr. Minchin received a B.A. from Stanford University and an M.B.A. from
Harvard University.
Michael P. Mack co-founded the Company in 1983 and was the President
and Chief Operating Officer from the Company's inception until April 1991 and
the Chief Executive Officer from September 1990 to April 1991. Mr. Mack has
also been a director of the Company since its inception. Since February 1994,
Mr. Mack has been the Company's President and Chief Executive Officer. From
April 1991 to February 1994, Mr. Mack served as the President of MPM
Management, Inc., a consulting firm. Prior to joining the Company, Mr. Mack
worked for Bain & Company, a management consulting firm, from 1977 to 1983,
where he specialized in the development and implementation of business
strategies. Mr. Mack received a B.A. from Brown University and an M.B.A.
from Harvard University.
Edgar F. Berner currently serves as Chairman and was formerly the
CEO of Sweet Factory, Inc., a national candy specialty chain. From 1969 to
1980, Mr. Berner was founder and President of Fashion Conspiracy, 280 store
junior apparel chain sold to Edison Brothers Stores. Other executive positions
were with The Price Club and May Company. He previously served on the Board of
Clothestime, Inc. (Nasdaq), and Edison Brothers Stores (NYSE). In addition to
serving on the Board of Garden Fresh (Nasdaq), Berner is a Director of Hot
Topic (Nasdaq), a youth oriented specialty retail chain.
John M. Robbins, Jr. currently serves as a Director of Pacific
Research and Engineering, National Bankcard, Advanced Access in Accredited Home
Lenders, Neighborhood Bankcorps. He was formerly President and Chief Executive
Officer of American Residential Holding Corporation and its subsidiary American
Residential Mortgage Corporation (AmRes) which was one of the country's leading
residential lenders, from 1988 to 1994.
Robert A. Gunst has more than 25 years of experience in food and
retailing. President and Chief Executive Officer of The Good Guys, Inc. since
1993, he joined the Company's board as an outside director in 1986. In 1990,
he became President and Chief Operating Officer of the Company while remaining
a member of its board. Prior to The Good Guys!, Gunst served as Senior Vice
President, Chief Financial Officer and a board member of San Francisco-based
Shaklee Corporation. Previously, he served in several senior positions with
PepsiCo, Inc. including Senior Vice President of Marketing/ Manufacturing and
franchising for La Petite Boulangrie, Inc., and as Chief Financial Officer and
Vice President of Finance and Administration for PepsiCo Foods International.
Prior to PepsiCo., Gunst was a Senior Vice President and Chief Financial
Officer for Victoria Station Incorporated chain of restaurants. Gunst holds a
Master's Degree in Business Administration in finance from the University of
Chicago's Graduate School of Business and a Bachelor's Degree in Economics from
Dartmouth College.
During the fiscal year ended September 30, 1996, the Board held five
meetings. No director serving on the Board in fiscal year 1996 attended fewer
than 75% of such meetings of the Board and of any Committee of the Board on
which he served. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THE ELECTION OF MICHAEL P. MACK AS A CLASS A DIRECTOR TO SERVE UNTIL THE
ANNUAL MEETING OF STOCKHOLDERS IN 2000.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee's function is to review, with the Company's
independent accountants and management, the results of the examination of the
Company's financial statements by the independent accountants and independent
4
<PAGE>
accountants' opinion. The Audit Committee also approves all professional
services performed by the independent accountants, recommends the retention of
the independent accountants to the Board, subject to ratification by the
stockholders, and periodically reviews the Company's accounting policies and
internal accounting and financial controls. During fiscal 1996, the members of
the Audit Committee were Messrs. Berner and Hopf (former Director). The Audit
Committee held no meetings during the fiscal year ended September 30, 1996. A
meeting was held on December 4, 1996.
The Compensation Committee's function is to review and recommend
executive compensation, including officer salary levels, incentive compensation
programs, and stock option grants. During fiscal 1996, the members of the
Compensation Committee were Messrs, Gunst, Minchin, and Robbins. The
Compensation Committee held two meeting for the fiscal year ended September 30,
1996. These meetings were held on June 19, 1996 and July 22, 1996. For
additional information concerning the Compensation Committee, see "COMPENSATION
COMMITTEE REPORT ON EXECUTIVE COMPENSATION" and "EXECUTIVE COMPENSATION AND
OTHER MATTERS."
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the annual and
long-term compensation of the Chief Executive Officer of the Company and the
other executive officers of the Company as of September 30, 1996 whose total
salary and incentive compensation for the fiscal year ended September 30, 1996
exceeded $100,000 for services in all capacities to the Company.
The following table also sets forth the total salary and incentive compensation
for each of such executive officers for the fiscal years ended September 30,
1996, September 30, 1995 and September 30, 1994:
SUMMARY COMPENSATION TABLE
Annual Compensation
Long-Term
Compensation
Other Awards
Name and Principal Annual Options
Position Year Salary Bonus Compensation (Shares)
Michael P. Mack (1) 1996 $208,843 $ 90,000 $ 0 40,000
Chief Executive Officer, 1995 179,250 50,000 0 90,000
President 1994 114,731 0 0 0
David W. Qualls (2) 1996 $153,175 $ 60,000 $ 0 30,000
Chief Financial Officer, 1995 139,826 50,000 0 75,000
Executive Vice President 1994 151,752 6,625 0 0
Finance and Real Estate,
Secretary
R. Gregory Keller (3) 1996 $131,875 $ 60,000 $ 0 30,000
Vice President of 1995 115,797 50,000 0 75,000
Operations 1994 126,576 7,515 0 0
1 Mr. Mack was granted an increase in annual salary to $250,000 for
fiscal year 1997.
2 Mr. Qualls was granted an increase in annual salary to $170,000 for
fiscal year 1997.
3 Mr. Keller was granted an increase in annual salary to $150,000 for
fiscal year 1997.
5
<PAGE>
The following table provides the specified information concerning
grants of options to purchase the Company's Common Stock made during the year
ended September 30, 1996 to the persons named in the Summary Compensation
Table:
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value Assumed Annual
Rates of Stock Price
Appreciation for
Individual grants in Fiscal 1996 Option Terms (1)
% of Total
Options
Granted to
Options Employees Exercise
Granted In Fiscal or Base Expiration
Name # (2) Year Price (2) Date 5% 10%
Michael P. Mack 40,000 19.8% $ 6.50 1/12/06 $163,513 $414,373
David W. Qualls 30,000 14.9% $ 6.50 1/12/06 $122,634 $310,780
R. Gregory Keller 30,000 14.9% $ 6.50 1/12/06 $122,634 $310,780
1 Potential gains are net of exercise price, but before taxes
associated with exercise. These amounts represent certain assumed
rates of appreciation only, based on the Securities and Exchange
Commission rules. Actual gains, if any, on stock option exercises
are dependent on the future performance of the Common Stock, overall
market conditions and the optionholders' continued employment
through the vesting period. The amounts reflected in this table may
not necessarily be achieved. One share of stock purchased in 1996
at $6.50 would yield profits of $4.09 per share at 5% appreciation
over ten years, or $10.36 per share at 10% appreciation over the
same period.
2 All options were granted at market value on the date of grant. All
options vest equally at 1/36 per month over 36 months.
The following table provides information concerning exercises of
options to purchase the Company's Common Stock in the fiscal year ended
September 30, 1996, and unexercised options held at fiscal year end by the
persons named in the Summary Compensation Table:
<TABLE>
<CAPTION>
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END VALUES (1)
Number of Unexercized Value of Unexerrcized In-The
Shares Options at 9/30/96 Money Options at 9/30/96 (2,3)
Acquired Value
Name On Exercise Realized (1) Exercisable Unexercisable Exercisable (2) Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Michael P. Mack 0 $ 0 83,388 81,112 $165,146 $138,614
David W. Qualls 7,500 $ 22,188 69,167 65,008 $175,237 $107,096
R. Gregory Keller 0 $ 0 57,992 65,008 $175,237 $107,096
<FN>
1 Amounts shown represent the value realized upon the exercise of
stock options during 1996, which equals the difference between the
exercise price of the options and the closing market price of the
underlying Common Stock on the date preceding the exercise date.
2 Values are net of exercise price.
3 Based on the 1996 year-end market price per share of $9.75 on
September 30, 1996, the last trading date prior to the end of the
Company's fiscal year. The values shown equal the difference
between the exercise price of unexercised in-the- money options and
the closing market price of the underlying Common Stock at September
30, 1996. Options are in-the- money if the fair market value of the
Common Stock exceeds the exercise price of the option.
</TABLE>
6
<PAGE>
Compensation of Directors
The outside directors of the Company each receive $6,000 per year as
a cash compensation for attendance at each meeting of the Board of Directors.
The outside directors who are members of each committee of the Board of
Directors receive $750 cash compensation for attendance at each committee
meeting. Additionally, the directors of the Company are reimbursed for
expenses incurred in connection with attendance at Board of Directors or
committee meetings.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who beneficially own more
than 10% of the Company's Common Stock to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission
("SEC"). Such persons are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms filed by such persons.
Based solely on the Company's review of such forms furnished to the
Company and written representations from certain reporting persons, the Company
believes that all filing requirements applicable to the Company's executive
officers, directors and more than 10% stockholders were timely complied with
during the fiscal year ended September 30, 1996.
CERTAIN TRANSACTIONS
Arrangements with Directors and Executive Officers
In February 1994, the Company entered into an employment agreement
with Michael Mack, the Company's Chief Executive Officer and President, which
provides Mr. Mack, upon termination without cause, with a severance equal to
one half of his then current annual salary.
On March 10, 1994, Michael M. Minchin, Jr., the Company's Chairman
of the Board, and the Company entered into a two year consulting agreement
pursuant to which Mr. Minchin rendered consulting services to the Company in
the areas of strategic planning, marketing and site selection in exchange for
compensation of $1,000 per month. The consulting agreement ended on April 1,
1996. In addition, Mr. Minchin was also granted an option to purchase 37,500
shares of the Company's Common Stock at an exercise price of $10.00 per share.
The Company has entered into indemnification agreements with its
officers and directors containing provisions that are in some respects broader
than the specific indemnification provisions contained in the Delaware General
Corporation Law.
Certain of the officers and directors and their affiliates and
certain other holders of the Company's Common Stock are entitled to certain
registration rights with respect to the Common Stock issued or issuable upon
conversion thereof.
The Company's policy has been and continues to be that all
transactions between the Company and its officers, directors and other
affiliates must (i) be approved by a majority of the members of the Company's
Board of Directors and by a majority of the disinterested members of the
Company's Board of Directors and (ii) be on terms no less favorable to the
Company than could be obtained from unaffiliated third parties. In addition,
this policy requires that any loans by the Company to its officers, directors
or other affiliates be for bona fide business purposes only.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors during the 1996
fiscal year was comprised of the non-employee directors of the Company, Messrs.
7
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Gunst, Minchin, and Robbins. The Compensation Committee is responsible for
setting and administering the policies governing compensation of the executive
officers of the Company, including cash compensation and stock ownership
programs. The goals of the Company's compensation policy are to attract and
retain executive officers who contribute to the overall success of the Company
by offering compensation which is competitive in the restaurant industry for
companies of the Company's size and to motivate executives to achieve the
Company's business objectives and reward them for their achievements. The
Company uses salary, incentive compensation and stock options to meet these
goals.
For fiscal 1996, salaries were set for each executive officer within
the range of salary for similar positions in other companies in Garden Fresh's
industry and of similar size, based on surveys conducted by the Company's Human
Resources Department. Salaries were set within the applicable range based on
the officer's experience, tenure and prior performance. Performance was judged
by the Chief Executive Officer for all executive officers other than himself.
The Compensation Committee evaluated the Chief Executive Officer's performance,
increasing his salary for fiscal 1996 based primarily on the Chief Executive
Officer's increased responsibilities as a result of the Company's increased
size and the Company's performance in 1996. The Chief Executive Officer's
total compensation for fiscal 1996 approximates the mean of the compensation
for chief executive officers in similar-sized companies in the restaurant
industry.
Cash incentive compensation was set for fiscal 1996, if the Company
met or exceeded targeted after-tax net income. No bonus was payable unless the
Company met the minimum target for after-tax net income. Because the Company
did achieve the minimum targeted after-tax net income in fiscal 1996, incentive
compensation was paid to the executive officers effective December 6, 1996.
The Company believes that employee equity ownership provides
significant additional motivation to executive officers to maximize value for
the Company's stockholders. Because the stock options will be granted at the
prevailing market price, the stock options will only have value if the
Company's stock price increases over the exercise price. Therefore, the
Committee believes that stock options will serve to align the interest of
executive officers closely with other stockholders because of the direct
benefit executive officers receive through improved stock performance.
In fiscal 1996, the Compensation Committee recommended to the Board
of Directors, and the Board of Directors did approve stock option grants to the
executive officers, including the Chief Executive Officer, under the Company's
Option Plan. These grants were based on fiscal year 1995 earnings.
Deductibility of Executive Compensation
Effective January 1, 1994, the Internal Revenue Code (the "Code")
was amended to impose a limit under section 162(m) on the amount of
compensation which may be deducted by a publicly-held corporation with respect
to the corporation's chief executive officer and its four other most highly-
compensated offers, set at $1,000,000 per executive per year. Exemptions from
this deductibility limit are provided for certain types of "performance-based
compensation", including compensation related to stock option plans meeting
certain criteria. The Compensation Committee does not believe that other
components of the Company's compensation will be likely in the aggregate to
exceed $1,000,000 for any executive officer in any year in the foreseeable
future, and therefore concluded that no further action with respect to
qualifying its executive compensation for deductibility of such compensation
was necessary at this time. The policy of the Committee is to qualify
executive compensation for deductibility under the applicable tax laws as
practicable. In the future, the Committee will continue to evaluate the
advisability of qualifying the deductibility of such compensation in the
future.
COMPENSATION COMMITTEE
Robert A. Gunst
Michael M. Minchin Jr.
John M. Robbins Jr.
8
<PAGE>
COMPARISON OF STOCKHOLDER RETURN
Set forth below is a line graph comparing the annual percentage
change in the cumulative total return on the Company's Common Stock with the
cumulative total return of Nasdaq National Market and the Dow Jones Industry
Group for Restaurants for the period commencing on May 16, 19951 and ending on
September 30, 1996 (2).
Comparison of Cumulative Total Return From May 15, 1995 through September 30,
1996 (2).
Garden Fresh Restaurant Corp. Inc., Index for Nasdaq National Market and Dow
Jones Industry Group for Restaurants
The graph referenced plots three lines; GARDEN FRESH, NASDAQ STOCK
MARKET, and DOW JONES INDUSTRY.
Data points are at 5/16/95 (public offering), 9/30/95 and 9/30/96.
The data line for GARDEN FRESH shows a decline from the public offering
to fiscal year end 9/30/95, and an increase from there to the fiscal
year end 9/30/96.
May 15, 1995 Sept. 30, 1995 Sept. 30, 1996
Garden Fresh $100.00 $ 86.11 108.33
Nasdaq National Market 100.00 120.91 142.16
Dow Jones Industry 100.00 102.09 122.45
Groups Restaurants
1 The effective date of the Company's initial public offering was May
16, 1995. For purposes of this presentation, the Company has
assumed that its initial offering price of $9.00 would have been the
closing sales price on May 15, 1995, the day prior to commencement
of trading.
2 Assumes that $100.00 was invested on May 16, 1995 in the Company's
Common Stock at the Company's initial offering price of $9.00 and at
the closing sales price for each index on that date and that all
dividends were reinvested. No dividends have been declared on the
Company's Common Stock. Stockholder returns over the indicated
period should not be considered indicative of future stockholder
returns.
9
<PAGE>
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has selected Price Waterhouse
LLP to serve as independent accountants to audit the financial statements of
the Company for the fiscal year ending September 30, 1997. A representative of
Price Waterhouse LLP is expected to be present at the Annual Meeting, will be
given the opportunity to make a statement if the representative desires to do
so, and is expected to be available to respond to appropriate questions.
The affirmative vote of a majority of the votes cast at the Annual
Meeting of Stockholders, at which a quorum representing a majority of all
outstanding shares of Common Stock of the Company is present and voting, either
in person or by proxy, is required for approval of this proposal. Abstentions
and broker non-votes will each be counted as present for purposes of
determining the presence of a quorum, but will not be counted as having been
voted on the proposal. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
"FOR" THE APPOINTMENT OF PRICE WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 1997.
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next
Annual Meeting of the Stockholders of the Company must be received by the
Company at its offices at 17180 Bernardo Center Drive, San Diego, California
92128, no later than November 1, 1997, and must satisfy the conditions
established by the Securities and Exchange Commission for stockholder proposals
in order to be included in the Company's proxy statement for that meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which the
Board of Directors intends to present or knows that others will present at the
meeting is as set forth above. If any other matter or matters are properly
brought before the meeting or any adjournment thereof, it is the intention of
the persons named in the accompanying form of proxy to vote the proxy on such
matters in accordance with their best judgement.
By Order of the Board of Directors
DAVID W. QUALLS
Chief Financial Officer,
Executive Vice President-Finance and Real Estate,
and Secretary
Dated: January 13, 1997
10
