SCHEDULE 14A INFORMATION

    Proxy Statement Pursuant to Section 14(a)PRELIMINARY COPY    
                                                 For Information of the     
                                                 Securities and Exchange
                                 Act of 1934
                      (Amendment No.               )

Filed by Registrant [ X ]

Filed by a Party other than the Registrant   [   ]

Check the appropriate box:

[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the
                                                 Commission Only            



[as permitted by Rule 14a-
    6(e)(2)]
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

                             LUBY'S CAFETERIAS, INC.    
_____________________________________________________________________________ 
                (Name of Registrant as Specified in Its Charter)

_____________________________________________________________________________ 
    (Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

     1)   Title of each class of securities to which transaction applies:
          _______________________________________________________________

     2)   Aggregate number of securities to which transaction applies:
          _______________________________________________________________  

     3)   Per unit price or other underlying value of transaction computed
          pursuant to Exchange Act Rule 0-11 (set forth the amount on which
          the filing fee is calculated and state how it was determined):
          _______________________________________________________________

     4)   Proposed maximum aggregate value of transaction:
          _______________________________________________________________

     5)   Total fee paid:
          _______________________________________________________________

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
    Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
    paid previously.  Identify the previous filing by registration statement
    number, or the Form or Schedule and the date of its filing.

     1)   Amount Previously Paid: ________________________________________

     2)   Form, Schedule or Registration Statement No.:
          ________________________________________________________________

     3)   Filing Party:
          ________________________________________________________________
     4)   Date Filed:
          ________________________________________________________________

                                                           PRELIMINARY COPY





December 2, 19961, 1998







Dear Shareholders:

You are cordially invited to attend the 19971999 Annual Meeting of Shareholders of
Luby's Cafeterias, Inc. to be held on Tuesday,Friday, January 14, 1997,8, 1999, at 10:00 a.m., at
the San Antonio Airport Hilton, 611 Northwest  Loop 410, San Antonio, Texas.  We
hope that you will be able to attend the meeting.  Matters on which action will 
be taken at the meeting are explained in detail in the notice and proxy 
statement following this letter.

We hope as many of you as possible will attend the meeting in person.  Whether 
or not you expect to be present and regardless of the number of shares you own, 
please mark, sign, and mail the enclosed proxy in the envelope provided.

Sincerely,


__________________________
Ralph Erben
Chairman of the BoardBarry J.C. Parker
President and
Chief Executive Officer


__________________________
John E. Curtis, Jr.
President and
Chief Operating OfficerDavid B. Daviss
Chairman of the Board



                             LUBY'S CAFETERIAS, INC.

                             2211 Northeast Loop 410
                                P. O. Box 33069
                         San Antonio, Texas   78265-3069

                      NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

                          TO BE HELD JANUARY 14, 19978, 1999


To the Shareholders of
  LUBY'S CAFETERIAS, INC.

     NOTICE IS HEREBY GIVEN that the 19971999 Annual Meeting of Shareholders of 
Luby's Cafeterias, Inc., a Delaware corporation, will be held at the San Antonio
Airport Hilton, 611 Northwest Loop 410, San Antonio, Texas, on Tuesday,Friday, 
January 14, 1997,8, 1999, at 10:00 a.m., local time, for the following purposes:
          
     (1)  To elect one director to serve until the 2001 Annual Meeting of 
          Shareholders and four directors to serve until the 20002002 Annual Meeting
          of Shareholders;

     (2)  To authorize restructuringadopt an amendment to the Certificate of Incorporation to change 
          the Company into a holding company as
          described herein;corporate name to "Luby's, Inc.;"

     (3)  To approve the Luby's Incentive Stock Plan;

     (4)  To approve the appointment of auditors for the 19971999 fiscal year; and

     (4)(5)  To transact such other business as may properly come before the 
          meeting or any adjournment thereof.

     In accordance with the Bylaws of the Company and a resolution of the Board 
of Directors, the record date for the meeting has been fixed at November 15, 1996.10,
1998.  Only shareholders of record at the close of business on that date will be
entitled to vote at the meeting or any adjournment thereof.

     A complete list of shareholders entitled to vote at the meeting will be on 
file at the Company's corporate office at 2211 Northeast Loop 410, San Antonio, 
Texas, for a period of ten days prior to the meeting.  During such time, the 
list will be open to the examination of any shareholder during ordinary business
hours for any purpose germane to the meeting.

     Shareholders who do not expect to attend the meeting in person are urged to
sign the enclosed proxy and return it promptly.  A return envelope is enclosed 
for that purpose.


                                              LUBY'S CAFETERIAS, INC.
                                              James R. Hale
                                              Secretary
Dated:  December 2, 19961, 1998


                              LUBY'S CAFETERIAS, INC.
                              2211 Northeast Loop 410
                                  P. O. Box 33069
                           San Antonio, Texas  78265-3069

                                 PROXY STATEMENT

     The accompanying proxy is solicited by the Board of Directors of Luby's 
Cafeterias, Inc., a Delaware corporation (the "Company"), to be voted at the 
19971999 Annual Meeting of Shareholders on January 14, 1997,8, 1999, or at any adjournment 
thereof.  This proxy statement and the accompanying proxy are being mailed to 
shareholders on or about December 2, 1996.1, 1998.

                                   THE COMPANY

     The Company iswas restructured into a Delaware corporation and was formerly a wholly-owned
subsidiaryholding company on February 1, 1997, at
which time all of the operating assets were transferred to Luby's Cafeterias, Inc.,Restaurants 
Limited Partnership, a Texas corporation ("Luby's Texas"). 
On December 31, 1991, Luby's Texas was merged with and intolimited partnership composed of two wholly owned 
indirect corporate subsidiaries of the Company forCompany.  All cafeteria operations are 
conducted by the purpose of reincorporating in Delaware.partnership.  Unless the context indicates otherwise, the word 
"Company" as used herein includes the partnership and the consolidated corporate
subsidiaries of Luby's Texas as
predecessor.Cafeterias, Inc.

                              VOTING AND PROXIES

     Only holders of record of common stock of the Company as of the close of 
business on November 15, 1996,10, 1998, will be entitled to vote at the meeting.  There 
were 23,977,54223,270,675 shares of common stock outstanding on the record date, exclusive
of 3,425,5254,132,392 treasury shares.  Each share of common stock outstanding is 
entitled to one vote. A majority of the shares outstanding will constitute a 
quorum at the meeting.

     All shares represented by proxies will be voted in accordance with the 
shareholders' directions.  If the proxy card is signed and returned without any 
direction given, shares will be voted in accordance with the recommendations of 
the Board of Directors as described in this proxy statement.  Any shareholder 
giving a proxy may revoke it at any time before the proxy is voted by giving 
written notice of revocation to the Secretary of the Company, by submitting a 
later-dated proxy, or by attending the meeting and voting in person.

      The election of nominees for director requires a plurality of the votes 
cast.  AuthorizationApproval of the restructuringamendment to the certificate of incorporation to change 
the Company into a holding
companycorporate name requires the affirmative vote of a majority of the 
outstanding shares entitled to vote at the meeting.  Approval of the Luby's 
Incentive Stock Plan requires the affirmative vote of a majority of the shares 
present at the meeting in person and by proxy.  Approval of the appointment of 
auditors requires the affirmative vote of a majority of the shares present at 
the meeting in person and by proxy.  Abstentions and broker nonvotes will be 
included in determining the presence of a quorum at the meeting.  Broker 
nonvotes and abstentions will not be included in determining the number of votes
cast on any matter.

     The Company's Bylaws provide that candidates to stand for election as 
directors at an annual meeting of shareholders shall be nominated by the Board 
of Directors.  Candidates may also be nominated by any shareholder of record 
entitled to vote at the meeting, provided the shareholder gives timely notice 
thereof.  To be timely, such notice shall be delivered in writing to the 
Secretary of the CorporationCompany at the principal executive offices of the Company not 
later than 90 days prior to the date of the meeting of shareholders at which 
directors are to be elected and shall include (i) the name and address of the 
shareholder who intends to make the nomination, (ii) the name, age, and business
address of each nominee, and (iii) such other information with respect to each 
nominee as would be required to be disclosed in a proxy solicitation relating to
an election of directors pursuant to Regulation 14A under the Securities 
Exchange Act of 1934.

                            SENIOR MANAGEMENT CHANGES

     On May 9, 1997, David B. Daviss was elected as Acting Chief Executive 
Officer.  On October 1, 1997, he resigned as Acting Chief Executive Officer and 
was elected Chairman of the Board.  On October 1, 1997, Barry J.C. Parker was 
elected President and Chief Executive Officer.  On April 30, 1998, William E. 
Robson resigned as Executive Vice President-Operations.

                              ELECTION OF DIRECTORS

     The Bylaws of the Company provide for a Board of Directors divided into 
three classes, as nearly equal in number as possible, with the members of each 
class to serve three-year terms.  In accordance with the Bylaws, the Board has 
fixed the number of directors at eleven.  The directors whose terms expire at 
the 19971999 Annual Meeting of Shareholders who haveare Ronald K. Calgaard, Judith B. 
Craven, David B. Daviss, Arthur R. Emerson, and Roger R. Hemminghaus.  
Dr. Calgaard has been nominated by the Board
of Directors for reelection to serve until the 20002001 Annual 
Meeting of Shareholders and until his successor is duly elected and qualified.
Dr. Craven, Mr. Daviss, Mr. Emerson and Mr. Hemminghaus have been nominated for 
reelection to serve until the 2002 Annual Meeting of Shareholders and until 
their successors are duly elected and qualified are
John E. Curtis, Jr., Ralph Erben, Walter J. Salmon, and Joanne Winik.qualified.  The Board of Directors 
recommends a vote FOR such nominees.

     The proxies named in the accompanying proxy, who have been designated by 
the Board of Directors, intend to vote for the above mentioned nominees for 
election as directors, unless otherwise specified.  Such nominees have indicated
a willingness to serve as directors, but should any of them decline or be unable
to serve, the persons named as proxies may vote for another person in the place 
of such nominee according to their best judgment in the interest of the Company.

     The following information is furnished with respect to each of the nominees
and for each of the other six directors whose terms will continue after the 
meeting.  Such information includes all positions with the Company and principal
occupations during the last five years.

Nominee for Election to Term Expiring in 2001

     RONALD K. CALGAARD is President of Trinity University (since 1979).  He is 
          61 and has been a director of the Company since July 1998.  He is a 
          member of the Compensation Committee.  He is a director of Plymouth 
          Commercial Mortgage Company and Valero Energy Corporation and is 
          Chairman of The Trust Company, N.A.

Nominees for Election to Terms Expiring in 2002

     JUDITH B. CRAVEN is a Physician Administrator.  She was  President of 
          United Way of the Texas Gulf Coast (1992-1998).  She is 53 and has 
          been a director of the Company since July 1998.  She is a member of 
          the Compensation Committee.  She is a director of A.H. Belo 
          Corporation, Sysco Corporation, and the Houston Branch of the Federal 
          Reserve Bank of Dallas.

     DAVID B. DAVISS is Chairman of the Board of the Company (since October 
          1997).  He was Acting Chief Executive Officer from May to October
          1997.  He is 62 and has been a director of the Company since 1984.  He
          is Chairman of the Executive Committee and a member of the Corporate 
          Governance Committee.  He served as Chairman of the Audit Committee 
          prior to May 1997.  He is an advisory director of Austin Trust 
          Company.

     ARTHUR R. EMERSON is Vice President and General Manager of the Texas 
          Stations of the Telemundo television network.  He is 54 and has been a
          director of the Company since July 1998.  He is a member of the Audit 
          Committee.  He is a director of the San Antonio Branch of the Federal 
          Reserve Bank of Dallas and USAA Federal Savings Bank and is a trustee 
          of City Public Service (San Antonio).

     ROGER R. HEMMINGHAUS is Chairman of the Board, Chief Executive Officer, and
          a director of Ultramar Diamond Shamrock Corporation, where he also 
          served as President until December 1996.  He is 62 and has been a 
          director of the Company since 1989.  He is Chairman of the 
          Compensation Committee and a member of the Executive Committee and the
          Corporate Governance Committee.  He is Chairman of the Federal Reserve
          Bank, Eleventh District, and a director of New Century Energies, Inc.

Incumbent Directors Whose Terms Expire in 2000

     JOHN E. CURTIS, JR.BARRY J.C. PARKER is President Chief Operating Officer, and Chief FinancialExecutive Officer of the Company 
          (since October 1997).  From 1989 to 1996 he was Chairman of the Board,
          President, and Chief Executive Officer of County Seat Stores, Inc., a
          casual apparel chain.  He was a principal of Hoak Capital Corporation
          from January to October 1997.  He is 51 and has been a director and
          officer of the Company and a member of the Executive Committee.Committee since
          October 1997.  He is a trustee of Prentiss Properties Trust.

     WALTER J. SALMON is Emeritus Professor, Harvard Graduate School of Business
          Administration (since 1996).  Prior to January 1996,thereto he was Executive Vice President. 
         He was Senior Vice President and Chief Financial Officer from 1988
         to 1995 and was Treasurer from 1990 to 1995.Stanley Roth, Sr.
          Professor of Retailing, Harvard Graduate School of Business
          Administration.  He is 4968 and has been a director of the Company
          since 1991 and an officer since 1982.

     RALPH ERBENSince1979.  He is Chairmana member of the BoardCompensation Committee, the Audit
          Committee, and Chief Executive Officer of the Company and Chairman of the Executive Committee.  Prior to January
         1996, he was President.  He is 65 and has been a director of the
         Company since 1985 and an officer since 1978.

     WALTER J. SALMON is Stanley Roth, Sr. Professor of Retailing, Senior
         Associate Dean, and Director of External Relations, Harvard Graduate
         School of Business Administration.  He is 66 and has been a director
         of the Company since 1979 and is Chairman of the CompensationCorporate Governance Committee.  He is a director
          of Circuit City Stores, Inc., Cole National Corporation, The Neiman
          Marcus Group, Hannaford Bros. Co., Harrah sHarrah's Entertainment, Inc.,
          Petsmart, Inc., The Quaker Oats Company, and Tufts Associated Health
          Plans, Inc.

     JOANNE WINIK is President, General Manager, and a director of KLRN-TV, San
          Antonio sAntonio's Pubic Broadcasting Service affiliate.  She is also58 and has
          been a director of the Company since 1993.  She is Chairman of the
          Corporate Governance Committee and was formerly a member of the Audit
          Committee.  She is a director of Southern Educational Communications
          Association.

She is
         56 and has been a director of the Company'since 1993 and is a member
         of the Audit Committee.Other Incumbent Directors Whose Terms Expire in 19982001

     LAURO F. CAVAZOS is Professor of Family Medicine and Community Health,
          Tufts University School of Medicine (since 1996),; Acting Chair,
          Department of Family Medicine and Community Health, Tufts University
          School of Medicine (since 1994),1997); and aeducation and management and education
          consultant (since 1991).  He was Adjunct Professor ofActing Chair, Community Health, Tufts
          University School of Medicine from  1992 to 1994.(1994-1997) and Adjunct Professor,
          Community Health, Tufts University School of Medicine (1992-1994).  He
          is 6971 and has been a director of the Company since 19931993.  He is
          Chairman of the Audit Committee and is a member of the AuditCorporate
          Governance Committee.  He is a director of Diamond Shamrock, Inc. and New England Education Loan
         Marketing Corporation.the Nellie Mae Foundation.

     JOHN B. LAHOURCADE is an investor.  Prior to January 1996, he wasHe served as Chairman of the Board of
          the Company.Company from 1988 to 1996 and from March to October 1997.  He
          served as Acting Chief Executive Officer from March to May 1997.  He
          is a member of the Executive Committee.  He has been employed by the
          Company as a consultant since January 1996.  He is 7274 and has been a
          director of the Company since 1970.

     GEORGE H. WENGLEIN is an investor and one of the founders of the Company.
          He is a member of the Compensation Committee.  He has beenwas employed by the Company as a consultant since 1988.prior to January 1998.
          He is 7981 and has been a director of the Company since 1959.  Incumbent Directors Whose Terms Expire in 1999

     DAVID B. DAVISS is an investor.  He is an advisory director of Austin
         Trust Company.  He is 60 and has been a director of the Company since
         1984.  He is a
          member of the Executive Committee and is Chairman of
         the Audit Committee.

     ROGER R. HEMMINGHAUS is Chairman of the Board, President, Chief Executive
         Officer, and a director of Diamond Shamrock, Inc.  He is also Deputy
         Chairman of the Federal Reserve Bank, Eleventh District, and a
         director of Southwestern Public Service Company.  He is 60 and has
         been a director of the Company since 1989 and iswas formerly a member of the
          Compensation Committee.

                 WILLIAM E. ROBSON is Executive Vice President-Operations of the Company. 
         He was Senior Vice President-Operations from 1992 to 1995 and was
         Senior Vice President-Operations Development from 1988 to 1992.  He
         is 55 and has been a director of the Company since 1993 and an
         officer since 1982.

          INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERSCOMMITTEES

Meetings and Compensation of Directors

     During the fiscal year ended August 31, 1996,1998, the Board of Directors held
fivesix meetings.  Each nonofficer director who is not an officer of the Company is paid $3,000an annual retainer of $20,000 
plus a meeting fee of $1,500 for each meeting of the Board of Directors which he
or she attends plus
$12,000 per year for his or her services asand a director.  In addition, each
director who is not an officermeeting fee of the Company is paid $1,000 for each meeting of any Board 
committee of the Board which he or she attends except(except that the meeting fee for the chair of 
the committee is $1,200 per meeting).  The Chairman of the Audit Committee andBoard, in his 
discretion, may reduce meeting fees by 50% when the Chairman of the Compensation Committee
are each paid $1,200 for each meeting of such Committee which he attends.involved is brief or
telephonic.

Nonemployee Director Stock Options

     The Company has a Nonemployee Director Stock Option Plan (the Nonemployee Director Plan)"Option 
Plan") under which nonemployee directors are periodically granted nonqualified 
options to purchase shares of the Company's common stock at an option price 
equal to 100% of fair market value on the date of grant.  Each option terminates
upon the expiration of ten years from the date of grant or one year after the 
optionee ceases to be a director, whichever first occurs.  An option may not be 
exercised prior to the expiration of five years from the date of grant, subject 
to certain exceptions specified in the Nonemployee DirectorOption Plan.

     Pursuant to the provisions of the Nonemployee DirectorOption Plan, options were granted to nonemployee directors on 
January 12, 1996,9, 1998, to Lauro F. Cavazos and George H. Wenglein for the following number
of option5,000 shares 
each at an option price of $21.625$17.00 per share: Davidshare, and on July 24, 1998, to Ronald K. 
Calgaard, Judith B. Daviss -
5,000Craven, and Arthur R. Emerson for 1,666 shares and Roger R. Hemminghaus - 5,000 shares.each at an 
option price of $17.125 per share.

Nonemployee Director Phantom Stock Plan

     The Company has a Nonemployee Director Phantom Stock Plan (the "Phantom 
Stock Plan") which became effective on April 1, 1998.  Under the Phantom Stock 
Plan, nonemployee directors may elect to defer all or a portion of their 
director retainer fees into a phantom share account which is credited with 
dollar amounts in the form of phantom shares priced at current market value of 
the Company's common stock.  The phantom share accounts are also credited with 
dollar amounts equal to dividends paid on the common stock.  When a participant 
ceases to be a director, the number of phantom shares in his or her account is 
converted into an equal number of shares of common stock.

Audit Committee

     The Audit Committee of the Board of Directors, which currently consists of 
David B. Daviss, Lauro F. Cavazos (Chairman), Arthur R. Emerson, and Joanne Winik,Walter J. Salmon, met two 
times during the 19961998 fiscal year.  The functions of the Audit Committee are to 
review the qualifications and independence of the independent auditors; to 
recommend the appointment of the independent auditors; to approve the assignment
of new audit partners; to review the scope of the annual audit and the annual 
audit process; to review the annual audited financial statements; to review the 
annual reporting process; to review internal audit, accounting, data processing,
financial functions, and personnel; to review accounting and data processing 
controls and procedures; to review legal matters that may have a significant 
effect on the financial statements; to review the internal audit function; to 
provide regular opportunities for the director of internal audit and managementthe 
independent auditors to meet privately with the Audit Committee; to review the 
Company's policies on standards of conduct; and to report the activities of the 
Audit Committee to the Board of Directors on a regular basis.

Compensation Committee

     The Compensation Committee of the Board of Directors currently consists of 
Walter J. Salmon, Roger R. Hemminghaus (Chairman), Ronald K. Calgaard, Judith B. Craven, and 
George H. Wenglein.Walter J. Salmon.  The Compensation Committee met threefour times during the 19961998 
fiscal year.  The functions of the Compensation Committee are to review the 
compensation of officers and other management personnel and to make 
recommendations concerning such compensation.  The Compensation Committee also 
administers those employee benefit plans of the Company which provide for 
administration by a Board committee.

Compensation Committee Interlocks and Insider Participation

     Prior to January 1998, George H. Wenglein served as a member of the 
Compensation Committee,Committee.  He is a former officer of the Company and iswas 
previously  employed by the Company as a consultant at a salary of $10,417 per 
month under a contract which expiresexpired in January 1998.

During
fiscal 1996, income tax services were provided at the Company's expense for
Mr. Wenglein in the amount of $3,000.

NominatingCorporate Governance Committee

     The Corporate Governance Committee of the Board of Directors doescurrently 
consists of Joanne Winik (Chairman), Lauro F. Cavazos, David B. Daviss, Roger
R. Hemminghaus and Walter J. Salmon.  The Corporate Governance Committee met 
four times during the 1998 fiscal year.  The functions of the Corporate 
Governance Committee are to review and make recommendations to the Board 
regarding matters of corporate governance and to nominate persons for election 
as directors.

     The Corporate Governance Committee will consider nominees for election as 
directors recommended by shareholders.  A shareholder desiring to submit such a 
recommendation should deliver to the Secretary of the Company at the principal 
offices of the Company not havelater than 90 days prior to the date of the meeting 
of shareholders at which directors are to be elected a standing nominating committee ornotice which includes 
(i) the name and address of the shareholder making the recommendation, (ii) the 
name, age, and business address of the proposed nominee, and (iii) such other 
information regarding the proposed nominee as would be required in a committee performing similar functions.proxy 
solicitation relating to an election of directors pursuant to Regulation 14A 
under the Securities Exchange Act of 1934.

                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     An architectural firm in which Paul A. HessonBarry J.C. Parker is a principal regularly
renders architectural services for the Company.  Mr. Hesson is the
father-in-law of John E. Curtis, Jr.,employed as President Chief Operating Officer, and Chief FinancialExecutive Officer of 
the Company under a three-year employment contract effective October 1, 1997.
Mr. Parker's employment contract provides, among other things, for (i) a 
minimum base salary of $360,000 per year, (ii) a guaranteed bonus for the 
fiscal year ending August 31, 1998, of at least $132,000, (iii) the initial 
grant of options to purchase 100,000 shares of the Company's common stock at an 
option price of $20.75 per share, and (iv) a memberloan from the Company not to 
exceed $200,000 to be applied to the purchase of 20,000 shares of the Company's 
common stock (with forgiveness of principal over five years, contingent upon 
continued employment).The contract also provides that Mr. Parker will be 
entitled to receive his compensation and benefits until September 30, 2000, if 
prior to that date, the Company terminates his employment without "cause" (as 
defined) or if he resigns "for good reason" (as defined).

     Mr. Parker was Chairman of the Board, President, and Chief Executive 
Officer of Directors.  ForCounty Seat Stores, Inc. from 1989 until his resignation in July 
1996.  County Seat Stores, Inc. filed a petition for reorganization under 
Chapter 11 of the fiscal year ended August 31, 1996, architectural fees paid
toU.S. Bankruptcy Code in October 1996.  The Board of Directors
of the Company does not believe that such filing reflects adversely upon 
Mr. Hesson's firmParker's integrity or upon his abilities as a director and executive 
officer of the Company.

     John B. Lahourcade, a director of the Company, is employed by the Company 
amounted to approximately $963,300.  In
the opinionas a consultant at a salary of the Company, such fees are comparable to those paid by the
Company to other architectural firms for similar services.$7,083 per month under a contract which expires 
in 2001.

     James R. Hale, Secretary of the Company, is a member of the law firm of 
Cauthorn Hale Hornberger Fuller Sheehan & Becker Incorporated.  The firm 
performs legal services for the Company on a regular basis.  For services 
rendered during the fiscal year ended August 31, 1996,1998, the Company paid such 
firm approximately $563,000.$416,000.  In the opinion of the Company, such fees are 
comparable to those charged by other law firms for similar services.

     John B. Lahourcade isWilliam E. Robson resigned as a former officerdirector and as Executive Vice President-
Operations of the Company.  He is employed byCompany, effective as of April 30, 1998.  In connection with 
his resignation, the Company asagreed to pay him $3,000 per month for 100 months 
(until age 65) in satisfaction of his deferred compensation benefits and his 
supplemental executive retirement plan (SERP) benefits.  As a consultantseverance 
benefit, the Company agreed to pay Mr. Robson $5,000 per month for 100 months, 
subject to the Company's right to reduce or terminate such payments in the 
event of certain contingencies relating to death, survivorship, employment 
status, and competitive activities.  The Company also paid Mr. Robson his 
regular monthly salary through July 1, 1998, transferred to him a Company 
automobile, and agreed to provide him with out-placement services at a salarycost to 
the Company of $7,083 per month under a contract
which expires in 2001.$3,500.  A copy of the agreement is on file with the Securities 
and Exchange Commission as an exhibit to the Company's quarterly report on Form 
10-Q for the fiscal quarter ended May 31, 1998.

                SECTION 16(a) OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934 requires the 
Company's directors, executive officers, and any persons holding more than ten 
percent of the Company's common stock to report their initial ownership of the 
Company's common stock and any subsequent changes in that ownership to the 
Securities and Exchange Commission and the New York Stock Exchange, and to 
provide copies of such reports to the Company.  Based upon the Company's review 
of copies of such reports received by the Company and written representations 
of its directors and executive officers, the Company believes that during the 
year ended August 31, 1996,1998, all Section 16(a) filing requirements were 
satisfied, except with respect to certain late reports filed
by Joanne Winik, a director of the Company.  In September 1996 she filed two
late reports on SEC Form 4 reflecting four transactions that were not reported
on a timely basis.satisfied.

                           PRINCIPAL SHAREHOLDERS

     To the knowledge of the Company, no person owned beneficially as of 
November 15, 1996,October 31, 1998, more than five percent of the outstanding common stock of the 
Company, except as follows:

                              Shares of Common Stock
Names and Address of         Beneficially Owned as of         Percent of
 Beneficial Owner               October 31, 1998                Class
_____________________        ________________________         ___________

NBD Bank, N.A. (1)
611 Woodward Avenue
MS 8115
Detroit, MI  48226

     (1)  The shares held by NBD Bank, N.A. ("NBD") are held in advisory and 
          discretionary accounts of investors.  NBD has sole power to dispose 
          of ____ shares in such accounts and has shared dispositive power with 
          respect to _____ shares.  NBD has sole power to vote ____ shares held 
          in such accounts and has shared voting power with respect to _____
          shares.  As of October 31, 1998, none of such accounts contained more 
          than five percent of the outstanding common stock of the Company.  
          The foregoing is based upon information furnished by NBD.

                              MANAGEMENT SHAREHOLDERS

     According to information furnished by the persons concerned, each director,
each nominee for director, and all directors and executive officers of the 
Company as a group, owned beneficially the indicated number and percentage of 
outstanding shares of common stock of the Company as of November 15, 1996:10, 1998:

Name of Individual or     Shares Beneficially Owned          Percent
IdentityIdentify of Group         as of November 15, 1996(1)           of10, 1998 (1)        Of Class
_____________________     ___________________________        ________

Ronald K. Calgaard                  -0-                          ---
Lauro F. Cavazos (2)              7501,550                        0.01%
Judith B. Craven (3)                500                          ---%
John E. Curtis, Jr. (3)                  38,349                       .16%
David B. Daviss (4)               3,037                       .01%
Ralph  Erben5,135                        0.02%
Arthur R. Emerson (5)             179,267                       .76%1,237                        0.01%
Roger R. Hemminghaus 3,400                       .01%(6)          4,100                        0.02%
John B. Lahourcade (6)                  202,405                       .86% 
William E. Robson (7)          35,397                       .15%196,405                        0.84%
Barry J.C. Parker (8)            57,500                        0.25%
Walter J. Salmon (8)                      2,255                       .01%(9)              4,435                        0.02%
George H. Wenglein              730,000                        3.10%3.13%
Joanne Winik 1,096                       ---%(10)                 2,230                        0.01%
All directors and executive 
 officers of the Company, 
 as a group (9)         1,822,157                      7.66%(11)              1,064,773                        4.59%

     (1)  Except as indicated in the following notes, eachEach person named in the table owns directly the number of shares
          indicated and has the sole power to vote and to dispose of such 
          shares.shares, except as indicated in the following notes.

     (2)  The shares shown for Dr. Cavazos are held jointly with his wife.  Such
          shares do not include 433 shares of phantom stock held under the 
          Nonemployee Directors Phantom Stock Plan.

     (3)  The shares shown for Dr. Craven are held for her benefit in a 
          custodial account.

     (4)  The shares shown for Mr. CurtisDaviss are held for his benefit in custodial
          accounts and include 25,95098 shares held by a 401(k) custodian.

     (5)  The shares shown for Mr. Emerson include 1,000 shares held jointly 
          with his wife in a custodial account and 237 shares held for his 
          benefit in an Individual Retirement Account.

     (6)  The shares shown for Mr. Hemminghaus are held for his benefit in a 
          custodial account.  Such shares do not include 867 shares of phantom 
          stock held under the Nonemployee Directors Phantom Stock Plan.

     (7)  The shares shown for Mr. Lahourcade include 1,125 shares held jointly 
          with his wife.

     (8)  The shares shown for Mr. Parker include 37,500 shares which he has 
          the right to acquire within 60 days under the Company's employee 
       benefit 
          plans.

     (4) The shares shown for Mr. Daviss are held for his benefit in a custodial
       account.

   (5) The shares shown for Mr. Erben include 42,100  shares which he has the 
       right to acquire within 60 days under the Company's employee benefit 
       plans and 26,815 shares which he holds as trustee for himself and his 
       children.

   (6) The shares shown for Mr. Lahourcade include 1,125 shares held jointly 
       with his wife.

   (7) The shares shown for Mr. Robson include 20 shares held jointly with his 
       wife, 64 shares held jointly with his son, 866 shares held for his 
       benefit in an Individual Retirement Account, 15 shares held by his wife 
       as trustee for his grandchildren, 1,207 shares held for his benefit in 
       the Company's Dividend Reinvestment Plan, and 20,950 shares which he has
       the right to acquire within 60 days under the Company's employee benefit
       plans.

   (8)(9)  The shares shown for Dr. Salmon are held for his benefit in an 
          Individual Retirement Account.  (9)Such shares do not include 433 shares 
          of phantom stock held under the Nonemployee Directors Phantom Stock 
          Plan.

    (10)  The shares shown for Ms. Winik are held for her benefit in a 
          custodial account.  Such shares do not include 2,650 shares of 
          phantom stock held under the Nonemployee Directors Phantom Stock 
          Plan.

    (11)  The shares shown for all directors and executive officers as a group 
          include 211,80580,699  shares which they have the right to acquire within 60 
          days under the Company's employee benefit plans.

                               EXECUTIVE COMPENSATION

     The table below contains information concerning annual and long-term 
compensation of the chief executive officerofficers and the other fourfive most highly 
compensated executive officers (the "Named Officers") for services in all 
capacities to the Company for the fiscal years ended August 31, 1996, 1995,1998, 1997, and 
1994:1996:


                                  Summary Compensation Table
Annual Compensation Long-Term Compensation Awards Payouts ______________________________________________________ _____________________________ ______________________________________________________________ ____________________________ ________ Securities All Other Under- Other Name and Annual Restricted lying LTIP Compen- Principal Fiscal Compen- Stock Options/ LTIPPayouts sation Position Year Salary Bonus(1) sation(2) Awards SARs(3) Payouts(4)(4) (5) ______________________________________________________ ___________________________________________________________________________________ ____________________________ ________ Ralph Erben 1996 $350,000 $ ---Barry J.C. Parker 1998 $330,000 $132,000 $0 $0 5,000 $119,146 $33,786 Chairman of the 1995 340,000170,000 $ 0 $ 0 President and 1997 --- --- 0 0 4,500 65,629 32,027 Board and Chief 1994 330,000 148,500 0 0 4,5000 Chief Executive 1996 --- 18,681 Executive Officer John E. Curtis, Jr. 1996 283,333 --- 0 0 2,500 58,528 14,062 President, Chief 1995 240,0000 0 0 Officer David B. Daviss 1998 135,000 --- 0 0 2,100 32,815 14,096 Operating Officer, 1994 230,000 69,000 0 0 2,100Acting Chief 1997 125,000 --- 2,3800 0 0 0 0 Executive Officer 1996 32,400 --- 0 0 5,000 0 0 and director Laura M. Bishop 1998 165,000 34,000 0 0 20,000 0 4,015 Senior Vice 1997 146,667 --- 0 0 850 0 2,862 President and 1996 108,750 --- 0 0 8,650 0 6,129 Chief Financial Officer Robert P. Burke 1998 165,000 34,000 0 0 20,000 0 4,015 Senior Vice 1997 153,333 --- 0 0 1,000 0 2,973 President- 1996 105,000 --- 0 0 13,000 0 0 Marketing Raymond C. Gabrysch 1998 165,000 34,000 0 0 20,000 0 4,015 Senior Vice 1997 156,667 --- 0 0 1,000 0 2,973 President- 1996 148,750 3,761 0 0 1,200 0 14,062 Operations Clyde C. Hays III 1998 200,000 40,000 0 0 20,000 0 4,015 Senior Vice 1997 190,000 --- 0 0 1,500 19,316 2,973 President- 1996 174,167 --- 0 0 1,600 22,993 14,062 Operations William E. Robson 1998 256,667 --- 0 0 0 0 518,753 Executive Vice 1997 275,000 --- 0 0 2,300 28,359 9,279 President- 1996 263,333 --- 0 0 2,500 58,527 19,795 Executive Vice 1995 240,000 --- 0 0 2,100 32,815 19,308 President - 1994 230,000 69,000 0 0 2,100 --- 7,118 Operations Jimmy W. Woliver 1996 190,000 --- 0 0 1,600 31,354 14,062 Senior Vice 1995 182,500 --- 0 0 1,250 10,938 14,096 President - 1994 180,000 33,750 0 0 1,250 --- 2,380 Operations Clyde C. Hays, III 1996 174,167 --- 0 0 1,600 22,993 14,062 Senior Vice 1995 156,250 --- 0 0 1,250 --- 14,096 President - 1994 150,000 28,125 0 0 1,250 --- 2,380 Operations (1) Reflects incentive-based cash bonuses awarded under the Company's Incentive Bonus Plan and Area Vice President Bonus Plan. Awards are stated as compensation in the year with respect to which the award was earned, even if actually paid in the following year. (2) Perquisites and other personal benefits received by the executive officers are not included because the aggregate amount of such compensation does not exceed the lesser of $50,000 or 10% of the total amount of annual salary and bonus for any Named Officer. (3) The Company has not issued any stock appreciation rights to the Named Officers. (4) The long-term incentive plan (LTIP) amounts paid out in fiscal 19961997 and 19951996 under the Company's Performance Unit Plan relate to the three-year performance cycles ended August 31, 1996, and 1995, respectively. (5) Amounts for Mr. Robson include payments paid and 1994, respectively. No amounts were paid out under the Company's Performance Unit Planaccrued in fiscal 1994. (5) Includesconnection with his resignation on April 30, 1998, of $514,738 in 1998 and contributions under the Profit Sharing Plan of $4,015, $2,973, and $14,062 $14,096,in 1998, 1997, and $2,380 per Named Officer for 1996, 1995, and 1994, respectively. Remaining amounts for Messrs. ErbenMr. Robson for 1997 and Robson1996 are for amounts accrued under a deferred compensation agreements.agreement. Amounts for Ms. Bishop and Messrs. Burke, Gabrysch, and Hays are contributions under the Profit Sharing Plan.
The following table reports the grant of stock options and stock appreciation rights ("SARs") to the Named Officers during fiscal 1996.1998. Options were granted under the Company's Management Incentive Stock Plan. The Company has not granted SARs to any of the Named Officers. Option/SAR Grants in Last Fiscal Year
Potential RealizableRealized Value at Assumed Annual Rates of Stock Price Appreciation Individual Grants for Option Term (3) _________________________________________________________________________ __________________________________________________________________________________________ ____________________ Number of % of Total Securities Options/SARs Exercise Underlying Granted to or Base Options/SARs Employees in Price Expiration Name Granted (1) Fiscal Year (2) ($/sh) Date 5%($) 10%($) ______________________________________________________________________________________________________________________________________________________________________ ____________________ Ralph Erben 5,000 2.52% $21.00 10-08-2001 $35,691 $80,965 John E. Curtis, Jr. 2,500 1.26% 21.00 10-08-2001 17,846 40,483 William E. Robson 2,500 1.26% 21.00 10-08-2001 17,846 40,483 Jimmy W. Woliver 1,600 .81% 21.00 10-08-2001 11,421 25,909Barry J.C. Parker 100,000 21.57% $20.750 09-30-2003 $705,327 $1,600,029 70,000 15.10% 19.125 12-08-2003 455,063 1,032,308 Laura M. Bihsop 20,000 4.31% 19.125 12-08-2003 130,018 294,945 Robert P. Burke 20,000 4.31% 19.125 12-08-2003 130,018 294,945 Raymond C. Gabrysch 20,000 4.31% 19.125 12-08-2003 130,018 294,945 Clyde C. Hays III 1,600 .81% 21.00 10-08-2001 11,421 25,90920,000 4.31% 19.125 12-08-2003 130,018 294,945 William E. Robson 30,000 6.47% 19.125 12-08-2003 195,027 442,418 (1) Options were granted at fair market value of the common stock on the date of grant. Options may not be exercised during the first 12 months following the date of grant. (2) Based upon a total of 198,650463,500 options granted to employees in fiscal 1996.1998. (3) The dollar amounts in these columns are the result of calculations at the 5% and 10% rates set by the Securities and Exchange Commission and should not be considered as a forecast of future stock prices.
The table below reports exercises of stock options and SARs by the Named Officers during fiscal 19961998 and the value of their unexercised stock options and SARs as of August 31, 1996.1998. The stock options were granted under the Company's Management Incentive Stock Plan. The Company has not granted SARs to any of the Named Officers. Aggregated Option/Options/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Shares Options/SARS Options/SARs Acquired at FY-End at FY-End(1) on Value Exercisable/ Exercisable/ Name Exercise Realized Unexercisable Unexercisable ______________________________________________________________________________ Ralph Erben 4,800 $23,784 42,350/7,250 $238,438/Barry J.C. Parker --- $13,125 John E. Curtis, Jr. 2,138 9,792 26,150/3,550 149,425/6,563 William E. Robson 7,500 52,188 18,650/3,550 102,550/6,563 Jimmy W. Woliver 4,900 25,625 1,875/2,225 2,344/4,200 --- 0/170,000 $0/$0 David B. Daviss --- --- 0/6,666 0/0 Laura M. Bishop --- --- 3,741/25,759 0/0 Robert P. Burke --- --- 5,500/28,500 0/0 Raymond C. Gabrysch 1,200 5,625 4,850/20,500 0/0 Clyde C. Hays III 5,242 35,772 7,683/2,225 39,828/4,2001,200 5,925 6,100/20,750 0/0 William E. Robson 2,700 11,138 10,650/31,150 0/0 (1) The value of unexercised options is based on a price of $23.625$15.25 per common share at August 31, 1996. The following table reports performance units granted to the Named Officers during fiscal 1996 under the Company's Performance Unit Plan and the Company's Management Incentive Stock Plan: Long-Term Incentive Plans - Awards in Last Fiscal Year Performance Estimated Future Payouts under Number or Other Non-Stock Price Based Plans of Shares, Period Until ______________________________ Units, or Maturation Name Other Rights or Payout Threshold Target Maximum ______________________________________________________________________________ Ralph Erben 5,000 1996-98 $65,118 $130,235 $195,353 John E. Curtis, Jr. 2,350 1996-98 30,605 61,210 91,816 William E. Robson 2,350 1996-98 30,605 61,210 91,816 Jimmy W. Woliver 1,200 1996-98 15,628 31,256 46,885 Clyde C. Hays, III 1,200 1996-98 15,628 31,256 46,885 The performance units described in the above table were granted in October 1995 for the three-year performance cycle ending August 31, 1998. At the end of the performance cycle, performance awards are made in cash or in shares of common stock, or both, based upon the attainment by the Company of certain performance goals during the three-year cycle. Each performance unit is assigned a performance factor, which is a percentage (not exceeding 150%) resulting from achievement of the performance goals established at the date of grant. Each performance unit is assigned a payment value, which is a dollar amount determined by multiplying the performance factor by the average market price of the common stock of the Company on 20 trading days immediately preceding the end of the performance cycle. If the performance goals are not achieved, a lesser performance factor is assigned (not below 50%), with no future payouts if achievement is below 80% of goal - "Threshold." The values included in the above table assume a 5% annual growth rate in the price of the Company's common stock subsequent to August 31, 1996; however, this assumption should not be considered as a forecast of future stock prices. DEFERRED COMPENSATION The Company's Nonemployee Director Deferred Compensation Plan permits nonemployee directors to defer all or a portion of their directors' fees in accordance with applicable regulations under the Internal Revenue Code. Deferred amounts bear interest at the average interest rate of U.S. Treasury ten-year obligations. The Company's obligation to pay deferred amounts is unfunded and is payable from general assets of the Company. Nonemployee directors are permitted to defer all or a portion of their director retainer fees pursuant to the Company's Nonemployee Director Phantom Stock Plan. See the discussion under the caption "Nonemployee Director Phantom Stock Plan." The Company has deferred compensation agreements with several officers and former officers of the Company. Under the agreements, the Company is obligated to provide annual benefits for each such officer or his beneficiaries during a period of ten years after his death, disability, or retirement. The agreements are unfunded, but the Company has purchased life insurance as a means of partially offsetting the cost of such benefits. TheNo estimated annual benefits are payable upon retirement at normal retirement age for eachany of the Named Officers are as follows: Ralph Erben, $32,100; John E. Curtis, Jr., $-0-; William E. Robson, $24,200; Jimmy W. Woliver, $-0-; and Clyde C. Hays, III, $-0-.Officers. The Company has a Supplemental Executive Retirement Plan, effective as of December 31, 1995. The objective of the planwhich is designed to provide benefits for selected officers at normal retirement age with 25 years of service equal to 50% of their final average compensation offset by Social Security, profit sharing benefits, and deferred compensation. OfThree of the 28 officers designated to participate in the plan two have retired and are receiving benefits under the plan. Accrued benefits of all actively employed participants become fully vested upon termination of the plan or a change in control (as defined in the plan). The plan is unfunded, and the Company is obligated to make benefit payments solely on a current disbursement basis. The following table illustrates the approximate annual pension that the Named Officers in the Summary Compensation Table would receive under the Supplemental Executive Retirement Plan if the plan remained in effect and the Named Officers retired at age 65 and elected an individual life annuity. Pension Plan Table Final Average Years of Service Final Average ____________________________________________ Earnings 15 20 25 _______________ ___________ ___________________________________ ____________ ______________ _____________ $150,000 $ 45,000 $ 60,000 $ 75,000 300,000 90,000 120,000 150,000 450,000 135,000 180,000 225,000 600,000 180,000 240,000 300,000 Amounts shown as "final average earnings" in this table represent the average of the last five years of compensation, which is substantially the same as the total of salary, bonus, and LTIP payouts as shown in the Summary Compensation Table for the Named Officers. As of December 1, 1996,November 30, 1998, the credited years of service under the Supplemental Executive Retirement Plan for Messrs. Curtis, Robson, Woliver,Barry J. C. Parker, Laura M. Bishop, Robert P. Burke, Raymond C. Gabrysch, and Clyde C. Hays III are 17, 30, 32,2, 6, 3, 24, and 23,25, respectively. Mr. Erben is not covered by the plan. The annual benefit amounts shown above are subject to an offset by benefits payable under deferred compensation agreements, if applicable, the profit sharing plan, and Social Security. Net benefits under the plan are prorated by years of credited service less than 25; after 25 years of service, the net benefits are unchanged. COMPENSATION COMMITTEE REPORT The Compensation Committee of the Board of Directors (the "Committee") presents the following report on executive compensation. The report describes the Company's executive compensation programs and the bases on which the Committee made compensation decisions for fiscal 19961998 with respect to the Company's executive officers, including those named in the compensation tables. Compensation Objectives The Committee conducts an annual review of the Company's executive compensation program. The objectives of the executive compensation program include the following: To offer fair and competitive base salaries consistent with the Company's position in the food servicefoodservice industry; To reward executives for corporate and individual performance through an annual incentive bonus program; To encourage future performance through the use of long-term incentives such as stock options and performance units; and To encourage executives to acquire and retain ownership of the Company's common stock. The Company's executive compensation program is designed to enable the Company to attract, retain, and motivate the highest quality of management talent. To achieve that objective, the Committee has developed a compensation program which combines annual base salaries with annual and long-term incentives tied to corporate performance and to increases in shareholder value. Annual Base Salaries The Committee annually establishes the base salaries to be paid to the Company's executive officers during the coming year, subject to approval by the Board of Directors. In setting base salaries, the Committee takes into account several factors, including the executive's experience, responsibilities, management abilities, and job performance, as well as performance of the Company as a whole and competitive compensation data. Annual Incentive Bonuses The Company's annual incentive bonus plan for executive officers and other key personnel directly links annual cash incentive payments to the attainment of predetermined earnings per share goals established by the Committee and approved by the Board of Directors. Eligible executives are assigned threshold, target, and maximum bonus levels as a percentage of base salary, based upon the executive's responsibility level and increase in earnings per share over the prior year. ForBased upon the recommendation of the Committee, the annual incentive bonus plan was suspended for fiscal 1996,1998 and replaced with a discretionary cash bonus plan for fiscal 1998 based upon nonfinancial objectives but subject to attainment of a threshold earnings goal by the incentive compensation targetsCompany for executivefiscal 1998. Incentive bonuses earned by the Named Officers for fiscal 1998 under the discretionary plan are included in the Summary Compensation Table. On October 22, 1998, based upon the recommendation of the Committee, the Board of Directors adopted an Executive Bonus Plan for Fiscal 1999 for officers rangedand key personnel providing for the payment of cash bonuses from 14%a bonus pool to 30% of base salarybe established if targeteda minimum earnings per share were attained, with maximums rangingtarget is achieved for the fiscal year. Bonuses may range from 20%10% to 45%60% of annual base salary. As a resultcompensation. Individual bonuses are based upon an evaluation of the 7% increaseindividual performance in earnings per share for fiscal 1996 over fiscal 1995, no cash incentive bonuses were paidrelation to executive officers for fiscal 1996.predetermined objectives. Stock Options The Committee normally grants incentive stock options annually to eligible executive officers and other key employees. The options, which are granted at 100% of market price on the date of grant, are usually for six-year terms exercisable 50% after one year and 100% after two years.terms. The number of option shares granted each year is normally determined by a formula based upon the executive's responsibility level and base salary and the market price of the common stock. The number of option shares granted will vary based upon position level, with the more senior officers receiving larger grants. The number of option shares held by an executive is not considered in determining stock option awards. Performance Units ThePrior to fiscal 1998 the Committee (with the approval of the Board of Directors) normally grants performance unitsgranted annually to eligible executive officers and other key employees performance units based upon attainment by the Company of predetermined earnings and equity goals established by the Committee over a performance cycle of three consecutive years. The goals are established by the Committee and approved by the Board of Directors. During fiscal 1996, performance awards were granted to eligible executive officers for the three-year performance cycle ending August 31, 1998.years. The number of performance units granted iswas normally determined by a formula based upon the executive'sparticipant's responsibility level and base salary and the market price of the common stock. Performance units are payable at the end of each performance cycle in cash or shares of common stock, or both, if the performance goals for the cycle are attained. Performance unitNo payments were made in October 1996 for the three-year performance cycle whichcycles ended August 31, 1996, amounting to $191,971.1997 and 1998. The Committee did not grant any performance units during fiscal 1998, based upon the Committee's determination that other types of incentive awards were more appropriate during the development and implementation of the Company's new strategic plan. Stock Ownership Guidelines In January 1996 pursuant to recommendations of the Compensation Committee, the Board of Directors adopted guidelines for ownership of Company common stock by executives and nonemployee directors. The guidelines provide that each person in the following categories is expected to attain the indicated level of stock ownership within five years: (1)(a) Chief Executive Officer - shares having a value equal to four times annual base salary; (2) President, Executive Vice(b) President and Senior Vice President - shares having a value equal to two times annual base salary; (3)and (c) Vice President - shares having a value equal to annual base salary; and (4) Nonemployeesalary. The guidelines were amended in 1998 to provide that each nonemployee director - shares having a valueis expected to attain, over time, ownership of common stock in an amount equal to 3.5five times his or her annual director retainer fees. Phantom stock is considered common stock for purposes of the guidelines. Until a nonemployee director attains the minimum level of stock ownership, he or she is obligated to defer at least 50% of annual retainer fees.fees in the form of phantom stock. Compensation of Chief Executive Officer During the period March 1, 1993, through February 28, 1995, Mr. Erben'sDaviss was paid a base salary was $330,000of $25,000 per month for services as Acting Chief Executive Officer from May 1, 1997, to October 1, 1997. His salary as Chairman of the Board, effective October 1, 1997, is $120,000 per year. On October 1, 1997, Mr. Parker was elected as President and Chief Executive Officer. The Company's net incomeCommittee recommended a three-year employment contract for Mr. Parker, which was approved by the Board of Directors. The contract fixes his base annual salary at $360,000 per year and provides for a guaranteed bonus for fiscal 1994 increased 11% over fiscal 1993 and net income1998 of at least $132,000. In accordance with the contract, the Company reimbursed Mr. Parker for relocation expenses in the amount of $90,000. Pursuant to Mr. Parker's employment contract, he was granted stock options on October 1, 1997, for 100,000 shares of common stock at an option price of $20.75 per share was up 15%. On the basis of that performance, and on the basis of competitive market data provided by an independent consultant, the Committee recommended (and the Board approved) an increase in Mr. Erben's annual base salary to $350,000, effective March 1, 1995. His annual base salary has not been increased since that date. On October 9, 1995, Mr. Erben was granted an incentivea loan by the Company in the amount of $199,999. The loan proceeds were applied to Mr. Parker's purchase of 20,000 shares of common stock, which are pledged to secure the loan. The principal of the loan is to be forgiven over five years, conditioned upon his continued employment by the Company. On December 9, 1997, Mr. Parker was granted a stock option for 5,00070,000 shares under the incentiveof common stock plan. Theat an option price of $19.125 per share, which number of shares was determined in accordance with the formula discussed above. During fiscal 1996,Salary Continuation Agreements Mr. Erben exercised stock options grantedParker's employment contract, referred to him in prior years for a totalabove, provides that he will be entitled to receive all of 4,800 shares. On October 9, 1995, Mr. Erben was granted 5,000 performance unitshis compensation and benefits under the Company's management incentive stock plancontract until September 30, 2000, if his employment is terminated by the Company without cause (as therein defined) or if he terminates his employment for good reason (as therein defined). On May 14, 1998, the three-year performance cycle ending August 31, 1998. The numberCompany entered into a contract with Sue Elliott, Senior Vice President-Human Resources, which provides that if her employment is terminated by the Company without good cause (as therein defined) prior to May 14, 2000, the Company will continue to pay her monthly salary until the later of units was determined in accordanceMay 14, 2000, or 12 months after termination, but not after she accepts other employment. On June 1, 1998, the Company entered into a contract with Alan M. Davis, Senior Vice President-Real Estate Development, which provides that if his employment is terminated by the formula discussed above. Mr. Erben received a performance unit payment forCompany without good cause (as therein defined) prior to June 1, 2000, the three-year performance cycle which ended August 31, 1996, having a payment valueCompany will continue to pay his monthly salary until the later of $60,770.June 1, 2000, or 12 months after termination, but not after he accepts other employment. Members of the Committee: Roger R. Hemminghaus, Chairman Ronald K. Calgaard Judith B. Craven Walter J. Salmon Chairman Roger R. Hemminghaus George H. Wenglein PERFORMANCE GRAPH This year the Company has changed the composition of the peer group used to compare the cumulative total shareholder return on the Company's common stock from that used in prior proxy statements. Information on two of the companies in the prior year's peer group is no longer available. Morrison Restaurants, Inc. was acquired by Piccadilly Cafeterias, Inc. and Perkins Family Restaurants, L.P. is no longer a public company. As a result, the Company chose to expand the 1998 per group to include several other companies in the family dining segment of the restaurant industry. The following graph compares the cumulative total shareholder return on the Company's common stock for the five fiscal years ended August 31, 1996,1998, with the cumulative total return on the S&P 500SmallCap 600 Index and an industry peer group index. The peer group index1997 Peer Group is comprised of Buffets, Inc.; Hometown Buffet, Inc.; Luby's Cafeterias, Inc.; Morrison Fresh Cooking, Inc.; Perkins Family Restaurants, L.P.; Piccadilly Cafeterias, Inc.; Ryan's Family Steak Houses,Steakhouses, Inc.; Shoney's, Inc.; and Sizzler International, Inc. The 1998 Peer Group is comprised of Bob Evans Farms, Inc.;Buffets, Inc.; Furr's/Bishop's, Inc.; Piccadilly Cafeterias, Inc.; Ryan's Family Steakhouses, Inc.; Shoney's, Inc.; Sizzler International, Inc.; and Vicorp Restaurants, Inc. These companies are multiunit family restaurant operators in the mid-price range with similar stock market capitalization. The cumulative total shareholder return computations set forth in the performance graph assume the investment of $100 in the Company's common stock, the S&P 500 Index, and the peer group index on August 31, 1991,1993, and the reinvestment of all dividends. The returns of each company in the 1997 Peer Group and 1998 Peer Group have been weighted according to the respective company's stock market capitalization. The performance graph has been omitted in the EDGAR filing. A table of the graph's data points is shown below. Five-yearFive-Year Cumulative Return Years Ended August 31, _________________________________________ 1991 1992__________________________________ 1993 1994 1995 1996 1997 1998 Luby's Cafeterias, Inc. $100 90 150 140 122 15094 82 100 87 70 1998 Peer Group $100 97 119 98 83 8576 65 54 55 52 1997 Peer Group $100 78 66 61 56 52 S&P 500SmallCap 600 $100 108 124 131 159 189 PLAN104 127 144 193 134 CHANGE OF INTERNAL RESTRUCTURING Introduction The Company currently does business primarily as an operating entity -- holding the majority of its operating assets directly and conducting operations solely in the Company. The growth of the Company, the L&W Seafood venture, as well as other joint venture proposals and investment proposals which have been made to the Company in recent years have caused the Company to reexamine its current corporate structure. The Board of Directors has determined that it would be in the best interests of the Company and its stockholders for the Company to have the flexibility to transfer some or substantially all of the Company's operating assets to direct or indirect wholly-owned subsidiaries, in which case the Company would become a holding company. Toward this end,CORPORATE NAME On October 16, 1998, the Board of Directors has unanimously approved, subject to shareholder approval, the transfer of some or alldeclared it advisable and proposed that Article First of the Company's operating assets and liabilitiesCertificate of Incorporation be amended to one or more direct or indirect wholly-owned subsidiaries (the Subsidiaries) ofchange the Company (the Restructuring).corporate name to "Luby's, Inc." The Company may choose to implement at one time orname "Luby's" is well established in stages over time all or any portion of the Restructuring or may elect not to effect the Restructuring at all. The Company anticipates that some or all of the employees of the Company would be transferred to the Subsidiaries in connection with any implementation of the Restructuring. Restructuring is not contingent upon any government or regulatory approval. The Restructuring will not have a material effect on the consolidated financial statements of the Company. Notwithstanding the new structure, the Company will continue to report its financial operations and condition on a consolidated basis. The net income of the Subsidiaries, reflected as income on the Company's consolidated financial statements, will be available forprincipal markets as an indicator of quality food and service. As new concepts of food service are developed, the payment of dividendsword "cafeteria" is becoming too limited to shareholders of the Company to the extent the Company has received dividends or other distributions from the Subsidiaries. The Restructuring will not have a material effect on the payment of dividends to shareholders of the Company. Shareholder approval is necessary under Delaware law to implement the Restructuring because the Company believes the Restructuring, if fully implemented, would involve the transfer of substantially all ofidentify the Company's assets. The submissionmethods of food service. Accordingly, the Restructuring for shareholder approval will not affect the Company's rights, under applicable Delaware law, to dispose of less than substantially all of its assets (including by transfer to one or more subsidiaries) without shareholder approval. Thus, even if the Restructuring is not approved by the shareholders, the Company may from time to time in the future transfer portions of its assets to subsidiaries or other affiliated entities or to third parties on terms and for consideration approved by the Board of Directors, subject to applicable Delaware law, without seeking shareholder approval. Approval of the Restructuring by shareholders will not preclude the shareholders right to challenge any future dispositions by the Company of the stock or assets of the Subsidiaries or of other subsidiaries or affiliated entities if such dispositions are not made as part of the Restructuring or in compliance with applicable Delaware law. Reasons for the Restructuring If the Restructuring is fully implemented, the principal operations of the Company would be conducted by the Subsidiaries. The Company believes that the new structure would permit greater flexibility in the management and financing of existing and future business operations. The holding company structure would also facilitate the Company's entry into new businesses and the formation of joint ventures or other business ventures with third parties, and may enable the Company to achieve certain tax benefits. Finally, the Restructuring would further the objective of operating the Company's businesses, and any additional businesses acquired in the future, on a more self-sufficient, independent economic basis while decreasing the risk that liabilities attributable to any one of the Company's businesses could be imposed upon one or more of the Company's unrelated businesses. Transfer of Assets; Effects of the Restructuring The Company currently plans that the Restructuring would result in the transfer of substantially all its trademark rights and copyrights and certain other intellectual property rights to an indirect wholly-owned subsidiary of the Company. The Company also currently plans to transfer substantially all of the remaining assets and related liabilities to an indirect wholly-owned subsidiary, which is a limited partnership. The Company currently intends to implement these transfers as soon as practicable following shareholder approval of the Restructuring. The following diagrams show the present structure of the Company and the structure that would result from the implementation of the Restructuring as currently planned: CURRENT STRUCTURE AFTER RESTRUCTURING Luby's Cafeterias, Inc. Luby's Cafeterias, Inc. (80% Ownership) Luby's Holdings, Inc. L & W Seafood, Inc. (80% Ownership) L & W Seafood, LUBCO, Luby's Limited Inc. Inc. Partner, Inc. Luby's Management, Inc. (1% Ownership) (99% Ownership) Luby's Restaurants Limited Partnership The foregoing diagrams illustrate the effect of the Restructuring as currently planned. However, if the shareholders approve the Restructuring, the Company will have the authority to transfer some or substantially all of its assets to any one or more new or existing direct or indirect wholly-owned subsidiaries formed under the laws of any state and the final structure may be similar to or substantially different from the illustration. In addition, the Company may choose not to implement the Restructuring at all. Effect on Shareholders Rights The Restructuring will not alter shareholders percentage ownership interests in the Company, and the Company's common stock will not be affected by the proposed Restructuring. The shareholders of the Company will continue as such, with the same voting, dividend and liquidation rights and ownership interests as before. As a result of the Restructuring, the shareholders of the Company will not directly elect the directors of the Subsidiaries. Directors of the Subsidiaries will be elected at the direction of the Board of Directors of the Company. Notwithstanding that fact, however, the overall management of the affairs and operations of the Subsidiaries will be under the direction of the Board of Directors and is not expected to change significantly as a result of the Restructuring. Other Effects on the Company and Shareholders Except for the changes described herein, consummation of the Restructuring is not expected to result in any material change in the overall operations of the Company. Similarly, the Restructuring will not result in any changes in the current membership of the Board of Directors, and the executive officers of the Company are expected to remain the same after consummation of the proposed Restructuring. Persons who are currently serving as officers or directors of the Company may become officers and/or directors of the Subsidiaries. While the Restructuring is not expected to create any conflict of interests between the Company and its shareholders, in the event that the Subsidiaries, through public or private sale, should be owned in part by persons other than the Company or its shareholders, such conflicts could arise. However, the Company has no plans to effect a public or private sale of any part of the ownership of the Subsidiaries. Some possible disadvantages of the proposal to the Company include the requirement for observing corporate formalities between and among the Company and the Subsidiaries, together with some possible increases in accounting and administrative costs and possible duplication of some administrative functions. The Board of Directors believes that these disadvantages are not significant or material. In addition, management of the Company believes that the cost to implement the Restructuring as currently planned (consisting primarily of legal and accounting costs and real estate transfer taxes) will not be material. Shareholders of the Company will continue to have the same voting, dividend, and liquidation rights before and after implementation of the Restructuring. However, as discussed above under Effect on Shareholders Rights, shareholders of the Company will not be entitled to elect the directors of the Subsidiaries. Instead, shareholders of the Company will elect the directors of the Company who will have overall responsibility for the management of the Company and its subsidiaries and affiliated entities. Similarly, the shareholders statutory right to inspect the books and records of the Company under applicable Delaware law may not extend to the books and records of the Subsidiaries. However, because the Company is a public company subject to the reporting requirements of the Securities Exchange Act of 1934 and the rules of the New York Stock Exchange, information regarding the Company and its subsidiaries and affiliated companies is readily available to shareholders without resort to the statutory right to inspect the Company's books and records. It is also possible that the sale by any one or more of the Subsidiaries of substantially all of the assets of the Subsidiaries (including through the sale of the stock of Subsidiaries) following the Restructuring would not require the approval of the shareholders of the Company under Delaware law even though the sale of substantially all of the assets by the Company under the current structure would require shareholder approval. However, the Company has no plans to sell material assets. The Board of Directors believes that the advantagesabbreviated corporate name, "Luby's, Inc.," will better serve to identify the Company as it expands and diversifies its operations in the coming century. Adoption of the proposal, as described under Reasons foramendment requires the Restructuring above, outweighaffirmative vote of a majority of the possible disadvantages described above. For that reason,outstanding shares entitled to vote thereon. The Board of Directors recommends a vote "FOR" the amendment. LUBY'S INCENTIVE STOCK PLAN On October 16, 1998, the Board of Directors hasadopted the Luby's Incentive Stock Plan (the "New Plan"), to be effective on January 1, 1999 (the "Effective Date"), subject to approval by the shareholders at the 1999 Annual Meeting. The New Plan is similar to, and is intended to replace, the Management Incentive Stock Plan adopted in 1989 (the "1989 Plan"). No further grants will be made under the 1989 Plan after December 31, 1998, if the New Plan is approved by the shareholders at the 1999 Annual Meeting. The following summary description of the New Plan is qualified in its entirety by reference to the complete text attached as Appendix A to this Proxy Statement. The term "Company" as used in this summary refers only to Luby's Cafeterias, Inc. Purpose. The New Plan is designed to benefit the shareholders of the Company by encouraging and recommendsrewarding high levels of performance by individuals who are key to the success of the Company. The New Plan authorizes incentive awards ("Awards") in the form of stock options, restricted stock, and performance shares. Eligibility. The persons eligible to receive Awards under the New Plan are all employees of the Company and all employees of any corporation or other business entity in which the Company owns, directly or indirectly, more than 50% of the capital and profit interests. Stock Available. Subject to provisions for adjustments, the number of shares of common stock of the Company ("Common Stock") which may be issued under the New Plan is equal to the sum of: (a) 2,000,000 shares; (b) any shares of Common Stock available for future awards under the 1989 Plan as of the Effective Date; and (c) any shares of Common Stock represented by awards granted under the 1989 Plan which are forfeited, expire, or are canceled without delivery of Common Stock after the Effective Date, or which result in the forfeiture of Common Stock back to the Company. In no event will the number of shares of Common Stock which may be issued under the New Plan exceed 2,500,000. Shares covered by an Award which are not issued become available for further Awards. No participant may receive, under the New Plan, stock options for more than 100,000 shares in any one year, except that a newly hired employee may be granted options for not more than 200,000 shares in the first year of employment. Stock Options. A stock option is a right to purchase a specified number of shares of Common Stock during a specified time not exceeding ten years at a fixed price equal to fair market value on the date of grant. Stock options may be either incentive stock options ("ISOs") which comply with Section 422 of the Internal Revenue Code of 1986 (as amended from time to time) or non-statutory stock options ("nonqualified options") which do not comply with Section 422. Restricted Stock. Restricted Stock is Common Stock which is subject to restrictions on transfer and/or ownership for a required period of continued employment. Stock Awards may be granted without payment of consideration by the participant. Performance Shares. A Performance Share is Common Stock or a unit valued with reference to Common Stock that is subject to restrictions on transfer and/or ownership. Performance Shares may be paid in Common Stock or cash or both. Each Performance Share shall be subject to the attainment of performance targets established by the Committee. Award Agreements. Each Award will be evidenced by an Award agreement containing provisions consistent with the New Plan and such other terms and conditions as the Committee deems necessary or appropriate. Limited Stock Purchase Loans. As a means of encouraging stock ownership by officers, during the period from the Effective Date to March 25, 1999, the Company may, with the approval of the Committee, make or guarantee loans to Participants who are officers of the rank of Vice President and above for the purpose of purchasing Common Stock. It is anticipated that the shareholders approveprincipal amount of such loans, in the Restructuring.aggregate, will not exceed $2,500,000. Administration. The New Plan is to be administered by the Compensation Committee of the Board of Directors or other committee designated by the Board. Amendments, etc. The Board of Directors further notesmay amend, modify, suspend, or terminate the New Plan for any purpose permitted by law. Unless changes in legal requirements permit otherwise, the Board may not amend the New Plan (i) to increase the number of shares of Common Stock that numerous national and international corporations conduct their operations through holding company structures. Federal Tax Consequences Of The Restructuring Any assets transferredmay be issued (except pursuant to adjustment provisions), (ii) to decrease the Restructuring willoption price, (iii) to materially modify eligibility requirements, (iv) to withdraw administration for the Committee, or (v) to extend the period during which Awards may be conveyedgranted. Adjustments. In the event of a change in the outstanding Common Stock by reason of a stock split, stock dividend, combination or reclassification of shares, recapitalization, merger, or other event, the Committee shall make proportionate or other equitable adjustments in the number of shares of Common Stock (i) reserved under the New Plan, (ii) for which Awards may be granted to an individual participant, (iii) covered by outstanding Awards denominated in stock or units of stock and shall make appropriate adjustments in (x) stock prices related to outstanding Awards and (y) price determinations related to outstanding Awards. Change of Control. In the event of a "change of control" of the Company (as defined in the New Plan) or in the event of "Restructuring Event" (as defined in the New Plan), the Committee may recommend that the Board of Directors take action to (i) accelerate the vesting of outstanding Awards, (ii) offer to purchase outstanding Awards, or (iii) modify the terms of outstanding Awards. Unfunded Plan. Insofar as the New Plan provides for Awards in cash and Common Stock, it shall be an unfunded plan without any obligation on the part of the Company to segregate assets relating to the SubsidiariesNew Plan. Termination. The New Plan is to terminate on a tax-free basis pursuant to Section 351December 31, 2008, unless sooner terminated by the Board of Directors, after which no Awards may be made under the New Plan. Tax consequences. The tax consequences of the Internal Revenue Code.issuance and exercise of Awards are set forth in Appendix B to this Proxy Statement. Stock Price. The Subsidiaries will be directly or indirectly wholly-owned by the Company. Although the Company has no plans to change the ownershipclosing price of the Subsidiaries, it is possible that one or more ofCommon Stock on the Subsidiaries may not be wholly-owned in the future. Rights Of Dissenting Shareholders Approval or consummation of the Restructuring will not entitle a shareholder objecting to its terms or voting against the Restructuring to any appraisal or similar rights under Delaware law. Vote RequiredNew York Stock Exchange on November 10, 1998, was $__________ per share. Shareholder Vote. The affirmative vote of the holders of a majority of the shares of common stock outstanding and entitled to votepresent at the meeting in person and by proxy is required to approvefor approval of the Restructuring. Shares not voted (whether by abstention, broker nonvote, or otherwise) have the same effect as a vote against the proposal.New Plan. The Board of Directors recommends that the shareholders vote FOR approval of the Restructuring.New Plan. The affirmative vote of a majority of the shares present at the meeting in person and by proxy is required for approval. APPOINTMENT OF AUDITORS The Board of Directors of the Company has appointed the firm of Ernst & Young LLP to audit the accounts of the Company for the 19971999 fiscal year. Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting of Shareholders with the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions. Approval of the appointment of auditors is not a matter which is required to be submitted to a vote of shareholders, but the Board of Directors considers it appropriate for the shareholders to express or withhold their approval of the appointment. If shareholder approval should be withheld, the Board would consider an alternative appointment for the succeeding fiscal year. The Board recommends that the shareholders vote FOR approval of the appointment of Ernst & Young LLP. The affirmative vote of a majority of the shares present at the meeting in person and by proxy is required for approval. SHAREHOLDER PROPOSALS FOR 19982000 ANNUAL MEETING Proposals of shareholders intended to be presented atfor inclusion in the 1998Company's proxy statement and form of proxy for the Company's 2000 Annual Meeting of Shareholders submitted pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 must be received in writing by the Company at its corporate office no later than August 5, 1997. The2, 1999. Notice of a shareholder proposal submitted outside the process of Rule 14a-8 with respect to the Company's corporate office is located at 2211 Northeast Loop 410, P. O. Box 33069, San Antonio, Texas 78265-3069.2000 Annual Meeting of Shareholders will be considered untimely if received by the Company after October 16, 1999. PROXY SOLICITATION The cost of soliciting proxies will be borne by the Company. To assist in the proxy solicitation, the Company has engaged W.F. Doring &and Co. for a fee of $3,000 plus reimbursement of out-of-pocket expenses. Proxies may be solicited through the mail and through telephonic or telegraphic communications to, or by meetings with, shareholders or their representatives by directors, officers, and other employees of the Company who will receive no additional compensation therefor. The Company requests persons such as brokers, nominees, and fiduciaries holding stock in their names for others, or holding stock for others who have the right to give voting instructions, to forward proxy material to their principals and to request authority for the execution of the proxy, and the Company reimburses such persons for their reasonable expenses. OTHER MATTERS The Company has received a shareholder proposal which has been omitted from this proxy statement in accordance with the rules of the Securities and Exchange Commission. The proposal involves a recommendation that the Board of Directors take steps to elect Davis Simpson as a director of the Company. If this shareholder proposal properly comes before the meeting, the persons named in the accompanying proxy will vote against the proposal. No business other than the matters set forth in this proxy statement is expected to come before the meeting, but should any other matters requiring a vote of shareholders arise, including a question of adjourning the meeting, the persons named in the accompanying proxy will vote thereon according to their best judgment in the interest of the Company. LUBY'S CAFETERIAS, INC. James R. Hale Secretary Dated: December 2, 19961, 1998 PRELIMINARY COPY PROXYAPPENDIX A LUBY'S INCENTIVE STOCK PLAN 1. Objectives. The Luby's Incentive Stock Plan (the "Plan") is designed to benefit the shareholders of the Company by encouraging and rewarding high levels of performance by individuals who are key to the success of the Company by increasing the proprietary interest of such individuals in the Company's growth and success. To accomplish these objectives, the Plan authorizes incentive Awards through grants of stock options, restricted stock, and performance shares to those individuals whose judgment, initiative, and efforts are responsible for the success of the Company. 2. Definitions. "Award" means any award described in Section 5 of the Plan. "Award Agreement" means an agreement entered into between the Company and a Participant, setting forth the terms and conditions applicable to the Award granted to the Participant. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Committee" means the Compensation Committee of the Board or other committee designated by the Board to administer the Plan. The Committee shall be constituted to comply with Rule 16b-3 promulgated under the Securities Exchange Act of 1934 or any successor rule. "Common Stock" means the common stock of the Company (par value $.32 per share) and shall include both treasury shares and authorized but unissued shares. "Company" means Luby's Cafeterias, Inc. "Fair Market Value" means the closing price of the Common Stock as reported by the composite tape of New York Stock Exchange issues (or such other reporting system as shall be selected by the Committee) on the relevant date, or if no sale of Common Stock is reported for such date, the next following day for which there is a reported sale. "Participant" means an individual who has been granted an Award pursuant to the Plan. "1989 Plan" means the Management Incentive Stock Plan of the Company which was adopted in 1989. 3. Eligibility. All employees of any of the following entities are eligible to receive Awards under the Plan: (i) the Company, (ii) any corporation or other entity that has elected to be taxed as a corporation for federal income tax purposes (collectively "Entities"), other than the Company, in an unbroken chain of Entities beginning with the Company if each of the Entities other than the last Entity in the unbroken chain owns stock or interests possessing more than fifty percent (50%) of the total combined voting power of all classes of stock or interests in one of the other Entities in such chain, (iii) partnerships and any other business entities in which the Company, directly or indirectly, owns more than fifty percent (50%) of the capital and profit interests. With regard to the issuance of incentive stock options, all employees of any of the entities described in (i) and (ii) are eligible to receive Awards under the Plan. 4. Common Stock Available for Awards. Subject to the adjustment provisions of Section 9, the number of shares of Common Stock that may be issued for Awards granted under the Plan is equal to the sum of: (a) 2,000,000 shares; (b) any shares of Common Stock available for future awards under the 1989 Plan as of the Effective Date; and (c) any shares of Common Stock represented by awards granted under the 1989 Plan which are forfeited, expire, or are canceled without delivery of Common Stock after the Effective Date, or which result in the forfeiture of Common Stock back to the Company. In no event will the number of shares of Common Stock which may be issued under the Plan exceed 2,500,000. No Participant may receive, under the Plan, stock options for more than 100,000 shares in any one year, except that stock options may be granted to a newly hired employee for not more than 200,000 shares in the first year of employment. Shares of Common stock related to Awards which (i) are forfeited, (ii) expire unexercised, (iii) are settled in such manner that all or some of the shares covered by an Award are not issued to a Participant, (iv) are exchanged for Awards that do not involve Common Stock, or (v) are tendered by a Participant upon exercise of a stock option in payment of all or a portion of the option price shall be added back to the pool and shall immediately become available for Awards. 5. Awards. The Committee shall select the persons who are to receive Awards and shall determine the type or types of Award(s) to be made to each Participant and shall set forth in the related Award Agreement the terms, conditions, performance requirements, and limitations applicable to each Award. Awards may be granted singly, in combination, or in tandem. Awards may include but are not limited to the following: (a) Nonqualified Stock Options. A nonqualified stock option is a right to purchase a specified number of shares of Common Stock at a fixed option price equal to the Fair Market Value of the Common Stock on the date the Award is granted, during a specified time, not to exceed ten years, as the Committee may determine. The option price shall be payable: (i) in U.S. dollars by personal check, bank draft, or by money order payable to the order of the Company or by money transfer or direct account debit; or (ii) if the Committee so determines, through the delivery of shares of Common Stock of the Company with a Fair Market Value equal to all or a portion of the option price for the total number of options being exercised; or (iii) by a combination of the methods described in subsections (i) and (ii) next above. (b) Incentive Stock Options. An incentive stock option ("ISO") is an Award which, in addition to being subject to applicable terms, conditions, and limitations established by the Committee, complies with Section 422 of the Code. Among other limitations, Section 422 of the Code currently provides (i) that the aggregate Fair Market Value (determined at the time the option is granted) of Common Stock for which ISOs are exercisable for the first time by a Participant during any calendar year shall not exceed $100,000, (ii) that ISOs shall be priced at not less than 100% of the Fair Market Value on the date of the grant, and (iii) that ISOs shall be exercisable for a period of not more than ten years. The Committee may provide that the option price under an ISO can be paid by one or more of the methods described in subsection (a) next above. (c) Restricted Stock. Restricted Stock is Common Stock of the Company that is subject to restrictions on transfer and/or such other restrictions on incidents of ownership as the Committee may determine, for a required period of continued employment of not less than three years as set by the Committee at the time of Award. Restricted Stock Awards shall require no payments of consideration by the Participant, either on the date of grant or the date the restriction(s) are removed, unless specifically required by the terms of the Award Agreement. The maximum number of shares of Restricted Stock which may be issued under the Plan is 200,000. (d) Performance Shares. A Performance Share is Common Stock of the Company, or a unit valued by reference to Common Stock, that is subject to restrictions on transfer and/or such other restrictions on incidents of ownership as the Committee may determine. The elimination of restrictions on a Performance Share and the number of shares ultimately earned by a Participant shall be contingent upon achievement of one or more performance targets specified by the Committee. Performance Shares may be paid in Common Stock, cash, or a combination thereof. The Committee shall establish minimum performance targets with respect to each Performance Share. Performance targets may be based on financial criteria consisting of (i) revenue growth, (ii) diluted earnings per share, (iii) net operating profit after taxes, (iv) cash flow, (v) economic value added, or (vi) a combination of such criteria. No Participant may receive, under the Plan, a Performance Share Award for any award cycle in excess of 25,000 performance units or 25,000 shares of Common Stock. 6. Certain Changes. Except as may be permitted under the provisions of Section 10 or Section 11, no stock option issued pursuant to the Plan may be (i) canceled by the Company or (ii) amended so as to reduce the option price, unless such cancellation or amendment is approved by the shareholders of the Company. 7. Award Agreements. Each Award under this Plan shall be evidenced by an Award Agreement consistent with the provisions of the Plan setting forth the terms and conditions applicable to the Award. Award Agreements shall include: (a) Non-Assignability. A provision that no Award shall be assignable or transferable except by will or by the laws of descent and distribution and that during the lifetime of a Participant, the Award shall be exercised only by such Participant. (b) Termination of Employment. Provisions governing the disposition of an Award in the event of the retirement, disability, death, or other termination of a Participant's employment or relationship to the Company or any affiliate of the Company. (c) Rights as a Shareholder. A provision that a Participant shall have no rights as a shareholder with respect to any shares covered by an Award until the date the Participant or his nominee becomes the holder of record. Except as provided in Section 9 hereof, no adjustment shall be made for dividends or other rights for which the record date is prior to such date, unless the Award Agreement specifically requires such adjustment. (d) Withholding. A provision requiring the withholding of all taxes required by law from all amounts paid in cash. In the case of payments of Awards in shares of Common Stock, the Participant may be required to pay the amount of any taxes required to be withheld prior to receipt of such shares. A Participant must in all instances pay the required withholding taxes in cash. The withholding of shares to pay taxes shall not be permitted. (e) Other Provisions. Such other terms and conditions, including the criteria for determining vesting of Awards and the amount or value of Awards, as the Committee determines to be necessary or appropriate. Without limiting the generality of the foregoing, any stock option granted under the Plan may provide, if the Committee so determines, that upon the occurrence of a "change of control" (as defined in Section 11) the option shall immediately become exercisable and shall remain exercisable for a period of one year after termination of the optionee's employment but not later than the expiration date of the option. 8. Administration. The Plan shall be administered by the Committee, which shall have full and exclusive power to interpret the Plan, to grant waivers of Award restrictions, and to adopt such rules, regulations, and guidelines for carrying out the Plan as it may deem necessary or proper, all of which powers shall be executed in the best interests of the Company and in keeping with the objectives of the Plan. All questions of interpretation and administration with respect to the Plan and Award Agreements shall be determined by the Committee, and its determination shall be final and conclusive. The Committee may delegate to the Chief Executive Officer of the Company its administrative functions and authority to grant Awards under the Plan pursuant to such conditions and limitations as the Committee may establish, except that only the Committee may select, and grant Awards to, Participants who are subject to Section 16 of the Securities Exchange Act of 1934. 9. Amendment, Modification, Suspension, or Discontinuance of the Plan. The Board may amend, modify, suspend, or terminate the Plan for the purpose of meeting or addressing any changes in legal requirements or for any other purpose permitted by law. Subject to changes in law or other legal requirements that would permit otherwise, the Plan may not be amended without the consent of the holders of a majority of the shares of Common Stock then outstanding (i) to increase the aggregate number of shares of Common Stock that may be issued under the Plan (except for adjustments pursuant to Section 9 of the Plan), (ii) to decrease the option price, (iii) to materially modify the requirements as to eligibility for participation in the Plan, (iv) to withdraw administration of the Plan from the Committee, or (v) to extend the period during which Awards may be granted. 10. Adjustments. In the event of any change in the outstanding Common Stock of the Company by reason of a stock split, stock dividend, combination or reclassification of shares, recapitalization, merger, or similar event, the Committee may adjust proportionally (a) the number of shares of Common Stock (i) reserved under the Plan, (ii) for which Awards may be granted to an individual Participant, and (iii) covered by outstanding Awards denominated in stock or units of stock; (b) the stock prices related to outstanding Awards; and (c) the appropriate Fair Market Value and other price determinations for such Awards. In the event of any other change affecting the Common Stock or any distribution (other than normal cash dividends) to holders of Common Stock, such adjustments as may be deemed equitable by the Committee, including adjustments to avoid fractional shares, may be made to give proper effect to such event. In the event of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Committee shall be authorized to issue or assume stock options, whether or not in a transaction to which Section 424(a) of the Code applies, by means of substitution of new stock options for previously issued stock options or an assumption of previously issued stock options. The issuance of new stock options for previously issued stock options or the assumption of previously issued stock options in connection with a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation shall not reduce the number of shares of Common stock available for Awards under the Plan. 11. Change of Control. (a) In the event of a change of control of the Company, or if the Board reaches agreement to merge or consolidate with another corporation and the Company is not the surviving corporation or if all, or substantially all, of the assets of the Company are sold, or if the Company shall make a distribution to shareholders that is nontaxable under the Code, or if the Company shall dissolve or liquidate (a "Restructuring Event"), then the Committee may, in its discretion, recommend that the Board take any of the following actions as a result of, or in anticipation of, any such Restructuring Event to assure fair and equitable treatment of Participants: (i) accelerate time periods for purposes of vesting in, or realizing gain from, any outstanding Award made pursuant to the Plan; (ii) offer to purchase any outstanding Award made pursuant to the Plan from the holder for its equivalent cash value, as determined by the Committee, as of the date of the Restructuring Event; and (iii) make adjustments or modifications to outstanding Awards as the Committee deems appropriate to maintain and protect the rights and interests of Participants following such Restructuring Event. (b) Any such action by the Board shall be conclusive and binding on the Company and all Participants. Notwithstanding the foregoing, the Committee shall retain full authority to take, in its discretion, any of the foregoing actions with respect to Awards held by Participants who are directors, and the Board shall have no authority to act in any such matter. (c) For purposes of this Section, "change of control" shall mean (i) the acquisition by any person of voting shares of the Company, not acquired directly from the Company, if, as a result of the acquisition, such person, or any "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934 of which such person is a part, owns at least 20% of the outstanding voting shares of the Company; or (ii) a change in the composition of the Board such that within any period of two consecutive years, persons who (a) at the beginning of such period constitute the Board or (b) become directors after the beginning of such period and whose election or nomination for election by the shareholders of the Company was approved by a vote of at least two-thirds of the persons who were either directors at the beginning of such period or whose subsequent election or nomination was previously approved in accordance with this clause (b), cease to constitute at least a majority of the Board; or (iii) a merger, consolidation, reorganization, or similar restructuring involving the Company is consummated and, as a result, the shareholders of the Company immediately prior to such event own less than 50% of the voting shares of the surviving entity outstanding immediately after such event. 12. Unfunded Plan. Insofar as it provides for Awards of cash and Common Stock, the Plan shall be unfunded. Although bookkeeping accounts may be established with respect to Participants who are entitled to cash, Common Stock, or rights thereto under the Plan, any such accounts shall be used merely as a bookkeeping convenience. The Company shall not be required to segregate any assets that may at any time be represented by cash, Common Stock, or rights thereto, nor shall the Plan be construed as providing for such segregation, nor shall the Company or the Board or the Committee be deemed to be a trustee of any cash, Common Stock, or rights thereto to be granted under the Plan. Any liability of the Company or any of its affiliates to any Participant with respect to a grant of cash, Common Stock, or rights thereto under the Plan shall be based solely upon any contractual obligations that may be created by the Plan and any Award Agreement; no such obligation of the Company or any of its affiliates shall be deemed to be secured by any pledge or other encumbrance on any property of the Company. Neither the Company nor the Board nor the Committee shall be required to give any security or bond for the performance of any obligation that may be created by the Plan. 13. Right of Discharge Reserved. Nothing in the Plan or in any Award shall confer upon any employee or other individual the right to continue in the employment or service of the Company or any affiliate of the Company or affect any right the Company or any affiliate of the Company may have to terminate the employment or service of any such employee or other individual at any time for any reason. 14. Nature of Payments. All Awards made pursuant to the Plan are in consideration of services performed for the Company or an affiliate of the Company. Any gain realized pursuant to such Awards constitutes a special incentive payment to the Participant and shall not be taken into account as compensation for purposes of any of the employee benefit plans of the Company or any affiliate of the Company. 15. Limited Stock Purchase Loans. During the period from the Effective Date to March 25, 1999, the Company may, with the approval of the Committee, make or guarantee loans to Participants who are officers of the rank of Vice President and above, for the purpose of purchasing Common Stock. Each such loan shall be for a maximum of five years, shall not exceed an amount equal to 50% of the Participant's annual base salary, and shall be subject to such conditions as the Committee may prescribe with respect to recourse, interest, security, and payment. 16. Notice. Any notice to the Company required by any of the provisions of the Plan shall be addressed to the chief human resources officer or to the Chief Executive Officer of the Company in writing and shall become effective when it is received by the office of either of them. 17. Governing Law. The Plan shall be governed by, construed and enforced in accordance with the laws of the State of Texas without regard to the conflicts of law provisions in any jurisdiction. 18. Effective and Termination Dates. The Plan shall become effective on January 1, 1999, subject to approval of the shareholders of the Company at the 1999 annual meeting of shareholders. The Plan shall terminate on December 31, 2008, unless sooner terminated by the Board, after which no Awards may be made under the Plan, but any such termination shall not affect Awards then outstanding or the authority of the Committee to continue to administer the Plan. APPENDIX B CERTAIN FEDERAL INCOME TAX ASPECTS The following is only a general summary of the federal income tax effects to the participant and the Company of stock options, restricted stock, and performance units to be granted under the New Plan. There are a number of special tax rules which may be applicable under certain circumstances. This discussion is based on the provisions of the Internal Revenue Code of 1986 as amended (the "Code"), and regulations and rulings in effect on the date of this Proxy Statement, all of which are subject to change at any time. This summary does not address state, local, or non-U.S. taxation of Awards under the New Plan, which may differ significantly from federal income tax rules and regulations. Stock Options. Options granted under the Plan may be either "incentive stock options," as defined in Section 422 of the Code, or "nonqualified options," which are options that do not meet the requirements of Section 422. To the extent that the aggregate fair market value of stock with respect to which incentive stock options are exercisable for the first time by any individual during any calendar year exceeds $100,000, such options shall be treated as nonqualified options. Incentive Stock Options. For Federal income tax purposes, the grant or exercise of an incentive stock option will not generally cause recognition of income by the optionee; however, the amount by which the fair market value of a share of common stock at the time of exercise of an incentive stock option exceeds the option price will be treated as an "item of adjustment" for purposes of the alternative minimum tax. In the event of a sale of the shares received upon exercise of an incentive stock option more than two years from the date of grant and more than one year from the date of exercise, any amount received in excess of the exercise price should qualify as long-term capital gain. However, if shares acquired pursuant to the exercise of an incentive stock option are sold by the optionee before the completion of such holding periods (and if the sale is a transaction with respect to which a loss, if sustained, would be recognized to the optionee), so much of the gain as does not exceed the difference between the option price and the lesser of the fair market value of the shares at the date of exercise or the fair market value at the date of disposition will be taxable as ordinary income for the taxable year in which the sale occurs. Any additional gain realized on the sale should qualify as a capital gain. In some cases, the exercise of an incentive stock option after termination of employment will not qualify for favorable tax treatment and will be treated for tax purposes as the exercise of a nonqualified stock option. If employment is terminated by reason of disability, the incentive stock option must be exercised within one year thereafter in order to qualify for favorable tax treatment. If employment is terminated for any other reason (except death), the incentive stock option must be exercised within three months thereafter in order to qualify for favorable tax treatment. Nonqualified Stock Options. For Federal income tax purposes, the grant of a nonqualified stock option should not result in recognition of income by the optionee. Upon exercise of a nonqualified stock option by an employee who is not an officer or director, the excess of the fair market value of the shares on the exercise date over the option price will be considered as compensation taxable as ordinary income. If, however, at the time of exercise of the option, the optionee is a director of the Company or an "officer" as defined in Rule 16a-1 of the Securities and Exchange Commission, and if the sale of the stock at a profit within six months could subject such person to suit under Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), the fair market value of the stock is determined, and the tax applicable thereto is incurred, at the end of such six-month period or at such earlier time as may be determined (i) by such person's election made within 30 days of the date of exercise to be taxed sooner, or (ii) by the occurrence of an event which causes Section 16(b) of the Exchange Act to become inapplicable to such person. In the event of a gain or loss realized upon the sale of the shares received upon exercise of a nonqualified stock option, the optionee will recognize long-term or short-term capital gain or loss, depending on the optionee's holding period for the shares. The amount of compensation income realized as a result of the exercise of nonqualified stock options is subject to income tax withholding by the Company. An optionee may be required to pay to the Company the amount of taxes required to be withheld even though no cash compensation has been received at the time of exercise. Performance Awards. The grant of performance awards under the Plan will not result in recognition of income to the holder of an award. Upon payment of a performance award, the amount paid (whether paid in cash or stock, or both) is taxable for Federal income tax purposes as ordinary income to the holder of the award. The Company is generally entitled to a tax deduction for the amount of such payment, and is required to withhold income taxes on such amount. If any part of the payment is made in stock to a director of the Company or an "officer" of the Company as defined in Rule 16a-1 of the Securities and Exchange Commission, and if the sale of the stock at a profit within six months could subject such person to suit under Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), the fair market value of the stock is determined, and the tax applicable thereto is incurred and the deduction allowed, at the end of such six-month period or at such earlier time as may be determined (i) by such person's election made within 30 days of the date of payment to be taxed sooner or (ii) by the occurrence of an event which causes Section 16(b) of the Exchange Act to become inapplicable to such person. Upon the sale of shares of common stock received in payment or in partial payment of a performance award, the participant realizes long-term or short- term capital gain or loss, and the Company receives no further tax deduction. Restricted Stock. In general, the grant of restricted stock is not taxable. Instead, at the time restricted stock vests, an employee will recognize ordinary income equal to (1) the excess of the fair market value of such restricted stock on the date the shares vest over (2) the price, if any, paid for the restricted stock. Dividends paid on the shares before they vest will be taxed as additional compensation to the employee. An employee may, however, elect to recognize income as of the date of grant of the restricted stock in an amount equal to (1) the excess of the fair market value of the restricted stock on the date of grant over (2) the price, if any, paid for the restricted stock. Such employee will not recognize a loss for tax purposes in the event of a subsequent forfeiture of the shares. Tax Consequences to the Company. With regard to nonqualified stock options, the Company will generally be entitled to a deduction for Federal income tax purposes at the same time and in the same amount as the ordinary income will be recognized by the optionee, provided that the amount of the compensation is reasonable and any Federal income tax reporting and withholding requirements are satisfied. With regard to incentive stock options, if the holding period requirements outlined above that pertain to an incentive stock option are satisfied, no deduction will be available to the Company either upon the grant or exercise of an incentive stock option. Under certain circumstances, the Company's deduction may also be limited by the provisions of Section 162(m) of the Code. Section 162(m) generally limits the Company's deduction for certain types of compensation paid to each of its Chief Executive Officer and its four highest compensated officers (other than the Chief Executive Officer) to no more than $1 million per year. Under the so-called "golden parachute" provisions of the Code, certain awards vested or paid in connection with a change of control may also be nondeductible by the Company and may be subject to an additional twenty percent (20%) federal excise tax. Nondeductible "parachute payments" will in general reduce the $1 million limit on deductible compensation described above. LUBY'S CAFETERIAS, INC. c/o American Stock Transfer & Trust Company 40 Wall Street, New York, New York 10005 This Proxy is Solicited on Behalf of the Board of Directors The undersigned hereby appoints Ralph Erben, John B. Lahourcade, George H. Wenglein, and John E. Curtis, Jr.,David B. Daviss, and each of them, as Proxies, each with the power to appoint his substitute, and hereby authorizes each of them to represent and to vote, as designated below, all the shares of Common Stock of Luby's Cafeterias, Inc. held on record by the undersigned on November 15, 1996,10, 1998, at the Annual Meeting of Shareholders to be held on January 14, 1997,8, 1999, or any adjournment thereof. [X] Please mark your votes as in this example. 1. ELECTION OF DIRECTORS [ ] FOR [ ] WITHHELD Nominees: John E. Curtis, Jr., Ralph Erben, Walter J. Salmon, Joanne WinikRonald K. Calgaard Judith B. Craven David B. Daviss Arthur R. Emerson Roger R. Hemminghaus For, except vote withheld from the following nominee(s): ________________________________________________________ 2. Proposal to amend the Certificate of Incorporation to change the corporate name to "Luby's, Inc." [ ] FOR [ ] AGAINST [ ] ABSTAIN 3. Proposal to approve the Luby's Incentive Stock Plan. [ ] FOR [ ] AGAINST [ ] ABSTAIN 4. Proposal to approve the appointment of Ernst & Young LLP as the independent public accountants of the corporation. [ ] FOR [ ] AGAINST [ ] ABSTAIN 5. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting. [ ] FOR [ ] AGAINST [ ] ABSTAIN This proxy when properly executed will be voted in the manner directed herein by the undersigned shareholder. If no direction is made, this proxy will be voted for proposals 1, 2, 3, and 3. [x] Please mark your votes as in this example. 1. Election of Directors [ ] FOR [ ] WITHHELD For, except vote withheld from the following nominee(s): _______________________________________________________ 2. Proposal to authorize restructuring of the Company into a holding company. [ ] FOR [ ] WITHHELD [ ] ABSTAIN 3. Proposal to approve the appointment of Ernst & Young LLP as the independent public accountants of the corporation. [ ] FOR [ ] WITHHELD [ ] ABSTAIN 4. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting. PLEASE MARK, SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED ENVELOPE. SIGNATURE _______________________________________________________________________ DATE _________________________________ SIGNATURE _______________________________________________________________________ DATE _________________________________ IF HELD JOINTLY Note: Please sign exactly as name appears. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee, or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person.