EXHIBIT 99
PROXY STATEMENT OF REGISTRANT
DATED SEPTEMBER 23, 1997
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as to the
number of shares of Common Stock of the Company beneficially
owned by the principal shareholders of the Company.
Beneficial Ownership
Number of
Name and Address Shares (1) Percent
The Capital Group Companies, Inc. 11,281,700 17.26%
333 South Hope Street
Los Angeles, California 90071
(1) As of June 30, 1997. Based on information contained in
Schedule 13G dated as of February 12, 1997, as supplemented via
telephone communication.
SECURITY OWNERSHIP OF MANAGEMENT
AND ELECTION OF DIRECTORS
Eleven (11) directors are to be elected at the meeting.
Each nominee will be elected to hold office until the next annual
meeting of the shareholders or until his or her successor is
elected and qualified. To be elected a director, each nominee
must receive a plurality of all of the votes cast at the meeting
for the election of directors. Should any nominee become unable
or unwilling to accept nomination or election, the proxy holders
may vote the proxies for the election, in his or her stead, of
any other person the Board of Directors may recommend. All
nominees have expressed their intention to serve the entire term
for which election is sought. The following table sets forth
certain information concerning security ownership of management
and nominees for election as directors of the Company:
Number of Shares Number Attributable to
of Common Stock Options Exercisable Percent
Beneficially Owned as Within 60 Days of of
Name as of September 8, 1997 (1)(2) September 8, 1997 Class
Norman E. Brinker 2,109,009 (3) 1,058,750 3.23%
Douglas H. Brooks 470,350 453,028 *
F. Lane Cardwell, Jr. 266,022 246,000 *
Gerard V. Centioli 334,462 (4) 30,000 *
Ronald A. McDougall 840,022 815,000 1.29%*
Debra L. Smithart 237,910 (5) 203,841 *
Roger F. Thomson 146,000 142,500 *
Daniel W. Cook, III -0- -0- *
Rae F. Evans 22,127 (6) 20,542 *
J.M. Haggar, Jr. 84,354 22,584 *
Frederick S. Humphries 10,317 9,667 *
Ronald Kirk -0- -0- *
Jeffrey A. Marcus -0- -0- *
James E. Oesterreicher 11,500 11,000 *
Roger T. Staubach 23,500 13,000 *
All executive officers
and directors as a
group (20 persons) 4,932,671 3,380,944 7.55%
* Less than one percent (1%)
(1) Beneficial ownership has been determined in accordance with
the rules of the Securities and Exchange Commission. Except as
noted, and except for any community property interests owned by
spouses, the listed individuals have sole investment power and
sole voting power as to all shares of stock of which they are
identified as being the beneficial owners.
(2) Includes shares of Common Stock which may be acquired by
exercise of exercisable options granted or vesting under the
Company's 1983 Incentive Stock Option Plan, the 1984 Non-
Qualified Stock Option Plan, the 1992 Incentive Stock Option Plan
and the 1991 Stock Option Plan for Non-Employee Directors and
Consultants, as applicable.
(3) Includes 20,250 shares of Common Stock held of record by a
family trust of which Mr. Brinker is trustee.
(4) Includes 2,000 shares of Common Stock held of record by a family
trust of which Mr. Centioli is trustee.
(5) Effective September 1, 1997, Ms. Smithart resigned from the
Board of Directors and from her position as Executive Vice
President and Chief Financial Officer of the Company.
(6) Includes 1,875 shares of Common Stock held of record by a
family trust of which Mrs. Evans is trustee.
The Company has established a guideline that all senior
officers of the Company own stock in the Company, believing that
it is important to further encourage and support an ownership
mentality among the senior officers that will continue to align
their personal financial interests with the long-term interests
of the Company's shareholders. Pursuant to the guideline, the
minimum amount of Company Common Stock that a senior officer will
be required to own will be determined by such officer's position
within the Company as well as annual compensation. The Company
has established a program with a third-party lender pursuant to
which the senior officers will be able to obtain financing for
purposes of attaining the minimum stock ownership levels referred
to above. Any loans obtained by such senior officers to finance
such stock acquisitions are facilitated by the Company pursuant
to an agreement in which the senior officer pledges the
underlying stock and future incentive payments which may be
receivable from the Company as security for the loan.
DIRECTORS AND EXECUTIVE OFFICERS
Directors
A brief description of each person nominated to become a
director of the Company is provided below. Except for Daniel W.
Cook, III, all nominees are currently serving as directors of the
Company. Each of the current directors were elected at the last
annual meeting of the Company's shareholders held on November 7,
1996, except Ronald Kirk and Jeffrey A. Marcus, both of whom were
appointed to the Board of Directors in January 1997.
Norman E. Brinker, 66, served as Chairman of the Board of
Directors and Chief Executive Officer of the Company from
September 1983 to June 1995, with the exception of a brief period
during which Mr. Brinker was incapacitated due to an injury.
Mr. Brinker continues to serve as Chairman of the Board of
Directors. Mr. Brinker is a member of the Nominating Committee
of the Company. He was the founder of S&A Restaurant Corp.,
having served as its President from February 1966 through May
1977 and as its Chairman of the Board of Directors and Chief
Executive Officer from May 1977 through July 1983. From June
1982 through July 1983, Mr. Brinker served as Chairman of the
Board of Directors and Chief Executive Officer of Burger King
Corporation, while simultaneously occupying the position of
President of The Pillsbury Company Restaurant Group. Mr. Brinker
currently serves as a member of the Board of Directors of Haggar
Clothing Company.
Ronald A. McDougall, 55, was elected President and Chief
Executive Officer of the Company in June 1995 having formerly
held the office of President and Chief Operating Officer since
1986. Mr. McDougall joined the Company in 1983 and served as
Executive Vice President - Marketing and Strategic Development
until his promotion to President. Prior to joining the Company,
Mr. McDougall held senior management positions at Proctor and
Gamble, Sara Lee, The Pillsbury Company and S&A Restaurant Corp.
Mr. McDougall has served as a member of the Board of Directors of
the Company since September 1983 and is a member of the Executive
and Nominating Committees of the Company. Mr. McDougall serves on
the Board of Directors of Excel Communications, Inc.
Gerard V. Centioli, 43, was elected Senior Vice President -
Emerging Concepts President in April 1997. Mr. Centioli joined
the Company as Senior Vice President - Maggiano's/Corner Bakery
Concepts President in August 1995 and was named Senior Vice
President - Italian Concepts President in January 1996.
Mr. Centioli previously served as Senior Partner of Lettuce
Entertain You Enterprises, Inc. and President and Chief Executive
Officer of the Maggiano's Little Italy and The Corner Bakery
Divisions. Prior to joining Lettuce Entertain You Enterprises,
Inc. in 1984, Mr. Centioli served as Vice President - Division
President of Collins Foods International, Inc. Mr. Centioli has
served as a member of the Board of Directors of the Company since
November 1995.
Daniel W. Cook, III, 62, is a limited partner with The
Goldman Sachs Group, L.P. Mr. Cook started with The Goldman
Sachs Group, L.P. in 1961 and was a partner when he retired in
1992. Mr. Cook also serves on the Board of Directors for Centex
Corporation. Mr. Cook is a member of the Board of Trustees of
Southern Methodist University as well as Vice-Chair of the Edwin
L. Cox School of Business Executive Board.
Rae F. Evans, 49, is currently President of Rae Evans &
Associates, a firm specializing in Washington corporate
strategies. From 1982 until January 1995, Mrs. Evans held the
title of Vice President, National Affairs of Hallmark Cards, Inc.
Mrs. Evans is a member of the Nominating and Audit Committees of
the Company and has served as a member of the Board of Directors
since January 1990. She is a member of the Business Government
Relations Council and is a past president of that organization.
She is a member of The Board of Directors of the National Women's
Museum, the Meridian International House and a member of the
Economic Club of Washington. Mrs. Evans is also a member of the
Catalyst Board of Advisors and the National Women's Economic
Alliance. Mrs. Evans also serves on the Board of Directors of
Haggar Clothing Company.
J. M. Haggar, Jr., 72, is currently the owner of J.M.
Haggar, Jr. Investments, a business he has operated since
retiring as Chairman of the Board of Directors of Haggar Clothing
Company in February 1995. Mr. Haggar previously held the
positions of President and Chief Executive Officer of Haggar
Clothing Company until 1991. Mr. Haggar is a member of the
Compensation and Audit Committees of the Company and has served
as a member of the Company's Board of Directors since April 1985.
Frederick S. Humphries, 61, is the President of Florida A&M
University in Tallahassee, Florida having held this position
since 1985. Prior to joining Florida A&M University,
Dr. Humphries was President of Tennessee State University in
Nashville for over 10 years. Dr. Humphries serves as Chairman of
the State Board of Education Advisory Committee on the Education
of Blacks in Florida and Chairman of the Board of Regents, Five-
Year Working Group for Agriculture, State University System of
Florida, in addition to being involved in various civic and
community activities. Mr. Humphries has served on the Board of
Directors of the Company since May 1994 and is a member of the
Audit Committee of the Company. He is also a member of the Board
of Directors of Wal-Mart, Inc.
Ronald Kirk, 43, is currently Mayor of the City of Dallas
and a partner in the law firm of Gardere & Wynne. He was elected
Mayor in 1995, and previously served as Secretary of State of the
State of Texas from 1994 to 1995. Mr. Kirk was engaged in the
private practice of law from 1989 to 1994, served as an Assistant
City Attorney for Dallas from 1983 to 1989 and as a legislative
aide to U.S. Senator Lloyd Bentsen from 1983 to 1989. Mayor Kirk
is an honors graduate of Austin College and earned his law degree
from The University of Texas. Mayor Kirk was appointed to the
Board of Directors in January 1997 and is a member of the
Nominating Committee of the Company.
Jeffrey A. Marcus, 50, is currently Chairman, President and
Chief Executive Officer of Marcus Cable, with headquarters in
Dallas. He formed the company in 1990 after spending more than
20 years in the cable television industry, a career Mr. Marcus
embarked upon while a student at the University of California at
Berkeley. Mr. Marcus is one of the owners of the Texas Rangers
Baseball Club and is active in several civic and charitable
organizations. Mr. Marcus was appointed to the Board of
Directors in January 1997 and is a member of the Executive
Committee of the Company.
James E. Oesterreicher, 56, is the Chairman of the Board and
Chief Executive Officer of J.C. Penney Company, Inc., having been
elected to the position of Chairman in January 1997 and to the
position of Chief Executive Officer in January 1995.
Mr. Oesterreicher served as Vice Chairman of the Board from 1995
to 1997, as President of JCPenney Stores and Catalog from 1992 to
1995 and as Director of JCPenney Stores from 1988 to 1992.
Mr. Oesterreicher has been with the J.C. Penney Company since
1964 where he started as a management trainee. He serves as a
Director for various entities, including Texas Utilities Company,
Presbyterian Healthcare Systems, National Retail Federation,
Circle Ten Council--Boy Scouts of America, National 4-H Council,
National Organization on Disability and March of Dimes Birth
Defects Foundation. He also serves as a member of the Policy
Committee of the Business Roundtable. Mr. Oesterreicher has
served as a member of the Board of Directors of the Company since
May 1994 and is a member of the Compensation and Nominating
Committees of the Company.
Roger T. Staubach, 55, has been Chairman of the Board and
Chief Executive Officer of The Staubach Company, a national real
estate company specializing in tenant representation, since 1982.
He has served as a member of the Board of Directors of the
Company since May 1993 and is a member of the Executive and
Compensation Committees of the Company. Mr. Staubach is a 1965
graduate of the U.S. Naval Academy and served four years in the
Navy as an officer. In 1968, he joined the Dallas Cowboys
professional football team as quarterback and was elected to the
National Football League Hall of Fame in 1985. He currently
serves on the Board of Directors of Halliburton Company, American
AAdvantage Funds and Columbus Realty Trust and is active in
numerous civic, charity and professional organizations.
Executive Officers
The following persons are executive officers of the Company
who are not nominated to serve on the Company's Board of
Directors:
Douglas H. Brooks, 45, joined the Company as an Assistant
Manager in February 1978 and was promoted to General Manager in
April 1978. In March 1979, Mr. Brooks was promoted to Area
Supervisor and in May 1982 to Regional Director. He was again
promoted in March 1987 to Senior Vice President-Central Region
Operations and to the position of Concept Head and Senior Vice
President-Chili's Operations in June 1992. Mr. Brooks was
promoted to his current position of Senior Vice President -
Chili's Grill & Bar Concept President in June 1994.
F. Lane Cardwell, Jr., 45, was elected Executive Vice
President - Eatzi's Concept President in June 1996, having
formerly held the positions of Executive Vice President -
Strategic Development from June 1992 until October 1995 and
Executive Vice President and Chief Administrative Officer from
October 1995 until June 1996. Mr. Cardwell joined the Company as
Vice President - Strategic Development in August 1988 and became
Senior Vice President - Strategic Development in December 1990.
Before joining the Company, Mr. Cardwell was employed by S&A
Restaurant Corp. in various capacities from November 1978 to
August 1988. Mr. Cardwell served as a member of the Board of
Directors of the Company from 1991 to 1996.
Leslie Christon, 43, was elected Senior Vice President - On
The Border President in April 1997, having previously served as
Vice President of Operations/On The Border since joining the
Company in July 1996. Prior to this time, Ms. Christon held the
position of Senior Vice President of Operations of Red Lobster
Restaurants from November 1994 to June 1996 and she was with El
Chico from June 1981 to November 1994. Ms. Christon serves on
the Board of Directors of the Women's Foodservice Forum and is
the past president of the Roundtable for Women in Foodservice,
Inc.
Kenneth D. Dennis, 44, joined the Company as a Manager in
November 1976 and was promoted to General Manager in June 1978.
In February 1979, he became Director of Internal Systems and in
September 1983 became Director of Marketing. Mr. Dennis was
promoted to Vice President of Marketing in August 1986 and to
Senior Vice President of Marketing in August 1993. In February
1997, Mr. Dennis became Senior Vice President-Chief Operating
Officer of Cozymel's and was elected to Senior Vice President-
Cozymel's President in September 1997. Mr. Dennis serves on the
Board of Directors of the Marketing Executives Group and is the
past Co-Chairman.
Carol E. Kirkman, 40, was appointed Executive Vice President
of Human Resources in June 1997 after serving as Senior Vice
President of Human Resources since April 1996. Ms. Kirkman
joined the Company as Corporate Counsel in 1990 and was promoted
to Vice President/Assistant General Counsel in 1994. Ms. Kirkman
was an attorney in private practice in Dallas, Texas from 1982
until 1987 and worked as a commercial and retail real estate
broker in southern California from 1987 until 1990.
John C. Miller, 42, joined the Company as Vice President-
Special Concepts in September 1987. In October 1988, he was
elected as Vice President-Joint Venture/Franchise and served in
this capacity until August 1993 when he was promoted to Senior
Vice President-New Concept Development. Mr. Miller was named
Senior Vice President - Mexican Concepts in September 1994 and
was subsequently elected as Senior Vice President - Mexican
Concepts President in October 1995. In April 1997, Mr. Miller
was elected Senior Vice President - Romano's Macaroni Grill
President. Mr. Miller worked in various capacities with the Taco
Bueno Division of Unigate Restaurants prior to joining the
Company.
Russell G. Owens, 38, joined the Company in 1983 as
Controller. He was elected Vice President of Planning in 1986
and Vice President of Operations Analysis in 1991. Mr. Owens was
promoted to Senior Vice President of Operations Analysis in 1993
and was named Senior Vice President of Strategic Development -
Italian Concepts in 1996. Mr. Owens was elected Executive Vice
President and Chief Strategic Officer in June 1997 and assumed
the position of Chief Financial Officer in September 1997. Prior
to joining the Company, Mr. Owens worked for the public
accounting firm Deloitte & Touche.
Roger F. Thomson, 48, joined the Company as Senior Vice
President, General Counsel and Secretary in April 1993 and was
promoted to Executive Vice President, General Counsel and
Secretary in March 1994. In June 1996, Mr. Thomson was promoted
to the position of Executive Vice President, Chief Administrative
Officer, General Counsel and Secretary and was a Director of the
Company from 1993 until 1995. From 1988 until April 1993,
Mr. Thomson served as Senior Vice President, General Counsel and
Secretary for Burger King Corporation. Prior to 1988,
Mr. Thomson spent ten years at S & A Restaurant Corp. where he
was Executive Vice President, General Counsel and Secretary.
Classes of Directors
For purposes of determining whether non-employee directors
will be nominated for reelection to the Board of Directors, the
non-employee directors have been divided into four classes. Each
non-employee director will continue to be subject to reelection
by the shareholders of the Company each year. However, after a
non-employee director has served on the Board of Directors for
four years, such director shall be deemed to have been advised by
the Nominating Committee that he or she will not stand for
reelection at the subsequent annual meeting of shareholders and
shall be considered a "Retiring Director". Notwithstanding this
policy, the Nominating Committee may determine that it is
appropriate to renominate any or all of the Retiring Directors
after first considering the appropriateness of nominating new
candidates for election to the Board of Directors. The four
classes of non-employee directors are as follows: Messrs.
Humphries and Oesterreicher and Mrs. Evans comprise Class 1 and
will be considered Retiring Directors as of the annual meeting of
shareholders following the end of the 1998 fiscal year. There
are no members of Class 2. Messrs. Haggar, Kirk and Marcus
comprise Class 3 and will be considered Retiring Directors as of
the annual meeting of shareholders following the end of the 2000
fiscal year. Messrs. Cook and Staubach comprise Class 4 and will
be considered Retiring Directors as of the annual meeting of
shareholders following the end of the 2001 fiscal year.
Committees of the Board of Directors
The Board of Directors of the Company has established an
Executive Committee, Audit Committee, Compensation Committee, and
Nominating Committee. The Executive Committee (currently
comprised of Messrs. McDougall, Marcus, and Staubach) met four
(4) times during the fiscal year and has authority to act for the
Board on most matters during the intervals between Board
meetings.
All of the members of the Audit and Compensation Committees
are directors independent of management who are not and never
have been officers or employees of the Company. The Audit
Committee is currently comprised of Messrs. Haggar and Humphries
and Mrs. Evans and the Committee met five (5) times during the
fiscal year. Included among the functions performed by the Audit
Committee are: the review with independent auditors of the scope
of the audit and the results of the annual audit by the
independent auditors; consideration and recommendation to the
Board of the selection of the independent auditors for the next
year; the review with management and the independent auditors of
the annual financial statements of the Company; and the review of
the scope and adequacy of internal audit activities.
The Compensation Committee is currently comprised of
Messrs. Haggar, Oesterreicher and Staubach and it met six (6)
times during the fiscal year. Functions performed by the
Compensation Committee include: ensuring the effectiveness of
senior management and management continuity, ensuring the
reasonableness and appropriateness of senior management
compensation arrangements and levels, the adoption, amendment and
administration of stock-based incentive plans (subject to
shareholder approval where required), management of the various
stock option plans of the Company, approval of the total number
of available shares to be used each year in stock-based plans,
approval of the adoption and amendment of significant
compensation plans and approval of all compensation actions for
officers, particularly at and above the level of executive vice
president. The specific nature of the Committee's
responsibilities as it relates to executive officers is set forth
below under "Report of the Compensation Committee."
The purpose of the Nominating Committee is to recommend to
the Board of Directors potential non-employee members to be added
as new or replacement members to the Board of Directors. The
Nominating Committee will consider a shareholder-recommended
nomination for director to be voted upon at the 1998 annual
meeting of shareholders provided that the recommendation must be
in writing, set forth the name and address of the nominee,
contain the consent of the nominee to serve, and be submitted on
or before May 26, 1998. The Nominating Committee is composed of
Messrs. Brinker, Kirk, McDougall and Oesterreicher and Mrs. Evans
and it met four (4) times during the fiscal year.
Directors' Compensation
Directors who are not employees of the Company receive
$1,000 for each meeting of the Board of Directors attended and
$1,000 for each meeting of any committee of the Board of
Directors attended. The Company also reimburses directors for
costs incurred by them in attending meetings of the Board.
Directors who are not employees of the Company receive
grants of stock options under the Company's 1991 Stock Option
Plan for Non-Employee Directors and Consultants. A new director
who is not an employee of the Company will receive as
compensation (a) 20,000 stock options at the beginning of such
director's term, and (b) an annual cash payment of $36,000, at
least 25% of which must be taken in the form of stock options.
If a director is appointed to the Board of Directors at any time
other than at an annual meeting of shareholders, the director
will receive a prorated portion of the annual cash compensation
for the period from the date of election or appointment to the
Board of Directors until the meeting of the Board of Directors
held contemporaneous with the next annual meeting of
shareholders. If a director elects to receive cash, the first
payment will be made at the Board of Directors' meeting held
contemporaneous with the next annual meeting of shareholders.
The stock options will be granted as of the 60th day following
such meeting (or if the 60th day is not a business day, on the
first business day thereafter) at the fair-market value on the
date of grant. One-third (1/3) of the options will vest on each
of the second, third and fourth anniversaries of the date of
grant. If a director is a Retiring Director who is being
nominated for an additional term on the Board of Directors, each
such renominated director will receive an additional grant of
10,000 stock options at the beginning of such director's new
term.
For purposes of applying this compensation program to the
current non-employee directors of the Company, the previous
compensation program was blended with this compensation program
in order to determine annual compensation payable to non-employee
directors until such directors become Retiring Directors and
leave the board or are approved by the Nominating Committee to
serve for an additional four years. Mrs. Evans previously has
received a grant of 15,000 stock options and will receive an
annual cash retainer of $16,000; Dr. Humphries previously has
received a grant of 15,000 stock options and will receive an
annual cash retainer of $16,000; Mr. Oesterreicher previously has
received a grant of 15,000 stock options and will receive an
annual cash retainer of $6,000; Mr. Staubach previously has
received a grant of 10,000 stock options and has received an
annual cash retainer of $6,000. If Mr. Cook is elected to the
Board of Directors, he will be compensated according to the new
compensation plan. As Mr. Staubach is currently a Retiring
Director, if he is re-elected to the Board of Directors, he will
be compensated according to the new compensation plan. Messrs.
Haggar, Kirk and Marcus are being compensated according to the
new compensation plan.
During the year ended June 25, 1997, the Board of Directors
held seven (7) meetings; each incumbent director attended 75% of
the aggregate total of meetings of the Board of Directors and
Committees on which he or she served.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the
annual compensation for the Company's five highest compensated
executive officers, including the Chief Executive Officer, whose
salary and bonus exceeded $100,000 in fiscal 1997.
Summary Compensation Table
Long-Term Compensation
Awards Payouts
Securities Long-Term
Name and Annual Compensation Underlying Incentive All Other
Principal Position Year Salary Bonus Options Payouts Compensation (1)
Ronald A. McDougall
President and Chief 1997 $ 825,000 $ 396,000 200,000 $ 67,289 $ 29,194
Executive Officer 1996 $ 744,808 $ -0- 375,000 $ 69,860 $ 18,396
1995 $ 574,038 $ 278,839 125,000 $ 86,565 $ 50,555
Debra L. Smithart
Executive Vice 1997 $ 350,000 $ 115,500 50,000 $ 40,374 $ 11,225
President and Chief 1996 $ 304,423 $ -0- 90,000 $ 46,574 $ 6,828
Financial Officer(2) 1995 $ 264,038 $ 95,714 30,000 $ 63,481 $ 11,805
Douglas H. Brooks
Senior Vice President 1997 $ 333,654 $ 120,462 50,000 $ 33,645 $ 20,818
- Chili's Grill & Bar 1996 $ 311,058 $ -0- 90,000 $ 31,049 $ 12,830
Concept President 1995 $ 266,249 $ 77,212 30,000 $ 40,397 $ 15,636
F. Lane Cardwell, Jr.
Executive Vice 1997 $ 320,000 $ 105,600 3,000 $ 40,374 $ 23,845
President - Eatzi's 1996 $ 290,385 $ -0- 90,000 $ 46,574 $ 15,007
Concept President 1995 $ 224,422 $ 81,353 30,000 $ 63,481 $ 19,236
Roger F. Thomson
Executive Vice 1997 $ 317,231 $ 104,940 50,000 $ 40,374 $ 16,680
President, Chief 1996 $ 256,827 $ -0- 90,000 $ 31,049 $ 6,641
Administrative Officer,1995 $ 227,019 $ 82,294 30,000 $ -0- $ 13,024
General Counsel and
Secretary
(1) All other compensation represents Company match on deferred compensation.
(2) Ms. Smithart resigned from her position as Executive Vice President and
Chief Financial Officer effective September 1, 1997.
Option Grants During 1997 Fiscal Year
The following table contains certain information concerning
the grant of stock options pursuant to the Company's 1992
Incentive Stock Option Plan to the executive officers named in
the above compensation table during the Company's last fiscal
year:
% of Total Realizable Value of
Options Assumed Annual Rates of
Granted to Stock Price Appreciation
Options Employees in Exercise or Expiration for Option Term (1)
Name Granted Fiscal Year Base Price Date 5% 10%
Ronald A. McDougall 200,000 10.85% $11.125 2/6/07 $1,399,291 $3,546,077
Debra L. Smithart 50,000 2.71% $11.125 2/6/07 $ 349,823 $ 886,519
Douglas H. Brooks 50,000 2.71% $11.125 2/6/07 $ 349,823 $ 886,519
F. Lane Cardwell, Jr. 3,000 0.16% $11.125 2/6/07 $ 20,989 $ 53,191
Roger F. Thomson 50,000 2.71% $11.125 2/6/07 $ 349,823 $ 886,519
(1) The dollar amounts under these columns are the result of calculations
at the 5% and 10% rates set by the Securities and Exchange
Commission and, therefore, are not intended to forecast possible
future appreciation, if any, of the Company's stock price.
Stock Option Exercises and Fiscal Year-End Value Table
The following table shows stock option exercises by the
named officers during the last fiscal year, including the
aggregate value of gains on the date of exercise. In addition,
this table includes the number of shares covered by both
exercisable and non-exercisable stock options at fiscal year-end.
Also reported are the values for "in-the-money" options which
represent the position spread between the exercise price of any
such existing options and the $14.00 fiscal year-end price of the
Company's Common Stock.
Shares Value of Unexercised
Acquired Number of Unexercised In-the-Money Options at
On Value Options at Fiscal Year End Fiscal Year End
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Ronald A. McDougall -0- -0- 658,750 731,250 $ 396,653 $1,075,000
Debra L. Smithart -0- -0- 166,341 177,500 $ 15,838 $ 263,750
Douglas H. Brooks 5,700 $78,643 419,278 173,750 $2,673,559 $ 263,750
F. Lane Cardwell, Jr. -0- -0- 208,500 130,500 $ 245,005 $ 128,625
Roger F. Thomson -0- -0- 105,000 177,500 $ -0- $ 263,750
Long-Term Executive Profit Sharing Plan and Awards
Executives of the Company participate in the Long-Term
Executive Profit Sharing Plan. See "Report of the Compensation
Committee -- Long-Term Incentives" for more information regarding
this plan. The following table represents awards granted in the
last fiscal year under the Long-Term Executive Profit Sharing
Plan.
Number of Estimated Future Payouts
Name Units Awarded Under Non-Stock Based Plans
(Dollars)
Threshold Target Maximum
Ronald A. McDougall 1,000 $66,667 $100,000 *
Debra L. Smithart 750 $50,000 $ 75,000 *
Douglas H. Brooks 600 $40,000 $ 60,000 *
F. Lane Cardwell, Jr. 750 $50,000 $ 75,000 *
Roger F. Thomson 750 $50,000 $ 75,000 *
* There is no maximum future payout under the Long-Term
Executive Profit Sharing Plan.
REPORT OF THE COMPENSATION COMMITTEE
Compensation Philosophy
The executive compensation program is designed as a tool to
reinforce the Company's strategic principles -- to be a premier
and progressive growth company with a balanced approach towards
people, quality and profitability and to enhance long-term
shareholder value. To this end, the following principles have
guided the development of the executive compensation program:
Provide competitive levels of compensation to attract and
retain the best qualified executive talent. The Committee
strongly believes that the caliber of the Company's
management group makes a significant difference in the
Company's sustained success over the long term.
Embrace a pay-for-performance philosophy by placing
significant amounts of compensation "at risk" -- that is,
compensation payouts to executives must vary according to
the overall performance of the Company.
Directly link executives' interests with those of
shareholders by providing opportunities for long-term
incentive compensation based on changes in shareholder
value.
The executive compensation program is intended to
appropriately balance the Company's short-term operating goals
with its long-term strategy through a careful mix of base salary,
annual cash incentives and long-term performance compensation
including cash incentives and incentive stock options.
Base Salaries
Executives' base salaries and total compensation are
targeted to be competitive at the 75th percentile of the market
for positions of similar responsibility and scope at the Vice
President and Senior Vice President levels and, to reflect the
exceptionally high level of executive talent required to execute
the growth plans of the Company, between the 75th and 90th
percentile of the market for the Chief Executive Officer,
Executive Vice Presidents, and Concept Heads. Positioning
executives' base salaries at these levels is needed for
attracting, retaining and motivating executives with the
essential qualifications for managing the Company's growth. The
Company defines the relevant labor market for such executive
talent through the use of reliable executive salary surveys that
reflect both the chain restaurant industry as well as a broader
cross-section of high growth companies from many industries.
Individual base salary levels are determined by considering each
officer's level of responsibility, performance, experience, and
tenure. The overall amount of base salary increases awarded to
executives reflects the financial performance of the Company,
individual performance and potential, and/or changes in an
officer's duties and responsibilities.
Annual Incentives
The Company's Profit Sharing Plan is a non-qualified annual
incentive arrangement in which all Dallas-based corporate
employees, including executives, participate. The program is
designed to reflect employees' contribution to the growth of the
Company's common stock value by increasing the earnings of the
Company. The plan reinforces a strong teamwork ethic by making
the basis for payouts to executives the same as for all other
Company employees.
At the beginning of a fiscal year, each executive is
assigned an Individual Participation Percentage ("IPP") which is
tied to the base salary for such executive and targets overall
total cash compensation for executives between the 75th and 90th
percentiles of the market. The IPPs reflect the Committee's
desire that a significant percentage of executives' total
compensation be derived from variable pay programs.
401(k) Savings Plan and Savings Plan II
On January 1, 1993, the Company implemented the 401(k)
Savings Plan ("Plan I") and Savings Plan II ("Plan II"). These
Plans are designed to provide the Company's salaried employees
with a tax-deferred long-term savings vehicle. The Company
provides a matching contribution equal to 25% of a participant's
contribution, up to a maximum of 5% of such participant's
compensation.
Plan I is a qualified 401(k) plan. Participants in Plan I
elect the percentage of pay they wish to contribute as well as
the investment alternatives in which their contributions are to
be invested. The Company's matching contribution for all Plan I
participants is made in Company common stock. All participants
in Plan I are considered non-highly compensated employees as
defined by the Internal Revenue Service. Participants'
contributions vest immediately while Company contributions vest
25% annually, beginning in the participant's second year of
eligibility since Plan I inception.
Plan II is a non-qualified deferred compensation plan.
Plan II participants elect the percentage of pay they wish to
defer into their Plan II account. They also elect the percentage
of their deferral account to be allocated among various
investment options. The Company's matching contribution for all
non-officer Plan II participants is made in Company common stock,
with corporate officers receiving a Company match in cash.
Participants in Plan II are considered highly compensated
employees according to the Internal Revenue Service. A
participant's contributions vest immediately while Company
contributions vest 25% annually, beginning in the participant's
second year of eligibility since Plan II inception.
Long-Term Incentives
All salaried employees of the Company, including executives,
are eligible for annual grants of tax-qualified stock options.
By tying a significant portion of executives' total opportunity
for financial gain to increases in shareholder wealth as
reflected by the market price of the Company's common stock,
executives' interests are closely aligned with shareholders' long-
term interests. In addition, because the Company does not
maintain any qualified retirement programs for executives, the
stock option plan is intended to provide executives with
opportunities to accumulate wealth for later retirement.
Stock options are rights to purchase shares of the Company's
Common Stock at the fair market value on the date of grant.
Grantees do not receive a benefit from stock options unless and
until the market price of the Company's common stock increases.
Fifty percent (50%) of a stock option grant becomes exercisable
two years after the grant date; the remaining 50% of a grant
becomes exercisable three years after the grant date.
The number of stock options granted to an executive is based
on grant guidelines that reflect an officer's position within the
Company. The Compensation Committee reviews and approves grant
amounts for executives.
Executives also participate in the Long-Term Executive
Profit Sharing Plan, a non-qualified long-term performance cash
plan. This plan provides an additional mechanism for focusing
executives on the sustained improvement in operating results over
the long term. This is a performance-related plan using
overlapping three-year cycles paid annually. Performance units
(valued at $100 each) are granted to individuals and paid in cash
based upon the Company's attainment of predetermined performance
objectives. Long-term operating results are measured by
evaluating both pre-tax net income (weighted 70%) and changes in
shareholders' equity (weighted 30%) over three-year cycles. The
Long-Term Executive Profit Sharing Plan has been replaced by the
Long-Term Performance Share Plan commencing with the cycle which
includes fiscal years 1998, 1999, and 2000. The Long-Term
Performance Share Plan is based on the Company's total
shareholder return in comparison to the S&P 500 Index and the S&P
Restaurant Industry Index. For executives to receive the target
payout, the Company must perform at the 75th percentile of each
index over the three-year cycle and must average at least 90% of
its planned annual profit before taxes over the same three-year
cycle.
Pay/Performance Nexus
The Company's executive compensation program has resulted in
a direct relationship between the compensation paid to executive
officers and the Company's performance. See "Five-Year Total
Shareholder Return Comparison" below.
CEO Compensation
The Compensation Committee made decisions regarding Mr.
McDougall's compensation package according to the guidelines
discussed in the preceding sections. Mr. McDougall was awarded a
salary increase in the amount of 3%, effective June 26, 1997, to
recognize his vast experience in the restaurant industry, the
Company's performance under his leadership and his significant
contributions to the Company's continued success. Mr. McDougall
was granted 1,000 units under the Long-Term Executive Profit
Sharing Plan for the cycle which includes fiscal years 1997,
1998, and 1999. Mr. McDougall was also awarded 200,000 stock
options under the Company's stock option plan. Approximately
30.1% of Mr. McDougall's compensation for 1997 was incentive pay
pursuant to the Company's Profit Sharing Plan. Like all Company
executives, Mr. McDougall's compensation is significantly
affected by the Company's performance. In the 1997 fiscal year,
Mr. McDougall's total compensation increased 58.1% from its level
in the 1996 fiscal year.
Federal Income Tax Considerations
The Compensation Committee has considered the impact of
Section 162(m) of the Internal Revenue Code adopted under the
Omnibus Budget Reconciliation Act of 1993. This section
disallows a tax deduction for any publicly-held corporation for
individual compensation to certain executives of such corporation
exceeding $1,000,000 in any taxable year, unless compensation is
performance-based. It is the intent of the Company and the
Compensation Committee to qualify to the maximum extent possible
its executives' compensation for deductibility under applicable
tax laws. The Compensation Committee believes that the Company's
compensation programs provide the necessary incentives and
flexibility to promote the Company's performance-based
compensation philosophy while being consistent with Company
objectives.
The Compensation Committee's administration of the executive
compensation program is in accordance with the principles
outlined at the beginning of this report. The Company's
financial performance supports the compensation practices
employed during the past year.
Respectfully submitted,
COMPENSATION COMMITTEE
J.M. HAGGAR, JR.
JAMES E. OESTERREICHER
ROGER T. STAUBACH