SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
THE KRYSTAL COMPANY
- - ---------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - ---------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
- - ---------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
- - ---------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
- - ---------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
- - ---------------------------------------------------------------------------
[ ] 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:
- - ---------------------------------------------------------------------------
THE KRYSTAL COMPANY
One Union Square
Chattanooga, Tennessee 37402
April 11, 1997
Dear Shareholder:
You are cordially invited to attend The Krystal Company's Annual Meeting
of Shareholders to be held at 10:00 a.m., Thursday, May 8, 1997, at the
Marriott Hotel at the Chattanooga-Hamilton County Convention & Trade Center,
Two Carter Plaza, Chattanooga, Tennessee.
At the meeting you will have an opportunity to discuss each item of
business described in the Notice of Annual Meeting and Proxy Statement and to
ask questions about the Company and its operations.
To make certain your shares are represented at the meeting, whether or
not you plan to attend, please sign and return the enclosed proxy card, using
the envelope provided. If you attend the meeting, you may vote your shares
in person, even though you have previously signed and returned your proxy.
Sincerely,
/s/Carl D. Long
-------------------------
Carl D. Long
Chairman of the Board of Directors
and Chief Executive Officer
THE KRYSTAL COMPANY
One Union Square
Chattanooga, Tennessee 37402
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 8, 1997
To the Shareholders of The Krystal Company:
The Annual Meeting of Shareholders of The Krystal Company (the "Company")
will be held at 10:00 a.m., Thursday, May 8, 1997, at the Marriott Hotel at
the Chattanooga-Hamilton County Convention & Trade Center, Two Carter Plaza,
Chattanooga, Tennessee, for the following purposes:
1. To elect two Directors for ensuing three-year terms;
2. To consider an amendment to the Company's Amended and Restated
1990 Restricted Stock Plan to increase the number of shares of
Common Stock authorized and reserved for issuance thereunder from
1,100,000 to 2,500,000;
3. To consider an amendment to the Company's Stock Incentive Plan to
increase the number of shares issuable upon exercise of options
from 1,100,000 to 2,500,000;
4. To ratify the appointment of Arthur Andersen LLP as independent
public accountants for the 1997 fiscal year; and
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The close of business on Thursday, March 20, 1997 has been fixed as the
record date for the determination of shareholders entitled to notice of and
to vote at the meeting and any adjournment thereof.
A copy of The Krystal Company Annual Report for the 1996 fiscal year is
being mailed to shareholders with this Notice and Proxy Statement.
Whether or not you plan to attend the meeting, please mark, date and
sign the accompanying proxy and promptly return it in the enclosed envelope.
If you attend the meeting, you may vote your shares in person, even though
you have previously signed and returned your proxy.
By Order of the Board of Directors,
/s/Camden B. Scearce
-------------------------
Camden B. Scearce
Secretary
April 11, 1997
THE KRYSTAL COMPANY
One Union Square
Chattanooga, Tennessee 37402
---------------
PROXY STATEMENT
---------------
This proxy statement is furnished in connection with the solicitation by
the Board of Directors of The Krystal Company (the "Company") of proxies to
be voted at the Annual Meeting of Shareholders of the Company (the "Annual
Meeting") to be held at 10:00 a.m. on Thursday, May 8, 1997, at the Marriott
Hotel at the Chattanooga-Hamilton County Convention & Trade Center, Two
Carter Plaza, Chattanooga, Tennessee. This proxy statement and the proxies
solicited hereby are first being sent or delivered to shareholders on or
about April 11, 1997.
The Company will bear the cost of solicitation of proxies and will
reimburse brokers, custodians, nominees and fiduciaries for their reasonable
expenses in sending solicitation material to the beneficial owners of the
Company's shares. In addition to soliciting proxies through the mail,
proxies may also be solicited by officers and employees of the Company by
telephone or otherwise.
Only shareholders of record at the close of business on March 20, 1997
will be entitled to vote at the Annual Meeting. The common stock of the
Company without par value (the "Common Stock") is the only authorized and
outstanding class of stock, and as of March 20, 1997, the record date for the
Annual Meeting, there were 7,478,568 shares of Common Stock of the Company
issued, outstanding and entitled to one vote each.
PROPOSAL 1: ELECTION OF DIRECTORS
The Board of Directors currently consists of five members divided into
two classes of directors serving staggered three-year terms. All directors
of one class hold their positions until the annual meeting of shareholders at
which the terms of the directors of such class expire.
The Company filed a voluntary Chapter 11 petition for bankruptcy on
December 15, 1995. Under the Bankruptcy Code, the Company is a debtor-in-
possession and continues to conduct its business operations under the
direction of the Board of Directors. The Company expects that its plan of
reorganization will be approved by the bankruptcy court early in the second
quarter of 1997 and that shortly thereafter the Company will emerge from
Chapter 11 proceedings.
Two directors are to be elected at the Annual Meeting to serve for terms
expiring in 2000 or until their respective successors have been qualified and
elected. If any nominee for election as a director is unable to serve, which
the Board of Directors does not anticipate, the persons named in the proxy
may vote for another person in accordance with their judgment. All of the
nominees have previously served as directors of the Company.
The names and ages of the nominees, their principal occupations or
employment during the past five years and other data regarding them are as
follows:
Nominees For Terms Expiring in 2000--
Name Age Position
- - ---- --- --------
J. Guy Beatty, Jr. 65 Director and Chairman of the Audit
Committee and Member of the Compensation
Committee of the Board of Directors
R. B. Davenport, III 68 Director and Chairman of the Executive and
Compensation Committees and Member of the
Audit Committee of the Board of Directors
Mr. Beatty has served as a Director since 1985. He has been a partner
in the law firm of Miller & Martin, general counsel for the Company, since
1963.
Mr. Davenport, III has served as a Director since 1950, as President
from 1961 to 1973, as Chairman of the Board of Directors from 1973 to 1990 and
as Chairman of the Board's Executive Committee since 1990. Mr. Davenport, III
is the father of R. B. Davenport, IV, President, Chief Operating Officer and a
Director of the Company, and the uncle of Gordon L. Davenport, Jr., an
executive officer of the Company.
The following table sets forth certain information with respect to each
person who is a continuing Director of the Company:
Directors Whose Terms Expire in 1999--
Name Age Position
- - ---- --- --------
R. B. Davenport, IV 44 President, Chief Operating Officer,
Director and Member of the Executive
Committee of the Board of Directors
Carl D. Long 65 Chairman of the Board of Directors, Chief
Executive Officer, Director and Member of
the Executive Committee of the Board of
Directors
Camden B. Scearce 51 Vice President, Chief Financial Officer,
Secretary, Treasurer and Director
Mr. Davenport, IV has served as President and Chief Operating Officer
since 1992 and as a Director since 1985. He served as Vice President -
Operations from 1988 until 1992 and as Vice President - Assistant to the
President from 1986 to 1988. Mr. Davenport, IV is the son of R. B. Davenport,
III, a Director of the Company, and a first cousin of Gordon L. Davenport,
Jr., an executive officer of the Company. Mr. Davenport, IV is also a
director of First Tennessee Bank, N.A. of Chattanooga.
Mr. Long has served as Chairman of the Board of Directors and Chief
Executive Officer since 1990 and as a Director since 1981. He served as
President from 1981 to 1992 and as Vice President - Finance from 1977 to 1981.
He is also a director of First Tennessee Bank, N.A. of Chattanooga.
Mr. Scearce has served as a Director since 1991, as Chief Financial
Officer and Treasurer since 1990, as Vice President since 1981 and as
Secretary since 1978, and served as Controller from 1974 to 1994.
Security Ownership--
The following table sets forth information regarding ownership of the
Company's Common Stock as of March 20, 1997 with respect to (i) each person
known by the Company to own beneficially more than five percent of the
outstanding shares of Common Stock, (ii) each director and nominee for
director, (iii) the Chief Executive Officer and the four other most highly
compensated executive officers during the previous fiscal year and (iv) all
directors and officers as a group:
Amount of
Beneficial Percent
Individual or Group Ownership(1) of Class
- - ------------------------------------------------------------------------------
R. B. Davenport, III(2) 3,765,988(3) 50.4%
Carl D. Long 215,000(4) 2.9
R. B. Davenport, IV 331,200(5) 4.4
Camden B. Scearce 37,500(6) *
J. Guy Beatty, Jr. 41,800(6) *
Gordon L. Davenport, Jr. 48,000(7) *
James R. Ventura(8) 22,060 *
All directors and officers as a group (12 persons) 4,553,188 60.9
* Represents less than 1.0% of the Common Stock.
(1) Except as otherwise indicated, refers to either shared or sole voting
and investment power.
(2) The address of Mr. Davenport, III is The Krystal Building, One Union
Square, Chattanooga, Tennessee 37402.
(3) Includes 1,843,200 shares held by Gordon L. Davenport, Jr. and First
Tennessee Bank, N.A. as trustees for the benefit of Mr. Davenport, III.
Also includes 1,200,000 shares held by SunTrust Bank, Chattanooga, N.A.
in escrow under the terms of which Mr. Davenport, III retains the right
to vote the shares, and 87,140 shares held under trusts for the benefit
of grandchildren of Mr. Davenport, III, as to all of which shares
Mr. Davenport, III disclaims beneficial ownership.
(4) 210,000 shares are restricted under the terms of the Company's Amended
and Restated 1990 Restricted Stock Plan (the "Restricted Stock Plan").
(5) 220,000 shares are restricted under the terms of the Restricted Stock
Plan. Also includes 18,080 shares held under a trust for the benefit
of the child of Mr. Davenport, IV, as to which shares Mr. Davenport, IV
disclaims beneficial ownership.
(6) All shares owned are restricted under the terms of the Restricted Stock
Plan.
(7) 24,000 shares are restricted under the terms of the Restricted Stock
Plan. Also includes 12,000 shares held in trust for the benefit of the
child of Mr. Gordon L. Davenport, Jr., as to which shares Mr. Gordon L.
Davenport, Jr. disclaims beneficial ownership.
(8) Mr. Ventura retired as Vice President - Franchise Operations as of
December 31, 1996.
Compliance with Reporting Requirements--
Under federal securities laws, the Company's directors, executive
officers and 10% or more shareholders are required to report, within specified
monthly and annual due dates, their initial ownership in the Company's Common
Stock and all subsequent acquisitions, dispositions or other transfers of
beneficial interests therein, if and to the extent reportable events occur
which require reporting by such due dates. Based solely on representations
and information provided to the Company by the persons required to make such
filings, the Company believes that all filing requirements were complied with
during the previous fiscal year.
Certain Transactions--
In 1996, a company owned by W. L. Davenport acquired for $325,000 the
site of a Krystal restaurant formerly operated by the Company in Gainesville,
Georgia, and currently operated by W. L. Davenport's company under the terms
of a franchise agreement applicable to all franchisees. W. L. Davenport is
the son of R. B. Davenport, III and the brother of R. B. Davenport, IV. The
Company believes that the terms of the foregoing transaction are at least as
favorable as the terms that could be obtained from an unaffiliated third party
for similar transactions.
Meetings of the Board of Directors--
During fiscal 1996, the Board of Directors met on five occasions. The
Board of Directors has standing Audit, Compensation and Executive Committees.
Audit Committee: This committee met five times during fiscal 1996.
The functions of this committee are to recommend to the Board the independent
auditors to be selected and to review and approve the scope of the audit, the
financial statements, the independent auditors' letter of comments and
management's responses thereto and the fees charged for audits and any special
assignments.
Compensation Committee: This committee met two times during fiscal 1996.
The functions of this committee are to review total salary programs, certain
individual salaries and staff benefit programs. This committee also
administers and selects participants for the various restricted stock, stock
option, management incentive and retirement plans maintained by the Company.
Executive Committee: This committee meets periodically. Its function
is to exercise the powers of the Board of Directors, to the extent legally
permitted, between meetings of the Board.
All Directors attended at least 75% of the meetings of the Board and the
committees of which they were members.
Non-Employee Director Compensation--
Non-employee directors receive an annual retainer of $10,800, a fee of
$1,200 for serving as chairman of a committee and a fee of $750 for each board
or committee meeting attended. Non-employee directors are also entitled to
participate in the 1992 Restricted Stock Plan for Non-Employee Directors (the
"Director Restricted Stock Plan") as noted below.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table summarizes the total compensation for the last three
fiscal years of the Chief Executive Officer and the four other most highly
compensated executive officers of the Company during the last fiscal year.
Summary Compensation Table
Long-Term
Annual Compensation Compensation
-------------------- ------------
Restricted
Other Annual Stock
Name and Principal Position Year Salary Bonus Compensation(1) Awards(2)
- - --------------------------- ---- ------ ----- ------------ --------
Carl D. Long 1996 $365,000 $ 0 $13,075 -
Chairman of the Board of 1995 365,000 0 25,952 -
Directors, Chief Executive 1994 365,000 0 14,625 -
Officer
R. B. Davenport, IV 1996 200,000 0 6,440 -
President, Chief Operating 1995 200,000 0 9,985 -
Officer 1994 200,000 0 9,971 -
Camden B. Scearce 1996 145,619 0 8,392 -
Vice President, Chief 1995 133,005 0 8,767 -
Financial Officer, 1994 126,672 0 15,075 -
Secretary, Treasurer
Gordon L. Davenport, Jr.(3) 1996 152,023 0 5,548 -
Vice President - Marketing 1995 51,154 0 15,528(4) $186,000(5)
and Development
James R. Ventura(6) 1996 140,394 0 14,950 -
Vice President - Franchise 1995 133,224 0 7,466 -
Operations 1994 129,689 0 5,904 -
- - --------------------
(1) Consists of the costs of personal benefits provided to the named
executive officer by the Company.
(2) The fair market value of restricted stock awards is calculated by
multiplying the closing market price of unrestricted stock on the date of
grant by the number of shares awarded. The fair market value of the
949,360 aggregate restricted shares held as of the end of the Company's
1996 fiscal year based upon the trading price at the close of business on
December 27, 1996, was $5,458,820. Holders of restricted stock are
entitled to any dividends declared upon the common stock of the Company.
(3) Mr. Gordon L. Davenport, Jr. was hired as Vice President - New
Business and Strategic Planning on August 30, 1995. Mr. Gordon L.
Davenport, Jr. is the nephew of R. B. Davenport, III and a first cousin
of R. B. Davenport IV.
(4) Includes moving bonus of $12,500.
(5) Represents 24,000 shares of restricted stock valued at the
trading price at the close of business on the date of grant of $7.75
(6) Mr. Ventura retired as Vice President - Franchise Operations as
of December 31, 1996.
Retirement Plan--
The Company maintains a noncontributory, defined benefit retirement plan
(the "Retirement Plan") covering substantially all operating and salaried
employees who have completed one year of eligible service and have reached
the age of 21. The Retirement Plan provides benefits of stated amounts based
on years of service and the employee's compensation during the five years of
highest compensation. Participants in the Retirement Plan become 100% vested
when they have completed five years of service or reached normal retirement
age, whichever is earlier.
The Retirement Plan provides that if a participant elects to retire at
age 65 or on the fifth anniversary of participation in the Retirement Plan,
whichever is later, the normal retirement benefit will be 2% of the
participant's highest five years average annual compensation times the years
of credited service up to 15 years, plus 0.5% of the participant's highest
five years average annual compensation in excess of the Social Security
integration level times the years of credited service, up to 35 years, plus 2%
of the participant's highest five years average annual compensation in excess
of $100,000 times years of credited service, up to 15 years. Upon early
retirement, a participant in the Retirement Plan is entitled to receive the
projected normal retirement benefit multiplied by the ratio of actual years
of credited service to the years of credited service the participant would
have attained at normal retirement.
As of December 29, 1996, the number of years of credited service for
Messrs. Long, R. B. Davenport, IV, Scearce, Gordon L. Davenport, Jr. and
Ventura were 20, 21, 23, 1 and 13, respectively, and the highest five years
average annual compensation was $458,266, $235,956, $157,765, $152,023 and
$154,741, respectively.
The following table shows estimated annual retirement benefits payable
upon reaching normal retirement age for specified compensation and years of
benefit service.
Five Year
Average Annual
Compensation Years of Benefit Service
-------------- ------------------------
15 20 25 30 35
---- ---- ---- ---- ----
$125,000 $52,904 $55,538 $58,173 $60,807 $63,442
150,000 69,779 73,038 76,298 79,557 82,817
175,000 76,529 80,038 83,548 87,057 90,567
200,000 76,529 80,038 83,548 87,057 90,567
225,000 76,529 80,038 83,548 87,057 90,567
300,000 76,529 80,038 83,548 87,057 90,567
400,000 76,529 80,038 83,548 87,057 90,567
500,000 76,529 80,038 83,548 87,057 90,567
Federal law requires that compensation in excess of $160,000 per year be
excluded for purposes of determining pension benefits in qualified
retirement plans, effective January 1, 1997. From 1994 through 1996,
the limit was $150,000. However, for those employees whose compensation
exceeded $150,000 prior to 1994, additional benefits may be paid as a
result of benefits accrued prior to 1994.
Supplemental Executive Retirement Plan--
The Company maintains an unfunded, non-qualified retirement plan for the
benefit of certain key executives ("Supplemental Retirement Plan"). Under
the Supplemental Retirement Plan, participants who have completed 15 years of
service with the Company are entitled to an annual benefit upon their
retirement at the age of 65 equal to 55% of the average annual total
compensation of the participant for the five years of employment which
produce the highest earnings average when added to payments under the
Retirement Plan and primary social security benefits. Supplemental
retirement benefits are also payable for participants who have completed 15
years of service with the Company upon retirement at age 55, but are reduced
by a fraction, the numerator of which is the sum of months of service
completed at the retirement date and the denominator of which is the number
of months of service that would have been completed at age 65. The
supplemental retirement benefit is paid over the participant's lifetime,
but for no less than 10 years following retirement.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors establishes the
general compensation policies of the Company, establishes the compensation
plans and the parameters of compensation levels for executive officers and
administers the various restricted stock, stock option, management incentive
and retirement plans maintained by the Company. The Compensation Committee
during fiscal 1996 was composed of two independent, non-employee directors
who have no interlocking relationships as defined by the Securities and
Exchange Commission.
General Compensation Policies--
The Compensation Committee of the Board of Directors has in recent years
expanded the performance-based aspects of the Company's compensation policies.
The Compensation Committee continues to consider alternative equity-based
incentives in order to provide a better incentive for the Company's officers
to perform on behalf of the Company's shareholders. The Company has adopted
the Restricted Stock Plan, under which the Company grants shares of Common
Stock to certain key employees and directors of the Company, conditioning the
full benefits of such stock ownership on continued employment or service. The
Krystal Company Stock Incentive Plan (the "Option Plan") is intended to assist
the Company in securing and retaining key employees by allowing them to
participate in the ownership and growth of the Company through the grant of
qualified and non-qualified stock options. The granting of options will
serve as partial consideration for service to the Company and give key
employees an additional inducement to remain in the service of the Company
and will provide them with an inceased incentive to work for the Company's
success.
As discussed more fully below, the Board of Directors of the Company,
based upon the recommendation of the Compensation Committee, is requesting
shareholder approval of an amendment to the Restricted Stock Plan and the
Option Plan to increase the number of shares of Common Stock of the Company
authorized and reserved for issuance under the Restricted Stock Plan and
the Option Plan.
The Company has also adopted the Director Restricted Stock Plan which
also provides for the grants of shares of Common Stock conditioning the full
benefits of such stock ownership on continued service which is intended to
promote the long-term financial success of the Company by attracting and
retaining qualified directors.
The Company also maintains an Annual Management Incentive Compensation
Plan ("Incentive Compensation Plan") under which incentive payments are made
based on the Company's actual pre-tax income measured against the Company's
annual business plan.
In addition, The Krystal Company Associate Stock Ownership Plan (the
"Associate Stock Plan") is designed to provide the employees of the Company
an opportunity to share in the ownership of the Company by providing them
with a convenient means to regularly and systematically purchase shares of
the Company's Common Stock and thus to develop a stronger incentive to work
for the continued success of the Company.
Chief Executive Officer Compensation--
The Compensation Committee believes that the Chief Executive Officer's
(CEO's) compensation should be determined by the performance of the Company
and by the salaries of the chief executive officers of comparably-sized
companies according to data obtained by the Compensation Committee from
independent outside consultants. Although there is necessarily some
subjectivity in setting the CEO's salary, major elements of the compensation
package are directly tied to Company performance.
The salary for the Company's CEO was $365,000 in 1996 which was
unchanged from the prior year. This salary approximates the rate of
compensation for executives in similar positions. Under the terms of the
Incentive Compensation Plan, the annual bonus for the CEO is determined in
relation to the Company's achievement of budgeted profit targets as
determined by the Compensation Committee. No bonus is earned if the Company
does not achieve at least 80% of the Company's profit plan. The Compensation
Committee may award a cash bonus ranging from 10% of base salary if the
Company achieves 80% of the Company's profit plan up to a maximum of 60% of
base salary if the Company exceeds its profit plan. For 1996, the CEO was not
awarded a bonus under the Incentive Compensation Plan.
Other Executive Officer Compensation--
The Compensation Committee has adopted similar policies with respect to
compensation of other executive officers of the Company. Using salary survey
data supplied by outside independent consultants, the Compensation Committee
establishes base salaries that are within the range of salaries for persons
holding similarly responsible positions at comparable companies. In addition,
the Compensation Committee considers factors such as relative Company
performance, the individual's past performance and future potential in
establishing the base salaries of executive officers.
The Compensation Committee's policy regarding other elements of the
compensation arrangement for senior executive officers is similar to that of
the CEO's in that the annual bonus is also tied to achievement of performance
targets. Annual bonuses for officers are designed as contingent compensation
to reflect achievement of both individual goals and corporate objectives.
Corporate profit objectives are established during the budgeting process,
while individual objectives are established to reflect corporate and
department needs in meeting Company goals. No bonus is earned if the Company
does not achieve at least 80% of the Company's profit plan.
For the President, the Compensation Committee may award a cash bonus
ranging from 10% of base salary if the Company achieves 80% of the Company's
profit plan up to a maximum of 60% of base salary if the Company exceeds its
profit plan. For 1996, the President was not awarded a bonus under the
Incentive Compensation Plan. For other executive officers, the Compensation
Committee may award a cash bonus ranging from 7.5% of base salary if the
Company achieves 80% of the Company's profit plan up to a maximum of 45% of
base salary if the Company exceeds its profit plan. The amount of the bonus
is also dependent upon the achievement of individual objectives as set and
determined by the CEO and President. For 1996, no bonuses were awarded to
executive officers under the terms of the Incentive Compensation Plan.
The Company's compensation policies are designed to attract and motivate
highly competent people, while achieving important annual and long-term
objectives.
Submitted by the Compensation Committee of the Company's Board
of Directors
R. B. Davenport, III, Chairman
J. Guy Beatty, Jr., Member
COMPANY PERFORMANCE
The following graph shows a comparison of cumulative total returns to
shareholders of the Company, assuming reinvestment of dividends, for the
period commencing on May 14, 1992, the date of the Company's initial public
offering, and ending on December 27, 1996, the last trading day before the
close of the Company's fiscal year on December 29, 1996, with the five-year
cumulative total return from: (i) the CRSP Index for the NASDAQ Stock Market
(U.S. Companies), and (ii) the CRSP Index for NASDAQ Stocks (Standard
Industrial Classification 5800-5899 (Eating and Drinking Establishments)).
Comparison of Five Year-Cumulative Total Returns
Performance Graph for
THE KRYSTAL COMPANY
Prepared by the Center for Research in Security Prices
Produced on 3/17/97 including data to 12/27/96
CRSP Total Returns
Index for: 5/14/92 12/31/92 12/31/93 12/30/94 12/29/95 12/27/96
------- -------- -------- -------- -------- --------
THE KRYSTAL COMPANY $100.00 $220.80 $111.50 $ 85.40 $ 37.50 $ 47.90
NASDAQ Stock Market 100.00 118.40 135.90 132.80 187.80 231.30
(US Companies)
NASDAQ Stocks 100.00 133.70 135.50 97.90 119.20 115.80
(SIC 5800-5899
US Companies)
Eating and
drinking places
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100.00 on 5/14/92.
PROPOSAL 2: AMENDMENT TO THE RESTRICTED STOCK PLAN
Upon the recommendation of the Compensation Committee, the Board of
Directors has adopted a proposal to amend the Company's Restricted Stock Plan
to increase the aggregate number of shares of Common Stock available for
issuance under the Restricted Stock Plan from 1,100,000 to 2,500,000. As of
the end of the last fiscal year of the Company, there were 949,360 shares of
restricted stock issued and outstanding under the terms of the Restricted
Stock Plan leaving only 150,640 additional shares of Common Stock available
for issuance under the Restricted Stock Plan. The Board of Directors believes
the authorization of additional shares for issuance under the terms of the
Restricted Stock Plan is necessary to allow the Board of Directors the
necessary flexibility to attract and retain qualified management with equity-
based incentives. No other changes to the terms of the Restricted Stock Plan
are to be made.
Under the Restricted Stock Plan, the Company grants shares of Common
Stock to certain key employees and directors of the Company, conditioning the
full benefits of such stock ownership on continued employment or service.
Shares are granted under the Restricted Stock Plan at the sole discretion of
the Compensation Committee. The shares of Common Stock issued under the
Restricted Stock Plan are restricted and may not be sold or otherwise
transferred, except as permitted by the Restricted Stock Plan, and if the
employment (or service as a director) of a holder of such restricted shares
is terminated for any reason, other than the holder's death, normal retirement
after age 65, total disability or early retirement or other termination of
employment to which the Compensation Committee has consented in writing and
approved the retention of the restricted stock, then such restricted stock is
forfeited. Holders of restricted stock are entitled to vote such shares and
receive dividends, if any, with respect to their shares of restricted stock.
The restrictions on the shares of Common Stock issued under the
Restricted Stock Plan terminate upon the holder's death, normal retirement
after age 65, total disability, early retirement or other termination to which
the Compensation Committee has consented, or the occurrence of certain
terminating events, including dissolution, merger or reorganization of the
Company or a change in control of the Company.
As to the restricted stock issued prior to April 14, 1992 under the
Restricted Stock Plan, except for those shares held by Messrs. Long and
Davenport, IV, restrictions will lapse as to 15% of the restricted stock held
on the third business day after release to the public of the Company's
earnings for the first quarter (the "Earnings Availability Date") of each
year from January 1, 1994 through January 1, 1999 and as to the remainder of
shares of restricted stock held on the Earnings Availability Date of the year
2000. As to shares of restricted stock issued on or after April 14, 1992,
unless the Compensation Committee decides otherwise, restrictions will lapse
as to 10% of the restricted shares on the third business day after release to
the public of the Company's earnings for the first quarter that occurs at
least two years after the date of grant and on each succeeding Earnings
Availability Date through the eleventh calendar year beginning after the date
of such grant, unless the Compensation Committee decides otherwise. A holder
of restricted stock may elect by January 31 of any calendar year during which
restrictions lapse to have such restrictions continue as to all, but not less
than all, of such restricted stock until the Earnings Availability Date in
the seventh year following the year in which such election is made, with the
holder receiving an additional number of restricted shares equal to 10% of
the number of shares as to which such election is made. The additional
shares will also remain restricted until the Earnings Availability Date of
the seventh year following the year in which such election is made. As to
restricted stock held by Messrs. Long and Davenport, IV, the restrictions
lapse on the first business day of the calendar month next following the
termination of the holder's employment (or service as a director) with the
Company because of death, normal retirement at or after age 65, total
disability or early retirement when consented to in writing by the
Compensation Committee.
Of the Common Stock issued and outstanding under the Restricted Stock
Plan, 210,000 shares have been granted to Mr. Long; 220,000 shares to
Mr. Davenport, IV; 41,800 shares to Mr. Beatty; 37,500 shares to Mr. Scearce
and 24,000 shares to Mr. Gordon L. Davenport, Jr.
The affirmative vote of a majority of the outstanding shares of Common
Stock present, or represented, and entitled to vote at the Annual Meeting is
required for approval of the amendment to increase the shares of Common Stock
authorized and reserved for issuance under the Restricted Stock Plan.
The Board of Directors recommends a vote FOR the proposal to amend the
Restricted Stock Plan to increase the number of shares of Common Stock
authorized and reserved for issuance under the Restricted Stock Plan.
PROPOSAL 3: AMENDMENT TO STOCK INCENTIVE PLAN
Upon the recommendation of the Compensation Committee, the Board of
Directors has adopted a proposal to amend the Company's Option Plan to
increase the total number of shares of the Company's Common Stock that may
be purchased pursuant to the exercise of options from 1,100,000 shares to
2,500,000 shares (less the number of shares of Common Stock that are at any
time issued and outstanding under the Restricted Stock Plan). As of the end
of the last fiscal year of the Company, there were no shares subject to
options that had been awarded under the Option Plan, but there were 949,360
shares of restricted stock issued and outstanding under the terms of the
Restricted Stock Plan, leaving only 150,640 additional shares of Common Stock
available for purchase pursuant to the exercise of options under the Option
Plan. The Board of Directors believes that the authorization of additional
shares for issuance under the terms of the Option Plan is necessary to allow
the Board of Directors the necessary flexibility to attract and retain
qualified management with equity-based incentives. No other changes to the
terms of the Option Plan are to be made.
Under the Option Plan, the Company issues both "incentive stock options"
as defined by Section 422 of the Internal Revenue Code and non-qualified stock
options not subject to Section 422. The Compensation Committee selects the
key employees to be granted options under the Option Plan and determines the
terms and conditions and number of shares subject to each option. Under the
Option Plan, the Compensation Committee is authorized to grant options to key
employees and directors of the Company and its subsidiaries or any other
person whom the Company determines that making such grant is in the best
interest of the Company. The shares to be issued under the Option Plan will
be currently authorized and unissued shares, treasury shares or shares
acquired in the open market or by private purchase by the Company.
Upon the grant of an option to a key employee, the Company will fix the
number of shares of the Company's Common Stock that the optionee may purchase
upon exercise of the option and the price at which the shares may be
purchased. The option price for options shall not be less than the fair
market value of the Common Stock at the time the option is granted. Fair
market value is determined by the last quoted sale price on the NASDAQ
exchange or, if unavailable, the value as determined by the Compensation
Committee. Each option granted under the Option Plan will be exercisable
by the optionee only during the term fixed by the Committee, with such term
ending not later than ten years after the date an option is granted.
The affirmative vote of a majority of the outstanding shares of Common
Stock present, or represented, and entitled to vote at the Annual Meeting is
required for approval of the amendment to increase the shares of Common Stock
authorized and reserved for issuance under the Option Plan.
The Board of Directors recommends a vote FOR the proposal to amend the
Option Plan to increase the number of shares of Common Stock authorized and
reserved for issuance under the Option Plan.
PROPOSAL 4: RATIFICATION OF APPOINTMENT OF AUDITORS
Upon the recommendation of the Audit Committee and subject to
ratification by the shareholders, the Board of Directors appointed Arthur
Andersen LLP, independent public accountants, to serve for the fiscal year
to end on December 28, 1997. Arthur Andersen LLP also audited the Company's
financial statements for the 1996 fiscal year.
A representative of Arthur Andersen LLP will be present at the Annual
Meeting and will be given the opportunity to make a statement, if he desires,
and to respond to appropriate questions.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 1998 Annual
Meeting must be received by the Company not later than December 5, 1997, for
inclusion in its proxy statement and form of proxy relating to that meeting.
Any such proposals, as well as any questions relating thereto, should be
directed to Camden B. Scearce, Secretary, The Krystal Company, One Union
Square, Chattanooga, Tennessee 37402.
VOTING
A proxy may be revoked by a shareholder at any time prior to its use.
If it is signed properly by the shareholder and is not revoked, it will be
voted at the Annual Meeting. If a shareholder specifies how the proxy is to
be voted with respect to any of the proposals for which a choice is provided,
the proxy will be voted in accordance with such specifications. If a
shareholder fails to so specify with respect to such proposals, the proxy
will be voted FOR items 1, 2, 3 and 4.
April 11, 1997
THE KRYSTAL COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of THE KRYSTAL COMPANY appoints Carl D. Long
and Camden B. Scearce, or either of them, proxies, with full power of
substitution, to vote at the Annual Meeting of Shareholders of the Company
to be held at the Marriott Hotel at the Chattanooga-Hamilton County Convention
& Trade Center, Two Carter Plaza, Chattanooga, Tennessee at 10:00 a.m.,
Thursday, May 8, 1997, and any adjournment or adjournments thereof, the shares
of Common Stock of THE KRYSTAL COMPANY which the undersigned is entitled to
vote, on all matters that may properly come before the Meeting.
Please mark votes as in this example. [X]
You are urged to cast your vote by marking the appropriate boxes. PLEASE NOTE
THAT UNLESS A CONTRARY DISPOSITION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ITEMS 1, 2, 3, AND 4.
1. The election of two Directors for ensuing three-year terms.
NOMINEES: J. Guy Beatty, Jr. R. B. Davenport III
FOR [ ] WITHHELD [ ]
[ ] ______________________________________
(INSTRUCTION: To withhold your vote for any
individual nominee, write that nominee's name
in the space provided above.)
2. To approve an amendment to the Company's Amended and Restated 1990
Restricted Stock Plan to increase the number of shares of Common Stock
authorized and reserved for issuance thereunder from 1,100,000 to
2,500,000.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To approve an amendment to the Company's Stock Incentive Plan to increase
to increase the number of shares of Common Stock issuable upon exercise
of options from 1,100,000 to 2,500,000.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. To ratify the appointment of Arthur Andersen LLP as independent public
accountants for fiscal 1997.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW [ ]
IMPORTANT: Please sign your name or names exactly as shown hereon and date
your proxy in the blank space provided below. For joint accounts,
each joint owner must sign. When signing as attorney, executor,
trustee, or guardian, please give your full title as such. If the
signer is a corporation, please sign full corporate name by duly
authorized officer.
Signature ________________ Date ______ Signature ________________ Date ______