BRINKER INTERNATIONAL
LOGO
September 29, 1994
6820 LBJ Freeway
Dallas, Texas 75240
(214) 980-9917
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders
of Brinker International, Inc. (the "Company") to be held at 10:00 a.m., on
Thursday, November 3, 1994, at the Majestic Theatre located at 1925 Elm
Street, Dallas, Texas. At this meeting you will be asked
(A) to elect fifteen (15) directors of the Company to
serve until the next annual meeting of shareholders or
until their respective successors shall be elected and
qualified;
(B) to approve an amendment to the Certificate of
Incorporation of the Company to increase the number of
shares of Common Stock the Company is authorized to
issue from 100,000,000 to 250,000,000;
(C) to approve an amendment to the Company's 1992
Incentive Stock Option Plan;
(D) to approve an amendment to the Company's 1991 Stock
Option Plan for Non-Employee Directors and
Consultants;
(E) to approve the Company's Profit Sharing Plan;
(F) to approve the Company's Long-Term Executive Profit
Sharing Plan; and
(G) to transact such other business as may properly come
before the meeting or any adjournment thereof.
Our agenda for the meeting will also include presentations on the past
accomplishments and future objectives of the Company within the increasingly
competitive food service industry.
It is important that your shares be represented at the meeting, whether
or not you attend personally. I urge you to sign, date and return the
enclosed proxy at your earliest convenience.
Very truly yours,
NORMAN E. BRINKER
Chairman of the Board
BRINKER INTERNATIONAL, INC.
6820 LBJ Freeway
Dallas, Texas 75240
(214) 980-9917
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held November 3, 1994
To our Shareholders:
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders of
Brinker International, Inc., a Delaware corporation (the "Company"), will be
held at the Majestic Theatre, located at 1925 Elm Street, Dallas, Texas, on
Thursday, November 3, 1994, at 10:00 a.m., local time, for the following
purposes:
(A) to elect fifteen (15) directors of the Company to
serve until the next annual meeting of shareholders or
until their respective successors shall be elected and
qualified;
(B) to approve an amendment to the Certificate of
Incorporation of the Company to increase the number of
shares of Common Stock the Company is authorized to
issue from 100,000,000 to 250,000,000;
(C) to approve an amendment to the Company's 1992
Incentive Stock Option Plan;
(D) to approve an amendment to the Company's 1991 Stock
Option Plan for Non-Employee Directors and
Consultants;
(E) to approve the Company's Profit Sharing Plan;
(F) to approve the Company's Long-Term Executive Profit
Sharing Plan; and
(G) to transact such other business as may properly come
before the meeting or any adjournment thereof.
Only shareholders of record at the close of business on September 9,
1994, are entitled to notice of, and to vote at, the meeting or any
adjournment thereof.
It is desirable that as large a proportion as possible of the
shareholders' interests be represented at the meeting. Whether or not you
plan to be present at the meeting, you are requested to sign and return the
enclosed proxy in the envelope provided so that your stock will be
represented. The giving of such proxy will not affect your right to vote in
person, should you later decide to attend the meeting. Please date and sign
the enclosed proxy and return it promptly in the enclosed envelope.
By Order of the Board of Directors,
ROGER F. THOMSON
Secretary
Dallas, Texas
September 29, 1994
BRINKER INTERNATIONAL, INC.
6820 LBJ Freeway
Dallas, Texas 75240
(214) 980-9917
PROXY STATEMENT
For
ANNUAL MEETING OF SHAREHOLDERS
To Be Held November 3, 1994
This Proxy Statement is first being mailed on or about September 29,
1994, to shareholders of Brinker International, Inc., a Delaware corporation
(the "Company"), in connection with the solicitation of proxies by the Board
of Directors of the Company for use at the annual meeting of shareholders to
be held on November 3, 1994. Proxies in the form enclosed will be voted at
the meeting, if properly executed, returned to the Company prior to the
meeting and not revoked. The proxy may be revoked at any time before it is
voted by giving written notice or a duly executed proxy bearing a later date
to the Secretary of the Company, or voting in person.
OUTSTANDING CAPITAL STOCK
The record date for shareholders entitled to vote at the annual meeting
is September 9, 1994 (the "Record Date"). At the close of business on the
Record Date, the Company had issued and outstanding and entitled to vote at
the meeting 71,626,565 shares of Common Stock, $0.10 par value ("Common
Stock").
ACTION TO BE TAKEN AT THE MEETING
The accompanying proxy, unless the shareholder otherwise specifies in
the proxy, will be voted (i) for the election as directors of the Company of
the fifteen (15) persons named under the caption "Security Ownership of
Management and Election of Directors", (ii) for the amendment to the Company's
Certificate of Incorporation increasing the number of authorized shares of
Common Stock from 100,000,000 to 250,000,000, (iii) for the ratification and
approval of the amendment to the Company's 1992 Incentive Stock Option Plan,
(iv) for the ratification and approval of the amendment to the Company's 1991
Stock Option Plan for Non-Employee Directors and Consultants, (v) for the
ratification and approval of the Company's Profit Sharing Plan, (vi) for the
ratification and approval of the Company's Long-Term Executive Profit Sharing
Plan, and (vii) at the discretion of the proxy holders, on any other matter
that may properly come before the meeting or any adjournment thereof.
Where shareholders have appropriately specified how their proxies are to
be voted, they will be voted accordingly. If any other matter or business is
brought before the meeting, the proxy holders may vote the proxies at their
discretion. The directors do not know of any such other matter or business.
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QUORUM AND VOTING
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock as of the Record Date is necessary to
constitute a quorum at the annual meeting. Abstentions and broker non-votes
are counted for purposes of determining the presence or absence of a quorum
for the transaction of business. Abstentions are counted in tabulations of
votes cast on proposals presented to shareholders. Broker non-votes are not
counted for purposes of determining whether a proposal has been approved other
than the proposal to amend the Company's Certificate of Incorporation to
increase the number of authorized shares of Common Stock. Because the
amendment of the Company's Certificate of Incorporation requires the approval
of a majority of outstanding shares, abstentions and broker non-votes will
have the same effect as a negative vote. In deciding all questions, a holder
of Common Stock is entitled to one vote, in person or by proxy, for each share
held in his or her name on the Record Date.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as to the number of
shares of Common Stock of the Company beneficially owned as of June 29, 1994
by the principal shareholders of the Company.
Beneficial Ownership
Number of
Name and Address Shares Percent
Provident Investment Counsel 4,577,115 (1) 6.39%
300 North Lake Avenue
Pasadena, California 91101
IDS Financial Corporation 4,137,950 (2) 5.78%
IDS Tower 10
Minneapolis, Minnesota 55440
(1) As of September 8, 1994. Based on information contained in
Schedule 13G dated as of December 31, 1993, as supplemented by subsequent
communication.
(2) As of August 31, 1994. Based on information contained in
Schedule 13G dated as of December 31, 1993, as supplemented by subsequent
communication.
SECURITY OWNERSHIP OF MANAGEMENT
AND ELECTION OF DIRECTORS
Fifteen (15) directors are to be elected at the meeting. Each nominee
will be elected to hold office until the next annual meeting of the
2
shareholders or until his or her successor is elected and qualified. Proxy
holders will not be able to vote the proxies held by them for more than 15
persons. 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 the persons nominated for election as
directors of the Company:
Number of Shares
of Common Stock
Beneficially Owned as Percent of
Name as of September 8, 1994(1) Class
Norman E. Brinker 1,541,884 2.15%
Douglas H. Brooks 337,975 *
F. Lane Cardwell, Jr. 79,772 *
Creed L. Ford, III 755,354 1.06%
Ronald A. McDougall 195,022 *
Debra L. Smithart 50,460 *
Roger F. Thomson 1,000 *
Jack W. Evans, Sr. 71,717 *
Rae F. Evans 1,585 *
J.M. Haggar, Jr. 130,645 *
J. Ira Harris -0- -0-
Frederick S. Humphries -0- -0-
Ray L. Hunt 33,750 *
James E. Oesterreicher -0- -0-
William F. Regas 104,629 *
Roger T. Staubach 1,500 *
All executive officers
and directors as a
33
group (19 persons) 3,501,602 4.89%
* Less than one percent (1%)
(1) Includes shares of Common Stock which may be acquired by exercise
of exercisable options granted 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.
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 guideline would require that each Senior
Vice President own an amount of Common Stock equal in value to such officer's
base salary, each Executive Vice President own an amount of Common Stock equal
in value to twice such officer's base salary, the President own an amount of
Common Stock equal in value to three times his base salary, and the Chief
Executive Officer own an amount of Common Stock equal in value to four times
his base salary. The guideline also encourages all other officers of the
Company to similarly acquire Common Stock in the Company. It is expected that
phase-in of the guideline will begin by the end of 1994, for those senior
officers who do not currently meet the minimum stock ownership levels as
established by the guideline.
DIRECTORS
A brief description of each person nominated to become a director of the
Company is provided below. All nominees are currently serving as directors of
the Company, each having been elected at the last annual meeting of the
Company's shareholders held on November 4, 1993, except James E. Oesterreicher
and Frederick S. Humphries, both of whom were appointed to the Board of
Directors on May 3, 1994.
Norman E. Brinker, 63, has been Chairman of the Board of Directors and
Chief Executive Officer of the Company since September 1983, except for the
period from January 27, 1993 to May 4, 1993. During this time period,
Mr. Brinker was incapacitated due to an injury, and until his recovery the
positions of Chairman and CEO were held by Ronald A. McDougall. Mr. Brinker
was the founder of S & A Restaurant Corp. (which was acquired by The Pillsbury
Company in June 1976), the developer and operator of Steak and Ale
Restaurants and Bennigan's Taverns, 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
44
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
Apparel Company.
F. Lane Cardwell, Jr., 42, was elected Executive Vice President -
Strategic Development in June 1992, having formerly held the position of
Senior Vice President - Strategic Development since December 1990.
Mr. Cardwell joined the Company as Vice President - Strategic Development in
August 1988, having been previously employed by S & A Restaurant Corp. from
November 1978 to August 1988, during which time he served as Vice President -
Strategic Planning and Senior Vice President - Strategic Planning.
Mr. Cardwell has served as a member of the Board of Directors of the Company
since September 1991.
Creed L. Ford, III, 41, joined the Company's predecessor in September
1976 as an Assistant Manager and was promoted to the position of Restaurant
General Manager in March 1977. In September 1978, Mr. Ford became Director of
Operations of the Company. He was elected Vice President - Operations of the
Company in October 1983, Senior Vice President - Operations in November 1984,
and Executive Vice President - Operations in April 1986. Mr. Ford has served
as a member of the Board of Directors of the Company since April 1985.
Ronald A. McDougall, 52, was elected President and Chief Operating
Officer of the Company in April 1986 having formerly held the office of
Executive Vice President - Marketing and Strategic Development of the Company
since September 1983. During the period January 27, 1993 to May 4, 1993,
Mr. McDougall served as Chairman and CEO. From March 1974 through June 1982,
Mr. McDougall was employed by S & A Restaurant Corp. in several management
positions, including Senior Vice President of Marketing and Strategic
Development and a director. During the last six months of 1982, he was
Executive Vice President of 1330 Corporation, a publishing firm. From January
1983 to July 1983, he held the position of Vice President - Marketing of
Burger King Corporation. Mr. McDougall has served as a member of the Board of
Directors of the Company since September 1983.
Debra L. Smithart, 40, joined the Company as Assistant Controller in
June 1985. In February 1986 she was promoted to the position of Controller
and served in this capacity until December 1988 when she was elected Vice
President -Controller. In March 1991, Ms. Smithart was promoted to Vice
President - Finance and held this position until September 1991 when she was
promoted to Executive Vice President - Chief Financial Officer. Prior to
joining the Company, Ms. Smithart worked in various financial/accounting
capacities in the public accounting, oil & gas, real estate, and manufacturing
industries. Ms. Smithart has served as a member of the Board of Directors of
the Company since September 1991.
Roger F. Thomson, 45, 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. From 1988 until April
55
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. Mr. Thomson has served as a member of the Board of
Directors of the Company since September 1993.
Jack W. Evans, 72, is currently President of Jack Evans Investments,
Inc. Mr. Evans is a member of the Nominating Committee and Compensation
Committee of the Company and has served as a member of the Company's Board of
Directors since September 1983. He served as Chairman, Chief Executive
Officer and President of Cullum Companies, Inc., a retail food and drugstore
chain from 1977 to 1990. He served as Mayor of the City of Dallas from May
1981 to May 1983. He is also a director of Texas Utilities Corporation,
Randall's-Tom Thumb, First Bank, and Morning Star Group.
Rae F. Evans, 46, is currently Vice President, National Affairs of
Hallmark Cards, Inc. and has held such position since February 1982.
Ms. Evans is a member of the Nominating Committee and Audit Committee of the
Company and has served as a member of the Board of Directors of the Company
since January 1990. She is a member of the Business-Government Relations
Council and is a past president of the organization. She is a member of the
Executive Committee of the National Women's Economic Alliance, the Washington
Federal City Council, National Women's Forum and the Catalyst Board of
Advisors. Additionally, she is the founder of Women at the Top, a speakers
bureau of Washington women and is an active guest speaker on government issues
in Washington. Ms. Evans was recently appointed to the Board of Directors of
Haggar Apparel Company.
J. M. Haggar, Jr., 69, was elected as Chairman of the Board of Directors
of Haggar Apparel Company, a clothing manufacturer, in April 1991. He
previously held the positions of President and Chief Executive Officer of
Haggar Apparel Company from 1971 and 1985, respectively. He is also a
director of ENSERCH Corporation. Mr. Haggar is a member of the Audit
Committee of the Company and has served as a member of the Company's Board of
Directors since April 1985.
J. Ira Harris, 56, is a Senior Partner with Lazard Freres & Co., an
investment banking firm, having held such position since joining the firm in
January 1988. Mr. Harris has served as a member of the Board of Directors of
the Company since September 1993 and is a member of the Compensation Committee
of the Company. He was previously a General Partner of Salomon Brothers and
served as a member of its Executive Committee from 1978 to 1983. He also
served as a Director of Phibro-Salomon. Mr. Harris serves as a Director for
various entities including Manpower, Inc. and Caremark International, Inc. He
is also Trustee of Northwestern University.
Frederick S. Humphries, 58, 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 11 years. Dr. Humphries serves as Chairman
of the State Board of Education Advisory Committee on the Education of Blacks
66
in Florida and is Chairman of the Board of Regents, Five-Year Working Group
for Agriculture, State of University System of Florida in addition to being
involved in various Civic and Community activities. He is also a member of
the Board of Directors of Barnett Bank and Wal-Mart, Inc.
Ray L. Hunt, 51, is currently Chief Executive Officer and Chairman of
the Board of Directors of Hunt Oil Company, having held such positions since
1975. He is also President and Chairman of the Board of Directors of Hunt
Consolidated, Inc. and RRH Corporation. Mr. Hunt serves as a director of
Dresser Industries, Inc. Mr. Hunt has served as a member of the Board of
Directors of the Company since December 1983 and is a member of the
Compensation Committee and the Nominating Committee of the Company.
James E. Oesterreicher, 53, is the President of JCPenney Stores and
Catalog, having been elected to this position in 1992. Mr. Oesterreicher has
been with J.C. Penney Company, Inc. since 1964 where he started as a
management trainee. He serves as a Director for various entities, including
Presbyterian Hospital of Plano, Circle Ten Council, Boy Scouts of America, and
National 4-H Council. He also serves as an advisory board member for the
Center for Retailing, Education and Research at the University of Florida.
William F. Regas, 65, co-founded, in 1982, Grady's, Inc. ("Grady's"), a
Tennessee corporation and a wholly-owned subsidiary of the Company, and served
as its Chairman of the Board from 1982 to 1989. Mr. Regas is currently Co-
Chairman of Grady's Board of Directors. Mr. Regas has been active in the
National Restaurant Association, having served as its President from 1980 to
1981. Mr. Regas has served as Chairman of the Board of Directors of Regas
Brothers, Inc. since 1952, and is also a general partner of Regas Real Estate
Company. He serves as a member of the Audit Committee of the Company and has
served on the Company's Board of Directors since October 1989.
Roger T. Staubach, 52, 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
Nominating 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,
Gibson Greetings, Inc., First USA, Inc., Life Partners Group and Columbus
Realty Trust and is active in numerous civic, charity and professional
organizations.
Executive Officers of the Company
The following persons are executive officers of the Company who do not
serve on the Company's Board of Directors:
Douglas H. Brooks, 41, joined the Company as an Assistant Manager in
February 1978 and was promoted to General Manager in April 1978. In March
77
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 and Chili's Concept Head President
in June 1994. Prior to joining the Company, Mr. Brooks helped manage the
first two Luther's Barbecue units.
Richard L. Federico, 40, joined the Company as Director of Operations
for Grady's in February 1989. Upon the Company's acquisition of Romano's
Macaroni Grill in November 1989, Mr. Federico became the Concept Head of this
new restaurant group. He was promoted to Vice President-Romano's Macaroni
Grill Operations in December 1990 and in June 1992 was promoted to Concept
Head and Senior Vice President-Macaroni Grill Operations. In February 1994,
Mr. Federico assumed responsibility for the operations of Spageddies Italian
Kitchen and was promoted to his current position as Senior Vice President and
Italian Concept Head President in June 1994. Prior to joining the Company,
Mr. Federico worked in various management capacities with S&A Restaurant Corp.
and Houston's Restaurants and was a co-founder of Grady's Goodtimes,
predecessor to Grady's American Grill.
John C. Miller, 39, 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 worked in various capacities with the Taco Bueno Division of
Unigate Restaurants prior to joining the Company.
Arthur J. DeAngelis, 40, has worked with the Company through one of its
franchise groups as a manager and later as an area director since 1984. In
1991, Mr. DeAngelis joined the Company under the Grady's American Grill
concept and in June 1991 was promoted to Vice President-Operations.
Mr. DeAngelis was promoted to his recent position of Senior Vice President-
Grady's American Grill Concept Head in June 1994. Mr. DeAngelis began his
restaurant career with S&A Restaurant Corp. in 1976 prior to joining the
Company.
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 (along with Ms. Smithart, comprised of Messrs.
Brinker, McDougall, Ford and Cardwell) 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
Ms. Evans and Messrs. Haggar and Regas and the Committee met once 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
88
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. Evans,
Hunt, Harris and Staubach and it met three (3) 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 are set forth below under
"Report of the Compensation Committee."
The purpose of the Nominating Committee, created in September 1993, 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 met once during the fiscal year and is composed of Messrs. Brinker,
Evans, Hunt, McDougall and Staubach and Ms. Smithart and Ms. Evans.
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. Hunt and Regas comprise Class 2
and will be considered Retiring Directors as of the annual meeting of
shareholders following the end of the 1995 fiscal year. Mr. Haggar comprises
Class 3 and will be considered a Retiring Director as of the annual meeting of
shareholders following the end of the 1996 fiscal year. Messrs. Harris and
Staubach comprise Class 4 and will be considered Retiring Directors as of the
annual meeting of shareholders following the end of the 1997 fiscal year.
Messrs. Evans, Humphries, and Oesterreicher and Ms. 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.
Directors Compensation
99
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 (unless such committee meeting is
held in conjunction with a meeting of the Board of Directors, in which event
compensation for attending the committee meeting will be $750). 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. Each such director receives 2,000 stock options annually.
If the shareholders of the Company approve the amendment described under
"Amendment of Stock Option Plans-1991 Stock Option Plan for Non-Employee
Directors and Consultants", new directors who are not employees of the Company
will have the option at the beginning of each Director term to receive as
additional compensation for serving on the Board of Directors either cash
consideration of $30,000 per year during the term such non-employee serves as
a director or a one-time grant of 12,000 stock options under the Company's
1991 Stock Option Plan for Non-Employee Directors and Consultants. If the
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 the director elects to receive cash, the first payment will be made at such
Board of Directors meeting and the following payments will be made on the date
of each annual meeting of shareholders thereafter. If the director elects to
receive stock options, they 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). The stock options will be granted at the fair market value on
the date of grant. One-third of the options will vest on each of the second,
third and fourth anniversaries of the date of grant.
Current directors who are not employees of the Company are also eligible
for additional compensation under this compensation program. Commencing with
the meeting of the Board of Directors to be held November 3, 1994, each of the
current non-employee directors will have the one-time option to receive as
additional compensation for serving on the Board of Directors either $30,000
cash consideration per year during the term such non-employee serves as
director or a one-time grant of stock options. The number of stock options
received and the vesting period for such options will be prorated as set forth
below. The election of a current director to accept the additional
compensation in cash or in stock options will be made at such Board of
Directors meeting. If the director elects to receive cash, the first payment
will be made at such Board of Directors meeting and the following payments
will be made on the date of each annual meeting of shareholders thereafter.
If a current director elects to receive stock options, they will be granted as
of January 3, 1995. The stock options will be granted at the fair market
value on the date of grant.
1010
For purposes of applying this new compensation program to the current
non-employee directors of the Company, if any of Messrs. Evans, Humphries, and
Oesterreicher or Ms. Evans elect to receive stock options, such director will
be granted 12,000 options on January 3, 1995, and one-third of the options
will be fully vested on each of January 3, 1997, 1998, and 1999. If either
Messrs. Harris or Staubach elect to receive stock options, such director will
be granted 9,000 stock options on January 3, 1995, and one-third of the
options will be fully vested on each of January 3, 1996, 1997, and 1998. If
Mr. Haggar elects to receive stock options, he will be granted 6,000 stock
options on January 3, 1995, and one-half of the options will be fully vested
on each of January 3, 1996 and 1997. If either of Messrs. Hunt or Regas elect
to receive stock options, he will be granted 3,000 stock options on January 3,
1995, and the options will be fully vested on January 3, 1996.
If a retiring Director is renominated to serve on the Board of Directors
for an additional four-year period, such retiring Director will be treated as
a new director for purposes of determining compensation during such additional
four-year period.
During the year ended June 29, 1994, the Board of Directors held six
meetings; all incumbent directors were present at all of the meetings with the
exception of Mr. Hunt who was unable to attend two meetings.
SUMMARY OF 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
$100,000.00 in fiscal 1994.
SUMMARY COMPENSATION TABLE
Long-Term Stock
Name and Profit Incentive Options
Principal Position Year Salary Sharing Other(1) Payouts Compensation Awarded(2)
Norman E. Brinker 1994 $659,135 $706,592 $26,439 $93,940 $1,486,106 202,500
Chairman of the 1993 $573,708 $753,887 $10,933 $93,940 $1,432,468 225,000
Board and Chief 1992 $523,792 $360,308 $ 0 $75,164 $ 959,264 168,750
Executive Officer
Ronald A. McDougall 1994 $529,327 $567,439 $22,547 $93,940 $1,213,253 202,500
President and Chief 1993 $444,538 $585,842 $ 5,972 $93,940 $1,130,292 225,000
Operating Officer 1992 $406,115 $283,009 $ 500 $75,164 $ 764,788 135,000
Creed L. Ford, III 1994 $343,942 $275,154 $ 7,305 $68,889 $ 695,290 56,250
Executive Vice 1993 $306,692 $309,847 $ 6,082 $68,889 $ 691,510 67,500
President - 1992 $290,146 $169,406 $ 500 $50,109 $ 510,161 67,500
Operations
Debra L. Smithart 1994 $232,500 $186,000 $ 5,471 $50,101 $ 474,072 56,250
Executive Vice 1993 $183,309 $186,640 $ 500 $31,313 $ 401,762 67,500
President and Chief 1992 $134,208 $ 30,935 $ 500 $25,055 $ 190,698 45,000
Financial Officer
Douglas H. Brooks 1994 $232,884 $135,772 $12,582 $43,839 $ 425,077 45,000
Senior Vice 1993 $206,231 $174,199 $ 2,746 $43,839 $ 427,015 38,250
President-Chili's 1992 $184,280 $ 75,598 $ 500 $37,582 $ 297,960 38,250
Grill & Bar
Operations
(1) Other compensation represents Company match on 1993 deferred compensation, club memberships and
dues, tax preparation services and relocation benefits.
(2) Stock options awarded have been restated to reflect the March 1994 and May 1993 stock splits
effected in the form of 50% stock dividends.
OPTION GRANTS DURING 1994 FISCAL YEAR
The following table contains certain information concerning the grant of
stock options to the executive officers named in the above compensation table
during the Company's last fiscal year:
% of Total Realizable Value of Assumed
Options Granted Annual Rates of Stock Price
Options to Employees Exercise or Expiration Appreciation for Option Term
Name Granted in Fiscal Year Base Price Date 5% 10%
Norman E. Brinker 15,000 $26.833 02/04/2004 $ 253,127 $ 641,473
187,500 13.75% $20.375 06/28/2004 $2,402,574 $6,088,594
Ronald A. McDougall 15,000 $26.833 02/04/2004 $ 253,127 $ 641,473
187,500 13.75% $20.375 06/28/2004 $2,402,574 $6,088,594
Creed L. Ford, III 11,250 $26.833 02/04/2004 $ 189,845 $ 481,105
45,000 3.82% $20.375 06/28/2004 $ 576,618 $1,461,263
Debra L. Smithart 11,250 $26.833 02/04/2004 $ 189,845 $ 481,105
45,000 3.82% $20.375 06/28/2004 $ 576,618 $1,461,263
Douglas H. Brooks 7,500 $26.833 02/04/2004 $ 126,563 $ 320,737
37,500 3.06% $20.375 06/28/2004 $ 480,515 $1,217,719
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
1212
the position spread between the exercise price of any such existing options
and the $21.00 fiscal year-end price of the Company's Common Stock.
1313
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
Norman E. Brinker 0 $ 0 421,875 511,875 $4,364,635 $1,036,060
Ronald A. McDougall 150,938 3,312,804 195,000 495,000 1,724,191 927,301
Creed L. Ford, III 225,000 5,806,595 738,144 157,500 11,420,035 358,167
Debra L. Smithart 9,000 191,731 48,938 146,250 442,278 285,661
Douglas H. Brooks 35,972 990,919 337,953 102,375 5,228,379 210,462
Long-Term Executive Profit Sharing Plan
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.
LONG-TERM EXECUTIVE PROFIT SHARING PLAN AWARDS
Number of Estimated Future Payouts
Name Units Awarded Under Non-Stock Based Plans
(Dollars)
Threshold Target
Maximum
Norman E. Brinker 900 $60,000 $90,000 *
Ronald A. McDougall 900 $60,000 $90,000 *
Creed L. Ford, III 600 $40,000 $60,000 *
Debra L. Smithart 600 $40,000 $60,000 *
Douglas H. Brooks 400 $26,667 $40,000 *
* 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
1414
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 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, at the 90th percentile of the market for Chief Executive
Officer, President and Executive Vice Presidents. 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.
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
1515
significant percentage of executives total compensation be derived from
variable pay programs.
1616
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 participant's
compensation.
Plan I is an ERISA 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 participants second year of eligibility since Plan 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
invested into various investment funds. 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. Participants' contributions vest immediately while Company
contributions vest 25% annually, beginning in the participants 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. Executives must
be employed by the Company at the time of vesting to exercise options.
1717
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 and
changes in shareholders' equity over three-year cycles.
Pay/Performance Nexus
The Company's executive compensation program has resulted in a direct
and positive relationship between the compensation paid to executive officers
and the Company's performance. See "Stock Performance Chart" below.
CEO Compensation
The Compensation Committee made decisions regarding Mr. Brinker's
compensation package according to the guidelines discussed in the preceding
sections. Mr. Brinker was awarded a 12.5% base salary increase, effective
January 1, 1994, 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. During the past year, Mr.
Brinker's incentive payout under the Annual Profit Sharing Plan was 160% of
his target, reflecting the Company's exceptional performance in exceeding the
plan for pre-tax net income by approximately 10%. Mr. Brinker was granted 750
units under the Long-Term Executive Profit Sharing Plan for the cycle which
includes fiscal years 1994, 1995, and 1996. Mr. Brinker was also awarded a
grant of 202,500 stock options under the Company's stock option plan.
Approximately 56% of Mr. Brinker's compensation for 1994 was incentive pay.
Since the incentive award increases as the Company's performance increases,
and decreases if the specified performance objectives are not met, Mr.
Brinker's compensation is significantly affected by the Company's performance.
During the last fiscal year, Mr. Brinker and the Company entered into a
Consulting Agreement ("Agreement") whereby Mr. Brinker has agreed that at such
time as he is no longer serving as both Chief Executive Officer and Chairman
of the Board of the Board of Directors of the Company, he will act as a
consultant to the Company for an indefinite period of time. He has agreed
that during the period of time in which he serves as a consultant, and for a
period of time after the Agreement terminates, he will not compete with the
Company in any capacity. He will receive as compensation for these services,
a sum equal to 50% of the average annual cash compensation (including base
salary and payments under the Company's Profit Sharing Plan and Long-Term
Executive Profit Sharing Plan) he received for the five fiscal years preceding
the date on which he was no longer serving as either Chief Executive Officer
1818
or Chairman of the Board, along with certain benefits currently being offered
to him, including health benefits, complimentary dining privileges at Company
restaurants, etc. The Company believes that this Agreement is in the best
interest of the Company as it ensures the continued contributions of
Mr. Brinker's insight and industry expertise only to the Company and not to
any competitor.
Federal Income Tax Considerations
The Compensation Committee has considered the potential 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. Since 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 concluded that it would be advisable to have the
shareholders of the Company approve certain amendments to the 1992 Incentive
Stock Option Plan and ratify the adoption of the Profit Sharing Plan and the
Long-Term Executive Profit Sharing Plan. The Compensation Committee will
continue to monitor the impact of such limitations on tax deductions and will
take other appropriate actions if warranted in the future.
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 continued strong financial
performance supports the compensation practices employed during the past year.
Respectfully submitted,
COMPENSATION COMMITTEE
JACK W. EVANS, SR.
J. IRA HARRIS
RAY L. HUNT
ROGER T. STAUBACH
STOCK PERFORMANCE CHART
The following is a chart of the line graph presentation comparing
cumulative, five-year total shareholder returns on an indexed basis with the
S&P 500 Index and the S&P Restaurant Industry Index. A list of the indexed
returns follows the graph.
1919
FIVE-YEAR TOTAL SHAREHOLDER RETURN COMPARISON
The graph assumes a $100 initial investment and the reinvestment of
dividends. The Common Stock prices shown are neither indicative nor
determinative of future performance.
1989 1990 1991 1992 1993 1994
Brinker International 100.00 123.92 196.14 253.84 395.17 363.45
S&P 500 100.00 116.49 125.10 141.88 161.22 162.84
S&P Restaurants 100.00 122.57 119.02 162.52 176.40 204.11
STOCK OPTIONS
In 1992, the Shareholders of the Company adopted the 1992 Incentive
Stock Option Plan ("Plan"). See "Amendment of Stock Option Plans - 1992
Incentive Stock Option Plan" below for a more detailed description of the
Plan.
In May 1991, the Board of Directors adopted the 1991 Stock Option Plan
for Non-Employee Directors and Consultants (the "1991 Plan"). See "Amendment
of Stock Option Plans - 1991 Stock Option Plan for Non-Employee Directors and
Consultants" for a more detailed description of the 1991 Plan.
MANAGEMENT SUCCESSION
Following the recommendation of the Compensation Committee, the Board
approved a resolution establishing a mandatory retirement age of 66 for the
Chief Executive Officer and the Chief Operating Officer. The Board believes
this to be in the best interest of the Company to assure an orderly transition
of management, and to assist in the constant review of management personnel.
Mr. Brinker is therefor scheduled to relinquish his role of Chief Executive
officer prior to the end of the 1997 fiscal year. As noted in "Report of the
Compensation Committee - CEO Compensation", the Company has entered into a
consulting agreement with Mr. Brinker to assure his continued assistance to
the Company. Absent unforseen circumstances, it is anticipated that
Mr. McDougall will succeed Mr. Brinker as Chief Executive Officer. The
Company is currently in the process of identifying appropriate management
personnel to fulfill additional leadership roles in the Company.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Under the securities laws of the United States, the Company's directors
and executive officers, and persons who own more than ten percent of the
Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Securities and Exchange Commission. Specific due dates have been established
for these reports and the Company is required to disclose in this proxy
statement, any failure to file by these dates. The Company believes that all
filing requirements applicable to its officers, directors and persons who own
2020
more than ten percent of the Company's Common Stock have been complied with.
In making these disclosures and filing of the reports, the Company has relied
solely on written representations from certain reporting persons.
CERTAIN TRANSACTIONS
The policy of the Company is, to the extent practicable, to avoid
transactions (except those which are employment related) with officers,
directors, and affiliates. In any event, any such transactions will be
entered into on terms no less favorable to the Company than could be obtained
from third parties, and such transactions will be approved by a majority of
the disinterested directors of the Company.
AMENDMENT TO CERTIFICATE OF INCORPORATION
The Company is currently authorized to issue 100,000,000 shares of
Common Stock, $0.10 par value, and 1,000,000 share of Preferred Stock, $1.00
par value. At Record Date, there were 71,626,565 shares of Common Stock
outstanding and no shares of Preferred Stock outstanding.
The Company recently effected a 3-for-2 stock split in the form of a 50%
stock dividend effective March 21, 1994. At June 29, 1994, the vested portion
of outstanding options granted under the Company's 1983 Incentive Stock Option
Plan, 1984 Non-Qualified Stock Option Plan, 1992 Incentive Stock Option Plan
and 1991 Stock Option Plan for Non-Employee Directors and Consultants
represented a right of the optionees to acquire in the aggregate 3,867,000
shares of Common Stock.
To be approved, the amendment requires the affirmative vote of a
majority of the outstanding shares of Common Stock. It is necessary to
increase the Company's authorized Common Stock from 100,000,000 to 250,000,000
shares for use in acquisitions, to provide for the flexibility to declare
stock splits or stock dividends in the future when appropriate and to
accommodate the future vesting of currently outstanding employee and non-
employee stock options, as well as stock options that may be granted in the
future, without incurring the delay or expense of a special meeting of
shareholders.
Aside from issuance of Common Stock pursuant to employee and non-
employee stock options the Company does not currently have plans for the
issuance of additional shares of Common Stock. The Board of Directors
considers it advisable, however, to have additional shares of Common Stock
available. The Company has used its Common Stock as consideration for
acquisitions since its organization (having issued 1,495,706 shares of Common
Stock during the 1994 fiscal year as consideration for two corporate
acquisitions), and the Company continually investigates possible acquisitions
and financing, some of which might involve the issuance of Common Stock. The
additional shares of Common Stock authorized by the proposed amendment would
be available for effecting future stock splits or stock dividends,
acquisitions, raising additional funds and attracting and retaining qualified
personnel.
2121
2222
Required Vote
The favorable vote of the holders of a majority of the shares of Common
Stock outstanding is required to approve this proposed amendment to the
Certificate of Incorporation of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
PROPOSED AMENDMENT TO INCREASE THE COMPANY'S AUTHORIZED COMMON STOCK FROM
100,000,000 TO 250,000,000 SHARES.
AMENDMENT OF STOCK OPTION PLANS
1992 Incentive Stock Option Plan
To strengthen the Company's ability to attract and retain key employees
and to furnish additional incentives to such persons by encouraging them to
become owners of Common Stock, the Board of Directors and the shareholders of
the Company adopted the Plan in 1992. The Plan initially covered the issuance
of up to 1,500,000 shares of Common Stock, which amount was increased to
3,375,000 shares of Common Stock as the result of two stock splits, effected
in the form of 50% stock dividends. In May 1993 the Compensation Committee of
the Board of Directors approved an amendment to the Plan which gave the
Compensation Committee greater flexibility to make determinations regarding
the vesting and exercise of stock options granted pursuant to the Plan upon
the death, disability, or retirement of a participant. In addition, the
amendment to the Plan allowed all stock options granted to become immediately
vested and exercisable at the election of a participant upon a material change
in control of the Company. Under Section 162(m) of the Internal Revenue Code,
a limitation was placed on tax deductions of 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 intended that the Plan meet the performance-based compensation exception to
the limitation on deductions. At the Annual Meeting, the shareholders of the
Company are being asked to approve such amendment.
As of June 29, 1994, options to purchase an aggregate of 1,500,088
shares of Common Stock had been granted pursuant to the Plan, all of which
were granted in fiscal 1994 and remain outstanding, and 1,874,912 shares
remain available for future grant. As of June 29, 1994, the market value of
all shares of Common Stock subject to outstanding options granted pursuant to
the Plan was $31,501,848 (based upon the closing sale price of Common Stock as
reported on the New York Stock Exchange on such date). As of June 29, 1994,
Norman E. Brinker, Ronald A. McDougall, Creed L. Ford, III, Debra L. Smithart
and Douglas H. Brooks had been granted options covering an aggregate of
202,500; 202,500; 56,250; 56,250 and 45,000 shares of Common Stock pursuant to
the Plan, respectively. Since adoption of the Plan in 1992, all current
executive officers, as a group, have been granted 757,500 options covering
shares of Common Stock pursuant to the Plan.
2323
Summary of the Plan
The Plan is designed to permit the granting of options to all employees
of the Company and its subsidiaries (for which there were approximately 38,000
employees as of June 29, 1994), although the Company has historically granted
options only to salaried employees. The administration of the Plan is
provided by the Compensation Committee which has the authority to determine
the terms on which options are granted under the Plan. The Compensation
Committee determines the number of options to be granted to eligible
participants, determines the purchase price and option period at the time the
option is granted, and administers and interprets the Plan.
The exercise price of options is payable in cash or the holder of an
option may request approval from the Compensation Committee to exercise an
option or a portion thereof by tendering shares of Common Stock at the fair
market value per share on the date of exercise in lieu of cash payment of the
exercise price.
Unless sooner terminated by action of the Board of Directors, the Plan
will terminate on September 7, 2002, and no options may thereafter be granted
under the Plan. The Plan may be amended, altered or discontinued by the
Compensation Committee without the approval of the shareholders, except that
the Compensation Committee does not have the power or authority to materially
increase the benefits accruing to participants under the Plan, materially
change the participants or class of participants who are eligible to receive
options, or materially increase the aggregate number of shares that may be
issued under the Plan. The Compensation Committee, however, may make
appropriate adjustments in the number of shares covered by the Plan, the
number of outstanding options, and the option prices, to reflect any stock
dividend, stock split, share combination, merger, consolidation,
reorganization, liquidation or the like, of or by the Company.
Both incentive stock options ("ISOs") and non-qualified stock options
may be granted under the Plan. The Plan requires that the exercise price of
each ISO will not be less than 100% of the fair market value of the Common
Stock on the date of the grant of the option. No ISO, however, may be granted
under the Plan to anyone who owns more than 10% of the outstanding Common
Stock unless the exercise price is at least 110% of the fair market value of
the Common Stock on the date of grant and the option is not exercisable more
than five years after it is granted. There is no limit on the fair market
value of ISOs that may be granted to an employee in any calendar year, but no
employee may be granted ISOs that first become exercisable during a calendar
year for the purchase of stock with an aggregate fair market value (determined
as of the date of grant of each option) in excess of $100,000 and no employee
may be granted more than 20% of the total options granted in a calendar year.
An option (or an installment thereof) counts against the annual limitation
only in the year it first becomes exercisable.
Tax Status of Stock Options
2424
Pursuant to the Plan, the Compensation Committee may provide for an
option to qualify either as an "ISO" or as a "non-qualified option."
Incentive Stock Options. All stock options that qualify under the rules
of Section 422 of the Internal Revenue Code, will be entitled to ISO
treatment. To receive ISO treatment, an optionee is not permitted to dispose
of the acquired stock (i) within two years after the option is granted or (ii)
within one year after exercise. In addition, the individual must have been an
employee of the Company for the entire time from the date of granting of the
option until three months (one year if the employee is disabled) before the
date of the exercise. The requirement that the individual be an employee and
the two-year and one-year holding periods are waived in the case of death of
the employee. If all such requirements are met, no tax will be imposed upon
exercise of the option, and any gain upon sale of the stock will be entitled
to capital gain treatment. The employee's gain on exercise (the excess of
fair market value at the time of exercise over the exercise price) of an ISO
is a tax preference item and, accordingly, is included in the computation of
alternative minimum taxable income.
If an employee does not meet the two-year and one-year holding
requirement (a "disqualifying disposition"), but does meet all other
requirements, tax will be imposed at the time of sale of the stock, but the
employee's gain on exercise will be treated as ordinary income rather than
capital gain and the Company will receive a corresponding deduction at the
time of sale. Any remaining gain on sale will be short-term and long-term
capital gain, depending on the holding period of the stock. If the amount
realized on the disqualifying disposition is less than the value at the date
of exercise, the amount includable in gross income, and the amount deductible
by the Company, will equal the excess of the amount realized on the sale or
exchange over the exercise price.
An optionee's stock option agreement may permit payment for stock upon
the exercise of an ISO to be made with other shares of Common Stock. In such
a case, in general, if an employee uses stock acquired pursuant to the
exercise of an ISO to acquire other stock in connection with the exercise of
an ISO, it may result in ordinary income if the stock so used has not met the
minimum statutory holding period necessary for favorable tax treatment as an
ISO.
Non-Qualified Stock Options. In general, no taxable income will be
recognized by the optionee, and no deduction will be allowed to the Company,
upon the grant of an option. Upon exercise of a non-qualified option an
optionee will recognize ordinary income (and the Company will be entitled to a
corresponding tax deduction if applicable withholding requirements are
satisfied) in an amount equal to the amount by which the fair market value of
the shares on the exercise date exceeds the option price. Any gain or loss
realized by an optionee on disposition of such shares generally is a capital
gain or loss and does not result in any tax deduction to the Company.
Amendments
2525
The Plan provides that upon death or disability of a participant, a
previously granted option which has vested may be exercised by the estate of
the participant prior to the date of its expiration or 180 days from the date
of death or disability, whichever first occurs. No provision currently exists
for the retirement of a participant. Additionally, there is a change of
control provision in the Plan that applies to principal officers only.
The Board of Directors recommends that the shareholders vote in favor of
amending the Plan to allow the Compensation Committee to determine appropriate
retirement qualifications and exercise periods, and to provide that all
options granted to a participant will vest as of the date of death,
disability, or, in certain circumstances, retirement. The Board of Directors
believes this to be in the best interest of the Company as it will facilitate
the retention and recruitment of top quality employees and allow for the
necessary flexibility for the estate or representatives of the participant to
exercise prudent tax planning, expand the time period during which stock
options must be exercised, and reduce the possibility of large blocks of stock
being sold at inopportune times. Furthermore, the amendment would allow for
the establishment of appropriate retirement guidelines, as determined from
time to time by the Compensation Committee of the Company.
The Board of Directors also recommends the approval of an amendment to
the Plan to provide for a change of control provision that is applicable to
all employee participants. The amendment would provide that upon a material
change in control of the Company (including a merger, dissolution, acquisition
by another entity, or change in control of the majority of voting shares), all
outstanding options would immediately become fully vested and available for
exercise. The Board believes this amendment to be in the best interest of the
Company as it makes the provision applicable to all employee participants, is
a customary provision in such plans, and provides for incentive to all
participants to maximize the value of the Company.
Required Vote
The favorable vote of the holders of a majority of the shares of Common
Stock present and entitled to vote at the Annual Meeting in person or by proxy
is required to approve the proposed amendment to the Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THIS
PROPOSAL TO AMEND THE PLAN.
1991 Stock Option Plan for Non-Employee Directors and Consultants
In 1991, the Board of Directors and Shareholders of the Company adopted
the 1991 Plan pursuant to which options may be granted to non-employee
directors and consultants. The 1991 Plan originally permitted the issuance of
100,000 shares of Common Stock, which amount was increased to 337,500 shares
of Common Stock as the result of three stock splits, effected in the form of
50% stock dividends. The Board of Directors has approved an amendment to the
1991 Plan which gives the Executive Committee greater flexibility to determine
appropriate exercise periods for options issued pursuant to the 1991 Plan, to
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provide for full vesting of options granted pursuant to the 1991 Plan upon the
death or disability of a participant, to adopt appropriate retirement
guidelines, and to make other decisions regarding like issues. At the Annual
Meeting, the shareholders of the Company are being asked to approve such
amendment.
As of June 29, 1994, options to purchase an aggregate of 124,500 shares
of Common Stock had been granted pursuant to the 1991 Plan, options to
purchase 3,375 shares had been exercised, options to purchase 122,125 shares
remain outstanding, and 213,000 shares remain available for future grant. As
of June 29, 1994, the market value of all shares of Common Stock subject to
outstanding options granted pursuant to the Plan was $2,102,625 (based upon
the closing sale price of Common Stock as reported on the New York Stock
Exchange on such date). As of June 29, 1994, the current non-employee
directors of the Company had each been granted options pursuant to the 1991
Plan as set forth below:
Total Options Issued
Name Under 1991 Plan
(As of June 29, 1994)
Jack W. Evans, Sr. 14,250
Rae F. Evans 14,250
J.M. Haggar, Jr. 14,250
J. Ira Harris -0-
Frederick S. Humphries -0-
Ray L. Hunt 14,250
James E. Oesterreicher -0-
William F. Regas 14,250
Roger T. Staubach 3,000
In fiscal 1994, options covering 18,000 shares of Common Stock were
granted to non-employee directors and consultants of the Company pursuant to
the 1991 Plan.
Summary of the 1991 Plan
The 1991 Plan is designed to permit the granting of options to purchase
Common Stock to directors of the Company who are not employees of the Company
or its subsidiaries and to certain consultants and advisors. The purpose of
the 1991 Plan is to provide such directors, consultants and advisors with a
proprietary interest in the Company through the granting of options which will
increase their interest in the Company's welfare, furnish them an incentive to
continue their services for the Company and provide a means through which the
Company may attract able persons to serve on its Board of Directors and act as
consultants or advisors.
The exercise price of options is payable in cash or, if an option
agreement so provides, the holder of an option may request approval from the
Company to exercise an option or a portion thereof by tendering shares of
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Common Stock at the fair market value per share on the date of exercise in
lieu of cash payment of the exercise price.
Unless soon terminated by action of the Board of Directors, the 1991
Plan will terminate on May 14, 2001, and no options may thereafter be granted
under the 1991 Plan. The 1991 Plan may be amended, altered or discontinued by
the Board of Directors without the approval of the shareholders, except that
the Board of Directors does not have the power or authority to materially
increase the benefits accruing to participants under the Plan, materially
change the participants or class of participants who are eligible to receive
options, or materially increase the aggregate number of shares that may be
issued under the 1991 Plan. The Board of Directors, however, may make
appropriate adjustments in the number of shares covered by the 1991 Plan, the
number of outstanding options, and in the option prices, to reflect any stock
dividend, stock split, share combination, merger, consolidation,
reorganization, liquidation or the like, of or by the Company.
Only non-qualified stock options may be granted under the 1991 Plan. In
general, no taxable income will be recognized by the optionee, and no
deduction will be allowed to the Company, upon the grant of an option. Upon
exercise of a non-qualified option, an optionee will recognize ordinary income
(and the Company will be entitled to a corresponding tax deduction if
applicable withholding requirements are satisfied) in an amount equal to the
amount by which the fair market value of the shares on the exercise date
exceeds the option price. Any gain or loss realized by an optionee on
disposition of such shares generally is a capital gain or loss and does not
result in a tax deduction to the Company.
Amendments
The 1991 Plan currently provides that a participant must be a director
or consultant at the time of exercise of an option. Additionally, the current
1991 Plan provides that each participant will, on the second Monday in July of
each year, be granted an option effective as of that date to purchase 2,000
shares of the Company's Common stock. It also provides that upon the death or
disability of a participant, the estate of the participant may exercise only
the options vested at the time of death or disability, such exercise to occur
upon the earlier to occur of the year following the death or disability of a
participant or prior to the expiration of the option.
The Board of Directors, upon recommendation by the Executive Committee
of the Company, recommends that the shareholders approve amendments to the
1991 Plan to allow for the Executive Committee to determine appropriate
exercise periods, and to provide that all options granted prior to the death
of a participant shall vest upon the death of the participant. The Board
believes this to be in the best interest of the Company as it allows for
necessary flexibility for the estate of the participant to exercise prudent
tax planning, reduce the requirement that stock be sold within a finite time
period and the possibility of large blocks of stock being sold at inopportune
times, and allows for the establishment of appropriate retirement guidelines,
as determined from time to time. The requirement that a participant be a
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director or consultant at the time of exercise necessitates that a director or
consultant forfeit a portion of their options when they leave the Board, and
that to allow for vesting to continue after a member leaves the Board will
maintain their long-term interest in the welfare of the Company.
The amendment to the 1991 Plan would also provide that if a member of
the Board of Directors during such Director's term waives receipt of the
annual fee for serving on the Board of Directors, such director would receive
a one-time grant of up to 12,000 stock options under the 1991 Plan to purchase
Common Stock of the Company. See "Directors - Directors Compensation".
Required Vote
The favorable vote of the holders of a majority of the shares of Common
Stock present and entitled to vote at the Annual Meeting in person or by proxy
is required to approve the proposed amendment to the 1991 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THIS
PROPOSAL TO AMEND THE 1991 PLAN.
RATIFICATION OF PROFIT SHARING PLAN
The Company adopted a Profit Sharing Plan in 1984. The Profit Sharing
Plan is a non-qualified annual incentive arrangement in which all corporate
employees, including executives, participate. The Profit Sharing Plan is
designed to reflect employees' contribution to the growth of the Company's
Common Stock value by increasing the earnings of the Company. The Profit
Sharing Plan reinforces a strong team work ethic by making the basis for
payouts to all employees the same. Under Section 162(m) of the Internal
Revenue Code, a limitation was placed on tax deductions of 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. In order that the Company might continue to provide
incentive compensation to its executive officers, and continue to receive a
federal income tax deduction for the payment of such compensation, the Profit
Sharing Plan has been designed in a manner intended to meet the performance-
based compensation exception to the limitation on deductions.
At the Annual Meeting, the shareholders of the Company are being asked
to ratify adoption of the Profit Sharing Plan.
Summary of the Profit Sharing Plan
Each employee is assigned an Individual Participation Percentage ("IPP")
which is tied to the base salary for such employee. Payouts under the Profit
Sharing Plan are based on a formula that multiplies an employee's IPP times
the base wages paid to the employee during the fiscal year times a factor that
measures the difference between the Company's actual and planned performance.
Planned performance parameters based on the Company's annual plan approved by
the Executive Committee and Board of Directors are reviewed and approved prior
to the beginning of the fiscal year by the Compensation Committee. For each
2929
one percentage point difference between the actual and planned performance,
the factor is adjusted by an upside or downside (as appropriate) multiplier of
six points for the chief executive officer, president, executive vice
presidents, and senior vice presidents and by a multiplier of four points for
other participants. To ensure that the Company achieves a minimally
acceptable level of performance before any payouts are made to employees, a
minimum level of achievement is required, and no profit sharing payouts are
made if the Company's performance is below a minimum level. There is no
maximum cap on payouts under the Profit Sharing Plan.
Employees who have been with the Company for less than twelve months but
more than six months will participate in the plan on a prorated basis. The
Profit Sharing Plan is administered by the Human Resources Department of the
Company. Changes in the IPP for an employee must be approved by the Executive
Committee except for changes in the IPP for an officer, which must be approved
by the Compensation Committee.
Required Vote
A favorable vote of the holders of a majority of the shares of Common
Stock present and entitled to vote at the Annual Meeting in person or by proxy
is required to ratify adoption of the Profit Sharing Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THIS
PROPOSAL TO RATIFY ADOPTION OF THE PROFIT SHARING PLAN.
RATIFICATION OF LONG-TERM EXECUTIVE PROFIT SHARING PLAN
The Company adopted the Long-Term Executive Profit Sharing Plan in 1988
(the "Long-Term Plan"). The Long-Term Plan is a non-qualified annual long-
term performance cash plan in which all officers of the Company participate.
The Long-Term Plan provides an additional mechanism for focusing executives on
the sustained improvement in operating results over the long term. Under
Section 162(m) of the Internal Revenue Code, a limitation was placed on tax
deductions of 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. In order that the Company
might continue to provide incentive compensation to its executive officers,
and continue to receive a federal income tax deduction for the payment of such
compensation, the Long-Term Plan has been designed in a manner intended to
meet the performance-based compensation exception to the limitation on
deductions.
At the Annual Meeting, the shareholders of the Company are being asked
to ratify adoption of the Long-Term Plan.
Summary of the Long-Term Plan
The Long-Term Plan is a performance-related plan using overlapping
three-year cycles paid annually. Performance units (valued at $100 each) are
granted to officers of the Company and paid in cash based upon the Company's
3030
attainment of predetermined performance objectives. The number of performance
units assigned to an officer is determined by the President and the Chief
Executive Officer after receipt of recommendations from the Compensation
Committee. The number of performance units assigned to the President and the
Chief Executive Officer is determined by the Compensation Committee.
Long-term operating results are measured by evaluating both pre-tax net
income and changes in shareholders' equity over a three-year cycle. For each
one percentage point difference between the actual and planned target for pre-
tax net income in a given year there is applied an upside or downside (as
appropriate) multiplier of two points to determine such year's index factor.
If the actual pre-tax net income for a year is less than eighty percent of the
planned pre-tax net income for such year, the index factor for such year will
be zero. There is no cap on the index factor for a year. The index factor
for each of the three years in a cycle are averaged together to determine the
pre-tax net income factor for such cycle.
The annual index factor for changes in shareholders' equity is
determined by application of a sliding scale to the actual change in
shareholders' equity for a given year. The scale assigns an annual index
factor ranging from zero for a decrease in shareholders' equity in a year in
excess of ten percent to 120% for an increase in shareholders' equity in a
year in excess of 7.5%. The index factor for each of the three years in a
cycle are averaged together to determine the shareholders' equity factor for
such cycle.
The pre-tax net income factor for a cycle is weighted 70% and the
shareholders' equity factor for a cycle is weighted 30% in determining a
weighted average factor for the cycle. This weighted average factor for the
cycle is then applied to the number of performance units awarded to an officer
for the cycle to determine the cash payment to be made to such officer.
Changes in the method of calculating the annual index factors for pre-
tax net income and changes in shareholders' equity are made by the
Compensation Committee.
Required Vote
A favorable vote of the holders of a majority of the shares of Common
Stock present and entitled to vote at the Annual Meeting in person or by proxy
is required to ratify adoption of the Long-Term Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THIS
PROPOSAL TO RATIFY ADOPTION OF THE LONG-TERM PLAN.
SHAREHOLDERS' PROPOSALS
Any proposals that shareholders of the Company desire to have presented
at the 1995 annual meeting of shareholders must be received by the Company at
its principal executive offices no later than May 31, 1995.
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MISCELLANEOUS
The accompanying proxy is being solicited on behalf of the Board of
Directors of the Company. The expense of preparing, printing and mailing the
form of proxy and the material used in the solicitation thereof will be borne
by the Company. In addition to the use of the mails, proxies may be solicited
by personal interview, telephone and telegram by directors, officers, and
employees of the Company, as well as by Chemical Shareholder Services Group,
Inc. at a cost of $5,000 plus reasonable out-of-pocket expenses. Arrangements
may also be made with brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation material to the beneficial
owners of stock held of record by such persons, and the Company may reimburse
them for reasonable out-of-pocket expenses incurred by them in connection
therewith.
The Annual Report to Shareholders of the Company, including financial
statements for the fiscal year ended June 29, 1994, accompanying this Proxy
Statement is not deemed to be a part of the Proxy Statement.
By Order of the Board of Directors,
ROGER F. THOMSON
Secretary
Dallas, Texas
September 29, 1994
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