BRINKER INTERNATIONAL
LOGO
6820 LBJ Freeway
Dallas, Texas 75240
(972) 980-9917
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held November 14, 2002
September 24, 2002
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 14, 2002, at the Westin
Park Central Hotel, located at 12720 Merit Drive, Dallas, Texas.
At the meeting, shareholders will elect ten (10) directors for
one-year terms, vote on an amendment to the Company's Stock
Option and Incentive Plan, and vote on such other matters,
including a shareholder proposal, as may properly come before the
meeting. Our agenda for the meeting will also include a
strategic overview of the Company.
Shareholders of record at the close of business on September 16,
2002, are entitled to vote at the annual meeting or any
adjournment thereof.
Whether or not you plan to be present at the meeting, please take
the time to vote, either by telephone or by mailing in your
proxy. The giving of such proxy will not affect your right to
vote in person, should you later decide to attend the meeting.
Very truly yours,
Ronald A. McDougall
Chairman of the Board and
Chief Executive Officer
BRINKER INTERNATIONAL, INC.
6820 LBJ Freeway
Dallas, Texas 75240
(972) 980-9917
==============
PROXY STATEMENT
For
ANNUAL MEETING OF SHAREHOLDERS
To Be Held November 14, 2002
==============
The Board of Directors of Brinker International, Inc., a
Delaware corporation (the "Company" or "Brinker International")
requests your proxy for the annual meeting of shareholders to be
held on November 14, 2002. If you sign and return the enclosed
proxy, or vote by telephone, you authorize the persons named in
the proxy to represent you and vote your shares for the purposes
we mentioned in the notice of annual meeting. This Proxy
Statement and related proxy are being distributed on or about
September 24, 2002. The record date for shareholders entitled to
vote at the annual meeting is September 16, 2002. At the close
of business on September 9, 2002, the Company had 97,377,571
shares of common stock, $0.10 par value ("Common Stock"), issued
and outstanding and entitled to vote at the meeting. At the
annual meeting, shareholders will (a) elect ten directors of the
Company for one-year terms, (b) vote on an amendment to the
Company's Stock Option and Incentive Plan, and (c) vote on such
other matters, including a shareholder proposal, as may properly
come before the meeting. The Board of Directors asks you to vote
FOR the director nominees and FOR the amendment to the Stock
Option and Incentive Plan and to vote AGAINST the shareholder
proposal. This Proxy Statement provides you with detailed
information about each of these matters.
If you come to the meeting, you will be able to vote in
person. If you are unable to come to the meeting, your shares
can be voted only if you have returned a properly executed proxy
or followed the telephone voting instructions. You may revoke
your authorization at any time before the shares are voted at the
meeting by giving written notice or a subsequently dated proxy
(either by mail or by telephone), to the Secretary of the
Company, or by voting in person.
A quorum of shareholders is necessary to hold a valid
meeting. If at least a majority of the shares of Common Stock
issued and outstanding and eligible to vote are present in person
or by proxy, a quorum will exist. Abstentions and broker non-
votes are counted for purposes of determining the presence or
absence of a quorum. However, only the number of shares voted in
person or by proxy and abstentions are counted for purposes of
determining the presence or absence of a quorum for a specific
proposal. The total number of votes cast FOR each proposal will
be counted for purposes of determining whether sufficient
affirmative votes have been cast. If you grant a proxy, the
person named in the proxy will have the discretion to vote your
shares on any additional matters properly presented for a vote at
the meeting. The Company does not expect any matters to be
presented for a vote at the annual meeting other than those
matters described in this Proxy Statement.
Certain shareholders who hold their shares in street name
and live in the same household may receive only one copy of this
Proxy Statement and Annual Report. This practice is known as
"householding." If you hold your shares in street name and would
like additional copies of these materials, please contact your
broker. If you receive multiple copies and would prefer to
receive only one, please contact your broker as well. Brinker
International does not currently use householding for record
holders and will send notice to record holders before using
householding, giving record holders the opportunity to continue
to receive multiple copies in the same household.
PROPOSAL 1
ELECTION OF DIRECTORS
Ten directors are to be elected at the meeting. Each
nominee will be elected to hold office until the next annual
meeting of shareholders. With the exception of Erle Nye, all
nominees are currently serving as directors of the Company; all
current directors were elected by the shareholders at the annual
meeting of shareholders held on November 15, 2001, except Cece
Smith, who was appointed to the Board of Directors in January
2002. 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 Board of
Directors can name a substitute nominee and the proxies will be
voted for such substitute nominee unless an instruction to the
contrary is written on the proxy card.
Information About Nominees
Information about the ten persons nominated as directors is
provided below. The shares represented by proxy cards returned
to us will be voted FOR these persons unless you specify
otherwise.
Ronald A. McDougall, 60, was elected Chairman of the Board
and Chief Executive Officer in November 2000, having served as
Vice Chairman and Chief Executive Officer from January 1999 until
November 2000, and President and Chief Executive Officer of the
Company from June 1995 until January 1999. Mr. McDougall joined
the Company in 1983 and served as Executive Vice President -
Marketing and Strategic Development until his promotion to
President and Chief Operating Officer in 1986, a position he held
until 1995. Mr. McDougall has served as a member of the Board of
Directors of the Company since 1983 and is a member of the
Executive Committee of the Company. Mr. McDougall also serves on
the Board of Trustees of the Cooper Institute for Aerobics
Research and Southern Methodist University's Edwin L. Cox School
of Business.
Douglas H. Brooks, 50, became President and Chief Operating
Officer of the Company in January 1999. Previously, Mr. Brooks
served as Chili's Grill & Bar ("Chili's") President from June
1994 to May 1998 and Executive Vice President and Chief Operating
Officer from May 1998 until January 1999. Mr. Brooks joined the
Company as an Assistant Manager in 1978 and was promoted to
General Manager later that year. He was named Area Supervisor in
1979, Regional Director in 1982, Senior Vice President - Central
Region Operations in 1987, and Senior Vice President - Chili's
Operations in 1992. He held this position until becoming
President of Chili's in 1994. Mr. Brooks serves on the Board of
Directors of Limbs for Life and is a member of the Professional
Advisory Board for St. Jude Children's Research Hospital.
Dan W. Cook, III, 67, is Senior Advisor to MHT Partners,
L.P., an investment banking firm, a position he has held since
December 2001. Mr. Cook also is a Retired Partner of Goldman
Sachs, an investment banking firm. Mr. Cook joined Goldman Sachs
Group in 1961, was a general partner when he retired in 1992, and
served as a Senior Director from 1992 until becoming a Retired
Partner in December 2000. Mr. Cook is a member of the Executive,
Compensation and Governance and Nominating Committees of the
Company and has served as a member of the Board of Directors
since October 1997. Mr. Cook also serves on the Board of
Directors of Centex Corporation and GreatLodge.Com and is an
Advisory Director of Deep Nines. Mr. Cook is a member of the
Board of Trustees of Southern Methodist University as well as
Director of the Edwin L. Cox School of Business Executive Board.
Marvin J. Girouard, 63, is the Chairman and Chief Executive
Officer of Pier 1 Imports, Inc., having been elected to the
position of Chairman in February 1999 and Chief Executive Officer
in June 1998. Mr. Girouard previously served as Chief Operating
Officer from 1988 to 1998 and as President from 1988 until
February 1999. Mr. Girouard joined Pier 1 Imports in 1975 and
has served on its Board of Directors since 1988. He serves as a
Director for Tandy Brands Accessories, Inc. and is a member of
the Executive Committee for the United States Committee for
UNICEF - The United Nations Children's Emergency Fund. Mr.
Girouard has served as a member of the Board of Directors since
September 1998 and is a member of the Audit, Compensation and
Executive Committees of the Company.
Ronald Kirk, 48, has been a partner in the law firm of
Gardere Wynne Sewell, L.L.P. since 1994 and is currently a
candidate for the United States Senate. Mr. Kirk served as the
Mayor of the City of Dallas from 1995 until November 2001. Mr.
Kirk has served on the Board of Directors since January 1997 and
is a member of the Governance and Nominating Committee of the
Company.
Jeffrey A. Marcus, 55, is a private investor. Mr. Marcus
previously served as Chairman and Chief Executive Officer of Novo
Networks, Inc., a broadband telecommunications company, from
April 2000 until June 2001, Partner of Marcus & Partners, a
private equity investment firm, from March 1999 until April 2000
and President and Chief Executive Officer of AMFM, Inc. (formerly
Chancellor Media Corporation), from May 1998 until March 1999.
Previously, Mr. Marcus was Chairman, President and Chief
Executive Officer of Marcus Cable Company, a company he formed in
1990. Mr. Marcus serves on the Board of Directors of the Edwin L.
Cox School of Business at Southern Methodist University and is
active in several civic and charitable organizations. Mr. Marcus
has served on the Board of Directors since January 1997 and is a
member of the Executive and Governance and Nominating Committees
of the Company.
Erle Nye, 65, has been Chairman of the Board and Chief
Executive of TXU Corp., a global energy services company, since
1997, having served as President and Chief Executive from 1995 to
1997, and President from 1987 to 1995. Mr. Nye has served on the
Board of Directors of TXU Corp. since 1987. Mr. Nye also serves
as Chairman of the Board and Chief Executive, and Director of
Oncor Electric Delivery Company, TXU Energy Company LLC, TXU Gas
Company, and TXU US Holdings Company and as a Director of TXU
Europe Limited. Mr. Nye serves on the Board of Directors of the
Edwin L. Cox School of Business at Southern Methodist University
and is on the board of many professional, civic and charitable
organizations.
James E. Oesterreicher, 61, is the Retired Chairman of the
Board of J.C. Penney Company, Inc., having served as Chairman of
the Board and Chief Executive Officer from January 1997 until
September 2000 and Vice Chairman and Chief Executive Officer from
January 1995 until January 1997. Mr. Oesterreicher served as
President of JCPenney Stores and Catalog from 1992 to 1995 and as
Director of JCPenney Stores from 1988 to 1992. Mr. Oesterreicher
has been with the J.C. Penney Company since 1964 where he started
as a management trainee. He serves as a Director for The Dial
Corporation, TXU Corp., Texas Health Resources, Circle Ten
Council - Boy Scouts of America, March of Dimes, Spina Bifida
Birth Defects Foundation, Aspen Institute Domestic Strategy
Group, and American Society of Corporate Executives. Mr.
Oesterreicher has served as a member of the Board of Directors of
the Company since May 1994 and is a member of the Audit and
Compensation Committees of the Company.
Cece Smith, 57, is Managing General Partner of Phillips-
Smith-Machens Venture Partners, a venture capital firm investing
in retail and consumer businesses that she co-founded in 1986.
Previously, Ms. Smith held senior management positions with
Pearle Health Services and S & A Restaurant Corp. Ms. Smith has
served as a member of the Board of Directors since January 2002
and is a member of the Audit and Compensation Committees of the
Company.
Roger T. Staubach, 60, has been Chairman of the Board and
Chief Executive Officer of The Staubach Company, a full-service
real estate strategy and services firm, since 1982. Mr. Staubach
played professional football for the Dallas Cowboys and was
elected to the National Football League Hall of Fame in 1985. He
currently serves on the Board of Directors of AMR Corporation and
is active in numerous civic, charity and professional
organizations. He has served as a member of the Board of
Directors of the Company since 1993 and is a member of the
Governance and Nominating Committee of the Company.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE
NOMINEES FOR DIRECTOR.
Stock Ownership Of Directors
Number of Shares of Number Attributable
Common Stock to Options
Name Beneficially Owned Exercisable Within
as of September 9, 60 Days of September
2002 (1) (2) (3) 9, 2002
Ronald A. McDougall 777,197 701,250
Douglas H. Brooks 898,375 768,752
Dan W. Cook, III 39,591 39,591
Marvin J. Girouard 22,927 20,604
Ronald Kirk 23,783 22,634
Jeffrey A. Marcus 14,008 4,008
Erle Nye -0- -0-
James E. Oesterriecher 13,753 10,604
Cece Smith 1,198 -0-
Roger T. Staubach 22,247 18,598
(1) Beneficial ownership has been determined in accordance with
the rules of the Securities and Exchange Commission. Except as
noted, and except for any community property interests owned by
spouses, the listed individuals have sole investment power and
sole voting power as to all shares of stock of which they are
identified as being the beneficial owners.
(2) Includes shares of Common Stock which may be acquired by
exercise of options vested, or vesting within 60 days of
September 9, 2002, under the Company's 1983 Incentive Stock
Option Plan, 1991 Stock Option Plan for Non-Employee Directors
and Consultants, 1992 Incentive Stock Option Plan, Stock Option
and Incentive Plan, and 1999 Stock Option and Incentive Plan for
Non-Employee Directors and Consultants, as applicable.
(3) Each director owns less than 1% of the Company's Common
Stock.
PROPOSAL 2
AMENDMENT OF STOCK OPTION AND INCENTIVE PLAN
In September 1998, the Board of Directors adopted the Stock
Option and Incentive Plan (the "Plan"), covering the issuance of
up to 9,000,000 shares of Common Stock of the Company. The
adoption of the Plan was approved by the shareholders of the
Company in November 1998. The purpose of the Plan is to
strengthen the Company's ability to attract and retain key
employees and to provide an incentive to employees and other
persons who will be responsible for the Company's future growth
and continued success. The Plan allows the issuance of stock
options, stock appreciation rights, and restricted stock to
eligible participants. At the annual meeting, the shareholders
of the Company are being asked to approve an amendment to the
Plan to (a) increase the number of shares of Common Stock
available for awards under the Plan by an additional 4,500,000
shares and (b) limit the total number of shares of restricted
stock that may be issued pursuant to the Plan to 500,000 shares
plus those shares of restricted stock previously granted pursuant
to the Plan. The following description is subject in all
respects to the terms of the Plan.
Summary of the Plan
Stock Options
The Plan is designed to permit the granting of options to
all employees of the Company and its subsidiaries (of which there
were approximately 90,000 employees as of June 26, 2002),
although the Company has historically granted options only to
certain of its salaried employees. The administration of the
Plan will be provided by the Compensation Committee of the Board
of Directors 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 exercise 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.
Both incentive stock options ("ISOs") and non-qualified
stock options may be granted under the Plan. The Plan requires
that the exercise price of an option 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 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 500,000 options
and SARs (hereinafter defined) in a fiscal 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
Pursuant to the Plan, the Compensation Committee shall
determine whether an option will be an "ISO" or 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 requirements, 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 a capital gain and the Company will receive a
corresponding deduction at the time of sale. Any remaining gain
on sale will be a short-term or a long-term capital gain,
depending on the holding period of the stock.
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 exercise price. Any additional gain or loss after
exercise realized by an optionee on subsequent disposition of
such shares generally is a capital gain or loss and does not
result in a tax deduction to the Company.
Internal Revenue Code Section 162(m). 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. The Plan meets the first requirement of this
exception because no options will be awarded at an exercise price
less than the fair market value of the stock on the date of
grant. In addition, the administration of the plan by the
Compensation Committee satisfies a second requirement for
exemption from the $1,000,000 cap. A third requirement is
satisfied due to the limitation on the number of shares that may
be granted to any single employee during any fiscal year of the
Company. The last requirement for exemption from the $1,000,000
cap has been satisfied by the approval of the Plan by the
shareholders of the Company. In order to continue to satisfy this
requirement, the Company is seeking the approval of this
amendment to the Plan by the shareholders of the Company.
Stock Appreciation Rights and Stock Awards
The Plan also permits the issuance of stock appreciation
rights ("SARs") and restricted stock ("Stock Awards") (SARs and
Stock Awards are collectively referred to as "Awards"). All
employees of the Company and its subsidiaries are eligible to
receive Awards under the Plan, although it is anticipated that
only certain salaried employees will receive Awards. When an
Award is made, the Compensation Committee will specify (a) the
amount and form of the Award, (b) the objective performance
goals, if any, that must be met in order for amounts to be
payable pursuant to the Award, (c) the period, if any, during
which the performance goals must be met, and (d) the period, if
any, during which the participant must remain employed by the
Company or a subsidiary as a condition of the Award ("Vesting
Period"). The Compensation Committee may specify additional
terms as it deems appropriate.
The Compensation Committee may establish objective
performance goals for Awards. The objective performance goals
may relate to the performance of an employee's department or
restaurant concept or the performance of the Company and its
subsidiaries as a whole, or any combination of the two. The
Compensation Committee may use any objectively determinable
performance goals to measure performance. The Compensation
Committee will establish the objective performance goals for
Awards in writing before the beginning of the fiscal year, unless
otherwise permitted under Section 162(m) of the Internal Revenue
Code. At the end of each performance period for which an Award
relates, the Compensation Committee will determine whether and to
what extent the performance goals have been met. Awards will not
be paid to the extent that the performance goals are not met. If
any performance goal, business criteria or target for an Award is
affected by special factors, the Compensation Committee may make
special adjustments in the performance goal, business criteria or
target.
Awards may also be subject to vesting requirements under
which the participant must remain a full-time active employee of
the Company or a subsidiary throughout a "Vesting Period" in
order for the Award to be payable. Full or partial acceleration
of vesting will occur in the event of death or disability. The
Compensation Committee may accelerate vesting, in whole or in
part, under such circumstances as the Compensation Committee
deems appropriate, but subject to the requirements of Section
162(m) of the Internal Revenue Code. No employee may be granted
more than 500,000 stock options and SARs in a fiscal year and the
maximum payment that can be made to an employee relating to Stock
Awards in a fiscal year is $1,000,000.
Tax Status of SARs and Stock Awards
Under the Internal Revenue Code, except as described below,
if Awards are made in the form of restricted stock, no income
will be realized by the employee upon the award of restricted
stock. When restricted stock vests, the employee will recognize
ordinary compensation income equal to the then fair market value
of the shares. An employee may elect to make a "Section 83(b)
election" under the Internal Revenue Code, in which case the
employee will recognize income on the fair market value of the
restricted stock at the time the shares are granted. A Section
83(b) election must be made within 30 days after the restricted
stock is granted. The Company generally will be entitled to a
federal income tax deduction at the time the employee recognizes
income on the restricted stock.
If Awards are made in the form of SARs, no income will be
realized by the employee upon the award of SARs. When the SARs
vest, the employee will recognize ordinary compensation income
equal to the cash value of the SARs. The Company generally will
be entitled to a federal income tax deduction at the time the
employee recognizes income on the SARs.
Grants of Awards are generally intended to meet the
requirements of Section 162(m) of the Internal Revenue Code and,
as such, to be exempt from the $1,000,000 deduction limit under
most circumstances. This amendment to the Plan is being
submitted to the Company's shareholders for approval in order to
comply with such requirements.
Amendments
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 adversely affect the rights of any participant or
beneficiary of any stock options or Awards granted under the Plan
prior to the date such amendment is adopted by the Compensation
Committee in the absence of written consent to the change by the
affected participant or beneficiary. The Compensation Committee,
however, may make appropriate adjustments in the number of shares
covered by the Plan, the number of outstanding options, option
prices, and any restrictions on outstanding Awards to reflect any
stock dividend, stock split, share combination, merger,
consolidation, reorganization, liquidation, change in control, or
the like, of or by the Company.
Current Information Regarding Plan
On September 9, 2002, (i) 7,746,878 shares were covered by
options granted under the Plan, at option prices ranging from
$15.38 to $33.02 per share and with expiration dates ranging from
January 4, 2009 to November 15, 2011; (ii) 307,179 shares were
subject to Stock Awards under the Plan and vest in full on dates
ranging from November 4, 2002 to August 9, 2005. On September 9,
2002, the closing market price for a share of Company common
stock was $27.76. No SARs or Awards other than the stock options
and Stock Awards, as described above, are outstanding under the
Plan.
Information about options granted during the Company's 2002
fiscal year under the Plan to the Chief Executive Officer and the
four other most highly compensated executive officers can be
found in the table under the heading "Executive Compensation -
Summary Compensation Table" and "Executive Compensation - Option
Grants During 2002 Fiscal Year" below. During the 2002 fiscal
year, options covering 698,000 shares were granted to current
executive officers as a group under the Plan and options covering
1,813,975 shares were granted under the Plan to all employees
(excluding executive officers) as a group. Options generally
become exercisable in two annual installments beginning two years
after the date of the option grant.
Plan Amendment
As of September 9, 2002, stock options and Stock Awards
covering 8,054,057 shares were outstanding and 3,052,920 shares
were available for grant under the Plan. If shareholders approve
the Amendment, the estimated maximum number of shares that may be
issued under the Plan would be (in addition to shares subject to
grants and awards as of September 9, 2002) increased to 7,552,920
shares. This number represents shares available for, but not yet
subject to, a grant or award as of the date of this Proxy
Statement (3,052,920 shares), assuming (i) no grants or awards
were made under the Plan between September 9, 2002 and such date
and (ii) no grants or awards previously made under the Plan are
cancelled between September 9, 2002 and such date, plus the
additional 4,500,000 shares authorized by the Amendment.
Either authorized but unissued shares or treasury shares of
Common Stock may be issued in connection with grants and awards
under the Plan. In addition, any shares subject to an award
which are forfeited or not issued because the terms and
conditions of the grant or award are not met may be re-used for a
new grant or award.
Required Vote; Recommendation
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
Amendment of the Plan.
The Board of Directors believes that approval of the
Amendment is in the best interest of the Company and that the
additional shares will strengthen the Company's ability to
attract and retain key employees and furnish additional
incentives to such persons by encouraging them to become owners
of Common Stock of the Company.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT
TO THE STOCK OPTION AND INCENTIVE PLAN.
PROPOSAL 3
SHAREHOLDER PROPOSAL
The Adrian Dominican Sisters, 1257 East Siena Heights Drive,
Adrian, Michigan 49221-1793, beneficial owner of 16,600 shares of
Common Stock of the Company has notified the Company that it
intends to present the following resolution at the annual
meeting. The Board of Directors and the Company accept no
responsibility for the proposed resolution and supporting
statement. The Board of Directors recommends a vote AGAINST this
Shareholder Proposal. As required by federal regulations, the
resolution and supporting statement are printed below.
RESOLVED: Shareholders request that our Board of Directors
review the Company's policies for food products containing
genetically engineered (GE) ingredients and report to
shareholders by March 2004. This report, developed at reasonable
cost and omitting proprietary information, would identify the
risks, financial costs (including opportunity costs) and
benefits, and environmental impacts of the continued use of GE-
ingredients in food products sold or manufactured by the Company.
Shareholder Supporting Statement
There are indicators that genetically engineered
agricultural products may be harmful to humans, animals, or the
environment:
The National Academy of Sciences (NAS) report, Genetically
Modified Pest-Protected Plants, recommends improved methods for
identifying potential allergens in genetically engineered pest-
protected plants and found the potential for gaps in regulatory
coverage (4/2000);
The NAS report The Environmental Effects of Transgenic Plants
calls for "significantly more transparent and rigorous testing
and assessment" of GE-plants (2/2002);
GE-fish and GE-wheat may soon be commercialized, despite
potential negative impacts on wild fish and non-GE wheat;
Since fall 2000, many millions of dollars have been spent by
food companies in recalling food containing GE corn not approved
for human consumption;
For human health and environmental concerns, the European
Union has proposed regulations to phase out by 2005 antibiotic-
resistant marker genes, widely used to develop GE seeds;
GE-crops grown for pharmaceutical purposes, including
contraceptive effects, may contaminate crops and soil and effect
human health;
Research has shown that Bt crops are building up Bt toxins in
the soil, with unknown long-term effects on soil ecology.
Markets for GE-foods are threatened by extensive resistance:
In the UK, McDonald's, Burger King, and KFC exclude GE soy
and corn ingredients from their menus;
Europe's larger food retailers have committed to removing GE-
foods from their store-brand products, as have some U.S.
retailers;
PepsiCo's Frito Lay asked farmers for only non-GE corn for
their corn chips;
McCain Foods of Canada announced it would no longer accept
GE-Bt potatoes for their brand-name products (11/99);
Gerber Products does not allow GE corn or soybeans in their
baby foods;
Upon ratification by 50 countries, the Biosafety Protocol,
signed by over 100 countries, will require that genetically
engineered organisms (GEOs) intended for food, feed and
processing must be labeled "may contain" GEOs. Countries
can decide whether to import those commodities based on a
scientific risk assessment;
Countries around the world, including Brazil, Greece, and
Thailand, have instituted moratoriums or banned importation
of GE-seeds and crops;
Labelling of GE foods is required in the European Union,
Japan, New Zealand, South Korea and Australia, and favored
by 70-93% of people surveyed and over a dozen opinion polls
in the U.S.
We urge that this report:
1) identify the scope of the Company's products that are
derived from/contain GE ingredients;
2) outline a contingency plan for sourcing non-GE ingredients
should circumstances so require;
3) cite evidence of long-term safety testing that demonstrates
that GE crops, organisms, or products thereof are actually
safe for humans, animals, and the environment.
Board of Directors' Statement In Opposition
Your Board of Directors recommends a vote AGAINST this
Shareholder Proposal for the following reasons:
The Company cares and actively supports its customers'
interest in food safety. We firmly believe that all of our food
products, including those which may contain ingredients developed
through biotechnology or genetic engineering, are safe. However,
we believe that the United States Food & Drug Administration
("FDA"), the Environmental Protection Agency ("EPA"), and other
regulatory authorities who are charged with protecting the health
and safety of the public and the environment are the proper
entities, rather than a restaurant company like the Company, to
evaluate and make judgments about environmental risks presented
by crops enhanced through biotechnology and safety concerns
caused by the use of biotechnology-derived ingredients. Brinker
International takes its lead from national food safety and
regulatory authorities and we support their efforts to take
whatever steps are necessary to assure that any new food
technology is safe for consumers and the environment. Brinker
International complies, and will continue in the future to
comply, with all governmental regulations applicable to food
safety.
We understand that the use of genetic engineering with
respect to certain staple foods is widespread in the United
States. Even when these foods are produced in an unmodified
form, under current practices they are combined with other
biotechnology-derived foods during storage and distribution.
Your Board of Directors believes that it would be difficult and
costly for the Company to require its vendors to identify the
scope of the Company's products that are derived from
biotechnology-derived ingredients and identify sources of
alternative food ingredients that are not biotechnology-derived.
Requiring the Company to provide the requested report to
shareholders would involve unnecessary expenditures of time and
resources. We firmly believe that all products sold at our
restaurants, including those which may contain ingredients
developed through biotechnology, are safe. Furthermore, the
reduction of the use of pesticides, the creation of more
nutritious foods, and the possibility of finding new ways to help
feed the world are several benefits to society and the
environment that biotechnology in foods may bring. However, we
respect the views of those who question the value of
biotechnology in foods. Your Board of Directors believes that
Brinker International's shareholders will be better served if
governmental agencies such as the FDA and EPA monitor farmers and
scientists to determine the safety of biotechnology-derived food
ingredients for both human consumption and the environment while
the Company keeps its focus on offering tasty and desirable
restaurant meals for our customers that comply with applicable
food safety regulations.
Despite our opposition to this proposal, we are committed to
the use of only those ingredients that meet our high quality and
safety standards and we will continue to support the efforts of
regulatory authorities to take whatever steps are necessary to
assure that any new food technology is safe for consumers and the
environment. Our shareholders and consumers can count on our
compliance with all such regulations.
FOR THE FOREGOING REASONS, YOUR BOARD OF DIRECTORS BELIEVES THAT
THIS PROPOSAL IS NOT IN THE BEST INTEREST OF THE COMPANY AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE AGAINST PROPOSAL 3.
BOARD ORGANIZATION
Classes of Directors
Each director serves for a one year term and is subject to
re-election by the shareholders of the Company each year.
However, the Governance and Nominating Committee has divided the
non-employee directors into four classes. The classes are
staggered so that each year the members of one of the classes
shall have served on the Board of Directors for four consecutive
years. At such time, the members of such class are considered
"Retiring Directors" and will, as determined by the Governance
and Nominating Committee, either leave the Board of Directors or
serve an additional four year term on the Board of Directors
(subject to annual re-election by the shareholders of the
Company). All decisions of the Governance and Nominating
Committee are made after considering the appropriateness of
keeping existing members on the Board of Directors or nominating
new candidates for election to the Board of Directors. Dr.
Frederick S. Humphries is a Retiring Director and is leaving the
Board of Directors after eight years of service. Each of Messrs.
Girouard and Oesterreicher are Retiring Directors who have been
renominated by the Governance and Nominating Committee. The four
classes of non-employee directors are as follows: Messrs.
Girouard, Nye, and Oesterreicher and Ms. Smith comprise Class 1
and will be considered Retiring Directors as of the annual
meeting of shareholders following the end of the 2006 fiscal
year. There are no members of Class 2. Messrs. Kirk and Marcus
comprise Class 3 and will be considered Retiring Directors as of
the annual meeting of shareholders following the end of the 2004
fiscal year. Messrs. Cook and Staubach comprise Class 4 and will
be considered Retiring Directors as of the annual meeting of
shareholders following the end of the 2005 fiscal year.
Committees of the Board of Directors
The Board of Directors of the Company has established an
Executive Committee, Audit Committee, Compensation Committee, and
Governance and Nominating Committee.
All of the members of the Audit, Compensation, and
Governance and Nominating Committees are directors independent of
management who are not and never have been officers or employees
of the Company.
The Executive Committee (currently comprised of Messrs.
Cook, Girouard, Marcus, and McDougall) met two times during the
fiscal year. The Executive Committee reviews material matters
between Board meetings, provides advice and counsel to Company
management, and has the authority to act for the Board on most
matters between Board meetings. In addition, the Executive
Committee is also charged with assuring that the Company has a
satisfactory succession management plan for all key management
positions.
The Audit Committee is currently comprised of
Messrs. Girouard, Humphries, and Oesterreicher and Ms. Smith and
it met three times during the fiscal year. A discussion of the
role of the Audit Committee is provided under "Report of the
Audit Committee" below.
The Compensation Committee is currently comprised of
Messrs. Cook, Girouard, and Oesterreicher and Ms. Smith and met
three times during the fiscal year. Functions performed by the
Compensation Committee include: reviewing the performance of the
Chief Executive Officer, approving key executive promotions,
ensuring the reasonableness and appropriateness of senior
management compensation arrangements and levels, the adoption,
amendment and administration of compensation and stock-based
incentive plans (subject to shareholder approval where required),
management of the various stock option plans of the Company, and
approval of the total number of available shares to be used each
year in stock-based plans. The specific nature of the
Committee's responsibilities as they relate to executive officers
is set forth below under "Report of the Compensation Committee."
The purposes of the Governance and Nominating Committee are
to recommend to the Board of Directors potential members to be
added as new or replacement members to the Board of Directors, to
review the compensation paid to non-management Board members, and
to recommend corporate governance guidelines to the full Board of
Directors. The Governance and Nominating Committee will consider
a shareholder-recommended nomination for director to be voted
upon at the 2003 annual meeting of shareholders provided that the
recommendation must be in writing, set forth the name and address
of the nominee, contain the consent of the nominee to serve, and
be submitted on or before May 27, 2003. The Governance and
Nominating Committee is composed of Messrs. Cook, Kirk, Marcus,
and Staubach and it met two times during the fiscal year.
During the fiscal year ended June 26, 2002, the Board of
Directors held five meetings. With the exception of Mr.
Staubach, who attended 71.4% of the aggregate total meetings of
the Board of Directors and Committees on which he served, each
director attended at least 75% of the aggregate total of meetings
of the Board of Directors and Committees on which he or she
served.
Directors' Compensation
Directors who are not employees of the Company receive (a)
annual compensation of $40,000, at least 25% of which must be
taken in the form of stock options or restricted stock, (b) an
annual grant of 4,000 stock options, (c) $2,000 for each meeting
of the Board of Directors attended, and (d) $2,000 for each
meeting of any committee of the Board of Directors attended. The
Chair of the Audit Committee will receive additional annual
compensation of $7,500 and the Chair of each of the Compensation,
Executive, and Governance and Nominating Committees will receive
additional annual compensation of $5,000. The Company also
reimburses directors for costs incurred by them in attending
meetings of the Board. A new director who is not an employee of
the Company will receive 20,000 stock options at the beginning of
such director's term. The stock options and restricted stock are
granted pursuant to the Company's 1999 Stock Option and Incentive
Plan for Non-Employee Directors and Consultants as of the
sixtieth day following the Board of Directors' meeting held
contemporaneous with the annual meeting of shareholders (or if
the sixtieth day is not a business day, on the first business day
thereafter) at the fair market value of the underlying Common
Stock on the date of grant. One-third of the stock options will
vest on each of the second, third and fourth anniversaries of the
date of grant. All of the restricted stock will vest on the
fourth anniversary of the date of grant. A Retiring Director who
is being nominated for an additional term on the Board of
Directors will receive an additional grant of 10,000 stock
options at the beginning of such director's new term.
EXECUTIVE OFFICERS
The Board of Directors elects executive officers annually at
its first meeting following the annual meeting of shareholders.
Certain information about the Company's executive officers is set
forth below. Information about Mr. McDougall and Mr. Brooks is
included under the caption "Election of Directors - Information
About Nominees."
Wilson L. Craft, 49, was elected Big Bowl Asian Kitchen
President in November 2000, having previously served as Senior
Vice President and Chief Operating Officer of Chili's since May
1998. Mr. Craft joined the Company in 1984 as a Chili's Manager
Trainee and was promoted to General Manager in 1985, Area
Director and then Regional Director in 1987, and Regional Vice
President of Operations in 1991, a position he held until May
1998.
Todd E. Diener, 45, was elected Chili's President in May
1998, having previously served as Chili's Senior Vice President
and Chief Operating Officer since July 1996. Mr. Diener joined
the Company as a Chili's Manager Trainee in 1981 and was promoted
to General Manager in 1983, Area Director in 1985, and Regional
Director in 1987. Mr. Diener became Regional Vice President in
1989, a position he held until July 1996.
Starlette Johnson, 39, was elected Executive Vice President
and Chief Strategic Officer in June 2001. Mrs. Johnson joined
the Company in 1995 as Director of Planning. She was promoted to
Vice President of Strategic Development in 1996 and was named
Senior Vice President of Human Resources in June 2000.
John G. Malone, 49, was elected Cozymel's Coastal Grill
President in August 2002, having previously served as Chili's
Senior Vice President of Operations since 1997. Mr. Malone
joined the Company as a Chili's Manager Trainee in 1980 and was
promoted to General Manager in 1982, Area Director in 1983,
Regional Director in 1991, and Regional Vice President in 1991, a
position he held until August 2002.
John C. Miller, 47, has served as Romano's Macaroni Grill
President since April 1997. Mr. Miller joined the Company as
Vice President-Special Concepts in 1987. In 1988, he was elected
Vice President - Joint Venture/Franchise and served in this
capacity until 1993 when he was promoted to Senior Vice President
- - New Concept Development. Mr. Miller was named Senior Vice
President - Mexican Concepts in 1994 and was subsequently elected
Senior Vice President and Mexican Concepts President in 1995, a
position he held until April 1997.
David M. Orenstein, 44, was elected On The Border President
in August 2002, having previously served as Chief Operating
Officer of On The Border since May 2002 and Vice President of
Operations for On The Border since June 1999. Mr. Orenstein
joined the Company as a Chili's Manager in Training in 1984, was
promoted to General Manager in 1986, and Area Director in 1988.
Mr. Orenstein became a Regional Director in 1993, a position he
held until 1997. Between 1997 and 1999, Mr. Orenstein owned and
operated his own restaurant.
Charles M. Sonsteby, 49, was elected Executive Vice
President and Chief Financial Officer in May 2001. Mr. Sonsteby
joined the Company as Director of the Company's Tax, Treasury and
Risk Management departments in 1990. In 1994 he was named Vice
President and Treasurer and was promoted to Senior Vice President
of Finance in March 1997, a position he held until May 2001.
Roger F. Thomson, 53, has served as Executive Vice
President, Chief Administrative Officer, General Counsel and
Secretary since June 1996. Mr. Thomson joined the Company as
Senior Vice President, General Counsel and Secretary in 1993 and
was promoted to Executive Vice President, General Counsel and
Secretary in 1994. Mr. Thomson served as a Director of the
Company from 1993 until 1995.
Mark F. Tormey, 49, has served as Maggiano's Little Italy
("Maggiano's") President since November 1997, having joined the
Company as Senior Vice President and Chief Operating Officer of
Maggiano's in 1995. Prior to joining the Company, Mr. Tormey
worked for Lettuce Entertain You Enterprises, Inc. ("LEYE") since
1979. In 1991, Mr. Tormey opened the first Maggiano's restaurant
and worked with the Maggiano's group at LEYE until Maggiano's was
acquired by the Company in 1995.
David Wolfgram, 44, has served as Corner Bakery Cafe
("Corner Bakery") President since November 1997, having joined
the Company as Senior Vice President and Chief Operating Officer
of Corner Bakery in 1995. Mr. Wolfgram joined LEYE in 1980 and
became Vice President and Managing Partner in 1989. Mr. Wolfgram
worked with the Corner Bakery group at LEYE until Corner Bakery
was acquired by the Company in 1995.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following summary compensation table sets forth the
annual compensation for the Company's five highest compensated
executive officers, including the Chief Executive Officer, whose
salary and bonus exceeded $100,000 in fiscal 2002.
Long-Term Compensation
Annual Awards Payouts
Compensation
Name and Restricted Securities Long-Term All Other
Principal Stock Underlying Incentive Compensation
Position Year Salary Bonus Awards (1) Options Payouts (2)
Ronald A. McDougall 2002 $1,100,000 $1,100,001 $ 466,039 275,000 $ 515,660 $ 18,000
Chairman of the 2001 $ 999,385 $1,149,354 $ 201,595 180,001 $ 352,054 $ 42,783
Board and Chief 2000 $ 978,462 $1,357,616 $ 973,204 180,000 $ 174,054 $ 29,112
Executive Officer
Douglas H. Brooks 2002 $ 723,462 $ 578,770 $ 294,441 125,000 $ 325,791 $ 21,043
President and 2001 $ 674,154 $ 566,290 $ 127,344 112,501 $ 222,425 $ 29,777
Chief Operating 2000 $ 624,231 $ 866,121 $ 605,398 112,500 $ 110,050 $ 19,803
Officer
Todd E. Diener 2002 $ 457,115 $ 269,077 $ 290,521 45,000 $ 385,528 $ 21,677
Chili's Grill & 2001 $ 407,539 $ 272,296 $ 124,238 37,501 $ 219,458 $ 22,942
Bar President 2000 $ 355,962 $ 293,354 $ 200,731 37,500 $ 107,346 $ 57,531
Roger F. Thomson 2002 $ 419,385 $ 251,631 $ 122,843 46,500 $ 135,922 $ 20,561
Executive Vice 2001 $ 399,231 $ 251,516 $ 53,135 46,501 $ 92,797 $ 20,022
President, Chief 2000 $ 374,231 $ 346,164 $ 320,804 46,500 $ 45,914 $ 33,886
Administrative
Officer, General
Counsel and
Secretary
John C. Miller 2002 $ 424,231 $ 206,686 $ 258,451 45,000 $ 279,708 $ 22,702
Romano's 2001 $ 399,847 $ 251,904 $ 115,629 37,501 $ 195,243 $ 24,480
Macaroni Grill 2000 $ 349,385 $ 234,088 $ 265,556 37,500 $ 99,910 $ 16,552
President
(1) Restricted stock is valued at the closing price of the
Company's Common Stock on the grant dates. Mr. McDougall was
awarded 19,022 shares of restricted stock during the last fiscal
year, 6,341 shares of which vested on August 10, 2002, 6,340
shares of which will vest on August 10, 2003, and 6,341 shares of
which will vest on August 10, 2004. Mr. Brooks was awarded
12,018 shares of restricted stock during the last fiscal year,
4,006 shares vested on August 10, 2002, 4,006 shares of which
will vest on August 10, 2003, and 4,006 shares of which will vest
on August 10, 2004. Mr. Diener was awarded 11,858 shares of
restricted stock during the last fiscal year, 3,953 shares of
which vested on August 10, 2002, 3,952 shares of which will vest
on August 10, 2003, and 3,953 shares of which will vest on August
10, 2004. Mr. Thomson was awarded 5,014 shares of restricted
stock during the last fiscal year, 1,672 shares of which vested
on August 10, 2002, 1,671 shares of which will vest on August 10,
2003, and 1,671 shares of which will vest on August 10, 2004. Mr.
Miller was awarded 10,549 shares of restricted stock during the
last fiscal year, 3,517 shares of which vested on August 10,
2002, 3,516 shares of which will vest on August 10, 2003, and
3,516 shares of which will vest on August 10, 2004. The dollar
value of the restricted stock held by each of the named executive
officers at the end of the last fiscal year (at $32.17 per share,
the closing price of the Company's Common Stock on June 26, 2002)
is as follows:
Executive Shares of Restricted Stock Value of Restricted Stock
Ronald A. McDougall 48,086 $1,546,927
Douglas H. Brooks 30,226 $ 972,370
Todd E. Diener 20,283 $ 652,504
Roger F. Thomson 12,935 $ 416,119
John C. Miller 18,706 $ 601,772
If dividends are paid by the Company on its Common Stock, the owners of
restricted stock will be entitled to receive dividends on shares of
restricted stock owned by them. For those named officers who have
compensation in excess of $1,000,000 in any year in which shares of
restricted stock are granted, the vesting of such restricted stock
shall occur on the designated vesting dates only if performance
objectives are attained.
(2) All other compensation represents Company match on deferred
compensation and various fringe benefits including car allowance
and reimbursement of tax preparation, financial planning, health
club expenses and, in the case of Mr. Diener for fiscal 2000,
reimbursement of relocation expenses.
Option Grants During 2002 Fiscal Year
The following table contains certain information concerning
the grant of stock options pursuant to the Company's Stock Option
and Incentive Plan to the executive officers named in the above
compensation table during the Company's last fiscal year.
% of
Total
Options Realizable Value of
Granted to Assumed Annual Rates of
Employees Stock Price Appreciation
Options in Fiscal Exercise or Expiration for Option Term (1)
Name Granted Year Base Price Date 5% 10%
Ronald A. McDougall 275,000 10.95% $27.90 11/15/11 $4,825,150 $12,227,875
Douglas H. Brooks 125,000 4.98% $27.90 11/15/11 $2,193,250 $ 5,558,125
Todd E. Diener 45,000 1.79% $27.90 11/15/11 $ 789,570 $ 2,000,925
Roger F. Thomson 46,500 1.85% $27.90 11/15/11 $ 815,889 $ 2,067,623
John C. Miller 45,000 1.79% $27.90 11/15/11 $ 789,570 $ 2,000,925
(1) The dollar amounts under these columns are the result of
calculations at the 5% and 10% rates set by the Securities and
Exchange Commission and, therefore, are not intended to forecast
possible future appreciation, if any, of the Company's stock
price.
Stock Option Exercises and Fiscal Year End Value Table
The following table shows stock option exercises by the
named officers during the last fiscal year, including the
aggregate value of gains on the date of exercise. In addition,
this table includes the number of shares covered by both
exercisable and non-exercisable stock options at fiscal year end.
Also reported are the values for "in-the-money" options which
represent the positive spread between the exercise price of any
such existing options and the $32.17 fiscal year end price of the
Company's Common Stock.
Value of Unexercised
Shares Number of Unexercised In-the-Money Options at
Acquired Value Options at Fiscal Year End Fiscal Year End
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Ronald A. McDougall 997,501 $18,764,236 521,250 545,001 $ 8,184,564 $3,556,411
Douglas H. Brooks 114,750 $ 2,672,987 656,252 293,751 $12,864,299 $2,022,603
Todd E. Diener 10,230 $ 194,281 147,963 101,251 $ 2,513,640 $ 688,438
Roger F. Thomson 37,500 $ 569,501 23,250 116,251 $ 373,046 $ 813,951
John C. Miller 147,768 $ 3,298,999 262,314 101,251 $ 5,013,001 $ 688,438
Equity Compensation Plan Information
The following table sets forth information concerning the
shares of Common Stock that may be issued upon exercise of
options, warrants and rights under all of the Company's equity
compensation plans as of June 26, 2002, consisting of the 1983
Incentive Stock Option Plan, 1991 Stock Option Plan for Non-
Employee Directors and Consultants, 1992 Incentive Stock Option
Plan, Stock Option and Incentive Plan, and 1999 Stock Option and
Incentive Plan for Non-Employee Directors and Consultants. All
of such plans have been approved by the shareholders of the
Company.
(a) (b) (c)
Plan Number of Weighted-average Number of securities
category securities exercise price remaining available
to be issued of outstanding for future issuance
upon exercise options, warrants under equity
of outstanding and rights compensation plans
options, (excluding securities
warrants and reflected in column (a))
rights
Equity 10,334,583 $20.38 3,127,122
compensation
plans
approved by
security
holders
Equity None None None
compensation
plans not
approved by
security
holders
Total 10,334,583 $20.38 3,127,122
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 premiere
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
Compensation Committee strongly believes that the caliber of
the Company's management group makes a significant
difference in the Company's sustained success over the long
term.
Embrace a pay-for-performance philosophy by placing
significant amounts of compensation "at risk" - that is,
compensation payouts to executives will 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, stock options and shares of restricted
stock.
Base Salaries
Executives' base salaries and total compensation are
targeted to be competitive between the 75th and 90th percentiles
of the market for positions of similar responsibility and scope
to reflect the exceptionally high level of executive talent
required to execute the growth plans of the Company. Positioning
executives' base salaries at these levels is necessary 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 third-party executive salary surveys
that reflect both the chain restaurant industry as well as a
broader cross-section of companies from many industries.
Individual base salary levels are determined by considering
market data for each officer's position, level of responsibility,
performance, and experience. 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 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 non-restaurant concept executives the same as for all
other non-restaurant concept corporate employees and by making
the basis for payouts to executives of one of the Company's
restaurant concepts the same as for all other members of such
restaurant concept's corporate team.
At the beginning of a fiscal year, each executive is
assigned an Individual Participation Percentage ("IPP") of the
base salary for such executive that targets overall total cash
compensation for executives between the 75th and 90th percentiles
of the market. The IPPs reflect the Compensation Committee's
desire that a significant percentage of executives' total
compensation be derived from variable pay programs.
401(k) Savings Plan and Savings Plan II
The Company's 401(k) Savings Plan ("Plan I") and Savings
Plan II ("Plan II") are designed to provide the Company's
employees with a tax-deferred long-term savings vehicle. All
amounts of a salaried participant's contribution up to a maximum
of 5% of such participant's base compensation are matched by the
Company in an amount equal to twenty-five percent of such
salaried participant's contribution.
Plan I is a qualified 401(k) plan. Participants in Plan I
elect the percentage of pay they wish to contribute (in an amount
not to exceed the greater of (a) 20% of base salary and 100% of
eligible bonus or (b) $11,000) as well as the investment
alternatives in which their contributions are to be invested.
The Company's matching contribution for all salaried 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. A participant's
contributions vest immediately while Company contributions vest
twenty-five percent annually, beginning in the participant's
second year of eligibility.
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 (in an amount not to exceed 50%
of base salary and 100% of eligible bonus). They also elect the
percentage of their deferral account to be allocated among
various investment options. The Company's matching contribution
for all non-officer Plan II participants is made in Company
Common Stock, with corporate officers receiving a Company match
in cash. Participants in Plan II are considered a select group
of management and highly compensated employees according to the
Department of Labor. A participant's contributions vest
immediately while Company contributions vest twenty-five percent
annually, beginning in the participant's second year of
eligibility.
Long-Term Incentives
All salaried employees of the Company, including executives,
are eligible for annual grants of tax-qualified and non-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 of the underlying Common
Stock as of 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 of a stock option
grant becomes exercisable two years after the grant date; the
remaining fifty percent of a grant becomes exercisable three
years after the grant date. Stock options are typically granted
annually in November as part of a fixed grant, based on a target
value approved by the Compensation Committee. The Compensation
Committee has the authority to substitute shares of restricted
stock for stock options as part of this fixed grant.
The Executive Long-Term Incentive Plan is a performance-
related plan using overlapping three-year cycles paid annually.
For corporate officers, the criterion for payment is the
Company's cumulative earnings per share over a three-year period
relative to a target established by the Compensation Committee.
For a restaurant concept officer, the criterion is the three-year
cumulative profit before taxes for such restaurant concept
relative to the target established by the Compensation Committee.
Each participant will be assigned a specific dollar target
at the beginning of each three-year cycle for payout in a
combination of cash and restricted stock at the end of the
designated three-year performance period based on achievement
relative to plan. These three-year targets are
established/revised as part of the annual planning process. Once
established and approved, targets are fixed for the upcoming
three-year cycle. The actual cash payment and number of shares
granted of restricted stock will vary based on the achievement to
plan of earnings per share for corporate officers, and profit
before taxes for restaurant concept officers. The participant
will receive the target payment if the target performance is
achieved for the three-year cycle; an above or below target
payout will be made based on actual performance compared to
planned performance for the ending three-year cycle. Any payouts
made under the Executive Long-Term Incentive Plan shall be made
one-half in cash and one-half in restricted stock, which
restricted stock will vest one-third per year over the next three
years.
All payouts under the Executive Long-Term Incentive Plan
will have a 150% payout cap, subject to override by the Chief
Executive Officer of the Company (except for payouts to the Chief
Executive Officer, which shall be subject to override by the
Compensation Committee). No participant in the Executive Long-
Term Incentive Plan may receive a payout of more than 100,000
shares of restricted stock and $1,500,000 in cash in any fiscal
year.
Pay/Performance Nexus
The Company's executive compensation program has resulted in
a direct relationship between the compensation paid to executive
officers and the Company's performance. See "Five-Year Total
Shareholder Return Comparison" below.
CEO Compensation
The Compensation Committee made decisions regarding Mr.
McDougall's compensation package according to the guidelines
discussed in the preceding sections. Mr. McDougall was awarded a
$100,000 salary increase for fiscal 2003 to recognize the
Company's performance during fiscal 2002 under his leadership and
his significant contributions to the Company's continued success.
Mr. McDougall was granted 275,000 stock options and 19,022 shares
of restricted stock under the Company's Stock Option and
Incentive Plan. Approximately 52.4% of Mr. McDougall's cash
compensation for fiscal 2002 was incentive pay pursuant to the
Company's Profit Sharing Plan. Like all Company executives,
Mr. McDougall's compensation is significantly affected by the
Company's performance. In the 2002 fiscal year, Mr. McDougall's
total cash compensation decreased approximately 2.3% from its
level in the 2001 fiscal year.
Federal Income Tax Considerations
The Compensation Committee has considered the impact of
Section 162(m) of the Internal Revenue Code adopted under the
Omnibus Budget Reconciliation Act of 1993. This section
disallows a tax deduction for any publicly-held corporation for
individual compensation to certain executives of such corporation
exceeding $1,000,000 in any taxable year, unless compensation is
performance-based. It is the intent of the Company and the
Compensation Committee to qualify to the maximum extent possible
its executives' compensation for deductibility under applicable
tax laws. The Compensation Committee believes that the Company's
compensation programs provide the necessary incentives and
flexibility to promote the Company's performance-based
compensation philosophy while being consistent with Company
objectives.
The Compensation Committee's administration of the executive
compensation program is in accordance with the principles
outlined at the beginning of this report. The Company's financial
performance supports the compensation practices employed during
the past year. No member of the Compensation Committee serves or
previously served as an employee or officer of the Company.
Respectfully submitted,
COMPENSATION COMMITTEE
DAN W. COOK, III (Chair)
MARVIN J. GIROUARD
JAMES E. OESTERREICHER
CECE SMITH
REPORT OF THE AUDIT COMMITTEE
In accordance with its written charter adopted by the Board
of Directors, a revised copy of which is attached to this Proxy
Statement as Appendix A, the Audit Committee assists the Board of
Directors in fulfilling its responsibility for oversight of the
quality and integrity of the accounting, auditing and financial
reporting practices of the Company. Company management is
responsible for the Company's internal controls and the financial
reporting process. KPMG LLP, the Company's independent auditors,
is responsible for performing an independent audit of the
Company's financial statements in accordance with generally
accepted auditing standards and for issuing a report thereon.
The Audit Committee's responsibility is to monitor and oversee
these processes. The Audit Committee also is responsible for the
selection of the Company's independent auditors. The Audit
Committee is composed solely of independent directors who are
qualified for service under the New York Stock Exchange listing
standards.
In this context, the Audit Committee held discussions with
management of the Company, who represented to the Audit Committee
that the Company's audited financial statements were prepared in
accordance with generally accepted accounting principals. Such
discussions also involved an evaluation of the independence of
KPMG LLP. The Audit Committee has reviewed and discussed the
audited financial statements with both management and the
independent auditors. The Audit Committee also discussed with the
independent auditors the matters required to be discussed by
Statement on Auditing Standards No. 61 (Communication with Audit
Committees). The Audit Committee has received the written
disclosures and the letter from the independent auditors required
by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees) and have discussed with the
independent auditors its independence in connection with its
audit of the Company's financial statements.
Based on the discussions with KPMG LLP concerning the audit,
the independence discussions, and the financial statement review,
and such other matters deemed relevant and appropriate by the
Audit Committee, the Audit Committee recommends to the Board that
the financial statements be included in the Company's Annual
Report on Form 10-K for the fiscal year ended June 26, 2002 for
filing with the Securities and Exchange Commission. The Audit
Committee also recommended that KPMG LLP be reappointed as the
Company's independent auditors for the 2003 fiscal year.
Respectfully submitted,
AUDIT COMMITTEE
JAMES E. OESTERREICHER (chair)
MARVIN J. GIROUARD
FREDERICK S. HUMPHRIES
CECE SMITH
Audit Fees
The following table sets forth the aggregate fees billed to
the Company for the fiscal year ended June 26, 2002 by the
Company's principal accounting firm, KPMG LLP:
Annual Audit Fees Financial Information Systems All Other Fees
Design and Implementation Fees
$ 140,000 $ 0 $ 384,000 (1)(2)
(1) The Audit Committee has considered whether the provision of
these non-audit services by KPMG LLP is compatible with
maintaining the independence of such principal accountant.
(2) Includes fees for tax consulting ($221,000), audits
performed for benefit plans and international affiliates
($30,000), franchise-related services ($16,000), outsourcing of
internal audit-related information technology services ($73,000),
and accounting advisory services ($44,000).
STOCK OWNERSHIP OF CERTAIN PERSONS
The following table shows (a) certain information as to all
persons known by the Company to beneficially own more than 5% of
the Common Stock of the Company and (b) the ownership of the
Company's Common Stock by the named executive officers, and all
executive officers and directors as a group.
Number Attributable
Number of Shares of to Options
Common Stock Exercisable Within
Name Beneficially Owned as 60 Day of
of September 9, 2002 September 9, 2002 Percent
FMR Corp.
82 Devonshire Street 9,491,980 (1) (2) 8.88%
Boston, MA 02109
Ronald A. McDougall 777,197 (3) (4) 701,250 *
Douglas H. Brooks 898,375 (3) (4) 768,752 *
Todd E. Diener 236,806 (3) (4) 185,463 *
Roger F. Thomson 91,529 (3) (4) 69,750 *
John C. Miller 345,141 (3) (4) 299,814 *
All Executive
Officers and 3,121,990 (3) (4) 2,462,212 3.11%
Directors as a
Group (20 persons)
* Less than 1%.
(1) Based on information contained in Schedule 13G dated February
14, 2002.
(2) Not Applicable
(3) Beneficial ownership has been determined in accordance with
the rules of the Securities and Exchange Commission. Except as
noted, and except for any community property interests owned by
spouses, the listed individuals have sole investment power and
sole voting power as to all shares of stock of which they are
identified as being the beneficial owners.
(4) Includes shares of Common Stock which may be acquired by
exercise of options vested, or vesting within 60 days of
September 9, 2002, under the Company's 1983 Incentive Stock
Option Plan, 1992 Incentive Stock Option Plan, and Stock Option
and Incentive Plan, 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 encouraged to own will be determined by such officer's
position within the Company as well as annual compensation.
FIVE-YEAR TOTAL SHAREHOLDER RETURN COMPARISON
The following is a line graph presentation comparing
cumulative, five-year total shareholder return on an investment
in the Common Stock of the Company against the returns of the S&P
500 Index and the S&P Restaurant Industry Index. A list of the
returns follows the graph.
The graph assumes a $100 initial investment and the
reinvestment of dividends. The values shown are neither
indicative nor determinative of future performance.
1997 1998 1999 2000 2001 2002
Brinker International $100.00 $141.08 $196.45 $211.17 $266.37 $344.69
S&P 500 100.00 130.16 159.78 171.36 145.95 119.70
S&P Restaurants 100.00 135.47 169.82 130.64 127.50 144.82
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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. Except for one late filing during the fiscal
year by each of Messrs. Humphries and Miller and two late filings
by Mr. Sonsteby, the Company believes that all filing
requirements were satisfied. In making these disclosures and
filing the reports, the Company has relied solely on written
representations from certain reporting persons.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
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. There were no transactions required to
be reported.
SHAREHOLDERS' PROPOSALS
Any proposals that shareholders of the Company desire to
have presented at the 2003 annual meeting of shareholders must be
received by the Company at its principal executive offices no
later than May 27, 2003.
INDEPENDENT AUDITORS
Representatives of KPMG LLP, independent certified public
accountants and auditors of the Company's financial statements,
are expected to be present at the meeting with the opportunity to
make a statement if they so desire and to be available to respond
to appropriate questions.
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. 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 26, 2002,
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 24, 2002
APPENDIX A
AUDIT COMMITTEE CHARTER
I. Composition of the Audit Committee: The Audit
Committee of Brinker International, Inc. (the "Company")
shall be comprised of at least three directors, each of whom
the Board has determined has no material relationship with
the Company and each of whom is otherwise "independent"
under the rules of the New York Stock Exchange, Inc. The
Board shall designate one member of the committee as its
chairperson and one as its vice-chair. The Board shall
determine that each member is "financially literate", and
that at least one member of the Audit Committee shall have
"accounting or related financial management expertise," as
such qualifications are interpreted by the Board of
Directors in its business judgment.
No director may serve as a member of the Audit
Committee if such director serves on the audit committees
of more than two other public companies unless the Board
of Directors determines that such simultaneous service
would not impair the ability of such director to
effectively serve on the Audit Committee and discloses
this determination in the Company's annual proxy
statement. No director may serve as chairperson or as a
voting member of the Audit Committee if such director is
a beneficial owner of 20% or more of the Company's voting
stock (or is a general partner, controlling shareholder
or officer of such a beneficial owner), but such a
director may serve as a non-voting member of the Audit
Committee.
No member of the Audit Committee may receive any
compensation from the Company other than (i) director's
fees (including cash, stock, restricted stock and/or
stock options), (ii) a pension or other deferred
compensation for prior service that is not contingent on
future service, and (iii) any other regular benefits that
other directors receive.
II. Purposes of the Audit Committee: The purposes of the
Audit Committee are to:
A. Assist Board oversight of (i) the integrity of the
Company's financial statements, (ii) the Company's
compliance with legal and regulatory requirements, (iii) the
independent auditor's qualifications and independence, and
(iv) the performance of the independent auditors and the
Company's internal audit function; and
B. Prepare the report required of the Audit Committee
pursuant to the rules of the Securities and Exchange
Commission (the "SEC") for inclusion in the Company's annual
proxy statement.
The function of the Audit Committee is oversight. The
management of the Company is responsible for the
preparation, presentation and integrity of the Company's
financial statements. Management and the internal
auditing department are responsible for maintaining
appropriate accounting and financial reporting principles
and policies and internal controls and procedures that
provide for compliance with accounting standards and
applicable laws and regulations. The independent
auditors are responsible for planning and carrying out a
proper audit of the Company's annual financial statements
prior to the filing of the annual report on Form 10-K,
review of the Company's quarterly financial statements
prior to the filing of each quarterly report on Form 10-
Q, and other procedures. In fulfilling their
responsibilities hereunder, it is recognized that members
of the Audit Committee are not full-time employees of the
Company and are not, and do not represent themselves to
be, accountants or auditors by profession or experts in
the fields of accounting or auditing. As such, it is not
the duty or responsibility of the Audit Committee or its
members to conduct "field work" or other types of
auditing or accounting reviews or procedures or to set
auditor independence standards, and each member of the
Audit Committee shall be entitled to rely on (i) the
integrity of those persons and organizations within and
outside the Company from which it receives information,
(ii) the accuracy of the financial and other information
provided to the Audit Committee by such persons or
organizations absent actual knowledge to the contrary
(which shall be promptly reported to the Board of
Directors), and (iii) representations made by management
as to any information technology, internal audit and
other non-audit services provided by the auditors to the
Company.
The independent auditors shall submit to the Company
annually a formal written statement (the "Auditors'
Statement") describing, to the extent permitted under
applicable auditing standards: the auditor's internal
quality-control procedures; any material issues raised by
the most recent internal quality-control review or peer
review of the auditors, or by any inquiry or
investigation by governmental or professional
authorities, within the preceding five years, respecting
one or more independent audits carried out by the
auditors, and any steps taken to deal with any such
issues; and (to assess the auditor's independence) all
relationships between the independent auditors and the
Company, including each non-audit service provided to the
Company and the matters set forth in Independence
Standards Board No. 1.
The independent auditors shall submit to the Company
annually a formal written statement of the fees billed
for each of the following categories of services
rendered by the independent auditors: (i) the audit of
the Company's annual financial statements for the most
recent fiscal year and the reviews of the financial
statements included in the Company's Quarterly Reports
on Form 10-Q for that fiscal year; (ii) information
technology consulting services for the most recent
fiscal year, in the aggregate and by each service (and
separately identifying fees for such services relating
to financial information systems design and
implementation); and (iii) all other services rendered
by the independent auditors for the most recent fiscal
year, in the aggregate and by each service.
III. Meetings of the Audit Committee: The Audit Committee
shall meet once every fiscal quarter, or more frequently if
circumstances dictate, to discuss with management the annual
audited financial statements and quarterly financial
statements, as applicable. The Audit Committee should meet
separately at least quarterly with management, the director
of the internal auditing department and the independent
auditors to discuss any matters that the Audit Committee or
any of these persons or firms believe should be discussed
privately. The Audit Committee may request any officer or
employee of the Company or the Company's outside counsel or
independent auditors to attend a meeting of the Audit
Committee or to meet with any members of, or consultants to,
the Audit Committee. Members of the Audit Committee may
participate in a meeting of the Audit Committee by means of
conference call or similar communications equipment by means
of which all persons participating in the meeting can hear
each other.
IV. Duties and Powers of the Audit Committee: To carry out
its purposes, the Audit Committee shall have the following
duties and powers:
A. With respect to the independent auditors,
i. to retain and terminate the independent auditors;
ii. to approve all audit engagement fees and terms, as well
as all significant non-audit engagements;
iii. to ensure that the independent auditors prepare and
deliver annually an Auditor's Statement (it being understood
that the independent auditors are responsible for the
accuracy and completeness of this Statement), and to discuss
with the independent auditors any relationships or services
disclosed in this Statement that may impact the quality of
audit services or the objectivity and independence of the
Company's independent auditors;
iv. if applicable, to consider whether the independent
auditors' provision of (a) information technology consulting
services relating to financial information systems design
and implementation and (b) other non-audit services to the
Company is compatible with maintaining the independence of
the independent auditors, and is in compliance with
applicable laws and regulations.
v. to review and evaluate the qualifications, performance
and independence of the lead partner of the independent
auditors;
vi. to discuss with management the timing and process for
implementing the rotation of the lead audit partner of the
audit firm itself;
vii. to take into account the opinions of management and the
Company's internal auditors in assessing the independent
auditors' qualifications, performance and independence; and
viii. to instruct the independent auditors that the
independent auditors are ultimately accountable to the Board
and the Audit Committee, as representatives of the
shareholders.
B. With respect to the internal auditing department,
i. to review the appointment and replacement of the
director of the internal auditing department; and
ii. to advise the director of the internal auditing
department that he or she is expected to provide to the
Audit Committee summaries of and, as appropriate, the
significant reports to management prepared by the internal
auditing department and management's responses thereto.
C. With respect to financial reporting principles and
policies and internal audit controls and procedures,
i. to advise management, the internal auditing department
and the independent auditors that they are expected to
provide to the Audit Committee a timely analysis of
significant financial reporting issues and practices;
ii. to consider any reports or communications (and
management's and/or the internal audit department's
responses thereto) submitted to the Audit Committee by the
independent auditors required by or referred to in SAS 61
(as codified by AU Section 380), as may be modified or
supplemented, including reports and communications related
to:
a. deficiencies noted in the audit in the design or
operation of internal controls;
b. consideration of fraud in a financial statement audit;
c. detection of illegal acts;
d. the independent auditor's responsibility under
generally accepted auditing standards;
e. any restriction on audit scope;
f. significant accounting policies;
g. significant issues discussed with the national office;
h. management judgments and accounting estimates;
i. adjustments arising from the audit;
j. the responsibility of the independent auditor for other
information in documents containing audited financial
statements;
k. disagreements with management;
l. consultation by management with other accountants;
m. major issues discussed with management prior to
retention of the independent auditor;
n. difficulties encountered with management in performing
the audit;
o. the independent auditor's judgments about the quality
of the Company's accounting principles;
p. reviews of interim financial information conducted by
the independent auditor; and
q. the responsibilities, budget and staffing of the
Company's internal audit function.
iii. To meet with management, the outside auditors and, if
appropriate, the director of the internal auditing
department:
a. to discuss the scope of the annual audit;
b. to discuss the annual audited financial statements and
quarterly financial statements, including the Company's
disclosures under "Management's Discussion and Analysis of
Financial Condition and Results of Operations";
c. to discuss any significant matters arising from any
matters referred to above, whether raised by management,
the internal auditing department or the independent
auditors, relating to the Company's financial statements;
d. to discuss any difficulties the independent auditors
encountered in the course of the audit, including any
restrictions on their activity or access to requested
information and any significant disagreements with
management;
e. to discuss any noted or proposed accounting adjustments
that were not made and any communication between the
independent auditor and its national office;
f. to review the form of opinion the independent auditors
propose to render to the Board of Directors and
shareholders;
g. to discuss any significant changes to the Company's
auditing and accounting principles, policies, controls,
procedures and practices proposed or contemplated by the
independent auditors, the internal auditing department or
management;
h. to discuss, as appropriate: (1) analyses prepared by
management and/or the independent auditors setting forth
significant financial reporting issues and judgments made
in connection with the preparation of the financial
statements, including analyses of the effects of alterna-
tive GAAP methods on the financial statements; (2) the
effect of regulatory and accounting initiatives, as well
as off-balance sheet structures, on the financial state-
ments of the Company; and (3) any other major issues
regarding accounting principles and financial statements;
and
i. to inquire about significant risks and exposures, if
any, and the steps taken to monitor and minimize such
risks.
iv. to obtain from the outside auditors assurance that the
audit was conducted in a manner consistent with Section 10A
of the Securities Exchange Act of 1934, as amended, which
sets forth certain procedures to be followed in any audit of
financial statements required under the Securities Exchange
Act of 1934;
v. to discuss with the Company's General Counsel any
significant legal matters that may have a material effect on
the financial statements or the Company's compliance
policies, including material notices to or inquiries
received from governmental agencies;
vi. to discuss earnings press releases, as well as
financial information and earnings guidance provided to
analysts and rating agencies, which discussions may occur
after issuance;
vii. to establish hiring policies for employees or former
employees of the outside auditors; and
viii. to discuss guidelines and policies governing the
process by which senior management of the Company and the
relevant departments of the Company assess and manage the
Company's exposure to risk, and to discuss the Company's
major financial risk exposures and the steps management has
taken to monitor and control such exposures.
D. With respect to reporting and recommendations,
i. to prepare any report or other disclosures, including
any recommendation of the Audit Committee, required by the
rules of the SEC to be included in the Company's annual
proxy statement;
ii. to review this Charter at least annually and recommend
any changes to the full Board of Directors;
iii. to report its activities to the full Board of Directors
on a regular basis and to make recommendations with respect
to the above and other matters as the Audit Committee may
deem necessary or appropriate; and
iv. to prepare and review with the Board an annual
performance evaluation of the Audit Committee, which
evaluation must compare the performance of the Audit
Committee with the requirements of this Charter, and set
forth the goals and objectives of the Audit Committee for
the upcoming year. The performance evaluation by the Audit
Committee shall be conducted in such manner as the Audit
Committee deems appropriate. The report to the Board may
take the form of an oral report by the chairperson of the
Audit Committee or any other member of the Audit Committee
designated by the Audit Committee to make this report.
V. Delegation to Subcommittee: The Committee may, in its
discretion, delegate all or a portion of its duties and
responsibilities to a subcommittee of the Committee.
VI. Resources and Authority of the Audit Committee: The
Audit Committee shall have the resources and authority
appropriate to discharge its duties and responsibilities,
including the authority to select, retain, terminate and
approve the fees and other retention terms of special or
independent counsel, accountants or other experts, as it
deems appropriate, without seeking approval of the Board or
management.
