Texas Roadhouse (TXRH)

Stock Options

We utilize stock options to provide the Named Executive Officers a financial interest in the Company’s success and align their interests with that of our stockholders. Stock options provide potential financial gain if the price of the stock has increased since the date of the grant. Since our long-term

11

performance ultimately determines the value of the stock options, we believe that the grant of stock options encourages behavior that results in sustainable profitability, which should be reflected by the price of our Class A common stock. Stock options also serve to retain the Named Executive Officers as they vest in varying increments over a three-year period. The options expire ten years from the grant date.

We grant options to approximately 1,000 employees, including our Named Executive Officers except Mr. Taylor. Under our 2004 Equity Incentive Plan, the exercise price of stock options is the closing price of our stock on the trading day immediately preceding the date of the grant. It is our practice to grant options quarterly on the day that follows the third full trading day after the public release of the Company’s earnings for the prior fiscal quarter. Grants of stock options to Messrs. Hart, Colosi and Ortiz were made pursuant to the terms of each officer’s employment agreement, which provided that the grants would be effective upon the closing of our IPO at an exercise price equal to the price per share at which shares of the Class A common stock were offered to the public in the IPO. Mr. Taylor’s employment agreement did not provide for a grant of stock options; as founder and our controlling stockholder, his interests as an officer were already well aligned with those of our other stockholders. Grants to Ms. Brown were made pursuant to an amendment to her employment agreement dated March 2005, which provided that the grant date would be the date that followed the third full trading date after the public release of the Company’s earnings for the fourth quarter of the fiscal year 2004. No stock options were granted to any of the Named Executive Officers during the fiscal year ended December 26, 2006.