<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
MEXICAN RESTAURANTS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
MEXICAN RESTAURANTS, INC.
1135 EDGEBROOK DRIVE
HOUSTON, TEXAS 77034
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 23, 2000
DEAR SHAREHOLDER,
You are cordially invited to attend the 2000 Annual Meeting of
Shareholders of Mexican Restaurants, Inc. (the "Company") at the Tortuga Coastal
Cantina restaurant located at 9600 Westheimer, 100 Woodlake Square, Houston,
Texas on Tuesday, May 23, 2000 at 10:00 a.m., local time, for the following
purposes:
1. To elect two Class I directors, each to serve for a term of three
years, or until their respective successors shall have been duly
elected and shall have qualified;
2. To approve a change in the compensation of outside directors pursuant
to amendments to the Company's Stock Option Plan for Non-Employee
Directors; and
3. To transact such other business as may properly come before the
meeting.
Shareholders of record of the Company's common stock at the close of
business on April 14, 2000 are entitled to vote. Each share of Company common
stock entitles the holder to one vote. You are cordially invited to attend the
meeting; whether or not you expect to attend the meeting in person, however, you
are urged to mark, sign, date and mail the enclosed form of proxy promptly so
that your shares of stock may be represented and voted in accordance with your
wishes and in order that the presence of a quorum may be assured at the meeting.
Your proxy will be returned to you if you should be present at the meeting and
should request its return in writing, to be received by the Company prior to the
meeting. No proxy will be used if the shareholder is personally present at the
Annual Meeting and expresses a desire to vote his or her shares in person.
By Order of the Board of Directors
Louis P. Neeb
Chairman
April 21, 2000
<PAGE> 3
MEXICAN RESTAURANTS, INC.
1135 EDGEBROOK DRIVE
HOUSTON, TEXAS 77034
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 23, 2000
This statement is furnished in connection with the solicitation of
proxies for use at the Annual Meeting of Shareholders of Mexican Restaurants,
Inc., a Texas corporation (the "Company"), to be held on Tuesday, May 23, 2000
at 10:00 a.m., Texas time, at the Tortuga Coastal Cantina restaurant located at
9600 Westheimer, 100 Woodlake Square, Houston, Texas, and at any adjournment or
postponement thereof. The Notice of Annual Meeting, this statement and the
accompanying proxy, together with the Company's Annual Report to Shareholders
for the year ended January 2, 2000, are first being sent to shareholders on or
about April 21, 2000.
The solicitation of proxies is made by and on behalf of the Board of
Directors (the "Board"). The cost of the solicitation will be borne by the
Company, including the reasonable expenses of brokerage firms or other nominees
for forwarding proxy materials to beneficial owners. In addition to solicitation
by mail, proxies may be solicited by telephone, telecopy or personally. Proxies
may be solicited by directors, officers and employees of the Company without
additional compensation.
The close of business on April 14, 2000 has been fixed as the record
date for the determination of shareholders entitled to notice of and to vote at
the meeting. At that date, the Company had outstanding 3,661,705 shares of
Common Stock, $.01 par value ("Common Stock"), each of which will be entitled to
one vote.
In order to transact business at the Annual Meeting, a quorum
consisting of a majority of all outstanding shares entitled to vote must be
present. Abstentions and proxies returned by brokerage firms for which no voting
instructions have been received from their principals will be counted for the
purpose of determining whether a quorum is present. Once a share is represented
for any purpose at the Annual Meeting, it will be deemed present for quorum
purposes for the entirety of the meeting. A plurality of the votes cast is
required for the election of directors. A majority of the outstanding shares
entitled to vote that are represented at the meeting in person or by proxy is
required for approval of any other matters that may be presented at the meeting.
If the enclosed proxy is executed and returned, the shares represented
thereby will be voted in accordance with any specifications made by the
shareholder. IN THE ABSENCE OF ANY SUCH SPECIFICATION, THEY WILL BE VOTED TO
ELECT THE DIRECTORS AS SET FORTH UNDER "ELECTION OF DIRECTORS" BELOW AND TO
APPROVE THE AMENDMENTS TO THE COMPANY'S STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS AS SET FORTH UNDER "CHANGE IN DIRECTORS' COMPENSATION" BELOW. Pursuant
to applicable law, broker nonvotes and abstaining votes will not be counted in
favor of or against the election of any nominee for director or any of the
proposals to be presented at the meeting.
The presence of a shareholder at the meeting will not operate to revoke
his proxy. A proxy may be revoked at any time insofar as it has not been
exercised by giving written notice to the Company.
If any other matters come before the meeting, the persons named in the
proxy, or their substitutes, will vote thereon in accordance with their
judgment. The Board does not know of any other matters which will be presented
for action at the meeting.
ELECTION OF DIRECTORS
(PROPOSAL 1)
The number of directors of the Company has been fixed by the Board of
Directors, pursuant to the Company's Bylaws, at seven. The Company's Articles of
Incorporation provide for the Board of Directors to be
1
<PAGE> 4
divided into three approximately equal classes, designated as Class I, Class II
and Class III, with staggered terms of three years. At the meeting, Common
Stock, represented by proxies, will be voted for the election of the three
nominees hereinafter named, unless otherwise specified, to serve for a term of
three years or until their successors are duly elected and qualified.
The following information is set forth with respect to the persons
nominated for election as a director and each director of the Company whose term
of office will continue after the meeting.
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
<TABLE>
<CAPTION>
Director Term to
Name Age Since Expire
---- --- -------- -------
<S> <C> <C> <C>
Larry N. Forehand (Class I) ...... 55 1995 2003
David Nierenberg (Class I) ....... 46 2000 2003
</TABLE>
Larry N. Forehand is the founder of the Company and has served as Vice
Chairman of the Company's Board of Directors since October 1995 and as Franchise
Director since September 1997. From December 1973 to March 1995, Mr. Forehand
served as President of the Company. Mr. Forehand was the President of the Texas
Restaurant Association in 1997, a state trade association for the restaurant
industry.
David Nierenberg is the President of Nierenberg Investment Management
Company which manages The D3 Family Fund, a private investment partnership which
seeks long-term capital gain through investment in undervalued micro-cap
domestic public equities, a position held since 1996. From 1986-1995, Mr.
Nierenberg served as General Partner of Trinity Ventures, Ltd., a venture
capital partnership, which invested in special situations (turnarounds,
restructurings), financial services, and healthcare. Mr. Nierenberg was
appointed to the Board on February 15, 2000.
DIRECTORS WHOSE TERMS WILL CONTINUE AFTER THE ANNUAL MEETING
<TABLE>
<CAPTION>
Present
Director Term to
Name Age Since Expire
---- --- -------- -------
<S> <C> <C> <C>
Louis P. Neeb (Class II) ............... 61 1995 2001
Michael D. Domec (Class II) ............ 54 1995 2001
Joseph J. Fitzsimmons (Class III) ...... 52 1996 2002
Richard E. Rivera (Class III) .......... 53 1996 2002
J. Stuart Sargent (Class III) .......... 50 1997 2002
</TABLE>
Louis P. Neeb has served as Chairman of the Board and Chief Executive
Officer of the Company since November 1995, and as interim President from August
1997 to April 1998. Since 1982 Mr. Neeb has served as President of Neeb
Enterprises, Inc., a personal restaurant consulting company. From July 1991 to
January 1994, Mr. Neeb served as President of Spaghetti Warehouse, Inc. From
September 1989 to June 1991, Mr. Neeb served as President of Geest Foods USA.
From 1982 to 1987, Mr. Neeb served as President and Chief Executive Officer of
Taco Villa, Inc. and its predecessors, a publicly held corporation controlled by
W.R. Grace & Co., where he oversaw the development of the Applebee's restaurant
chain and the operation of the Del Taco restaurant chain. From 1980 to 1982, Mr.
Neeb served as Chairman of the Board and Chief Executive Officer of Burger King
Corporation. From 1973 to 1980, Mr. Neeb served in various positions, including
President and Chief Operating Officer of Steak & Ale Restaurants. During that
time, Mr. Neeb directed the development of the Bennigan's restaurant concept.
Mr. Neeb serves as a director of ShowBiz Pizza Time, Inc. and of Franchise
Finance Corp. of America, an entity that provides financing for real estate used
for restaurants. Mr. Neeb is also a director of Silver Diner, Inc., a publicly
held restaurant company.
Michael D. Domec has served as President of Magnum Development, Inc., a
residential real estate development company, since 1991, and as President of Ole
Restaurants, Inc., a franchisee of the Company, since June 1996. From December
1977 until April 1996, Mr. Domec was Vice President of Casa Ole Franchise
Services, Inc. and
2
<PAGE> 5
the majority owner of seven Casa Ole restaurants and a 49% owner of Casa Ole
Franchise Services, Inc., with the other owners of such corporation being Larry
N. Forehand--49%, Lawrence K. Schoening--1% and Corkey L. Turner--1%.
Joseph J. Fitzsimmons is Senior Vice President of Finance of Wal-Mart
Stores, Inc., a position held since November 1995. From September 1994 to
November 1995, Mr. Fitzsimmons served as Vice President of Finance of Wal-Mart
Stores, Inc. From November 1993 to September 1994, Mr. Fitzsimmons served as
Senior Vice President and as a securities analyst for Rauscher Pierce Refsnes,
Inc. From January 1993 to November 1993, Mr. Fitzsimmons served as Senior Vice
President and Chief Financial Officer of S&A Restaurant Corp. From August 1985
to January 1993, Mr. Fitzsimmons served as Senior Vice President, Director and
Chief Financial Officer of National Pizza Company.
Richard E. Rivera is President of Red Lobster Restaurants and Executive
Vice President and Director of Darden Restaruants, positions held since December
1997. From July to December 1997 he served as President and Chief Executive
Officer of Chart House Restaurants, Inc. From February 1994 to July 1997 he
served as President and Chief Executive Officer of RARE Hospitality
International, Inc. Mr. Rivera is also a past Director of the National
Restaurant Association. From February 1988 to February 1994, Mr. Rivera served
as President and Chief Executive Officer of TGI Friday's Inc.
J. Stuart Sargent is the President and Founder of Truluck's Steak &
Stone Crab Restaurants, a position held since June 1991. He served as President
of Monterey's Acquisition Corp. from May 1994 to July 1997. He conceived and
opened the first Studebaker's in 1981, and later formed Studebaker's of America,
where he opened or franchised 22 Studebaker's throught the United States. He has
also served as President and CEO of Entertainment One, Inc., a Houston-based
company providing management and support services for 18 food and beverage
operations including Houston Intercontinental Airport, several Studebaker's and
Chili's, and theme-oriented restaurants from St. Louis, Missouri (Big Kahuna) to
Waikoloa, Hawaii (Big Island Steak House).
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE ELECTION
OF THE NOMINEES.
BOARD MEETINGS AND COMMITTEES
Five meetings of the Board were held during 1999. Five directors
attended all five or 100% of the meetings and two directors attended four or 80%
of the meetings of the Board and the committees thereof of which they were
members and served.
The Board has an Audit Committee, the members of which are Messrs.
Nierenberg, Sargent and Fitzsimmons; Mr. Fitzsimmons serves as Chairman. The
Audit Committee held two meetings during 1999. The Audit Committee is
responsible for reviewing the accounting practices and policies and recommending
to whom reports should be submitted within the Company, reviewing with the
independent auditors their final report, reviewing with the independent auditors
the overall accounting and financial controls and being available to the
independent auditors during the year for consultation purposes.
The Board has a Compensation/Stock Option Committee, the members of
which are Messrs. Domec, Nierenberg and Rivera; Mr. Rivera serves as Chairman.
The Compensation/Stock Option Committee held three meetings during 1999. The
Compensation/Stock Option Committee is responsible for determining the
compensation of the officers of the Company and granting options under the
Company's 1996 Casa Ole Long Term Incentive Plan and the 1996 Managers Stock
Option Plan as well as granting stock under the 1999 Restricted Stock Plan.
The Board has an Executive Committee, the members of which are Messrs.
Neeb and Forehand; Mr. Neeb serves as Chairman. There were three formal and five
informal meetings of the Executive Committee during 1999. The Executive
Committee has the authority, between meetings of the Board, to take all actions
with respect to the management of the Company's business that require action by
the Board, except with respect to certain specified matters that by law must be
approved by the entire Board.
3
<PAGE> 6
CHANGE IN OUTSIDE DIRECTORS' COMPENSATION
(PROPOSAL 2)
The outside directors have agreed to be compensated by stock options in
lieu of their previous cash compensation. All of the Company's Directors will
continue to be entirely reimbursed for expenses incurred for attending any Board
or committee meeting. At the annual meeting, Common Stock, represented by
proxies, will be voted for the change from cash and stock option to stock
compensation for outside directors, unless otherwise specified. The prior cash
compensation program and the proposed amendments to the stock compensation for
outside directors are described in the following section.
DIRECTOR COMPENSATION
During fiscal year 1999, each outside director received an annual
retainer of $5,000 plus $750 per Board meeting attended and $250 per committee
meeting attended that was not in conjunction with a Board meeting, and was
reimbursed for expenses incurred for attending any such meeting. Previously, the
outside directors agreed to invest not less than 50% of their annual retainer
for their service as directors of the Company in each year to purchase shares of
Common Stock of the Company directly from the Company or in the open market
through a program administered by the Company. Each outside director also was
granted an option to acquire 3,000 shares of Common Stock on the date of the
annual meeting to purchase shares of Common Stock pursuant to the Casa Ole
Restaurants, Inc. Stock Option Plan for Non-Employee Directors (the "Directors
Option Plan").
Effective with the February 2000 Board meeting, and contingent upon
approval by the Company's shareholders, the directors amended the Directors
Option Plan to provide for each director an annual option grant to acquire
6,000 shares of Common Stock of the Company at the fair market value thereof on
the date of grant, with such options being granted in 25% (for 1,500 shares)
increments during each quarter. In addition, each director will receive one
option grant for 100 shares of Common Stock for each committee meeting attended
not in conjunction with a Board meeting. As a result, the Company's outside
directors will receive a larger grant of stock options in lieu of their annual
cash retainer and stock options. Directors will continue to be reimbursed for
expenses incurred for attending any such meeting.
Such options will vest annually. All stock options granted pursuant to
the Directors Option Plan will be nonqualified stock options and will remain
exercisable until the earlier of ten years from the date of grant or six months
after the optionee ceases to be a director of the Company. Upon certain
significant events involving the Company, all options outstanding under the
Directors Option Plan shall terminate, provided that immediately prior to the
effective date of such transaction each holder of an outstanding option under
the Directors Option Plan shall be entitled to purchase the total number of
shares of Common Stock that such optionee would have been entitled to purchase
during the entire remaining term of the option. Such events include the merger
or consolidation of the Company in which the Company is not the surviving
corporation; a dissolution of the Company or a transfer of all or substantially
all of the assets or shares of stock to one or more other persons or entities;
any person or group (other than Messrs. Larry N. Forehand, Michael D. Domec and
Louis P. Neeb) becoming the beneficial owner of securities of the Company
representing 50% or more of the combined voting power of the Company; or if,
during any period of two consecutive years, individuals then constituting the
Board of Directors cease for any reason to constitute at least a majority of the
Board unless the election of each director who was not a director at the
beginning of the period has been approved in advance by at least two-thirds of
the directors then in office who were directors at the beginning of the period.
The purpose of these amendments to the Directors Option Plan is to
provide for the payment of directors' retainer fees to outside directors in the
opportunity to acquire shares of Company Common Stock rather than in cash in
order to conserve the Company's cash and to more closely align the interests of
the outside directors and the Company's shareholders.
A COPY OF AMENDMENT NO. I TO THE DIRECTORS OPTION PLAN IS ATTACHED HERETO AS
APPENDIX A. THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
ADOPTION OF THE AMENDMENTS TO THE DIRECTORS OPTION PLAN.
EXECUTIVE OFFICERS OTHER THAN DIRECTORS
Set forth below are the names, ages, current positions with the
Company, the principal occupations, and the year of becoming an executive
officer of the Company for the two executive officers who are not directors of
the Company.
Curt Glowacki, age, 48, has served as Chief Operating Officer of the
Company since August 1997 and President since May 1998. From May 1994 to August
1997, he served as Senior Vice President of Operations of Monterey's Acquisition
Corp. From June 1989 to May 1994, he served as Vice President and Director of
Operations for Monterey's Tex-Mex Cafe, a subsidiary of CEC Entertainment, Inc.
Mr. Glowacki was hired by
4
<PAGE> 7
CEC Entertainment, Inc. in June 1986 as a Regional Manager. Previously, Mr.
Glowacki's experience included 12 years with Steak & Ale Restaurants, where he
held various operating positions.
Andrew J. Dennard, age 41, has served as Vice President, Controller &
Treasurer of the Company since July 1997 and Chief Financial Officer since
September 1998. From September 1994 to July 1997 he served as Vice President of
Finance for Monterey's Acquisition Corp. From July 1989 to September 1994, Mr.
Dennard held various positions with Rosewood Property Company. Previously, he
served as an auditor with KPMG LLP for approximately two years. Mr. Dennard's
early career was on the operations side of restaurants where he spent five years
with Steak & Ale Restaurants and four years with Houston's Restaurants.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of March 20, 2000 by each
person known to the Company to own beneficially more than five percent of the
Company's Common Stock, each director, each executive officer and all executive
officers and directors as a group.
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Name of Beneficial Owner Owned (1) Class
- ------------------------ ------------ -------
<S> <C> <C>
Larry N. Forehand and Forehand
Family Partnership, Ltd. (2)(3)(7)............................. 718,289 17.9%
David Nierenberg, The D3 Family Fund (4)............................ 670,300 16.7%
19605 N.E. 8th Street
Camas, Washington 98607
Wellington Management Company, LLP (5).............................. 240,000 6.0%
75 State Street
Boston, Massachusetts 02109
Michael D. Domec (2)(10)............................................ 186,555 4.7%
Louis P. Neeb (2)(6)(7)............................................. 443,487 11.1%
John C. Textor (6)(7)(8)(9)......................................... 358,764 8.9%
Wyndcrest Partners
777 S. Flagler Drive, Phillips Point - West Tower, Suite 1750
West Palm Beach, Florida 33401
Richard E. Rivera (11).............................................. 17,140 *
Darden Restaurants/Red Lobster
PO Box 593330
Orlando, FL 32859
J.J. Fitzsimmons (11)............................................... 15,442 *
Wal-Mart Stores, Inc.
702 Southwest 8th Street
Bentonville, Arkansas 72716
J. Stuart Sargent (12).............................................. 8,970 *
5644 Westheimer, suite 352
Houston, Texas 77056
Curt Glowacki (2)(13)............................................... 66,200 1.7%
Andrew J. Dennard (2)(14)........................................... 26,750 *
All executive officers and directors as
a group (nine persons) (15).................................... 1,956,531 48.7%
</TABLE>
- ---------------
* Less than 1%
(1) The named shareholders have sole voting and dispositive power with respect
to all shares shown as being beneficially owned by them, except as
otherwise indicated.
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<PAGE> 8
(2) The business address is 1135 Edgebrook Drive, Houston, Texas 77034.
(3) Includes 406,273 shares held directly by Mr. Forehand and 312,016 held by
Forehand Family Partnership, Ltd., a limited partnership of which Mr.
Forehand is the sole managing general partner and of which Mr. Forehand and
his spouse are the sole limited partners.
(4) Based on a Form 3 as of March 17, 2000, filed by David Nierenberg, and The
D3 Family Fund with the Securities and Exchange Commission. The form
discloses that Mr. Nierenberg has sole voting and sole dispositive power
over 608,300 shares of Common Stock, and has control over an additional
62,000 shares of Common Stock.
(5) Based on a Schedule 13G as of February 9, 2000, filed by Wellington
Management Company, LLP with the Securities and Exchange Commission. The
Schedule 13G discloses that Wellington Management Company, LLP has shared
voting power over 140,000 shares of Common Stock and shared dispositive
power over 240,000 shares of Common Stock.
(6) Mr. Neeb and Tex-Mex Partners, L.C. have warrants to purchase, at a per
share price of $10.90, up to 179,885 and 179,885 shares, respectively, from
the Company. Mr. Neeb's warrants became exercisable on April 25, 1998, and
the Tex-Mex Partners, L.C. warrants became exercisable on April 25, 1997.
Under the terms of the warrants, that portion of each of the warrants
allocable to the membership interest in Tex-Mex Partners, L.C. (currently
54%) of Mr. Textor, a former director of the Company, became exercisable on
April 25, 1998.
(7) Mr. Neeb and Tex-Mex Partners, L.C. have warrants to purchase, at a per
share price of $10.90, up to 196,602 and 171,602 shares, respectively, from
Larry N. Forehand. Mr. Neeb's warrants became exercisable on April 25,
1998, and the Tex-Mex Partners, L.C. warrants became exercisable on April
25, 1997. Under the terms of the warrants, that portion of each of the
warrants allocable to the membership interest in Tex-Mex Partners, L.C.
(currently 54%) of Mr. Textor, a former director of the Company, became
exercisable on April 25, 1998.
(8) Mr. Textor, a former director of the Company, is a principal of Tex-Mex
Partners, L.C., of which he presently has a 54% membership interest. Mr.
Textor has no ownership rights in the balance of the membership interests
of Tex-Mex Partners, L.C. and he disclaims beneficial ownership of the
warrants to acquire shares held by Tex-Mex Partners, L.C. and allocable to
such other membership interests.
(9) Includes 7,000 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(10) Includes 6,000 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(11) Includes 14,000 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(12) Includes 7,000 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(13) Includes 20,800 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(14) Includes 4,750 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(15) Includes an aggregate of 253,435 shares issuable pursuant to the exercise
of stock options and warrants exercisable within 60 days of the Record
Date.
6
<PAGE> 9
EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation
paid by the Company and its subsidiaries to the Chief Executive Officer and to
the other most highly paid executive officers who received cash compensation in
excess of $100,000 for the fiscal year ended January 2, 2000 (collectively the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
RESTRICTED
STOCK ALL OTHER
NAME & PRINCIPAL POSITION YEAR SALARY BONUS(2) OTHER(3) OPTIONS (#) AWARDS(4) COMPENSATION
- ------------------------- ---- -------- -------- -------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Louis P. Neeb 1999 $115,192 -- $ 9,000 -- -- --
Chairman, President and 1998 $ 90,000 -- -- -- -- --
Chief Executive Officer 1997 $ 90,000 -- -- -- -- $ 10,500
Curt Glowacki 1999 $172,115 $ 54,736 $ 9,000 28,000 $105,000 --
Chief Operating Officer 1998 $160,000 $ 37,700 $ 11,000 -- -- --
1997(1) $ 69,846 $ 26,000 $ 4,500 72,000 -- --
Andrew J. Dennard 1999 $ 85,000 $ 28,431 $ 6,000 10,000 -- --
Vice President and 1998 $ 85,000 $ 8,850 $ 7,000 -- -- --
Chief Financial Officer 1997(1) $ 36,250 $ 4,000 $ 3,500 15,000 -- --
</TABLE>
(1) Compensation represents amounts received after July 2, 1997, the date such
officers commenced employment with the Company.
(2) Bonus includes $32,683 for Mr. Glowacki and $17,155 for Mr. Dennard in 1999
for the payment of interest expense and principal amounts of the loans to
purchase stock under the executive and key employee stock purchase plan
adopted May 1998.
(3) Other annual compensation consists primarily of a car allowance.
(4) Represents 24,000 shares of restricted stock valued at $4.38 per share
granted under the Company's 1996 Long-Term Incentive Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS FOR OPTION TERM (10 YEARS)*
OPTIONS GRANTED TO EXERCISE OR -------------------------------
GRANTED EMPLOYEES BASE PRICE EXPIRATION
NAME (#) IN FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
---- ---------- -------------- ----------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Louis P. Neeb -- -- $ -- -- $ -- $ --
Curt Glowacki 28,000 22.86% $4.3125 2-22-09 $75,939 $192,444
Andrew J. Dennard 10,000 8.16% $4.3125 2-22-09 $27,121 $ 68,730
</TABLE>
- ---------------
(1) These options were granted under the Company's 1996 Long Term Incentive
Plan and vest and become exercisable 10% on the first anniversary of
the date of grant, 15% on the second anniversary of the date of grant
and 25% on each of the third through fifth anniversaries of the date of
grant.
(2) Potential realizable value amounts are the results of calculations
assuming 5% and 10% growth rates as set by the Securities and Exchange
Commission and are not intended to forecast future price appreciation
of Company Common Stock. The amounts computed are the undiscounted
future values, and therefore, do not reflect inflation or the time
value of money.
No stock options were exercised during 1999 by the Senior Executives. The
following table shows information concerning the exercise of stock options
during 1999 by the Senior Executives and the estimated value of unexercised
options held by such individuals at year-end:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF
SHARES UNEXERCISED UNEXERCISED-IN-THE-MONEY
ACQUIRED VALUE OPTIONS AT FY-END (#) OPTIONS($)(1)
ON EXERCISE REALIZED --------------------------- ---------------------------
NAME # $ EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Louis P. Neeb -- -- -- -- -- --
Curt Glowacki(2) -- -- 20,800 79,200 -- --
Andrew J. Dennard(3) -- -- 4,750 20,250 -- --
</TABLE>
7
<PAGE> 10
(1) Based on the closing price per share of Common Stock on December 31, 1999
(the last day the stock traded in fiscal year 1999), of $3.875 as reported
by the Nasdaq National Market.
(2) Options to acquire 72,000 shares of common stock to Mr. Glowacki were
granted in 1997 under the Company's 1996 Long Term Incentive Plan. An
option to acquire 36,000 shares of common stock was granted to Mr. Glowacki
under the Company's upon the Company's purchase of Monterey's Acquisition
Corp. on July 2, 1997 and an option to acquire 36,000 shares of common
stock was made on November 6, 1997. In addition, options to acquire 28,000
shares were granted February 22, 1999 under the Company's 1996 Long Term
Incentive Plan. The grants vest in accordance with the schedule set forth
below in note (3).
(3) Options to acquire 15,000 shares of common stock to Mr. Dennard were
granted in 1997 under the Company's 1996 Long Term Incentive Plan. An
additional 10,000 options were granted on February 22, 1999 under the
Company's 1996 Long Term Incentive Plan. Mr. Dennard's options vest and
become exercisable 10% on the first anniversary of the date of grant, 15%
on the second anniversary of the date of grant and 25% on each of the third
through fifth anniversaries of the date of grant.
REPORT BY THE COMPENSATION/STOCK OPTION COMMITTEE
ON EXECUTIVE COMPENSATION
The Board of Directors has a Compensation/Stock Option Committee (the
"Committee") to administer all aspects of the compensation program for the
executive officers of the Company, including the review and approval of the
compensation levels, the evaluation of performance and the granting of options
under the Company's 1996 Long Term Incentive Plan. The Committee consists of the
three directors whose names are listed at the end of this report.
The primary objective of the Company's compensation program is to
attract, retain and reward executives whose contributions will enhance the
Company's ability to execute its business strategy. The Company's strategy is to
build shareholder value by growing the system through both same-store sales
increases and careful new unit openings, and to grow earnings per share by
carefully managing costs and by opportunistically repurchasing shares.
The Company's executive compensation program includes base salary, a
cash bonus program, stock options, restricted stock grants, and other forms of
compensation as determined by the Committee. Performance of the Company, the
level of each executive's responsibility and his or her ability to contribute to
the Company's success are considered in determining total compensation. Stock
price performance is only one measure of success and may not be the best current
measure of executive performance. Base salaries are set by considering
compensation levels of similar positions within industry peers.
The Company had a three-year employment agreement with Mr. Neeb that
commenced with the completion of the Company's initial public offering in April
1996, subject to the right of the employee to terminate the agreement upon six
months' notice to the Company. In February 1999, the agreement was amended to
provide for a payment of one year's salary as severance in the event that the
agreement is terminated by the Company. The Company will pay Mr. Neeb's base
salary until the first to occur of one year after termination or the securing of
alternative employment by Mr. Neeb. Messrs. Glowacki and Dennard have similar
agreements that commenced with the purchase of Monterey's Acquisition Corp. on
July 2, 1997. Under the agreements, annual base salaries as of April 14, 2000
for Messrs. Neeb, Glowacki and Dennard were $125,000, $180,000 and $100,000,
respectively.
Company executives are eligible to receive annual cash bonus awards
based in part on a formula of profits relative to financial plan. Bonuses of
$54,736 and $28,431 were paid to Messrs. Glowacki and Dennard, respectively, for
fiscal 1999 and 1998 performance under this program and the share purchase
program described below. The primary purpose of these bonuses was to pay the
principal on borrowings for the purchase of shares of the Company. These bonuses
were paid in 1999 for 1998 performance.
In May 1998 the Board of Directors of the Company adopted a program to
assist executives and five key employees of the Company in purchasing shares of
the Company. The program provides for the Company to assist the executives and
key employees in obtaining third party loans to finance such purchases. It also
provides for annual cash bonuses to such executives to provide for payment of
interest expense and principal amounts to amortize these loans in not more than
five years. The bonus payments are based on attainment of earnings per share
targets established by the Company's Board of Directors. The key employees have
purchased a total of 47,000 shares under this program. No such share purchases
were made during the 1999 fiscal year.
The Board of Directors and shareholders of the Company approved the
1996 Long Term Incentive Plan (the "Incentive Plan") in conjunction with the
Company's 1996 initial public offering. The Incentive Plan authorizes the
8
<PAGE> 11
granting of incentive stock options and non-qualified stock options to purchase
Common Stock, stock appreciation rights, restricted stock and performance units
to key executives and other key employees of the Company, including officers of
the Company and its subsidiaries, and is administered by the Committee. The
purpose of the Incentive Plan is to attract and retain key employees, to
motivate key employees to achieve long-range goals and to further align the
interests of key employees with those of the other shareholders of the Company.
The Incentive Plan, as amended, authorizes the award of 500,000 shares
of Common Stock to be used for stock options, stock appreciation rights or
restricted stock. The Incentive Plan will terminate on December 31, 2005.
Executives and other key full-time employees of the Company and its
subsidiaries may be selected by the Committee to receive awards under the
Incentive Plan. In the discretion of the Committee, an eligible employee may
receive an award in the form of a stock option, stock appreciation right,
restricted stock award or performance unit or any combination thereof, and more
than one award may be granted to an eligible employee.
The Incentive Plan authorizes the award of both incentive stock options
and nonqualified stock options. Under the Incentive Plan, an option may be
exercised at any time during the exercise period established by the Committee,
except that: (i) no option may be exercised prior to six months from the date of
grant; (ii) no option may be exercised more than ninety days after employment
with the Company and its subsidiaries terminates by reason other than death,
disability or authorized leave of absence for military or government service;
and (iii) no option may be exercised more than twelve months after employment
with the Company and its subsidiaries terminates by reason of death or
disability. The term of each option is determined by the Committee, but in no
event may such term exceed ten years from the date of grant.
In fiscal year 1999, options covering 28,000 and 10,000 shares of
common stock were granted to Messrs. Glowacki and Dennard, respectively, under
the Incentive Plan. The average exercise price of these options is $4.31. All
such options will vest and become exercisable at the rate of 10% on the first
anniversary of the date of grant, 15% on the second anniversary of the date of
grant, and 25% on each of the third through fifth anniversaries of the date of
grant.
During fiscal year 1999, the Company granted 24,000 shares, valued at
$4.38 per share, of restricted stock to Mr. Glowacki. On February 28, 2000,
these restricted shares were issued. The restricted stock will vest in 20%
increments over a five-year period from the date of the grant. Additionally on
that date, 40,000 shares were granted and issued to other key employees. The
latter awards were valued at $3.50 per share.
Although not part of the compensation program for the Company's
executive officers, the Committee also administers the 1996 Managers Stock
Option Plan (the "Managers Plan"), which authorizes the granting of
non-qualified stock options to purchase Common Stock to employees of the Company
and its subsidiaries who are managers or assistant managers of or hold key
managerial positions in or for the Company or any subsidiary ("Managers") and
who are at the time of grant neither officers, directors nor 10% shareholders of
the Company. The Managers Plan was adopted by the Board of Directors of the
Company. The purpose of the Managers Plan is to attract and retain key
employees, to motivate key employees to achieve long-range goals, to provide
incentive compensation opportunities that are competitive with those of other
corporations and further align the interest of eligible employees with the
Company's other shareholders.
The Managers Plan authorizes the award of an aggregate of 200,000
shares of Common Stock to be used for non-qualified stock options. The Managers
Plan will terminate on December 31, 2005.
Under the Managers Plan, non-qualified stock options may be granted to
Managers at the price determined by the Committee, which shall be 100% of the
fair market value at the date the option is granted unless the Committee
expressly determines otherwise. The Managers Plan provides that an option
granted thereunder may be exercised at any time during the exercise period
established by the Committee, except that: (i) no option may be exercised more
than ninety days after employment with the Company and its subsidiaries has
terminated by reason other than death, disability or authorized leave of absence
for military or government service; and (ii) no option may be exercised more
than 12 months after employment has terminated by reason of death or disability.
The term of each option is determined by the Committee, but in no event may such
term exceed ten years from the date of grant.
The Committee believes that the compensation of the Company's
executives during fiscal 1999 was consistent with the objectives of the
Company's executive compensation program.
9
<PAGE> 12
COMPENSATION/STOCK OPTION COMMITTEE
Michael D. Domec
Richard E. Rivera
David Nierenberg
COMPENSATION/STOCK OPTION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Compensation/Stock Option Committee consists of David Nierenberg,
Michael D. Domec and Richard E. Rivera. Mr. Rivera serves as Chairman of the
Committee.
The Company has engaged in various transactions related to Mr. Forehand
and/or Mr. Domec. For a complete description of such transactions, see "Certain
Relationships and Related Transactions."
Pursuant to Item 404 of Commission Regulation S-K, no executive officer
of the Company served as a member of the Compensation Committee (or other board
committee performing similar functions or, in the absence of any such committee,
the entire Board of Directors) of another corporation, one of whose executive
officers served on the Compensation Committee. No executive officer of the
Company served as a director of another corporation, one of whose executive
officers served on the Compensation Committee. No executive officer of the
Company served as a member of the Compensation Committee (or other board
committee performing equivalent functions or, in the absence of any such
committee, the entire Board of Directors) of another corporation, one of whose
executive officers served as a director of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the Company's knowledge, all statements of beneficial ownership
required to be filed with the Securities and Exchange Commission (the
"Commission") for the fiscal year ended January 2, 2000 have been timely filed,
except for a late report (Form 3) by David Nierenberg, who was appointed to the
Board on February 15, 2000 which was filed in March 2000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AGREEMENTS CONCERNING WARRANTS AND OPTIONS
In fiscal 1996, the Company entered into warrant agreements with Mr.
Neeb and Tex-Mex Partners, L.C. ("Tex-Mex"), a limited liability company of
which Mr. Textor, a former director, is a principal and 54% member, pursuant to
which Mr. Neeb and Tex-Mex acquired warrants to purchase shares of Common Stock
at the initial public offering price less the amount paid for the warrant ($.10
per share) for an aggregate amount of Common Stock equal to ten percent (10%) of
the shares of Common Stock of the Company outstanding upon consummation of the
initial public offering. Such shares were allocated 5% (or 179,885 shares) to
Mr. Neeb, and 5% (or 179,885 shares) to Tex-Mex. The Company's warrants to Mr.
Neeb became exercisable on the second anniversary of the initial public
offering, and the Company's warrants to Tex-Mex became exercisable on the first
anniversary of the initial public offering.
In addition, in fiscal 1996, Larry N. Forehand sold warrants to Mr.
Neeb, Tex-Mex, and two former officers of the Company, to purchase an aggregate
of 520,996 shares of the Common Stock of the Company held by Mr. Forehand at the
initial public offering price less the amount paid for the warrant ($.10 per
share). Such shares were allocated 196,602 shares to Mr. Neeb, 196,602 shares to
Tex-Mex (with warrants for 25,000 of such shares rescinded by agreement in 1996)
and 127,792 shares to the former officers. The warrants acquired from Mr.
Forehand by Mr. Neeb and the former officers became exercisable on the second
anniversary of the initial public offering, and the warrants acquired from Mr.
Forehand by Tex-Mex became exercisable on the first anniversary of the initial
public offering (except for 54% allocable to Mr. Textor's ownership interest in
Tex-Mex, which became exercisable on the second anniversary).
10
<PAGE> 13
The Company has granted limited registration rights to holders of
warrants granted by the Company and Larry N. Forehand to Mr. Neeb, Tex-Mex and
the former officers to register the 855,766 underlying shares of Common Stock
covered by such warrants in connection with registrations otherwise undertaken
by the Company.
LEASE OF HEADQUARTERS BUILDING
The Company leases its executive offices in Houston, Texas from CO
Properties No. 3, a Texas partnership owned by Larry N. Forehand and Michael D.
Domec. The lease, which expires in May 2001, is a gross lease (where the
landlord pays utilities and property taxes) with monthly rental payments of
$1.00 per square foot per month. In 1999 the Company leased approximately 6,200
feet under the lease. The Company believes that this lease is on terms at least
as favorable as could be obtained from an unrelated third party.
ACCOUNTING AND FINANCIAL SERVICES
Bay Area Management Inc., an entity owned by Robert N. Domec, the
brother of Michael D. Domec, performed accounting and financial services for the
Company for approximately 15 years. In June 1999, the Company paid a termination
fee of $82,000 and canceled its contract with Bay Area Management Inc. Total
fees paid by the Company to Bay Area Management, Inc. for fiscal 1999 were
$216,369. The Company believes that the services provided by Bay Area
Management, Inc. have been provided on terms at least as favorable as could be
obtained from an unrelated third party.
AREA DEVELOPMENT AGREEMENT
Michael D. Domec is a franchisee of Casa Ole in the Houston, Texas
area. Michael D. Domec has signed a multi-unit development agreement with the
Company and that permits him to open a minimum of five restaurants in the
Houston, Texas area by 2001. The first restaurant under Mr. Domec's multi-unit
development agreement opened in October 1996 and the second opened December
1997. Under the multi-unit development agreement Mr. Domec does not pay a
franchise fee but pays a royalty of 2% of gross sales.
The Company believes that the foregoing transactions were on terms no
less favorable to it than those that could have been obtained from unaffiliated
third parties. Any future related party transactions will be on terms no less
favorable to the Company than those that could be obtained from unaffiliated
third parties.
Related party transactions are subject to the review and approval of
the Company's Audit Committee, which is comprised exclusively of independent
directors who are not otherwise involved in the day-to-day management of the
Company or officers of the Company, and who do not have a personal financial
interest in the matter in which they are acting.
PERFORMANCE GRAPH
The following performance graph compares the cumulative return of the
Common Stock with that of the Nasdaq Composite Index and the Standard & Poors
Midcap Restaurants Index since the Company's initial public offering, assuming
in each case an initial investment of $100 on April 25, 1996.
<TABLE>
<CAPTION>
04/25/1996 12/27/1996 12/26/1997 01/03/1999 01/02/2000
<S> <C> <C> <C> <C> <C>
Mexican Restaurants $100.00 $ 79.55 $ 31.82 $ 38.34 $ 28.18
S&P Midcap Restaurants $100.00 $ 81.47 $ 90.10 $110.53 $ 91.92
Nasdaq Composite $100.00 $109.23 $128.36 $187.00 $348.14
</TABLE>
Source: Carl Thompson Associates www.ctaonline.com (800) 959-9677. Data from
Bloomberg Financial Markets.
11
<PAGE> 14
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG LLP has served as the Company's independent public accountants
since the Company's 1996 initial public offering. Representatives of KPMG LLP
are expected to be present at the shareholders' meeting to respond to
appropriate questions. No accountant has yet been selected for the year ending
December 31, 2000 and the Company intends to seek proposals for the fiscal 2000
audit.
SHAREHOLDER PROPOSALS
Any shareholder who intends to present a proposal at the 2001 Annual
Meeting of Shareholders for inclusion in the proxy statement and form of proxy
relating to that meeting is advised that the proposal must be received by the
Company at its principal executive offices not later than December 31, 2000. The
Company will not be required to include in its proxy statement or form of proxy
a shareholder proposal which is received after that date or which otherwise
fails to meet requirements for shareholder proposals established by regulations
of the Securities and Exchange Commission.
By Order of the Board of Directors
Louis P. Neeb
Chairman
April 21, 2000
ALL SHAREHOLDERS ARE URGED TO DATE, SIGN AND RETURN PRE ENCLOSED PROXY.
12
<PAGE> 15
APPENDIX A
AMENDMENT NO. 1 TO THE CASA OLE RESTAURANTS, INC.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
WHEREAS, Mexican Restaurants, Inc., formerly known as Casa Ole
Restaurants, Inc. (the "Corporation"), has heretofore adopted the Casa Ole
Restaurants, Inc. Stock Option Plan for Non-Employee Directors (the "Directors
Plan"); and
WHEREAS, as originally adopted by the Corporation, the Directors Plan
provides for the grant of 3,000 Annual Options (i) to each Director at the date
of the Annual Meeting at which such Director is elected or appointed to the
Board and (ii) to each Director appointed to the Board at other than an Annual
Meeting, at the next following Annual Meeting, and in each event at each Annual
Meeting thereafter during the Director's service as a member of the Board; and
WHEREAS pursuant to those provisions of the Directors Plan permitting
the Board to amend the Directors Plan from time to time, the Board desires to
amend the Directors Plan to (i) increase the shares to be subject to Annual
Options from 3,000 to 6,000 and provide for such Annual Options to be granted in
equal quarterly increments and (ii) provide for the Directors to receive Annual
Options in an amount equal to 100 Common Shares for each meeting of a committee
of the Board which such Director attends and which is held other than in
conjunction with a Board meeting;
NOW, THEREFORE, effective as of February 1, 2000, the Directors Plan is
hereby amended as follows:
1. The title of the Directors Plan is amended to read as
follows:
MEXICAN RESTAURANTS, INC.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
2. Section 1 (Purpose of Plan) is amended to read in its
entirety as follows:
SECTION 1. Purpose of Plan.
The purpose of this Stock Option Plan for Non-Employee
Directors (the "Plan") of Mexican Restaurants, Inc., a Texas corporation (the
"Corporation"), is to provide present and prospective directors of the
Corporation who are not employed by the Corporation with the opportunity to
obtain equity ownership interests in the Corporation through the exercise of
stock options.
3. Section 4 (Terms and Conditions of Options) is
amended to read in its entirety as follows:
SECTION 4. Terms and Conditions of Options.
(a) (i) Amount and Exercise Price of Annual Option Grants.
Each Director shall automatically be granted (i) an Option to purchase up to
6,000 Common Shares with such Options to be deemed granted in 25% or 1,500 share
increments on the date of the first quarterly meeting of the Board during each
quarter of the Corporation's fiscal year following the date of such Director's
election or appointment to the Board and (ii) an Option to purchase 100 Common
Shares on the date of each committee meeting of the Board which such Director
attends and which is held other than in conjunction with a meeting of the Board
(each of the foregoing dates, a "Date of Grant"), in each event subject to
adjustment as provided in Section 7 (the foregoing Options, "Annual Options").
The exercise price for each Annual Option granted pursuant to this Section 4(a)
shall be the Fair Market Value of the Common Shares at the close of business on
the last business day preceding the applicable Date of Grant (the "Exercise
Price"), which shall be the closing price of such Common Share on such day as
reported on the New York Stock Exchange Corporate Tape, or if such Common Shares
are not listed or admitted to trading on the New York Stock Exchange, as
reported on the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange, or,
if the Common Shares are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Common Shares are listed or admitted to trading, or, if the Common
Shares are not listed or admitted to trading on any national securities
A-1
<PAGE> 16
exchange, the closing price of such Common Shares as reported on the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ"), or if such Common Shares are not listed or admitted
to trading on the NASDAQ National Market System, the last quoted sales price or,
if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the NASDAQ System or such other system
then in use or, if on such date the Common Shares are not reported on any such
system and are not listed or admitted to trading on any national securities
exchange, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Common Shares selected by the
Board.
(ii) Options. References in this Plan to "Options"
shall mean Annual Options, and references in this Plan to "Optionees" shall
refer to recipients of Annual Options.
(b) Vesting of Annual Options. Each Annual Option increment
granted under this Plan shall vest and become exercisable on, and only if the
Optionee continues to serve as a Director until, the date of the Corporation's
annual meeting of shareholders ("Annual Meeting") for the Corporation's fiscal
year next following the Date of Grant of such Annual Option or any increment
thereof. By means of illustration, Annual Options granted to a Director during
the Corporation's 2000 fiscal year shall vest on and only if the Optionee
remains a Director until the Corporation's 2001 Annual Meeting.
(c) Manner of Exercise. Any vested and exercisable Option
shall be exercised by the holder thereof by giving written notice, signed by
such holder, to the Corporation stating the number of Common Shares with respect
to which the Option is being exercised. Payment may be made in cash or in Common
Shares, valued at the fair market value per share on the date of exercise. If
the Corporation shall have a class of its Common Shares registered pursuant to
Section 12 of the 1934 Act, an Optionee may also make payment at the time of
exercise of an Option for such class of Common Shares by delivering to the
Corporation a properly executed exercise notice together with irrevocable
instructions to a broker approved by the Corporation that upon such broker's
sale of shares with respect to which such option is exercised, it is to deliver
promptly to the Corporation the amount of sale proceeds necessary to satisfy the
option exercise price. No Option may be exercised with respect to any fractional
share and cash shall be paid in lieu of fractional shares. As promptly as
practicable following the receipt of a notice hereunder, the Corporation shall
issue a stock certificate registered in the name of the Optionee exercising such
Option, representing the number of Common Shares issued to such Optionee upon
exercise of the Option. The term "fair market value per share" as of any date
shall mean the closing price of such Common Share on such day as reported on the
New York Stock Exchange Composite Tape, or if Common Shares are not listed or
admitted to trading on the New York Stock Exchange, as reported on the NASDAQ
National Market System, or if such Common Shares are not listed or admitted to
trading on the NASDAQ National Market System, the last quoted sales price or, if
not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the NASDAQ System or such other system
then in use or, if on such date the Common Shares are not reported on any such
system and are not listed or admitted to trading on any national securities
exchange, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Common Shares selected by the
Board.
The remaining provisions of the Directors Plan shall remain in full
force and effect and shall not be impacted by this Amendment No. 1. Except as
otherwise set forth herein, capitalized terms not otherwise defined shall have
the meaning ascribed to such terms in the Directors Plan.
A-2
<PAGE> 17
PROXY PROXY
MEXICAN RESTAURANTS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS-MAY 23, 2000
The undersigned hereby appoints LOUIS P. NEEB, CURT GLOWACKI and ANDREW J.
DENNARD, and each or any of them, as attorneys, agents and proxies of the
undersigned with full power of substitution, for and in the name, place and
stead of the undersigned, to attend the annual meeting of shareholders of
Mexican Restaurants, Inc. (the "Company") to be held in the Tortuga Coastal
Cantina restaurant located at 9600 Westheimer, 100 Woodlake Square, Houston,
Texas, on Tuesday, May 23, 2000, at 10:00 a.m., Houston time, and any
adjournment(s) thereof, and to vote thereat the number of shares of Common Stock
of the Company which the undersigned would be entitled to vote if personally
present as indicated below and on the reverse side hereof and, in their
discretion, upon any other business which may properly come before said meeting.
This Proxy when properly executed will be voted in accordance with your
indicated directions. If no direction is made, this proxy will be voted FOR the
election of directors.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE> 18
MEXICAN RESTAURANTS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
For Withheld For All
1. Election of Directors - All All Except
NOMINEES: LARRY N. FOREHAND, [ ] [ ] [ ]
DAVID NIERENBERG
- ---------------------------------
(Except nominee(s) written above)
2. To approve a change in For Against Abstain
directors compensation. [ ] [ ] [ ]
Please check this box if you plan to
attend The Annual Meeting of [ ]
Shareholders.
The undersigned acknowledges receipt of the
Notice of Annual the Company's Meeting of
Shareholders and of the Proxy Statement.
Dated: __________________________, 2000
Signature(s) __________________________
_______________________________________
Please sign exactly as your name appears.
Joint owners should each sign personally.
Where applicable, indicate your official
position or representation capacity. Please
date, sign and return this Proxy in the
enclosed business envelope.
