EL CHICO RESTAURANTS, INC.
12200 Stemmons
Suite 100
Dallas, Texas 75234
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 8, 1997
To the Shareholders
of El Chico Restaurants, Inc.:
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders of
El Chico Restaurants, Inc. (the "Company"), will be held at The Texas
Commerce Bank Tower, 2200 Ross Avenue, 7th Floor, Dallas, Texas, on
Thursday, May 8, 1997, at 10:00 a.m., Dallas time, for the following
purposes.
1. To elect five directors of the Company to hold office
until their respective
successors shall have been duly elected and qualified.
2. To transact such other business as may properly come
before the meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on
Thursday, March 27, 1997, as the record date for determination of
shareholders entitled to notice of and to vote at the annual meeting.
Whether or not you expect to attend the meeting in person, you
are urged to mark, sign, and date the enclosed form of proxy and
return the same promptly so that your shares of stock may be
represented and voted at the meeting. You may revoke your proxy at
any time before it is voted.
BY ORDER OF THE BOARD OF DIRECTORS
SUSAN R. HOLLAND
Secretary
Dallas, Texas
April 8, 1997<PAGE>
EL CHICO RESTAURANTS, INC.
12200 Stemmons
Suite 100
Dallas, Texas 75234
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 8, 1997
SOLICITATION AND REVOCABILITY OF PROXIES
The accompanying proxy is solicited by the Board of Directors of
El Chico Restaurants, Inc., a Texas corporation (the "Company"), to be
voted at the annual meeting of the shareholders of the Company (the
"Meeting") to be held Thursday, May 8, 1997, at the time and place and
for the purposes set forth in the accompanying Notice of Annual
Meeting of Shareholders (the "Notice"). When proxies in the
accompanying form are properly executed and received, the shares
thereby will be voted at the Meeting in accordance with the directions
noted thereon;if no direction is indicated, such shares will be voted
for the election of directors.
Management does not intend to present any business at the Meeting
for a vote other than the matters set forth in the Notice and has no
information that others will do so. If other matters requiring a vote
of the shareholders properly come before the Meeting, it is the
intention of the persons named in the accompanying form of proxy to
vote the shares represented by the proxies held by them in accordance
with their judgment on such matters.
Any shareholder giving a proxy may revoke that proxy at any time
before it is voted. A proxy may be revoked by filing with the
Secretary of the Company a written revocation or duly executed proxy
bearing a date subsequent to the proxy being revoked. Any shareholder
may attend the Meeting and vote in person whether or not such
shareholder has previously returned a properly executed proxy to the
Company.
In addition to the solicitation of proxies by use of the mail,
officers and other employees of the Company may solicit the return of
proxies. Brokerage houses and other custodians, nominees and
fiduciaries will be requested to forward solicitation material to the
beneficial owners of stock.
The cost of preparing, printing, assembling and mailing the
Notice, this Proxy Statement, the form of proxy enclosed herewith and
any additional solicitation material, as well as the cost of
forwarding solicitation material to the beneficial owners of stock, is
to be borne by the Company. This Proxy Statement and the accompanying
Notice are first being sent to the shareholders of the Company on or
about April 8, 1997.<PAGE>
QUORUM AND VOTING
The presence, in person or by proxy, of the holders of a majority
of the outstanding shares of common stock, $.10 par value, of the
Company ("Common Stock") entitled to vote is necessary to constitute a
quorum with respect to each matter to be considered at the Meeting.
If a quorum is not present or represented at the Meeting, the
shareholders entitled to vote thereat, present in person or
represented by proxy, may adjourn the Meeting from time to time
without notice or other announcement until a quorum is present or
represented. Assuming the presence of a quorum, the affirmative vote
of the holders of a plurality of the shares of Common Stock voting at
the Meeting is necessary for the election of directors. An automated
system administered by the Company's transfer agent tabulates the
votes. Abstentions and broker non-votes are each included in the
determination of the number of shares present for determining a
quorum. Each proposal is tabulated separately. Abstentions are
counted in tabulations of the votes cast on proposals presented to
shareholders, whereas broker non-votes are not counted as voting for
purposes of determining whether a proposal has received the necessary
number of votes for approval of the proposal.
The record date for the determination of shareholders entitled to
notice of and to vote at the Meeting was the close of business on
March 27, 1997. At that date, there were 3,696,335 shares of Common
Stock issued and outstanding. Each of such shares is entitled to one
vote in each matter to be acted upon at the Meeting. The Company's
Articles of Incorporation deny cumulative voting.
PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth as of March 27, 1997, unless
otherwise indicated, (i) the stock ownership of the persons or
entities known by management beneficially to own more than 5% of the
Common Stock, (ii) the number of shares of Common Stock beneficially
owned by each director and nominee, (iii) the number of shares
owned by each of the persons named in the Summary Compensation Table,
and (iv) the number of shares of Common Stock beneficially owned by
all directors and executive officers of the Company as a group.
Amount and Nature of Percent
Name Beneficial Ownership(1) of Class
---------------- ----------------------- --------
Wallace A. Jones 102,500 (2) 2.7%
Lawrence E. White 58,259 (2) 1.6%
Charles A. Cooper 36,193 (2) *
Michael E. Sick 11,072 (2) *
Mark P. Lamm 8,645 (2) *
Joseph S. Thomson 40,500 (2) 1.1%
Jack D. Knox 22,000 (2) *
Joseph V. Mariner, Jr. 15,796 (2) *
Grahame N. Clark, Jr. 15,000 (2) *
Robert Fleming, Inc. 409,500 (3) 11.1%
Dimensional Fund Advisors Inc. 305,400 (4) 8.3%
The TCW Group, Inc. 253,300 (5) 6.9%
Fleet Financial Group, Inc. 233,600 (6) 6.3%
Brinson Partners, Inc. 227,300 (7) 6.1%
Greenbrier Partners, Ltd. 187,300 (8) 5.1%
All directors and executive officers as
a group (10 persons) 343,676 (2) 8.6%
* Less than one percent.
(1) Beneficial ownership as reported in the above table has been
determined in accordance with Rule 13d-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Except as noted, 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 which may be acquired within 60 days of the
record date pursuant to the exercise of stock options as follows: Mr.
Jones - 100,000 shares; Mr. White - 55,000 shares; Mr. Cooper - 30,000
shares; Mr. Sick -11,000 shares; Mr. Lamm - 6,000 shares; Mr. Thomson
- 21,000 shares; Mr. Knox - 21,000 shares; Mr. Mariner - 11,000
shares; Mr. Clark - 11,000 shares; and all directors and executive
officers as a group - 296,000 shares.
(3) The principal business address of Robert Fleming Inc. ("Fleming")
is 320 Park Avenue, 11th Floor, New York, NY 10022. Based on a
Schedule 13G, filed by Fleming with the Securities and Exchange
Commission ("Commission") on February 14, 1997, Fleming has shared
voting and shared dispositive power over 409,500 shares.
(4) The principal business address of Dimensional Fund Advisors, Inc.
("Dimensional") is 1299 Ocean Avenue, 11th Floor, Santa Monica, CA
90401. Based on a Schedule 13G, filed by Dimensional with the
Commission on February 7, 1997, Dimensional, a registered investment
advisor, is deemed to have beneficial ownership of 305,400 shares of
Common Stock as of December 31, 1996, all of which shares are held in
portfolios of DFA Investment Trust Company, a Delaware business trust,
or the DFA Group Trust and DFA Participation Group Trust, investment
vehicles for qualified employee benefit plans, for all of which
Dimensional serves as investment manager. Dimensional disclaims
beneficial ownership of all such shares.
(5) The principal business address of The TCW Group, Inc. ("TCW") is
865 South Figueroa Street, Los Angeles, CA 90017. Based on a Schedule
13G, filed by TCW and Mr. Robert Day with the Commission on February
12, 1997, TCW, a Parent Holding Company is deemed to have beneficial
ownership of 253,300 shares of Common Stock as of December 31, 1996.
The Schedule 13G of TCW and Robert Day discloses that TCW, through its
subsidiary, Trust Company of the West, has sole voting power over
253,300 shares and sole dispositive power over 253,300 shares. In
addition, the Schedule 13G discloses that Robert Day, an individual
who may be deemed to control TCW, has sole voting power over 253,300
shares and sole dispositive power over 253,300 shares. The address of
Mr. Day is 200 Park Avenue, Suite 2200, New York, NY 10166. In
addition, Mr. Day may be deemed to control certain entities that are
not subsidiaries of TCW, including Oakmont Corporation, a registered
investment adviser, and Cypress International Partners Limited, also a
registered investment adviser.
(6) The principal business address of Fleet Financial Group, Inc.
("Fleet") is One Federal Street, Boston, MA 02109. Based on a
Schedule 13G, filed by Fleet with the Commission on February 13, 1997,
Fleet, a Parent Holding Company, is deemed to have beneficial
ownership of 233, 600 shares of Common Stock as of December 31, 1996.
These shares were acquired by and for the benefit of three
subsidiaries of Fleet, Fleet Investment Advisors, Fleet Trust &
Investment Services Co. and Fleet National Bank. These subsidiaries
each have the right to receive dividends and proceeds from the sale of
such shares. The Schedule 13G of Fleet discloses that Fleet has sole
voting power over 218,600 shares, sole dispositive power over 230,100
shares and shared dispositive power over 3,500 shares.
(7) The principal business address of Brinson Partners, Inc.
("Brinson") is 209 South Lasalle, Chicago, IL 60604-1295. Brinson, a
Parent Holding Company and an investment advisor, is deemed to have
beneficial ownership of 227,300 shares of Common Stock as of December
31, 1996. Brinson's Schedule 13G, filed with the Commission on
February 12, 1997, reported that Brinson was filing the Schedule 13G
on behalf of itself, Brinson Trust Company ("BTC"), Brinson Holdings,
Inc. ("BHI"), SBC Holding (USA), Inc. ("SBCUSA") and Swiss Bank
Corporation ("SBC"). BTC is a wholly-owned subsidiary of BPI. BPI is
a wholly-owned subsidiary of BHI. BHI is a wholly-owned subsidiary of
SBCUSA. SBCUSA is a wholly-owned subsidiary of SBC. As reported on
the Schedule 13G, Brinson has shared voting power over 227,300 shares
and shared dispositive power over 227,300 shares; BTC has shared
voting power over 61,424 shares and shared dispositive power over
61,424; BHI has shared voting power over 227,300 shares and shared
dispositive power over 227,300 shares; SBCUSA has shared voting power
over 227,300 shares and shared dispositive power over 227,300 shares;
and SBC has shared voting power over 227,300 shares and shared
dispositive power over 227,300 shares.
(8) Based on a Schedule 13D filed by Greenbrier Partners, Ltd.
("Greenbrier") and Rowe Family Partnership, Ltd. ("Rowe") with the
Commission on February 14, 1997, Greenbrier has sole voting and
dispositive power over 181,300 shares and Rowe has sole voting and
dispositive power over 6,000 shares. Frederick E. Rowe, Jr. is the
general partner of both partnerships. The address of Greenbrier and
Rowe is 1901 North Akard, Dallas, TX 75201.
<PAGE>
ELECTION OF DIRECTORS
(Proposal 1)
The persons named in the enclosed form of proxy, unless such
proxy specifies otherwise, intend to vote the shares represented by
such proxy for the election of the nominees listed below to hold
office until their respective successors shall have been duly elected
and qualified.
The Company's Bylaws fix the number of directors at seven, and
five directors will be elected. Proxies cannot be voted for a
greater number of persons than the nominees named. Each of the
nominees listed below is currently a director of the Company.
Information regarding each nominee is set forth in the table and
text below.
Nominee Age Position with Company
---------------------- ---- ---------------------
Joseph S. Thomson (1) 67 Chairman of the Board
Wallace A. Jones (2) 45 President, Chief Executive
Officer and Director
Grahame N. Clark, Jr. (1) 54 Director
Jack D. Knox (1) 59 Director
Joseph V. Mariner, Jr. (1) 76 Director
___________________
(1) Member of the Executive Committee, Compensation and Benefits
Committee, and the Audit Committee.
(2) Member of the Executive Committee.
If any of the nominees for director should become unavailable to
stand for election as a director, the shares represented by the proxy
will be voted for such person or persons as may be nominated by the
Board of Directors. The Company has no reason to believe that any of
the nominees will be unavailable to serve as a director.
Directors are elected annually by the Company's shareholders and
hold office until their successors are elected and qualified.
Officers are elected annually by the Board of Directors and serve at
the pleasure of the Board.
Joseph S. Thomson was elected as Chairman of the Board of the
Company in November 1994. Mr. Thomson has been a franchisee of the
Company since 1969 and currently owns and operates six franchised El
Chico restaurants located in Conway, Arkansas; Fort Smith, Arkansas;
Fayetteville, Arkansas; Marshall, Texas; Meridian, Mississippi;
and Jackson, Mississippi. Mr. Thomson has been involved in the
operation of several other franchised restaurant concepts since June
1993 and in residential and commercial real estate development since
the late 1950s and has owned and operated the Century 21/Page One Real
Estate Company in Texarkana, Texas since 1976. He has been a director
of the Company since September 1987.
Wallace A. Jones has been involved in the restaurant industry for
over 20 years. From 1974 to October 1986 he held various positions at
Casa Bonita, Inc., owner of the Taco Bueno chain of restaurants. From
October 1986 to January 1989 he served as President and Chief
Executive Officer of Prufrock Restaurants, Inc., owner of the
Black-eyed Pea chain of restaurants. From March 1989 to October 1989
he served as Chief Operating Officer, and from October 1989 to May
1990 he served as President and Chief Executive Officer, of
Warburtons, Inc., a bakery cafe chain. From May 1990 to May 1991, he
was self employed developing a new restaurant project. From May 1991
to November 1994, Mr. Jones was employed with Good Eats Restaurant
Group, serving as President and Chief Operating Officer from July 1993
to November 1994 and Vice President from May 1991 to July 1993. Mr.
Jones was elected President and Chief Executive Officer and a director
of the Company in November 1994.
Grahame N. Clark, Jr., has been employed by BancTec, Inc. (a
computer systems manufacturer), since August 1980. Within that
corporation he has been a director since September 1985, and Chairman
and Chief Executive Officer since April 1987. Mr. Clark also serves
as a director of Dyson-Kissner-Moran Corporation (a private
investment company). Mr. Clark has been a director of the Company
since February 1990.
Jack D. Knox is presently Chairman of the Board and an 80%
shareholder of Sixx Holdings, Inc. He also serves as the General
Partner of Six Flags Over Texas Fund, Ltd., which is the owner of a
major amusement park complex in Arlington, Texas. Mr. Knox formerly
served as Chairman and Chief Executive Officer of Summit Energy, Inc.
(an AMEX-listed oil and gas company). He has been a director of the
Company since February 1991.
Joseph V. Mariner, Jr., an engineer, has managed his personal
investments since 1978, when he retired as Chief Executive Officer and
a director of Hydrometals, Inc. (a conglomerate engaged in
electronics, plumbing and non-powered hand tools). He presently
serves as a director of Temtex Industries (a manufacturer of
fabricated metal products and structural clay products), Peerless
Manufacturing Company (a specialist in gas/liquid separation and
pulsation dampening), Renters Choice Inc. (a rent-to-own company with
450 stores in 32 states and Puerto Rico), and Dyson-Kissner-Moran
Corporation (a private investment company). Mr. Mariner is also a
director of a privately held corporation. Mr. Mariner has completed
terms as a director for First Republic Bank (now NationsBank of Texas,
N.A.) and Varo, Inc. (a major defense electronics manufacturer). Mr.
Mariner has been a director of the Company since December 1988.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH
OF THE INDIVIDUALS NOMINATED FOR ELECTION AS A DIRECTOR.
Meeting Attendance and Committees of the Board
The Company has standing Executive, Audit, and Compensation and
Benefits Committees of the Board. All members of these Committees are
noted in the above table. Except as restricted by applicable law, the
Executive Committee has all the powers of the Board of Directors
between meetings of the Board.
The Audit Committee of the Board reviews the scope of the
independent auditors' examinations and receives and reviews their
reports. In addition, any transaction between the Company and
officers or directors and their affiliates, or any related party, must
be approved in advance by the Audit Committee as being in the best
interest of the Company and on terms no less favorable than the
Company could receive from third parties. Lawrence E. White,
Chief Financial Officer of the Company, is an ex-officio member of the
Audit Committee.
The Compensation and Benefits Committee is responsible for
reviewing the compensation of the officers of the Company. In
addition, the Compensation and Benefits Committee administers the
Company's 1995 Stock Plan. Mr. Jones makes recommendations to the
Compensation and Benefits Committee regarding salaries, grants of
stock options and stock grants.
During Fiscal 1996 the Board of Directors met on six occasions; the
Audit Committee met on two occasions; the Compensation and Benefits
Committee met on two occasions; and the Executive Committee met on two
occasions. All directors attended at least seventy-five percent of all
meetings of the Board and committees of which they are
members either in person or by telephone as permitted under the Texas
Business Corporation Act, except for Mr. Knox, who attended eight of
the twelve Meetings of the Board and committees on which he served.
Director Compensation
Effective April 1, 1995, those directors who are not employees
(other than the Chairman of the Board) of the Company receive an
annual retainer of $20,000 payable quarterly, and $500 for each
Committee and Board of Directors meeting attended, plus reimbursement
of travel and other incidental expenses incurred in connection with
attendance at such meetings. The Chairman of the Board receives an
annual retainer of $30,000 and the same meeting fee as the other
directors. Upon depletion of the annual retainer, directors are
entitled to compensation based upon a $1,250 per diem for any
consulting or other time spent on behalf of the Company. The 1995
Stock Plan provides for a grant of 500 restricted shares to each
nonemployee director on February 1 of each year. The restriction
period on the shares lapse six months after the date of grant. As of
March 27, 1997, Grahame N. Clark, Jr., Jack D. Knox, Joseph V.
Mariner, Jr., and Joseph S. Thomson have been granted 1,000 shares
each pursuant to the 1995 Stock Plan.
Each nonemployee director who is a member of the Board of Directors
both before and after the annual shareholder's meeting each year, will
receive compensation in the form of options to purchase 2,500 shares
at the fair market value thereof on the date of the grant under the
Company's 1995 Stock Plan. Messrs. Clark, Knox, Mariner and Thomson
each have received 2,500 options under this Plan as well as 2,500
options at the adoption of the Company's 1995 Stock Plan.
COMPENSATION TO EXECUTIVE OFFICERS
The following table sets forth for the years presented, the
compensation of the Company's Chief Executive Officer and the
Company's four other most highly compensated Executive Officers
serving during 1996.
Summary Compensation Table
Annual Compensation
Other
Annual
Name and Principal Calendar Salary Bonus Comp.
Position Year ($) ($) ($)
-------------------- ----- ------ ----- -------
Wallace A. Jones (2) 1996 250,000 -- 7,200 (3)
President, Chief Exe. 1995 250,000 -- 7,200 (3)
Officer and Director 1994 20,192 -- 582 (3)
Lawrence E. White 1996 168,000 -- --
Executive V.P. and 1995 167,877 -- --
Chief Fin Officer 1994 160,000 60,536 (4) --
Charles A. Cooper 1996 150,000 15,000 3,738 (3)
Senior V.P. of 1995 150,000 -- --
Franchising and 1994 150,000 56,752 (4) --
Development
Mark P. Lamm (5) 1996 95,758 43,793 --
V.P., Operations 1995 82,423 15,452 --
1994 80,000 12,019 --
Michael E. Sick (7) 1996 113,249 -- --
V.P., Marketing 1995 93,077 -- --
1994 -- -- --
<PAGE>
Summary Compensation Table - Continued
Long Term Compensation
----------------------
Awards Payouts
----------------- ------- All
Restr. Other
Stock Secur. LTIP Comp.
Calendar Awards Underly Payouts (1)
Year ($) Options ($) ($)
-------------------------------------------------
Wallace A. Jones (2) 1996 -- -- -- --
President, Chief Exe. 1995 -- -- -- --
Officer and Director 1994 -- 250,000 -- --
Lawrence E. White 1996 -- -- -- 426
Executive V.P. and 1995 -- 25,000 -- --
Chief Fin Officer 1994 -- -- -- 420
Charles A. Cooper 1996 -- 25,000 -- 184
Senior V.P. of 1995 -- -- -- --
Franchising and 1994 -- -- -- 420
Development
Mark P. Lamm (5) 1996 -- 12,500 5,752 (6) 162
V.P., Operations 1995 -- 5,000 -- --
1994 -- -- -- 264
Michael E. Sick (7) 1996 -- 5,000 -- --
V.P., Marketing 1995 -- 40,000 -- --
1994 -- -- -- --
__________________
(1) Represents employer matching contributions under the Profit
Sharing Plan.
(2) Mr. Jones was appointed Chief Executive Officer of the Company on
November 11, 1994, with his first day of employment being November 28,
1994.
(3) Annual auto allowance. The amounts shown for Mr. Jones in 1994
and Mr. Cooper in 1996 represent the prorata portion of such
allowance.
(4) Includes stock awards in the following amounts: White 259 shares
with a value of $2,266 and Cooper 243 shares with a value of $2,126.
(5) Mr. Lamm was appointed Vice President, Operations on October 24,
1996.
(6) Represents vesting of shares and federal income taxes paid on Mr.
Lamm's behalf under the 1990 Long-Term Incentive Plan.
(7) Mr. Sick was appointed Vice President, Marketing on March 16,
1995.
Option Grants in 1996
Potential
Realizable Value
at Assumed
Annual Rates
of Stock Price
Appreciation
for Option
Individual Grants Term (1)
---------------------------------------------------- ---------------
No.of %of Total
Secur. Options
Underly Granted Exercise
Options to Empl. Price Exp.
Name Granted in 1996 ($/Sh) Date 5%($) 10%($)
------- -------- -------- ------- ----- ----- -----
Wallace A. Jones
0 N/A N/A N/A N/A N/A
Charles A.Cooper
25,000 40.8% 10.00(2) 10/24/06 78,200(3) 272,600(3)
Mark P. Lamm
10,250 16.7% 10.00(2) 10/24/06 32,100(3)111,800 (3)
Mark P. Lamm
2,250 3.7% 8.00(4) 07/01/06 11,300 28,700
Michael E. Sick
5,000 8.2% 10.00(2) 10/24/06 15,600(3) 54,500(3)
___________________
(1) The numbers shown reflect the values accumulated over a 10-year
period.
(2) Fair market value at the date of grant was $8.06. The options are
exercisable, cumulatively, 20% on the first five anniversary dates of
grant. In addition, the options become exercisable in full upon a
change in control of the Company, whether by reorganization,
consolidation, merger or otherwise, or upon a sale, lease, exchange or
other disposition of all or substantially all of the assets of the
Company.
(3) Amount calculated based upon fair market value at date of grant of
$8.06 which was below exercise price.
(4) The exercise price is the fair market value of the Common Stock on
the date of grant. The options are exercisable, cumulatively, 20% on
the first five anniversary dates of grant. In addition, the options
become exercisable in full upon a change in control of the Company,
whether by reorganization, consolidation, merger or otherwise, or upon
a sale, lease, exchange or other disposition of all or substantially
all of the assets of the Company.
Aggregated Option Exercises in Last Fiscal Year
and Year-End Option Values
Number of Value of
Securities Unexercised
Underlying in-the-Money
Unexercised Options at
Shares Options 12/31/96
Acquired On Value 12/31/96 ($) (1)
Exercise Realized Exercisable/ Exercisable/
(#) ($) Unexercisable Unexercisable
-------- ------- -------------- -------------
Wallace A. Jones - - 100,000/150,000(2) 0/0
Lawrence E. White - - 50,000/0 (3) 0/0
5,000/20,000 (4) 0/0
Charles A. Cooper - - 5,000/20,000 (5) 0/0
25,000/0 (3) 0/0
0/25,000 (4) 0/0
Mark P. Lamm - - 5,000/20,000 (5) 0/0
1,000/4,000 (4) 0/0
0/2,250 (6) 0/0
0/10,250 (4) 0/0
Michael E. Sick - - 6,000/9,000 (7) 0/0
5,000/20,000 (4) 0/0
0/5,000 (4) 0/0
(1) Stock price was $7.88 on December 31, 1996
(2) Exercise price is $12.13
(3) Exercise price is $9.56
(4) Exercise price is $10.00
(5) Exercise price is $9.63
(6) Exercise price is $8.00
(7) Exercise price is $8.75
There were no Option/SAR repricings, nor long-term incentive plan
awards during 1996. Accordingly, disclosure tables are not presented.
<PAGE>
Compensation Committee Interlocks and Insider Participation
No member of the Compensation and Benefits Committee is or has
been an officer or employee of the Company or any of its subsidiaries
or had any relationship requiring disclosure pursuant to Item 404 of
Regulation S-K. In 1996, no executive officer of the Company served
on the Compensation and Benefits Committee, or similar committee, or
as a director of another entity, one of whose executive officers
served on the Compensation and Benefits Committee or on the Company's
Board of Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's officers
and directors, and persons who own more than 10 percent of a
registered class of the Company's equity securities, to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC"). Officers, directors and greater than
10-percent shareholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file. Based
solely on its review of the copies of such forms received by it, or
written representation from certain reporting persons that no Forms 5
were required for those persons, the Company believes that, from
January 1, 1996 to December 31, 1996, all filing requirements
applicable to its officers, directors, and greater than 10-percent
beneficial owners were timely met.
REPORT OF THE COMPENSATION AND BENEFITS COMMITTEE
The Compensation and Benefits Committee of the Board of
Directors, comprised of the four undersigned outside directors of the
Company, has responsibility for determining compensation plans for all
executive officers of the Company. During 1996, the Committee met in
its role as a Committee and as members of the Board to consider
compensation for certain newly promoted executive officers, short-term
bonus plans, discretionary bonuses and stock option awards for certain
executive officers, and severance agreements for certain former
executive officers whose employment with the Company terminated during
1996.
The Committee has adopted a long-standing policy, which was based
on review of recommendations by an outside consulting firm, that the
Company's executive compensation plan should have three principal
components:
-- Competitive base salaries. In order to attract and retain
high-quality management the Company should offer appropriate salaries
commensurate with their skills and experience. The Committee
considers recommendations by the Chief Executive Officer in
determining other executive base salaries, as well as information on
industry practice as provided by the outside consulting firm and other
available sources.
-- A short-term bonus plan. To encourage and reward near-term
improvements in the Company's performance, the Committee determined to
offer an annual bonus plan based on pre-tax earnings improvements from
the prior year. The plan considers Company budget objectives and
awards participating executives a percentage of their base salary up
to targets determined by a review of industry practice. Bonuses for
profit improvements up to a target level are paid in cash, and profit
improvements above the target level are paid half in cash and half in
stock. Provision also has been made for discretionary bonuses in
certain situations.
-- A long-term incentive plan. The Committee determined to
establish a long-term incentive plan to accomplish the following
objectives:
- reward sustained performance;
- balance short-term and long-term focus;
- attract and retain qualified management;
- build executive equity ownership;
- align executive and shareholder interests; and
- minimize adverse financial statement impact of awards.
To these ends, the Committee determined that stock option
awards are most effective in accomplishing the desired objectives.
The Company has not made significant use of supplemental
executive benefits and perquisites such as supplemental retirement
benefits, executive physical exams, or financial planning services, as
is done in many companies in its industry. Instead, compensation has
emphasized the above described plans.
The Committee is responsible for reviewing and recommending base
salary changes for officers. In 1996, no increases were made to the
base salary of the Chief Executive Officer. Mr. Jones' base salary
was negotiated as part of an employment agreement entered into upon
his joining the Company in November 1994, and no changes have been
made. The Committee also reviewed and approved recommendations by
the Chief Executive Officer for compensation packages for three newly
promoted executive officers, including two named in the compensation
tables, Mr. Cooper and Mr. Lamm. Mr. Cooper's increased compensation
reflected adding a car allowance to his existing compensation to
reflect the frequent travel requirements of his position. Various
considerations were reviewed in determining the compensation for Mr.
Lamm, including industry practice, based on the Company's experience
in hiring his predecessor in the position, as well as existing Company
compensation practices. Compensation for Mr. Lamm included base
salary and car allowance, stock options, and participation in the
executive short-term bonus plan with targets established commensurate
with his responsibilities based on a study done in 1992 by an outside
consulting firm.
The executive short-term bonus plan for 1996 was based on a
pre-determined formula designed to pay bonuses ratably as pre-tax
profits improved over a base improvement above actual 1995 pre-tax
profits. The ratable payout formula had a target of a pre-tax profit
improvement based on the Company's 1996 operating budget as approved
by the Board of Directors. Because the Company had a pre-tax loss in
1996 and the base profit improvement was not achieved, no bonuses were
awarded under the plan. Based on recommendations from the Chief
Executive Officer, however, certain discretionary bonus awards were
made for individual performance to two executive officers, including
one named executive officer, Mr. Cooper, whose bonus is shown in the
compensation tables. Also, prior to his promotion as Vice President
of Operations, Mr. Lamm earned bonuses disclosed in the compensation
tables as part of the Company's monthly performance bonus plan for
restaurant multi-unit supervision.
The Committee also recommends awards under stock option plans.
Stock option grants totaling 40,250 shares were made to three named
executive officers, Mr. Cooper, Mr. Sick and Mr. Lamm, whose grants
are included in the compensation tables. These grants reflected an
exercise price of $10 per share, approximately 24% above the
then-current market price as defined by the El Chico Restaurants, Inc.
1995 Stock Plan. The grants were made at higher exercise prices to
encourage greater focus on significant, long-term share price
appreciation and to be more consistent with other previously awarded
grants to other officers. Prior to his promotion to his present
position, Mr. Lamm also earned certain option awards, as disclosed in
the compensation tables, under the formula terms of the restaurant
multi-unit supervisor quarterly stock option plan. The Committee and
the Board approved this formula plan, which is based on improvement in
restaurant cash flow. No other stock option grants were made nor
existing stock options repriced in 1996 to named executive officers,
and none of the named executive officers exercised any stock
options in 1996.
During 1996, two executive officers terminated their employment
with the Company. The Committee and the Board considered and approved
severance agreements for these individuals. Severance agreements were
based on Company and industry practice as recommended by outside
advisors.
Federal income tax legislation has limited the deductibility of
certain compensation paid to the Chief Executive Officer and covered
employees to the extent the compensation exceeds $1,000,000.
Performance-based compensation and certain other compensation, as
defined, is not subject to the deduction limitation of this regulation
section 162(m). It is not currently anticipated that any covered
employee would earn annual compensation in excess of the one million
dollar definition under existing or proposed compensation plans. The
Company continually reviews its compensation plans to minimize or
avoid potential adverse effects of this legislation. The Committee
will consider recommending such steps as may be required to qualify
either annual or long-term incentive compensation for deductibility if
that appears appropriate at some time in the future.
The accompanying graph of total return performance for the
Company's Common Stock compared with the NASDAQ broad market index of
U.S. companies, and the peer group index of NASDAQ restaurant
companies is an integral part of this report. The peer group index is
determined and constructed independently by the Center for Research in
Security Prices of the University of Chicago.
Members of the Compensation and Benefits
Committee
Grahame N. Clark, Jr., Chairman
Jack D. Knox
Joseph V. Mariner, Jr.
Joseph S. Thomson
March 27, 1997
<PAGE>
THIS GRAPH WAS SENT IN HARD COPY TO THE SECURITIES AND
EXCHANGE COMMISSION.
<PAGE>
CERTAIN TRANSACTIONS
Joseph S. Thomson, Chairman of the Board of the Company, owns
100% of the stock of two corporations that own and operate six
franchised El Chico restaurants located in Conway, Arkansas; Fort
Smith, Arkansas; Fayetteville, Arkansas; Marshall, Texas; Meridian,
Mississippi; and Jackson, Mississippi. Each of these franchises was
initially granted before Mr. Thomson was elected a director, and all
six franchises were granted on the same terms as franchises granted to
other independent parties. Effective January 1, 1993, each franchise
agreement was renewed and extended using the Company's new form of
franchise agreement, as amended. The foregoing transactions were
approved by the disinterested directors after the Audit Committee
found them to be in the best interests of the Company and on terms no
less favorable then could have been obtained from independent parties.
During Fiscal 1996, total royalty and marketing fees paid to the
Company under the franchise agreements entered into with Mr. Thomson
were approximately $478,000. In addition, Mr. Thomson paid $230,000
to the Company for equipment and a construction administration fee for
a major remodel in Fayetteville, Arkansas as well as other equipment
for his franchised restaurants. The amount paid was based upon other
similar arm's-length transactions.
PROPOSALS OF SHAREHOLDERS
Shareholders of the Company who intend to present a proposal for
action at the 1998 annual meeting of shareholders of the Company must
notify the Company's management of such intention by notice received
at the Company's principal executive offices not less than 120 days in
advance of April 8, 1998 for such proposal to be considered for
inclusion in the Company's proxy statement and form of proxy relating
to such meeting.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The Company's Independent Public Accountants for the year ended
December 31, 1996, were the firm of KPMG Peat Marwick LLP. It is
expected that one or more representatives of such firm will attend the
Meeting, will be given the opportunity, if they so desire, to make
statements and will be available to respond to appropriate questions.
The Board of Directors, on recommendation of the Audit Committee, has
selected the firm of KPMG Peat Marwick LLP as the Company's
Independent Accountants for the year ending December 31, 1997.
<PAGE>
ANNUAL REPORT
The 1996 Annual Report is being mailed to shareholders with this
Proxy Statement. The Annual Report is not to be regarded as proxy
soliciting material.
BY ORDER OF THE BOARD OF DIRECTORS
JOSEPH S. THOMSON
Chairman of the Board
April 8, 1997
Dallas, Texas
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS,
WHO DO NOT EXPECT TO ATTEND THE MEETING AND WISH THEIR STOCK TO BE
VOTED, ARE URGED TO DATE, SIGN, AND RETURN THE ACCOMPANYING PROXY IN
THE ENCLOSED SELF-ADDRESSED ENVELOPE. NO POSTAGE IS REQUIRED IF
MAILED IN THE UNITED STATES.
