<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 /X/
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 Section 240.14a-11(c) or
Section 240.14a-12
PANCHO'S MEXICAN BUFFET, 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/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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: $125
- - --------------------------------------------------------------------------------
/ / 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:
- - --------------------------------------------------------------------------------
<PAGE> 2
LOGO
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
December 13, 1995
The Annual Meeting of Stockholders of PANCHO'S MEXICAN BUFFET, INC., will
be held at the Company's restaurant (Pancho's Mexican Buffet) 1927 E. Beltline
Road, Carrollton, Texas, on Wednesday, January 24, 1996 at 10:00 a.m. for the
following purposes:
(1) To elect Three (3) Directors;
and to transact such other business as may properly come before the meeting or
any adjournment thereof.
Only holders of Common Shares of record on the books of the Company at the
close of business on December 6, 1995, will be entitled to vote at the meeting
or any adjournment thereof.
A complete list of Stockholders entitled to vote will be available for
examination and inspection by any Stockholder from January 12-23, 1996, during
usual business hours, at the Company's restaurant, Pancho's Mexican Buffet, 1927
E. Beltline Road, Carrollton, Texas.
By Order of the Board of Directors
SAMUEL L. CARLSON
Secretary
Fort Worth, Texas
December 13, 1995
<PAGE> 3
PANCHO'S MEXICAN BUFFET, INC.
3500 Noble Avenue Fort Worth, Texas 76111
(Principal Executive Offices)
PROXY STATEMENT
The following information is submitted concerning the enclosed Proxy and
the matters to be acted upon under the authority thereof at the Annual Meeting
of Stockholders of the Company to be held on the 24th day of January, 1996, or,
any adjournment thereof pursuant to the enclosed notice of said meeting.
INFORMATION CONCERNING PROXY
The Proxy is solicited on behalf of the Board of Directors of the Company.
It may be revoked by the stockholder at any time prior to the exercise thereof
by filing with the Secretary of the Company a written revocation or duly
executed Proxy bearing a later date. The Proxy shall be suspended if the
stockholder shall be present at the meeting and elects to vote in person.
Unless contrary instructions are indicated on the Proxy, all shares
represented by valid proxies received pursuant to this solicitation (and which
have not been revoked or suspended before they are voted) will be voted for the
proposal to elect three directors. Abstentions and broker non-votes are counted
as shares present in the determination of whether the shares of stock
represented at the meeting constitute a quorum. Because the three nominees
receiving the highest vote totals will be elected as Directors, abstentions and
broker non-votes will not affect the outcome of the election.
The cost of solicitation of Proxies by the Board will be borne by the
Company. In addition to solicitation by mail, proxies may be solicited by
directors, executive officers and employees of the Company personally or by
telephone or facsimile. Forms of proxy material also may be distributed through
brokers, custodians and other like parties to the beneficial owners of the
Company's common stock, and the Company may reimburse such parties for their
reasonable out-of-pocket and clerical expenses incurred in connection therewith.
The securities of the Company entitled to vote at the meeting consist, as
of December 6, 1995, of 4,397,559 Common Shares of a par value of $.10 per
share. Only Stockholders of record on the books of the Company at the close of
business on that date will be entitled to vote at the meeting. Each share is
entitled to one vote on each matter to be voted on at the meeting.
The approximate date on which this Proxy Statement and the enclosed Form of
Proxy will be first sent or given to Stockholders is December 13, 1995.
ELECTION OF DIRECTORS
The Bylaws of the Company provide that the Board of Directors shall be not
less than three (3) nor more than fifteen (15) members. The Board of Directors
has fixed at nine (9) the number of Directors which will constitute the Board
for the ensuing year.
The Certificate of Incorporation and Bylaws of the Company provide for a
classified Board of Directors, with the Board divided into three classes. At the
1996 meeting, three directors are to be elected for a term of three (3) years,
and until their successors are duly elected and qualified. It is proposed that
Messrs. Jesse Arrambide, III, Irving Gulbas, and Tomas Orendain, current
Directors of the Company, be elected for a term of three (3) years. The Board of
Directors has no reason to believe that the nominees will refuse to act or be
unable to accept election; however, in such event or if any other unforeseen
contingencies should arise, it is intended that the proxies will be voted for
such other persons as may be recommended by the Board of Directors.
<PAGE> 4
THE BOARD OF DIRECTORS
The following table indicates the name, age, principal occupation, position
and offices with the Company for past five years, term of office and period
during which he has served as such, of each Director and Director nominee.
<TABLE>
<CAPTION>
PROPOSED
TERM OR
DIRECTOR TERM TO ALL POSITIONS HELD
NAME AND AGE SINCE EXPIRE PAST FIVE YEARS
- - ----------------------- -------- -------- ------------------------------------------
<S> <C> <C> <C> <C>
Jesse Arrambide, III 43 1977 1999 Chairman of the Board of Directors since
August 1993 and Chief Operations Officer
since December, 1994; Vice President
Operations from November 1984 to August
1993; President A & A Foods, Inc. and
President A & A Foods No. 2, Inc.,
operator of restaurants since 1994,
previously Vice President.
Irving Gulbas 84 1975 1999 Personal Investments since retirement in
1976.
Tomas Orendain 62 1993 1999 President, T.S. Orendain Associates, Inc.,
an architectural firm.
- - -------------------------------------------------------------------------------------------------------
Mauricio Sanchez Garcia 64 1993 1998 President, Distribuidora Electrica
Industrial, S.A., a distributor of
electrical equipment and supplies.
Rudolph Rodriguez, Jr. 63 1993 1998 Chairman, and Chief Executive Officer
Rodriguez Festive Foods, Inc. a
manufacturer of Mexican Food products;
Director Texas Commerce Bank, Fort
Worth, Texas since February 1992;
Director North Fort Worth Bank from 1984
to 1991.
Samuel L. Carlson 59 1993 1998 Senior Vice President Administration and
Secretary.
- - -------------------------------------------------------------------------------------------------------
Hollis Taylor 59 1974 1997 President and Chief Executive Officer.
Robert L. List 58 1993 1997 Financial Consultant since September,
1992; Director Yellowstone Environmental
Services, Inc. an engineering and
technical consulting firm, from July,
1989 to September, 1992, and President
from December, 1989 to September, 1992;
Director Mercury Air Group, Inc. since
September, 1990; Director BULA, Inc.
since October, 1995.
George N. Riordan 62 1994 1997 Partner George Riordan & Co., investment
bankers since 1991; Managing Director,
Investment Banking, Los Angeles, Dean
Witter Reynolds, Inc. from 1989 to 1991;
Director, The MacNeal Schwendler Corp.,
Director, Lowis Galoob Toy Company since
1994.
- - -------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 5
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors is convened annually following its election at the
Annual Meeting of Stockholders, and at that time it elects officers and appoints
committees to serve at the pleasure of the Board.
During the fiscal year ending September 30, 1995, the Board of Directors
held eight meetings. No director attended fewer than 75% of the total meetings
of the Board of Directors and Committees of the Board on which he served during
the fiscal year.
The Compensation Committee is composed of Messrs. T. Orendain, G. Riordan
and M. Sanchez. See "Compensation Committee Interlocks and Insider
Participation" for further information. This committee met two times during the
past fiscal year. Its function is to approve officers' salaries, administer
executive compensation plans, and approve officers' bonuses.
The Board of Directors, which acts as the Nominating Committee, will
consider requests for nominations to the Board submitted in writing to the
Secretary of the corporation at the principal executive offices of the
corporation not less than 60 days nor more than 90 days prior to the next annual
meeting of Stockholders scheduled to be held on January 23, 1997. Such request
for nomination should include sufficient biographical material and other
information required by Article II, Section 12 of the Bylaws to permit an
appropriate evaluation by the nominating committee.
The Audit Committee, which met two times during the fiscal year, is
composed of Messrs. R. List, R. Rodriguez and I. Gulbas. The functions of the
Audit Committee include reviewing the engagement of the independent auditors,
the scope and timing of the audit, certain non-audit services to be rendered by
the independent auditors, reviewing the report of the independent auditors upon
completion of their audit and reviewing with the independent auditors and
management the Company's policies and procedures with respect to accounting and
financial controls.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AS OF DECEMBER 6, 1995
The Company has only one outstanding class of equity securities, its Common
Stock par value $.10. Unless otherwise indicated, all shares are owned directly
and the owner has sole voting and investment powers with respect thereto.
The security ownership of certain beneficial owners known to own more than
five percent of the Company's Common Stock was:
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS OF AMOUNT AND NATURE OF OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- - ---------------------------------- -------------------- ------
<S> <C> <C>
Carolina S. Arrambide 444,122 10.10%
3116 Westador Drive
Arlington, Texas 76015
Estate of Jesse Arrambide 352,059(8) 8.01%
3116 Westador Drive
Arlington, Texas 76015
Nationwide Financial Services(a) 370,000 8.41%
One Nationwide Plaza
Columbus, Ohio 43216
First Wilshire Securities Manage- 228,700 5.20%
ment, Inc.(b)
600 South Lake Ave., Suite 405
Pasadena, California 91106-3955
Dimensional Fund Advisors Inc.(c) 268,200 6.09%
1299 Ocean Ave., 11th Floor
Santa Monica, CA 90401
</TABLE>
3
<PAGE> 6
- - ---------------
(a) Nationwide Financial Services, Inc., One Nationwide Plaza, Columbus, Ohio
43216, is a registered investment adviser organized under the laws of the
State of Ohio, which serves as investment manager to several mutual funds,
including Nationwide Investing Foundation and Nationwide Separate Account
Trust. Nationwide Financial Services, Inc. disclaims beneficial ownership
of all such shares.
(b) First Wilshire Securities Management, Inc. (FWSM) may be deemed to have
beneficial ownership of 228,700 shares of the Common Stock of Pancho's
Mexican Buffet, Inc. This beneficial ownership is a result of separate
arrangements for FWSM to act as investment advisor to certain individual
and corporate accounts.
(c) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 268,200 shares of
Pancho's Mexican Buffet, Inc., all of which shares are held in portfolios
of DFA Investment Dimensions Group, Inc., a registered open-end investment
company, or in series of The DFA Investment Trust Company, a Delaware
business trust, or the DFA Group Trust and the DFA Participating Group
Trust, investment vehicles for qualified employee benefit plans, all of
which Dimensional Fund Advisors Inc. serves as investment manager.
Dimensional disclaims beneficial ownership of all such shares.
Cede & Co. and other central clearinghouses were the record holders of
2,815,499 shares (64.02%), which include shares beneficially owned by some of
the entities listed above.
The security ownership, including shares subject to options that are
exercisable in the next 60 days, (all Common Stock) of Directors and executive
officers and Directors and executive officers as a group, was:
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)(2) OF CLASS
- - -------------------------------- -------------------------- --------
<S> <C> <C>
Hollis Taylor 175,234 3.76%(3)
Irving Gulbas 10,250 .22%(4)
Samuel L. Carlson 106,238 2.28%(5)
Jesse Arrambide, III 153,729 3.30%(6)(8)
Robert L. List 5,250 .11%(4)
Mauricio Sanchez Garcia 5,250 .11%(4)
Rudolph Rodriguez, Jr. 7,250 .15%(10)
W. Brad Fagan 3,521 .07%(11)
Tomas S. Orendain 5,250 .11%(4)
George N. Riordan 5,000 .10%(9)
All Directors and executive 612,978 13.16%(7)
officers as a group
</TABLE>
- - ---------------
(1) Includes shares purchased by the employee stock purchase plan through
September 30, 1995.
(2) Based on presently exercisable options which are indicated in the following
footnotes to this table, the percentage ownership is calculated on the
assumption that the shares presently purchasable, or purchasable within the
next sixty days, underlying such options are outstanding.
(3) This amount includes 73,000 shares subject to options that are exercisable
within the next sixty days.
(4) Shares subject to options that are exercisable within the next sixty days.
(5) This amount includes 44,000 shares subject to options that are exercisable
within the next sixty days.
(6) The amount includes 44,500 shares subject to options that are exercisable
within the next sixty days.
(7) This amount includes 258,650 shares that directors and officers have the
right to acquire within the next sixty days through the exercise of stock
options. The exercise price of all these options is higher than the market
price of the Company's stock on December 6, 1995.
(8) Estate of Jesse Arrambide has pledged 352,059 of the Company's common
shares for various loans. Jesse Arrambide, III acts as Independent Executor
and has sole voting power of these shares. Jesse Arrambide, III disclaims
beneficial ownership of these securities.
(9) This amount includes 3,000 shares subject to options that are exercisable
within the next sixty days.
(10) This amount includes 5,250 shares subject to options that are exercisable
within the next sixty days.
(11) This amount includes 1,200 shares subject to options that are exercisable
within the next sixty days.
4
<PAGE> 7
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Executive
officers, directors and greater than ten-percent shareholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file. To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the two fiscal years ended September 30, 1995, all
Section 16(a) filing requirements applicable to its executive officers,
Directors and greater than ten-percent beneficial owners were in compliance.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following sets forth information concerning the compensation of the
Company's Chief Executive Officer and each of the other four most highly
compensated executive officers of the Company (the "Named Executive Officers")
for the fiscal years shown.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS ALL OTHER
FISCAL ----------------------------------- OTHER ANNUAL ------------ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) BONUS($)(2) COMPENSATION(3) OPTIONS(4) ($)(5)
- - -------------------------------- ------ --------- ----------- ----------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Hollis Taylor................... 1995 $144,000 0 $28,164 -- 0 $3,857
President and Chief 1994 144,554 $48,782 38,536 -- 74,000 3,940
Executive Officer 1993 144,554 42,793 37,982 -- 0 5,515
Jesse Arrambide III............. 1995 110,000 0 13,256 -- 0 671
Chairman of the Board 1994 110,423 37,264 14,413 -- 74,000 698
1993 60,288 1,718 13,674 -- 0 675
Samuel L. Carlson............... 1995 90,000 0 19,885 -- 0 2,210
Senior Vice President 1994 90,346 30,489 25,504 -- 60,000 2,257
Administration and 1993 90,346 26,745 24,948 -- 0 2,409
Secretary
David Oden(6)................... 1995 75,790 0 15,908 $ 9,825 0 1,380
Vice President, Treasurer, 1994 78,300 26,424 16,304 -- 50,000 2,781
Chief Financial Officer, 1993 78,300 23,179 16,938 -- 0 2,432
and Assistant Secretary
W. Brad Fagan(7)................ 1995 57,673 0 0 -- 0 975
Vice President, Treasurer
and Assistant Secretary
</TABLE>
- - ---------------
(1) Annual incentive plan. (see Report of the Compensation Committee of the
Board of Directors)
(2) Stock bonus program. (see Report of the Compensation Committee of the Board
of Directors)
(3) "Other Annual Compensation" is intended to cover forms of annual
compensation not properly categorized as salary or bonus, including
perquisites. No named executive, except D. Oden, which represents auto
allowance, received such compensation or perquisites which exceeded a
threshold level for disclosure purposes.
(4) Granted December 16, 1993 at $11.375.
(5) The totals in the column reflect the value of the Company contributions to
each named executive under the Employee Stock Purchase Program and
additional life insurance. These amounts were as follows: Hollis Taylor:
$1,500 and $2,357. Jesse Arrambide III: $600 and $71. Samuel L. Carlson:
$975 and $1,235. David Oden: $1,380 and O. W. Brad Fagan: $975 and 0.
(6) Mr. Oden resigned September 8, 1995.
(7) Mr. Fagan was elected Vice President Treasurer and Assistant Secretary
September 29, 1995.
5
<PAGE> 8
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
There currently exist Employment Agreements between the Company and Messrs.
Taylor, Arrambide, Carlson and Fagan, providing that Messrs. Taylor, Arrambide,
Carlson and Fagan, are to be employed by the Company until December 31, 1999,
(December 31, 1997 in the case of Mr. Fagan) each at a base salary of not less
than $144,000, $110,000, $90,000 and $65,000 per year, respectively. These
Agreements will be automatically renewed on December 31 of each succeeding year
for a period of five years, (two years in the case of Mr. Fagan) expressly
subject to the approval of the Compensation Committee. During the term of the
aforesaid Employment Agreements, these individuals are to serve as officers of
the Company, and perform such services similar to and not inconsistent with the
present positions held by each with the Company. In addition, they shall be
eligible to participate in all Company benefit, bonus and other plans. Under the
terms of each Employment Agreement, such employment may be terminated for
"cause" as defined in each Employment Agreement. See 1992 Stock Option Plan for
change in control provisions.
COMPENSATION OF DIRECTORS
Each member of the Board of Directors, who is not an employee of the
Company, receives a Director's fee in the amount of $10,000 annually, and
reimbursement of actual expenses incurred. Directors who are not employees of
the Company have in the past received options under both the Stock Option Plan
for Non-Employee Directors and the 1992 Stock Option Plan. Non-employee
Directors will receive future automatic option grants under the 1992 Stock
Option Plan, as described below.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The 1982 Stock Option Plan for Non-Employee Directors (Directors' Plan),
after adjustment for any stock splits, initially covered 120,000 shares of the
Company's Common Stock, and by its terms provided that no options could be
granted after January 22, 1992. All options previously granted under the
Directors' Plan were granted at market price on the date of grant, are fully
vested and are exercisable until the expiration of the option period which
expires ten (10) years after grant of any option under the Directors' Plan. In
the event of the death of an optionee, any unexercised options are exercisable
until the options' expiration date by the person to whom the options are
transferred by Will or by applicable laws of descent and distribution. In no
event, will any option be exercisable after ten (10) years from date of grant.
The options are non-transferable (except as provided above) and any unexercised
options will terminate if an optionee terminates his services as a Director. The
number of shares represented by the options and the exercise price are subject
to adjustments in the case of any reorganization or consolidation, or other
increase or decrease in the number of outstanding shares of the Company. If the
Company is reorganized or consolidated or merged with another corporation, each
of the optionees shall be entitled to receive options covering shares of such
reorganized, consolidated or merged company in the same proportion and
equivalent price and subject to the same conditions. Options to purchase 10,000
shares of the Company's Common Stock, at $15.25 per share, are outstanding as of
September 30, 1995. No options were exercised during the fiscal year ended
September 30, 1995.
1992 STOCK OPTION PLAN
The 1992 Stock Option Plan (1992 Option Plan) was approved by the
shareholders at the Annual Meeting held January 27, 1993. Under the 1992 Option
Plan, each Director of the Company who was not an employee automatically
received a non-qualified stock option immediately following the Annual Meeting
of Shareholders held on January 27, 1993, in the amount of 5,000 shares of the
Company's Common Stock. At each Annual Meeting of the shareholders thereafter,
each Director of the Company who is not an employee of the Company will
automatically receive a non-qualified stock option covering 2,000 shares of the
Company's Common Stock. All options granted under the 1992 Option Plan will have
an exercise price equal to the fair market value of the Common Stock on the date
of the Annual meeting of the shareholders to which it relates. Each option
granted will have a term not to exceed ten (10) years and generally will become
exercisable at the rate of twenty-five percent (25%) for each year the optionee
remains with the Company as a Director. Options granted to a Director can, in no
event, be exercisable until the lapse of six (6) months from the date of grant.
6
<PAGE> 9
Other than in the case of a reincorporation of the Company in another
state, in the event of (i) dissolution or liquidation of the Company, (ii) a
transaction in which more than 50 percent of the shares of the Company that are
entitled to vote are exchanged, or (iii) any merger or consolidation or other
reorganization in which the Company is not the surviving corporation (or in
which the Company becomes a subsidiary of another corporation), outstanding
options under this Plan shall become fully exercisable immediately prior to any
such event.
Unless terminated earlier by reason of expiration of the option term,
options under the 1992 Option Plan will terminate (a) three months after the
optionee's directorship terminates for reasons other than death or disability;
(3) 12 months after termination for disability; and (c) the normal termination
date, in the case of death. All options granted under the 1992 Option Plan will
be non-transferable by the optionee other than by Will or the laws of descent
and distribution. Such options may contain such other terms, provisions and
conditions not inconsistent with the 1992 Option Plan.
Pursuant to the terms of the 1992 Option Plan, options covering 331,000
shares at a market price of $11.375 were granted to officers and employees of
the Company on December 16, 1993 and 5,000 shares at a price of 3.1875 on
September 29, 1995, and 15,000 shares and 12,000 shares were granted to
non-employee Directors of the Company on January 26, 1994 and January 25, 1995,
respectively. On January 24, 1996, options covering 12,000 shares of the
Company's Common Stock will automatically be granted to the non-employee
Directors of the Company. Options to purchase 391,000 shares of the Company's
Common Stock are outstanding as of September 30, 1995. No options were exercised
during the fiscal year ended September 30, 1995.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On January 25, 1995, the Board of Directors appointed a Compensation
Committee to include Messrs. G. Riordan, T. Orendain and M. Sanchez. Mauricio
Sanchez Garcia, Director, and members of his immediate family, have a 27%
ownership, and the Company, through one or more domestic and Mexican
corporations, has a 73% ownership in a Mexican corporation, which corporation in
turn owns another Mexican corporation which will own and operate an initial
restaurant in Guadalajara, Mexico. The restaurant opened October 27, 1995. The
Company has expended approximately $1,951,000 in relation to the ownership and
construction of this restaurant. If the initial restaurant in Guadalajara,
Mexico proves successful, the Company and Mr. Sanchez may enter into
transactions for the development of other restaurants or businesses in Mexico;
however, the Company's ownership interest in such future restaurants or
businesses is anticipated to be substantially less than its current ownership
interest with respect to the initial restaurant in Guadalajara, Mexico. All of
the foregoing transactions with Mr. Sanchez have been entered into in the
ordinary course of business, and it is believed that the terms and conditions
are no less favorable to the Company than they would have been for similar
transactions with unrelated parties.
INDEBTEDNESS OF MANAGEMENT
The Company has made loans to key employees and officers of the Company to
purchase stock of the Company. The Board of Directors is of the opinion that by
providing a means for certain key persons to obtain an equity ownership in the
Company that the Company could retain and attract qualified employees for its
key positions.
In August, 1984, and April, 1992, loans totalling $196,875 and $757,625
were made to eight key employees who purchased 25,000 shares and eleven key
employees who purchased 104,500 shares, respectively, of authorized, but
unissued common stock from the Company, at the then current market. The loans
made in 1984 and 1992 bear interest at the rate of 10.00 percent and 7.83
percent, respectively, and provide for periodic payment. The largest
indebtedness in excess of $60,000 outstanding to any one person since October 1,
1994 and the balance as of December 6, 1995 was $116,870 and $101,500
respectively for Hollis Taylor, $87,000 and $76,125 respectively for Samuel L.
Carlson, and $69,600 and $60,900 respectively for David Oden. As of December 6,
1995 no other executive officer and/or director had an outstanding balance in
excess of $60,000.
7
<PAGE> 10
AGGREGATED OPTION EXERCISES IN 1995 AND 1995 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES SEPTEMBER 30, 1995 SEPTEMBER 30, 1995(1)(3)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ---------------------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Hollis Taylor........................... 0 N.A. 54,500 55,500 $ 0 0
Jesse Arrambide III..................... 0 N.A. 26,000 55,500 0 0
Samuel L. Carlson....................... 0 N.A. 29,000 45,000 0 0
David Oden(2)........................... 0 N.A. 22,500 37,500 0 0
W. Brad Fagan........................... 0 N.A. 1,200 5,800 0 0
</TABLE>
- - ---------------
(1) Market value less exercise price, before payment of applicable income taxes.
(2) Mr. Oden resigned September 8, 1995.
(3) Exercise price is higher than market price of Company's stock.
OPTIONS GRANTED IN FISCAL 1995
The following table sets forth, as to each executive officer or former
executive officer named in the Summary Compensation Table, certain information
with respect to stock options granted during the fiscal year ended September 30,
1995.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED
- - --------------------------------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(1)
OPTIONS EMPLOYEES EXERCISE EXPIRATION ----------------
NAME GRANTED(#) IN 1995 PRICE($/SH) DATE 5%($) 10%($)
- - -------------------------------- ---------- ---------- ----------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
W. Brad Fagan................... 5,000(2) 100% 3.19 9/28/05 10,023 25,400
</TABLE>
- - ---------------
(1) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price.
(2) The exercise price for the option is the fair market value of the Common
Stock on the date of grant. The options are exercisable, cumulatively, 25%
per anniversary date 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) Mr. Fagan was elected Vice President, Treasurer and Assistant Secretary
September 29, 1995.
8
<PAGE> 11
COMPANY STOCK PRICE PERFORMANCE
The graph below compares the cumulative total shareholder return on $100
invested on October 1, 1990, assuming the reinvestment of all dividends, on the
Common Stock of the Company for the last five years with the cumulative total
return of the Nasdaq Stock Market Index and the Nasdaq Eating and Drinking
places.
COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR
PANCHO'S MEXICAN BUFFET, INC.
LOGO
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
--------------------------------------------------
1990 1991 1992 1993 1994 1995
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ------ Pancho's Mexican Buffet, Inc. 100.0 89.8 137.4 195.8 171.3 63.2
- . Nasdaq Stock Market Index 100.0 157.3 176.3 231.0 232.9 320.7
- - - - - - Nasdaq Eating & Drinking Places 100.0 142.7 198.8 231.8 201.5 217.2
</TABLE>
NOTES:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to 100.0 on 09/28/90.
9
<PAGE> 12
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors establishes the
general compensation policies of the Company, establishes the compensation plans
and specific compensation levels for executive officers and administers the
Company's annual incentive plan and stock option plan. The Compensation
Committee is composed of three independent, non-employee directors.
The compensation committee relies primarily on data supplied by outside
consultants. Base salary, annual incentive and long-term incentive comparisons
are made relative to companies within the food and restaurant industry with
revenues closely comparable to the Company. Some of these companies are the same
companies that comprise the NASDAQ Eating and Drinking Places Index; however, a
more extensive list of companies is used for compensation comparison purposes.
The compensation program for executives is viewed as a total compensation
package comprised of base salary, annual incentives and long-term capital
appreciation opportunities in the form of a stock purchase program.
BASE SALARY
A comparison of executive base salaries to other similarly situated
companies indicated that the Company's executive salaries are less than the
average market (also below the median of the compensation paid by the comparable
companies surveyed).
ANNUAL INCENTIVE
The Officer's Bonus program is designed to reward executives for the annual
growth of the Company. Officers become eligible for a bonus only after a
predetermined level of consolidated earnings, before income taxes and payouts of
officer's bonuses has been met. After the target level of performance has been
met, ten percent of the consolidated earnings before income taxes and officer's
bonus is used to fund a bonus pool. The amount of individual bonus is calculated
based on the percentage of officers base salary as compared to the total base
salaries of all officers, excluding the Vice President's of Operations. To be
eligible, all officers must be employed at the end of the fiscal year and any
new officer would receive a bonus based on a pro-rata basis. Payment of bonuses
are made after the annual audit. No bonuses were paid for 1995 because
performance did not warrant such payments.
LONG-TERM INCENTIVES
The Company did not grant stock options in 1994 or 1995. The last grant
made was in 1993 under the Company's 1992 stock option program. The Company also
has a stock bonus program whereby executives were provided a loan in 1992 to
purchase shares of stock at a fixed market price. The loans are full recourse
loans that must be paid off ratably over 10 years. The Company pays to the
executive the stock bonus to cover the cost of the annual loan payment.
The stock option and stock bonus programs are designed to (1) align
executives with the long-term goals of the company, (2) create an environment
whereby executives are aligned closely with shareholders and (3) encourage high
levels of stock ownership. Primary emphasis of the total compensation package
for executives is placed on the long-term component. A competitive analysis of
peer companies long-term incentive gain opportunity indicates that Pancho's is
below market.
CEO COMPENSATION
The Compensation Committee believes that the Chief Executive Officer's
(CEO) compensation should be influenced by Company performance. Therefore,
although there is necessarily some subjectivity in setting the CEO's salary,
elements of the compensation package are directly tied to Company performance.
The Committee establishes the CEO's salary by considering the salaries of CEO's
of comparably-sized companies
10
<PAGE> 13
and their performance according to data obtained by the Committee from
independent outside consultants. In addition the CEO participates in the annual
incentive plan described above.
The CEO did not receive a grant of stock options in 1994 or 1995. In 1993
the CEO was granted an option to purchase 74,000 shares at a price of $11.375
per share. A loan was made in 1992 to purchase 20,000 shares under the stock
bonus program which is payable over ten years plus interest. If the CEO's
performance warrants, it has been Company policy to pay a bonus to the CEO equal
to an amount to cover the annual loan cost. During the past fiscal year, the
Company paid a stock bonus of $28,164 to the CEO to cover the annualized cost of
principal and interest. The Committee views this program as an important
component of its long-term, performance-based compensation philosophy.
Compensation Committee:
Thomas Orendain
George N. Riordan
Mauricio Sanchez
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Rudolph Rodriguez, Jr., Director, is Chairman and Chief Executive Officer
of Rodriguez Festive Foods, Inc., which sold products to the Company's outside
distributor in the amount of $2,991,929 during the fiscal year ended September
30, 1995. In the same fiscal year, Rodriguez Festive Foods, Inc. purchased items
in the amount of $139,000 from the Company. Rodriguez Festive Foods, Inc. also
leases the company's cold storage facilities formerly used by the company's food
distribution center. The lease is for $5,000 per month expiring on December 31,
2000 including renewal options. All of the foregoing transactions with Rodriguez
Festive Foods, Inc. were entered into in the ordinary course of business, and it
is believed that the terms and conditions are no less favorable to the Company
than they would have been for similar transactions with unrelated parties.
Mauricio Sanchez Garcia, Director, and members of his immediate family,
have a 27% ownership, and the Company, through one or more domestic and Mexican
corporations, has an 73% ownership in a Mexican corporation, which corporation
in turn owns another Mexican corporation which will own and operate an initial
restaurant in Guadalajara, Mexico. The initial restaurant opened October 27,
1995. The Company has expended approximately $1,951,000 in relation to the
ownership and construction of this restaurant. If the initial restaurant in
Guadalajara, Mexico proves successful, the Company and Mr. Sanchez may enter
into transactions for the development of other restaurants or businesses in
Mexico; however, the Company's ownership interest in such future restaurants or
businesses is anticipated to be substantially less than its current ownership
interest with respect to the initial restaurant in Guadalajara, Mexico. All of
the foregoing transactions with Mr. Sanchez have been entered into in the
ordinary course of business, and it is believed that the terms and conditions
are no less favorable to the Company than they would have been for similar
transactions with unrelated parties.
RELATIONSHIP WITH INDEPENDENT AUDITORS
The independent auditors of the Company are Deloitte & Touche LLP, who have
acted in that capacity for many years. The Company has requested that Deloitte &
Touche LLP act as the independent auditors for the Company for fiscal 1996.
Representatives of Deloitte & Touche LLP will be present at the annual meeting
with the opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions addressed to them.
INFORMATION CONCERNING STOCKHOLDER PROPOSALS
A Stockholder intending to present a proposal to be presented at the next
Annual Meeting of Stockholders must deliver such proposal in writing to the
Company's principal executive offices no later than August 30, 1996.
11
<PAGE> 14
OTHER MATTERS WHICH MAY COME BEFORE THE ANNUAL MEETING
The Company knows of no matters other than those above stated which are to
be brought before the meeting. It is intended that the persons named in the
enclosed Proxy will vote your stock according to their best judgment if any
other matters do properly come before the meeting.
A copy of the Annual Report for fiscal 1995 is being mailed to Stockholders
with the Proxy Statement. The Annual Report is not to be regarded as
proxy-soliciting material or a communication by means of which any solicitation
is to be made.
Whether or not you intend to be present at this meeting, you are urged to
return the Proxy promptly. If you are present at the meeting, and wish to vote
your stock in person, this Proxy shall, at your request, be returned to you at
the meeting.
By Order of the Board of Directors
SAMUEL L. CARLSON
Secretary
Dated: December 13, 1995
12
<PAGE> 15
SITE OF PANCHO'S MEXICAN BUFFET, INC.
ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, JANUARY 24, 1996 AT 10:00 A.M.
PANCHO'S MEXICAN BUFFET
1927 E. BELTLINE RD.
CARROLLTON, TEXAS
TELEPHONE 214-416-1200
[MAP]
<PAGE> 16
PRELIMINARY COPY --
- - --------------------------------------------------------------------------------
PANCHO'S MEXICAN BUFFET, INC.
PROXY FOR ANNUAL MEETING JANUARY 24, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
That I, the undersigned, do make, constitute and appoint Jesse Arrambide
III, Samuel L. Carlson and Hollis Taylor, or any of them, my true and lawful
attorneys, with power of substitution, for me and in my name to vote at the
annual meeting of the stockholders of PANCHO'S MEXICAN BUFFET, INC. to be held
in Carrollton, Texas, on the 24th day of January, 1996, and at any adjournment
thereof, on the stock of said Company standing in my name upon its books. The
Board of Directors recommends a vote for proposal 1.
(1) / / FOR / / WITHHOLD VOTE The election of Jesse Arrambide, III, Irving
Gulbas and Tomas Orendain as directors. If you desire to withhold authority
to vote for any individual nominee, please write that nominee's name on the
space provided:
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL 1 AND IN THE DISCRETION OF THE PROXIES SUCH OTHER BUSINESS
THAT MAY PROPERLY COME BEFORE THE MEETING.
Date:
Signature
------------------------------
INSTRUCTIONS
If signing in a representative
capacity (as attorney,
executor or administrator,
trustee, guardian or
custodian, corporate officer
or general partner) please
indicate such capacity
following signature. Proxies
for custodial accounts must be
signed by the named custodian,
not by the minor.
- - --------------------------------------------------------------------------------
