<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/ No fee required.
/ / 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:
- --------------------------------------------------------------------------------
/ / 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
[PANCHO'S MEXICAN BUFFET, INC. LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
December 18, 1996
The Annual Meeting of Stockholders of PANCHO'S MEXICAN BUFFET, INC., will
be held at the Company's restaurant (Pancho's Mexican Buffet) 1003 E. Indian
School Rd., Phoenix, Arizona, on Wednesday, January 22, 1997 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 5, 1996, 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 10-21, 1997, during
usual business hours, at the Company's restaurant, Pancho's Mexican Buffet, 1003
E. Indian School Rd., Phoenix, Arizona.
By Order of the Board of Directors
SAMUEL L. CARLSON
Secretary
Fort Worth, Texas
December 18, 1996
<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 22nd day of January, 1997, 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 5, 1996, 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 18, 1996.
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 eight (8) 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
1997 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. Hollis Taylor, Robert L. List, and George N. Riordan, 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>
Hollis Taylor 60 1974 2000 President and Chief Executive Officer.
Robert L. List 59 1993 2000 Small Business owner 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.
George N. Riordan 63 1994 2000 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.
since 1983.
- -------------------------------------------------------------------------------------------------------
Jesse Arrambide, III 44 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.
Tomas Orendain 63 1993 1999 President, T.S. Orendain Associates, Inc.,
an architectural firm.
- -------------------------------------------------------------------------------------------------------
Mauricio Sanchez Garcia 65 1993 1998 President, Distribuidora Electrica
Industrial, S.A., a distributor of
electrical equipment and supplies.
Rudolph Rodriguez, Jr. 64 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.
Samuel L. Carlson 60 1993 1998 Senior Vice President, Administration and
Secretary.
- -------------------------------------------------------------------------------------------------------
</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, 1996, the Board of Directors
held six 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 Garcia. See "Compensation Committee Interlocks and Insider
Participation" for further information. This committee met one time 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 28, 1998. 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 one time during the fiscal year, is composed
of Messrs. R. List, G. Riordan and R. Rodriguez. The function of the Audit
Committee includes 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 5, 1996
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 404,122(12) 9.18%
3116 Westador Drive
Arlington, Texas 76015
Estate of Jesse Arrambide 352,059(8) 8.01%
3116 Westador Drive
Arlington, Texas 76015
Dimensional Fund Advisors Inc.(a) 287,000 6.52%
1299 Ocean Ave., 11th Floor
Santa Monica, CA 90401
</TABLE>
3
<PAGE> 6
- ---------------
(a) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 287,000 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
approximately 2,887,331 shares (65.7%), 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 164,157 3.57%(3)
Samuel L. Carlson 110,660 2.40%(5)
Jesse Arrambide, III 128,040 2.78%(6)(8)
Robert L. List 8,000 .17%(4)
Mauricio Sanchez Garcia 8,000 .17%(4)
Rudolph Rodriguez, Jr. 10,000 .21%(10)
W. Brad Fagan 6,507 .14%(11)
Tomas S. Orendain 8,000 .17%(4)
George N. Riordan 7,250 .15%(9)
All Directors and executive 450,614 9.79%(7)
officers as a group
</TABLE>
- ---------------
(1) Includes shares purchased by the employee stock purchase plan through
September 30, 1996.
(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 58,500 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 48,000 shares subject to options that are exercisable
within the next sixty days.
(6) The amount includes 57,500 shares subject to options that are exercisable
within the next sixty days.
(7) This amount includes 204,100 shares that directors and executive 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 5, 1996.
(8) Estate of Jesse Arrambide has pledged 327,059 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 5,250 shares subject to options that are exercisable
within the next sixty days.
(10) This amount includes 8,000 shares subject to options that are exercisable
within the next sixty days.
(11) This amount includes 2,850 shares subject to options that are exercisable
within the next sixty days.
(12) Carolina S. Arrambide has pledged 150,000 of the Company's common shares
for various loans.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 and the NASDAQ, 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
4
<PAGE> 7
reports were required, during the two fiscal years ended September 30, 1996, 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................... 1996 $155,299 0 $29,988 0 0 $4,614
President and Chief 1995 144,000 0 28,164 0 0 3,857
Executive Officer 1994 144,554 $48,782 38,536 0 74,000 3,940
Jesse Arrambide III............. 1996 118,631 0 14,172 0 0 671
Chairman of the Board and 1995 110,000 0 13,256 0 0 671
Chief Operations Officer 1994 110,423 37,264 14,413 0 74,000 698
Samuel L. Carlson............... 1996 97,062 0 21,259 0 0 1,339
Senior Vice President 1995 90,000 0 19,885 0 0 2,210
Administration and 1994 90,346 30,489 25,504 0 60,000 2,257
Secretary
W. Brad Fagan(6)................ 1996 70,100 0 0 0 0 548
Vice President, Treasurer 1995 57,673 0 0 0 0 975
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 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 $3,114. Jesse Arrambide III: $600 and $71. Samuel L. Carlson:
$113 and $1,226 and W. Brad Fagan: $548 and 0.
(6) Mr. Fagan was elected Vice President, Treasurer and Assistant Secretary
September 29, 1995.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
There currently exists 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, 2000, (December 31, 1997 in the case of Mr. Fagan) each at a base salary of
not less than $161,280, $123,200, $100,800 and $72,800 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.
5
<PAGE> 8
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 vested 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, 1996. No options were exercised during the fiscal year ended
September 30, 1996.
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.
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.
6
<PAGE> 9
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 to non-employee Directors, 15,000 shares on January 26,
1994, 12,000 shares on January 25, 1995 and January 24, 1996. On January 22,
1997, options covering 10,000 shares of the Company's Common Stock will
automatically be granted to the non-employee Directors of the Company. Options
to purchase 332,250 shares of the Company's Common Stock are outstanding as of
September 30, 1996. No options were granted, with the exception of the
non-employee directors or exercised during the fiscal year ended September 30,
1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On January 24, 1996, the Board of Directors appointed a Compensation
Committee to include Messrs. G. Riordan, T. Orendain and M. Sanchez Garcia. M.
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 owns and operates the restaurant in
Guadalajara, Mexico. The restaurant opened October 27, 1995. The Company has
expended approximately $2,122,000 in relation to the ownership and construction
of this restaurant. M. Sanchez Garcia received fees from the Mexican corporation
for management services of about $48,000. If this initial restaurant in
Guadalajara, Mexico proves successful, the Company and M. Sanchez Garcia 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 M. Sanchez Garcia 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 April, 1992, loans totalling $757,625 were made to eleven key employees
who purchased 104,500 shares of authorized, but unissued common stock from the
Company, at the then current market. The loans bear interest at the rate of 7.83
percent, and provide for periodic payment. The largest indebtedness in excess of
$60,000 outstanding to any one person since October 1, 1995, and the balance as
of December 5, 1996, was $101,500 and $87,000 respectively for Hollis Taylor,
$76,125 and $65,250 respectively for Samuel L. Carlson. As of December 5, 1996
no other executive officer and/or director had an outstanding balance in excess
of $60,000.
AGGREGATED OPTION EXERCISES IN 1996 AND 1996 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES SEPTEMBER 30, 1996 SEPTEMBER 30, 1996(1)(2)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Hollis Taylor........................... 0 N.A. 40,000 37,000 $ 0 0
Jesse Arrambide III..................... 0 N.A. 39,000 37,000 0 0
Samuel L. Carlson....................... 0 N.A. 33,000 30,000 0 0
W. Brad Fagan........................... 0 N.A. 2,850 4,150 0 0
</TABLE>
- ---------------
(1) Market value less exercise price, before payment of applicable income taxes.
(2) Exercise price is higher than market price of Company's stock.
7
<PAGE> 10
COMPANY STOCK PRICE PERFORMANCE
The graph below compares the cumulative total shareholder return on $100
invested on October 1, 1991, 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
--------------------------------------------------
1991 1992 1993 1994 1995 1996
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
M Pancho's Mexican Buffet, Inc. 100.0 153.1 218.1 190.8 70.4 46.0
- ------
. . .
- . Q Nasdaq Stock Market Index 100.0 112.1 146.8 148.0 204.4 242.6
- - - - - O Nasdaq Eating & Drinking Places 100.0 139.3 162.4 141.2 152.8 153.3
</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 $100.00 on 09/30/91.
8
<PAGE> 11
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 who have no
interlocking relationships as defined by the SEC, with the exception of Mauricio
Sanchez Garcia.
Outside consultants are the primary suppliers of the data that the
compensation committee relies upon. Base salary, annual incentive, and long term
incentive comparisons are made annually 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
Executives received salary increases in the past year that were recommended
based on performance and the fact that salaries have been significantly below
market. A comparison of executive base salaries to other similarly situated
companies indicated that the Company's executive salaries are still 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 directly correlated to 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 reached. After the target level of performance has been met, a
bonus pool is funded from ten percent of the consolidated earnings prior to the
payment of income taxes and officer's bonuses. 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 their pro-rata
employment during the fiscal year. Payment of bonuses are made after the annual
audit. There were no incentive bonuses paid in 1996 because performance did not
warrant a payout.
LONG-TERM INCENTIVES
The Company did not grant stock options in fiscal 1996 or the previous two
years. 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. If
the Company is in a financial position and if performance warrants, 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 utilized by the Company 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. As in
the previous year, a competitive analysis of peer companies long-term incentive
gain opportunity indicates that Pancho's long-term incentive opportunity is
lagging behind the market.
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CEO COMPENSATION
The Compensation Committee believes that the Chief Executive Officer's
(CEO) compensation should be influenced by company performance. Therefore,
although there is some subjectivity in setting the CEO's salary, elements of the
compensation package are directly tied to Company performance. The CEO's salary
was increased based on performance and because the salary for the CEO was
significantly below market. The salary is still at least 30% below the market
salary range established by the Company's consultants. The consultants's data
consists of an analysis of the salaries of CEO's of comparably-sized companies.
In addition, the CEO participates in the annual incentive plan described above.
No incentive payouts were made in 1996.
The CEO did not receive a grant of options in 1994, 1995, or 1996. The last
grant the CEO did receive consisted of 74,000 shares at a market price of
$11.375 per share in 1993. 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 Company is in a financial position and 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 fiscal year, the Company paid a stock bonus of
$29,988 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 Garcia
Notwithstanding anything to the contrary set forth in any of the company's
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934 that might incorporate future filings, including this Proxy Statement,
in whole or in part, the preceding report and the company Stock Performance
Chart on Page 8 shall not be incorporated by reference into any such filings.
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 $2,714,000 during the fiscal year ended September
30, 1996. In the same fiscal year, Rodriguez Festive Foods, Inc. purchased items
in the amount of $81,000 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.
M. 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 owns and operates the restaurant
in Guadalajara, Mexico. The initial restaurant opened October 27, 1995. The
Company has expended approximately $2,122,000 in relation to the ownership and
construction of this restaurant. M. Sanchez Garcia received fees from the
Mexican corporation for management services of about $48,000. If this initial
restaurant in Guadalajara, Mexico proves successful, the Company and M. Sanchez
Garcia 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 M. Sanchez Garcia
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.
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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 1997.
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 September 5, 1997.
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.
If a stockholder desires to bring business before the meeting which is not
the subject of a proposal timely submitted for inclusion in the Proxy statement,
the stockholder must follow the procedures outlined in the Company's Bylaws. A
copy of these procedures is available upon request from the Secretary of the
Company, 3500 Noble Avenue, Fort Worth, Texas 76111. One of the procedural
requirements in the Bylaws is timely notice in writing of the business the
stockholder proposes to bring before the meeting. Notice must be received not
less than 60 days nor more than 90 days prior to the meeting.
A copy of the Annual Report for fiscal 1996 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 18, 1996
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SITE OF PANCHO'S MEXICAN BUFFET, INC.
ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, JANUARY 22, 1997 AT 10:00 A.M.
PANCHO'S MEXICAN BUFFET
1003 E. INDIAN SCHOOL RD.
PHOENIX, ARIZONA
TELEPHONE 602-285-0899
MAP
<PAGE> 15
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PANCHO'S MEXICAN BUFFET, INC.
PROXY FOR ANNUAL MEETING JANUARY 22, 1997
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 Phoenix, Arizona, on the 22nd day of January, 1997, 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 Hollis Taylor, Robert L. List
and George N. Riordan as directors. If you desire to withhold authority to
vote for any individual nominee, please write that nominee's name on the
space provided:
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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: ________________________
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Signature
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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.
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