<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 22, 1997
The Annual Meeting of Stockholders of PANCHO'S MEXICAN BUFFET, INC., will
be held at the Company's restaurant (Pancho's Mexican Buffet) 5025 Old Granbury
Rd., Fort Worth, TX 76133 on Wednesday, January 28, 1998 at 10:00 a.m. for the
following purposes:
(1) To elect Two (2) Directors;
(2) To consider and act upon a proposal to amend the 1992 Stock Option
Plan ("1992 Plan").
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 11, 1997 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 16-27, 1998, during
usual business hours, at the Company's Corporate Office, 3500 Noble Ave., Fort
Worth, TX 76111.
By Order of the Board of Directors
SAMUEL L. CARLSON
Secretary
Fort Worth, Texas
December 22, 1997
<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 28th day of January, 1998, 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
proposals to elect two directors and amend the 1992 Stock Option Plan. The
presence, in person, or by proxy, of the holders of a majority of the issued and
outstanding Common Shares on December 11, 1997 is necessary to constitute a
quorum at the Annual Meeting. 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 two 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 affirmative vote of a
majority of the Common Shares present, or represented by proxy, and entitled to
vote at the Annual Meeting is necessary for approval of the proposed amendments
to the 1992 Stock Option Plan.
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 11, 1997, of 4,389,159 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. There are no
cumulative voting rights.
The approximate date on which this Proxy Statement and the enclosed Form of
Proxy will be first sent or given to Stockholders is December 22, 1997.
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 seven (7) 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
1998 meeting, two 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. Rudolph Rodriguez, Jr. and Samuel L. Carlson, current Directors of the
Company, be elected for a term of three (3) years. Mauricio Sanchez Garcia has
chosen not to stand for re-election and hence is not a nominee. The Board
<PAGE> 4
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.
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>
Rudolph Rodriguez, Jr. 65 1993 2001 Chairman, and Chief Executive Officer, Rodriguez
Festive Foods, Inc., a manufacturer of Mexican
Food products; Director, Texas Commerce Bank,
Fort Worth, Texas.
Samuel L. Carlson 61 1993 2001 Senior Vice President, Administration and
Secretary.
- - ------------------------------------------------------------------------------------------------------
Hollis Taylor 61 1974 2000 President and Chief Executive Officer.
Robert L. List 60 1993 2000 President, Hammonds Candies & West Indies Candy
Company since 1992; President, Yellowstone
Environmental Services, Inc. from 1989 to 1992;
Director, Mercury Air Group, Inc. since 1990.
George N. Riordan 64 1994 2000 Chairman of the Board, The MacNeal-Schwendler
Corporation, a computer aided engineering
software firm, since January 1997, Director,
since 1983. Partner, George Riordan & Co.,
investment bankers.
- - ------------------------------------------------------------------------------------------------------
Jesse Arrambide, III 45 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.
Tomas Orendain 64 1993 1999 President, T.S. Orendain Associates, Inc., an
architectural firm. Chairman of the Board,
Orendain Telecommunication Services, Inc. since
1995.
- - ------------------------------------------------------------------------------------------------------
</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, 1997, 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 27, 1999. 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 11, 1997
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>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------- -------------------- --------
<S> <C> <C>
Carolina S. Arrambide 364,122(12) 8.30%
3116 Westador Drive
Arlington, Texas 76015
Estate of Jesse Arrambide 233,259(8) 5.31%
3116 Westador Drive
Arlington, Texas 76015
Dimensional Fund Advisors Inc.(a) 287,000 6.54%
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 3,030,993 shares (69.1%), 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 186,647 4.01%(3)
Samuel L. Carlson 125,660 2.70%(5)
Jesse Arrambide, III 108,514 2.33%(6)(8)
Robert L. List 10,000 .22%(4)
Mauricio Sanchez Garcia 10,000 .22%(4)
Rudolph Rodriguez, Jr. 14,000 .30%(10)
W. Brad Fagan 9,214 .20%(11)
Tomas S. Orendain 10,000 .22%(4)
George N. Riordan 10,000 .22%(9)
All Directors and executive 484,035 10.39%(7)
officers as a group
</TABLE>
- - ---------------
(1) Includes shares purchased by the employee stock purchase plan through
September 30, 1997.
(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 77,000 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 63,000 shares subject to options that are exercisable
within the next sixty days.
(6) The amount includes 76,000 shares subject to options that are exercisable
within the next sixty days.
(7) This amount includes 268,500 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 much higher
than the market price of the Company's stock on December 11, 1997.
(8) Estate of Jesse Arrambide has pledged 102,632 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 8,000 shares subject to options that are exercisable
within the next sixty days.
(10) This amount includes 10,000 shares subject to options that are exercisable
within the next sixty days.
(11) This amount includes 4,500 shares subject to options that are exercisable
within the next sixty days.
(12) Carolina S. Arrambide has pledged 200,000 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, 1997, all
Section 16(a) filing requirements applicable to its executive officers,
Directors and greater than ten-percent beneficial owners were in compliance,
with the exception that non-employee directors, Messrs. Rodriguez, Jr.,
Orendain, List, Riordan and Sanchez-Garcia, filed a Form 4 late with regard to
the automatic annual grant in January, 1996 of stock options covering 2,000
shares to each named person. Once the omission was discovered, Form 4s were
promptly filed.
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 three 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)
--------------------------- --------- ----------- ----------- --------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Hollis Taylor................... 1997 $ 176,788 $ 33,703 $ 4,588
President and Chief 1996 155,299 0 29,988 0 0 4,614
Executive Officer 1995 144,000 0 28,164 0 0 3,857
Jesse Arrambide III............. 1997 135,046 15,591 671
Chairman of the Board and 1996 118,631 0 14,172 0 0 671
Chief Operations Officer 1995 110,000 0 13,256 0 0 671
Samuel L. Carlson............... 1997 110,492 23,387 1,720
Senior Vice President 1996 97,062 0 21,259 0 0 1,339
Administration and 1995 90,000 0 19,885 0 0 2,210
Secretary
W. Brad Fagan(5)................ 1997 79,800 390
Vice President, Treasurer 1996 70,100 0 0 0 0 548
and Assistant Secretary 1995 57,673 0 0 0 5,000 975
</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) 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 $3,088. Jesse Arrambide III: $600 and $71. Samuel L. Carlson: $0
and $1,720 and W. Brad Fagan: $390 and 0.
(5) Mr. Fagan was elected Vice President, Treasurer and Assistant Secretary
September 29, 1995.
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, 2001,
(December 31, 1998 in the case of Mr. Fagan) each at a base salary of not less
than $193,536, $147,840, $120,960 and $87,360 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.
1992 STOCK OPTION PLAN
The 1992 Stock Option Plan (1992 Plan) was approved by the shareholders at
the Annual Meeting held January 27, 1993. Under the 1992 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 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 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 Plan.
Pursuant to the terms of the 1992 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 and 10,000 shares on January 22,
1997. On January 28, 1998, 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 337,250 shares of the Company's Common Stock are
outstanding as of September 30, 1996. With the exception of the automatic grants
to non-employee directors, no other options were granted, and no options were
exercised during the fiscal year ended September 30, 1997. The exercise price of
all outstanding options is higher than the market price of the Company's stock
on December 11, 1997.
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.
Members of the immediate family of M. Sanchez Garcia, had a 27% ownership; and
the Company, through one or more domestic and Mexican corporations, had a 73%
ownership, in a Mexican corporation which owned and operated a restaurant in
Guadalajara, Mexico. The restaurant opened October 27, 1995. The Company
expended approximately $2,323,000 in relation to the ownership and construction
of this restaurant. DEISA, a Mexican corporation, owned by M. Sanchez-Garcia and
his family, received fees for management services of $36,000 in fiscal 1997.
Included
6
<PAGE> 9
in the Company's 1997 restructuring plan was a provision for discontinuing the
Company's participation in the Mexico joint venture, effective May 31, 1997. The
Company has written off its entire investment in the Mexico venture,
transferring all of its interest to its joint venture partner, M. Sanchez
Garcia, in exchange for assumption of all of the Company's liabilities and
operating cost incurred after May 31, 1997.
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 price. 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, 1996, and the
balance as of December 11, 1997, was $87,000 and $72,500 respectively for Hollis
Taylor, $65,250 and $54,375 respectively for Samuel L. Carlson.
Jesse Arrambide, III and Arrambide family-owned restaurant operations,
collectively, are indebted to the Company in the amount of $87,181 as of
December 11, 1997, the largest aggregate amount of such indebtedness outstanding
since October 1, 1996 was $95,139.
This indebtedness, including certain advances, was incurred by Jesse
Arrambide, III, individually, in connection with a Company loan to purchase
Company stock, and by the Arrambide family-owned restaurant operations in
connection with the purchases from the Company of supplies and equipment on a
cost plus basis.
As of December 11, 1997 no other executive officer and/or directors had an
outstanding balance in excess of $60,000.
AGGREGATED OPTION EXERCISES IN 1997 AND 1997 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES SEPTEMBER 30, 1997 SEPTEMBER 30, 1997(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. 58,500 18,500 $0 0
Jesse Arrambide III..................... 0 N.A. 57,500 18,500 0 0
Samuel L. Carlson....................... 0 N.A. 48,000 15,000 0 0
W. Brad Fagan........................... 0 N.A. 4,500 2,500 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, 1992, 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 (US Companies) and the Nasdaq Eating and
Drinking places (US Companies).
COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR
PANCHO'S MEXICAN BUFFET, INC.
CHART TO COME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
---------------------------------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
M Pancho's Mexican Buffet, Inc. 100.0 142.4 124.6 46.0 30.1 34.2
- - ---
. . . Q Nasdaq Stock Market Index (US Companies) 100.0 131.0 132.1 182.4 216.4 297.1
- .
- - - - - - O Nasdaq Eating & Drinking Places (US Companies) 100.0 116.7 101.4 109.6 110.0 101.1
</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 09/30/92.
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 Maurice
Sanchez Garcia, who has chosen not to stand for re-election.
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.
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. The total
cash compensation is comprised of base salaries that are targeted to be slightly
less than the average market salaries for comparable companies with annual
incentive opportunity targeted at a level higher than average. In 1997, the CEO
and other named executive officers received a 20% salary increase because their
salaries were significantly below the average of the Company's peers.
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 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. There were no incentive bonuses paid in 1997.
LONG-TERM INCENTIVES
The stock bonus program utilized by the Company is 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. The program of the Company
provides loans to executives to purchase shares of stock at a fixed market
price. The loan must be paid off ratably over ten years. If the financial
position of the Company and individual performance warrants, the Company pays to
the executive a stock bonus to cover the cost of the annual loan payment. While
this program has been successful, the long-term incentive compensation is still
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 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 number of shares granted to the CEO is determined by the subjective
evaluation of the executive's ability to influence the Company's long-term
growth and profitability. The last grant of options the CEO received consisted
of 74,000 shares granted in 1993 at a market price of $11.375 per share. All
shares available to be purchased by the executive are granted at the current
market price. A loan was made to the CEO in 1992 to purchase 20,000 shares at a
market price of $7.875 per share. The loan is payable over ten years plus
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interest. It has been Company policy to bonus to the CEO an amount to cover the
annual loan cost if the Company is in a financial position to make such a
payment and if the CEO's performance warranted such stock bonus. During the
fiscal year, the Company paid a stock bonus of $33,704 to the CEO. The Committee
therefore views stock options as an important component of its long-term,
performance-based compensation philosophy.
Compensation Committee:
Thomas Orendain
George N. Riordan
Mauricio Sanchez
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, which are then purchased by the Company, in the amount of
$2,728,000 during the fiscal year ended September 30, 1997. In the same fiscal
year, Rodriguez Festive Foods, Inc. purchased items in the amount of $75,000
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 October 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.
Members of the immediate family of M. Sanchez Garcia, had a 27% ownership;
and the Company, through one or more domestic and Mexican corporations, had a
73% ownership, in a Mexican corporation which owned and operated a restaurant in
Guadalajara, Mexico. The restaurant opened October 27, 1995. The Company
expended approximately $2,323,000 in relation to the ownership and construction
of this restaurant. DEISA, a Mexican corporation, owned by M. Sanchez-Garcia and
his family, received fees for management services of $36,000 in fiscal 1997.
Included in the Company's restructuring plan was a provision for discontinuing
the Company's participation in the Mexico joint venture, effective May 31, 1997.
The Company has written off its entire investment in the Mexico venture,
transferring all of its interest to its joint venture partner, M. Sanchez
Garcia, in exchange for assumption of all of the Company's liabilities and
operating cost incurred after May 31, 1997.
Occasional sales of supplies and equipment are made on a cost plus basis to
the family owned restaurant operations of Jesse Arrambide III, Chairman of the
Board and Chief Operations Officer of the Company. Sales were $7,000 for the
year ended September 30, 1997.
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EXHIBIT A
PROPOSAL TO AMEND THE 1992 STOCK OPTION PLAN
For several years, the Company has utilized stock options as a key part of
its overall compensation strategy for key employees. As of September 30, 1996,
stock options granted under the Company's 1992 Stock Option Plan ("1992 Plan")
were held by 18 different officers, directors, and key employees of the Company.
The Company believes that its continued success depends upon its ability to
attract and retain highly qualified and competent officers, directors, and
employees and that the 1992 Plan enhances that ability and provides additional
incentive to such personnel to advance the interest of the Company and its
shareholders.
On October 17,1997, the Board of Directors unanimously approved two
Amendments to the 1992 Plan, subject to shareholders' approval. By the first
amendment, the Board increased the number of shares available under the 1992
Plan because a large portion of the shares originally available were covered by
outstanding grants under the 1992 Plan. If approved by shareholders at the
Annual Meeting, the first sentence of Section 3 of the 1992 Plan will be amended
to provide as follows:
"Subject to the provisions of paragraph 7 (relating to the
adjustment upon changes in stock), the number of shares which
may be sold pursuant to options under the Plan shall not
exceed in the aggregate 600,000 shares of Common stock of the
Company."
The remaining language of Section 3 will not be changed and the only effect of
this Amendment will be to increase the number of shares of Common stock
authorized and available for issuance under the terms of the 1992 Plan.
By the second amendment, the Board increased the number of shares covered
by options automatically granted annually to each non-employee Director from
2,000 shares to 4,000 shares. If approved by shareholders at the annual meeting,
the second sentence of section 4(b) of the 1992 Plan will be amended to reflect
the increase in the annual grant from 2,000 to 4,000 shares each. No other
changes to this section of the 1992 Plan will be made by this amendment.
Other than options which will be automatically granted to non-employee
directors on January 28, 1998, it is not possible at this time to indicate the
number, names, or positions of officers or employees who will receive future
stock options or the number of shares of Common stock for which future stock
options will be granted to any employee under the 1992 Plan.
The principal features of the 1992 Plan are described below. The
description of the 1992 Plan is qualified in its entirety by reference to the
complete text of the 1992 Plan which has been filed with the Securities and
Exchange Commission, and any shareholder desiring a copy of this 1992 Plan may
obtain it by writing to Pancho's Mexican Buffet, Inc., Attention: Secretary of
the Company, 3500 Noble Avenue, Fort Worth, Texas 76111.
Description of the 1992 Stock Option Plan, Including Proposed Amendments
Options granted under the 1992 Plan may be either "incentive stock options"
within the meaning of that term as used in Section 422 of the Internal Revenue
Code of 1986, as amended, or non-qualified stock options. Under the 1992 Plan,
options may be granted to officers and other key employees, and consultants of
the Company and its subsidiaries, except that incentive stock options may not be
granted to consultants of the Company or any of its subsidiaries. The aggregate
value (at the time the option is granted) of the stock with respect to which
incentive stock options are exercisable for the first time by any Optionee
during any calendar year may not exceed $100,000.
Subject to shareholder approval each director of the Company who is not an
employee of the Company will automatically receive a non-qualified stock option
covering 4,000 shares of common stock under the 1992 Plan immediately following
each annual meeting of shareholders of the Company, commencing with the meeting
to be held on January 28, 1998. Each such option will have an exercise price
equal to the fair market
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value of the Common stock of the Company on the date of the annual meeting of
the shareholders to which it relates.
The purchase price of shares acquired upon exercise of an incentive stock
option under the 1992 Plan must not be less than 100% of the fair market value
of the shares on the date the option is granted, with the exception that in the
case of incentive stock options granted to shareholders who own 10% or more of
the total combined voting power of all classes of stock of the Company or its
subsidiaries (a "10% shareholder") the exercise price must be not less than 110%
of such fair market value. The purchase price of shares acquired upon exercise
of a non-qualified stock option under the 1992 Plan may not be less than 85% of
the fair market value of the shares on the date the option is granted. Payment
of the purchase price may be made in cash or in shares of Common Stock of the
Company or, in the discretion of the Board of Directors or Committee designated
by the Board, a promissory note or such other form of legal consideration that
may be acceptable to the Board or Committee.
The term of an option cannot exceed ten years (five years in case of an
incentive stock option granted to a 10% shareholder). An option generally
becomes exercisable at the rate of 25% for each year the Optionee remains with
the Company as an employee or a director. Options granted to an executive
officer or a director can in no event be exercisable until the lapse of six
months from the date of its grant.
Unless terminated earlier by reason of expiration of the option term,
options under the 1992 Plan will terminate (a) three months after the Optionee's
employment or directorship terminates for reasons other than death or
disability; (b) twelve months after termination for disability; and (c) at the
normal termination date, in case of death. All options granted under the 1992
Plan will be non-transferable by the Optionee during the Optionee's lifetime.
The options may contain such other terms, provisions, and conditions not
inconsistent with the 1992 Plan as may be determined by the Board of Directors
or Committee administering the option plan.
If any option granted under the 1992 Plan terminates or expires unexercised
in whole or in part, the shares released from that option may be made subject to
additional options granted under the 1992 Plan, including options granted to the
same Optionee having a lower exercise price than the terminated option.
The grant of an incentive stock option should have no tax effect on the
Company or the Optionee to whom it is granted, and there generally is no tax
upon exercise of the option. If an Optionee does not dispose of shares acquired
upon exercise of the option within two years of the date of granting the option,
nor within one year after exercise of the option, any gain realized by the
Optionee on the subsequent sale of such shares is treated as long-term capital
gain for federal income tax purposes. If the shares are sold prior to the
expiration of such periods, the lesser of (a) the difference between the
exercised price and the value of the stock at the date of exercise and (b) the
amount realized on disposition over the purchase price is treated as
compensation to the Optionee taxable as ordinary income. The excess gain, if
any, is treated as capital gain (which will be short-term or long-term capital
gain depending upon the length of time the shares were held). The excess of the
fair market value of the shares over the option price at the time of exercise of
an incentive stock option may subject the recipient to the alternative minimum
tax provided for in the Internal Revenue Code of 1986, as amended (which,
generally speaking, will be applied only if it produces a tax that is higher
than the individual's regular tax liability). The Company is allowed a deduction
for tax purposes only to the extent, and at the time, that the Optionee receive
ordinary income by reason of the Optionee's sale of shares.
The maximum federal income tax rate that will apply to any long-term
capital gain recognized on the sale of stock received upon the exercise of an
incentive stock option will depend upon the period that the shares have been
held following the exercise of the option. For sales occurring within 18 months
of exercise, the maximum long-term capital gains rate will be 28%, while that
for sales occurring more than 18 months after exercise is 20% (18% if the stock
has been held for five years after exercise and is sold after the year 2000).
These rates are based on current law, which may change by the time a sale is
made.
The grant of a non-qualified stock option under the 1992 Plan also should
have no tax effect on the Company or the Optionee to whom it is granted.
However, the difference between the option price and the fair market value of
the Company's Common Stock on the date of exercise of a non-qualified option is
taxable as
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ordinary income to the Optionee. To the extent the Optionee realizes ordinary
income on the exercise of the option, the Company has a corresponding deduction.
The 1992 Plan is to be administered by the Board of Directors or by a
Committee designated by the Board, and the Board may at anytime terminate or
amend the 1992 Plan. The Compensation Committee has been designated by the Board
to administer the 1992 Plan. Any amendment of the 1992 Plan, however, which
increases the number of shares which may be issued under the 1992 Plan, or
changes the requirements as to eligibility for participation in the 1992 Plan,
must be approved by the shareholders of the Company.
On December 11, 1997, the closing price of the Company's Common Stock on
the NASDAQ National Market System was $2.00.
THE BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PROPOSED AMENDMENTS
TO THE 1992 STOCK OPTION PLAN. PROXIES SOLICITED HEREBY WILL BE VOTED FOR THE
PROPOSAL UNLESS A VOTE AGAINST THE PROPOSAL OR ABSTENTION IS SPECIFICALLY
INDICATED.
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 1998.
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 21, 1998.
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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 1997 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 22, 1997
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SITE OF PANCHO'S MEXICAN BUFFET, INC.
ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, JANUARY 28, 1998 AT 10:00 A.M.
PANCHO'S MEXICAN BUFFET
5025 OLD GRANBURY RD.
FORT WORTH, TX 76133
TELEPHONE 817-292-0180
MAP
<PAGE> 18
PANCHO'S MEXICAN BUFFET, INC.
PROXY FOR ANNUAL MEETING JANUARY 28, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE DIRECTORS
That I, the undersigned, do make, constitute and appoint Jesse Arrambide
III, Samuel L. Carlson and Hollis Taylor, or any of them, 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 on the 28th day of January, 1998, 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 proposals 1 & 2.
(1) [ ] FOR [ ] WITHHOLD VOTE The election of Rudolph Rodriguez, Jr. and
Samuel L. Carlson as directors. If you desire to withhold authority to
vote for any individual nominee, please write that nominee's name on the
space provided:
- - --------------------------------------------------------------------------------
(1) [ ] FOR [ ] AGAINST [ ] ABSTAIN To consider and act upon a
proposal to amend the 1992 Stock Option Plan.
<PAGE> 19
THIS PROXY, PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREON
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2, 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.
