UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
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-12
Mexican
Restaurants, Inc.
(Name
of
Registrant as Specified in Its Charter)
(Name
of
Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment
of filing fee (check the appropriate box):
[X]
No
fee required.
[
] Fee computed on table below per Exchange Act Rules 14a-6(i)(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:
MEXICAN
RESTAURANTS, INC.
1135
Edgebrook Drive
Houston,
Texas 77034
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
TO
BE HELD ON MAY 23, 2006
Dear
Shareholder:
You
are
cordially invited to attend the 2006 Annual Meeting of Shareholders of
Mexican
Restaurants, Inc. (the “Company”) at the Casa Olé restaurant located at 20131
Highway 59 North, Suite 2004, Humble, Texas 77338 on Tuesday, May 23, 2006
at
9:30 a.m., Houston, Texas time, for the following purposes:
| 1. |
To
elect three Class I directors, each to serve for a term of three
years, or
until their respective successors shall have been duly elected
and shall
have qualified;
|
| 2. |
To
transact such other business as may properly come before the meeting.
|
Shareholders
of record of the Company’s Common Stock at the close of business on April 3,
2006 are entitled to vote at the Annual Meeting or any adjournment thereof.
Any
shareholder attending the meeting may vote in person even if he or she
previously returned a proxy. Each share of the Company’s Common Stock entitles
the holder to one vote.
On
behalf
of the Board of Directors, I would like to express our appreciation for
your
continued interest in the affairs of the Company.
|
By
Order of the Board of Directors,
|
|
Louis
P. Neeb
|
|
Chairman
of the Board
|
April
19,
2006
YOUR
VOTE IS IMPORTANT
YOU
ARE URGED TO SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD, SO
THAT IF
YOU ARE UNABLE TO ATTEND THE MEETING YOUR SHARES MAY NEVERTHELESS BE VOTED.
EVEN
IF YOU HAVE GIVEN YOUR PROXY, THE PROXY MAY BE REVOKED AT ANY TIME PRIOR
TO
EXERCISE BY FILING WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION,
BY
EXECUTING A PROXY WITH A LATER DATE, OR BY ATTENDING AND VOTING AT THE
MEETING.
MEXICAN
RESTAURANTS, INC.
1135
Edgebrook Drive
Houston,
Texas 77034
PROXY
STATEMENT FOR
ANNUAL
MEETING OF SHAREHOLDERS
TO
BE HELD ON MAY 23, 2006
This
proxy statement and the accompanying form of proxy are being furnished
to
shareholders in connection with the solicitation of proxies on behalf of
the
Board of Directors (the “Board”) of Mexican Restaurants, Inc., a Texas
corporation (the “Company”), for use at the Company’s 2006 Annual Meeting of
Shareholders, to be held on Tuesday, May 23, 2006 at 9:30 a.m., Houston,
Texas
time, at the Casa Olé restaurant located at 20131 Highway 59 North, Suite 2004,
Humble, Texas 77338, and at any adjournment, continuation or postponement
thereof. The Notice of Annual Meeting, this Proxy Statement and the accompanying
proxy, together with the Company’s Annual Report to Shareholders for the year
ended January 1, 2006, are first being sent to shareholders on or about
April
19, 2006.
At
the
Annual Meeting, the Company’s shareholders will be asked to consider and vote
upon (i) the election of three Class I directors, and (ii) such other business
as may properly come before the annual meeting.
Solicitation
The
solicitation of proxies is made by and on behalf of the Board. The cost
of the
solicitation will be borne by the Company, including the reasonable expenses
of
brokerage firms or other nominees for forwarding proxy materials to beneficial
owners. In addition to solicitation by mail, proxies may be solicited by
telephone, telecopy or personally. Proxies may be solicited by directors,
officers and employees of the Company without additional
compensation.
Record
Date, Outstanding Shares and Voting Rights
The
close
of business on April 3, 2006, has been fixed as the record date for the
determination of shareholders entitled to notice of and to vote at the
meeting
(the “Record Date”). On the Record Date, the Company had outstanding 3,356,977
shares of Common Stock, $.01 par value (“Common Stock”), each of which will be
entitled to one vote.
In
order
to transact business at the Annual Meeting, a quorum consisting of a majority
of
all outstanding shares entitled to vote must be present. Abstentions and
proxies
returned by brokerage firms for which no voting instructions have been
received
from their principals will be counted for the purpose of determining whether
a
quorum is present, in person or by proxy. Once a share is represented for
any
purpose at the Annual Meeting, it will be deemed present for quorum purposes
for
the entirety of the meeting. A plurality of the votes cast is required
for the
election of directors. A majority of the outstanding shares entitled to
vote
that are represented at the meeting in person or by proxy is required for
approval of any other matters that may be presented at the meeting.
If
the
enclosed proxy is executed and returned, the shares represented thereby
will be
voted in accordance with any specifications made by the shareholder. In
the
absence of any such specification, they will be voted to elect the directors
as
set forth under “Election of Directors” and in the transaction of any other
business which properly comes before the meeting or any adjournment thereof.
Pursuant to applicable law, broker nonvotes and abstaining votes will not
be
counted in favor of or against the election of any nominee for director
or any
other proposal to be presented at the meeting.
The
presence of a shareholder at the meeting will not operate to revoke his
proxy. A
proxy may be revoked at any time insofar as it has not been exercised by
giving
written notice of revocation to the Company, executing and returning a
proxy
with a later date, or by attending the Annual Meeting and voting in
person.
If
any
other matters come before the meeting, the persons named in the proxy,
or their
substitutes, will vote thereon in accordance with their best judgment.
The Board
does not know of any matters other than the election of directors as described
below that will be presented for action at the meeting, and none of the
members
of the Board have informed the Company in writing that they intend to oppose
any
action intended to be taken by the Company.
NO
PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
OTHER
THAN THOSE CONTAINED IN THIS PROXY STATEMENT, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THE DELIVERY OF THIS PROXY STATEMENT SHALL, UNDER NO CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE
COMPANY SINCE THE DATE OF THIS PROXY STATEMENT.
Security
Ownership of Principal Shareholders, Directors and
Management
The
following table sets forth certain information regarding the beneficial
ownership of the Company’s Common Stock as of April 4, 2006 by each person known
to the Company to own beneficially more than 5% of the Company’s Common Stock,
each director, each executive officer and all executive officers and directors
as a group.
|
Name
of Beneficial Owner
|
Shares
Benefically
Owned
(1)
|
Percent
of
Class
|
|||||
|
Larry
N. Forehand and Forehand Family Partnership, Ltd.
(2)(3)(6)
|
712,739
|
21.2
|
%
|
||||
|
David
Nierenberg, The D3 Family Funds (4)(8)
19605
N.E. 8th
Street
Camas,
Washington 98607
|
1,210,456
|
35.9
|
%
|
||||
|
Michael
D. Domec (2)(9)
|
203,555
|
6.0
|
%
|
||||
|
Louis
P. Neeb (2)(5)(6)(10)
|
478,487
|
14.1
|
%
|
||||
|
John
C. Textor (5)(6)(7)
Wyndcrest
Partners
11450
S.E. Dixie Hwy, Suite 204
Hobe
Sound, Florida 33455
|
351,487
|
10.5
|
%
|
||||
|
J.J.
Fitzsimmons (11)
Wal-Mart
Stores, Inc.
702
Southwest 8th
Street
Bentonville,
Arkansas 72716
|
34,442
|
1.0
|
%
|
||||
|
Curt
Glowacki (2)(12)
|
179,278
|
5.1
|
%
|
||||
|
Thomas
E. Martin (2)(13)
|
18,000
|
*
|
|||||
|
Andrew
J. Dennard (2)(14)
|
93,750
|
2.7
|
%
|
||||
|
Dennis
D. Vegas (2)(15)
|
62,500
|
1.8
|
%
|
||||
|
All
executive officers and directors as a group (ten persons)
(16)
|
2,796,605
|
69.3
|
%
|
||||
_______________
*
Less
than 1%
| (1) |
The
named shareholders have sole voting and dispositive power with
respect to
all shares shown as being beneficially owned by them, except
as otherwise
indicated.
|
| (2) |
The
business address is 1135 Edgebrook Drive, Houston, Texas
77034.
|
| (3) |
Includes
406,273 shares held directly by Mr. Forehand and 306,466 held
by Forehand
Family Partnership, Ltd., a limited partnership of which Mr.
Forehand is
the sole managing general partner and of which Mr. Forehand and
his spouse
are the sole limited partners.
|
| (4) |
Based
on Form 4 filed on December 5, 2005 and Schedule 13D/A filed
on December
9, 2005 filed by David Nierenberg, and The D3 Family Funds with
the
Securities and Exchange Commission. The form discloses that Mr.
Nierenberg
has sole voting and sole dispositive power over 1,192,956 shares
of Common
Stock.
|
| (5) |
Mr.
Neeb and Tex-Mex Partners, L.C. each have warrants to purchase,
at a per
share price of $10.90, 179,885 shares from the Company. Under
the terms of
the warrants issued to Tex-Mex Partners, L.C., that portion of
each of the
warrants allocable to the membership interest in Tex-Mex Partners,
L.C.
(currently 54%) of Mr. Textor, a former director of the Company,
became
exercisable on April 25, 1998. The warrants expire on April 24,
2006.
|
| (6) |
Mr.
Neeb and Tex-Mex Partners, L.C. have warrants to purchase, at
a per share
price of $10.90, up to 196,602 and 171,602 shares, respectively,
from
Larry N. Forehand. Under the terms of the warrants issued to
Tex-Mex
Partners, L.C., that portion of each of the warrants allocable
to the
membership interest in Tex-Mex Partners, L.C. (currently 54%)
of Mr.
Textor, a former director of the Company, became exercisable
on April 25,
1998. The warrants expire on April 24,
2006.
|
| (7) |
Mr.
Textor, a former director of the Company, is a principal of Tex-Mex
Partners, L.C., of which he presently has a 54% membership interest.
Mr.
Textor has sole voting power and sole dispositive power of the
warrants
held by Tex-Mex Partners, L.C. Mr. Textor has no ownership rights
in the
balance of the membership interests of Tex-Mex Partners, L.C.
and he
disclaims beneficial ownership of the warrants to acquire shares
held by
Tex-Mex Partners, L.C. and allocable to such other membership
interests.
The warrants expire on April 24, 2006
|
| (8) |
Includes
17,500 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record
Date.
|
| (9) |
Includes
23,000 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record
Date.
|
| (10) |
Includes
35,000 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record
Date.
|
| (11) |
Includes
33,000 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record
Date.
|
| (12) |
Includes
151,278 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record
Date.
|
| (13) |
Includes
15,000 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record
Date.
|
| (14) |
Includes
78,750 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date and 5,000 shares
of
restricted stock granted on November 8,
2005.
|
| (15) |
Includes
62,500 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record
Date.
|
| (16) |
Includes
an aggregate of 595,913 shares issuable pursuant to the exercise
of stock
options and warrants exercisable within 60 days of the Record
Date, of
which 179,885 warrants expire on April 24,
2006.
|
ELECTION
OF DIRECTORS
(Proposal
1)
The
Company’s Articles of Incorporation provide for the Board to be divided into
three approximately equal classes, designated as Class I, Class II and
Class
III, with staggered terms of three years. The persons listed on the table
below
have been nominated by the Board of Directors for election as Class I directors.
Unless otherwise indicated, all proxies that authorize the proxy holders
to vote
for the election of directors will be voted FOR the election of the Class
I
nominees listed below. If a nominee becomes unavailable for election as
a result
of unforeseen circumstances, it is the intention of the proxy holders to
vote
for the election of such substitute nominee, if any, as the Board may propose.
As of the date of this Proxy Statement each of the nominees has consented
to
serve and the Board is not aware of any circumstances that would cause
a nominee
to be unable to serve as a director.
The
following information is set forth with respect to the persons nominated
for
election as a director and each director of the Company whose term of office
will continue after the meeting.
NOMINEES
FOR ELECTION AT THE 2006 ANNUAL MEETING
|
Name
|
Age
|
Director
Since
|
Present
Term
Expires
|
|
Cara
Denver
|
25
|
--
|
--
|
|
Larry
N. Forehand
|
61
|
1995
|
2006
|
|
Thomas
E. Martin
|
64
|
2002
|
2006
|
Cara
Denver is
the
Vice President
of Strategy and Investments at Nierenberg Investment Management Company,
which
manages The D3 Family Funds, a private investment partnership which seeks
long-term capital gain through investment in undervalued micro-cap domestic
public equities. Ms. Denver has held the position since July, 2002. She is
also General Partner of The D3 Family Funds and has held that position
since
January, 2006. Prior to 2002, Ms. Denver earned her BA in Economics from
Yale
University.
Larry
N. Forehand
is the
founder of the Company and has served as Vice Chairman of the Company's
Board
since October 1995 and as Franchise Director since September 1997. From
December 1973 to March 1995, Mr. Forehand served as President of
the Company. In 1997, Mr. Forehand served as the President of the Texas
Restaurant Associations, a state trade association for the restaurant
industry.
Thomas
E. Martin
is the
Chairman of the Board of Best Friends Pet Care, Inc., a private animal
boarding
company, and he has held this position since April 1999. He was also Chief
Executive Officer of that company from April 1999 until December 2001.
Since
January 1997, Mr. Martin has also been a self-employed financial consultant.
From February 1990 through March 1997 Mr. Martin held various positions
with the
Elsinore Corporation, a gaming company, including President from January
1993 to
May 1996 and Chief Executive Officer from May 1995 to August 1996. Mr.
Martin is
also a past member of the Board of Directors for Ramada, Inc. where he
was a
corporate Executive Vice President, and President of its Marie Callender
restaurant chain.
THE
BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE “FOR” THE ELECTION OF
EACH OF THE NOMINEES ABOVE.
DIRECTORS
WHOSE TERMS WILL CONTINUE AFTER THE 2006 ANNUAL MEETING
|
Name
|
Age
|
Director
Since
|
Present
Term
Expires
|
|||||||
|
Michael
D. Domec (Class II)
|
60
|
1995
|
|
2007
|
|
|||||
|
Curt
Glowacki (Class II)
|
53
|
|
|
2000
|
|
|
2007
|
|
||
|
Louis
P. Neeb (Class II)
|
|
|
67
|
|
|
1995
|
|
|
2007
|
|
|
Joseph
J. Fitzsimmons (Class III)
|
|
|
58
|
|
|
1996
|
|
|
2008
|
|
|
J.
Stuart Sargent (Class III)
|
|
|
56
|
|
|
1997
|
|
|
2008
|
|
|
|
|
|||||||||
Michael
D. Domec
has
served as President of Magnum Development, Inc., a residential real estate
development company, since 1991. From June 1996 to December 2000 he was
President of Olé Restaurants, Inc., a franchisee of the Company. From
December 1977 until April 1996, Mr. Domec was Vice President of Casa
Olé Franchise Services, Inc. and the majority owner of seven Casa Olé
restaurants.
Curt
Glowacki
has
served as Chief Operating Officer of the Company since August 1997, as
President
since May 1998, and as Chief Executive Officer since May 2000. From May
1994 to
August 1997, he served as Senior Vice President of Operations of Monterey’s
Acquisition Corp., which was acquired by the Company in July 1997. From
June
1989 to May 1994, he served as Vice President and Director of Operations
for
Monterey’s Tex-Mex Café, a subsidiary of CEC Entertainment, Inc. Previously, Mr.
Glowacki’s experience included 12 years with Steak & Ale Restaurants, where
he held various operating positions.
Louis
P. Neeb
has
served as Chairman of the Board of the Company since October 1995, as Chief
Executive Officer of the Company from April 1996 to May 2000, and as interim
President from August 1997 to April 1998. Since 1982 Mr. Neeb has also
served as President of Neeb Enterprises, Inc., a restaurant consulting
company.
From July 1991 to January 1994, Mr. Neeb served as President of
Spaghetti Warehouse, Inc. From September 1989 to June 1991,
Mr. Neeb served as President of Geest Foods USA. From 1982 to 1987,
Mr. Neeb served as President and Chief Executive Officer of Taco Villa,
Inc. and its predecessors, a publicly held corporation controlled by W.R.
Grace
& Co., where he oversaw the development of the Applebee's restaurant chain,
and the operation of the Del Taco restaurant chain. From 1980 to 1982,
Mr. Neeb served as Chairman of the Board and Chief Executive Officer of
Burger King Corporation. From 1973 to 1980, Mr. Neeb served in various
positions, including President and Chief Operating Officer of Steak & Ale
Restaurants. During that time, Mr. Neeb directed the development of the
Bennigan's restaurant concept. Mr. Neeb serves as a director of CEC
Entertainment, Inc. and of the privately held Silver Diner, Inc. Mr. Neeb
was
also a director of Franchise Finance Corp. of America, an entity that provides
financing for real estate, until its sale to GE Capital in 2001.
Joseph
J. Fitzsimmons
is
Senior Vice President of Finance of Wal-Mart Stores, Inc., a position held
since
November 1995. From September 1994 to November 1995,
Mr. Fitzsimmons served as Vice President of Finance of Wal-Mart Stores,
Inc. From November 1993 to September 1994, Mr. Fitzsimmons served
as Senior Vice President and as a securities analyst for Rauscher Pierce
Refsnes, Inc. From January 1993 to November 1993, Mr. Fitzsimmons
served as Senior Vice President and Chief Financial Officer of S&A
Restaurant Corp. From August 1985 to January 1993,
Mr. Fitzsimmons served as Senior Vice President, Director and Chief
Financial Officer of National Pizza Company.
J.
Stuart Sargent
is the
President and Founder of Truluck’s Steak & Stone Crab Restaurants, a
position held since June 1991. He served as President of Monterey’s Acquisition
Corp. from May 1994 to July 1997. He conceived and opened the first Studebaker’s
in 1981, and later formed Studebaker’s of America, where he opened or franchised
22 Studebaker’s throughout the United States. He also served as President and
CEO of Entertainment One, Inc., a Houston-based company providing management
and
support services for 18 food and beverage operations including Houston
Intercontinental Airport, several Studebaker’s and Chili’s, and theme-oriented
restaurants from St. Louis, Missouri (Big Kahuna) to Waikoloa, Hawaii (Big
Island Steak House).
EXECUTIVE
OFFICERS OTHER THAN DIRECTORS
Set
forth
below is the name, age, current positions with the Company, the principal
occupation, and the year of becoming an executive officer of the Company
for the
executive officer who is not a director of the Company.
Andrew
J. Dennard,
age 47,
has served as Executive Vice President, Chief Financial Officer, and Treasurer
since May 2004. From September 1998 to May 2004, Mr. Dennard served as
Senior
Vice President, Chief Financial Officer, and Treasurer of Mexican Restaurants,
Inc. From July 1997 to September 1998 Mr. Dennard served as Vice President,
Controller & Treasurer of Mexican Restaurants, Inc. From September 1994 to
July 1997 he served as Vice President of Finance for Monterey’s Acquisition
Corp. From July 1989 to September 1994, Mr. Dennard held various positions
with
Rosewood Property Company. Previously, he served as an auditor with KPMG
LLP.
Mr. Dennard’s early career was on the operations side of the restaurant
industry, working for five years with Steak & Ale Restaurants and four years
with Houston’s Restaurants.
Dennis
Vegas,
age 54,
joined the Company in January 2003 as Vice President, Marketing. In November
2005, he was promoted to Chief Marketing Officer and Senior Vice President.
Prior to joining Mexican Restaurants, Inc. he served as Vice President,
Brand
Management from November 2000 to December 2001 and Senior Director, Public
Relations, Caribbean/Latin America, from October 1998 to December 2000
for Enron
Corp. In addition, Mr. Vegas held numerous leadership positions from 1987
through 1998 for AT&T Corp in Marketing and Communications. During his
tenure with AT&T, he was responsible for building brands and leading
consumer-marketing organizations in the U.S., Caribbean and Mexico markets.
Mr.
Vegas’s early career was in public relations, community relations and human
resources for ITT Corp.
INFORMATION
REGARDING THE BOARD AND ITS COMMITTEES
The
mission of the Board is to provide strategic guidance to the Company’s
management, to monitor the performance and ethical behavior of the Company’s
management, and to maximize the long-term financial return to the Company’s
shareholders, while considering and appropriately balancing the interests
of
other stakeholders and constituencies. The Board is constituted of eight
directors.
Four
meetings of the Board were held during 2005. J. Stuart Sargent was not
in
attendance at the August meeting. All of the other directors attended all
meetings of the Board. All directors
attended each of their respective committee meetings.
The
Board
has an Audit Committee, the members of which are Messrs. Martin, Fitzsimmons
and
Neeb; Mr. Martin serves as Chairman. The members of the Audit Committee
are all
independent directors under the NASD’s listing standards applicable to members
of audit committees. The Audit Committee held five meetings during 2005.
The
Board of Directors has reviewed the qualifications of the members of the
Board
of Directors and determined that Mr. Martin is the “audit committee
financial expert” as defined by applicable SEC rules. In accordance with the
written charter adopted by the Board, the Audit Committee is responsible
for
the
oversight of (i) the integrity of the Company’s disclosure controls and
procedures; (ii) the integrity of the Company’s internal controls over
financial reporting; and (iii) the qualifications, independence,
appointment, compensation and performance of the Company’s independent
registered public accounting firm. It is also responsible for administering
the
Company’s Code of Ethics and Code of Conduct, applicable to the Company’s
principal executive officer, principal financial officer and other members
of
the Company’s management, the establishment of “whistle-blowing” procedures; and
oversight of certain other compliance matters.
The
Board
has a Compensation/Stock
Option Committee,
the
members of which are Messrs. Nierenberg, Domec and Sargent; Mr. Nierenberg,
a
retiring director, previously served as Chairman, and it is contemplated
that a
new Chairman will be determined beginning with the first meeting following
the
Annual Meeting. The Compensation/Stock Option Committee held three meetings
during 2005. The Compensation/Stock Option Committee is responsible for
determining the compensation of the officers of the Company and granting
options
under the Company’s 2005 Long Term Incentive Plan (the “2005 Incentive Plan”),
the 1996 Casa Olé Long Term Incentive Plan and the 1996 Managers Stock Option
Plan as well as granting restricted stock awards under the 1999 Restricted
Stock
Plan.
The
Board
has an Executive Committee, the members of which are Messrs. Neeb, Forehand
and
Glowacki; Mr. Neeb serves as Chairman. There were no meetings of the Executive
Committee during 2005. The Executive Committee has the authority, between
meetings of the Board, to take all actions with respect to the management
of the
Company’s business that require action by the Board, except with respect to
certain specified matters that by law must be approved by the entire
Board.
The
Board
does not have a nominating committee or any committee performing a similar
function. All matters that would be considered by such a committee are
acted
upon by the independent members of the full Board. The Board will consider
recommendations by shareholders of the Company with respect to the election
of
directors if such recommendations are submitted in writing to the secretary
of
the Company and received not later than the end of the Company’s preceding
fiscal year. Such recommendations should be accompanied by a full statement
of
qualifications and confirmation of the nominee’s willingness to
serve.
Copies
of
the Company’s Audit Committee Charter and Code of Ethics and Code of Conduct are
available free of charge to any shareholder who submits a request to the
Company’s Corporate Secretary or at the Company’s executive office set forth on
the Notice of Annual Meeting and at the end of this proxy
statement.
DIRECTOR
COMPENSATION
As
approved by the Company’s shareholders at the 2002 Annual Meeting of
Shareholders,
the
Stock Option Plan for Non-Employee Directors (“Directors Option Plan”) was
amended to allow the grant of up to 200,000 shares in total options to
the
Company’s outside directors. Through the first two quarters of fiscal year 2002,
outside directors were compensated with quarterly option grants to acquire
1,500
shares. In addition, each director received one option grant for 100 shares
of
Common Stock for each committee meeting attended which was not held in
conjunction with a Board meeting. Approximately 80,000 shares are presently
available for issuance under the Directors Option Plan.
Effective
with the third quarter of fiscal year 2002, upon recommendation of the
Company’s
Audit and Compensation/Stock Option Committees, the Company changed its
director
compensation plan to a cash-based compensation plan. Each director who
is not an
employee of the Company receives a retainer of $2,000 per fiscal quarter,
plus
$1,000 per meeting attended. Effective with fiscal year 2005 each director
who
is not an employee of the Company will receive a retainer of $2,500 per
fiscal
quarter, plus $1,250 per meeting attended. The Chairman of the Audit Committee
received a quarterly retainer of $6,250 and is not paid any other meeting
fees.
The Chairman of the Board of Directors is compensated at the rate of $75,000
per
year and is not paid any other meeting fees.
The
Company has not paid and does not intend to pay compensation to individuals
serving on the Board who are employees or affiliates of the Company for
their
service as directors.
EXECUTIVE
COMPENSATION
SUMMARY
COMPENSATION TABLE
The
following table sets forth information with respect to compensation paid
by the
Company and its subsidiaries to the Chief Executive Officer, and to the
other
most highly paid executive officers for the fiscal year ended January 1,
2006
and the preceding two fiscal years and whose total annual salary and bonus
exceeded $100,000 (collectively the “Named Executive Officers”).
|
Annual
Compensation
|
Long-Term
Compensation
|
|||||||
|
Name
& Principal Position
|
Year
|
Salary
|
Bonus(1)
|
Other
Annual
Compensa-
tion
(2)
|
Restricted
Stock
Awards
|
Securities
Underlying
Options/
SARs
|
LTIP
Payouts
|
All
Other Compensation
|
|
Curt
Glowacki
President, Chief
Executive Officer and
Chief Operating Officer
|
2005
2004
2003
(3)
|
$245,000
$238,506
$216,058
|
$96,216
$18,717
$137,481
|
$12,000
$12,000
$
9,000
|
-
-
-
|
40,000
-
-
|
-
-
-
|
-
-
-
|
|
Andrew
J. Dennard
Exec.
Vice President
and
Chief Financial Officer
|
2005
2004
2003
(3)
|
$150,000
$134,555
$118,317
|
$40,647
$19,451
$57,269
|
$12,000
$
9,000
$
9,000
|
5,000
-
-
|
60,000
-
-
|
-
-
-
|
-
-
-
|
|
Dennis
D. Vegas
Sr.
Vice President
and
Chief Marketing Officer
|
2005
2004
2003
|
$147,885
$133,558
$117,788
|
$30,000
$26,000
-
|
$
6,000
$
6,000
$
6,000
|
-
-
3,000
|
60,000
-
10,000
|
-
-
-
|
-
-
-
|
| (1) |
Bonus
includes $50,480 for Mr. Glowacki and $25,274 for Mr. Dennard in
2005,
$18,717 for Mr. Glowacki and $9,451 for Mr. Dennard in 2004, and
$34,841
for Mr. Glowacki and $17,377 for Mr. Dennard in 2003 for the payment
of
interest expense and principal amounts of the loans to purchase
stock
under the executive and key employee stock purchase plan adopted
May 1998.
|
| (2) |
Other
annual compensation consists primarily of a car allowance.
|
| (3) |
Bonus
other than amount described in note (1) was paid in fiscal year
2003 for
performance earned in fiscal year 2002.
|
In
fiscal
year 2005, the Company granted 160,000 stock options to its Named Executive
Officers.
A
total
of 72,972 stock options were exercised during 2005 by the Named Executive
Officers. The following table shows information concerning the
stock options exercisable and unexercisable during 2005
that have been granted to the
Named
Executive Officers and the estimated value of unexercised options held
by such
individuals at year end.
|
OPTION/SAR
GRANTS IN LAST FISCAL YEAR
|
|||||||
|
Potential
Realized Value at Assumed Annual Rates of Stock Price Appreciation
for
Option Term
|
|||||||
|
Name
|
Number
of Securities
Underlying
Options/SARs
Granted
(#)
|
Individual
Grants
%
of Total
Options/SARs
Granted
to
Employees
in
Fiscal
Year
|
Exercise
or Base Price ($/Sh)
|
Expiration
Date
|
5%
($)
|
10%
($)
|
|
|
Curt
Glowacki
|
40,000
|
15.4%
|
$12.00
|
11/8/15
|
301,869
|
764,996
|
|
|
Andrew
J. Dennard
|
60,000
|
23.1%
|
$12.00
|
11/8/15
|
452,804
|
1,147,495
|
|
|
Dennis
D. Vegas
|
60,000
|
23.1%
|
$12.00
|
11/8/15
|
452,804
|
1,147,495
|
|
Granted
and immediately vested under the Company’s 2005 Long Term Incentive
Plan.
AGGREGATED
OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL
YEAR-END OPTION VALUES
|
Shares
Acquired on Exercise
|
Value
Realized
|
Number
of Securities Underlying
Unexercised
Options/SARs
at FY-End
|
Value
of Unexercised
in-the-Money
Options/SARs
at
FY-End ($) (1)
|
||
|
Name
|
#
|
$
|
Exercisable
Unexercisable
|
Exercisable
Unexercisable
|
|
|
Curt
Glowacki (2)
|
54,222
|
$327,451
|
151,278 82,500
|
669,420
693,150
|
|
|
Andrew
J. Dennard (3),
(4)
|
16,250
|
$
91,570
|
78,750
5,000
|
71,575
40,850
|
|
|
Dennis
D. Vegas (3), (4)
|
2,500
|
$
15,325
|
62,500 5,000
|
19,400
38,800
|
_______________
| (1) |
Based
on the closing price per share of Common Stock on December 30,
2005 (the
last day the stock traded in fiscal year 2005), of $11.32 as reported
by
the NASDAQ SmallCap Market.
|
| (2) |
Options
to acquire 40,000 shares of common stock were granted and vested
to Mr.
Glowacki in November 2005 under the Company’s 2005 Long Term Incentive
Plan. Options to acquire 190,000 shares of common stock were granted
to
Mr. Glowacki from 1997 to 2001 under the Company’s 1996 Long Term
Incentive Plan, of which 100,000 options vest in accordance with
note (3)
and 90,000 options vest at
the rate of 10%, 20%, 30% and 40% respectively over the four-year
period.
An
additional 60,000 options were granted in fiscal year 2000 that
vest in
ten years, and are discussed below under the Compensation/Stock
Option
Committee report.
|
| (3) |
These
options to acquire common stock were granted from 1997 to 2003
under the
Company’s 1996 Long Term Incentive Plan. The options vest and become
exercisable 10% on the first anniversary of the date of grant,
15% on the
second anniversary of the date of grant and 25% on each of the
third
through fifth anniversaries of the date of
grant.
|
| (4) |
Options
to acquire 60,000 shares of common stock were granted and vested
to each
Messrs. Dennard and Vegas on November 2005 under the Company’s 2005 Long
Term Incentive Plan.
|
LONG-TERM
INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
In
fiscal
year 2005, the Company granted 160,000 stock options to its Named Executive
Officers.
EQUITY
COMPENSATION PLAN INFORMATION
The
following table provides the indicated information as of January 1, 2006,
regarding the securities authorized for issuance under the Company’s equity
compensation plans.
|
Plan
Category
|
Number
of securities
to
be issued upon exercise
of
outstanding options,
warrants
and rights
|
Weighted-average
exercise
price
of outstanding options,
warrants
and rights
|
Number
of securities
remaining
available for
future
issuance under
equity
compensation plans
(excluding
securities
reflected
in first column)
|
|||
|
Equity
compensation plans
approved by
security
holders
|
692,903
(1)
|
$
7.37
|
90,000
|
|||
|
Equity
compensation plans
not approved by security
holders
|
231,260
(2)
|
$10.20
|
--
|
|||
|
Total
|
924,163
|
$
8.08
|
90,000
|
|
(1)
|
Represents
692,903 shares of underlying options under the Company’s 2005 Long Term
Incentive Plan and the 1996 Casa Olé Long Term Incentive
Plan.
|
|
(2)
|
Represents
51,375 shares of underlying options under the Company’s 1996 Manager Stock
Option Plan and 179,885 shares of underlying warrants. Such warrants,
when
issued, have been issued outside of the Company’s Incentive Plan,
contemporaneously with the Company’s initial public offering in 1996, as
described in footnote (5) of the table entitled “Security Ownership of
Principal Shareholders, Directors and
Management.”
|
REPORT
BY THE COMPENSATION/STOCK OPTION COMMITTEE
ON
EXECUTIVE COMPENSATION
The
Board
has a Compensation/Stock Option Committee (the “Committee”) to administer all
aspects of the compensation program for the executive officers of the Company,
including the review and approval of the compensation levels, the evaluation
of
performance and the granting of options under the Company’s 2005 Long Term
Incentive Plan (the “2005 Incentive Plan”). The Committee consists of the three
directors whose names are listed at the end of this report.
Compensation
Philosophy
The
primary objective of the Company’s compensation program is to attract, retain
and reward executives whose contributions will enhance the Company’s ability to
execute its business strategy. The Company’s strategy is to build shareholder
value by growing the restaurant system through both same-store sales increases
and careful new unit openings, and to grow earnings per share by carefully
managing costs and by opportunistically repurchasing shares.
The
Committee views establishing compensation policies that facilitate the
achievement of the Company’s business strategy, in order to ultimately create
value for shareholders, as one of its principal responsibilities. In this
regard, policies and programs are intended to enhance the ability of the
Company
to attract, retain and motivate exceptionally knowledgeable and experienced
executives committed to the successful operation and management of the
Company.
The
compensation policies and programs of the Company are considered by the
Committee within the context of an integrated total rewards framework.
Within
this framework, the Committee considers and determines various components
of
“pay” - base salary, annual incentive compensation, long-term equity incentive
compensation, benefits and perquisites. It is through the considered combination
of these programs that the Committee believes it can most effectively support
and facilitate the ultimate creation of value for shareholders.
With
respect to the compensation of executive officers, actual pay decisions
take
into consideration several additional factors, including individual performance,
scope of responsibility, prior experience, breadth of knowledge, and comparison
against the competitive practices of relevant comparator companies of similar
size, as well as indicators derived from published compensation surveys
of
companies in the Company’s industry.
General
Mr.
Neeb
is presently the Company’s non-executive Chairman of the Board. As non-executive
Chairman of the Board, Mr. Neeb is compensated $75,000 annually. If terminated
as Chairman of the Board, the Company will pay Mr. Neeb’s compensation until the
first to occur of one year after termination, or the securing of an alternative
position by Mr. Neeb. Messrs. Glowacki, Dennard, and Vegas have similar
agreements. Under the agreements, annual base salaries as of January 1,
2006 for
Messrs. Glowacki, Dennard, and Vegas were $253,085, $155,000, and $175,000
respectively.
As
incentive compensation, Company executives are eligible to receive annual
cash
bonus awards based in part on a formula of profits, same-store sales growth
and
cash flow relative to financial plan. For fiscal year 2005 performance,
Messrs.
Glowacki, Dennard, and Vegas were paid $160,000, $37,500, and $43,000
respectively, in fiscal 2006.
The
Board
of Directors and shareholders of the Company have approved the Mexican
Restaurants, Inc. 2005 Long Term Incentive Plan. The
purpose of the Incentive Plan is to attract and retain key employees, to
motivate key employees to achieve long-range goals and to further align
the
interests of key employees with those of the other shareholders of the
Company.
The
2005
Incentive Plan authorizes the granting of up to 350,000 shares of Common
Stock
in the form of incentive stock options and non-qualified stock options
to key
executives and other key employees of the Company, including officers of
the
Company and its subsidiaries, of which 260,000 shares are subject to presently
outstanding awards. The 2005 Incentive Plan will terminate on November
8, 2015.
It is anticipated that the 350,000 shares authorized under the 2005 Plan
will
enable the Company to provide sufficient grants of awards for the foreseeable
future. Also, the inclusion of authority to grant various forms of equity
compensation in addition to stock options, including restricted stock,
will
allow the Company to tailor future awards to the Company’s specific needs and
circumstances at that time.
The
1996
Incentive Plan authorizes the reservation of 500,000 shares of Common Stock
to
be used for stock options, stock appreciation rights or restricted stock,
of
which 429,000 shares are subject to presently outstanding awards. The Incentive
Plan terminated on December 31, 2005.
In
fiscal
year 2005, the Company granted to Mr. Glowacki 40,000 options, Mr. Dennard
60,000 options, Mr. Vegas 60,000 options and 100,000 options to other key
employees from the 2005 Incentive Plan. The exercise price was set at $12.00
and
all of the options were immediately vested. Also in fiscal year 2005, the
Company granted 5,000 shares, valued at $9.79 per share, of restricted
common
stock to Mr. Dennard.
In
fiscal
year 2004, the Company did not grant any non-qualified stock options under
its
Incentive Plan and its Managers Plan.
In
fiscal
year 2003, the Company granted to Mr. Vegas performance-related options
covering
10,000 shares at an exercise price of $3.56 per share and vesting over
five
years from the date of grant. Also in fiscal year 2003, the Company granted
3,000 shares, valued at $3.50 per share, of restricted stock to Mr.
Vegas.
In
fiscal
year 2002, the Company granted to Mr. Dennard performance-related options
covering 5,000 shares at an exercise price of $3.64 per share and vesting
over
five years from the date of grant. Also in fiscal year 2001, the Company
granted
to Mr. Dennard performance-related options covering 10,000 shares at an
exercise
price of $2.70 per share and vesting over five years from date of grant.
These
options vest at the rate of 10%, 15%, and 25% each year thereafter over
the
five-year period.
In
fiscal
year 2000 the Company granted to Mr. Glowacki performance-related options
covering 60,000 shares at an exercise price of $3.00 per share. These options
vest ten years from grant and were subject to earlier vesting if the Company
met
certain financial and operational targets with respect to fiscal years
2000 and
2001, which targets were not attained. In fiscal year 2001 the Company
granted
to Mr. Glowacki performance related options covering 90,000 shares at an
exercise price of $2.70 per share and which vest at the rate of 10%, 20%,
30%
and 40% over the four-year period.
During
fiscal year 1999, the Company granted 24,000 shares, valued at $4.38 per
share,
of restricted stock to Mr. Glowacki. On February 28, 2000, these restricted
shares were issued. The restricted stock will vest in 20% increments over
a
five-year period from the date of the grant. Additionally on that date,
10,000
shares were granted
and
issued to Mr. Dennard and 30,000 shares were granted and
issued to other key employees. The latter awards were valued at $3.50 per
share.
Although
not part of the compensation program for the Company’s executive officers, the
Committee also administers the 1996 Managers Stock Option Plan (the “Managers
Plan”). The purpose of the Managers Plan is to attract and retain key employees,
to motivate key employees to achieve long-range goals, to provide incentive
compensation opportunities that are competitive with those of other corporations
and further align the interest of eligible employees with the Company’s other
shareholders. The Managers Plan authorizes the granting of non-qualified
stock
options to purchase Common Stock to employees of the Company and its
subsidiaries who are managers or assistant managers of or hold key managerial
positions in or for the Company or any subsidiary (“Managers”) and who are at
the time of grant neither officers, directors nor 10% shareholders of the
Company.
The
Managers Plan authorizes the award of an aggregate of 200,000 shares of
Common
Stock to be used for non-qualified stock options, of which 51,375 shares
are
subject to presently outstanding awards. The Managers Plan terminated on
December 31, 2005.
Under
the
Managers Plan, non-qualified stock options may be granted to Managers at
the
price determined by the Committee, which shall be 100% of the fair market
value
at the date the option is granted unless the Committee expressly determines
otherwise. The Managers Plan provides that an option granted thereunder
may be
exercised at any time during the exercise period established by the Committee,
except that: (i) no option may be exercised more than ninety days after
employment with the Company and its subsidiaries has terminated by reason
other
than death, disability or authorized leave of absence for military or government
service; and (ii) no option may be exercised more than 12 months after
employment has terminated by reason of death or disability. The term of
each
option is determined by the Committee, but in no event may such term exceed
ten
years from the date of grant.
Chief
Executive Officer Compensation
The
Compensation Committee’s general approach in reviewing the annual compensation
of Mr. Glowacki, the Company’s Chief Executive Officer, is to seek to be
competitive with other companies of a similar size in the Company’s industry, to
recognize and reward initiative, overall corporate performance and managerial
ability, and to provide long-term incentive to increase shareholder value.
If
terminated as Chief Executive Officer, the Company will pay Mr. Glowacki’s
compensation until the first to occur of one year after termination, or
the
securing of an alternative position by Mr. Glowacki. Annual base salary
as of
January 1, 2006 for Mr. Glowacki is $253,085.
The
Committee believes that the compensation of the Company’s Chief Executive
Officer and its other executives during fiscal 2005 was consistent with
the
objectives of the Company’s executive compensation program.
COMPENSATION/STOCK
OPTION COMMITTEE
David
Nierenberg
Michael
D. Domec
J.
Stuart
Sargent
COMPENSATION/STOCK
OPTION COMMITTEE INTERLOCKS
AND
INSIDER PARTICIPATION
The
Compensation/Stock Option Committee consists of David Nierenberg,
a
retiring director, Michael
D. Domec and J. Stuart Sargent. Mr. Nierenberg serves as Chairman of the
Committee and it
is
contemplated that a new Chairman will be determined beginning with the
first
meeting following the Annual Meeting.
No
member
of the Company’s Compensation/Stock Option Committee: (i) was, during the last
fiscal year, an officer or employee of the Company or any of its subsidiaries
or
(ii) was formerly an officer of the Company or any of its subsidiaries.
The
Company has engaged in a related party transaction related to Messrs. Forehand
and Domec. For a complete description of this transaction see “Certain
Relationships and Related Transactions.”
Pursuant
to Item 402 of the SEC’s Regulation S-K, no executive officer of the Company
served as a member of the Compensation/Stock Option Committee (or other
board
committee performing similar functions or, in the
absence
of any such committee, the entire Board of Directors) of another corporation,
one of whose executive officers served on the Company’s Compensation/Stock
Option Committee. No executive officer of the Company served as a director
of
another corporation, one of whose executive officers served on the
Compensation/Stock Option Committee. No executive officer of the Company
served
as a member of the Compensation/Stock Option Committee (or other board
committee
performing equivalent functions or, in the absence of any such committee,
the
entire Board of Directors) of another corporation, one of whose executive
officers served as a director of the Company.
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To
the
Company’s knowledge, based solely on our review of such forms received by us
with respect to fiscal 2005, as written representations from certain reporting
persons, all statements of beneficial ownership required to be filed with
the
Securities and Exchange Commission for the fiscal year ended January 1,
2006
have been timely filed.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Related
party transactions are subject to the review and approval of the Company's
Audit
Committee, which is comprised exclusively of independent directors who
are not
otherwise involved in the day-to-day management of the Company or officers
of
the Company, and who do not have a personal financial interest in the matter
in
which they are acting.
Lease
of Headquarters Building
Prior
to
February 20, 2004, the Company leased its executive offices in Houston,
Texas
from CO Properties No. 3, a Texas partnership owned by Larry N. Forehand
and Michael D. Domec. The lease, which was originally set to expire in
December 2006, was a gross lease (where the landlord pays utilities and
property
taxes) with monthly rental payments of $10,416 per month in 2004. In 2004
the
Company leased 10,015 square feet under the lease for aggregate rental
payments
of $10,416. The Company believes that this lease is on terms at least as
favorable as could be obtained from an unrelated third party.
On
February 20, 2004, CO Properties No. 3 sold the executive offices to a
third
party. In exchange for two months of free rent, the Company exercised one
of its
options, extending the office lease through December 2009. In 2006 the
Company’s
monthly rental payments will be $11,000 per month.
PERFORMANCE
GRAPH
The
following performance graph compares the cumulative return of the Common
Stock
with that of the Nasdaq Composite Index and the Standard & Poors Small Cap
Restaurants Index assuming in each case an initial investment of $100 since
December 31, 2000. The Standard & Poors Small Cap Restaurants Index replaces
the Standard & Poors Midcap Restaurants Index that was used in previous
proxy reports.
REPORT
OF THE AUDIT COMMITTEE
The
Audit
Committee serves an independent oversight role by consulting with and
providing
guidance to management and the external auditors on matters such as accounting,
audits, compliance, controls, disclosure, finance and risk management.
The Board
has affirmatively determined that all Audit Committee members are financially
literate and possess “financial sophistication” as defined by Nasdaq listing
standards. The Board of Directors has designated the Chairman of the
Audit
Committee, Thomas E. Martin, as the audit committee “financial expert” under the
SEC’s guidelines.
The
three
members of the Board’s Audit Committee, Thomas E. Martin, Joseph J. Fitzsimmons
and Louis P. Neeb, are all independent within the meaning of applicable
NASD
listing standards and the applicable independence standards of the SEC.
The
Audit Committee is responsible for overseeing the Company’s financial reporting
process on behalf of the Board and operates under a written charter adopted
by
the Board, a copy of which is attached to the Proxy Statement as Appendix
A. The
Audit Committee annually recommends to the Board the selection of the
Company’s
independent registered public accounting firm. For the fiscal year 2005,
UHY
MANN
FRANKFORT STEIN & LIPP CPAs, LLP was
the
Company’s independent registered public accounting firm.
Management
is responsible for the Company’s financial statements and the financial
reporting process, including the systems of internal controls. The independent
registered public accounting firm is responsible for performing an independent
audit of the Company’s consolidated financial statements in accordance with
generally accepted auditing standards and expressing an opinion on the
conformity of those audited financial statements with generally accepted
accounting principles, their judgments as to the quality, not just the
acceptability, of the accounting principles, the reasonableness of significant
judgments and the clarity of disclosure in the financial statements.
The
Audit
Committee reviewed with the independent registered public accounting
firm the
Company’s accounting principles and such other matters as are required to be
discussed with the Audit Committee under generally accepted auditing
standards,
as required by Statement on Auditing Standards No. 61, Communication
with Audit
Committees. In addition, the Audit Committee has discussed with the independent
registered public accounting firm the auditors’ independence from management and
the Company and has received the written disclosures and the letter from
the
independent registered public accounting firm required by the Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees).
The Audit Committee further considered whether the provision by UHY
MANN
FRANKFORT STEIN & LIPP CPAs, LLP of
the
non-audit services described elsewhere in this proxy statement is compatible
with maintaining the auditors’ independence.
Based
upon (i) the Audit Committee’s review and discussion of the audited financial
statements with management and the independent registered public accounting
firm, (ii) the Audit Committee’s review of the representation of management, and
(iii) the disclosures by the independent registered public accounting
firm to
the Audit Committee, the Audit Committee recommended to the Board that
the
Company’s audited consolidated financial statements be included in the Company’s
Annual Report on Form 10-K for the year ended January
1, 2006,
for
filing with the SEC. The
Company's Audit Committee periodically considers the selection of the
Company's
independent registered public accounting firm.
Audit
Committee Pre-Approval Policies and Procedures
The
Audit
Committee requires that each engagement of the Company’s independent auditor to
perform auditing services and permitted non-audit services must be approved
by
the Audit Committee in advance, including the fees and principal terms
thereof.
AUDIT
COMMITTEE
Thomas
E.
Martin
Joseph
J.
Fitzsimmons
Louis
P.
Neeb
INDEPENDENT
REGISTERED PUBLIC ACCOUNTANTS
Independent
Registered Public Accounting Firm’s Fees and Services
The
following table sets forth the aggregate fees billed by UHY
MANN
FRANKFORT STEIN & LIPP CPAs, LLP
for 2005
for audit and non-audit services and by KPMG LLP for 2005 and 2004 for
audit and
non-audit services (as well as all “out-of-pocket” costs incurred in connection
with these services) and are categorized as Audit Fees, Audit-Related
Fees, Tax
Fees and All Other Fees. The nature of the services provided in each
such
category is described following the table:
|
FY
2005
|
FY
2004
|
||||||||||||
|
Audit
fees
|
$
|
172,185
|
98.9
|
%
|
$
|
143,050
|
97.0
|
%
|
|||||
|
Audit-related
fees
|
1,983
|
1.1
|
%
|
4,500
|
3.0
|
%
|
|||||||
|
Tax
fees
|
--
|
--
|
--
|
--
|
|||||||||
|
All
other fees
|
--
|
--
|
--
|
--
|
|||||||||
|
Total
|
$
|
174,168
|
100.00
|
%
|
$
|
147,550
|
100.00
|
%
|
|||||
The
Audit
fees for the years ended January
1, 2006
and
January 2, 2005, respectively, were for professional services rendered
for the
audits of the consolidated financial statements of the Company and statutory
audits, income tax provision procedures, and assistance with review of
documents
filed with the SEC. Audit-related expenses are primarily reimbursement
for
out-of-pocket expenses.
The
Audit
Committee of the Board has considered whether provision of other services
is
compatible with maintaining the independent registered public accounting
firm’s
independence and discussed these services with the independent registered
public
accounting firm and with the Company’s management, and has determined that such
services have not adversely affected UHY MANN FRANKFORT STEIN & LIPP CPAs,
LLP’s independence and are permitted under the rules and regulations concerning
auditor independence promulgated by the SEC to implement the Sarbanes-Oxley
Act
of 2002, as well as the rules and regulations of the American Institute
of
Certified Public Accountants.
UHY
MANN
FRANKFORT STEIN & LIPP CPAs, LLP
has
served as the Company’s independent public accountants since the Company’s
second quarter of fiscal 2005. Prior to that, KPMG LLP had served as
the
Company’s auditors since the 1996 initial public offering. Representatives of
UHY
MANN
FRANKFORT STEIN & LIPP CPAs, LLP are
expected to be present at the Annual Meeting to respond to appropriate
questions. Consistent with the Company’s policy, the auditors for each fiscal
year are selected annually by the Board.
T.
R.
Moore, an independent publicly registered accounting firm, was paid $46,853
in
2005 and $40,500 in 2004 for tax service work.
ANNUAL
REPORT
A
copy of
the Company’s Annual Report on the Company Form 10-K for the fiscal year ended
January
1, 2006
is
enclosed with this proxy statement. The Company will also send you, at
no
charge, any other document which it refers to in this proxy statement,
if
requested in writing by a person who was a shareholder (of record or
beneficially) at the close of business on April 21, 2006. You should
send your
request to the Company’s Corporate Secretary at the address listed
below.
INFORMATION
If
you
have questions or need more information about the Annual Meeting, you
may write
to or call the Company at:
Corporate
Secretary
Mexican
Restaurants, Inc.
1135
Edgebrook Drive
Houston,
Texas 77034
(713)
943-7574
Attn:
Mr.
Andrew J. Dennard
HOUSEHOLDING
INFORMATION
Unless
the Company has received contrary instructions, the Company may send
a single
copy of this proxy statement, notice of annual meeting and the Annual
Report to
any household at which two or more shareholders reside if the Company
believes
the shareholders are members of the same family. Each shareholder in
the
household will continue to receive a separate proxy card. This process,
known as
“householding,” reduces the volume of duplicate information received at any one
household and helps to reduce the Company’s expenses. The Company will deliver
promptly upon request a separate copy of the proxy statement or Annual
Report to
a shareholder at a shared address to which a single copy of the documents
was
delivered. Such requests should be delivered to the Company's address
or made by
telephone, as set forth below. In addition, if shareholders prefer to
receive
multiple sets of the Company’s disclosure documents at the same address this
year or in future years, the shareholders should follow the instructions
described below. Similarly, if an address is shared with another shareholder
and
together both of the shareholders would like to receive only a single
set of the
Company’s disclosure documents, the shareholders should follow these
instructions:
If
the
shares are registered in the name of the shareholder, the shareholder
should
contact the Company at its offices at 1135 Edgebrook Drive, Houston,
Texas
77034, Attention: Andrew J. Dennard, telephone number: 713/943-7574, to
inform the Company of their request. If a bank, broker or other nominee
holds
the shares, the shareholder should contact the bank, broker or other
nominee
directly.
SHAREHOLDER
PROPOSALS
Any
shareholder who intends to present a proposal at the 2006
Annual
Meeting of Shareholders for inclusion in the proxy statement and form
of proxy
relating to that meeting is advised that the proposal must be received
by the
Company at its principal executive offices not later than January 1,
2006.
The
Company will not be required to include in its proxy statement or form
of proxy
a shareholder proposal which is received after that date or which otherwise
fails to meet requirements for shareholder proposals established by regulations
of the Securities and Exchange Commission.
The
Board
of Directors knows of no other matters to be acted upon at the meeting,
but if
any matters properly come before the meeting that are not specifically
set forth
on the proxy card and in this Proxy Statement, it is intended that the
persons
voting the proxies will vote in accordance with their best
judgments.
|
By
Order of the Board of Directors,
|
|
Louis
P. Neeb
|
|
Chairman
|
April
19, 2006
ALL
SHAREHOLDERS ARE URGED TO DATE, SIGN AND RETURN THE ENCLOSED PROXY OR
VOTING
INSTRUCTION FORM.
APPENDIX
A
MEXICAN
RESTAURANTS, INC.
AUDIT
COMMITTEE CHARTER
CHARTER
OF THE AUDIT COMMITTEE
OF
THE BOARD OF DIRECTORS
Adopted
as of April 1, 2004
| I. |
GENERAL
|
The
Board
of Directors of Mexican Restaurants, Inc. (the "Company") has established
a
committee of the Board known as the audit committee (the "Committee").
The
purpose of this Audit Committee Charter is to specify the governance and
the
powers and responsibilities of the Committee.
| II. |
PURPOSE
|
The
primary functions of the Committee are to assist the Board of Directors
in
fulfilling its oversight responsibilities with respect to management of
the
business and affairs of the Company, including the Company's accounting
and
financial reporting processes generally and the Company's compliance with
legal
and regulatory requirements. In particular, to the extent provided by applicable
law, the Committee shall itself carry out the oversight of: (i) the integrity
of
the Company's disclosure controls and procedures; (ii) the integrity of
the
Company's internal controls and procedures for financial reporting; (iii)
the
qualifications, independence, appointment, compensation and performance
of the
Company's registered public accounting firm; and (iv) related party
transactions.
The
term
"registered public accounting firm" as used herein (i) initially shall
mean the
independent accounting firm serving as the Company's auditors and (ii)
after the
date on which the rules of the Securities and Exchange Commission ("SEC")
will
require the Company's auditors to be registered with the Public Company
Accounting Oversight Board (the "Accounting Board"), shall mean the public
accounting firm registered with the Accounting Board which performs the
auditing
function for the Company.
Although
the Committee has the powers and responsibilities set forth in this Charter,
the
role of the Committee is oversight. It is not the duty of the Committee
to
conduct audits, to determine that the Company's financial statements and
disclosures fairly present in all material respects the financial condition,
results of operations and cash flows of the Company, or to determine that
such
financial statements and disclosures are in accordance with generally accepted
accounting principles and applicable rules and regulations. These are the
responsibilities of Company management, and subject to audit by the Company's
auditors.
| III. |
COMPOSITION
AND INDEPENDENCE
|
The
Committee shall consist of no fewer than three directors of the Company
as
determined by the Board of Directors. All members of the Audit Committee
shall
meet the independence and experience requirements of The Nasdaq Stock Market,
Section 10A(m)(3) of the Securities Exchange Act of 1934 (the “Exchange
Act”), to the extent the Company is subject to such provisions, as well as
the
rules and regulations of the SEC. At least one member of the Committee
shall be
an “audit committee financial expert” as defined by the rules and regulations of
the SEC. Committee members shall not simultaneously serve on the audit
committees of more than two other public companies without prior Board
approval.
All members of the Committee shall be “financially literate” and have a working
familiarity with basic finance and accounting practices. The Chairperson
and
members of the Committee shall be appointed by the Board, in consultation
with
the Company's chief executive officer, and shall serve for a period of
one year
or until such time as his or her successor has been duly named or until
such
member’s earlier resignation, death or removal. Audit Committee members may be
removed (with or without cause) and replaced by the Board.
The
Committee may form subcommittees consisting of one or more members and
delegate
to such subcommittees authority to perform specific functions, including
without
limitation pre-approval of audit and non-audit services, if permitted by
applicable law, and regulations and the listing requirements of any stock
market
in which the Company's securities are traded, provided that decisions of
such
subcommittee to grant preapprovals shall be presented to the full Committee
at
its next scheduled meeting.
| IV. |
MEETINGS
AND PROCEDURES
|
The
Audit
Committee shall meet four times per year, or more frequently as circumstances
require. The Committee may request that members of management, the independent
auditors and others attend meetings and provide pertinent information,
as
necessary.
Committee
meetings will be governed by the quorum and other procedures generally
applicable to meetings of the Board under the Company's By-laws, unless
otherwise stated by resolution of the Board of Directors. The Chairperson
of the
Committee shall designate a person who need not be a member thereof to
act as
Secretary and minutes of its proceedings shall be kept in minute books
provided
for that purpose. The agenda of each meeting will be prepared by the Secretary
of the Company and, whenever reasonably practicable, circulated to each
member
prior to each meeting.
The
Committee shall report to the Board of Directors at each meeting thereof.
| V. |
RESPONSIBILITIES
AND DUTIES
|
| A. |
General
Matters
|
| 1. |
The
Committee shall be solely responsible for the appointment, compensation
and oversight of the work of the registered public accounting
firm
(including resolution of disagreements between management and
the
registered public accounting firm regarding financial reporting)
for the
purpose of preparing or issuing its audit report or related work
(subject,
if applicable, to shareholder ratification). The registered public
accounting firm shall report directly to the
Committee.
|
| 2. |
The
Committee shall have the sole authority to review and preapprove
all
auditing services and permitted nonaudit services (including
the fees and
terms thereof) to be provided by the Company's auditors, subject
to the de
minimis exceptions for non-audit services described in
Section 10A(i)(1)(B) of the Exchange Act that are approved by the
Committee prior to the completion of the audit. All such services
should
be approved in advance.
|
| 3. |
The
Committee may delegate to any one of its members the authority
to
pre-approve audit and permitted nonaudit
services.
|
| B. |
Oversight
of the Company's Relationship with the
Auditors
|
With
respect to any registered public accounting firm that proposes to perform
audit
services for the Company, the Committee shall:
| 1. |
At
least on an annual basis, appoint a registered public accounting
firm to
perform the audit of the Company's financial statements and such
other
activities as are required to be performed by its auditors by
the rules of
the SEC, the Accounting Board and the listing requirements of
any stock
market on which the Company's securities are
traded.
|
| 2. |
On
an annual basis, review all relationships the registered public
accounting
firm has with the Company in order to consider and evaluate the
registered
public accounting firm's continued independence. In connection
with its
review and discussions, the Committee: (i) shall ensure that
the
registered public accounting firm submits to the Committee on
an annual
basis a formal written statement (consistent with Independence
Standards
Board Standards No. 1, as it may be amended or supplemented,
and Section
10A of the Exchange Act delineating all relationships and services
that
may impact the objectivity and independence of the registered
public
accounting firm; (ii) shall actively engage in a dialogue with
the
registered public accounting firm with respect to any disclosed
relationship, services or fees (audit and permitted non-audit
related)
that may impact the objectivity and independence of the registered
public
accounting firm; (iii) shall review the registered public accounting
firm's statement of the fees billed for audit and non-audit related
services, which statement shall specifically identify those fees
required
to be disclosed in the Company's annual proxy statement; (iv) shall
take appropriate action to oversee the independence of the registered
public accounting firm; and (v) shall satisfy itself as to the
registered
public accounting firm's
independence.
|
| 3. |
On
an annual basis, confirm that neither the lead (or coordinating)
audit
partner (i.e.,
the partner having primary responsibility for the audit), nor
the
concurring partner (i.e.,
the partner responsible for performing a second level of review
on the
audit) has performed such services for the Company for more than
the four
consecutive previous fiscal years, and that once either has performed
such
services for five years, that he or she not perform such services
for a
period of five years.
|
| 4. |
On
an annual basis, confirm that it is not disqualified by virtue
of the fact
that any of the Company's chief executive officer, chief financial
officer, controller, chief accounting officer (or a person serving
in an
equivalent position) was employed by that registered public accounting
firm and participated in any capacity in the audit of the Company
during
the one-year period preceding the date of the initiation of the
audit.
|
| 5. |
Establish
with registered public accounting firm the scope and plan of
the work to
be done by the registered public accounting firm as part of the
audit for
the fiscal year.
|
| 6. |
At
least annually, obtain and review a report from the registered
public
accounting firm describing (i) that firm's internal quality control
procedures and (ii) any material issues raised by the most recent
quality
control review of the registered public accounting firm by or
under the
rules of the Accounting Board, or raised by any inquiry or investigation
by governmental or professional authorities within the preceding
five
years, with respect to one or more independent audits carried
out by the
registered public accounting firm, and any steps taken to deal
with any
such issues.
|
| C. |
Financial
Statements
|
With
respect to the Company's financial statements, the Committee shall:
| 1. |
Review
and discuss with management and the registered public accounting
firm the
Company's quarterly financial statements prior to release to
the investing
public or submission to any governmental body, any stock exchange,
or
stock market or to shareholders, including disclosures made in
management's discussion and
analysis.
|
| 2. |
Ensure
that the Company's quarterly financial statements have been reviewed
by
the registered public accounting firm prior to filing with the
SEC, such
review to follow professional standards and procedures for conducting
such
reviews, as established by generally accepted auditing standards,
as the
same may be modified or supplemented by the SEC or the Accounting
Board.
|
| 3. |
Discuss
with the registered public accounting firm the matters required
to be
discussed by Statement on Auditing Standards No. 61, as amended
("SAS
61"), relating to the conduct of any audit, and any disagreements
or
difficulties encountered in the course of the audit work, any
restrictions
on the scope of activities or access to requested information.
The
Committee shall resolve any disagreements between management
and the
auditor regarding financial
reporting.
|
| 4. |
Review
and discuss with management and the registered public accounting
firm the
Company's annual audited financial statements and the report
of the
registered public accounting firm thereon, including disclosures
made in
management's discussion and analysis included in the Form 10-K
filed with
the SEC.
|
| 5. |
Following
completion of its review of the annual audited financial statements,
recommend to the Board of Directors, if appropriate, that the
Company's
annual audited financial statements and the report of the registered
public accounting firm thereon be included in the Company's annual
report
on Form 10-K filed with the SEC.
|
| 6. |
Prepare
the Committee report required by the SEC to be included in the
Company's
annual proxy statement and any other Committee reports required
by
applicable securities laws or stock exchange or stock market
rules.
|
| D. |
Discussions
with Management Regarding Financial Disclosures
|
With
respect to financial information disclosure, the Committee shall:
| 1. |
Review
and discuss with management the Company's periodic earnings press
releases, including the use of "pro forma" or "adjusted" non-GAAP
information, as well as any financial information and earnings
guidance
provided from time to time to analysts and rating
agencies.
|
| 2. |
Review
and discuss with management all material correcting adjustments
identified
by the registered public accounting firm in accordance with generally
accepted accounting principles and SEC rules and regulations
that are
reflected in each annual and quarterly report that contains financial
statements, and that are required to be prepared in accordance
with (or
reconciled to) generally accepted accounting principles under
Section 13
(a) of the Exchange Act and filed with the
SEC.
|
| 3. |
Review
and discuss any disclosures made by the Company's chief executive
officer
and chief financial officer to the Committee as a result of their
evaluation as of the end of each fiscal quarter of the Company's
(i)
disclosure controls and procedures, and (ii) its internal controls
and
procedures for financial reporting related to (a) any significant
deficiencies in the design or operation of internal controls
and (b) any
fraud, whether or not material, involving management or other
employees
who have a significant role in the Company's internal controls
and
procedures for financial reporting.
|
| 4. |
Review
management's report on internal controls and procedures for financial
reporting purposes required to be included in the Company's Annual
Report
on Form 10-K.
|
| 5. |
Review
and discuss with management all material off-balance sheet transactions,
arrangements, obligations (including contingent obligations)
and other
relationships of the Company with unconsolidated entities or
other persons
that may have a material current or future effect on financial
condition,
changes in financial condition, results of operations, liquidity,
capital
resources, capital reserves or significant components of revenues
or
expenses that are required to be disclosed in each annual and
quarterly
financial report of the Company filed with the
SEC.
|
| 6. |
Review
and discuss with management any non-GAAP financial measure included
in any
periodic or other reports filed with the SEC or in any public
disclosure
or press or other release, and the compliance of such non-GAAP
financial
measure disclosure with applicable rules and
regulations.
|
| E. |
Periodic
and Annual Reviews
|
On
a
periodic or annual basis, as applicable, the Committee shall:
| 1. |
Receive
and review all reports required under the Exchange Act to be
provided to
it by the registered public accounting firm, including without
limitation
reports on (i) all critical accounting policies and practices
used by the
Company, (ii) all alternative treatments of financial information
within
generally accepted accounting principles that have been discussed
with
management, ramifications of the use of such alternative disclosures
and
treatments, and the treatment preferred by the independent auditors,
and
(iii) all other material written communications between the registered
public accounting firm and management, such as any management
letter or
schedule of unadjusted differences.
|
| 2. |
Discuss
with the registered public accounting firm, without management
being
present, (i) their judgments about the quality, appropriateness
and
acceptability of the Company's accounting principles and financial
disclosure practices, as applied in its financial reporting,
and (ii) the
completeness and accuracy of the Company's financial
statements.
|
| 3. |
Consider
and approve, if appropriate, significant changes to the Company's
accounting principles and financial disclosure practices as suggested
by
the registered public accounting
firm.
|
| 4. |
Review
with management, the registered public accounting firm, and the
Company's
counsel, as appropriate, any legal, regulatory or compliance
matters that
could have a significant impact on the Company's financial statements,
including significant changes in accounting standards or rules
as
promulgated by the Financial Accounting Standards Board, the
SEC or other
regulatory authorities with relevant
jurisdiction.
|
| 5. |
Review
and discuss with management (i) the Company's major financial
risk
exposures and the steps that management has taken to monitor
and control
such exposures (including management's risk assessment and risk
management
policies), and (ii) the program that management has established
to monitor
compliance with its code of business ethics and conduct for directors,
officers and employees.
|
| F. |
Internal
Audit Function and Internal
Controls
|
With
respect to the Company's internal audit function and internal controls
and
procedures for financial reporting:
| 1. |
In
consultation with the registered public accounting firm, review
and assess
the adequacy of the Company's internal controls and procedures
for
financial reporting and the procedures designed to ensure compliance
with
laws and regulations.
|
| 2. |
On
an annual basis, review the registered public accounting firm's
attestation to management's report included in the Annual Report
on Form
10-K evaluating the Company's internal controls and procedures
for
financial reporting.
|
| 3. |
Establish
and review procedures for (i) the receipt, retention and treatment
of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters, and (ii) the confidential,
anonymous submission by employees of the Company of concerns
regarding
questionable accounting or auditing
matters.
|
| G. |
Legal
Compliance
|
With
respect to attorney disclosure rules for in-house and outside legal counsel
the
Committee shall be empowered to act in the capacity as the Company's qualified
legal compliance committee, which shall:
| 1. |
Establish
and review procedures for the reporting by attorneys of actual
or
prospective: (i) misconduct by employees and officers of the
Company;
(ii) material violations of applicable securities laws and
regulations; and (iii) material violations of the rules of the
stock
market on which the Company's securities are
listed.
|
| 2. |
On
an annual basis, and in consultation with the Company's outside
counsel,
review and assess the adequacy of the Company's procedures for
reporting
of matters described in paragraph 1 to ensure compliance with
laws and
regulations.
|
| H. |
Other
Miscellaneous Matters
|
The
Committee shall also have responsibility to:
| 1. |
Review
and approve all related-party
transactions.
|
| 2. |
Review
and approve (i) any change or waiver in the Company's code of
business
conduct and ethics for directors or executive officers, and (ii)
any
disclosure made in the manner permitted by SEC rules regarding
such change
or waiver.
|
| 3. |
Review
with management and the independent auditors the sufficiency
in number and
the quality of financial and accounting personnel of the
Company.
|
| 4. |
Review
and reassess the adequacy of this Charter annually and recommend
to the
Board any changes or amendments the Committee deems
appropriate.
|
| 5. |
Perform
any other activities consistent with this Charter, the Company's
By-laws
and governing law as the Committee or the Board deems necessary
or
appropriate.
|
| VI. |
RESOURCES
|
The
Committee shall have the authority to retain independent counsel and other
advisers without seeking approval of the Board of Directors or management,
as it
determines necessary to carry out its duties. The Committee shall determine
the
extent of funding necessary for payment of compensation to the independent
auditors for purpose of rendering or issuing the annual audit report and
to any
independent counsel and other advisers retained to advise the
Committee.
