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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 sec. 240.14a-11(c) or sec. 240.14a-12
WATERMARC FOOD MANAGEMENT CO.
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(Name of Registrant as Specified in its Charter)
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(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)(l) 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:
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(5) Total fee paid:
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[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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WATERMARC FOOD MANAGEMENT CO.
11111 WILCREST GREEN, SUITE 350
HOUSTON, TX 77042
(713) 783-0500
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 13, 1996
To the Shareholders of
Watermarc Food Management Co.
The Annual Meeting (the "Meeting") of shareholders of Watermarc Food
Management Co., a Texas corporation (the "Company") will be held at Billy Blues
Bar & Grill, 6025 Richmond, Houston, TX 77057, at 3:00 P.M., local time, on
December 13, 1996, for the following purposes:
1. To elect a board of six directors to serve until the next Annual
Meeting of Shareholders and until their successors have been duly
elected and qualified.
2. To ratify the appointment of Coopers & Lybrand L.L.P. as independent
public accountants to audit the consolidated financial statements of
the Company and its subsidiaries for the fiscal year ending June 29,
1997.
3. To transact such other business as may properly come before the
Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on November 14,
1996 as the record date (the "Record Date") for the determination of
shareholders entitled to notice of and to vote at the Meeting or any
adjournments thereof. Only shareholders of record at the close of business on
the Record Date are entitled to notice of and to vote at the Meeting. The
transfer books will not be closed.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
EACH OF THE MATTERS SET FORTH ABOVE TO BE VOTED UPON AT THE MEETING.
The enclosed Proxy Statement contains more information pertaining to
matters to be voted on at the Annual Meeting. Please read the Proxy Statement
carefully.
3
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN
PERSON. SHAREHOLDERS ARE URGED, WHETHER OR NOT THEY PLAN TO ATTEND THE
MEETING, TO DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE PREPAID ENVELOPE. IF A SHAREHOLDER WHO HAS RETURNED A PROXY
FINDS THAT HE CAN ATTEND THE MEETING IN PERSON, HE MAY REVOKE HIS PROXY AND
VOTE IN PERSON ON ALL MATTERS SUBMITTED TO THE MEETING.
By order of the Board of Directors
GHULAM M. BOMBAYWALA
Chairman of the Board and
Chief Executive Officer
Houston, Texas
November 15, 1996
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WATERMARC FOOD MANAGEMENT CO.
11111 WILCREST GREEN, SUITE 350
HOUSTON, TX 77042
(713) 783-0500
--------------------
PROXY STATEMENT
for the
ANNUAL MEETING OF SHAREHOLDERS
to be held December 13, 1996
--------------------
THE MEETING
MEETING TIME AND PLACE
A Proxy in the accompanying form is being solicited by the Board of
Directors of Watermarc Food Management Co. (the "Company") for use at the
Company's Annual Meeting of Shareholders (the "Meeting") to be held at Billy
Blues Bar & Grill, 6025 Richmond, Houston, Texas 77057, at 3:00 P.M., local
time, on December 13, 1996, and at any adjournment or postponement thereof.
The Company will bear the cost of such solicitation. Proxies together with
copies of this Proxy Statement, are being mailed to shareholders of the Company
on or about November 27, 1996.
MATTERS TO BE VOTED ON AND RECORD DATE
This Proxy Statement is being furnished to holders of record of the
common stock, $.05 par value, of the Company (the "Common Stock") as of
November 14, 1996 (the "Record Date") in connection with the Meeting the
purposes of which are to:
1. Elect a board of six directors to serve until the next Annual Meeting
of Shareholders and until their successors have been duly elected and
qualified.
2. Ratify the appointment of Coopers & Lybrand L.L.P. as independent
public accountants to audit the consolidated financial statements of
the Company and its subsidiaries for the fiscal year ending
June 29, 1997.
3. Transact such other business as may properly come before the Meeting
or any adjournments thereof.
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VOTING AND REVOCABILITY OF PROXY
Execution and return of the enclosed Proxy will not in any way affect
a shareholder's right to attend the Meeting and to vote in person, and any
shareholder giving a Proxy has the power to revoke it at any time before it is
voted by filing with the Secretary of the Company a written revocation or duly
executed Proxy bearing a later date or by voting in person by ballot at the
Meeting. A Proxy, when executed and not revoked, will be voted in accordance
with the instructions thereon. In the absence of specific instructions,
Proxies will be voted by the individuals named in the Proxy (i) "FOR" the
election as director of those six nominees named in this Proxy Statement, (ii)
"FOR" the appointment of Coopers & Lybrand L.L.P. as the Company's independent
public accountants to audit the consolidated financial statements of the
Company and its subsidiaries for the fiscal year ending June 29, 1997, and
(iii) in accordance with their best judgment and discretion on all other
matters that may properly come before the Meeting.
MANAGEMENT RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
EACH OF THE MATTERS SET FORTH ABOVE TO BE VOTED ON AT THE MEETING.
SHARES ENTITLED TO VOTE AND QUORUM
On the Record Date, the Company had 13,433,658 shares of Common Stock
issued and outstanding and entitled to notice of and to vote at the Meeting.
The presence, in person or by Proxy, of the holders of a majority of the issued
and outstanding shares of Common Stock entitled to vote as of the Record Date
is necessary to constitute a quorum at the Meeting. All shares represented in
person or proxy at the Meeting, whether voting "FOR", "AGAINST", "ABSTAIN" or
to "WITHHOLD AUTHORITY" with respect to any matter will be counted for purposes
of determining a quorum. Each holder of Common Stock will be entitled to one
vote per share held on each matter to be voted on at the Meeting. Neither the
Articles of Incorporation nor the Bylaws of the Company, as amended, provide
for cumulative voting rights.
VOTES REQUIRED
The favorable vote of the holders of a majority of the shares of
Common Stock present in person or by Proxy at the Meeting is required for the
approval of matters presented to the Meeting, except that in the election of
directors, the six individuals receiving the greatest number of votes shall be
deemed elected even though not receiving a majority.
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COSTS AND SOLICITATION OF PROXIES
The costs of soliciting proxies will be borne by the Company. The
Company has decided not to retain a proxy solicitation firm at this time, but
may elect to do so prior to the Meeting. If the Company retains a proxy
solicitation firm, the Company will pay any standard fees charged by such firm
and its reasonable out of pocket expenses (which are not expected to exceed
$5,000-$10,000 in the aggregate). In addition, the Company will reimburse
brokerage firms and other persons representing beneficial owners of shares for
their expenses in forwarding solicitation materials to such beneficial owners.
Proxies may also be solicited by certain of the Company's directors, officers
and regular employees without additional compensation, personally or by
telephone, telegram or facsimile.
PROXY STATEMENT INFORMATION
Information with respect to the Company including, Directors and
Executive Officers of the Company, Executive Compensation, Security Ownership
of Certain Beneficial Owners and Management, and Certain Relationships and
Related Transactions is provided under PROPOSAL ONE - ELECTION OF DIRECTORS.
Additional information with respect to the Company is included in the Company's
Annual Report on Form 10-K for its fiscal year ended June 30, 1996, filed with
the Commission (the "Annual Report on Form 10-K") and the Company's Quarterly
Report on Form 10-Q for the quarter ended September 29, 1996, which are being
provided to shareholders of the Company with this Proxy Statement. Information
with respect to the Company's current accountant is under PROPOSAL TWO -
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS FOR FISCAL 1997.
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SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement and does not purport to be complete. This summary is
qualified in all respects by the remainder of this Proxy Statement which should
be read in its entirety.
THE COMPANY
Watermarc Food Management Co. . . . . . . The Company currently owns and
operates, both directly and
through subsidiaries, full service
restaurants under the names
Marco's Mexican Restaurants (the
"Marco's Restaurants"), The
Original Pasta Co. Restaurants
(the "Pasta Co. Restaurants"),
Billy Blues Barbecue Bar & Grill
(the "Billy Blues Restaurant"),
Longhorn Cafe, Pete's BBQ Rib and
Steakhouse (the "Pete's
Restaurants"), and H. D. Hotspurs
("Hotspurs"). The Company also
produces and markets two brands of
barbecue sauce products and a
spice rub, Billy Blues Barbecue
Sauce, Chris' & Pitt's Barbecue
Sauce and Chris' & Pitt's Spice
Rub.
The Company's primary growth
strategy has been to expand its
restaurant and barbecue sauce
operations through internal growth
and by acquiring businesses with
concepts and themes compatible
with the Company's operations.
This strategy is evidenced by the
Company's acquisition (i) in June
1993 of three Longhorn Cafes in
Houston, Texas, (ii) in August
1993 of two Pete's Restaurants and
Hotspurs, each being located in
the Seattle, Washington
metropolitan area, (iii) in July
1994 of Marco's Mexican
Restaurants, Inc. which now has
twenty-three Marco's Restaurants
operating in the Southwestern
region of the State of Texas,
including the Houston metropolitan
area, College Station, Texas City,
Lake Jackson and Victoria, Texas,
and (iv) in January 1996 of The
Original Pasta Co., which now has
thirteen Pasta Co. Restaurants in
the Houston metropolitan area,
with two more projected to open by
the end of 1996.
The Company's principal executive
offices are located at 11111
Wilcrest Green, Suite 350,
Houston, Texas 77042 and its
telephone number is (713)
783-0500. Further information
regarding the Company is provided
herein and in the Annual Report on
Form 10-K being delivered with
this Proxy Statement to the
Company's shareholders.
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THE MEETING
Time, Date and Place . . . . . . . . . . The Meeting will be held at 3:00
p.m., local time, on Friday,
December 13, 1996, at Billy Blues
Bar & Grill, 6025 Richmond,
Houston, Texas, and at any
adjournments or postponements
thereof.
Record Date, Shares Entitled to Vote . . Holders of record of shares of the
Company's Common Stock at the
close of business on November 14,
1996 (the "Record Date"), are
entitled to notice of and to vote
at the Meeting.
On such date, there were
13,433,658 shares of Common Stock
outstanding, each of which will be
entitled to one vote. See "The
Meeting."
Purpose of Meeting . . . . . . . . . . . The purpose of the Meeting is (i)
to elect a board of six directors
to serve until the next Annual
Meeting of Shareholders of the
Company and until their successors
have been duly elected and
qualified; (ii) to ratify the
appointment of Coopers & Lybrand
L.L.P. as independent public
accountants to audit the
consolidated financial statements
of the Company and its
subsidiaries for the fiscal year
ending June 29, 1997; and (iii) to
transact such other business as
may properly come before the
Meeting or any adjournments
thereof. See "The Meeting."
Votes Required . . . . . . . . . . . . . The favorable vote of the holders
of a majority of shares of Common
Stock present in person or by
proxy at the Meeting is required
for approval of all matters
presented to the Meeting except
that with respect to the election
of directors, the six individuals
receiving the greatest number of
votes shall be deemed elected even
though not receiving a majority.
See "The Meeting."
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PROPOSAL ONE
ELECTION OF DIRECTORS
The Company's Bylaws provide that the Board of Directors shall consist
of not less than three, nor more than fifteen, directors. The Board of
Directors currently consists of six directors, Ghulam M. Bombaywala, Angelo
Pitillo, Michael S. Chadwick, Nico B. Letschert, Sarosh J. Collector and Philip
M. Mount. Each of the current directors is a nominee for re-election to the
Board of Directors. The names, ages, positions and offices of each director,
nominee and executive officer of the Company and their business experience is
set forth below. Each of the Company's directors was elected as director of
the Company by the Company's shareholders at the Annual Meeting of Shareholders
held on January 9, 1996. All directors are to serve until the next Annual
Meeting of Shareholders or until their successors have been duly elected and
qualified. All nominees were designated by the Board of Directors.
EXECUTIVE OFFICERS AND DIRECTORS
Employed Director
Name Age Position Since Since
---- --- -------- ----- -----
Ghulam Bombaywala 41 Chairman of the Board, Chief Executive 1994 1994
Officer and Director
Angelo Pitillo 59 President, Chief Operating Officer and 1994 1995
Director
Thomas J. Buckley 49 Chief Financial Officer and Secretary 1994 N/A
Michael S. Chadwick 44 Director N/A 1994
Nico B. Letschert(2) 41 Director N/A 1994
Philip M. Mount(1)(2) 38 Director N/A 1994
Sarosh J. Collector(1)(2) 49 Director N/A 1995
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(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
GHULAM BOMBAYWALA was elected as a director of the Company on August 5,
1994. Effective September 21, 1994, Mr. Bombaywala was elected Chairman of the
Board of Directors and Chief Executive Officer of the Company. Since 1984, Mr.
Bombaywala has served as President and sole director of Marco's. Mr.
Bombaywala also served as President and Chairman of the Board of Directors of
the publicly traded Two Pesos, Inc. from April 1990 to June 1993 when it was
sold to Taco Cabana, Inc. Mr. Bombaywala is also a shareholder and President
of SPP, Inc., the holder of a chain of James Coney Island restaurants serving
hot dogs and chili. Mr. Bombaywala serves on the Board of Directors of the Sam
Houston Area Boy Scouts of America, the Fort Bend Independent School District
Education Foundation and the Conrad N. Hilton College of Hotel & Restaurant
Management of the University of Houston.
ANGELO PITILLO was elected President and Chief Operating Officer in
September 1994 and has been a director of the Company since March 17, 1995.
From 1989 to 1993, Mr. Pitillo served as President of Prufrock Restaurants,
Inc., where his responsibilities included management of the Black-Eyed Pea
Restaurant division. From 1976 to 1989, Mr. Pitillo served as Senior Vice
President and Regional Vice President of Jerrico, Inc. While with Jerrico,
Inc., Mr. Pitillo supervised various restaurant divisions, including Long John
Silver's, Florenz and Fazzoli's. Mr. Pitillo has over 30 years of experience
in the restaurant and hospitality industry, including the development of fast
food, full service and catering concepts.
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THOMAS J. BUCKLEY was elected Chief Financial Officer and Secretary of
the Company in December 1994. From May 1990 to January 1994, Mr. Buckley was
Vice President - Finance and Franchising of Western Sizzlin, Inc. ("WSI"), a
restaurant franchising and operating company. From 1986 to 1989, Mr. Buckley
was President of SDO, Inc., a regional franchising company. From 1980 to 1985,
Mr. Buckley was Executive Vice President and a director of the publicly traded
USACafes, franchisor and operator of Bonanza Restaurants. Mr. Buckley has over
15 years experience in the restaurant industry and extensive experience in
franchising. Mr. Buckley received a B.S. degree in accounting from the
University of New Orleans.
MICHAEL S. CHADWICK has served as a director of the Company since
August 1994. Mr. Chadwick is Senior Vice President and a Managing Director of
the Corporate Finance Department of Sanders Morris Mundy Inc., a Houston-based
financial services and investment banking firm. From 1988 to August 1994, Mr.
Chadwick served as President and Co-Owner of Chadwick, Chambers & Associates,
Inc., an investment and merchant banking firm specializing in corporate finance
services. From 1984 to 1988, Mr. Chadwick served as Vice President, Corporate
Finance at Lovett Mitchell Webb & Garrison, Inc., a Houston-based investment
banking firm. Mr. Chadwick has been engaged in investment banking since 1978.
Mr. Chadwick presently serves on the Board of Directors of Blue Dolphin Energy
Company, a publicly traded corporation, Moody-Price, Inc., and Brazos
Sportswear, Inc. Mr. Chadwick received an M.B.A. in finance from Southern
Methodist University and a B.A. degree in economics from the University of
Texas.
NICO B. LETSCHERT was elected to the Board of Directors in September
1994 and serves as a member of the Compensation Committee of the Board of
Directors. Mr. Letschert is currently the CEO of Noesis Capital Corp., a
Florida-based investment banking and money management firm that Mr. Letschert
started in 1995. From 1984 until July 1995, Mr. Letschert was President of
Noble Investment Co. of Palm Beach. A native of The Netherlands, Mr. Letschert
began his career on the Amsterdam Stock Exchange before relocating to the U.S.
and becoming involved with venture capital and corporate finance. Mr.
Letshcert received his degree from the Dutch Institute for Banking and Finance
and is a Certified Financial Planner. He also serves on the Board of
Directors of the following publicly traded corporations: Capitol Multimedia,
Inc., Futuremedia PLC and Foodquest.
PHILIP M. MOUNT has been a director of the Company since August 5,
1994 and is a partner with the law firm of Kelly, Sutter, Mount & Kendrick.
Mr. Mount currently serves as a member of the Audit and Compensation Committees
of the Board of Directors. Mr. Mount has engaged in the practice of law in
Houston, Texas since 1983. Mr. Mount's principal areas of practice are
corporate finance and securities. Mr. Mount received his B.B.A. with honors
from the University of Texas at Austin in 1980 and a J.D. from the University
of Houston College of Law in 1983. From August 1990 until its acquisition in
1993, Mr. Mount served as a director and a member of the Compensation and
Executive Committees of Two Pesos, Inc., a publicly traded Houston, Texas based
restaurant company.
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SAROSH J. COLLECTOR has been a director of the Company since March 17,
1995 and currently serves as a member of the Audit and Compensation Committees
of the Board of Directors. Mr. Collector is a certified public accountant and
has served as President of the accounting firm of Collector, Dart & Moore P.C.
since 1987. From 1986 to 1987, Mr. Collector was a manager with the accounting
firm of Spicer & Oppenheim, and from 1981 to 1986 served as a partner with the
accounting firm of Malow Cohen & Co. Mr. Collector's principal areas of
practice are taxation, business consulting and business valuation. Mr.
Collector also served as a director of Two Pesos, Inc., a publicly traded
corporation, from April 1990 to August 1993.
COMMITTEES AND FEES
The Board of Directors of the Company has established an Audit
Committee and a Compensation Committee. The purpose of the Audit Committee is
to review and make recommendations to the Board of Directors with respect to
the engagement of the Company's independent public accountants, reviewing with
such accountants the plans for and the results and scope of the auditing
engagement and certain other matters relating to the services provided to the
Company, including the independence of such accountants. The Audit Committee
held no meetings during the fiscal year ended June 30, 1996.
The Compensation Committee reviews on behalf of, and makes
recommendations to, the Board of Directors with respect to compensation of
executive officers and key employees of the Company and administers the
Company's Stock Compensation Plan. All actions undertaken by the Compensation
Committee during the last fiscal year were effected by unanimous consent in
lieu of holding scheduled or special meetings.
Each director who is not an employee of the Company is paid $250 for
each meeting of the Board of Directors attended (exclusive of telephonic
meetings) and $250 for each meeting of a Committee of the Board of Directors
attended (exclusive of committee meetings occurring on the same day as Board
Meetings), and are reimbursed for expenses incurred in attending such meetings.
Directors who are employees of the Company are not paid any additional
compensation for attendance at Board of Directors or Committee meetings.
During fiscal 1996, the Board of Directors held its annual meeting on January
9, 1996, conducted meetings in March and May of 1996 and approved actions
undertaken by management of the Company by unanimous consent in lieu of
meetings on three separate occasions.
SECTION 16 REPORTS
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's officers and directors, and persons who
own more than 10% of a registered class of the Company's equity securities, to
file reports of ownership and changes in ownership of the Company's securities
with the Securities and Exchange Commission (the "Commission").
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Based solely on its review of the copies of such report forms received
by it with respect to fiscal year 1996, or written representations from certain
reporting persons, except as set forth below, the Company believes that all
filing requirements applicable to its directors, officers and persons who own
more than 10% of a registered class of the Company's equity securities have
been timely complied with in accordance with Section 16(a) of the Exchange Act.
Ghulam Bombaywala, an officer and director of the Company, failed to timely
file his Form 4 - Statement of Changes in Beneficial Ownership of Securities
with the Commission in February 1996. Sarosh J. Collector also failed to
timely file a Form 4 - in July of 1996. Angelo Pitillo, an executive officer
and director of the Company, and Thomas Buckley, an executive officer of the
Company, failed to timely file Form 4 in July 1996. In addition, all directors
and executive officers of the Company each failed to timely file Form 5 -
Annual Changes in Beneficial Ownership of Securities for fiscal 1995. All late
reports were filed in September of 1996.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION. The following table sets forth certain
information regarding all cash compensation paid or to be paid by the Company
or any of its subsidiaries, as well as other compensation paid or accrued,
during the Company's fiscal year ended June 30, 1996, to the Company's Chief
Executive officer and to those other executive officers who received salary and
bonus compensation in excess of $100,000 during the fiscal year (the "named
executive officers").
[This space is intentionally left blank.]
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SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards Payouts
------------------------------------ -------------------------- -------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Compensation(1) Award(s) Options/SARs(2) Payouts Compensation
Name and Principal Position Year Salary($) Bonus($) ($) ($) (#) ($) ($)
- --------------------------- ---- --------- -------- --------------- ---------- --------------- ------- ------------
Ghulam Bombaywala, Chairman of 1996 $ -0- $ -0- $ -0- $ -0- -0- -0- $ -0-
the Board and Chief Executive 1995 -0- -0- -0- -0- -0- -0- -0-
Officer* 1994 610,000 -0- -0- -0- -0- -0- 2,175,310
Angelo Pitillo, President 1996 $150,000 $ -0- $ -0- $ -0- 250,000 -0- $ -0-
Chief Operating Officer 1995 121,154 -0- -0- -0- 250,000 -0- -0-
1994 -0- -0- -0- -0- -0- -0- -0-
* Mr. Bombaywala served as Chief Executive Officer of Marco's during the
Company's fiscal year ended July 3, 1994. On July 1, 1994, the Company and
Marco's entered into a share exchange transaction whereby Marco's became a
wholly-owned subsidiary of the Company. Effective September 1, 1994, Mr.
Bombaywala was elected Chairman of the Board and Chief Executive Officer of
the Company. Mr. Bombaywala's compensation as Chief Executive Officer of
Marco's for the period beginning June 29, 1993 and ending July 3, 1994 is
reported in the above table.
(1) Excludes certain incidental perquisites, the total of which did not exceed
the lesser of $50,000 or 10% of cash compensation for any named individual.
(2) Incentive stock options to acquire shares of Common Stock pursuant to the
Company's Stock Compensation Plan. See "Report on Repricing of
Options/SARS".
OPTION GRANTS DURING FISCAL YEAR 1996
The following table provides information related to options to acquire
shares of Common Stock granted to the Chief Executive Officer and the other
named executive officers of the Company referenced in the Summary Compensation
Table, above, during fiscal year 1996. The Company does not have any
outstanding Stock Appreciation Rights ("SARs").
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants Potential Realizable
----------------- value at assumed
annual rates of stock
price appreciation
for option term
---------------
Number of Securities % of Total Options/ Exercise or
Underlying Options/ SARs Granted to Base Price Expiration
Name SARs Granted(#)(1)(2) Employees in Fiscal Year ($/Sh)(3) Date 5%($) 10%($)
- ---- --------------------- ------------------------ ----------- ---------- ----- ------
Ghulam Bombaywala . . . -0- -0-% N/A N/A N/A N/A
Angelo Pitillo . . . . 250,000 54% $ 1.00 12/99 $ -0- $ 12,500
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(1) Incentive stock options to acquire shares of Common Stock granted pursuant
to the Company's Stock Compensation Plan, for a term of five years from
date of grant. Options issued to Mr. Pitillo vest at the rate of 20% per
year commencing one year from the date of the original grant, are
nontransferable and are subject to termination under certain conditions
upon cessation of employment.
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(2) On December 29, 1994, the Company granted options to purchase 250,000
shares of Common Stock at a purchase price of $2.00 per share to Mr.
Pitillo. On May 17, 1996, these options were canceled and new options
were issued to Mr. Pitillo to purchase 250,000 shares of Common Stock at
a purchase price of $1.00 per share. See "Reports on Repricing of
Options/SARS".
(3) The exercise price per share of each option granted in 1996 was equal to
or greater than 100% of the fair market value of the Common Stock on the
date of grant pursuant to the requirements of the Stock Compensation Plan.
OPTION EXERCISES AND 1996 FISCAL YEAR END HOLDINGS
The following table sets forth information with respect to options
exercised by named executive officers of the Company referenced in the Summary
Compensation Table, above, during fiscal year 1996 and the number and value of
options held at fiscal year end.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Options/SARs at FY-End(#) At FY-End($) (1)
Shares Acquired ------------------------- -----------------------------
Name On Exercise(#) Value Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- -------------- ----------------- ----------- ------------- ----------- -------------
Ghulam Bombaywala . . . . -0- $ -0- -0- -0- N/A N/A
Angelo Pitillo . . . . . -0- -0- 50,000 200,000 $ -0- $ -0-
- ---------------
(1) The closing bid price for the Company's Common Stock as reported by NASDAQ
SmallCap Market on June 28, 1996 was $0.69 per share. The indicated value
is calculated on the basis of the difference between the option exercise
price per share and $0.69, multiplied by the number of shares of Common
Stock underlying each option.
REPORT ON REPRICING OF OPTIONS/SARS
In December 1994, the Compensation Committee of the Board of Directors
canceled all options originally issued to Angelo Pitillo, President and Chief
Operating Officer, under the Stock Compensation Plan for the purpose of
reissuing the canceled options at a lower exercise price. The options, prior
to cancellation, were issued with an exercise price of $4.83 per share and
would have expired in September 1999. As a result of the decline in the value
of the Company's Common Stock within two months of Mr. Pitillo's employment by
the Company, the Compensation Committee of the Board of Directors decided that
it would be in the best interests of the Company to cancel and reissue the
options to purchase the identical number of shares at an exercise price of
$2.00 to encourage Mr. Pitillo to remain in the employ of the Company and to
provide additional incentive for him to continue to promote the success and
business of the Company. Due to the continued decline in the value of the
Company's Common Stock, the Board of Directors decided that it would be in the
best interests of the Company to cancel and reissue the options to purchase the
identical number of shares at an exercise price of $1.00 to encourage Mr.
Pitillo to remain in the employ of the Company and as an incentive for him to
continue to promote the success and business of the Company.
- 11 -
15
TEN-YEAR OPTION/SAR REPRICINGS
- --------------------------------------------------------------------------------------------------------------
NAME DATE NUMBER OF PER SHARE EXERCISE NEW LENGTH OF
SECURITIES MARKET PRICE PRICE AT EXERCISE ORIGINAL OPTION
UNDERLYING OF STOCK AT TIME OF PRICE TERM REMAINING AT
OPTIONS TIME OF REPRICING DATE OF REPRICING
REPRICED REPRICING OR AMENDMENT
- --------------------------------------------------------------------------------------------------------------
Angelo Pitillo, December 29, 1994 250,000 $2.00 $4.63 $2.00 58 months
President
- --------------------------------------------------------------------------------------------------------------
Angelo Pitillo, May 17, 1996 250,000 $0.75 $2.00 $1.00 43 months
President
- --------------------------------------------------------------------------------------------------------------
Thomas Buckley, May 17, 1996 100,000 $0.75 $2.00 $1.00 43 months
Chief Financial
Officer
- --------------------------------------------------------------------------------------------------------------
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company is comprised of three
persons selected by the Board of Directors. Throughout fiscal 1996, Philip M.
Mount, Nico B. Letschert and Sarosh Collector served on the Compensation
Committee. Philip M. Mount, a director of the Company and a member of the
Company's Audit and Compensation Committees, is a shareholder of Kelly, Sutter,
Mount & Kendrick, P.C. ("KSMK"). Nico B. Letschert was the sole owner and
President of Noble Investment Co. of Palm Beach ("Noble") and is the Chief
Executive Officer of Noesis Capital Corp. ("Noesis"). Michael S. Chadwick is
Senior Vice President and a Managing Director of Corporate Finance of Sanders
Morris Mundy, Inc., a Houston based financial services and investment banking
firm ("SMM"). See, "Certain Relationships and Related Transactions".
During fiscal 1995 and 1996, KSMK rendered legal services as counsel
to the Company. In June of 1995, the Company issued 100,000 shares of Common
Stock to KSMK as partial payment for outstanding invoices. In February, 1996,
the Company issued an additional 100,000 shares of Common Stock to KSMK as
payment for legal services. Mr. Mount disclaims any beneficial ownership in
the shares issued to KSMK. See, "Certain Relationships and Related
Transactions".
Noble received approximately $191,880 in commissions and a
nonaccountable expense allowance in connection with the Company's 1995 Reg S
Offering. Also in connection with the offering, the Company issued to Noble
warrants to purchase 71,250 shares of Common Stock at an exercise price of
$3.00 per share, which expire on May 31, 1997. The warrants were subsequently
assigned to Mr. Letschert. In August 1995, the Company entered into an
eight-month financial advisory agreement with Noesis providing for a $5,000 per
month advisory fee. See, "Certain Relationships and Related Transactions".
- 12 -
16
In December 1994, in connection with the offering of the Company's $3
million Subordinated Notes, SMM received approximately $250,000 as a placement
fee. Also in connection with the offering, the Company entered into an eighteen
month advisory agreement with SMM calling for payments of $10,000 per month and
issued warrants to purchase 150,000 shares of common stock at an exercise price
of $2.50 per share which expire on December 31, 1999. In March of 1996, the
payment term of the Subordinated Notes was extended until July of 1997, the
advisory agreement was extended through July of 1997 at a rate of $5,000 per
month and the exercise price of the warrants was reduced to $1.00 per share.
EMPLOYMENT AGREEMENTS
On May 26, 1992, the Company entered into an employment agreement with
John H. Coleman, III, (the "Coleman Agreement"). The Coleman Agreement
provided for an annual base salary along with health, medical and life
insurance benefits and allowed participation in the Company's employee benefit
plans. The Coleman Agreement was for a term ending April 30, 1997, subject to
certain specified termination provisions, and provided for employment on a full
time basis. The Coleman Agreement originally provided that in the event of a
termination without cause, or upon a change of control, Mr. Coleman would be
entitled to receive 100% of his base salary for six months and 50% of his
salary for an additional six months thereafter. On June 15, 1994, the Coleman
Agreement was amended to provide that if Mr. Coleman was terminated by the
Company for any reason other than for death, disability, or for cause, Mr.
Coleman would be entitled to receive his full salary for the remaining term of
the agreement which was increased to $125,000 per year. In June 1995, the
Company terminated the Coleman Agreement in accordance with specified
termination provisions, and terminated the employment of Mr. Coleman. The
Company is no longer paying salary nor providing benefits to Mr. Coleman.
Effective July 1, 1994, the Company entered into an employment
agreement (the "Bombaywala Agreement") with Ghulam Bombaywala, Chairman of the
Board, Chief Executive Officer and a director of the Company. Under the terms
of the Bombaywala Agreement, Mr. Bombaywala is entitled to receive an annual
salary of $60,000 plus annual cost of living increases. In addition, Mr.
Bombaywala is entitled to receive a bonus in an amount based on such factors as
the Board of Directors of the Company may elect to consider. Mr. Bombaywala
has elected not to accept any salary due and owing to him under this agreement
for an indefinite period of time. The Bombaywala Agreement also provides for
health, medical and life insurance benefits and allows participation in the
Company's employee benefit plans. The Bombaywala Agreement is for a term
ending April 30, 1997, subject to certain specified termination provisions
similar to the Coleman Agreement, and provides for employment on a full time
basis. The Bombaywala Agreement contains provisions relating to payments upon
termination and payment of bonuses. The non-competition provisions of the
Bombaywala Agreement provide that upon termination, Mr. Bombaywala will not
engage or participate in a barbecue or Mexican restaurant business within a
radius of ten miles of any existing or proposed barbecue or Mexican restaurant
owned, licensed, managed or operated by the Company as of the termination date
of the Bombaywala Agreement. No bonuses have been awarded to Mr. Bombaywala
under the Bombaywala Agreement.
- 13 -
17
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee, currently consisting of Messrs. Mount,
Collector and Letschert, determines the compensation of the Company's executive
officers, consisting of Messrs. Bombaywala (C.E.O.), Pitillo (President) and
Buckley (C.F.O.).
Mr. Bombaywala decided not to receive a salary or bonus in neither
fiscal 1995 nor fiscal 1996 due to the fact that the Company has been and is in
the process of a "turnaround." Mr. Bombaywala is not currently receiving a
salary under the Bombaywala Agreement for fiscal 1997. Mr. Bombaywala owns
6,286,667 shares of the Company's Common Stock or approximately 46.8% of the
outstanding shares. The Compensation Committee believes that Mr. Bombaywala is
very motivated due to his stock ownership and commitment to the Company to
represent the interests of all stockholders and maximize the performance of the
Company. The Compensation Committee agreed with Mr. Bombaywala's decision to
forego any salary or bonus during fiscal 1995 and 1996. The compensation which
would have been payable to Mr. Bombaywala during fiscal years 1995 and 1996 was
determined by the Bombaywala Agreement, which was negotiated between the
Company and Mr. Bombaywala when Marco's was acquired in fiscal 1994.
The Compensation Committee believes that salaries paid to Messrs.
Pitillo and Buckley are reasonable, but less than competitive with amounts paid
to executives with comparable qualifications, experience and responsibilities
at companies of comparable size in light of their responsibilities and
experience. Neither Mr. Pitillo nor Mr. Buckley received a bonus in fiscal
1995 or 1996, and both have received higher compensation packages in previous
positions. Both Messrs. Pitillo and Buckley have made a commitment to the
Company in terms of using their best efforts to move the Company towards
profitability and are willing to be rewarded through the appreciation of the
Company's stock and through future bonuses, if and when determined by the Board
of Directors of the Company or the Compensation Committee. In December 1994,
Mr. Pitillo and Mr. Buckley received options to purchase 250,000 and 100,000
shares of Common Stock, respectively.
The Compensation Committee plans to use the Company's Common Stock to
retain and provide incentive to the Company's executive officers. The Board of
Directors believes that significant stock ownership is a major factor in
aligning the interests of management and shareholders.
[This space is intentionally left blank.]
- 14 -
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COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
The graph set forth below compares the cumulative total shareholder
return on the Company's Common Stock commencing on June 26, 1992 and ending on
June 30, 1996 against the cumulative total return of the Nasdaq Stock Market
and a peer group consisting of certain Nasdaq Stocks whose business activities
fall within the same standard industrial classification code as the Company.
The graph assumes a $100 investment in the Company's Common Stock and that all
dividends paid by companies in each index were reinvested.
[GRAPH]
- 15 -
19
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 18, 1993, the Company entered into three area development
agreements with Clucker's Wood Roasted Chicken, Inc. ("Clucker's"), for the
development of Clucker's franchises in Texas, Mexico and Central America (the
"Development Rights"). As consideration for the Development Rights, the
Company issued to Clucker's 47,000 shares of its Common Stock valued at $8.50
per share for an aggregate consideration of $399,500. William J. Gallagher, a
former officer and director of the Company, was a director of Clucker's.
In June 1993, the Company assigned to Tex-Mex Venture, Inc.
("Tex-Mex"), an affiliated corporation, the Development Rights in consideration
for an $800,000 five-year convertible promissory note (the "Tex-Mex Note")
payable to the Company. The principal amount of the Tex-Mex Note was due on
June 30, 1998. The Tex-Mex Note was secured with substantially all of the
assets of Tex-Mex. The negotiations for the assignment of the Development
Rights by the Company to Tex-Mex were conducted by William J. Gallagher, the
then current Chairman of the Board of the Company, on behalf of the Company and
by Steve Rosser, on behalf of Tex-Mex. The Company determined the $800,000
value of the Development Rights assigned to Tex-Mex based on estimated market
value at the time. The Company believed that the valuation placed on the
Clucker's Development Rights was consistent with other similar development
rights owned by other restaurant chains for the identical geographic areas. On
June 30, 1994, the Company and Tex-Mex entered into an agreement whereby the
Company agreed to forgive the remaining principal balance of approximately
$600,000 due under the Tex-Mex Note in exchange for an unsecured promissory
note in the principal amount of $199,500 and 600,000 shares of Tex-Mex's
common stock (the "Tex-Mex Shares").
Tex-Mex was organized by Steve Rosser, a son-in-law of Mr. Gallagher.
Mr. Rosser was the President, Chief Executive Officer, Secretary and a director
of Tex-Mex. William J. Gallagher, John H. Coleman, III, former Executive Vice
President and a former director of the Company, and Dr. Henry H. Salzarulo, a
former director of the Company, were also directors of Tex-Mex.
Mr. Mount, a director of the Company, is a shareholder in the law firm
of Kelly, Sutter, Mount & Kendrick, P.C. ("KSMK"). The Company issued KSMK
100,000 shares of Common Stock valued at $2.25 per share in June of 1995 in
partial payment of outstanding legal fees owed to KSMK. The Company also
issued 100,000 shares in February of 1996 valued at $1.50 per share as payment
of additional outstanding legal fees. See, "Executive Compensation -
Compensation Committee Interlocks and Insider Participation".
On August 3, 1994, the Company issued to Mr. Michael S. Chadwick, a
director of the Company, and to an unaffiliated third party, 20,000 restricted
shares of the Company's Common Stock, respectively, in satisfaction of
commissions due and owing to Mr. Chadwick and the unaffiliated third party as a
result of the Marco's transaction. Mr. Chadwick and the unaffiliated third
party had been retained by Marco's as business brokers for the purpose of
finding a suitable purchaser for Marco's. Mr. Chadwick was elected to the
Board of Directors of the Company as one of the three nominees appointed to the
Board of Directors by Mr. Bombaywala pursuant to the terms and conditions of
the Marco's Agreement. Mr. Chadwick is also affiliated with Sanders
Morris Mundy, Inc.
- 16 -
20
("SMM"), an investment banking firm, which served as placement agent in
connection with the Company's December 1994 offering of $3 million of 12%
Subordinated Notes. SMM received a 10% commission in that offering, warrants
to purchase the Company's Common Stock and consulting fees pursuant to a
financial advisory agreement. See, "Executive Compensation - Compensation
Committee Interlocks and Insider Participation".
On July 31, 1994, Ghulam Bombaywala, Chairman of the Board and Chief
Executive Officer of the Company, executed a promissory note in the principal
amount of $2,175,310 made payable to Marco's (the "Bombaywala Note"). The
Bombaywala Note accrues interest at the rate 6% per annum until maturity, with
accrued interest being payable annually on the 1st day of July of each year for
which a principal balance is due and owing. The principal balance of the
Bombaywala Note is due as follows: $200,000 on July 1, 1996, 1997 and 1998,
with all remaining principal and interest due and owing under the Bombaywala
Note to be paid in full on July 31, 1999. The Bombaywala Note is secured by
the securities more particularly set forth in that certain Pledge and Security
Agreement entered into by and between Marco's and Mr. Bombaywala on July 3,
1994. In September of 1995, the Company's Board of Directors voted to defer
the interest payment due July 1, 1995 until December 31, 1995.
Messrs. Bombaywala and Chadwick also participated in the offering of
the Subordinated Notes in December 1994 and purchased $500,000 and $100,000 in
principal amount of Subordinated Notes, respectively. Messrs. Bombaywala and
Chadwick also received warrants to purchase 222,222 and 44,444 shares of Common
Stock, respectively, at $2.25 per share, expiring December 31, 1999. Mr.
Mount, a director of the Company, also purchased $50,000 in principal amount of
Subordinated Notes and received warrants to purchase 22,222 shares of Common
Stock on the same terms. The warrants received by Messrs. Bombaywala, Chadwick
and Mount represent their pro rata purchase of Subordinated Notes in the
offering and the terms of their notes and warrants are identical to those
received by the unaffiliated purchasers of Subordinated Notes and Warrants.
On June 17, 1992, the Company loaned William J. Gallagher, a former
officer and director of the Company, $53,000 evidenced by an unsecured
promissory note providing for interest at prime. The note was renewed on June
17, 1993, whereby the principal balance due under the note was increased to
$124,000 to include additional advances made by the Company during fiscal 1993.
The principal balance of the note accrues interest at the rate of 6% per annum,
with accrued interest being due and payable annually on July 1. The entire
principal balance is due and payable on July 1, 1999. The note is an unsecured
debt obligation of Mr. Gallagher to the Company. The interest payments due
July 1, 1995 and 1996 had not been made by Mr. Gallagher as of September 20,
1996.
On June 30, 1994, John H. Coleman, III, a former officer and director
of the Company, executed a promissory note in the principal amount of $31,291
for the purpose of evidencing a debt obligation resulting from advances made by
the Company to Mr. Coleman during fiscal 1994. The principal amount of the
note accrues interest at the rate of 6% per annum and is due and payable on the
first day of July for each year the principal balance remains outstanding. The
principal balance of the note is due and payable in full on July 1, 1999. The
note is an unsecured debt obligation of Mr. Coleman to the Company. The
interest payments due July 1, 1995 and 1996 had not been made by Mr. Coleman as
of September 20, 1996.
- 17 -
21
In May of 1995, the Company began factoring accounts receivable
through Catalyst Financial Co., ("Catalyst") paying factoring fees of
approximately $19,000 in fiscal 1995, and approximately $75,000 in fiscal 1996.
Such factoring was discontinued early in fiscal 1996. The Company believes
that the fees paid were comparable to those that would be charged by a
competing factoring company. Mr. Bombaywala is a principal of Catalyst.
In September of 1995, the Company entered into an eight month
financial advisory agreement with Noesis Capital Corp. ("Noesis"), in order to
obtain assistance in identifying sources of financing, developing its
acquisition program and with shareholder relations. Under the terms of the
agreement, the Company paid a monthly fee of $5,000 to Noesis. Nico B.
Letschert is President of Noesis and a director of the Company. Mr. Letschert
was also a principal of Noble which received fees and warrants in connection
with the Company's 1995 Reg. S. Offering. See, "Executive Compensation -
Compensation Committee Interlocks and Insider Participation".
Mr. Bombaywala has an ownership interest in and participates in the
management of other businesses, including the Houston-based James Coney Island
restaurant chain.
PASTA CO. ACQUISITION
On September 7, 1995, the Board of Directors of the Company approved
the acquisition of all of the issued and outstanding shares (the "Shares") of
Pasta Co. from Mr. Bombaywala, the sole stockholder and director of Pasta Co.
On September 14, 1995, the Company, Mr. Bombaywala, Pasta Co. and the Company,
entered into an Agreement and Plan of Merger (the "Merger Agreement") which
provided for the merger of Pasta Co. with and into the Company as the surviving
corporation (the "Merger"). The principal assets of Pasta Co. consisted of its
ownership of ten (10) restaurants in Houston, Texas.
In consideration for the Shares, Mr. Bombaywala received 1,666,667
shares of the Company's Common Stock (the "Merger Shares") and two promissory
notes in the aggregate principal amount of $3,750,000 (the "Notes"). The
Merger Shares were valued at $1.78 per share which was the market value of the
Common Stock on the date of the Merger. The total consideration paid to Mr.
Bombaywala was $2,966,667; however, as provided below, a portion of the Merger
Shares are subject to future release and earn out. In addition, the Company
assumed approximately $3.6 million of liabilities and indebtedness of Pasta Co.
outstanding as of January 26, 1996.
Although not required by law, the Board of Directors of the Company
elected to submit the Merger to its independent shareholders for approval at
its Annual Meeting of Shareholders which was held January 9, 1996. Mr.
Bombaywala, who then owned 4,620,000 shares of the Company's Common Stock, or
41.6%, excluding the Merger Shares, did not vote on the Merger at the Annual
Meeting. The Merger was approved, and the effective date of the Merger (the
"Effective Date") was January 26, 1996. As of the Escrow Closing Date, the
Company was granted the right to manage Pasta Co. and received a management fee
of three percent (3%) of the gross revenues of Pasta Co. through the Effective
Date. Such fees amounted to approximately $137,000.
- 18 -
22
The Merger Shares are restricted securities but have demand and
incidental registration rights. A total of 350,000 Merger Shares are subject
to a Development Escrow Agreement which provides for the earnout and release of
such shares based upon (i) the opening of five additional Pasta Co.
restaurants on or before December 31, 1996 at an average cost not to exceed
$400,000 per restaurant, or (ii) the share price for the Company's Common Stock
exceeding $5.00 per share for any ten consecutive business days on or before
June 30, 1996 or $7.00 per share on or before June 30, 1997.
The Notes consist of (i) a promissory note from PAC in the principal
amount of $2,750,000, bearing interest at 10% per annum which, subject to
certain mandatory prepayment provisions, is due and payable September 15, 2002,
and (ii) a promissory note from PAC in the principal amount of $1,000,000
bearing interest at 10% per annum, the principal amount of which, subject to
certain mandatory prepayment provisions, is due and payable in two equal annual
installments on December 31, 1996 and December 31, 1997. Quarterly payments of
interest are due and payable on the Notes on the 15th day of December, March,
June and September of each year the Notes are outstanding. Commencing
September 15, 2000, the outstanding principal on the $2,750,000 Note will be
amortized and paid in quarterly installments over the remaining two year term.
The Notes require mandatory prepayment in the amount of and to the extent of
(i) fifty percent of the proceeds from any public offering received by the
Company, and (ii) proceeds from private financings in excess of $1,000,000
received by the Company. Mr. Bombaywala has agreed to defer any and all
principal and interest until July of 1997.
On the Effective Date, a promissory note of Pasta Co. to Mr.
Bombaywala in the principal amount of $1,260,000 was paid by the Company.
Payment was made as follows: $150,000 in cash, transfer of ownership of land
and building valued at $515,000 and a note to Mr. Bombaywala in the amount of
$595,000. The land and building transferred had been a non-productive asset of
the Company. Mr. Bombaywala received an additional note from the Company in
the amount of $224,202 for other obligations of Pasta Co. arising prior to the
Effective Date.
The Notes are secured by a guarantee of the Company, a pledge by the
Company of all issued and outstanding shares of Pasta Co. and a security
interest in all of the assets relating to the first ten restaurants opened by
Pasta Co. The lien of Mr. Bombaywala will be junior to any prior liens granted
by Pasta Co. on or before the Effective Date.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of September 20, 1996, by
(i) each person who beneficially owns 5% or more of the Common Stock, (ii) each
Director and named executive officer of the Company, and (iii) all officers and
Directors of the Company as a group. Unless otherwise noted, the persons and
entities named below have sole voting and investment power with respect to such
shares.
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Shares Beneficially Owned
--------------------------
Name of Beneficial Owner Number Percent
- ------------------------ -------- -------
Ghulam Bombaywala(1) 6,508,889 46.8%
Angelo Pitillo(2)(3) 336,125 2.5%
Michael S. Chadwick(4)(8) 119,444 *
Nico B. Letschert(5)(8) 408,554 3.0%
Philip M. Mount(6)(8) 32,222 *
Sarosh J. Collector(7)(8) 17,000 *
All officers and directors as a group (7 persons) 7,567,234 51.9%
- ---------------
* Indicates ownership of less than or equal to one percent of the
outstanding Common Stock of the Company.
(1) Mr. Bombaywala's address is 11111 Wilcrest Green, Suite 350, Houston,
Texas 77042. Includes warrants to purchase 222,222 shares of Common
Stock issued in connection with the Company's Subordinated Notes.
(2) Mr. Pitillo's address is 11111 Wilcrest Green, Suite 350, Houston, Texas
77042.
(3) Includes options to purchase 330,000 shares of Common Stock granted under
the Company's Stock Compensation Plan and 3,300 shares of the Company's
Preferred Stock convertible to 4,125 shares of Common Stock.
(4) Mr. Chadwick's address is 3100 Texas Commerce Tower, Houston, Texas
77002. Includes warrants to purchase 89,444 shares of Common Stock
issued in connection with the Company's Subordinated Notes.
(5) Includes warrants to purchase 97,000 shares of Common Stock and 97,000
Series A Warrants, which Series A Warrants may be converted into 97,000
shares of Common Stock upon payment of the $6.50 exercise price.
Includes warrants to purchase 45,000 shares of Preferred Stock, which
Preferred Stock is convertible into 56,250 shares of Common Stock.
Includes warrants to purchase 45,000 shares of Common Stock originally
issued to Noble under the terms of the 1993 Regulation S offering and
subsequently assigned to Mr. Letschert. Includes 21,000 shares of Common
Stock issuable to Mr. Letschert upon the conversion of $105,000 in
Debenture principle, at a conversion ratio of one share of Common Stock
for each $5.00 in principle converted. Mr. Letschert may acquire
Debentures in the principal amount of $105,000 upon the exercise of
warrants originally granted to Noble as placement agent for the Company's
offering of Debentures and subsequently assigned to Mr. Letschert.
Includes warrants to purchase 71,250 shares of Common Stock at $3 per
share. Also includes 10,000 Series A Warrants which entitle Mr.
Letschert to acquire 10,000 shares of Common Stock upon the payment of
the exercise price of $6.50 per share. Mr. Letschert's address is 1801
Clint Moore Road, Suite 110, Boca Raton, Florida 33487.
(6) Mr. Mount's address is 1600 Smith, Suite 3700, Houston, Texas 77002.
Includes warrants to purchase 22,222 shares of Common Stock issued in
connection with the Company's Subordinated Notes.
(7) Mr. Collector's address is 3000 Richmond Avenue, Suite 270, Houston,
Texas 77002.
(8) Includes options to purchase 10,000 shares of Common Stock granted under
the Company's Outside Director's Stock Option Plan.
[This space is intentionally left blank.]
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PROPOSAL TWO
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
FOR FISCAL 1997
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There were no changes in or disagreements with accountants on
accounting and financial disclosure.
RATIFICATION OF ACCOUNTANTS
Although shareholder ratification and approval of the selection of
Coopers & Lybrand L.L.P. as independent public accountants to audit the
Company's consolidated financial statements for fiscal 1997 is not required by
law or otherwise, in keeping with the Company's policy that its shareholders
should be entitled to a voice in this regard and as a matter of good corporate
practice, the Board of Directors is seeking ratification of this appointment.
If the appointment is not ratified, the Board of Directors must then determine
whether to appoint other auditors prior to the end of the current fiscal year,
and in such case, the opinions of shareholders will be taken into
consideration.
Coopers & Lybrand L.L.P. expects to have representatives present at
the Meeting who will have the opportunity to make a statement, if they
determine to do so, and who will be available to respond to appropriate
questions.
SHAREHOLDER PROPOSALS
Shareholders are entitled to submit proposals on matters appropriate
for shareholder action consistent with the requirements of the Securities and
Exchange Commission. Should a shareholder intend to present a proposal at the
1997 Annual Meeting, the proposal must be in writing and received by the
Company's Corporate Secretary at 11111 Wilcrest Green, Suite 350, Houston,
Texas 77042, on or before July 23, 1997, to be eligible for inclusion in the
Company's 1997 Proxy materials. Among such requirements, the shareholder
submitting the proposal must be the record or beneficial owner of either 1% or
$1,000 in market value of the Company's Common Stock for one year.
OTHER MATTERS
The Board of Directors is not aware of any other matters to be brought
before the Meeting. If, however, any other matters are properly brought before
the Meeting, the persons named in the enclosed Proxy will have discretionary
authority to vote all Proxies in accordance with their best judgment.
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ANNUAL REPORT ON FORM 10-K
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FILED WITH THE
COMMISSION FOR THE FISCAL YEAR ENDED JUNE 30, 1996, INCLUDING THE FINANCIAL
STATEMENTS AND SCHEDULES THERETO, AND A LIST OF EXHIBITS FILED THEREWITH, IS
BEING PROVIDED TO THE COMPANY'S SHAREHOLDERS TOGETHER WITH THIS PROXY
STATEMENT. EXHIBITS TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K WILL BE
FURNISHED ONLY IF SPECIFICALLY REQUESTED IN WRITING AND UPON PAYMENT TO THE
COMPANY OF REASONABLE COPYING AND HANDLING CHARGES. REQUESTS SHOULD BE
DIRECTED TO THE COMPANY'S CORPORATE SECRETARY, 11111 WILCREST GREEN, SUITE 350,
HOUSTON, TEXAS 77042. THE COMPANY IS ALSO PROVIDING ITS SHAREHOLDERS WITH A
COPY OF ITS QUARTERLY REPORT ON FORM 10-Q FOR THE FIRST QUARTER ENDED SEPTEMBER
29, 1996, WHICH WAS PREVIOUSLY FILED WITH THE COMMISSION.
DOCUMENTS INCORPORATED BY REFERENCE
The following portions of the Company's Form 10-K for the fiscal year
ended June 30, 1996, are incorporated by reference in this Proxy Statement:
(i) Item 1. Description of Business;
(ii) Item 2. Description of Property;
(iii) Item 3. Legal Proceedings;
(iv) Item 5. Market For Common Equity and Related Stockholder
Matters;
(v) Item 6. Selected Consolidated Financial Data;
(vi) Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations; and
(vii) Item 8. Financial Statements.
Part 1 - Financial Information on the Company's Form 10-Q for the
first quarter ended September 29, 1996 is also incorporated herein by
reference.
Shareholders are referred to the Company's Annual Report on Form 10-K
and Quarterly Report on Form 10-Q for the financial and other information about
the Company referred to above. The rest of the Annual Report on Form 10-K and
Quarterly Report on Form 10-Q are not considered to be a part of this Proxy
Statement.
BY ORDER OF THE BOARD OF DIRECTORS
GHULAM M. BOMBAYWALA
Chairman of the Board and Chief
Executive Officer
Houston, Texas
November 15, 1996
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WATERMARC FOOD MANAGEMENT CO.
PROXY SOLICITED BY BOARD OF DIRECTORS FOR ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD DECEMBER 13, 1996
The undersigned shareholder of Watermarc Food Management Co. (the "Company")
hereby appoints Ghulam M. Bombaywala and Angelo Pitillo or either of them
attorneys and proxies of the undersigned, with full power of substitution, to
vote, as designated below, the number of shares that the undersigned would be
entitled to vote if personally present at the Annual Meeting of Shareholders of
the Company to be held at the Billy Blues Bar & Grill located at 6025 Richmond
Avenue, Houston, Texas 77057 at 3:00 p.m., local time, on December 13, 1996, on
the matters specified below or on such other business as may properly come
before the meeting or any adjournment or postponement thereof.
1. FOR the election as a director of all nominees listed below (except as marked
to the contrary below).
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below.
NOMINEES: Ghulam M. Bombaywala, Angelo Pitillo, Michael S. Chadwick, Sarosh J.
Collector, Nico B. Letschert and Philip M. Mount
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR INDIVIDUAL NOMINEES, WRITE
THEIR NAMES IN THE SPACE PROVIDED BELOW.
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2. Proposal to ratify the appointment of Coopers & Lybrand L.L.P. as the
Independent Public Accountants of the Company for fiscal 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, upon such other matters as may properly come before the
meeting or any adjournment or postponement thereof.
THIS PROXY MUST BE DATED AND SIGNED ON THE REVERSE SIDE
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This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this Proxy will
be voted FOR all nominees as directors, FOR the proposal to ratify the
appointment of Coopers & Lybrand L.L.P. as the independent public accountants of
the Company for fiscal 1997 and in accordance with the discretion of the persons
designated above with respect to any other business properly before the meeting.
Please sign exactly as your name appears on this Proxy Card. When signing as
attorney, executor, administrator, trustee, guardian or corporate or partnership
official, please give full title as such and the full name of the entity on
behalf of whom you are signing. If a partnership, please sign in partnership
name by authorized person.
Dated: 19
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Signature of Shareholder
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Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE
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