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
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
GALVESTON'S STEAKHOUSE CORP.
----------------------------------------------
(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)(1) and
0-11.(1). Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
<PAGE>
GALVESTON'S STEAKHOUSE CORP.
151 E. ALESSANDRO BOULEVARD
RIVERSIDE, CALIFORNIA 92508
(909) 789-0211
January ___, 1999
Dear Stockholder:
On behalf of the Board of Directors and management, I cordially invite
you to attend a Special Meeting of Stockholders to be held on Thursday, February
25, 1999 at 10:00 a.m. Pacific Time, at the offices of the Company at 151 E.
Alessandro Boulevard, Riverside, California 92508.
At the Meeting, you will be asked to consider and vote upon (i) a
proposal to approve an amendment to the Company's Restated Certificate of
Incorporation to change the name of the Company to Paragon Steakhouse Partners,
Inc.; and (ii) a proposal to authorize the issuance of 1,750,000 shares of a new
class of preferred stock of the Company to be designated and known as the Series
C Convertible Preferred Stock (the "Series C Preferred Stock") as an incentive
to senior management.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. WHETHER
OR NOT YOU PLAN TO ATTEND IN PERSON, YOU ARE REQUESTED TO VOTE, SIGN, DATE, AND
PROMPTLY RETURN THE ENCLOSED FORM OF PROXY IN THE ENVELOPE PROVIDED. YOUR RETURN
OF THE FORM OF PROXY WILL NOT PREVENT YOU FROM VOTING IN PERSON, BUT WILL ENSURE
THAT YOUR VOTE IS COUNTED IF YOU ARE UNABLE TO ATTEND.
Your support, investment and interest in the Company is greatly
appreciated.
Very truly yours,
/s/ Richard M. Lee
RICHARD M. LEE
Chairman of the Board and
Chief Executive Officer
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GALVESTON'S STEAKHOUSE CORP.
---------------------------------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
JANUARY __, 1999
---------------------------------------------------------
To the Holders of Common Stock
of Galveston's Steakhouse Corp.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Special Meeting") of Galveston's Steakhouse Corp., a Delaware corporation (the
"Company"), will be held on Thursday, February 25, 1999 at 10:00 a.m. Pacific
Time, at the offices of the Company at 151 E. Alessandro Boulevard, Riverside,
California 92508, for the following purposes, all of which are more completely
set forth in the accompanying Proxy Statement:
(1) To approve a proposed amendment to the Company's Restated
Certificate of Incorporation to change the name of the Company
to Paragon Steakhouse Partners, Inc..
(2) To approve a proposal to authorize the issuance of 1,750,000
shares of a new class of preferred stock of the Company to be
designated and known as the Series C Convertible Preferred Stock
(the "Series C Preferred Stock") as an incentive to senior
management.
(3) To transact such other business as may properly come before the
Special Meeting, or any such adjournment thereof. Except with
respect to the foregoing proposals and procedural matters
incident to the conduct of the Special Meeting, management is
not aware of any other matters which could come before the
Special Meeting.
As determined by the Board of Directors, only stockholders of record at
the close of business on December 31, 1998 are entitled to notice of, and to
vote at, the Special Meeting of Stockholders or any postponement or adjournment
thereof.
By Order of the Board of Directors,
/s/ Hiram J. Woo
HIRAM J. WOO
Secretary
January __, 1999
Riverside, California
PLEASE NOTE IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE
NUMBER YOU OWN. EVEN IF YOU PLAN TO BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN,
DATE AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU
ATTEND THE MEETING, YOU MAY VOTE EITHER IN PERSON OR BY PROXY. ANY PROXY GIVEN
MAY BE REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE
THEREOF.
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GALVESTON'S STEAKHOUSE CORP.
151 E. ALESSANDRO BOULEVARD
RIVERSIDE, CALIFORNIA 92508
-------------------------------
PROXY STATEMENT
-------------------------------
This proxy statement is furnished in connection with the solicitation
by the Board of Directors of Galveston's Steakhouse Corp., a Delaware
corporation (the "Company"), of proxies for a Special Meeting of Stockholders
(the "Special Meeting") to be held on Thursday, February 25, 1999, at 10:00 a.m.
Pacific Time, at the offices of the Company located at 151 E. Alessandro
Boulevard, Riverside, California 92508, and at any adjournments or postponements
thereof, for the purposes set forth in the accompanying Notice of the Special
Meeting. Shares of common stock, $.01 par value per share (the "Common Stock"),
of the Company may be represented at the Special Meeting by stockholders in
person or by the return of the enclosed, properly executed, proxy card.
The Notice of a Special Meeting, this proxy statement and the enclosed
proxy card are first being mailed to stockholders commencing on or about January
___, 1999.
Expenses in connection with this solicitation of proxies will be paid
by the Company. Solicitation of proxies will be principally by mail. One or more
officers or employees of the Company may, but without compensation other than
their regular compensation, also solicit proxies, either personally, by
telephone, facsimile, or by special letter, from some stockholders. The Company
will also make arrangements with brokerage houses and other custodians,
nominees, and fiduciaries to send proxy materials to their principals or to
beneficial owners, and will reimburse them for their expenses in so doing.
VOTING RIGHTS AND PROCEDURES
QUORUM
The presence, either in person or by proxy, of the holders of a
majority of the shares of Common Stock and the shares of the Company's Series B
Convertible Preferred Stock (the "Series B Preferred Stock"), considered
together as a single class, outstanding on December 31, 1998 is necessary to
constitute a quorum at the Special Meeting. The shares of Common Stock and the
shares of Series B Preferred Stock shall vote together as one class.
OTHER MATTERS
Abstentions will be counted for purposes of determining the presence of
a quorum at the Special Meeting. Because of the required votes, abstentions will
have the same effect as a vote against the proposals to amend the Restated
Certificate of Incorporation to approve the change in the Company's name and to
approve the authorization of the Series C Preferred Stock. Broker non-votes will
not be counted for purposes of determining whether the proposal has been
approved or not.
At January __, 1999, directors and executive officers and their
affiliates of the Company beneficially owned 414,462 shares of Common Stock, or
17.1% of the total shares of Common Stock outstanding on such date. In addition,
at January __, 1999, Richard M. Lee, the Chairman of the Board, beneficially
owned
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1,000,000 shares of the Series B Preferred Stock. It is anticipated that all of
such shares of Common Stock and Series B Preferred Stock will be voted in favor
of all of the proposals of the Board described herein.
PROXIES
Shares of Common Stock represented by properly executed proxies, if
such proxies are received in time and not revoked, will be voted in accordance
with the instructions indicated on the proxies. If no instructions are
indicated, such proxies will be voted (i) FOR the amendment of the Restated
Certificate of Incorporation to approve the change in the Company's name; (ii)
FOR the proposal to authorize the issuance of 1,750,000 shares of a new class of
preferred stock of the Company to be designated and known as the Series C
Convertible Preferred Stock (the "Series C Preferred Stock") to Richard M. Lee
and Hiram J. Woo; and (iii) in the discretion of the proxy holder as to any
other matter which may properly come before the Special Meeting. Broker
non-votes will not be counted for purposes of determining whether the proposal
has been approved or not. Any holder of Common Stock who returns a signed proxy
but fails to provide instructions as to the manner in which such shares are to
be voted will be deemed to have voted in favor of the matters set forth in the
preceding sentence.
A stockholder who has given a proxy may revoke it at any time prior to
its exercise at the Special Meeting by (i) giving written notice of revocation
to the Secretary of the Company, (ii) properly submitting to the Company a
duly-executed proxy bearing a later date, or (iii) attending the Special Meeting
and voting in person. All written notices of revocation and other communications
with respect to revocation of proxies should be addressed as follows:
Galveston's Steakhouse Corp., 151 E. Alessandro Boulevard, Riverside, California
92508, Attention: Secretary.
SHARES OUTSTANDING
Only Common Stockholders and holders of Series B Preferred Stock of
record at the close of business on December 31, 1998 (the "Record Date") are
entitled to notice of the Special Meeting and to vote the shares of Common Stock
and Series B Preferred Stock held by them on that date at the Special Meeting or
any adjournment or postponement thereof. Only holders of Common Stock and
holders of Series B Preferred Stock will be entitled to vote at the Special
Meeting. Each outstanding share of Common Stock and each outstanding share of
Series B Preferred Stock entitles its holder to cast one vote on each matter to
be voted on at the Special Meeting. There were outstanding on December 31, 1998,
the record date for stockholders entitled to notice of and to vote at the
Special Meeting, 2,428,325 shares of Common Stock and 1,000,000 shares of the
Series B Preferred Stock.
In the absence of a quorum at the Special Meeting, either in person or
by proxy, the Special Meeting may be adjourned from time to time without notice
other than announcement at the Special Meeting until a quorum shall be formed.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE POSTAGE
PREPAID ENVELOPE PROVIDED TO ENSURE THAT YOUR SHARES WILL BE VOTED AT THE
SPECIAL MEETING.
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PROPOSAL I
APPROVAL OF PROPOSAL
TO CHANGE THE NAME OF THE COMPANY
On January __, 1999, the Board of Directors approved, and recommended
for adoption by shareholders at this special meeting, an amendment to Article
First of the Company's Restated Certificate of Incorporation to change the name
of the Company to Paragon Steakhouse Partners, Inc. To accomplish this name
change, it is necessary to amend the applicable provision of the Company's
Restated Certificate of Incorporation.
The affirmative vote of the holders of a majority of the shares of
Common Stock and the shares of Series B Preferred Stock, voting together as a
single class, present in person or represented by proxy at the Special Meeting
and entitled to vote is required for the approval of Proposal 1.
Recommendation of the Board of Directors. Important and positive
changes have occurred at the Company over the past year. The recent acquisition
by the Company of eighty U.S.-based steakhouses from Paragon Steakhouse
Restaurants, Inc. and Kyotaru Co. Ltd., as well as the renovation of four (4)
Galveston locations in 1998, have provided the Company with a unique opportunity
to change its name. While the Galveston's name has served the Company well, it
does not reflect the business of the Company as it exists today and the
direction in which it is moving. The Board of Directors believes that changing
the name of the Company is a fundamental component of the repositioning of the
Company in the marketplace. After careful consideration, the Board of Directors
believes that Paragon Steakhouse Partners, Inc. better reflects the new mix of
the Company's portfolio of steakhouses and its position as a leading operator of
steakhouses in the United States.
The change of the Company's name will not affect in any way the
validity of currently outstanding stock certificates. Shareholders will not be
required to surrender or exchange any stock certificates that they currently
hold. The Company's symbol on the NASDAQ SmallCap Market will continue to be
"SIZL".
The Board of Directors believes that the adoption of the proposed
amendment to the Restated Certificate of Incorporation is in the best interests
of the Company and the shareholders. Accordingly, the Board of Directors is
proposing that Article First of the Restated Certificate of Incorporation be
amended to change the name of the Company to "Paragon Steakhouse Partners,
Inc.".
The full text of Article First of the Restated Certificate of
Incorporation, as proposed to be amended, is as follows:
"FIRST: The name of the corporation is: PARAGON STEAKHOUSE
PARTNERS, INC."
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS
VOTE FOR PROPOSAL 1.
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PROPOSAL II
APPROVAL OF THE AUTHORIZATION AND ISSUANCE
OF SERIES C CONVERTIBLE PREFERRED STOCK
On January __, 1999, the Board of Directors approved, upon the advice
of its Compensation Committee, the filing of a Certificate of Designation to
designate the terms, powers, preferences and rights of a new series of preferred
stock to be designated as the Series C Convertible Preferred Stock (the "Series
C Preferred Stock"). The principal features of the Series C Preferred Stock are
summarized below, but such summary is qualified in its entirety by reference to
the Certificate of Designation designating the terms, powers, preferences and
rights of the Series C Preferred Stock (the "Certificate of Designation"), which
is attached hereto as Exhibit A.
The holders of shares of the Series C Preferred Stock have the right to
vote on all matters with the holders of the Common Stock, voting together as a
single class, on a one vote per share basis. The shares of the Series C
Preferred Stock shall be convertible into shares of Common Stock, at the option
of the holder, at any time from and after the earlier to occur of: the date the
Company's net profits for any fiscal year equal or exceed $4.2 million or eight
years from their date of issuance (the "Conversion Test"). Upon conversion of
the Series C Preferred Stock, the holder will be required to pay to the Company
a conversion price per share equal to 110% of the closing bid price of the
Company's Common Stock on the date of conversion.
The shares of Series C Preferred Stock may not be redeemed by the
Company absent the unanimous consent of the holders thereof. The holders of
outstanding Series C Preferred Stock shall not be entitled to receive dividends
prior to March 2, 2000, the second anniversary of the closing date of the
Company's initial public offering. Thereafter, in the event the Conversion Test
is satisfied, the Series C Preferred Stock will participate in any dividends
declared on the Common Stock, on an as converted basis.
In the event of a voluntary or involuntary liquidation, dissolution or
winding up of the Company prior to March 2, 2000, or at any time thereafter if
the Conversion Test is not satisfied, the holders of Series C Preferred Stock
shall be entitled to $0.001 per share. In the event of a voluntary or
involuntary liquidation, dissolution or winding up of the Company after the
satisfaction of the Conversion Test, the holders of Series C Preferred Stock
shall be entitled to share with the holders of Common Stock pari passu in the
assets of the Company, on an as converted basis.
It is the present intention of the Board of Directors to issue
1,750,000 shares of the Series C Preferred Stock to two of the Company's senior
executive officers. Of the 1,750,000 shares of the Series C Preferred Stock
which it is intended will be issued, 1,050,000 shares will be issued to Richard
M. Lee and 700,000 shares will be issued to Hiram J. Woo. The Board of Directors
is seeking shareholder approval of these contemplated issuances.
Only Richard M. Lee, Chairman and Chief Executive Officer of the
Company, and Hiram J. Woo, President of the Company, are eligible to receive
shares of the Series C Preferred Stock. Mr. Lee and Mr. Woo are eligible to
receive shares of Series C Preferred Stock because, in the view of the Board of
Directors, they have made substantial contributions to the Company in the course
of its growth and will face increased challenges to sustain the Company's growth
in the coming years.
BENEFITS OF ELIGIBILITY TO RECEIVE
SHARES OF SERIES C PREFERRED STOCK
Name and Position Dollar Value($) Number of Shares
- ----------------- --------------- ----------------
Richard M. Lee, Chairman and Chief $ 1,050,000
Executive Officer
Hiram J. Woo, President and Secretary $ 700,000
Executive Group $ 1,750,000
Non-Executive Director Group $0 0
Non-Executive Officer Employee Group $0 0
The foregoing arrangement to issue shares of the Series C Preferred
Stock cannot be amended otherwise than by a vote of security holders.
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The Company does not intend to register the shares of the Series C
Preferred Stock under the Securities Act of 1933, as amended (the "Act"),
pursuant to the exemption from such registration provided by Regulation D
promulgated under the Act since the issuance and delivery of such shares will
constitute a private placement of such shares to accredited investors.
As stated above, Richard M. Lee owns 1,000,000 shares of the Series B
Preferred Stock as well as 256,920 shares of the Common Stock. The shares of
Series B Preferred Stock and the shares of the Common Stock vote together as one
class. Accordingly, on all matters which require a vote of the Company's
shareholders, Richard M. Lee has the power to vote 1,256,920 of the 3,428,325
total outstanding shares of the Company's voting stock, or 36.7% of the total
voting power of the Company's shares. Upon the issuance and delivery of
1,050,000 shares of the Series C Preferred Stock to Richard M. Lee as proposed
herein, Mr. Lee will have the power to vote 2,306,920 of the then 5,178,325
total outstanding shares of the Company's voting stock, or 44.6% of the total
voting power of the Company's shares. Accordingly, following the issuance and
delivery of the shares of the Series C Preferred Stock as proposed herein,
Richard M. Lee will continue to have significant control over the outcome of all
matters submitted to the stockholders for approval, including the election of
the Company's board of directors.
The affirmative vote of the holders of a majority of the shares of
Common Stock and the shares of Series B Preferred Stock, voting together as a
single class, present in person or represented by proxy at the Special Meeting
and entitled to vote is required for the approval of Proposal 2.
Recommendation of the Board of Directors. The Board of Directors, upon
the advice of its Compensation Committee, believes that the authorization of the
Series C Preferred Stock is in the best interests of the Company and its
stockholders. In reaching this conclusion, the Board of Directors and its
Compensation Committee took into account, among other things, the greater
flexibility inherent in the unhindered ability of the Company to issue
additional shares of preferred stock in order to compensate and create
incentives for senior management of the Company. In formulating its intention to
issue shares of Series C Preferred Stock to Messrs. Lee and Woo, the Board of
Directors took into account, among other things, Messrs. Lee's and Woo's
substantial contributions to the Company in the course of its growth since Mr.
Lee became Chairman and Mr. Woo became President; the increased challenge of
sustaining the Company's growth through the coming years in view of its
significantly greater size (particularly as a result of the recent acquisition
of eighty U.S.-based steakhouses from Paragon Steakhouse Restaurants, Inc. and
Kyotaru Co. Ltd.), and the increasingly competitive business environment; and
the desirability of obtaining Messrs. Lee's and Woo's future commitment to the
continued growth and profitability of the Company.
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS
VOTE FOR PROPOSAL 2.
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OTHER MATTERS
Management is not aware of any business to come before the Special
Meeting other than those matters described in this Proxy Statement. However, if
any other matters should properly come before the Special Meeting, it is
intended that the proxies solicited hereby will be voted with respect to those
other matters in accordance with the judgment of the persons voting the proxies.
BY ORDER OF THE BOARD OF DIRECTORS
/s/Richard M. Lee
RICHARD M. LEE
Chairman of the Board
January __, 1999
Riverside, California
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GALVESTON'S STEAKHOUSE CORP.
151 E. ALESSANDRO BOULEVARD,
RIVERSIDE, CALIFORNIA 92508
----------------------------
REVOCABLE PROXY
------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
GALVESTON'S STEAKHOUSE CORP. FOR USE ONLY AT THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 25, 1999 AND AT ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
The Undersigned hereby appoints Richard M. Lee or Hiram J. Woo as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote as designated below, all the shares of Common
Stock of Galveston's Steakhouse Corp. held of record by the undersigned on
December 31, 1998, at the Special Meeting of Stockholders to be held on February
25, 1999, or any adjournment or postponement thereof, with all the powers that
the undersigned would possess if personally present as indicated below.
1. PROPOSAL TO AMEND THE RESTATED CERTIFICATE OF INCORPORATION of the
Company to change the name of the Company to Paragon Steakhouse
Partners, Inc.:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. PROPOSAL TO AUTHORIZE THE ISSUANCE OF 1,750,000 SHARES of a new class
of preferred stock of the Company to be designated and known as the
Series C Convertible Preferred Stock (the "Series C Preferred Stock")
as an incentive to Richard M. Lee and Hiram J. Woo.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before this Meeting including, but not
limited to, the election of any person as a director if the nominee is
unable to serve or for good cause will not serve, matters incident to
the conduct of the Meeting, and upon such other matters as may properly
come before the Meeting.
<PAGE>
Galveston's Steakhouse Corp.
Proxy Card
Page 2 of 2
THIS PROXY HAS BEEN MADE AVAILABLE TO __________________________.
The Board of Directors recommends that you vote FOR Proposal 1 and FOR
Proposal 2.
THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED.
SHARES OF COMMON STOCK OF THE COMPANY WILL BE VOTED AS SPECIFIED. IF
NO SPECIFICATION IS MADE, SHARES WILL BE VOTED FOR PROPOSAL 1, FOR PROPOSAL 2
AND OTHERWISE AT THE DISCRETION OF THE PROXIES.
The undersigned hereby acknowledges receipt of the Notice of the
Special Meeting of Stockholders of the Company called for February 25, 1999 and
a Proxy Statement for the Special Meeting.
PLEASE MARK, SIGN, DATE, AND PROMPTLY RETURN THIS PROXY CARD
USING THE ENCLOSED ENVELOPE.
- --------------------------------------- Date: _____________, 1999
Signature
- --------------------------------------- Date: _____________, 1999
Signature
- --------------------------------------- Date: _____________, 1999
Signature
PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR(S) ON THIS PROXY. ONLY ONE
SIGNATURE IS REQUIRED IN CASE OF A JOINT ACCOUNT. WHEN SIGNING IN A
REPRESENTATIVE CAPACITY, PLEASE GIVE TITLE.
<PAGE>
EXHIBIT A
GALVESTON'S STEAKHOUSE CORP.
--------------------------------------
CERTIFICATE OF DESIGNATIONS, RIGHTS AND PREFERENCES
OF A SERIES OF PREFERRED STOCK BY RESOLUTION
OF THE BOARD OF DIRECTORS PROVIDING FOR AN
ISSUE OF 1,750,000 SHARES OF SERIES C PREFERRED
STOCK, $.001 PAR VALUE, DESIGNATED
AS THE "SERIES C CONVERTIBLE PREFERRED STOCK"
We, Richard M. Lee, Chairman of the Board, and Hiram J. Woo, Secretary,
of GALVESTON'S STEAKHOUSE CORP., a Delaware corporation (hereinafter called the
"Corporation"), pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, do hereby make this Certificate of
Designation under the corporate seal of the Corporation and do hereby state and
certify that pursuant to the authority expressly vested in the Board of
Directors of the Corporation by the Certificate of Incorporation, the Board of
Directors duly adopted the following resolutions:
RESOLVED, that, pursuant to Article FOURTH of the Certificate
of Incorporation (which authorizes 5,000,000 shares of Preferred Stock,
$.001 par value, of which 1,000,000 shares of the Series B Convertible
Preferred Stock presently are issued and outstanding), the Board of
Directors hereby fixes the designation and preferences and relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions of a series of 1,750,000 shares of Series
C Convertible Preferred Stock referred to herein as the "Series C
Convertible Preferred Stock".
RESOLVED, that each share of the Series C Convertible
Preferred Stock shall rank equally in all respects and shall be subject
to the following provisions:
1. Number of Shares. The number of shares constituting the
Series C Convertible Preferred Stock shall be and the same is hereby
fixed as 1,750,000.
2. Stated Capital. The amount to be represented in stated
capital at all times for each share of the Series C Convertible
Preferred Stock shall be its par value of $.001 per share.
3. Rank. Subject to Section 5, the Series C Convertible
Preferred Stock shall, with respect to rights on liquidation, rank
equivalent to all classes of the common stock, $.01 par value per share
(collectively, the "Common Stock" or "Common Shares"), of the
Corporation.
4. Dividends. The holders of outstanding Series C Convertible
Preferred Stock shall not be entitled to receive dividends prior to the
second anniversary of the closing date ("Closing Date") of the
Corporation's initial public offering.
<PAGE>
Thereafter, in the event the Conversion Test (as defined in
Section 7(a) below) is satisfied, the Series C Convertible Preferred
Stock will participate in any dividends declared on the Common Stock,
on an as converted basis under Conversion Option B (as defined in
Section 7(b) below).
5. Liquidation Rights. In the event of a voluntary or
involuntary liquidation, dissolution or winding up of the Corporation
prior to the second anniversary of the Closing Date, or subsequent to
the Closing Date if the Conversion Test is not satisfied, the holders
of Series C Convertible Preferred Stock shall be entitled to $0.001 per
share. In the event of a voluntary or involuntary liquidation,
dissolution or winding up of the Corporation after the satisfaction of
the Conversion Test, the holders of Series C Convertible Preferred
Stock shall be entitled to share with the holders of Common Shares pari
passu in the assets of the Corporation, on an as converted basis under
Conversion Option B, whether such assets are capital or surplus of any
nature. A Reorganization (as defined in Subsection 8(f) below) shall
not be deemed to be a liquidation, dissolution or winding up within the
meaning of this Section 5.
6. Redemption. Shares of Series C Convertible Preferred Stock
may not be redeemed by the Corporation absent the unanimous consent of
the holders thereof.
7. Conversion Rights.
(a) The Series C Preferred Shares shall be
convertible upon the earlier to occur of (i) the date it is determined
that the Corporation's net profits for any fiscal year have equalled or
exceeded $4.2 million or (ii) eight (8) years from the date of
issuance (the "Conversion Test"). If the Corporation is sold (whether
by sale of all or substantially all of its stock or assets, or by a
merger in which the Corporation is not the surviving corporation) at a
per share price which exceeds 150% of the initial public offering price
of the Common Stock, the Conversion Test will be deemed satisfied, the
Series C Preferred Shares will be convertible immediately prior to the
closing of such sale, and the holders of the Series C Preferred Shares
will be entitled to the rights set forth in Section 5 above.
(b) The date on which a conversion of Series C
Preferred Shares takes place shall be termed the "Conversion Date" for
such shares. The conversion of Series C Preferred Shares shall be on
the basis of one share of Common Stock for one Series C Preferred
Share; provided, however, that such one for one conversion rate shall
be subject to adjustment from time to time in certain instances as
provided in Section 8 below (the conversion rate in effect at any given
time shall be termed the "Conversion Rate"). Upon conversion, the
holder of the Series C Preferred Shares will be required to pay to the
Corporation a conversion price for each share equal to 110% of the
closing bid price of the Common Stock on the date of conversion (the
"Conversion Price"). The holder of the Series C Preferred Shares may
pay the Conversion Price in cash ("Conversion Option A") or by
surrendering additional Series C Preferred Shares, valued at the
difference between (i) the average market
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value of the Common Stock over the five (5) business day period
immediately preceding the Conversion Date and (ii) the Conversion
Price ("Conversion Option B").
(c) As promptly as practicable after the Conversion
Date, the Corporation shall issue and deliver to the holders at the
office of the then transfer agent for the Series C Convertible
Preferred Stock, a certificate or certificates for the number of full
shares of Common Stock to which such holders are entitled and a check
or cash with respect to any fractional interest in a share of Common
Stock as provided in Subsection 7(d) below. Each holder shall be deemed
to have become a shareholder of record of the Common Stock on the
Conversion Date.
(d) No fractional shares of Common Stock or scrip
shall be issued upon conversion of Series C Convertible Preferred
Stock. The number of full shares of Common Stock issuable upon
conversion of such Series C Preferred Shares shall be computed on the
basis of the aggregate number of Series C Preferred Shares so
surrendered. Instead of any fractional shares of Common Stock which
otherwise would be issuable upon conversion of any shares of Series C
Convertible Preferred Stock, the Corporation shall pay a cash
adjustment in respect to such fractional interest based upon the Market
Price (as defined in Subsection 12(a)) of the Common Stock at the close
of business on the last business day prior to the Conversion Date.
(e) If any shares of Common Stock to be reserved for
the purpose of conversion of Series C Convertible Preferred Stock
require registration or listing with or approval of any governmental
authority, stock exchange or other regulatory body under any federal or
state law or regulation or otherwise before such shares may be validly
issued or delivered upon conversion, the Corporation shall at its sole
cost and expense in good faith and as expeditiously as possible
endeavor to secure such registration, listing or approval, as the case
may be.
(f) All shares of Common Stock which may be issued
upon conversion of Series C Convertible Preferred Stock upon issuance
will be validly issued, fully paid and nonassessable. The Corporation
will pay any and all documentary taxes that may be payable in respect
of any issue or delivery of shares of Common Stock on conversion of
Series C Preferred Shares pursuant hereto. The Corporation shall not be
required to pay any tax which may be payable in respect of any transfer
involved in the issue and delivery of shares of Common Stock in a name
other than that in which the Series C Preferred Shares so converted
were registered, and no such issue or delivery shall be made unless and
until the person requesting such transfer has paid to the Corporation
the amount of any such tax or has established to the satisfaction of
the Corporation that such tax has been paid. If and to the extent the
Corporation is required to withhold taxes in connection with the
conversion of the Series C Preferred Shares, the holders thereof may,
at their option (and subject to compliance with federal securities
laws), effect such withholding by (i) causing the Corporation to retain
a portion of the Common Stock issuable upon
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such conversion (valued at Market Price), or (ii) delivering additional
shares of Series C Convertible Preferred Stock (valued at Market Price
less Conversion Price).
(g) All certificates representing Series C Preferred
Shares surrendered for conversion shall be appropriately canceled on
the books of the Corporation and the shares so converted represented by
such certificates shall be restored to the status of authorized but
unissued shares of Preferred Stock of the Corporation.
8. Adjustment of Conversion Rights.
(a) In case the Corporation shall, with respect to
its Common Stock, (i) pay a dividend or make a distribution on its
shares of Common Stock which is paid or made in shares of Common Stock
or in securities convertible into or exchangeable for its Common Stock
(in which latter event the number of shares of Common Stock initially
issuable upon the conversion or exchange of such securities shall be
deemed to have been distributed), (ii) subdivide its outstanding shares
of Common Stock, (iii) combine its outstanding shares of Common Stock
into a smaller number of shares, or (iv) issue by reclassification of
its Common Stock any shares of capital stock of the Corporation, the
Conversion Rate in effect immediately prior thereto shall be adjusted
so that each holder of a Series C Preferred Share thereafter converted
shall be entitled to receive the number and kind of shares of Common
Stock or other capital stock of the Corporation which it would have
owned or been entitled to receive in respect of such Series C Preferred
Share immediately after the happening of any of the events described
above had such Series C Preferred Share been converted immediately
prior to the happening of such event. An adjustment made pursuant to
this Section shall become effective immediately after the record date,
in the case of a dividend, and shall become effective immediately after
the effective date, in the case of a subdivision, combination or
reclassification. If, as a result of an adjustment made pursuant to
this Subsection 8(a), the holder of any Series C Preferred Share
thereafter surrendered for conversion shall become entitled to receive
shares of two or more classes of capital stock or shares of Common
Stock and other capital stock of the Corporation, the Board of
Directors (whose determination shall be conclusive), shall determine
the allocation of the adjusted Conversion Rate between or among shares
of such classes of capital stock or shares of Common Stock and other
capital stock.
In the event that at any time as a result of an
adjustment made pursuant to this Subsection 8(a), the holder of any
Series C Preferred Share thereafter surrendered for conversion shall
become entitled to receive any shares of the Corporation other than
shares of Common Stock, thereafter the Conversion Rate with respect to
other shares so receivable upon conversion of any Series C Preferred
Share shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with
respect to Common Stock contained in this Section 8.
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(b) In case the Corporation shall issue rights or
warrants to all holders of its Common Stock entitling them to subscribe
for or purchase shares of Common Stock (or securities convertible into
or exchangeable for its Common Stock) at a price per share less than
the Market Price per share of Common Stock on the record date mentioned
below (other than pursuant to an automatic dividend reinvestment plan
of the Corporation or any substantially similar plan) the Conversion
Rate shall be adjusted so that the same shall equal the rate determined
by multiplying the Conversion Rate in effect immediately prior to the
issuance of such rights or warrants by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding
(excluding treasury shares) on the date of issuance of such rights or
warrants plus the number of additional shares of Common Stock offered
for subscription or purchase, and of which the denominator shall be the
number of shares of Common Stock outstanding (excluding treasury
shares) on the date of issuance of such rights or warrants, plus the
number of shares of Common Stock which the aggregate subscription or
purchase price of the total number of shares offered for subscription
or purchase would purchase at such Market Price. Such adjustment shall
become effective immediately after the opening of business on the day
following the record date for such rights or warrants.
In case the Corporation shall distribute to all
holders of its Common Stock evidences of its indebtedness or assets
(excluding cash dividends out of legally available funds and dividends
or distributions payable in capital stock or other securities for which
adjustment is made pursuant to Subsection 8(a) and excluding for
purposes of this section rights or warrants to subscribe to securities
of the Corporation), then in each such case the Conversion Rate shall
be adjusted so that the same shall equal the rate determined by
multiplying the Conversion Rate in effect immediately prior to such
distribution by a fraction, of which the numerator shall be the Market
Price per share of Common Stock on the record date mentioned below, and
of which the denominator shall be such Market Price per share of Common
Stock less the then fair market value (as determined by the Board of
Directors of the Corporation, whose determination shall be conclusive)
of the portion of the assets or evidences of indebtedness so
distributed applicable to one share of Common Stock. Such adjustment
shall become effective immediately after the record date for the
determination of stockholders entitled to receive such distribution.
Anything in this Section 8 to the contrary notwithstanding, the
Corporation shall be entitled to make such increase in the number of
shares of Common Stock to be acquired upon conversion of a Series C
Preferred Share, in addition to those required by this Section 8, as it
in its discretion shall determine to be advisable in order that any
stock dividend, subdivision of shares, distribution of rights to
purchase stock or securities, or distribution of securities convertible
into or exchangeable for stock hereafter made by the Corporation to its
stockholders shall not be taxable to the recipients.
(c) On the expiration of any rights or warrants
referred to in Subsection 8(b), or the termination of any rights of
conversion or exchange referred to in Subsection 8(a)(i), the
Conversion Rate then in effect shall forthwith be
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readjusted to such Conversion Rate as would have obtained had the
adjustment made upon the issuance of such rights or warrants or
convertible or exchangeable securities been made upon the basis of the
delivery of only the number of shares of Common Stock actually
delivered upon the exercise of such rights or warrants or upon the
conversion or exchange of such securities.
(d) Except as provided in Subsections 8(a), 8(b) and
8(c) above, no other event shall effect a change in the Conversion
Rate. Whenever the Conversion Rate is adjusted as herein provided, the
Chief Financial Officer of the Corporation shall compute the adjusted
Conversion Rate in accordance with the provisions of this Section 8 and
shall prepare a certificate setting forth such Conversion Rate showing
in detail the facts upon which such adjustment is made (the "Adjustment
Certificate"). Such Adjustment Certificate shall forthwith be filed
with) the transfer agent for the Series C Convertible Preferred Stock,
if any, and a notice thereof mailed to the holders of record of the
outstanding shares of such series.
(e) It the event of any consolidation or merger to
which the Corporation is a party other than a consolidation or merger
in which the Corporation is the continuing corporation, or the sale or
conveyance to another corporation of the property of the Corporation as
an entirety or substantially as an entirety or any statutory exchange
of securities with another corporation (including any exchange effected
in connection with a merger of a third corporation into the
Corporation) (each such transaction referred to herein as
"Reorganization"), no adjustment of conversion rights or the Conversion
Rate shall be made; provided, however, each holder of a Series C
Preferred Share shall thereupon be entitled to receive upon conversion
of the Series C Preferred Share, and provision shall be made therefor
in any agreement relating to a Reorganization, the kind and number of
securities or property (including cash) of the corporation ("Successor
Corporation") resulting from such consolidation or surviving such
merger or to which such properties and assets shall have been sold or
otherwise transferred or with whom securities have been exchanged,
which such holder would have owned or been entitled to receive as a
result of such Reorganization had such Series C Preferred Share been
converted immediately prior to such Reorganization (and assuming such
holder failed to make an election, if any was available, as to the kind
or amount of securities, property or cash receivable by reason of such
Reorganization; provided that if the kind or amount of securities,
property or cash receivable upon such Reorganization is not the same
for each share of Common Stock in respect of which such rights of
election shall not have been exercised ("non-electing share") then for
the purpose of this Subsection 8(e) the kind and amount of securities,
property or cash receivable upon such Reorganization for each
non-electing share shall be deemed to be the kind and amount so
receivable per share by a plurality of the non-electing shares). In any
case, appropriate adjustment shall be made in the application of the
provisions herein set forth with respect to the rights and interests
thereafter of the holders of Series C Preferred Shares, to the end that
the provisions set forth herein (including the specified changes and
other adjustments to the Conversion Rate) shall thereafter be
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applicable, as nearly as reasonably may be, in relation to any shares,
other securities or property thereafter receivable upon conversion of
the Series C Preferred Shares. The provisions of this Subsection 8(e)
shall similarly apply to successive Reorganiza tions.
(f) The Corporation shall at all times reserve and
keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of Series C
Convertible Preferred Stock, such number of shares of Common Stock as
shall from time to time be sufficient to effect a conversion of all
outstanding Series C Convertible Preferred Stock, and if at any time
the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares
of the Series C Convertible Preferred Stock, the Corporation shall
promptly take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such
purpose. In the event of a Reorganization to which Subsection 8(e)
above applies, effective provision shall be made in the certificate or
articles of incorpo ration, merger or consolidation or otherwise of the
Successor Corporation so that such Successor Corporation will at all
times reserve and keep available a sufficient number of shares of
common stock or other securities or property to provide for the
conversion of the Series C Convertible Preferred Stock in accordance
with the provisions of this Section 8.
(g) The Corporation shall not amend its Certificate
of Incorpora tion, or participate in any reorganization, sale or
transfer of assets, consolidation, merger, dissolution, issue or sale
of securities or any other voluntary action for the purpose of avoiding
or seeking to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Corporation, but shall at
all times in good faith use its best efforts, and assist in carrying
out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Series C
Convertible Preferred Stock set forth herein.
9. Voting Rights.
(a) The holders of the Series C Convertible Preferred
Stock shall vote on all matters with the holders of the Common Stock
(and not as a separate class) on a one vote per share basis. The
holders of the Series C Convertible Preferred Stock shall be entitled
to receive all notices relating to voting as are required to be given
to the holders of the Common Stock.
(b) In addition to any other rights provided by
Subsection 9(a) or by applicable law, so long as any Series C
Convertible Preferred Stock shall be outstanding, the Corporation shall
not without first obtaining the affirmative vote or written consent of
all of the holders of the Series C Preferred Shares outstanding;
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(i) increase the authorized number of
shares of Series C Convertible Preferred Stock;
(ii) create any class or series of shares
ranking prior or pari passu to the Series C Convertible Preferred Stock
either as to dividends or upon liquidation;
(iii) amend, alter or repeal any of the
preferences or rights of the Series C Convertible Preferred Stock; or
(iv) authorize any reclassification of the
Series C Convertible Preferred Stock.
(c) The voting rights set forth in this Section 9
shall in no way be affected by a failure in the satisfaction of the
Conversion Test.
10. Transferability. Subject to restrictions imposed under
federal and state securities laws, the Series C Preferred Shares shall
be freely transferable by the holders thereof.
11. Registration Rights. If and to the extent that the shares
of Common Stock issuable upon conversion of the Series C Preferred
Shares are not includable in a registration statement on Form S-8, the
Corporation will prepare and file, at its own expense, a shelf
registration statement on Form S-3 (or such other available Form if
Form S-3 shall not be available to the Corporation) to enable them to
resell shares of Common Stock acquired upon conversion of the Series C
Preferred Shares.
12. Definitions.
(a) The "Market Price" per share of Common Stock at
the time as of which such "Market Price" is determined shall be deemed
to be the average of the Closing Prices for twenty (20) business days
selected by the Corporation out of the thirty (30) consecutive days
immediately preceding the date as of which such "Market Price" is
determined, except that for purposes of Section 7(d) above, the "Market
Price" shall be the Closing Price on the last business day preceding
the event requiring such determination. For the purpose of the
foregoing sentence, a "business day" means a day on which the exchange
or over-the-counter market on which the Common Shares are traded was
open for at least one-half (1/2) of its normal business day.
(b) The "Closing Price" on any day shall be the last
sale price, regular way, as reported in a composite published report of
transactions which includes transactions on the exchange or other
principal markets in which the Common Shares are traded or, if there is
no such composite report as to any day, the last reported sale price,
regular way (or if there is no such reported sale on such day,
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the average of the closing reported bid and asked prices) on the
principal United States securities trading market (whether a stock
exchange, NASDAQ, or otherwise) in which the Common Shares are traded;
provided, however, that if the Common Shares are not publicly traded or
listed during the time of any computation pursuant to this section,
their "Market Price" for the purposes hereof shall be the fair value as
determined in good faith and certified to the Corporation by any person
agreed upon by, and mutually satisfactory to, the President of the
Corporation and the holders of the Series C Convertible Preferred
Stock; provided, however, that if such persons are unable to agree upon
a mutually satisfactory person, then the "Market Price" shall be the
fair value as determined in good faith by the Board of Directors of the
Corporation.
IN WITNESS WHEREOF, said GALVESTON'S STEAKHOUSE CORP. has caused this
Certificate of Designation to be signed by Richard M. Lee, its Chairman of the
Board, and attested to by Hiram J. Woo, its Secretary this __th day of
__________, 1999.
GALVESTON'S STEAKHOUSE CORP.
By: _________________________
Richard M. Lee
Chairman of the Board
CORPORATE SEAL
ATTEST:
By: _________________________
Hiram J. Woo
Secretary
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