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:
[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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
GALVESTON'S STEAKHOUSE CORP.
10200 WILLOW CREEK ROAD
SAN DIEGO, CALIFORNIA 92131
(619) 689-2333
May ___, 1999
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of Galveston's Steakhouse Corp. (the "Company"), to be held at 10:00 a.m.,
Pacific Time, on June ___, 1999, at the offices of the Company at 10200 Willow
Creek Road, San Diego, California 92131.
At the Meeting, you will be asked to consider and vote upon (i) the
election of five Directors to serve terms of either one, two or three years;
(ii) the proposed amendments to the Company's Certificate of Incorporation
providing for the classification of the Directors into three classes and related
matters; (iii) the proposed change in the Company's name to Steakhouse Partners,
Inc.; (iv) the ratification of the appointment of Singer Lewak Greenbaum &
Goldstein LLP as independent auditors for the year ending December 31, 1999; and
(v) 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") to Richard M. Lee
and Hiram J. Woo.
The vote of every stockholder is important. Whether or not you plan to
attend the meeting, it is important that your shares be represented.
Accordingly, we urge you to sign, date, and mail the enclosed proxy in the
envelope provided at your earliest convenience.
Thank you for your cooperation.
Very truly yours,
/s/ Richard M. Lee
--------------------------
RICHARD M. LEE
Chairman of the Board and
Chief Executive Officer
<PAGE>
GALVESTON'S STEAKHOUSE CORP.
----------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY ___, 1999
----------------------------------------
To the Stockholders of Galveston's Steakhouse Corp.:
The Annual Meeting of Stockholders of Galveston's Steakhouse Corp. (the
"Company") will be held on June ___, 1999, at 10:00 a.m., Pacific Time, at 10200
Willow Creek Road, San Diego, California 92131 for the following purposes:
1. To elect five Directors to serve terms of either one,
two or three years;
2. To consider and vote upon the proposed amendments to the
Company's Certificate of Incorporation, providing for the
classification of the Directors into three classes, to provide that any
vacancy on the Board shall be filled by the remaining Directors then in
office, and certain other amendments to the Company's Certificate of
Incorporation;
3. To consider and vote upon a change in the Company's name to
Steakhouse Partners, Inc.;
4. To ratify the appointment of Singer Lewak Greenbaum &
Goldstein LLP as the Company's independent auditors for the fiscal year
ending December 31, 1999;
5. To consider and vote upon 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") to Richard M. Lee and
Hiram J. Woo; and
6. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on April ___,
1999, as the record date for determination of those stockholders who will be
entitled to notice of and to vote at the meeting and any adjournment thereof.
If you plan to attend the meeting, please mark the appropriate box on
your proxy card. Upon receipt of the card, an admission ticket will be sent to
you.
Whether or not you expect to attend, STOCKHOLDERS ARE REQUESTED TO
SIGN, DATE AND RETURN THE ENCLOSED FORM OF PROXY IN THE ENVELOPE PROVIDED. No
postage is required if mailed in the United States.
By Order of the Board of Directors
/s/ Hiram J. Woo
-------------------------
HIRAM J. WOO
Secretary
San Diego, California
May ___, 1999
<PAGE>
GALVESTON'S STEAKHOUSE CORP.
10200 WILLOW CREEK ROAD
SAN DIEGO, CALIFORNIA 92131
------------------------
PROXY STATEMENT
------------------------
GENERAL INFORMATION
PROXY SOLICITATION
This Proxy Statement is furnished to the holders of the Common Stock,
$.01 par value per share ("Common Stock"), of Galveston's Steakhouse Corp. (the
"Company") in connection with the solicitation of proxies on behalf of the Board
of Directors of the Company for use at the Annual Meeting of Stockholders to be
held on June ___, 1999 at 10:00 a.m. (Pacific Time), at 10200 Willow Creek Road,
San Diego, California 92131 and at any adjournment thereof. The purposes of the
meeting and the matters to be acted upon are set forth in the accompanying
Notice of Annual Meeting of Stockholders. At present, the Board of Directors
knows of no other business which will come before the meeting.
The Notice of Annual Meeting, Proxy Statement, and form of proxy will
be mailed to stockholders on or about May ___, 1999. The Company will bear the
cost of its solicitation of proxies. In addition to the use of the mails,
proxies may be solicited by personal interview, telephone, telegram, and telefax
by the directors, officers and employees of the Company. Arrangements will also
be made with brokerage houses and other custodians, nominees and fiduciaries for
the forwarding of solicitation material to the beneficial owners of stock held
by such persons, and the Company may reimburse such custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred by them in connection
therewith.
REVOCABILITY AND VOTING OF PROXY
A form of proxy for use at the meeting and a return envelope for the
proxy are enclosed. Stockholders may revoke the authority granted by their
execution of proxies at any time before their effective exercise by filing with
the Secretary of the Company a written revocation or duly executed proxy bearing
a later date or by voting in person at the meeting. Shares of Common Stock
represented by executed and unrevoked proxies will be voted in accordance with
the instructions specified thereon. If no instructions are given, the proxies
will be voted FOR the election as Directors of the persons nominated by the
Board of Directors; FOR the approval of the proposed amendments to the Company's
Certificate of Incorporation providing for the classification of the Directors
into three classes and related matters; FOR the change of the Company's name;
FOR ratification of the appointment of Singer Lewak Greenbaum & Goldstein LLP as
the Company's independent auditor for the fiscal year ending December 31, 1999;
and 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.
1
<PAGE>
RECORD DATE AND VOTING RIGHTS
Only Common Stockholders and holders of the Company's Series B
Convertible Preferred Stock (the "Series B Preferred Stock") of record at the
close of business on April __, 1999 (the "Record Date") are entitled to notice
of the Annual Meeting and to vote the shares of Common Stock and Series B
Preferred Stock held by them on that date at the Annual 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 Annual 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 Annual Meeting. The shares of Common Stock and the shares of Series B
Preferred Stock shall vote together as one class. There were outstanding on
April __, 1999, the record date for stockholders entitled to notice of and to
vote at the Annual Meeting, 2,609,325 shares of Common Stock and 1,000,000
shares of the Series B Preferred Stock.
Votes cast at the meeting will be tabulated by persons appointed as
inspectors of election of the meeting. The inspectors of election will treat
shares of Common Stock represented by a properly signed and returned proxy as
"present" at the meeting for purposes of determining a quorum, without regard to
whether the proxy is marked as casting a vote or abstaining. Likewise, the
inspectors of election will treat shares of Common Stock represented by "broker
non-votes" as present for purposes of determining a quorum. Abstentions will
also be counted for purposes of determining the presence of a quorum at the
Annual Meeting.
The nominees for election to the Board of Directors receiving the
greatest number of affirmative votes cast by the holders of Common Stock and
Series B Preferred Stock, up to the number of directors to be elected, will be
elected as directors. Accordingly, abstentions or broker non-votes as to the
election of directors will have no effect on the election of directors.
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 Series B Preferred
Stock, considered together as a single class, outstanding on April __, 1999 is
necessary to constitute a quorum at the Annual Meeting.
OTHER MATTERS
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 classification of the Directors into three classes and related
matters, to approve the change in the Company's name, to ratify the appointment
of the independent auditors and to approve the authorization of the Series C
Preferred Stock. Broker non-votes will not be counted for purposes of
determining whether the proposals have been approved or not.
At April __, 1999, directors and executive officers of the Company and
their affiliates beneficially owned 579,462 shares of Common Stock, or 20.9% of
the total shares of Common Stock outstanding on such date. In addition, at April
__, 1999, Richard M. Lee, the Chairman of the Board, beneficially owned
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.
2
<PAGE>
BOARD AND MANAGEMENT OWNERSHIP
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock, as of December 31, 1998, by (i) each
person known to the Company to beneficially own more than 5% of the outstanding
shares of Common Stock of the Company, (ii) each director of the Company and
each nominee for election as a director and (iii) all directors, nominees for
director and executive officers as a group.
Number of Percentage Beneficially
Shares (1) Owned (7) (8)
---------- -----------------------
Richard M. Lee (2) (7)................ 339,420 12.2%
Hiram J. Woo (3) (8).................. 240,042 8.7%
Tom Edler (4)......................... 0 0%
Mark W. Goudge (5).................... 0 0%
Tod Lindner (6)....................... 0 0%
All officers and directors as a group
(5 persons) (7) (8)................ 579,462 20.9%
- - ----------------------
(1) Except as otherwise indicated, the Company believes that the beneficial
owners of Common Stock listed above, based on information furnished by
such owners, have sole investment and voting power with respect to such
shares, subject to community property laws where applicable.
(2) Does not include an aggregate of 1,000,000 shares of Series B
Convertible Preferred Stock issued to Richard M. Lee, which shares have
rights to vote with the Common Stock as one class on a
one-vote-per-share basis. After giving effect to such Series B
Convertible Preferred Stock, Mr. Lee currently holds 34.8% of the
combined stockholder voting power of the Company. Mr. Lee's business
address is at 10200 Willow Creek Road, San Diego, California 92131.
Does not include options held by Mr. Lee to acquire up to 201,000
shares of Common Stock.
(3) Mr. Woo's business address is at 10200 Willow Creek Road, San Diego,
California 92131. Does not include options held by Mr. Woo to acquire
up to 134,000 shares of Common Stock.
(4) Mr. Edler's business address is c/o Grubb & Ellis Company, 770 L
Street, Suite 700, Sacramento, California.
(5) Mr. Goudge's business address is 24422 Avenida de la Carlta, Suite 400,
Laguna Hills, California 92653.
(6) Mr. Lindner's business address is 17 E. Sir Francis Drake Blvd., Suite
230, Larkspur, California 94939.
(7) Includes the assumed exercise of options to purchase 82,500 shares
which are exercisable within 60 days by Mr. Lee.
(8) Includes the assumed exercise of options to purchase 82,500 shares
which are exercisable within 60 days by Mr. Woo.
3
<PAGE>
PROPOSAL 1 - ELECTION OF DIRECTORS
At the meeting, five directors, comprising the entire membership of the
Board of Directors of the Company, are to be elected. The Company's Restated
Certificate of Incorporation, as it is proposed to be amended herein (see
Proposal No. 2), provides that the Directors shall be divided into three classes
with each class consisting, as nearly as possible, of one-third of the total
number of Directors. Ultimately, one class will stand for election to a
three-year term each year. For the first election of a staggered Board, Class I
will be elected to a one-year term. Class II will be elected to a two-year term,
and Class III will be elected to a three-year term. In the event stockholders do
not approve the amendments to the Company's Certificate of Incorporation, the
election of all nominated Directors will be for one-year terms. Each elected
Director will serve until the next Annual Meeting following the completion of
their terms or until their successors are elected.
The shares represented by the enclosed Proxy will be voted for the
election as directors of the five nominees named below. All of such nominees are
members of the present Board. If any nominee becomes unavailable to stand for
re-election for any reason or if a vacancy on the Board shall occur before the
election (which events are not anticipated), the holders of the Proxy may vote
for such other person in accordance with their best judgment, but not more than
five persons may be voted to serve as directors.
The information appearing in the following table, with notes thereto,
has been furnished to the Company by the respective nominees.
<TABLE>
<CAPTION>
Term of
Election if
Board is Principal Occupation Director
Name of Nominee Class Classified Age For Past Five Years Since
- - --------------------- ----- ------------ ----- --------------------------- --------
<S> <C> <C> <C> <C> <C>
Mark W. Goudge(1) (2) 1 1 Year 36 Mr. Goudge has been a financial consultant in the private client 1998
group at Merrill Lynch in Laguna Hills, California since June 1992.
Prior to joining Merrill Lynch, Mr. Goudge served from April 1990
to June 1992 as an Assistant President in the Commercial Lending
Division at Orange National Bank in Orange, California. Prior
thereto Mr. Goudge worked at the Landmark Bank in Whittier,
California rising to the position of Assistant Vice President of
the Business Bank Group. Mr. Goudge graduated from the University
of Alaska-Fairbanks in December 1987 with a B.A. in Finance.
Tom Edler(1) (2) 2 2 Years 55 Mr. Edler is a real estate broker in the Sacramento office of Grubb & 1998
Ellis Company, specializing in the acquisition, disposition,
development and leasing of restaurant and hotel properties
throughout California. Prior to joining Grubb & Ellis, Mr. Edler was
President of Edler & Associates/Pacific Leisure Properties, a
restaurant/hospitality consulting and brokerage firm. Mr. Edler
received his Bachelor of Science degree from Indiana University with
subsequent post-graduate studies at the University of Southern
California. He served as an officer in the United States Air Force
for 4 years immediately following college.
Tod Lindner (1) 2 2 Years 54 Mr. Lindner has been a managing director of Ally Capital Group Inc., 1999
an investment banking firm since 1996. Prior to joining Ally Capital
Group Inc., Mr. Lindner founded and was President of Northwest
Capital Corporation, an originator of upper middle market commercial
loans, from 1984 through 1996. From 1979 through 1983, Mr. Lindner
served as a regional manager of Chemical Business Credit Corp. Prior
thereto, Mr. Lindner served as an executive at the Bank of
California, N.A. for twelve years. Mr. Lindner currently serves as a
director of Bay-Con, Inc. and as a director of Magnum Cinema, LLC.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Term of
Election if
Board is Principal Occupation Director
Name of Nominee Class Classified Age For Past Five Years Since
- - --------------------- ----- ------------ ----- --------------------------- --------
<S> <C> <C> <C> <C> <C>
Hiram Woo (2) 3 3 Years 63 Mr. Hiram J. Woo has been the President, Secretary and a Director 1996
of the Company since its inception. Since 1976, he has owned and
operated Hiram J. Woo Accountancy Corporation, a San Francisco-based
accounting firm with numerous restauranteurs among his clients. Over
the past 14 years, Mr. Woo has actively invested in, owned or
reorganized and restructured various restaurants, ranging from
large-scale casual dining establishments to night clubs to bar and
grill operations. In 1980, Mr. Woo founded and has since managed
Regal Financial Development Corporation ("RFDC"), a real estate
development and planning firm based in San Francisco. In the past 14
years, RFDC has managed over $300 million of real estate development
projects in the Western United States. From 1992 to 1996, Mr. Woo
owned and operated several large-scale restaurants in the San
Francisco area. Mr. Woo is active among the local Chinese community
and has served as a director of two Chinese-American financial
institutions and several business organizations. Mr. Woo is a
Certified Public Accountant. Mr. Woo is a past director of the
Chinese Resources Development Center of San Francisco, a past
president of Park Presidio Optimist Club, and a member of the San
Francisco, Fairfield and Vacaville Chambers of Commerce.
Richard M. Lee 3 3 Years 32 Executive Officer of the Company since its inception in 1996. Mr. 1996
Lee began his business career upon graduating high school at the age
of 17, founding his first company with a total of $3,500 of seed
capital. By the age of 22, Mr. Lee was recognized as a
"young-millionaire" entrepreneur by the University of Southern
California. In addition, Mr. Lee was one of the youngest inductees
into the Young Presidents Organization of America. Mr. Lee has been
featured in numerous industry, local and national media
publications. He was featured as a model entrepreneur in the
university textbook, Contemporary Business (Dryden Press: 1990).
From 1983 to 1990 Mr. Lee was the founder and President of
Audio-Chamber International, Inc. based in Orange County,
California, a manufacturer of high-fidelity mobile sound systems. In
1990, Mr. Lee sold Audio-Chamber International, Inc. to actively
invest in real estate and securities. From 1991 to 1992, Mr. Lee co-
founded and co-managed Aristotle Investments Ltd. as its chief
strategist for investments in franchise restaurant acquisitions.
From 1992 to May 1996, Mr. Lee was the co-founder and Chairman/CEO
of China Coast Foods, Inc., a company formed to explore
opportunities in the food industry in the Peoples Republic of China.
Mr. Lee has also been involved with and invested in franchised
restaurants, including, for example, Domino's Pizza Restaurants and
Popeyes Famous Fried Chicken. Since June 1996, Mr. Lee has devoted
substantially all his working time and energies to the affairs of
the Company.
<FN>
- - ------------------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
</FN>
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EACH OF THE
NOMINEES LISTED ABOVE.
5
<PAGE>
MEETING OF THE BOARD OF DIRECTORS
During the Company's fiscal year ended December 31, 1998, the Board of
Directors held three meetings and acted nine times by unanimous written consent.
Each Director attended more than seventy-five percent (75%) of the Board
meetings and meetings of the Board committees on which he served. The Company
does not have a standing nominating committee, the functions of which are
performed by the entire Board.
During the Company's fiscal year ended December 31, 1998, the
Compensation Committee of the Board met once.
During the Company's fiscal year ended December 31, 1998, the Audit
Committee of the Board met once. The Audit Committee has the responsibility of
recommending the firm to be chosen as independent auditors, overseeing and
reviewing the audit results and monitoring the effectiveness of internal audit
functions. The Audit Committee has recommended the selection of Singer Lewak
Greenbaum & Goldstein LLP as independent auditors for the year ended December
31, 1999.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16 (a) of the Securities Exchange Act of 1934, and
the rules issued thereunder, the Company's directors and executive officers are
required to file with the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc. reports of ownership and changes in
ownership of Common Stock and other equity securities of the Company. Copies of
such reports are required to be furnished to the Company. Based solely on a
review of the copies of such reports furnished to the Company, or written
representations that no other reports were required, the Company believes that,
during the Company's fiscal year ended December 31, 1998, all of its executive
officers and directors complied with the requirements of Section 16 (a).
DIRECTOR COMPENSATION
None of the Company's directors received any compensation during the
most recent fiscal year for serving in his position as a director.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation paid to
executive officers of the Company for the three fiscal years ended December 31,
1998.
<TABLE>
<CAPTION>
Long Term Compensation
Name and Other Annual Awards - Securities All Other
Principal Position Year Salary($) Bonus($) Compensation (2) Underlying Options (#) Compensation
- - ------------------- ---- --------- -------- ------------- ---------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Lee 1998 $100,000 $294,689 15,892 201,000 0
Chairman of the 1997 $100,000 0 5,809 - 0
Board and Chief 1996 $ 50,000 0 2,421 82,500 0
Executive Officer
Hiram J. Woo 1998 $ 80,000 $111,567 7,870 134,000 0
President and Chief 1997 $ 80,000 0 1,968 - 0
Financial Officer 1996 $ 45,000 0 0 82,500 0
David N. Treat 1998 $ 3,333 0 0 75,000 0
Senior Director of 1997 0 0 0 0 0
Operations (1) 1996 0 0 0 0 0
<FN>
- - -----------------------
(1) Mr. Treat commenced employment with the Company in December, 1998.
(2) Other annual compensation consists in each case of the car allowance paid by
the Company for the named executive officer.
</FN>
</TABLE>
7
<PAGE>
OPTIONS GRANTS IN LAST FISCAL YEAR
The following table contains information concerning stock option grants
made to each of the named executive officers in fiscal 1998. No stock
appreciation rights were granted to these individuals during such year.
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Number of Securities Percent of Total Options
Underlying Options Granted to Employees in Expiration
Name Granted (#) Fiscal Year Exercise Price ($/Sh) Date
- - ---------------- --------------------- ------------------------ ------------------------- -----------
<S> <C> <C> <C> <C>
Richard M. Lee 201,000 49.0% 32,000 options with an
exercise price of $3.4375 August 2008
169,000 options with an
exercise price of $3.125
Hiram J. Woo 134,000 32.7% $3.125 August 2008
David N. Treat 75,000 18.3% $4.96 December 2004-December 2008
</TABLE>
8
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information concerning option exercises
and option holdings for the fiscal year 1998 with respect to each of the named
executive officers. No named executive officers exercised any options during
such year.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-
END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Unexercised Value of Unexercised In-the-money
Shares Acquired Value Options at Fiscal Year End (#) Options at Fiscal Year End ($)
Name on Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable (1)
- - -------------- ---------------- ------------- -------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Richard M. Lee 0 0 82,500 exercisable/ $____ exercisable/
201,000 unexercisable $____ unexercisable
Hiram J. Woo 0 0 82,500 exercisable/ $____ exercisable/
134,000 unexercisable $____ unexercisable
David N. Treat 0 0 0 exercisable/ $0 exercisable/
75,000 unexercisable $____ unexercisable
</TABLE>
9
<PAGE>
EMPLOYMENT AGREEMENTS
On June 3, 1996, the Company entered into a four-year employment
agreement with Richard M. Lee at an annual base salary of $50,000, which was
increased to $100,000 upon the closing of the Company's initial public offering.
Under the employment agreement, Mr. Lee's employment may not be terminated by
the Company without cause. In addition, Mr. Lee has agreed in his employment
agreement not to compete with the Company for a period of one (1) year following
his termination of employment for any reason.
On June 3, 1996, the Company entered into a four-year employment
agreement with Hiram Woo at an annual base salary of $45,000, which was
increased to $80,000 upon the closing of the Company's initial public offering.
Under the employment agreement, Mr. Woo's employment may not be terminated by
the Company without cause. In addition, Mr. Woo has agreed in his employment
agreement not to compete with the Company for a period of one (1) year following
his termination of employment for any reason.
On December 15, 1998, the Company entered into a five year employment
agreement with David N. Treat at an annual base salary of $80,000. Under the
employment agreement, Mr. Treat's employment may be terminated by the Company
without cause, in which case the Company is obligated to continue to pay him his
base salary for a period of six (6) months. In addition, Mr. Treat has agreed in
his employment agreement not to compete with the Company for a period of one (1)
year following his termination of employment for any reason. The employment
agreement provides Mr. Treat with an option, vesting over a period of five
years, to purchase up to 75,000 shares of Common Stock at $4.96 per share.
LIMITS ON LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation eliminates the personal
liability of its directors to the Company and its stockholders for monetary
damages for breach of the directors' fiduciary duties in certain circumstances.
The Certificate of Incorporation further provides that the Company will
indemnify its officers and directors to the fullest extent permitted by law. The
Company believes that such indemnification covers at least negligence and gross
negligence on the part of the indemnified parties. Insofar as indemnification
for liabilities under the Securities Act may be permitted to directors,
officers, and controlling persons of the Company pursuant to the foregoing
provisions or otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable.
CERTAIN TRANSACTIONS
EMPLOYMENT AGREEMENTS
The Company has entered into separate Employment Agreements with
Richard M. Lee, Hiram J. Woo and David N. Treat. See "Employment Agreements."
10
<PAGE>
PERSONAL GUARANTEES
Mr. Woo has personally guaranteed the Company's lease agreements for
its Fullerton and Norco, California locations, as well as the Company's vendor
debt with Sysco Food Services and various other vendors.
COMPANY POLICY
The Company believes that each of the foregoing transactions embodies
terms no less favorable to the Company than those that could have been obtained
from unaffiliated parties. Any ongoing or future transactions between the
Company and its officers, directors, principal stockholders, or other affiliates
will be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties on an arms-length basis and will be approved by a
majority of the Company's independent and disinterested directors. Any future
loans to officers, directors, principal stockholders, or affiliates will be made
for a bonafide business purpose, on terms no less favorable than could be
obtained from unaffiliated third parties and will be approved by a majority of
the Company's independent and disinterested directors.
11
<PAGE>
PROPOSAL 2 - PROPOSED AMENDMENTS TO RESTATED CERTIFICATE OF
INCORPORATION TO PROVIDE FOR A CLASSIFIED BOARD OF
DIRECTORS AND RELATED MATTERS
GENERAL
The Board of Directors has unanimously approved amendments to the
Company's Restated Certificate of Incorporation and has voted to recommend that
the Company's stockholders approve such amendments. The proposed amendments
would: (1) classify the Board of Directors into three classes, as nearly equal
in number as possible, each of which, after an interim arrangement, will serve
for three years, with one class being elected each year; (2) provide that
Directors may only be removed for cause and only with the approval of a majority
of the entire Board of Directors or by the holders of not less than 75% of the
outstanding shares of capital stock entitled to vote for the election of
Directors; (3) provide that any vacancy on the Board of Directors shall be
filled by the remaining Directors then in office, though less than a quorum; and
(4) increase the stockholder vote required to amend or repeal, or to adopt any
provision inconsistent with, the foregoing amendments from a majority to 75% of
the voting power of the Company (collectively, the "Amendments").
The proposed Amendments are being presented to stockholders of the
Company for their approval as a single proposal. As more fully discussed below,
the Board of Directors believes the proposed Amendments, taken together, would,
if adopted, effectively reduce the possibility that a third party could effect a
sudden or surprise change in the majority control of the Company's Board of
Directors without the support of the incumbent Board.
Adoption of this set of proposed Amendments may have significant
effects on the ability of stockholders of the Company to change the composition
of the incumbent Board of Directors and to benefit from certain transactions
which are opposed by the incumbent Board. Accordingly, stockholders are urged to
read carefully the following sections of this Proxy Statement, which describe
this set of proposed Amendments and their purposes and effects before voting on
the proposed Amendments to provide for a classified Board of Directors and
related matters.
PURPOSES AND EFFECTS OF THE PROPOSED AMENDMENTS
Delaware, like many other states, permits a corporation to adopt a
number of measures through amendment of the corporate charter (or by-laws) or
otherwise, which along with certain provisions of the Delaware General Company
Law, may have the effect of delaying or deterring any unsolicited takeover
attempts notwithstanding that a majority of the stockholders might benefit from
such a takeover attempt. The Board of Directors of the Company is asking
stockholders to consider and adopt the proposed Amendments to the Restated
Certificate of Incorporation which Amendments could make the acquisition of the
Company by means of a tender offer, a proxy contest or otherwise difficult.
These Amendments are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids, and to encourage persons seeking to
acquire control of the Company to negotiate first with the Company's Board of
Directors. The Company believes that the benefits of these provisions outweigh
the potential disadvantages of discouraging such change of control proposals
because, among other things, negotiation of such change of control proposals
might result in an improvement of their terms.
12
<PAGE>
One method used by third parties to accomplish a takeover or a
restructuring or sale of all or part of a company or other similar extraordinary
company action, is the accumulation of substantial stock positions in the target
company. Such actions are often undertaken by the third party without advance
notice to or consultation with management of the target company. In many cases,
the purchaser seeks representation on the target company's board of directors in
order to increase the likelihood that its proposal will be implemented by the
target company. If the target company resists the efforts of the purchaser to
obtain representation on the target company's board of directors, the purchaser
may commence a proxy contest to have its nominees elected to the board of
directors in place of certain directors, or the entire board of directors of the
target company. In some cases, the purchaser may not truly be interested in
taking over the target company, but uses the threat of a proxy fight and/or a
bid to take over the target company as a means of forcing the target company to
repurchase the purchaser's equity position at a substantial premium over market
price.
The Board of Directors of the Company believes that an imminent threat
of removal of the Company's management severely curtails its ability to
negotiate effectively with such purchasers. Management is deprived of the time
and information necessary to evaluate the takeover proposal, to study
alternative proposals and to help ensure that the best price is obtained in any
transaction involving the Company which may ultimately be undertaken. If the
real purpose of a takeover bid is to force the Company to repurchase an
accumulated stock interest at a premium price, management faces the risk that if
it does not repurchase the purchaser's stock interest, the Company's business
and management will be disrupted, perhaps irreparably. On the other hand, such a
repurchase diverts valuable corporate resources to the benefit of a single
stockholder.
Takeovers or changes in management of the Company which are proposed
and effected without prior consultation and negotiation with the Company's
management are not necessarily detrimental to the Company and its stockholders.
However, the Board believes that the benefits of seeking to protect its ability
to negotiate with the proponent of an unfriendly or unsolicited proposal to take
over or restructure the Company outweigh the disadvantages of discouraging such
proposals.
The adoption of the proposed Amendments would make more difficult or
discourage a proxy contest or the assumption of control by a holder of a
substantial block of the Company's stock or the removal of the incumbent Board
and could thus have the effect of entrenching incumbent management. At the same
time, the Amendments would help ensure that the Board, if confronted by a
surprise proposal from a third party who has recently acquired a block of the
Company's stock, will have sufficient time to review the proposal and
appropriate alternatives to the proposal and to seek a premium price for the
stockholders.
The proposed Amendments are intended to encourage persons seeking to
acquire control of the Company to initiate such an acquisition through
arms-length negotiations with the Company's management and Board of Directors.
The Amendments, if they are adopted, could also have the effect of discouraging
a third party from making a tender offer or otherwise attempting to obtain
control of the Company, even though such an attempt might be beneficial to the
Company and its stockholders. In addition, since the Amendments are designed to
discourage accumulations of large blocks of the Company's stock by a purchaser
whose objective is to have such stock repurchased by the Company at a premium,
adoption of the Amendments could tend to reduce the temporary fluctuations in
the market price of the Company's stock which are caused by such accumulations.
Accordingly, stockholders could be deprived of certain opportunities to sell
their stock at a temporarily high market price.
13
<PAGE>
The Company's Restated Certificate of Incorporation does not permit
cumulative voting in the election of Directors. Accordingly, at the present, the
holders of a majority of the outstanding shares entitled to vote for the
election of directors can elect all of the Directors then being elected at any
annual or special meeting of the Company's stockholders.
The proposed Amendments are permitted under the Delaware law and are
consistent with the rules of the Nasdaq Smallcap Market, upon which the
Company's Common Stock is listed and traded. The Amendments are not the result
of any specific efforts of which the Company is aware to accumulate the
Company's securities or to obtain control of the Company. The Board of
Directors, which unanimously approved the Amendments and recommended that they
be submitted to the Company's stockholders for adoption, does not presently
contemplate recommending the adoption of any further amendments to the Restated
Certificate of Incorporation which would affect the ability of third parties to
take over or change control of the Company.
DESCRIPTION OF THE PROPOSED AMENDMENTS
Classification of the Board of Directors. The Company's By-laws now
-----------------------------------------
provide that all Directors are to be elected to the Company's Board of Directors
annually for a term of one year. The Board has set the number of directors at
five. The proposed amendments to Article FIFTH of the Restated Certificate of
Incorporation provide that the Board shall be divided into three classes of
directors, each class to be as nearly equal in number of directors as possible.
If the proposed Amendments are adopted, the Company's directors will be divided
into three classes and one director will be elected for a term expiring at the
Annual Meeting in the Year 2000, two directors will be elected for a term
expiring at the 2001 Annual Meeting and the remaining two directors will be
elected for a term expiring at the 2002 Annual Meeting (in each case, until
their respective successors are duly elected and qualified). Starting with the
Annual Meeting in the Year 2000, one class of Directors will be elected each
year for a three year term.
The classification of the Directors will have the effect of making it
more difficult for stockholders, including those holding a majority of the
outstanding shares, to force an immediate change in the composition of the Board
of Directors. At least two stockholder meetings, instead of one, will be
required to effect a change in the majority control of the Board, except in the
event of vacancies resulting from removal for cause or other reason (in which
case the remaining directors will fill the vacancies created -- See Removal of
Directors; Filling Vacancies on the Board of Directors below). The longer time
required to elect a majority of a classified Board will also help to assure
continuity and stability of the Company's management and policies, since a
majority of the Directors at any given time will have prior experience as
Directors of the Company. It should be noted that the classification provision
will apply to every election of Directors, whether or not a change in the Board
would be beneficial to the Company and its stockholders and whether or not a
majority of the Company's stockholders believes that such a change would be
desirable.
Removal of Directors; Filling of Vacancies on the Board of Directors.
---------------------------------------------------------------------
The proposed Amendments provide that Directors may be removed only for cause,
whereas at present a Director, or the entire Board of Directors, may be removed
by the stockholders with or without cause. The Amendments also provide that the
affirmative vote of a majority of the entire Board of Directors or of the
holders of at least 75% of the voting power of the shares entitled to vote for
the election of Directors would be required to remove a Director from office.
Currently, any Director elected by the holders of Common Stock may be removed
from the Board with or without cause by the affirmative vote of the holders of
the majority of the shares of Common Stock outstanding and
14
<PAGE>
entitled to vote thereon (which is the same as the minimum vote required under
the corporation law of Delaware).
Currently, Article II of the By-laws provides that a vacancy on the
Board, including a vacancy created by an increase in the number of Directors,
may be filled by the remaining Directors, though less than a quorum. The
proposed Amendments retain the provision that a vacancy on the Board occurring
during the course of the year, including a vacancy created by an increase in the
number of Directors, may be filled by the remaining Directors, and do not permit
stockholders to fill any vacancies on the Board, even Directors removed by the
stockholders for cause. The proposed Amendments provide that any person named by
the remaining Directors to fill a vacancy on the Board shall serve only until
the next Annual Meeting.
The provisions of the proposed Amendments relating to the removal of
Directors and the filling of vacancies on the Board will preclude a third party
from removing incumbent Directors without cause and simultaneously gaining
control of the Board by filling the vacancies created by removal with its
nominees. The provisions will also reduce the power of stockholders, even those
with a majority interest in the Company, to remove incumbent Directors and to
fill vacancies on the Board. Under the proposed Amendments, stockholders will
have the power to remove Directors for cause with a 75% vote, but only the
Directors will have the power to fill the vacancies created by such removal.
Increased Stockholder Vote for Amendment, Repeal, etc. of Proposed
------------------------------------------------------------------
Amendments. Under the corporation law of Delaware, amendments of the certificate
- - -----------
of incorporation require the approval of the holders of a majority of the
outstanding stock entitled to vote thereon. Delaware law also permits provisions
in the certificate of incorporation which require a greater vote than the vote
otherwise required by law for any corporate action. The proposed Amendments
would require the concurrence of the holders of at least 75% of the voting power
of the Company entitled to vote for the election of Directors for the amendment
or repeal of, or the adoption of any provision inconsistent with, the proposed
Amendments discussed above. The requirement of an increased stockholder vote is
designed to prevent a stockholder with a majority of the voting power of the
Company from avoiding the requirements of the proposed Amendments by simply
amending all of the provisions again.
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 Annual Meeting
and entitled to vote is required for the approval of Proposal 2.
To establish a classified Board with three classes of Directors, to
provide that Directors may only be removed for cause and only with the approval
of a majority of the entire Board or by the holders of not less than 75% of the
capital stock and to provide that any vacancy on the Board shall be filled by
the remaining Directors, the Board proposes amending Article FIFTH of the
Company's Restated Certificate of Incorporation to read in its entirety as
follows:
"FIFTH. The number of directors of the corporation shall be fixed by
the by-laws, subject to the provisions of this certificate of
incorporation and to the provisions of the laws of the State of
Delaware.
The board of directors shall be divided into three classes, designated
Class I, Class II and Class III, as nearly equal in number as possible, and the
term of office of directors of one class shall
15
<PAGE>
expire at each annual meeting of stockholders, and in all cases as to each
director until his successor shall be elected and shall qualify (except in cases
where no successor is elected due to a reduction in the size of the board) or
until his earlier resignation, removal from office, death or incapacity.
Additional directorships resulting from an increase in the number of directors
shall be apportioned among the classes as equally as possible. Vacancies,
including vacancies created by an increase in the size of the board of
directors, shall be filled by the affirmative vote of a majority of the
remaining board of directors then in office, though less than a quorum. The
initial term of office of directors of Class I shall expire at the annual
meeting of stockholders in 2000, that of Class II shall expire at the annual
meeting of stockholders in 2001; and that of Class III shall expire at the
annual meeting of stockholders in 2002; and in all cases as to each director
until his successor shall be elected and shall qualify (except in cases where no
successor is elected due to a reduction in the size of the board) or until his
earlier resignation, removal from office, death or incapacity. At each annual
meeting of stockholders, the number of directors equal to the number of
directors of the class whose term expires at the time of such meeting (or, if
less, the number of directors properly nominated and qualified for election)
shall be elected to hold office until the third succeeding annual meeting of
stockholders after their election. Any director or the entire board of directors
may be removed, for cause only, by a majority of the entire board of directors
or by holders of not less then seventy-five (75%) percent of the outstanding
shares then entitled to vote at an election of directors.
In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
To make, alter, amend or repeal the by-laws of the corporation.
By resolution passed by the majority of the whole board, to designate
one or more committees, each committee to consist of two or more of the
directors of the corporation, which, to the extent provided in the resolution or
in the by-laws of the corporation, shall have and may exercise the powers of the
board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
board of directors."
To establish a supermajority voting requirement for amendments to the
Certificate of Incorporation, the Board proposes amending Article EIGHTH of the
Company's Restated Certificate of Incorporation to read in its entirety as
follows:
"EIGHTH. Any amendment to this Certificate of Incorporation shall
require the affirmative vote of seventy-five (75%) percent of the
shares of each class outstanding and entitled to vote thereon."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
PROPOSED AMENDMENTS TO THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION.
16
<PAGE>
PROPOSAL 3 - PROPOSAL TO CHANGE THE NAME OF THE COMPANY
On January 26, 1999, the Board of Directors approved, and recommended
for adoption by stockholders at the Annual Meeting, an amendment to Article
First of the Company's Restated Certificate of Incorporation to change the name
of the Company to 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 and entitled to vote is required
for the approval of Proposal 3.
Important and positive changes have occurred at the Company over the
past year. The recent acquisition by the Company of seventy-eight 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 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. Stockholders 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 stockholders. 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 "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 Company is: STEAKHOUSE PARTNERS,
INC."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO
CHANGE THE NAME OF THE COMPANY.
17
<PAGE>
PROPOSAL 4 - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Although the By-Laws of the Company do not require the submission of
the selection of independent auditors to the stockholders for approval, the
Board of Directors considers it desirable that its appointment of independent
auditors be ratified by the stockholders. Singer Lewak Greenbaum & Goldstein
has been appointed to serve in that capacity for the 1999 fiscal year. The Board
of Directors will ask the stockholders to ratify the appointment of this firm as
independent auditors for the Company at the Annual Meeting.
A representative of Singer Lewak Greenbaum & Goldstein LLP will be
present at the Annual Meeting and will be available to respond to appropriate
questions from stockholders.
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 and entitled to vote is required
for the approval of Proposal 4.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
THE APPOINTMENT OF SINGER LEWAK GREENBAUM & GOLDSTEIN LLP AS THE
COMPANY'S INDEPENDENT AUDITORS.
18
<PAGE>
PROPOSAL 5 - PROPOSAL TO APPROVE THE AUTHORIZATION AND ISSUANCE
OF THE SERIES C CONVERTIBLE PREFERRED STOCK
On January 26, 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, upon the earlier to occur of (i) March 2, 2006 or (ii) the date
it is determined that the Company's net profits for any fiscal year have equaled
or exceeded $4.2 million (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 stockholder approval of these contemplated issuances.
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
stockholders, Richard M. Lee has the power to vote 1,256,920 of the 3,609,325
total outstanding shares of the Company's voting stock, or 34.8% 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 5,359,325
total outstanding shares of the Company's voting stock, or 43.0% of the total
voting power of the Company's shares. Accordingly, following the issuance and
delivery of the shares of
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<PAGE>
the Series C Preferred Stock as proposed herein, Richard M. Lee will 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 and entitled to vote is required
for the approval of Proposal 5.
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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
THE AUTHORIZATION AND ISSUANCE OF THE SERIES C CONVERTIBLE
PREFERRED STOCK.
20
<PAGE>
STOCKHOLDER PROPOSALS
All stockholder proposals which are intended to be presented at the
Annual Meeting of Stockholders of the Company in the Year 2000 must be received
by the Company no later than November ___, 1999 for inclusion in the Board of
Directors' proxy statement and form of proxy relating to the meeting.
OTHER BUSINESS
The Board of Directors knows of no other business to be acted upon at
the meeting. However, if any other business properly comes before the meeting,
it is the intention of the persons named in the enclosed proxy to vote on such
matters in accordance with their best judgment.
The prompt return of the proxy will be appreciated and helpful in
obtaining the necessary vote. Therefore, whether or not you expect to attend the
meeting, please sign the proxy and return it in the enclosed envelope.
ANNUAL REPORT
The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998 (the "Annual Report") is being mailed with this proxy
statement. The financial statements of the Company contained in the Annual
Report are hereby incorporated herein by reference.
BY ORDER OF THE BOARD OF DIRECTORS
Hiram J. Woo
Secretary
Dated: May ___, 1999
21
<PAGE>
GALVESTON'S STEAKHOUSE CORP.
10200 WILLOW CREEK ROAD
SAN DIEGO, CALIFORNIA 92131
------------------------------------
REVOCABLE PROXY
------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
GALVESTON'S STEAKHOUSE CORP. FOR USE ONLY AT THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE __, 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 April
__, 1999, at the Annual Meeting of Stockholders to be held on June __, 1999, or
any adjournment or postponement thereof, with all the powers that the
undersigned would possess if personally present as indicated below.
1. Election of Directors
Nominees: Richard M. Lee
Hiram J. Woo
Tod Lindner
Mark W. Goudge
Tom Edler
[ ] FOR [ ] AGAINST
2. The proposed amendments to the Company's Restated Certificate
of Incorporation to provide for the classification of the
Directors into three classes and related matters.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to amend the Restated Certificate of Incorporation of
the Company to change the name of the Company to Steakhouse
Partners, Inc.:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
22
<PAGE>
4. Ratification of the appointment of Singer Lewak Greenbaum &
Goldstein LLP as auditors for the year ending December 31,
1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. 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.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. 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.
THIS PROXY HAS BEEN MADE AVAILABLE TO __________________________.
The Board of Directors recommends that you vote FOR Proposal 1, FOR
Proposal 2, FOR Proposal 3, FOR Proposal 4 and FOR Proposal 5.
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, FOR
PROPOSAL 3, FOR PROPOSAL 4 AND FOR PROPOSAL 5, AND OTHERWISE AT THE DISCRETION
OF THE PROXIES.
The undersigned hereby acknowledges receipt of the Notice of the Annual
Meeting of Stockholders of the Company called for June __, 1999 and a Proxy
Statement for the Annual Meeting.
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<PAGE>
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.
24
<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.
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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. 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 equaled or
exceeded $4.2 million or (ii) March 2, 2006 (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
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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 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 stockholder of record of the Common Stock on the
Conversion Date.
(d) No fractional shares of Common Stock or script
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
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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 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
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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.
(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.
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(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 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
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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 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 Reorganizations.
(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 incorporation, 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 Incorporation, 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
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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;
(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
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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, 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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