<PAGE> 1
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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
Star Buffet, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] Fee not 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:
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<PAGE> 2
STAR BUFFET, INC.
440 LAWNDALE DRIVE
SALT LAKE CITY, UTAH 84115
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 28, 1999
To the Stockholders of Star Buffet, Inc.:
The Annual Meeting of Stockholders of Star Buffet, Inc. will be held at the
HomeTown Buffet, 1312 N. Scottsdale Drive, Scottsdale, Arizona, on Monday, June
28, 1999, at 9:00 a.m. for the following purposes:
1. To elect the following five (5) nominees to serve as directors until the
next annual meeting of stockholders or until their successors are
elected and have qualified:
<TABLE>
<S> <C>
Robert E. Wheaton Phillip "Buddy" Johnson
Jack M. Lloyd Craig B. Wheaton
Thomas G. Schadt
</TABLE>
2. To amend the Certificate of Incorporation to require the approval of
holders of 66 2/3% of the voting power of the then outstanding shares of
any class or series of capital stock of the Company entitled to vote,
voting together as a single class (the "Voting Stock") and/or the
approval of 66 2/3% of the directors of the Company for certain
corporate transactions (the "Supermajority Amendment");
3. To transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
Only stockholders of record at the close of business on May 19, 1999 will
be entitled to notice of and to vote at the meeting or any adjournment thereof.
By Order of the Board of Directors,
Robert E. Wheaton
Chairman of the Board
Salt Lake City, Utah
June 1, 1999
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, TO ASSURE THAT YOUR SHARES WILL
BE VOTED AT THE MEETING, YOU ARE REQUESTED TO SIGN THE ATTACHED PROXY AND RETURN
IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID, ADDRESSED ENVELOPE. NO ADDITIONAL
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE MEETING,
YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON ON EACH MATTER.
<PAGE> 3
STAR BUFFET, INC.
440 LAWNDALE DRIVE
SALT LAKE CITY, UT 84115
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JUNE 28, 1999
------------------------
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the Board of Directors of Star Buffet, Inc., a Delaware
corporation ("Star" or the "Company"), for use at the Annual Meeting of
Stockholders to be held at the HomeTown Buffet, 1312 N. Scottsdale Drive,
Scottsdale, Arizona, on Monday, June 28, 1999, at 9:00 a.m. (the "Meeting").
This Proxy Statement and accompanying proxy card (the "Proxy Card") are
first being mailed to stockholders on or about June 1, 1999.
SOLICITATION OF PROXIES
At the Meeting, the stockholders of Star will be asked (1) to vote upon the
election of five (5) nominees to serve as directors until the next annual
meeting of stockholders or until their successors are elected and have
qualified, (2) to amend the Certificate of Incorporation to require the approval
of the holders of 66 2/3% of the Voting Stock and/or 66 2/3% of the directors of
the Company for certain corporate transactions (the "Supermajority Amendment"),
and (3) to act upon such other matters as may properly come before the Meeting
or any postponements or adjournments thereof. Star's Board of Directors is
asking for your proxy for use at the Meeting. A stockholder giving a proxy may
revoke it at any time before it is exercised. Any proxy that is not revoked will
be voted at the Meeting in accordance with the stockholder's instructions
indicated on the enclosed Proxy Card. If no instructions are marked on a
properly executed returned Proxy Card, the shares represented thereby will be
voted FOR the election of the director nominees. Although management does not
know of any other matter to be acted upon at the Meeting, shares represented by
valid proxies will be voted by the persons named on the Proxy Card in accordance
with their best judgment with respect to any other matters that may properly
come before the Meeting.
The cost of solicitation of proxies will be paid by Star. In addition,
following the mailing of the Proxy Statement, directors, officers and regular
employees of Star may solicit proxies by mail, telephone, telegraph or personal
interview. Such persons will receive no additional compensation for such
services. Brokerage houses and other nominees, fiduciaries and custodians
nominally holding shares of Star Common Stock of record will be requested to
forward proxy soliciting material to the beneficial owners of such shares and
will be reimbursed by Star for their charges and expenses in connection
therewith.
RECORD DATE AND VOTING
Holders of Star Common Stock of record at the close of business on May 19,
1999 (the "Record Date") are entitled to notice of, and to vote at, the Meeting.
As of the Record Date, there were 2,950,000 shares of Star Common Stock
outstanding and entitled to vote at the Meeting. No shares of the Company's
preferred stock, $.001 par value, were outstanding. A majority of shares
entitled to vote represented in person or by proxy will constitute a quorum at
the Meeting. Each stockholder is entitled to one vote for each share of Common
Stock held as of the Record Date. Abstentions and broker non-votes are each
included in the determination of the number of shares present and voting for the
purpose of determining whether a quorum is present. Abstentions will be treated
as shares present and entitled to vote for purposes of any matter requiring the
affirmative vote of a majority or other proportion of the shares present and
entitled to vote. With respect to shares relating to any proxy as to which a
broker non-vote is indicated on a proposal, those shares will not be considered
present and entitled to vote with respect to any such proposal. Abstentions or
broker non-votes or other failures to vote will have no effect in the election
of directors, who will be elected by a plurality of the
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<PAGE> 4
affirmative votes cast. With respect to any matter brought before the Annual
Meeting requiring the affirmative vote of a majority or other proportion of the
outstanding shares, an abstention or broker non-vote will have the same effect
as a vote against the matter being voted upon.
PROPOSAL 1
ELECTION OF DIRECTORS
Currently, there are five (5) members of the Board of Directors. Directors
are elected at each annual stockholders' meeting to hold office until the next
annual meeting or until their successors are elected and have qualified. Unless
otherwise instructed, the persons named in the accompanying Proxy Card will vote
the proxies received by them for the five (5) nominees named below. All of the
nominees presently are directors of the Company.
If any nominee becomes unavailable for any reason before the election, the
persons named in the accompanying Proxy Card will have discretionary authority
to vote for the election of such substitute nominee or nominees, if any, as
shall be designated by the Board of Directors. The Board of Directors has no
reason to believe that any of the nominees will be unavailable to serve.
DIRECTORS
The names and certain information concerning the five (5) nominees for
election as directors are set forth below. THE BOARD OF DIRECTORS RECOMMENDS
THAT YOU VOTE "FOR" THE ELECTION OF EACH OF THE NOMINEES NAMED BELOW.
The director nominees of Star are as follows:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
---- --- --------------------
<S> <C> <C>
Robert E. Wheaton...................... 47 Chief Executive Officer, President and
Chairman
Phillip "Buddy" Johnson................ 46 Director
Jack M. Lloyd.......................... 48 Director
Thomas G. Schadt....................... 57 Director
Craig B. Wheaton....................... 41 Director
</TABLE>
Robert E. Wheaton has served as the Chief Executive Officer and President
and as a director of the Company since its formation in July 1997. Mr. Wheaton
has been Chairman of the Board since December 1998. Mr. Wheaton served as
Executive Vice President of CKE from January 1996 through January 1999. From
April 1995 to January 1996, he served as Vice President and Chief Financial
Officer of Denny's Inc., a subsidiary of Flagstar Corporation. From 1991 to
1995, Mr. Wheaton served as President and Chief Executive Officer, and from 1989
to 1991 as Vice President and Chief Financial Officer of the Bekins Company.
Phillip "Buddy" Johnson has served as a Director of the Company since
February 1999 and as President of the BuddyFreddys Division since it was
acquired in April 1998. From 1980 until 1998, he was the founding Chairman and
CEO of BuddyFreddys Enterprises. From 1991 to 1996, Mr. Johnson served as
Republican floor leader in the Florida House of Representatives. Mr. Johnson
also served on the executive committee of The Foundation for Florida's Future, a
non-profit corporation established in 1995 by Jeb Bush.
Jack M. Lloyd has served as a director of the Company since the completion
of the Company's initial public offering in September 1997. Mr. Lloyd has served
as Chairman of the Board of DenAmerica Corp. since July 9, 1996 and as
President, Chief Executive Officer and a director of DenAmerica Corp. since
March 29, 1996. Mr. Lloyd served as Chairman of the Board and Chief Executive
Officer of Denwest Restaurant Corp. ("DRC") from 1987 until the March 1996
merger of DRC and DenAmerica and as President of DRC from 1987 until November
1994. Mr. Lloyd engaged in commercial and residential real estate development
and property management as President of First Federated Investment Corporation
during the early and mid-1980's. Mr. Lloyd also currently serves as a director
of Action Performance Companies, Inc.
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<PAGE> 5
Thomas G. Schadt has served as a director of the Company since the
completion of the Company's initial public offering in September 1997. Mr.
Schadt has been the Chief Executive Officer of a privately-held beverage
distribution company, Bear Creek, L.L.C., since 1995. From 1976 to 1994, he held
several positions with PepsiCo, Inc., most recently, Vice President of Food
Service.
Craig B. Wheaton has served as a director of the Company since February
1999. Mr. Wheaton is a partner in the law firm Kilpatrick Stockton LLP. His main
areas of practice include employee benefits, executive compensation and general
corporate law. Mr. Wheaton received his B.A. degree, with honors, from the
University of Virginia and his J.D. degree from Wake Forest University. Mr.
Wheaton was a member of the Tax Council of the North Carolina Bar Association
Section on Taxation ('93-'98) and chair of its Employee Benefits Committee
('95-'97). He is a member and former president of the Triangle Benefits Forum.
He is a member of the Southern Employee Benefits Conference, the Employee
Benefits Committee of the American Bar Association's Section of Taxation, the
National Pension Assistance Project's National Lawyers Network, and the National
Association of Stock Plan Professionals. Mr. Wheaton is the brother of Robert E.
Wheaton, the Company's Chairman, President and Chief Executive Officer.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Executive Committee of the Board of Directors, comprised of Messrs.
Foley, Thompson and Wheaton, was empowered by the Board of Directors to take all
actions that may otherwise be taken by the Board of Directors, to the extent
permitted by law. The Executive Committee was eliminated with the resignation of
Messrs. Foley and Thompson form the Board on November 2, 1998.
The Board of Directors has two standing committees; the Audit Committee and
the Compensation Committee. The Board does not have a nominating committee or
other committee performing similar functions. Instead, the Board of Directors,
as a whole, identifies and screens candidates for membership on the Company's
Board of Directors. The Audit Committee, whose current members are Messrs.
Schadt, Lloyd and Craig Wheaton, monitors Star's basic accounting policies and
their related system of internal control, reviews Star's audit and management
reports and makes recommendations regarding the appointment of independent
auditors. The Compensation Committee, whose current members are Messrs. Schadt,
Lloyd and Craig Wheaton, considers the hiring and election of corporate
officers, salary and incentive compensation policies for officers and directors,
and the granting of stock options to employees.
During fiscal 1999, the Board of Directors held three meetings and the
Executive Committee held two meetings. The Compensation Committee and the Audit
Committee did not meet during fiscal 1999. During fiscal 1999, no director
attended fewer than 75% of the aggregate meetings of the Board of Directors and
the committee or committees on which he served.
COMPENSATION OF DIRECTORS
For their services as directors in fiscal 1999, each non-employee director
received $2,000 per meeting of the Board of Directors and $500 per committee
meeting. In addition, all directors are entitled to participate in Star's 1997
Stock Incentive Plan.
PROPOSAL 2
AMENDING THE COMPANY'S
CERTIFICATE OF INCORPORATION TO REQUIRE
A 66 2/3% SUPERMAJORITY STOCKHOLDER VOTE
FOR CERTAIN TRANSACTIONS
SUPERMAJORITY STOCKHOLDER VOTE FOR CERTAIN TRANSACTIONS
The Board of Directors has approved, subject to stockholder approval, an
amendment to the Certificate of Incorporation to provide that the approval of
holders of 66 2/3% of the voting power of the then outstanding shares of any
class or series of capital stock of the Company entitled to vote, voting
together as a single class
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<PAGE> 6
(the "Voting Stock") and/or the approval of 66 2/3% of the directors of the
Company be necessary for certain corporate transactions (the "Supermajority
Amendment").
ANALYSIS OF PROPOSAL 2
The Supermajority Amendment provides that the affirmative vote of holders
of not less than 66 2/3% of the Voting Stock of the Company entitled to vote for
approval shall be required if the Company:
(a) merges or consolidates with any other corporation;
(b) sells or exchanges all or a substantial part of its assets to or
with any other corporation, or
(c) issues or delivers any stock or other securities of its issue in
exchange or payment for any properties or assets of any other corporation,
or securities issued by any other corporation, or in a merger of any
subsidiary of this corporation (80% or more of the Voting Stock of which is
held by this corporation) with or into any other corporation.
This 66 2/3% supermajority vote requirement will not apply, however, if the
Board of Directors approves and recommends without condition a transaction of
the type listed above by the affirmative vote of not less than 66 2/3% of the
directors. The 66 2/3% supermajority vote requirement also will not apply to any
such transaction solely between the Company and another corporation if the
Company owns 50% or more of the voting stock of the other corporation. The
Supermajority Amendment will permit the Board of Directors to condition its own
approval of any such transaction upon the approval of holders of 66 2/3% of the
Voting Stock of the Company entitled to vote on such transaction.
The Board of Directors believes that it is in the stockholders' best
interest to require a supermajority Board of Directors vote and/or a
supermajority stockholder vote when the Company proposes to engage in a
transaction such as a merger, which is likely to be very material to the Company
and its operations. The Supermajority Amendment is designed to encourage
corporations that seek to acquire control of the Company to propose terms which
would be acceptable to a supermajority of Directors and/or stockholders, rather
than a simple majority. The Board of Directors believes that such a provision
would improve the Board of Director's negotiating leverage in any "change of
control" transaction and would help ensure that adequate consideration is
received by the Company stockholders in connection with any such transaction. In
addition, the Board of Directors believes that the Supermajority Amendment would
facilitate the Company's hiring and retention of competent management personnel
by increasing the likelihood of a stable employment environment.
Generally, the Delaware General Corporation Law (the "DGCL") provides that
transactions of the type covered by the Supermajority Amendment only require the
approval of the holders of a majority of the shares eligible to vote on such a
transaction unless a company's certificate or stockholder-approved bylaws
provide otherwise. Thus, the Supermajority Amendment will make it more difficult
to obtain Company stockholder approval of mergers, consolidations, the sale or
exchange of Company assets, or the issuance and delivery of its stock or
securities. If the Supermajority Amendment is approved, it can only be repealed
by the vote of holders of 66 2/3% of the Voting Stock of the Company entitled to
vote on amendments to the Company's Certificate.
ANTITAKEOVER CONSIDERATIONS AND OTHER MATTERS
The Supermajority Amendment has antitakeover implications and could be used
to deter a takeover of the Company which is opposed by the Company's Board of
Directors and make it more difficult to remove incumbent management. Thus, this
amendment could be considered as serving interests of management which may not
be identical to the interests of the Company's stockholders.
The overall effect of the Supermajority Amendment would be to render more
difficult the accomplishment of certain mergers and other transactions,
including transactions involving assumptions of control by hostile third
parties. Accordingly, if the Supermajority Amendment is approved, Company
stockholders could be deprived (in certain instances) of temporary opportunities
to sell their shares at higher market prices. Moreover, by possibly deterring
proxy contests, merger proposals or acquisitions of substantial blocks of the
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<PAGE> 7
Company's capital stock, the Supermajority Amendment might have the incidental
effect of inhibiting certain changes in incumbent management, some or all of
whom may be replaced in the course of a change in control. Because certain
members of Company management are also members of the Board of Directors, the
interest of each director may not always be identical to that of the Company's
stockholders. The Supermajority Amendment could give management or a minority of
stockholders the power to veto a transaction desired by a majority of
stockholders. Officers and Directors of the Company, as a group, hold 30.9% of
the Company's Common Stock. See "Ownership of the Company's Securities."
The Certificate already contains some provisions that have antitakeover
effects that could deter a takeover attempt opposed by Company management. The
Certificate does not permit stockholders to cumulate their votes in elections of
directors. This provision could deter a takeover that was opposed by management
by preventing an acquirer from obtaining immediate control of the Board of
Directors.
Company management is not aware of any specific effort to accumulate the
Company's securities or to obtain control of the Company by means of a merger,
tender offer, solicitation in opposition to management or otherwise.
PROPOSED RESOLUTIONS
"RESOLVED, that the Certificate of Incorporation be amended by adding a new
Article 10 which shall be and read as follows:
The affirmative vote of the holders of not less than 66 2/3% of the then
outstanding shares of any class or series of capital stock of this corporation
entitled to vote, voting together as a single class (the "Voting Stock") shall
be required if:
(a) this corporation merges or consolidates with any other
corporation,
(b) this corporation sells or exchanges all of a substantial part of
its assets to or with any other corporation, or
(c) this corporation issues or delivers any stock or other securities
of its issue in exchange or payment for any properties or assets of any
other corporation, or securities issued by any other corporation, or in a
merger of any subsidiary of this corporation (80% or more of the voting
stock of which is held by this corporation) with or into any other
corporation;
provided, however, that the foregoing shall not apply to any plan of merger or
consolidation, or sale or exchange of assets, or issuance or delivery of stock
or other securities which was approved (or adopted) and recommended without
condition by the affirmative vote of not less than 66 2/3% of the directors, nor
shall it apply to any such transaction solely between this corporation and
another corporation 50% or more of the voting stock of which is owned by this
corporation. The Board of Directors shall be permitted to condition its approval
(or adoption) of any plan of merger or exchange of assets, or issuance or
delivery of stock or securities upon the approval of holders of 66 2/3% of the
then outstanding shares of Voting Stock of this corporation entitled to vote on
such plan of merger or consolidation, or sale or exchange of assets, or issuance
or deliver of stock or securities."
REQUIRED VOTE
The affirmative vote of a majority of the Common Stock outstanding and
entitled to vote at the Meeting is required to approve Proposal 2. THE BOARD OF
DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF PROPOSAL 2 OR THE
SUPERMAJORITY AMENDMENT.
OTHER MATTERS
Management does not know of any matter to be acted upon at the Meeting
other than the matters described above, but if any other matter properly comes
before the Meeting, the persons named on the enclosed Proxy Card will vote
thereon in accordance with their best judgment.
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<PAGE> 8
OWNERSHIP OF THE COMPANY'S SECURITIES
The following table sets forth certain information regarding beneficial
ownership of Star's Common Stock as of the Record Date, by (i) each person who
is known by Star to beneficially own more than five percent of the outstanding
Star Common Stock, (ii) each director of Star, (iii) each Named Executive
Officer of Star identified in the Summary Compensation Table and (iv) all
current directors and executive officers of Star as a group. Except as otherwise
indicated, beneficial ownership includes both voting and investment power.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP CLASS(%)(1)
------------------------------------ ----------------------- -----------
<S> <C> <C>
Robert E. Wheaton................................... 942,192(2) 30.3%
Jack M. Lloyd....................................... 7,500(3) *
Thomas G. Schadt.................................... 7,500(3) *
Phillip "Buddy" Johnson............................. 200(4) *
Craig B. Wheaton.................................... 6,500 *
Robert Fleming, Inc................................. 523,075(5) 17.7%
320 Park Avenue -- 11th Floor
New York, NY 10022
Kennedy Capital Management, Inc. ................... 358,700(6) 12.2%
10829 Olive Blvd.
St. Louis, MO 63141
Dresdner RCM Global Investors LLC................... 300,000(7) 10.2%
Four Embarcadero Center
San Francisco, CA 94111
All executive officers and directors as a group (5
persons).......................................... 963,892(8) 30.9%
</TABLE>
- ---------------
* Less than one percent.
(1) Calculated based on 2,950,000 shares of Star Common Stock outstanding May
19, 1999.
(2) Includes 159,492 shares subject to presently exercisable options or options
that become exercisable within 60 days of May 19, 1999.
(3) Includes 7,500 shares subject to presently exercisable options or options
that become exercisable within 60 days of May 19, 1999.
(4) Does not include 20,000 shares subject to options that will become
immediately exercisable upon grant in fiscal year 2000 pursuant to an
employment agreement entered into between Phillip "Buddy" Johnson and the
Company on March 20, 1998.
(5) Robert Fleming, Inc. has shared power to vote 523,075 of such shares and has
shared power to dispose of all such shares. Robert Fleming, Inc. claims
beneficial ownership with respect to all such shares. The information
relating to the beneficial ownership of Robert Fleming, Inc. has been
derived from the Schedule 13G dated February 5, 1999 filed by Robert
Fleming, Inc. with the Securities and Exchange Commission. The number of
shares beneficially owned by Robert Fleming, Inc. is stated as of December
31, 1998.
(6) Kennedy Capital Management, Inc. has sole power to vote 337,450 of such
shares and sole power to dispose 358,700 of such shares. Kennedy Capital
Management, Inc. claims beneficial ownership with respect to all such
shares. The information relating to the beneficial ownership of Kennedy
Capital Management, Inc. has been derived from the Schedule 13G dated
February 5, 1999 filed by Kennedy Capital Management, Inc. with the
Securities and Exchange Commission. The number of shares beneficially owned
by Kennedy Capital Management, Inc. is stated as of December 31, 1998.
(7) Dresdner RCM Global Investors LLC ("Dresdner LLC") has sole power to vote
and sole power to dispose of all 300,000 shares. Dresdner LLC claims
beneficial ownership with respect to all such 300,000 shares. Dresdner LLC
is a wholly owned subsidiary of Dresdner Bank AG, an international banking
organization headquartered in Frankfurt, Germany. Dresdner Bank AG also
claims beneficial ownership with respect to all such 300,000 shares, but
only to the extent that Dresdner Bank AG may be deemed to have beneficial
ownership of securities deemed to be beneficially owned by Dresdner LLC.
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<PAGE> 9
The information relating to the beneficial ownership of Dresdner LLC and
Dresdner Bank AG has been derived from their respective Schedule 13G's,
dated January 8, 1999, as filed by Dresdner LLC and Dresdner Bank AG with
the Securities and Exchange Commission. The number of shares beneficially
owned by Dresdner LLC and Dresdner Bank AG is stated as of December 31,
1998.
(8) Includes 174,492 shares subject to presently exercisable options or options
that become exercisable within 60 days of May 19, 1999.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION FOR THE FISCAL YEAR
ENDED JANUARY 25, 1999.
The Compensation Committee (the "Committee"), comprised of three
non-employee directors, is responsible for administering the executive
compensation policies, administering the various management incentive programs
(including option plans), and making recommendations to the Board of Directors
with respect to these policies and programs. In addition, the Committee makes
annual recommendations to the Board of Directors concerning the compensation
paid to the Chief Executive Officer and to each of the other executive officers
of Star (each, an "Executive Officer"). As discussed below, the Company began
its independent corporate existence on July 28, 1997 through the reorganization
of direct or indirect wholly-owned subsidiaries of CKE. The Committee was not
formed until after the first meeting of the Board following the formation of the
Company. Since there was no Committee at the time of the first Board meeting, it
was necessary for the non-employee directors of the Board to decide all
compensation issues at that meeting. In addition, certain compensation
arrangements were established by the Compensation Committee of the Board of
Directors of CKE while the Company was a wholly-owned subsidiary of CKE.
The following is a summary of the policies which the Board of Directors
analyzed in determining the compensation for the Executive Officers of the
Company. The Committee intends to follow the same general policies in
determining the compensation for the Executive Officers of the Company in fiscal
2000, but may, in its discretion, alter such policies to take into consideration
the applicable circumstances at the time.
Compensation Policies Towards Executive Officers. The Committee believes
that the most effective executive compensation program is one that provides
incentives to achieve both current and long-term strategic management goals,
with the ultimate objective of enhancing stockholder value. In this regard, the
Committee believes executive compensation should be comprised of cash as well as
equity-based programs. Base salaries are generally set at market levels in order
to attract and retain qualified executives. With respect to equity-based
compensation, the Committee believes that an integral part of Star's
compensation program is the ownership and retention of Star's Common Stock by
its Executive Officers. By providing Executive Officers with a meaningful stake
in Star, the value of which is dependent on Star's long-term success, a
commonality of interests between Star's Executive Officers and its stockholders
is fostered.
Relationship of Performance to Compensation. Compensation that may be
earned by the Executive Officers in any fiscal year consists primarily of base
salary, cash bonus and stock options. The significant factors that were
considered in establishing the components of each Executive Officer's
compensation package for the fiscal year ended January 25, 1999 are summarized
below. The Committee, in its discretion, may apply different factors,
particularly different measures of financial performance, in setting executive
compensation for future fiscal years, but all compensation decisions will be
designed to further the general compensation policies indicated above.
Base Salary. The base salary for each Executive Officer is set on the basis
of personal performance, the salary levels in effect for comparable positions
with Star's principal competitors (including, but not limited to, Star's
self-determined peer group set forth in the "Stock Performance Graph"), and
Star's financial performance relative to such competitors. Factors relating to
individual performance that are assessed in setting base compensation are based
on the particular duties and areas of responsibility of the individual Executive
Officer. Factors relating to Star's financial performance that may be related to
increasing or
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<PAGE> 10
decreasing base salary include revenues and earnings. The establishment of base
compensation involves a subjective assessment and weighing of the foregoing
criteria and is not based on any specific formula.
Cash Bonus. Annual bonuses are earned by each Executive Officer on the
basis of Star's achievement of pre-tax income targets established at the start
of the fiscal year and on the basis of the particular Executive Officer's duties
and areas of responsibility. Bonus amounts are established based on various
levels of performance against such targets. Following the completion of the
fiscal year, the Committee assesses Star and individual performance against the
established targets and provides for annual bonuses based on the targeted
performance of levels actually achieved.
Stock Options. Stock option grants motivate Executive Officers to manage
the business to improve long-term Star performance, and align the interests of
Executive Officers with stockholder value. Customarily, option grants are made
with exercise prices equal to the fair market value of the shares on the grant
date and will be of no value unless the market price of Star's outstanding
shares appreciates, thereby aligning a substantial part of the Executive
Officer's compensation package with the return realized by the stockholders.
Options generally vest in equal installments over a period of time, contingent
upon the Executive Officer's continued employment with Star. Accordingly, an
option will provide a return to the Executive Officer only if the Executive
Officer remains employed by Star and the market price of the underlying shares
appreciates over the option term. The size of an option grant is designed to
create a meaningful opportunity for stock ownership and is based upon the
individual's current position with Star, internal comparability with option
grants made to other Star executives and the individual's potential for future
responsibility and promotion over the option term. The Committee has established
an award program which takes into account the level of responsibility in the
organization, and total compensation compared to comparable companies, in making
option grants to the Executive Officers in an attempt to target a fixed number
of unvested option shares based upon the individual's position with Star and the
Executive Officer's existing holdings of unvested options. As such, the award of
stock options requires subjective judgment as to the amount of the option.
However, the Committee does not adhere strictly to these guidelines and will
occasionally vary the size of the option grant, if any, made to each Executive
Officer as circumstances warrant.
Chief Executive Officer Compensation. Robert E. Wheaton became Star's Chief
Executive Officer upon the Company's formation in July 1997. Prior to the
Company's initial public offering in September 1997, Mr. Wheaton's annual base
compensation was established at $250,000 for the fiscal year ended January 25,
1999, based on the philosophy described above.
Corporate Deduction for Compensation. Section 162(m) of the Code generally
limits to $1.0 million the corporate deduction for compensation paid to certain
executive officers, unless certain requirements are met. Star's 1997 Stock
Incentive Plan is structured so that any compensation deemed paid to an
executive officer upon exercise of an option, with an exercise price equal to
the fair market value of the underlying shares on the grant date, will qualify
as performance-based compensation that will not be limited by Section 162(m).
The Committee intends to monitor regulations issued pursuant to Section 162(m)
and to take such actions with respect to the executive compensation program as
are reasonably necessary to preserve the corporate tax deduction for executive
compensation paid.
Thomas G. Schadt
Jack M Lloyd
Craig B. Wheaton
The report of the Compensation Committee of the Board of Directors shall
not be deemed incorporated by reference by any general statement incorporating
by reference this Proxy Statement into any filing under the Securities Act of
1933 or under the Securities Exchange Act of 1934, except to the extent that
Star specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
8
<PAGE> 11
STOCKHOLDER PERFORMANCE GRAPH
COMPARISON OF 16 MONTH CUMULATIVE TOTAL RETURN*
AMONG STAR BUFFET, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE DOW JONES RESTAURANTS INDEX
<TABLE>
<CAPTION>
NASDAQ STOCK DOW JONES
STAR BUFFET, INC. PEER GROUP MARKET (U.S.) RESTAURANTS
----------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
'9/25/97' 100.00 100.00 100.00 100.00
'1/98' 102.08 76.47 96.95 98.33
'1/99' 48.96 58.58 151.70 153.16
</TABLE>
* $100 INVESTED ON 9/25/97 IN STOCK OR INDEX.
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JANUARY 31.
The Peer Group includes the following stocks: Garden Fresh Restaurants
(LTUS), Roadhouse Grill (GRLL), Sizzler International (SZ), Fresh Foods Inc.
(FOOD), Shell's Seafood (SHLL) and Fresh Choice (SALD). All are listed on NASDAQ
except for Sizzler International, which is on the New York Stock Exchange. The
Peer Group stocks are all small capitalization stocks in the family dining
segment which is more relative of the business in which Star Buffet operates.
The Stock Performance Graph shall not be deemed incorporated by reference
by any general statement incorporating by reference this Proxy Statement into
any filing under the Securities Act of 1933 or under the Securities Exchange Act
of 1934, except to the extent that Star specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
9
<PAGE> 12
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The Company was incorporated on July 28, 1997, through the reorganization
of direct or indirect wholly-owned subsidiaries of CKE. Prior to the Company's
incorporation, the Company's Executive Officers have been employed by CKE or its
subsidiaries, and all or substantially all of their compensation paid prior to
July 28, 1997 was paid by CKE or its subsidiaries primarily for services
rendered to CKE or its subsidiaries. In connection with the organization of the
Company, the Company and CKE established an allocated annual base salary of
$187,000 for Robert E. Wheaton, Chairman of the Board, Chief Executive Officer
and President of the Company. The following table sets forth the compensation
awarded to, earned by or paid to the Company's executive officer for each of the
three fiscal years ended January 27, 1997, January 26, 1998 and January 25,
1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -----------------------
------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING
FISCAL SALARY BONUS COMPENSATION AWARDS OPTIONS
NAME AND TITLE YEAR ($) ($) ($)(4) ($) (#)(5)
-------------- ------- ------- ------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Wheaton................... 1999(1) 221,155 -- 4,658 --
Chairman of the Board, President 1998(2) 61,298 -- -- 239,237
and Chief Executive Officer 1997(3) 200,000 70,000 9,344 30,000
</TABLE>
- ---------------
(1) Mr. Wheaton's annual salary was $250,000 in fiscal 1999. In August 1998, Mr.
Wheaton's employment agreement with CKE was modified to provide that Star
pays 100% of his base salary.
(2) Excludes the following amounts earned by Mr. Wheaton from CKE during fiscal
1998: (i) salary in the amount of $160,721, (ii) bonus in the amount of
$80,354, (iii) other annual compensation in the amount of $8,820 and (iv)
16,500 options to purchase CKE's common stock. In September 1997, Mr.
Wheaton's employment agreement with CKE was modified to provide that CKE
pays 25% of his base salary and Star pays the remaining 75%.
(3) Represents compensation paid by CKE or its subsidiaries to Mr. Wheaton in
his capacity as Executive Vice President of CKE.
(4) "Other Annual Compensation" represents auto related payments to Mr. Wheaton.
(5) Represents options to purchase shares of CKE's common stock for fiscal 1997,
and represents options to purchase shares of Star's common stock for fiscal
1998.
STOCK OPTIONS
There were no stock options granted to the Named Executive Officers during
the fiscal year ended January 25, 1999.
10
<PAGE> 13
OPTION EXERCISES AND HOLDINGS
No options were exercised by any of the Named Executive Officers during the
fiscal year ended January 25, 1999. The following table sets forth the fiscal
year end options values for all options held by the Company's Named Executive
Officer.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END(#) AT FISCAL YEAR END($)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert E. Wheaton.......................... 159,492 79,745 -- --
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended January 25, 1999, no executive officer of the
Company, except for Mr. Foley, who was Chairman of the Board of the Company and
served as a member of the Compensation Committee thereof until the date of his
resignation from the Board of Directors on November 2, 1998, served as a member
of the compensation committee or as a director of any other entity, one of whose
executive officers serves on the Compensation Committee or is a director of the
Company. Mr. Foley is the Chairman of the Board and Chief Executive Officer of
CKE.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires Star's
executive officers and directors, and persons who own more than 10% of a
registered class of star's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission ("SEC").
Executive officers, directors and greater than 10% stockholders are required by
SEC regulations to furnish Star with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, Star believes that, during fiscal 1999, all filing
requirements applicable to its executive officers, directors and greater than
10% stockholders were satisfied.
CERTAIN TRANSACTIONS
The Company and CKE are parties to a three-year Service Agreement, pursuant
to which CKE provides the Company with certain multi-unit infrastructure
support, including accounting and administration, purchasing services, financial
services and real estate services, in exchange for which CKE receives an annual
management fee in the amount of $350,000, which may be increased up to 10% per
year by CKE based upon increases in CKE's cost of providing such services.
Commencing February 24, 1998, the annual management fee was increased to
$375,000. The Service Agreement with CKE was terminated on February 22, 1999.
Prior to the Company's initial public offering, the Company declared a cash
dividend payable to CKE in an aggregate amount equal to approximately $7.9
million. The Company paid the dividend in September 1997 with a portion of the
net proceeds from the Company's initial public offering.
The Company was incorporated as a Delaware corporation on July 28, 1997.
Prior to the completion of the Company's initial public offering, CKE
contributed to the Company all of the issued and outstanding shares of capital
stock of Summit Family Restaurants Inc. ("Summit") in exchange for 2,600,000
shares of Common Stock of the Company (the "Summit Exchange"). Summit is the
parent corporation of HTB Restaurants, Inc. ("HTB"), which operates 16 HomeTown
Buffet restaurants as a franchisee of HomeTown Buffet, Inc. (the "HomeTown
Franchisor"). Summit was acquired by CKE in July 1996, at which time it was
11
<PAGE> 14
the owner, operator and franchisor of 101 JB's Restaurants and the owner and
operator of six Galaxy Diner restaurants. Prior to the Summit Exchange, Summit
transferred substantially all of its net assets, including its JB's Restaurant
system and Galaxy Diner restaurants, but excluding the shares of capital stock
of HTB owned by Summit, to JB's Restaurants, Inc., a newly formed subsidiary of
CKE ("JB's"), in exchange for a promissory note (the "JB's Note") with a
principal amount equal to CKE's book value of those net assets as of the date of
transfer, determined in accordance with generally accepted accounting principles
("GAAP"). JB's continued to operate the JB's Restaurants and related franchise
systems and the Galaxy Diner restaurants and assume all of Summit's liabilities,
other than liabilities incurred which specifically relate to the restaurant
operations of HTB. Immediately following completion of such transfer, and prior
to the Summit Exchange, Summit assigned the JB's Note and its rights to payment
thereunder to CKE as a dividend. In addition, prior to the Summit Exchange, Taco
Bueno Restaurants, Inc., an indirect wholly-owned subsidiary of CKE formerly
known as Casa Bonita Incorporated ("Taco Bueno"), transferred substantially all
of the net assets relating to its two Casa Bonita restaurants to Summit in
exchange for a promissory note (the "Casa Bonita Note") with a principal amount
equal to CKE's book value of those net assets (which was estimated at $495,000
as of August 11, 1997) as of the date of transfer, determined in accordance with
GAAP. Summit continued to operate the Casa Bonita restaurants and assume
substantially all of Taco Bueno's liabilities relating to those restaurant
operations. Prior to the completion of the Company's initial public offering,
all of the parties to the foregoing transactions were direct or indirect
wholly-owned subsidiaries of CKE.
On February 24, 1998, pursuant to the terms of an Asset Purchase Agreement
dated February 10, 1998 (the "Purchase Agreement"), the Company, through its
wholly-owned subsidiary Summit, acquired substantially all of the assets of
twelve JB's Restaurants for $4,265,000 in cash from JB's. In connection with the
Purchase Agreement, Summit and JB's entered into franchise agreements for each
of the purchased restaurants pursuant to which JB's granted to Summit the right
to use the intangible property rights of JB's. Summit paid to JB's cash in the
amount of $485,000 to satisfy all royalty payments due under all of the
franchise agreements through the first anniversary of the closing of the
transaction.
CKE has also agreed to indemnify and hold the Company harmless from any
income tax liability attributable to periods ending on or before the
consummation of the Company's initial public offering. For periods ending after
the consummation of the initial public offering, the Company will pay its income
tax liability directly to the appropriate taxing authorities. CKE generally
controls any audits and administrative and judicial proceedings with respect to
periods ending on or before the consummation of the initial public offering,
although CKE cannot compromise or settle any issue that increases the Company's
liability without the Company's prior written consent. The Company generally
will control all other audits and administrative and judicial proceedings.
INDEPENDENT AUDITORS
Selection of an independent auditor is made by the Board of Directors upon
consultation with the Audit Committee. Star's independent auditor for the fiscal
year ended January 25, 1999, was KPMG LLP. The Board of Directors will vote upon
the selection of an auditor for the current fiscal year at a future Board
meeting.
Representatives of KPMG LLP are expected to attend the Meeting and be
available to respond to appropriate questions. The representatives of KPMG LLP
also will have an opportunity to make a formal statement, if they so desire.
12
<PAGE> 15
STOCKHOLDERS' PROPOSALS FOR 2000 ANNUAL MEETING
Pursuant to the rules of the Securities and Exchange Commission, proposals
by eligible stockholders (as defined below) which are intended to be presented
at Star's Annual Meeting of Stockholders in 2000 must be received by Star by
January 31, 2000 in order to be considered for inclusion in Star's proxy
materials. The Board of Directors of Star will determine whether any such
proposal will be included in its 2000 proxy solicitation materials. An eligible
stockholder is one who is the record or beneficial owner of at least 1% or
$1,000 in market value of securities entitled to be voted at the 2000 Annual
Meeting and has held such securities for at least one year, and who shall
continue to own such securities through the date on which the meeting is held.
Stockholders are urged to sign and return their proxies without delay.
For the Board of Directors
ROBERT E. WHEATON,
Chairman of the Board
June 1, 1999
The Annual Report to Stockholders of the Company for the fiscal year ended
January 25, 1999 is the Company's Annual Report on Form 10-K which was filed
with the Securities and Exchange Commission on April 26, 1999 and which is being
mailed concurrently with this Proxy Statement to all stockholders of record as
of May 19, 1999. The Annual Report is not to be regarded as proxy soliciting
material or as a communication by means of which any solicitation is to be made.
13
<PAGE> 16
PROXY
STAR BUFFET, INC.
440 LAWNDALE DRIVE
SALT LAKE CITY, UT 84115
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF STAR BUFFET, INC.
The undersigned hereby appoints Robert E. Wheaton as Proxy, with the power to
appoint his substitute, and hereby authorizes him to represent and to vote as
designated below, all the shares of Common Stock of Star Buffet, Inc. held of
record by the undersigned on May 19, 1999, at the Annual Meeting of Stockholders
to be held on June 28, 1999, and any postponements or adjournments thereof.
PLEASE DATE, SIGN ON REVERSE SIDE AND RETURN IN THE ACCOMPANYING ENVELOPE.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
Please mark [X]
your votes as
indicated in this
example.
1. ELECTION OF DIRECTORS: FOR all of the nominees WITHHOLD AUTHORITY to
listed below (except vote for all nominees
as marked to the listed below [ ]
contrary below) [ ]
INSTRUCTION: To withhold authority to vote for any individual nominee strike a
line through the nominee's name in the list below.
Robert E. Wheaton
Phillip "Buddy" Johnson
Jack M. Lloyd
Thomas G. Schadt
Craig B. Wheaton
2. To amend the Certificate of Incorporation to require the approval of holders
of 66 2/3% of the then outstanding Voting Stock and/or the approval of 66
2/3% of the directors of the Company for certain corporate transactions (the
"Supermajority Amendment").
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before such meeting or any and all
postponements or adjournments thereof.
DO YOU PLAN TO ATTEND THE MEETING? YES [ ] NO [ ]
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder IF NO DIRECTION IS GIVEN, THE PROXIES WILL VOTE
FOR THE NOMINEES LISTED ABOVE, AND IN THEIR DISCRETION ON MATTERS DESCRIBED IN
ITEM 2.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Signature _______________________ Signature if held jointly ____________________
Dated: __________________________, 1999
Please sign exactly as the name appears below. When shares are held by joint
tenants, both should sign. When signing as an attorney, executor, administrator,
trustee or guardian, please give your full title as such. If a corporation,
please sign in full corporate name by the President or other authorized officer.
If a partnership, please sign in the partnership name by an authorized person.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
