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
14-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
COUNTRY STAR RESTAURANTS, INC.
(Name of Registrant as Specified in its Charter)
________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14-a6(i)(l) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0- 11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by the registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
PRELIMINARY PROXY STATEMENT
Country Star Restaurants, Inc.
11150 Santa Monica Boulevard, Suite 650
Los Angeles, California 90025
May ___, 1997
DEAR COUNTRY STAR RESTAURANT STOCKHOLDER:
On behalf of the Board of Directors and management, I cordially invite you
to attend the Annual Meeting of Stockholders on June 27, 1997, at 10:00 a.m., at
Country Star Las Vegas, 3724 Las Vegas Boulevard South, Las Vegas, Nevada 89109.
In addition to the election of directors and approval of the selection of
auditors, the items of business will be the authorization of additional shares
of common stock and authorization of a reverse split of the Common Stock, if and
when deemed advisable by your Board of Directors. Further details about the
meeting are in the accompanying Notice of Annual Meeting and Proxy Statement. At
the meeting, I will also report on the progress of the Company and answer
stockholder questions.
It is important that your stock be represented at the meeting. Whether or
not you plan to attend personally, please complete and mail the enclosed proxy
card in the return envelope.
Very truly yours,
DAN RUBIN
President and Chief
Executive Officer
<PAGE>
Country Star Restaurants, Inc.
11150 Santa Monica Boulevard, Suite 650
Los Angeles, California 90025
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 27, 1997
----------
TO THE STOCKHOLDERS OF COUNTRY STAR RESTAURANTS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Country
Star Restaurants, Inc., a Delaware corporation (the "Company"), will be held on
June, 27, 1997, at 10:00 a.m., PDT, at Country Star Las Vegas, 3724 Las Vegas
Boulevard South, Las Vegas, Nevada 89109, for the following purposes:
1. To elect directors;
2. To ratify the selection of Cacciamatta Accountancy Corporation as
independent auditors of the Company for the year ending December 31,
1997;
3. To authorize additional shares of common stock;
4. To authorize a reverse stock split of the outstanding common stock, if
and when deemed advisable by the Board of Directors; and
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on May 27, 1997, as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any continuation or adjournment thereof.
By Order of the Board of Directors
ROBERT L. DAVIDSON, Secretary
New York, New York
May ___, 1997
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ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE,
EVEN IF YOU HAVE VOTED YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND
THE MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A
BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO ATTEND AND VOTE AT THE MEETING,
YOU MUST OBTAIN FROM SUCH BROKER, BANK OR OTHER NOMINEE, A PROXY ISSUED IN YOUR
NAME.
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<PAGE>
Country Star Restaurants, Inc.
11150 Santa Monica Boulevard, Suite 650
Los Angeles, California 90025
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PROXY STATEMENT
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INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board of Directors" or the "Board") of Country Star Restaurants, Inc., a
Delaware corporation (the "Company"), for use at the Annual Meeting of
Stockholders to be held on June 27, 1997, at 10:00 a.m., PDT, (the "Annual
Meeting"), or at any continuation or adjournment thereof, for the purposes set
forth herein and in the accompanying Notice of Annual Meeting. The Annual
Meeting will be held at Country Star Las Vegas, 3724 Las Vegas Boulevard South,
Las Vegas, Nevada 89109.
Solicitation
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly and mailing of this proxy statement, the proxy and any
additional information furnished to common stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding shares of the Company's common stock (the "Common Stock") in
their names which are beneficially owned by others to forward to such beneficial
owners. The Company may reimburse persons representing beneficial owners for
their costs of forwarding the solicitation material to such beneficial owners.
The Company has retained MacKenzie Partners, Inc., New York, New York to assist
in the solicitation of proxies and will pay that firm a fee estimated at present
not to exceed $1,000. Original solicitation of proxies by mail may be
supplemented by telephone, telegram or personal solicitation by directors,
officers or other regular employees of the Company. No additionalcompensation
will be paid to directors, officers or other regular employees for such
services.
The Company intends to mail this proxy statement and accompanying proxy
card on or about May __, 1997, to all stockholders entitled to vote at the
Annual Meeting.
Voting Rights and Outstanding Shares
Only holders of record of Common Stock at the close of business on May 27,
1997, will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on May 27, 1997, there were outstanding and entitled to vote
________ shares of Common Stock, including shares of Common Stock issued upon
the conversion of Preferred Stock on May 10, 1997. Stockholders of record on
such date are entitled to one vote for each share of Common Stock held on all
matters to be voted upon at the meeting. A majority of the outstanding shares of
Common Stock, represented in person or by proxy, will constitute a quorum at the
Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
Annual Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Under Delaware law: (1) shares represented by
proxies that reflect abstentions or "broker non-votes" (i.e., shares held by a
broker or nominee which are represented at the meeting, but with respect to
which such broker or nominee is not empowered to vote on a particular proposal)
will be counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum; (2) there is no cumulative voting and the
director nominees receiving the highest number of votes, up to the number of
directors to be elected, are elected and, accordingly, abstentions, broker
non-votes and withholding of authority to vote will not affect the election of
directors; and (3) proxies that reflect abstentions as to a particular proposal
will be treated as voted for purposes of determining the approval of that
proposal and will have the same effect as a vote against that proposal, while
proxies that reflect broker non-votes will be treated as unvoted for purposes of
determining approval of that proposal and will not be counted as votes for or
against the proposal.
<PAGE>
Revocability of Proxies
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 11150
Santa Monica Boulevard, Suite 650, Los Angeles, California 90025, a written
notice of revocation or a duly executed proxy bearing a later date, or it may be
revoked by attending the meeting and voting in person. Attendance at the meeting
will not, by itself, revoke a proxy.
PROPOSAL I
ELECTION OF DIRECTORS
The Board of Directors is presently comprised of four members.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the Annual Meeting. Stockholders do
not have the right to cumulate their votes in the election of directors. It is
the intention of the persons named in the enclosed proxy, unless authorization
to do so is withheld, to vote the proxies received by them for the election of
the four nominees named below. If, prior to the Annual Meeting, any nominee
should become unavailable for election, an event which currently is not
anticipated by the Board, the proxies will be voted for the election of such
substitute nominee or nominees as the Board of Directors may propose. Each
person nominated for election has agreed to serve if elected and management has
no reason to believe that any nominee will be unable to serve.
All directors hold office for terms of one year and until the next annual
meeting of stockholders scheduled to vote on the election and qualification of
their respective successors. Executive Officers are elected by the Board of
Directors and serve at the discretion of the Board. The Company has agreed with
the underwriter of its Preferred Stock public offering that for a period of
three years it will use its best efforts to cause an individual selected by such
underwriter and acceptable to the Company to be elected to the Company's Board
of Directors. In addition, the Company has agreed with the underwriter of the
Company's initial public offering that, until December 1998, upon request it
will use its best efforts to cause an individual designated by such underwriter
and acceptable to the Company to be elected to the Company's Board of Directors.
To date, neither underwriter has designated anyone to serve on the Company's
Board of Directors.
Mr. Dan Rubin has the right to name three members of the Board of
Directors. The Board of Directors cannot exceed five (5) members. In the event
that Company's nominees are not elected, Mr. Rubin intends to exercise this
right.
Set forth below is biographical information for each person nominated as a
director.
Dan Rubin, age 25, became Chief Executive Officer, President and a director
of the Company on February 12, 1997. He has been a private investor during the
past five years. He is the President and Chief Executive Officer of Rubin
Investment Group, a private investment company.
Robert A. Nardone, Jr., age 30, became a Director of the Company on
February 12, 1997. He has been a senior loan officer of Summit Bank since
November, 1992.
Darren C. Rice, age 27, became a Director of the Company on February 12,
1997. He has been President of Cornerstone Financial, Inc., a mortgage banking
company since October, 1995. From November, 1992 to October, 1995 he was a
mortgage sales representative for Norwest Mortgage, Inc.
William W. Wei, age 28, became a Director of the Company on February 12,
1997. From January 1997 to the present, he has been President and owner of
Nassau Management Group, Inc., which is engaged in real estate management. Prior
thereto, he was a detective in law enforcement with the Monmouth County
Prosecutor's Office and the Rutgers University Police.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE.
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MANAGEMENT
Directors and Executive Officers
The names and ages of the directors and executive officers of the Company
continuing in office, and of executive officers who held office during 1996 are
set forth below.
Name Age Position Held
---- --- -------------
Dan J. Rubin ........... 25 President, Chief Executive Officer
and Director
Robert A. Nardone, Jr. . 30 Director
Darren C. Rice ......... 27 Director
William W. Wei ......... 28 Director
Robert L. Davidson ..... 45 Secretary
Robert J. Schuster(1) .. 52 Formerly Chairman of the Board of Directors,
Chief Executive Officer and Secretary
Peter R. Feinstein(1) .. 51 Formerly President, Chief Financial Officer,
Treasurer
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(1) Resigned as a Director of the Company during February, 1997. See "February
12, 1997 Financing and Changes in Control."
ROBERT J. SCHUSTER was Chairman of the Board, Chief Executive Officer and
Secretary of the Company from its inception to February, 1997.
PETER R. FEINSTEIN, was the President, Treasurer and a Director of the
Company from June 1993 and Chief Financial Officer from August 1995 until
February 1997. Mr. Feinstein was also Chief Financial Officer of the Company
from June 1993 through March 1994.
Board Committees and Meetings
The Board of Directors held three meetings during the year ended December
31, 1996 and may authorize an Audit Committee, a Compensation Committee and an
Executive Committee.
The Audit Committee would recommend engagement of the Company's independent
auditors and approve services performed by such auditors, including the review
and evaluation of the Company's accounting system and its system of internal
controls in connection with the Company's annual audit.
The Compensation Committee would set guidelines for the administration of
all salaries within the Company, approve recommendations for officers' salaries,
administer incentive compensation and award stock options to employees and
consultants under the Company's stock option plans and otherwise determine
compensation levels.
The Executive Committee may exercise, when the Board of Directors is not in
session, all powers of the Board of Directors in the management of the business
and affairs of the Company to the extent permitted by law, the By-Laws of the
Company and as specifically granted by the Board of Directors.
During the year ended December 31, 1996, all of the directors attended at
least 75% of the total number of meetings of the Board of Directors.
3
<PAGE>
Executive Compensation
The following table sets forth the compensation paid by the Company to the
Chief Executive Officer and executive officers of the Company whose total annual
salary and bonus exceeded $100,000 for the years ended December 31, 1994, 1995
and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------------
Annual Compensation Awards Payouts
-------------------- ------------------ -------
Securities
Other AnnualRestrictedUnderlying All Other
Name and Compen- Stock Options/ LTIP Compen-
Principal Position Year Salary($) Bonus sation($) Awards($) SARs(#) Payouts($)sation($)
---------------- ---- -------- ----- -------------------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dan Rubin .................... 1996 -- -- -- -- -- -- --
President, Chief Executive 1995 -- -- -- -- -- -- --
Officer and Director 1994 -- -- -- -- -- --
Robert J. Schuster ........... 1996 $ 250,000 $ 40,000 $0 $0 600,000(5) $0 $0
Former Chief Executive 1995 $ 250,000 $ 0 $0 $0 0 $0 $0
Officer, Secretary 1994 $ 183,333(1) $100,000 $0 $0 118,000(2) $0 $0
and Director
Peter R. Feinstein ........... 1996 $ 240,000 $ 40,000 $0 $0 600,000(5) $0 $0
Former President, 1995 $ 240,000 $ 0 $0 $0 0 $0 $0
Director and Chief 1994 $177,3333 $100,000 $0 $0 208,000(4) $0 $0
Financial Officer
Alan Fronke .................. 1996 $ 120,312 -- -- -- -- -- $100,000(6)
Former Senior Vice 1995 -- -- -- -- -- -- --
President Operations 1994 -- -- -- -- -- -- --
</TABLE>
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(1) In August of 1994, the Company's Board of Directors increased Mr.
Schuster's salary from $150,000 per annum to $250,000 per annum.
(2) All of these options, which were initially issued at $6.50 per share in
1994, were repriced in December of 1994 at $2.00 per share.
(3) In August of 1994, the Company's Board of Directors increased Mr.
Feinstein's salary from $140,000 per annum to $240,000 per annum.
(4) Of these options, 118,000 which were initially issued at $6.50 per share in
1994, were repriced in December of 1996 at $2 per share. The remaining
90,000 options were repriced in August of 1995 at $4 per share.
(5) The Board of Directors approved the award of 500,000 warrants to purchase
common stock at the rate of $4.00 per share with a vesting schedule based
on company profitability, and the award in March, 1996 of 100,000 Warrants
at $2 per share.
(6) Alan Fronke was granted 100,000 warrants to purchase common stock as part
of the initial employment agreement.
4
<PAGE>
1996 Option Grants
The following table shows information regarding grants of stock options in
1996 to the executive officers named in the Summary Compensation Table.
Individual Grants
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(a) (b) (c) (d) (e)
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees or Base
Executive Officer Granted in Fiscal Year Price ($/SH) Exp. Date
--------------- ---------- ------------ ----------- ---------
Dan Rubin .............. -- -- -- --
Robert J. Schuster ..... 100,000 6.58% $2.00 3/31/01
500,000 32.92% $4.00 3/31/01
Peter Feinstein ........ 100,000 6.58% $2.00 3/31/01
500,000 32.92% $4.00 3/31/01
Alan Fronke ............ 100,000(1) 6.58% $2.00 1/1/01
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(1) These warrants were canceled May 2, 1997.
1996 Option Exercises and Year-End Values
The following table shows information regarding the exercise of stock
options during 1996 by the executive officers named in the Summary Compensation
Table and the number and value of any unexercised stock options as of December
31, 1996.
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Shares Options at Options at
Acquired FY-End (#) FY-End ($)
on Value Exercisable/ Exercisable/
Executive Officer Exercise (#) Realized ($) Unexercisable Unexercisable
----------------- ------------ ------------ ------------- -------------
Dan Rubin .............. -- -- -- --
Robert J. Schuster ..... -- -- 218,000/500,000 --
Peter R. Feinstein ..... -- -- 308,000/500,000 --
Alan Fronke ............ -- -- 100,000/0 --
5
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows the beneficial ownership of Common Stock by any
holder of more than five percent (5%) of the outstanding shares, each nominee
and each director during 1996, by each of the incumbent executive officers, and
directors and executive officers as a group.
Common Stock
-----------------------
Amount and Nature of
Beneficial Ownership(1)
-----------------------
Percent
Name and Address of Directly Exercisable of
Beneficial Owner Owned Options Total
------------------- ------ ---------- -------
Dan J. Rubin ........................... -- 929,510 5.7%
c/o Country Star Restaurants, Inc.
11150 Santa Monica Boulevard
Suite 650
Los Angeles, California 90025
Robert A. Nardone, Jr. ................. -- -- --
c/o Country Star Restaurants, Inc.
11150 Santa Monica Boulevard
Suite 650
Los Angeles, California 90025
Darren C. Rice ......................... -- -- --
c/o Country Star Restaurants, Inc.
11150 Santa Monica Boulevard
Suite 650
Los Angeles, California 90025
William W. Wei ......................... -- -- --
c/o Country Star Restaurants, Inc.
11150 Santa Monica Boulevard
Suite 650
Los Angeles, California 90025
Robert J. Schuster(2) .................. 558,345 718,000 7.9%
1060 Hanley Avenue
Los Angeles, California 90049
Peter R. Feinstein1 .................... 180,500 808,000 6.1%
18341 Lake Encino Drive
Encino, California 91316
All incumbent officers, directors and
director nominees as a group ......... -- 929,510 5.7%
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(1) The shares of Common Stock owned by each person or by the group, and the
shares included in the total number of shares of Common Stock outstanding,
have been adjusted in accordance with Rule 13d-3 under the Securities Act
of 1934, as amended, to reflect the ownership of shares issuable upon
exercise of outstanding options, warrants, convertible debt or other common
stock equivalents which are exercisable within 60 days. As provided in such
Rule, such shares issuable to any holder are deemed outstanding for the
purpose of calculating such holder's beneficial ownership but not any other
holder's beneficial ownership.
(2) Information concerning the security ownership of Mr. Schuster and Mr.
Feinstein, former directors of the Company, is based on the Company's
belief as to these matters.
6
<PAGE>
CERTAIN TRANSACTIONS
Private Placements During 1996
On February 12, 1996, the Company sold 241,905 shares of Common Stock to
Dan Rubin, now President and Chief Executive Officer of the Company, and Roy B.
Rubin, M.D., P.C., M.P.P.P., a pension fund (the "Pension Fund") for an
aggregate purchase price of $635,000. Mr. Rubin and the Pension Fund, both of
whom are affiliates of the Rubin Investment Group, also received certain
piggyback and demand registration rights with respect to the shares it acquired.
On April 10, 1996, the Company sold (i) 133,334 shares of Common Stock and
66,667 Warrants to Wisdom Tree Associates for an aggregate purchase price of
$400,000 and (ii) 250,000 shares of Common Stock and 125,000 Warrants to Dan
Rubin for an aggregate purchase price of $750,000. Each Warrant entitles the
holder to acquire one (1) share of Common Stock of the Company at an exercise
price of $3 per share. The purchasers received certain demand and piggyback
registration rights with respect to the securities they acquired.
On August 28, 1996, the Company sold 170,371 shares of Series A Preferred
Stock to Dan Rubin, an individual, Robert Lyszczarz, an individual and Roy B.
Rubin, M.D., P.C., M.P.P.P., a pension fund (the "Pension Fund") for an
aggregate purchase price of $2,280,000. In connection with the transaction, the
Company issued an aggregate of 306,667 warrants. Each warrant entitles the
holder to acquire one (1) share of Common Stock of the Company at a purchase
price of $2.25 per share. Mr. Rubin and the Pension Fund, both of whom are
affiliates of the Rubin Investment Group, and Mr. Lyszczarz, also received
certain demand registration rights with respect to the Shares they acquired.
On October 10, 1996 the Company sold 4,000 shares of newly issued 7%
Convertible Preferred Stock, par value $.001 per share (the "Series B Preferred
Stock"). The sale was made to Cameron Capital Ltd., a foreign institutional
investor, for an aggregate purchase price of $4,000,000, or $1,000 per share. On
February 12, 1997, all of the outstanding shares of Series B Convertible
Preferred Stock was exchanged by the holder with the Company for a Convertible
Term Note in the principal amount of $4,000,000.
All of the proceeds received by the Company from each of the aforementioned
private placements is for further development of the Company's Country Star
Restaurants and for working capital purposes.
February 12, 1997 Financing and Change in Control
On February 12, 1997, the Company entered into a secured loan agreement
with Dan Rubin ("Rubin") and Cameron Capital Ltd., an institutional investor
("Cameron").
The secured loan agreement provided that Cameron had the fully assignable
right to name three (3) members of the Board of Directors of the Company and
that the Board of Directors shall not consist of more than five (5) members.
Cameron assigned this right to Rubin as its agent. Immediately after the closing
of the secured financing, Rubin's nominees, Darren Rice, William Wei and Robert
Nardone were elected to the Board of Directors of the Company. The Board then
elected Rubin to fill the last seat on the Board of Directors.
The Board then elected Dan Rubin as Chief Executive Officer and President,
and Robert L. Davidson as Secretary of the Company. Mr. Rubin assumed control of
day-to-day operations of the Company. Mr. Rubin is being compensated at the rate
of $20,000 per month, payable in cash or common stock of the Company, valued at
market value at the time of issuance. Mr. Rubin's employment is terminable at
will.
Rubin now owns warrants to acquire and convertible debt which if converted
would allow him to acquire an aggregate of846,176 shares of the Company's common
stock. Upon exercise of such warrants and conversion of the convertible debt,
Rubin would own 5.3% of the common stock of the Company then outstanding. None
of the other newly elected directors own any shares or warrants or other rights
to acquire any shares of the Company's common stock.
Under the secured financing agreement, Rubin has made a $3,500,000 line of
credit loan available to the Company, of which an initial advance of $500,000
was committed at closing. Rubin, in his sole discretion, may make additional
advances to the Company under this line of credit, but is not required to make
any such additional advances. All advances under the line of credit loan bear
interest at the rate of prime plus four percent (4%), payable
7
<PAGE>
semi-annually commencing December 31, 1997. The principal balance of all line of
credit advances are due and payable on October 9, 1999. In consideration for the
initial line of credit advance of $500,000, the Company issued a warrant to
acquire 166,667 shares of its common stock at an exercise price of $.625 per
share.
All additional line of credit advances shall have the same terms and
conditions as the initial line of credit advance. For each such additional
advance, Rubin shall receive one (1) common stock purchase warrant for every $3
advanced. The exercise price for these warrants shall be $.625 per share. All of
the warrants issued or to be issued to Rubin shall be subject to adjustment in
the event of stock splits, stock dividends, mergers, consolidations, or similar
corporate events.
Cameron exchanged its 4,000 shares of Series B Convertible Preferred Stock
of the Company, with an aggregate liquidation preference of $4,000,000, for a
convertible term note in the principal amount of $4,000,000. The convertible
term note bears interest at the rate of seven percent (7%) per annum, payable
semi-annually commencing December 31, 1997. The principal balance is due and
payable on October 9, 1999. Any portion or all of the principal amount of the
note outstanding may be converted into common stock of the Company commencing
ninety (90) days after the date of closing of the financing. Upon conversion,
the Company shall issue that number of shares of its common stock obtained by
dividing the principal amount of the loan converted by the lesser of (i) $1.33,
or (ii) 80% of the average closing bid price of the common stock for the five
(5) consecutive trading days preceding the date of conversion. The maximum
number of shares into which the convertible note may be converted shall not
exceed 3,000,000. The conversion formula is subject to adjustment in the event
of stock splits, stock dividends, mergers, consolidations, or similar
transactions.
In connection with the commitment to make the line of credit loan, Rubin
and other investors in the Company have agreed to settle certain claims against
the Company for the amount of $1,950,000, plus $50,000 in fees and expenses. The
Company has issued its convertible term notes in the aggregate amount of
$1,950,000 and agreed to pay $50,000 to Rubin and these investors, in settlement
of their claims. These convertible term notes contain the same terms and
conditions as the convertible term note issued to Cameron, except that the
holders of these convertible term notes may exercise their conversion feature at
any time following the closing.
The agreements described above relating to the exchange of Convertible
Preferred Stock and the issuance of convertible term notes have been accounted
for effective December 31, 1996 because substantially all of the conditions
precedent to the occurrence of these transactions had taken place as of that
date.
The line of credit advances by Rubin, Cameron's convertible term note and
the convertible term notes issued in settlement of claims are all secured by a
lien on substantially all of the tangible and intangible assets of the Company.
In the event of default, the secured parties shall participate in the proceeds
of the collateral in proportion to their outstanding debt.
In connection with the secured financing transaction, Robert Schuster
("Schuster"), Chairman of the Board and Chief Executive Officer of the Company,
resigned as Chief Executive Officer and agreed to release the Company from all
obligations under his Employment Agreement, including severance obligations.
Schuster continued to serve as a Director until February 13, 1997. Immediately
upon notice from the Company, Schuster has agreed that he will become a
consultant to the Company for a nine (9) month period with compensation at the
rate of $250,000 per annum, plus the continuation of fringe benefits consisting
of his automobile allowance and payment of health insurance.
In connection with the secured financing transaction, Mr. Peter Feinstein
resigned as Director, President and Chief Financial Officer of the Company and
released the Company from all obligations under his Employment Agreement,
including severance obligations. Mr. Feinstein has agreed to become a consultant
to the Company for a nine (9) month period with compensation at the rate of
$240,000 per annum plus the continuation of fringe benefits consisting of his
automobile allowance and payment of health insurance.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than 10% of a registered class of the
Company's equity securities ("Reporting Persons"), to file reports of ownership
and changes in ownership with the SEC and with The NASDAQ Stock Market.
Reporting Persons are required by SEC regulations to furnish the Company with
copies of all forms they file pursuant to Section 16(a).
8
<PAGE>
Based solely on its review of the copies of such reports received by it, or
written representations from certain Reporting Persons that no other reports
were required for those persons, the Company believes that, during the year
ended December 31, 1996, the Reporting Persons complied with all Section 16(a)
filing requirements applicable to them.
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Cacciamatta Accountancy Corporation as
the Company's independent auditors for the year ending December 31, 1997, and
has further directed that management submit the selection of independent
auditors for ratification by the stockholders at the Annual Meeting. Cacciamatta
Accountancy Corporation has audited the Company's financial statements for
fiscal year 1996. Representatives of Cacciamatta Accountancy Corporation are
expected to be present at the Annual Meeting and will have an opportunity to
make a statement if they so desire and will be available to respond to
appropriate questions.
Stockholder ratification of the selection of Cacciamatta Accountancy
Corporation as the Company's independent auditors is not required by the
Company's By-Laws or otherwise. However, the Board is submitting the selection
of Cacciamatta Accountancy Corporation to the stockholders for ratification as a
matter of good corporate practice. If the stockholders fail to ratify the
selection, the Board will reconsider whether or not to retain that firm. Even if
the selection is ratified, the Board in its discretion may direct the
appointment of a different independent accounting firm at any time during the
year if the Board determines that such a change would be in the best interests
of the Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the meeting will be
required to ratify the selection of Cacciamatta Accountancy Corporation. On
January 5, 1996, the Company was informed by its independent auditor, Ernst &
Young, LLP ("E&Y") that E&Y had resigned as the Company's independent auditor,
effective immediately. The Company had retained E&Y to act as its independent
auditor on March 2, 1994. For the period beginning with the retention of E&Y and
ending with the resignation of E&Y, the reports of E&Y on the financial
statements of the Company did not contain any adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles. Since initially retaining E&Y, the Company has not had
any disagreements with E&Y on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
On March 18, 1996, the Company engaged BDO Seidman, LLP to replace E&Y as
the Company's independent auditor, effective immediately. On November 12, 1996,
the Company terminated the firm of BDO Seidman, LLP as independent auditor. For
the period beginning with the retention of BDO Seidman, LLP and ending with its
termination, its reports on the financial statements of the Company did not
contain any adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles. During April,
1997, BDO Seidman, LLP reissued its report on the Company's financial statements
for the year ended December 31, 1995 to indicate substantial doubt about the
Company's ability to continue as a going concern. Since retaining BDO Seidman,
LLP, the Company has not had any disagreements with it on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure.
On January 16, 1997, the Company engaged the services of Deloitte & Touche
LLP to serve as the Company's independent auditor. On March 29, 1997, the
Company terminated the firm of Deloitte & Touche LLP as its independent auditor.
For the period beginning with the retention of Deloitte & Touche LLP and ending
with its termination, Deloitte & Touche LLP did not prepare any reports or
render any adverse opinion or disclaimer of opinion on the financial statements
of the Company. Since initially retaining Deloitte & Touche LLP the Company has
not had any disagreements with it on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure.
On March 29, 1997, the Company engaged the services of Cacciamatta
Accountancy Corporation to serve as the Company's independent auditor.
The Board of Directors recommends a vote in favor of Proposal 2.
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PROPOSAL 3
AMENDMENT TO CERTIFICATE OF INCORPORATION TO
INCREASE NUMBER OF AUTHORIZED SHARES OF
COMMON STOCK FROM 25,000,000 TO 250,000,000 SHARES
The Company's Board of Directors unanimously adopted a resolution declaring
it advisable to amend the Company's Certificate of Incorporation to increase the
number of authorized shares of Common Stock $.001 par value, from 25,000,000 to
250,000,000 shares, subject to approval by the stockholders. The form of the
proposed amendment (the "Amendment") is attached as Appendix A.
Management believes that the Amendment is in the best interests of the
Company and its stockholders, to maintain the Company's flexibility in
responding to future business and financing needs and opportunities. These
additional shares will be used for general corporate purposes, including use for
additional stock splits, financing transactions, acquisitions, stock dividends,
rights or securities convertible into Common Stock and employee stock option and
other stock ownership plans.
Management has no plan at the present time for the issuance or use of the
additional shares of Common Stock to be authorized by the Amendment. The
issuance of additional shares of authorized Common Stock would be within the
discretion of the Board of Directors, without the requirement of further action
by stockholders unless such action is required by applicable law or the rules of
any stock exchange on which the Company's securities may then be listed. All
newly authorized shares would have the same rights as the presently authorized
common shares, including the right to cast one vote per share and to participate
in dividends when and to the extent declared and paid.
Management is unaware of any specific effort to obtain control of the
Company, and has no present intention of using the proposed increase in the
number of authorized shares of Common Stock as an anti-takeover device. However,
the Company's authorized but unissued capital stock could be used to make an
attempt to effect a change in control more difficult.
VOTE REQUIRED
Approval of the Amendment requires the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock.
The Board of Directors recommends a vote FOR the amendment of the Company's
Certificate of Incorporation to increase the number of authorized shares of
Common Stock.
PROPOSAL 4
Authorization to Amend the Certificate of Incorporation, in the discretion
of the Board of Directors, to effect a one-for-ten reverse stock split of the
outstanding shares of Common Stock.
GENERAL
The Board of Directors has determined that it may be advisable to amend the
Company's Certificate of Incorporation to (i) effect a one-for-ten reverse split
of the Company's issued and outstanding shares of Common Stock, and (ii) provide
for the payment of cash in lieu of fractional shares otherwise issuable, all
substantially as set forth in the form of Amendment to Certificate to
Incorporation attached as Appendix B (the "Amendment").
Subject to stockholder approval of the proposed Amendment, the Board of
Directors will, if and when it deems it in the best interests of the Company,
authorize the filing of the Amendment with the Secretary of the State of
Delaware. Such an Amendment to the Company's Certificate of Incorporation would
result in one post-split share of Common Stock being issued in exchange for
every ten shares of Common Stock issued and outstanding on the effective date of
the reverse split. If the Amendment is authorized by the stockholders and the
Board of Directors determines to proceed with the reverse split, the Boardwill
use its discretion to determine when to file the Amendment.
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The Board of Directors reserves the right in its sole discretion to proceed
with or to abandon the proposed Amendment and reverse split without further
action by the stockholders at any time. However, in no event will the Board of
Directors exercise its authority to effect the reverse split, if such action
would result in the common stock no longer being listed on the NASDAQ
inter-dealer quotation system.
PRINCIPAL EFFECTS OF REVERSE SPLIT: Based upon the ____________ shares of Common
Stock outstanding as of May __, 1997, the reverse split would decrease the
outstanding shares Common Stock by approximately 90%, and, would result in
approximately _____ post-split shares of Common Stock outstanding, subject to
adjustment as a result of the elimination of fractional shares. Similarly, the
aggregate number of shares of Common Stock reserved for issuance upon exercise
of warrants and options would decrease from approximately ________ shares of
Common Stock to approximately _______ shares of Common Stock, subject to
adjustment as a result of the elimination of fractional shares.
Each outstanding option or warrant will automatically become an option or
warrant, as the case may be, to purchase 10% of the number of shares subject to
the option or warrant immediately prior to the reverse split at an exercise
price which will be appropriately adjusted to reflect the reverse split, subject
to adjustment as a result of the elimination of fractional shares. In addition,
the shares available for issuance under the Company's Incentive Stock Option
Plan and non-qualified Stock Option Plan will be reduced by approximately 90% to
reflect the reverse split, subject to adjustments required to eliminate
fractional shares, and the other relevant terms and provisions of the Company's
stock option plans will be appropriately adjusted to reflect the reverse split.
The reverse split will not affect the aggregate par value of the
outstanding shares of Common Stock but the par value of each authorized and
unissued, and each outstanding share of common stock, will be $.01 par value per
share. The reverse split will not affect the number or par value of the
authorized Preferred Shares, which will remain at 2,000,000 Preferred Shares,
$.001 par value per share. If filed, the Amendment would decrease the number of
shares outstanding and reserved for issuance pursuant to the exercise of options
and warrants and will result in an increase in the number of shares available
for issuance. Subject to the provisions for the elimination of fractional
shares, consummation of the reverse split will not result in a change in the
relative equity interest in the Company or the voting power or other rights,
preferences or privileges of the holders of Common Stock.
The Company has been advised that:(i) the proposed reverse stock split will
not be a taxable transaction to the Company; (ii) the Company's stockholders who
do not receive any cash will not recognize any gain or loss as a result of the
reverse stock split; (iii) the aggregate tax basis of the Common Stock received
by the stockholders pursuant to the reverse stock split will equal the aggregate
tax basis of the stockholders' Common Stock prior to the reverse stock split;
and (iv) the holding period of the Common Stock received by the Company's
stockholders will include the holding period of the stockholders' Common Stock
before the reverse stock split, provided the Common Stock was a capital asset in
the hands of such stockholder. This discussion should not be considered as tax
or investment advice, and the tax consequences of the reverse split may not be
the same for all stockholders. Stockholders should consult their own tax
advisors to ascertain their individual federal, state, local and foreign tax
consequences.
PURPOSES OF THE REVERSE SPLIT: The reverse split would decrease the number of
shares of Common Stock outstanding and presumably increase the per share market
price for the post-split shares. The Company's Board of Directors believes that
the relatively low market price per share of the Company's Common Stock may
impair the marketability of the Common Stock to institutional investors and
members of the investing public. The Board also recognizes that many leading
brokerage firms are reluctant to recommend lower-priced securities to their
clients.
The Company is currently listed on The NASDAQ National Market; however,
there is no assurance that the Company will continue to meet the maintenance
standards for continued listing on The NASDAQ National Market. Under the
NASDAQ's listing criteria, listed companies which have low stock prices for a
sustained period risk de-listing by NASDAQ. If the Company is unable to satisfy
the NASDAQ requirements for continued listing in the National Market System or
other NASDAQ listings, including, among other things, an adequately high trading
price, trading of the Common Stock may thereafter be conducted in the
over-the-counter market in the so-called "pink sheets" or NASDAQ's OTC Bulletin
Board. Consequently, the liquidity of the Company's Common Stock could be
impaired, through delays in the timing of transactions, reduction in the news
media's coverage of the Company, lack of investment analyst interest in covering
the Company, and lower prices for the Company's Common Stock that might
otherwise be obtained.
11
<PAGE>
The decrease in the number of shares of Common Stock outstanding resulting
from the reverse split and the anticipated corresponding increased price per
share may stimulate interest in the Company's Common Stock, promote greater
liquidity for the Company's stockholders and result in a price level for the
post-split Common Stock that will help it to maintain its NASDAQ National Market
listing. However, there is no assurance that the reverse split will achieve
these results. In addition, it is possible that the liquidity of the post-split
shares of Common Stock may be adversely affected by the reduced number of shares
outstanding if the proposed reverse split is effected. In addition, the reverse
split might leave some stockholders with one or more "odd-lots" of the Company's
Common Stock (stock in amounts of less than 100 shares). These shares may be
more difficult to sell, or require a greater commission per share to sell, than
shares in even multiples of 100.
If the reverse split becomes effective, the additional shares of post-split
Common Stock available for issuance by the Board of Directors of the Company may
be used for raising additional capital, stock options, acquisitions, stock
splits, stock dividends or other corporate purposes. There are no arrangements,
understandings or plans for the issuance of any such additional shares, other
than shares reserved for issuance upon the exercise of stock options and
warrants outstanding or authorized for issuance under existing plans.
EXCHANGE OF CERTIFICATES AND ELIMINATION OF FRACTIONAL SHARE INTERESTS: If the
proposed Amendment becomes effective, each ten pre-split shares of Common Stock
will automatically be combined and changed into one post-split share of Common
Stock and each certificate representing pre-split shares of Common Stock will
represent for all purposes one-tenth of that number of post-split shares of
Common Stock. Stockholders will then be requested to exchange their certificates
representing Common Stock held prior to the reverse split for new certificates
representing Common Stock issued as a result of the reverse split. Stockholders
will be furnished the necessary materials and instructions to effect such
exchange. Stockholders should not submit any certificates until requested to do
so.
No scrip or fractional post-split Common Stock will be issued to any
stockholder in connection with the reverse split. Accordingly, all stockholders
of record who would otherwise be entitled to receive fractional post-split
Common Stock, will, upon surrender of their certificates representing pre-split
Common Stock, receive a cash payment in lieu thereof equal to the fair value of
such fractional share. Holders of less than ten pre-split shares of Common Stock
as a result of the reverse split, will on the effective date of the reverse
split no longer be stockholders of the Company. The fair value of the Common
Stock will be based on the closing price of the Common Stock on NASDAQ on the
effective date, or, if there are no reported sales on such date, the average of
the last reported high bid and low asked prices on such day shall be used.
The Company's Annual Report on Form 10-KSB for the year ended December 31,
1996 includes the Company's audited financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," which
are incorporated by reference in this Proxy Statement. A copy of the Annual
Report on Form 10-KSB accompanies this Proxy Statement.
VOTE REQUIRED
Approval of the Amendment requires the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR 1998 MEETING
Proposals of stockholders for next year's Proxy Statement must be received
on or before January 29, 1998. Proposals should be mailed to the Company at the
address listed on page 1.
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<PAGE>
OTHER BUSINESS
The Board of Directors knows of no other business that will be presented
for consideration at the Annual Meeting. If other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote the shares represented thereby on such matters in accordance with
their best judgment.
By Order of the Board of Directors
ROBERT L. DAVIDSON, Secretary
May ___, 1997
13
<PAGE>
APPENDIX "A"
CERTIFICATE OF AMENDMENT
of
CERTIFICATE OF INCORPORATION
of
COUNTRY STAR RESTAURANTS, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is:
COUNTRY STAR RESTAURANTS, INC.
2. The Certificate of Incorporation of the Corporation is hereby amended by
striking out Article Fourth thereof and substituting in lieu of said Article
Fourth the following new Article:
Fourth: (a) The total number of shares of stock which the Corporation shall
have authority to issue is Two Hundred Fifty Two Million (252,000,000),
consisting of Two Hundred Fifty Million (250,000,000) shares of Common
Stock, all of a par value of One Mil ($.001), and Two Million (2,000,000)
shares of Preferred Stock, all of a par value of One Mil ($.001).
The rights, preferences, designations and series of the Preferred Stock
shall be established from time to time by the Board of Directors."
Signed and attested to
on _________________, 1997
_______________________________
Dan J. Rubin, President
Attest:
__________________________
Secretary
A-1
<PAGE>
APPENDIX "B"
CERTIFICATE OF AMENDMENT
of
CERTIFICATE OF INCORPORATION
of
COUNTRY STAR RESTAURANTS, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is:
COUNTRY STAR RESTAURANTS, INC.
2. The Certificate of Incorporation of the Corporation is hereby amended by
adding to Article Fourth thereof a new paragraph (c) as follows:
(c) Reverse Stock Split. Effective as of the close of business on the date
of filing this Amendment to the Certificate of Incorporation with the
Secretary of State of Delaware, there shall be effected a reverse split of
the outstanding shares of Common Stock on the basis of one new share of
common stock for each ten then issued and outstanding shares of Common
Stock.Without any action by the holders of outstanding shares of Common
Stock, certificates representing each ten outstanding shares of Common
Stock shall represent for all purposes, and each ten shares of Common Stock
then issued and outstanding shall automatically be converted into, one
share of Common Stock.
No scrip or fractional shares of Common Stock shall be issued in connection
with such reverse split.In lieu thereof each record holder of shares of
Common Stock who would otherwise have been entitled to receive a fractional
share of common stock shall be entitled to receive a cash payment equal to
the closing sale price of one share on The NASDAQ National Market on the
date of filing of this Amendment, or, if there are not reported sales on
such date, the average of the last reported high bid and low asked prices
on such day, multiplied by the fractional share which would otherwise be
issuable after giving effect to the reverse split, and such amount shall in
no event accrue any interest.Any such fractional shares shall not represent
equity interests in the Corporation, and shall not be entitled to any
voting, dividend or other rights, but shall represent only the right to
receive the cash payment described in this paragraph.
When this Amendment becomes effective (i) the aggregate amount of capital
represented by all issued and outstanding shares of Common Stock
immediately after the effectiveness of this Amendment will not be less than
the aggregate amount of capital represented by all issued and outstanding
shares of Common Stock immediately before the effectiveness of the
Amendment and, therefore, the capital of the Corporation will not be
reduced under or by reason of this Amendment and (ii) the par value of the
Corporation's authorized shares of Common Stock shall be $.01 per share.
Signed and attested to
on _________________, 1997
_______________________________
Dan J. Rubin, President
Attest:
__________________________
Secretary
B-1
<PAGE>
PRELIMINARY PROXY
PROXY/VOTING INSTRUCTION CARD
COUNTRY STAR RESTAURANTS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints ____________ and ____________, or any of
them, each with power of substitution, as proxies for the undersigned to vote
all shares of Common Stock of said Company which the undersigned is entitled to
vote at the Annual Meeting of Stockholders to be held on June 27, 1997, and any
adjournments thereof, as hereinafter specified and, in their discretion, upon
such other matters as may properly come before the meeting. The undersigned
hereby revokes all proxies heretofore given.
On matters for which you do not specify a choice, your shares will be voted in
accordance with the recommendation of the Board of Directors.
1. Election of Directors (mark only one)
[ ] Vote FOR all nominees listed [ ] Vote WITHHELD from all nominees
below and recommended by the
Board of Directors (except as
directed to the contrary below)
DAN J. RUBIN;
ROBERT A. NARDONE, JR.;
DARREN C. RICE;
WILLIAM W. WEI;
Instruction: To withhold authority for any individual nominee, write that
nominee's name in the space below.
________________________________________________________________________________
<PAGE>
The Board of Directors recommends a vote "FOR" proposals Nos. 2 through 4.
For Against Abstain
2. On independent accountants [ ] [ ] [ ]
3. On Amendment to Certificate [ ] [ ] [ ]
of Incorporation to increase
number of authorized shares of
common stock
4. On Amendment to Certificate of [ ] [ ] [ ]
Incorporation for reverse split
of the shares of in the discretion
of the Board of Directors
Dated:____________________________, 1997
SIGN HERE_______________________________
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If the
signer is a corporation, sign the full
corporate name by duly authorized
officer.
PLEASE SIGN, DATE, DETACH AND RETURN THIS PROXY, USING THE ENCLOSED POSTAGE
PREPAID ENVELOPE.
