<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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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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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(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
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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<PAGE> 2
CINEMASTAR LUXURY THEATERS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 27, 1999
TO THE STOCKHOLDERS OF CINEMASTAR LUXURY THEATERS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of CinemaStar
Luxury Theaters, Inc. (the "Company") will be held on Wednesday, October 27,
1999 at 10:00 a.m. local time at the Ultraplex 10 at University Village,
University Village Plaza, 1201 University Avenue, Riverside, California 92507,
for the following purposes:
1. To elect directors to serve for the ensuing year and until their successors
are elected and qualified;
2. To approve a reduction in the number of authorized shares of Common Stock,
$0.01 par value from 60,000,000 to 20,000,000;
3. To ratify the appointment of Arthur Andersen LLP as the Company's independent
public accountants for the fiscal year ending March 31, 2000; and
4. To transact such other business as may properly come before the meeting or
any postponement or adjournment(s) thereof.
The foregoing items of business are more fully described in the Proxy Statement
accompanying this Notice.
Only stockholders of record at the close of business on September 27, 1999 are
entitled to notice of and to vote at the meeting and any adjournment(s) thereof.
All stockholders are cordially invited to attend the meeting in person. However,
to assure your representation at the meeting, you are urged to mark, sign, date
and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if such shareholder returned a proxy card.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Norman Dowling
---------------------------------------
NORMAN DOWLING
SECRETARY
San Diego, California
September 29, 1999
<PAGE> 3
CINEMASTAR LUXURY THEATERS, INC.
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 27, 1999
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
CinemaStar Luxury Theaters, Inc. (the "Company"), a Delaware corporation, for
use at the Annual Meeting of Stockholders to be held on Wednesday, October 27,
1999, at 10:00 A.M. local time, or at any postponement or adjournment(s)
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting of Stockholders. The Annual Meeting will be held at the Ultraplex
10 at University Village, University Village Plaza, 1201 University Avenue,
Riverside, California 92507.
The Company's principal executive offices are located at 12230 El Camino Real,
Suite 320, California 92130. The Company's telephone number at that location is
(858) 509-2777. The Company also has executive offices at 327 Congress Avenue,
Suite 350, Austin, Texas 78701. The telephone number at that location is (512)
476-2995.
This Proxy contains information that was also included in the Company's Annual
Report on Form 10-KSB filed with the Securities and Exchange Commission on June
10, 1999.
SOLICITATION
These proxy solicitation materials, furnished by the Company, were mailed on or
about September 29, 1999 to all stockholders entitled to vote at the meeting.
The costs of soliciting these proxies will be borne by the Company. These costs
will include the expenses of preparing and mailing proxy materials for the
Annual Meeting and reimbursement paid to brokerage firms and others for their
expenses incurred in forwarding solicitation material regarding the Annual
Meeting to beneficial owners of the Company's common stock ("Common Stock"). The
Company may conduct further solicitation personally, telephonically or by
facsimile through its officers, directors and regular employees, none of whom
will receive additional compensation for assisting with the solicitation.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use, by delivering to the Company at 12230 El
Camino Real, Suite 320, California 92130 (Attention: Mr. Norman Dowling,
Secretary), a written notice of revocation or a duly executed proxy bearing a
later date or by attending the meeting of stockholders and voting in person.
VOTING
Stockholders of record at the close of business on September 27, 1999 will be
entitled to vote at the meeting. As of that date, 3,864,986 shares of common
stock, par value $.01 per share, of the Company were outstanding. Each share of
Common Stock is entitled to one vote. A majority of the outstanding shares of
the Company, represented in person or by proxy at the meeting, constitutes a
quorum. A plurality of the votes cast at the meeting is required to elect
directors. Shares represented
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by proxies that reflect abstentions or include "broker non-votes" will be
treated as present and entitled to vote for purposes of determining the presence
of a quorum. Abstentions or "broker non-votes" do not constitute a vote "for" or
"against" any matter and thus will be disregarded in the calculation of "votes
cast."
RECORD DATE AND SHARE OWNERSHIP
Only stockholders of record at the close of business on September 27, 1999 are
entitled to notice of and to vote at the meeting and any adjournment(s) thereof.
As of the record date, 3,864,986 shares of the Company's Common Stock were
issued and outstanding.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented by
such stockholders at the Company's 2000 Annual Meeting of Stockholders must be
received by the Company no later than July 15, 2000 in order that they may be
considered for inclusion in the proxy statement and form of proxy relating to
that meeting.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
The Company's bylaws currently provide for between four and seven directors.
Unless otherwise instructed, the proxy holders will vote the proxies received by
them for the Company's six nominees named below, all of whom are presently
directors of the Company. In the event that any nominee of the Company is unable
or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for any nominee who shall be designated by the present
Board of Directors to fill the vacancy. Assuming a quorum is present, the six
nominees for director receiving the greatest number of votes cast at the Annual
Meeting will be elected. The term of office of each person elected as a director
will continue until the next Annual Meeting of Stockholders or until his or her
successor has been elected and qualified.
The names of the nominees and the executive officers and certain other
information about them as of August 31, 1999 are set forth below:
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION AGE
- ---- -------------------- ---
<S> <C> <C>
Jack R. Crosby Director; Chairman of the Board of Directors and Chief 72
Executive Officer
Frank J. Moreno Director; President and Chief Operating Officer 59
Jack S. Gray, Jr. Director; Vice Chairman of the Board of Directors 42
</TABLE>
3
<PAGE> 5
<TABLE>
<S> <C> <C>
Thomas G. Rebar Director and Member of the Compensation and Audit 36
Committees
Wayne B. Weisman Director and Member of the Compensation and Audit 43
Committees
Winston J. Churchill Director and Member of the Compensation Committee 58
Norman Dowling Chief Financial Officer, Vice President and Secretary 36
Neil R. Austrian, Jr. Executive Vice President 34
</TABLE>
JACK R. CROSBY has been Chairman of the Board of Directors of the Company since
December 1997 and Chief Executive Officer of the Company since February 1998.
Mr. Crosby was Chairman of Board of Directors of Tescorp, Inc., a publicly
traded company which owns and operates cable television systems in Argentina
("Tescorp"), since its inception in 1980, and was Chief Executive Officer from
1991 until it was sold in February 1998. Mr. Crosby is the General Partner of
Rust Group, L.P., a Texas limited partnership holding certain of Mr. Crosby's
business assets, and he is the president of Rust Investment Corp., the general
partner of Rust Capital, Ltd. ("Rust Capital"), an investment limited
partnership with its headquarters in Austin, Texas. Mr. Crosby presently serves
as a director of Prime Venture I, a cable television enterprise. Mr. Crosby also
serves as a director of two other publicly traded companies: National Dentex
Corporation, a manufacturer of dental appliances, and DSI Toys, Inc., a toy
manufacturer and distributor. From 1982 through early 1985, he served as a
director of Orion Pictures. As a principal of Rust Group, L.P., Mr. Crosby
participated in the purchase of selected motion picture theaters from Wometco
Theaters, Inc. in 1990 before selling them in 1994.
FRANK J. MORENO has been a Director of the Company since April 1998 and
President and Chief Operating Officer of the Company since February 1998, and
served as a consultant to the Company in December 1997 through February 1998.
Prior to joining the Company, Mr. Moreno was the President and Chief Executive
Officer of Theater Acquisitions L.P., a privately-owned company formed by Jack
Crosby and Mr. Moreno in 1990 to purchase selected movie theaters in Florida and
Puerto Rico from Wometco Enterprises Inc. Under Moreno's leadership, Theater
Acquisitions L.P. expanded the circuit and significantly increased its operating
performance before being sold in 1994. Mr. Moreno has significant experience in
the movie exhibition industry.
JACK S. GRAY, JR. has been a Director and Vice Chairman of the Board of
Directors of the Company since April 1998. Prior to that, he served as President
and Chief Operating Officer of Tescorp, Inc., a NASDAQ traded company, from
March 1991 until February 1998. Mr. Gray has acted as partner, officer and/or
director of Rust Group, L.P. and/or its affiliates since 1985.
THOMAS G. REBAR has been a Director and Member of the Compensation and Audit
Committees of the Company since December 1997 and served as Secretary of the
Company from April 1998 to November 1998. Mr. Rebar is a Partner of SCP Private
Equity Management, L.P., the general partner of SCP Private Equity Partners,
L.P., a private
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equity investment fund ("SCP"), which position he has held since June 1996. From
1989 until joining SCP in 1996, Mr. Rebar served as Senior Vice President of
Charterhouse, Inc., an investment banking firm. Prior to joining Charterhouse,
Inc., Mr. Rebar was a member of the corporate finance department at Bankers
Trust Company.
WAYNE B. WEISMAN has been a Director and Member of the Compensation and Audit
Committees of the Company since December 1997. Mr. Weisman has been a Partner of
SCP Private Equity Management, L.P., the general partner of SCP, since the
inception of SCP in 1996. Since 1991, Mr. Weisman has served as Vice President
of CIP Capital Management, Inc., the general partner of CIP Capital, L.P., a
small business investment company, or in a similar capacity in the predecessors
to such entities. From 1992 to 1994, he served as a director and Executive Vice
President of Affinity Biotech. Inc., and Vice President and General Counsel of
its successor, IBAH, Inc. From 1987 to 1990, Mr. Weisman ran an independent
investment management and advisory firm. He formerly practiced law with the
Philadelphia firm of Saul, Ewing, Remick & Saul.
WINSTON J. CHURCHILL has been a Director and Member of the Compensation
Committee of the Company since December 1997. Mr. Churchill has been a Managing
General Partner of SCP Private Equity Management, L.P., the general partner of
SCP, since SCP's inception in 1996. Mr. Churchill founded Churchill Investment
Partners, Inc. in 1989 and CIP Capital, Inc. in 1990, each of which is an
investment and venture capital fund, and continues to be a principal of each.
From 1989 to 1993 he served as Chairman of the Finance Committee of the $24
billion Pennsylvania Public School Employees' Retirement System. From 1984 to
1989, Mr. Churchill was a general partner of Bradford Associates, a private
investment firm in Princeton, New Jersey. Prior to that time, he practiced law
at the Philadelphia firm of Saul, Ewing, Remick & Saul for 16 years and was a
member of its executive committee. Mr. Churchill is a member of the Board of
Directors of Central Sprinkler Corporation, a manufacturer and distributor of
automatic fire sprinkler systems and components, Freedom Securities Corp., a
brokerage and investment banking firm and Amkor Technology, Inc.
Directors are elected by the stockholders at each annual meeting to serve until
the next annual meeting of stockholders or until their successors are duly
elected and qualified. The Board of Directors elects the Company's officers and
such officers serve at the discretion of the Board of Directors of the Company.
There are no family relationships among the officers or directors of the
Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
THE ELECTION OF ALL THE NOMINEES.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors held a total of three meetings during the fiscal year
ended March 31, 1999. The Board of Directors has an Audit Committee and a
Compensation Committee. It does not have a nominating committee or a committee
performing the functions of a nominating committee.
The Audit Committee of the Board of Directors currently consists of directors
Rebar and Weisman. The Audit Committee met three times during the fiscal year
ended March 31, 1999. The Audit Committee recommends engagement of the Company's
independent auditors, and is primarily responsible for approving the services
performed by the Company's independent auditors and for reviewing and evaluating
the Company's
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<PAGE> 7
accounting principles and its system of internal accounting controls.
The Compensation Committee of the Board of Directors currently consists of
directors Churchill, Rebar and Weisman. The Compensation Committee met three
times during the fiscal year ended March 31, 1999. The Compensation Committee
establishes the compensation for the Company's executive officers, including the
Company's Chief Executive Officer.
No director attended fewer than 75% of the aggregate number of meetings of the
Board of Directors and meetings of the committees of the Board of Directors that
he was eligible to attend.
COMPENSATION OF DIRECTORS
Prior to June 3, 1995, directors received no cash compensation for serving on
the Board of Directors. In June 1995, the Board of Directors approved payment of
$1,000 per director for each meeting attended. On April 29, 1998, the Board of
Directors approved payment of $1,000 per director for each meeting, or committee
meeting, attended; provided such director does not draw a salary from the
Company in his or her capacity as an employee of the Company.
In the fiscal year ended March 31, 1998, Russell Seheult received $52,000 in
consulting fees. In August 1994, the Company entered into a five year consulting
agreement with Mr. Seheult which was extended in December 1996 for five years
from December 1996. Mr. Seheult was granted options to purchase 25,179 shares of
Common Stock at an exercise price of $17.85 per share in July 1994. On December
16, 1997, Mr. Seheult resigned as a director and ceased providing consulting
services. As a result, all of Mr. Seheult's options have expired and the Company
has stopped making payments under the consulting agreement. Mr. Seheult remains
as a guarantor on certain of the Company's long-term theater leases.
EXECUTIVE OFFICERS
NORMAN DOWLING has served as Vice President of the Company since December 1997
and as Chief Financial Officer since November 1997. Mr. Dowling served as
Assistant Secretary of the Company from November 1997 until November 1998 and
has served as Secretary of the Company since November 1998. Prior to that, Mr.
Dowling served as Director of Finance of Advanced Marketing Services, Inc., a
publicly traded distributor of books and media products, from October 1993 until
November 1997, and as Controller and then Director of Development and
Acquisitions of Medical Imaging Centers of America, Inc. from May 1990 until
October 1993. Mr. Dowling's professional experience also includes six years with
the public accounting firm, Ernst & Young.
NEIL R. AUSTRIAN, JR. has served as Executive Vice President of the Company
since April 1998. He has been a partner of the Rust Group, L.P. since March
1998. Prior to that, he served as Chief Financial Officer and Senior Vice
President of Tescorp from August 1997 until February 1998, and as Vice President
of Tescorp from October 1994 until August 1997. Mr. Austrian was also an
associate of Rust Capital, Ltd. from October 1988 until October 1994.
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<PAGE> 8
PROPOSAL NO. 2
TO APPROVE A REDUCTION IN THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK, $0.01
PAR VALUE, FROM 60,000,000 TO 20,000,000 SHARES
Related to the Company's previous one-for-seven reverse stock split and
re-incorporation in the State of Delaware (as discussed more fully herein below
at page 8), the Company's Board of Directors has determined that it is in the
best interests of the Company to reduce the number of shares of Common Stock
that are authorized for issuance by the Company. Delaware, the state in which
the Company is incorporated, assesses franchise taxes on the basis of the number
of authorized shares. As a result, the proposed reduction in the Company's
authorized shares will cause approximately a two-thirds reduction in annual in
franchise taxes payable to the State of Delaware.
The Company proposes to amend its Certificate of Incorporation to reduce the
number of authorized shares of Common Stock to 20,000,000 shares of Common
Stock. As of the record date, there were 3,864,986 shares of the Company's
Common Stock issued and outstanding. In addition, as of that date there were
issued or issuable warrants to purchase 2,852,264 shares of Common Stock and
options to purchase 211,643 shares of Common Stock.
The Company believes that reducing the number of shares of Common Stock
authorized will enable it to realize an approximate two-thirds annual savings in
Delaware franchise taxes at no material disadvantage to the Company. As a result
of such reduction, relatively fewer authorized shares would be available for
issuance in connection with future sales of equity or equity issuances in
acquisition transactions.
The Board of Directors believes that following this reduction in authorized
shares, a sufficient number of authorized but unissued shares of Common Stock
will be available for equity offerings and acquisitions as such opportunity
arise in the future, as well as for the issuance of Common Stock pursuant to the
exercise of stock options and warrants to purchase Common Stock.
The Board believes that the tax savings from the reduction in authorized shares
outweighs any need to have a large number of authorized shares available for
issuance. The reduction in the number of authorized shares of Common Stock will
not affect the number of shares held by existing stockholders or the rights
attendant to those shares.
The affirmative vote of the holders of a majority of the outstanding shares of
Common Stock of the Company is required for the approval of the amendment of the
Company's Certificate of Incorporation to reduce the number of authorized shares
of Common Stock of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT OF THE
COMPANY'S CERTIFICATE OF INCORPORATION TO REDUCE THE NUMBER OF AUTHORIZED SHARES
OF COMMON STOCK.
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT
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<PAGE> 9
PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDED MARCH 31, 2000
The Board of Directors has appointed the firm of Arthur Andersen LLP,
independent public accountants, to audit the financial statements of the Company
for the fiscal year ending March 31, 2000, and recommends that the stockholders
vote for ratification of this appointment. In the event the stockholders do not
ratify such appointment, the Board of Directors will reconsider its selection.
On April 16, 1998, the Company dismissed BDO Seidman, LLP as its independent
public accountants. Such dismissal was approved by the Company's Audit
Committee. In connection with the audits for the fiscal years 1996 and 1997 and
through April 16, 1998, there have been no disagreements with BDO Seidman, LLP
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of BDO Seidman, LLP would have caused them to make reference
thereto in their report on the consolidated financial statements for such years.
The Company engaged Arthur Andersen LLP as its new independent public
accountants as of April 16, 1998. The audits for the fiscal years ended March
31, 1998 and 1999 have been completed by Arthur Andersen LLP.
Representatives of Arthur Andersen LLP are expected to be present at the meeting
with the opportunity to make a statement if they desire to do so, and are
expected to be available to respond to appropriate questions.
The ratification of the appointment of Arthur Andersen LLP as the Company's
independent public accountants requires the affirmative vote of the holders of a
majority of the shares of the Company's Common Stock present at the Annual
Meeting in person or by proxy and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF ARTHUR ANDERSEN
LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING
MARCH 31, 2000.
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company has outstanding voting securities consisting of only Common Stock,
of which 3,864,986 shares were outstanding as of the close of business on August
31, 1999. The following table sets forth certain information regarding the
beneficial ownership of the Company's common stock as of the close of business
day on August 31, 1999 as to (a) each director, (b) each executive officer
identified in the Summary Compensation Table, (c) all executive officers and
directors of the Company as a group, and (d) each person known to the Company to
beneficially own five percent or more of the outstanding shares of Company's
common stock.
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<TABLE>
<CAPTION>
As of August 31, 1999
------------------------------
Number of Percent of
Title of Class Beneficial Owner(1) Shares(2) Class(2)
- -------------- ------------------- ------------ ----------
DIRECTORS AND
EXECUTIVE OFFICERS:
<S> <C> <C> <C>
Common Jack R. Crosby 25,000(3)(4) *
Common Frank J. Moreno 31,310(5) *
Common Jack S. Gray, Jr. 23,313(6) *
Common Thomas G. Rebar -0- -0-
Common Wayne B. Weisman -0- -0-
Common Winston J. Churchill 3,385,648(7) 74.9%
Common Norman Dowling 4,762(8) *
Common Neil R. Austrian, Jr. 22,784(9) *
ALL CURRENT DIRECTORS AND 3,492,816(10) 75.8%
EXECUTIVE OFFICERS AS A GROUP
(8 PERSONS)
FIVE PERCENT SHAREHOLDERS:
Common CinemaStar Acquisition Partners, 3,117,594(11) 73.3%
L.L.C. ("CAP")
Common SCP Private Equity Partners, 3,385,648(7) 74.9%
L.P. ("SCP")
</TABLE>
* Items marked with an asterisk comprise less than 1% of the total
outstanding stock of the Company.
(1) The address of each of Messrs. Moreno and Dowling is c/o the Company at
12230 El Camino Real, Suite 320, San Diego, California 92130. The address
of each of Messrs. Crosby, Gray and Austrian is c/o Rust Capital, Ltd.,
327 Congress Avenue, Suite 350, Austin, Texas 78701. The address of each
of Messrs. Churchill, Rebar and Weisman and SCP Private Equity Partners,
L.P. and CinemaStar Acquisition Partners, L.L.C. is c/o SCP Private Equity
Partners, L.P., 435 Devon Park Drive, Building 300, Wayne, Pennsylvania
19087.
(2) Shares of Common Stock which a person has the right to acquire within 60
days are deemed outstanding in calculating the percentage ownership of
such person, but are not deemed outstanding as to any other person.
Percentages are calculated based on 3,864,986 shares of common stock
issued and outstanding as of August 31, 1999.
(3) Includes 10,714 shares owned by Rust Capital, L.P., with respect to which
Mr. Crosby has voting control.
(4) Includes 14,286 options, granted under the 1997 Option Plan, to acquire
the Company's Common Stock, exercisable within sixty days from August 31,
1999.
(5) Includes 23,810 options, granted under the 1997 Option Plan, to acquire
the Company's Common Stock, exercisable within sixty days from August 31,
1999.
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(6) Includes 7,143 options, granted under the 1997 Option Plan, to acquire the
Company's Common Stock, exercisable within sixty days from August 31,
1999.and warrants to purchase 14,741 shares of Common Stock held by the
wife of Mr. Gray.
(7) Includes 2,729,819 shares owned by CAP, warrants of CAP to purchase
387,776 shares, warrants to purchase 147,408 shares held by SCP and
warrants to purchase 120,646 shares held by SCP, each with respect to
which Mr. Churchill has voting and investment control.
(8) Includes 4,762 options, granted under the 1997 Option Plan, to acquire the
Company's Common Stock, exercisable within sixty days from August 31,
1999.
(9) Includes Warrants of Reel Partners, LLP to purchase 14,741 shares of
common stock (held by Mr. Austrian as transferee). Includes 7,143 options,
granted under the 1997 Option Plan, to acquire the Company's Common Stock,
exercisable within sixty days from August 31, 1999.
(10) Includes 2,729,819 shares owned by CAP, warrants of CAP to purchase
387,776 shares, warrants to purchase 147,408 shares held by SCP and
warrants to purchase 120,646 shares held by SCP, each with respect to
which Mr. Churchill has voting and investment control. Includes Warrants
of Reel Partners, LLP to purchase 14,741 shares of common stock (held by
Mr. Austrian as transferee). Includes warrants to purchase 14,741 shares
of Common Stock held by the wife of Mr. Gray.
(11) Includes 2,729,819 shares owned by CAP and warrants of CAP to purchase
387,776 shares.
ONE-FOR-SEVEN REVERSE STOCK SPLIT AND DELAWARE REINCORPORATION
The Company completed a one-for-seven reverse stock split of its Common Stock,
effective December 2, 1998. The reverse stock split affects the Company's Common
Stock and all options and warrants that are convertible into the Company's
Common Stock. The number of shares of the Company's Common Stock outstanding
prior to the reverse stock split was 27,054,902 and after the reverse stock
split is 3,864,986. All references to shares in this proxy statement have been
restated to reflect the one-for-seven reverse stock split. The Company
reincorporated in Delaware effective December 1, 1998. As a result, the
Company's common stock now has a par value of $0.01. Previously the Company's
common stock had no par value.
The reverse stock split also amends the terms of the Company's Redeemable
Warrants and Class B Redeemable Warrants. After giving effect to the reverse
stock split, the number of outstanding and issuable Redeemable Warrants for
Common Stock, with a maturity date of February 6, 2000 under the trading symbol
"LUXYW," remains at 4,648,562. The total number of shares of Common Stock for
which such warrants will be exercisable is approximately 1,568,704. The number
of shares of Common Stock exercisable per each warrant is 0.33746 shares per
warrant. The price per share upon exercise of the warrants is $17.78.
The number of outstanding and issuable Class B Redeemable Warrants for Common
Stock, with a maturity date of September 15, 2001 under the trading symbol
"LUXYZ," is 226,438. The total number of shares of Common Stock for which such
warrants will be exercisable is approximately 76,183. The number of shares of
Common Stock exercisable per each Class B warrant is 0.33644 shares per warrant.
The price per
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share upon exercise of the warrants is $19.32.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning compensation of the chief
executive officer and all other executive officers of the Company whose salary
and bonus exceeded an annual rate of $100,000 during the fiscal year ended March
31, 1999 or is expected to exceed $100,000 in fiscal 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------------------------------------------- ------------
Fiscal All Other Securities
Name and Year Annual Underlying
Principal Position Ended Salary Bonus Compensation Options/SARs
- ------------------ ------ ------ ----- ------------ ------------
(3)
<S> <C> <C> <C> <C> <C>
CURRENT EXECUTIVE OFFICERS:
Jack R. Crosby 1999 $161,538(2) $0(1) 0
Chairman of the Board of 1998 $0 $0 71,429(1)
Directors and Chief Executive 1997 $0 $0 0
Officer
Frank J. Moreno 1999 $254,806(4) $20,000(1) $32,988(3) 0
President and Chief Operating 1998 $57,531 (4) (5) 71,429(1)
Officer 1997 $0 $0 0
$0
Norman Dowling 1999 $109,326(6) $12,500(1) 7,143 (1)
Chief Financial Officer, Vice 1998 $36,345 (5) 14,286(1)
President and Secretary 1997 $0 $0 0
$0
Jack S. Gray, Jr. 1999 $92,308(2) $0(1) 42,857(1)
Vice Chairman of the Board of 1998 $0 $0 0
Directors 1997 $0 $0 0
Neil R. Austrian, Jr. 1999 $92,308(2) $0(1) 28,571(1)
Executive Vice President 1998 $0 $0 0
1997 $0 $0 0
</TABLE>
- --------------------
(1) Pursuant to their stock option agreements, each of the current executive
officers is entitled to a bonus, payable when the applicable tax payment
is due, equal to the difference in the amount of federal income tax the
executive officer is required to pay upon exercising his options if, and
to the extent, such options had been considered incentive stock options
for federal income tax purposes.
(2) Pursuant to Compensation Committee and Board of Directors consents, each
dated April 29, 1998, Jack R. Crosby is to receive an annual salary of
$175,000, Jack S. Gray, Jr. is to receive an annual salary of $100,000
11
<PAGE> 13
and Neil R. Austrian, Jr. is to receive an annual salary of $100,000.
(3) Perquisites and other personal benefits did not in the aggregate reach the
lesser of $50,000 or 10% of the total of annual salary and bonus reported
in this table for any named executive officer, except Frank J. Moreno for
whom relocation expenses of $32,988 were paid or reimbursed by the
Company, pursuant to the terms of his employment contract.
(4) Includes salary and consulting fees paid. Pursuant to the Employment
Agreement by and between the Company and Frank J. Moreno, dated April 29,
1998, Mr. Moreno is to receive an annual salary of $250,000.
(5) Pursuant to the Employment Agreement by and between the Company and Frank
J. Moreno, dated April 29, 1998, and the Employment Agreement by and
between Norman Dowling and the Company dated June 18, 1998 (and amended
effective February 19, 1999), Mr. Moreno and Mr. Dowling may be awarded
bonus compensation at the discretion of the Board of Directors.
(6) Pursuant to the Employment Agreement by and between the Company and Norman
Dowling dated June 18, 1998 (and amended effective February 19, 1999), Mr.
Dowling's annual salary increased to $120,000 from $105,000.
STOCK OPTIONS
The following table sets out the stock options that were granted to the
executive officers identified in the Summary Compensation Table during the
fiscal year ended March 31, 1999:
OPTION GRANTS DURING FISCAL 1999
<TABLE>
<CAPTION>
Number of
Securities
Underlying % of Total Options Exercise or
Options Granted to Employees Base Expiration
Name Granted in Fiscal Year Price ($/Sh) Date
- ---- ---------- -------------------- ------------- ----------
<S> <C> <C> <C> <C>
Jack S. Gray, Jr. 42,857 51.7% $5.75 - $6.13 12/15/07 -
3/6/09
Neil R. Austrian, Jr. 28,571 34.5% $5.75 - $6.13 12/15/07 -
3/6/09
Norman Dowling 7,143 8.6% $5.75 3/6/09
</TABLE>
OPTION EXERCISES IN FISCAL 1999 AND YEAR-END OPTION VALUES
The following table sets forth information concerning stock options which were
exercised during, or held at the end of, fiscal 1999 by the executive officers
named in the Summary Compensation Table:
OPTION EXERCISES AND YEAR-END VALUE TABLE(1)
12
<PAGE> 14
<TABLE>
<CAPTION>
Number of Unexercised
Shares In-the-Money Options at Value of Unexercised
Acquired Options at Fiscal Year End Fiscal Year End(2)
on Value ---------------------------- ----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jack R. Crosby (3) 0 $0 14,286 28,572 $0 $0
Frank J. Moreno 0 $0 23,810 47,619 $0 $0
Jack S. Gray, Jr. 0 $0 7,143 35,714 $0 $0
Neil R. Austrian,Jr. 0 $0 7,143 21,428 $0 $0
Norman Dowling 0 $0 4,762 16,667 $0 $0
</TABLE>
- --------------------
(1) There were no option exercises during fiscal 1999.
(2) Valued based on an assumed price of $5.00 per share of common stock.
(3) Of Mr. Crosby's options, 28,572 were cancelled during the fiscal year and
are not reflected in the above table.
STOCK OPTIONS
In December 1997, the Company adopted the CinemaStar Luxury Theaters, Inc. Stock
Option Plan (the "1997 Option Plan") under which a maximum of 412,280 shares of
Common Stock may be issued pursuant to incentive and non-qualified stock options
grants to officers, key employees or consultants of the Company. As of March 31,
1999, there were 211,643 options issued and outstanding under the 1997 Option
Plan.
The 1997 Option Plan is administered by a committee comprised of three (3)
members of the Board of Directors (or such other number as determined by the
Board of Directors) and shall be comprised of such number of "disinterested
persons" as is necessary to meet the requirements of Rule 16b-3 of the Exchange
Act and such number of "outside directors" as is necessary to meet the
requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended.
This committee has authority to determine employees to whom options will be
granted, the timing and manner of grants of options, the exercise price, the
number of shares covered by and all of the terms of options, and all other
determinations necessary or advisable for administration of the 1997 Option
Plan. The 1997 Option Plan was approved by a vote of shareholders at the annual
meeting of shareholders on November 17, 1998.
The exercise price for the shares subject to any incentive stock option granted
under the 1997 Option Plan shall not be less than 100% of the fair market value
of the shares of common stock of the Company on the date the option is granted.
No option shall be exercisable after the earliest of the following: the
expiration of 10 years after the date the option is granted; three months after
the date the optionee's employment with the Company terminates, if termination
is by the Company for any reason without cause, immediately upon the voluntary
termination by the optionee of the optionee's employment with the Company or the
termination of the optionee's
13
<PAGE> 15
employment with the Company by the Company for cause; or one year after the date
the optionee's employment terminates, if termination is a result of death or
permanent disability. The vesting schedule for options issued under the 1997
Option Plan is determined by the committee. All options granted to date under
this Plan vest over a three-year period beginning December 16, 1997, with full
acceleration on a change in control.
In July 1994, the Company adopted the CinemaStar Luxury Theaters, Inc. Stock
Option Plan (the "1994 Option Plan") under which a maximum of 83,929 shares of
Common Stock of the Company could be issued pursuant to incentive and
non-qualified stock options granted to officers, key employees or consultants of
the Company. Most of the options granted under this 1994 Option Plan have
expired or been terminated. Pursuant to a Board of Directors consent, any
outstanding options under the 1994 Option Plan have been transferred to the 1997
Option Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
John Ellison, Jr., Alan Grossberg and Russell Seheult (and Jerry Willits with
respect to the lease of the Chula Vista 10, and Eileen Seheult the former wife
of Russell Seheult, with respect to certain lease and bank obligations incurred
or guaranteed by Mr. and Ms. Seheult on behalf of the Company) have personally
guaranteed, on a joint and several basis, all significant obligations of the
Company pursuant to its theater leases and certain loans. Certain of these
obligations of the Company are secured by real or personal property pledged by
such individuals. The Company, pursuant to the Settlement Agreement described
above, has agreed to use its reasonable best efforts to obtain the releases of
Mr. Ellison, Mr. Willits and Mr. Grossberg from their obligations under any
personal guarantees made for the benefit of the Company or its entities. To
date, no such releases have been obtained. See "Executive Compensation --
Employment and Consulting Agreements." As of March 31, 1999, such guaranteed
obligations involved aggregate future payments by the Company of $118,000,000.
CinemaStar Luxury Theaters, S.A. de C. V. ("CinemaStar International"),
incorporated in Mexico in July 1994, was a 75%-owned subsidiary until December
1998. The remaining 25% ownership interest in CinemaStar International was held
by Atlantico y Asociados S.A. de C.V., a Mexican corporation until December,
1998 when the Company acquired the remaining 25% ownership. CinemaStar
International leases and operates the Plaza Americana 10 facility in Tijuana.
CinemaStar International leases equipment and obtains technical services and
support from the Company, in each case for payment that the Company believes is
fair value.
The Company incurred in fiscal 1998 an expense of $1,056,224 in connection with
the settlement of certain management contracts previously entered into with four
former officers and directors of the Company and the settlement of certain other
matters amongst the parties. The Company effected the settlement by making
aggregate cash payments of $875,000, forgiving outstanding loans and remaining
as guarantor on a personal loan. The settlement agreement also contains mutual
general releases of the parties with respect to all prior known and unknown
claims.
In April 1996, John Ellison, Jr. and Russell Seheult jointly obtained a personal
line of credit with Union Bank of California. From April 1996 until June 1997,
Mr. Seheult and Mr. Ellison borrowed funds under the line of credit and advanced
certain of the funds to the Company. Pursuant to an arrangement between the
Company and
14
<PAGE> 16
Union Bank, payments on the loan were made directly to Union Bank by the
Company. In early June 1997, such line of credit was not renewed by Mr. Ellison
and Mr. Seheult and, as a result, Union Bank withdrew from the Company's account
approximately $99,000, the outstanding principal balance of the line of credit
as of the date of termination. On June 19, 1997, Messrs. Ellison and Seheult
entered into a Business Note with Union Bank in the aggregate principal amount
of $99,043 the proceeds of which were remitted to the Company. Such note bore
interest at a rate of 10.25% per annum and called for 60 equal payments of
interest and principal of approximately $2,100 per month. Pursuant to the
Settlement Agreement described above, the Company agreed to assume Mr. Ellison's
obligations under such note. See "Employment and Consulting Agreements." This
loan has been paid in full with interest by the Company.
Pursuant to the terms of a loan agreement, dated April 1 1996, between the
Company and John Ellison, Jr., the Company agreed to loan the sum of $1,000 per
week to Mr. Ellison commencing on Friday, April 5, 1996. As of January 2, 1998,
the outstanding balance of principal on such loan was $92,000, plus interest.
Pursuant to the Settlement Agreement described above, the Company agreed to
release Mr. Ellison's obligations with respect to these loans. See "Employment
and Consulting Agreements."
The Company made loans in the principal amount of $19,500 to Jon Meloan from
July 1996 through February 1997. As of March 31, 1997, Mr. Meloan executed a
promissory note, dated March 31, 1997, in the principal amount of $21,095, which
represents the total principal amount of such loans with accrued interest at a
rate of 8% per annum through the date of such note. Such note was due and
payable in full on August 15, 1998. As of March 26, 1998, the outstanding
balance of principal and interest on such note was $21,095, from which the
Company agreed to release Mr. Meloan pursuant to the Settlement Agreement
described above. In addition, the Company also agreed, pursuant to the
Settlement Agreement, to assume the obligations of Mr. Meloan with respect to a
loan in the aggregate principal amount of $22,600 made by a bank to Mr. Meloan.
See "Employment and Consulting Agreements." This loan has been paid in full with
interest by the Company.
EMPLOYMENT AND CONSULTING AGREEMENTS
Effective April 29, 1998, the Company entered into a three-year employment
agreement with Frank J. Moreno, pursuant to which Mr. Moreno's annual base
salary of $250,000 is subject to increase at the discretion of the Board of
Directors. In addition, Mr. Moreno may receive an annual bonus at the discretion
of the Board of Directors. Mr. Moreno also receives an automobile allowance of
$650 per month. The employment agreement also gives Mr. Moreno the right to
participate in any and all group medical and other benefit plans generally
available to employees of the Company. Under the employment agreement, Mr.
Moreno was compensated for his out-of-pocket relocation costs and received
$20,000 in connection with the sale of his home. The employment agreement also
acknowledges that the Company granted Mr. Moreno options to acquire 71,429
shares of the Company's Common Stock on December 16, 1997. In the event Mr.
Moreno is terminated by the Company without cause, he is entitled to his base
salary for the remainder of the three-year period.
Effective February 19, 1999, the one-year employment agreement with Norman
Dowling dated as of June 18, 1998 was amended to extend the contract period for
an additional year. The contract amendment provides for an annual base salary of
$120,000 and an annual bonus at the discretion of the Board of Directors. Mr.
Dowling also receives an automobile allowance of $450 per month. The employment
agreement also gives Mr.
15
<PAGE> 17
Dowling the right to participate in any and all group medical and other benefit
plans generally available to employees of the Company. The employment agreement
also acknowledges that the Company granted Mr. Dowling options to acquire 14,286
shares of the Company's Common Stock on December 16, 1997. In the event Mr.
Dowling is terminated by the Company without cause, as defined in the employment
agreement, he is entitled to his base salary for the remainder of the contract
period. On March 6, 1999, Mr. Dowling was granted additional options to acquire
7,143 shares of the Company's Common Stock.
Alan Grossberg, John Ellison, Jr., Jon Meloan and Jerry Willits resigned from
their management and/or Board of Directors positions of the Company and the
Company's entities on March 25, 1998. Effective March 26, 1998, the Company
entered into a settlement agreement with John Ellison, Jr., Alan Grossberg,
Jerry Willits and Jon Meloan (the "Settlement Agreement"). Pursuant to this
Settlement Agreement, the employment agreements between the Company and each of
Messrs. Ellison, Grossberg, Willits and Meloan (the "Former Management"), which
agreements provided for extensive severance and other payments upon the
termination thereof, were terminated and the Company agreed to pay to the Former
Management a settlement payment in the gross amount of $875,000 cash. The
Company also agreed to forgive indebtedness and to assume responsibility for the
repayment of sums owed personally, in amounts aggregating $172,679 plus
interest. The Settlement Agreement also (i) obligates the Company to use its
best reasonable efforts to release the Former Management from their obligations
under any personal guarantees made for the benefit of the Company or its
entities and (ii) has the parties release each other with respect to all known
or unknown prior claims.
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and executive officers and persons who own more than 10% of
a registered class of the Company's equity securities to file various reports
with the Securities Exchange Commission and the National Association of
Securities Dealers concerning their holdings of, and transactions in, securities
of the Company. Copies of these filings must be furnished to the Company.
OTHER MATTERS
The Board of Directors knows of no other matters to be submitted to the meeting.
If any other matters properly come before the meeting, then the persons named in
the enclosed form of proxy will vote the shares they represent in such manner as
the Board may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Norman Dowling
------------------
NORMAN DOWLING
SECRETARY
Dated: September 29, 1999
16
<PAGE> 18
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF CINEMASTAR LUXURY THEATERS, INC. FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD OCTOBER 27, 1999
The undersigned stockholder of CinemaStar Luxury Theaters, Inc., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
stockholders and Proxy Statement, each dated September 24, 1999, and hereby
appoints Jack R. Crosby and Jack S. Gray, Jr., or either of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the Annual Meeting of
stockholders of CinemaStar Luxury Theaters, Inc. to be held on Wednesday,
October 27, 1999 at 10:00 a.m. local time at the Ultraplex 10 at University
Village, University Village Plaza, 1201 University Avenue, Riverside, California
92507 and at any adjournment or postponement thereof, and to vote all shares of
Common Stock which the undersigned would be entitled to vote if then and there
personally present, on the matters set forth below:
PLEASE SIGN ON REVERSE SIDE AND RETURN IMMEDIATELY
FOLD AND DETACH HERE
<PAGE> 19
/X/ Please mark your votes as indicated in this example
1. ELECTION OF DIRECTORS:
___ FOR all nominees listed below (except as indicated).
___ WITHHOLD authority to vote for all nominees listed below.
If you wish to withhold authority to vote for any individual nominee, strike a
line through that nominee's name in the list below:
Jack R. Crosby, Frank J. Moreno, Jack S. Gray, Jr.,
Thomas G. Rebar, Wayne B. Weisman, Winston J. Churchill
2. PROPOSAL TO APPROVE A REDUCTION IN THE NUMBER OF AUTHORIZED SHARES OF COMMON
STOCK, $0.01 PAR VALUE FROM 60,000,000 TO 20,000,000:
____FOR ____AGAINST ____ABSTAIN
3. PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE INDEPENDENT
PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR ENDING MARCH 31, 2000:
____FOR ____AGAINST ____ABSTAIN
and, in their discretion, upon such other matter or matters that may properly
come before the meeting and any postponement(s) or adjournment(s) thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED AS FOLLOWS: (1) FOR THE ELECTION OF DIRECTORS; (2) FOR APPROVAL OF
A REDUCTION IN THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK, $0.01 PAR VALUE
FROM 60,000,000 TO 20,000,000; (3) FOR RATIFICATION OF THE APPOINTMENT OF ARTHUR
ANDERSEN LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS, AND AS SAID
PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
____________________________________________ Date:__________________________
Signature(s)
(This Proxy should be marked, dated, signed by the shareholder(s) exactly as his
or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
