Preliminary Proxy Statement Dated August , 1998
HARVEST RESTAURANT GROUP, INC.
1250 N.E. Loop 410, Suite 335
San Antonio, Texas 78209
PROXY STATEMENT AND
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 18, 1998
To the shareholders of Harvest Restaurant Group, Inc.:
The Special Meeting of the shareholders of Harvest Restaurant Group, Inc.
(the "Company") will be held at the Company's executive offices, 1250 N.E. Loop
410, Suite 335, San Antonio, Texas 78209, at 10:00 A.M. on September 18, 1998,
1998, or at any adjournment or postponement thereof, for the following purpose:
To authorize the Board of Directors, in its discretion, to implement one of
several alternative reverse splits of the Company's Common Stock ranging
from one share for two shares of Common Stock up to a maximum of one share
for six shares of Common Stock.
Details relating to the above matter is set forth in the attached Proxy
Statement. All shareholders of record of the Company as of the close of business
on August 12, 1998 will be entitled to notice of and to vote at such meeting or
at any adjournment or postponement thereof.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. IF YOU DO NOT
PLAN TO ATTEND THE MEETING, YOU ARE URGED TO SIGN, DATE AND PROMPTLY RETURN THE
ENCLOSED PROXY. A REPLY CARD IS ENCLOSED FOR YOUR CONVENIENCE. THE GIVING OF A
PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
William J. Gallagher
Chief Executive Officer
August 19, 1998
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PROXY STATEMENT
HARVEST RESTAURANT GROUP, INC.
1250 N.E. Loop 410, Suite 335
San Antonio, Texas 78209
Telephone: (210) 824-2496
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 18, 1998
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Harvest Restaurant Group, Inc. (the
"Company"), a Texas corporation, of $.0l par value Common Stock ("Common Stock")
to be voted at the Special Meeting of Shareholders of the Company ("Special
Meeting") to be held at 10:00 A.M. on September 18, 1998, or at any adjournment
or postponement thereof. The Company anticipates that this Proxy Statement and
the accompanying form of proxy will be first mailed or given to all shareholders
of the Company on or about August 19, 1998. The shares represented by all
proxies that are properly executed and submitted will be voted at the meeting in
accordance with the instructions indicated thereon. Unless otherwise directed to
authorize the Board of Directors, in its discretion, to implement one of several
alternative reverse splits of the Company's Common Stock ranging from one share
of Common Stock for two shares of Common Stock to a maximum of one share of
Common Stock for six shares of Common Stock. The holders of a majority of the
shares represented at the Special Meeting in person or by proxy will be required
to approve the proposed matter.
Any shareholders giving a proxy may revoke it at any time before it is
exercised by delivering written notice of such revocation to the Company, by
substituting a new proxy executed at a later date, or by requesting, in person,
at the Special Meeting, that the proxy be returned.
All of the expenses involved in preparing, assembling and mailing this
Proxy Statement and the materials enclosed herewith and all costs of soliciting
proxies will be paid by the Company. In addition to the solicitation by mail,
proxies may be solicited by officers and regular employees of the Company by
telephone, telegraph or personal interview. Such persons will receive no
compensation for their services other than their regular salaries. Arrangements
will also be made with brokerage houses and other custodians, nominees and
fiduciaries to forward solicitation materials to the beneficial owners of the
shares held of record by such persons, and the Company may reimburse such
persons for reasonable out of pocket expenses incurred by them in so doing.
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VOTING SHARES AND PRINCIPAL SHAREHOLDERS
The close of business on August 12, 1998 has been fixed by the Board of
Directors of the Company as the record date (the "record date") for the
determination of shareholders entitled to notice of and to vote at the Special
Meeting. On the record date, there were outstanding 3,463,009 shares of Common
Stock, each share of which entitles the holder thereof to one vote on each
matter which may come before the Special Meeting.
A majority of the issued and outstanding shares entitled to vote,
represented at the meeting in person or by proxy, constitutes a quorum at any
shareholders' meeting.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of August 12, 1998
concerning stock ownership of the Company's Common Stock by all persons known to
the Company to own beneficially 5% or more of the outstanding shares of Common
Stock, by each director and by all directors and officers as a group.
Except as otherwise noted, the persons named in the table own the shares
beneficially and of record and have sole voting and investment power with
respect to all shares of Common Stock shown as owned by them, subject to
community property laws, where applicable. Each shareholder's address is in care
of the Company at 1250 N.E. Loop 410, Suite 335, San Antonio, Texas 78209. The
table also reflects all shares of Common Stock, which each individual has the
right to acquire within 60 days from the date hereof upon exercise of stock
options or common stock purchase warrants.
Number of
Shares of
Common
Stock Owned Percent of
of Record Common Stock
Name and Beneficially Owned
---- ---------------- -----
William J. Gallagher (l) (2) 186,667 5.2%
Joseph Fazzone (3) 80,000 2.3%
Michael M. Hogan (4) 30,000 .9%
Theodore M. Heesch (4) 30,000 .9%
All officers and directors
as a group (4 persons) (2)(3)(4) 326,667 8.7%
(1) Mr. Gallagher may be deemed to be a "promoter" and "founder" of the Company
as those terms are defined under the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
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(2) Includes 140,000 shares that Mr. Gallagher may purchase pursuant to
options.
(3) Includes 80,000 shares that Mr. Fazzone may purchase pursuant to options.
(4) Includes 30,000 shares that Mr. Hogan, and Mr. Heesch may purchase pursuant
to options.
AUTHORIZATION FOR THE BOARD OF DIRECTORS TO IMPLEMENT A REVERSE SPLIT OF THE
COMPANY'S COMMON STOCK
General
The Company's Board of Directors recommends that the shareholders of the
Company authorize the Board of Directors, at its discretion, to effect one of
several alternative reverse splits of Common Stock ranging from one share of
Common Stock for two shares of outstanding Common Stock to a maximum of one
share of Common Stock for six shares of outstanding Common Stock (the "Reverse
Split"). The Company's number of authorized shares of the Company's issued
Common Stock shall not be reduced. The effect of a Reverse Split upon holders of
Common Stock would be that the total number of shares of the Company's Common
Stock held by each shareholder (each, an "Old Share") would be automatically
converted into the number of new whole shares of Common Stock equal to the
number of shares of Common Stock owned immediately prior to the Reverse Split,
divided the number of shares involved in the reverse spilt ranging from two to
six shares (each, a "New Share"). The Board of Directors will have a period of
six months from the record date to effect any such reverse stock split.
Should a Reverse Split be effected, each shareholder's percentage ownership
interest in the Company and proportional voting power will remain unchanged,
except for minor differences resulting from rounding up for fractional shares.
The rights and privileges of the holders of shares of Common Stock will be
substantially unaffected by a Reverse Split.
Should a Reverse Split be effected, no certificates or scrip representing
fractional shares of the Company's Common Stock will be issued to shareholders
as a result of a Reverse Split. All fractional shares will be increased to the
next higher whole number of shares.
Should a Reverse Split be effected, the conversion ratio for the Company's
outstanding Preferred Stock will be adjusted in accordance with the Reverse
Split. Similarly, the exercise price and number of shares of each outstanding
warrant and option to purchase shares of the Company's Common Stock will be
adjusted in accordance with the Reverse Split. Additionally, the exercise price
of and number of shares available for future issuance under the Company's 1994
Stock Option Plan will be adjusted in accordance with the Reverse Split.
In June 1998, NASDAQ notified the Company that the Company's Common Stock
was subject to delisting on the NASDAQ SmallCap Market, after ninety days, for
failing to maintain a minimum bid price of $1.00 per share. Listing may be
maintained if during the ninety days following receipt of the June 1998 notice
the shares of Common Stock report a closing bid price of $1.00 or greater for
ten consecutive trading days.
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The Board of Directors believes that maintenance of the NASDAQ SmallCap
listing is in the best interest of the shareholders and the Company, as the
NASDAQ SmallCap listing provides a convenient market for trading of the Common
Stock of the Company, creates greater liquidity for shareholders, and makes the
Common Stock of the Company more attractive to investors. Thus, the Board of
Directors recommends shareholder approval of a proposal to authorize the Board
of Directors, in its discretion, to implement one of several alternative reverse
splits of the Company's Common Stock ranging from one share of Common Stock for
two shares of outstanding Common Stock to a maximum of one share of Common Stock
for six shares of outstanding Common Stock If this proposal is approved by
shareholders, the Board of Directors may select one of the authorized ratios
within this range for the Reverse Split, based on its determination of which may
provide superior marketability and liquidity of the Common Stock and other
relevant factors.
The Board of Directors believes that a decrease in the number of shares of
Common Stock outstanding without any material alteration of the proportionate
economic interest in the Company represented by individual shareholding may
increase the trading price of such shares to meet NASDAQ's minimum bid price
requirements. However there can be no assurance that the market price per New
Share of Common Stock after a Reverse Split will equal the ratio of the Reverse
Split times the market price per Old Share of Common Stock before the Reverse
Split, or that such price will exceed the current market price. Because no
change will be made to the authorized shares, the Reverse Split will increase
the number of authorized, but unissued shares of the Company. This result could
be construed as having an anti-takeover effect, although neither the Board of
Directors nor the management of the Company views this proposal in that
perspective.
Principal Effects of a Reverse Spilt
The Certificate of Incorporation of the Company currently authorizes the
Company to issue 5,000,000 shares of its Preferred Stock and 20,000,000 shares
of its Common Stock. As of August 12, 1998, there were (1) 3,463,009 shares of
Common Stock outstanding, (2) 653,892 shares of Series A Preferred Stock, par
value $1.00 per share outstanding, (3) 333 shares of Series B Preferred Stock,
par value $1.00 per share outstanding, (4) 2,600,000 common stock purchase
warrants outstanding, (5) options to purchase 483,000 shares of Common Stock,
and (6) 1,923,400 Series A Preferred Stock Purchase Warrants. If any Reverse
Split is effected, no change in authorized shares shall result; however, if a
Reverse Split should be effected, (for example, at the maximum rate proposed of
one share for six shares), the principal effect would be to decrease the number
of shares of Common Stock issued and outstanding from 3,463,009 shares to
approximately 577,168, based upon the number of shares outstanding on August 12,
1998. Similarly, each share of Preferred Stock, which is currently convertible
into 2.7 shares of Common Stock, would be convertible into .45 shares of Common
Stock.
A Reverse Split may result in some shareholders owning "odd-lots" of less
than 100 shares of Common Stock. Brokerage commissions and other costs of
transactions in odd-lots are generally somewhat higher than the costs of
transactions in "round-lots" of even multiples of 100 shares.
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Pursuant to Texas law, the Company's shareholders are not entitled to
dissenters' rights of appraisal with respect to the Reverse Split.
Exchange of Stock Certificates
Should a Reverse Split be effected, shareholders will be required to
exchange their stock certificates for new certificates representing the shares
of new Common Stock. Shareholders will be furnished with the necessary materials
and instructions for the surrender and exchange of stock certificates at the
appropriate time by the Company's transfer agent. Shareholders will not be
required to pay a transfer or other fee in connection with the exchange of
certificates. Shareholders should not submit any certificates until requested to
do so.
Federal Income Tax Consequences
The following description of federal income tax consequences is based upon
the Internal Revenue Code of 1986, as amended (the "Code"), the applicable
Treasury Regulations promulgated thereunder, judicial authority and current
administrative rulings and practices as in effect on the date of this proxy
statement.
The Company has not sought and will not seek an opinion of counsel or a
ruling from the Internal Revenue Service regarding the federal income tax
consequences of the Reverse Split. The Company, however, believes that because
the Reverse Split is not part of a plan to periodically increase shareholders'
proportionate interest in the assets or earnings and profits of the Company, the
Reverse Split will have the following federal income tax effects.
1. The Reverse Split will constitute a reorganization within the meaning
of Section 368 (a) (1) (E) of the Code.
2. A shareholder will not recognize gain or loss on the exchange. In the
aggregate, the shareholder's basis in the New Shares will equal such
shareholder's basis in the Old Shares.
3. A shareholder's holding period for the New Shares will be the same as
the holding period of the Old Shares exchanged therefor.
4. The Company will not recognize any gain or loss on the exchange by
reason of Section 1032 of the Code.
THE FEDERAL INCOME TAX DISCUSSION WITH RESPECT TO A REVERSE SPLIT AS SET FORTH
ABOVE IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY. ALL SHAREHOLDERS ARE
ADVISED TO CONSULT THEIR OWN TAX ADVISORS AS TO ANY FEDERAL STATE, LOCAL, OR
FOREIGN TAX CONSEQUENCES APPLICABLE TO THEM WHICH COULD RESULT FROM A REVERSE
SPLIT.
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Recommendation of the Board of Directors
The Board of Directors recommends a vote FOR the proposed resolution
authorizing the Board of Directors, in its discretion, to implement one of
several alternative reverse splits of the Company's Common Stock ranging from
one share of Common Stock for two shares of Common Stock to a maximum of one
share of Common Stock for six shares of Common Stock.
The above notice and Proxy Statement are sent by order of the Board of
Directors.
William J. Gallagher
Chief Executive Officer
August 19, 1998
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
FOR THE SPECIAL MEETING OF SHAREHOLDERS OF
HARVEST RESTAURANT GROUP, INC.
TO BE HELD SEPTEMBER 18, 1998
The undersigned hereby appoints William J. Gallagher as the lawful agent
and Proxy of the undersigned (with all the powers the undersigned would possess
if personally present, including full power of substitution), and hereby
authorizes him to represent and to vote, as designated below, all the shares of
Common Stock of Harvest Restaurant Group, Inc. held of record by the undersigned
on August 12, 1998, at the Special Meeting of Shareholders to be held September
18, 1998, or any adjournment or postponement thereof.
To authorize the Board of Directors, in its discretion, to implement one of
several alternative reverse splits of the Company's Common Stock ranging from
one share for two shares of Common Stock to a maximum of one share for six
shares of Common Stock.
FOR _____ AGAINST _____ WITHHOLD VOTE _____
It is understood that when properly executed, this proxy will be voted in
the manner directed herein by the undersigned shareholder. WHERE NO CHOICE IS
SPECIFIED BY THE SHAREHOLDER THE PROXY WILL BE VOTED FOR THE PROPOSAL SET FORTH
ABOVE.
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The undersigned hereby revokes all previous proxies relating to the shares
covered hereby and confirms all that said Proxy may do by virtue hereof.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Dated:
------------------------------------
Signature
PLEASE MARK, SIGN, DATE
AND RETURN THE PROXY
CARD PROMPTLY USING THE
ENCLOSED ENVELOPE. ------------------------------------
Signature, if held jointly
PLEASE CHECK THIS BOX IF YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING OF
SHAREHOLDERS. [ ]
