From the 10K:
On September 6, 1995, the Company entered into a definitive agreement for
the financing of future Country Star Restaurants with NevStar Restaurants, LLC
("NevStar") a newly formed Nevada limited liability corporation that was
established in August 1995 and is controlled by Mr. Melvin Wolzinger and his
wife Mrs. Ruth Wolzinger (the "Development Financing"). Such agreement (the
"Development Financing Agreement") provides that NevStar shall (i) invest $4.5
million of equity in Country Star Las Vegas, and (ii) have the right, under
certain circumstances, to invest up to an additional $12.5 million in equity in
future domestic Country
Star Restaurants, including Country Star Atlanta. To secure its investment in
Country Star Las Vegas, NevStar deposited into escrow $5 million in marketable
securities upon the execution of the Development Financing Agreement. Pursuant
to the terms and condition of the Development Financing Agreement, a limited
liability corporation was established to effect each of NevStar's and the
Company's investment in Country Star Las Vegas (the "Country Star Las Vegas
LLC"). NevStar will provide $4.5 million of equity financing for Country Star
Las Vegas LLC and the Company will provide the remaining funds necessary for
Country Star Las Vegas LLC, or approximately $3 million. Thereafter, Cirrus,
Cirrus ("Cirrus"), a newly formed private limited partnership, comprised of
principals of the representative of the underwriters of the Company's Secondary
Offering loaned Country Star Las Vegas, LLC $495,000 at the rate of 6% per
annum, which loan was converted into $495,000 of equity in Country Star Las
Vegas, LLC on the same terms as NevStar's equity investment in Country Star Las
Vegas, LLC on April 1, 1996. (NevStar, Cirrus and the Company, in their capacity
as investors in the Country Star Las Vegas LLC, are sometimes referred to herein
as the "Equity Investors").
In connection with NevStar's $4.5 million investment in Country Star Las
Vegas LLC, the Company shall be responsible for legal fees of $225,000 in
connection therewith and with respect to any additional investments made in any
future domestic Country Star Restaurants by NevStar, additional legal fees in
the same proportion as the $225,000 bears to NevStar's initial $4.5 million
investment. Upon commencement of operations of Country Star Las Vegas, prior to
any cash distributions, the Company, which will be responsible for managing the
day-to-day operations of Country Star Las Vegas subject to NevStar's approval
for various matters, will receive a management fee in the amount of $333,333 per
annum, payable in equal monthly installments. In connection with the Company's
management of Country Star Las Vegas, the Company has agreed with NevStar that
labor costs will be a predetermined percentage of Country Star Las Vegas'
revenues, which percentage shall vary based upon the actual revenues. In the
event that actual labor costs for Country Star Las Vegas exceed such percentage
of revenues during a twelve (12) month period, the Company will be obligated to
fund any such excess. After the Equity Investors (of which the Company is a
35.1% participant) shall receive a rate of return of 6% per annum on their
unrecouped investment, all available cash shall be distributed 25% to the
Company and 75% to the Equity Investors until such time as the Equity Investors
shall have received cash contributions equal to 100% of their investment.
Thereafter, all available cash shall be distributed 65% to the Company and 35%
to the Equity Investors.
The Development Financing Agreement also provides that NevStar, at its
option, may also invest up to an additional $12.5 million in other domestic
Country Star Restaurants, under certain circumstances. Specifically, NevStar's
ability to invest in a particular future
domestic Country Star Restaurant will be curtailed in the event that the
landlord or any other party that controls the property on which any such future
domestic Country Star Restaurant may be located shall receive an equity interest
in such property of 35% or more. Nevertheless, NevStar shall have the right to
make an investment in any such future domestic Country Star Restaurant in the
event that the landlord or any other party that controls the relevant property
receives an equity interest of less than 35%, provided that NevStar's equity
interest, when added to the equity interest of the landlord or other third party
does not exceed 35%. NevStar is not obligated to, and there can be no assurance
that NevStar will, provide financing for any future domestic Country Star
Restaurant and the Company does not know whether NevStar intends or has the
wherewithal to do so. NevStar's right to provide financing for any future
Country Star Restaurant expires on the later of September 1, 1998 or such time
as the Company obtains a line of credit pursuant to which the lender or any
affiliate of the lender receives an equity interest of 5% or less. Any
additional investment by NevStar in a future domestic Country Star Restaurant
cannot be less than $2.5 million per restaurant, and must be on the same terms
and conditions as the Country Star Las Vegas LLC. In the event that the Company
were to open a take-out style Country Star Restaurant in Clark County, Nevada,
NevStar would have the right to invest in such other restaurant on the same
terms and conditions as the Country Star Las Vegas LLC. In connection with
entering into the Development Financing Agreement, NevStar received 100,000
warrants with an exercise price of $3.62 per share. Finally, in the event that
there is a takeover of the Company, the Development Financing Agreement provides
that NevStar shall have the right to cause the potential acquirer to purchase
its equity interest in some or all of the Country Star Restaurants that it has
financed at a predetermined formula relative to such Country Star Restaurant.
Also - the stragetic plan of the company indicates joint ventures and liscening arrangements are how we'll most likely develop restraunts in the future.
Third, management has determined that the best strategy for expansion will
be through joint ventures and licensing arrangements under which additional
Country Star Restaurants could be opened without the Company being required to
incur expensive construction, development and pre-opening costs. Management has
identified a number of publicly held and private companies that have indicated
strong interest in working with Country Star on a joint venture or licensing
basis.
Hope that helps! |
