<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 1996
REGISTRATION NO. 333-3360
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
KOO KOO ROO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5812 22-3132583
(STATE OR OTHER (PRIMARY STANDARD (IRS EMPLOYER
JURISDICTION OF INCORPORATION INDUSTRIAL IDENTIFICATION
OR ORGANIZATION) CLASSIFICATION CODE) NUMBER)
11075 SANTA MONICA BLVD., SUITE 225
LOS ANGELES, CALIFORNIA 90025
(310) 479-2080
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT F. KAUTZ
CHIEF FINANCIAL OFFICER
11075 SANTA MONICA BLVD., SUITE 225
LOS ANGELES, CALIFORNIA 90025
(310) 479-2080
(NAME, ADDRESS, INCLUDING ZIP CODE, TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copies to:
<TABLE>
<S> <C>
Ronald Garber, Esq. Anthony J. Richmond, Esq.
Koo Koo Roo, Inc. Latham & Watkins
11075 Santa Monica Blvd., Suite 225 633 West Fifth Street - Suite 4000
Los Angeles, California 90025 Los Angeles, California 90071
(310) 479-2080 (213) 485-1234
</TABLE>
--------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the same prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================
Title of Each Proposed Maximum Proposed Maximum Amount of
Class of Securities Amount to be Offering Price Aggregate Offering Registration
to be Registered Registered(1)(2) Per Share (3) Price (3) Fee (4)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share........... 5,250,000 $8.8125 $46,265,625 $15,954
======================================================================================================
</TABLE>
cover continued on following page.
<PAGE>
(1) Includes the registration for resale of the following: (i) 450,000 shares
of Common Stock (subject to adjustment) issued in a private placement in
March 1996, (ii) all shares of Common Stock issuable upon conversion of or
otherwise in respect of 1,200,000 shares of the Registrant's 5% Convertible
Preferred Stock issued in a private placement in March 1996, (iii) 40,500
shares of Common Stock (subject to adjustment) issuable upon the exercise of
warrants issued in connection with the foregoing private placements, (iv)
all shares of Common Stock issuable upon conversion of or otherwise in
respect of 108,000 shares of the Registrant's 5% Convertible Preferred Stock
issuable upon the exercise of warrants issued in connection with the
foregoing private placements and (v) 84,409 shares of Common Stock
originally issued in other private placements. Estimated solely for
purposes of calculating the registration fee in connection with this
Registration Statement; assumes that all shares of 5% Convertible Preferred
Stock are converted into shares of Common Stock based on a market price of
$9.00 per share of Common Stock (the last reported sales price reported by
Nasdaq on April 9, 1996).
(2) In the event of a stock split, stock dividend or similar transaction
involving the Common Stock of the Registrant, in order to prevent dilution,
the number of shares of Common Stock registered hereby shall be
automatically increased to cover the additional shares of Common Stock in
accordance with Rule 416 under the Securities Act of 1933, as amended.
(3) Estimated solely for the purpose of calculating the registration fee. The
proposed Maximum Aggregate Offering Price was calculated pursuant to Rule
457(c) under the Securities Act of 1933, as amended, on the basis of the
average of the high and low prices reported on the Nasdaq National Market on
April 9, 1996.
(4) Previously paid with initial filing on April 11, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
===============================================================================
<PAGE>
KOO KOO ROO, INC.
CROSS REFERENCE SHEET
(PURSUANT TO RULE 404(A) OF THE SECURITIES ACT OF 1933,
AS AMENDED, AND ITEM 501 OF REGULATION S-K)
<TABLE>
<CAPTION>
ITEM NO. AND CAPTION IN FORM S-1 LOCATION OR CAPTION IN PROSPECTUS
-------------------------------- ---------------------------------
<S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus........ Facing Page of Registration
Statement; Cross Reference Sheet;
Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus....... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk
Factors and Ratio of Earnings to
Fixed Charges................... Prospectus Summary; Risk Factors
4. Use of Proceeds.................. Use of Proceeds
5. Determination of Offering Price.. Outside Front Cover Page of
Prospectus; Risk Factors
6. Dilution......................... Risk Factors
7. Selling Security Holders......... Selling Stockholders
8. Plan of Distribution............. Outside Front Cover Page of
Prospectus; Plan of Distribution
9. Description of Securities to be
Registered...................... Description of Capital Stock
10. Interests of Named Experts and
Counsel......................... Not Applicable
11. Information With Respect to the
Registrant...................... Outside Front Cover Page of
Prospectus; Prospectus Summary; Risk
Factors; Dividend Policy;
Capitalization; Selected Consolidated
Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Selling
Stockholders; Security Ownership of
Certain Beneficial Holders and
Management; Certain Relationships and
Related Transactions; Description of
Capital Stock; Shares Available for
Future Sale; Consolidated Financial
Statements
12. Disclosure of Commission
Position on Indemnification
for Securities Act Liabilities.. Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+ REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH +
+ THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD +
+ NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION +
+ STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER +
+ TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE +
+ OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+ WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE +
+ SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
Subject To Completion; Dated June 11, 1996
5,250,000 SHARES*
KOO KOO ROO, INC.
COMMON STOCK
(Par Value $.01 per Share)
-----------------
All of the shares of Common Stock, par value $.01 per share ("Common Stock"),
of Koo Koo Roo, Inc., a Delaware corporation (the "Company"), offered hereby
(the "Shares") are being offered by certain selling securityholders of the
Company (the "Selling Stockholders") as described more fully herein. The
Company will not receive any of the proceeds from the sale of the Shares offered
hereby. All expenses of this offering will be paid for by the Company except
for commissions, fees and discounts of any underwriters, brokers, dealers or
agents retained by the Selling Stockholders. The Common Stock is traded on the
Nasdaq National Market under the symbol "KKRO." On June 10, 1996, the last
reported sale price of the Common Stock on the Nasdaq National Market was $9.00
per share. Investors are urged to obtain current market data. See "Use of
Proceeds," "Price Range of Common Stock," "Selling Stockholders" and "Plan of
Distribution."
*The shares of Common Stock offered hereby includes the resale of such
presently indeterminate number of shares of Common Stock as shall be issued in
respect of: (i) 450,000 shares of Common Stock (subject to adjustment) issued
in a private placement in March 1996, (ii) all shares of Common Stock issuable
upon conversion of or otherwise in respect of 1,200,000 shares of the
Registrant's 5% Convertible Preferred Stock, par value $.01 and liquidation
preference $25 per share (the "Convertible Preferred Stock"), issued in a
private placement in March 1996, (iii) 40,500 shares of Common Stock (subject to
adjustment) issuable upon the exercise of warrants issued in connection with the
foregoing private placements (the "Common Stock Warrants"), (iv) all shares of
Common Stock issuable upon conversion of or otherwise in respect of 108,000
shares of the Convertible Preferred Stock issuable upon the exercise of warrants
(the "Convertible Preferred Stock Warrants") issued in connection with the
foregoing private placements and (v) 84,409 shares of Common Stock originally
issued in other private placements. The number of shares of Common Stock
issuable in connection with such transactions and offered for resale hereby is
an estimate based upon the market price of the Common Stock set forth above, is
subject to adjustment and could be materially less or more than such estimated
amount depending upon factors which cannot be predicted by the Company at this
time, including, among others, the future market price of the Common Stock. If,
however, the above-noted market price of the Common Stock were used to determine
the number of shares issuable as of the first date on which the Convertible
Preferred Stock may be converted, the Company would be obligated to issue a
total of approximately 4,625,000 shares of Common Stock if all 1,308,000 shares
of Convertible Preferred Stock outstanding or issuable upon the exercise of
Convertible Preferred Stock Warrants on the date of this Prospectus were
converted on such dates. This presentation is not intended to constitute a
prediction as to the future market price of the Common Stock. See "Risk
Factors--Effect of Conversion of Convertible Preferred Stock; Potential Common
Stock Adjustment" and "Description of Capital Stock."
--------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CAREFULLY
CONSIDER THE FACTORS SET FORTH UNDER THE CAPTION "RISK FACTORS" ON PAGE 5 OF
THIS PROSPECTUS.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The Date of this Prospectus is June __, 1996
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities of the Commission located at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at the New York Regional
Office of the Commission, Seven World Trade Center, Suite 1300, New York, New
York 10048, and at the Chicago Regional Office of the Commission, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60621. Copies of such material
can also be obtained at prescribed rates from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such reports
and other information may also be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
The Company has filed with the Commission a Registration Statement on Form S-1
(the "Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the registration of the shares of Common
Stock offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits thereto, certain
portions of which have been omitted as permitted by the rules and regulations of
the Commission. Statements contained in this Prospectus or in any document
incorporated by reference herein as to the contents of any contract or other
documents referred to herein or therein are not necessarily complete and, in
each instance, reference is made to the copy of such documents filed as an
exhibit to the Registration Statement or such other documents, which may be
obtained from the Commission as indicated above upon payment of the fees
prescribed by the Commission. Each of such statements is qualified in its
entirety by such reference.
FORWARD LOOKING STATEMENTS
The forward looking statements and comments contained in this Prospectus
concerning, among other things, the prospects for the Company to grow rapidly
and attain profitable operations, are necessarily subject to risks and
uncertainties, some of which are significant in scope and nature. Actual
results will be dependent upon many factors the outcome of which cannot be
predicted as of the date of this Prospectus. The Company believes that it has
summarized the most significant of such factors of which it is aware under the
caption "Risk Factors." Accordingly, prospective investors should carefully
consider such Risk Factors, which are provided commencing on Page 5 of this
Prospectus in addition to the other information provided herein.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Without limiting the generality of the foregoing, prospective investors should
carefully consider the factors set forth under the caption "Risk Factors."
THE COMPANY
Koo Koo Roo, Inc. (the "Company") operates restaurants in the emerging food
service category of fresh, convenient meals. The restaurants feature the
Company's proprietary Original Skinless Flame-Broiled Chicken/TM/, fresh oven-
roasted hand-carved turkey, country herb rotisserie chicken, made to order
tossed salads, specialty sandwiches on fresh baked rolls, a signature vegetable
soup and more than 23 side dishes including hand-mashed potatoes, stuffing,
steamed green beans and other vegetables, rices and grains, all prepared fresh
in small batches on-site throughout the day. As of March 31, 1996, the Company
operated 18 Koo Koo Roo restaurants.
The Company's restaurants are designed to appeal to consumers who look for
good tasting, freshly prepared food, and who also appreciate menu items that are
wholesome and healthy. The products are easy to understand, high in quality and
generally low in fat, calories and cholesterol, without the negative connotation
or taste of "health food." The sights and smells of fresh food preparation,
such as turkey carving and salad tossing, are displayed in glass enclosed
stations featuring "chefs" in restaurant whites and toques.
Over the past several years, executive management, together with the Company's
corporate chef and professional designers, developed the layout, menu and
appearance of the current prototype store, referred to as the Koo Koo Roo
California Kitchen/TM/ concept. The performance and continuing improvement of
this concept led management to plan for a rapid expansion starting in 1995 and
to focus on Company ownership or joint venture relationships rather than
franchising. The Company is presently emphasizing growth through the development
of additional Koo Koo Roo California Kitchen/TM/ stores which will be either
owned and operated by the Company or owned in partnership with its existing
domestic joint venture partner and operated by the Company. It intends to act
opportunistically to establish additional joint venture arrangements and make
restaurant acquisitions and may also grow through the acquisition of
complementary businesses. Although the focus in 1996 will be on Company-owned
restaurants, the Company may pursue additional joint ventures or franchising in
certain markets.
The Company's principal executive offices are located at 11075 Santa Monica
Boulevard, Suite 225, Los Angeles, California 90025 and its telephone number is
(310) 479-2080.
RECENT DEVELOPMENTS
The Company announced several significant transactions in March 1996,
including a letter of intent related to the establishment of a joint venture in
Canada, the acquisition of 90% of the outstanding capital stock of Color Me
Mine, Inc. ("Color Me Mine"), an operator of a small chain of paint-your-own
ceramics studios, and the closing of two private placements. In the private
placements, the Company received gross proceeds aggregating $33.2 million
relating to the issuance of (i) 450,000 shares of Common Stock for $7.245 per
share (subject to adjustment) and (ii) 1,200,000 shares of a newly-designated
class of 5% Convertible Preferred Stock for $25.00 per share, as well as related
warrants. The number of shares of Common Stock issuable in connection with such
transactions and offered hereby is subject to adjustment and will depend upon
factors which cannot be predicted by the Company at this time including, among
others, the future market price of the Common Stock. See "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recent Private Placements," "Description of Capital Stock" and Note
14 to the Consolidated Financial Statements.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the
Selling Stockholders (estimate) ............ 5,250,000 shares (1)
Shares of Common Stock Outstanding
Prior to the Offering....................... 14,766,999 shares (2)
Use of Proceeds.............................. The proceeds from the sale of
the shares of Common Stock
offered hereby are solely for
the account of the Selling
Stockholders. Accordingly, the
Company will receive none of the
proceeds from sales thereof. See
"Use of Proceeds."
Nasdaq National Market Common Stock Symbol... KKRO
</TABLE>
- --------------------
(1) As set forth in the text on the cover of this Prospectus, this offering
includes the resale of such presently indeterminate number of shares of
Common Stock as shall be issued in respect of: (i) 450,000 shares of Common
Stock (subject to adjustment) issued in a private placement in March 1996,
(ii) all shares of Common Stock issuable upon conversion of or otherwise in
respect of 1,200,000 shares of the Registrant's 5% Convertible Preferred
Stock issued in a private placement in March 1996, (iii) 40,500 shares of
Common Stock (subject to adjustment) issuable upon the exercise of warrants
issued in connection with the foregoing private placements, (iv) all shares
of Common Stock upon conversion of or otherwise in respect of 108,000 shares
of the Registrant's 5% Convertible Preferred Stock issuable upon the
exercise of warrants issued in connection with the foregoing private
placements and (v) 84,409 shares of Common Stock originally issued in other
private placements. The number of shares of Common Stock indicated to be
offered hereby on the cover of this Prospectus and above is an estimate
based upon the market price of the Common Stock set forth on the cover page
of this Prospectus assuming that all shares of Convertible Preferred Stock
are converted on the first date permitted. The number of shares of Common
Stock issuable in connection with such transactions and offered for resale
hereby is subject to adjustment and could be materially less or more than
such amount depending upon factors which cannot be predicted by the Company
at this time, including, among others, the future market price of the Common
Stock. This presentation is not intended to constitute a prediction as to
the future market price of the Common Stock. See "Risk Factors--Effect of
Conversion of Convertible Preferred Stock; Potential Common Stock
Adjustment" and "Description of Capital Stock."
(2) As of May 15, 1996, excludes (i) approximately 7.4 million shares of Common
Stock subject to presently outstanding options granted by the Company under
certain stock option plans and through direct grants, of which approximately
3.1 million shares are issuable under options exercisable as of the date of
this Prospectus, (ii) approximately 2.4 million shares of Common Stock
issuable upon the exercise of presently outstanding warrants to purchase
Common Stock, of which approximately 655,000 shares are issuable pursuant to
warrants exercisable as of the date of this Prospectus and (iii) the shares
of Common Stock offered hereby, except for the 534,409 shares of Common
Stock (subject to adjustment) identified in clauses (i) and (v) of footnote
(1) above. Also excludes 84,352 treasury shares. See "Risk Factors--
Dilutive Effect of Outstanding Warrants and Options; Shares Available for
Future Sale," "Management," "Description of Capital Stock," "Shares
Available for Future Sale" and Note 7 to the Consolidated Financial
Statements.
4
<PAGE>
RISK FACTORS
The securities offered hereby involve a high degree of risk including, but
not necessarily limited to, the risk factors described below. Each prospective
investor should carefully consider the following risk factors inherent in and
affecting the business of the Company and this offering before making an
investment decision.
LIMITED OPERATING HISTORY; LIMITED REVENUES; HISTORY OF LOSSES. The Company
was organized in February 1987 and opened its first restaurant in August 1988
(which has since been closed). In addition, more than half of the Company's
owned and operated restaurants were opened during 1995 or 1996. As a result,
the Company has a limited operating history upon which an evaluation of the
Company's performance can be made. The Company's prospects must be considered
in light of the risks, expenses and difficulties frequently encountered in the
establishment of a new business and concept in the highly competitive restaurant
industry, which is characterized by a high failure rate. Since inception, the
Company has generated limited revenues and has generally incurred operating
losses. There can be no assurance that the Company will generate significant
revenue or achieve profitable operations. See "Selected Consolidated Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Company's Consolidated Financial Statements and the notes
thereto.
LIMITED NUMBER OF RESTAURANTS IN OPERATION; GEOGRAPHIC CONCENTRATION OF
RESTAURANTS; DEPENDENCE ON DISCRETIONARY SPENDING. As of March 31, 1996, the
Company operated 18 Koo Koo Roo restaurants. Of these, five restaurants had
been in operation for more than two years, and 10 restaurants had been in
operation for less than one year. Sixteen restaurants were in Southern
California, including three restaurants opened in Southern California during the
first quarter of 1996. In addition, the Company's revenues are dependent on
discretionary spending by consumers, particularly by consumers living in the
communities in which the restaurants are located. A significant weakening in
any of the local economies in which the Company operates may cause the residents
of such communities to curtail discretionary spending which, in turn, could have
a material adverse effect on the results of operations and financial position of
the entire Company. Consequently, the results achieved to date by the Company's
restaurants may not be indicative of the prospects or market acceptance of a
larger number of restaurants, particularly in wider and more geographically
dispersed areas with varied demographic characteristics. See "Business--New
Openings and Expansion Plans."
UNCERTAINTY OF MARKET ACCEPTANCE. The Company has limited marketing
experience and to date has engaged in limited marketing activities. Achieving
consumer awareness and market acceptance, particularly as the Company seeks to
penetrate new markets, will require substantial efforts and expenditures by the
Company. There can be no assurance that the Company's restaurants and ceramics
studios will achieve significant market acceptance. See "Business--New Openings
and Expansion Plans."
PROPOSED EXPANSION; NEED FOR ADDITIONAL FINANCING. Although the Company
intends to pursue a strategy of aggressive growth, the Company must depend on a
limited number of key experienced personnel in affecting this expansion. The
Company's proposed expansion (including, without limitation, accomplishment of
the new restaurant opening plans and expansion of Color Me Mine described in
this Prospectus) will be dependent on, among other things, market acceptance of
the Company's business concepts, the availability of suitable sites, timely
development and construction of stores, the hiring of skilled management and
other personnel, the general ability to successfully manage growth including
monitoring stores, controlling costs and maintaining effective quality controls,
and the availability of adequate financing. There can be no assurance that the
Company will be successful in its proposed expansion. Until the Company
increases the size of its base of restaurants and ceramics studios, the lack of
success of a small number of company-owned stores may have a disproportionate
impact on the Company's performance. To implement its expansion, the Company
expects to incur additional indebtedness or issue additional equity securities
in the future. There can be no assurance that such additional capital, if and
when required, will be available on terms acceptable to the Company, or at all.
In addition, future issuances of
5
<PAGE>
Common Stock, if any, would dilute the present ownership of all stockholders in
the Company, including investors purchasing shares in this offering. See "Use of
Proceeds," "Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business--Business Strategy" and "--New
Openings and Expansion Plans."
MANAGEMENT OF GROWTH. The Company's business has grown rapidly in recent
periods and management's plans call for continued growth, which may place
significant strains on the Company's managerial, operational, financial and
information systems. The Company's success depends to a significant extent on
the ability of its executive officers and other members of senior management to
respond to these challenges effectively. In this regard, two of the Company's
senior executive officers have joined the Company since February 1995, including
its Vice Chairman and its Chief Financial Officer. The Company's expansion has
also resulted in substantial growth in the number of its employees, resulting in
increased responsibility for both existing and new management personnel. In
addition, the Company is in the ongoing process of evaluating and enhancing its
operating and financial procedures and systems in an effort to increase
efficiencies in managing its expanding business. There can be no assurance that
the Company's management will be able to manage future expansions successfully,
or that its management, personnel or system will be adequate to support the
Company's operations or will be implemented in a cost-effective or timely
manner. Any such inabilities or inadequacies would have a material adverse
effect on the Company's business, operating results and financial conditions.
See "Management."
COMPETITION. The restaurant industry, and particularly the quick-service
segment, is highly competitive with respect to price, service and location, and
numerous well-established competitors possess substantially greater financial,
marketing, personnel and other resources than the Company. In addition, the
quick-service industry is characterized by the frequent introduction of new
products, accompanied by substantial promotional campaigns. The Company is
required to respond to various factors affecting the restaurant industry,
including changes in consumer preferences, tastes and eating habits, demographic
trends and traffic patterns, increases in food and labor costs, competitive
pricing and national, regional and local economic conditions. In recent years
numerous companies in the quick-service industry have introduced products,
including chicken, which were developed to capitalize on growing consumer
preference for food products which are, or are perceived to be, healthful,
nutritious, low in calories and low in fat content. It can be expected that the
Company will be subject to increasing competition from companies whose products
or marketing strategies address these consumer preferences. There can be no
assurance that consumers will regard the Company's products as sufficiently
distinguishable from competitive products (such as, for example, those offered
by El Pollo Loco and Boston Market), that substantially equivalent products will
not be introduced by the Company's competitors or that the Company will be able
to compete successfully. Similarly, Color Me Mine will likely face significant
competition from similar concepts and other businesses providing leisure and
entertainment services. See "Business--Competition."
DEPENDENCE UPON KEY PERSONNEL. The success of the Company is largely
dependent on the efforts of certain key personnel of the Company, including
Kenneth Berg, its Chairman of the Board and Chief Executive Officer, and other
key executives. Although the Company has entered into employment agreements
with certain of its executive officers, none of such agreements obligate these
employees to continue to work for the Company. The loss of their services would
have a material adverse effect on the Company. Additionally, in order to
successfully implement its proposed expansion and manage anticipated growth, the
Company will be dependent upon its ability to retain existing and hire
additional qualified personnel. There can be no assurance that the Company will
be able to retain or hire necessary personnel. See "Management."
POSSIBLE CONFLICTS OF INTEREST; BENEFITS TO CERTAIN EXECUTIVE OFFICERS AND
STOCKHOLDERS. Mr. Berg's employment agreement with the Company provides that he
is obligated to devote his full-time services to the Company but is permitted to
continue to engage in the other business activities currently conducted by him.
However, his employment agreement provides that he may do so only so long as
such activities do not conflict with or otherwise unreasonably interfere with
the performance of his services to the Company. Mr. Berg's
6
<PAGE>
employment agreement also provides for significant payments to him upon the
occurrence of certain defined events including, among others, his termination
without "cause" and a "change in control" of the Company. See "Management--
Employment Arrangements."
DILUTIVE EFFECT OF OPTIONS AND WARRANTS; SHARES AVAILABLE FOR FUTURE SALE.
As of May 15, 1996, the Company had granted options to purchase an aggregate of
approximately 7.4 million shares, and warrants to purchase an aggregate of
approximately 2.4 million shares, of Common Stock at exercise prices ranging
from $0.625 per share to $10.00 per share. In the event that all such options
and warrants are exercised, the aggregate proceeds to the Company would be
approximately $58.2 million. To the extent that the stock options and warrants
are exercised, material dilution of the ownership interest of the Company's
present stockholders will occur. The Company also expects that in the ordinary
course of its business it will issue additional warrants and grant additional
stock options including, but not limited to, options granted pursuant to its
Stock Awards and Director's Stock Option Plans. Investors should note that the
recent trading prices of the Common Stock significantly exceeds the Company's
book value for financial accounting purposes. In addition, the approximately
2.4 million shares of Common Stock issuable upon exercise of presently
outstanding warrants and a significant portion of the outstanding stock options
and restricted shares of Common Stock are subject to certain registration rights
and, upon the effectiveness of a registration statement covering such shares,
will be eligible for resale in the public market without restriction under the
Securities Act. Sales of substantial amounts of Common Stock by stockholders,
or the perception that such sales could occur, could adversely affect the market
price for the Common Stock. See "--Effect of Conversion of Convertible
Preferred Stock; Potential Common Stock Adjustment," "--Securities Market
Factors," "Management," "Description of Capital Stock," "Shares Available for
Future Sale" and Note 7 to the Consolidated Financial Statements.
EFFECT OF CONVERSION OF CONVERTIBLE PREFERRED STOCK; POTENTIAL COMMON STOCK
ADJUSTMENT. The Company's Convertible Preferred Stock entitles the holders
thereof to convert such shares into shares of Common Stock. The exact number of
shares of Common Stock issuable upon conversion of all of the Convertible
Preferred Stock and offered hereby cannot currently be estimated but, generally,
such issuances of Common Stock will vary inversely with the market price of the
Common Stock. The holders of Common Stock will be materially diluted by
conversion of the Convertible Preferred Stock which dilution will depend on the
future market price of the Common Stock. On June 10, 1996, the last reported
sales price of the Common Stock on the Nasdaq National Market was $9.00 per
share. If such market price were used to determine the number of shares of
Common Stock issuable as of the first date on which the Convertible Preferred
Stock may be converted, the Company would issue a total of approximately
4,625,000 shares of Common Stock if all such shares, including shares of
Convertible Preferred Stock issuable upon the exercise of Convertible Preferred
Stock Warrants, were converted at such time and the related adjustment was made
in respect of the Common Stock issued in the 1996 Private Placements as noted
below. To the extent the market price per share of the Common Stock is lower or
higher than $9.00 as of any date on which shares of Convertible Preferred Stock
are converted, the Company would issue more or less shares of Common Stock than
reflected in such estimate, and such difference could be material. The number
of shares of Common Stock issuable in connection with the Convertible Preferred
Stock is not a linear function of the market price of the Common Stock, and will
increase at an increasing rate as such market price decreases (and decrease at a
decreasing rate as such market price increases) relative to a given assumed
market price. This presentation is not intended to constitute a prediction as
to the future market price of the Common Stock. The holders of the Convertible
Preferred Stock also possess certain registration rights, including the right to
include all of the shares of Common Stock that such holders may desire to sell
in certain underwritten public offerings by the Company. In addition, if,
during the twelve-month period following the closing of the 1996 Private
Placements (as defined herein), the Company issues any shares of Common Stock
for an effective issue price of less than $7.245 per share (the original issue
price of the 450,000 shares placed in that transaction), the purchase price per
share of such Common Stock shall, subject to certain exceptions, be adjusted
downward to equal such lower issue price (along with a similar adjustment to the
Common Stock Warrants). The Company presently expects to satisfy such
obligation, if
7
<PAGE>
any, by issuing additional shares of Common Stock. As with the conversion price
of the Convertible Preferred Stock, whether or not any adjustment will be
necessary in the future will depend upon factors which cannot be predicted by
the Company at this time including, among others, the future market price of the
Common Stock and the time at which holders of Convertible Preferred Stock elect
to convert or are forced by the Company to so convert such shares into Common
Stock. Accordingly, the dilution attributable to the securities issued in the
Company's 1996 Private Placements will not be determinable until all such
securities have been converted into, or exercised for, Common Stock. The terms
of the securities issued in the 1996 Private Placements do not provide for any
limit on the number of shares of Common Stock which the Company may be required
to issue in respect thereof. Stock market volatility, whether related to the
Stock market generally or the Company specifically, and if coincident in time
with conversions of Convertible Preferred Stock, will impact directly the number
of shares of Common Stock issuable upon conversion of the Convertible Preferred
Stock and in respect of the other securities issued in the Company's 1996
Private Placements and which are offered for resale hereby. See "--Securities
Market Factors," "Price Range of Common Stock," "Selected Consolidated Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Business--Recent Private Placements" and
"Description of Capital Stock."
GOVERNMENT REGULATIONS. The Company is subject to various federal, state and
local laws and regulations affecting its business. The Company's stores are
subject to regulation by various governmental agencies, including those
responsible for compliance with state and local licensing, zoning, land use,
construction and environmental regulations and various health, sanitation,
safety and fire standards. Any difficulties or failure in obtaining required
licenses or approvals could delay or prevent the opening of a new store. In
addition, suspension of certain licenses or approvals, due to failure to comply
with applicable regulations or otherwise, could interrupt the operations of the
affected store or otherwise adversely affect the store or the Company. The
Company is also subject to federal and state laws establishing minimum wages and
regulating overtime and working conditions. Since many of the Company's
restaurant personnel are paid at rates which may be affected by the federal
minimum wage, increases in such minimum wage (which are under consideration by
Congress) may result in an increase in the Company's labor costs. The Company
cannot predict the impact on its results of operations should the federal
minimum wage be changed. Federal and state franchise laws will also impose
significant compliance obligations on the Company as it pursues the expansion of
Color Me Mine. See "Business--Government Regulation."
INSURANCE AND POTENTIAL LIABILITY. The Company maintains insurance,
including insurance relating to personal injury, in amounts which the Company
currently considers adequate. Nevertheless, a partially or completely uninsured
claim against the Company, if successful and of sufficient magnitude, could have
a material adverse effect on the Company.
SECURITIES MARKET FACTORS. The market price for the Company's Common Stock
is significantly affected by such factors as the Company's financial results,
opening of new restaurants and ceramics studios and performance of existing
stores, introduction of new products by the Company or its competitors, status
of compliance with franchise regulation and various factors affecting the quick-
service restaurant and leisure time industries generally. Additionally, in
recent years, the stock market has experienced a high level of price and volume
volatility and market prices for many companies, particularly small emerging
growth companies, have experienced wide price fluctuations not necessarily
related to the operating performance of such companies. The market price for
the Common Stock may be affected by general stock market volatility. Any such
volatility, whether related to the stock market generally or the Company
specifically, and if coincident in time with conversions of Convertible
Preferred Stock, will also impact directly the number of shares of Common Stock
issuable upon conversion of the Convertible Preferred Stock and in respect of
the other securities issued in the Company's 1996 Private Placements. See "--
Effect of Conversion of Convertible Preferred Stock; Potential Common Stock
Adjustment," "Price Range of Common Stock" and "Description of Capital Stock."
8
<PAGE>
NO COMMON STOCK DIVIDENDS. To date, the Company has not paid any cash
dividends on its Common Stock and does not intend to declare any such dividends
in the foreseeable future. The Company is obligated to pay dividends at the
rate of 5% per annum (which may be paid in cash or, subject to certain
restrictions, in shares of Common Stock which may be offered for resale
hereunder) on its Convertible Preferred Stock. See "Dividend Policy" and
"Description of Capital Stock--Preferred Stock."
POSSIBLE ISSUANCE OF PREFERRED STOCK WITHOUT STOCKHOLDER APPROVAL. The
Company's Certificate of Incorporation authorizes the issuance of "blank check"
Preferred Stock with such designations, rights and preferences as may be
determined from time-to-time by the Company's Board of Directors. Accordingly,
the Board is empowered, without approval by holders of the Common Stock, to
issue Preferred Stock with dividend, liquidations, redemption, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of the Common Stock. It was pursuant to this authority
that the shares of Convertible Preferred Stock were issued. In the event of
issuance, Preferred Stock could be used, under certain circumstances, as a
method of discouraging, delaying or preventing a change in control of the
Company. The Company has no current intention to issue any additional shares of
its Preferred Stock, except pursuant to presently outstanding warrants; however,
there can be no assurance that the Company will not do so in the future. See
"Description of Capital Stock."
9
<PAGE>
USE OF PROCEEDS
The proceeds from the sale of the shares of Common Stock offered hereby are
solely for the account of the Selling Stockholders. Accordingly, the Company
will receive none of the proceeds from sales thereof. However, certain of the
shares of Common Stock offered hereby are issuable in the future upon the
exercise of the Common Stock Warrants and Convertible Preferred Stock Warrants
issued in connection with the 1996 Private Placements (and, in the case of
shares of Convertible Preferred Stock, upon the conversion thereof into Common
Stock). If all of such warrants to purchase Common Stock and Convertible
Preferred Stock were exercised, the Company would receive gross proceeds of
approximately $3.0 million in the aggregate. The Company expects to use the
proceeds from the exercise of such warrants, if any, for general corporate
purposes. See "Description of Capital Stock."
PRICE RANGE OF COMMON STOCK
Since the Company's initial public offering in October 1991, the Company's
Common Stock has traded in the over-the-counter market and has been listed for
quotation through Nasdaq. Prior to such date, there was no public market for
the Common Stock. On August 14, 1995, the Company was accepted for quotation
through the Nasdaq National Market.
The following table sets forth for the periods identified the high and low
bid price of the Common Stock for the periods indicated, as reported by Nasdaq.
Stockholders are urged to obtain current market data.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1993
First Quarter (December 16, 1992 - March 29, 1993) $ 0.688 $0.438
Second Quarter (March 10 - June 30, 1993) 3.250 0.375
Third Quarter (July 1 - September 28, 1993) 9.500 2.500
Fourth Quarter (September 29 - December 28, 1993) 8.375 4.625
YEAR ENDED DECEMBER 31, 1994
First Quarter (December 29, 1993 - March 29, 1994) $ 7.000 $5.125
Second Quarter (March 30 - June 30, 1994) 8.000 5.875
Third Quarter (July 1 - September 28, 1994) 9.250 6.250
Fourth Quarter (September 29 - December 28, 1994) 8.375 3.875
YEAR ENDED DECEMBER 31, 1995
First Quarter (December 29, 1993 - March 28, 1995) $ 7.000 $4.000
Second Quarter (March 29 - June 30, 1995) 7.000 4.750
Third Quarter (July 1 - September 30, 1995) 9.781 6.250
Fourth Quarter (October 1 - December 31, 1995) 9.563 6.250
YEAR ENDED DECEMBER 31, 1996
First Quarter (January 1, 1996 - March 31, 1996) $ 9.125 $6.063
Second Quarter (April 1, 1996 through June 10, 1996) 10.000 7.750
</TABLE>
On May 15, 1996, there were approximately 440 holders of record of the
Company's Common Stock. The Company estimates that, as of such date, there were
approximately 8,300 beneficial owners of such stock. There is no public market
for the Company's Convertible Preferred Stock which, as of May 15, 1996, was
held of record by approximately 74 holders.
10
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital
stock. The Company currently intends to retain any earnings for use in its
business and does not anticipate paying any cash dividends on its Common Stock
in the foreseeable future. Payment of dividends is within the discretion of the
Company's Board of Directors and will depend upon, among other factors, the
Company's earnings, financial condition and capital requirements. The Company
is obligated to pay dividends at the rate of 5% per annum (which may be paid in
cash or, subject to certain restrictions, in shares of Common Stock) on its
Convertible Preferred Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation--Liquidity and Capital Resources"
and "Description of Capital Stock."
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at March 31, 1996:
<TABLE>
<CAPTION>
March 31, 1996/(1)/
--------------------
<S> <C>
Total long term debt $ 175,219
Minority interest 638,901
Stockholders' equity:
Preferred Stock; $.01 par value, 5,000,000 shares authorized; 12,000
1,200,000 shares of 5% Convertible Preferred Stock (liquidation
preference $30,000,000) issued and outstanding/(2)/
Common Stock; $.01 par value, 25,000,000 authorized; 14,844,351 148,444
shares issued and outstanding/(1)/
Additional paid-in capital 71,145,946
Accumulated deficit (20,026,489)
Treasury stock, 84,352 shares at cost (2,242)
Common Stock issued for unearned compensation (751,512)
------------
Total stockholders' equity 50,526,147
------------
Total capitalization $ 51,340,267
============
</TABLE>
- -----------------
(1) As of May 15, 1996, 14,766,999 shares of Common Stock were outstanding (net
of treasury shares). Such amount excludes (i) approximately 7.4 million
shares of Common Stock subject to presently outstanding options granted by
the Company under certain stock option plans and through direct grants, of
which approximately 3.1 million shares are issuable under options
exercisable as of the date of this Prospectus, (ii) approximately 2.4
million shares of Common Stock issuable upon the exercise of presently
outstanding warrants to purchase Common Stock, of which approximately
655,000 shares are issuable pursuant to warrants exercisable as of the date
of this Prospectus, (iii) the shares of Common Stock offered hereby, except
for 534,409 shares of Common Stock (subject to adjustment) issued in certain
private placement transactions prior to March 31, 1996. See "Risk Factors--
Dilutive Effect of Outstanding Options and Warrants; Shares Available for
Future Sale," "Management," "Description of Capital Stock," "Shares
Available for Future Sale" and Note 7 to the Consolidated Financial
Statements.
(2) The number of shares of Common Stock issuable upon conversion of the shares
of Convertible Preferred Stock issued or issuable upon exercise of
outstanding warrants and offered for resale hereby is dependent upon, among
other things, the future market price of the Common Stock. Excludes
outstanding warrants to purchase 108,000 shares of Convertible Preferred
Stock for $25.00 per share. See "Description of Capital Stock."
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands except for per share amounts)
The following table sets forth selected consolidated financial data of
the Company. The data for all periods presented, except for the three months
ended March 31, 1995 and 1996, is derived from the audited financial statements
of the Company. The data for the three months ended March 31, 1995 and 1996 is
derived from unaudited financial statements which, in the opinion of the
Company, include all adjustments necessary for a fair presentation thereof.
This data should be read in conjunction with the Company's Consolidated
Financial Statements and related notes. Also see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the other
financial information included herein.
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31,/(1)//(2)//(3)/ March 31,
-------------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1995 1996
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(unaudited)
FOR THE PERIOD:
Revenues $ 3,034 $ 4,167 $ 5,082 $ 8,983 $20,896 $ 3,700 $ 7,476
Net loss (1,893) (3,617) (2,219) (4,782) (6,911) (1,106) (1,703)
Preferred dividends(4) -- -- -- -- -- -- 49
Net loss applicable
to common stockholders (1,893) (3,617) (2,219) (4,782) (6,911) (1,106) (1,752)
Net loss per
common share (0.80) (1.08) (0.48) (0.63) (0.57) (0.12) (0.12)
AT PERIOD END:
Total assets $ 6,018 $ 2,754 $ 5,732 $ 8,356 $26,555 $12,626 $56,304
Stockholders' equity 5,343 1,756 4,512 3,748 21,543 8,147 50,526
Stockholders' equity
per common share 1.31 0.42 0.63 0.42 1.51 0.79 1.39(5)
</TABLE>
- --------------------
(1) The Company changed to a calendar year ended December 31 effective December
31, 1995; it previously reported on a June fiscal year. The Companyss
consolidated financial statements for the years ended December 31 of 1993,
1994 and 1995 have been audited by BDO Seidman, LLP and such firm's report
thereon is included herein. The selected financial data for 1992 is derived
from the previously-audited years ended December 31, 1991 and June 30, 1992,
and the newly-audited year ended December 31, 1993.
(2) The Company's predecessor was incorporated in 1987 and began business in
1988.
(3) The acquisition of 90% of the stock of Color Me Mine, completed in March
1996, has been accounted for utilizing the pooling of interests accounting
method. This method assumes that the Company and Color Me Mine have been
merged since inception. Accordingly, the recorded assets and liabilities of
the Company and Color Me Mine are carried forward at their historical
amounts. The historical financial statements have been restated for all
periods during which Color Me Mine had material operations. As also
required by the pooling of interests method, the Company expensed during the
quarter ended March 31, 1996 approximately $175,000 in transaction costs
related to this business combination. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Recent Developments."
(4) No dividends have been paid on the Common Stock of the Company during the
above periods. See "Dividend Policy."
(5) Calculated as stockholders equity, less the liquidation preference of the
Convertible Preferred Stock, divided by outstanding shares of Common Stock.
See "Risk Factors--Dilutive Effect of Options and Warrants; Shares Available
for Future Sale," "--Effect of Conversion of Convertible Preferred Stock;
Potential Common Stock Adjustment" and "Description of Capital Stock."
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The discussion below, under the caption "Business" and elsewhere in
this Prospectus includes forward looking statements about the future business
results and activities of the Company which, by their very nature, involve a
number of risks and uncertainties. For an explanation of certain of these risks
and uncertainties, see the matters discussed in the last paragraph of this
General section and the other information referred to therein.
During 1995, the Company amended its bylaws to change its fiscal year
end from June 30th to December 31st commencing with the period ending December
31, 1995. In accordance with this change in year end, the Company has reported
its financial results for the years ended December 31, 1995, 1994 and 1993. The
financial results for 1994 and 1993 involve only a re-combination of previously
reported financial results in order to accomplish the change from a June 30th to
a December 31st year end. There are no changes to the Company's historical
financial results, other than to give effect to the business combination with
Color Me Mine as described below.
The acquisition of 90% of the stock of Color Me Mine, completed in
March 1996, has been accounted for utilizing the pooling of interests accounting
method. This method assumes that the Company and Color Me Mine have been merged
since inception. Accordingly, the recorded assets and liabilities of the
Company and Color Me Mine are carried forward at their historical amounts. The
historical financial statements have been restated for all periods during which
Color Me Mine had material operations. As also required by the pooling of
interests method, the Company expensed during the quarter ended March 31, 1996
approximately $175,000 in transaction costs related to this business
combination. See "Business--Recent Developments."
Prior to June 1994, the Company was pursuing a strategy of franchising
combined with moderate Company-owned restaurant growth in and around Los
Angeles. Development agreements had been established for several areas in
California as well as Florida and certain counties in Southern Georgia. During
the latter half of 1994, management decided to focus on Company-owned restaurant
growth. This change in strategy was inspired by the financial performance of
the Company's California Kitchen concept stores and the belief that a Company-
owned restaurant strategy would afford management greater control and avoid
difficulties which might be encountered with franchisees in maintaining quality
control, product and site selection criteria and cost discipline. As a result
of this change in focus, during 1995 the Company repurchased all Area
Development Agreements and related franchises except for its Florida/Southern
Georgia Area Development Agreement where the Company signed an amendment to
pursue joint ventures with its Florida/Southern Georgia Area Developer. During
1995, the Company also purchased the minority partnership interest in three
restaurants located in Beverly Hills, Santa Monica and Brentwood, California.
See "Business--Recent Developments."
Calendar year 1995 marked a period of substantial growth for the
Company as the Company opened nine new restaurants during the year and added
Arrosto Coffee Company ("Arrosto Coffee Company" or "Arrosto") locations in
three of these restaurants. The Company closed one restaurant at the end of
1995 and closed one Arrosto location during the year. At March 31, 1996, the
Company operated 18 restaurants, eight of which included Arrosto locations.
During 1995 the Company also developed and tested The Vegetable Stand featuring
a display of fresh produce and offering made-to-order salads. The Vegetable
Stand has been installed in 16 of the 18 Koo Koo Roo restaurants open as of
March 31, 1996.
Many of the statements made in this Management's Discussion and
Analysis of Financial Condition and Results of Operations and elsewhere in this
Prospectus are forward looking and, among other things, comment on the prospects
for the Company to grow rapidly and attain profitable operations. The Company
has incurred net losses which have been increasing. Management presently
anticipates that net losses will continue to be incurred for some time, but that
the net loss should decrease during the 1996 calendar year both in aggregate and
as a percentage of sales. Management presently cannot predict precisely when
the Company may achieve profitable
13
<PAGE>
operations. The Company's current level of overhead contemplates more stores
than are currently opened, and control over the timing of the opening of the
additional stores necessary to achieve a volume level which would permit overall
Company profitability is partially under the control of management of the
Company, but is also partially under the control of others including site
landlords which are in negotiations with the Company, government permitting
agencies, and other outside parties and agencies including, but not necessarily
limited to, contractors, vendors and government inspectors. Other significant
factors relevant to the attainment of the Company's growth and profitability
objectives are discussed or referenced under the captions "Forward Looking
Statements" and "Risk Factors."
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1995.
The Company incurred an operating loss during the quarter ended March
31, 1996 in accordance with the Company's continued policy of building the
management team and other infrastructure necessary to pursue the Company's
corporate strategy of growing through the construction and operation of Company-
owned restaurants. The Company's corporate overhead contemplates a greater
number of restaurants than are presently open and will support a greater rate of
new store development than is presently occurring.
The net loss for the quarter ended March 31, 1996 was $1,702,570
(before preferred stock dividends) compared to a net loss of $1,105,606 for the
quarter ended March 31, 1995.
Revenues for the quarter ended March 31, 1996 were $7,476,003 compared
to $3,700,472 for the quarter ended March 31, 1995, an increase of 102%.
Sales for the quarter ended March 31, 1996 were produced by eight
restaurants which were operating during the current quarter and the same period
in 1995 and 10 additional restaurants opened subsequent to March 31, 1995.
Three new Koo Koo California Kitchen/tm/ restaurants were opened during the
quarter ended March 31, 1996: Studio City, Larchmont (Los Angeles), and Venice
Beach, California. In addition, one restaurant acquired from a former
franchisee in La Jolla, California was closed during the period.
Revenues for the quarter ended March 31, 1996 doubled to $7.5 million
compared to $3.7 million during the same period in 1995. Average weekly sales
for the eight restaurants open the full three months of the first quarter of
both 1996 and 1995 increased 17.8%. All restaurants except the original Koo Koo
Roo location located on Beverly Boulevard in Los Angeles have been converted to
the Koo Koo Roo California Kitchen/tm/ concept menu and decor, although seven of
the current eighteen locations do not meet the real estate site selection
criteria which the prototype units share. Four Arrosto locations open in both
periods generated $206,631 in revenues for the quarter ended March 31, 1996 and
$175,339 during the same period in 1995, an increase of 17.6%. Three Color Me
Mine locations generated $280,497 in revenues for the quarter ended March 31,
1996 and $149,563 during the same period in 1995. Management believes that the
restaurant sales improvements are due to a number of factors including greater
awareness of the Company's operations, increased market penetration, the
Company's ability to upgrade its restaurant management through the use of more
experienced and highly trained managerial personnel and improved training
programs, the addition of new products in late 1995 including hand-tossed,
gourmet salads offered at stores retrofitted with The Vegetable Stand, and
regional and local marketing programs. All new restaurants are built using the
California Kitchen concept. As of March 31, 1996, all but two Koo Koo Roo
locations had been retrofitted with The Vegetable Stand. Franchise revenues
were minor in both periods and, with respect to Koo Koo Roo, are expected to be
largely eliminated with the reacquisition of all but one of the Area Development
Agreements as discussed under "--General" and "Business--Recent Developments."
Color Me Mine presently intends to continue to pursue franchise arrangements
through potential joint ventures with area developers.
Cost of sales were $5,145,408 in the quarter ended March 31, 1996
compared to $2,707,728 in the same period in 1995. As a percentage of sales,
these costs, which include food, paper and labor, declined to
14
<PAGE>
69.9% compared to 74.2% in the same period last year due to efficiency
improvements in product preparation and labor scheduling and increased volumes.
Cost of sales for more mature restaurants (those open more than three months)
generally are lower than the cost of sales in newly opened restaurants. When
the proportion of more mature restaurants to new restaurants becomes more
favorable, the overall cost of sales declines as a percentage of sales as
occurred during 1995; however, new restaurants will likely outnumber more mature
restaurants throughout 1996.
Gross profit as a percentage of sales net of other income for the
quarter ended March 31, 1996 increased to 30.1% compared with 25.8% in the same
period of the prior year. These results are due to the sales and cost
improvements referred to above and to the impact of a higher number of more
mature restaurants (restaurants open more than three months). There were 15
more mature restaurants in the first quarter of 1996 compared with eight in the
same quarter of 1995. Gross profit generally increases in more mature
restaurants and is lower in newly opened restaurants. All but three Company
restaurants were open for more than three months during the quarter ended March
31, 1996.
Operating expenses amounted to $4,107,120 for the quarter ended March
31, 1996 compared to $2,172,663 for the 1995 period. This increase was
primarily due to the Company's expansion. Operating expenses as a percentage of
revenues decreased to 55.8% for the first quarter of 1996 from 59.5% in the same
period of the prior year due principally to increased restaurant sales and
higher per restaurant volumes which resulted in a decrease in occupancy expenses
from 12.8% for the quarter ended March 31, 1995 to 9.0% in the quarter ended
March 31, 1996. Management expects overall operating expenses to continue to
decline as a percentage of revenues. Personnel and corporate expense increased
due to infrastructure added in preparation for the Company's planned growth.
Management expects the growth of corporate overhead to continue, but at a slower
rate. Approximately $175,000 in expenses associated with the acquisition of
Color Me Mine are also included in operating expenses for the first quarter of
1996 due to the accounting treatment of the business combination as a pooling of
interests.
**1 The Company's present expansion plans contemplate a relatively large
number of new restaurant openings during the balance of 1996 and into 1997. In
connection with new restaurant openings, pre-opening costs (such as training of
new employees and various site costs) are capitalized until the restaurant is
opened at which time they are amortized on a straight-line basis over the first
twelve months' operations. Therefore, pre-opening cost amortization is expected
to increase substantially for calendar year 1996 commensurate with the presently
contemplated increase in the rate of restaurant openings. Equipment and
leasehold depreciation is also expected to increase as a result of the
anticipated restaurant openings, although it may be mitigated somewhat by cost
reduction efforts in construction.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994.
The Company incurred operating losses during the year ended December
31, 1995 in large part due to the required costs of building the management team
and other infrastructure necessary to pursue the Company's corporate strategy of
growing through the construction and operation of Company-owned restaurants. In
addition to corporate overhead costs, the Company's losses also reflect costs
related to the development of new products, restaurant development expenses and
the abandonment of certain sites and assets, all of which continued to more than
offset improvements in restaurant operations.
The net loss for the year ended December 31, 1995 was $6,911,000
compared to a net loss of $4,782,000 for the year ended December 31, 1994.
Included in the net loss for the current year were costs related to the closing
of restaurants amounting to $587,000 and other costs including asset abandonment
costs, costs related to canceling Area Development Agreements and certain other
non-operating costs totaling $1,145,000. Included in the net loss for the year
ended December 31, 1994 were restaurant closing costs of $425,000 and certain
other non-operating costs, chiefly expenses associated with terminated financing
discussions totaling $415,000.
Revenues for the year ended December 31, 1995 amounted to $20,896,000
compared to $8,983,000 for the year ended December 31, 1994, an increase of 132%
(120% if Color Me Mine is excluded). Revenues for
15
<PAGE>
the year ended December 31, 1995 included $427,000 of interest income earned
chiefly from the Company's investment in marketable securities. Franchise
revenues related to Koo Koo Roo were minor in both years and are expected to be
largely eliminated in 1996 with the reacquisition of all but one of the Area
Development Agreements and the establishment of an exclusive joint venture
relationship with its sole remaining area developer. See "Business--Recent
Developments."
Sales of $18,450,000, excluding Arrosto and Color Me Mine, for the
year ended December 31, 1995 were produced by eight restaurants which operated
during both the 1995 and 1994 calendar years and nine additional restaurants
open for part of 1995. Comparable sales for the restaurants open throughout
both 1995 and 1994 increased by 21.5%. Six Arrosto locations generated $770,000
in revenues during the year ended December 31, 1995 compared to four Arrosto
locations and $291,000 in the prior year. All of the Arrosto Coffee Company
outlets are located in Koo Koo Roo California Kitchen\TM\ restaurants. Three
Color Me Mine locations generated $1,078,000 in revenues during the year ended
December 31, 1995; operations in the prior year were not material. Franchise
revenues for Color Me Mine were $14,000 for the year ended December 31, 1995.
Color Me Mine presently intends to continue to pursue franchise expansion by
seeking area development agreements.
Cost of sales amounted to $14,523,000 in the year ended December 31,
1995 compared to $6,457,000 in the prior year. Cost of sales, which includes
food, paper and labor, declined slightly as a percentage of sales in 1995
compared to the prior year. The cost of sales improvements were due to
efficiency improvements, waste reduction and increased volumes, which resulted
in improvements in overall food and paper costs. Labor costs as a percentage of
sales remained approximately level. Cost of sales for more mature restaurants
(those open more than three months) generally are lower than the cost of sales
in newly opened restaurants. When the proportion of more mature restaurants to
new restaurants becomes more favorable, the overall cost of sales declines as a
percentage of sales as occurred during 1995; however, new restaurants will
likely outnumber more mature restaurants throughout 1996.
Gross profit, net of other income, for calendar year 1995 increased by
149% to $5,776,000 from $2,315,000 for the prior year. As a percentage of
sales, gross profit increased to 28.5% in the current year compared to 26.4% in
the prior year. Gross profit generally increases in more mature restaurants
(those open more than three months) and is lower in newly opened restaurants.
All but three Company restaurants were open for more than three months during
the current calendar year.
Operating expenses amounted to $13,425,000 for the year ended December
31, 1995 compared to $7,389,000 for 1994. This increase was primarily due to
the Company's expansion. As a percentage of revenues, operating expenses
decreased to 64% in 1995 from 82% during the prior year, primarily as a result
of increased sales revenues and higher per restaurant volumes which resulted in
decreases in occupancy and other fixed expenses as a percentage of revenues.
Management expects overall operating expenses to continue to decline as a
percentage of revenues in the future. Occupancy and other fixed expenses are
expected to continue to decline as a percentage of revenues, but at a much
slower rate in the future. Personnel and other corporate expenses increased as
the Company implemented the infrastructure necessary for its planned growth and
continued to incur product development expenses for such products as The
Vegetable Stand. Management expects the growth of corporate overhead to
continue, but at a slower rate of growth in future years.
During calendar year 1995, the Company closed one restaurant in Miami
Beach, Florida and also closed one Arrosto location incurring an aggregate cost
of $437,000. In addition, $150,000 was reserved for a restaurant closing which
occurred in 1994. Abandonment costs in calendar year 1995 of $525,000 include
the abandonment of signed leases and sites deemed inappropriate given the
Company's Koo Koo Roo concept criteria developed during 1995, as well as the
unamortized costs of certain assets abandoned and written off during the
remodeling of the New Jersey restaurant. Other operating expenses for the year
ended December 31, 1995 also include $284,000 of costs related to reacquiring
Area Development Agreements. Other operating expenses for 1994 include a charge
of $331,000 for expenses associated with terminated financing discussions.
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<PAGE>
YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1993.
The Company continued to incur operating losses during the year ended
December 31, 1994 chiefly as a result of a substantial increase in operating
expenses related to corporate overhead and development of the new California
Kitchen concept, which more than offset improvements in restaurant operations.
The net loss for the year ended December 31, 1994 amounted to
$4,782,000 compared to a net loss of $2,219,000 for the year ended December 31,
1993. Included in the net loss for both periods were costs related to the
closing of Company restaurants amounting to $425,000 and $486,000, respectively.
Included in expenses for the year ended December 31, 1994 was a charge of
$331,000 for expenses associated with terminated financing discussions.
Revenues for the year ended December 31, 1994 amounted to $8,983,000
compared to $5,082,000 for the prior year, an increase of 77%. Revenues for
1994 were produced by six restaurants open for the entire year and two
additional restaurants open for five and seven months, respectively. Revenues
for 1993 were produced by five restaurants open for the entire year, two
restaurants open for six months and one restaurant open for 4-1/2 months.
Revenues for 1994 included $291,000 from the Company's Arrosto coffee operation
and a minor amount for franchise revenues, while revenues for 1993 included
$275,000 of Koo Koo Roo franchise revenues. Of this total, $250,000 resulted
from the Florida/Southern Georgia Area Development Agreement.
Cost of sales amounted to $6,457,000 in the year ended December 31,
1994 compared to $3,358,000 in the prior year. Cost of sales as a percentage of
sales in the current year was approximately 3.7% higher than the same percentage
in 1993. Food and paper costs amounted to $3,367,000 for 1994 compared to
$1,768,000 for the 1993 period. Labor costs amounted to $3,090,000 in the 1994
period compared to $1,590,000 in the prior year. Costs related to the opening
of new restaurants are generally higher then those of more mature locations
whose costs generally decline with time. Labor costs increased as the Company
employed production chefs and veteran restaurant managers to oversee menu
production throughout the day. The Company also instituted certain procedures
to aid in reducing food and paper costs including strict portion control and
steps to limit waste costs.
Gross profit, net of other income, increased by 59.8% to $2,315,000
from $1,449,000 for the prior year. As a percentage of sales, gross profit
declined to 26.4% from 30.1% for the prior year. The decline in gross profit
resulted from the opening of new restaurants and the related increase in cost of
sales.
Operating expenses amounted to $7,389,000 for the year ended December
31, 1994 compared to $3,943,000 for the prior year. The increase in operating
expenses was caused chiefly by the Company's expansion plans which included the
hiring of executive and research and development personnel and costs for
projects such as the Turkey Bar.
Operating expenses include a net loss on restaurant closings amounting
to $425,000 for 1994 and $486,000 for 1993. These losses relate to the sale and
closing of one location in California and the sale and closing of a restaurant
in New York City. Operating expenses for 1994 also include $331,000 for
expenses associated with terminated financing discussions.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
Total cash, cash equivalents and marketable securities at March 31,
1996 amounted to $33,426,276. The Company has been expending cash resources to
build new and remodeled Koo Koo Roo California Kitchen\TM\ restaurants. The
Company completed the construction of nine Koo Koo Roo restaurants, including
three Arrosto Coffee Company locations, during the year ended December 31, 1995
and an additional three restaurants in the quarter ended March 31, 1996. In
addition, as of March 31, 1996, four new Company restaurants were in
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various stages of construction. Purchases of property and equipment together
with costs for acquiring certain locations amounted to $1,083,000, $4,086,000
and $10,218,000 during the years ended December 31, 1993, 1994 and 1995 and
amounted to $3,830,822 for the three months ended March 31, 1996.
Net cash used in operating activities amounted to $1,482,000,
$2,599,000, $2,175,000 and $159,000 during the years ended December 31, 1993,
1994 and 1995, and the three months ended March 31, 1996, respectively. The
increase each period was primarily caused by increased net losses.
Net cash used in investing activities included $1,287,000 and $285,000
for pre-opening costs during the year ended December 31, 1995 and the three
months ended March 31, 1996, respectively.
Net cash provided by financing activities amounted to $3,974,000,
$5,790,000 and $20,455,000 during the years ended December 31, 1993, 1994 and
1995, respectively, and $30,570,000 during the three months ended March 31,
1996. The Company received $3,623,000, $3,441,000 and $19,875,000 from sales of
Common Stock and exercise of options and warrants during the years ended
December 31, 1993, 1994 and 1995, respectively. The Company also received
approximately $30.5 million during the three months ended March 31, 1996 from
the 1996 Private Placements. During calendar years 1994 and 1995 the Company
received capital contributions of $2,234,000 and $615,000, respectively, from
minority partners of various partnerships consolidated with the Company. See
"--Recent Private Placements."
Management presently believes that with the 1996 Private Placements
the Company has sufficient cash resources to build a sufficient number of new
restaurants to generate positive overall cash flow from operations and presently
expects the Company to have positive overall cash flow from operations on an
ongoing basis by the end of 1996. This strategy requires acquisition and
development of successful new sites, and while management has been successful in
opening new Koo Koo Roo California Kitchen/TM/ restaurants in the past, there
can be no assurances that this success will continue in the future or that the
Company will be successful in opening new Color Me Mine locations or identifying
suitable joint venture partners and entering into acceptable joint venture
agreements for Color Me Mine. See "Risk Factors."
CAPITAL RESOURCES
During the year ended December 31, 1995, the Company successfully
completed two private placement offerings and, in addition, received the
proceeds from the exercise of certain Common Stock options and warrants. The
Company received a total of $17,662,000 net of related expenses from the private
placement offerings and $2,214,000 from the exercise of options and warrants.
The Company has no long-term debt or store level debt financing as of
March 31, 1996, except for approximately $175,000 assumed in the Color Me Mine
transaction. In order to achieve its present goal of 45 to 50 stores open or
under construction by December 31, 1996, management estimates that an investment
of approximately $22 million will be required which management plans to fund
through the use of cash and marketable securities. In addition, the Company
intends to investigate store-level, asset-based financing of fixtures, equipment
and leasehold improvements as its expansion continues. See "Risk Factors."
The timing of future capital requirements will be affected by, among
other things, the number of restaurants and ceramics studios opened, operational
results, real estate development requirements and potential other corporate
opportunities, which may include joint ventures in the United States and
internationally and the acquisition of complimentary businesses. During
February and June 1995 the Company successfully raised a total of $17,662,000
from private placement offerings used principally for the construction of new
restaurants and the establishment of the related infrastructure to support
further growth. During March of 1996, the Company raised net proceeds of
approximately $30,500,000 from private placement offerings. See "--Recent
Private Placements" and the Consolidated Financial Statements.
Management believes that the Company's existing capital resources will
be sufficient to fund its planned growth into 1997. The Company pursues
discussions and engages in negotiations from time-to-time with other
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entities regarding acquisitions of complementary businesses, including possible
acquisitions with the intent to convert existing restaurants to the Company's
Koo Koo Roo California Kitchen/TM/ format. As of the date of this Prospectus,
the Company has no agreement regarding any such acquisition and there can be no
assurance that any such opportunity will be identified or realized. The Company
may seek additional funds from public or private offerings of debt or equity, or
may seek bank financing facilities. See "Risk Factors."
The operation and development of Color Me Mine will require a modest
investment which is not presently expected to have a material effect on the
Company's capital resources or liquidity in 1996. The Company's proposed joint
venture in Canada will also require a modest investment in 1996 based on the
Company's expected 40% ownership in that project. See "Recent Developments."
Additional information related to the Company's liquidity and capital resources
may be found on the accompanying statements of cash flows and in the footnotes
to the Consolidated Financial Statements.
RECENT PRIVATE PLACEMENTS
The Company raised a total of $18.5 million before offering expenses
in two equity private placements completed in February and June, 1995. The
February private placement raised gross proceeds of $4.2 million from the sale
of 942,999 shares of Common Stock, and 471,499 warrants to purchase Common
Stock, and the June private placement raised gross proceeds of $14.3 million
from the sale of 3,042,822 shares of Common Stock and 1,197,863 warrants to
purchase Common Stock. Subsequent to the June private placement, Lee A.
Iacocca, retired Chairman of Chrysler Corporation, was elected to the Company's
Board of Directors.
In March 1996, the Company completed two related private placement
offerings (the "1996 Private Placements") and received aggregate net proceeds of
approximately $30.5 million (after cash fees to the placement agents and
estimated transaction expenses). A Common Stock offering grossed $3,260,000 for
450,000 shares before transaction expenses. Subject to certain exceptions, the
Company would be required to issue additional shares if during the first twelve
months following issuance, the Company issues Common Stock at a price below that
of the private placement ($7.245 per share). The Company also issued 1,200,000
shares of a newly-established series of preferred stock designated as 5%
Convertible Preferred Stock for $25.00 per share resulting in gross proceeds to
the Company of $30,000,000 before transaction costs. The Convertible Preferred
Stock has a liquidation preference of $25.00 per share, is non-voting and is
entitled to receive dividends quarterly at the rate of 5% per annum, which
dividends may be paid in cash or, subject to certain restrictions, by issuing
shares of Common Stock. The Convertible Preferred Stock becomes convertible
ratably over the fourth through thirteenth month after issuance at discounts to
the future market price of Common Stock increasing from 13% to 29% over the same
period. Accordingly, the exact number of shares of Common Stock cannot be
presently determined and will depend on the future market price of the Common
Stock. See "Risk Factors--Effect of Conversion of Convertible Preferred Stock;
Potential Common Stock Adjustment" and "Description of Capital Stock."
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS No. 121) issued by the Financial Accounting Standards Board (FASB) is
effective for financial statements for fiscal years beginning after December 15,
1995. This statement established new guidelines regarding when impairment
losses on long-lived assets, which include plant and equipment, certain
identifiable intangible assets and goodwill, should be recognized and how
impairment losses would be measured. The Company does not expect adoption to
have a material effect on its financial position or results of operations.
Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) issued by the Financial Accounting
Standards Board (FASB) is effective for specific transactions entered into after
December 15, 1995, while the disclosure requirements of SFAS No. 123 are
effective for financial statements for fiscal years beginning no later than
December 15, 1995. The new standard establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which an
entity acquires goods or services from non-employees in exchange for equity
instruments. At the present time, the Company has not
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determined if it will change its accounting policy for stock-based compensation
or only provide the required financial statement disclosures. As such, the
impact on the Company's financial position and results of operations is
currently unknown.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). The
adoption of this statement has not had a material effect on the financial
position or the results of operations of the Company. At December 31 1995,
management has provided a 100% valuation allowance against the net deferred
asset represented by its net operating loss carry forwards due to the
indeterminate nature of the Company's ability to realize this deferred asset.
SEASONALITY
Company revenues in certain areas may be subject to seasonal
fluctuations. These seasonal fluctuations have not to date been apparent in
overall results due to more significant trends including, but not limited to,
same store sales growth and unit expansion.
INFLATION
The Company does not believe that inflation has to date had a material
impact on its operations. Significant increases in labor, food, or other
operating costs, including any which may be caused by an increase in the minimum
wage, could have a material adverse affect on the Company's results if the
Company were for some reason unable to pass along cost increases due to general
inflation by increasing its prices. See "Business--Government Regulation."
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BUSINESS
GENERAL
The Company operates restaurants in the emerging food service category
of fresh, convenient meals--meals with the convenience and value associated with
quick service, but the quality, freshness and variety associated with upscale,
casual full service restaurants (or a traditional upscale family dinner table).
The restaurants feature the Company's proprietary Original Skinless Flame-
Broiled Chicken/TM/, fresh oven-roasted hand-carved turkey, country herb
rotisserie chicken, made to order tossed salads, specialty sandwiches on fresh
baked rolls, a signature vegetable soup and more than 23 side dishes including
hand-mashed potatoes, stuffing, steamed green beans and other vegetables, rices
and grains, all prepared fresh in small batches on-site throughout the day. As
of March 31, 1996, the Company operated 18 Koo Koo Roo restaurants: 17 company-
owned and operated restaurants located in California (16) and New Jersey (1), as
well as one joint venture restaurant in Florida, which is operated by the
Company. The Company's current plan is to have approximately 45-50 stores open
or under construction by the end of calendar year 1996; 90% to 95% of the total
are presently expected to be Company owned and operated with the remainder to be
owned with the Company's joint venture partner in the Florida/Southern Georgia
market and operated by the Company. As of March 31, 1996, the Company also
operated two paint-your-own ceramics studios through its 90%-owned subsidiary,
Color Me Mine. See "--Recent Developments" and "--Restaurant Locations and
Expansion Plans."
The Company's restaurants are designed to appeal to consumers who look
for good tasting, freshly prepared food, and who also appreciate menu items that
are wholesome and healthy. The products are easy to understand, high in quality
and generally low in fat, calories and cholesterol, without the negative
connotation or taste of "health food." The sights and smells of fresh food
preparation, such as turkey carving and salad tossing, are displayed in glass
enclosed stations featuring "chefs" in restaurant whites and toques. The
average check ranges between $8 and $9 and the restaurants generally range in
size from approximately 2,300 to 4,000 square feet.
As of March 31, 1996, eight of the Company's restaurants featured the
specialty products of the Arrosto Coffee Company, a wholly-owned subsidiary of
the Company, which offers fresh roasted coffee and espresso drinks along with
regular and reduced-fat pastries and desserts, and allows for increased facility
utilization across day-parts, including early morning and mid-afternoon.
The Company opened its first restaurant in Los Angeles, California in
August 1988 in a fast food format with a menu limited to the proprietary
Original Skinless Flame-Broiled Chicken/TM/ and a half-dozen cold side dishes.
In 1990 Kenneth Berg (the Company's current Chairman and Chief Executive
Officer) purchased a financial interest of 50% in Koo Koo Roo, which had only
two stores at the time, from the Company's founders for $2.0 million. The
Company then completed an initial public offering in October 1991 and the
founders attempted to roll out the fast food format concept in several states.
In July 1992, Mr. Berg led the buyout of the remaining shares held by the
Company's founders and became the Company's Chairman and Chief Executive
Officer. Also in 1992, he hired Michael D. Mooslin, an experienced chain
restaurant executive, to be President and to help reposition the Company's
concept from a standard fast food format to a broad menu restaurant with full
service cooking standards and procedures offering counter service. In 1994 the
Company initiated an area development and franchising program, but subsequently
changed its strategy and has repurchased all but one of these arrangements to
focus on Company-owned expansion. During 1995, additional marketing, human
resources, operations, construction and purchasing executives, as well as store
managers, were recruited to join the Company from restaurant industry leaders
such as The Cheesecake Factory, California Pizza Kitchen, Houston's and Acapulco
Restaurants. See "--Recent Developments" and "Management."
Over the past several years, executive management, together with the
Company's corporate chef and professional designers, developed the layout, menu
and appearance of the current prototype store, referred to as the Koo Koo Roo
California Kitchen/TM/ concept. The performance and continuing improvement of
this concept led management to plan for a rapid expansion starting in 1995 and
to focus on Company ownership or joint venture relationships rather than
franchising. The Company is presently emphasizing growth through the development
of additional Koo Koo Roo California Kitchen/TM/ stores which will be either
owned and operated by the Company or
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owned in partnership with its existing joint venture partner and operated by the
Company. It intends to act opportunistically to establish additional joint
venture arrangements and make restaurant acquisitions and may also grow through
the acquisition of complementary businesses. As of the date of this Prospectus,
the Company has no agreement regarding any such acquisition and there can be no
assurance that any such opportunity will be identified or realized; the Company
does have pending a joint venture in Canada. Although the focus in 1996 will be
on Company-owned restaurants, the Company may pursue joint ventures or
franchising in certain markets. See "--Recent Developments."
RECENT DEVELOPMENTS
1995 AND 1996 PRIVATE PLACEMENTS. The Company raised a total of $18.5
million before offering expenses in two private placements completed in February
and June, 1995 from the sale of 3,985,821 shares of Common Stock and 1,669,362
warrants to purchase Common Stock. Subsequent to the June private placement,
Lee A. Iacocca, retired Chairman of Chrysler Corporation, was elected to the
Company's Board of Directors. In March 1996, the Company completed the 1996
Private Placements and received gross proceeds totaling $33.2 million for
450,000 shares of Common Stock, and 1,200,000 shares of a newly designated class
of 5% Convertible Preferred Stock for $25.00 per share. The exact number of
shares of Common Stock to be issued in connection with the 1996 Private
Placements is dependent on, among other things, the future market price of the
Common Stock, and, consequently, cannot be determined at this time. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources--Recent Private Placements" and
"Description of Capital Stock."
ACQUISITION OF COLOR ME MINE, INC. On March 25, 1996, the Company
executed binding agreements to acquire 90% of the outstanding capital stock of
Color Me Mine, the operator of a small chain of paint-your-own-ceramics studios
located in Southern California. Color Me Mine also owns a ceramic bisqueware
factory in California which will continue to supply its needs for over 400 high
quality ceramic pieces. As consideration for the shares, the Company issued to
the shareholders of Color Me Mine a total of 377,000 shares of restricted,
unregistered Common Stock, of which shares with a value of $900,000 will be
subject to registration under the Securities Act at the end of one year and
another 100,000 shares will be held in escrow to be released at the end of three
years. The transaction has been designed to be a tax-free reorganization under
the federal income tax laws and has been accounted for utilizing the pooling of
interests accounting method. Based on the similarity between the customers of
the Color Me Mine studios and Koo Koo Roo California Kitchen/TM/ restaurants,
the Company plans to locate the two complementary concepts in adjacent
facilities to take advantage of real estate locations which have attractive
demographics but which are too large to be economically efficient for a Koo Koo
Roo California Kitchen/TM/ alone. Arrosto Coffee Company products may also be
licensed and sold in Color Me Mine stores. The founders of Color Me Mine will
continue to manage the concept with their own separate management team and will
develop it through franchised area development agreements and company-owned
stores. Color Me Mine has a current Uniform Franchise Offering Circular filed
in the state of California and other states. Management presently plans to
pursue franchising simultaneously in multiple regions of the U.S., and
potentially internationally, by seeking Area Development Agreements with multi-
unit franchise operators through its alliance with Restaurant Marketing
Corporation. No such agreements have been entered into as of the date of this
Prospectus. See "--Recent Developments--Business Development Agreement." The
founders of Color Me Mine have five-year employment contracts.
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Company-Owned Color Me Mine Ceramics Studios in Operation as of June 1,
1996:
<TABLE>
<CAPTION>
SQUARE
LOCATION FOOTAGE DATE OF OPENING
<S> <C> <C>
LOS ANGELES COUNTY, CA: Santa Monica 2,100 April 1994
Encino 1,650 March 1995
Beverly Hills 1,700 May 1996
</TABLE>
Company-Owned Color Me Mine Ceramics Studios with Executed Leases for
Opening in 1996:
<TABLE>
<CAPTION>
SQUARE ESTIMATED
LOCATION FOOTAGE DATE OF OPENING
<S> <C> <C>
LOS ANGELES COUNTY, CA: Malibu 1,500 June 1996
Venice Beach 1,200 July 1996
Studio City 1,800 August 1996
</TABLE>
The Venice Beach and Studio City studios will be located on the same site
as an existing Koo Koo Roo California Kitchen/tm/ restaurant. In addition, a
franchised store has been open and operating in Long Beach, California since
November 1995. See footnote "E" under "--New Openings and Expansion Plans."
CANADA JOINT VENTURE LETTER OF INTENT. The Company has entered into a
letter of intent with a group of business leaders in Toronto, Canada to form a
joint venture to develop the Koo Koo Roo restaurant concept in Canada. As
presently contemplated, the Company will have a 40% ownership interest in the
venture and a pro rata participation in its earnings and responsibility to
provide the required capital. The transaction is subject to, among other
things, the negotiation and execution of definitive documentation satisfactory
to the parties, which had been substantially completed but not executed, as of
the date of this Prospectus.
BUSINESS DEVELOPMENT AGREEMENT. The Company has retained Restaurant
Marketing Corp. ("RMC") to provide business development services. RMC
successfully found and intermediated in the Company's Canada Joint Venture
discussions which have resulted in a letter of intent and satisfactory
definitive agreements. RMC will pursue additional joint venture partners for
Koo Koo Roo and Color Me Mine. In consideration for the agreement, the Company
issued warrants to purchase 1 million shares of Common Stock with an exercise
price of $8.00 per share which will become exercisable 33-1/3% per year so long
as the Business Development Agreement remains in place. The Business Development
Agreement may be cancelled with six months notice by the Company's CEO in his
sole discretion. These warrants will also vest upon change in control (as
defined in the Business Development Agreement). RMC is an affiliate of the Koo
Koo Roo Florida/Southern Georgia Area Developer.
AMENDMENT TO FLORIDA/SOUTHERN GEORGIA AREA DEVELOPMENT AGREEMENT. The
Company's sole remaining franchisee was granted its rights pursuant to an Area
Development Agreement covering Florida and certain counties in Southern Georgia
(the "Florida/Southern Georgia Area Development Agreement"). In August 1995,
the Company entered into a First Amendment to the Florida/Southern Georgia Area
Development Agreement pursuant to which the local area developer in that market
(the
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"Developer") granted the Company a right of first refusal to participate as a
joint venture partner with the Developer in future Koo Koo Roo store locations
in the Florida/Southern Georgia territory. Under this arrangement, it is
anticipated that the Company and the Developer will jointly develop stores in
Florida through equal ownership in newly-formed partnerships. For financial
reporting purposes, the results of these stores will be consolidated with the
Company's operations subject to the minority interest of the Developer. The
first such joint venture restaurant opened in South Miami in November 1995 and
an additional location is presently scheduled to open in June 1996 in North
Miami. In May 1996, the Company further amended the Florida/Southern Georgia
Area Development Agreement to remove the right of the Developer to franchise
stores and, thereby, require that all stores built will be developed as joint
ventures. As consideration for the May 1996 amendment, the Developer was issued
warrants to purchase 350,000 shares of Common Stock exercisable for $8.00 per
share.
REPURCHASE OF FRANCHISE AGREEMENTS. As of August 1995, the Company had
completed the repurchase of all but one of its Koo Koo Roo franchise agreements.
In particular, on August 18, 1995 the Company repurchased the franchise rights
for San Diego and Northern California, including certain counties in and around
San Francisco, the assets of one existing franchise location (La Jolla),
including the assignment of the lease for that location and the assumption of
certain related liabilities, and certain other assets including the assignment
of the lease for an additional restaurant and the assumption of liabilities for
a third location. In connection with this repurchase, the Company issued
200,000 shares of unregistered Common Stock and assumed the aforementioned
liabilities in payment of the $1,215,000 purchase price. Those shares were
subsequently registered for resale under the Securities Act.
PURCHASE OF MINORITY INTEREST. Prior to September 26, 1995, the Company's
Beverly Hills, Brentwood and Santa Monica, California stores were owned by a
limited partnership of which the Company was the general partner. On September
26, 1995, the Company agreed to purchase the limited partners' interest in the
partnership. As consideration for this purchase, the Company issued 275,848
shares of unregistered Common Stock, which shares were subsequently registered
for resale under the Securities Act. Prior to this transaction, the interest of
such limited partners was reported as a minority interest in the Company's
financial statements; no such entry will be recorded with respect to these
stores in future periods given that they are now wholly-owned by the Company.
**2 INTRODUCTION OF THE VEGETABLE STAND. The Vegetable Stand, first
introduced in June 1995, is a display of fresh vegetables designed to look much
like a country stand selling produce fresh from the farm which provides a
"stage" to showcase the mixing and tossing of a line of fresh salads. The
Vegetable Stand has been added to all but two of the existing restaurants and is
a standard component of new restaurants.
STRATEGY
The Company believes that its Koo Koo Roo California Kitchen/TM/
restaurants have created a new dining niche by capitalizing on a number of
emerging trends: the aging of the population and that market segment's growing
interest in eating healthier; the rapidly developing interest among young adults
and parents of young children in food that's "better for you"; the increasing
demand for fresh, understandable food that tastes good and offers the comfort of
home cooking; the replacement of beef with poultry as an everyday protein; the
growing propensity for restaurants to serve as a source of visual entertainment;
the increasing demand for quality carry-out food; and the preference for branded
high quality coffees and espresso drinks. The Koo Koo Roo California
Kitchen/TM/ concept, when combined with an Arrosto Coffee Bar, addresses each of
these trends in direct ways which management believes are unique. The Company's
present business plan is to replicate the Koo Koo Roo California Kitchen/TM/
concept nationally, with an initial focus on building clusters of stores in a
limited number of major metropolitan areas which are demographically similar to
the core Los Angeles market. The Company also intends to continue to
investigate opportunities to enter into
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license or joint venture arrangements in national and international markets and
has a letter of intent regarding such an arrangement in Canada. The Company's
goal is to become a leader in this restaurant market niche by combining the
quality, freshness, variety and visual appeal of the best full service
restaurants with the convenience and affordability of a quick service
restaurant.
In March 1996 Koo Koo Roo also acquired 90% of the stock of Color Me Mine,
a leisure entertainment retail service company with similar customer and
location requirements to that of Koo Koo Roo. Management believes that the
combination of the two concepts will help make Koo Koo Roo a tenant-of-choice
for upscale real estate locations. Color Me Mine, under separate management,
also intends to grow independently of Koo Koo Roo. See "--Recent Developments."
Key elements of the Company's strategy for its core business, the Koo Koo
Roo California Kitchen/tm/ restaurants, including its mission, store concept and
growth management philosophy, are summarized below:
MISSION
The mission of the Koo Koo Roo California Kitchen/TM/ is "to provide a
dining experience that contributes to healthier, happier and longer lives" as
stated by the Company's Chairman, Ken Berg. Utilizing ingredients and products
that provide the best possible taste while also achieving a healthy compromise
on nutrition issues, the executive chef has created a variety of menu items
which range from zero to average levels of fat and sodium at affordable prices.
In addition, the Company aims to maintain a sense of fun in its restaurants,
embodied in the Koo Koo Roo name and its signature winking chickenhead logo. The
cleanliness in the brightly lit restaurants, consistently fast and friendly
service and enjoyable fresh roasted coffees and pastries through the Arrosto
Coffee Company brand all contribute to achieving the Company's mission.
STORE CONCEPT
"FRESH, HEALTHY AND DELICIOUS" FOOD CONCEPT. The Company's premium
poultry, rices, grains, vegetables and fruits are freshly prepared in small
quantities on-site throughout the day. Research with customers shows that the
primary reasons for customers choosing to frequent the Company's stores involve
the good taste, variety and freshness of the food. Management believes that its
"from scratch" approach to food preparation provides a distinguishable
difference in taste from all similarly priced competition. Although more costly
in onsite labor than some alternatives, the "from scratch" approach avoids
offsite food processing cost and permits fresh food preparation (and related
spoilage) to be managed at each individual store as demands warrant or dictate.
CLEAN DINING AREAS AND SUPERIOR SERVICE. The Company also distinguishes
its concept by maintaining clean surfaces, sanitized containers and tools, and
food that is touched as little as possible by human hands. This noticeably
clean environment is enhanced by giving courteous, friendly service with a
heightened sense of urgency. Quality monitoring and training for food
preparation and other key service standards is supported by a self-managed,
multi-lingual, card and audio tape training system to assist management in
maintaining consistency as the Company grows.
PROPRIETARY, SIGNATURE PRODUCTS AND DISPLAYS. The Company's signature
product, Original Skinless Flame-Broiled Chicken/TM/, has never been duplicated
to the Company's knowledge and requires marinating and basting in a proprietary
sauce. The Company has developed other proprietary dishes and received a use
patent for its Turkey Bar, which features hand-carved, fresh steam-roasted
turkey. The wide array of side dishes are shown in brightly-lit glass cases. The
Vegetable Stand, surrounded by up to 14 fresh produce items in wooden,
refrigerated displays, is reminiscent of a farm fresh produce stand and provides
an exhibition work station for the salad maker.
25
<PAGE>
GROWTH MANAGEMENT PHILOSOPHY
GROWTH THROUGH REPLICATING COMPANY STORES. With the repurchase of all but
one of the Koo Koo Roo Area Development Agreements, the Company's present
emphasis will be to grow through the development of additional Koo Koo Roo
California Kitchen/TM/ stores which will either be owned and operated by the
Company or owned in partnership with its remaining area developer and operated
by the Company. However, the Company may in the future grant franchise rights in
other domestic or international territories. Management currently intends to
focus its 1996 expansion in California, Florida, certain suburbs in the
northeastern United States, Colorado, and opportunistically in other areas as
appropriate. See "--New Openings and Expansion Plans."
GROWTH IN SALES OF EXISTING RESTAURANTS. The Company intends to continue
to focus on growth in sales of existing restaurants. New initiatives include
expanded catering, delivery and take-out services, new products, and marketing
programs.
FUTURE POTENTIAL GROWTH THROUGH JOINT VENTURES. In the future, the Company
expects to act opportunistically to establish joint ventures as appropriate with
experienced, major operators. The Company has been approached and is evaluating
joint venture proposals in multiple international and U.S. markets. The Company
has pending a joint venture in Canada and recently completed the acquisition of
90% of a small complementary retail business. See "Recent Developments."
FOCUSED REAL ESTATE STRATEGY. The more successful restaurants have led the
Company to focus most of the Company's existing restaurants in highly
accessible, free-standing locations and strip shopping centers in mixed use,
high-traffic locations which facilitate take-out business. The Company also has
stores in alternative real estate venues in a shopping mall, a high-traffic
tourist location and a street level site in an urban, high rise building, and
will take advantage of these alternative sites as appropriate. The Company has
hired experienced real estate professionals to secure locations in California,
Southern Florida, the Northeast (tri-state and Beltway areas) and Denver,
Colorado. The Company has been and will be pursuing discussions from time to
time with other entities regarding possible acquisitions of existing restaurants
with the intent to convert these entities to Koo Koo Roo California Kitchen/tm/
restaurants. As of the date of this Prospectus, the Company has no agreement
regarding any such acquisition and there can be no assurance that any such
opportunity will be identified or realized.
MULTIPLE COMPLEMENTARY BRANDS FOR REAL ESTATE LEVERAGE. In 1993, the
Company purchased the Arrosto Coffee Company, which created the foundation for
developing viable sales opportunities during hours other than the Koo Koo Roo
peak lunch and dinner periods. These include retail goods and specialty coffee
and espresso drink sales, a breakfast program and afternoon and evening
dessert/snack business. After testing several approaches, the Company has
designed a retail concept with a credible coffee house identity, fresh baked
goods, additional breakfast items and reduced fat and regular desserts. The
Company began implementation of the refined coffee concept with the opening of
the South Miami store. In March of 1996, the Company also acquired 90% of Color
Me Mine, a small chain of paint-your-own ceramics studios, to take advantage of
larger real estate locations. See "--Recent Developments."
EXPERIENCED CORPORATE AND STORE MANAGEMENT. During 1995, the Company
continued building its management team with multi-unit retail and high growth
chain restaurant personnel. Additional marketing, human resources, operations,
construction and purchasing executives, as well as store managers, were
recruited to join the Company from restaurant industry leaders, such as The
Cheesecake Factory, California Pizza Kitchen, Perkins Family Restaurants, Taco
Bell, Houston's and Acapulco Restaurants. See "Management."
INFORMATION TECHNOLOGY. The Company has invested in sophisticated touch
screen point-of-sale systems. These systems enable management to monitor sales
and costs according to day-part (morning, lunch,
26
<PAGE>
mid-day, dinner, evening), menu item (skinless chicken, turkey, rotisserie
chicken, etc.), customer type (eat-in, take-out or catering), and by hour
throughout the day. In addition, these systems are connected via modem to a
network which enables store polling and updating of prices and menus from a
central corporate coordination point. Moreover, open databases, which the
Company is currently implementing and connecting via communication systems, will
facilitate electronic invoicing, accounting and purchasing designed to allow the
Company to grow with a more efficient use of clerical and supervisory staff.
During 1996, the Company intends to implement daily store profit and loss
analysis and hour by hour forecasting systems to aid store managers in timing
the production of food to reduce waste while maintaining freshness standards.
HIGHLY MOTIVATED FIELD MANAGEMENT. The philosophy of the Company's
entrepreneurial chairman has led to an innovative, individual store management
team approach with a general manager and production chef, who receive
incentives, including store performance-driven bonuses and stock options in the
Company. The Company recognizes that the distinguishing features of the
restaurants are highly dependent on quality and hand preparation and both
monitors and rewards its managers to be sure its high standards are maintained.
The Company believes that its sophisticated training systems and motivated store
management teams will provide a competitive advantage in the Company's freshly
prepared, quality niche.
NEW OPENINGS AND EXPANSION PLANS
To date, all restaurants, with the exception of the Beverly Boulevard store
in Los Angeles, have been partially or entirely renovated to the Company's Koo
Koo Roo California Kitchen/TM/ menu, although not all of these include The
Vegetable Stand and seven of 18 do not meet the real estate criteria which the
prototype stores share. Management currently intends that all restaurants to be
opened in the future will be selected in accordance with the site selection
criteria and constructed in compliance with the prototypes including The
Vegetable Stand. As of March 31, 1996, the Company had 18 Koo Koo Roo
restaurants open and over 30 new restaurants in various stages of development.
This includes 12 sites with executed leases (five with new restaurants currently
under construction), and 13 sites in final negotiation some of which have
letters of intent executed. While management believes certain of the letters of
intent to be binding, leases will not be signed until permit and zoning
approvals are in place. Consequently, these sites, although presently planned
for opening in 1996, are not listed below. See "--Site Selection, Restaurant
Design and Construction." The status of the Color Me Mine ceramics studios is
separately described under "--Recent Developments.
27
<PAGE>
RESTAURANTS IN OPERATION AS OF MARCH 31, 1996:
<TABLE>
<CAPTION>
SQUARE
LOCATION FOOTAGE DATE OF OPENING
<S> <C> <C>
LOS ANGELES COUNTY, CA: Los Angeles (Beverly Blvd.) 1,425 March 1989
Marina del Rey 2,500 June 1990
Encino 2,075 April 1991
West Los Angeles 2,675 May 1991
Brentwood 2,600 May 1994
Beverly Hills 2,975 August 1994
Santa Monica 3,525 January 1995
Downtown Los Angeles 2,325 April 1995
Manhattan Beach 2,675 April 1995
Pasadena 3,200 August 1995
Woodland Hills 3,800 December 1995
Studio City (3) 5,600 January 1996
Larchmont Village (Los Angeles) 2,500 February 1996
Venice Beach (3) 4,100 March 1996
ORANGE COUNTY, CA: Costa Mesa 2,850 July 1995
SAN DIEGO COUNTY, CA: Del Mar (Franchise repurchase) 2,425 November 1995
FLORIDA:(1) South Miami 3,200 November 1995
NEW JERSEY: Taj Mahal Hotel & Casino (4) 4,875 December 1991
</TABLE>
RESTAURANT LOCATIONS WITH EXECUTED LEASES FOR OPENING IN 1996:
<TABLE>
<CAPTION>
SQUARE ESTIMATED DATE
LOCATION FOOTAGE OF OPENING/(E)/
<S> <C> <C>
LOS ANGELES COUNTY, CA: North Beverly Hills 4,650 April 1996/(2)/
Redondo Beach 3,000 July 1996
Torrance 3,675 July 1996
West Hollywood 3,700 October 1996
Burbank 2,700 December 1996
ORANGE COUNTY, CA: Yorba Linda 4,125 June 1996
Irvine 3,475 July 1996
Tustin Market 3,500 September 1996
Laguna Hills 3,400 October 1996
NORTHERN CALIFORNIA: Los Altos 3,500 September 1996
DENVER, CO: Cherry Creek 3,000 July 1996
LONG ISLAND, NY: Bayside 3,700 July 1996
FLORIDA: (1) North Miami 3,550 June 1996
</TABLE>
- -----------------------
(E) Estimated date subject to potential delays beyond the control of
management, including government permits and construction complications.
Although each restaurant presents unique circumstances, management expects
that restaurant openings will occur approximately six months after the
signing of a lease. See "Risk Factors."
(1) Joint venture with area developer. See "--Recent Developments--Amendment
to Florida/Southern Georgia Area Development Agreement."
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<PAGE>
(2) Open and operating as of June 1, 1996.
(3) The Company plans to open a Color Me Mine ceramics studio on the same site.
(4) The Company also operates a Swensen's ice cream parlor on this site.
SITE SELECTION, DESIGN AND CONSTRUCTION
The Company considers the location of a restaurant to be critical to its
long-term success. The site selection process involves an evaluation of a
variety of factors, including demographics (such as target population density
and household income levels); specific site characteristics (such as visibility,
accessibility, parking availability and traffic volume); proximity to activity
centers (such as prime urban office or retail shopping districts, suburban
shopping areas, health clubs, medical centers and hotel and office complexes);
and potential competition in the area. Based on the similarity between the
customers of the Color Me Mine studios and Koo Koo Roo California Kitchen/tm/
restaurants, the Company plans to locate the two complementary concepts in
adjacent facilities to take advantage of real estate locations which have
attractive demographics but which are too large to be economically efficient for
a Koo Koo Roo California Kitchen/TM/ alone. The Company leases all of its
restaurant sites. Senior executives inspect and approve the site for each
Company-owned restaurant prior to the execution of a lease. The opening of new
restaurants is subject to certain business risks including, among other things,
locating satisfactory sites, negotiating favorable leases, completing
construction and securing appropriate government permits and approvals. Once
space has been leased and made available to the Company, 120 days or more are
required to complete construction, obtain necessary licenses and approvals and
open the new restaurant. Uncontrollable factors such as obtaining licenses can
result in additional months of delay from lease signing to opening. See "Risk
Factors."
While the Company's restaurant design is flexible and may be adapted to
local architectural styles and existing buildings with varying floor plans and
configurations, the Company has developed its own proprietary cooking system
which includes specialized equipment and a distinctive and proprietary equipment
layout in standardized modules which speed the design process. Currently, most
open restaurants range in size from approximately 2,300 to 3,800 square feet.
The standard restaurant consists of a kitchen/preparation area and order/display
counter, comprising approximately 50% of the total space of the restaurant, with
seating capacity for approximately 75-125 in the remaining half of the
restaurant. The open or committed Color Me Mine studios range in size from 1,200
to 2,100 square feet.
RESTAURANT OPERATIONS AND MANAGEMENT
The Company generally employs full service restaurant general managers at
salaries management believes to be competitive with most casual dining
restaurants and above that normally paid in fast food concepts. The training
program is up to 16 weeks for general managers, depending on experience level,
and includes state-of-the-art training materials, including a certified "Train
the Trainer" program and task training materials for managers to use in training
their employees as well as Hazard Analysis of Critical Control Points (HACCP)
for professional implementation of food and facility safety and sanitation. The
average restaurant employs 30 to 40 staff members including an experienced full-
service manager, two assistant managers and a skilled production chef and
assistant kitchen manager along with shift leaders, cooks, turkey carvers, salad
makers, and other service personnel. The Company cannot predict the impact on
its results of operations should the federal minimum wage be changed. See "Risk
Factors--Government Regulations."
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<PAGE>
PURCHASING
The Company currently negotiates directly with manufacturers, producers and
suppliers for food ingredients and beverage products in order to ensure uniform
quality and adequate supply and to gain access to the most competitive prices.
The restaurants obtain food and beverage items from local suppliers, shipped
directly to the restaurants, but at the prices and on the terms established
relative to the Company's national contracts, which management believes results
in significant benefits to the Company.
FRANCHISE OPERATIONS
Due to its success with its new restaurant concept, the Company's franchise
activities have been eliminated with respect to Koo Koo Roo. However, the
Company may pursue franchise opportunities at some future time when and if the
Company determines that it is in the Company's best interest to do so. As of
March 31, 1996, the Company had repurchased all but one of the franchise
agreements reported in the 1994 annual report including: (a) Orange County,
California; (b) the Palm Springs and Palm Desert areas of California; (c)
northern Los Angeles County, California; (d) San Francisco and San Diego (La
Jolla), California and the State of Arizona. The Company is currently
developing joint ventures with its area developer in the State of Florida and
certain counties located in Southern Georgia and exploring other joint venture
opportunities. It is presently expected that Color Me Mine will pursue
franchising and area development agreements as well as company-owned stores.
See "--Recent Developments."
ADVERTISING AND PROMOTION
Historically, the Company has primarily pursued opportunistic, lower cost
advertising and promotion activities within the trading area of each restaurant.
Because its business is primarily driven by "word of mouth" messages and visit
frequency, these activities have been heavily weighted to community activities
that include sampling Koo Koo Roo food. A limited amount of direct mail, local
print and selective radio advertising have also been tested in addition to a
pilot campaign combining billboards, transit posters and radio in September
1995. Although the Company plans to continue marketing in its local trading
areas to its proven strength--the taste, quality and healthiness of its food--
market-wide campaigns for a variety of media are also being developed. Longer
term, the Company plans to develop a sufficient number of restaurants in each
market to permit the cost-effective use of mass media.
COMPETITION
The Company believes that its ability to compete effectively will depend on
maintaining the quality of its food, service and ambiance at a reasonable price.
The Company believes that there exists a market niche encompassing quality,
convenience, healthfulness, pleasure and affordability. The Company plans to
continue to introduce innovative product lines such as those associated with the
Turkey Bar and The Vegetable Stand, in addition to maintaining its own
individuality and standards of taste, freshness, visual vitality and cleanliness
at pricing which is affordable for the mainstream American public.
The restaurant industry is highly competitive and there are a number of
purveyors that compete directly and indirectly for the consumers' food dollars.
Based on research and customer comments, the Company believes that the quality
and value of its products, service, ambiance and prices distinguish it from its
competitors. There are several factors which could potentially affect the
competitive position of the Company or individual restaurants of the Company to
which management might have to respond. These factors include, but may not be
limited to: consumer taste and discretionary spending priorities; national,
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<PAGE>
regional or local economic conditions; demographic trends; traffic patterns;
employee availability; and the type, number and location of competing
restaurants. Similarly, Color Me Mine will likely face significant competition
from similar concepts and other businesses providing leisure and entertainment
services. See "Risk Factors--Competition."
TRADEMARKS AND SERVICEMARKS
The trademark and servicemark "Koo Koo Roo" is registered in the United
States Patent and Trademark Office, and all right, title and interest in and to
the mark is held by the Company. Seventeen domestic and thirteen foreign
trademarks/patents are currently owned by the Company and more are being
developed for proprietary recipes, systems, software, customized equipment and
design/equipment layouts including the Company's patented Turkey Bar Carving
Station, its Original Skinless Flame Broiled Chicken/TM/, The Vegetable Stand
and Arrosto Coffee. The Company believes that its trademarks and servicemarks
have significant value to the marketing of its restaurants and products.
GOVERNMENT REGULATION
The Company is subject to various federal, state and local laws affecting
its business. The Company's restaurants are subject to regulation by various
governmental agencies, including those responsible for compliance with state and
local licensing, zoning, land use, construction and environmental regulations
and various health, sanitation, safety and fire standards. The Company is also
subject to the Fair Labor Standards Act and various state laws governing such
matters as minimum wages, overtime and working conditions. Since many of the
Company's personnel are paid at rates based on the federal minimum wage,
increases in such minimum age (which are under consideration by Congress) may
result in an increase in the Company's labor costs. The Company cannot predict
the impact on its results of operations should the federal minimum wage be
changed. See "Risk Factors--Government Regulations."
If, in the future, the Company wishes to resume selling franchises or allow
additional joint venture partners to operate joint ventures in the U.S. (as is
presently planned to occur with Color Me Mine), it will be subject to federal
and state laws, rules and regulations that govern the offer and sale of
franchises. Although Color Me Mine has a current filing under the franchise
laws of California and certain other states, there can be no assurance that the
Company or Color Me Mine will be able to update or maintain their respective
disclosure documents or become registered in certain states. Such state laws
may require the franchiser to deal with its franchisees in good faith, prohibit
interference with the right of free association among franchisees, and may
regulate discrimination among franchisees in charges, royalties or fees.
EMPLOYEES
As of March 1, 1996, the Company employed approximately 850 full- and part-
time individuals. This includes 15 executives, 31 corporate and support staff,
3 field managers and 17 store managers in training. The remaining employees
work in Company-owned restaurants. None of these employees is covered by a
collective bargaining agreement. The Company believes that it has good labor
relations.
LEGAL PROCEEDINGS
In August 1994, Janss/Tys Long Beach Associates filed an action in the Los
Angeles Superior Court against the Company seeking recovery of unpaid rent and
damages for the remainder of the 10-year term of the lease for a Company-owned
restaurant located in Long Beach, California. The complaint alleges that the
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<PAGE>
fixed monthly rent payments and common area maintenance payments in 1994 totaled
approximately $10,500 per month. In September 1994, the Company filed an answer
to the complaint denying all material allegations and filed a cross-complaint
against the plaintiff. The basis for the cross-complaint is that the plaintiff
made material misrepresentations regarding the premises. The cross-complaint
seeks actual and punitive damages and to rescind the lease.
On April 19, 1995, this case was ordered to a non-binding mandatory
arbitration. The arbitration of this case was limited to matters at issue on
the plaintiff's complaint only. The Company's cross-complaint, which was also
the thrust of its defense to the plaintiff's complaint, was not considered at
the arbitration. The sole purpose of the arbitration was to determine the
amount of damages measured by the unpaid rent through the remaining 10-year term
of the lease. This arbitration was held on July 19, 1995. After a hearing at
which the arbitrator did not consider any defense the Company may have to the
plaintiff's claim, the arbitrator awarded the plaintiff $404,956 in damages.
On August 15, 1995, the Company gave formal notice of its intention to seek
a trial de novo. The effect of this notice is to invalidate the arbitrator's
award and to return this case to the court's docket for a full trial. Although
the Company is seeking of a reduced award, reserves totaling $405,000 have been
established as noted in the Company's financial statements.
The Company has become subject to various other lawsuits, claims and other
legal matters in the ordinary course of conducting its business, several of
which were settled in 1995 and the first quarter of 1996. As of the date of
this Prospectus, management believes that there are no other legal proceedings
pending, the resolution of which is expected to have a material financial impact
on the Company's consolidated financial position. See Note 11 to the
Consolidated Financial Statements.
PROPERTIES
All Company-owned restaurant sites and ceramics studios are leased from
third parties. These leases expire on dates ranging up to May 2006, with the
majority providing for renewal options. All leases provide for specified
periodic rental payments and certain leases call for additional payments based
on sales volume. Most leases require the Company to maintain the property and
pay the cost of insurance and taxes. Color Me Mine leases a 5,500 square foot
warehouse and a 6,000 square foot bisque factory to support its operations. For
information relative to the Company's future minimum lease payment obligations
under its long-term operating leases, see Note 11 to the Consolidated Financial
Statements.
Certain corporate offices of the Company are located in space leased by
Berg Enterprises, Inc. located in Iselin, New Jersey. During the year ended
December 31, 1995, the Company compensated Berg Enterprises, Inc. in the amount
of $31,250 for the use of such space. The Company downsized the operations
conducted at this office during fiscal 1995 and anticipates a reduction in this
expense in the future. See "Certain Relationships and Related Transactions."
In addition, the Company's principal executive office is located in
approximately 10,000 square feet of leased space in Los Angeles, California,
under a five year lease which expires May 31, 1999, with a base rent of
approximately $13,700 per month for the first three years.
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<PAGE>
MANAGEMENT
All directors hold office until the next annual meeting of the stockholders
and the election and qualification of their successors. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.
Set forth below is certain information with respect to each person who is a
director or executive officer of the Company as of June 1, 1996:
<TABLE>
<CAPTION>
NAME POSITION WITH COMPANY
- ---- ---------------------
<S> <C>
Kenneth Berg/(3)/.............. Chairman of the Board and Chief Executive
Officer; Born 1926.
Donna S. Guido................. Vice Chairman of the Board; Born 1943.
Michael D. Mooslin............. President, Chief Operating Officer and
Director; Born 1947.
Robert F. Kautz................ Chief Financial Officer and Director;
Born 1958.
Morton J. Wall/(1)/............ Treasurer, Secretary and Director;
Born 1938.
Kory L. Berg................... President of the Arrosto Division and
Director; Born 1960.
Lee A. Iacocca/(2)//(3)/....... Director; Born 1924.
Jess M. Ravich/(1)/............ Director; Born 1957
Don Wohl/(1)//(2)//(3)/........ Director; Born 1932.
</TABLE>
- -----------------
(1) Member of the Audit Committee.
(2) Member of the Compensation and Stock Awards Committees.
(3) Member of the Executive Committee.
KENNETH BERG, CHAIRMAN AND CEO. Mr. Berg has been a director since August
1990 and has been Chairman of the Board and Chief Executive Officer since July
1992. He was Co-Chairman of the Board and Co-Chief Executive Officer from March
1992 until July 1992. From August 1990 until March 1992, he served as Chairman
of the Board of the Company. Since January 1990, Mr. Berg has served as
Chairman of the Board and President of Berg Enterprises, Inc. ("Berg
Enterprises"), a holding company of which Mr. Berg is the sole stockholder.
From 1969 to December 1989, Mr. Berg served as Chairman of the Board and
President of the original Berg Enterprises, Inc., a company chiefly involved in
the mortgage banking business (renamed Margco Holdings, Inc. in 1990), which was
listed on the New York Stock Exchange until May 1985 and which subsequently
became a subsidiary of Primerica Corporation. Mr. Berg presently works full-
time for the Company. Kenneth Berg is the father of Kory L. Berg.
DONNA S. GUIDO, VICE CHAIRMAN. Ms. Guido has been Vice Chairman of the
Company since the commencement of her employment in March 1995. Ms. Guido is
directly responsible for marketing, strategic planning, human resources,
training, public relations and Arrosto. After heading six departments at Burger
King Corp. for six years, she founded and served as President of DSG Associates,
Inc., a 35-person communications, customer service and consulting firm
specializing in the restaurant industry, from 1981 to 1995. DSG clients during
Ms. Guido's tenure included such companies as Taco Bell Corp., Pizzeria Uno,
Quantum Restaurant Group and other retailers including Mervyn's Department
Stores. Ms. Guido was
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<PAGE>
considered an insider in various management teams led by Donald N. Smith,
currently chairman and CEO of TRC, which operates Friendly Ice Cream Corp. and
Perkins Family Restaurants, L.P.
MICHAEL D. MOOSLIN, PRESIDENT, CHIEF OPERATING OFFICER AND DIRECTOR. Mr.
Mooslin has been President and Chief Operating Officer of the Company since
March 1992 and a director of the Company since September 1992. Mr. Mooslin has
been involved in various capacities in the food business since 1962. From 1986
until March 1992, Mr. Mooslin owned and operated MDM Restaurant Group, a
management company which facilitated the growth of small, development stage
fast-food chains. From 1972 to 1986, he served as President of Naugles, Inc., a
fast-food chain featuring freshly prepared Mexican food.
ROBERT F. KAUTZ, CHIEF FINANCIAL OFFICER AND DIRECTOR. Mr. Kautz has been
Chief Financial Officer of the Company since February 1995 and became Assistant
Secretary and a Director in November 1995. Prior to joining the Company, Mr.
Kautz managed due diligence and business plan development projects at Archon
Capital Partners, L.P. and InterActive Partners, L.P. as a consultant and
associate for one year. Prior to Archon, for two years he was Vice President of
Marketing and Business Development for Integrated Voice Solutions, Inc. For
five years prior to that, and on an interim basis in early 1994, he led U.S. and
international consulting engagements as a Senior Manager, Manager and Senior
Consultant for the Price Waterhouse Strategic Consulting Group specializing in
business strategy and cost and quality improvement. He has an MBA degree from
Harvard Business School.
MORTON J. WALL, TREASURER, SECRETARY AND DIRECTOR. Mr. Wall has been
Treasurer and Secretary of the Company since August 1990 and a director since
June 30, 1994. Since March 1990, Mr. Wall has served as Vice President and
Treasurer of Berg Enterprises. From 1971 to February 1990, Mr. Wall was
employed by the original Berg Enterprises, Inc. in various capacities including
controller (1971-73), Senior Vice President (1973-90), and Chief Financial
Officer and Secretary (1982-90).
KORY L. BERG, PRESIDENT OF ARROSTO, AND DIRECTOR. Mr. Berg has been a
director and employee of the Company since August 1990. From July 1989 to
October 1990, Mr. Berg was employed by Dean Witter Inc. as an Account Executive.
From March 1987 to May 1989, Mr. Berg was employed by Cowen and Co. as an
Account Executive. From March 1986 to March 1987, Mr. Berg was a real estate
developer with Executive Properties, a general partnership. Kory L. Berg is the
son of Kenneth Berg.
LEE A. IACOCCA, DIRECTOR. Mr. Iacocca, the retired Chairman of Chrysler
Corporation, was named to the Board of Directors in August 1995. He is also a
Director of MGM Grand, Inc. and New World Communications Group Inc. In
addition, Mr. Iacocca is Chairman of the Committee for Corporate Support of the
Joslin Diabetes Foundation and a member of the advisory board of Reading is
Fundamental.
JESS M. RAVICH, DIRECTOR. Mr. Ravich has been the Chief Executive Officer
and the majority shareholder of Libra Investments, Inc., a registered broker
dealer, since it was founded in June 1991. From March 1990 to March 1991, he
was Executive Vice President and Director of High Yield Trading with Jefferies &
Co., a registered broker dealer. Mr. Ravich is a director of Cherokee, Inc., a
clothing manufacturer. Mr. Ravich was elected a director at the May 15, 1996
annual meeting.
DON WOHL, DIRECTOR. Mr. Wohl has been a director of the Company since
December 1993. He has been a private investor as well as a business and
individual consultant for more than the past five years. Mr. Wohl is also a
director of Vitafort International Corporation, a specialty food manufacturer.
34
<PAGE>
The following sets forth, as of June 1, 1996, certain biographical
information with respect to additional members of the Company's management:
BETH ARNOLD, CPA, CONTROLLER. Ms. Arnold brings over 13 years of
management experience in accounting, finance, data processing and administrative
functions. Prior to joining the Company, she served as Director of Accounting
and Administration at Proficient Food Company, a subsidiary of Flagstar
Companies, Inc., where she supervised a staff of 30.
THOMAS BECK, VICE PRESIDENT OF CONSTRUCTION & DESIGN. Mr. Beck is a
seasoned manager who has built restaurants across the United States and been
involved in construction since 1970. Prior to joining the Company, he was
Director of Construction for California Pizza Kitchen.
JOHN BIRDSALL, SENIOR VICE PRESIDENT AND EXECUTIVE CHEF. Mr. Birdsall
brings 16 years of restaurant experience. Before joining the Company, Mr.
Birdsall was executive chef for Monroe's Restaurant and Catering, Metro
Restaurant, California Institute of Foods, Ruby's Diner Corporation and the
Hilton Hotel. He is responsible for menu development and kitchen training.
MARVIN COHEN, VICE PRESIDENT OF PURCHASING. Mr. Cohen has over 25 years
experience in food purchasing and distribution, most recently with The
Cheesecake Factory where he was Director of Purchasing. He has also held
numerous management positions with firms such as S.E. Rykoff, Inc. and Sizzler
International, Inc.
RONALD GARBER, VICE PRESIDENT AND GENERAL COUNSEL. Mr. Garber has over 15
years experience as a lawyer. Most recently, Mr. Garber was a partner with
Richman, Lawrence, Mann, Green & Chizever where he concentrated in business and
real estate transactions. Previously he was general counsel with Pacific
Financial Group, C-D Investment Company and United Rent-All, Inc.
BRADLEY GOLD, DIRECTOR OF OPERATIONS, ARROSTO COFFEE COMPANY. Mr. Gold
brings over 20 years of multi-unit restaurant and real estate experience. Most
recently, Mr. Gold was Regional Operations Manager for California for Pasqua,
Inc. where he managed 31 coffee bar locations and a distribution facility.
Previously, he was with The Tiger Company, Thrifty Corporation and Associated
Hosts, a fifteen restaurant chain.
JAMES KONSTANTINIDES, VICE PRESIDENT, REAL ESTATE. Mr. Konstantinides has
been involved in the restaurant, real estate development and franchising fields
for over twenty years. He has identified and secured over 350 sites in his
career for major chains including Friday's, Swensen's, Red Robin and Denny's.
Additionally, he has international experience with Arabas of Brazil, British
Petroleum's Restaurant Division, and Skylark of Japan. Previously, he was
President and Chief Operating Officer for California Restaurant Concepts, the
franchisee of T.J. Applebee's in California. He has also served as a Senior
Vice President of Cartco, Inc.
JACK MCSHANE, EXECUTIVE VICE PRESIDENT, OPERATIONS. Mr. McShane has been
Executive Vice President of the Company since August 1993. Mr. McShane brings
over 14 years of restaurant experience to the Company. Prior to joining the
Company, Jack spent 10 years with Pioneer Boulangerie where he served as General
Manager and Chief Buyer for the multi-million dollar food complex which
encompassed catering, a national wholesale bakery facility, and fine dining as
well as quick service dining.
35
<PAGE>
WILLIAM SCARPINO, EXECUTIVE VICE PRESIDENT OF REAL ESTATE. Mr. Scarpino
has been with the Company since February 1996. Prior to joining Koo Koo Roo, he
served as Senior Vice President of Development for Sizzler International, Inc.,
Collins Foods International, Inc. and their affiliates. In addition, he served
as President of Collins Property Portfolio, Sizzler's wholly owned real estate
subsidiary. Mr. Scarpino is serving as Chairman of the Board of Trustees for
the National Association of Corporate Real Estate Executives, has served as
Chairman of the Board for NACORE, and President of the Institute for Corporate
Real Estate.
JEANNE SCOTT, VICE PRESIDENT OF HUMAN RESOURCES. Ms. Scott has been Vice
President of Human Resources of the Company since December 1995 and is also
responsible for the Training Department. From August 1993 to November 1995, she
served as Vice President of Human Resources for Perkins Family Restaurants, a
450-unit, full service restaurant chain with approximately 9,000 employees.
From April 1980 to July 1992, Ms. Scott held various human resource and training
positions with the Taco Bell Corporation, most recently serving as Director of
Corporate Training Services.
ANDREW SOLOMON, DIRECTOR OF MARKETING. Mr. Solomon has been with the
Company since January 1996. Prior to joining Koo Koo Roo, he served as Senior
Manager, Restaurant Marketing for Taco Bell Corp. where he led all marketing
activities for the 2,000 stores in the Western United States.
ROBERT ZANOLLI, REGIONAL VICE PRESIDENT OF OPERATIONS, LOS ANGELES. Mr.
Zanolli brings to the Company over 15 years of restaurant experience having
worked for Acapulco Restaurants, Red Onion, El Torito and Sheraton. Most
recently, he supervised operations with annual revenues exceeding $42 million.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table provides certain summary
information concerning compensation paid to or accrued by the Company's Chief
Executive Officer and the three other executive officers of the Company who
earned more than $100,000 (salary and bonus) (the "Named Executive Officers")
for all services rendered in all capacities to the Company during the twelve
months ended December 31, 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
---------------------------------- -------------------------------
NAME AND PRINCIPAL OTHER ANNUAL RESTRICTED STOCK OPTIONS/
POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS ($) SARS (#)
- -------------------------------- ---- -------- ------ --------------- ------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Kenneth Berg(2)................. 1995 $172,500 $ -- $ -- $1,050,000(2) --
(Chief Executive Officer 1994 150,000 -- -- -- 900,000
and Chairman of the Board) 1993 150,000 -- -- -- --
--
Donna S. Guido(3)............... 1995 95,681 -- 17,854 -- 250,000
(Vice Chairman)
Michael D. Mooslin(4)........... 1995 143,654 -- 30,121 -- --
(President and Chief 1994 125,000 -- 44,900 -- --
Operating Officer) 1993 125,000 -- 18,000 -- --
Robert F. Kautz(5).............. 1995 116,109 -- -- -- 250,000
(Chief Financial Officer)
</TABLE>
(footnotes on following page)
36
<PAGE>
- ---------------------
(1) With respect to each of the executive officers named in the table, if not
separately reported the aggregate amount of perquisites and other personal
benefits, securities or property received was less than either $50,000 or
10% of the total annual salary and bonus reported for such executive
officer.
(2) Mr. Berg commenced his employment with the Company on August 16, 1990. Mr.
Berg received 200,000 shares of restricted Common Stock in March 1995 as
consideration for the extension of the term of his employment agreement.
Such Common Stock vests pro rata over the term of Mr. Berg's Amended and
Restated Employment Agreement. As of December 31, 1995, Mr. Berg owned
200,000 shares of restricted Common Stock which had an aggregate market
value of $1,300,000 based on the last reported sales price of the Common
Stock on the Nasdaq National Market on December 29, 1995. All of such
shares are eligible to receive dividends if and when declared thereon. See
"--Employment Arrangements."
(3) Ms. Guido commenced her employment with the Company on March 25, 1995. See
"--Employment Arrangements."
(4) Mr. Mooslin commenced his employment with the Company on March 16, 1992.
See "--Employment Arrangements."
(5) Mr. Kautz commenced his employment with the Company on February 24, 1995.
See "--Employment Arrangements."
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding stock options
granted to the Named Executive Officers during the twelve months ended December
31, 1995:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
----------------------------------------------------------- ------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARS EMPLOYEES IN OR BASE EXPIRATION
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) DATE 5% ($) 10% ($)
---- ------------ ------------ ----------- -------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Donna S. Guido 250,000 22.6% $5.50 Mar. 25, 2005 $864,730 $2,191,395
Robert F. Kautz 200,000 18.1% 5.72 Feb. 22, 2005 719,455 1,823,240
Robert F. Kautz 50,000 4.5% 7.25 Nov. 16, 2005 227,974 577,731
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table sets forth certain information regarding exercises of
stock options by the Named Executive Officers during the twelve months ended
December 31, 1995 and the value of unexercised options at December 31, 1995:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FY-END FY-END
SHARES --------------------------- -----------------------------
ACQUIRED ON VALUE ($) ($)
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth Berg -- -- 573,333 626,667 $2,130,000 $770,000
Donna S. Guido -- -- -- 250,000 -- 250,000
Michael D. Mooslin -- -- 209,600 106,400 995,600 505,400
Robert F. Kautz -- -- -- 250,000 -- 156,000
</TABLE>
37
<PAGE>
REPRICING OF OPTIONS
During the twelve months ended December 31, 1995, there were no adjustments
or amendments of the exercise prices of stock options previously awarded to the
Named Executive Officers.
STOCK AWARDS PLAN
The Company's Stock Awards Plan was adopted by the Board of Directors and
approved by the stockholders to promote the long-term financial interests and
growth of the Company by attracting and retaining key employees, motivating such
employees by means of growth-related incentives, providing incentive
compensation opportunities that are competitive with those of other comparable
corporations, and furthering the identity of interests of participants with
those of the Company's stockholders. The Stock Awards Plan covers an aggregate
of 4,250,000 shares of Common Stock and is administered by a committee appointed
by the Board of Directors (the "Stock Awards Committee"), which currently
consists of Messrs. Iacocca and Wohl. The Stock Awards Plan provides for the
issuance of stock options, stock appreciation rights, restricted stock and other
awards (collectively "Awards").
The Stock Awards Committee may interpret the Stock Awards Plan and, subject
to its provisions, may prescribe, amend and rescind rules and make all other
determinations necessary or desirable for the administration of the Stock Awards
Plan. Subject to certain limits set forth in the Stock Awards Plan, the Stock
Awards Committee has complete discretion to select the participants, establish
the manner in which awards are granted and exercised, cancel or modify Awards in
certain situations, and otherwise prescribe all of the terms and provisions of
Awards granted under the Stock Awards Plan.
Two types of stock options may be granted under the Stock Awards Plan:
incentive stock options ("ISOs") which are intended to qualify under Section 422
of the Internal Revenue Code of 1986, and non-qualified stock options ("NQSOs").
The option price of each NQSO granted under the Stock Awards Plan may not be
less than the par value of a share of Common Stock. The option price of each
ISO granted under the Stock Awards Plan must be at least equal to the stock's
fair market value on the date the ISO is granted. Stock appreciation rights
("SARs") may be granted under the Stock Awards Plan. An SAR granted under the
Stock Awards Plan entitles its holder to receive, at the time of exercise, an
amount per share equal to the excess of the fair market value (at the date of
exercise) of a share of the Company's Common Stock over a specified price fixed
by the Committee.
The Stock Awards Committee may award to any participant restricted shares of
the Company's Common Stock (the "restricted stock"). Restricted stock may not
be sold, assigned, transferred, pledged or otherwise encumbered during a
restriction period. Except for such restrictions on transfer and other Stock
Awards Committee-imposed restrictions, the participant will have all the rights
of a holder of Common Stock as to such restricted stock.
Other Awards may be granted under the Stock Awards Plan, including, without
limitation, performance shares, convertible debentures, other convertible
securities and other forms of awards measured in whole or in part by the value
of shares of Common Stock, the performance of the participant or the performance
of the Company. Such other awards may be payable in Common Stock, cash or both.
At the time such an award is granted, the Stock Awards Committee will determine
a performance period and performance goals, subject to revisions to reflect
significant unforeseen events.
38
<PAGE>
Following the conclusion of each performance period, the Stock Awards Committee
will determine the extent to which performance goals have been attained during
the performance period in order to evaluate any payment to be made.
In the event of a merger, consolidation, reorganization, recapitalization,
spin-off, stock dividend or stock split, or combination or other increase or
reduction in the number of issued shares of Common Stock, or extraordinary cash
dividend or any other similar event, the Board of Directors or the Stock Awards
Committee may, in order to prevent the dilution or enlargement of rights under
Awards, make such adjustments in the number and type of shares authorized by the
Stock Awards Plan, the number and type of shares covered by, or with respect to
which payments are measured under, outstanding Awards and the exercise prices.
As of May 25, 1996, options covering 4,027,600 shares of Common Stock had
been granted and options covering 222,400 shares of Common Stock were available
for grant. The Company has in the past and may elect in the future to make
compensatory grants of equity securities outside of the Stock Awards Plan.
DIRECTORS' COMPENSATION
Directors who are officers of the Company receive no additional compensation
for serving on the Board of Directors, other than reimbursement of reasonable
expenses incurred in attending meetings. Non-employee directors receive annual
compensation of $3,000, a fee of $300 for each meeting attended (and $250 for
each committee meeting attended) and reimbursement of reasonable expenses
incurred in attending meetings. During the twelve months ended December 31,
1995, the Company granted Don Wohl, a director of the Company, a stock option
exercisable for 100,000 shares of Common Stock at a price of $5.00 per share and
a warrant exercisable for 100,000 shares of Common Stock at a price of $5.875
per share. On August 2, 1995, the Company granted Lee A. Iacocca, a director of
the Company, (i) a stock option to purchase 10,000 shares of Common Stock
pursuant to the Company's Directors' Stock Option Plan and (ii) stock options to
purchase up to 500,000 shares of Common Stock at prices ranging from $6.56 to
$10.00 per share. See "Certain Relationships and Related Transactions."
DIRECTORS' STOCK OPTION PLAN
The Company's Directors' Stock Option Plan (the "Directors' Plan") was
adopted by the Board of Directors and approved by the stockholders to enable the
Company to attract and retain the services of non-employee members of the Board
and to provide them with increased motivation and incentive to exert their best
efforts on behalf of the Company by enlarging their personal stake in the
Company. The Directors' Plan covers an aggregate of 60,000 shares of Common
Stock and will expire in 2001. In November 1993 the Board of Directors approved
an amendment to the Directors' Plan to increase from 10,000 to 20,000 the number
of shares which may be issued thereunder to a director, which amendment was
approved by the stockholders in December 1993.
The Directors' Plan, as amended, provides that each non-employee person who
becomes a director will receive an option to purchase a minimum of 10,000 shares
and up to a maximum of 20,000 shares of Common Stock at an exercise price equal
to the fair market value of the Company's Common Stock on the date the option is
granted.
39
<PAGE>
In the twelve months ended December 31, 1995, Mr. Iacocca was granted 10,000
options under the Directors' Plan at an exercise price of $6.56 upon his
election to the Board of Directors. Mr. Muh was also granted options under this
plan, all of which were cancelled prior to vesting. Upon his election to the
Board on May 15, 1996, Mr. Ravich was granted an option to purchase 10,000
shares of Common Stock under the Directors' Plan at an exercise price of $9.50
per share.
EMPLOYMENT ARRANGEMENTS
KENNETH BERG. On January 9, 1995, Kenneth Berg entered into an Amended and
Restated Employment Agreement with the Company (the "Agreement"). The Agreement
provides for an annual base salary of $150,000 (or at such higher rate as may be
determined by the Board of Directors of the Company) and for an incentive bonus
equal to 3% of the Company's earnings before interest, taxes, depreciation and
amortization ("EBITDA") to the extent such EBITDA exceeds $1,000,000. As of
January 1, 1996, Mr. Berg's base compensation was $200,000 per year. Under the
Agreement, the termination date of the original employment agreement was
extended from October 14, 1996 to January 9, 2001. In consideration for the
extension of the term of the Agreement, the Company issued Mr. Berg 200,000
shares of Common Stock on March 21, 1995; provided, however, that (i) such
shares of Common Stock vest pro rata over the term of Mr. Berg's Agreement, (ii)
Mr. Berg may not dispose of any such Common Stock prior to January 9, 1998 and
(iii) beginning on January 9, 1998, Mr. Berg may only dispose of such Common
Stock at a rate of 50,000 shares per year.
Mr. Berg is entitled to participate in the Company's fringe benefits, bonus,
profit-sharing and incentive plans. He is also entitled to reimbursement for
medical expenses not covered by the Company's or other health plans and for
certain Company-related travel expenses, including use of an automobile and
related expenses. The Company has agreed to provide Mr. Berg with such financial
and accounting services as he may reasonably request.
The Agreement provides that Mr. Berg is obligated to devote his full-time
services to the Company, although he is permitted to continue to engage in other
business activities so long as such activities do not conflict with, or
otherwise unreasonably interfere with, the performance of his services to the
Company. Under the Agreement, in the event of disability preventing his
performance of full-time duty for nine consecutive months, the Company may
discontinue payment of his base salary after such nine-month period; provided
that the base salary will be reinstated if he returns to full-time duty within
18 months (and during the term of the Agreement following the nine-month
disability period). The Agreement also provides that in the event of Mr. Berg's
death, the Company shall pay to Mr. Berg's estate or designated beneficiaries a
death benefit equal to one year's base salary and the pro rata portion of any
incentive bonus to which he would be entitled.
Under the Agreement, the Board of Directors of the Company may only
terminate Mr. Berg for "cause," which is defined in the Agreement as the
conviction of Mr. Berg for a felony. Upon such termination of Mr. Berg for
cause, the Company will pay Mr. Berg his base salary through the date of
termination at the rate in effect on such date of termination; provided,
however, that all of Mr. Berg's entitlements, other compensation or fringe
benefits will immediately terminate (to the maximum extent permitted by law).
The Agreement also provides that if the Company terminates Mr. Berg's
employment without cause, the Company shall pay to Mr. Berg in one lump sum
(less applicable tax withholding but adjusted for any surtax under Section 280G
of the Internal Revenue Code of 1986, as amended) an amount in cash equal to two
times the sum of Mr. Berg's base salary and incentive bonus that would otherwise
be payable to Mr. Berg
40
<PAGE>
during the full remaining contract term of his employment under the Agreement
(the "Severance Payments"). In addition, if Mr. Berg's employment is terminated
without cause, all stock options granted by the Company to Mr. Berg which are
not vested, will vest concurrently with the effective date of termination and
the exercise period of such options will be extended by five years. The
Agreement also provides that Mr. Berg may terminate his employment agreement
with "good reason" (as defined in the Agreement) and in such event would be
entitled to the Severance Payments described above. Good reason is defined in
the Agreement to include, but is not limited to, a (i) "change in control" of
the Company (as defined in the Agreement to occur when, among other things, any
person or entity beneficially owns, directly or indirectly, 20% or more of the
combined voting power of the Company's then outstanding securities, (ii) a
relocation of Mr. Berg's principal office or (iii) a material reduction in the
nature and scope of Mr. Berg's duties to the Company.
DONNA S. GUIDO. Donna S. Guido joined the Company as its Vice Chairman of
the Board on March 25, 1995. The Company's employment agreement with Ms. Guido
provides that she is to receive an annual salary of $175,000 per year. The
employment relationship is at will. If the Company terminates Ms. Guido after
the first year of the agreement for reasons other than "for cause" (as defined
in the agreement), the Company will pay Ms. Guido an amount equal to three
months' salary on the effective date of such termination.
As additional compensation under her March 1995 employment agreement, the
Company granted to Ms. Guido the option to purchase 250,000 shares of the
Company's Common Stock. Twenty percent (20%) of such options vest each year
over a five-year period. If there is a friendly change of control of the
Company (as opposed to a hostile takeover), 50% of the 250,000 options which
have not previously vested will immediately vest. If a change of control results
from a hostile takeover, 100% of the 250,000 options not then vested will
immediately vest. Ms. Guido is entitled to receive such vacation, insurance,
expense and other employment benefits that are provided to other senior
executives of the Company. Ms. Guido is reimbursed for certain automobile
expenses and for the rental of an apartment in Los Angeles, California.
MICHAEL D. MOOSLIN. Michael D. Mooslin joined the Company as President and
Chief Operating Officer on March 16, 1992. Pursuant to Mr. Mooslin's amended
and restated employment agreement with the Company, he receives a base salary at
an annual rate of $150,000 (or such higher rate as may be determined by the
Board of Directors of the Company). In 1993 and 1994, Mr. Mooslin accepted a
temporary reduction in current salary to $125,000 per annum in return for
certain loans. As such loans were forgiven, the amount thereof was reported as
"Other Annual Compensation." Mr. Mooslin is entitled to participate in fringe
benefits and bonus, profit sharing and incentive plans as determined by the
Board of Directors. Mr. Mooslin is reimbursed for certain Company-related
travel expenses. The Company makes annual payments for an automobile and
reimbursement of up to $1,500 per month for rent and related housing expenses.
The Company may terminate the employment agreement in the event that Mr. Mooslin
is disabled and unable to perform his full-time duties for a consecutive period
of 90 days or for a total of 120 days in any consecutive twelve-month period.
The agreement expires on March 17, 1997, but provides that it shall continue
from year-to-year thereafter unless terminated by either the Company or by Mr.
Mooslin upon notice to the other provided not less than 90 nor more than 120
days prior to the end of the term. The Company may terminate the employment
agreement with cause if Mr. Mooslin willfully breaches or habitually neglects
his duties. The Company may also terminate the agreement without cause. In the
latter event, the Company would be required to pay to Mr. Mooslin the amount of
his base salary for the remainder of the term plus an additional amount equal to
his base salary. The agreement also provides that Mr. Mooslin may terminate his
employment with the Company if, among other things, (i) Mr. Mooslin is not
reelected or reappointed to (other than by his own choice) the office and
position of President or such additional office or position to which Mr. Mooslin
may subsequently be elected or (ii) there is a material reduction in the nature
and scope of Mr. Mooslin's duties to the Company. In such event, the Company
will pay Mr. Mooslin his base salary through the period ending on the date of
his termination and an amount equal to no less than six months of his base
salary.
41
<PAGE>
ROBERT F. KAUTZ. Robert F. Kautz has been Chief Financial Officer of the
Company since February 1995. Pursuant to a February 29, 1996 amendment to his
February 24, 1995 agreement with the Company, he receives a base salary at an
annual rate of $175,000, to be increased annually in accordance with the
recommendation of the Compensation Committee. Mr. Kautz is entitled to
participate in such fringe benefits, bonus, profit sharing and incentive plans
as determined by the Board of Directors. He also receives automobile and other
allowances of $2,100 per month in the aggregate. Pursuant to Mr. Kautz's
agreement with the Company, the Company has loaned to Mr. Kautz $25,000 in 1995
and $35,000 in 1996. The term of Mr. Kautz's employment agreement is three years
from February 29, 1996, subject to two annual renewal options which may be
exercised by the Company. The Company has the right to terminate Mr. Kautz's
agreement without cause and in such event the $60,000 in loans referred to above
would be forgiven.
In February 1995 the Company granted Mr. Kautz an option to purchase 200,000
shares of the Company's Common Stock. The option has a term of ten years and
20% of such options vest each year over the first five years of Mr. Kautz's
employment. In November 1995, the Company granted Mr. Kautz an option to
purchase 50,000 shares of the Company's Common Stock. The option became
exercisable on February 24, 1996 and has a term of ten years. In the event of a
change in control of the Company, all of Mr. Kautz's options which are not
vested as of the effective date of such sale or change in control will
immediately and automatically become vested and exercisable.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to November 1995, the Company did not have a Compensation Committee.
Prior to the creation of the Compensation Committee, Kenneth Berg, Chairman of
the Board and Chief Executive Officer, and Don Wohl, the Company's only outside
director from January to July 1995, participated in deliberations concerning
executive compensation. In November 1995, the Board of Directors formed a
Compensation Committee. Robert Muh and Don Wohl were elected to the Committee.
Mr. Iacocca was appointed to this Committee upon Mr. Muh's resignation in March
1996. The Compensation Committee did not meet during 1995.
Mr. Kenneth Berg and Mr. Don Wohl both served as directors of Vitafort
International Corporation during 1995. Mr. Berg resigned from such directorship
in April 1996.
During the twelve months ended December 31, 1995, the Company obtained
certain accounting, bookkeeping, occupancy and other office services from a
corporation controlled by Kenneth Berg in return for aggregate payments of
$77,576. Additional payments are anticipated for the upcoming fiscal year which
are expected to be a lesser amount due to a reduction in office space and
personnel.
On March 7, 1994, the Company and Don Wohl, a director of the Company,
entered into a Consulting Agreement. Such agreement, which has since
terminated, provided for Mr. Wohl to provide part-time financial consulting
services to the Company in connection with the Company's plans for business
expansion, at the Company's request, to the degree reasonably required to
provide the services required under such agreement. For such services, the
Company granted Mr. Wohl a warrant to purchase 200,000 shares of the Company's
Common Stock at a price of $6.00 per share. The warrants become exercisable at
the rate of 33.3% per year beginning one year from the date of grant.
On November 28, 1994, in furtherance and expansion of Don Wohl's existing
financial consulting arrangement, the Company entered into a Non-Qualified Stock
Option Agreement with Mr. Wohl, whereby the Company granted him an option to
purchase 100,000 shares of the Company's Common Stock at a price
42
<PAGE>
of $5.00 per share. These options become exercisable at the rate of 33.3% per
year and expire 10 years from the date of grant.
On June 5, 1995, in recognition of Don Wohl's continuing role in financing
the Company, the Company entered into a Warrant Agreement with Mr. Wohl, whereby
the Company granted him the right to purchase 100,000 shares of the Company's
Common Stock at a price of $5.875 per share. The warrant becomes exercisable
beginning August 15, 1996 and expires on August 15, 2000.
Mr. Wohl is also the Managing General Partner of KKRO Partners, L.P., which
partnership previously owned a minority interest in the Santa Monica, Brentwood
and Beverly Hills Koo Koo Roo restaurants. (the "Partnership"). On September
26, 1995, the Company agreed to purchase the limited partners' interest in the
Partnership. As consideration for the purchase, which closed in November 1995,
the Company issued 275,848 shares of Common Stock in payment of a purchase price
of approximately $2 million (approximately equal to such partners' investment in
the Partnership). At the time of the transaction, said shares of stock had a
value of approximately $2,000,000, which amount was substantially the same as
the Partnership's investment in these restaurants.
43
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT
The following table sets forth certain information as of May 15, 1996 with
respect to the beneficial ownership of the Company's Common Stock, which
constitutes the Company's only outstanding class of voting securities, by (i)
each person who, to the knowledge of the Company, beneficially owned more than
5% of the Common Stock, (ii) each director of the Company, (iii) the Named
Executive Officers and (iv) all executive officers and directors of the Company
as a group:
<TABLE>
<CAPTION>
AMOUNT OF PERCENT
NAME OF BENEFICIAL OWNER/(1)/ BENEFICIAL OWNERSHIP/*//*/ OF CLASS/(2)/
- -------------------------------------------------- -------------------------- --------------
<S> <C> <C>
Kenneth Berg 3,496,783 /(3)/ 22.7%
Donna S. Guido 52,400 /(4)/ *
Michael D. Mooslin 264,050 /(5)/ 1.8%
Morton J. Wall 15,700 /(6)/ *
Robert F. Kautz 90,000 /(7)/ *
Kory L. Berg 144,000 /(8)/ 1.0%
Lee A. Iacocca 309,000 /(9)/ 2.1%
Jess M. Ravich 18,250 /(10)/ *
Don Wohl 171,666 /(11)/ 1.1%
All Directors and Executive Officers as a Group
(9 persons) 4,561,849 /(12)/ 28.0%
</TABLE>
- ----------------------
* Represents less than 1% of the outstanding Common Stock.
** To the best knowledge of the Company, as of the date of the table no
director, executive officer or 5% stockholder beneficially owned any shares
of Convertible Preferred Stock except for Mr. Ravich as described in
footnote (10) below. Separately, each of the Company's executive officers
and directors (other than Mr. Ravich) has agreed not to sell any shares of
Common Stock during the 13-month period ending April 20, 1997, except that
with the approval of the Chairman of the Board of the Company and prior
notice to the Placement Agents, each of them may sell up to ten percent
(10%) of his or her holdings of Common Stock as of such date, and may sell
amounts in excess thereof with the approval of both Placement Agents.
(1) The address of Kenneth Berg, Donna S. Guido, Michael D. Mooslin, Don Wohl,
Kory L. Berg, Robert F. Kautz is in care of the Company, 11075 Santa Monica
Boulevard, Suite 225, Los Angeles, California 90025. The address of Lee A.
Iacocca is 1440 South Sepulveda Blvd., Third Floor, Los Angeles, California
90025. The address of Morton J. Wall is in care of the Company, 75 Route
#27, Iselin, New Jersey 08830-0411. The address of Jess M. Ravich is 11766
Wilshire Boulevard, Suite 870, Los Angeles, California 90025.
(2) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities that can be acquired by such person within 60
days of a specified date as provided for in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended. Each beneficial owner's percentage is
determined by assuming that options or warrants that are held by such person
(but not those held by any other person) and which are exercisable within 60
days of the date of the above table have been exercised. Further, the
amounts do not give effect to any conversion of shares of Convertible
Preferred Stock because the number of shares of Common Stock deemed to be
beneficially owned by such persons can not be estimated. The number of
shares of Common Stock issuable is dependent on future trading prices of the
Common Stock. As of the date of the table, there were outstanding 1,200,000
shares of Convertible Preferred Stock.
(3) Kenneth Berg's holdings include: (a) 950,000 shares of Common Stock held by
his spouse which Mr. Berg has the right to vote
44
<PAGE>
pursuant to a proxy (Mr. Berg disclaims beneficial ownership of such
shares) and (b) 613,333 shares of Common Stock issuable upon exercise of
options exercisable within 60 days of the date of the table.
(4) Includes 50,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of the table.
(5) Includes 262,800 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of the table.
(6) Includes 50 shares of Common Stock held by his spouse (Mr. Wall disclaims
beneficial ownership of such shares). Includes 15,600 shares of Common
Stock issuable upon exercise of options within 60 days of the date of the
table.
(7) Includes 90,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of the table.
(8) Includes 24,000 shares of Common Stock issuable upon exercise of options
within 60 days of the date of the table.
(9) Includes 250,000 shares of Common Stock issuable upon exercise of options
within 60 days of the date of the table.
(10) Includes 18,250 shares of Common Stock issuable upon exercise of Warrants
exercisable within 60 days of the date of the table. Excludes (i) 10,000
shares of Convertible Preferred Stock and Warrants to purchase 18,000
shares of Convertible Preferred Stock owned by Mr. Ravich and (ii) Warrants
to purchase 18,000 shares of Convertible Preferred Stock owned by Libra
Investments, Inc. that Mr. Ravich may be deemed to beneficially own in his
capacity as Chief Executive Officer and majority shareholder of such firm.
Mr. Ravich disclaims such beneficial ownership. The shares of Convertible
Preferred Stock and related warrants may be converted into, or exercised
and converted into, shares of Common Stock upon the terms of the
Convertible Preferred Stock. The actual number of shares of Common Stock
issuable is dependent on factors that cannot be predicted at this time
including, among others, the future market price of the Common Stock. See
"Description of Capital Stock."
(11) Includes 171,666 shares of Common Stock issuable upon exercise of warrants
and options within 60 days of the date of the table.
(12) Includes 1,060,733 shares of Common Stock reserved for issuance pursuant to
the Company's Stock Awards Plan and non-plan options and warrants to
purchase 434,916 shares of Common Stock, all of which are exercisable
within 60 days of the date of the table.
45
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the employment agreement with Donna S. Guido, the Vice Chairman
of the Board, the Company has agreed to hire DSG Associates, Inc. ("DSG"), a
consulting firm founded by Ms. Guido and in which she has an ownership interest,
to provide consulting services to the Company. DSG will provide such services
to the Company as long as DSG's prices are competitive with those of companies
providing similar services. Such services include, but are not be limited to,
secret shopper services, provision of Company training manuals and other
operations and marketing services, and the production of a company newsletter.
The Company made payments of $327,603 in the twelve months ended December 31,
1995 for such services.
On March 7, 1994, the Company and Don Wohl, a director of the Company,
entered into a Consulting Agreement. Such agreement, which has since
terminated, provided for Mr. Wohl to provide part-time financial consulting
services to the Company in connection with the Company's plans for business
expansion, at the Company's request, to the degree reasonably required to
provide the services required under such agreement. For such services, the
Company granted Mr. Wohl a warrant to purchase 200,000 shares of the Company's
Common Stock at a price of $6.00 per share. The warrants become exercisable at
the rate of 33.3% per year beginning one year from the date of grant.
On November 28, 1994, in furtherance and expansion of Don Wohl's existing
financial consulting arrangement, the Company entered into a Non-Qualified Stock
Option Agreement with Mr. Wohl, whereby the Company granted him an option to
purchase 100,000 shares of the Company's Common Stock at a price of $5.00 per
share. These options become exercisable at the rate of 33.3% per year and
expire 10 years from the date of grant.
On June 5, 1995, in recognition of Don Wohl's continuing role in financing
the Company, the Company entered into a Warrant Agreement with Mr. Wohl, whereby
the Company granted him the right to purchase 100,000 shares of the Company's
Common Stock at a price of $5.875 per share. The warrant becomes exercisable
beginning August 15, 1996 and expires on August 15, 2000.
Mr. Wohl is also the Managing General Partner of KKRO Partners, L.P., which
partnership previously owned a minority interest in the Santa Monica, Brentwood
and Beverly Hills Koo Koo Roo restaurants. (the "Partnership"). On September
26, 1995, the Company agreed to purchase the limited partners' interest in the
Partnership. As consideration for the purchase, which closed in November 1995,
the Company issued 275,848 shares of Common Stock in payment of a purchase price
of approximately $2 million (approximately equal to such partners' investment in
the Partnership). At the time of the transaction, said shares of stock had a
value of approximately $2,000,000, which amount was substantially the same as
the Partnership's investment in these restaurants.
On November 28, 1994, the Company entered into a Non-Qualified Stock Option
Agreement with Kenneth Berg, whereby the Company granted him stock options to
purchase 700,000 shares of the Company's Common Stock at a price of $5.00 per
share. These options become exercisable at the rate of 33.3% per year and
expire 10 years from the date of grant.
On February 24, 1995, the Company entered into a Non-Qualified Stock Option
Agreement with Robert F. Kautz, whereby the Company granted him an option to
purchase 200,000 shares of the Company's Common Stock at a price of $5.72 per
share. These options become exercisable at the rate of 20% per year and expire
10 years from the date of grant.
On March 25, 1995, the Company entered into a Non-Qualified Stock Option
Agreement with Donna S. Guido, whereby the Company granted her an option to
purchase 250,000 shares of the Company's Common Stock at a price of $5.50 per
share. These options become exercisable at the rate of 20% per year and expire
10 years from the date of grant.
46
<PAGE>
On April 6, 1995, the Company entered into a Non-Qualified Stock Option
Agreement with Kory L. Berg, whereby the Company granted him an option to
purchase 10,000 shares of the Company's Common Stock at a price of $4.9375 per
share. These options become exercisable at the rate of 20% per year and expire
10 years from the date of grant.
On July 12, 1995, the Company entered into a Non-Qualified Stock Option
Agreement with Morton J. Wall, whereby the Company granted him an option to
purchase 18,000 shares of the Company's Common Stock at a price of $6.75 per
share. These options become exercisable at the rate of 20% per year and expire
10 years from the date of grant.
On August 2, 1995, the Company entered into a Non-Qualified Stock Option
Agreement with Lee A. Iacocca, a director of the Company, whereby the Company
granted him an option to purchase up to 500,000 shares of the Company's Common
Stock: (i) 250,000 of such shares are currently exercisable at a price of $6.56
per share and expire four years from the date of grant; (ii) 75,000 of such
shares become exercisable one year from the date of grant at a price of $7.50
per share and expire five years from the date of grant; (iii) 75,000 of such
shares become exercisable two years from the date of grant at a price of $8.50
per share and expire six years from the date of grant; and (iv) 100,000 of such
shares become exercisable three years from the date of grant at a price of
$10.00 per share and expire seven years from the date of grant. Also see
"Management--Directors' Stock Option Plan."
On November 16, 1995, the Company entered into a Non-Qualified Stock Option
Agreement with Mr. Kautz, whereby the Company granted him an option to purchase
50,000 shares of the Company's Common Stock at a price of $7.25 per share.
These options became exercisable on February 24, 1996 and expire 10 years from
the date of grant.
On April 15, 1996, the Company entered into a Non-Qualified Stock Option
Agreement with Kennerth Berg whereby the Company granted him an option to
purchase 500,000 shares of the Company's Common Stock at a price of 8.50 per
share. These options became exercisable on April 15, 1996 and expire 10 years
from the date of grant.
During the twelve months ended December 31, 1995, the Company obtained
certain accounting, bookkeeping, occupancy and other office services from a
corporation controlled by Kenneth Berg in return for aggregate payments of
$77,576. Additional payments are anticipated for the upcoming fiscal year which
are expected to be a lesser amount due to a reduction in office space and
personnel.
Mr. Ravich is an executive of Libra Investments, Inc., which acted as a
Placement Agent for the 1996 Private Placements and received one-half of the
compensation paid by the Company in connection therewith. The aggregate
compensation paid by the Company to both of its Placement Agents consisted of
7-1/2% of the aggregate cash proceeds received by the Company and warrants to
acquire (i) 40,500 shares of Common Stock for a purchase price of $7.75 per
share (subject to adjustment) and (ii) 108,000 shares of Convertible Preferred
Stock for a purchase price of $25.00 per share. Also see "Management--
Directors' Stock Option Plan."
47
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Shares to be offered hereby as of May 15, 1996, and as
adjusted to reflect the sale of the securities offered hereby, by the Selling
Stockholders. Except as otherwise indicated, to the knowledge of the Company,
all persons listed below have sole voting and investment power with respect to
their securities, except to the extent that authority is shared by spouses under
applicable law or as otherwise noted below. The information in the table
concerning the Selling Stockholders who may offer Common Shares hereunder from
time to time is based on information provided to the Company by such
securityholders, except for the assumed conversion ratio of shares of
Convertible Preferred Stock into Common Stock, which is based solely on the
assumptions discussed or referenced in footnote (1) to the table. Information
concerning such Selling Stockholders may change from time to time and any
changes of which the Company is advised will be set forth in a Prospectus
Supplement to the extent required. See "Plan of Distribution."
<TABLE>
<CAPTION>
COMMON SHARES COMMON SHARES
BENEFICIALLY COMMON SHARES BENEFICIALLY
OWNED PRIOR TO TO BE SOLD OWNED AFTER
THE OFFERING/(1)/ IN THE OFFERING/(1)/ THE OFFERING
NAME OF -------------------- -------------------- -------------------
SELLING STOCKHOLDER NUMBER PERCENT NUMBER NUMBER PERCENT
- ------------------------------------- ------- -------- -------------------- ------ -------
<S> <C> <C> <C> <C> <C>
Anvil Investment Partners, L.P. 83,908 * 83,908 0 0
W. Jeffrey Baxter & Melanie 6,992 * 6,992 0 0
Baxter Ttees, FBO Baxter
Living Trust Dated 8/21/92
The Canyon Value Realization 34,962 * 34,962 0 0
Fund (Cayman), Ltd.
The Value Realization Fund, L.P. 34,962 * 34,962 0 0
Cerberus International, Ltd. 50,345 * 50,345 0 0
Ultra Cerberus Ltd. 6,992 * 6,992 0 0
Ariel Fund, Ltd. 82,510 * 82,510 0 0
Robert A. Davidow and Diana R.
Davidow 34,962 * 34,962 0 0
The Copernicus Fund, L.P. 104,885 * 104,885 0 0
The Galileo Fund, L.P. 174,809 1.2% 174,809 0 0
Dickstein & Co., L.P. 122,366 * 122,366 0 0
Dickstein International Limited 17,481 * 17,481 0 0
Dorchester Partners L.P. 139,847 * 139,847 0 0
The Jay Goldman Master
Limited Partnership 139,847 * 139,847 0 0
Gotham Capital III, L.P. 75,378 * 75,378 0 0
Gotham Capital IV, L.P. 20,977 * 20,977 0 0
Alfred Partners, L.L.C. 43,492 * 43,492 0 0
JMG Capital Partners, L.P. 132,855 * 132,855 0 0
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
COMMON SHARES COMMON SHARES
BENEFICIALLY COMMON SHARES BENEFICIALLY
OWNED PRIOR TO TO BE SOLD OWNED AFTER
THE OFFERING/(1)/ IN THE OFFERING/(1)/ THE OFFERING
NAME OF -------------------- -------------------- -------------------
SELLING STOCKHOLDER NUMBER PERCENT NUMBER NUMBER PERCENT
- ------------------------------------- ------- -------- -------------------- ------ -------
<S> <C> <C> <C> <C> <C>
JMG Capital Management, Inc.
Money Purchase Pension Plan 6,992 * 6,992 0 0
James Lippman 13,985 * 13,985 0 0
Steve Jackson Family Trust 13,985 * 13,985 0 0
Metropolis Partners, L.P. 139,847 * 139,847 0 0
Newberg Family Trust UTD 139,847 * 139,847 0 0
12/18/90
Opus Capital Partners, L.P. 41,954 * 41,954 0 0
Ravich Revocable Trust of 1989 34,962 * 34,962 0 0
Salomon Brothers Inc 139,847 * 139,847 0 0
Seneca Capital L.P. 83,908 * 83,908 0 0
Seneca Capital International, Ltd. 15,103 * 15,103 0 0
Palamundo LDC 11,747 * 11,747 0 0
ZPB Securities, LLC 12,307 * 12,307 0 0
DFG Corporation 16,782 * 16,782 0 0
DeWind Partners, L.P. 34,962 * 34,962 0 0
TCW Shared Opportunity
Fund II, L.P. 69,924 * 69,924 0 0
Upchurch Living Trust
UAD 12/14/90 13,985 * 13,985 0 0
Steven A. Amos 34,962 * 34,962 0 0
Nutmeg Partners, L.P. 41,954 * 41,954 0 0
GAM Arbitrage Investments, Inc. 41,954 * 41,954 0 0
Leonardo, L.P. 55,939 * 55,939 0 0
AG Super Fund, L.P. 55,939 * 55,939 0 0
AG Arb Partners, L.P. 55,939 * 55,939 0 0
AG Super Fund International
Partners, L.P. 41,954 * 41,954 0 0
Angelo, Gordon & Co., L.P. 41,954 * 41,954 0 0
Raphael, L.P. 55,939 * 55,939 0 0
Michael Angelo, L.P. 27,969 * 27,969 0 0
NY-DBL Diamond Group 27,969 * 27,969 0 0
Licap Partners 41,954 * 41,954 0 0
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
COMMON SHARES COMMON SHARES
BENEFICIALLY COMMON SHARES BENEFICIALLY
OWNED PRIOR TO TO BE SOLD OWNED AFTER
THE OFFERING/(1)/ IN THE OFFERING/(1)/ THE OFFERING
NAME OF -------------------- -------------------- -------------------
SELLING STOCKHOLDER NUMBER PERCENT NUMBER NUMBER PERCENT
- ------------------------------------- ------- -------- -------------------- ------ -------
<S> <C> <C> <C> <C> <C>
Linda Cappello 98,232 * 98,232 0 0
9,113/(2)/ 9,113
Gerard K. Cappello 63,158 * 63,158 0 0
6,075/(2)/ 9,113
Nelson Partners 209,771 1.4% 209,771 0 0
Olympus Securities, Ltd. 139,847 * 139,847 0 0
Fayerweather Associates 27,969 * 27,969 0 0
Lisa G. Shine 4,195 * 4,195 0 0
Loretta Hirsh Shine 9,789 * 9,789 0 0
Lawrence Kaplan 6,992 * 6,992 0 0
Arbco Associates, L.P. 100,690 * 100,690 0 0
Offense Group Associates, L.P. 100,690 * 100,690 0 0
Kayne Anderson Non-Traditional 218,162 1.5% 218,162 0 0
Investments, L.P.
Kessler Asher Group, Limited 55,939 * 55,939 0 0
Partnership
KA Trading LP. 13,985 * 13,985 0 0
Ronald H. Means 6,992 * 6,992 0 0
Barry Meisel 6,992 * 6,992 0 0
Natalie Meisel 3,496 * 3,496 0 0
Stuart Meisel 2,297 * 2,297 0 0
Theodore Meisel 21,676 * 21,676 0 0
Silverton International Fund 139,847 * 139,847 0 0
Limited
Kyneton Investments Ltd. 209,771 1.4% 209,771 0 0
Standard Global Equity Partners, 17,719 * 17,719 0 0
L.P.
Scorpion Offshore Investment 149,238 1.0% 149,238 0 0
Fund, Ltd.
Standard Pacific Capital Offshore 10,912 * 10,912 0 0
Fund, Ltd.
The Common Fund Hedged Equity 10,523 * 10,523 0 0
Fund
The & Trust 9,933 * 9,933 0 0
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
COMMON SHARES COMMON SHARES
BENEFICIALLY COMMON SHARES BENEFICIALLY
OWNED PRIOR TO TO BE SOLD OWNED AFTER
THE OFFERING/(1)/ IN THE OFFERING/(1)/ THE OFFERING
NAME OF -------------------- -------------------- -------------------
SELLING STOCKHOLDER NUMBER PERCENT NUMBER NUMBER PERCENT
- ------------------------------------- ------- -------- -------------------- ------ -------
<S> <C> <C> <C> <C> <C>
Chestnut Pacific Limited 12,845 * 12,845 0 0
Partnership
Daniel S. Martin 26,571 * 26,571 0 0
Jeffrey Ullman 34,962 * 34,962 0 0
Small Company Subtrust of DFA 227,000/(2)/ 1.5% 227,000 0 0
Group Trust
U.S. 9-10 Small Company 120,000/(2)/ * 120,000 0 0
Portfolio
6-10 Subtrust of DFA Group Trust 94,700/(2)/ * 94,700 0 0
U.S. 6-10 Small Company Series 8,300/(2)/ * 8,300 0 0
Libra Investments, Inc. 62,931 * 62,931 0 0
Ravich Revocable Trust 62,931 * 62,931 0 0
18,250/(2)/ 18,250
Upchurch Living Trust UAD 20,977 * 20,977 0 0
12/14/90 2,000/(2)/ 2,000
Mark Zucker 17,481 * 17,481 0 0
Robert G. Morrish 13,985 * 13,985 0 0
Charles A. Yamarone 10,489 * 10,489 0 0
Dan Dominguez 10,000/(2)/ * 10,000 0 0
M. Viner 10,000/(2)/ * 10,000 0 0
Martin Mick 10,000/(2)/ * 10,000 0 0
Stewart Hacker 5,000/(2)/ * 5,000 0 0
Louis Gonda 39,409/(2)/ * 39,409 0 0
Lawrence K. Fleischman 46,807 * 46,807 0 0
5,062/(2)/ 5,062
Lorne A. Goldberg 1,500/(2)/ * 1,500 0 0
Stuart M. Isen 1,500/(2)/ * 1,500 0 0
Index Securities S.A. 1,573 * 1,573 0 0
George Levin 7,000/(2)/ * 7,000 0 0
</TABLE>
- -------------------
* Represents less than 1% of the outstanding Common Stock.
(1) Except in the case of Shares indicated with the footnote (2), such
beneficial ownership represents an estimate of the number of shares of
Common Stock issuable upon the conversion of shares of Convertible Preferred
Stock beneficially owned by such person (either directly or through the
exercise of Convertible Preferred Stock Warrants), assuming the last
reported sales price of $9.00 per share of Common Stock on June 10, 1996
were used to determine the number of
51
<PAGE>
shares of Common Stock issuable as of the first date on which Convertible
Preferred Stock may be converted. The actual number of shares of Common
Stock offered hereby is subject to adjustment and could be materially less
or more than the estimated amount indicated depending upon factors which
cannot be predicted by the Company at this time, including, among others,
application of the conversion provisions based on market prices prevailing
at the actual date of conversion and whether or to what extent dividends are
paid in Common Stock. In order to calculate the number of shares of
Convertible Preferred Stock or Convertible Preferred Stock Warrants to
purchase such shares beneficially held, multiply the amount included in the
column captioned "Common Shares Beneficially Owned Prior to the Offering"
(other than share amounts indicated with the footnote (2)), by 0.28603. This
presentation is not intended to constitute a prediction as to the future
market price of the Common Stock. The shares of Convertible Preferred Stock
and the Convertible Preferred Stock Warrants were issued in the 1996 Private
Placements. See "Risk Factors--Effect of Conversion of Convertible Preferred
Stock; Potential Common Stock Adjustment" and "Description of Capital
Stock."
(2) Represents beneficial ownership of shares of Common Stock issued in the 1996
Private Placements or upon the exercise of Common Stock Warrants issued in
connection therewith as well as certain shares of Common Stock issued in
other private placements. The shares issued in connection with the 1996
Private Placements and the related Common Stock Warrants are subject to
adjustment under circumstances. See "Risk Factors--Effect of Conversion of
Convertible Preferred Stock; Potential Common Stock Adjustments" and
"Description of Capital Stock."
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's Certificate of Incorporation, as amended, authorizes the
issuance of 55,000,000 shares of capital stock, of which 50,000,000 shares are
designated as Common Stock, par value $0.01 per share, and 5,000,000 shares are
designated as Preferred Stock, par value $0.01 per share, 1,350,000 of which
have been designated as shares of Convertible Preferred Stock. As of May 15,
1996, 14,766,999 shares of Common Stock (net of treasury shares) and 1,200,000
shares of Convertible Preferred Stock were issued and outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share of
Common Stock on all matters submitted to a vote of stockholders. There are no
cumulative voting rights. The rights, privileges and preferences of the holders
of Common Stock are subject to the rights of the holders of the Convertible
Preferred Stock and of any shares of preferred stock that may be designated and
issued by the Company in the future. Subject to the restrictions contained in
preferred stock issued by the Company, holders of Common Stock are entitled to
receive dividends when and if declared by the Board of Directors out of legally
available funds. Upon any liquidation, dissolution or winding up of the
Company, subject to the rights of holders of shares of preferred stock, holders
of Common Stock are entitled to share pro rata in any distribution to the
stockholders. Holders of Common Stock do not have preemptive or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock.
Subject to certain exceptions, if, during the twelve-month period
following the closing of the 1996 Private Placements, the Company sells any
shares of Common Stock for an issue price less than $7.245 per share (the
original issue price of the 450,000 shares placed in that transaction), the
purchase price per share of such Common Stock shall be adjusted downward to
equal such lower issue price (along with a similar adjustment to the Common
Stock Warrants). The Company presently expects to satisfy such obligation, if
any, by issuing additional shares of Common Stock. If such shares may not be
issued for any reason, the adjustment will have to be paid in cash. As with the
conversion price of the Convertible Preferred Stock, whether or not any
adjustment will be necessary in the future will depend upon factors which cannot
be predicted by the Company at this time including, among others, the future
market price of the Common Stock and the time at which holders of Convertible
Preferred Stock elect to convert or are forced by the Company to so convert such
shares into Common Stock. The terms of the 1996 Private Placements do not
provide for any limit on the number of shares of Common Stock which the Company
may be required to issue in respect thereof. See "Risk Factors--Effect of
Conversion of Convertible Preferred Stock; Potential Common Stock Adjustment."
Pursuant to Section 2115 of the California Corporations Code (the
"California Law"), a corporation incorporated in a State other than California
(such as the Company, which is incorporated in Delaware) may nevertheless be
subject to certain of the provisions of the California Law (as specified in
Section 2115 of the California Law) applicable to California corporations
(commonly designated a "Quasi-California Corporation") if more than one-half of
its outstanding voting securities are owned of record by persons having
addresses in California and more than half of its business is conducted in
California (generally, if the average of its property factor, payroll factor and
sales factor (as defined in Sections 25129, 25132 and 25134 of the California
Revenue and Taxation Code) is more than 50 percent during its latest full income
year). Such a foreign corporation will not be treated as a Quasi-California
Corporation if, however, it has more than 800 holders of a class of securities
qualified for trading on the Nasdaq National Market. Based on the stockholders
list prepared for the Company's 1996 Annual Meeting of Stockholders, the Company
exceeds this requirement by a significant amount and, accordingly, Section 2115
is not presently applicable to the Company.
53
<PAGE>
PREFERRED STOCK
The Company's Board of Directors, without the approval of the holders
of the Common Stock, is authorized to designate for issuance up to 5,000,000
shares of Preferred Stock, in such series and with such rights, privileges and
preferences as the Board of Directors may from time to time determine. As of
the date of this Prospectus, 1,350,000 of such shares have been designated as
Convertible Preferred Stock; 1,200,000 of such Shares are issued and outstanding
and 108,000 are subject to the Convertible Preferred Stock Warrants. The
Company has no current plans to issue any of the 42,000 shares of Convertible
Preferred Stock that are unissued and not subject to Convertible Preferred Stock
Warrants.
Each share of Convertible Preferred Stock is entitled to receive
dividends, payable quarterly, at the rate of 5% per annum in preference to any
payment made on any other shares of capital stock of the Company. Any dividend
payable commencing more than 90 days after the date of issuance of the
Convertible Preferred Stock may be paid, at the option of the Company, either
(i) in cash or (ii) upon proper notice, in shares of Common Stock if such shares
have been registered for resale under the Securities Act (as provided for
hereunder). If a dividend is paid in Common Stock, the shares to be issued as a
dividend shall be valued at the average of the daily means between the low
trading price and the closing price of the Common Stock over the three
consecutive trading days prior to the related dividend record date. Each share
of Convertible Preferred Stock is also entitled to a liquidation preference of
$25.00 per share, plus any accrued but unpaid dividends, in preference to any
other class or series of capital stock of the Company. Except as otherwise
provided by applicable law, holders of shares of Convertible Preferred Stock
have no voting rights.
Commencing 91 days after the March 20, 1996 date of issuance, 10% (or
such larger percentage as is determined by the Company in its sole discretion)
of the number of shares of Convertible Preferred Stock held of record by each
holder on such 91st day shall become convertible into shares of Common Stock,
and thereafter on the successive monthly anniversaries of such 91st day an equal
number of such shares shall become convertible so that, approximately 13 months
after original issuance, all shares of Convertible Preferred Stock will be
convertible into shares of Common Stock. The number of shares of Common Stock
issuable upon conversion of shares of Convertible Preferred Stock will equal the
liquidation preference of the shares being converted divided by the then-
effective conversion price applicable to the Common Stock (the "Conversion
Price"). The Conversion Price, as of any date, shall be the lesser of (i) the
actual selling price at which the holder converting has sold shares of Common
Stock (if any) during the three trading days prior to conversion in a bona fide
trade with an unaffiliated third party (which may not be less than the lowest
trading price on the date of such trade as reported by the Nasdaq National
Market) or (ii) the average of the daily means between the low trading price and
the closing price of the Common Stock for the three consecutive trading days
prior to conversion, in either case reduced by the Applicable Percentage (as
defined herein). The "Applicable Percentage" is dependent upon the amount of
time which has passed from original issuance to the date of measurement, being
13% up to the fourth month and from the fourth month to thirteenth month being
14%, 15 1/4%, 17%, 19 1/2%, 21%, 23%, 25%, 27% and 27 1/2% during each such
month, and 29% thereafter. At any date more than 13 months after the date of
issuance, the Conversion Price will be the lesser of (a) 71% of the average of
the daily means between the low trading price of the Common Stock and the
closing price of the Common Stock for all the trading days during the 13th month
or (b) 71% of the average of the daily means between the low trading price and
the closing price of the Common Stock during the three days immediately
preceding the date of conversion. The Conversion Price is at all times also
subject to adjustment for customary anti-dilution events such as stock splits,
stock dividends, reorganizations and certain mergers affecting the Common Stock.
The shares of Convertible Preferred Stock were originally placed in March 1996.
The Convertible Preferred Stock may be redeemed in whole or in part at
any time beginning 14 months after the date of issuance, on at least 30 days'
notice, at a redemption price equal to $25.00 per share plus accrued and unpaid
dividends if (i) the average closing price of the Common Stock for the 20
consecutive trading days prior to the date of such notice exceeds $18.00 per
share and (ii) the shares of Common Stock
54
<PAGE>
issuable upon conversion are subject to an effective resale registration
statement under the Securities Act (as provided for hereunder) or may otherwise
be sold pursuant to Rule 144(k) under such act. Further, the Company may require
holders of Convertible Preferred Stock to convert such shares into shares of
Common Stock if the Company sells Common Stock for cash in a registered
underwritten public offering and the underwriters agree to sell all shares of
Common Stock that holders of Convertible Preferred Stock desire to sell in the
offering. In such event, the conversion price for such shares will be the public
offering price, less the underwriters' gross spread, reduced by the Applicable
Percentage set forth above.
The exact number of shares issuable upon conversion of all of the
Convertible Preferred Stock and offered hereby cannot currently be estimated
but, generally, such issuances of Common Stock will vary inversely with the
market price of the Common Stock. The holders of Common Stock ownership
interest will be materially diluted by conversion of the Convertible Preferred
Stock, which dilution will depend on the future market price of the Common
Stock. Investors should review carefully the material under "Risk Factors--
Effect of Convertible Preferred Stock; Potential Common Stock Adjustment" and
"Securities Market Factors" as well as the other information contained in this
Prospectus.
Under applicable Delaware law and the Company's Certificate of
Incorporation, the Company's Board of Directors has the authority, without
further action by the stockholders, to issue shares of preferred stock in one or
more series and to fix the rights, preferences, privileges and restrictions
granted to or imposed upon any series of unissued preferred stock and to fix the
number of shares constituting any series and the designation of such series,
without any further vote or action by the stockholders. Issuance of preferred
stock may adversely affect the rights, privileges and preferences afforded the
holders of Common Stock, including a decrease in the amount available for
distribution to holders of the Common Stock in the event of a liquidation or
payment of preferred dividends. The issuance of additional shares of preferred
stock, and shares of Common Stock into which such preferred stock may be
converted, may, among other things, have the effect of delaying, deferring or
preventing a change in control of the Company, discouraging tender offers for
the Company and inhibiting certain equity issuances until substantially all such
shares are converted or redeemed. The Company currently has no plans to
designate and/or issue any additional shares of preferred stock, except those
issuable pursuant to the Convertible Preferred Stock Warrants.
WARRANTS AND OPTIONS
In connection with the 1996 Private Placements, the Company agreed to
issue to the placement agents in the transaction the Convertible Preferred Stock
Warrants to purchase 108,000 shares of Convertible Preferred Stock at $25.00 per
share and the Common Stock Warrants to purchase 40,500 shares of Common Stock at
$7.75 per share. Such warrants will be exercisable for a period of five years
from the date of issuance for securities that are substantially identical to
those issued in the 1996 Private Placements. Pursuant to its terms, the
Convertible Preferred Stock becomes convertible ratably over the fourth through
thirteenth month after issuance at discounts to the future market price of
Common Stock increasing from 13% to 29% over the same period. The number of
shares of Common Stock issuable is also subject to adjustment. See "Risk
Factors--Effect of Convertible Preferred Stock; Adjustment to Common Stock," "--
Common Stock" and "--Preferred Stock."
In addition to the warrants issued in connection with the 1996 Private
Placements, the Company had outstanding as of May 15, 1996 warrants to purchase
an aggregate of approximately 2.4 million shares of Common Stock at an average
exercise price of $6.06 and presently outstanding options to purchase an
aggregate of approximately 7.4 million shares of Common Stock at an average
exercise price of $5.66. Of these, approximately 300,000 shares of Common Stock
issuable upon exercise of warrants and approximately 3.2 million shares of
Common Stock issuable upon the exercise of stock options, beneficially owned by
certain of the Company's executive officers and directors, are subject to a
lock-up agreement. See footnotes to the table under the caption "Security
Ownership of Certain Beneficial
55
<PAGE>
Holders and Management." Also see "Risk Factors--Dilutive Effect of Options and
Warrants; Shares Available for Future Sale" and Note 7 to the Consolidated
Financial Statements.
DELAWARE LAW AND LIMITATIONS ON CHANGES IN CONTROL
Section 203 of the Delaware General Corporation Law (the "DGCL")
prevents an "interested stockholder" (defined in Section 203, generally, as a
person owning 15% or more of a corporation's outstanding voting stock) from
engaging in a "business combination" (as defined in Section 203) with a
publicly-held Delaware corporation for three years following the date such
person became an interested stockholder unless (i) before such person became an
interested stockholder, the board of directors of the corporation approved the
transaction in which the interested stockholder became an interested stockholder
or approved the business combination; (ii) upon consummation of the transaction
that resulted in the interested stockholder's becoming an interested
stockholder, the interested stockholder owns at least 85% of the voting stock of
the corporation outstanding at the time the transaction commenced (excluding
stock held by directors who are also officers of the corporation and by employee
stock plans that do not provide employees with the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer); or (iii) following the transaction in which such
person became an interested stockholder, the business combination is approved by
the board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of 66-2/3% of the
outstanding voting stock of the corporation not owned by the interested
stockholder.
The Company's bylaws require advance notice of any action (including
nomination of directors) to be proposed at any annual or special meeting of
stockholders and set forth other specific procedures that a stockholder must
follow to properly bring any business in front of such a meeting. In addition,
the bylaws provide that a special meeting of the Company's stockholders may only
be called by the Chairman of the Board of Directors of the Company or by a
majority of the total number of directors which the Company would have if there
were no vacancies; no such meeting may be called by the stockholders. A
director may be removed from office at any time, with or without cause by
stockholders, but only by the affirmative vote of the holders of at least 75% of
the then-outstanding shares of voting stock of the Company. Any amendment of
the bylaws or certain provisions of the Certificate of Incorporation by
stockholders will require the affirmative vote of the holders of at least 75% of
the shares of Common Stock then outstanding.
These bylaw provisions, the provisions authorizing the Board of
Directors to issue preferred stock without stockholder approval and the
provisions of Section 203 of the DGCL could have the effect of delaying,
deferring or preventing a change in control of the Company or the removal of
existing management.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that a director of
the Company will not be personally liable to the Company or its stockholders for
monetary damages for any breach of fiduciary duty as a director, except in
certain cases where liability is mandated by the Delaware General Corporation
Law. This provision has no effect on any non-monetary remedies that may be
available to the Company or its stockholders, nor does it relieve the Company or
its directors from compliance with federal or state securities laws. The
Certificate of Incorporation also provides that each person who is or was or had
agreed to become a director or officer of the Company or of certain affiliated
entities shall be indemnified by the Company, in accordance with its Bylaws, to
the full extent permitted from time to time by the Delaware General Corporation
Law and that the Company may enter into one or more agreements with any person
which provide for indemnification greater or different therefrom. The bylaws
provide that each person who was or is made a party or is threatened to be made
a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
or a person of whom he or she is the legal representative is or was a director,
officer or employee of the Company or is or was serving at the request of the
Company as a director, officer, employee or agent of another enterprise,
including service
56
<PAGE>
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or
agent, or in any other capacity while serving as a director, officer, employee
or agent, shall be indemnified and held harmless by the Company to the fullest
extent authorized by the Delaware General Corporation Law. The bylaws also
provide for advancement of expenses. Following any "change in control" of the
Company of the type required to be reported under Item 1 to Form 8-K promulgated
under the Exchange Act, any determination of entitlement to indemnification
under the Company's Bylaws must be made by independent legal counsel.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Continental
Stock Transfer Company.
57
<PAGE>
SHARES AVAILABLE FOR FUTURE SALE
In general, Rule 144 under the Securities Act, as currently in effect
("Rule 144"), provides that a person (or persons whose sales are aggregated) who
is an affiliate of the Company or who has beneficially owned shares that were
issued and sold in reliance upon exemptions from registration under the
Securities Act ("Restricted Shares") for at least two years is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of one percent (1%) of the then outstanding shares of Common Stock or
the average weekly trading volume in the Common Stock during the four calendar
weeks preceding the filing of a notice of intent to sell. Sales under Rule 144
are also subject to certain manner-of-sale provisions, notice requirements and
the availability of current public information about the Company. However, a
person who is not deemed to have been an "affiliate" of the Company at any time
during the three months preceding a sale, and who has beneficially owned
Restricted Shares for at least three years, is entitled to sell such shares
under Rule 144 without regard to volume limitations, manner-of-sale provisions,
notice requirements or the availability of current public information about the
Company. In June of 1995, the Commission published a notice of proposed
rulemaking to amend the holding period requirements discussed above contained in
Rule 144(d) and (k) which, if adopted as proposed, would permit resales of
Restricted Shares after one and two years, respectively (other than after two
and three years, respectively, as described above). The Company cannot predict
whether such amendments will be adopted or the effect thereof on the trading
market for its Common Stock.
Of the approximately 20.1 million shares of Common Stock estimated to
be outstanding upon completion of this offering (subject to the assumptions set
forth or referred to on the cover page of this Prospectus related to future
market prices of the Common Stock), approximately 17.1 million shares have been
registered under the Securities Act and are freely tradeable, and approximately
2.1 million shares are tradeable subject to compliance with the requirements of
Rule 144. The remaining approximately 900,000 shares of Common Stock, and the
approximately 2.4 million shares of Common Stock issuable upon the exercise of
presently outstanding warrants, will be tradeable subject to the holding period
restrictions under, and compliance with the other requirements of, Rule 144
discussed above. Of the approximately 7.4 million shares of Common Stock
issuable upon the exercise of presently outstanding options, approximately 4.2
shares will be freely tradeable upon exercise thereof, and the remaining shares
will be tradeable subject to the holding period restrictions under, and
compliance with the other requirements of, Rule 144 discussed above. See
"Summary--The Offering."
In addition, the approximately 2.4 million shares of Common Stock
issuable upon exercise of presently outstanding warrants (excluding the warrants
issued in connection with the 1996 Private Placements), and the approximately
7.4 million shares of Common Stock issuable upon exercise of presently
outstanding options, are entitled to certain registration rights, and upon the
effectiveness of a registration statement covering such shares, will be eligible
for resale in the public market without restrictions under the Securities Act.
Of these, approximately 300,000 shares of Common Stock issuable upon exercise of
warrants and approximately 3.2 million shares of Common Stock issuable upon the
exercise of stock options beneficially owned by certain of the Company's
directors and executive officers are subject to a lock-up agreement. See
footnotes to the table under the caption "Security Ownership of Certain
Beneficial Holders and Management."
No predictions can be made as to the effect that sales of Common Stock
under Rule 144, pursuant to a registration statement or otherwise, or the
availability of shares of Common Stock for sale, will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
Common Stock in the public market, or the perception that such sales could
occur, could adversely affect prevailing market prices and could impair the
Company's future ability to raise capital through an offering of its equity
securities. See "Risk Factors--Dilutive Effect of Option and Warrants; Shares
Available for Future Sale" and "--Effect of Conversion of Convertible Preferred
Stock; Potential Common Stock Adjustment."
58
<PAGE>
PLAN OF DISTRIBUTION
The Selling Stockholders have advised the Company that the sale or
distribution of the Common Stock may be effected directly to purchasers by the
Selling Stockholders as principals or through one or more underwriters, brokers,
dealers or agents from time to time in one or more transactions (which may
involve crosses or block transactions) (i) on any stock exchange, in the Nasdaq
National Market, or in the over-the-counter market, (ii) in transactions
otherwise than on any stock exchange or in the over-the-counter market, or (iii)
through the writing of options (whether such options are listed on an options
exchange or otherwise) on, or settlement of short sales of, the Common Stock.
Any of such transactions may be effected at market prices prevailing at the time
of sale, at prices related to such prevailing market prices, at varying prices
determined at the time of sale or at negotiated or fixed prices, in each case a
determined by the Selling Stockholder or by agreement between the Selling
Stockholder and underwriters, brokers, dealers or agents, or purchasers. If the
Selling Stockholders effect such transactions by selling Common Stock to or
through underwriters, brokers, dealers or agents, such underwriters, brokers,
dealers or agents may receive compensation in the form of discounts, concessions
or commissions from the Selling Stockholders or commissions from purchaser of
Common Stock for whom they may act as agent (which discounts, concessions or
commissions as to particular underwriters, brokers, dealers or agents may be in
excess of those customary in the types of transactions involved). The Selling
Stockholders and any brokers, dealers or agents that participate in the
distribution of the Common Stock may be deemed to be underwriters, and any
profit on the sale of Common Stock by them and any discounts, concessions or
commissions received by any such underwriters, brokers, dealers or agents may be
deemed to be underwriting discounts and commissions under the Securities Act.
Under the securities laws of certain states, the Common Stock may be sold
in such states only through registered or licensed brokers or dealers. In
addition, in certain states the Common Stock may not be sold unless the Common
Stock has been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.
The Company will pay all of the expenses incident to the registration,
offering and sale of the Common Stock to the public hereunder other than
commissions, fees and discounts of underwriters, brokers, dealers and agents.
The Company has agreed to indemnify the Selling Stockholders and their
controlling persons against certain liabilities, including liabilities under the
Securities Act. The Company estimates that the expenses of the offering to be
borne by it will be approximately $175,000. The Company will not receive any
proceeds from the sale of any of the Common Stock by the Selling Stockholders.
Cappello Capital Corp. and Libra Investments, Inc. acted as placement
agents in connection with the placement of the Convertible Preferred Stock which
has been or will be converted into the Common Stock offered hereby, and said
firms received a fee and warrants from the Company in connection therewith.
The Company has informed the Selling Stockholders that the anti-
manipulation provisions of Rules 10b-6 and 10b-7 under the Exchange Act may
apply to purchases and sales of Common Stock by the Selling Stockholders, and
that there are restrictions on market-making activities by persons engaged in
the distribution of the Common Stock. The Company has also advised the Selling
Stockholders that if a particular offer of Common Stock is to be made on terms
constituting a material change from the information set forth above with respect
to the Plan of Distribution, then to the extent required, a Prospectus
Supplement must be distributed setting forth such terms and related information
as required.
59
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby has been passed
upon for the Company by McKenna & Stahl, Irvine, California. Harry S. Stahl, a
partner in McKenna & Stahl, owns options to acquire 30,000 shares of Common
Stock.
EXPERTS
The consolidated financial statements included in this Prospectus and in
the Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their report appearing elsewhere herein and in the Registration Statement, and
are included in reliance upon such report given upon the authority of said firm
as experts in auditing and accounting.
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AUDITED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of
December 31, 1994 and 1995 F-3
Consolidated Statements of Operations for the
years ended December 31, 1993, 1994 and 1995 F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1993, 1994 and 1995 F-5
Consolidated Statements of Cash Flows for the
years ended December 31, 1993, 1994 and 1995 F-6
Notes to Consolidated Financial Statements F-8
UNAUDITED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
December 31, 1995 and March 31, 1996 F-23
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1995 and 1996 F-24
Condensed Consolidated Statements of Stockholders' Equity
for the three months ended March 31, 1996 F-25
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1995 and 1996 F-26
Notes to Condensed Consolidated Financial Statements F-27
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Koo Koo Roo, Inc.
Los Angeles, California
We have audited the accompanying consolidated balance sheets of Koo Koo Roo,
Inc. and subsidiaries as of December 31, 1994 and 1995 and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The consolidated financial statements give retroactive effect to
the merger of Koo Koo Roo, Inc. and its subsidiaries and Color Me Mine, Inc.,
which has been accounted for as a pooling of interests as described in Note 14
to the consolidated financial statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Koo Koo
Roo, Inc. and subsidiaries as of December 31, 1994 and 1995 and the results of
their operations and cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Los Angeles, California
March 8, 1996, except for Note 14
which is as of March 22, 1996
F-2
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------
1994 1995
-------------- -------------
(Restated) (Restated)
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents $ 544,185 $ 3,501,815
Marketable securities (Note 3) - 3,663,111
Inventories 106,180 186,742
Prepaid expense and other 334,489 680,703
---------- -----------
Total current assets 984,854 8,032,371
Property and equipment, net (Note 4) 5,777,203 14,270,703
Intangibles and other assets (Note 5) 1,594,350 4,251,586
---------- -----------
8,356,407 $26,554,660
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 535,767 $ 1,660,899
Accrued payroll 215,934 491,169
Accrued store closing costs (Notes 10 and 11) 312,920 546,463
Other accrued liabilities 704,819 1,416,236
Deferred franchise revenue 610,000 -
------------ ------------
Total current liabilities 2,379,440 4,114,767
------------ ------------
Notes and loans payable - long term 75,000 178,646
------------ ------------
Minority interest (Note 6) 2,154,323 718,109
------------ ------------
Commitments and contingencies (Notes 3, 10, 11 and 12)
Stockholders' Equity (Notes 6, 7, 10 and 14)
Preferred stock, $.01 par value, 5,000,000
shares authorized; none issued or outstanding - -
Common stock, $.01 par value, 25,000,000
shares authorized; 8,901,339 and
14,329,851 shares issued and outstanding 89,013 143,299
Additional paid-in capital 14,998,672 40,467,687
Accumulated deficit (11,339,441) (18,274,719)
Treasury stock, 60,000 and 84,352 shares, at cost (600) (2,242)
Common stock issued for unearned compensation - (790,887)
------------ ------------
Total stockholders' equity 3,747,644 21,543,138
------------ ------------
$ 8,356,407 $ 26,554,660
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
1993 1994 1995
------------ ------------ --------------
(Restated)
<S> <C> <C> <C>
Revenues:
Sales $ 4,806,615 $ 8,772,251 $20,298,583
Other 275,000 210,938 597,697
----------- ----------- -----------
Total 5,081,615 8,983,189 20,896,280
----------- ----------- -----------
Cost of sales:
Food and paper 1,768,092 3,367,400 7,323,220
Labor costs 1,589,788 3,089,820 7,199,229
----------- ----------- -----------
Total 3,357,880 6,457,220 14,522,449
----------- ----------- -----------
Gross profit 1,723,735 2,525,969 6,373,831
----------- ----------- -----------
Operating expenses:
Loss on store closings (Note 10) 485,508 424,633 586,605
Occupancy expense (Note 11) 752,162 1,236,910 1,858,730
Other operating expenses 2,705,481 5,727,696 10,979,552
----------- ----------- -----------
Total 3,943,151 7,389,239 13,424,887
----------- ----------- -----------
Loss before minority interest (2,219,416) (4,863,270) (7,051,056)
Minority interest in loss (Note 6) - 81,731 140,221
----------- ----------- -----------
Net loss $(2,219,416) $(4,781,539) $(6,910,835)
=========== =========== ===========
Net loss per common share $(.48) $(.63) $ (.57)
=========== =========== ===========
Weighted average number of common
and common equivalent shares 4,611,278 7,626,788 12,093,539
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-in Accumulated Treasury Unearned
Shares Amount Capital Deficit Stock Compensation
------------- --------- ----------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 4,210,000 $ 42,100 $ 6,065,563 $ (4,351,854) $ - $ -
Stock Issuances:
Private placement (Note 7) 1,114,295 11,143 3,097,387 - - -
Exercise of stock options 108,000 1,080 512,920 - - -
Payment of expenses 434,730 4,347 610,800 - - -
Payment of stockholders'
loans 700,000 7,000 343,000 - - -
Acquisition of assets (Note 8) 1,000,000 10,000 326,870 - - -
Cancellation of outstanding
shares (Note 7) (400,000) (4,000) 4,000 - - -
Other - - 50,919 - - -
Net loss for the year - - - (2,219,416) - -
---------- -------- ----------- ------------ -------- ------------
Balance, December 31, 1993 7,167,025 71,670 11,011,459 (6,571,270) - -
Stock Issuances:
Private placement
warrants (Note 7) 600,005 6,000 2,394,020 - - -
Exercise of stock options 489,444 4,895 765,271 - - -
Exercise of warrants 511,228 5,112 265,388 - - -
Payment of certain expenses 11,448 114 59,386 - - -
Sale and repurchase regarding
proposed financing
transaction (Note 10) 60,000 600 - - (600) -
Acquisition of assets 85,189 852 499,148 - - -
Cancellation of outstanding
shares (Note 7) (400,000) (4,000) 4,000 - - -
Net loss for the year - - - (4,781,539) - -
---------- -------- ----------- ------------ -------- ------------
Balance, December 31, 1994 8,524,339 85,243 14,998,672 (11,352,809) (600) -
Acquisition (Note 14) 377,000 3,770 - 13,368 - -
---------- -------- ----------- ------------ -------- ------------
Balance, December 31, 1994
as restated 8,901,339 89,013 14,998,672 (11,339,441) (600) -
Stock Issuances:
Private placements 3,985,821 39,858 17,621,767 - - -
Exercise of stock options 61,722 617 221,216 - - -
Exercise of warrants 480,000 4,801 1,987,200 - - -
Acquisition of minority interest 300,000 3,000 1,908,735 - (242) -
Payment of expenses 159,560 1,596 862,261 - - -
Acquisition of assets 241,409 2,414 1,924,836 - - -
Employment contract
extension (Note 12) 200,000 2,000 943,000 - - (945,000)
Acquisition of treasury stock - - - - (1,400) -
Distributions to shareholders - - - (24,443) - -
Amortization of deferred
compensation - - - - - 154,113
Net loss for the year - - - (6,910,835) - -
---------- -------- ----------- ------------ -------- ------------
Balance, December 31, 1995 14,329,851 $143,299 $40,467,687 $(18,274,719) $(2,242) $(790,887)
========== ======== =========== ============ ======== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
1993 1994 1995
------------ ------------ --------------
(Restated)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss $(2,219,416) $(4,781,539) $(6,910,835)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 312,444 640,259 2,153,116
Deferred franchise revenue 120,000 490,000 (80,000)
Other 218,115 34,500 190,733
Minority interest in net loss - (81,731) (140,221)
Assets written off or abandoned 438,781 164,993 695,104
Changes in operating assets and
liabilities:
Inventories (2,189) (31,503) (80,562)
Prepaid expenses and other (624,163) 401,873 (347,614)
Accounts payable 60,523 202,583 1,125,132
Accrued expenses and other
liabilities 213,656 361,938 1,220,195
----------- ----------- -----------
Net cash used in operating activities (1,482,249) (2,598,627) (2,174,952)
----------- ----------- -----------
Cash Flows From Investing Activities:
Sale (acquisition) of marketable
securities - - (3,663,111)
Acquisition of property and equipment (509,663) (3,756,883) (10,155,235)
Lease acquisition and other costs (558,803) (280,503) (126,660)
Pre-opening costs - - (1,286,662)
Lease security deposits (14,734) (48,845) (90,911)
----------- ----------- -----------
Net cash used in investing activities (1,083,200) (4,086,231) (15,322,579)
----------- ----------- -----------
</TABLE>
F-6
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONCLUDED)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1993 1994 1995
---------- ----------- --------------
(Restated)
<S> <C> <C> <C>
Cash Flows From Financing Activities:
Proceeds from loans payable 888,000 115,000 103,646
Payments on loans payable (538,000) - (115,000)
Minority capital contributions - 2,234,150 615,500
Proceeds of private placements 3,108,530 2,400,020 17,661,625
Exercise of common stock options and
warrants 514,000 1,040,666 2,213,833
Other 1,500 - (24,443)
---------- ---------- -----------
Net cash provided by financing
activities 3,974,030 5,789,836 20,455,161
---------- ---------- -----------
Net Increase (Decrease) in Cash
and Cash Equivalents 1,408,581 (895,022) 2,957,630
Cash and Cash Equivalents,
beginning of period 30,626 1,439,207 544,185
---------- ---------- -----------
Cash and Cash Equivalents,
end of year $1,439,207 $ 544,185 $ 3,501,815
========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business
Koo Koo Roo, Inc. (the "Company") operates under the name Koo Koo Roo
California Kitchen casual dining restaurants featuring flame-broiled skinless
chicken, rotisserie chicken, hand-carved turkey, salads, sandwiches and fresh-
baked goods. To complement its principal business, the Company has expanded to
provide, under the name Arrosto Coffee Company, a variety of fresh-roasted
coffees, pastries and other coffee-related products and merchandise.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
its subsidiaries and limited partnerships in which the Company held a
controlling interest. All significant intercompany transactions and balances are
eliminated.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with initial
maturities of three months or less to be cash equivalents. The Company
maintains a significant portion of its cash balance in two financial
institutions.
Marketable Securities
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities," the
Company classifies its investments in debt and equity securities into three
categories: held-to-maturity, available-for-sale, or trading. Held-to-maturity
investments are valued at amortized cost. Available-for-sale investments are
valued at fair value with the net unrealized gains or losses shown as a separate
component of stockholders' equity until realized. Trading investments are also
valued at fair value but net unrealized gains or losses are included in
earnings.
F-8
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 1 - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentration of Credit Risks
The Company maintains cash balances at various financial institutions.
Deposits not to exceed $100,000 for each institution are insured by the Federal
Deposit Insurance Corporation. At December 31, 1995, the Company has uninsured
cash and cash equivalents in the amount of $4,100,000.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out method. Inventories are comprised of food and restaurant
supplies.
Equipment and Depreciation
Equipment is recorded at cost and is depreciated over estimated useful lives
of 5 to 7 years using the straight-line method. Leasehold improvements are
recorded at cost and are amortized over the lesser of the estimated useful lives
of the property or the lease term using the straight line method.
Change of Fiscal Year
Effective December 31, 1995, the Company changed its fiscal year from June
30 to December 31. Accordingly, the Company has elected to restate prior
financial statements solely to conform to a 12 month period ending December 31
(see Note 2).
Store Locations
The following is an analysis of Company-owned and franchised restaurants
opened and operated during the periods (not including six Arrosto Coffee Company
locations and four Color Me Mine studios open as of December 31, 1995. Each of
the Arrosto locations is located in a Koo Koo Roo restaurant identified in the
table):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1993 1994 1995
------- ------ --------
<S> <C> <C> <C>
Numbers of Restaurants:
At beginning of period:
Company-owned 6 6 8
Franchised 3 1 -
Opened during period:
Company-owned 2 (A) 2 9 (C)
Franchised 1 (B) - 1
Closed during period:
Company-owned 2 (B) - 1
Franchised 3 (A) 1 1 (C)
At end of period:
Company-owned 6 8 16
Franchised 1 - -
</TABLE>
(A) One franchised restaurant was acquired as a Company-owned restaurant in
June 1993.
(B) One Company-owned restaurant was sold to a franchisee in November, 1993.
(C) One franchised restaurant was acquired as a Company-owned restaurant in
August 1995.
F-9
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 1 - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Pre-Opening Costs
Pre-Opening costs consisting primarily of occupancy costs, salaries and
related expenses are incurred by the Company prior to the opening of new
restaurants. These expenses are capitalized and are amortized over a 12 month
period beginning with the month in which the restaurant opens.
Lease Acquisition Costs
Lease acquisition costs are being amortized over the term of each respective
lease beginning with the opening month of the restaurant's operation.
Income Taxes
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 109, which requires the Company to recognize deferred tax liabilities and
assets for the expected future tax consequences of events that have been
recognized in the Company's consolidated financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement carrying amounts and tax basis of
assets using enacted rates in effect in the years in which the differences are
expected to reverse.
Net Loss Per Common Share
Net loss per common share has been computed based on the weighted average
number of common and common equivalent shares outstanding. Common equivalent
shares representing the common shares that would be issued on exercise of
convertible securities and outstanding stock options and warrants reduced by the
number of shares which could be purchased from the related exercise proceeds are
not included since their effect would be anti-dilutive.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
(SFAS No. 121) issued by the Financial Accounting Standards Board (FASB) is
effective for financial statements for fiscal years beginning after December 15,
1995. The new standard establishes new guidelines regarding when impairment
losses on long-lived assets, which include plant and equipment, certain
identifiable intangible assets and goodwill, should be recognized and how
impairment losses should be measured. The Company does not expect adoption to
have a material effect on its financial position or results of operations.
Statements of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS No. 123) issued by the Financial Accounting Standards
Board (FASB) is effective for specific transactions entered into after December
15, 1995, while the disclosure requirements of SFAS No. 123 are effective for
financial statements for fiscal years beginning no later than December 15, 1995.
The new standard establishes a fair value method of accounting for stock-based
compensation plans and for transactions in which an entity acquires goods or
services from nonemployees in exchange for equity instruments. At the present
time, the Company has not determined if it will change its accounting policy for
stock based compensation or only provide the required financial statement
disclosures. As such, the impact on the Company's financial position and
results of operations is currently unknown.
F-10
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 2 - TRANSITION REPORT
During 1995 the Company amended its By-laws to change its fiscal year end
from June 30 to December 31 commencing with the period ended December 31, 1995.
In accordance with this change in year end the Company has reported its
financial results for the years ended December 31, 1993, 1994 and 1995 on a 12
month basis.
The restated financial results involve only a re-combination of previously
reported results in order to accomplish the change from a June 30th to a
December 31st year end. There are no changes to the Company's historical
financial results.
NOTE 3 - MARKETABLE SECURITIES
At December 31, 1995 marketable securities consist of $3,663,111 face value
(which approximates market value) of U.S. Treasury Notes maturing at various
dates from August 31, 1996 to February 29, 2000. Interest rates on these notes
range from 6.125% to 7.75%. These securities are classified as "Available-for-
sale" and included within current assets since management intends to convert
these investments to cash during the fiscal year ending December 31, 1996.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1994 1995
------------- -----------
<S> <C> <C>
Leasehold improvements $2,973,990 $ 7,997,098
Machinery and equipment 2,659,155 5,144,284
Furniture and fixtures 1,032,306 2,021,527
Construction-in-progress 299,022 1,248,244
---------- -----------
6,964,473 16,411,153
Accumulated depreciation
and amortization (1,187,270) (2,140,450)
---------- -----------
Net Property and equipment $5,777,203 $14,270,703
========== ===========
</TABLE>
As of December 31, 1995, the estimated cost to complete construction-in-
progress is approximately $4.2 million.
F-11
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 5 - INTANGIBLES AND OTHER ASSETS
Intangibles and other assets consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1994 1995
------------ ----------
<S> <C> <C>
Lease security deposits $ 192,164 $ 275,240
Lease acquisition costs, net of accumulated
amortization of $19,654 and $81,481 934,842 1,511,328
Pre-opening costs, net of accumulated
amortization of $184,629 and $454,455 - 840,891
Other intangibles, net of accumulated
amortization of $126,579 and $394,535 467,344 1,624,127
---------- ----------
Net Intangible and other assets $1,594,350 $4,251,586
========== ==========
</TABLE>
NOTE 6 - MINORITY INTEREST IN SUBSIDIARIES
Minority interest represents i) the limited partners' interest in three
partnerships, which are controlled by the Company, formed to establish new Koo
Koo Roo restaurants; and ii) a 10% ownership interest in Color Me Mine held by
its founders. Pursuant to the partnership agreements, profits and losses are
allocated based on various factors including historical profits and losses and
cash distributions. The financial results of these partnerships have been
consolidated into those of the Company. The Company shares the general and
limited partnership interest in one remaining partnership. The other partners'
equity is shown as minority interest on the accompanying consolidated balance
sheet.
On September 26, 1995, the Company agreed to purchase the limited partner's
minority interest in three Los Angeles restaurants. As consideration for this
purchase, the Company issued 300,000 shares of its unregistered common stock of
which 24,152 shares were returned to the Company as treasury stock.
NOTE 7 - STOCKHOLDERS' EQUITY
Private Placement Offerings
In September 1993, the Company completed a private placement offering and
received a total of $3,108,530 (net of related costs and expenses of $491,500).
The offering consisted of common stock, convertible debentures and warrants. In
connection with this offering, the Company issued 600,005 shares of its common
stock, as well as warrants for the same number of shares and issued convertible
debentures amounting to $1,800,015. The warrants were exercisable at a price of
$4.00 per share for a period of one year. The debentures paid interest monthly
at an annual rate of 8% and were subordinate to all existing and future senior
indebtedness of the Company. On November 24, 1993, the debentures were converted
into 514,290 shares of the Company's common stock. During 1994 all warrants
from the private placement were exercised and the Company received a total of
$2,400,020 and issued 600,005 shares of its common stock.
F-12
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 7 - STOCKHOLDERS' EQUITY (Continued)
In late January and early February 1995, the Company completed a private
placement offering and received a total of $4,243,500. In connection with this
offering the Company issued 942,999 shares of its common stock. The offering
also included Warrants to purchase 471,499 shares of common stock at an exercise
price of $5.00 per share and expiring on January 31, 1998. The Company has
the right, under certain conditions, to request the mandatory exercise of these
warrants after January 1, 1996.
In June 1995, the Company completed a private placement offering and
received a total of $13,418,125, net of related costs and expenses of $854,256.
In connection with this offering, the Company issued 3,042,812 shares of common
stock. The offering also included warrants to purchase 1,197,863 shares of
common stock at exercise prices of $5.70 or $5.75 per share, exercisable after
August 15, 1996 and expiring May 31, 1998. The Company has the right, under
certain conditions, to request the mandatory exercise of these warrants after
August 15, 1996.
Stock Awards Plan
The Company has established a Stock Awards Plan (the "Awards Plan") that has
been adopted by the Board of Directors and approved by the stockholders on
behalf of selected eligible employees and consultants. The Awards Plan covers an
aggregate of 4,250,000 shares of common stock as amended on January 18, 1995,
and is administered by a committee appointed by the Board of Directors. The
Awards Plan provides for the issuance of stock options, stock appreciation
rights ("SARs"), restricted stock and other awards (collectively, "Awards").
Two types of stock options may be granted under the Awards Plan: incentive
stock options ("ISOs") which are intended to qualify under Section 422 of the
Internal Revenue Code ("IRC"), and non-qualified stock options ("NQSOs"). The
option price of each NQSO granted under the Awards Plan may not be less than the
par value of a share of common stock. The option price of each ISO granted under
the Awards Plan must be at least equal to the stock's fair market value on the
date the ISO is granted. The Stock Awards Committee determines the option
exercise period of each option. The period may not exceed ten years from the
date of grant. The aggregate fair market value of the shares covered by ISOs
granted under all stock option plans of the Company that become exercisable by a
grantee for the first time in any calendar year is subject to a $100,000 limit.
The NQSOs granted under the Awards Plan have been granted at an exercise price
which is no less than the fair market value at the date of grant.
F-13
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 7 - STOCKHOLDERS' EQUITY (Continued)
The following table summarizes the activity in the Awards Plan:
<TABLE>
<CAPTION>
Number of shares Price range
----------------- ----------------------
<S> <C> <C> <C> <C>
Shares under option - January 1, 1993 671,000 $0.6250 - $2.8100
Granted 898,500 1.2500 - 7.6875
Exercised (8,000) 1.7500 -
Terminated (46,500) 1.2500 - 7.3750
---------
Shares under option - December 31, 1993 1,515,000 0.6250 - 7.6875
Granted 1,854,000 4.0625 - 8.0000
Exercised (45,000) 1.7500 - 2.4000
Terminated (860,800) 1.7500 - 8.0000
---------
Shares under option - December 31, 1994 2,463,200 0.6250 - 8.0000
Granted 1,108,000 4.0625 - 9.2500
Exercised (4,500) 1.7500 -
Terminated (472,500) 1.7500 - 8.8750
---------
Shares under option - December 31, 1995 3,094,200 $0.6250 - $9.2500
=========
</TABLE>
The number of shares of common stock available for granting future options
was 1,227,000, 233,800 and 1,098,300 at December 31, 1993, 1994 and 1995. At
December 31, 1995, options were exercisable to purchase 955,533 shares.
Non-Plan Options and Warrants
The Company has from time to time awarded stock options or granted warrants
to certain non-employees. These options and warrants have terms varying from 1
to 10 years, are exercisable over periods up to 5 years, and have prices that
approximated the fair value on the date granted.
F-14
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 7 - STOCKHOLDERS' EQUITY (Continued)
The following table summarizes the activity of non-plan options and
warrants:
<TABLE>
<CAPTION>
Number of shares Price range
----------------- -----------------------
<S> <C> <C> <C> <C>
Shares under option - January 1, 1993 225,000 $0.5000 - $ 5.7500
Granted 930,266 1.5000 - 6.3750
Exercised (100,000) 5.0000
---------
Shares under option - December 31, 1993 1,055,266 0.5000 - 6.3750
Granted 1,485,000 0.5000 - 7.5000
Exercised (964,444) 0.5000 - 4.1500
Terminated (185,000) 2.7500 - 5.7500
---------
Shares under option - December 31, 1994 1,390,822 1.5000 - 7.5000
Granted 1,700,000 4.5000 - 10.0000
Exercised (537,222) 1.5000 - 5.1875
---------
Shares under option - December 31, 1995 2,553,600 $1.5000 - $10.0000
=========
Shares exercisable - December 31, 1995 1,576,599
=========
</TABLE>
Directors' Stock Option Plan
The Company has established a Directors' Stock Option Plan (the "Directors'
Plan") that has been adopted by the Board of Directors and approved by the
stockholders on behalf of each non-employee director. The Directors' Plan covers
an aggregate of 60,000 shares of common stock and will expire in 2001.
The Directors' Plan provides that each non-employee director would receive
an option to purchase 10,000 shares (amended to 20,000 shares) at the fair
market value, subject to the overall limit of the number of shares issuable
under the Directors' Plan. The maximum term of each option is ten years from the
date the option is granted and automatically terminates upon leaving office.
F-15
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 7 - STOCKHOLDERS' EQUITY (Continued)
On October 15, 1991, the Company granted options to a director to purchase
10,000 shares of common stock at $5.00 per share, pursuant to the Directors'
Plan. On December 28, 1993, the Company granted options to a director to
purchase 10,000 shares of common stock at $6.625 per share, pursuant to the
Directors' Plan. On August 2, 1995 the Company granted options to a director to
purchase 10,000 shares at $6.56 per share pursuant to the Directors' Plan. On
November 29, 1995 the Company granted options to a director to purchase 10,000
shares at $6.875 per share pursuant to the Directors' Plan. The term of each
option commences on the date of grant and terminates no later than ten years
from such date. Twenty-five percent of each optionee's shares will become
exercisable each year commencing on the first anniversary of the date of grant.
At December 31, 1994, 10,000 shares were exercisable; 7,500 at $5.00 per share
and 2,500 at $6.625 per share and at December 31, 1995 15,000 shares were
exercisable; 10,000 shares at $5.00 per share and 5,000 shares at $6.625 per
share.
Escrow Shares
Upon the consummation of its initial public offering in 1991, the Company's
stockholders prior to the offering placed on a pro-rata basis an aggregate of
800,000 shares of common stock in escrow (the"Escrow Shares"), pursuant to an
agreement by and among such stockholders, the Company, the escrow agent and the
underwriter. The Escrow Agreement permitted the release of the Escrow Shares
only upon attaining certain net income requirements. The Company did not meet
the net income requirements and, consequently, the 800,000 shares were cancelled
and returned to authorized but unissued status (400,000 shares in 1993 and
400,000 shares in 1994).
NOTE 8 - RELATED PARTY TRANSACTIONS
On May 25, 1993, the Company entered into an Asset Purchase Agreement with
Good Chick, Inc., which was 70% owned by the Company's principal stockholder,
for the acquisition by the Company of the business and majority of the assets of
Good Chick, Inc., which operated as a franchise of the Company and was party to
a Special Area Development Agreement. The purchase price for the assets of Good
Chick, Inc. was 1,000,000 shares of the Company's common stock valued as of
April 15, 1993 (the effective date), which approximated the historical cost of
the assets acquired amounting to $330,000. Since the transaction was between
parties under common control, it was accounted for in a manner similar to a
pooling of interests. Historical results of operations would not have been
significantly different had the acquisition occurred as of the beginning of the
year or the preceding period. Good Chick, Inc. assigned its right to these
1,000,000 shares to the Company's principal stockholder as partial repayment of
Good Chick, Inc.'s existing debt. As a result of this transaction, the existing
Special Area Development Agreement and Franchise Agreement were cancelled.
During the years ended December 31, 1993, 1994 and 1995 a corporation in
which the Company's principal stockholder has a controlling interest provided
various services to the Company. These services included accounting,
bookkeeping, occupancy and various other office services. The Company paid
$29,146, $84,148 and $77,576, respectively, for these services during the years
ended December 31, 1993, 1994 and 1995.
F-16
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 8 - RELATED PARTY TRANSACTIONS (Continued)
During the year ended December 31, 1993, the Company borrowed a total of
$888,000 from its principal stockholder to pay for capital improvements and
equipment of company-owned stores and certain other costs. Prior to December
31, 1993, the Company issued 700,000 shares of its common stock in repayment of
$350,000 of this debt. Interest accrued on these borrowings at 8% per annum
together with the remaining loan balance of $538,000 was repaid in September,
1993 from the proceeds of a private placement of debt and equity securities.
The Company also issued 200,000 common shares to the principal stockholder as
payment for various expenses incurred by such stockholder.
During the years ended December 31, 1994 and 1995 a corporation in which an
officer has controlling interest provided the company training manuals and other
operations, recruiting and marketing services. The Company made payments of
$59,967 and $327,603 during the years ended December 31, 1994 and 1995.
On March 21, 1995, the Company issued 200,000 shares of its common stock,
subject to certain restrictions, to its principal stockholder in connection with
the amendment and extension of his employment agreement (see Note 12). The
value assigned to these shares is being amortized over the term of the
employment agreement, the unamortized portion is shown as a reduction to
stockholders' equity.
NOTE 9 - INCOME TAXES
Deferred tax assets consist of the following and the Company has provided
valuation allowances to offset the benefit of any net operating loss
carryforwards or deductible temporary differences as a result of adopting SFAS
109:
<TABLE>
<CAPTION>
December 31,
---------------------------
1994 1995
------------ ------------
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforwards $ 4,170,000 $ 7,060,000
Other 16,000 -
----------- -----------
Total Deferred Tax Assets 4,186,000 7,060,000
----------- -----------
Deferred Tax Liabilities:
Capitalized pre-opening costs - (336,000)
Excess depreciation - (48,000)
----------- -----------
Total Deferred Tax Liabilities - (384,000)
----------- -----------
4,186,000 6,676,000
Valuation Allowance (4,186,000) (6,676,000)
----------- -----------
Net Deferred Tax Assets $ - $ -
=========== ===========
</TABLE>
F-17
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 9 - INCOME TAXES (Continued)
Since inception the Company has reported losses for income tax and financial
reporting purposes. Accordingly, no provisions for Federal or state income taxes
were provided. A 100% valuation allowance was provided at December 31, 1994 and
1995 since management could not determine that it was more likely than not that
the net deferred tax asset would be realized.
At December 31, 1995, the Company has available net operating loss
carryforwards of approximately $19,600,000 for income tax purposes, subject to
certain limitations, which expire in varying amounts through 2010. Federal tax
rules, as defined by IRC Section 382, impose limitations on the use of net
operating losses following certain changes in ownership. Such a change occurred
during 1995, the limitation reduced the amount that such benefits would be
available to offset future taxable income each year commencing in 1995 in the
amount of approximately $3.4 million per year.
NOTE 10 - OTHER ITEMS
Store Closings
On July 9, 1993, the Company closed its location in New York City. The loss
on store closing amounted to $710,000, which included the net book value of
fixed assets abandoned, estimated closing costs, and estimated damages due to
its Landlord including the loss of the Company's security deposit. In December
1993, the Company sold this location and recognized a gain in the financial
statements for the year ended December 31, 1993 of $322,000.
On December 15, 1993, the Company sold its location in Long Beach,
California to be operated as a Koo Koo Roo franchise. As part of the sale the
Company received a promissory note for $275,000 secured by all furniture,
fixtures and equipment. As a result of the sale, the Company recognized a loss
of $97,000 for the year ended December 31, 1993. Beginning March 1994, the
franchisee defaulted on current obligations that led to the closing of the
location. As a result of the store closing, the Company recognized a loss during
the year ended December 31, 1994 of $380,000 which includes the unpaid amount of
the promissory note, the net amount of fixed assets abandoned, estimated damages
due to the landlord and other associated costs. During June 1995 the estimated
damages due to the landlord were increased and, accordingly, the Company
recognized an additional loss of $150,000 in the year ending December 31, 1995.
On December 26, 1995, the Company allowed an option to renew its lease to
expire and closed its location in Miami Beach, Florida which had been opened in
June 1991. The loss on store closing amounted to $367,000 and included the net
book value of fixed assets abandoned, estimated closing costs and additional
payments due in accordance with the store lease.
F-18
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 10 - OTHER ITEMS (Continued)
Aborted Financing
During August 1994, the Company and Casual Dining Concepts ("CDC"), a
privately held company formed to operate and control restaurants, executed a
Letter of Intent pursuant to which CDC would provide the Company with $55
million of capital funds in exchange for senior secured notes, preferred stock,
common stock and warrants to purchase the Company's common stock. In September
1994, the Company issued 60,000 shares of its unregistered common stock to CDC
for the par value of $.01 per share. The Company immediately repurchased these
shares from CDC at the same price to be held in its treasury and further pledged
these shares as security for up to $300,000 of loans to be made by CDC to the
Company. In October 1994, the Letter of Intent expired without any definitive
agreements and, after careful consideration, the Company decided it was not in
its stockholders' best interest to further pursue the above financing agreement.
In connection with the terms of the original Letter of Intent, the Company
incurred approximately $331,000 of expenses which are included in the caption
Operating Expenses in the accompanying statement of operations for the year
ended December 31, 1994.
Area Franchise / Development Rights
On August 18, 1995, the Company purchased the franchise rights for San Diego
and Northern California (including certain counties in and around San
Francisco), the assets of one existing franchise location including the
assignment of the lease for this location and the assumption of certain related
liabilities and certain other assets (including the assignment of the lease for
an additional location and the assumption of liabilities for a third location).
In connection with this purchase, the Company issued 200,000 shares of its
unregistered common stock. The aggregate purchase price of $1,215,000 has been
allocated as follows: $150,000 to property and equipment, $240,000 in
satisfaction of deferred franchise revenue and $825,000 to the acquisition of
franchise rights. The franchise rights are being amortized over a period of ten
years.
In August 1995, the Company acquired certain development and joint venture
rights for possible future locations in the State of Florida and certain
portions of Georgia. As consideration for this agreement, the Company granted a
non-plan stock option to purchase 300,000 shares of common stock at $4.50 per
share, a price lower than the quoted market price at the time the option was
granted. The rights were recorded at the excess of the market value over the
exercise price which amounted to $414,000 and is being amortized over a period
of ten years.
F-19
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company leases restaurants, ceramic studios, a warehouse and an office
facility under long-term operating leases. Future minimum lease payments under
these noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ----------
<S> <C>
1996 $2,747,350
1997 2,789,983
1998 2,821,412
1999 2,660,129
2000 2,330,358
Thereafter 6,960,356
</TABLE>
In addition to the above amounts, the leases generally contain inflation
escalation clauses and requirements for the payment of property taxes, insurance
and maintenance expenses, and security deposits and certain leases call for
additional payments based on sales volume. Rent expense was $752,162 for the
year ended December 31, 1993, $1,236,910 for the year ended December 31, 1994
and $1,858,730 for the year ended December 31, 1995.
In August 1994, an action was instituted, in the Superior Court of Los
Angeles, against the Company by a party seeking monies due under a lease
agreement. The Company vacated the premises making it available for a new
tenant and filed a counterclaim. While the ultimate liability cannot be
specifically determined at this time, it is management's opinion that the
ultimate resolution of the aforementioned claims will not exceed $405,000. As of
December 31, 1995 this estimated liability is included in accrued store closing
costs on the consolidated balance sheet (see Note 10).
The Company has become subject to various lawsuits, claims and other legal
matters in the course of conducting its business. The Company believes that the
outcome of such lawsuits, claims and other legal matters will not have a
material impact on the Company's consolidated financial position.
F-20
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 12 - EMPLOYMENT AGREEMENTS
The Company entered into a 5 year employment agreement with its Chairman
effective October 15, 1991. On January 9, 1995 this agreement was amended and
restated, whereby the term was extended for an additional 6 years and 200,000
shares of common stock were issued to the Chairman. The agreement provides
aggregate minimum annual compensation of $150,000.
On March 16, 1992, the Company entered into a 3 year employment agreement
with an individual to be President and Chief Operating Officer. On March 17,
1995, the agreement was amended and restated and the term was extended for an
additional 2 years. The agreement provides for minimum annual compensation of
$150,000.
NOTE 13 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information:
Interest expense was $64,701 and $9,401 during the years ended December 31,
1994 and 1995.
Supplemental noncash investing and financing activities:
The Company issued common stock in payment for various expenses and the
acquisition of certain assets. These issuances were recorded at their fair
value of the shares at the dates of issuance as follows:
<TABLE>
<CAPTION>
Shares Amount
------ ------
<S> <C> <C>
During 1993
-----------
Principal stockholder: 300,000 $ 131,250
Payment of expenses 700,000 350,000
Repayment of loans 1,000,000 336,870
Acquisition of assets 134,730 483,897
Payment of expense
During 1994
----------- 85,189 500,000
Acquisition of assets 11,448 59,500
Payment of expenses
During 1995
-----------
Principal stockholder: 200,000 945,000
Extension of employment agreement 241,409 1,927,250
Acquisition of assets 275,848 1,911,493
Acquisition of minority interest 159,560 863,857
Payment of expenses
</TABLE>
F-21
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 14 - SUBSEQUENT EVENTS
In March 1996, the Company agreed to acquire 90% of the stock of a small
chain of paint-your-own pottery studios located in Southern California. The
consideration consisted solely of 377,000 shares of restricted, unregistered Koo
Koo Roo common shares. Of this total, shares aggregating $900,000 in value are
subject to registration at the end of one year, and 100,000 shares are subject
to a lock-up to be released at the end of three years. Two founders of the
acquired company have five year management contracts with annual compensation of
$50,000 each plus profit sharing and certain change in control provisions. The
acquisition was accounted for using the pooling of interest method of
accounting. Accordingly, the financial statements have been restated to include
the effects of the acquisition.
In March 1996, the Company completed a private placement offering and
received a total of $2,981,000 (net of related costs and estimated expenses of
$280,000). The private placement offering consisted of 450,000 shares of the
Company's common stock. The Company could be required to issue additional
shares if during the first twelve months after issuance, the Company sold newly
issued common stock at a price below that of the private placement. The
placement agent in the transaction received a warrant to purchase 40,500 shares
of the Company's common stock at $7.75 per share.
In March 1996, the Company completed a private placement of 5% Series A
Convertible Preferred Stock (the "Convertible Preferred") and received a total
of $27,530,000 (net of related costs and estimated expenses of $2,470,000). The
Convertible Preferred can be converted at the rate of 10% of each holders'
shares, per month starting in the fourth month, into the Company's common stock
at the market price, less a discount of 13% on the 91st day after issuance
increasing to 29% at the end of 13 months. The conversion ratio will be based
on the market price of the Company's stock at the time of the conversion. The
placement agents in the transaction received a warrant to purchase 108,000
shares of the Company's Convertible Preferred at $25.00 per share.
The following unaudited pro forma condensed consolidated balance sheet gives
effect to the private placements, described above, as if they had occurred on
December 31, 1995.
<TABLE>
<CAPTION>
Pro Forma
Historical As Adjusted
------------- -----------
<S> <C> <C>
Current assets 8,032,000 $38,548,000
Property and equipment 14,271,000 14,352,000
Intangibles and other assets 4,252,000 4,238,000
----------- -----------
$26,555,000 $57,138,000
=========== ===========
Current liabilities 4,115,000 $ 4,073,000
Minority interest 718,000 713,000
Long-term debt 179,000 195,000
Stockholders' equity 21,543,000 52,157,000
----------- -----------
$26,555,000 $57,138,000
=========== ===========
</TABLE>
F-22
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents $ 3,501,815 $31,960,509
Marketable securities 3,663,111 1,499,767
Inventories 186,742 175,004
Prepaid expense and other 680,703 743,603
----------- -----------
Total current assets 8,032,371 34,378,883
Property and equipment, net 14,270,703 17,408,750
Lease acquisition costs 1,511,328 1,785,059
Pre-opening costs 840,891 915,293
Intangibles and other assets 1,899,367 1,815,657
----------- -----------
$26,554,660 $56,303,642
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 1,660,899 $ 2,186,092
Accrued payroll 491,169 249,772
Accrued store closing costs 546,463 551,956
Notes and loans payable - short term 13,823 113,824
Other accrued liabilities 1,402,413 1,861,731
------------ ------------
Total current liabilities 4,114,767 4,963,375
------------ ------------
Notes and loans payable - long term 178,646 175,219
------------ ------------
Minority interest 718,109 638,901
------------ ------------
Stockholders' Equity
Preferred stock, $.01 par value, 5,000,000
shares authorized; 1,200,000 shares of 5%
Convertible Preferred Stock issued and outstanding
(liquidation preference $30,000,000) - 12,000
Common stock, $.01 par value, 25,000,000
shares authorized; 14,329,851 and
14,844,351 shares issued and outstanding 143,299 148,444
Additional paid-in capital 40,467,687 71,145,946
Accumulated deficit (18,274,719) (20,026,489)
Treasury stock, 84,352 shares at cost (2,242) (2,242)
Common stock issued for unearned compensation (790,887) (751,512)
------------ ------------
Total stockholders' equity 21,543,138 50,526,147
------------ ------------
$ 26,554,660 $ 56,303,642
============ ============
</TABLE>
F-23
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
March 31,
--------------------------
1995 1996
------------ -----------
<S> <C> <C>
Revenues:
Sales $ 3,650,732 $ 7,357,373
Interest and Other 49,740 118,630
----------- -----------
Total 3,700,472 7,476,003
----------- -----------
Cost of Sales 2,707,728 5,145,408
----------- -----------
Gross profit 992,744 2,330,595
----------- -----------
Operating expenses 2,172,663 4,107,120
----------- -----------
Loss before minority interest (1,179,919) (1,776,525)
Minority interest in loss 74,313 73,955
----------- -----------
Net loss (1,105,606) (1,702,570)
Preferred Dividends - (49,200)
----------- -----------
Net Loss Applicable to Common Stockholders $(1,105,606) $(1,751,770)
=========== ===========
Net loss per common share $ (.12) $ (.12)
=========== ===========
Weighted average number of common
and common equivalent shares 9,587,210 14,357,204
=========== ===========
</TABLE>
F-24
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Additional
--------------------- ----------------------- Paid-in Accumulated Treasury Unearned
Shares Amount Shares Amount Capital Deficit Stock Compensation
---------- --------- ---------- ----------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 14,329,851 $143,299 $ - $ - $40,467,687 $(18,274,719) $(2,242) $(790,887)
Stock Issuances:
Private placement - common 450,000 4,500 3,255,500 - - -
Private placement - preferred - - 1,200,000 12,000 29,988,250 - - -
Private placement - costs - - - - (2,805,096) -
Exercise of options 13,000 130 - - 75,620 -
Payment of expenses 51,500 515 - - 163,985 - - -
Dividends on preferred stock - - - - - (49,200) - -
Amortization of deferred
compensation - - - - - - - 39,375
Net loss for the period - - - - - (1,702,570) - -
---------- -------- ---------- ------- ----------- ------------ ------- ---------
Balance, March 31, 1996 14,844,351 $148,444 1,200,000 $ 1,200 $71,145,946 $(20,026,489) $(2,242) $(751,512)
========== ======== ========== ======= =========== ============ ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $(1,105,606) $(1,702,570)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 305,563 753,143
Deferred franchise revenue (50,000) -
Minority interest in net loss (74,313) (73,956)
Common stock issued for expenses 111,000 70,499
Changes in operating assets and liabilities:
Inventories 5,388 11,738
Prepaid expenses and other current assets (71,644) (62,900)
Accounts payable 161,534 525,193
Accrued expenses and other liabilities (280,433) 319,988
----------- -----------
Net cash used in operating activities (998,511) (158,865)
----------- -----------
Cash Flows From Investing Activities:
Sale of marketable securities - 2,163,344
Acquisition of property and equipment (1,132,873) (3,515,786)
Lease acquisition and other costs (209,697) (315,036)
Pre-opening costs - (285,416)
----------- -----------
Net cash used in investing activities (1,342,570) (1,952,894)
----------- -----------
Cash Flows From Financing Activities:
Minority capital contributions 77,795 -
Proceeds from notes payable 175,000 -
Proceeds from private placements, net 4,243,500 30,455,153
Distributions to shareholders (19,847) (49,200)
Exercise of common stock options and warrants 448,333 164,500
----------- -----------
Net cash provided by financing activities 4,924,781 30,570,453
----------- -----------
Net Increase in Cash and Cash Equivalents 2,583,700 28,458,694
Cash and Cash Equivalents,
beginning of period 544,185 3,501,815
----------- -----------
Cash and Cash Equivalents,
end of period $ 3,127,885 $31,960,509
=========== ===========
</TABLE>
F-26
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The consolidated financial statements include the accounts of the Company,
its wholly-owned and majority-owned subsidiaries, and one limited partnership
in which the Company has a controlling interest (see note 4 below). All
significant intercompany transactions and balances are eliminated.
2. The Company received net proceeds of approximately $30.5 million from two
private placements completed in March 1996. A Common Stock offering grossed
$3,260,000 before transaction costs for 450,000 shares. Subject to certain
exceptions, the Company would be required to issue additional shares if
during the first twelve months following issuance, the company issued Common
Stock at an effective price below that of the private placement ($7.245 per
share). The Company also issued 1,200,000 shares of a newly established
series of preferred stock designated as 5% Convertible Preferred Stock (the
"Convertible Preferred Stock") for $25.00 per share resulting in gross
proceeds to the Company of $30.0 million before transaction costs. The
Convertible Preferred Stock has a liquidation preference of $25.00 per share,
is non-voting and is entitled to receive dividends quarterly at the rate of
5% per annum, which dividends may be paid in cash or, subject to certain
restrictions, by issuing shares of Common Stock. The Convertible Preferred
Stock becomes convertible ratably over the fourth through thirteenth month
after issuance at discounts to the future market price of Common Stock
increasing from 13% to 29% over the same period. Accordingly, the exact
number of shares of Common Stock issuable upon conversion of the Convertible
Preferred Stock cannot be presently determined and will depend on the future
market price of the Common Stock. The placement agents in the transaction
were issued five-year warrants to purchase 108,000 shares of Convertible
Preferred Stock at $25.00 per share and 40,500 shares of Common Stock at
$7.75 per share and received 7.5% of the gross proceeds as cash consideration
for such services. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation - Liquidity and Capital Resources."
3. On March 25, 1996, the Company acquired 90% of the outstanding stock of Color
Me Mine, Inc. ("Color Me Mine") a chain of paint-your-own ceramics studios
with three company and one franchise locations in Southern California. The
consideration consisted solely of 377,000 shares of restricted, unregistered
shares of Koo Koo Roo Common Stock. Of this total, shares aggregating
$900,000 in value are subject to registration at the end of one year, and
100,000 shares are subject to a lock-up to be released at the end of three
years. The founders of Color Me Mine will continue to manage the concept
with their own separate management team and will develop it through
franchised area development agreements and company-owned stores. The
founders of Color Me Mine have five-year employment contracts. This
acquisition has been accounted for utilizing the pooling of interests
accounting method and accordingly, the historical financial statements have
been restated for all periods during which Color Me Mine had material
operations. As also required by the pooling of interest method, the Company
expensed during the quarter ended March 31, 1996 approximately $175,000 in
transaction costs related to this business combination.
4. Minority interest represents (i) the other partners' interest in one
partnership formed to establish new Koo Koo Roo California Kitchen(TM)
restaurants, which are controlled by the Company, and pursuant to the
partnership agreement, profits and losses are allocated equally; and (ii) a
10% ownership interest in Color Me Mine held by its founders.
5. The accompanying unaudited consolidated financial statements were prepared on
the accrual basis of accounting. In the opinion of management, all
adjustments (consisting only of normal, recurring accruals) which are
necessary for a fair presentation of the financial results for the periods
presented have been made. The interim period results of operations are not
necessarily indicative of the results of operation for the full year.
F-27
<PAGE>
===============================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY ANY SELLING STOCKHOLDER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE OF THIS PROSPECTUS.
______________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information............................ 2
Forward Looking Statements....................... 2
Prospectus Summary............................... 3
Risk Factors..................................... 5
Use of Proceeds.................................. 10
Price Range of Common Stock...................... 10
Dividend Policy.................................. 11
Capitalization................................... 11
Selected Consolidated Financial Data............. 12
Management's Discussion and Analysis
of Financial Condition and Results of
Operations................................... 13
Business......................................... 21
Management....................................... 33
Security Ownership of Certain Beneficial
Holders and Management........................ 44
Certain Relationships and Related Transactions... 46
Selling Stockholders............................. 48
Description of Capital Stock..................... 53
Shares Available for Future Sale................. 58
Plan of Distribution............................. 59
Legal Matters.................................... 60
Experts.......................................... 60
Consolidated Financial Statements................ F-1
</TABLE>
KOO KOO ROO, INC.
COMMON STOCK
(Par Value $.01 per Share)
___________________
PROSPECTUS
___________________
June __, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. All of
the costs identified below will be paid by the Company. Except for the SEC
registration fee, all amounts are estimates.
<TABLE>
<S> <C>
SEC Registration Fee............................. $ 15,954
Nasdaq Listing Fee............................... 18,865
Printing and Engraving Expenses.................. 12,000
Legal Fees and Expenses.......................... 75,000
Accounting Fees and Expenses..................... 30,000
Registrar and Transfer Agent Fees and Expenses... 5,000
Blue Sky Fees and Expenses....................... 10,000
Miscellaneous Expenses........................... 8,181
--------
Total.......................................... $175,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Restated Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), provides that a director of the Company will
not be personally liable to the Company or its stockholders for monetary damages
for any breach of fiduciary duty as a director, except in certain cases where
liability is mandated by the Delaware General Corporation Law. This provision
has no effect on any non-monetary remedies that may be available to the Company
or its stockholders, nor does it relieve the Company or its directors from
compliance with federal or state securities laws. The Certificate of
Incorporation also provides that each person who is or was or had agreed to
become a director or officer of the Company or of certain affiliated entities
shall be indemnified by the Company, in accordance with its Bylaws, to the
fullest extent permitted from time to time by the Delaware General Corporation
Law and that the Company may enter into one or more agreements with any person
which provide for indemnification greater or different therefrom. The Bylaws
provide that each person who was or is made a party or is threatened to be made
a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
or a person of whom he or she is the legal representative is or was a director,
officer or employee of the Company or is or was serving at the request of the
Company as a director, officer, employee or agent of another enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent, or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Company to the fullest extent authorized by the Delaware General Corporation
Law. The Bylaws also provide for advancement of expenses. Following any
"change in control" of the Company of
II-1
<PAGE>
the type required to be reported under Item 1 to Form 8-K promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), any
determination of entitlement to indemnification under the Company's Bylaws must
be made by independent legal counsel.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the past three years, the Registrant has engaged in the following
issuance of its securities that were not registered under the Securities Act of
1933, as amended (the "Act"):
In June 1993, the Registrant issued 500,000 shares of Common Stock to an
executive officer for aggregate consideration of $250,000 in repayment of
indebtedness. Such shares were issued upon reliance of the exemption provided
in Section 4(2) of the Act.
In June 1993, the Registrant issued 1,000,000 shares of Common Stock to an
executive officer of the Company in connection with the acquisition of assets
valued at $336,890. Such shares were issued upon reliance of the exemption
provided in Section 4(2) of the Act.
In August 1993, the Registrant issued 600,005 shares of Common Stock, and
warrants to purchase 600,005 shares of Common Stock, to accredited investors for
aggregate cash consideration of $1,554,265. Such securities were issued upon
reliance of the exemption provided in Section 4(2) of the Act.
In August 1993, the Company issued options to purchase 350,000 shares of
Common Stock to an accredited investor. The options were issued upon reliance
of the exemption provided in Section 4(2) of the Act.
In October 1993, the Registrant issued 500 shares of Common Stock to an
accredited investor for aggregate consideration of $1,437 for the payment of
services. Such shares were issued upon reliance of the exemption provided in
Section 4(2) of the Act.
In October 1993, the Registrant issued 1,000 shares of Common Stock to an
accredited investor for aggregate consideration of $719 for the payment of
services. Such shares were issued upon reliance of the exemption provided in
Section 4(2) of the Act.
In October 1993, the Registrant issued 20,000 shares of Common Stock to an
accredited investor for aggregate consideration of $15,000 for the payment of
services. Such shares were issued upon reliance of the exemption provided in
Section 4(2) of the Act.
In October 1993, the Registrant issued 5,385 shares of Common Stock to an
accredited investor for aggregate consideration of $34,531 for the settlement of
litigation. Such shares were issued upon reliance of the exemption provided in
Section 4(2) of the Act.
In October 1993, the Company issued options to purchase an aggregate of
103,600 shares of Common Stock to two accredited investors. The options were
issued upon reliance of the exemption provided in Section 4(2) of the Act.
In November 1993, the Registrant issued 514,290 shares of Common Stock to
accredited investors for aggregate cash consideration of $1,554,265. Such
shares were issued upon reliance of the exemption provided in Section 4(2) of
the Act.
II-2
<PAGE>
In November 1993, the Company issued options to purchase 5,000 shares of
Common Stock to an accredited investor. The options were issued upon reliance
of the exemption provided in Section 4(2) of the Act.
In December 1993, the Registrant issued 30,345 shares of Common Stock to an
accredited investor for aggregate consideration of $203,975 for the settlement
of litigation. Such shares were issued upon reliance of the exemption provided
in Section 4(2) of the Act.
In December 1993, the Registrant issued 200,000 shares of Common Stock to
an executive officer of the Company for aggregate consideration of $100,000 in
the repayment of indebtedness. Such shares were issued upon reliance of the
exemption provided in Section 4(2) of the Act.
In December 1993, the Registrant issued 2,500 shares of Common Stock to an
accredited investor aggregate consideration of $3,235 for the payment of
services. Such shares were issued upon reliance of the exemption provided in
Section 4(2) of the Act.
In December 1993, the Registrant issued 100,000 shares of Common Stock to
an accredited investor for aggregate cash consideration of $500,000 upon the
exercise of options to purchase Common Stock. Such shares were issued upon
reliance of the exemption provided in Section 4(2) of the Act.
In January 1994, the Registrant issued 30,000 shares of Common Stock to two
accredited investors in connection with the acquisition of assets valued at
$150,000. Such shares were issued upon reliance of the exemption provided in
Section 4(2) of the Act.
In January 1994, the Company issued options to purchase 100,000 shares of
Common Stock to an accredited investor. The options were issued upon reliance
of the exemption provided in Section 4(2) of the Act.
In February 1994, the Company issued options to purchase 10,000 shares of
Common Stock to an accredited investor. The options were issued upon reliance
of the exemption provided in Section 4(2) of the Act.
In March 1994, the Company issued options to purchase an aggregate of
70,000 shares of Common Stock to three accredited investors. The options were
issued upon reliance of the exemption provided in Section 4(2) of the Act.
In March 1994, the Company issued warrants to purchase an aggregate of
200,000 shares of Common Stock to a director of the Company. The warrants were
issued upon reliance of the exemption provided in Section 4(2) of the Act.
In April 1994, the Registrant issued 116,228 shares of Common Stock to an
accredited investor for aggregate consideration of $62,500. Such shares were
issued upon reliance of the exemption provided in Section 4(2) of the Act.
In June 1994, the Registrant issued 375,000 shares of Common Stock to an
accredited investor for aggregate cash consideration of $187,500. Such shares
were issued upon reliance of the exemption provided in Section 4(2) of the Act.
In June 1994, the Registrant issued 22,222 shares of Common Stock to an
accredited investor for aggregate cash consideration of $33,333 upon exercise of
options to purchase Common Stock. Such shares were issued upon reliance of the
exemption provided in Section 4(2) of the Act.
II-3
<PAGE>
In June 1994, the Registrant issued 30,189 shares of Common Stock to two
accredited investors in connection with the acquisition of assets valued at
$200,000. Such shares were issued upon reliance of the exemption provided in
Section 4(2) of the Act.
In June 1994, the Registrant issued 50,000 shares of Common Stock to an
accredited investor for aggregate cash consideration of $150,000. Such shares
were issued upon reliance of the exemption provided in Section 4(2) of the Act.
In June 1994, the Registrant issued 250,000 shares of Common Stock to an
accredited investor for aggregate cash consideration of $412,500 upon the
exercise of options to purchase Common Stock. Such shares were issued upon
reliance of the exemption provided in Section 4(2) of the Act.
In June 1994, the Registrant issued 434,000 shares of Common Stock to
accredited investors for aggregate cash consideration of $1,736,000 upon the
exercise of warrants to purchase Common Stock. Such shares were issued upon
reliance of the exemption provided in Section 4(2) of the Act.
In June 1994, the Registrant issued 10,000 shares of Common Stock to an
accredited investor for aggregate cash consideration of $41,500 upon exercise of
warrants to purchase Common Stock. Such shares were issued upon reliance of the
exemption provided in Section 4(2) of the Act.
In June 1994, the Registrant issued 22,222 shares of Common Stock to an
accredited investor for aggregate cash consideration of $33,333 upon exercise of
options to purchase Common Stock. Such shares were issued upon reliance of the
exemption provided in Section 4(2) of the Act.
In July 1994, the Registrant issued 50,000 shares of Common Stock to an
accredited investor for aggregate cash consideration of $25,000 upon exercise of
options to purchase Common Stock. Such shares were issued upon reliance of the
exemption provided in Section 4(2) of the Act.
In July 1994, the Company issued options to purchase 200,000 shares of
Common Stock to an accredited investor. The options were issued upon reliance
of the exemption provided in Section 4(2) of the Act.
In July 1994, the Registrant issued 50,000 shares of Common Stock to an
accredited investor for aggregate cash consideration of $25,000 upon the
exercise of options to purchaser Common Stock. Such shares were issued upon
reliance of the exemption provided in Section 4(2) of the Act.
In September 1994, the Registrant issued 166,005 shares of Common Stock to
accredited investors for aggregate cash consideration of $664,020. Such shares
were issued upon reliance of the exemption provided in Section 4(2) of the Act.
In September 1994, the Registrant issued 60,000 shares of Common Stock to
an accredited investor for aggregate cash consideration of $600. Such shares
were issued upon reliance of the exemption provided in Regulation D promulgated
under the Act.
In October 1994, the Registrant issued 10,000 shares of Common Stock to an
accredited investor for aggregate cash consideration of $41,500 upon the
exercise of warrants to purchase Common Stock. Such shares were issued upon
reliance of the exemption provided in Section 4(2) of the Act.
In October 1994, the Registrant issued 3,448 shares of Common Stock to an
accredited investor for aggregate cash consideration of $25,000 for the
settlement of litigation. Such shares were issued upon reliance of the
exemption provided in Regulation D promulgated under the Act.
II-4
<PAGE>
In October 1994, the Registrant issued 25,000 shares of Common Stock to an
accredited investor in connection with the acquisition of assets valued at
$150,000. Such shares were issued upon reliance of the exemption provided in
Section 4(2) of the Act.
In November 1994, the Company issued options to purchase an aggregate of
100,000 shares of Common Stock to a director of the Company. The options were
issued upon reliance of the exemption provided in Section 4(2) of the Act.
In December 1994, the Registrant issued 8,000 shares of Common Stock to an
accredited investor for aggregate cash consideration of $34,500 for the
settlement of litigation. Such shares were issued upon reliance of the
exemption provided in Regulation D promulgated under the Act.
In January 1995, the Registrant issued 100,000 shares of Common Stock to a
director of the Company for aggregate cash consideration of $415,000 upon the
exercise of warrants to purchaser shares of Common Stock. Such shares were
issued upon reliance of the exemption provided in Section 4(2) of the Act.
In January 1995, the Registrant issued 22,222 shares of Common Stock to an
accredited investor for aggregate cash consideration of $33,333 upon the
exercise of options to purchase Common Stock. Such shares were issued upon
reliance of the exemption provided in Section 4(2) of the Act.
In January 1995, the Company issued options to purchase 150,000 shares of
Common Stock to an accredited investor. The options were issued upon reliance
of the exemption provided in Section 4(2) of the Act.
In February 1995, the Registrant issued 45,000 shares of Common Stock to
accredited investors for aggregate consideration of $253,125 in connection with
cancellation of a contract. Such shares were issued upon reliance of the
exemption provided in Regulation D promulgated under the Act.
In February 1995, the Registrant issued 2,000 shares of Common Stock to an
accredited investor in connection with the acquisition of assets valued at
$13,250. Such shares were issued upon reliance of the exemption provided in
Section 4(2) of the Act.
In February 1995, the Registrant issued 1,495 shares of Common Stock to an
accredited investor for aggregate consideration of $9,985 for the payment of
services. Such shares were issued upon reliance of the exemption provided in
Section 4(2) of the Act.
In February 1995, the Registrant issued 2,772 shares of Common Stock to an
accredited investor for aggregate consideration of $18,515 for the payment of
services. Such shares were issued upon reliance of the exemption provided in
Section 4(2) of the Act.
In March 1995, the Registrant issued 200,000 shares of Common Stock to an
executive officer of the Company for aggregate consideration of $945,000 as
compensation in connection with the extension of his employment contract. Such
shares were issued upon reliance of the exemption provided in Section 4(2) of
the Act.
In February through March 1995, the Registrant issued units comprising an
aggregate of 942,999 shares of Common Stock and warrants to purchase an
additional 471,499 shares of common stock to investors for aggregate cash
consideration of $4,243,500. Such securities were issued upon reliance of the
exemption provided by Regulation D under the Act.
II-5
<PAGE>
In April 1995, the Registrant issued 10,000 shares of Common Stock to an
accredited investor for aggregate cash consideration of $41,500 upon the
exercise of warrants to purchase Common Stock. Such shares were issued upon
reliance of the exemption provided in Section 4(2) of the Act.
In April 1995, the Registrant issued 489,000 shares of Common Stock to an
accredited investor for aggregate cash consideration of $2,249,400. Such shares
were issued upon reliance of the exemption provided in Section 4(2) of the Act.
In April 1995, the Registrant issued 20,000 shares of Common Stock to an
accredited investor in for aggregate cash consideration of $83,000 upon the
exercise of warrants to purchase Common Stock. Such shares were issued upon
reliance of the exemption provided in Section 4(2) of the Act.
In April 1995, the Registrant issued 8,000 shares of Common Stock to an
accredited investor in for aggregate cash consideration of $33,200 upon the
exercise of warrants to purchase Common Stock. Such shares were issued upon
reliance of the exemption provided in Section 4(2) of the Act.
In April 1995, the Company issued options to purchase 65,000 shares of
Common Stock to an accredited investor. The options were issued upon reliance
of the exemption provided in Section 4(2) of the Act.
In May 1995, the Registrant issued 40,000 shares of Common Stock to an
accredited investor for aggregate cash consideration of $166,000 upon the
exercise of warrants to purchase Common Stock. Such shares were issued upon
reliance of the exemption provided in Section 4(2) of the Act.
In June 1995, the Registrant issued 50,000 shares of Common Stock to an
accredited investor for aggregate cash consideration of $207,500 upon the
exercise of warrants to purchase Common Stock. Such shares were issued upon
reliance of the exemption provided in Section 4(2) of the Act.
In June 1995, the Registrant issued units comprising an aggregate of
2,553,822 shares of Common Stock and warrants to purchase an additional
1,197,863 shares of Common Stock to accredited investors for aggregate cash
consideration of $11,168,725 cash consideration, less commissions of $805,169.
Such securities were issued upon reliance of the exemption provided in Section
4(2) of the Act.
In June 1995, the Registrant issued 104,400 shares of Common Stock to
accredited investors for aggregate cash consideration of $433,260 upon the
exercise of warrants to purchase Common Stock. Such shares were issued upon
reliance of the exemption provided in Section 4(2) of the Act.
In June 1995, the Company warrants to purchase an aggregate of 350,000
shares of Common Stock to three accredited investors. The warrants were issued
upon reliance of the exemption provided in Section 4(2) of the Act.
In June 1995, the Company issued warrants to purchase 100,000 shares of
Common Stock to a director of the Company. The warrants were issued upon
reliance of the exemption provided in Section 4(2) of the Act.
In June 1995, the Registrant issued 40,000 shares of Common Stock to an
accredited investor for aggregate cash consideration of $166,000 upon the
exercise of warrants to purchase Common Stock. Such shares were issued upon
reliance of the exemption provided in Section 4(2) of the Act.
II-6
<PAGE>
In July 1995, the Registrant issued 92,600 shares of Common Stock to
accredited investors for aggregate cash consideration of $384,290 upon the
exercise of warrants to purchase Common Stock. Such shares were issued upon
reliance of the exemption provided in Section 4(2) of the Act.
In July 1995, the Registrant issued 15,000 shares of Common Stock to an
accredited investor for aggregate cash consideration of $62,250 upon the
exercise of warrants to purchase Common Stock. Such shares were issued upon
reliance of the exemption provided in Section 4(2) of the Act.
In July 1995, the Registrant issued from treasury 2,600 shares of Common
Stock to certain employees of the Company for aggregate cash of $17,225 in
connection with an employee stock award. Such shares were issued upon reliance
of the exemption provided in Section 4(2) of the Act.
In August 1995, the Registrant issued 200,000 shares of Common Stock to an
accredited investor in connection with the acquisition of assets valued at
$1,200,000. Such shares were issued upon reliance of the exemption provided in
Section 4(2) of the Act.
In August 1995, the Company issued options to purchase 300,000 shares of
Common Stock to an accredited investor. The options were issued upon reliance
of the exemption provided in Section 4(2) of the Act.
In August 1995, the Company issued options to purchase an aggregate of
500,000 shares of Common Stock to a director of the Company. The options were
issued upon reliance of the exemption provided in Section 4(2) of the Act.
In September 1995, the Registrant issued 300,000 shares of Common Stock to
KKRO Partners, LP (24,152 of such shares from treasury) in connection with the
acquisition of assets valued at $1,911,493. Such shares were issued upon
reliance of the exemption provided in Section 4(2) of the Act.
In November 1995, the Registrant issued 39,409 shares of Common Stock to an
accredited investor in connection with the acquisition of assets valued at
$300,000. Such shares were issued upon reliance of the exemption provided in
Section 4(2) of the Act.
In November 1995, the Registrant issued 7,693 shares of Common Stock to an
accredited investor for aggregate consideration of $62,506 for the settlement of
litigation. Such shares were issued upon reliance of the exemption provided in
Regulation D promulgated under the Act.
In November 1995, the Company issued options to purchase an aggregate of
35,000 shares of Common Stock to two accredited investors. The options were
issued upon reliance of the exemption provided in Section 4(2) of the Act.
In January 1996, the Registrant issued 10,000 shares of Common Stock to an
accredited investor for aggregate consideration of $52,500 for payment of
services. Such shares were issued upon reliance of the exemption provided in
Section 4(2) of the Act.
In January 1996, the Company issued options to purchase an aggregate of
60,000 shares of Common Stock to four accredited investors. The options were
issued upon reliance of the exemption provided in Section 4(2) of the Act.
In January 1996, the Registrant issued 7,000 shares of Common Stock to an
accredited investor in consideration of $40,000 for the settlement of
litigation. Such shares were issued upon reliance of the exemption provided in
Section 4(2) of the Act.
II-7
<PAGE>
In February 1996, the Company issued options to purchase 10,000 shares of
Common Stock to an accredited investor. The options were issued upon reliance
of the exemption provided in Section 4(2) of the Act.
In March 1996, the Registrant issued 450,000 shares of Common Stock to
accredited investors for aggregate cash consideration of $3,260,250, less cash
commissions of $244,519. Such shares were issued in reliance upon the exemption
provided by Regulation D promulgated under the Act ("Regulation D").
In March 1996, the Registrant issued 1,200,000 shares of 5% Convertible
Preferred Stock to accredited investors for cash consideration of $30,000,000,
less cash commissions of $2,250,000. Such shares were issued in reliance upon
the exemption provided by Regulation D.
In March 1996, the Registrant issued 3,000 shares of Common Stock to an
accredited investor for aggregate consideration of $23,250 as a transaction fee
in connection with an acquisition of an unaffiliated entity. Such shares were
issued upon reliance of the exemption provided in Section 4(2) of the Act.
In March 1996, the Registrant issued 377,000 shares of Common Stock to two
accredited investors in connection with the acquisition of capital stock of an
unaffiliated entity. Such shares were issued upon reliance of the exemption
provided in Section 4(2) of the Act.
In April 1996, as partial consideration paid to the placement agents in
connection with the March 1996 issuances of Common Stock and 5% Convertible
Preferred Stock, the Registrant issued warrants to purchase 40,500 shares of
Common Stock and warrants to purchase 108,000 shares of 5% Convertible Preferred
Stock. Such warrants were issued in reliance upon the exemption provided by
Regulation D.
In May 1996, the Company issued options to purchase 1,000 shares of Common
Stock to an accredited investor. The options were issued upon reliance of the
exemption provided in Section 4(2) of the Act.
In May 1996, the Company issued options to purchase 1,000,000 shares of
Common Stock to an accredited investor in connection with a business development
agreement. The options were issued upon reliance of the exemption provided in
Section 4(2) of the Act.
In May 1996, the Company issued options to purchase 350,000 shares of
Common Stock to an accredited investor in connection with an amendment to an
area development agreement. The options were issued upon reliance of the
exemption provided in Section 4(2) of the Act.
In May 1996, the Company issued options to purchase 200,000 shares of
Common Stock to an accredited investor in connection with an employment
agreement. The options were issued upon reliance of the exemptions provided in
Section 4(2) of the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ---------- ----------------------
<S> <C>
3.1 Restated Certificate of Incorporation of Registrant /1/
3.2 Amended and Restated Bylaws of Registrant, as amended March
1992 /2/
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ---------- ----------------------
<S> <C>
3.3 Bylaw Amendment Changing year-end /3/
3.4 Certificate of Amendment to the Restated Certificate of
Incorporation of Koo Koo Roo, Inc. /10/
3.5 Certificate of Designations of 5% Convertible Preferred Stock of
Registrant /10/
4.1 Form of Certificate for Common Stock of Registrant /1/
4.2 Form of Certificate for 5% Convertible Preferred Stock of
Registrant /10/
**5.1 Opinion of McKenna & Stahl
10.46 Settlement Agreement dated January 31, 1994 between the
Registrant and Whale Securities Co., L.P. /4/
10.47 Warrant Agreement dated January 31, 1994 between the Registrant
and Whale Securities Co., L.P. /4/
10.48 Amendment No. 1 to Warrant Agreement dated January 31, 1994
between Registrant and Whale Securities Co., L.P. /4/
10.49 Agreement of Limited Partnership of KKRO Partners L.P. dated
March 23, 1994 /4/
10.50 Area Development Agreement dated August 19, 1993 between the
Registrant and Mel Harris /5/
10.51 Area Development Agreement dated November 15, 1993 between the
Registrant and Joe Kowal and Taylor Fletcher /5/
10.52 Area Development Agreement dated February 18, 1994 between the
Registrant and Stephen G. De Decker /5/
10.53 Area Development Agreement dated April 11, 1994 between the
Registrant and Brad and Kenyon Jones /5/
10.54 Area Development Agreement dated May 25, 1994 between the
Registrant and SJS Group Inc. /5/
10.55 Amended and Restated Employment Agreement of Kenneth Berg
dated as of January 9, 1995 and related letter agreement /9/
10.56 Amended and Restated Employment Agreement of Michael Mooslin
dated as of March 17, 1995 /9/
10.57 Employment Agreement of Donna Guido dated as of March 24, 1995 /9/
10.58 Employment Agreement of Robert Kautz dated as of February 8,
1995 /9/
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ---------- ----------------------
<S> <C>
10.59 Stock Awards Plan /6/
10.60 Form of Non-Qualified Stock Option Agreement Under the Stock
Awards Plan /9/
10.61 Directors' Stock Option Plan, as amended /7/
10.62 First Amendment to the Harris Development Agreement dated as of
August 25, 1995 /9/
10.63 KKRO Partners, L.P. Purchase Agreement dated as of September 26,
1995 by and between the Company and KKRO Partners, L.P. /9/
10.64 KKRO Partners, L.P. Liquidation Agreement dated as of September
28, 1995 by and between the Company and KKRO Partners, L.P. /9/
10.65 Form of Warrant Agreement used in connection with the Company's
February 1995 private placement of Company Common Stock and
Warrants /9/
10.66 Form of Warrant Agreement used in connection with the Company's
June 1995 private placement of Company Common Stock and
Warrants /9/
10.67 Form of Stock Purchase Agreement dated March 12, 1996 by and
among the Registrant and the purchasers named therein /10/
10.68 Form of Preferred Stock Investment Agreement dated March 20, 1996
by and among the Registrant and the purchasers named therein /10/
10.69 Agreement for Acquisition of Color Me Mine, Inc. /11/
10.70 Canadian Letter of Intent /11/
**10.71 Business Development Services Agreement, dated as of May 8, 1996,
by and between the Registrant and Restaurant Marketing
Corporation.
**10.72 Non-Qualified Stock Option Agreement for Restaurant Marketing
Corporation, dated as of May 8, 1996, by and between the
Registrant and Restaurant Marketing Corporation.
**10.73 Non-Qualified Stock Option Agreement for Restaurant Marketing
Corporation, dated as of May 8, 1996, by and between the
Registrant and Restaurant Acquisition Corporation.
**10.74 Second Amendment to Area Development Agreement, dated as of May
8, 1996, by and between the Registrant, Koo Koo Roo Licensing
Systems, Inc. and Restaurant Acquisition Corporation.
**10.75 Employment Agreement and Non-Qualified Stock Option Agreement,
dated as of May 8, 1996, by and between the Registrant and Mel
Harris.
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ---------- ----------------------
<S> <C>
**21.1 Subsidiaries of Registrant
**23.1 Consent of McKenna & Stahl (included in Exhibit 5.1 filed herewith)
**23.2 Consent of BDO Seidman, LLP
*24.1 Power of Attorney
</TABLE>
- --------------------
* Previously filed.
** Filed herewith.
/1/ Incorporated by reference to identical exhibit number in the Company's
Registration Statement on Form S-18 (No. 33-42487-NY) declared effective on
October 15, 1991.
/2/ Incorporated by reference to identical exhibit number in the Company's
Transition Report on Form 10-K for the six months ended June 30, 1992.
/3/ Incorporated by reference to identical exhibit number in the Company's
Current Report on Form 8-K dated December 14, 1995 (filed with the Commission on
December 15, 1995).
/4/ Incorporated by reference to identical exhibit number in the Company's
Annual Report on Form 10-K/A for the fiscal year ended June 30, 1993 (filed with
the Commission on April 25, 1994).
/5/ Incorporated by reference to identical exhibit number in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1994.
/6/ Incorporated by reference to identical exhibit number in the Company's
Proxy Statement dated December 15, 1994.
/7/ Incorporated by reference to identical exhibit number in the Company's
Proxy Statement dated November 15, 1993.
/8/ Incorporated by reference to identical exhibit number in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1993.
/9/ Incorporated by reference to identical exhibit number in the Company's
Amendment No. 2 to its Annual Report on Form 10-K/A for the fiscal year ended
June 30, 1995.
/10/ Incorporated by reference to identical exhibit number in the Company's
Current Report on Form 8-K dated March 18, 1996.
II-11
<PAGE>
/11/ Incorporated by reference to the exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer, or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer of controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of is counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) ((S) 230.424(b) of this
chapter) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by (S) 210.3-19 of this chapter at the start of any delayed offering or
throughout a continuous offering. Financial statements and information
otherwise required by Section 10(a)(3) of the Act need not be furnished,
provided that the registrant includes in the prospectus, by means of a post-
effective amendment, financial statements required pursuant to this paragraph
(a)(4) and other information necessary to ensure that all other information in
the prospectus is at least as
II-12
<PAGE>
current as the date of those financial statements. Notwithstanding the
foregoing, with respect to registration statements on Form F-3 ((S) 239.33 of
this chapter), a post-effective amendment need not be filed to include financial
statements and information required by Section 10(a)(3) of the Act or
(S) 210.3-19 of this chapter if such financial statements and information are
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to section 13 or section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the Form F-3.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Amendment No. 1 to
its Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized in the City of Los Angeles, State of California, as of
the 11th day of June, 1996.
KOO KOO ROO, INC.
By: /s/ Kenneth Berg
------------------
Kenneth Berg, Chairman of
the Board and Chief Executive Officer
Date: June 11, 1996
Pursuant to the requirements of the Securities Exchange Act of 1933,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Kenneth Berg Chairman of the Board, June 11, 1996
- ------------------------ Chief Executive
Kenneth Berg Officer and Director
(Principal Executive
Officer)
/s/ Donna S. Guido* Vice Chairman June 11, 1996
- ------------------------ and Director
Donna S. Guido
/s/ Michael D. Mooslin* President and June 11, 1996
- ------------------------ Director
Michael D. Mooslin
/s/ Morton J. Wall* Treasurer, June 11, 1996
- ------------------------ Secretary and Director
Morton J. Wall (Principal Accounting
Officer)
/s/ Robert F. Kautz Chief Financial June 11, 1996
- ------------------------ Officer and Director
Robert F. Kautz (Principal Financial
Officer)
/s/ Kory L. Berg* Director June 11, 1996
- ------------------------
Kory L. Berg
Director June , 1996
- ------------------------
Lee A. Iacocca
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Donald Wohl* Director June 11, 1996
- ------------------------
Donald Wohl
- ------------------------ Director June __, 1996
Jess M. Ravich
</TABLE>
* By /s/ Robert F. Kautz
--------------------
Attorney-in-fact
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit No. Description of Exhibit Page No.
- ---------- ---------------------- ----------
<S> <C> <C>
3.1 Restated Certificate of Incorporation of Registrant /1/
3.2 Amended and Restated Bylaws of Registrant, as amended March
1992 /2/
3.3 Bylaw Amendment Changing year-end /3/
3.4 Certificate of Amendment to the Restated Certificate of
Incorporation of Koo Koo Roo, Inc. /10/
3.5 Certificate of Designations of 5% Convertible Preferred Stock of
Registrant /10/
4.1 Form of Certificate for Common Stock of Registrant /1/
4.2 Form of Certificate for 5% Convertible Preferred Stock of
Registrant /10/
**5.1 Opinion of McKenna & Stahl
10.46 Settlement Agreement dated January 31, 1994 between the
Registrant and Whale Securities Co., L.P. /4/
10.47 Warrant Agreement dated January 31, 1994 between the Registrant
and Whale Securities Co., L.P. /4/
10.48 Amendment No. 1 to Warrant Agreement dated January 31, 1994
between Registrant and Whale Securities Co., L.P. /4/
10.49 Agreement of Limited Partnership of KKRO Partners L.P. dated
March 23, 1994 /4/
10.50 Area Development Agreement dated August 19, 1993 between the
Registrant and Mel Harris /5/
10.51 Area Development Agreement dated November 15, 1993 between the
Registrant and Joe Kowal and Taylor Fletcher /5/
10.52 Area Development Agreement dated February 18, 1994 between the
Registrant and Stephen G. De Decker /5/
10.53 Area Development Agreement dated April 11, 1994 between the
Registrant and Brad and Kenyon Jones /5/
10.54 Area Development Agreement dated May 25, 1994 between the
Registrant and SJS Group Inc. /5/
10.55 Amended and Restated Employment Agreement of Kenneth Berg
dated as of January 9, 1995 and related letter agreement /9/
10.56 Amended and Restated Employment Agreement of Michael Mooslin
dated as of March 17, 1995 /9/
10.57 Employment Agreement of Donna Guido dated as of March 24, 1995 /9/
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequential
Exhibit No. Description of Exhibit Page No.
- ---------- ---------------------- ----------
<S> <C> <C>
10.58 Employment Agreement of Robert Kautz dated as of February 8,
1995 /9/
10.59 Stock Awards Plan /6/
10.60 Form of Non-Qualified Stock Option Agreement Under the Stock
Awards Plan /9/
10.61 Directors' Stock Option Plan, as amended /7/
10.62 First Amendment to the Harris Development Agreement dated as of
August 25, 1995 /9/
10.63 KKRO Partners, L.P. Purchase Agreement dated as of September 26,
1995 by and between the Company and KKRO Partners, L.P. /9/
10.64 KKRO Partners, L.P. Liquidation Agreement dated as of September
28, 1995 by and between the Company and KKRO Partners, L.P. /9/
10.65 Form of Warrant Agreement used in connection with the Company's
February 1995 private placement of Company Common Stock and
Warrants /9/
10.66 Form of Warrant Agreement used in connection with the Company's
June 1995 private placement of Company Common Stock and
Warrants /9/
10.67 Form of Stock Purchase Agreement dated March 12, 1996 by and
among the Registrant and the purchasers named therein /10/
10.68 Form of Preferred Stock Investment Agreement dated March 20, 1996
by and among the Registrant and the purchasers named therein /10/
10.69 Agreement for Acquisition of Color Me Mine, Inc. /11/
10.70 Canadian Letter of Intent /11/
**10.71 Business Development Services Agreement, dated as of May 8, 1996,
by and between the Registrant and Restaurant Marketing
Corporation.
**10.72 Non-Qualified Stock Option Agreement for Restaurant Marketing
Corporation, dated as of May 8, 1996, by and between the
Registrant and Restaurant Marketing Corporation.
**10.73 Non-Qualified Stock Option Agreement for Restaurant Marketing
Corporation, dated as of May 8, 1996, by and between the
Registrant and Restaurant Acquisition Corporation.
**10.74 Second Amendment to Area Development Agreement, dated as of May
8, 1996, by and between the Registrant, Koo Koo Roo Licensing
Systems, Inc. and Restaurant Acquisition Corporation.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequential
Exhibit No. Description of Exhibit Page No.
- ---------- ---------------------- ----------
<S> <C> <C>
**10.75 Employment Agreement and Non-Qualified Stock Option Agreement,
dated as of May 8, 1996, by and between the Registrant and Mel
Harris.
**21.1 Subsidiaries of Registrant
**23.1 Consent of McKenna & Stahl (included in Exhibit 5.1 filed herewith)
**23.2 Consent of BDO Seidman, LLP
*24.1 Power of Attorney
</TABLE>
- --------------------
* Previously filed.
** Filed herewith.
/1/ Incorporated by reference to identical exhibit number in the Company's
Registration Statement on Form S-18 (No. 33-42487-NY) declared effective on
October 15, 1991.
/2/ Incorporated by reference to identical exhibit number in the Company's
Transition Report on Form 10-K for the six months ended June 30, 1992.
/3/ Incorporated by reference to identical exhibit number in the Company's
Current Report on Form 8-K dated December 14, 1995 (filed with the Commission on
December 15, 1995).
/4/ Incorporated by reference to identical exhibit number in the Company's
Annual Report on Form 10-K/A for the fiscal year ended June 30, 1993 (filed with
the Commission on April 25, 1994).
/5/ Incorporated by reference to identical exhibit number in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1994.
/6/ Incorporated by reference to identical exhibit number in the Company's
Proxy Statement dated December 15, 1994.
/7/ Incorporated by reference to identical exhibit number in the Company's
Proxy Statement dated November 15, 1993.
/8/ Incorporated by reference to identical exhibit number in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1993.
/9/ Incorporated by reference to identical exhibit number in the Company's
Amendment No. 2 to its Annual Report on Form 10-K/A for the fiscal year ended
June 30, 1995.
/10/ Incorporated by reference to identical exhibit number in the Company's
Current Report on Form 8-K dated March 18, 1996.
<PAGE>
/11/ Incorporated by reference to the exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
<PAGE>
EXHIBIT 5.1
MCKENNA & STAHL
ATTORNEYS AT LAW*
2603 MAIN STREET, SUITE 1010
IRVINE, CALIFORNIA 92714-6232
TELEPHONE (714) 752-2800 *A PARTNERSHIP INCLUDING
FACSIMILE (714) 752-6723 PROFESSIONAL CORPORATIONS
June 11, 1996
Koo Koo Roo, Inc.
11075 Santa Monica Boulevard
Los Angeles, California 90025
Re: Registration Statement No. 333-3360
-----------------------------------
Gentlemen:
This opinion is furnished to you in connection with the Registration
Statement on Form S-1 (File No. 333-3360) ("Registration Statement"), which has
been filed with the Securities and Exchange Commission ("SEC") registering
shares of the common stock, $.01 par value per share ("Shares") of Koo
Koo Roo, Inc., a Delaware corporation ("Company").
In rendering this opinion, we have examined the original, certified,
conformed or photostatic copies of certificates of public officials,
certificates of officers and representatives of the Company and others, and such
other documents as we have deemed necessary or relevant as a basis for the
opinions herein expressed. In all such examinations we have assumed the
genuineness of all signatures on original or certified documents and the
conformity to original or certified documents of all copies submitted to us as
conformed or photostatic copies. As to various questions of fact material to
such opinions, we have relied upon statements or certificates of officers and
representatives of the Company and others.
Based upon the foregoing, in our opinion the Shares have been duly
authorized and, when issued, will be validly issued, fully paid and
nonassessable.
<PAGE>
Koo Koo Roo, Inc.
June 11, 1996
Page 2
Our opinions expressed above are limited to the laws of the state of
California, the laws of the United States of America and the General Corporation
Law of the state of Delaware, and we do not express any opinion herein
concerning the laws of any other jurisdiction.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement which has been filed by the Company with the SEC under
the Securities Act of 1933, as amended, and we further consent to the reference
to our firm under the caption "Legal Matters" in the Prospectus which
constitutes a part thereof.
Very truly yours,
/s/ Harry S. Stahl
Harry S. Stahl
HSS:pk
<PAGE>
EXHIBIT 10.71
BUSINESS DEVELOPMENT SERVICES AGREEMENT
THIS BUSINESS DEVELOPMENT SERVICES AGREEMENT is made and entered into as of
the 8th day of May 1996-(the "Effective Date"), by and between Koo Koo Roo,
Inc., a Delaware corporation (the "Company"), and Restaurant Marketing
Corporation ("RMC").
RECITALS
A. Company desires to be assured of the association and services of RMC
for the Company.
B. RMC is willing and desires to be retained by the Company and the
Company is willing to retain RMC, upon the terms, covenants and conditions
hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions hereinafter set forth, the parties hereto do hereby agree as follows:
1. Retainer. The Company hereby retains RMC, subject to the direction of
the Chairman of the Board, the President and the Company's Board of Directors.
1.1 RMC shall be available to provide business development services to the
Company regarding Koo Koo Roo restaurants and Color Me Mine stores.
2. Term. This Business Development Services Agreement shall continue for
a period of three (3) years commencing on the date hereof, unless terminated
pursuant to Section 6 below; provided, however, that RMC's obligations in
Section 5 below shall continue in effect for twelve months after such
termination.
3. COMPENSATION; REGISTRATION.
3.1 In consideration for entering into this Business Development Services
Agreement, and for services rendered by RMC under this Business Development
Services Agreement, the Company shall pay RMC as follows (all of which are
collectively referred to herein as "Compensation"):
(a) Company shall grant to RMC options, pursuant to the terms of the Non-
Qualified Stock Option Agreement attached hereto as Exhibit "A" and incorporated
herein by this reference, to purchase one million (1,000,000) shares of the
Company's common stock, at eight dollars ($8.00) per share (the "Stock
Options");
(b) The Stock Options shall vest and become exercisable as follows:
(i) three hundred thirty three thousand three hundred thirty four (333,334)
Stock Options shall vest on May 8,
<PAGE>
1997; (ii) three hundred thirty three thousand three hundred thirty three
(333,333) Stock Options shall vest on May 8, 1998; and (iii) three hundred
thirty three thousand three hundred thirty three (333,333) Stock Options shall
vest on May 8, 1999; provided, however, that if this Business Development
Services Agreement is terminated pursuant to Section 6.1(b) hereof, a pro rata
amount of the Stock Options which would have vested on the next May 8th vesting
date shall vest and become exercisable as of the termination date.
(c) RMC shall be permitted to exercise the Stock Options and any other
options to purchase the COMPANY'S common stock held or owned by RMC by any means
set forth in Section 4. 1 of the Non-Qualified Stock Option Agreement.
3.2 REGISTRATION. (a) If the Company decides to file a registration
statement to register for public offering any of its securities, the Company
shall, at Company's sole expense, subject to underwriters approval and pre-
existing registration rights agreements with third parties, include in any such
registration statement all of the Company common stock owned by RMC, or which
could be owned by RMC upon exercise of vested Stock Options. The Company agrees
that in connection with any registration statement it shall prepare and file
whatever pre-effective and post-effective amendments that the Securities and
Exchange Commission shall require.
(b) Immediately after April 21, 1997, Company shall, at Company's sole
expense, prepare and file such registration statements and all necessary
documents, including pre-effective and post-effective amendments (the
"Registration Statements") as may be necessary in order to comply with the
Securities Act of 1933, as amended, and appropriate state securities laws, so
as to permit the public offering and sale, at any time and from time to time,
except for-customary blackout periods including blackout periods during material
non-public acquisition negotiations, SEC required quiet periods, and underwriter
requested lock-up periods during or after arms-length underwritten public
offerings, of any or all Company common stock owned by RMC, or which could be
owned by RMC upon exercise of vested Stock Options. The Company shall use its
best efforts to make the Registration Statements effective as promptly as
practicable. RMC's rights as set forth in this Section 3.2(b) are in addition to
the registration rights under Section 3.2(a) of this Business Development
Services Agreement, subject to necessary amendments and blackout periods as
noted above.
4. SCOPE OF DUTIES. RMC shall devote such time as it deems necessary
under this Business Development Services Agreement and shall not be prohibited
in any way from conducting other business, except that RMC shall not directly
compete with Koo Koo Roo restaurants or -Color Me Mine stores during the term of
this Business Development Services Agreement.
5. CONFIDENTIALITY OF TRADE SECRETS AND OTHER MATERIALS.
5.1 TRADE SECRETS. Other than in the performance of its duties hereunder,
or contained in lists of customers or documents provided by RMC, RMC agrees not
to disclose,
2
<PAGE>
either during the term of this Business Development Services Agreement or at any
time thereafter, to any person, firm or corporation any information concerning
the business affairs, the trade secrets or the customer lists or similar
information of the Company. Any technique, method, process or technology used by
the Company shall be considered a "trade secret" for the purposes of this
Business Development Services Agreement.
5.2 OWNERSHIP OF TRADE SECRETS. RMC hereby agrees that all know-how,
documents, reports, plans, proposals, marketing and sales plans, client lists,
client files and materials made by the Company, other than lists of customers or
documents provided by RMC, are the property of the Company and shall not be used
by it in any way adverse to the Company's interests. RMC shall not deliver,
reproduce or in any way allow such documents or things to be delivered or used
by any third party, without specific direction or consent of the Company .
6. TERMINATION.
6.1 This Business Development Services Agreement may be terminated
(a) at any time by mutual agreement of the parties; or (b) by Company by
delivering written notice to RMC specifying a termination date, which date shall
not be earlier than six months after the delivery of tile notice.
6.2.1 RMC's retainer may be terminated by the Company "with cause,"
by delivering written notice to RMC at any time if any of the following shall
occur:
(a) any material breach of RMC's obligations in Section 5 above; or
(b)(i) a felony criminal conviction; (ii) any other criminal
conviction involving RMC's lack of honesty or RMC's moral turpitude; or
(iii) acts of proven dishonesty, gross carelessness or gross misconduct to
the company, which inhibit RMC from frilly performing its responsibilities
to the Company in good faith.
6.2.2 Any notice delivered to RMC pursuant to Section 6.2.1 of this
Business Development Services Agreement shall specifically set forth all
relevant facts upon which such termination for cause is based, and RMC shall
have the opportunity to cure any such alleged -cause for termination within 30
days of receipt of the notice.
6.3 Termination of this Business Development Services Agreement
pursuant to the provisions of this paragraph 6 shall not terminate or otherwise
revoke any Stock Options or other rights under this Business Development
Services Agreement or under the Non-qualified Stock Option Agreement which
accrued, vested or were issued prior to termination.
3
<PAGE>
7. CHANGE IN CONTROL.
7.1 If any event constituting a change in control (as defined
below) of the Company shall occur, all of the Stock Options shall immediately
vest and become exercisable.
7.2 A "Change in Control" of Company shall mean:
(i) Ken Berg ceases to be the Chairman of the Company;
(ii) A change in control of a nature that would be required to be
reported in response to Item 1(a) of Form 8-K as in effect on the date hereof
pursuant to the Securities Exchange Act of 1934 (the "Exchange Act"/1/);
provided that, without limitation, such a change in control shall be deemed to
have Occurred at such time as any Person (as such term is used in Section
3(a)(9) of the Exchange Act) or entity, hereafter becomes the "Beneficial Owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 30
percent or more of the combined voting power of the Company's voting securities;
or
(iii) During any period of two consecutive years, individuals who at
the beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof unless the election, or the nomination
for election by the COMPANY'S shareholders, of each new director was approved by
a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period; or
(iv) There shall be consummated (x) any consolidation or merger of
Company in which Company is not the continuing or surviving corporation or
pursuant to which voting a securities would be convened into cash, securities,
or other property, other than a merger of Company in which the holders of voting
securities immediately prior to the merger have the same proportionate ownership
of common stock of the surviving corporation immediately after the merger, or
(y) any sale, lease, exchange, or other transfer (in one transaction or a series
of related transactions) of all, or substantially all of the assets of Company.
8. INJUNCTIVE RELIEF. The Company and RMC hereby acknowledge and agree
that any default under Section 5 above will cause damage to the Company in an
amount difficult to ascertain. Accordingly, in addition to any other relief to
which the Company may be entitled, -the Company shall be entitled to such
injunctive relief as may be ordered by any court or competent jurisdiction
including, but not limited to, an injunction restraining any violation of
Section 5 above and without the proof of actual damages.
9. MISCELLANEOUS.
9.1 TRANSFER AND ASSIGNMENT. This Business Development Services Agreement
is personal as to RMC and shall not be assigned or transferred by RMC without
the prior written consent of the Company, except that RMC shall have the right
to assign all or a portion of the Options along with the registration rights
provided for in Section 3.2 of this Business
4
<PAGE>
Development Services Agreement. This Agreement shall be binding upon and inure
to the benefit of all of the parties hereto and their respective permitted
successors and assigns.
9.2 SEVERABILITY. Nothing contained herein shall be construed to
require the commission of any act contrary to law. Should there by any conflict
between any provisions hereof and any present or future statute, law, ordinance,
regulation, or other pronouncement having the force of law, the latter shall
prevail, but the provision of this Agreement affected thereby shall be curtailed
and limited only to the extent necessary to bring it within the requirements of
the law, and the remaining provisions of this Agreement shall remain in full
force and effect.
9.3 VENUE. Venue of any legal proceeding between the parties shall be
in Dade County, Florida if initiated by RMC, and in Los Angeles County,
California if initiated by Company.
9.3.1 ARBITRATION. Except as precluded by applicable law, any controversy
or claim that arises out of or relates to this Agreement, or any breach of this
Agreement, including any claim that any of this Agreement is invalid, illegal,
voidable or void, will be submitted to binding arbitration in accordance with
the rules of the American Arbitration Association and judgment upon the award
may be entered in any court with jurisdiction.
9.4 COUNTERPARTS. This Agreement may be executed in several
counterparts and all documents so executed shall constitute one agreement,
binding on all of the parties hereto, notwithstanding that all of the parties
did not sign the original or tile same counterparts.
9.5 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding of the parties with respect to the subject matter hereof and
supersedes all prior oral agreements, arrangements, and understandings with
respect thereto. No representation, promise inducement, statement or intention
has been made by any party hereto that is not embodied herein, and no party
shall be bound by or liable for any alleged representation, promise, inducement,
or statement not so set forth herein.
9.6 MODIFICATION. This Agreement may be modified, amended, superseded,
or canceled, and any of the terms, covenants, representations, , warranties or
conditions hereof may be waived, only by a written instrument executed by the
parties to be bound by any such modification, amendment, supersession,
cancellation, or waiver.
9.7 ATTORNEYS' FEES AND COSTS. In the event of any dispute arising out
of the subject matter of this Agreement, the prevailing party shall recover, in
addition to any other damages assessed, its attorneys' fees and court costs
incurred in litigating or otherwise settling or resolving such dispute whether
or not an action is brought or prosecuted to judgment. In construing this
Agreement, none of the parties hereto shall have any term or provision construed
against such party solely by reason of such party having drafted the same.
5
<PAGE>
9.8 WAIVER. The waiver by either of the parties, express or implied, of
any right under this Agreement or any failure to perform under this Agreement by
the other party shall not constitute or be deemed as a waiver of any other fight
under this Agreement or of any other failure to perform under this Agreement by
the other party, whether of a similar or dissimilar nature.
9.9 CUMULATIVE REMEDIES. Each and all of the several rights and
remedies provided in this Agreement, or by law or in equity, shall be
cumulative, and no one of them shall be exclusive of any right or remedy, and
the exercise or any one or such rights or remedies shall be deemed a waiver of,
or an election to exercise, any other such right or remedy.
9.10 HEADINGS. The section and other headings contained in this
Agreement are for reference purposes only and shall not in any way affect the
meaning and interpretation of this Agreement.
9.11 NOTICES. Any notice under this Agreement must be in writing, may be
telecopies, sent by express 24-hour guaranteed courier, or hand-delivered, or
may be served by depositing the same in the United States mail, addressed to the
party to be notified, postage-prepaid and registered or certified with a return
receipt requested. The addresses of the parties for the receipt of notice shall
be as follows:
If to the Company: Koo Koo Roo, Inc.
Attention: Chief Financial Officer
11075 Santa Monica Boulevard
Suite 225
Los Angeles, California 90025
If to RMC: Restaurant Marketing Corporation
c/o Mel Harris
10800 Biscayne Boulevard - Penthouse
Miami, Florida 33161-7487
Each notice given by registered or certified mail shall be deemed delivered
and effective on the date of delivery as shown on the return receipt, and each
notice delivered in any other -manner shall be deemed to be effective as of the
time of actual delivery thereof. Each party may change its address for notice by
giving notice thereof in the manner provided above.
9.12 SURVIVAL. Any provision of this Agreement which imposes an
obligation after termination or expiration of this Agreement shall survive the
termination or expiration of this Agreement and be binding on RMC and the
Company.
9.13 EFFECTIVE DATE. This Agreement shall become effective as of the date
set forth on page 1 when signed by RMC and the Company.
6
<PAGE>
9.14 CURE OF BREACH. With respect to any alleged breach of this
Agreement both parties shall have the opportunity to cure such breach within 30
days of receipt of notice of breach. Such notice shall specifically set forth
relevant facts upon which such allegations of breach are based.
9.15 MISCELLANEOUS.
a. As to any conflict between the Company and tile RMC concerning
this Business Development Services Agreement and the Non-Qualified Option
Agreement, the provisions of the Business Development Services Agreement
supersede and govern tile Non-Qualified Option Agreement.
b. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
c. This Agreement shall be binding upon any corporate or other
successor or assignee of the Company which shall acquire, directly or
indirectly, by merger, consolidation or purchase, or otherwise, all or
substantially all of tile business or assets of the Company. The Company shall
require any such successor, by an agreement in form and substance satisfactory
to RMC , expressly to assume and agree to perform this Agreement in the same
manner and to the same extent as the Company would be required to perform if no
such succession had taken place.
IN WITNESS WHEREOF, the parties hereto have caused this Business
Development Services Agreement to be executed as of the date first set forth
above.
KOO KOO ROO, INC.
By: /s/ Ken Berg
------------------
Ken Berg
Chairman
RESTAURANT MARKETING CORPORATION
BY: /s/ Mel Harris
---------------------
Mel Harris
10800 Biscayne Boulevard
Penthouse
Miami, FL 33161-7487
7
<PAGE>
EXHIBIT 10.72
NON-QUALIFIED STOCK OPTION AGREEMENT
FOR RESTAURANT MARKETING CORPORATION
NON-QUALIFIED STOCK OPTION AGREEMENT ("Option Agreement") dated as of
May 8, 1996, providing for the granting of an option by KOO KOO ROO, INC. , a
Delaware corporation (the "Company"), to Restaurant Marketing Corporation
("RMC").
The Board of Directors of the Company has determined that RMC is to be
granted an option to buy shares of the Company's common stock, par value $.O1
(the "Shares"), on the terms and subject to the conditions hereinafter provided.
1. NUMBER OF SHARES, OPTION PRICE. The Company hereby grants to RMC
------------------------------
a non-qualified option (the "Option") to purchase one million (1,000,000) Shares
(the "Option Shares") at a price per share (the "Option Price") of eight dollars
($8.00) on the terms and subject to the conditions set forth herein and in the
Business Development Services Agreement dated the same as above between RMC and
the Company ("Business Development Services Agreement"), which Business
Development Services Agreement is incorporated herein by this reference. RMC
shall not have any of the rights of a stockholder with respect to the Option
Shares covered hereby until such shares have been issued.
2. PERIOD OF OPTION AND CONDITIONS OF EXERCISE.
-------------------------------------------
2.1 The term of the Option shall commence on the date of this
Option Agreement (the "Date of Grant") and terminate on the earlier of ten
years from the Date of Grant (the "Expiration Date") and the time at which the
Option is completely terminated pursuant to Section 3 hereof. Upon the
termination of the Option, all rights of RMC hereunder shall cease.
2.2 The Option shall vest and become exercisable in accordance
with the provisions of Section 3. 1 of the Business Development Services
Agreement.
2.3 The Option may be exercised only to purchase whole Shares,
and in no case may a fraction of a Share be purchased. The right of RMC to
purchase Option Shares may be exercised in whole at any time or in part from
time to time after and to the extent that the Option becomes exercisable. No
partial exercise of the Option for less than ten thousand (10,000) Option Shares
is permissible.
3. TERMINATION OF OPTION. The Option shall terminate immediately upon
---------------------
the termination of tile Business Development Services AGREEMENT, but only to the
extent not then vested and exercisable.
<PAGE>
4. EXERCISE OF OPTION, TRANSFERABILITY.
-----------------------------------
4.1 All or a portion of the Option shall be deemed exercised upon delivery
to the Secretary of the Company a written notice specifying the number of shares
to be purchased signed by RMC (or such other person designated by it to exercise
the option) and payment in full of tile option price by any of the following or
combination thereof (a) cash, (b) certified or cashier's check payable to the
order of the Company, or (c) the delivery of whole shares of the Company's
common stock owned by RMC, which could be purchased with additional options if
approved by the Company at its sole discretion. For purposes of transactions
under subparagraphs (c), the value of shares shall be deemed to equal the fair
market value of tile stock on the date of the exercise of the option.
4.2 RMC shall have the right to assign all or a portion of the Options
along with the registration rights provided for in Section 3.2 of the Business
Development Services Agreement.
5. HOLDING OF STOCK AFTER EXERCISE OF OPTIONS. By accepting the Options,
------------------------------------------
RMC represents and agrees, for RMC, that none of the Option Shares acquired upon
exercise of the Options will be acquired with a view to any sale , transfer or
distribution of said shares in violation of the Securities Act of 1933, as
amended (the "Securities Act"), and the rules and regulations promulgated
thereunder.
6. ADJUSTMENTS UPON CERTAIN CHANGE. In the event of a merger,
-------------------------------
consolidation, reorganization, recapitalization, spinoff stock dividend or stock
split, or combination or other increase or reduction in the number of issued
shares of common stock, or extraordinary cash dividend or any other similar
event or transaction, the Board of Directors, in order to prevent the dilution
or enlargement of rights under this Option Agreement, shall adjust the number
and type of Option Shares subject to the Options and the Option Price so as not
to dilute any rights of RMC No fractional shares of stock will be issued on any
such adjustment.
7. COMPLIANCE WITH LAW. The Options shall not be exercised, and no
-------------------
Shares shall be issued in respect hereto unless in compliance with federal and
applicable state securities laws .
8. TAX TREATMENT. RMC acknowledges that the tax treatment of the
-------------
Options, the Shares subject to this Option Agreement or any events or
transactions with respect thereto may be dependent upon various factors or
events which are not determined by this Agreement. Company makes no
representations with respect to and hereby disclaims all responsibility as to
such tax treatment.
9. NON-QUALIFIED STATUS. The options are not intended to be "Incentive
--------------------
Stock Options" as defined in Section 422A of the Code and it shall not be
treated as an incentive stock option, whether or not, by its terms, it meets the
requirements of Section 422A.
2
<PAGE>
10. NOTICES. Any notice under this Option Agreement must be in writing,
--------
may be telecopies, sent by express 24-hour guaranteed courier, or hand-
delivered, or may be served by depositing the same in the United States mail,
addressed to the party to be notified, postage-prepaid and registered or
certified with a return receipt requested. The addresses of the parties for the
receipt of notice shall be as follows:
If to the Company: Koo Koo Roo, Inc.
Attention: Chief Financial Officer
11075 Santa Monica Boulevard
Suite 225
Los Angeles, California 90025
If to RMC: Restaurant Marketing Corporation
c/o Mel Harris
10800 Biscayne Boulevard - Penthouse
Miami, Florida 33161-7487
Each notice given by registered or certified mail shall be deemed delivered
and effective on the date of delivery as shown on the return receipt, and each
notice delivered in any other manner shall be deemed to be effective as of the
time of actual delivery thereof. Each party may change its address for notice by
giving notice thereof in the manner provided above.
12. FAILURE TO ENFORCE NOT A WAIVER. The failure of either party to
-------------------------------
enforce at any time any provision of this Option Agreement shall in no way be
construed to be a waiver of such provision or of any other provision hereof.
13. GOVERNING LAW. This Option Agreement shall be governed by and
-------------
construed according to the laws of the State of Delaware.
14. MISCELLANEOUS.
-------------
14.1 As to any conflict between the Company and RMC concerning the
Business Development Services Agreement and this Option Agreement, the
provisions of the Business Development Services Agreement supersede and govern
this Option Agreement.
14.2 The invalidity or unenforceability of any provision of this
Option Agreement shall not affect the validity or enforceability of any other
provision of this Option Agreement, which shall remain in full force and effect.
14.3 This Option Agreement shall be binding upon any corporate or
other successor or assignee of the Company which shall acquire, directly or
indirectly, by merger, consolidation or purchase, or otherwise, all or
substantially all of tile business or assets of the
3
<PAGE>
Company. The Company shall require any such successor, by an agreement in form
and substance satisfactory to RMC, expressly to assume and agree to perform this
Option Agreement in the same manner and to tile same extent as tile Company
would be required to perform if no such succession had taken place.
IN WITNESS WHEREOF, the Company has executed this Option Agreement in
duplicate on the day and year first above written.
KOO KOO ROO, INC.
By: /s/ Ken Berg
------------------
Ken Berg, Chairman
The undersigned hereby accepts, and agrees to, all of rms and provisions of
the foregoing Option Agreement.
RESTAURANT MARKETING CORPORATION
BY: /s/ Mel Harris
--------------------
Mel Harris
10800 Biscayne Boulevard
Penthouse
Miami, FL 33161-7487
4
<PAGE>
EXHIBIT 10.73
NON-QUALIFIED STOCK OPTION AGREEMENT
FOR RESTAURANT ACQUISITION CORP.
NON-QUALIFIED STOCK OPTION AGREEMENT ("Option Agreement") dated as of
May 8, 1996, providing for the granting of an option by KOO KOO ROO, INC., a
Delaware corporation (the "Company"), to Restaurant Acquisition Corp. ("RAC").
The Board of Directors of the Company has determined that RAC is to be
granted an option to buy shares of the Company's common stock, par value $.O1
(the "Shares"), on the terms and subject to the conditions hereinafter provided.
1. NUMBER OF SHARES, OPTION PRICE. The Company hereby grants to RAC a
------------------------------
non-qualified option (the "Option") to purchase three hundred fifty thousand
(350,000) Shares (the "Option Shares") at a price per share (tile "Option
Price") of eight dollars ($8.00) on the terms and subject to the conditions set
forth herein and in the Second Amendment to Area Development Agreement between
RAC, Koo Koo Roo Licensing Systems (an affiliate of the Company) and the Company
("the Agreement"), which Agreement is incorporated herein by this reference. RAC
shall not have any of the rights of a stockholder with respect to the Option
Shares covered hereby until such shares have been issued.
2. PERIOD OF OPTION AND CONDITIONS OF EXERCISE.
-------------------------------------------
2.1 The term of the Option shall commence on the date of this Option
Agreement (the "Date of Grant") and terminate ten years from the Date of Grant
(the -"Expiration Date"). Upon the termination of the Option, all rights of '(AC
hereunder shall cease.
2.2 The Option shall immediately vest and become exercisable.
2.3 The Option may be exercised only to purchase whole Shares, and in
no case may a fraction of a Share be purchased. The right of RAC to purchase
Option Shares may be exercised in whole at any time or in part from time to time
prior to the Expiration Date. No partial exercise of the Option for less than
ten thousand (10,000) Option Shares is permissible.
3. EXERCISE OF OPTION. TRANSFERABILITY.
-----------------------------------
3.1 All or a portion of the Option shall be deemed exercised upon
delivery to the Secretary of the Company a written notice specifying the number
of shares to be purchased signed by RAC (or such other person designated by it
to exercise the option) and payment in full of the option price by any of the
following or combination thereof (a) cash, (b) certified or cashier's check
payable to the order of the Company, or (C) the delivery of whole shares of the
Company's common stock owned by RAC, which could be purchased with additional
options if approved by the Company at its sole discretion. For purposes of
transactions under
<PAGE>
subparagraphs (c), the value of shares shall be deemed to equal the fair market
value of the stock on the date of the exercise of the option.
3.2 RAC shall have the right to assign all or a portion of the Options
along with the registration rights provided for in Section 4 of the Agreement.
4. HOLDING OF STOCK AFTER EXERCISE OF OPTIONS. By accepting the Options,
------------------------------------------
RAC represents and agrees, for RAC, tat none of the Option Shares acquired upon
exercise of the Options will be acquired with a view to any sale, transfer or
distribution of said shares in violation of the Securities Act of 1933, as
amended (the "Securities Act"), and the rules and regulations promulgated
thereunder.
5. ADJUSTMENTS UPON CERTAIN CHANGE. In the event of a merger,
-------------------------------
consolidation, reorganization, recapitalization, spinoff, stock dividend or
stock split, or combination or other increase or reduction in the number of
issued shares of common stock, or extraordinary cash dividend or any other
similar event or transaction, the Board of Directors, in order to prevent the
dilution or enlargement of rights under this Option Agreement, shall adjust the
number and type of Option Shares subject to the Options and the Option Price so
as not to dilute any rights of RAC . No fractional shares of stock will be
issued on any such adjustment.
6. COMPLIANCE WITH LAW. The Options shall not be exercised, and no
-------------------
Shares shall be issued in respect hereof, unless in compliance with federal
and applicable state securities laws.
7. TAX TREATMENT. RAC acknowledges that the tax treatment of the
-------------
Options, the Shares subject to this Option Agreement or any events or
transactions with respect thereto may be dependent upon various factors or
events which are not determined by this Agreement. Company makes no
representations with respect to and hereby disclaims all responsibility as to
such tax treatment.
8. NON-QUALIFIED STATUS. The options are not intended to be "Incentive
--------------------
Stock Options" as defined in Section 422A of the Code and it shall not be
treated as an incentive stock option, whether or not, by its terms, it meets the
requirements of Section 422A.
9. NOTICES. Any notice under this Option Agreement must be in writing,
-------
may be telecopies, sent by express 24-hour guaranteed courier, or hand-
delivered, or may be served by depositing the same in the United States mail,
addressed to the party to be notified, postage-prepaid and registered or
certified with a return receipt requested. The addresses of the parties for the
receipt of notice shall be as follows:
2
<PAGE>
If to the Company: Koo Koo Roo, Inc.
Attention: Chief Financial Officer
11075 Santa Monica Boulevard
Suite 225
Los Angeles, California 90025
If to RAC: Restaurant Acquisition Corp.
c/o Mel Harris
10800 Biscayne Boulevard - Penthouse
Miami, Florida 33161-7487
Each notice given by registered or certified mail shall be deemed delivered
and effective on the date of delivery as shown on the return receipt, and each
notice delivered in any other manner shall be deemed to be effective as of the
time of actual delivery thereof. Each party may change its address for notice by
giving notice thereof in the manner provided above.
10. FAILURE TO ENFORCE NOT A WAIVER. The failure of either party to
-------------------------------
enforce at any time any provision of this Option Agreement shall in no way be
construed to be a waiver of such provision or of any other provision hereof.
11. GOVERNING LAW. This Option Agreement shall be governed by and
-------------
construed according to the laws of the State of Delaware.
12. MISCELLANEOUS.
-------------
12.1 As to any conflict between the Company and RAC concerning the
Agreement and this Option Agreement, the provisions of the Agreement supersede
and govern this Option Agreement.
12.2 The invalidity or unenforceability of any provision of this
Option Agreement shall not affect the validity or enforceability of any other
provision of this Option Agreement, which shall remain in full force and effect.
12.3 This Option Agreement shall be binding upon any corporate or
other -successor or assignee of the Company which shall acquire, directly or
indirectly, by merger, consolidation or purchase, or otherwise, all or
substantially all of the business or assets of the Company. The Company shall
require any such successor, by an agreement in form and substance satisfactory
to RAC, expressly to assume and agree to perform this Option Agreement in the
same manner and to the same extent as the Company would be required to perform
if no such succession had taken place.
3
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Option Agreement in
duplicate on the day and year first above written.
KOO KOO ROO, INC.
By: /s/ Ken Berg
--------------------
Ken Berg, Chairman
The undersigned hereby accepts, and agrees to, all of the terms and
provisions of the foregoing Option Agreement.
RESTAURANT ACQUISITION CORPORATION
BY: /s/ Mel Harris
--------------------
Mel Harris
10800 Biscayne Boulevard
Penthouse
Miami, FL 33161-7487
4
<PAGE>
EXHIBIT 10.74
SECOND AMENDMENT TO AREA DEVELOPMENT AGREEMENT
THIS SECOND AMENDMENT TO AREA DEVELOPMENT AGREEMENT (the "Second
Amendment") is made and entered into as of the 8th day of May 1996, by and
between Restaurant Acquisition Corp. ("Developer"), Koo Koo Roo, Inc. , a
Delaware Corporation (the "Company"), and Koo Koo Roo Licensing SYSTEMS, Inc.
("Licensing Systems").
WHEREAS, Licensing Systems and Mel Harris entered into an Area Development
Agreement dated August 19, 1993; and
WHEREAS, Mel Harris assigned the Area Development Agreement to Developer
pursuant to an Assignment and Assumption Agreement dated June 16, 1994; and
WHEREAS, Developer and the Licensing Systems entered into a First Amendment
to Area Development Agreement Between Koo Koo Roo Licensing Systems, Inc. and
Restaurant Acquisition Corp. as of August 14, 1995 (the Area Development
Agreement and the first amendment thereto are collectively referred to as the
"Area Development Agreement"); and
WHEREAS, the Area Development Agreement provides Developer with certain
rights to develop Koo Koo Roo restaurant locations in an Exclusive Development
Area; and
WHEREAS, Licensing Systems and the Company desire to limit Developer's
rights to develop Koo Koo Roo restaurant locations in the Exclusive Development
Area, and, in consideration of the granting and vesting of certain stock
options, Developer is willing to accept certain limits On his development
rights;
NOW, THEREFORE, the parties agree as follows;
1. The effective date of this Second Amendment shall be May 8, 1996 (the
"Effective Date").
2. On and after the Effective Date:
<PAGE>
a. Licensing Systems and the Company may only develop Koo Koo Roo
restaurants in the Exclusive Development Area in accordance with the terms and
provisions of the Joint Development Agreement entered into between the Company
and Developer on May 17, 1996 (the "Joint Development Agreement").
b. Developer may only develop Koo Koo Roo restaurants in the
Exclusive Development-ent Area in accordance with the terms and provisions of
the Joint Development Agreement, unless Licensing Systems or the Company
otherwise consent in writing, in their sole discretion.
3. In consideration for entering into this Second Amendment, the Company
shall grant to Developer options, pursuant to the terms of the Non-Qualified
Stock Option Agreement attached hereto as Exhibit "A" and incorporated herein by
this reference, to purchase three- hundred fifty thousand (350,000) shares of
the Company's common stock, at eight dollars ($3.00) per share (the "Stock
Options"). The Stock Options shall vest and become exercisable immediately.
4. (a) If Company decides to file a registration statement to register
for public offering any of its securities, the Company shall, at Company's sole
expense, subject to underwriters approval, and pre-existing registration rights
agreements with third parties, include in any such registration statement all of
the Company common stock owned by Developer, or which could be owned by
Developer upon exercise of the Stock Options. The Company agrees that in
connection with any registration statement it shall prepare and file whatever
pre-effective and post-effective amendments that the Securities and Exchange
Commission shall require.
(b) Immediately after April 21, 1997, Company shall, at Company's
sole expense, prepare and file such registration statements and all necessary
documents, including pre-effective
<PAGE>
and post-effective amendments (the "Registration statements") as may be
necessary in order to comply with the Securities Act of 1933, as amended, and
appropriate state securities laws, so as to permit the public offering and sale,
at any time and from time to time, except for customary blackout periods
including blackout periods during material non-public acquisition negotiations,
SEC required quiet periods, and underwriter requested lockup periods during or
after arms-length underwritten public offerings, of any or all Company common
stock owned by Developer, or which could be owned by Developer upon exercise of
the Stock Options. The Company shall use its best efforts to make the
Registration Statements effective as promptly as practicable. Developer's rights
as set forth in this Section 4(b) are in addition to the registration rights
under Section 4(a) of this Second Amendment. Developer shall have the right to
assign all or a portion of the Options along with the registration rights
provided for in Section 4 of this Second Amendment, subject to necessary
amendments and blackout periods as noted above.
5. Except as otherwise provided in this Second Amendment, the terms and
provisions of tile Area Development Agreement are and shall remain in full force
and effect.
IN WITNESS WHEREOF, the parties have caused this agreement to be executed
as of May 8, 1996.
KOO KOO ROO, INC.
By: /s/ Ken Berg RESTAURANT ACQUISITION CORP.
-----------------
Ken Berg
Chairman BY: /s/ Mel Harris
--------------------
Mel Harris, Chairman
KOO KOO ROO LICENSING 10800 Biscayne Boulevard
SYSTEMS, INC. Penthouse
Miami, FL 33161-7487
By: /s/ Ken Berg
-----------------
Ken Berg
Chairman
<PAGE>
EXHIBIT 10.75
MEL HARRIS
10800 BISCAYNE BOULEVARD
PENTHOUSE
MIAMI, FLORIDA 33161-7487
May 8, 1996
Ken Berg, Chairman
Koo Koo Roo, Inc.
11075 Santa Monica Boulevard
Suite 225
Los Angeles, California 90025
RE: Employment Agreement and Non-Qualified Stock Option Agreement Between
Mel Harris and Koo Koo Roo, Inc. (the "Company")
Dear Ken:
This letter reflects that pursuant to the Employment Agreement dated August
19, 1993, between the Company and me (the "Employment Agreement"), and the Non-
Qualified Stock Option Agreement for Mel Harris of the same date, the Company
granted me the option to , purchase one million shares of the Company's common
stock at $4.50 per share. Of these one million option shares, 650,000 options
have vested and are exercisable immediately. You advised me that the Company
desires to cancel substantially all of the remaking 350,000 shares, and, in
consideration for my permitting such cancellation, would agree to vest 1,000
additional option shares and provide certain registration rights with respect to
all of my vested option shares.
Accordingly, Company shall vest and make immediately exercisable 1,000 of
the remaining 350,000 option shares. The balance of such option shares (349,000)
shall be immediately canceled and revoked. Thus, when the 1,000 newly vested
options are added to -tile 650,000 previously-vested options issued pursuant to
Section 3 . 1 of the Employment Agreement, I and my assignees shall have vested
options to purchase 651,000 shares of the Company's common stock at an exercise
price of $4.50 per share.
Additionally, section 3.4 of the Employment Agreement shall be amended to
read, in total, as follows:
3.4 REGISTRATION. (a) If the Company decides to file a registration
statement to register for public offering any of its securities, the
Company shall, at Company's sole expense, subject to underwriter approval
and pre-existing registration rights agreements with third parties, include
in any such registration statement all of the Company common stock owned by
Executive and his
<PAGE>
assignees, or which could be owned by Executive and his assignees upon
exercise of vested Stock Options. The Company agrees that in connection
with any registration statement it shall prepare and file whatever pre-
effective and post-effective amendments that the Securities and Exchange
Commission shall require.
(b) Immediately after April 21, 1997, Company shall, at Company's sole
expense, prepare and file such registration statements and all necessary
documents, including pre-effective and post-effective amendments (the
"Registration Statements") as may be necessary in order to comply with the
Securities Act of 1933, as amended, and appropriate state securities laws,
so as to permit the public offering and sale, at any time and from time to
time, except for customary blackout periods including blackout periods
during material nonpublic acquisition negotiations, SEC required quiet
periods, and underwriter requested lock-up periods, during or after arms-
length underwritten public offerings, of any or all Company common stock
owned by Executive and his assignees, or which could be owned by Executive
and his assignees upon exercise of vested Stock Options. The Company shall
use its best efforts to make the Registration Statements effective as
promptly as practicable. Executive's rights as set forth in this Section
3.4(b) are in addition to the registration rights under Section 3.4(a) of
this Agreement, subject to necessary amendments and blackout periods as
noted above.
Finally, I and my assignees shall be permitted to exercise any or all of
the option shares by paying the option price by means of any of the following or
combination thereof (a) cash, (b) certified or cashier's check payable to the
order of the Company or (C) the delivery of whole shares of the Company's common
stock owned by me or my assignees, which could be purchased with additional
options if approved by the Company at its sole discretion. For purposes of
transactions under (c), the value of shares shall be deemed to equal the fair
market value of the stock on the date of the exercise of the option.
Please indicate the Company's agreement with the above by signing below and
returning an original of this letter to me .
SINCERELY,
/s/ Mel Harris
Mel Harris
KOO KOO ROO, INC.
By: /s/ Ken Berg
------------------
Ken Berg, Chairman
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Names Under which
State of Incorporation Subsidiary does
Name of Subsidiary or Organization Business
- --------------------------------- ---------------------- ------------------------------
<S> <C> <C>
Arrosto Coffee Company, Inc. California Arrosto Coffee Company
Koo Koo Roo Chicken, Inc. New Jersey Koo Koo Roo Chicken, Inc.
Color Me Mine, Inc. California Color Me Mine
Lean Chick, Inc. California Lean Chick, Inc.
Food-eez, Inc. California Food-eez, Inc.
Koo Koo Roo Licensing Systems, Inc. California Koo Koo Roo Licensing Systems, Inc.
Koo Koo Roo Florida 102J, Ltd. Florida Koo Koo Roo California Kitchen
Koo Koo Roo Florida 103J, Ltd. Florida Koo Koo Roo California Kitchen
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Koo Koo Roo, Inc.
Los Angeles, California
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form S-1 of our report dated March 8, 1996, except for
Note 14 which is as of March 22, 1996, relating to the consolidated financial
statements of Koo Koo Roo, Inc. which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
Los Angeles, California
June 11, 1996
