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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
-----------------------
KOO KOO ROO, INC.
(Name of Issuer)
-----------------------
KOO KOO ROO, INC.
(Name of Person(s) Filing Statement)
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$5.70 Warrants to Purchase Common Stock expiring May 31, 1998
$5.75 Warrants to Purchase Common Stock expiring May 31, 1998
(Titles of Classes of Securities)
-----------------------
None
(CUSIP Numbers of Classes of Securities)
-----------------------
Robert F. Kautz
Chief Financial Officer
11075 Santa Monica Boulevard, Suite 225
Los Angeles, California 90025
(310) 479-2080
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of Person(s) Filing Statement)
Copies to:
Ronald Garber, Esq. Cynthia A. Rotell, Esq.
Koo Koo Roo, Inc. Latham & Watkins
11075 Santa Monica Boulevard 633 West Fifth Street
Suite 225 Los Angeles, California 90071-2007
Los Angeles, California 90025 (213) 485-1234
(310) 479-2080
October 9, 1996
(Date Tender Offer First Published, Sent or Given to Security Holders)
CALCULATION OF FILING FEE
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TRANSACTION VALUATION* AMOUNT OF
FILING FEE
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$2,395,726 $480
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* Determined pursuant to Rule 0-11(b)(1) of the Securities Exchange Act of
1934, as amended. Assumes the purchase of all 1,669,362 outstanding
Warrants at the tender offer price of $2.00 per Warrant.
[_] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: _______________
Form or Registration No.: _____________
Filing Party: _________________________
Date Filed: ___________________________
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ITEM 1. SECURITY AND ISSUER.
(a) The name of the Issuer is Koo Koo Roo, Inc., a Delaware corporation
(the "Company"). The Company's principal executive office is located at 11075
Santa Monica Boulevard, Suite 225, Los Angeles, California 90025.
(b) Reference is hereby made to the information set forth on the cover
page and inside front cover page of the Offer to Purchase, which is
incorporated herein by reference from Exhibit (a)(1) hereto. Defined terms
used herein and not otherwise defined herein have the meanings set forth in
the Offer to Purchase.
(c) There is currently no established trading market for the Warrants.
(d) Not applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) Reference is hereby made to the information set forth in "9. Source
and Amount of Funds" of the Offer to Purchase, which is incorporated herein by
reference.
(b) Not applicable.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
(a)-(j) Reference is hereby made to the information set forth in "7.
Purpose of the Offer; Certain Effects of the Offer" of the Offer to Purchase,
which is incorporated herein by reference. Except as set forth in the Offer
to Purchase, the Company has no present plans or proposals which would relate
to, or would result in, any transaction, change or other occurrence with
respect to the Company or any class of its equity securities as is listed in
paragraphs (a) through (j) of Item 3 of Schedule 13E-4.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
Reference is hereby made to the information set forth in "10.
Transactions and Agreements Concerning Shares" of the Offer to Purchase, which
is incorporated herein by reference.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES.
Reference is hereby made to the information set forth in "10.
Transactions and Agreements Concerning the Warrants" of the Offer to Purchase,
which is incorporated herein by reference.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
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Reference is hereby made to the information set forth in "13. Fees and
Expenses" of the Offer to Purchase, which is incorporated herein by reference.
ITEM 7. FINANCIAL INFORMATION.
The incorporation by reference herein of the financial information
described below does not constitute an admission that such information is
material to a Warrantholder's decision to tender, sell or hold the Warrants
being sought in the Offer.
(a)(1) The audited financial statements required by Item 7(a)(1) are
contained in Exhibit (g) hereto and such information is incorporated herein by
reference.
(a)(2) The unaudited financial statements required by Item 7(a)(2) are
contained in Exhibit (h) hereto and such information is incorporated herein by
reference.
(a)(3) The Company's earnings were insufficient to cover fixed charges and
preferred dividends by $4,781,539 and $6,910,835 for the years ended December
31, 1994 and 1995, and by $2,966,520 and $3,722,207 for the six months ended
June 30, 1995 and 1996. For purposes of computing the ratio of earnings to
fixed charges and preferred dividends, "earnings" consist of earnings before
income taxes, extraordinary items and fixed charges. "Fixed charges and
preferred dividends" consist of interest on all indebtedness and preferred
dividends.
(a)(4) The Company's book value per common share, after reduction of the
preferred stock liquidation value, amounts to $1.50 per share as of December
31, 1995 and $1.26 per share as of June 30, 1996. After giving effect to the
redemption of up to 1,197,763 warrants at $2.00 per Warrant and assuming a
maximum redemption, the pro forma book value per share would be $1.34 per
share as of December 31, 1995 and $1.10 per share as of June 30, 1996.
(b) The information set forth in "8. Certain Information Concerning the
Company" of the Offer to Purchase is incorporated herein by reference.
ITEM 8. ADDITIONAL INFORMATION.
(a) None.
(b) None.
(c) Not applicable.
(d) None.
(e) The information set forth in the Offer to Purchase and the related
Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1)
and (a)(2), respectively, is incorporated herein by reference.
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ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit No. Description
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(a)(1) Offer to Purchase dated October 9, 1996.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter from the Company to Warrantholders.
(a)(5) Guidelines of the Internal Revenue Service for Certification
of Taxpayer Identification Number on Substitute Form W-9.
(a)(6) Text of Press Releases dated October 3 and 8, 1996.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g) Audited Financial Statements for the fiscal years ended
December 31, 1994 and 1995.
(h) Unaudited Financial Statements for the six months ended
June 30, 1995 and 1996.
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and
correct.
Dated: October 8, 1996 KOO KOO ROO, INC.
BY /S/ ROBERT F. KAUTZ
---------------------------------------------------------
NAME: ROBERT F. KAUTZ
TITLE: CHIEF FINANCIAL OFFICER
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EXHIBIT INDEX
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SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
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(a)(1) Offer to Purchase dated October 9, 1996.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter from the Company to Warrantholders.
(a)(5) Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9.
(a)(6) Text of Press Releases dated October 3 and 8, 1996.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g) Audited Financial Statements for the fiscal years ended December 31, 1994 and 1995.
(h) Unaudited Financial Statements for the six months ended June 30, 1995 and 1996.
</TABLE>
<PAGE>
EXHIBIT (a)(1)
KOO KOO ROO, INC.
OFFER TO PURCHASE FOR CASH
ANY AND ALL OUTSTANDING
$5.70 WARRANTS TO PURCHASE COMMON STOCK EXPIRING MAY 31, 1998 AND
$5.75 WARRANTS TO PURCHASE COMMON STOCK EXPIRING MAY 31, 1998
AT $2.00 PER WARRANT
__________________
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, NOVEMBER 7, 1996
UNLESS THE OFFER IS EXTENDED
__________________
Koo Koo Roo, Inc., a Delaware corporation (the "Company"), invites its
warrantholders (the "Warrantholders") to tender the Company's warrants to
purchase common stock expiring May 31, 1998, each such warrant entitling the
holder thereof to purchase one share of the Company's common stock, $.01 par
value (the "Common Stock"), subject to adjustment in certain events, at a
purchase price of $5.70 per share (the "$5.70 Warrants to Purchase Common
Stock"), and the Company's warrants to purchase common stock expiring May 31,
1998, each such warrant entitling the holder thereof to purchase one share of
the Company's Common Stock, subject to adjustment in certain events, at a
purchase price of $5.75 per share (the "$5.75 Warrants to Purchase Common
Stock," and together with the $5.70 Warrants to Purchase Common Stock, the
"Warrants"), at a price, net to the seller in cash, without interest thereon, of
$2.00 per Warrant (the "Purchase Price"), upon the terms and subject to the
conditions set forth herein and in the related Letter of Transmittal (which
together constitute the "Offer"). The Company will purchase all Warrants
validly tendered and not withdrawn on or prior to the Expiration Date (as
defined in Section 1), upon the terms and subject to the conditions of the Offer
described herein. The Purchase Price will be paid in cash, net to the seller,
without interest thereon, with respect to all Warrants purchased.
__________________
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER
OF WARRANTS BEING TENDERED. THE OFFER IS, HOWEVER,
SUBJECT TO OTHER CONDITIONS. SEE SECTION 5.
__________________
IMPORTANT
Any Warrantholder desiring to tender all or any portion of such
Warrantholder's Warrants should complete and sign the Letter of Transmittal or a
facsimile thereof in accordance with the instructions in the Letter of
Transmittal, and mail or deliver it and any other required documents (including
the certificates representing the Warrants to be tendered) to Ronald Garber,
Esq., the Company's Corporate Secretary and General Counsel, who will act as
depositary and escrow agent for the Offer (the "Depositary"). Any Warrantholder
who desires to tender Warrants and whose certificates for such Warrants are not
immediately available for delivery to the Depositary, should tender such
Warrants by following the procedures for guaranteed delivery set forth in
Section 2.
__________________
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION
TO ANY WARRANTHOLDER AS TO WHETHER TO TENDER ALL OR ANY WARRANTS. EACH
WARRANTHOLDER MUST MAKE SUCH WARRANTHOLDER'S OWN DECISION AS TO WHETHER TO
TENDER WARRANTS AND, IF SO, HOW MANY WARRANTS TO TENDER. THE COMPANY
HAS BEEN ADVISED THAT NO DIRECTOR OR OFFICER OF THE COMPANY
INTENDS TO TENDER WARRANTS PURSUANT TO THE OFFER.
The date of this Offer to Purchase is October 9, 1996.
<PAGE>
As of October 7, 1996, the Company had issued and outstanding 784,763 $5.70
Warrants to Purchase Common Stock and 413,100 $5.75 Warrants to Purchase Common
Stock. Neither the Warrants nor the Common Stock into which the Warrants are
exercisable has been registered under the Securities Act of 1933, as amended
(the "Securities Act") and the Warrants are not traded or listed or included for
quotation on any securities exchange or automated quotation system (see "7.
Purpose of the Offer - Certain Effects of the Offer"). The Company's Common
Stock is traded on the Nasdaq National Market under the symbol "KKRO." On
October 4, 1996, the last reported sale price of the Common Stock on the Nasdaq
National Market was $7.375 per share. WARRANTHOLDERS ARE URGED TO OBTAIN CURRENT
MARKET QUOTATIONS FOR THE COMMON STOCK.
Questions or requests for assistance or for additional copies of this Offer
to Purchase, the Letter of Transmittal or other tender offer materials may be
directed to Ronald Garber, Esq. at the Company, 11075 Santa Monica Boulevard,
Suite 225, Los Angeles, California 90025, telephone number (310) 479-2080, and
such copies will be furnished promptly at the Company's expense.
No person has been authorized to make any recommendation on behalf of the
Company as to whether Warrantholders should tender Warrants pursuant to the
Offer nor has any person been authorized to give any information or make any
representations in connection with the Offer other than those contained herein
or in the related Letter of Transmittal. If given or made, such recommendation
and such other information and representations must not be relied upon as having
been authorized by the Company.
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TABLE OF CONTENTS
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PAGE
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1. NUMBER OF WARRANTS................................................. 1
2. PROCEDURE FOR TENDERING WARRANTS................................... 1
3. WITHDRAWAL RIGHTS.................................................. 2
4. ACCEPTANCE FOR PAYMENT OF WARRANTS AND PAYMENT OF PURCHASE PRICE... 3
5. CERTAIN CONDITIONS OF THE OFFER.................................... 4
6. PRICE RANGE OF COMMON STOCK........................................ 5
7. PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER................. 6
8. CERTAIN INFORMATION CONCERNING THE COMPANY......................... 7
9. SOURCE AND AMOUNT OF FUNDS......................................... 9
10. TRANSACTIONS AND AGREEMENTS CONCERNING THE WARRANTS............... 9
11. CERTAIN FEDERAL INCOME TAX CONSEQUENCES........................... 10
12. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS............... 10
13. FEES AND EXPENSES................................................. 11
14. MISCELLANEOUS..................................................... 11
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i
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TO THE HOLDERS OF $5.70 WARRANTS TO
PURCHASE COMMON STOCK AND $5.75 WARRANTS
TO PURCHASE COMMON STOCK OF KOO KOO ROO, INC.
INTRODUCTION
Koo Koo Roo, Inc., a Delaware corporation (the "Company"), invites its
warrantholders (the "Warrantholders") to tender the Company's warrants to
purchase common stock expiring May 31, 1998, each such warrant entitling the
holder thereof to purchase one share of the Company's common stock, $.01 par
value (the "Common Stock") at a purchase price of $5.70 per share (the "$5.70
Warrants to Purchase Common Stock"), and the Company's warrants to purchase
common stock expiring May 31, 1998, each such warrant entitling the holder
thereof to purchase one share of the Company's Common Stock at a purchase price
of $5.75 per share (the "$5.75 Warrants to Purchase Common Stock," and together
with the $5.70 Warrants to Purchase Common Stock, the "Warrants"), at a price,
net to the seller in cash, without interest thereon, of $2.00 per Warrant (the
"Purchase Price"), upon the terms and subject to the conditions set forth herein
and in the related Letter of Transmittal (which together constitute the
"Offer").
The Company will purchase all Warrants validly tendered and not withdrawn on
or prior to the Expiration Date (as defined in Section 1), upon the terms and
subject to the conditions of the Offer described herein. The Purchase Price
will be paid in cash, net to the seller, without interest thereon, with respect
to all Warrants purchased.
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF WARRANTS BEING
TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE
SECTION 5.
Tendering Warrantholders will not be obligated to pay brokerage commissions,
solicitation fees or, subject to the Instructions to the Letter of Transmittal,
transfer taxes on the purchase of Warrants by the Company. ANY TENDERING
WARRANTHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE AND SIGN THE SUBSTITUTE FORM
W-9 THAT IS INCLUDED IN THE LETTER OF TRANSMITTAL MAY BE SUBJECT TO UNITED
STATES FEDERAL INCOME TAX BACKUP WITHHOLDING EQUAL TO 31% OF THE GROSS PROCEEDS
PAYABLE TO SUCH WARRANTHOLDER OR OTHER PAYEE PURSUANT TO THE OFFER. SEE SECTION
2.
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO ANY
WARRANTHOLDERS AS TO WHETHER TO TENDER ALL OR ANY WARRANTS. EACH WARRANTHOLDER
MUST MAKE SUCH WARRANTHOLDER'S OWN DECISION AS TO WHETHER TO TENDER WARRANTS
AND, IF SO, HOW MANY WARRANTS TO TENDER. THE COMPANY HAS BEEN ADVISED THAT NO
DIRECTOR OR OFFICER OF THE COMPANY INTENDS TO TENDER WARRANTS PURSUANT TO THE
OFFER.
As of October 7, 1996, the Company had issued and outstanding 784,763 $5.70
Warrants to Purchase Common Stock and 413,100 $5.75 Warrants to Purchase Common
Stock. If exercised, the 1,197,863 Warrants that the Company is offering to
purchase pursuant to the Offer would represent approximately 8.0% of the
Company's outstanding Common Stock (excluding the effect of the exercise or
conversion of the Company's other outstanding warrants, options and convertible
preferred stock).
The Warrants are not traded or listed or included for quotation on any
securities exchange or automated quotation system. The Company's Common Stock
trades on the Nasdaq National Market under the symbol "KKRO." On October 4,
1996, the last reported sale price of the Common Stock on the Nasdaq National
Market was $7.375 per share. See Section 6. STOCKHOLDERS ARE URGED TO OBTAIN
CURRENT MARKET QUOTATIONS FOR THE COMMON STOCK.
ii
<PAGE>
1. NUMBER OF WARRANTS
Upon the terms and subject to the conditions described herein and in the
Letter of Transmittal, the Company will purchase any and all Warrants that are
validly tendered on or prior to the Expiration Date (as defined below) and not
properly withdrawn in accordance with Section 3 at a price of $2.00 per Warrant.
The later of 12:00 midnight, New York City time, on Thursday, November 7, 1996
or the latest time and date to which the Offer is extended pursuant to Section
12, is referred to herein as the "Expiration Date."
The Offer is not conditioned on any minimum number of Warrants being tendered.
The Offer is, however, subject to certain other conditions. See Section 5.
The Company expressly reserves the right, in its sole discretion, at any time
or from time to time, to extend the period of time during which the Offer is
open by making a public announcement thereof. See Section 12. There can be no
assurance, however, that the Company will exercise its right to extend the
Offer.
For purposes of the Offer, a "business day" means any day other than a
Saturday, Sunday or federal holiday and consists of the time period from 12:01
a.m. through 12:00 midnight, New York City time.
Copies of this Offer to Purchase and the related Letter of Transmittal are
being mailed to all record holders of Warrants.
2. PROCEDURE FOR TENDERING WARRANTS
To tender Warrants validly pursuant to the Offer, either (a) a properly
completed and duly executed Letter of Transmittal or facsimile thereof, together
with any required signature guarantees and any other documents required by the
Letter of Transmittal (including the certificates representing the Warrants to
be tendered), must be received by the Depositary, on or prior to the Expiration
Date, or (b) the tendering holder of Warrants must comply with the guaranteed
delivery procedure described below including, without limitation, completion and
execution of one or more Letters of Transmittal.
Except as set forth below, all signatures on a Letter of Transmittal must be
guaranteed by a firm that is a member of a registered national securities
exchange or the National Association of Securities Dealers, Inc., or by a
commercial bank or trust company having an office or correspondent in the United
States which is a participant in an approved Signature Guarantee Medallion
Program (each of the foregoing being referred to as an "Eligible Institution").
Signatures on a Letter of Transmittal need not be guaranteed if the Letter of
Transmittal is signed by the registered holder of the Warrants tendered
therewith and such holder has not completed the box entitled "Special Payment
Instructions" or the box entitled "Special Delivery Instructions" on the Letter
of Transmittal.
If a Warrantholder desires to tender Warrants pursuant to the Offer and cannot
deliver certificates for such Warrants and all other required documents to the
Depositary on or prior to the Expiration Date, such Warrants may nevertheless be
tendered if all of the following conditions are met:
i. such tender is made by or through an Eligible Institution;
ii. a properly completed and duly executed Notice of Guaranteed Delivery
in the form provided by the Company (with any required signature guarantees)
is received by the Depositary, as provided below, on or prior to the
Expiration Date; and
iii. the certificates for such tendered Warrants together with a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) and
any other documents required by the Letter of Transmittal, are received by the
Depositary no later than 5:00 p.m., New York City time, on the third business
day after the date of execution of the Notice of Guaranteed Delivery.
1
<PAGE>
The Notice of Guaranteed Delivery may be delivered by hand, transmitted by
facsimile transmission or mailed to the Depositary and must include a guarantee
by an Eligible Institution in the form set forth in such Notice.
THE METHOD OF DELIVERY OF WARRANTS AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
OPTION AND RISK OF THE TENDERING WARRANTHOLDER. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
TO PREVENT UNITED STATES FEDERAL INCOME TAX BACKUP WITHHOLDING EQUAL TO 31% OF
THE GROSS PAYMENTS MADE PURSUANT TO THE OFFER, EACH TENDERING WARRANTHOLDER MUST
PROVIDE THE DEPOSITARY WITH SUCH WARRANTHOLDER'S CORRECT TAXPAYER IDENTIFICATION
NUMBER AND CERTAIN OTHER INFORMATION BY PROPERLY COMPLETING THE SUBSTITUTE FORM
W-9 INCLUDED IN THE LETTER OF TRANSMITTAL. For a discussion of certain federal
income tax consequences to tendering Warrantholders, see Section 11. EACH
WARRANTHOLDER IS URGED TO CONSULT WITH SUCH WARRANTHOLDER'S OWN TAX ADVISOR
REGARDING SUCH WARRANTHOLDER'S QUALIFICATION FOR EXEMPTION FROM BACKUP
WITHHOLDING AND THE PROCEDURE FOR OBTAINING ANY APPLICABLE EXEMPTION.
All questions as to the form of documents and validity, eligibility (including
time of receipt) and acceptance for payment of any tender of Warrants will be
determined by the Company, in its sole discretion, which determination shall be
final and binding on all parties. The Company reserves the absolute right to
reject any or all tenders of Warrants that it determines are not in proper form
or the acceptance for payment of or payment for Warrants that may, in the
opinion of the Company's counsel, be unlawful. The Company also reserves the
absolute right to waive any defect or irregularity in any tender of any
particular Warrants. The Company is not under any duty to give notice of any
defect or irregularity in tenders, nor shall it incur any liability for failure
to give any such notice.
3. WITHDRAWAL RIGHTS
Tender of Warrants made pursuant to the Offer may be withdrawn at any time
prior to the Expiration Date. Thereafter, such tenders are irrevocable, except
that they may be withdrawn after 12:00 midnight, New York City time, November 6,
1996 unless theretofore accepted for payment by the Company as provided in this
Offer to Purchase. If the Company extends the period of time during which the
Offer is open, is delayed in accepting for payment or paying for Warrants or is
unable to accept for payment or pay for Warrants pursuant to the Offer for any
reason, then, without prejudice to the Company's rights under the Offer, the
Depositary may, on behalf of the Company, retain all Warrants tendered, and such
Warrants may not be withdrawn except as otherwise provided in this Section 3,
subject to Rule 13e-4(f)(5) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which provides that the issuer making the tender
offer shall either pay the consideration offered, or return the tendered
securities promptly after the termination or withdrawal of the tender offer.
Tenders of Warrants made pursuant to the Offer may not be withdrawn after the
Expiration Date, except that they may be withdrawn after 12:00 midnight, New
York City time, November 6, 1996 unless accepted for payment by the Company as
provided in this Offer to Purchase. For a withdrawal to be effective prior to
that time, a holder of Warrants must provide a written, telegraphic or facsimile
transmission notice of withdrawal to the Depositary before the Expiration Date,
which notice must contain: (A) the name of the person who tendered the
Warrants; (B) a description of the Warrants to be withdrawn; (C) the certificate
numbers shown on the particular certificates evidencing such Warrants; (D) the
signature of such Warrantholder executed in the same manner as the original
signature on the Letter of Transmittal (including any signature guarantee (if
such original signature was guaranteed)); and (E) if such Warrants are held by a
new beneficial owner, evidence satisfactory to the Company that the person
withdrawing the tender has
2
<PAGE>
succeeded to the beneficial ownership of the Warrants. A purported notice of
withdrawal which lacks any of the required information will not be an effective
withdrawal of a tender previously made.
Any permitted withdrawals of tenders of Warrants may not be rescinded, and any
Warrants so withdrawn will thereafter be deemed not validly tendered for
purposes of the Offer; provided, however, that withdrawn Warrants may be re-
tendered by following the procedures for tendering prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by the Company, in its sole discretion,
which determination shall be final and binding on all parties. Neither the
Company nor any other person is or will be under any duty to give notification
of any defect or irregularity in any notice of withdrawal or incur any liability
for failure to give any such notification.
4. ACCEPTANCE FOR PAYMENT OF WARRANTS AND PAYMENT OF PURCHASE PRICE
Upon the terms and subject to the conditions of the Offer and as promptly as
practicable after the Expiration Date, the Company will accept for payment and
pay the Purchase Price for Warrants validly tendered and not withdrawn. Payment
for all Warrants validly tendered on or prior to the Expiration Date and
accepted for payment pursuant to the Offer will be made by the Company by check
as promptly as practicable. In all cases, payment for Warrants accepted for
payment pursuant to the Offer will be made only after timely receipt by the
Depositary of certificates for such Warrants, a properly completed and duly
executed Letter of Transmittal or facsimile thereof, with any required signature
guarantees, and any other required documents.
For purposes of the Offer, the Company shall be deemed to have accepted for
payment (and thereby purchased) Warrants that are validly tendered and not
withdrawn as, if and when it gives oral or written notice to the Depositary of
the Company's acceptance for payment of such Warrants. The Depositary will act
as escrow agent for tendering Warrantholders for the purpose of receiving
payment from the Company and transmitting payment to tendering Warrantholders.
Under no circumstances will interest be paid on amounts to be paid to tendering
Warrantholders, regardless of any delay in making such payment.
Payment for Warrants may be delayed in the event of difficulty in determining
the number of Warrants properly tendered. See Section 2. In addition, if
certain events occur, the Company may not be obligated to purchase Warrants
pursuant to the Offer. See Section 5. Certificates for Warrants not purchased
will be returned as promptly as practicable following the Expiration Date
without expense to the tendering Warrantholder.
The Company will pay or cause to be paid any transfer taxes with respect to
the sale and transfer of any Warrants to it or its order pursuant to the Offer.
If, however, payment of the Purchase Price is to be made to, or a portion of the
Warrants delivered but not tendered or not purchased are to be registered in the
name of, any person other than the registered holder, or if tendered Warrants
are registered in the name of any person other than the person signing the
Letter of Transmittal (unless such person is signing in a representative or
fiduciary capacity), the amount of any transfer taxes (whether imposed on the
registered holder, such other person or otherwise) payable on account of the
transfer to such person will be deducted from the Purchase Price unless
satisfactory evidence of the payment of such taxes, or exemption therefrom, is
submitted. See Instruction 5 of the Letter of Transmittal.
ANY TENDERING WARRANTHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE FULLY AND
SIGN THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL MAY BE
SUBJECT TO REQUIRED FEDERAL INCOME TAX WITHHOLDING OF 31% OF THE GROSS PROCEEDS
PAID TO SUCH WARRANTHOLDER OR OTHER PAYEE PURSUANT TO THE OFFER. SEE SECTION 2.
3
<PAGE>
5. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, the Company will not be
required to accept for payment or pay for any Warrants tendered, and may
terminate or amend and may postpone (subject to the requirements of the Exchange
Act for prompt payment for or return of Warrants tendered) the acceptance for
payment of Warrants tendered, if at any time after October 8, 1996 and at or
before acceptance for payment of any Warrants, any of the following shall have
occurred:
(a) there shall have been threatened, instituted or pending any action or
proceeding by any government or governmental, regulatory or administrative
agency or authority or tribunal or any other person, domestic or foreign, or
before any court, authority, agency or tribunal that (i) challenges the
acquisition of Warrants pursuant to the Offer or otherwise in any manner
relates to or affects the Offer or (ii) in the sole judgment of the Company,
could materially and adversely affect the business, condition (financial or
other), income, operations or prospects of the Company and its subsidiaries,
taken as a whole, or otherwise materially impair in any way the contemplated
future conduct of the business of the Company or any of its subsidiaries or
materially impair the Offer's contemplated benefits to the Company;
(b) there shall have been any action threatened, pending or taken, or
approval withheld, or any statute, rule, regulation, judgment, order or
injunction threatened, proposed, sought, promulgated, enacted, entered,
amended, enforced or deemed to be applicable to the Offer or the Company or
any of its subsidiaries, by any legislative body, court, authority, agency or
tribunal which, in the Company's sole judgment, would or might directly or
indirectly (i) make the acceptance for payment of, or payment for, some or all
of the Warrants illegal or otherwise restrict or prohibit consummation of the
Offer, (ii) delay or restrict the ability of the Company, or render the
Company unable, to accept for payment or pay for some or all of the Warrants,
(iii) materially impair the contemplated benefits of the Offer to the Company
or (iv) materially affect the business, condition (financial or other),
income, operations or prospects of the Company and its subsidiaries, taken as
a whole, or otherwise materially impair in any way the contemplated future
conduct of the business of the Company or any of its subsidiaries;
(c) it shall have been publicly disclosed or the Company shall have
learned that (i) any person or "group" (within the meaning of Section 13(d)(3)
of the Exchange Act) has acquired or proposes to acquire beneficial ownership
of more than 5% of the outstanding Common Stock whether through the
acquisition of stock, the formation of a group, the grant of any option or
right, or otherwise (other than as disclosed in a Schedule 13D or 13G on file
with the Securities and Exchange Commission (the "Commission") on October 8,
1996) or (ii) any such person or group that on or prior to October 8, 1996 had
filed such Schedule with the Commission thereafter shall have acquired or
shall propose to acquire whether through the acquisition of stock, the
formation of a group, the grant of any option or right, or otherwise,
beneficial ownership of additional Common Stock representing 2% or more of the
outstanding shares;
(d) there shall have occurred (i) any general suspension of trading in, or
limitation on prices for, securities on any national securities exchange, on
the Nasdaq National Market or in the over-the-counter market, (ii) any
significant decline in the market price of the Common Stock, (iii) any change
in the general political, market, economic or financial condition in the
United States or abroad that could have a material adverse effect on the
Company's business, condition (financial or otherwise), income, operations,
prospects or ability to obtain financing generally or the trading in the
Common Stock, (iv) the declaration of a banking moratorium or any suspension
of payments in respect of banks in the United States or any limitation on, or
any event which, in the Company's sole judgment, might affect, the extension
of credit by lending institutions in the United States, (v) the commencement
of a war, armed hostilities or other international or national calamity
directly or indirectly involving the United States or (vi) in the case of any
of the foregoing existing at the time of the commencement of the Offer, in the
Company's sole judgment, a material acceleration or worsening thereof;
(e) a tender or exchange offer with respect to some or all of the Common
Stock (other than the Offer), or a merger, acquisition or other business
combination proposal for the Company, shall have been
4
<PAGE>
proposed, announced or made by another person or group (within the meaning of
Section 13(d)(3) of the Exchange Act);
(f) there shall have occurred any event or events that has resulted, or
may in the sole judgment of the Company result, directly or indirectly, in an
actual or threatened change in the business, condition (financial or other),
income, operations, stock ownership or prospects of the Company and its
subsidiaries; or
(g) there shall have occurred any decline in the Standard & Poor's
Composite 500 Stock Index by an amount in excess of 15% measured from the
close of business on October 8, 1996;
and, in the sole judgment of the Company, such event or events make it
undesirable or inadvisable to proceed with the Offer or with such acceptance for
payment.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances (including any action or
inaction by the Company) giving rise to any such condition, and any such
condition may be waived by the Company, in whole or in part, at any time and
from time to time in its sole discretion. The failure by the Company at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time. Any determination by the Company
concerning the events described above will be final and binding on all parties.
The Exchange Act requires that all conditions to the Offer must be satisfied
or waived before the Expiration Date.
6. PRICE RANGE OF COMMON STOCK
The $5.70 Warrants to Purchase Common Stock and $5.75 Warrants to Purchase
Common Stock were issued in June 1995, in private placement transactions exempt
from the registration requirements of the Securities Act. The Warrants, and the
Common Stock underlying the Warrants, have not been registered under the
Securities Act and the Warrants do not trade and are not listed or included for
quotation on any securities exchange or automated quotation system. The Warrants
are currently exercisable for shares of Common Stock (see "Purpose of the Offer;
Certain Effects of the Offer"). 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. On August 14, 1995, the
Company was accepted for quotation through the Nasdaq National Market and since
such date the Company's Common Stock has been traded on the Nasdaq National
Market under the symbol "KKRO." The following table sets forth the high and low
bid price of the Common Stock for the fiscal quarters indicated, as reported by
Nasdaq. The Company has never declared or paid cash dividends on its Common
Stock and the Company does not anticipate paying any cash dividends on its
Common Stock in the foreseeable future.
5
<PAGE>
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C> <C>
1995 1st Quarter (December 29, 1994 - March 28, $ 7.000 $4.000
1995)......................................
2nd Quarter (March 29, 1995 - June 30, 7.000 4.750
1995)/(1)/.................................
3rd Quarter (July 1, 1995 - September 30,
1995)...................................... 9.781 6.250
4th Quarter (October 1, 1995 - December 31,
1995)...................................... 9.563 6.250
1996 1st Quarter (January 1, 1996 - March 31,
1996)...................................... 9.125 6.063
2nd Quarter (April 1, 1996 - June 30, 1996) 10.000 7.750
3rd Quarter (July 1, 1996 - September 30,
1996)...................................... 9.0625 6.250
4th Quarter (October 1, 1996 - October 4,
1996)...................................... 7.625 7.375
</TABLE>
- --------------------
/(1)/ The Company changed its fiscal year to a calendar year.
On October 4, 1996, the last reported sale price of the Common Stock on the
Nasdaq National Market was $7.375 per share. WARRANTHOLDERS ARE URGED TO
OBTAIN CURRENT MARKET QUOTATIONS FOR THE COMMON STOCK.
7. PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER
All of the Warrants were issued pursuant to private placement transactions
exempt from the registration requirements of the Securities Act. In June 1995
(the "June Private Placement"), the Company issued 784,763 $5.70 Warrants to
Purchase Common Stock and 413,100 $5.75 Warrants to Purchase Common Stock, which
were sold as part of investment units consisting of either (i) one share of
Common Stock and 6/10 of one Warrant for a purchase price of $5.00 per unit (the
$5.75 Warrants to Purchase Common Stock) or (ii) one share of Common Stock and
one Warrant for every three shares of Common Stock purchased for a purchase
price of $4.60 per unit (the $5.70 Warrants to Purchase Common Stock). The
$5.70 Warrants to Purchase Common Stock and the $5.75 Warrants to Purchase
Common Stock became exercisable on August 15, 1996 and expire on May 31, 1998.
Each Warrant is exercisable for one share of Common Stock, subject to
adjustment in certain events.
The Company granted the holders of the Warrants certain registration rights in
connection with the June Private Placement, including the right to be included
in any registration statement filed after August 15, 1996. The Company has no
plans to file any such registration statement at this time. To date, neither the
Warrants nor the shares of Common Stock into which the Warrants are exercisable
have been registered under the Securities Act. As an accommodation to the
holders of the Warrants, the Company is offering to repurchase the Warrants at a
price of $2.00 per Warrant. Holders who elect not to participate in the Offer
will continue to hold unregistered Warrants that may not be sold or offered
other than pursuant to an effective registration statement under the Securities
Act or an exemption therefrom. If the Warrant or the shares of Common Stock
underline the Warrants are not registered by August, 1997, the Company will
permit the Warrantholders to make cashless exercises of the Warrants if they so
elect in order that the Common Stock issuable upon exercise thereof will be
eligible for sale in accordance with, and subject to the limitations of, Rule
144 promulgated under the Securities Act.
6
<PAGE>
The Offer allows holders of Warrants to dispose of their Warrants without the
usual transaction costs associated with a sale.
On October 7, 1996, there were 1,197,863 Warrants and 15,174,017 shares of
Common Stock issued and outstanding. If, on October 7, 1996, all 1,197,863
Warrants were converted into Common Stock on a one-for-one basis and there were
15,174,017 shares of Common Stock issued and outstanding, the 1,197,863 shares
of Common Stock into which such Warrants were converted would represent
approximately 8% of the issued and outstanding Common Stock of the Company
(excluding the effect of the exercise or conversion of the Company's other
outstanding warrants, options and convertible preferred stock). Owners of the
Warrants are not under any obligation to accept the Offer to remit their
Warrants to the Company pursuant to the Offer.
If fewer than all of the Warrants are purchased pursuant to the Offer, the
Company may repurchase the remainder of such Warrants in privately negotiated
transactions or otherwise but shall be under no obligation to do so. In the
future, the Company may determine to purchase additional Warrants in privately
negotiated transactions, through one or more tender offers or otherwise. Any
such purchases may be on the same terms as, or on terms which are more or less
favorable to Warrantholders than, the terms of the Offer. However, Rule 13e-4
under the Exchange Act prohibits the Company and its affiliates from purchasing
any Warrants, other than pursuant to the Offer, until at least ten business days
after the Expiration Date. Any future purchases of Warrants by the Company would
depend on many factors, including the market price of the Common Stock, the
Company's business and financial position, and general economic and market
conditions.
Warrants that the Company acquires pursuant to the Offer will be retired and
will not be reissued.
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO ANY
WARRANTHOLDER AS TO WHETHER TO TENDER ALL OR ANY WARRANTS. EACH WARRANTHOLDER
MUST MAKE SUCH WARRANTHOLDER'S OWN DECISION WHETHER TO TENDER WARRANTS AND, IF
SO, HOW MANY WARRANTS TO TENDER. THE COMPANY HAS BEEN ADVISED THAT NO DIRECTOR
OR OFFICER OF THE COMPANY INTENDS TO TENDER WARRANTS PURSUANT TO THE OFFER.
8. CERTAIN INFORMATION CONCERNING THE COMPANY
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 October 7, 1996, the Company operated 25 Koo Koo Roo
restaurants. The Company also owns the Arrosto Coffee Company and Color Me Mine,
which operates paint-your-own ceramics stores.
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.
7
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA AND
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following summary historical consolidated financial data has been derived
from the consolidated financial statements of the Company. The data should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996 and the Company's Annual Report on Form 10-K for the year ended
December 31, 1995. Copies of these reports may be obtained as described in
Section 14 of this Offer to Purchase. The income statement data for the years
ended December 31, 1994 and 1995 and the balance sheet data as of the same dates
have been derived from the audited consolidated financial statements of the
Company. The income statement data for the six months ended June 30, 1995 and
June 30, 1996 and the balance sheet data as of June 30, 1996 have been derived
from the unaudited condensed consolidated financial statements of the Company
which, in the opinion of management, include all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of financial
position and results of operations for such periods. Operating results for the
six months ended June 30, 1996 are not necessarily indicative of the results
that may be expected for the entire year ending December 31, 1996.
The following summary unaudited pro forma consolidated financial data has been
derived from the historical consolidated financial statements of the Company
adjusted for certain costs and expenses to be incurred as a result of the
purchase of Warrants pursuant to the Offer. The acquisition of the Warrants will
have no effect on the consolidated income statement. The pro forma consolidated
balance sheet data has been prepared assuming that the purchase of Warrants was
completed on December 31, 1995 and June 30, 1996, as applicable. The summary
unaudited pro forma consolidated financial data should be read in conjunction
with the summary historical consolidated financial data included herein. The pro
forma balance sheet data is not necessarily indicative of the financial position
that would have been obtained had the Offer been completed as of the dates
indicated.
8
<PAGE>
<TABLE>
<CAPTION>
Year Ended Six Months Ended Six Months Ended
December 31, June 30, June 30,
------------------------------ ---------------- ----------------
INCOME STATEMENT DATA: 1994 1995 1995 1996
------------ ------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues $ 8,983,189 $20,896,280 $ 8,302,490 $16,852,854
Net loss (4,781,539) (6,910,835) (2,966,520) (3,298,007)
Preferred Dividends - - - (424,200)
Net Loss Applicable to (4,781,539) (6,910,835) (2,966,520) (3,722,207)
Common Stockholders
Net loss per common share (0.63) (0.57) (0.29) (0.26)
Average common shares outstanding 7,626,788 12,093,539 10,196,105 14,571,560
Ratio of earnings to fixed charges (1) (1) (1) (1)
Year Ended Six Months Ended
December 31, June 30,
1995 1996
------------------------------ ------------------------------
BALANCE SHEET DATA: Historical Pro Forma(2) Historical Pro Forma(2)
----------- ----------- ----------- -----------
Working Capital $ 3,917,604 $ 578,880 $23,364,678 $20,025,954
Total Assets 26,554,660 23,215,936 54,434,254 51,095,530
Total Debt 178,646 178,646 38,889 138,889
Stockholders' Equity 21,543,138 19,147,412 48,806,984 46,411,258
Book Value per common share 1.50 1.34 1.26 1.10
</TABLE>
____________________
(1) For purposes of computing the ratio of earnings to fixed charges and
preferred dividends, "earnings" consist of earnings before income taxes,
extraordinary items and fixed charges. "Fixed charges and preferred
dividends" consist of interest on all indebtedness and preferred dividends.
Earnings were insufficient to cover fixed charges and preferred dividends
by $4,781,539 and $6,910,835 for the years ended December 31, 1994 and
1995, and by $2,966,520 and $3,722,207 for the six months ended June 30,
1995 and 1996.
(2) The pro forma data reflects the redemption of 1,197,863 Warrants at $2.00
per Warrant ($2,395,726 in the aggregate).
9. SOURCE AND AMOUNT OF FUNDS
Assuming that the Company purchases all of the Warrants pursuant to the Offer
at a price of $2.00 per Warrant, the total amount required by the Company to
purchase such Warrants will be $2,395,726 exclusive of fees and other expenses.
The Company will fund such purchase with existing cash.
10. TRANSACTIONS AND AGREEMENTS CONCERNING THE WARRANTS
Based upon the Company's records and upon information provided to the Company
by its directors and executive officers, neither the Company nor, to the
Company's knowledge, any of its associates, subsidiaries, directors, executive
officers or any associate of any such director or executive officer has engaged
in any transactions involving the Warrants during the 40 business days preceding
the date hereof. Neither the Company nor, to the Company's knowledge, any of its
directors or executive officers is a party to any contract, arrangement,
understanding or relationship relating directly or indirectly to the Offer with
any other person with respect to the Warrants (including, but not limited to,
any contract, arrangement, understanding or relationship concerning the transfer
or the voting of any such Warrants, joint ventures, loan or option arrangements,
puts or calls, guarantees of loans, guarantees against loss or the giving or
withholding of proxies, consents or authorizations).
9
<PAGE>
Except as disclosed in this Offer to Purchase, the Company has no plans or
proposals which relate to or would result in: (a) the acquisition by any person
of additional securities of the Company or the disposition of securities of the
Company; (b) an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Company or any of its subsidiaries;
(c) a sale or transfer of a material amount of assets of the Company or any of
its subsidiaries; (d) any change in the present Board of Directors or management
of the Company; (e) any material change in the present dividend rate or policy,
or indebtedness or capitalization of the Company; (f) any other material change
in the Company's corporate structure or business; (g) any change in the
Company's Certificate of Incorporation or By-Laws or any actions which may
impede the acquisition of control of the Company by any person; (h) a class of
equity security of the Company being delisted from a national securities
exchange; (i) a class of equity security of the Company becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the Exchange Act; or
(j) the suspension of the Company's obligation to file reports pursuant to
Section 15(d) of the Exchange Act.
11. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of material federal income tax considerations
regarding the Offer is based on current law, is for general purposes only, and
is not tax advice. This discussion does not purport to deal with all aspects of
taxation that may be relevant to particular Warrantholders in light of their
personal investment or tax circumstances, or to certain types of Warrantholders
(including insurance companies, tax-exempt organizations, financial institutions
or broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) subject to special treatment under the federal
income tax laws. This discussion assumes that the Warrants are held as "capital
assets" within the meaning of Section 1221 of the Internal Revenue Code of 1986,
as amended.
EACH WARRANTHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE
SPECIFIC UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THAT WARRANTHOLDER
TENDERING WARRANTS FOR REDEMPTION PURSUANT TO THE OFFER, AND THE APPLICABILITY
AND EFFECT OF ANY STATE, LOCAL, OR FOREIGN TAX LAWS AND RECENT OR POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
The redemption by the Company of a Warrant pursuant to the Offer will be a
taxable transaction in which a tendering Warrantholder will recognize taxable
gain or loss in an amount equal to the difference between the amount realized on
the redemption and the holder's adjusted tax basis in the Warrants. For initial
purchasers of the Warrants, the adjusted tax basis of a Warrant is the portion
of the initial offering price of the investment unit with respect to which such
Warrant was issued that is allocable to the Warrant, based on the relative fair
market values of the Warrant and the Common Stock at the time of issuance. If
the redemption of a Warrant by the Company is treated as a sale or exchange of a
capital asset, any gain or loss recognized on the transaction will be capital
gain or loss, which would be long-term if the Warrants have been held for more
than one year. It is unclear, however, whether the redemption of Warrants by
the Company will be treated as the sale or exchange of a capital asset. If such
redemption is not treated as the sale or exchange of a capital asset, the holder
of a Warrant will recognize ordinary income or loss on such redemption.
12. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS
The Company expressly reserves the right, in its sole discretion and at any
time or from time to time, to extend the period of time during which the Offer
is open by giving oral or written notice of such extension to the Depositary and
making a public announcement thereof. There can be no assurance, however, that
the Company will exercise its right to extend the Offer. During any such
extension, all Warrants previously tendered will remain subject to the Offer,
except to the extent that such Warrants may be withdrawn as set forth in Section
3. The Company also expressly reserves the right, in its sole discretion, (i)
to terminate the Offer and not accept for payment any Warrants not theretofore
accepted for payment or subject to Rule 13-4(f)(5) under the Exchange Act, which
requires the Company either to pay the consideration offered or to return the
Warrants tendered promptly after the termination or withdrawal of the Offer, to
postpone payment
10
<PAGE>
for Warrants upon the occurrence of any of the conditions specified in Section 5
hereof by giving oral or written notice of such termination to the Depositary
and making a public announcement thereof and (ii) at any time, or from time to
time, to amend the Offer in any respect. Amendments to the Offer may be
effected by public announcement. Without limiting the manner in which the
Company may choose to make public announcement of any extension, termination or
amendment, the Company shall have no obligation (except as otherwise required by
applicable law) to publish, advertise or otherwise communicate any such public
announcement, other than by making a release to the Dow Jones News Service,
except in the case of an announcement of an extension of the Offer, in which
case the Company shall have no obligation to publish, advertise or otherwise
communicate such announcement other than by issuing a notice of such extension
by press release or other public announcement, which notice shall be issued no
later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date. Material changes to information
previously provided to holders of the Warrants in this Offer or in documents
furnished subsequent thereto will be disseminated to holders of Warrants in
compliance with Rule 13e-4(e)(2) promulgated by the Commission under the
Exchange Act.
If the Company materially changes the terms of the Offer or the information
concerning the Offer, or if it waives a material condition of the Offer, the
Company will extend the Offer to the extent required by Rules 13e-4(d)(2) and
13e-4(e)(2) under the Exchange Act. Those rules require that the minimum period
during which an offer must remain open following material changes in the terms
of the offer or information concerning the offer (other than a change in price,
change in dealer's soliciting fee or change in percentage of securities sought)
will depend on the facts and circumstances, including the relative materiality
of such terms or information. The Offer will continue or be extended for at
least ten business days from the time the Company publishes, sends or gives to
holders of Warrants a notice that it will (a) increase or decrease the price it
will pay for Warrants or (b) decrease the number of Warrants it seeks.
13. FEES AND EXPENSES
Ronald Garber, Corporate Secretary and General Counsel of the Company, will
serve as Depositary and escrow agent in connection with the Offer. Mr. Garber
may contact warrantholders by mail, telephone, telex, telegraph and personal
interviews. Mr. Garber will not receive any compensation for services. The
Company will not pay any fees or commissions to any broker, dealer or other
person for soliciting tenders of Warrants pursuant to the Offer.
14. MISCELLANEOUS
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Commission relating to its business, financial condition
and other matters. The Company has also filed an Issuer Tender Offer Statement
on Schedule 13E-4 with the Commission, which includes certain additional
information relating to the Offer. Such reports, as well as such other
material, may be inspected and copies may be obtained at the Commission's public
reference facilities at 450 Fifth Street, N.W., Washington, D.C., and should
also be available for inspection and copying at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York
10048, and Suite 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material may be obtained by mail, upon
payment of the Commission's customary fees, from the Commission's Public
Reference Section at 450 Fifth Street, N.W, Washington, D.C. 20549. Such
reports, proxy statements and other information also should be available for
inspection at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006. The Company's Schedule 13E-4
may not be available at the Commission's regional offices. Electronic filings
made through the Electronic Data Gathering, Analysis and Retrieval System are
publicly available through the Commission's Web site (http: //www.sec.gov).
11
<PAGE>
The Offer is being made to all holders of Warrants. The Company is not aware
of any state where the making of the Offer is prohibited by administrative or
judicial action pursuant to a valid state statute. If the Company becomes aware
of any valid state statute prohibiting the making of the Offer, the Company will
make a good faith effort to comply with such statute. If, after such good faith
effort, the Company cannot comply with such statute, the Offer will not be made
to, nor will tenders be accepted from or on behalf of, holders of Warrants in
such state. The Offer is not being made to, nor will the Company accept tenders
from or on behalf of, holders of Warrants in any jurisdiction in which the Offer
or the acceptance thereof would not be in compliance with the securities or blue
sky or other laws of such jurisdiction.
KOO KOO ROO, INC.
October 9, 1996
12
<PAGE>
Any questions concerning the terms of the Offer, tender procedures or requests
for additional copies of this Offer to Purchase, the Letter of Transmittal or
other tender offer materials may be directed to Ronald Garber.
The Depositary for the Offer is:
Ronald Garber, Corporate Secretary and General Counsel,
Koo Koo Roo, Inc.
By Mail: Facsimile Transmission: By Overnight Delivery
or By Hand:
Koo Koo Roo, Inc. (310) 479-8843 Koo Koo Roo, Inc.
11075 Santa Monica Boulevard 11075 Santa Monica Boulevard
Suite 225 Suite 225
Los Angeles, California 90025 Los Angeles, California 90025
Any questions concerning tender procedures may be directed to Ronald Garber at
(310) 479-2080.
October 9, 1996
[LOGO OF KOO KOO ROO, INC.]
<PAGE>
EXHIBIT (a)(2)
LETTER OF TRANSMITTAL
To Tender
ANY AND ALL OUTSTANDING
$5.70 WARRANTS TO PURCHASE COMMON STOCK EXPIRING MAY 31, 1998 AND
$5.75 WARRANTS TO PURCHASE COMMON STOCK EXPIRING MAY 31, 1998
OF
KOO KOO ROO, INC.
Pursuant to its Offer to Purchase
dated October 9, 1996
- -------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON THURSDAY, NOVEMBER 7, 1996 UNLESS EXTENDED.
- -------------------------------------------------------------------------------
To: Ronald Garber, Depositary
<TABLE>
<CAPTION>
By Mail: By Facsimile Transmission: Hand or Overnight Courier:
<S> <C> <C>
11075 Santa Monica Boulevard, (310) 479-8843 11075 Santa Monica Boulevard,
Suite 225 Suite 225
Los Angeles, California 90025 Los Angeles, California 90025
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be used by warrantholders if certificates
for Warrants (as defined below) are to be forwarded herewith or pursuant to the
procedures set forth under "Procedure for Tendering Warrants" in the Offer to
Purchase dated October 9, 1996.
Warrantholders who cannot deliver the certificates for their Warrants and
all other documents required hereby to the Depositary on or prior to the
Expiration Date (as defined in the Offer to Purchase), or who cannot deliver a
Letter of Transmittal and all other required documents to the Depositary on or
prior to the Expiration Date, must tender their Warrants pursuant to the
guaranteed delivery procedure set forth under "Procedure for Tendering Warrants"
in the Offer to Purchase. See Instruction 2.
The name(s) and address(es) of the registered holder(s) should be printed
below, exactly as they appear on the certificate(s) representing the Warrants
tendered herewith. The certificate(s) and the number of Warrants that the
registered holder(s) wish(es) to tender should be indicated in the appropriate
boxes below.
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF WARRANTS TENDERED
- ----------------------------------------------------------------------------------------------------------------------------
Name(s) and Address(es) of Registered Holder(s) Warrants Tendered (Attach Additional List if Necessary)
(Please fill in, if blank, exactly as name(s)
appear(s) on Warrant Certificates)
- ----------------------------------------------------------------------------------------------------------------------------
Class and Total Number of Number of Warrants
Certificate Warrants Tendered*
Number(s) Represented
by Certificate(s)
------------------------------------------------------------
<S> <C> <C> <C>
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
TOTAL WARRANTS
- ----------------------------------------------------------------------------------------------------------------------------
* UNLESS OTHERWISE INDICATED, IT WILL BE ASSUMED THAT ALL WARRANTS REPRESENTED BY ANY
CERTIFICATES DELIVERED TO THE DEPOSITARY ARE BEING TENDERED. SEE INSTRUCTION 4.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
[_] CHECK HERE IF TENDERED WARRANTS ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Tendering Warrantholder(s)
Date of Execution of Notice of Guaranteed Delivery
Name of Institution which Guaranteed Delivery
- --------------------------------------------------------------------------------
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Koo Koo Roo, Inc., a Delaware corporation
(the "Company"), the above-described shares of $5.70 Warrants to Purchase Common
Stock expiring May 31, 1998 and/or $5.75 Warrants to Purchase Common Stock
expiring May 31, 1998 (collectively, the "Warrants"), pursuant to the Company's
offer to purchase any and all outstanding Warrants at a price of $2.00 per
Warrant (the "Purchase Price"), net to the seller in cash, without interest
thereon, upon the terms and subject to the conditions set forth in the Offer to
Purchase dated October 9, 1996 (the "Offer to Purchase"), receipt of which is
hereby acknowledged, and in this Letter of Transmittal (which together
constitute the "Offer").
Subject to, and effective upon, acceptance for payment of the Warrants
tendered herewith in accordance with the terms of the Offer, including, if the
Offer is extended or amended, the terms and conditions of any such extension or
amendment, the undersigned hereby sells, assigns and transfers to the Company
all of the undersigned's right, title and interest in and to all the Warrants
that are being tendered hereby that are purchased pursuant to the Offer and
hereby irrevocably constitutes and appoints the Depositary the true and lawful
agent and attorney-in-fact of the undersigned with respect to such Warrants,
with full power of substitution (such power of attorney being deemed to be an
irrevocable power coupled with an interest), to (a) deliver certificates for
such Warrants, together with all accompanying evidences of transfer and
authenticity, to the Company, upon receipt by the Depositary, as the
undersigned's agent, of the Purchase Price, (b) present certificates for such
Warrants for cancellation and transfer on the books of the Company and (c)
receive all benefits and otherwise exercise all rights of beneficial ownership
of such Warrants, all in accordance with the terms of the Offer.
The undersigned hereby represents and warrants that (a) when and to the
extent the Warrants are accepted for payment by the Company, the Company will
acquire good and marketable title and unencumbered ownership thereto, free and
clear of all liens, restrictions, charges, security interests, conditional sales
agreements, encumbrances or other obligations relating to their sale or
transfer, and not subject to any adverse claims; and (b) the undersigned has
read and agrees to all the terms of the Offer. The undersigned will, upon
request, execute and deliver any additional documents deemed by the Depositary
or the Company to be necessary or desirable to complete the sale, assignment and
transfer of the Warrants tendered hereby.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and any obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned. Except as stated in the Offer, this tender is
irrevocable.
The undersigned understands that tenders of Warrants pursuant to any one of
the procedures described under "Procedure for Tendering Warrants" in the Offer
to Purchase and in the instructions hereto will constitute a binding agreement
between the undersigned and the Company upon the terms and subject to the
conditions of the Offer.
The undersigned recognizes that, under certain circumstances set forth in
the Offer to Purchase, the Company may terminate or amend the Offer or may not
be required to accept for payment any of the Warrants tendered herewith.
<PAGE>
Unless otherwise indicated under "Special Payment Instructions" below,
please issue the check for the Purchase Price and/or return or issue the
certificate(s) evidencing any Warrants included herewith but not tendered or not
accepted for payment to the name(s) of the undersigned. Similarly, unless
otherwise noted under "Special Delivery Instructions" below, please mail the
check for the Purchase Price and/or return the certificate(s) evidencing any
Warrants not tendered or not accepted for payment (and accompanying documents,
as appropriate) to the undersigned at the address shown below the undersigned's
signature(s). In the event that both "Special Payment Instructions" and "Special
Delivery Instructions" are completed, please issue the check for the Purchase
Price and/or return the certificate(s) evidencing any Warrants not tendered or
not accepted for payment in the name(s) of, and deliver said check and/or return
said certificate(s) to, the person or persons indicated. The undersigned
recognizes that the Company has no obligation pursuant to the "Special Payment
Instructions" to transfer any Warrants from the name of the registered holder
thereof if the Company does not accept for payment any of the Warrants so
tendered.
* * * *
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 4, 5, 6 AND 7)
To be completed ONLY if the check for the aggregate Purchase Price of
Warrants purchased and/or certificates for Warrants not tendered or not
purchased are to be issued in the name of someone other than the undersigned.
Issue [_] check, and or [_] certificates to:
Name
(Please Print)
Address
(Include Zip Code)
(Taxpayer Identification No. or Social Security No.)
(Complete Substitute Form W-9)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 4, 5, 6 AND 7)
To be completed ONLY if the check for the aggregate Purchase Price of
Warrants purchased and/or certificates for Warrants not tendered or not
purchased are to be mailed to someone other than the undersigned or to the
undersigned at an address other than that shown below the undersigned's
signature(s).
Mail [_] check, and or [_] certificates to:
Name
(Please Print)
Address
(Include Zip Code)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGN HERE
(SEE INSTRUCTIONS 1 AND 5)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)
X SIGN HERE
- -
Signature(s) of Owner(s)
X
- -
Dated ____________________, 1996
Name(s) (Please Print)
Capacity (full title)
Address
(Include Zip Code)
Area Code and Telephone
Tax Identification or Social Security No.
(Complete Substitute W-9 Below)
(Must be signed by registered holder(s) exactly as name(s) appear(s)
on certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and/or documents
transmitted herewith. If signed by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting
in a fiduciary or representative capacity, please set forth such person's
full title and see Instruction 5.)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5)
Name of Firm
Authorized Signature
Name
Address
Area Code and Telephone Number
Dated , 1996
- --------------------------------------------------------------------------------
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES
Except as otherwise provided below, all signatures on this Letter of
Transmittal must be guaranteed by an "Eligible Institution" (as defined in the
Offer to Purchase). Signatures on this Letter of Transmittal need not be
guaranteed if (a) this Letter of Transmittal is signed by the registered
holder(s) of the Warrants exactly as the name of the registered holder(s)
appears on the certificate tendered herewith and such holder(s) have not
completed either of the boxes entitled "Special Payment Instructions" or
"Special Delivery Instructions" on this Letter of Transmittal or (b) such
Warrants are tendered for the account of an Eligible Institution. See
Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND WARRANTS
This Letter of Transmittal is to be used if certificates are to be
forwarded herewith according to the procedures set forth in "Procedure for
Tendering Warrants" in the Offer to Purchase. Certificates for all Warrants, as
well as a properly completed and duly executed Letter of Transmittal (or
manually executed facsimile thereof) and any other documents required by this
Letter of Transmittal, must be received by the Depositary at its address set
forth on the front page of this Letter of Transmittal on or prior to the
Expiration Date.
Warrantholders who cannot transfer the certificates for their Warrants and
all other documents required thereby to the Depositary on or prior to the
Expiration Date or who cannot deliver a Letter of Transmittal and all other
required documents to the Depositary on or prior to the Expiration Date must
tender their Warrants pursuant to the guaranteed delivery procedure set forth in
"Procedure for Tendering Warrants" in the Offer to Purchase. Pursuant to such
procedure: (a) such tender must be made by or through an Eligible Institution,
(b) a properly completed and duly executed Notice of Guaranteed Delivery
substantially in the form provided by the Company must be received by the
Depositary on or prior to the Expiration Date and (c) the certificates for all
physically delivered Warrants, in proper form for transfer, as well as a
properly completed and duly executed Letter of Transmittal (or manually executed
facsimile thereof with any required signature guarantees) and any other
documents required by this Letter of Transmittal, must be received by the
Depositary within three business days after the receipt of such Notice of
Guaranteed Delivery by the Depositary, all as provided in "Procedure for
Tendering Warrants" in the Offer to Purchase. If Warrants are forwarded
separately to the Depositary, each must be accompanied by a duly executed Letter
of Transmittal (or facsimile thereof).
THE METHOD OF DELIVERY OF WARRANTS, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
WARRANTHOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED
BY THE DEPOSITARY. IF DELIVERY IS MADE BY MAIL, REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted, and no
fractional Warrants will be purchased. By executing this Letter of Transmittal
(or manually executed facsimile thereof), the tendering warrantholder waives any
right to receive any notice of the acceptance for payment of such Warrants.
<PAGE>
3. INADEQUATE SPACE
If the space provided in the box captioned "Description of Warrants
Tendered" is inadequate, the certificate numbers and/or the number of Warrants
should be listed on a separate schedule attached hereto and separately signed on
each page thereof in the same manner as this Letter of Transmittal is signed.
4. PARTIAL TENDERS
If fewer than all the Warrants represented by any certificate delivered to
the Depositary are to be tendered, fill in the number of Warrants that are to be
tendered in the box entitled "Number of Warrants Tendered." If such Warrants
are purchased, a new certificate for the remainder of the Warrants represented
by the old certificate will be sent to and in the name of the person(s) signing
this Letter of Transmittal, unless otherwise provided in either of the boxes
entitled "Special Payment Instructions" or "Special Delivery Instructions" on
this Letter of Transmittal, as promptly as practicable following the expiration
or termination of the Offer. All Warrants represented by the certificates
listed and delivered to the Depositary in accordance with the procedures set
forth in the Offer to Purchase and this Letter of Transmittal will be deemed to
have been tendered unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS
If the Letter of Transmittal is signed by the registered holder(s) of the
Warrants tendered hereby, the signature must correspond with the name(s) as
written on the face of the certificates without alteration, enlargement or any
change whatsoever.
If any of the Warrants tendered hereby are held of record by two or more
persons, all such persons must sign this Letter of Transmittal.
If any of the Warrants tendered hereby are registered in different names on
different certificates, the holder thereof must complete, sign and submit as
many separate Letters of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
Warrants tendered hereby, no endorsements of certificates or separate stock
powers are required unless payment of the Purchase Price is to be made in the
name of and/or the certificates for Warrants not tendered or not purchased are
to be returned to, any person other than the registered holder(s). Signatures
on any such certificates or stock powers must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Warrants tendered hereby, certificates must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear(s) on the certificates
for such Warrants. Signature(s) on any such certificates or stock powers must
be guaranteed by an Eligible Institution.
If this Letter of Transmittal or any certificate or stock power is signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory to
the Company of the authority of such person so to act must be submitted.
<PAGE>
6. WARRANT TRANSFER TAXES
The Company will pay any transfer taxes with respect to the sale and
transfer of any Warrants to it pursuant to the Offer. However, if
(i) payment of the Purchase Price is to be made to, or if certificates for
Warrants not tendered or not purchased are to be returned in the name of, any
person other than the registered holder(s), (ii) tendered certificates are
registered in the name of any person other than the person(s) signing this
Letter of Transmittal, or (iii) a transfer tax is imposed for any reason other
than the sale or transfer of Warrants to the Company pursuant to the Offer, then
the amount of any transfer taxes (whether imposed on the registered holder(s),
such other person or otherwise) will be deducted from the Purchase Price unless
satisfactory evidence of the payment of such taxes, or exemption therefrom, is
submitted herewith.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THE BOX ENTITLED
"DESCRIPTION OF WARRANTS TENDERED" ON THIS LETTER OF TRANSMITTAL.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS
If the check for the Purchase Price of any Warrants purchased is to be
issued, or any Warrants not tendered or not purchased are to be returned in the
name of, a person other than the person(s) signing this Letter of Transmittal or
if the check or any certificates for Warrants not tendered or not purchased are
to be mailed to someone other than the person(s) signing this Letter of
Transmittal or to the person signing this Letter of Transmittal at an address
other than that shown in the box entitled "Description of Warrants Tendered,"
the boxes entitled "Special Payment Instructions" and/or "Special Delivery
Instructions" on this Letter of Transmittal should be completed.
8. SUBSTITUTE FORM W-9
Under the federal income tax laws, the Depositary will be required to
backup withhold 31% of the amount of any payments made to certain warrantholders
pursuant to the Offer. In order to avoid such backup withholding, each tendering
warrantholder and, if applicable, each other payee, must provide the Depositary
with such warrantholder's or payee's correct taxpayer identification number and
certify that such warrantholder or payee is not subject to such backup
withholding by completing the Substitute Form W-9 set forth below. In general,
if a warrantholder or payee is an individual, the taxpayer identification number
is the Social Security number of such individual. If the Depositary is not
provided with the correct taxpayer identification number, the warrantholder or
payee may be subject to a $50 penalty imposed by the Internal Revenue Service
("IRS"). For further information concerning backup withholding and instructions
for completing the Substitute Form W-9 (including how to obtain a taxpayer
identification number if you do not have one and how to complete the Substitute
Form W-9 if Warrants are held in more than one name), consult the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause
Warrants to be deemed invalidly tendered, but may require the Depositary to
withhold 31% of the amount of any payments made pursuant to the Offer. Backup
withholding is not an additional federal income tax. Rather, the federal
<PAGE>
income tax liability of a person subject to backup withholding will be reduced
by the amount of tax withheld. If withholding results in an overpayment of
taxes, a refund may be obtained provided that the required information is
furnished to the IRS.
NOTE: FAILURE TO COMPLETE AND RETURN THE SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
9. IRREGULARITIES
All questions as to the number of Warrants to be purchased, the form of
documents and the validity, eligibility (including time of receipt) and
acceptance for payment of any tender of Warrants will be determined by the
Company, in its sole discretion, and its determination will be final and binding
on all parties. The Company reserves the absolute right to reject any or all
tenders which it determines not to be in proper form or the acceptance of or
payment for which may, in the opinion of the Company's counsel, be unlawful.
The Company also reserves the absolute right to waive any of the conditions of
the Offer or any defect or irregularity in the tender of Warrants by any
particular warrantholder, whether or not similar defects or irregularities are
waived in the case of other warrantholders. The Company's interpretation of the
terms and conditions of the Offer (including this Letter of Transmittal and the
instructions hereto) will be final and binding. No tender of Warrants will be
deemed to be validly made until all defects and irregularities have been cured
or waived. Unless waived, any defects or irregularities in connection with
tenders must be cured within such time as the Company will determine. None of
the Company, its affiliates, the Depositary, or any other person will be
obligated to give notice of any defects or irregularities in tenders, and none
of them will incur any liability for failure to give any such notice.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES
Requests for assistance or additional copies of the Offer to Purchase, this
Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained from
the Depositary at the address or telephone number set forth below.
11. LOST, DESTROYED OR STOLEN CERTIFICATES
If any certificate(s) representing Warrants has been lost, destroyed or
stolen, the warrantholder should promptly notify the Depositary. Instructions
will then be given as to what steps must be taken to obtain a replacement
certificate(s). The Letter of Transmittal and related documents cannot be
processed until the procedures for replacing such missing certificate(s) have
been followed.
<PAGE>
TO BE COMPLETED BY ALL TENDERING WARRANTHOLDERS
(SEE INSTRUCTION 8)
PAYOR'S NAME:______________________________________________
- --------------------------------------------------------------------------------
SUBSTITUTE PART 1--PLEASE PROVIDE
YOUR TIN IN THE BOX AT ------------------------------
FORM W-9 RIGHT AND CERTIFY BY Social Security Number
PAYOR'S REQUEST SIGNING AND DATING BELOW
FOR TAXPAYER OR____________________________
IDENTIFICATION Employer Identification Number
NUMBER (TIN) ------------------------------------------------------------
PART 2--Awaiting TIN [_]
- --------------------------------------------------------------------------------
CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION
PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE
- --------------------------------------------------------------------------------
Name____________________________________________________________________________
(Please Print)
Address_________________________________________________________________________
(Including Zip Code)
Signature________________________ Date:______________________________
- --------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER
IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office, or (b)
I intend to mail or deliver an application in the near future. I understand
that, notwithstanding that I have checked the box on Part 2 (and have completed
this Certificate of Awaiting Taxpayer Identification Number), all reportable
payments made to me prior to the time I provide the Depositary with a properly
certified taxpayer identification number will be subject to a 31% backup
withholding tax.
Signature_________________________ Date_____________________________
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A BACKUP
WITHHOLDING OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE OFFER.
PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS.
<PAGE>
Facsimile copies of the Letter of Transmittal, properly completed and
duly executed, will be accepted. The Letter of Transmittal, certificates of
Warrants and any other required documents should be sent or delivered by each
warrantholder of the Company to the Depositary at the address set forth below.
Depositary for the Offer is:
RONALD GARBER, CORPORATE SECRETARY AND GENERAL COUNSEL
KOO KOO ROO, INC.
By Mail: By Facsimile By Hand or
Transmission: Overnight Courier:
Koo Koo Roo, Inc. (310) 479-8843 Koo Koo Roo, Inc.
11075 Santa Monica Boulevard 11075 Santa Monica Boulevard
Suite 225 Suite 225
Los Angeles, California 90025 Los Angeles, California 90025
Questions and requests for assistance may be directed to the Depositary at
the address and telephone number listed above. Additional copies of the Offer
to Purchase, this Letter of Transmittal and other tender offer materials may be
obtained from the Depositary as set forth above, and will be furnished promptly
at the Company's expense.
[LOGO]
<PAGE>
EXHIBIT (a)(3)
NOTICE OF GUARANTEED DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
TO TENDER
Any and All Outstanding
$5.70 Warrants to Purchase Common Stock expiring May 31, 1998 and
$5.75 Warrants to Purchase Common Stock expiring May 31, 1998
OF
KOO KOO ROO, INC.
PURSUANT TO THE OFFER TO PURCHASE DATED OCTOBER 9, 1996
This Notice of Guaranteed Delivery, or a facsimile hereof, must be used to
accept the Offer (as defined in the Company's Offer to Purchase dated October 9,
1996 (the "Offer to Purchase")) if certificates for any and all outstanding
$5.70 Warrants to Purchase Common Stock expiring May 31, 1998 and $5.75 Warrants
to Purchase Common Stock expiring May 31, 1998 (collectively, the "Warrants") of
Koo Koo Roo, Inc., a Delaware corporation (the "Company"), and all other
documents required by the Letter of Transmittal cannot be delivered to the
Depositary (as defined in the Offer to Purchase) by the expiration of the Offer.
This Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile
transmission or mail to the Depositary. See "Procedure for Tendering Warrants"
in the Offer to Purchase.
THE DEPOSITARY FOR THE OFFER IS:
Ronald Garber, Corporate Secretary and General Counsel
Koo Koo Roo, Inc.
By Facsimile By Hand or
By Mail: Transmission: Overnight Courier:
Koo Koo Roo, Inc. (310) 479-8843 Koo Koo Roo, Inc.
11075 Santa Monica Boulevard 11075 Santa Monica Boulevard
Suite 225 Suite 225
Los Angeles, California 90025 Los Angeles, California 90025
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" (as defined in the Offer to Purchase)
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and
subject to the conditions set forth in the Offer to Purchase and the related
Letter of Transmittal (which together constitute the "Offer"), receipt of which
is hereby acknowledged, the number (indicated below) of Warrants pursuant to the
guaranteed delivery procedure set forth in "Procedure for Tendering Warrants" in
the Offer to Purchase.
Number of Warrants Being Tendered SIGN HERE
Hereby____________________________
Certificate No.(s).
(if available):
__________________________________ ____________________________________
(SIGNATURE(S))
__________________________________ ____________________________________
(SIGNATURE(S))
<PAGE>
GUARANTEE
(not to be used for signature guarantee)
The undersigned, an "Eligible Institution," hereby guarantees delivery
to the Depositary of the certificates representing the Warrants tendered hereby,
together with a properly completed and duly executed Letter(s) of Transmittal
(or manually executed facsimile(s) thereof) with any required signature
guarantees, and any other required documents, all within three business days of
the date hereof.
-----------------------------------------
(NAME OF FIRM)
-----------------------------------------
(AUTHORIZED SIGNATURE)
-----------------------------------------
(NAME)
-----------------------------------------
(ADDRESS)
-----------------------------------------
(ZIP CODE)
Dated: ___________________, 1996. -----------------------------------------
(AREA CODE AND TELEPHONE NO.)
DO NOT SEND WARRANT CERTIFICATES WITH THIS FORM. YOUR WARRANT CERTIFICATES MUST
BE SENT WITH THE LETTER OF TRANSMITTAL.
<PAGE>
EXHIBIT (a)(4)
KOO KOO ROO, INC.
11075 SANTA MONICA BOULEVARD
SUITE 225
LOS ANGELES, CALIFORNIA 90025
October 9, 1996
To our Warrantholders:
Koo Koo Roo, Inc. is offering to purchase any and all outstanding $5.70
Warrants to Purchase Common Stock expiring May 31, 1998 and $5.75 Warrants to
Purchase Common Stock expiring May 31, 1998 (collectively, the "Warrants") at a
price, net to the seller in cash, without interest thereon, of $2.00 per
Warrant, upon the terms and subject to the conditions set forth in the Offer to
Purchase dated October 9, 1996 (the "Offer").
The Company granted the holders of the Warrants certain registration rights
in connection with the private placements of the Warrants, including the right
to be included in any registration statement filed after August 15, 1996. The
Company has no plans to file such a registration statement at this time. To
date, neither the Warrants nor the common stock, $.01 par value of the Company
(the "Common Stock"), into which the Warrants are exercisable has been
registered under the Securities Act of 1933, as amended. As an accommodation to
the holders of the Warrants, the Company is offering to repurchase the Warrants
at a price of $2.00 per Warrant.
Holders who elect not to participate in the Offer will continue to hold
unregistered Warrants that may not be sold or offered other than pursuant to an
effective registration statement under the Securities Act or an exemption
therefrom. If the Warrant or the shares of Common Stock underline the Warrants
are not registered by August, 1997, the Company will permit the Warrantholders
to make cashless exercises of the Warrants if they so elect in order that the
Common Stock issuable upon exercise thereof will be eligible for sale in
accordance with, and subject to the limitation of, Rule 144 promulgated under
the Securities Act.
On October 7, 1996, there were 1,197,863 Warrants and 15,174,017 shares of
Common Stock issued and outstanding. If, on October 3, 1996, all 1,197,863
Warrants were converted into Common Stock on a one-for-one basis and there were
15,174,017 shares of Common Stock issued and outstanding, the 1,197,863 shares
of Common Stock into which such Warrants were exercised would represent
approximately 8% of the issued and outstanding Common Stock of the Company.
Owners of the Warrants are not under any obligation to accept the Offer to sell
their Warrants to the Company pursuant to the Offer.
The tender offer is explained in detail in the enclosed Offer to Purchase
and Letter of Transmittal. If you wish to tender Warrants, the instructions for
tendering are also set forth in detail in the enclosed materials. I urge you to
read these materials carefully before making any decision with respect to the
tender offer.
EACH WARRANTHOLDER SHOULD MAKE HIS OR HER OWN DECISION WHETHER TO TENDER
WARRANTS AND, IF SO, HOW MANY WARRANTS TO TENDER.
If you have any questions regarding the tender offer, please call Ronald
Garber at the Company at (310) 479-2080.
Very truly yours,
Kenneth Berg
Chief Executive Officer
<PAGE>
EXHIBIT (a)(5)
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.
Social Security numbers have nine digits separated by two hyphens, i.e., 000-00-
0000. Employer identification numbers have nine digits separated by only one
hyphen, i.e., 00-0000000. The table below will help determine the number to
give the payer.
- --------------------------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE SOCIAL SECURITY NUMBER OF:
- --------------------------------------------------------------------------------
1. An individual's account The individual
- --------------------------------------------------------------------------------
2. Two or more individuals (joint The actual owner of the account or, if
account) combined funds, any one of the
individuals (1)
- --------------------------------------------------------------------------------
3. Husband and wife (joint account) The actual owner of the account or, if
joint funds, either person(1)
- --------------------------------------------------------------------------------
4. Custodian account of a minor The minor(2)
(Uniform Gifts to Minors Act)
- --------------------------------------------------------------------------------
5. Adult and minor (joint account) The adult or, if the minor is the only
contributor, the minor(1)
- --------------------------------------------------------------------------------
6. Account in the name of guardian The ward, minor, or incompetent person(3)
or committee for the designated
ward, minor, or incompetent
person
- --------------------------------------------------------------------------------
7. a. The unusual revocable savings The grantor-trustee(1)
trust account (grantor is also
trustee)
b. So-called trust account that
is not legal or valid trust under
state law
- --------------------------------------------------------------------------------
8. Sole proprietorship account The owner(4)
- --------------------------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER IDENTIFICATION
NUMBER OF:
- --------------------------------------------------------------------------------
9. A valid trust, estate or pension The legal entity
trust. (Do not furnish the identifying number
of the personal representative or trustee
unless the legal entity itself is not
designated in the account title.)(5)
- --------------------------------------------------------------------------------
10. Corporate account The corporation
- --------------------------------------------------------------------------------
11. Religious, charitable, or The organization
educational organization account
- --------------------------------------------------------------------------------
12. Partnership account held in the The partnership
name of the business
- --------------------------------------------------------------------------------
13. Association, club, or other tax- The organization
exempt organization
- --------------------------------------------------------------------------------
14. A broker or registered nominee The broker or nominee
- --------------------------------------------------------------------------------
15. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State
or local government, school
district, or prison) that
receives agricultural program
payments
- --------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
<PAGE>
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan.
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
. An entity registered at all times under the Investment Company Act of 1940.
. A foreign central bank of issue.
. Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments of interest not generally subject to backup withholding include
the following:
. Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the payer's trade or business and you have not provided
your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to non-resident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
Exempt payees described above must still complete the Substitute Form W-9
enclosed herewith to avoid possible erroneous backup withholding.
FILE SUBSTITUTE FORM W-9 WITH THE PAYER, REMEMBERING TO CERTIFY YOUR TAXPAYER
IDENTIFICATION NUMBER ON THE FORM AND WRITE "EXEMPT" ON THE FACE OF THE FORM.
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A. PRIVACY ACT NOTICE.--Section 6109 requires most recipients of
dividend, interest, or other payments to give taxpayer identification numbers to
payers who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Beginning January 1, 1993, payers
must generally withhold 31% of taxable interest, dividend and certain other
payments to a payee who does not furnish a taxpayer identification number to a
payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you fail
to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income and such failure is due to negligence,
a penalty of 20% is imposed on any portion of an under-payment attributable
to that failure.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you
make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE>
EXHIBIT (a)(6)
[LETTERHEAD OF KOO KOO ROO]
CONTACT: Laurie Raleigh/Michele Nachum
The Blaze Company
310/450-6060
Rob Kautz
KOO KOO ROO, INC.
310/479-2080
FOR: KOO KOO ROO, INC.
Los Angeles, CA
KOO KOO ROO OFFERS TO REPURCHASE 1.2 MILLION
WARRANTS
LOS ANGELES, CALIF., OCTOBER 3, 1996 -- Koo Koo Roo, Inc. (Nasdaq:KKRO)
announced today that it is offering to repurchase warrants which entitle the
holders to acquire 1,197,863 shares of its common stock at an average price of
$5.72. The warrants were issued in connection with the Company's June 1995
private placement.
Koo Koo Roo is offering $2.00 in cash for each warrant. The warrants and
the shares underlying the warrants have not been registered for resale to the
public and are restricted.
The tender offer begins Monday, October 7, 1996 and will expire, unless
extended, at 12:00 p.m. (EST) on October 28, 1996. The offer will be mailed
directly to each warrant holder.
"The Board of Directors concluded that it would be in the best interest of
the shareholders to retire these warrants which represent 8% of the outstanding
common stock for a cash outlay of $2.00 per warrant , if possible," said Rob
Kautz, chief financial officer, Koo Koo Roo, Inc. "With over $22 million in
cash, and the initiation of debt financing for store construction, this is an
opportune time for the company to offer to repurchase the warrants; however, the
company has no assurance that all or any portion of the warrants will be
tendered."
-more-
<PAGE>
Koo Koo Roo Offers to Repurchase 1.2 Million Warrants
Page 2
The mission of Koo Koo Roo, Inc. is to provide a dining experience which
contributes to healthier, happier and longer lifestyles. The company operates 25
restaurants in California, Colorado, Florida, and New Jersey. Its flagship
restaurant concept, Koo Koo Roo California Kitchen, offers the quality, variety
and fresh food of fine dining with the convenience and affordability of quick-
service. The menu features proprietary Original Skinless Flame-Broiled
Chicken(TM); fresh oven-roasted, hand-carved turkey; country herb and garlic
rotisserie chicken; made-to-order tossed salads; specialty sandwiches on fresh
baked rolls; a signature vegetable soup; and 24 side dishes. The company also
owns the Arrosto Coffee Company and Color Me Mine, which operates and franchises
paint-your-own-ceramic stores.
####
<PAGE>
LOS ANGELES, CALIF., October 8, 1996 - Koo Koo Roo, Inc. (Nasdaq=KKRO) said
today that its tender offer to repurchase warrants will commence on October 9,
1996 and will expire, unless extended, at 12:00 midnight (EST) on November 7,
1996, rather than October 28, 1996, as previously announced.
<PAGE>
EXHIBIT (g)
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
</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>
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>
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:
Payment of expenses 300,000 $ 131,250
Repayment of loans 700,000 350,000
Acquisition of assets 1,000,000 336,870
Payment of expense 134,730 483,897
During 1994
-----------
Acquisition of assets 85,189 500,000
Payment of expenses 11,448 59,500
During 1995
-----------
Principal stockholder:
Extension of employment agreement 200,000 945,000
Acquisition of assets 241,409 1,927,250
Acquisition of minority interest 275,848 1,911,493
Payment of expenses 159,560 863,857
</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>
EXHIBIT (h)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
UNAUDITED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
December 31, 1995 and June 30, 1996 F-2
Condensed Consolidated Statements of Operations for the
six months ended June 30, 1995 and 1996 F-3
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1995 and 1996 F-4
Notes to Condensed Consolidated Financial Statements F-5
</TABLE>
F-1
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1995 1996
--------------- ---------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $3,501,815 $18,547,542
Marketable securities 3,663,111 8,294,433
Inventories 186,742 267,046
Prepaid expense and other 680,703 868,770
--------------- ---------------
Total current assets 8,032,371 27,977,791
Property and equipment 14,270,703 21,098,303
Lease Acquisition costs 1,511,328 1,980,177
Pre-opening costs 840,891 897,070
Investment in international joint ventures ------- 221,108
Intangibles and other assets 1,899,367 2,259,804
--------------- ---------------
$26,554,660 $54,434,254
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $1,660,899 $1,598,515
Accrued payroll 491,169 866,097
Accrued store closing costs 546,463 525,942
Notes and loans payable - short term 13,823 125,118
Other accrued liabilities 1,402,413 1,497,441
---------------- ----------------
Total current liabilities 4,114,767 4,613,113
---------------- ----------------
Notes and loans payable - long term 178,646 138,889
---------------- ----------------
Minority interest 718,109 875,267
---------------- ----------------
Stockholder's 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, 50,000,000
shares authorized; 14,329,851 and 14,879,351
shares issued and outstanding 143,299 148,794
Additional paid-in capital 40,467,687 71,357,377
Accumulated deficit (18,274,719) (21,996,926)
Treasury stock, 84,352 and 72,512 shares
at cost (2,242) (2,124)
Common stock issued for unearned compensation (790,887) (712,137)
---------------- ----------------
Total stockholders' equity 21,543,138 48,806,984
---------------- ----------------
$26,554,660 $54,434,254
=============== ===============
</TABLE>
F-2
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED SATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Six Three Three
Months Ended Months Ended Months Ended Months Ended
June 30, June 30, June 30, June 30,
1995 1996 1995 1996
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Sales $8,161,568 $16,019,263 $4,510,836 $8,661,890
Interest and other 140,922 833,591 91,182 714,959
-------------- --------------- -------------- ---------------
Total revenues 8,302,490 16,852,854 4,602,018 9,376,848
Cost of Sales 5,759,276 11,055,763 3,051,548 5,910,355
-------------- --------------- -------------- ---------------
Gross profit 2,543,214 5,797,091 1,550,470 3,466,494
Operating Expenses 5,598,869 9,206,354 3,426,206 5,099,234
-------------- --------------- -------------- ---------------
Loss before minority interest (3,055,655) (3,409,263) (1,875,736) (1,632,740)
Minority interest in loss 89,135 111,256 14,822 37,301
-------------- --------------- -------------- ---------------
Net loss (2,966,520) (3,298,007) (1,860,914) (1,595,439)
Preferred Dividends ------ (424,200) ------ (375,000)
-------------- --------------- -------------- ---------------
Net Loss Applicable to Common Stockholders $(2,966,520) $(3,722,207) $(1,860,914) $(1,970,439)
============== =============== ============== ===============
Net loss per common share: $(0.29) $(0.26) $(0.17) $(0.13)
============== =============== ============== ===============
Weighted average number of common and
common equivalent shares 10,196,105 14,571,560 10,804,999 14,785,915
============== =============== ============== ===============
</TABLE>
F-3
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Six
Months Ended Months Ended
June 30, June 30,
1995 1996
---------------- ---------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $(2,966,520) $(3,298,007)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,014,892 1,780,306
Deferred franchise revenue (80,000) -------
Minority interest in net loss (89,135) (111,256)
Assets written off or abandoned 199,959 278,285
Common stock issued for expenses and other 111,000 75,750
Changes in operating assets and liabilities:
Inventories (3,699) (80,304)
Prepaid expenses & other current assets (237,106) (303,067)
Accounts payable 440,513 256,616
Accrued expenses and other liabilities 307,123 194,472
---------------- ---------------
Net cash used in operating activities (1,302,973) (1,207,205)
---------------- ---------------
Cash Flows From Investing Activities:
Sale of marketable securities (6,158,040) (4,631,322)
Acquisition of property and equipment (3,314,406) (8,284,720)
Lease acquisition and other assets (90,416) (709,579)
Investment in international joint ventures ------ (221,108)
Pre-opening costs (686,003) (657,607)
---------------- ---------------
Net cash used in investing activities (10,248,865) (14,504,336)
---------------- ---------------
Cash Flows From Financing Activities:
Minority capital contributions 114,664 268,414
Proceeds from private placements, net 17,661,625 30,465,492
Distributions to shareholders (45,781) (49,200)
Exercise of common stock options and warrants 1,578,794 72,562
---------------- ---------------
Net cash provided by financing activities 19,309,302 30,757,268
---------------- ---------------
Net Increase in Cash and Cash Equivalents 7,757,464 15,045,727
Cash and Cash Equivalents, beginning of period 544,185 3,501,815
---------------- ---------------
Cash and Cash Equivalents, end of period $8,301,649 $18,547,542
================ ===============
</TABLE>
F-4
<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 majority-owned subsidiaries and two limited partnerships in which the
Company has a controlling interest. All significant inter-company
transactions and balances have been eliminated.
2. In the first quarter of 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. 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 area development agreements and Company-owned
stores. The founders of Color Me Mine have five-year employment contracts.
The acquisition has been accounted for utilizing the pooling of interest
accounting method and, accordingly; prior period financial statements have
been restated to include Color Me Mine.
Through their wholly-owned subsidiary Color Me Mine is in the business of
entering into area development agreements to establish Color Me Mine
franchises. During the current quarter Color Me Mine completed the sale of
three area development territories. Revenue from these sales amounting to
$255,000 has been recognized on the accompanying Consolidated Statement of
Operations in accordance with Statement of Financial Accounting Standards
No. 45.
3. On June 7, 1996 the Company entered into definitive agreements with a group
of investors in Toronto, Canada, to form a Canadian Limited Partnership,
Koo Koo Roo Canada Holdings, which plans to develop the Koo Koo Roo
California Kitchen restaurant and Arrosto Coffee Company concepts in
Canada. The partnership is 40% owned by Koo Koo Roo, Inc. and the
remaining 60% is owned by the group of investors based in Toronto.
4. On May 8, 1996 the Company entered into a business development agreement
with an entity associated with its Florida joint venture partner to
provide business development services similar to those provided in
connection with the Canadian joint venture. In consideration for the
agreement, the Company issued options to purchase 1.0 million shares of
common stock with an exercise price of $8.00 per share. The options will
become exercisable ratably over a three-year period beginning on the first
anniversary of the date of issuance, so long as the business development
agreement remains in place. The business development agreement
F-5
<PAGE>
may be canceled with six months notice by the Company's CEO in his sole
discretion. The options also will vest upon a change in control (as
defined).
5. On May 8, 1996 the Company amended its area development agreement covering
Florida and certain counties in Southern Georgia. Under this amendment,
the area developer's rights to open franchise restaurants were terminated,
and all stores will be developed as joint ventures through newly-formed
partnerships of which the Company will own a 50% interest. In
consideration for this amendment, the Company granted the area developer
options to purchase 350,000 shares of the Company's common stock at $8.00
per share. The options vested and became exercisable immediately upon
grant.
6. 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-6
