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SCHEDULE 14A
(RULE 14A-101)
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [_]
Check the appropriate box:
[X] Preliminary proxy statement
[_] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2))
[_] Definitive proxy statement
[_] Definitive additional materials
[_] Soliciting material pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
KOO KOO ROO, INC.
..........................................
(Name of Registrant as Specified in its Charter)
..........................................
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
Not Applicable.
(2) Aggregate number of securities to which transaction applies: Not
Applicable.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: Not Applicable.
(4) Proposed maximum aggregate value of transaction: Not Applicable.
(5) Total fee paid: Not Applicable.
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid: Not Applicable.
(2) Form, Schedule or Registration Statement No.: Not Applicable.
(3) Filing party: Not Applicable.
(4) Date Filed: Not Applicable.
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KOO KOO ROO, INC.
11075 Santa Monica Boulevard
Suite 225
Los Angeles, California 90025
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 17, 1997
------------------------
To The Stockholders:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Meeting") of Koo Koo Roo, Inc. (the "Company") will be held at the Company's
Koo Koo Roo California Kitchen/TM/ restaurant located at 600 Santa Cruz Avenue,
Menlo Park, California 94025, on Thursday, April 17, 1997 at 9:15 a.m., local
time, solely for the following purpose:
To approve and reserve for issuance shares of Common Stock issuable
upon the conversion of shares of the Company's 6% Adjustable
Convertible Preferred Stock issued in a February 1997 private
placement, as dividends thereon and in respect of related placement
agent warrants.
The Board of Directors has fixed the close of business on March 7, 1997 as
the record date for the determination of the stockholders entitled to notice of,
and to vote at, the Meeting or any adjournment or postponement thereof.
THE ENCLOSED PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY,
WHICH RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE 1997 PRIVATE PLACEMENT. Please
refer to the attached Proxy Statement, which forms a part of this Notice and is
incorporated herein by reference, for further information with respect to the
business to be transacted at the Meeting.
Whether or not you plan to attend the Meeting in person, it is important
that you sign, date and return promptly the enclosed proxy in the envelope
provided to assure that your shares are represented at the Meeting. If you
subsequently decide to attend the Meeting and wish to vote your shares in
person, you may do so. Your cooperation in giving this matter your prompt
attention will be appreciated.
By Order of the Board of Directors
Ronald D. Garber
Secretary
Los Angeles, California
March , 1997
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KOO KOO ROO, INC.
-------------------
PROXY STATEMENT
-------------------
INTRODUCTION
GENERAL
The enclosed proxy is solicited by and on behalf of the Board of Directors
of Koo Koo Roo, Inc., a Delaware corporation (the "Company"), in connection with
the Special Meeting of Stockholders of the Company (the "Meeting") to be held at
9:15 a.m. local time at the Company's Koo Koo Roo California Kitchen/TM/
restaurant located at 600 Santa Cruz Avenue, Menlo Park, California 94025, on
Thursday, April 17, 1997, and any adjournment or postponement thereof. At the
Meeting, stockholders will be asked to vote solely to approve and reserve for
issuance shares of Common Stock issuable upon the conversion of shares of the
Company's 6% Adjustable Convertible Preferred Stock issued in a February 1997
Private Placement, as dividends thereon and in respect of related placement
agent warrants (the "1997 Private Placement Issuances").
Only stockholders of record of shares of Common Stock at the close of
business on March 7, 1997, the record date for the Meeting fixed by the Board of
Directors, are entitled to vote at the Meeting. On that date, there were
outstanding and entitled to vote at the Meeting shares of Common
Stock, each of which is entitled to one vote at the Meeting. Holders of
outstanding shares of the Company's 5% Adjustable Convertible Preferred Stock,
liquidation preference $25 per share (the "Series A Convertible Preferred
Stock"), and 6% Adjustable Convertible Preferred Stock, liquidation preference
$100 per share (the "Series B Convertible Preferred Stock"), are not entitled to
notice of, or to vote at, the Meeting. It is expected that this Proxy Statement
and accompanying proxy card will first be mailed to stockholders on or about
March 16, 1997.
The cost of soliciting proxies will be paid by the Company. Proxies may be
solicited by directors, officers and employees of the Company in person or by
mail, telephone or facsimile transmission, but such persons will not be
specially compensated therefor. Georgeson & Company Inc., 88 Pine Street, Wall
Street Plaza, 30th Floor, New York, New York 10005 (telephone: 212/440-9800),
has been retained to assist in soliciting proxies by mail, telephone, facsimile
or personal solicitation for a fee of $7,000, plus expenses.
The Company's executive offices are located at 11075 Santa Monica
Boulevard, Suite 225, Los Angeles, California 90025, telephone (310) 479-2080.
References herein to the "Company" refer to Koo Koo Roo, Inc. and its
subsidiaries, unless the context otherwise requires.
VOTING AND REVOCATION OF PROXIES
All shares represented by the accompanying proxy, if the proxy is properly
executed, returned and not revoked, will be voted as specified by the
stockholder. If no contrary instructions are given, such
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shares will be voted FOR approval of the 1997 Private Placement Issuances. As
of the date of this Proxy Statement, the Board of Directors does not know of any
other matter which will be brought before the Meeting. Under the Company's
bylaws, the only business that may be conducted at a special meeting of
stockholders is that which is set forth in the related notice of meeting.
Although not expected, if any other matter properly comes before the Meeting, or
any adjournment or postponement thereof, which may properly be acted upon, the
proxies solicited hereby will be voted on such matter in accordance with the
discretion of the proxy holders named therein unless otherwise indicated.
Any stockholder has the power to revoke his or her proxy at any time before
it has been voted by filing with the Corporate Secretary of the Company an
instrument revoking it, by submitting a substitute proxy bearing a later date or
by voting in person at the Meeting.
A majority of the outstanding shares of the Company's Common Stock,
represented in person or by proxy, will constitute a quorum at the Meeting.
Shares represented by proxies that reflect abstentions or "broker non-votes"
will be counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. However, proxies that reflect abstentions
as to a particular proposal will be treated as voted for purposes of determining
the approval of that proposal and will have the same effect as a vote against
that proposal, while proxies that reflect broker non-votes will be treated as
unvoted for purposes of determining approval and will not be counted as votes
for or against that proposal. The affirmative vote of the holders of a majority
of the shares of Common Stock entitled to vote present in person or by proxy at
the Meeting is required to authorize and approve the 1997 Private Placement
Issuances.
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PROPOSAL NO. 1:
APPROVAL OF 1997 PRIVATE PLACEMENT ISSUANCES
GENERAL
On February 27, 1997, the Company received aggregate net proceeds of
approximately $26.9 million (after cash fees to the placement agent and
estimated transaction expenses) from the issuance of shares of Series B
Convertible Preferred Stock and agreed to issue to the placement agent certain
warrants to acquire Series B Convertible Preferred Stock (the "Series B
Preferred Stock Warrants"). Such transactions are referred to herein as the
"1997 Private Placement," and the related securities issuances (including shares
of Common Stock issuable upon the conversion of shares of Series B Convertible
Preferred Stock, as dividends thereon and in respect of the Series B Convertible
Preferred Stock Warrants) are referred to as the "1997 Private Placement
Issuances." All of the securities sold in the 1997 Private Placement were sold
in private placements solely to accredited investors.
Approval of the 1997 Private Placement Issuances is sought in order to
satisfy the stockholder approval requirements contained in the Company's listing
agreement with the Nasdaq National Market in the event that the 1997 Private
Placement Issuances require that more than approximately 3,150,000 shares of
Common Stock (approximately 19.9% of the shares of Common Stock outstanding on
the date of the 1997 Private Placement) be issued in connection therewith.
Under the Nasdaq's rules, this calculation is based solely on the shares
outstanding and does not consider the effect of any other common stock
equivalents that may be outstanding. Specifically, such outstanding stock
amount excludes all outstanding options, warrants and shares of Series A
Convertible Preferred Stock. See "--Introduction," "--Nasdaq Listing
Obligation" and "Description of Capital Stock."
INTRODUCTION
The exact number of shares of Common Stock issuable upon full consummation
of the 1997 Private Placement Issuances cannot currently be estimated because
each component (i.e., the Series B Convertible Preferred Stock and the Series B
Convertible Preferred Stock Warrants) is subject to adjustment mechanisms which
cause the number of shares of Common Stock issuable to be dependent on future
events, principally consisting of the future trading prices of the Common Stock
in the marketplace and the conversion decision of holders of Series B
Convertible Preferred Stock. The number of shares of Common Stock issuable upon
full consummation of the 1997 Private Placement Issuances will, generally, vary
inversely with the market price of the Common Stock. Under the terms of the
Series B Convertible Preferred Stock, holders generally are not required to
convert such shares prior to the third anniversary of the original date of
issuance. Depending on the average market price of the Common Stock during such
period, and the conversion formulas applicable to the Series B Convertible
Preferred Stock at the time of conversion, such conversions could require the
issuance of more than approximately 3,150,000 shares of Common Stock. The
Company's listing agreement with the Nasdaq National Market requires stockholder
approval in the event that the 1997 Private Placement Issuances require more
than approximately 3,150,000 shares of Common Stock be issued in connection
therewith (approximately 19.9% of the shares of Common Stock
outstanding on the date of the 1997 Private Placement). Such outstanding share
amount excludes all Common Stock equivalents outstanding as of such date,
including shares issuable in respect of outstanding options, warrants and
unconverted shares of Series A Convertible Preferred Stock.
In addition, the Corporation may require holders of the Series A
Convertible Preferred Stock and holders of the Series B Convertible Preferred
Stock to convert such shares into shares of Common Stock
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if the Company sells Common Stock for cash in a registered underwritten public
offering in which the underwriters agree to purchase all such shares of
underlying Common Stock that such holders desire to sell. See "--Summary of
Transaction Terms" and "--Nasdaq Listing Obligation."
If the stockholder approval sought hereby to satisfy the Nasdaq requirement
is not obtained, the Company will be prohibited under the terms of its listing
agreement with Nasdaq from issuing more than approximately 3,150,000 shares of
Common Stock in connection with the 1997 Private Placement Issuances. In such
event, the Company would have to satisfy further obligations with cash. One
such obligation would be to return within 15 days of such event an estimated
$11.1 million to the holders of the Series B Convertible Preferred Stock
(including a premium of 3%, or approximately $323,000), assuming a market price
of $6.5625 per share (the last reported sales price of the Common Stock on the
Nasdaq National Market on March 3, 1997) and completion of the redemption by
June 30, 1997. Although the Company has established a reserve of cash and
marketable securities to satisfy this obligation, there can be no assurance that
the Company will have available the cash resources to satisfy future obligations
which might arise depending on the future market price of the Common Stock, or
that such payments would not have a material adverse effect on the Company's
financial position or ability to execute its growth plan. See "--Consequences
if Stockholder Approval Not Obtained" and "--Use of Proceeds."
As noted above, the exact number of shares issuable upon full consummation
of the 1997 Private Placement Issuances cannot currently be estimated. The
current holders of Common Stock will be diluted by the 1997 Private Placement
Issuances and may be very substantially diluted depending on the future market
price of the Common Stock. If, however, the market price of the Common Stock
increases significantly prior to the date any of the Series B Convertible
Preferred Stock is converted, the current holders of Common Stock would benefit
relative to a placement at market prices which prevailed on February 27. The
holders of the Series B Convertible Preferred Stock have also been given certain
other rights, preferences and privileges. The indeterminate nature of the
Company's obligations under the Series B Convertible Preferred Stock, along with
such other rights, preferences and privileges, may, among other things, have the
effect of delaying, deferring or preventing a change in control of the Company,
discouraging tender offers for the Company and inhibiting certain equity
issuances until substantially all such shares are converted or redeemed. See
"--Effects of 1997 Private Placement Issuances on Holders of Common Stock."
As indicated in the Company's prior reports, the Board of Directors has
recognized for some time that the continued expansion contemplated for 1997
required that additional capital be raised. The Board of Directors discussed
this need for capital in depth at a January 31, 1997 board meeting and
authorized the Chief Executive Officer to acquire the capital through a private
placement of convertible preferred stock. The Board considered the benefits and
risks of raising equity based on future market prices relative to other
alternatives and concluded that the 1997 Private Placement Issuances were in the
best interest of the Company and should be pursued. See "--Board of Directors
Approval."
Each member of the Board of Directors of the Company as of February 27,
1997 has agreed with the holders of the Series B Convertible Preferred Stock to
vote all shares of Common Stock over which he exercises voting authority in
favor of this Proposal No. 1. Separately, Kenneth Berg, the Company's Chairman
and Chief Executive Officer, and Mel Harris, one of the Company's Directors,
each have agreed for the 14-month period following February 27, 1997, not to
sell, and not to permit any of their controlled affiliates to sell, more than
10% of the Common Stock owned by such stockholder as of such date without the
prior consent of the Cappello & Laffer Capital Corp., the placement agent in
connection with the 1997 Private Placement (the "Placement Agent"). See
"--Certain Voting and Market Standoff Undertakings."
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The Company intends to use substantially all of the approximately $26.9
million raised in the 1997 Private Placement principally to finance its planned
expansion program and investments in domestic and international joint venture
partners, as well as to make acquisitions of existing businesses. Any
additional funds are expected to be used for general corporate purposes. See
"--Use of Proceeds."
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL OF THE 1997 PRIVATE PLACEMENT ISSUANCES. See "--Vote Required."
SUMMARY OF TRANSACTION TERMS
Set forth below is a summary of the material terms of the 1997 Private
Placement, which summary is qualified by reference to the full text of the
underlying documents which have been filed as exhibits to the Company's Current
Report on Form 8-K dated February 27, 1997. See "Available Information."
SERIES B CONVERTIBLE PREFERRED STOCK PLACEMENT. Pursuant to the terms of
the several Series B Preferred Stock Investment Agreements, each dated as of
February 27, 1997 (collectively, the "Series B Preferred Stock Investment
Agreement"), the Company issued and sold in a private placement to certain
accredited investors for $100.00 per share an aggregate of 290,000 restricted
shares of a newly-established series of preferred stock, designated as Series B
Convertible Preferred Stock, resulting in gross proceeds to the Company of $29.0
million in the aggregate. The last reported sales price of the Common Stock on
the Nasdaq National Market on March 3, 1997 was $6.5625 per share.
Each share of Series B Convertible Preferred Stock is entitled to receive
dividends, payable commencing August 1, 1997 and thereafter quarterly on
November 1, February 1, May 1 and August 1 of each year, when and as declared by
the Company's Board of Directors, at the rate of 6% per annum in preference to
any payment made on any shares of Common Stock or any other class or series of
capital stock of the Corporation ranking junior to the Series B Convertible
Preferred Stock. Any dividend payable after the date of issuance of the Series
B Convertible Preferred Stock may be paid, at the option of the Company, either
(i) in cash or (ii) upon proper notice, in additional shares of Series B
Convertible Preferred Stock valued at $100.00 per share, if (1) the shares of
Common Stock issuable upon conversion of such Series B Convertible Preferred
Stock have been registered for resale under the Securities Act and the
registration statement, including the prospectus with respect to such shares of
Common Stock, remains in effect at the date of the delivery of such shares of
Series B Convertible Preferred Stock or (2) such shares of Common Stock may be
sold pursuant to Rule 144(k) under the Securities Act of 1933, as amended (the
"Securities Act"). Each share of Series B Convertible Preferred Stock is also
entitled to a liquidation preference of $100.00 per share, plus any accrued but
unpaid dividends, in preference to any other class or series of capital stock of
the Company, other than the Series A Convertible Preferred Stock and any other
class or series of capital stock which is entitled to priority over the Series B
Convertible Preferred Stock; provided, however, that a share of Series B
Convertible Preferred Stock which is converted into Common Stock prior to August
1, 1997 shall receive no adjustment for accrued dividends, and the liquidation
preference of such shares, for conversion purposes, shall not include any amount
in respect of accrued and unpaid dividends. Except as otherwise provided by
applicable law, holders of shares of Series B Convertible Preferred Stock have
no voting rights.
Commencing the earlier of (i) 91 days after the date of issuance and (ii)
the date that a registration statement registering the shares of Common Stock
issuable upon conversion of the Series B Convertible Preferred Stock (including
such shares issuable upon exercise of the Series B Convertible Preferred Stock
Warrants) is declared effective by the Securities and Exchange Commission, 15%
(or
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such larger percentage as is determined by the Company in its sole discretion)
of the number of shares of Series B Convertible Preferred Stock held of record
by each holder on such day shall become convertible into shares of Common Stock,
and thereafter on the successive monthly anniversaries of such day an equal
number of such shares of Series B Convertible Preferred Stock shall become
convertible. On and after November 1, 1997, all shares of Series B Convertible
Preferred Stock will be convertible into shares of Common Stock. The number of
shares of Common Stock issuable upon conversion of shares of Series B
Convertible Preferred Stock will equal the liquidation preference of the shares
being converted divided by the then-effective conversion price applicable to the
Common Stock (the "Conversion Price"); provided, however, that a share of Series
B Convertible Preferred Stock which is converted into Common Stock prior to
August 1, 1997 shall receive no adjustment for accrued and unpaid dividends.
The Conversion Price as of any date during the eight-month period following the
date of issuance shall be the lesser of (i) the actual selling price at which
the holder converting has sold shares of Common Stock (if any) during the three
trading days prior to conversion in a bona fide trade with an unaffiliated third
party (which may not be less than the lowest trading price on the date of such
trade as reported by the Nasdaq National Market) or (ii) the average of the
daily means between the low trading price and the closing price of the Common
Stock for the three consecutive trading days prior to conversion, in either case
reduced by the Applicable Percentage (as defined herein). The Conversion Price
as of any date after the eight-month period following the date of issuance
through the 14th month following the date of issuance shall be the lowest
trading price of the Common Stock during the five trading days immediately
preceding the date of conversion, reduced by the Applicable Percentage. The
"Applicable Percentage" is dependent upon the amount of time which has passed
from original issuance to the date of measurement, being 3% through the fourth
month and from the fifth month through the end of the fourteenth month being 4%,
5%, 12%, 12 3/4%, 13 1/2%, 14 1/2%, 16%, 19%, 22% and 25%, respectfully. At any
date more than fourteen months after the date of issuance, the Conversion Price
will be the lesser of (a) 75% of the average of the daily means between the low
trading price of the Common Stock and the closing price of the Common Stock for
all the trading days during the 14th month or (b) 75% of the average of the
daily means between the low trading price and the closing price of the Common
Stock during the five trading days immediately preceding the date of conversion
(the "Conversion Cap"). The terms of the Series B Convertible Preferred Stock
do not provide for any limit on the number of shares of Common Stock which the
Company may be required to issue in respect thereof. The Conversion Price is at
all times also subject to adjustment for customary anti-dilution events such as
stock splits, stock dividends, reorganizations and certain mergers affecting the
Common Stock. On February 27, 2000, all of the then outstanding shares of
Series B Convertible Preferred Stock will be automatically converted into shares
of Common Stock at the then-applicable Conversion Price. Notwithstanding the
foregoing, no holder of Series B Convertible Preferred Stock will be entitled to
convert any share of Series B Convertible Preferred Stock into shares of Common
Stock if, following such conversion, the holder and its affiliates (within the
meaning of the Securities Exchange Act of 1934) will be the beneficial owners
(as defined in Rule 13d-3 thereunder) of 10% or more of the outstanding shares
of Common Stock.
In addition, following conversion of the Series B Convertible Preferred
Stock into shares of Common Stock, the holders of such shares of Common Stock
will be limited on resales of such shares to the greatest of: (i) 10% of the
average daily trading volume of the Common Stock for the five trading days
preceding any such sale date; (ii) 20,000 shares and (iii) 10% of the trading
volume for the Common Stock on the date of any such sale.
Unless the approval sought hereby is received, the Company, pursuant to its
listing obligation with the Nasdaq National Market, will be permitted to issue
only up to approximately 3,150,000 shares of Common Stock upon conversion of
shares of Series B Convertible Preferred Stock (including shares
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issuable upon exercise of the Series B Convertible Preferred Stock Warrants and
shares of Series B Convertible Preferred Stock issuable in payment of
dividends). If the approval sought hereby is not granted by stockholders or if
such approval is not for any reason received by May 31, 1997, the Company will
be obligated to redeem, at a premium, a sufficient number of shares of Series B
Convertible Preferred Stock which, in its reasonable judgment, will permit
conversion of the remaining shares of Series B Convertible Preferred Stock
without breaching any obligation of the Company under the Company's listing
agreement with the Nasdaq National Market and, upon issuance of all such
3,150,000 shares of Common Stock, the Company will be required upon subsequent
conversion of shares of Series B Convertible Preferred Stock to redeem such
shares for cash at the Special Redemption Price (as defined below). Any delay
in payment will cause such redemption amount to accrue interest at the rate of
0.1% per day until paid. The Company also will be required to pay all dividends
on the remaining shares of Series B Convertible Preferred Stock in cash. See
"--Nasdaq Listing Obligation" and "--Consequences if Stockholder Approval Not
Obtained."
The Company may require holders of Series B Convertible Preferred Stock to
convert such shares into shares of Common Stock if the Company sells Common
Stock for cash in a registered underwritten public offering and the underwriters
agree to sell all shares of Common Stock that holders of Series B Convertible
Preferred Stock desire to sell in the offering. In such event, the conversion
price for such shares will be the public offering price, less the underwriters'
gross spread, reduced by the Applicable Percentage set forth above.
The Company has agreed to register the shares of Common Stock issuable upon
conversion of the Series B Convertible Preferred Stock, including shares payable
as dividends thereon, for resale under the Securities Act no later than 90 days
after original issuance, subject to extension to 120 days under certain limited
circumstances. Any delay in having such registration statement declared
effective by the Commission beyond the applicable period, or any unavailability
to the holders of the Series B Convertible Preferred Stock of a current
prospectus after such period, will cause the Company to pay to each holder, in
cash, 3% of the total purchase price of the Series B Convertible Preferred Stock
for each 30-day period of the delay (pro rated for any shorter period).
PLACEMENT AGENT COMPENSATION. The Placement Agent for the 1997 Private
Placement was Cappello & Laffer Capital Corp. In consideration for placing such
securities, the Placement Agent received aggregate cash compensation of 6 3/4%
of the gross proceeds received by the Company and the reimbursement of certain
legal and accounting expenses. Further, the Company also agreed to issue to the
Placement Agent Series B Convertible Preferred Stock Warrants to acquire an
aggregate of 29,000 shares of Series B Convertible Preferred Stock for a
purchase price of $100.00 per share. Such Warrants will be exercisable for a
period of three years for securities that are substantially identical to those
issued in the 1997 Private Placement. The Company will be obligated to register
the shares of Common Stock issuable upon exercise and conversion of the Series B
Convertible Preferred Stock Warrants for resale under the Securities Act. The
Placement Agent will retain its compensation whether or not the stockholder
approval sought hereby is obtained.
NASDAQ LISTING OBLIGATION
The Company has entered into a listing agreement with Nasdaq regarding the
quotation of the Common Stock on the Nasdaq National Market. Among other
things, the listing agreement obligates the Company to comply with certain "non-
quantitative designation criteria" promulgated by Nasdaq. These criteria
include the requirement that, with certain exceptions, issuers quoted on the
Nasdaq National Market obtain stockholder approval of the issuance of Common
Stock equal to 20% or more of the
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number of shares or voting power then issued and outstanding. Stockholder
approval is also required of transactions deemed to constitute a "change in
control." Although the Company does not believe that the issuances contemplated
by the 1997 Private Placement Issuances constitute a "change in control" under
the Nasdaq's rules, if the transactions were to be so construed, the approval
sought hereby would also be effective to satisfy the stockholder vote required
thereby. The Company's belief is based on the fact that no voting rights were
granted to holders of the Series B Convertible Preferred Stock as such, that
such holders do not have any contractual right to elect a director or otherwise
influence management of the Company, and that Kenneth Berg remains Chairman of
the Board of Directors, Chief Executive Officer and the largest single
stockholder of the Company.
The exact number of shares of Common Stock issuable upon full consummation
of the 1997 Private Placement Issuances cannot currently be estimated because
each component (i.e., the Series B Convertible Preferred Stock and the Series B
Convertible Preferred Stock Warrants) is subject to adjustment mechanisms which
cause the number of shares of Common Stock issuable to be dependent on future
events, principally consisting of the future trading prices of the Common Stock
in the marketplace and the conversion elections made by holders. The
application of the adjustment and conver sion formulas applicable to such
securities will cause the number of shares of Common Stock to be issued to vary
inversely with the market price of the Common Stock. In order to assure
continued compliance with the applicable rules of the Nasdaq National Market,
the transaction documents governing the 1997 Private Placement Issuances
expressly provide that no more than an aggregate of approximately 3,150,000
shares of Common Stock (approximately 19.9% of the shares of
Common Stock outstanding on the date of the 1997 Private Placement) may be
issued in connection therewith unless and until the approval sought hereby is
obtained. Such outstanding share amount excludes all Common Stock equivalents
outstanding. As of December 31, 1996, such Common Stock equivalents included:
(i) approximately 7.6 million shares of Common Stock subject to presently
outstanding options granted by the Company under stock option plans and through
direct grants, of which approximately 3.7 million shares are issuable under
options exercisable as of the date of this Proxy Statement, (ii) approximately
1.6 million shares of Common Stock issuable upon the exercise of presently
outstanding warrants to purchase Common Stock, of which approximately 1.5
million shares are issuable pursuant to warrants exercisable as of the date of
this Proxy Statement, (iii) approximately 5.4 million shares of Common Stock
presently estimated to be issuable upon conversion of presently outstanding
shares of the Company's Series A Convertible Preferred Stock issued in a private
placement transaction during 1996 and (iv) approximately 564,000 shares of
Common Stock issuable upon conversion of or otherwise in respect of 108,000
shares of Series A Convertible Preferred Stock issuable upon the exercise of
presently outstanding warrants issued in connection with the 1996 private
placement (the "Series A Convertible Preferred Stock Warrants"). The number of
shares of Common Stock estimated to be issuable pursuant to clauses (iii) and
(iv) is based solely on the market price of the Common Stock of $6.5625 (the
last reported sales price of the Common Stock on the Nasdaq National Market on
March 3, 1997), assuming that all shares of Series A Convertible Preferred Stock
are converted on the first date permitted. As of December 31, 1996, there were
1,027,193 shares of Series A Convertible Preferred Stock outstanding which had
not yet been converted into Common Stock. The number of shares of Common Stock
issuable upon conversion of such shares of Series A Convertible Preferred Stock
is subject to adjustment and could be materially less or more than such amount
depending upon factors which cannot be predicted at this time, including, among
others, the future market price of the Common Stock. This presentation is not
intended to constitute a prediction as to the future market price of the Common
Stock. See "Description of Capital Stock."
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By approving this proposal, stockholders will be approving the issuance by
the Company of shares of Common Stock in satisfaction of its obligations under
the securities issued in the 1997 Private Placement as described in this Proxy
Statement. No further stockholder vote or approval related to the 1997 Private
Placement Issuances will be sought or required. If the approval sought hereby
is not obtained, the Company will only be permitted to issue an aggregate of
approximately 3,150,000 shares in connection with the 1997 Private Placement,
and any other obligations will have to be paid in cash as described below. See
"--Consequences if Stockholder Approval Not Obtained."
CONSEQUENCES IF STOCKHOLDER APPROVAL NOT OBTAINED
If the stockholder approval sought hereby is not obtained, the Company will
be prohibited under the terms of its listing agreement with Nasdaq from issuing
more than an aggregate of approximately 3,150,000 shares of Common Stock in
connection with the 1997 Private Placement Issuances (approximately 19.9% of the
amount outstanding on the date of the 1997 Private Placement). If the approval
sought hereby is not granted by stockholders or if such approval is not for any
reason received by May 31, 1997, the Company will be obligated to redeem, at the
Special Redemption Price (as defined below), a sufficient number of shares of
Series B Convertible Preferred Stock which, in its reasonable judgment, will
permit conversion of the remaining shares of Series B Convertible Preferred
Stock without breaching any obligation of the Company under the Company's
listing agreement with the Nasdaq National Market. The "Special Redemption
Price" means a cash payment equal to the greater of (i) the liquidation
preference of $100 divided by the difference between (x) 100% and (y) the
Applicable Percentage and (ii) the current value of the Common Stock, using the
price per share of Common Stock adjusted by the Applicable Percentage, which the
holders of such shares of Series B Convertible Preferred Stock would otherwise
be entitled to receive upon conversion. If such redemption were completed by
June 30, 1997, the Special Redemption Price would equal approximately 103% of
the liquidation value of the Series B Convertible Preferred Stock redeemed.
Such redemption must be completed within 15 days of the event which required
such redemption. Upon issuance of all such 3,150,000 shares of Common Stock,
the Company will be required upon conversion of shares of Series B Convertible
Preferred Stock in accordance with the terms thereof to redeem such shares at
the Special Redemption Price. Any delay in payment will cause such redemption
amount to accrue interest at the rate of 0.1% per day until paid. The Company
also will be required to pay all dividends on the remaining shares of Series B
Convertible Preferred Stock in cash.
Under the terms of the Preferred Stock Investment Agreement, the amount of
cash which the Company would be required to return in the event of stockholder
disapproval will depend on the per share market price of the Common Stock on the
date such payment must be made. Assuming a market price of $6.5625 per share
(the last reported sales price of the Common Stock on March 3, 1997) and
completion of the redemption by June 30, 1997, the Company would be required to
pay approximately $11.1 million (including a premium of 3%, or approximately
$323,000). Because of the manner in which the conversion price is determined
under the Series B Preferred Stock Investment Agreement, the number of shares of
Common Stock issuable upon conversion of the Series B Convertible Preferred
Stock will increase if the market price of the Common Stock decreases.
Accordingly, if the market price of the Common Stock decreases, the number of
shares of Series B Convertible Preferred Stock which could not be converted into
Common Stock would increase and the amount of cash that the Company would be
required to pay to holders of the Series B Convertible Preferred Stock would
increase. Although the Company has established a reserve of cash and marketable
securities to satisfy this obligation, there can be no assurance that the
Company will have available the cash resources to satisfy future obligations
which might arise depending on the future market price of the Common Stock, or
that such payments would not have a material adverse effect on the Company's
financial position or ability to execute its growth plans.
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<PAGE>
EFFECTS OF 1997 PRIVATE PLACEMENT ISSUANCES ON HOLDERS OF COMMON STOCK
The 1997 Private Placement Issuances will have no effect on the rights or
privileges of existing holders of Common Stock except to extent that the
interest of each such stockholder in the economic results and voting rights of
the Company are diluted pro rata based on the number of shares owned by existing
stockholders prior to any issuance. Further, the holders of the Series B
Convertible Preferred Stock will be entitled to receive dividends and
distributions on a liquidation in preference to the claims of the holders of the
Common Stock. See "--Summary of Transaction Terms."
As noted above, the exact number of shares issuable upon full consummation
of the 1997 Private Placement Issuances cannot currently be estimated but,
generally, the number of shares of Common Stock issuable upon full consummation
of the 1997 Private Placement Issuances will vary inversely with the market
price of the Common Stock. The number of shares of Common Stock issuable in
connection with the Series B Convertible Preferred Stock is not a linear
function of the market price of the Common Stock, and will increase at an
increasing rate as such market price decreases (and decrease at a decreasing
rate as such market price increases) relative to a given assumed market price.
Under the terms of the Series B Convertible Preferred Stock, holders generally
are not required to convert such shares prior to the third anniversary of the
original date of issuance. The current holders of Common Stock will be diluted
by the 1997 Private Placement Issuances and may be very substantially diluted
depending on the market price of the Common Stock during such period, and the
conversion formulas applicable to the Series B Convertible Preferred Stock at
the time of conversion. If, however, the market price of the Common Stock were
to increase significantly prior to the date any of the Series B Convertible
Preferred Stock is converted, the current holders of Common Stock would benefit
relative to a placement at market prices prevailing on February 27, 1997. On
March 3, 1997, the last reported sales price of the Common Stock on the Nasdaq
National Market was $6.5625 per share. If such market price were used to
determine the number of shares of Common Stock issuable as of the first date on
which the Series B Convertible Preferred Stock may be converted, the Company
would issue a total of approximately 5,440,000 shares of Common Stock if all
such shares were converted at such time. However, if the holders of the Series B
Convertible Preferred Stock hold such shares for fourteen months, then, assuming
a market price of $6.5625 per share (the last reported sales price of Common
Stock on the Nasdaq National Market on March 3, 1997), upon conversion the
Company would issue a total of approximately 6,747,500 shares of Common Stock.
To the extent the market price of the Common Stock is higher than $6.5625 as of
any date on which shares of Series B Convertible Preferred Stock are converted,
the Company would issue fewer shares of Common Stock. Conversely, to the extent
the market price of the Common Stock is lower than $6.5625 on any such date, the
Company would issue more shares of Common Stock. The information presented above
is not intended to constitute a prediction as to the future market price of the
Common Stock or as to when holders will elect to convert shares of Series B
Convertible Preferred Stock into shares of Common Stock.
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<PAGE>
Under applicable Delaware law and the Company's Certificate of
Incorporation, the Company's Board of Directors has the authority, without
further action by the stockholders, to issue additional shares of preferred
stock in one or more series and to fix the rights, preferences, privileges and
restrictions granted to or imposed upon any series of unissued preferred stock
and to fix the number of shares constituting any series and the designation of
such series, without any further vote or action by the stockholders. The
issuance of additional shares of preferred stock, and shares of Common Stock
into which such preferred stock may be converted, may, among other things, have
the effect of delaying, deferring or preventing a change in control of the
Company, discouraging tender offers for the Company and inhibiting certain
equity issuances until substantially all such shares of preferred stock are
converted or redeemed.
BOARD OF DIRECTORS APPROVAL
As indicated in the Company's prior reports, the Board of Directors has
recognized for some time that the continued expansion contemplated for 1997
required that additional capital be raised. The Board of Directors discussed
this need for capital in depth at a 1997 board meeting and authorized the Chief
Executive Officer to acquire the capital through a private placement of
convertible preferred stock. The Board considered the benefits and risks of
raising equity based on future market prices relative to other alternatives and
concluded that the 1997 Private Placement Issuances were in the best interest of
the Company and should be pursued. See "--Use of Proceeds."
USE OF PROCEEDS
The Company estimates that the aggregate net proceeds received by it from
the issuance of shares Series B Convertible Preferred Stock in the 1997 Private
Placement was approximately $26.9 million (after cash fees to the Placement
Agent and estimated transaction expenses). Assuming stockholder approval is
obtained, the Company intends to use substatially all of such funds principally
to finance its planned expansion program and investments in domestic and
international joint venture partners, as well as to make possible acquisitions
of existing businesses. Any additional funds are expected to be used for
general corporate purposes. As of February 28, 1997, the Company had 28 Koo Koo
Roo California Kitchen/TM/ restaurants open and six locations in various stages
of development, including three under construction and three locations held
pursuant to executed leases. In addition, the Company is in final negotiation
of leases for nine additional locations, and has identified or is in preliminary
negotiation with respect to an additional 25 locations. On March 6, 1997, the
Company announced a letter of intent to acquire certain Hamburger Hamlet
operations in California and the Washington D.C. area for approximately $11.45
million, consisting of $9.70 million in cash and 150,000 shares of restricted
Common Stock, plus the assumption of the leases covering the acquired
restaurants. The purchase, if completed, will be financed through a debt
package which the Company is negotiating or through the application of cash on
hand (which includes the offering proceeds).
The Company pursues discussions and engages in negotiations from time-to-
time with other entities regarding acquisitions of complimentary businesses,
including possible acquisitions with the intent to convert existing restaurants
to the Company's Koo Koo Roo California Kitchen/TM/ or Arrosto Coffee
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Company/TM/ format, the Color Me Mine/TM/ concept, or dual branding. There can
be no assurance than any such opportunity will be identified or realized. See
"--Consequences if Stockholder Approval Not Obtained."
INTERESTS OF CERTAIN PERSONS
To the Company's knowledge, prior to the 1997 Private Placement none of the
investors therein was a director, executive officer or 5% stockholder of the
Company or an affiliate of any such person or entity.
NO APPRAISAL OR DISSENTERS' RIGHTS; NO PREEMPTIVE RIGHTS
Under applicable Delaware law, stockholders are not entitled to any
statutory dissenters' rights or appraisal of their shares of Common Stock in
connection with the 1997 Private Placement or the 1997 Private Placement
Issuances. Existing stockholders have no preemptive rights in respect of any of
the securities to be issued in the 1997 Private Placement Issuances or any other
securities issuances by the Company.
CERTAIN VOTING AND MARKET STANDOFF UNDERTAKINGS
Each member of the Board of Directors of the Company as of February 27,
1997 has agreed with the investors of the Series B Convertible Preferred Stock
to vote all shares of Common Stock over which he exercises voting authority in
favor of the 1997 Private Placement Issuances. As of the date of this Proxy
Statement, the Company has been advised that such undertakings cover an
aggregate of approximately 3,024,000 shares, representing approximately 19.1% of
the shares outstanding on the record date for the Meeting.
Separately, Kenneth Berg, the Company's Chairman and Chief Executive
Officer, and Mel Harris, one of the Company's Directors, each have agreed for
the 14-month period following February 27, 1997, not to sell, and not to permit
any of their controlled affiliates to sell, more than 10% of the Common Stock
owned by such stockholder as of such date without the prior written consent of
the Placement Agent.
VOTE REQUIRED
Stockholder approval of the 1997 Private Placement Issuances requires the
affirmative vote of the holders of a majority of the shares of Common Stock
entitled to vote thereon present in person or by proxy at the Meeting. THE
COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE 1997
PRIVATE PLACEMENT ISSUANCES.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT
The following table sets forth certain information as of December 31, 1996
with respect to the beneficial ownership of the Company's Common Stock, which
constitutes the Company's only outstanding class of voting securities, by (i)
each person who, to the knowledge of the Company, beneficially owned more than
5% of the Common Stock, (ii) each director of the Company, (iii) the Named
Executive Officers (as defined below) and (iv) all executive officers and
directors of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT OF PERCENT
NAME OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP OF CLASS(2)
------------------------ -------------------- -----------
<S> <C> <C>
Kenneth Berg 3,644,116 (3) 18.3%
Robert F. Kautz 130,000 (4) *
Michael D. Mooslin 264,050 (5) 1.4%
John S. Kaufman 50,000 (6) *
Morton J. Wall 15,700 (7) *
Ronald D. Garber 20,000 (8) *
Kory L. Berg 144,000 (9) *
Donna S. Guido 51,000 (10) *
Mel Harris 1,001,000 (11) 5.6%
Lee A. Iacocca 384,000 (12) 2.1%
Jess M. Ravich 18,000 (13) *
Don Wohl 391,499 (14) 2.1%
All Directors, Nominees 6,194,826 (15) 31.6%
and Executive Officers
as a Group (10 persons)
</TABLE>
______________________
* Represents less than 1% of the outstanding Common Stock.
(1) The address of Kenneth Berg, Michael D. Mooslin, John S. Kaufman, Kory L.
Berg, Robert F. Kautz and Ronald D. Garber is in care of the Company, 11075
Santa Monica Boulevard, Suite 225, Los Angeles, California 90025. The
address of Lee A. Iacocca is 1440 South Sepulveda Blvd., Third Floor, Los
Angeles, California 90025. The address of Morton J. Wall is in care of the
Company, 75 Route #27, Iselin, New Jersey 08830-0411. The address of Jess
M. Ravich is 11766 Wilshire Boulevard, Suite 870, Los Angeles, California
90025. The address for Don Wohl is 1800 Avenue of the Stars, Suite 1114,
Los Angeles, California 90067. The address for Mel Harris is 10800
Biscayne Boulevard, Penthouse Floor, North Miami, Florida 33161. The
address for Donna S. Guido is 2110 E. First Street, Suite 106, Santa Ana,
California 92705.
(2) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities that can be acquired by such person within
60 days of a specified date as provided for in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended. Each
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<PAGE>
beneficial owner's percentage is determined by assuming that options or
warrants that are held by such person (but not those held by any other
person) and which are exercisable within 60 days of the date of the above
table have been exercised. Further, the amounts do not give effect to any
conversion of shares of Series A Convertible Preferred Stock or Series B
Convertible Preferred Stock because the number of shares of Common Stock
deemed to be beneficially owned by such persons can not be estimated,
although such ownership is indicated in the footnotes to the table. The
number of shares of Common Stock issuable is dependent on future trading
prices of the Common Stock, and the conversion formulas applicable to the
Series A Convertible Preferred Stock and the Series B Convertible Preferred
Stock, as applicable, at the time of conversion. As of the date of the
table, there were outstanding 1,027,193 shares of Series A Convertible
Preferred Stock and 290,000 shares of Series B Convertible Preferred Stock.
See "Proposal No. 1: Approval of 1997 Private Placement Issuances --
Series B Convertible Preferred Stock Placement."
(3) Kenneth Berg's holdings include: (a) 830,000 shares of Common Stock in
respect of which Mr. Berg has only the right to vote pursuant to a proxy,
and over which he does not possess any control over disposition and
transfer (Mr. Berg disclaims beneficial ownership of such shares); and (b)
886,666 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of the table.
(4) Includes 130,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of the table.
(5) Includes 262,800 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of the table.
(6) Includes 50,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of this table.
(7) Includes 50 shares of Common Stock held by his spouse (Mr. Wall disclaims
beneficial ownership of such shares). Includes 15,600 shares of Common
Stock issuable upon exercise of options within 60 days of the date of the
table.
(8) Includes 20,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of the table.
(9) Includes 24,000 shares of Common Stock issuable upon exercise of options
within 60 days of the date of the table.
(10) Includes 100,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of the table. Ms. Guido resigned
from the Board of Directors in August 1996.
(11) Includes 350,000 shares of Common Stock issuable upon exercise of options
held by Restaurant Acquisition Corp. that Mr. Harris may be deemed to
beneficially own in his capacity as President and controlling stockholder
of such firm.
(12) Includes 325,000 shares of Common Stock issuable upon exercise of options
within 60 days of the date of the table.
(13) Includes 18,250 shares of Common Stock issuable upon exercise of warrants
exercisable within 60 days of the date of the table. Excludes (i) 10,000
shares of Series A Convertible Preferred Stock and warrants to purchase
18,000 shares of Series A Convertible Preferred Stock owned by Mr. Ravich
and (ii) warrants to purchase 18,000 shares of Series A Convertible
Preferred Stock owned by Libra Investments, Inc. that Mr. Ravich may be
deemed to beneficially owned in his capacity as Chief Executive Officer and
majority shareholder of such firm.
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<PAGE>
(14) Includes 307,499 shares of Common Stock issuable upon exercise of warrants
and options within 60 days of the date of the table.
(15) Includes 1,479,066 shares of Common Stock reserved for issuance pursuant to
the Company's Stock Awards Plan and non-plan options and warrants to
purchase 1,644,249 shares of Common Stock, all of which are exercisable
within 60 days of the date of the table.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's Certificate of Incorporation, as amended, authorizes the
issuance of 55,000,000 shares of capital stock, of which 50,000,000 shares are
designated as Common Stock, par value $0.01 per share, and 5,000,000 shares are
designated as Preferred Stock, par value $0.01 per share, 1,350,000 of which
have been designated as shares of Series A Convertible Preferred Stock and
400,000 of which have been designated as Series B Convertible Preferred Stock.
As of December 31, 1996, 15,861,310 shares of Common Stock (net of treasury
shares) and 1,027,193 shares of Series A Convertible Preferred Stock were issued
and outstanding. In February 1997, 290,000 shares of Series B Convertible
Preferred Stock were issued in the 1997 Private Placement.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share of Common
Stock on all matters submitted to a vote of stockholders. There are no
cumulative voting rights. The rights, privileges and preferences of the holders
of Common Stock are subject to the rights of the holders of the Series A
Convertible Preferred Stock, the Series B Convertible Preferred Stock and of any
shares of Preferred Stock that may be designated and issued by the Company in
the future. Subject to the restrictions contained in Preferred Stock issued by
the Company, holders of Common Stock are entitled to receive dividends when and
if declared by the Board of Directors out of legally available funds. Upon any
liquidation, dissolution or winding up of the Company, subject to the rights of
holders of shares of Preferred Stock, holders of Common Stock are entitled to
share pro rata in any distribution to the stockholders. Holders of Common Stock
do not have preemptive or other subscription rights. There are no redemption or
sinking fund provisions applicable to the Common Stock.
Section 2115 of the California Corporations Code (the "California Law"), a
corporation incorporated in a State other than California (such as the Company,
which is incorporated in Delaware) may nevertheless be subject to certain of the
provisions of the California Law (as specified in Section 2115 of the California
Law) applicable to California corporations (commonly designated a "Quasi-
California Corporation") if more than one-half of its outstanding voting
securities are owned of record by persons having addresses in California and
more than half of its business is conducted in California (generally, if the
average of its property factor, payroll factor and sales factor (as defined in
Sections 25129, 25132 and 25134 of the California Revenue and Taxation Code) is
more than 50 percent during its latest full income year). Such a foreign
corporation will not be treated as a Quasi-California Corporation if, however,
it has more than 800 holders of a class of securities qualified for trading on
the Nasdaq National Market. Based on the stockholders list prepared for the
Company's 1996 Annual Meeting of Stockholders, the Company exceeds this
requirement by a significant amount and, accordingly, Section 2115 is not
presently applicable to the Company.
PREFERRED STOCK
The Company's Board of Directors, without the approval of the holders of
the Common Stock, is authorized to designate for issuance up to 5,000,000 shares
of Preferred Stock, in such series and with such rights, privileges and
preferences as the Board of Directors may from time to time determine. As of
the date of this Prospectus, 1,350,000 of such shares have been designated as
Series A Convertible Preferred Stock, 1,027,193 of which were issued and
outstanding as of December 31, 1996 and 108,000 are subject to the Series A
Convertible Preferred Stock Warrants, and 400,000 of such shares have been
designated as Series B Convertible Preferred Stock, 290,000 of which were issued
and outstanding as of the date of this Proxy Statement and 29,000 of which are
subject to Series B Convertible Preferred Stock Warrants, none of which had been
exercised as of the date of this Proxy Statement. The Company has
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<PAGE>
no current plans to issue any of the 42,000 shares of Series A Convertible
Preferred Stock that are unissued and not subject to Series A Convertible
Preferred Stock Warrants or of the 81,000 shares of Series B Convertible
Preferred Stock that are unissued and not subject to Series B Convertible
Preferred Stock Warrants.
Series A Convertible Preferred Stock
Each share of Series A Convertible Preferred Stock is entitled to receive
dividends, payable quarterly, at the rate of 5% per annum in preference to any
payment made on any other shares of capital stock of the Company. Any dividend
payable commencing more than 90 days after the date of issuance of the Series A
Convertible Preferred Stock may be paid, at the option of the Company, either
(i) in cash or (ii) upon proper notice, in additional shares of Common Stock if
such shares have been registered for resale under the Securities Act. If a
dividend is paid in Common Stock, the shares to be issued as a dividend shall be
valued at the average of the daily means between the low trading price and the
closing price of the Common Stock over the three consecutive trading days prior
to the related dividend record date. Each share of Series A Convertible
Preferred Stock is also entitled to a liquidation preference of $25.00 per
share, plus any accrued but unpaid dividends, in preference to any other class
or series of capital stock of the Company. Except as otherwise provided by
applicable law, holders of shares of Series A Convertible Preferred Stock have
no voting rights.
Commencing 91 days after the March 20, 1996 date of issuance, 10% of the
number of shares of Series A Convertible Preferred Stock held of record by each
holder on such 91st day became convertible into shares of Common Stock, and
thereafter on the successive monthly anniversaries of such 91st day an equal
number of such shares of Series A Convertible Preferred Stock have or shall
become convertible so that, approximately 13 months after original issuance, all
shares of Series A Convertible Preferred Stock will be convertible into shares
of Common Stock. The number of shares of Common Stock issuable upon conversion
of shares of Series A Convertible Preferred Stock will equal the liquidation
preference of the shares being converted divided by the then-effective
conversion price applicable to the Common Stock (the "Series A Conversion
Price"). The Series A Conversion Price, as of any date, shall be the lesser of
(i) the actual selling price at which the holder converting has sold shares of
Common Stock (if any) during the three trading days prior to conversion in a
bona fide trade with an unaffiliated third party (which may not be less than the
lowest trading price on the date of such trade as reported by the Nasdaq
National Market) or (ii) the average of the daily means between the low trading
price and the closing price of the Common Stock for the three consecutive
trading days prior to conversion, in either case reduced by the Series A
Applicable Percentage (as defined herein). The "Series A Applicable Percentage"
is dependent upon the amount of time which has passed from original issuance of
the Series A Convertible Preferred Stock to the date of measurement, being 13%
up to the fourth month and from the fourth month to thirteenth month being 14%,
15 1/4%, 17%, 19 1/2%, 21%, 23%, 25%, 27% and 27 1/2% during each such month,
and 29% thereafter. At any date more than 13 months after the date of issuance,
the Series A Conversion Price will be the lesser of (a) 71% of the average of
the daily means between the low trading price of the Common Stock and the
closing price of the Common Stock for all the trading days during the 13th month
or (b) 71% of the average of the daily means between the low trading price and
the closing price of the Common Stock during the three days immediately
preceding the date of conversion. The Series A Conversion Price is at all times
also subject to adjustment for customary anti-dilution events such as stock
splits, stock dividends, reorganizations and certain mergers affecting the
Common Stock. The shares of Series A Convertible Preferred Stock were
originally placed in March 1996.
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<PAGE>
The Series A Convertible Preferred Stock may be redeemed in whole or in
part at any time beginning 14 months after the date of issuance, on at least 30
days' notice, at a redemption price equal to $25.00 per share plus accrued and
unpaid dividends if (i) the average closing price of the Common Stock for the 20
consecutive trading days prior to the date of such notice exceeds $18.00 per
share and (ii) the shares of Common Stock issuable upon conversion are subject
to an effective resale registration statement under the Securities Act or may
otherwise be sold pursuant to Rule 144(k) under such act. Further, the Company
may require holders of Series A Convertible Preferred Stock to convert such
shares into shares of Common Stock if the Company sells Common Stock for cash in
a registered underwritten public offering and the underwriters agree to sell all
shares of Common Stock that holders of Series A Convertible Preferred Stock
desire to sell in the offering. In such event, the conversion price for such
shares will be the public offering price, less the underwriters' gross spread,
reduced by the Series A Applicable Percentage set forth above.
The exact number of shares issuable upon conversion of all of the Series A
Convertible Preferred Stock and offered hereby cannot currently be estimated
but, generally, such issuances of Common Stock will vary inversely with the
market price of the Common Stock. The holders of Common Stock ownership
interest will be materially diluted by conversion of the Series A Convertible
Preferred Stock, which dilution will depend on, among other things, the future
market price of the Common Stock and the conversion elections made by holders of
the Series A Convertible Preferred Stock and the Series B Convertible Preferred
Stock. The terms of the Series A Convertible Preferred Stock do not provide for
any limit on the number of shares of Common Stock which the Company may be
required to issue in respect thereof.
Series B Convertible Preferred Stock
The terms and conditions of the Series B Convertible Preferred Stock,
including the rights of the holders thereof to dividends, conversions,
registration rights and voting are set forth under the caption "Approval of 1997
Private Placement Issuances--Summary of Transaction Terms--Series B Convertible
Preferred Stock Placement."
WARRANTS AND OPTIONS
In connection with certain 1996 private placement transactions, the Company
agreed to issue to the placement agents in the transactions the Series A
Convertible Preferred Stock Warrants to purchase 108,000 shares of Series A
Convertible Preferred Stock at $25.00 per share and common stock warrants to
purchase 40,500 shares of Common Stock at $7.75 per share. Such warrants are
exercisable for a period of five years. Pursuant to its terms, the Series A
Convertible Preferred Stock becomes convertible ratably over the fourth through
thirteenth month after issuance at discounts to the future market price of
Common Stock increasing from 13% to 29% over the same period. The number of
shares of Common Stock issuable upon exercise of the common stock warrants is
also subject to adjustment. None of such warrants had been exercised as of
December 31, 1996. See "--Common Stock" and "--Preferred Stock--Series A
Convertible Preferred Stock."
In connection with the 1997 Private Placement, the Company agreed to issue
to the Placement Agent the Series B Convertible Preferred Stock Warrants to
purchase 29,000 shares of Series B Convertible Preferred Stock at $100.00 per
share. The Series B Convertible Preferred Stock Warrants will be exercisable
for a period of three years from the date of issuance for securities that are
substantially identical to the Series B Convertible Preferred Stock. The
Company will be obligated to register the shares of Common Stock issuable upon
exercise and conversion of the Series B Convertible Preferred
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<PAGE>
Stock Warrants for resale under the Securities Act. See "Proposal No. 1:
Approval of 1997 Private Placement Issuances--Summary of Transaction Terms--
Placement Agent Compensation."
In addition to the warrants issued in connection with the 1996 Private
Placements and the 1997 Private Placement, the Company had outstanding as
December 31, 1996 warrants to purchase an aggregate of approximately 1.6 million
shares of Common Stock at a weighted average exercise price of $5.64 and
presently outstanding options to purchase an aggregate of approximately 7.6
million shares of Common Stock at a weighted average exercise price of $6.22.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files reports, proxy
statements and other information with the Commission. Reports, proxy statements
and other information filed by the Company may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices located at Seven World Trade Center, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Chicago, Illinois 60621-2511, or
by way of the Commission's Internet address, http://www.sec.gov. Copies of such
materials may be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Such reports and other information may also be inspected at the offices
of the National Association of Securities Dealers, Inc., 1735 K. Street, N.W.,
Washington, D.C. 20006.
The Company has filed with the Commission a Current Report on Form 8-K,
dated February 27, 1997 (the "February 1997 Report"), relating to the 1997
Private Placement Issuances. THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH
PERSON TO WHOM A COPY OF THIS PROXY STATEMENT IS DELIVERED, UPON THE WRITTEN OR
ORAL REQUEST OF ANY SUCH PERSONS, A COPY (WITHOUT EXHIBITS) OF THE FEBRUARY 1997
REPORT. Requests for such copies should be addressed to: Corporate Secretary,
Koo Koo Roo, Inc., 11075 Santa Monica Boulevard, Suite 225, Los Angeles,
California 90025, telephone (310) 479-2080.
19
<PAGE>
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
know of any other matter which will be brought before the Meeting. Under the
Company's bylaws, the only business that may be conducted at a special meeting
of stockholders is that which is set forth in the related notice of meeting.
Although not expected, if any other matter properly comes before the Meeting, or
any adjournment or postponement thereof, which may properly be acted upon, the
proxies solicited hereby will be voted on such matter in accordance with the
discretion of the proxy holders named therein unless otherwise indicated.
You are urged to sign, date and return the enclosed proxy in the envelope
provided. No further postage is required if the envelope is mailed within the
United States. If you subsequently decide to attend the Meeting and wish to
vote your shares in person, you may do so. Your cooperation in giving this
matter your prompt attention will be appreciated.
By Order of the Board of Directors
Ronald D. Garber
Secretary
March , 1997
20
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KOO KOO ROO, INC.
SPECIAL MEETING OF STOCKHOLDERS
APRIL 17, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Koo Koo Roo, Inc., a Delaware corporation,
hereby acknowledges receipt of the Notice of Special Meeting of Stockholders and
Proxy Statement, each dated , 1997, and appoints Kenneth Berg,
Robert F. Kautz and Ronald D. Garber and each of them, proxies with full power
of substitution, on behalf and in the name of the undersigned, to represent the
undersigned at the Special Meeting of Stockholders of Koo Koo Roo, Inc. to be
held Thursday, April 17, 1997, at 9:15 A.M. (local time) at the Company's Koo
Koo Roo California Kitchen/TM/ restaurant located at 600 Santa Cruz Avenue,
Menlo Park, California 94025 and at any adjournment or postponement thereof, and
to vote all shares of Common Stock which the undersigned would be entitled to
vote if personally present on the matters set forth below:
1. Approval of the 1997 Private Placement Issuances:
[_] FOR [_] AGAINST [_] ABSTAIN
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON ANY OTHER
MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING OR AT ANY ADJOURNMENT OR
POSTPONEMENT THEREOF. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
OF PROPOSAL 1.
(Continued on other side)
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR APPROVAL OF PROPOSAL 1.
Date: ____________________________, 1997
________________________________________
(Signature)
NOTE: Please sign exactly as shown at
left. If stock is jointly held, each
owner should sign. Executors,
administrators, trustees, guardians,
attorneys and corporate officers should
indicate their fiduciary capacity or
full title when signing.
[_] Please check if you have had a
change of address and print your new
address and phone number below:
________________________________________
________________________________________
________________________________________
PLEASE COMPLETE, DATE, SIGN AND MAIL
THIS PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE.
