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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:
[_] Preliminary proxy statement
[_] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2))
[X] 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
/s/ Ronald D. Garber
Ronald D. Garber
Secretary
Los Angeles, California
March 14, 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 16,425,108 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 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.
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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
Convertible 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, including shares of Series B Convertible
Preferred Stock issuable, in lieu of cash, as dividends in respect of shares
of Series B Convertible Preferred Stock, and upon exercise and conversion 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 (slightly less than 20.0% 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 shares issuable in respect of outstanding options,
warrants and unconverted 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 decisions 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 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 (slightly less than 20.0% 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 Company 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 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."
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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
$10.1 million to the holders of the Series B Convertible Preferred Stock
(including a premium of 3%, or approximately $303,000), assuming a market
price of $7.1875 per share (the last reported sales price of the Common Stock
on the Nasdaq National Market on March 11, 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."
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."
4
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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 February 27, 1997 was $6.125 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 (the "Commission"), 15% (or 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
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price of the Common Stock for the three consecutive trading days prior to
conversion, in either case reduced by the Applicable Percentage (as defined
below). 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 mean 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 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 initial 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 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.
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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 was paid 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 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 decisions made by holders.
The application of the adjustment and conversion 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 (slightly less than 20.0% 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 shares issuable in respect of
outstanding options, warrants and unconverted shares of Series A Convertible
Preferred Stock. See "Description of Capital Stock."
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
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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 (slightly less
than 20.0% of the shares of Common Stock 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 $7.1875 per
share (the last reported sales price of the Common Stock on March 11, 1997)
and completion of the redemption by June 30, 1997, the Company would be
required to pay approximately $10.1 million (including a premium of 3%, or
approximately $303,000). 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.
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
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<PAGE>
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 11, 1997, the last reported sales
price of the Common Stock on the Nasdaq National Market was $7.1875 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 4,970,000 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 $7.1875 per share (the last reported sales price of Common Stock on
the Nasdaq National Market on March 11, 1997), upon conversion the Company
would issue a total of approximately 6,250,000 shares of Common Stock. To the
extent the market price of the Common Stock is higher than $7.1875 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 $7.1875 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.
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. The Company currently has no plans to designate and/or
issue any additional shares of preferred stock, except those pursuant to the
Convertible Preferred Stock Warrants and as dividends on shares of Series B
Convertible Preferred Stock.
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
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<PAGE>
Company intends to use substantially 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 entered into a letter of intent to acquire 14 Hamburger
Hamlet restaurants in California and the Washington D.C. area for
approximately $9.70 million in cash and 150,000 restricted shares of 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 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 18.4%
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>
NAME OF BENEFICIAL AMOUNT OF PERCENT
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 101,000(10) *
Mel Harris 1,001,000(11) 5.6%
Lee A. Iacocca 384,000(12) 2.1%
Jess M. Ravich 19,461(13) *
Don Wohl 391,499(14) 2.1%
All Directors, Nominees
and Executive Officers
as a Group (12
persons) 6,164,826(15) 32.4%
</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 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
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<PAGE>
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.
(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 Proxy Statement, 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. The
Company has 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, except, in the case of the Series B
Convertible Preferred Stock, as dividends in respect of shares of Series B
Convertible Preferred Stock outstanding from time to time.
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<PAGE>
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.
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) thereunder. 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.
14
<PAGE>
The exact number of shares issuable upon conversion of all of the Series A
Convertible Preferred Stock 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 decisions made by holders of the Series A
Convertible Preferred Stock and the Series B Convertible Preferred Stock. On
March 11, 1997, the last reported sales price of the Common Stock on the
Nasdaq National Market was $7.1875 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 1,027,193 shares of Series A Convertible Preferred Stock
outstanding as of December 31, 1996 may be converted, the Company would issue
a total of approximately 4.9 million shares of Common Stock. This presentation
is not intended to constitute a prediction as to the future market price of
the Common 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. On
March 11, 1997, the last reported sales price of the Common Stock on the
Nasdaq National Market was $7.1875 per share. If such market price were used
to determine the number of shares of Common Stock issuable upon the exercise
of the Series A Convertible Preferred Stock Warrants outstanding as of
December 31, 1996 and the conversion of the underlying 108,000 shares of
Series A Convertible Preferred Stock as of the first date on which such shares
may be converted, the Company would issue a total of approximately 520,000
shares of Common Stock. This presentation is not intended to constitute a
prediction as to the future market price of the Common 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. 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. In
addition, on each of the first and second anniversary of the issuance of the
Series B Convertible Preferred Stock Warrants, the Company may, at its option,
call the warrants for mandatory exercise for one-third of the original shares
issuable upon exercise, subject to adjustment, provided, that the Common Stock
issuable upon conversion of the Series B Convertible Preferred Stock Warrants
have been registered for resale under the Securities Act and a current
prospectus is available on the date of delivery of such stock. The Series B
Convertible Preferred Stock Warrants, at the option of the holder, may be
exercised on a net basis without the payment of additional consideration
pursuant to their terms, subject to the prevailing market price of the
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<PAGE>
Company's Common Stock on the date of exercise. 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. 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.
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<PAGE>
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 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.
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
/s/ Ronald D. Garber
Ronald D. Garber
Secretary
March 14, 1997
17
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[LOGO OF KOO KOO ROO(R) CALIFORNIA KITCHEN]
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^ FOLD AND DETACH HERE ^
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 March 14, 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 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:
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.
COMMENTS/ADDRESS CHANGE:
PLEASE MARK COMMENT/ADDRESS BOX ON REVERSE SIDE
(Continued on other side)
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^^
X
Please mark
your votes
as indicated
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR APPROVAL OF PROPOSAL 1.
FOR
AGAINST
ABSTAIN
Item 1-Approval of the 1997 Private Placement Issuances:
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.
- --
<PAGE>
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 March 14, 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 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.
