<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 13, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
KOO KOO ROO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-3132583
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
11075 SANTA MONICA BOULEVARD, SUITE 225
LOS ANGELES, CALIFORNIA 90025
(310) 479-2080
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT F. KAUTZ
CHIEF FINANCIAL OFFICER
11075 SANTA MONICA BOULEVARD, SUITE 225
LOS ANGELES, CALIFORNIA 90025
(310) 479-2080
(NAME, ADDRESS, INCLUDING ZIP CODE, TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
Copies to:
Ronald D. Garber, Esq. Anthony J. Richmond, Esq.
Koo Koo Roo, Inc. Latham & Watkins
11075 Santa Monica Boulevard, Suite 225 633 West Fifth Street, Suite 4000
Los Angeles, California 90025 Los Angeles, California 90071
(310) 479-2080 (213) 485-1234
-----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the same prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================================
Title of Each Proposed Maximum Proposed Maximum Amount of
Class of Securities Amount to be Offering Price Aggregate Offering Registration
to be Registered Registered(1)(2) Per Share (3) Price (3) Fee
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share........... 5,650,000 $7.0938 $40,079,970 $12,145
==========================================================================================================
(cover continued on following page)
</TABLE>
<PAGE>
(1) Includes the registration for resale of the following: (i) all shares of
Common Stock issuable upon conversion of 290,000 shares of the Registrant's
6% Adjustable Convertible Preferred Stock issued in a private placement in
February 1997; (ii) all shares of Common Stock issuable upon conversion of
29,000 shares of the Registrant's 6% Adjustable Convertible Preferred Stock
issuable upon the exercise of warrants issued in connection with the
foregoing private placement; (iii) all shares of Common Stock issuable upon
conversion of shares of the Registrant's 6% Adjustable Convertible Preferred
Stock issuable, in lieu of cash, as dividends in respect of shares of the
Registrant's 6% Adjustable Convertible Preferred Stock; (iv) 155,204 shares
of Common Stock originally issued in other private placement transactions;
and (v) 520,000 shares of Common Stock issuable upon exercise of outstanding
options and warrants originally issued in other private placement
transactions. Estimated solely for purposes of calculating the registration
fee in connection with this Registration Statement; assumes that all shares
of the Registrant's 6% Adjustable Convertible Preferred Stock are converted
into shares of Common Stock based on a market price of $7.1875 per share of
Common Stock (the last reported sales price reported by Nasdaq on March 11,
1997).
(2) In the event of a stock split, stock dividend or similar transaction
involving the Common Stock of the Registrant, in order to prevent dilution,
the number of shares of Common Stock registered hereby shall be
automatically increased to cover the additional shares of Common Stock in
accordance with Rule 416 under the Securities Act of 1933, as amended.
(3) Estimated solely for the purpose of calculating the registration fee. The
proposed Maximum Aggregate Offering Price was calculated pursuant to Rule
457(c) under the Securities Act of 1933, as amended, on the basis of the
average of the high and low prices reported on the Nasdaq National Market on
March 11, 1997.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION,
DATED MARCH 13, 1997
5,650,000 SHARES*
KOO KOO ROO, INC.
COMMON STOCK
(Par Value $.01 per Share)
--------------------------
All of the shares of Common Stock, par value $.01 per share ("Common
Stock"), of Koo Koo Roo, Inc., a Delaware corporation (the "Company"), offered
hereby (the "Shares") are being offered by certain selling securityholders of
the Company (the "Selling Stockholders") as described more fully herein. The
Company will not receive any of the proceeds from the sale of the Shares offered
hereby. All expenses of this offering will be paid for by the Company except
for commissions, fees and discounts of any underwriters, brokers, dealers or
agents retained by the Selling Stockholders. The Common Stock is traded on the
Nasdaq National Market under the symbol "KKRO." On March 11, 1997, the last
reported sale price of the Common Stock on the Nasdaq National Market was
$7.1875 per share. Investors are urged to obtain current market data. See "Use
of Proceeds," "Selling Stockholders" and "Plan of Distribution."
* The shares of Common Stock offered hereby includes the resale of such
presently indeterminate number of shares of Common Stock as shall be issued in
respect of: (i) all shares of Common Stock issuable upon conversion of or
otherwise in respect of 290,000 shares of the Registrant's 6% Adjustable
Convertible Preferred Stock, par value $.01 and liquidation preference $100 per
share (the "Series B Convertible Preferred Stock"), issued in a private
placement in February 1997 (the "1997 Private Placement"); (ii) all shares of
Common Stock issuable upon conversion of or otherwise in respect of 29,000
shares of Series B Convertible Preferred Stock issuable upon the exercise of
warrants (the "Series B Convertible Preferred Stock Warrants") issued in
connection with the foregoing private placement; (iii) all shares of Common
Stock issuable upon conversion of shares of Series B Convertible Preferred Stock
issuable, in lieu of cash, as dividends in respect of shares of Series B
Convertible Preferred Stock; (iv) 155,204 shares of Common Stock originally
issued in other private placement transactions; and (v) 520,000 shares of Common
Stock issuable upon exercise of outstanding options and warrants originally
issued in other private placement transactions. The number of shares of Common
Stock indicated to be issuable in connection with such transactions and offered
for resale hereby is an estimate based upon the market price of the Common Stock
set forth above, is subject to adjustment and could be materially less or more
than such estimated amount depending upon factors which cannot be predicted by
the Company at this time, including, among others, the future market price of
the Common Stock and the decisions by the holders of Series B Convertible
Preferred Stock as to when to convert such shares. If, however, the above-noted
market price of the Common Stock were used to determine the number of shares
issuable as of the first date on which the Series B Convertible Preferred Stock
may be converted, the Company would be obligated to issue a total of
approximately 4,970,000 shares of Common Stock if all 319,000 shares of Series B
Convertible Preferred Stock outstanding or issuable upon the exercise of Series
B Convertible Preferred Stock Warrants were converted on such dates. This
presentation 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. See "Risk
Factors--Effect of Conversion of Series A Convertible Preferred Stock and Series
B Convertible Preferred Stock" and "Description of Capital Stock."
--------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CAREFULLY
CONSIDER THE FACTORS SET FORTH UNDER THE CAPTION "RISK FACTORS" ON PAGE 8 OF
THIS PROSPECTUS.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The Date of this Prospectus is , 1997
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities of the Commission located at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at the New York Regional
Office of the Commission, Seven World Trade Center, Suite 1300, New York, New
York 10048, and at the Chicago Regional Office of the Commission, Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621-2511, or by
way of the Commission's Internet address, http://www.sec.gov. Copies of such
material can also be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Such reports and other information may also be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the registration of the shares of Common
Stock offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits thereto, certain
portions of which have been omitted as permitted by the rules and regulations of
the Commission. Statements contained in this Prospectus or in any document
incorporated by reference herein as to the contents of any contract or other
documents referred to herein or therein are not necessarily complete and, in
each instance, reference is made to the copy of such documents filed as an
exhibit to the Registration Statement or such other documents, which may be
obtained from the Commission as indicated above upon payment of the fees
prescribed by the Commission. Each of such statements is qualified in its
entirety by such reference.
FORWARD LOOKING STATEMENTS
The forward looking statements and comments contained in this Prospectus
concerning, among other things, the prospects for the Company to grow rapidly
and attain profitable operations, are necessarily subject to risks and
uncertainties, some of which are significant in scope and nature. Actual
results will be dependent upon many factors the outcome of which cannot be
predicted as of the date of this Prospectus. The Company believes that it has
summarized the most significant of such factors of which it is aware under the
caption "Risk Factors." Accordingly, prospective investors should carefully
consider such Risk Factors, which are provided commencing on Page 8 of this
Prospectus, in addition to the other information provided herein and
incorporated herein by reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission, are incorporated herein by reference: (i) the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995; (ii) the
Company's Current Reports on Form 8-K dated March 18, 1996, February 27, 1997
and March 6, 1997; (iii) the Company's Quarterly Report on Form 10-Q for the
quarters ended March 31, 1996, June 30, 1996 and September 30, 1996; (iv) the
Company's Proxy Statement dated March , 1997 related to the Special Meeting of
Stockholders expected to be held on April 17, 1997. In addition, each document
filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of this Prospectus and prior to termination
of the offering of the Shares shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from the date such document is
filed with the Commission.
Any statement contained herein, or any document, all or a portion of which
is incorporated or deemed to be incorporated by reference herein, shall be
deemed to be modified or superseded for purposes of the
2
<PAGE>
Registration Statement and this Prospectus to the extent that a statement
contained herein, or in any subsequently filed document that also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute part of the Registration
Statement or this Prospectus. All information appearing in this Prospectus is
qualified in its entirety by the information and financial statements (including
notes thereto) appearing in the documents incorporated herein by reference. This
Prospectus incorporates documents by reference which are not presented herein or
delivered herewith. These documents (other than exhibits thereto) are available
without charge, upon written or oral request by any person to whom this
Prospectus has been delivered, from Ronald D. Garber, General Counsel and
Secretary, 11075 Santa Monica Blvd., Suite 225, Los Angeles, California 90025,
telephone number (310) 479-2080.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere or incorporated by
reference in this Prospectus. Without limiting the generality of the foregoing,
prospective investors should carefully consider the factors set forth under the
caption "Risk Factors."
THE COMPANY
Koo Koo Roo, Inc. (the "Company") operates restaurants in the emerging food
service category of fresh, convenient meals. The restaurants feature the
Company's proprietary Original Skinless Flame-Broiled Chicken/TM/, fresh oven-
roasted hand-carved turkey, country herb rotisserie chicken, made to order
tossed salads, specialty sandwiches on fresh baked rolls, a signature vegetable
soup and more than 23 side dishes including hand-mashed potatoes, stuffing,
steamed green beans and other vegetables, rices and grains, all prepared fresh
in small batches on-site throughout the day. As of December 31, 1996, the
Company operated 28 Koo Koo Roo restaurants.
The Company's restaurants are designed to appeal to consumers who look for
good tasting, freshly prepared food, and who also appreciate menu items that are
wholesome and healthy. The products are easy to understand, high in quality and
generally low in fat, calories and cholesterol, without the negative connotation
or taste of "health food." The sights and smells of fresh food preparation,
such as turkey carving and salad tossing, are displayed in glass enclosed
stations featuring "chefs" in restaurant whites and toques.
Over the past several years, executive management, together with the
Company's corporate chef and professional designers, developed the layout, menu
and appearance of the current prototype store, referred to as the Koo Koo Roo
California Kitchen/TM/ concept. The performance and continuing improvement of
this concept led management to plan for a rapid expansion starting in 1995 and
to focus on Company ownership or joint venture relationships rather than
franchising. The Company is presently emphasizing growth through the development
of additional Koo Koo Roo California Kitchen/TM/ stores which will be either
owned and operated by the Company or owned in partnership with domestic and
international joint venture partners. The Company intends to act
opportunistically to establish additional joint venture arrangements and make
restaurant acquisitions and may also grow through the acquisition of
complementary businesses. Although the focus in 1997 will be on Company-owned
restaurants, the Company may pursue additional joint ventures or franchising in
certain markets.
The Company also owns 90% of the outstanding capital stock of Color Me
Mine, Inc. ("Color Me Mine"), a chain of paint-your-own ceramics studios. As of
December 31, 1996, there were 11 Company owned Color Me Mine studios and five
franchised studios open and operating.
The Company's principal executive offices are located at 11075 Santa Monica
Boulevard, Suite 225, Los Angeles, California 90025 and its telephone number is
(310) 479-2080.
RECENT DEVELOPMENTS
On February 27, 1997, the Company completed a private placement transaction
in which the Company received gross proceeds of $29.0 million in connection with
the issuance of 290,000 shares of its Series B Convertible Preferred Stock. In
connection with the private placement, the Company also agreed to issue warrants
to purchase 29,000 shares of Series B Convertible Preferred Stock at $100 per
share. The number of shares of Common Stock issuable upon conversion of the
Series B Convertible Preferred Stock, including the shares of Series B
Convertible Preferred Stock issuable upon exercise of the Series B Convertible
Preferred Stock Warrants, is subject to adjustment and will depend upon factors
which cannot be predicted by the Company
4
<PAGE>
at this time including, among other things, the future market price of the
Common Stock and the decisions by holders of shares of Series B Convertible
Preferred Stock as to when to convert such shares. See "Risk Factors--Effect of
Conversion of Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock" and "Description of Capital Stock."
On March 6, 1997, the Company announced that it had entered into a letter
of intent to file a purchase agreement for the purchase, out of bankruptcy, of
14 Hamburger Hamlet restaurants for a purchase price equal to $9.70 million in
cash and 150,000 restricted shares of Common Stock plus the assumption of the
leases covering the restaurants to be acquired. Ten of the fourteen restaurants
are located in California and the remaining four are located in the Washington,
D.C. Beltway area. Consummation of the acquisition is subject to approval by
the bankruptcy court. The Company presently expects to finance the acquisition
either with cash on hand or borrowings under a debt package which is currently
being negotiated. No assurance can be given, however, that the acquisition of
the Hamburger Hamlet restaurants will be consummated. See "Risk Factors--
Proposed Expansion; Need for Additional Financing," "--Management of Growth" and
"Recent Developments."
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the
Selling Stockholders (estimate).............. 5,650,000 shares (1)
Shares of Common Stock Outstanding
Prior to the Offering........................ 15,861,310 shares (2)
Use of Proceeds................................ The proceeds from the sale of
the shares of Common Stock
offered hereby are solely for
the account of the Selling
Stockholders. Accordingly, the
Company will receive none of the
proceeds from sales thereof. See
"Use of Proceeds."
Nasdaq National Market Common Stock Symbol..... KKRO
</TABLE>
- -------------
(1) As set forth in the text on the cover of this Prospectus, this offering
includes the resale of such presently indeterminate number of shares of
Common Stock as shall be issued in respect of: (i) all shares of Common
Stock issuable upon conversion of or otherwise in respect of 290,000 shares
of the Series B Convertible Preferred Stock issued in the 1997 Private
Placement; (ii) all shares of Common Stock upon conversion of or otherwise
in respect of 29,000 shares of the Series B Convertible Preferred Stock
issuable upon the exercise of the Series B Convertible Preferred Stock
Warrants; (iii) all shares of Common Stock issuable upon conversion of
shares of Series B Convertible Preferred Stock issuable, in lieu of cash, as
dividends in respect of shares of Series B Convertible Preferred Stock; (iv)
155,204 shares of Common Stock originally issued in other private placement
transactions; and (v) 520,000 shares of Common Stock issuable upon exercise
of outstanding options and warrants originally issued in other private
placement transactions. The number of shares of Common Stock indicated to be
offered hereby on the cover of this Prospectus and above is an estimate
based upon the market price of the Common Stock set forth on the cover page
of this Prospectus assuming that all shares of Series B Convertible
Preferred Stock are converted on the first date permitted. The number of
shares of Common Stock issuable in connection with such transactions and
offered for resale hereby is subject to adjustment and could be materially
less or more than such amount depending upon factors which cannot be
predicted by the Company at this time, including, among others, the future
market price of the Common Stock and the decisions by the holders of Series
B Convertible Preferred Stock as to when to convert such shares. This
presentation 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.
See "Risk Factors--Effect of Conversion of Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock" and "Description of Capital
Stock. "
(2) As of December 31, 1996, excludes: (i) approximately 7.6 million shares of
Common Stock subject to presently outstanding options granted by the Company
under certain stock option plans and through direct grants, of which
approximately 3.7 million shares are issuable under options exercisable as
of the date of this Prospectus; (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
Prospectus; (iii) approximately 4.9 million shares of Common Stock
estimated to be issuable upon conversion of presently outstanding shares of
the Company's 5% Series A Adjustable Convertible Preferred Stock (the
"Series A Convertible Preferred Stock") issued in a private placement
transaction during 1996 (the "1996 Private Placement"); (iv) approximately
520,000 shares of Common Stock estimated to be 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"); and (v) the shares of Common Stock offered
hereby, except for the 155,204 shares of Common Stock identified in clause
(iv) of footnote (1) above. Also excludes 72,512 treasury shares. The number
of shares of Common Stock indicated to be issuable pursuant to clauses (iii)
through (v) of this footnote (2) is estimated based on the market price of
the Common Stock set forth on the cover page of this Prospectus, assuming
that all shares of Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock are converted on the first date permitted. As of
December 31, 1996, there were
6
<PAGE>
1,027,193 shares of Series A Convertible Preferred Stock outstanding which
had not yet been converted into shares of 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 and the decisions by holders of shares of Series A
Convertible Preferred Stock as to when to convert such shares. See "Risk
Factors--Dilutive Effect of Options and Warrants to Purchase Common Stock;
Shares Available for Future Sale," "--Effect of Conversion of Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock,"
"Description of Capital Stock" and "Shares Available for Future Sale."
7
<PAGE>
RISK FACTORS
The securities offered hereby involve a high degree of risk including, but
not necessarily limited to, the risk factors described below. Each prospective
investor should carefully consider the following risk factors inherent in and
affecting the business of the Company and this offering before making an
investment decision.
LIMITED OPERATING HISTORY; LIMITED REVENUES; HISTORY OF LOSSES. The
Company was organized in February 1987 and opened its first restaurant in August
1988 (which has since been closed). In addition, more than half of the
Company's owned and operated restaurants were opened during 1995 or 1996. As a
result, the Company has a limited operating history upon which an evaluation of
the Company's performance can be made. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered in the establishment of a new business and concept in the highly
competitive restaurant industry, which is characterized by a high failure rate.
Since inception, the Company has generated limited revenues and has generally
incurred operating losses. There can be no assurance that the Company will
generate significant revenue or achieve profitable operations.
LIMITED NUMBER OF RESTAURANTS IN OPERATION; GEOGRAPHIC CONCENTRATION OF
RESTAURANTS; DEPENDENCE ON DISCRETIONARY SPENDING. As of December 31, 1996, the
Company operated 28 Koo Koo Roo restaurants. Of these, eight restaurants had
been in operation for more than two years and 12 restaurants had been in
operation for less than one year. Twenty-one restaurants are in Southern
California, including seven restaurants opened in Southern California during
1996. The Company's revenues are dependent on discretionary spending by
consumers, particularly by consumers living in the communities in which the
restaurants are located. A significant weakening in any of the local economies
in which the Company operates may cause the residents of such communities to
curtail discretionary spending which, in turn, could have a material adverse
effect on the results of operations and financial position of the entire
Company. Consequently, the results achieved to date by the Company's
restaurants may not be indicative of the prospects or market acceptance of a
larger number of restaurants, particularly in wider and more geographically
dispersed areas with varied demographic characteristics.
UNCERTAINTY OF MARKET ACCEPTANCE. The Company has limited marketing
experience and to date has engaged in limited marketing activities. Achieving
consumer awareness and market acceptance, particularly as the Company seeks to
penetrate new markets, will require substantial efforts and expenditures by the
Company. There can be no assurance that the Company's restaurants and ceramics
studios will achieve significant market acceptance.
PROPOSED EXPANSION; NEED FOR ADDITIONAL FINANCING. Although the Company
intends to pursue a strategy of aggressive growth, the Company must depend on a
limited number of key experienced personnel in affecting this expansion. The
Company's proposed expansion (including, without limitation, accomplishment of
its new restaurant opening plans and expansion of Color Me Mine) will be
dependent on, among other things, market acceptance of the Company's business
concepts, the availability of suitable sites, timely development and
construction of stores, the hiring of skilled management and other personnel,
the general ability to successfully manage growth including monitoring stores,
controlling costs and maintaining effective quality controls, and the
availability of adequate financing. The Company may also grow through the
acquisition of existing businesses to the extent that such businesses can be
acquired on advantageous terms and meet the Company's investment and market
criteria. There can be no assurance that the Company will be successful in its
proposed expansion. Until the Company increases the size of its base of
restaurants and ceramics studios, the lack of success of a small number of
stores may have a disproportionate impact on the Company's performance. To
implement its expansion, the Company expects to issue additional equity
securities in the future and, if market conditions permit, may incur additional
indebtedness. The Company regularly investigates and pursues transactions to
raise such capital. There can be no assurance that such additional capital, if
and when required, will be available on terms acceptable to the Company, or at
all. In addition, future issuances of Common Stock, if any, would dilute the
present ownership of all stockholders in the Company, including investors
purchasing shares in this offering. See "Use of Proceeds."
8
<PAGE>
EFFECT OF CONVERSION OF SERIES A CONVERTIBLE PREFERRED STOCK AND SERIES B
CONVERTIBLE PREFERRED STOCK. The Company's Series A Convertible Preferred Stock
and Series B Convertible Preferred Stock entitles the holders thereof to convert
such shares into shares of Common Stock. The exact number of shares of Common
Stock issuable upon conversion of all of the Series A Convertible Preferred
Stock, and the shares of Common Stock offered hereby issuable upon the
conversion of all of the shares of the Series B Convertible Preferred Stock,
cannot currently be estimated but, generally, such issuances of Common Stock,
respectively, will vary inversely with the market price of the Common Stock. The
holders of Common Stock will be materially diluted by conversion of the Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock which
dilution will depend on, among other things, the future market price of the
Common Stock and the decisions by holders of shares of Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock as to when to convert
such shares. 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 outstanding shares of Series A Convertible Preferred
Stock may be converted, the Company would issue a total of approximately
5,420,000 shares of Common Stock (which amount also assumes the exercise of the
outstanding Series A Convertible Preferred Stock Warrants). In addition, if such
market price of the Common Stock were used to determine the number of shares of
Common Stock issuable as of the first date on which the outstanding shares of
Series B Convertible Preferred Stock may be converted, the Company would issue a
total of approximately 4,970,000 shares of Common Stock (which amount also
assumes the exercise and conversion of the
9
<PAGE>
Series B Convertible Preferred Stock Warrants). To the extent the market price
per share of the Common Stock is lower or higher than $7.1875 as of any date on
which outstanding shares of Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock are converted, the Company would issue more or less
shares of Common Stock than reflected in such estimate, and such difference
could be material. The number of shares of Common Stock issuable in connection
with the outstanding shares of Series A Convertible Preferred Stock and 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. The number of shares of Common Stock
may also increase should holders of Series A Convertible Preferred Stock and,
particularly, Series B Convertible Preferred Stock continue to hold such shares,
thereby causing the discount to market price applicable upon conversion of such
shares to increase. This presentation 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 A Convertible Preferred Stock and Series B
Convertible Preferred Stock into shares of Common Stock. The holders of the
outstanding shares of Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock also possess certain registration rights, including
the right to include all of the shares of Common Stock that such holders may
desire to sell in certain underwritten public offerings by the Company. The
terms of the Series A Convertible Preferred Stock and 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. Stock
market volatility, whether related to the stock market generally or the Company
specifically, and if coincident in time with conversions of Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock, will impact directly
the number of shares of Common Stock issuable upon conversion thereof. See "--
Securities Market Factors" and "Description of Capital Stock."
DILUTIVE EFFECT OF OPTIONS AND WARRANTS TO PURCHASE COMMON STOCK; SHARES
AVAILABLE FOR FUTURE SALE. As of December 31, 1996, the Company had granted
options to purchase an aggregate of approximately 7.5 million shares (excluding
approximately 70,000 shares of Common Stock offered hereby issuable upon
exercise of certain options issued in other private placement transactions), and
warrants to purchase an aggregate of approximately 1.1 million shares (excluding
approximately 450,000 shares of Common Stock offered hereby issuable upon
exercise of certain warrants issued in other private placement transactions), of
Common Stock at exercise prices ranging from $0.625 per share to $10.00 per
share, with a weighted average exercise price of $6.22 per share. In the event
that all such options and warrants are exercised for cash, the aggregate
proceeds to the Company would be approximately $52.7 million. To the extent that
the stock options and warrants are exercised, material dilution of the ownership
interest of the Company's present stockholders will occur. The Company also
expects that in the ordinary course of its business it will issue additional
warrants and grant additional stock options including, but not limited to,
options granted pursuant to its Stock Awards and Director's Stock Option Plans.
Investors should note that the recent trading prices of the Common Stock
significantly exceeds the Company's book value for financial accounting
purposes. In addition, the approximately 1.1 million shares of Common Stock
issuable upon exercise of presently outstanding warrants and a significant
portion of the outstanding stock options and restricted shares of Common Stock
are subject to certain registration rights and, upon the effectiveness of a
registration statement covering such shares, will be eligible for resale in the
public market without restriction under the Securities Act. Sales of substantial
amounts of Common Stock by stockholders, or the perception that such sales could
occur, could adversely affect the market price for the Common Stock. See "--
Effect of Conversion of Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock," "--Securities Market Factors," "Description of
Capital Stock" and "Shares Available for Future Sale."
MANAGEMENT OF GROWTH. The Company's business has grown rapidly in recent
periods and management's plans call for continued growth, which may place
significant strains on the Company's managerial, operational, financial and
information systems. This growth has in the past and may in the future involve
the acquisition of restaurants or complementary businesses. Acquisitions may
involve a number of special risks, including diversion of management's
attention, the inability to integrate successfully any acquired business, the
incurrence of legal liabilities and unanticipated events or circumstances, some
or all of which could have a material adverse effect on the Company's results of
operations, financial condition, business and prospects. The Company's success
also depends to a significant extent on the ability of its executive officers
and other members of senior management to respond to these challenges
effectively. The Company's expansion has also resulted in substantial growth in
the number of its employees, resulting in increased responsibility for both
existing and new management personnel. In addition, the Company is in the
ongoing process of evaluating and enhancing its operating and financial
procedures and systems in an effort to increase efficiencies in managing its
expanding business. There can be no assurance that the Company's management will
be able to manage future expansions successfully, or that its management,
personnel or system will be adequate to support the Company's operations or will
be implemented in a cost-effective or timely manner. Any such inabilities or
inadequacies would have a material adverse effect on the Company's business,
operating results and financial condition.
On March 6, 1997, the Company announced that it had entered into a letter
of intent to file a purchase agreement for the purchase, out of bankruptcy, of
14 Hamburger Hamlet restaurants. No assurance can be given that the acquisition
of these Hamburger Hamlet restaurants will be consummated, or, if consummated,
that Company would be able to manage and operate such restaurants successfully,
either of which could have a material adverse effect on the Company's business,
operating results and financial condition. See "--Proposed Expansion; Need for
Additional Financing" and "Recent Developments."
COMPETITION. The restaurant industry, and particularly the quick-service
segment, is highly competitive with respect to price, service and location, and
numerous well-established competitors possess substantially greater financial,
marketing, personnel and other resources than the Company. In addition, the
quick-service industry is characterized by the frequent introduction of new
products, accompanied by substantial promotional campaigns. The Company is
required to respond to various factors affecting the restaurant industry,
including changes in consumer preferences, tastes and eating habits, demographic
trends and traffic patterns, increases in food and labor costs, competitive
pricing and national, regional and local economic conditions. In recent years
numerous companies in the quick-service industry have introduced products,
including chicken, which were developed to capitalize on growing consumer
preference for food
10
<PAGE>
products which are, or are perceived to be, healthful, nutritious, low in
calories and low in fat content. It can be expected that the Company will be
subject to increasing competition from companies whose products or marketing
strategies address these consumer preferences. There can be no assurance that
consumers will regard the Company's products as sufficiently distinguishable
from competitive products (such as, for example, those offered by El Pollo Loco
and Boston Market), that substantially equivalent products will not be
introduced by the Company's competitors or that the Company will be able to
compete successfully. Similarly, Color Me Mine will likely face significant
competition from similar concepts and other businesses providing leisure and
entertainment services.
DEPENDENCE UPON KEY PERSONNEL. The success of the Company is largely
dependent on the efforts of certain key personnel of the Company, including
Kenneth Berg, its Chairman of the Board and Chief Executive Officer, and other
key executives. Although the Company has entered into employment agreements
with certain of its executive officers, none of such agreements obligate these
employees to continue to work for the Company. The loss of their services would
have a material adverse effect on the Company. Additionally, in order to
successfully implement its proposed expansion and manage anticipated growth, the
Company will be dependent upon its ability to retain existing and hire
additional qualified personnel. There can be no assurance that the Company will
be able to retain or hire necessary personnel.
POSSIBLE CONFLICTS OF INTEREST; BENEFITS TO CERTAIN EXECUTIVE OFFICERS AND
STOCKHOLDERS. Kenneth Berg's employment agreement with the Company provides
that he is obligated to devote his full-time services to the Company but is
permitted to continue to engage in the other business activities currently
conducted by him. However, his employment agreement provides that he may do so
only so long as such activities do not conflict with or otherwise unreasonably
interfere with the performance of his services to the Company. Mr. Berg's
employment agreement also provides for significant payments to him upon the
occurrence of certain defined events including, among others, his termination
without "cause" and a "change in control" of the Company.
GOVERNMENT REGULATIONS. The Company is subject to various federal, state
and local laws and regulations affecting its business. The Company's stores are
subject to regulation by various governmental agencies, including those
responsible for compliance with state and local licensing, zoning, land use,
construction and environmental regulations and various health, sanitation,
safety and fire standards. Any difficulties or failure in obtaining required
licenses or approvals could delay or prevent the opening of a new store. In
addition, suspension of certain licenses or approvals, due to failure to comply
with applicable regulations or otherwise, could interrupt the operations of the
affected store or otherwise adversely affect the store or the Company. The
Company is also subject to federal and state laws establishing minimum wages and
regulating overtime and working conditions. Since many of the Company's
restaurant personnel are paid at rates which may be affected by the federal
minimum wage, increases in such minimum wage (which recently have been enacted
by Congress and the State of California) may result in an increase in the
Company's labor costs. The Company cannot predict the impact on its results of
operations should applicable federal or State minimum wage laws be changed.
Federal and state franchise laws will also impose significant compliance
obligations on the Company as it pursues the expansion of Color Me Mine.
INSURANCE AND POTENTIAL LIABILITY. The Company maintains insurance,
including insurance relating to personal injury, in amounts which the Company
currently considers adequate. Nevertheless, a partially or completely uninsured
claim against the Company, if successful and of sufficient magnitude, could have
a material adverse effect on the Company.
SECURITIES MARKET FACTORS. The market price for the Company's Common Stock
is significantly affected by such factors as the Company's financial results,
opening of new restaurants and ceramics studios and performance of existing
stores, introduction of new products by the Company or its competitors, status
of compliance with franchise regulation and various factors affecting the quick-
service restaurant and leisure time industries generally. Additionally, in
recent years, the stock market has experienced a high level of price and volume
volatility and market prices for many companies, particularly small emerging
growth companies,
11
<PAGE>
have experienced wide price fluctuations not necessarily related to the
operating performance of such companies. The market price for the Common Stock
may be affected by general stock market volatility. Any such volatility,
whether related to the stock market generally or the Company specifically, and
if coincident in time with conversions of Convertible Preferred Stock, will also
impact directly the number of shares of Common Stock issuable upon conversion of
shares of Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock and in respect of the other securities issued in the Company's
1996 Private Placements and 1997 Private Placement. See "--Effect of Conversion
of Series A Convertible Preferred Stock and Series B Convertible Preferred
Stock" and "Description of Capital Stock."
NO COMMON STOCK DIVIDENDS. To date, the Company has not paid any cash
dividends on its Common Stock and does not intend to declare any such dividends
in the foreseeable future. The Company is obligated to pay dividends at the rate
of 5% per annum on its Series A Convertible Preferred Stock (which may be paid
in cash or, subject to certain restrictions, in shares of Common Stock which may
be offered for resale under the Securities Act) and 6% per annum on its Series B
Convertible Preferred Stock (which may be paid in cash or, subject to certain
restrictions, in additional shares of Series B Convertible Preferred Stock
convertible into shares of Common Stock which may be offered for resale
hereunder). During 1996, the dividends payable in respect of the Series A
Convertible Preferred Stock for the quarter ended March 31, 1996 was paid in
cash and the remaining three quarterly dividends were paid in shares of Common
Stock. Future dividend payments in respect of the Series A Convertible Preferred
Stock are also expected to be made by issuing additional shares of Common Stock.
The Company currently plans to pay all dividends on Series B Convertible
Preferred Stock in additional shares of Series B Convertible Preferred Stock.
See "Description of Capital Stock--Preferred Stock--Series A Convertible
Preferred Stock" and "--Series B Convertible Preferred Stock."
POSSIBLE ISSUANCE OF ADDITIONAL SHARES OF PREFERRED STOCK WITHOUT
STOCKHOLDER APPROVAL. The Company's Certificate of Incorporation authorizes the
issuance of "blank check" Preferred Stock with such designations, rights and
preferences as may be determined from time-to-time by the Company's Board of
Directors. Accordingly, the Board is empowered, without approval by holders of
the Common Stock, to issue additional shares of Preferred Stock with dividend,
liquidations, redemption, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of the Common
Stock. It was pursuant to this authority that the shares of Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock were issued. In the
event of issuance, Preferred Stock could be used, under certain circumstances,
as a method of discouraging, delaying or preventing a change in control of the
Company. The Company may issue additional shares of Preferred Stock in the
future to raise capital. See "Description of Capital Stock."
12
<PAGE>
USE OF PROCEEDS
The proceeds from the sale of the shares of Common Stock offered hereby are
solely for the account of the Selling Stockholders. Accordingly, the Company
will receive none of the proceeds from sales thereof. However, certain of the
shares of Common Stock offered hereby are issuable in the future upon the
conversion of shares of Series B Convertible Preferred Stock issuable upon the
exercise of the 29,000 Series B Convertible Preferred Stock Warrants issued in
connection with the 1997 Private Placement. If all of such warrants to purchase
Series B Convertible Preferred Stock were exercised, the Company would receive
gross proceeds of approximately $2.9 million in the aggregate, unless such
warrants are exercised, at the holders option, on a net basis without the
payment of additional consideration pursuant to the terms of such warrants. In
addition, if all of the approximately 520,00 shares of Common Stock offered
hereby issuable upon the exercise of options and warrants issued in other
private placement transactions are exercised, the Company would receive gross
proceeds of approximately $3.1 million in the aggregate. The Company expects to
use the proceeds from the exercise of such warrants and options, if any, for
general corporate purposes. See "Description of Capital Stock."
RECENT DEVELOPMENTS
On February 27, 1997, the Company completed a private placement offering of
290,000 shares of the Company's newly established Series B Convertible Preferred
Stock and received aggregate net proceeds therefrom of approximately $26.9
million (after cash fees to the placement agent and estimated transaction
expenses). The Series B Convertible Preferred Stock has a liquidation preference
of $100.00 per share, is non-voting and is entitled to quarterly dividends of 6%
per annum, first payable on August 1, 1997, which dividends may be paid either
in cash or, at the option of the Company, in additional shares of Series B
Convertible Preferred Stock, valued at $100.00 per share. On the 91st day after
the date of issuance (or on such earlier date as the registration statement in
connection with the Series B Convertible Preferred Stock is declared effective
by the Commission), 43,500 shares of the Series B Convertible Preferred Stock
will become eligible for conversion. Each month thereafter, a portion of the
remaining 246,500 shares of Series B Convertible Preferred Stock will become
convertible ratably, such that all shares of Series B Convertible Preferred
Stock will be convertible on and after November 1, 1997. The Series B
Convertible Preferred Stock will be convertible at a discount to the Common
Stock ranging from 3% to 25%, depending upon the date on which such shares are
converted. Accordingly, the exact number of shares of Common Stock issuable upon
conversion of the Series B Convertible Preferred Stock cannot be determined and
will depend upon, among other things, the future market price of the Common
Stock at the date of conversion and the decisions by holders of shares of Series
B Convertible Preferred Stock as to when to convert such shares. The Company has
agreed to issue to the placement agent in the private placement transaction
three-year warrants to purchase 29,000 shares of Series B Convertible Preferred
Stock at $100.00 per share and paid 6 3/4% of the gross proceeds from the
issuance and sale of the Series B Convertible Preferred Stock as cash
consideration for such services. See "Risk Factors--Effect of Conversion of
Series A Convertible Preferred Stock and Series B Convertible Preferred Stock"
and "Description of Capital Stock."
On March 6, 1997, the Company announced that it had entered into a letter
of intent to file a purchase agreement for the purchase, out of bankruptcy, of
14 Hamburger Hamlet restaurants for a purchase price equal to $9.70 million in
cash, 150,000 restricted shares of Common Stock plus the assumption of the
leases covering the restaurants to be acquired. Ten of the fourteen restaurants
are located in California and the remaining four are located in the Washington,
D.C. Beltway area. Consummation of the acquisition is subject to approval by
the bankruptcy court. The Company presently expects to finance the acquisition
either with cash on hand or borrowings under a debt package which is currently
being negotiated. No assurance can be given, however, that the acquisition of
these Hamburger Hamlet restaurants will be consummated, that debt financing of
such proposed acquisition, if available, would be on terms favorable to the
Company, or that the Company, if such proposed purchase is consummated, would be
able to manage and operate such restaurants successfully. See "Risk Factors--
Proposed Expansion; Need for Additional Financing" and "--Management of Growth."
13
<PAGE>
SHARES AVAILABLE FOR FUTURE SALE
In general, Rule 144 under the Securities Act, as recently amended by the
Commission effective April 27, 1997 ("Rule 144"), provides that a person (or
persons whose sales are aggregated) who is an affiliate of the Company or who
has beneficially owned shares that were issued and sold in reliance upon
exemptions from registration under the Securities Act ("Restricted Shares") for
at least one year is entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent (1%) of the then
outstanding shares of Common Stock or the average weekly trading volume in the
Common Stock during the four calendar weeks preceding the filing of a notice of
intent to sell. Sales under Rule 144 are also subject to certain manner-of-sale
provisions, notice requirements and the availability of current public
information about the Company. However, a person who is not deemed to have been
an "affiliate" of the Company at any time during the three months preceding a
sale, and who has beneficially owned Restricted Shares for at least two years,
is entitled to sell such shares under Rule 144(k) without regard to volume
limitations, manner-of-sale provisions, notice requirements or the availability
of current public information about the Company. Additional material amendments
to Rule 144 have been proposed by the Commission and the Company cannot predict
whether such proposed amendments will be adopted or, if adopted, the effect of
any such amendment on the Company or the market for shares of the Common Stock.
Of the approximately 21.5 million shares of Common Stock estimated to be
outstanding upon completion of this offering (subject to the assumptions set
forth or referred to on the cover page of this Prospectus related to future
market prices of the Common Stock and conversion decisions made by holders of
the Series B Convertible Preferred Stock), approximately 19.0 million shares
will have been registered under the Securities Act and will be freely tradeable,
and approximately 2.3 million shares will be saleable subject to compliance with
the requirements of Rule 144. The remaining approximately 240,000 shares of
Common Stock will be tradeable subject to the holding period restrictions
under, and compliance with the other requirements of, Rule 144 discussed above.
See "Summary--The Offering."
As of December 31, 1996, the Company also had outstanding 1,027,193 shares
of its Series A Convertible Preferred Stock and warrants to issue an additional
108,000 shares of Series A Convertible Preferred Stock. Such shares of Series A
Convertible Preferred Stock are convertible into a presently indeterminate
number of shares of Common Stock. If, however, $7.1875 per share (the last
reported sale price of the Common Stock on the Nasdaq National Market on March
11, 1997) were used to determined the number of shares of Common Stock issuable
as of the first date on which the shares of the outstanding Series A Convertible
Preferred Stock may be converted after the date of this Prospectus, the Company
would be obligated to issue a total of approximately 5,420,000 shares of Common
Stock if all shares of Series A Convertible Preferred Stock outstanding or
issuable upon the exercise of the Series A Convertible Preferred Stock Warrants
were converted on such dates. All such shares have been registered for resale
under the Securities Act. See "--Effect of Conversion of Series A Convertible
Preferred Stock and the Series B Convertible Preferred Stock."
In addition, as of December 31, 1996, approximately 1.1 million shares of
Common Stock were issuable upon exercise of presently outstanding warrants
(excluding the warrants issued in connection with the 1996 and 1997 Private
Placements and approximately 450,000 shares of Common Stock offered hereby
issuable upon exercise of certain warrants issued in other private placement
tranactions), and approximately 7.5 million shares of Common Stock were issuable
upon exercise of presently outstanding options (excluding approximately 70,000
shares of Common Stock offered
14
<PAGE>
hereby issuable upon exercise of certain options issued in other private
placement transactions). Such shares are entitled to certain registration
rights, and upon the effectiveness of a registration statement covering such
shares, would be eligible for resale in the public market without restriction
under the Securities Act. Until any such registration is effective, such shares
of Common Stock would be tradeable subject to the holding period restrictions
under, and compliance with the other requirements of, Rule 144 discussed above.
Kenneth Berg, the Company's Chairman and Chief Executive Officer, and Mel
Harris, one of the Company's Directors, each has agreed for the 14-month period
following the original issuance of the Series B Convertible Preferred Stock, 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 placement agent in connection with the private placement of
the Series B Convertible Preferred Stock.
No predictions can be made as to the effect that sales of Common Stock
under Rule 144, pursuant to a registration statement or otherwise, or the
availability of shares of Common Stock for sale, will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
Common Stock in the public market, or the perception that such sales could
occur, could adversely affect prevailing market prices and could impair the
Company's future ability to raise capital through an offering of its equity
securities. Further, certain of the share amounts set forth above under the
caption "Shares Available for Future Sale" are estimates based only on recent
market prices, are subject to adjustment, and could be materially less or more
than such estimated amounts depending upon factors which cannot be predicted at
this time, including, among others, the future market price per share of the
Common Stock and conversion decisions made by holders of both the Series A
Convertible Preferred Stock and the Series B Convertible Preferred Stock. See
"Risk Factors--Dilutive Effect of Options and Warrants; Shares Available for
Future Sale," and "--Effect of Conversion of Series A Convertible Preferred
Stock and the Series B Convertible Preferred Stock."
15
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Shares to be offered hereby as of February 27, 1997, and
as adjusted to reflect the sale of the securities offered hereby, by the Selling
Stockholders. Except as otherwise indicated, to the knowledge of the Company,
all persons listed below have sole voting and investment power with respect to
their securities, except to the extent that authority is shared by spouses under
applicable law or as otherwise noted below. The information in the table
concerning the Selling Stockholders who may offer Common Shares hereunder from
time to time is based on information provided to the Company by such
securityholders, except for the assumed conversion ratio of shares of Series B
Convertible Preferred Stock into Common Stock, which is based solely on the
assumptions discussed or referenced in footnote (1) to the table. Information
concerning such Selling Stockholders may change from time to time and any
changes of which the Company is advised will be set forth in a Prospectus
Supplement to the extent required. See "Plan of Distribution."
<TABLE>
<CAPTION>
COMMON SHARES COMMON SHARES
BENEFICIALLY COMMON SHARES BENEFICIALLY
OWNED PRIOR TO TO BE SOLD OWNED AFTER
THE OFFERING/(1)/ IN THE OFFERING/(1)/ THE OFFERING
NAME OF ----------------- -------------------- -------------------
SELLING STOCKHOLDER NUMBER PERCENT NUMBER NUMBER PERCENT
- ------------------------------------ ----------------- -------------------- -------------------
<S> <C> <C> <C> <C> <C>
AG Arb Partners, L.P. 15,570 * 15,570 0 0
AG Long Term Super Fund, L.P. 31,139 * 31,139 0 0
Angelo, Gordon & Co., L.P. 31,139 * 31,139 0 0
Michael Angelo 38,924 * 38,924 0 0
Alfred Partners LLC 124,557 * 124,557 0 0
ARBCO Associates, L.P. 77,848 * 77,848 0 0
Gerard K. Cappello 15,570 * 15,570 0 0
Linda Cappello 23,355 * 23,355 0 0
Robert A. Davidow and Diana R. 77,848 * 77,848 0 0
Davidow, JTWROS
Deere Park Capital Management, 155,697 1.0% 155,697 0 0
Inc.
DFG Corporation 5,558 * 5,558 0 0
Elliott Associates, L.P. 311,934 1.9% 311,934 0 0
European American Securities Inc. 23,355 * 23,355 0 0
Fayerweather Associates 38,924 * 38,924 0 0
Christomano B. Garcia Trust 15,570 * 15,570 0 0
Gotham Capital III, L.P. 264,685 1.6% 264,685 0 0
High Risk Opportunities HUB 155,697 1.0% 155,697 0 0
Fund Ltd.
JMG Capital Partners, L.P. 155,697 1.0% 155,697 0 0
KA Investments LDC 18,684 * 18,684 0 0
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
COMMON SHARES COMMON SHARES
BENEFICIALLY COMMON SHARES BENEFICIALLY
OWNED PRIOR TO TO BE SOLD OWNED AFTER
THE OFFERING/(1)/ IN THE OFFERING/(1)/ THE OFFERING
NAME OF ----------------- -------------------- -------------------
SELLING STOCKHOLDER NUMBER PERCENT NUMBER NUMBER PERCENT
- ------------------------------------ ----------------- -------------------- -------------------
<S> <C> <C> <C> <C> <C>
Andrew Kaplan 7,785 * 7,785 0 0
Jerry Kaplan 10,899 * 10,899 0 0
Stanley A. Kaplan 15,570 * 15,570 0 0
Karpnale Investment PTE LTD 77,848 * 77,848 0 0
Kayne, Anderson Non-Traditional 77,848 * 77,848 0 0
Investments, L.P.
Charles B. Krusen 15,570 * 15,570 0 0
LAKE Management LDC 149,469 * 149,649 0 0
Lakeshore International, Ltd. 116,773 * 116,773 0 0
LICAP Partners 62,279 * 62,279 0 0
Theodore Meisel 31,139 * 31,139 0 0
Merced Partners L.P. 38,924 * 38,924 0 0
Nelson Partners 155,697 1.0% 155,697 0 0
Newberg Family Trust UTA DTD 155,697 1.0% 155,697 0 0
12/18/90
NU Investments LLC 28,025 * 28,025 0 0
NY-DBL Diamond Group 31,139 * 31,139 0 0
Offense Group Associates, L.P. 155,697 1.0% 155,697 0 0
Olympus Securities, Ltd. 155,697 1.0% 155,697 0 0
Palamundo LDC 2,569 * 2,569 0 0
ProFutures Special Equities Fund, 77,848 * 77,848 0 0
L.P.
John J. Pujol 7,785 * 7,785 0 0
Pyramid Investments LLC 38,924 * 38,924 0 0
Raphael, L.P. 38,924 * 38,924 0 0
RGC International Investors LDC 194,621 1.2% 194,621 0 0
Alfred Romano 7,785 * 7,785 0 0
RSP VI Limited Partnership 23,355 * 23,355 0 0
Seneca Capital L.P. 51,567 * 51,567 0 0
Seneca Capital International 11,926 * 11,926 0 0
Lisa G. Shine 10,899 * 10,899 0 0
SIL Nominees Ltd. 249,115 1.5% 249,115 0 0
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
COMMON SHARES COMMON SHARES
BENEFICIALLY COMMON SHARES BENEFICIALLY
OWNED PRIOR TO TO BE SOLD OWNED AFTER
THE OFFERING/(1)/ IN THE OFFERING/(1)/ THE OFFERING
NAME OF ----------------- -------------------- -------------------
SELLING STOCKHOLDER NUMBER PERCENT NUMBER NUMBER PERCENT
- ------------------------------------ ----------------- -------------------- -------------------
<S> <C> <C> <C> <C> <C>
Strome Global Income Fund 15,570 * 15,570 0 0
Strome Offshore Limited 202,406 1.3% 202,406 0 0
Strome Susskind Hedgecap Fund, 202,406 1.3% 202,406 0 0
L.P.
Strome Susskind Hedgecap Fund, 85,633 * 85,633 0 0
L.P.
The Tail Wind Fund Ltd. 70,064 * 70,064 0 0
Trust Company of America FBO 173,291 1.1% 173,291 0 0
Perspective Advisory Company
Jeffrey Ullman 38,924 * 38,924 0 0
Western Reserve Life Assurance 46,709 * 46,709 0 0
Company
Western Reserve Life Assurance 13,546 * 13,546 0 0
Company
Wood Gundy London Ltd. 77,848 * 77,848 0 0
ZPG Securities 6,228 * 6,228 0 0
Ad Marketing 10,000(2) * 10,000 0 0
Robert Courson 75,000(2) * 75,000 0 0
Bob Muh 25,000(2) * 25,000 0 0
Don Wohl 100,000(2) * 100,000 0 0
Iacocca Capital Partners 250,000(2) 1.6% 250,000 0 0
Irving Link 15,000(2) * 15,000 0 0
Chris Furie 30,000(2) * 30,000 0 0
Mark Beychock 15,000(2) * 15,000 0 0
Ken Grief Family Trust 26,633(2) * 26,633 0 0
Robin Monroe & Josh Culver 128,571(2) * 128,571 0 0
</TABLE>
- ----------------
* Represents less than 1% of the outstanding Common Stock.
(1) Except in the case of Shares indicated with the footnote (2), such
beneficial ownership represents an estimate of the number of shares of
Common Stock issuable upon the conversion of shares of Series B Convertible
Preferred Stock beneficially owned by such person (either directly or
through the exercise of Series B Convertible Preferred Stock Warrants),
assuming the last reported sales price of $7.1875 per share of Common Stock
on March 11, 1997 was used to determine the number of shares of Common
Stock issuable as of the first date on which Series B Convertible Preferred
Stock may be converted and that all dividends on shares of Series B
Convertible Preferred Stock are paid, in lieu of cash, in additional shares
of
18
<PAGE>
Series B Convertible Preferred Stock. The actual number of shares of Common
Stock offered hereby is subject to adjustment and could be materially less
or more than the estimated amount indicated depending upon factors which
cannot be predicted by the Company at this time, including, among others,
application of the conversion provisions based on market prices prevailing
at the actual date of conversion and whether dividends on shares of Series
B Convertible Preferred Stock are paid in cash or in additional shares of
Series B Convertible Preferred Stock. In order to calculate the number of
shares of Series B Convertible Preferred Stock or Series B Convertible
Preferred Stock Warrants to purchase such shares beneficially held,
multiply the amount included in the column captioned "Common Shares
Beneficially Owned Prior to the Offering" (other than share amounts
indicated with the footnote (2)), by 0.064227. This presentation 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. The shares of
Series B Convertible Preferred Stock (other than the shares of Series B
Convertible Preferred Stock issued as dividends) and the Series B
Convertible Preferred Stock Warrants were issued in the 1997 Private
Placement. See "Risk Factors--Effect of Conversion of Series A Convertible
Preferred Stock and the Series B Convertible Preferred Stock" and
"Description of Capital Stock."
(2) Represents beneficial ownership of shares of Common Stock issued in other
private placements.
19
<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 5 % Convertible Preferred Stock and 400,000 of
which have been designated as 6% 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
March 1996, 1,200,000 shares of Series A Convertible Preferred Stock were issued
in the 1996 Private Placements and, through December 31, 1996, 172,807 of such
shares had been converted into 726,220 shares of Common Stock (excluding shares
of Common Stock issued as payment-in-kind dividends). On February 27, 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. Them are no redemption or
sinking fund provisions applicable to the Common Stock.
Pursuant to Section 2115 of the California Corporations Code (the
"California Law"), a corporation incorporated in a State other than California
(such as the Company, which is incorporated in Delaware) may nevertheless be
subject to certain of the provisions of the California Law (as specified in
Section 2115 of the California Law) applicable to California corporations
(commonly designated a "Quasi-California Corporation") if more than one-half of
its outstanding voting securities are owned of record by persons having
addresses in California and more than half of its business is conducted in
California (generally, if the average of its property factor, payroll factor and
sales factor (as defined in Sections 25129, 25132 and 25134 of the California
Revenue and Taxation Code) is more than 50 percent during its latest full income
year). Such a foreign corporation will not be treated as a Quasi-California
Corporation if, however, it has more than 800 holders of a class of securities
qualified for trading on the Nasdaq National Market. Based on the stockholders
list prepared for the Company' s 1996 Annual Meeting of Stockholders, the
Company exceeds this requirement by a significant amount and, accordingly,
Section 2115 is not presently applicable to the Company.
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 are issued and
outstanding as of the date of this Prospectus 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
20
<PAGE>
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 Series B Convertible Preferred
Stock, as dividends in respect of shares of Series B Convertible Preferred Stock
outstanding from time to time.
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 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 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 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) 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
21
<PAGE>
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 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. 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. Investors should review
carefully the material under "Risk Factors--Effect of Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock" and "Securities Market
Factors" as well as the other information contained or incorporated by reference
in this Prospectus.
Series B Convertible Preferred Stock
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 (as provided for
hereunder) 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 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 "Series B 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 Series B 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
22
<PAGE>
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 B Applicable Percentage (as defined below). The Series B
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 Series B Applicable
Percentage. The "Series B 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%, respectively. At any date more than fourteen months after the date of
issuance, the Series B Conversion Price will be the lesser of (a) 75% of the
average of the daily mean 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 Series B 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 Series B 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 stockholder approval 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
stockholder approval 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 a redemption price
equal to the greater of (i) the related liquidation preference divided by the
difference between (x) 100% and (y) the Applicable Percentage and (ii) the
current price per share of the Common Stock, using the price per share of Common
Stock determined as if such shares of Series B Convertible Preferred Stock were
being converted, which the holders of such shares of Series B Convertible
Preferred Stock would otherwise be entitled to receive upon conversion. 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.
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
23
<PAGE>
Preferred Stock desire to sell in the offering. In such event, the conversion
price for such shares will be the public offering price, less the underwriters'
gross spread, reduced by the Applicable Percentage set forth above.
The exact number of shares issuable upon conversion of all of the Series B
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 B 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 B Convertible Preferred Stock. Investors should review carefully the
material under "Risk Factors--Effect of Series A Convertible Preferred Stock and
the Series B Convertible Preferred Stock" and "Securities Market Factors" as
well as the other information contained or incorporated by reference in this
Prospectus.
General
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. Issuance of
additional shares of preferred stock may adversely affect the rights, privileges
and preferences afforded the holders of Common Stock, including a decrease in
the amount available for distribution to holders of the Common Stock in the
event of a liquidation or payment of preferred dividends. The issuance of
additional shares of preferred stock, and shares of Common Stock into which such
preferred stock may be converted, may, among other things, have the effect of
delaying, deferring or preventing a change in control of the Company,
discouraging tender offers for the Company and inhibiting certain equity
issuances until substantially all such shares are converted or redeemed. The
Company currently has no plans to designate and/or issue any additional shares
of preferred stock, except those issuable pursuant to the Convertible Preferred
Stock Warrants and as dividends on shares of Series B Convertible Preferred
Stock.
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 are 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 Warrant stock
have been registered for resale under the Securities Act, and a current
prospectus is available on the date of delivery
24
<PAGE>
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 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.
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 1.1 million
shares of Common Stock (excluding approximately 450,000 shares of Common Stock
offered hereby issuable upon exercise of certain warrants issued in other
private placement transactions) at an average exercise price of $5.64 and
presently outstanding options to purchase an aggregate of approximately 7.5
million shares of Common Stock (excluding approximately 70,000 shares of Common
Stock offered hereby issuable upon exercise of certain options issued in other
private placement transactions) at a weighted average exercise price of $6.22.
DELAWARE LAW AND LIMITATIONS ON CHANGES IN CONTROL
Section 203 of the Delaware General Corporation Law (the "DGCL") prevents
an "interested stockholder" (defined in Section 203, generally, as a person
owning 15% or more of a corporation's outstanding voting stock) from engaging in
a "business combination" (as defined in Section 203) with a publicly-held
Delaware corporation for three years following the date such person became an
interested stockholder unless (i) before such person became an interested
stockholder, the board of directors of the corporation approved the transaction
in which the interested stockholder became an interested stockholder or approved
the business combination; (ii) upon consummation of the transaction that
resulted in the interested stockholder's becoming an interested stockholder,
the interested stockholder owns at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding stock
held by directors who are also officers of the corporation and by employee stock
plans that do not provide employees with the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer); or (iii) following the transaction in which such person became an
interested stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders by the
affirmative vote of the holders of 66-2/3% of the outstanding voting stock of
the corporation not owned by the interested stockholder.
The Company's bylaws require advance notice of any action (including
nomination of directors) to be proposed at any annual or special meeting of
stockholders and set forth other specific procedures that a stockholder must
follow to properly bring any business in front of such a meeting. In addition,
the bylaws provide that a special meeting of the Company's stockholders may only
be called by the Chairman of the Board of Directors of the Company or by a
majority of the total number of directors which the Company would have if there
were no vacancies; no such meeting may be called by the stockholders. A director
may be removed from office at any time, with or without cause by stockholders,
but only by the affirmative vote of the holders of at least 75% of the then-
outstanding shares of voting stock of the Company. Any amendment of the bylaws
or certain provisions of the Certificate of Incorporation by stockholders will
require the affirmative vote of the holders of at least 75% of the shares of
Common Stock then outstanding.
These bylaw provisions, the provisions authorizing the Board of Directors
to issue preferred stock without stockholder approval and the provisions of
Section 203 of the DGCL could have the effect of delaying, deferring or
preventing a change in control of the Company or the removal of existing
management.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that a director of the
Company will not be personally liable to the Company or its stockholders for
monetary damages for any breach of fiduciary duty as a director, except in
certain cases where liability is mandated by the Delaware General Corporation
Law.
25
<PAGE>
This provision has no effect on any non-monetary remedies that may be available
to the Company or its stockholders, nor does it relieve the Company or its
directors from compliance with federal or state securities laws. The Certificate
of Incorporation also provides that each person who is or was or had agreed to
become a director or officer of the Company or of certain affiliated entities
shall be indemnified by the Company, in accordance with its Bylaws, to the full
extent permitted from time to time by the Delaware General Corporation Law and
that the Company may enter into one or more agreements with any person which
provide for indemnification greater or different therefrom. The bylaws provide
that each person who was or is made a party or is threatened to be made a party
to or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she or a
person of whom he or she is the legal representative is or was a director,
officer or employee of the Company or is or was serving at the request of the
Company as a director, officer, employee or agent of another enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent, or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Company to the fullest extent authorized by the Delaware General Corporation
Law. The bylaws also provide for advancement of expenses. Following any "change
in control" of the Company of the type required to be reported under Item 1 to
Form 8-K promulgated under the Exchange Act, any determination of entitlement to
indemnification under the Company's Bylaws must be made by independent legal
counsel.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock, the Series A Convertible
Preferred Stock and the Series B Convertible Preferred Stock is ChaseMellon
Shareholder Services, L.L.C.
26
<PAGE>
PLAN OF DISTRIBUTION
The Selling Stockholders have advised the Company that the sale or
distribution of the Common Stock may be effected directly to purchasers by the
Selling Stockholders or by pledgees, donees, transferees or other successors in
interest, as principals or through one or more underwriters, brokers, dealers or
agents from time to time in one or more transactions (which may involve crosses
or block transactions) (i) on any stock exchange, in the Nasdaq National Market,
or in the over-the-counter market, (ii) in transactions otherwise than on any
stock exchange or in the over-the-counter market, or (iii) through the writing
of options (whether such options are listed on an options exchange or otherwise)
on, or settlement of short sales of, the Common Stock. Any of such transactions
may be effected at market prices prevailing at the time of sale, at prices
related to such prevailing market prices, at varying prices determined at the
time of sale or at negotiated or fixed prices, in each case as determined by the
Selling Stockholder or by agreement between the Selling Stockholder and
underwriters, brokers, dealers or agents, or purchasers. If the Selling
Stockholders effect such transactions by selling Common Stock to or through
underwriters, brokers, dealers or agents, such underwriters, brokers, dealers or
agents may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholders or commissions from purchaser of
Common Stock for whom they may act as agent (which discounts, concessions or
commissions as to particular underwriters, brokers, dealers or agents may be in
excess of those customary in the types of transactions involved). The Selling
Stockholders and any brokers, dealers or agents that participate in the
distribution of the Common Stock may be deemed to be underwriters, and any
profit on the sale of Common Stock by them and any discounts, concessions or
commissions received by any such underwriters, brokers, dealers or agents may be
deemed to be underwriting discounts and commissions under the Securities Act.
Under the securities laws of certain states, the Common Stock may be sold
in such states only through registered or licensed brokers or dealers. In
addition, in certain states the Common Stock may not be sold unless the Common
Stock has been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.
The Company will pay all of the expenses incident to the registration,
offering and sale of the Common Stock to the public hereunder other than
commissions, fees and discounts of underwriters, brokers, dealers and agents.
The Company has agreed to indemnify the Selling Stockholders and their
controlling persons against certain liabilities, including liabilities under the
Securities Act. The Company estimates that the expenses of the offering to be
borne by it will be approximately $145,000. The Company will not receive any
proceeds from the sale of any of the Common Stock by the Selling Stockholders.
Cappello & Laffer Capital Corp. acted as placement agent in connection
with the placement of the Series B Convertible Preferred Stock which has been or
will be converted into the Common Stock offered hereby, and said firm received a
fee and warrants from the Company in connection therewith.
The Company has informed the Selling Stockholders that the anti-
manipulation provisions of Regulation M under the Exchange Act may apply to
purchases and sales of Common Stock by the Selling Stockholders, and that there
are restrictions on market-making activities by persons engaged in the
distribution of the Common Stock. The Company has also advised the Selling
Stockholders that if a particular offer of Common Stock is to be made on terms
constituting a material change from the information set forth above with respect
to the Plan of Distribution, then to the extent required, a Prospectus
Supplement must be distributed setting forth such terms and related information
as required.
27
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby has been passed
upon for the Company by McKenna & Stahl, Irvine, California. Harry S. Stahl, a
partner in McKenna & Stahl, owns options to acquire 30,000 shares of Common
Stock.
EXPERTS
The consolidated financial statements incorporated herein by reference have
been audited by BDO Seidman, LLP, independent certified public accountants, to
the extent and for the periods set forth in their report appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
report given upon the authority of said firm as experts in auditing and
accounting.
28
<PAGE>
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations in
connection with this offering must not be relied upon as having been authorized
by the Company or by any Selling Stockholder. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby by anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create an implication
that the information contained herein is correct as of any time subsequent to
the date of this Prospectus.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Available Information................................................... 2
Prospectus Summary...................................................... 4
Risk Factors............................................................ 8
Use of Proceeds......................................................... 13
Recent Developments..................................................... 13
Shares Available for Future Sale........................................ 14
Selling Stockholders.................................................... 16
Description of Capital Stock............................................ 20
Plan of Distribution.................................................... 27
Legal Matters........................................................... 28
Experts................................................................. 28
</TABLE>
================================================================================
================================================================================
KOO KOO ROO, INC.
COMMON STOCK
(Par Value $.01 per Share)
---------------
PROSPECTUS
---------------
, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. All of
the costs identified below will be paid by the Company. Except for the SEC
registration fee, all amounts are estimates.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee............................. $ 12,145
Nasdaq Listing Fee............................... 17,500
Printing and Engraving Expenses.................. 12,000
Legal Fees and Expenses.......................... 75,000
Accounting Fees and Expenses..................... 5,000
Registrar and Transfer Agent Fees and Expenses... 5,000
Blue Sky Fees and Expenses....................... 10,000
Miscellaneous Expenses........................... 8,355
--------
Total..................................... $145,000
========
</TABLE>
Item 15. Indemnification of Directors and Officers.
The Company's Restated Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), provides that a director of the Company will
not be personally liable to the Company or its stockholders for monetary damages
for any breach of fiduciary duty as a director, except in certain cases where
liability is mandated by the Delaware General Corporation Law. This provision
has no effect on any non-monetary remedies that may be available to the Company
or its stockholders, nor does it relieve the Company or its directors from
compliance with federal or state securities laws. The Certificate of
Incorporation also provides that each person who is or was or had agreed to
become a director or officer of the Company or of certain affiliated entities
shall be indemnified by the Company, in accordance with its Bylaws, to the
fullest extent permitted from time to time by the Delaware General Corporation
Law and that the Company may enter into one or more agreements with any person
which provide for indemnification greater or different therefrom. The Bylaws
provide that each person who was or is made a party or is threatened to be made
a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
or a person of whom he or she is the legal representative is or was a director,
officer or employee of the Company or is or was serving at the request of the
Company as a director, officer, employee or agent of another enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent, or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Company to the fullest extent authorized by the Delaware General Corporation
Law. The Bylaws also provide for advancement of expenses. Following any "change
in control" of the Company of the type required to be reported under Item 1 to
Form 8-K promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), any determination of entitlement to indemnification under the
Company's Bylaws must be made by independent legal counsel.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ---------- ----------------------
<C> <S>
4.1 Form of Certificate for Common Stock of Registrant /1/
4.2 Form of Certificate for 5% Convertible Preferred Stock of Registrant /2/
4.3 Certificate of Amendment to the Restated Certificate of Incorporation of Registrant /2/
4.4 Certificate of Designations of 5% Convertible Preferred Stock of Registrant /2/
4.5 Form of Warrant Agreement used in connection with the Company's February
1995 private placement of Company Common Stock and Warrants /3/
4.6 Form of Warrant Agreement used in connection with the Company's June 1995
private placement of Company Common Stock and Warrants /3/
4.7 Form of Stock Purchase Agreement dated March 12, 1996 by and among the
Registrant and the purchasers named therein /2/
4.8 Form of Preferred Stock Investment Agreement dated March 20, 1996 by and
among the Registrant and the purchasers named therein /2/
*4.9 Form of 5% Convertible Preferred Stock Warrant Agreement dated March 20, 1996
*4.10 Form of Common Stock Warrant Agreement dated March 12, 1996
4.11 Certificate of Designations of Series B Convertible Preferred Stock of Registrant /4/
4.12 Form of Certificate for Series B Convertible Preferred Stock /4/
4.13 Series B Preferred Stock Investment Agreement dated February 27, 1997 by
and among the Registrant and the purchasers named therein /4/
**4.14 Form of Series B Preferred Stock Warrant Agreement dated February 27, 1997
**5.1 Opinion of McKenna & Stahl
**23.1 Consent of McKenna & Stahl (included in Exhibit 5.1)
*23.2 Consent of BDO Seidman, LLP
*24.1 Power of Attorney (included on signature page of Registration Statement)
</TABLE>
- --------------
* Filed herewith.
** To be filed by amendment.
/1/ Incorporated by reference from the Company's Registration Statement on Form
S-18 (No. 33-42487-NY) declared effective on October 15, 1991.
/2/ Incorporated by reference from the Company's Current Report on Form 8-K
dated March 18, 1996.
II-2
<PAGE>
/3/ Incorporated by reference from the Company's Amendment No. 2 to its Annual
Report on Form 10-K/A for the fiscal year ended June 30, 1995.
/4/ Incorporated by reference from the Company's Current Report on Form 8-K
dated February 27, 1997.
II-3
<PAGE>
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer of controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
II-4
<PAGE>
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized in the City of Los Angeles, State of California, as of the 12th day
of March, 1997.
KOO KOO ROO, INC.
By:/s/ Kenneth Berg
-----------------------------
Kenneth Berg, Chairman of
the Board and Chief Executive Officer
Date: March 12, 1997
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Kenneth Berg, Robert F. Kautz, John S. Kaufman,
Michael D. Mooslin and Ronald D. Garber, and each of them, as his or her true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
foregoing, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1933, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Kenneth Berg Chairman of the Board, March 12, 1997
- ---------------------- Chief Executive
Kenneth Berg Officer and Director
(Principal Executive
Officer)
/s/ Robert F. Kautz President of Koo Koo Roo, March 12, 1997
- ---------------------- Inc., Chief Financial Officer
Robert F. Kautz and Director (Principal
Financial Officer)
/s/ John S. Kaufman President and Director March 12, 1997
- ----------------------
John S. Kaufman
/s/ Michael D. Mooslin President of Koo Koo Roo March 12, 1997
- ---------------------- International and Director
Michael D. Mooslin
</TABLE>
II-6
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Mary E. Arnold Vice President Finance March 12, 1997
- ---------------------- (Principal Accounting Officer)
Mary E. Arnold
/s/ Morton J. Wall Treasurer and Director March 12, 1997
- ----------------------
Morton J. Wall
/s/ Kory L. Berg Director March 12, 1997
- ----------------------
Kory L. Berg
/s/ Lee A. Iacocca Director March 12, 1997
- ----------------------
Lee A. Iacocca
/s/ Donald Wohl Director March 12, 1997
- ----------------------
Donald Wohl
/s/ Jess M. Ravich Director March 12, 1997
- ----------------------
Jess M. Ravich
/s/ Mel Harris Director March 12, 1997
- ----------------------
Mel Harris
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit No. Description of Exhibit Page No.
- ---------- ---------------------- --------
<C> <S> <C>
4.1 Form of Certificate for Common Stock of Registrant /1/
4.2 Form of Certificate for 5% Convertible Preferred Stock of Registrant /2/
4.3 Certificate of Amendment to the Restated Certificate of Incorporation of Registrant /2/
4.4 Certificate of Designations of 5% Convertible Preferred Stock /2/
4.5 Form of Warrant Agreement used in connection with the Company's February
1995 private placement of Company Common Stock and Warrants /3/
4.6 Form of Warrant Agreement used in connection with the Company's June 1995
private placement of Company Common Stock and Warrants /3/
4.7 Form of Stock Purchase Agreement dated March 12, 1996 by and among the
Registrant and the purchasers named therein /2/
4.8 Form of Preferred Stock Investment Agreement dated March 20, 1996 by and
among the Registrant and the purchasers named therein /2/
*4.9 Form of 5% Convertible Preferred Stock Warrant Agreement dated March 20, 1996
*4.10 Form of Common Stock Warrant Agreement dated March 12, 1996
4.11 Certificate of Designations of 6% Convertible Preferred Stock of Registrant /4/
4.12 Form of Certificate for 6% Convertible Preferred Stock /4/
4.13 Series B Preferred Stock Investment Agreement dated February 27, 1997 by
and among the Registrant and the purchasers named therein /4/
**4.14 Form of Series B Preferred Stock Warrant Agreement dated February 27, 1997
**5.1 Opinion of McKenna & Stahl
**23.1 Consent of McKenna & Stahl (included in Exhibit 5.1)
*23.2 Consent of BDO Seidman, LLP
*24.1 Power of Attorney (included on signature page of Registration Statement)
</TABLE>
- --------------
* Filed herewith.
** To be filed by amendment.
<PAGE>
/1/ Incorporated by reference from the Company's Registration Statement on Form
S-18 (No. 33-42487-NY) declared effective on October 15, 1991.
/2/ Incorporated by reference from the Company's Current Report on Form 8-K
dated March 18, 1996.
/3/ Incorporated by reference from the Company's Amendment No. 2 to its Annual
Report on Form 10-K/A for the fiscal year ended June 30, 1995.
/4/ Incorporated by reference from the Company's Current Report on Form 8-K
dated February 27, 1997.
<PAGE>
EXHIBIT 4.9
PREFERRED STOCK WARRANT AGREEMENT
THIS WARRANT AGREEMENT (the "Agreement"), dated as of March 20, 1996,
is made and entered into between Koo Koo Roo, Inc., a Delaware corporation (the
"Company"), and ___________________________________________________ (the
"Warrantholder").
The Company hereby issues and sells to the Warrantholder a Stock
Purchase Warrant as hereinafter described (the "Warrant") to purchase up to an
aggregate of _____________ (subject to adjustment pursuant to Section 7 hereof)
shares of 5% Convertible Preferred Stock of the Company (the "Shares").
In consideration of the foregoing and for the purpose of defining the
terms and provisions of the Warrant and the respective rights and obligations
thereunder, the Company and the Warrantholder hereby agree as follows:
SECTION 1. TRANSFERABILITY AND FORM OF WARRANT.
1.1 REGISTRATION. The Warrant shall be numbered and shall be
------------
registered on the books of the Company when issued.
1.2 TRANSFER. Subject to Section 10 hereof, the Warrant shall be
--------
transferable on the books of the Company only upon delivery thereof duly
endorsed by the Warrantholder or by its duly authorized attorney or
representative, accompanied by proper evidence of succession, assignment or
authority to transfer and compliance with securities laws. Upon any registration
of transfer, the Company shall execute and deliver a new Warrant to the person
entitled thereto. The Warrant may be divided or combined, upon request to the
Company by the Warrantholder, into a certificate or certificates representing
the right to purchase the same aggregate number of Shares. Unless the context
indicates otherwise, the term "Warrantholder" shall include any transferee or
transferees of the Warrants pursuant to this Subsection 1.2, and the term
"Warrant" shall include any and all warrants outstanding pursuant to this
Agreement, including those evidenced by a certificate or certificates issued
upon division, exchange, substitution or transfer pursuant to this Agreement.
1.3 FORM OF WARRANT. The text of the Warrant and of the form of
---------------
election to purchase Shares shall be substantially as set forth in Exhibit A
attached hereto. The price per Share and the number of Shares issuable upon
exercise of the Warrant are subject to adjustment upon the occurrence of certain
events, all as hereinafter provided. The Warrant shall be executed on behalf of
the Company by its President, Vice President or other authorized officer.
1
<PAGE>
A Warrant bearing the signature of an individual who was at any time
the proper officer of the Company shall bind the Company, notwithstanding that
such individual shall have ceased to hold such office prior to the delivery of
such Warrant.
The Warrant shall be dated as of the date of signature thereof by the
Company either upon initial issuance or upon division, exchange, substitution or
transfer.
1.4 LEGEND ON WARRANTS AND SHARES. Each Warrant certificate and
-----------------------------
certificate for Shares initially issued upon exercise of this Warrant shall bear
the following legend:
"The securities represented by this Certificate have not been
registered under the Securities Act of 1933, as amended (the "Act") and
neither the securities nor any interest therein may be sold, exchanged,
hypothecated, transferred or otherwise disposed of in the absence of
registration or an exemption therefrom under the Act."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the
Securities Act of the securities represented thereby) shall also bear the above
legend unless, in the opinion of the Company's counsel, the securities
represented thereby need no longer be subject to such restrictions.
SECTION 2. TERM OF WARRANTS; EXERCISE OF WARRANTS.
2.1 EXERCISE OF WARRANTS. Subject to the terms of this Agreement,
--------------------
the Warrantholder shall have the right, at any time during the five-year period
ending at 5:00 P.M., New York time, on the fifth anniversary of the date hereof
(the "Termination Date"), to purchase from the Company up to the number of fully
paid and nonassessable Shares which the Warrantholder may at the time be
entitled to purchase pursuant to this Agreement, upon surrender to the Company,
at its principal office, of the certificate evidencing the Warrant to be
exercised, together with the purchase form annexed thereto duly filled in and
signed, and upon payment to the Company of the Warrant Price (as defined in and
determined in accordance with the provisions of Sections 6 and 7 hereof), for
the number of Shares in respect of which such Warrant is then exercised.
Payment of the aggregate Warrant Price shall be made in cash or by certified or
cashier's check or by wire transfer of funds or by surrender of Warrants for
cashless exercise as provided in Section 6.
Upon such surrender of the Warrant and payment of the Warrant Price,
the Company shall issue and cause to be delivered with all reasonable dispatch
to or upon the written order of the
2
<PAGE>
Warrantholder and in such name or names as the Warrantholder may designate, a
certificate or certificates for the number of full Shares so purchased upon the
exercise of the Warrant, together with cash, as provided in Section 8 hereof, in
respect of any fractional Shares otherwise issuable upon such surrender. Such
certificate or certificates shall be deemed to have been issued and any person
so designated to be named therein shall be deemed to have become a holder of
record of such Shares as of the date of surrender of the Warrant and payment of
the Warrant Price, as aforesaid, notwithstanding that the certificates
representing such Shares shall not actually have been delivered or that the
stock transfer books of the Company shall then be closed. The Warrant shall be
exercisable, at the election of the Warrantholder, either in full or from time
to time in part and, in the event that a certificate evidencing the Warrant is
exercised in respect of less than all of the Shares specified therein at any
time prior to the Termination Date, a new certificate evidencing the remaining
portion of the Warrant will be issued by the Company.
SECTION 3. PAYMENT OF TAXES.
The Company will pay all documentary stamp taxes, if any, attributable
to the initial issuance of the Shares to the Warrantholder; provided, however,
-------- -------
that the Company shall not be required to pay any tax or taxes which may be
payable in respect of any secondary transfer of the Warrant or the Shares.
SECTION 4. MUTILATED OR MISSING WARRANTS.
In case the certificate or certificates evidencing the Warrant shall
be mutilated, lost, stolen or destroyed, the Company shall, at the request of
the Warrantholder, issue and deliver in exchange and substitution for and upon
cancellation of the mutilated certificate or certificates, or in lieu of and in
substitution for the certificate or certificates lost, stolen or destroyed, a
new Warrant certificate or certificates of like tenor and representing an
equivalent right or interest, but only upon receipt of evidence satisfactory to
the Company of such loss, theft or destruction of such Warrant and of bond of
indemnity, if requested, also satisfactory in form and amount at the applicant's
cost. Applicants for such substitute Warrant certificate shall also comply with
such other reasonable regulations and pay such other reasonable charges as the
Company may prescribe.
SECTION 5. RESERVATION OF SHARES.
There has been reserved, and the Company shall at all times keep
reserved so long as the Warrant remains outstanding, out of its authorized 5%
Convertible Preferred Stock, such number of shares as shall be subject to
purchase under the Warrant;
3
<PAGE>
subject, however, to the limitation set forth in Section 4(m) of the Certificate
of Designations with respect to such Stock.
SECTION 6. WARRANT PRICE; METHODS OF EXERCISE.
6.1 PRICE. The price per Share (the "Warrant Price") at which Shares
-----
of 5% Convertible Preferred Stock shall be purchasable upon the exercise of the
Warrant shall be $25, subject to further adjustment pursuant to Section 7
hereof.
6.2 CASHLESS EXERCISE. In addition to the exercise of all or a
-----------------
portion of this Warrant by the payment of the exercise price as provided in
Section 2.1, and in lieu of any such payment, the Warrantholder shall have the
right at any time and from time to time to exercise the Warrant in full or in
part by surrendering the Warrant certificate in exchange for that number of
Shares which, valued at Current Market Value, have a value equal to the total
Current Market Value of the Shares as to which this Warrant is then being
exercised less the total Warrant Price payable for such Shares. For the purposes
of this paragraph, Current Market Value of a Share shall be the product of (i)
the number of shares of Common Stock into which one Share is then convertible,
and (ii) the price of the Common Stock which has been used in the calculation of
the Conversion Price pursuant to Section 4(d) of the Certificate of
Designations, but without discount.
6.3 SIMULTANEOUS EXERCISE AND CONVERSION. Upon exercise of this
------------------------------------
Warrant, the Company shall simultaneously convert the Shares issuable upon such
exercise into Common Stock pursuant to the Certificate of Designations. The
Warrantholder shall be deemed to be a holder of record of the Common Stock or
other securities issuable upon conversion of the Shares at the close of business
on the day such notice is given, and the Company shall immediately issue and
deliver certificates representing such Common Stock or other securities in the
manner and within the times specified in Section 4(c) of the Certificate of
Designations.
SECTION 7. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES.
The number and kind of securities purchasable upon the exercise of the
Warrants and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:
7.1 ADJUSTMENTS. The number of Shares purchasable upon the exercise
-----------
of the Warrants and the Warrant Price shall be subject to adjustment as follows:
4
<PAGE>
(a) In case the Company shall (i) in respect of its Common Stock, pay
a dividend in shares of Common Stock or make a distribution in shares of
Common Stock, (ii) subdivide its outstanding shares of Common Stock, (iii)
combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock or (iv) issue by reclassification of its Common
Stock other securities of the Company, the number of Shares purchasable
upon exercise of the Warrants immediately prior thereto shall be adjusted
so that the Warrantholder shall be entitled to receive the kind and number
of shares or other securities of the Company which it would have owned or
would have been entitled to receive after the happening of any of the
events described above, had the Warrants been exercised immediately prior
to the happening of such event or any record date with respect thereto.
Any adjustment made pursuant to this paragraph (a) shall become effective
immediately after the effective date of such event retroactive to the
record date, if any, for such event.
(b) In case the Company shall issue rights, options, warrants or
convertible securities to all or substantially all holders of its Common
Stock, without any charge to such holders, entitling them to subscribe for
or to purchase shares of Common Stock at a price per share which is lower
at the record date mentioned below than the then Current Market Price (as
defined in Section 8), the number of Shares thereafter purchasable upon the
exercise of a Warrant shall be determined by multiplying the number of
Shares theretofore purchasable upon exercise of each Warrant by a fraction,
of which the numerator shall be (1) the number of shares of Common Stock
outstanding immediately prior to the issuance of such rights, options or
warrants plus (2) the number of additional shares of Common Stock offered
for subscription or purchase, and of which the denominator shall be (x) the
number of shares of Common Stock outstanding immediately prior to the
issuance of such rights, options or warrants plus (y) the number of shares
which the aggregate offering price of the total number of shares offered
would purchase at the Current Market Price. Such adjustment shall be made
whenever such rights, options or warrants are issued, and shall become
effective immediately and retroactively after the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.
(c) In case the Company shall distribute to all or substantially all
holders of its shares of Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions out of earnings) or
rights, options, warrants or convertible securities containing the right to
subscribe for or purchase shares of Common Stock (excluding those referred
to in paragraph (b) above), then,
5
<PAGE>
in each case, the number of Shares thereafter purchasable upon the exercise
of the Warrants shall be determined by multiplying the number of Shares
theretofore purchasable upon exercise of the Warrants by a fraction, of
which the numerator shall be the then Current Market Price on the date of
such distribution, and of which the denominator shall be such Current
Market Price on such date minus the then fair value of the portion of the
assets or evidence of indebtedness so distributed or of such subscription
rights, options or warrants applicable to one share. Such adjustment shall
be made whenever any such distribution is made and shall become effective
on the date of distribution retroactive to the record date for the
determination of stockholders entitled to receive such distribution.
(d) No adjustment in the number of Shares purchasable hereunder shall
be required unless such adjustment would require an increase or decrease of
at least one percent (1%) in the number of Shares then purchasable upon the
exercise of a Warrant; provided, however, that any adjustments which by
-------- -------
reason of this Paragraph (d) are not required to be made immediately shall
be carried forward and taken into account in any subsequent adjustment.
(e) Whenever the number of Shares purchasable upon the exercise of a
Warrant is adjusted as herein provided, the Warrant Price payable upon
exercise of a Warrant shall be adjusted by multiplying such Warrant Price
immediately prior to such adjustment by a fraction, of which the numerator
shall be the number of Shares purchasable upon the exercise of a Warrant
immediately prior to such adjustment, and of which the denominator shall be
the number of Shares so purchasable immediately thereafter.
(f) Whenever the number of Shares purchasable upon the exercise of a
Warrant or the Warrant Price is adjusted as herein provided, the Company
shall cause to be promptly mailed to the Warrantholder by first class mail,
postage prepaid, notice of such adjustment or adjustments and a certificate
of a firm of independent public accountants selected by the Board of
Directors of the Company (who may be the regular accountants employed by
the Company) setting forth the number of Shares purchasable upon the
exercise of a Warrant and the Warrant Price after such adjustment, a brief
statement of the facts requiring such adjustment and the computation by
which such adjustment was made.
(g) For the purpose of this Subsection 7.1, the term "Common Stock"
shall mean (i) the class of stock designated as the Common Stock of the
Company at the date of this Agreement or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common
Stock. In the event that at any time, as a result of an
6
<PAGE>
adjustment made pursuant to this Section 7, the Warrantholder shall become
entitled to purchase any securities of the Company other than shares of
Common Stock, thereafter the number of such other securities so purchasable
upon exercise of the Warrant and the Warrant Price of such securities shall
be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the
Shares contained in this Section 7.
(h) Upon the expiration of any rights, options, warrants or conversion
privileges, if such shall not have been exercised, the number of Shares
purchasable upon exercise of the Warrants and the Warrant Price, to the
extent the Warrants have not then been exercised, shall, upon such
expiration, be readjusted and shall thereafter be such as they would have
been had they been originally adjusted (or had the original adjustment not
been required, as the case may be) on the basis of (A) the fact that the
only shares of Common Stock so issued were the shares of Common Stock, if
any, actually issued or sold upon the exercise of such rights, options,
warrants or conversion rights and (B) the fact that such shares of Common
Stock, if any, were issued or sold for the consideration actually received
by the Company upon such exercise plus the consideration, if any, actually
received by the Company for the issuance, sale or grant of all such rights,
options, warrants or conversion rights whether or not exercised; provided,
--------
however, that no such readjustment shall have the effect of increasing the
-------
Warrant Price by an amount in excess of the amount of the adjustment
initially made in respect of the issuance, sale or grant of such rights,
options, warrants or conversion privileges.
7.2 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in Subsection
---------------------------
7.1, no adjustment in respect of any dividends shall be made during the term of
the Warrant or upon the exercise of the Warrant.
7.3 PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION,
------------------------------------------------------
CONSOLIDATION, ETC. In case of any consolidation of the Company with or merger
- ------------------
of the Company into another corporation or in case of any sale or conveyance to
another corporation of the property, assets or business of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation, as the case may be, shall provide by agreement that the
Warrantholder shall have the right thereafter upon payment of the Warrant Price
in effect immediately prior to such action to purchase upon exercise of the
Warrant the kind and amount of shares and/or other securities, cash and property
which he would have owned or have been entitled to receive after the happening
of such consolidation, merger, sale or conveyance had the Warrant been
7
<PAGE>
exercised immediately prior to such action. Such agreement shall provide for
adjustments, which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 7. The provisions of this Subsection
7.3 shall similarly apply to successive consolidations, mergers, sales or
conveyances.
7.4 PAR VALUE OF SHARES. Before taking any action which would cause
-------------------
an adjustment reducing the Warrant Price below the then par value of the Shares
of 5% Preferred Stock issuable upon exercise of the Warrant, the Company will
take any corporate action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully paid and non-
assessable shares of 5% Preferred Stock at such adjusted Warrant Price.
7.5 STATEMENT ON WARRANT CERTIFICATES. Irrespective of any
---------------------------------
adjustments in the Warrant Price or the number of securities purchasable upon
the exercise of the Warrant, the Warrant certificate or certificates theretofore
or thereafter issued may continue to express the same price and number of
securities as are stated in the similar Warrant certificates initially issuable
pursuant to this Agreement. However, the Company may at any time in its sole
discretion (which shall be conclusive) make any change in the form of the
Warrant certificate that it may deem appropriate and that does not affect the
substance thereof; and any Warrant certificate thereafter issued, whether upon
registration or transfer of, or in exchange or substitution for, an outstanding
Warrant certificate, may be in the form so changed.
SECTION 8. FRACTIONAL INTERESTS; CURRENT MARKET PRICE.
The Company shall not be required to issue fractional Shares on the
exercise of the Warrant. If any fraction of a share of Common Stock would,
except for the provisions of this Section 8, be issuable on the exercise of the
Warrant (or specified portion thereof), the Company shall pay an amount in cash
equal to the then Current Market Price multiplied by such fraction, provided
that no such cash payment shall be made more often than for one transaction per
month. For the purpose of this Agreement, the term "Current Market Price" shall
mean (i) if the Common Stock is traded in the over-the-counter market or on the
National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ"), the average per share closing prices of the Common Stock on the 20
consecutive trading days immediately preceding the date in question, as reported
by NASDAQ or an equivalent generally accepted reporting service, or (ii) if the
Common Stock is traded on a national securities exchange, the average for the 20
consecutive trading days immediately preceding the date in question of the daily
per share closing prices of the Common Stock on the principal stock exchange on
which it is listed, as the case may be. The closing price referred to above
8
<PAGE>
shall be the last reported sales price or in case no such reported sale takes
place on such day, the average of the reported closing bid and asked prices, in
either case on the national securities exchange or automated quotation system on
which the Common Stock is then listed.
SECTION 9. NO RIGHTS AS STOCKHOLDER; NOTICES TO WARRANTHOLDER.
Nothing contained in this Agreement or in any of the Warrants shall be
construed as conferring upon the Warrantholder or its transferees any rights
whatsoever as a stockholder of the Company, including the right to vote, to
receive dividends, to consent or to receive notices as a stockholder in respect
of any meeting of stockholders for the election of directors of the Company or
any other matter. If, however, at any time prior to the expiration of the
Warrant and prior to its exercise, any of the following events shall occur:
(a) any action which would require an adjustment pursuant to Sections
7.1 or 7.3; or
(b) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation, merger or sale of its property,
assets and business, as an entirety) shall be proposed;
then in any one or more of said events, the Company shall give notice in writing
of such event to the Warrantholder as provided in Section 12 hereof at least ten
(10) days prior to the date fixed as a record date or the date of closing the
transfer books for the determination of the stockholders entitled to any
relevant dividend, distribution, subscription rights or other rights or for the
determination of stockholders entitled to vote on such proposed dissolution,
liquidation or winding up, or otherwise make appropriate arrangements in
connection with the consummation of any such transaction to permit exercise of
the Warrant contemporaneously therewith. Such notice shall specify such record
date or the date of closing the transfer books, as the case may be.
SECTION 10. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.
(a) The Warrantholder agrees that prior to making any disposition of
any of the Warrants or Shares, the Warrantholder shall give written notice to
the Company describing briefly the manner in which any such proposed disposition
is to be made; and no such disposition shall be made except pursuant to an
effective registration statement or in a transaction exempt from the
registration requirements of the Act, or if the Company has notified the
Warrantholder that, in the reasonable opinion of counsel to the Company, a
registration statement or other
9
<PAGE>
notification or post-effective amendment thereto (hereinafter collectively a
"Registration Statement") under the Securities Act is required with respect to
such disposition and no such Registration Statement has been filed by the
Company with, and declared effective, if necessary, by, the Securities and
Exchange Commission (the "Commission").
(b) The Company shall be obligated to the Warrantholder and the owner
of the Shares issued upon exercise of the Warrant (the "Holder") to file a
Registration Statement only as follows:
(i) Whenever, during the seven-year period following the issuance of
the Warrant, the Company proposes to file with the Commission a
Registration Statement (other than a registration on Form S-4, S-8 or other
limited purpose form) it shall, at least thirty (30) days prior to such
filing, give written notice of such proposed filing to the Warrantholder
and each Holder, at its address appearing on the records of the Company,
and shall offer to include and shall include in such filing any proposed
disposition of the securities issuable upon conversion of the Shares upon
receipt by the Company, not less than fifteen days prior to the proposed
filing date, of a request therefor setting forth the facts with respect to
such proposed disposition.
(c) All fees, disbursements and out-of-pocket expenses in connection
with the filing of any Registration Statement under Paragraph (b) of Section 10
and in complying with applicable securities and Blue Sky laws shall be borne by
the Company, provided, however, that any expenses of the Warrantholder or
-------- -------
Holders, including but not limited to attorneys' fees and discounts and
commissions, shall be borne by the Warrantholder and Holders. The Company at
its expense will supply the Warrantholder and any Holder with copies of such
Registration Statement and the prospectus or offering circular included therein
and other related documents in such quantities as may be reasonably requested by
the Warrantholder or Holder.
(d) The Company shall not be obligated to comply with the provisions
of this Section 10 if the Common Stock or other securities issuable upon
conversion of the Shares have been registered for resale under the Act, or such
Common Stock or other securities may be sold pursuant to an applicable exemption
from the registration requirements of the Act.
(e) The Company shall have no obligation under this Section 10 to the
extent that, with respect to an underwritten public offering registration, the
managing underwriter of such public offering reasonably requests that the Shares
or a portion thereof be excluded; and notwithstanding the use of the term
"Shares" in this Section 10, the Company shall have no obligation to register
shares of its 5% Convertible Preferred Stock but
10
<PAGE>
shall be obligated to register the shares of Common Stock issuable upon
conversion of such 5% Convertible Preferred Stock.
(f) The Company agrees that it will use its best efforts to keep such
Registration Statement effective until three months after this Warrant has been
exercised in full or has expired.
SECTION 11. INDEMNIFICATION.
The Company on the one hand, and the Warrantholder and the Holders of
Shares, on the other hand, shall have the same indemnification obligations to
each other, including exceptions therefrom and notification requirements with
respect thereto, as are set forth in Section 1.4(f) of the Preferred Stock
Investment Agreements pursuant to which approximately 1,200,000 shares of 5%
Convertible Preferred Stock were sold by the Company on or about the date of
this Warrant Agreement.
SECTION 12. NOTICES.
Any notice pursuant to this Agreement by the Company or by the
Warrantholder shall be in writing and shall be deemed to have been duly given if
delivered or mailed by certified mail, return receipt requested.
(a) If to the Warrantholder, at its address set forth at the foot of
this Agreement
(b) If to the Company: Koo Koo Roo, Inc., 11075 Santa Monica Blvd.,
Los Angeles, CA 90025-3556
Each party hereto may from time to time change the address to which
notices to it are to be delivered or mailed hereunder by notice in accordance
herewith to the other party.
SECTION 13. SUCCESSORS.
All the covenants and provisions of this Agreement by or for the
benefit of the Company or the Warrantholder shall bind and inure to the benefit
of their respective successors and assigns hereunder.
SECTION 14. MERGER OR CONSOLIDATION OF THE COMPANY.
The Company will not merge or consolidate with or into any other
corporation or sell all or substantially all of its property to another
corporation, unless the provisions of Section 7.3 are complied with.
SECTION 15. REPRESENTATIONS UPON EXERCISE. Upon exercise of the
-----------------------------
Warrant, the Company shall be entitled, as a
11
<PAGE>
condition to acceptance of the Warrant Price and the delivery of certificates
representing the Shares, to require (in the alternative) that (i) the
Warrantholder represent that it is an Accredited Investor as defined under the
Act and is acquiring the Shares for investment, or (ii) the Warrantholder elect
a cashless exercise, or (iii) the Warrantholder elect a simultaneous exercise
and conversion, and if the Common Stock issuable upon such conversion is not
then registered under the Act, that the Warrantholder represent that it is
acquiring such Common Stock for investment, or (iv) the Warrantholder furnish to
the Company an opinion of counsel, reasonably satisfactory to the Company and
its counsel, that exercise of the Warrant by the Warrantholder is a transaction
exempt from the registration requirements of the Act.
SECTION 16. APPLICABLE LAW.
This Agreement shall be deemed to be a contract made under the laws of
the State of California and for all purposes shall be construed in accordance
with the laws of said State.
SECTION 17. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Warrantholder any legal or equitable
right, remedy or claim under this Agreement, and this Agreement shall be for the
sole and exclusive benefit of the Company and the Warrantholder.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, all as of the day and year first above written.
Koo Koo Roo, Inc.
By: ___________________________________
Warrantholder:
By: ___________________________________
Address: ______________________________
______________________________
13
<PAGE>
EXHIBIT A
The securities represented by this Certificate have not been
registered under the Securities Act of 1933, as amended (the "Act")
and neither the securities nor any interest therein may be sold,
exchanged, hypothecated, transferred or otherwise disposed of in the
absence of registration or an exemption therefrom under the Act.
WARRANT TO PURCHASE ___________ SHARES
OF 5% Convertible Preferred Stock
VOID AFTER 5:00 P.M., LOS ANGELES TIME, ON MARCH 20, 2001
KOO KOO ROO, INC.
This certifies that, for value received _________________________
____________ the registered holder hereof or assigns (the "Warrantholder") is
entitled to purchase from Koo Koo Roo, Inc., a Delaware corporation (the
"Company"), at any time before the expiration time and date shown above, at the
purchase price per share of $25 (the "Warrant Price"), the number of shares
shown above which shall be immediately converted by the Company into Common
Stock in accordance with the Warrant Agreement. The number of shares purchasable
upon exercise of this Warrant and the Warrant Price per share shall be subject
to adjustment from time to time as set forth in the Warrant Agreement referred
to below.
This Warrant may be exercised in whole or in part by presentation of
this Warrant with the Purchase Form on the reverse side hereof duly executed and
simultaneous payment of the Warrant Price (subject to adjustment) at the
principal office of the Company. Payment of such price shall be made at the
option of the Warrantholder in cash or by certified or cashier's check or as
otherwise specified in the Warrant Agreement.
This Warrant is issued under and in accordance with a Warrant
Agreement dated as of March 20, 1996 (the "Warrant Agreement") between the
Company and the Warrantholder and is subject to the terms and provisions
contained in the Warrant Agreement, to all of which the Warrantholder and any
transferee of this Warrant by acceptance hereof consents.
Upon any partial exercise of this Warrant, there shall be signed and
issued to the Warrantholder a new Warrant in respect of the shares as to which
this Warrant shall not have been exercised. This Warrant may be exchanged at
the office of the Company by surrender of this Warrant properly endorsed for one
or more new Warrants of the same aggregate number of Units as were evidenced by
the Warrant or Warrants exchanged. No fractional interests will be issued upon
the exercise of rights to purchase hereunder, but the Company shall pay the cash
value of any fraction upon the exercise of one or more warrants, subject to the
Warrant Agreement. This Warrant is transferable at the office of the Company in
the manner and subject to the limitations set forth in the Warrant Agreement.
This Warrant does not entitle any Warrantholder hereof to any of the
rights of a stockholder of the Company.
Dated: By: ______________________________
President
14
<PAGE>
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
______________ shares (the "Shares") provided for therein, and requests that
certificates be issued in the name of:
_______________________________________________________________________________
(Please Print Name, Address and Taxpayer Identification Number)
_______________________________________________________________________________
and, if said number of Shares shall not be all the Shares purchasable hereunder,
that a new Warrant certificate for the balance of the shares purchasable under
the within Warrant be registered in the name of the undersigned Warrantholder or
his Assignee as below indicated and delivered to the address stated below.
The undersigned:
[_] elects to pay the full Warrant Price in cash or by certified check or
wire funds transfer
[_] elects "cashless exercise" pursuant to Section 6.2 of the Warrant
Agreement
Dated: ________________ _____________________________
Signature of Warrantholder
or Assignee
Name of Warrantholder or Assignee: ______________________________
(Please Print)
Address: _______________________________________________________
_______________________________________________________
Signature Guaranteed: The above signature must correspond with the name as
written upon the face of the Warrant in every
particular, without alteration or enlargement or any
change whatever, unless this Warrant has been assigned.
Signature guarantee is required if certificates are to
be registered in the name of any person other than the
name written upon the face of the Warrant.
15
<PAGE>
ASSIGNMENT
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
______________________________________________________________________________
(Name and Address of Assignee Must Be Printed or Typewritten)
______________________________________________________________________________
______________________________________________________________________________
(Taxpayer Identification Number of Assignee)
the within Warrant, hereby irrevocably consisting and appointing
____________________ Attorney to transfer said Warrant on the books of the
Company, with full power of substitution in the premises.
Dated: ________________, 19__ ______________________________
Signature of Registered Holder
Signature Guaranteed: The signature of this assignment must correspond with
the name as it appears upon the face of the within
Warrant certificate in every particular, without
alteration or enlargement or any change whatever.
16
<PAGE>
EXHIBIT 4.10
COMMON STOCK WARRANT AGREEMENT
THIS WARRANT AGREEMENT (the "Agreement"), dated as of March 20, 1996,
is made and entered into between Koo Koo Roo, Inc., a Delaware corporation (the
"Company"), and ______________________________________ (the "Warrantholder").
The Company hereby issues and sells to the Warrantholder a Stock
Purchase Warrant as hereinafter described (the "Warrant") to purchase up to an
aggregate of ___________ (subject to adjustment pursuant to Section 7 hereof)
shares of Common Stock of the Company (the "Shares").
In consideration of the foregoing and for the purpose of defining the
terms and provisions of the Warrant and the respective rights and obligations
thereunder, the Company and the Warrantholder hereby agree as follows:
SECTION 1. TRANSFERABILITY AND FORM OF WARRANT.
1.1 REGISTRATION. The Warrant shall be numbered and shall be
------------
registered on the books of the Company when issued.
1.2 TRANSFER. Subject to Section 10 hereof, the Warrant shall be
--------
transferable on the books of the Company only upon delivery thereof duly
endorsed by the Warrantholder or by its duly authorized attorney or
representative, accompanied by proper evidence of succession, assignment or
authority to transfer and compliance with securities laws. Upon any
registration of transfer, the Company shall execute and deliver a new Warrant to
the person entitled thereto. The Warrant may be divided or combined, upon
request to the Company by the Warrantholder, into a certificate or certificates
representing the right to purchase the same aggregate number of Shares. Unless
the context indicates otherwise, the term "Warrantholder" shall include any
transferee or transferees of the Warrants pursuant to this Subsection 1.2, and
the term "Warrant" shall include any and all warrants outstanding pursuant to
this Agreement, including those evidenced by a certificate or certificates
issued upon division, exchange, substitution or transfer pursuant to this
Agreement.
1.3 FORM OF WARRANT. The text of the Warrant and of the form of
---------------
election to purchase Shares shall be substantially as set forth in Exhibit A
attached hereto. The price per Share and the number of Shares issuable upon
exercise of the Warrant are subject to adjustment upon the occurrence of certain
events, all as hereinafter provided. The Warrant shall be executed on behalf of
the Company by its President, Vice President or other authorized officer.
<PAGE>
A Warrant bearing the signature of an individual who was at any time
the proper officer of the Company shall bind the Company, notwithstanding that
such individual shall have ceased to hold such office prior to the delivery of
such Warrant.
The Warrant shall be dated as of the date of signature thereof by the
Company either upon initial issuance or upon division, exchange, substitution or
transfer.
1.4 LEGEND ON WARRANTS AND SHARES. Each Warrant certificate and
-----------------------------
certificate for Shares initially issued upon exercise of this Warrant shall bear
the following legend:
"The securities represented by this Certificate have not been
registered under the Securities Act of 1933, as amended (the "Act")
and neither the securities nor any interest therein may be sold,
exchanged, hypothecated, transferred or otherwise disposed of in the
absence of registration or an exemption therefrom under the Act."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the
Securities Act of the securities represented thereby) shall also bear the above
legend unless, in the opinion of the Company's counsel, the securities
represented thereby need no longer be subject to such restrictions.
SECTION 2. TERM OF WARRANTS; EXERCISE OF WARRANTS.
2.1 EXERCISE OF WARRANTS. Subject to the terms of this Agreement,
--------------------
the Warrantholder shall have the right, at any time during the five-year period
ending at 5:00 P.M., New York time, on the fifth anniversary of the date hereof
(the "Termination Date"), to purchase from the Company up to the number of fully
paid and nonassessable Shares which the Warrantholder may at the time be
entitled to purchase pursuant to this Agreement, upon surrender to the Company,
at its principal office, of the certificate evidencing the Warrant to be
exercised, together with the purchase form annexed thereto duly filled in and
signed, and upon payment to the Company of the Warrant Price (as defined in and
determined in accordance with the provisions of Sections 6 and 7 hereof), for
the number of Shares in respect of which such Warrant is then exercised.
Payment of the aggregate Warrant Price shall be made in cash or by certified or
cashier's check or by wire transfer of funds or by surrender of Warrants for
cashless exercise as provided in Section 6.
Upon such surrender of the Warrant and payment of the Warrant Price,
the Company shall issue and cause to be delivered with all reasonable dispatch
to or upon the written order of the
2
<PAGE>
Warrantholder and in such name or names as the Warrantholder may designate, a
certificate or certificates for the number of full Shares so purchased upon the
exercise of the Warrant, together with cash, as provided in Section 8 hereof, in
respect of any fractional Shares otherwise issuable upon such surrender. Such
certificate or certificates shall be deemed to have been issued and any person
so designated to be named therein shall be deemed to have become a holder of
record of such Shares as of the date of surrender of the Warrant and payment of
the Warrant Price, as aforesaid, notwithstanding that the certificates
representing such Shares shall not actually have been delivered or that the
stock transfer books of the Company shall then be closed. The Warrant shall be
exercisable, at the election of the Warrantholder, either in full or from time
to time in part and, in the event that a certificate evidencing the Warrant is
exercised in respect of less than all of the Shares specified therein at any
time prior to the Termination Date, a new certificate evidencing the remaining
portion of the Warrant will be issued by the Company.
SECTION 3. PAYMENT OF TAXES.
The Company will pay all documentary stamp taxes, if any, attributable
to the initial issuance of the Shares to the Warrantholder; provided, however,
-------- -------
that the Company shall not be required to pay any tax or taxes which may be
payable in respect of any secondary transfer of the Warrant or the Shares.
SECTION 4. MUTILATED OR MISSING WARRANTS.
In case the certificate or certificates evidencing the Warrant shall
be mutilated, lost, stolen or destroyed, the Company shall, at the request of
the Warrantholder, issue and deliver in exchange and substitution for and upon
cancellation of the mutilated certificate or certificates, or in lieu of and in
substitution for the certificate or certificates lost, stolen or destroyed, a
new Warrant certificate or certificates of like tenor and representing an
equivalent right or interest, but only upon receipt of evidence satisfactory to
the Company of such loss, theft or destruction of such Warrant and of bond of
indemnity, if requested, also satisfactory in form and amount at the applicant's
cost. Applicants for such substitute Warrant certificate shall also comply with
such other reasonable regulations and pay such other reasonable charges as the
Company may prescribe.
SECTION 5. RESERVATION OF SHARES.
There has been reserved, and the Company shall at all times keep
reserved so long as the Warrant remains outstanding, out of its authorized
Common Stock, such number of shares as shall be subject to purchase under the
Warrant.
3
<PAGE>
SECTION 6. WARRANT PRICE; METHOD OF EXERCISE.
6.1 PRICE. The price per Share (the "Warrant Price") at which Shares
-----
of Common Stock shall be purchasable upon the exercise of the Warrant shall be
$7.75, subject to further adjustment pursuant to Section 7 hereof.
6.2 CASHLESS EXERCISE. In addition to the exercise of all or a
-----------------
portion of this Warrant by the payment of the exercise price as provided in
Section 2.1, and in lieu of any such payment, the Warrantholder shall have the
right at any time and from time to time to exercise the Warrant in full or in
part by surrendering the Warrant certificate in exchange for that number of
Shares which, valued at Current Market Value, have a value equal to the total
Current Market Value of the Shares as to which this Warrant is then being
exercised less the total Warrant Price payable for such Shares. For the purposes
of this paragraph, Current Market Value of a Share shall be its Current Market
Price as defined in Section 8 hereof, provided however, withholding taxes shall
be paid by the Holder in cash.
SECTION 7. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES.
The number and kind of securities purchasable upon the exercise of the
Warrants and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:
7.1 ADJUSTMENTS. The number of Shares purchasable upon the exercise
-----------
of the Warrants and the Warrant Price shall be subject to adjustment as follows:
(a) If during the twelve month period following March 13, 1996 the
provisions of Section 3.1 of the Stock Purchase Agreements, entered into by
the Company under date of March 12, 1996 with entities advised by
Dimensional Fund Advisors Inc., shall require an adjustment of the price
per share under such Agreements, then the Warrant Price shall be adjusted
by an equal amount, with a corresponding adjustment of the number of shares
purchasable hereunder so that the aggregate Warrant Price remains the same.
(b) In case the Company shall (i) in respect of its Common Stock, pay
a dividend in shares of Common Stock or make a distribution in shares of
Common Stock, (ii) subdivide its outstanding shares of Common Stock, (iii)
combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock or (iv) issue by reclassification of its Common
Stock other securities of the Company, the number of Shares purchasable
upon exercise of the Warrants immediately prior thereto shall be adjusted
so that the Warrantholder shall be entitled to receive the kind
4
<PAGE>
and number of shares or other securities of the Company which it would have
owned or would have been entitled to receive after the happening of any of
the events described above, had the Warrants been exercised immediately
prior to the happening of such event or any record date with respect
thereto. Any adjustment made pursuant to this paragraph (b) shall become
effective immediately after the effective date of such event retroactive to
the record date, if any, for such event.
(c) In case the Company shall issue rights, options, warrants or
convertible securities to all or substantially all holders of its Common
Stock, without any charge to such holders, entitling them to subscribe for
or to purchase shares of Common Stock at a price per share which is lower
at the record date mentioned below than the then Current Market Price (as
defined in Section 8), the number of Shares thereafter purchasable upon the
exercise of a Warrant shall be determined by multiplying the number of
Shares theretofore purchasable upon exercise of each Warrant by a fraction,
of which the numerator shall be (1) the number of shares of Common Stock
outstanding immediately prior to the issuance of such rights, options or
warrants plus (2) the number of additional shares of Common Stock offered
for subscription or purchase, and of which the denominator shall be (x) the
number of shares of Common Stock outstanding immediately prior to the
issuance of such rights, options or warrants plus (y) the number of shares
which the aggregate offering price of the total number of shares offered
would purchase at the Current Market Price. Such adjustment shall be made
whenever such rights, options or warrants are issued, and shall become
effective immediately and retroactively after the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.
(d) In case the Company shall distribute to all or substantially all
holders of its shares of Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions out of earnings) or
rights, options, warrants or convertible securities containing the right to
subscribe for or purchase shares of Common Stock (excluding those referred
to in paragraph (c) above), then, in each case, the number of Shares
thereafter purchasable upon the exercise of the Warrants shall be
determined by multiplying the number of Shares theretofore purchasable upon
exercise of the Warrants by a fraction, of which the numerator shall be the
then Current Market Price on the date of such distribution, and of which
the denominator shall be such Current Market Price on such date minus the
then fair value of the portion of the assets or evidence of indebtedness so
distributed or of such subscription rights, options or warrants applicable
to one share. Such
5
<PAGE>
adjustment shall be made whenever any such distribution is made and shall
become effective on the date of distribution retroactive to the record date
for the determination of stockholders entitled to receive such
distribution.
(e) No adjustment in the number of Shares purchasable hereunder shall
be required unless such adjustment would require an increase or decrease of
at least one percent (1%) in the number of Shares then purchasable upon the
exercise of a Warrant; provided, however, that any adjustments which by
-------- -------
reason of this Paragraph (e) are not required to be made immediately shall
be carried forward and taken into account in any subsequent adjustment.
(f) Whenever the number of Shares purchasable upon the exercise of a
Warrant is adjusted as herein provided, the Warrant Price payable upon
exercise of a Warrant shall be adjusted by multiplying such Warrant Price
immediately prior to such adjustment by a fraction, of which the numerator
shall be the number of Shares purchasable upon the exercise of a Warrant
immediately prior to such adjustment, and of which the denominator shall be
the number of Shares so purchasable immediately thereafter.
(g) Whenever the number of Shares purchasable upon the exercise of a
Warrant or the Warrant Price is adjusted as herein provided, the Company
shall cause to be promptly mailed to the Warrantholder by first class mail,
postage prepaid, notice of such adjustment or adjustments and a certificate
of a firm of independent public accountants selected by the Board of
Directors of the Company (who may be the regular accountants employed by
the Company) setting forth the number of Shares purchasable upon the
exercise of a Warrant and the Warrant Price after such adjustment, a brief
statement of the facts requiring such adjustment and the computation by
which such adjustment was made.
(h) For the purpose of this Subsection 7.1, the term "Common Stock"
shall mean (i) the class of stock designated as the Common Stock of the
Company at the date of this Agreement or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common
Stock. In the event that at any time, as a result of an adjustment made
pursuant to this Section 7, the Warrantholder shall become entitled to
purchase any securities of the Company other than shares of Common Stock,
thereafter the number of such other securities so purchasable upon exercise
of the Warrant and the Warrant Price of such securities shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent
as practicable to the provisions with respect to the Shares contained in
this Section 7.
6
<PAGE>
(i) Upon the expiration of any rights, options, warrants or conversion
privileges, if such shall not have been exercised, the number of Shares
purchasable upon exercise of the Warrants and the Warrant Price, to the
extent the Warrants have not then been exercised, shall, upon such
expiration, be readjusted and shall thereafter be such as they would have
been had they been originally adjusted (or had the original adjustment not
been required, as the case may be) on the basis of (A) the fact that the
only shares of Common Stock so issued were the shares of Common Stock, if
any, actually issued or sold upon the exercise of such rights, options,
warrants or conversion rights and (B) the fact that such shares of Common
Stock, if any, were issued or sold for the consideration actually received
by the Company upon such exercise plus the consideration, if any, actually
received by the Company for the issuance, sale or grant of all such rights,
options, warrants or conversion rights whether or not exercised; provided,
--------
however, that no such readjustment shall have the effect of increasing the
-------
Warrant Price by an amount in excess of the amount of the adjustment
initially made in respect of the issuance, sale or grant of such rights,
options, warrants or conversion privileges.
7.2 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in Subsection
---------------------------
7.1, no adjustment in respect of any dividends shall be made during the term of
the Warrant or upon the exercise of the Warrant.
7.3 PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION,
------------------------------------------------------
CONSOLIDATION, ETC. In case of any consolidation of the Company with or merger
- ------------------
of the Company into another corporation or in case of any sale or conveyance to
another corporation of the property, assets or business of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation, as the case may be, shall provide by agreement that the
Warrantholder shall have the right thereafter upon payment of the Warrant Price
in effect immediately prior to such action to purchase upon exercise of the
Warrant the kind and amount of shares and/or other securities, cash and property
which he would have owned or have been entitled to receive after the happening
of such consolidation, merger, sale or conveyance had the Warrant been exercised
immediately prior to such action. Such agreement shall provide for adjustments,
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 7. The provisions of this Subsection 7.3 shall
similarly apply to successive consolidations, mergers, sales or conveyances.
7.4 PAR VALUE OF SHARES. Before taking any action which would cause
-------------------
an adjustment reducing the Warrant Price below the then par value of the Shares
of Common Stock issuable upon
7
<PAGE>
exercise of the Warrant, the Company will take any corporate action which may,
in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and non-assessable shares of Common Stock
at such adjusted Warrant Price.
7.5 STATEMENT ON WARRANT CERTIFICATES. Irrespective of any
---------------------------------
adjustments in the Warrant Price or the number of securities purchasable upon
the exercise of the Warrant, the Warrant certificate or certificates theretofore
or thereafter issued may continue to express the same price and number of
securities as are stated in the similar Warrant certificates initially issuable
pursuant to this Agreement. However, the Company may at any time in its sole
discretion (which shall be conclusive) make any change in the form of the
Warrant certificate that it may deem appropriate and that does not affect the
substance thereof; and any Warrant certificate thereafter issued, whether upon
registration or transfer of, or in exchange or substitution for, an outstanding
Warrant certificate, may be in the form so changed.
SECTION 8. FRACTIONAL INTERESTS; CURRENT MARKET PRICE.
The Company shall not be required to issue fractional Shares on the
exercise of the Warrant. If any fraction of a share of Common Stock would,
except for the provisions of this Section 8, be issuable on the exercise of the
Warrant (or specified portion thereof), the Company shall pay an amount in cash
equal to the then Current Market Price multiplied by such fraction, provided
that no such cash payment shall be made more often than for one transaction per
month. For the purpose of this Agreement, the term "Current Market Price" shall
mean (i) if the Common Stock is traded in the over-the-counter market or on the
National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ"), the average per share closing prices of the Common Stock on the 20
consecutive trading days immediately preceding the date in question, as reported
by NASDAQ or an equivalent generally accepted reporting service, or (ii) if the
Common Stock is traded on a national securities exchange, the average for the 20
consecutive trading days immediately preceding the date in question of the daily
per share closing prices of the Common Stock on the principal stock exchange on
which it is listed, as the case may be. The closing price referred to above
shall be the last reported sales price or in case no such reported sale takes
place on such day, the average of the reported closing bid and asked prices, in
either case on the national securities exchange or automated quotation system on
which the Common Stock is then listed.
SECTION 9. NO RIGHTS AS STOCKHOLDER; NOTICES TO WARRANTHOLDER.
8
<PAGE>
Nothing contained in this Agreement or in any of the Warrants shall be
construed as conferring upon the Warrantholder or its transferees any rights
whatsoever as a stockholder of the Company, including the right to vote, to
receive dividends, to consent or to receive notices as a stockholder in respect
of any meeting of stockholders for the election of directors of the Company or
any other matter. If, however, at any time prior to the expiration of the
Warrant and prior to its exercise, any of the following events shall occur:
(a) any action which would require an adjustment pursuant to Sections
7.1 or 7.3; or
(b) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation, merger or sale of its property,
assets and business, as an entirety) shall be proposed;
then in any one or more of said events, the Company shall give notice in writing
of such event to the Warrantholder as provided in Section 12 hereof at least ten
(10) days prior to the date fixed as a record date or the date of closing the
transfer books for the determination of the stockholders entitled to any
relevant dividend, distribution, subscription rights or other rights or for the
determination of stockholders entitled to vote on such proposed dissolution,
liquidation or winding up, or otherwise make appropriate arrangements in
connection with the consummation of any such transaction to permit exercise of
the Warrant contemporaneously therewith. Such notice shall specify such record
date or the date of closing the transfer books, as the case may be.
SECTION 10. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.
(a) The Warrantholder agrees that prior to making any disposition of
any of the Warrants or Shares, the Warrantholder shall give written notice to
the Company describing briefly the manner in which any such proposed disposition
is to be made; and no such disposition shall be made except pursuant to an
effective registration statement or in a transaction exempt from the
registration requirements of the Act, or if the Company has notified the
Warrantholder that, in the reasonable opinion of counsel to the Company, a
registration statement or other notification or post-effective amendment thereto
(hereinafter collectively a "Registration Statement") under the Securities Act
is required with respect to such disposition and no such Registration Statement
has been filed by the Company with, and declared effective, if necessary, by,
the Securities and Exchange Commission (the "Commission").
(b) The Company shall be obligated to the Warrantholder and the owner
of the Shares issued upon exercise of
9
<PAGE>
the Warrant (the "Holder") to file a Registration Statement only as follows:
(i) Whenever, during the seven-year period following the issuance of
the Warrant, the Company proposes to file with the Commission a
Registration Statement (other than a registration on Form S-4, S-8 or other
limited purpose form) it shall, at least thirty (30) days prior to such
filing, give written notice of such proposed filing to the Warrantholder
and each Holder, at its address appearing on the records of the Company,
and shall offer to include and shall include in such filing any proposed
disposition of the Shares upon receipt by the Company, not less than
fifteen days prior to the proposed filing date, of a request therefor
setting forth the facts with respect to such proposed disposition, unless a
valid Registration Statement already includes the Warrant shares.
(c) All fees, disbursements and out-of-pocket expenses in connection
with the filing of any Registration Statement under Paragraph (b) of Section 10
and in complying with applicable securities and Blue Sky laws shall be borne by
the Company, provided, however, that any expenses of the Warrantholder or
-------- -------
Holders, including but not limited to attorneys' fees and discounts and
commissions, shall be borne by the Warrantholder and Holders. The Company at
its expense will supply the Warrantholder and any Holder with copies of such
Registration Statement and the prospectus or offering circular included therein
and other related documents in such quantities as may be reasonably requested by
the Warrantholder or Holder.
(d) The Company shall not be obligated to comply with the provisions
of this Section 10 if the Common Stock or other securities issuable upon
exercise of the Warrant have been registered for resale under the Act, or such
Common Stock or other securities may be sold pursuant to an applicable exemption
from the registration requirements of the Act.
(e) The Company shall have no obligation under this Section 10 to the
extent that, with respect to an underwritten public offering registration, the
managing underwriter of such public offering reasonably requests that the Shares
or a portion thereof be excluded.
(f) The Company agrees that it will use its best efforts to keep such
Registration Statement effective until three months after this Warrant has been
exercised in full or has expired.
10
<PAGE>
SECTION 11. INDEMNIFICATION.
The Company on the one hand, and the Warrantholder and the Holders of
Shares, on the other hand, shall have the same indemnification obligations to
each other, including exceptions therefrom and notification requirements with
respect thereto, as are set forth in Section 8(f) of the Stock Purchase
Agreements dated March 12, 1996 which are referred to above.
SECTION 12. NOTICES.
Any notice pursuant to this Agreement by the Company or by the
Warrantholder shall be in writing and shall be deemed to have been duly given if
delivered or mailed by certified mail, return receipt requested.
(a) If to the Warrantholder, at its address set forth at the foot of
this Agreement
(b) If to the Company: Koo Koo Roo, Inc., 11075 Santa Monica Blvd.,
Los Angeles, CA 90025-3556
Each party hereto may from time to time change the address to which
notices to it are to be delivered or mailed hereunder by notice in accordance
herewith to the other party.
SECTION 13. SUCCESSORS.
All the covenants and provisions of this Agreement by or for the
benefit of the Company or the Warrantholder shall bind and inure to the benefit
of their respective successors and assigns hereunder.
SECTION 14. MERGER OR CONSOLIDATION OF THE COMPANY.
The Company will not merge or consolidate with or into any other
corporation or sell all or substantially all of its property to another
corporation, unless the provisions of Section 7.3 are complied with.
SECTION 15. REPRESENTATIONS UPON EXERCISE. Upon exercise of the
-----------------------------
Warrant, the Company shall be entitled, as a condition to acceptance of the
Warrant Price and the delivery of certificates representing the Shares, to
require (in the alternative) that (i) the Warrantholder represent that it is an
Accredited Investor as defined under the Act and is acquiring the Shares for
investment, or (ii) the Warrantholder elect a cashless exercise, or (iii) the
Warrantholder proposes to sell the Shares pursuant to an effective registration
statement under the Act, or (iv) the Warrantholder furnish to the Company an
opinion of counsel, reasonably satisfactory to the Company and its counsel,
11
<PAGE>
that exercise of the Warrant by the Warrantholder is a transaction exempt from
the registration requirements of the Act.
SECTION 16. APPLICABLE LAW.
This Agreement shall be deemed to be a contract made under the laws of
the State of California and for all purposes shall be construed in accordance
with the laws of said State.
SECTION 17. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Warrantholder any legal or equitable
right, remedy or claim under this Agreement, and this Agreement shall be for the
sole and exclusive benefit of the Company and the Warrantholder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, all as of the day and year first above written.
Koo Koo Roo, Inc.
By: ___________________________________
Warrantholder:
By: ___________________________________
Address: ______________________________
______________________________
12
<PAGE>
EXHIBIT A
The securities represented by this Certificate have not been
registered under the Securities Act of 1933, as amended (the "Act")
and neither the securities nor any interest therein may be sold,
exchanged, hypothecated, transferred or otherwise disposed of in the
absence of registration or an exemption therefrom under the Act.
WARRANT TO PURCHASE ___________ SHARES
OF COMMON STOCK
VOID AFTER 5:00 P.M., LOS ANGELES TIME, ON MARCH 20, 2001
KOO KOO ROO, INC.
This certifies that, for value received _________________________
____________ the registered holder hereof or assigns (the "Warrantholder") is
entitled to purchase from Koo Koo Roo, Inc., a Delaware corporation (the
"Company"), at any time before the expiration time and date shown above, at the
purchase price per share of $7.75 (the "Warrant Price"), the number of shares
shown above. The number of shares purchasable upon exercise of this Warrant and
the Warrant Price per share shall be subject to adjustment from time to time as
set forth in the Warrant Agreement referred to below.
This Warrant may be exercised in whole or in part by presentation of
this Warrant with the Purchase Form on the reverse side hereof duly executed and
simultaneous payment of the Warrant Price (subject to adjustment) at the
principal office of the Company. Payment of such price shall be made at the
option of the Warrantholder in cash or by certified or cashier's check or as
otherwise specified in the Warrant Agreement.
This Warrant is issued under and in accordance with a Warrant
Agreement dated as of March 20, 1996 (the "Warrant Agreement") between the
Company and the Warrantholder and is subject to the terms and provisions
contained in the Warrant Agreement, to all of which the Warrantholder and any
transferee of this Warrant by acceptance hereof consents.
Upon any partial exercise of this Warrant, there shall be signed and
issued to the Warrantholder a new Warrant in respect of the shares as to which
this Warrant shall not have been exercised. This Warrant may be exchanged at
the office of the Company by surrender of this Warrant properly endorsed for one
or more new Warrants of the same aggregate number of Units as were evidenced by
the Warrant or Warrants exchanged. No fractional interests will be issued upon
the exercise of rights to purchase hereunder, but the Company shall pay the cash
value of any fraction upon the exercise of one or more warrants, subject to the
Warrant Agreement. This Warrant is transferable at the office of the Company in
the manner and subject to the limitations set forth in the Warrant Agreement.
This Warrant does not entitle any Warrantholder to any of the rights
of a stockholder of the Company.
Dated: By: ______________________________
President
13
<PAGE>
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
______________ shares (the "Shares") provided for therein, and requests that
certificates be issued in the name of:
____________________________________________________________________________
(Please Print Name, Address and Taxpayer Identification Number)
____________________________________________________________________________
and, if said number of Shares shall not be all the Shares purchasable hereunder,
that a new Warrant certificate for the balance of the shares purchasable under
the within Warrant be registered in the name of the undersigned Warrantholder or
his Assignee as below indicated and delivered to the address stated below.
The undersigned:
[_] elects to pay the full Warrant Price in cash or by certified check or wire
funds transfer
[_] elects "cashless exercise" pursuant to Section 6.2 of the Warrant Agreement
Dated: ________________ ____________________________________
Signature of Warrantholder
or Assignee
Name of Warrantholder or Assignee: _____________________________________
(Please Print)
Address: ______________________________________________________________
______________________________________________________________
Signature Guaranteed: The above signature must correspond with the name as
written upon the face of the Warrant in every
particular, without alteration or enlargement or any
change whatever, unless this Warrant has been assigned.
Signature guarantee is required if certificates are to
be registered in the name of any person other than the
name written upon the face of the Warrant.
14
<PAGE>
ASSIGNMENT
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
________________________________________________________________________
(Name and Address of Assignee Must Be Printed or Typewritten)
________________________________________________________________________
________________________________________________________________________
(Taxpayer Identification Number of Assignee)
the within Warrant, hereby irrevocably consisting and appointing
____________________ Attorney to transfer said Warrant on the books of the
Company, with full power of substitution in the premises.
Dated: ________________, 19__ ____________________________________
Signature of Registered Holder
Signature Guaranteed: The signature of this assignment must correspond with
the name as it appears upon the face of the within
Warrant certificate in every particular, without
alteration or enlargement or any change whatever.
15
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Koo Koo Roo, Inc.
Los Angeles, California
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form S-3 of our report dated March 8, 1996, except for
Note 14 which is as of March 22, 1996, relating to the consolidated financial
statements of Koo Koo Roo, Inc. which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
Los Angeles, California
March 12, 1997
