Kona investor objects to $1.2 million note sale, claims insiders offered better terms

By Devika Patel

Knoxville, Tenn., March 12 - Kona Grill, Inc. said in a press release that one of its shareholders has objected to a $1.2 million private placement of 10% unsecured subordinated notes that settled on March 6.

In a letter addressed to director Mark Zesbaugh, Mill Road Capital, LP strongly objected to the insider-dominated financing.

Mill Road noted that the company's press release failed to identify James Jundt, the father of chief executive officer and chairman Marcus Jundt, as the primary investor and that it provided insiders with better financing terms than those that were offered to Mill Road and other outside shareholders.

The investor also claimed this financing could enable James Jundt and director Richard Hauser's wife to buy nearly 10% of the company at below market prices through oversubscription rights and that the company's fundraising process was skewed by a consistent pattern of misrepresentations and fiduciary breaches.

The letter, dated March 11, said Mill Road was concerned that none of its objections were investigated or taken seriously despite two written complaints.

The letter takes offense not only to Wednesday's private placement, but also objected to a December deal in which Marcus Jundt bought $1 million in shares priced at $1.19 apiece, with a closing market price of $1.46 per share at pricing.

Wednesday's deal raised $1.2 million via a note sale.

Scottsdale, Ariz.-based Kona is a chain of restaurants.

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