Kona Grill Inc fka KONA

[Billcoln]

Press Release Source: Mill Road Capital
Kona Shareholders Deliver Stinging Rebuke to Chairman Marcus Jundt
On Monday May 4, 2009, 3:35 pm EDT

GREENWICH, Conn., May 4 /PRNewswire/ -- Following the Kona Grill (NasdaqGM: KONA - News) annual meeting on April 30, 2009, in Scottsdale, Arizona, Mill Road Capital reports that the company's Board of Directors announced that a majority of votes cast did not support the re-election of the company's current Chairman and CEO, Marcus Jundt. Shareholders also voted overwhelmingly to overturn the Company's poison pill.

With over 6 million shares counted, approximately 53% of Kona's voting shares withheld their support for Marcus Jundt, while 57% voted to terminate the poison pill that the company's Board of Directors had put in place only one year ago.

Kona insiders control just over 20% of the company's shares, making the reprimand of management especially strong because it indicated that over two-thirds of outside shares voted to reject Marcus Jundt and over three-quarters were voted against the poison pill.

The company's Board had previously refused to certify a candidate nominated to oppose Marcus Jundt on a technicality, so the Chairman will continue on the company's Board despite the sharp rebuke from shareholders.

Shareholders have been increasingly vocal about the company's poor performance since Marcus Jundt was named interim CEO on February 1, 2006. Since being named CEO, Kona's stock price has declined by 78%.

Shareholder ire has not been limited to just the poor stock price performance. The company has also been plagued with corporate governance problems. When Marcus Jundt was appointed permanent CEO in July 2006, company Director and Audit Committee Chair Frank Bennett resigned from the Board stating that he disagreed with "the Board governance process that produced" Jundt's election. When asked on the recent earnings conference call about the Board governance process that resulted in his becoming CEO, Marcus Jundt replied, "No comment."

More recently on May 28, 2008, Marcus Jundt announced that the company's Board had approved a poison pill to inhibit "unfair" takeover activity. In a company press release, Marcus Jundt noted that the Board "had not adopted the [poison pill] Rights Plan in response to any specific takeover proposal." Shareholders later learned that a friendly bid by Mill Road Capital to acquire Kona at $10.75 per share was rejected by the Board only weeks prior to the announcement of the poison pill. As of Friday, May 1, 2009, Kona shares closed at $2.15.

The company has faced even more shareholder opposition to its fundraising activities. Twice in the last five months, Kona Grill has announced financings that would result in Marcus Jundt's father, James Jundt, purchasing company shares at a very deep discount to the current quoted price. In late December 2008, Kona announced that $1 million in shares would be sold to James Jundt at $1.19 per share. Several months later, Kona announced that it would instead sell James Jundt the right to buy shares priced at $1.35 per share as part of another deal.

Kona shareholders have voiced their opposition to these "sweetheart deals." In a press release issued on January 2, 2009, shareholder Justin Bennitt wrote to Marcus Jundt that the insider deal raised "questions of your ethics and your fiduciary duties to shareholders." Mr. Bennitt wrote further, "I don't know how one sleeps at night trying to achieve personal gain at the expense of shareholders."

Kona Grill's management has issued no public statement in the aftermath of the shareholder vote and the company is currently operating under a deficiency notice from Nasdaq for failing to have an adequate number of independent board directors.

The conference call transcript excerpt is attributable to www.SeekingAlpha.com. A complete free transcript of the call can be found at http://seekingalpha.com/article/134080-kona-grill-inc-q1-2009-earnings-call-transcript?page=-1.