<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-1954
KOO KOO ROO, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3132583
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
11075 SANTA MONICA BOULEVARD, SUITE 225, LOS ANGELES, CA 90025
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 479-2080
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of May 12, 1998, the registrant had issued and outstanding 49,987,908
shares of common stock, $.01 par value per share.
Page 1 of 13
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KOO KOO ROO, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C>
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets as of
December 31, 1997 and March 31, 1998 3
Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 1997 and 1998 4
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1997 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 2. CHANGES IN SECURITIES 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 5. OTHER INFORMATION 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
</TABLE>
Page 2 of 13
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PART 1 - FINANCIAL INFORMATION
------------------------------
Item 1. - Financial Statements
KOO KOO ROO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS 1997 * 1998
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,754,601 $ 4,953,046
Marketable securities 5,712,454 3,769,564
Receivables - trade 627,174 222,848
Notes receivable 760,988 568,492
Inventories 691,939 659,739
Prepaid expenses 1,000,077 1,149,434
------------ ------------
Total current assets 15,547,233 11,323,123
PROPERTY AND EQUIPMENT, net 41,856,321 38,164,340
INVESTMENTS IN AND ADVANCES TO RELATED ENTITIES 653,494 217,145
INTANGIBLES AND OTHER ASSETS, net 10,713,955 9,354,713
------------ ------------
$ 68,771,003 $ 59,059,321
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,983,296 $ 3,391,784
Other accrued liabilities 3,751,552 3,176,441
Accrued payroll 731,800 1,387,412
Reserves for store closings and disposal costs 1,450,000 6,787,091
Net liabilities and reserves of discontinued operations 1,699,953 1,262,604
Current portion of long-term debt 316,760 2,792,114
------------ ------------
Total current liabilities 12,933,361 18,797,446
------------ ------------
NOTES AND LOANS PAYABLE, LONG-TERM 12,848,310 10,317,105
------------ ------------
MINORITY INTEREST 240,440 695,591
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares
authorized; 175,342 and 2,800 shares of Series A and
215,839 and 50,430 shares of Series B, Adjustable
Convertible Preferred Stock issued and outstanding
(aggregate liquidation preference $25,173,850 and
$5,113,000) 3,912 532
Common stock, $.01 par value, 50,000,000 shares authorized;
26,770,170 and 47,359,043 shares issued and outstanding 267,702 473,590
Additional paid-in capital 106,631,872 107,624,063
Accumulated deficit (63,413,964) (78,602,683)
Treasury stock, 147,012 and 151,012 shares at cost (238,493) (246,323)
Common stock issued for unearned compensation (502,137) -
------------ ------------
Total stockholders' equity 42,748,892 29,249,179
------------ ------------
$ 68,771,003 $ 59,059,321
============ ============
</TABLE>
* Derived from audited financial statements.
Page 3 of 13
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KOO KOO ROO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1998
------------ ------------
<S> <C> <C>
RESTAURANT SALES $ 11,223,260 $22,335,960
------------ ------------
COSTS AND EXPENSES:
Food, labor and related costs 8,120,345 15,343,174
Occupancy expenses 943,251 1,871,543
Other operating expenses 3,608,973 5,794,960
Depreciation and amortization 1,202,902 1,218,426
Restructuring and other charges, including store
closings - 11,757,118
------------ ------------
Total 13,875,471 35,985,221
------------ ------------
LOSS FROM OPERATIONS (2,652,211) (13,649,261)
OTHER INCOME (EXPENSE):
Interest and other income (expense) 177,709 (322,968)
Equity in net loss of joint ventures (135,000) -
Minority interest in net loss of joint venture 59,185 92,771
------------ ------------
LOSS FROM CONTINUING OPERATIONS (2,550,317) (13,879,458)
LOSS FROM DISCONTINUED OPERATIONS (944,330) -
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING METHOD - (1,276,952)
------------ ------------
NET LOSS (3,494,647) (15,156,410)
DIVIDENDS ON PREFERRED STOCK (722,861) (32,309)
------------ ------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (4,217,508) $(15,188,719)
============ ============
BASIC AND DILUTED LOSS PER SHARE:
Loss from continuing operations $ (0.20) $ (0.36)
Loss from discontinued operations (0.06) -
Cumulative effect of change in accounting - (0.04)
------------ ------------
Net Loss $ (0.26) $ (0.40)
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 16,155,835 38,175,340
============ ============
</TABLE>
Page 4 of 13
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------
1997 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,494,647) $ (15,156,410)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 1,412,922 1,218,426
Change in accounting method - 1,276,952
Minority interest (164,189) 92,771
Gain on sale of assets (200,588) -
Restructuring and other charges, including store closings - 11,757,118
Changes in operating assets and liabilities:
Receivables - (103,266)
Inventories (102,344) 32,200
Prepaid expenses and other assets (472,357) (507,553)
Accounts payable 540,897 183,966
Accrued expenses and other liabilities 166,860 225,628
------------- -------------
Net cash used in operating activities (2,313,446) (980,168)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,348,467) (3,340,856)
Purchase of marketable securities (15,434,669) (399,938)
Sale of marketable securities 4,010,419 2,342,828
Pre-opening costs (261,735) -
Payments on notes receivable 100,000 -
Notes and loans to employees and others (93,249) (62,144)
Lease acquisition and other (37,492) (5,131)
Investments in and advances to related entities (1,487,285) (237,671)
------------- -------------
Net cash used in investing activities (16,552,478) (1,702,912)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from private placements, net 26,772,652 -
Loan proceeds - -
Debt repayments (81,001) (55,851)
Preferred stock cash dividends - (54,794)
Repurchase of common stock and warrants - (7,830)
Exercise of common stock options and warrants 2,500 1,000,000
------------- -------------
Net cash provided by financing activities 26,694,151 881,525
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,828,227 (1,801,555)
CASH AND CASH EQUIVALENTS, beginning of period 4,591,318 6,754,601
------------- -------------
CASH AND CASH EQUIVALENTS, end of period $ 12,419,545 $ 4,953,046
============= =============
</TABLE>
Page 5 of 13
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KOO KOO ROO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
The consolidated financial statements include the accounts of Koo Koo Roo,
Inc. (the "Company"), its majority-owned subsidiaries and limited partnerships
in which the Company has a controlling interest. All significant inter-company
transactions and balances have been eliminated.
The accompanying unaudited condensed consolidated financial statements
were prepared on the accrual basis of accounting. In the opinion of management,
all adjustments (consisting only of normal, recurring accruals) which are
necessary for a fair presentation of the financial results for the periods
presented have been made. The interim period results of operations are not
necessarily indicative of the results of operations for the full year. The
financial statements presented herein should be read in conjunction with the
audited financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
NOTE 2 - NET LOSS PER SHARE
Basic earnings per share includes no dilution and is computed by dividing
net loss applicable to common stockholders by the weighted average number of
common shares outstanding during the periods presented. Dilutive earnings per
share reflects the potential dilution of securities that could share in the
earnings, such as stock options, warrants or convertible debentures. Stock
options and warrants outstanding during the periods presented were not included
in diluted earnings per share since their effect would be anti-dilutive. The net
loss attributable to common stockholders has been adjusted for deemed dividends
and dividends paid on preferred stock.
In May 1998, the stockholders approved an amendment to the Company's
certificate of incorporation increasing the authorized common stock from 50
million to 75 million shares.
NOTE 3 - NEW ACCOUNTING STANDARD
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5") "Reporting on the Costs of Start-
Up Activities." SOP 98-5 requires that costs of start-up activities should be
expensed as incurred. SOP 98-5 is effective for years beginning after December
15, 1998 and earlier application is permitted and encouraged. Accordingly, the
Company has elected to expense such costs commencing January 1, 1998 and has
recorded the cumulative effect of the change in accounting method, or
$1,276,952, related to the adoption of SOP 98-5 in the accompanying condensed
statement of operations for the three months ended March 31, 1998.
NOTE 4 - EMPLOYEE STOCK OPTIONS
The Company has two stock award plans for selected eligible employees and
consultants. The two plans covers an aggregate of 5,000,000 shares of Common
Stock. On March 24, 1998 the Company's Board of Directors agreed to reset the
exercise price of employee options covering approximately 2,700,000 shares from
an average of $3.75 per option to $1.56 per option.
Page 6 of 13
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NOTE 5 - FIRST QUARTER RESTRUCTURING
During March 1998, the Company developed and approved a plan to restructure
the Company. The restructuring plan provides for, among other things, a
reduction in the number of store openings planned for 1998 and a reduction in
the number of employees at the corporate office. In addition, the Company
decided to exit the Washington D. C. market and closed three restaurants and
abandoned a lease for a fourth location. The Company will also close its
Arrosto coffee factory which grinds and packages coffee for use in its
restaurants. In connection with this restructuring plan, the Company recognized
charges during the three months ended March 31, 1998 as follows:
<TABLE>
<CAPTION>
<S> <C>
Severance costs $ 2,800,000
Joint venture impairment reserve 674,000
Write-off of Arrosto assets 990,000
Other items 453,460
-----------
Restructuring and other charges 4,917,460
Store closing costs 6,839,658
-----------
Total $11,757,118
===========
</TABLE>
NOTE 6 - DISCONTINUED OPERATIONS
In March 1996, the Company acquired 90% of the stock of Color Me Mine, a
small chain of paint-your-own ceramics studios located in Southern California.
The acquisition was accounted for using the pooling of interest method of
accounting. In November 1997, the Company initiated a plan to dispose of Color
Me Mine. Accordingly, the Company has reclassified the operations of Color Me
Mine as discontinued operations in the accompanying statements of operations.
The Company recorded an estimated loss of $7.0 million related to the
divestiture of assets for Color Me Mine, including approximately $1,200,000
for estimated losses during the phase out period. The accompanying condensed
consolidated balance sheet as of December 31, 1997 has been restated to reflect
the net assets and the estimated loss as a single amount as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ -----------
<S> <C> <C>
Current assets $ 1,971,761 $ 2,140,729
Non-current assets 4,719,843 4,050,927
Liabilities (1,391,557) (1,403,871)
----------- -----------
Net assets 5,300,047 4,787,785
Estimated loss on disposition (7,000,000) (6,050,389)
----------- -----------
Net liabilities of discontinued operations $(1,699,953) $(1,262,604)
=========== ===========
</TABLE>
During the three months ended March 31, 1998, the Company recorded Color Me
Mine's net loss of approximately $830,000 as an adjustment against the reserve
for discontinued operations.
NOTE 7 - PREFERRED STOCK CONVERSIONS AND WARRANTS
During the quarter ended March 31, 1998, 172,542 shares of the Company's 5%
Series A Adjustable Convertible Preferred Stock were converted into 4,426,888
shares of the Company's Common Stock. In addition 167,356 shares of the
Company's 6% Series B Adjustable Convertible Preferred Stock were converted into
15,041,571 shares of the Company's Common Stock. The Company also issued
1,120,414 shares of common stock in connection with the exercise of previously
issued warrants to purchase common stock.
Page 7 of 13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The discussion below and elsewhere in this Report on Form 10-Q include
forward looking statements about the future business results and activities of
the Company which, by their very nature, involve a number of risks and
uncertainties. For an explanation of certain of these risks and uncertainties,
see the matters discussed in the last paragraph of this Introduction section and
the materials referred to therein.
During the third and fourth quarters of 1997, the Company recorded
significant adjustments amounting to approximately $4,400,000 relating to, among
other things, closing certain restaurant locations that were operating at a
loss. During the fourth quarter, the Company also accrued a $7,000,000 charge
relating to the estimated cost of divesting the Color Me Mine business, which is
expected to be completed during 1998.
The Company adopted a plan to restructure its operations and concentrate
its efforts on its core business of operating restaurants during the quarter
ended March 31, 1998. In connection with this plan, the Company closed the
three remaining Koo Koo Roo California Kitchen(TM) stores located in the
Washington D.C. area. The Company intends to focus it efforts on operating
restaurants in California and Nevada and the Company will continue to operate
three restaurants with its joint venture partner in Florida and has plans to
open two additional restaurants in Florida. The Company also has a 28% ownership
interest in three restaurants operated in Toronto, Ontario, Canada. The Company
also operates 14 Hamburger Hamlet restaurants acquired during 1997. As part of
the restructuring efforts, the Company recognized restructuring and other
charges of $11,757,118 related to store closings, reductions in corporate
staffing levels, closing its Arrosto coffee plant and various other charges. The
Company believes that these steps, along with continued improvement in operating
efficiencies at the stores, will help improve operating results during 1998 and
in future periods.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5") "Reporting on the Costs of Start-
Up Activities." SOP 98-5 requires that costs of start-up activities, including
organization costs, be expensed as incurred. SOP 98-5 is effective for years
beginning after December 15, 1998 and earlier application is permitted and
encouraged. Accordingly, the Company has elected to expense such costs
commencing January 1, 1998 and has recorded the cumulative effect of the change
in accounting method, or $1,276,952, related to the adoption of SOP 98-5 in the
accompanying condensed statement of operations for the three months ended March
31, 1998.
As of May 12, 1997, the Company operated 52 restaurants, including 14
Hamburger Hamlet restaurants. In addition as of May 12, 1998, the Company's
Canadian joint venture partner operated three Koo Koo Roo restaurants in
Toronto, Ontario.
Page 8 of 13
<PAGE>
Many of the statements made herein are forward looking and, among other
things, relate to the prospects for the Company to expand and attain profitable
operations. The Company has historically incurred net losses and the Company
presently anticipates that it will continue to incur operating losses during
1998. However, the Company believes that the operating losses should begin to
decrease during the next calendar quarter both in the aggregate and as a
percentage of sales. Management presently cannot predict precisely when the
Company may achieve profitable operations. The Company's current level of
overhead contemplates more restaurants than are currently opened, and control
over the timing of the opening of the additional stores necessary to achieve a
volume level which would permit overall Company profitability is subject to
factors outside the control of management, including, among other things, site
landlords which are in negotiations with the Company, government permitting
agencies, and other outside parties and agencies including, but not necessarily
limited to, contractors, vendors, and government inspectors.
RESULTS OF OPERATIONS
Restaurant sales for the three months ended March 31, 1998 amounted to
$22,335,960 on P & C compared to $11,223,260 for the three months ended March
31, 1997, an increase of 99%. The increase in revenues was primarily produced by
21 restaurants which operated during both the current quarter and the same
quarter of 1997 and twelve new restaurants open during the remainder of 1997 and
five new restaurants open for part of the current quarter, plus $7,800,194 in
restaurant sales from 14 Hamburger Hamlet restaurants acquired in May 1997.
Comparable same store sales for the Koo Koo Roo restaurants in operation for a
period of 18 months or more increased by 6.0% for the quarter ended March 31,
1998 compared to the same period in 1997.
Gross profit (sales less food, labor and related costs) for the three
months ended March 31, 1998 increased to $6,992,786 from $3,102,915 for the same
quarter of 1997. As a percentage of sales, gross profit increased to 31.3%
during the three months ended March 31, 1998 compared to 27.6% for the same
period of 1997. Gross profit generally increases in mature stores (those open
more than three months) and are lower in newly opened stores. The Hamburger
Hamlet restaurants contributed to the overall improvement in the gross profit
percentage. The Company closed three Koo Koo Roo California Kitchen(TM) stores
during the first quarter of 1998. Cost of sales improvements were related to
improvements in operating efficiencies, waste reduction and increased sales
volume, which resulted in lower food, beverage and paper costs, as a percentage
of sales. These improvements were partially offset by increased labor costs of
1.9%, as a percentage of sales, during 1998 compared to 1997.
Occupancy costs increased to $1,871,543 for the three months ended March
31, 1998, compared to $943,251 for the three months ended March 31, 1997.
Occupancy costs as a percentage of sales was 8.4% during both periods.
Depreciation and amortization expenses increased from $1,202,902 to
$1,218,426 for 1998. Depreciation and amortization during the three months ended
March 31, 1997 included $389,000 of pre-opening cost amortization, which method
the Company changed effective January 1, 1998, as discussed above. The
remaining increase in depreciation and amortization related to additional Koo
Koo Roo store openings since the end of the first quarter of 1997 and the
acquisition of the Hamburger Hamlet restaurants in May 1997.
Page 9 of 13
<PAGE>
Other operating expenses, which include other store operating and corporate
overhead expenses, amounted to $5,794,960 for the three months ended March 31,
1998 compared to $3,608,973 for 1997. The increase was due to several factors,
including, new Koo Koo Roo store openings and the acquisition of the 14
Hamburger Hamlet restaurants. As a percentage of sales, operating expenses
decreased by 6.3% of sales during the first quarter of 1998. The improvement
resulted from higher sales volume, the addition of the Hamburger Hamlet
restaurants and certain reductions in general and administrative costs
implemented during the fourth quarter of 1997.
Minority interest represents the limited partners' interest in three
partnerships which are controlled by the Company. Pursuant to the partnership
agreements, profits and losses and cash distributions are allocated based on
ownership percentage. The financial results of the partnerships have been
consolidated with those of the Company.
The Company adopted a plan to restructure its operations and concentrate
its efforts on its core business of operating restaurants during the quarter
ended March 31, 1998. In connection with this plan, the Company closed the three
remaining Koo Koo Roo California Kitchen(TM) stores located in the Washington
D.C. area. The Company intends to focus it efforts on operating restaurants in
California and Nevada and the Company will continue to operate three restaurants
with its joint venture partner in Florida and has plans to open two additional
restaurants in Florida. The Company also has a 28% ownership interest in three
restaurants operated in Toronto, Ontario, Canada. The Company also operates 14
Hamburger Hamlet restaurants acquired during 1997. As part of the restructuring
efforts, the Company recognized restructuring and other charges of $11,757,118
related to store closings, reductions in corporate staffing levels, closing its
Arrosto coffee plant and various other charges.
DISCONTINUED OPERATIONS
In November 1997, the Company decided to divest its 90% owned subsidiary,
Color Me Mine. Accordingly, the Company has reclassified the operations of
Color Me Mine as discontinued operations in the accompanying financial
statements.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Total cash, cash equivalents and marketable securities at March 31, 1998
amounted to $8,722,610. During the past two years the Company expended cash
resources principally to build new Koo Koo Roo California Kitchen(TM) stores,
acquire 14 Hamburger Hamlet restaurants, expand the operations of Color Me Mine
and finance operating losses. During the first quarter of 1998, the Company
completed the construction of and opened five new Koo Koo Roo restaurants. In
addition, as of March 31, 1998, two Koo Koo Roo restaurants were in various
stages of construction, plus signed leases for six other locations.
Net cash used in operating activities amounted to $980,168 during the
quarter ended March 31, 1998, compared to $2,313,446 for the same period in
1997. The decrease in net cash used in operating activities was primarily due to
net losses incurred during each period, $11,757,118 of restructuring and other
charges and $1,276,952 representing the cumulative effect of change in
accounting method.
Page 10 of 13
<PAGE>
Net cash used in investing activities, including purchases of property and
equipment, together with costs for acquiring certain locations, amounted to
$1,702,912 during the quarter ended March 31, 1998. Also included in investing
activities were purchases and sales of marketable securities which resulted in
net funds provided of $1,942,890 during the quarter ended March 31, 1998.
Net cash provided by financing activities amounted to $881,525 for the
quarter ended March 31, 1998. The Company received $1,000,000 from the exercise
of common stock options and warrants during the quarter ended March 31, 1998
which were partially offset by cash dividends on preferred stock and debt
repayments.
At March 31 1998, management has provided a 100% valuation allowance
amounting to approximately $26,000,000 against the net deferred tax asset
represented primarily by its net operating loss carry forwards due to the
Company not being able to determine that it was more likely than not that the
net deferred tax asset would be realized.
CAPITAL RESOURCES
In August 1997, the Company issued $12,000,000 aggregate principal amount
of Senior Notes due August 2000 (the "Senior Notes") to an institutional
investor in a private placement. The Senior Notes carry an interest rate of 13%
per annum payable quarterly. The Senior Notes also included five-year purchase
warrants to purchase 330,000 shares of the Company's Common Stock at a price of
$5.375 per share. The Senior Notes provide that the Company redeem $2,500,000
on February 28, 1999. Mandatory redemptions of the balance, prior to the due
date of the Senior Notes, are only required if there is a change of control,
sale of securities resulting in proceeds in excess of $20,000,000 or certain
dispositions of assets as outlined in the Senior Notes.
Management believes that the Company's existing capital resources will be
sufficient to fund its planned operations and growth for the next 12 months. The
Company's short and long-term debt as of March 31, 1998 amounts to $13,109,219.
Management estimates that capital expenditures will approximate $3,500,000 to
$4,500,000 for stores under construction plus new locations planned for the
remainder of 1998. The Company will continue to investigate store-level, asset-
based financing of fixtures, equipment and leasehold improvements as its
expansion continues.
The timing of future capital requirements will be affected by, among other
things, the number of stores opened, operational results, real estate
development, and other potential corporate opportunities. In the ordinary course
of its business, the Company regularly investigates and enters into negotiations
related to business opportunities. The Company may seek additional funds from
public or private offerings of debt or equity, or may seek bank financing
facilities or other strategic alternatives.
Page 11 of 13
<PAGE>
PART II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS.
The Company has become subject to various lawsuits, claims and other legal
matters in the ordinary course of conducting its business. As of the date of
this Report, management believes that there are no legal proceedings pending,
the adverse resolution of which is expected to have a material adverse financial
impact on the Company's consolidated financial position.
ITEM 2. CHANGES IN SECURITIES.
During the quarter ended March 31, 1998, 172,542 shares of the Company's 5%
Series A Adjustable Convertible Preferred Stock were converted into 4,426,888
shares of the Company's Common Stock. In addition 167,356 shares of the
Company's 6% Series B Adjustable Convertible Preferred Stock were converted into
15,041,571 shares of the Company's Common Stock. The Company also issued
1,120,414 shares of common stock in connection with the exercise of
previously issued warrants to purchase common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
In May 1998, the stockholders approved an amendment to the Company's
certificate of incorporation increasing the authorized common stock
from 50 million to 75 million shares.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS -
10.1 Executive Employment Agreement between the Company and A.
William Allen, dated March 24, 1998.
10.2 Executive Employment Agreement between the Company and
William M. McKay, dated March 24, 1998.
10.3 Executive Employment Agreement between the Company and
Ronald D. Garber, dated March 24, 1998.
10.4 Executive Employment Agreement between the Company and
John S. Kaufman, dated March 24, 1998.
27.1 Financial Data Schedule.
(b) REPORTS ON FORM 8-K - filed during the quarter ended March 31,
1998.
Current report on Form 8-K, filed March 4, 1998, incorporating
the Company's press release regarding the conversion of preferred
stock, appointment of new officers and changes to the Company's
Board of Directors.
Page 12 of 13
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KOO KOO ROO, INC.
Date: May 14, 1998 /s/ William M. McKay
----------------------------
William M. McKay
Chief Financial Officer
Date: May 14, 1998 /s/ Jeanne Giles
----------------------------
Jeanne Giles
Principal Accounting Officer
Page 13 of 13
<PAGE>
EXHIBIT 10.1
AMENDED AND RESTATED
KOO KOO ROO, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
WITH
A. WILLIAM ALLEN
THIS AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is
entered into as of March 24, 1998 by and between Koo Koo Roo, Inc., a Delaware
corporation ("Company"), and A. William Allen ("Employee"), with reference to
the following facts:
R E C I T A L S
---------------
A. Company and Employee entered into an Executive Employment Agreement
effective March 1, 1998 ("Prior Agreement").
B. Company is in the restaurant business and operates Koo Koo Roo
California Kitchens and Hamburger Hamlets.
C. Employee was formerly employed by La Madeleine as its Chief Executive
Officer.
D. Company and Employee desire to assure the Company of the services of
Employee and to set forth the rights and duties of the parties.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
A G R E E M E N T S
-------------------
1. EMPLOYMENT.
----------
(a) Company hereby agrees to employ Employee, and Employee hereby
accepts and agrees to employment by the Company, on the terms and conditions set
forth herein.
(b) Employee shall serve in the capacity of Chief Executive Officer
of the Company. Employee shall perform such services and duties with the Company
as are usually associated with the position of a Chief Executive Officer as well
as those decided upon by the Board of Directors of the Company or as may be set
forth in the by-laws of the Company. Employee shall report directly to the
Executive Committee of the Board of Directors of the Company. Employee further
agrees that, except during vacation periods or in accordance with
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Company's personnel policies covering executive leaves and reasonable periods of
illness or other incapacitation, Employee shall devote his time and services to
the business and interests of the Company; provided, however, that nothing
herein shall prohibit Employee from providing services to Paul Fleming of
Flemings Prime Steak House. Notwithstanding the foregoing, Employee shall also
be permitted to serve on the boards of directors of other business corporations
and may participate in charitable, cultural, professional, civic and business
association activities. Employee shall perform the duties of his office and
those assigned to him by the Company's Board of Directors with fidelity, to the
best of his ability, and in the best interests of the Company.
2. Term of Employment.
------------------
Employee's term of employment by the Company pursuant to this
Agreement shall commence as of 1 March 1998 (the "Effective Date") and shall
continue thereafter for a period of one (1) year unless otherwise terminated
pursuant to the provisions of Section 6 below (the "Employment Term").
3. Compensation & Duties.
----------------------
(a) During the Employment Term, the Company shall pay Employee a base
salary at the annual rate equal to $300,000.00. Employee has agreed to defer
$50,000.00 of his Base Salary until the earlier to occur of the following: (i)
3/1/99; (ii) change of control; (iii) termination without cause; or (iv)
termination for good cause. Said base salary shall be payable in cash in equal
installments on a semi-monthly basis, or in accordance with such other salary
payment schedule as the Company may adopt for its employees generally. On March
1, 1998, Company shall loan Employee $50,000. Employee shall not be personally
liable for repayment of the loan. Repayment of the loan shall be secured solely
by the stock options granted under this Agreement; provided that, in the event
of a change of control, termination without cause or termination for good
reason, Employee shall not be obligated to repay the loan and the Company shall
be liable for any and all taxes associated with the nonpayment of the loan.
(b) During the Employment Term, Employee shall be entitled to the
following benefits provided by the Company: (1) medical and dental insurance,
providing coverage on terms no less beneficial than those afforded other senior
executives of the Company from time to time; (2) participation in any pension,
profit sharing or similar retirement plans as may be implemented by the Company
on terms no less beneficial than those afforded other senior executives of the
Company from time to time; (3) a suitable office and furnishings; and (4) such
other benefits as the Company may provide from time to time on terms no less
beneficial than those afforded other senior executives of the Company.
(c) Company shall add Employee to its Director and Officer insurance
and indemnification policies. Additionally, Company hereby indemnifies and holds
harmless Employee from any losses, damages, claims, and causes of action arising
out of the actions or inactions of the Board of Directors and/or the officers of
the Company for any period before March 1, 1998.
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(d) As of March 24, 1998, the Company had granted to Employee options
to purchase 500,000 shares of the Company's common stock as follows:
<TABLE>
<CAPTION>
Option Price per Vesting Period to Exercise
Shares Options Date After Vesting Period
------ --------- ------- --------------------
<S> <C> <C> <C>
500,000 $1.56 February 28, 1999 10 years
</TABLE>
(e) The Company has paid to Employee the amount of $20,000 upon the
later of (i) the date Employee permanently relocates to California, or (ii)
March 1, 1998, which amount shall be treated as reimbursement of Employee's
moving expenses to California. The payment shall be treated as a qualified
moving expense payment for California and federal income tax purposes and, as
such, income taxes shall not be withheld from such amount.
(f) Employee has been appointed to the Board of Directors of the
Company and Company has reconstituted the Board of Directors as follows:
Lee Iacocca, Chairman
Don Wohl
Mel Harris
Rob Kautz
Bill Allen
The Company shall reimburse Employee for reasonable expenses incurred by
him for lodging in Los Angeles for up to two days a week.
4. Employee Expenses.
-----------------
Subject to such policies as may be maintained in effect from time to
time by the Company, Employee shall be entitled to reimbursement of amounts
expended for the benefit of the Company during the Employment Term, upon
presentation of acceptable reports of such expenses.
5. Confidential Information.
------------------------
Employee specifically agrees that he will not at any time, whether
during or subsequent to the Employment Term, in any fashion, form, or manner,
unless specifically consented to in writing by Company, either directly or
indirectly use or divulge, disclose or communicate to any person, firm or
corporation, any confidential information of any kind, nature, or description
concerning any matters affecting or relating to the business of Company, except
in the ordinary course of the Company's business. All equipment, notebooks,
documents, memoranda, reports, recipes, formulas, files, samples, books,
correspondence, lists, other written and graphic records, and the like,
affecting or relating to the business of Company, which
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Employee shall prepare, use, construct, observe, posses, or control shall be and
remain the Company's sole property. The foregoing confidentiality obligation
shall not apply to information (i) Employee deems necessary to disclose pursuant
to any governmental, judicial or regulatory investigation, proceeding or order;
(ii) as is in the public domain through no fault of Employee; or (iii) as is
obtained by Employee from a source other than the Company which is not bound by
a similar confidentiality obligation. Employee shall execute the Company's
current Confidentiality Agreements as part of the SEC Compliance document which
all new employees are provided.
6. Termination with Cause.
----------------------
(a) The employment of Employee may be terminated at any time for
"cause." For the purpose of this Agreement "cause" shall mean:
(1) Employee's continued willful and habitual neglect of his
duties following written notification of such neglect by Company's Board of
Directors and the failure of Employee to cure such neglect within thirty (30)
days of such notice.
(2) Employee's conviction of a felony or any other conduct
which, by its nature, would materially injure the reputation of Company as
determined by Company's Board of Directors acting in good faith and upon
reasonable grounds.
(3) Employee's incapacity to perform the duties required of him
hereunder as a result of mental or physical illness, which incapacity continues
for a period of ninety (90) days.
(4) Death of the Employee.
(b) Termination of Employee's employment shall not be in limitation
of any other right or remedy the Company may have under this Agreement or in law
or equity.
7. Termination without Cause; Termination with Good Reason; Change in
------------------------------------------------------------------
Control.
- --------
(a) The Company shall pay to Employee all compensation due for the
term of this Agreement, but in no event less than one year's full salary plus
all other additional compensation, including but not limited to medical and
dental benefits for one year, and the stock options granted in this Agreement
shall vest, notwithstanding Employee's termination of employment before March
23, 1999, if such employment is terminated by the Company without "cause" (as
defined above), or if such employment is terminated by Employee for "Good
Reason", or in the event of a change in control. "Good Reason" shall mean any
of the following: (1) a material and adverse change by the Company in the
Employee's assignments, duties or responsibilities; (2) a Change in Control; (3)
a majority of the Board of Directors currently serving on the Board are changed;
(4) a material breach of this Agreement by Company, which breach is not cured
within thirty (30) days written notice to Company; (5) a reduction in
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Employee's salary or any benefits; or (6) the relocation of the Company's
offices to a location more than 20 miles from the present corporate offices.
"Change in Control" shall include but not be limited to an occurrence which
would be required to be reported in response to Item 5(f) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, a
transaction involving 20% or more of the assets, voting control or stock of the
Company, or any other event set forth on Exhibit "1", attached hereto and
incorporated herein by this reference. Such vested options shall be exercisable
by the Employee for a period of ten (10) years from the date of grant.
(b) Any purported termination of Employee's employment by the Company
or Employee must be communicated by written Notice of Termination to the other
party pursuant to (P) 9 below. Notice of Termination shall mean a notice that
shall indicate the specific termination provision in this Agreement.
(c) Date of Termination, Etc. "Date of Termination" shall mean the
-------------------------
date specified in the Notice of Termination (which, in the case of a termination
for Cause shall not be less than thirty (30) days from the date such Notice of
Termination is given, and in the case of a termination for Good Reason shall not
be less than fifteen (15) nor more than sixty (60) days from the date such
Notice of Termination is given). Notwithstanding anything to the contrary
contained herein if within fifteen (15) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, then the Date of Termination
shall be the date on which the dispute is finally determined, either by mutual
written agreement of the parties, or as set forth in paragraph 15; provided,
however, that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
(d) If Employee's employment is terminated by the Company for Cause,
the Company shall pay Employee his full base salary, when due, through the Date
of Termination at the rate in effect at the time Notice of Termination is given,
plus all other amounts to which Employee is entitled under any compensation plan
of the Company at the time such payments are due, and the Company shall have no
further obligations to Employee under this Agreement.
(e) If Employee's employment by the Company shall be terminated by
Employee for Good Reason or by the Company other than for Cause, then Employee
shall be entitled to the benefits provided below:
(i) the Company shall pay to Employee his full base salary, when
due, through the Date of Termination at the rate in effect at the time Notice of
Termination is given, plus all other amounts to which Employee is entitled under
any compensation plan of the Company at the time such payments are due;
(ii) in lieu of any further salary payments to Employee for
periods subsequent to the Date of Termination, the Company shall pay as
severance pay, at the time specified below, a lump sum severance payment
(together with the payments provided herein
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below, the "Severance Payments") equal to 100% of Employee's annual salary as in
effect as of the Date of Termination or immediately prior to the Change in
Control, whichever is greater;
(iii) notwithstanding any provisions of the Company's Stock
Option and Incentive Plans, or other similar plans, the vesting period with
respect to your 500,000 options to purchase KKRO common stock at $1.56 per share
shall be vested immediately and you will have 10 years to exercise these
options;
(iv) the Company shall pay to Employee all reasonable legal fees
and expenses incurred by Employee as a result of such termination (including all
such fees and expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit provided by
this Agreement (as set forth in (P)14 of this Agreement) or in connection with
any tax audit or proceeding to the extent attributable to the application of
section 4999 of the Code, to any payment or benefit provided hereunder); and
(v) for a twelve (12) month period after such termination, the
Company shall arrange to provide Employee with life, disability, dental,
medical, accident and group health insurance benefits substantially similar to
those that you were receiving immediately prior to the Notice of Termination.
(vi) The payments provided for above (P)7(e)(i) shall be made
not later than the fifth day following the Date of Termination. The payments
provided for in (P)7(e)(ii) shall be made not later than the thirtieth day
following the Date of Termination; provided, however, that if the amounts of
such payments cannot be finally determined on or before such day, the Company
shall pay to Employee on such day an estimate, as determined in good faith by
the Company, of the minimum amount of such payments and shall pay the remainder
of such payments (together with interest at the rate provided in section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but
in no event later than the thirtieth day after the Date of Termination. In the
event that the amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by the Company
to Employee, payable on the fifth day after demand by the Company (together with
interest at the rate provided in section 1274(b)(2)(B) of the Code).
(vii) Employee shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise nor shall the amount of any payment or benefit provided for in this
Agreement be reduced by any compensation earned by Employee as the result of
employment by another employer or self-employment, by retirement benefits, by
offset against any amount claimed to be owed by Employee to the Company, or
otherwise.
7. Severable Provisions.
--------------------
The provisions of this Agreement are severable, and if any one or more
provisions may be determined to be judicially unenforceable, in whole or in
part, the remaining provisions shall nevertheless be binding and enforceable.
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8. Successors; Binding Agreement. (i) The Company shall require any
-----------------------------
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle Employee to terminate his
employment and receive compensation from the Company in the same amount and on
the same terms to which Employee would be entitled hereunder if Employee
terminated his employment for Good Reason or Change in Control, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. Where the context
requires, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable
by Employee and Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Employee should die while any amount would still be payable to Employee
hereunder had Employee continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
Employee's devisee, legatee or other designee or, if there is no such designee,
to Employee's estate.
9. Notices
-------
Any notice to be given to the Company under the terms of this
Agreement shall be addressed to the Company at the address of its principal
place of business, and any notice to be given to Employee shall be addressed to
him at his home address last shown on the records of the Company, or at such
other address as either party may hereafter designate in writing to the other.
All Notices shall be in writing and shall be delivered personally, sent by
United States certified or registered mail, return receipt requested, first
class postage prepaid, or by private messenger or courier service. Any such
notice shall be deemed to have been received on the earlier of (i) two (2)
business days after it is mailed or (ii) the date it is actually received.
10. Waiver.
------
Either party's failure to enforce any provision or provisions of this
Agreement shall not in any way be construed as a waiver of any such provision,
or prevent that party thereafter from enforcing each and every other provision
of this Agreement.
11. Title and Headings
------------------
Titles and headings to sections in this Agreement are for the purpose
of reference only and shall in no way limit, define, or otherwise affect the
provisions of it.
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12. Governing Law.
-------------
The parties hereto agree that it is their intention and covenant that
this Agreement and performance under it, and all suits and special proceedings
that may ensue from its breach, be construed in accordance with and under the
laws of the State of California, and that in any action, special proceeding, or
other proceeding that may be brought arising out of, in connection with, or by
reason of this Agreement, the laws of the State of California shall be
applicable and shall govern to the exclusion of the law of any other forum,
without regard to the jurisdiction in which any action or special proceeding may
be instituted.
13. Entire Agreement
----------------
This Agreement, any other written agreement executed concurrently
therewith, and the documents referred to herein, shall be construed together and
constitute the entire agreement between the parties pertaining to the subject
matter hereof. Any prior agreements are superseded. There are no warranties,
conditions, or representations (including any that may be implied by statute)
and there are no agreements in connection with such subject matter except as
specifically set forth or referred to in this Agreement. No reliance is placed
on any warranty, representation, opinion, advice or assertion of fact made by
any party hereto or its directors, officers, employees or agents, to any other
party hereto or its directors, officers, employees or agents, except to the
extent that the same has been reduced to writing and included as a term of this
Agreement. Accordingly, there shall be no liability, either in tort or in
contract, assessed in relation to any such warranty, representation, opinion,
advice or assertion of fact, except to the aforesaid. No amendment, change or
variance from this Agreement shall be binding on either party unless executed in
writing by both parties.
14. Arbitration; Dispute Resolution
-------------------------------
(a) Arbitration Procedure. Any disagreement, dispute, controversy or
---------------------
claim arising out of or relating to this Agreement or the interpretation of this
Agreement or any arrangements relating to this Agreement or contemplated in this
Agreement or the breach, termination or invalidity thereof shall be settled by
arbitration in accordance with the Commercial Arbitration Rules (the
"Arbitration Rules") of the American Arbitration Association (the "AAA") (except
as otherwise provided in this Agreement) in Los Angeles, California. The
arbitral tribunal shall consist of one arbitrator. In making any decision, the
arbitrator shall apply and follow the substantive law of California without
reference to the conflicts of law provisions thereof. The parties to the
arbitration jointly shall directly appoint such arbitrator within thirty (30)
days of initiation of arbitration. If the parties shall fail to appoint such
arbitrator as provided above, such arbitrator shall be appointed by the AAA as
provided in the Arbitration Rules. Employee and the Company agree that the
arbitral award may be enforced against the parties to the arbitration proceeding
or their assets wherever they may be found and that a judgment upon the arbitral
award may be entered in any court having jurisdiction thereof. The Company shall
pay all fees and expenses of the Arbitrator regardless of the result and shall
provide all witnesses and evidence reasonably required by Employee to present
Employee's case. The Company shall
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pay to Employee all reasonable arbitration expenses and legal fees incurred by
Employee as a result of a termination of Employee's employment in seeking to
obtain or enforce any right or benefit provided by this Agreement whether or not
you are successful in obtaining or enforcing such right or benefit). Such
payments shall be made within five (5) days after the Employee's request for
payment accompanied with such evidence of fees and expenses incurred as the
Company reasonably may require.
(b) Compensation During Dispute. Company compensation during any
---------------------------
disagreement, dispute, controversy or claim arising out of or relating to this
Agreement or the interpretation of this Agreement shall be as follows:
(i) If a purported termination by Employee for Good Reason
occurs and such termination is disputed in accordance with this Agreement, the
Company shall continue to pay Employee the full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to,
salary) and continue Employee as a participant in all compensation, benefit and
insurance plans in which Employee was participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in accordance
with (P)15. Amounts paid under this Section 10(ii)(a) are in addition to all
other amounts due under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement. Employee agrees to remain in the
employ of the Company during the resolution of the dispute and to continue to
provide services unless Employee's employment is terminated earlier by death,
disability or retirement, or by action of the Company. If the dispute is
resolved by a determination that Employee did not have Good Reason, this
Agreement, in accordance with its terms, shall continue to apply to the
circumstances of Employee's employment by the Company and any termination
thereof.
(ii) If there is a termination by the Company followed by a
dispute as to whether Employee is entitled to the payments and other benefits
provided under this Agreement, then, during the period of that dispute the
Company shall pay Employee fifty percent (50%) of the amount specified in
(P)7(e)(i) and (P)7(e)(ii) hereof, and the Company shall provide Employee with
the other benefits provided in (e) of this Agreement, if, but only if, Employee
agrees in writing that if the dispute is resolved against Employee, Employee
shall promptly refund to the Company all payments Employee receives under (e)(i)
and (e)(ii) of this Agreement plus interest at the rate provided in Section
1274(d) of the Code, compounded quarterly. If the dispute is resolved in
Employee's favor, promptly after resolution of the dispute the Company shall pay
Employee the sum that was withheld during the period of the dispute plus
interest at the rate provided in Section 1274(d) of the Code, compounded
quarterly.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"COMPANY" "EMPLOYEE"
Koo Koo Roo, Inc.,
a Delaware corporation
By: /s/ Ronald D. Garber /s/ A. William Allen
--------------------------------------- --------------------------
Name: RONALD D. GARBER A. William Allen
-------------------------------------
Title: Corporate Secretary/General Counsel
------------------------------------
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EXHIBIT "1"
"CHANGE IN CONTROL"
In addition to the events described in the Employment Agreement, a Change in
Control shall be deemed to occur if:
(a) any Person (as defined below) is or becomes the Beneficial Owner
(as defined below), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities. For purposes of this Agreement, (A) the term
"Person" is used as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); provided,
however, that unless this Agreement provides to the contrary, the term
shall not include the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any Company
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the
Company, and (B) the term "Beneficial Owner" shall have the meaning given
to such term in Rule 13d-3 under the Exchange Act;
(b) during any period after the execution of this Agreement,
individuals who at the beginning of such period constitute the Board, and
any new director (other than a director designated by a person who has
entered into an agreement with the Company to effect a transaction
described in Sections 2(i)(a), (c) or (d)) whose election by the Board or
nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved (hereinafter referred to
as "Continuing Directors"), cease for any reason to constitute at least a
majority thereof;
(c) the stockholders of the Company approve a merger or consolidation
sale, acquisition, purchase, reverse merger of the Company with any other
Company (or other entity);
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets; or
(e) any Person is or becomes the Beneficial Owner of securities of
the Company representing ten percent (10%) or more of the combined voting
power of the Company's then outstanding securities and (A) the identity of
the Chief Executive Officer of the Company is changed during the period
beginning sixty (60) days before the attainment of the ten percent (10%)
beneficial ownership and ending one (1) year thereafter, or (B) individuals
constituting at least one-third (1/3) of the members of the Board at the
beginning of such period shall leave the Board during the period beginning
sixty (60) days before the attainment of the ten percent (10%) beneficial
ownership and ending one (1) year thereafter.
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EXHIBIT 10.2
KOO KOO ROO, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
WITH
WILLIAM M. MCKAY
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is entered into as
of March 24, 1998 by and between Koo Koo Roo, Inc., a Delaware corporation
("Company"), and William M. McKay ("Employee"), with reference to the following
facts:
R E C I T A L S
---------------
A. Company is in the restaurant business and operates Koo Koo Roo
California Kitchens, Hamburger Hamlets and Arrosto Coffee stores.
B. Company and Employee desire to assure the Company of the services of
Employee and to set forth the rights and duties of the parties.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
A G R E E M E N T S
-------------------
1. EMPLOYMENT.
----------
(a) Company hereby agrees to employ Employee, and Employee
hereby accepts and agrees to employment by the Company, on the terms and
conditions set forth herein.
(b) Employee shall serve in the capacity of Chief Financial
Officer of the Company. Employee shall perform such services and duties with the
Company as are usually associated with the position of a Chief Financial
Officer. Employee shall report directly to the Chief Executive Officer of the
Company. Employee further agrees that, except during vacation periods or in
accordance with Company's personnel policies covering executive leaves and
reasonable periods of illness or other incapacitation, Employee shall devote his
full time and services to the business and interests of the Company.
Notwithstanding the foregoing, Employee shall also be permitted to serve on the
boards of directors of other business corporations and may participate in
charitable, cultural, professional, civic and business association activities.
Employee shall perform the duties of his office and those assigned to him by the
Company's Chief Executive Officer with fidelity, to the best of his ability, and
in the best interests of the Company.
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2. Term of Employment.
------------------
Employee's term of employment by the Company pursuant to this
Agreement shall commence as of March 24, 1998 (the "Effective Date") and shall
continue thereafter for a period of one (1) year unless otherwise terminated
pursuant to the provisions of Section 6 below (the "Employment Term"). This
Agreement shall automatically renew each year unless Company notifies Employee
in writing not less than 90 days prior to its expiration date that Company shall
not renew this Agreement.
3. Compensation & Duties.
----------------------
(a) During the Employment Term, the Company shall pay Employee a
base salary at the annual rate equal to $175,000.00. Said base salary shall be
payable in cash in equal installments on a semi-monthly basis, or in accordance
with such other salary payment schedule as the Company may adopt for its
employees generally.
(b) During the Employment Term, Employee shall be entitled to
the following benefits provided by the Company: (1) medical and dental
insurance, providing coverage on terms no less beneficial than those afforded
other senior executives of the Company from time to time; (2) participation in
any pension, profit sharing or similar retirement plans as may be implemented by
the Company on terms no less beneficial than those afforded other senior
executives of the Company from time to time; (3) a suitable office and
furnishings; and (4) such other benefits as the Company may provide from time to
time on terms no less beneficial than those afforded other senior executives of
the Company.
(c) Company shall add Employee to its Director and Officer
insurance and indemnification policies. Additionally, Company hereby indemnifies
and holds harmless Employee from any losses, damages, claims, and causes of
action arising out of the actions or inactions of the Board of Directors and/or
the officers of the Company for any period before March 24, 1998.
(d) On March 24, 1998, the Company shall grant to Employee
options to purchase 250,000 shares of the Company's common stock as follows:
<TABLE>
<CAPTION>
Option Price per Vesting Period to Exercise
Shares Options Date After Vesting Period
------ --------- ------- --------------------
<S> <C> <C> <C>
250,000 $1.56 Three Years Ten (10) Years
</TABLE>
With regard to the foregoing options, all options shall immediately
vest upon any Change of Control (as hereinafter defined), termination without
cause or termination for good cause.
4. Employee Expenses.
-----------------
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Subject to such policies as may be maintained in effect from time
to time by the Company, Employee shall be entitled to reimbursement of amounts
expended for the benefit of the Company, including professional dues and
expenses, during the Employment Term, upon presentation of acceptable reports of
such expenses.
5. Confidential Information.
------------------------
Employee specifically agrees that he will not at any time,
whether during or subsequent to the Employment Term, in any fashion, form, or
manner, unless specifically consented to in writing by Company, either directly
or indirectly use or divulge, disclose or communicate to any person, firm or
corporation, any confidential information of any kind, nature, or description
concerning any matters affecting or relating to the business of Company, except
in the ordinary course of the Company's business. All equipment, notebooks,
documents, memoranda, reports, recipes, formulas, files, samples, books,
correspondence, lists, other written and graphic records, and the like,
affecting or relating to the business of Company, which Employee shall prepare,
use, construct, observe, posses, or control shall be and remain the Company's
sole property. The foregoing confidentiality obligation shall not apply to
information (i) Employee deems necessary to disclose pursuant to any
governmental, judicial or regulatory investigation, proceeding or order; (ii) as
is in the public domain through no fault of Employee; or (iii) as is obtained by
Employee from a source other than the Company which is not bound by a similar
confidentiality obligation. Employee shall execute the Company's current
Confidentiality Agreements as part of the SEC Compliance document which all new
employees are provided.
6. Termination with Cause.
----------------------
(a) The employment of Employee may be terminated at any time for
"cause." For the purpose of this Agreement "cause" shall mean:
(1) Employee's continued willful and habitual neglect of
his duties following written notification of such neglect by Company's Chief
Executive Officer and the failure of Employee to cure such neglect within thirty
(30) days of such notice.
(2) Employee's conviction of a felony or any other conduct
which, by its nature, would materially injure the reputation of Company as
determined by Company's Chief Executive Officer acting in good faith and upon
reasonable grounds.
(3) Employee's incapacity to perform the duties required of
him hereunder as a result of mental or physical illness, which incapacity
continues for a period of ninety (90) days.
(4) Death of the Employee.
(b) Termination of Employee's employment shall not be in
limitation of any other right or remedy the Company may have under this
Agreement or in law or equity.
-3-
<PAGE>
7. Termination without Cause; Termination with Good Reason; Change
---------------------------------------------------------------
in Control.
- -----------
(a) The Company shall pay to Employee all compensation due for
the term of this Agreement, but in no event less than one year's full salary
plus all other additional compensation, including but not limited to medical and
dental benefits for one year, and the stock options granted in this Agreement
shall vest, notwithstanding Employee's termination of employment before March
23, 1999, if such employment is terminated by the Company without "cause" (as
defined above), or if such employment is terminated by Employee for "Good
Reason", or in the event of a change in control. "Good Reason" shall mean any of
the following: (1) a material and adverse change by the Company in the
Employee's assignments, duties or responsibilities; (2) a Change in Control; (3)
a majority of the Board of Directors currently serving on the Board are changed;
(4) a material breach of this Agreement by Company, which breach is not cured
within thirty (30) days written notice to Company; (5) a reduction in Employee's
salary or any benefits; or (6) the relocation of the Company's offices to a
location more than 20 miles from the present corporate offices. "Change in
Control" shall include but not be limited to an occurrence which would be
required to be reported in response to Item 5(f) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, a transaction
involving 20% or more of the assets, voting control or stock of the Company, or
any other event set forth on Exhibit "1", attached hereto and incorporated
herein by this reference. Such vested options shall be exercisable by the
Employee for a period of ten (10) years from the date of grant.
(b) Any purported termination of Employee's employment by the
Company or Employee must be communicated by written Notice of Termination to the
other party pursuant to (P) 9 below. Notice of Termination shall mean a notice
that shall indicate the specific termination provision in this Agreement.
(c) Date of Termination, Etc.
-------------------------
"Date of Termination" shall mean the date specified in the Notice
of Termination (which, in the case of a termination for Cause shall not be less
than thirty (30) days from the date such Notice of Termination is given, and in
the case of a termination for Good Reason shall not be less than fifteen (15)
nor more than sixty (60) days from the date such Notice of Termination is
given). Notwithstanding anything to the contrary contained herein if within
fifteen (15) days after any Notice of Termination is given, the party receiving
such Notice of Termination notifies the other party that a dispute exists
concerning the termination, then the Date of Termination shall be the date on
which the dispute is finally determined, either by mutual written agreement of
the parties, or as set forth in paragraph 15; provided, however, that the Date
of Termination shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the resolution of
such dispute with reasonable diligence.
(d) If Employee's employment is terminated by the Company for
Cause, the Company shall pay Employee his full base salary, when due, through
the Date of Termination at
-4-
<PAGE>
the rate in effect at the time Notice of Termination is given, plus all other
amounts to which Employee is entitled under any compensation plan of the Company
at the time such payments are due, and the Company shall have no further
obligations to Employee under this Agreement.
(e) If Employee's employment by the Company shall be terminated by
Employee for Good Reason or by the Company other than for Cause, then Employee
shall be entitled to the benefits provided below:
(i) the Company shall pay to Employee his full base salary,
when due, through the Date of Termination at the rate in effect at the time
Notice of Termination is given, plus all other amounts to which Employee is
entitled under any compensation plan of the Company at the time such payments
are due;
(ii) in lieu of any further salary payments to Employee for
periods subsequent to the Date of Termination, the Company shall pay as
severance pay, at the time specified below, a lump sum severance payment
(together with the payments provided herein below, the "Severance Payments")
equal to 100% of Employee's annual salary as in effect as of the Date of
Termination or immediately prior to the Change in Control, whichever is greater;
(iii) notwithstanding any provisions of the Company's Stock
Option and Incentive Plans, or other similar plans, the vesting period with
respect to your 250,000 options to purchase KKRO common stock at $1.56 per share
shall be vested immediately and you will have 10 years to exercise these
options;
(iv) the Company shall pay to Employee all reasonable legal fees
and expenses incurred by Employee as a result of such termination (including all
such fees and expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit provided by
this Agreement (as set forth in (P)14 of this Agreement) or in connection with
any tax audit or proceeding to the extent attributable to the application of
section 4999 of the Code, to any payment or benefit provided hereunder); and
(v) for a twelve (12) month period after such termination, the
Company shall arrange to provide Employee with life, disability, dental,
medical, accident and group health insurance benefits substantially similar to
those that you were receiving immediately prior to the Notice of Termination.
(vi) The payments provided for above (P)7(e)(i) shall be made not
later than the fifth day following the Date of Termination. The payments
provided for in (P)7(e)(ii) shall be made not later than the thirtieth day
following the Date of Termination; provided, however, that if the amounts of
such payments cannot be finally determined on or before such day, the Company
shall pay to Employee on such day an estimate, as determined in good faith by
the Company, of the minimum amount of such payments and shall pay the remainder
of such payments (together with interest at the rate provided in section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but
in no event later than the thirtieth day after the Date of Termination. In the
event that the amount of the estimated payments exceeds the amount
-5-
<PAGE>
subsequently determined to have been due, such excess shall constitute a loan by
the Company to Employee, payable on the fifth day after demand by the Company
(together with interest at the rate provided in section 1274(b)(2)(B) of the
Code).
(vii) Employee shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise nor shall the amount of any payment or benefit provided for in this
Agreement be reduced by any compensation earned by Employee as the result of
employment by another employer or self-employment, by retirement benefits, by
offset against any amount claimed to be owed by Employee to the Company, or
otherwise.
7. Severable Provisions.
--------------------
The provisions of this Agreement are severable, and if any one or more
provisions may be determined to be judicially unenforceable, in whole or in
part, the remaining provisions shall nevertheless be binding and enforceable.
8. Successors; Binding Agreement.
-----------------------------
(i) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle Employee to terminate his employment and receive
compensation from the Company in the same amount and on the same terms to which
Employee would be entitled hereunder if Employee terminated his employment for
Good Reason or Change in Control, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. Where the context requires, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable
by Employee and Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Employee should die while any amount would still be payable to Employee
hereunder had Employee continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
Employee's devisee, legatee or other designee or, if there is no such designee,
to Employee's estate.
9. Notices.
--------
Any notice to be given to the Company under the terms of this
Agreement shall be addressed to the Company at the address of its principal
place of business, and any notice
-6-
<PAGE>
to be given to Employee shall be addressed to him at his home address last shown
on the records of the Company, or at such other address as either party may
hereafter designate in writing to the other. All Notices shall be in writing and
shall be delivered personally, sent by United States certified or registered
mail, return receipt requested, first class postage prepaid, or by private
messenger or courier service. Any such notice shall be deemed to have been
received on the earlier of (i) two (2) business days after it is mailed or (ii)
the date it is actually received.
10. Waiver.
------
Either party's failure to enforce any provision or provisions of this
Agreement shall not in any way be construed as a waiver of any such provision,
or prevent that party thereafter from enforcing each and every other provision
of this Agreement.
11. Title and Headings.
-------------------
Titles and headings to sections in this Agreement are for the purpose
of reference only and shall in no way limit, define, or otherwise affect the
provisions of it.
12. Governing Law.
-------------
The parties hereto agree that it is their intention and covenant that
this Agreement and performance under it, and all suits and special proceedings
that may ensue from its breach, be construed in accordance with and under the
laws of the State of California, and that in any action, special proceeding, or
other proceeding that may be brought arising out of, in connection with, or by
reason of this Agreement, the laws of the State of California shall be
applicable and shall govern to the exclusion of the law of any other forum,
without regard to the jurisdiction in which any action or special proceeding may
be instituted.
13. Entire Agreement.
-----------------
This Agreement, any other written agreement executed concurrently
therewith, and the documents referred to herein, shall be construed together and
constitute the entire agreement between the parties pertaining to the subject
matter hereof. Any prior agreements are superseded. There are no warranties,
conditions, or representations (including any that may be implied by statute)
and there are no agreements in connection with such subject matter except as
specifically set forth or referred to in this Agreement. No reliance is placed
on any warranty, representation, opinion, advice or assertion of fact made by
any party hereto or its directors, officers, employees or agents, to any other
party hereto or its directors, officers, employees or agents, except to the
extent that the same has been reduced to writing and included as a term of this
Agreement. Accordingly, there shall be no liability, either in tort or in
contract, assessed in relation to any such warranty, representation, opinion,
advice or assertion of fact, except to the aforesaid. No amendment, change or
variance from this Agreement shall be binding on either party unless executed in
writing by both parties.
-7-
<PAGE>
14. Arbitration; Dispute Resolution
-------------------------------
(a) Arbitration Procedure. Any disagreement, dispute, controversy or
---------------------
claim arising out of or relating to this Agreement or the interpretation of this
Agreement or any arrangements relating to this Agreement or contemplated in this
Agreement or the breach, termination or invalidity thereof shall be settled by
arbitration in accordance with the Commercial Arbitration Rules (the
"Arbitration Rules") of the American Arbitration Association (the "AAA") (except
as otherwise provided in this Agreement) in Los Angeles, California. The
arbitral tribunal shall consist of one arbitrator. In making any decision, the
arbitrator shall apply and follow the substantive law of California without
reference to the conflicts of law provisions thereof. The parties to the
arbitration jointly shall directly appoint such arbitrator within thirty (30)
days of initiation of arbitration. If the parties shall fail to appoint such
arbitrator as provided above, such arbitrator shall be appointed by the AAA as
provided in the Arbitration Rules. Employee and the Company agree that the
arbitral award may be enforced against the parties to the arbitration proceeding
or their assets wherever they may be found and that a judgment upon the arbitral
award may be entered in any court having jurisdiction thereof. The Company shall
pay all fees and expenses of the Arbitrator regardless of the result and shall
provide all witnesses and evidence reasonably required by Employee to present
Employee's case. The Company shall pay to Employee all reasonable arbitration
expenses and legal fees incurred by Employee as a result of a termination of
Employee's employment in seeking to obtain or enforce any right or benefit
provided by this Agreement whether or not you are successful in obtaining or
enforcing such right or benefit). Such payments shall be made within five (5)
days after the Employee's request for payment accompanied with such evidence of
fees and expenses incurred as the Company reasonably may require.
(b) Compensation During Dispute. Company compensation during any
---------------------------
disagreement, dispute, controversy or claim arising out of or relating to this
Agreement or the interpretation of this Agreement shall be as follows:
(i) If a purported termination by Employee for Good Reason
occurs and such termination is disputed in accordance with this Agreement, the
Company shall continue to pay Employee the full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to,
salary) and continue Employee as a participant in all compensation, benefit and
insurance plans in which Employee was participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in accordance
with (P)15. Amounts paid under this Section 10(ii)(a) are in addition to all
other amounts due under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement. Employee agrees to remain in the
employ of the Company during the resolution of the dispute and to continue to
provide services unless Employee's employment is terminated earlier by death,
disability or retirement, or by action of the Company. If the dispute is
resolved by a determination that Employee did not have Good Reason, this
Agreement, in accordance with its terms, shall continue to apply to the
circumstances of Employee's employment by the Company and any termination
thereof.
(ii) If there is a termination by the Company followed by a
dispute as to whether Employee is entitled to the payments and other benefits
provided under this
-8-
<PAGE>
Agreement, then, during the period of that dispute the Company shall pay
Employee fifty percent (50%) of the amount specified in (P)7(e)(i) and
(P)7(e)(ii) hereof, and the Company shall provide Employee with the other
benefits provided in (e) of this Agreement, if, but only if, Employee agrees in
writing that if the dispute is resolved against Employee, Employee shall
promptly refund to the Company all payments Employee receives under (e)(i) and
(e)(ii) of this Agreement plus interest at the rate provided in Section 1274(d)
of the Code, compounded quarterly. If the dispute is resolved in Employee's
favor, promptly after resolution of the dispute the Company shall pay Employee
the sum that was withheld during the period of the dispute plus interest at the
rate provided in Section 1274(d) of the Code, compounded quarterly.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"COMPANY" "EMPLOYEE"
Koo Koo Roo, Inc.,
a Delaware corporation
By: /s/ A. William Allen /s/ William M. McKay
-------------------- --------------------
Name: A. William Allen William M. McKay
------------------
Title: C.E.O.
-----------------
-9-
<PAGE>
EXHIBIT "1"
"CHANGE IN CONTROL"
In addition to the events described in the Employment Agreement, a Change in
Control shall be deemed to occur if:
(a) any Person (as defined below) is or becomes the Beneficial Owner
(as defined below), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities. For purposes of this Agreement, (A) the term
"Person" is used as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); provided,
however, that unless this Agreement provides to the contrary, the term
shall not include the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any Company
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the
Company, and (B) the term "Beneficial Owner" shall have the meaning given
to such term in Rule 13d-3 under the Exchange Act;
(b) during any period after the execution of this Agreement,
individuals who at the beginning of such period constitute the Board, and
any new director (other than a director designated by a person who has
entered into an agreement with the Company to effect a transaction
described in Sections 2(i)(a), (c) or (d)) whose election by the Board or
nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved (hereinafter referred to
as "Continuing Directors"), cease for any reason to constitute at least a
majority thereof;
(c) the stockholders of the Company approve a merger or consolidation
sale, acquisition, purchase, reverse merger of the Company with any other
Company (or other entity);
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets; or
(e) any Person is or becomes the Beneficial Owner of securities of
the Company representing ten percent (10%) or more of the combined voting
power of the Company's then outstanding securities and (A) the identity of
the Chief Executive Officer of the Company is changed during the period
beginning sixty (60) days before the attainment of the ten percent (10%)
beneficial ownership and ending one (1) year thereafter, or (B) individuals
constituting at least one-third (1/3) of the members of the Board at the
beginning of such period shall leave the Board during the period beginning
sixty (60) days before the attainment of the ten percent (10%) beneficial
ownership and ending one (1) year thereafter.
-10-
<PAGE>
EXHIBIT 10.3
KOO KOO ROO, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
WITH
RONALD D. GARBER
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is entered into as of 24
March 1998 by and between Koo Koo Roo, Inc., a Delaware corporation ("Company"),
and Ronald D. Garber ("Employee"), with reference to the following facts:
R E C I T A L S
---------------
A. Company is in the restaurant business and operates Koo Koo Roo
California Kitchens, Hamburger Hamlets and Arrosto Coffee stores.
B. Employee has been employed by Company since 3 May 1996.
C. Company and Employee desire to assure the Company of the services of
Employee and to set forth the rights and duties of the parties.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
A G R E E M E N T S
-------------------
1. EMPLOYMENT.
----------
(a) Company hereby agrees to employ Employee, and Employee hereby
accepts and agrees to employment by the Company, on the terms and conditions set
forth herein.
(b) Employee shall serve in the capacity of General Counsel/Corporate
Secretary of the Company. Employee shall perform such services and duties with
the Company as are usually associated with the position of General
Counsel/Corporate Secretary. Employee shall report directly to the Chief
Executive Officer of the Company. Employee further agrees that, except during
vacation periods or in accordance with Company's personnel policies covering
executive leaves and reasonable periods of illness or other incapacitation,
Employee shall devote his full time and services to the business and interests
of the Company. Notwithstanding the foregoing, Employee shall also be permitted
to serve on the boards of directors of other business corporations and may
participate in charitable, cultural, professional, civic and business
association activities. Employee shall perform the duties of his office and
those assigned to him by the Company's Chief Executive Officer with fidelity, to
the best of his ability, and in the best interests of the Company.
-1-
<PAGE>
2. Term of Employment.
------------------
Employee's term of employment by the Company pursuant to this Agreement
shall commence as of 24 March 1998 (the "Effective Date") and shall continue
thereafter for a period of one (1) year unless otherwise terminated pursuant to
the provisions of Section 6 below (the "Employment Term"). This Agreement shall
automatically renew each year for an additional year unless Company notifies
Employee in writing not less than 90 days prior to its expiration date that
Company shall not renew this Agreement.
3. Compensation & Duties.
----------------------
(a) During the Employment Term, the Company shall pay Employee a base
salary at the annual rate equal to $175,000.00. Said base salary shall be
payable in cash in equal installments on a semi-monthly basis, or in accordance
with such other salary payment schedule as the Company may adopt for its
employees generally.
(b) Employee shall receive a monthly car allowance of $600.00 plus
reimbursement for all car repairs, license fees and insurance.
(c) During the Employment Term, Employee shall be entitled to the
following benefits provided by the Company: (1) medical and dental insurance,
providing coverage on terms no less beneficial than those afforded other senior
executives of the Company from time to time; (2) participation in any pension,
profit sharing or similar retirement plans as may be implemented by the Company
on terms no less beneficial than those afforded other senior executives of the
Company from time to time; (3) a suitable office and furnishings; and (4) such
other benefits as the Company may provide from time to time on terms no less
beneficial than those afforded other senior executives of the Company.
(d) Company shall continue to cover Employee on its Director and
Officer insurance and indemnification policies. Additionally, Company hereby
indemnifies and holds harmless Employee from any losses, damages, claims, and
causes of action arising out of the actions or inactions of the Board of
Directors and/or the officers of the Company for any period before March 24,
1998.
(e) As of March 24, 1998, the Company has granted to Employee options
to purchase 250,000 shares of the Company's common stock as follows:
<TABLE>
<CAPTION>
Option Price per Vesting Period to Exercise
Shares Options Date After Vesting Period
------ ------- ---- --------------------
<S> <C> <C> <C>
250,000 $1.56 150,000 vested 10 years
100,000 vested over three
three (3) years commencing
3/24/97
</TABLE>
-2-
<PAGE>
With regard to the foregoing options, all options shall immediately vest
upon any Change of Control (as hereinafter defined), termination without cause
or termination for good reason.
4. Employee Expenses.
-----------------
Subject to such policies as may be maintained in effect from time to
time by the Company, Employee shall be entitled to reimbursement of amounts
expended for the benefit of the Company, including professional dues and
expenses, during the Employment Term, upon presentation of acceptable reports of
such expenses.
5. Confidential Information.
------------------------
Employee specifically agrees that he will not at any time, whether
during or subsequent to the Employment Term, in any fashion, form, or manner,
unless specifically consented to in writing by Company, either directly or
indirectly use or divulge, disclose or communicate to any person, firm or
corporation, any confidential information of any kind, nature, or description
concerning any matters affecting or relating to the business of Company, except
in the ordinary course of the Company's business. All equipment, notebooks,
documents, memoranda, reports, recipes, formulas, files, samples, books,
correspondence, lists, other written and graphic records, and the like,
affecting or relating to the business of Company, which Employee shall prepare,
use, construct, observe, posses, or control shall be and remain the Company's
sole property. The foregoing confidentiality obligation shall not apply to
information (i) Employee deems necessary to disclose pursuant to any
governmental, judicial or regulatory investigation, proceeding or order; (ii) as
is in the public domain through no fault of Employee; or (iii) as is obtained by
Employee from a source other than the Company which is not bound by a similar
confidentiality obligation. Employee has executed the Company's current
Confidentiality Agreements as part of the SEC Compliance document which all new
employees are provided.
6. Termination with Cause.
----------------------
(a) The employment of Employee may be terminated at any time for
"cause." For the purpose of this Agreement "cause" shall mean:
(1) Employee's continued willful and habitual neglect of his
duties following written notification of such neglect by Company's Chief
Executive Officer and the failure of Employee to cure such neglect within thirty
(30) days of such notice.
(2) Employee's conviction of a felony or any other conduct
which, by its nature, would materially injure the reputation of Company as
determined by Company's Chief Executive Officer acting in good faith and upon
reasonable grounds.
-3-
<PAGE>
(3) Employee's incapacity to perform the duties required of
him hereunder as a result of mental or physical illness, which incapacity
continues for a period of ninety (90) days.
(4) Death of the Employee.
(b) Termination of Employee's employment shall not be in limitation of
any other right or remedy the Company may have under this Agreement or in law or
equity.
7. Termination without Cause; Termination with Good Reason; Change in
------------------------------------------------------------------
Control.
- --------
(a) The Company shall pay to Employee all compensation due for the term of
this Agreement, but in no event less than one year's full salary plus all other
additional compensation, including but not limited to medical and dental
benefits for one year, and the stock options granted in this Agreement shall
vest, notwithstanding Employee's termination of employment before March 23,
1999, if such employment is terminated by the Company without "cause" (as
defined above), or if such employment is terminated by Employee for "Good
Reason", or in the event of a change in control. "Good Reason" shall mean any of
the following: (1) a material and adverse change by the Company in the
Employee's assignments, duties or responsibilities; (2) a Change in Control;
(3) a majority of the Board of Directors currently serving on the Board are
changed; (4) a material breach of this Agreement by Company, which breach is not
cured within thirty (30) days written notice to Company; (5) a reduction in
Employee's salary or any benefits; or (6) the relocation of the Company's
offices to a location more than 20 miles from the present corporate offices.
"Change in Control" shall include but not be limited to an occurrence which
would be required to be reported in response to Item 5(f) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, a
transaction involving 20% or more of the assets, voting control or stock of the
Company, or any other event set forth on Exhibit "1", attached hereto and
incorporated herein by this reference. Such vested options shall be exercisable
by the Employee for a period of ten (10) years from the date of grant.
(b) Any purported termination of Employee's employment by the Company or
Employee must be communicated by written Notice of Termination to the other
party pursuant to (P) 9 below. Notice of Termination shall mean a notice that
shall indicate the specific termination provision in this Agreement.
(c) Date of Termination, Etc. "Date of Termination" shall mean the date
-------------------------
specified in the Notice of Termination (which, in the case of a termination for
Cause shall not be less than thirty (30) days from the date such Notice of
Termination is given, and in the case of a termination for Good Reason shall not
be less than fifteen (15) nor more than sixty (60) days from the date such
Notice of Termination is given). Notwithstanding anything to the contrary
contained herein if within fifteen (15) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, then the Date of Termination
shall be the date on which the dispute is finally
-4-
<PAGE>
determined, either by mutual written agreement of the parties, or as set forth
in paragraph 15; provided, however, that the Date of Termination shall be
extended by a notice of dispute only if such notice is given in good faith and
the party giving such notice pursues the resolution of such dispute with
reasonable diligence.
(d) If Employee's employment is terminated by the Company for Cause, the
Company shall pay Employee his full base salary, when due, through the Date of
Termination at the rate in effect at the time Notice of Termination is given,
plus all other amounts to which Employee is entitled under any compensation plan
of the Company at the time such payments are due, and the Company shall have no
further obligations to Employee under this Agreement.
(e) If Employee's employment by the Company shall be terminated by Employee
for Good Reason or by the Company other than for Cause, then Employee shall be
entitled to the benefits provided below:
(i) the Company shall pay to Employee his full base salary, when due,
through the Date of Termination at the rate in effect at the time Notice of
Termination is given, plus all other amounts to which Employee is entitled under
any compensation plan of the Company at the time such payments are due;
(ii) in lieu of any further salary payments to Employee for periods
subsequent to the Date of Termination, the Company shall pay as severance pay,
at the time specified below, a lump sum severance payment (together with the
payments provided herein below, the "Severance Payments") equal to 100% of
Employee's annual salary as in effect as of the Date of Termination or
immediately prior to the Change in Control, whichever is greater;
(iii) notwithstanding any provisions of the Company's Stock Option and
Incentive Plans, or other similar plans, the vesting period with respect to your
250,000 options to purchase KKRO common stock at $1.56 per share shall be vested
immediately and you will have 10 years to exercise these options;
(iv) the Company shall pay to Employee all reasonable legal fees and
expenses incurred by Employee as a result of such termination (including all
such fees and expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit provided by
this Agreement (as set forth in (P)14 of this Agreement) or in connection with
any tax audit or proceeding to the extent attributable to the application of
section 4999 of the Code, to any payment or benefit provided hereunder); and
(v) for a twelve (12) month period after such termination, the
Company shall arrange to provide Employee with life, disability, dental,
medical, accident and group health insurance benefits substantially similar to
those that you were receiving immediately prior to the Notice of Termination.
(vi) The payments provided for above (P)7(e)(i) shall be made not
later than the fifth day following the Date of Termination. The payments
provided for in (P)7(e)(ii)
-5-
<PAGE>
shall be made not later than the thirtieth day following the Date of
Termination; provided, however, that if the amounts of such payments cannot be
finally determined on or before such day, the Company shall pay to Employee on
such day an estimate, as determined in good faith by the Company, of the minimum
amount of such payments and shall pay the remainder of such payments (together
with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon
as the amount thereof can be determined but in no event later than the thirtieth
day after the Date of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to Employee, payable on the fifth
day after demand by the Company (together with interest at the rate provided in
section 1274(b)(2)(B) of the Code).
(vii) Employee shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise
nor shall the amount of any payment or benefit provided for in this Agreement be
reduced by any compensation earned by Employee as the result of employment by
another employer or self-employment, by retirement benefits, by offset against
any amount claimed to be owed by Employee to the Company, or otherwise.
7. Severable Provisions.
--------------------
The provisions of this Agreement are severable, and if any one or more
provisions may be determined to be judicially unenforceable, in whole or in
part, the remaining provisions shall nevertheless be binding and enforceable.
8. Successors; Binding Agreement. (i) The Company shall require any
-----------------------------
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle Employee to terminate his
employment and receive compensation from the Company in the same amount and on
the same terms to which Employee would be entitled hereunder if Employee
terminated his employment for Good Reason or Change in Control, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. Where the context
requires, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable by
Employee and Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Employee should die while any amount would still be payable to Employee
hereunder had Employee continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
-6-
<PAGE>
Employee's devisee, legatee or other designee or, if there is no such designee,
to Employee's estate.
9. Notices
-------
Any notice to be given to the Company under the terms of this Agreement
shall be addressed to the Company at the address of its principal place of
business, and any notice to be given to Employee shall be addressed to him at
his home address last shown on the records of the Company, or at such other
address as either party may hereafter designate in writing to the other. All
Notices shall be in writing and shall be delivered personally, sent by United
States certified or registered mail, return receipt requested, first class
postage prepaid, or by private messenger or courier service. Any such notice
shall be deemed to have been received on the earlier of (i) two (2) business
days after it is mailed or (ii) the date it is actually received.
10. Waiver.
------
Either party's failure to enforce any provision or provisions of this
Agreement shall not in any way be construed as a waiver of any such provision,
or prevent that party thereafter from enforcing each and every other provision
of this Agreement.
11. Title and Headings
------------------
Titles and headings to sections in this Agreement are for the purpose
of reference only and shall in no way limit, define, or otherwise affect the
provisions of it.
12. Governing Law.
-------------
The parties hereto agree that it is their intention and covenant that
this Agreement and performance under it, and all suits and special proceedings
that may ensue from its breach, be construed in accordance with and under the
laws of the State of California, and that in any action, special proceeding, or
other proceeding that may be brought arising out of, in connection with, or by
reason of this Agreement, the laws of the State of California shall be
applicable and shall govern to the exclusion of the law of any other forum,
without regard to the jurisdiction in which any action or special proceeding may
be instituted.
13. Entire Agreement
----------------
This Agreement, any other written agreement executed concurrently
therewith, and the documents referred to herein, shall be construed together and
constitute the entire agreement between the parties pertaining to the subject
matter hereof. Any prior agreements are superseded. There are no warranties,
conditions, or representations (including any that may be implied by statute)
and there are no agreements in connection with such subject matter except as
specifically set forth or referred to in this Agreement. No reliance is placed
on any warranty, representation, opinion, advice or assertion of fact made by
any party hereto or its directors, officers,
-7-
<PAGE>
employees or agents, to any other party hereto or its directors, officers,
employees or agents, except to the extent that the same has been reduced to
writing and included as a term of this Agreement. Accordingly, there shall be no
liability, either in tort or in contract, assessed in relation to any such
warranty, representation, opinion, advice or assertion of fact, except to the
aforesaid. No amendment, change or variance from this Agreement shall be binding
on either party unless executed in writing by both parties.
14. Arbitration; Dispute Resolution
-------------------------------
(a) Arbitration Procedure. Any disagreement, dispute, controversy or
---------------------
claim arising out of or relating to this Agreement or the interpretation of this
Agreement or any arrangements relating to this Agreement or contemplated in this
Agreement or the breach, termination or invalidity thereof shall be settled by
arbitration in accordance with the Commercial Arbitration Rules (the
"Arbitration Rules") of the American Arbitration Association (the "AAA") (except
as otherwise provided in this Agreement) in Los Angeles, California. The
arbitral tribunal shall consist of one arbitrator. In making any decision, the
arbitrator shall apply and follow the substantive law of California without
reference to the conflicts of law provisions thereof. The parties to the
arbitration jointly shall directly appoint such arbitrator within thirty (30)
days of initiation of arbitration. If the parties shall fail to appoint such
arbitrator as provided above, such arbitrator shall be appointed by the AAA as
provided in the Arbitration Rules. Employee and the Company agree that the
arbitral award may be enforced against the parties to the arbitration proceeding
or their assets wherever they may be found and that a judgment upon the arbitral
award may be entered in any court having jurisdiction thereof. The Company
shall pay all fees and expenses of the Arbitrator regardless of the result and
shall provide all witnesses and evidence reasonably required by Employee to
present Employee's case. The Company shall pay to Employee all reasonable
arbitration expenses and legal fees incurred by Employee as a result of a
termination of Employee's employment in seeking to obtain or enforce any right
or benefit provided by this Agreement whether or not you are successful in
obtaining or enforcing such right or benefit). Such payments shall be made
within five (5) days after the Employee's request for payment accompanied with
such evidence of fees and expenses incurred as the Company reasonably may
require.
(b) Compensation During Dispute. Company compensation during any
---------------------------
disagreement, dispute, controversy or claim arising out of or relating to this
Agreement or the interpretation of this Agreement shall be as follows:
(i) If a purported termination by Employee for Good Reason occurs
and such termination is disputed in accordance with this Agreement, the Company
shall continue to pay Employee the full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, salary) and
continue Employee as a participant in all compensation, benefit and insurance
plans in which Employee was participating when the notice giving rise to the
dispute was given, until the dispute is finally resolved in accordance with
(P)15. Amounts paid under this Section 10(ii)(a) are in addition to all other
amounts due under this Agreement and shall not be offset against or reduce any
other amounts due under this Agreement. Employee agrees to remain in the employ
of the Company during the resolution of the dispute and to continue to provide
services unless Employee's employment is terminated
-8-
<PAGE>
earlier by death, disability or retirement, or by action of the Company. If the
dispute is resolved by a determination that Employee did not have Good Reason,
this Agreement, in accordance with its terms, shall continue to apply to the
circumstances of Employee's employment by the Company and any termination
thereof.
(ii) If there is a termination by the Company followed by a
dispute as to whether Employee is entitled to the payments and other benefits
provided under this Agreement, then, during the period of that dispute the
Company shall pay Employee fifty percent (50%) of the amount specified in
(P)7(e)(i) and (P)7(e)(ii) hereof, and the Company shall provide Employee with
the other benefits provided in (e) of this Agreement, if, but only if, Employee
agrees in writing that if the dispute is resolved against Employee, Employee
shall promptly refund to the Company all payments Employee receives under (e)(i)
and (e)(ii) of this Agreement plus interest at the rate provided in Section
1274(d) of the Code, compounded quarterly. If the dispute is resolved in
Employee's favor, promptly after resolution of the dispute the Company shall pay
Employee the sum that was withheld during the period of the dispute plus
interest at the rate provided in Section 1274(d) of the Code, compounded
quarterly.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"COMPANY" "EMPLOYEE"
Koo Koo Roo, Inc.,
a Delaware corporation
By: /s/ A. William Allen /s/ Ronald D. Garber
------------------------ ------------------------
Name: A. William Allen Ronald D. Garber
----------------------
Title: C.E.O.
---------------------
-9-
<PAGE>
EXHIBIT "1"
"CHANGE IN CONTROL"
In addition to the events described in the Employment Agreement, a Change in
Control shall be deemed to occur if:
(a) any Person (as defined below) is or becomes the Beneficial Owner
(as defined below), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities. For purposes of this Agreement, (A) the term
"Person" is used as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); provided,
however, that unless this Agreement provides to the contrary, the term
shall not include the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any Company
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the
Company, and (B) the term "Beneficial Owner" shall have the meaning given
to such term in Rule 13d-3 under the Exchange Act;
(b) during any period after the execution of this Agreement,
individuals who at the beginning of such period constitute the Board, and
any new director (other than a director designated by a person who has
entered into an agreement with the Company to effect a transaction
described in Sections 2(i)(a), (c) or (d)) whose election by the Board or
nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved (hereinafter referred to
as "Continuing Directors"), cease for any reason to constitute at least a
majority thereof;
(c) the stockholders of the Company approve a merger or
consolidation sale, acquisition, purchase, reverse merger of the Company
with any other Company (or other entity);
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets; or
(e) any Person is or becomes the Beneficial Owner of securities of the
Company representing ten percent (10%) or more of the combined voting power
of the Company's then outstanding securities and (A) the identity of the
Chief Executive Officer of the Company is changed during the period
beginning sixty (60) days before the attainment of the ten percent (10%)
beneficial ownership and ending one (1) year thereafter, or (B) individuals
constituting at least one-third (1/3) of the members of the Board at the
beginning of such period shall leave the Board during the period beginning
sixty (60) days before the attainment of the ten percent (10%) beneficial
ownership and ending one (1) year thereafter.
-10-
<PAGE>
EXHIBIT 10.4
KOO KOO ROO, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
WITH
JOHN KAUFMAN
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is entered into as
of 24 March 1998 by and between Koo Koo Roo, Inc., a Delaware corporation
("Company"), and John Kaufman ("Employee"), with reference to the following
facts:
R E C I T A L S
---------------
A. Company is in the restaurant business and operates Koo Koo Roo
California Kitchens, Hamburger Hamlets and Arrosto Coffee stores.
B. Employee has been employed by Company since __ August 1996.
C. Company and Employee desire to assure the Company of the services of
Employee and to set forth the rights and duties of the parties.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
A G R E E M E N T S
-------------------
1. EMPLOYMENT.
----------
(a) Company hereby agrees to employ Employee, and Employee
hereby accepts and agrees to employment by the Company, on the terms and
conditions set forth herein.
(b) Employee shall serve in the capacity of Chief Operating
Officer/President. Employee shall perform such services and duties with the
Company as are usually associated with the position of Chief Operating
Officer/President. Employee shall report directly to the Chief Executive Officer
of the Company. Employee further agrees that, except during vacation periods or
in accordance with Company's personnel policies covering executive leaves and
reasonable periods of illness or other incapacitation, Employee shall devote his
full time and services to the business and interests of the Company.
Notwithstanding the foregoing, Employee shall also be permitted to serve on the
boards of directors of other business corporations and may participate in
charitable, cultural, professional, civic and business association activities.
Employee shall perform the duties of his office and those assigned to him by the
Company's Chief Executive Officer with fidelity, to the best of his ability, and
in the best interests of the Company.
-1-
<PAGE>
2. Term of Employment.
------------------
Employee's term of employment by the Company pursuant to this
Agreement shall commence as of 24 March 1998 (the "Effective Date") and shall
continue thereafter for a period of one (1) year unless otherwise terminated
pursuant to the provisions of Section 6 below (the "Employment Term"). This
Agreement shall automatically renew each year for an additional year unless
Company notifies Employee in writing not less than 90 days prior to its
expiration date that Company shall not renew this Agreement.
3. Compensation & Duties.
----------------------
(a) During the Employment Term, the Company shall pay Employee a
base salary at the annual rate equal to $200,000.00. Said base salary shall be
payable in cash in equal installments on a semi-monthly basis, or in accordance
with such other salary payment schedule as the Company may adopt for its
employees generally.
(b) Employee shall receive a monthly car allowance of $600.00
plus reimbursement for all car repairs, license fees and insurance.
(c) During the Employment Term, Employee shall be entitled to
the following benefits provided by the Company: (1) medical and dental
insurance, providing coverage on terms no less beneficial than those afforded
other senior executives of the Company from time to time; (2) participation in
any pension, profit sharing or similar retirement plans as may be implemented by
the Company on terms no less beneficial than those afforded other senior
executives of the Company from time to time; (3) a suitable office and
furnishings; and (4) such other benefits as the Company may provide from time to
time on terms no less beneficial than those afforded other senior executives of
the Company.
(d) Company shall continue to cover Employee on its Director and
Officer insurance and indemnification policies. Additionally, Company hereby
indemnifies and holds harmless Employee from any losses, damages, claims, and
causes of action arising out of the actions or inactions of the Board of
Directors and/or the officers of the Company for any period before March 24,
1998.
(e) As of March 24, 1998, the Company has granted to Employee
options to purchase 250,000 shares of the Company's common stock as follows:
<TABLE>
<CAPTION>
Option Price per Vesting Period to Exercise
Shares Options Date After Vesting Period
- ------ --------- ------- --------------------
<S> <C> <C> <C>
250,000 $1.56 100,000 vested 10 years
150,000 vested over three (3)
years commencing 3/24/97
</TABLE>
-2-
<PAGE>
With regard to the foregoing options, all options shall immediately vest
upon any Change of Control (as hereinafter defined), termination without cause
or termination for good reason.
4. Employee Expenses.
-----------------
Subject to such policies as may be maintained in effect from time to
time by the Company, Employee shall be entitled to reimbursement of amounts
expended for the benefit of the Company during the Employment Term, upon
presentation of acceptable reports of such expenses.
5. Confidential Information.
------------------------
Employee specifically agrees that he will not at any time, whether
during or subsequent to the Employment Term, in any fashion, form, or manner,
unless specifically consented to in writing by Company, either directly or
indirectly use or divulge, disclose or communicate to any person, firm or
corporation, any confidential information of any kind, nature, or description
concerning any matters affecting or relating to the business of Company, except
in the ordinary course of the Company's business. All equipment, notebooks,
documents, memoranda, reports, recipes, formulas, files, samples, books,
correspondence, lists, other written and graphic records, and the like,
affecting or relating to the business of Company, which Employee shall prepare,
use, construct, observe, posses, or control shall be and remain the Company's
sole property. The foregoing confidentiality obligation shall not apply to
information (i) Employee deems necessary to disclose pursuant to any
governmental, judicial or regulatory investigation, proceeding or order; (ii) as
is in the public domain through no fault of Employee; or (iii) as is obtained by
Employee from a source other than the Company which is not bound by a similar
confidentiality obligation. Employee has executed the Company's current
Confidentiality Agreements as part of the SEC Compliance document which all new
employees are provided.
6. Termination with Cause.
----------------------
(a) The employment of Employee may be terminated at any time for
"cause." For the purpose of this Agreement "cause" shall mean:
(1) Employee's continued willful and habitual neglect of his
duties following written notification of such neglect by Company's Chief
Executive Officer and the failure of Employee to cure such neglect within thirty
(30) days of such notice.
(2) Employee's conviction of a felony or any other conduct
which, by its nature, would materially injure the reputation of Company as
determined by Company's Chief Executive Officer acting in good faith and upon
reasonable grounds.
-3-
<PAGE>
(3) Employee's incapacity to perform the duties required of him
hereunder as a result of mental or physical illness, which incapacity continues
for a period of ninety (90) days.
(4) Death of the Employee.
(b) Termination of Employee's employment shall not be in limitation
of any other right or remedy the Company may have under this Agreement or in law
or equity.
7. Termination without Cause; Termination with Good Reason; Change in
------------------------------------------------------------------
Control.
- --------
(a) The Company shall pay to Employee all compensation due for the
term of this Agreement, but in no event less than one year's full salary plus
all other additional compensation, including but not limited to medical and
dental benefits for one year, and the stock options granted in this Agreement
shall vest, notwithstanding Employee's termination of employment before March
23, 1999, if such employment is terminated by the Company without "cause" (as
defined above), or if such employment is terminated by Employee for "Good
Reason", or in the event of a change in control. "Good Reason" shall mean any of
the following: (1) a material and adverse change by the Company in the
Employee's assignments, duties or responsibilities; (2) a Change in Control; (3)
a majority of the Board of Directors currently serving on the Board are changed;
(4) a material breach of this Agreement by Company, which breach is not cured
within thirty (30) days written notice to Company; (5) a reduction in Employee's
salary or any benefits; or (6) the relocation of the Company's offices to a
location more than 20 miles from the present corporate offices. "Change in
Control" shall include but not be limited to an occurrence which would be
required to be reported in response to Item 5(f) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, a transaction
involving 20% or more of the assets, voting control or stock of the Company, or
any other event set forth on Exhibit "1", attached hereto and incorporated
herein by this reference. Such vested options shall be exercisable by the
Employee for a period of ten (10) years from the date of grant.
(b) Any purported termination of Employee's employment by the Company
or Employee must be communicated by written Notice of Termination to the other
party pursuant to (P) 9 below. Notice of Termination shall mean a notice that
shall indicate the specific termination provision in this Agreement.
(c) Date of Termination, Etc. "Date of Termination" shall mean the
-------------------------
date specified in the Notice of Termination (which, in the case of a termination
for Cause shall not be less than thirty (30) days from the date such Notice of
Termination is given, and in the case of a termination for Good Reason shall not
be less than fifteen (15) nor more than sixty (60) days from the date such
Notice of Termination is given). Notwithstanding anything to the contrary
contained herein if within fifteen (15) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, then the Date of Termination
shall be the date on which the dispute is finally
-4-
<PAGE>
determined, either by mutual written agreement of the parties, or as set forth
in paragraph 15; provided, however, that the Date of Termination shall be
extended by a notice of dispute only if such notice is given in good faith and
the party giving such notice pursues the resolution of such dispute with
reasonable diligence.
(d) If Employee's employment is terminated by the Company for Cause,
the Company shall pay Employee his full base salary, when due, through the Date
of Termination at the rate in effect at the time Notice of Termination is given,
plus all other amounts to which Employee is entitled under any compensation plan
of the Company at the time such payments are due, and the Company shall have no
further obligations to Employee under this Agreement.
(e) If Employee's employment by the Company shall be terminated by
Employee for Good Reason or by the Company other than for Cause, then Employee
shall be entitled to the benefits provided below:
(i) the Company shall pay to Employee his full base salary,
when due, through the Date of Termination at the rate in effect at the time
Notice of Termination is given, plus all other amounts to which Employee is
entitled under any compensation plan of the Company at the time such payments
are due;
(ii) in lieu of any further salary payments to Employee for
periods subsequent to the Date of Termination, the Company shall pay as
severance pay, at the time specified below, a lump sum severance payment
(together with the payments provided herein below, the "Severance Payments")
equal to 100% of Employee's annual salary as in effect as of the Date of
Termination or immediately prior to the Change in Control, whichever is greater;
(iii) notwithstanding any provisions of the Company's Stock
Option and Incentive Plans, or other similar plans, the vesting period with
respect to your 250,000 options to purchase KKRO common stock at $1.56 per share
shall be vested immediately and you will have 10 years to exercise these
options;
(iv) the Company shall pay to Employee all reasonable legal fees
and expenses incurred by Employee as a result of such termination (including all
such fees and expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit provided by
this Agreement (as set forth in (P)14 of this Agreement) or in connection with
any tax audit or proceeding to the extent attributable to the application of
section 4999 of the Code, to any payment or benefit provided hereunder); and
(v) for a twelve (12) month period after such termination, the
Company shall arrange to provide Employee with life, disability, dental,
medical, accident and group health insurance benefits substantially similar to
those that you were receiving immediately prior to the Notice of Termination.
(vi) The payments provided for above (P)7(e)(i) shall be made
not later than the fifth day following the Date of Termination. The payments
provided for in (P)7(e)(ii)
-5-
<PAGE>
shall be made not later than the thirtieth day following the Date of
Termination; provided, however, that if the amounts of such payments cannot be
finally determined on or before such day, the Company shall pay to Employee on
such day an estimate, as determined in good faith by the Company, of the minimum
amount of such payments and shall pay the remainder of such payments (together
with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon
as the amount thereof can be determined but in no event later than the thirtieth
day after the Date of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to Employee, payable on the fifth
day after demand by the Company (together with interest at the rate provided in
section 1274(b)(2)(B) of the Code).
(vii) Employee shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise nor shall the amount of any payment or benefit provided for in this
Agreement be reduced by any compensation earned by Employee as the result of
employment by another employer or self-employment, by retirement benefits, by
offset against any amount claimed to be owed by Employee to the Company, or
otherwise.
7. Severable Provisions.
--------------------
The provisions of this Agreement are severable, and if any one or more
provisions may be determined to be judicially unenforceable, in whole or in
part, the remaining provisions shall nevertheless be binding and enforceable.
8. Successors; Binding Agreement. (i) The Company shall require any
-----------------------------
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle Employee to terminate his
employment and receive compensation from the Company in the same amount and on
the same terms to which Employee would be entitled hereunder if Employee
terminated his employment for Good Reason or Change in Control, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. Where the context
requires, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable
by Employee and Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Employee should die while any amount would still be payable to Employee
hereunder had Employee continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
-6-
<PAGE>
Employee's devisee, legatee or other designee or, if there is no such designee,
to Employee's estate.
9. Notices
-------
Any notice to be given to the Company under the terms of this
Agreement shall be addressed to the Company at the address of its principal
place of business, and any notice to be given to Employee shall be addressed to
him at his home address last shown on the records of the Company, or at such
other address as either party may hereafter designate in writing to the other.
All Notices shall be in writing and shall be delivered personally, sent by
United States certified or registered mail, return receipt requested, first
class postage prepaid, or by private messenger or courier service. Any such
notice shall be deemed to have been received on the earlier of (i) two (2)
business days after it is mailed or (ii) the date it is actually received.
10. Waiver.
------
Either party's failure to enforce any provision or provisions of this
Agreement shall not in any way be construed as a waiver of any such provision,
or prevent that party thereafter from enforcing each and every other provision
of this Agreement.
11. Title and Headings
------------------
Titles and headings to sections in this Agreement are for the purpose
of reference only and shall in no way limit, define, or otherwise affect the
provisions of it.
12. Governing Law.
-------------
The parties hereto agree that it is their intention and covenant that
this Agreement and performance under it, and all suits and special proceedings
that may ensue from its breach, be construed in accordance with and under the
laws of the State of California, and that in any action, special proceeding, or
other proceeding that may be brought arising out of, in connection with, or by
reason of this Agreement, the laws of the State of California shall be
applicable and shall govern to the exclusion of the law of any other forum,
without regard to the jurisdiction in which any action or special proceeding may
be instituted.
13. Entire Agreement
----------------
This Agreement, any other written agreement executed concurrently
therewith, and the documents referred to herein, shall be construed together and
constitute the entire agreement between the parties pertaining to the subject
matter hereof. Any prior agreements are superseded. There are no warranties,
conditions, or representations (including any that may be implied by statute)
and there are no agreements in connection with such subject matter except as
specifically set forth or referred to in this Agreement. No reliance is placed
on any warranty, representation, opinion, advice or assertion of fact made by
any party hereto or its directors, officers,
-7-
<PAGE>
employees or agents, to any other party hereto or its directors, officers,
employees or agents, except to the extent that the same has been reduced to
writing and included as a term of this Agreement. Accordingly, there shall be no
liability, either in tort or in contract, assessed in relation to any such
warranty, representation, opinion, advice or assertion of fact, except to the
aforesaid. No amendment, change or variance from this Agreement shall be binding
on either party unless executed in writing by both parties.
14. Arbitration; Dispute Resolution
-------------------------------
(a) Arbitration Procedure. Any disagreement, dispute, controversy or
---------------------
claim arising out of or relating to this Agreement or the interpretation of this
Agreement or any arrangements relating to this Agreement or contemplated in this
Agreement or the breach, termination or invalidity thereof shall be settled by
arbitration in accordance with the Commercial Arbitration Rules (the
"Arbitration Rules") of the American Arbitration Association (the "AAA") (except
as otherwise provided in this Agreement) in Los Angeles, California. The
arbitral tribunal shall consist of one arbitrator. In making any decision, the
arbitrator shall apply and follow the substantive law of California without
reference to the conflicts of law provisions thereof. The parties to the
arbitration jointly shall directly appoint such arbitrator within thirty (30)
days of initiation of arbitration. If the parties shall fail to appoint such
arbitrator as provided above, such arbitrator shall be appointed by the AAA as
provided in the Arbitration Rules. Employee and the Company agree that the
arbitral award may be enforced against the parties to the arbitration proceeding
or their assets wherever they may be found and that a judgment upon the arbitral
award may be entered in any court having jurisdiction thereof. The Company shall
pay all fees and expenses of the Arbitrator regardless of the result and shall
provide all witnesses and evidence reasonably required by Employee to present
Employee's case. The Company shall pay to Employee all reasonable arbitration
expenses and legal fees incurred by Employee as a result of a termination of
Employee's employment in seeking to obtain or enforce any right or benefit
provided by this Agreement whether or not you are successful in obtaining or
enforcing such right or benefit). Such payments shall be made within five (5)
days after the Employee's request for payment accompanied with such evidence of
fees and expenses incurred as the Company reasonably may require.
(b) Compensation During Dispute. Company compensation during any
---------------------------
disagreement, dispute, controversy or claim arising out of or relating to this
Agreement or the interpretation of this Agreement shall be as follows:
(i) If a purported termination by Employee for Good Reason
occurs and such termination is disputed in accordance with this Agreement, the
Company shall continue to pay Employee the full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to,
salary) and continue Employee as a participant in all compensation, benefit and
insurance plans in which Employee was participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in accordance
with (P)15. Amounts paid under this Section 10(ii)(a) are in addition to all
other amounts due under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement. Employee agrees to remain in the
employ of the Company during the resolution of the dispute and to continue to
provide services unless Employee's employment is terminated
-8-
<PAGE>
earlier by death, disability or retirement, or by action of the Company. If the
dispute is resolved by a determination that Employee did not have Good Reason,
this Agreement, in accordance with its terms, shall continue to apply to the
circumstances of Employee's employment by the Company and any termination
thereof.
(ii) If there is a termination by the Company followed by a
dispute as to whether Employee is entitled to the payments and other benefits
provided under this Agreement, then, during the period of that dispute the
Company shall pay Employee fifty percent (50%) of the amount specified in
(P)7(e)(i) and (P)7(e)(ii) hereof, and the Company shall provide Employee with
the other benefits provided in (e) of this Agreement, if, but only if, Employee
agrees in writing that if the dispute is resolved against Employee, Employee
shall promptly refund to the Company all payments Employee receives under (e)(i)
and (e)(ii) of this Agreement plus interest at the rate provided in Section
1274(d) of the Code, compounded quarterly. If the dispute is resolved in
Employee's favor, promptly after resolution of the dispute the Company shall pay
Employee the sum that was withheld during the period of the dispute plus
interest at the rate provided in Section 1274(d) of the Code, compounded
quarterly.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"COMPANY" "EMPLOYEE"
Koo Koo Roo, Inc.,
a Delaware corporation
By: /s/ A. William Allen /s/ John Kaufman
----------------------- -----------------------
Name: A. William Allen John Kaufman
---------------------
Title: C.E.O.
--------------------
-9-
<PAGE>
EXHIBIT "1"
"CHANGE IN CONTROL"
In addition to the events described in the Employment Agreement, a Change in
Control shall be deemed to occur if:
(a) any Person (as defined below) is or becomes the Beneficial Owner
(as defined below), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities. For purposes of this Agreement, (A) the term
"Person" is used as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); provided,
however, that unless this Agreement provides to the contrary, the term
shall not include the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any Company
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the
Company, and (B) the term "Beneficial Owner" shall have the meaning given
to such term in Rule 13d-3 under the Exchange Act;
(b) during any period after the execution of this Agreement,
individuals who at the beginning of such period constitute the Board, and
any new director (other than a director designated by a person who has
entered into an agreement with the Company to effect a transaction
described in Sections 2(i)(a), (c) or (d)) whose election by the Board or
nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved (hereinafter referred to
as "Continuing Directors"), cease for any reason to constitute at least a
majority thereof;
(c) the stockholders of the Company approve a merger or consolidation
sale, acquisition, purchase, reverse merger of the Company with any other
Company (or other entity);
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets; or
(e) any Person is or becomes the Beneficial Owner of securities of
the Company representing ten percent (10%) or more of the combined voting
power of the Company's then outstanding securities and (A) the identity of
the Chief Executive Officer of the Company is changed during the period
beginning sixty (60) days before the attainment of the ten percent (10%)
beneficial ownership and ending one (1) year thereafter, or (B) individuals
constituting at least one-third (1/3) of the members of the Board at the
beginning of such period shall leave the Board during the period beginning
sixty (60) days before the attainment of the ten percent (10%) beneficial
ownership and ending one (1) year thereafter.
-10-
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<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> MAR-31-1997 MAR-31-1998
<CASH> 6,754,601 4,953,046
<SECURITIES> 5,712,454 3,769,564
<RECEIVABLES> 1,388,162 791,340
<ALLOWANCES> 0 0
<INVENTORY> 691,939 659,739
<CURRENT-ASSETS> 15,547,233 11,323,123
<PP&E> 49,975,628 47,152,131
<DEPRECIATION> 8,119,307 8,987,791
<TOTAL-ASSETS> 68,771,003 59,059,321
<CURRENT-LIABILITIES> 12,933,361 18,797,446
<BONDS> 0 0
0 0
3,912 532
<COMMON> 267,702 473,590
<OTHER-SE> 42,477,278 28,775,057
<TOTAL-LIABILITY-AND-EQUITY> 68,771,003 59,059,321
<SALES> 11,223,260 22,335,960
<TOTAL-REVENUES> 11,223,260 22,335,960
<CGS> 8,120,345 15,343,174
<TOTAL-COSTS> 13,875,471 35,985,221
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 322,968
<INCOME-PRETAX> (2,550,317) (13,879,458)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,550,317) (13,879,458)
<DISCONTINUED> (944,330) 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 (1,276,952)
<NET-INCOME> 4,217,508 (15,156,410)
<EPS-PRIMARY> (0.26) (0.40)
<EPS-DILUTED> (0.26) (0.40)
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