UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1997
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 No. 0-24502
ROCK BOTTOM RESTAURANTS, INC.
(Exact name of the registrant as specified in its charter)
Delaware 84-1265838
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
248 Centennial Parkway, Suite # 100, Louisville,
Colorado 80027 (Address of principal executive
offices) (Zip Code)
(303) 664-4000
(Registrant's telephone number
including area code)
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 twelve 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 August 12, 1997, the Registrant had outstanding 8,007,260 shares of
common stock, par value $.01 per share.
<PAGE>
2
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
----------------------------------------------
INDEX TO FORM 10-Q
------------------
FOR THE SIX MONTHS ENDED JUNE 29, 1997
--------------------------------------
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets-
June 29, 1997 and December 29, 1996 3-4
Condensed Consolidated Statements of Operations-
Three Months and Six Months Ended
June 29, 1997 and June 30, 1996 5
Condensed Consolidated Statements of Cash Flows- 6
Six Months Ended June 29, 1997 and June 30, 1996
Notes to Condensed Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-17
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 19
Signature page 20
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3
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
----------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
<TABLE>
<CAPTION>
June 29, December 29,
ASSETS 1997 1996
------ -------------------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,738,124 $ -
Accounts receivable 850,761 747,762
Accounts receivable--affiliates 114,997 101,342
Preopening costs, net 3,013,662 2,552,185
Inventories 2,600,122 2,206,139
Prepaids and other current assets 1,599,356 1,253,124
----------- ----------
Total current assets 9,917,022 6,860,552
----------- ----------
PROPERTY AND EQUIPMENT:
Land 6,679,212 5,021,927
Buildings 3,653,660 3,653,660
Leasehold and building improvements 48,827,163 38,380,894
Furniture, fixtures and equipment 36,949,329 30,460,508
Construction-in-progress 6,838,639 4,700,360
Accumulated depreciation and amortization (13,388,975) (9,942,059)
----------- -----------
Total property and equipment, net 89,559,028 72,275,290
----------- -----------
INVESTMENT IN JOINT VENTURE, net 5,431,691 5,348,729
----------- -----------
OTHER ASSETS 650,496 463,368
----------- ----------
TOTAL ASSETS $ 105,558,237 $ 84,947,939
=========== ==========
</TABLE>
See accompanying notes.
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4
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
----------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
<TABLE>
<CAPTION>
June 29, December 29,
LIABILITIES 1997 1996
----------- --------------------------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable-
Trade $ 3,939,526 $ 1,680,714
Construction projects 532,781 516,357
Affiliates - 9,483
Accrued payroll and payroll taxes 2,416,608 1,605,980
Accrued taxes other than income tax 360,086 1,027,920
Other accrued expenses 1,231,265 963,413
Current deferred income taxes 503,607 515,232
Current portion of long-term debt 568,586 575,199
Current portion of obligations under capital leases 399,214 697,992
----------- ----------
Total current liabilities 9,951,673 7,592,290
REVOLVING LINE OF CREDIT 24,700,000 8,500,000
LONG-TERM DEBT 2,456,500 2,488,420
OBLIGATIONS UNDER CAPITAL LEASES 662,385 673,987
DEFERRED INCOME TAXES 351,868 356,510
----------- ----------
Total liabilities 38,122,426 19,611,207
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value, 5,000,000 shares
authorized, none issued and outstanding - -
Common stock - $.01 par value, 15,000,000 shares
authorized, 7,942,115 and 7,905,451 issued
and outstanding 79,421 79,055
Additional paid-in capital 57,071,435 56,774,747
Retained earnings 10,284,955 8,482,930
----------- ----------
Total stockholders' equity 67,435,811 65,336,732
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 105,558,237 $ 84,947,939
=========== ==========
</TABLE>
See accompanying notes.
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5
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
----------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------- -------------------------
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Old Chicago restaurants $ 18,277,475 $ 14,845,253 $ 34,658,037 $ 27,185,275
Rock Bottom Restaurant & Brewery
restaurants 19,154,236 11,568,822 35,465,813 22,740,827
---------- ---------- ---------- ----------
Total revenues 37,431,711 26,414,075 70,123,850 49,926,102
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Cost of sales 9,268,041 6,547,199 17,363,157 12,304,652
Restaurant salaries and benefits 12,904,244 8,669,006 23,758,012 16,544,661
Operating expenses 7,371,896 5,593,179 14,144,660 10,614,033
Selling expenses 1,386,988 993,749 2,643,015 1,953,017
General and administrative 1,884,605 1,550,712 3,703,441 2,943,018
Depreciation and amortization 2,968,455 1,785,586 5,472,438 3,508,619
----------- ----------- ----------- -----------
Total operating expenses 35,784,229 25,139,431 67,084,723 47,868,000
---------- ---------- ----------- -----------
INCOME FROM OPERATIONS 1,647,482 1,274,644 3,039,127 2,058,102
Equity in joint venture earnings 75,000 - 150,000 -
Interest expense (397,493) (61,366) (653,012) (134,147)
Interest income 5,249 66,737 7,102 199,879
Other income (expense) 9 (624) 12 (768)
------------ ------------ ----------- -----------
INCOME BEFORE TAXES 1,330,247 1,279,391 2,543,229 2,123,066
PROVISION FOR INCOME TAXES 388,430 396,603 741,204 658,142
------------ ------------ ----------- -----------
NET INCOME $ 941,817 $ 882,788 $ 1,802,025 $ 1,464,924
============ ============ =========== ===========
NET INCOME PER SHARE $.12 $.12 $.23 $.20
=== === === ===
WEIGHTED AVERAGE
SHARES OUTSTANDING 8,056,300 7,519000 8,026,100 7,513,000
========= ======== ========= =========
</TABLE>
See accompanying notes.
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6
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
----------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 29, 1997 AND JUNE 30, 1996
--------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,802,025 $ 1,464,924
Adjustments to reconcile net income to net cash
provided by operating activities-
Equity in joint venture earnings (150,000) -
Depreciation and amortization 5,472,437 3,508,619
Deferred income tax (benefit) provision (16,267) 25,000
Increase in accounts receivable (102,999) (116,323)
Increase in inventories (393,983) (223,102)
(Increase) decrease in prepaids and other assets (574,772) 26,372
Expenditures for preopening costs (2,378,548) (1,529,247)
Increase in accounts payable 2,275,236 1,365,574
Increase in accrued expenses 410,646 196,925
------------- ------------
Net cash provided by operating activities 6,343,775 4,718,742
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (20,730,654) (11,919,964)
Advances to officers and affiliates, net (23,138) 20
(Purchase) sale of short-term investments, net - 7,790,442
------------- ------------
Net cash used in investing activities (20,753,792) (4,129,502)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 16,200,000 -
Repayments of long-term debt (38,533) (21,395)
Repayments of capital lease obligations (310,380) (325,410)
Issuance of common stock 297,054 266,664
------------ ------------
Net cash provided by (used in) financing activities 16,148,141 (80,141)
------------ -------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,738,124 509,099
CASH AND CASH EQUIVALENTS, beginning of period 0 3,555,341
------------ -------------
CASH AND CASH EQUIVALENTS, end of period $ 1,738,124 $ 4,064,440
============= =============
</TABLE>
See accompanying notes.
<PAGE>
7
ROCK BOTTOM RESTAURANTS, INC. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
JUNE 29, 1997
-------------
(Unaudited)
(1) UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------
The financial statements included herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes
that the disclosures included herein are adequate to make the
information presented not misleading. A description of the Company's
accounting policies and other financial information is included in the
audited consolidated financial statements as filed with the Securities
and Exchange Commission in the Company's Form 10-K for the year ended
December 29, 1996.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position of the Company as of June 29,
1997, and the results of operations and cash flows for the periods
presented. All such adjustments are of a normal recurring nature. The
results of operations for the three and six months ended June 29, 1997,
are not necessarily indicative of the results that may be achieved for
a full fiscal year and cannot be used to indicate financial performance
for the entire year.
(2) REVOLVING LINE OF CREDIT
------------------------
In February, 1997, the Company amended its bank revolving credit
facility (the "Credit Facility") to increase maximum borrowings
available from $20 million to $25 million, and to amend certain
covenants and financial ratios. All other terms, conditions, and
restrictions remained substantially the same. The total amount
outstanding under the Credit Facility as of June 29, 1997, was $24.7
million.
Subsequent to June 29, 1997, the Company amended the Credit Facility
for a second time to increase maximum borrowings available from $25
million to $40 million. Additional changes to the Credit Facility
included modification of certain financial covenants and ratios,
extension of the revolving credit period from July 2, 1998 to July 28,
1999, elimination of the provision to automatically convert the Credit
Facility into a three year fully amortizing term loan at the end of the
revolving credit period, and inclusion of a sliding interest rate
schedule based on the Company's ratio of total debt to cash flow.
Interest accrues under the revised rates at either prime to prime plus
.5%, or at the Company's election, at LIBOR plus 1.5% to LIBOR plus
2.5%.
<PAGE>
8
(3) INVESTMENT IN JOINT VENTURE
---------------------------
In July 1996, the Company acquired an indirect 50% equity interest in
Trolley Barn Brewery, Inc. ("Trolley Barn") in exchange for 452,073
shares of the Company's common stock. Trolley Barn currently operates
four brewery restaurants in the southeastern United States under the name
Big River Grille & Brewing Works and one additional restaurant in
Atlanta, Georgia under the name Rock Bottom Restaurant & Brewery. The
Company's investment in Trolley Barn is accounted for under the equity
method. At closing, the investment in joint venture carrying amount
exceeded the Company's equity in Trolley Barn's underlying net assets by
approximately $4.5 million. This amount represents goodwill at the date
of the acquisition and is being amortized over 35 years. Accumulated
amortization at June 29, 1997 of $133,378 is netted against the
investment.
(4) SUBSEQUENT EVENT
----------------
Subsequent to June 29, 1997, the Company announced a strategic plan to
reduce its future restaurant expansion by opening six Rock Bottom
Restaurant & Brewery restaurants and no Old Chicago restaurants during
fiscal 1998 as compared to opening seven Rock Bottom Restaurant & Brewery
restaurants and seven Old Chicago restaurants during fiscal 1997. In
connection with the implementation of this strategy, the Company expects
to incur a pre-tax charge in the third quarter of 1997 ranging from
approximately $3 million to $5 million related to write-downs of certain
underperforming restaurant assets and costs associated with streamlining
its headquarters operations in response to the reduction in future
growth.
<PAGE>
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Cautionary Statement under the "Safe Harbor" Provision of the Private
- ---------------------------------------------------------------------
Securities Litigation Reform Act of 1995
----------------------------------------
Certain statements contained in this report are not historical facts, and
are forward-looking statements that involve known and unknown risks and
uncertainties which may cause actual results or performance of the Company to
differ materially from such forward-looking statements. Such statements include,
among others;
- Restaurant expansion plans;
- Efforts to improve overall execution in Old Chicago
restaurants by narrowing the gap in AWS while
developing consistent profitability within the concept;
- Reductions in expenses for cost of sales and labor as a
percentage of revenues for the new brewery restaurants;
- Completion of sale/leaseback transactions for purchased
real estate;
- Estimated capital expenditures;
- Ability to generate sufficient cash from operations;
- Ability to compete effectively within the restaurant industry;
Factors that could cause actual results to differ materially include, among
others: availability of suitable restaurant locations; increasing costs
associated with new restaurant construction, or developing a significant number
of new restaurants over a relatively short period of time; delays in opening new
restaurants; ability to hire and train increasing numbers of restaurant
management, staff and other personnel for new restaurants; ability of Trolley
Barn to open restaurants or conduct operations as anticipated; acceptance in new
markets; fluctuations in consumer demand and tastes including a decrease in
consumers' preference for higher quality, more flavorful beer; competitive
conditions in the Company's markets; general economic conditions; operating
restrictions and costs associated with governmental regulations; regulatory
limitations regarding common ownership of breweries and restaurants in certain
states; and other risks detailed in the Company's reports and other filings
under the Securities Exchange Act of 1934. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives and plans of the Company will be
achieved. In addition, the Company disclaims any intent or obligation to update
publicly these forward-looking statements, whether as a result of new
information, future events, or otherwise.
Overview
- --------
As of June 29, 1997, the Company operated 19 Rock Bottom Restaurant &
Brewery restaurants and 41 Old Chicago restaurants, an increase of 11
restaurants from the end of the preceding fiscal year. The Company's 1997
expansion plans include opening a total of seven Old Chicago restaurants and
seven Rock Bottom Restaurant & Brewery restaurants as follows.
<PAGE>
10
<TABLE>
<CAPTION>
Proposed New Restaurant Opening Schedule
(Actual) (Actual)
Qtr. Ended Qtr. Ended Qtr. Ended Qtr. Ended Total
3/30/97 6/29/97 9/28/97 12/28/97 1997
------- ------- ------- -------- ----
<S> <C> <C> <C> <C> <C>
Old Chicago restaurants 2 4 1 - 7
Rock Bottom Restaurant
& Brewery restaurants 2 3 2 - 7
-- -- -- -- --
Total restaurants 4 7 3 - 14
== == == == ==
</TABLE>
Old Chicago restaurants opened in the second quarter of 1997 are located in
Boise, Idaho; Tucson, Arizona; Rockford, Illinois and Duluth, Minnesota. Second
quarter Rock Bottom Restaurant & Brewery restaurant openings occurred in Fresno
and Long Beach,California, and in Washington D.C. During July 1997, the Company
completed its remaining development schedule for Old Chicago restaurants with
the seventh restaurant opening in Hillsboro, Ore. Third quarter openings for
Rock Bottom Restaurant & Brewery restaurants include Denver, Colorado (also
opened in July) and Des Moines, Iowa (opening in late September).
Subsequent to June 29, 1997, the Company announced a strategic plan to
reduce its future restaurant expansion by opening six Rock Bottom Restaurant &
Brewery restaurants and no Old Chicago restaurants during fiscal 1998 (see
"Liquidity and Capital Resources"). The Company has historically leased its
restaurant facilities and plans to lease sites for a majority of its future
locations. There can be no assurance, however, that the Company will be able to
identify suitable restaurant sites, purchase sites or obtain leases on
acceptable terms, or open new restaurants on anticipated dates.
During July 1996, the Company acquired an indirect 50% equity interest in
Trolley Barn in exchange for 452,073 shares of the Company's common stock.
Trolley Barn currently operates four brewery restaurants in the southeastern
United States under the name Big River Grille & Brewing Works, and opened its
fifth restaurant in June 1997 under the Rock Bottom Restaurant & Brewery name in
Atlanta, Georgia. Trolley Barn's remaining 1997 development plans include
opening a second restaurant under the Rock Bottom Restaurant & Brewery name in
Charlotte, North Carolina in the fourth quarter. Failure of Trolley Barn to open
restaurants or conduct operations as anticipated could adversely affect the
Company's earnings and could hinder the Company's expansion.
The Company's new restaurants typically incur certain increased costs in
the process of achieving operational efficiencies during the first several
months of operation. Additionally, operating results may be adversely affected
by costs associated with developing a significant number of new restaurants over
a relatively short period of time. As of August 12, 1997, the Company had
completed 13 of the 14 restaurants planned for 1997. This rapid expansion,
particularly of the brewery restaurants which increased from 14 restaurants at
the end of 1996 to 20 restaurants currently, resulted in higher operating costs
during the first six months of 1997. Preopening costs, which are incurred prior
to opening a new restaurant but amortized over the first 12 months after
opening, and restaurant salaries and benefits are two examples of these
increased costs.
Additionally, the Company operates in an extremely competitive environment.
Competitive factors include price-value, service, location, quality, selection
and atmosphere. Many competitors of the Company are well established and have
substantially greater financial and other resources than does the Company. Also,
the restaurant industry generally, and the Company in particular, is affected by
changes in consumer tastes, national, regional or local economic conditions,
demographic trends and traffic patterns.
<PAGE>
11
Results of Operations
The following table sets forth for the periods indicated the percentage
relationship to restaurant revenues of certain income statement data, and
certain restaurant data:
<TABLE>
<CAPTION>
Percentage of Revenues
------------------------------------------------
Three Months Ended Six Months Ended
------------------ ----------------
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Old Chicago restaurants.................................. 48.8% 56.2% 49.4% 54.5%
Rock Bottom Restaurant & Brewery restaurants............. 51.2 43.8 50.6 45.5
----- ----- ----- -----
Total revenues...................................... 100.0 100.0 100.0 100.0
----- ----- ----- -----
Operating Expenses:
Cost of sales............................................ 24.8 24.8 24.8 24.6
Restaurant salaries and benefits......................... 34.5 32.8 33.9 33.1
Operating expenses....................................... 19.7 21.2 20.2 21.3
Selling expenses......................................... 3.7 3.8 3.8 3.9
General and administrative expenses...................... 5.0 5.9 5.3 5.9
Depreciation and amortization............................ 7.9 6.7 7.8 7.0
----- ----- ----- -----
Total operating expenses............................ 95.6 95.2 95.7 95.8
----- ----- ----- ----
Income From Operations...................................... 4.4 4.8 4.3 4.2
Equity in joint venture earnings............................ 0.2 -- 0.2 --
Interest expense............................................ (1.1) (0.2) (0.9) (0.3)
Interest income............................................. -- 0.3 -- 0.4
Other (income) expense, net................................. -- -- -- --
----- ----- ----- -----
Income Before Taxes......................................... 3.5 4.8 3.6 4.3
Provision for income taxes.................................. 1.0 1.5 1.0 1.3
----- ----- ----- -----
Net Income ................................................. 2.5% 3.3% 2.6% 3.0%
=== === === ===
Restaurant Data:
Restaurant operating weeks:
Old Chicago restaurants.................................. 503 376 968 703
Rock Bottom Restaurant & Brewery restaurants............. 225 132 417 262
--- --- ----- ---
Total............................................... 728 508 1,385 965
=== === ===== ===
Restaurants open (end of period):
Old Chicago restaurants.................................. 41 30
Rock Bottom Restaurant & Brewery restaurants............. 19 11
-- ---
Total............................................ 60 41
== ==
</TABLE>
<PAGE>
12
Revenues
Revenues increased $11.0 million (41.7%) to $37.4 million in the quarter
ended June 29, 1997 from $26.4 million for the comparable quarter in 1996. For
the six months ended June 29, 1997, revenues increased $20.2 million (40.5%) to
$70.1 million from $49.9 million for the comparable period in 1996. These
increases are due primarily to revenues generated by the 11 new Old Chicago
restaurants and eight new Rock Bottom Restaurant & Brewery restaurants that have
opened since the end of the second quarter of 1996. These increases were offset
somewhat by a decrease in comparable restaurant sales which were down 3% for the
second quarter and less than 1% year to date. When computing comparable
restaurant sales, restaurants open for at least six full quarters are compared
from year to year.
Revenues from the Company's Rock Bottom Restaurant & Brewery restaurants,
as a percentage of total revenues, increased to 51.2% for the quarter ended June
29, 1997 as compared to 43.8% in the comparable period of 1996, and for the six
months ended June 29, 1997 increased to 50.6% from 45.5% in the first six months
of 1996. Although the Company opened only eight Rock Bottom Restaurant & Brewery
restaurants during the last 12 months as compared to 11 Old Chicago restaurants,
the brewery restaurants generate greater average weekly sales ("AWS") resulting
in the increase to this percentage. The Company expects that the percentage of
revenues contributed by the Rock Bottom Restaurant & Brewery restaurants will
continue to increase throughout 1997 as the same number of brewery and Old
Chicago restaurants will open during the year.
AWS for the Old Chicago restaurants during the second quarter of 1997 were
$36,337 as compared to $39,482 during the second quarter of 1996 (a decrease of
8%), and $35,803 for the first six months of 1997 as compared to $38,670 for the
comparable period in 1996 (a decrease of 7.4%). Comparable restaurant sales for
Old Chicago were down 5.6% during the second quarter of 1997 and 4.1% for the
first six months of 1997. These decreasing trends in AWS and comparable
restaurant sales for the Old Chicago restaurants continue to reflect the ever
increasing competitive nature of the restaurant industry. Management also
believes that the uneven sales performance in its Old Chicago restaurants, which
have AWS currently ranging from $60,000 to $20,000, indicates inconsistent
execution of the concept at certain locations. As a result, the Company is
implementing an extensive analysis of its Old Chicago restaurants covering all
aspects of operations including hiring and training of new staff, restaurant
maintenance and cleanliness, local restaurant marketing promotions, menu
merchandising, service standards and food quality and consistency. The Company
believes the results of this program will direct management's efforts towards
improving overall execution in each restaurant by narrowing the gap in AWS while
developing consistent profitability within the Old Chicago restaurant concept.
AWS for the Rock Bottom Restaurant & Brewery restaurants during the second
quarter of 1997 were $85,130 as compared to $87,643 during the second quarter of
1996 (a decrease of 3%), and $85,050 for the first six months of 1997 as
compared to $86,797 for the comparable period in 1996 (a decrease of 2%).
Comparable restaurant sales for the brewery restaurants were up nearly 1% for
the second quarter, and up 3.9% for the first six months of 1997, with one-third
of this concept's total restaurants included in the analysis. The increase in
comparable restaurant sales was offset by an anticipated decrease in AWS for
certain newer brewery restaurants that were designed to operate at a slightly
lower capacity than certain of the Company's previous restaurants. Approximately
one-half of the Company's 19 brewery restaurants open as of June 29, 1997 were
operating, as designed, with AWS of less than $85,000. As the Company will
continue to design certain of its new brewery restaurants with this reduced
capacity, decreases in AWS will continue to be experienced in the future.
<PAGE>
13
Cost of Sales
Cost of sales, which consists of food, beverage, and merchandise costs,
increased $2.7 million (41.6%) to $9.3 million in the second quarter of 1997
from $6.5 million in the second quarter of 1996, and remained flat as a
percentage of revenues at 24.8%. For the six months ended June 29, 1997, cost of
sales increased $5.1 million (41.1%) to $17.4 million from $12.3 million in the
comparable period of 1996, and as a percentage of revenues increased slightly to
24.8% from 24.6% in the comparable period of 1996.
The increase in cost of sales as a percentage of revenues for the first six
months of 1997 is due primarily to slight increases in certain commodity prices
(particularly beef and pork products), and to increases in food cost of sales as
a percentage of food revenues for the five brewery restaurants opened during
this period. New brewery restaurants typically incur significantly higher food
costs of sales during their first several months of operation due to complexity
of the menu items. There were no brewery restaurants opened during the first six
months of 1996. Increases in these costs were offset somewhat in the second
quarter of 1997 by greater purchasing efficiencies than in the second quarter of
1996, resulting in similar cost of sales as a percentage of revenues in these
two periods. As the new brewery restaurants begin to achieve operational
efficiencies, the Company expects that cost of sales as a percentage of revenues
may decrease slightly over time.
Restaurant Salaries and Benefits
Restaurant salaries and benefits, which consist of restaurant management
and hourly employee wages, payroll taxes, and group health insurance, increased
$4.2 million (48.9%) to $12.9 million in the second quarter of 1997 from $8.7
million in the second quarter of 1996. For the six months ended June 29, 1997
salaries and benefits increased $7.2 million (43.6%) to $23.7 million from $16.5
million in the comparable period of 1996. Restaurant salaries and benefits as a
percentage of revenues increased in both periods to 34.5% in the second quarter
of 1997 as compared to 32.8% in the second quarter of 1996, and to 33.9% for the
six month period ended June 29, 1997 from 33.1% for the comparable period of
1996.
Although the Company realized lower labor costs in the first part of 1997
as compared to 1996 due to the impact of sophisticated labor scheduling systems
previously installed in the Rock Bottom Restaurant & Brewery restaurants,
significantly higher labor costs associated with new brewery restaurants opened
in the first six months of 1997 resulted in an increase to salaries and benefits
as a percentage of revenues. Similar to cost of sales, the Company expects that
labor costs in the brewery restaurants will decline over time as these new
restaurants begin to achieve operational efficiency. Additional increases in
labor costs reflect the decrease in AWS for the Old Chicago restaurants
resulting in higher management and kitchen labor as a percentage of revenues.
Although the Company was previously evaluating upgraded labor scheduling
software for the Old Chicago restaurants, selection and implementation of such
software has been postponed awaiting results of the operational analysis in each
Old Chicago restaurant to determine where the additional investment would be
most beneficial.
Federal legislation adopted October 1, 1996 provides for an additional
increase to the minimum wage rate of $.40 per hour to $5.15 per hour effective
September 1, 1997. This legislation also provided for an additional increase to
the Federal tip credit by the same amount, so that the federal minimum wage paid
to tipped employees will not increase. Although the Company has not quantified
the impact of such additional wage increase, a majority of the Company's
restaurants operate in states which have wage laws consistent with the Federal
minimum wage laws, and most non-tipped employees are currently paid above the
minimum wage rate.
<PAGE>
14
Operating Expenses
Operating expenses, which include occupancy costs, utilities, repairs,
maintenance and linen, increased $1.8 million (31.8%) to $7.4 million in the
second quarter of 1997 from $5.6 million for the same period in 1996. For the
six months ended June 29, 1997, operating expenses increased $3.5 million
(33.3%) to $14.1 million from $10.6 million in the comparable period of 1996. As
a percentage of revenues, such expenses decreased to 19.7% in the second quarter
of 1997 from 21.2% for the same period in 1996, and to 20.2% for the six month
period ended June 29, 1997 from 21.3% for the comparable period in 1996. These
decreases were principally due to a reduction in 1997 insurance premium rates,
particularly workmen's compensation insurance, as well as a continued emphasis
on cost control measures in numerous areas of restaurant operations.
General and Administrative ("G&A")
G&A expense increased $.3 million (21.5%) to $1.9 million in the second
quarter of 1997 compared to $1.5 million in the second quarter of 1996, and
increased $.8 million (25.8%) to $3.7 million for the sixth month period ending
June 29, 1997 from $2.9 million for the comparable period in 1996. As a
percentage of revenues, such expenses decreased to 5.0% in the second quarter of
1997 from 5.9% for the same period of 1996, and to 5.3% for the six months ended
June 29, 1997 from 5.9% for the comparable period in 1996. The increase in
amount primarily reflects personnel additions in the areas of marketing,
training, information systems, supervision, accounting, finance and senior
management due to the Company's continuing expansion program. The decrease in
G&A expense as a percentage of revenues is due primarily to efficiencies gained
in administering a larger number of restaurants. Subsequent to June 29, 1997,
the Company made personnel reductions in an effort to streamline its
headquarters operations in anticipation of a reduction in future growth plans
(see "Liquidity and Capital Resources").
Depreciation and Amortization ("D&A")
D&A, including amortization of preopening expenses, increased $1.2 million
(66.2%) to $3.0 million in the second quarter of 1997 from $1.8 million for the
comparable period in 1996, and increased $2.0 million (56%) to $5.5 million for
the sixth month period ending June 29, 1997 from $3.5 million for the comparable
period in 1996. As a percentage of revenues, depreciation expense and
amortization of intangible assets, other than preopening costs, was 5.1% during
the second quarter of 1997 as compared to 4.1% in the comparable period of 1996,
and 5.0% for the six month period ending June 29, 1997 as compared to 4.1% for
the comparable period in 1996. Preopening expense amortization was 2.9% as a
percentage of revenues in the second quarter of 1997 as compared to 2.6% in the
comparable period of 1996, and 2.8% for the six month period ending June 29,
1997 as compared to 2.9% for the comparable period in 1996.
The increase in depreciation expense and amortization of intangible assets
as a percentage of revenues is due primarily to decreases in AWS for both
concepts, increased depreciation expense associated with a greater number of
corporate assets resulting from the Company's continued expansion program, and
increased amortization of intangible assets including goodwill associated with
the investment in joint venture. Amortization of preopening expense as a
percentage of revenues fluctuates with the number and type of restaurant (Old
Chicago or Rock Bottom Restaurant & Brewery) opened in any given period. During
the second quarter of 1997, preopening expense was being amortized for a much
larger base of Rock Bottom Restaurant & Brewery restaurants than in the second
quarter of 1996, resulting in the increase to preopening expense amortization as
a percentage of revenues. Such increase was offset somewhat in both the second
quarter of 1997 and in the first six months of 1997 by amortizing preopening
expense for a similar number of Old Chicago restaurants both in 1997 and 1996
while revenues from this concept had increased by more than 20% in each period.
Equity in Joint Venture Earnings
The 1997 equity in joint venture earnings represents the Company's 50%
equity interest in net after-tax earnings of Trolley Barn (see Note 3 of Notes
to Condensed Consolidated Financial Statements). Trolley Barn opened one
additional restaurant in June 1997, and plans to open one more restaurant early
in the fourth quarter. As a result, the Company anticipates that its equity
interest in net after-tax earnings from Trolley Barn will increase slightly in
the remaining two quarters of 1997.
Interest Expense / Interest Income
Interest expense for the second quarter of 1997 increased $336,127 from the
second quarter of 1996, and for the first six months of 1997 increased $518,865
from the comparable period of 1996. Additionally, interest expense of
approximately $114,000 and $223,000 was capitalized to construction costs in the
second quarter and six months ended June 29, 1997, respectively. The increase in
interest expense is primarily attributable to an increase in long-term debt from
the end of the second quarter of 1996, principally borrowings under the
Company's Credit Facility of $24.7 million. Interest income primarily represents
amounts earned from the temporary investment of cash proceeds from the Company's
follow-on offering in the first quarter of 1995. Such proceeds were used for the
construction of new restaurants during 1996, resulting in the decrease to
interest income during 1997.
<PAGE>
15
Liquidity and Capital Resources
The Company requires capital principally for the development and
construction of new restaurants and for capital expenditures at existing
restaurants. The Company has financed its expansion over the last three years
principally through cash flow from operations, proceeds from public offerings,
borrowings on long-term debt and capital lease obligations. The following table
presents a summary of the Company's cash flows for the six months ended June 29,
1997, and June 30, 1996:
<TABLE>
<CAPTION>
Six Months Ended
------------------------------
1997 1996
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 6,343,775 $ 4,718,742
Net cash used in investing activities (20,753,792) (4,129,502)
Net cash provided by (used in) financing
activities 16,148,141 (80,141)
Increase in cash and cash equivalents 1,738,124 509,099
Cash and cash equivalents, end of period 1,738,124 4,064,440
</TABLE>
Net cash used in investing activities during the first six months of 1997
and 1996 included total capital expenditures of $20.7 million and $11.9 million,
respectively. This variance is primarily due to the number and type of
restaurants opened in each six-month period. Although the Company opened one
less Old Chicago restaurant in the first six months of 1997 than in 1996, it
opened four additional Rock Bottom Restaurant & Brewery restaurants. Because
Rock Bottom Restaurant & Brewery restaurants have a greater investment cost than
Old Chicago restaurants, total capital expenditures increased significantly in
1997. Additionally, investing activities for the first six months of 1996
included a $7.8 million source of cash for short-term investments liquidated
during that period.
Net cash provided by financing activities increased during the first six
months of 1997 primarily due to $16.2 million in borrowings under the Company's
Credit Facility. During July 1997, the Company amended its Credit Facility for a
second time to increase the maximum borrowings available from $25 million to $40
million and to amend certain other terms and covenants (see Note 2 of Notes to
Condensed Consolidated Financial Statements). As of June 29, 1997, the Company
had $24.7 million outstanding and $15.3 million available under the amended
Credit Facility.
Although the Company has historically leased its facilities, during the
first six months of 1997, the Company purchased undeveloped land for two Rock
Bottom Restaurant & Brewery restaurants. Such land was utilized to construct
build-to-suit locations using the Company's newly introduced design prototype.
The Company has executed contracts for a sale-leaseback for both locations,
which will result in recovery of certain investment costs including the cost of
the land. The Company estimates that the future cost to construct and open a
brewery restaurant prototype, assuming completion of a sale-leaseback
transaction, will be approximately $1.7 million to $1.9 million, as compared to
the estimated $2.6 to $3.0 million to construct and open a brewery restaurant
converted from an existing property. There can be no assurance, however, that
suitable locations for prototype brewery restaurants will be identified, that
sale leaseback transactions can be entered into on acceptable terms, or that the
costs of acquiring sites and opening new restaurants will not increase in the
future.
The Company estimates that total capital expenditures for 1997, excluding
preopening costs, will be approximately $27 million, of which the cost of new
restaurants will be approximately $22 million. The remaining $5 million is the
amount estimated for routine capital expenditures and remodels of existing
restaurants, and for general corporate purposes. There can be no assurance that
these estimated capital expenditures will be sufficient for completion of
current development plans or that they will not increase in the future.
<PAGE>
16
Subsequent to June 29, 1997, the Company announced a strategic plan to
reduce its future restaurant expansion by opening six Rock Bottom Restaurant &
Brewery restaurants and no Old Chicago restaurants during fiscal 1998 as
compared to opening seven Rock Bottom Restaurant & Brewery restaurants and seven
Old Chicago restaurants during fiscal 1997. Although a majority of the Old
Chicago restaurants currently operate at levels that meet management's sales and
profits expectations, the Company will focus on correcting uneven performance in
both sales and profitability before continuing to expand the Old Chicago
concept. In connection with the reduction in future growth plans, the Company
expects to incur a pre-tax charge in the third quarter of 1997 ranging from
approximately $3 million to $5 million. Such charge is related to write-downs of
certain underperforming restaurant assets and to costs associated with
streamlining the Company's headquarters operations in response to the
anticipated reduction in growth.
The Company believes that its existing cash balances, cash flow generated
from operations and funds available under the amended Credit Facility will be
sufficient to satisfy its currently anticipated cash needs through fiscal 1998.
However, results of operations may be affected by changes in consumer tastes,
national, regional or local economic conditions, demographic trends and traffic
patterns, decreased interest income and increased interest expense, among other
factors.
The Company does not have significant receivables or inventory and receives
trade credit based upon negotiated terms in purchasing food and supplies.
Seasonality and Quarterly Results
The Company's sales and earnings fluctuate seasonally. Historically, the
Company's highest earnings have occurred in the second and third quarters, but
as the Company enters new markets, it may encounter different seasonal patterns.
In addition, quarterly results have been and, in the future are likely to be,
substantially affected by the timing of new restaurant openings. Specifically,
results of operations from new restaurants opening in the first or fourth
quarters will experience lower margins initially than new restaurants opening in
the second and third quarters. Because of the seasonality of the Company's
business and the impact of new restaurant openings, results in any quarter are
not necessarily indicative of the results that may be achieved for a full fiscal
year and cannot be used to indicate financial performance for the entire year.
Impact of Inflation
Although the Company does not believe inflation has materially affected
operating results during the past three years, inflationary pressures could
result in substantial increases in costs and expenses, particularly food,
supplies, labor and operating expenses. Additionally, increases to minimum wage
rates have the potential to impact all aspects of the Company's business because
of higher labor rates experienced by its suppliers and vendors. These labor
rates could translate into higher costs for goods and services purchased by the
Company. All such increases in costs and expenses could have a significant
impact on the Company's operating results to the extent that such increases
cannot be passed along to customers.
<PAGE>
17
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Stockholders was held on May 28,
1997.
(b) The following directors were elected at the meeting :
Robert D. Greenlee
David M. Lux
Arthur Wong
The following directors hold terms of office that continued
after the meeting:
Frank B. Day Mary C. Hacking
Thomas A. Moxcey Gerald A. Hornbeck
Duncan H. Cocroft
(c) Four proposals were submitted for approval, which were passed with
voting results as follows:
(1) All three of the Company's nominees for directors
were reelected to serve until the Annual Meeting of
Stockholders in 2000, based on the following
tabulations:
For Withheld
--- --------
Robert D. Greenlee: 7,019,484 106,075
David M. Lux: 7,020,196 105,363
Arthur Wong 7,011,756 113,803
(2) The amendment to the Rock Bottom Restaurants, Inc.
Equity Incentive Plan was approved as follows:
For: 6,284,889 Abstain: 29,303
Against: 764,077 Broker non votes: 47,920
(3) The amendment to the Rock Bottom Restaurants, Inc.
Nonemployee Directors' Stock Option Plan was approved
as follows:
For: 6,583,745 Abstain: 39,014
Against: 455,510 Broker non votes: 47,290
(4) The appointment of Arthur Andersen LLP as the
Company's independent auditors was approved as
follows:
For: 7,100,491 Abstain: 9,325
Against: 15,743 Broker non votes: ----
(d) None.
<PAGE>
18
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Exhibit
------ ----------------------
10.1 Form of Management Employment Agreement
10.2 Form of Management Compensation Agreement
10.3 Form of Long Term Incentive Agreement
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by
this report.
<PAGE>
19
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.
ROCK BOTTOM RESTAURANTS, INC.
(Registrant)
August 12, 1997 By: /s/ WILLIAM S. HOPPE
----------------------
William S. Hoppe
Chief Financial Officer and
Executive Vice President
(Principal Financial Officer)
<PAGE>
20
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
<S> <C>
10.1 Form of Management Employment Agreement
10.2 Form of Management Compensation Agreement
10.3 Form of Long Term Incentive Agreement
27 Financial Data Schedule
</TABLE>
<PAGE>
1
FORM OF MANAGEMENT EMPLOYMENT AGREEMENT
This MANAGEMENT EMPLOYMENT AGREEMENT is made as of July 11, 1997, by and
between Rock Bottom Restaurants, Inc., a Delaware corporation (the "Company"),
and ________________ (the "Employee").
WHEREAS, the Company desires to employ the Employee to perform the duties
of ____________________ of the Company as such duties may be designated by the
Board of Directors (the "Board") from time to time;
WHEREAS, the Employee desires to be employed by the Company to perform such
duties upon the following terms and conditions;
WHEREAS, the Board has heretofore determined that it is in the best
interests of the Company and its stockholders to assure that the Company will
have the continued dedication of the Employee, notwithstanding the possibility,
threat or occurrence of a Change of Control (as defined below) of the Company;
and
WHEREAS, the Board has determined it is imperative to diminish the
inevitable distraction of the Employee by virtue of the personal uncertainties
and risks created by a pending or threatened Change of Control, to encourage the
Employee's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control and to provide the Employee
with compensation and benefits arrangements upon a Change of Control which
ensure that the compensation and benefits to be paid to the Employee are at
least as favorable as those in effect at the time of the Change of Control and
which are competitive with those of other corporations.
NOW, THEREFORE, in consideration of the mutual covenants herein, the
parties agree as follows:
1. Definitions. For purposes of this Agreement, the following terms shall
have the meanings set forth below:
a. A "Change of Control" shall be deemed to have occurred if
(i) any "person" or "group" (within the meaning of Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934) other than a
trustee or other fiduciary holding securities under an employee
benefit plan of the Company or Frank B. Day becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Securities Exchange Act of
1934), directly or indirectly, of 30% or more of the Company's then
outstanding voting common stock; or
<PAGE>
2 (ii) at any time during the period of three (3) consecutive
years (not including any period prior to the date hereof), individuals
who at the beginning of such period constitute the Board (and any new
director whose election by the Board or whose nomination for election
by the Company's stockholders were approved by a vote of at least
two-thirds of the directors then still in office who either were
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority thereof; or
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a
merger or consolidation (a) in which a majority of the directors of
the surviving entity were directors of the Company prior to such
consolidation or merger and (b) which would result in the voting
securities of the Company outstanding immediately prior thereto
continue to represent (either by remaining outstanding or by being
changed into voting securities of the surviving entity) at least 55%
of the combined voting power of the voting securities of the surviving
entity outstanding immediately after such merger or consolidation; or
(iv) the stockholders 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.
b. "Cause" shall mean:
(i) Dishonesty which is not the result of an inadvertent or
innocent mistake of the Employee with respect to the Company or any of
its subsidiaries;
(ii) Willful misfeasance or nonfeasance of duty by the Employee
intended to injure or having the effect of injuring in some material
fashion the reputation, business or business relationships of the
Company or any of its subsidiaries or any of their respective
officers, directors or employees;
(iii) Material violation by the Employee of any term of this
Agreement if such violation is not remedied or reasonable steps to
effect such remedy are not commenced within thirty (30) days after
written notice of such violation and diligently pursued to completion;
(iv)Conviction of the Employee of any felony, any crime involving
moral turpitude or any crime other than a vehicular offense which
could reflect in some material fashion unfavorably upon the Company or
any of its subsidiaries.
<PAGE>
3
c. "Disability" shall mean the absence of the Employee from the
Employee's duties with the Company on a full-time basis for 180 consecutive
days, or 180 days in a 365-day period, as a result of incapacity due to
mental or physical illness which is determined to be total and permanent by
a physician selected by the Company or its insurers and acceptable to the
Employee or the Employee's legal representative.
d. "Termination Date" shall mean:
(i) if the Employee's employment is terminated by the Company for
Cause, by the Employee for Good Reason or pursuant to a Termination
Following a Change of Control, the date of receipt of a notice of
termination or any later date specified therein, as the case may be;
(ii) if the Employee's employment is terminated by the Company
other than for Cause or Disability, the Termination Date shall be the
date thirty (30) days after the date on which the Company notifies the
Employee of such termination;
(iii) if the Employee's employment is terminated by reason of
Disability, the Termination Date shall be thirty (30) days after the
Company has notified the Employee of its intention to terminate
Employment due to his Disability;
(iv) if the Employee's employment is terminated by reason of his
death, the Termination Date shall be the last day of the month during
which his death occurs; and
(v) if the Employee voluntarily terminates his employment, the
Termination Date shall be the effective date of such termination as
determined in accordance with Section 7, Compensation.
e. "Termination Following a Change of Control" shall mean a
Termination of the Employee without Cause by the Company in connection with
or within one year following a Change of Control or a termination by the
Employee for Good Reason of the Employee's employment with the Company
within one year following a Change of Control.
f. "Good Reason" shall mean any of the following (without the
Employee's express written consent):
(i) A substantial and material alteration in the nature or status
of the Employee's responsibilities, or the assignment of duties
inconsistent with, or a substantial and material alteration in the
nature or status of, the Employee's responsibilities as in effect
immediately prior to a Change of Control;
<PAGE>
4
(ii) A failure by the Company to continue in effect any employee
benefit plan in which the Employee was participating, or the taking of
any action by the Company that would adversely affect the Employee's
participation in, or materially reduce the Employee's benefits under,
any such employee benefit plan, unless such failure or such taking of
any action adversely affects the senior members of corporate
management of the Company generally;
(iii) A relocation of the Company's principal offices, or the
Employee's relocation to any place other than the principal offices,
exceeding a distance of sixty (60) miles from the Company's current
corporate office located in Louisville, Colorado, except for
reasonably required travel by the Employee on the Company's business;
(iv) Any material breach by the Company of any provision of this
Agreement if such material breach has not been cured within thirty
(30) days following written notice of such breach by the Employee to
the Company setting forth with reasonable specificity the nature of
the breach; or
(v) Any failure by the Company to obtain the assumption and
performance of this Agreement by any successor (by merger,
consolidation or otherwise) or assign of the Company.
2. Termination Following a Change of Control; Benefits. In the event there
is a Termination Following a Change of Control, the Agreement shall terminate
and the Employee shall be entitled to the following severance benefits for a
period of _______(periods ranging from 12 to 24 months) after the Termination
Date:
a. Continued Base Salary (as defined in Section 7, Compensation) at
the rate in effect immediately prior to the Change of Control or on the
Termination Date, whichever is higher, in regular biweekly payments, or the
customary practice of the Company if different than biweekly, or if so
elected by the Employee, a lump sum payable within sixty (60) days after
the Employee's election;
b. Bonus payable in such amount as would be payable to the Employee
had he been employed by the Company for the full fiscal year during which
the termination occurred and the following year, and the Company had
achieved Plan performance for such fiscal years. Such bonus shall be paid
in the same manner as elected by the Employee in (a) above; and
c. To the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Employee any other amounts or benefits
required to be paid or provided or which the Employee is eligible to
receive under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies (such other amounts
and benefits shall be hereinafter referred to as the "Other Benefits").
<PAGE>
5
d. If the Employee receives any payments hereunder which are subject
to an excise tax imposed under Section 4999 of the Internal Revenue Code of
1986, as amended, or any similar tax imposed under federal, state or local
law (collectively, "Excise Taxes"), the Company shall pay to the Employee
(on or before the date which the Employee is required to pay such Excise
Taxes) (i) an additional amount equal to all Excise Taxes then due and
payable, and (ii) the amount necessary to defray the Employee's increased
(federal, state and local) income tax liability arising due to payment of
the amount specified in Subsections a., b. and c. of this Section 2. For
purposes of calculating the amount payable to the Employee under this
Section, the federal and state income tax rates used shall be the highest
marginal federal and state rates applicable to ordinary income in the
Employee's state of residence, taking into account any federal income tax
deductions or credits available to the Employee for state income taxes. The
Company shall cause its independent auditors to calculate such amount and
provide the Employee a copy of such calculation at least ten (10) days
prior to the date specified above for payment of such amount; and
e. All accrued compensation and unreimbursed expenses through the
Termination Date. Such amounts shall be paid to the Employee in a lump sum
in cash within thirty (30) days after the Termination Date.
f. The Employee shall be free to accept other employment during such
period, and there shall be no offset of any employment compensation earned
by the Employee in such other employment during such period against
payments due the Employee hereunder, and there shall be no offset in any
compensation received from such other employment against the continued
salary set forth above.
3. Termination Without Cause By Company; Benefits. The Company may
terminate the Employee's employment without Cause at any time upon 30 days prior
written notice. If there is a termination by the Company without Cause (not
involving a Change of Control, death or Disability), this Agreement shall
terminate and the Employee shall be entitled to the severance benefits set forth
below:
a. Continued Base Salary in regular biweekly payments for a period of
________(periods ranging from 6 to 12 months) after the Termination Date;
b. Bonus shall be payable at the same time as annual bonus payments to
employees who served for the full year, but the amount of the bonus payable
to the Employee shall be proportionately reduced by multiplying (x) the
full Bonus that would have been earned if the Employee had been employed
for the full fiscal year times (y) the fraction represented by the number
of days Employee was employed by the Company during such fiscal year
divided by the total number of days in such fiscal year; and
c. The Other Benefits for a period of ____________ after the
Termination Date shall be substantially equal to those to which the
Employee was entitled immediately prior to the Termination Date. During
such period, the Employee shall continue to be an employee of the Company
for purposes of participation in the plans which provide the Other
Benefits, but shall have no further responsibilities as an employee and
shall not be required or permitted to continue his former duties;
<PAGE>
6
d. All accrued compensation and unreimbursed expenses through the
Termination Date. Such amounts shall be paid to the Employee in a lump sum
in cash within thirty (30) days after the Termination Date; and
e. The Employee shall be free to accept other employment during such
period, and there shall be no offset of any employment compensation earned
by the Employee in such other employment during such period against
payments due the Employee hereunder, and there shall be no offset in any
compensation received from such other employment against the continued
salary set forth above.
4. Termination in Event of Death; Benefits. If the Employee's employment is
terminated by reason of the Employee's death during the Employment Period, this
Agreement shall terminate without further obligation to the Employee's legal
representatives under this Agreement, other than for payment of all accrued
compensation, unreimbursed expenses and the timely payment or provision of Other
Benefits through the Termination Date. Such amounts shall be paid to the
Employee's estate or beneficiary, as applicable, in a lump sum in cash within 30
days after the Termination Date. With respect to the provision of Other
Benefits, the term Other Benefits as used in this Section 4 shall include,
without limitation, and the Employee's estate and/or beneficiaries shall be
entitled to receive, benefits at least equal to the most favorable benefits
provided by the Company to the estates and beneficiaries of other executive
level employees of the Company under such plans, programs, practices and
policies relating to death benefits, if any, as in effect with respect to other
executives and their beneficiaries at any time during the 120-day period
immediately preceding the Termination Date.
5. Termination In Event of Disability; Benefits. If the Employee's
employment is terminated by reason of the Employee's Disability during the
Employment Period, this Agreement shall terminate without further obligations to
the Employee, other than for payment of all accrued compensation, unreimbursed
expenses and the timely payment or provision of Other Benefits. Such amounts
shall be paid to the Employee in a lump sum in cash within 30 days after the
Termination Date. With respect to the provision of Other Benefits, the term
Other Benefits as used in this Section 5 shall include, and the Employee shall
be entitled after the Termination Date to receive, disability and other benefits
at least equal to the most favorable of those generally provided by the Company
to disabled executives and/or their families in accordance with such plans,
programs, practices and policies relating to disability, if any, as in effect
generally with respect to other executive level employees and their families at
any time during the 120-day period immediately preceding the Termination Date.
<PAGE>
7
6. Voluntary Termination by Employee and Termination for Cause; Benefits.
The Employee may terminate his employment with the Company by giving written
notice of his intent and stating an effective date of termination at least sixty
(60) days after the date of such notice; provided, however, that the Company may
accelerate such effective date without liability to the Employee. The Company
may terminate the Employee's employment with Cause at any time without notice.
Upon such a termination by the Employee or upon termination for Cause by the
Company, this Agreement shall terminate and the Company shall pay to the
Employee all accrued compensation, unreimbursed expenses and the Other Benefits
through the Termination Date. Such amounts shall be paid to the Employee in a
lump sum in cash within 30 days after the Termination Date.
7. Compensation. During the term of this Agreement, the Employee
compensation shall be as follows:
a. The Company shall employ the Employee as its __________________ (or
as an executive officer with duties commensurate with serving as such an
executive officer of the Company and without altering the level to which
such officer reports) at a gross salary of __________ per annum payable in
accordance with the customary practices of the Company, plus such salary
increases and bonuses as are approved by the Board of Directors or the
Compensation Committee of the Board. (References to "Committee" in this
Agreement shall include such a committee of the Board or the Board of
Directors, whichever shall have taken action in the relevant
circumstances.) The annual gross salary, excluding all bonus plan payments,
as in effect from time to time, is referred to as the "Base Salary."
b. The Employee shall be a participant in the Company's Executive
Compensation Plan (the "Plan") under which, in addition to the Employee's
Base Salary, the Employee shall be eligible for an "Annual Cash Bonus"
based on criteria set by the Compensation Committee.
The Committee shall determine the basis for the Annual Cash Bonus for
each fiscal year prior to or as soon as reasonably practical after the
beginning of such fiscal year. The Employee shall not be entitled to an
Annual Cash Bonus with respect to any year in which he was not employed by
the Company for the full fiscal year unless his employment was terminated
by the Company without Cause or Employee's termination was a termination
pursuant to Section 2 or 3 hereof.
c. The Employee shall be designated a participant to the extent
determined by the Committee in the Company's long term incentive program
for each year during which he is employed by the Company.
d. The Employee shall receive the fringe benefits and such other
benefits as are made available to executive level employees of the Company
and such other payments or allowances as the Committee may from time to
time make available to the Employee (collectively, the "Fringe Benefits").
Without prejudice to the Employee's rights under this Agreement, the
Company reserves the right
(i) to modify the terms of any benefit plan that is generally
made available to executive level employees of the Company and in
which the Employee participates so long as such changes affect all
plan participants equally (or in proportion to their respective
interests), and
<PAGE>
8
(ii) to make reasonable changes in the Fringe Benefits at the
direction of the Compensation Committee of the Board, so long as the
Fringe Benefits available to the Employee after giving effect to such
change are not materially different from those being provided prior to
such change.
8. Duties. The Employee shall during the term of his employment hereunder:
a. Devote his full normal working time, energies and attention to the
duties of his employment, as they may be established from time to time by
the Board of Directors consistent with the position and office occupied by
the Employee (provided, however, that the Employee shall at all times have
complete control over the day-to-day operations of the Company);
b. Comply with all reasonable rules, regulations and administrative
directions now or hereafter established by the Company;
c. Be reimbursed by the Company from time to time (but at least
monthly) for all reasonable and necessary business expenses incurred by him
in the performance of his duties hereunder, provided that the Employee
shall render to the Company such accounts and vouchers covering
expenditures as the Company reasonably requires and as are necessary for
tax purposes, and shall follow normal Company policy on expenses; and
d. Not engage in any activity or employment which would reasonably be
expected to materially or directly conflict with the present or prospective
business interest of the Company.
9. Term. This Agreement shall be effective as of July 1, 1997 and shall
terminate on June 30, 1998, unless terminated earlier as provided herein;
provided, however, that this Agreement shall be automatically renewed for
successive one (1) year periods unless the Employee or the Company notifies the
other in writing on or before April 30 of each year of his or its determination
not to renew this Agreement, in which event this Agreement shall terminate on
June 30 of such year. If the Company provides such notice of nonrenewal, the
resulting termination shall be considered a termination without cause under
Section 2 or 3, as applicable.
10. Confidentiality and Non-Competition. The Employee acknowledges that the
Company has trade secrets and confidential information, that as an executive
level officer he will have access to all such trade secrets and confidential
information, and that in performing duties for another company he might
necessarily use and divulge such trade secrets and confidential information. The
Employee agrees that for a twelve (12) month period following the Termination
Date, the Employee will not, directly or indirectly:
a. In any manner, misuse or divulge to any person any confidential
information or trade secrets of the Company;
<PAGE>
9
b. Alone or in any capacity solicit or in any manner attempt to
solicit or induce any person or persons employed by the Company (or who
were employed by the Company) within one (1) year prior to the Termination
Date to leave their employment; or
c. As an employee, employer, consultant, agent, principal, partner,
more than 5% stockholder, corporate officer or director, engage or
participate in any business which operates a brew pub or neighborhood
casual dining restaurant featuring a wide selection of beer within a 1.5
mile radius of any restaurant of the Company (or any restaurant of the
Company planned to be opened within two years of the Termination Date).
11. Right to Injunctive Relief. The Employee agrees and acknowledges that a
violation of the covenants contained in this Section will cause irreparable
damage to the Company, and that it is and will be impossible to estimate or
determine the damage that will be suffered by the Company in the event of such
breach by the Employee. Therefore, the Employee further agrees that in the event
of any violation or threatened violation of such covenants, the Company shall be
entitled as a matter of course to an injunction out of any court of competent
jurisdiction restraining such violation or threatened violation by the Employee,
such right to an injunction to be cumulative and in addition to whatever other
remedies the Company may have.
12. Integration. This Agreement shall constitute the entire Agreement
relating to the employment of the Employee and supersedes any prior agreement
between the parties with respect to the subject matter hereof. This Agreement
shall be governed by the laws of Colorado, excluding laws on choice of law. Any
litigation regarding this Agreement shall only be brought and heard in the
federal or state courts located in Boulder or Denver, Colorado and no transfer
of venue outside such area shall be permitted.
13. Unenforceability. If any Section, Subsection, paragraph or subparagraph
of this Agreement or any part thereof shall be unenforceable under any
applicable laws, notwithstanding such unenforceability, the remainder of this
Agreement shall remain in full force and effect.
14. Assignment. This Agreement is person to the Employee and, without the
prior written consent of the Company, shall not be assignable by the Employee
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Employee's legal
representatives. This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
15. Attorneys' Fees. In the event of any legal, mediation or arbitration
action or proceeding to enforce or interpret the provisions hereof, the
prevailing party shall be entitled to reasonable attorneys' fees and costs,
whether or not the proceeding results in a final judgment; provided, however, in
the event of any such action or proceeding arising in connection with or as a
result of a Change of Control, the Company shall pay all such fees and costs
unless it is determined in such action or proceeding by final award or order
that the Employee had no reasonable basis for his position.
<PAGE>
10
16. Survival. Terms which by their terms or sense are to survive
termination here shall so survive.
17. Notice. Notices hereunder shall be in writing and sent to the residence
address of the Employee last provided to the Company, and to the then current
business address of the Company. Notices may be sent by first class U.S. mail
and shall be effective three (3) days after deposit. Notices sent by other means
shall be effective when actually delivered to the above-described address.
18. Withholdings. The Company may withhold any amounts payable under the
Agreement, the minimum amounts of any federal, state, local or foreign taxes, as
shall be required to be withheld pursuant to any applicable law or regulation.
IN WITNESS WHEREOF, the parties have executed this Management Employment
Agreement as of the date first above written.
ROCK BOTTOM RESTAURANTS, INC., EMPLOYEE
a Delaware corporation
By:________________________________ _____________________________
Title: Chairman of the Board
Note: Any executive compensation agreement shall be executed only following
specific approval of its terms by the Compensation Committee.
<PAGE>
1
FORM OF MANAGEMENT COMPENSATION AGREEMENT
March 31, 1997
To: Executive Officer
Fr: David Lux
Re: Executive Compensation for FY97
- --------------------------------------------------------------------------------
Your executive compensation package for fiscal year 1997 will consist of three
components:
1. Your base salary for the year.
2. A cash bonus potential.
3. Stock Options
4. A deferred (long term) compensation potential consisting of Restricted
Stock
Base Salary
- -----------
Your salary for FY97 has been set at __________
Cash Bonus
- ----------
In addition to your base salary, you have the potential to receive a cash bonus
for FY97 provided that the Company achieves certain predetermined financial
results. The exact amount of this bonus will be determined through application
of the following table which is based on the Company's budgeted financial
objective of $_____ (earnings per share). The amount of the bonus is directly
tied to the amount of the financial results achieved such that hitting 99% of
the budgeted financial objectives will pay 100% of the bonus potential with
additional bonus being earned for exceeding the objective and less being earned
for falling below:
RBR EPS Bonus Bonus
Objective Factor Amount
--------------------------------------------------------
$_____ 1.500 $_________
$_____ 1.375 $_________
$_____ 1.250 $_________
$_____ 1.125 $_________
$_____ 1.000 $_________
$_____ 0.813 $_________
$_____ 0.625 $_________
$_____ 0.438 $_________
$_____ 0.250 $_________
$_____ none none
Stock Options (NSO's)
- ---------------------
You have been awarded options to purchase ________ shares of common stock as
provided under the Company's Stock Option Plan at an option price of $10.66. All
terms and conditions of the plan are applicable as recited in the attached Stock
Option Agreement.
<PAGE>
2
Deferred (Long Term) Compensation Program
- -----------------------------------------
The Committee has also awarded you ________ shares of the Company's common stock
subject to certain accelerated vesting covenants and restrictions all of which
are explained in the attached Long Term Incentive Agreement (Attachment B).
Rock Bottom Restaurants, Inc.
- -------------------------------------
David Lux, Chairman
Compensation Committee
<PAGE>
1
FORM OF LONG TERM INCENTIVE AGREEMENT
(RESTRICTED STOCK)
THIS LONG TERM INCENTIVE AGREEMENT (hereinafter "Agreement"), effective
as of April 30, 1997, is between Rock Bottom Restaurants, Inc., a Delaware
corporation ("Rock Bottom"), and ______________, an officer of Rock Bottom
("Participant").
WITNESSETH THAT:
WHEREAS, Rock Bottom is committed to continually improve its financial
performance and believes that stock ownership of common stock, par value $.01
per share, of Rock Bottom ("Common Stock") by its officers and key participants
will provide incentive to achieve such objectives; and
WHEREAS, Rock Bottom desires to further the objectives as appeared in
the Equity Incentive Plan of Rock Bottom, as amended, (the "Plan"), by granting
Participant the rights described herein; and
WHEREAS, pursuant to the Plan, the Compensation Committee of the Board
of Directors of Rock Bottom (the "Committee") wishes to grant to Participant an
Award of shares of Common Stock all subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, Rock Bottom and Participant hereby agree as follows:
Section 1
Award
-----
1.1 Grant of Shares of Restricted Stock and Performance Units.
----------------------------------------------------------
Rock Bottom, effective as of the date of this Agreement (the "Date of
Grant"), hereby grants to Participant, as a matter of separate
agreement and not in lieu of salary, an award of _________ shares of
Common Stock which shall be restricted stock, subject to forfeiture in
accordance with Section 6.4 (Death, Disability or Retirement) hereof
and subject to the terms and conditions set forth herein (the
"Restricted Stock").
1.2 Rights Under this Agreement.
----------------------------
The rights of Participant with respect to the Award shall remain
forfeitable at all times prior to the dates on which such rights become
vested and the restrictions shall lapse in accordance with the
provisions of Sections 6 (Accelerated Vesting), 7 (Forfeiture of
Restricted Stock), and 8 (Change of Control) hereof.
<PAGE>
2
This Agreement shall be construed in accordance and consistent with,
and subject to, the provisions of the Plan, a copy of which is attached
hereto and made a part hereof as Exhibit A. Except as otherwise
expressly set forth herein, the capitalized terms used in this
Agreement shall have the same definitions as set forth in the Plan.
Section 2
Rights of Participant
---------------------
2.1 Restricted Stock.
-----------------
With respect to the Restricted Stock, Participant shall be entitled at
all times on and after the date of issuance of the Restricted Stock to
exercise all rights of a stockholder of Common Stock, including the
right to vote the shares of the Restricted Stock but not the qualified
right to receive dividends thereon, unless and until such Restricted
Stock is forfeited pursuant to the provisions of Section 6 hereof.
Section 3
Performance Cycle and Term of this Agreement
--------------------------------------------
3.1 Performance Cycle.
------------------
The Term "Performance Cycle" shall mean the period of three years
commencing December 29, 1996 and ending December 26, 1999.
3.2 Term of this Agreement.
-----------------------
The term of this Agreement shall be the period of ten fiscal years
commencing December 30, 1996 and ending December 31, 2006.
Section 4
Performance Objectives
----------------------
4.1 Definitions.
------------
(a) EPS.
----
The term "EPS" shall mean the fully diluted earnings per share of
Common Stock as determined through application of generally
accepted accounting principles and FASB 128 when adopted.
(b) Aggregate EPS.
--------------
The term "Aggregate EPS" shall mean the sum of the EPS for the
three fiscal years of the Performance Cycle.
<PAGE>
3
(c) EPS Objectives.
---------------
The term "EPS Objectives" shall mean the performance objectives
established by the Committee based upon and stated within a range
of Aggregate EPS set forth in Exhibit A attached hereto and made
a part hereof.
(d) Minimum EPS.
------------
The term "Minimum EPS" shall mean an Aggregate EPS of $____.
(e) EBIT Margin.
------------
The term "EBIT Margin" shall mean the Company's earnings before
income taxes reported as a line item on its consolidated
financial statements, plus interest expense, minus interest
income and represented as a percentage of total revenues for the
fiscal year ended December 26, 1999.
(f) EBIT Margin Objectives.
-----------------------
The term "EBIT Margin Objectives" shall mean the performance
objectives established by the Committee based upon and stated
within a range of EBIT Margin Objectives set forth in Exhibit A
attached hereto and made a part hereof.
(g) Minimum EBIT Margin.
--------------------
The term "Minimum EBIT Margin" shall mean a __% EBIT.
4.2 Aggregate EPS and EBIT Margin Objectives Applicable to Stock Award.
-------------------------------------------------------------------
The interrelated Aggregate EPS and EBIT Margin Objectives applicable to
Restricted Stock are expressed in the table in Exhibit A attached
hereto on a combined basis in the amounts of shares identified in the
Exhibit A matrix. The shares of Restricted Stock granted to Participant
pursuant to Section 1.1 of this Agreement represent and constitute the
maximum number of shares of Restricted Stock which may vest or be
awarded to Participant under and subject to the terms and conditions of
this Agreement.
Section 5
Vesting Restricted Stock
------------------------
5.1 Time of Vesting.
----------------
With respect to any of the Restricted Stock, such shares of Restricted
Stock shall vest, and the restrictions with respect to such shares
shall lapse on December 31, 2006, but such vesting shall be subject to
acceleration as defined in Section 6 hereof.
<PAGE>
4
Section 6
Accelerated Vesting
-------------------
6.1 General.
--------
All shares of the Award shall be subject to accelerated vesting
provided (a) the Company achieves Minimum EBIT Margin, (b) the EPS for
fiscal year 1999 is greater than that achieved in fiscal year 1998, and
(c) the Company achieves Minimum EPS for the three year Performance
Cycle, with the specific number of shares vesting to be determined
through application of the vesting table provided in Exhibit A.
In making the determinations with respect to Restricted Stock described
in Section 6 hereof, the Committee shall utilize and rely upon Exhibit
A attached hereto and the certified consolidated financial statements
provided to Rock Bottom by its outside auditors for the applicable
years of the Performance Cycle.
6.2 Determination of Accelerated Vesting by the Committee.
------------------------------------------------------
Within 75 days following the last day of the Performance Cycle, the
Committee shall determine the extent to which Aggregate EPS and EBIT
Margin Objectives have been met by Rock Bottom. The Committee shall
also determine, within the same time period, the number of shares of
Restricted Stock which correlate to (a) Aggregate EPS, to the extent
that Aggregate EPS equals or exceeds Minimum EPS, and (b) EBIT Margin,
to the extent the EBIT Margin equals or exceeds Minimum EBIT Margin as
set forth in the Exhibit A matrix.
6.3 Determination Notice.
---------------------
The Committee shall notify Participant (or Participant's legal
representatives, beneficiaries or heirs) of the determinations made by
the Committee within fifteen (15) days of such determination date (the
"Determination Notice"), specifying: (a) the number of shares of
Restricted Stock, if any, granted accelerate vesting, (b) the number of
shares of Restricted Stock which will be forfeited, if any, unless
Participant continues in the employment of Rock Bottom or a subsidiary
of Rock Bottom after the date of the Determination Notice, as provided
in Sections 6.4 hereof.
<PAGE>
5
6.4 Death, Disability or Retirement.
--------------------------------
If the employment of Participant is terminated as a result of
Participant's death, disability or retirement (normal or early
retirement under any retirement plan of Rock Bottom or a subsidiary of
Rock Bottom) after the first year of the Performance Cycle, but prior
to the last day of the Performance Cycle, the restrictions on a pro
rata portion (the "Pro Rata Portion") of shares of Restricted Stock
shall lapse, and the Pro Rata Portion shall vest, in accordance with
Section 6 hereof. The Pro Rata Portion shall be equal to the number of
shares of Restricted Stock which Participant would have been entitled
to at the end of the Performance Cycle had Participant's employment not
terminated as a result of Participant's death, disability or
retirement, multiplied by a fraction, the numerator of which shall be
the number of days elapsed from the beginning of the Performance Cycle
through the last day of the fiscal year during which the employment of
Participant by Rock Bottom or a subsidiary of Rock Bottom was
terminated and the denominator of which shall be the total number of
days in the Performance Cycle. All other shares of Retained Restricted
Stock under this Agreement shall be forfeited.
Section 7
Forfeiture of Restricted Stock
------------------------------
The right to vest in any shares of Stock shall be forfeited and all
shares shall revert to Rock Bottom upon:
(i) termination of the employment of Participant with Rock
Bottom for any reason at any time prior to the end of the
Performance Cycle pursuant to 6.4 (Death, Disability or
Retirement of Participant).
(ii) any attempt by Participant to transfer, sell, pledge,
hypothecate or assign rights with respect to any shares of
the Stock at any time prior to the end of the Performance
Cycle, other than by will or by the laws of decent and
distribution.
Section 8
Change of Control
-----------------
8.1 Definitions.
------------
(a) Change of Control.
------------------
A "Change of Control" shall be deemed to have occurred if
(i) any "person" or "group" (within the meaning of Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934)
other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or Mr. Frank
B. Day is or becomes the beneficial owner of 30%, or more of
the Company's voting common stock; or
<PAGE>
6
(ii) at any time during the period of three (3) consecutive
years (not including any period prior to the date hereof),
individuals who at the beginning of such period constitute
the Board (and any new director whose election by the Board
or whose nomination for election by the Company's
stockholders were approved by a vote of at least two-thirds
of the directors then still in office who either were
directors at the beginning of such period or whose election
or nomination for election was previously so approved) cease
for any reason to constitute a majority thereof; or
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation,
other than a merger or consolidation in which both (a) a
majority of the directors of the surviving entity were
directors of the Company prior to such consolidation or
merger, and (b) which would result in the voting securities
of the Company outstanding immediately prior thereto
continue to represent (either by remaining outstanding or by
being changed into voting securities of the surviving
entity) at least 55% of the combined voting power of the
voting securities of the surviving entity outstanding
immediately after such merger or consolidation; or
(iv) the stockholders 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.
(v) A failure by the Company to continue in effect any
participant benefit plan in which the Participant was
participating, or the taking of any action by the Company
that would adversely affect the Participant's participation
in, or materially reduce the Participant's benefits under,
any such participant benefit plan, unless such failure or
such taking of any action adversely affects the senior
members of corporate management of the Company generally;
(vi) A relocation of the Company's principal offices, or the
Participant's relocation to any place other than the
principal offices, exceeding a distance of sixty (60) miles
from the Company's current corporate office located in
Louisville, Colorado, except for reasonably required travel
by the Participant on the Company's business;
(vii) Any material breach by the Company of any provision of
this Agreement if such material breach has not been cured
within thirty (30) days following written notice of such
breach by the Participant to the Company setting forth with
reasonable specificity the nature of the breach; or
(viii) Any failure by the Company to obtain the assumption
and performance of this Agreement by any successor (by
merger, consolidation or otherwise) or assign of the
Company.
<PAGE>
7
8.2 Lapse of Restrictions.
----------------------
Notwithstanding any other vesting provision in this Agreement to the
contrary, in the event there is a Change of Control, the restrictions
on 50% of the Restricted Stock awarded to the Participant shall lapse;
provided that, in the event that the Change of Control occurs after the
first year of the Performance Cycle, the Compensation Committee shall
have the right, in its discretion (and after evaluating the Company's
financial performance in relation to Company plans and analyst
estimates, the Company's future prospects and other factors it deems
relevant), to declare that the restrictions on all or a portion of the
remaining 50% of the Restricted Stock shall lapse. Furthermore, in the
event of a Change of Control, the Committee shall have the right to pay
any Participant, in cash, the value of the shares of Restricted Shares
as to which restrictions have lapsed based on the price paid (or value
of consideration received) for shares of Common Stock of the Company in
the Change of Control transaction.
Section 9
Issuance and Custody of Certificates
------------------------------------
9.1 Restricted Stock.
-----------------
Certificates representing the shares of Restricted Stock to be issued
pursuant to Section 1.1 hereof shall be registered in the name of
Participant, shall bear the restrictive legend described in Section 9.2
hereof, and shall be subject to an appropriate stop transfer order;
provided, however, that the certificate representing any such shares of
Restricted Stock shall be held in custody by Rock Bottom until all of
the restrictions applicable to any such shares of Restricted Stock have
lapsed and such shares or the applicable portion of such shares have
vested in Participant pursuant to the terms and conditions of this
Agreement.
9.2 Restrictive Legend.
-------------------
Each certificate issued by Rock Bottom to Participant pursuant to this
Agreement representing Restricted Stock shall bear the following
restrictive legend:
"The shares represented by this certificate are subject to the
restrictions on transfer contained in the Equity Incentive
Plan of June 3, 1994, as amended and by the provisions of the
Long Term Incentive Agreement of April 30, 1997. Copies of the
Plan and the Agreement are on file at the principal place of
business of the Corporation at 248 Centennial Parkway, Suite
100, Boulder, Colorado 80027, and these shares may not be
transferred except in accordance with the provisions thereof."
<PAGE>
8
9.3 Delivery of Certificates.
-------------------------
After any shares of Restricted Stock vest pursuant to Section 6 hereof,
Rock Bottom shall as soon as practicable cause to be issued a
certificate or certificates, registered in Participant's name or in the
name of Participant's legal representatives, beneficiaries or heirs, as
the case may be, representing such vested shares, free of the legend
provided in Section 9.3 hereof and any stop-transfer order with respect
to such shares, and shall cause such certificate or certificates to be
delivered to Participant or Participant's legal representatives,
beneficiaries or heirs, as the case may be.
Section 10
Dividends
---------
All dividend rights with respect to any Restricted Stock shall belong
the Participant, provided that any and all dividends declared and paid prior to
the lapse of restrictions with respect to any share of Restricted Stock shall be
retained by the Company until the restrictions lapse. All dividends so retained
shall be paid to the Participant, after deducting any applicable withholding
taxes, upon lapse of restrictions with respect to any Shares of Restricted
Stock. The Participant shall have the right to vote any shares distributed with
respect to any Restricted Stock award.
Section 11
Tax Withholding
---------------
Prior to the release and delivery of any shares of Restricted Stock by
Rock Bottom to Participant, Participant shall make arrangements, satisfactory to
Rock Bottom, for the payment to Rock Bottom of an amount equal to the federal,
state and local income taxes and other amounts required by law to be withheld
(the "Withholding Taxes") with respect to the delivery to Participant of any
shares of Restricted Stock (which shall no longer be restricted, and shall be
referred to in this Section 11 as "Stock"). In order to satisfy the obligation
to pay the Withholding Taxes to Rock Bottom, Participant may elect (i) to have
the withholding amounts taken from cash remuneration to be paid to Participant
by Rock Bottom during the payroll tax quarter which includes the date that the
amount of tax to be withheld is to be determined (the "Tax Date"); (ii) to
transfer to Rock Bottom, or to have Rock Bottom withhold from Stock deliverable
to Participant, Stock having a Fair Market Value equal to the Withholding Taxes;
or (iii) any combination of (i) and (ii). The value of Stock to be withheld
shall be based on the Fair Market Value of the Stock on the date that the amount
of tax to be withheld is to be determined (the "Tax Date"). Any election by
Participant to have Stock withheld for this purpose will require that the
election be in writing, that it be made before the applicable Tax Date, and that
the election be irrevocable.
Section 12
Adjustments
-----------
In the event of a stock split or stock dividend, the Committee shall
make such adjustments as it deems appropriate to the vesting table in Exhibit A.
Provided however, it is not the intent of the committee to make adjustments to
the vesting table in the event of merger, consolidation, or changes in the
corporate structure (including new issues of debt, convertible debt, preferred
stock and common stock).
<PAGE>
9
Section 13
No Right to Continued Employment
--------------------------------
Nothing in this Agreement or the Plan shall be interpreted to confer
upon Participant any right with respect to continuance of employment by Rock
Bottom or any subsidiary of Rock Bottom, nor shall this Agreement nor the Plan
interfere in any way with the right of Rock Bottom to terminate the employment
of Participant at any time.
Section 14
Participant Bound by the Plan and the Agreement
-----------------------------------------------
Participant hereby acknowledges receipt of a copy of the Plan and
agrees to be bound by the Provisions of the Plan and the terms and conditions of
this Agreement. Further, Participant acknowledges that certain provisions of
this agreement are more restrictive (less favorable to Participant) than similar
provisions in the plan, and Participant agrees to be bound by the more
restrictive provisions in this Agreement.
Section 15
Modification of Agreement
-------------------------
This Agreement may be modified, amended, suspended or terminated, and
any terms or conditions may be waived, but only by written instrument executed
by Rock Bottom and Participant.
Section 16
Severability
------------
In the event that any provision of this Agreement is held by a court of
competent jurisdiction to be unenforceable or invalid for any reason, the
remaining provisions of this Agreement shall not be affected by such holding and
shall continue in full force and effect in accordance with their terms.
Section 17
Governing Law
-------------
The validity, interpretation, construction and performance of this
Agreement shall be governed by the internal laws of the State of Delaware,
without giving effect to the conflicts of laws principles thereof.
Section 18
Successors in Interest
----------------------
This Agreement shall inure to the benefit of and be binding upon any
successor to Rock Bottom. This Agreement shall inure to the benefit of the legal
representatives, beneficiaries or heirs of Participant and all rights granted to
Rock Bottom under this Agreement shall be binding upon Participant's legal
representatives, beneficiaries or heirs.
<PAGE>
10
Section 19
Resolution of Disputes
----------------------
Any dispute or disagreement which may arise under, or as a result of,
or in any way relate to, the interpretation, construction or application of this
Agreement shall be determined by the Committee. Any determination made hereunder
by the Committee shall be final, binding and conclusive for the Participant and
Rock Bottom for all purposes.
IN WITNESS WHEREOF, Rock Bottom has caused this Agreement to be duly
executed by a member of the Committee or its duly authorized designee and
Participant has executed this Agreement, all as of the day and year first above
written.
ATTEST: ROCK BOTTOM RESTAURANTS, INC.
By: ______________________
David M. Lux, Chairman,
Compensation Committee
______________________
PARTICIPANT
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S INTERIM UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE
29, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> JUN-29-1997
<CASH> 1,738,124
<SECURITIES> 0
<RECEIVABLES> 965,758
<ALLOWANCES> 0
<INVENTORY> 2,600,122
<CURRENT-ASSETS> 9,917,022
<PP&E> 102,948,003
<DEPRECIATION> (13,388,975)
<TOTAL-ASSETS> 105,558,237
<CURRENT-LIABILITIES> 9,951,673
<BONDS> 27,725,086
0
0
<COMMON> 79,421
<OTHER-SE> 67,356,390
<TOTAL-LIABILITY-AND-EQUITY> 105,558,237
<SALES> 70,123,850
<TOTAL-REVENUES> 70,123,850
<CGS> 17,363,157
<TOTAL-COSTS> 67,084,723
<OTHER-EXPENSES> (12)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 653,012
<INCOME-PRETAX> 2,543,229
<INCOME-TAX> 741,204
<INCOME-CONTINUING> 1,802,025
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,802,025
<EPS-PRIMARY> .23
<EPS-DILUTED> 0
</TABLE>
