Exhibit 10.14
SEPARATION AGREEMENT
     This Separation Agreement (hereinafter “Agreement”) is made and entered
into this 31st day of January, 2006 (hereinafter the “Effective Date”), by and
between Kona Grill, Inc., a Delaware corporation (hereinafter referred to as the
“Company”), and C. Donald Dempsey (hereinafter referred to as “Employee”).
RECITALS
     WHEREAS, Employee is currently employed by the Company as its President and
Chief Executive Officer;
     WHEREAS, Employee’s employment with the Company is governed by an
“Employment Terms Letter,” which is Exhibit 10.1(a) to the Company’s
Registration Statement on Form S-1 (File No. 333-125506) filed with the
Securities and Exchange Commission on June 3, 2005, as amended by the “Amended
Employment Terms Letter,” which is Exhibit 10.1(b) to the Company’s Registration
Statement on Form S-1 (File No. 333-125506) filed with the Securities and
Exchange Commission on June 3, 2005;
     WHEREAS, Employee has elected to voluntarily resign his position as an
officer of the Company, as well as his position on the Company’s Board of
Directors, effective January 31, 2006;
     WHEREAS, Employee’s status with the Company will end, effective April 30,
2006 (hereinafter the “Separation Date”);
     WHEREAS, the Company and Employee, in order to settle, compromise and fully
and finally release any and all claims and potential claims against the Company
or Company Releasees (as defined below), arising out of Employee’s employment
and the cessation thereof, have agreed to resolve these matters on the terms and
conditions set forth herein; and
     WHEREAS, Employee acknowledges he is waiving rights and claims described
herein in exchange for consideration in addition to anything of value to which
he is already entitled;
     NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
     1. Recitals. The recitals set forth above are true, accurate, and correct,
and are incorporated in this Agreement by this reference and made a material
part of this Agreement.
     2.1 Severance Benefits. Upon expiration of the revocation period referenced
in Paragraph 12 of this Agreement, and provided Employee does not revoke

 

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this Agreement pursuant to Paragraph 12 of this Agreement, Employee shall be
entitled to the following benefits from the Company:
          a. Severance Payment: Pursuant to Section 7 of the Employment Terms
Letter, as amended by the Amended Employment Terms Letter, twelve (12) months’
base salary, in the gross amount of $360,000 (Three Hundred Sixty Thousand
Dollars and 00/100 Cents), minus all statutory deductions, to be paid to
Employee in accordance with the Company’s ordinary payroll practices, over the
period May 1, 2006 to April 30, 2007.
          b. Annual Bonus: Notwithstanding any contrary provisions in the
Employment Terms Letter or the Amended Employment Terms Letter, the gross amount
of $157,500.00 (One Hundred Fifty-Seven Five Hundred and No/100 Dollars) in
satisfaction of any and all annual bonus entitlement or obligation. Employee
specifically acknowledges and agrees that this amount is an amount to which he
was not otherwise entitled, and that it that it constitutes sufficient
consideration for the additional promises set forth in this Agreement.
          c. Stock Options/Bonus Options: Notwithstanding any contrary
provisions in the Employment Terms Letter or the Amended Employment Terms
Letter, Employee agrees and acknowledges that the Company has previously
provided him with all Stock Options and Bonus Options to which he is entitled.
To the extent any of those options are not currently vested, all options
previously granted to Employee shall vest as of the Separation Date. The Company
and Employee agree that Employee must exercise all options currently held by him
by no later than May 1, 2006.
          d. Medical Insurance: Subject to any applicable deductibles or
co-payments, the Company shall provide to the Employee, and Employee’s eligible
dependents, medical insurance benefits under the Company’s Group Medical Plan,
or the plan then in effect for similarly situated employees, as amended from
time to time, for a period of up to eighteen (18) months starting May 1, 2006,
or until the date on which Employee obtains employment with a new employer that
offers medical coverage for the Employee and Employee’s eligible dependents,
which does not exclude coverage for any pre-existing conditions (regardless of
any deductible or co-payments or Employee contribution requirements for such
medical coverage), and becomes eligible for such coverage (“New Coverage”),
whichever is earlier. Employee shall give the Company written notice of New
Coverage. Employee acknowledges that Employee’s COBRA period shall begin on the
Separation Date, and that the foregoing medical insurance coverage under the
Company’s Group Medical Plan constitutes Company-paid COBRA. Coverage provided
during this period of Company-paid COBRA shall be at the same level of coverage
previously elected by or provided to Employee during his employment with the
Company, subject to provider modification(s) to the applicable insurance
benefits.
     2.2 Other Payments. The Company will pay Employee all earned but unpaid
compensation through the Separation Date, as well as accrued but unused

 

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vacation pay to which Employee is entitled through the Separation Date, under
the Company’s vacation pay policy and/or practices, in accordance with
applicable law.
     2.3 Taxes. All payments and other benefits provided to Employee under this
Agreement shall be subject to any withholding and employment taxes consistent
with the character of the payments in accordance with applicable law.
     2.4. Adequate Consideration. Employee acknowledges and agrees that
Paragraph 2.1 of this Agreement includes and provides for substantial
consideration to Employee in addition to anything of value to which he is, as a
matter of law, otherwise entitled.
     3. Release. In consideration of his receipt of the severance benefits set
forth in Paragraph 2.1 of this Agreement, Employee, for himself, his spouse (if
any), and their respective heirs, estates, representatives, executors,
successors and assigns, hereby fully, forever, irrevocably, and unconditionally
release and discharge the Company, including the Company’s past and present
officers, directors, members, stockholders, parent companies, subsidiaries,
affiliates, successors, assigns, agents, employees, representatives, lawyers,
administrators, and all persons acting by, through, under, or in concert with
them (collectively, the “Company Releasees”), from any and all claims which he
or they may have against them, or any of them, which could have arisen out of
any act or omission occurring from the beginning of time to the Effective Date
of this Agreement, whether now known or unknown, asserted or unasserted. This
release includes, but is not limited to, any and all claims brought or that
could be brought pursuant to or under the Americans with Disabilities Act, Title
VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act,
the Civil Rights Act of 1991, the National Labor Relations Act, the Fair Labor
Standards Act, the Employee Retirement and Income Security Act (ERISA), the
Sarbanes-Oxley Act, the Consolidated Omnibus Budget Reconciliation Act (COBRA),
the Family and Medical Leave Act, the Equal Pay Act, the Minnesota Human Rights
Act, the Minnesota Fair Labor Standards Act, or any other statute set forth in
the Minnesota Statutes, or any other federal, state or local administrative
statute, law, rule, regulation, ordinance, or order that pertains or relates to,
or otherwise touches upon, the employment relationship between the Company and
Employee; and any and all actions for breach of contract, express or implied,
breach of the covenant of good faith and fair dealing, express or implied,
promissory estoppel, wrongful termination in violation of public policy, all
other claims for wrongful termination and constructive discharge, and all other
tort claims, including, but not limited to, assault, battery, false
imprisonment, intentional interference with contractual relations, intentional
or negligent infliction of emotional distress, invasion of privacy, negligence,
negligent investigation, negligent hiring, supervision, or retention,
defamation, intentional or negligent misrepresentation, fraud, and any and all
other laws and regulations relating to employment, employment termination,
employment discrimination, harassment, and/or retaliation, wages, hours,
employee benefits, compensation, sexual harassment, and any and all claims for
attorneys’ fees and costs, pursuant to or arising under any federal, state, or
local statute, law, rule, regulation, ordinance, or order. This release of
claims expressly includes, but is not limited to, any and all claims arising out
of or in any way related to Employee’s employment with the

 

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Company, or both, whether known by him at the time of execution of this
Agreement or not. By signing this Agreement, however, Employee does not waive
any rights or claims that may arise after the Effective Date of this Agreement.
     4. Form 8-K Disclosure. Employee acknowledges that the Company provided him
with a proposed Form 8-K disclosure, a copy of which is attached hereto as
Exhibit A. Employee represents that he reviewed this proposed disclosure, and
that agrees with each and every material representation therein.
     5. Covenant Not to Sue. Employee warrants that he has no pending
complaints, charges, or claims for relief against the Company or Company
Releasees, or any of them, with any local, state, or federal court or
administrative agency. Employee understands and agrees that this Agreement may
be pled as a complete bar to any action or suit before any administrative body
or court with respect to any complaint, charge, or claim under federal, state,
local, or other law relating to any possible claim that existed or may have
existed against the Company or Company Releasees, or any of them, arising out of
any event occurring from the beginning of time through the Effective Date of
this Agreement.
     6. Non-Disparagement. Employee agrees that neither he nor anyone acting on
his behalf will make any derogatory or disparaging statement about the Company
or Company Releasees, or any of them. Employee agrees and understands that the
promise of non-disparagement is a material inducement to the Company in agreeing
to provide the benefits set forth in Paragraph 2.1(a) and 2.1(d), and that in
the event Employee breaches the provisions of this Paragraph, it shall
constitute a material breach of this Agreement, and that the Company shall be
entitled to cease making any payments to Employee under Paragraph 2.1(a) and to
cease to provide Employee with any Company-paid COBRA under Paragraph 2.1(d), as
well as the right to seek all damages caused by such breach, including, without
limitation, reputational damages and punitive damages.
     7. Restrictive Covenants. Employee acknowledges and agrees that he is bound
and shall remain bound by the terms of the Confidentiality and Non-Compete
Agreement he executed in connection with and pursuant to Paragraph 8 of the
Employment Terms Letter, a copy of which is attached hereto as Exhibit B and
incorporated herein by reference. The terms of that Confidentiality and
Non-Compete Agreement shall survive the termination of his employment with the
Company and remain enforceable. Consistent with the provisions set forth in the
Confidentiality and Non-Compete Agreement, Employee reaffirms, agrees, and
acknowledges that, at all times after the Separation Date, he will not, without
the prior written consent of the Company, directly or indirectly,
(i) misappropriate or otherwise make any use of Company trade secrets or
Proprietary Information (as that term is defined in the Confidentiality and
Non-Competition Agreement); or (ii) release or otherwise divulge such trade
secrets or any other confidential, secret, or Proprietary Information of the
Company to any third party, except as is reasonably necessary in furtherance of
his employment duties hereunder. Notwithstanding anything set forth in this
Paragraph 7, Employee shall not be deemed to be in breach of this Paragraph if
Employee: (i)

 

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discloses information pursuant to express written authorization of the Company;
or (ii) discloses information to any governmental authority or court, pursuant
to a duty imposed by law (provided, however, that Employee shall notify the
Company of the disclosure at least five (5) business days prior to such
disclosure).
     8. Non-Solicitation of Key Company Employees. Employee agrees that, for a
period of eighteen (18) months immediately following Separation Date, or, in the
alternative, in the event any reviewing court finds eighteen (18) months after
the Separation Date to be overbroad in duration and unenforceable, for a period
of twelve (12) months after the Separation Date, or, in the alternative, in the
event any reviewing court finds twelve (12) months to be overbroad in duration
and unenforceable, for a period of nine (9) months after the Separation Date,
or, in the alternative, in the event any reviewing court finds nine (9) months
to be overbroad in duration and unenforceable, for a period of six (6) months
after the Separation Date, or, in the alternative, in the event any reviewing
court finds six (6) months to be overbroad in duration and unenforceable, for a
period of three (3) months after the Separation Date, Employee shall not
solicit, encourage, influence, induce, or cause others to solicit, encourage,
influence, or induce any executive employee or management employee of the
Company (collectively referred to herein as “Key Company Employees”) to
terminate their employment relationship with the Company, or solicit, induce,
seek to hire, offer employment to and/or hire any Key Company Employee, either
as an employee, consultant, or independent contractor. If Employee violates the
obligations contained in this Section, the time periods hereunder shall be
extended by a period of time equal to that period beginning when the activities
constituting such violation commenced and ending when the activities
constituting such violation terminated. Employee agrees that the consideration
provided for in Paragraph 2.1 of this Agreement is adequate and sufficient
consideration for the promises provided in this Paragraph 8.
     9. Return of Company Property. Employee agrees to and shall return to the
Company all Company property in his actual or constructive possession prior to
or on the Separation Date.
     10. Consultation with an Attorney. The Company has advised Employee to
consult with an attorney of his choosing prior to executing this Agreement.
Employee represents and agrees that he has thoroughly discussed all aspects of
his rights and this Agreement, including his waiver of claims under the Age
Discrimination in Employment Act, with an attorney, to the extent he wished to
do so, prior to his placing of his signature on this Agreement.
     11. Review. A copy of this Agreement was delivered to Employee on
January 31, 2006. Employee has been advised that he has twenty-one (21) days
from the date he is presented with this Agreement to consider this Agreement. If
Employee executes this Agreement before the expiration of twenty-one (21) days,
he acknowledges that he has done so for the purpose of expediting the payment of
severance benefits, and that he has expressly waived his right to take
twenty-one (21) days to consider this Agreement.

 

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     12. Revocation. Employee may revoke this Agreement for a period of seven
(7) days after he signs it. Employee agrees that if he elects to revoke this
Agreement, he will notify Company (c/o Quinn P. Williams, Greenberg Traurig,
LLP, 2375 East Camelback Road, Suite 700, Phoenix, Arizona, 85106) in writing,
via certified mail, on or before the expiration of the revocation period.
Receipt of proper and timely notice of revocation by the Company cancels and
voids this Agreement. Provided that Employee does not provide notice of
revocation, this Agreement will become effective upon expiration of the
revocation period.
     13. Confidentiality. Employee agrees that he will keep the terms and fact
of this Agreement confidential. He will not disclose the existence of this
Agreement or any of its terms to anyone except his immediate family, attorneys,
or accountants, unless required by law.
     14. Amendment. This Agreement shall be binding upon the parties and may not
be amended, supplemented, changed, or modified in any manner, orally or
otherwise, except by an instrument in writing of concurrent or subsequent date
signed by both of the parties.
     15. Entire Agreement. This Agreement contains and constitutes the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof, and, except as otherwise provided herein, cancels all
prior or contemporaneous oral or written understandings, negotiations,
agreements, commitments, representations, and promises in connection herewith,
including but not limited to any contrary provisions set forth in the Employment
Terms Letter and/or the Amended Employment Terms Letter.
     16. Section Headings. The section headings in this Agreement are for
convenience only; they form no part of this Agreement and shall not affect its
interpretation.
     17. Construction. The parties hereto acknowledge and agree that each party
has participated in the drafting of this Agreement and has had the opportunity
to have this document reviewed by the respective legal counsel for the parties
hereto and that the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be applied
to the interpretation of this Agreement. No inference in favor of, or against,
any party shall be drawn from the fact that one party has drafted any portion
hereof.
     18. Execution in Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This Agreement shall become binding when
one or more counterparts hereof, individually or taken together, shall bear the
signatures of the parties reflected hereon as the signatories.

 

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     19. Choice of Law and Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of Arizona. The parties agree
that any claim, action, complaint, lawsuit, or other dispute arising between the
parties related to the terms of this Agreement shall be brought and heard in the
federal or state courts located in Maricopa County, Arizona, and Employee
expressly consents to the exercise of personal jurisdiction over him by the
Arizona courts.
     20. Severability. Should any provision in this Agreement be declared or
determined by any court to be illegal or invalid, the validity of the remaining
parts, terms, or provisions shall not be affected, and the illegal or invalid
part, term, or provision shall be deemed not to be a part of this Agreement.
     21. Effect of this Agreement. It is expressly understood and agreed that
this Agreement shall not in any way be construed at any time or for any purpose
as an admission by the parties that either of them has acted wrongfully with
respect to the others.
     22. Waiver. The failure of a party to insist upon strict adherence to any
obligation of this Agreement shall not be considered a waiver or deprive that
party of the right thereafter to insist upon strict adherence to that term or
any other term of this Agreement. Any waiver of any provision of this Agreement
must be in a written instrument signed and delivered by the party waiving the
provision.
     23. Attorneys’ Fees. Should any legal action be commenced arising out of
this Agreement, the prevailing party in any such action shall be entitled to an
award of attorneys’ fees incurred therein.
[Remainder of Page Intentionally Blank;
Signatures on Following Page]

 

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     By signing below, the parties acknowledge that they have carefully read and
fully understand all of the provisions of this Agreement and that they are
voluntarily entering into this Agreement.

                      KONA GRILL, INC., a Delaware corporation
 
           
Dated:
      By    
 
           
 
      Its    
 
           
 
           
Dated:
                     
 
          C. Donald Dempsey