Cava Group, Inc 10-K for FY2024
Cava Group, Inc. (CAVA)
10-K
2025-02-26
For: 2024-12-29
View Original
Added on
April 11, 2026
About this 10-K
Cava Group, Inc filed this 10-K on February 26, 2025, covering the fiscal year ended December 29, 2024 (FY2024).
Headline figures
Fiscal year ended December 29, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $963.71M
- up 32.3% from $728.7M a year earlier
- Net income
- $130.32M
- up 881.3% from net income of $13.28M a year earlier
- Diluted EPS
- $1.10
- up 423.8% from $0.21 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the fiscal year ended December 29 , 2024
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from ______ to ______
Commission File Number 001-41721
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices) | (Zip Code) | ||||
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x Noo
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yeso No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| x | Accelerated filer | o | ||||||||||||
Non-accelerated filer | o | Smaller reporting company | ||||||||||||
Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
As of July 12, 2024, the last trading day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s outstanding common stock held by non-affiliates was $6.9 billion based on the closing price of the registrant’s common stock. For purposes of this calculation, shares of common stock held by the registrant’s executive officers and directors and certain significant stockholders have been excluded since those persons may under certain circumstances be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
The registrant had 115,594,585 shares of common stock outstanding as of February 18, 2025.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the registrant’s definitive proxy statement for the 2025 annual meeting of stockholders, which will be filed no later than 120 days after the registrant’s fiscal year ended December 29 , 2024
Table of Contents
| Page | ||||||||
Part I | ||||||||
Item 1. | ||||||||
Item 1A. | ||||||||
Item 1B. | ||||||||
Item 1C. | ||||||||
Item 2. | ||||||||
Item 3. | ||||||||
Item 4. | ||||||||
Part II | ||||||||
Item 5. | ||||||||
Item 6. | ||||||||
Item 7. | ||||||||
Item 7A. | ||||||||
Item 8. | ||||||||
Item 9. | ||||||||
Item 9A. | ||||||||
Item 9B. | ||||||||
Item 9C. | ||||||||
Part III | ||||||||
Item 10. | ||||||||
Item 11. | ||||||||
Item 12. | ||||||||
Item 13. | ||||||||
Item 14. | ||||||||
Part IV | ||||||||
Item 15. | ||||||||
Item 16. | ||||||||
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Cautionary Statement Concerning Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that reflect our current views with respect to, among other things, our operations and financial performance. Forward-looking statements include all statements that are not historical facts. These forward-looking statements relate to matters such as our industry, business strategy, goals, expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources, and other financial and operating information. These statements may include words such as “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “future,” “will,” “seek,” “foreseeable,” “outlook,” the negative version of these words, or similar terms and phrases.
The forward-looking statements contained in this Annual Report on Form 10-K are based on management’s current expectations and are not guarantees of future performance. The forward-looking statements are subject to various risks, uncertainties, assumptions, or changes in circumstances that are difficult to predict or quantify, including those described in “Item 1A. Risk Factors” in this Annual Report on Form 10-K. Our expectations, beliefs, and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, and projections will result or be achieved. Moreover, we operate in a very competitive and rapidly changing environment and new risks emerge from time to time. Actual results may differ materially from these expectations due to changes in global, regional, or local economic, business, competitive, market, regulatory, and other factors, many of which are beyond our control.
You should not put undue reliance on any forward-looking statements. You should understand that many important factors, including those discussed herein, could cause our results to differ materially from those expressed or suggested in any forward-looking statement. Except as required by law, we do not undertake any obligation to update or revise these forward-looking statements to reflect new information or events or circumstances that occur after the date of this Annual Report on Form 10-K or to reflect the occurrence of unanticipated events or otherwise.
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Summary of Risk Factors
An investment in our common stock involves risks. The following risks, trends, and uncertainties, which are discussed more fully in “Item 1A. Risk Factors,” and all of the other information contained in this Annual Report on Form 10-K should be considered carefully before investing in our common stock. These risks include, but are not limited to, the following:
•We operate in a highly competitive industry;
•Our future growth depends on our ability to open new restaurants while managing our growth effectively and maintaining our culture, and our historical growth may not be indicative of our future growth;
•We may not be able to successfully identify appropriate locations and develop and expand our operations in existing and new markets;
•New restaurants may not be profitable, and may negatively affect sales at our existing locations;
•Negative changes in guest perception of our brand could negatively impact our business;
•Our efforts to market our restaurants and brand may not be successful;
•Food safety issues and food-borne illness concerns may harm our business;
•If we are unable to maintain or increase prices, our margins may decrease;
•The growth of our business depends on our ability to accurately predict guest trends and demand and successfully introduce new menu offerings and improve our existing menu offerings;
•Economic factors and guest behavior trends, which are uncertain and largely beyond our control, may adversely affect guests’ behavior and our ability to maintain or increase sales at our restaurants;
•We are subject to risks associated with leasing property;
•We may not be able to successfully expand our digital and delivery business, which is subject to risks outside of our control;
•Our inability or failure to utilize, recognize, respond to, and effectively manage the immediacy of social media could have a material adverse effect on our business;
•We may not realize the anticipated benefits from past and potential future acquisitions, investments or other strategic initiatives;
•We may not be able to manage our manufacturing and supply chain effectively, which may adversely affect our results of operations;
•Our reliance on third parties could have an adverse effect on our business, financial condition, and results of operations;
•We may not successfully optimize, operate, and manage our production facilities;
•We may experience shortages, delays, or interruptions in the delivery of food items and other products;
•We may face increases in food, commodity, energy, and other costs;
•We may face increases in labor costs, labor shortages, and difficulties in our ability to identify, hire, train, motivate, and retain the right Team Members;
•Our success depends on our ability to attract, develop, and retain our management team and key Team Members;
•Security breaches of our electronic processing of credit and debit card transactions, the CAVA app, or confidential guest or Team Member information (including personal information) may adversely affect our business;
•Our business is subject to complex and evolving laws and regulations regarding privacy, data protection, and cybersecurity;
•We rely heavily on information technology systems, and failures of, or interruptions in, or not effectively scaling and adapting, our information technology systems could harm our business;
•We are subject to evolving rules and regulations with respect to environmental, social, and governance (“ESG”) matters; and
•Climate change and volatile adverse weather conditions could adversely affect our restaurant sales or results of operations.
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Glossary
The following definitions apply to these terms as used in this Annual Report on Form 10-K:
“Adjusted EBITDA” is defined as net income adjusted to exclude interest income, net, (benefit from) provision for income taxes, and depreciation and amortization, further adjusted to exclude equity-based compensation, other income, net, impairment and asset disposal costs, restructuring and other costs, and certain non-recurring public company costs in each case, to the extent applicable in a given fiscal year. See “Non-GAAP Financial Measures” for a reconciliation of net income to Adjusted EBITDA for fiscal 2024 and 2023;
“Adjusted EBITDA Margin” is defined as Adjusted EBITDA as a percentage of revenue;
“Adjusted Net Income” is defined as net income adjusted to exclude the net benefit associated with the release of a valuation allowance previously recorded against deferred tax assets. See “Non-GAAP Financial Measures” for a reconciliation of net income to Adjusted Net Income for fiscal 2024 and 2023;
“Adjusted Net Income Margin” is defined as Adjusted Net Income as a percentage of revenue;
“CAVA Average Unit Volume” or “CAVA AUV” represents total revenue of operating CAVA Restaurants that were open for the entire trailing thirteen periods, and digital kitchens’ sales for such period, divided by the number of operating CAVA Restaurants that were open for the entire trailing thirteen periods;
“CAVA digital kitchen” is defined to include kitchens used for third-party marketplace and native delivery, digital order pickup, and/or centralized catering production, and that has neither in-restaurant dining nor customer-facing make lines;
“CAVA Digital Revenue Mix” represents the portion of CAVA Revenue related to digital orders as a percentage of total CAVA Revenue;
“CAVA hybrid kitchen” is defined to include kitchens that have enhanced kitchen capabilities to support centralized catering production and that also have in-restaurant dining and customer-facing make lines;
“CAVA Restaurant-Level Profit,” a segment measure of profit and loss, represents CAVA Revenue less food, beverage, and packaging, labor, occupancy, and other operating expenses, excluding depreciation and amortization. CAVA Restaurant-Level Profit excludes pre-opening costs;
“CAVA Restaurant-Level Profit Margin” represents CAVA Restaurant-Level Profit as a percentage of CAVA Revenue;
“CAVA Restaurants” is defined to include all CAVA restaurants, including converted Zoes Kitchen locations and CAVA hybrid kitchens, that are open or temporarily closed as of the end of the specific period. CAVA Restaurants exclude restaurants operating under license agreements and CAVA digital kitchens;
“CAVA Revenue” is defined to include all revenue attributable to CAVA restaurants in the specified period, excluding restaurants operating under license agreements;
“CAVA Same Restaurant Sales Growth” is defined as the period-over-period sales comparison for CAVA restaurants that have been open for 365 days or longer (including converted Zoes Kitchen locations that have been open for 365 days or longer after the completion of the conversion to a CAVA restaurant);
“Collaboration Center Organization” represents Team Members who work out of our restaurant collaboration center located in Washington, D.C., as well as our support centers located in Brooklyn, New York, and Plano, Texas, together with remote and hybrid Team Members whose job responsibilities support our operations;
“CPG” refers to consumer packaged goods;
“digital orders” means orders made through catering and digital channels, such as the CAVA app and the CAVA website. Digital orders include orders fulfilled through third-party marketplace and native delivery and digital order pick-up;
“guest traffic” means the number of entrees ordered in-restaurant and through digital orders; and
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“Net New CAVA Restaurant Openings” is defined as new CAVA restaurant openings (including CAVA restaurants converted from a Zoes Kitchen location) during a specified reporting period, net of any permanent CAVA restaurant closures during the same period.
We operate on a 52-week or 53-week fiscal year that ends on the last Sunday of the calendar year. In a 52-week fiscal year, the first fiscal quarter contains sixteen weeks and the second, third, and fourth fiscal quarters each contain twelve weeks. In a 53-week fiscal year, the first fiscal quarter contains sixteen weeks, the second and third fiscal quarters each contain twelve weeks, and the fourth fiscal quarter contains thirteen weeks. References to “thirteen periods” are to the 13 accounting periods we have in each fiscal year, with each accounting period being four weeks, except in a 53-week fiscal year which will contain one accounting period of five weeks.
Certain numerical figures have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.
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Part I
Item 1. Business
Our Mission
To Bring Heart, Health, And Humanity To Food
General
CAVA Group, Inc. (together with its wholly owned subsidiaries, referred to as the “Company,” “CAVA,” “we,” “us,” and “our,” unless specified otherwise) was formed as a Delaware corporation in 2015, and prior to that, the first CAVA restaurant opened in 2011 in Bethesda, Maryland. As of December 29, 2024, we operate 367 fast-casual CAVA Restaurants in 25 states and Washington, D.C. The Company’s authentic Mediterranean cuisine unites taste and health, with a menu that features chef-curated and customizable bowls and pitas. Our dips, spreads, and dressings are centrally produced and sold in grocery stores.
Business Strategy
We believe that our differentiated offerings and broad appeal give us significant opportunity in the Mediterranean and health and wellness food categories. Our guests span age groups, genders, and income brackets with a strong Millennial and a growing Gen Z contingent. The broad appeal of our brand is evidenced by substantial diversity across geographies, formats, dayparts, and channels. We are in the early stages of fulfilling our total restaurant potential, and we believe there is opportunity for more than 1,000 CAVA restaurants in the United States by 2032. We believe we are well positioned to benefit from the following strong and emerging trends:
•Evolving consumer preferences for authentic and ethnic cuisine
•Increased focus on health and wellness
•Emphasis on combined quality and convenience
We aim to create an industry-leading, category defining brand rooted in the following strategic pillars:
Expand our Mediterranean Way in Communities Across the Country
•Grow our footprint and expand multi-channel access
•Fuel our culinary innovation and communication engine to drive traffic, mix, and check
•Express the essence of our category-defining concept consistently across brand properties
Develop Personal Relationships with Guests, Even as We Scale
•Leverage our digital ecosystem to enable more personalized communication with guests
•Deepen our connections with guests and drive increased frequency with our reimagined loyalty offering
•Create a cohesive physical and digital journey
Run Great Restaurants, Every Location, Every Shift
•Streamline and automate preparation to make our restaurants easier to run
•Enhance our training and standards to consistently deliver our Mediterranean hospitality
•Leverage technologies to increase automation and improve restaurant operations
Operate As a High-Performing Team
•Create a culture of growth and accountability
•Use best-in-class data capabilities to unlock powerful, actionable insights
•Implement programs and tools that engage, retain, and connect the organization
Our Food - Where Taste and Health Unite
Our menu fulfills a broad range of dietary preferences, from hearty and indulgent to vegan, vegetarian, gluten-free, dairy-free, paleo, keto, and nut-free diets. We have designed our menu to offer vibrant flavors using fresh, high-quality ingredients inspired by our Mediterranean roots. Our guests can choose a chef-curated meal or a build-your-own-bowl or
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pita using our 38 ingredients with over 17.4 billion combinations. We make it deliciously simple to eat well and feel good every day.
People and Culture
As of December 29, 2024, we employed approximately 10,300 Team Members in our restaurants and 390 within manufacturing and our Collaboration Center Organization. From the very beginning, our founders were focused on ensuring CAVA treated all Team Members with generosity – we believe the health and well-being of our Team Members are just as important as the health of our food. Our Employee Net Promoter Score indicates we have a highly engaged team according to Denison Consulting, which conducted our 2024 Team Member engagement survey.
Our Values
We maintain a core set of values that guide the organization and our culture. They are:
•Generosity First, Always - We lead with kindness. Our best work happens when we act in service of others.
•Constant Curiosity - We are eager to learn, grow, and explore beyond the obvious.
•Act with Agility - We welcome change; it’s the only constant. We embrace, adjust, and adapt.
•Passion for Positivity - We greet each day with warmth and possibility.
•Collective Ambition - We have high aspirations that are achieved when we work together with a shared purpose.
Our values build upon our mission and set a clear foundation in establishing our seven core competencies for expected behavior from all Team Members, which we believe allows us to maximize opportunities for growth and development.
Talent Development
Inspired by our Mediterranean Way and defined by a genuine expression of hospitality and warmth, we want our Team Members – who are vital to our growth and carry on the CAVA culture every day – to build a career, not merely find employment. We continuously nurture our talent-rich pipeline by offering a clear promotional track for Team Members to become General Managers. A key component of our Team Member development pipeline includes a nationwide training network led by our Academy General Managers, who we have identified as achieving strong operational and financial results at the restaurants they operate.
Total Rewards
We believe recognition and rewards are key to a healthy and vibrant culture. We offer our Team Members competitive compensation and benefits including:
•medical, dental, and vision insurance for full-time Team Members and a mini-medical plan for part-time Team Members including office visits, telemedicine, behavioral health, and prescription discounts, among other items;
•401K matching;
•an employee stock purchase plan that gives virtually all our Team Members an ownership opportunity;
•an Employee Assistance Program that covers paid mental health benefits and counseling for all Team Members and their household members, elder care services, alcohol and drug dependency programs, continuing education and college planning, marriage and relationship counseling, relocation guidance, and family planning assistance;
•continuing education, including a tuition discount program in partnership with University of Maryland Global Campus for any Team Member wanting to further their education;
•financial assistance for adoption and family planning through our Well Being program for all Team Members;
•free meals to all Team Members during working hours and discounted meals outside of working hours; and
•short- and long-term incentive programs for Team Members who hold a position above General Manager, including Team Members within manufacturing and our Collaboration Center Organization, while our General Managers participate in a short-term incentive program.
Creating an Inclusive Culture
Guided by the skills and insights of our Team Members, we’re intentional about bringing down barriers and creating a more inclusive world where everyone is welcome at our table.
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We are strongly committed to supporting and engaging all Team Members. Diversity cultivation is one of seven core competencies we use to highlight the behaviors we expect of Team Members, which includes leveraging thoughts and insights of all Team Members. In addition, inclusivity is a hallmark of several of our other core competencies, such as enterprise leadership, service mindset, and people development. We have a Team Member resource group, Allies in Motion (AIM), which encourages our Team Members to celebrate and learn about underrepresented groups to build a better world for our guests, other Team Members, and community. In addition, on average, we rank in the top quintile within the diversity and inclusion category, based on our Team Members’ responses to our 2024 Team Member engagement survey.
Real Estate
Our market evaluation and site selection process is data-driven and includes reviewing characteristics such as geography, presence of peer brands, demographic and psychographic data, urban/suburban balance, foot- and vehicle-traffic, retail and daily needs, employment and daytime activity, adjacent retailers, and volume potential.
Our restaurant designs are flexible and adaptable to fit any site, which allows us to enhance and tailor our format to our guests’ preferences, including their preferred channels. Each CAVA Restaurant includes walk-the-line ordering and digital pick-up capabilities, as well as a separate digital make line to maximize throughput. Many of our 2025 restaurant openings in new markets will incorporate elements of our new Project Soul design, which, in addition to convenience, expresses our Mediterranean hospitality and taps into guests’ desire for human connection, including softer seating, more greenery and a warmer brand pallet. Our restaurants generally range from 2,000 to 3,000 square feet in size and seat approximately 30 to 60 guests indoors. As of December 29, 2024, we offered drive-thru pick-up at 53 locations. In select markets, we operate CAVA digital kitchens to serve as centralized production hubs and are currently piloting CAVA hybrid kitchens where we believe there is strong demand for our catering services.
Sourcing, Manufacturing, and Distribution
Our Sourcing and Supply Chain
We have invested in vertically-integrated manufacturing capabilities and built a differentiated directly-sourced supply chain with more than 50 trusted grower, rancher, and producer partners. We conduct certain site visits to maintain our strong relationships and seek to ensure that our partners adhere to our high-quality standards. To secure any potential sourcing needs well in advance of our growth, we continually evaluate the strength and diversity of our supply chain.
Manufacturing and Distribution
We operate a 30,000-square-foot production facility in Laurel, Maryland, a state-of-the-art 55,000-square-foot production facility in Verona, Virginia, and a 4,000-square-foot distribution facility in Edison, New Jersey, which we use primarily for CPG distribution in the Northeast. We expect that our production facilities will support at least 750 restaurants, as well as our CPG business, with the potential to add capacity over time. We believe these strategic investments give us several key advantages, including the ability to create our signature dips and spreads with quality, consistency, and efficiency with the adoption of facilities and capabilities that are difficult to replicate.
Sustainability
Since our beginning, we have been committed to the well-being of people and the planet.
We believe in serving the full scope of human needs. CAVA offers benefits such as paid time off to vote and work in the community, adoption assistance, and mental health services for all Team Members and their immediate families. Starting in our restaurants, we work to create clear development paths for all of our Team Members, so they can have not just a good job, but the opportunity to build a great career. We have also created our non-profit Goodness Fund that allows all Team Members to help one another, in partnership with company contributions. Any Team Member can apply for financial assistance in the event of an unexpected financial hardship.
Utilizing food as a force for good, we cultivate relationships with our neighbors through local food-based non-profit groups. When we open a new restaurant, we host “Community Days,” where we provide free meals, and suggest and match donations to benefit local nonprofit partners that focus on underserved neighborhoods. We launched a national food donation program in the fall of 2023 to donate fresh, healthy, and delicious unused food prepared during each new
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restaurant’s training period to local community members. This work is part of our commitment to fighting hunger and reducing food waste.
We care deeply about the quality of our food, where it comes from, and how it’s created. We are dedicated to working with and sourcing our products from farmers and suppliers who share our values. We strive to use clean label-friendly ingredients, source dairy products from farmers who don’t treat their cows with rbST, and serve only antibiotic-free proteins. As certain suppliers come on board, we ask them to verify their sustainability and sourcing credentials, including animal welfare. We remain dedicated to broiler chicken welfare and work diligently with our suppliers to deliver on that commitment.
Marketing
Our marketing strategy is anchored in our growth mindset and centered on the needs of our guests. We are focused on creating, capturing, and retaining demand by increasing our brand awareness while also building upon our existing value proposition to our guests.
Brand Marketing
Our diverse guest engagement touchpoints create an integrated guest experience ecosystem. We utilize brand campaigns across a variety of paid, owned, and earned channels to reinforce our mission and extend the reach of our brand. Our paid channels include Google, Instagram, TikTok, influencer and creator partnerships, and out-of-home advertising. Our owned channels include our restaurants, loyalty program, CPG offerings, CAVA website, CAVA app, and CAVA social media. We also use a seasonal framework to generate excitement around new menu offerings several times a year.
We recently launched our reimagined loyalty program nationwide with the goal of deepening personal relationships with guests, even as we scale. Our reimagined loyalty program includes an earn and bank points model with a menu of reward redemption options, from our freshly made juices to entrées. Since its launch, loyalty sales have grown more than 2%. This initial phase of a multi-phased approach will grow our first-party data and help us share our Mediterranean hospitality across platforms in ways that resonate with guests on a personal level.
Restaurant Marketing
We strive to give our guests the warm and welcoming feeling of the Mediterranean with each visit to our restaurants. Our Community Days help us share our Mediterranean Way with new and existing guests and authentically engage with the communities we serve by partnering with and showcasing local organizations and charities. This work reinforces our mission and drives interest and excitement for our brand, which in turn helps to attract guests and support the strong performance of our restaurants. We also leverage our large social media following and frequently advertise our new restaurant openings on social media channels. We routinely announce new restaurants and Community Days to local media, and from time to time deliver flyers and menus to the homes and offices in the neighborhood to drive awareness and excitement.
Digital Business
As consumers evolve and look for more convenient and personalized ways to engage with CAVA, our digital strategy is a key element of our growth strategy. We have developed an extensive multi-channel experience that consists of in-restaurant dining, digital pick-up, drive-thru pick-up in select restaurants, delivery, catering, and CPG offerings, fully supported by our robust digital infrastructure. Our CAVA Digital Revenue Mix was 36.4% and 36.0% in fiscal 2024 and 2023, respectively. We are in the early stages of our catering program and plan to expand our catering capabilities to more CAVA restaurants around the country by leveraging our kitchen production in 2025.
Quality and Food Safety
We are deeply committed to food safety. Our food safety and quality assurance (“FSQA”) team establishes and monitors our food safety programs and protocols and is responsible for reviewing and ensuring that our suppliers, restaurants, restaurant Team Members, and production facilities operate in compliance with our food safety standards and federal and state legal requirements. Our approach to food safety is interdepartmental. Our FSQA, supply chain, culinary, and operations teams work together to implement our standards for food safety, restaurant cleanliness, and employee health protocols. In addition, we periodically conduct reviews in an effort to confirm that our ongoing food safety practices across our operations are robust and efficient. The CAVA Food Safety Council, which is comprised of independent outside food safety experts, also supplements the knowledge and experience of our FSQA team and advises us on key initiatives in our restaurants and manufacturing facilities.
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Our Suppliers
As part of new suppliers’ onboarding, we review applicable food safety and quality programs as well as general insurance coverage as appropriate. We perform site visits to evaluate certain suppliers’ compliance with our food safety standards and requirements. In addition, we periodically review certain suppliers’ compliance with their own internal processes and review their third-party audits.
Our Restaurants
To enhance our compliance with food safety and other regulatory requirements, our restaurants use customizable technology, giving us the flexibility to design and implement processes tailored to our specific needs. We contract with third-party auditing services to regularly monitor restaurant performance through unannounced and announced food safety assessments with program standards that are designed to meet the requirements of local health departments. To align incentives and increase accountability, adherence to food safety standards at restaurants is taken into account in determining the compensation of our General Managers, Academy General Managers, and other restaurant operations leaders.
Our Production Facilities
We operate two production facilities, one in Maryland and one in Virginia. These facilities are licensed to produce and warehouse food products in their respective states and are also registered with the U.S. Food and Drug Administration. Our production facilities’ processes and systems are designed to mitigate the risk of contamination and illness and help ensure compliance with applicable food safety regulations and standards. As required by our food safety programs and regulatory oversight, we have developed and implemented comprehensive Good Manufacturing Practices and Food Safety Plans. In addition, for certain of our offerings, we comply with standards of organic and kosher certifying agencies and the Gluten-Free Certification Organization.
Our production facility in Maryland holds a number of third-party certificates, including achieving a high rating based on the British Retail Consortium’s Global Standard for Food Safety, providing independent and external verification that our ingredients, food products, and/or processes comply with applicable food safety regulations and third-party standards. Additionally, our recently opened production facility in Virginia will be evaluated under the same third-party standards.
Competition
The restaurant industry is highly competitive with respect to, among other things, food quality and presentation, taste preferences, price, brand reputation, digital engagement, service, value, and location. The food manufacturing industry is also highly competitive with respect to, among other things, food quality, taste, functional benefits, nutritional value and ingredients, convenience, brand loyalty and positioning, food variety, product packaging, shelf space, price, and promotional activities. We face significant competition from national, regional, and locally-owned restaurants, including limited service restaurants, particularly within the fast-casual dining and traditional fast-food categories, which offer in-restaurant, carry-out, delivery, and/or catering services. We also compete with grocery stores, meal subscription services, and delivery kitchens, especially those that target guests who seek high-quality food. Our CPG business also faces competition from other producers of dips and spreads and other pantry and food items.
As we expand our geographic presence and develop our digital channels, we anticipate we will face increased competition for channel access. In addition, our competitors will likely grow in number as the Mediterranean food category grows, and we may face the risk that new or existing competitors will mimic our business model, menu offerings, marketing strategies, and overall concept. See Item 1A. “Risk Factors—Risks Related to Our Business and Our Industry—We operate in a highly competitive industry” for more information.
Intellectual Property
We rely on a combination of trademark, patent, trade secret, copyright, and other intellectual property laws, as well as contractual provisions, including in employment, confidentiality, and inventions assignment agreements, to protect our intellectual property, intangible assets, and associated proprietary rights. Our intellectual property, particularly our trademarks, is material to the conduct of our business and our marketing efforts, as our brand recognition is one of our key differentiating factors from our competitors. The success of our business depends in part on our ability to use our trademarks, service marks, and other intellectual property, including our name and logos, and the unique character, atmosphere, and ambiance of our restaurants, to increase brand awareness and further develop our brand reputation in the market. In the United States, we have obtained trademark registrations for key trademarks including CAVA, CRAZY FETA, SPLENDIDGREENS, and CAVA DIGITAL KITCHEN. We are currently pursuing additional trademark
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registrations in the United States and will continue to pursue additional trademark registrations to the extent we believe they would be beneficial and cost-effective. We also own three issued patents in the United States, which cover various features relating to our sentence builder system, walk-the-line functionality, and other functionality used in the CAVA app. A further continuation patent application has been filed that seeks to further broaden the scope of protection for features included in the CAVA app and which seeks more expansive coverage for the walk-the-line functionality and other functionality. In addition, we have registered the cava.com domain name, which we use in connection with our primary online platform.
We have procedures in place to monitor for potential infringement of our intellectual property, and it is our policy to take appropriate action to enforce our intellectual property, taking into account the strength of our claim, likelihood of success, cost, and overall business priorities. See Item 1A. “Risk Factors—Risks Related to Information Technology Systems, Cybersecurity, Data Privacy and Intellectual Property” for more information.
Government Regulation
We are subject to various U.S. federal, state, and local regulations, including those relating to building and zoning requirements, public health and safety, the preparation and sale of food, and data privacy. Our license requirements include those relating to the preparation and sale of food and beverages as well as food safety requirements. In addition, the development and operation of our restaurants depends to a significant extent on the selection and acquisition of suitable locations, which are subject to zoning, land use, environmental, and other regulations and requirements. Difficulties or failure to maintain or obtain the required licenses and approvals could adversely affect our existing restaurants and delay or result in our decision to cancel the opening of new restaurants, which would adversely affect our business.
Our operations are subject to the U.S. Occupational Safety and Health Act, which governs worker health and safety, the U.S. Fair Labor Standards Act, which governs such matters as minimum wages and overtime, California Assembly Bill No. 1228, which increases the state’s minimum wage and creates a council to set minimum wages and recommend regulations to address working conditions and other matters in the broadly defined fast food industry, and a variety of similar federal, state, and local laws (such as fair work week laws, various wage and hour laws, termination and discharge laws, and state occupational safety regulations) that govern these and other employment law matters. We may also be subject to lawsuits or investigations from our current or former employees, the U.S. Equal Employment Opportunity Commission, the Department of Labor, or others alleging violations of federal and state laws regarding workplace and employment matters, discrimination, and similar matters, and we have been a party to such matters in the past. These lawsuits and investigations require resources and attention from our senior management and can result in material fines, penalties, and/or settlements, some or all of which may not be covered by insurance, as well as significant remediation efforts that may be costly and time consuming, and which we may not implement effectively.
We are also subject to the Americans with Disabilities Act of 1990 and similar state laws that give civil rights protections to individuals with disabilities in the context of employment, public accommodations, and other areas, including our restaurants, website, and smartphone applications.
For a discussion of the various risks we face from regulation and compliance matters, see Item 1A. “Risk Factors—Risks Related to Legal and Governmental Regulation” for more information.
Seasonality
Seasonal factors influencing our business are described under the heading “Fiscal Calendar and Seasonality” in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Corporate and Available Information
We were incorporated in 2015 in Delaware. Our principal offices, which we refer to as our restaurant collaboration center, are located at 14 Ridge Square NW, Suite 500, Washington, D.C. and our telephone number is (202) 400-2920. Our website address is www.cava.com. We completed our initial public offering (“IPO”) in June 2023 and our common stock is listed on the New York Stock Exchange under the symbol “CAVA.”
CAVA’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act, as amended (the “Exchange Act”), are publicly available free of charge on the Investor Relations section of our website at investor.cava.com or at www.sec.gov as soon as reasonably practicable after these materials are filed with or furnished to the SEC. We also make available through the Investor Relations Section of our website other reports filed with or furnished to the SEC under the Exchange Act, including our proxy statements and reports filed by officers and directors
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under Section 16(a) of the Exchange Act, as well as our Code of Business Conduct and Ethics, Corporate Governance Guidelines and Board committee charters. We intend to make any legally required disclosures regarding amendments to, or waivers of, provisions of our Code of Conduct on our website rather than by filing a Current Report on Form 8-K. We also use our website as a tool to disclose important information about the company and comply with our disclosure obligations under Regulation Fair Disclosure. The information on our website (or any webpages referenced in this Annual Report on Form 10-K) is not part of this or any other report CAVA files with, or furnishes to, the SEC.
Item 1A. Risk Factors
You should carefully consider the following risk factors as well as the other information set forth in this Annual Report on Form 10-K (this “Annual Report”), including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto. If any of the following risks actually occurs, our business, results of operations, prospects, and financial condition may be materially adversely affected. In such case, the trading price of our common stock could decline and you may lose all or part of your investment. The risks and uncertainties described below are those that we have identified as material but are not the only risks and uncertainties we face. Our business is also subject to general risks and uncertainties that affect many other companies, including but not limited to overall economic and industry conditions, and additional risks not currently known to us or that we presently deem immaterial may arise or become material and may negatively impact our business, reputation, financial condition, results of operations, or the trading price of our common stock. Some statements in this Annual Report, including statements in the following risk factors, constitute forward-looking statements. See “Cautionary Statement Concerning Forward-Looking Statements.”
Risks Related to Our Business and Our Industry
We operate in a highly competitive industry.
The restaurant industry is highly competitive with respect to, among other things, food quality and presentation, taste preferences, price, brand reputation, digital engagement, service, value, and location. The food manufacturing industry is also highly competitive with respect to, among other things, food quality, taste, functional benefits, nutritional value and ingredients, convenience, brand loyalty and positioning, food variety, product packaging, shelf space, price, and promotional activities. We face significant competition from national, regional, and locally-owned restaurants, including limited service restaurants, particularly within the fast-casual dining and traditional fast-food categories, which offer in-restaurant, carry-out, delivery, and/or catering services. We also compete with grocery stores, convenience stores, meal subscription services, and delivery kitchens, especially those that target guests who seek high-quality food. Our CPG business also faces competition from other producers of dips, spreads, and dressings and other pantry and food items. Further, as we continue to innovate upon our digital strategy and offer more ways to reach our guests through digital channels, such as the CAVA app and the CAVA website, we expect to face increasing competition from food delivery services, which promote a wide variety of restaurant options on their websites.
Many of our competitors have been operating for longer and have a more established market presence than us, and may have better locations, greater name recognition and resources than we do, and, as a result, these competitors may be better positioned to attract guests. Our larger competitors may also be able to take advantage of greater economies of scale than we can and may be better able to increase prices to reflect cost pressures and increase their marketing and promotional activity, including through discount strategies. Our competitors may also be able to identify and adapt to changes in guest preferences more quickly than us due to their resources and scale. Changes in guests’ tastes, nutritional and dietary trends, methods of ordering, and number and location of competing restaurants often affect the restaurant industry. If we are unable to successfully compete, our sales volume and/or pricing may be subject to downward pressure and we may not be able to increase, or sustain, our growth rate or revenue or reach profitability.
Further, as we expand our geographic presence and develop our digital channels, we anticipate we will face increased competition for channel access. Our competitors will likely grow in number as the Mediterranean food category grows, and we may face the risk that new or existing competitors will mimic our business model, menu offerings, marketing strategies, and overall concept.
Any of the above competitive factors may materially adversely affect our business, financial condition, and results of operations.
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Our future growth depends on our ability to open new restaurants while managing our growth effectively and maintaining our culture, and our historical growth may not be indicative of our future growth.
Our growth depends on our ability to successfully open a significant number of new restaurants on a profitable basis. As of December 29, 2024, we owned and operated 367 CAVA Restaurants in 25 states and Washington, D.C. As of December 31, 2023, we have successfully converted 153 Zoes Kitchen locations into CAVA Restaurants since our 2018 acquisition of Zoes Kitchen. These conversions helped drive the growth of our business. In fiscal 2024, we had 58 Net New CAVA Restaurant Openings. If we are unable to sustain the pace of new restaurant openings, which are primarily expected to be from greenfield expansions, our growth rate may decline. In addition, given the size and scale we have achieved, we expect our growth rates in percentage terms to moderate in the future. Therefore, our historical growth rates are not indicative of our future growth.
Our ability to open new restaurants depends on various factors, some of which are outside of our control. For example, delays in construction and increased construction costs, including as a result of macroeconomic factors, as well as delays in inspections, the receipt of necessary permits, and equipment availability, have caused, and are continuing to cause, a delay in opening restaurants, resulting in increased costs and lower than anticipated sales. Furthermore, while we work to manage cost overrun risks for our new restaurant development projects with detailed architectural plans, guaranteed or fixed price contracts, forward buys of certain equipment and materials, and close supervision by our executives and personnel, we have in the past experienced, and expect we will continue to experience, increased construction costs. In addition, we may not be able to anticipate and adapt to all of the changing demands that our planned expansion will impose on our existing digital infrastructure, including our restaurant management systems and back office technology systems and processes, as well as financial and management controls, and we may not be able to hire and retain the management and personnel necessary to support such expansion at a reasonable costs, or at all, any of which could harm our guest experience and our business.
Our ability to manage our growth effectively will require us to continue to enhance these systems, processes, and controls and identify, hire, train, motivate, and retain management and operating personnel, particularly in new restaurant locations. In addition, we must maintain our culture as our operations expand and as we onboard new Team Members, as we believe our culture is a key competitive advantage and an important contributor to our success. Our business, financial condition, and results of operations could be negatively affected if we are unable to manage our growth effectively while preserving our culture.
We may not be able to successfully identify appropriate locations and develop and expand our operations in existing and new markets.
Our ability to successfully execute on our growth strategy requires us to identify target markets in which we can gain a foothold or expand our existing footprint on a profitable basis. As part of that strategy, we sometimes enter into geographic markets in which we have little or no prior operating experience. For example, we expanded into the Midwest in 2024 and are continuing to expand further into places in which we historically have not had a presence and have no restaurant operating experience.
We may not be able to develop presence in new target markets, which may have more competitive conditions or different guest tastes and discretionary spending patterns as compared to our existing markets. It is also possible that our Mediterranean cuisine will be of limited appeal in any new market. We may incur higher costs in a new market, particularly to make significant investments in advertising and promotional activity to build brand awareness and attract new guests. We may also incur additional costs relating to the transportation and distribution of supplies and entering into contracts with new third parties, and we may face more competitive labor conditions or costs in a new market. Until we attain a critical mass in a market, the restaurants we open in that market may incur higher food distribution costs and reduced operating leverage. As a result, restaurants we open in new markets may take longer to reach expected sales and profit levels on a consistent basis. If we are unable to successfully enter new markets, it could have an adverse effect on our business, financial condition, and results of operations.
After identifying a new market, we must then identify and secure quality locations within such market. Each new location requires that we take into account numerous factors in order to be profitable, such as:
•negotiating leases with acceptable terms;
•obtaining licenses, permits, and approvals on a timely basis;
•complying with applicable zoning, land use, environmental, health and safety, and other governmental rules and regulations (including interpretations of such rules and regulations);
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•unforeseen engineering or environmental problems;
•proximity of a potential location to an existing location;
•identifying, hiring, and training qualified Team Members to meet staffing needs;
•local economic trends, population density, and area demographics; and
•longer permitting or inspection cycles and availability of construction and restaurant equipment and services.
Our acquisition of the Zoes Kitchen business in 2018 provided us with an extensive portfolio of real estate, allowing us to rapidly expand by converting Zoes Kitchen locations into CAVA restaurants. However, as of March 2, 2023, all Zoes Kitchen locations have either been converted or closed, and we cannot guarantee that we will be able to develop a robust new restaurant pipeline, which would impact our future growth. We may not be able to successfully identify and secure a sufficient number of attractive restaurant locations in new or existing markets. For those locations in which we are able to secure an attractive restaurant location, our progress in developing and subsequently opening new restaurants may be slower than desired, resulting in increased costs and lower than expected sales. Our inability to appropriately identify sites and develop and open new restaurants could impact our growth strategy and have a material adverse effect on our business, financial condition, and results of operations.
New restaurants may not be profitable, and may negatively affect sales at our existing locations.
Although we institute certain operating and financial performance targets for new restaurants, these new restaurants may not meet these targets or may take longer than anticipated to do so. We typically incur the most significant portion of pre-opening costs associated with a given restaurant within the three months preceding the opening of the restaurant. Historically, labor and operating costs associated with a newly opened restaurant are materially greater in the first six months of operations, both in aggregate dollars and as a percentage of revenue. Our new restaurants typically take a period of time to reach planned operating efficiency, due to costs and challenges associated with identifying, hiring, training, and retaining qualified Team Members, including General Managers, and instilling and enforcing CAVA standards, among other reasons. Any new restaurants that we open may not be profitable or achieve operating results similar to those of our existing restaurants on a similar timeframe or at all, our historical pre-opening costs may not be indicative of future pre-opening costs and increases in CAVA AUV that we have experienced in the past may not be indicative of future results. Newer restaurants may also reduce CAVA AUV as these restaurants typically achieve lower sales when they first open. If our new restaurants do not perform as planned, our business, financial condition, and results of operations could be harmed.
In addition, the opening of new restaurants in or near markets in which we already have a restaurant could adversely affect sales at existing restaurants, particularly in markets in which we have a high concentration of restaurants, such as the Washington, D.C./Maryland/Virginia metropolitan area. Existing restaurants within a market could also make it more difficult to build our guest base for a new restaurant in the same market. While we have engaged and will continue to implement strategies to open new restaurants that are not expected to materially affect sales at our existing restaurants, it is possible that new restaurants may cannibalize sales at our existing restaurants, which could adversely affect our profitability.
Negative changes in guest perception of our brand could negatively impact our business.
Our reputation for quality food and our brand’s connection to guests have been critical to our business and to our success in existing markets, and will continue to be critical to our success as we enter new markets. Any incident that diminishes guest loyalty or guests’ positive perception of our food could significantly damage the value of our brand and, in turn, damage our business and prospects.
Negative publicity, regardless of its accuracy, may adversely affect our business and brand value. These could include concerns about our food’s quality and safety, the impact that our food and products (including our packaging) may have on the environment, data security breaches, third-party service providers (including relating to delivery services and information technology), employment-related claims, or government or industry findings concerning our restaurants or our industry, or other concerns, which may be outside our control. Moreover, the negative impact of adverse publicity relating to any one CAVA restaurant or any of our CPG offerings may extend far beyond such restaurant to affect some or all of our other restaurants and our other product offerings. Negative publicity generated by such incidents may result in our receipt of demand letters or may be amplified by the use of social media and platforms that enable guests to review our restaurants and food, which allow individuals to access a broad audience of our guests and other interested persons. See “—Our inability or failure to utilize, recognize, respond to, and effectively manage the immediacy of social media could have a material adverse effect on our business.” The risks associated with such negative publicity cannot be completely mitigated and may result in damage to our brand.
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Our efforts to market our restaurants and brand may not be successful.
Due to the highly competitive nature of our industry, we must effectively and efficiently promote and market our restaurants and brand to attract and retain guests and sustain our competitive position. Marketing investments may be costly. Our marketing strategy primarily includes using public relations, digital and social media, promotions, and in-restaurant messaging, and we may from time to time change our marketing strategies and spending. We expect to increase our investment in advertising and promotional activities as we expand, including investing in targeted marketing offers to incentivize and reward loyal guests and to attract guests in new markets. If our marketing initiatives are unsuccessful or ineffective and do not enable us to meet our performance targets, such as the introduction of new menu offerings that do not generate the level of sales that we expect, our business, financial condition, and results of operations may be adversely affected. For example, we recently launched a new rewards program designed to increase customer loyalty. If the rewards program is not well received by customers or if we are unable to successfully implement the new program, the rewards program may fail to achieve its intended objectives.
Additionally, some of our competitors are able to devote more resources to marketing and advertising than we are able to. If our competitors increase spending on marketing and advertising, if our funds available for marketing decrease, if our marketing strategies or pricing methodologies are less effective than those of our competitors, or if we are otherwise unable to adequately respond to changes in our competitors’ marketing strategies, our business, financial condition, and results of operations may be adversely impacted.
Food safety issues and food-borne illness concerns may harm our business.
We handle high-risk foods, such as uncooked meats, in our restaurants. Although our proprietary dips and spreads are centrally produced, we freshly prepare most of our menu items at our restaurants, and food safety issues (such as food-borne illness and food contamination outbreaks) may occur. Although we have instituted food safety policies and procedures in each of our restaurants, incidents may nonetheless result both from our restaurant personnel’s failure to comply with such policies and procedures and for other reasons beyond our control. If any guest becomes, or is under the belief that they have become, ill due to a food safety issue, we may temporarily close some restaurants or be impacted by associated negative publicity, which would adversely impact our results of operations.
Food safety issues may be caused by a variety of factors, many of which are out of our control. For example, these incidents may occur when guests or other individuals, including Team Members, enter our restaurant while ill and contaminate ingredients, surfaces, or other individuals. We cannot guarantee that food items will be properly maintained throughout the supply and delivery chain. Our third-party distributors and suppliers may not fully comply with our or their own food safety programs, and these third parties could cause food-borne illness incidents. For example, we have previously experienced food safety incidents we believe were attributable to issues at a third-party supplier. Any food safety issue arising from a distributor or supplier will likely affect multiple restaurants rather than a single restaurant. The risk of food safety issues is also increased with respect to catering orders and orders delivered through third-party delivery service providers, as we often have limited or no control over how the food is delivered or served. In addition, our restaurants and production facilities are subject to review and examination by local, state and federal authorities, which has resulted, and may continue to result, in temporary or permanent closures. Such closures may negatively impact results and damage our brand.
Food items produced at our and our third-party co-manufacturers’ facilities are vulnerable to spoilage, contamination, and food safety issues. Although we have instituted processes and systems at our production facilities designed to ensure compliance with applicable food safety regulations and standards, we cannot guarantee that the CPG offerings that are manufactured at our facilities will not be recalled, for example due to possible human error or manufacturing defects. Furthermore, while we require our third-party co-manufacturers to comply with our food safety standards, we do not have control over their manufacturing and packaging processes. In addition, we also do not have control over handling procedures once our food has been shipped for distribution. From time to time, we may need to recall or withdraw some or all of our CPG offerings if such products become damaged, contaminated, adulterated, or misbranded, whether caused by us or someone in our manufacturing or supply chain. A recall or withdrawal could result in destruction of food ingredients and inventory, negative publicity, temporary facility closings for us or our third-party contract manufacturers, supply chain interruption, substantial costs of compliance or remediation, fines, and increased scrutiny by federal, state, and foreign regulatory agencies. New scientific discoveries regarding food safety and food manufacturing may bring additional risks and latent liability. If consumption of any food causes or is alleged to cause injury or illness, we may be subject to litigation and may be liable for monetary damages as a result of a judgment against us or fines by federal, state, and foreign regulatory agencies.
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In the event of a food safety or food packaging incident, the protocols and procedures that we have in place and the public statements we make in response to such incident may not be sufficient to address the potential impact to the safety of our guests and our reputation. Furthermore, any food safety or food packaging incident, whether actual or perceived, could result in negative publicity and public speculation and adversely impact our brand, reputation, and sales. This risk is exacerbated by the fact that social media enables negative publicity, whether or not accurate, to be rapidly disseminated before there is any meaningful opportunity to investigate, respond to and address an issue. In addition, any food safety or food packaging incident that occurs, including those that occur solely at a competitor’s restaurant, or at one of our or our manufacturing partners’ facilities, could result in negative publicity about the restaurant industry generally or with respect to our CPG offerings, which could in turn have an adverse effect on our business. In addition, the health and environmental risks of organic fluorine and per- and polyfluoroalkyl substances (“PFAS”) have been the subject of increased regulatory scrutiny and litigation involving us and others in the restaurant industry. See Note 9 (Commitments and Contingencies) included in Part II, Item 8. “Financial Statements and Supplementary Data.”
Lastly, the occurrence of food-borne illnesses or food safety issues could result in a temporary supply disruption and adversely affect the price and availability of affected ingredients.
All of these factors could have an adverse impact on our brand and our ability to attract guests, which could in turn have a material adverse effect on our business, financial condition (including our ability to obtain financing) and results of operations.
If we are unable to maintain or increase prices, our margins may decrease.
We strive to use high-quality ingredients that are often more costly than lower quality ingredients and/or ingredients that are farmed through less environmentally conscious methods. Our continued success depends on our ability to persuade our guests that the variety and choice of healthful, flavorful food that we provide is worth the higher prices compared to eating at many of our competitors. If we are unable to persuade our guests about the quality of our food, we may be required to change our pricing, advertising, or promotional strategies to retain existing guests or attract new guests, which could adversely affect the strength of our brand and our business, financial condition, and results of operations.
We rely in part on price increases from time to time to offset cost increases, including the cost of ingredients, commodities, insurance, labor, marketing, taxes, real estate and other key operating costs, and to improve the profitability of our business. We have increased the prices of our food over the past few years, and we expect to further increase prices in the future. Our ability to maintain prices or effectively implement price increases may be affected by a number of factors, including competition, the effectiveness of our marketing programs, the continuing strength of our brand, and general economic conditions, including inflationary pressures. During challenging economic times, consumers may be less willing or able to dine out or purchase pre-packaged dips, spreads, and dressings, making it more difficult for us to maintain prices and/or effectively implement price increases. In addition, increasing prices could negatively affect the loyalty of our existing guest base and cause guests to reduce their spending with us or impact our ability to attract new guests, particularly as we expand our footprint into new geographies where guests might have greater price sensitivity. If our price increases are not accepted by guests and reduce sales volume, or are insufficient to offset increased costs, our business, financial condition, and results of operations could be adversely affected.
The growth of our business depends on our ability to accurately predict guest trends and demand and successfully introduce new menu offerings and improve our existing menu offerings.
Our success is dependent, in part, upon our ability to respond effectively to changes in guests’ eating habits and preferences and government regulations and to adapt our menu offerings to trends in eating habits and preferences. The success of our business depends on our ability to identify these changing preferences and behaviors, to distinguish between short-term trends and long-term changes in such preferences and behaviors, and to continue to develop and offer food that appeals to guests through the channels that they prefer. Consumer preference and behavior changes include dietary trends, attention to different nutritional aspects of foods and beverages (see “—Risks Related to Legal and Governmental Regulation—We are subject to extensive laws and regulatory requirements, and failure to comply with, or changes in, these laws or regulations could have an adverse impact on our business.”), preferences for certain sales channels, reduced demand for food away from home as a result of the recent increase in remote and hybrid working arrangements, concerns regarding the health effects of certain foods and beverages, attention to sourcing practices relating to ingredients, animal welfare concerns, and environmental concerns regarding packaging, among others. These changes in guests’ eating habits can occur rapidly, which requires us to adapt with similar speed. To the extent we are unwilling or unable to timely respond to shifting guest preferences, guests’ demand for our food and offerings may be reduced.
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If guests’ eating habits change, we must timely and appropriately respond to such changes, which may include the modification or removal of certain menu items, which could cause us to incur implementation costs and be operationally burdensome. In particular, the introduction of innovative menu offerings and CPG offerings involves considerable risk. It may be difficult to establish new supplier relationships for new menu or CPG offerings and determine appropriate menu and CPG offering ingredients. Any new menu or CPG offering may not generate sufficient guest interest and sales to become profitable or to cover the costs of its development and promotion and may reduce our operating income. If our efforts are not successful, or if there is a significant shift in guest demand away from our menu or CPG offerings, our business could be adversely affected.
If we are unable to accurately predict guest trends and demand and successfully introduce new menu offerings and improve our existing menu offerings, our brand, business, financial condition, and results of operations may be materially adversely affected.
We are subject to risks associated with leasing property.
We operate all of our restaurants in leased facilities. Many of our current leases do not contain early termination options and we expect restaurants that we open in the future will be subject to similar long-term leases without early termination options. It is challenging to locate and secure leases on favorable terms for new restaurants as competition for locations in our target markets is intense, and development and leasing costs may continue to increase.
When our leases expire, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to pay increased occupancy costs or to close restaurants in desirable locations and result in negative publicity concerning any such termination or non-renewal. In certain instances, we have not been able to control, and may not be able to control in the future, increases in occupancy costs, particularly increases driven by macroeconomic factors, such as the current inflationary environment, or in geographies where the real estate market conditions favor landlords and developers. Increased occupancy costs and closed restaurants could have an adverse effect on our business, financial condition, and results of operations. Furthermore, the inability to renew an existing lease in key target markets could adversely affect our ability to execute on our overall growth strategy.
In addition, we may choose to close or relocate a restaurant if it fails to meet our performance targets, which may cause us to incur significant lease termination expenses as well as additional expenses in connection with securing a new lease and construction and other costs in opening a new replacement restaurant. Conversely, if we deem the lease termination and relocation expenses to be too high, we may decide to keep an underperforming restaurant open, or sublease the location, which may hurt our overall profitability and results of operations. We currently sublease certain properties and face future liability if subtenants default or incur contingent liabilities. If we continue to sublease properties, we may be unable to enter into such arrangements on acceptable terms and, even if we do, such arrangements may result in our incurring liabilities and expenses in future periods or the rent payments that we receive from subtenants being less than our rent obligations under the leases.
CAVA Group, Inc. has guaranteed the obligations of various of its subsidiaries, as the tenant, under a number of leases. In addition, we have provided credit support in respect of our leases in the form of letters of credit and cash security deposits. If there were to be a default under any of our leases, the applicable landlords could draw under the letters of credit and/or seize the security deposit, which could adversely affect our financial condition and liquidity.
Operating lease costs account for a significant portion of our operating expenses, and represented 7.1%, 8.2%, and 9.8% of our revenue in fiscal 2024, 2023, and 2022, respectively. These substantial operating lease obligations could have negative consequences to our financial condition and results of operations, including requiring a substantial portion of our available cash to be applied to pay our rental obligations, thus reducing cash available for other purposes, as well as limiting our flexibility in planning for, and reacting to, changes in our business or our industry.
We may not be able to successfully expand our digital and delivery business, which is subject to risks outside of our control.
For fiscal 2024, 2023, and 2022, CAVA Digital Revenue Mix was 36.4%, 36.0%, and 34.5%, respectively. The expansion of our digital and delivery business is important to the growth of our business. Our ability to expand our digital business will depend in part on our ability to improve and evolve our technology, including our website, the CAVA app, and use of third-party delivery marketplaces to remain competitive within the industry. The CAVA app and online ordering system could be interrupted by technological failures or user errors, or be subject to cyber-attacks, which could adversely impact our sales and brand image.
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Substantially all of our delivery orders, including native delivery orders, are fulfilled through our third-party delivery partners. If a third-party delivery service we utilize (particularly for our native delivery orders) fails to deliver food orders to our guests in a timely manner or provides unsatisfactory delivery service, our guests may attribute the bad experience to us and may choose to stop ordering from us. If a third-party delivery service we utilize ceases or curtails operations, experiences damage to its brand image, increases its fees, or gives greater priority or promotions on its platforms to our competitors, our delivery business and our sales may be negatively impacted. Furthermore, the third-party food delivery service industry has been consolidating and may continue to consolidate, which may give third-party delivery companies more leverage in negotiating the terms and pricing of contracts, which in turn could negatively affect our profitability.
In addition, from time to time, our employees make deliveries to guests who have placed catering and delivery orders. As a result, we may be subject to additional workplace injury and other claims, such as personal injury claims and claims with respect to damaged property if such employees were to be involved in an accident, or otherwise act outside of their job function, while making food deliveries to our guests. We could also be held vicariously liable for any acts, omissions, and/or negligence of employees that deliver our food and may be subject to various claims asserting other forms of liability, including tort actions, brought by, or against, us and our employees. We could experience a higher rate of accidents or mishaps to the extent such deliveries are made by employees using modes of transport that are not owned or maintained by our company. The risk of these claims may increase, and the cost to us to insure against such perils may rise or become more difficult to obtain, as the number of catering and delivery orders we fulfill increases.
Finally, as we expand our proprietary delivery services for services such as catering and native delivery, we expect to face competition from third-party delivery marketplaces that may have greater financial resources to spend on marketing and advertising. We also face increased risks relating to any shortage of delivery personnel in our markets, accidents, or other incidents involving delivery personnel while delivering our food, and any errors or delays in providing delivery services to our guests could result in a failure to meet our guests’ expectations and have an adverse impact on our business and brand.
Our inability or failure to utilize, recognize, respond to, and effectively manage the immediacy of social media could have a material adverse effect on our business.
Social media and internet-based communication or review platforms give individual users immediate access to a broad audience. These platforms can also facilitate rapid dissemination of negative publicity, such as negative guest or Team Member experiences. Adverse publicity, regardless of its accuracy, concerning our restaurants and our brand may be shared on such platforms at any time and have the potential to quickly reach a wide audience. The resulting harm to our reputation from negative publicity on social media may be immediate, without affording us an opportunity to correct or otherwise respond to the information or circumstance that is the subject of such publicity. It is challenging to monitor and anticipate developments on social media in order to effectively and timely respond and our failure to do so, or to do so successfully, may have a material adverse effect on our business, financial condition, and results of operations.
However, social media platforms are a rapidly evolving and important marketing tool, which we utilize to help us engage with guests and potential guests. For example, we maintain Facebook, Instagram, X, and TikTok accounts, among other accounts, and we have partnered, and expect to continue to partner, with social media influencers who promote our brand and may also produce content for us. As the landscape of social media platforms develops, we must maintain our presence on existing platforms and establish a presence on emerging platforms. Many of our competitors are expanding their use of social media. Our continued success will depend on our ability to continuously innovate and develop our social media strategies to best maintain broad appeal with guests, brand relevance, and effectively compete with our peers, and we may not do so effectively. In addition, a ban of a social media platform, such as TikTok, on which we, and social media influencers that we partner with, have acquired significant followers, may adversely affect our ability to engage with guests and promote our brand.
There are a variety of additional factors associated with our use of social media that may harm our business and result in negative publicity, including the possibility of improper disclosure of proprietary information, exposure of personally identifiable information of our Team Members or guests, the failure by us or our Team Members to comply with applicable law and regulations, any inappropriate use of social media platforms by our Team Members, fraud, hoaxes, or malicious dissemination of false information. Furthermore, association with influencers or celebrities who become embroiled in controversy, regardless of whether such controversy is related to our business, could damage our reputation, and our partnership with any such influencer or celebrity could be difficult and costly to unwind and otherwise address.
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We have a history of losses and, especially if we continue to grow at an accelerated rate, we may not maintain profitability in the future.
We incurred operating losses each year since our inception through fiscal 2022, including a net loss of $59.0 million in fiscal 2022. We anticipate that our operating expenses will increase substantially in the foreseeable future, in particular, as we continue to open new restaurants, expand marketing channels and operations, hire additional Team Members and increase other general and administrative costs. Furthermore, as a public company, we have incurred, and will continue to incur, additional legal, accounting, and other expenses that we did not incur as a private company. In addition, while conversions required initial capital investments, such costs were typically significantly lower for a conversion as compared to a new restaurant opening. Therefore, since the time we converted many Zoes Kitchen locations, we expect that the capital expenditure requirements to open a new restaurant will be significantly higher than we have experienced in the past few years. Further, we currently expect that a meaningful portion of our new restaurants opening in fiscal 2025 and beyond will have drive-thru pick-up capabilities, which typically require additional capital expenditures and higher real estate costs as well as incremental infrastructure and construction costs.
These efforts and additional expenses may prove more expensive than we expect, and we cannot guarantee that we will be able to increase our revenue to offset such expenses. Our revenue growth may slow or our revenue may decline for a number of other reasons, including reduced demand for our food, increased competition, or if we cannot capitalize on growth opportunities. If our revenue does not grow at a greater rate than our operating expenses, we will not be able to maintain profitability.
We may not realize the anticipated benefits from past and potential future acquisitions, investments or other strategic initiatives.
From time to time we may consider opportunities to acquire or make investments in new or complementary businesses, facilities, technologies, or products, or enter into strategic initiatives, which may enhance our capabilities, expand our manufacturing network, complement our current offerings, or expand the breadth of our markets. For example, we acquired Zoes Kitchen in 2018 with the goal of significantly expanding the size and geographic scope of our business. We completed the conversion of Zoes Kitchen locations into CAVA restaurants as of October 2023.
Entering into acquisitions and investments and other strategic initiatives involve numerous risks, including:
•expenses, delays, or difficulties in integrating acquired business, facilities, technologies, or products into our organization, including the failure to realize expected synergies and the inability to retain and integrate personnel;
•expending significant cash or incurring substantial debt to finance acquisitions, which indebtedness may restrict our business or require the use of available cash to make interest and principal payments;
•issues maintaining uniform standards, procedures, controls, and policies;
•diversion of management’s attention and resources from operating our business to effectively execute the integration;
•adverse effects on existing business relationships with suppliers, distributors, and partners;
•guest acceptance of the acquired company’s offerings;
•our ability to meet our targeted revenue, profit, and cash flow from acquired companies;
•the possibility that we have acquired substantial contingent or unanticipated liabilities in connection with acquisitions;
•the inability to identify all material issues concerning the companies we acquire or invest in; and
•the possibility that investments we have made may decline significantly in value, which could lead to the potential impairment of the carrying value of goodwill associated with acquired businesses.
We do not know if we will be able to identify acquisitions or strategic relationships we deem suitable, whether we will be able to successfully complete any such transactions on favorable terms or at all, or whether we will be able to successfully integrate any acquired business, facilities, technologies, or products into our business or retain any key personnel, suppliers, or guests. Furthermore, we may in the future acquire restaurants with the plan of converting those restaurants into CAVA restaurants and we may not be able to do so successfully while ensuring that the converted restaurant meets our CAVA standards. Our failure to successfully complete or integrate such acquisitions could have a material adverse effect on our financial condition and results of operations. Our ability to successfully grow through strategic transactions depends upon our ability to identify, negotiate, complete, and integrate suitable target businesses, facilities, technologies, and products and to obtain any necessary financing. These efforts could be expensive and time-consuming and may disrupt our ongoing business and prevent management from focusing on our operations.
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Risks Related to Our Manufacturing and Supply Chain
We may not be able to manage our manufacturing and supply chain effectively, which may adversely affect our results of operations.
There is risk in our ability to effectively scale production and processing and effectively manage our manufacturing and supply chain requirements. For example, we rely on a limited number of suppliers, and, in some cases, on single-source suppliers, for several ingredients. Some of these suppliers are small family-owned business or sole proprietors who may not be able to quickly scale their production to match our growth, or at all. As we continue to grow our business, if we are unable to obtain the desired amount of ingredients from these suppliers, we may be forced to modify our CPG and menu offerings or our recipes, manage ingredient shortages or outages at certain locations or across our restaurants, or obtain ingredients from different suppliers that may be at a higher cost or may be of a lower quality than our original ingredients. Any of these changes could result in changes to our food taste and quality and could be less appealing to our guests, and any increase in costs could have an adverse impact on our profitability and results of operations.
We must accurately forecast demand for each of our CPG and menu offerings to ensure that we have adequate available manufacturing capacity and supply. Our forecasts are based on multiple assumptions, which may cause our estimates to be inaccurate and affect our ability to obtain adequate manufacturing capacity and quantities from our distributors, suppliers, and manufacturing partners in order to meet demand, which could prevent us from meeting partner and guest demand and harm our brand and our business. When we launch a new product, such as our introduction of steak in 2024, our initial assumptions on demand for such product may need to be refined as we see how our customers respond.
We must also continuously monitor our inventory against forecasted demand. If we underestimate demand, we risk having inadequate supplies. On the other hand, if we have too much food inventory on hand, it may reach its expiration date and become unusable. If we are unable to manage our supply chain effectively, our operating costs could increase and our profit margins could decrease.
Our reliance on third parties could have an adverse effect on our business, financial condition, and results of operations.
We engage with third-party suppliers for some of our food items and products, including packaging, and we rely on a distribution network with a limited number of distribution partners for the majority of our national distribution program for our restaurants. Due to our reliance on certain suppliers, distributors, and third-party contract manufacturers, the change in terms or cancellation of our arrangements with any one of our suppliers, distributors, or third-party contract manufacturers or the disruption, delay, or inability of these parties to deliver such food items or materials to our restaurants, may materially and adversely affect our results of operations while we establish alternative supply and distribution channels.
Although we believe that alternative supply and distribution are available, we may not be able to easily locate replacement suppliers or distributors who provide ingredients or products that meet our high-quality standards. For example, the olive oil we use is sourced from a specific supplier meeting our high standards for taste and quality. Similarly, we have established certain specification criteria for the steak served in our restaurants, which may limit the number of suppliers available. Any failure to timely replace or engage suppliers or distributors who meet our specifications could increase our expenses, cause delays in our production, and cause food and item shortages for our CPG production and at our restaurants. A shortage at a restaurant could, in turn, cause such restaurant to remove items from its menu. If that were to happen, affected restaurants could experience significant reductions in sales during the shortage and thereafter, if guests change their dining habits as a result. Alternatively, if we are required to lower or otherwise change our specifications in order to obtain sufficient supply, it could impact the taste and quality of our food, which could in turn impact demand for our food and offerings. Our focus on key ingredients would make the consequences of a shortage of such an ingredient, or a change in the quality of our ingredients, more severe. In addition, we cannot guarantee that we will be able to identify or negotiate with alternative suppliers or distributors on terms that are commercially reasonable to us.
Moreover, given that we do not control the businesses of our suppliers and distributors, our efforts to specify and monitor the standards under which they perform may not be successful. Certain food items are perishable and/or may be contaminated, and we have limited control over whether these items will be delivered to us in appropriate condition for use in our restaurants. If any of our distributors or suppliers perform inadequately, or our distribution or supply relationships are disrupted for any reason, our business, financial condition, and results of operations could be materially adversely affected.
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We may not successfully optimize, operate, and manage our production facilities.
As we continue to expand our menu and CPG offerings, we plan to add and enhance our production capabilities and our production operations may become increasingly complex and challenging. Failure to successfully address such challenges in a cost-effective manner could harm our business, financial condition, and results of operations. The expansion of our production capabilities requires significant capital investments, and we cannot guarantee that we will be able to obtain the capital necessary to support such expansion on favorable terms, or at all. In addition, a substantial delay in bringing any new facility up to full production on our projected schedule would put pressure on the rest of our business operations to meet demand and production schedules and may hinder our ability to produce all the food needed to meet guest and consumer demand and/or to achieve our expected financial performance. Furthermore, the opening of a new facility requires the efforts and attention of our management and other personnel, which has and will continue to divert resources from our existing business operations. We will also need to hire and retain more skilled Team Members to operate any new facility, including the recently opened facility in Virginia. Even if a new facility is brought up to full production according to our current schedule, the capital expenditures and other investment expenses for such new facility may be greater than the corresponding sales and it may not provide us with all the operational and financial benefits that we expect to receive.
The infrastructure of our production facilities is tailored to meet the specific needs of our business. A natural disaster, severe weather, fire, power interruption, work stoppage, labor shortages or unrest, restrictive governmental actions, outbreaks of pandemics or diseases, or other calamity at any of our production facilities would significantly disrupt our ability to operate our business. The facilities and the manufacturing equipment we use is costly to replace or repair and may require substantial lead-time to do so. Suppliers that provide spare parts and the external service engineers on which we rely for maintenance, repairs, and calibration face their own risks of disruption or disturbance to their businesses, which may lead to disruption in our production. In addition, we may face lengthy lead times in our ability to procure new processing and packaging equipment when needed.
We may experience plant shutdowns or periods of reduced production as a result of regulatory issues, equipment failure, or delays in deliveries. Any such disruption or unanticipated event may cause significant interruptions or delays in our business and loss of inventory and/or data, or render us unable to produce food items for our restaurants or for our CPG operations in a timely manner, or at all. We currently have property and business disruption insurance coverage in place for our Maryland and Virginia facilities. However, our insurance coverage may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all.
If we do not have sufficient production capacity or experience a problem with our production facilities, our restaurants may experience delays or stoppages in receiving certain of our food items and our ability to meet guest and consumer demand could be impacted, which could in turn adversely affect our brand, business, financial condition, and results of operations.
We may experience shortages, delays, or interruptions in the delivery of food items and other products.
Our restaurants and CPG operations are dependent on frequent deliveries of fresh food that meets our specifications. Shortages, delays, or interruptions in the supply or delivery of food items and other supplies to our restaurants and CPG operations, whether by third-party partners or us, have in the past, and may in the future, be caused by severe weather or weather changes resulting in destruction of crops, changes in the quality of the crops, or ingredients that do not meet our specifications; natural disasters such as hurricanes, tornadoes, floods, droughts, wildfires, and earthquakes; macroeconomic conditions (including geopolitical developments) resulting in disruptions to the shipping and transportation industries; labor issues such as increased costs or worker shortages, or other operational disruptions at our distributors, suppliers, vendors, or other service providers; the inability of our service providers to manage adverse business conditions or remain solvent; cyber-attacks and technological failures; and other conditions beyond our control. Recent supply chain disruptions have increased some of our costs and limited the availability of certain food and other items for our restaurants and may continue to do so. For example, grape tomatoes yields were adversely impacted by hurricanes and colder temperatures during 2023, leading to a product substitution from December 2023 through February 2024. We have also experienced shortages, delays or interruptions in other supplies and materials, such as food packaging, which are required and/or desired to operate our restaurants and/or produce our CPG offerings. Such shortages, delays, or interruptions could adversely affect the availability, quality, and cost of the items we buy, the operations of our restaurants, and our CPG operations.
In addition, we have in the past, and may from time to time, experience shortages of, and delays in receiving, construction materials, restaurant equipment and other supplies required to build out and open a new CAVA restaurant. This may require us to incur higher costs to procure these materials, equipment, and supplies from alternative sources, or cause a delay in the opening of a new restaurant.
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If we encounter supply shortages, delays, or interruptions, are unable to identify alternative sources at a reasonable cost, or at all, or otherwise incur higher costs, our business, financial condition, and results of operations could be adversely affected.
We may face increases in food, commodity, energy, and other costs.
Our profitability depends in part on our ability to anticipate and react to changes in food, commodity, energy, and other costs. The prices we pay are subject to fluctuations beyond our control, such as problems in production or distribution, food safety concerns, government regulation, livestock markets, food recalls, climate conditions, labor strikes or shortages, and macroeconomic conditions. In particular, we purchase substantial quantities of chicken, which is subject to significant price fluctuations due to conditions such as weather, feed and chicken prices, industry demand, and other factors. Our results of operations may also be adversely affected by increases in the price of utilities, such as natural gas, electric, and water, the costs of insurance, labor, marketing, taxes, and real estate, all of which could increase due to inflation, changes in laws, shortages or interruptions in supply, competition, or other events beyond our control.
For example, due to the recent inflationary environment, we have experienced increased food and packaging costs, which put pressure on our gross margins. To moderate the effects of these rising costs, we instituted proactive initiatives to create efficiencies in our in-bound logistics and other supply chain costs, such as an increased focus on food portioning, food production during off-peak hours and food waste management. We also modestly increased our in-restaurant menu prices by approximately 3% in fiscal 2024 and approximately 1.7% in the first quarter of 2025 in response to the inflationary environment. We cannot assure you that we will be able to effectively mitigate any inflationary pressures in the future, whether by instituting further operating efficiency initiatives or by increasing menu prices.
Any increase in the prices of the ingredients most critical to our menu and offerings, such as chicken, would have an adverse effect on our results of operations. If the cost of one or more ingredients significantly increases, or there are certain unforeseen events, such as poor weather conditions that damage the quality of an ingredient, we may choose to temporarily suspend serving menu items that use such ingredients or modify our menu offerings rather than pay the increased cost and/or provide a lower quality product.
In addition, some of our produce and food service items are imported. Any restrictions on the import of products imposed by government authorities, as well as any new or increased import duties, tariffs, sanctions, or taxes, geopolitical developments, such as the ongoing armed conflicts in Ukraine and the Middle East, or other changes in U.S. trade or tax policy, could result in higher food and supply costs. For example, certain items, including some bowls, lids, and food products such as avocados, are produced in China, Mexico, and Canada, which may be subject to changing tariffs and duties, which could impact the prices and availability of these goods. Furthermore, new or heightened restrictions resulting from a pandemic or epidemic or supply chain disruptions in such countries may cause us to face shortages of one or more ingredients.
We have chosen to enter into contracts for some but not all of our ingredients. In addition, we generally do not have long-term supply pricing agreements with our ingredient suppliers. We purchase some of our raw materials in the open market, and although we may decide to enter into certain forward pricing arrangements with our suppliers and distributors, some of which contain variable trigger events, these arrangements generally are relatively short in duration and may provide only limited protection from price changes, and the extent to which we use these arrangements may vary from time to time. Furthermore, the use of these arrangements may limit our ability to benefit from favorable price movements, may cause us to incur increased transaction expense and may expose us to complex or unforeseen market risks, such as counterparty or interest rate risk. Our efforts to mitigate future price risk through forward contracts, careful planning, and other activities may not fully insulate us from increases in commodity costs. Furthermore, some of our raw materials are sourced from a limited number of suppliers and we cannot guarantee that we will be able to continue to obtain such materials from our existing suppliers, or alternate suppliers, at the same or lower prices or at all. See “—Our reliance on third parties could have an adverse effect on our business, financial condition, and results of operations.”
We cannot guarantee that any cost increases can be offset by increased prices, that increases in prices will be fully absorbed by our guests without any resulting change to their demand for our food, or that we will generate sales growth in an amount sufficient to offset inflationary and other cost pressures, particularly with inflation and increases in interest rates that have recently been experienced. Any cost increases could have an adverse effect on our profitability, business, financial condition, and results of operations.
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Risks Related to Our People and Culture
We may face increases in labor costs, labor shortages, and difficulties in identifying, hiring, training, motivating, and retaining the right Team Members.
We believe that our continued success will depend on our ability to identify, hire, train, motivate, and retain Team Members who understand and appreciate our culture and are able to effectively represent our brand. If we are unable to identify, hire, train, motivate, and retain our Team Members, our restaurants could be short-staffed, we may be forced to incur overtime expenses, our ability to operate our current restaurants may be limited, and our expansion into new restaurants could be delayed. We may also suffer disruptions to our CPG operations. The restaurant industry generally has a high turnover rate. While we have taken, and will continue to take, a number of steps in order to reduce our turnover, we cannot be certain that our turnover rates will decrease in the future. We have been and in the future may be forced to temporarily close restaurants, or reduce restaurant hours or CPG production, as a result of labor shortages, which could result in reduced revenue. Furthermore, if our Team Members decide to and successfully unionize, this could result in a change to our culture, an increase in our labor and other costs, and disruptions to our business, as well as impact the speed at which we can make changes to our organization. In addition, our responses to any union organizing efforts could negatively impact how our brand is perceived and have adverse effects on our business and expose us to legal risk.
The market for qualified talent is competitive and we must provide increasingly attractive wages, benefits, and workplace conditions to retain qualified Team Members, particularly with respect to restaurant managerial positions for which the pool of qualified candidates can be small. Increases in wage and benefits costs, including as a result of increases in minimum wages and other governmental regulations affecting labor costs, may significantly increase our labor costs and operating expenses and make it more difficult to fully staff our restaurants. From time to time, legislative proposals are made to increase the minimum wage at the U.S. federal, state, and local levels, such as California Assembly Bill No. 1228, which was signed into law in September 2023 and which increases the state’s minimum wage and creates a Fast Food Council to set minimum wages and recommend regulations to address working conditions and other matters in the broadly defined fast food industry. Because we employ a large workforce, any wage increases and/or expansion of benefits mandates will have a particularly significant impact on our labor costs. In addition, our suppliers, distributors, and business partners may be similarly impacted by wage and benefit cost inflation, and many have or will increase their prices for goods and services in order to offset their increasing labor costs.
Furthermore, maintaining appropriate staffing and hiring and training new staff, both for our restaurants and our facilities, requires precise workforce planning, which has become more complex due to, among other things:
•significant staffing and hiring issues in the restaurant industry throughout the country;
•laws related to wage and hour violations or predictive scheduling, such as “Fair Workweek” or “secure scheduling,” in certain geographic areas where we operate as well as New York City’s “just cause” termination legislation; and
•low levels of unemployment, which has resulted in aggressive competition for talent, wage inflation, and pressure to improve benefits and workplace conditions to remain competitive.
In particular, several jurisdictions in which we operate, including New York City, have implemented “Fair Workweek” legislation, which requires fast food employers to provide employees with specified notice in scheduling changes and pay premiums for changes made to employees’ schedules, among other requirements. The regulations are often complex to administer and have evolved over time and may continue to do so. Furthermore, similar legislation may be enacted in other jurisdictions in which we operate, and in jurisdictions we may enter in the future. Such regulatory structures have in the past and may in the future, result in increased costs, both in terms of ongoing compliance and resolution of alleged violations.
We face many of these same risks with respect to the Team Members who work within our Collaboration Center Organization. Our information technology and other systems are critical to the management and growth of our business, and our success will depend in part on our ability to hire, motivate, and retain these qualified personnel.
Additionally, we engage a number of independent contractors to work for us in various aspects of our business, in particular in our information technology and marketing departments. Therefore, we are subject to federal, state, and local laws regarding independent contractor classification, which are subject to judicial and agency interpretation and may change from time to time. In the event of a reclassification of the independent contractors as employees, we could be exposed to various liabilities and additional costs. These liabilities and additional costs could include exposure (for prior and future periods) under federal, state, and local laws, and workers’ compensation, unemployment benefits, labor, and employment laws, as well as potential liability for penalties and interest.
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If we fail to hire, motivate, and retain Team Members, experience higher labor costs, and/or fail to appropriately plan our workforce for any of the reasons described above, our ability to open new restaurants, manage our information technology systems, and grow sales at existing restaurants may be adversely affected.
Our success depends on our ability to attract, develop, and retain our management team and key Team Members.
Our success depends largely upon the continued service of our executive leadership team and other key management personnel, particularly our Co-Founder and Chief Executive Officer, Brett Schulman, and our Co-Founder and Chief Concept Officer, Ted Xenohristos. Members of our leadership team, both individually and as a group, play an integral role in the development and growth of our company. We also rely on our leadership team in setting our strategic direction, spearheading innovation, operating our business, managing vendor relationships, identifying, recruiting, and training key personnel, identifying expansion opportunities, arranging necessary financing, and leading general and administrative functions. From time to time, there may be changes in our senior management team, which could disrupt our business, particularly if any non-compete clauses in employment agreements are deemed to be unenforceable for any reason, including as a result of regulatory restrictions. Moreover, the replacement of one or more of our leadership team or other key management personnel could involve significant time and expense and may significantly delay or prevent the achievement of our business objectives. In addition, we may not be able to find suitable individuals to replace such personnel on a timely basis or without incurring increased costs, or at all. We currently do not maintain any key person life insurance policies for any of our executive officers. If we are unable to attract, hire, retain, and incentivize sufficiently experienced and capable management personnel, our business and financial results may suffer.
Risks Related to Information Technology Systems, Cybersecurity, Data Privacy, and Intellectual Property
Security breaches of our electronic processing of credit and debit card transactions, the CAVA app, or confidential guest or Team Member information (including personal information) may adversely affect our business.
Operating our business requires the collection, use, storage, retention, adaptation, alteration, processing, disclosure, transfer, transmission, and protection (“Processing”) of large volumes of personal information (which may also be referred to as “personal data” or “personally identifiable information”) of guests, Team Members, and others, and other sensitive, proprietary, and confidential information, including credit and debit card numbers. Our reliance on technology has grown as we have grown, and the scope and severity of risks posed to our systems from compromises to our information technology systems and cyber threats has increased in part due to the continued evolution and sophistication of attacks as well as the legal and regulatory framework pertaining to privacy and data security matters.
From time to time, we have been, and likely will continue to be, the target of attempts to compromise our information technology systems and data, such as credential stuffing, distributed denial-of-service attacks, ransomware, viruses, malware, phishing attacks, break-ins, social engineering, usage errors, power, communications or other service outages and catastrophic events, security breaches, or other cybersecurity incidents to our data, network, or systems. In addition, if any of our critical suppliers or distributors is the subject of a cyber or ransomware attack, we could experience a significant disruption in our supply chain and possibly shortages of key ingredients. The techniques and sophistication used to conduct cyber-attacks and breaches of information technology systems, as well as the sources and targets of these attacks, change frequently and are often not recognized until such attacks are launched or have been ongoing for a period of time. While we continue to make significant investment in physical and technological security measures, Team Member training, and third-party services designed to anticipate cyber-attacks and prevent breaches, our information technology networks and infrastructure, and those of third parties with which we have business relationships, could be vulnerable to attacks, damage, disruptions, shutdowns, or breaches of personal or confidential information. Efforts to hack or breach security measures, failures of systems or software to operate as designed or intended, viruses, operator error, or inadvertent releases of data all threaten our and our business partners’ information systems and records. Due to these scenarios, we cannot provide assurance that we will be successful in adequately responding to, or preventing, such breaches or data loss.
Any intentional attack or an unintentional event that results in unauthorized access to systems to disrupt operations, corrupt data, or steal or expose intellectual property, proprietary business information, personal or confidential information of our guests, Team Members, or ourselves could result in widespread negative publicity, damage to our reputation, a loss of guests, disruption of our business, and/or legal liabilities, including being the subject of claims or litigation (including class claims), regulatory enforcement, liability under data protection laws, and additional reporting requirements, resulting in substantial remediation costs, operational inefficiencies and a loss of sales.
The majority of our restaurant sales are paid with credit or debit cards, but we accept certain other payment methods such as Apple Pay and gift cards, and we may offer new payment options in the future. The use of these payment options subjects us to rules, regulations, contractual obligations, and compliance requirements, including payment network rules
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and operating guidelines, data security standards and certification requirements, and rules governing electronic funds transfers. These requirements and related interpretations may change over time, which has made and could continue to make compliance more difficult or costly. In connection with credit or debit card transactions, we collect and transmit confidential information, including payment information, to card processors. The systems currently used for transmission and approval of electronic payment transactions, and the technology utilized in electronic payments themselves, all of which can put electronic payment at risk, are determined and controlled by the payment card industry, not by us, through enforcement of compliance with the Payment Card Industry - Data Security Standards (as modified from time to time, “PCI DSS”). We must abide by the PCI DSS in order to accept electronic payment transactions. If we fail to abide by the PCI DSS, we could be subject to fines, penalties, or litigation, which could adversely affect our results of operations. Furthermore, the payment card industry requires vendors to be compatible with smart chip technology for payment cards (“EMV-Compliant”), or else bear full responsibility for certain fraud losses, referred to as the EMV Liability Shift. To become EMV-Compliant, merchants often utilize EMV-Compliant payment card terminals at the point-of-sale and obtain a variety of certifications. We may become subject to claims for purportedly fraudulent transactions arising out of the actual or alleged theft, whether physical or electronic, of credit, debit, or gift card information, and we may also be subject to lawsuits or other proceedings relating to these types of incidents.
Our business is subject to complex and evolving laws and regulations regarding privacy, data protection, and cybersecurity.
There are numerous U.S. federal, state, local, and international laws and regulations regarding privacy, data protection, and cybersecurity that govern the Processing of personal information and other information. The scope of these laws and regulations is expanding and evolving, subject to differing interpretations, may be inconsistent among jurisdictions, or conflict with other rules. We are also subject to the terms of our privacy policies and obligations to third parties related to privacy, data protection, and cybersecurity.
For example, the California Consumer Privacy Act of 2018 (“CCPA”) took effect on January 1, 2020, which broadly defines personal information, gives California residents expanded privacy rights and protections, and provides for civil penalties for certain violations. Furthermore, in November 2020, California voters passed the California Privacy Rights and Enforcement Act of 2020 (“CPRA”), which amended and expanded CCPA with additional data privacy compliance requirements and establishes a regulatory agency dedicated to enforcing those requirements. On March 2, 2021, Virginia enacted the Virginia Consumer Data Protection Act, creating the second comprehensive U.S. state privacy law, which took effect on January 1, 2023 (the same day as CPRA took effect). An additional 17 states (Colorado, Connecticut, Iowa, Utah, Oregon, Montana, Tennessee, Indiana, Delaware, New Jersey, New Hampshire, Kentucky, Maryland, Minnesota, Nebraska, Rhode Island, and Texas), have since also passed comprehensive state privacy laws that impose additional obligations and requirements on businesses. Data privacy laws and regulations are constantly evolving and can be subject to significant change or interpretive application. Varying jurisdictional requirements could increase the costs and complexity of our compliance efforts and violations of applicable data privacy laws can result in significant penalties. In addition, laws, regulations, and standards covering marketing and advertising activities conducted by telephone, email, mobile devices and the internet are applicable to our business, including the Telephone Consumer Protection Act (the “TCPA”) and the Controlling the Assault of Non‑Solicited Pornography and Marketing Act (“CAN-SPAM Act”). The TCPA places certain restrictions on making outbound calls, faxes, and text messages to consumers. The CAN-SPAM Act imposes penalties for the transmission of commercial emails that do not comply with certain requirements, such as providing an opt-out mechanism for stopping future emails from the sender.
Compliance with the current and future privacy and data protection laws can be costly and time-consuming and there is no assurance that our compliance efforts will be successful in preventing breaches or data loss. Any failure, or perceived failure, by us to comply with applicable data protection or other laws, properly respond to security breaches of our or a third party’s information technology systems or properly respond to or honor consumer requests under any of the foregoing privacy laws could result in reputational damage, loss of consumer confidence, reduced sales and profits, proceedings or actions against us by governmental entities or others, subject us to significant fines, penalties, judgments, and negative publicity, require us to change our business practices, increase the costs and complexity of compliance, and adversely affect our business.
In addition, laws relating to online privacy are evolving differently in different jurisdictions. Federal, state and non-U.S. governmental authorities, as well as courts interpreting the laws, continue to evaluate the privacy implications of the use of third-party cookies, pixels, and other methods of online tracking. The United States and other governments have enacted or are considering legislation that could significantly restrict the ability of companies and individuals to collect and store user information, such as by regulating the level of consumer notice and consent required before a company can employ cookies, pixels, or other electronic tracking tools or the use of data gathered with such tools. As the collection and
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use of data for digital advertising has received ongoing media attention over the past several years, there has been an array of ‘do-not-track’ efforts, suggestions and technologies introduced to address these concerns, and comprehensive state privacy laws are beginning to incorporate the obligations. Under various privacy laws and other obligations, we may be required to obtain certain consents to process personal information. Some of our data processing practices may be challenged under wiretapping laws, if we obtain consumer information from third parties through various methods, including chatbot and session replay providers, or via third-party marketing pixels. Recently, these practices have been subject to increased challenges by class action plaintiffs, as a number of recent lawsuits have pled claims under privacy legislation such as the Video Privacy Protection Act, Electronic Communications Privacy Act (including the WireTap Act and Stored Communications Act), Computer Fraud and Abuse Act, California Online Privacy Protection Act, and similar state laws alleging wiretapping, eavesdropping, tape recording and invasion of privacy through the use of marketing pixels, analytics software, session replay technology, voice recording, and live chat functionality. Our inability or failure to obtain consent for these practices could result in adverse consequences, including class action litigation and mass arbitration demands. Such a demand could allow for the recovery of statutory damages on a per violation basis, which could be significant depending on the volume of data and the number of violations.
Additionally, the information, security, and privacy requirements imposed by governmental regulation are increasingly demanding and evolving. Laws require businesses to notify affected individuals, governmental entities, and/or credit reporting agencies of certain security incidents affecting personal information. Such laws are not all consistent, and compliance in the event of a widespread security incident is complex and costly and may be difficult to implement. Our existing general liability and cyber liability insurance policies may not cover, or may cover only a portion of, any potential claims related to security breaches to which we are exposed or may not be adequate to indemnify us for all or any portion of liabilities that may be imposed.
Significant theft, loss, or misappropriation of, or access to, guests’ or other proprietary data, or other breach of our or our business partners’ information technology systems, could result in fines, legal claims, or proceedings, including regulatory investigations and actions, or liability for failure to comply with privacy and information security laws, which could disrupt our operations, damage our reputation, and expose us to claims from guests and Team Members, any of which could have a material adverse effect on our business, financial condition, and results of operations.
We may not be able to adequately protect or enforce our rights in our intellectual property.
We rely on a combination of trademark, patent, trade secret, copyright laws, as well as contractual provisions, confidentiality, and inventions assignment agreements, and other intellectual property laws to protect our proprietary and intellectual property assets and rights. Our intellectual property, particularly our trademarks, is material to the conduct of our business and our marketing efforts as our brand recognition is one of our key differentiating factors from our competitors. The success of our business depends in part on our ability to use our trademarks, service marks, and other proprietary intellectual property, including our name and logos and the unique character, atmosphere, and ambiance of our restaurants, to increase brand awareness and further develop our brand reputation in the market.
However, the steps we have taken to protect our intellectual property in the United States may not be adequate. We have registered and applied to register trademarks and other intellectual property in the United States, but we cannot guarantee that our trademark applications will be approved. We may not be able to adequately protect our trademarks and other intellectual property, and third parties may oppose and successfully challenge the validity and/or enforceability of our trademarks and other intellectual property. In the event that our trademarks are successfully challenged, we could be forced to rebrand our goods and services, which could result in loss of brand recognition, and could require us to devote substantial resources to advertising and marketing new brands that may not ultimately be successful. Moreover, even if we successfully register our trademarks and other intellectual property, our competitors may develop similar menu items and concepts, and adequate remedies may not be available in the event of an unauthorized use or disclosure of our trade secrets and other intellectual property. We have in the past instituted and may from time to time in the future be required to institute, litigation, or other proceedings to enforce our trademarks and other intellectual property. Such litigation or other proceedings could result in substantial costs and diversion of resources and could negatively affect our sales, profitability, and prospects regardless of whether we are able to successfully enforce our rights.
In addition, any success we have had registering and protecting our intellectual property in the United States does not guarantee that we will have similar success in other jurisdictions. We do not currently own any material registered intellectual property outside the United States. Although we do not currently operate outside the United States, should we choose in the future to expand our operations outside the United States, a failure to protect and maintain our brand in such other jurisdictions could adversely affect our business, results of operations, and financial condition.
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We maintain a policy requiring our Team Members to enter into an agreement to protect our intellectual property rights and other proprietary information. However, we cannot guarantee that such agreements adequately protect our intellectual property rights and other proprietary information. We cannot guarantee that these agreements will not be breached, that we will have adequate remedies in the event of a breach, or that the respective Team Members will not assert rights to our intellectual property rights or other proprietary information. In addition, we may fail to enter into confidentiality agreements with all parties who have access to our trade secrets or other proprietary information. Failing to protect and maintain the secrecy of our trade secrets or other confidential information for any reason could adversely affect our business, results of operations, and financial condition.
We have been, and may in the future be, subject to claims that we violated certain third-party intellectual property rights.
Third parties may assert, including in a lawsuit, that we infringe, misappropriate, or otherwise violate their intellectual property rights. In addition, we periodically receive communications that claim we have infringed, misappropriated, or otherwise violated others’ intellectual property rights. Any claim against us relating to intellectual property, with or without merit, could be time consuming, expensive to settle or litigate, and could divert the attention of our management, even if we were ultimately successful. Litigation regarding intellectual property rights is inherently uncertain due to the complex issues involved, and we may not be successful in defending ourselves in such matters. Any claims successfully brought against us could subject us to significant liability for damages, and we may be required to stop using brands, products, technology, or other intellectual property alleged to be in violation of a third-party’s rights in one or more jurisdictions where we do business. We also might be required to seek a license for third-party intellectual property or enter into a settlement or coexistence agreement that may limit our rights or the scope of our business operations in some way. Even if a license is available, we could be required to pay significant royalties or submit to unreasonable terms, which could increase our operating expenses. We may also be required to develop alternative non-infringing branding or products, which could require significant time and expense. If we cannot license or develop replacements for any allegedly infringing aspect of our business, we could be forced to limit our service and may be unable to compete effectively. Any of these results could adversely affect our business, financial condition, and results of operations.
We rely heavily on information technology systems and failures, or interruptions in, or not effectively scaling and adapting, our information technology systems could harm our business.
We rely heavily on information technology systems, including the point-of-sale and payment processing system in our restaurants, our restaurant management systems, technologies supporting our digital and delivery business, such as our website, the CAVA app, and online and mobile ordering platforms, management of our supply chain, our rewards program, collection of cash, credit, and debit card transactions, technologies that facilitate marketing and promotion initiatives, Team Member engagement and payroll processing, payment card transactions, and various other processes and transactions. Many of the critical information technology systems that we rely on are provided and managed by third parties, and we are reliant on these third-party providers to implement protective measures that ensure the security and availability of our systems and their systems. In addition, some of our critical information technology systems are managed by our Team Members, and our continued ability to manage our business efficiently and effectively will depend on our ability to identify, hire, train, motivate, and retain information technology Team Members who understand and appreciate our culture. See “—Risks Related to Human Capital—We may face increases in labor costs, labor shortages, and difficulties in hiring, training, motivating, and retaining the right Team Members.” Our ability to manage our business efficiently and effectively depends significantly on the availability, reliability, and security of these systems.
We may from time to time experience service interruptions, outages, or other performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of guests accessing our technology infrastructure simultaneously, downtime or outages of third-party services, and denial of service attacks or other malicious activity. These information technology systems, including our online and mobile ordering platforms, may now or in the future contain undetected errors, bugs, or vulnerabilities which may cause the systems to malfunction or be interrupted. Although we have operational safeguards in place, these safeguards may not be effective in preventing degradations or interruptions of our information technology systems or platforms to operate effectively and be available.
As our business expands, it may become more difficult to scale, maintain and improve our online and mobile ordering platforms. If our online and mobile ordering platforms are unreliable, unavailable, compromised, or otherwise fail when guests attempt to access them or they do not load as quickly as guests expect, guests may seek other services, and may not return to our platforms as often in the future. In some instances, we may not be able to identify the cause of performance problems within an acceptable period of time, and, in cases where we rely on third-party information technology infrastructure, we may not have sufficient contractual recourse against such third parties to make us whole for losses
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resulting from the failure of such infrastructure. Remediation of such problems could result in significant, unplanned capital investments and harm our business, financial condition, and results of operations.
To the extent that we do not effectively address capacity constraints, respond adequately to service interruptions and degradations, upgrade our systems as needed, or continually develop and deploy our technology and network architecture to accommodate actual and anticipated changes in guest demand, our business, and results of operations would be harmed.
The use or capabilities of artificial intelligence in our offerings may result in reputational harm and liability.
We are building artificial intelligence capabilities into our restaurants and guest experiences, including the use of artificial intelligence video technology to monitor how quickly ingredients are being depleted and assist teams with meal preparation. As with many innovations, our use of artificial intelligence presents additional risks and challenges that could affect its adoption and therefore our business. Artificial intelligence and machine learning technologies are complex and rapidly evolving, as is the regulatory landscape that governs them. Our efforts to integrate artificial intelligence capabilities into our business may result in additional costs, unintended consequences, such as discrimination or bias, errors in our systems, or other complications, as well as subject us to new or enhanced governmental or regulatory scrutiny or litigation, any of which could adversely affect our business, financial condition, and results of operations.
Changes to existing regulations, their interpretation or implementation or new regulations could impede our use of artificial intelligence and machine learning technology and also may make it more difficult to operate our business. Further, we may rely on third-party providers for the development and maintenance of our artificial intelligence systems, which could increase our risk of exposure to security breaches and other disruptions. Furthermore, if we fail to leverage artificial intelligence technologies as effectively or rapidly as our peers, our competitiveness could be materially and adversely impacted. Any of these factors could adversely affect our business, financial condition, and results of operations.
The successful operation of our business depends upon the performance and reliability of internet, mobile, and other infrastructure, as well as of our third party vendors, none of which are under our control.
Our business operations and our ability to acquire, retain, and serve our guests are highly dependent upon the reliable performance of our website and the CAVA app and the underlying network and server infrastructure.
Our in-restaurant and online and mobile ordering businesses depend on the performance and reliability of internet, mobile, and other infrastructures that are not under our control. Almost all access to the internet is maintained through telecommunication operators who have significant market power that could take actions that degrade, disrupt, or increase the cost of users’ ability to access our platform.
Disruptions in internet infrastructure, cloud-based hosting, or the failure of telecommunications network operators to provide us with the bandwidth we need to provide our services could temporarily shut down our in-restaurant ordering business and could interfere with the speed and availability of our online and mobile ordering platforms. If our online and mobile ordering platforms are unavailable when guests attempt to access them, or if our online and mobile ordering platforms do not load as quickly as guests expect, guests may not return to our online and mobile ordering platforms as often in the future, or at all, and may use our competitors’ platforms more often. In addition, we have no control over the costs of the services provided by national telecommunications operators. If mobile internet access fees or other charges to internet users increase, our digital orders may decrease, which may in turn cause our revenue to significantly decrease.
We also use various third-party vendors, such as software as a service and infrastructure as a service, to provide support to our restaurant operations, core enterprise, and supply chain systems, cybersecurity solutions, and cloud based hosting of our proprietary applications. We also outsource certain accounting, payroll, and human resource functions to business process service providers. The failure of any service provider or vendor to fulfill their obligations could disrupt our operations. Additionally, any changes we may make to the services we obtain from our vendors, or from any new vendors we employ, may disrupt our operations.
Any of these events could damage our reputation, significantly disrupt our operations, and subject us to liability, which could adversely affect our business, financial condition, and results of operations.
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Risks Related to Legal and Governmental Regulation
Changes by the U.S. government could materially affect our business, financial condition, and results of operations.
Regulatory and other changes by the U.S. government can significantly impact our business. The recent changes by the U.S. government, including through executive orders, may result in substantial modifications to laws and regulations, including, but not limited to, those related to trade policies, tariffs, export controls, and technology transfers. New executive orders and legislative actions could alter the business environment in which we operate.
The current administration may implement new policies or reverse existing ones, affecting international trade relations and, as a result, impacting our supply chain. The imposition of new tariffs or trade barriers could increase the cost of certain items in our restaurants such as utensils, lids and bowls, and food products such as avocados. Furthermore, new regulations or changes to existing regulations could require us to modify our operations and incur additional expenses to comply with the new legal standards. These changes could disrupt our business operations and negatively impact our profitability.
In addition, any significant changes enacted by the current U.S. Government administration to the Internal Revenue Code of 1986, as amended (the “Code”) or specifically to the Tax Cuts and Jobs Act (“TCJA”) enacted in 2017, or to regulatory guidance associated with the TCJA, could materially adversely affect our effective tax rate.
Any such changes could have a material adverse effect on our business, financial condition, and results of operations. We are actively monitoring policy developments and are prepared to adapt our strategies accordingly; however, there can be no assurance that we will be successful in mitigating the risks posed by changes in government policies and regulations.
We are subject to extensive laws and regulatory requirements, and failure to comply with, or changes in, these laws or regulations could have an adverse impact on our business.
Our restaurants are subject to U.S. federal, state, and local licensing and regulation by health, sanitation, food, occupational safety, and other agencies, which are subject to change from time to time. Our license requirements include those relating to the preparation and sale of food and beverages as well as food safety requirements. In addition, the development and operation of our restaurants depends to a significant extent on the selection and acquisition of suitable locations, which are subject to zoning, land use, environmental, and other regulations and requirements. Difficulties or failure to maintain or obtain the required licenses, permits, and approvals could adversely affect our existing restaurants and delay or result in our decision to cancel the opening of new restaurants, which would adversely affect our business, financial condition, and results of operations.
Various U.S. federal, state, and local employment and labor laws and regulations govern our relationships with our Team Members. These laws and regulations relate to, among other matters, overtime, wage and hour requirements, unemployment tax rates, workers’ compensation rates, mandatory health benefits, healthcare laws, immigration status, and other wage and benefit requirements. Complying with these laws and regulations subjects us to substantial expense and non-compliance could expose us to significant liabilities. We have incurred, and may in the future incur, legal costs to defend against, and have suffered losses from, these and similar cases. While the amount of losses and costs incurred to date for such matters has not had a material adverse impact on our financial results or results of operations, the amount of any future losses or costs could be significant.
Our operations are also subject to, among other U.S. federal, state, and local laws and regulations, the following:
•the Americans with Disabilities Act, which provides civil rights protections to individuals with disabilities in the context of employment, public accommodations, and other areas, including our restaurants;
•the U.S. Food and Drug Administration (“FDA”), which oversees the safety of the entire food system, including inspections and mandatory food recalls, menu labeling, and nutritional content;
•the U.S. Equal Employment Opportunity Commission, which is a federal agency that was established to administer and enforce civil rights laws against workplace discrimination;
•the U.S. Fair Labor Standards Act, which governs such matters as minimum wages and overtime;
•the U.S. Occupational Safety and Health Act, which governs worker health and safety, as well as rules and regulations regarding the COVID-19 pandemic; and
•California’s FAST Act, which created a Fast Food Council to set, among other things, minimum wages and working condition standards in the broadly defined fast food industry. See “—Risks Related to Our People and
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Culture—We may face increases in labor costs, labor shortages, and difficulties in hiring, training, motivating, and retaining the right Team Members.”
In addition, we are subject to changes in U.S. federal, state, and local regulations that impact the ingredients and nutritional content of the food and beverages we offer. For example, there are various menu labeling laws requiring multi-unit restaurant operators to disclose to guests certain nutritional information, and there are other laws restricting the use of certain types of ingredients in restaurants. An unfavorable report on, or reaction to, our ingredients, the size of our portions, or the nutritional content of our menu items and products could negatively influence the demand for our offerings. Furthermore, any changing requirements with respect to labeling would increase our costs.
All of these regulations impose obligations on us, and any increase in our obligations thereunder could increase our costs of doing business and require us to make changes to our business model.
Compliance with U.S. federal, state, and local laws and regulations, and new laws or changes in these laws, or regulations that impose additional requirements, can be costly (some or all of which costs may not be covered by insurance) and require significant resources and attention from our senior management. Any failure, or perceived failure, to comply with laws or regulations could result in, among other things, revocation of required licenses, civil and criminal liability to us or our personnel, higher Team Member turnover, and negative publicity, and could expose us to litigation, or governmental investigations, or proceedings, which could have a material adverse effect our business, financial condition, and results of operations.
We are subject to various claims and legal actions that could distract management, increase our expenses, or subject us to monetary damages or other remedies.
We have been, and will likely continue to be, subject to various claims and legal actions that may adversely affect our business. These legal proceedings, which could include class action lawsuits and allegations of illegal, unfair, or inconsistent employment practices, including wage and hour, discrimination, harassment, wrongful termination, and vacation and family leave laws; food safety issues including related to food-borne illness, food packaging or food contamination and adverse health effects from consumption of our food; the nutritional content of food sold; disclosure and advertising practices; data security or privacy breaches and other cybersecurity incidents, claims, and allegations; intellectual property infringement; lease issues; violation of the federal securities laws or state corporations law; or other concerns.
Even if the allegations against us in current or future legal matters are unfounded or we ultimately are not held liable, the costs to defend ourselves may be significant and may cause a diversion of management’s attention and resources, resulting in an adverse impact on our business, financial condition, and results of operations. In addition, such allegations may generate negative publicity, which could impact our brand and reputation and reduce sales.
Although we maintain what we believe to be adequate levels of insurance to cover any of these liabilities, insurance may not be available at all or in sufficient amounts with respect to these or other matters. See Note 9 (Commitments and Contingencies) included in Part II, Item 8. “Financial Statements and Supplementary Data.” A judgment or other liability in excess of our insurance coverage for any claims or any adverse publicity resulting from claims could adversely affect our business, financial condition, and results of operations.
If tax laws change or we experience adverse outcomes resulting from examination of our tax returns or disagreements with taxing authorities, it could adversely affect our business, financial condition, and results of operations.
We are subject to federal, state, and local tax laws and regulations in the United States. The application and interpretation of these laws in different jurisdictions affect our operations in complex ways and are subject to change, and some changes may be retroactively applied. Our future effective tax rates and the value of our deferred tax assets could be adversely affected by changes in tax laws, including impacts of the TCJA and the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The United States may also effect changes to existing U.S. tax laws that could increase our tax obligations or require us to change the manner in which we operate our business. For example, in August 2022, the Inflation Reduction Act (the “IRA”) was signed into law. The IRA, among other things, includes a new 15% corporate minimum tax as well as a 1% excise tax on corporate stock repurchases, subject to certain exceptions.
In addition, we are subject to the examination of our income and other tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from such examinations to determine the adequacy of our provision for income taxes. Although we believe we have made appropriate provisions for taxes in the jurisdictions in which we operate, changes in the tax laws, or challenges from tax authorities under existing tax laws could adversely affect our business, financial condition, and results of operations.
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Our ability to use our net operating loss carryforwards may be limited.
We have incurred substantial federal and state net operating losses (“NOLs”). Our ability to use these NOLs to offset potential future taxable income and related income taxes that would otherwise be due is dependent upon our generation of future taxable income before the expiration dates of the NOLs, and we cannot predict with certainty when, or whether, we will generate sufficient taxable income to use all of our NOLs. In addition, under the rules of Section 382 of the Code, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its NOLs to offset its post-change taxable income or taxes annually may be limited. The applicable rules generally operate by focusing on changes in ownership among holders owning, directly or indirectly, 5% or more of the stock of a company, as well as changes in ownership arising from new issuances of stock by the company. Similar rules may apply under state tax laws. As a result of these rules, if we experience ownership changes, then we may be limited in our ability to use our NOL carryforwards to offset our future taxable income if any.
Furthermore, under the TCJA, as amended by the CARES Act, NOLs generated in taxable years beginning after December 31, 2017, may be utilized to offset no more than 80% of taxable income annually for taxable years beginning after December 31, 2020. For state income tax purposes, there may also be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or limitations on the use of NOLs, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. For these reasons, we may not be able to realize a tax benefit from the use of our NOLs, whether or not we attain profitability.
General Risk Factors
Economic factors and guest behavior trends, which are uncertain and largely beyond our control, may adversely affect guests’ behavior and our ability to maintain or increase sales at our restaurants.
The restaurant industry depends on guests’ discretionary spending, which is affected by macroeconomic conditions that are beyond our control, such as depressed economic activity, recessionary economic cycles, inflation, guests’ income levels, financial market volatility, investment losses, reduced access to credit, increased levels of unemployment, slow or stagnant pace of economic growth, increased energy costs, interest rates, social unrest, political dynamics, and other economic factors that may negatively affect the restaurant industry.
Current macroeconomic conditions and events, such as inflation, high interest rates, and uncertainty in the banking industry, may increase the risk of a recession. Guests’ preferences tend to shift to lower-cost alternatives during recessionary periods and other periods in which disposable income is adversely affected. Therefore, sales volumes in our restaurants could decline if guests choose to reduce the amount they spend on meals, choose to dine out less frequently, or reduce the amount they spend on meals while dining out. The demand for our CPG offerings could also decline. If negative economic conditions persist for a prolonged period or become pervasive, guests’ changes to their discretionary spending behavior that would otherwise be transitory, including the frequency with which they dine out, may become permanent.
Furthermore, we cannot predict the effects that world events, which may include climate disruptions, pandemic or disease outbreak, actual or threatened armed conflicts, including the ongoing armed conflicts in Ukraine and the Middle East, terrorist attacks, efforts to combat terrorism, heightened security requirements, or a failure to protect information systems for critical infrastructure could have on our operations, the economy, or guests’ confidence generally. Any of these events could affect guests spending patterns or result in increased costs for us due to heightened security measures we may need to take.
Any of the above factors, or other unfavorable changes in macroeconomic conditions affecting our guests or us, could have an adverse impact on guests’ demand for our food and cause us to, among other things, reduce the number and frequency of new restaurant openings, which could have the effect of having a material adverse effect on our business, financial condition, and results of operations.
We are subject to evolving rules and regulations with respect to ESG matters.
We are subject to a variety of ESG-related rules and regulations promulgated by a number of governmental and self-regulatory organizations. ESG-related rules and regulations continue to evolve in scope and complexity, and the increase in costs to comply with such evolving rules and regulations, as well as any risk of noncompliance, could adversely impact our business, financial condition, and results of operations. For example, in October 2023, California enacted climate disclosure laws that will require us to report on climate-related financial risks and other climate-related matters. In
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addition, there is an increasing public focus by regulators, guests, investors, and other stakeholders on ESG matters. Evolving ESG rules, regulations and stakeholder expectations increase general and administrative expenses and may divert management’s attention to the consideration and measurement of metrics and standards related to these rules, regulations, and stakeholder expectations. Developing and acting on initiatives within the scope of ESG, and collecting, measuring, and reporting ESG-related information and metrics can be costly, difficult and time consuming.
We may communicate certain aspirational initiatives and goals regarding ESG-related matters to our stakeholders. These aspirational initiatives and goals could be difficult and expensive to quantify and implement. In addition, such aspirational initiatives and goals are subject to risks and uncertainties, many of which may not be foreseeable or may be outside of our control. We may be criticized for the scope or nature of such aspirational initiatives or goals, for any revisions to such initiatives or goals, or for failing, or being perceived to have failed, to achieve such initiatives or goals.
If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our, and our industry’s, ESG-related aspirational goals, it could lead to private, regulatory, or administrative challenges or proceedings, including with respect to our disclosure controls and procedures, as well as adverse publicity, any of which could damage our reputation and our business, financial condition, and results of operations.
Climate change and volatile adverse weather conditions could adversely affect our restaurant sales or results of operations.
Climate change has caused, and may continue to cause, more severe, volatile weather or extended droughts, which could increase the frequency and duration of weather impacts on our operations, including impacts related to our supply chain. Adverse weather conditions have in the past and may in the future negatively affect sales at our restaurants, and, in more severe cases such as regional winter storms, hurricanes, tornadoes, wildfires, or other natural disasters, may cause temporary restaurant closures, all of which negatively impact our restaurant sales, as well as temporary production stoppages at our production facilities. Climate change could also adversely impact our production facilities, our distribution channels, and our third-party contract manufacturers’ operations, particularly where certain food is primarily sourced from a single location. Similarly, extended periods of unseasonably warm temperatures during the winter season or cool weather during the summer season could result in higher instances of food spoilage. It is possible that weather conditions may impact our business more than other businesses in our industry because of the significant concentration of our restaurants in certain locations, such as the risk of earthquakes in Southern California, coastal winds in New York and North Carolina, wind and water intrusion in southeast coastal areas, and winter storms and freezes in the northeast.
In addition, our supply chain is subject to increased costs caused by the effects of climate change. Increasing weather volatility and changes in global weather patterns can reduce crop size and crop quality, which could result in decreased availability or higher pricing for our produce and other ingredients. For example, we have experienced periodic shortages in grape tomatoes due to the impact of hurricanes over the last three years. As a result, we have entered into alternative arrangements to better ensure our supply. These factors are beyond our control and, in many instances, unpredictable. Climate change and government regulation relating to climate change could also result in construction delays for new restaurants and interruptions to the availability or increases in the cost of utilities.
Furthermore, our business could be adversely affected if we are unable to effectively address increased concerns from the public, stockholders, and other stakeholders on climate change and related environmental sustainability and governance matters. See “—We are subject to evolving rules and regulations with respect to ESG matters.” The ongoing and long-term costs of these impacts related to climate change and other sustainability related issues could have a material adverse effect on our business, financial condition, and results of operations.
Our inability or failure to execute a comprehensive business continuity plan for our Collaboration Center Organization following a disaster or force majeure event could have a material adverse impact on our business.
Our operations depend upon our ability to protect our critical information technology equipment and systems against physical theft and damage from power loss, cybersecurity attacks (including ransomware), improper or unauthorized usage by Team Members, telecommunications failures or other catastrophic events, such as fires, earthquakes, tornadoes and hurricanes, climate change, widespread power outages caused by severe storms, as well as from internal and external security breaches, incidents, malware, viruses, worms, and other disruptive problems. Any damage, failure, or breach of our information systems that causes an interruption in our operations could have a material adverse effect on our business and subject us to litigation or actions by regulatory authorities. To mitigate potential risk posed by natural disasters or other catastrophic events, we have disaster recovery procedures and business continuity plans in place and back up and off-site locations for recovery of certain electronic and other forms of data and information. However, if we are unable to fully implement our disaster recovery plans, we may experience delays in recovery of data, inability to perform vital corporate
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functions, tardiness in required reporting and compliance, failures to adequately support field operations, and other breakdowns in normal communication and operating procedures that could have a material adverse effect on our financial condition, results of operation, and exposure to administrative and other legal claims. In addition, these threats are constantly evolving, which increases the difficulty of accurately and timely predicting, planning for and protecting against the threat. As a result, our disaster recovery procedures and business continuity plans may not adequately address all threats we face or protect us from loss.
The failure of any bank in which we deposit our funds could have an adverse effect on our financial condition.
Although we generally seek to diversify our cash and cash equivalents across several financial institutions in an attempt to minimize exposure to any one of these entities, we currently have cash and cash equivalents deposited in several financial institutions significantly in excess of federally insured levels. If any of the financial institutions in which we have deposited funds ultimately fails, we may lose our deposits over $250,000 at such financial institutions, and/or we may be required to move our accounts to another financial institution, which could cause operational difficulties, such as delays in making payments to our partners and employees, which could have an adverse effect on our business and financial condition.
Our quarterly financial results may fluctuate significantly, including due to factors that are not in our control.
Our quarterly financial results may fluctuate significantly, including due to factors that are not in our control, and could fail to meet investors’ expectations for various reasons, including:
•negative publicity about the safety of our food, packaging, employment-related issues, litigation, or other issues involving our restaurants;
•fluctuations in supply costs, including as a result of inflation, particularly for our most significant ingredients, and our inability to offset the higher cost with price increases without adversely impacting guest spending;
•labor availability and wages of Team Members, including as a result of inflation;
•increases in marketing or promotional expenses;
•the timing of new restaurant openings and related revenue and expenses, such as increased labor expenses, and the operating costs at newly opened restaurants;
•the impact of inclement weather and natural disasters, such as freezes and droughts, which could decrease sales volumes and increase the costs of ingredients;
•the amount and timing of equity-based compensation;
•litigation, settlement costs, and related legal expenses;
•tax expenses, asset impairment charges, and non-operating costs; and
•variations in general economic conditions and events, including the impact of inflation and recent turmoil in the banking industry.
Historically, seasonal factors have also caused our revenue to fluctuate from quarter to quarter. Our revenue per restaurant is typically lower in the first and fourth fiscal quarters due to reduced traffic as a result of colder temperatures and the holiday season. Furthermore, we operate on a 52-week or 53-week fiscal year. In a 52-week fiscal year, the first quarter contains sixteen weeks as compared to twelve weeks for the second, third, and fourth quarters (and thirteen weeks for the fourth quarter in a 53-week fiscal year).
As a result of these factors and the differences among our fiscal quarters, our quarterly operating results as well as our key performance measures, such as CAVA Same Restaurant Sales Growth and CAVA Restaurant-Level Profit Margin, may fluctuate significantly from quarter to quarter and our results for any one quarter are not indicative of any other quarter.
Risks Related to Our Indebtedness
Our ability to incur a substantial level of indebtedness may reduce our financial flexibility, affect our ability to operate our business, and divert cash flow from operations for debt service.
As of December 29, 2024, we had no outstanding indebtedness, and $74.3 million of undrawn availability, under our 2022 Credit Facility (as defined below).
We may incur substantial indebtedness under our 2022 Credit Facility or other debt instruments in the future, and, if we do so, the risks related to our level of indebtedness could increase. Our future borrowings will require interest payments
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and will need to be repaid or refinanced, which could require us to divert funds identified for other purposes to debt service and could create additional cash demands or impair our liquidity position and add financial risk. We may also sell additional debt or equity securities to help repay or refinance our borrowings. However, we do not know whether we would be able to take any of these actions on a timely basis, on terms satisfactory to us or at all.
Our future level of indebtedness could affect our operations in several ways, including but not limited to the following:
•increase our vulnerability to changes in general economic, industry, and competitive conditions;
•require us to dedicate a portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, and other general corporate purposes;
•place us at a competitive disadvantage compared to our competitors that are less leveraged and therefore potentially more able to take advantage of opportunities that our level of indebtedness would prevent us from pursuing; and
•impair our ability to obtain additional financing in the future for working capital, capital expenditures, debt service requirements, acquisitions, or other purposes.
In addition, the 2022 Credit Facility contains, and agreements governing future indebtedness may contain, restrictive covenants that limits our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default that, if not cured or waived, could result in the acceleration of all of our indebtedness. See “—Risks Related to Our Indebtedness—Our 2022 Credit Facility contains restrictions on our ability to operate our business and to pursue our business strategies.”
Borrowings under the 2022 Credit Facility bear interest at variable rates based on prevailing conditions in the financial markets, and changes to such variable market rates may affect both the amount of cash we must pay for interest as well as our reported interest expense. Assuming our 2022 Credit Facility were to be fully drawn, a 100-basis point increase to the applicable variable rate of interest would increase the amount of interest expense by $0.7 million per annum. If we are unable to generate sufficient cash flows to pay the interest expense on our debt, future working capital, borrowings, or equity financing may not be available from which to pay or refinance such debt. See Part II, Item 7A. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness.”
In addition, if any of the financial institutions that provide loan commitments to us were to fail, our liquidity could be adversely impacted and we may not be able to obtain financing for working capital, capital expenditures, acquisitions, and other purposes. In such event, our ability to operate and compete effectively, and our ability to execute on our growth strategies, could be adversely affected, which in turn would have an adverse impact on our business, results of operations and financial condition.
Our 2022 Credit Facility contains restrictions on our ability to operate our business and to pursue our business strategies.
Our 2022 Credit Facility restricts, subject to certain exceptions, among other things, our ability and the ability of our subsidiaries to:
•incur additional indebtedness and guarantee indebtedness;
•prepay, redeem, or repurchase certain debt;
•create or incur liens;
•make investments and loans;
•pay dividends or make other distributions, in respect of, or repurchase or redeem, capital stock;
•engage in mergers, consolidations, or sales of all or substantially all of our assets;
•sell or otherwise dispose of assets;
•amend, modify, waive, or supplement certain subordinated indebtedness to the extent such amendments would be materially adverse to the interests of the lenders; and
•engage in certain transactions with affiliates.
In addition, we are required to maintain specified financial covenant ratios and satisfy other financial condition tests. Any future financing arrangements entered into by us or any of our subsidiaries may contain similar restrictions or maintenance covenants. As a result of these covenants and restrictions, we and our subsidiaries are, and will be, limited in
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how we conduct our business, and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. See Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness.” The terms of any future indebtedness we or our subsidiaries may incur could include more restrictive covenants. We cannot guarantee that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.
Our or our subsidiaries’ failure to comply with the restrictive covenants described above as well as other covenants contained in our or our subsidiaries’ future debt instruments from time to time could result in an event of default, which, if not cured or waived, could require us to repay these borrowings before their maturity. If we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings, our results of operations, and financial condition could be adversely affected.
Our failure to comply with the 2022 Credit Facility, including as a result of events beyond our control, could result in an event of default that could materially adversely affect our business, financial condition, and results of operations.
If there were an event of default under the 2022 Credit Facility, the lenders under the 2022 Credit Facility could cause all amounts outstanding with respect to that debt to be due and payable immediately. Our assets or cash flow may not be sufficient to fully repay borrowing under the 2022 Credit Facility if accelerated upon an event of default. Furthermore, if we are unable to repay, refinance, or restructure our 2022 Credit Facility, the lenders under the 2022 Credit Facility could proceed against the collateral granted to them to secure such indebtedness, which could force us into bankruptcy or liquidation. As a result, any default by us on our debt could have a materially adverse effect on our business, financial condition, and results of operations.
Risks Related to Our Common Stock
We have in the past and will continue to incur significant increased costs and become subject to additional regulations and requirements as a result of operating as a public company, and our management will continue to be required to devote substantial time to compliance with our public company responsibilities and corporate governance practices, which could lower our profits or make it more difficult to run our business.
As a public company, we continue to incur significant legal, regulatory, finance, accounting, investor relations, insurance, and other expenses that we did not incur as a private company, including costs associated with public company reporting requirements and costs of recruiting and retaining non-executive directors. We also have incurred and will continue to incur costs associated with the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as related rules implemented by the SEC, and the NYSE, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. The expenses incurred by public companies for reporting and corporate governance purposes have been increasing. These rules and regulations have increased our legal and financial compliance costs and made some activities more time-consuming and costly; to the extent these rules and regulations change in the future, we may continue to experience increased compliance costs. Our management and other personnel has and will need to continue to devote a substantial amount of time to ensure that we comply with all of these requirements, which may divert their attention away from revenue-producing activities. These laws and regulations also could make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, our board committees, or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions, and other regulatory action and potentially civil litigation.
Failure to comply with requirements to design, implement and maintain effective internal controls could have a material adverse effect on our business and stock price.
As a privately held company, we were not required to evaluate our internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404(a) of the Sarbanes-Oxley Act (“Section 404”). As a public company, we are subject to significant requirements for enhanced financial reporting and internal controls. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environment, and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. If we are unable to establish or maintain appropriate internal financial reporting controls and procedures, it could cause us
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to fail to meet our reporting obligations on a timely basis, result in material misstatements in our consolidated financial statements, and harm our results of operations.
In addition, pursuant to Section 404, we are required to perform system and process evaluations and testing of our internal control over financial reporting to allow management to furnish a report on, among other things, the effectiveness of our internal control over financial reporting. This report will include disclosure, if applicable, of any material weaknesses identified by our management in our internal control over financial reporting. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing, and possible remediation. Testing and maintaining internal controls may divert our management’s attention from other matters that are important to our business. In addition, since we are no longer an “emerging growth company,” our auditors are required to issue an attestation report on the effectiveness of our internal controls pursuant to Section 404. In the event that they are not satisfied with our design or documentation of or our operations under our internal controls, the auditors may issue a report that is adverse.
In connection with our procedures and practices related to internal control over financial reporting, we or our independent registered public accounting firm may identify deficiencies in our systems of internal controls, and we may encounter problems or delays in completing the remediation of any such deficiencies identified by us or our independent registered public accounting firm in connection with the issuance of their attestation report. Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. Any material weaknesses could result in a material misstatement of our annual or quarterly financial statements or disclosures that may not be prevented or detected.
We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 or our independent registered public accounting firm may not issue an unqualified opinion. If either we are unable to conclude that we have effective internal control over financial reporting or our independent registered public accounting firm is unable to provide us with an unqualified report, investors could lose confidence in our reported financial information, which could have a material adverse effect on the trading price of our common stock.
An active, liquid trading market for shares of our common stock may not be sustained, which may make it difficult to sell the shares of common stock you purchase.
We cannot predict the extent to which investor interest, including recent interest from retail investors, in or company will continue in a sustained trading market or how active and liquid that market may be. If an active and liquid trading market is not sustained, you may have difficulty selling your shares of our common stock at an attractive price or at all.
Our stock price may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares of our common stock at or above the price you paid or at all, and you could lose all or part of your investment as a result.
The market price of our common stock may be highly volatile and could be subject to wide fluctuations. In addition, our stockholder base is increasingly comprised of retail (or non-institutional) investors, which may create additional stock price volatility as these investors are more likely to sell stock frequently. You may not be able to resell your shares at or above the price you paid due to a number of factors, including those listed in “—Risks Related to Our Business and Our Industry.”
Furthermore, the stock markets in general have experienced extreme volatility that, in some cases, may be unrelated or disproportionate to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance. In addition, price volatility may be greater if the public float and trading volume of our common stock is low.
In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If we were to become involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.
Your percentage ownership in our company may be diluted by future issuances of our common stock, which could reduce your influence over matters on which stockholders vote.
Our amended and restated certificate authorizes us to issue shares of common stock, other equity or equity-linked securities, options, and other equity awards relating to our common stock for the consideration and on the terms and conditions established by our Board of Directors in its sole discretion, whether in connection with acquisitions or otherwise. Issuances of common stock or voting preferred stock would reduce your influence over matters on which our
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stockholders vote, and, in the case of issuances of preferred stock, would likely result in your interest in us being subject to the prior rights of holders of that preferred stock, if any.
We have reserved, or will reserve in the future, shares for issuance under the 2015 Equity Incentive Plan, and for grants under the 2023 Equity Incentive Plan and the ESPP. Any common stock that we issue, including under the 2015 Equity Incentive Plan, the 2023 Equity Incentive Plan, the ESPP, or other equity incentive plans that we may adopt in the future, would dilute the percentage ownership held by our then-current investors. In the future, we may also issue our common stock in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to investors.
Because we have no current plans to pay cash dividends on our common stock, you may not receive any return on investment unless you sell your shares of common stock for a price greater than that which you paid for it.
We have no current plans to pay cash dividends on our common stock. The declaration, amount, and payment of any future dividends will be at the sole discretion of our Board of Directors, and will depend on, among other things, general and economic conditions, our results of operations and financial condition, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us, including restrictions under our credit agreements and other indebtedness we may incur, and such other factors as our Board of Directors may deem relevant. See “Dividend Policy.”
As a result, you may not receive any return on an investment in our common stock unless you sell our common stock for a price greater than your purchase price.
Future sales, or the perception of future sales, by us or our existing stockholders could cause the market price for our common stock to decline.
The sale of substantial amounts of shares of our common stock in the public market, or the perception that such sales could occur, including sales by certain investors, including our executive officers, directors, and each of our stockholders who own 5% or more of our outstanding common stock and their affiliates, could harm the prevailing market price of shares of our common stock. We cannot predict the number of shares sold or the timing of any future sales of shares of our common stock by our directors, officers or significant stockholders, or the impact that any such shares may have on the prevailing market price of shares of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
If securities analysts do not publish research or reports about our business or if they downgrade our stock or our sector, our stock price and trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. Furthermore, if one or more of the analysts who do cover us downgrades their evaluation of our stock or our industry, or the stock of any of our competitors, issues a sell recommendation or publishes inaccurate or unfavorable research about our business, the price of our stock could decline. If one or more of these analysts ceases coverage of the Company or fails to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.
Anti-takeover provisions in our organizational documents and under Delaware law could delay or prevent a change of control.
Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have an anti-takeover effect and may delay, defer, or prevent a merger, acquisition, tender offer, takeover attempt, or other change of control transaction that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by our stockholders. These provisions will provide for, among other things:
•a classified board of directors, as a result of which our Board of Directors will be divided into three classes, with each class serving for staggered three-year terms;
•the ability of our Board of Directors to issue one or more series of preferred stock;
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•advance notice requirements for nominations of directors by stockholders and for stockholders to include matters to be considered at our annual meetings;
•certain limitations on convening special stockholder meetings;
•the removal of directors only for cause and only upon the affirmative vote of the holders of at least 662/3% of the shares of common stock entitled to vote generally in the election of directors; and
•the required approval of at least 662/3% of the voting power of the outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class, to adopt, amend, or repeal certain provisions of our amended and restated certificate of incorporation.
Further, we are subject to Section 203 of the Delaware General Corporation Law (“DGCL”), which prohibits persons deemed to be “interested stockholders” from engaging in a “business combination” with a publicly held Delaware corporation for three years following the date these persons become interested stockholders unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. This provision will make it more difficult for a person who would be an “interested stockholder” to effect various business combinations with our company for a three-year period.
These anti-takeover provisions could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many of our stockholders. These provisions also may have the effect of preventing changes in our Board of Directors and may make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests. As a result, our stockholders may be limited in their ability to obtain a premium for their shares.
Our Board of Directors is authorized to issue and designate shares of our preferred stock in additional series without stockholder approval.
Our amended and restated certificate of incorporation authorizes our Board of Directors, without the approval of our stockholders, to issue up to 250 million shares of our preferred stock, subject to limitations prescribed by applicable law, rules and regulations and the provisions of our amended and restated certificate of incorporation, as shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series and to fix the designation, powers, preferences and rights of the shares of each such series, and the qualifications, limitations, or restrictions thereof. The powers, preferences and rights of these additional series of preferred stock may be senior to or on parity with our common stock, which may reduce its value.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware (or if such court does not have jurisdiction, another state or the federal courts (as appropriate) located within the State of Delaware) will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees, or stockholders.
Our amended and restated certificate of incorporation provides that unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or if such court does not have jurisdiction, another state or the federal courts (as appropriate) located within the State of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for any (i) derivative action or proceeding brought on behalf of the Company, (ii) action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, or other employee, or stockholder of the Company to the Company or our stockholders, (iii) action asserting a claim against the Company or any current or former director or officer of the Company arising pursuant to any provision of the DGCL, or our amended and restated certificate of incorporation or our amended and restated bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, or (iv) action asserting a claim governed by the internal affairs doctrine of the State of Delaware. Our amended and restated certificate of incorporation further will provide that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the federal securities laws of the United States, including any claims under the Securities Act and the Exchange Act of 1934, as amended (the “Exchange Act”). However, Section 22 of the Securities Act of 1933, as amended (the “Securities Act”), creates concurrent jurisdiction for federal and state courts over all suits brought to enforce a duty or liability created by the Securities Act or the rules and regulations thereunder and accordingly, we cannot be certain that a court would enforce such provision.
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our amended and restated certificate of incorporation, except our
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stockholders will not be deemed to have waived (and cannot waive) compliance with the federal securities laws and the rules and regulations thereunder. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our current or former directors, officers, other employees, or stockholders which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial condition.
Item 1B. Unresolved Staff Comments
None.
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Item 1C. Cybersecurity
Risk Management and Strategy
We have developed a cybersecurity program that continuously evaluates material risks to our business and applies controls in an attempt to help avoid or mitigate them. Our key cybersecurity risks include, among others: brand and reputational damage, business disruption, regulatory and compliance risk, sensitive data loss, and reliance on third parties.
Governance
Role of the Board
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Role of Management
We have established a management-level Risk Committee , that is led by the Chief Legal Officer, and also includes the Chief Information Officer and Chief Financial Officer, as well as certain of their respective Team Members. The Risk Committee meets on at least a quarterly basis to review enterprise risks, including with respect to cybersecurity, as applicable. Enterprise risks, including cybersecurity risk, are briefed to the Audit Committee on at least a quarterly basis by our Chief Legal Officer in coordination with the Chief Information Officer and Chief Financial Officer, or through general updates. In addition, our cybersecurity team, led by the Chief Information Officer, works cross functionally with our legal and other business functions to provide cybersecurity training and, as appropriate, manage cybersecurity risks and incidents.
Our Chief Information Officer and our Chief Information Security Officer each have more than two decades of experience in technology and cybersecurity. The cybersecurity team has related academic degrees, multiple certifications, and real-world experience managing cybersecurity incidents and risks and is responsible for building out the materials for review by leadership.
Item 2. Properties
Our restaurant collaboration center is located in Washington, D.C., where we currently lease approximately 21,000 square feet pursuant to a lease agreement that expires in 2035. In addition, we lease property for our two support centers, which are located in Brooklyn, New York and Plano, Texas; our production facility in Laurel, Maryland; and our food distribution center in Edison, New Jersey. The support centers in Brooklyn, New York and Plano, Texas focus primarily on creative content and restaurant and general support functions, respectively. We do not currently own any real estate, other than our production facility in Verona, Virginia, which commenced operations in February 2024, and we lease all of our restaurant locations. We believe our facilities are adequate and suitable for our current needs, and that suitable additional or alternative space will be available to accommodate our operations when needed.
Item 3. Legal Proceedings
For information regarding legal proceedings, see Note 9 (Commitments and Contingencies) in our consolidated financial statements included in Part II, Item 8. “Financial Statements and Supplementary Data.”
Item 4. Mine Safety Disclosures
Not applicable.
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Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock trades on the New York Stock Exchange under the symbol “CAVA.” As of February 18, 2025, there were approximately 34 stockholders of record. This does not include persons whose stock is held in nominee or “street name” accounts through brokers.
Purchases of Equity Securities by Issuer
During the twelve weeks ended December 29, 2024, we made the following purchases of our equity securities that are registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Period | Total Number of Shares Purchased1 | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||||
October 7, 2024 to November 3, 2024 | 13,652 | $ | 136.05 | — | — | |||||||||||||||||||||
November 4, 2024 to December 1, 2024 | 35,058 | 141.38 | — | — | ||||||||||||||||||||||
December 2, 2024 to December 29, 2024 | — | — | — | — | ||||||||||||||||||||||
Total | 48,710 | $ | 139.89 | — | — | |||||||||||||||||||||
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1 Purchases made to satisfy the income tax minimum withholding obligations of certain employees upon the vesting of restricted stock units (“RSUs”) issued under the Company’s 2015 Equity Incentive Plan and 2023 Equity Incentive Plan. These shares were not acquired pursuant to any repurchase plan or program. The average prices listed in the above table are averages of the fair market prices at which we valued shares withheld for purposes of calculating the number of shares to be withheld.
Dividend Policy
No dividends have been declared or paid on our shares of common stock to date, and we do not intend to declare or pay any cash dividends on our common stock for the foreseeable future. We currently intend to continue to retain earnings for the operation and expansion of our business and for working capital needs.
Stock Performance Graph
The graph below compares the cumulative total stockholder return on our common stock with the cumulative total return on the S&P 500 Index and the S&P Restaurant 500 Index, assuming an initial investment of $100 at the market close of June 15, 2023, the date our stock commenced trading on the New York Stock Exchange at an opening price of $22.00 per share. Prior to that time, there was no public market for our common stock. Data for the S&P 500 Index and the S&P 500 Restaurant Index assumes reinvestment of dividends. As noted above, no dividends have been declared on our common stock to date. The comparisons in the graph below are based on historical data and are not indicative of, nor intended to forecast, future performance of our common stock.
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| June 15, 2023 | July 9, 2023 | October 1, 2023 | December 31, 2023 | April 21, 2024 | July 14, 2024 | October 6, 2024 | December 29, 2024 | ||||||||||||||||||||||||||||||||||||||||
CAVA | $ | 100.00 | $ | 88.30 | $ | 68.26 | $ | 95.79 | $ | 132.98 | $ | 187.76 | $ | 282.15 | $ | 254.89 | |||||||||||||||||||||||||||||||
S&P 500 | 100.00 | 106.61 | 103.12 | 115.17 | 127.33 | 132.79 | 140.60 | 143.99 | |||||||||||||||||||||||||||||||||||||||
S&P Restaurant 500 | 100.00 | 104.45 | 93.99 | 105.32 | 107.38 | 100.54 | 113.16 | 110.62 | |||||||||||||||||||||||||||||||||||||||
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*$100 invested on June 15, 2023 in CAVA Group, Inc. stock or May 31, 2023 in indices, including reinvestment of dividends.
Source Data: Research Data Group Inc.
The performance graph and related information shall not be deemed “soliciting material,” is not deemed “filed” with the SEC, and is not to be incorporated by reference into any future filing under the Securities Act or Exchange Act.
Item 6. Reserved
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes thereto included in Item 8. “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. For a discussion of the year ended December 31, 2023 compared to December 25, 2022, please refer to the Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of our Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the U.S. Securities and Exchange Commission on February 27, 2024. In addition to historical information, this discussion and analysis contains forward-looking statements based on current expectations that involve risks, uncertainties, and other factors outside the Company’s control, as well as assumptions, such as our plans, objectives, expectations, and intentions. Our actual results may differ materially from those expressed or implied in the forward-looking statements as a result of various factors, including those described under the sections entitled “Cautionary Statement Concerning Forward-Looking Statements” and “Risk Factors” included elsewhere in this Annual Report on Form 10-K.
Overview
CAVA Group, Inc. (together with its wholly owned subsidiaries, referred to as the “Company,” “CAVA,” “we,” “us,” and “our,” unless specified otherwise) was formed as a Delaware corporation in 2015, and prior to that, the first CAVA restaurant opened in 2011 in Bethesda, Maryland. The Company is headquartered in Washington, D.C. and, as of December 29, 2024, operates 367 fast-casual CAVA Restaurants in 25 states and Washington, D.C. The Company’s authentic Mediterranean cuisine unites taste and health, with a menu that features chef-curated and customizable bowls and pitas. Our dips, spreads, and dressings are centrally produced for use in our restaurants and to be sold in grocery stores.
Segments
We have two reportable segments: CAVA and Zoes Kitchen. CAVA reflects the financial results of all CAVA restaurants we operate. Zoes Kitchen reflects the financial results of all Zoes Kitchen locations we previously operated. As of March 2, 2023, we no longer operate any Zoes Kitchen locations. Our CPG operations are included in Other. See Item 8. “Financial Statements and Supplementary Data,” Note 13 (Segment Reporting) for more information.
Initial Public Offering
On June 20, 2023, we completed an initial public offering (the “IPO”) of 16.6 million shares of common stock at a price of $22.00 per share, which included 2.2 million shares sold to the underwriters pursuant to their option to purchase additional shares. After underwriting discounts and commissions of $22.8 million and offering expenses of $6.5 million, we received net proceeds from the offering of $336.1 million. In connection with the IPO, 95.2 million outstanding shares of preferred stock were converted into an equivalent number of shares of common stock. See Item 8. “Financial Statements and Supplementary Data,” Note 2 (Basis of Presentation and Significant Accounting Policies) for more information.
Key Factors Affecting Our Business
We have continued to see growth in revenue due to our Net New CAVA Restaurant openings and strong CAVA Same Restaurant Sales Growth. CAVA Restaurant-Level Profit Margin increased to 25.0% in fiscal 2024 from 24.8% in fiscal 2023. The increase in CAVA Restaurant-Level Profit Margin was primarily driven by sales leverage, partially offset by higher input costs associated with the June 3, 2024 launch of grilled steak and investments in the integrity of our physical spaces in support of our increased restaurant volumes.
In fiscal 2024, we achieved our stated target of at least 15% new unit growth with 58 Net New CAVA Restaurants. Additionally, we had success with the introduction of our new grilled steak main which surpassed our expectations, as well as the nationwide launch of our reimagined loyalty program, which has been well received.
Future results will be impacted by our ability to continue to successfully expand our restaurant base and navigate challenges and uncertainties such as macroeconomic conditions that may impact guest demand, commodity and wage inflation, and supply chain constraints.
Fiscal Calendar and Seasonality
We operate on a 52-week or 53-week fiscal year that ends on the last Sunday of the calendar year. In a 52-week fiscal year, the first fiscal quarter contains sixteen weeks and the second, third and fourth fiscal quarters each contain twelve weeks. In a 53-week fiscal year, the first fiscal quarter contains sixteen weeks, the second and third fiscal quarters each
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contain twelve weeks, and the fourth fiscal quarter contains thirteen weeks. Fiscal year 2024 was a 52-week period that ended on December 29, 2024 and fiscal year 2023 was a 53-week period that ended on December 31, 2023.
Fiscal 2023 included a 53rd week that is not included in fiscal 2024. We estimate the 53rd week contributed $10.9 million to revenue and approximately $2.5 million to income from operations. Fiscal 2023 results for CAVA Same-Restaurant Sales Growth and CAVA AUV have been adjusted to exclude the 53rd week for comparability. See the subsections under “Key Performance Measures” for more information.
Historically, seasonal factors have caused our revenue to fluctuate from quarter to quarter. Our revenue per restaurant is typically lower in the first and fourth fiscal quarters due to reduced traffic as a result of colder temperatures and the holiday season.
As a result of these factors and the differences among our fiscal quarters, our quarterly operating results and comparable restaurant sales, as well as our key performance measures, may fluctuate significantly from quarter to quarter and our results for any one quarter are not indicative of any other quarter.
Key Performance Measures
In assessing the performance of our business, in addition to considering a variety of measures in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), our management team also considers a variety of other key performance measures, including non-GAAP measures. The key performance measures used by our management for determining how our business is performing are detailed below.
We believe that these key performance measures provide useful information to users of our financial statements in understanding and evaluating our results of operations in the same manner as our management team. The presentation of these key performance measures, including Adjusted EBITDA Adjusted EBITDA margin, Adjusted Net Income and Adjusted Net Income margin which are non-GAAP financial measures, is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. See “Non-GAAP Financial Measures” below.
The following table sets forth our key performance measures for the fiscal years indicated:
| ($ in thousands) | 2024 | 2023 | Change | ||||||||||||||
| CAVA Revenue | $ | 954,273 | $ | 717,060 | $ | 237,213 | |||||||||||
CAVA Same Restaurant Sales Growth1 | 13.4 | % | 17.9 | % | (4.5) | % | |||||||||||
CAVA AUV2 | $ | 2,865 | $ | 2,639 | $ | 226 | |||||||||||
| CAVA Restaurant-Level Profit | $ | 238,113 | $ | 177,488 | $ | 60,625 | |||||||||||
| CAVA Restaurant-Level Profit Margin | 25.0 | % | 24.8 | % | 0.2 | % | |||||||||||
CAVA Restaurants | 367 | 309 | 58 | ||||||||||||||
| Net New CAVA Restaurant Openings | 58 | 72 | (14) | ||||||||||||||
| CAVA Digital Revenue Mix | 36.4 | % | 36.0 | % | 0.4 | % | |||||||||||
| Net income | $ | 130,319 | $ | 13,280 | $ | 117,039 | |||||||||||
Adjusted EBITDA3 | $ | 126,248 | $ | 73,825 | $ | 52,423 | |||||||||||
Adjusted Net Income3 | $ | 50,219 | $ | 13,280 | $ | 36,939 | |||||||||||
Net income margin | 13.5 | % | 1.8 | % | 11.7 | % | |||||||||||
Adjusted EBITDA margin3 | 13.1 | % | 10.1 | % | 3.0 | % | |||||||||||
Adjusted Net Income margin3 | 5.2 | % | 1.8 | % | 3.4 | % | |||||||||||
__________________
1 CAVA Same Restaurant Sales Growth for fiscal 2023 is presented excluding the impact of the 53rd week. To achieve an optimal comparison of fiscal weeks in the CAVA Same Restaurant Sales Growth calculation in fiscal 2024, giving consideration to holiday periods, each week of fiscal 2023 was shifted by one week. Had this shift not been made, CAVA Same Restaurant Sales Growth would have been immaterially impacted in fiscal 2024.
2 For purposes of calculating CAVA AUV for fiscal 2024, the applicable measurement period is the trailing thirteen periods ended December 29, 2024 . For purposes of calculating CAVA AUV for fiscal 2023, the applicable measurement period is the trailing thirteen periods ended December 31, 2023, excluding the 53rd week.
3 See “Non-GAAP Financial Measures” below for a discussion of Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Net Income margin and reconciliations of Adjusted EBITDA and Adjusted Net Income to net income, the most directly comparable GAAP measure.
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Adjusted EBITDA margin and Adjusted Net Income margin are Adjusted EBITDA and Adjusted Net Income as a percentage of revenue, respectively.
CAVA Revenue
CAVA Revenue represents all revenue attributable to CAVA restaurants in the specified period, excluding restaurants operating under licensing agreements. We use CAVA Revenue to evaluate and track the aggregate sales of food and beverages in CAVA restaurants. Several factors affect CAVA Revenue in any given period, including the number of CAVA restaurants in operation, guest traffic, menu prices, and product mix.
CAVA Same Restaurant Sales Growth
CAVA Same Restaurant Sales Growth is defined as the period-over-period sales comparison for CAVA restaurants that have been open for 365 days or longer (including converted Zoes Kitchen locations that have been open for 365 days or longer after the completion of the conversion to a CAVA restaurant). We use CAVA Same Restaurant Sales Growth to assess the performance of existing CAVA restaurants that have been open for 365 days or longer, as the impact of new restaurant openings is excluded. As of December 29, 2024 and December 31, 2023, there were 307 and 236 CAVA restaurants, respectively, in such restaurant base.
CAVA Average Unit Volume (CAVA AUV)
CAVA AUV represents total revenue of operating CAVA Restaurants that were open for the entire trailing thirteen periods and includes sales from CAVA digital kitchens for such period, divided by the number of operating CAVA Restaurants that were open for the entire trailing thirteen periods. We use CAVA AUV to assess and understand changes in guest spending patterns and the overall performance of operating restaurants open for the entire period. CAVA AUV is impacted by changes in guest traffic, menu prices, and product mix. We gather daily sales data and regularly analyze our guest traffic and the mix of menu items sold to aid in developing menu pricing, food offerings, and promotional strategies designed to grow CAVA AUV. CAVA AUV may also be impacted by the number of newer CAVA restaurants that are included in calculating CAVA AUV, as such restaurants typically achieve lower sales when they first open, which then increase as they mature.
CAVA Restaurant-Level Profit and CAVA Restaurant-Level Profit Margin
CAVA Restaurant-Level Profit represents CAVA Revenue in the specified period less food, beverage, and packaging, labor, occupancy, and other operating expenses, excluding depreciation and amortization. CAVA Restaurant-Level Profit excludes pre-opening costs. We use CAVA Restaurant-Level Profit as a segment measure of profit and loss.
CAVA Restaurant-Level Profit Margin represents CAVA Restaurant-Level Profit as a percentage of CAVA Revenue. We use CAVA Restaurant-Level Profit and CAVA Restaurant-Level Profit Margin as measures of CAVA restaurants’ profitability.
CAVA Restaurant-Level Profit and CAVA Restaurant-Level Profit Margin are not indicative of the overall results of the Company and do not accrue directly to the benefit of our stockholders, as corporate-level expenses are excluded from such measures.
CAVA Restaurants
The following table details CAVA Restaurants for the fiscal years indicated:
| 2024 | 2023 | ||||||||||
| Beginning of period | 309 | 237 | |||||||||
New CAVA Restaurant openings1 | 59 | 73 | |||||||||
| Permanent closure | (1) | (1) | |||||||||
| End of period | 367 | 309 | |||||||||
__________________
1 New CAVA Restaurant openings during fiscal 2023 includes converted Zoes Kitchen locations.
CAVA Digital Revenue Mix
CAVA Digital Revenue Mix represents the portion of CAVA Revenue related to digital orders as a percentage of total CAVA Revenue. Digital orders are those made through our catering and digital channels, such as the CAVA app and the CAVA website, and include orders fulfilled through third-party marketplace and native delivery and digital order pick-up.
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We use CAVA Digital Revenue Mix to evaluate and track the effectiveness of our coordinated digital infrastructure and network of delivery partners. We charge increased prices for delivery orders to account for the delivery fees and commissions payable by us to our third-party delivery partners and therefore are generally agnostic between in-restaurant and digital sales, as it relates to profitability.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA is net income adjusted to exclude interest income, net, (benefit from) provision for income taxes, and depreciation and amortization, further adjusted to exclude equity-based compensation, other income, net, impairment and asset disposal costs, restructuring and other costs, and certain non-recurring public company costs. Adjusted EBITDA Margin is Adjusted EBITDA as a percentage of revenue. We use Adjusted EBITDA and Adjusted EBITDA Margin to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against that of other peer companies using similar measures. See “Non-GAAP Financial Measures” below for a reconciliation of Adjusted EBITDA to net income.
Adjusted Net Income and Adjusted Net Income Margin
Adjusted Net Income is net income adjusted to exclude the net benefit from the release of the valuation allowance previously recorded against our deferred tax assets (“VA Release”). Adjusted Net Income margin is Adjusted Net Income as a percentage of revenue. We use Adjusted Net Income and Adjusted Net Income margin to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against that of other peer companies using similar measures. See “Non-GAAP Financial Measures” below for a reconciliation of Adjusted Net Income to net income.
Components of Results of Operations
Revenue includes sales of food and beverage in our CAVA and Zoes Kitchen locations and CPG sales. As of March 2, 2023, we no longer operate any Zoes Kitchen locations. CAVA restaurants generally operate at higher revenue levels than the predecessor Zoes Kitchen locations prior to conversion.
Food, beverage, and packaging consists primarily of food, beverage, and packaging costs, including manufacturing costs and costs associated with our production facilities. The components of food, beverage, and packaging are variable in nature, increase as sales volumes increase, and are influenced by sales mix, commodity costs, and inflation.
Labor includes all restaurant-level management and hourly labor costs, including salaries, wages, benefits, bonuses, payroll taxes, and other indirect labor costs. Factors that influence labor costs include the minimum wage in the jurisdictions in which we operate, payroll tax legislation, inflation, the strength of the labor market for hourly Team Members, benefits costs, healthcare costs, and the number, size, and location of our restaurants. As we open new restaurants, we typically incur higher labor following the initial opening of such restaurant due to increased training costs. We expect labor to increase in the aggregate as we continue to open new restaurants.
Occupancy consists of restaurant-level occupancy including rent, common area expenses, real estate and other taxes, and disposal fees. Occupancy excludes expenses associated with unopened restaurants, which are recorded in pre-opening costs, expenses associated with closed restaurants, which are recorded in restructuring and other costs, and expenses related to support centers, which are recorded in general and administrative expenses. Occupancy varies from location to location and is impacted by macroeconomic conditions, including inflation. We expect occupancy to increase in the aggregate as we continue to open new restaurants but to decrease as a percentage of revenue in the long-term as we continue to leverage higher CAVA Same Restaurant Sales Growth.
Other operating expenses include all other restaurant-level operating expenses, such as kitchen supplies, utilities, repairs and maintenance, travel costs, credit card and bank fees, recruiting, third-party delivery service fees, marketing expenses, and costs associated with our distribution network.
General and administrative expenses include expenses associated with our Collaboration Center Organization which supports the development and operation of restaurants, including compensation and benefits, legal and professional fees, equity-based compensation, technology fees, travel expenses, marketing expenses, and rent and other costs related to the facilities in our Collaboration Center Organization. We expect general and administrative expenses to increase in the aggregate as we continue to expand our business but to decrease as a percentage of revenue in the long-term.
Depreciation and amortization primarily consists of depreciation of assets related to CAVA restaurants and our production facilities, including leasehold improvements and equipment, as well as technology improvements.
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Restructuring and other costs consist mainly of expenses incurred in connection with our Zoes Kitchen conversion strategy, public company readiness costs prior to our IPO, and costs related to our collaboration center relocation.
Pre-opening costs consist of expenses incurred prior to opening a new restaurant (including new restaurants that were converted from a Zoes Kitchen location) and are made up primarily of manager salaries, payroll and training costs, travel costs, supplies, relocation costs, and recruiting expenses. Pre-opening costs also include occupancy costs recorded during the period between the date of possession and the date we begin operations at a location. Pre-opening costs are expensed as incurred.
Impairment and asset disposal costs consist of losses recognized on the write-down of the carrying value of property and equipment, net and operating lease assets and the loss on disposal of assets.
Interest income, net includes interest income from our short-term investments, partially offset by cash and non-cash charges related to our 2022 Credit Facility, including the amortization of debt issuance costs.
(Benefit from) provision for income taxes represents federal and state current and deferred income tax expense.
Results of Operations
Our results of operations, on a consolidated basis and by segment, for fiscal 2024 and 2023 are set forth below. We present our segment results before our consolidated results as we believe that our CAVA segment is more useful and meaningful in assessing the performance of our business, which is mainly driven by our CAVA segment. As of March 2, 2023, we no longer operate any Zoes Kitchen locations, and on October 20, 2023 our conversion strategy was completed with the last conversion restaurant opening. As a result, we have limited our discussion of the Zoes Kitchen segment. In addition, because our consolidated results of operations include the results of our Zoes Kitchen segment, we believe that our consolidated results of operations are less indicative of our performance as compared to our CAVA segment.
Comparison of Fiscal 2024 and 2023
CAVA Segment Results
The following table summarizes the results of the CAVA segment for the fiscal years indicated:
| 2024 | 2023 | Change | |||||||||||||||||||||||||||||||||
($ in thousands) | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||||||||||||||||
Restaurant revenue | $ | 954,273 | 100.0 | % | $ | 717,060 | 100.0 | % | $ | 237,213 | 33.1 | % | |||||||||||||||||||||||
Restaurant operating expenses (excluding depreciation and amortization): | |||||||||||||||||||||||||||||||||||
| Food, beverage, and packaging | 279,741 | 29.3 | 208,237 | 29.0 | 71,504 | 34.3 | |||||||||||||||||||||||||||||
Labor | 247,490 | 25.9 | 185,820 | 25.9 | 61,670 | 33.2 | |||||||||||||||||||||||||||||
Occupancy | 69,851 | 7.3 | 57,811 | 8.1 | 12,040 | 20.8 | |||||||||||||||||||||||||||||
Other operating expenses | 119,078 | 12.5 | 87,704 | 12.2 | 31,374 | 35.8 | |||||||||||||||||||||||||||||
Total restaurant operating expenses | 716,160 | 75.0 | 539,572 | 75.2 | 176,588 | 32.7 | |||||||||||||||||||||||||||||
Restaurant-level profit | $ | 238,113 | 25.0 | % | $ | 177,488 | 24.8 | % | $ | 60,625 | 34.2 | % | |||||||||||||||||||||||
CAVA Revenue
The increase in CAVA Revenue was primarily due to a $156.6 million increase from the 130 Net New CAVA Restaurant Openings during or subsequent to fiscal 2023, of which a portion was attributable to the 28 CAVA restaurants that were converted from Zoes Kitchen locations. The remainder of the increase in CAVA Revenue was driven by CAVA Same Restaurant Sales Growth of 13.4%, which consists of 8.7% from guest traffic increases and 4.7% from menu price increases and product mix, partially offset by $10.9 million of revenue in the 53rd week in fiscal 2023.
CAVA Food, Beverage, and Packaging
The increase in CAVA food, beverage, and packaging was primarily due to a $47.6 million increase from the 130 Net New CAVA Restaurant Openings during or subsequent to fiscal 2023, of which a portion was attributable to the 28 CAVA restaurants that were converted from Zoes Kitchen locations. The remainder of the increase was primarily due to CAVA Same Restaurant Sales Growth of 13.4%, partially offset by the impact of a 53rd week in fiscal 2023.
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As a percentage of CAVA Revenue, CAVA food, beverage, and packaging increased primarily due to input costs associated with the June 3, 2024 launch of grilled steak.
CAVA Labor
The increase in CAVA labor was primarily due to the 130 Net New CAVA Restaurant Openings during or subsequent to fiscal 2023, of which a portion was attributable to the 28 CAVA restaurants that were converted from Zoes Kitchen locations. The remainder of the increase was primarily due to the impact of higher average hourly wages of 7%, partially offset by the impact of a 53rd week in fiscal 2023.
As a percentage of CAVA Revenue, CAVA labor was flat due to the aforementioned incremental wage investments, which include the impact of Assembly Bill 1228 in California (which we did not offset with an increase to menu prices), offset by the impact of higher sales.
CAVA Occupancy
The increase in CAVA occupancy was primarily due to the 130 Net New CAVA Restaurant Openings during or subsequent to fiscal 2023, of which a portion was attributable to the 28 CAVA restaurants that were converted from Zoes Kitchen locations.
As a percentage of CAVA Revenue, CAVA occupancy decreased primarily due to operating leverage associated with higher sales.
CAVA Other Operating Expenses
The increase in CAVA other operating expenses was primarily due to the 130 Net New CAVA Restaurant Openings during or subsequent to fiscal 2023, of which a portion was attributable to the 28 CAVA restaurants that were converted from Zoes Kitchen locations. The remainder of the increase was primarily due to investments in the integrity of our physical spaces in support of our increased restaurant volumes and CAVA Same Restaurant Sales Growth of 13.4%, partially offset by the impact of a 53rd week in fiscal 2023.
As a percentage of CAVA Revenue, CAVA other operating expenses increased due in part to the aforementioned investments in the integrity of our physical spaces in support of our increased restaurant volumes, partially offset by operating leverage associated with higher sales.
Zoes Kitchen Segment Results
The following table summarizes the results of the Zoes Kitchen segment for the fiscal years indicated:
| 2024 | 2023 | Change | |||||||||||||||||||||||||||||||||
($ in thousands) | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||||||||||||||||
Restaurant revenue | $ | — | — | % | $ | 3,867 | 100.0 | % | $ | (3,867) | N/M | ||||||||||||||||||||||||
Restaurant operating expenses (excluding depreciation and amortization): | |||||||||||||||||||||||||||||||||||
| Food, beverage, and packaging | — | — | 1,141 | 29.5 | (1,141) | N/M | |||||||||||||||||||||||||||||
Labor | — | — | 1,506 | 38.9 | (1,506) | N/M | |||||||||||||||||||||||||||||
Occupancy | — | — | 508 | 13.1 | (508) | N/M | |||||||||||||||||||||||||||||
Other operating expenses | — | — | 889 | 23.0 | (889) | N/M | |||||||||||||||||||||||||||||
Total restaurant operating expenses | — | — | 4,044 | 104.6 | (4,044) | N/M | |||||||||||||||||||||||||||||
Restaurant-level loss | $ | — | — | % | $ | (177) | (4.6) | % | $ | 177 | N/M | ||||||||||||||||||||||||
__________________
N/M data not meaningful
As of March 2, 2023, the Company no longer operates any Zoes Kitchen locations, which resulted in the decreases above.
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Other Results
The following table summarizes remaining activity related to our CPG operations for the fiscal years indicated:
| 2024 | 2023 | Change | |||||||||||||||||||||||||||||||||
($ in thousands) | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||||||||||||||||
Revenue | $ | 9,440 | 100.0 | % | $ | 7,773 | 100.0 | % | $ | 1,667 | 21.4 | % | |||||||||||||||||||||||
| Food, beverage, and packaging | 5,002 | 53.0 | 4,080 | 52.5 | 922 | 22.6 | |||||||||||||||||||||||||||||
Other operating expenses | 746 | 7.9 | 658 | 8.5 | 88 | 13.4 | |||||||||||||||||||||||||||||
The increases noted above were primarily a result of increased sales of dips, spreads, and dressings.
Consolidated Results
The following table summarizes our consolidated results of operations for the fiscal years indicated:
| 2024 | 2023 | Change | |||||||||||||||||||||||||||||||||
($ in thousands) | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||||||||||||||||
| Revenue | $ | 963,713 | 100.0 | % | $ | 728,700 | 100.0 | % | $ | 235,013 | 32.3 | % | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||
| Restaurant operating costs (excluding depreciation and amortization) | |||||||||||||||||||||||||||||||||||
| Food, beverage, and packaging | 284,743 | 29.5 | 213,458 | 29.3 | 71,285 | 33.4 | |||||||||||||||||||||||||||||
| Labor | 247,490 | 25.7 | 187,326 | 25.7 | 60,164 | 32.1 | |||||||||||||||||||||||||||||
| Occupancy | 69,851 | 7.2 | 58,319 | 8.0 | 11,532 | 19.8 | |||||||||||||||||||||||||||||
| Other operating expenses | 119,824 | 12.4 | 89,251 | 12.2 | 30,573 | 34.3 | |||||||||||||||||||||||||||||
| Total restaurant operating expenses | 721,908 | 74.9 | 548,354 | 75.3 | 173,554 | 31.6 | |||||||||||||||||||||||||||||
| General and administrative expenses | 120,500 | 12.5 | 101,491 | 13.9 | 19,009 | 18.7 | |||||||||||||||||||||||||||||
| Depreciation and amortization | 60,355 | 6.3 | 47,433 | 6.5 | 12,922 | 27.2 | |||||||||||||||||||||||||||||
| Restructuring and other costs | 580 | 0.1 | 6,080 | 0.8 | (5,500) | (90.5) | |||||||||||||||||||||||||||||
| Pre-opening costs | 12,197 | 1.3 | 15,718 | 2.2 | (3,521) | (22.4) | |||||||||||||||||||||||||||||
| Impairment and asset disposal costs | 5,055 | 0.5 | 4,899 | 0.7 | 156 | 3.2 | |||||||||||||||||||||||||||||
| Total operating expenses | 920,595 | 95.5 | 723,975 | 99.4 | 196,620 | 27.2 | |||||||||||||||||||||||||||||
| Income from operations | 43,118 | 4.5 | 4,725 | 0.6 | 38,393 | N/M | |||||||||||||||||||||||||||||
| Interest income, net | (16,474) | (1.7) | (8,852) | (1.2) | (7,622) | 86.1 | |||||||||||||||||||||||||||||
| Other income, net | (318) | — | (471) | (0.1) | 153 | (32.5) | |||||||||||||||||||||||||||||
| Income before taxes | 59,910 | 6.2 | 14,048 | 1.9 | 45,862 | N/M | |||||||||||||||||||||||||||||
| (Benefit from) provision for income taxes | (70,409) | (7.3) | 768 | 0.1 | (71,177) | N/M | |||||||||||||||||||||||||||||
| Net income | $ | 130,319 | 13.5 | % | $ | 13,280 | 1.8 | % | $ | 117,039 | N/M | ||||||||||||||||||||||||
__________________
N/M data not meaningful
Revenue
The increase in consolidated revenue was primarily driven by a $237.2 million increase in our CAVA segment, partially offset by a $3.9 million decrease in our Zoes Kitchen segment, which was no longer operating as of March 2, 2023. Refer to “CAVA Segment Results” above for more information.
Food, Beverage, and Packaging
The increase in consolidated food, beverage, and packaging was primarily driven by a $71.5 million increase in our CAVA segment, partially offset by a $1.1 million decrease in our Zoes Kitchen segment. Refer to “CAVA Segment Results” above for more information.
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Labor
The increase in consolidated labor was primarily driven by a $61.7 million increase in our CAVA segment, partially offset by a $1.5 million decrease in our Zoes Kitchen segment. Refer to “CAVA Segment Results” above for more information.
Occupancy
The increase in consolidated occupancy was primarily driven by a $12.0 million increase in our CAVA segment, partially offset by a $0.5 million decrease in our Zoes Kitchen segment. Refer to “CAVA Segment Results” above for more information.
Other Operating Expenses
The increase in consolidated other operating expenses was primarily driven by a $31.4 million increase in our CAVA segment, partially offset by a $0.9 million decrease in our Zoes Kitchen segment. Refer to “CAVA Segment Results” above for more information.
General and Administrative Expenses
The increase in general and administrative expenses was primarily due to investments to support future growth, higher equity-based compensation associated with awards made in connection with the IPO, and recurring public company costs, partially offset by $1.1 million in certain non-recurring public company costs in the prior year. Equity-based compensation includes higher payroll taxes in connection with the vesting of RSUs and exercise of options.
Depreciation and Amortization
The increase in depreciation and amortization was primarily driven by the addition of assets from 130 Net New CAVA Restaurant Openings during or subsequent to fiscal 2023, the commencement of operations at our new manufacturing facility in Verona, Virginia in the first quarter of fiscal 2024, and technology improvements.
Restructuring and Other Costs
The decrease in restructuring and other costs was primarily due to costs incurred in the prior year period in connection with our Zoes Kitchen conversion strategy, public company readiness, and the relocation of our collaboration center.
Pre-opening Costs
The decrease in pre-opening costs was due to the volume and timing of new CAVA restaurant openings.
Impairment and Asset Disposal Costs
The increase in impairment and asset disposal costs was primarily due to investments in the integrity of our physical spaces in support of our increased restaurant volumes and the impact of Hurricane Helene on one of our restaurants in North Carolina, partially offset by $1.3 million of impairment charges and higher costs in connection with Zoes Kitchen closures in the prior year.
Interest Income, Net
The increase in interest income, net, was due to interest income associated with higher short term investments as a result of proceeds from the IPO.
(Benefit From) Provision For Income Taxes
The benefit from income taxes of $70.4 million in fiscal 2024 was primarily driven by the full release of a valuation allowance on deferred tax assets compared with income tax expense of $0.8 million in the prior year. Our effective tax rates in fiscal 2024 and 2023 were not meaningful due to the impact of the valuation allowance. Excluding the net benefit of the release of the valuation allowance of $80.1 million (which includes $3.6 million of income tax expense associated with the recognition of a deferred tax liability related to the federal tax impact of state deferred tax assets), the effective tax rate in fiscal 2024 would have been 16.2%, which reflects the permanent benefit associated with the vesting of RSUs and exercise of stock options above grant date fair values.
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Net Income
Our net income increased as a result of the factors described above.
Non-GAAP Financial Measures
In addition to our consolidated financial statements, which are prepared in accordance with GAAP, we present Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Net Income margin as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We believe they assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our operating performance. Management believes Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Net Income margin are useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate, and capital investments. Management uses Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Net Income margin to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against that of other peer companies using similar measures. Management supplements GAAP results with non-GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone provide.
Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Net Income margin are not recognized terms under GAAP and should not be considered as alternatives to net income or net income margin as measures of financial performance, or cash provided by operating activities as measures of liquidity, or any other performance measure derived in accordance with GAAP. Additionally, these measures are not intended to be measures of free cash flow available for management’s discretionary use, as they do not consider certain cash requirements such as interest payments, tax payments, and debt service requirements. Because not all companies use identical calculations, the presentation of these measures may not be comparable to other similarly titled measures of other companies and can differ significantly from company to company.
Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Net Income margin measures have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP. Some of these limitations are:
•Adjusted EBITDA and Adjusted Net Income do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
•Adjusted EBITDA and Adjusted Net Income do not reflect changes in, or cash requirements for, our working capital needs;
•Adjusted EBITDA and Adjusted Net Income does not reflect financing activities of our business;
•Adjusted EBITDA does not reflect period to period changes in taxes, income tax expense, or the cash necessary to pay income taxes;
•Adjusted EBITDA does not reflect the impact of earnings or cash charges resulting from matters we consider not to be indicative of our ongoing operations;
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and
•other companies in our industry may calculate Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Net Income margin differently than we do, limiting their usefulness as comparative measures.
Because of these limitations, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Net Income margin should not be considered as measures of discretionary cash available to invest in business growth or to reduce any applicable indebtedness.
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The following table provides a reconciliation of net income to Adjusted EBITDA and net income margin to Adjusted EBITDA margin for the fiscal years indicated:
($ in thousands) | 2024 | 2023 | |||||||||
| Net income | $ | 130,319 | $ | 13,280 | |||||||
| Non-GAAP Adjustments | |||||||||||
| Interest income, net | (16,474) | (8,852) | |||||||||
| (Benefit from) provision for income taxes | (70,409) | 768 | |||||||||
| Depreciation and amortization | 60,355 | 47,433 | |||||||||
| Equity-based compensation | 17,140 | 9,575 | |||||||||
| Other income, net | (318) | (471) | |||||||||
| Impairment and asset disposal costs | 5,055 | 4,899 | |||||||||
| Restructuring and other costs | 580 | 6,080 | |||||||||
| Certain non-recurring public company costs | — | 1,113 | |||||||||
| Adjusted EBITDA | $ | 126,248 | $ | 73,825 | |||||||
| Revenue | $ | 963,713 | $ | 728,700 | |||||||
Net income margin1 | 13.5 | % | 1.8 | % | |||||||
| Adjusted EBITDA margin | 13.1 | % | 10.1 | % | |||||||
__________________
1 Net income margin for fiscal 2024 includes the impact of the $80.1 million benefit from the VA Release.
The following table provides a reconciliation of net income to Adjusted Net Income and net income margin to Adjusted Net Income margin for the fiscal years indicated:
($ in thousands) | 2024 | 2023 | |||||||||
Net income | $ | 130,319 | $ | 13,280 | |||||||
Non-GAAP Adjustments | |||||||||||
Tax benefit from VA Release | (80,100) | — | |||||||||
| Adjusted Net Income | $ | 50,219 | $ | 13,280 | |||||||
| Revenue | $ | 963,713 | $ | 728,700 | |||||||
Net income margin | 13.5 | % | 1.8 | % | |||||||
Adjusted Net Income margin | 5.2 | % | 1.8 | % | |||||||
Liquidity and Capital Resources
We assess our liquidity in terms of our ability to generate adequate amounts of cash to meet current and future needs. Our expected primary uses on a short- and long-term basis are for the expansion of our restaurant base, working capital, and other capital expenditures.
Our rapid expansion has been significantly aided by the Zoes Kitchen acquisition, which enabled us to expand our CAVA restaurant base in a capital-efficient manner. While conversions required initial capital investments, such costs were typically significantly lower for a conversion as compared to a new opening. Our conversion strategy was complete as of October 20, 2023; therefore, capital expenditure requirements relating to new CAVA Restaurant openings on a per restaurant basis in fiscal 2024 were higher than fiscal 2023, and will continue to be higher in future periods.
We believe that cash provided by operating activities and existing cash on hand, together with amounts available under our 2022 Credit Facility, will be sufficient to satisfy our anticipated cash requirements for the next twelve months and foreseeable future, including our expected capital expenditures for expansion of our CAVA restaurant base, operating lease obligations, and other working capital obligations. See Item 8. “Financial Statements and Supplementary Data,” Note 6 (Debt) and Note 8 (Leases) to our consolidated financial statements for more information. Our sources of liquidity could be affected by factors described Part I, Item 1A. “Risk Factors.” Depending on the severity and direct impact of these factors on us, we may not be able to secure additional financing on acceptable terms, or at all.
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Cash Overview
We had cash and cash equivalents of $366.1 million and $332.4 million as of December 29, 2024 and December 31, 2023, respectively. For fiscal 2024, our operations were funded from cash flows from operations. Our principal uses of liquidity for fiscal 2024 were to fund new restaurant openings, working capital needs, and the finalization of construction of our new production facility in Verona, Virginia.
Cash Flows
The following table summarizes our cash flows for the fiscal years indicated:
Change | |||||||||||||||||||||||
($ in thousands) | 2024 | 2023 | $ | % | |||||||||||||||||||
Net cash provided by operating activities | $ | 161,027 | $ | 97,101 | $ | 63,926 | 65.8 | % | |||||||||||||||
| Net cash used in investing activities | (108,131) | (138,806) | 30,675 | (22.1) | % | ||||||||||||||||||
Net cash (used in) provided by financing activities | (19,204) | 335,008 | (354,212) | (105.7) | % | ||||||||||||||||||
| Net change in cash and cash equivalents | $ | 33,692 | $ | 293,303 | $ | (259,611) | (88.5) | % | |||||||||||||||
Operating Activities
The increase in net cash provided by operating activities was primarily due to improved operating performance and interest income associated with an increase in short-term investments as a result of proceeds from the IPO.
Investing Activities
The decrease in net cash used in investing activities was primarily due to higher capital expenditures in the prior year related to the construction of our new production facility and the volume and timing of new CAVA restaurant openings.
Financing Activities
The change in net cash (used in) provided by financing activities was primarily due to proceeds from the IPO in the prior year and higher tax withholding obligations arising from the vesting of RSUs in fiscal 2024 compared with the prior year.
Material Cash Commitments
The following table summarizes current and long-term material cash requirements as of December 29, 2024, which we expect to fund primarily with operating cash flows:
| Payments Due by Fiscal Year | |||||||||||||||||||||||||||||
| (in thousands) | Total | 2025 | 2026-2027 | 2028-2029 | Thereafter | ||||||||||||||||||||||||
Operating leases1 | $ | 496,144 | $ | 59,936 | $ | 128,612 | $ | 112,777 | $ | 194,819 | |||||||||||||||||||
Purchase obligations2 | 20,780 | 20,752 | 28 | — | — | ||||||||||||||||||||||||
__________________
1 Refer to Item 8. “Financial Statements and Supplementary Data,” Note 8 (Leases) for more information on our operating leases.
2 Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms. We have excluded agreements that are cancellable without penalty. The majority of our purchase obligations related to amounts owed for produce and other ingredients and supplies, including supplies and materials used for new restaurant openings.
Credit Facility
Refer to Item 8. “Financial Statements and Supplementary Data,” Note 6 (Debt), for a description of our 2022 Credit Facility.
Critical Accounting Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to make certain estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent asset and liabilities as of the balance sheet date, as well as the reported amounts of revenue and expenses during the period. We base our estimates on historical experience, known trends and events, as well as management’s judgment. Although management believes the judgment applied in preparing estimates is reasonable
55
based on circumstances and information known at the time, actual results could vary materially from the estimates based on assumptions used in the preparation of our financial statements. We evaluate our judgments and estimates on an ongoing basis in light of changes in circumstances, facts, and experience. The effects of material revisions in estimates, if any, are reflected in the financial statements prospectively from the date of change in estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.
We believe that the following critical accounting policies involve a greater degree of judgment and complexity than our other significant accounting policies. Accordingly, these are the policies we believe are the most critical to understanding when evaluating our consolidated financial condition and results of operations. Our significant accounting policies are more fully described in Note 2 (Basis of Presentation and Significant Accounting Policies) to our consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”
Leases
The Company makes judgments regarding the probable term for each lease, which can impact the classification and accounting for a lease as well as the amount of straight-line rent expense recognized in a period. Typically, restaurant leases have initial terms of ten years and include five-year renewal options. Renewal options are typically not included in the lease term as it is not reasonably certain at commencement that we will exercise the options. Restaurant leases provide for fixed minimum rent payments and in some cases include contingent rent payments based upon sales in excess of specified breakpoints. When achievement of sales breakpoints is probable, contingent rent is accrued. Fixed minimum rent payments are recognized on a straight-line basis over the lease term starting on the date we take control of the leased space.
Operating lease assets and liabilities are recognized at the lease’s commencement date. We measure the lease liability at lease commencement by discounting the future minimum lease payments. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments, initial direct costs, lease incentives, and impairment. As the rate implicit in the lease is not readily determinable in most of the Company’s leases, the Company uses its incremental borrowing rate based on the information available at a lease’s commencement date to determine the present value of lease payments. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.
Income Taxes
The Company is taxed as a C corporation under which income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities, reflecting the impact of net operating loss carryforwards and the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The factors used to assess the likelihood of realization include the Company’s historical and forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets.
The Company has assessed the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective positive evidence evaluated is the cumulative income earned over the most recent three-year period. Such objective evidence in addition to other subjective evidence, such as our projections for future growth, supports a more likely than not conclusion that all deferred tax assets will be realized. On the basis of this evaluation, the full valuation allowance was released in fiscal 2024, as further described in Item 8. “Financial Statements and Supplementary Data,” Note 7 (Income Taxes). Key assumptions utilized within the projections include the Company’s sales, growth rates, gross margins, operating expenses in relation to the current economic conditions and the Company’s future expectations, market competition, inflation, consumer trends, and other relevant economic factors. The amount of the deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or if objective positive evidence in the form of cumulative income is no longer present.
Equity-based Compensation
The Company has issued stock options and RSUs. Equity-based compensation expense is measured based on the grant date fair value of those awards and is recognized on a straight-line basis over the requisite service period. Equity-based compensation expense is based on awards outstanding, and forfeitures are recognized as they occur.
The Company uses the Black-Scholes-Merton (“Black-Scholes”) option-pricing model to estimate the fair value of stock options at the grant date. The use of the Black-Scholes option-pricing model requires the use of subjective
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assumptions, including the expected term, risk-free interest rate, expected volatility, and expected dividend yield of the underlying common stock. The fair value of RSUs is equal to the fair value of our common stock at the date of grant.
Recent Accounting Pronouncements
Refer to Item 8. “Financial Statements and Supplementary Data,” Note 2 (Basis of Presentation and Significant Accounting Policies).
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, we are exposed to market risks, including commodity and food price risks, labor costs, effects of inflation, and interest rate risk. We currently do not enter into derivatives or other financial instruments for trading or speculative purposes. We currently have operations only in the United States and do not have material foreign currency exposure.
Commodity and Food Price Risks
We purchase certain products that are affected by commodity prices and are, therefore, subject to price volatility caused by market conditions, supply chain interruptions, weather, the impact of tariffs, and other factors which are not within our control. In many cases, we believe we will be able to address material commodity cost increases through purchasing contracts, pricing arrangements, adjusting our menu pricing, or other operational adjustments that increase productivity. However, we cannot assure you that these measures will be able to fully offset any increase in commodity prices, which could increase restaurant operating costs as a percentage of restaurant sales and impact our results from operations.
Labor Costs
Wages paid in our restaurants are impacted by, among other factors, changes in federal and state hourly minimum wage rates. Accordingly, changes in the federal and state hourly minimum wage rates directly affect our labor costs. Wages and benefits are also affected by supply and demand forces in specific regions. We currently pay all our Team Members more than the applicable minimum wage in the area where they work. Competition in these communities for qualified Team Members could require us to pay higher wages and provide greater benefits. In addition, recent macroeconomic conditions have resulted in aggressive competition for talent, wage inflation and pressure to improve benefits, and workplace conditions to remain competitive.
While we generally seek to offset any wage increases with operational efficiencies and by leveraging CAVA Same Restaurant Sales Growth, such measures may not fully offset any wage increases and we may seek to increase our menu prices. We cannot assure you that we will be able to fully offset wage increases through any of these measures.
Effects of Inflation
Inflation impacts our restaurant operating expenses. While we have been able to partially offset inflation and other changes in operating expenses by gradually increasing menu prices, coupled with more efficient purchasing practices, productivity improvements, and greater economies of scale, there can be no assurance that we will be able to continue to do so in the future. From time to time, competitive conditions could limit our menu pricing flexibility. In addition, macroeconomic conditions could make additional menu price increases imprudent. There can be no assurance that future cost increases can be offset by increased menu prices or that increased menu prices will be fully absorbed without any resulting change to traffic frequency or purchasing patterns. In addition, there can be no assurance that we will generate CAVA Same Restaurant Sales Growth in an amount sufficient to offset inflationary or other cost pressures.
A portion of the leases for our restaurants provide for contingent rent obligations based on a percentage of sales. As a result, any menu price increases at our restaurants would only offset a proportionate increase in occupancy and related expenses.
Interest Rate Risk
We are exposed to interest rate risk through fluctuations of interest rates on our investments through our cash in our money market accounts. Changes in interest rates affect the interest income we earn, and therefore impact our cash flows and results of operations. As of December 29, 2024, we had $366.1 million of cash and cash equivalents consisting of bank accounts, money market funds, and other cash equivalent investments. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Due to the short-term nature of our investments, we have not been exposed to, nor do we anticipate being exposed to, material
57
risks due to changes in interest rates. A hypothetical decrease of 100 basis points to current prevailing market rates applied to our cash and cash equivalents balance as of December 29, 2024, would result in a decrease of $3.6 million in investment income over a twelve month period.
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Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
| Page | |||||
Report of Independent Registered Public Accounting Firm (PCAOB ID No. | |||||
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of CAVA Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CAVA Group, Inc. and subsidiaries (the "Company") as of December 29, 2024 and December 31, 2023, the related consolidated statements of operations, preferred stock and stockholders’ equity, and cash flows, for each of the three years in the periods ended December 29, 2024, December 31, 2023, and December 25, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 29, 2024 and December 31, 2023, and the results of its operations and its cash flows for each of the three years in the periods ended December 29, 2024, December 31, 2023, and December 25, 2022, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 29, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2025, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Income Taxes - Realizability of Deferred Tax Assets — Refer to Notes 2 and 7 to the financial statements
Critical Audit Matter Description
A valuation allowance is provided when it is more likely than not that some or all of the deferred tax assets will not be realized. The factors used to assess the likelihood of realization include the Company’s historical and forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. Management has determined that it is more likely than not that the existing deferred tax assets will be realized. On the basis of this evaluation, the Company fully released the valuation allowance against the deferred tax assets of $83.7 million in the fiscal year ended December 29, 2024. The Company’s deferred tax assets as of December 29, 2024, were $71.5 million.
We identified management's determination that it is more likely than not that deferred tax assets will be realized as a critical audit matter because of the significant judgments and estimates management makes in evaluating positive and negative evidence, including taxable income. This required a high degree of auditor judgment and an increased extent of
60
effort, including the need to involve our income tax specialists when performing audit procedures to evaluate the reasonableness of management's significant judgments and estimates.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the determination that it is more likely than not that deferred tax assets will be realized included the following, among others:
•With the assistance of our income tax specialists, we evaluated the reasonableness of the methods, assumptions, and judgments used by management to determine whether a valuation allowance is necessary.
•With the assistance of our income tax specialists, we evaluated whether the sources of management's estimated future taxable income were appropriate and sufficient to utilize the deferred tax assets.
•We tested the reasonableness of management's estimates of taxable income by comparing the estimates to:
◦The Company’s financial forecasts.
◦Historical taxable income.
◦Internal communications to management and the Board of Directors.
◦Forecasted information included in Company press releases as well as in analyst and industry reports for the Company.
•We evaluated whether the estimates of future taxable income were consistent with evidence obtained in other areas of the audit.
•With the assistance of our income tax specialists, we evaluated the Company’s estimate of the timing of reversing temporary deferred items including utilization of net operating losses.
/s/ Deloitte & Touche LLP
February 25, 2025
We have served as the Company's auditor since 2018.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of CAVA Group, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of CAVA Group, Inc. and subsidiaries (the “Company”) as of December 29, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 29, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 29, 2024, of the Company and our report dated February 25, 2025, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
February 25, 2025
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| CAVA GROUP, INC. | |||||||||||
| CONSOLIDATED BALANCE SHEETS | |||||||||||
| (in thousands, except per share amounts) | December 29, 2024 | December 31, 2023 | |||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Trade accounts receivable, net | |||||||||||
| Other accounts receivable | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease assets | |||||||||||
| Goodwill | |||||||||||
Intangible assets | |||||||||||
| Deferred income taxes | |||||||||||
| Other long-term assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses and other | |||||||||||
| Operating lease liabilities, current | |||||||||||
| Total current liabilities | |||||||||||
| Deferred income taxes | |||||||||||
| Operating lease liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and Contingencies (Note 9) | |||||||||||
| Stockholders' equity: | |||||||||||
Common stock, par value $ | |||||||||||
Treasury stock, at cost; | ( | ( | |||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders' equity | $ | $ | |||||||||
| The accompanying notes are an integral part of these consolidated financial statements. | |||||||||||
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| CAVA GROUP, INC. | |||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||
| Fiscal Year Ended | |||||||||||||||||
| (in thousands, except per share amounts) | December 29, 2024 | December 31, 2023 | December 25, 2022 | ||||||||||||||
| Revenue | $ | $ | $ | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Restaurant operating costs (excluding depreciation and amortization) | |||||||||||||||||
| Food, beverage, and packaging | |||||||||||||||||
| Labor | |||||||||||||||||
| Occupancy | |||||||||||||||||
| Other operating expenses | |||||||||||||||||
| Total restaurant operating expenses | |||||||||||||||||
| General and administrative expenses | |||||||||||||||||
| Depreciation and amortization | |||||||||||||||||
| Restructuring and other costs | |||||||||||||||||
| Pre-opening costs | |||||||||||||||||
| Impairment and asset disposal costs | |||||||||||||||||
| Total operating expenses | |||||||||||||||||
| Income (loss) from operations | ( | ||||||||||||||||
| Interest (income) expense, net | ( | ( | |||||||||||||||
| Other income, net | ( | ( | ( | ||||||||||||||
| Income (loss) before taxes | ( | ||||||||||||||||
| (Benefit from) provision for income taxes | ( | ||||||||||||||||
| Net income (loss) | $ | $ | $ | ( | |||||||||||||
| Earnings (loss) per share | |||||||||||||||||
| Basic | $ | $ | $ | ( | |||||||||||||
| Diluted | $ | $ | $ | ( | |||||||||||||
| Weighted-average common shares outstanding: | |||||||||||||||||
| Basic | |||||||||||||||||
| Diluted | |||||||||||||||||
| The accompanying notes are an integral part of these consolidated financial statements. | |||||||||||||||||
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| CAVA GROUP, INC. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF PREFERRED STOCK AND STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable Preferred Stock | Common Stock | Treasury Stock | Additional Paid in Capital | Accumulated Deficit | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance—December 26, 2021 | $ | $ | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares purchased under equity plans | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| RSU vesting | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Tax withholding on equity-based compensation awards | — | — | ( | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance—December 25, 2022 | $ | $ | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares purchased under equity plans | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| RSU vesting | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Tax withholding on equity-based compensation awards | — | — | ( | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
Proceeds from initial public offering, net of underwriting fees and offering costs of $ | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of preferred stock | ( | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance—December 31, 2023 | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares purchased under equity plans | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| RSU vesting | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax withholding on equity-based compensation awards | — | — | ( | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance—December 29, 2024 | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| The accompanying notes are an integral part of these consolidated financial statements. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| CAVA GROUP, INC. | |||||||||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||||||||
| Fiscal Year Ended | |||||||||||||||||
| (in thousands) | December 29, 2024 | December 31, 2023 | December 25, 2022 | ||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net income (loss) | $ | $ | $ | ( | |||||||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||||||||
| Depreciation | |||||||||||||||||
| Amortization of intangible assets | |||||||||||||||||
| Equity-based compensation | |||||||||||||||||
| Deferred income taxes | ( | ||||||||||||||||
| Impairment and asset disposal costs | |||||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| Trade accounts receivable | ( | ( | ( | ||||||||||||||
| Other accounts receivable | ( | ( | |||||||||||||||
| Inventories | ( | ( | ( | ||||||||||||||
| Prepaid expenses and other | ( | ( | |||||||||||||||
| Operating lease assets | ( | ( | ( | ||||||||||||||
| Accounts payable | |||||||||||||||||
| Accrued expenses and other | ( | ||||||||||||||||
| Operating lease liabilities | |||||||||||||||||
| Net cash provided by operating activities | |||||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Purchases of property and equipment | ( | ( | ( | ||||||||||||||
| Net cash used in investing activities | ( | ( | ( | ||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Proceeds from long-term debt | |||||||||||||||||
| Payments on long-term debt | ( | ||||||||||||||||
| Tax withholding on equity-based compensation awards | ( | ( | ( | ||||||||||||||
| Shares purchased under equity plans | |||||||||||||||||
Proceeds from initial public offering, net of underwriting fees of $ | |||||||||||||||||
| Offering costs paid | ( | ( | |||||||||||||||
| Payment of loan acquisition fees | ( | ( | |||||||||||||||
| Payments on finance lease obligations | ( | ( | ( | ||||||||||||||
| Net cash (used in) provided by financing activities | ( | ( | |||||||||||||||
| Net change in cash and cash equivalents | ( | ||||||||||||||||
| Cash and cash equivalents - beginning of year | |||||||||||||||||
| Cash and cash equivalents - end of year | $ | $ | $ | ||||||||||||||
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| Fiscal Year Ended | |||||||||||||||||
| (in thousands) | December 29, 2024 | December 31, 2023 | December 25, 2022 | ||||||||||||||
| Supplemental Disclosure of Cash Flow Information: | |||||||||||||||||
| Offering costs not yet paid | $ | $ | $ | ||||||||||||||
| Cash paid for fees and interest related to long-term debt | |||||||||||||||||
| Cash paid for income taxes | |||||||||||||||||
| Change in accrued purchases of property and equipment | ( | ||||||||||||||||
| Conversion of redeemable preferred stock into common stock in connection with initial public offering | |||||||||||||||||
| The accompanying notes are an integral part of these consolidated financial statements. | |||||||||||||||||
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CAVA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
CAVA Group, Inc. (together with its wholly owned subsidiaries, referred to as the “Company,” “CAVA,” “we,” “us,” and “our” unless specified otherwise) was formed as a Delaware corporation in 2015, and prior to that, the first CAVA restaurant opened in 2011 in Bethesda, Maryland. The Company is headquartered in Washington, D.C. and, as of December 29, 2024, operates 367 fast-casual CAVA Restaurants in 25 states and Washington, D.C. The Company’s authentic Mediterranean cuisine unites taste and health, with a menu that features chef-curated and customizable bowls and pitas. The Company’s dips, spreads, and dressings are centrally produced for use in its restaurants and to be sold in grocery stores.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Initial Public Offering—On June 20, 2023, the Company completed an initial public offering (the “IPO”) of 16.6 million shares of common stock at a price of $22.00 per share, which included 2.2 million shares sold to the underwriters pursuant to their option to purchase additional shares. After underwriting discounts and commissions of $22.8 million and offering expenses of $6.5 million, the Company received net proceeds from the offering of $336.1 million. In connection with the IPO, the Company issued 95.2 million shares of common stock, par value $0.0001 per share, of the Company upon conversion on a one -for-one basis of all outstanding shares of its Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, and Series F Preferred Stock, each of which had a par value of $0.0001 no
Rounding—Certain numerical figures have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.
Cash and Cash Equivalents—The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase, and deposits in transit from credit card processers, to be cash equivalents. Cash and cash equivalents are maintained with financial institutions and, at times, the amount on deposit may exceed the amount of insurance provided on such deposits. Interest earned on cash and cash equivalents is presented within interest (income) expense, net in the accompanying consolidated statements of operations.
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recorded an allowance for doubtful accounts as of December 29, 2024 and December 31, 2023 of approximately $0.1
Inventories—Inventories consist of food, beverage, paper goods, finished goods, raw materials and packaging, and supplies, and are stated at the lower of cost, as determined on a first-in, first-out method, or net realizable value.
Property and Equipment—Property and equipment are stated at cost, less accumulated depreciation. Depreciation on property and equipment is calculated using the straight-line method based on the following estimated lives:
| Property and Equipment | Useful life | |||||||
| Leasehold improvements | Shorter of lease term or estimated asset life | |||||||
Building | ||||||||
Equipment and vehicles | ||||||||
| Furniture and fixtures | ||||||||
| Computer hardware and software | ||||||||
Expenditures for improvements and renewals that extend the useful life of an asset are capitalized. Upon sale, retirement, or other disposition of these assets, the costs and related accumulated depreciation are removed from the respective accounts and any gain or loss on the disposition is included in impairment and asset disposal costs in the accompanying consolidated statements of operations. Repair and maintenance costs are expensed as incurred and presented within other operating expenses in the accompanying consolidated statements of operations.
Leases—We lease all of our restaurants, our production facility in Laurel, Maryland, our food distribution center in Edison, New Jersey, our restaurant collaboration center in Washington, D.C., and our support centers in Brooklyn, New York, and Plano, Texas under various non-cancelable lease agreements that expire on various dates through 2040. At inception of a lease, we determine its classification as an operating or financing lease. All of our restaurant leases are classified as operating leases. Restaurants are located on sites leased from third parties. When determining the lease term, the Company considers reasonably certain option periods.
The Company makes judgments regarding the probable term for each lease, which can impact the classification and accounting for a lease as well as the amount of straight-line rent expense recognized in a period. Typically, restaurant leases have initial terms of ten years and include five-year renewal options. Renewal options are typically not included in the lease term as it is not reasonably certain at commencement that we will exercise the options. Restaurant leases provide for fixed minimum rent payments and in some cases include contingent rent payments based upon sales in excess of specified breakpoints. When achievement of sales breakpoints is probable, contingent rent is accrued. Fixed minimum rent payments are recognized on a straight-line basis over the lease term starting on the date we take control of the leased space.
Operating lease assets and liabilities are recognized at the lease’s commencement date. We measure the lease liability at lease commencement by discounting the future minimum lease payments. The Company made policy elections to not apply the balance sheet recognition requirements for short-term leases (less than 12 months) and to account for lease components and non-lease components as a single lease component. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments, initial direct costs, lease incentives, and impairment. As the rate implicit in the lease is not readily determinable in most of the Company’s leases, the Company uses its incremental borrowing rate based on the information available at a lease’s commencement date to determine the present value of lease payments. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.
Goodwill and Intangible Assets—Related to the acquisition of CAVA Foods, LLC in 2015, the Company recorded goodwill of $1.9 million. Intangible assets not subject to amortization consist of purchased trademarks of $0.8 million and $0.6 million of other intangibles. Goodwill and indefinite-lived intangible assets are tested for impairment at least annually,
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The Company recorded which are presented in impairment and asset disposal costs in the accompanying consolidated statements of operations, of $1.3 million, and $9.0 million during fiscal 2023, and 2022, respectively, as further described in Note 4 (Fair Value).
Insurance Reserves—The Company self-insures a portion of its expected losses under its workers’ compensation and general liability insurance programs. To limit its exposure to losses, the Company maintains stop-loss coverage through third-party insurers. Insurance liabilities representing estimated costs to settle reported claims as well as claims incurred but not reported are included in accrued expenses and other on the accompanying consolidated balance sheets. Our estimated liability is not discounted and is based on a number of assumptions and factors, including historical trends, actuarial assumptions, and economic conditions, and is closely monitored and adjusted when warranted by changing circumstances.
Revenue Recognition—The Company recognizes in-restaurant and digital revenue when payment is tendered at the point of sale as the performance obligation has been satisfied, which is recognized net of discounts, incentives, and sales tax collected from customers. Digital revenue includes digital orders, which consist of orders made through catering and digital channels such as the CAVA app and the CAVA website. Digital orders include orders fulfilled through third-party marketplace and native delivery and digital order pick-up.
CPG revenue associated with dips, spreads, and dressings is recognized upon transfer of control to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products. Transfer of control occurs at a point in time, typically upon delivery as this is when title and risk of loss passes to the customer. Allowances for sales returns, stale products, and discounts are recorded as reductions to CPG revenue. The Company uses judgment in estimating sales returns, considering numerous factors such as historical sales return rates.
Gift Cards—Revenue related to the sale of gift cards is deferred until the gift card is redeemed. Deferred gift card revenue is included in accrued expenses and other in the accompanying consolidated balance sheets. Gift cards do not carry an expiration date; therefore, customers can redeem their gift cards for products indefinitely and the Company does not deduct non-usage fees from outstanding gift card balances. A portion of gift cards that are not expected to be redeemed exclusive of amounts that are subject to state unclaimed property laws are recognized as breakage over time in proportion to gift card redemptions. Revenue recognized from gift card breakage was immaterial in fiscal 2024, 2023, and 2022.
Loyalty Program—On October 7, 2024, the Company launched its reimagined CAVA Rewards loyalty program with the goal of developing personal relationships with guests as the Company scales its business. CAVA Rewards members generally earn points for every dollar spent. Points can be redeemed for various rewards, which consist of free food and beverage items. Points expire if an account is inactive for a period of 180 days, and earned rewards converted from points expire 60 days after they are issued.
The Company records a liability and a corresponding reduction in revenue in periods when loyalty program rewards are earned by members. The Company recognizes revenue and a corresponding reduction to the liability in periods when loyalty program rewards are redeemed by members. The amount of revenue recognized or deferred is based on the stand-alone selling price of the loyalty points multiplied by an estimated redemption rate. The Company determines the stand-alone selling price of loyalty points based on the estimated value of the products for which a reward is expected to be redeemed.
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Pre-opening Costs—Pre-opening costs consist of expenses incurred prior to opening a new restaurant (including new restaurants that were converted from a Zoes Kitchen location) and are made up primarily of manager salaries, payroll and training costs, travel costs, supplies, relocation costs, and recruiting expenses. Pre-opening costs also include occupancy costs recorded during the period between the date of possession and the date we begin operations at a location. Pre-opening costs are expensed as incurred.
Income Taxes—The Company is taxed as a C corporation under which income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities, reflecting the impact of net operating loss carryforwards and the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The factors used to assess the likelihood of realization include the Company’s historical and forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. As of December 31, 2023 the Company had recorded a full valuation against its deferred tax assets. The full valuation was released in fiscal 2024 as further described in Note 7 (Income Taxes).
The Company has considered its income tax positions, including any positions that may be considered uncertain by the relevant tax authorities in the jurisdictions in which the Company operates. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company did not have any uncertain tax positions as of December 29, 2024 and December 31, 2023.
The Company’s primary tax jurisdiction is in the United States. Generally, federal, state, and local authorities may examine the Company’s tax returns for three years from the date of filing and the current and prior three years remain subject to examination as of December 29, 2024.
Equity-based Compensation—The Company has issued stock options and RSUs under its equity incentive plans and purchase rights under its employee stock purchase plan (“ESPP”). Equity-based compensation expense is measured based on the grant date fair value of those awards and is recognized on a straight-line basis over the requisite service period. Equity-based compensation expense is based on awards outstanding, and forfeitures are recognized as they occur.
The Company uses the Black-Scholes-Merton (“Black-Scholes”) option-pricing model to estimate the fair value of stock options and purchase rights under the ESPP at the grant date. The use of the Black-Scholes option-pricing model requires the use of highly subjective assumptions, including the expected term, risk-free interest rate, expected volatility, and expected dividend yield of the underlying common stock. The fair value of RSUs is equal to the fair value of the underlying common stock at the date of grant.
Prior to June 2023, the Company was privately held with no active public market for its common stock. The historical approach for estimating the fair value of the Company’s common stock was a two-step process. First, the Company’s enterprise value was established using generally accepted valuation methodologies, including the utilization of an income approach (discounted cash flow method), a market approach (guideline public company method), and a probability-weighted expected return method. Second, the enterprise value was allocated among the securities that comprise the capital structure of the Company using the option-pricing method. The assumptions used to determine the fair value of the Company’s common stock represents management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment.
Earnings (loss) per share—Basic earnings (loss) per share (“basic EPS”) is calculated by dividing income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share (“diluted EPS”) adjusts basic EPS for the impact of potentially dilutive shares using the
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treasury stock method. Potentially dilutive shares include outstanding stock options, non-vested RSUs, and purchase rights granted under the ESPP. In periods in which there is a loss, potentially dilutive securities are not included in the calculation of diluted EPS as their impact would be anti-dilutive.
Fair Value of Financial Instruments—The fair value measurement accounting guidance creates a fair value hierarchy to prioritize the inputs used to measure value into three categories. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement, where Level 1 is the highest category (observable inputs) and Level 3 is the lowest category (unobservable inputs). The three levels are defined as follows:
•Level 1—Quoted prices for identical instruments in active markets.
•Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant value drivers are observable.
•Level 3—Unobservable inputs for the asset or liability. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.
Contingencies—The Company is subject to various claims, lawsuits, governmental investigations, and administrative proceedings that arise in the ordinary course of business. The Company accrues a liability and recognizes an expense for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. Estimating liabilities and costs associated with these matters require significant judgment based upon the professional knowledge and experience of management and its legal counsel.
Deferred Offering Costs—Deferred offering costs, which consist of direct incremental legal, consulting, accounting, and other fees relating to the Company’s IPO, were capitalized and recorded as a reduction of proceeds upon the consummation of the IPO in June 2023.
JOBS Act Election—In April 2012, the JOBS Act was enacted. Section 107(b) of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay adoption of certain accounting standards until those standards would apply to private companies. The Company was an emerging growth company until December 29, 2024, the date on which it qualified as a large accelerated filer, and previously elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerging growth companies. As a result of the accounting standards election, during the time in which it was an emerging growth company, the Company was not subject to the same implementation timing for new or revised accounting standards as other public companies that were not emerging growth companies and, as a result, the Company’s financial statements may not have been comparable to companies that complied with new or revised accounting pronouncements as of public company effective dates.
As of July 12, 2024, the last trading day of the Company’s most recently completed second fiscal quarter, the market value of the Company’s common stock held by non-affiliates exceeded $700.0 million. As a result, the Company became a large accelerated filer as of the end of fiscal 2024 and is no longer an emerging growth company. As a large accelerated filer, the Company is subject to certain disclosure and compliance requirements that apply to other public companies that did not previously apply to the Company due to its status as an emerging growth company. These requirements include, but are not limited to: the requirement that the Company’s independent registered public accounting firm attest to the effectiveness of the Company’s internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002; compliance with any requirements that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditors’ report providing additional information about the audit and the financial statements; the requirement that the Company provide more detailed disclosures regarding executive
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compensation; and the requirement that the Company hold a non-binding advisory vote on executive compensation and obtain stockholder approval of any golden parachute payments not previously approved.
Recently Adopted Accounting Standards—In November 2023, the Financial Accounting Standards Board (“FASB”), issued Accounting Standards Updated (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which improves reportable segment disclosure through enhanced disclosures about significant segment expenses. The Company adopted the guidance beginning with its consolidated financial statements for the fiscal year ended December 29, 2024, which includes additional segment expense disclosures, among other items.
Recently Issued Accounting Standards— In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which improves income tax disclosures through enhanced disaggregation within the rate reconciliation table and disaggregation of income taxes paid by jurisdiction. The amendment is effective for fiscal years beginning after December 15, 2024 (our fiscal 2025) and early adoption is permitted. The amendment should be applied on a prospective basis; however, retrospective application is permitted. The Company is currently evaluating the impact of adopting this ASU on its disclosures.
In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40), which requires disaggregation, in tabular presentation, of certain income statement expenses into different categories, such as purchases of inventory, employee compensation, and depreciation. The amendment is effective for fiscal years beginning after December 15, 2026 (our fiscal 2027) and early adoption is permitted. The amendment should be applied on a retrospective basis. The Company is currently evaluating the impact of adopting this ASU on its financial statements and disclosures.
The Company reviewed all other recently issued accounting standards and determined they were either not applicable or are not expected to have a material impact on our consolidated financial statements.
3. REVENUE
The Company’s revenue was as follows for the fiscal years indicated:
| (in thousands) | 2024 | 2023 | 2022 | ||||||||||||||
| Restaurant revenue | $ | $ | $ | ||||||||||||||
| CPG revenue and other | |||||||||||||||||
| Revenue | $ | $ | $ | ||||||||||||||
Revenue from the redemption of the Company’s gift cards and loyalty program is included in restaurant revenue. Refer to Note 5 (Supplemental Balance Sheet Information) for the Company’s gift card and loyalty liabilities balances. Revenue recognized from the redemption of gift cards that was included in the gift card liability at the beginning of the year was $2.0 million, $1.0 million, and $0.6 million during fiscal 2024, 2023, and 2022, respectively.
Changes in the CAVA Rewards liability, which is included in accrued expenses and other on the accompanying consolidated balance sheets, were as follows for the fiscal years indicated:
(in thousands) | 2024 | 2023 | 2022 | ||||||||||||||
| CAVA Rewards liability, beginning balance | $ | $ | $ | ||||||||||||||
| Revenue deferred | |||||||||||||||||
| Revenue recognized | ( | ( | ( | ||||||||||||||
| CAVA Rewards liability, ending balance | $ | $ | $ | ||||||||||||||
4. FAIR VALUE
The following table summarizes certain assets measured at fair value on a non-recurring basis due to impairment charges. The fair value of these assets was measured using an income approach (discounted cash flow method), which relies on Level 3 inputs as described in Note 2 (Basis of Presentation and Significant Accounting Policies).
| (in thousands) | Level | December 31, 2023 | ||||||||||||||||||
| Certain property and equipment, net | 3 | |||||||||||||||||||
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The following tables presents impairment charges by reportable segment and asset disposal costs recognized during the fiscal years indicated:
| (in thousands) | 2024 | 2023 | 2022 | ||||||||||||||
| Impairment charges | |||||||||||||||||
| CAVA | $ | $ | $ | ||||||||||||||
| Zoes Kitchen | |||||||||||||||||
| Other | |||||||||||||||||
| Total impairment | |||||||||||||||||
| Total asset disposal costs | |||||||||||||||||
| Total impairment and asset disposal costs | $ | $ | $ | ||||||||||||||
5. SUPPLEMENTAL BALANCE SHEET INFORMATION
The following table presents the Company’s property and equipment, net as of the periods indicated:
| (in thousands) | December 29, 2024 | December 31, 2023 | |||||||||
| Land | $ | $ | |||||||||
| Building | |||||||||||
| Leasehold improvements | |||||||||||
| Equipment | |||||||||||
| Furniture and fixtures | |||||||||||
| Computer hardware and software | |||||||||||
| Construction in progress | |||||||||||
| Total property and equipment, gross | |||||||||||
| Less accumulated depreciation | ( | ( | |||||||||
| Total property and equipment, net | $ | $ | |||||||||
Construction in progress includes CAVA new restaurant openings and technology improvements. Building, as of December 29, 2024 and construction in progress as of December 31, 2023, include the new production facility in Verona, Virginia, which commenced operations in the first quarter of fiscal 2024.
The following table presents the Company’s accrued expenses and other as of the periods indicated:
| (in thousands) | December 29, 2024 | December 31, 2023 | |||||||||
| Accrued payroll and payroll taxes | $ | $ | |||||||||
| Accrued capital purchases | |||||||||||
| Sales and use tax payable | |||||||||||
| Gift card and loyalty liabilities | |||||||||||
| Other accrued expenses | |||||||||||
| Total accrued expenses and other | $ | $ | |||||||||
6. DEBT
JPMorgan Chase Bank Revolving Line of Credit—On February 15, 2023, the Company entered into a second amendment with respect to its revolving credit agreement with JP Morgan Chase Bank, N.A. as administrative agent dated March 11, 2022, collectively known as the “2022 Credit Facility.”
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The amendment provided for a $30.0 million delayed draw term loan facility (the “Delayed Draw Facility”) to finance construction and capital expenditures in respect of the Company’s production facility in Verona, Virginia. On May 31, 2023, the Company borrowed $6.0
As of December 29, 2024, available borrowing capacity under the 2022 Credit Facility was $74.3 million, net of $0.7 million of outstanding letters of credit. The 2022 Credit Facility contains lender approved, uncommitted incremental revolving credit capacity of up to an aggregate amount of $25.0 million. The 2022 Credit Facility has a five-year term and matures on March 11, 2027. As of December 29, 2024, the Company had unamortized loan origination fees of $0.8 million related to the 2022 Credit Facility recorded within other long-term assets on the accompanying consolidated balance sheet.
Interest on loans under the 2022 Credit Facility are based on the one, three or six months Adjusted Term Secured Overnight Financing Rate (as described in the 2022 Credit Facility), as applicable, plus an applicable margin of 1.50 % to 2.50 % based on the Company’s Total Rent Adjusted Net Leverage Ratio (as defined in the 2022 Credit Facility). The Company also has the ability to draw overnight borrowings for which interest rates are calculated based on the Alternative Base Rate (as defined in the 2022 Credit Facility). The Company had no
The 2022 Credit Facility is unconditionally guaranteed by our domestic restricted subsidiaries, other than immaterial subsidiaries and other excluded subsidiaries. The 2022 Credit Facility is secured, subject to permitted liens and other exceptions, by a first-priority security interest in certain tangible and intangible assets of the borrower and the guarantors and a first-priority pledge of the capital stock of each domestic restricted subsidiary of the borrower and the guarantors, subject to certain exceptions.
The 2022 Credit Facility includes customary restrictive covenants, including limitations on additional indebtedness, creation of liens, dividend payments, investments and certain transactions with affiliates. The 2022 Credit Facility also includes covenants that require compliance with certain leverage ratios. The availability of certain baskets and the ability to enter into certain transactions may be subject to compliance with such leverage ratios. In addition, the 2022 Credit Facility contains other customary covenants, representations, and events of default. As of December 29, 2024, the Company was in compliance with these financial and other covenants.
7. INCOME TAXES
At December 29, 2024, the Company assessed the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of existing deferred tax assets (“DTAs”). A significant piece of objective positive evidence evaluated was the cumulative income earned over the three-year period ended December 29, 2024. Such objective evidence, in addition to forecasted future taxable income and available tax planning strategies that could be implemented, were determined to support that it is more likely than not the existing DTAs will be realized. On the basis of this evaluation, as of December 29, 2024, the valuation allowance against the DTAs of $83.7 million was fully released.
The Company generates all of its income before taxes in the United States. The (benefit from) provision for income taxes consists of the following for the fiscal years indicated:
(in thousands) | 2024 | 2023 | 2022 | ||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | $ | $ | ||||||||||||||
| State | |||||||||||||||||
| Subtotal current | |||||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | ( | ||||||||||||||||
| State | ( | ||||||||||||||||
| Subtotal deferred | ( | ||||||||||||||||
| (Benefit from) provision for income taxes | $ | ( | $ | $ | |||||||||||||
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The (benefit from) provision for income taxes differs from the amount computed by applying the U.S. federal statutory income tax rate to income (loss) before taxes for the reasons set forth below for the fiscal years indicated:
(in thousands) | 2024 | 2023 | 2022 | ||||||||||||||
| Income tax expense (benefit) at federal statutory rate | $ | $ | $ | ( | |||||||||||||
| State income tax expense (benefit) | ( | ||||||||||||||||
| (Decrease) increase in valuation allowance | ( | ( | |||||||||||||||
| Deferred taxes | |||||||||||||||||
| Equity-based compensation | ( | ( | ( | ||||||||||||||
| Nondeductible executive compensation | |||||||||||||||||
| Other permanent adjustments | ( | ||||||||||||||||
| (Benefit from) provision for income taxes | $ | ( | $ | $ | |||||||||||||
As a result of the release of the valuation allowance, the Company recorded a deferred tax liability related to the federal tax impact of its state deferred tax assets, which resulted in an increase to income tax expense of $3.6 million in fiscal 2024 presented within state income tax expense (benefit) in the table above.
The following table presents the Company’s deferred tax assets and liabilities as of the periods indicated:
| (in thousands) | December 29, 2024 | December 31, 2023 | |||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss | $ | $ | |||||||||
| Operating lease liabilities | |||||||||||
| Property and equipment | |||||||||||
| Equity-based compensation | |||||||||||
| Other | |||||||||||
| Gross deferred tax assets | |||||||||||
| Valuation allowance | ( | ||||||||||
| Net deferred tax assets | |||||||||||
| Deferred tax liabilities: | |||||||||||
| Operating lease assets | ( | ( | |||||||||
| Property and equipment | ( | ||||||||||
| Net deferred tax liabilities | ( | ( | |||||||||
| Total net deferred tax assets (liabilities) | $ | $ | ( | ||||||||
The Company had available as of December 29, 2024, $215.2 million and $154.8 million of unused federal and state net operating loss carryforwards, respectively. Under the Tax Cuts and Jobs Act of 2017, net operating losses may be carried forward indefinitely. However, net operating losses arising in tax years that begin after December 31, 2017, are limited to 80% of the respective future year’s taxable income. In addition, net operating loss carryforwards may be limited in situations where there is a change in the Company’s ownership. The Company has performed an analysis to substantiate existing net operating loss carryforwards are available for use related to historical changes in the Company’s ownership. The Company’s federal net operating losses generated before December 31, 2017, and outstanding as of December 29, 2024, of $0.7 million will start to expire if not utilized, beginning in 2037, and state net operating losses expire over varying intervals in the future.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act, which includes a new 15% alternative minimum tax based upon financial statement income (“book minimum tax”), a 1% excise tax on stock buybacks, and tax incentives for energy and climate initiatives, among other provisions. The provisions of the Inflation Reduction Act are generally effective for periods after December 31, 2022, with no immediate impact to our current income tax expense or net DTAs. We do not currently expect that the Inflation Reduction Act will have a material impact on our financial results.
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8. LEASES
The weighted average remaining lease term and discount rate were as follows as of the period indicated:
| December 29, 2024 | December 31, 2023 | ||||||||||
| Weighted average remaining lease term (years) | |||||||||||
| Weighted average discount rate | % | % | |||||||||
The components of lease cost were as follows for the fiscal years indicated:
| (in thousands) | Classification | 2024 | 2023 | 2022 | ||||||||||||||||
Operating lease cost1 | Occupancy, General and administrative expenses | $ | $ | $ | ||||||||||||||||
| Pre-opening lease cost | Pre-opening costs | |||||||||||||||||||
| Closed restaurant lease cost | Restructuring and other costs | |||||||||||||||||||
| Short-term lease costs | General and administrative expenses | |||||||||||||||||||
| Variable lease cost | Occupancy | |||||||||||||||||||
| Sublease income | Other income | ( | ( | ( | ||||||||||||||||
| Total lease cost | $ | $ | $ | |||||||||||||||||
__________________
1 Excludes $10.6 million, $9.4 million, and $8.5 million in fiscal 2024, 2023, and 2022, respectively, relating to variable real estate taxes, insurance, and common area maintenance costs.
Supplemental disclosures of cash flow information related to leases were as follows for the fiscal years indicated:
| (in thousands) | 2024 | 2023 | 2022 | ||||||||||||||
| Cash paid for operating lease liabilities | $ | $ | $ | ||||||||||||||
Operating lease assets obtained in exchange for operating lease liabilities1 | |||||||||||||||||
| Derecognition of operating lease assets due to termination or impairment | |||||||||||||||||
__________________
1 Amount presented for fiscal 2022 includes a $256.9 million transition adjustment for the adoption of ASC 842.
Refer to Note 4 (Fair Value) for a description of impairment charges that included a reduction to operating lease assets in fiscal 2023 and 2022.
Future minimum lease payments by fiscal year for operating leases consist of the following as of December 29, 2024:
| (in thousands) | Operating Leases | ||||
| 2025 | $ | ||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| Thereafter | |||||
| Total | |||||
| Less: imputed interest | |||||
| Operating lease liabilities (current and non-current) | $ | ||||
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9. COMMITMENTS AND CONTINGENCIES
Purchase Obligations—The Company enters into various purchase obligations in the ordinary course of business, generally of a short-term nature. Those that are binding primarily relate to amounts owed for produce and other ingredients and supplies, including supplies and materials used for new restaurant openings.
Letters of Credit—As of December 29, 2024 and December 31, 2023, the Company had four 0.7
Litigation—The Company is currently involved in various claims and legal actions that arise in the ordinary course of its business, including claims resulting from employment related matters. While the ultimate outcome and the costs associated with litigation are inherently uncertain and difficult to predict, as of the date hereof, the Company does not believe that any of its pending legal proceedings, most of which are covered by insurance, will have a material effect on its business, financial condition, results of operations, or cash flows. However, a significant increase in the number of these claims or an increase in uninsured amounts owed under successful claims could materially and adversely affect the Company’s business, financial condition, results of operations, or cash flows.
On April 27, 2022, the Company was named as a defendant in Hamman et al. v. Cava Group, Inc. in the U.S. District Court for the Southern District of California, which alleged that certain of the Company’s products were unfit for human consumption due to the packaging containing allegedly heightened levels of organic fluorine and unsafe per- and polyfluoroalkyl substances (“PFAS”), and that consumers were misled by certain marketing claims asserted by the Company regarding the health and sustainability of its products. Plaintiffs sought, among other relief, compensatory damages in an unspecified amount and medical monitoring. The Company settled the matter and the action was dismissed with prejudice on April 15, 2024.
On October 12, 2023, the Company was named as a defendant in GMO Free USA d/b/a Toxin Free USA v. Cava Group, Inc. in the Superior Court of the District of Columbia Civil Division, which alleged that the Company used unhealthy and unsustainable PFAS in its packaging, that its products contained synthetic biocides, and that its “healthy” and “sustainable” marketing claims constituted false and deceptive advertising. Plaintiffs sought declaratory and injunctive relief, including that the Company refrain from using or sourcing packaging containing PFAS and that it add certain product warnings, as well as payment of the plaintiffs’ attorney’s fees. The Company settled the matter and the action was dismissed with prejudice on April 16, 2024.
In connection to the aforementioned Hamman matter, Travelers Property Casualty Company of America et al v. Cava Group, Inc. was filed on September 21, 2022 in the Superior Court of the State of California, County of Orange and subsequently transferred to the U.S. District Court for the District of Columbia on February 13, 2024. Plaintiff sought a declaratory judgment that it was not liable for insurance coverage in relation to the allegations asserted in the Hamman complaint related to PFAS, as well as recoupment of the Company’s legal costs in the Hamman action. The Company settled the matter and the action was dismissed with prejudice on April 17, 2024.
The accompanying consolidated financial statements include an immaterial expense for the matters described above.
10. RELATED PARTY TRANSACTIONS
We were party to a consulting agreement (the “Consulting Agreement”) with CMRG Inc. (“CMRG”), which is primarily owned by certain of the founders of the Company, including Theodoros Xenohristos, who serves on our Board of Directors. Under the terms of the Consulting Agreement, the founders provided culinary, branding, food products, and restaurant operation services to one of our subsidiaries, CAVA Mezze Grill, in exchange for an annual consulting fee. During fiscal 2022, $0.2 million was paid to CMRG for consulting services under the Consulting Agreement. The Consulting Agreement was effectively terminated in December 2022.
We were party to a management services agreement (“MSA”) with Act III Management, LLC (“Act III Management”), which is one of our stockholders and is controlled by Ronald Shaich, who is Chair of our Board of Directors. Act III Management provided consulting in the areas of information technology, strategy, finance, off-premises sales, and restaurant operations. During fiscal 2022, $0.8 million was paid to Act III Management under the MSA. The MSA was terminated in accordance with its terms in December 2022.
78
11. EQUITY-BASED COMPENSATION
2023 Equity Incentive Plan—In connection with the Company’s IPO, the Company adopted the 2023 Equity Incentive Plan (the “2023 Plan”). The 2023 Plan includes 9.4 million authorized shares of the Company’s common stock for issuance to employees, directors, and consultants through stock options (both incentive and non-qualified), restricted shares of our common stock, RSUs, performance stock units, and other equity-based awards tied to the value of our shares. As of December 29, 2024, 7.4 million shares were available for issuance under the 2023 Plan. The number of shares reserved for issuance under the 2023 Plan will automatically increase on the first day of each fiscal year commencing on December 30, 2024 (first day of fiscal 2025) by a number of shares equal to the lesser of (i) 1 % of the then-outstanding shares of our common stock on the last day of the immediately preceding fiscal year and (ii) a lesser number of shares as determined by our Board of Directors.
2015 Equity Incentive Plan—Prior to the Company’s IPO, the Company granted incentive stock options, non-qualified stock options, and restricted stock unit awards to employees, directors, and consultants under the 2015 Equity Incentive Plan (the “2015 Plan”). Following effectiveness of the 2023 Plan in connection with our IPO, no further awards will be granted under the 2015 Plan; however, awards outstanding under the 2015 Plan will continue to be governed by their existing terms.
During fiscal 2024, 2023, and 2022 the Company recognized compensation expense (including applicable payroll taxes) related to awards under the equity incentive plans and the 2023 ESPP (as defined below) of $17.1 million, $9.6 million, and $4.0 million, respectively. Equity-based compensation expense is included in general and administrative expenses in the accompanying consolidated statements of operations.
Stock Options—Prior to the IPO, under the 2015 Plan, our Board of Directors determined the option exercise price and granted all stock options at exercise prices that were equal or exceed the fair value of the common stock on the date of grant. The terms of all stock options may not exceed 10 years. Vesting terms are determined by our Board of Directors and generally vest annually in equal installments over four years of continuous service, except for 0.6 million options that were granted to the Company’s CEO in connection with the IPO that vest over five years of continuous service.
A summary of the Company’s stock option activity is as follows:
| Weighted Average | |||||||||||||||||||||||
| (in thousands, except per share amounts) | Number Of Options | Exercise Price | Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||||||||
| Outstanding - December 31, 2023 | $ | $ | |||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised | ( | ||||||||||||||||||||||
| Forfeited or expired | ( | ||||||||||||||||||||||
| Outstanding - December 29, 2024 | $ | $ | |||||||||||||||||||||
| Exercisable - December 29, 2024 | $ | ||||||||||||||||||||||
| Vested and expected to vest - December 29, 2024 | $ | $ | |||||||||||||||||||||
As of December 29, 2024, there was $8.9 million of unrecognized compensation costs related to option awards. This cost is expected to be recognized over a weighted-average period of 3.0 years. The aggregate intrinsic value of options exercised during fiscal 2024, 2023, and 2022, was $99.3 million, $1.1 million, and $0.1 million, respectively.
The following table reflects the weighted-average assumptions utilized in the Black-Scholes option pricing model during the fiscal years indicated:
| 2024 | 2023 | 2022 | |||||||||||||||
Expected term (in years)1 | |||||||||||||||||
Volatility2 | |||||||||||||||||
| Risk-free interest rate | |||||||||||||||||
| Dividend rate | |||||||||||||||||
| Weighted-average grant date fair value per share | $ | $ | $ | ||||||||||||||
79
__________________
1 Expected term was calculated using the simplified method, which is an average of the contractual term and vesting period of the option, as we do not have sufficient historical data for determining the expected term of our stock option awards.
Restricted Stock Units—Vesting terms of RSUs are determined by our Board of Directors and generally vest annually in equal installments over four years of continuous service, except for 0.3 million RSUs that were granted to the Company’s CEO in connection with the IPO that vest over five years of continuous service.
A summary of the Company’s restricted stock unit activity is as follows:
| (in thousands, except per share amounts) | Number of Units | Weighted-Average Grant Date Fair Value | Aggregate Intrinsic Value | ||||||||||||||
| Non-vested - December 31, 2023 | $ | $ | |||||||||||||||
| Granted | |||||||||||||||||
| Vested | ( | ||||||||||||||||
| Forfeited | ( | ||||||||||||||||
| Non-vested - December 29, 2024 | $ | $ | |||||||||||||||
As of December 29, 2024, there was $18.4 million of unrecognized compensation expense related to RSU awards. This cost is expected to be recognized over a weighted-average period of 2.6 years. The weighted-average grant date fair value of RSUs during fiscal 2023 and 2022 was $17.52 and $6.74 , respectively. The aggregate fair value of shares vested during fiscal 2024, 2023, and 2022 was $64.8 million, $8.5 million, and $2.6 million, respectively.
2023 Employee Stock Purchase Plan—In connection with the IPO, the Company’s Board of Directors adopted the 2023 Employee Stock Purchase Plan (the “2023 ESPP”). The 2023 ESPP authorizes issuance of 1.8 million shares of common stock to the Company’s employees of which, 1.7 million were available for issuance as of December 29, 2024. The number of shares of the Company’s common stock reserved for issuance will automatically increase on the first day of each fiscal year ending on December 29, 2032 by the lesser of (i) 1 % of the outstanding common stock of the Company on the last day of the immediately preceding fiscal year and (ii) a lower number of shares of our common stock as determined by the Board of Directors.
12. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of earnings (loss) per common share for the fiscal years indicated:
| (in thousands, except per share amounts) | 2024 | 2023 | 2022 | ||||||||||||||
| Net income (loss) | $ | $ | $ | ( | |||||||||||||
Weighted-average shares outstanding: | |||||||||||||||||
Basic | |||||||||||||||||
| Dilutive awards | |||||||||||||||||
| Diluted | |||||||||||||||||
| Earnings (loss) per common share: | |||||||||||||||||
| Basic | $ | $ | $ | ( | |||||||||||||
| Diluted | $ | $ | $ | ( | |||||||||||||
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The Company excluded the following potential common shares, presented based on amounts outstanding at the end of each period, from the computation of diluted earnings (loss) per share as the impact would have been anti-dilutive for the fiscal years indicated:
| (in thousands) | 2024 | 2023 | 2022 | ||||||||||||||
| Stock options | |||||||||||||||||
| Restricted stock units | |||||||||||||||||
| Preferred stock (as converted to common shares) | |||||||||||||||||
| Total common stock equivalents | |||||||||||||||||
During fiscal 2022, the Company’s potentially dilutive securities have been excluded from the computation of diluted earnings per share as the effect would be anti-dilutive in a net loss position.
13. SEGMENT REPORTING
The Company’s operations are conducted as three operating segments: CAVA, Zoes Kitchen, and CAVA Foods. These segments were determined on the same basis that the Company’s Chief Executive Officer (“CEO”), who is the chief operating decision maker (“CODM”), manages, evaluates, and makes key decisions regarding the business. Between 2019 and 2023, the Company completed a strategy of converting Zoes Kitchen restaurants into CAVA restaurants, with the last conversion restaurant opening on October 20, 2023, resulting in a total of 153 conversion restaurants. As of March 2, 2023, the Company no longer operates any Zoes Kitchen locations. CAVA Foods is below quantitative thresholds for segment reporting purposes, resulting in CAVA and Zoes Kitchen being the Company’s two reportable segments for the periods covered by the consolidated financial statements.
The CODM reviews segment performance and allocates resources based upon restaurant-level profit, which is defined as segment revenues less food, beverage, and packaging, labor, occupancy, and other operating expenses. Restaurant-level profit is used to measure the segment’s profitability as corporate-level expenses are excluded from such measure. The CODM uses restaurant-level profit for each segment in the annual budget to make decisions about the allocation of resources, with the monitoring of actual results to determine appropriate changes to such allocation. All segment revenue is earned in the United States, and all intersegment revenues have been eliminated. Intersegment revenues represent the sale, from CAVA Foods to CAVA, of dips and spreads used in our restaurants. Sales from external customers are derived principally from sales of food, beverage, and CPG. The Company does not rely on any major customers as sources of sales. As the CODM does not review asset information by segment, assets are reported only on a consolidated basis. Other includes the Company’s CPG sales from CAVA Foods.
81
The following table presents financial information about the Company’s reportable segments and includes reconciliations of reportable segment revenue to consolidated revenue and reportable segment restaurant-level profit to income (loss) before taxes for the fiscal years indicated:
| (in thousands) | 2024 | 2023 | 2022 | ||||||||||||||
| Reportable segment revenue | |||||||||||||||||
| CAVA | $ | $ | $ | ||||||||||||||
| Zoes Kitchen | |||||||||||||||||
| Total reportable segment revenue | |||||||||||||||||
| Reconciliation of reportable segment revenue to consolidated revenue: | |||||||||||||||||
| Other revenue | |||||||||||||||||
| Total consolidated revenue | |||||||||||||||||
| Significant segment expenses | |||||||||||||||||
| CAVA | |||||||||||||||||
| Food, beverage, and packaging | |||||||||||||||||
| Labor | |||||||||||||||||
| Occupancy | |||||||||||||||||
| Other operating expenses | |||||||||||||||||
| Total CAVA segment expenses | |||||||||||||||||
| Zoes Kitchen | |||||||||||||||||
| Food, beverage, and packaging | |||||||||||||||||
| Labor | |||||||||||||||||
| Occupancy | |||||||||||||||||
| Other operating expenses | |||||||||||||||||
| Total Zoes Kitchen segment expenses | |||||||||||||||||
| Reportable segment restaurant-level profit (loss) | |||||||||||||||||
| CAVA | |||||||||||||||||
| Zoes Kitchen | ( | ||||||||||||||||
| Total reportable segment restaurant-level profit | |||||||||||||||||
| Reconciliation of total reportable segment restaurant-level profit to income (loss) before income taxes: | |||||||||||||||||
| Other non-reportable segment profit | ( | ( | ( | ||||||||||||||
| General and administrative expenses | |||||||||||||||||
| Depreciation and amortization | |||||||||||||||||
| Restructuring and other costs | |||||||||||||||||
| Pre-opening costs | |||||||||||||||||
| Impairment and asset disposal costs | |||||||||||||||||
| Interest (income) expense, net | ( | ( | |||||||||||||||
| Other income, net | ( | ( | ( | ||||||||||||||
| Income (loss) before taxes | $ | $ | $ | ( | |||||||||||||
14. SUBSEQUENT EVENTS
The Company is in the process of launching a strategic investment portfolio, which will be funded with cash and cash equivalents, that is expected to be finalized in the first quarter of 2025. The Company expects to classify this portfolio as available for sale with changes in fair value being recorded as other comprehensive income.
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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended December 29, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework set forth in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our internal control over financial reporting includes policies and procedures that provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with GAAP. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 29, 2024.
Deloitte & Touche LLP, the independent registered public accounting firm that audited the consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on the effectiveness of our internal control over financial reporting as of December 29, 2024, which is included herein.
Item 9B. Other Information
During the twelve weeks ended December 29, 2024, the following directors and officers of the Company (as defined in Rule16a-1(f) of the Securities Exchange Act of 1934, as amended) adopted a Rule 10b5-1 trading arrangement
| Name and Title | Action | Date of Action | Scheduled Termination of Trading Period* | Security Covered | Maximum Number of Securities to be Sold Pursuant to the Rule 10b5-1 Trading Plan | |||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||||||||
__________________
* The Rule 10b5-1 trading arrangement may terminate earlier than the scheduled termination date if all transactions under the trading arrangement are completed.
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
Not applicable.
83
Part III
Item 10. Directors, Executive Officers, and Corporate Governance
The information required by this item is incorporated by reference from the definitive proxy statement for our 2025 annual meeting of stockholders, which will be filed no later than 120 days after December 29, 2024.
Item 11. Executive Compensation
The information required by this item is incorporated by reference from the definitive proxy statement for our 2025 annual meeting of stockholders, which will be filed no later than 120 days after December 29, 2024.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference from the definitive proxy statement for our 2025 annual meeting of stockholders, which will be filed no later than 120 days after December 29, 2024.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by this item is incorporated by reference from the definitive proxy statement for our 2025 annual meeting of stockholders, which will be filed no later than 120 days after December 29, 2024.
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated by reference from the definitive proxy statement for our 2025 annual meeting of stockholders, which will be filed no later than 120 days after December 29, 2024.
Part IV
Item 15. Exhibits
| Exhibit Number | Exhibit Description | Filed Herewith | ||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 4.1 | X | |||||||
| 10.1† | X | |||||||
10.2† | ||||||||
10.3† | ||||||||
10.4† | ||||||||
10.5† | ||||||||
10.6† | X | |||||||
| 10.7 | ||||||||
84
| 10.8 | ||||||||
| 10.9 | ||||||||
10.10 | ||||||||
10.11† | ||||||||
10.14† | ||||||||
10.15† | ||||||||
10.16† | ||||||||
10.18† | ||||||||
10.19† | ||||||||
| 19.1 | X | |||||||
| 21.1 | X | |||||||
| 23.1 | X | |||||||
| 31.1 | X | |||||||
| 31.2 | X | |||||||
| 32.1 * | X | |||||||
| 32.2 * | X | |||||||
| 97.1 | ||||||||
| 101.INS | XBRL Instance Document – the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document | X | ||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | X | ||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | ||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | X | ||||||
85
† Management contract of compensatory plan or arrangement. | ||||||||
* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act or the Exchange Act. | ||||||||
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by the Company in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
Item 16. Form 10-K Summary
None.
86
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
| CAVA GROUP, INC. | |||||
| By: | /s/ Tricia Tolivar | ||||
| Name: Tricia Tolivar | |||||
| Title: Chief Financial Officer (principal financial officer) | |||||
Date: February 25, 2025 | |||||
Pursuant to the requirements of the Securities Exchange Act of 1934 the report has been signed by the following persons on behalf of the registrant and in the capacities indicated on February 25, 2025.
| Signatures | Title | |||||||
| /s/ Brett Schulman | Chief Executive Officer (principal executive officer) | |||||||
Brett Schulman | ||||||||
| /s/ Tricia Tolivar | Chief Financial Officer (principal financial officer) | |||||||
Tricia Tolivar | ||||||||
| /s/ Adam Phillips | Chief Accounting Officer (principal accounting officer) | |||||||
Adam Phillips | ||||||||
/s/ Ronald Shaich | Chair of the Board of Directors | |||||||
| Ronald Shaich | ||||||||
/s/ Philippe Amouyal | Director | |||||||
| Philippe Amouyal | ||||||||
/s/ David Bosserman | Director | |||||||
David Bosserman | ||||||||
/s/ Benjamin Felt | Director | |||||||
Benjamin Felt | ||||||||
/s/ Karen Kochevar | Director | |||||||
Karen Kochevar | ||||||||
/s/ Lauri Shanahan | Director | |||||||
Lauri Shanahan | ||||||||
/s/ James White | Director | |||||||
James White | ||||||||
/s/ Theodoros Xenohristos | Director | |||||||
Theodoros Xenohristos | ||||||||
87
Exhibit 4.1
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
CAVA Group, Inc. had one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”): its common stock, par value $0.0001 per share (our “common stock”). References herein to “we,” “us,” “our” and the “Company” refer to CAVA Group, Inc., a Delaware corporation, and not to any of its subsidiaries.
The following is a description of the terms of our common stock and is only a summary, and is qualified in its entirety by, our amended and restated certificate of incorporation and amended and restated bylaws, each of which is incorporated by reference as an exhibit to the Annual Report on Form 10-K, of which this Exhibit is a part.
General
Our authorized capital stock consists of 2,500,000,000 shares of our common stock, $0.0001 par value per share; and 250,000,000 shares of preferred stock, par value $0.0001 per share, all of which shares of preferred stock are undesignated. Our board of directors may establish the rights and preferences of the preferred stock from time to time.
Common Stock
Voting Rights
Each holder of our common stock is entitled to one vote per share on all matters submitted to a vote of the stockholders generally.
Dividend Rights
Subject to the rights of the holders of any outstanding series of our preferred stock, the holders of our common stock are entitled to receive dividends as may be declared from time to time by our Board of Directors out of legally available funds.
Liquidation
In the event of our liquidation, dissolution, or winding up, after the payment of all of our debts and other liabilities and subject to the rights of the holders of any outstanding series of our preferred stock, holders of our common stock will be entitled to share ratably in the remaining assets legally available for distribution to stockholders.
Rights and Preferences
Holders of our common stock have no preemptive or subscription rights, and there are no redemption or sinking fund provisions applicable to our common stock.
Fully Paid and Non-Assessable
All outstanding shares of our common stock are fully paid and non-assessable.
The rights, powers, and privileges of holders of our common stock will be subject to the rights, powers, preferences, and privileges of the holders of shares of any series of our preferred stock we may authorize and issue in the future.
Preferred Stock
Our amended and restated certificate of incorporation authorizes our Board of Directors to establish one or more series of preferred stock (including convertible preferred stock). Unless required by law or by the New York Stock Exchange (“NYSE”) rules, the authorized shares of preferred stock will be available for issuance without
further action by our stockholders. Our Board of Directors has the discretion to determine, with respect to any series of preferred stock, the terms, rights, powers, and preferences (and the qualifications, limitations and restrictions thereof) of that series, including, without limitation:
•the designation of the series;
•the number of shares of the series, which our Board of Directors may, except where otherwise provided in the preferred stock designation, increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares of such series then outstanding);
•the amounts payable on shares of the series in the event of any dissolution, liquidation, or winding up of the affairs of the Company or upon any other event; and
•the voting rights, if any, of the holders of the series.
We may issue a series of preferred stock that could, depending on the terms of the series, impede or discourage an acquisition attempt or other transaction that some, or a majority, of the holders of our common stock might believe to be in their best interests or in which the holders of our common stock might receive a premium for their common stock over the market price of the common stock. In addition, the issuance of preferred stock may adversely affect the holders of our common stock by restricting the payment of dividends on the common stock, diluting the voting power of the common stock or subordinating the rights of the common stock to any payment upon a liquidation, dissolution or winding up of the Company or other event. The issuance of preferred stock could have the effect of delaying, deferring, impeding or preventing a change of control, or other corporate action.
Dividends
The DGCL permits a corporation to declare and pay dividends out of “surplus” or, if there is no “surplus,” out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. “Surplus” is defined as the excess of the net assets of the corporation over the amount determined to be the capital of the corporation by our Board of Directors. The capital of the corporation is typically calculated to be (and cannot be less than) the aggregate par value of all issued shares of capital stock having a par value. Net assets are equal to the fair value of the total assets of the corporation minus its total liabilities. The DGCL also provides that dividends may not be paid out of net profits if, after the payment of the dividend, the capital of the corporation is less than the capital represented by the outstanding stock of all classes having a preference upon the distribution of assets.
Declaration and payment of any dividend will be subject to the discretion of our Board of Directors. The time and amount of dividends will be dependent upon our financial condition, operations, cash requirements and availability, debt repayment obligations, capital expenditure needs and restrictions in our debt instruments, industry trends, the provisions of Delaware law affecting the payment of dividends to stockholders and any other factors our Board of Directors may consider relevant.
Anti-Takeover Effects of Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws and Certain Provisions of Delaware Law
Our amended and restated certificate of incorporation, amended and restated bylaws and the DGCL contain provisions that are intended to enhance the likelihood of continuity and stability in the composition of our Board of Directors. These provisions are intended to avoid costly takeover battles, reduce our vulnerability to a hostile change of control and enhance the ability of our Board of Directors to maximize stockholder value in connection with any unsolicited offer to acquire us. However, these provisions may have an anti-takeover effect and may delay, deter or prevent a merger or acquisition of the Company by means of a tender offer, a proxy contest or other takeover attempt that a stockholder might consider is in its best interest, including those attempts that might result in a premium over the prevailing market price for the shares of common stock held by stockholders.
Authorized but Unissued Capital Stock
Delaware law does not require stockholder approval for any issuance of authorized shares. However, the listing requirements of the NYSE, which would apply if and so long as our common stock remains listed on the NYSE, require stockholder approval of certain issuances equal to or exceeding 20% of the then-outstanding voting power or
then-outstanding number of shares of common stock. These additional shares may be used for a variety of corporate purposes, including future public offerings to raise additional capital or to facilitate acquisitions.
Our Board of Directors may issue shares of preferred stock on terms calculated to discourage, delay or prevent a change of control of the Company or the removal of our management. Moreover, our authorized but unissued shares of preferred stock will be available for future issuances without stockholder approval and could be utilized for a variety of corporate purposes, including future offerings to raise additional capital, acquisitions or employee benefit plans.
One of the effects of the existence of unissued and unreserved common stock or preferred stock may be to enable our Board of Directors to issue shares to persons friendly to current management, which issuance could render more difficult or discourage an attempt to obtain control of the Company by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of our management and possibly deprive our stockholders of opportunities to sell their shares of common stock at prices higher than prevailing market prices.
Classified Board of Directors
Our amended and restated certificate of incorporation provides that our Board of Directors will be divided into three classes of directors, with the classes to be as nearly equal in number as possible, and with the directors serving staggered three-year terms. As a result, approximately one-third of our Board of Directors will be elected each year. The classification of directors has the effect of making it more difficult for stockholders to change the composition of our Board of Directors. Our amended and restated certificate of incorporation and amended and restated bylaws provide that, subject to any rights of holders of preferred stock to elect additional directors under specified circumstances, the total number of directors constituting the Board of Directors will be fixed from time to time exclusively pursuant to a resolution adopted by our Board of Directors.
Business Combinations
We are subject to Section 203 of the DGCL, which restricts persons deemed to be “interested stockholders” from engaging in a “business combination” with a publicly held Delaware corporation for three years following the time these persons become interested stockholders unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies.
Generally, a “business combination” includes a merger, asset or stock sale or other transaction resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an “interested stockholder” is a person who, together with that person’s affiliates and associates, owns, or within the previous three years owned, 15% or more of our outstanding voting stock. For purposes of this section only, “voting stock” has the meaning given to it in Section 203 of the DGCL.
This provision will make it more difficult for a person who would be an “interested stockholder” to effect various business combinations with the Company for a three-year period after the time at which they became an interested stockholder subject to the restrictions on business combinations. This provision may encourage companies interested in acquiring the Company to negotiate in advance with our Board of Directors because the restrictions on business combinations would not apply to an interested stockholder if our Board of Directors, prior to the time a person becomes an interested stockholder, approves either the business combination or the transaction which results in the stockholder becoming an interested stockholder. By discouraging persons from becoming interested stockholders, these provisions may have the effect of preventing changes in our Board of Directors. In addition, these provisions may make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
Removal of Directors; Vacancies
Under the DGCL, unless the certificate of incorporation otherwise provides, directors serving on a classified board may be removed by the stockholders only for cause. Our amended and restated certificate of incorporation provides that directors (other than the directors elected by the holders of one or more series of our preferred stock,
voting separately or together with one or more other series) may only be removed for cause and only by the affirmative vote of holders of at least 662/3% in voting power of all the then-outstanding shares of stock entitled to vote thereon, voting together as a single class. Our amended and restated certificate of incorporation also provides that, subject to the rights granted to one or more series of preferred stock then outstanding, any newly created directorship on our Board of Directors that results from an increase in the number of directors and any vacancy occurring on our Board of Directors may only be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director (and not by the stockholders).
No Cumulative Voting
Under Delaware law, the right to vote cumulatively does not exist unless the certificate of incorporation specifically authorizes cumulative voting. Our amended and restated certificate of incorporation does not authorize cumulative voting. Therefore, stockholders holding a majority in voting power of the shares of our stock entitled to vote generally in the election of directors will be able to elect all of our directors who are elected by a vote of our stockholders generally.
Plurality Voting
Our amended and restated bylaws provides that directors are elected by a plurality voting standard. Under a plurality voting standard, the nominees for election as directors receiving the greatest number of votes for their election at any meeting for the election of directors, up to the number of directors to be elected, will be elected.
Special Stockholder Meetings
Our amended and restated certificate of incorporation provides that special meetings of our stockholders may be called at any time only by or at the direction of our Board of Directors or the Chair of our Board of Directors. Our amended and restated bylaws prohibit the conduct of any business at a special meeting other than as specified in the notice for such meeting. These provisions may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management of the Company.
Requirements for Advance Notification of Director Nominations and Stockholder Proposals
Our amended and restated bylaws provide for advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of our Board of Directors or a committee of our Board of Directors. In order for any matter to be “properly brought” before a meeting, a stockholder will have to comply with advance notice requirements and provide us with certain information. Generally, to be timely, a stockholder’s notice must be received at our principal executive offices not later than 90 days nor earlier than 120 days prior to the first anniversary date of the immediately preceding annual meeting of stockholders. Our amended and restated bylaws also specify requirements as to the form and content of a stockholder’s notice. Our amended and restated bylaws allow the chair of the meeting at a meeting of the stockholders to adopt rules and regulations for the conduct of meetings which may have the effect of precluding the conduct of certain business at a meeting if the rules and regulations are not followed. These provisions may defer, delay or discourage a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to influence or obtain control of the Company.
Stockholder Action by Written Consent
Pursuant to Section 228 of the DGCL, unless the certificate of incorporation otherwise provides, any action required to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote if a consent or consents, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of our stock entitled to vote thereon were present and voted shall be delivered to the corporation. Our amended and restated certificate of incorporation prohibits stockholder action by written consent in lieu of a meeting, except that any action required or permitted to be taken by the holders of our preferred stock, voting separately as a series or separately as a class with one or more other such series, may be taken without a meeting, without prior notice and without a vote, to the extent expressly so provided by the
applicable certificate of designation relating to any such series of preferred stock. In addition, only our Board of Directors can (i) schedule the date of the annual meeting and (ii) provide written notice of the annual meeting.
Supermajority Provisions
Our amended and restated certificate of incorporation and amended and restated bylaws provide that our Board of Directors is expressly authorized to make, repeal, alter, amend, and rescind, in whole or in part, our amended and restated bylaws without a stockholder vote in any matter not inconsistent with the laws of the State of Delaware or our amended and restated certificate of incorporation. Any alteration, amendment, repeal or rescission of our amended and restated bylaws by our stockholders will require the affirmative vote of the holders of at least 662⁄3% in voting power of all the then-outstanding shares of stock entitled to vote thereon, voting together as a single class.
The DGCL provides generally that the affirmative vote of holders of a majority in voting power of the outstanding shares entitled to vote thereon, voting together as a single class, is required to amend a corporation’s certificate of incorporation, unless the certificate of incorporation requires a greater percentage.
Our amended and restated certificate of incorporation provides that, in addition to any other vote required by law or our amended and restated certificate of incorporation, the amendment, alteration, repeal, or rescission of the following provisions in our amended and restated certificate of incorporation also requires the affirmative vote of the holders of at least 662⁄3% in the voting power of all outstanding shares of stock entitled to vote thereon, voting together as a single class:
•the provision requiring a 662/3% supermajority vote for stockholders to amend our amended and restated bylaws;
•the provisions providing for a classified board of directors (the election and term of our directors);
•the provisions regarding the total number of directors;
•the provisions regarding removal of directors;
•the provisions regarding competition and corporate opportunities;
•the provisions regarding stockholder action by written consent;
•the provisions regarding calling special meetings of stockholders;
•the provisions regarding filling vacancies on our Board of Directors and newly created directorships;
•the provisions eliminating monetary damages for breaches of fiduciary duty by a director or officer; and
•the amendment provision requiring that the above provisions be amended only with a 662/3% supermajority vote.
The combination of the classification of our Board of Directors, the lack of cumulative voting and the supermajority voting requirements will make it more difficult for our existing stockholders to replace our Board of Directors as well as for another party to obtain control of us by replacing our Board of Directors. Because our Board of Directors has the power to retain and discharge our officers, these provisions could also make it more difficult for existing stockholders or another party to effect a change in management.
These provisions may have the effect of deterring hostile takeovers, delaying or preventing changes in control of our management or the Company, such as a merger, reorganization or tender offer. These provisions are intended to enhance the likelihood of continued stability in the composition of our Board of Directors and its policies and to discourage certain types of transactions that may involve an actual or threatened acquisition of the Company. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal. The provisions are also intended to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and, as a consequence, they also may inhibit fluctuations in the market price of our shares that could result from actual or rumored takeover attempts. Such provisions may also have the effect of preventing changes in management.
Dissenters’ Rights of Appraisal and Payment
Under the DGCL, with certain exceptions, our stockholders will have appraisal rights in connection with certain mergers or consolidations of us or certain transactions in which we convert to another entity. Pursuant to the DGCL, stockholders who properly request and perfect appraisal rights in connection with such merger, consolidation or conversion will have the right to receive payment in cash of the fair value of their shares as determined by the Delaware Court of Chancery.
Stockholders’ Derivative Actions
Under the DGCL, any of our stockholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that the stockholder bringing the action is a holder of our shares at the time of the act or transaction to which the action relates or such stockholder’s stock thereafter devolved by operation of law.
Exclusive Forum
Our amended and restated certificate of incorporation provides, subject to limited exceptions, that unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or if such court does not have subject matter jurisdiction another state or the federal court (as appropriate) located within the State of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for any (1) derivative action or proceeding brought on behalf of the Company, (2) action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer or other employee or stockholder of the Company to the Company or our stockholders, (3) action asserting a claim against the Company or any current or former director or officer of the Company arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation or our amended and restated bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, or (4) action asserting a claim governed by the internal affairs doctrine of the State of Delaware.
Our amended and restated certificate of incorporation further provides that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the federal securities laws of the United States, including any claims under the Securities Act of 1933, as amended (the “Securities Act”) and the Exchange Act. However, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce a duty or liability created by the Securities Act or the rules and regulations thereunder and accordingly, we cannot be certain that a court would enforce such provision. It is possible that a court could find our forum selection provisions to be inapplicable or unenforceable and, accordingly, we could be required to litigate claims in multiple jurisdictions, incur additional costs or otherwise not receive the benefits that we expect our forum selection provisions to provide.
Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Company shall be deemed to have notice of and consented to the forum provisions in our amended and restated certificate of incorporation. Our exclusive forum provision shall not relieve the Company of its duties to comply with the federal securities laws and the rules and regulations thereunder, and our stockholders will not be deemed to have waived our compliance with these laws, rules and regulations.
Limitations on Liability and Indemnification of Officers and Directors
The DGCL authorizes corporations to limit or eliminate the personal liability of directors and certain officers to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties, subject to certain exceptions. Our amended and restated certificate of incorporation includes a provision that eliminates the personal liability of directors and officers for monetary damages for any breach of fiduciary duty as a director or officer, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL. The effect of these provisions will be to eliminate the rights of us and our stockholders, through stockholders’ derivative suits on our behalf, to recover monetary damages from a director for breach of fiduciary duty as a director, including breaches resulting from grossly negligent behavior. This provision does not limit or eliminate the liability of any officer in any action by or in the right of the Company, including any derivative claims. Further, the exculpation does not apply to any director or officer if the director or officer has breached the duty of loyalty to the corporation and its stockholders, acted in bad faith, knowingly or intentionally violated the law, or derived an
improper benefit from his or her actions as a director or officer. In addition, exculpation does not apply to any director in connection with the authorization of illegal dividends, redemptions or stock repurchases.
Our amended and restated bylaws provide that we must generally indemnify, and advance expenses to, our directors and officers to the fullest extent authorized by the DGCL. We also are expressly authorized to carry directors’ and officers’ liability insurance providing indemnification for our directors, officers and certain employees for some liabilities. We have entered into indemnification agreements with our directors, which agreements require us to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. We believe that these indemnification and advancement provisions, and insurance will be useful to attract and retain qualified directors and officers.
The limitation of liability, indemnification and advancement provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against directors or officers for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
Exhibit 10.1
CAVA GROUP, INC.
AMENDED AND RESTATED
2023 EQUITY INCENTIVE PLAN
2023 EQUITY INCENTIVE PLAN
1. Purpose. The purpose of the Amended and Restated CAVA Group, Inc. 2023 Equity Incentive Plan is to provide a means through which the Company and the other members of the Company Group may attract and retain key personnel and to provide a means whereby directors, officers, employees, consultants and advisors of the Company and the other members of the Company Group can acquire and maintain an equity interest in the Company, or be paid incentive compensation measured by reference to the value of Common Stock, thereby strengthening their commitment to the welfare of the Company Group and aligning their interests with those of the Company’s stockholders.
2. Definitions. The following definitions shall be applicable throughout the Plan.
(a) “Adjustment Event” has the meaning given to such term in Section 10(a) of the Plan.
(b) “Affiliate” means any Person that directly or indirectly controls, is controlled by or is under common control with the Company. The term “control” (including, with correlative meaning, the terms “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting or other securities, by contract or otherwise.
(c) “Applicable Law” means each applicable law, rule, regulation and requirement, including, but not limited to, each applicable U.S. federal, state or local law, any rule or regulation of the applicable securities exchange or inter-dealer quotation system on which the securities of the Company may be listed or quoted and each applicable law, rule or regulation of any other country or jurisdiction where Awards are granted under the Plan or Participants reside or provide services, as each such law, rule and regulation shall be in effect from time to time.
(d) “Award” means, individually or collectively, any Incentive Stock Option, Nonqualified Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit and Other Equity-Based Award granted under the Plan.
(e) “Award Agreement” means the document or documents by which each Award is evidenced, which may be in written or electronic form.
(f) “Board” means the Board of Directors of the Company.
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(g) “Cause” means, as to any Participant, unless the applicable Award Agreement states otherwise, (i) “Cause,” as defined in any employment, severance, consulting or other similar agreement between the Participant and the Service Recipient in effect at the time of such Termination; or (ii) in the absence of any such employment, severance, consulting or other similar agreement (or the absence of any definition of “Cause” contained therein), the Participant’s (A) willful neglect in the performance of the Participant’s duties for the Service Recipient or willful or repeated failure or refusal to perform such duties; (B) engagement in conduct in connection with the Participant’s employment or service with the Service Recipient, which results in, or could reasonably be expected to result in, material harm to the business or reputation of the Service Recipient or any other member of the Company Group; (C) conviction of, or plea of guilty or no contest to, (I) any felony (or similar crime in any non-U.S. jurisdiction for Participant’s outside the United States) or (II) any other crime that results in, or could reasonably be expected to result in, material harm to the business or reputation of the Service Recipient or any other member of the Company Group; (D) material violation of the written policies of the Service Recipient, including, but not limited to, those relating to sexual harassment, or those set forth in the manuals or statements of policy of the Service Recipient; (E) fraud, misappropriation or embezzlement related to the misuse of funds or property belonging to the Service Recipient or any other member of the Company Group; (F) act of personal dishonesty that involves personal profit in connection with the Participant’s employment or service to the Service Recipient; or (G) engagement in any Detrimental Activity; provided, in any case, that a Participant’s resignation after an event that would be grounds for a Termination for Cause will be treated as a Termination for Cause hereunder.
(h) “Change in Control” means:
(i) the acquisition (whether by purchase, merger, consolidation, combination or other similar transaction) by any Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50% (on a fully diluted basis) of either (A) the Outstanding Common Stock; or (B) the Outstanding Company Voting Securities; provided, however, that for purposes of the Plan, the following acquisitions shall not constitute a Change in Control: (I) any acquisition by the Company or any Affiliate; (II) any acquisition by any employee benefit plan sponsored or maintained by the Company or any Affiliate; or (III) in respect of an Award held by a particular Participant, any acquisition by the Participant or any group of Persons including the Participant (or any entity controlled by the Participant or any group of Persons including the Participant);
(ii) during any period of 12 months, individuals who, at the beginning of such period, constitute the Board (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the members of the Board, provided that any person
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becoming a director subsequent to the Effective Date, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-12 of Regulation 14A promulgated under the Exchange Act, with respect to directors or as a result of any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director;
(iii) the consummation of a reorganization, recapitalization, merger, consolidation, or similar corporate transaction involving the Company that requires the approval of the Company’s stockholders (a “Business Combination”), unless immediately following such Business Combination: more than 50% of the total voting power of (A) the entity resulting from such Business Combination (the “Surviving Company”), or (B) if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership of sufficient voting securities eligible to elect a majority of the board of directors (or the analogous governing body) of the Surviving Company, is represented by the Outstanding Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which the Outstanding Company Voting Securities were converted pursuant to such Business Combination); or
(iv) the sale, transfer or other disposition of all or substantially all of the assets of the Company Group (taken as a whole) to any Person that is not an Affiliate of the Company.
(i) “Code” means the Internal Revenue Code of 1986, as amended, and any successor thereto. Reference in the Plan to any section of the Code shall be deemed to include any regulations or other interpretative guidance under such section, and any amendments or successor provisions to such section, regulations or guidance.
(j) “Committee” means the Compensation Committee of the Board or any properly delegated subcommittee thereof or, if no such Compensation Committee or subcommittee thereof exists, the Board.
(k) “Common Stock” means the common stock of the Company, par value $0.0001 per share (and any stock or other securities into which such Common Stock may be converted or into which it may be exchanged).
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(l) “Company” means CAVA Group, Inc., a Delaware corporation, and any successor thereto.
(m) “Company Group” means, collectively, the Company and its Subsidiaries.
(n) “Date of Grant” means the date on which the granting of an Award is authorized, or such other date as may be specified in such authorization.
(o) “Designated Foreign Subsidiaries” means all members of the Company Group that are organized under the laws of any jurisdiction other than the United States of America.
(p) “Detrimental Activity” means any of the following: (i) unauthorized disclosure or use of any confidential or proprietary information of any member of the Company Group; (ii) any activity that would be grounds to terminate the Participant’s employment or service with the Service Recipient for Cause; (iii) a breach by the Participant of any restrictive covenant by which such Participant is bound, including, without limitation, any covenant not to compete or not to solicit, in any agreement with any member of the Company Group; or (iv) the Participant’s fraud or conduct contributing to any financial restatements or irregularities, in each case, as determined by the Committee in its sole discretion.
(q) “Disability” means, as to any Participant, unless the applicable Award Agreement states otherwise, (i) “Disability,” as defined in any employment, severance, consulting or other similar agreement between the Participant and the Service Recipient in effect at the time of Termination; or (ii) in the absence of any such employment, severance, consulting or other similar agreement (or the absence of any definition of “Disability” contained therein), a condition entitling the Participant to receive benefits under a long-term disability plan of the Service Recipient or other member of the Company Group in which such Participant is eligible to participate, or, in the absence of such a plan, the complete and permanent inability of the Participant by reason of illness or accident to perform the duties of the position at which the Participant was employed or served when such disability commenced. Any determination of whether Disability exists in the absence of a long-term disability plan shall be made by the Company (or its designee) in its sole and absolute discretion.
(r) “Effective Date” means June 20, 2024.
(s) “Eligible Person” means: any (i) individual employed by any member of the Company Group; provided, however, that no such U.S. employee covered by a collective bargaining agreement shall be an Eligible Person unless and to the extent that such eligibility is set forth in such collective bargaining agreement or in an agreement or instrument relating thereto; (ii) director of any member of the Company Group; or (iii) consultant or advisor to any member of the Company Group who may be offered securities registrable pursuant to a
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registration statement on Form S-8 under the Securities Act (or, for consultants or advisors outside of the U.S. can be offered securities consistent with Applicable Law).
(t) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and any successor thereto. Reference in the Plan to any section of (or rule promulgated under) the Exchange Act shall be deemed to include any rules, regulations or other interpretative guidance under such section or rule, and any amendments or successor provisions to such section, rules, regulations or guidance.
(u) “Exercise Price” has the meaning given to such term in Section 7(b) of the Plan.
(v) “Fair Market Value” means, as of any date, the fair market value of a share of Common Stock, as reasonably determined by the Company and consistently applied for purposes of the Plan, which may include, without limitation, the closing sales price on the trading day immediately prior to or on such date, or a trailing average of previous closing prices prior to such date.
(w) “GAAP” has the meaning given to such term in Section 7(d) of the Plan.
(x) “Grant Date Fair Market Value” means, as of a Date of Grant, (i) if the Common Stock is listed on a national securities exchange, the closing sales price of the Common Stock reported on the primary exchange on which the Common Stock is listed and traded on such date, or, if there are no such sales on that date, then on the last preceding date on which such sales were reported; (ii) if the Common Stock is not listed on any national securities exchange but is quoted in an inter-dealer quotation system on a last-sale basis, the average between the closing bid price and ask price reported on such date, or, if there is no such sale on that date, then on the last preceding date on which a sale was reported; or (iii) if the Common Stock is not listed on a national securities exchange or quoted in an inter-dealer quotation system on a last-sale basis, the amount determined by the Committee in good faith to be the fair market value of the Common Stock; provided, however, as to any Awards granted on or with a Date of Grant of the date of the pricing of the Company’s initial public offering, “Grant Date Fair Market Value” shall be equal to the per share price at which the Common Stock is offered to the public in connection with such initial public offering.
(y) “Incentive Stock Option” means an Option which is designated by the Committee as an incentive stock option as described in Section 422 of the Code and otherwise meets the requirements set forth in the Plan.
(z) “Indemnifiable Person” has the meaning given to such term in Section 4(e) of the Plan.
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(aa) “Non-Employee Director” means a member of the Board who is not an employee of any member of the Company Group.
(bb) “Nonqualified Stock Option” means an Option which is not designated by the Committee as an Incentive Stock Option.
(cc) “Option” means an Award granted under Section 7 of the Plan.
(dd) “Option Period” has the meaning given to such term in Section 7(c)(ii) of the Plan.
(ee) “Other Equity-Based Award” means an Award that is not an Option, Restricted Stock or Restricted Stock Unit, that is granted under Section 9 of the Plan and is (i) payable by delivery of Common Stock and/or (ii) measured by reference to the value of Common Stock.
(ff) “Outstanding Common Stock” means the then-outstanding shares of Common Stock, taking into account as outstanding for this purpose such Common Stock issuable upon the exercise of options or warrants, the conversion of convertible stock or debt, the exercise of any similar right to acquire such Common Stock, and the exercise or settlement of then-outstanding Awards (or similar awards under any prior incentive plans maintained by the Company).
(gg) “Outstanding Company Voting Securities” means the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors.
(hh) “Participant” means an Eligible Person who has been selected by the Committee to participate in the Plan and granted an Award pursuant to the Plan.
(ii) “Performance Conditions” means specific levels of performance of the Company (and/or one or more members of the Company Group, divisions or operational and/or business units, product lines, brands, business segments, administrative departments, or any combination of the foregoing), which may be determined in accordance with GAAP or on a non-GAAP basis, including, without limitation, the following measures: (i) net earnings, net income (before or after taxes), or consolidated net income; (ii) basic or diluted earnings per share (before or after taxes); (iii) net revenue or net revenue growth; (iv) gross revenue or gross revenue growth, gross profit or gross profit growth; (v) net operating profit (before or after taxes); (vi) return measures (including, but not limited to, return on investment, assets, capital, employed capital, invested capital, equity, or sales); (vii) cash flow measures (including, but not limited to, operating cash flow, free cash flow, or cash flow return on capital), which may be but are not required to be measured on a per share basis; (viii) actual or adjusted earnings before or after interest, taxes, depreciation, and/or amortization (including EBIT and EBITDA); (ix) gross or net operating
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margins; (x) productivity ratios; (xi) share price (including, but not limited to, growth measures and total stockholder return); (xii) expense targets or cost reduction goals, general and administrative expense savings; (xiii) operating efficiency; (xiv) objective measures of customer/client satisfaction; (xv) working capital targets; (xvi) measures of economic value added or other ‘value creation’ metrics; (xvii) enterprise value; (xviii) sales; (xix) stockholder return; (xx) customer/client retention; (xxi) competitive market metrics; (xxii) employee retention; (xxiii) objective measures of personal targets, goals, or completion of projects (including, but not limited to, succession and hiring projects, completion of specific acquisitions, dispositions, reorganizations, or other corporate transactions or capital-raising transactions, expansions of specific business operations, and meeting divisional or project budgets); (xxiv) comparisons of continuing operations to other operations; (xxv) market share; (xxvi) cost of capital, debt leverage, year-end cash position or book value; (xxvii) strategic objectives; (xxviii) gross or net authorizations; (xxix) backlog; or (xxx) any combination of the foregoing. Any one or more of the aforementioned performance criteria may be stated as a percentage of another performance criteria, or used on an absolute or relative basis to measure the performance of one or more members of the Company Group as a whole or any divisions or operational and/or business units, product lines, brands, business segments, or administrative departments of the Company and/or one or more members of the Company Group or any combination thereof, as the Committee may deem appropriate, or any of the above performance criteria may be compared to the performance of a selected group of comparison companies, or a published or special index that the Committee, in its sole discretion, deems appropriate, or as compared to various stock market indices.
(jj) “Permitted Transferee” has the meaning given to such term in Section 12(b)(ii) of the Plan.
(kk) “Person” means any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act).
(ll) “Plan” means this CAVA Group, Inc. Amended and Restated 2023 Equity Incentive Plan, as it may be amended and/or restated from time to time.
(mm) “Plan Share Reserve” has the meaning given to such term in Section 6(a) of the Plan.
(nn) “Qualifying Director” means a Person who is, with respect to actions intended to obtain an exemption from Section 16(b) of the Exchange Act pursuant to Rule 16b-3 under the Exchange Act, a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act.
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(oo) “Restricted Period” means the period of time determined by the Committee during which an Award is subject to restrictions, including vesting conditions.
(pp) “Restricted Stock” means Common Stock, subject to certain specified restrictions (which may include, without limitation, a requirement that the Participant remain continuously employed or provide continuous services for a specified period of time), granted under Section 8 of the Plan.
(qq) “Restricted Stock Unit” means an unfunded and unsecured promise to deliver shares of Common Stock, cash, other securities or other property, subject to certain restrictions (which may include, without limitation, a requirement that the Participant remain continuously employed or provide continuous services for a specified period of time), granted under Section 8 of the Plan.
(rr) “SAR Base Price” means, as to any Stock Appreciation Right, the price per share of Common Stock designated as the base value above which appreciation in value is measured.
(ss) “Securities Act” means the Securities Act of 1933, as amended, and any successor thereto. Reference in the Plan to any section of (or rule promulgated under) the Securities Act shall be deemed to include any rules, regulations or other interpretative guidance under such section or rule, and any amendments or successor provisions to such section, rules, regulations or guidance.
(tt) “Service Recipient” means, with respect to a Participant holding a given Award, the member of the Company Group by which the original recipient of such Award is, or following a Termination was most recently, principally employed or to which such original recipient provides, or following a Termination was most recently providing, services, as applicable.
(uu) “Stock Appreciation Right” or “SAR” means an Other Equity-Based Award designated in an applicable Award Agreement as a stock appreciation right.
(vv) “Sub-Plans” means any sub-plan to the Plan that has been adopted by the Board or the Committee for the purpose of permitting or facilitating the offering of Awards to employees of certain Designated Foreign Subsidiaries or otherwise outside the jurisdiction of the United States of America, with each such Sub-Plan designed to comply with Applicable Law in such foreign jurisdictions. Although any Sub-Plan may be designated a separate and independent plan from the Plan in order to comply with Applicable Law, the Plan Share Reserve and the other limits specified in Section 6(a) of the Plan shall apply in the aggregate to the Plan and any Sub-Plan adopted hereunder.
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(ww) “Subsidiary” means, with respect to any specified Person:
(i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of such entity’s voting securities (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders’ agreement that effectively transfers voting power) is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
(ii) any partnership (or any comparable foreign entity) (A) the sole general partner (or functional equivalent thereof) or the managing general partner of which is such Person or Subsidiary of such Person or (B) the only general partners (or functional equivalents thereof) of which are that Person or one or more Subsidiaries of that Person (or any combination thereof).
(xx) “Substitute Awards” has the meaning given to such term in Section 6(e) of the Plan.
(yy) “Termination” means the termination of a Participant’s employment or service, as applicable, with the Service Recipient for any reason (including death or Disability).
3. Effective Date; Duration. The Plan shall be effective as of the Effective Date. The Plan will continue in effect until terminated under Section 11; provided, however, that such termination shall not affect Awards then outstanding, and the terms and conditions of the Plan shall continue to apply to such Awards. Notwithstanding the foregoing (a) no Incentive Stock Options may be granted after tenth (10th) anniversary of the Effective Date (or the date of stockholder approval of the Plan, if earlier), and (ii) Section 6(a) relating to automatic increase in the Plan Share Reserve will no longer apply following the tenth (10th) anniversary of the Effective Date.
4. Administration.
(a) General. The Committee shall administer the Plan. To the extent required to comply with the provisions of Rule 16b-3 promulgated under the Exchange Act (if the Board is not acting as the Committee under the Plan) it is intended that each member of the Committee shall, at the time such member takes any action with respect to an Award under the Plan that is intended to qualify for the exemptions provided by Rule 16b-3 promulgated under the Exchange Act be a Qualifying Director. However, the fact that a Committee member shall fail to qualify as a Qualifying Director shall not invalidate any Award granted by the Committee that is otherwise validly granted under the Plan.
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(b) Committee Authority. Subject to the provisions of the Plan and Applicable Law, the Committee shall have the sole and plenary authority, in addition to other express powers and authorizations conferred on the Committee by the Plan, to (i) designate Participants; (ii) determine the type or types of Awards to be granted to a Participant; (iii) determine the number of shares of Common Stock to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent, and under what circumstances Awards may be settled in, or exercised for, cash, shares of Common Stock, other securities, other Awards or other property, or canceled, forfeited, or suspended and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what circumstances the delivery of cash, shares of Common Stock, other securities, other Awards, or other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the Participant or of the Committee; (vii) interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the Plan and any instrument or agreement relating to, or Award granted under, the Plan; (viii) establish, amend, suspend, or waive any rules and regulations and appoint such agents as the Committee shall deem appropriate for the proper administration of the Plan; (ix) adopt Sub-Plans; and (x) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan.
(c) Delegation. Except to the extent prohibited by Applicable Law, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any Person or Persons selected by it. Any such allocation or delegation may be revoked by the Committee at any time. Without limiting the generality of the foregoing, the Committee may delegate to one or more officers of any member of the Company Group, the authority to act on behalf of the Committee with respect to any matter, right, obligation, or election which is the responsibility of, or which is allocated to, the Committee herein, and which may be so delegated in accordance with Applicable Law, except with respect to grants of Awards to Persons (i) who are Non-Employee Directors, or (ii) who are subject to Section 16 of the Exchange Act.
(d) Finality of Decisions. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan, any Award or any Award Agreement shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all Persons, including, without limitation, any member of the Company Group, any Participant, any holder or beneficiary of any Award, and any stockholder of the Company.
(e) Indemnification. No member of the Board or the Committee or any employee or agent of any member of the Company Group (each such Person, an “Indemnifiable Person”)
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shall be liable for any action taken or omitted to be taken or any determination made with respect to the Plan or any Award hereunder (unless constituting fraud or a willful criminal act or omission). Each Indemnifiable Person shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense (including attorneys’ fees) that may be imposed upon or incurred by such Indemnifiable Person in connection with or resulting from any action, suit or proceeding to which such Indemnifiable Person may be a party or in which such Indemnifiable Person may be involved by reason of any action taken or omitted to be taken or determination made with respect to the Plan or any Award hereunder and against and from any and all amounts paid by such Indemnifiable Person with the Company’s approval, in settlement thereof, or paid by such Indemnifiable Person in satisfaction of any judgment in any such action, suit or proceeding against such Indemnifiable Person, and the Company shall advance to such Indemnifiable Person any such expenses promptly upon written request (which request shall include an undertaking by the Indemnifiable Person to repay the amount of such advance if it shall ultimately be determined, as provided below, that the Indemnifiable Person is not entitled to be indemnified); provided, that the Company shall have the right, at its own expense, to assume and defend any such action, suit or proceeding and once the Company gives notice of its intent to assume the defense, the Company shall have sole control over such defense with counsel of the Company’s choice. The foregoing right of indemnification shall not be available to an Indemnifiable Person to the extent that a final judgment or other final adjudication (in either case not subject to further appeal) binding upon such Indemnifiable Person determines that the acts, omissions or determinations of such Indemnifiable Person giving rise to the indemnification claim resulted from such Indemnifiable Person’s fraud or willful criminal act or omission or that such right of indemnification is otherwise prohibited by Applicable Law or by the organizational documents of any member of the Company Group. The foregoing right of indemnification shall not be exclusive of or otherwise supersede any other rights of indemnification to which such Indemnifiable Persons may be entitled under (i) the organizational documents of any member of the Company Group, (ii) pursuant to Applicable Law, (iii) an individual indemnification agreement or contract or otherwise, or (iv) any other power that the Company may have to indemnify such Indemnifiable Persons or hold such Indemnifiable Persons harmless.
(f) Board Authority. Notwithstanding anything to the contrary contained in the Plan, the Board may, in its sole discretion, at any time and from time to time, grant Awards and administer the Plan with respect to such Awards. Any such actions by the Board shall be subject to the applicable rules of the securities exchange or inter-dealer quotation system on which the Common Stock is listed or quoted. In any such case, the Board shall have all the authority granted to the Committee under the Plan.
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5. Grants of Awards; Eligibility. The Committee may, from time to time, grant Awards to one or more Eligible Persons. Participation in the Plan shall be limited to Eligible Persons.
6. Shares Subject to the Plan; Limitations.
(a) Share Reserve. Subject to Section 10 of the Plan, 9,398,771 shares of Common Stock (the “Plan Share Reserve”) shall be available for Awards under the Plan. Each Award granted under the Plan will reduce the Plan Share Reserve by the number of shares of Common Stock underlying the Award. Notwithstanding the foregoing, the Plan Share Reserve shall be automatically increased on the first day of each fiscal year following the fiscal year in which the Effective Date falls by a number of shares of Common Stock equal to the lesser of (i) 1% of the Outstanding Common Stock on the last day of the immediately preceding fiscal year, and (ii) a lower number of shares of Common Stock as may be determined by the Board.
(b) Additional Limits. Subject to Section 10 of the Plan, (i) no more than the number of shares of Common Stock equal to the Plan Share Reserve as of the Effective Date may be issued in the aggregate pursuant to the exercise of Incentive Stock Options granted under the Plan; and (ii) during a single fiscal year, the number of Awards eligible to be made to any Non-Employee Director, taken together with any cash fees paid to such Non-Employee Director, in each case, in respect of such Non-Employee Director’s service as a member of the Board during such during such fiscal year, shall not exceed a total value of $1,000,000 (calculating the value of any such Awards based on the grant date fair value of such Awards for financial reporting purposes).
(c) Share Counting. Other than with respect to Substitute Awards, to the extent that an Award expires or is canceled, forfeited, or terminated without issuance to the Participant of the full number of shares of Common Stock to which the Award related, the unissued shares underlying such Award will be returned to the Plan Share Reserve and again be available for grant under the Plan. Shares of Common Stock shall be deemed to have been issued in settlement of Awards if the Fair Market Value equivalent of such shares is paid in cash; provided, however, that no shares shall be deemed to have been issued in settlement of a SAR, Other Equity-Based Award or Restricted Stock Unit that only provides for settlement in, and settles only in, cash. Shares of Common Stock withheld in payment of the Exercise Price, SAR Base Price, or taxes relating to an Award shall constitute shares of Common Stock issued to the Participant and shall reduce the Plan Share Reserve.
(d) Source of Shares. Shares of Common Stock issued by the Company in settlement of Awards may be authorized and unissued shares, shares of Common Stock held in the treasury
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of the Company, shares of Common Stock purchased on the open market or by private purchase or a combination of the foregoing.
(e) Substitute Awards. Awards may, in the sole discretion of the Committee, be granted under the Plan in assumption of, or in substitution for, outstanding awards previously granted by an entity directly or indirectly acquired by the Company or with which the Company combines (“Substitute Awards”). Substitute Awards shall not be counted against the Plan Share Reserve; provided, that Substitute Awards issued in connection with the assumption of, or in substitution for, outstanding options intended to qualify as “incentive stock options” within the meaning of Section 422 of the Code shall be counted against the aggregate number of shares of Common Stock available for Awards of Incentive Stock Options under the Plan. Subject to applicable stock exchange requirements, available shares under a stockholder-approved plan of an entity directly or indirectly acquired by the Company or with which the Company combines (as appropriately adjusted to reflect the acquisition or combination transaction) may be used for Awards under the Plan and shall not reduce the number of shares of Common Stock available for issuance under the Plan.
7. Options.
(a) General. Each Option granted under the Plan shall be evidenced by an Award Agreement, which agreement need not be the same for each Participant. Each Option so granted shall be subject to the conditions set forth in this Section 7, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. All Options granted under the Plan shall be Nonqualified Stock Options unless the applicable Award Agreement expressly states that the Option is intended to be an Incentive Stock Option. Incentive Stock Options may be granted only to Eligible Persons who are employees of a member of the Company Group. No Option may be treated as an Incentive Stock Option unless the Plan has been approved by the stockholders of the Company in a manner intended to comply with the stockholder approval requirements of Section 422(b)(1) of the Code. Any Option intended to be an Incentive Stock Option which does not qualify as an Incentive Stock Option for any reason, including by reason of grant to an Eligible Person who is not an employee or the Plan not being properly approved by the stockholders of the Company under Section 422(b)(1) of the Code, then, to the extent of such non-qualification, such Option or portion thereof shall be regarded as a Nonqualified Stock Option appropriately granted under the Plan.
(b) Exercise Price. Except as otherwise provided by the Committee in the case of Substitute Awards, the exercise price (“Exercise Price”) per share of Common Stock for each Option shall not be less than 100% of the Grant Date Fair Market Value of such share; provided, however, that in the case of an Incentive Stock Option granted to an employee who, at the time of the grant of such Option, owns stock representing more than 10% of the voting power of all
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classes of stock of any member of the Company Group, the Exercise Price per share shall be no less than 110% of the Grant Date Fair Market Value per share.
(c) Vesting and Expiration; Termination.
(i) Options shall vest and become exercisable in such manner and on such date or dates or upon such event or events as determined by the Committee, including, without limitation, satisfaction of Performance Conditions; provided, however, that notwithstanding any such vesting dates or events, the Committee may in its sole discretion accelerate the vesting of any Options at any time and for any reason.
(ii) Options shall expire upon a date determined by the Committee, not to exceed 10 years from the Date of Grant (the “Option Period”); provided, that if the Option Period (other than in the case of an Incentive Stock Option) would expire on a date when (A) trading in the shares of Common Stock is prohibited by the Company’s insider trading policy (or Company-imposed “blackout period”), and (B) the Fair Market Value exceeds the Exercise Price per share on such expiration date, then the Option Period shall be automatically extended until the 30th day following the expiration of such prohibition. Notwithstanding the foregoing, in no event shall the Option Period exceed five years from the Date of Grant in the case of an Incentive Stock Option granted to a Participant who on the Date of Grant owns stock representing more than 10% of the voting power of all classes of stock of any member of the Company Group.
(iii) Unless otherwise provided by the Committee, whether in an Award Agreement or otherwise, in the event of: (A) a Participant’s Termination by the Service Recipient for Cause, all outstanding Options granted to such Participant shall immediately terminate and expire; (B) a Participant’s Termination due to death, each outstanding unvested Option granted to such Participant shall immediately terminate and expire, and each outstanding vested Option shall remain exercisable for one year thereafter (but in no event beyond the expiration of the Option Period); (C) a Participant’s Termination due to Disability, each outstanding unvested Option granted to such Participant shall immediately terminate and expire, and each outstanding vested Option shall remain exercisable for 18 months thereafter (but in no event beyond the expiration of the Option Period); and (D) a Participant’s Termination for any other reason, each outstanding unvested Option granted to such Participant shall immediately terminate and expire, and each outstanding vested Option shall remain exercisable for 90 days thereafter (but in no event beyond the expiration of the Option Period).
(d) Method of Exercise and Form of Payment. No shares of Common Stock shall be issued pursuant to any exercise of an Option until payment in full of the Exercise Price therefor
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is received by the Company and the Participant has paid to the Company an amount equal to any Federal, state, local and non-U.S. income, employment and any other applicable taxes that are required to be withheld under Applicable Law, as determined in accordance with Section 12(d) hereof. Options which have become exercisable may be exercised by delivery of written or electronic notice (or telephonic instructions to the extent provided by the Committee) of exercise to the Company (or any third-party administrator, as applicable) in accordance with the terms of the Option and any other exercise procedure established by the Committee, accompanied by payment of the Exercise Price. Unless otherwise provided by the Committee, whether in an Award Agreement or otherwise, the Exercise Price shall be payable: (i) in cash, check, cash equivalent and/or shares of Common Stock valued at the Fair Market Value at the time the Option is exercised (including, pursuant to procedures approved by the Committee, by means of attestation of ownership of a sufficient number of shares of Common Stock in lieu of actual issuance of such shares to the Company); provided, that such shares of Common Stock are not subject to any pledge or other security interest and have been held by the Participant for at least six months (or such other period as established from time to time by the Committee in order to avoid adverse accounting treatment applying generally accepted accounting principles (“GAAP”)); or (ii) by such other method as the Committee may permit, in its sole discretion, including, without limitation (A) in other property having a fair market value on the date of exercise equal to the Exercise Price; (B) if there is a public market for the shares of Common Stock at such time, by means of a broker-assisted “cashless exercise” pursuant to which the Company is delivered (including telephonically to the extent permitted by the Committee) a copy of irrevocable instructions to a stockbroker to sell the shares of Common Stock otherwise issuable upon the exercise of the Option and to deliver promptly to the Company an amount equal to the Exercise Price; or (C) a “net exercise” procedure effected by withholding the minimum number of shares of Common Stock otherwise issuable in respect of an Option that are needed to pay the Exercise Price and any Federal, state, local and non-U.S. income, employment and any other applicable taxes that are required to be withheld under Applicable Law, as determined in accordance with Section 12(d) hereof. Unless otherwise determined by the Committee, any fractional shares of Common Stock shall be settled in cash.
(e) Notification upon Disqualifying Disposition of an Incentive Stock Option. Each Participant awarded an Incentive Stock Option under the Plan shall notify the Company in writing immediately after the date the Participant makes a disqualifying disposition of any shares of Common Stock acquired pursuant to the exercise of such Incentive Stock Option. A disqualifying disposition is any disposition (including, without limitation, any sale) of such shares of Common Stock before the later of (i) the date that is two years after the Date of Grant of the Incentive Stock Option or (ii) the date that is one year after the date of exercise of the Incentive Stock Option. The Company may, if determined by the Committee and in accordance with procedures established by the Committee, retain possession, as agent for the applicable
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Participant, of any shares of Common Stock acquired pursuant to the exercise of an Incentive Stock Option until the end of the period described in the preceding sentence, subject to complying with any instructions from such Participant as to the sale of such shares of Common Stock.
(f) Compliance With Laws, etc. Notwithstanding the foregoing, in no event shall a Participant be permitted to exercise an Option in a manner which the Committee determines would violate the Sarbanes-Oxley Act of 2002, as it may be amended from time to time, or any other Applicable Law.
8. Restricted Stock and Restricted Stock Units.
(a) General. Each grant of Restricted Stock and Restricted Stock Units shall be evidenced by an Award Agreement. Each Restricted Stock and Restricted Stock Unit so granted shall be subject to the conditions set forth in this Section 8, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement.
(b) Stock Certificates and Book-Entry; Escrow or Similar Arrangement. Upon the grant of Restricted Stock, the Committee shall cause a stock certificate registered in the name of the Participant to be issued or shall cause share(s) of Common Stock to be registered in the name of the Participant and held in book-entry form subject to the Company’s directions and, if the Committee determines that the Restricted Stock shall be held by the Company or in escrow rather than issued to the Participant pending the release of the applicable restrictions, the Committee may require the Participant to additionally execute and deliver to the Company (i) an escrow agreement satisfactory to the Committee, if applicable and (ii) the appropriate stock power (endorsed in blank) with respect to the Restricted Stock covered by such agreement. Subject to the restrictions set forth in this Section 8, Section 12(b) of the Plan and the applicable Award Agreement, a Participant generally shall have the rights and privileges of a stockholder as to shares of Restricted Stock, including, without limitation, the right to vote such Restricted Stock. To the extent shares of Restricted Stock are forfeited, any stock certificates issued to the Participant evidencing such shares shall be returned to the Company, and all rights of the Participant to such shares and as a stockholder with respect thereto shall terminate without further obligation on the part of the Company. A Participant shall have no rights or privileges as a stockholder as to Restricted Stock Units.
(c) Vesting; Termination.
(i) Restricted Stock and Restricted Stock Units shall vest, and any applicable Restricted Period shall lapse, in such manner and on such date or dates or upon such event or events as determined by the Committee, including, without limitation,
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satisfaction of Performance Conditions; provided, however, that, notwithstanding any such dates or events, the Committee may, in its sole discretion, accelerate the vesting of any Restricted Stock or Restricted Stock Unit or the lapsing of any applicable Restricted Period at any time and for any reason.
(ii) Unless otherwise provided by the Committee, whether in an Award Agreement or otherwise, in the event of a Participant’s Termination for any reason prior to the time that such Participant’s Restricted Stock or Restricted Stock Units, as applicable, have vested, (A) all vesting with respect to such Participant’s Restricted Stock or Restricted Stock Units, as applicable, shall cease and (B) unvested shares of Restricted Stock and unvested Restricted Stock Units, as applicable, shall be forfeited to the Company by the Participant for no consideration as of the date of such Termination.
(d) Issuance of Restricted Stock and Settlement of Restricted Stock Units.
(i) Upon the expiration of the Restricted Period with respect to any shares of Restricted Stock, the restrictions set forth in the applicable Award Agreement shall be of no further force or effect with respect to such shares, except as set forth in the applicable Award Agreement. If an escrow arrangement is used, upon such expiration, the Company shall issue to the Participant, or the Participant’s beneficiary, without charge, the stock certificate (or, if applicable, a notice evidencing a book-entry notation) evidencing the shares of Restricted Stock which have not then been forfeited and with respect to which the Restricted Period has expired (rounded down to the nearest full share).
(ii) Unless otherwise provided by the Committee in an Award Agreement or otherwise, upon the expiration of the Restricted Period with respect to any outstanding Restricted Stock Units, the Company shall issue to the Participant or the Participant’s beneficiary, without charge, one share of Common Stock (or other securities or other property, as applicable) for each such outstanding Restricted Stock Unit; provided, however, that the Committee may, in its sole discretion, elect to (A) pay cash or part cash and part shares of Common Stock in lieu of issuing only shares of Common Stock in respect of such Restricted Stock Units; or (B) defer the issuance of shares of Common Stock (or cash or part cash and part shares of Common Stock, as the case may be) beyond the expiration of the Restricted Period if such extension would not cause adverse tax consequences under Section 409A of the Code. If a cash payment is made in lieu of issuing shares of Common Stock in respect of such Restricted Stock Units, the amount of such payment shall be equal to the Fair Market Value per share of the Common Stock as of the date on which the Restricted Period lapsed with respect to such Restricted Stock Units.
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(e) Legends on Restricted Stock. Each certificate, if any, or book entry representing Restricted Stock awarded under the Plan, if any, shall bear a legend or book entry notation substantially in the form of the following, in addition to any other information the Company deems appropriate, until the lapse of all restrictions with respect to such shares of Common Stock:
TRANSFER OF THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY IS RESTRICTED PURSUANT TO THE TERMS OF THE CAVA GROUP, INC. AMENDED AND RESTATED 2023 EQUITY INCENTIVE PLAN AND A RESTRICTED STOCK AWARD AGREEMENT BETWEEN CAVA GROUP, INC. AND THE PARTICIPANT. A COPY OF SUCH PLAN AND AWARD AGREEMENT IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF CAVA GROUP, INC.
9. Other Equity-Based Awards. The Committee may grant Other Equity-Based Awards under the Plan to Eligible Persons, alone or in tandem with other Awards, in such amounts and dependent on such conditions as the Committee shall from time to time in its sole discretion determine, including, without limitation, satisfaction of Performance Conditions. Each Other Equity-Based Award granted under the Plan shall be evidenced by an Award Agreement and shall be subject to such conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement.
10. Changes in Capital Structure and Similar Events. Notwithstanding any other provision in the Plan to the contrary, the following provisions shall apply to all Awards granted hereunder:
(a) General. In the event of (i) any dividend (other than regular cash dividends) or other distribution (whether in the form of cash, shares of Common Stock, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, split-off, spin-off, combination, repurchase or exchange of shares of Common Stock or other securities of the Company, issuance of warrants or other rights to acquire shares of Common Stock or other securities of the Company, or other similar corporate transaction or event that affects the shares of Common Stock (including a Change in Control); or (ii) unusual or nonrecurring events affecting the Company, including changes in applicable rules, rulings, regulations or other requirements, that the Committee determines, in its sole discretion, could result in substantial dilution or enlargement of the rights intended to be granted to, or available for, Participants (any event in (i) or (ii), an “Adjustment Event”), the Committee shall, in respect of any such Adjustment Event, make such proportionate substitution or adjustment, if any, as it deems equitable, to any or all of (A) the Plan Share Reserve, or any other limit applicable under the Plan with respect to the number of Awards which may be granted
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hereunder; (B) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or other property) which may be issued in respect of Awards or with respect to which Awards may be granted under the Plan or any Sub-Plan; and (C) the terms of any outstanding Award, including, without limitation, (I) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or other property) subject to outstanding Awards or to which outstanding Awards relate; (II) the Exercise Price or SAR Base Price with respect to any Option or SAR, as applicable, or any amount payable as a condition of issuance of shares of Common Stock (in the case of any other Award); or (III) any applicable performance measures; provided, that in the case of any “equity restructuring” (within the meaning of the Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor pronouncement thereto)), the Committee shall make an equitable or proportionate adjustment to outstanding Awards to reflect such equity restructuring.
(b) Change in Control. Without limiting the foregoing, in connection with any Adjustment Event that is a Change in Control, the Committee may, in its sole discretion, provide for any one or more of the following:
(i) substitution or assumption of, acceleration of the vesting of, exercisability of, or lapse of restrictions on, any one or more outstanding Awards; and
(ii) cancellation of any one or more outstanding Awards and payment to the holders of such Awards that are vested as of such cancellation (including, without limitation, any Awards that would vest as a result of the occurrence of such event but for such cancellation or for which vesting is accelerated by the Committee in connection with such event pursuant to clause (i) above), the value of such Awards, if any, as determined by the Committee (which value, if applicable, may be based upon the price per share of Common Stock received or to be received by other stockholders of the Company in such event), including, without limitation, in the case of an outstanding Option or SAR, a cash payment in an amount equal to the excess, if any, of the Fair Market Value (as of a date specified by the Committee) of the shares of Common Stock subject to such Option or SAR over the aggregate Exercise Price or SAR Base Price of such Option or SAR (it being understood that, in such event, any Option or SAR having a per share Exercise Price or SAR Base Price equal to, or in excess of, the Fair Market Value of a share of Common Stock subject thereto may be canceled and terminated without any payment or consideration therefor).
For purposes of clause (i) above, an award will be considered granted in substitution of an Award if it has an equivalent value (as determined consistent with clause (ii) above) with the original Award, whether designated in securities of the acquiror in such Change in Control transaction (or
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an Affiliate thereof), or in cash or other property (including in the same consideration that other stockholders of the Company receive in connection with such Change in Control transaction), and retains the vesting schedule applicable to the original Award.
Payments to holders pursuant to clause (ii) above shall be made in cash or, in the sole discretion of the Committee, in the form of such other consideration necessary for a Participant to receive property, cash, or securities (or combination thereof) as such Participant would have been entitled to receive upon the occurrence of the transaction if the Participant had been, immediately prior to such transaction, the holder of the number of shares of Common Stock covered by the Award at such time (less any applicable Exercise Price or SAR Base Price).
(c) Other Requirements. Prior to any payment or adjustment contemplated under this Section 10, the Committee may require a Participant to (i) represent and warrant as to the unencumbered title to the Participant’s Awards; (ii) bear such Participant’s pro rata share of any post-closing indemnity obligations, and be subject to the same post-closing purchase price adjustments, escrow terms, offset rights, holdback terms, and similar conditions as the other holders of Common Stock, subject to any limitations or reductions as may be necessary to comply with Section 409A of the Code; and (iii) deliver customary transfer documentation as reasonably determined by the Committee.
(d) Fractional Shares. Unless otherwise determined by the Committee, any adjustment provided under this Section 10 may provide for the elimination of any fractional share that might otherwise become subject to an Award.
(e) Binding Effect. Any adjustment, substitution, determination of value or other action taken by the Committee under this Section 10 shall be conclusive and binding for all purposes.
11. Amendments and Termination.
(a) Amendment and Termination of the Plan. The Board may amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof at any time; provided, that no such amendment, alteration, suspension, discontinuance or termination shall be made without stockholder approval if (i) such approval is required under Applicable Law; (ii) it would materially increase the number of securities which may be issued under the Plan (except for increases pursuant to Section 6 or 10 of the Plan); or (iii) it would materially modify the requirements for participation in the Plan; provided, further, that any such amendment, alteration, suspension, discontinuance or termination that would materially and adversely affect the rights of any Participant or any holder or beneficiary of any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or
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beneficiary. Notwithstanding the foregoing, no amendment shall be made to Section 11(c) of the Plan without stockholder approval.
(b) Amendment of Award Agreements. The Committee may, to the extent consistent with the terms of the Plan and any applicable Award Agreement, waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any Award theretofore granted or the associated Award Agreement, prospectively or retroactively (including after a Participant’s Termination); provided, that, other than pursuant to Section 10, any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially and adversely affect the rights of any Participant with respect to any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant.
(c) No Repricing. Notwithstanding anything in the Plan to the contrary, without stockholder approval, except as otherwise permitted under Section 10 of the Plan, (i) no amendment or modification may reduce the Exercise Price of any Option or the SAR Base Price of any SAR; (ii) the Committee may not cancel any outstanding Option or SAR and replace it with a new Option or SAR (with a lower Exercise Price or SAR Base Price, as the case may be) or other Award or cash payment that is greater than the intrinsic value (if any) of the cancelled Option or SAR; and (iii) the Committee may not take any other action which is considered a “repricing” for purposes of the stockholder approval rules of any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or quoted.
12. General.
(a) Award Agreements. Each Award under the Plan shall be evidenced by an Award Agreement, which shall be delivered to the Participant to whom such Award was granted and shall specify the terms and conditions of the Award and any rules applicable thereto, including, without limitation, the effect on such Award of the death, Disability or Termination of a Participant, or of such other events as may be determined by the Committee. For purposes of the Plan, an Award Agreement may be in any such form (written or electronic) as determined by the Committee (including, without limitation, a Board or Committee resolution, an employment agreement, a notice, a certificate or a letter) evidencing the Award. The Committee need not require an Award Agreement to be signed by the Participant or a duly authorized representative of the Company.
(b) Nontransferability.
(i) Each Award shall be exercisable only by such Participant to whom such Award was granted during the Participant’s lifetime, or, if permissible under Applicable
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Law, by the Participant’s legal guardian or representative. No Award may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant (unless such transfer is specifically required pursuant to a domestic relations order or by Applicable Law) other than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against any member of the Company Group; provided, that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
(ii) Notwithstanding the foregoing, the Committee may, in its sole discretion, permit Awards (other than Incentive Stock Options) to be transferred by a Participant, without consideration, subject to such rules as the Committee may adopt consistent with any applicable Award Agreement to preserve the purposes of the Plan, to any person who is a “family member” of the Participant, as such term is used in the instructions to Form S-8 under the Securities Act or any successor form of registration statement promulgated by the Securities and Exchange Commission (a “Permitted Transferee”); provided, that the Participant gives the Committee advance written notice describing the terms and conditions of the proposed transfer and the Committee notifies the Participant in writing that such a transfer would comply with the requirements of the Plan.
(iii) The terms of any Award transferred in accordance with clause (ii) above shall apply to the Permitted Transferee and any reference in the Plan, or in any applicable Award Agreement, to a Participant shall be deemed to refer to the Permitted Transferee, except that (A) Permitted Transferees shall not be entitled to transfer any Award, other than by will or the laws of descent and distribution; (B) Permitted Transferees shall not be entitled to exercise any transferred Option unless there shall be in effect a registration statement on an appropriate form covering the shares of Common Stock to be acquired pursuant to the exercise of such Option if the Committee determines, consistent with any applicable Award Agreement, that such a registration statement is necessary or appropriate; (C) neither the Committee nor the Company shall be required to provide any notice to a Permitted Transferee, whether or not such notice is or would otherwise have been required to be given to the Participant under the Plan or otherwise; and (D) the consequences of a Participant’s Termination under the terms of the Plan and the applicable Award Agreement shall continue to be applied with respect to the Participant, including, without limitation, that an Option shall be exercisable by the Permitted Transferee only to the extent, and for the periods, specified in the Plan and the applicable Award Agreement.
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(c) Dividends and Dividend Equivalents.
(i) The Committee may, in its sole discretion, provide a Participant as part of an Award with dividends, dividend equivalents, or similar payments in respect of Awards, payable in cash, shares of Common Stock, other securities, other Awards or other property, on a current or deferred basis, on such terms and conditions as may be determined by the Committee in its sole discretion, including, without limitation, payment directly to the Participant, withholding of such amounts by the Company subject to vesting of the Award or reinvestment in additional shares of Common Stock, Restricted Stock or other Awards.
(ii) Without limiting the foregoing, unless otherwise provided in the Award Agreement, any dividend otherwise payable in respect of any share of Restricted Stock that remains subject to vesting conditions at the time of payment of such dividend shall be retained by the Company and remain subject to the same vesting conditions as the share of Restricted Stock to which the dividend relates and shall be delivered (without interest) to the Participant within 15 days following the date on which such restrictions on such Restricted Stock lapse (and the right to any such accumulated dividends shall be forfeited upon the forfeiture of the Restricted Stock to which such dividends relate).
(iii) To the extent provided in an Award Agreement, the holder of outstanding Restricted Stock Units shall be entitled to be credited with dividend equivalent payments (upon the payment by the Company of dividends on shares of Common Stock) either in cash or, in the sole discretion of the Committee, in additional Restricted Stock Units, with the underlying shares of Common Stock having a Fair Market Value equal to the amount of such dividends (and interest may, in the sole discretion of the Committee, be credited on the amount of cash dividend equivalents at a rate and subject to such terms as determined by the Committee), which accumulated dividend equivalents (and interest thereon, if applicable) shall be payable at the same time as the underlying Restricted Stock Units are settled following the date on which the Restricted Period lapses with respect to such Restricted Stock Units, and if such Restricted Stock Units are forfeited, the Participant shall have no right to such dividend equivalent payments (or interest thereon, if applicable).
(d) Tax Withholding.
(i) A Participant shall be required to pay to the Company or one or more of its Subsidiaries, as applicable, an amount in cash (by check or wire transfer) equal to the aggregate amount of any income, employment and/or other applicable taxes that are required to be withheld under Applicable Law in respect of an Award. Alternatively, the
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Company or any of its Subsidiaries may elect, in its sole discretion, to satisfy this requirement by withholding such amount from any cash compensation or other cash amounts owing to a Participant.
(ii) Without limiting the foregoing, the Committee may (but is not obligated to), in its sole discretion, permit or require a Participant to satisfy, all or any portion of the minimum income, employment and/or other applicable taxes that are required to be withheld under Applicable Law with respect to an Award by (A) the delivery of shares of Common Stock (which are not subject to any pledge or other security interest) that have been both held by the Participant and vested for at least six months (or such other period as established from time to time by the Committee in order to avoid adverse accounting treatment under applicable accounting standards) having an aggregate Fair Market Value equal to such minimum statutorily required withholding liability (or portion thereof); or (B) having the Company withhold from the shares of Common Stock otherwise issuable or deliverable to, or that would otherwise be retained by, the Participant upon the grant, exercise, vesting or settlement of the Award, as applicable, a number of shares of Common Stock with an aggregate Fair Market Value equal to an amount, subject to clause (iii) below, not in excess of such minimum statutorily required withholding liability (or portion thereof).
(iii) The Committee, subject to its having considered the applicable accounting impact of any such determination, has full discretion to allow Participants to satisfy, in whole or in part, any additional income, employment and/or other applicable taxes payable by them with respect to an Award by electing to have the Company withhold from the shares of Common Stock otherwise issuable or deliverable to, or that would otherwise be retained by, a Participant upon the grant, exercise, vesting or settlement of the Award, as applicable, shares of Common Stock having an aggregate Fair Market Value that is greater than the applicable minimum required statutory withholding liability (but such withholding may in no event be in excess of the maximum statutory withholding amount(s) in a Participant’s relevant tax jurisdictions).
(e) No Claim to Awards; No Rights to Continued Employment; Waiver. No employee of any member of the Company Group, or other Person, shall have any claim or right to be granted an Award under the Plan or, having been selected for the grant of an Award, to be selected for a grant of any other Award. There is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards. The terms and conditions of Awards and the Committee’s determinations and interpretations with respect thereto need not be the same with respect to each Participant and may be made selectively among Participants, whether or not such Participants are similarly situated. Neither the Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the employ or service of the
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Service Recipient or any other member of the Company Group, nor shall it be construed as giving any Participant any rights to continued service on the Board. The Service Recipient or any other member of the Company Group may at any time dismiss a Participant from employment or discontinue any consulting relationship, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or any Award Agreement. By accepting an Award under the Plan, a Participant shall thereby be deemed to have waived any claim to continued exercise or vesting of an Award or to damages or severance entitlement related to non-continuation of the Award beyond the period provided under the Plan or any Award Agreement, except to the extent of any provision to the contrary in any written employment contract or other agreement between the Service Recipient and/or any member of the Company Group and the Participant, whether any such agreement is executed before, on or after the Date of Grant.
(f) International Participants. With respect to Participants who reside or work outside of the United States of America, the Committee may, in its sole discretion, amend the terms of the Plan and create or amend Sub-Plans or amend outstanding Awards with respect to such Participants in order to permit or facilitate participation in the Plan by such Participants, conform such terms with the requirements of Applicable Law or to obtain more favorable tax or other treatment for a Participant or any member of the Company Group.
(g) Designation and Change of Beneficiary. To the extent permitted under Applicable Law and by the Company, each Participant may file with the Committee a written designation of one or more Persons as the beneficiary(ies) who shall be entitled to receive the amounts payable with respect to an Award, if any, due under the Plan upon the Participant’s death. A Participant may, from time to time, revoke or change the Participant’s beneficiary designation without the consent of any prior beneficiary by filing a new designation with the Committee. The last such designation received by the Committee shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Participant’s death, and in no event shall it be effective as of a date prior to such receipt. If no beneficiary designation is filed by a Participant, or in the event the Company determines that any such designation does not comply with Applicable Law, the beneficiary shall be deemed to be the Participant’s estate.
(h) Termination. Except as otherwise provided in an Award Agreement, unless determined otherwise by the Committee in connection with or at any point following such event: (i) neither a temporary absence from employment or service due to illness, vacation or leave of absence (including, without limitation, a call to active duty for military service through a Reserve or National Guard unit) nor a transfer from employment or service with one Service Recipient to employment or service with another Service Recipient (or vice-versa) shall be considered a Termination; and (ii) if a Participant undergoes a Termination, but such Participant continues to
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provide services to the Company Group in a non-employee capacity, such change in status shall not be considered a Termination for purposes of the Plan. Further, unless otherwise determined by the Committee, in the event that any Service Recipient ceases to be a member of the Company Group (by reason of sale, divestiture, spin-off or other similar transaction), unless a Participant’s employment or service is transferred to another entity that would constitute a Service Recipient immediately following such transaction, such Participant shall be deemed to have suffered a Termination hereunder as of the date of the consummation of such transaction.
(i) No Rights as a Stockholder. Except as otherwise specifically provided in the Plan or any Award Agreement, no Person shall be entitled to the privileges of ownership in respect of shares of Common Stock which are subject to Awards hereunder until such shares have been issued or delivered to such Person.
(j) Government and Other Regulations.
(i) The obligation of the Company to settle Awards in shares of Common Stock or other consideration shall be subject to all Applicable Law. Notwithstanding any terms or conditions of any Award to the contrary, the Company shall be under no obligation to offer to sell or to sell, and shall be prohibited from offering to sell or selling, any shares of Common Stock pursuant to an Award unless such shares have been properly registered for sale pursuant to the Securities Act with the Securities and Exchange Commission (or as otherwise permitted under Applicable Law) or unless the Company has received an opinion of counsel (if the Company has requested such an opinion), satisfactory to the Company, that such shares may be offered or sold without such registration pursuant to an available exemption therefrom and the terms and conditions of such exemption have been fully complied with. The Company shall be under no obligation to register for sale under the Securities Act any of the shares of Common Stock to be offered or sold under the Plan. The Committee shall have the authority to provide that all shares of Common Stock or other securities of any member of the Company Group issued under the Plan shall be subject to such stop-transfer orders and other restrictions as the Committee may deem advisable under the Plan, the applicable Award Agreement and Applicable Law, and, without limiting the generality of Section 8 of the Plan, the Committee may cause a legend or legends to be put on certificates representing shares of Common Stock or other securities of any member of the Company Group issued under the Plan to make appropriate reference to such restrictions or may cause such Common Stock or other securities of any member of the Company Group issued under the Plan in book-entry form to be held subject to the Company’s instructions or subject to appropriate stop-transfer orders. Notwithstanding any provision in the Plan to the contrary, the Committee reserves the right to add, at any time, any additional terms or provisions to any Award granted under the Plan that the
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Committee, in its sole discretion, deems necessary or advisable in order that such Award complies with the legal requirements of any governmental entity to whose jurisdiction the Award is subject.
(ii) The Committee may cancel an Award or any portion thereof if it determines, in its sole discretion, that legal or contractual restrictions and/or blockage and/or other market considerations would make the Company’s acquisition of shares of Common Stock from the public markets, the Company’s issuance of Common Stock to the Participant, the Participant’s acquisition of Common Stock from the Company and/or the Participant’s sale of Common Stock to the public markets, illegal, impracticable or inadvisable. If the Committee determines to cancel all or any portion of an Award in accordance with the foregoing, the Company shall, subject to any limitations or reductions as may be necessary to comply with Section 409A of the Code, (A) in the case of Options, SARs or other Awards subject to exercise, pay to the Participant an amount equal to the excess of (I) the aggregate Fair Market Value of the shares of Common Stock subject to such Award or portion thereof canceled (determined as of the applicable exercise date, or the date that the shares would have been vested or issued, as applicable); over (II) the aggregate Exercise Price or SAR Base Price (in the case of an Option or SAR, respectively) or any amount payable as a condition of issuance of shares of Common Stock (in the case of any other Award subject to exercise), or (B) in the case of Restricted Stock, Restricted Stock Units or Other Equity-Based Awards, provide the Participant with a cash payment or equity subject to deferred vesting and delivery consistent with the vesting restrictions applicable to such Restricted Stock, Restricted Stock Units or Other Equity-Based Awards, or the underlying shares in respect thereof. Any applicable amounts shall be delivered to the Participant as soon as practicable following the cancellation of such Award or portion thereof.
(k) No Section 83(b) Elections Without Consent of Company. No election under Section 83(b) of the Code or under a similar provision of law may be made unless expressly permitted by the terms of the applicable Award Agreement or by action of the Committee in writing prior to the making of such election. If a Participant, in connection with the acquisition of shares of Common Stock under the Plan or otherwise, is expressly permitted to make such election and the Participant makes the election, the Participant shall notify the Company of such election within 10 days after filing notice of the election with the Internal Revenue Service or other governmental authority, in addition to any filing and notification required pursuant to Section 83(b) of the Code or other applicable provision.
(l) Payments to Persons Other Than Participants. If the Committee shall find that any Person to whom any amount is payable under the Plan is unable to care for the Participant’s affairs because of illness or accident, or is a minor, or has died, then any payment due to such
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Person or the Participant’s estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Committee so directs the Company, be paid to the Participant’s spouse, child, relative, an institution maintaining or having custody of such Person, or any other Person deemed by the Committee to be a proper recipient on behalf of such Person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Company therefor.
(m) Nonexclusivity of the Plan. Neither the adoption of the Plan by the Board nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of equity-based awards otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases.
(n) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between any member of the Company Group, on the one hand, and a Participant or other Person, on the other hand. No provision of the Plan or any Award shall require the Company, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company be obligated to maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Participants shall have no rights under the Plan other than as unsecured general creditors of the Company, except that insofar as they may have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other service providers under general law.
(o) Reliance on Reports. Each member of the Committee and each member of the Board shall be fully justified in acting or failing to act, as the case may be, and shall not be liable for having so acted or failed to act in good faith, in reliance upon any report made by the independent public accountant of any member of the Company Group and/or any other information furnished in connection with the Plan by any agent of the Company or the Committee or the Board, other than himself or herself.
(p) Relationship to Other Benefits. No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, profit sharing, group insurance or other benefit plan of the Company except as otherwise specifically provided in such other plan or as required by Applicable Law.
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(q) Governing Law. The Plan shall be governed by and construed in accordance with the internal laws of the State of Delaware applicable to contracts made and performed wholly within the State of Delaware, without giving effect to the conflict of laws provisions thereof.
EACH PARTICIPANT WHO ACCEPTS AN AWARD IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY SUIT, ACTION, OR OTHER PROCEEDING INSTITUTED BY OR AGAINST SUCH PARTICIPANT IN RESPECT OF THE PARTICIPANT’S RIGHTS OR OBLIGATIONS UNDER THE PLAN OR ANY APPLICABLE AWARD AGREEMENT.
(r) Severability. If any provision of the Plan or any Award or Award Agreement is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the Applicable Laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be construed or deemed stricken as to such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in full force and effect.
(s) Obligations Binding on Successors. The obligations of the Company under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company.
(t) Section 409A of the Code.
(i) Notwithstanding any provision of the Plan to the contrary, it is intended that the provisions of the Plan comply with Section 409A of the Code, and all provisions of the Plan shall be construed and interpreted in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A of the Code. Each Participant is solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on or in respect of such Participant in connection with the Plan (including any taxes and penalties under Section 409A of the Code), and neither the Service Recipient nor any other member of the Company Group shall have any obligation to indemnify or otherwise hold such Participant (or any beneficiary) harmless from any or all of such taxes or penalties. With respect to any Award that is considered “deferred compensation” subject to Section 409A of the Code, references in the Plan to “termination of employment” (and substantially similar phrases) shall mean “separation from service” within the meaning of Section 409A of the Code. For purposes of Section
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409A of the Code, each of the payments that may be made in respect of any Award granted under the Plan is designated as separate payments.
(ii) Notwithstanding anything in the Plan to the contrary, if a Participant is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, no payments in respect of any Awards that are “deferred compensation” subject to Section 409A of the Code and which would otherwise be payable upon the Participant’s “separation from service” (as defined in Section 409A of the Code) shall be made to such Participant prior to the date that is six months after the date of such Participant’s “separation from service” or, if earlier, the date of the Participant’s death. Following any applicable six month delay, all such delayed payments will be paid in a single lump sum on the earliest date permitted under Section 409A of the Code that is also a business day.
(iii) Unless otherwise provided by the Committee in an Award Agreement or otherwise, in the event that the timing of payments in respect of any Award (that would otherwise be considered “deferred compensation” subject to Section 409A of the Code) would be accelerated upon the occurrence of (A) a Change in Control, no such acceleration shall be permitted unless the event giving rise to the Change in Control satisfies the definition of a change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation pursuant to Section 409A of the Code; or (B) a Disability, no such acceleration shall be permitted unless the Disability also satisfies the definition of “Disability” pursuant to Section 409A of the Code.
(iv) This Section 12(t) shall only apply with respect to Participants to whom Section 409A of the Code is applicable.
(u) Clawback/Repayment. All Awards shall be subject to reduction, cancellation, forfeiture or recoupment to the extent necessary to comply with (i) any clawback, forfeiture or other similar policy adopted by the Board or the Committee and as in effect from time to time; and (ii) Applicable Law. Further, unless otherwise determined by the Committee, to the extent that the Participant receives any amount in excess of the amount that the Participant should otherwise have received under the terms of the Award for any reason (including, without limitation, by reason of a financial restatement, mistake in calculations or other administrative error), the Participant shall be required to repay any such excess amount to the Company.
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(v) Detrimental Activity. Notwithstanding anything to the contrary contained herein, if a Participant has engaged in any Detrimental Activity, as determined by the Committee, the Committee may, in its sole discretion, provide for one or more of the following:
(i) cancellation of any or all of such Participant’s outstanding Awards (or shares of Common Stock received upon exercise, vesting or settlement of any such Award); or
(ii) forfeiture by the Participant of any gain realized in respect of Awards (including as a result of the sale of shares of Common Stock received upon exercise, vesting or settlement of any such Awards), and repayment of any such gain promptly to the Company.
(w) Right of Offset. The Company will have the right to offset against its obligation to deliver shares of Common Stock (or other property or cash) under the Plan or any Award Agreement any outstanding amounts (including, without limitation, travel and entertainment or advance account balances, loans, repayment obligations under any Awards, or amounts repayable to the Company pursuant to tax equalization, housing, automobile or other employee programs) that the Participant then owes to any member of the Company Group and any amounts the Committee otherwise deems appropriate pursuant to any tax equalization policy or agreement. Notwithstanding the foregoing, if an Award is “deferred compensation” subject to Section 409A of the Code, the Committee will have no right to offset against its obligation to deliver shares of Common Stock (or other property or cash) under the Plan or any Award Agreement if such offset could subject the Participant to the additional tax imposed under Section 409A of the Code in respect of an outstanding Award.
(x) Expenses; Titles and Headings. The expenses of administering the Plan shall be borne by the Company Group. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
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CAVA GROUP, INC.
AMENDED AND RESTATED
2023 EQUITY INCENTIVE PLAN
2023 EQUITY INCENTIVE PLAN
First Amendment
Pursuant to Section 11 of CAVA Group, Inc. Amended and Restated 2023 Equity Incentive Plan (the “Plan”), CAVA Group, Inc. (the “Company”), by authorization of the Company’s Board of Directors, hereby amends the Plan effective as of December 28, 2024 by replacing Section 12(d)(ii) of the Plan in its entirety with the following text:
“(ii) Without limiting the foregoing, the Committee may (but is not obligated to), in its sole discretion, permit or require a Participant to satisfy, all or any portion of the minimum income, employment and/or other applicable taxes that are required to be withheld under Applicable Law with respect to an Award by (A) the delivery of shares of Common Stock (which are not subject to any pledge or other security interest) that have been both held by the Participant and vested for at least six months (or such other period as established from time to time by the Committee in order to avoid adverse accounting treatment under applicable accounting standards) having an aggregate Fair Market Value equal to such minimum statutorily required withholding liability (or portion thereof); (B) having the Company withhold from the shares of Common Stock otherwise issuable or deliverable to, or that would otherwise be retained by, the Participant upon the grant, exercise, vesting or settlement of the Award, as applicable, a number of shares of Common Stock with an aggregate Fair Market Value equal to an amount, subject to clause (iii) below, not in excess of such minimum statutorily required withholding liability (or portion thereof) or (C) permitting an authorized broker-dealer or other third party to sell shares of Common Stock subject to an Award and remit the cash proceeds of such sale to the Company to satisfy any applicable tax withholding requirements related to such Award.”
Exhibit 10.6
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”) is made between Cava Group, Inc. (“Employer”) and Kelly Costanza (“Executive”) (together, the “Parties” and each a “Party”) effective as of May 20, 2022 (the “Effective Date”).
WHEREAS, in the course of Executive’s employment by Employer, the Executive may receive, be taught, or otherwise have access to Employer’s information that is confidential and proprietary;
WHEREAS, Employer and its subsidiaries and affiliates have acquired and/or developed certain trade secrets and confidential information, as more fully described in the CPIN Agreement (as defined in Article 6), and has expended significant time and expense in acquiring or developing its trade secret or confidential information, and expends significant time and expense on an ongoing basis in supporting its employees, including Executive;
WHEREAS, Employer wishes to continue to employ Executive as Employer’s Chief People Officer on the terms and conditions set forth herein; and
WHEREAS, Executive wishes to continue such employment on such terms and conditions in accordance with this Agreement.
ACCORDINGLY, in consideration of, and on the basis of the representations, warranties, and covenants contained in this Agreement, and other good and valuable consideration, the Parties agree as follows:
1.ARTICLE 1 – EMPLOYMENT AND TERM
1.1Employment. Effective on the Effective Date, Employer employs Executive as its Chief People Officer, and Executive accepts such employment, on the terms and conditions set forth in this Agreement, it being the intent and agreement of the Parties that Executive’s employment be and is continuous. Executive’s employment shall be deemed by the Parties to be continuous until terminated pursuant to this Agreement. Executive shall report directly to the Chief Executive Officer (the “CEO”).
1.2Term. The term of employment under this Agreement shall commence on the Effective Date and shall continue for a period of three (3) years thereafter (such three-year period, the “Initial Term”), unless the Parties otherwise renew or earlier terminate Executive’s employment in accordance with this Agreement. Subject to earlier termination pursuant to Article 4 of this Agreement, the employment relationship hereunder shall extend for successive one-year terms after the Initial Term (each such one-year term an “Extended Term”), unless either party shall have given not less than sixty (60) days prior written notice to the other prior to the expiration of the Initial Term of this Agreement, or the Extended Term, as applicable, that it does not wish to extend this Agreement. If such written notice is given, then this Agreement shall expire as of the last day of the Initial Term or Extended Term to which such written notice relates. As used in this Agreement, the “Term” shall include the Initial Term and any Extended Term, and any period of employment through the date on which Executive’s employment ends or this Agreement is terminated in accordance with Article 4 of this Agreement.
2.ARTICLE 2 – DUTIES OF THE EXECUTIVE
2.1Duties. Executive agrees to undertake and perform all duties required as Chief People Officer of Employer. Executive shall perform the services contemplated herein faithfully, diligently, to the best of Executive’s ability, and in the best interests of Employer, in a diligent, trustworthy, professional, and efficient manner, and shall comply with Employer’s policies and procedures in all material respects. Executive agrees during the Term to serve without any additional compensation as an officer or director of any subsidiary of Employer, as may be reasonably requested by the Board from time to time. Executive shall at all times perform such services in compliance with (and, to the extent of Executive’s actual knowledge and authority, shall ensure to the best of her ability that Employer is in compliance with) any and all laws, rules, regulations, and policies applicable to Employer of which Executive is aware. Executive shall, at all times during the Term, adhere to and obey reasonable written rules and policies governing the conduct of Employer’s employees and executives, as established or modified from time to time; provided, however, that, in the event of any conflict between the provisions of this Agreement and any such rules or policies, the provisions of this Agreement shall control.
2.2Exclusive Services. Except as set forth in this Section 2.2, during her employment by Employer, Executive shall not, without the prior written consent of the Board, accept other employment for compensation, perform services for compensation for a Person other than Employer and its subsidiaries and affiliated entities, or serve as an officer or director of any other Person. In cases where no material, bona fide business conflict exists, such consent shall not be unreasonably withheld. Executive shall not engage in any activity that would impair Executive’s ability to act and exercise judgment in the best interest of Employer. For purposes of this Agreement, the term “Person” means an individual, a partnership, a corporation, a limited liability company, an association, an organization, a joint-stock company, a trust, a joint venture, an unincorporated association, a government entity, any department, agency or political subdivision of a government entity, or any other form of entity.
2.3Indemnification. Employer shall, to the maximum extent to which it is empowered by Employer’s Bylaws and the Laws of the State of Delaware and any other laws that may apply to the benefit of Executive, defend, indemnify and hold harmless Executive from and against any and all demands, claims, and causes of action made against Executive concerning or relating to her service, actions or omissions on behalf of Employer and its subsidiaries and affiliated entities as an employee, director, officer, shareholder, unitholder, or agent.
3.ARTICLE 3 – COMPENSATION, BENEFITS AND EXPENSE REIMBURSEMENT
As the total consideration for the services that Executive renders under this Agreement, Executive shall be entitled to the following:
3.1Base Salary. Commencing on the first day of the Term, Employer shall pay to Executive a base salary at the annual rate of $378,550, less income tax and other applicable withholdings (the “Salary”) payable in accordance with Employer’s regular payroll practices. Such Salary will be reviewed for purposes of determining whether a salary increase is warranted, at least annually. The Salary, as adjusted, shall not be reduced during the Term. The reference to the Salary at an annual rate in this Agreement shall not entitle Executive to payment of the Salary beyond any Salary earned through Executive’s performance of services under this Agreement through the date of termination of Executive’s employment, except as set forth in this Agreement.
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3.2Annual Bonus. Commencing with calendar year 2022 and during the period Executive is employed with Employer, Executive shall be eligible to earn for Executive s services to be rendered under this Agreement a discretionary annual cash bonus with a target annual bonus opportunity in an amount equal to fifty percent (50%) of the then-current Salary and a maximum annual bonus opportunity in an amount equal to one hundred percent (100%) of the then-current Salary (the “Annual Bonus”), subject to review and upward adjustment by Employer in the sole discretion of the Board, payable subject to standard federal and state payroll withholding requirements. Whether or not Executive earns any bonus will be dependent upon (a) Executive’s continuous performance of services to Employer through the date any bonus is paid (other than as provided in Article 4 below); and (b) the actual achievement by Executive and Employer of the applicable performance targets and goals set by the CEO based on recommendations from the Compensation Committee of the Board. The annual period over which performance is measured for purposes of this bonus is January 1 through December 31. The Board will determine in its sole discretion the extent to which Executive and the Employer have achieved the performance goals upon which the bonus is based and the amount of the bonus. Any bonus shall be subject to the terms of any applicable incentive compensation plan adopted by Employer. Any bonus, if earned, will be paid to Executive within the time period set forth in the incentive compensation plan, or if no such time period was established, within two and one-half months following the end of the year during which the bonus is earned.
3.3Intentionally omitted.
3.4Long-Term Incentive. During the period Executive is employed with Employer, Executive shall be eligible to earn for Executive’s services to be rendered under this Agreement an annual stock option award (the “Long-Term Incentive”) to be granted under, and subject to the terms and conditions of, Employer’s 2015 Equity Incentive Plan, as may be amended from time to time, or a successor stock incentive plan (the “Equity Plan”) and any applicable award agreements in accordance with Employer practices for other senior executives of Employer. Each Long-Term Incentive grant will be made with a grant date fair value equal to fifty percent (50%) of the then-current Salary and apportioned (i) in the form of stock option awards to purchase shares of Employer’s common stock at an exercise price determined using the Black-Scholes option-pricing model adopted by Employer for purposes of this Agreement and/or (ii) in the form of restrictive stock units (“RSUs”) based on the latest then-current 409A valuation adopted by Employer. The apportionment for Executive shall be consistent with the allocation of long-term incentive grants for executive officers then serving Employer, as annually determined by the Executive Compensation Design Document and the Board. The form and terms and conditions of any such Long-Term Incentive will be subject change from time to time and payable subject to standard federal and state payroll withholding requirements. Executive shall also be granted upon the Effective Date 30,000 RSUs based on the latest then-current 409A valuation adopted by Employer. This grant is made by the Employer in recognition that Executive was not provided with a grant at the time that Executive first became employed with Employer and is a discretionary, additional grant to Executive. Whether or not Executive earns any additional Long-Term Incentive will be dependent upon (a) Executive’s continuous performance of services to Employer through the date any Long-Term Incentive is granted; (b) the actual achievement by Executive and Employer of the applicable performance targets and goals set by the Board based on recommendations from the Compensation Committee of the Board; and (c) the terms and conditions of any Long-Term Incentive, as are provided in the Equity Plan and any award agreement pursuant to which the Long-Term Incentive is granted. Notwithstanding the foregoing, following Employer’s sale of any common stock pursuant to a registration statement filed under the Securities Act of 1933, as amended, that results in shares of the common stock of Employer being traded on the NASDAQ Stock Market, the New York Stock Exchange or successors thereof or any such other national securities exchange, (i) this Section 3.4 will no longer apply and Executive will not be entitled to any future Long-Term
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Incentive grants pursuant to this Agreement, but shall remain eligible to participate in any equity incentive plans offered by the Employer.
3.5Employer Executive Benefits. Executive shall be entitled to participate in Employer’s group health, life, and disability insurance plans and any and all other employee benefits, including 401(k) and deferred compensation plans, pursuant to the terms of the applicable benefit plans and to the same extent and on the same basis as Employer’s other senior executives. Employer shall pay the costs for group health, life, and disability insurance plans and all other employee benefits for Executive and any spouse or domestic partner and children of Executive to the same extent that it pays for the costs for other senior executive of Employer.
3.6Reimbursement for Business Expenses. Employer shall reimburse Executive for any and all reasonable business expenses that Executive incurs from time to time in the performance of her duties under this Agreement, including authorized business expenses incurred by Executive at the request of, or on behalf of, Employer, in accordance with Employer’s policies and subject to any reporting and documentation requirements set forth in such policies. Employer shall also pay the reasonable costs for electronic communication devices, including smart phones and/or portable computer devices reasonably necessary for the performance of Executive’s duties under this Agreement, including any service plans related thereto.
3.7Vacation. Executive shall be eligible for the same vacation benefits offered to other senior executives of Employer. The scheduling of vacation shall be consistent with Employer’s vacation policy and operational needs.
4.ARTICLE 4 – TERMINATION
4.1Termination. Either party shall have the right to terminate this Agreement before the expiration of the Term, subject to the terms of this Article 4, and with the consequences described in this Agreement.
4.2Termination for Cause by Employer. Executive’s employment may be terminated by Employer for Cause (as defined below) at any time (subject to any opportunities to cure set forth in such definition), upon delivery to Executive of written notice (and effective on the date such notice is given unless another date is specified in such notice). If Executive is terminated for Cause, Employer shall pay to Executive (a) any Salary due under Section 3.1 to the date of termination, (b) benefits set forth in Section 3.5, if any, to the date of termination, (c) all accrued but unused and unpaid vacation due under Section 3.7 to the date of termination, and (d) expenses reimbursable under Section 3.6 incurred but not yet reimbursed to Executive to the date of termination. Executive shall have no right to receive any further compensation or benefits otherwise payable under any other provision of this Agreement. For purposes of this Agreement, Termination for “Cause” shall mean the termination of Executive’s employment for any of the following reasons: (i) refusal by the Executive to materially perform her duties hereunder (other than any such failure or refusal resulting from her incapacity due to physical or mental illness), provided, however, that Employer shall provide Executive with written notice of such refusal and Executive shall not have substantially remedied such failure or refusal within thirty (30) days after such written notice is given; (ii) the commission by Executive of any material act of dishonesty or breach of trust or gross misconduct or gross negligence in connection with the performance of her duties hereunder; (iii) a conviction of, or pleading guilty or no contest to, any felony or any crime having as its predicate element fraud, dishonesty, or misappropriation; (iv) any act or omission aiding or abetting a competitor, supplier or customer of Employer to the material disadvantage or detriment of Employer, (v) Executive’s material failure to comply with one or more of the material policies of the Employer (including any applicable code of conduct or ethics, policies relating to sexual harassment or business conduct)
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or Executive’s material breach of her obligations under this Agreement or under the CPIN Agreement, provided, however, that Employer shall provide Executive with written notice of such breach and Executive shall not have substantially cured such breach (if curable) within thirty (30) days after such written notice is given. For purposes of this paragraph, no failure or refusal on the part of Executive shall be deemed “willful” if done, or omitted to be done, by Executive in the reasonable belief that her failure or refusal was in the best interest of Employer or that the requested act was unlawful.
4.3Termination Without Cause by Employer. Employer may terminate Executive’s employment without Cause upon notice to Executive provided in accordance with Section 4.7. If Employer terminates Executive’s employment without Cause at any time during Executive’s employment, including without limitation any notice by Employer of non-extension or intent to terminate under Sections 1.2 and 4.3 of this Agreement, Employer shall pay to Executive (a) the same payments and benefits set forth in Section 4.2 and, in addition thereto, subject to Executive’s compliance with the obligations in the last sentence of this Section 4.3, (b) Salary for 12 months following termination of employment, paid in normal payroll installments consistent with Employer’s payroll practices as in effect from time to time; (c) if Executive timely elects health insurance continuation coverage (“COBRA Coverage”) under Employer’s group health plan pursuant to Section 4980B of the Internal Revenue Code and Part 6 of Subtitle B of Title I of ERISA, and so long as Executive abides at all times by the requirements of COBRA, Employer will pay the cost of Executive’s COBRA premiums for the 12 months following termination of employment (subject to the remainder of this Section 4.3); and (d) a pro-rated Annual Bonus for the year in which the termination of employment occurs, based on the Employer’s performance during such year, pro-rated based on the number of days elapsed during such year prior to termination of employment, which shall be paid on the date on which annual bonuses are paid to other senior executives of Employer for such year (items (b), (c) and (d), referred to herein as, the “Severance”). Notwithstanding anything to the contrary herein, Executive’s COBRA Coverage shall terminate when Executive becomes eligible under any employee benefit plan made available by another employer covering substantially similar health and dental benefits. Executive shall notify Employer within ten (10) days after becoming eligible for any such benefits. It is agreed and understood that Executive shall be entitled to receive the Severance if and only if within sixty (60) days following termination of employment (the “Release Period”) Executive has executed and delivered to Employer the General Release substantially in the accordance with Employer’s standard release form (the “General Release”), a form of which is attached hereto as Exhibit “A,” and the General Release has become effective, and so long as Executive has not revoked or breached the provisions of the General Release or breached any of the provisions of Articles 6, and/or 8 hereof, including the provisions of the CPIN Agreement. In the event that the Release Period includes two calendar years, the Severance payments shall be made in the second calendar year.
4.4Termination for Good Reason by Executive. Executive may voluntarily terminate her employment at any time for Good Reason (as defined below) upon written notice to Employer (and effective on the date such notice is given unless another date is specified in such notice). In the event of any such termination for Good Reason by Executive, Employer shall pay and provide to Executive the same payments and benefits as are set forth in Section 4.3, above and on the same terms and conditions as if Executive had been terminated by Employer without Cause. For purposes of this Agreement, a termination for “Good Reason” shall mean the termination by Executive of Executive’s employment for any of the following reasons occurring without Executive’s prior written consent, provided Executive has not previously been notified in accordance with the notice provisions of this Agreement of Employer’s intention to terminate Executive’s employment: (a) assigning to her duties materially inconsistent with her position, title, authority, or duties which results in a material diminution of such position, title, authority or duties; provided, however, that Executive has given written notice to Employer within sixty (60) days after the first occurrence of such event or, if later, ten (10) days after the most recent
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occurrence, which has not be remedied by Employer within thirty (30) days and Executive has performed her reasonable duties during such notice period and prior to any cure; (b) Employer’s direction to Executive to engage in any unlawful act or act of dishonesty, provided, however, that Executive has given written notice to Employer within sixty (60) days after the first occurrence of such event or, if later, ten (10) days after die most recent occurrence, which has not been remedied by Employer within thirty (30) days; or (c) Employer’s material breach of its obligations under this Agreement, provided, however, that Executive shall provide Employer with written notice within sixty (60) days after the first occurrence of such breach or, if later, ten (10) days after the most recent occurrence and Employer shall not have substantially cured such breach (if curable) within thirty (30) days after such written notice is given. Notwithstanding the foregoing, in order to resign for Good Reason, Executive must resign from all positions Executive then holds with Employer, effective not later than sixty (60) days after the expiration of the cure period if such event is not reasonably cured within such period. Any actions taken by Employer to accommodate a disability of Executive or pursuant to the Family and Medical Leave Act shall not be a Good Reason for purposes of this Agreement. For the avoidance of doubt, any such resignation(s) shall have no effect on Executive’s rights as a shareholder of Employer.
4.5Termination Without Good Reason by Executive. Executive may terminate her employment without Good Reason upon notice to Employer given in accordance with Section 4.7. If Executive terminates her employment without Good Reason, including without limitation any notice by Executive of non-extension or intent to terminate under Sections 1.2 or 4.5 of this Agreement, Employer shall pay and provide to Executive an amount equivalent to that set forth in Section 4.2, above.
4.6Termination by Employer for Death or Disability. Executive’s employment shall terminate immediately upon Executive’s death without notice. Employer may terminate Executive’s employment upon the date of termination specified in a written notice of termination by reason of Executive’s illness, incapacity or injury which results in Executive’s absence from her duties with Employer or failure to render the services contemplated by this Agreement for three (3) consecutive calendar months, or for shorter periods aggregating four (4) calendar months in any twelve (12) month period. Prior to any termination under this paragraph for any reason other than death of Executive, Employer shall provide thirty (30) days’ prior written notice of its intent to terminate under this paragraph. Executive may then provide medical certification within the 30-day notice period that he will be able to and intends to perform her duties as set forth in this Agreement. If, within the 30-day notice period, Executive provides such medical certification and commences and/or continues to perform her duties under this Agreement, Employer shall not terminate this Agreement under this paragraph. For any termination of employment under this Section 4.6, Executive shall be entitled to the same payments and benefits set forth in Section 4.2, above.
4.7Termination Date. Except as provided specifically above, any termination under this Article 4 shall be effected by not less than sixty (60) days’ advance written notice, or, at Employer’s option, pay in lieu of such notice. The effective date of the termination (the “Termination Date”) shall be the date specified in such notice of such termination or, if no date is so specified, the date that is the sixtieth day after the date notice is given. Notices shall be given in accordance with Section 8.8 of this Agreement.
5.ARTICLE 5 – SECTION 409A COMPLIANCE
5.1Intent. The intent of the Parties is that payments and benefits under this Agreement comply with Internal Revenue Code Section 409A and the regulations and guidance promulgated thereunder (collectively “Code Section 409A”) and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith. In no event
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whatsoever shall Employer be liable for any additional tax, interest or penalty that may be imposed on Executive by Code Section 409A.
5.2Specified Employee. Notwithstanding any other payment schedule provided herein to the contrary, if Executive is deemed on the date of termination to be a “specified employee” within the meaning of that term under Code Section 409A(a)(2)(B), then with regard to any payment that is considered deferred compensation under Code Section 409A payable on account of a “separation from service,” such payment shall be made on the date which is the earlier of (i) the expiration of the six (6)-month period measured from the date of such “separation from service” of Executive, and (ii) the date of Executive’s death (the “Delay Period”) to the extent required under Code Section 409A. Upon the expiration of the Delay Period, all payments delayed pursuant to this Section 5.2 (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid to Executive in a lump sum with interest accruing commencing on the date payment would have otherwise been made at the prime rate of interest most recently published in The Wall Street Journal as of such date, and all remaining payments due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein.
5.3Expense Reimbursement Payments. All expenses or other reimbursements under this Agreement shall be made within a reasonable period of time following the satisfaction of Employer’s reasonable requirements with respect to reporting and documentation of such expenses, but in no event later than on or prior to the last day of the taxable year following the taxable year in which such expenses were incurred by Executive (provided that if any such reimbursements constitute taxable income to Executive, such reimbursements shall be paid no later than March 15th of the calendar year following the calendar year in which the expenses to be reimbursed were incurred), any right to reimbursement or in kind benefits is not subject to liquidation or exchange for another benefit, and no such reimbursement or expenses eligible for reimbursement in any taxable year shall in any way affect the expenses eligible for reimbursement in any other taxable year.
5.4Installment Payments. For purposes of Code Section 409A, Executive’s right to receive any installment payment pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments.
6.ARTICLE 6 – CONFIDENTIAL AND PROPRIETARY INFORMATION AND NON-COMPETITION
6.1As a condition of this Agreement, the grant provided for in Section 3.4, and the Executive’s employment with Employer, the Executive will execute the Confidential and Proprietary Information and Non-Competition Agreement in the form that has been provided herewith as Exhibit “B” based on comparable agreements with other senior executives of Employer (the “CPIN Agreement”) on or before the date on which this Agreement is signed, and Employer’s obligations hereunder, including the obligations to pay the Severance, are contingent on the Executive’s complying with such CPIN Agreement at all times as described therein.
7.ARTICLE 7 – COOPERATION AND CORPORATE OPPORTUNITIES
7.1Cooperation. Upon the receipt of reasonable notice from Employer (including, without limitation, notice on behalf of Employer by its outside counsel), Executive agrees that while employed by Employer and, subject to Executive’s other business commitments, thereafter, Executive will respond and provide information with regard to matters in which Executive has knowledge as a result of Executive’s employment with Employer and will provide reasonable assistance to Employer, and affiliated entities and their respective representatives in defense of any claims that may be made against Employer or any affiliated
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entities of Employer, and will assist Employer and any affiliated entities in the prosecution of any claims that may be made by Employer or such affiliated entity, to the extent that such claims may relate to Executive’s employment or to Executive’s prior employment by Employer. Executive agrees to promptly inform Employer if Executive becomes aware of any lawsuits involving such claims that may be filed or threatened against Employer or any of Employer’s affiliated entities. Executive also agrees to promptly inform Employer (to the extent Executive is legally permitted to do so) if Executive is asked to assist in any investigation of Employer or any affiliated entities (or their respective actions), regardless of whether a lawsuit or other proceeding has then been filed against Employer or any affiliated entities with respect to such investigation, and shall not do so unless legally required. If Executive is required to provide any services pursuant to this Section 7.1 following the termination of Executive’s employment, upon presentation of appropriate documentation, Employer shall reimburse Executive for reasonable out-of-pocket expenses incurred in connection with the performance of such services. In addition, if and to the extent that Executive is required to devote more than two hours during a calendar year to fulfill the obligations set forth in this Section 7.1. at a time when he is no longer being compensated by Employer in any way, it will compensate Executive for such cooperation at an hourly rate based on Executive’s Salary during the last pay period of Executive’s active employment by the Employer.
7.2Corporate Opportunity. During the Term, Executive shall submit to Employer all bona-fide business, commercial and investment opportunities or offers presented to Executive or to which Executive becomes aware which relate to Employer’s business or the business of any of Employer’s affiliated entities at any time during such employment (“Corporate Opportunities”). Unless approved by Employer, Executive shall not accept or pursue, directly or indirectly, any Corporate Opportunities on Executive’s own behalf.
8.ARTICLE 8 – MISCELLANEOUS
8.1Tax Withholding. Employer is authorized to withhold from any payment or benefit provided hereunder, the amount of withholding taxes due any federal, state or local authority in respect of such benefit or payment and to take such other action as may be necessary in the opinion of Employer to satisfy all obligations for the payment of such withholding taxes. In the event Employer does not make such deductions or withholdings, Executive shall indemnify Employer for any amounts paid with respect to any such taxes, together with any interest, penalties and related expenses thereto.
8.2Key Person Insurance. Employer, in the sole and absolute discretion of the Board, has the right throughout the term of Executive’s employment with Employer to obtain or increase insurance on Executive’s life in such amount as the Board determines, in the name of Employer or an affiliated entity chosen by the Board for Employer’s sole benefit. Any insurance obtained by the Board or the Employer for the Executive will be communicated to the Executive prior to any final purchase. Upon reasonable advance notice, Executive will cooperate in any and all necessary physical examinations without expense to Executive, supply information, and sign documents, and otherwise cooperate fully with Employer as Employer may request in connection with any such insurance. Executive further agrees, on behalf of himself and her estate, heirs, successors and assigns (collectively, the “Executive Estate”), that the Executive Estate shall have no interest in or rights to receive the benefits of, any key person life insurance policy covering the life of the Executive which is purchased by Employer or an affiliated entity and names Employer or an affiliated entity as the beneficiary under such policy.
8.3Severable Provisions. The provisions of this Agreement are separate and distinct, and if any provisions are determined to be invalid, void, unenforceable or against public policy, in whole or in part, the remaining provisions of this Agreement, and the enforceable parts of any partially invalid, void or unenforceable provisions or provisions partially against public
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policy, shall nevertheless remain in full force and effect and shall be enforceable. Any unenforceable provisions shall be severed.
8.4Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties and their personal or legal representatives, executors, administrators, heirs, distributes, devisees, legatees, and permitted successors and assigns. Executive may not assign or delegate her rights and duties under this Agreement.
8.5Governing Law/Venue. This Agreement in all respects shall be governed by and interpreted in accordance with the laws of the state of Delaware, both procedural and substantive, without regard to conflicts of law, except to the extent that federal laws and regulations preempt otherwise applicable law. The Parties agree that any and all legal action that may arise out of or relate to this Agreement or Executive’s employment or termination of employment shall take place solely and exclusively within the state of Delaware, and that neither party shall seek to enforce its rights under this Agreement in any place other than the state of Delaware. The Parties agree that they will submit to the jurisdiction of the state of Delaware. Any appellate proceedings shall take place in the appropriate courts having appellate jurisdiction over the courts set forth in this paragraph.
8.6Headings. Article and paragraph headings are not a part of this Agreement. They are included solely for convenience and reference, and they in no way define, limit, or describe the scope of this Agreement or the intent of any of its provisions.
8.7Integration/Waiver. Except as set forth in this Section 8.7, this Agreement, including, without limitation, any documents expressly incorporated into it by the terms of this Agreement, constitutes the entire agreement between the Parties and supersedes all prior oral and written agreements, understandings, negotiations, and discussions relating to the subject matter of this Agreement. Any supplement, modification, waiver, or termination of this Agreement and the terms and conditions hereof is valid only if it is set forth in a writing signed by both Parties, or in the case of a waiver, by the Party waiving compliance. The waiver of any provision of this Agreement shall not constitute a waiver of any other provisions and, unless otherwise stated, shall not constitute a continuing waiver.
8.8Notice. Any notice or other communication required or permitted under this Agreement shall be in writing and shall be deemed to have been given (a) if personally delivered, when so delivered, (b) if mailed, three (3) days after having been placed in the United States mail, registered or certified, postage prepaid, addressed to the party to whom it is directed at the address listed below, (c) if sent by reputable overnight courier for overnight delivery to the party to whom it is directed at the address listed below, one (1) business day after delivery to such courier, or (d) if given by electronic mail if sent during normal business hours of the recipient, and if not, then on the next business day:
If to Employer:
Cava Group, Inc.
702 H St. NW 2nd Floor
Washington, DC 20001
Email: [***]
702 H St. NW 2nd Floor
Washington, DC 20001
Email: [***]
If to Executive:
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Kelly Costanza
[***]
[***]
Email: [***]
[***]
[***]
Email: [***]
In order for a Party to change its address or other information for the purpose of this Section, the Party must first provide notice of that change in the manner required by this Section.
8.9Counterparts. This Agreement may be executed in counterparts (including, but not limited to, by electronic means such as .PDF), each of which shall be deemed an original, but all of which shall constitute one and the same instrument.
8.10Public Offering. At or about the time the Employer, or any Affiliate thereof, files a registration statement filed under the Securities Act of 1933, as amended, the Employer shall conduct a review of the Employer’s compensation policies and structure, which review shall include, at a minimum, input from the Independent Compensation Consultant then serving the Employer. In the event the Employer has not engaged an Independent Compensation Consultant, the Employer shall select one for this purpose. Following the conclusion of this review, to the extent Employer makes broad changes to the compensation structure for the Employer’s executive officers as a result of such review, in alignment with the Employer’s then-current compensation philosophy, Employer and Executive will negotiate in good faith to reflect such changes in an amended form of this agreement.
[Signature Page Follows]
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EACH PARTY ACKNOWLEDGES that it or he has had an opportunity to negotiate, carefully consider, and receive advice of counsel on the terms of this Agreement before signing it.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of May 20,2022.
Employer:
Cava Group, Inc.
By: /s/ Brett Schulman
Its:
Executive:
/s/ Kelly Costanza
Kelly Costanza
Signature Page to Amended and Restated Employment Agreement (Costanza)
Exhibit A
Form of General Release
GENERAL RELEASE
THIS GENERAL RELEASE (this “General Release”) is made between Cava Group, Inc. (“Employer”) and Kelly Costanza (“Executive”) (together, the “Parties” and each a “Party”) effective as of May 20, 2022 (the “Effective Date”).
WHEREAS, Executive and Employer entered into an Employment Agreement effective as of May 20, 2022 (the “Employment Agreement”).
WHEREAS, pursuant to Section 5.3 of the Employment Agreement, in the event of a termination of employment of Executive under such section, Executive shall be entitled to receive Severance (as defined in the Employment Agreement) if and only if within the Release Period (as defined in the Employment Agreement) Executive has executed and delivered to Employer an effective form of this General Release, among any other conditions as more particularly set forth in the Employment Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which the parties hereby acknowledge, Employer and Executive hereby agree as follows:
1.General Release. Executive expressly acknowledges that the payments and benefits set forth in the Employment Agreement shall be in lieu of any other termination or severance payments or other benefits of any kind or to which Executive may claim, all of which are fully waived and released by Executive. Executive acknowledges that Employer shall have no further financial or benefit obligations once the Employer has fulfilled its obligations as detailed in the Employment Agreement. Except for any claims that cannot be released under applicable law, Executive, on behalf of Executive and Executive’s heirs, executors, representatives, administrators, agents, insurers, and assigns (collectively, the “Releasor Parties”), knowingly and voluntarily release and forever discharge Employer and Employer’s parents, subsidiaries, affiliates, predecessors, successors, and assigns, and each of its and their respective agents, officers, directors, employees, in their corporate and individual capacities (collectively, the “Released Parties”), from any and all claims, suits, controversies, actions, causes of action, cross-claims, counter-claims, demands, debts, compensatory damages, liquidated damages, punitive or exemplary damages, other damages, claims for costs and attorneys’ fees, or liabilities of any nature whatsoever in law and in equity, both past and present through the Effective Date and whether known or unknown, suspected, or claimed against any of the Released Parties which any of the Releasor Parties may have, which arise out of or are connected with Executive’s employment with, or Executive’s separation or termination from, Employer (including, but not limited to, any allegation, claim or violation, arising under: Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended (including the Older Workers Benefit Protection Act (the “OWBPA”) (the “ADEA”); the Equal Pay Act of 1963, as amended; the Americans with Disabilities Act of 1990; the Family and Medical Leave Act of 1993; the Worker Adjustment Retraining and Notification Act; the Employee Retirement Income Security Act of 1974; any applicable Executive Order Programs; the Fair Labor Standards Act; or any their state or local counterparts; or any other federal, state or local civil or human rights law, or any other
local, state, or federal law, regulation or ordinance; or any public policy, contract or tort, or common law; or any policies, practices or procedures of Employer; or any claim for wrongful discharge, breach of contract, infliction of emotional distress, defamation; or any claim for costs, fees, or other expenses, including attorneys’ fees incurred in any of the foregoing matters) (all of the foregoing collectively, the “Claims”). The Releasor Parties acknowledge that Executive has (i) received all compensation due to Executive as a result of services performed for Employer with the receipt of Employer’s final pay check; (ii) reported to Employer any and all work-related injuries or occupational disease incurred by Executive during Executive’s employment by Employer; (iii) been properly provided any leave requested under the Family and Medical Leave Act or similar state or local laws and has not been subjected to any improper treatment, conduct or actions due to a request for or taking such leave; (iv) provided Employer with written notice of any and all concerns regarding material ethical and compliance issues or violations on the part of any of the Released Parties; and (v) not filed any complaints, claims, or actions against any of the Released Parties. The Releasor Parties agree that if any of the Releasor Parties violate this General Release in any action against any of the Released Parties, such Releasor Parties agree to pay all costs and expenses of defending against such action incurred by such Released Parties, including reasonable attorneys’ fees, costs and related expenses.
2.Exclusions. This General Release shall not apply to (a) any claim under the workers compensation or unemployment compensation statutes or any other claim, which, as a matter of law, cannot be released by private agreement, (b) any claims or rights that may arise from events that occur after the date that Executive signs this General Release, (c) any rights to vested benefits, such as pension or retirement benefits, the rights to which are governed by the terms of the applicable plan documents and award agreements, (d) indemnification rights that any of the Releasor Parties has against Employer pursuant to a written agreement, or (e) any claims or rights that cannot be waived by law. Furthermore, nothing in this General Release (a) limits or affects any of the Releasor Parties’ rights to challenge the validity of this General Release under the ADEA or the OWBPA, (b) prevents any of the Releasor Parties from filing a charge or complaint with or from participating in an investigation or proceeding conducted by the U.S. Equal Employment Opportunity Commission, the National Labor Relations Board, the Securities and Exchange Commission, or any other federal, state or local agency charged with the enforcement of any laws, or (c) prevents any of the Releasor Parties from exercising their rights under Section 7 of the National Labor Relations Act to engage in protected, concerted activity with other employees, although by signing this General Release, the Releasor Parties hereby waive their right to recover any individual relief (including any money damages, reinstatement or other legal or equitable relief) in any charge, complaint, or lawsuit or other proceeding brought by any of the Releasor Parties or on any of their behalf by any third party, except where such a waiver is prohibited.
3.Miscellaneous. This General Release constitutes the entire agreement and understanding of the Parties and supersedes all prior negotiations and/or agreements, proposed or otherwise, written or oral, concerning the subject matter hereof. No modification of this General Release shall be binding unless in writing and signed by each of the parties hereto. If any provision of this General Release is declared or determined by any court to be illegal or invalid, then the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal or invalid part, term or provision shall be deemed not to be a part of this General Release. The failure or refusal of a Party to insist upon strict compliance with any of the terms of this General Release upon the occurrence of a breach by the other Party shall not be considered to be a waiver of any such terms nor shall it affect the right of such Party to insist upon strict compliance herewith at any time thereafter. This General Release shall be governed by and construed and performed in accordance with the laws of the State of Delaware without reference to conflict of laws principles. The Parties agree that any and all legal action that may arise out of or relate to this General Release shall take place solely and exclusively within the state of Delaware, and that neither party shall seek to enforce its rights under this Agreement in any place
other than the State of Delaware. In the event an ambiguity or question of intent or interpretation arises, this General Release shall be construed as if drafted together by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of authorship of any provision of this General Release. In entering into this General Release, the Parties acknowledge that they have had ample opportunity to receive advice from attorneys of their own choosing and that the terms hereof are fully understood and voluntarily accepted by each such Party. This General Release may be executed in two or more counterparts (including electronic counterparts, such as portable document format (PDF) counterparts), each of which shall be deemed to be an original, and all of which together shall constitute one and the same agreement.
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties hereto have caused this General Release to be executed as of May 20, 2022.
Employer:
Cava Group, Inc.
By: /s/ Brett Schulman
Its:
Executive:
/s/ Kelly Costanza
Kelly Costanza
Exhibit B
Form of Confidential and Proprietary Information and Non-Competition Agreement
CONFIDENTIAL AND PROPRIETARY INFORMATION
AND NON-COMPETITION AGREEMENT
AND NON-COMPETITION AGREEMENT
I, Kelly Costanza, in consideration of the terms and conditions of my employment agreement with Cava Group Inc. (“Company”) dated as of May 20, 2022 (the “Employment Agreement”), and the compensation and other consideration that may hereafter be paid to me, agree to the following:
1.EMPLOYEE WARRANTIES
I represent and warrant that: (i) I am free to enter into the terms of this Confidential And Proprietary Information And Non-Competition Agreement (“Agreement”); (ii) I have no obligations inconsistent with the terms and conditions of the Employment Agreement or this Agreement; (iii) my performance of all the terms of this Agreement and as an employee of Company does not and will not breach any agreement to keep in confidence information acquired by me in confidence or in trust prior to my employment by Company; (iv) I have not and will not disclose any such confidential information to Company; and (v) I have not entered into, and I agree I will not enter into, any agreement either written or oral in conflict herewith.
I agree to: (i) devote my entire business time, attention, and energies to the business of Company and its operation, (ii) faithfully and competently perform all duties in connection with my employment, (iii) comply with Company’s policies and procedures, and (iv) not take any steps or engage in any actions to prepare to compete with Company while I am an employee of Company.
2.NO ASSURANCES OF CONTINUED EMPLOYMENT
I understand and agree that nothing in this Agreement or any discussions I have had with Company or any of its representatives shall be construed to give me any right or assurance of continued employment by Company beyond any terms and conditions of the Employment Agreement.
3.CONFLICTING EMPLOYMENT
I agree that during the term of my employment with Company I will not engage in any other employment, occupation, consulting or other business activity related to the business in which Company is now involved or becomes involved during the term of my employment, nor will I engage in any other activities that conflict with my obligations to Company.
4.CONFIDENTIAL NATURE; PUBLIC STATEMENTS
4.1I shall keep confidential the terms of this Agreement except to the extent such terms become known or available to the public other than by my act(s) or omission(s) in breach of this Agreement. A breach of this confidentiality undertaking shall relieve Company of any of its undertakings and obligations set forth herein.
4.2The provisions of Subsection 4.1 notwithstanding, it shall not be deemed a violation of my duty to keep the terms hereof confidential should:
(i)disclosure be compelled by applicable law or by order of either a court of competent jurisdiction or governmental or administrative authority; or
(ii)disclosure of this Agreement be made by me to members of my immediate family, or to professionals consulted by me for advice regarding this Agreement, including, without limitation, lawyers and certified public accountants; provided that any person to whom such disclosure is authorized shall agree to be bound by the terms of Section 4.
5.CONFIDENTIAL AND PROPRIETARY INFORMATION
5.1I understand and acknowledge that in the course of my employment, I have received and/or will receive and/or may receive and/or have access to certain “Confidential Information” (as defined below) of Company. I hereby acknowledge that such Confidential Information constitutes a valuable and proprietary asset of Company which Company desires to protect.
5.2For purposes of this Agreement, “Confidential Information” shall include, but not be limited to, the following: this Agreement; trade secrets; operating techniques, procedures and methods; product specifications; customer lists and customer information (including, but not limited to catering customers and credit card information); customer information (including, but not limited to, credit card information); account information; price lists; discount schedules; budgets; correspondence with customers (including, but not limited to catering customers), vendors, competitors, employees, partners, franchisees or any other entity or person; drawings; software; samples; leads from any source; marketing techniques; procedures and methods; employee lists; internal financial reports (including, but not limited to, internal sales and/or profit and loss reports) of Company and its affiliates and/or franchisees; sourcing lists; recruiting lists; Company strategies, business plans, or research; and any other such proprietary information, but shall not include any such information which has become generally known to or available for use by the public other than by my act(s) or omission(s).
5.3I agree that during the term of this Agreement and at any time thereafter, I will not, without the written authorization of Company or except as permitted under this Agreement: (i) disclose any Confidential Information to any person or entity for any purpose whatsoever; or (ii) make use of any Confidential Information for my own purposes or for the benefit of any other person or entity, other than Company, and it is expressly understood and agreed that this prohibition restricts me from using any Confidential Information in competition with Company at any time. I understand that I shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (a) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.
5.4I understand that my obligations under this Section 5 are in addition to, and not in limitation of, my obligations under Company’s policies and procedures.
5.5I agree that all Work Product (defined below) and Intellectual Property Rights (defined below) shall be the sole and exclusive property of Company. “Work Product” means all writings, inventions, discoveries, ideas and other work product of any nature whatsoever that I create on my own or in collaboration with others during my employment with Company and that relates to the business, contemplated business, research or development of Company.
“Intellectual Property Rights” means all rights in and to copyrights, trade secrets, trademarks (and related goodwill), patents and other intellectual property rights arising out of the Work Product, in any jurisdiction throughout the world, and all related rights of priority under international conventions. I acknowledge that, by reason of being employed by Company, all of the Work Product is, to the extent permitted by law, “work made for hire” as defined in the Copyright Act of 1976 (17 U.S.C. § 101) and is the property of Company. To the extent that any Work Product is not “work made for hire,” I hereby irrevocably assign to Company, for no additional consideration, my entire right, title and interest in and to all Work Product and Intellectual Property Rights therein. During and after my employment, I agree to reasonably cooperate with Company to (i) apply for, obtain, perfect and transfer to Company the Work Product and any Intellectual Property Rights in the Work Product in any jurisdiction in the world; and (ii) maintain, protect and enforce the same. I hereby irrevocably grant Company power of attorney to execute and deliver any such documents on my behalf and in my name and to do all other lawfully permitted acts to transfer the Work Product to Company and further the transfer, issuance, prosecution and maintenance of all Intellectual Property Rights therein, to the full extent permitted by law, in the event that I do not promptly cooperate with Company’s request. The power of attorney is coupled with an interest and shall not be affected by my subsequent incapacity.
6.COVENANTS NOT TO COMPETE
6.1I covenant and agree that I will not engage in any “Competitive Activity” (as defined below) at any time during my employment with Company and/or within the twelve (12) month period following the date of my termination from Company for any reason or no reason and I agree that these restrictions are reasonable and appropriate for purposes of protecting Company’s legitimate business interests.
6.2“Competitive Activity” shall include the following:
(i)directly or indirectly being employed by, advising, consulting in, or acting in any way as an agent for any company listed on Attachment A (the “Listed Competitors”); or
(ii)directly or indirectly being employed by, advising, consulting in, or acting in any way as an agent for any entity engaged, in whole or in part, in any retail food establishment (including any fast food, fast casual or casual dining restaurant, home delivery, caterer or bakery) in which bowls and salads, combined, amount to at least twenty percent (20%) of “restaurant revenues,” excluding those restaurants where the customer orders from a server at the customer’s table; or
(iii)providing any services, directly or indirectly, to any division or direct or indirect parent company of any Listed Competitor (including the parent companies listed on Attachment A), or any Other Competitor, or to any other affiliated company of a Listed Competitor or Other Competitor; other than any entity that owns a minority interest in a Listed Competitor or Other Competitor solely as a passive investor, without any involvement in the management of such Listed Competitor or Other Competitor; or
(iv)having, or acquiring any interest in (whether as proprietor, partner, member, stockholder, consultant, officer, director, or any type of principal whatsoever) any Listed Competitor, Other Competitor or in any division, or direct or indirect parent company of any Listed Competitor or Other Competitor, except that the direct or indirect ownership of five percent (5%) or less of the stock of a company whose shares are listed on a national securities exchange or are quoted on the National Association of Securities Dealers Automated Quotation System shall not be deemed having or acquiring any such interest.
6.3Both during the term of my employment with Company and at any time within the twenty-four (24) month period following my termination from Company for any reason or no reason, I hereby agree not to directly or indirectly solicit or otherwise attempt to induce, influence, or encourage any employee, independent contractor, consultant, supplier, catering customer or franchisee of Company to terminate and/or modify in any way his/her and/or its employment or other such business relationship with Company and/or its affiliates.
6.4For purposes of Section 6, references to “Other Competitor” shall mean the entity and/or entities described in 6.2(ii).
6.5For purposes of Section 6, references to “where Company is engaged in business” and/or “where Company is attempting to engage in business” and/or “where Company may reasonably be expected to engage in business”, shall mean any and/or all current and/or future franchisee operations as well as any current and/or future Company operations.
6.6For purposes of Section 6.2(ii), reference to “restaurant revenues” shall mean all sales at retail including through catering and delivery. Such term does not include products sold as consumer packaged goods.
6.7At any time, I may request a waiver, in whole or in part, of Section 6 by notifying Company in writing of my request. Within 15 days of my providing Company with all relevant information pertaining to such a waiver request and my providing such written information as Company may request regarding the potential violation of these covenants, Company, through the Chief Executive Officer and/or his/her designee, will consider such a request and communicate with me.
7.RETURN OF COMPANY DOCUMENTS; COOPERATION; NONDISPARAGEMENT
7.1When I leave the employ of Company, I will deliver to Company any and all drawings, notes, memoranda, specifications, devices, formulas, and any other documents pertaining to Company and/or Company’s business, including, but not limited to, computer files, together with all copies thereof, and any other material containing or disclosing any Confidential Information as defined in Section 5 above (collectively “such Documents”). The above shall include any and all such Documents contained on, for example, a home computer system. I further agree not to retain in any way any such Documents, and I will, for example, first return such Documents and then delete such Documents from any home computer system. I further agree that any property situated on Company’s premises and/or owned by Company, including disks and other storage media, filing cabinets or other work areas, is subject to inspection by Company personnel at any time with or without notice.
7.2I agree that during my employment and thereafter, at Company’s reasonable expense, I will do all things including, but not limited to, the giving of evidence in suits and other proceedings which Company shall deem necessary or appropriate to obtain, maintain or assert rights accruing to, and defending claims against, Company, its affiliates and/or franchisees in connection with which I have knowledge, information or expertise; provided, however, that Company shall not unreasonably disrupt my current employment and Company shall compensate me for the value of my time spent assisting in such matters at my then current compensation rate if I am not so compensated by my then current employer.
7.3I agree that during my employment, and after my employment with Company ends for any reason, I will not make any false or disparaging statement(s) about Company, its affiliates, its employees, or its business to any other employees, customers, vendors or any other third party. I understand that nothing in this Agreement shall be construed to prohibit me from
reporting alleged improper or unlawful conduct to, or participating in any investigation or proceeding conducted by, any federal or state government agency or self-regulatory agency.
8.REMEDIES
I acknowledge that Company’s remedy at law for a breach of Sections 4, 5, 6 and 7 of this Agreement would be inadequate, and I hereby expressly agree that Company shall be entitled to apply to any court, having jurisdiction, for an injunction restraining me in the event of a breach, actual or threatened, of the covenants contained in this Agreement without the necessity of proof of actual damages. Such right shall be in addition to any other remedies provided for in this Agreement, the Employment Agreement, the Option Agreement, or otherwise available at law or equity, including forfeiture of any severance and options. I further waive any requirement that a bond be posted or that irreparable damage be demonstrated as a condition to any injunctive relief. I further agree that to the extent permissible by applicable law the twelve (12) month and twenty- four (24) month time periods for the restrictive covenants set forth in Sections 6.1 and 6.3 of this Agreement shall be tolled for any period of time where I am in breach of Sections 6.1 and 6.3, and I understand that the periods of restriction shall be extended for a period equal to the period of time where I am in breach.
9.GOVERNING LAW/VENUE
This Agreement in all respects shall be governed by and interpreted in accordance with the laws of the state of Delaware, both procedural and substantive, without regard to conflicts of law, except to the extent that federal laws and regulations preempt otherwise applicable law. The Parties agree that any and all legal action that may arise out of or relate to this Agreement or Executive’s employment or termination of employment shall take place solely and exclusively within the state of Delaware, and that neither party shall seek to enforce its rights under this Agreement in any place other than the state of Delaware. The Parties agree that they will submit to the jurisdiction of the state of Delaware. Any appellate proceedings shall take place in the appropriate courts having appellate jurisdiction over the courts set forth in this paragraph. In the event any litigation or similar proceeding arises with respect to any provision of this Agreement, the non-prevailing party to such litigation or similar proceeding shall reimburse the prevailing party for the reasonable costs and expenses (including reasonable attorneys’ and expert witness fees) thereof incurred in connection with such litigation or similar proceeding.
10.NOTICES
Any notices required or permitted hereunder shall be given to the appropriate party at the address specified below or at such other address as the party shall specify in writing. Such notice shall be deemed given upon personal delivery to the appropriate address or if sent by certified or registered mail, three (3) days after the date of mailing.
(i)All notices to me shall be addressed to me at such other place(s) as I may designate by written notice to Company.
(ii)All notices to Company shall be addressed to the Company’s General Counsel or to such other place(s) as Company may designate by written notice to me.
11.NOTIFICATION OF NEW EMPLOYER
I agree that for twenty-four (24) months after termination of my employment with Company I will advise any prospective employer of the covenants and restrictions of this Agreement before accepting any offer from another employer and such notification shall not be a breach of Subsection 4.1.
12.DEATH
This Agreement and all obligations of Company hereunder shall terminate upon my death.
13.MISCELLANEOUS
13.1No waiver by Company of any breach of this Agreement shall be a waiver of any preceding or succeeding breach. No waiver by Company of any right under this Agreement shall be construed as a waiver of any other right. Company shall not be required to give notice to enforce strict adherence to all terms of this Agreement.
13.2In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein, and each provision of this Agreement shall, if necessary, be deemed to be independent of each other and each supported by valid consideration. If moreover, any one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting and reducing it, so as to be enforceable to the extent compatible with the applicable law as it shall then appear.
13.3To the extent necessary to provide Company with the full and complete benefit of this Agreement, the provisions in this Agreement and my obligations hereunder shall survive the termination of this Agreement and shall not be affected by such termination. The provisions of this Agreement shall also survive the assignment of this Agreement by Company to any successor in interest or other assignee.
13.4This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of Company, its successors, and its assigns.
13.5The captions and headings throughout this Agreement are for convenience and reference only, and they shall in no way be held or deemed to define, modify or add to the meaning, scope or intent of any provision of this Agreement.
13.6Except as otherwise contemplated in Subsection 5.4 hereof, this Agreement is the final, complete and exclusive agreement of the parties with respect to the subject matter hereof and supersedes and merges all prior discussions between us. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing and signed by the party to be charged. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement.
13.7This Agreement may be executed simultaneously in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original but all of which counterparts shall together constitute but one agreement.
13.8By signing below, I acknowledge receiving a copy of this Agreement; I acknowledge and agree that I am entering into this Agreement voluntarily and of my own free will; and I acknowledge and agree that I have not been coerced or suffered any duress in order to induce me to enter into this Agreement.
13.9This Agreement shall be effective as of the first date signed below.
14.ATTORNEY REVIEW
I acknowledge that I have been expressly advised by Company to review this Agreement with an attorney prior to executing it.
I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND THE MEANING OF ITS VARIOUS TERMS AND THE CONSEQUENCES OF SIGNING THIS AGREEMENT.
I HAVE BEEN GIVEN MORE THAN REASONABLE TIME TO CONSIDER AND ACCEPT THE CONDITIONS OF THIS AGREEMENT,
/s/ Kelly Costanza
Signature
6/22/22
Date
Kelly Costanza
Name (typed or printed)
ACCEPTED AND AGREED TO:
COMPANY
By: /s/ Brett Schulman
Name: Brett Schulman
Title: CEO
Dated: 6/24/22
Attachment A: Listed Competitors
•Chipotle
•Starbucks
•Sweetgreen
•Tender Greens
•Dig Inn
•Noodles and Co
•Honeygrow
•Mendocino Farms
•Lemonade
•Shake Shack
•Roti
•Naf Grill
•Luna Grill
•Garbanzo
•JAB Holding Company-owned companies, including but not limited to Panera/Au Bon Pain, KKD, Caribou/Einstein’s/Bruegger’s/Noah’s, Peets, Pret A Manger, Intelligentsia, Stumptown, and anything else created or acquired by JAB Holding Company
•Roark Capital Group or Inspire Brands-owned companies, including but not limited to Focus Brands, Jimmy John’s, Applebee’s, Arby’s, and Sonic.
Exhibit 19.1
CAVA GROUP, INC.
SECURITIES TRADING POLICY
This Securities Trading Policy (“Policy”) contains the following sections:
1.0 General
2.0 Definitions
3.0 General Statement of Policy
4.0 Other Prohibited Transactions
5.0 Certain Limited Exceptions
6.0 Pre-clearance of Trades and Other Procedures
7.0 10b5-1 Plans
8.0 Potential Criminal and Civil Liability and/or Disciplinary Action
9.0 Broker Requirements for Section 16 Persons
10.0 Confidentiality
11.0 Legal Effect of this Policy
1.0General
1.1CAVA Group, Inc. and its subsidiaries (collectively, the “Company”), their directors, officers and employees (collectively, “Company Personnel”), family members of Company Personnel and trusts, corporations and other entities controlled by any of such persons (collectively, together with Company Personnel, “Insiders”) must, at all times, comply with the securities laws of the United States and all applicable jurisdictions. Notwithstanding anything to the contrary contained herein, this Policy shall not apply to stockholders of the Company, in such capacity, and/or their affiliates, other than representatives of such stockholders that are serving as directors in their individual capacity.
1.2Federal securities laws prohibit trading in the securities of a company while aware of “inside” information. These transactions are commonly known as “insider trading”. It is also illegal to recommend to others (commonly called “tipping”) that they buy, sell or retain the securities of a company to which such inside information relates. This includes any communication providing inside information on social media or other internal or external Internet platforms. Anyone violating these laws is subject to personal liability and could face significant fines and criminal penalties, including imprisonment. Federal securities laws also create a strong incentive for the Company to deter insider trading by its employees. In the normal course of business, Company Personnel may come into possession of inside information concerning the Company, its industry, transactions in which the Company proposes to engage, or customers, partners, vendors or other entities with which the Company does business. Therefore, the Company has established this Policy with respect to trading in its securities and securities of certain other companies. Any violation of this Policy could subject you to disciplinary action, up to and including termination. See Section 8.0.
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1.3This Policy concerns compliance as it pertains to the disclosure of inside information regarding the Company or another company and to trading in securities while in possession of such inside information. In addition to requiring that Insiders comply with the letter of the law, it is the Company’s policy that Insiders exercise judgment so as to also comply with the spirit of the law and avoid even the appearance of impropriety.
1.4This Policy is intended to protect Insiders and the Company from insider trading violations. However, the matters set forth in this Policy are not intended to replace your responsibility to understand and comply with the legal prohibition on insider trading. Appropriate judgment should be exercised in connection with all securities trading. If you have specific questions regarding this Policy or applicable law, please contact the Chief Legal Officer or his or her designee.
2.0Definitions
2.1Family Members. For purposes of this Policy, the term “family members” includes family members who reside with you, anyone else who lives in your household and any family members who do not live in your household but whose transactions in the Company’s securities are directed by you or are subject to your influence or control. Company Personnel are responsible for the transactions of their family members and therefore should make them aware of the need to confer with them before they trade in the Company’s securities or securities of companies we do business with.
2.2Material. Information is generally considered “material” if a reasonable investor would consider it important in deciding whether to buy, sell, or hold a security. The information may concern the Company or another company and may be positive or negative. In addition, it should be emphasized that material information does not have to relate to a company’s business; information about the contents of a forthcoming publication in the financial press that is expected to affect the market price of a security could well be material. Insiders should assume that information that would affect their consideration of whether to trade, or which might tend to influence the price of the security, is material.
Examples of material information may include, but are not limited to:
•quarterly or annual results;
•guidance on earnings estimates, significant variances in results from previous guidance and changing or confirming such guidance on a later date or other projections of future financial performance;
•mergers, acquisitions, dispositions, tender offers, joint ventures, or changes in assets;
•significant developments with respect to products or technologies;
•developments regarding the Company’s material intellectual property;
•developments regarding customers or suppliers, including the acquisition or loss of an important contract;
•changes in control or in senior management;
•significant changes in executive compensation policy;
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•changes in or disputes with the Company’s independent registered public accounting firm or notification that the Company may no longer rely on such firm’s report;
•financings and other events regarding the Company’s debt instruments and securities (e.g., defaults, calls of securities for redemption, refinancings, amendments, share repurchase plans, stock splits, public or private sales of securities, changes in dividends and changes to the rights of securityholders);
•significant transactions in the Company’s securities by its equityholders;
•significant write-offs;
•significant pending or threatened litigation or governmental investigations or significant developments with respect to litigation or governmental investigations;
•a significant disruption in the Company’s operations, or loss, potential loss, breach or unauthorized access of the Company’s property or assets, including information technology infrastructure and cybersecurity and privacy incidents or events; and
•impending bankruptcy, corporate restructuring, or receivership.
Information that something is likely to happen or even just that it may happen can be material. Courts often resolve close cases in favor of finding the information material. Therefore, Insiders should err on the side of caution. Insiders should keep in mind that the rules and regulations of the Securities and Exchange Commission (“SEC”) provide that the mere fact that a person is aware of the information is a bar to trading. It is no excuse that such person’s reasons for trading were unrelated to the information.
2.3Non-Public Information. For the purpose of this Policy, all Company information is “Non-Public” until three criteria have been satisfied:
First, the information must have been widely disseminated by the Company. Generally, Insiders should assume that information has NOT been widely disseminated unless it has been disclosed by the Company in (i) a press release distributed through a widely disseminated news or wire service, (ii) a publicly available filing made with the SEC or (iii) another manner compliant with Regulation FD.
Second, the information disseminated must be some form of “official” announcement or disclosure, which, in the case of information about the Company, must be made by the Company. In other words, the fact that rumors, speculation, or statements attributed to unidentified sources are public is insufficient to be considered widely disseminated even when the rumors, speculation, or statements are accurate.
Third, after the information has been disseminated, a period of time must pass sufficient for the information to be absorbed by the general public. As a general rule, information should not be considered fully absorbed until after at least one full trading session has elapsed on the New York Stock Exchange (“NYSE”) after the information has been publicly disclosed in a manner compliant with Regulation FD.
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2.4Section 16 Persons: The term “Section 16 Persons” means the Company’s directors and officers (as defined in Rule 16a-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)).
2.5Security or Securities. The term “security” or “securities” is defined very broadly by the securities laws and includes stock (common and preferred), stock options, warrants, bonds, notes, debentures, convertible instruments, put or call options (i.e., exchange-traded options), or other similar instruments.
2.6Trade or Trading. The term “trade” or “trading” means broadly any purchase, sale or other transaction to acquire, transfer or dispose of securities, including derivative exercises, gifts or other contributions, pledges, exercises of stock options granted under the Company’s stock plans, sales of stock acquired upon the exercise of options and trades made under an employee benefit plan such as a 401(k) plan.
3.0General Statement of Policy
3.1No Insider may trade the Company’s securities at any time when the Insider has Material Non-Public Information concerning the Company. It is the responsibility of the Insider to be certain that he or she does not have Material Non-Public Information when determining to trade.
3.2No Insider may trade securities of another company at any time when the Insider has Material Non-Public Information about that company or its industry, including, without limitation, information about any of our customers, vendors, suppliers or partners, when that information was obtained as a result of the Insider’s employment or relationship to the Company.
3.3No Insider may disclose (“tip”) Material Non-Public Information to any other person (including family members), and no Insider may make trading recommendations on the basis of Material Non-Public Information. In addition, Insiders should take care before trading on the recommendation of others to ensure that the recommendation is not the result of an illegal “tip”.
3.4No Insider who receives or has access to the Company’s Material Non-Public Information may comment on stock price movements or rumors of other corporate developments (including discussions in Internet “chat rooms” or on social media platforms) that are of possible significance to the investing public unless it is part of the Insider’s job (such as Investor Relations) or the Insider has been specifically authorized in accordance with the Company’s Policy and Procedures for Compliance with Regulation FD, which prohibits selective disclosure of Material Non-Public Information to market participants by persons acting on behalf of the Company. If you comment on corporate developments, stock price movements or rumors or disclose Material Non-Public Information to a third party, you must contact the Chief Legal Officer or his or her designee immediately.
3.5In addition, it is generally the practice of the Company not to respond to inquiries and/or rumors concerning the Company’s affairs. If you receive inquiries concerning the Company from the media or inquiries from securities analysts or other members of the financial community, you should refer such inquiries, without comment, to the Company’s Chief Financial Officer, the head of investor relations or the Chief Legal Officer or their respective designees.
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3.6Certain Insiders may only trade in the Company’s securities during the four “Window Periods” that occur each fiscal year or in connection with an SEC-registered underwritten secondary offering of the Company. See Section 5.0. Certain of these persons must also receive pre-approval prior to any transaction. See Section 6.0.
3.7An Insider who is aware of Material Non-Public Information when he or she ceases to be an Insider, may not trade in the Company’s securities until that information has become public or is no longer material. In addition, this Policy continues in effect for all Permanent Restricted Persons and Other Restricted Persons (each as defined below) until the opening of the first Window Period after termination of employment or other relationship with the Company, except that, unless notified otherwise by the Company, the pre-clearance requirements set forth in Section 6.0 continue to apply to Permanent Restricted Persons for six months after the termination of their status as a Permanent Restricted Person. See Section 6.3. If you have specific questions regarding this Policy, what may constitute Material Non-Public Information or applicable law, please contact the Chief Legal Officer or his or her designee.
4.0Other Prohibited Transactions
4.1No Short Sales, Hedging or Speculative Transactions. No Insider, whether or not he or she possesses Material Non-Public Information, may trade in options, warrants, puts and calls or similar instruments on the Company’s securities or sell such securities “short” (i.e., selling stock that is not owned and borrowing the shares to make delivery) or engage in speculative trading (e.g., “day-trading”) that is intended to take advantage of short-term price fluctuations. Such activities may put the personal gain of the Insider in conflict with the best interests of the Company and its securityholders or otherwise give the appearance of impropriety. No Insider may engage in any transactions (including variable forward contracts, equity swaps, collars and exchange funds) that are designed to hedge or offset any decrease in the market value of the Company’s equity securities.
4.2Managed Accounts. If you have a managed account (where another person has been given discretion or authority to trade without your prior approval), you should advise your broker or investment advisor not to trade in Company securities at any time.
4.3Margin Accounts and Pledges. Securities purchased on margin may be sold by the broker without the customer’s consent if the customer fails to meet a margin call. Similarly, securities held in an account which may be borrowed against or are otherwise pledged (or hypothecated) as collateral for a loan may be sold in foreclosure if the borrower defaults on the loan. Accordingly, if you purchase securities on margin or pledge them as collateral for a loan, a margin sale or foreclosure sale may occur at a time when you are aware of Material Non-Public Information or otherwise are not permitted to trade in our securities. The sale, even though not initiated at your request, is still a sale for your benefit and may subject you to liability under the insider trading rules if made at a time when you are aware of Material Non-Public Information. Similar cautions apply to a bank or other loans for which you have pledged stock as collateral.
Therefore, no Insider, whether or not in possession of Material Non-Public Information, may purchase the Company’s securities on margin, or borrow against any account in which the Company’s securities are held, or pledge the Company’s securities as collateral for a loan, without first obtaining pre-clearance. Request for approval must be submitted to the Chief Legal Officer at least two weeks prior to the execution of the documents evidencing the proposed pledge. The Chief Legal Officer is under no obligation to
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approve any request for pre-clearance and may determine not to permit the arrangement for any reason. Approvals will be based on the particular facts and circumstances of the request, including, but not limited to, the percentage amount that the securities being pledged represent of the total number of our securities held by the person making the request and the financial capacity of the person making the request. Notwithstanding the pre-clearance of any request, the Company assumes no liability for the consequences of any transaction made pursuant to such request.
5.0Certain Limited Exceptions
The prohibition on trading in the Company’s securities set forth in Section 3.0 above does not apply to:
•Transferring shares to an entity that does not involve a change in the beneficial ownership of the shares (for example, to an inter vivos trust of which you are the sole beneficiary during your lifetime) or transferring shares between an Insider’s accounts that are both controlled by the Insider and which do not involve a purchase or sale or any other change in economic interest in the shares (for example, moving shares from one brokerage account to another).
•The exercise of stock options (including any net-settled stock option exercise) pursuant to our stock plans; however, the sale of any stock acquired upon such exercise, including as part of a broker-assisted cashless exercise of an option or any other market sale for the purpose of generating the cash needed to pay the exercise price of an option or to satisfy tax withholding requirements, is subject to this Policy.
•The withholding (whether mandated by the Company or pursuant to a tax withholding right) of shares of restricted stock, shares underlying restricted stock units or shares subject to an option to satisfy tax withholding requirements.
•The mandatory sale of securities in satisfaction of any tax withholding obligations in connection with the vesting, settlement or exercise of restricted equity awards, which sale may be implemented by the Company or arranged by the Company with a broker on behalf of an employee, as required pursuant to the applicable plan or equity award agreement or a non-discretionary policy adopted by the Company.
•The execution of transactions pursuant to a trading plan that complies with SEC Rule 10b5-1 and which has been approved by the Company. See Section 7.1.
•Sales of the Company’s securities as a selling stockholder in a registered public offering in accordance with applicable securities laws.
•To the extent the Company offers its securities as an investment option in an employee stock purchase plan, the purchase of stock through the Company’s employee stock purchase plan; however, elections to participate in such plan, the sale of any such stock and changing instructions regarding the level of withholding contributions which are used to purchase stock is subject to this Policy.
6.0Pre-clearance of Trades and Other Procedures
6.1Applicability. Section 16 Persons, family members of Section 16 Persons and trusts, corporations and other entities controlled by Section 16 Persons (collectively,
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“Permanent Restricted Persons”), as well as certain other persons described in Section 6.2 must obtain the advance approval of the Chief Legal Officer or his or her designee in accordance with Section 6.3 before effecting transactions in the Company’s securities, including any purchase or sale, any exercise of an option (whether cashless or otherwise), gifts, loans, pledges, rights or warrant to purchase or sell such securities, contribution to a trust or other transfers, whether the transaction is for the individual’s own account, one over which he or she exercises control, or one in which he or she has a beneficial interest.
6.2Other Restricted Persons. From time to time, the Company will notify persons other than Permanent Restricted Persons that they are subject to the pre-clearance requirements set forth in Section 6.3 if the Company believes that, in the normal course of their duties, they are likely to have regular access to Material Non-Public Information (“Other Restricted Persons”). Examples of such persons include senior leadership and other employees working in Legal, Finance, Sales and Marketing, Information Technology and Corporate Development Departments, family members of any of such persons and trusts, corporations and other entities influenced or controlled by any of such persons, and certain key support employees. Any person notified of their status as an Other Restricted Person will remain an Other Restricted Person subject to the pre-clearance requirements set forth in Section 6.3 unless otherwise notified in writing by the Chief Legal Officer or his or her designee. Occasionally, certain individuals may have access to Material Non-Public Information for a limited period of time. During such a period, such persons may be notified that they are also Other Restricted Persons who will be subject to the pre-clearance requirements set forth in Section 6.3.
6.3Pre-Clearance Procedures. Subject to Section 7.1, Permanent Restricted Persons and Other Restricted Persons must submit a request for pre-clearance to the Chief Legal Officer or his or her designee at least two business days in advance of the proposed transaction (two weeks in the case of using shares as collateral for a loan (see Section 4.3)) by emailing the Chief Legal Officer or his or her designee a copy of the attached “Request for Approval” form. Approval must be in writing, specifying the securities involved. Approval for transactions will generally be granted only during a Window Period (described in Section 6.4 below) and the transaction may only be performed during the Window Period in which the approval was granted and in any event within five business days from the date of approval, provided that notwithstanding receipt of pre-clearance, you may not trade in Company securities if you subsequently become aware of Material Non-Public Information prior to effecting the transaction. Unless notified otherwise by the Company, Permanent Restricted Persons must comply with these pre-clearance requirements for six months after the termination of their status as a Permanent Restricted Person.
6.4Window Periods. The Company has established four “windows” of time during the fiscal year (“Window Periods”) during which Request for Approval forms may be approved and trading may be performed by Permanent Restricted Persons, Other Restricted Persons and other persons notified that they are subject to Window Periods. Each Window Period begins after one full trading session on the NYSE has been completed after the Company makes a public news release of its quarterly or annual earnings for the prior fiscal quarter or year. Assuming the NYSE is open each day, the following is an illustrative example of when such persons may trade after the Company’s public news release of its quarterly or annual earnings for the prior fiscal quarter or year:
If Announcement is made on Tuesday First Day of Trading
Before market opens Wednesday
While market is open Thursday
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After market closes Thursday
That same Window Period closes at the close of trading on the last trading day that is two weeks prior to the end of the then current fiscal quarter. After the close of the Window Period, except as set forth in Section 5.0 above, Permanent Restricted Persons, Other Restricted Persons and other persons notified that they are subject to Window Periods may not trade in any of the Company’s securities at least until the start of the next Window Period. The prohibition against trading while aware of, or tipping of, Material Non-Public Information applies even during a Window Period. For example, if during a Window Period, a material acquisition or divestiture is pending or a forthcoming publication in the financial press may affect the relevant securities market, you may not trade in the Company’s securities. You must consult the Chief Legal Officer or his or her designee whenever you are in doubt.
6.5Special Blackouts. From time to time, the Company may require that directors, officers, selected employees and/or others be prohibited from trading in the Company’s securities, including during a Window Period, regardless of any other provision of this Policy because of developments that have not yet been disclosed to the public. If the Company declares a blackout to which you are subject, then a member of the Legal Department will notify you when the blackout begins and when it ends. All those affected shall not trade in the Company’s securities while the suspension is in effect, and shall not disclose to others inside or outside the Company that trading has been suspended for certain individuals. Though these blackouts generally will arise because the Company is involved in a highly sensitive transaction, incident or event, they may be declared for any reason.
6.6Notification of Window Periods. In order to assist you in complying with this Policy, the Company will endeavor to deliver an e-mail (or other communication) notifying all Section 16 Persons and all other Company Personnel designated as Other Restricted Persons and other persons subject to Window Periods when the Window Period has opened and when the Window Period closes. The Company’s delivery or non-delivery of these e-mails (or other communication) does not relieve you of your obligation to only trade in the Company’s securities in full compliance with this Policy.
6.7Hardship Exemptions. Those subject to the Window Periods or a blackout pursuant to Section 6.5 may request a hardship exemption for periods outside the Window Periods or during a blackout, as applicable, if they are not in possession of Material Non-Public Information and are not otherwise prohibited from trading pursuant to this Policy. Hardship exemptions are granted infrequently and only in exceptional circumstances. Any request for a hardship exemption should be made to the Chief Legal Officer or his or her designee.
7.010b5-1 and Other Trading Plans
7.110b5-1 Trading Plans. A 10b5-1 trading plan is a binding, written contract between you and your broker that specifies the price, amount, and date of trades to be executed in your account in the future, or provides a formula or mechanism that your broker will follow, and satisfies various other conditions and limitations set forth in Rule 10b5-1 under the Exchange Act. A 10b5-1 trading plan can only be established when you do not possess Material Non-Public Information. Therefore, Insiders cannot enter into these plans at any time when in possession of Material Non-Public Information and, in addition, Permanent
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Restricted Persons and Other Restricted Persons cannot enter into these plans outside Window Periods. In addition, a 10b5-1 trading plan must not permit you to exercise any subsequent influence over how, when, or whether the purchases or sales are made, and you must act in good faith with respect to the 10b5-1 trading plan for the duration thereof.
The rules regarding 10b5-1 trading plans are complex and you must fully comply with them. You should consult with your legal advisor before entering into any 10b5-1 trading plan.
Each Insider must pre-clear with the Chief Legal Officer or his or her designee any proposed trading plan or arrangement, including 10b5-1 trading plans, prior to establishing, amending or terminating such plan. The Company reserves the right to withhold pre-clearance of the adoption, amendment or termination of any such trading plan that the Company determines is not consistent with the rules regarding such plans. No Insider will be permitted to adopt a Rule 10b5-1 trading plan if such Insider has an existing contract, instruction or plan that would qualify for the affirmative defense under Rule 10b5-1, subject to the exceptions set forth in the rule. Notwithstanding any pre-clearance of a Rule 10b5-1 or other trading plan, the Company assumes no liability for the consequences of any transaction made pursuant to such plan.
If you enter into a 10b5-1 trading plan, your 10b5-1 trading plan should be structured to avoid purchases or sales on dates occurring shortly before known announcements, such as quarterly or annual earnings announcements. Even though transactions executed in accordance with a properly formulated 10b5-1 trading plan are exempt from the insider trading rules, the trades may nonetheless occur at times shortly before we announce material news, and the investing public and media may not understand the nuances of trading pursuant to a 10b5-1 trading plan. This could result in negative publicity for you and the Company if the SEC or the NYSE were to investigate your trades.
For Insiders, any modification or termination of a pre-approved 10b5-1 or other trading plan requires pre-clearance by the Chief Legal Officer or his or her designee. In addition, any modification of a pre-approved 10b5-1 or other trading plan must occur when you are not aware of any Material Non-Public Information and must comply with the requirements of the rules regarding such trading plans (including Rule 10b5-1, if applicable) and, if you are subject to Window Period restrictions, must take place during a Window Period.
Transactions effected pursuant to a pre-cleared 10b5-1 or other trading plan will not require further pre-clearance at the time of the transaction if the plan specifies the dates, prices and amounts of the contemplated trades, or establishes a formula for determining the dates, prices and amounts.
Finally, if you are a Section 16 Person, 10b5-1 and other trading plans require special care, as the Company generally will be required to disclose the adoption, amendment or termination of such a plan by such persons in its periodic reports filed with the SEC. Accordingly, it is imperative that Section 16 Persons coordinate with the Chief Legal
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Officer prior to establishing, adopting or modifying such plans. Moreover, because such plans may specify conditions that trigger a purchase or sale, you may not even be aware that a transaction has taken place and you may not be able to comply with the SEC’s requirement that you report your transaction to the SEC within two business days after its execution. Therefore, for Section 16 Persons, a transaction executed according to a trading plan is not permitted unless the trading plan requires your broker to notify the Company before the close of business on the day of the execution of the transaction. See Section 9.0.
8.0Potential Criminal and Civil Liability and/or Disciplinary Action
8.1Individual Responsibility. Each Insider is individually responsible for complying with the securities laws and this Policy, regardless of whether the Company has prohibited trading by that Insider or any other Insiders. Trading in securities during the Window Periods and outside of any suspension periods or with pre-clearance should not be considered a “safe harbor.” We remind you that, whether or not during a Window Period and whether or not you have obtained pre-clearance, you may not trade securities on the basis of Material Non-Public Information.
You also should bear in mind that any proceeding alleging improper trading will necessarily occur after the trade has been completed and is particularly susceptible to second-guessing with the benefit of hindsight. Therefore, as a practical matter, before engaging in any transaction you should carefully consider how enforcement authorities and others might view the transaction in hindsight. Further, whether or not you possess Material Non-Public Information, it is advisable that if you invest in the Company’s securities or the securities of any company that has a substantial relationship with the Company, then you do so from the perspective of a long-term investor who would like to participate over time in the Company’s or such company’s earnings growth and with the knowledge that you may be prohibited from disposing of such securities in the future.
8.2Controlling Persons. Federal securities laws provide that, in addition to sanctions against an individual who trades illegally, penalties may be assessed against what are known as “controlling persons” with respect to the violator. The term “controlling person” is not defined, but includes employers (i.e., the Company), its directors, officers and managerial and supervisory personnel. The concept is broader than what would normally be encompassed by a reporting chain. Individuals may be considered “controlling persons” with respect to any other individual whose behavior they have the power to influence. Liability can be imposed only if two conditions are met. First, it must be shown that the “controlling person” knew or recklessly disregarded the fact that a violation was likely. Second, it must be shown that the “controlling person” failed to take appropriate steps to prevent the violation from occurring. For this reason, the Company’s supervisory personnel are directed to take appropriate steps to ensure that those whom they supervise, understand and comply with the requirements set forth in this Policy.
8.3Potential Sanctions.
(i)Liability for Insider Trading and Tipping. Insiders, controlling persons and the Company may be subject to civil penalties, criminal penalties and/or jail for trading in securities when they have Material Non-Public Information or for improper transactions by any person (commonly referred to as a “tippee”) to whom they have
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disclosed Material Non-Public Information, or to whom they have made recommendations or expressed opinions on the basis of such information about trading securities. The SEC has imposed large penalties even when the disclosing person did not profit from the trading. The SEC, the stock exchanges and the Financial Industry Regulatory Authority use sophisticated electronic surveillance techniques to uncover insider trading.
(ii)Possible Disciplinary Actions. Company Personnel who violate this Policy will be subject to disciplinary action, up to and including termination of employment for cause, whether or not the Company Personnel’s failure to comply results in a violation of law. Needless to say, a violation of law, or even an SEC investigation that does not result in prosecution, can tarnish one’s reputation and irreparably damage a career.
8.4Questions and Violations. Anyone with questions concerning this Policy or its application should contact the Chief Legal Officer or his or her designee. Any violation or perceived violation should be reported immediately to the Chief Legal Officer or his or her designee. Anonymous reporting of violations or perceived violations may be made through the Company’s Ethics and Compliance Hotline.
9.0Broker Requirements for Section 16 Persons
The timely reporting of transactions requires tight interface with brokers handling transactions for Section 16 Persons. A knowledgeable, alert broker can also serve as a gatekeeper, helping to ensure compliance with our pre-clearance procedures and helping prevent inadvertent violations. Therefore, in order to facilitate timely compliance by the directors and executive officers of the Company with the requirements of Section 16 of the Exchange Act, brokers of Section 16 Persons need to comply with the following requirements:
•not to enter any order (except for orders under pre-approved Rule 10b5-1 plans) without first verifying with the Company that your transaction was pre-cleared and complying with the brokerage firm’s compliance procedures (e.g., Rule 144); and
•to report before the close of business on the day of the execution of the transaction to the Company by telephone and in writing via e-mail to the Chief Legal Officer or his or her designee, the complete (i.e., date, type of transaction, number of shares and price) details of every transaction involving the Company’s equity securities, including gifts, transfers, pledges and all transactions under 10b5-1 and other trading plans.
Because it is the legal obligation of the trading person to cause any filings on Form 3, Form 4, Form 5 or Form 144 (or as may otherwise be required), to be made, you are strongly encouraged to confirm following any transaction that your broker has immediately telephoned and e-mailed the required information to the Company.
10.0Confidentiality
No Company Personnel should disclose any Non-Public Information to non-Company Personnel (including to family members that are non-Company Personnel), except when such disclosure is needed to carry out the Company’s business and then only when the
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Company Personnel disclosing the information has no reason to believe that the recipient will misuse the information (for example, when such disclosures are authorized as necessary to facilitate negotiations with vendors, suppliers or customers or when such persons are subject to contractual confidentiality restrictions). When such information is disclosed, the recipient must be told that such information may be used only for the business purpose related to its disclosure and that the information must be held in confidence. Company Personnel should disclose Non-Public Information to other Company Personnel only in the ordinary course of business, for legitimate business purposes and in the absence of reasons to believe that the information will be misused or improperly disclosed by the recipient. Non-Public Information should be appropriately safeguarded and should not be left where it may be seen by persons not entitled to the information or otherwise accessible by persons not entitled to the information, and Non-Public Information should not be discussed with any person within the Company under circumstances where it could be overheard.
In addition to other circumstances where it may be applicable, this confidentiality policy must be strictly adhered to in responding to inquiries about the Company that may be made by the press, securities analysts or other members of the financial community. It is important that responses to any such inquiries be made on behalf of the Company by a duly designated officer. Accordingly, Company Personnel should not respond to any such inquiries and should refer all such inquiries to the Company’s Chief Financial Officer, the head of investor relations or the Chief Legal Officer or their respective designees. See also, Statement of Policy, Sections 3.4 and 3.5.
Neither this Policy nor any policy of the Company, and notwithstanding any other confidentiality or non-disclosure agreement (whether in writing or otherwise, including without limitation as part of an employment agreement, separation agreement or similar employment or compensation arrangement) applicable to current or former Insiders, should be deemed to restrict any current or former Insider from communicating, cooperating or filing a complaint with any U.S. federal, state or local governmental or law enforcement branch, agency or entity (collectively, a “Governmental Entity”) with respect to possible violations of any U.S. federal, state or local law or regulation, or otherwise making disclosures to any Governmental Entity, in each case, that are protected under the whistleblower provisions of any such law or regulation, provided that (1) in each case such communications and disclosures are consistent with applicable law and (2) the information subject to such disclosure was not obtained by the current or former Insider through a communication that was subject to the attorney-client privilege, unless such disclosure of that information would otherwise be permitted by an attorney pursuant to 17 CFR 205.3(d)(2), applicable state attorney conduct rules, or otherwise. Any agreement in conflict with the foregoing is hereby deemed amended by the Company to be consistent with the foregoing.
11.0Legal Effect of this Policy
The Company’s Policy with respect to securities trading and the disclosure of confidential information, and the procedures that implement this Policy, are not intended
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to serve as precise recitations of the legal prohibitions against insider trading and tipping which are highly complex, fact specific and evolving. Certain of the procedures are designed to prevent even the appearance of impropriety and in some respects may be more restrictive than the securities laws. Therefore, these procedures are not intended to serve as a basis for establishing civil or criminal liability that would not otherwise exist.
Adopted: [●], 2025
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ACKNOWLEDGMENT CONCERNING SECURITIES TRADING POLICY
We ask that you acknowledge that you have received, read and agree to abide by this Securities Trading Policy. CAVA Group, Inc. may ask you to re-submit this acknowledgement on an annual basis or whenever the Securities Trading Policy is significantly updated.
By my signature below, I acknowledge that I have read and received CAVA Group, Inc.’s Securities Trading Policy.
Signature:
Name (printed):
Date:
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REQUEST TO TRANSACT IN CAVA GROUP, INC.’S SECURITIES | ||
Type of Security [check all applicable boxes]
Common stock
Stock Option
Number of Shares ____________________
Proposed Date of Transaction ____________________
Type of Transaction
Stock option exercise – Exercise Price $_______/share
Exercise Price paid as follows:
Broker’s cashless exchange
cash
other _____________________
Withholding tax paid as follows:
Broker’s cashless exchange
cash
other _____________________
Purchase
Sale
Gift
Pledge
Other
[Broker Contact Information]
Company Name ___________________________________________
Contact Name ___________________________________________
Telephone ___________________________________________
Email ___________________________________________
Account Number ___________________________________________
Social Security or other Tax Identification Number __________________________
Status (check all applicable boxes)
Executive Officer
Board Member
Other Restricted Person
Stock Ownership Guidelines:
Number of Shares owned prior to proposed transaction:
Number of Shares owned after proposed transaction:
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Filing Information (check all applicable boxes and complete blanks)
Date of filing of last Form 3 or 4 _____________________________________
Is a Form 144 Necessary?
Date of filing of last Form 144 _____________________________________
I am not currently in possession of any material non-public information relating to CAVA Group, Inc. and its subsidiaries. I hereby certify that the statements made on this form are true and correct.
I understand that clearance may be rescinded prior to effectuating the above transaction if material non-public information regarding CAVA Group, Inc. arises and, in the reasonable judgment of CAVA Group, Inc., the completion of my trade would be inadvisable. I also understand that the ultimate responsibility for compliance with the insider trading provisions of the federal securities laws rests with me and that clearance of any proposed transaction should not be construed as a guarantee that I will not later be found to have been in possession of material non-public information.
I further attest that the proposed transactions contemplated in this form are in compliance with CAVA Group, Inc.’s Stock Ownership Guidelines, as amended from time to time, and as they may be applicable to me.
Signature _____________________________ Date ________________________
Print Name ____________________________
Telephone Number Where You May Be Reached ________________________
Request Approved (transaction must be completed during the Window Period (as defined in Section 6.3 of CAVA Group, Inc.’s Securities Trading Policy) in which this approval was granted and in any event within five business days after approval).
Request Denied
Request Approved with the following modification __________________________
Signature _____________________________ Date _____________________________
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Exhibit 21.1
SIGNIFICANT SUBSIDIARIES OF CAVA GROUP, INC.
Following is a list of subsidiaries of CAVA Group, Inc., excluding certain subsidiaries that, in the aggregate as a single subsidiary, do not constitute a significant subsidiary.
| Subsidiary Name | Jurisdiction | |||||||
| Cava Foods, LLC | Maryland | |||||||
| CAVA Holding Company | Delaware | |||||||
| Cava Mezze Grill, LLC | Maryland | |||||||
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-272662 on Form S-8 of our reports dated February 25, 2025, relating to the consolidated financial statements of CAVA Group, Inc., and the effectiveness of the Company’s internal control over financial reporting, appearing in this Annual Report on Form 10-K for the year ended December 29, 2024.
/s/ Deloitte & Touche LLP
McLean, Virginia
February 25, 2025
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Brett Schulman, certify that:
1.I have reviewed this Annual Report on Form 10-K of Cava Group, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| February 25, 2025 | By: | /s/ Brett Schulman | ||||||
| Brett Schulman | ||||||||
| Chief Executive Officer (Principal Executive Officer) | ||||||||
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Tricia Tolivar, certify that:
1.I have reviewed this Annual Report on Form 10-K of Cava Group, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| February 25, 2025 | By: | /s/ Tricia Tolivar | ||||||
| Tricia Tolivar | ||||||||
| Chief Financial Officer (Principal Financial Officer) | ||||||||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Cava Group, Inc. (the “Company”) for the year ended December 29, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brett Schulman, Chief Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| February 25, 2025 | By: | /s/ Brett Schulman | ||||||
| Brett Schulman | ||||||||
| Chief Executive Officer (Principal Executive Officer) | ||||||||
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Cava Group, Inc. (the “Company”) for the year ended December 29, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Tricia Tolivar, Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| February 25, 2025 | By: | /s/ Tricia Tolivar | ||||||
| Tricia Tolivar | ||||||||
| Chief Financial Officer (Principal Financial Officer) | ||||||||