Fired Smashburger CEO sues chain, says he’s owed millions in severance

Smashburger’s former CEO is suing the Denver-based chain and its owners, arguing he is owed millions of dollars in stock shares after being fired late last year.

David Prokupek says Smashburger’s owner, Consumer Capital Partners, asked him to groom the burger chain for an equity sale in early 2013. In the lawsuit, filed in Delaware in July, Prokupek alleges Consumer Capital Partners chairman and chain founder Rick Schaden asked him to give up certain rights under his old employment contract in exchange for arranging a potential sale or initial public offering that would add value to the company and grow Prokupek’s stake in Smashburger.

The auction process begun in August 2013 yielded several bids. But instead of selling, the ownership team in November fired Prokupek. The severance package offered him fewer shares than his employment contract stipulated and the stock price was below what was offered by bidders, according to the lawsuit.

Both Smashburger and Prokupek have filed legal actions in Delaware over the value of Prokupek’s payout. In a third lawsuit, Prokupek is asking for access to Smashburger’s financials so he can see if the company met certain performance benchmarks that would entitle him to more shares of the company.

Both Smashburger and attorneys for Prokupek declined to comment.

Prokupek argues that Smashburger’s owners understated the company’s financial performance to minimize its contractual obligations to him. The lawsuit contends the company loaded its fourth quarter financials with one-time charges and expenses that dragged down overall performance “in order to minimize any payout to Prokupek.” Without those charges the company would have met performance hurdles entitling him to more shares, according to the lawsuit. Prokupek also argues the company has valued the shares too low.

“The difference in per-unit valuations amounts to a multi-million dollar dispute as to the price Prokupek should receive for redemption of his Smashburger units,” reads the suit.

Prokupek’s allegation of financial deception is similar to accusations leveled by the two behemoth hedge funds that took over Consumer Capital Partners’ beleaguered Quiznos chain in 2012.

Avenue Capital and Fortress Holdings — the multi-billion-dollar lenders who supported Quiznos during several years of financial struggle — argue that Consumer Capital Partners conspired to overvalue the sandwich chain in a 2012 restructuring, according to a civil lawsuit filed in U.S. District Court in Denver in late July.

The hedge funds’ lawsuit specifically names Schaden, who owns the wildly popular USA Pro Challenge, a weeklong professional bike race across Colorado. Prokupek’s lawsuit only names Consumer Capital Partners and Smashburger.

Under Prokupek’s watch, which began when the company was founded in 2007, Smashburger grew from a handful of Denver-area stores to more than 200 locations that generated estimated sales of $171 million in 2012, up from $120 million in 2011. Smashburger’s 35.9 percent growth in restaurants ranked it as one of the nation’s fastest growing chains in 2012.

Prokupek was hired as CEO of Jackson Hewitt Tax Service in March.

Prokupek is seeking access to Smashburger’s 2013 and early 2014 financial statements to better establish a valuation for his stock shares and to determine if the company met financial hurdles that would deliver him additional shares. Consumer Capital Partners, which has filed a suit asking a Delaware judge to appoint an independent firm to value the better-burger chain, has rejected the value set by an independent investment banking firm hired by Prokupek. The group refused to disclose its financial statements to Prokupek because he is not employed by the company, according to Prokupek’s lawsuit.

Jason Blevins: 303-954-1374, jblevins@denverpost.com or twitter.com/jasonblevins