Stockholder's Equity

3 Months Ended

Apr. 04, 2017

Equity [Abstract]

Stockholder's Equity

Stockholders’ Equity

Securities Purchase Agreement with L Catterton

On February 8, 2017, the Company entered into a securities purchase agreement with L Catterton, pursuant to which the Company agreed, in return for aggregate gross proceeds of $18.5 million, to sell to L Catterton an aggregate of 18,500 shares of preferred stock convertible into 4,252,873 shares of the Company’s Class A common stock, par value $0.01 per share, at a price per share of $1,000, plus warrants exercisable for five years beginning six months following their issuance for the purchase of 1,913,793 shares of the Company’s Class A common stock, at a price per share of $4.35 (such transactions, collectively, the “private placement”). The proceeds have been and will continue to be used, in conjunction with cash flow from the Company’s operations and the proceeds received from the transaction with Mill Road (see below), to satisfy existing and anticipated liabilities and to fund, in part, certain capital expenditures related to business initiatives in its company-owned restaurants. Any remaining proceeds are expected to be used for general corporate purposes. The funding of the private placement occurred on February 9, 2017 and the net proceeds from the transaction were $16.7 million, after $1.8 million of transaction expenses.

The Company determined that the preferred stock is more akin to an equity security than debt primarily because the preferred stock is contingently redeemable upon the occurrence of an event that is outside of the Company’s control. Therefore, the preferred stock has been presented as mezzanine, or temporary equity, rather than being included in either liabilities or permanent stockholders’ equity.  The proceeds have been allocated between the three features of the private placement: the warrants, the embedded beneficial conversion feature in the preferred stock, and the preferred stock itself.  The fair values of the warrants and the embedded beneficial conversion feature were recorded as a discount against the stated value of the preferred stock on the date of issuance of $3.1 million and $3.1 million, respectively. The fair value of the warrants was estimated using a Black-Scholes option pricing model which is a Level 2 estimate of fair value.  This discount is amortized, using the interest method, and treated as a deemed dividend over the term of the redemption period (15-months), which will result in the accretion of the preferred stock to its full redemption value.  The unamortized discount as of April 4, 2017 was $7.0 million. The amortized discount which has been treated in the same manner as dividends was $1.0 million for the first quarter of 2017.

The conversion of the preferred stock and issuance of 4,252,873 shares of the Company’s Class A Common Stock occurred on April 12, 2017 which will occur during the second quarter of 2017 (see Note 12, Subsequent Event).

Securities Purchase Agreement with Mill Road Capital

On March 13, 2017, the Company entered into a securities purchase agreement with Mill Road Capital II, L.P. (“Mill Road”), pursuant to which the Company agreed, in return for aggregate gross proceeds of $31.5 million, to issue to Mill Road an aggregate of 8,873,240 shares of its Class A common stock, par value $0.01 per share, at a price per share of $3.55, which is equal to the closing sale price for the Company’s Class A common stock on March 10, 2017. On April 3, 2017, the Shares were issued and the

funding of the private placement occurred. The net proceeds from the transaction were $31.3 million during the first quarter of 2017, after $0.2 million of transaction expenses paid. The Company has accrued for an additional $2.1 million of transaction expenses, which will further reduce the net proceeds from the transaction when paid in the second quarter of 2017.