Stockholders' Equity and Convertible Preferred Stock	9 Months Ended
Sep. 29, 2020
Stockholders' Equity and Convertible Preferred Stock
Stockholders' Equity and Convertible Preferred Stock	11. Stockholders’ Equity and Convertible Preferred Stock Dividends and Share Repurchases To preserve liquidity during the COVID-19 pandemic and in conjunction with the terms of our Facility, as amended on May 1,2020 , our Board suspended the quarterly dividend on our common stock, as well as share repurchases. (See Note 7 for further discussion of our long-term debt.) Future decisions to pay or to increase or decrease dividends on our common stock are at the discretion of the Board and will be dependent on our operating performance, financial condition, capital expenditure requirements, limitations on cash distributions pursuant to the terms and conditions of the Facility and applicable law, and such other factors that our Board considers relevant. Under authorization by our Board to repurchase up to 56.0 million shares of our common stock, we have cumulatively repurchased 53.0 million shares at a total cost of $1,696.4 million through September 29, 2020 with 12,567 shares repurchased at a cost of $0.4 million during the third quarter of fiscal 2020 to satisfy tax withholding obligations on vested restricted share awards. Our objectives regarding share repurchases have been to offset the dilution to our shares outstanding that results from equity compensation grants and to supplement our earnings per share growth. Our share repurchase authorization does not have an expiration date, does not require us to purchase a specific number of shares and may be modified, suspended or terminated at any time. Shares may be repurchased in the open market or through privately negotiated transactions at times and prices considered appropriate by us. We make the determination to repurchase shares based on several factors, including current and forecasted operating cash flows, capital needs associated with new restaurant development and maintenance of existing locations, dividend payments, debt levels and cost of borrowing, obligations associated with the Acquisitions, our share price and current market conditions. The timing and number of shares repurchased are also subject to legal constraints and financial covenants under the Facility that limit share repurchases based on a defined ratio. Series A Convertible Preferred Stock On April 20, 2020, to increase our liquidity given the impact of the COVID-19 pandemic on our operations, we issued 200,000 shares of Series A Convertible Preferred Stock (“Preferred Stock”) for an aggregate purchase price of $200 million, or $1,000 per share. In connection with the issuance, we incurred direct and incremental costs of $10.3 million, including financial advisory fees, closing costs, legal expenses, a commitment fee and other offering-related expenses. These direct and incremental costs reduced the Preferred Stock balance at the issuance date and were recognized through retained earnings on June 30, 2020, the first measurement date. The Preferred Stock ranks senior to our common stock with respect to dividends and distributions on liquidation, winding-up and dissolution upon which each share of Preferred Stock will be entitled to receive an amount per share equal to the greater of (i) the purchase price (without giving effect to the commitment fee), plus all accrued and unpaid dividends (the “Liquidation Preference”) and (ii) the amount that the holder of Preferred Stock would have been entitled to receive at such time if the Preferred Stock were converted into common stock. At September 29, 2020, the Liquidation Preference was $1,042.22 per share. Dividend Rights The holders are entitled to dividends on the Liquidation Preference at the rate of 9.5% per annum, payable in cash or, at our option, paid in-kind. The holders are also entitled to participate in dividends declared or paid on our common stock on an as-converted basis. We paid in-kind dividends of $4.8 million and $8.5 million for the thirteen and thirty-nine weeks ended September 29, 2020. Conversion Rights Each holder has the right, at its option, to convert its Preferred Stock into common stock at a conversion price equal to $22.23 per share. As of September 29, 2020, the number of common shares that would be required to be issued upon conversion of the outstanding shares of Preferred Stock was 9.4 million. The conversion price is subject to customary anti-dilution adjustments, including in the event of any stock split, stock dividend, recapitalization or similar events. The conversion price is also subject to adjustment for certain anti-dilutive offerings if they occur on or prior to April 19, 2021. Pursuant to the terms of the Certificate of Designations, unless and until approval of our stockholders is obtained as contemplated by Nasdaq listing rules (the “Stockholder Approval”), no holder may convert shares of Preferred Stock through either an optional or a mandatory conversion into shares of common stock if and solely to the extent that such conversion would result in the holder beneficially owning in excess of 19.9% of then outstanding common stock. The Company has the right to settle any conversion in cash. Subject to certain conditions, we may, at our option, require conversion of all of the outstanding shares of Preferred Stock to common stock if, for at least 20 trading days during the 30 consecutive trading days immediately preceding the date we notify the holders of the election to convert, the closing price of the common stock is at least 200% of the conversion price. We will not exercise our right to mandatorily convert all outstanding shares of Preferred Stock unless certain liquidity conditions with regard to the shares of common stock to be issued upon such conversion are satisfied. We determined that the nature of the Preferred Stock was more akin to an equity instrument than a debt instrument and that the economic characteristics and risks of the embedded conversion options were clearly and closely related to the Preferred Stock. As such, the conversion options were not required to be bifurcated from the host under FASB Accounting Standards Codification (“ASC 815”), Derivatives and Hedging. We also determined that the Preferred Stock did not generate a beneficial conversion feature (“BCF”) upon issuance. However, the associated dividends for the second and third quarters of fiscal 2020 generated a BCF of $0.1 million and $1.3 million, respectively, based on the fair value of our stock price on the date the dividends were declared to be paid in-kind. Redemption Rights On and after October 20, 2027, holders of the Preferred Stock have the right to require redemption of all or any part of the Preferred Stock for an amount equal to the Liquidation Preference. Upon certain change of control events, we are required to redeem, subject to conversion rights of the holders, all of the outstanding shares of Preferred Stock for cash consideration equal to the greater of (i) the Liquidation Preference and (ii) the amount that such holder would have been entitled to receive at such time if the Preferred Stock were converted into common stock. We may redeem any or all of the Preferred Stock for an amount equal to (i) 120% of the Liquidation Preference thereof at any time between April 21, 2025 and April 19, 2026 and (ii) 100% of the Liquidation Preference at any time beginning on April 20, 2026, provided that such holder will have the right to convert the Preferred Stock immediately prior to and in lieu of such redemption. To the extent such holder elects to convert the Preferred Stock in lieu of such redemption and the number of shares of common stock issuable upon such conversion would exceed 19.9% of the outstanding shares of common stock, and the Stockholder Approval has not been obtained as of such date, any portion in excess of such limit will remain outstanding as Preferred Stock. Since the redemption of the Preferred Stock is contingently redeemable and therefore not certain to occur, the Preferred Stock is not required to be classified as a liability under ASC 480, Distinguishing Liabilities from Equity. As the Preferred Stock is redeemable in certain circumstances at the option of the holder and is redeemable in certain circumstances upon the occurrence of an event that is not solely within our control, we have classified the Preferred Stock separately from stockholders’ equity in the consolidated balance sheets. As noted above, we determined that the nature of the Preferred Stock was more akin to an equity instrument than a debt instrument. However, we determined that the economic characteristics and risks of the embedded put option, call option and redemption upon change of control provision were not clearly and closely related to the Preferred Stock. Therefore, we assessed these items further and determined they did not meet the definition of a derivative under ASC 815, Derivatives and Hedging. Voting Rights Holders of Preferred Stock are generally entitled to vote with the holders of the common stock on an as-converted basis. Holders of Preferred Stock are entitled to a separate class vote with respect to, among other things, amendments to the Company’s organizational documents that have an adverse effect on the Preferred Stock and issuances of securities that are senior to, or equal in priority with, the Preferred Stock.

Stockholders' Equity and Convertible Preferred Stock

9 Months Ended

Sep. 29, 2020

Stockholders' Equity and Convertible Preferred Stock

Stockholders' Equity and Convertible Preferred Stock

11. Stockholders’ Equity and Convertible Preferred Stock

Dividends and Share Repurchases

To preserve liquidity during the COVID-19 pandemic and in conjunction with the terms of our Facility, as amended on May 1,2020 , our Board suspended the quarterly dividend on our common stock, as well as share repurchases. (See Note 7 for further discussion of our long-term debt.)

Future decisions to pay or to increase or decrease dividends on our common stock are at the discretion of the Board and will be dependent on our operating performance, financial condition, capital expenditure requirements, limitations on cash distributions pursuant to the terms and conditions of the Facility and applicable law, and such other factors that our Board considers relevant.

Under authorization by our Board to repurchase up to 56.0 million shares of our common stock, we have cumulatively repurchased 53.0 million shares at a total cost of $1,696.4 million through September 29, 2020 with 12,567 shares repurchased at a cost of $0.4 million during the third quarter of fiscal 2020 to satisfy tax withholding obligations on vested restricted share awards. Our objectives regarding share repurchases have been to offset the dilution to our shares outstanding that results from equity compensation grants and to supplement our earnings per share growth. Our share repurchase authorization does not have an expiration date, does not

require us to purchase a specific number of shares and may be modified, suspended or terminated at any time. Shares may be repurchased in the open market or through privately negotiated transactions at times and prices considered appropriate by us. We make the determination to repurchase shares based on several factors, including current and forecasted operating cash flows, capital needs associated with new restaurant development and maintenance of existing locations, dividend payments, debt levels and cost of borrowing, obligations associated with the Acquisitions, our share price and current market conditions. The timing and number of shares repurchased are also subject to legal constraints and financial covenants under the Facility that limit share repurchases based on a defined ratio.

Series A Convertible Preferred Stock

On April 20, 2020, to increase our liquidity given the impact of the COVID-19 pandemic on our operations, we issued 200,000 shares of Series A Convertible Preferred Stock (“Preferred Stock”) for an aggregate purchase price of $200 million, or $1,000 per share. In connection with the issuance, we incurred direct and incremental costs of $10.3 million, including financial advisory fees, closing costs, legal expenses, a commitment fee and other offering-related expenses. These direct and incremental costs reduced the Preferred Stock balance at the issuance date and were recognized through retained earnings on June 30, 2020, the first measurement date.

The Preferred Stock ranks senior to our common stock with respect to dividends and distributions on liquidation, winding-up and dissolution upon which each share of Preferred Stock will be entitled to receive an amount per share equal to the greater of (i) the purchase price (without giving effect to the commitment fee), plus all accrued and unpaid dividends (the “Liquidation Preference”) and (ii) the amount that the holder of Preferred Stock would have been entitled to receive at such time if the Preferred Stock were converted into common stock. At September 29, 2020, the Liquidation Preference was $1,042.22 per share.

Dividend Rights

The holders are entitled to dividends on the Liquidation Preference at the rate of 9.5% per annum, payable in cash or, at our option, paid in-kind. The holders are also entitled to participate in dividends declared or paid on our common stock on an as-converted basis. We paid in-kind dividends of $4.8 million and $8.5 million for the thirteen and thirty-nine weeks ended September 29, 2020.

Conversion Rights

Each holder has the right, at its option, to convert its Preferred Stock into common stock at a conversion price equal to $22.23 per share. As of September 29, 2020, the number of common shares that would be required to be issued upon conversion of the outstanding shares of Preferred Stock was 9.4 million. The conversion price is subject to customary anti-dilution adjustments, including in the event of any stock split, stock dividend, recapitalization or similar events. The conversion price is also subject to adjustment for certain anti-dilutive offerings if they occur on or prior to April 19, 2021. Pursuant to the terms of the Certificate of Designations, unless and until approval of our stockholders is obtained as contemplated by Nasdaq listing rules (the “Stockholder Approval”), no holder may convert shares of Preferred Stock through either an optional or a mandatory conversion into shares of common stock if and solely to the extent that such conversion would result in the holder beneficially owning in excess of 19.9% of then outstanding common stock. The Company has the right to settle any conversion in cash.

Subject to certain conditions, we may, at our option, require conversion of all of the outstanding shares of Preferred Stock to common stock if, for at least 20 trading days during the 30 consecutive trading days immediately preceding the date we notify the holders of the election to convert, the closing price of the common stock is at least 200% of the conversion price. We will not exercise our right to mandatorily convert all outstanding shares of Preferred Stock unless certain liquidity conditions with regard to the shares of common stock to be issued upon such conversion are satisfied.

We determined that the nature of the Preferred Stock was more akin to an equity instrument than a debt instrument and that the economic characteristics and risks of the embedded conversion options were clearly and closely related to the Preferred Stock. As such, the conversion options were not required to be bifurcated from the host under FASB Accounting Standards Codification (“ASC 815”), Derivatives and Hedging. We also determined that the Preferred Stock did not generate a beneficial conversion feature (“BCF”) upon issuance. However, the associated dividends for the second and third quarters of fiscal 2020 generated a BCF of $0.1 million and $1.3 million, respectively, based on the fair value of our stock price on the date the dividends were declared to be paid in-kind.

Redemption Rights

On and after October 20, 2027, holders of the Preferred Stock have the right to require redemption of all or any part of the Preferred Stock for an amount equal to the Liquidation Preference. Upon certain change of control events, we are required to redeem, subject to conversion rights of the holders, all of the outstanding shares of Preferred Stock for cash consideration equal to the greater of (i) the Liquidation Preference and (ii) the amount that such holder would have been entitled to receive at such time if the Preferred Stock were converted into common stock.

We may redeem any or all of the Preferred Stock for an amount equal to (i) 120% of the Liquidation Preference thereof at any time between April 21, 2025 and April 19, 2026 and (ii) 100% of the Liquidation Preference at any time beginning on April 20, 2026, provided that such holder will have the right to convert the Preferred Stock immediately prior to and in lieu of such redemption. To the extent such holder elects to convert the Preferred Stock in lieu of such redemption and the number of shares of common stock issuable upon such conversion would exceed 19.9% of the outstanding shares of common stock, and the Stockholder Approval has not been obtained as of such date, any portion in excess of such limit will remain outstanding as Preferred Stock.

Since the redemption of the Preferred Stock is contingently redeemable and therefore not certain to occur, the Preferred Stock is not required to be classified as a liability under ASC 480, Distinguishing Liabilities from Equity. As the Preferred Stock is redeemable in certain circumstances at the option of the holder and is redeemable in certain circumstances upon the occurrence of an event that is not solely within our control, we have classified the Preferred Stock separately from stockholders’ equity in the consolidated balance sheets.

As noted above, we determined that the nature of the Preferred Stock was more akin to an equity instrument than a debt instrument. However, we determined that the economic characteristics and risks of the embedded put option, call option and redemption upon change of control provision were not clearly and closely related to the Preferred Stock. Therefore, we assessed these items further and determined they did not meet the definition of a derivative under ASC 815, Derivatives and Hedging.

Voting Rights

Holders of Preferred Stock are generally entitled to vote with the holders of the common stock on an as-converted basis. Holders of Preferred Stock are entitled to a separate class vote with respect to, among other things, amendments to the Company’s organizational documents that have an adverse effect on the Preferred Stock and issuances of securities that are senior to, or equal in priority with, the Preferred Stock.