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| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt | Debt
Credit Agreement
On November 3, 2021, as further amended as described below and as part of the Anthony’s acquisition, the Company joined a credit agreement with a syndicate of commercial banks (as amended, the “Credit Agreement”). The Credit Agreement, which has a maturity date of September 30, 2025 (the “Maturity Date”), provides the Company with lender financing structured as a $57.8 million term loan and a $4.0 million revolving loan. The terms of the Credit Agreement require the Company to repay the principal of the term loan in quarterly installments of approximately $0.8 million with the balance due at the Maturity Date. The principal amount of revolving loans is due and payable in full on the Maturity Date. The loan and revolving line of credit are secured by substantially all of the Company’s assets and incurred interest on outstanding amounts of 6.75% through December 31, 2023 and incur interest of 7.25% through June 15, 2024 and 7.75% from June 16, 2024 though the Maturity Date.
Effective March 9, 2022, certain of the covenants of (i) the Company and Plastic Tripod, Inc., as the borrowers (the "Borrowers"), and (ii) the subsidiary guarantors (the "Guarantors") party to the Credit Agreement were amended (such amendment herein referred to as the “Twelfth Amendment”). Pursuant to the terms of the Twelfth Amendment, the Borrowers and Guarantors agreed to pay incremental deferred interest of 2% per annum, in the event that the obligations under the Credit Agreement were not repaid on or prior to June 15, 2023; provided, however, that if no event of default had occurred and was continuing then (i) no incremental deferred interest would be due if all of the obligations under the Credit Agreement had been paid on or prior to December 31, 2022, and (ii) only 50% of the incremental deferred interest would be owed if all of the obligations under the Credit Agreement had been paid from and after January 1, 2023 and on or prior to March 31, 2023.
The Credit Agreement was further amended on December 7, 2022 (such amendment herein referred to as the “Thirteenth Amendment”) by amending certain covenants of the Credit Agreement and extending the maturity date of June 15, 2024 to September 30, 2025. The amendment also provided for periodic increases to the annual rate of interest changing the rate per annum to (i) 5.75% from January 1, 2023 through June 15, 2023; (ii) 6.75% per annum from June 16, 2023 through December 31, 2023; (iii) 7.25% per annum from January 1, 2024 through June 15, 2024; and (iv) 7.75% per annum from and after June 16, 2024 through the Maturity Date. In addition, the 2% incremental deferred interest implemented on March 9, 2022 was reduced to 1% beginning January 3, 2023 and was eliminated at December 31, 2023.
The terms of the Thirteenth Amendment also provided for a change in the timing of paying approximately $0.3 million of deferred interest payments previously scheduled to be paid on June 16, 2023 to be paid monthly from January to June 2023, while deferring the balance of deferred interest amount of approximately $1.3 million from June 15, 2023 to December 31, 2023. The Borrowers and Guarantors also agreed to obtain $5.0 million in net cash proceeds from (i) a shelf registration and equity issuance by not later than January 2, 2023, or (ii) issuance of unsecured subordinated debt by not later than January 30, 2023, referred to as the “Initial New Capital Infusion Covenant”.
Under the terms of the Thirteenth Amendment, certain modifications were made to the accounting definitions in the Credit Agreement to bring such definitions in line with Company practices and needs.
In addition, under the terms of the Thirteenth Amendment, the Borrowers and Guarantors agreed to reset their consolidated senior lease-adjusted leverage ratio and fixed charge coverage ratio as follows:
(a) maintain a quarterly consolidated senior lease-adjusted leverage ratio greater than (i) 7.00 to 1.00 as of the end of the fiscal quarter ending on or about December 31, 2022, (ii) 7.00 to 1.00 as of the end of the fiscal quarter ending on or about March 31, 2023, and (iii) 6.50 to 1.00 as of the end of the fiscal quarter ending on or about June 30, 2023 and the end of each fiscal quarter thereafter;
(b) maintain a quarterly minimum fixed charge coverage ratio of 1.10 to 1.00 as of the end of the fiscal quarter ending on or about December 31, 2022 and the end of each fiscal quarter thereafter; and
(c) the liquidity requirement of the Credit Agreement remained unchanged; provided, that in the event the Company had not received by January 2, 2023 at least $5.0 million in net cash proceeds as a result of shelf registration and equity issuance then the required liquidity amount as of January 2, 2023 would be reduced to $9.5 million.
The consolidated senior lease-adjusted leverage ratio, fixed charge coverage ratio and liquidity are computed in accordance with the Credit Agreement.
If upon delivery of the quarterly financial statements, the consolidated fixed charge coverage ratio as of the end of any fiscal quarter of the Company ending after January 2, 2023 was less than 1.15 to 1.00, then Borrowers and Guarantors agreed to engage a consulting firm to help with certain operational activities and other matters as reasonably determined by the lenders; provided, that, if after delivery of the quarterly financial statements, (i) the consolidated fixed charge coverage ratio as of the end of each of the two prior consecutive fiscal quarters of the Company was greater than 1.15 to 1.00, and (ii) the consolidated senior lease-adjusted leverage ratio as of the end of each of the two prior consecutive fiscal quarters of the Company was less than the correlative amount of the consolidated senior lease-adjusted leverage ratio required for the financial covenants for such fiscal quarters by 0.25 basis points or more, then retention of the consulting firm shall not be required during the following fiscal quarter.
On February 1, 2023, the Credit Agreement was amended through the Fourteenth Amendment and subsequently on February 24, 2023 further amended through the Fifteenth Amendment resulting in the Company and its subsidiaries entering into a Secured Promissory Note (the “Note”) with CP7 Warming Bag L.P., an affiliate of L. Catterton Fund L.P., as lender (the “Junior Lender”), pursuant to which the Junior Lender continued that certain delayed draw term loan (the “Delayed Draw Term Loan”) of $10.0 million, under the Credit Agreement, which is junior subordinated secured indebtedness, and also provided $5.1 million of new junior subordinated secured indebtedness, to the Company (collectively the “Junior Indebtedness”), for a total of $15.1 million in junior subordinated secured debt on terms reasonably acceptable to the Required Lenders (as defined in the Credit Agreement), including, without limitation, that (i) such indebtedness shall not mature until at least two years after the maturity date of the credit facility of September 30, 2025; (ii) no payments of cash interest shall be made on such indebtedness until after the repayment in full of the obligations under the Credit Agreement; and (iii) no scheduled or voluntary payments of principal shall be made until after the repayment in full of the obligations under the Credit Agreement.
The Note, which accrues interest at 4% per annum (i) is secured by a second lien on substantially all of the assets of the Borrowers and the Guarantors pursuant to the terms of the Note and that certain Guaranty and Security Agreement, dated February 24, 2023, by and among the Guarantors and the Junior Lender, (ii) is subject to the terms of that certain Intercreditor and Subordination Agreement dated February 24, 2023, by and between the Administrative Agent and the Junior Lender and acknowledged by the Borrowers and the Guarantors, and (iii) matures on the date that is the second anniversary of the maturity date under the Credit Agreement (the “Junior Maturity Date”), or September 30, 2027.
Under the terms of the Note, no payments of cash interest or payments of principal shall be due until the Junior Maturity Date, and no voluntary prepayments may be made on the Junior Indebtedness prior to the Junior Maturity Date until after the repayment in full of the obligations under the Credit Agreement. The Company had $14.5 million outstanding under the Note as of January 1, 2024; this amount is included in Related party note payable in the consolidated balance sheets.
On July 7, 2023, the Credit Agreement was amended through the Sixteenth Amendment, which amended the definition of EBITDA for the purposes of expanding the scope of non-recurring items that may be included in the determination of Adjusted EBITDA, as well as modifications to the timeline for when a management consultant must be engaged.
In addition, under the terms of the Sixteenth Amendment, the Borrowers and Guarantors agreed to reset their consolidated senior lease-adjusted leverage ratio and fixed charge coverage ratio as follows:
(a) maintain a quarterly consolidated senior lease-adjusted leverage ratio greater than (i) 7.00 to 1.00 as of the end of the fiscal quarter ending on or about December 31, 2023, (ii) 6.75 to 1.00 as of the end of each of the fiscal quarters ending on or about March 31, 2024, June 30, 2024 and September 30, 2024, and (iii) 6.50 to 1.00 as of the end of the fiscal quarter ending on or about December 31, 2024 and the end of each fiscal quarter thereafter; and
(b) maintain a quarterly minimum fixed charge coverage ratio of (i) 1.00 to 1.00 as of the end of the fiscal quarter ending on or about December 31, 2023, (ii) 1.05 to 1.00 as of the end of each of the fiscal quarters ending March 31, 2024, June 30, 2024 and September 30, 2024, and (iii) 1.10 to 1.00 as of the end of the fiscal quarter ending on or about December 31, 2024 and the end of each fiscal quarter thereafter.
As of January 1, 2024, the Company was not in compliance with the minimum liquidity requirement of the Credit Agreement,which constitutes a breach of the Credit Agreement and an event of default. Accordingly, the outstanding balance of the Credit Agreement is included in short-term borrowings together with the short term borrowings, including finance leases in the accompanying consolidated balance sheets.
The Company is not forecasted to have the readily available funds to repay the debt if the lenders do call the debt, which raises substantial doubt about the Company’s ability to continue as a going concern within one year after the date the consolidated financial statements are issued.
The Company has been actively engaged in discussions with its lenders to explore potential solutions regarding the default event and its resolution. We cannot, however, predict the results of any such negotiations.
The terms of the Credit Agreement as amended require the Company to repay the principal of the term loan in quarterly installments; however due to event of default we classified all of the principal as payable within the next 12 months as follows:
The Delayed Draw Term Loan (as continued, amended and restated on February 24, 2023) is a non-interest bearing loan and, accordingly, was recorded at fair value as part of the Anthony’s acquisition which resulted in a debt discount of approximately $1.3 million; this amount is being amortized over the period of the Delayed Draw Term Loan.. The Company recorded $0.2 million and $0.5 million for the years ended January 1, 2024 and January 2, 2023 respectively, as amortization of the debt discount which is included within interest expense in the accompanying consolidated statements of operations. Beginning February 24, 2023, the Junior Indebtedness bears interest at 4%. The Company recorded interest expense of $0.5 million for the year ended January 1, 2024.
The loan and revolving line of credit under the Credit Agreement are secured by substantially all of the Company’s assets and incur interest on outstanding amounts at the following rates per annum through maturity:
For the years ended January 1, 2024 and January 2, 2023, the Company had $1.0 million and $0.9 million, respectively, of deferred financing costs in connection with Credit Agreement. Amortization expense associated with deferred financing costs, in the amount of $0.5 million for each of the years ended January 1, 2024 and January 2, 2023, is included in interest expense in the accompanying consolidated statements of operations.
Other Notes Payable
Other notes payable relates to (i) a note payable to an individual, issued in connection with the Company’s acquisition of a franchised restaurant, which accrues interest over a 7-year amortization period with interest at 7.0% with a maturity date of June 1, 2024, and (ii) an Economic Injury Disaster Loan from the Small Business Administration (“SBA”), payable over a 30-year amortization period with interest at 3.7% with a maturity date of July 25, 2052, which is primarily for one corporate-owned restaurant.
Interest expense consists of the following for the periods shown:
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