FAMOUS DAVE’S OF AMERICA, INC.
12701 Whitewater Drive, Suite 200
Minnetonka, Minnesota 55343
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 2, 2017
TO THE SHAREHOLDERS OF FAMOUS DAVE’S OF AMERICA, INC.:
1.
Please take notice that the annual meeting of shareholders of Famous Dave’s of America, Inc. (the “Annual Meeting”) will be
held, pursuant to due call by the Board of Directors of the Company, at the Company’s office at 12701 Whitewater Drive, Minnetonka,
Minnesota, on Tuesday, May 2, 2017, at 3:00 p.m., or at any adjournment or adjournments thereof, for the purpose of considering and
taking appropriate action with respect to the following:
The election of six directors;
The ratification of the appointment of Grant Thornton LLP as the independent registered public accounting firm of the
Company for fiscal 2017;
Advisory approval of the Company’s executive compensation (“say-on-pay”); and
The transaction of any other business as may properly come before the Annual Meeting or any adjournments thereof.
Pursuant to due action of the Board of Directors, shareholders of record on March 7, 2017 will be entitled to vote at the Annual
2.
4.
3.
Meeting or any adjournments thereof.
Important Notice Regarding the Availability of Proxy Materials for the
Shareholder Meeting to be Held on May 2, 2017.
The proxy statement for the Annual Meeting and the Annual Report to Shareholders for the fiscal year ended January 1, 2017,
each of which is included with this Notice, are also available to you on the Internet. We encourage you to review all of the important
information contained in the proxy materials before voting. To view the proxy statement and Annual Report to Shareholders on the
Internet, visit www.famousdaves.com/proxymaterials.
March 23, 2017
By Order of the Board of Directors
/s/ Michael W. Lister
Michael W. Lister
Chief Executive Officer and
Chief Operating Officer
FAMOUS DAVE’S OF AMERICA, INC.
12701 Whitewater Drive, Suite 200
Minnetonka, Minnesota 55343
PROXY STATEMENT
Annual Meeting of Shareholders to be Held
May 2, 2017
VOTING AND REVOCATION OF PROXY
This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Famous Dave’s of
America, Inc. to be used at the annual meeting of shareholders of the Company (the “Annual Meeting”) to be held on Tuesday, May 2,
2017, at 3:00 p.m., at the Company’s office at 12701 Whitewater Drive, Minnetonka, Minnesota. Throughout this Proxy Statement, the
terms “the Company,” “Famous Dave’s,” “we,” “our,” “us,” and similar terms refer to Famous Dave’s of America, Inc.
The Annual Meeting is being held for the purpose of considering and taking appropriate action with respect to the following:
1. The election of six directors;
2. The ratification of the appointment of Grant Thornton LLP as the independent registered public accounting firm of the
Company for fiscal 2017;
3. Advisory approval of the Company’s executive compensation (“say-on-pay”); and
4. The transaction of any other business as may properly come before the Annual Meeting or any adjournments thereof.
The approximate date on which this Proxy Statement and the accompanying proxy were first sent or provided to shareholders was
March 23, 2017.
PROXIES AND VOTING
Registered shareholders may vote in one of three ways: By completing and returning the enclosed proxy card via regular mail or
by voting via the Internet or telephone. Specific instructions for using these methods are set forth on the enclosed proxy card. The
Internet and telephone procedures are designed to authenticate the shareholder’s identity and to allow shareholders to vote their shares
and confirm that their instructions have been properly recorded.
The Board of Directors has set the close of business on March 7, 2017 as the “Record Date” for the Annual Meeting. Only holders
of the Company’s common stock as of the Record Date, or their duly appointed proxies, are entitled to notice of and will be entitled to
vote at the Annual Meeting or any adjournments thereof. On the Record Date, there were 6,957,628 shares of the Company’s common
stock outstanding. Each such share entitles the holder thereof to one vote upon each matter to be presented at the Annual Meeting. A
quorum, consisting of a majority of the outstanding shares of the Company’s common stock entitled to vote at the Annual Meeting, must
be present in person or represented by proxy before action may be taken at the Annual Meeting.
1
Each proxy returned to the Company will be voted in accordance with the instructions indicated thereon. If no direction is given
by a shareholder, the shares will be voted as recommended by the Company’s Board of Directors. If any nominee for the Board of
Directors should withdraw or otherwise become unavailable for reasons not presently known, the proxies that would have otherwise
been voted for such nominee will be voted for such substitute nominee as may be selected by the Board of Directors. If a shareholder
abstains from voting on any matter, the abstention will be counted for purposes of determining whether a quorum is present at the Annual
Meeting for the transaction of business as well as shares entitled to vote on that matter. On matters other than the election of directors,
an action of the shareholders generally requires the affirmative vote of a majority of shares present in person or represented by proxy at
the Annual Meeting and entitled to vote on the matter. Accordingly, an abstention on any matter other than the election of directors will
have the same effect as a vote against that matter. A non-vote occurs when a nominee holding shares for a beneficial owner votes on
one proposal, but does not vote on another proposal because the nominee does not have discretionary voting power and has not received
instructions from the beneficial owner. Broker non-votes on a matter are counted as present for purposes of establishing a quorum for
the Annual Meeting, but are not considered entitled to vote on that particular matter. Consequently, non-votes generally do not have the
same effect as a negative vote on the matter.
A shareholder giving a proxy may revoke it at any time before it is exercised by (i) giving written notice of revocation to the
Secretary of the Company, (ii) delivering a duly executed proxy bearing a later date, or (iii) voting in person at the Annual Meeting.
Presence at the Annual Meeting of a shareholder who has signed a proxy does not, alone, revoke that proxy; revocation must be
announced by the shareholder at the time of the Annual Meeting. Unless so revoked, the shares represented by each proxy will be voted
at the Annual Meeting and at any adjournments thereof.
NOTICE TO BENEFICIAL OWNERS OF SHARES HELD IN BROKER ACCOUNTS:
New York Stock Exchange Rule 452 prohibits NYSE member organizations from giving a proxy to vote with respect to an election
of directors (Proposal No. 1) without receiving voting instructions from a beneficial owner. Because NYSE Rule 452 applies to all
brokers that are members of the NYSE, this prohibition applies to the Annual Meeting even though the Company is not listed on the
New York Stock Exchange. Therefore, brokers will not be entitled to vote shares at the Annual Meeting with respect to Proposal No. 1
without instructions by the beneficial owner of the shares. AS A RESULT, BENEFICIAL OWNERS OF SHARES HELD IN
BROKER ACCOUNTS ARE ADVISED THAT, IF THEY DO NOT TIMELY PROVIDE INSTRUCTIONS TO THEIR
BROKER, THEIR SHARES WILL NOT BE VOTED IN CONNECTION WITH THESE PROPOSALS.
2
PROPOSAL No. 1 – Election of Directors
PROPOSALS
The shareholders have set the size of the Board of Directors at eight and we currently have seven directors. Six of these directors
have been nominated for re-election at the Annual Meeting, leaving two vacancies. If elected, each nominee has consented to serve as
a director of the Company and to hold office until the next annual shareholders’ meeting, and until his or her successor is elected and
shall have qualified, or until his or her earlier death, resignation, removal or disqualification.
The following paragraphs provide information as of the date of this Proxy Statement about each nominee. The information
presented includes information that each nominee has given us about his or her age, all positions he or she holds within the Company,
his or her principal occupation and business experience for the past five years, and the names of other publicly-held companies of which
he or she currently serves as a director or has served as a director during the past five years. In addition to the information presented
below regarding each nominee’s specific experience, qualifications, attributes and skills that led our Board to the conclusion that he or
she should serve as a director, our director nominees have experience in developing and overseeing businesses and implementing near
term and long range strategic plans. We also believe that all of our director nominees have a reputation for integrity, honesty and
adherence to high ethical standards. Collectively, they have demonstrated business acumen and an ability to exercise sound judgment,
as well as a commitment of service to our Company and our Board. Although we don’t believe that share ownership alone qualifies any
person to serve as a director of our Company, we believe that the beneficial ownership of our Board nominees (collectively 27% as of
the Record Date) aligns their interests with those of our shareholders and will drive our Board’s focus on maximizing shareholder value.
Name and Age of
Director and/or Nominee
Anand D. Gala
Age 43
Joseph M. Jacobs
Age 64
Director
Since
2015
2015
Principal Occupation, Business Experience
For the Past Five Years and Directorships of Public Companies
Mr. Gala has been a director of our Company since July 2015. Mr. Gala is the Founder, President and
Chief Executive Officer of Gala Holdings International, a diversified holding company that conducts
consulting, restaurant development and management operations. Current portfolio brands under Gala
Holdings International ownership and operation include the Company (Famous Dave’s) and Fresh
Griller. Since 2007, Mr. Gala has also been Founder and Managing Partner of Gala Development
Partners, LLC, a firm focused on the acquisition, development and management of commercial real
estate comprising retail and office properties. From February 1998 until May 2014, Mr. Gala served as
Founder, President and Chief Executive Officer of Golden West Restaurants, Inc., a franchise
developer of Applebee’s restaurants throughout California. From 2000 until 2010, Mr. Gala served as
Founder, President and Chief Executive Officer of Gala AZ Holdings, a developer of Del Taco
restaurants in Arizona. Mr. Gala graduated from the University of Southern California with a B. S. in
Biology.
Mr. Gala’s background in the restaurant industry and his substantial experience in franchise
operations, including as a Famous Dave’s franchisee, qualify him to serve as a director of our
Company. We believe that maintaining good relationships with our franchisees is extremely
important to our organization given the impact that franchise operations have on the results of
our operations. As a well-respected Famous Dave’s franchisee, Mr. Gala is uniquely positioned
to advise the Company on matters related to both franchise relations and operations.
Mr. Jacobs has been a director on our Board of Directors since July 2015 and served as Chairman of
the Board from July 2015 to March 2017. Mr. Jacobs co-founded Wexford Capital LP in 1994 and
serves as its President. Mr. Jacobs has primary responsibility for overseeing the activities of Wexford
Capital LP’s private equity funds. He has also served on the boards and creditors’ committees of a
number of public and private companies in which Wexford has held investments. From 1982-94, Mr.
Jacobs was employed by Bear Stearns & Co., Inc., where he attained the position of Senior Managing
Director. While at Bear Stearns, Mr. Jacobs was active in bankruptcies and restructurings and was
responsible for all real estate investment banking activities, including debt and equity financing of real
estate on both a private and public basis, real estate investment, and advisory services. From 1979-82,
he was employed as a commercial lending officer at Citibank, N.A. Mr. Jacobs holds an MBA from
Harvard Business School and a BS in economics from the Wharton School of the University of
Pennsylvania.
Mr. Jacobs is affiliated with investment funds that collectively hold the largest beneficial
ownership stake in the Company (19.2% as of the Record Date). Mr. Jacobs brings the
perspective of a professional institutional shareholder to Board discussions, which we believe
adds a strategic resource to a Board seeking to maximize shareholder value. Mr. Jacobs’ broad
knowledge of corporate governance and management, obtained though his experience in
overseeing portfolio companies, is also a valuable resource to the Board.
3
C Charles W. Mooty
Age 56
Richard A. Shapiro
Age 46
Patrick D. Walsh
Age 40
Mr. Mooty joined the Board in December 2016 and began serving as our Chairman of the Board in
March 2017. Mr. Mooty currently serves as the president and chief executive officer of Jostens, Inc., a
position he has held since January 2014. Prior to his work at Jostens, Inc., from June 2012 to December
2013, Mr. Mooty was employed at Fairview Health Services as the interim president and chief
executive officer, as well as chairman of the board of trustees until December 2016. Mr. Mooty has
also served as the president and chief executive officer of the Faribault Woolen Mill, starting in May
2011. For twenty-one years, Mr. Mooty was employed by International Dairy Queen, where he held
many different positions; among them, the position of president and chief executive officer, as well as
chairman of the board.
2016
The Board believes that Mr. Mooty’s twenty-one years of experience in the restaurant industry
uniquely qualifies him to lead our Board in his role as a non-executive Chairman. In addition,
Mr. Mooty brings leadership and insight to our Board from his many years of experience in
serving in the role of a board chairman in other organizations.
Mr. Shapiro joined our Board in July 2015. Mr. Shapiro joined Wexford Capital LP in 2011 and became
a Partner in 2014. Mr. Shapiro serves as Portfolio Manager and Co-Head of Equities and is a member
of the hedge fund investment committee. From 2007-2011, Mr. Shapiro was a Managing Director and
Portfolio Manager at Millennium Management, managing a long-short portfolio. From 2004-2006, Mr.
Shapiro was Managing Director and Portfolio Manager in the equities division of Amaranth Advisors.
From 1997-1999 and 2001-2004, Mr. Shapiro also gained investment experience at Putnam
Investments, 1 to 1 Venture Partners and Lee Munder Capital. Mr. Shapiro holds an MBA from
Georgetown University and a BS in Business Administration from the University of California.
2015
Mr. Shapiro offers the perspective of a professional institutional shareholder. Further, Mr.
Shapiro’s experience in overseeing the management of positions in various investments position
him to assist the Board in analyzing strategic opportunities and advise with respect to executing
on the Company’s overall goals and objectives.
2013
Mr. Walsh has been a director of our Company since May 2013. Since August 2012, Mr. Walsh has
been Managing Member and Chief Executive Officer of PW Partners, LLC and PW Partners Atlas
Funds, LLC, each the general partner of PW Partners Master Fund LP and PW Partners Atlas Fund LP,
respectively. Each of PW Partners Master Fund LP and PW Partners Atlas Fund LP is a value-oriented,
fundamentally-driven, private investment fund. In addition, since September 2012, Mr. Walsh has
served as Managing Member of PW Partners Capital Management LLC, the management company
with respect to each of PW Partners Atlas Fund LP and PW Partners Master Fund LP. From December
2011 to August 2012, Mr. Walsh was Managing Partner of PWK Partners, LLC, a value-oriented,
private investment firm. From September 2011 to December 2011, Mr. Walsh was engaged in activities
relating to the formation of PWK Partners, LLC and its affiliated funds. From March 2008 to September
2011, Mr. Walsh was a Partner at Oak Street Capital Management, LLC, a long-short, value-oriented,
private investment management firm. From August 2004 to February 2008, Mr. Walsh was a Vice
President in the Real Estate, Gaming, Lodging and Leisure Investment Banking Group of Deutsche
Bank Securities, Inc., a subsidiary of Deutsche Bank AG conducting investment banking and securities
activities in the United States. Mr. Walsh is a Chartered Financial Analyst. He received a B.S. in
accountancy from Boston College. Committees: Audit and Compensation (Chair).
Mr. Walsh is a sophisticated investor who has an extensive background in financial analysis, a
broad understanding of the operational, financial and strategic issues facing public companies,
and significant experience in the restaurant industry through past investments. In light of his
education, background and experience, and his significant beneficial ownership stake in the
Company (5.4% beneficial ownership as of the Record Date), the Board believes that Mr. Walsh
brings the perspective of a professional institutional shareholder to Board discussions, and
provides the Board with a strategic focus on maximizing shareholder value.
4
Bryan L. Wolff
Age 38
Mr. Wolff has served as a director of the Company since July 2015. Since August 2015, he has served
as Chief Financial Officer of ThriveMarket, Inc., a healthy and organic food ecommerce company.
From September 2014 to August 2015, he served as Chief Financial Officer of DogVacay, Inc., an
online service connecting pet owners with sitters across the U.S. and Canada. From January 2012 until
August 2014, Mr. Wolff served as Chief Financial Officer of Bonobos, Inc., a men’s fashion and
accessories retailer. From March 2010 through December 2011, Mr. Wolff was an Analyst at Luxor
Capital, LP. Mr. Wolff earned a Masters of Business Administration from Stanford Graduate School
of Business. Committees: Audit (Chair), Compensation, and Corporate Governance and Nominating
(Chair).
2015
Mr. Wolff’s has served as Chief Financial Officer and led the finance and accounting functions
at multiple companies, qualifying him to serve on the Company’s Board of Directors and its
Audit Committee as an “audit committee financial expert.” Based on his background and
experience, Mr. Wolff is qualified to assist the Board in overseeing the Company’s financial and
accounting functions and evaluating the Company’s internal controls over financial reporting.
Vote Required
Directors are elected by a plurality of the votes of the holders of shares present in person or represented by proxy and entitled to
vote on the election of directors. The nominees receiving the highest number of affirmative votes will be elected. Shares represented by
executed proxies will be voted, if authority to do so is not withheld, for the election of the six nominees named above. If you do not vote
for a particular nominee, or you withhold authority for one or all nominees, your vote will not count either “for” or “against” the nominee,
although it will be counted for purposes of determining whether there is a quorum. If any director nominee should withdraw or otherwise
become unavailable for reasons not presently known, the proxies which would have otherwise been voted for that director nominee may
be voted for a substitute director nominee selected by the Company’s Board of Directors.
The Board recommends that you vote FOR the election of each named nominee.
5
PROPOSAL No. 2 – Ratification of the Appointment of Independent Registered Public Accounting Firm
The Board of Directors and management of the Company are committed to the quality, integrity and transparency of the
Company’s financial reports. In accordance with the duties set forth in its written charter, the Audit Committee of the Company’s Board
of Directors has appointed Grant Thornton LLP as the Company’s independent registered public accounting firm for the 2017 fiscal
year. A representative of Grant Thornton LLP is expected to attend this year’s Annual Meeting and be available to respond to appropriate
questions from shareholders, and will have the opportunity to make a statement if he or she desires to do so.
Fees Billed to Company by Its Independent Registered Public Accounting Firm
The following table presents fees for professional audit services and 401(k) audit services, tax services and other services rendered
by Grant Thornton LLP during fiscal years 2016 and 2015:
Audit Fees (1) .................................................................................................................................................
Audit-Related Fees (2) ....................................................................................................................................
Tax Fees (3) ....................................................................................................................................................
All Other Fees (4) ...........................................................................................................................................
$361,643
$ 19,500
—
—
$ 303,342
$ 16,353
—
—
Total Fees ........................................................................................................................................................
$381,143
$ 319,695
2016
2015
(1) Audit Fees consist of fees for professional services rendered for the audit of the Company’s consolidated annual financial statements
and review of the interim consolidated financial statements included in quarterly reports and services that are normally provided in
connection with statutory and regulatory filings or engagements.
(2) Audit-Related Fees consist principally of assurance and related services that are reasonably related to the performance of the audit
or review of the Company’s financial statements but not reported under the caption Audit Fees above, including the 401(k) audit.
(3) Tax Fees consist of fees for tax compliance, tax advice, and tax planning.
(4) All Other Fees typically consist of fees for permitted non-audit products and services provided.
The Audit Committee of the Board of Directors has reviewed the services provided by Grant Thornton LLP during fiscal year
2016 and the fees billed for such services. After consideration, the Audit Committee has determined that the receipt of these fees by
Grant Thornton LLP is compatible with the provision of independent audit services. The Audit Committee discussed these services and
fees with Grant Thornton LLP and Company management to determine that they are permitted under the rules and regulations concerning
auditor independence promulgated by the Securities and Exchange Commission to implement the Sarbanes-Oxley Act of 2002, as well
as the American Institute of Certified Public Accountants.
Pre-Approval Policy
The Company’s Audit Committee charter (a copy of which is available at the Company’s website at www.famousdaves.com)
provides that all audit and non-audit accounting services that are permitted to be performed by the Company’s independent registered
public accounting firm under applicable rules and regulations must be pre-approved by the Audit Committee or by designated members
of the Audit Committee, other than with respect to de minimus exceptions permitted under the Sarbanes-Oxley Act of 2002. During
fiscal 2016, all services performed by Grant Thornton LLP were pre-approved in accordance with the Audit Committee charter.
Prior to or as soon as practicable following the beginning of each fiscal year, a description of the audit, audit-related, tax, and
other services expected to be performed by the independent registered public accounting firm in the following fiscal year is presented
to the Audit Committee for approval. Following such approval, any requests for audit, audit-related, tax, and other services not presented
and pre-approved must be submitted to the Audit Committee for specific pre-approval and cannot commence until such approval has
been granted. Normally, pre-approval is provided at regularly scheduled meetings. However, the authority to grant specific pre-approval
between meetings, as necessary, has been delegated to the chairman of the Audit Committee. The chairman must update the Audit
Committee at the next regularly scheduled meeting of any services that were granted specific pre-approval. In addition, the Audit
Committee has granted pre-approval for the Chief Executive Officer and the Chief Financial Officer to spend up to $5,000 annually in
additional permitted audit fees with Grant Thornton LLP, which authority and amount will be reviewed and approved annually.
6
Vote Required
The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the
Annual Meeting will be required to ratify the appointment of Grant Thornton LLP as the Company’s independent registered public
accounting firm for fiscal 2017. If the shareholders do not ratify the appointment of Grant Thornton LLP, the Audit Committee may
reconsider its selection, but is not required to do so. Notwithstanding the proposed ratification of the appointment of Grant Thornton
LLP by the shareholders, the Audit Committee, in its discretion, may direct the appointment of new independent auditors at any time
during the year without notice to, or the consent of, the shareholders, if the Audit Committee determines that such a change would be in
the best interests of the Company and its shareholders.
The Board recommends that you vote FOR the ratification of Grant Thornton LLP
as the independent registered public accounting firm of the Company for fiscal 2017.
7
PROPOSAL No. 3 – Advisory Vote on Executive Compensation
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, our shareholders are entitled to
vote to approve, on an advisory basis, the compensation of our named executive officers as disclosed in this Proxy Statement in
accordance with the rules of the Securities and Exchange Commission. This “say-on-pay” vote is not intended to address any specific
item of compensation, but rather the overall compensation of our named executive officers and the philosophy and policies described in
this Proxy Statement.
At the Company’s 2013 annual shareholders’ meeting, the shareholders were asked to cast an advisory vote on how frequently
we should seek an advisory “say-on-pay” vote. In particular, we asked whether the “say-on-pay” vote should occur every three years,
every two years, or every one year. As stated in the proxy statement for our 2013 annual shareholders’ meeting, our Board recommended
that shareholders vote for an annual “say-on-pay” vote to best enable the Board and the Compensation Committee to understand and
incorporate the views of our shareholders in structuring our executive compensation programs. At the 2013 annual shareholders’
meeting, the option of an annual “say-on-pay” vote received the highest number of votes cast by shareholders. Consistent with this
desire for an annual “say-on-pay” vote, we are asking shareholders to indicate their support at the Annual Meeting for the compensation
of our named executive officers as described in this Proxy Statement by casting an advisory vote “FOR” the following resolution:
“RESOLVED, that the shareholders approve the compensation of the “named executive officers” of Famous Dave’s of
America, Inc., as disclosed in the section entitled “Executive Compensation” in the Proxy Statement for the Famous Dave’s
of America, Inc. 2017 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and
Exchange Commission.”
The compensation of our named executive officers is disclosed in the section entitled “Executive Compensation” below.
Vote Required
The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the
Annual Meeting will be required to approve, on an advisory basis, the compensation of our named executive officers as described herein.
Because the vote is advisory, it will not be binding on the Company, the Board or the Compensation Committee. Nevertheless, the views
expressed by our shareholders, whether through this vote or otherwise, are important to us and, accordingly, the Board and the
Compensation Committee intend to consider the results of this vote in making determinations in the future regarding executive
compensation arrangements.
The Board recommends that you vote FOR the proposal to approve the compensation of our
named executive officers, as described in this Proxy Statement.
Other Matters
The Board of Directors is not aware of any matter to be presented for action at the Annual Meeting other than the three proposals
described above. Although the Board of Directors knows of no other matters to be presented at the Annual Meeting, all proxies returned
to the Company will be voted on any such matter in accordance with the judgment of the proxy holders.
8
Name and Title
Age
Principal Occupation, Business Experience for the
Past Five Years and Directorships of Public Companies
EXECUTIVE OFFICERS OF THE COMPANY
Michael W. Lister
Chief Executive Officer and
Chief Operating Officer
Dexter A. Newman
Chief Financial Officer
56 Michael Lister has served as our Chief Executive Officer and Chief Operating
Officer since October 1, 2016. Since 2001, Mr. Lister has been an owner and the
president of Famous Five Dining, Inc., which operates five Famous Dave’s
franchised restaurants in Tennessee. He has served four terms as Chairman of the
Franchise Advisory Board prior to his appointment as Chief Executive Officer and
Chief Operating Officer. Prior to becoming a franchise owner, he served as the
Company’s senior vice president of operations from 1997 to 2001.
37 Mr. Newman has served as our Chief Financial Officer since April 11, 2016. From
November 2015 until March 2016, he was an independent business consultant.
From November 2013 until October 2015, Mr. Newman served as Vice President
and a Division Chief Financial Officer at Bloomin’ Brands, a casual dining
company with more than 1,400 restaurants in 49 states and 21 countries and
territories. He was formerly Bloomin’ Brands Vice President and Treasurer, and
Head of Risk Management from October 2012 through October 2013. From
February 2002 to August 2012 he was employed in numerous roles with Best Buy
Co., Inc., a consumer electronics retailer, most recently serving as Senior Director
and Chief Financial Officer of Best Buy’s Private Brands and Global Sourcing
Group, and previously serving as Senior Director and Deputy Treasurer. Prior to his
role within Treasury at Best Buy, Mr. Newman worked as Director, Strategy
Development and Operations for Best Buy International and held numerous other
roles within the company’s finance function.
9
EXECUTIVE COMPENSATION
The following summary compensation table reflects cash and non-cash compensation for the 2015 and 2016 fiscal years awarded
to or earned by (i) each individual serving as the principal executive officer of the Company during the 2016 fiscal year ended January
1, 2017; (ii) the other two highest paid individuals who served as executive officers of the Company at the end of such fiscal year; and
(iii) the other individual who would have qualified as one of the two highest paid executive officers but for the fact that he was not
serving as an executive officer as of the end of the fiscal year (the “named executive officers”).
Summary Compensation Table
Name and
Principal Position
Michael W. Lister (1)
Chief Executive Officer and
Chief Operating Officer
Dexter A. Newman (2)
Chief Financial Officer
Alfredo V. Martel(3)
Former Chief Marketing Officer
Adam J. Wright (4)
Former Chief Executive Officer
Abelardo Ruiz(6)
Former Chief Operating Officer
Year
Salary
($)
Bonus
($)
Stock
Awards
($)
Options
Awards
($)(7)
2016
$62,308
$18,750
$—
$100,527(8)
2016 $192,115
$98,654
$—
$156,088(9)
2016 $ 238,846
$—
$—
$64,812(10)
2016 $ 238,846
2015 $ 158,077
$—
$—
$—
$—
$21,002(11)
$149,476(12)
Change in
Pension
Value and
Non-Qualified
Deferred
Compensation
Earnings
($) (14)
$—
$—
$—
$—
$—
All Other
Compensation
($)
Total
($)
$10,099
$191,684
$—
$446,857
$—
$303,658
$77,596(5)
$—
$337,444
$307,553
2016 $ 250,000 $29,167
2015
$86,538
$20,833
$—
$—
$—
$319,045(13)
$177
$11
$41,107
$320,451
$—
$426,427
(1) Mr. Lister became an employee and was appointed Chief Executive Officer and Chief Operating Officer on October 11, 2016.
(2) Mr. Newman became an employee and was appointed Chief Financial Officer on April 11, 2016.
(3) Mr. Martel became an employee and was appointed Chief Marketing Officer on February 12, 2016. He ceased being Chief Marketing
Officer on January 12, 2017.
(4) Mr. Wright was appointed interim Chief Executive Officer on June 18, 2015 and Chief Executive Officer on December 27, 2015.
He ceased being the Chief Executive Officer on October 11, 2016.
(5) This amount includes the severance payments paid to Mr. Wright pursuant to the terms of his employment agreement, as well as
accrued but unused paid time off.
(6) Mr. Ruiz transitioned from his role as Chief Operating Officer to a different role within the Company, focusing on international
franchise sales and development, effective August 19, 2016. He ceased employment with the Company on February 24, 2017.
(7) Amounts shown reflect the grant date fair value of stock option awards granted for the respective year pursuant to the Company’s equity
incentive plans, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (See
Note 9 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K filed with the SEC).
(8) Represents a five-year, 70,000 share stock option award granted to Mr. Lister on October 11, 2016. The option vests in monthly
installments commencing on the one-month anniversary of the grant date and continuing on each of the subsequent 47 monthly anniversaries
thereof; monthly installments consist of 1,486 shares on each of the first 47 vesting dates and 1,482 shares on the final (48th) vesting date.
The option exercise price is $5.25, which was the closing price of the Company’s common stock on the date of grant.
(9) Represents a ten-year, 70,000 share stock option award granted to Mr. Newman on April 11, 2016. The option vests in monthly installments
commencing on the one-month anniversary of the grant date and continuing on each of the subsequent 47 monthly anniversaries thereof;
monthly installments consist of 1,486 shares on each of the first 47 vesting dates and 1,482 shares on the final (48th) vesting date. The option
exercise price is $5.67, which was the closing price of the Company’s common stock on the date of grant.
10
(10) Represents a five-year, 35,000 share stock option award granted to Mr. Martel on February 12, 2016. The option vests in monthly
installments commencing on the one-month anniversary of the grant date and continuing on each of the subsequent 47 monthly anniversaries
thereof; monthly installments consist of 729 shares on each of the first 47 vesting dates and 737 shares on the final (48th) vesting date. The
option exercise price was $5.62, which was the closing price of the Company’s common stock on the date of grant.
(11) Represents a ten-year, 10,000 share stock option award granted to Mr. Wright on May 3, 2016. The option vested immediately as to
1,680 shares and the remaining 8,320 in monthly installments starting on May 31, 2016 and ending on December 31, 2017. The
option exercise price is $5.42, which was the closing price of the Company’s common stock on the date of grant. This vested portion
of this option grant expired 90 days after his resignation as a Chief Executive Officer.
(12) Represents a ten-year, 50,000 share stock option award granted to Mr. Wright on January 1, 2016. The option was scheduled to vest
in approximately equal monthly installments over two years. The option exercise price is $6.94, which was the closing price of the
Company’s common stock on the date of grant. This vested portion of this option grant expired 6 months days after his resignation
as a Chief Executive Officer.
(13) Represents a five-year, 71,324 share stock option award granted to Mr. Ruiz on August 31, 2015. The option vests in monthly
installments commencing on the one-month anniversary of the grant date and continuing on each of the subsequent 47 monthly
anniversaries thereof; monthly installments consist of 1,486 shares on each of the first 47 vesting dates and 1,482 shares on the final
(48th) vesting date. The option exercise price is $14.61, which was the closing price of the Company’s common stock on the date of
grant.
(14) The Company sponsors a 401(k) retirement savings plan but does not maintain a pension plan. Amounts shown were earned under the
Company’s Non-qualified Deferred Compensation Plan and represent the difference between the interest rate earned during the
applicable year (6.0% for 2015 and 2016) under that plan and 120% of the long-term applicable federal rate (3.10% in 2015 and
2.69% in 2016). A description of the Company’s Non-qualified Deferred Compensation Plan is included in this Proxy Statement
under the heading “Description of Additional Compensation Plans and Practices – Deferred Compensation Plan.”
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information concerning stock options and stock awards held by the named executive officers at
January 1, 2017:
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
2,916
11,664
7,290
3,760
18,750
23,776
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
67,084
58,336
27,710
3,760
18,750
47,548
Option Awards
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
—
—
—
—
—
—
Option
Exercise
Price
($)
$5.25
$5.67
$5.62
$5.42
$6.94
$14.61
Option
Expiration
Date
10/11/2026
4/11/2026
2/12/2021
5/3/2026
1/1/2026
8/31/2020
Name
Michael W. Lister
Dexter A. Newman
Alfred V. Martel
Adam J. Wright
Abelardo Ruiz
Employment Agreements
Employment Agreement with Michael W. Lister
The Company entered into a four-year written employment agreement with Mr. Lister to be effective as of October 11, 2016.
Under the employment agreement, Mr. Lister is entitled to receive an annual base salary of $300,000 and is eligible for annual bonus
compensation in the discretion of the Board based upon his achievement of milestones to be determined by the Board prior to the
commencement of each fiscal year. The targeted amount of each annual bonus will be determined by the Board, but is expected to be
50% of Mr. Lister’s base salary. If Mr. Lister is employed with the Company through December 31, 2016, he is entitled to a minimum
guaranteed bonus of $18,750. Mr. Lister may participate in the Company’s benefit plans that are currently and hereafter maintained by
the Company and for which he is eligible, including, without limitation, group medical, 401(k), life insurance and other benefit plans.
11
Mr. Lister has agreed not to compete with the Company during the term of his employment and for a period thereafter the length
of which will depend on the circumstances on which his employment is terminated. If Mr. Lister’s employment is terminated by the
Company other than for “Cause” or by Mr. Lister for “Good Reason” (each as defined in the employment agreement), Mr. Lister has
agreed not to compete with the Company in certain respects (as outlined in the employment agreement) during the period in which he
is entitled to receive or receives severance payments (as outlined below). If Lister’s employment is terminated by the Company for
Cause or by Mr. Lister other than for Good Reason, Mr. Lister has agreed not to compete with the Company for 12 months following
the date of such termination. Mr. Lister has also agreed not to solicit employees of the Company during the employment term and for
18 months thereafter.
Under the employment agreement, if Mr. Lister’s employment is terminated by the Company for any reason other than Cause
(including any termination by the Company following a “Change in Control” (as defined in the employment agreement)), death or
disability, or if Mr. Lister resigns for Good Reason, so long as he has signed and has not revoked a release agreement, he will be entitled
to receive severance comprised of continuing payments of his base salary for the lesser of (a) a six month period following the
termination date and (b) the remainder of the four year employment term.
Pursuant to the employment agreement, on October 11, 2016, the Company granted Mr. Lister a five-year, 70,000 share non-
qualified stock option under the Company’s 2015 Equity Incentive Plan (the “2015 Plan”) that will vest in approximately equal monthly
installments over four years. The stock option has an exercise price equal to the fair market value of the Company’s common stock on
the grant date. In the event of a Change of Control (as defined in the 2015 Plan) during the employment term in which the acquiring
company or successor company opts not to assume Mr. Lister’s employment agreement, the Stock Option will accelerate and become
fully vested and exercisable immediately prior to such Change of Control. In the event of a Corporate Transaction (as defined in the
2015 Plan), at the option of the Board, Mr. Lister must exercise the stock option or such failure to exercise will result in termination of
the stock option. Also in the event of a Corporate Transaction, in exchange for the termination of the stock option, the Board may make
a cash payment to Mr. Lister in an amount equal to the product obtained by multiplying (i) the amount (if any) by which the transaction
proceeds per share exceed the exercise price per share covered by the stock option by (ii) the number of shares of common stock covered
by the stock option. If Mr. Lister terminates his employment without Good Reason and fails to give the Company 90 days’ prior notice,
the stock option will automatically terminate with respect to 50% of the underlying shares. The stock option will terminate in its entirety
if not exercised within six months of Mr. Lister’s termination from the Company for any reason.
Employment Agreement with Dexter A. Newman
On April 7, 2016, the Company entered into a written employment agreement with Mr. Newman to be effective as of April 11,
2016. Under the employment agreement, Mr. Newman is entitled to receive an annual base salary of $270,000 and is eligible for annual
bonus compensation in the discretion of the Board based upon his achievement of milestones to be determined by the Board prior to the
commencement of each fiscal year. The targeted amount of the annual bonus in 2016 was the prorated portion of 50% of his base salary
and each subsequent annual bonus target will be determined by the Board, but is expected to be 50% of Mr. Newman’s base salary. Mr.
Newman may participate in the Company’s benefit plans that are currently and hereafter maintained by the Company and for which he
is eligible, including, without limitation, group medical, 401(k), life insurance and other benefit plans.
Mr. Newman has agreed not to compete with the Company during the term of his employment and for a period of 12 months
thereafter. Mr. Newman has also agreed not to solicit employees of the Company during the employment term and for 18 months
thereafter.
Under the employment agreement, if Mr. Newman’s employment is terminated by the Company for any reason other than Cause
(including any termination by the Company following a “Change in Control” (as defined in the employment agreement)), death or
disability, or if Mr. Newman resigns for Good Reason, so long as he has signed and has not revoked a release agreement, he will be
entitled to receive severance comprised of continuing payments of his base salary for a period of 12 months following the termination
date.
Pursuant to the employment agreement, on April 11, 2016, the Company granted Mr. Newman a ten-year, 70,000 share non-
qualified stock option under the Company’s 2015 Plan) that will vest in approximately equal monthly installments over four years. The
stock option has an exercise price equal to the fair market value of the Company’s common stock on the grant date. In the event of a
Change of Control (as defined in the 2015 Plan) during the employment term, the Stock Option will accelerate and become fully vested
and exercisable immediately prior to such Change of Control. In the event of a Corporate Transaction (as defined in the 2015 Plan), at
the option of the Board, Mr. Newman must exercise the stock option or such failure to exercise will result in termination of the stock
option, provided, in the event of such “forced” exercise, Mr. Newman may elect to exercise the option by a net exercise or broker
assisted cashless exercise procedure. Also in the event of a Corporate Transaction, in exchange for the termination of the stock option,
the Board may make a cash payment to Mr. Newman in an amount equal to the product obtained by multiplying (i) the amount (if any)
by which the transaction proceeds per share exceed the exercise price per share covered by the stock option by (ii) the number of shares
of common stock covered by the stock option. The stock option will terminate in its entirety if not exercised within 90 days of Mr.
Newman’s termination from the Company for any reason.
12
Employment Agreement with Abelardo Ruiz, the Former Chief Operating Officer
Abelardo Ruiz became the Company’s Chief Operating Officer effective as of August 31, 2015. Mr. Ruiz’s employment with the
Company was governed by an employment agreement effective as of August 31, 2015, that had a four-year term. Under the employment
agreement, Mr. Ruiz was entitled to receive an annual base salary of $250,000 and is eligible for annual bonus compensation in the
discretion of the Board in amounts expected to be in the range of 20%-30% of his base salary.
Pursuant to the employment agreement, at the commencement of his employment term, the Company granted Mr. Ruiz a five-
year, 71,324 share non-qualified stock option under the 2015 Plan that vests in equal monthly installments over the employment term.
The stock option will have an exercise price equal to the fair market value of the Company’s common stock on the grant date.
Mr. Ruiz agreed not to complete with the Company during the term of his employment and for a period thereafter the length of
which will depend on the circumstances on which his employment is terminated. If Mr. Ruiz’s employment is terminated by the
Company other than for “Cause” or by Mr. Ruiz for “Good Reason” (each as defined in the employment agreement), Mr. Ruiz has
agreed not to compete with the Company in certain respects (as outlined in the employment agreement) during the period in which he
is entitled to or receives severance payments (as outlined below). If Ruiz’s employment is terminated by the Company for Cause or by
such termination, Mr. Ruiz has also agreed not to solicit employees of the Company during the employment term and for 18 months
thereafter.
Mr. Ruiz’s employment was terminated without cause and under his employment agreement, as amended, received a severance
comprised of continuing payments of his salary for a six month period following the termination date.
Employment Agreement with Alfredo V. Martel, the Former Chief Marketing Officer
On February 12, 2016, the Company entered into a written employment agreement with Mr. Martel to be effective as of February
11, 2016. Under the employment agreement, Mr. Martel was entitled to receive an annual base salary of $270,000 and was eligible for
a discretionary annual bonus to be determined by the Board based upon his achievement of milestones determined by the Board prior to
the commencement of each fiscal year. The targeted amount of the annual bonus in 2016 was the prorated portion of 50% of his base
salary with each subsequent annual bonus target set at 50%. Mr. Martel was entitled to participate in the Company’s benefit plans
maintained by the Company and for which he was eligible, including, without limitation, group medical, 401(k), life insurance and other
benefit plans.
Mr. Martel agreed not to compete with the Company during the term of his employment and for a period of 12 months thereafter.
Mr. Martel also agreed not to solicit employees of the Company during the employment term and for 18 months thereafter.
Pursuant to the employment agreement, on February 12, 2016, the Company granted Mr. Martel a five-year, 35,000 share non-
qualified stock option under the Company’s 2015 Plan) that will vest in approximately equal monthly installments over four years. The
stock option has an exercise price equal to the fair market value of the Company’s common stock on the grant date. In the event of a
Change of Control (as defined in the 2015 Plan) during the employment term, the Stock Option will accelerate and become fully vested
and exercisable immediately prior to such Change of Control. In the event of a Corporate Transaction (as defined in the 2015 Plan), at
the option of the Board, Mr. Martel must exercise the stock option or such failure to exercise will result in termination of the stock
option, provided, in the event of such “forced” exercise, Mr. Martel may elect to exercise the option by a net exercise or broker assisted
cashless exercise procedure. Also in the event of a Corporate Transaction, in exchange for the termination of the stock option, the Board
may make a cash payment to Mr. Martel in an amount equal to the product obtained by multiplying (i) the amount (if any) by which the
transaction proceeds per share exceed the exercise price per share covered by the stock option by (ii) the number of shares of common
stock covered by the stock option. The stock option will terminate in its entirety if not exercised within 90 days of Mr. Martel’s
termination from the Company for any reason.
Mr. Martel was terminated without cause on January 12, 2017 and received severance comprised of continuing payments of his
base salary for a period of six months following the termination date.
Employment Agreement with Adam J. Wright, the Former Chief Executive Officer
On June 18, 2015, Adam J. Wright, a member of the Company’s Board of Directors, was appointed to serve as interim Chief
Executive Officer while the Board conducted a search for a permanent Chief Executive Officer. Upon his appointment, Mr. Wright
received a base salary of $25,000 per month in accordance with the Company’s standard payroll practices.
13
On December 28, 2015, the Company announced the appointment of Mr. Wright as Chief Executive Officer, removing his prior
interim title, and the Company entered into a two-year written employment agreement with Mr. Wright, effective as of January 1, 2016.
Under the employment agreement, Mr. Wright was entitled to receive an annual base salary of $300,000 and was eligible for annual
bonus compensation in the discretion of the Board based upon his achievement of milestones to be determined by the Board prior to the
commencement of each fiscal year. The targeted amount of each annual bonus was to be determined by the Board, but was expected be
50% of Mr. Wright’s base salary. Mr. Wright was entitled to participate in the Company’s benefit plans maintained by the Company
and for which he was eligible, including, without limitation, group medical, 401(k), life insurance and other benefit plans.
Pursuant to the employment agreement, on January 1, 2016, the Company also granted Mr. Wright a ten-year, 50,000 share non-
qualified stock option under the Company’s 2015 Plan that was scheduled to vest in approximately equal monthly installments over two
years. The stock option had an exercise price equal to the fair market value of the Company’s common stock on the grant date. The
terms of the stock option provided that it would terminate in its entirety if not exercised within six months of Mr. Wright’s termination
from the Company for any reason. On May 3, 2016, the Company also granted Mr. Wright a ten-year, 10,000 share non-qualified stock
option under the Company’s 2015 Plan that was scheduled to vest immediately as to 1,680 shares and the remaining 8,320 in monthly
installments starting on May 31, 2016 and ending on December 31, 2017. By its terms, this stock option provided that it would terminate
in its entirety if not exercised within 90 days of Mr. Wright’s termination for any reason.
Pursuant to his January 1, 2016 employment agreement, Mr. Wright agreed not to compete with the Company in certain respects
(as outlined in the employment agreement) during the period in which he is entitled to receive or receives severance payments (as
outlined below). Mr. Wright also agreed not to solicit employees of the Company for 18 months following his separation from the
Company.
Effective as of October 12, 2016, Mr. Wright resigned from his position as Chief Executive Officer and director on the Board of
Directors and received severance comprised of continuing payments of his base salary for a six-month period following the termination
date.
Description of Additional Compensation Plans and Practices
Deferred Stock Unit Plan
We maintain an Executive Elective Deferred Stock Unit Plan (the “Deferred Stock Unit Plan”), in which executives can elect to
defer all or part of their annual incentive compensation or commissions, or their receipt of any compensation in the form of stock grants
under the Company’s equity incentive plans or otherwise, for a specified period of time. During 2015 and 2016, no executives elected
to defer amounts under the Deferred Stock Unit Plan. To the extent elections are made, the amount of compensation that is deferred is
converted into a number of stock units, as determined by the share price of our common stock on the effective date of the election. These
units are converted back into a cash amount at the expiration of the deferral period based on the share price of our common stock on the
expiration date and paid to the executive in cash in accordance with the payout terms of the plan. Accordingly, we recognize
compensation expense throughout the deferral period to the extent that the share price of our common stock increases, and reduce
compensation expense throughout the deferral period to the extent that the share price of our common stock decreases.
Deferred Compensation Plan
We maintain a Non-Qualified Deferred Compensation Plan (the “Deferred Compensation Plan”) in which employees who are at
the “director” level and above are eligible to participate. Participants must complete a deferral election each year and submit it to the
Company, prior to the beginning of the fiscal year for which the compensation pertains, indicating the level of compensation (salary,
bonus and commissions) they wish to have deferred for the coming year. This deferral election is irrevocable except to the extent
permitted by the Deferred Compensation Plan’s administrator, and the applicable regulations promulgated by the Internal Revenue
Service. For fiscal 2015 and 2016, the Company matched 25.0% of the first 4.0% contributed by participants and paid declared interest
rates of 6.0% on balances contributed during fiscal 2015 and 2016. For fiscal 2017, the Company will again match 25% of the first 4.0%
contributed by participants and will pay a declared interest rate of 6.0% on contributions. The Board of Directors or the Compensation
Committee administers the Deferred Compensation Plan and can change the Company match, interest rate or any other aspects of the
plan at any time.
Deferral periods are defined as the earlier of termination of employment or not less than three calendar years following the end of
the applicable Deferred Compensation Plan Year. Extensions of the deferral period for a minimum of five years are allowed, provided
the election is made at least one year before the first payment affected by the change. Payments can be in a lump sum or in equal
payments over a two-, five- or ten-year period, plus interest from the commencement date.
14
The Deferred Compensation Plan assets are kept in an unsecured account that has no trust fund. In the event of bankruptcy, any
future payments would have no greater rights than that of an unsecured general creditor of the Company and they confer no legal rights
for interest or claim on any assets of the Company. Benefits provided by the Deferred Compensation Plan are not insured by the Pension
Benefit Guaranty Corporation (PBGC) under Title IV of the Employee Retirement Income Security Act of 1974 (“ERISA”), because
the pension insurance provisions of ERISA do not apply to the Deferred Compensation Plan.
For the plan year ended December 31, 2016, named executive officers contributed $7,500 to the Deferred Compensation Plan and
the Company provided matching funds and interest of $936.
Stock Ownership Expectations
In accordance with the desire to better align the long-term objectives of our executives and the Board with our shareholders, our
Board has adopted minimum stock ownership guidelines that set forth the levels of ownership expected of Board members and top
executives of the Company. Board members are expected to own shares of our common stock equal in value to at least three times their
annual Board of Directors compensation. Our Chief Executive Officer is expected to own shares of our common stock and vested options
equal in value to at least four times his annual salary, while our Chief Financial Officer is expected to own shares of our common stock
and vested options equal in value to at least two times his annual salary. Other Vice Presidents are expected to own shares of our common
stock and vested options equal in value to at least their respective annual salaries. For purposes of determining compliance with the
minimum stock ownership guidelines, share ownership is defined to include stock owned directly by the director or executive and vested
stock options. The Board acknowledges that the value of directors’ and executives’ share ownership will fluctuate based on the market
price of our stock and, therefore, deficiencies in share ownership levels may exist from time to time. The Board also acknowledges that
newly elected directors and newly hired executives may require a transition period to build share ownership in compliance with the
guidelines. Shares owned directly by directors and executives in compliance with the minimum ownership guidelines represent
investments in our common stock. Therefore, gains or losses resulting from appreciation or depreciation of these shares are not taken
into account when calculating compensation amounts reported in this Proxy Statement.
Other Benefits
We provide additional benefit plans to employees, including the named executive officers, such as medical, dental, life insurance
and disability coverage, flex benefit accounts, 401(k) plan, and an employee assistance program and. We also provide vacation and other
paid holidays to employees, including the named executive officers, which are comparable to those provided at other companies of
comparable size.
Tax Deductibility of Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended, places a limit of $1,000,000 on the amount of compensation
that the Company may deduct in any one year with respect to each of its five most highly paid executive officers. There is an exception
to the $1,000,000 limitation for performance-based compensation meeting certain requirements. Incentive compensation, including
equity incentive awards, has not generally been structured to meet all of such requirements and, as such, may not be fully deductible.
15
INFORMATION REGARDING THE BOARD OF DIRECTORS
AND CORPORATE GOVERNANCE
Board of Directors
The size of our Board of Directors is set at eight by the shareholders. We currently have seven members serving as directors, with
one vacancy and will have two vacancies after this 2017 Annual Meeting of Shareholders. The following directors, constituting a
majority of the Board, are “independent directors” as such term is defined in Rule 5605(a)(2) of the NASDAQ Stock Market’s
Marketplace Rules: Joseph M. Jacobs, Jonathan P. Lennon, Charles W. Mooty, Richard A. Shapiro, Patrick D. Walsh, and Bryan L.
Wolff. The Board of Directors held five formal meetings during fiscal 2016 and took action by written consent in lieu of a meeting on
eight occasions.
Currently, the Company has appointed an independent director, Charles W. Mooty, as non-executive Chairman of the Company’s
Board of Directors, a position he has held since March 2017, after joining the Board in December 2016. The Board separates the Board
chair function from that of the Chief Executive Officer, who serves as the Company’s principal executive officer, based on to a belief
that separating these functions, and empowering an independent director to chair the Board meetings, will result in increased Board
oversight of management activities.
Board of Directors Role in Risk Oversight
The Audit Committee of the Board of Directors has been delegated the responsibility for risk oversight. In overseeing the
Company’s risk management, the Audit Committee adheres to a detailed committee responsibilities calendar that addresses various risk-
related matters. These matters include but are not limited to:
• meeting with management and the Company’s independent registered public accountant in separate executive sessions;
•
•
•
•
•
•
interacting with management and the internal audit function;
considering and reviewing with the Company’s independent registered public accountant the Company’s assessment and
any related attestation (including related reports) on internal control over financial reporting, the adequacy of such controls
and recommendations for improvements;
inquiring of the Company’s finance and accounting function managers and the Company’s independent registered public
accountant about significant risks or exposures, and any significant accounts that require management judgment;
reviewing the Company’s policies for risk assessment and risk management, and assessing steps taken or to be taken to
control such risk;
assessing the oversight and management of the information risks, including those related to Company Information
Technology projects; and
overseeing the Company’s investment policies.
Committees of the Board of Directors
The Company has a standing Audit Committee, Compensation Committee and Corporate Governance and Nominating
Committee. During fiscal 2016, each member of the Board of Directors attended at least 75% of the Board meetings and meetings of
committees to which they belong during the period in which such member served as a director. Although the Company has no formal
policy regarding directors’ attendance at the Company’s annual shareholders meetings, the Company encourages such attendance by
members of the Board of Directors. All seven of the Company directors serving on the Board of Directors at the time of the Company’s
most recent annual shareholders’ meeting, held May 3, 2016, were in attendance at that meeting.
16
Below is a summary of the Company’s board committee structure and current committee membership information. Effective as
of the date of the Annual Meeting, Jonathan P. Lennon will no longer be a director or member of any committee and Charles W. Mooty
will become a member of the Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee.
Audit Committee of the Board of Directors
The Company has established a three-member Audit Committee within the Board of Directors that currently consists of Chairman
Bryan L. Wolff, Jonathan P. Lennon and Patrick D. Walsh. The Audit Committee operates under a written charter adopted by the Board
of Directors, a copy of which is available at the Company’s website at www.famousdaves.com. The charter reflects the Audit
Committee’s increased responsibilities as a result of the Sarbanes-Oxley Act of 2002, as well as the NASDAQ Stock Market corporate
governance standards. As set forth in the charter, the primary responsibilities of the Audit Committee include: (i) serving as an
independent and objective party to monitor the Company’s financial reporting process and internal control system; (ii) reviewing and
appraising the audit performed by the Company’s independent registered public accounting firm; and (iii) providing an open avenue of
communication among the independent registered public accounting firm, financial and senior management and the Board of Directors.
The charter also requires that the Audit Committee review and pre-approve the performance of all audit and non-audit accounting
services to be performed by the Company’s independent registered public accounting firm, as well as tax work performed by the
Company’s tax firm, other than certain de minimus exceptions permitted by Section 202 of the Sarbanes-Oxley Act of 2002.
The Board of Directors has determined that at least one member of the Audit Committee, Bryan L. Wolff, qualifies as an “audit
committee financial expert” as that term is defined in Item 407(d)(5) of Regulation S-K promulgated under the Securities Exchange Act
of 1934, as amended. In addition, each member of the Audit Committee is an “independent director,” as such term is defined in Rule
5605(a)(2) of the NASDAQ Stock Market’s Marketplace Rules, and meets the criteria for independence set forth in Rule 10A-3(b)(1)
under the Securities Exchange Act of 1934, as amended. The Board of Directors has also determined that each of the Audit Committee
members is able to read and understand fundamental financial statements and that at least one member of the Audit Committee has past
employment experience in finance or accounting. The Audit Committee held four formal meetings during fiscal 2016 and took action
by written consent in lieu of a meeting on one occasion.
Report of the Audit Committee
The Company’s management has primary responsibility for the Company’s internal controls and preparing the Company’s
consolidated financial statements. The Company’s independent registered public accounting firm, Grant Thornton LLP, is responsible
for performing an independent audit of the Company’s consolidated financial statements in accordance with the standards of the Public
Company Accounting Oversight Board. The primary function of the Audit Committee is to assist the Board of Directors in its oversight
of the Company’s financial reporting, internal controls, and audit functions.
The Audit Committee has reviewed the Company’s audited consolidated financial statements for the last fiscal year and discussed
them with management.
The Audit Committee has discussed with the Company’s independent registered public accounting firm the matters required to be
discussed by Auditing Standard No. 1301, as amended, Communications with Audit Committees (AICPA, Professional Standards, Vol.
1. AU section 380) as Public Company Accounting Oversight Board in Rule 3200T.
17
The Audit Committee has received and reviewed the written disclosures and the letter from the independent registered public
accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding such firm’s
communications with the Audit Committee concerning independence, and has discussed with the independent accountants their
independence.
The Audit Committee, based on the review and discussions described above, has recommended to the Board of Directors that the
audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2017 for
filing with the Securities and Exchange Commission.
THE AUDIT COMMITTEE
BRYAN L. WOLFF, Chairman
JONATHAN P. LENNON
PATRICK D. WALSH
Compensation Committee of the Board of Directors
The Company has established a Compensation Committee within the Board of Directors that currently consists of Chairman
Patrick D. Walsh, Jonathan P. Lennon and Bryan L. Wolff. The Compensation Committee operates under a written charter adopted by
the Board of Directors, a copy of which is available at the Company’s website at www.famousdaves.com. The Compensation Committee
reviews the Company’s remuneration policies and practices, makes recommendations to the full Board in connection with all
compensation matters affecting the Company and administers the Company’s incentive compensation plans. The Compensation
Committee of the Board of Directors has direct oversight and responsibility for the Company’s executive compensation policies and
programs. The Compensation Committee has the authority to obtain advice and assistance from internal or external legal, accounting or
other advisors, and has the authority to retain, terminate and approve the fees payable to any external compensation consultant to assist
in the evaluation of director, and senior executive compensation. The Compensation Committee assesses the independence of any
compensation consultant that it elects to engage.
Compensation Philosophy
Our executive compensation philosophy has been based on adopting compensation programs driven by short and long-term
financial performance metrics designed to ensure management is incented to increase shareholder value over time. The Company’s
executive compensation policies and programs are designed to provide:
•
•
•
•
•
a means for the Company to attract, motivate, reward and retain qualified executives in a competitive environment;
competitive levels of compensation that integrate with the Company’s annual objectives and long-term goals;
incentives that promote sustained short- and long-term financial growth and return in order to increase intrinsic value per
share;
a reward system for extraordinary performance that recognizes individual initiative and achievements; and
a means to optimize performance without encouraging unreasonable risks or incentivizing behavior that would be
reasonably likely to result in a material adverse effect on the Company.
The Compensation Committee believes that the total compensation program for executives should consist of the following
elements, each determined by individual and corporate performance:
• Base salary compensation; and
•
Incentive compensation, both in the form of annual cash bonus and long-term stock-based incentive awards.
In addition to the compensation program elements listed above, we have established a Deferred Stock Unit Plan and a Non-
Qualified Deferred Compensation Plan in which our executives are entitled to participate. The Compensation Committee believes that
the availability of these plans, each of which are discussed below, adds to the attractiveness of the Company’s overall compensation
program and positively impacts the Company’s ability to hire and retain qualified executives.
18
Compensation Procedures
Our Compensation Committee approves, on an annual basis, the competitiveness of our overall executive compensation programs,
including the appropriate mix between cash and non-cash compensation as well as annual and long-term incentives. As set forth in its
written charter, our Compensation Committee has access to resources it deems appropriate to accomplish its responsibilities, including
the sole authority to retain (with funding provided by the Company) legal counsel and experts in the field of executive compensation
after taking into consideration the independence related factors required under applicable NASDAQ listing standards. The Compensation
Committee has the sole authority to retain and to terminate such advisors, and to approve the fees and other retention terms. During
fiscal 2016, the Compensation Committee primarily relied upon internal Company resources to generate information on which to
benchmark the Company’s compensation practices.
Generally, our Chief Executive Officer has provided input to our Compensation Committee regarding executive compensation
and participated in the ultimate determination of compensation for the Company’s other executives. However, our Chief Executive
Officer does not have direct involvement in the determination of his own compensation, the determination and structure of which is the
sole responsibility of the Compensation Committee.
The Compensation Committee held two meetings during fiscal 2016 and took action by written consent in lieu of a meeting on
seven occasions.
Corporate Governance and Nominating Committee of the Board of Directors
The Company has established a Corporate Governance and Nominating Committee within the Board of Directors that consists of
Chairman Bryan L. Wolff and Jonathan P. Lennon. Messrs. Wolff and Lennon satisfy the independence requirements of the NASDAQ
Stock Marketplace Rules. The Corporate Governance and Nominating Committee operates under a written charter adopted by the Board
of Directors, a copy of which is available at the Company’s website at www.famousdaves.com. The primary role of the Corporate
Governance and Nominating Committee is to consider and make recommendations to the full Board of Directors concerning the
appropriate size, function and needs of the Board, including establishing criteria for Board membership and considering, recruiting and
recommending candidates (including those recommended by shareholders) to fill new Board positions. The Corporate Governance and
Nominating Committee also considers and advises the full Board on matters of corporate governance and monitors and recommends the
functions of, and membership on, the various committees of the Board.
The Corporate Governance and Nominating Committee (or a subcommittee thereof) recruits and considers director candidates
and presents all qualified candidates to the full Board for consideration. Qualified candidates will be considered without regard to race,
color, religion, sex, ancestry, national origin, disability, marital or veteran status, or any other legally protected status.
In identifying and evaluating potential candidates to be nominees for directors, the Corporate Governance and Nominating
Committee has the flexibility to consider such factors as it deems appropriate under relevant circumstances. These factors may include
education, general business and industry experience, ability to act on behalf of shareholders and build long term shareholder value,
potential concerns regarding independence or conflicts of interest and other factors relevant in evaluating Board nominees. The
Corporate Governance and Nominating Committee believes that a Board comprised of directors with diverse skills and experiences
relevant to the Company’s industry will result in efficient and competent oversight of the Company’s various core competencies, which
include restaurant operations, franchise operations, real estate, marketing and financial and accounting. As such, the Corporate
Governance and Nominating Committee considers the interplay of a director candidate’s experience with that of other members of the
Board of Directors.
If the Corporate Governance and Nominating Committee approves a candidate for further review following an initial screening,
the Corporate Governance and Nominating Committee will establish an interview process for the candidate. Generally, the candidate
will meet with at least a majority of the members of the Corporate Governance and Nominating Committee, along with the Company’s
Chief Executive Officer. Contemporaneously with the interview process, the Corporate Governance and Nominating Committee will
conduct a comprehensive conflicts-of-interest assessment of the candidate. The Corporate Governance and Nominating Committee will
consider reports of the interviews and the conflicts-of-interest assessment to determine whether to recommend the candidate to the full
Board of Directors. The Corporate Governance and Nominating Committee will also take into consideration the candidate’s personal
attributes, including, without limitation, personal integrity, loyalty to the Company and concern for its success and welfare, willingness
to apply sound and independent business judgment, awareness of a director’s vital part in the Company’s good corporate citizenship
and image, time available for meetings and consultation on Company matters and willingness to assume broad, fiduciary responsibility.
19
The Corporate Governance and Nominating Committee will consider recommendations by shareholders of candidates for election
to the Board of Directors. Any shareholder who wishes that the Corporate Governance and Nominating Committee consider a candidate
must follow the procedures set forth in our Bylaws. Under our Bylaws, if a shareholder plans to nominate a person as a director at a
meeting, the shareholder is required to place a proposed director’s name in nomination by written request delivered to or mailed and
received at our principal executive offices not less than 60 nor more than 120 calendar days prior to the first anniversary of the date on
which we first mailed proxy materials for the preceding year’s annual meeting. For our 2018 annual shareholders’ meeting, notices must
be delivered to or mailed and received not prior to November 23, 2017 and not later than January 22, 2018. If the date of our 2018
annual meeting is advanced more than 30 calendar days prior to or delayed by more than 30 calendar days after the anniversary of the
Annual Meeting, timely notice by a shareholder may be delivered to or mailed and received at our principal executive offices not later
than the close of business on the 10th calendar day following the earlier of the date that we mail notice to our shareholders that the 2018
annual shareholders’ meeting will be held or the date on which we issue a press release, filed a periodic report with the Securities and
Exchange Commission or otherwise publicly disseminated notice that the 2018 annual shareholders’ meeting will be held. To enable
the Corporate Governance and Nominating Committee to evaluate the candidate’s qualifications, shareholder recommendations must
include the following information:
• As to each person the shareholder proposes to nominate for election or reelection as a director:
•
•
•
•
•
•
the name, age, business address and residence address of such individual;
the class, series and number of any shares of our stock that are beneficially owned or owned of record by such
individual;
the date such shares were acquired and the investment intent of such acquisition;
all other information relating to such individual that is required to be disclosed in solicitations of proxies for election
of directors in an election contest (even if an election contest is not involved), or is otherwise required, in each case
pursuant to Regulation 14A (or any successor provision) under the Securities Exchange Act of 1934, as amended, and
the rules thereunder (the “Exchange Act”) (including such individual’s written consent to being named in the proxy
statement as a nominee and to serving as a director if elected);
all information with respect to such individual that would be required to be set forth in a shareholder’s notice pursuant
to Section 4.3 of our Bylaws if such proposed individual were a Nominating Person (as such term is defined in our
Bylaws and summarized below); and
a description of all direct and indirect compensation and other material monetary agreements, arrangements and
understandings during the past three years, and any other material relationships, between or among the proposed
nominee, his or her respective affiliates and associates and any other persons with whom the proposed nominee (or
any of his or her respective affiliates and associates) is “Acting in Concert” (as such term is defined in our Bylaws),
on the one hand, and any Nominating Person, on the other hand;
• As to each “Nominating Person” (which our Bylaws define as the nominating shareholder, the beneficial owner(s), if
different, on whose behalf the notice of proposed nomination is made, any affiliate or associate of such shareholder or
beneficial owner(s), and any other person with whom such shareholder or beneficial owner (or any of their respective
affiliates or associates) is Acting in Concert):
•
•
•
•
the class, series and number of all shares of our stock which are, directly or indirectly, owned of record or beneficially
owned by such Nominating Persons;
the full notional amount of any Synthetic Equity Position (as such term is defined in our Bylaws);
any Short Interests (as such term is defined in our Bylaws); and
any Performance-Related Fees (as such term is defined in our Bylaws);
•
•
The name and address of such Nominating Person, as they appear on our stock ledger;
To the extent known by the nominating shareholder or any other Nominating Person, the name and address of any other
shareholder supporting the nominee for election or reelection as a director or the proposal of other business on the date of
such shareholder’s notice; and
• Any other information relating to such Nominating Person that would be required to be disclosed in a proxy statement or
other filing required to be made in connection with solicitations of proxies or consents by such Nominating Person in support
of the nominees proposed to be nominated for election or reelection as a director at the meeting pursuant to Section 14(a)
of the Exchange Act.
20
The above description is only a summary of the procedures required to be followed by shareholders who wish nominate a proposed
director candidate for election to our Board. Please refer to our Bylaws for a complete description of such procedures.
The Corporate Governance and Nominating Committee held one meeting during fiscal 2016.
Corporate Governance, Ethics and Business Conduct
The Company’s Board of Directors firmly believes that the commitment to sound corporate governance practices is essential to
obtaining and retaining the trust of investors, team members, guests and suppliers. The Company’s corporate governance practices
reflect the requirements of applicable securities laws, including the Sarbanes-Oxley Act of 2002, the NASDAQ Stock Market listing
requirements and the Company’s own vision of good governance practices. As part of its adherence to these corporate governance
practices, the Company has adopted the Famous Dave’s of America, Inc. Corporate Governance Principles and Practices.
The Company is committed to conducting business lawfully and ethically. All of its employees, including its Chief Executive
Officer and other executives are required to act at all times with honesty and integrity. The Company’s Code of Ethics and Business
Conduct covers areas of professional conduct, including workplace behavior, conflicts of interest, fair dealing with competitors, guests
and vendors, the protection of Company assets, trading in Company securities and confidentiality, among others. The Code of Ethics
and Business Conduct requires strict adherence to all laws and regulations applicable to our business and also describes the means by
which any employee can provide an anonymous report of an actual or apparent violation of our Code of Ethics and Business Conduct.
In addition to the Code of Ethics and Business Conduct, the Company has adopted a separate Code of Ethics specifically applicable to
the Company’s Chief Executive Officer, Chief Financial Officer, and Key Financial and Accounting Management.
The full text of the Famous Dave’s of America, Inc. Corporate Governance Principles and Practices, the Code of Ethics and
Business Conduct and the Code of Ethics specifically applicable to the Company’s Chief Executive Officer, Chief Financial Officer and
Key Financial and Accounting Management are each available online at www.famousdaves.com (click on Investors, Corporate
Governance, Code of Ethics and Business Conduct Policy, or Code of Ethics specific to CEO, CFO, and Key Financial & Accounting
Management, as applicable).
Ability of Shareholders to Communicate with the Company’s Board of Directors
The Company’s Board of Directors has established several means for shareholders and others to communicate with the Company’s
Board of Directors. If a shareholder has a concern regarding the Company’s financial statements, accounting practices or internal
controls, the concern should be submitted in writing to the chairman of the Company’s Audit Committee in care of the Company’s
Secretary at the Company’s headquarters address. If the concern relates to the Company’s governance practices, business ethics or
corporate conduct, the concern should be submitted in writing to the chairman of the Corporate Governance and Nominating Committee
in care of the Company’s Secretary at the Company’s headquarters address. If a shareholder wishes to provide input with respect to the
Company’s executive compensation policies and programs, input should be submitted in writing to the chairman of the Company’s
Compensation Committee in care of the Company’s Secretary at the Company’s headquarters address or by email address to
compensationcommittee@famousdaves.com. If a shareholder is unsure as to which category the concern relates, the shareholder may
communicate it to any one of the independent directors in care of the Company’s Secretary at the Company’s headquarters address. All
shareholder communications sent in care of the Company’s Secretary will be forwarded promptly to the applicable director(s).
Policies and Procedures for the Consideration and Determination of Director Compensation
Each year, the Corporate Governance and Nominating Committee reviews the Board’s compensation in relation to other
companies nationwide and recommends any changes in Board compensation to the full Board of Directors for approval. As needed, the
Compensation Committee will also review and make recommendations to the Board. The Compensation Committee also approves any
grants of equity incentives to directors under the Company’s equity incentive plans.
Director Compensation
Non-employee Board members earned a cash retainer for their service on the Board during fiscal 2016. In May 2016, the annual
retainer paid to non-employee directors who are not affiliated with significant shareholders was set at $60,000 (or a pro rata portion
thereof for directors who did not serve for the entire year). In addition, during fiscal 2016 Messrs. Gala and Wolff were each granted
an option to purchase 20,000 shares of common stock.
21
The following table sets forth information concerning director compensation earned during the fiscal year ended January 1, 2017:
Name
Anand D. Gala
Joseph M. Jacobs
Jonathan P. Lennon
Charles W. Mooty
Richard A. Shapiro
Patrick D. Walsh
Bryan L. Wolff
*Adam J. Wright (2)
Fees
Earned
or
Paid in
Cash
($)
Total
($)
Option
Awards
($)(1)
$ 52,250 $ 44,667 $ 96,917
—
— $ — $
$
—
— $ — $
$
—
— $ — $
$
—
— $ — $
$
—
— $ — $
$
$ 51,250 $ 44,667 $ 95,917
—
— $ — $
$
* Former director
(1) Amounts shown reflect the grant date fair value of stock option awards granted during fiscal 2016, computed in accordance with
Financial Accounting Standards Board Accounting Standards Codification Topic 718.
(2) Excludes cash compensation and stock option awards granted to employee directors as compensation for serving as employees of
the Company.
22
VOTING SECURITIES AND
PRINCIPAL HOLDERS THEREOF
The Company has one class of voting securities outstanding, Common Stock, $0.01 par value, of which 6,957,628 shares were
outstanding as of the close of business on the Record Date. Each share of Common Stock is entitled to one vote on all matters put to a
vote of shareholders.
The following table sets forth certain information regarding beneficial ownership of the Company’s Common Stock as of the
Record Date by (i) each person known by the Company to be the beneficial owner of more than 5% of the outstanding Common Stock,
(ii) each director or director nominee, (iii) each named executive officer identified in the Summary Compensation Table, and (iv) all
named executive officers and directors as a group. Unless otherwise indicated, the address of each of the following persons is 12701
Whitewater Drive, Suite 200, Minnetonka, Minnesota 55343, and each such person has sole voting and investment power with respect
to the shares of Common Stock set forth opposite each of their respective names.
Name and Address of Beneficial Owner
Executive Officers:
Michael W. Lister (Chief Executive Officer)
Alfredo V. Martel (Chief Marketing Officer)
Dexter A. Newman (Chief Financial Officer)
Abelardo Ruiz (Chief Operating Officer)
Adam J. Wright (Former Chief Executive Officer and Director)
Non-Employee Directors:
Anand D. Gala
Joseph M. Jacobs
Jonathan P. Lennon
Charles W. Mooty
Richard A. Shapiro
Patrick D. Walsh
Bryan L. Wolff
All Directors and Executive Officers as a group (12 people)
Other 5% Beneficial Owners
Wexford Capital LP
411 West Putnam Avenue, Suite 125
Greenwich, CT 06830
Bandera Master Fund L.P.
Broad Street, Suite 1820
New York, New York 10004
Raging Capital Management, LLC
Ten Princeton Avenue
P.O. Box 228
Rocky Hill, NJ 08553
Blue Clay Capital Management, LLC
800 Nicollet Mall, Ste. 2870
Minneapolis, MN 55402
Shares
Beneficially Owned
Percentage
of Total
8,748(1)
8,020
17,496(2)
25,260
18,750
4,000
1,332,711(3)
8,000
67,000
10,000
374,965(4)
4,020
1,878,973(5)
1,332,711(6)
834,372(7)
537,617(8)
*
*
*
*
*
*
19.2%
*
1.0%
*
5.4%
*
27.0%
19.2%
12.0%
7.7%
429,521(9)
6.2%
*
(1)
less than 1%
Includes 2,916 shares that Mr. Lister has the right to acquire within 60 days.
Includes 2,916 shares that Mr. Newman has the right to acquire within 60 days.
(2)
(3) Represents 1,332,711 shares held by Debello Investors LLC, Wexford Focused Investors LLC, and Wexford Spectrum Investors
LLC (collectively, the “Purchasing Entities”). Mr. Jacobs disclaims beneficial ownership of the shares held by the Purchasing
Entities except to the extent of his actual pecuniary interest therein. See Note 8 below.
23
(4) Based upon joint Statement of Changes in Beneficial Ownership on Form 4 filed with the SEC on November 21, 2016. Includes
52,575 shares owned directly by Patrick D. Walsh and 319,675 shares owned by PW Partners Atlas Fund LP (“Atlas Fund”).
Mr. Walsh serves as the Managing Member of PW Partners Capital Management LLC (“PW Capital Management”) and the
Managing Member and Chief Executive Officer of PW Partners Atlas Funds, LLC (“Atlas Fund GP”) and PW Partners, LLC
(“Master Fund GP”). PW Capital Management serves as the investment manager of Atlas Fund. Atlas Fund GP serves as the general
partner of Atlas Fund. Atlas Fund and Atlas Fund GP share voting and dispositive power over 319,675 shares; and Mr. Walsh and
PW Capital Management share voting and dispositive power over 319,675 shares. The 319,675 shares owned directly by Atlas
Fund are held in margin accounts
(5) Without duplication of shares beneficially owned by more than one director or officer. Includes 10,262 shares that such individuals
have the right to acquire within 60 days.
(6) Based upon joint statements on Schedule 13D filed with the SEC on June 22, 2015. Includes 29,785 shares that are directly owned
by Debello Investors LLC (“DI”), 61,973 shares that are directly owned by Wexford Focused Investors LLC (“WFI”), and
1,240,953 shares that are directly owned by Wexford Spectrum Investors LLC (“WSI”, and together with DI and WFI, the
“Purchasing Entities”). Wexford Capital LP (“Wexford Capital”) may, by reason of its status as manager of the Purchasing Entities,
be deemed to own beneficially the securities of which the Purchasing Entities possess beneficial ownership. Wexford GP LLC
(“Wexford GP”) may, as the General Partner of Wexford Capital, be deemed to own beneficially the securities of which the
Purchasing Entities possess beneficial ownership. Each of Charles E. Davidson (“Davidson”) and Joseph M. Jacobs (“Jacobs”)
may, by reason of his status as a controlling person of Wexford GP, be deemed to own beneficially the securities of which the
Purchasing Entities possess beneficial ownership. Each of Wexford Capital, Wexford GP, Davidson and Jacobs shares the power
to vote and to dispose of the securities beneficially owned by the Purchasing Entities. Each of Wexford Capital, Wexford GP,
Davidson and Jacobs disclaims beneficial ownership of the securities owned by the Purchasing Entities and the joint statements on
Schedule 13D are not an admission that they are the beneficial owners of such securities except, in the case of Davidson and Jacobs,
to the extent of their personal ownership interests in any of the members of the Purchasing Entities.
(7) Based upon a statement on Schedule 13D/A filed with the SEC on July 21, 2016. Bandera Partners LLC (“Bandera Partners”) is
the investment manager of Bandera Master Fund L.P. (“Bandera Master Fund”). Bandera Master Fund has granted to Bandera
Partners the sole and exclusive authority to vote and dispose of the shares held directly by Bandera Master Fund. Each of Gregory
Bylinsky and Jefferson Gramm are Managing Partners, Managing Directors and Portfolio Managers of Bandera Partners. By virtue
of these relationships, each of Bandera Partners and Messrs. Bylinsky and Gramm may be deemed to beneficially own the shares
owned directly by Bandera Master Fund.
(8) Based upon a statement on Schedule 13D/A filed with the SEC on February 14, 2017. Raging Capital Management, LLC (“Raging
Capital”) is the investment manager of Raging Capital Master Fund, Ltd., a Cayman Islands exempted company (“Raging Master”)
in whose name the shares are held. William C. Martin is the Chairman, Chief Investment Officer and Managing Member of Raging
Capital. Raging Master has delegated to Raging Capital the sole authority to vote and dispose of the securities held by Raging
Master pursuant to an investment management agreement (“IMA”). The IMA may be terminated by any party thereto effective at
the close of business on the last day of any fiscal quarter by giving the other party not less than 61 days’ written notice. As a result,
each of Raging Capital and William C. Martin may be deemed to beneficially own the shares held by Raging Master.
(9) Based upon a statement on Schedule 13D/A filed with the SEC on December 28, 2015. Blue Clay Capital Management, LLC (“Blue
Clay Capital”) is the investment manager for certain private funds (together, the “Funds”). Each of Gary Kohler and Brian Durst,
through their roles at Blue Clay Capital, exercises investment discretion over the Funds and has shared power to vote and dispose
of these shares.
24
Based on information provided to the Company by its directors, director nominees and executive officers, no director, director
nominee or named executive officer holds shares beneficially owned by him or her in a margin account as collateral for a margin loan,
and no shares beneficially owned by the Company’s directors and named executive officers have been pledged as collateral for a loan.
CERTAIN TRANSACTIONS
In accordance with our Audit Committee charter, our Audit Committee is responsible for reviewing policies and procedures with
respect to related party transactions required to be disclosed pursuant to Item 404(a) of the Securities and Exchange Commission’s
Regulation S-K (including transactions between the Company and its officers and directors, or affiliates of such officers or directors),
and approving the terms and conditions of such related party transactions.
Anand D. Gala currently serves as a director of the Company and has been nominated for re-election at the Annual Meeting. Mr.
Gala is the Founder, President and Chief Executive Officer of Gala Holdings International, a diversified holding company that conducts
consulting, restaurant development and management operations. As a Company franchisee, Gala Holdings International paid
approximately $2.1 million in franchise royalties and contributions to the Company’s system-wide marketing fund for the Company’s
2016 fiscal year.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s officers and directors, and persons
who own more than ten percent of a registered class of the Company’s equity securities, to file reports of ownership and changes in
ownership of such securities with the Securities and Exchange Commission and NASDAQ. Officers, directors and greater than ten
percent shareholders are required by Securities and Exchange Commission regulations to furnish the Company with copies of all Section
16(a) forms they file. Based solely on review of the copies of Forms 3 and 4 and amendments thereto furnished to the Company during
the fiscal year ended January 1, 2017 and Forms 5 and amendments thereto furnished to the Company with respect to such fiscal year,
or written representations that no Forms 5 were required, the Company believes that all of its officers, directors and greater than ten
percent beneficial owners complied with all applicable Section 16(a) filing requirements during the fiscal year ended January 1, 2017.
PROPOSALS OF SHAREHOLDERS
Proposals by shareholders (other than director nominations) that are submitted for inclusion in our proxy statement for our 2018
annual shareholders’ meeting must follow the procedures set forth in Rule 14a-8 under the Securities Exchange Act of 1934 and our
Bylaws. To be timely under Rule 14a-8, a shareholder proposal must be received by our Corporate Secretary at Famous Dave’s of
America, Inc., 12701 Whitewater Drive, Suite 200, Minnetonka, Minnesota, 55343, by November 23, 2017.
Under our Bylaws, if a shareholder does not submit a proposal for inclusion in our proxy statement but does wish to propose an
item of business to be considered at an annual shareholders’ meeting (other than director nominations), that shareholder must deliver
notice of the proposal at our principal executive offices not less than 60 nor more than 120 calendar days prior to the first anniversary
of the date on which we first mailed proxy materials for the preceding year’s annual meeting. For our 2018 annual shareholders’ meeting,
notices must be received not prior to November 23, 2017 and not later than January 22, 2018.
If a shareholder plans to nominate a person as a director at an annual shareholders’ meeting, our Bylaws require that the
shareholder place a proposed director’s name in nomination by written request delivered to or mailed and received at our principal
executive offices not less than 60 nor more than 120 calendar days prior to the first anniversary of the date on which we first mailed
proxy materials for the preceding year’s annual meeting. For our 2018 annual shareholders’ meeting, notices must be delivered to or
mailed and received not prior to November 23, 2017 and not later than January 22, 2018.
If the date of our 2018 annual shareholders’ meeting is advanced more than 30 calendar days prior to or delayed by more than 30
calendar days after the anniversary of the Annual Meeting, timely notice of shareholder proposals and shareholder nominations for
directors may be delivered to or mailed and received at our principal executive offices not later than the close of business on the 10th
calendar day following the earlier of the date that we mail notice to our shareholders that the 2018 annual shareholders’ meeting will be
held or the date on which we issue a press release, filed a periodic report with the Securities and Exchange Commission or otherwise
publicly disseminated notice that the 2018 annual shareholders’ meeting will be held.
Notices of shareholder proposals and shareholder nominations for directors must comply with the informational and other
requirements set forth in our Bylaws as well as applicable statutes and regulations. Due to the complexity of the respective rights of the
shareholders and the Company in this area, any shareholder desiring to propose actions or nominate directors is advised to consult with
his or her legal counsel with respect to such rights. The Company suggests that any such proposal be submitted by certified mail return
receipt requested.
25
HOUSEHOLDING
The SEC permits a procedure called “householding” for the delivery of proxy information to shareholders. Under this
procedure, certain shareholders who share the same last name and address and do not participate in electronic delivery will receive
only one copy of the proxy materials unless one or more of such shareholders notifies us that they would like to receive individual
copies. Shareholders who participate in householding will continue to receive separate proxy cards. We initiated householding to
reduce printing costs and postage fees.
We will promptly deliver, upon written or oral request, a separate copy of the proxy statement and annual report in a separate
envelope, as applicable, to a shareholder at a shared address to which a single copy of these documents was delivered. If you prefer to
receive separate copies of the proxy materials in a separate envelope either now or in the future, please contact Broadridge Financial
Solutions, Inc. at (800) 542-1061 or in writing at Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York
11717.
If you are currently receiving separate copies and wish to receive only one copy of future proxy materials for your household,
in one envelope, please contact Broadridge at the above phone number or address.
SOLICITATION
The Company will bear the cost of preparing, assembling and mailing the Proxy, Proxy Statement, Annual Report and other
material which may be sent to the shareholders in connection with this solicitation. Brokerage houses and other custodians, nominees
and fiduciaries may be requested to forward soliciting material to the beneficial owners of stock, in which case they may be reimbursed
by the Company for their expenses in doing so. Proxies may be solicited personally, by telephone, by telegram or by special letter.
The Board of Directors does not intend to present to the meeting any other matter not referred to above and does not presently
know of any matters that may be presented to the meeting by others. However, if other matters come before the meeting, it is the intent
of the persons named in the enclosed proxy to vote the proxy in accordance with their best judgment.
By Order of the Board of Directors
/s/ Michael W. Lister
Michael W. Lister
Chief Executive Officer and Chief Operating Officer
26
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended January 1, 2017
Commission File No. 0-21625
FAMOUS DAVE’S of AMERICA, INC.
(Exact name of registrant as specified in its charter)
Minnesota
(State or other jurisdiction of
incorporation or organization)
41-1782300
(I.R.S. Employer
Identification No.)
12701 Whitewater Drive, Suite 200
Minnetonka, MN 55343
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code (952) 294-1300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 par value
Name of each exchange on which registered
The NASDAQ Global Market
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 (cid:133) No (cid:59)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes(cid:133) No (cid:59)
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 (cid:59) No (cid:133)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes (cid:59) No (cid:133)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K (cid:59)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act. (Check one):
Large Accelerated Filer (cid:133)
Accelerated Filer (cid:133)
Non- Accelerated Filer (cid:133) Smaller reporting company (cid:53)
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:133) No (cid:59)
The aggregate market value of common stock held by non-affiliates of the registrant was approximately $23.9 million as of July 1, 2016,
(the last business day of the registrant’s most recently completed second quarter), assuming solely for the purpose of this calculation
that all directors, officers, and more than 10% shareholders of the registrant are affiliates. The determination of affiliate status for this
purpose is not necessarily conclusive for any other purpose. As of March 7, 2017, 6,957,628 shares of the registrant's Common Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive Proxy Statement for our 2017 Annual Meeting of Shareholders which is to be filed within 120 days after the
end of the fiscal year ended January 1, 2017, are incorporated by reference into Part III of this Form 10-K, to the extent described in
Part III.
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TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 9A.
Item 9B.
Controls and Procedures
Other Information
PART III
Item 10.
Item 11.
Item 12.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13.
Item 14.
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
SIGNATURES
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2
12
18
18
20
21
21
23
25
41
42
42
42
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43
43
43
44
44
45
ITEM 1. BUSINESS
Summary of Business Results and Plans
PART I
Famous Dave's of America, Inc. (“Famous Dave’s”, the “Company,” “we,” “us” or “our”) was incorporated as a
Minnesota corporation in March 1994 and opened its first restaurant in Minneapolis, Minnesota in June 1995. As of
January 1, 2017, there were 176 Famous Dave’s restaurants operating in 32 states, the Commonwealth of Puerto Rico,
Canada, and the United Arab Emirates, including 37 Company-owned restaurants and 139 franchise-operated restaurants.
An additional 62 franchise restaurants were committed to be developed through signed area development agreements at
January 1, 2017.
The Company’s total revenue declined from $114.2 million in fiscal 2015 to $99.2 million in fiscal 2016. This
decline was primarily the result of refranchising five, and the closure of one, company-owned restaurants in fiscal 2015,
the loss of the 53rd operating week which occurred in fiscal 2015, a Company-owned comparable sales decline of 5.0%
and a decline in royalty revenue primarily driven by 4.7% franchise-operated comparable sales decline.
Fiscal 2016 loss per basic share was $0.42, which included approximately $4.8 million or $0.41 per basic share,
of asset impairment and estimated lease terminations and other closing costs. Approximately $4.4 million of these
charges were associated with 11 restaurants which were slow to respond to several initiatives to turnaround operating
performance. Additionally, there was a lease termination charge for a previously refranchised restaurant. Finally,
operating performance declined as a result of a year over year increase in food and beverage, labor and benefit, and
restaurant operating and occupancy costs partially offset by a decline in general and administrative expenses.
In first quarter of fiscal 2016, the Company refranchised seven company-owned restaurants in the Chicago area
(located in Addison, Algonquin, Bolingbrook, Evergreen Park, North Riverside, Orland Park, and Oswego, Illinois).
This transaction resulted in classifying these restaurants as “Discontinued Operations” for all years reported and
excluding them from the operating results.
It is important to note, sales for franchise-operated restaurants are not revenues of the Company and are not
included in the Company’s consolidated financial statements. The Company’s management believes that disclosure of
sales for franchise-operated restaurants provides useful information to investors because historical performance and
trends of Famous Dave’s franchisees relate directly to trends in franchise royalty revenues that the Company receives
from such franchisees and have an impact on the perceived success and value of the Famous Dave’s brand. It also provides
a comparison against which management and investors may evaluate the extent to which Company-owned restaurant
operations are realizing their revenue potential.
The Company continues to be focused on four key priorities: revitalizing sales and traffic, reducing costs,
elevating organizational effectiveness, and rebuilding culture. The Company plans to revitalize sales and traffic through
the continued focus on the totality of the Guest experience; food and beverage innovation that concentrates on value; the
continued optimization of marketing platforms; restaurant refresh and remodel packages; and digital services to drive To
Go and Catering sales.
The Company plans on reducing costs through continued investment in its labor model, based on time and motion
studies that will allow the Company to achieve greater, sustained levels of labor efficiencies. Additionally, the Company
is driving simplification on the menu, thereby removing operational complexity and allowing it to leverage supply chain
efficiencies. The Company will maintain a continued focus on theoretical food costs versus actual food costs and on
reducing waste in its restaurants. Also, the focus on reducing general and administrative expenses through the removal
of redundant and unproductive costs and systems will continue.
Finally, the Company continues to work on improving organizational effectiveness through its allocation of time
to more value enhancing activities such as continued operations teach-backs of food execution and Guest services
throughout the Company and franchise field organization. The Company is focused on improving its franchise
relationships through improved data analytics and the sharing of best practices, and is improving employee engagement
throughout the organization.
2
The Company continues to execute on its restaurant optimization plan. The Company will aim to sell some of its
existing restaurants to existing and new franchisees that have the ability to not only acquire these restaurants but also to
develop additional restaurants. The Company believes refranchising focuses the organization on serving its franchisees.
Financial Information about Segments
Since inception, the Company’s revenue, operating income and assets have been attributable to the single industry
segment of the foodservice industry. The Company’s revenue and operating income for each of the last three fiscal years,
and our assets for each of the last two fiscal years, are set forth elsewhere in this Annual Report on Form 10-K under
Item 8, Financial Statements and Supplementary Data.
Narrative Description of Business
Famous Dave’s restaurants, a majority of which offer full table service, feature wood-smoked and off-the-grill
entrée favorites that fit into the broadly defined barbeque category. We seek to differentiate ourselves by providing high-
quality food in distinctive and comfortable environments with signature décor and signage. As of January 1, 2017, 32 of
our Company-owned restaurants were full-service and five were counter-service. Generally, our prototypical design
includes the following elements: a designated bar, a signature exterior smokestack, a separate entrance for our To Go
business and a patio (where available). We have designs that can be adapted to fit various location sizes and desired
service styles such as full-service or counter-service.
In 2016, four franchise openings were a mixture of conversions of existing full-service casual dining restaurants
to our concept as well as new construction, including two restaurants opened in the United Arab Emirates. In fiscal 2016
and 2015, we did not open any Company-owned restaurants. In fiscal 2014, the Company completed a significant
remodel of two Chicago-area restaurants.
We offer conversion packages that provide our franchisees with the flexibility to convert existing restaurants as
well as existing retail footprints into a Famous Dave’s restaurant. Due to the flexibility and scalability of our concept,
we believe that there are a variety of development opportunities available now and in the future.
We pride ourselves on the following:
High Quality Food – Each restaurant features a distinctive selection of authentic hickory-smoked and off-the-grill
barbecue favorites, such as flame-grilled St. Louis-style and baby back ribs, Texas beef brisket, Georgia chopped pork,
country-roasted chicken, and signature sandwiches and salads. Also, enticing side items, such as corn bread, potato salad,
coleslaw, Shack FriesTM and Wilbur BeansTM, accompany the broad entrée selection. Homemade desserts, including
Famous Dave's Bread Pudding and Hot Fudge Kahlua Brownies, are another specialty. To complement our entrée and
appetizer items and to suit different customer tastes, we offer six regional barbeque sauces: Rich & Sassy®, Texas PitTM,
Georgia MustardTM, Devil’s Spit®, Sweet and ZestyTM and Wilbur’s RevengeTM. These sauces, in addition to a variety
of seasonings, rubs, marinades, and other items are also distributed in retail grocery stores throughout the country under
licensing agreements.
We believe that high quality food, a menu that is over 85% “scratch cooking” and the fact that we smoke our meats
daily at each of our restaurants are principal points of differentiation between us and other casual dining competitors and
are a significant contributing factor to repeat business. We also feel that our focus on barbecue being a noun, a verb and
a culture allows for product innovation without diluting our brand. As a noun, barbeque refers to the art of the smoke
and sauce. As a verb, barbeque refers to the act of grilling. As a culture, barbeque refers to the competitive spirit. As a
result, we see few geographic impediments to scaling our concept and brand.
Focus on Guest Experience – We believe that a renewed focus on enhancing our Guests’ experience and listening
to their feedback is an essential pillar of the Company. In 2017, we will continue to test and further enhance our guests
experience by focusing on hospitality, food execution and training. We believe a positive guest experience, combined
with our high-quality food, makes Famous Dave's appeal to families, children, teenagers and adults of all ages and socio-
economic and demographic backgrounds.
3
Distinctive Environment - Décor and Music – Our original décor theme was a nostalgic roadhouse shack
(“Original Shack”), as defined by the abundant use of rustic antiques and items of Americana. This format was used for
both full-service and counter-service restaurant formats. In late 1997, we introduced the “Lodge” format which featured
décor reminiscent of a comfortable “Northwoods” hunting lodge with a full-service dining room and small bar. In
addition, we developed a larger “Blues Club” format that featured authentic Chicago Blues Club décor and live music
seven nights a week. We have evolved our format to that of a full-service concept with several “prototypical” designs
that incorporate the best attributes of the past restaurants while providing a consistent brand image.
Operating Strategy
We believe that our ability to achieve sustainable profitable growth is dependent upon us delivering high-quality
experiences in terms of both food and hospitality to every guest, every day, and to enhance brand awareness in our
markets. Key elements of our strategy include the following:
Operational Excellence – During fiscal 2016, we continued to focus on operational excellence and integrity, and
on creating a consistently enjoyable guest experience, both in terms of food and hospitality, across our system. We define
operational excellence as also meaning an unyielding commitment to superior service for our Guests during every visit.
In our restaurants, we strive to emphasize value and speed of service by employing a streamlined operating system based
on a focused menu and simplified food preparation techniques while remaining true to authentic barbeque. Operational
excellence is also an uncompromising attention to the details of our recipes, preparation and cooking procedures, handling
procedures, rotation, sanitation, cleanliness and safety.
Our menu focuses on a number of popular smoked, barbequed, grilled meats, entrée items and delicious side dishes
which are prepared using easy-to-operate kitchen equipment and processes that use proprietary seasonings, sauces and
mixes. This streamlined food preparation system helps manage the cost of operation by requiring fewer staff, lowering
training costs, and eliminating the need for highly compensated chefs. Additionally, barbeque has the ability to be batch
cooked and held, which enables our award winning food to get to our Guests quickly, whether in the restaurant, at their
homes, or at a catering event. In order to enhance our appeal, expand our audience, increase frequency, and feature our
cravable products, we have assembled a research and development product pipeline designed to generate new, delicious
and exciting menu items that allow us to regularly update our menu.
During 2016, we offered our Guests several new products as well as featured several signature menu items. Early
in 2016, and in support of the Lenten season, we featured several fish entrée’s such as catfish, salmon, cod, and buffalo
shrimp. We also offered an Easter holiday meal program with our own Signature Smoked Hams. In the spring, we
launched a promotion that featured “our House-Smoked Turkey”, on a platter, a sandwich or as the main protein on a
salad. In the fall, the Company featured items showcased by Dave Anderson on the Destination America’s hit TV series
SMOKED which included St. Louis Spare-Ribs, zesty pork loin, boar sausage, and blue ribbon broccoli salad. Finally,
during the holiday season, we featured system-wide a Signature Smoked Ham and Signature Smoked Turkey product
available for off-premise occasions.
Human Resources and Training/Development - A key ingredient to our success lies with our ability to hire, train,
engage and retain employees at all levels of our organization. We place a great deal of importance on creating an
exceptional working environment for all of our employees. Through our Human Resource and Training/Development
resources, tools and programs, we continually enhance and support superior performance within our restaurants and
Support Center. Our foundational guiding principle is doing the right thing for the organization and our guests while
ensuring we have the right people in the right roles with the right resources and tools.
4
We are a performance-based organization, committed to recognizing and rewarding performance at all levels of
the organization. Our performance management process includes performance calibration at the organizational level as
a means of providing measurable, comparative employee evaluations relative to peer contribution, taking into account
specific core competencies and goals. It is designed to provide a complete picture of performance that is consistent across
the organization. We offer a total rewards program that is benchmarked closely against the industry and includes health
and welfare coverage, 401(k) and non-qualified deferred compensation with a company match, base pay and incentive
pay programs developed to sustain our market competitive position. Our Human Resource and Training organization
focuses on the selection and retention of talent through programs in overall workforce planning, performance
management, development, safety and risk reduction, and continued enhancements in our organizational structures for
all positions in the business.
In the Training and Development arena, we offer a variety of ongoing on-the-job and classroom training programs
for the operations teams (hourly employees, Restaurant Managers, and Multi-Unit Managers) in an effort to create defined
career paths. Our Management Trainee program provides new restaurant managers a foundational based training for
restaurant operations, including ServSafe Food and Alcohol Certification, and several learning sessions focused on the
basic behaviors and skills of a Famous Dave’s Manager. We also offer a Famous Dave’s Leadership Series program
which provides a library of workshop offerings focused on building and strengthening core skills in the areas of
communication, teamwork, coaching, change management and performance management. In addition, we have
incorporated e-learning training tasks, skills and processes on-demand.
Restaurant Operations
Our ability to manage multiple restaurants in geographically diverse locations is central to our overall success. In
each market, we place specific emphasis on the positions of Area Director and General Manager, and seek talented
individuals that bring a diverse set of skills, knowledge, and experience to the Company. We strive to maintain quality
and consistency in each of our restaurants through the careful training and supervision of employees and the establishment
of, and adherence to, high standards relating to performance, food and beverage preparation, and maintenance of
facilities.
All Managers must complete an eight-week training program, during which they are instructed in areas such as
food quality and preparation, customer service, hospitality, and employee relations. We have prepared operations manuals
relating to food and beverage quality and service standards. New employees participate in training under the close
supervision of our Management. Each General Manager reports to an Area Director, who manages from six to nine
restaurants, depending on the region. Our Area Directors have all served as General Managers, either for Famous Dave's
or for other restaurants, and are responsible for ensuring that operational standards are consistently applied in our
restaurants, communicating Company focus and priorities, and supporting the development of restaurant management
teams. In addition to the training that the General Managers are required to complete as noted above, our Area Directors
receive additional training through Area Director Workshops that focus specifically on managing multiple locations,
planning, time management, staff and management development skills.
We have a Vice President of Company Operations who is responsible for overseeing all Company-owned
restaurants. This individual works closely with the Area Directors to support day-to-day restaurant operations. In
addition, the Vice President of Company Operations assists in the professional development of our multi-unit supervisors
and general managers and is also instrumental in driving our vision of operational integrity and contributing to the
improvement of results achieved at our restaurants, including building sales, developing personnel and growing profits.
The Vice President of Company Operations reports to the Chief Executive Officer/Chief Operating Officer.
Staffing levels at each restaurant vary according to the time of day and size of the restaurant. However, in general,
each restaurant has approximately 40 to 60 employees.
5
Off-Premise Occasions - Focus on Convenience – In addition to our lively and entertaining dine-in experience,
we provide our guests with maximum convenience by offering an expedient take-out service along with catering. We
believe that Famous Dave's entrées and side dishes are viewed by Guests as traditional American "picnic foods" that
maintain their quality and travel particularly well, making them an attractive choice to replace a home-cooked meal.
Also, the high quality, fair prices and avoidance of preparation time make take-out of our product particularly attractive.
Our off-premise sales provide us with revenue opportunities beyond our in-house seating capacity and we continue to
seek ways to leverage these segments of our business.
Catering accounted for approximately 13.0% of our net sales for fiscal 2016, as compared to 12.3% in fiscal 2015
and 9.8% in fiscal 2014. We see catering as an opportunity for new consumers to sample our product who would not
otherwise have had the opportunity to visit our restaurants, and each restaurant has a dedicated vehicle to support our
catering initiatives.
To Go accounted for approximately 30.0% of net restaurant sales for fiscal 2016, as compared to 28.2% in fiscal
2015 and 26.5% in Fiscal 2014. Our restaurants have been designed specifically to accommodate a significant level of
To Go sales, including a separate To Go entrance with prominent and distinct signage, and for added convenience, we
separately staff the To Go counter. To further enhance To Go sales, we offer our Guest the ability to order online to
improve convenience. We believe our focus on To Go enables Famous Dave’s to capture a greater portion of the “take-
out” market by allowing consumers to “trade within our brand,” when dining in is not always an option. We pursue
efforts to increase awareness of To Go in all Company-owned and franchise-operated restaurants by featuring signage
and merchandising both inside and outside the restaurants.
Guest Satisfaction – We believe that we achieve a significant level of repeat business by providing high-quality
food, efficient friendly service, and warm caring hospitality in an entertaining environment at moderate prices. We strive
to maintain quality and consistency in each of our restaurants through the purposeful hiring, training and supervision of
personnel and the establishment of, and adherence to, high standards of performance, food preparation and facility
maintenance. We have also built family-friendly strategies into each restaurant’s food, service and design by providing
children's menus, smaller-sized entrees at reduced prices and changing tables in restrooms.
Value Proposition and Guest Frequency – We offer high quality food and a distinctive atmosphere at competitive
prices to encourage frequent patronage. Lunch and dinner entrees range from $6.99 to $26.99, resulting in a per person
dine-in and To Go average of $15.38 during fiscal 2016. During fiscal 2016, per person average tickets for lunch averaged
$13.29 and per person average ticket for dinner averaged $17.48. We intend to use value priced offerings, new product
introductions, and the convenience of connecting with guests on their own terms, to drive new and infrequent guests into
our restaurants for additional meal occasions.
Marketing, Promotion and Sales
We believe that by specializing in unique and distinctive smoked meats, poultry & fish, our menu specialty helps
set the brand apart from the rest of the crowded field in casual dining. To further develop the advertising and promotional
materials and programs designed to create brand awareness and increase the reach of the brand, we have a system-wide
marketing fund. All Company-owned restaurants, and those franchise-operated restaurants with agreements signed after
December 17, 2003 are generally required to contribute 1.0% of net sales to this fund. In fiscal 2016, the Marketing Ad
Fund contribution was 1.0% of net sales and will continue to be so in fiscal 2017.
The marketing team, working with outside consultants and other resources, is responsible for the advertising,
promotion, creative development, and branding for Famous Dave’s. Franchise-operated restaurants place the advertising
and marketing programs in their local markets based on contractual requirements, while the Famous Dave’s marketing
team plans and executes the advertising and marketing for Company-owned restaurants. Famous Dave’s uses industry
standard marketing efforts that include broadcast media, digital, online & social media platforms, public relations and
out-of-home vehicles. During 2016, we had approximately 1.7 million Famous Nation members.
6
The strategic focus for marketing and promotion is to ensure that Famous Dave’s is recognized as the category–
defining brand in BBQ, to create and sustain attractive differentiation in consumer’s mind, and to continue to strengthen
the brand’s positioning and consistency. To help drive top-line sales, we are implementing a guest research driven
innovation process to create its rolling 18-month marketing calendar with specific strategic goals. Additionally, a number
of new initiatives were planned around enhancing the menu, the guest experience, events marketing and social media.
In 2016, we highlighted value and affordability in our menu along with promoting additional value offerings
through LTO’s and day of the week offerings such as “Wednesday Slowdown Lowdown” or a Sunday fried chicken
offering as well as featuring a lunch menu. Famous Dave’s also continued to promote its To Go and Catering
offering. This has allowed us to connect with Guests on their terms and offer unique and often compelling sources of
growth, and each occasion is growing at a different rate. Leveraging this occasions matrix, we are uniquely poised to
offer more immediate relevancy and sales opportunities by solving the guest’s daily dinner dilemma and address these
differences in our marketing, including menu, promotional outreach, pricing, and new product news.
Location Strategy
We believe that the barbeque segment of the casual dining niche of the restaurant industry continues to offer strong
growth opportunities, and we see few impediments to our growth on a geographical basis. Our geographical
concentration, as of January 1, 2017, was 38% Midwest, 11% Middle Atlantic, 8% South, 31% West, 8% Northeast, 1%
in Canada, 2% in Puerto Rico and 1% in the United Arab Emirates. We were located in 32 states, the Commonwealth of
Puerto Rico, Canada and the United Arab Emirates as of January 1, 2017.
We prepare an overall market development strategy for each market. The creation of this market strategy starts
with identifying trade areas that align demographically with the target guest profile. The identified trade areas are then
assessed for viability and vitality and prioritized as initial, second tier, or future development. Since markets are dynamic,
the market strategy includes a continual and ongoing assessment of all existing restaurant locations. If financially
feasible, a restaurant may be relocated as the retail or residential focus in a trade area shifts.
We have a real estate site selection model to assist in assessing the site and trade area quality of new locations. This
process involves consumer research in our existing restaurants, the results of which are captured in a target guest profile
that is regularly updated. Each location is evaluated based on three primary sales drivers that include: sales potential
from the residential base (home quality), employment base (work quality), and retail activity (retail quality). Locations
are also evaluated on their site characteristics that includes seven categories of key site attributes, including, but not
limited to, access, visibility, and parking.
As part of our development strategy, we have engaged design firms to redesign and reimage the traditional full-
service prototype. These firms have assisted in developing plans for future service style models such as an updated
counter-service, line-service and hybrid flex-service models. The future service-style models will allow us access new
markets or strategically locate restaurants in existing markets where a full-service restaurant is unlikely to be financially
viable. The surrounding trade area will determine which service style is appropriate. Site selection will focus on newly
developed green-field retail developments or existing retail projects being re-developed. Conversion opportunities will
be considered on a case by case basis. We intend to finance company restaurant development through the use of cash on
hand, cash flow generated from operations, and through availability on our revolving line of credit.
Company-Owned Restaurant Development – In fiscal 2017, we do not expect to open a Company-owned
restaurant. In the future we expect to continue to build in our existing markets in high profile, heavy traffic retail
locations. Our plan is to focus on sustainable, controlled growth, primarily in markets where multiple restaurants can be
opened, thereby expanding consumer awareness, and creating opportunities for operating, distribution, and marketing
efficiencies.
7
Franchise-Operated Restaurant Development – We expect to continue to grow the franchise program. Our goal
is to continue to improve the economics of our current restaurant prototypes, while providing more cost-effective
development options for our franchisees. As of January 1, 2017, we had signed franchise area development agreements
with aggregate commitments for 61 additional units that are expected to open over approximately the next five years,
including an additional two units in the United Arab Emirates. However, there can be no assurance that these franchisees
will fulfill their commitments or fulfill them within the anticipated timeframe. Our franchise system is a significant part
of our brand’s success. As such, another one of our goals is to be a valued franchisor; to enhance communication and
recognition of best practices throughout the system and to continue to expand our franchisee network here and outside of
the United States.
Generally, we find franchise candidates with prior franchise casual-dining restaurant experience in the markets for
which they will be granted. In the past, area development agreements generally ranged from 3 to 15 restaurants, however,
we have been willing to discuss smaller unit agreements as well as individual franchise restaurants in the right markets
where it makes sense. Additionally, we have begun to focus on certain strategic international markets where it makes
sense. We do believe that the additional service-style formats will allow us to bring new franchisees, with diverse
restaurant experience, into the system.
Purchasing
To provide the freshest ingredients and in order to maximize operational efficiencies for our food products, we
strive to obtain consistent quality items at competitive prices from reliable sources, including identifying secondary
suppliers for many of our key products. Additionally, our secondary suppliers help us assure supply chain integrity and
better logistics. Finally, to reduce freight costs, we continually aim to optimize our distribution networks, where the
products are shipped directly to the restaurants through our foodservice distributors. Each restaurant’s management
team determines the daily quantities of food items needed and orders such quantities to be delivered to their restaurant.
Approximately 85% of our food and non-alcoholic beverage purchases are on contract, with the majority being
proteins. Pork represents approximately 32% of our total purchases, while beef, which includes hamburger and brisket,
is approximately 13%, chicken is approximately 13%, and seafood is approximately 2%. Our purchasing department
contracts, as well as our food and beverage costs and trends associated with each, are discussed under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”
Our purchasing team is also responsible for managing the procurement of non-food items for our restaurants,
including restaurant equipment, small wares and restaurant supplies. Also, they contract many of our restaurants repair
and maintenance services along with managing our utility costs.
Information Technology
Famous Dave’s recognizes the importance of leveraging information and technology to support and extend our
competitive position in the restaurant industry. We continue to invest in capabilities that provide secure and efficient
operations, maximize the guest experience, and provide the ability to analyze data that describes our operations.
We have implemented a suite of restaurant and general headquarter systems which support operations by
providing transactional functions (ordering, card processing, etc.) and reporting at both the unit and support center
level. Interfaces between Point-of-Sale (POS), labor management, inventory management, menu management, key
suppliers, and employee screening/hiring and financial systems all contribute to the following operator and corporate
visibility:
• Average guest check broken down by location, by server, by day part, and by revenue center;
• Daily reports of revenue and labor (both current and forecasted);
• Weekly reports of selected controllable restaurant expenses;
• Monthly reporting of detailed revenue and expenses; and
•
Ideal vs. actual usage variance reporting for critical restaurant-level materials
8
Trademarks
Our Company has registered various trademarks, makes use of various unregistered marks, and intends to
vigorously defend these marks. “Famous Dave’s” and the Famous Dave’s logo are registered trademarks of Famous
Dave's of America, Inc. The Company highly values its trademarks, trade names and service marks and will defend
against any improper use of its marks to the fullest extent allowable by law.
Franchise Program
We are currently authorized to offer and sell franchises in 48 of 50 states, the Commonwealth of Puerto Rico, the
United Arab Emirates, and have a Canadian franchise disclosure document available. Our growth and success depends
in part upon our ability to attract, contract with and retain qualified franchisees. It also depends upon the ability of those
franchisees to successfully operate their restaurants with our standards of quality and promote and develop Famous
Dave’s brand awareness.
Although we have established criteria to evaluate prospective franchisees, and our franchise agreements include
certain operating standards, each franchisee operates his/her restaurants independently. Various laws limit our ability to
influence the day-to-day operation of our franchise restaurants. We cannot assure you that franchisees will be able to
successfully operate Famous Dave’s restaurants in a manner consistent with our standards for operational excellence,
service and food quality.
At January 1, 2017, we had 35 ownership groups operating 139 Famous Dave’s franchise restaurants. Signed area
development agreements, representing commitments to open an additional 62 franchise restaurants, were in place as of
January 1, 2017. There can be no assurance that these franchisees will fulfill their commitments or fulfill them within
the anticipated timeframe.
9
As of January 1, 2017, we had franchise-operated restaurants in the following locations:
United States
Arizona
California
Colorado
Delaware
Florida
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Maine
Maryland
Michigan
Minnesota
Missouri
Montana
Nebraska
Nevada
New Jersey
New York
North Dakota
Oregon
Ohio
Pennsylvania
South Dakota
Tennessee
Texas
Utah
Washington
Wisconsin
United States Total
The Commonwealth of Puerto Rico
Canada
United Arab Emirates
Number of Franchise-Operated
Restaurants
6
19
6
2
3
2
10
4
3
2
2
1
1
7
4
2
4
4
6
1
2
3
2
2
4
2
5
3
3
7
10
132
4
1
2
Total franchise-operated restaurants
139
10
Our Franchise Operations Department is led by the Chief Executive and Operating Officer, who guides the efforts
of a Sr. Vice President of Franchise Operations, supported by four Franchise Business Consultants. The Sr. Vice President
of Franchise Operations has the responsibility of supporting our franchisees throughout the system and plays a critical
role for us as well as for our franchise community. The Sr. Vice President of Franchise Operations as well as the Franchise
Business Consultants manages the relationship between the franchisee and the franchisor and provides an understanding
of the roles, responsibilities, differences, and accountabilities of that relationship. They are an active participant towards
enhancing performance, as they partner in strategic and operations planning sessions with our franchise partners and
review the individual strategies and tactics for obtaining superior performance for the franchisee. They ensure
compliance with obligations under our area development and franchise agreements. Franchisees are encouraged to utilize
all available assistance from the Sr. Vice President of Franchise Operations and the Franchise Business Consultants and
the Support Center but are not required to do so.
The Company has a comprehensive operations scorecard and training tool that helps us measure the operational
effectiveness of our Company-owned and franchise-operated restaurants. This scorecard is used to evaluate, monitor and
improve operations in areas such as guest satisfaction, health and safety standards, community involvement, and local
store marketing effectiveness, among other operating metrics. Also, we generally provide support as it relates to all
aspects of franchise operations including, but not limited to, store openings and operating performance. Finally, the
Company solicits feedback from our franchise system by having an active dialogue with all franchisees throughout the
year.
Our franchise-related revenue is comprised of three separate and distinct earnings processes: area development
fees, initial franchise fees and continuing royalty payments. Currently, our area development fee for domestic growth
consists of a one-time, non-refundable payment of approximately $10,000 per restaurant in consideration for the services
we perform in preparation of executing each area development agreement. For our foreign area development agreements,
the one time, non-refundable payment is negotiated on a per development agreement basis and is determined based on
the costs incurred to sell that development agreement. Substantially all of these services, which include, but are not
limited to, conducting market and trade area analysis, a meeting with Famous Dave’s Executive Team, and performing
a potential franchise background investigation, are completed prior to our execution of the area development agreement
and receipt of the corresponding area development fee. As a result, we recognize this fee in full upon receipt. Currently,
our initial, non-refundable, franchise fee for domestic growth is $45,000 per restaurant, of which approximately $5,000
is recognized immediately when a franchise agreement is signed, reflecting expenses incurred related to the sale. The
remaining non-refundable fee is included in deferred franchise fees and is recognized as revenue when we have performed
substantially all of our obligations, which generally occurs upon the franchise entering into a lease agreement for the
restaurant(s). Finally, franchisees are also required to pay us a monthly royalty equal to a percentage of their net sales,
which has historically varied from 4% to 5%. In general, new franchises pay us a monthly royalty of 5% of their net
sales.
The franchisee’s investment depends primarily upon restaurant size. This investment includes the area
development fee, initial franchise fee, real estate and leasehold improvements, fixtures and equipment, POS systems,
business licenses, deposits, initial food inventory, small wares, décor and training fees as well as working capital. In
2016, franchisees were required to contribute 1.0% of net sales to a marketing fund dedicated to building system-wide
brand awareness. In 2017, franchisees will be required to contribute 1.0% of net sales to the marketing fund. Additionally,
franchisees have historically spent 1.5% to 2.0% of their net sales annually on local marketing activities. Currently,
franchisees are required to spend approximately 1.5% of their net sales annually on local marketing activities.
Seasonality
Our restaurants typically generate higher revenue in the second and third quarters of our fiscal year as a result of
seasonal traffic increases and high catering sales experienced during the summer months, and lower revenue in the first
and fourth quarters of our fiscal year, due to possible adverse weather which can disrupt guest and team member
transportation to our restaurants.
11
Government Regulation
Our Company is subject to extensive state and local government regulation by various governmental agencies,
including state and local licensing, zoning, land use, construction and environmental regulations and various regulations
relating to the sale of food and alcoholic beverages, sanitation, disposal of refuse and waste products, public health, safety
and fire standards. Our restaurants are subject to periodic inspections by governmental agencies to ensure conformity
with such regulations. Any difficulty or failure to obtain required licensing or other regulatory approvals could delay or
prevent the opening of a new restaurant, and the suspension of, or inability to renew a license, could interrupt operations
at an existing restaurant, any of which would adversely affect our operations. Restaurant operating costs are also affected
by other government actions that are beyond our control, including increases in minimum hourly wage requirements,
worker’s compensation insurance rates, health care insurance costs, property and casualty insurance, and unemployment
and other taxes. We are also subject to "dram-shop" statutes, which generally provide a person injured by an intoxicated
person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated
person.
As a franchisor, we are subject to federal regulation and certain state laws that govern the offer and sale of
franchises. Many state franchise laws impose substantive requirements on franchise agreements, including limitations on
non-competition provisions and the termination or non-renewal of a franchise. Bills have been introduced in Congress
from time to time that would provide for federal regulation of substantive aspects of the franchisor-franchisee
relationship. As proposed, such legislation would limit, among other things, the duration and scope of non-competition
provisions, the ability of a franchisor to terminate or refuse to renew a franchise, and the ability of a franchisor to designate
sources of supply.
The 1990 Federal Americans with Disabilities Act prohibits discrimination on the basis of disability in public
accommodations and employment. We could be required to incur costs to modify our restaurants in order to provide
service to, or make reasonable accommodations for, disabled persons. Our restaurants are currently designed to be
accessible to the disabled, and we believe we are in substantial compliance with all current applicable regulations relating
to this Act.
Team Members
As of January 1, 2017, we employed approximately 1,645 team members of which approximately 173 were
salaried full-time employees. None of our team members are covered by a collective bargaining agreement. We consider
our relationships with our team members to be good.
ITEM 1A. RISK FACTORS
Famous Dave’s makes written and oral statements from time to time, including statements contained in this Annual
Report on Form 10-K regarding its business and prospects, such as projections of future performance, statements of
management’s plans and objectives, forecasts of market trends and other matters that are forward-looking statements
within the meaning of Sections 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. Statements containing the words or phrases “will likely result,” “anticipates,” “are expected to,” “will
continue,” “is anticipated,” “estimates,” “projects,” “believes,” “expects,” “intends,” “target,” “goal,” “plans,”
“objective,” “should” or similar expressions identify forward-looking statements which may appear in documents,
reports, filings with the Securities and Exchange Commission, news releases, written or oral presentations made by our
officers or other representatives to analysts, shareholders, investors, news organizations, and others, and discussions with
our management and other Company representatives. For such statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
12
Our future results, including results related to forward-looking statements, involve a number of risks and
uncertainties. No assurance can be given that the results reflected in any forward-looking statements will be achieved.
Any forward-looking statements made by us or on our behalf speak only as of the date on which such statement is made.
Our forward-looking statements are based upon our management’s current estimates and projections of future results or
trends. Although we believe that our plans and objectives reflected in or suggested by these forward-looking statements
are reasonable, we may not achieve these plans or objectives. In addition, forward-looking statements may reflect
assumptions that are sometimes based upon estimates, data, communications and other information from suppliers,
government agencies and other sources that may be subject to revision. Except as otherwise required by applicable law,
we do not undertake any obligation to update or keep current either (i) any forward-looking statements to reflect events
or circumstances arising after the date of such statement, or (ii) the important factors that could cause our future results
to differ materially from historical results or trends, results anticipated or planned by us, or which are reflected from time
to time in any forward-looking statement which may be made by us or on our behalf.
In addition to other matters identified or described by us from time to time in filings with the SEC, including the
risks described below and elsewhere in this Annual Report on Form 10-K, there are several important factors that could
cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or results
that are reflected from time to time in any forward-looking statement that may be made by us or on our behalf.
Challenging economic conditions may have a negative effect on our business and financial results.
The restaurant industry is affected by macro-economic factors, including changes in national, regional, and local
economic conditions, employment levels and consumer spending patterns. Challenging economic conditions may
negatively impact consumer spending and thus cause a decline in our financial results. For example, international,
domestic and regional economic conditions, consumer income levels, financial market volatility, social unrest,
governmental, political and budget matters and a slow or stagnant pace of economic growth generally may have a negative
effect on consumer confidence and discretionary spending. In recent years, we believe these factors and conditions have
affected consumer traffic and comparable restaurant sales for us and throughout our industry and may continue to result
in a challenging sales environment in the casual dining sector. A decline in economic conditions or negative developments
with respect to any of the other factors mentioned above, generally or in particular markets in which we or our franchisees
operate, and our Guests’ reactions to these trends could result in increased pressure with respect to our pricing, traffic
levels, commodity and other costs and the continuation of our innovation and productivity initiatives, which could
negatively impact our business and results of operations. These factors could also cause us or our franchisees to, among
other things, reduce the number and frequency of new restaurant openings, impair the assets of or close restaurants as
well as delay remodeling of existing restaurant locations. Further, poor economic conditions may force nearby businesses
to shut down, which could cause our restaurant locations to be less attractive.
A failure to maintain continued compliance with the financial covenants of our credit facility may result in
termination of the credit facility and may have a material adverse effect on our ability to accomplish our business
objectives.
At April 3, 2016, July 3, 2016, and October 2, 2016, we were not in compliance with financial covenants under our
Credit Agreement (the “Credit Agreement”) with Wells Fargo, National Association as administrative agent and lender
(“Wells Fargo”).
As a result of breaches of our financial covenants in the first, second, and third quarters of fiscal 2016 with Wells
Fargo, National Association as administrative agent and lender (“Wells Fargo”), the Company refinanced its Credit
Facility with Venture Bank (the “Lender”) with three separate loans. The First Loan agreement is a $3.7 million loan
and is evidenced by a promissory note (the “Loan 1”). The Second Loan agreement provides for two separate loans from
the Lender to the borrowers set forth therein in aggregate principal amount of $7.3 million, one in the principal amount
of $6.3 million (“Loan 2”) and other principal amount of $1.0 million (“Loan 3”). At the end of the fiscal 2016, the
Company had additional borrowing capacity with Loan 3.
Depending on the duration of the Company’s recovery, our ability to comply with financial covenants under our
credit facility on a continuing basis may be adversely affected. These financial covenants include, among other things, a
minimum debt service coverage ratio.
13
In the event we fail to comply with these or other financial covenants in the future and are unable to obtain similar
amendments or waivers, our lender will have the right to demand repayment of all principal amounts outstanding under
the Loan 1, Loan 2, or Loan 3. At January 1, 2017, principal amounts outstanding on Loan 1 was $3.7 million, principal
amounts outstanding on Loan 2 was $6.3 million and there were no principal amounts outstanding for Loan 3. If we
were unable to repay outstanding amounts, either using current cash reserves, a replacement facility or another source of
capital, our lender would have the right to foreclose on our real estate and personal property, which serves as collateral
for the loans. Replacement financing may be unavailable to us on similar terms or at all. Termination of our existing
loans without adequate replacement, either through a similar facility or other sources of capital, would have a material
and adverse impact on our ability to continue our business operations.
Our future revenue, operating income, and cash flows are dependent on consumer preference and our ability to
successfully execute our plan.
Our Company’s future revenue and operating income will depend upon various factors, including continued and
additional market acceptance of the Famous Dave’s brand, the quality of our restaurant operations, our ability to grow
our brand, our ability to successfully expand into new and existing markets, our ability to successfully execute our
franchise program, our ability to raise additional financing as needed, discretionary consumer spending, the overall
success of the venues where Famous Dave’s restaurants are or will be located, economic conditions affecting disposable
consumer income, general economic conditions and the continued popularity of the Famous Dave’s concept. An adverse
change in any or all of these conditions would have a negative effect on our operations and the market value of our
common stock.
In fiscal 2017, the Company does not anticipate opening a new Company-owned restaurant. There is no guarantee
that any of the Company-owned or franchise-operated restaurants will open when planned, or at all, due to many factors
that may affect the development and construction of our restaurants, including landlord delays, weather interference,
unforeseen engineering problems, environmental problems, construction or zoning problems, local government
regulations, modifications in design to the size and scope of the project, and other unanticipated increases in costs, any
of which could give rise to delays and cost overruns. There can be no assurance that we will successfully implement our
growth plan for our Company-owned and franchise-operated restaurants. In addition, we also face all of the risks,
expenses and difficulties frequently encountered in the development of an expanding business.
Competition may reduce our revenue, operating income, and cash flows.
Competition in the restaurant industry is intense. The restaurant industry is affected by changes in consumer
preferences, as well as by national, regional and local economic conditions, including real estate, and demographic trends,
traffic patterns, the cost and availability of qualified labor, and product availability. Discretionary spending priorities,
traffic patterns, tourist travel, weather conditions, and the type, number and location of competing restaurants, among
other factors, will also directly affect the performance of our restaurants. Changes in any of these factors in the markets
where we currently operate our restaurants could adversely affect the results of our operations.
Increased competition by existing or future competitors may reduce our sales. Our restaurants compete with
moderately-priced restaurants primarily on the basis of quality of food and service, atmosphere, location and value. In
addition to existing barbeque restaurants, we face competition from steakhouses and other restaurants featuring protein-
rich foods. We also compete with other restaurants and retail establishments for quality sites.
Many of our competitors have substantially greater financial, marketing and other resources than we do. Regional
and national restaurant companies continue to expand their operations into our current and anticipated market areas. We
believe our ability to compete effectively depends on our ongoing ability to promote our brand and offer high quality
food and hospitality in a distinctive and comfortable environment. If we are unable to respond to, or unable to respond
in a timely manner, to the various competitive factors affecting the restaurant industry, our revenue and operating income
could be adversely affected.
14
Our failure to execute our franchise program may negatively impact our revenue, operating income and cash
flows.
Our growth and success depends in part upon increasing the number of our franchised restaurants, through
execution of area development and franchise agreements with new and existing franchisees in new and existing markets.
We are also pursuing a strategic “re-franchising” initiative to transition some of our Company-owned restaurants into
franchised locations. Our ability to successfully franchise additional restaurants and re-franchise existing Company-
owned restaurants will depend on various factors, including our ability to attract, contract with and retain quality
franchisees, the availability of suitable sites, the negotiation of acceptable leases or purchase terms for new locations, the
negotiation of acceptable terms for the re-franchising of existing Company-owned restaurants, permitting and regulatory
compliance, the ability to meet construction schedules, the financial and other capabilities of our franchisees, our ability
to manage this anticipated expansion, and general economic and business conditions. Many of the foregoing factors are
beyond the control of the Company or our franchisees.
Our growth and success also depends upon the ability of our franchisees to operate their restaurants successfully to
our standards and promote the Famous Dave’s brand. Although we have established criteria to evaluate prospective
franchisees, and our franchise agreements include certain operating standards, each franchisee operates his/her restaurant
independently. Various laws limit our ability to influence the day-to-day operation of our franchise restaurants. We cannot
assure you that our franchisees will be able to successfully operate Famous Dave’s restaurants in a manner consistent
with our concepts and standards, which could reduce their sales and correspondingly, our franchise royalties, and could
adversely affect our operating income and our ability to leverage the Famous Dave’s brand. In addition, there can be no
assurance that our franchisees will have access to financial resources necessary to open the restaurants required by their
respective area development agreements, which would negatively impact our growth plans.
We may not be successful in maintaining or expanding our international footprint.
Our current franchise program includes four restaurants in the Commonwealth of Puerto Rico, one restaurant in
Manitoba, Canada, and two restaurants in the United Arab Emirates. Because there are a very limited number of
international restaurants, we may not be completely aware of the development efforts involved and barriers to entry into
new foreign markets. As a result, we may incur more expenses than originally anticipated and there is a risk that we may
not be successful in expanding internationally. If we are successful in maintaining or expanding our international
footprint, our future results could be materially adversely affected by a variety of uncontrollable and changing factors
affecting international operations including, among others, regulatory, social, political, or economic conditions in a
specific country or region, trade protection measures and other regulatory requirements, government spending patterns,
and changes in the laws and policies. Furthermore, by maintaining or expanding our international footprint, our brand
value could be harmed by factors outside of our control, including, among other things, difficulties in achieving the
consistency of product quality and service compared to our U.S. restaurants and an inability to obtain adequate and
reliable supplies of ingredients and products.
The restaurant industry is subject to extensive government regulation that could negatively impact our business.
The restaurant industry is subject to extensive federal, state, and local government regulation by various
government agencies, including state and local licensing, zoning, land use, construction and environmental regulations
and various regulations relating to the preparation and sale of food and alcoholic beverages, sanitation, disposal of refuse
and waste products, public health, safety and fire standards, adjustments to tip credits, increases to minimum wage
requirements, workers’ compensation and citizenship requirements. Due to the fact that we offer and sell franchises, we
are also subject to federal regulation and certain state laws which govern the offer and sale of franchises. Many state
franchise laws impose substantive requirements on franchise agreements, including limitations on non-competition
provisions and termination or non-renewal of a franchise. We may also be subject in certain states to “dram-shop”
statutes, which provide a person injured by an intoxicated person the right to recover damages from an establishment that
wrongfully served alcoholic beverages to the intoxicated person. In addition, our operating results would be adversely
affected in the event we fail to maintain our food and liquor licenses.
15
Any change in the current status of such regulations, including an increase in team member benefits costs, any and
all insurance rates, or other costs associated with team members, could substantially increase our compliance and labor
costs. Because we pay many of our restaurant-level team members rates based on either the federal or the state minimum
wage, increases in the minimum wage would lead to increased labor costs. In 2014, the general counsel’s office of the
National Labor Relations Board issued complaints naming the McDonald’s Corporation as a joint employer of workers
at its franchisees for alleged violations of the Fair Labor Standards Act. There can be no assurance that other franchisors
will not receive similar complaints in the future which may result in legal proceedings based on the actions of its
franchisees. Enactment and enforcement of various federal, state and local laws, rules and regulations on immigration
and labor organizations may adversely impact the availability and costs of labor for our restaurants in a particular area or
across the United States. Other labor shortages or increased team member turnover could also increase labor costs.
Furthermore, restaurant operating costs are affected by increases in unemployment tax rates and similar costs over which
we have no control.
During 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation
Act of 2010 were signed into law in the United States. Our restaurants are governed by these laws. This legislation
mandates menu labeling of certain nutritional aspects of restaurant menu items such as caloric, sugar, sodium, and fat
content. There is a risk that consumers’ dining preferences may be impacted by such menu labeling. If we elect to alter
our recipes in response to such a change in dining preferences, doing so could increase our costs and/or change the flavor
profile of our menu offerings which could have an adverse impact on our results of operations.
We are subject to the risks associated with the food services industry, including the risk that incidents of food-
borne illnesses or food tampering could damage our reputation and reduce our restaurant sales.
Our industry is susceptible to the risk of food-borne illnesses. As with any restaurant operation we cannot guarantee
that our internal controls and training will be fully effective in preventing all food-borne illnesses. Furthermore, our
reliance on third-party food suppliers and distributors increases the risk that food-borne illness incidents could be caused
by third-party food suppliers and distributors outside of our control and/or multiple locations being affected rather than
a single restaurant. New illnesses resistant to any precautions may develop in the future, or diseases with long incubation
periods could arise that could give rise to claims or allegations on a retroactive basis. Reports in the media or on social
media of one or more instances of food-borne illness in one of our Company-owned restaurants, one of our franchise-
operated restaurants or in one of our competitor’s restaurants could negatively affect our restaurant sales, force the closure
of some of our restaurants and conceivably have a national impact if highly publicized. This risk exists even if it were
later determined that the illness had been wrongly attributed to the restaurant. Furthermore, other illnesses could adversely
affect the supply of some of our food products and significantly increase our costs. A decrease in guest traffic as a result
of these health concerns or negative publicity could materially harm our business, results of operations and financial
condition.
Our ability to exploit our brand depends on our ability to protect our intellectual property, and if any third parties
make unauthorized use of our intellectual property, our competitive position and business could suffer.
We believe that our trademarks and other intellectual proprietary rights are important to our success and our
competitive position. Accordingly, we have registered various trademarks and make use of various unregistered marks.
However, the actions we have taken or may take in the future to establish and protect our trademarks and other intellectual
proprietary rights may be inadequate to prevent others from imitating our products and concept or claiming violations of
their trademarks and proprietary rights by us. Although we intend to defend against any improper use of our marks to the
fullest extent allowable by law, litigation related to such defense, regardless of the merit or resolution, may be costly and
time consuming and divert the efforts and attention of our management.
Our financial performance is affected by our ability to contract with reliable suppliers at competitive prices.
In order to maximize operating efficiencies, we have entered into arrangements with food manufacturers and
distributors pursuant to which we obtain approximately 85% of the products used by the Company, including, but not
limited to, pork, poultry, beef, and seafood. Although we may be able to obtain competitive products and prices from
alternative suppliers, an interruption in the supply of products delivered by our food suppliers could adversely affect our
operations in the short term. Due to the rising market price environment, our food costs may increase without the desire
and/or ability to pass that price increase to our customers.
16
Although we do contract for utilities in all available states, the costs of these energy-related items will fluctuate due
to factors that may not be predictable, such as the economy, current political/international relations and weather
conditions. Because we cannot control these types of factors, there is a risk that prices of energy/utility items will increase
beyond our current projections and adversely affect our operations.
We could be adversely impacted if our information technology and computer systems do not perform properly
or if we fail to protect our customers’ credit card information or our employees’ personal data.
We rely heavily on information technology to conduct our business, and any material failure or interruption of
service could adversely affect our operations. Furthermore, we accept credit and debit card payments in our restaurants.
Recently, retailers have experienced actual or potential security breaches in which credit and debit card information may
have been compromised, including several highly-publicized incidents. Although we take it very seriously and expend
resources to ensure that our information technology operates securely and effectively, any security breaches could result
in disruptions to operations or unauthorized disclosure of confidential information. If our guests’ consumer data or our
team members’ personal data are compromised, our operations could be adversely affected, our reputation could be
harmed, and we could be subjected to litigation or the imposition of penalties and other remedial costs. In addition, as a
franchisor, we are subject to additional reputation risk associated with data breaches that could occur at one of our
franchise locations that could potentially harm the Famous Dave’s brand reputation.
Failure to achieve our projected cost savings from our efficiency initiatives could adversely affect our results of
operations and eliminate potential funding for growth opportunities.
In recent years as well as in the future, we have identified strategies and taken steps to reduce operating costs and
free up resources to reinvest in our business. These strategies include supply chain efficiencies, reducing food waste,
implementing labor scheduling tools and various information systems projects. We continue to evaluate and implement
further cost-saving initiatives. However, the ability to reduce our operating costs through these initiatives is subject to
risks and uncertainties, such as our ability to obtain improved supply pricing and the reliability of any new suppliers or
technology, and we cannot assure that these activities, or any other activities that we may undertake in the future, will
achieve the desired cost savings and efficiencies. Failure to achieve such desired savings could adversely affect our results
of operations and financial condition and curtail investment in growth opportunities.
Litigation could have a material adverse impact on our business and our financial performance.
We are subject to lawsuits, administrative proceedings and claims that arise in the regular course of business. These
matters typically involve claims by consumers, employees and others regarding issues such as food borne illness, food
safety, premises liability, “dram shop” statute liability, compliance with wage and hour requirements, work-related
injuries, promotional advertising, discrimination, harassment, disability and other operational issues common to the
foodservice industry, as well as contract disputes and intellectual property infringement matters. Significant legal fees
and costs in complex class action litigation or an adverse judgment or settlement that is not insured or is in excess of
insurance coverage could have a material adverse effect on our financial position and results of operations.
Significant adverse weather conditions and other disasters or unforeseen events could negatively impact our
results of operations.
Adverse weather conditions and natural disasters and other unforeseen events, such as winter storms, severe
temperatures, thunderstorms, floods, hurricanes and earthquakes, terror attacks, war and widespread/pandemic illness,
and the effects of such events on economic conditions and consumer spending patterns, could negatively impact our
results of operations. Temporary and prolonged restaurant closures may occur and consumer traffic may decline due to
the actual or perceived effects from these events. For example, severe winter weather conditions have impacted our traffic
and results of operations in the past.
17
We evaluate restaurant sites and long-lived assets for impairment and expenses recognized as a result of any
impairment would negatively affect our financial condition and consolidated results of operations.
During fiscal 2016, we recognized asset impairment, lease termination and other closing costs of $4.8 million,
which included approximately $4.4 million in asset impairment charges associated with 11 restaurants which were slow
to respond to several initiatives to turnaround operating performance. As a result, we determined that the estimated fair
value of these assets was less than the net book value and recognized an impairment charge to reduce the related assets
to the estimated fair value. As we continue to evaluate the restaurant portfolio we anticipate addressing the ongoing
operation of the 11 locations impaired over the next 3 years by way of lease restructuring, lease assignment, subleasing,
or subsequent closure at the end of their natural lease term. Additionally, a lease termination reserve costs associated
with a letter of credit provided to a landlord of a previously closed restaurant and costs associated with a software
implementation project that was discontinued.
We evaluate restaurant sites and long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of restaurant sites to be held and
used is measured by a comparison of the carrying amount of the restaurant site to the undiscounted future net cash flows
expected to be generated on a restaurant-by-restaurant basis. If a restaurant is determined to be impaired, the loss is
measured by the amount by which the carrying amount of the restaurant site exceeds its fair value. Fair value is estimated
based on the best information available including estimated future cash flows, expected growth rates in comparable
restaurant sales, remaining lease terms, discount rate and other factors. If these estimates change in the future, we may
be required to take additional impairment charges for the related assets, which would negatively affect our financial
condition and consolidated results of operations. Considerable management judgment is necessary to estimate future cash
flows. Accordingly, actual results could vary significantly from such estimates.
Pursuant to its authority to designate and issue shares of our stock as it deems appropriate, our board of directors
may assign rights and privileges to currently undesignated shares which could adversely affect the rights of
existing shareholders.
Our authorized capital consists of 100,000,000 shares of capital stock. Our Board of Directors, without any action
by the shareholders, may designate and issue shares in such classes or series (including classes or series of preferred
stock) as it deems appropriate and establish the rights, preferences and privileges of such shares, including dividends,
liquidation and voting rights. As of March 7, 2017, we had 6,957,628 shares of common stock outstanding.
The rights of holders of preferred stock and other classes of common stock that may be issued could be superior to
the rights granted to the current holders of our common stock. Our Board’s ability to designate and issue such
undesignated shares could impede or deter an unsolicited tender offer or takeover proposal. Further, the issuance of
additional shares having preferential rights could adversely affect the voting power and other rights of holders of common
stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The development cost of our restaurants varies depending primarily on the size and style of the restaurant, whether
the property is purchased or leased, and whether it is a conversion of an existing building or a newly constructed
restaurant. We have engaged a design firm to redesign and reimage the traditional full-service prototype and develop
plans for three additional service style models including counter-service, line-service and hybrid flex-service models.
The three-additional service-style models will allow us to access new markets or strategically locate restaurants in
existing markets where a full-service restaurant is not sustainable. The surrounding trade area will determine which
service style is appropriate. These new prototypes can be built as free standing buildings, as end caps of a building or as
in-line locations. Additionally, we offer lower cost conversion packages that provide our franchisees with the flexibility
to build in cost effective formats, such as opportunities to convert existing restaurants into a Famous Dave’s restaurant.
18
In fiscal 2016, we did not open any new Company-owned locations and refranchised seven Company-owned
restaurants in the Chicago-area (located in Addison, Algonquin, Bolingbrook, Evergreen Park, North Riverside, Orland
Park, and Oswego, Illinois). In fiscal 2015, we did not open any new Company-owned locations, closed one location
and refranchised five additional company-owned restaurants. In fiscal 2014, we did not open any new Company owned
locations and closed four locations. Due to the flexibility and scalability of our concept, there are a variety of
development opportunities available now and in the future. In fiscal 2017, we do not expect to open a Company-owned
restaurant.
Our leased restaurant facilities are occupied under agreements with remaining terms ranging from 4 months to 31
years, including renewal options. Such leases generally provide for fixed rental payments plus operating expenses
associated with the properties. Several leases also require the payment of percentage rent based on net sales.
Our Minnesota executive offices are currently located in approximately 28,600 square feet in Minnetonka,
Minnesota. Our executive office lease expires November 2018, with two five-year renewal options. The minimum
annual rent commitment remaining over the lease term, including renewal options, is approximately $3.8 million. During
fiscal 2015, we sublet approximately 10,340 square feet to two subtenants. During 2015, our 8,400-square foot office in
Lombard, IL was closed and sublet to another tenant. This office lease expires October 2022. The minimum annual
rent commitment remaining over the lease term is approximately $715,000.
19
We believe that our properties will be suitable for our needs and adequate for operations for the foreseeable future.
The following table sets forth certain information about our existing Company-owned restaurant locations, as of January
1, 2017, sorted by opening date:
Square
Footage
4,800
10,500
6,100
5,200
5,200
3,800
4,500
5,500
2,100
5,700
5,800
5,400
5,900
7,200
6,800
5,600
6,000
5,800
4,400
5,200
6,400
6,600
6,300
6,500
6,700
6,600
5,200
6,400
6,400
7,200
8,800
6,200
6,360
5,430
6,000
5,000
5,600
Interior
Seats
105
380
146
125
130
90
100
140
49
150
150
140
180
270
219
180
219
200
184
165
205
200
160
219
219
219
181
237
276
255
253
176
199
169
215
160
187
Owned or
Leased
Date
Opened/Acquired
Leased
Leased
Leased(1)
Leased
Leased(1)
Leased(1)
Leased
Owned(2)
Owned(2)
Leased
Leased
Leased
Owned(2)
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Owned(2)
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
June 1996
September 1996
April 1997
June 1997
July 1997
July 1997
October 1997
December 1997
December 1997
April 1998
April 1998
October 1998
October 1998
January 2000
January 2000
January 2000
January 2000
December 2000
May 2001
August 2001
January 2006
June 2006
December 2006
September 2007
November 2007
February 2008
March 2010
March 2010
March 2010
March 2010
March 2010
March 2010
August 2010
August 2011
June 2012
September 2013
November 2013
Location
1 Roseville, MN (3)
2 Calhoun Square (Minneapolis, MN)
3 Maple Grove, MN
4 Highland Park (St. Paul, MN)(3)
5 Stillwater, MN
6 Apple Valley, MN(3)
7 Forest Lake, MN(3)
8 Minnetonka, MN
9 Plymouth, MN(3)
10 West Des Moines, IA
11 Des Moines, IA
12 Bloomington, MN
13 Woodbury, MN
14 Columbia, MD
15 Annapolis, MD
16 Frederick, MD
17 Woodbridge, VA
18 Sterling, VA
19 Oakton, VA
20 Laurel, MD
21 Chantilly, VA
22 Waldorf, MD
23 Coon Rapids, MN
24 Fredericksburg, VA
25 Owings Mills, MD
26 Alexandria, VA
27 Brick, NJ
28 Mays Landing, NJ
29 Westbury, NY
30 New Brunswick, NJ
31 Mountainside, NJ
32 Metuchen, NJ
33 Bel Air, MD
34 Falls Church, VA
35 Gainesville, VA
36 Germantown, MD
37 Timonium, MD
All seat count and square footage amounts are approximate.
(1)Restaurant is collateral in a financing lease.
(2)Restaurant land and building are owned by the Company.
(3)Counter service restaurant
ITEM 3. LEGAL PROCEEDINGS
From time-to-time, we are involved in various legal actions arising in the ordinary course of business. In the
opinion of our management, the ultimate dispositions of these matters will not have a material adverse effect on our
consolidated financial position and results of operations. Currently, there are no significant legal matters pending except
as described below.
20
Famous Dave’s of America, Inc. (“Famous Dave’s”) filed a complaint on July 14, 2015, against a group of former
franchisees in California seeking injunctive relief and damages for: (1) Federal Trademark Infringement; (2) Federal
Trademark Dilution; (3) Federal Unfair Competition; (4) Federal Trade Dress Dilution; (5) Trademark Infringement
under California Business and Professions Code § 14200; (6) Trademark Dilution under California Business and
Professions Code §14200; (7) Common Law Trademark Infringement; (8) Unfair Competition under California Business
and Professions Code § 17200; (9) False Advertising; (10) Breach of Contract; (11) Breach of Implied Covenant of Good
Faith and Fair Dealing; and (12) Intentional Interference with Contract. The claims stem from the former franchisees’
breaches of their franchise agreements, including the failure to pay franchise fees and their continued operation of five
restaurants utilizing Famous Dave’s intellectual property without authorization. After two defendants in the case, Kurt
Schneiter and M Mart 1, filed a demurrer to the Complaint, Famous Dave’s filed an Amended Complaint on October 9,
2015, reasserting the same claims. The case is captioned Famous Dave’s of America, Inc., v. SR El Centro FD, Inc., et
al., Case No. BC589329, and is currently pending before the Honorable Elihu M. Berle in the Superior Court of Los
Angeles. By court order, dated June 6, 2016, Famous Dave’s successfully obtained a preliminary injunction, enjoining
the former franchisee defendants from using Famous Dave’s intellectual property, including its trademarks and restaurant
system. The preliminary injunction is currently the subject of a pending interlocutory appeal which Famous Dave’s
intends to oppose vigorously.
On July 28, 2015, these franchisees (the “Plaintiffs”) filed a complaint against Famous Dave’s in the South Judicial
District of the Superior Court of the County of Los Angeles. On March 10, 2016, Plaintiffs re-filed this Complaint as a
First Amended Cross-Complaint [Famous Dave’s of America, Inc. v. SR El Centro, Inc., et al., Superior Court of the
State of California, County of Los Angeles, Central Division, Case No. BC589329] alleging that Famous Dave’s breached
the Franchise Agreements for these restaurants by failing to provide certain marketing support and access to customer
contact data, vendors, internet reporting and support to Plaintiffs, and failing to provide operations and preferred practices
training to Plaintiffs’ designated representative. Plaintiffs further allege that such conduct by Famous Dave’s is a breach
of the covenant of good faith and fair dealing. Plaintiffs also allege that Famous Dave’s aided and abetted John and Allan
Gantes in breach of their fiduciary duty to Plaintiffs. Plaintiffs are seeking compensatory damages in amount not less
than $20 million, punitive damages, costs and attorneys’ fees. Famous Dave’s denies the allegations and intends to
vigorously defend against them. The foregoing litigation is pending and in the early stages of discovery. No trial date
has been set.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The information required by Item 201(d) of Regulation S-K is hereby incorporated by reference to Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
21
Market Information
Our common stock has traded on the NASDAQ Stock Market since July 24, 1997 under the symbol DAVE.
Currently, our common stock trades on the NASDAQ Global Market. The following table summarizes the high and low
sale prices per share of our common stock for the periods indicated, as reported on the NASDAQ Global Market.
Period
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2016
2015
High
Low
High
Low
$
$
$
$
7.05
6.14
6.73
5.53
$
$
$
$
5.01
4.75
4.99
4.42
$
$
$
$
34.72
30.94
20.97
12.96
$
$
$
$
24.50
18.22
12.36
6.70
Holders
As of March 7, 2017, we had approximately 332 shareholders of record and approximately 3,254 beneficial
shareholders.
Dividends
Our Board of Directors has not declared any dividends on our common stock since our inception, and does not
intend to pay out any cash dividends on our common stock in the foreseeable future. We presently intend to retain all
earnings, if any, to provide for growth, reduce our debt levels, and repurchase our common stock. The payment of cash
dividends in the future, if any, will be at the discretion of the Board of Directors and will depend upon such factors as
earnings levels, capital requirements, loan agreement restrictions, our financial condition and other factors deemed
relevant by our Board of Directors.
Stock Performance Graph
Below is a line-graph presentation that compares the cumulative, five-year return to the Company’s shareholders
(based on appreciation of the market price of the Company’s common stock) on an indexed basis with (i) a broad equity
market index and (ii) an appropriate published industry or line-of-business index, or Peer Group Index constructed by
the Company. The following presentation compares the Company’s common stock price for the period from January 2,
2011 through January 1, 2017, to the S&P 500 Stock Index and to the S&P Small Cap Restaurant Index.
The Company has elected to use the S&P Small Cap Restaurant Index in compiling its stock performance graph
because it believes the S&P Small Cap Restaurant Index represents a comparison to competitors’ with similar market
capitalization to the Company.
The presentation assumes that the value of an investment in each of the Company's common stock, the S&P 500
Index and S&P Small Cap Restaurants was $100 on January 1, 2012, and that any dividends paid were reinvested in the
same security.
22
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Famous Dave's of America, Inc., the S&P 500 Index,
and S&P Small Cap Restaurants
$300
$250
$200
$150
$100
$50
$0
1/1/12
12/30/12
12/29/13
12/28/14
1/3/16
1/1/17
Famous Dave's of America, Inc.
S&P 500
S&P Small Cap Restaurants
*$100 invested on 1/1/12 in stock or 12/31/11 in index, including reinvestment of dividends.
Fiscal year ending January 1, 2017 with previous specific fiscal year ends at January 1, 2012,
December 30, 2012, December 29, 2013, December 28, 2014 and January 3, 2016.
Copyright© 2017 Standard & Poor's, a division of S&P Global. All rights reserved.
Purchases of Equity Securities by the Issuer
None
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below should be read in conjunction with the consolidated financial
statements and notes included elsewhere in this Annual Report on Form 10-K, and in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report on
Form 10-K.
The selected financial data as of and for the fiscal years ended January 1, 2017 (fiscal 2016), January 3, 2016
(fiscal 2015), December 28, 2014 (fiscal 2014), December 29, 2013 (fiscal 2013), and, December 30, 2012 (fiscal 2012)
have been derived from our consolidated financial statements as audited by Grant Thornton LLP, our independent
registered public accounting firm.
23
FINANCIAL HIGHLIGHTS
FISCAL YEAR
($’s in 000’s, except per share data and average weekly
sales)
STATEMENTS OF OPERATIONS DATA
Revenue
Asset impairment and estimated lease termination
and other closing costs(2)
(Loss) income from operations
Income tax benefit (expense)
Net (loss) income from continuing operations
Net income (loss) from discontinued operations
Net (loss) income
Basic continuing net (loss) income per common share
Basic discontinued net income (loss) per common
share
Basic net (loss) income per common share
Diluted continuing net (loss) income per common
share
Diluted discontinued net income (loss) per common
share
Diluted net (loss) income per common share
BALANCE SHEET DATA (at year end)
Cash and cash equivalents
Total assets
Long-term debt less current maturities
Total shareholders’ equity
OTHER DATA
Restaurant Sales:
Company-owned
Number of restaurants open at year end:
Company-owned restaurants
Franchise-operated restaurants
Total restaurants
Company-owned comparable sales
Sales decrease (3)
Average weekly sales: (4)
2016
2015(1)
2014
2013
2012
$99,179
$114,226
$131,862
$137,282
$138,871
($4,788)
($4,090)
$2,000
($2,942)
$511
($2,431)
($0.42)
$0.07
($0.35)
($0.42)
$0.07
($1,520)
($4,517)
$2,144
($48)
$1,079
($5,463)
($4,384)
$0.15
($0.78)
($0.63)
$0.15
$3,856
($732)
$2,255
$642
$2,897
$0.31
$0.09
$0.40
$0.31
($1,181)
$6,584
($1,697)
$3,949
$818
$4,767
$0.54
$0.11
$0.65
$0.52
($0.78)
$0.09
$0.11
($0.35)
($0.63)
$0.40
$0.62
$4,450
$50,945
$11,129
$19,968
$5,300
$57,825
$12,957
$22,061
$2,133
$66,677
$11,493
$31,802
$1,293
$75,337
$18,924
$32,791
($370)
$5,833
($751)
$4,062
$298
$4,360
$0.54
$0.04
$0.58
$0.53
$0.04
$0.57
$2,074
$76,253
$22,105
$33,767
$81,511
$95,475
$113,522
$118,780
$119,613
37
139
176
44
135
179
50
139
189
54
140
194
53
135
188
(5.0)%
(9.3)%
(5.7)%
(0.7)%
(2.1)%
Company-owned restaurants
$42,365
$44,366
$47,202
$49,514
$49,172
(1)Fiscal 2015 was 53 weeks. All other presented fiscal years consisted of 52 weeks.
(2)Fiscal 2016 reflects impairment charges for eleven restaurants slow to respond to several initiatives to turnaround operating performance, a lease
termination reserve associated with a letter of credit provided to a landlord for a previously closed restaurant, and costs associated with a software
implementation project that was discontinued. Fiscal 2015 reflects impairment charges for four refranchised restaurants and one closed restaurant, and
lease costs for the closed Chicago field office and a cancelled restaurant relocation. Fiscal 2014 reflects non-cash impairment charges for six Company-
owned restaurants, two lease restructurings charges at additional Company-owned restaurants and the décor warehouse, the write-off of décor due to a
change in operating strategy and closing costs associated with Company owned restaurants. Fiscal 2013 reflects non-cash impairment charges for one
Company-owned restaurant, a lease restructuring at another Company-owned restaurant, and residual closing costs for a restaurant relocated in 2013.
Fiscal 2012 primarily reflects closing costs for three Company-owned restaurants as well as a lease reserve for one of the closed restaurants.
(3)Our comparable store sales includes Company-owned restaurants that are open year round and have been open more than 24 months.
(4)The Supplemental Sales Information excludes the impact of the seven Chicago restaurants that were refranchised in the first quarter of 2016, with the
exception that the seven restaurants are included in the total number of Company-owned restaurants.
24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements contained in this Annual Report on Form 10-K include “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are based on
information currently available to us as of the date of this Annual Report, and we assume no obligation to update any
forward-looking statements except as otherwise required by applicable law. Forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from any future
results, performance or achievements expressed or implied by such forward-looking statements. Such factors may
include, among others, those factors listed in Item 1A of and elsewhere in this Annual Report and our other filings with
the Securities and Exchange Commission. The following discussion should be read in conjunction with “Selected
Financial Data” above (Item 6 of this Annual Report on Form 10-K) and our financial statements and related footnotes
appearing elsewhere in this Annual Report.
OVERVIEW
Famous Dave's of America, Inc. was incorporated as a Minnesota corporation in March 1994 and opened its first
restaurant in Minneapolis in June 1995. As of January 1, 2017, there were 176 Famous Dave’s restaurants operating in
32 states, the Commonwealth of Puerto Rico, Canada, and the United Arab Emirates, including 37 Company-owned
restaurants and 139 franchise-operated restaurants. An additional 62 franchise restaurants were committed to be
developed through signed area development agreements as of January 1, 2017.
Fiscal Year
Our fiscal year ends on the Sunday nearest December 31st of each year. Our fiscal year is generally 52 weeks;
however, it periodically consists of 53 weeks. The fiscal years ended January 1, 2017 (fiscal 2016), consisted of 52 weeks
while January 3, 2016 (fiscal 2015) consisted of 53 weeks, and December 28, 2014 (fiscal 2014) consisted of 52 weeks.
Fiscal 2017, which ends on January 1, 2018, will consist of 52 weeks.
Basis of Presentation – The financial results presented and discussed herein reflect our results and the results of
our wholly-owned and majority-owned consolidated subsidiaries. All intercompany balances and transactions have been
eliminated in consolidation. Certain reclassifications have been made to prior year amounts to conform to the current
year’s presentation.
Application of Critical Accounting Policies and Estimates – The following discussion and analysis of the
Company’s financial condition and results of operations is based upon its financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States. The preparation of these financial
statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities
and expenses, and related disclosures. On an on-going basis, management evaluates its estimates and judgments. By
their nature, these estimates and judgments are subject to an inherent degree of uncertainty. Management bases its
estimates and judgments on historical experience, observance of trends in the industry, information provided by
customers and other outside sources and on various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions. Management believes the following critical accounting policies reflect its more significant
judgments and estimates used in the preparation of the Company’s consolidated financial statements. Our Company’s
significant accounting policies are described in Note 1 to the consolidated financial statements included herein.
We have discussed the development and selection of the following critical accounting policies with the Audit
Committee of our Board of Directors and the Audit Committee has reviewed our disclosures relating to such policies in
this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Recognition of Franchise-Related Revenue – Initial franchise fee revenue is recognized when we have performed
substantially all of our obligations as franchisor. Franchise royalties are recognized when earned.
25
Our franchise-related revenue is comprised of three separate and distinct earnings processes: area development
fees, initial franchise fees and continuing royalty payments. Currently, our area development fee for domestic growth
consists of a one-time, non-refundable payment of approximately $10,000 per restaurant in consideration for the services
we perform in preparation of executing each area development agreement. For our foreign area development agreements
the one time, non-refundable payment is negotiated on a per development basis and is determined based on the costs
incurred to sell that development agreement. Substantially all of these services, which include, but are not limited to, a
review of the potential franchisee’s current operations, conducting market and trade area analysis, a meeting with Famous
Dave’s Executive Team, and performing a potential franchise background investigation, are completed prior to our
execution of the area development agreement and receipt of the corresponding area development fee. As a result, we
recognize this fee in full upon receipt. Currently, our initial, non-refundable, franchise fee for domestic growth is $45,000
per restaurant, of which approximately $5,000 is recognized immediately when a franchise agreement is signed, reflecting
expenses incurred related to the sale. The remaining non-refundable fee is included in deferred franchise fees and is
recognized as revenue when we have performed substantially all of our obligations, which generally occurs upon the
franchise entering into a lease agreement for the restaurant(s). Finally, franchisees are also required to pay us a monthly
royalty equal to a percentage of their net sales, which has historically varied from 4% to 5%. In general, new franchises
pay us a monthly royalty of 5% of their net sales.
Asset Impairment and Estimated Lease Termination and Other Closing Costs – We evaluate restaurant sites and
long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of restaurant sites to be held and used is measured by a comparison of the
carrying amount of the restaurant site to the undiscounted future net cash flows expected to be generated on a restaurant-
by-restaurant basis. If a restaurant is determined to be impaired, the loss is measured by the amount by which the carrying
amount of the restaurant site exceeds its fair value. Fair value is estimated based on the best information available
including estimated future cash flows, expected growth rates in comparable restaurant sales, remaining lease terms,
discount rate and other factors. If these assumptions change in the future, we may be required to take additional
impairment charges for the related assets. Considerable management judgment is necessary to estimate future cash flows.
Accordingly, actual results could vary significantly from such estimates. Restaurant sites that are operating, but have
been previously impaired, are reported at the lower of their carrying amount or fair value less estimated costs to sell.
Lease Accounting – We recognize lease expense for our operating leases over the entire lease term including lease
renewal options where the renewal is reasonably assured and the build-out period takes place prior to the restaurant
opening or lease commencement date. We account for construction allowances by recording a receivable when its
collectability is considered probable, depreciating the leasehold improvements over the lesser of their useful lives or the
full term of the lease, including renewal options and build-out periods, amortizing the construction allowance as a credit
to rent expense over the full term of the lease, including renewal options and build-out periods, and relieving the
receivable once the cash is obtained from the landlord for the construction allowance. We record rent expense during the
build-out period and classify this expense in pre-opening expenses in our consolidated statements of operations.
Liquor licenses - The Company owns transferable liquor licenses in jurisdictions with a limited number of
authorized liquor licenses. These licenses were capitalized as indefinite-lived intangible assets and are included in
intangible assets, net in our consolidated balance sheets (see note 3 to our consolidated financial statements) at January
1, 2017 and January 3, 2016. We annually review the liquor licenses for impairment and in fiscal 2016 we impaired one
license by $50,000 as we believe its value has experienced a long-term decline due to changes in the economic and
demographic circumstances in the related area. In 2015 no impairment charges were required to be recorded.
Additionally, the costs of obtaining non-transferable liquor licenses that are directly issued by local government agencies
for nominal fees are expensed as incurred. Annual liquor license renewal fees are expensed over the renewal term.
26
Accounts receivable, net – We provide an allowance for uncollectible accounts on accounts receivable based on
historical losses and existing economic conditions, when relevant. We provide for a general bad debt reserve for franchise
receivables due to increases in days’ sales outstanding and deterioration in general economic market conditions. This
general reserve is based on the aging of receivables meeting specified criteria and is adjusted each quarter based on past
due receivable balances. Additionally, we have periodically established a specific reserve on certain receivables as
necessary. Any changes to the reserve are recorded in general and administrative expenses. The allowance for
uncollectible accounts was approximately $270,000 and $246,000, at January 1, 2017 and January 3, 2016, respectively.
In fiscal 2015, the increase in the allowance for doubtful accounts was primarily due to the aging of receivables associated
with certain franchisee groups. Accounts receivable balances written off have not exceeded allowances provided. We
believe all accounts receivable in excess of the allowance are fully collectible. If accounts receivable in excess of
provided allowances are determined uncollectible, they are charged to expense in the period that determination is made.
Outstanding past due accounts receivable are subject to a monthly interest charge on unpaid balances which is recorded
as interest income in our consolidated statements of operations. In assessing recoverability of these receivables, we make
judgments regarding the financial condition of the franchisees based primarily on past and current payment trends, as
well as other variables, including annual financial information, which the franchisees are required to submit to us.
Stock-based compensation – We recognize compensation expense for share-based awards granted to team
members based on their fair values at the time of grant over the requisite service period. Additionally, our board members
receive share-based awards for their board service. Our pre-tax compensation expense for stock options and other
incentive awards is included in general and administrative expenses in our consolidated statements of operations (see
Note 9 to our financial statements).
Income Taxes – We provide for income taxes based on our estimate of federal and state income tax liabilities.
These estimates include, among other items, effective rates for state and local income taxes, allowable tax credits for
items such as taxes paid on reported tip income, estimates related to depreciation and amortization expense allowable for
tax purposes, and the tax deductibility of certain other items. Our estimates are based on the information available to us
at the time that we prepare the income tax provision. We generally file our annual income tax returns several months
after our fiscal year-end. Income tax returns are subject to audit by federal, state, and local governments, generally years
after the tax returns are filed. These returns could be subject to material adjustments or differing interpretations of the
tax laws. Accounting for uncertain tax positions requires significant judgment including estimating the amount, timing,
and likelihood of ultimate settlement. Although the Company believes that its estimates are reasonable, actual results
could differ from these estimates. Additionally, uncertain positions may be re-measured as warranted by changes in facts
or law.
Results of Operations
Revenue – Our revenue consists of four components: Company-owned restaurant sales, franchise-related revenue
from royalties and franchise fees, licensing revenue from the retail sale of our sauces and rubs, and other revenue from
the opening assistance we provide to franchise partners. We record restaurant sales at the time food and beverages are
served. Our revenue recognition policies for franchising are discussed under “Recognition of Franchise-Related
Revenue” above. Our franchise-related revenue consists of area development fees, initial franchise fees and continuing
royalty payments. We record sales of merchandise items at the time items are delivered to the customer.
We have a licensing agreement for our retail products, with renewal options of five years, subject to the licensee’s
attainment of identified minimum product sales levels. Based on achievement of the required minimum product sales,
the agreement will be in force until April 2020 at which time these levels will be re-evaluated.
Periodically, we provide additional services, beyond the general franchise agreement, to our franchise operations,
such as new restaurant training and décor installation services. The cost of these services is billed to the respective
franchisee, is recorded as other income when the service is provided, and is generally payable on net 30-day terms. Since
2010, the franchise agreements require a 50% deposit be paid in advance for these services.
27
Costs and Expenses – Restaurant costs and expenses include food and beverage costs, labor and benefits costs,
operating expenses which include occupancy costs, repair and maintenance costs, supplies, advertising and promotion,
and restaurant depreciation and amortization. Certain of these costs and expenses are variable and will increase or
decrease with sales volume. The primary fixed costs are corporate and restaurant management salaries and occupancy
costs. Our experience is that when a new restaurant opens, it incurs higher than normal levels of labor and food costs
until operations stabilize, usually during the first three to four months of operation. As restaurant management and team
members gain experience following a restaurant’s opening, labor scheduling, food cost management and operating
expense control typically improve to levels similar to those at our more established restaurants.
General and Administrative Expenses – General and administrative expenses include all corporate and
administrative functions that provide an infrastructure to support existing operations and support future growth. Salaries,
including restaurant-level supervision, bonuses, team member benefits, legal fees, accounting fees, consulting fees,
travel, rent, and general insurance are major items in this category. Additionally, we record expenses for Managers in
Training (“MITs”) in this category for approximately six weeks prior to a restaurant opening. We also provide franchise
services, the revenue from which are included in other revenue and the expenses of which are included in general and
administrative expenses.
The following table presents items in our consolidated statements of operations as a percentage of total revenue or
net restaurant sales, as indicated, for the following fiscal years:(4)
Food and beverage costs(1)
Labor and benefits costs(1)
Operating expenses(1)(3)
2016
2015
2014
31.0%
34.6%
30.4%
30.5%
34.1%
29.1%
29.5%
32.5%
27.8%
Restaurant level operating margin(1)
4.0%
6.3%
10.2%
Depreciation and amortization expenses (2)
General and administrative(2)
4.0%
16.9%
4.1%
16.7%
3.8%
12.1%
(Loss) income from continuing operations(2)
(4.1)%
1.9%
2.9%
(1)As a percentage of restaurant sales, net
(2)As a percentage of total revenue
(3)Restaurant level cash operating margin is equal to restaurant sales, net, less food and beverage costs, labor and benefit costs, and
operating expenses.
(4)Data regarding our restaurant operations as presented in this table includes sales, costs and expenses associated with our Rib Team,
which netted a loss of $7,000 in fiscal year 2014. In fiscal years 2016 and 2015 we did not have any Rib Team operations. Our Rib
Team traveled around the country introducing people to our brand of barbeque and building brand awareness.
Fiscal Year 2016 Compared to Fiscal Year 2015
Due to the strategic operational changes we continued throughout 2016 and 2015, we are continuing to evaluate
and assess various aspects of our business that may impact our budgets and expected financial performance for fiscal
2017. As a result, we believe that it is premature to provide any guidance for fiscal 2017 in this report and have elected
not to do so.
Total Revenue
Total revenue of approximately $99.2 million for fiscal 2016 decreased approximately $15.0 million, or 13.2%,
from total revenue of $114.2 in fiscal 2015, reflecting the annualized impact of refranchising five Company-owned
restaurants and closure of one Company-owned restaurants during 2015. Other factors included a Company-owned
restaurant comparable sales decline of 5.0% in 2016, a reduction in royalty revenues due to 4.7% franchise-operated
comparable sales decline, and the loss of Company sales and royalties from the 53rd operating week which occurred in
fiscal 2015. Fiscal 2016 consisted of 52 weeks while 2015 consisted of 53 weeks.
28
Restaurant Sales, net
Restaurant sales, net for fiscal 2016 were approximately $81.5 million, compared to approximately $95.5 million
for fiscal 2015 reflecting a 14.6% decrease. Total restaurant sales, net reflected the annualized impact of refranchising
five Company-owned restaurants and closure of one Company-owned restaurant during 2015. During fiscal 2016 there
was a 5.0% comparable sales decrease which, on a weighted basis, comprised a 4.3% comparable sales decrease for dine-
in sales, a 0.7% comparable sales decrease for To Go and a 0.1% comparable sales decrease for catering.
Franchise-Related Revenue
Franchise-related revenue consists of royalty revenue and franchise fees, which includes initial franchise fees and
area development fees. Franchise-related revenue was approximately $16.7 million for fiscal 2016 and $17.8 million for
fiscal 2015. The franchise-related revenue reflected four franchise-operated openings and seven Company-owned
restaurants that were refranchised during fiscal 2016 offset by the closure of seven franchise-operated restaurants in fiscal
2016 and the impact of the loss of the 53rd operating week which occurred in 2015. Additionally, franchise-operated
restaurants experienced a 4.7% comparable sales decline. Fiscal 2016 included 7,215 franchise operating weeks,
compared to 7,107 franchise operating weeks in fiscal 2015. There were 139 franchise-operated restaurants open at
January 1, 2017, compared to 135 at January 3, 2016.
Licensing and Other Revenue
Licensing revenue includes royalties from a retail line of business, including sauces, rubs, marinades and
seasonings. Other revenue includes opening assistance and training we provide to our franchise partners. Licensing
revenue was approximately $981,000 for fiscal 2016 as compared to $940,000 for fiscal 2015.
Other revenue for fiscal 2016 was approximately $22,000 compared to approximately $14,000 for fiscal 2015.
The increase was primarily due to the increase in the number of franchise openings from three in 2015 to four in 2016.
Same Store Net Sales (or Comparable Net Sales)
It is our policy to include in our same store net sales base, restaurants that are open year-round and have been open
at least 24 months. Same store net sales for Company-owned restaurants open at least 24 months ended January 1, 2017
decreased 5.0%, compared to fiscal 2015’s decrease of 9.3%. For fiscal 2016 and fiscal 2015, there were 37 and 35
restaurants, respectively, included in the Company-owned 24 month comparable sales base.
Same store net sales on a 24 month basis for franchise-operated restaurants for fiscal 2015 decreased 4.7%,
compared to fiscal 2015’s comparable same store net sales which were down 2.5%. For fiscal 2016 and fiscal 2015,
there were 116 and 115 restaurants, respectively, included in the franchise-operated 24 month comparable sales base.
Same store net sales for franchise-operated restaurants are not our revenues and are not included in our consolidated
financial statements. Our management believes that disclosure of comparable restaurant net sales for franchise-operated
restaurants provides useful information to investors because historical performance and trends of Famous Dave’s
franchisees relate directly to trends in franchise royalty revenues that the Company receives from such franchisees and
have an impact on the perceived success and value of the Famous Dave’s brand. It also provides a comparison against
which management and investors can analyze the extent to which Company-owned restaurants are realizing their revenue
potential.
29
Average Weekly Net Sales and Operating Weeks
The following table shows Company-owned and franchise-operated average weekly net sales for fiscal 2016 and
fiscal 2015:
Average Weekly Net Sales (AWS):
Company-Owned
Full-Service
Counter-Service
Franchise-Operated(1)
Fiscal Years Ended
January 1,
2017
January 3,
2016
$
$
$
$
42,365
43,348
36,073
48,194
$
$
$
$
42,661
43,330
37,896
50,202
(1) AWS for franchise-operated restaurants are not revenues of the Company and are not included in the Company’s
consolidated financial statements. The Company’s management believes that disclosure of comparable restaurant net
sales for franchise-operated restaurants provides useful information to investors because historical performance and
trends of Famous Dave’s franchisees relate directly to trends in franchise royalty revenues that the Company
receives from such franchisees and have an impact on the perceived success and value of the Famous Dave’s brand.
It also provides a comparison against which management and investors can analyze the extent to which Company-
owned restaurants are realizing their revenue potential.
Food and Beverage Costs
Food and beverage costs for fiscal 2016 were approximately $25.3 million, or 31.0%, of net restaurant sales
compared to approximately $29.1 million, or 30.5%, of net restaurant sales for fiscal 2015. This increase as a percent of
sales was the result of investments in portion size to improve the Guest experience and a shift in product mix given
additional affordable menu options presented to our Guest. These increases were partially offset by food contract
deflation and a focus on reducing food waste.
Labor and Benefits Costs
Labor and benefits costs for fiscal 2016 were approximately $28.2 million, or 34.6%, of net restaurant sales,
compared to approximately $32.6 million, or 34.1%, of net restaurant sales for fiscal 2015. This increase as a percent of
sales was primarily due to sales deleverage on fixed and management labor costs and increased direct labor costs partially
offset by a decline in management labor costs.
Operating Expenses
Operating expenses for fiscal 2016 were approximately $24.8 million, or 30.4%, of net restaurant sales, compared
to approximately $27.8 million, or 29.1%, of net restaurant sales for fiscal 2015. This increase as a percent of sales was
primarily related to sales deleverage on fixed operating and occupancy costs as well as a year over year increase in
supplies and repairs and maintenance costs, and other operating costs partially offset by a decline in utility costs.
In fiscal 2016, advertising, as a percentage of sales, was approximately 2.5%, compared to fiscal 2015’s percentage
at 2.6%. For 2016 and 2015, the Marketing Fund contribution was 1.0%.
Depreciation and Amortization
Depreciation and amortization expense for fiscal 2016 and 2015 was approximately $3.7 million and $4.5 million,
respectively, and was 3.7% and 3.9%, respectively, of total revenue. The decline in total expense reflects the reduction
in total property, equipment and leasehold improvements due to the refranchising and closing of six restaurants during
2015.
30
General and Administrative Expenses
General and administrative expenses for fiscal 2016 were approximately $16.8 million, or 16.9%, of total revenue
compared to approximately $19.0 million, or 16.7% of total revenue for fiscal 2015. Recurring core general and
administrative expenses have decreased year over year, reflecting our continued, successful initiative to reduce use,
redesign services, and restructure capabilities as we optimize our business model. This initiative serves to clarify what
support functions are expected to deliver, focuses on eliminating nonessential activities, and scrutinizing the processes
that deliver support services.
Asset Impairment and Estimated Lease Termination and Other Closing Costs
Following is a summary of events for fiscal 2016 and fiscal 2015:
Restaurant Optimization
During fiscal 2016, the Company recorded approximately $4.4 million in asset impairment charges associated with
11 restaurants which were slow to respond to several initiatives to turnaround operating performance. As a result, the
Company determined that the estimated fair value of the assets was less than the net book value and recognized an
impairment charge to reduce the related assets to their estimated fair value. As we continue to evaluate our restaurant
portfolio we anticipate addressing the ongoing operation of the 11 locations impaired over the next 3 years by way of
lease restructuring, lease assignment, subleasing or subsequent closure at the end of their natural lease term.
Richmond, VA Area Restaurant Closures
On December 29, 2014, the Company announced the closure of its three underperforming Company-owned
restaurants located in and around Richmond, Virginia. The associated impairment charges primarily related to the write-
off of the book value of the related property, plant and equipment, net of estimated proceeds from the sale of these assets
(primarily derived from the sale of real property). Loss before taxes associated with these operations for the year ended
December 28, 2014 totaled approximately $187,000.
On December 28, 2014, the remaining book values, were valued at the estimated proceeds from the sale and
were recorded as assets held for sale in the consolidated balance sheets. Two of these properties were sold during the
third quarter of fiscal 2015 and the first quarter of 2016, respectively. On January 3, 2016, the remaining property’s fair
value was reclassified to property, equipment and leasehold improvements, net because it was not probable that the assets
would be sold in the next 12 months.
31
(dollars in thousands)
Asset Impairments
Restaurant optimization
Software(1)
May's Landing, NJ
Smithtown, NY(2)
Total
Restaurant closure expenses
Smithtown, NY(3)
Other(6)
N. Riverside, IL(4)
Richmond, VA area
N. Riverside, IL(5)
Eden Prairie, MN
Total restaurant closure expenses
Provision for impairment and
restaurant closings
Fiscal Year Ended
January 1,
2017
January 3,
2016
$
$
$
$
4,376
156
50
---
4,582
200
6
---
---
---
---
206
4,788
$
$
$
$
---
---
---
935
935
---
(6)
368
143
122
(42)
585
1,520
(1)Asset impairment calculated at July 3, 2016 related to a software implementation project that was discontinued.
(2)Asset impairment calculated at June 28, 2015 based upon expected sale of Smithtown restaurant.
(3)Lease termination reserve associated with a letter of credit provided to a landlord for a previously closed restaurant.
(4)Lease termination costs associated with the cancellation of a potential new restaurant location.
(5)Write off of development costs associated with the cancellation of a potential new restaurant location.
(6)Includes $191,000 in costs written-off associated with closing the Lombard, Illinois field office partially offset by an
$86,000 recapture of deferred rent credits.
Pre-opening Expenses
Pre-opening expenses consist of labor, food, utilities, training and rent costs incurred prior to the opening of a
restaurant. Included in pre-opening costs is pre-opening rent for approximately 16 weeks prior to opening but this will
vary based on lease terms. During fiscal 2016 and 2015, we had $0 and $1,000, respectively, of pre-opening expenses
which included pre-opening rent and other pre-opening expenses.
Interest Expense
Interest expense was approximately $855,000, or 0.9%, of total revenue for fiscal 2016, and $1.0 million, or 0.9%,
of total revenue for fiscal 2015.
Interest Income
Interest income was approximately $2,000 for fiscal 2016 and $11,000 for fiscal 2015. Interest income reflects
interest received on short-term cash and cash equivalent balances as well as on outstanding accounts receivable balances.
Provision for Income Taxes
For fiscal 2016, our tax provision was a benefit of approximately $2.0 million, or 40.5%, of loss before income
taxes, compared to the prior year comparable period expense of approximately $48,000, or 4.3% of income before income
taxes. Our effective tax rate for fiscal 2016 reflected year over year changes in pre-tax income (loss).
32
Income or loss from discontinued operations, net of taxes
For fiscal 2016, our income from discontinued operations was approximately $511,000 reflecting two months of
operations prior to the disposal of discontinued operations offset by approximately $442,000 of tax expense. This
compares to a loss from discontinued operations totaling approximately $5.5 million for fiscal 2015, reflecting a $2,000
operating loss combined with an $8.8 million asset impairment charge, offset by a $3.3 million tax benefit.
Basic and Diluted Net Income (Loss) Per Common Share
Net loss for fiscal 2016 was approximately $2.9 million, or $0.42 per basic and diluted share, respectively, on
approximately 6,950,000 weighted average basic and diluted shares outstanding. Net income for fiscal 2015 was
approximately $1.1 million, or $0.15 per basic and diluted share, respectively, on approximately 6,992,000 weighted
average basic shares outstanding and approximately 7,013,000 weighted average diluted shares outstanding, respectively.
Fiscal Year 2015 Compared to Fiscal Year 2014
Total Revenue
Total revenue of approximately $114.2 million for fiscal 2015 decreased approximately $17.6 million, or 13.4%,
from total revenue of $131.9 million in fiscal 2014, reflecting the refranchising of five Company-owned restaurants and
the closure of one Company-owned restaurant as well as a comparable sales decline, partially offset by revenues from
the 53rd week of fiscal 2015. Fiscal 2015 had 53 operating weeks while 2014 consisted of 52 weeks.
Restaurant Sales, net
Restaurant sales, net for fiscal 2015 were approximately $95.5 million, compared to approximately $113.5 million
for fiscal 2014 reflecting a 15.9% decrease. Total restaurant sales reflected the refranchising of five Company-owned
restaurants, closure of one Company-owned restaurant during 2015, and the annualized impact of three restaurants closed
at the end of fiscal 2014. During fiscal 2015 there was a 9.3% comparable sales decrease which was, on a weighted
basis, comprised of a 7.7% comparable sales decrease for dine-in sales, a 2.0% comparable sales decrease for To Go, and
a 0.4% comparable sales increase for catering.
Franchise-Related Revenue
Franchise-related revenue consists of royalty revenue and franchise fees, which includes initial franchise fees and
area development fees. Franchise-related revenue was approximately $17.8 million in fiscal 2015 and $17.4 million in
fiscal 2014. The franchise-related revenue reflected three franchise-operated openings in fiscal 2015 and five Company-
owned restaurants that were refranchised, combined with the impact of the 53rd week. These increases were partially
offset by the closure of twelve franchise-operated restaurants in fiscal 2015 and a comparable sales decline of 2.5%. Fiscal
2015 included 7,107 franchise operating weeks, compared to 7,244 franchise operating weeks in fiscal 2014. There were
135 franchise-operated restaurants open at January 3, 2016, compared to 139 at December 28, 2014.
Licensing and Other Revenue
Licensing revenue includes royalties from a retail line of business, including sauces, rubs, marinades and
seasonings. Other revenue includes opening assistance and training we provide to our franchise partners. Licensing
revenue was approximately $940,000 for fiscal 2015 as compared to $878,000 for fiscal 2014.
Other revenue for fiscal 2015 was approximately $14,000 compared to approximately $76,000 for the comparable
period of fiscal 2014. The decrease was primarily due to a decrease in the number of franchise openings year over year
and a corresponding decrease in the opening assistance required.
33
Same Store Net Sales
It is our policy to include in our same store net sales base, restaurants that are open year-round and have been open
at least 24 months. Same store net sales for Company-owned restaurants open at least 24 months ended January 3, 2016
decreased 9.3%, compared to fiscal 2014’s decrease of 5.7%. For fiscal 2015 and fiscal 2014, there were 35 and 42
restaurants, respectively, included in the Company-owned 24 month comparable sales base.
Same store net sales on a 24 month basis for franchise-operated restaurants for fiscal 2015 decreased 2.5%,
compared to fiscal 2014’s comparable same store net sales which were down 2.5%. For fiscal 2015 and fiscal 2014,
there were 115 and 117 restaurants, respectively, included in the franchise-operated 24 month comparable sales base.
Same store net sales for franchise-operated restaurants are not revenues of the Company and are not included in
the Company’s consolidated financial statements. The Company’s management believes that disclosure of comparable
restaurant net sales for franchise-operated restaurants provides useful information to investors because historical
performance and trends of Famous Dave’s franchisees relate directly to trends in franchise royalty revenues that the
Company receives from such franchisees and have an impact on the perceived success and value of the Famous Dave’s
brand. It also provides a comparison against which management and investors can analyze the extent to which Company-
owned restaurants are realizing their revenue potential.
Average Weekly Net Sales and Operating Weeks
The following table shows Company-owned and franchise-operated average weekly net sales for fiscal 2015 and
fiscal 2014:
Average Weekly Net Sales (AWS):
Company-Owned
Full-Service
Counter-Service
Franchise-Operated(1)
Fiscal Years Ended
January 3,
2016
December 28,
2014
$
$
$
$
42,661
43,330
37,896
50,202
$
$
$
$
46,836
47,784
39,034
51,059
(1) AWS for franchise-operated restaurants are not revenues of the Company and are not included in the Company’s consolidated
financial statements. The Company’s management believes that disclosure of comparable restaurant net sales for franchise-
operated restaurants provides useful information to investors because historical performance and trends of Famous Dave’s
franchisees relate directly to trends in franchise royalty revenues that the Company receives from such franchisees and have
an impact on the perceived success and value of the Famous Dave’s brand. It also provides a comparison against which
management and investors can analyze the extent to which Company-owned restaurants are realizing their revenue potential.
Food and Beverage Costs
Food and beverage costs for fiscal 2015 were approximately $29.1 million, or 30.5%, of net restaurant sales
compared to approximately $33.5 million, or 29.5%, of net restaurant sales for fiscal 2014. This increase as a percent of
sales was the result of anticipated food contract inflation partially offset by a settlement of a class action suit.
Labor and Benefits Costs
Labor and benefits costs for fiscal 2015 were approximately $32.6 million, or 34.1%, of net restaurant sales,
compared to approximately $36.9 million, or 32.5%, of net restaurant sales for fiscal 2014. This increase as a percent of
restaurant sales, net was primarily due to sales deleverage on fixed and management labor costs and in efficiencies in
direct labor controls as a result of the implementation of a new labor management system for part of fiscal 2015.
34
Operating Expenses
Operating expenses for fiscal 2015 were approximately $27.8 million, or 29.1%, of net restaurant sales, compared
to approximately $31.5 million, or 27.8%, of net restaurant sales for fiscal 2014. This increase as a percent of sales was
primarily related to sales deleverage on fixed operating costs as well as a year over year increase in repairs and
maintenance.
In fiscal 2015, advertising, as a percentage of sales, was approximately 2.6% compared to fiscal 2014’s percentage
at 2.7%. For 2015, the Marketing Fund contribution returned to 1.0% and was 0.75% in fiscal 2014.
Depreciation and Amortization
Depreciation and amortization expense for fiscal 2015 and 2014 was approximately $4.5 million and $5.2 million,
respectively, and was 3.9% and 3.9%, respectively, of total revenue. The decline in total expense reflects the reduction
in total property, equipment and leasehold improvements due to the refranchising or closure of six restaurants during
fiscal 2015.
General and Administrative Expenses
General and administrative expenses for fiscal 2015 were approximately $19.0 million or 16.7% of total revenue
compared to approximately $15.9 million, or 12.1%, of total revenue for fiscal 2014. Recurring core general and
administrative expenses have decreased year over year. However, these reductions were offset by expenses incurred for
professional and consulting fees related to brand development, legal fees, a reserve for obsolete plate ware, and severance
costs incurred for the closure of the Chicago office, compounded by revenue deleverage.
Asset Impairment and Estimated Lease Termination and Other Closing Costs
The following is a summary of events for fiscal 2015 and fiscal 2014:
Richmond, VA Area Restaurant Closures
On December 29, 2014, the Company announced the closure of its three underperforming Company-owned
restaurants located in and around Richmond, Virginia. The associated impairment charges primarily related to the write-
off of the book value of the related property, plant and equipment, net of estimated proceeds from the sale of these assets
(primarily derived from the sale of real property). Loss before taxes associated with these operations for the year ended
December 28, 2014 totaled approximately $187,000.
On December 28, 2014 the remaining book values, were valued at the estimated proceeds from the sale and were
recorded as assets held for sale in the Consolidated Balance Sheet. Two of these properties were sold during the third
quarter of fiscal 2015 and the first quarter of 2016, respectively. On January 3, 2016, the remaining property’s fair value
was reclassified to property, equipment and leasehold improvements, net because it was not probable that the assets
would be sold in the next 12 months.
35
(dollars in thousands)
Asset Impairments
Smithtown, NY(1)
May's Landing, NJ
Richmond, VA area
Two Minneapolis, MN area restaurants
Décor
Des Moines, IA
Total
Restaurant closure expenses
N. Riverside, IL(2)
Richmond, VA area
N. Riverside, IL(3)
Other(4)
Eden Prairie, MN
Salisbury, MD
Décor Warehouse
Total restaurant closure expenses
Provision for impairment and
restaurant closings
January 3,
2016
December 28,
2014
$
$
$
$
935
---
---
---
---
---
935
368
143
122
(6)
(42)
---
---
585
1,520
$
$
$
$
---
766
2,285
544
342
226
4,163
---
54
---
---
---
206
94
354
4,517
(1)Asset impairment calculated at June 28, 2015 based upon expected sale of Smithtown restaurant.
(2)Lease termination costs associated with the cancellation of a potential new restaurant location.
(3)Write off of development costs associated with the cancellation of a potential new restaurant location.
(4)Includes $191,000 in costs written-off associated with closing the Lombard, Illinois field office partially offset by an
$86,000 recapture of deferred rent credits.
Pre-opening Expenses
Pre-opening expenses consist of labor, food, utilities, training and rent costs incurred prior to the opening of a
restaurant. Included in pre-opening costs is pre-opening rent for approximately 16 weeks prior to opening but this will
vary based on lease terms. During fiscal 2015 and 2014, we had $1,000 and $7,000, respectively, of pre-opening expenses
which included pre-opening rent and other pre-opening expenses.
Interest Expense
Interest expense was approximately $1.0 million, or 0.9%, of total revenue for fiscal 2015 and approximately
$867,000, or 0.7%, of total revenue for fiscal 2014. This year over year increase was the result of the write-off of deferred
financing costs related to the December 2015 credit facility amendment.
Interest Income
Interest income was approximately $11,000 for fiscal 2015 and approximately $2,000 for fiscal 2014, respectively.
Interest income reflects interest received on short-term cash and cash equivalent balances as well as on outstanding notes
receivable and accounts receivable balances.
Provision for Income Taxes
For fiscal 2015, our tax provision was approximately $48,000, or 4.3%, of income before income taxes, compared
to the fiscal 2014 tax provision of approximately $732,000, or 24.5%, of income before income taxes. Our effective tax
rate for fiscal 2015 reflected year over year change in pre-tax income.
36
Income or loss from discontinued operations, net of taxes
For fiscal 2015, our income from discontinued operations totaled approximately $5.5 million reflecting an
operating loss of approximately $2,000 combined with an $8.8 million asset impairment charge, offset by a $3.3 million
tax benefit. This compares to income of approximately $642,000 from discontinued operations in 2014 reflecting
operating income of $1.0 million offset by approximately $367,000 of income tax expense.
Basic and Diluted Net Income Per Common Share
Net income for fiscal 2015 was approximately $1.1 million, or $0.15 per basic and diluted share, respectively, on
approximately 6,992,000 weighted average basic shares outstanding and approximately 7,013,000 weighted average
diluted shares outstanding, respectively. Net income for fiscal 2014 was approximately $2.3 million, or $0.31 per basic
and diluted share, respectively, on approximately 7,199,000 weighted average basic shares outstanding and
approximately 7,226,000 weighted average diluted shares outstanding, respectively.
Financial Condition, Liquidity and Capital Resources
As of January 1, 2017, our Company held cash and cash equivalents of approximately $4.5 million compared to
approximately $5.3 million as of January 3, 2016. Our cash balance primarily reflects net cash flows from operations of
$1.3 million and $1.1 million generated from the sales of restaurant assets and décor, offset by net debt repayments of
$2.7 million and the purchases of property, equipment, and leasehold improvements for approximately $758,000.
Our current ratio, which measures our immediate short-term liquidity, was 1.48 at January 1, 2017, compared to
1.18 at January 3, 2016. The current ratio is computed by dividing total current assets by total current liabilities. The
change in our current ratio was primarily due to an $822,000 reduction in the current portion of long-term debt due to the
long-term refinancing of the debt and a $579,000 increase in accounts receivable. This was partially offset by the disposal
of $2.2 million of net assets held for sale in conjunction with the refranchising of our Chicago restaurants and the sale of
land for a previously closed restaurant.
Net cash provided by (used for) operations for each of the last three fiscal years was approximately $1.3 million
in fiscal 2016, $(1.9) million in fiscal 2015, and $11.1 million in fiscal 2014. Cash generated by operations in fiscal
2016 was primarily from depreciation and amortization of approximately $3.7 million, and asset impairment, lease
reserve and closing costs of $4.8 million. These net increases were partially offset by a net loss of approximately ($2.9)
million, an increase in accounts receivable of $1.2 million, and an increase in prepaid expense and other current assets of
$1.9 million.
Cash used by operations in fiscal 2015 was primarily from net income of approximately $1.1 million, increased
by depreciation and amortization of approximately $4.5 million, and asset impairment, lease reserve and closing costs of
$1.5 million. These net increases were partially offset by a $2.3 million gain on the disposal of property, a decrease in
accrued compensation and benefits of $2.2 million, and an increase in accounts receivable of $1.2 million.
Cash generated by operations in fiscal 2014 was primarily from net income of approximately $2.3 million,
depreciation and amortization of approximately $5.2 million, and asset impairment, lease reserve and closing costs of
$4.5 million and a $1.2 million increase in other liabilities. These net increases were partially offset by a decrease in
accrued compensation and benefits of $1.2 million, a tax benefit for equity awards issued of $1.2 million, and a decrease
in accounts payable of $866,000.
Net cash provided by investing activities for fiscal 2016 and 2015 was approximately $310,000 and $4.3 million,
respectively. Net cash used for investing activities for fiscal 2014 was approximately $1.5 million. In fiscal 2016 we
generated $1.1 million from the sale of real estate for one previously closed restaurant. In fiscal 2015 we generated $7.5
million from the refranchising of five company-owned restaurants and the sale of real estate for two previously closed
restaurants. In fiscal 2014 we used approximately $1.4 million for capital expenditures for remodeling projects and
various corporate infrastructure projects.
37
Net cash used for financing activities was approximately $2.7 million in fiscal 2016, $3.1 million in fiscal 2015,
and $9.0 million in fiscal 2014. In fiscal 2016, we had draws on our line of credit of approximately $1.9 million. We had
repayments of approximately $4.4 million on our long-term debt. The maximum balance on our line of credit during fiscal
2016 was $1.9 million. In fiscal 2015 we had draws on our line of credit of approximately $27.7 million and had
repayments of approximately $24.4 million. The maximum balance on our line of credit during fiscal 2015 was $17.7
million. Additionally, in fiscal 2015, we used approximately $5.7 million to repurchase approximately 195,899 shares of
our common stock at an average price of $28.92 per share, including commissions. In fiscal 2014, we had draws on our
line of credit of approximately $22.4 million and had repayments of approximately $28.8 million. The maximum balance
on our line of credit during fiscal 2014 was $14.9 million. Additionally, in fiscal 2014, we used approximately $2.7
million to repurchase approximately 101,000 shares of our common stock at an average price of $25.72 per share,
including commissions.
On December 2, 2016 (the “Effective Date”), the Company entered into a Loan Agreement (the “First Loan
Agreement”) among the Company and Minwood Partners, Inc., as borrowers, and Venture Bank, as lender (the
“Lender”). Also on the Effective Date, the Company entered into a loan agreement providing among the Company, as
lead borrower, certain of its affiliates also as borrowers, and the Lender for two additional loans (the “Second Loan
Agreement”). See “Long-Term Debt” under Note 7 of our Consolidated Financial Statements included in this Annual
Report on Form 10-K.
The First Loan Agreement provides for a loan from the Lender to the borrowers set forth therein in the principal
amount of $3.7 million and is evidenced by a promissory note (the “First Note”) executed and delivered by the borrowers
to the Lender on the Effective Date. The First Note has a maturity date of December 2, 2026 and shall be paid in monthly
installments of principal and interest based on a twenty-year amortization period. Interest per annum shall be at a rate of
4.25% for years 1 through 5 and for years 6 through the end of the term LIBOR rate plus 375 basis points, subject to
adjustment at the discretion of the Lender, as further set forth therein. The First Note may be prepaid, subject to certain
prepayment premiums, provided, however, that during any calendar year the borrowers may prepay principal of up to
20% of the original principal amount without paying a prepayment premium.
The Second Loan Agreement provides for two separate loans from the Lender to the borrowers set forth therein in
the aggregate principal amount of $7.3 million, one in the principal amount of $6.3 million (“Loan 2”) and the other in
the principal amount of $1 million (“Loan 3”). Loan 2 is evidenced by a promissory note in the principal amount of $6.3
million (the “Second Note”). The Second Note has a maturity date of December 2, 2023 and shall be paid in monthly
installments of principal and interest based on a seven-year amortization period. Interest per annum shall be at a rate
equal to the LIBOR rate plus 325 basis points (each of such terms as defined in the Second Note), subject to adjustment
at the discretion of the Lender and as further set forth therein. The Second Note may be prepaid at any time without
incurring a prepayment premium.
Loan 3 is evidenced by a promissory note in the principal amount of $1 million (the “Third Note”). The Third Note
has a maturity date of December 2, 2019 and shall first be paid in monthly installments of the interest then accrued on
the principal balance and then in full on the maturity date. Interest per annum shall be at a rate equal to the LIBOR rate
plus 325 basis points (each of such terms as defined in the Third Note), subject to adjustment at the discretion of the
Lender, as further set forth therein. The Third Note may be prepaid at any time without incurring a prepayment premium.
The weighted average interest rate of the First, Second and Third notes for the fiscal year ended January 1, 2017
was 4.0%. The weighted average interest rate of the Term Loans for fiscal years ended January 1, 2017 and January 3,
2016 was 3.69% and 2.66%, respectively.
The First and Second Loan Agreements contain customary representations and warranties and financial and other
covenants and conditions, including, among other things, minimum debt service coverage ratio and a post-closing
covenant to obtain certain letters of credit. The First Loan Agreement also places certain restrictions on, among other
things, the borrowers’ ability to incur additional indebtedness, to create liens or other encumbrances, to use funds for
purposes other than as stated therein, to sell or otherwise dispose of assets and to expand on or erect any new material
improvements, as such term is defined therein.
38
In addition, the First and Second Loan Agreements contain events of default (subject to certain materiality
thresholds and grace periods), including, without limitation, payment defaults; breaches of covenants; breaches of
representations and warranties; failure to perform remediation of any environmental matters on the mortgaged property,
as set forth in the First Mortgage; failure to perform or observe the covenants, conditions or terms of the First Loan
Agreement and related agreements; certain bankruptcy events of the borrowers and failure to timely provide financial
statements.
If, in the event of a default, the Lender were to call the debt prior to expiration, the Company believes there are
multiple options available to obtain other sources of financing. Although possibly at different terms, the Company
believes there would be other lenders available and willing to finance a new credit facility. However, if replacement
financing were unavailable to us, termination of the Facility without adequate replacement would have a material and
adverse impact on our ability to continue our business operations.
On December 2, 2016, the Company used approximately $9.9 million of the proceeds from borrowings under
the First Loan Agreement and Second Loan Agreement to fund repayment of certain outstanding amounts under that
certain Third Amended and Restated Credit Agreement dated as of May 8, 2015, as amended (the “Credit Agreement”)
by and among the Company and its subsidiaries and Wells Fargo Bank, National Association, as administrative agent on
behalf of the Lenders under the Credit Agreement and the Lenders. For a period of up to 45 days following December 2,
2016, one letter of credit in the amount of $625,000 and a related cash collateral pledge remained outstanding under the
Credit Agreement. Other than in respect of this letter of credit and related pledge, as well as certain breakage and treasury
service management fees, the Company’s obligations under the Credit Agreement were terminated on December 2, 2016.
At January 1, 2017, the Company had $1.0 million of additional borrowing capacity in Loan 3. We expect to use any
additional borrowings under the Loan 3 for general working capital purchases as needed.
The First Loan Agreement is secured by a mortgage and security agreement and fixture financing statement (the
“First Mortgage”) granting to the Lender a security interest in and title to certain real property in the state of Minnesota
and as more fully described therein. Loan 2 is secured by a mortgage dated as of the Effective Date (the “Second
Mortgage”) which is subordinate to the First Mortgage, a security interest in substantially all of the personal property of
the borrowers pursuant to a security agreement dated as of the Effective Date (the “Security Agreement”) and a pledge
of certain certificates of deposit pursuant to a pledge agreement also dated as of the Effective Date (the “Pledge
Agreement”). Loan 3 is secured by a security interest on substantially all of the personal property of the borrowers
pursuant to the Security Agreement and a pledge of certain certificates of deposit pursuant to the Pledge Agreement.
As of January 1, 2017, we were in compliance with all of our covenants.
Contractual Obligations
(In thousands)
Payments Due by Period (including interest)
Long Term Debt(1)
$
Financing Leases
Operating Lease
Obligations
Total
Total
2017
2018
2019
2020
2021
Thereafter
12,225 $ 1,308 $ 1,308
$
1,308 $
1,308
$
1,308
$
5,685
3,245
700
707
1,838 (2)
---
---
---
114,444
5,776
$ 129,914 $ 7,773 $ 7,791
5,765
5,856
5,949
5,849
$
9,002 $
7,257
$
7,157
$
85,249
90,934
(1)This is variable interest rate debt and the interest expense assumption was based on projected interest rates averaging either
4.25% or 3.885% over the term of the loan at January 1, 2017.
(2)Includes $1.7 million of land to be conveyed at the end of the lease term.
See Notes 7 and 8 to our Consolidated Financial Statements included in this Annual Report on Form 10-K for
details of our contractual obligations.
39
Off-Balance Sheet Arrangements
Our Company does not have any off-balance sheet arrangements (as such term is defined in Item 303 of regulation
S-K) that are reasonably likely to have a current or future effect on our financial condition or changes in financial
condition, operating results, or liquidity.
Income Taxes
In fiscal 2016, we had cumulative state net operating loss carry-forwards for tax reporting purposes of
approximately $43.4 million which if not used, will begin to expire in fiscal 2018. This amount may be adjusted when
we file our fiscal 2016 income tax returns in fiscal 2017.
Recent Accounting Guidance
Recently adopted accounting guidance
In January 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2015-01, “Income Statement—Extraordinary and Unusual Items.” This update eliminates from Generally
Accepted Accounting Principles (“GAAP”) the concept of extraordinary items. ASU 2015-01 is effective for the first
interim period within fiscal years beginning after December 15, 2015, with early adoption permitted provided that the
guidance is applied from the beginning of the fiscal year of adoption. A reporting entity may apply the amendments
prospectively or retrospectively to all prior periods presented in the financial statements. The Company adopted this ASU
in the first quarter of 2016, but it had no impact on the consolidated financial statements.
In April 2015, the FASB issued guidance on the financial statement presentation of debt issuance costs. This
guidance requires debt issuance costs to be presented in the balance sheet as a reduction of the related debt liability rather
than as an asset. The standard will become effective for annual periods beginning after December 15, 2015 and for interim
periods beginning after December 15, 2016. Early adoption is permitted. The standard requires companies to apply the
guidance retrospectively to all prior periods. The Company adopted this at fiscal year-end of 2016 but it did not have a
material impact on its consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes,
which requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet.
The ASU is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods
beginning after December 15, 2018. Early adoption is permitted for all entities. The Company adopted this at fiscal year-
end of 2016 but it did not have a material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements
to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects related to the accounting for
share-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding
requirements and classification on the statement of cash flows. For public entities, ASU 2016-09 is effective for fiscal
years beginning after December 15, 2016, and interim periods within those fiscal years. The Company adopted this at
fiscal year-end of 2016 but it did not have a material impact on its consolidated financial statements.
40
Recent accounting guidance not yet adopted
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The FASB issued
ASU No. 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue
Gross versus Net)” in March 2016, ASU 2016-10 “Revenue from Contracts with Customers (Topic 606): Identifying
Performance Obligations and Licensing” in April 2016, ASU 2016-11, “Revenue Recognition (Topic 605) and
Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09
and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting” in May 2016 and ASU 2016-12,
“Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” in May
2016. These new standards provide for a single, principles-based model for revenue recognition that replaces the existing
revenue recognition guidance. In July 2015, the FASB deferred the effective date of ASU 2014-09 until annual and
interim periods beginning on or after December 15, 2017. It will replace most existing revenue recognition guidance
under U.S. GAAP when it becomes effective. It permits the use of either a retrospective or cumulative effect transition
method and early adoption is not permitted. The Company has not yet selected a transition method and is currently
evaluating the impact these standards will have on its consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the existing guidance for
lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize a lease liability and a right-of-use asset
for all leases. Lessor accounting remains largely unchanged. The amendments in this ASU are effective for fiscal years
beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted for all
entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after the date
of initial adoption, with an option to elect to use certain transition relief. As shown in Note 8, there are $114.4 million in
future minimum rental payments for operating leases that are not currently on our balance sheet; therefore, we expect
this will have a material impact on our balance sheet and related disclosures.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU
2016-15 addresses how certain cash receipts and cash payments are presented and classified in the statement of cash
flows under Topic 230, Statement of Cash flow, and other Topics. ASU 2016-15 is effective for annual reporting periods,
and interim periods therein, beginning after December 15, 2017. The Company does not expect the adoption of this
guidance to have a material impact on its consolidated financial statements.
Inflation
The primary inflationary factors affecting our operations include food, beverage, and labor costs. In addition, our
leases require us to pay taxes, maintenance, repairs and utilities and these costs are subject to inflationary increases. In
some cases, some of our lease commitments are tied to consumer price index (CPI) increases. We are also subject to
interest rate changes based on market conditions.
We believe that increasing inflation rates have contributed to some price instability. There is no assurance,
however, that inflation rates will continue at their current levels or decrease.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our Company’s consolidated financial instruments include cash and cash equivalents and long-term debt. Our
Company includes as unrestricted cash and cash equivalents, investments with original maturities of three months or less
when purchased and that are readily convertible into known amounts of cash. Our Company’s unrestricted cash and cash
equivalents are not subject to significant interest rate risk due to the short maturities of these instruments. We have no
derivative financial instruments or derivative commodity instruments included in our cash and cash equivalents. The total
outstanding long-term debt of our Company as of January 1, 2017 was approximately $12.5 million, including our Loan
1, Loan 2, and Loan 3 with Venture Bank and financing lease obligations. The terms of our loans with Venture Bank,
are discussed above under “Management’s Discussion and Analysis of Financial Condition and Results of Operations –
Financial Condition, Liquidity and Capital Resources.”
41
Some of the food products purchased by us are affected by commodity pricing and are, therefore, subject to price
volatility caused by weather, production problems, delivery difficulties and other factors that are outside our control. To
control this risk in part, we have fixed-price purchase commitments for food from vendors. In addition, we believe that
substantially all of our food is available from several sources, which helps to manage food commodity risks. We now
have secondary, and in some cases tertiary, source suppliers for key items in order to protect the supply chain and to
ensure a competitive pricing environment. We believe we have some ability to increase menu prices, or vary the menu
options offered, if needed, in response to a food product price increase.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Famous Dave’s of America, Inc. are included herein, beginning on page
F-1.
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 our Chief Executive Officer and
Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, 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
as of such date our disclosure controls and procedures were effective.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting
(as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934, as amended). Our management
assessed the effectiveness of our internal control over financial reporting as of January 1, 2017. In making this assessment,
our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in the 2013 Internal Control-Integrated Framework. Our management has concluded that, as of January 1, 2017,
our internal control over financial reporting is effective based on these criteria.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our
disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any,
within Famous Dave's of America have been detected.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting during our most recently-completed fiscal
quarter ended January 1, 2017 that have materially affected or are reasonably likely to materially affect our internal
control over financial reporting.
ITEM 9B. OTHER INFORMATION
On February 24, 2017, Abelardo Ruiz ceased his employment with the Company.
42
PART III
ITEM 10.
REGISTRANT
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE
Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be
filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form
10-K.
The Company has adopted a Code of Ethics specifically applicable to its CEO, CFO and Key Financial &
Accounting Management. In addition, there is a more general Code of Ethics applicable to all team members. The Code
of Ethics is available on our website at www.famousdaves.com and a copy is available free of charge to anyone requesting
it.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be
filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form
10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Securities Authorized for Issuance under Equity Compensation Plans
Effective May 5, 2015, we adopted a 2015 Equity Plan (the “2015 Plan”), pursuant to which we may grant stock
options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance stock units
and other stock and cash awards to eligible participants. We also maintain an Amended and Restated 2005 Stock Incentive
Plan (the “2005 Plan”). The 2005 Plan prohibits the granting of incentives after May 12, 2015, the tenth anniversary of
the date such Plan was approved by the Company’s shareholders. Nonetheless, the 2005 Stock Incentive Plan will remain
in effect until all outstanding incentives granted thereunder have either been satisfied or terminated. Together, the 2015
Plan and 2005 Plan are referred to herein as the “Plans.” Under the 2015 Plan, an aggregate of 34,050 shares of our
Company’s common stock remained unreserved and available for issuance at January 1, 2017.
The purpose of the 2015 Plan is to increase shareholder value and to advance the interests of the Company by
furnishing a variety of economic incentives designed to attract, retain and motivate team members (including officers),
certain key consultants and directors of the Company. The Plans have each been approved by the Company’s
shareholders. The following table sets forth certain information as of January 1, 2017, with respect to the 2005 Plan and
the 2015 Plan.
Plan Category
Equity compensation plans approved
by shareholders:
2005 Stock Incentive Plan
2015 Stock Incentive Plan
TOTAL
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options
Warrants and Rights
(A)
Weighted-
Average
Exercise Price
of Outstanding
Options,
Warrants and
Rights
(B)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (A))
(C)
25,850
659,950
685,800
$
$
$
30.95
8.30
9.15
---
34,050
34,050
43
Additional information in response to this Item is incorporated herein by reference to our definitive proxy statement
to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on
Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be filed
pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-
K.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be filed
pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-
K.
44
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Documents filed as part of this Annual Report on Form 10-K:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets – January 1, 2017 and January 3, 2016
Consolidated Statements of Operations – Fiscal Years ended January 1, 2017, January 3, 2016 and
December 28, 2014
Consolidated Statements of Shareholders’ Equity – Fiscal Years ended January 1, 2017, January 3,
2016 and December 28, 2014
Consolidated Statements of Cash Flows – Fiscal Years ended January 1, 2017, January 3, 2016 and
December 28, 2014
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Schedule II. Schedule of Valuation and Qualifying Accounts
Exhibits:
See "exhibit index" on the page following the consolidated financial statements and related footnotes
and the signature page to this Annual Report on Form 10-K
45
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Famous Dave’s of America, Inc.
We have audited the accompanying consolidated balance sheets of Famous Dave’s of America, Inc. (a Minnesota
corporation) and subsidiaries (the “Company”) as of January 1, 2017 and January 3, 2016, and the related consolidated
statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended January 1,
2017. Our audits of the basic consolidated financial statements included the financial statement schedule listed in the
index appearing under Item 15. These financial statements and financial statement schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s
internal control over financial reporting. Our audits included consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Famous Dave’s of America, Inc. and subsidiaries as of January 1, 2017 and January 3, 2016, and the results
of their operations and their cash flows for each of the three years in the period ended January 1, 2017 in conformity with
accounting principles generally accepted in the United States of America. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ Grant Thornton LLP
Minneapolis, Minnesota
March 21, 2017
F-2
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 1, 2017 AND JANUARY 3, 2016
(in thousands, except per share data)
ASSETS
January 1,
2017
January 3,
2016
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Assets held for sale
Total current assets
Property, equipment and leasehold improvements, net
Other assets:
Intangible assets, net
Deferred tax asset
Other assets
$
$
4,450 $
1,714
5,257
1,499
3,531
1
16,452
25,912
2,565
4,633
1,383
50,945
$
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and financing lease obligations
Accounts payable
Accrued compensation and benefits
Other current liabilities
Liabilities held for sale
Total current liabilities
Long-term liabilities:
Long-term debt, less current portion
Financing lease obligations, less current portion
Other liabilities
Total liabilities
Shareholders’ equity:
Common stock, $.01 par value, 100,000 shares authorized,
6,958 shares issued and outstanding at
January 1, 2017 and January 3, 2016
Retained earnings
Total shareholders’ equity
$
$
1,371 $
5,311
1,321
3,140
---
11,143
8,849
2,280
8,705
30,977
66
19,902
19,968
50,945 $
See accompanying notes to consolidated financial statements.
5,300
1,087
4,678
2,070
1,671
2,211
17,017
32,491
2,902
4,491
710
57,611
2,193
5,685
1,390
3,406
1,747
14,421
10,120
2,724
8,285
35,550
66
21,995
22,061
57,611
F-3
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
JANUARY 1, 2017, JANUARY 3, 2016, AND DECEMBER 28, 2014
(in thousands, except per share data)
Revenue:
Restaurant sales, net
Franchise royalty revenue
Franchise fee revenue
Licensing and other revenue
Total revenue
Costs and expenses:
Food and beverage costs
Labor and benefits costs
Operating expenses
Depreciation and amortization
General and administrative expenses
Asset impairment and estimated lease termination and other closing costs
Pre-opening expenses
Net (gain) loss on disposal of property
Total costs and expenses
(Loss) income from operations
Other expense:
Interest expense
Interest income
Other income (expense), net
Total other expense
(Loss) income before income taxes
Income tax benefit (expense)
Net (loss) income from continuing operations
Net income (loss) from discontinued operations, net of taxes
Net (loss) income
Income (loss) income per common share:
Basic net (loss) income from continuing operations
Basic net income (loss) from discontinued operations
Basic net (loss) income
Diluted net (loss) income from continuing operations
Diluted net income (loss) from discontinued operations
Diluted net (loss) income
Weighted average common shares outstanding - basic
Weighted average common shares outstanding - diluted
January 1,
January 3,
December 28,
2017
2016
2014
$
$
$
$
$
$
$
$
81,511
16,375
290
1,003
99,179
25,256
28,208
24,780
3,681
16,753
4,788
---
(197)
103,269
(4,090)
(855)
2
1
(852)
(4,942)
2,000
(2,942)
511
(2,431)
(0.42)
0.07
(0.35)
(0.42)
0.07
(0.35)
6,950
6,950
$
$
$
$
$
$
$
$
95,475
17,542
255
954
114,226
29,093
32,553
27,780
4,452
19,021
1,520
1
(2,337)
112,083
2,143
(1,027)
11
---
(1,016)
1,127
(48)
1,079
(5,463)
(4,384)
0.15
(0.78)
(0.63)
0.15
(0.78)
(0.63)
6,992
7,013
$
$
$
$
$
$
$
$
113,522
17,196
190
954
131,862
33,478
36,945
31,540
5,183
15,906
4,517
7
430
128,006
3,856
(867)
2
(4)
(869)
2,987
(732)
2,255
642
2,897
0.31
0.09
0.40
0.31
0.09
0.40
7,199
7,226
See accompanying notes to consolidated financial statements.
F-4
FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED
JANUARY 1, 2017, JANUARY 3, 2016, AND DECEMBER 28, 2014
(in thousands)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
Total
Balance - December 29, 2013
7,274
$
Exercise of stock options
Tax benefit for equity
awards issued
Common stock issued, net of
cancellations
Performance shares surrendered to
cover payroll taxes incurred
Repurchase of common stock
Stock-based compensation
Deferred compensation
Net income
Balance - December 28, 2014
Tax benefit for equity
awards issued
Common stock issued, net of
cancellations
Performance shares surrendered to
cover payroll taxes incurred
Repurchase of common stock
Stock-based compensation
Deferred compensation
Net loss
Balance - January 3, 2016
Exercise of stock options
Stock-based compensation
Deferred compensation
Net loss
24
---
(4)
(56)
(101)
---
---
---
7,137
---
25
(9)
(195)
---
---
---
6,958
---
---
---
---
$
$
Balance - January 1, 2017
6,958
$
70
---
---
(1)
---
(1)
---
---
---
68
---
---
---
(2)
---
---
---
66
---
---
---
---
66
$
---
$
32,721
$
32,791
(114)
1,153
---
(28)
---
(1,011)
---
---
---
144
---
---
---
(144)
---
---
---
---
---
---
---
---
---
24
---
(1,492)
(2,610)
220
(26)
2,897
31,734
---
---
(215)
(5,670)
470
60
(4,384)
21,995
(1)
312
27
(2,431)
$
$
(114)
1,177
(1)
(1,520)
(2,611)
(791)
(26)
2,897
31,802
144
---
(215)
(5,672)
326
60
(4,384)
22,061
(1)
312
27
(2,431)
$
$
$
19,902
$
19,968
$
$
$
See accompanying notes to consolidated financial statements.
F-5
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
JANUARY 1, 2017, JANUARY 3, 2016, AND DECEMBER 28, 2014
(in thousands)
Cash flows from operating activities:
Net (loss) income from continuing operations
Adjustments to reconcile net (loss) income to cash flows provided by (used
$
for) continuing operations:
Depreciation and amortization
Amortization of deferred financing costs
Net (gain) loss on disposal of property
Asset impairment and estimated lease termination and other closing costs
Deferred income taxes
Deferred rent and net amortization of lease interest assets and liabilities
Stock-based compensation
Tax benefit for equity awards issued
Changes in operating assets and liabilities, net of acquisition:
Restricted cash
Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Deposits
Accounts payable
Accrued compensation and benefits
Other current liabilities
Other liabilities
Long-term deferred compensation
Cash flows provided by (used for) continuing operating activities
Cash flows (used for) provided by discontinued operating activities
Cash flows provided by operating activities
Cash flows from investing activities:
Proceeds from the sale of restaurant assets and décor
Purchases of property, equipment and leasehold improvements
Cash flows provided by (used for) continuing investing activities
Cash flows provided by (used for) discontinued investing activities
Cash flows provided by (used for) for investing activities
Cash flows from financing activities:
Proceeds from long-term debt
Proceeds from draws on line of credit
Payments on line of credit
Payments for debt issuance costs
Payments on long-term debt and financing lease obligations
Payments from exercise of stock options
Tax benefit for equity awards issued
Repurchase of common stock
Cash flows used for financing activities
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
January 1,
2017
January 3,
2016
December 28,
2014
(2,942) $
1,079 $
2,255
3,681
115
(149)
4,788
(142)
676
339
---
(828)
(1,191)
191
(1,876)
(277)
(696)
(184)
(311)
105
---
1,299
(955)
344
1,068
(758)
310
1,150
1,460
103
1,855
---
(259)
(4,352)
(1)
---
---
(2,654)
(850)
5,300
4,452
212
(2,337)
1,520
(4,255)
909
386
(144)
(439)
(1,257)
140
267
9
(305)
(2,165)
162
(38)
(74)
(1,878)
3,862
1,984
7,502
(3,197)
4,305
(60)
4,245
---
27,700
(24,440)
(160)
(634)
---
144
(5,672)
(3,062)
3,167
2,133
5,183
84
430
4,517
(728)
940
(817)
(1,177)
453
483
(40)
531
(27)
(866)
(1,224)
1,229
31
(135)
11,122
1,557
12,679
95
(1,568)
(1,473)
(1,317)
(2,790)
---
22,400
(28,800)
(40)
(981)
(114)
1,177
(2,691)
(9,049)
840
1,293
2,133
Cash and cash equivalents, end of year
$
4,450 $
5,300 $
See accompanying notes to consolidated financial statements.
F-6
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business - We, Famous Dave's of America, Inc. (“Famous Dave’s” or the “Company”), were
incorporated in Minnesota on March 14, 1994. We develop, own, operate and franchise restaurants under the name
"Famous Dave's". As of January 1, 2017, there were 176 Famous Dave’s restaurants operating in 32 states, the
Commonwealth of Puerto Rico, Canada, and the United Arab Emirates, including 37 Company-owned restaurants
and 139 franchise-operated restaurants. An additional 62 franchise restaurants were committed to be developed
through signed area development agreements as of January 1, 2017.
Seasonality – Our restaurants typically generate higher revenue in the second and third quarters of our fiscal
year as a result of seasonal traffic increases and high catering sales experienced during the summer months, and
lower revenue in the first and fourth quarters of our fiscal year, due to possible adverse weather which can disrupt
customer and team member transportation to our restaurants.
Principles of consolidation – The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned and majority-owned subsidiaries. Any inter-company transactions and balances
have been eliminated in consolidation.
Management’s use of estimates – The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America (“GAAP”) requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications – Certain reclassifications have been made to prior year amounts to conform to the current
year’s presentation of discontinued operations, deferred taxes and deferred financing costs.
Financial instruments – Due to their short-term nature, the carrying value of our current financial assets and
liabilities approximates their fair value. The fair value of long-term debt approximates the carrying amount based
upon our expected borrowing rate for debt with similar remaining maturities and comparable risk.
Segment reporting – We have Company-owned and franchise-operated restaurants in the United States, the
Commonwealth of Puerto Rico, Canada, and the United Arab Emirates, and operate within the single industry
segment of foodservice. We make operating decisions on behalf of the Famous Dave’s brand which includes both
Company-owned and franchise-operated restaurants. In addition, all operating expenses are reported in total and
are not allocated to franchising operations for either external or internal reporting. As a result, we have concluded
that we have a single reporting segment.
Fiscal year – Our fiscal year ends on the Sunday nearest December 31 of each year. Our fiscal year is
generally 52 weeks; however, it periodically consists of 53 weeks. The fiscal years ended January 1, 2017 (fiscal
2016), and December 28, 2014 (fiscal 2014) consisted of 52 weeks while the fiscal year ended January 3, 2016
(fiscal 2015), consisted of 53 weeks. The fiscal year ending December 31, 2017 (fiscal 2017) will consist of 52
weeks.
Cash and cash equivalents – Cash equivalents include all investments with original maturities of three
months or less or which are readily convertible into known amounts of cash and are not legally restricted. Accounts
at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000, while the remaining
balances are uninsured at January 1, 2017 and January 3, 2016. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.
F-7
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted cash and marketing fund – We have a system-wide marketing fund. Company-owned
restaurants and franchise-operated restaurants that entered into franchise agreements with the Company after
December 17, 2003, are required to contribute a percentage of net sales to the fund that is used for public relations
and marketing development efforts throughout the system. These restaurants were required to contribute 1.0% of
net sales to this fund during fiscal 2016 and fiscal 2015. In fiscal 2017, the contribution will remain at 1.0% of net
sales. The assets held by this fund are considered restricted and are in an interest-bearing account. Accordingly,
we reflected the cash related to this fund in restricted cash and the liability is included in accounts payable on our
consolidated balance sheets. As of January 1, 2017 and January 3, 2016, we had approximately $946,000 and $1.1
million in this fund, respectively.
In conjunction with the Company’s Credit Agreement, we have deposited 105% and 100% of the face amount
of the undrawn letters of credit in a cash collateral account with Wells Fargo, National Association and Venture
Bank. We had approximately $768,000 in restricted cash as of January 1, 2017, related to these undrawn letters of
credit. We were not required to deposit funds in the cash collateral account as of January 3, 2016.
Accounts receivable, net – We provide an allowance for uncollectible accounts on accounts receivable based
on historical losses and existing economic conditions, when relevant. We provide for a general bad debt reserve
for franchise receivables due to increases in days’ sales outstanding and deterioration in general economic market
conditions. This general reserve is based on the aging of receivables meeting specified criteria and is adjusted each
quarter based on past due receivable balances. Additionally, we have periodically established a specific reserve on
certain receivables as necessary. In assessing recoverability of these receivables, we make judgments regarding the
financial condition of the franchisees based primarily on past and current payment trends, as well as other variables,
including annual financial information, which the franchisees are required to submit to us. Any changes to the
reserve are recorded in general and administrative expenses. The allowance for uncollectible accounts was
approximately $270,000 and $246,000, at January 1, 2017 and January 3, 2016, respectively. In fiscal 2016, the
increase in the allowance for doubtful accounts was primarily due to delays in collections associated with certain
franchises. Accounts receivable are written off when they become uncollectible, and payments subsequently
received on such receivables are credited to allowance for doubtful accounts. Accounts receivable balances written
off have not exceeded allowances provided. We believe all accounts receivable in excess of the allowance are fully
collectible. If accounts receivable in excess of provided allowances are determined uncollectible, they are charged
to expense in the period that determination is made. Outstanding past due accounts receivable are subject to a
monthly interest charge on unpaid balances which is recorded as interest income in our consolidated statements of
operations.
Inventories – Inventories consist principally of small wares and supplies, food and beverages, and retail
goods, and are recorded at the lower of cost (first-in, first-out) or market.
Property, equipment and leasehold improvements, net – Property, equipment and leasehold improvements
are capitalized at a level of $250 or greater and are recorded at cost. Repair and maintenance costs are charged to
operations when incurred. Furniture, fixtures, and equipment are depreciated using the straight-line method over
estimated useful lives ranging from 3-7 years, with the exception of restaurant signage which, is included in
furniture, fixtures, and equipment and is depreciated over 10 to 15 years, while buildings are depreciated over 30
years. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term,
including reasonably assured renewal options, or the estimated useful life of the assets. Décor that has been installed
in the restaurants is recorded at cost and is depreciated using the straight-line method over seven years.
F-8
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Liquor licenses - The Company has transferable liquor licenses in jurisdictions with a limited number of
authorized liquor licenses. These licenses were capitalized as indefinite-lived intangible assets and are included in
intangible assets, net in our consolidated balance sheets (see Note 3). We review annually the liquor licenses for
impairment. Additionally, the costs of obtaining non-transferable liquor licenses that are directly issued by local
government agencies for nominal fees are expensed as incurred. Annual liquor license renewal fees are expensed
over the renewal term.
Debt issuance costs – Debt issuance costs are amortized to interest expense over the term of the related
financing. The carrying value of our deferred debt issuance costs, which are netted against the related debt on the
consolidated balance sheets, is approximately $257,000, and $112,000, net of accumulated amortization of
$345,000 and $453,000, as of January 1, 2017 and January 3, 2016, respectively.
Construction overhead and capitalized interest – We capitalize construction overhead costs until the time
a building is turned over to operations, which is approximately two weeks prior to opening. In fiscal 2016 and 2015
we did not capitalize any construction overhead costs while in 2014 we capitalized construction overhead costs of
approximately $48,000. These reflect two remodel projects that occurred in fiscal 2014. In fiscal 2016 and 2015
there were no new restaurant openings or remodel projects. In fiscal 2016 and 2015 we did not capitalize any
interest costs, while in fiscal 2014 we capitalized interest costs of approximately $7,000. We depreciate and
amortize construction overhead and capitalized interest over the same useful life as leasehold improvements.
Advertising costs – Advertising costs are charged to expense as incurred. Advertising costs were
approximately $2.0 million, $2.5 million, and $3.0 million for fiscal years 2016, 2015, and 2014, respectively, and
are included in operating expenses in the consolidated statements of operations.
Software implementation costs – We capitalize labor costs associated with the implementation of significant
information technology infrastructure projects based on actual labor rates per person including benefits, for all time
spent on the implementation of software and are depreciated over 5 years. In fiscal 2016 and 2015 we did not
capitalize any software implementation costs, while in 2014 we capitalized software implementation costs of
$102,000.
Research and development costs – Research and development costs represent salaries and expenses of
personnel engaged in the creation of new menu and promotional offerings, recipe enhancements and documentation
activities. Research and development costs were approximately $510,000, $668,000, and $468,000, for fiscal years
2016, 2015, and 2014, respectively, and are included in general and administrative expenses in the consolidated
statements of operations.
Pre-opening expenses – All start-up and pre-opening costs are expensed as incurred. Pre-opening rent during
the build-out period is included in pre-opening expense. In fiscal 2016 we had no pre-opening expenses. In 2015
and 2014, we had pre-opening expenses of approximately $1,000, and $7,000 respectively. The low levels of pre-
opening expenses in the recent years are a result of no new Company-owned restaurants opening during fiscal years
2016, 2015 or 2014.
Lease accounting – We recognize lease expense on a straight-line basis for our operating leases over the
entire lease term, including lease renewal options and build-out periods where the renewal is reasonably assured
and the build-out period takes place prior to the restaurant opening or lease commencement date. Rent expense
recorded during the build-out period is reported as pre-opening expense. We account for construction allowances
by recording a receivable when collectability is considered to be probable, and relieve the receivable once the cash
is obtained from the landlord for the construction allowance. Construction allowances are amortized as a credit to
rent expense over the full term of the lease, including reasonably assured renewal options and build-out periods.
F-9
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recoverability of property, equipment and leasehold improvements, impairment charges, and exit and
disposal costs – We evaluate restaurant sites (asset groups) and long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable.
Recoverability of restaurant sites to be held and used is measured by a comparison of the carrying amount of the
restaurant site to the undiscounted future net cash flows expected to be generated on a restaurant-by-restaurant basis.
If a restaurant site is determined to be impaired, the loss is measured as the amount by which the carrying amount
of the restaurant site exceeds its fair value. Fair value, as determined by the discounted future net cash flows, is
estimated based on the best information available including estimated future cash flows, expected growth rates in
comparable restaurant sales, remaining lease terms and other factors. If these assumptions change in the future, we
may be required to recognize additional impairment charges for the related assets. Considerable management
judgment is necessary to estimate future cash flows. Accordingly, actual results could vary significantly from the
estimates.
Exit or disposal activities, including restaurant closures, include the cost of disposing of the assets and other
facility-related expenses from previously closed restaurants. These costs are generally expensed as incurred.
Additionally, at the date we cease using a property under an operating lease, we record a liability for the net present
value of any remaining lease obligations, net of estimated sublease income. Any subsequent adjustments to that
liability as a result of lease termination or changes in estimates of sublease income are recorded in the period
incurred. Upon disposal of the assets associated with a closed restaurant, any gain or loss is recorded in the same
caption as the original impairment within our consolidated statements of operations.
Asset retirement obligation – We recognize a liability for the fair value of a required asset retirement
obligation (“ARO”) when such obligation is incurred. Our AROs are primarily associated with leasehold
improvements which, at the end of a lease, we are contractually obligated to remove in order to comply with the
lease agreement. The net ARO liability included in other long term liabilities in our consolidated balance sheets
was $119,000 and $111,000 at January 1, 2017 and January 3, 2016, respectively.
Gift cards – We record a liability in the period in which a gift card is issued and proceeds are received. As
gift cards are redeemed, this liability is reduced and revenue is recognized. We recognize gift card breakage income
as an offset to operating expense based on a stratified breakage rate per year. This breakage rate is based on a
percentage of sales when the likelihood of the redemption of the gift card becomes remote.
Interest income – We recognize interest income when earned.
Net (loss) income per common share – Basic net (loss) income per common share (“EPS”) is computed by
dividing net (loss) income by the weighted average number of common shares outstanding for the reporting period.
Diluted EPS equals net (loss) income divided by the sum of the weighted average number of shares of common
stock outstanding plus all additional common stock equivalents, such as stock options and restricted stock units,
when dilutive.
F-10
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following is a reconciliation of basic and diluted net (loss) income per common share:
(in thousands, except per share data)
2016
Fiscal Year
2015
2014
Net (loss) income per common share – basic:
Net (loss) income from continuing operations, net of taxes
Net income (loss) from discontinued operations, net of taxes
Net (loss) income
Weighted average shares outstanding
Net (loss) income from continuing operations per common share – basic
Net income (loss) from discontinued operations per common share – basic
Net (loss) income per common share – basic
$
$
$
$
Net (loss) income per common share – diluted:
Net (loss) income from continuing operations, net of taxes
Net income (loss) from discontinued operations, net of taxes
Net (loss) income
Weighted average shares outstanding
Dilutive impact of common stock equivalents outstanding
Adjusted weighted average shares outstanding
$
Net (loss) income from continuing operations per common share – diluted
Net income (loss) from discontinued operations per common share – diluted $
$
Net (loss) income per common share – diluted
$
(2,942) $
511
(2,431)
6,950
(0.42) $
0.07 $
(0.35) $
(2,942) $
511
(2,431)
6,950
---
6,950
(0.42) $
0.07 $
(0.35) $
1,079 $
(5,463)
(4,384)
6,992
0.15 $
(0.78) $
(0.63) $
1,079 $
(5,463)
(4,384)
6,992
21
7,013
0.15 $
(0.78) $
(0.63) $
2,255
642
2,897
7,199
0.31
0.09
0.40
2,255
642
2,897
7,199
27
7,226
0.31
0.09
0.40
There were approximately 683,000, 507,000 and 118,000 options outstanding as of January 1, 2017, January 3,
2016 and December 28, 2014, respectively that were not included in the computation of diluted EPS because they were
anti-dilutive.
Stock-based compensation – We recognize compensation cost for share-based awards granted to team members
and Board members based on their fair values at the time of grant over the requisite service period. Stock options granted
to non-employees are marked to market when they vest. Our pre-tax compensation cost for stock options and other
incentive awards is included in general and administrative expenses in our consolidated statements of operations (see
Note 9).
Cash flows from the exercise of stock options resulting from tax benefits in excess of recognized cumulative
compensation cost (excess tax benefits) is classified as cash flows from financing activities. During fiscal years 2016,
2015 and 2014, 416,250, 464,774 and 190,500 stock options were granted, respectively. During fiscal 2016, 171,690
stock options were forfeited.
Income Taxes – We provide for income taxes based on our estimate of federal and state income tax liabilities.
These estimates include, among other items, effective rates for state and local income taxes, allowable tax credits for
items such as taxes paid on reported tip income, estimates related to depreciation and amortization expense allowable for
tax purposes, and the tax deductibility of certain other items. Our estimates are based on the information available to us
at the time that we prepare the income tax provision. We generally file our annual income tax returns several months
after our fiscal year-end. Income tax returns are subject to audit by federal, state, and local governments, generally years
after the tax returns are filed. These returns could be subject to material adjustments or differing interpretations of the
tax laws.
F-11
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue recognition – We record restaurant sales at the time food and beverages are served. We record sales of
merchandise items at the time items are delivered to the guest. All sales taxes are excluded from revenue. We have
detailed below our revenue recognition policies for franchise and licensing agreements.
Franchise arrangements – Initial franchise fee revenue is recognized when we have performed substantially all of
our obligations as franchisor. Franchise royalties are recognized when earned.
Our franchise-related revenue is comprised of three separate and distinct earnings processes: area development
fees, initial franchise fees and continuing royalty payments. Currently, our area development fee for domestic growth
consists of a one-time, non-refundable payment of approximately $10,000 per restaurant in consideration for the services
we perform in preparation of executing each area development agreement. For our foreign area development agreements
the one time, non-refundable payment is negotiated on a per development basis and is determined based on the costs
incurred to sell that development agreement. Substantially all of these services, which include, but are not limited to,
conducting market and trade area analysis, a meeting with Famous Dave’s Executive Team, and performing a potential
franchise background investigation, are completed prior to our execution of the area development agreement and receipt
of the corresponding area development fee. As a result, we recognize this fee in full upon receipt. Currently, our initial,
non-refundable, franchise fee for domestic growth is $45,000 per restaurant, of which approximately $5,000 is recognized
immediately when a franchise agreement is signed, reflecting expenses incurred related to the sale. The remaining non-
refundable fee is included in deferred franchise fees and is recognized as revenue when we have performed substantially
all of our obligations, which generally occurs upon the franchise entering into a lease agreement for the restaurant(s).
Finally, franchisees are also required to pay us a monthly royalty equal to a percentage of their net sales, which has
historically varied from 4% to 5%. In general, new franchises pay us a monthly royalty of 5% of their net sales.
Licensing and other revenue – We have a licensing agreement for our retail products, the current term of which
expires in April 2020 with renewal options of five years, subject to the licensee’s attainment of identified minimum
product sales levels. Licensing revenue is recorded based on royalties earned by us in accordance with our agreement.
Licensing revenue for fiscal years 2016, 2015, and 2014 was approximately $981,000, $940,000, and $878,000,
respectively.
Periodically, we provide additional services, beyond the general franchise agreement, to our franchise operations,
such as new restaurant training, information technology setup and décor installation services. The cost of these services
is recognized upon completion and is billed to the respective franchisee and is generally payable on net 30-day terms.
Other revenue related to these services for fiscal years 2016, 2015, and 2014 was approximately $22,000, $14,000, and
$76,000, respectively. These year over year changes are a result of fewer franchise-operated restaurant openings as well
as a level of assistance we provided during those openings.
Recent Accounting Guidance
Recently adopted accounting guidance
In January 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2015-01, “Income Statement—Extraordinary and Unusual Items.” This update eliminates from Generally
Accepted Accounting Principles (“GAAP”) the concept of extraordinary items. ASU 2015-01 is effective for the first
interim period within fiscal years beginning after December 15, 2015, with early adoption permitted provided that the
guidance is applied from the beginning of the fiscal year of adoption. A reporting entity may apply the amendments
prospectively or retrospectively to all prior periods presented in the financial statements. The Company adopted this ASU
in the first quarter of 2016, but it had no impact on the consolidated financial statements.
F-12
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In April 2015, the FASB issued guidance on the financial statement presentation of debt issuance costs. This
guidance requires debt issuance costs to be presented in the balance sheet as a reduction of the related debt liability rather
than as an asset. The standard will become effective for annual periods beginning after December 15, 2015 and for interim
periods beginning after December 15, 2016. Early adoption is permitted. The standard requires companies to apply the
guidance retrospectively to all prior periods. The Company adopted this at fiscal year-end of 2016 but it did not have a
material impact on its consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes,
which requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet.
The ASU is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods
beginning after December 15, 2018. Early adoption is permitted for all entities. The Company adopted this at fiscal year-
end of 2016 but it did not have a material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements
to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects related to the accounting for
share-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding
requirements and classification on the statement of cash flows. For public entities, ASU 2016-09 is effective for fiscal
years beginning after December 15, 2016, and interim periods within those fiscal years. The Company adopted this at
fiscal year-end of 2016 but it did not have a material impact on its consolidated financial statements.
Recent accounting guidance not yet adopted
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The FASB issued
ASU No. 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue
Gross versus Net)” in March 2016, ASU 2016-10 “Revenue from Contracts with Customers (Topic 606): Identifying
Performance Obligations and Licensing” in April 2016, ASU 2016-11, “Revenue Recognition (Topic 605) and
Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09
and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting” in May 2016 and ASU 2016-12,
“Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” in May
2016. These new standards provide for a single, principles-based model for revenue recognition that replaces the existing
revenue recognition guidance. In July 2015, the FASB deferred the effective date of ASU 2014-09 until annual and
interim periods beginning on or after December 15, 2017. It will replace most existing revenue recognition guidance
under GAAP when it becomes effective. The new standard permits the use of either a retrospective or cumulative effect
transition method and early adoption is not permitted. The Company has not yet selected a transition method and is
currently evaluating the impact these standards will have on its consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the existing guidance for
lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize a lease liability and a right-of-use asset
for all leases. Lessor accounting remains largely unchanged. The amendments in this ASU are effective for fiscal years
beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted for all
entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after the date
of initial adoption, with an option to elect to use certain transition relief. As shown in Note 8, there are $114.4 million in
future minimum rental payments for operating leases that are not currently on our balance sheet; therefore, we expect
this will have a material impact on our consolidated balance sheets and related disclosures.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments.
ASU 2016-15 addresses how certain cash receipts and cash payments are presented and classified in the statement
of cash flows under Topic 230, Statement of Cash Flow, and other Topics. ASU 2016-15 is effective for annual
reporting periods, and interim periods therein, beginning after December 15, 2017. The Company does not expect
the adoption of this guidance to have a material impact on its consolidated financial statements.
F-13
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2)
INVENTORIES
Inventories consisted approximately of the following at:
(in thousands)
Small wares and supplies
Food and beverage
Retail goods
January 1,
2017
January 3,
2016
$
$
730
711
58
1,499
$
$
1,251
761
58
2,070
(3)
INTANGIBLE ASSETS
The Company has intangible assets that consist of liquor licenses and lease interest assets. The liquor licenses are
indefinite lived assets (see Note 1) and are not subject to amortization. The lease interest assets are amortized, to
occupancy costs, on a straight-line basis over the remaining term of each respective lease. Amortization for each of the
next five years is expected to be approximately $36,500.
F-14
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of intangible assets for the years ended January 1, 2017 and January 3, 2016, respectively, is presented
in a table below:
Remaining
estimated
useful life
(years)
Original
Cost
Impairment
Accumulated
Amortization
Net Book
Value
Less
Current
Portion(3)
Non-
Current
Portion
(in thousands)
Balance at January 1, 2017
Lease interest assets
23.1
$
1,417 $
Liquor licenses
1,810
(326)(1) $
(50)(2)
(249) $
842 $
---
1,760
(37) $
---
805
1,760
Total
$
3,227 $
(376) $
(249) $
2,602 $
(37) $
2,565
Remaining
estimated
useful life
(years)
Original
Cost
Impairment
Accumulated
Amortization
Net Book
Value
Less
Current
Portion(1)
Non-
Current
Portion
(in thousands)
Balance at January 3, 2016
Lease interest assets
24.1
$
1,417 $
Liquor licenses
1,810
--- $
---
(277) $
1,140 $
---
1,810
(48)
---
1,092
1,810
Total
$
3,227 $
--- $
(277) $
2,950 $
(48)
2,902
(1)Recorded in connection with the restaurant optimization. See Note 16.
(2)Based upon a quantitative analysis of this intangible asset, we determined that the fair value of one liquor license was less than its carrying value.
(3)The current portion of lease interest assets are recorded in prepaid expenses and other current assets.
(4) PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS, NET
Property, equipment and leasehold improvements, net, consisted approximately of the following at:
(in thousands)
Land, buildings, and improvements
Furniture, fixtures, and equipment
Décor
Construction in progress
Accumulated depreciation and amortization
Property, equipment and leasehold improvements, net
January 1,
2017
January 3,
2016
$
$
$
50,851
35,609
1,553
181
(62,282)
25,912
$
50,713
34,866
1,553
471
(55,112)
32,491
F-15
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following at:
(in thousands)
Gift cards payable
Other liabilities
Sales tax payable
Accrued real estate tax
Deferred franchise fees
Accrued property and equipment purchases
Income taxes payable
(6) OTHER LIABILITIES
Other liabilities consisted of the following at:
(in thousands)
Deferred rent
Other liabilities
Asset retirement obligations
Long term lease reserve
Long term deferred compensation
Income taxes payable
January 1,
2017
January 3,
2016
$
$
1,448
1,140
454
79
16
3
---
3,140
$
$
1,616
902
674
---
134
40
40
3,406
January 1,
2017
January 3,
2016
7,802
358
119
145
142
139
8,705
$
$
7,191
455
111
258
258
12
8,285
$
$
(7) CREDIT FACILITY AND DEBT COVENANTS, AND FINANCING LEASE OBLIGATIONS
On December 2, 2016 (the “Effective Date”), Famous Dave’s of America, Inc. (the “Company”) entered into a
Loan Agreement (the “First Loan Agreement”) among the Company and Minwood Partners, Inc., as borrowers, and
Venture Bank, as lender (the “Lender”). Also on the Effective Date, the Company entered into a loan agreement providing
among the Company, as lead borrower, certain of its affiliates also as borrowers, and the Lender for two additional loans
(the “Second Loan Agreement”).
The First Loan Agreement provides for a loan from the Lender to the borrowers set forth therein in the principal
amount of $3.7 million and is evidenced by a promissory note (the “First Note”) executed and delivered by the borrowers
to the Lender on the Effective Date. The First Note has a maturity date of December 2, 2026 and shall be paid in monthly
installments of principal and interest based on a twenty-year amortization period. Interest per annum shall be at a rate of
4.25% for years 1 through 5 and for years 6 through the end of the term LIBOR rate plus 375 basis points, subject to
adjustment at the discretion of the Lender, as further set forth therein. The First Note may be prepaid, subject to certain
prepayment premiums, provided, however, that during any calendar year the borrowers may prepay principal of up to
20% of the original principal amount without paying a prepayment premium.
Proceeds from the First Loan Agreement were used to repay the Company’s debt to Wells Fargo Bank, National
Association and to pay certain other costs approved by the Lender.
F-16
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The First Loan Agreement is secured by a mortgage and security agreement and fixture financing statement (the
“First Mortgage”) granting to the Lender a security interest in and title to certain real property in the state of Minnesota
and as more fully described therein.
The First Loan Agreement contains customary representations and warranties and financial and other covenants
and conditions, including, among other things, minimum debt service coverage ratio and a post-closing covenant to obtain
certain letters of credit. The First Loan Agreement also places certain restrictions on, among other things, the borrowers’
ability to incur additional indebtedness, to create liens or other encumbrances, to use funds for purposes other than as
stated therein, to sell or otherwise dispose of assets and to expand on or erect any new material improvements, as such
term is defined therein.
In addition, the First Loan Agreement contains events of default (subject to certain materiality thresholds and grace
periods), including, without limitation, payment defaults; breaches of covenants; breaches of representations and
warranties; failure to perform remediation of any environmental matters on the mortgaged property, as set forth in the
First Mortgage; failure to perform or observe the covenants, conditions or terms of the First Loan Agreement and related
agreements; certain bankruptcy events of the borrowers and failure to timely provide financial statements.
The Second Loan Agreement provides for two separate loans from the Lender to the borrowers set forth therein in
the aggregate principal amount of $7.3 million, one in the principal amount of $6.3 million (“Loan 2”) and the other in
the principal amount of $1.0 million (“Loan 3”). Loan 2 is evidenced by a promissory note in the principal amount of
$6.3 million (the “Second Note”). The Second Note has a maturity date of December 2, 2023 and shall be paid in monthly
installments of principal and interest based on a seven-year amortization period. Interest per annum shall be at a rate
equal to the LIBOR rate plus 325 basis points (each of such terms as defined in the Second Note), subject to adjustment
at the discretion of the Lender and as further set forth therein. The Second Note may be prepaid at any time without
incurring a prepayment premium.
Loan 3 is evidenced by a promissory note in the principal amount of $1.0 million (the “Third Note”). The Third
Note has a maturity date of December 2, 2019 and shall first be paid in monthly installments of the interest then accrued
on the principal balance and then in full on the maturity date. Interest per annum shall be at a rate equal to the LIBOR
rate plus 325 basis points (each of such terms as defined in the Third Note), subject to adjustment at the discretion of the
Lender, as further set forth therein. The Third Note may be prepaid at any time without incurring a prepayment premium.
Proceeds from the Second Loan Agreement were used to repay the Company’s debt to Wells Fargo Bank, National
Association, with the remainder to be used as a line of credit as working capital for borrowers’ business and pay certain
other costs approved by the Lender.
Loan 2 is secured by a mortgage dated as of the Effective Date (the “Second Mortgage”) which is subordinate to
the First Mortgage, a security interest in substantially all of the personal property of the borrowers pursuant to a security
agreement dated as of the Effective Date (the “Security Agreement”) and a pledge of certain certificates of deposit
pursuant to a pledge agreement also dated as of the Effective Date (the “Pledge Agreement”). Loan 3 is secured by a
security interest on substantially all of the personal property of the borrowers pursuant to the Security Agreement and a
pledge of certain certificates of deposit pursuant to the Pledge Agreement.
The Second Loan Agreement contains customary representations and warranties and financial and other covenants
and conditions, including, among other things, minimum debt service coverage ratio and a post-closing covenant to obtain
certain letters of credit. The Second Loan Agreement also places certain restrictions on, among other things, the
borrowers’ ability to incur additional indebtedness, to use funds for purposes other than as stated therein, to create liens
or other encumbrances, to sell or otherwise dispose of assets and to expand on or erect any new material improvements,
as such term is defined therein.
F-17
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, the Second Loan Agreement contains events of default (subject to certain materiality thresholds and
grace periods), including, without limitation, payment defaults; breaches of covenants; breaches of representations and
warranties; failure to perform remediation of any environmental matters on the mortgaged property, as set forth in the
Second Mortgage; failure to perform or observe the covenants, conditions or terms of the Second Loan Agreement and
related agreements; certain bankruptcy events of the borrowers and failure to timely provide financial statements. If an
event of default were to occur, the Lender has the right to call the debt prior to expiration.
On December 2, 2016, the Company refinanced approximately $9.9 million from borrowings under the First Loan
Agreement and Second Loan Agreement to fund repayment of certain outstanding amounts under the Third Amended
and Restated Credit Agreement dated as of May 8, 2015, as amended (the “Credit Agreement”) by and among the
Company and its subsidiaries and Wells Fargo Bank, National Association, as administrative agent on behalf of the
Lenders under the Credit Agreement. For a period of up to 45 days following December 2, 2016, one letter of credit in
the amount of $625,000 and a related cash collateral pledge remained outstanding under the Credit Agreement. Other
than this letter of credit and related pledge, as well as certain breakage and treasury service management fees, the
Company’s obligations under the Credit Agreement were terminated on December 2, 2016. At January 1, 2017, the
Company had $1.0 million of additional borrowing capacity in Loan 3.
The weighted average interest rate of the First, Second and Third notes for the fiscal year ended January 1, 2017
was 4.0%. The weighted average interest rate of the Term Loans for fiscal years ended January 1, 2017 and January 3,
2016 was 3.69% and 2.66%, respectively.
As of January 1, 2017, we were in compliance with all of our covenants.
If, in the event of a default, the Lender were to call the debt prior to expiration, the Company believes there are
multiple options available to obtain other sources of financing. Although possibly at different terms, the Company
believes there would be other lenders available and willing to finance a new credit facility. However, if replacement
financing were unavailable to us, termination of the Facility without adequate replacement would have a material and
adverse impact on our ability to continue our business operations.
We expect to use any borrowings under the Credit Agreement for general working capital purchases as needed.
Long-term debt consisted approximately of the following at:
(in thousands)
Notes Payable - Wells Fargo - minimum monthly
installments of $150 until December 31, 2018, followed
by a balloon payment of approximately $6,750 plus interest.
First Note - Venture Bank - monthly installments of
principal and interest until December 2, 2026
Second Note - Venture Bank - monthly
payments of principal and interest until December 2, 2023
Less: deferred financing fees
Less: current maturities
January 1,
2017
January 3,
2016
$
---
$
12,000
3,700
6,300
(234)
(917)
---
---
(80)
(1,800)
10,120
Long-term debt net of current maturities
$
8,849
$
F-18
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Required principal payments on long-term debt are as follows:
(in thousands)
Fiscal Year
2017
2018
2019
2020
2021
Thereafter
Total
Financing Lease Obligation
$
$
917
954
993
1,120
988
5,028
10,000
On March 31, 1999, the Company completed a $4.5 million financing obligation involving three existing
restaurants as part of a sale/leaseback transaction. Under this financing, we are obligated to make monthly payments of
$56,627 (which increases 4.04% every two years) for a minimum of 20 years. At the end of the 20 year lease term, we
may extend the lease for up to two additional five year terms. We also have the option to purchase the leased restaurants
on the 20th anniversary of the lease term and between the first and second five year option terms. The option purchase
price is the greater of $4.5 million or the fair market value, as defined in the agreement, of the properties at the time the
purchase option is exercised. Based upon our continued involvement in the leased property and its purchase option, the
transaction has been accounted for as a financing arrangement. Accordingly, the three existing restaurants are included
in property, equipment and leasehold improvements, and are being depreciated over a 20 year term. In addition, as the
monthly lease payments are made, the obligation will be reduced by the 20 year amortization table.
Financing lease obligations consisted of the following at:
(in thousands)
January 1,
2017
January 3,
2016
Financing lease – Spirit Financial – monthly installments of $54-$59
– including an interest rate of 9.63%, due in March 2019.
Less: deferred financing fees
Less: current maturities
Long-term financing lease net of current maturities
$
$
2,757
(23)
(454)
2,280
$
$
3,150
(33)
(393)
2,724
F-19
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Required future minimum payments under our financing leases are as follows:
(in thousands)
Fiscal Year
2017
2018
2019
Total minimum payments
Imputed interest component of minimum payments
Total financing lease payable
(8) OPERATING LEASE OBLIGATIONS
$
$
$
700
707
1,838
3,245
(488)
2,757
We have various operating leases for existing and future restaurants and corporate office space with remaining
lease terms ranging from 4 months to 31 years, including lease renewal options. Of the total operating leases, 13 require
percentage rent between 3% and 8% of annual gross sales, typically above a natural breakeven point, in addition to the
base rent. All of these leases contain provisions for payments of real estate taxes, insurance and common area
maintenance costs. Total occupancy lease costs for fiscal years 2016, 2015 and 2014, including rent, common area
maintenance costs, real estate taxes and percentage rent, were approximately $7.5 million, $7.6 million and $8.6 million,
respectively. Cash rent expense was approximately $5.0 million, $5.8 million, and $6.1 million, for fiscal years 2016,
2015, and 2014, respectively. Percentage rent was approximately $18,000, $10,000, and $6,000 for fiscal years 2016,
2015, and 2014, respectively.
The Company sublet its Chicago field office in 2015 in addition to 10,340 square feet of its corporate office space.
In 2016, 2015, and 2014, the Company recognized $386,000, $104,000, and $0, respectively, of sublease income which
partially offset its total rent expense.
Future minimum lease payments (including reasonably assured renewal options) existing at January 1, 2017 were:
(in thousands)
Fiscal Year
2017
2018
2019
2020
2021
Thereafter
Total operating lease obligations
Sublease income
Total
$
$
5,765
5,776
5,856
5,949
5,849
85,249
114,444
(15,565)
98,879
F-20
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) PERFORMANCE SHARES, STOCK OPTIONS, OTHER FORMS OF COMPENSATION, AND
COMMON SHARE REPURCHASES
Stock-based Compensation
Effective May 5, 2015, we adopted a 2015 Equity Plan (the “2015 Plan”), pursuant to which we may grant stock
options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance stock units
and other stock and cash awards to eligible participants. We also maintain an Amended and Restated 2005 Stock
Incentive Plan (the “2005 Plan”). Together, the 2015 Plan and 2005 Plan are referred to herein as the “Plans.” Under
the 2015 Plan, an aggregate of 34,050 shares of our Company’s common stock remained unreserved and available for
issuance at January 1, 2017. The 2005 Plan prohibits the granting of incentives after May 12, 2015. Nonetheless, the
2005 Stock Incentive Plan will remain in effect until all outstanding incentives granted thereunder have either been
satisfied or terminated.
We recognized stock-based compensation expense in our consolidated statements of operations for the fiscal years
ended 2016, 2015, and 2014, respectively, as follows:
(in thousands)
Performance Share Programs:
2011 Program(1)(3)
2012 Program(1)(4)
2013 Program(2)(5)(6)(7)(8)
Performance Shares and
Performance Stock Units
Stock Options(10)(11)(12)
Restricted Stock and
Restricted Stock Units (8)
Director Shares(9)(12)
$
$
For the Years Ended
January 1,
2017
January 3,
2016
December 28,
2014
---
---
---
---
311
---
28
339
$
$
---
---
(169)
$
(169)
459
---
60
350
$
(55)
(761)
(412)
(1,228)
371
(73)
47
(883)
(1)The 2011 and 2012 Program's consisted entirely of performance shares.
(2)The 2013 Program consisted of performance shares and performance stock units.
(3)Includes a $55,000 recapture of stock-based compensation due to employee departures for the year ended December 28, 2014.
(4)Includes a $761,000 recapture of stock-based compensation due to employee departures and the failure to achieve performance targets for the
year ended December 28, 2014.
(5)Includes the recapture of stock-based compensation related to performance shares of approximately $458,000 and performance stock units of
approximately $135,000 due to the employee departures for the year ended December 28, 2014.
(6)Includes the recapture of stock-based compensation for performance shares of approximately $131,000 and performance stock units of
approximately $38,000 due to the failure to achieve threshold performance levels for the program as of January 3, 2016.
(7)Includes a mark-to-market adjustment for performance stock units of approximately $22,000 for the year ended December 28, 2014.
(8)Includes a $128,000 recapture of stock-based compensation due to the departure of our former CEO for the year ended December 28, 2014.
(9)Includes a $20,000 recapture of stock-based compensation due to the departure of our former CEO for the year ended December 28, 2014.
(10)Includes a $105,000 recapture of stock-based compensation due to employee departures for the year ended January 3, 2016.
(11)Includes a $126,000 recapture of stock-based compensation due to the departure of our former CFO for the year ended January 1, 2017.
(12)Includes a $27,000 recapture of stock-based compensation due to the departure of our former CEO for the year ended January 1, 2017.
F-21
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Performance Shares and Performance Stock Units
No shares were issued during fiscal 2016 or 2015 related to performance share programs. During the first quarter
of fiscal 2014, we issued 86,519 shares upon satisfaction of conditions under the 2011 performance share program,
representing the achievement of approximately 86.7% of the target payout for this program. Recipients elected to forfeit
30,518 of those shares to satisfy tax withholding obligations, resulting in a net issuance of 56,001 shares.
The Compensation Committee did not implement performance share programs for fiscal 2014, 2015 or 2016.
We recognize compensation cost for performance share awards and incentive stock option awards over the
requisite service period (i.e. fixed treatment) based on their fair value, which is the closing stock price at the date of grant.
Participants in each performance share program are entitled to receive a number of shares of our common stock
(“Performance Shares”) based upon the extent to which we achieve the cumulative total of the earnings per share or
Adjusted EBITDA goals established by our Compensation Committee for each fiscal year within a three-year
performance period (the “Cumulative Adjusted EBITDA Goal”). Receipt of any performance shares is contingent upon
us achieving a specified minimum percentage of the Cumulative Adjusted EBITDA Goal (as applicable).
We recognize compensation cost for performance stock unit awards over the requisite service period based on their
initial fair value, which is the closing stock price at the date of grant. This award is adjusted to fair value based on the
closing stock price at the end of each fiscal quarter. Recipients of performance stock unit awards are entitled to receive
a cash payout based on a number of our stock units awarded (“Performance Stock Unit”) to the extent we achieve the
Cumulative Adjusted EBITDA Goal, and the market value of our common stock.
At January 1, 2017, no performance share programs were in progress.
Board of Directors’ Compensation
We recognized Board of Directors’ compensation expense in our consolidated statements of operations for the
fiscal years ended January 1, 2017, January 3, 2016, and December 28, 2014, respectively, as follows:
2016
Fiscal Years
2015
2014
$
$
$
28
90
95
$
60
69
201
213
$
330
$
47
155
358
560
(in thousands)
Stock-based compensation
Stock option compensation
Cash compensation
Total Board of Directors' compensation
Stock Options
The compensation expense for stock option grants is recognized under general and administrative expense in our
consolidated statements of operations through the applicable service period
Other options granted to certain non-executive officer employees vest in equal annual installments over a period
of four years and expire five years from the grant date. Compensation expense equal to the grant date fair value is
generally recognized for these awards over the vesting period.
F-22
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Options granted to certain non-employees in exchange for future services vest in monthly installments over a
period of approximately two years and expire five years from the grant date. Expense is recognized over the vesting
period, with previously unvested options being marked to market at the date of vesting.
The fair value of each stock option is estimated on the date of grant using the Black-Scholes valuation method
with the assumptions noted in the table below. Due to a lack of recent historical share option exercise experience, the
Company uses a simplified method for estimating the expected life, as outlined in Accounting Standards Codification
718, calculated using the following formula: (vesting term + original contract term)/2. Expected volatilities are based on
the movement of the Company’s common stock over the most recent historical period equivalent to the expected life of
the option. The risk-free interest rate for periods equal to the expected life of the option is based on the U.S. maturities
over the expected life at the time of grant.
Information regarding our Company’s stock options is summarized below:
(number of options in thousands)
Options outstanding at December 29, 2013
Granted
Exercised(1)
Options outstanding at December 28, 2014
Granted
Canceled, forfeited or expired
Options outstanding at January 3, 2016
Granted
Exercised
Canceled, forfeited or expired
Options outstanding at January 1, 2017
Options Exercisable at December 28, 2014
Options Exercisable at January 3, 2016
Options Exercisable at January 1, 2017
Number of
Options
Weighted Average
Exercise Price
48
191
(43)
196
465
(154)
507
416
(6)
(231)
686
18
77
259
$
$
$
$
$
7.77
28.11
7.40
27.67
15.75
28.07
16.66
5.55
5.90
19.44
9.15
17.39
21.48
10.87
(1)In 2014, option holders elected to forfeit approximately 18,000 shares to satisfy the strike price and tax withholding obligations, resulting in a
net issuance of approximately 25,000 shares.
F-23
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following are weighted-average values and assumptions for valuing grants made during fiscal
2016:
Weighted-average fair value of options granted during the year
Expected life (in years)
Expected stock volatility
Risk-free interest rate
$
1.97
5.2
39.98 %
1.2 %
As of January 1, 2017, there was $1.0 million of total unrecognized compensation cost related to
stock option arrangements granted under the Company's stock option plan. The cost is expected to be
recognized over a weighted average period of 3.0 years.
The following table summarizes information about stock options outstanding at January 1, 2017:
(number outstanding and number exercisable in thousands)
Options Outstanding
Exercisable
Exercise prices
Number
outstanding
Weighted-average
remaining
contractual life in
years
Weighted-
average
exercise price
Number
exercisable
Weighted-
average
exercise price
-
$4.55
$10.00 -
$20.00 -
-
$4.55
$9.99
$19.99
$31.66
$31.66
417
243
26
686
7.3
2.8
7.6
5.7
$
$
$
$
5.61
12.90
30.95
9.15
91
158
10
259
$
$
$
$
5.85
12.55
31.18
10.87
The aggregate intrinsic value of options (the amount by which the market price of the stock on the date of exercise
exceeds the exercise price of the option) exercised during fiscal 2016 was approximately $3,900. As of January 1, 2017,
the aggregate intrinsic value of options outstanding and exercisable was approximately $1,200.
Restricted Stock Units
Employees forfeited 8,622 and 24,685 shares of restricted stock units during fiscal 2015 and 2014, at a price of
$25.05 and $26.59 per share, respectively, to cover withholding taxes that were due from the employees at the time that
the applicable forfeiture restrictions lapsed.
No restricted stock units were outstanding as of January 1, 2017.
Common Share Repurchases
On May 1, 2012, our Board of Directors approved a stock repurchase program that authorized the repurchase of
up to 1.0 million shares of our common stock in both the open market or through privately negotiated transactions. The
program was completed during fiscal 2015. Over the course of the program, we repurchased all of the 1.0 million shares
in this authorization for approximately $18.6 million at an average market price per share of $18.57, excluding
commissions.
F-24
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) RETIREMENT SAVINGS PLANS
401(k) Plan
We have a pre-tax salary reduction/profit-sharing plan under the provisions of Section 401(k) of the Internal
Revenue Code, which covers employees meeting certain eligibility requirements. In fiscal 2016, 2015, and 2014 we
matched 25.0%, of the employee’s contribution up to 4.0% of their earnings. Team member contributions were
approximately $338,000, $399,000, and $518,000, for fiscal 2016, 2015, and 2014, respectively. The employer match
was $54,000, $58,000, and $87,000 for fiscal 2016, 2015, and 2014, respectively. There were no discretionary
contributions to the plan in fiscal years 2016, 2015 or 2014.
Non-Qualified Deferred Compensation Plan
We have a Non-Qualified Deferred Compensation Plan effective as of February 25, 2005 (the “Plan”). Eligible
participants are those team members who are at the “director” level and above and who are selected by the Company to
participate in the Plan. Participants must complete a deferral election each year to indicate the level of compensation
(salary, bonus and commissions) they wish to have deferred for the coming year. This deferral election is irrevocable
except to the extent permitted by the Plan Administrator, and the Regulations promulgated by the IRS. During fiscal
2016, 2015, and 2014, we matched 25.0% of the first 4.0% contributed and paid a declared interest rate of 6.0% on
balances outstanding. The Board of Directors administers the Plan and may change the rate or any other aspects of the
Plan at any time.
Deferral periods are limited to the earlier of termination of employment or not less than three calendar years
following the end of the applicable Plan Year. Extensions of the deferral period for a minimum of five years are allowed
provided an election for extension is made at least one year before the first payment affected by the change. Payments
can be in a lump sum or in equal payments over a two-, five- or ten-year period, plus interest from the commencement
date.
The Plan assets are kept in an unsecured account that has no trust fund. In the event of bankruptcy, participants
entitled to future payments under the Plan would have no greater rights than that of an unsecured general creditor of the
Company and the Plan confers no legal rights for interest or claim on any specific assets of the Company. Benefits
provided by the Plan are not insured by the Pension Benefit Guaranty Corporation (PBGC) under Title IV of the
Employee Retirement Income Security Act of 1974 (“ERISA”), because the pension insurance provisions of ERISA do
not apply to the Plan.
For fiscal years ended January 1, 2017, January 3, 2016 and December 28, 2014, eligible participants contributed
approximately $35,000, $64,000 and $99,000 to the Plan and the Company provided matching funds and interest of
approximately $18,000, $35,000 and $58,000, net of distributions of approximately $238,000, $368,000 and $418,000,
respectively. The distributions were due to executive departures and required distributions in accordance with our Plan.
The outstanding deferred compensation balance at January 1, 2017 and January 3, 2016, was approximately $179,000
and $365,000 respectively.
F-25
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) DISCONTINUED OPERATIONS
On December 14, 2015, Famous Dave’s of America, Inc. and certain of its subsidiaries (collectively, the
“Company”) entered into an Asset Purchase Agreement and related Real Estate Purchase Agreement (the “Purchase
Agreements”) with Windy City Restaurant Holdings LLC and its affiliate (together, the “Purchaser”) pursuant to which
the Company agreed to sell the assets comprising its seven Chicago, Illinois area Company-owned restaurants located in
Addison, Algonquin, Bolingbrook, Evergreen Park, North Riverside, Orland Park and Oswego (collectively, “Purchased
Restaurants”) to the Purchaser. As consideration for the Purchased Restaurants, which included the real property on
which the Company operates the Purchased Restaurant located in Addison, Illinois, the Purchaser paid the Company
$1.15 million, plus $315,000 for the purchase of inventory on hand on the closing date, and assumed specified liabilities
of the Company. Included among the assumed liabilities were the Company’s existing leases for the Purchased
Restaurants located in Bolingbrook, North Riverside and Orland Park, Illinois. This transaction closed on March 1, 2016.
Under the Purchase Agreements, the Purchaser also agreed to enter into (i) sublease agreements for the real property
on which Purchased Restaurants are located in Algonquin, Evergreen Park and Oswego, Illinois, (ii) franchise agreements
for each Purchased Restaurant, and (iii) an Area Development Agreement pursuant to which the Purchaser agreed to use
commercially reasonable efforts to develop ten additional Famous Dave’s restaurants in the Chicago metropolitan area
market. The Company agreed to waive its standard initial franchise fee for the Purchased Restaurants and the Company’s
standard franchise royalty rates were reduced as they relate to certain of the Purchased Restaurants for a limited period
of time. The Purchaser has further agreed to invest no less than $500,000 in refreshing and improving the Purchased
Restaurants pursuant to an agreed upon work schedule no later than one year following the closing. To the extent
Purchaser fails to invest such amount within the prescribed timeframe, it will remit the difference to the Company.
Subsequent to January 1, 2017, the Purchaser closed the Evergreen Park restaurant. See Note 20.
In accordance with the Purchase Agreements, the Purchaser deposited earnest money in the amount of $140,000
with a third party title company. The earnest money was delivered to the Company and applied against the purchase price
at closing.
In conjunction with this agreement, the Company recorded an $8.8 million impairment charge. Subsequent to the
close of this transaction, the Company recaptured approximately $1.3 million in deferred rent credits. The net assets and
liabilities of the Purchased Restaurants that were associated with this transaction are included in assets and liabilities held
for sale on the accompanying consolidated balance sheets at January 3, 2016. No related assets or liabilities remain at
January 1, 2017.
F-26
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The carrying value of the assets and liabilities included in the asset sale was as follows (in thousands):
(in thousands)
Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Total current assets
Property, equipment and leasehold improvements, net
Total assets
Accounts payable
Accrued compensation and benefits
Other current liabilities
Total current liabilities
Other liabilities
Total liabilities
January 3,
2016
65
344
30
439
991
1,430
10
96
389
495
1,252
1,747
$
$
$
The operating results of the Purchased Restaurants for the fiscal years ended January 1, 2017, January 3, 2016 and
December 28, 2014 are summarized below. These results include costs directly attributable to the components of the
business which were divested. Interest expense of approximately $32,000, $28,000 and $27,000 was allocated to
discontinued operations for the fiscal years ended January 1, 2017, January 3, 2016 and December 28, 2014, respectively,
based upon the portion of the borrowing base associated with the discontinued operations. Income tax expense (benefit)
of approximately $442,000, $(3.3 million) and $367,000 for the fiscal years ended January 1, 2017, January 3, 2016 and
December 28, 2014, respectively have also been allocated to discontinued operations. These adjustments have been made
for all periods presented.
(in thousands)
2016
Fiscal Year
2015
2014
Revenue
Income (loss) from operations
Income (loss) from discontinued operations, net of income taxes
$
$
$
2,365
985
511
$
$
$
17,002
(8,763)
(5,463)
$
$
$
17,493
1,036
642
F-27
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12)
INCOME TAXES
For financial reporting purposes, income before taxes includes the following components:
(in thousands)
United States
Foreign
Total
2016
Fiscal Year
2015
2014
$
$
(5,264)
322
(4,942)
$
$
901
226
1,127
The following table summarizes the income tax (expense) benefit for the last three fiscal years:
(in thousands)
Current:
Federal
State
Foreign
Deferred:
Federal
State
Total income tax benefit (expense)
2016
Fiscal Year
2015
$
$
(629)
112
(99)
(616)
2,428
188
2,616
2,000
$
$
(767)
(45)
(87)
(899)
514
337
851
(48)
$
$
$
2,764
223
2,987
2014
(1,264)
(263)
(112)
(1,639)
879
28
907
$
(732)
For financial reporting purposes, total income tax benefit (expense) includes the following components:
(in thousands)
Continuing operations
Discontinued operations
Total income tax benefit (expense)
2016
Fiscal Year
2015
2014
$
$
2,000
(442)
1,558
$
$
(48)
3,328
3,280
$
$
(732)
(367)
(1,099)
The impact of uncertain tax positions taken or expected to be taken on income tax returns must be recognized in
the financial statements at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing
authority. An uncertain income tax position will not be recognized in the financial statements unless it is more likely
than not of being sustained.
F-28
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits for the years ended
January 1, 2017, January 3, 2016 and December 28, 2014, respectively, is presented in the table below:
(in thousands)
Balance at December 29, 2013
Increases attributable to tax positions taken during prior periods
Audit settlements
Decreases due to lapses of statutes of limitations
Balance at December 28, 2014
Decreases due to lapses of statutes of limitations
Balance at January 3, 2016
Increases attributable to tax positions taken during prior periods
Audit settlements
Decreases due to lapses of statutes of limitations
Balance at January 1, 2017
$
$
45
69
(19)
(14)
81
(34)
47
142
(41)
(33)
115
At January 1, 2017, January 3, 2016 and December 28, 2014, there are $115,000, $47,000, and $81,000 of
unrecognized tax benefits that if recognized would affect the annual effective tax rate.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of
income tax expense. During fiscal years 2016, 2015, and 2014, we recognized interest and penalties of $20,000, $(2,000),
and $(7,000), respectively. Excluded from the above reconciliation were $25,000, $5,000 and $7,000, of accrued interest
and penalties, net of tax benefit, for fiscal 2016, 2015, and 2014, respectively.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The
preparation of these income tax returns requires the Company to interpret and apply relevant federal and state income tax
laws. It is common for federal and state taxing authorities to periodically examine filed tax returns. During these
examinations, it is possible for taxing authorities to interpret facts or tax law differently than the Company. As a result,
the Company may be required to adjust tax liabilities affecting its effective tax rate. Tax years 2013 and forward remain
subject to federal examination. Tax years 2012 and forward remain subject to state examination.
It is possible that the liability associated with the unrecognized tax benefits will increase or decrease within the
next 12 months. These changes may be the result of new audits or the expiration of statutes of limitations and could
range up to $138,000 based on current estimates.
Deferred taxes, detailed below, recognize the impact of temporary differences between the amounts of assets
and liabilities recorded for financial statement purposes and such amounts measured in accordance with tax laws.
Realization of the net operating loss carry forwards and other deferred tax temporary differences are contingent on future
taxable earnings. During fiscal years 2016 and 2015, our deferred tax asset was reviewed for expected utilization using
a “more likely than not” approach as required by assessing the available positive and negative evidence surrounding its
recoverability.
F-29
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At January 1, 2017, it is more likely than not that all deferred tax assets attributable to temporary differences
taken on federal and state tax returns will be realized based on our consolidated taxable income for fiscal 2016 and fiscal
2015 as well as the expectation that reversing deferred tax assets will be offset by reversing deferred tax liabilities and
certain tax planning strategies. However, there is a portion of deferred tax assets attributable to temporary differences
taken on stand-alone state returns and stand-alone state net operating losses and credit carry forwards that are unlikely to
be realized due to insufficient future earnings. For these deferred tax assets, the Company has created a valuation
allowance listed in the table below. The 2016 net change in valuation allowance is an increase to the valuation allowance
in the amount of $531,000.
(in thousands)
Deferred tax asset:
Deferred rent
State net operating loss carry-forwards
Financing lease obligation
Tax credit carryover
Accrued expenses
Stock-based compensation
Deferred revenue
Lease reserve
Accrued and deferred compensation
Contribution carryover
Inventories
Total deferred tax asset
Deferred tax liability:
Property and equipment basis difference
Inventories
Prepaid expenses
Intangible property basis difference
Total deferred tax liability
Net deferred tax assets
Valuation allowance
Total net deferred tax asset
January 1,
2017
January 3,
2016
$
$
$
$
3,184
2,325
1,028
910
585
472
452
222
67
18
9
9,272
(1,671)
(295)
(269)
(56)
(2,291)
6,981
(2,348)
3,379
1,779
1,170
376
284
344
476
223
151
---
10
8,192
(952)
(562)
(236)
(134)
(1,884)
6,308
(1,817)
4,633
$
4,491
$
$
$
$
$
In 2016, we had cumulative net operating loss carry-forwards for tax reporting purposes of approximately $43.4
million for state purposes, which if not used, will begin to expire in fiscal 2018.
We made federal income tax payments, net of federal refunds, of $210,000, $166,000, and $369,000 in 2016, 2015
and 2014, respectively. State and foreign income taxes paid by the Company, net of refunds, totaled $180,000, $232,000,
and $231,000 in 2016, 2015 and 2014, respectively.
F-30
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reconciliation between the statutory rate and the effective tax rate is as follows:
Federal statutory tax rate
State taxes, net of valuation allowance and federal benefit
Foreign taxes
Tax effect of permanent differences – meals and entertainment
Tax effect of permanent differences – tip credit
Tax effect of permanent differences – other
Tax effect of general business credits
Tax effect of foreign tax credit
Uncertain tax positions
Other
Fiscal Year
2016
2015
2014
34.0 %
34.0 %
34.0 %
5.8
(2.0)
(1.5)
(3.4)
0.3
8.9
2.0
(2.7)
(0.9)
5.4
7.7
1.4
17.2
(0.6)
(50.7)
(7.7)
---
(2.4)
3.2
3.7
1.5
8.1
(1.4)
(23.8)
(3.7)
---
2.9
Effective tax rate(1)
40.5 %
4.3 %
24.5 %
The decrease in the 2015 effective tax rate is primarily due to the small amount of 2015 pre-tax book income.
(13)
SUPPLEMENTAL CASH FLOWS INFORMATION
(in thousands)
Cash paid for interest, net of capitalized interest
Cash paid for income taxes, net of refunds
Non-cash investing and financing activities:
Reclassification of additional paid-in-capital to payroll taxes
payable for performance shares issued
Accrued property and equipment purchases
Refinancing of debt
For the Fiscal Year Ended
2016
2015
2014
$
$
$
$
$
729
390
---
37
9,897
$
$
$
$
$
975
398
215
10
---
$
$
$
$
$
790
600
1,520
(32)
---
F-31
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) SELECTED QUARTERLY DATA (UNAUDITED)
The following represents selected quarterly financial information for fiscal years 2016 and 2015 (in thousands,
except per-share data).
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2016
2015
2016
2015
2016
2015
2016
2015
Revenue
$ 23,540 $ 28,264 $ 28,044 $ 32,714 $ 25,510 $ 27,881 $ 22,085 $ 25,367
Income (loss) from operations
Net income (loss) from continuing
operations
Net income (loss) from
discontinued operations
Basic net income (loss) from
continuing operations
per common share
Basic net income (loss) from
discontinued operations
per common share
Diluted net income (loss) from
continuing operations
per diluted share
Diluted net income (loss) from
discontinued operations
per diluted share
(15) LITIGATION
$
$
$
$
$
$
$
395 $
302 $
334 $
981 $ (3,749) $ 1,307 $ (1,070) $
(447)
(69) $
108 $
113 $
547 $ (2,378) $
731 $
(826) $
(307)
681 $
89 $
27 $
107 $
(81) $
(23) $
(116) $ (5,636)
0.02 $
0.02 $
0.02 $
0.07 $
(0.34) $
0.11 $
(0.12) $
(0.05)
0.10 $
0.01 $
--- $
0.02 $
(0.01) $
--- $
(0.02) $
(0.81)
0.02 $
0.02 $
0.02 $
0.07 $
(0.34) $
0.10 $
(0.12) $
(0.04)
0.10 $
0.01 $
--- $
0.02 $
(0.01) $
--- $
(0.02) $
(0.81)
In the normal course of business, the Company is involved in a number of litigation matters that are incidental
to the operation of the business. These matters generally include, among other things, matters with regard to employment
and general business-related issues. The Company currently believes that the resolution of any of these pending matters
will not have a material adverse effect on its financial position or liquidity, but an adverse decision in more than one of
the matters could be material to its consolidated results of operations.
F-32
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Famous Dave’s of America, Inc. (“Famous Dave’s”) filed a complaint on July 14, 2015, against a group of former
franchisees in California seeking injunctive relief and damages for: (1) Federal Trademark Infringement; (2) Federal
Trademark Dilution; (3) Federal Unfair Competition; (4) Federal Trade Dress Dilution; (5) Trademark Infringement
under California Business and Professions Code § 14200; (6) Trademark Dilution under California Business and
Professions Code §14200; (7) Common Law Trademark Infringement; (8) Unfair Competition under California Business
and Professions Code § 17200; (9) False Advertising; (10) Breach of Contract; (11) Breach of Implied Covenant of Good
Faith and Fair Dealing; and (12) Intentional Interference with Contract. The claims stem from the former franchisees’
breaches of their franchise agreements, including the failure to pay franchise fees and their continued operation of five
restaurants utilizing Famous Dave’s intellectual property without authorization. After two defendants in the case, Kurt
Schneiter and M Mart 1, filed a demurrer to the Complaint, Famous Dave’s filed an Amended Complaint on October 9,
2015, reasserting the same claims. The case is captioned Famous Dave’s of America, Inc., v. SR El Centro FD, Inc., et
al., Case No. BC589329, and is currently pending before the Honorable Elihu M. Berle in the Superior Court of Los
Angeles. By court order, dated June 6, 2016, Famous Dave’s successfully obtained a preliminary injunction, enjoining
the former franchisee defendants from using Famous Dave’s intellectual property, including its trademarks and restaurant
system. The preliminary injunction is currently the subject of a pending interlocutory appeal which Famous Dave’s
intends to oppose vigorously.
On July 28, 2015, these franchisees (the “Plaintiffs”) filed a complaint against Famous Dave’s in the South Judicial
District of the Superior Court of the County of Los Angeles. On March 10, 2016, Plaintiffs re-filed this Complaint as a
First Amended Cross-Complaint [Famous Dave’s of America, Inc. v. SR El Centro, Inc., et al., Superior Court of the
State of California, County of Los Angeles, Central Division, Case No. BC589329] alleging that Famous Dave’s breached
the Franchise Agreements for these restaurants by failing to provide certain marketing support and access to customer
contact data, vendors, internet reporting and support to Plaintiffs, and failing to provide operations and preferred practices
training to Plaintiffs’ designated representative. Plaintiffs further allege that such conduct by Famous Dave’s is a breach
of the covenant of good faith and fair dealing. Plaintiffs also allege that Famous Dave’s aided and abetted John and Allan
Gantes in breach of their fiduciary duty to Plaintiffs. Plaintiffs are seeking compensatory damages in amount not less
than $20 million, punitive damages, costs and attorneys’ fees. Famous Dave’s denies the allegations and intends to
vigorously defend against them. The foregoing litigation is pending and in the early stages of discovery. No trial date
has been set.
(16) ASSET IMPAIRMENT AND ESTIMATED LEASE TERMINATION AND OTHER CLOSING COSTS
In accordance with FASB Accounting Standards Codification 360 for Property, Plant, and Equipment, we evaluate
restaurant sites and long-lived assets for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of restaurant sites to be held and used is measured
by a comparison of the carrying amount of the restaurant site to the undiscounted future net cash flows expected to be
generated on a restaurant-by-restaurant basis. If a restaurant is determined to be impaired, the loss is measured by the
amount by which the carrying amount of the restaurant’s assets exceeds its fair value. Fair value is estimated based on
the best information available including estimated future cash flows, expected growth rates in comparable restaurant
sales, remaining lease terms, discount rate, anticipated sale prices and other factors. If these assumptions change in the
future, we may be required to take additional impairment charges for the related assets. Considerable management
judgment is necessary to estimate future cash flows. Accordingly, actual results could vary significantly from such
estimates. The following is a summary of impairment costs for fiscal 2016, fiscal 2015, and fiscal 2014. These costs are
included in asset impairment and estimated lease termination and other closing costs in the Consolidated Statements of
Operations.
F-33
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Asset Impairments
Restaurant optimization
Software(1)
May's Landing, NJ
Smithtown, NY(2)
Richmond, VA area
Two Minneapolis, MN area restaurants
Décor
Des Moines, IA
Total
Restaurant closure expenses
Smithtown, NY(3)
Other(6)
N. Riverside, IL(4)
Richmond, VA area
N. Riverside, IL(5)
Eden Prairie, MN
Salisbury, MD
Décor Warehouse
Total restaurant closure expenses
Provision for impairment and
restaurant closings
$
$
$
$
January 1,
2017
Year Ended
January 3,
2016
December 28,
2014
4,376
156
50
---
---
---
---
---
4,582
200
6
---
---
---
---
---
---
206
4,788
$
$
$
$
---
---
---
935
---
---
---
---
935
---
(6)
368
143
122
(42)
---
---
585
1,520
$
$
$
$
---
---
766
---
2,285
544
342
226
4,163
---
---
---
54
---
---
206
94
354
4,517
Asset impairment calculated at July 3, 2016 related to a software implementation project that was discontinued.
Asset impairment calculated at June 28, 2015 based upon expected sale of Smithtown restaurant.
Lease termination reserve associated with a letter of credit provided to a landlord for a previously closed restaurant.
Lease termination costs associated with the cancellation of a potential new restaurant location.
Write off of development costs associated with the cancellation of a potential new restaurant location.
Includes $191,000 in costs written-off associated with closing the Lombard, Illinois field office partially offset by an $86,000 recapture of
deferred rent credits.
Restaurant Optimization - During fiscal 2016, the Company recorded approximately $4.4 million in asset
impairment charges associated with 11 restaurants which were slow to respond to several initiatives to turnaround
operating performance. As a result, the Company determined that the estimated fair value of the assets was less than the
net book value and recognized an impairment charge to reduce the related assets to their estimated fair value. As the
Company continues to evaluate the restaurant portfolio we anticipate addressing the ongoing operation of the 11 locations
impaired over the next three years by way of lease restructuring, lease assignment or subsequent closure at the end of
their natural lease term.
F-34
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Richmond, VA Area Restaurant Closures- On December 29, 2014, the Company announced the closure of its
three underperforming Company-owned restaurants located in and around Richmond, Virginia. The associated
impairment charges primarily related to the write-off of the book value of the related property, plant and equipment, net
of estimated proceeds from the sale of these assets (primarily derived from the sale of real property). Loss before taxes
associated with these operations for the fiscal year ended December 28, 2014 totaled approximately $187,000.
On December 28, 2014 the restaurants were valued at the estimated proceeds from the sale and were recorded
as assets held for sale in the consolidated balance sheets. Two of these properties were sold during the third quarter of
fiscal 2015 and the first quarter of fiscal 2016, respectively. On January 3, 2016, the remaining property’s fair value was
reclassified to property, equipment and leasehold improvements, net because it was probable that the assets would not be
sold in the next two months.
Below reflects the change in our reserve for lease termination costs for fiscal 2016 and 2015:
Balance at
Beginning of
Period
Additions
Charged to
Costs and
Expenses
Deductions
Credits to
Costs and
Expenses
and Other
Accounts
Balance at
End of
Period
489.9
89.1
(104.4) $
474.6
16.0
543.2
(69.3) $
489.9
---
116.0
(100.0) $
16.0
(in thousands)
Year ended January 1, 2017
Reserve for lease termination costs
Year ended January 3, 2016
Reserve for lease termination costs
Year ended December 28, 2014
Reserve for lease termination costs
$
$
$
These amounts were recorded in other current liabilities or other liabilities depending on when we expected the amounts
to be paid.
(17)
FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The fair value measurement framework
establishes a three-tier hierarchy. The three levels, in order of priority, are as follows:
Level 1:
Unadjusted quoted prices in active markets for identical assets or liabilities at the
measurement date. Level 1 measurements are determined by observable inputs which
include data sources and market prices available and visible outside of the entity.
Level 2:
Observable inputs other than quoted prices included within Level 1 for the asset or liability,
either directly or indirectly.
F-35
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Level 3:
Inputs that are used to estimate the fair value of the asset or liability. Level 3 measurements
are determined by unobservable inputs, which include data and analyses developed within
the entity to assess the fair value.
For assets and liabilities falling within Level 3 of the fair value hierarchy, a change in the input assumptions
used could result in a change in the estimated fair value of the asset or liability. Transfers in and out of levels will
be based on our judgment of the availability of unadjusted quoted prices in active markets, other observable inputs,
and non-observable inputs.
The carrying amounts of cash and cash equivalents reported in the consolidated balance sheets
approximates fair value based on current interest rates and short-term maturities. The carrying amount of accounts
receivable approximates fair value due to the short-term nature of accounts receivable. We believe that the carrying
amount of long-term debt approximates fair value due to the variable interest rates charged on long-term debt or as
a result of the proximity of the refinancing to the end of the fiscal year.
The following table (in thousands) summarizes the assets held for sale and property and equipment, net,
measured at fair value in our consolidated balance sheet as of January 1, 2017 and January 3, 2016:
Balance at January 1, 2017
Assets
Assets Held for Sale
Property and Equipment, net
Balance at January 3, 2016
Assets
Assets Held for Sale
Property and Equipment, net
$
$
$
$
Level 1
Level 2
Level 3
Total
--- $
--- $
1
1 $
--- $
--- $
1,742 $
1
1,742
--- $
--- $
1,431 $
--- $
780 $
507 $
2,211
507
Assets held for sale are recorded at fair value, which was valued based upon a real estate broker's estimate of
value for the properties (Level 3) or negotiated sale price (Level 2). Property and Equipment, net, recorded at fair upon
broker's estimate of value or estimated discounted future cash flows (Level 3). These assets have been adjusted to net
realizable value based upon the decision to dispose of the property. The Company completed its sale of assets held for
sale recorded in Level 3 during fiscal 2016. The fair value of amounts disclosed as property and equipment, net, reported
in the table above within Level 3 changed during fiscal 2016 as a result of the Company’s impairment analysis
surrounding certain of its property and equipment assets.\
(18) VARIABLE INTEREST ENTITIES
A variable interest holder is considered to be the primary beneficiary of a variable interest entity (VIE) if it has
the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and has the
obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the
VIE. Once an entity is determined to be a variable interest entity (VIE), the primary beneficiary is required to consolidate
the entity. The Company has an installment agreement with one of its franchisees as the result of refranchising its Lincoln,
Nebraska restaurant. This franchisee is a VIE, however, the owners of the franchise operations are the primary
beneficiaries of the entities, not the Company. Therefore, the franchise operations are not required to be consolidated in
the Company’s consolidated financial statements.
F-36
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On August 11, 2015, the Company consummated the sale of its Greenwood, Indiana and Florence, Kentucky
restaurants. In conjunction with that agreement, the Company entered into lease assignment agreements with the
respective purchasers and landlords, releasing the Company of its obligations except in the event of default by the
purchasers. As of January 1, 2017, the amount of the future lease payments for which the Company would be liable in
the event of a default are approximately $352,000. An accrual related to any future obligation was not considered
necessary at January 1, 2017 as the Company has determined the fair value of this guarantee was zero as there was no
indication that the purchasers would not be able to pay the required lease payments. While this franchise meets the
definition of a VIE, the owners of the franchise operations are the primary beneficiaries of the entities, not the Company.
Therefore, the franchise operations are not required to be consolidated in the Company’s consolidated financial
statements.
On March 1, 2016, the Company consummated the sale of its Chicago-area restaurants. In conjunction with that
agreement, the Company entered into lease assignment agreements with the respective purchasers and three of the
landlords, releasing the Company of its obligations except in the event of default by the purchasers. As of January 1,
2017, the amount of the future lease payments for which the company would be liable in the event of a default are
approximately $1.9 million. An accrual related to any future obligation was not considered necessary at January 1, 2017
as the Company has determined the fair value of this guarantee was zero as there was no indication that the purchasers
would not be able to pay the required lease payments. Subsequent to the balance sheet date, the purchaser closed one of
the seven restaurants, on which the Company has an outstanding lease obligation. See Note 20. While this franchise
meets the definition of a VIE, the owners of the franchise operations are the primary beneficiaries of the entities, not the
Company. Therefore, the franchise operations are not required to be consolidated in the Company’s consolidated financial
statements. See Note 20 for additional information.
(19) RELATED PARTY TRANSACTIONS
Michael Lister serves as our Chief Executive Officer, Chief Operating Officer and a director of the Company. Prior
to joining the management team of the Company in October of 2016, Mr. Lister managed Famous Five, a corporation
that owns five franchised Famous Dave’s Restaurants. Famous Five paid an aggregate of approximately $496,000,
$523,000 and $505,000 in franchise royalties and contributions to the Company’s system-wide Public Relations and
Marketing Development Fund for fiscal 2016, 2015 and 2014, respectively. Approximately $49,000 and $61,000
associated with royalties and contributions to the Company’s system-wide Public Relations and Marketing Development
Fund is due from Famous Five and included in accounts receivable as of January 1, 2017 and January 3, 2016,
respectively.
Anand D. Gala currently serves as a director of the Company and has been nominated for re-election at the Annual
Meeting. Mr. Gala is the Founder, President and Chief Executive Officer of Gala Holdings International, a diversified
holding company that conducts consulting, restaurant development and management operations. As a Company
franchisee, Gala Holdings International paid approximately $2.1 million in franchise royalties and contributions to the
Company’s system-wide Public Relations and Marketing Development Fund for fiscal 2016 and 2015, respectively, and
$1.9 million for fiscal 2014. Approximately $369,000 and $241,000 associated with royalties and contributions to the
Company’s system-wide Public Relations and Marketing Development Fund is due from Mr. Gala’s companies and
included in accounts receivable as of January 1, 2017 and January 3, 2016, respectively. Additionally, Mr. Gala’s brother
owns Altametrics, LLC, a software company to which we paid a total of approximately $127,000 during fiscal 2016.
F-37
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Adam J. Wright served as our Chief Executive Officer and a director of the Company until October of 2016. Mr.
Wright’s brother, Michael B. Wright, owns and controls Famous Products, Inc., a corporation that licenses a line of retail
products from the Company, including sauces, rubs, marinades and seasonings, pursuant to a licensing agreement with a
current term that expires in April 2020 and is subject to renewal options of five years, contingent upon the licensee’s
attainment of identified minimum product sales levels. The Company received licensing revenue from Famous Products,
Inc. under the agreement of approximately $981,000, $940,000 and $878,000 for fiscal years 2016, 2015 and 2014,
respectively. Michael B. Wright also owns DTSG, Inc., a corporation that owns or controls five franchised Famous
Dave’s restaurants. DTSG, Inc. paid an aggregate of approximately $636,000, $678,000 and $710,000 in franchise
royalties and contributions to the Company’s system-wide Public Relations and Marketing Development Fund for fiscal
years 2016, 2015 and 2014, respectively. Approximately $62,000 and $73,000 associated with royalties and contributions
to the Company’s system-wide Public Relations and Marketing Development Fund is due from DTSG, Inc. and included
in accounts receivable as of January 1, 2017 and January 3, 2016, respectively.
(20) SUBSEQUENT EVENTS
The Company evaluated for the occurrence of subsequent events through the issuance date of the Company’s
financial statements. No other recognized or non-recognized subsequent events occurred that require recognition or
disclosure in the consolidated financial statements except as noted below.
On January 8, 2017 the Company closed its Stillwater, Minnesota restaurant. This restaurant was written down to
anticipated net realizable value during the third quarter of 2016.
On February 19, 2017 a franchisee closed the Evergreen Park, Illinois restaurant. As this is a location for which
we have an ongoing lease for an additional six years with a sublease to the franchisee, there is a risk that the franchisee
will provide notice to the Company, making the Company responsible for the remaining approximately $700,000 of
related lease payments. If this occurs, it is unclear whether a new sub lessee would be identified by the Company. We
recorded a lease reserve of approximately $487,000 in February 2017 related to this closure.
On February 19, 2017 the Company closed its Falls Church, Virginia restaurant. This restaurant was written down
to anticipated net realizable value during the third quarter of 2016.
F-38
FAMOUS DAVE’S OF AMERICA, INC. AND SUBSIDIARIES
Financial Statement Schedule
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Additions
Balance at
Beginning of
Period
Charged to
Costs and
Expenses
Deductions
Credits to
Costs and
Expenses
and Other
Accounts
Balance at
End of
Period
Year ended December 28, 2014:
Allowance for doubtful accounts
Reserve for lease termination costs
Reserve for corporate severance
Year ended January 3, 2016:
Allowance for doubtful accounts
Reserve for lease termination costs
Reserve for corporate severance
Year ended January 1, 2017:
Allowance for doubtful accounts
Reserve for lease termination costs
Reserve for corporate severance
$
$
$
$
$
$
$
$
$
72.5
---
83.3
214.4
16.0
360.6
245.7
489.9
20.1
$
$
$
$
$
$
$
$
274.1
116.0
931.1
$
$
$
(132.2)
(100.0)
(653.8)
295.9
543.2
221.0
$
$
$
(264.6)
(69.3)
(561.5)
86.6
89.1
170.3
$
$
(61.8)
(104.4)
(190.4)
$
$
$
$
$
$
$
$
$
214.4
16.0
360.6
245.7
489.9
20.1
270.5
474.6
---
F-39
Pursuant to the requirements of Section 13 or 15(d) of 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.
SIGNATURES
FAMOUS DAVE’S OF AMERICA, INC.
(“Registrant”)
Dated: March 21, 2017
By: /s/ Michael Lister
Michael Lister
Chief Executive Officer/Chief Operating Officer (Principal
Executive Officer)
By: /s/ Dexter Newman
Dexter Newman
Chief Financial Officer and Secretary (Principal Financial
Officer)
By: /s/ John P. Beckman
John P. Beckman
Chief Accounting Officer (Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on March 21, 2017
by the following persons on behalf of the registrant, in the capacities indicated.
Signature
Title
/s/ Anand D. Gala
Anand D. Gala
/s/ Joseph M. Jacobs
Joseph M. Jacobs
/s/ Jonathan P. Lennon
Jonathan P. Lennon
/s/ Charles W. Mooty
Charles W. Mooty
/s/ Richard A. Shapiro
Richard A. Shapiro
/s/ Patrick D. Walsh
Patrick D. Walsh
/s/ Bryan L. Wolff
Bryan L. Wolff
Director
Director
Director
Director
Director
Director
Director
Exhibit No.
Description
EXHIBITS
3.1
3.2
3.3
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
Articles of Incorporation, incorporated by reference to Exhibit 3.1 to our Registration Statement on
Form SB-2 (File No. 333-10675) filed with the Securities and Exchange Commission on August 23,
1996
Amendment to Articles of Incorporation dated May 31, 1996, incorporated by reference to Exhibit 3.3
to our Registration Statement on Form SB-2/A (File No. 333-10675) filed with the Securities and
Exchange Commission on October 1, 1996
Second Amended and Restated Bylaws, as amended by Amendment Nos. 1 and 2, incorporated by
reference to Exhibit 3.3 to Form 10-K, filed March 18, 2016.
Trademark License Agreement between Famous Dave’s of America, Inc. and Grand Pines Resorts,
Inc., incorporated by reference to Exhibit 10.11 to the Registration Statement on Form SB-2 (File No.
333-10675) filed on August 23, 1996
Employee Stock Purchase Plan, incorporated by reference to Exhibit 10.1 to Form 10-Q filed May 9,
2008 †
Second Amended and Restated Non-Qualified Deferred Compensation Plan, dated January 1, 2008,
incorporated by reference to Exhibit 10.16 to Form 10-K filed March 14, 2008 †
Second Amended and Restated Credit Agreement by and between Wells Fargo Bank, National
Association and Famous Dave’s of America, Inc., dated March 4, 2010, incorporated by reference to
Exhibit 10.2 to Form 8-K filed March 9, 2010
Letter amendment dated February 1, 2011, to the Second Amendment to the Amended and Restated
Credit Agreement by and between Wells Fargo Bank, National Association and Famous Dave’s of
America, Inc., incorporated by reference to Exhibit 10.11 to Form 10-K filed March 18, 2011
First Amendment to the Second Amended and Restated Credit Agreement by and between Wells Fargo
Bank, National Association and Famous Dave’s of America, Inc., dated July 5, 2011, incorporated by
reference to Exhibit 10.1 to Form 8-K filed July 5, 2011
Second Amendment to the Second Amended and Restated Credit Agreement by and between Wells
Fargo Bank, National Association and Famous Dave’s of America, Inc., dated November 1, 2012,
incorporated by reference to Exhibit 10.1 to Form 10-Q filed November 2, 2012
Third Amendment to the Second Amended and Restated Credit Agreement by and between Wells
Fargo Bank, National Association and Famous Dave’s of America, Inc., dated March 14, 2013,
incorporated by reference to Exhibit 10.11 to Form 10-K filed March 14, 2013
Fourth Amendment to the Second and Amended Restated Credit Agreement, incorporated by reference
to Exhibit 10.1 to Form 10-Q filed May 9, 2014
Third Amended and Restated Credit Agreement dated May 8, 2015 by and among Wells Fargo Bank,
National Association, Famous Dave’s of America, Inc. and certain subsidiaries of Famous Dave’s of
America, Inc., incorporated by reference to Exhibit 10.2 to Form 10-Q filed May 8, 2015
Forbearance Agreement dated as of November 5, 2015 by and among Famous Dave’s of America,
Inc., D&D of Minnesota, Inc., Lake & Hennepin BBQ and Blues, Inc., Famous Dave’s Ribs, Inc.,
Famous Dave’s Ribs-U, Inc., and Famous Dave’s Ribs of Maryland, Inc., each as borrowers, and Wells
Fargo Bank, National Association, as administrative agent and lender, incorporated by reference to
Exhibit 10.4 to Form 10-Q filed November 6, 2015
Exhibit No.
Description
EXHIBITS
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
First Amendment to Forbearance Agreement dated as of December 2, 2015 by and among Famous
Dave’s of America, Inc., D&D of Minnesota, Inc., Lake & Hennepin BBQ and Blues, Inc., Famous
Dave’s Ribs, Inc., Famous Dave’s Ribs-U, Inc., and Famous Dave’s Ribs of Maryland, Inc., each as
borrowers, and Wells Fargo Bank, National Association, as administrative agent and lender,
incorporated by reference to Exhibit 10.1 to Form 8-K filed December 4, 2015
First Amendment to Third Amended and Restated Credit Agreement dated as of December 11, 2015
by and among Famous Dave’s of America, Inc., D&D of Minnesota, Inc., Lake & Hennepin BBQ and
Blues, Inc., Famous Dave’s RIBS, Inc., Famous Dave’s RIBS-U, Inc., and Famous Dave’s Ribs of
Maryland, Inc., each as borrowers, and Wells Fargo Bank, National Association, as administrative
agent and lender, incorporated by reference to Exhibit 10.1 to Form 8-K filed December 11, 2015
Forbearance Agreement dated May 16, 2016 by and among Famous Dave’s of America, Inc., D&D
of Minnesota, Inc., Lake & Hennepin BBQ and Blues, Inc., Famous Dave’s Ribs, Inc., Famous
Dave’s Ribs-U, Inc., and Famous Dave’s Ribs of Maryland, Inc., each as borrowers, and Wells Fargo
Bank, National Association, as administrative agent and lender, incorporated by reference to Exhibit
10.1 to Form 10-Q filed May 18, 2016
Waiver and Second Amendment to Third Amended and Restated Credit Agreement dated as of June
10, 2016 by and among Famous Dave’s of America, Inc., D&D of Minnesota, Inc., Lake & Hennepin
BBQ and Blues, Inc., Famous Dave’s RIBS, Inc., Famous Dave’s RIBS-U, Inc., and Famous Dave’s
Ribs of Maryland, Inc., each as borrowers, and Wells Fargo Bank, National Association, as
administrative agent and lender, incorporated by reference to Exhibit 10.1 to the Form 8-K filed June
10, 2016
Forbearance Agreement dated November 9, 2016 by and among Famous Dave’s of America, Inc.,
D&D of Minnesota, Inc., Lake & Hennepin BBQ and Blues, Inc., Famous Dave’s Ribs, Inc., Famous
Dave’s Ribs-U, Inc., and Famous Dave’s Ribs of Maryland, Inc., each as borrowers, and Wells Fargo
Bank, National Association, as administrative agent and lender, incorporated by reference to Exhibit
10.1 to form 10-Q filed November 16, 2016
Amended and Restated 2005 Stock Incentive Plan (as amended through January 21, 2013) incorporated
by reference to Exhibit 10.6 to Form 10-K filed March 15, 2013 †
Form of Director Restricted Stock Agreement Granted Under the Amended and Restated 2005 Stock
Incentive Plan, incorporated by reference to Exhibit 10.4 to Form 10-K filed March 13, 2015 †
Form of Director Restricted Stock Agreement Granted Under the Amended and Restated 2005 Stock
Incentive Plan, incorporated by reference to Exhibit 10.4 to Form 10-K filed March 13, 2015 †
Famous Dave’s of America, Inc. 2015 Equity Incentive Plan, incorporated by reference to Exhibit 10.1
to Form 10-Q filed May 8, 2015 †
Amendment No. 1 to 2015 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to Form
8-K filed July 31, 2015 †
Amendment No. 2 to 2015 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to Form
10-Q filed November 6, 2015 †
Form 2013 – 2015 Performance Share Agreement and Schedule of Grants under such form,
incorporated by reference to Exhibits 10.1 and 10.2 to Form 8-K filed January 8, 2013 †
Exhibit No.
Description
EXHIBITS
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
Stock Option Agreement dated February 10, 2014 between Famous Dave's of America, Inc. and
Edward H. Rensi, incorporated by reference to Exhibit 10.36 to Form 10-K filed March 14, 2014 †
Employment Letter dated February 10, 2014 between Famous Dave’s of America, Inc. and Edward
H. Rensi, incorporated by reference to Exhibit 10.35 to Form 10-K filed March 14, 2014 †
Stock Option Agreement dated February 10, 2014 between Famous Dave’s of America, Inc. and
Edward H. Rensi, incorporated by reference to Exhibit 10.36 to Form 10-K filed March 14, 2014 †
Employment Letter dated May 19, 2014 between Famous Dave’s of America, Inc. and Richard A.
Pawlowski, incorporated by reference to Exhibit 10.22 to Form 10-K filed March 13, 2015 †
Stock Option Agreement dated June 2, 2014 between Famous Dave’s of America, Inc. and Richard
A. Pawlowski, incorporated by reference to Exhibit 10.23 to Form 10-K filed March 13, 2015 †
Stock Option Agreement dated January 15, 2015 between Famous Dave’s of America, Inc. and
Edward H. Rensi, incorporated by reference to Exhibit 10.24 to Form 10-K filed March 13, 2015 †
Employment Agreement entered into on August 3, 2015 between Famous Dave’s of America, Inc.
and Abelardo Ruiz, incorporated by reference to Exhibit 10.l to Form 8-K filed August 7, 2015 †
Severance Agreement dated August 17, 2015 between Famous Dave’s of America, Inc. and Richard
A. Pawlowski, incorporated by reference to Exhibit 10.l to Form 8-K filed August 21, 2015 †
Stock Option Agreement dated August 31, 2015 between Famous Dave’s of America, Inc. and
Abelardo Ruiz, incorporated by reference to Exhibit 10.29 to Form 10-K filed March 18, 2016 †
Form of Indemnification Agreement between Famous Dave’s of America, Inc. and each of its
directors and officers, incorporated by reference to Exhibit 10.2 to Form 10-Q filed November 6,
2015
Schedule of directors and officers subject to Indemnification Agreements in the form of Exhibit
10.30, incorporated by reference to Exhibit 10.3 to Form 10-Q filed November 6, 2015
Employment Agreement dated effective January 1, 2016 between Famous Dave’s of America, Inc.
and Adam J. Wright, incorporated by reference to Exhibit 10.1 to Form 8-K filed January 4, 2016 †
Stock Option Agreement dated January 1, 2016 between Famous Dave’s of America, Inc. and Adam
J. Wright, incorporated by reference to Exhibit 10.33 to Form 10-K filed March 18, 2016 †
Employment Agreement dated February 12, 2016 between Famous Dave's of America, Inc. and
Alfredo V. Martel, incorporated by reference to Exhibit 10.34 to Form 10-K filed March 18, 2016 †
Employment Agreement dated effective April 11, 2016 between Famous Dave’s of America, Inc.
and Dexter Newman, incorporated by reference to Exhibit 10.1 to Form 8-K filed April 13, 2016 †
Stock Option Agreement dated April 11, 2016 between Famous Dave’s of America, Inc. and Dexter
Newman, incorporated by reference to Exhibit 10.2 to Form 8-K filed April 13, 2016 †
Employment Agreement dated October 11, 2016 between Famous Dave’s of America, Inc. and
Michael Lister, incorporated by reference to Exhibit 10.1 to Form 8-K filed October 17, 2016 †
Employment Agreement dated October 11, 2016 between Famous Dave’s of America and Doug
Renegar, incorporated by reference to Exhibit 10.1 to form 10-Q filed November 16, 2016 †
Exhibit No.
Description
EXHIBITS
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
Loan Agreement dated December 2, 2016 among Famous Dave’s of America, Inc., Minwood
Partners, Inc. and Venture Bank, incorporated by reference to Exhibit 10.1 to form 8-K filed
December 8, 2016
Promissory Note (Note 1) dated December 2, 2016 in principal amount of $3,700,000 from Famous
Dave’s of America, Inc. and Minwood Partners, Inc. to Venture Bank, incorporated by reference to
Exhibit 10.2 to form 8-K filed December 8, 2016
Mortgage and Security Agreement and Fixture Financing Statement dated December 2, 2016 by
Famous Dave’s of America, Inc. and Minwood Partners, Inc. to Venture Bank (Loan 1), incorporated
by reference to Exhibit 10.3 to form 8-K filed December 8, 2016
Loan Agreement dated December 2, 2016 among Famous Dave’s of America, Inc., D&D of
Minnesota, Inc., Famous Dave’s Ribs of Maryland, Inc., Famous Dave’s Ribs, Inc., Famous Dave’s
Ribs-U, Inc., Lake & Hennepin BBQ & Blues, Inc. and Venture Bank, incorporated by reference to
Exhibit 10.4 to form 8-K filed December 8, 2016
Promissory Note (Note 2) dated December 2, 2016 in principal amount of $6,300,000 from Famous
Dave’s of America, Inc., D&D of Minnesota, Inc., Famous Dave’s Ribs of Maryland, Inc., Famous
Dave’s Ribs, Inc., Famous Dave’s Ribs-U, Inc. and Lake & Hennepin BBQ & Blues, Inc. to Venture
Bank, incorporated by reference to Exhibit 10.5 to form 8-K filed December 8, 2016
Promissory Note (Note 3) dated December 2, 2016 in principal amount of $1,000,000 from Famous
Dave’s of America, Inc., D&D of Minnesota, Inc., Famous Dave’s Ribs of Maryland, Inc., Famous
Dave’s Ribs, Inc., Famous Dave’s Ribs-U, Inc. and Lake & Hennepin BBQ & Blues, Inc. to Venture
Bank, incorporated by reference to Exhibit 10.6 to form 8-K filed December 8, 2016
Mortgage and Security Agreement and Fixture Financing Statement dated December 2, 2016 by
Famous Dave’s of America, Inc. and Minwood Partners, Inc. to Venture Bank (Loan 2), incorporated
by reference to Exhibit 10.7 to form 8-K filed December 8, 2016
Security Agreement dated December 2, 2016 by Famous Dave’s of America, Inc., D&D of
Minnesota, Inc., Famous Dave’s Ribs of Maryland, Inc., Famous Dave’s Ribs, Inc., Famous Dave’s
Ribs-U, Inc. and Lake & Hennepin BBQ & Blues, Inc. for the benefit of Venture Bank, incorporated
by reference to Exhibit 10.8 to form 8-K filed December 8, 2016
Pledge Agreement dated December 2, 2016 among Famous Dave’s of America, Inc., D&D of
Minnesota, Inc., Famous Dave’s Ribs of Maryland, Inc., Famous Dave’s Ribs, Inc., Famous Dave’s
Ribs-U, Inc., Lake & Hennepin BBQ & Blues, Inc. and Venture Bank, incorporated by reference to
Exhibit 10.9 to form 8-K filed December 8, 2016
Subsidiaries of Famous Dave's of America, Inc.
21.0 *
23.1 * Consent of Grant Thornton LLP
31.1 * Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 * Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 * Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
32.2 * Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
101.INS * XBRL Instance Document
101.SCH * XBRL Schema Document
Exhibit No.
Description
EXHIBITS
101.CAL * XBRL Calculation Linkbase Document
101.LAB * XBRL Label Linkbase Document
101.PRE * XBRL Presentation Linkbase Document
101.DEF * XBRL Taxonomy Extension Definition Linkbase Document
* Filed
† Management compensatory plan
SUBSIDIARIES OF FAMOUS DAVE'S OF AMERICA, INC.
Exhibit 21.0
FEIN
% of Ownership
Entity
D&D of Minnesota, Inc.
Famous Dave's Ribs of Maryland, Inc.
Famous Dave's Ribs, Inc.
Famous Dave's Ribs-U, Inc.
FDA Properties, Inc.
41-1856702
41-1958496
41-1884517
41-1884548
36-4379010
Lake & Hennepin BBQ and Blues, Inc.
41-1834594
Minwood Partners, Inc.
51-0396229
100%
96%
100%
100%
100%
100%
100%
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We have issued our report dated March 21, 2017, with respect to the consolidated financial statements and schedule
included in the Annual Report of Famous Dave’s of America, Inc. on Form 10-K for the year ended January 1, 2017.
We consent to the incorporation by reference of said report in the Registration Statements of Famous Dave’s of America,
Inc. on Forms S-3 (File No. 333-86358, File No. 333-73504, File No. 333-65428, File No. 333-54562, File No. 333-
48492, and File No. 333-95311) and on Forms S-8 (File No. 333-208261, File No. 333-204015, File No. 333-176278,
File No. 333-124985, and File No. 333-88930).
/s/ Grant Thornton LLP
Minneapolis, Minnesota
March 21, 2017
I, Michael Lister, certify that:
CERTIFICATIONS
Exhibit 31.1
1. I have reviewed this Annual Report on Form 10-K of Famous Dave’s of America, 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(s) 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(s) 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.
Dated: March 21, 2017
By: /s/ Michael Lister
Michael Lister
Chief Executive Officer
Exhibit 31.2
I, Dexter Newman, certify that:
CERTIFICATIONS
1. I have reviewed this Annual Report on Form 10-K of Famous Dave’s of America, 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(s) 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(s) 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.
Dated: March 21, 2017
By: /s/ Dexter Newman
Dexter Newman
Chief Financial Officer
Certification Pursuant to Rule 13a-14(b) of the
Securities Exchange Act of 1934 and 18 U.S.C. Section 1350
Exhibit 32.1
In connection with the Annual Report of Famous Dave's of America, Inc (the “Registrant”) on Form 10-K for the annual
period ended January 1, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
I, Michael Lister, Chief Executive Officer and Director of the Registrant, certify, in accordance with Rule 13a-14(b) of
the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 that:
1. The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Registrant.
Dated: March 21, 2017
By:
/s/ Michael Lister
Michael Lister
Chief Executive Officer
Certification Pursuant to Rule 13a-14(b) of the
Securities Exchange Act of 1934 and 18 U.S.C. Section 1350
Exhibit 32.2
In connection with the Annual Report of Famous Dave's of America, Inc (the “Registrant”) on Form 10-K for the annual
period ended January 1, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
I, Dexter Newman, Chief Financial Officer and Secretary of the Registrant, certify, in accordance with Rule 13a-14(b)
of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 that:
1. The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Registrant.
Dated: March 21, 2017
By: /s/ Dexter Newman
Dexter Newman
Chief Financial Officer
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BR307068-0317-COMBO