Commitments And Contingencies (Notes)

3 Months Ended

Mar. 31, 2024

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

Commitments and Contingencies

Lease Guarantees. Fiesta Restaurant Group, Inc. ("Fiesta"), a former wholly-owned subsidiary of the Company, was spun-off in 2012 to the Company's stockholders. As of March 31, 2024, the Company is a guarantor under 17 leases from the time when Fiesta was its subsidiary, which have lease terms expiring on various dates through 2030. As of March 31, 2024, the guarantees include eight Fiesta restaurant property leases and nine Taco Cabana leases of which all but one Fiesta-owned restaurant is still operating. Eight of these guarantees are for leases with Pollo Operations, Inc, a wholly owned subsidiary of Fiesta, and nine of the guarantees are for leases with Texas Taco Cabana, L.P., an indirect subsidiary of Taco Cabana, Inc. (together with all direct and indirect subsidiaries, "Taco"). Taco was a wholly owned subsidiary of Fiesta until August 16, 2021 when Fiesta sold all of its outstanding capital stock of Taco Cabana, Inc. to YTC Enterprises, LLC, an affiliate of Yadav Enterprises, Inc. The Company is fully liable for all obligations under the terms of the leases in the event that a tenant fails to pay any sums due under the lease, subject to indemnification provisions of the Separation and Distribution Agreement entered into in connection with the spin-off of Fiesta. In October of 2023, Fiesta was acquired by affiliates of Garnett Station Partners ("GSP"). Matthew Perelman and Alexander Sloane, each a member of the Company’s Board of Directors, are affiliates of GSP and affiliates of Cambridge Franchise Holdings, LLC which owns approximately 16.2% of the outstanding shares of the Company's common stock.

The maximum potential amount of future undiscounted rental payments the Company could be required to make under these leases at March 31, 2024 was $7.6 million, of which $4.8 million pertains to Fiesta restaurant property leases and $2.8 million pertains to Taco restaurant property leases. The obligations under these leases will generally continue to decrease over time as these operating leases expire, except for any execution of renewal options that exist under the original leases. No payments related to these guarantees have been made by the Company to date and none are expected to be required to be made in the future. The Company has not recorded a liability for these guarantees in accordance with ASC 460 - Guarantees as Fiesta has indemnified the Company for all such obligations and the Company did not believe it was probable it would be required to perform under any of the guarantees or direct obligations.

Litigation. The Company is party to various litigation matters that arise in the ordinary course of business. The Company does not believe that the outcome of any of these matters will have a material adverse effect on its consolidated financial statements.

As of the date of this Current Report on Form 10-Q, four lawsuits have been filed in federal and state court by purported stockholders against the Company and members of the Board (collectively, the “Actions”) relating to the Merger. The Actions, in the order by which they were filed, are: (i) Andrew Sasser v. Carrols Restaurant Group, Inc., et al., No. 1:24-cv-01869 (S.D.N.Y.), filed on March 12, 2024, (ii) Robert Lacoff v. Thomas Curtis et al., No. 60999/2024 (N.Y.S.), filed on April 23, 2024, (iii) Kevin Walsh v. Carrols Restaurant Group, Inc. et al., No. 004258/2024 (N.Y.S.), filed on April 23, 2024 and (iv) Mary Philips v. Carrols Restaurant Group, Inc. et al., No. 004336/2024 (N.Y.S.), filed on April 24, 2024. The Sasser Action, alleges, among other things, that the Company and the Board filed or caused to be filed a materially false and misleading preliminary proxy statement with the SEC in violation of Section 14(a) and Section 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder. The Lacoff, Walsh and Philips Actions generally allege state law claims for breach of fiduciary duty, failure to disclose and aiding and abetting breach of fiduciary duty. Certain of the Actions seek, among other things, an injunction enjoining the stockholder vote at the Special Meeting or consummation of the Merger, rescission of the Merger in the event the Merger is consummated or awarding of rescissory damages, an order for the directors of the Company to exercise their fiduciary duties to disseminate a preliminary proxy statement that is not materially false or misleading and an award of costs, including reasonable attorneys’ and experts’ fees.

Although the Company believes that the claims in the Actions are wholly without merit and that no further disclosure is required under applicable law to supplement the proxy statement filed by the Company in connection with the Merger, the Company filed a supplement to the proxy statement on May 6, 2024 addressing alleged disclosure claims in order to eliminate the burden, expense and uncertainties inherent in such litigation, without admitting any liability or wrongdoing. On May 6, 2024, the plaintiff in the Lacoff Action (the sole Action that had sought an injunction enjoining the stockholder vote regarding the Merger) withdrew the motion for a preliminary injunction.

Supplier Concentrations. The Company primarily utilizes four distributors, McLane Company Inc., Lineage Foodservice Solutions, LLC, Reinhart Food Service LLC and Performance Foodservice, to supply its Burger King restaurants with the majority of its foodstuffs. As of March 31, 2024, such distributors supplied 30%, 31%, 29% and 10%, respectively, of the Company's Burger King restaurants. Additionally, one bakery company supplies the rolls used in approximately 50% of the Company's Burger King restaurants and a second bakery company supplies rolls for another approximately 26% of the Company's Burger King restaurants. The Company utilizes three distributors for its Popeyes restaurants. All three distributors provide poultry products and two provide all other products. For the Company's Popeyes restaurants, one distributor, Performance Foodservice, is the poultry product supplier for 86% of its restaurants and the non-poultry products supplier for 95% of its restaurants.

Advisory Fees. The Company has agreed to pay Jefferies LLC ("Jefferies") for its financial advisory services to the Special Committee in connection with the Merger an aggregate fee based upon a percentage of the transaction value of the Merger which is estimated to be approximately $12.3 million, of which $2.0 million was payable as of March 31, 2024. The remainder of this fee is payable to Jefferies contingent upon the closing of the Merger. In addition, Carrols agreed to reimburse Jefferies for expenses, including fees and expenses of counsel, incurred in connection with Jefferies’ engagement and to indemnify Jefferies and related parties against liabilities, including liabilities under federal securities laws, arising out of or in connection with the services rendered and to be rendered by Jefferies under its engagement.