Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We are responsible for establishing and maintaining disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act, such as this Annual Report on Form 10-K, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures also include, without limitation, controls and procedures that are designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Due to the material weaknesses in our internal control over financial reporting discussed below, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 29, 2024, our disclosure controls and procedures were not effective. In light of this fact, our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weaknesses in our internal control over financial reporting, the consolidated financial statements for the periods covered by and included in this Annual Report on Form 10-K fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting. Management has adopted the framework in “Internal Control-Integrated Framework” (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Based on Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 29, 2024 based on the COSO framework, Management has determined that the Company’s internal control over financial reporting as of December 29, 2024 was not effective due to the material weaknesses discussed below. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements may not be prevented or detected on a timely basis.
We did not design and maintain an effective internal control environment commensurate with the financial reporting requirements of a public company. Specifically, we lacked a sufficient complement of personnel with an appropriate level of knowledge, experience and training in internal control over financial reporting and the reporting requirements of a public company. Additionally, we did not formally delegate authority or establish appropriate segregation of duties in our finance and accounting functions. As a result, we did not perform an effective risk assessment nor did we design and maintain internal controls in response to the risks of material misstatement. These material weaknesses contributed to additional material weaknesses as we did not design and maintain effective controls over the period-end financial reporting process, including controls over the preparation and review of account reconciliations and journal entries, and the appropriate classification and presentation of accounts and disclosures in the consolidated financial statements. These material weaknesses resulted in adjustments to accruals and within the statement of cash flows in our fiscal 2018 consolidated financial statements, which were recorded prior to the issuance of our fiscal 2018 consolidated financial statements; adjustments to the income tax benefit, deferred taxes, goodwill, and liabilities in our fiscal 2018 consolidated financial statements, which were recorded prior to issuance and in immaterial adjustments to the income tax benefit and deferred taxes and related disclosures in the fiscal 2017 and 2019 consolidated financial statements, which were corrected in the fiscal 2019 and 2020 consolidated financial statements, respectively. Additionally, each of the aforementioned material weaknesses could result in a misstatement of the consolidated financial statements that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
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Our independent registered public accounting firm will not be required to opine on the effectiveness of our internal control over financial reporting until we are no longer an “emerging growth company” as defined in the JOBS Act.
Remediation Efforts and Status of Remaining Material Weaknesses
We continue to implement measures designed to improve the Company’s internal control over financial reporting to address and remediate the previously identified material weaknesses. To date, such measures include the following:
• Hired new and reassigned existing financial reporting, accounting, and information technology leadership with public company experience to enhance public company financial reporting, technical accounting, and information technology services and solutions.
• Augmented financial reporting capabilities by staffing professionals with knowledge and experience in income tax, internal audit, information technology, and legal.
• Established various policies, including a formal delegation of authority policy defining the protocols for reviewing and authorizing commitments, contracts, invoices, and transactions as well as an account reconciliation policy that provides the framework to ensure the performance of consistent procedures in reconciling general ledger balances to supporting documentation.
• Formalized certain roles and reviewed responsibilities, including ensuring appropriate segregation of duties.
• Designed and implemented period-end financial reporting controls, such as controls over the preparation and review of account reconciliations, financial statement disclosures, and the consolidated financial statements, including controls around classification of cash flows and disclosure of noncash items, as well as establishing a formal management Disclosure Committee to review the draft financial statements and disclosures prior to release, including a sub-certification process from various functional groups.
• Enhanced access restrictions for certain users over general ledger journal entries and designed new processes to further automate journal entries and segregate journal entry creation from journal entry approval authority.
While the material weaknesses have not been remediated as of December 29, 2024, Management is devoting substantial resources to the ongoing remediation efforts. As we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address control deficiencies, or we may modify certain of the remediation measures described above. The material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and Management has concluded, through testing, that these controls are designed and operating effectively.
Remediation of Previously Identified Material Weakness
As previously disclosed in our December 31, 2023 Annual Report on Form 10-K, Management identified a material weakness in accounting for income taxes related to the recording of deferred income taxes and the assessment of the realization of deferred tax assets.
The Company completed the following measures to remediate the previously identified material weakness related to accounting for income taxes:
• Staffed our internal tax department with the appropriate tax technical and public company expertise in accounting for income taxes.
• Designed and implemented key controls, and enhanced the design of existing controls, for the interim and year-end income tax provision processes.
• Increased the frequency of detailed income tax provision reviews from annually to quarterly.
• Enhanced the process for sourcing and validating data used in the preparation of the provision for income taxes to ensure completeness and accuracy.
• Implemented an interactive work management and collaboration tool that facilitates Management’s provision review steps and maintains the appropriate evidence of review.
As a result of these measures and based on testing of the design and operating effectiveness of the newly designed and enhanced controls, Management concluded the controls have been in place and have operated effectively for a sufficient period of time to demonstrate the material weakness related to accounting for income taxes has been remediated as of December 29, 2024.
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Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting during the quarter ended December 29, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
Insider Adoption or Termination of Trading Arrangements
During the fiscal quarter ended December 29, 2024, none of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
We have adopted a Code of Ethics and Business Conduct that applies to, among others, our chief executive officer, chief financial officer (who is also our principal accounting officer), and other finance and accounting leaders, which is a “code of ethics” as defined by applicable rules of the SEC. This code is publicly available on our website. The Internet address for our website is www.firstwatch.com, and the Code of Ethics and Business Conduct may be found on our main webpage by clicking first on “Investors” and then on “Corporate Governance” and next on “Code of Ethics and Business Conduct.” If we make any amendments to this code other than technical, administrative or other non-substantive amendments, or grant any waivers, including implicit waivers, from a provision of this code to our chief executive officer, chief financial officer (who is also our principal accounting officer), or other finance and accounting leaders, we will disclose the nature of the amendment or waiver, its effective date and to whom it applies on our website as specified above or in a report on Form 8-K filed with the SEC.
The remaining information required by this item is incorporated herein by reference to the sections entitled “Proposal 1: Director Election Proposal,” “Information Regarding the board of directors and Corporate Governance,” “Executive Officers,” and “Insider Trading Policies and Procedures” in our definitive Proxy Statement for the Annual Meeting of Stockholders expected to be held on May 21, 2025 (the “Proxy Statement”).
We will provide disclosure of delinquent Section 16(a) reports, if any, in our Proxy Statement, and such disclosure, if any, is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to the sections entitled “Executive Compensation,” “Outstanding Equity Awards at Fiscal Year-End,” “Director Compensation,” and “Compensation Committee Interlocks and Insider Participation,” in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference to the section entitled “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference to the section entitled “Certain Relationships and Related Transactions” and “Information Regarding the board of directors and Corporate Governance” in the Proxy Statement.
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Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated by reference to the sections entitled “Proposal 2: Auditor Ratification Proposal,” “Auditors Fees and Services” and “Policy for Approval of Audit and Permitted Non-Audit Services” in the Proxy Statement.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Documents filed as part of this Annual Report on Form 10-K:
1. Financial Statements
Consolidated financial statements filed as part of this report are listed under Item 8, “Financial Statements and Supplementary Data.”
2. Financial Statement Schedules
No schedules are required because either the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or notes thereto.
3. Exhibits
Exhibit No. DESCRIPTION FILINGS REFERENCED FOR INCORPORATION BY REFERENCE
3.1 Amended and Restated Certificate of Incorporation of First Watch Restaurant Group, Inc.
October 6, 2021 Form 8-K, Exhibit 3.1
3.2 Certificate of Amendment of the Amended and Restated Certificate of Incorporation of First Watch Restaurant Group, Inc.
Filed herewith
3.3 Amended and Restated Bylaws of First Watch Restaurant Group, Inc.
October 6, 2021 Form 8-K, Exhibit 3.2
4.1 Form of Certificate of Common Stock
September 7, 2021 Form S-1, Exhibit 4.1
4.2 Registration Rights Agreement by and among First Watch Restaurant Group, Inc. and the other parties thereto, dated as of October 1, 2021
March 23, 2022, Form 10-K, Exhibit 4.2
4.3 Description of First Watch Restaurant Group, Inc. Securities
March 23, 2022, Form 10-K, Exhibit 4.3
10.1(a) Credit Agreement, dated as of October 6, 2021, by and among FWR Holding Corporation, AI Fresh Parent, Inc., the lenders party thereto, the other parties therein and Bank of America, N.A., as administrative agent
October 6, 2021, Form 8-K, Exhibit 10.1
10.1(b) Amendment No. 1 to Credit Agreement dated as of February 24, 2023, between FWR Holding Corporation as Borrower, the lenders party thereto, the other parties therein and Bank of America N.A., as administrative agent
March 7, 2023, Form 10-K, Exhibit 10.2
10.1(c)
Amendment No. 2 to Credit Agreement dated as of January 5, 2024, by and among FWR Holding Corporation as Borrower, the lenders party thereto, the other parties thereto and Bank of America N.A., as administrative agent
January 8, 2024, Form 8-K, Exhibit 10.1
10.2* Employment Agreement, dated March 9, 2022, by and between First Watch Restaurants, Inc. and Christopher A. Tomasso
March 11, 2022, Form 8-K, Exhibit 10.1
10.3* Employment Agreement, dated August 21, 2017, by and between First Watch Restaurants, Inc. and Laura Sorensen
September 7, 2021, Form S-1, Exhibit 10.4
10.4* Letter Agreement, dated February 1, 2021, by and between First Watch Restaurants, Inc. and Kenneth L. Pendery, Jr.
September 7, 2021, Form S-1, Exhibit 10.8
10.5* Letter Agreement, dated July 12, 2018, by and between First Watch Restaurants, Inc. and Mel Hope
March 23, 2022, Form 10-K, Exhibit 10.7
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10.6* First Watch Restaurant Group, Inc. 2017 Omnibus Equity Incentive Plan (formerly known as the AI Fresh Super Holdco, Inc. 2017 Omnibus Equity Incentive Plan)
September 7, 2021, Form S-1, Exhibit 10.3
10.7* First Watch Restaurant Group, Inc. 2021 Equity Incentive Plan
March 23, 2022, Form 10-K, Exhibit 10.9
10.8* Form of 2022 Stock Option Agreement
March 23, 2022, Form 10-K, Exhibit 10.10
10.9* Form of 2023 Restricted Stock Unit Award Agreement
March 7, 2023, Form 10-K, Exhibit 10.11
10.10* Form of 2024 Restricted Stock Unit Award Agreement
March 5, 2024, Form 10-K, Exhibit 10.12
10.11* Form of 2024 Restricted Stock Unit Award Agreement (Special Recognition Grant)
March 5, 2024, Form 10-K, Exhibit 10.13
10.12* Form of Director and Officer Indemnification Agreement
September 7, 2021, Form S-1, Exhibit 10.7
10.13 Form of Restricted Unit Award Agreement for Directors
March 7, 2023, Form 10-K, Exhibit 10.13
10.14*** Asset Purchase Agreement dated as of January 5, 2024, by and among VIM Holdings, LLC, its owners and affiliates, and First Watch Restaurants, Inc.
January 8, 2024, Form 8-K, Exhibit 2.1
10.15*** Asset Purchase Agreement dated as of November 8, 2024, by and among Good Morning Carolinas, LLC, its owners, and First Watch Restaurants, Inc.
November 12, 2024, Form 8-K, Exhibit 2.1
10.16* Executive Severance Plan
Filed herewith
19.1 Insider Trading and Regulation FD Policy
Filed herewith
21.1 List of subsidiaries
Filed herewith
23.1 Consent of Independent Registered Public Accounting Firm
Filed herewith
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (**)
Furnished herewith
97.1 Incentive-Based Compensation Recovery Policy
March 5, 2024, Form 10-K, Exhibit 97.1
101 The financial information from First Watch Restaurant Group, Inc. ’ s Annual Report on Form 10-K for the fiscal year ended December 29, 2024, filed on March 11, 2025, formatted in Inline Extensible Business Reporting Language (“iXBRL”)
Filed herewith
104 Cover Page Interactive Date File (formatted as iXBRL and contained in Exhibit 101) Filed herewith
* Denotes a management contract or compensatory plan or arrangement.
** This certification is not deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. This certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates them by reference.
***Disclosure schedules omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish supplementally a copy of any omitted schedule to the SEC upon request. The Company may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedules so furnished.
Item 16. Form 10-K Summary
None.
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SIGNATURES
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.
FIRST WATCH RESTAURANT GROUP, INC.
By: /s/ Mel Hope
Name Mel Hope
Title: Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Christopher A. Tomasso President, Chief Executive Officer and Director (Principal Executive Officer) March 11, 2025
Christopher A. Tomasso
/s/ Mel Hope Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) March 11, 2025
Mel Hope
/s/ Ralph Alvarez Director and Chairman of the Board March 11, 2025
Ralph Alvarez
/s/ Irene Chang Britt Director March 11, 2025
Irene Chang Britt
/s/ Michael Fleisher Director March 11, 2025
Michael Fleisher
/s/ Tricia Glynn Director March 11, 2025
Tricia Glynn
/s/ Charles Jemley Director March 11, 2025
Charles Jemley
/s/ William Kussell Director March 11, 2025
William Kussell
/s/ Stephanie Lilak Director March 11, 2025
Stephanie Lilak
/s/ David Paresky Director March 11, 2025
David Paresky
/s/ Jostein Solheim Director March 11, 2025
Jostein Solheim
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