Item 1.01 Entry Into a Material Definitive Agreement.
On July 22, 2021 (the "Closing Date"), FAT Brands Inc. (the "Company") completed
the issuance and sale in a private offering through its special purpose,
wholly-owned subsidiary, FAT Brands GFG Royalty I, LLC (the "Issuer"), of an
aggregate principal amount of $350,000,000 of Series 2021-1 Fixed Rate Secured
Notes (the "Notes"). The net proceeds from the sale of the Notes were used by
the Company to finance a portion of the purchase price for the acquisition of LS
GFG Holdings Inc. and its direct and indirect subsidiaries (collectively, "GFG")
in a transaction that was completed on the Closing Date, as discussed further
below under Item 2.01. The Notes were offered and sold to qualified
institutional buyers through Jefferies LLC, as the initial purchaser, pursuant
to the exemptions from registration provided by Rule 144A under the Securities
Act of 1933, as amended (the "Securities Act"), and outside of the United States
to non-U.S. persons in compliance with Regulation S under the Securities Act.
Terms of the Notes
The Notes were issued pursuant to a Base Indenture, dated as of the Closing Date
(the "Base Indenture"), as amended by the Series 2021-1 Supplement (the "Series
2021-1 Supplement"), dated as of the Closing Date, each of which is by and among
the Issuer and UMB Bank, N.A., as trustee (in such capacity, the "Trustee") and
as securities intermediary. The Notes were issued in three tranches: (i) 6.00%
Series 2021-1 Fixed Rate Senior Secured Notes, Class A-2, in an initial
principal amount of $209,000,000; (ii) 7.00% Series 2021-1 Fixed Rate Senior
Subordinated Secured Notes, Class B-2, in an initial principal amount of
$84,000,000; and (iii) 9.50% Series 2021-1 Fixed Rate Subordinated Secured
Notes, Class M-2, in an initial principal amount of $57,000,000.
Scheduled payments of principal and interest on the Notes are required to be
made on a quarterly basis, in each case from amounts that are available for
payment thereon under the Base Indenture. The legal final maturity of the Notes
is July 22, 2051, but it is anticipated that, unless earlier prepaid to the
extent permitted under the Indenture, the Notes will be repaid on July 25, 2023
(the "Anticipated Call Date"). If the Issuer has not repaid or refinanced the
Notes by the Anticipated Call Date, additional interest equal to 1.0% per annum
will accrue on each tranche of Notes. If the Issuer has not repaid or refinanced
the Class A-2 Notes by the Series 2021-1 Class A-2 Anticipated Repayment Date
(as defined in the Series 2021-1 Supplement), additional interest equal to 2.5%
per annum will accrue on the Class A-2 Notes.
Guarantee and Collateral Agreement
The Notes are generally secured by a security interest in substantially all of
the assets of the Issuer and its subsidiaries (the "Guarantors" and, together
with the Issuer, the "Securitization Entities"). Under the Guarantee and
Collateral Agreement, dated July 22, 2021, by and among the Guarantors in favor
of the Trustee, the Guarantors have guaranteed the obligations of the Issuer
under the Indenture and related documents and secured the guarantee by granting
a security interest in substantially all of their assets. On the Closing Date,
these assets (the "Securitized Assets") included substantially all of the
revenue-generating assets of the Guarantors, consisting principally of franchise
agreements, area development agreements and intellectual property of the
Guarantors, and a manufacturing and production facility in Atlanta, GA, which
supplies franchisees with cookie dough, pretzel dry mix and other ancillary
products.
The Notes are the obligations only of the Issuer pursuant to the Indenture and
are unconditionally and irrevocably guaranteed by the Guarantors pursuant to the
Guarantee and Collateral Agreement. Except as described below, neither the
Company nor any subsidiary of the Company, other than the Securitization
Entities, will guarantee or in any way be liable for the obligations of the
Issuer under the Indenture or the Notes.
Management Agreement
Under the terms of the Management Agreement, dated July 22, 2021, by and among
the Company, the Securitization Entities and the Trustee, the Company will act
as the manager with respect to the Securitized Assets (in such capacity, the
"Manager"). The primary responsibilities of the Manager under the Management
Agreement are to perform certain franchising, distribution, intellectual
property and operational functions on behalf of the Securitization Entities with
respect to the Securitized Assets. The Management Agreement provides for a
management fee payable monthly by the Issuer to the Manager in the amount of
$413,333.33, subject to three percent (3%) annual increases.
The Manager will manage and administer the Securitized Assets in accordance with
the terms of the Management Agreement and, except as otherwise provided in the
Management Agreement, the management standard set forth in the Management
Agreement. Subject to limited exceptions set forth in the Management Agreement,
the Management Agreement does not require the Manager to expend or risk its
funds or otherwise incur any financial liability in the performance of any of
its rights or powers under the Management Agreement if the Manager has
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not compensated by payment of the
management fee or is otherwise not reasonably assured or provided to it.
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Subject to limited exceptions set forth in the Management Agreement, the Manager
will indemnify each Securitization Entity, the Trustee and certain other
parties, and their respective officers, directors, employees and agents for all
. . .
Item 2.01 Completion of Acquisition or Disposition of Assets.
On the Closing Date, the Company completed its previously announced acquisition
from affiliates of Serruya Private Equity, Inc. and Lion Capital LLP (the
"Sellers") of GFG and its subsidiaries, including Global Franchise Group, LLC,
which franchise and operate a portfolio of five quick service restaurant
concepts - Round Table Pizza, Great American Cookies, Hot Dog on a Stick, Marble
Slab Creamery and Pretzelmaker, and a manufacturing and production facility in
Atlanta, GA. Immediately following the closing of the acquisition, the Company
contributed to the Issuer substantially all of the revenue-generating assets of
GFG, consisting principally of franchise agreements, area development agreements
and intellectual property, and GFG's manufacturing and production facility in
Atlanta, GA, pursuant to a Contribution Agreement dated July 22, 2021.
The purchase price for the Transaction was $442,500,000, paid by the Company in
the form of $350,500,000 in cash, 3,089,245 shares of the Company's Series B
Cumulative Preferred Stock (the "Preferred Stock Consideration"), and 1,964,865
shares of the Company's Common Stock (the "Common Stock Consideration"). The
Company agreed with the Sellers that upon completion of the Company's pending
reclassification of its Common Stock into Class A Common Stock and issuance of
additional shares of Class B Common Stock, the Common Stock Consideration will
be exchanged for approximately 2,259,594 shares of Class A Common Stock and no
shares of Class B Common Stock. The Company agreed to register for resale the
Common Stock Consideration and maintain the effectiveness of such registration
for up to six years. In addition, the Sellers have agreed to a lock-up period of
nine months following the Closing with respect to the Preferred Stock
Consideration, during which time Sellers may not offer, sell or transfer any
interest in such shares.
On the Closing Date, the Company and Sellers also entered into a Put/Call
Agreement with respect to the Preferred Stock Consideration pursuant to which,
for a period of nine months following the Closing, the Company has the right to
call from the Sellers all of the Preferred Stock Consideration, and Sellers will
have the right to put to the Company all of the Preferred Stock Consideration,
in each case for a cash amount equal to $67,500,000 plus any accrued but unpaid
dividends on such shares. The Company will have the option to defer the closing
of a put transaction for up to 120 days following the end of the nine-month
period, during which time the put price will accrue interest at the rate of 5.0%
per annum, and the Company will provide Sellers with the right to appoint one
seat on the board of directors of the Company until Seller is fully paid. A copy
of the Put/Call Agreement is filed herewith as Exhibit 10.3.
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Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
The information set forth in Item 1.01 is incorporated by reference into this
Item 2.03.
Item 7.01 Regulation FD Disclosure
The Company issued a press release on July 22, 2021 announcing the completion of
the acquisition of GFG, a copy of which is furnished as Exhibit 99.1 hereto and
incorporated by reference into this Item 7.01 in satisfaction of the public
disclosure requirements of Regulation FD. The information in the attached press
release is "furnished" and not "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, or otherwise subject to the
liabilities of that section.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
The Company will file the financial statements of GFG as part of an amendment to
this Current Report on Form 8-K no later than 71 calendar days after the
required filing date for this Current Report on Form 8-K.
(b) Pro Forma Financial Information.
The Company will file pro forma financial information as an amendment to this
Current Report on Form 8-K no later than 71 days after the required filing date
for this Current Report on Form 8-K.
(d) Exhibits.
Exhibit No. Description
2.1 * Stock Purchase Agreement, dated June 26, 2021, by and among FAT
Brands Inc., LS GFG Holdings Inc., and LS Global Franchise L.P.
(incorporated by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K filed on June 28, 2021).
4.1 Base Indenture, dated July 22, 2021, by and among FAT Brands GFG
Royalty I, LLC, and UMB Bank, N.A., as trustee and securities
intermediary.
4.2 * Series 2021-1 Supplement to Base Indenture, dated July 22, 2021,
by and among FAT Brands GFG Royalty I, LLC, and UMB Bank, N.A., as
trustee and securities intermediary.
10.1 Guarantee and Collateral Agreement, dated July 22, 2021, by and
among the Guarantors named therein in favor of UMB Bank, N.A., as
trustee.
10.2 Management Agreement, dated July 22, 2021, by and among FAT Brands
Inc., FAT Brands GFG Royalty I, LLC, each of the Franchise Entities
named therein and UMB Bank, N.A., as trustee.
10.3 Put/Call Agreement, dated July 22, 2021, by and between FAT Brands
Inc. and LS Global Franchise L.P.
99.1 Press release dated July 22, 2021.
* This filing excludes certain schedules and exhibits pursuant to Item 601(b)(2)
of Regulation S-K, which the registrant agrees to furnish supplementally to the
Securities and Exchange Commission upon request.
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