Item 1.01 Entry into a Material Definitive Agreement.
Amendment to Merger Agreement
On February 14, 2020, Franchise Group Newco Intermediate AF, LLC ("Parent"), a
Delaware limited liability company and a subsidiary of Franchise Group, Inc., a
Delaware corporation (the "Company"), entered into an amendment (the
"Amendment") to that certain Agreement and Plan of Merger (as amended, the
"Merger Agreement"), by and among American Freight Group, Inc., a Delaware
corporation ("American Freight"), Franchise Group Merger Sub AF, Inc., a
Delaware limited liability company and a subsidiary of Parent ("Merger Sub"),
and The Jordan Company, L.P., a Delaware limited partnership (the
"Representative"), solely in its capacity as representative for the
Fully-Diluted Stockholders (as defined in the Merger Agreement), as described
further in Item 2.01 below.
Pursuant to the Amendment, Parent, American Freight and the Representative have
agreed to, among other things, (i) increase the limit on the amount of cash of
American Freight that would be included in the calculation of the merger
consideration from $5,000,000 to $10,000,000 and (ii) fix the estimated amount
of cash of American Freight for purpose of the estimated closing statement for
the Merger (as defined below) at $4,499,809.01.
The foregoing summary of the Amendment and the transactions contemplated thereby
does not purport to be complete and is subject to, and qualified in its entirety
by, the full text of the Amendment, which is incorporated herein by reference to
Exhibit 2.1 to this Current Report on Form 8-K.
AF Credit Agreement and AF Term Loan
On February 14, 2020, Franchise Group Intermediate Holdco, LLC, a Delaware
limited liability company ("Lead Borrower") and an indirect subsidiary of the
Company, Franchise Group New Holdco, LLC ("Global Parent") and various
subsidiaries of Global Parent entered into a Credit Agreement (the "AF Credit
Agreement") with various lenders from time to time party thereto (the "Term
Lenders"), GACP Finance Co., LLC, as administrative agent ("Term Administrative
Agent") and Kayne Solutions Fund, L.P., as collateral agent ("Term Collateral
Agent"). The AF Credit Agreement provides for a $575.0 million senior secured
term loan (the "AF Term Loan"), which consists of a $375.0 million first out
tranche ("AF Tranche A-1 Term Loan") and $200.0 million last out tranche ("AF
Tranche A-2 Term Loan"), made by the Term Lenders to the Lead Borrower or
certain of its subsidiaries party to the AF Credit Agreement as borrowers
(together with the Lead Borrower, the "Borrowers"). The Borrowers' obligations
under the AF Credit Agreement are guaranteed by Global Parent and certain
subsidiaries of Global Parent (together with Global Parent, the "Guarantors",
and together with the Borrowers, the "Loan Parties"), and are required to be
guaranteed by each of Global Parent's direct and indirect subsidiaries (other
than certain excluded subsidiaries) that may be formed or acquired after the
date of the AF Credit Agreement. The obligations of the Borrowers under the AF
Credit Agreement are secured on a first priority basis by substantially all of
the assets (other than ABL Priority Collateral (as defined below)) of the Loan
Parties (the "Term Priority Collateral"), are secured on a second priority basis
by credit card receivables, account receivables, deposit accounts, securities
accounts and commodity accounts and inventory of the Loan Parties (the "ABL
Priority Collateral"), and are required to be secured by each of Global Parent's
direct and indirect subsidiaries (other than certain excluded subsidiaries) that
may be formed or acquired after the date of the AF Credit Agreement. The
proceeds of the AF Term Loan, together with the proceeds of the ABL Term Loan
(as defined below), have been or will be used to consummate the Merger (as
defined below), to prepay certain existing indebtedness of American Freight and
its subsidiaries, Franchise Group Intermediate S, LLC and its subsidiaries and
Franchise Group Intermediate B, LLC and its subsidiaries, to pay fees and
expenses in connection with the Merger, the AF Term Loan and the ABL Term Loan,
and for general corporate purposes.
The AF Term Loan will mature on February 14, 2025, unless the maturity is
accelerated subject to the terms set forth in the AF Credit Agreement. The AF
Term Loan will, at the option of the Borrowers, bear interest at either (i) a
rate per annum based on LIBOR for an interest period of one, two, three or six
months, plus an interest rate margin of 8.0% for the AF Tranche A-1 Term Loan
and 12.5% for the AF Tranche A-2 Term Loan (each an "AF LIBOR Loan") with a
1.50% LIBOR floor, or (ii) an alternate base rate determined as provided in the
AF Credit Agreement, plus an interest rate margin of 7.0% for the AF Tranche A-1
Term Loan and 11.5% for the AF Tranche A-2 Term Loan (each an "AF ABR Loan")
with a 2.50% alternate base rate floor. Interest on AF LIBOR Loans is payable in
arrears at the end of each applicable interest period (and, with respect to a
six-month interest period, three months after commencement of the interest
period), and interest on AF ABR Loans is payable in arrears on the first day of
each fiscal quarter.
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The Borrowers are required to repay the AF Term Loan in equal quarterly
installments of $6,250,000 on the last day of each fiscal quarter, commencing on
June 30, 2020. The Borrowers are required to prepay the AF Term Loan with 50% of
consolidated excess cash flow on a quarterly basis and, subject to the
agreements between the Term Lenders and between the Term Lenders and the ABL
Lenders (as defined below), with the net cash proceeds of certain other
customary events. All repayments or prepayments (whether voluntary or mandatory
. . .
Item 2.01 Completion of Acquisition or Disposition of Assets.
Acquisition of American Freight
On February 14, 2020, Parent completed its acquisition (which was previously
announced in the Current Report on Form 8-K filed by the Company with the SEC on
December 30, 2019) of American Freight, pursuant to the terms of the Merger
Agreement, pursuant to which, among other things, Merger Sub merged with and
into American Freight (the "Merger"), with American Freight surviving as a
wholly owned subsidiary of Parent.
The foregoing summary of the Merger Agreement, the Merger and the other
transactions contemplated thereby does not purport to be complete and is subject
to, and qualified in its entirety by, the full text of the Merger Agreement,
which is incorporated herein by reference to Exhibit 2.1 of the Current Report
on Form 8-K filed by the Company with the SEC on December 30, 2019.
To the extent required, the information set forth in Item 1.01 to this Current
Report on Form 8-K is incorporated herein by reference.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
To the extent required, the information set forth in Item 1.01 to this Current
Report on Form 8-K is incorporated herein by reference.
Item 8.01 Other Events.
Press Release. On February 14, 2020, the Company issued a press release
announcing, among other things, the consummation of the Merger. A copy of the
press release is attached hereto as Exhibit 99.1 and is incorporated herein by
reference.
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Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The financial statements required by this item with respect to the Merger will
be filed as soon as practicable, and in any event not later than 71 days after
the date on which this Current Report on Form 8-K is required to be filed
pursuant to Item 2.01.
(b) Pro Forma Financial Information
The pro forma financial information required by this item with respect to the
Merger will be filed as soon as practicable, and in any event not later than 71
days after the date on which this Current Report on Form 8-K is required to be
filed pursuant to Item 2.01.
(c) Exhibits
The following exhibits are filed with this Current Report on Form 8-K:
2.1 Amendment to Agreement and Plan of Merger, dated as of February 14,
2020, by and among American Freight Group, Inc., Franchise Group Newco
Intermediate AF, LLC and The Jordan Company, L.P., solely in its capacity
as representative for the Fully-Diluted Stockholders (as defined in the
Merger Agreement).
10.1 Credit Agreement, dated as of February 14, 2020, by and among
Franchise Group New Holdco, LLC, Franchise Group Intermediate Holdco,
LLC, each of its subsidiaries named therein, the lenders named therein,
GACP Finance Co., LLC, as administrative agent, and Kayne Solutions
Fund, L.P., as collateral agent.
10.2 Security Agreement, dated as of February 14, 2020, by and among
Franchise Group New Holdco, LLC, Franchise Group Intermediate Holdco,
LLC, each of its subsidiaries named therein and Kayne Solutions Fund,
L.P., as collateral agent.
10.3 ABL Credit Agreement, dated as of February 14, 2020, by and among
Franchise Group New Holdco, LLC, Franchise Group Intermediate Holdco,
LLC, each of its subsidiaries named therein, the lenders named therein,
and GACP Finance Co., LLC, as administrative agent and collateral
agent.
10.4 Security Agreement, dated as of February 14, 2020, by and among by and
among Franchise Group New Holdco, LLC, Franchise Group Intermediate
Holdco, LLC, each of its subsidiaries named therein and GACP Finance
Co., LLC, as administrative agent and collateral agent.
10.5 Sixth Amendment to Credit Agreement, dated as of February 14, 2020, by
and among Franchise Group Intermediate L 2, LLC, the other Loan Parties
thereto, the Lenders party thereto and CIBC Bank USA, as Administrative
Agent.
10.6 Subscription Agreement, dated as of February 14, 2020, by and between
Franchise Group, Inc. and Kayne FRG Holdings, L.P.
10.7 Registration Rights Agreement, dated as of February 14, 2020, by and
between Franchise Group, Inc. and Kayne FRG Holdings, L.P.
99.1 Press Release, dated February 14, 2020.
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