Item
1.01. Entry into a Material Definitive Agreement.
Whole
Business Securitization Transaction
On
April 26, 2021 (the “Closing Date”), FAT Brands Royalty I, LLC, a Delaware limited liability company (the “Issuer”),
a special purpose, wholly-owned subsidiary of FAT Brands Inc., a Delaware corporation (the “Company”), completed
the issuance and sale in a private offering (the “Offering”) of three tranches of fixed rate secured
notes as follows: (i) 4.75% Series 2021-1 Fixed Rate Senior Secured Notes, Class A-2, in an initial principal amount of $97,104,000;
(ii) 8.00% Series 2021-1 Fixed Rate Senior Subordinated Secured Notes, Class B-2, in an initial principal amount of $32,368,000;
and (iii) 9.00% Series 2021-1 Fixed Rate Subordinated Secured Notes, Class M-2, in an initial principal amount of $15,000,000
(collectively, the “Notes”).
The
Notes were issued in a securitization transaction pursuant to which substantially all of the assets held by the Issuer and its
subsidiaries were pledged as collateral to secure the Notes. As part of the transaction, the Company also contributed to
the Issuer 100% of its equity interest in its subsidiary, FAT Virtual Restaurants LLC, under a Contribution Agreement dated as
of the Closing Date and certain other revenue producing assets.
The
Notes were offered and sold pursuant to a Note Purchase Agreement, dated April 20, 2021, by and among the Company, the
Issuer and Jefferies LLC, as the initial purchaser (the “Initial Purchaser”). The Notes were offered and sold
to the Initial Purchaser in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933,
as amended (the “Securities Act”). The Initial Purchaser offered the Notes for sale to qualified institutional
buyers pursuant to the exemption from registration provided by Rule 144A under the Securities Act, and to non-U.S. persons in
reliance on Regulation S under the Securities Act.
On
the Closing Date, the Issuer used a portion of the net proceeds of the Offering to repay in full its outstanding Series
2020-1 6.50% Fixed Rate Senior Secured Notes, Class A-2, Series 2020-1 9.00% Fixed Rate Senior Subordinated Secured Notes, Class
B-2, and Series 2020-2 9.75% Fixed Rate Subordinated Secured Notes, Class M-2, and pay fees and expenses related to the Offering.
The remaining proceeds of the Offering were distributed to the Company, which intends to use such amount to repay other
indebtedness and acquire additional brands and restaurant concepts.
Terms
of the Notes
The
Notes were issued under a Base Indenture, dated as of March 6, 2020, and amended and restated as of April 26, 2021 (the “Base
Indenture”), a copy of which is attached hereto as Exhibit 4.1, and the related Series 2021-1 Supplement to the Base
Indenture, dated April 26, 2021 (the “Series 2021-1 Supplement”), a copy of which is attached hereto as Exhibit
4.2, by and among the Issuer and UMB Bank, N.A., as trustee (in such capacity, the “Trustee”) and securities
intermediary. The Base Indenture and Series 2021-1 Supplement (collectively, the “Indenture”) will allow the
Issuer to issue additional series of notes in the future subject to certain conditions set forth therein.
While
the Notes are outstanding, payment of principal and interest is required to be made on a quarterly basis. The legal final maturity
of the Notes is April 25, 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.
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 April 26, 2021, a copy of which is attached hereto as Exhibit 10.1, 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.
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 March 6, 2020, as amended and restated as of April 26, 2021, a copy of which is attached
hereto as Exhibit 10.2, 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 will be 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 $200,000 which commenced March 6, 2020, subject to three
percent (3%) annual increases from such date.
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.
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 claims, penalties, fines, forfeitures,
losses, liabilities, obligations, damages, actions, suits and related costs and judgments and other costs, fees and reasonable
expenses that any of them may incur as a result of (a) failure of the Manager to perform or observe its obligations under the
Management Agreement, (b) the breach by the Manager of any representation, warranty or covenant under the Management Agreement,
or (c) the Manager’s negligence, bad faith or willful misconduct in the performance of its duties under the Management Agreement.
Covenants
and Restrictions
The
Notes are subject to covenants and restrictions customary for transactions of this type, including: (i) that the Issuer maintain
specified reserve accounts to be used to make required payments in respect of the Notes; (ii) provisions relating to optional
and mandatory prepayments, and the related payment of specified amounts; (iii) certain indemnification payments in the event,
among other things, the transfers of the assets pledged as collateral for the Notes are in stated ways defective or ineffective;
and (iv) covenants relating to recordkeeping, access to information and similar matters. The Notes are subject to customary rapid
amortization events provided for in the Indenture, including events tied to failure of the Securitization Entities and Manager
to maintain the stated debt service coverage ratio and leverage ratios, the sum of systemwide sales for all restaurants being
below certain levels on certain measurement dates, certain Manager termination events, certain events of default and the failure
to repay or refinance the Notes on the anticipated repayment dates. The Notes are also subject to certain customary events of
default, including events relating to non-payment of required interest, principal or other amounts due on or with respect to the
Notes, failure of the Securitization Entities to maintain the stated debt service coverage ratio, failure to comply with covenants
within certain time frames, certain bankruptcy events, breaches of specified representations and warranties and certain judgments.
The
above descriptions of the Base Indenture, Series 2021-1 Supplement, Guarantee and Collateral Agreement and Management Agreement
do not purport to be complete and are qualified in their entirety by reference to the full text of such agreements filed herewith
as Exhibits 4.1, 4.2, 10.1 and 10.2, respectively, and incorporated herein by reference.