Item
1.01 Entry Into a Material Definitive Agreement.
On
June 26, 2021, FAT Brands Inc. (the “Company”), LS Global Franchise L.P. (“Seller”),
and LS GFG Holdings Inc. (“GFG”) entered into a Stock Purchase Agreement (the “Purchase Agreement”),
on the terms and subject to the conditions of which the Company agreed to acquire all of the outstanding shares of GFG from Seller (the
“Transaction”). GFG and its subsidiaries, including Global Franchise
Group, LLC, 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. GFG also owns and operates a manufacturing and production facility
which supplies franchisees with cookie dough, pretzel dry mix and other ancillary products.
The
purchase price for the Transaction will be $442,500,000, payable by the Company at closing in the form of $350,500,000 in cash, $67,500,000
in shares of the Company’s Series B Cumulative Preferred Stock (the “Preferred Stock Consideration”),
and $25,000,000 in shares of the Company’s Common Stock, subject to certain adjustments pursuant to the terms of
the Purchase Agreement (the “Common Stock Consideration”). The number of shares deliverable as the Preferred
Stock Consideration and Common Stock Consideration was determined based on the volume-weighted average trading price of the underlying
shares for a period of ten trading days ending on June 25, 2021. Upon closing of the transactions contemplated by the Purchase Agreement,
including the Transaction (the “Closing”), the Company will acquire GFG on a cash-free, debt free basis, subject
to certain customary adjustments, including with respect to working capital, to be finalized no later than 90 days after the Closing.
The
Company has agreed to register for resale the Common Stock Consideration to be issued to Seller at Closing, and to maintain the effectiveness
of such registration for up to six years. In addition, Seller has agreed to a lock-up period of nine months following the Closing with
respect to the Preferred Stock Consideration, during which time Seller may not offer, sell or transfer any interest in such shares. At
Closing, the Company and Seller will enter 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 will have the right to call from Seller all of the Preferred Stock Consideration,
and Seller 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 Seller with the right to appoint one seat on the board of directors of the Company
until Seller is fully paid.
The
completion of the Transaction is subject to certain customary closing conditions, including the absence of any governmental order or
injunction prohibiting any of the transactions contemplated by the Purchase Agreement, and the expiration or termination of the applicable
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, which will expire on July 21, 2021 unless extended by a request
for additional information. The obligations of the Company and Seller to consummate
the Transaction are also subject to certain additional closing conditions, including (i) the accuracy of the representations and warranties
of the other parties in the Purchase Agreement (subject to certain materiality qualifiers, except with respect to fundamental
representations and warranties) and (ii) the other parties’ compliance in all material respects with their respective covenants
and agreements contained in the Purchase Agreement.
The
Purchase Agreement contains customary representations, warranties and covenants by each party that are subject, in some cases, to
specified exceptions and qualifications contained in the Purchase Agreement. The covenants include, among others, that (i) GFG is
obligated to operate its business in the ordinary course, subject to certain conditions, between the execution of the Purchase
Agreement and the Closing, and (ii) GFG agrees not to engage in certain transactions between the execution of the Purchase Agreement
and the Closing, except with the prior written consent of the Company (not to be unreasonably withheld or delayed). Seller and the Company
are required to use their commercially reasonable efforts to satisfy their respective closing conditions that are in their
reasonable control.
The
Purchase Agreement may be terminated prior to the Closing upon the occurrence or non-occurrence of certain events, including by the Company
or Seller if the Closing has not occurred within 120 days after the date of the Purchase Agreement, provided that no such termination
may be made by a party if the failure to close shall be caused by the action or inaction of the terminating party. In addition, if the
Purchase Agreement is terminated by the Company or Seller within certain timeframes due to the Company’s inability to complete
its debt financing for the Transaction, the Company will be responsible to pay to Seller a reverse termination fee equal to two percent
(2.0%) of the Purchase Price.
The
foregoing descriptions of the Purchase Agreement and Put/Call Agreement do not purport to be complete, and are qualified in their entirety
by reference to the full text of the Purchase Agreement and form of Put/Call Agreement, which are filed herewith as Exhibit
2.1 and incorporated herein by this reference. The Purchase Agreement has been filed to provide stockholders of the Company with information
regarding its terms. It is not intended to provide any other information about the Company, GFG or Seller or their respective subsidiaries
and affiliates. The Purchase Agreement contains representations and warranties by the Company, GFG and Seller which were made solely
for the benefit of the other parties to the Purchase Agreement and (i) may have been qualified in the Purchase Agreement by confidential
disclosure schedules that were delivered to the other parties in connection with the signing of the Purchase Agreement, which disclosure
schedules may contain information that modifies, qualifies, and creates exceptions to the representations, warranties, and covenants
set forth in the Purchase Agreement, (ii) may be subject to a contractual standard of materiality applicable to the parties that differs
from what a stockholder of the Company may view as material, and (iii) may have been made only as of the date of the Purchase Agreement
or as of another date specified in the Purchase Agreement, and information concerning the subject matter of the representations and warranties
may change after the date of the Purchase Agreement, which subsequent information may or may not be fully reflected in the Company’s
public disclosures, if at all. Accordingly, stockholders of the Company should not rely upon representations and warranties of the parties
or any descriptions thereof as characterizations of the actual state of facts or condition of the Company, Seller, GFG or their respective
subsidiaries and affiliates.