Item
1.01 Entry Into a Material Definitive Agreement.
On
December 15, 2021 (the “Closing Date”), FAT Brands Inc. (the “Company”) completed its previously
announced acquisitions of Fazoli’s Holdings, LLC (“Fazoli’s”) and Native
Grill and Wings Franchising, LLC (“Native Grill”). Fazoli’s owns and franchises a chain of approximately 220
quick service Italian restaurants in 28 states. Native Grill is the franchisor of Native Grill & Wings, with 23 franchised locations
in Arizona, Illinois, and Texas.
On
the Closing Date, Fazoli’s and Native Grill were contributed to a special purpose, wholly-owned financing subsidiary of the Company,
FAT Brands Fazoli’s Native I, LLC, a Delaware limited liability company (the “Issuer”). The Issuer issued an
aggregate principal amount of $193,760,000 of Series 2021-1 Fixed Rate Secured Notes (the “Notes”), the net proceeds
of which were used in part to finance the purchase price for the acquisitions. The Notes
were offered and sold by the Issuer 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 $128,760,000; (ii) 7.00% Series 2021-1 Fixed Rate Senior Subordinated Secured Notes, Class B-2, in an initial principal amount
of $25,000,000; and (iii) 9.00% Series 2021-1 Fixed Rate Subordinated Secured Notes, Class M-2, in an initial principal amount of $40,000,000.
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 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. If the Issuer has not repaid or refinanced the Class A-2 Notes by the Series 2021-1 Class
A-2 Anticipated Repayment Date (January 25, 2025), 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
December 15, 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
(the “Securitized Assets”). On the Closing Date, the Securitized Assets included all of the revenue-generating assets
of the Guarantors.
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 and Back-Up Management Agreement
Under
the terms of the Management Agreement, dated December 15, 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 management, 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 $541,666.67, 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 standards 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.
Under
the terms of a Back-Up Management Agreement, dated as of the Closing Date, the Issuer has appointed FTI Consulting, Inc. to serve as
its back-up manager and to provide certain services to the Issuer, the Trustee and the Control Party in the event of a Rapid Amortization
Event or Manager Termination Event, each as defined in the Base Indenture.
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, Management Agreement and Back-Up
Management Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of each such agreement
filed herewith as Exhibits 4.1, 4.2, 10.1, 10.2 and 10.3, respectively, and incorporated herein by reference.
