UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the
Registrant x
Filed by a
Party other than the Registrant ¨
Check the appropriate box:
| ¨ | Preliminary Proxy Statement |
| ¨ | Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2)) |
| ¨ | Definitive Proxy Statement |
| x | Definitive Additional Materials |
| ¨ | Soliciting Material under §240.14a-12 |
Franchise Group, Inc.
(Name of Registrant as Specified
In Its Charter)
(Name of Person(s) Filing
Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check all boxes that
apply):
| ¨ | Fee paid previously with preliminary materials. |
| ¨ | Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11. |
As previously disclosed, on May 10, 2023,
Franchise Group, Inc., a Delaware corporation (the “Company”), entered into an Agreement and Plan of Merger (the
“Merger Agreement”) with Freedom VCM, Inc., a Delaware corporation (“Parent”), and Freedom
VCM Subco, Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which,
upon the terms and subject to the conditions set forth therein, Merger Sub shall merge with and into the Company, with the Company surviving
the merger as a wholly owned subsidiary of Parent (the “Merger,” and together with the transactions contemplated by
the Merger Agreement, the “Transaction”). The buyer group includes members of the senior management team of the Company,
led by Brian Kahn, the Company’s Chief Executive Officer, in financial partnership with a consortium that includes B. Riley Financial, Inc.
and Irradiant Partners.
In connection with the Merger, the Company filed
with the U.S. Securities and Exchange Commission (the “SEC”) a preliminary proxy statement (the “Preliminary
Proxy Statement”) on June 8, 2023, an amendment to the Preliminary Proxy Statement on July 6, 2023 and a definitive
proxy statement on July 14, 2023 (the “Definitive Proxy Statement”). As disclosed in the Definitive Proxy Statement,
between June 14, 2023 and July 13, 2023, the Company received from purported stockholders of the Company (i) five demand
letters relating to the Merger and (ii) five demands pursuant to Section 220 of the General Corporation Law of the State of
Delaware seeking certain books and records of the Company related to the Merger and related matters.
Following the filing of the Definitive Proxy
Statement and prior to the filing of this supplement to the Definitive Proxy Statement (the “Supplement”), a lawsuit
relating to the Merger was filed: John Pels v. Franchise Group, Inc., et al., Case No. 23 CVH 07 0508 (Ohio C.P., July 20,
2023) the “Action”) and the Company received from purported Company stockholders (i) two additional Section 220
books and records demands (cumulatively with the Section 220 books and records demands disclosed in the Definitive Proxy Statement,
the “220 Demands”) and (ii) nine additional demand letters relating to the Merger (cumulatively with the demand
letters disclosed in the Definitive Proxy Statement, the “Demand Letters” and together with the 220 Demands and the
Action, the “Matters”). The Matters allege, among other things, that the defendants named therein violated Sections
14(a) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 14a-9 promulgated thereunder because the
Preliminary Proxy Statement or Definitive Proxy Statement allegedly omit or misstate certain material information, and/or were allegedly
in breach of their obligations under state law and/or common law. The Action seeks, among other things, injunctive relief preventing
the consummation of the Merger, rescission of the Merger if it is consummated, damages and attorneys’ fees.
The Company believes that the claims asserted
in the Matters are without merit and that no supplemental disclosure is required under applicable law. However, in order to moot unmeritorious
disclosure claims, to avoid the risk of the Matters delaying or adversely affecting the Merger and to minimize the costs, risks and uncertainties
inherent in litigation, without admitting any liability or wrongdoing, the Company has determined to voluntarily supplement the Definitive
Proxy Statement as described in this Supplement. Nothing in this Supplement shall be deemed an admission of the legal necessity or materiality
under applicable laws of any of the disclosures set forth herein. To the contrary, the Company specifically denies all allegations in
the Matters, including allegations that any additional disclosure was or is required, and believes that the supplemental disclosures contained
herein are immaterial.
The Action is not expected to affect the timing
of the Company’s special meeting of stockholders to be held for the purpose of voting upon, among other things, the Merger, which
is scheduled to be held on August 17, 2023, or the amount of the consideration to be paid to the Company’s stockholders in
connection with the Merger.
AMENDED AND SUPPLEMENTAL DISCLOSURES
The following supplemental information should
be read in conjunction with the disclosures contained in the Definitive Proxy Statement, which in turn should be read in its entirety.
All page references are to the Definitive Proxy Statement and terms used below, unless otherwise defined, shall have the meanings
ascribed to such terms in the Definitive Proxy Statement. For clarity, new text added to the Definitive Proxy Statement is shown in bold,
underlined text, and text deleted from the Definitive Proxy Statement is shown in stricken-through text.
The Franchise Group, Inc.—Notice
of Special Meeting of Stockholders is hereby amended and supplemented as follows:
The third full paragraph of
the Notice of Special Meeting of Stockholders is amended and supplemented as follows:
The approval of the Merger
Agreement Proposal requires the affirmative vote of both (1) the holders of a majority of the outstanding shares of FRG Common Stock
entitled to vote, which we refer to as the approval of a “Majority of the Outstanding Shares,” and (2) the holders of
a majority of the outstanding shares of FRG Common Stock entitled to vote and not held by Brian R. Kahn, Vintage Opportunity Partners,
L.P., Brian Kahn and Lauren Kahn Joint Tenants by Entirety, and Andrew Laurence and other Rollover
Stockholders (as defined in the accompanying proxy statement) (which we refer to, each, as a “Rollover Stockholder”
and collectively, as the “Rollover Stockholders”) or their respective affiliates, which we refer to as the approval
of a “Majority of the Unaffiliated Shares,” in each case assuming a quorum is present. Prior to the date of the Special Meeting,
the Consortium Members may, subject to the terms and conditions of the Merger Agreement, other relevant agreements and, if applicable,
in consultation with and/or with the approval of the Special Committee, engage in discussions and/or negotiations with certain of the
officers of the Company or other stockholders with respect to rolling over all or a portion of their equity stake in the Company at a
price per share equal to the Per Share Merger Consideration, in which case any such persons would be deemed to be Rollover Stockholders.
The section of the Definitive Proxy Statement
entitled “Special Factors—Background of the Merger” is hereby amended and supplemented as follows:
The last full paragraph on
page 23 of the Definitive Proxy Statement is amended and supplemented as follows:
On April 12, 2023,
the Special Committee held a meeting via videoconference, attended by representatives of the Company’s management, Troutman
and Wachtell Lipton, to review the Preliminary Management Projections, which were provided by the Company’s management to the
Special Committee in advance of the meeting. On April 16, 2023, the Preliminary Management Projections were provided by
representatives of Jefferies to B. Riley, and the four other potential third-party financial sponsor bidders were provided with
access to the Preliminary Management Projections over the next several days following the execution of their respective
non-disclosure agreements. The non-disclosure agreements executed by four third-party financial sponsors included customary
standstill and “don’t ask, don’t’ waive” provisions, and none of the standstill or
“don’t ask, don’t’ waive” provisions are currently in effect. The Management Projections were
posted to the virtual data room on May 5, 2023.
The third full paragraph on
page 28 of the Definitive Proxy Statement is amended and supplemented as follows:
On May 17, 2023, representatives
of Jefferies, acting at the direction of the Special Committee, began contacting potential counterparties that might consider making an
Acquisition Proposal in connection with the Go-Shop Period. Over the course of the Go-Shop Period, representatives of Jefferies engaged
with or actively solicited Acquisition Proposals from 29 potentially interested third parties. During the Go-Shop Period, one potential
financial sponsor bidder executed a non-disclosure agreement and received access to the virtual data room and the Management Projections
but subsequently declined to proceed with exploring a potential transaction. Such non-disclosure agreement did not include a standstill
or “don’t ask, don’t waive” provision. The Go-Shop Period expired at 11:59 p.m. New York City time
on June 9, 2023 without any party submitting an Acquisition Proposal.
The section of the Definitive Proxy Statement
entitled “Special Factors—Opinion of the Special Committee’s Financial Advisor” is hereby amended and supplemented
as follows:
The third paragraph on page 46
of the Definitive Proxy Statement is amended and supplemented as follows:
Discounted Cash Flow Analysis
Jefferies
performed a discounted cash flow analysis of the Company by calculating the estimated present value of the stand-alone unlevered free
cash flows that the Company was forecasted to generate during the calendar years ending December 31, 2023 through December 31,
2026 based on the Management Projections (see Certain Unaudited Prospective Financial Projections — The Management
Projections on page 55). For purposes of this analysis, stock-based compensation was treated as a cash expense.
The terminal values of the Company were calculated by applying a selected range of perpetuity growth rates of 2.5% to 3.5% to the Company’s
estimated unlevered free cash flows for the calendar year ending December 31, 2026 (excluding the impact of the Badcock business,
and including normalized levels of capital expenditures, working capital and depreciation and amortization), based on the Management Projections.
The range of perpetuity growth rates was selected based on Jefferies' professional judgment and taking into account, among other
things, the Management Projections and trends in the industry and markets in which the Company operates. The Badcock terminal
value as of December 31, 2026 of ($97 million) was calculated as the present value of the unlevered free cash flows of Badcock
for calendar years 2027 through 2030, based on projections for Badcock provided by Company management, and applying a perpetuity growth
rate of 3.0% for cash flows beyond 2030. The terminal values of the Company (excluding the Badcock business) as of December 31,
2026 were calculated as the present value of the Company's estimated unlevered free cash flows (excluding the Badcock business) for subsequent
years based on "normalized" unlevered free cash flows for 2026 and a perpetuity growth rate of 2.5% to 3.5%. The normalized
2026 unlevered free cash flows for the Company (excluding the Badcock business) reflected an equalized level of capex and depreciation
and amortization of $35 million each and a change in NWC of ($32 million). The present values of the unlevered free cash flows
and terminal values of the Company were then calculated using a selected discount rate range of 12.75% to 13.75%, based on an estimate
of the Company’s weighted average cost of capital, to determine a range of implied enterprise values for the Company. Jefferies
then subtracted the Company’s net debt of $1,300 million as of December 31, 2022 and the value of the Company’s preferred
equity outstanding of $114 million, each as provided by Company management, to calculate a range of implied equity values, and divided
the result by the number of fully diluted outstanding shares of FRG Common Stock to calculate a range of implied per share equity values
for the Company. This analysis indicated a reference range of implied per share equity values of $26.25 to $38.50 per share (not including
the estimated present value impact of potential management incentive plan (“MIP”) payments), and $23.50 to $37.75 (including
at the top end of the range the estimated present value impact of the optional liquidity MIP payments, and including at the bottom of
the range all potential MIP payments), in each case as compared to the Per Share Merger Consideration of $30.00 per share.
The first full paragraph on page 49 of the
Definitive Proxy Statement is amended and supplemented as follows:
During the two-year period
prior to the date of Jefferies’ opinion, Jefferies has provided financing services to the Company, for which Jefferies or its affiliates
received compensation aggregate fees of $100,000 from the Company. During the two-year period prior to
the date of Jefferies’ opinion, Jefferies and its affiliates did not provide financial advisory or financing services to Parent
or its affiliates, which, for the avoidance of doubt, includes B. Riley, the Kahn Parties and Irradiant Partners, for which
Jefferies or its affiliates received fees. Jefferies and its affiliates may provide financial advisory and/or financing services to the
Company, Parent, B. Riley, the Kahn Parties, Irradiant Partners and/or their respective affiliates in the future, for
which services Jefferies and its affiliates would expect to receive compensation. In the ordinary course of business, Jefferies and its
affiliates may trade or hold securities or financial instruments (including loans and other obligations) of the Company, Parent,
B. Riley, the Kahn Parties, Irradiant Partners and/or their respective affiliates for Jefferies’ own account and for
the accounts of Jefferies’ customers and, accordingly, may at any time hold long or short positions in those securities.
The section of the Definitive Proxy Statement
entitled “Special Factors—Interests of Executive Officers and Directors of the Company in the Merger” is hereby amended
and supplemented as follows:
The second paragraph under
“ — Interests of Executive Officers and Directors of the Company in the Merger” on page 57 of the
Definitive Proxy Statement is amended and supplemented as follows:
As described below, the interests
of the Company’s non-employee directors and executive officers include the following:
| · | the Company’s executive officers as of the Effective Time of the Merger will become the initial
executive officers of the surviving corporation, including Brian R. Kahn, who will remain Chief Executive Officer of the Surviving Corporation; |
| · | accelerated vesting of Company options, Company restricted stock units, Company performance stock units
held by non-employee directors and executive officers; |
| · | Brian R. Kahn’s and Andrew M. Laurence’s affiliation with Parent and the expectation that
the Kahn Parties and Andrew M. Laurence will beneficially own equity interests in Parent and the Surviving Corporation; and |
| · | pursuant to the terms of a tax receivables agreement entered into with the Company in July 2019
in connection with the Company’s acquisition of Buddy’s (which will terminate upon the closing of the Merger in accordance
with its terms), the former equity holders of Buddy’s, including certain affiliates of Brian R. Kahn, will receive payments upon
such termination consistent with those previously disclosed in the Company’s financial statements, including “Note 13 - Income
Taxes” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2022, which is incorporated by reference in this proxy statement; and |
| · | the right to indemnification and liability insurance coverage that will survive the closing of the Merger. |
The following sub-section
is inserted following the second full paragraph on page 59 of the Definitive Proxy Statement as follows:
Chairman of the Special Committee
Matthew Avril served
on the strategic advisory board of Vintage Capital Management, LLC (“Vintage Capital”), one of the Kahn Parties, until 2019.
While he served in such role, Mr. Avril provided, from time to time, strategic advice to the management of Vintage Capital. Mr. Avril
did not receive any compensation in connection therewith. Prior to 2020, Mr. Avril did, from time to time, personally invest
in certain investments affiliated with Vintage Capital on the same terms as other co-investors and limited partners. The Board considered
Mr. Avril’s prior involvement with Vintage Capital and Brian Kahn and determined it was immaterial and did not impact Mr. Avril’s
ability to serve as an independent and disinterested member of the Committee.
The second paragraph under
“ — Interests of Executive Officers and Directors of the Company in the Merger” on page 57 of the
Definitive Proxy Statement is amended and supplemented as follows:
As described below, the interests
of the Company’s non-employee directors and executive officers include the following:
| · | the Company’s executive officers as of the Effective Time of the Merger will become the initial
executive officers of the surviving corporation, including Brian R. Kahn, who will remain Chief Executive Officer of the Surviving Corporation; |
| · | accelerated vesting of Company options, Company restricted stock units, Company performance stock units
held by non-employee directors and executive officers; |
| · | Brian R. Kahn’s and Andrew M. Laurence’s affiliation with Parent and the expectation that
the Kahn Parties and Andrew M. Laurence will beneficially own equity interests in Parent and the Surviving Corporation; and |
| · | pursuant to the terms of a tax receivables agreement entered into with the Company in July 2019
in connection with the Company’s acquisition of Buddy’s (which will terminate upon the closing of the Merger in accordance
with its terms), the former equity holders of Buddy’s, including certain affiliates of Brian R. Kahn, will receive payments upon
such termination consistent with those previously disclosed in the Company’s financial statements, including “Note 13 - Income
Taxes” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2022, which is incorporated by reference in this proxy statement; and |
| · | the right to indemnification and liability insurance coverage that will survive the closing of the Merger. |
The table preceding the first paragraph under “—
Interests of Executive Officers and Directors of the Company in the Merger” on page 60 of the Definitive Proxy Statement is
amended and supplemented as follows:
Golden Parachute
Compensation
|
|
Cash |
|
|
Equity |
|
|
Pension
NQDC |
|
|
Perquisites /
benefits |
|
|
Tax
reimbursement |
|
|
Other |
|
|
Total |
|
Name |
|
($)(1) |
|
|
($)(2) |
|
|
($) |
|
|
($)(3) |
|
|
($) |
|
|
($) |
|
|
($) |
|
Brian R. Kahn |
|
|
3,600,000 |
|
|
|
8,020,620 |
|
|
|
— |
|
|
|
44,331 |
|
|
|
— |
|
|
|
— |
|
|
|
11,664,951 |
|
Andrew M. Laurence |
|
|
2,000,000 |
|
|
|
2,673,540 |
|
|
|
— |
|
|
|
44,148 |
|
|
|
— |
|
|
|
— |
|
|
|
4,717,688 |
|
Andrew F. Kaminsky |
|
|
2,000,000 |
|
|
|
2,673,540 |
|
|
|
— |
|
|
|
44,331 |
|
|
|
— |
|
|
|
— |
|
|
|
4,717,871 |
|
Eric F. Seeton |
|
|
875,000 |
|
|
|
2,673,540 |
|
|
|
— |
|
|
|
44,431 |
|
|
|
— |
|
|
|
— |
|
|
|
3,592,971 |
|
Kenneth Todd Evans |
|
|
400,000 |
|
|
|
1,003,680 802,080 |
|
|
|
— |
|
|
|
14,579 |
|
|
|
— |
|
|
|
— |
|
|
|
1,418,259 |
|
| (1) | Cash. The amounts in this column reflect the value of the cash severance payments payable to each named executive officer for
the year of termination. For Messrs. Kahn, Laurence and Kaminsky the amount in this column represents severance pursuant to their
respective employment agreements with the Company equal to two times the sum of their respective current annual base salaries and target
bonuses. Brian Kahn’s current annual base salary is $900,000 and his target bonus is $900,000. Messrs. Laurence and Kaminsky
have current annual base salaries of $500,000 and target bonuses of $500,000. The severance and bonus payments for Messrs. Kahn,
Laurence and Kaminsky are all “double trigger” in nature, which means that payment of these amounts is conditioned upon a
qualifying termination of employment on or within months following the closing of the Merger. For Mr. Seeton the amount in this column
represents severance pursuant to his employment agreement with the Company equal to the sum of his current annual base salary of $500,0000
and a prorated target bonus of $375,000 for the year of termination assuming a closing date of September 30, 2023. Mr. Seeton’s
severance is “single trigger” in nature, which means that payment of this amount is conditioned only upon a qualifying termination
of employment. For Mr. Evans the amount in this column represents severance pursuant to his employment agreement with the Company
equal to his current annual base salary of $400,000. Mr. Evans’ severance is “single trigger” in nature, which
means that payment of this amount is conditioned only upon a qualifying termination of employment. |
| (2) | Equity. The amounts in this column reflect the aggregate values of the accelerated vesting of RSUs and the target number of
PRSUs which would vest on change in control, pursuant to their respective award agreement, at the Per Share Merger Consideration. These
amounts are all payable upon the closing of the Merger as long as the NEO is employed on the closing of the Merger. For each NEO, 50%
of the amount is related to the vesting of RSUs and 50% is related to the vesting of PRSUs. |
| (3) | Perquisites/benefits. The amounts in this column reflect the value of continued Company-paid health insurance coverage for
18 months. The amounts in this column are “double trigger” in nature, which means that payment of these amounts is conditioned
upon a qualifying termination of employment on or following the closing of the Merger. |
The
section of the Definitive Proxy Statement entitled “Summary Term Sheet—Certain Defined Terms” is hereby
amended and supplemented as follows:
Paragraph 34 on page 2
of the Definitive Proxy Statement is amended and supplemented as follows:
34. the Freedom Entities, the Kahn Parties, B.
Riley, Bryant R. Riley, and Andrew Laurence, Eric F. Seeton, Andrew F. Kaminsky and Kenneth Todd
Evans as the “Consortium Members”;
Paragraph 36 on page 2 of the Definitive
Proxy Statement is amended and supplemented as follows:
36.
the Rollover Contribution Agreement, dated as of May 10, 2023, as amended, by and among Freedom VCM Holdings,
LLC and the Rollover Stockholders as the “Rollover Agreement”;
Paragraph 37 on page 2
of the Definitive Proxy Statement is amended and supplemented as follows:
37. the shares of FRG Common Stock owned by the
Rollover Stockholders and subject to the Rollover Agreement or the Additional Rollover Agreements as the “Rollover
Shares”;
The
section of the Definitive Proxy Statement entitled “Special Factors—Financing of the Merger” is hereby
amended and supplemented as follows:
The first full paragraph of the sub-section entitled
“Rollover Financing” on page 7 of the Definitive Proxy Statement is amended and supplemented as follows:
On
May 10, 2023, the Rollover Stockholders entered into the Rollover Agreement, as amended, with Freedom VCM Holdings pursuant to which
the Rollover Stockholders collectively committed to contribute, immediately prior to the consummation of the Merger, an aggregate amount
of 12,804,832 12,492,832 shares of FRG Common Stock to Freedom VCM Holdings (the equivalent of a
$384.0 374.8 million investment based on the Per Share Merger Consideration of $30.00) in exchange for
a number of issuances of common membership interests of Freedom VCM Holdings. Prior to the date of the Special Meeting, the Consortium
Members may, subject to the terms and conditions of the Merger Agreement, other relevant agreements and, if applicable, in consultation
with and/or with the approval of the Special Committee, engage in discussions and/or negotiations with certain of the officers of the
Company or other stockholders with respect to rolling over all or a portion of their equity stake in the Company at a price per share
equal to the Per Share Merger Consideration, in which case any such persons would be deemed to be Rollover Stockholders.
The following paragraph is inserted following
the first full paragraph of the sub-section entitled “Rollover Financing” on page 7 of the Definitive Proxy Statement
as follows:
Further to the
above, on or about August 7, 2023, certain stockholders of the Company and certain members of the Company’s management
(each deemed a Rollover Stockholder) have each entered into a rollover and contribution agreement (collectively, the
“Additional Rollover Agreements”) with Freedom VCM Holdings pursuant to which such Rollover Stockholders collectively
committed to contribute, immediately prior to the consummation of the Merger, an aggregate amount of 1,172,152.12 shares of FRG
Common Stock (directly, or indirectly through B. Riley Private Shares 2023-2 WP, LLC (“BRP Shares, LLC”) or B. Riley
Private Shares 2023-2 QC, LLC (“BRC Shares, LLC”), to Freedom VCM Holdings (the equivalent of a $35.2 million investment
based on the Per Share Merger Consideration of $30.00) in exchange for a number of issuances of common membership interests of
Freedom VCM Holdings. Following the execution of the Additional Rollover Agreements, (i) the aggregate amount of Rollover
Shares is 13,664,484.12 (the equivalent of a $409.9 million investment based on the Per Share Merger Consideration of $30.00) and an
aggregate of 21,210,787.39 shares of FRG Common Stock are held by Unaffiliated Stockholders as of the Record Date, and
(ii) certain of the additional Rollover Stockholders that are executive officers of the Company are deemed to be Consortium
Members.
The sub-section entitled “Rollover Agreement”
on page 10 of the Definitive Proxy Statement is amended and supplemented as follows:
Concurrently with the execution
and delivery of the Merger Agreement, the Rollover Stockholders entered into the Rollover Agreement, as amended, pursuant
to which, at the Effective Time, the Rollover Shares held by the Rollover Stockholders will be contributed to Freedom VCM Holdings in
exchange for a number of issuances of common membership interests of Freedom VCM Holdings.
The Rollover Shares represent
approximately 98100% of the FRG Common Stock held by the Rollover Stockholders immediately prior to the
date hereof. The form of the Rollover Agreement is attached as Annex E to this Proxy Statement. For more information, see the section
of this Proxy Statement entitled “The Rollover Agreement.”
The
section of the Definitive Proxy Statement entitled “Interests of Executive Officers and Directors of the Company in the Merger—Common
Stock” is hereby amended and supplemented as follows:
The last paragraph beginning
on page 58 of the Definitive Proxy Statement is hereby amended and supplemented as follows
At the Effective Time, each issued share of FRG
Common Stock held by our executive officers and directors shall be treated in the same manner as shares of FRG Common Stock held by our
public stockholders, as discussed above in the section of this proxy statement entitled “Certain Effects of the Merger — Treatment
of the Shares of FRG Common Stock.” Based on each stockholders’ right to receive the Per Share Merger Consideration of $30.00
in cash per share of FRG Common Stock, the estimated amount that would be realized by each of the NEOs in respect to their beneficially
owned shares of FRG Common Stock (including amounts realized in connection with outstanding Company Options, Company RSUs and Company
PRSUs,) is as follows: $0 in the case of Mr. Kahn (excluding the receipt of common membership interests of Freedom VCM Holdings
in exchange for Rollover Shares held by Mr. Kahn), $0 in the case of Mr. Laurence ( but excluding the receipt of common
membership interests of Freedom VCM Holdings in exchange for Rollover Shares held by Mr. Laurence), is as
follows: in the case of Messrs. Kahn, Laurence, Kaminsky, Seeton and Evans, the amounts in respect of Company RSUs and Company PSRUs
as set forth opposite their names in the table below under “— Golden Parachute Compensation”, plus, in the case
of Mr. Kahn, $9,375,000 in respect of shares of FRG Common Stock that are not subject to the Rollover Agreement. $7,418,340
in the case of Mr. Kaminsky, $4,759,800 in the case of Mr. Seeton and $2,172,510 in the case of Mr. Evans. Based
on each stockholders’ right to receive the Per Share Merger Consideration of $30.00 in cash per share of FRG Common Stock, the estimated
amount that would be realized by each of the non-employee directors in respect to their beneficially owned shares of FRG Common Stock
(including amounts realized in connection with outstanding Company Options and Company RSUs) is as follows: $4,218,843 4,468,706
in the case of Mr. Avril, $228,690 in the case of Ms. Dubin, $367,170 in the case of Ms. Fairfax, $1,016,790 1,164,747
in the case of Mr. Herskovits, $160,560 185,430 in the case of Mr. Rich and $97,800 in the case
of Ms. Singh.
The
section of the Definitive Proxy Statement entitled “Financing of the Merger—the Rollover Financing” is
hereby amended and supplemented as follows:
On
May 10, 2023, the Rollover Stockholders entered into the Rollover Agreement, as amended, with Freedom VCM Holdings
pursuant to which the Rollover Stockholders collectively committed to contribute, immediately prior to the consummation of the Merger,
an aggregate amount of 12,804,832 12,492,832 shares of FRG Common Stock to Freedom VCM Holdings (the equivalent
of a $384.0 374.8 million investment based on the Per Share Merger Consideration of $30.00) in exchange
for a number of issuances of common membership interests of Freedom VCM Holdings. See “— The Rollover Agreement.”
The obligations of the Rollover Stockholders pursuant to the Rollover Agreement are conditioned upon the satisfaction or waiver of the
conditions to the obligations of Parent and Merger Sub to complete the Merger contained in the Merger Agreement and the conditions set
forth in the Rollover Agreement. The Company is an express third-party beneficiary of the Rollover Agreement and has the right to seek
specific performance thereof under the circumstances in which the Company would be permitted by the Merger Agreement to obtain specific
performance requiring Freedom VCM Holdings and Parent, as applicable, to enforce the applicable agreement.
The section of the Definitive Proxy Statement
entitled “The Rollover Agreement” is hereby amended and supplemented as follows:
The second and third full
paragraphs on page 91 of the Definitive Proxy Statement are hereby amended and supplemented as follows:
Concurrently with the execution
and delivery of the Merger Agreement, the Rollover Stockholders entered into the Rollover Agreement, as amended, pursuant
to which, at the Effective Time, the Rollover Shares held by the Rollover Stockholders will be contributed to Freedom VCM Holdings in
exchange for a number of issuances of common membership interests of Freedom VCM Holdings.
The Rollover Shares represent
approximately 98100% of the FRG Common Stock held by the Rollover Stockholders immediately prior to the
date hereof. The form of the Rollover Agreement is attached as Annex E to this Proxy Statement. For more information, see the section
of this Proxy Statement entitled “The Rollover Agreement.”
The following paragraph is
inserted following the last full paragraph on page 91 of the Definitive Proxy Statement as follows:
Further to the
above, on or about August 7, 2023, certain Rollover Stockholders entered into the Additional Rollover Agreements with
(i) Freedom VCM Holdings or (ii) Freedom VCM Holdings and BRP Shares, LLC or BRC Shares LLC, as applicable, pursuant to
which each such Rollover Stockholder committed to contribute, immediately prior to the consummation of the Merger, all or a portion
of their shares of FRG Common Stock at a price per share equal to the Per Share Merger Consideration.
The
section of the Definitive Proxy Statement entitled “The Special Meeting—Management Stockholders’ Obligation
to Vote in Favor of the Merger” is hereby amended and supplemented as follows:
The fourth full paragraph
on page 97 of the Definitive Proxy Statement is amended and supplemented as follows:
The Management Stockholders
held approximately 36% of the outstanding FRG Common Stock as of the Record Date. Approval of the Merger Agreement Proposal requires the
affirmative vote of the holders of (a) a Majority of the Outstanding Shares and (b) a Majority of the Unaffiliated Shares, in
each case assuming a quorum is present. The shares of outstanding FRG Common Stock held by the Management Stockholders do not count towards
the Majority of the Unaffiliated Shares. As of the Record Date, there are 21,210,787.39 Unaffiliated Shares, and the vote
of a Majority of the Unaffiliated Shares would require an affirmative vote of 10,605,394 Unaffiliated Shares.
The section of the Definitive Proxy Statement
entitled “Other Important Information Regarding the Consortium Members” is hereby amended and supplemented as follows:
The following paragraph is
inserted prior to the last full paragraph on page 111 of the Definitive Proxy Statement as follows:
Eric F. Seeton serves
as the Company’s Chief Financial Officer since October 2019. The principal office address of Eric F. Seeton is 109 Innovation
Court, Suite J, Delaware, Ohio 43015.
Andrew F. Kaminsky serves
as the Company’s Executive Vice President and Chief Administrative Officer since October 2019. The principal office address
of Andrew F. Kaminsky is 109 Innovation Court, Suite J, Delaware, Ohio 43015.
Kenneth Todd Evans serves
as the Company’s Chief Franchising Officer since August 2020. The principal office address of Kenneth Todd Evans is 109 Innovation
Court, Suite J, Delaware, Ohio 43015.
Forward-looking Statements
This
supplemental disclosure contains forward-looking statements. Forward-looking statements include,
without limitation, projections, predictions, expectations, or beliefs about future events or results and are not statements of historical
fact. Such statements may include statements regarding the completion of the proposed merger and the expected timing thereof, the
expected value provided to stockholders as a result of the proposed merger, the redemption of the Company’s outstanding shares of
preferred stock, the Company’s payment of dividends on its outstanding shares of common stock and preferred stock, the management
of the Company upon completion of the proposed merger, and the Company’s operating and strategic plans upon completion of the proposed
merger. Such forward-looking statements are based on various assumptions as of the time they are
made, and are inherently subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance
or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking
statements. Forward-looking statements are often accompanied by words that convey projected future events or outcomes such as “expect,”
“believe,” “estimate,” “plan,” “project,” “anticipate,” “intend,”
“will,” “may,” “view,” “opportunity,” “potential,” or words of similar meaning
or other statements concerning opinions or judgment of the Company or its management about future events. Although the Company believes
that its expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of its existing
knowledge of its business and operations, there can be no assurance that actual results, performance, or achievements of the Company will
not differ materially from any projected future results, performance or achievements expressed or implied by such forward-looking statements.
Actual future results, performance or achievements may differ materially from historical results or those anticipated depending on a variety
of factors, some of which are beyond the control of the Company, including, but not limited to, the occurrence of any event, change or
other circumstances that could give rise to the termination of the Merger Agreement; the inability to complete the proposed merger due
to the failure to obtain stockholder approval for the proposed merger or the failure to satisfy other conditions to completion of the
proposed merger; risks related to disruption of management’s attention from the Company’s ongoing business operations due
to the proposed merger; unexpected costs, charges or expenses resulting from the proposed merger; the Company’s ability to retain
and hire key personnel in light of the proposed merger; certain restrictions during the pendency of the proposed merger that may impact
the company’s ability to pursue certain business opportunities or strategic transactions; the ability of the buyer to obtain the
necessary financing arrangements set forth in the commitment letters received in connection with the proposed merger; potential litigation
relating to the proposed merger that could be instituted the parties to the Merger Agreement or their respective directors, managers or
officers, including the effects of any outcomes related thereto; the effect of the announcement of the proposed merger on the Company’s
relationships with its franchisees and customers, operating results and business generally; and the risk that the proposed merger will
not be consummated in a timely manner, if at all. The Company refers you to the “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s Form 10-K for the
fiscal year ended December 31, 2022, and comparable sections of the Company’s Quarterly Reports on Form 10-Q and other
filings, which have been filed with the SEC and are available on the SEC’s website at www.sec.gov. All of the forward-looking statements
made in this supplemental disclosure are expressly qualified by the cautionary statements
contained or referred to herein. The actual results or developments anticipated may not be realized or, even if substantially realized,
they may not have the expected consequences to or effects on the Company or its business or operations. Readers are cautioned not to rely
on the forward-looking statements contained in this supplemental disclosure . Forward-looking
statements speak only as of the date they are made and the Company does not undertake any obligation to update, revise or clarify these
forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
Additional Information
and Where to Find It
This supplemental disclosure
is not intended to and does not constitute an offer to sell or the solicitation of an offer to subscribe for or buy or an invitation to
purchase or subscribe for any securities or the solicitation of any vote or approval in any jurisdiction, nor shall there be any sale,
issuance or transfer of securities in any jurisdiction in contravention of applicable law. In connection with the proposed merger, the
Company has filed relevant materials with the Securities and Exchange Commission (the “SEC”), including a proxy statement
on Schedule 14A (the “Proxy Statement”), and the Company, affiliates of Vintage
Capital Management, LLC and certain other parties have filed a transaction statement on Schedule 13E-3 (the “Schedule 13E-3”).
This communication is not a substitute for the Proxy Statement or any other document that the Company may file with the SEC or send to
its stockholders in connection with the proposed merger. STOCKHOLDERS OF THE COMPANY ARE ADVISED TO READ THE PROXY STATEMENT, THE SCHEDULE 13E-3 AND
ANY OTHER DOCUMENTS FILED BY THE COMPANY WITH THE SEC IN CONNECTION WITH THE PROPOSED MERGER BECAUSE THEY CONTAIN IMPORTANT INFORMATION
ABOUT THE COMPANY AND THE BUSINESS TO BE CONDUCTED AT THE SPECIAL MEETING. All such documents, and any future materials when filed, may
be obtained free of charge at the SEC’s website (http://www.sec.gov). These documents and the Company’s other filings with
the SEC are also available free of charge on the Company’s website at www.franchisegrp.com.
Participants in the
Solicitation
The Company and its directors
and executive officers may be deemed to be participants in the solicitation of proxies from the Company’s stockholders with respect
to the proposed merger. Information about the Company’s directors and executive officers and their ownership of the Company’s
common stock is set forth in the Company’s proxy statement on Schedule 14A filed with the SEC on April 7, 2023 and the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 28, 2023. To
the extent that such individual’s holdings of the Company’s common stock have changed since the amounts printed in the Company’s
proxy statement, such changes have been or will be reflected on Statements of Change in Ownership on Form 4 filed with the SEC. Other
information regarding the identity of the potential participants, and their direct or indirect interests in the proposed merger, by security
holdings or otherwise, is set forth in the Proxy Statement and other materials to be filed with SEC in connection with the proposed merger.
Free copies of these materials may be obtained as described in the preceding paragraph.
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