December 17, 2020 – The Court overseeing the FIC Restaurants, Inc. cases confirmed the Debtors' Second Amended Combined Plan of Liquidation and approved the adequacy of the accompanying Disclosure Statement on a final basis [Docket No. 278].

On October 30, 2020, FIC Restaurants, Inc. and four affiliated Debtors (dba Friendly's; “Friendlys” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-12807. At filing, the Debtors, operators of a chain of casual dining restaurants with a focus on ice cream, noted estimated assets between $10.0mn and $50.0mn; and estimated liabilities between $50.0mn and $100.0mn.

On December 16, 2020, the Debtors filed a Second Amended Combined Plan of Liquidation and Disclosure Statement [Docket No. 264].

The Debtors' Memorandum in Support of Plan Confirmation Docket No. 255] provides, “Since the Petition Date, the Debtors have engaged with parties-in-interest, including the U.S. Trustee, landlords, contract counterparties, vendors and other stakeholders in extensive and good-faith discussions in order to resolve various questions, concerns and issues with respect to the Plan, Plan Supplement and Confirmation Order. The Debtors have gone to great lengths to accommodate the comments and requests from all parties and has successfully resolved numerous of their issues and concerns, including, among other things, comments to the Plan and Confirmation Order, the Allowed amount and timing of payment of Rejection Claims and clarifications with respect to the rejection of various insurance agreements." 

Plan Overview

The Combined Document [Docket No. 264] reads: “The Plan represents the Debtors’ proposal in these Chapter 11 Cases for the sale of substantially all assets and liquidation of all or substantially all of their remaining assets pursuant to a (i) concurrent private sale process under section 363 of the Bankruptcy Code, with the closing contingent upon the Effective Date of the Plan; and (ii) a Plan process sponsored by the Plan Sponsor that, in conjunction with the proceeds from the private sale to the Purchaser, will leave all Classes of Claims Unimpaired, other than Secured Claims held by the Secured Lenders, which are non-Debtor affiliated entities (and include the Plan Sponsor), that are waived and released by express consent as substantial contributions to the Plan. The following provides a summary of the key economic terms and mechanics of the Plan:

• All General Unsecured Claims that are Allowed will be Unimpaired under the Bankruptcy Code and paid in full in Cash.
• To the extent not assumed and assigned to the Purchaser, all Executory Contracts and Unexpired Leases will be rejected through the Plan or during the course of the Chapter 11 Cases pursuant to section 365 of the Bankruptcy Code. The non-Debtor counterparties to the rejected Executory Contracts and Unexpired Leases will also be Unimpaired as their Allowed Rejection Claims will be paid in full in cash in accordance with the relevant provisions of the Bankruptcy Code.
• The Debtors will fund distributions under the Plan from (i) Cash generated by continued operations and cash collateral in connection with the Cash Collateral Orders; (ii) proceeds from the concurrent private sale of substantially all assets to the Purchaser; (iii) borrowing under the Credit Agreements prior to the Petition Date; and (iv) commitments obtained from the Plan Sponsor to fund additional amounts after the Effective Date pursuant to existing availability under the Senior 2019 Credit Facility (and prior to the waiver and release of the senior credit facility).
• As noted, all Secured Lender Claims under the Credit Agreements will be waived and released under Class 2A, 2B and 2C after the Effective Date of the Plan as part of the comprehensive settlements and, in addition, substantial contributions made by the other Released Parties under the Plan. This includes, without limitation, the waiver and release of over $430,000 in deferred rent claims held by indirectly affiliated SIC Property, LLC related to corporate owned restaurant locations and a similar waiver of substantial management fees owed to the Debtors’ parent entities.”

The following is summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):

• Class 1: (“Other Priority Claims”) is unimpaired deemed to accept and not entitled to vote on the Plan. The estimated amount of claims is $0 and estimated recovery is 100%.
• Class 2A: (“Senior 2019 Credit Facility Secured Claims”) is unimpaired by consent and not entitled to vote on the Plan. The estimated amount of claims is $43.38mn and estimated recovery is N/A. As part of the comprehensive settlements and substantial contributions under the Plan, the Holder of the Senior 2019 Credit Facility Secured Claim shall, after the Effective Date of the Plan, (i) fund all binding commitments as Plan Sponsor to the Plan pursuant to availability under the Senior 2019 Credit  Facility and then waive, release and discharge such Claim and all Liens on the Debtors’ assets pursuant to the Senior 2019 Credit Facility; and (ii) except as otherwise provided in the Plan, forgo any and all distributions under the Plan on account of such Claim.
• Notwithstanding anything to the contrary herein, in the event all (i) Claims in Classes 1, 3; and 4; and (ii) Administrative Claims and Priority Tax Claims, have in each case been satisfied in full under the Plan, and all other obligations under the Plan (including Statutory Fees) have been satisfied, any remaining funds and/or other assets, including, without limitation all Causes of Action (including those identified on the Schedule of Retained Causes of Action), held by the Debtors or Reorganized Debtors shall vest in and be transferred to the Plan Sponsor.
• Class 2B: (“2018 Credit Facility Secured Claims”) is unimpaired by consent and not entitled to vote on the Plan. The estimated amount of claims is $32.1mn and estimated recovery is N/A. As part of the comprehensive settlements and substantial contributions under the Plan, the Holder of the 2018 Credit Facility Secured Claim shall, after the Effective Date of the Plan, (i) waive, release and discharge such Claim and all Liens on the Debtors’ assets pursuant to the 2018 Credit Facility; and (ii) forgo any and all distributions under the Plan on account of such Claim.
• Class 2C: (“2011 Credit Facility Secured Claims”) is unimpaired by consent and not entitled to vote on the Plan. The estimated amount of claims is $12.4mn and estimated recovery is 100%. As part of the comprehensive settlements and substantial contributions under the Plan, the Holder of the 2011 Credit Facility Secured Claim shall, on the Effective Date of the Plan, (i) waive, release and discharge such Claim and all Liens on the Debtors’ assets pursuant to the 2011 Credit Facility; and (ii) forgo any and all distributions under the Plan on account of such Claim.
• Class 3: (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated amount of claims is $7.12mn (this reflects the BMO Letter of Credit, which is fully cash collateralized) and estimated recovery is 100%. Each Holder of a Class 3 Other Secured Claim shall receive: (A) return of the collateral securing such Other Secured Claim; or (B) Cash equal to the amount of such Other Secured Claim; or (C) such other, less favorable treatment which the Debtors, the Plan Sponsor and the Holder of such Allowed Other Secured Claim have agreed upon in writing.
• Class 4: General (“Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated amount of claims is $3.83mn (this includes an estimated amount of currently unliquidated and contingent claims that may arise pursuant to the rejection of Executory Contracts and Unexpired Leases) and estimated recovery is 100%. Each Holder of a General Unsecured Claim shall receive at the sole option of the Debtors and the Plan Sponsor either: Payment in Cash in the full amount of its General Unsecured Claim; or Such other treatment as would render such Claim Unimpaired pursuant to section 1124 of the Bankruptcy Code.
• Class 5: (“Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan.

Key Documents

On December 3, 2020, the Debtors filed a Plan Supplement, which attached the following [Docket No. 193]:

• Exhibit A: Schedule of Retained Causes of Action
• Exhibit B: Identification of Post-Confirmation Management
• Exhibit C: Assumed Contracts List
• Exhibit D: Assumed and Assigned Contracts List
• Exhibit E: Plan Sponsor Commitment Letter

On December 14, 2020, the Debtors filed an amended Plan Supplement, which attaches the following [Docket No. 254]:

• Exhibit C: Amended Assumed Contracts List and Redline
• Exhibit F: Services Agreement with Carl Marks Advisory Group LLC; and Consulting Agreement with T. Todd Schwendenmann

On December 16, 2020, the Debtors filed a Second amended Plan Supplement, which attaches the following exhibit [Docket No. 263]:

• ·         Exhibit E Amended Plan Sponsor Commitment Letter

Events Leading to the Chapter 11 Filing

The Disclosure Statement provides: “The Debtors in recent years encountered many of the same performance issues faced by fast-casual dining sector as a whole, including substantial headwinds caused by shifting demographics, increased competition and rising costs. The business, which consistently lost money, relied on borrowings under the Credit Facilities as the only way to sustain operations. The Debtors recognized that there was an urgent need to stem cash burn and restore the beloved Friendly’s Restaurant brand to profitability, especially as availability of continued credit was not guaranteed.

First commenced several years ago, the Debtors implemented restructuring initiatives focused on closing unprofitable locations, reducing occupancy and other fixed costs and improving the business at the remaining restaurants by delivering menu innovation, re-energized marketing, and a better overall experience for customers. 

… it soon became apparent to the Debtors and their advisors that a sale of the business was the only long-term viable path forward to preserve the Friendly’s Restaurant brand, save jobs, protect franchisees, and mitigate the negative impact of the Debtors’ distressed financial condition on creditors. And the Debtors’ decision to pursue a strategic restructuring in the form of a sale was only affirmed when, like many restaurant businesses, the Debtors’ incremental progress was sharply interrupted, or better stated halted, by the catastrophic impact of COVID-19 that has caused a dramatic decline in revenue due to the need to close dine-in operations for several months at all franchise and corporate-owned locations.”

Marketing Efforts

The Disclosure Statement provides: "On November 26, 2019, the Debtors’ investment banker, Duff & Phelps Securities, LLP ('Duff & Phelps'), kicked off a marketing process by sending out one- page “teasers” to 40 potential strategic buyers and 76 potential financial buyers. This initial outreach resulted in non-disclosure agreements being entered with 11 strategic buyers and 22 financial buyers for these parties to gain access to additional information regarding the Debtors’ business.

The 2019 marketing process carried over to 2020 when, on January 22, 2020, Duff & Phelps received five initial indications of interest. In February and March 2020, Duff & Phelps coordinated meetings between the Debtors’ management and the remaining pool of potential buyers, and also provided these parties with access to a virtual data room. Duff & Phelps, however, briefly paused the marketing process as COVID-19 began to spread rapidly and the Debtors’ restaurants were forced to close and shelter-in-place orders were issued. When discussions resumed only one of the parties, Brix Holdings, LLC (which was later designated the Purchaser as the buyer of the Debtors’ assets), submitted a letter of intent for the purchase of the Debtors’ assets subject to a bankruptcy filing of the sellers and approval of the transaction on a free and clear basis pursuant to section 363 of the Bankruptcy Code.

Duff & Phelps and the Debtors spent several months in late Spring and Summer 2020 negotiating the Purchaser’s letter of intent, which was ultimately executed on August 10, 2020. Negotiations then continued apace on the Purchase Agreement. On November 1, 2020, the Purchase Agreement was executed by the Purchaser.

While the purchase price is not substantial*, the Sale if approved in these Chapter 11 Cases allows the business to continue, the Friendly’s Restaurants brand and thousands of jobs across the corporate-owned and franchised locations to be saved, the franchisees to be protected and served, and the overall claims pool to be dramatically reduced by virtue of the Purchaser’s assumption of numerous key contracts and the overwhelming majority of the restaurant leases.

*The asset purchase agreement filed at docket No. 19 provides: "the payment of an amount in cash (the 'Cash Payment') equal to (A) $1,987,500 ('Base Purchase Price'), plus (B) the Closing Inventory, plus(C) the Closing Restaurant Cash, plus (D) Closing Prepaid Expenses, plus (E) Closing Security Deposits, less (F) the amount by which Closing Unredeemed Gift Cards exceeds $1,263,000, if any, less (G) the Closing Restaurant Deferred Rent, less (H) the Bloomfield Rent Adjustment (if applicable), less (I) the Coke Prebate; and(ii)the assumption by Buyer of the Assumed Liabilities."

Prepetition Indebtedness

As of the Petition date, the Debtors’ capital structure consists of outstanding funded-debt obligations in the aggregate amount of approximately $87.88mn, and unsecured trade indebtedness of $1.08mn.

About the Debtors

According to the Debtors: “Founded in 1935 as a single ice cream shop in Springfield, Massachusetts, the Debtors grew to a chain of casual dining restaurants that is widely regarded as an authentic, yet affordable, dining experience, with a broad menu offering and hallmark ice cream dessert selection catering to all family members. In its 85-year history, the iconic Friendly’s Restaurants brand name became associated with high quality food, customer service, good times and great memories.

The Debtors’ restaurants hallmark high-quality desserts, including its iconic premium ice cream product offerings. To differentiate itself from other family casual restaurants, the Debtors’ premium ice cream products have always been a focal point of the Friendly’s menu as the highlight of any meal. Customers have cited the Debtors’ ice cream products as the key reason for choosing to dine at Friendly’s.

On a go forward basis, the Debtors will have approximately 50 corporate restaurants and serve as franchisor on another approximately 80 locations. They currently employ approximately 34 full-time employees at the Debtors’ Wilbraham, Massachusetts headquarters and 1,664 other part-time and full-time restaurant employees and restaurant and regional managers. None of the Debtors’ employees unionized or are covered by a collective bargaining agreement.”

Corporate Structure Chart

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