December 17, 2020 – The Court hearing the Furniture Factory Ultimate Holding cases issued an order (i) approving the Debtors' asset purchase agreement (the “APA”) with American Freight FFO, LLC (the “Purchaser,” an affiliate of Franchise Group, Inc.; NASDAQ: FRG) and (ii) the sale of substantially all of the Debtors' assets to the Purchaser for consideration which the Debtors value at approximately $14.0mn. Each of the initial November 4, 2020 APA and a December 15th amendment thereto are attached to the order, with the amendment beginning at page 118.

The agreed consideration includes (i) a $7.0mn credit bid of prepetition debt ($22.0mn outstanding) and (ii) outstanding amounts under the Debtors' $6.84mn debtor-in-possession ("DIP") financing facility.

In a November 5th press release announcing its intention to purchase the Debtors' assets, Brian Kahn, CEO of Franchise Group Inc. stated, “FFO provides us a great opportunity to expand our store footprint and growth at American Freight.”

The Debtors' CEO Hank Mullany added: “With the support of Franchise Group, we are asking the court to approve the sale agreement. The planned transaction places FFO with a partner that has strong financial resources, that is dedicated to growth and support of our people.”

Key Terms of the APA, as amended:

• Sellers: Furniture Factory Ultimate Holding, LP
• Purchaser: American Freight FFO, LLC
• Purchase Price: (other than Assumed Liabilities and Cure Costs): Consists of (i) credit bid a portion of the Secured Debt in an amount of $7,000,000 pursuant to section 363(k) of the Bankruptcy Code, and (ii) credit bid the amount of all outstanding obligations under the DIP Agreement as of the Closing Date (including, without limitation, the Wind Down Cash) pursuant to section 363(k) of the Bankruptcy Code.
• Breakup Fee and Expense Reimbursement: Upon the date Sellers consummate an Alternate Transaction, Sellers shall immediately pay to Buyer a breakup fee equal to two percent (2.0%) of the Purchase Price (exclusive of the value of the Assumed Liabilities) (the “Breakup Fee”), and an expense reimbursement of actual, necessary and documented out-of-pocket expenses associated with this Agreement in an amount not to exceed $200,000 (the “Expense Reimbursement”).

The APA Amendment

On December 15th, the Debtors filed a notice which attached (i) an amendment to the Debtors' November 4th APA and (ii) a transition services agreement (the "TSA") between the Debtors and the Purchaser [Docket No. 178, with the APA amendment attached as Exhibit A and the TSA at Exhibit B].

The APA was filed initially filed with the Debtors' sale motion [Docket No. 16].

The APA amendments, executed prior to the Debtors' entry into debtor-in-possession ("DIP") financing arrangements with the Purchaser, reflect the terms of that financing, notably the provision of $739k of wind-down funding (escrowed for the time being) within the DIP. That amount, therefore, is no longer to be included separately in the definition of "Purchase Price," given that it is already part of the DIP obligations ($6.84mn) which the Purchaser is credit bidding. 

As amended, Section 2.5 now reads in relevant part: "Consideration. As consideration for the sale and transfer of the Purchased Assets, Buyer shall, in addition to the assumption by Buyer of the Assumed Liabilities, (i) credit bid a portion of the Secured Debt in an amount of $7,000,000 pursuant to section 363(k) of the Bankruptcy Code, and (ii) credit bid the amount of all outstanding obligations under the DIP Agreement as of the Closing Date (including, without limitation, the Wind Down Cash) pursuant to section 363(k) of the Bankruptcy Code", with "Wind Down Cash" now defined as “an amount of cash equal to $739,000 to fund the wind-down of the Sellers' estates and the closure of the Chapter 11 Cases, which such amount was funded to Sellers under the terms of the DIP Agreement.”

Additionally, the amendment changes proposed bidder protections, providing: "Section 8.3 of the Asset Purchase Agreement is amended by replacing 'the greater of (i) $360,000 or (ii) three percent (3.0%) of the Purchase Price' with “two percent (2.0%) of the Purchase Price” and replacing the amount of '$400,000' with '$200,000.'”

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