Franchise Group, Inc. (Form: 8-K, Received: 04/03/2020 17:17:18)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________

Form 8-K
_____________________

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event Reported): March 30, 2020

Franchise Group, Inc.
(Exact Name of Registrant as Specified in Charter)

Delaware	001-35588	27-3561876
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification Number)

1716 Corporate Landing Parkway, Virginia Beach, Virginia 23454

(Address of Principal Executive Offices) (Zip Code)

(757) 493-8855
(Registrant's telephone number, including area code)

Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
	[ ]	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
	[ ]	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
	[ ]	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
	[ ]	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	FRG	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Item 1.01. Entry into a Material Definitive Agreement.

On April 3, 2020, Franchise Group Intermediate Holdco, LLC, a Delaware limited liability company (“Lead Borrower”) and an indirect subsidiary of Franchise Group, Inc. (the “Company”), Franchise Group New Holdco, LLC (“Global Parent”) and various subsidiaries of Global Parent (together with Lead Borrower and Global Parent, the “Loan Parties”) entered into a Limited Waiver and Amendment Number Two to ABL Credit Agreement (the “ABL Second Amendment”) with various lenders party thereto (the “ABL Lenders”) and GACP Finance Co., LLC, as administrative agent and collateral agent (“ABL Agent”), which amends that certain ABL Credit Agreement dated as of February 14, 2020 by and among the Loan Parties, various lenders from time to time party thereto and the ABL Agent (as amended prior to the ABL Second Amendment, the “Existing ABL Credit Agreement”).

The ABL Second Amendment amended the Existing ABL Credit Agreement to (i) extend the maturity date of the term loan provided pursuant to the Existing ABL Credit Agreement to September 30, 2020, (ii) increase the interest rate margin to 7.50% for loans bearing interest based on LIBOR and 6.50% for loans bearing interest based on an alternate base rate, and (iii) make certain other modifications and grant certain waivers with respect to the Existing ABL Credit Agreement.

Item 1.02. Termination of a Material Definitive Agreement.

As previously disclosed, on March 12, 2020, the Company announced that Franchise Group Newco R, LLC (“Newco R”), an indirect subsidiary of the Company, and Revolution Financial, Inc. and its subsidiaries (collectively, “Revolution”) had agreed to extend the “End Date” (as defined in the asset purchase agreement entered into between the parties on December 16, 2019 (the “Asset Purchase Agreement”)) from March 16, 2020 to April 30, 2020, pursuant to an amendment to the Asset Purchase Agreement for the acquisition of Revolution’s consumer lending business. On March 31, 2020, the Company and Revolution mutually agreed to terminate the Asset Purchase Agreement, effective immediately, pursuant to a mutual termination agreement entered into between the parties (the “Mutual Termination Agreement”).

The foregoing description does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Mutual Termination Agreement attached as Exhibit 2.1 to this Current Report on Form 8-K and incorporated herein by reference.

Item 3.01. Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.

On March 30, 2020, the Company received an anticipated notice (the “Notice”) from the Staff of the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, as a result of its failure to timely file its Transition Report on Form 10-K/T for the transition period ended December 28, 2019 (the “Transition Report”), it is not in compliance with Nasdaq Listing Rule 5250(c)(1) (the “Rule”), which requires timely filing of periodic reports with the Securities and Exchange Commission (the “SEC”).

In the Notice, Nasdaq indicated that the Company has 60 calendar days from the date of the Notice (or until May 29, 2020) to submit a plan to regain compliance with Nasdaq’s continued listing requirements. If such a plan is timely submitted by the Company, the Nasdaq staff may grant the Company up to 180 calendar days from the due date of the Transition Report, or until September 23, 2020, to regain compliance.

On March 12, 2020, the Company filed a Form 12b-25 (the “Form 12b-25”) with the SEC disclosing that it was unable to file the Transition Report within the original prescribed time period without unreasonable effort or expense due to a change in the Company’s fiscal year-end and the complexities associated with incorporating two significant acquisitions that closed during the latter portion of the transition period ended December 28, 2019. Subsequent to the filing of the Form 12b-25, the Company experienced increased challenges associated with the COVID-19 outbreak further complicating the completion of the Transition Report. For example, the Company’s segments, Buddy’s, Sears Outlet (now combined and rebranded with the Company’s subsidiary, American Freight Group, Inc.), Liberty Tax and Vitamin Shoppe are headquartered in four cities: Orlando, Florida, Hoffman Estates, Illinois, Virginia Beach, Virginia and Secaucus, New Jersey, each of which are subject to statewide stay-at-home orders. In addition, as a result of a COVID-19 exposure in its Hoffman Estates location, the Company’s Sears Outlet segment’s headquarters was closed for a short period of time which resulted in unanticipated delays in the completion of field work associated with the audit of the Company’s financial statements. In addition, the Company had curtailed its normal operations practices pursuant to state orders, public health orders and guidelines issued by local authorities which resulted in travel restrictions and most of its staff working remotely, including accounting staff working on the audit. After consultation with the Staff of the SEC, it was determined that the relief provided by SEC Release No. 34-88318, which grants an exemption to certain companies that are unable to meeting filing deadlines due to circumstances related to COVID-19 (the “Order”), was not available to the Company because the Company failed to meet one of the conditions of the Order due to the fact that the effects of COVID-19 on the completion of the Transition Report had not yet become apparent to the Company at the time of the deadline required by the Order.

At this juncture, the Company is unable to predict how future developments associated with the COVID-19 outbreak may affect the Company’s completion of its audit and the filing of Transition Report. As the Company prioritizes the health and safety of its employees, franchisees, customers and communities, it continues to work diligently to complete its delayed filing with the SEC and to regain compliance with the Rule as soon as possible.

The Company issued a press release on April 3, 2020 disclosing, among other things, receipt of the Notice, a copy of which is attached hereto as Exhibit 99.1.

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

Board Member Reduction from Nine to Seven Members

As part of a planned reorganization of the Company’s Board of Directors (the “Board”), on March 31, 2020, the Company reduced the size of the Board from nine directors to seven. In connection with the reorganization, Kenneth M. Young and Bryant R. Riley voluntarily resigned from the Board, effective immediately. Also, in connection with the reorganization, Matthew Avril was appointed as Chairman of the Board. The Board members now consist of Mr. Avril, Patrick Cozza, Thomas Herskovits, Brian R. Kahn, Andrew M. Laurence, Lawrence Miller and G. William, Minner, Jr.

Reduction in Base Salary of Executive Officers

On March 30, 2020, the Company announced that in response to the COVID-19 outbreak, the base salary for its Chief Executive Officer, Brian R. Kahn, will be temporarily reduced by 50%. Additionally, the base salary for the other Company executive officers, including its Chief Financial Officer, and its other executive officers, will be temporarily reduced by 30% to 40% of their base salaries. Further, all of the Company’s executive officers have agreed that any amounts relinquished pursuant to the reduction will not trigger “Good Reason Termination” (as defined in their respective employment agreements with the Company (collectively “Employment Agreements”)) and will not entitle any of them to receive termination benefits contemplated in such Employment Agreements at this time. These reductions in base salaries became effective as of April 1, 2020.

Item 9.01. Financial Statements and Exhibits.

(c) Exhibits

2.1	Mutual Termination Agreement dated as of March 31, 2020 by and among Franchise Group Newco R, LLC, the sellers listed on Schedule I thereto, and Revolution Financial, Inc. as the representative of the sellers.

99.1	Press Release dated April 3, 2020.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Franchise Group, Inc.


Date: April 3, 2020	By:	/s/ Eric F. Seeton
		Eric F. Seeton
		Chief Financial Officer

Exhibit 2.1

TERMINATION AGREEMENT

This TERMINATION AGREEMENT (this “Termination Agreement”) dated as of March 31, 2020 (the “Termination Date”), is by and between Franchise Group Newco R, LLC, a Delaware limited liability company (“Buyer”) and Revolution Financial, Inc., a Texas corporation (the “Seller Representative”).

WHEREAS, Buyer and the Seller Representative entered into that certain that certain Asset Purchase Agreement, dated as of December 16, 2019 (the “Asset Purchase Agreement”), with the Sellers listed on Schedule I thereto (collectively, “Sellers”), pursuant to which Buyer was to be purchase substantially all of the assets of the Sellers on the terms and subject to the conditions set forth in the Asset Purchase Agreement; and

WHEREAS, Buyer and the Seller Representative have mutually agreed to terminate the Asset Purchase Agreement pursuant to Section 8.1(a) thereof on the terms and subject to the conditions set forth therein and in this Termination Agreement;

NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Buyer and the Seller Representative hereby agree as follows (all capitalized terms used and not defined herein shall have the meanings specified in the Asset Purchase Agreement):

1. Termination. Pursuant to Section 8.1(a) of the Asset Purchase Agreement, the Asset Purchase Agreement is hereby terminated, including provisions of the Asset Purchase Agreement which by their terms would otherwise have survived the termination of the Asset Purchase Agreement, and is of no further force or effect, effective as of the Termination Date (the “Termination”).

2. Effect of Termination. Effective as of the Termination Date, none of Buyer (or its Affiliates or its or their respective directors, officers, employees, agents or other representatives), the Seller Representative (or its Affiliates or its or their respective directors, officers, employees, agents or other representatives), or the Sellers (or their Affiliates or their respective directors, officers, employees, agents or other representatives) shall have any liability or obligation to any other party under the Asset Purchase Agreement or in connection with the transactions contemplated by the Asset Purchase Agreement.

3. Representations and Warranties. Each of Buyer and the Seller Representative hereby represents and warrants as to itself that: (a) it has the right, power and authority to enter into, deliver and perform its obligations under this Termination Agreement, (b) the execution, delivery and performance by such party has been duly authorized by all necessary limited liability company or corporate action, as applicable, (c) it has duly and validly executed and delivered this Termination Agreement, and (d) assuming due authorization, execution and delivery of this Termination Agreement by the other party, this Termination Agreement constitutes a legal, valid and binding obligation of such party, enforceable in accordance with its terms, subject to: (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors; and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. Except as expressly set forth in this Section 3, no party makes additional representations or warranties (express, implied or statutory) as to any other matter whatsoever.

4. Release. Each of Buyer and the Seller Representative (on behalf of itself and the Sellers) agree that no party to the Asset Purchase Agreement shall have any obligation to make any payments to any other party to the Asset Purchase Agreement pursuant to the Asset Purchase Agreement or otherwise arising out of or related to any aspect of the Asset Purchase Agreement or the transactions contemplated thereby, and notwithstanding anything in the Asset Purchase Agreement to the contrary, each of Buyer and the Seller Representative, on behalf of itself and each of its Affiliates and Subsidiaries (including, with respect to the Seller Representative, the Sellers) and its and their respective directors, officers, employees, successors and assigns (collectively, the “Releasing Parties”), hereby irrevocably releases, acquits, forever discharges and covenants not to sue the other, and each and all of its Affiliates and Subsidiaries (including, with respect to the Seller Representative, the Sellers) and their respective past and present officers, directors, employees, agents, representatives, attorneys, advisors, successors and assigns (collectively, the “Released Parties”) from any and all claims, demands, causes of action, suits, debts, liabilities, damages, costs, expenses (including, but not limited to, attorney’s fees), judgments, taxes, penalties, charges, complaints, contracts, covenants, agreements, controversies and other obligations, whether now known or unknown, that the Releasing Parties, severally or jointly with others, had, have or may have against the Released Parties, or any of them by reason of, arising out of or relating to any aspect of the Asset Purchase Agreement (collectively, the “Released Claims”).

5. Miscellaneous; No Other Waivers or Amendments. The provisions of Sections 12.2 (No Third Party Beneficiaries), 12.4 (Succession and Assignment), 12.5 (Counterparts), 12.6 (Headings), 12.8 (Governing Law), 12.9 (Consent to Jurisdiction), 12.10 (Amendments and Waivers), 12.12 (Severability), 12.14 (Construction), 12.15 (Incorporation of Exhibits and Schedules) and 12.17 (Waiver of Jury Trial) of the Asset Purchase Agreement shall apply to this Termination Agreement mutatis mutandis as if set forth in their entirely herein.

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, the parties have caused this Termination Agreement to be executed as of the Termination Date.

		FRANCHISE GROUP NEWCO R, LLC

		By:	/s/ Andrew Kaminsky
			Name: Andrew Kaminsky
			Title: Executive Vice President and Chief Administrative Officer


		REVOLUTION FINANCIAL, INC.

		By:	/s/ Michael Brent Turner
			Name: Michael Brent Turner
			Title: Chief Executive Officer

EXHIBIT 99.1

FRANCHISE GROUP, INC. DISCUSSES COVID-19 BUSINESS IMPACT

Announces Strong Cash Position and Increased Liquidity
Receipt of Nasdaq Delinquency Notice

VIRGINIA BEACH, Va., April 03, 2020 (GLOBE NEWSWIRE) -- Franchise Group, Inc. (NASDAQ: FRG) (“Franchise Group” or the “Company”) today is providing a business update primarily based on the impact of COVID-19.

Brian Kahn, CEO of Franchise Group, stated, “First and foremost, Franchise Group is committed to the health and safety of our employees, customers, and their families and neighbors. Our operating management teams have proven to be compassionate, decisive leaders that have demonstrated outstanding leadership in a time of such uncertainty. Our teams are ensuring our business continuity procedures and processes align with the guidance from health officials and state and local governments. We are committed to meeting our business obligations, while serving our communities and customers.”

Mr. Kahn continued, “We are confident that our current businesses are well positioned for both the current economic environment and the long-lasting changes to consumer behavior and discretionary spend that we foresee after the virus crisis has subsided. We have an assortment of brands defined by flexible payment options for deep value, critical and everyday goods and services, as well as an omni-channel health and wellness business. We are far less confident in our ability to predict when this crisis will subside. Therefore, to ensure that we can withstand a crisis that lasts longer than currently predicted, we have been conserving cash. At the end of our fiscal month end of March, excluding Liberty Tax, we had approximately $120 million of cash in our system up from approximately $71 million at the end of fiscal February. Additionally, as Liberty Tax enters the very late stages of its tax preparation season, it had approximately $10 million of net cash at fiscal March end, compared net debt of approximately $93 million at the end of fiscal February. All of our cash generation has been from operations and we maintain a revolver that may provide additional liquidity if necessary. We are grateful to have the support of our vendors, lenders, landlords and service providers to ensure that we maintain a maximum amount of liquidity to navigate through an unpredictable environment.”

The following actions have been taken by the Company in response to the impact of the COVID-19 outbreak:

As of today, all of the Company’s operating businesses, except American Freight, have been deemed essential businesses and remain open in most States;
Store and distribution center associates, who are voluntarily choosing to work, have been provided proper cleaning and protective supplies to ensure the safety of themselves and our customers;
All of the Company’s corporate offices have been temporarily closed and corporate associates are working remotely;
Effective April 1, 2020, the Company’s executive leadership has voluntarily agreed to a temporary reduction in their base salaries. Mr. Kahn, took a 50% base salary reduction while the Company’s other executive officers took reductions of 30% to 40% of their base salaries;
The Board of Directors of the Company has agreed to a temporary reduction of its compensation by 50%;
Where the Company’s stores have been mandated to close, the Company has furloughed workers to give them the ability to receive government benefits while committing to pay 100% of their health and welfare benefits through at least April 30, 2020;
The Company is working to conserve cash and maintain liquidity and has had all operating companies (i) approach their landlords to seek rent deferrals and abatements; (ii) work with vendors and suppliers to extend payment terms; (iii) suspend all non-essential capital expenditures; (iv) dramatically reduce non-committed or contractual marketing activities; and (v) delay non-essential projects and programs;
In addition to the $120 million of cash on hand at the end of fiscal March, the Company expects a significant increase in cash in the coming months from anticipated tax refunds of over $40 million generated from new regulations in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), as well as potential positive working capital adjustments from recent acquisitions; and
The Company has been evaluating every aspect of the CARES Act to determine if there are any additional opportunities for tax relief or funding. In addition to any tax refunds available under the CARES Act, the Company intends to take advantage of the opportunity to defer payroll taxes under the CARES Act and is exploring the availability of the employee retention credit provided for under the CARES Act.

Financial Reporting Update

The Company also announced today that as a result of its failure to timely file its Transition Report on Form 10-K/T for the transition period ended December 28, 2019 (the “Transition Report”), it has received, as anticipated, a notice from The Nasdaq Stock Market LLC (“Nasdaq”) stating that the Company is not in compliance with Nasdaq’s continued listing rules under the timely filing criteria established under Nasdaq Listing Rule 5250(c)(1). Such notices are routinely issued by Nasdaq when a company has failed to timely file its periodic reports with the Securities and Exchange Commission (the “SEC”).Nasdaq informed the Company that, under Nasdaq rules, the Company will have 60 days from March 30, 2020 to submit a plan to regain compliance and 180 days from the due date of the Transition Report, or until September 23, 2020, to file the Transition Report, with the SEC to be compliant. The Company can regain compliance with Nasdaq listing rules before that date by filing the Transition Report with the SEC. The Company expects that it will file the Transition Report by April 30, 2020.

As previously disclosed, the Company was unable to file the Transition Report before the original filing deadline without unreasonable effort or expense due to a change in the Company’s fiscal year-end and the complexities associated with incorporating two significant acquisitions that closed during the latter portion of the transition period ended December 28, 2019. The Company has since experienced increased challenges associated with the COVID-19 outbreak further complicating the completion of the Transition Report. For example, all of the Company’s segments, Buddy’s, Sears Outlet, Liberty Tax and Vitamin Shoppe are headquartered in states that are subject to stay-at-home orders. In addition, as a result of a COVID-19 exposure in its Hoffman Estates location, the Company’s Sears Outlet segment’s headquarters was closed for a short period of time which resulted in unanticipated delays in the completion of field work associated with the audit of the Company’s financial statements. Furthermore, the Company had curtailed its normal operations practices pursuant to state orders, public health orders and guidelines issued by local authorities which resulted in travel restrictions and most of its staff working remotely. While the Company was not afforded the opportunity to utilize the relief provided under the SEC’s COVID-19 order due to its inability to satisfy a condition under the order, based on conversations with the SEC and Nasdaq, the Company does not anticipate any negative consequences from the SEC or Nasdaq due to its delayed filing. The Company expects its shares of common stock to continue to be listed on Nasdaq as the Company does not believe it is in jeopardy of being delisted due to this delay at this time.

About Franchise Group, Inc.
Franchise Group, Inc. (NASDAQ: FRG) is an operator of franchised and franchisable businesses and uses its operating expertise to drive cost efficiencies and grow its brands. Franchise Group’s business lines include Liberty Tax Service, Buddy’s Home Furnishings, Sears Outlet, American Freight and The Vitamin Shoppe. On a combined basis, Franchise Group currently operates over 4,400 locations predominantly located in the U.S. and Canada that are either Company-run or operated pursuant to franchising agreements.

Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, projections, predictions, expectations, or beliefs about future events or results and are not statements of historical fact, including the Company’s expectations regarding its financial condition, its ability to take advantage of opportunities under the CARES Act, its ability to file the Transition Report and the attendant consequences with the SEC and Nasdaq and the continued listing of the Company’s shares of common stock on Nasdaq.. These statements are based upon current expectations, beliefs and assumptions of Company management, and there can be no assurance that such expectations will prove to be correct. 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, many of which are beyond the control of the Company. We refer you to the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s Annual Report on Form 10-K for the year ended April 30, 2019, 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 press release 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 press release. 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.

INVESTOR RELATIONS CONTACT:
Andrew F. Kaminsky
EVP & Chief Administrative Officer
Franchise Group, Inc.
akaminsky@franchisegrp.com
(914) 939-5161