Item 5.02. Departure of Directors or Certain Officers’ Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
(d)At its 2020 Annual Meeting of Shareholders (the “Annual Meeting”), BBQ Holdings, Inc. (the “Company”) elected Charles E. Davidson to the Company’s Board of Directors. Mr. Davidson, age 67, co-founded Wexford Capital LP, a registered investment advisor, in 1994 and serves as its Chairman and Chief Investment Officer. Mr. Davison has primary responsibility for the overall strategic direction of Wexford’s investment activities, serves as the Portfolio Manager for the Wexford Spectrum Funds, the Wexford Catalyst Funds, and the Wexford Credit Opportunities Funds and is the Chairman of the hedge fund investment committee. From 1984 to 1994, Mr. Davidson was a General Partner of Steinhardt Partners, L.P. where he was responsible for all fixed income arbitrage, risk arbitrage, private equity, distressed/bankruptcy and special situation investments of the multi-billion dollar hedge fund. From 1977 to 1984, Mr. Davidson was employed by Goldman Sachs & Co. where he was the head of domestic corporate bond trading and proprietary trading. Mr. Davidson holds a MBA and a BA in economics from the University of California – Los Angeles.
An entity that Mr. Davidson controls is a franchisee of the Company. As a Company franchisee, Mr. Davidson paid approximately $314,000 and $308,000 in franchise royalties and contributions to the Company’s system-wide marketing fund for the Company’s 2018 and 2019 fiscal years, respectively.
On December 8, 2017, as a part of settlement of a legal dispute and distressed situation, the Company approved the transfer of seven franchise restaurants in Utah and Washington (the “Transferred Restaurants”) to an entity (the “Acquirer”) controlled by Mr. Davidson.
The previous franchisee of these seven restaurants experienced financial difficulties for more than one year and, at the time of the sale to the Acquirer, was more than one year in arrears with royalty, miscellaneous and national advertising fund payments that totaled approximately $1.4 million. The previous franchisee engaged a broker who marketed the franchise for several months, which resulted in two potential buyers, one of whom dropped out of the process. These stores were severely neglected, and this was determined to be the best path to economic recovery.
In connection with settling the dispute with the previous franchisee, the Company collected $350,000 in cash from the previous franchisee. Pursuant to the settlement, the Company wrote off accounts receivable of approximately $1.0 million.
As part of the transaction, the Company agreed to certain concessions in order to facilitate the transfer of the Transferred Restaurants to the Acquirer and to incentivize the Acquirer to invest the funds necessary to improve the operations of the Transferred Restaurants and to provide innovation to the Famous Dave’s concept. The economic concessions consisted of the following:
| • | A $500,000 repairs and maintenance credit (the “R&M Credit”), payable through a 50% reduction in required royalty payments until the credit is exhausted; |
| • | Royalty relief, in addition to the R&M Credit, of 2.0% in months one through 12 for an effective royalty rate of 3.0% and 1.0% in months 13 through 24 for an effective royalty rate of 4.0%, and a full royalty of 5.0% to be paid thereafter; |
| • | Development rights in the states of Utah and Washington in exchange for a commitment to open three restaurants before May 1, 2027; and |
| • | Waiver of initial and future franchise fees and area development fees. |
In addition to these economic concessions, the Company modified its standard franchise agreement to eliminate or limit certain obligations of Acquirer as a franchisee, including:
| • | Waiver of reacquisition fees for two additional ten-year terms; |
| • | Acquirer will spend 1.0% of net sales on local marketing, as opposed to the standard 1.5%. |
