SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 1)
Fredericks of Hollywood Group Inc.
(Name of Issuer)
Common Stock, par value $0.01
(Title of Class of Securities)
35582T108
(CUSIP Number)
Philip A. Falcone
Chief Executive Officer
Harbinger Group Inc.
450 Park Avenue, 30th Floor
New York, New York 10022
(212) 906-8555
(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications)
September 26, 2013
(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§ 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box: ¨
Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 240.13d-7 for other parties to whom copies are to be sent.
* | The remainder of this cover page shall be filled out for a reporting persons initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. |
The information required on the remainder of this cover page shall not be deemed to be filed for the purpose of Section 18 of the Securities Exchange Act of 1934 (Act) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).
SCHEDULE 13D
CUSIP No. 35582T108 | Page 1 of 13 |
1 | Name of reporting person
Five Island Asset Management LLC | |||||
2 | Check the appropriate box if a member of a group (a) ¨ (b) x
| |||||
3 | SEC use only
| |||||
4 | Source of funds
AF | |||||
5 | Check box if disclosure of legal proceeding is required pursuant to Items 2(d) or 2(e) x
| |||||
6 | Citizenship or place of organization
Delaware | |||||
Number of shares beneficially owned by each reporting person with
|
7 | Sole voting power
0 (see Item 5) | ||||
8 | Shared voting power
0 (see Item 5) | |||||
9 | Sole dispositive power
0 (see Item 5) | |||||
10 | Shared dispositive power
0 (see Item 5) | |||||
11 |
Aggregate amount beneficially owned by each reporting person
0 (see Item 5) | |||||
12 | Check box if the aggregate amount in Row (11) excludes certain shares x
| |||||
13 | Percent of class represented by amount in Row (11)
0% (see Item 5) | |||||
14 | Type of reporting person (see instructions)
OO |
SCHEDULE 13D
CUSIP No. 35582T108 | Page 2 of 13 |
1 | Name of reporting person
Harbinger Group Inc. | |||||
2 | Check the appropriate box if a member of a group (a) ¨ (b) x
| |||||
3 | SEC use only
| |||||
4 | Source of funds
AF | |||||
5 | Check box if disclosure of legal proceeding is required pursuant to Items 2(d) or 2(e) x
| |||||
6 | Citizenship or place of organization
Delaware | |||||
Number of shares beneficially owned by each reporting person with
|
7 | Sole voting power
51,984,977 (see Item 5) | ||||
8 | Shared voting power
36,216,537 (see Item 5) | |||||
9 | Sole dispositive power
51,984,977 (see Item 5) | |||||
10 | Shared dispositive power
0 (see Item 5) | |||||
11 |
Aggregate amount beneficially owned by each reporting person
88,201,514 (see Item 5) | |||||
12 | Check box if the aggregate amount in Row (11) excludes certain shares x
| |||||
13 | Percent of class represented by amount in Row (11)
85.4% (see Item 5) | |||||
14 | Type of reporting person (see instructions)
CO |
SCHEDULE 13D
CUSIP No. 35582T108 | Page 3 of 13 |
1 | Name of reporting person
Philip A. Falcone | |||||
2 | Check the appropriate box if a member of a group (a) ¨ (b) x
| |||||
3 | SEC use only
| |||||
4 | Source of funds*
AF | |||||
5 | Check box if disclosure of legal proceeding is required pursuant to Items 2(d) or 2(e) x
| |||||
6 | Citizenship or place of organization
United States of America | |||||
Number of shares beneficially owned by each reporting person with
|
7 | Sole voting power
51,984,977 (see Item 5) | ||||
8 | Shared voting power
36,216,537 (see Item 5) | |||||
9 | Sole dispositive power
51,984,977 (see Item 5) | |||||
10 | Shared dispositive power
0 (see Item 5) | |||||
11 |
Aggregate amount beneficially owned by each reporting person
88,201,514 (see Item 5) | |||||
12 | Check box if the aggregate amount in Row (11) excludes certain shares* x
| |||||
13 | Percent of class represented by amount in Row (11)
85.4% (see Item 5) | |||||
14 | Type of reporting person (see instructions)
IN |
CUSIP No. 35582T108 | Page 4 of 13 |
Item 1. Security and Issuer
This Amendment No. 1 (this Amendment) is being filed by the undersigned to amend the Schedule 13D filed by the Reporting Persons with the Securities and Exchange Commission (the SEC) on March 25, 2013 (as amended, the Schedule 13D), and is being filed by the Reporting Persons with respect to the common stock, par value $0.01 per share (the Common Stock), of Fredericks of Hollywood Group Inc. (the Issuer), a New York corporation with principal executive offices located at 6255 Sunset Boulevard, Hollywood, CA. This Amendment supplements or amends the Schedule 13D as set forth herein.
Item 2. Identity and Background
Item 2 of the Schedule 13D is hereby amended and restated in its entirety to include the following:
(ac) This Schedule 13D is being filed by Five Island Asset Management LLC, a Delaware limited liability company (Five Island), Harbinger Group Inc., a Delaware corporation (HGI), and Mr. Philip Falcone (together with Five Island and HGI, the Reporting Persons).
The shares of Common Stock reported in this Schedule 13D are beneficially owned by HGI and held in the name of HGI Funding, LLC, a Delaware limited liability company (HGI Funding) and a direct wholly-owned subsidiary of HGI.
Mr. Falcone does not own directly any securities of the Issuer. However, as a result of Mr. Falcones position as the Chief Executive Officer and Chairman of the Board of Directors of HGI and his relationship with the Controlling Persons (as defined below), Mr. Falcone may be deemed to beneficially own securities of the Issuer beneficially owned by HGI. Each of the Reporting Persons specifically disclaims beneficial ownership in the Common Stock reported herein except to the extent it or he actually exercises voting or dispositive power with respect to such Common Stock.
The information required by General Instruction C to Schedule 13D with respect to (i) the executive officers and directors of HGI is listed on Schedule A hereto under the heading HGI Executive Officers and Directors; and (ii) each person controlling HGI is listed on Schedule A hereto under the heading HGI Controlling Persons (the persons identified in clause (i) and (ii), the Controlling Persons and, together with the Reporting Persons, the Harbinger Persons). HGI is a holding company with its principal business address located at 450 Park Avenue, 30th Floor, New York, NY 10022. Mr. Falcone is a United States citizen. Mr. Falcone is the Chief Executive Officer and Chairman of the Board of Directors of HGI and has the relationship with the Controlling Persons described in Schedule A hereto.
Certain additional information required by this Item 2 and General Instruction to Schedule 13D is set forth on Schedule A, which is incorporated by reference herein.
Item 3. Source and Amount of Funds or Other Consideration
Item 3 of the Schedule 13D is hereby amended to add the following as the last paragraph thereof:
On September 26, 2013, HGI Funding agreed to purchase from Five Island 104,545 shares of Series B Preferred Stock and 10,166,977 Warrants (as defined below) (the Transferred Securities) pursuant to a transfer and sale
CUSIP No. 35582T108 | Page 5 of 13 |
agreement, dated as of September 26, 2013, by and between Five Island and HGI Funding (the Transfer and Sale Agreement) in exchange for $10,653,100. Pursuant to the terms of the Transfer and Sale Agreement, the transfer of the Transferred Securities will become effective on September 27, 2013. In connection with HGI Fundings purchase of the Transferred Securities, Five Island also assigned to HGI Funding all of Five Islands right, title and interest in and to the Voting Agreement pursuant to an assignment agreement, dated as of September 26, 2013, by and between Five Island and HGI Funding (the Assignment Agreement). HGI Funding funded the acquisition of the Issuers securities from Five Island described in this Amendment with funds available from internal working capital.
Reference to the Transfer and Sale Agreement and the Assignment Agreement are qualified in their entirety by the Transfer and Sale Agreement and the Assignment Agreement, copies of which are attached hereto as Exhibits 1 and 2, respectively, and incorporated herein by reference in their entirety.
Item 4. Purpose of the Transaction
Item 4 of the Schedule 13D is hereby amended to add the following paragraphs:
On September 26, 2013, HGI Funding, TTG Apparel, LLC, a Delaware limited liability company (TTG) and Tokarz Investments, LLC, a Delaware limited liability (TKZ), Fursa Alternative Strategies LLC, a Delaware limited liability (Fursa) and Arsenal Group LLC, a Delaware limited liability (Arsenal and, together with HGI Funding, TTG, TKZ and Fursa, the Consortium Members) entered into a non-binding consortium term sheet agreement (the Consortium Term Sheet). Under the Consortium Term Sheet, the Consortium Members agreed, among other things, to jointly deliver a non-binding proposal (the Proposal) to the Issuers board of directors for the acquisition of all of the publicly held Common Stock (the Publicly Held Shares) in a going private transaction with the Issuer, and to use their commercially reasonable efforts to work together to structure, negotiate and do all things necessary or desirable, subject to the Issuers approval, to enter into definitive agreements in respect of the transactions contemplated under the Proposal.
On September 26, 2013, the Consortium Members submitted a letter outlining the Proposal (the Proposal Letter) to the Issuers board of directors. Under the Proposal, the Consortium Members would acquire, through an acquisition vehicle (the Acquisition Vehicle) to be formed by the Consortium Members, all of the Publicly Held Shares for $0.23 per share of Common Stock (the Cash Merger Consideration). The Consortium Members also stated in the Proposal that they are interested only in acquiring the Publicly Held Shares, and that they do not intend to sell their stakes in the Issuer. The Proposal would be structured as a merger requiring the approval of not less than two-thirds of the Issuers shareholders. Under the Proposal, the holders of the Publicly Held Shares would receive the Cash Merger Consideration, and the Consortium Members would receive equity in the Acquisition Vehicle under the terms of an equity rollover agreement. Under the Proposal, HGI Funding and its affiliates will work with the Issuers existing lenders to cause the Issuers current credit facility to be increased by up to $11 million (the Loan Increase Amount). Promptly following such increase, it is expected that $5 million of the Loan Increase Amount (the Bridge Portion) will be funded to provide short term working capital and balance sheet liquidity to the Issuer. The Bridge Portion will have an initial
CUSIP No. 35582T108 | Page 6 of 13 |
maturity date of 6 months following the funding thereof. At the effective time of the Merger (as defined in the Consortium Term Sheet), the remainder of the Loan Increase Amount will be funded and used to provide acquisition financing in connection with the Merger. Upon the consummation of the Merger, HGI Funding and its affiliates will use their reasonable best efforts to work with the Issuers lenders to extend the maturity date of the Bridge Portion to equal the maturity date of the Issuers other indebtedness under its existing credit agreement.
The Consortium Members stated in the Proposal Letter that they are prepared to negotiate and finalize the terms of the proposed transactions in definitive transaction documents, which will provide for covenants and conditions typical and appropriate for transactions of this type. The Proposal also provided that no binding obligation on the part of the Issuer or the Consortium Members shall arise with respect to the proposed transactions unless and until a definitive agreement has been executed. If the transactions contemplated under the Proposal are completed, the Common Stock would become eligible for termination of registration pursuant to Section 12(g) of the Exchange Act and cease to be quoted on the OTCQB Marketplace.
The foregoing is a summary of the Consortium Members current proposal and should not be construed as an offer to purchase shares of the Issuers Common Stock. Neither the Issuer, on the one hand, nor any of the Consortium Members or Reporting Persons, on the other hand, is obligated to pursue or to complete the proposed transaction with the other. The Consortium Members and Reporting Persons reserve the right to modify the Proposal in any way or to withdraw the Proposal at any time.
The Reporting Persons do not intend to update this Amendment by making further disclosure regarding any plans and the Proposal described herein until a definitive agreement has been reached, or unless disclosure is otherwise required under applicable securities laws. The information set forth in response to this Item 4, and references to the Transfer and Sale Agreement, the Assignment Agreement, the Consortium Term Sheet and the Proposal in this Amendment, are qualified in their entirety by reference to the Transfer and Sale Agreement, the Assignment Agreement, the Consortium Term Sheet and the Proposal Letter, copies of which are attached hereto as Exhibits 1 through 4, respectively, and incorporated herein by reference in their entirety.
CUSIP No. 35582T108 | Page 7 of 13 |
Item 5. Interest in Securities of the Issuer
Item 5 of the Schedule 13D is hereby amended and restated in its entirety to include the following:
References to percentage ownerships of Common Stock in this Schedule 13D are based on the 103,338,431 voting securities of the Issuer believed by the Reporting Persons to be outstanding as of June 11, 2013, which are comprised of (i) 39,142,699 shares of Common Stock and (ii) voting securities of the Issuer outstanding after giving effect to the exercise or conversion of (A) 55,625 shares of Series A Preferred Stock (as defined in Item 6 of the Schedule 13D), representing, in the aggregate, 6,011,905 shares of Common Stock, which are owned by TTG and which the Reporting Persons may be deemed to beneficially own (as described herein), (B) 104,545 shares of Series B Preferred Stock, representing, in the aggregate, 41,818,000 shares of Common Stock, which are owned beneficially by the Reporting Persons, (C) warrants representing, in the aggregate, 1,500,000 shares of Common Stock, which are owned by Fursa and Arsenal and which the Reporting Persons may be deemed to beneficially own (as described herein), (D) warrants representing, in the aggregate, 1,500,000 shares of Common Stock, which are owned by TTG and which the Reporting Persons may be deemed to beneficially own (as described herein), (E) certain Corresponding Securities (as defined below) representing, in the aggregate, 3,198,850 shares of Common Stock, which are not held by the Reporting Persons or the Shareholders, and (F) Warrants representing, in the aggregate, 10,166,977 shares of Common Stock, which are beneficially owned by the Reporting Persons. As discussed further below, the Warrants may not be exercised unless the Corresponding Securities (as defined below), which are not beneficially owned by the Reporting Persons, are exercised or converted prior to, or simultaneously with, the exercise of the Warrants. Accordingly, for purposes of calculating percentage ownerships of Common Stock in this Schedule 13D, it is assumed that the warrants representing 3,198,850 shares of Common Stock not held by the Reporting Persons or the Shareholders have been exercised.
(a, b) As of the date hereof, HGI (through HGI Funding) may be deemed to beneficially own (i) 104,545 shares of Series B Preferred Stock, which are convertible into an aggregate of 41,818,000 shares of Common Stock and (ii) 10,166,977 shares of Common Stock, which HGI Funding may purchase pursuant to warrants with exercise prices ranging from $0.01 to $1.21 per share (the Warrants). Pursuant to their terms, the Warrants are only exercisable upon a corresponding exercise or conversion of securities representing 10,166,977 shares of Common Stock (the Corresponding Securities), 3,198,850 of which are not held by the Reporting Persons or the Shareholders.
As a result of the Consortium Members entering into the Consortium Term Sheet, HGI (through HGI Funding) may be deemed to share with each Shareholder the power to vote, or to direct the voting of, Common Stock that may be deemed to be beneficially owned by such Shareholders. In addition, as a result of the assignment of the Voting Agreement by Five Island to HGI Funding, HGI (through HGI Funding) may be deemed to share with each Shareholder the power to vote, or to direct the voting of, such Shareholders Common Stock solely with respect to those matters described in the Voting Agreement. Accordingly, for purposes of Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the Exchange Act), HGI (through HGI Funding) may be deemed to beneficially own the 36,216,537 shares of Common Stock that are beneficially owned by the Shareholders, and HGI and the Shareholders may be deemed to be members of a group within the meaning of Section 13(d)(3) of the Exchange Act. The Reporting Persons expressly disclaim any such group membership and nothing herein shall be deemed an admission by the Reporting Persons as to the existence of such a group.
Accordingly, if HGI (through HGI Funding) is deemed to beneficially own the 36,216,537 shares of Common Stock that are owned by the Shareholders, as of the date hereof, HGI (through HGI Funding) may be deemed to be the beneficial owner of 88,201,514 shares of Common Stock, constituting 85.4% of the outstanding voting securities of the Issuer. HGI (through HGI Funding) has the sole power to vote or direct the vote of 51,984,977 shares of Common Stock; may be deemed to have shared power to vote or direct the vote of 36,216,536 shares of Common Stock (if HGI is deemed to beneficially own the shares of Common Stock that are owned by the Shareholders); has sole power to dispose or direct the disposition of 51,984,977 shares of Common Stock; and has shared power to dispose or direct the disposition of 0 shares of Common Stock.
CUSIP No. 35582T108 | Page 8 of 13 |
(a, b) As of the date hereof, Mr. Falcone does not own directly any securities of the Issuer. However, as a result of relationships described in Item 2 hereof, HGI and Mr. Falcone may be deemed to beneficially own the Common Stock owned by HGI. Each of the Reporting Persons specifically disclaims beneficial ownership in the Common Stock reported herein except to the extent it or he actually exercises voting or dispositive power with respect to such Common Stock.
(c) Other than as described in this Amendment, to the Reporting Persons knowledge, neither the Reporting Persons, nor any Schedule A Person has effected any transaction in the shares of Common Stock during the past 60 days.
(d) To the Reporting Persons knowledge, no person other than the Shareholders has the right to receive, or the power to direct the receipt of, dividends from, or the proceeds from the sale of, the shares of Common Stock covered by this Amendment.
(e) On September 26, 2013, Five Island ceased to be the beneficial owner of any securities of the Issuer.
All information contained in this Amendment relating to (i) the Consortium Members (other than HGI Funding), and (ii) the shares of Common Stock owned by each of the Shareholders, is based on information provided by such Consortium Member or Shareholder, respectively, or contained in publicly available filings. While the Reporting Persons have no reason to believe that such information is inaccurate or incomplete, the Reporting Persons do not assume any responsibility for the accuracy or completeness of such information.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer
Item 6 of the Schedule 13D is hereby amended to add the following paragraphs:
The descriptions of the principal terms of the Proposal and the Consortium Term Sheet under Item 4 are incorporated herein by reference in their entirety.
To the best knowledge of the Reporting Persons, except as provided herein, there are no other contracts, arrangements, understandings or relationships (legal or otherwise) among the Reporting Persons and between any of the Consortium Members and any other person with respect to any securities of the Issuer, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, divisions of profits or loss, or the giving or withholding of proxies, or a pledge or contingency, the occurrence of which would give another person voting power over the securities of the Issuer.
Item 7. Material to be filed as Exhibits.
Exhibit 1 |
Transfer and Sale Agreement by and between Five Island Asset Management LLC and HGI Funding, LLC, dated as of September 26, 2013. | |
Exhibit 2 |
Assignment Agreement by and between Five Island Asset Management LLC and HGI Funding, LLC, dated as of September 26, 2013. | |
Exhibit 3 |
Consortium Term Sheet by and among the Consortium Members, dated as of September 26, 2013. | |
Exhibit 4 |
Proposal Letter from the Consortium Members to the Issuers board of directors, dated as of September 26, 2013. |
Schedule A
HGI Executive Officers and Directors
Name | Business Address | Citizenship | Principal Occupation | |||
Philip A. Falcone | 450 Park Avenue, 30th Floor, New York, NY 10022 |
US | Chief Executive Officer & Chairman of the Board of HGI (See below for relationship with Controlling Persons) | |||
Omar M. Asali | 450 Park Avenue, 30th Floor, New York, NY 10022 |
US | Director and President | |||
Thomas A. Williams | 450 Park Avenue, 30th Floor, New York, NY 10022 |
US | Executive Vice President and Chief Financial Officer | |||
David M. Maura | 450 Park Avenue, 30th Floor, New York, NY 10022 |
US | Executive Vice President & Director | |||
Michael Kuritzkes | 450 Park Avenue, 30th Floor, New York, NY 10022 |
Executive Vice President & General Counsel | ||||
Michael Sena | 450 Park Avenue, 30th Floor, New York, NY 10022 |
US | Vice President and Chief Accounting Officer | |||
Lap Wai. Chan | 450 Park Avenue, 30th Floor, New York, NY 10022 |
US | Director | |||
Keith M. Hladek | 450 Park Avenue, 30th Floor, New York, NY 10022 |
US | Director | |||
Frank Ianna | 450 Park Avenue, 30th Floor, New York, NY 10022 |
US | Director | |||
Gerald Luterman | 450 Park Avenue, 30th Floor, New York, NY 10022 |
US | Director | |||
Robin Roger | 450 Park Avenue, 30th Floor, New York, NY 10022 |
US | Director |
HGI Controlling Persons
Name |
Business Address |
Citizenship |
Principal Occupation | |||
Harbinger Capital Partners Master Fund I, Ltd. (the Master Fund) | c/o International Fund Services (Ireland) Limited, 78 Sir John Rogersons Quay, Dublin 2, Ireland | Cayman Islands |
Investment Vehicle | |||
Harbinger Capital Partners LLC (HCP LLC) |
450 Park Avenue, 30th Floor, New York, NY 10022 |
Delaware | Investment Manager of the Master Fund | |||
Harbinger Holdings, LLC (Harbinger Holdings) | 450 Park Avenue, 30th Floor, New York, NY 10022 |
Delaware | Manager of HCP LLC, Managing Member of HCPSS (as defined below) | |||
Harbinger Capital Partners Special Situations Fund, L.P. (the Special Fund) | 450 Park Avenue, 30th Floor, New York, NY 10022 |
Delaware | Investment Vehicle | |||
Harbinger Capital Partners Special Situations GP, LLC (HCPSS) | 450 Park Avenue, 30th Floor, New York, NY 10022 |
Delaware | General Partner of the Special Fund | |||
Global Opportunities Breakaway Ltd. (the Global Fund) | c/o Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, Cayman Islands KY1- 1104 | Cayman Islands |
Investment Vehicle | |||
Harbinger Capital Partners II LP | 450 Park Avenue, 30th Floor, New York, NY 10022 |
Delaware | Investment Manager of the Global Fund | |||
Philip A. Falcone | 450 Park Avenue, 30th Floor, New York, NY 10022 |
U.S. | Managing Member of Harbinger Holdings, Portfolio Manager of the Master Fund, Portfolio Manager of the Special Fund |
None of the Harbinger Persons have, during the last five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). Except as set forth below, none of the Harbinger Persons have, during the last five years, been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.
In June 2012, HCP LLC settled administrative proceedings regarding compliance with Rule 105 of Regulation M with respect to three offerings. In connection with the settlement, the Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 and Section 203(e) of the Investment Advisers Act of 1940, making findings, and imposing remedial sanctions and a cease-and-desist order against HCP LLC for three violations of Rule 105. The order censures HCP LLC and requires HCP LLC to cease and desist from committing or causing any violations and any future violations of Rule 105. HCP LLC paid disgorgement, prejudgment interest and a civil monetary penalty in connection with the order. HCP LLC consented to the issuance of this order without admitting or denying any of the findings contained therein.
On September 16, 2013, the United States District Court for the Southern District of New York entered a final judgment (the Final Judgment) approving a settlement between the Securities and Exchange Commission (SEC) and HCP LLC, HCPSS, Harbinger Capital Partners Offshore Manager, L.L.C., and Philip Falcone (collectively, the HCP Parties), in connection with the two civil actions previously filed against the HCP Parties by the SEC. One civil action alleged that certain HCP Parties violated the anti-fraud provisions of the federal securities laws by engaging in market manipulation in connection with the trading of the debt securities of a particular issuer from 2006 to 2008. The other civil action alleged that certain HCP Parties violated the anti-fraud provisions of the federal securities laws in connection with a loan made by HCPSS to Philip Falcone in October 2009 and alleged further violations in connection with the circumstances and disclosure regarding alleged preferential treatment of, and agreements with, certain fund investors.
The Final Judgment bars and enjoins Mr. Falcone for a period of five years (after which he may seek the consent of the appropriate self-regulatory organization or if none, the SEC, to have the bar and injunction lifted) from acting as or being an associated person of any broker, dealer, investment adviser, municipal securities dealer, municipal adviser, transfer agent, or nationally recognized statistical rating organization, as those terms are defined in
Section 3 of the Securities Exchange Act of 1934 and Section 202 of the Investment Advisers Act of 1940 (such specified entities, collectively, the Specified Entities). Under the Final Judgment, Mr. Falcone may continue to own and control HGI and its subsidiaries and continue to serve as HGIs Chief Executive Officer, director and Chairman of the Issuers board except that during the period of the bar Mr. Falcone may not, other than as a result of his ownership and control of the HGI and its subsidiaries, engage in any actions that would result in him being an associated person of certain subsidiaries of HGI that are Specified Entities. During the period of the bar, Mr. Falcone may also remain associated with HCP LLC and other HCP LLC related entities, provided that, during such time, Mr. Falcones association must be limited as set forth in the Final Judgment. The settlement requires the HCP Parties to pay disgorgement of profits, prejudgment interest, and civil penalties totaling approximately $18 million.
JOINT FILING AGREEMENT
The undersigned agree that this Amendment No. 1 to Schedule 13D relating to the shares of Common Stock (par value $0.01 per share) of Fredericks of Hollywood Group Inc. shall be filed on behalf of the undersigned.
FIVE ISLAND ASSET MANAGEMENT LLC | ||
/s/ Thomas A. Williams | ||
Name: | Thomas A. Williams | |
Title: | Executive Vice President and Chief Financial Officer | |
HARBINGER GROUP INC. | ||
/s/ Thomas A. Williams | ||
Name: | Thomas A. Williams | |
Title: | Executive Vice President and Chief Financial Officer |
/s/ Philip A. Falcone |
Philip A. Falcone |
SIGNATURES
After reasonable inquiry and to the best of his or its knowledge and belief, the undersigned certify that the information set forth in this statement is true, complete and correct.
Dated: September 27, 2013
FIVE ISLAND ASSET MANAGEMENT LLC | ||
/s/ Thomas A. Williams | ||
Name: | Thomas A. Williams | |
Title: | Executive Vice President and Chief Financial Officer | |
HARBINGER GROUP INC. | ||
/s/ Thomas A. Williams | ||
Name: | Thomas A. Williams | |
Title: | Executive Vice President and Chief Financial Officer |
/s/ Philip A. Falcone | ||
Philip A. Falcone |
Exhibit 1
TRANSFER AND SALE AGREEMENT
TRANSFER AND SALE AGREEMENT (Agreement), dated as of September 26, 2013, between HGI Funding, LLC, a Delaware limited liability company (HGI Funding), and Five Island Asset Management LLC, a Delaware limited liability company (FIAM). Each of HGI Funding and FIAM referred to as a Party and collectively the Parties.
W I T N E S S E T H:
WHEREAS, FIAM wishes to sell to HGI Funding, and HGI Funding wishes to purchase from FIAM, all of FIAMs right, title and interest in and to the following securities:
A. | 104,545 shares of Series B Convertible Preferred Stock, together with all accrued dividends paid or payable thereon to date, of Fredericks of Hollywood Group Inc. (the Company); |
B. | That certain Common Stock Purchase Warrant to purchase 500,000 shares of the Companys common stock at an initial exercise price of $0.45 per share, annexed hereto as Exhibit A; |
C. | That certain Common Stock Purchase Warrant to purchase 500,000 shares of the Companys common stock at an initial exercise price of $0.53 per share, annexed hereto as Exhibit B; |
D. | That certain Common Stock Purchase Warrant to purchase 500,000 shares of the Companys common stock at an initial exercise price of $0.60 per share, annexed hereto as Exhibit C; |
E. | That certain Common Stock Purchase Warrant to purchase 1,897,500 shares of the Companys common stock at an initial exercise price of $0.67 per share, annexed hereto as Exhibit D; |
F. | That certain Common Stock Purchase Warrant to purchase 1,380,850 shares of the Companys common stock at an initial exercise price of $1.21 per share, annexed hereto as Exhibit E; and |
G. | That certain Common Stock Purchase Warrant to purchase 5,468,127 shares of the Companys common stock at an initial exercise price of $0.01 per share, annexed hereto as Exhibit F. |
The foregoing securities are referred to herein as the FOH Securities.
NOW, THEREFORE, to implement the foregoing and in consideration of the mutual agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. Sale of FOH Securities. FIAM hereby agrees to sell, transfer, convey, assign and deliver to HGI Funding, and HGI Funding hereby agrees to purchase and accept, for an aggregate purchase price of $10,653,100, all of FIAMs right, title and interest in and to the FOH Securities on the Closing Date. For purposes of this Agreement the Closing Date shall mean September 27, 2013.
2. Assignment of Voting Agreement. Contemporaneously with the execution of this Agreement, FIAM and HGI Funding are entering into a an assignment agreement, pursuant to which FIAM shall assign to HGI Funding all of its right, title and interest in and to that certain Voting Agreement, dated as of March 15, 2013, by and among FIAM, TTG Apparel, LLC, a Delaware limited liability company, Tokarz Investments, LLC, a Delaware limited liability company, Arsenal Group, LLC, a Delaware limited liability company and Fursa Alternative Strategies LLC, a Delaware limited liability company (the Voting Agreement Assignment). A duly executed copy of the Voting Agreement Assignment is attached hereto as Exhibit G.
3. Miscellaneous.
(a) Further Assurances. Each Party hereby agrees that, from time to time at the others request, it will execute and deliver such further instruments of conveyance, transfer and assignment or of assumption and release, as the case may be, and will take such action as the other may reasonably request in order to more fully give effect to and implement the transactions contemplated by this Agreement.
(c) Binding Effect; Benefits, Etc. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and assigns. Nothing in this Agreement, express or implied, is intended or shall be construed to give any person other than the Parties or their respective successors or assigns any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein.
(d) Amendment. This Agreement may be amended, modified or supplemented only by a written instrument executed by the Parties.
(e) Assignability. Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by any Party without the prior written consent of the other Parties hereto.
(f) Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York (regardless of the laws that might otherwise govern under applicable principles or rules of conflicts of law to the extent such principles or rules are not mandatorily applicable by statute and would require the application of the laws of another jurisdiction).
2
(g) Section and Other Headings. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.
(h) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument.
(i) Entire Agreement. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, between the Parties with respect to the subject matter hereof.
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IN WITNESS WHEREOF, the parties have duly executed this Transfer and Sale Agreement by their authorized representatives as of the date first written above.
HGI FUNDING, LLC | ||||
By: | /s/ Thomas A. Williams | |||
Name: | Thomas A. Williams | |||
Title: | Executive Vice President, Chief Financial Officer |
FIVE ISLAND ASSET MANAGEMENT LLC | ||||
By: | /s/ Thomas A. Williams | |||
Name: | Thomas A. Williams | |||
Title: | Executive Vice President, Chief Financial Officer |
[Signature Page to Transfer and Sale Agreement]
Exhibit A
ASSIGNMENT FORM
Common Stock Purchase Warrant to purchase 500,000 shares of the Companys common stock at an initial exercise price of $0.45 per share
FOR VALUE RECEIVED, Five Island Asset Management LLC hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant with respect to the number of shares of Common Stock covered thereby set forth below, unto:
Name of Assignee |
Address |
No. of Shares | ||||
HGI Funding, LLC |
450 Park Avenue, 30th Floor, New York, NY 10022 |
500,000 |
Dated: | September 27, 2013 | |
Signature: | /s/ Thomas A. Williams | |
Dated: | September 27, 2013 | |
Witness: | /s/ Kostas Cheliotis |
Exhibit B
ASSIGNMENT FORM
Common Stock Purchase Warrant to purchase 500,000 shares of the Companys common stock at an initial exercise price of $0.53 per share
FOR VALUE RECEIVED, Five Island Asset Management LLC hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant with respect to the number of shares of Common Stock covered thereby set forth below, unto:
Name of Assignee |
Address |
No. of Shares | ||||
HGI Funding, LLC |
450 Park Avenue, 30th Floor, New York, NY 10022 |
500,000 |
Dated: | September 27, 2013 | |
Signature: | /s/ Thomas A. Williams | |
Dated: | September 27, 2013 | |
Witness: | /s/ Kostas Cheliotis |
Exhibit C
ASSIGNMENT FORM
Common Stock Purchase Warrant to purchase 500,000 shares of the Companys common stock at an initial exercise price of $0.60 per share
FOR VALUE RECEIVED, Five Island Asset Management LLC hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant with respect to the number of shares of Common Stock covered thereby set forth below, unto:
Name of Assignee |
Address |
No. of Shares | ||||
HGI Funding, LLC |
450 Park Avenue, 30th Floor, New York, NY 10022 |
500,000 |
Dated: | September 27, 2013 | |
Signature: | /s/ Thomas A. Williams | |
Dated: | September 27, 2013 | |
Witness: | /s/ Kostas Cheliotis |
Exhibit D
ASSIGNMENT FORM
Common Stock Purchase Warrant to purchase 1,897,500 shares of the Companys common stock at an initial exercise price of $0.67 per share
FOR VALUE RECEIVED, Five Island Asset Management LLC hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant with respect to the number of shares of Common Stock covered thereby set forth below, unto:
Name of Assignee |
Address |
No. of Shares | ||||
HGI Funding, LLC |
450 Park Avenue, 30th Floor, New York, NY 10022 |
1,818,000 |
Dated: | September 27, 2013 | |
Signature: | /s/ Thomas A. Williams | |
Dated: | September 27, 2013 | |
Witness: | /s/ Kostas Cheliotis |
Exhibit E
ASSIGNMENT FORM
Common Stock Purchase Warrant to purchase 1,380,850 shares of the Companys common stock at an initial exercise price of $1.21 per share
FOR VALUE RECEIVED, Five Island Asset Management LLC hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant with respect to the number of shares of Common Stock covered thereby set forth below, unto:
Name of Assignee |
Address |
No. of Shares | ||||
HGI Funding, LLC |
450 Park Avenue, 30th Floor, New York, NY 10022 |
1,380,850 |
Dated: | September 27, 2013 | |
Signature: | /s/ Thomas A. Williams | |
Dated: | September 27, 2013 | |
Witness: | /s/ Kostas Cheliotis |
Exhibit F
ASSIGNMENT FORM
Common Stock Purchase Warrant to purchase 5,468,127 shares of the Companys common stock at an initial exercise price of $0.01 per share
FOR VALUE RECEIVED, Five Island Asset Management LLC hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant with respect to the number of shares of Common Stock covered thereby set forth below, unto:
Name of Assignee |
Address |
No. of Shares | ||||
HGI Funding, LLC |
450 Park Avenue, 30th Floor, New York, NY 10022 |
5,468,127 |
Dated: | September 27, 2013 | |
Signature: | /s/ Thomas A. Williams | |
Dated: | September 27, 2013 | |
Witness: | /s/ Kostas Cheliotis |
Exhibit G
Assignment of Voting Agreement
Exhibit 2
ASSIGNMENT AND ASSUMPTION AGREEMENT
This ASSIGNMENT AND ASSUMPTION AGREEMENT is made as of this 26th day of September, 2013 (this Agreement), by and between Five Island Asset Management LLC, a Delaware limited liability company (Assignor) and HGI Funding, LLC, a Delaware limited liability company (Assignee). Capitalized terms used but not defined herein shall have the meanings given to such terms in the Transfer and Sale Agreement (as defined below).
W I T N E S S E T H:
WHEREAS, Assignor and Assignee are party to that certain Transfer and Sale Agreement, dated as of September 27, 2013, pursuant to which Assignor has agreed to sell to Assignee all of Assignors right, title and interest in and to the Series B Convertible Preferred Stock of Fredericks of Hollywood Group Inc. (the Transfer and Sale Agreement) on the Closing Date;
WHEREAS, Assignor has entered into that certain Voting Agreement, dated as of March 15, 2013 (the Voting Agreement) by and among Assignee, TTG Apparel, LLC, a Delaware limited liability company, Tokarz Investments, LLC, a Delaware limited liability company, Arsenal Group, LLC, a Delaware limited liability company, and Fursa Alternative Strategies LLC, a Delaware limited liability company; and
WHEREAS, Section 12(i) of the Voting Agreement provides that Assignor may assign, in its sole discretion, all or any of its rights, interests and obligations thereunder to any of its Affiliates (as defined in the Voting Agreement).
NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and subject to the terms and conditions of the Transfer and Sale Agreement, the parties hereto, intending to be legally bound hereby, agree as follows:
1. Assignment. Assignor hereby sells, assigns, grants, conveys and transfers to Assignee all of Assignors right, title and interest in and to the Voting Agreement.
2. Acceptance and Assumption. Assignee hereby accepts such assignment and assumes all of Assignors duties and obligations under the Voting Agreement and agrees to perform all of the obligations of Assignor under the Voting Agreement from and after the Effective Date.
3. Parties in Interest. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.
5. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties to this Agreement may execute this Agreement by signing any such counterpart.
6. Further Assurances. Each of the parties hereto shall execute and deliver, at the reasonable request of the other party hereto, such additional documents, instruments,
conveyances and assurances and take such further actions as such other party may reasonably request to carry out the provisions hereof and give effect to the transactions contemplated by this Agreement.
6. Governing Law. This Agreement shall be governed by, and construed in accordance with, the Laws of the State of New York applicable to a contract executed and performed in such State, without giving effect to any choice of law or conflict of law rules or principles thereof that would require the application of the rules of another jurisdiction.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Assignment and Assumption Agreement as of the date first written above.
HGI FUNDING, LLC | ||||
By: | /s/ Thomas A. Williams | |||
Name: | Thomas A. Williams | |||
Title: | Executive Vice President, Chief Financial Officer | |||
FIVE ISLAND ASSET MANAGEMENT LLC | ||||
By: | /s/ Thomas A. Williams | |||
Name: | Thomas A. Williams | |||
Title: | Executive Vice President, Chief Financial Officer |
[Signature Page to Assignment and Assumption Agreement]
Exhibit 3
NewCo Term Sheet
SEPTEMBER 26, 2013
Set forth below are certain terms that will be incorporated into the proposed transaction (the Transaction) among HGI Funding, LLC (HGI Funding), TTG Apparel, LLC, a Delaware limited liability company (TTG), Tokarz Investments, LLC, a Delaware limited liability (TKZ), Fursa Alternative Strategies LLC, a Delaware limited liability (FUR) and Arsenal Group LLC, a Delaware limited liability (ARS, and together with FUR, FUR/ARS, and, FUR/ARS together with TTG/TKZ, the Co-Investors) with respect to Fredericks of Hollywood Group Inc. (the Company). This term sheet is not binding with the exception of the paragraphs below labeled Confidentiality, Expenses and Non-Binding Understanding, which shall be binding on the parties hereto. Furthermore, the terms set forth below are subject to customary due diligence and tax review and appropriate approvals.
Structure: | The Transaction would be structured as follows: | |||
Preliminary Matters. On or before October, 1, 2013, Five Island Asset Management LLC (an affiliate of HGI Funding) will transfer its Series B Preferred Stock in the Company (the Series B Preferred) to HGI Funding in a purchase and sale transaction in exchange for $10,653,100. | ||||
Contemporaneously, HGI Funding and its affiliates will work with the Companys existing lenders to cause the Companys current credit facility to be increased by up to $11,000,000 (the Upsize Amount). Promptly following such increase, it is expected that $5 million of the Upsize Amount (the Bridge Portion) will be funded to provide short term working capital and balance sheet liquidity to the Company. The Bridge Portion will have an initial maturity date of 6 months following the funding thereof. At the effective time of the Merger (as defined below), the remainder of the Upsize Amount will be funded and used to provide necessary acquisition financing in connection with the Merger. | ||||
Immediately upon the execution of definitive documentation regarding, and receipt of all necessary approvals from the Company applicable to, the Merger (as defined below) and the transactions contemplated thereby and hereby, HGI Funding or an affiliate will purchase 14,900 Series A Preferred Stock in the Company (the Purchased Series A Preferred) from TTG for $1,490,000. | ||||
Investor Contributions. Prior to the effective time of the Merger (as defined below): | ||||
| HGI Funding will contribute to a newly-formed entity (NewCo) the Purchased Series A Preferred and the Series B Preferred in a |
private placement transaction, and in exchange therefor, HGI Funding will receive 62% of the issued and outstanding Series A Units in NewCo described below (the HGI Funding Contribution). | ||||
| TTG/TKZ will contribute all of the remaining issued and outstanding common and Series A preferred shares of the Company held by it after giving effect to the purchase of the Purchased Series A Preferred by HGI Funding described in the section entitled Structure above (the TTG/TKZ Contribution) to NewCo in a private placement transaction, and in exchange therefor, will receive 23% of the issued and outstanding Series A Units in NewCo described herein; and | |||
| FUR/ARS will contribute all of the issued and outstanding common shares of the Company held by it (the FUR/ARS Contribution) to NewCo in a private placement transaction, and in exchange therefor, will receive 15% of the issued and outstanding Series A Units in NewCo described herein. | |||
The HGI Funding Contribution, TTG/TKZ Contribution, and FUR/ARS Contribution are collectively referred to herein as the Equity Contribution and the shares contributed pursuant thereto are collectively referred to herein as the Contribution Shares. In furtherance of the foregoing, simultaneous with the execution of the Merger Agreement, HGI Funding and Co-Investors will enter into Voting and Contribution Agreements as described below. | ||||
Form of NewCo. NewCo will be a Delaware limited liability company and classified as a partnership for U.S. tax purposes. The structure of the Transaction may be changed upon agreement of the parties to address tax issues affecting the parties or the operations of the business. The parties reserve the right to consult tax counsel and recommend appropriate changes to the structure. | ||||
Merger. NewCo will form a wholly-owned subsidiary (Merger Sub) for the sole purposes of merging Merger Sub with and into the Company in a negotiated one-step merger transaction pursuant to an agreement and plan of merger (the Merger Agreement), with the Company being the surviving corporation in the merger and a wholly-owned subsidiary of NewCo (the Merger). | ||||
Bridge Portion. Upon the consummation of the Merger, HGI Funding and its affiliates will use their reasonable best efforts to work with the Companys lenders to extend the maturity date of the Bridge Portion to equal the maturity date of the Companys other indebtedness under its existing credit agreement. | ||||
Series A Units: | In connection with the Common Equity Financing, HGI Funding and Co-Investors will each receive Series A Units of NewCo. HGI Funding and Co-Investors, together with their permitted transferees, are referred to herein as the Series A Unitholders. |
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The Series A Units are designed to provide the Series A Unitholders with a liquidation preference ahead of the Management Incentive Units described below. The liquidation preference of these units will equal the unreturned capital investment plus accrued and unpaid yield thereon (the Series A Liquidation Value). Yield will accrue and compound quarterly at a rate of 12% per annum. The Series A Units will rank senior to the Management Incentive Units described below. The Series A Units do not have redemption rights, or fixed maturity of the nature associated with preferred units. Series A Units will have one vote per unit. | ||||
Management Incentive Units; Employment Agreements: | NewCo will establish an equity incentive plan designed to provide an opportunity for members of senior management to participate in the equity growth of the Company. Recipients of incentive grants will not be required to make a capital contribution or pay a purchase price for such incentive equity, and such incentive units are intended to be equity profits interests as contemplated by current tax law (the Management Incentive Units). NewCo will also cause the Company to enter into Employment Agreements with key executives of the Company, including the Companys CEO, as promptly as practicable. | |||
Distributions: | Subject to customary and agreed to limitations, NewCo will pay customary tax distributions to the holders of Securities. All other distributions shall be paid if, when and in the amounts as determined by the Board (as defined below) in its sole and absolute discretion. | |||
Additional Capital Calls: | No holder of Securities shall be required to make any additional capital contributions to NewCo without the prior written consent of such holder of Securities. | |||
Voting and Contribution Agreements: | Simultaneous with the execution of the Merger Agreement, HGI Funding and Co-Investors will enter into Voting and Contribution Agreements pursuant to which, among other things, HGI Funding and the Co-Investors will covenant and agree to (a) vote all of the Contribution Shares in favor of the Merger and against any competing transactions and (b) contribute the Contribution Shares to NewCo in exchange for Series A Units as provided in the section entitled Structure above. | |||
Board Composition: | NewCo and the Company and its subsidiaries will be managed by a Board of Managers (or similar governing body) (the Board) comprised of: | |||
| 4 designees appointed by HGI Funding; | |||
| For so long as TTG/TKZ holds more than 5% of the Series A Units, 1 designee appointed by TTG/TKZ; | |||
| For so long as FUR/ARS holds more than 5% of the Series A Units, 1 designee appointed by FUR/ARS; |
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| The Chief Executive Officer of the Company; and | |||
| Such number of independent director(s) as shall be designated and appointed by HGI Funding. | |||
Subject to the oversight of the Board, management will be responsible for the day to day operation of the business. Customary significant actions will require the prior approval of the Board. | ||||
If at any time, and from time to time, there are vacancies in the 4 HGI Funding designee seats on the Board, a number of representatives of HGI Funding equal to the amount of such vacancies will have the right to attend each meeting of the Board, and will have customary board observer rights including, without limitation, rights to advance notice of meetings, receipt of Board materials, etc. | ||||
Action by the Board of Managers: | All actions of the Board will be taken by an affirmative vote or consent of a majority of the members of the Board (including a majority of the Controlling Board Members (as defined below) then in office). In addition, the actions set forth on Exhibit A hereto shall require both the affirmative vote or consent of a majority of the Controlling Board Members and the affirmative vote or consent of at least one Non-Controlling Board Member. | |||
Controlling Board Members means the four members of the Board appointed by HGI Funding. | ||||
Non-Controlling Board Member means a member of the Board appointed by a Co-Investor. | ||||
Certain Approvals: | Notwithstanding the foregoing, the Board will not permit the taking of any of the actions set forth on Exhibit B by NewCo or the Company without the prior approval of holders of a majority of the Series A Units. In addition, the definitive Limited Liability Operating Agreement will provide that no NewCo members will have any duties to other members (including fiduciary duties). | |||
Information Rights: | The holders of Series A Units will be entitled to receive copies of annual audited financial statements and unaudited quarterly financial statements. | |||
Transfer Restrictions: | No holder of Securities may Transfer (as defined in the next succeeding sentence) any Securities without the prior written consent of the Board. The term Transfer will mean any sale, transfer, assignment, conveyance or other disposition of Securities, subject to customary exceptions for transfers to affiliates and estate planning purposes. | |||
Right of First Offer: | In the event that any holder of Securities proposes to Transfer all or any of its Securities (the Offered Securities) to any unaffiliated third party in one or more bona fide transactions, and such Transfer is approved by the Board, then such Member (a ROFO Seller) shall |
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deliver to each other holder of Securities not less than 10% of the issued and outstanding Securities (each, a ROFO Offeree) written notice thereof, specifying the number of Offered Securities, the price per Offered Unit, and any other material terms and conditions (an Offer Notice). | ||||
| Each ROFO Offeree may elect to purchase, by written notice given to the ROFO Seller at any time during the ten (10) business days following the date of the Offer Notice, its pro rata share (based on its respective ownership of the Securities held by all ROFO Offerees as of the date of the Offer Notice) of the Offered Securities at the price and on the terms specified in the Offer Notice. | |||
| Any Offered Securities that ROFO Offerees do not elect to purchase will be re-offered pro rata to each ROFO Offeree who elected to purchase Offered Securities. | |||
Any remaining Offered Securities may be Transferred by the ROFO Seller, at any time during the ninety (90) days following the date of the Offer Notice to any third party on terms (including price) no more favorable to such third party than the terms specified in the Offer Notice. If during such ninety (90) days the ROFO Seller is not able to sell the remaining Offered Securities on such terms, but determines in good faith that such remaining Offered Securities may reasonably be expected to be sold to a third party under terms more favorable to such third party than originally proposed in the Offer Notice, the ROFO Seller may deliver a new Offer Notice to the ROFO Offerees with respect to such remaining Offered Securities (but not any other Securities). | ||||
Preemptive Rights/Anti-Dilution: | Each Series A Unitholder (including units held by its affiliates and related funds) holding more than 10% of the issued and outstanding Series A Units shall be entitled to participate pro rata in any offering of equity securities of NewCo, the Company or any of its subsidiaries (each, an Equity Offering); provided, however, that in the case of any Equity Offering in which securities are issued at less than fair market value, each Series A Unitholder will have weighted average anti-dilution price protections for issuances below the original issue value of the Series A Units. | |||
Such preemptive rights shall not apply to equity securities issued (a) as consideration for the acquisition of assets or in any merger or business combination transaction involving NewCo or any of its subsidiaries; (b) in connection with a bona fide debt financing transaction (provided that the amount of securities so issued is insignificant as compared to the total number of issued and outstanding securities of NewCo or the Company); (c) in connection with joint venture, strategic alliance or similar transaction or arrangement; (d) in any public offering registered under the Securities Act of 1933, as amended; (e) in connection with a stock split, dividend or similar transaction; or (f) pursuant to the exercise of any options, warrants, convertible securities or other rights that were issued subject to, and in compliance with, such preemptive rights. |
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Sale of the Company; Drag Along Rights: | HGI Funding shall be entitled to engage in a process with respect to, and effect, a sale of the Company at any time (a Sale Transaction). All holders of Securities shall be subject to customary drag along rights in favor of HGI Funding. | |||
Tag Along Rights: | Any transfer of all of the Series A Units held by HGI Funding will be subject to customary Tag Along Rights allowing other holders of Securities (including Series A Units held by affiliates and related funds and, as customary and to the extent vested, Management Incentive Units) to participate in such transfers on a pro rata basis on the same terms and conditions as the transferor. Notwithstanding the foregoing, the Tag Along Rights will not apply to (a) customary permitted transfers, (b) transfers pursuant to public sales or (c) transfers pursuant to the Sale of the Company provision described above. | |||
Registration Rights: | Subject to the conversion of NewCo into the appropriate corporate form in connection with a public offering, (a) the holders of Series A Units will have customary demand registration rights, and (b) the holders of Series A and vested Management Incentive Units will have customary piggyback registration rights. The piggyback registration rights will provide, among other things, that all holders shall have pari passu treatment on all cutbacks and lock-up periods, in each case subject to customary exceptions in the case of sales by employee shareholders. | |||
Investment Documents: | The terms of the Securities and the rights and obligations of the holders thereof shall be memorialized in investment documents prepared by HGI Funding and its affiliates, which will include a Contribution Agreement, a Voting Agreement, a Limited Liability Company Operating Agreement, a Registration Rights Agreement and a Management Incentive Unit Grant Agreement. These agreements will reflect the terms and conditions described herein and such other terms as may be agreed by the parties in good faith. | |||
Expenses: | Each investor shall be responsible for paying its own costs and expenses incurred in connection with the transactions contemplated hereby, except that if the Merger occurs, NewCo shall or shall cause the Company to pay all of HGI Fundings out-of-pocket fees, costs and expenses incurred in connection with (a) the evaluation, negotiation, arrangement, structuring, documentation and closing of the Merger, the financing thereof and all related transaction expenses (including travel expenses and fees and expenses of legal, accounting, tax and other advisors and consultants), and (b) any litigation commenced by a third party arising out of, or relating to, the Merger. | |||
Confidentiality | Neither of the Co-Investors shall issue any press release or any other public statements (including, without limitation, regulatory filings) |
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concerning the proposed transaction without the prior written consent of HGI Funding, except as required by law. Except as provided in the preceding sentence, neither party shall disclose any of the financial details of the transaction to a third party, other than their consultants, attorneys, accountants, advisors and bankers without the prior written consent of the other party. | ||||
Commercially Reasonable Efforts | The parties shall as promptly as reasonably practicable conduct a joint assessment of the Company, and shall in good faith and with mutual cooperation use their commercially reasonable efforts to work together to structure, negotiate and do all things necessary or desirable, subject to the Companys approval, to enter into the Merger Agreement and other ancillary documents and consummate the transactions contemplated hereby and thereby. | |||
Non-Binding Understanding | This term sheet is intended to be and it shall be construed only as an expression of current intent of the parties and not as a binding offer or binding agreement of the parties. Notwithstanding the foregoing, the provisions contained in the paragraphs labeled Confidentiality, Commercially Reasonable Efforts and Non-Binding Understanding shall be binding on the parties. This term sheet may be executed in two or more counterparts, each of which will be deemed to be an original copy of this term sheet, and all of which, when taken together, shall be deemed to constitute one and the same agreement. The exchange of copies of this term sheet and of signature pages by facsimile transmission shall constitute effective execution and delivery of this term sheet as to the Parties and may be used in lieu of the original term sheet for all purposes. Signatures of the parties transmitted by facsimile shall be deemed to be their original signatures for any purpose whatsoever. |
* * * * * * * * * * * * * * *
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this NewCo Term Sheet as of the date first written above.
HGI FUNDING LLC | ||
By: | /s/ Thomas A. Williams | |
Thomas A. Williams | ||
Executive Vice President, Chief Financial Officer | ||
TTG APPAREL, LLC | ||
By: | /s/ Michael T. Tokarz | |
Michael T. Tokarz, | ||
Manager | ||
TOKARZ INVESTMENTS, LLC | ||
By: | /s/ Michael T. Tokarz | |
Michael T. Tokarz, | ||
Manager | ||
FURSA ALTERNATIVE STRATEGIES LLC, ON BEHALF OF ITSELF AND CERTAIN FUNDS AND ACCOUNTS AFFILIATED WITH, OR MANAGED BY, IT OR ITS AFFILIATES | ||
By: | /s/ William F. Harley | |
William F. Harley | ||
Chief Investment Officer | ||
ARSENAL GROUP, LLC | ||
By: | /s/ William F. Harley | |
William F. Harley | ||
Chief Investment Officer |
[Signature Page to NewCo Term Sheet]
EXHIBIT A
Board Actions Requiring the Vote or Consent of Both a Majority of the Controlling Board Members And a Vote or Consent of the Non-Controlling Board Member(s)
For so long as the Non-Controlling Board Member holds 10% or more of the Series A Units:
(a) | Amendment to the Articles of Formation or the Limited Liability Company Operating Agreement of NewCo in a manner that would have a disproportionate material adverse effect on the Co-Investors; |
(b) | Any material change in the nature or course of the business that is outside the ordinary nature or course of business; |
(c) | The entering into of a contract or transaction with any affiliate of HGI Funding or any member of the Board of NewCo, other than (i) the modification or amendment of any contract or transaction in effect as of the date hereof, and (ii) any contract or transaction with the Companys existing lenders; provided that any such modifications, amendments, contracts or transactions are entered into on an arms-length terms; or |
(d) | Causing NewCo or the Company to enter into liquidation or bankruptcy prior to the 18-month anniversary of the date hereof. |
A-1
EXHIBIT B
Certain Approvals
(a) | Changing the corporate structure of NewCo or the Company (including, without limitation, by merger, consolidation, amalgamation, conversion or otherwise); |
(b) | Declaring any dividends or distributions, whether in the form of cash, equity or otherwise, other than tax distributions; |
(c) | Making or agreeing to make payments of any nature to a member of the Board or changing the basis for any payment previously agreed with any member of the Board (other than reimbursement of reasonable and documented expenses); |
(d) | Establishing or amending material accounting policies of NewCo or the Company, including changing its fiscal year; |
(e) | The relocation of NewCo or the Companys headquarters; |
(f) | Issuing additional membership interests; |
(g) | Redeeming all or any portion of any membership interests or other equity interests in NewCo or the Company; |
(h) | Causing NewCo or the Company to enter into liquidation or bankruptcy; |
(i) | Appointing the Chairman of Board; |
(j) | Approving or amending annual operating budgets; |
(k) | Entering into material contracts, including without limitation employment agreements with key executives or consultants and other contracts involving the payment of more than $100,000; |
(l) | Approving or amending the terms and conditions of any financing; |
(m) | Acquiring or investing in any business, partnership or company, whether by purchase of equity or otherwise; |
(n) | Selling all or substantially all of the assets of NewCo or the Company; or |
(o) | Entering into any merger or consolidation of NewCo or the Company. |
B-1
Exhibit 4
September 26, 2013
Board of Directors
Fredericks of Hollywood Group Inc.
6255 Sunset Boulevard, 6th Floor
Hollywood, California
Attn: | Tom Lynch, Chairman of the Board and Chief Executive Officer |
Dear Tom,
HGI Funding LLC, a Delaware limited liability company (HGI Funding), TTG Apparel, LLC, a Delaware limited liability company (TTG), Tokarz Investments, LLC, a Delaware limited liability company (TKZ), Fursa Alternative Strategies LLC, a Delaware limited liability company (Fursa), and Arsenal Group LLC, a Delaware limited liability company (Arsenal and, together with HGI Funding, TTG, TKZ and Fursa, the Consortium Members) are pleased to provide you with the following non-binding proposal for a transaction with Fredericks of Hollywood Group Inc. (FOH or the Company) that would take the Company private.
Under our proposal, a newly-formed acquisition vehicle (NewCo) would form a wholly-owned subsidiary (Merger Sub) for the sole purpose of merging Merger Sub with and into the Company in a negotiated merger transaction, pursuant to which the Company would become the surviving corporation and a wholly-owned subsidiary of NewCo (the Merger). In the Merger, all holders of publicly-traded common shares of the Company (excluding shares owned by the Consortium Members) would receive cash consideration of $0.23 per share. This represents a 26% premium to the trailing ten day average closing price of common shares of FOH. The Consortium Members are currently interested only in pursuing the Merger and are not interested in selling their shares in any other transaction involving the Company. We believe that this proposal presents a fair and attractive offer to such shareholders.
In lieu of cash merger consideration, the Consortium Members would receive equity in NewCo in exchange for the securities they currently hold in the Company (the Rollover Shares) pursuant to a rollover transaction in connection with the Merger (with the Rollover Shares being cancelled at the effective time of the Merger). Our proposal also contemplates that, concurrent with the signing of a definitive merger agreement, the Consortium Members would enter into a voting agreement to vote in favor of the transaction, and a rollover agreement with respect to the contribution of the Rollover Shares to NewCo.
In addition, HGI Funding and its affiliates are prepared to work expeditiously with the Companys existing lenders to cause the Companys current credit facility to be increased by up to $11 million (the Upsize Amount). Promptly following such increase, it is expected that $5 million of the Upsize Amount (the Bridge Portion) will
Mr. Tom Lynch
September 26, 2013
Page 2
be funded to provide short term working capital and balance sheet liquidity to the Company. The Bridge Portion will have an initial maturity date of 6 months following the funding thereof. At the effective time of the Merger, the remainder of the Upsize Amount will be funded and used to provide necessary acquisition financing in connection with the Merger. Upon the consummation of the Merger, HGI Funding and its affiliates will use their reasonable best efforts to work with the Companys lenders to extend the maturity date of the Bridge Portion to equal the maturity date of the Companys other indebtedness under its existing credit agreement.
It is our view that the proposed transaction would result in a better capitalized Company with improved liquidity and clear strategic objectives and guidance. We are excited about the proposed transaction and the opportunity it would provide for us to partner with management to focus on the long-term growth of this storied brand.
Our obligation to consummate the proposed transaction would be subject to (i) receipt of requisite shareholder approval, and less than 5% of FOHs common shares seeking appraisal rights, under New York law and (ii) no material adverse change with respect to the business, condition or results of operations of the Company prior to closing. We anticipate that the proposed transaction would be subject to minimal additional closing conditions.
We recognize that a committee of non-interested directors may need to separately review this proposal under such process as they determine to be appropriate. However, we hope that you and your Board share our enthusiasm for a transaction on the terms summarized above. We are prepared to move quickly on the Merger and the upsize of the Companys current credit facility, and we are available to meet with FOH, its Board (or a committee thereof) and its advisors immediately to discuss our proposal and to commence our confirmatory due diligence.
This letter is solely a non-binding indication of interest and does not constitute an offer capable of acceptance or commitment on the part of the Consortium Members or its affiliates to enter into a definitive agreement or consummate a transaction at any future time. Any obligation of the Consortium Members or their affiliates with respect to a potential transaction will be only as set forth in a definitive merger agreement executed by the Consortium Members or their affiliates with the requisite corporate approvals and authorizations.
Please contact the undersigned at your earliest convenience to discuss our proposal.
Sincerely, | ||
HGI FUNDING, LLC | ||
By: | /s/ Thomas A. Williams | |
Name: Thomas A. Williams | ||
Executive Vice President, Chief Financial Officer | ||
TTG APPAREL, LLC | ||
By: | /s/ Michael T. Tokarz | |
Michael T. Tokarz | ||
Manager | ||
TOKARZ INVESTMENTS, LLC | ||
By: | /s/ Michael T. Tokarz | |
Michael T. Tokarz | ||
Manager | ||
FURSA ALTERNATIVE STRATEGIES LLC, ON BEHALF OF ITSELF AND CERTAIN FUNDS AND ACCOUNTS AFFILIATED WITH, OR MANAGED BY, IT OR ITS AFFILIATES | ||
By: | /s/ William F. Harley | |
William F. Harley | ||
Chief Investment Officer | ||
ARSENAL GROUP, LLC | ||
By: | /s/ William F. Harley | |
William F. Harley | ||
Chief Investment Officer |