The information set forth under Item
2.03 is incorporated herein by reference.
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Item
2.03.
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Creation
of a Direct Financial Obligation or an Obligation Under an Off-Balance
Sheet Arrangement of a Registrant.
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On
December 30, 2009, the total cash balance in the aggregate amount of $1,750,000
held in escrow pursuant to a letter agreement (the “Letter Agreement”) dated
February 13, 2009 between the Registrant and Horst Dieter Esch (“Esch”) (which
Letter Agreement was filed as an exhibit to the Registrant’s Form 8-K filed
February 17, 2009) was released and paid to Signature Bank (“Signature”) as a
result of the occurrence of a “Bank Payoff Event” under the Letter Agreement
(See Item 2.04 below). As previously disclosed, the Letter Agreement
provided that in the event of the payment of funds from escrow to Signature, the
Registrant was required to promptly issue to Esch, in replacement of the funds
held in escrow, a promissory note in the principal amount of the amount paid to
Signature. Accordingly, on December 31, 2009, the Registrant issued
to Esch a promissory note in the principal amount of $1,750,000 (the
“Note”). Interest on the outstanding principal balance of the Note
accrues at the “Weighted Average Loan Document Rate” (as defined below) and is
payable in arrears on a monthly basis. The “Weighted Average Loan
Document Rate” is calculated using a weighted average formula based on the rates
applicable to the principal amounts outstanding for each of the two components
of the Credit Facility (as defined in Item 2.04) - revolver ($2,000,000
principal outstanding at December 30, 2009 at a rate of prime plus 0.5%) and
term loan ($25,000 principal outstanding at December 30, 2009 at a rate of
6.65%) - prior to release of the escrow. The effective interest rate
of the Note is therefore prime plus approximately 0.58%, or approximately
3.83%. Principal under the Note shall be repaid in quarterly
installments of $250,000 until payment in full of the Note. The
outstanding principal balance of the Note, together with all accrued, but unpaid
interest thereon, is due and payable on December 31, 2010. In the
event that the Registrant closes a new revolving bank or debt facility which
provides the Registrant with committed working capital financing, the Registrant
is required to pay down the Note in the amount of the funds that the Registrant
is initially permitted to draw under such new facility. The Note is unsecured
and is pre-payable by the Registrant at any time without penalty or
premium.
The foregoing description of the Note
does not purport to be complete and is qualified in its entirety by reference to
the full text of the Note, which is attached as Exhibit 10.1
hereto.
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Item
2.04.
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Triggering
Events That Accelerate or Increase a Direct Financial Obligation or an
Obligation under an Off-Balance Sheet
Arrangement.
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On December 30, 2009, Signature
delivered a demand letter (the “Demand Letter”) to the Registrant and Wilhelmina
International, Ltd. (“Wilhelmina”), the Registrant’s principal operating
subsidiary, requesting the immediate payment of all outstanding principal and
accrued interest in the aggregate amount of $2,018,750 under an Amended and
Restated Revolving Credit Note dated January 10, 2008 issued by Wilhelmina to
Signature in connection with a Loan Agreement dated December 21, 2005 between
Wilhelmina and Signature (collectively, the “Credit Facility”). The
maturity date of the Credit Facility had been previously extended by the parties
to October 4, 2009, and the parties failed to reach agreement on amended terms
requested by Signature to obtain a further extension.
The delivery of the Demand Letter
requesting mandatory repayment of principal under the Credit Facility triggered
a “Bank Payoff Event” under the Letter Agreement as defined
therein. Accordingly, in accordance with the terms of the Letter
Agreement, the aggregate amount of $1,750,000 that was held in escrow was
released and paid to Signature (the “Escrow Payoff”) (see Item
2.03). As a result of the Escrow Payoff, as of December 30, 2009, a
sum of $268,750 remained owing to Signature under the Credit
Facility.
Signature has not terminated the Credit
Facility as of the date hereof. The Registrant intends to continue
discussions with Signature with respect to an extension and/or amendment of the
Credit Facility, and believes that the repayment of a substantial balance of
previously outstanding amounts under the Credit Facility pursuant to the Escrow
Payoff is a constructive step in this regard. The Registrant may also
seek to repay the remaining balance of the Credit Facility through internally
generated cash and/or new financing sources. Notwithstanding the
foregoing, no assurances can be given that any such extension or amendment, or
any such repayment through internally generated cash or new financing, will
occur. The Credit Facility is collateralized by all of the assets of
Wilhelmina and the Registrant’s other subsidiaries (other than Wilhelmina Miami,
Inc.), and is guaranteed by a shareholder of Registrant.
As disclosed in the Registrant’s Form
10-Q filed on November 17, 2009, the Registrant previously notified Lorex
Investments AG (“Lorex”), Krassner Family Investments Limited Partnership
(“Krassner L.P.”), Brad Krassner (“Krassner”) and Esch (collectively, the
“Selling Parties”) of a required $6,193,400 post-closing downward adjustment to
the purchase price in connection with the acquisition (the “Acquisition”) by the
Registrant of Wilhelmina and its affiliated companies pursuant to the applicable
provisions of a purchase agreement dated August 25, 2008 (the “Purchase
Agreement”). The Registrant had notified Esch and Krassner that based
on the amount of the purchase price adjustment, each of Esch and Krassner are
required to pay (or cause Lorex and Krassner L.P. to pay) to the Registrant
$2,250,000 in cash (or $4,500,000 in the aggregate) and if either Esch or
Krassner fails to timely make (or cause Lorex or Krassner L.P. to timely make)
the required cash payment, the Registrant has the right under the Purchase
Agreement to promptly repurchase for $.0001 per share 50% of such number of
19,229,746 shares currently held in escrow (the “Restricted Shares”) determined
based on a specified formula (or a total of 100% of such number of shares in the
event both Esch and Krassner fail to timely make the cash
payments). The Registrant had notified the Selling Parties that,
based on its purchase price adjustment calculation, it will have the right to
repurchase all 19,229,746 Restricted Shares in the event Lorex and Krassner L.P.
fail to make the required cash payments. Lorex and Krassner L.P.
responded that they did not believe the Registrant gave timely notice of its
calculations of the purchase price adjustment in accordance with the provisions
of the Purchase Agreement and that they disagree with certain of the
Registrant’s calculations. The Registrant believes its calculations
of the purchase price adjustment were accurate and were timely submitted to
Lorex and Krassner L.P. in accordance with the provisions of the Purchase
Agreement. After the parties failed to resolve their dispute
regarding the calculation of the purchase price adjustment, the parties retained
RSM McGladrey, Inc. (“McGladrey”) in accordance with the terms of the Purchase
Agreement to make a final determination as to the purchase price adjustment
based on the calculations and supporting documentation submitted by the
respective parties.
On December 22, 2009, the Registrant
received the final determination of McGladrey with respect to the calculation of
the purchase price adjustment. McGladrey determined that a price
adjustment was required which would enable the Registrant to repurchase all
19,229,746 Restricted Shares, unless the Selling Parties elect to purchase such
shares in accordance with the relevant provisions of the Purchase
Agreement.
On December 23, 2009, the Registrant
was served with a lawsuit filed by the Selling Parties in the U.S. District
Court, Southern District of New York, seeking a declaration that as a result of
its alleged failure to comply with the notice deadline in the Purchase
Agreement, the Registrant is barred from seeking any such purchase price
adjustment. The lawsuit also seeks to enjoin the Registrant from
repurchasing the Restricted Shares and the escrow agent from effecting any such
repurchase by the Registrant.
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Item
9.01.
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Financial
Statements and
Exhibits.
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(d) Exhibits.
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Exhibit No.
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Description
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10.1
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Promissory
Note dated December 31, 2009 issued by Wilhelmina International, Inc. to
Horst Dieter Esch.
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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.
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Date: January
6, 2010
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Wilhelmina
International, Inc.
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By:
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Name:
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Mark
Schwarz
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Title:
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Chief
Executive Officer
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EXHIBIT
INDEX
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Exhibit No.
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Description
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10.1
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Promissory
Note dated December 31, 2009 issued by Wilhelmina International, Inc. to
Horst Dieter Esch.
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