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Item
5.02.
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Departure
of Directors or Certain Officers; Election of Directors; Appointment of
Certain Officers; Compensatory Arrangements of Certain
Officers.
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Appointment
of Dieter Esch and Brad Krassner to the Board of Directors
On
February 4, 2010, the Board of Directors (the “Board”) of Wilhelmina
International, Inc. (the “Company”) appointed Horst Dieter Esch (“Esch”) and
Brad Krassner (“Krassner”) as directors of the Company. The Board’s
intention to appoint Esch and Krassner to fill vacancies created by the
resignations of Dr. Hans Boehlk and Derek Fromm on November 18, 2009 and
November 19, 2009, respectively, was previously disclosed by the
Company.
Arrangements
Pursuant to which Esch and Krassner were Appointed
Esch,
Esch’s stockholder affiliate Lorex Investments AG (“Lorex”), Krassner,
Krassner’s stockholder affiliate Krassner Family Investments Limited Partnership
(“Krassner L.P.”) and Newcastle Partners, L.P. (“Newcastle”) are parties to a
Mutual Support Agreement, dated August 25, 2008 (the “Mutual Support
Agreement”), pursuant to which the parties agreed to, among other things, (i)
use their commercially reasonable efforts to cause their representatives serving
on the Board to vote to nominate and recommend the election of one designee of
Esch, one designee of Krassner and three designees of Newcastle (collectively,
the “Designees”) and, in the event the Board will appoint directors without
stockholder approval, to use their commercially reasonable efforts to cause
their representatives on the Board to appoint the Designees to the Board and
(ii) vote their shares of the Company’s common stock (“Common Stock”) to elect
the Designees at any meeting of the Company’s stockholders or pursuant to any
action by written consent in lieu of a meeting pursuant to which directors are
to be elected to the Board. Dr. Boehlk and Mr. Fromm were the
previous designees of Esch and Krassner, respectively, under the Mutual Support
Agreement. Following the resignations of Dr. Boehlk and Mr. Fromm,
Esch and Krassner designated themselves to fill the resulting vacancies on the
Board.
The terms
of the Mutual Support Agreement were previously disclosed in the Company’s Form
8-K filed with the Securities and Exchange Commission (the “SEC”) on August 26,
2008.
Transactions
with Esch, Krassner and their Affiliates
In
connection with the Company’s acquisition (the “Acquisition”) of Wilhelmina
International, Ltd. and its affiliated companies (the “Wilhelmina Companies”)
pursuant to a purchase agreement dated August 25, 2008 (the “Purchase
Agreement”), which closed on February 13, 2009, Esch, Lorex, Krassner and
Krassner L.P. (collectively, the “Control Sellers”) received, in respect of
their equity interests in the Wilhelmina Companies, (a) aggregate cash payments
of approximately $8,906,872, subject to certain offsets and adjustments, and (b)
$7,609,336 in shares of Common Stock (63,411,131 shares) based on the closing
price of the shares on such date. Krassner L.P. also received
$6,000,000 in repayment of an outstanding note held by Krassner
L.P. Under the Purchase Agreement, the Control Sellers may also
receive additional consideration through “earn outs”, payable in 2012 and tied
to the operating results of the Company’s artist management and Miami divisions,
which earn outs are subject to certain offsets and adjustments.
Pursuant
to the Purchase Agreement, 19,229,746 shares of Common Stock issued to the
Control Sellers (the “Restricted Shares”) were placed in escrow in respect of a
“core” business price adjustment, pursuant to which adjustment the Restricted
Shares could be repurchased by the Company for a nominal amount. As
previously disclosed in the Company’s Form 8-K filed with the SEC on January 6,
2010 (the “January 6, 2010 8-K”), in accordance with the Purchase Agreement, RSM
McGladrey, Inc., an independent third party accounting firm, calculated the
purchase price adjustment and determined that the price adjustment entitled the
Company to repurchase all 19,229,746 Restricted Shares. Shortly
thereafter, Esch and Krassner, together with the other Control Sellers, served
the Company with a lawsuit in U.S. District Court, Southern District of New
York, seeking a declaration that the Company is barred from seeking any purchase
price adjustment as a result of the Company’s alleged failure to comply with a
notice deadline. The lawsuit also seeks to enjoin the Company from
repurchasing the Restricted Shares and the applicable escrow agent from
effecting any such repurchase by the Company. The Company filed its
answer in the lawsuit on February 12, 2010.
The terms
of the Purchase Agreement were previously disclosed in the Company’s Form 8-K
filed with the SEC on August 26, 2008, a copy of which is attached as Exhibit
10.1 thereto and incorporated herein by reference, and the terms of an amendment
to the Purchase Agreement were previously disclosed in the Company’s Form 8-K
filed with the SEC on February 18, 2009, a copy of which is attached as Exhibit
10.1 thereto and incorporated herein by reference.
The
Control Sellers are also parties to a registration rights agreement entered into
in connection with the Acquisition (the “Registration Rights Agreement”),
pursuant to which the Control Sellers, among others, obtained certain demand and
piggyback registration rights with respect to the Common Stock issued to them
under the Purchase Agreement.
The terms
of the Registration Rights Agreement were previously disclosed in the Company’s
Form 8-K filed with the SEC on August 26, 2008, a copy of which is attached as
Exhibit 10.2 thereto and incorporated herein by reference.
Pursuant
to a letter agreement between the Company and Esch dated February 13, 2009 (the
“Letter Agreement”), $1,750,000 of the cash proceeds to be paid to Esch upon the
closing of the Acquisition was held in escrow (the “Esch Cash Escrow”), to be
used to satisfy the Company’s indebtedness to its principal lender, Signature
Bank, upon the occurrence of certain specified events. As previously
disclosed in the January 6, 2010 8-K, on December 31, 2009, the full amount of
the Esch Cash Escrow was released to Signature Bank and, consistent with the
terms of the Letter Agreement, the Company 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 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%) components of the
Signature facility prior to release of the escrow. The effective
interest rate of the Note is therefore the prime rate plus approximately 0.58%
(or approximately 3.83% as of the date of issuance). Principal under
the Note shall be repaid in quarterly installments of $250,000 until the Note is
paid in full. In the event that the Company closes a new revolving
bank or debt facility that provides it with committed working capital financing,
the Company is required to pay down the Note in the amount of the funds that the
Company is initially permitted to draw under such new facility. The
Note is unsecured and is pre-payable by the Company at any time without penalty
or premium. The outstanding principal balance of the Note, together
with all accrued, but unpaid interest thereon, is due and payable on December
31, 2010. As of March 3, 2010, $1,750,000 in principal was
outstanding under the Note. The Company made its first interest
payment to Esch under the Note in the amount of $5,891 on February 8, 2010 and
its second interest payment to Esch under the Note in the amount of $5,155 on
March 3, 2010.
The terms
of the Letter Agreement were previously disclosed in the Company’s Form 8-K
filed with the SEC on February 18, 2009, a copy of which is attached as Exhibit
10.2 thereto and incorporated herein by reference. The terms of the
Note were previously disclosed in the January 6, 2010 8-K, a copy of which is
attached as Exhibit 10.1 thereto and incorporated herein by
reference.
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: March
4, 2010
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WILHELMINA
INTERNATIONAL, INC.
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By:
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/s/
Evan Stone |
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Name:
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Evan
Stone |
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Title:
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General
Counsel |