Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
8-K
CURRENT
REPORT PURSUANT
TO
SECTION 13 OR 15(D) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date
of
report (Date of earliest event reported): August 15, 2008
NEXCEN
BRANDS, INC.
(Exact
Name of Registrant as Specified in Its Charter)
Delaware
(State
or
Other Jurisdiction of
Incorporation)
000-27707
|
20-2783217
|
(Commission
File Number)
|
(IRS
Employer Identification
No.)
|
|
|
1330
Avenue of the Americas, 34th
Floor, New York, NY
|
10019-5400
|
(Address
of Principal Executive
Offices)
|
(Zip
Code)
|
(212)
277-1100
(Registrant’s
Telephone Number, Including Area Code)
(Former
Name or Former Address, if Changed Since Last Report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see
General
Instruction A.2. below):
o Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item
1.01 Entry
into Material Definitive Agreement
On
August
15,
2008,
NexCen Brands, Inc. (the “Company”) and certain of its subsidiaries completed a
restructuring of the existing bank credit facility previously entered into
by
NexCen Holding Corp., a wholly-owned subsidiary of the Company (the “Issuer”)
and certain of its subsidiaries, by entering into a series of amended and
restated note funding, security, management and related agreements with BTMU
Capital Corporation (“BTMUCC”) (collectively, the “Amended and Restated
Facility”). The Issuer and its subsidiaries that are the borrowers under the
Amended and Restated Facility hold substantially all of the Company’s revenue
generating intellectual property assets related to the Company’s branded
products and franchise businesses, including The Athlete’s Foot, Bill Blass,
Great American Cookies, MaggieMoo’s, Marble Slab Creamery, Pretzelmaker, Pretzel
Time, Shoebox New York, and Waverly.
As
disclosed previously in May 2008, the Company expected that without changes
to
the frequency of the lockbox account disbursements under the existing bank
credit facility or other measures that might enhance its liquidity, the Company
could face a cash shortfall and also disclosed that it would need additional
cash to make a required principal payment on its notes issued to BTMUCC due
in
October 2008 related to the Great American Cookies business. The Amended and
Restated Facility, which replaces the existing facility in its entirety,
significantly revises the terms of the outstanding borrowings, which totaled
approximately $175.7 million as of August 15,
2008.
The description of the Amended and Restated Facility set forth herein is
qualified in its entirety by reference to the full text of the material
agreements comprising the Amended and Restated Facility, copies of which are
filed as Exhibits 10.1 through 10.12, respectively, to this Current Report
on
Form 8-K and are incorporated by reference herein in response to this Item
1.01.
Key
provisions of the Amended and Restated Facility include the
following:
· |
The
October 2008 principal payment obligation related to the Great American
Cookie financing completed in January 2008 has been
eliminated.
|
· |
The
outstanding loans have been restructured into three separate tranches.
Approximately $47.6 million of notes (the “Brand Notes”) mature on January
1, 2010; approximately $41.7 million of notes (the “Class B Franchise
Notes”) mature on July 31, 2011; and the remaining $86.3 million of notes
(the “Class A Franchise Notes”) mature on July 31, 2013 (collectively, the
Brand Notes, the Class A Franchise Notes, and Class B Franchise Notes,
the
“Notes”).
|
· |
Mandatory
minimum principal payments have been eliminated for the remainder
of 2008
and substantially reduced thereafter. Minimum principal payments
for 2009
are approximately $780,000 per year for the Class A Franchise Notes,
approximately $372,000 per year for the Class B Franchise Notes,
and
approximately $1.8 million per year for the Brand Notes. Required
principal payments increase annually for the Class A Franchise Notes
and
the Class B Franchise Notes up to six monthly payments of approximately
$72,000 each for the Class B Franchise Notes in 2011 (with a final
payment
on the maturity date equal to the then outstanding Class B Franchise
Note
balance), and six monthly payments of approximately $354,000 each
for the
Class A Franchise Notes in 2013 (with a final payment on the maturity
date
equal to the then outstanding Class A Franchise Note
balance).
|
· |
BTMUCC
will be entitled to receive warrants to purchase common stock of
the
Company at an exercise price of $0.01 per share, if certain portions
of
the indebtedness remain outstanding after specified dates. BTMUCC
will
receive warrants to purchase 2.8 million shares of the Company’s common
stock if the applicable subsidiary of the Company still owns Waverly
or
Bill Blass and the Brand Notes remain unpaid by March 31, 2009. BTMUCC
will be entitled to receive warrants covering up to an additional
2.8
million shares of the Company’s common stock if the Class B Franchise
Notes have not been repaid by July 31, 2009 (with the number of shares
being subject to reduction if less than 50% of original principal
amount
of the Class B Franchise Notes remains outstanding at that
time).
|
· |
No
additional borrowings are permitted under the Amended and Restated
Facility.
|
· |
As
part of the refinancing, BTMUCC provided the Company and the borrower
subsidiaries with a waiver of enumerated past defaults and alleged
defaults.
|
The
borrowings of the borrower subsidiaries under the Amended and Restated Facility
are non-recourse to the Company and are not guaranteed by the Company; provided
that the Company does have certain indemnification obligations under the Amended
and Restated Facility. The Amended and Restated Facility remains secured by
a
lien on the assets of The Athlete’s Foot, Bill Blass, Great American Cookies,
MaggieMoo’s, Marble Slab Creamery, Pretzelmaker, Pretzel Time, and Waverly
brands. In addition, the Amended and Restated Facility adds the Company’s joint
venture interest in the Shoebox New York as additional collateral that is
pledged to secure the borrowings. The Issuer and each of its subsidiaries that
own these brands have been formed as special purpose, bankruptcy-remote entities
(each, a “Brand Entity”). The Notes issued under the terms of the facility are
cross-collateralized with each other. Repayment of the facility is the joint
and
several obligation of the Issuer and each Brand Entity. Certain other
subsidiaries of the Company (the “Managers”) do not own any assets comprising
the brands, however, they manage the various Brand Entities and are parties
to
management agreements that define the relationship among the Managers and the
respective Brand Entities they manage. BTMUCC
has the right to appoint a “back-up” manager of its choosing to assist or
supplement the Managers in managing the business of the applicable Brand
Entities, and
in the
event
that certain adverse events occur with respect to the Company, to replace the
Managers.
Although
the Company is not a borrower under the Amended and Restated Facility,
substantially all of the Company’s revenues are earned by the Brand Entities,
and the Amended and Restated Facility controls the amount of cash that may
be
distributed by each Brand Entity to the Managers, the Issuer and the Company.
As
a result, if the Issuer or any Brand Entity fails to pay its obligations under
the Amended and Restated Facility or is otherwise in default thereunder, it
would have a material adverse effect on the Company. In addition, the Amended
and Restated Facility prohibits the Company, the Issuer, the Managers and each
Brand Entity from borrowing any more money without the prior written consent
of
BTMUCC.
The
Notes
bear interest (subject to increases following an event of default) as
follows:
· |
The
Brand Note securing the Bill Blass brand bears interest at LIBOR
(which in
all cases under the Amended and Restated Facility is the one-month
rate as
in effect from time to time) plus 7% per year; provided that if the
Bill
Blass brand has not been sold by December 31, 2008 then the interest
rate
increases to LIBOR plus 9% per year. The Brand Note securing the
Waverly
brand bears interest at LIBOR plus 5% per year; provided that if
the
Waverly brand has not been sold by December 31, 2008 then the interest
rate increases to LIBOR plus 7% per year. If either the Bill Blass
or
Waverly brand is sold but the proceeds are insufficient to repay
the
respective Brand Note in full, such Brand Note shall automatically
convert
to a note in the amount of the remaining principal balance which
will bear
interest at 15% per year (a “Deficiency
Note”).
|
· |
The
Class A Franchise Notes bear interest at LIBOR plus 3.75% per year
through
July 31, 2011 and then LIBOR plus 5% per year
thereafter.
|
· |
The
Class B Franchise Notes bear interest at 12% per year through July
31,
2009 and then 15% per year thereafter. The Company is required to
make a
minimum interest payment of 10% per year on each Class B Franchise
Note
outstanding on the respective payment dates with respect to accrued
interest in the corresponding period. If sufficient distributable
cash is
unavailable to pay the remaining accrued interest, the Company has
a PIK
payment option to satisfy such remaining
amount.
|
Substantially
all revenues earned by the Issuer and its subsidiaries are remitted to “lockbox
accounts” that were established initially in connection with the original bank
borrowing facility. Under the Amended and Restated Facility, the Company will
have access to certain excess cash amounts on a monthly (rather than quarterly,
as was previously the case) basis to cover operating expenses. The monthly
cash
distribution waterfall provides for the distribution of cash as
follows:
· |
to
pay the expenses of the bank providing cash management services to
the
Brand Entities;
|
· |
to
pay the Managers 55% of fees then due and owing (generally equal
to the
operating expenses of an applicable Brand Entity and its Manager,
not to
exceed specified amounts in various
periods);
|
· |
to
pay fees for a “back-up” manager if one is appointed by
BTMUCC;
|
· |
to
pay interest on the Notes and certain fees and expenses of the noteholders
relating to such Notes;
|
· |
to
pay required amortization payments of principal on the Brand Notes
and
Class A Franchise Notes;
|
· |
to
pay the Managers the remaining 45% of the fees then due and
owing;
|
· |
to
make any payments owing under interest rate hedge agreements (which
may be
required under the Amended and Restated Facility at the request of
BTMUCC
only if LIBOR for one month exceeds 3.5% per annum), if
any;
|
· |
to
pay certain fees incurred in connection with the Amended and Restated
Facility owing to BTMUCC;
|
· |
a
percentage of the remaining amount (which fluctuates based on a ratio
of
outstanding note balances to free cash flow) will be paid into an
account
to be used to first pay amounts then due and owing to the Managers
and
then, on a quarterly basis to the prepay the
Notes;
|
· |
to
pay other unpaid obligations not set forth above owing to BTMUCC
and its
affiliates but then due and owing;
|
· |
to
pay certain advisory fees and reimburse certain expenses of the Company
and its subsidiaries; and
|
· |
the
remainder is paid to the Issuer (which may be used or paid however
the
Issuer directs).
|
As
set
forth in the waterfall above, the Amended and Restated Facility imposes a cap
on
the amount of management fees that are available to the Company to cover its
operating expenses. Additionally, a significant portion of excess cash after
payment of management fees (used for operating expenses), debt service on the
Notes and any bank fees and other permitted ancillary payments is swept into
a
liquidity reserve to be used for the prepayment of principal on outstanding
Notes on a quarterly basis.
The
Amended and Restated Facility contains various customary affirmative and
negative covenants (which are subject to certain exceptions), including but
not
limited to, restrictions on the ability of the Issuer, each Brand Entity, the
Managers and in certain limited cases, the Company, to dispose of assets, incur
additional indebtedness and guarantee obligations, repay other indebtedness,
issue equity, pay certain restricted payments and dividends, create liens on
assets or agree to restrictions on the creation of liens on assets, make
investments, loans or advances, restrict distributions from subsidiaries, make
certain acquisitions, amend material contracts and certain other agreements,
engage in mergers or consolidations, or engage in certain transactions with
the
Company and subsidiaries of the Company, as well as customary restrictions
pertaining to the separate existence of the Issuer, the Managers and each Brand
Entity. In addition, the Amended and Restated Facility includes certain
additional reporting covenants, including a requirement to deliver weekly
reports providing information about the Company’s business performance and
liquidity, and a requirement to use best efforts to sell the Waverly brand
for a
commercially reasonable price by December 31, 2008 and the Bill Blass brand
for
a commercially reasonable price by January 31, 2009.
In
addition, the Issuer and each Brand Entity must meet certain financial tests,
including:
· |
maintenance
of minimum ratios of net revenues of certain Brand Entities for the
prior
three month period to the amount of debt service payable on certain
Notes
at the end of such period;
|
· |
the
outstanding balance of all the Notes must be less than 85% of the
aggregate fair market value of the assets held by the Brand Entities;
and
|
· |
on
or after December 31, 2009, the ratio of aggregate free cash flow
for the
Issuer and the Brand Entities divided by the amount of distributable
cash
for the previous 12 months cannot be less than
40%.
|
The
Amended and Restated Facility contains customary events of default (subject
to
exceptions, thresholds and grace periods), including, without limitation, with
respect to nonpayment of principal or interest, failure to perform or observe
covenants, breaches of representations and warranties, cross-defaults with
certain other indebtedness, certain bankruptcy related events, impairment of
security interests in collateral, invalidity of guarantees, monetary judgment
defaults, certain ERISA matters and certain change of control events. The
Amended and Restated Facility includes additional events of default or manager
termination events (which also qualify as events of default):
· |
the
termination, failure to renew, payment default or any other material
default or material breach of any of the following contracts, which
are
referred to in the Amended and Restated Facility as “Covered Material
Contracts”: (1) specified contracts that the Brand Entities have entered
into in the ordinary course of business with licensees or franchisees
that
represent approximately 5% or more of the respective license income
of the
Brand Entities unless the license income generated by a specified
contract
does not exceed 1% of the aggregate license income of all Brand Entities;
(2) a significant third-party supply contract that the Company has
with
one if its vendors; or (3) a certain limited liability company agreement
entered into by the Company and its joint venture partners; unless
in each
case the applicable contract is replaced with one on the same or
better
terms or, in the case of any material default or material breach,
a waiver
thereof is entered into by the parties in form and substance acceptable
to
BTMUCC;
|
· |
any
material adverse findings from the SEC that materially impairs (or
may
materially impair) the value of the assets of the Brand Entities
or
results directly or indirectly in the delisting of the Company’s stock
from the NASDAQ stock market;
|
· |
Kenneth
J. Hall no longer being employed as Chief Financial Officer (or in
another
office having higher authority and responsibility for the management
of
the Company) without finding a replacement reasonably acceptable
to BTMUCC
within 60 days thereof;
|
· |
Michael
C. “Chris” Dull no longer being employed as President, Chief Executive
Officer of NexCen Franchise Management, Inc. (“NFM”) (or another office
having ultimate authority and responsibility for the management of
NFM)
without finding a replacement reasonably acceptable to BTMUCC within
60
days thereof;
|
· |
the
Company receiving a qualified audit report in respect of its fiscal
2008
financial statements or any subsequent financial statements;
and
|
· |
the
resignation of certain of the current members of the board of directors
of
the Company, prior to March 31, 2009 and December 31, 2009,
respectively.
|
Upon
the
occurrence of certain limited events of default, all outstanding loans under
the
Amended and Restated Facility automatically become due and payable, and upon
the
occurrence of other events of default, all outstanding loans under the Amended
and Restated Facility may be declared to be due and payable, at the noteholders’
option.
The
description of the Amended and Restated Facility does not purport to be complete
and is qualified in its entirety by reference to the full text of the material
documents comprising the Amended and Restated Facility, which are filed as
exhibits to this Report. The Amended and Restated Facility has been included
to
provide investors and security holders with information regarding its terms.
It
is not intended to provide any other factual information about the Registrant
or
the other parties thereto. The
Amended
and Restated Facility contains
representations and warranties that the parties thereto made to the other
parties thereto as of specific dates. The assertions embodied in the
representations and warranties in the Amended
and Restated Facility were
made solely for purposes of the contracts among the respective parties, and
each
may be subject to important qualifications and limitations agreed to by the
parties in connection with negotiating the terms thereof.
In
addition, the Amended and Restated Facility is modified by the underlying
disclosure schedules. Moreover, information concerning the subject matter of
the
representations and warranties may change after the date of the Amended and
Restated Facility, which subsequent information may or may not be fully
reflected in the Registrant’s public disclosures.
Item
1.02 |
Termination
of a Material Definitive
Agreement
|
As
discussed in Item 1.01, the Company’s existing bank credit facility has been
amended and replaced in its entirety by the Amended and Restated Facility.
The
descriptions in Item 1.01 are incorporated herein by reference.
Item
2.03 |
Creation
of a Direct Financial Obligation or an Obligation under
an Off−Balance
Sheet Arrangement of a
Registrant
|
The
descriptions in Item 1.01 are incorporated herein by reference.
Legal
and Regulatory Proceedings
The
Company has been named in at least four-related securities class action lawsuits
brought on behalf of all purchasers of the Company’s securities between May 10,
2008 and May 19, 2008. The lawsuits allege violations of securities laws. The
case is being heard in the United States District Court for the Southern
District of New York. The court is currently entertaining motions for
appointment of lead plaintiff and appointment of lead counsel. Once lead
plaintiff and lead counsel is appointed, the Company anticipates that all of
these cases will be consolidated and an amended complaint will be filed. The
Company intends to deny liability. The Company has insurance coverage for the
matter, and counsel has been retained.
The
Company has been named as a nominal defendant in a shareholder derivative action
against the directors of the Company for violations of fiduciary duty. The
case
is being heard in the United States District Court for the Southern District
of
New York. All defendants intend to deny liability. The Company has insurance
coverage for the matter, and counsel has been retained.
The
Company voluntarily notified the Securities and Exchange Commission (“SEC”)
Division of Enforcement on May 19, 2008 that it would be filing a Current Report
on Form 8-K correcting past disclosures related to the Great American Cookie
financing completed in January 2008. The Company filed the Current Report on
May
19, 2008. Subsequent to that notice, the SEC commenced an informal
investigation. The Company continues to fully cooperate with the SEC’s Division
of Enforcement.
These
matters have also been disclosed to BTMUCC in connection with the signing of
the
Amended and Restated Facility.
Bank
of America Agreement
As
previously disclosed, Bank of America, the Company’s principal commercial bank,
advised the Company that it would terminate the deposit account control
agreements and other treasury management services that it provides to the
Company. On August 15, 2008, the deposit account control agreements were amended
to provide that, in consideration of the receipt of a $1.6 million letter of
credit issued by an affiliate of BTMUCC expiring November 30, 2008, the deposit
account control agreements will remain in effect until the cancellation or
expiration of the letter of credit. In addition, the deposit account control
agreements would be placed on hold if draws under the letter of credit total
$1
million or more, allowing deposits to be made but limited withdrawals. Upon
effectiveness of this amendment, any outstanding termination notices with
respect to the deposit account control agreements were deemed to have been
withdrawn.
Press
Release
On
August
15, 2008, the Company issued a press release announcing the completed
refinancing of its existing bank credit facility. A copy of the press release
is
attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated
herein by reference.
This
Current Report on Form 8-K contains “forward-looking statements,” as such term
is used in the Securities Exchange Act of 1934, as amended. Such forward-looking
statements include those regarding expected cost savings, expectations for
the
future performance of our brands or expectations regarding the impact of recent
developments on our business. When used herein, the words “anticipate,”
“believe,” “estimate,” “intend,” “may,” “will,” “expect” and similar expressions
as they relate to the Company or its management are intended to identify such
forward-looking statements. Forward-looking statements are based on current
expectations and assumptions, which are subject to risks and uncertainties.
They
are not guarantees of future performance or results. The Company’s actual
results, performance or achievements could differ materially from the results
expressed in, or implied by, these forward-looking statements. Factors that
could cause or contribute to such differences include: (1) the restructuring
of
the bank credit facility may not provide our business with needed liquidity,
(2)
we may not be able to generate sufficient cash flow to make interest and
principal payments on our amended and restated credit facility, (3) our ability
to comply with negative and affirmative covenants and the effects of
restrictions imposed by such covenants may have on our ability to operate our
business, (4) our ability to sell one or more of our business may not be
successful or may not generate sufficient proceeds which may lead to increased
obligations, financial and otherwise, under our amended and restated credit
facility, (5) any failure to meet our debt obligations would adversely affect
our business and financial conditions, and our need for additional near-term
liquidity could result in a sale of one or more of our businesses at less than
an optimal price or an inability to continue to operate one or more of our
businesses, and (6) other factors discussed in our filings with the Securities
and Exchange Commission. The Company undertakes no obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
Item
9.01 |
Financial
Statements and Exhibits
|
(d)
Exhibits
10.1 Amended
and Restated Security Agreement, by and among NexCen Holding Corp., the
Subsidiary Borrowers Parties thereto and BTMU Capital Corporation, dated August
15, 2008.
10.2 Amended
and Restated Note Funding Agreement, by and among NexCen Holdings Corporation,
the Subsidiary Borrowers Parties thereto, NexCen Brands, Inc. and BTMU Capital
Corporation, dated August 15, 2008.
10.3 Amended
and Restated Franchise Management Agreement, by and between NexCen Franchise
Management, Inc. and Athlete’s Foot Brands, LLC, dated August 15,
2008.
10.4 Second
Amended and Restated Brand Management Agreement, by and among NexCen Brand
Management, Inc., NexCen Holding Corporation, Bill Blass Jeans, LLC and Bill
Blass International, LLC, dated August 15, 2008.
10.5 Second
Amended and Restated Brand Management Agreement, by and between NexCen Brand
Management, Inc. and WV IP Holdings, LLC, dated August 15, 2008.
10.6 Second
Amended and Restated Franchise Management Agreement, by and among NexCen
Franchise Management, Inc., PT Franchise Brands, LLC and PT Franchising, LLC,
dated August 15, 2008.
10.7 Second
Amended and Restated Franchise Management Agreement, by and among NexCen
Franchise Management, Inc., PM Franchise Brands, LLC and PM Franchising, LLC,
dated August 15, 2008.
10.8 Amended
and Restated Franchise Management Agreement, by and among NexCen Franchise
Management, Inc., Marble Slab Franchise Brands, LLC and Marble Slab Franchising,
LLC, dated August 15, 2008.
10.9 Amended
and Restated Franchise Management Agreement, by and among NexCen Franchise
Management, Inc., MaggieMoo’s Franchise Brands, LLC and MagieMoo’s Franchising,
LLC, dated August 15, 2008.
10.10 Amended
and Restated Franchise Management Agreement, by and among NexCen Franchise
Management, Inc. GAC Franchise Brands, LLC and GAC Franchising, LLC, dated
August 15, 2008.
10.11 Amended
and Restated Supply Management Agreement, by and between NB Supply Management
Corp. and GAC Supply, LLC, dated August 15, 2008.
10.12 Amended
and Restated Supply Management Agreement, by and between NB Supply Management
Corp. and GAC Manufacturing, LLC, dated August 15, 2008.
99.1 Press
Release, dated August 15, 2008.
SIGNATURES
According
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, thereunto
duly authorized on August 21, 2008.
|
|
|
|
NEXCEN
BRANDS,
INC. |
|
|
|
|
|
/s/ Kenneth
J. Hall |
|
By: |
Kenneth
J. Hall |
|
Its: |
Chief Executive
Officer
|