SQBG Sequential Brands Group Inc

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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): April 8, 2015

 

SEQUENTIAL BRANDS GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)

 

Delaware	000-16075	86-0449546
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification Number)

 

 5 Bryant Park, 30^th Floor
New York, New York 10018

(Address of Principal Executive Offices/Zip Code)

 

(646) 564-2577

(Registrant's telephone number, including area code)

 

 

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:

 

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 a Material Definitive Agreement

 

On April 8, 2015 (the “Closing Date”), Sequential Brands Group, Inc., a Delaware corporation (“Sequential” or the “Company”), announced the consummation of the transactions contemplated by the Purchase Agreement, dated as of April 1, 2015 (the “Purchase Agreement”), among Sequential, With You, Inc., a California corporation (“WYI”), Corny Dog, Inc., a California corporation (“Corny Dog” and, together with WYI, the “Sellers”), With You LLC, a Delaware limited liability company (“NewCo”), and Jessica Simpson, in her capacity as the sole stockholder of each of the Sellers. The terms of the transactions are more fully described in Item 1.01 of the Company’s Current Report on Form 8-K previously filed with the Securities and Exchange Commission on April 7, 2015, which is incorporated by reference into this Current Report on Form 8-K.

 

In addition, on the Closing Date, in connection with the consummation of the transactions contemplated by the Purchase Agreement, Sequential entered into (i) the second amended and restated first lien credit agreement, dated as of April 8, 2015 (the “First Lien Credit Agreement”), by and among the Company, the guarantors named therein, the lenders party thereto from time to time and Bank of America, N.A., as administrative agent and collateral agent thereunder, (ii) the amended and restated second lien credit agreement, dated as of April 8, 2015 (the “Second Lien Credit Agreement”), by and among the Company, the guarantors named therein, the lenders party thereto from time to time and Wilmington Trust, National Association, as administrative agent and collateral agent thereunder, and (iii) the First Amendment to Intercreditor Agreement, dated April 8, 2015 (the “First Amendment to the Intercreditor Agreement”), by and between Bank of America, N.A. and Wilmington Trust, National Association, The terms of the First Lien Credit Agreement, the Second Lien Credit Agreement and the First Amendment to the Intercreditor Agreement are more fully described in Item 2.03 of the Company’s Current Report on Form 8-K previously filed with the Securities and Exchange Commission on April 7, 2015, which is incorporated by reference into this Current Report on Form 8-K.

 

Item 2.01    Completion of Acquisition or Disposition of Assets

 

To the extent required by Item 2.01 of Form 8-K, the information relating to the consummation of the transactions contained or incorporated elsewhere in this report is incorporated by reference herein.

 

Item 2.03    Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant

 

To the extent required by Item 2.03 of Form 8-K, the information relating to the consummation of the transactions contained or incorporated elsewhere in this report is incorporated by reference herein.

 

Item 5.02    Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

 

On April 14, 2015, the Company entered into an amended and restated employment agreement (the “A&R Employment Agreement”) with Mr. Yehuda Shmidman, the Company’s Chief Executive Officer, for a term continuing through December 31, 2018, unless otherwise terminated in accordance with the terms of the A&R Employment Agreement (the “Term”).

 

During the Term, Mr. Shmidman will receive a base salary of not less than $600,000 per annum, subject to increases from time to time as determined by the Company’s board of directors or the compensation committee thereof (such salary, the “Base Salary”). Mr. Shmidman will also be eligible to receive an annual performance bonus of up to 150% of the Base Salary based on the attainment of certain performance targets to be agreed upon by the Company and Mr. Shmidman, subject to certain adjustments as set forth in the A&R Employment Agreement (the “Annual Bonus”). If applicable, the Annual Bonus shall be due and payable to Mr. Shmidman annually, payable in the year following the fiscal year for which the Annual Bonus was earned on the earlier of (i) the date the Company files its Annual Report on Form 10-K for the fiscal year for which the Annual Bonus was earned and (ii) April 1st of the following year. In addition, the A&R Employment Agreement provides for an equity compensation grant to Mr. Shmidman of 300,000 restricted stock units (the “RSUs”), of which 100,000 shall be time-vested, with 1/3 vesting on the last calendar day of each of 2016, 2017 and 2018, and 200,000 shall vest based on the Company’s attainment of certain performance targets, with 1/3 vesting on the last calendar day of each of 2016, 2017 and 2018, subject to certain catch-up provisions if the performance targets are not met in one year but are met in a subsequent year.

 

 

In the event Mr. Shmidman’s employment is terminated by the Company without Cause or by Mr. Shmidman for Good Reason, each as defined in the A&R Employment Agreement, Mr. Shmidman will be entitled to receive, among other things, (i) an amount equal to 2.0 times the sum of (x) the then-current Base Salary and (y) the greater of (i) the actual Annual Bonus for the year immediately preceding the year in which the date of termination occurs or (ii) 150% of the then-current Base Salary, (ii) any Annual Bonus earned but unpaid for the prior year and (iii) in the event such resignation or termination occurs following the Company’s first fiscal quarter of any year, a pro-rated Annual Bonus for the year in which Mr. Shmidman’s employment was terminated. In addition, any unvested portion of Mr. Shmidman’s Restricted Stock Award, as defined in the A&R Employment Agreement, and RSUs shall accelerate and become fully vested on the date of such termination. In addition, the A&R Employment Agreement provides that, if Mr. Shmidman is terminated after a Change in Control, as defined in the A&R Employment Agreement, or after the execution of a definitive agreement the consummation of which would constitute a Change in Control, any unvested PSUs, as defined in the A&R Employment Agreement, shall accelerate and become fully vested on the date of such termination.

 

Pursuant to the terms of the A&R Employment Agreement, Mr. Shmidman is also subject to customary (i) confidentiality provisions, (ii) non-competition provisions during the Term and for the Restricted Period thereafter, as defined in the A&R Employment Agreement, and (iii) non-solicitation provisions during the Term and for a period of (A) eighteen (18) months thereafter with respect to the Company’s employees and (B) twelve (12) months thereafter with respect to the Company’s customers.

 

Item 7.01    Regulation FD Disclosure.

 

On the Closing Date, Sequential issued a press release announcing the consummation of the transactions described in Item 1.01, a copy of which is attached to this Current Report on Form 8-K as Exhibit 99.1 and is incorporated herein by reference.

 

The information in this Item 7.01, including Exhibit 99.1, is furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liabilities under that section, and shall not be deemed to be incorporated by reference into the filings of Sequential under the Securities Act of 1933, as amended, regardless of any general incorporation language in those filings.

 

Item 9.01    Financial Statements and Exhibits.

 

(a) Financial Statements of Businesses Acquired.

 

The Company intends to file the financial statements of the acquired business required by Item 9.01(a) as part of an amendment to this Current Report on Form 8-K not later than 71 calendar days after the date this Current Report on Form 8-K is required to be filed.

 

(b) Pro Forma Financial Information.

 

The Company intends to furnish the pro forma financial information required by Item 9.01(b) as an amendment to this Current Report on Form 8-K not later than 71 days after the date this Current Report on Form 8-K is required to be filed.

 

(d) Exhibits.

 

Exhibit No.		Description
99.1		Press Release dated April 8, 2015.

 

 

 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

	SEQUENTIAL BRANDS GROUP, INC.
	By:	/s/ Gary Klein
		Name: Gary Klein Title:   Chief Financial Officer

 

Dated: April 14, 2015

 

 

Exhibit Index

 

Exhibit No.		Description
99.1		Press Release dated April 8, 2015.

 

 

Exhibit 99.1

 

 

 

 

 

Sequential Brands Group Announces Closing of Jessica Simpson Brand Acquisition

 

 

NEW YORK – April 8, 2015 – Sequential Brands Group, Inc. (NASDAQ:SQBG) (“Sequential” or the “Company”) announced today that it has closed the acquisition of the Jessica Simpson brand. The Company has acquired a majority interest in the brand, including the Jessica Simpson Collection master license and other rights.

 

Founded in 2005, the Jessica Simpson Collection is a signature lifestyle concept inspired by and designed in collaboration with Jessica Simpson. The growing brand offers 31 product categories including footwear, apparel, fragrance, fashion accessories, maternity apparel, girls clothing and a home line. The brand is supported by nearly 20 best-in-class licensees and has strong department store distribution through Dillard’s, Macy’s, Belk, Lord & Taylor and Nordstrom, among other independent retailers. Annual retail sales for the brand are approximately $1 Billion.

 

Financing for the acquisition was provided by Bank of America and GSO Capital Partners LP, an affiliate of Blackstone Group.

 

The Company is projecting forward 12-month royalty revenues of $88.0 - $90.0 million and $53.5 - $55.0 million of Adjusted EBITDA from the Company’s total brand portfolio.

 

The Company has in excess of $250 million of aggregate contractual guaranteed minimum royalties under its existing licenses as of the close of this transaction.

 

For the Fiscal Year 2015, the Company is increasing projected revenue to $78.0 – $81.0 million and increasing projected Adjusted EBITDA to $48.5 - $50.5 million.

 

ABOUT SEQUENTIAL BRANDS GROUP, INC.

Sequential Brands Group, Inc. (Nasdaq:SQBG) owns, promotes, markets, and licenses a portfolio of consumer brands in the fashion, active, and lifestyle categories. Sequential seeks to ensure that its brands continue to thrive and grow by employing strong brand management, design and marketing teams. Sequential has licensed and intends to license its brands in a variety of consumer categories to retailers, wholesalers and distributors in the United States and around the world. For more information, please visit Sequential's website at: www.sequentialbrandsgroup.com. To inquire about licensing opportunities, please email: newbusiness@sbg-ny.com. 

 

 

Forward-Looking Statements

Certain statements in this press release and oral statements made from time to time by representatives of the Company are forward-looking statements ("forward-looking statements") within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are made as of the date hereof and are based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. The Company's actual results could differ materially from those stated or implied in forward-looking statements. Forward-looking statements include statements concerning guidance, plans, objectives, goals, strategies, expectations, intentions, projections, developments, future events, performance or products, underlying assumptions and other statements that are not historical in nature, including those that include the words "subject to," "believes," "anticipates," "plans," "expects," "intends," "estimates," "forecasts," "projects," "aims," "targets," "may," "will," "should," "can," the negatives thereof, variations thereon and similar expressions.  Such forward-looking statements reflect the Company's current views with respect to future events, based on what the Company believes are reasonable assumptions. Whether actual results will conform to expectations and predictions is subject to known and unknown risks and uncertainties, including: (i) risks and uncertainties discussed in the reports that the Company has filed with the Securities and Exchange Commission; (ii) general economic, market, or business conditions; (iii) changes in the Company's competitive position or competitive actions by other companies; (iv) the Company's ability to maintain strong relationships with its licensees and retail partners; (v) the Company's ability to retain key personnel; (vi) the Company's ability to achieve and/or manage growth and to meet target metrics associated with such growth; (vii) the Company's ability to successfully attract new brands; (viii) the Company's ability to identify suitable targets for acquisitions; (ix) the Company's ability to obtain financing for the acquisitions on commercially reasonable terms; (x) the Company's substantial level of indebtedness, including the possibility that such indebtedness and related restrictive covenants may adversely affect the Company's future cash flows, results of operations and financial condition and decrease its operating flexibility; (xi) the Company's ability to integrate successfully the new acquisitions into its ongoing business; (xii) the Company's ability to achieve the anticipated results of these and other potential acquisitions; (xiii) the Company's largest stockholders control a significant percentage of the Company's common stock and appointed two members to the Company's board of directors, which may enable them to exert influence over corporate transactions and matters affecting the rights of the Company's stockholders; (xiv) the Company's ability to comply with government regulations; (xv) changes in laws or regulations or policies of federal and state regulators and agencies; and (xvi) other circumstances beyond the Company's control. Refer to section entitled "Risk Factors" set forth in the Company's Annual Reports on Form 10-K and the Company’s Quarterly Reports on Form 10-Q for a discussion of important risks, uncertainties and other factors that may affect our business, results of operations and financial condition. The Company's stockholders are urged to consider such risks, uncertainties and factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Forward-looking statements are not, and should not be relied upon as, a guarantee of future performance or results, nor will they necessarily prove to be accurate indications of the times at or by which any such performance or results will be achieved. As a result, actual outcomes and results may differ materially from those expressed in forward-looking statements. The Company is under no obligation to, and expressly disclaims any such obligation to, update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

 

Non-GAAP Financial Measures:

See reconciiliation tables below for non-GAAP metrics. These non-GAAP metrics may be inconsistent with similar measures presented by other companies and should only be used in conjunction with our results reported according to U.S. GAAP. Any financial measure other than those prepared in accordance with U.S. GAAP should not be considered a substitute for, or superior to, measures of financial performance in accordance with U.S. GAAP.

 

 

CONTACT:

 

For media inquiries:

Jaime Cassavechia

212-518-4771 x108

jcassavechia@sbg-ny.com

 

For Investor Relations Inquiries

Gary Klein, Chief Financial Officer

646-564-2577

gklein@sbg-ny.com

 

Non-GAAP Financial Measure Reconciliation

(in thousands, except per share data)

		(Unaudited)
		Projected Next Twelve Months Post Closing (a)								Year ending December 31, 2015
		High				Low				High				Low
GAAP net income		$	14,067			$	13,092			$	12,992			$	11,692
Adjustments:
Interest expense, net			22,333				22,333				19,604				19,604
Depreciation and amortization			1,840				1,840				1,724				1,724
Taxes			7,576				7,051				6,996				6,296
Estimated deal costs and other (b)			3,500				3,500				3,500				3,500
Non-cash compensation - performance based awards (c)			3,434				3,434				3,434				3,434
Non-cash compensation - restricted stock (d)			2,250				2,250				2,250				2,250
			40,933				40,408				37,508				36,808
Adjusted EBITDA (1)		$	55,000			$	53,500			$	50,500			$	48,500

 

		(Unaudited)								(Unaudited)
		Projected Next Twelve Months Post Closing (a)								Year ending December 31, 2015
		High				Low				High				Low
GAAP net income		$	14,067			$	13,092			$	12,992			$	11,692
Adjustments:
Estimated deal costs and other (b)			3,500				3,500				3,500				3,500
Tax effect of above items			(1,225	)			(1,225	)			(1,225	)			(1,225	)
Total non-GAAP adjustments			2,275				2,275				2,275				2,275
Non-GAAP net income (2)		$	16,342			$	15,367			$	15,267			$	13,967

 

		(Unaudited)								(Unaudited)
		Projected Next Twelve Months Post Closing (a)								Year ending December 31, 2015
DILUTED EPS:		High				Low				High				Low
GAAP earnings per share		$	0.34			$	0.32			$	0.32			$	0.29
Adjustments:
Estimated deal costs and other (b)			0.08				0.08				0.08				0.08
Tax effect of above items			(0.03	)			(0.03	)			(0.03	)			(0.03	)
Total non-GAAP adjustments		$	0.05			$	0.05			$	0.05			$	0.05
Non-GAAP earnings per share (2)		$	0.39			$	0.37			$	0.37			$	0.34

 

RECONCILIATION OF TWELVE MONTH FORWARD GUIDANCE ADJUSTMENT:			High				Low				High				Low
2015 EPS Guidance provided on November 6, 2014		$	0.38			$	0.35			$	0.38			$	0.35
Full Year accretion of acquisition			0.06				0.06				0.04				0.04
Projected Next Twelve Months Post Closing EPS		$	0.44			$	0.41			$	0.42			$	0.39
Non-cash compensation - performance based awards (c)			(0.05	)			(0.05	)			(0.05	)			(0.05	)
Projected Next Twelve Months Post Closing EPS - including Performance Based Awards (3)		$	0.39			$	0.37			$	0.37			$	0.34

  

(1)

Adjusted EBITDA is defined as net income, excluding interest expense, taxes, depreciation and amortization, and excluding estimated deal costs and other and non-cash compensation.  Management uses Adjusted EBITDA as a measure of operating performance to assist in comparing performance from period to period on a consistent basis and to identify business trends relating to the Company's financial condition and results of operations.  The Company believes Adjusted EBITDA provides additional information for determining its ability to meet future debt service requirements and capital expenditures.

(2)

Non-GAAP net income and non-GAAP earnings per share are non-GAAP financial measures which represent net income excluding estimated deal costs and other.  Management uses this information to measure performance over time on a consistent basis and to identify business trends relating to the Company's financial condition and results of operations.  Management believes that these non-GAAP measures provide investors with information regarding the underlying performance of the Company's core business operating results on a cash basis.

(3)

Amounts may not foot due to rounding.

(a)

Projected next twelve months after the closing date of the acquisition.

(b)

Represents deal and other one-time costs related to the Company's acquisition transactions primarily related to legal, advisory and accounting costs that are not representative of the Company's day-to-day licensing business.

(c)

Represents non-cash expenses related to (1) 210,500 performance based awards granted under the Company's 2013 Stock Incentive Compensation Plan and (2) 153,389 performance based awards for the 2015 portion granted under the Company's 2013 Stock Incentive Compensation Plan which the Company anticipates will be earned in 2015.  Excludes (1) future mark-to-market adjustments to non-cash compensation provided to consultants for performance based awards and (2) 195,444 performance based awards which the Company does not anticipate will be earned at this time.

(d)

Excludes future mark-to-market adjustments to non-cash compensation provided to consultants.