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MHGC > SEC Filings for MHGC > Form 8-K on 1-Apr-2013All Recent SEC Filings

Show all filings for MORGANS HOTEL GROUP CO. | Request a Trial to NEW EDGAR Online Pro



Entry into a Material Definitive Agreement, Unregistered Sale of Equity S

Item 1.01. Entry into a Material Definitive Agreement.

On March 30, 2013, Morgans Hotel Group Co. (the "Company") announced that, effective on that date, the Company and certain of its subsidiaries had entered into various definitive agreements with Yucaipa American Alliance Fund II, L.P., Yucaipa American Alliance (Parallel) Fund II, L.P. (together with Yucaipa American Alliance Fund II, L.P., the "Yucaipa Investors") and Yucaipa Aggregator Holdings, LLC, a wholly-owned subsidiary of the Yucaipa Investors (the "Yucaipa Securityholder"), as described below. The Yucaipa Securityholder and the Yucaipa Investors are referred to collectively as the "Yucaipa Parties." At the concurrent closings of the transactions contemplated by the agreements:

the Company will transfer to the Yucaipa Investors the Company's 100% ownership interest in its subsidiary that owns the Delano hotel in South Beach ("Delano South Beach") and all of the Company's ownership interest in TLG Acquisition, LLC ("The Light Group"), a subsidiary that is 90%-owned by Morgans Group LLC and owns and operates certain locations of the Company's nightclub and food and beverage management business; and through Morgans Hotel Group Management LLC, a subsidiary of the Company ("Morgans Management"), the Company will enter into a long-term management agreement to manage Delano South Beach;

the Yucaipa Securityholder will surrender to the Company (1) warrants to purchase a total of 12,500,000 shares of the Company's common stock,
(2) 75,000 shares of the Company's outstanding preferred stock, including accrued and unpaid dividends, and (3) $88 million principal amount of the Company's outstanding senior subordinated convertible notes;

the Company will transfer to the Yucaipa Investors the Company's membership interests in MB Las Vegas Holdings LLC, which holds leasehold interests in three restaurants in Las Vegas, and the Yucaipa Investors will cause to be paid $6.5 million to the Company and will pay to, or on behalf of, the Company the remaining note obligations of the Company with respect to the acquisition of such leaseholds;

the existing governance rights of the Yucaipa Investors and their affiliates with respect to the Company will be modified; and

to raise aggregate gross proceeds of approximately $100 million, the Company will offer 16,666,666 shares of its common stock at a price of $6.00 per share in a public rights offering (the "rights offering") to its existing stockholders and holders of non-managing membership interests in its operating company subsidiary; and any shares not subscribed for in the rights offering will be purchased by the Yucaipa Securityholder pursuant to a related backstop agreement.

The proceeds of the rights offering and purchases under the backstop agreement will be used to repay $25 million outstanding under the Company's credit facility secured by Delano South Beach and fund its $10 million key money obligation for Mondrian Bahamas, which is secured by a related letter of credit, and the remaining $65 million will be used to fund expansion of the business and for general corporate purposes.

Subject to the satisfaction of closing conditions, the foregoing transactions are currently expected to be consummated in the second quarter of 2013. No vote of the Company's stockholders will be required to approve any of the foregoing transactions.

The Company is undertaking the foregoing transactions to strengthen its balance sheet, simplify its capital structure and advance its strategic objective of transforming itself from an owner/operator of hotels to a global brand and management company.

The foregoing transactions were recommended by a special transaction committee of the Company's board of directors (the "special transaction committee") consisting solely of disinterested directors who qualify as "independent directors" under the listing rules of the Nasdaq Stock Market, on which the Company's common stock is listed. The special transaction committee was advised by its own independent financial and legal advisors.

Exchange Agreement

The Company entered into an Exchange Agreement, dated as of March 30, 2013 (the "exchange agreement"), with the Yucaipa Parties.

Parties to Exchange Agreement

The Yucaipa Securityholder owns the following securities of the Company:

warrants (the "Yucaipa warrants") to acquire a total of 12,500,000 shares of the Company's common stock at a current exercise price of $6.00, which the Company issued in an investment transaction with the Yucaipa Investors completed in October 2009, which are required to be exercised on a net basis, based on the fair market value (calculated as the five-day trailing average of the closing prices of the common stock on the Nasdaq Stock Market);

75,000 shares of non-convertible preferred stock, liquidation preference of $1,000 per share (the "Yucaipa preferred stock"), issued by the Company in the same investment transaction completed in October 2009, which accrue dividends at an annual rate of 8% for the first five years, 10% for years six and seven and 20% thereafter ($24 million in accrued and unpaid dividends to date); and

$88 million principal amount of the Company's 2.375% Senior Subordinated Convertible Notes due 2014 (the "Yucaipa notes," and, together with the Yucaipa warrants and the Yucaipa preferred stock, the "Yucaipa . . .

Item 3.02. Unregistered Sale of Equity Securities.

The information set forth under Item 1.01 of this report is incorporated by reference in this Item 3.02.

In connection with its offering and proposed issuance and sale of shares of common stock to the Yucaipa Securityholder pursuant to the backstop agreement, the Company is relying and will rely on the exemption from registration under the Securities Act afforded by Section 4(a)(2) of the Securities Act and Regulation D thereunder. The Company's non-public offering of common stock on such reliance has been made exclusively to investors whom the Company reasonably believes are "accredited investors," as such term is defined in Rule 501(a) under the Securities Act.

Item 7.01. Regulation FD Disclosure.

On April 1, 2013, the Company issued a news release announcing the transactions described under Item 1.01 of this report. The news release also announced that the board of directors had postponed its 2013 Annual Meeting of Stockholders (the "2013 Annual Meeting") originally scheduled for May 15, 2013 to July 10, 2013 and established a new record date for the 2013 Annual Meeting of May 29, 2013

A copy of the news release is furnished as Exhibit 99.1 to this report and incorporated by reference in this Item 7.01.

In accordance with General Instruction B.2 to Form 8-K, the information contained in this Item 7.01 of this report, and in Exhibit 99.1 hereto, is being "furnished" to the Securities and Exchange Commission and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities under such section. Further, such information shall not be deemed to be incorporated by reference in any filing under the Securities Act or the Securities Exchange Act of 1934 unless specifically identified as being incorporated therein by reference.

Item 8.01. Other Events.

The information set forth under Item 1.01 of this report is incorporated by reference in this Item 8.01.

On April 1, 2013, the Company issued a news release announcing that its board of directors had set April 11, 2013 at the close of business as the record date for its rights offering of common stock. In its announcement, the Company stated that it would distribute as a dividend to each eligible holder, one transferable right for each share of common stock or common share equivalent owned by such eligible holder on the record date.

A copy of the Company's news release is filed as Exhibit 99.2 to this report and incorporated by reference in this Item 8.01.

Item 9.01. Financial Statements and Exhibits.

The Company herewith files the following Exhibit 99.2 to this report and furnishes the following Exhibit 99.1 to this report:

(d) Exhibits

  No.                                     Description

99.1         News release of the Company dated April 1, 2013 announcing the Yucaipa
             transactions and a new 2013 annual meeting date and record date.

99.2         News release of the Company dated April 1, 2013 announcing rights
             offering record date.

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