Falcon is indeed the largest shareholder of the Company. (I believe the author of this article to be Falcon's manager Josh Koplewicz. As Falcon often states, its “control position” entitles Falcon to capture the vast majority of the economics of any transaction leaving other shareholders with scraps. Falcon’s latest “proposal” that it presented to the Company in October, began with the false premise that its option entitled it to 84.9% of all shareholder value for very little consideration. (This https://drive.google.com/file/d/1l6JLdHlYl1xZ0giWLcm9KA-rWyeJZYij/view is on our website.)
The Company filed a https://drive.google.com/file/d/1wdHw6t5AaAQaw5hPFPV2ONXulQ5XbKPm/view against both Falcon and its complicit board directors.
As I described in the letter to you, Falcon used their director appointees to block the Company from filing suit against Falcon on the loan (more on that below). If Falcon gets board control, history suggests that Falcon’s first order of business will be to dismiss this suit against them. This suit could be worth huge value to shareholders.
Falcon's economic expectations vs. other investors, and Falcon's brazen attempts to grab other shareholders' value, should be considered in the context of any Falcon proposal.
Falcon's post makes several inaccurate statements while carefully adding in "I believe" qualifiers to avoid legal exposure. In only three paragraphs here, he manages to share a litany of misinformation:
1. “Falcon has invested more capital and owns more shares in the Company than any other single party. We therefore have every interest in identifying and executing a value maximizing transaction that would benefit all shareholders.” This is not true!
FNBCQ shareholders own shares at HoldCo,, not OpCo. Falcon’s false premise per the linked options notice is that that its option entitles him to 84.9% ownership of Opco. That means before HoldCo shares receive a penny, 84.9% of the economics are absorbed by Falcon. After Falcon’s debt is paid off, and the US Treasury preferred is paid, HoldCo shareholders would receive $0 in most circumstances. Falcon, should it gain control of the boards, will have its board members uncritically approve such a deal. This is absolutely a “zero sum game”. That is why we've been fighting them so hard.
2. “We believe the management of the Company has repeatedly given you misinformation and failed to disclose material information (including detailed information regarding what discussions Shiv Govindan has had about an ongoing paid position and other personal benefits at a merged company if the Halsa deal were to be approved.” I have fully disclosed in the Company’s proxy notice what my compensation is and shareholders have been given the opportunity to vote on this. There is a proposal that I would receive a $150,000 annual salary, deferred indefinitely until the Company has available proceeds. The Company is also seeking approval for an option pool of which some proportion, as agreed to by the board, would be granted to me. Should this be approved, per several previous posts, th options will deliver us value only if shareholders first receive at least a dollar a share. We believe this arrangement aligns the board and management with its shareholder base.
I have no deal to receive any other payments from any other parties. Any implication that I have any other deal is inaccurate and misleading.
3. “Mr. Govindan has also routinely directed the Company to violate the terms of our binding agreements.” Falcon filed suit in Delaware in June for such violations. It dropped the suit last Friday, presumably due to its new counsel determining that its claims were weak. Additionally, Falcon, as part of a deliberate scheme, made complying with its loan agreement impossible with the goal of extracting further economics and concessions from the Company and its shareholders. In October, the Company attempted to end this abuse by filing a lawsuit against Falcon in New York regarding Falcon’s abusive lending practices. Falcon’s complicit and self-dealing directors (at least one of whom is an investor in the loan), blocked the suit from being filed. If our OpCo board slate passes, filing this suit will be one of the first actions the Company will take. This will benefit all shareholders significantly.
4. “Over a month ago we wrote a letter to shareholders regarding what we believe to be fraudulent and wrongful conduct management and Shiv Govindan have engaged in toward Falcon and requested that management forward it to all shareholders. We now understand they did not distribute it. We then requested a shareholder list with contact information, so that we could send the letter ourselves. Again, they refused to comply with our request in violation of both our agreements.” Falcon sent an email to the board attaching such a letter. In the email, Koplewicz stated “In advance of the board meeting tomorrow – please find the attached letter clarifying TS Falcon’s position. This is being shared with shareholders more broadly as well.” At no point did Koplewicz demand that the Company send this letter to its shareholders and, in any case, it was farcical to think that the Company would be obligated to share such misinformation simply to further Falcon’s self-interest. This is a blatant lie by Falcon.
The “inspection rights” Koplewicz refers to expired in April 2021 in one agreement. The other agreement he refers to is the usurious loan which the Company plans to litigate as soon as we take control of the OpCo board (if you vote for our slate).
5. “Last Wednesday, a New York judge issued a restraining order because of management’s course of conduct, which is why last week's shareholder meeting was adjourned without a vote.” The temporary restraining order (TRO) was issued as standard course to allow the court to understand the situation further: it does not imply a judgment. Falcon’s TRO request was littered with lies and inaccuracies but, as Falcon notified the Company of a court appearance only four hours before, the Company had no time to prepare an appropriate response. Falcon also filed a TRO in Delaware in which the Company was able to provide a response. The Delaware court rejected Falcon’s request and allowed the shareholder meeting to proceed.
We look forward to making our case with the court in NY.
6. “We will provide you with our side of the story and why we strongly recommend you vote against their proposed value-destructive, cashless merger with Halsa.” Koplewicz continues his inaccuracies by stating the Halsa transaction is “cashless”. Aside from providing operating businesses with first year EBITDA of over $4 million, Halsa will be required to close with minimum levels of cash to fund working capital. What Koplewicz means by “cashless” is that, in the proposed transaction, Falcon will not be receiving an extortionate cash payment of tens of millions of dollars up front (with other shareholders getting nothing for at least years), which is the only kind of proposal Falcon has approved in the past.
Falcon has misrepresented the TRO to our second largest shareholder telling them, should they vote in favor of the proposals, the violation could result in “imprisonment.” I believe Falcon is a bottom-feeding, unscrupulous investor that will stop at no lengths to disenfranchise other shareholders for its own benefit.
It is critically important that these proposals pass so that we can protect the Company from even further significant damage than Falcon has already caused. It's time to hold Falcon accountable for its actions.
We will take Falcon's post here as an invitation to post further emails, letters, and documents to our website (and I'll link to them here) for you all to judge.
Best,
Shiv
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