MSLP Muscle Pharm Corporation (CE)

 

 

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: March 2, 2015

(Date of earliest event reported)

 

 

MusclePharm Corporation

(Exact name of registrant as specified in its charter)

 

 

 

NEVADA		000-53166		77-0664193
(State or other jurisdiction of incorporation)		(Commission File Number)		(IRS Employer Identification No.)

4721 Ironton Street, Building A

Denver, Colorado 80239

(Address of principal executive offices) (Zip Code)

(303) 396-6100

(Registrant’s telephone number, including area code)

N/A

(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):

 

¨

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)).

 

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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-14(c)).

 

 

 

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ITEM 1.01

ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT

Effective March 2, 2015, MusclePharm Corporation, a Nevada Corporation (the “Company” or “we” or “our” or “us”) and F.H.G. Corporation, formerly doing business as “Integrity” but now doing business as “Capstone Nutrition” (“Capstone”) executed an amendment (the “Amendment”) to the Manufacturing Agreement dated Nov. 27, 2013, entered in by and between the Company and Capstone. Pursuant to the Amendment, Capstone shall be the Company’s nonexclusive manufacturer of dietary supplements and food products sold or intended to be sold by the Company (the “Products”). The Company shall purchase and take delivery from Capstone of a minimum of $90,000,000 of Products per full contract year. The Amendment includes an amended pricing for Products and payment terms. The initial term ends January 1, 2022 and will continue thereafter for three (3) successive twenty-four (24) month terms, unless Capstone notifies the Company of nonrenewal at least ninety (90) days prior to the end of the then current term.

Payment and Rebates. The Company and capstone agreed on certain payment terms and rebate programs.

Contribution toward Capstone Facility Build-Out. The Company shall pay to Capstone a nonrefundable sum of Two Million Five Hundred Thousand Dollars ($2,500,000) to be use by Capstone solely in connection with the expansion of its facility necessary to fulfill anticipated Company requirements under the Manufacturing Agreement and Amendment.

Also effective March 2, 2015, Capstone and the Company entered into a referral agreement (the “Referral Agreement”) whereby the Company shall refer customers to Capstone for the purchase of Products, and Capstone will pay the Company a referral fee. The term of the Referral Agreement shall continue as long as the Manufacturing Agreement between the Company and Capstone is in effect.

Also effective March 2, 2015, the Company and INI Parent, Inc., a Delaware corporation (“INI”), and the parent company of Capstone, entered into a Class B Common Stock Warrant Purchase Agreement (“Warrant Agreement”) to purchase 19.9% of INI on a fully-diluted basis. Pursuant to the Warrant Agreement, INI issued to the Company a warrant (the “Warrant”) to purchase shares of INI’s Class B common stock, par value $0.001 per share at an exercise price of $0.01 per share (the “Warrant Shares”).

Exercise. The Company has the right to exercise the Warrant under certain circumstances: (i) the Warrant Agreement may only be exercised at the earlier of (A) immediately prior to, and in connection with the consummation of a sale of INI or (B) within five (5) business days of the expiration of the initial terms of the Manufacturing Agreement, hereinafter defined; (ii) the Company has been and continues to be as of the date of the sale of INI in compliance with the terms of the Manufacturing Agreement; and (iii) the Company complies with the provisions of the Warrant Agreement, including its exercise conditions. The Warrant Agreement and Warrant Shares are not transferrable without the prior written consent of INI’s Board of Directors.

In lieu of exercising the Warrant Agreement, the Company may elect to sell or terminate the Warrant Agreement provided that the Company makes such election by delivering written notice to INI pursuant to the terms and conditions of the Warrant Agreement.

In connection with the Warrant Agreement, the Company and INI entered into an option agreement on March 2, 2015 (the “Option Agreement”). Subject to additional provisions and conditions set forth in the Option Agreement, at any time on or prior to June 30, 2016, the Company shall have the right the to purchase all of the remaining outstanding shares of INI’s common stock for cash not already owned by the Company after giving effect to the exercise of the Warrant on a fully-diluted basis, based on an aggregate enterprise value, equal to Two Hundred Million Dollars ($200,000,000). Such purchase is intended to be consummated pursuant to a definitive merger agreement whereby INI would merge with a subsidiary of the Company and survive the merger as a wholly-owned subsidiary to the Company.

The foregoing is a summary of the material terms of the Warrant Agreement, Option Agreement, Amendment to the Manufacturing Agreement and Referral Agreement does not purport to be complete. You should read each complete Agreement, which shall be attached as exhibits to MusclePharm Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 and, when filed, such Agreements shall be incorporated by reference herein. MusclePharm Corporation will seek confidential treatment for certain terms of the Agreement at the time of filing such Quarterly Report.

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ITEM 9.01

FINANCIAL STATEMENTS AND EXHIBITS

 

(d)

Exhibits.

The exhibit listed in the following Exhibit Index is filed as part of this Current Report on Form 8-K.

 

Exhibit No.		Description
99.1		MusclePharm Corporation Press Release dated March 4, 2015

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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.

 

				MUSCLEPHARM CORPORATION
Dated: March 4, 2015
				By:		/s/ Brad J. Pyatt
				Name:		Brad J. Pyatt
				Title:		Chief Executive Officer

Exhibit 99.1

 

MusclePharm Enters Manufacturing Agreement with Capstone Nutrition,

With Option to Purchase Capstone over 18-Month Period

- Move Expected to Enhance Gross Margins through Increased Efficiency; Transaction to Mark Key Step in Vertical Integration of MusclePharm --

DENVER, CO – March 4, 2015 -- MusclePharm Corporation (OTCQB: MSLP), a scientifically driven, performance-lifestyle sports nutrition company, today announced it has entered into a strategic manufacturing agreement with an option to purchase Capstone Nutrition, one of the largest pure-play developers and manufacturers in the nutrition industry.

Under the terms of the agreement, MusclePharm will consolidate all of its domestic powder, capsule and tablet manufacturing into applicable Capstone facilities. In connection with the consolidation, MusclePharm will receive warrants equal to 19.9 percent of Capstone, as well as the right to purchase the remaining 80.1 percent of Capstone during the next 18 months. In addition, MusclePharm is contributing $2.5 million to the build out of Capstone’s manufacturing facilities to meet MusclePharm’s manufacturing requirements.

“With more than two decades of experience developing and manufacturing high-quality products, Capstone is the ideal partner for MusclePharm as we look to become a diversified leader in the sports nutrition industry, with strength across innovation, manufacturing and brand development,” said Brad Pyatt, founder and CEO of MusclePharm. “Additionally, the integration of certain parts of our manufacturing with Capstone further optimizes our supply chain by reducing freight and other expenses.

“We anticipate the combination of our two companies would bring significant value to shareholders by more than doubling annual revenues and substantially enhancing profitability,” Pyatt said.

Upon exercise of the purchase option, the consolidated company is expected to have annual revenues of approximately $450 million and double digit EBITDA in 2015.

Coinciding with this agreement, MusclePharm is also launching a contract manufacturing sales and business development team to complement the team at Capstone. The goal of this initiative would be to bring leading research, innovation and manufacturing capabilities to the broader industry. In addition to ensuring the seamless transition of MusclePharm products into Capstone’s facilities, the team will focus on further enhancing the breadth of Capstone’s current contract manufacturing capabilities.

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“We devoted much of 2014 and this year so far to building out infrastructure both domestically and internationally, accelerating investments to achieve future revenue and gross margin goals,” said Richard Estalella, president of MusclePharm. “As MusclePharm grows, we aim to work closely with Capstone to build out the contract manufacturing business, along with increasing the utilization of our liquids and gels manufacturing capability.”

Capstone operates two state-of-the-art facilities, focused on manufacturing capsules, tablets, powders and OTC products, along with a world-class flavor lab.

“Together, our companies reflect the very best in science, innovation, and high-quality manufacturing, and we welcome this mutually beneficial opportunity to align with MusclePharm at this exciting stage of growth for the company,” said Greg Horn, CEO of Capstone. “Our other customers will benefit from the increase in capacity and buying power that this expansion brings to the Capstone system.”

About MusclePharm

MusclePharm^® is a scientifically-driven, performance lifestyle company that currently develops, manufactures, markets and distributes branded nutritional supplements. The company offers a complete range of powders, capsules, tablets and gels. Its portfolio of recognized brands, including MusclePharm^® Hybrid and Core Series, Arnold Schwarzenegger Series^™ and FitMiss^™, are marketed and sold in more than 110 countries and available in over 35,000 retail outlets globally. These clinically-proven and scientific nutritional supplements are developed through a six-stage research process utilizing the expertise of leading nutritional scientists, doctors and universities. MusclePharm is the innovator of the sports nutrition industry. For more information, visit www.musclepharm.com.

About Capstone Nutrition

Capstone Nutrition is the leading pure-play, turnkey developer and manufacturer of high quality nutrition and OTC products. Capstone is a one-stop shop for innovators in nutrition, bringing to bear the consolidated resources of Integrity Nutraceuticals and Cornerstone Research and Development with state-of-the-art facilities in both Spring Hill, TN and Ogden, UT. Since 1992, Capstone companies have been conceiving, developing, producing, and packaging a wide range of capsule, tablet, powder and OTC products for a variety of customers in the United States and internationally. Capstone is well known for its exceptional quality, and maintains several industry certifications recognizing its high manufacturing standards, including NSF GMP, NSF for Sport, and Australia’s Therapeutic Goods Administration (“TGA”) certification. For more information, please visit www.CapstoneNutrition.com.

Forward-Looking Statements

The information contained herein includes forward-looking statements. These statements relate to future events or to our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. You should not place undue reliance on forward-looking statements since they involve known and unknown risks,

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uncertainties and other factors which are, in some cases, beyond our control and which could, and likely will, materially affect actual results, levels of activity, performance or achievements. Any forward-looking statement reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. We assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

Matt Sheldon | Evan Pondel

PondelWilkinson Inc.

(310) 279-5980

investors@musclepharm.com

Media:

Becky Warren

Mercury Public Affairs

(916) 607-0129

bwarren@mercuryllc.com