GMFHC would like to disclose some important risks and challenges it faces with regard to TS Falcon I, LLC. In January 2021, Thayer Street Management, a private equity firm in New York controlled by Josh Koplewicz, formed Falcon for the purpose of investing in and lending to GMFHC. We believe Falcon purchased 35% of newly-issued GMFHC common shares and an option to purchase another combined 10% at GMFHC (“HoldCo”) and/or a newly-formed subsidiary GMFC (“OpCo”), and purported to provide $5 million credit line to GMFC.  As part of that transaction, Falcon negotiated the right to appoint 3 of 7 HoldCo directors and 2 of 3 OpCo directors.

GMFHC has filed a lawsuit in Delaware Chancery Court against Falcon and its appointees on the boards of HoldCo and OpCo alleging their serial breaches of fiduciary duties. Specifically, the Complaint addresses Falcon’s alleged predatory lending practices as well as its recent stated intent to take far greater economics than the 35% it purchased, plus the option to purchase an additional 10%, at other shareholders’ expense.  We provide additional detail of these claims, and other perceived malfeasance, below.

Abuse Under The Loan

We believe Falcon provided the line of credit in bad faith, intending to starve the company of funds (1) to prevent it from defending itself, and (2) to create the circumstances where Falcon could foreclose on the loan taking 100% of GMFC, or extract outsized results for itself under threat of doing so. We identified another lender willing to provide funds under reasonable terms, and asked Falcon for a payoff letter.

On June 2, Falcon notified GMFC that it is in default, demanding the company pay interest and fees totaling over $2.7 million on a $984,795 principal balance. On June 6, we responded to Falcon pointing out that its demand amounted to an effective APR of 53%.  This rate could trigger criminal usury under New York law (which governs the loan).  As such, we asked Falcon to reconsider and provide a payoff letter consistent with applicable law.  Instead, on June 8, Falcon doubled down, providing another letter with even greater interest demands than the June 2 letter. Then, on June 15, we responded with another letter warning Falcon about the potential for the loan to be void ab initio in addition to other potential damage as a result of the potentially usurious demands. To date, and despite being given ample opportunities, Falcon has not provided a payoff letter that we believe is compliant with New York law.

Rather, on June 16, Falcon filed suit against the company seeking to compel it to recommend to shareholders a slate that would provide Falcon majority control over HoldCo. We responded by moving to dismiss the suit.

Perhaps in response to our many communications challenging Falcon’s prior payoff letter, on August 26, Falcon provided another payoff letter that reduced the payoff amount to $2,073,957, which we believe is  still non-compliant with New York law. Thus, we prepared a lawsuit to be filed in New York State court regarding Falcon’s loan abuses. Since OpCo is the borrower, the OpCo board had to approve filing suit.  Apparently anticipating this, the Falcon directors made a series of disappointing moves:

• On 10/4/23, Falcon appointees Charlie Kershaw and Chase Begor voted 2-1 (Shiv voted against) to install Falcon HoldCo-board appointee Daniel Strauss as sole officer of OpCo.  

• On 10/13/23, Charlie and Chase voted 2-1 against filing the suit against Falcon (Shiv voted for).

• On 10/25/23, Charlie Kershaw and Chase Begor voted for (and Shiv voted against) a resolution declaring the Falcon loan “valid and enforceable,” a condition required by Falcon for it to fund the Company’s $83,500 D&O insurance premium.

We believe the 10/25 resolution was designed to operate as a waiver, preventing our being able to file the suit against Falcon in the future. Daniel Strauss promptly notified Falcon in writing that “the Loan Agreement is valid and enforceable.  This notification is especially troubling since this transaction requires shareholder approval based on OpCo’s organizational documents (for two reasons: it’s an affiliate transaction and it’s a transaction worth over $1 million). To our knowledge Daniel never sought shareholder approval and has not responded to our queries about it.

We believe relief from the Falcon loan would have been transformative for shareholder value. We believe Charlie, Chase, and Daniel damaged the Company severely with these action and others, which is why their conduct is so prominently featured in our pending Complaint.

Concerning Appearance of Falcon’s Plans for Board Control

Since we embarked on holding a shareholder vote consistent with the contracts in place and the best interests of the shareholders, Falcon has transmitted some concerning items. For example, Falcon has claimed in writing (most recently on 10/26/23) that its call options allow it to purchase up to an additional 50% of the company’s economics for modest consideration through purchases both at HoldCo and at OpCo (resulting in 83.9% ownership) instead of the intended 10% at either HoldCo or OpCo. Falcon’s interpretation would leave legacy shareholders (who contributed all the company’s NOLs and tax credits) with 15.1% economics in that scenario, and possibly even less over time.

We have extensive documentation and evidence backing our interpretation of the call option.

We are concerned Falcon intended to use the leverage created with its loan and their board appointees control of OpCo to create a win-win situation for itself: either extract an outsized deal themselves in any transaction or compound concessions in the loan agreement and amendments thereto while attempting to wrest control of both boards. We are very concerned that Falcon’s board appointees prior conduct suggests they may uncritically accept Falcon’s interpretation of the options at the expense of other shareholders.

Concerning Appearance of Falcon Board Nominee Related-Party Conflicts

Falcon has indicated that Charlie has a financial interest in Falcon, but that neither Chase nor Daniel has any. As we describe in the proxy statement, we believe these related party disclosures are incomplete. We have asked for further specific information and Falcon declined to provide it. This is despite Falcon contending as recently as 10/6 that Chase Begor has a financial interest in Falcon. Mr. Begor stated he does not, and has not supporting information has been requested from Falcon and its counsel but not provided to the Company.  

Falcon has asked for a slate of director nominees to be voted on at the shareholder meeting, which includes Daniel, Charlie, Chase, and Taylor Kushner. We understand Falcon seeks to solicit proxies for the December 1 meeting.

We strongly recommend against providing Falcon your proxy.

March 25, 2024 Update

Unfortunately, circumstances have become more difficult for the Company, and its options have been curtailed.

Falcon used the Preliminary Injunction (“PI”) issued by the New York Superior Court as the basis for sending letters to a number of parties. These letters were sent to at least one potential lender and to Halsa’s lead investor. We are very frustrated that this occurred. First, the information about the lender was provided confidentially to board members. Presumably, Falcon’s director nominee directly shared that information with Falcon. Second, in all cases both the Company and any relevant counterparties would have ensured compliance with the PI. We believe Falcon knew this but was making extraordinary attempts to poison funding alternatives for its benefit, regardless of the outcome on the Company and other shareholders.

At least in part due to the letter sent, Halsa withdrew its interest in working with the Company.

This is very damaging, and we are evaluating the best path forward.