EFTA02632500.pdf

From: Richard Kahn < Sent: Wednesday, September 6, 2017 8:05 PM To: Jeffrey E. Subject: Fwd: Next please advise thank you Richard Kahn HBRK Associates Inc. 575 =exington Avenue 4th Floor New York, NY 10022 tel fax cell Begin forwarded message: From: =/b>Neale Attenborough < Subject: =/b>RE: Next Date: =/b>September 6, 2017 at 3:51:06 PM =DT To: =/b>Richard Kahn < Cc: Chris Lawler < >, Tyler Shean < What are the specific actions you refer to =s Paris, Milan and New York, with case numbers and a summary of the =ases. From: Richard Kahn [mailto Sent: Wednesday, September 06, =017 3:47 PM To: Neale Attenborough Cc: Chris Lawler; Tyler =hean Subject: Re: Next contigent liabilities are paris, milan, and the new York =awsuit that is looking to form a class... this is obviously =eparate and apart from all actions that might be brought that would be =elevant to the time of your ownership. EFTA_R1_01853797 EFTA02632500  Richard Kahn HBRK Associates Inc. 575 Lexington Avenue 4th Floor New York, =Y 10022 tel fax cell On Sep 6, 2017, at =:16 PM, Neale Attenborough < <mailto > wrote: We have a term sheet =eady and will forward once we receive the list of contingent =iabilities you would like us to consider, as we agreed on our last =all. On Sep 5, 2017, =t 10:02 AM, Richard Kahn < <mailto > wrote: When can I expect your term sheet with details that =e discussed explaining exactly what entity will be selling what...<=:p class=""> I would assume your offer of 8 million cash and 1 million a =ear for three years would allow for the litigation expense and =iability (if any) to come out of the future payments... so =robably 5 years needed... Please advise Thank you Richard Kahn HBRK =ssociates Inc. 575 Lexington Avenue 4th =Ioor tel fax cell 2 EFTA_R1_01853798 EFTA02632501  On =ug 31, 2017, at 7:02 AM, Neale Attenborough < > =rote: As we agreed yesterday: We will lay our a term =heet which includes the deal I spoke of yesterday. It will =nclude all the entities that will be involved and the concept of some =ash paid over time. You will detail exactly which potential liabilities you speak =f below you would like us to consider. We can then see fit is =ossible to hammer out a deal. Thanks. On Aug =1, 2017, at 5:55 AM, Richard Kahn < > wrote: To move this along I would suggest the following: a =ough detailed draft of a term sheet with seller companies =etailed. how many entities? an amount of cash left back =nd an amount of dollars also spread over a number of years. =nbsp;default suggestions and your ideas on how =o deal with liablity. ie ny class action =aiting to be certified. . others like paris =tc. thank you. Richard Kahn HBRK Associates Inc. 575 Lexington Avenue, 4th Floor New York, NY 10022 Tel Fax Cell On Aug =0, 2017, at 7:16 AM, Richard Kahn < > wrote: I would add that you are =elling an offshore vehicle formed under an agreement that puzzles =e. The whole co is not for sale and if so we =ight argue along some similar but less exagerrated lines =ultiples of large biz from years ago. I =uess if you find the dramatically too low, you might offer to buy out =aith and Joel , using your formulas. with a premium =or control. Jeffrey is set to join the call and has =uthority to make the decision to accept or reject. =nbsp; Richard Kahn HBRK Associates Inc. 575 Lexington Avenue, 4th Floor New York, NY 10022 Phone Fax Cell On Aug =0, 2017, at 6:25 AM, Richard Kahn < > wrote: i already pointed out =urrency exchange, board fees etc. as a bad number in your =alculations. sorry....the other transactions that we know =ery well are far from relevant. . if faith and joel walk there is =O business which is hardly the same idea as IMG where multi divisions =xist and succession is planned. I do 3 EFTA_R1_01853799 EFTA02632502 not know what =ash was on the balance sheet when you bought =t. The open gate transaction to summarize =nbsp;was a stepping into your shoes for only 6 million or roughly =he same as the current offer. taking out cash 14 of the 15 =il which has not come out. and even on your calculation of 8 cash =ould mean 3.2 to you back then... and then leveraging the bit = the liability to the buyer was no where near that to golden =ate. sorry. . . We can go back and forth on comps and =an show mom and pop at 1to 3 cc-apple-data-detectors:Hi> times =bitda. . so lets try to short circuit a tiresome uncessary =xcercise, as i see it the current bid offer is 5 bid and =pprox 9.2 offer. open gates 6 + 3.2 from 2 =ears ago with more growth potential and lower cash out. multiples =rom before digital photos and amazon. sorry I am suprised =hat you would inflate current Ebitda, pull multiples from many =ears ago to biz that are tangential. leave out liabilites even of =awsuits that you know about, and then pick a cash number to =ubtract for enterprise value. If I have misunderstood and you are not =eally sellers then I will not be insulted if you decide to cancel our =all. Richard Kahn HBRK Associates Inc. 575 Lexington Avenue, 4th Floor New York, NY 10022 Tel Fax Cell On Aug =9, 2017, at 10:40 PM, Neale Attenborough > wrote: Richard, Not funny at all, just =actual. I think if we are to ultimately agree on =alue it will be important we agree on a set of facts: 1. TTM EBITDA is $6.7Million. If you =isagree, please let us know precisely what items you disagree with in =he number and we can discuss. 2. The current cash balance for the company =s $13.1 Million. 3. The past three comparable transactions for =ompanies in this market average an enterprise value at —10x multiple of =BITDA a. Wilhelmina: 7x (average meaningful trading =ultiple since 2010) b. Creative Artists Agency: 10x (TPG =cquisition, 2014) c. IMG: 13x (WME acquisition, =013) 4. We invested $18 million for a 42% stake in =he business, implying an enterprise value of $42.9 million. 5. We received a bona fide offer from =penGate Capital which would have resulted in $18 million in proceeds =or us (and in fact a $17 million distribution to Faith and Joel), and =hile they were, as you point out, contemplating leverage in the =It;3x EBITDA range, it is in fact a relevant data point and an =ndependent look at value. 6. One other note that is relevant to us, is =hat when Elite Models in Europe contacted us with an interest in buying =he company, Faith told me to relay to them that they would not =ontemplate selling to Elite for less than $100 million (which at the =ime was a +10x synergy-adjusted EBITDA value). Ultimately they =alked based on that value requirement. I would hope you agree =hat the following is a commonly agreed upon formula for =alue: a. Enterprise value = EBITDA x Market =ultiple 4 EFTA_R1_01853800 EFTA02632503  b. Equity Value = Enterprise Value + net =ash (or — net debt). One matter of judgment =s what of the cash balance is "excess cash". Joel =as said he believes all the cash is due to the models. The facts =how that in the ordinary course of business the collection of =eceivables offsets the payables and in the past three years, the cash =alance has only fluctuated at most by $3 million, meaning anywhere from =8-10 million on the balance sheet should be considered to be "exc=ss cash", not needed for day-to-day operations. I have =ttached both a three year cash balance tracker and a current balance =heet for your review. Using the above, a very =odest calculation of value would be $6.7 million of EBITDA x 5 multiple =a 50% discount to the market) or an enterprise value of $33.5 million =nd if we took a conservative view of what excess cash is at the moment =f $8 million, would result in a total equity value of $41.5 =illion. Our 42% would equate to $17.4 million of proceeds to =s. That is at a multiple that has been deeply discounted to the =arket comps that were actually paid for companies in the same =usiness. We are, however, willing to take much less =han this very discounted value calculation, as I have mentioned to you =efore. However, your proposal of $5 million of proceeds to us =epresents an equity value of $11.9 million ($51.42), an enterprise =alue of $3.9 million ($11.9 million - $8 million of excess cash) or an =BITDA multiple of 0.58x ($6.7 x 0.58 = $3.9 enterprise value), a =evel that is far too low for us to accept. I look forward to our =iscussion tomorrow morning. Neale From: Richard Kahn (mailto <mailto >I Sent: Friday, August 25, 2017 =1:51 AM To: Neale Attenborough Cc: Chris Lawler Subject: Re: Next Pretty funny =eale... Even the silly open gate proposal was in =ssence stepping into your shoes for only 6 million cash. BACK THEN =! Then proposing to distribute =hat they estimated to be almost the full total (14 of the 15 million) =f cash on the balance sheet. Chris i must point out that is more =han it totals today. Then having Joel, Faith, etc leverage =hemselves up by borrowing at 7 percent against the entire co in =rder to make a further distribution of an additional 15 million which =nbsp;on paper creates a highly inflated enterprise value. He only =roposed 6 million cash infusion which is around the same amount that =ou are currently being offered. They valued faith and joels =ngoing equity (that they proposed they "keep in") silly, =t 8mm which is roughly the same as we suggested. Financial =ngineering done well is like lipstick.. however not done well is also =ike lipstick. :) This is a personal service =usiness, no more no less and suggesting that they leverage themselves =p so you that they can pay themselves a higher salary fails the HBS =irst year class that i am aware you have taken. Regarding =nbsp;the 18 million, we have distributions from Next directly to =he former shareholders of the claxon offshore entity of approx 3. =nbsp;Regarding the receivables you can ask millie... =orry PS Faith =nd joel will have to borrow the money to buy you out at 5.. can be =one, but not so easy. they have never taken out real money =rom the company in any form: salary etc.... hence they have =ittle net worth and current lenders are not that comfortable with the =otential liabilities.... 5 EFTA_R1_01853801 EFTA02632504  On Aug 24, 2017, at 4:50 PM, Neale Attenborough > wrote: I look forward to our =onversation. For=the record, we did actually pay Wrom for 42% of this business in =008. At the time that represented an —8x multiple of =BITDA. That is not a fictitious number. In addition we did =eceive a bid for about the same amount from Open Gate Capital, a =eputable private equity firm. I do not understand why you say =hat ii is "hardly legitimate". While I did say we =idn't expect to receive what we paid, I did not say it was =mmaterial. I =on't follow most of what you say below and look forward to =earing your clarification. However, can you please clarify one =tatement specifically? What do you mean when you say the current =eceivables have not be reviewed in years? Thanks, Neale From: Richard Kahn (mailto <mailto >) Sent: Thursday, August 24, 2017 =:45 PM To: Neale Attenborough Cc: Chris Lawler Subject: Next confirmed thank you We have reviewed your statements that you sent to us along =ith the K-1's and some financials. Frankly, some =f the numbers are inaccurate as a result of millie. Your annual =inancial statements were reviewed but not audited - shame on all of =ou... Your calculation of Ebitda includes things =ike adding back foreign exchange costs? board fees etc. =nbsp;That is not the way we look at what is unfortunately for =11 merely a personal service business. Faith and Joel make up the business, nothing =ore. We calculate the Ebidta, which we think is an odd way =f measuring value of a personal service biz with lots of competition =nd small growth opportuinties if any. Giving you the =enefit of the doubt, and ignoring how much you paid or if some of =hat money was repaid directly to the former owners of Claxon and not =ruly understanding what you described as a fixed tax payment per =uarter (ie based on what I think looking back over the past three =ears) ebitda looks like 4-5 million. We have bought many =mall biz and usually pay mom and pops for 1- 3 times ebita or more =sually 4 times net income. We are finding it =ifficult to get to more than a 15 million total value for Next ( not =ncluding liabilities). The 18 million dollar bid that you mentioned =aith said was hardly legitimate. I think further review of the =ccounting tax etc. is probably a waste of all our time. As you =ightly said, what you initially paid is somewhat if not totatly =mmaterial to todays value. You have not factored in the =iabilities, both reputationally and fiscal yet. I think =he 5 million cash offer or 6m over time is fair. I look forward =o our conversation on tuesday. As another note, the current =eceivables have not been reviewed for years... 6 EFTA_R1_01853802 EFTA02632505  Rich On Aug 24, 2017, at 3:28 PM, Neale =ttenborough < <mailto »=wrote: Disclaimer: This message contains information =hat may be confidential and/or privileged and is intended only for the =erson(s) named. Any use, distribution, copying or disclosure to any =ther person is strictly prohibited. If you received this transmission =n error, please notify the sender by reply e-mail and then destroy the =essage. Opinions, conclusions, and other information in this message =hat do not relate to the official business of Golden Gate Capital shall =e understood to be neither given nor endorsed by the company. Where =pplicable, any information contained in this e-mail is subject to the =erms and conditions in the relevant governing agreement. <Mail Attachment.ics> </=lockquote> <170829 - Next - lun'17 Balance Sheets.pdf> <170816 Next - Min Cash =nalysis.pdf> <=blockquote> =/blockquote> 7 EFTA_R1_01853803 EFTA02632506