As filed with the Securities and Exchange Commission on July 16, 2015.
Registration No. 333-205274
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Amplify Snack Brands, Inc.
(Exact name of Registrant as specified in its charter)
Delaware | 2000 | 47-1254894 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
500 West 5 th Street, Suite 1350
Austin, Texas 78701
512.600.9893
(Address, including zip code, and telephone number, including area code, of Registrants principal executive offices)
Thomas Ennis
Chief Executive Officer
Amplify Snack Brands, Inc.
500 West 5 th Street, Suite 1350
Austin, Texas 78701
512.600.9893
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Jon M. Herzog, Esq. Bradley C. Weber, Esq. Goodwin Procter LLP Exchange Place 53 State Street Boston, Massachusetts 02109 617.570.1000 |
LizabethAnn R. Eisen, Esq. Cravath, Swaine & Moore LLP Worldwide Plaza 825 Eighth Avenue New York, New York 10019 212.474.1000 |
Approximate date of commencement of proposed sale to the public : As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box: ¨
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | x (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to completion, dated July 16, 2015
Shares
Common Stock
This is an initial public offering of shares of common stock of Amplify Snack Brands, Inc. All of the shares of common stock are being sold by the selling stockholders, which include certain of our directors and officers, identified in this prospectus. Amplify Snack Brands, Inc. will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.
Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $ and $ . We have applied to list our common stock on the New York Stock Exchange under the symbol BETR.
We are an emerging growth company as defined under the federal securities laws and, as such, are eligible for certain reduced public company reporting requirements. See Prospectus SummaryImplications of Being an Emerging Growth Company on page 8 and Risk Factors on page 21 to read about factors you should consider before buying shares of common stock.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
Per Share | Total | |||||||
Initial Public Offering Price |
$ | $ | ||||||
Underwriting Discounts and Commissions(1) |
$ | $ | ||||||
Proceeds to Selling Stockholders (Before expenses) |
$ | $ |
(1) | See Underwriting for additional information regarding underwriting compensation. |
The underwriters have the option to purchase up to an additional shares from the selling stockholders at the initial price to the public less the underwriting discount. We will not receive any proceeds from the exercise of the underwriters option to purchase additional shares.
The underwriters expect to deliver the shares to purchasers on or about , 2015 through the book-entry facilities of The Depository Trust Company.
Goldman, Sachs & Co. | Jefferies | Credit Suisse |
SunTrust Robinson Humphrey |
William Blair | Piper Jaffray |
Prospectus dated , 2015
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Neither we nor the selling stockholders have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
Unless otherwise specified or the context requires otherwise:
The terms we, us, our and the Company mean Amplify Snack Brands, Inc., which is currently a wholly-owned subsidiary of Topco, and its consolidated subsidiaries;
The term All Commodity Volume or ACV means the measurement of a products distribution (or distribution on promotion) weighted by the overall dollar retail sales attributable to the retail location distributing such product; a retail location would be counted as having sold the product or product group if at least one unit of the product was scanned for sale within the relevant time period; we believe this metric provides a measurement of retail penetration that takes into account the importance of selling through retail locations with higher overall retail sales volumes;
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The terms Better-For-You or BFY are industry terms not defined by the Food and Drug Administration and refer to foods that have some characteristics that cause consumers to view them as a healthier alternative to conventional food products; there is not a single definition of Better-For-You and we believe each individual customer may view Better-For-You characteristics differently, but common characteristics may include one or more of the following: products that are lower in salt, products that are lower in sugar, products that are lower in fat, products that are made without ingredients containing genetically modified organisms (or GMOs), products made with fewer ingredients, products made with simpler ingredients, products made with more recognizable ingredients, products that are organic, products that are viewed as natural, products that do not include artificial ingredients, preservatives or flavors, products that are major allergen-free, products that are Kosher, products that are vegetable-based, products that are vegan or products that are gluten-free;
The term Corporate Reorganization means the series of transactions as described under the heading Corporate Reorganization;
The term December 2014 Special Dividend means the $50.0 million of borrowings under our term loan under our credit agreement and the subsequent distribution of $59.8 million we paid to Topco in December 2014, which then distributed such amount to its members, as described in Managements Discussion and Analysis of Financial Condition and Results of OperationsThe Sponsor Acquisition and Subsequent Financings;
The term Founder Contingent Compensation means our agreement, made in connection with the Sponsor Acquisition and memorialized in the Founders ongoing employment agreements, to (i) pay each of the Founders $10 million of additional cash consideration in 2016 ($20 million in the aggregate), based on the Companys achievement of certain contribution margin benchmarks during the year ending December 31, 2015 (a total of $1.5 million of which additional consideration has been pre-paid to the Founders as of the date of this prospectus), and (ii) make further payments contingent on, and equal to 100% of the value of, the potential future tax savings to the Company associated with the deductibility of the payments under these agreements, which we estimate could result in additional payments to the Founders in amounts of up to $6.8 million; we expect to be required to make the full amount of the remaining payments in cash in 2016;
The term Founders means Andrew S. Friedman and Pamela L. Netzky, the founders of the business currently conducted by SkinnyPop Popcorn LLC;
The term May 2015 Special Dividend means the $22.5 million of borrowings under our term loan and revolving credit loan under our credit agreement and the subsequent distribution of $22.3 million we paid to Topco in May 2015, which then distributed such amount to its members, as described in
Managements Discussion and Analysis of Financial Condition and Results of OperationsThe
Sponsor Acquisition and Subsequent Financings;
The term Paqui means Paqui LLC, a Texas limited liability company and wholly-owned subsidiary of SkinnyPop Popcorn LLC, which was acquired in April 2015;
The term Performance Bonus Payments means our payment, which is conditional on the completion of this offering, of $500,000, $350,000 and $300,000 to Messrs. Ennis, Goldberg and Shiver, respectively, and $350,000 to be allocated to other employees of the Company.
The term Predecessor means the business of SkinnyPop Popcorn LLC prior to the Sponsor Acquisition;
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The term Pro Forma Year Ended December 31, 2014 (Unaudited) means the unaudited pro forma condensed consolidated statement of income for the year ended December 31, 2014 giving pro forma effect to the Sponsor Acquisition, the December 2014 Special Dividend and the May 2015 Special Dividend as if such transactions had occurred on January 1, 2014, as more fully described in Unaudited Pro Forma Condensed Consolidated Financial Information, which section includes a comparative presentation showing all pro forma adjustments made to our historical statements of income for the Predecessor and Successor periods in accordance with the rules and regulations of the SEC. See Unaudited Pro Forma Condensed Consolidated Financial Information.
The term retail location means, as used in the determination of All Commodity Volume and Total Distribution Points by an industry source, a retail location (such as a store) that is counted in databases of that industry source and where a product has sold at least once in the applicable time period being measured;
The term sales velocity means the total product retail sales per million dollars of annual ACV of retail locations selling the product; we believe this metric is relevant to understanding our business because it represents the retail sales efficiency for a product in relation to its distribution; using the ACV of stores selling a product means this measure controls for store size, and can be used to determine how well a product sold while controlling for weighted distribution;
The term SkinnyPop means either the entity SkinnyPop Popcorn LLC or our product line and brand, SkinnyPop Popcorn, as the context requires;
The term Sponsor or TA Associates means investment funds affiliated with TA Associates Management, L.P. and its affiliates, a leading growth private equity firm;
The term Sponsor Acquisition means the series of transactions that were consummated in July 2014 pursuant to which (1) SkinnyPop Popcorn LLC became a wholly-owned subsidiary of the Company by way of a merger and (2) SkinnyPop Popcorn LLC was thereafter converted from an Illinois limited liability company into a Delaware limited liability company;
The term Successor means the business of the Company and its consolidated subsidiaries, including SkinnyPop Popcorn LLC, following the Sponsor Acquisition;
The term Topco means TA Topco 1, LLC, a Delaware limited liability company, which is the top parent entity of our business prior to the consummation of the Corporate Reorganization; and
The term Total Distribution Points or TDPs means the distribution of a brand (or product aggregate) while taking into account the number of retail locations and Universal Product Codes, or UPCs, selling within that brand or aggregate; the calculation is the sum of ACV across UPCs, and we believe this metric provides a relative indication of retail penetration factoring in both UPC count and retailer size.
Amounts and percentages appearing in this prospectus have been rounded to the amounts shown for convenience of presentation. Accordingly, the total of each column of amounts may not be equal to the total of the relevant individual items. All references to our business and products prior to April 2015 refer only to SkinnyPop. The Predecessor and Successor financial data has been prepared on different accounting bases and therefore the sum of the data for the two reporting periods should not be used as an indicator of our full year performance.
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INDUSTRY AND MARKET DATA
This prospectus contains statistical data, estimates and forecasts that are based on independent industry publications, such as those published by Mintel Group Ltd, or Mintel, Nielsen Holdings N.V., or Nielsen, and Information Resources, Inc., or IRI, or other publicly available information, as well as other information based on internal sources. Unless we indicate otherwise, the information contained herein from IRI is based in part on data reported through its Syndicated Market Advantage service of retail sales, market share, category and other data for categories and segments of U.S. brands and outlets that have or sell products with attributes of Salty Snacks and Popcorn/Popcorn oil for the years 2010 to 2014. This information is interpreted solely by us, and is neither all-inclusive nor guaranteed by IRI. Without limiting the generality of the foregoing, specific data points from IRI may vary considerably from other information sources. Although we believe that the third-party sources referred to in this prospectus are reliable and the information generated internally is accurate, neither we nor the underwriters nor the selling stockholders have independently verified any of the information from third-party sources. While we are not aware of any misstatements regarding any information presented in this prospectus, estimates, in particular, as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties, and are subject to change based on various factors, including those discussed in Risk Factors and elsewhere in this prospectus.
TRADEMARKS
This prospectus contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
Our primary trademarks include SKINNYPOP, SKINNYPACK, THE BIG SKINNY, PAQUI and DONT WORRY BE PAQUI, all of which are registered in the United States with the U.S. Patent and Trademark Office. Certain of our trademarks are also pending registration in Canada. Other trademarks and trade names referred to in this prospectus are the property of their respective owners.
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This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision.
Our Company
Amplify Snack Brands is a high growth, snack food company focused on developing and marketing products that appeal to consumers growing preference for Better-For-You, or BFY, snacks. Our anchor brand, SkinnyPop, is a rapidly growing, highly profitable and market leading BFY ready-to-eat, or RTE, popcorn brand. Through its simple, major allergen-free and non-GMO ingredients, SkinnyPop embodies our BFY mission and has amassed a loyal and growing customer base across a wide range of food distribution channels in the United States. SkinnyPops continued success and robust financial characteristics, combined with our experienced and talented management team, position us to become an industry-leading BFY snacking company that capitalizes on the potential of great-tasting and high-quality BFY snack brands that we create and acquire. To that end, in April 2015, we acquired Paqui, an emerging BFY tortilla chip brand that has many of the same key taste and BFY attributes as SkinnyPop. Paqui allows us to leverage our infrastructure to help us grow into an adjacent snacking sub-segment with a second innovative BFY brand. We believe that our focus on building a portfolio of exclusively BFY snack brands differentiates us and will allow us to leverage our platform to realize material synergies across our family of BFY brands, as well as allow our retail customers to consolidate their vendor relationships in this large and growing category.
We target sizeable global and U.S. markets, with Nielsen estimating global retail snack sales to be in excess of $370 billion and North American retail snack sales in excess of $120 billion for the twelve months ended March 31, 2014. We estimate the U.S. salty snack segment to be approximately $18 billion in annual retail sales and that it will grow approximately 3% to 4% per year through 2019. To date, our focus has been on developing brands in the rapidly growing BFY sub-segment of salty snacks. We believe that within the salty snack segment, BFY-focused brands are taking share from conventional brands, and we estimate that BFY-focused brands experienced aggregate growth in excess of 10% in 2014. We believe a variety of favorable consumer trends, including a greater focus on health and wellness, increased consumption of smaller, more frequent meals throughout the day and a strong preference for convenient BFY products, will continue to drive both strong overall snacking growth as well as the continued outperformance of BFY products within the overall market. Over time, we expect to explore the development and acquisition of additional BFY brands within other U.S. and global segments of the overall snacking market.
Our SkinnyPop brand, established in 2010, embodies our BFY mission while also providing rapid revenue and earnings growth, robust and steady margins, and strong cash flows to help facilitate further investments in organic and inorganic growth opportunities. We believe SkinnyPop continues to take meaningful market share from a variety of sizeable sub-segments of the overall U.S. salty snack segment, although the brand competes most directly in the RTE popcorn sub-segment of salty snacks. The overall U.S. popcorn sub-segment is estimated at $1.9 billion in 2014 and grew 8.1% over the prior year. The $966 million RTE popcorn sub-segment is the fastest growing sub-segment within U.S. salty snacks, growing at a compound annual growth rate of 14.6% since 2010. Within RTE popcorn,
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SkinnyPop was the fastest growing brand of scale in 2014, increasing its share of the sub-segment by 6.5 percentage points to 12.1% and accounting for more than 40% of total sub-segment growth. SkinnyPops growth has been driven by continued gains in both distribution and sales velocity. Between 2012 and 2014, SkinnyPops sales velocity accelerated from $48 to $141, even as ACV increased from 17% to 52% over the same period, underscoring the brands ability to grow store level productivity even as we increased the number of retail locations where SkinnyPop is available. Despite our recent growth and a market-leading BFY presence, we believe significant opportunities remain for continued growth. For example, as of December 31, 2014, SkinnyPops household penetration, which represents the percentage of households that have purchased SkinnyPop over the prior 52 weeks, stood at 5.2% compared to an average of approximately 22.7% for the top 25 salty snack brands by dollar retail sales according to IRI data. SkinnyPop also has the opportunity to grow by increasing its product range in stores where the brand already has some existing presence. Our products are offered in the natural and conventional grocery, drug, convenience, club and mass merchandise channels. At December 31, 2014, our Total Distribution Points stood at approximately 136, versus an average of 919 TDPs for the top 25 leading salty snack brands. We plan to continue to grow SkinnyPop by increasing its distribution, household penetration, product offerings per retail location and sales velocity, all of which will be supported by increasing brand awareness, new product introductions and favorable consumer trends.
Total Distribution Points (1)
(1) | Total Distribution Points is an IRI metric used to illustrate the distribution of a brand while taking into account the number of UPCs selling within that brand. TDPs are not determined by reference to any GAAP financial measure over any period. |
(2) | The top 25 salty snack brands are those brands with the highest dollar retail sales in 2014 according to IRI data. |
Company Growth and Performance
We have experienced strong financial performance over the past several years, including:
| Net sales increased from $55.7 million in the year ended December 31, 2013 to $132.4 million in the Pro Forma Year Ended December 31, 2014 (Unaudited), representing growth of 137.6%, and increased from $25.7 million in the three months ended March 31, 2014 to $44.3 million in the three months ended March 31, 2015, representing growth of 72.2%; |
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Consistent gross profit and Adjusted EBITDA (as defined below) margins of 58.6% and 44.5%, respectively, for the year ended December 31, 2013, 56.1% and 44.2%, respectively, for the |
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Pro Forma Year Ended December 31, 2014 (Unaudited), 55.7% and 45.7%, respectively, for the three months ended March 31, 2014, and 55.1% and 43.4%, respectively for the three months ended March 31, 2015; |
| Net income under GAAP decreased from $24.8 million in the year ended December 31, 2013 to $13.6 million for the Pro Forma Year Ended December 31, 2014 (Unaudited), representing a decrease of 45%, and decreased from $11.7 million for the three months ended March 31, 2014 to $4.9 million for the three months ended March 31, 2015, representing a decrease of 58%; |
| Adjusted EBITDA increased from $24.8 million in the year ended December 31, 2013 to $58.5 million in the Pro Forma Year Ended December 31, 2014 (Unaudited), representing growth of 136.0% and increased from $11.7 million in the three months ended March 31, 2014 to $19.2 million in the three months ended March 31, 2015, representing growth of 63.7%; and |
| Cash from operating activities was $26.3 million for the Predecessor period from January 1, 2014 to July 16, 2014, $12.7 million for the Successor period from July 17, 2014 to December 31, 2014 and $14.1 million for the three months ended March 31, 2015 and operating cash flow less capital expenditures was $26.1 million for the Predecessor period from January 1, 2014 to July 16, 2014, $12.5 million for the Successor period from July 17, 2014 to December 31, 2014 and $13.8 million for the three months ended March 31, 2015, driven by our asset-light and outsourced manufacturing model, which requires low levels of capital investment. |
The Adjusted EBITDA margin and certain other metrics set forth above are non-GAAP financial measures. See Summary Consolidated Financial and Other DataNon-GAAP Financial Measures.
Industry Overview
Nielsen estimates the global snack market, as of March 2014, was in excess of $370 billion in annual retail sales, and growing at 2% annually when adjusted for inflation. Sweet and salty snacks are among the largest segments in the overall snack market. The SkinnyPop and Paqui brands currently compete in the salty snack segment, which includes products such as potato chips, tortilla chips, popcorn, cheese snacks and pretzels. IRI and Mintel estimate that these sub-segments totaled approximately $21 billion and $18 billion in U.S. retail sales, respectively, in 2014. Mintel forecasts that sub-segments within the salty snacks segment will grow between 2.2% per year (pretzels) and 6.0% per year (popcorn) through 2019, with popcorn serving as the fastest growing product within salty snacks. While we do not currently offer products in the potato chip, cheese snack or pretzel sub-segments, we may consider entering these markets in the future. We believe leading BFY brands within the salty snack segment grew at a rate in excess of 10% in 2014, significantly outpacing overall salty snack segment growth in the United States.
IRI estimates that total retail sales of popcorn in the United States were approximately $1.9 billion for 2014. The RTE popcorn sub-segment grew by 22.6% in 2014 to approximately $966 million in retail sales, while the microwave popcorn sub-segment declined by 3.6% over the same period to $853 million in retail sales. Since 2010, the RTE popcorn sub-segment has grown at a compound annual growth rate of approximately 14.6%, making it the fastest growing sub-segment in salty snacks. We believe that this growth has largely been achieved by converting consumers from conventional salty snack products to RTE popcorn, as consumers become aware of the great taste and healthier characteristics offered by RTE popcorn. Some of the growth has also been achieved by consumers changing preference for RTE popcorn compared to traditional popcorn. RTE popcorn has emerged as a convenient, BFY snack in recent years, driven by both the overall BFY segment growth and
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improvements in product ingredients and packaging. We believe consumers are increasingly purchasing RTE popcorn because of their historical familiarity with traditional popcorn and because of consumer trends towards BFY snacks.
IRI estimates that total retail sales of tortilla chips in the United States have grown at a compound annual growth rate of 5.3% between 2010 and 2014 to $4.7 billion in 2014. Given the fragmented nature of the BFY tortilla chip sub-segment, we believe that there is a significant opportunity to create a market-leading and great-tasting BFY brand.
Beyond popcorn and tortilla chips, there are several other sizeable sub-segments within salty snacks such as potato chips, cheese snacks and pretzels at approximately $7.2 billion, $1.8 billion and $1.2 billion, respectively, in total retail sales in the United States in 2014 according to IRI data. There is a significant potential opportunity to grow sales across multiple large categories as consumers are increasingly substituting for BFY snacks within these categories. We believe that the growth of BFY snacks will continue to be supported by increased consumer focus on healthier lifestyles, and we believe that we are well positioned to benefit from these market trends and preferences in the coming years.
Our Competitive Strengths
We believe the continued growth and profitability of our company will be driven by the following competitive strengths:
| Strong consumer appeal of our SkinnyPop Brand: The SkinnyPop brand is a leading RTE popcorn brand with strong consumer loyalty and one of the fastest growing brands in the entire salty snack segment. SkinnyPops BFY positioning is reinforced through our unique packaging, which communicates the key attributes of our brand including a simple, short ingredient list that is major allergen-free and contains only non-GMO ingredients. According to IRI data, SkinnyPop has the highest level of repeat purchase in the RTE popcorn sub-segment and one of the highest rates of repeat purchase relative to overall salty snacks segment leaders. |
| Highly attractive brand for retailers: SkinnyPops premium price point and strong sales velocities generate a high level of dollar profits relative to the shelf space our SkinnyPop products occupy, making these products highly attractive to a diverse set of retailers across various distribution channels. |
| Attractive financial profile: We have a strong financial profile characterized by net sales growth of 137.6% and 72.2%, gross profit margin of 56.1% and 55.1% and Adjusted EBITDA margin of 44.2% and 43.4% in the Pro Forma Year Ended December 31, 2014 (Unaudited) and the three months ended March 31, 2015, respectively. Our gross profit and Adjusted EBITDA margins have been consistent over time. We are also highly cash generative given our outsourced manufacturing model, which requires modest capital investment, and low net working capital. |
| BFY-focused snacking platform: With SkinnyPop as the anchor brand in our BFY-focused snacking platform, we believe that we will be able to increase our share of the large and growing global snack industry. We believe that, in addition to the strength of the SkinnyPop brand, we are well positioned to capitalize on several strengths as we continue to expand our platform: |
| Culture of innovation: Because of our focus and ability to identify innovative BFY brands and nurture them through our talented team and expanding infrastructure, we believe we are attractive to entrepreneurs who are looking for a strategic partner, as evidenced by our recent acquisition of Paqui. |
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| Experienced management team: We have established a well-regarded, experienced management team who possess both entrepreneurial and classically-trained skill sets gained through their extensive branded consumer products experience. |
| Established infrastructure: We have the ability to leverage our sales force and strong relationships with our retail customers and distributors to help our brands gain distribution; leverage our operations team for improved demand planning and additional margin opportunities; and leverage our suppliers for purchasing and marketing resources for brand building. |
Our Growth Strategies
We intend to continue growing net sales and profitability through the following growth strategies:
| Expand distribution through new customer wins: We plan to capitalize on the strength of our SkinnyPop brand, positive market trends and our attractive retailer economics in order to penetrate new customers and increase the number of stores carrying our SkinnyPop and Paqui brands. Based on IRI data, management estimates that, as of December 31, 2014, SkinnyPop currently has less than 20% retail penetration within the more than 250,000 potential U.S. retail locations. |
| Continue to increase shelf space with existing customers: While SkinnyPop is highly attractive to retail customers given its premium price and attractive sales velocities, the average retail location carries only 2.3 of our UPCs per store compared to approximately 5.6 for our largest RTE popcorn competitors. We will continue to capitalize on our strong consumer appeal and attractive economics to retailers to increase UPCs per retailer and improve and increase our shelf space with both existing and new customers. |
| Continue to grow awareness and expand household penetration: Consumers who purchase SkinnyPop have a strong affinity for the brand as evidenced by our high level of repeat purchase. However, IRI data as of December 31, 2014 indicates that for that year, only 5.2% of households have purchased SkinnyPop compared to 22.7% of households purchasing the top 25 salty snack brands. We intend to increase our household penetration through marketing, including product sampling, social media tools and advertising, to educate consumers about our brands and benefits of our BFY snacks. |
| Continue product innovation and brand extensions: We intend to improve and strengthen our product offering by creating new and innovative flavors, packaging alternatives and additional products, while maintaining a focus on simple ingredients and BFY snacks that appeal to consumers. |
| Leverage platform to expand in attractive snacking categories: We intend to expand our business through the introduction of additional brands and products in the BFY snacking segment in order to generate incremental growth opportunities and synergies. We are actively looking to identify and evaluate new acquisition opportunities to complement our platform. |
| Pursue international expansion opportunities: According to Nielsen, North America represents approximately one-third of the global snacking market, and recent trends in North America, including a focus on BFY products, are becoming more prevalent globally. We believe our brands will resonate with consumers in markets outside North America. |
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Risk Factors Summary
Our business is subject to numerous risks and uncertainties, including those highlighted in Risk Factors immediately following this prospectus summary. These risks include, but are not limited to, the following:
| Changes in consumer preferences and discretionary spending may have a material adverse effect on our brand loyalty, net sales, results of operations and financial condition. |
| Consumers loyalty to our SkinnyPop brand may change due to factors beyond our control, which could have a material adverse effect on our business and operating results. |
| We rely on sales to a limited number of distributors and retailers for the substantial majority of our net sales, and the loss of one or more such distributors or retailers may harm our business. |
| Sales of a limited number of SkinnyPop products and flavors contributed all of our historical profitability and cash flow. A reduction in the sale of our SkinnyPop products would have a material adverse effect on our ability to remain profitable and achieve future growth. |
| We currently depend exclusively on one third-party co-manufacturer with one location to manufacture all of our SkinnyPop products. The loss of this co-manufacturer or the inability of this co-manufacturer to fulfill our orders would adversely affect our ability to make timely deliveries of our product and would have a material adverse effect on our business. |
| We do not have any contracts with our customers that require the purchase of a minimum amount of our products. The absence of such contracts could result in periods during which we must continue to pay costs and service indebtedness with reduced sales. |
| Because we rely on a limited number of raw materials to create our products and a limited number of third-party suppliers to supply our raw materials, we may not be able to obtain raw materials on a timely basis, at cost effective pricing or in sufficient quantities to produce our products. |
| Our SkinnyPop brand and reputation as a producer of BFY products may be diminished due to real or perceived quality or health issues with our products or a change in consumers perception of what is BFY itself, which could have an adverse effect on our business and operating results. BFY is an industry term and not defined by the Food and Drug Administration. |
| We rely, in part, on our third-party co-manufacturer to maintain the quality of our products. The failure or inability of this co-manufacturer to comply with the specifications and requirements of our products could result in product recall and could adversely affect our reputation. |
| Our gross profit and Adjusted EBITDA margins may be impacted by a variety of factors, including but not limited to variations in raw materials pricing, retail customer requirements and mix, sales velocities and required promotional support. |
| Period-to-period comparisons may not be meaningful given the Sponsor Acquisition of SkinnyPop by TA Associates in 2014 and may not be representative of our future performance. |
| A number of our products rely on independent certification that they are non-GMO, gluten-free or Kosher and the loss of any such certification could harm our business. |
6
Our Principal Stockholder
As of , 2015, investment funds affiliated with TA Associates owned approximately % of our issued and outstanding common stock, after giving effect to the Corporate Reorganization, with the remainder owned by certain current and former directors and employees of Amplify Snack Brands, Inc. and its predecessor companies. Following this offering, TA Associates will beneficially own approximately % of our issued and outstanding common stock ( % if the underwriters option to purchase additional shares is exercised in full). TA Associates will be able to exercise a significant level of control over all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation and approval of significant corporate transactions. This control could have the effect of delaying or preventing a change of control of our company or changes in management and will make the approval of certain transactions difficult without the support of TA Associates. Furthermore, TA Associates may have interests that conflict with, or are different than, those of other stockholders.
Founded in 1968, TA Associates is one of the oldest and largest growth private equity firms in the world. TA Associates invests in growing private companies in exciting industries, with the goal of helping management teams build their businesses into great companies. With approximately $18 billion raised since inception and over four decades of experience, TA Associates offers its portfolio companies strategic guidance, global insight, strategic acquisition support, recruiting assistance and a significant network of contacts, in addition to sound financial backing.
We expect that more than 50% of our voting power will be held by investment funds and entities affiliated with TA Associates upon the consummation of this offering, and therefore we will be a controlled company as defined under the New York Stock Exchange, or NYSE, Listing Rules. We do not intend to take advantage of the controlled company exemption from certain of the corporate governance listing standards of the NYSE. See Risk FactorsRisks Related to Ownership of Our Common Stock and this Offering and Principal and Selling Stockholders. Additionally, we intend to enter into a stockholders agreement and a registration rights agreement with entities affiliated with TA Associates in connection with this offering. For more information regarding these agreements, see Certain Relationships and Related Party TransactionsStockholders Agreement and Registration Rights Agreement.
Corporate Information and Structure
We were originally organized as SkinnyPop Popcorn LLC, an Illinois limited liability company, in 2010. In July 2014, we completed the Sponsor Acquisition, pursuant to which SkinnyPop Popcorn LLC became a wholly-owned subsidiary of the Company and SkinnyPop Popcorn LLC was thereafter converted into a Delaware limited liability company.
The issuer in this offering, Amplify Snack Brands, Inc., is a Delaware corporation and is a wholly-owned subsidiary of Topco. Pursuant to the terms of the Corporate Reorganization that will be completed prior to the consummation of this offering, Topco will dissolve and in liquidation, will distribute all of the shares of capital stock of the Company to its members in accordance with the limited liability company agreement of Topco.
For more information on the Sponsor Acquisition, see Managements Discussion and Analysis of Financial Condition and Results of OperationsThe Sponsor Acquisition and Subsequent Financings. For more information on the Corporate Reorganization and ownership of our common stock, see Corporate Reorganization and Principal and Selling Stockholders.
7
Our principal executive offices are located at 500 West 5 th Street, Suite 1350, Austin, Texas, 78701, telephone 512.600.9893. Our website address is www.amplifysnackbrands.com. Information contained on or that can be accessed through our website does not constitute part of this prospectus and inclusions of our website address in this prospectus are inactive textual references only.
Implications of Being an Emerging Growth Company
As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements that are otherwise applicable generally to public companies. These provisions include:
| an option to present only two years of audited financial statements and only two years of related managements discussion and analysis in the registration statement of which this prospectus is a part; |
| an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal control over financial reporting for so long as we qualify as an emerging growth company; |
| an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may adopt regarding mandatory audit firm rotation or a supplement to the auditors report providing additional information about the audit and the financial statements for so long as we qualify as an emerging growth company; |
| reduced disclosure about our executive compensation arrangements for so long as we qualify as an emerging growth company; and |
| exemptions from the requirements to obtain a non-binding advisory vote on executive compensation or stockholder approval of any golden parachute arrangements for so long as we qualify as an emerging growth company. |
We will remain an emerging growth company until the earliest to occur of: the last day of the fiscal year in which we have more than $1.0 billion in annual revenue; the date we qualify as a large accelerated filer, with at least $700 million of equity securities held by non-affiliates; the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; or the last day of the fiscal year ending after the fifth anniversary of this public offering. We may choose to take advantage of some, but not all, of the available benefits under the JOBS Act. We are choosing to irrevocably opt out of the extended transition periods available under the JOBS Act for complying with new or revised accounting standards, but we intend to take advantage of the other exemptions discussed above. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock. See Risk FactorsRisks Related to Ownership of Our Common Stock and this Offering which describes that we are an emerging growth company, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
8
THE OFFERING
Common stock offered by the selling stockholders |
shares. |
Underwriters option to purchase additional shares from the selling stockholders |
Up to shares. |
Common stock outstanding |
75,000,000 shares. |
Use of proceeds |
The selling stockholders, which include certain of our directors and officers, will receive all the proceeds from the sale of shares in this offering. We will not receive any proceeds from the sale of shares in this offering. |
Concentration of ownership |
Upon the consummation of this offering, our executive officers and directors and stockholders holding more than 5% of our capital stock, and their affiliates, will beneficially own, in the aggregate, approximately % of our outstanding shares of common stock ( % if the underwriters option to purchase additional shares is exercised in full). |
Lock-up agreements |
The selling stockholders and the officers and directors of the Company will be subject to customary lockup agreements with a duration of 180 days. See Underwriting. |
Listing trading symbol |
We have applied to list our common stock on the New York Stock Exchange under the symbol BETR. |
Corporate Reorganization |
The issuer in this offering, Amplify Snack Brands, Inc., is a Delaware corporation and is a wholly-owned subsidiary of Topco. Pursuant to the terms of the Corporate Reorganization that will be completed prior to the consummation of this offering, Topco will dissolve and in liquidation, will distribute all of the shares of capital stock of Amplify Snack Brands, Inc. to its members in accordance with the limited liability company agreement of Topco. See Corporate Reorganization. |
Treatment of outstanding equity awards in Corporate Reorganization |
In connection with the Corporate Reorganization, all of the outstanding equity awards (which are comprised of Class C units of Topco) that have been granted under the TA Topco 1, LLC 2014 |
9
Equity Incentive Plan, or the 2014 Plan, will be converted into shares of common stock and restricted stock of Amplify Snack Brands, Inc. The portion of the outstanding Class C units that have vested as of the consummation of the Corporate Reorganization will be converted into shares of our common stock and the remaining portion of unvested outstanding Class C units will be converted into shares of our restricted stock. As a result, we will grant shares of common stock and restricted stock to current awardees under the 2015 Stock Option and Incentive Plan, or the 2015 Plan, in connection with the Corporate Reorganization. The shares of restricted stock will be subject to time-based vesting conditions, in accordance with the terms and conditions of the Class C units from which such shares are converted. See Corporate Reorganization for additional information. |
Tax receivable agreements |
In connection with the Corporate Reorganization, we will enter into a tax receivable agreement with the former holders of units of Topco. Pursuant to the tax receivable agreement, we will be required to make cash payments to the former holders of units of Topco equal to 85% of the tax benefits, if any, that we actually realize, or in some circumstances are deemed to realize, as a result of certain tax attributes that were generated when SkinnyPop was acquired by affiliates of TA Associates in July 2014. The amount of the cash payments that we may be required to make under the tax receivable agreement could be significant. Over the expected term of the tax receivable agreement, we estimate that the aggregate amount of these payments could be up to $95.5 million, assuming current tax rates remain unchanged. Payments will be made by us on an annual basis (assuming we earn sufficient taxable income in a given fiscal year so as to realize tax benefits) and generally within 60 days following the filing by us of our U.S. federal income tax return for the preceding fiscal year. We expect to fund our obligations under the tax receivable agreement with cash flow from operating activities. For more information, including an estimate of future payments under the tax receivable agreement, see Certain Relationships and Related Party TransactionsTax Receivable Agreement. |
10
The number of shares of common stock that will be outstanding after this offering is based on 75,000,000 shares outstanding as of , 2015, and includes:
| shares of our common stock that are issuable upon the conversion of Class C units of Topco that were issued and outstanding and vested as of , 2015, which conversion will occur in connection with the Corporate Reorganization as described above; and |
| shares of our restricted stock issuable upon the conversion of Class C units of Topco that were issued and outstanding and unvested as of , 2015, which conversion will occur in connection with the Corporate Reorganization as described above. |
The number of shares of common stock to be outstanding after this offering excludes:
| shares of common stock reserved for future issuance under our 2015 Plan, which will become effective upon the consummation of this offering, and which contains provisions that automatically increase its share reserve each year. |
Except as otherwise indicated, all information in this prospectus assumes:
| a 75,000 for 1 forward split of our common stock that was effected on July 14, 2015. |
| the completion of the Corporate Reorganization prior to the consummation of this offering, see Corporate Reorganization; |
| the filing and effectiveness of our amended and restated certificate of incorporation in Delaware and the adoption of our amended and restated bylaws, each of which will occur immediately prior to the consummation of this offering; and |
| no exercise by the underwriters of their option to purchase up to an additional shares of common stock from the selling stockholders in this offering. |
11
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables summarize our historical consolidated financial and other data. We have derived the summary (1) statements of income data for the year ended December 31, 2013 and the period from January 1, 2014 to July 16, 2014 for the Predecessor (as discussed below) and for the period from July 17, 2014 to December 31, 2014 for the Successor (as discussed below) and (2) balance sheet data as of December 31, 2014 from our audited consolidated financial statements and related notes included elsewhere in this prospectus. We have derived the summary statement of income data for the year ended December 31, 2012, or the Summary 2012 Financial Data, for the Predecessor from our unaudited consolidated financial statements that are not included in this prospectus. We caution you not to place undue reliance on the Summary 2012 Financial Data. We have derived the summary (1) statements of income data for the three months ended March 31, 2014 for the Predecessor and the three months ended March 31, 2015 for the Successor and (2) balance sheet data as of March 31, 2015 from our unaudited condensed consolidated financial statements and related notes included elsewhere in this prospectus. Our unaudited interim condensed consolidated financial statements were prepared on a basis consistent with our audited consolidated financial statements and include, in managements opinion, all normal recurring adjustments necessary for the fair presentation of the financial information set forth in those statements included elsewhere in this prospectus.
Our statements of income prior to the date of the Sponsor Acquisition, which are the years ended December 31, 2012 and December 31, 2013 and the period from January 1, 2014 to July 16, 2014, are presented as the results of the Predecessor, which includes the results of the then-existing SkinnyPop Popcorn LLC. The statements of income after the date of the Sponsor Acquisition, which are the periods from July 17, 2014 to December 31, 2014 and the three months ended March 31, 2015, are presented as the results of the Successor. The Predecessor and Successor financial data has been prepared on different accounting bases and therefore the sum of the data for the two reporting periods should not be used as an indicator of our full year performance.
After the consummation of the Sponsor Acquisition, the Company, along with its subsidiary SkinnyPop Popcorn LLC, are referred to collectively in this prospectus as the Successor. Prior to the consummation of Sponsor Acquisition, SkinnyPop Popcorn LLC is referred to in this prospectus as the Predecessor. We applied Financial Accounting Standards Boards, or FASB, Accounting Standards Codification (ASC) Topic 805, Business Combinations on July 17, 2014, the closing date of the Sponsor Acquisition, and as a result, the merger consideration in the Sponsor Acquisition was allocated to the respective fair values of the assets acquired and liabilities assumed from the Predecessor. The fair value of identifiable intangibles was recorded at $265.3 million. For the period from July 17, 2014 to December 31, 2014, the Successors general and administrative expenses increased by $1.9 million as a result of the additional amortization that was recorded during the period. For the three months ended March 31, 2015, amortization expense was $1.0 million. As a result of the application of acquisition method accounting, the Successor balances and amounts presented in the audited consolidated financial statements and footnotes are not comparable with those of the Predecessor. Our historical results are not necessarily indicative of the results that may be expected in the future, and our interim results are not necessarily indicative of the results to be expected for the full year or any other period.
12
The following summary consolidated financial and other data should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations, Risk Factors, Capitalization, Unaudited Pro Forma Condensed Consolidated Financial Information and all of our consolidated financial statements and related notes included elsewhere in this prospectus.
The Pro Forma Year Ended December 31, 2014 (Unaudited) is derived from the Unaudited Pro Forma Condensed Consolidated Financial Information in this prospectus and is included for informational purposes only and does not purport to reflect the results of operations of Amplify Snack Brands, Inc. that would have occurred had the Sponsor Acquisition, the December 2014 Special Dividend or the May 2015 Special Dividend occurred on January 1, 2014. The Pro Forma Year Ended December 31, 2014 (Unaudited) (as more fully described in the Unaudited Pro Forma Condensed Consolidated Financial Information) contains a variety of adjustments, assumptions and estimates, is subject to numerous other uncertainties and the assumptions and adjustments as described in the notes accompanying the unaudited pro forma condensed consolidated financial information included elsewhere in this prospectus and should not be relied upon as being indicative of our results of operations had the Sponsor Acquisition, the December 2014 Special Dividend and the May 2015 Special Dividend occurred on the dates assumed.
Predecessor | Successor | Pro Forma | Predecessor | Successor | ||||||||||||||||||||||||
(In thousands, except
share, per share and percentage information) |
Year
ended December 31, 2012 |
Year
ended December 31, 2013 |
January 1,
2014 to July 16, 2014 |
July 17,
2014 to December 31, 2014 |
Year Ended
December 31, 2014 |
Three months
ended March 31, 2014 |
Three months
ended March 31, 2015 |
|||||||||||||||||||||
Statement of Income Data: |
||||||||||||||||||||||||||||
Net sales |
$ | 16,019 | $ | 55,710 | $ | 68,353 | $ | 64,004 | $ | 132,357 | $ | 25,706 | $ | 44,275 | ||||||||||||||
Cost of goods sold |
7,047 | 23,054 | 29,429 | 28,724 | 58,153 | 11,378 | 19,866 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Gross profit(1) |
8,972 | 32,656 | 38,924 | 35,280 | 74,204 | 14,328 | 24,409 | |||||||||||||||||||||
Sales & marketing expenses |
1,495 | 5,938 | 5,661 | 6,977 | 12,638 | 1,945 | 3,618 | |||||||||||||||||||||
General & administrative expenses |
679 | 1,960 | 1,394 | 13,611 |
|
27,238
|
|
|
669
|
|
|
9,032
|
|
|||||||||||||||
Sponsor acquisition-related expenses(2) |
| | 1,288 | 2,215 | 510 | | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total operating expenses |
2,174 | 7,898 | 8,343 | 22,803 |
|
40,386
|
|
|
2,614
|
|
12,650 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Operating income |
6,798 | 24,758 | 30,581 | 12,477 | 33,818 | 11,714 | 11,759 | |||||||||||||||||||||
Interest expense |
| | | 4,253 | 12,884 | | 2,955 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Pre-tax income |
6,798 | 24,758 | 30,581 | 8,224 | 20,934 | 11,714 | 8,804 | |||||||||||||||||||||
Income tax expense |
| | | 3,486 | 7,326 | |
|
3,900
|
|
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net income |
$ | 6,798 | $ | 24,758 | $ | 30,581 | $ | 4,738 | $ | 13,608 | $ | 11,714 | $ | 4,904 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Basic and diluted earnings per unit/share(3) |
$ | 16,995.01 | $ | 61,895.01 | $ | 76,452.74 | $ | .06 | $ | .18 | $ | 29,285.11 | $ | .07 | ||||||||||||||
Basic and diluted weighted average units/shares outstanding(3) |
400 | 400 | 400 | 75,000,000 | 75,000,000 | 400 | 75,000,000 | |||||||||||||||||||||
Cash Flow Data: |
||||||||||||||||||||||||||||
Cash from operating activities |
$ | 6,386 | $ | 22,469 | $ | 26,339 | $ | 12,719 | N/A | $ | 11,640 | $ | 14,142 | |||||||||||||||
Cash used in investing activities |
(16 | ) | (456 | ) | (278 | ) | (294,630 | ) | N/A | (82 | ) | (370 | ) | |||||||||||||||
Cash from (used in) financing activities |
(5,848 | ) | (19,362 | ) | (28,533 | ) | 287,526 | N/A | (9,687 | ) | (2,500 | ) | ||||||||||||||||
Other Financial Information: (Non-GAAP) : |
||||||||||||||||||||||||||||
Adjusted EBITDA(4) |
$ | 6,807 | $ | 24,805 | $ | 31,947 | $ | 26,592 | $ | 58,539 | $ | 11,748 | $ | 19,231 | ||||||||||||||
Adjusted EBITDA margin |
42.5 | % | 44.5 | % | 46.7 | % | 41.5 | % | 44.2 | % | 45.7 | % | 43.4 | % | ||||||||||||||
Operating cash flow less capital expenditures(5) |
$ | 6,370 | $ | 22,013 | $ | 26,061 | $ | 12,541 | N/A | $ | 11,558 | $ | 13,772 |
13
(1) | Our gross profit margin for each of the periods presented was 56.0%, 58.6%, 56.9%, 55.1%, 56.1%, 55.7% and 55.1%, respectively. |
(2) | In the period from January 1 to July 16, 2014 and the period from July 17 to December 31, 2014, the Sponsor Acquisition-related expenses reflect the Sponsor Acquisition. |
(3) | See Note 2 and Note 15 to our audited consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate basic and diluted earnings per unit/share and the basic and diluted weighted average number of units/shares outstanding used in the computation of the per unit/share amounts. |
(4) | Adjusted EBITDA is a non-GAAP financial performance measure. See Non-GAAP Financial Measures below for more information and a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. |
(5) | Operating cash flow less capital expenditures is a non-GAAP financial measure. See Non-GAAP Financial Measures below for more information and a reconciliation of operating cash flow less capital expenditures to cash from operating activities, the most directly comparable financial measure calculated and presented in accordance with GAAP. |
At March 31, 2015 | ||||||||
(In thousands) | Actual |
As
Adjusted(1) |
As Further
Adjusted(2) |
|||||
Balance Sheet Data: |
||||||||
Cash and cash equivalents |
$ | 16,887 | ||||||
Working capital(3) |
12,185 | |||||||
Property and equipmentnet |
1,029 | |||||||
Other assets |
312,447 | |||||||
Total assets |
350,491 | |||||||
Total indebtedness(4) |
209,394 | |||||||
Total stockholders/members equity |
126,860 |
(1) | The as adjusted column in the balance sheet data table above reflects the Corporate Reorganization, which will occur immediately prior to the consummation of this offering, as if such Corporate Reorganization had occurred on March 31, 2015. |
(2) | The as further adjusted column in the balance sheet data table above gives effect to the adjustments set forth above and the sale of shares of common stock by the selling stockholders in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting the payment of the Performance Bonus Payments and the estimated offering expenses payable by us. |
(3) | Working capital is the sum of current assets less current liabilities. |
(4) | Total indebtedness consists of the accrued amounts due in connection with the Founder Contingent Compensation, the outstanding principal amount of the term loan under our credit agreement on an actual basis and as further adjusted to give effect to the May 2015 Special Dividend and other current liabilities. |
Non-GAAP Financial Measures
We include Adjusted EBITDA and operating cash flow less capital expenditures, which we refer to as the non-GAAP metrics, in this prospectus because they are important measures upon which our management assesses our operating performance. We use Adjusted EBITDA as a key performance metric because we believe it facilitates operating performance comparisons from period-to-period by excluding potential differences primarily caused by variations in capital structures, tax positions, the impact of depreciation and amortization expense on our fixed assets and the impact of equity-based compensation expense. In addition, our credit agreement contains financial maintenance covenants, including a total funded debt ratio and a minimum fixed charge ratio, that use Adjusted EBITDA as one of their inputs. We include operating cash flow less capital expenditures in this prospectus because we believe capital expenditures are essential to maintaining our operational capabilities and are a recurring and necessary use of cash. We view operating cash flow less capital expenditures as a key performance metric because it reflects changes in, or cash requirements for, our working capital needs, and is useful in evaluating the amount of cash available for discretionary investments. Because such non-GAAP metrics facilitate internal comparisons of our historical operating performance on a
14
more consistent basis, we also use them for business planning purposes, to incentivize and compensate our management personnel, and in evaluating acquisition opportunities. In addition, we believe the non-GAAP metrics and similar measures are widely used by investors, securities analysts, ratings agencies and other parties in evaluating companies in our industry as a measure of financial performance and debt-service capabilities.
Our use of non-GAAP metrics has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
| Adjusted EBITDA metric does not reflect our cash expenditures for capital equipment or other contractual commitments; |
| Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect capital expenditure requirements for such replacements; |
| Adjusted EBITDA metrics may not reflect changes in, or cash requirements for, our working capital needs; |
| Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness; |
| Operating cash flow less capital expenditures does not reflect other non-discretionary expenditures such as mandatory debt service requirements or acquisition consideration paid that could impact residual cash flow available for discretionary expenditures; and |
| Other companies, including companies in our industry, may calculate Adjusted EBITDA and other non-GAAP measures differently, which reduces their usefulness as a comparative measure. |
In evaluating non-GAAP metrics, you should be aware that in the future we will incur expenses similar to the adjustments in this presentation. Our presentation of any non-GAAP metrics should not be construed as an inference that our future results will be unaffected by these expenses or any other expenses, whether or not they are unusual or non-recurring items. When evaluating our performance, you should consider the non-GAAP metrics alongside other financial performance measures, including our net income and other GAAP results.
Adjusted EBITDA
Adjusted EBITDA is a financial performance measure that is not calculated in accordance with GAAP. We define Adjusted EBITDA as net income adjusted to exclude, when applicable, interest expense, income tax expense, depreciation, amortization of intangible assets, inventory fair value adjustment, equity-based compensation expenses, Founder Contingent Compensation expense, expenses related to the Sponsor Acquisition, and other non-operational items. Below, we have provided a reconciliation of Adjusted EBITDA to our net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. Adjusted EBITDA should not be considered as an alternative to net income or any other measure of financial performance calculated and presented in accordance with GAAP. Our Adjusted EBITDA may not be comparable to similarly titled measures of other organizations because other organizations may not calculate Adjusted EBITDA in the same manner as we calculate the measure.
15
The following tables present a reconciliation of Adjusted EBITDA to our net income, the most directly comparable GAAP measure, for each of the periods indicated:
Predecessor | Successor | |||||||
Three months
ended March 31, 2014 |
Three months
ended March 31, 2015 |
|||||||
(In thousands) | ||||||||
Net income |
$ | 11,714 | $ | 4,904 | ||||
Non-GAAP adjustments: |
||||||||
Interest expense |
| 2,955 | ||||||
Income tax expense |
| 3,900 | ||||||
Depreciation |
34 | 47 | ||||||
Amortization of intangible assets |
| 1,042 | ||||||
Equity-based compensation expenses |
| 788 | ||||||
Founder Contingent Compensation(1) |
| 4,602 | ||||||
Executive recruitment(2) |
| 308 | ||||||
Other professional services(3) |
| 685 | ||||||
|
|
|
|
|||||
Adjusted EBITDA |
$ | 11,748 | $ | 19,231 | ||||
|
|
|
|
(1) | Represents compensation expense associated with the Founder Contingent Compensation. See Note 1 to our audited consolidated financial statements included elsewhere in this prospectus for more information. |
(2) | Represents the recognized expense associated with sign-on and retention bonuses for certain executive hires, and certain recruiting fees. We are permitted to add back expenses of this type in determining Adjusted EBITDA under the Credit Agreement governing our term loan. Adjusted EBITDA (as defined therein) is used thereunder in determining our financial maintenance covenants and for calculating ratios in our debt incurrence covenants and is therefore an important measure of our financial performance and our ability to take certain actions in operating our business. See Managements Discussion and Analysis of Financial Condition and Results of OperationIndebtedness for more information. |
(3) | Represents transaction costs associated with legal and accounting services. |
Predecessor | Successor | Pro Forma(9) | ||||||||||||||||||||
(In thousands) |
Year ended
December 31, 2012 |
Year ended
December 31, 2013 |
January 1,
2014 to July 16, 2014 |
July 17,
2014 to December 31, 2014 |
Year ended
December 31, 2014 |
|||||||||||||||||
Net income |
$ | 6,798 | $ | 24,758 | $ | 30,581 | $ 4,738 | $ 13,608 | ||||||||||||||
Non-GAAP adjustments: |
||||||||||||||||||||||
Interest expense(1) |
| | | 4,253 | 12,884 | |||||||||||||||||
Income tax expense(2) |
| | | 3,486 | 7,326 | |||||||||||||||||
Depreciation |
9 | 47 | 78 | 99 | 177 | |||||||||||||||||
Amortization of intangible assets(3) |
| | | 1,904 | 4,166 | |||||||||||||||||
Inventory fair value adjustment(4) |
| | | 401 | 401 | |||||||||||||||||
Equity-based compensation expenses |
| | | 235 | 235 | |||||||||||||||||
Founder Contingent Compensation(5) |
| | | 8,437 | 18,408 | |||||||||||||||||
Sponsor Acquisition-related expenses(6) |
| | 1,288 | 2,215 | 510 | |||||||||||||||||
Recapitalization expenses(7) |
| | | 178 | 178 | |||||||||||||||||
Executive recruitment(8) |
| | | 646 | 646 | |||||||||||||||||
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|
|
|
|
|
|
|
|
|
|||||||||||||
Adjusted EBITDA |
$ | 6,807 | $ | 24,805 | $ | 31,947 | $ 26,592 | $ 58,539 | ||||||||||||||
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|
(1) | Represents interest expense of $4.3 million recorded in Successor period from July 17, 2014 to December 31, 2014, and $12.9 million recorded in the Pro Forma Year Ended December 31, 2014 (Unaudited) as more fully described in Unaudited Pro Forma Condensed Consolidated Financial Information. |
(2) | Represents income tax expense of $3.5 million recorded in Successor period from July 17, 2014 to December 31, 2014, and $7.3 million recorded in the Pro Forma Year Ended December 31, 2014 (Unaudited) as more fully described in Unaudited Pro Forma Condensed Consolidated Financial Information. |
16
(3) | Represents amortization of intangible assets of $1.9 million recorded in Successor period from July 17, 2014 to December 31, 2014, and $4.2 million reflected as a component of general & administrative expenses in the Pro Forma Year Ended December 31, 2014 (Unaudited) as more fully described in Unaudited Pro Forma Condensed Consolidated Financial Information. |
(4) | This adjustment reflects the elimination of the $0.4 million increase in cost of goods sold related to the Sponsor Acquisition. |
(5) | Represents compensation expense associated with the Founder Contingent Compensation of $8.4 million recorded in Successor period from July 17, 2014 to December 31, 2014 (see Note 1 to our audited consolidated financial statements included elsewhere in this prospectus for more information), and $18.4 million reflected as a component of general & administrative expenses in the Pro Forma Year Ended December 31, 2014 (Unaudited) as more fully described in Unaudited Pro Forma Condensed Consolidated Financial Information. |
(6) | Represents the following: |
Predecessor | Successor | Pro Forma | ||||||||||||||||||||
(In thousands) |
Year ended
December 31, 2012 |
Year ended
December 31, 2013 |
January 1,
2014 to July 16, 2014 |
July 17, 2014
to December 31, 2014 |
Year ended
December 31, 2014 |
|||||||||||||||||
Predecessor transaction costs(i) |
$ | | $ | | $ | 510 | $ | | $ | 510 | ||||||||||||
Transaction bonuses(ii) |
| | 778 | | | |||||||||||||||||
Sponsor transaction costs(iii) |
| | | 2,215 | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | | $ | | $ | 1,288 | $ | 2,215 | $ | 510 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
i. | Represents a supplemental transaction payment and related expenses of $0.5 million paid to Precision Capital, an advisor to the Predecessor, in connection with the Sponsor Acquisition, in recognition of the services that were provided by Precision Capital Group, LLC to the Predecessor. Although the Predecessor was not contractually obligated to pay such amounts, we believe that such payments would not have been made by the Predecessor to Precision Capital Group, LLC but for the consummation of the Sponsor Acquisition. In addition, we are permitted to add back expenses of this type in determining Adjusted EBITDA under the Credit Agreement governing our term loan. Adjusted EBITDA (as defined therein) is used thereunder in determining our financial maintenance covenants and is therefore an important measure of our operating performance. See Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtedness for more information. |
ii. | Represents transaction bonuses paid to employees in connection with the Sponsor Acquisition. These have been excluded from the Pro Forma Year Ended December 31, 2014 (Unaudited) net income as more fully described in Unaudited Pro Forma Condensed Consolidated Financial Information, and therefore no further adjustment is required in reconciling Pro Forma Year Ended December 31, 2014 (Unaudited) net income to Adjusted EBITDA. |
iii. | Represents legal, accounting, tax, insurance and other diligence fees paid to consultants in connection with the Sponsor Acquisition. These have been excluded from the Pro Forma Year Ended December 31, 2014 (Unaudited) net income as more fully described in Unaudited Pro Forma Condensed Consolidated Financial Information, and therefore no further adjustment is required in reconciling Pro Forma Year Ended December 31, 2014 (Unaudited) net income to Adjusted EBITDA. |
(7) | Represents the expenses we incurred in connection with the December 2014 Special Dividend. We are permitted to add back expenses of this type in determining Adjusted EBITDA under the credit agreement governing our term loan. Adjusted EBITDA (as defined therein) is used thereunder in determining our financial maintenance covenants and is therefore an important measure of our operating performance. See Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtedness for more information. |
(8) | Represents the recognized expense associated with sign-on and retention bonuses for certain executive hires, and certain recruiting fees. We are permitted to add back expenses of this type in determining Adjusted EBITDA under the Credit Agreement governing our term loan. Adjusted EBITDA (as defined therein) is used thereunder in determining our financial maintenance covenants and for calculating ratios in our debt incurrence covenants and is therefore an important measure of our operating performance and our ability to take certain actions in operating our business. See Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtedness for more information. |
(9) | Represents Pro Forma Year Ended December 31, 2014 (Unaudited) net income, as more fully described in Unaudited Pro Forma Condensed Consolidated Financial Information, adjusted to exclude, when appropriate, interest expense, income tax expense, depreciation, amortization of intangible assets, Founder Contingent Compensation expense, inventory fair value adjustment, equity-based compensation expenses, expenses related to the Sponsor Acquisition and other non-operational items. |
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Our Credit Agreement contains financial maintenance covenants, including a total funded debt ratio and a minimum fixed charge ratio, that use Adjusted EBITDA as one of their inputs. Accordingly, we have provided a reconciliation of Adjusted EBITDA to our cash from operating activities, the most directly comparable liquidity measure calculated and presented in accordance with GAAP. Adjusted EBITDA should not be considered as an alternative to cash from operating activities or any other measure of liquidity calculated and presented in accordance with GAAP. Our Adjusted EBITDA may not be comparable to similarly titled measures of other organizations because other organizations may not calculate Adjusted EBITDA in the same manner we calculate the measure. For more information on our Credit Agreement, its material terms, including the financial maintenance covenants, the amounts or limits required for compliance with the covenants and the effects of non-compliance with these covenants, see Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtedness.
The following tables present a reconciliation of Adjusted EBITDA to our cash from operating activities for each of the periods indicated:
Predecessor |
|
Successor | ||||||||
(In thousands) |
Three months
ended March 31, 2014 |
|
Three months
ended March 31, 2015 |
|||||||
Cash from operating activities |
$ | 11,640 | $ | 14,142 | ||||||
Reconciling items: |
||||||||||
Interest expense |
| 2,955 | ||||||||
Income tax expense |
| 3,900 | ||||||||
Deferred income taxes(1) |
| 247 | ||||||||
Amortization of deferred financing costs(2) |
| (185 | ) | |||||||
Net change in operating assets and liabilities, net of effects of acquisition |
108 | (2,821 | ) | |||||||
Executive recruitment(3) |
| 308 | ||||||||
Other professional services(4) |
| 685 | ||||||||
|
|
|
|
|
||||||
Adjusted EBITDA |
$ | 11,748 | $ | 19,231 | ||||||
|
|
|
|
|
(1) | Represents a non-cash component of income tax expense above. |
(2) | Represents a non-cash component of interest expense above. |
(3) | Represents the recognized expense associated with sign-on and retention bonuses for certain executive hires and certain recruiting fees. We are permitted to add back expenses of this type in determining Adjusted EBITDA under the Credit Agreement governing our term loan. Adjusted EBITDA (as defined therein) is used thereunder in determining our financial maintenance covenants and for calculating ratios in our debt incurrence covenants and is therefore an important measure of our financial performance and our ability to take certain actions in operating our business. See Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtedness for more information. |
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(4) | Represents transaction costs associated with legal and accounting services. |
Predecessor |
|
Successor | ||||||||||||
(In thousands) |
Year ended
December 31, 2013 |
January 1, 2014
to July 16, 2014 |
|
July 17, 2014 to
December 31, 2014 |
||||||||||
Cash from operating activities |
$ | 22,469 | $ | 26,339 | $ | 12,719 | ||||||||
Reconciling items: |
||||||||||||||
Interest expense |
| | 4,253 | |||||||||||
Income tax expense |
| | 3,486 | |||||||||||
Deferred income taxes(1) |
| | 3,126 | |||||||||||
Amortization of deferred financing costs(2) |
| | (292 | ) | ||||||||||
Net change in operating assets and liabilities, net of effects of acquisition |
2,336 | 4,320 | (1,640 | ) | ||||||||||
Inventory fair value adjustment |
| | 401 | |||||||||||
Founder Contingent Compensation(3) |
| | 1,500 | |||||||||||
Sponsor Acquisition-related expenses(4) |
| 1,288 | 2,215 | |||||||||||
Recapitalization expenses(5) |
| | 178 | |||||||||||
Executive recruitment(6) |
| | 646 | |||||||||||
|
|
|
|
|
|
|
||||||||
Adjusted EBITDA |
$ | 24,805 | $ | 31,947 | $ | 26,592 | ||||||||
|
|
|
|
|
|
|
(1) | Represents a non-cash component of income tax expense above. |
(2) | Represents a non-cash component of interest expense above. |
(3) | This adjustment reflects the prepayment of Founder Contingent Compensation. See Note 1 to our audited consolidated financial statements included elsewhere in this prospectus for more information. |
(4) | Represents the following: |
Predecessor | Successor | |||||||||||||
(In thousands) |
Year ended
December 31, 2013 |
January 1,
2014 to July 16, 2014 |
July 17, 2014 to
December 31, 2014 |
|||||||||||
Predecessor transaction costs(i) |
$ | | $ | 510 | $ | | ||||||||
Transaction bonuses(ii) |
| 778 | | |||||||||||
Sponsor transaction costs(iii) |
| | 2,215 | |||||||||||
|
|
|
|
|
|
|||||||||
Total |
$ | | $ | 1,288 | $ | 2,215 | ||||||||
|
|
|
|
|
|
i. | Represents a supplemental transaction payment and related expenses of $0.5 million paid to Precision Capital, an advisor to the Predecessor, in connection with the Sponsor Acquisition, in recognition of the services that were provided by Precision Capital Group, LLC to the Predecessor. Although the Predecessor was not contractually obligated to pay such amounts, we believe that such payments would not have been made by the Predecessor to Precision Capital Group, LLC but for the consummation of the Sponsor Acquisition. In addition, we are permitted to add back expenses of this type in determining Adjusted EBITDA under the Credit Agreement governing our term loan. Adjusted EBITDA (as defined therein) is used thereunder in determining our financial maintenance covenants and is therefore an important measure of our operating performance. See Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtedness for more information. |
ii. | Represents transaction bonuses paid to employees in connection with the Sponsor Acquisition. These have been excluded from the Pro Forma Year Ended December 31, 2014 (Unaudited) net income as more fully described in Unaudited Pro Forma Condensed Consolidated Financial Information, and therefore no further adjustment is required in reconciling Pro Forma Year Ended December 31, 2014 (Unaudited) net income to Adjusted EBITDA. |
iii. | Represents legal, accounting, tax, insurance and other diligence fees paid to consultants in connection with the Sponsor Acquisition. These have been excluded from the Pro Forma Year Ended December 31, 2014 (Unaudited) net income as more fully described in Unaudited Pro Forma Condensed Consolidated Financial Information, and therefore no further adjustment is required in reconciling Pro Forma Year Ended December 31, 2014 (Unaudited) net income to Adjusted EBITDA. |
(5) | Represents the expenses we incurred in connection with the December 2014 Special Dividend. We are permitted to add back expenses of this type in determining Adjusted EBITDA under the Credit Agreement governing our term loan. Adjusted EBITDA (as defined therein) is used thereunder in determining our financial maintenance covenants and is therefore an important measure of our operating performance. See Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtedness for more information. |
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(6) | Represents the recognized expense associated with sign-on and retention bonuses for certain executive hires and certain recruiting fees. We are permitted to add back expenses of this type in determining Adjusted EBITDA under the Credit Agreement governing our term loan. Adjusted EBITDA (as defined therein) is used thereunder in determining our financial maintenance covenants and for calculating ratios in our debt incurrence covenants and is therefore an important measure of our operating performance and our ability to take certain actions in operating our business. See Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtedness for more information. |
Operating Cash Flow Less Capital Expenditures
Operating cash flow less capital expenditures is a financial measure that is not calculated in accordance with GAAP. We define operating cash flow less capital expenditures as cash from operating activities, which is the most comparable GAAP financial measure, reduced by capital expenditures. Below, we have provided a reconciliation of operating cash flow less capital expenditures to our cash from operating activities, the most directly comparable financial measure calculated and presented in accordance with GAAP. Operating cash flow less capital expenditures should not be considered as an alternative to cash from operating activities or any other measure of financial performance calculated and presented in accordance with GAAP. Our operating cash flow less capital expenditures may not be comparable to similarly titled measures of other organizations because other organizations may not calculate operating cash flow less capital expenditures in the same manner as we calculate the measure. Since capital spending is essential to maintaining our operational capabilities, we believe that it is a recurring and necessary use of cash. As such, we believe investors should also consider capital spending when evaluating our cash from operating activities. We view operating cash flow less capital expenditures as an important measure because it reflects changes in, or cash requirements for, our working capital needs, and is one factor in evaluating the amount of cash available for discretionary investments.
The following tables present a reconciliation of operating cash flow less capital expenditures to cash from operating activities, the most directly comparable GAAP measure, for each of the periods indicated:
Predecessor | Successor | |||||||||
Three months
ended March 31, 2014 |
Three months
ended March 31, 2015 |
|||||||||
(In thousands) |
||||||||||
Cash from operating activities |
$ | 11,640 | $ | 14,142 | ||||||
Capital expenditures |
(82 | ) | (370 | ) | ||||||
|
|
|
|
|||||||
Operating cash flow less capital expenditures |
$ | 11,558 | $ | 13,772 | ||||||
|
|
|
|
Predecessor | Successor | |||||||||||||||||
(In thousands) |
Year ended
December 31, 2012 |
Year ended
December 31, 2013 |
January 1,
2014 to July 16, 2014 |
July 17, 2014
to December 31, 2014 |
||||||||||||||
Cash from operating activities |
$ | 6,386 | $ | 22,469 | $ | 26,339 | $ | 12,719 | ||||||||||
Capital expenditures |
(16 | ) | (456 | ) | (278 | ) | (178 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Operating cash flow less capital expenditures |
$ | 6,370 | $ | 22,013 | $ | 26,061 | $ | 12,541 | ||||||||||
|
|
|
|
|
|
|
|
20
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, before making a decision to invest in our common stock. If any of the risks actually occur, our business, financial condition, results of operations and prospects could be harmed. In that event, the trading price of our common stock could decline, and you could lose part or all of your investment.
Risks Related to Our Business
Risks Related to Our Products
We rely on sales to a limited number of distributors and retailers for the substantial majority of our net sales, and the loss of one or more such distributors or retailers may harm our business.
A substantial majority of our sales are generated from a limited number of distributors and retailers, which we refer to as customers. For the Pro Forma Year Ended December 31, 2014 (Unaudited), sales to our two largest customers, Costco and Sams Club, represented approximately 34.7% and 20.9% of our net sales, respectively. In addition, these two customers accounted for approximately 53.2% of our accounts receivable as of December 31, 2014. Although the composition of our significant customers may vary from period to period, we expect that most of our net sales and accounts receivable will continue to come from a relatively small number of customers for the foreseeable future. We do not have commitments or minimum volumes that ensure future sales of our products to any of our customers. Consequently, our financial results may fluctuate significantly from period to period based on the actions of one or more significant customers. A customer may take actions that affect us for reasons that we cannot always anticipate or control, such as their financial condition, changes in their business strategy or operations, the introduction of competing products or the perceived quality of our products. In addition, despite operating in different channels, our retailers sometimes compete for the same consumers. As a result of actual or perceived conflicts resulting from this competition, customers may take actions that negatively affect us. The loss of, or a reduction in sales or anticipated sales to, one or more of our most significant distributors or retailers may have a material adverse effect on our business, results of operation and financial condition.
Further, through our brand SkinnyPop, we have relatively new relationships with some of the largest U.S. retail chains such as Walmart, Target and CVS Pharmacy, and these customers may find, as they gain more experience selling our products, that their respective abilities to sell SkinnyPop products does not meet their expectations or they may not continue to place orders for our products.
Sales of a limited number of SkinnyPop products and flavors contributed all of our historical profitability and cash flow. A reduction in the sale of our SkinnyPop products would have a material adverse effect on our ability to remain profitable and achieve future growth.
All of our net sales for Pro Forma Year Ended December 31, 2014 (Unaudited) resulted from sales of our SkinnyPop products. Additionally, during this time period, approximately 87% of our SkinnyPop branded sales came from a variety of stock-keeping-units, or SKUs, under our Original flavor. All of our secondary flavors, White Cheddar Flavor, Naturally Sweet, Black Pepper and a rotational Hatch Chile flavored SKU, were first introduced in late 2013 or 2014 and represent a relatively small portion of our sales. We cannot be certain that we will be able to continue to commercialize or expand distribution of our existing flavors of popcorn products or that any of our future food products and flavors will be accepted in their markets. Any inability on our part to stay current with food and consumer trends through new products could have a material adverse effect on our business performance. Because sales of our SkinnyPop products make up all of our historical profitability and cash flows, reductions in sales of these products will have an adverse effect on our profitability and ability to generate cash to fund our product development, research and development efforts or potential acquisitions.
21
The following factors, among others, could affect continued market acceptance and profitability of SkinnyPop products:
| the introduction of competitive products; |
| changes in consumer preferences among RTE popcorn and other snack food products; |
| changes in consumer eating and snacking habits, including trends away from certain categories, including major allergen-free, gluten-free and non-GMO products; |
| changes in awareness of the social effects of farming and food production; |
| changes in consumer perception about trendy snack products; |
| changes in consumer perception regarding the healthfulness or BFY nature of our products; |
| the level and effectiveness of our sales and marketing efforts; |
| any unfavorable publicity regarding RTE popcorn products or similar products; |
| any unfavorable publicity regarding the SkinnyPop brand; |
| litigation or threats of litigation with respect to our products; |
| the price of our products relative to other competing products; |
| price increases resulting from rising commodity costs; |
| any changes in government policies and practices related to our products, labeling and markets; |
| regulatory developments affecting the manufacturing, labeling, marketing or use of our products; |
| new science or research that disputes the healthfulness of our products; and |
| adverse decisions or rulings limiting our ability to promote the benefits of popcorn products. |
Adverse developments with respect to the sale of SkinnyPop products would significantly reduce our net sales and profitability and have a material adverse effect on our ability to maintain profitability and achieve our business plan.
We currently depend exclusively on one third-party co-manufacturer with one location to manufacture all of our SkinnyPop products. The loss of this co-manufacturer or the inability of this co-manufacturer to fulfill our orders would adversely affect our ability to make timely deliveries of our product and would have a material adverse effect on our business.
Currently, all of our SkinnyPop products are produced solely by Assemblers Food Packaging LLC, or Assemblers, which maintains only one facility for all of its customers. Our agreement with Assemblers provides that we will order a minimum amount of products from Assemblers each year during the agreements term. If we do not meet the minimum order amount, we must pay a penalty fee if Assemblers is no longer our exclusive manufacturer. The agreement may be terminated by us upon written notice and the payment of a termination fee. There can be no assurance that Assemblers capacity will be sufficient to fulfill our orders, and any supply shortfall could materially and adversely affect our business, results of operations and financial condition. Additionally, we face the risk of disruption to our production and sales processes if Assemblers is unable or unwilling to produce sufficient quantities of our products in a timely manner or renew contracts with us or suffers a natural disaster, fire, power interruption, work stoppage or other unanticipated catastrophic event. In addition, we are responsible for any increase in Assemblers manufacturing costs and may not be able to pass these costs on to our customers. In order to continue manufacturing our products in the event of a disruption to our production and sales processes, we would have to identify and qualify new manufacturers, including obtaining third party certifications for claims, which we may be unable to do in a timely manner, if at all. From time to time, we need to seek new manufacturers or enter into new arrangements with our existing manufacturer. However, only a limited number of manufacturers may have the ability to produce our products at the volumes we need, and it could take a significant
22
period of time to locate and qualify such alternative production sources. Moreover, it may be difficult or expensive to find manufacturers to produce small volumes of our new products. Manufacturers may impose minimum order requirements and any failure on our part to meet these requirements could increase our costs. There can also be no assurance that we would be able to identify and qualify new manufacturers in a timely manner or that such manufacturers could allocate sufficient capacity in order to meet our requirements, which could materially adversely affect our ability to make timely deliveries of product. In addition, we may be unable to negotiate pricing or other terms with our existing or new manufacturers as favorable as what we currently enjoy. Furthermore, there is no guarantee a new third-party manufacturing partner could accurately replicate the production process and taste profile of our existing products.
Given our third-party co-manufacturer operates from a single site, shipments to and from the warehouses where our products are stored could be delayed for a variety of reasons, including weather conditions, strikes and shipping delays. Any significant delay in the shipments of product would have a material adverse effect on our business, results of operations and financial condition and could cause our sales and profitability to fluctuate during a particular period or periods.
We rely, in part, on our third-party co-manufacturer to maintain the quality of our products. The failure or inability of this co-manufacturer to comply with the specifications and requirements of our products could result in product recall and could adversely affect our reputation.
Our third-party co-manufacturer is required to maintain the quality of our products and to comply with our product specifications and requirements for certain certifications. Our third-party co-manufacturer is also required to comply with all federal, state and local laws with respect to food safety. Additionally, certain retail customers, such as Costco, require our third-party co-manufacturer to maintain minimum independent certifications, such as SQF Level 2 Certification or Hazard Analysis and Critical Control Points, or HACCP, certification. However, our third-party co-manufacturer may not continue to produce products that are consistent with our standards or that are in compliance with applicable laws, and we cannot guarantee that we will be able to identify instances in which our third-party co-manufacturer fails to comply with our standards or applicable laws. Any such failure, particularly if it is not identified by us, could harm our brand and reputation as well as our customer relationships. We would have these same issues with any new co-manufacturer, and they may be exacerbated due to the newness of the relationship. The failure of any manufacturer to produce products that conform to our standards could materially and adversely affect our reputation in the marketplace and result in product recalls, product liability claims and severe economic loss.
We do not have any contracts with our customers that require the purchase of a minimum amount of our products. The absence of such contracts could result in periods during which we must continue to pay costs and service indebtedness with reduced sales.
Our customers do not provide us with firm, long-term or short-term volume purchase commitments. As a result of the absence of such contracts, we could have periods during which we have no or limited orders for our products, but we will continue to have to pay our costs, including those to maintain our work force and service our indebtedness with reduced sales. We cannot assure you that we will be able to timely find new customers to supplement periods where we experience no or limited purchase orders or that we can recover fixed costs as a result of experiencing reduced purchase orders. Periods of no or limited purchase orders for our products could have a material adverse effect on our net income, cause us to incur losses or result in violations of the covenants contained in our Credit Agreement (as defined below).
Conversely, we may experience unanticipated increased orders for our products from these customers that can create supply chain problems and may result in orders we may be unable to meet. Unanticipated fluctuations in product requirements by our customers could result in fluctuations in our results from quarter to quarter.
23
Because we rely on a limited number of raw materials to create our products and a limited number of third-party suppliers to supply our raw materials, we may not be able to obtain raw materials on a timely basis, at cost effective pricing or in sufficient quantities to produce our products.
We use a specific type of popcorn kernel of limited production, sunflower oil, a variety of seasonings and salt to make our popcorn products. There may be a limited market supply of any of our core ingredients, including in particular the specific popcorn kernel we use. In addition to the market limitations of the raw materials used to make our product, we rely on a limited number of third-party suppliers to supply us with such raw materials. Although we have multiple suppliers for our popcorn seasoning, we have a single supplier for the sunflower oil and only two key suppliers for the popcorn kernels used in our products. As of December 31, 2014, two vendors accounted for approximately 74% of our accounts payable. During the year ended December 31, 2014, all of our products were made using sunflower oil, popcorn kernels and salt as their bases. Any ordering error on our part or disruption in the supply of sunflower oil, popcorn kernels in general, or our specific type of popcorn kernel, could have a material adverse effect on our business, particularly our profitability and our margins. Our financial performance depends in large part on our ability to arrange for the purchase of raw materials in sufficient quantities at competitive prices. We are not assured of continued supply, pricing or exclusive access to raw materials from these sources. Any of our suppliers could discontinue or seek to alter their relationships with us. Additionally, we may be adversely affected if there are increases in demand for the specific raw materials we use in our products, there is a reduction in overall supply of our required raw materials or our suppliers raise their prices, stop selling to us or our third-party manufacturers or enter into arrangements that impair their abilities to provide us or our third-party manufacturers with raw materials.
Events that adversely affect our suppliers could impair our ability to obtain raw material inventory in the quantities that we desire. Such events include problems with our suppliers businesses, finances, labor relations, ability to import raw materials, costs, production, insurance, reputation and weather conditions during growing, harvesting or shipping, including flood, drought, frost and earthquakes, as well as natural or man-made disasters or other catastrophic occurrences.
If we experience significant increased demand for our products, or need to replace an existing supplier, there can be no assurance that additional supplies of raw materials will be available when required on acceptable terms, or at all, or that any supplier would allocate sufficient capacity to us in order to meet our requirements, fill our orders in a timely manner or meet our strict quality standards. Even if our existing suppliers are able to expand their capacities to meet our needs or we are able to find new sources of raw materials, we may encounter delays in production, inconsistencies in quality and added costs. We are not able to pass increased costs onto the customer immediately, if at all, which may decrease or eliminate our profitability in any period. Any delays or interruption in, or increased costs of, our supply of raw materials could have an adverse effect on our ability to meet consumer demand for our products and result in lower net sales and profitability both in the short and long term.
As a food production company, all of our products must be compliant with regulations by the Food and Drug Administration, or FDA, and in addition a number of our products rely on independent certification that they are non-GMO, gluten-free or Kosher. Any non-compliance with the FDA or the loss of any such certification could harm our business.
We must comply with various FDA rules and regulations, including those regarding product manufacturing, food safety, required testing and appropriate labeling of our products. It is possible that regulations by the FDA and its interpretation thereof may change over time. As such, there is a risk that our products could become non-compliant with the FDAs regulations and any such non-compliance could harm our business. In addition, we rely on independent certification of our
24
non-GMO, gluten-free and Kosher products and must comply with the requirements of independent organizations or certification authorities in order to label our products as such. Currently, the FDA does not directly regulate the labeling of Kosher or non-GMO products as such. The FDA has defined the term gluten-free and we must comply with the FDAs definition if we include this label on our products. Our products could lose their non-GMO and gluten-free certifications if our raw material suppliers lose their product certifications for those specified claims. We could also lose our Kosher product certification if a contract manufacturing plant is found to be in violation of required manufacturing or cleaning processes. The loss of any of these independent certifications, including for reasons outside of our control, could harm our business.
We must expend resources to create consumer awareness, build brand loyalty and generate interest in our products. In addition, competitors may offer significant price reductions, and we cannot ensure that consumers will find our products suitably differentiated from products of our competitors.
Our ability to develop, market and sell new and existing products at an appropriate price may be hampered by unfavorable terms of sale imposed by our customers, the inability to obtain shelf space or preferable shelf placement for our products at a reasonable cost or, once placed, the failure to have an attractive price set for our products. Competitors, many of whom have greater resources than us, vie for the same shelf placement and may offer incentives to the retailers that we cannot match. In addition, unattractive shelf placement and pricing may put us at a disadvantage to our competitors.
Even if we do obtain shelf space or preferable shelf placement, our new and existing products may fail to achieve the sales expectations set by our retailers, potentially causing these retailers to remove our products from the shelf. Additionally, an increase in the number and quality of private-label products in the product categories in which we compete could create more pressure for shelf space and placement for branded products within each such category, which could adversely affect our sales.
To obtain and keep shelf placement for our products, we may need to increase our marketing and advertising spending in order to create consumer awareness, protect and grow our existing market share or to promote new products, which could impact our operating results. In addition, we consistently evaluate our product lines to determine whether or not to discontinue certain products. Discontinuing product lines may increase our profitability but could reduce our sales and hurt our brand, and a reduction in sales of certain products could result in a reduction in sales of other products. We cannot assure you that the discontinuation of product lines will not have an adverse effect on our business.
Ingredient and packaging costs are volatile and may rise significantly, which may negatively impact the profitability of our business.
We purchase large quantities of raw materials, including ingredients such as popcorn kernels, sunflower oil, seasonings and salt. In addition, we purchase and use significant quantities of film and corrugate to package our products. In recent periods, the prices of yellow corn (which impacts the price of popcorn kernels), sunflower oil and fuel have been priced below their respective historical five-year averages and we have realized some benefits from these low prices in the form of reduced cost of goods sold and resulting higher gross profit margins. Costs of ingredients and packaging are volatile and can fluctuate due to conditions that are difficult to predict, including global competition for resources, weather conditions, natural or man-made disasters, consumer demand and changes in governmental trade and agricultural programs. In particular, the availability, quality and cost of our specific type of popcorn kernels and sunflower oil are subject to risks inherent to farming, such as crop size, quality and yield fluctuations caused by poor weather and growing conditions, pest and disease problems and other factors beyond our control. Continued volatility in the prices of raw materials and other supplies we purchase could increase our cost of goods sold and reduce our profitability. We
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currently do not secure raw materials capacity and pricing for more than a year forward, nor do we hedge pricing or availability of any raw materials. As such, any material upward movement in raw materials pricing could negatively impact our margins, if we are not able to pass these costs on to our customers, or sales if we are forced to increase our prices. Additionally, should raw materials prices move meaningfully lower there is no guarantee our customers will not ask us to pass some or all of our savings on to them in the form of price reductions. If we are not successful in managing our ingredient and packaging costs, if we are unable to increase our prices to cover increased costs or if such price increases reduce our sales volumes, then such increases in costs will adversely affect our business, results of operations and financial condition.
Certain of our raw material contracts have minimum purchase commitments that could require us to continue to purchase raw materials even if our sales have declined. Future raw material prices may be impacted by new laws or regulations, suppliers allocations to other purchasers, interruptions in production by suppliers, natural disasters, volatility in the price of crude oil and related petrochemical products and changes in exchange rates.
Our future business, results of operations and financial condition may be adversely affected by reduced availability of our core ingredients.
Our ability to ensure a continuing supply of our core ingredients at competitive prices depends on many factors beyond our control, such as the number and size of farms that grow crops, the vagaries of these farming businesses (including poor harvests), changes in national and world economic conditions and our ability to forecast our ingredient requirements. The popcorn kernels and other ingredients used in our products are vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, frosts, earthquakes, hurricanes and pestilences. Adverse weather conditions and natural disasters can lower crop yields and reduce crop size and quality, which in turn could reduce the available supply of our core ingredients. In addition, we compete with other food producers in the procurement of ingredients, such as sunflower oil, which are often less plentiful in the open market than conventional ingredients. If supplies of our core ingredients are reduced or there is greater demand for such ingredients from us and others, we may not be able to obtain sufficient supply on favorable terms, or at all, which could impact our ability to supply products to distributors and retailers and may adversely affect our business, results of operations and financial condition.
Failure by our transportation providers to deliver our products on time or at all could result in lost sales.
We currently rely upon third-party transportation providers for a significant portion of our product shipments. Our utilization of delivery services for shipments is subject to risks, including increases in fuel prices, which would increase our shipping costs, and employee strikes and inclement weather, which may impact the ability of providers to provide delivery services that adequately meet our shipping needs. We may, from time to time, change third-party transportation providers, and we could therefore face logistical difficulties that could adversely affect deliveries. In addition, we could incur costs and expend resources in connection with such change. Moreover, we may not be able to obtain terms as favorable as those we receive from the third-party transportation providers that we currently use, which in turn would increase our costs and thereby adversely affect our operating results.
Severe weather conditions and natural disasters such as fires, floods, droughts, hurricanes, earthquakes and tornados can affect crop supplies, manufacturing facilities and distribution activities, and negatively impact the operating results of our business.
Severe weather conditions and natural disasters, such as fires, floods, droughts, frosts, hurricanes, earthquakes, tornados, insect infestations and plant disease, may affect the supply of raw materials on which we depend to make food products, or may curtail or prevent the manufacturing or
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distribution of food products by us. Competing manufacturers might be affected differently by weather conditions and natural disasters, depending on the location of their sources of supplies and manufacturing or distribution facilities. If supplies of raw materials available to us are reduced, we may not be able to find enough supplemental supply sources on favorable terms, which could adversely affect our business and operating results.
Risks Related to Our Brands
Changes in consumer preferences and discretionary spending may have a material adverse effect on our brand loyalty, net sales, results of operations and financial condition.
We compete in a market that relies on innovation and evolving consumer preferences. We focus on products that are or are perceived to be BFY, an industry term not defined by the Food and Drug Administration. However, the food processing industry in general, and the snacking and dietary-need specific industries (including the Kosher, major allergen-free and gluten-free industries) in particular, are subject to changing consumer trends, demands and preferences. Therefore, products once considered BFY may over time become disfavored by consumers or no longer perceived as BFY. Trends within the food industry change often and our failure to anticipate, identify or react to changes in these trends could, among other things, lead to reduced demand and price reductions, and could have a material adverse effect on our business, results of operations and financial condition. Factors that may affect consumer perception of BFY products include dietary trends and attention to different nutritional aspects of foods, concerns regarding the health effects of specific ingredients and nutrients, trends away from gluten-free or non-GMO products, trends away from specific ingredients in products and increasing awareness of the environmental and social effects of product production. Consumer perceptions of the nutritional profile of gluten-free and non-GMO products may shift, and consumers may perceive food products with fewer carbohydrates, higher levels of protein, lower levels of fat and additional fiber as BFY. Our success depends, in part, on our ability to anticipate the tastes and dietary habits of consumers and to offer products that appeal to their needs and preferences on a timely and affordable basis. A change in consumer discretionary spending, due to economic downturn or other reasons may have a material effect on sales. If consumer demand for our products declines, our sales and business would be negatively affected.
We may not be able to compete successfully in the highly competitive snack food industry.
The market for snack foods is large and intensely competitive. Competitive factors in the snack food industry include product quality and taste, brand awareness among consumers, access to supermarket shelf space, price, advertising and promotion, innovation of on-trend snacks, variety of snacks offered, nutritional content, product packaging and package design. We compete in that market principally on the basis of product taste and quality, but also brand recognition and loyalty, marketing, advertising, price and the ability to satisfy specific consumer dietary needs (including Kosher, major allergen-free and gluten-free needs) against numerous multinational, regional and local companies. Substantial advertising and promotional expenditures may be required to maintain or improve a brands market position or to introduce a new product to the market, and participants in our industry are engaging with new media, including consumer outreach through social media and web-based channels. Our ability to compete may be also dependent on whether our products are placed in the BFY snack aisle or in the traditional snack food aisle, or both. An increasing focus on BFY products in the marketplace will likely increase these competitive pressures within the category in future periods.
A substantial majority of sales in the snack food industry is concentrated among large food companies, including Frito-Lay, Inc., a subsidiary of PepsiCo, Inc., The Kellogg Company, ConAgra Foods, Inc., Diamond Foods, Inc., General Mills, Inc., Snyders-Lance, Inc. and others that have substantially greater financial and other resources than us and sell brands that are more widely recognized than ours. These and numerous other companies that are actual or potential competitors of ours, many of which have greater financial and other resources (including more employees and more
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extensive facilities) than us, offer products similar to ours or a wider range of products than we offer. Local or regional markets often have significant smaller competitors, many of whom offer products similar to ours and may have unique ties to regional or national retail chains. Additionally, many of our retail customers, such as Costco and Whole Foods, have historically emphasized private-label offerings across categories as a key part of their strategy and these customers may create or expand competitive RTE popcorn and tortilla chip private-label offerings. With expansion of our operations into new markets, we have and will continue to encounter significant competition from multinational, national, regional and local competitors that may be greater than that encountered by us in our existing markets. In addition, these competitors may challenge our position in our existing markets.
All of our sales involve the sale of BFY snack food products, which has various risks and uncertainties.
All of our sales involve the sale of products designed to be BFY snack food options. While BFY snack food products are currently popular and sales of such products have been increasing rapidly, consumers may not continue to be interested in BFY snack food products. Consumers may in the future choose to purchase other products that they perceive to be BFY or more trendy at a future time. Consumers may prefer products with fewer carbohydrates, higher levels of protein, lower levels of certain nutrients including fat, additional fiber or different nutritional characteristics that do not favor our products or RTE popcorn in general. In addition, our business could be adversely affected if larger, well-capitalized companies elect to either enter into the healthier snack food space or competed in irrational ways that could damage our margins, or if lower-priced private-label products gain market share. We also face the risk that competitors may significantly improve the taste and quality of the BFY snack foods they sell that are competitive with our products. Additionally, we face the risk our retail customers may request or require our products to deliver certain new on trend attributes in our products, which may either be impossible for us to achieve or cost prohibitive for us to deliver.
Our SkinnyPop brand and reputation as a producer of BFY products may be diminished due to real or perceived quality or health issues with our products or a change in consumers perception of what is BFY itself, which could have an adverse effect on our business and operating results.
We believe consumers of our products rely on us to provide them with high-quality, BFY food products containing no GMOs, gluten or major allergens. Concerns regarding the ingredients used in our products or the healthfulness, safety or quality of our products or our supply chain may cause consumers to stop purchasing our products, even if the basis for the concern is unfounded, has been addressed or is outside of our control. Although we believe we have a rigorous quality control process, there can be no assurance that our products will always comply with the standards we set for our products. Adverse publicity about the healthfulness, safety or quality of our products, whether or not ultimately based on fact, may discourage consumers from buying our products and have an adverse effect on our brand, reputation and operating results.
We have no control over our products once purchased by consumers. Accordingly, consumers may store our products for long periods of time, which may adversely affect the quality of our products. If consumers do not perceive our products to be of high quality, then the value of our brand would be diminished, and our business, results of operations and financial condition could be adversely affected.
Any loss of confidence on the part of consumers in the ingredients used in our products or in the safety and quality of our products may be difficult and costly to overcome. Any such adverse effect could be exacerbated by our position in the market as a purveyor of high-quality, BFY food products and may significantly reduce our brand value. Issues regarding the safety of any of our products, regardless of the cause, may have a substantial and adverse effect on our brand, reputation and operating results.
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Our SkinnyPop brand is of significant value and our brand and reputation may be diminished due to possible consumer disagreement with the use of the word Skinny on our product, differences in opinion as to what products are Skinny or increased negative connotation with the word Skinny. We may be subject to claims or litigation concerning our branding or labeling practices. Food product companies are, from time to time, subject to class actions lawsuits related their branding or labeling. In 2014, we settled one such lawsuit for a nominal amount. Related or similar claims or lawsuits may be brought against us in the future. Additionally, changes in applicable laws or regulations, or evolving interpretations thereof, could necessitate changes to our branding or labeling. While we have never claimed that SkinnyPop is a low fat product, the FDA and FTC currently have no definition of the word Skinny and could, in the future, define the term in a way that is not favorable to our existing product branding or labeling.
Consumers loyalty to our SkinnyPop brand may change due to factors beyond our control, which could have a material adverse effect on our business and operating results.
Our business currently depends in a large part on repeat purchases by the same consumers. We believe this purchasing pattern is indicative of brand loyalty. However, these consumers are under no obligation to continue to repeatedly purchase our product and could stop purchasing our product at any time. These consumers could cease purchasing our product for any number of reasons, some of which are beyond our control, including changing consumer trends, negative publicity regarding our brand, real or perceived quality or health issues with our products, a change in consumers perception of BFY, or the availability of lower priced alternative snack products, or for no reason at all. Erosion of our brand loyalty and the resulting decreased sales to consumers could have an adverse effect on our business and operating results.
We face competition in our business from generic or store branded RTE popcorn which may result in decreased demand for our products and pricing pressures.
We are subject to competition from companies, including from some of our customers, that either currently manufacture or are developing products directly in competition with our products. These generic or store-branded products may be a less expensive option for consumers than our products making it more difficult to sell our product. For example, Costco is well known for its Kirkland Signature brand, which offers high-quality products across a variety of categories at lower price points than many branded products. The development of Kirkland Signature products may cause Costco to decrease their orders of our products, require us to reduce the pricing of our products or drive Costco to change the shelf placement of our products in a detrimental way. Kroger, one of our largest customers, already competes with us through their Simple Truth RTE popcorn brand. Similarly, other large retail customers could follow similar private-label strategies. In future years, we may experience competition-induced pricing pressure from our customers due to such competition, which could have a material and adverse effect on our operating results.
If our brand or reputation is damaged, the attractive characteristics that we offer retailers may diminish, which could diminish the value of our platform.
We are currently an attractive brand for our customers because our products generate a high level of retail sales at a premium margin relative to their shelf space. This is due to both our premium price point and our sales velocity. If our brand or reputation is damaged for any reason, consumers may no longer be willing to pay a premium price for our products and we may no longer be able to generate a high sales velocity at our then-current prices. If we no longer offer these characteristics, customers may decrease their orders of our products and downgrade the in-store placement of our products, which could have an adverse effect on our business and platform.
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Risks Related to Our Business Generally
Our gross profit and Adjusted EBITDA margins may be impacted by a variety of factors, including but not limited to variations in raw materials pricing, retail customer requirements and mix, sales velocities and required promotional support.
We have operated our company with strong gross profit and Adjusted EBITDA margins as compared to other food and snacking companies. Our gross profit increased $41.5 million, or 127%, from $32.7 million for the year ended December 31, 2013 to $74.2 million for the Pro Forma Year Ended December 31, 2014 (Unaudited). While we expect our gross profit to increase in absolute dollars in future periods, we expect that our gross profit as a percentage of net sales will fluctuate and may decrease as a result of the competitive and other factors described herein. Our gross profit is impacted by a number of factors, including product pricing, raw material, labor, packaging and fuel costs. Should the competitive dynamic change in our industry (which could impact our margins through forces including but not limited to requiring us to alter our pricing strategy or requiring additional promotional activity), raw materials prices increase dramatically, or any of our customer relationships change materially, then we may not be able to continue to operate at our current margins. Additionally, should unforeseen events require our company to make significant and unplanned investments in additional infrastructure or marketing activities, our gross profit and Adjusted EBITDA margins could be materially reduced.
We may be subject to significant liability should the consumption of any of our products cause or be claimed to cause illness or physical harm.
We sell products for human consumption, which involves risks such as product contamination or spoilage, product tampering, other adulteration, mislabeling and misbranding. Under certain circumstances, we may be required to, or may voluntarily, recall or withdraw products. A widespread product recall or product withdrawal may negatively and significantly impact our sales and profitability for a period of time and could result in significant losses depending on the costs of the recall, the destruction of product inventory, product availability, competitive reaction and customer and consumer reaction. We may also be subject to claims or lawsuits resulting in liability for actual or claimed injuries, illness or death. Any of these events may result in a material adverse effect on our business. Even if a product liability claim or lawsuit is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or physical harm could adversely affect our reputation with existing and potential customers and consumers and our corporate and brand image. Moreover, claims or liabilities of this sort might not be covered by our insurance or by any rights of indemnity or contribution that we may have against others. We maintain product liability insurance in an amount that we believe to be adequate. However, we cannot be sure that we will not incur claims or liabilities for which we are not insured or that exceed the amount of our insurance coverage. A product liability judgment against us or a product recall could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity.
Litigation or legal proceedings could expose us to significant liabilities and have a negative impact on our reputation.
From time to time, we may be party to various claims and litigation proceedings. We evaluate these claims and litigation proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, we establish reserves, as appropriate. These assessments and estimates are based on the information available to management at the time and involve a significant amount of management judgment. Actual outcomes or losses may differ materially from our current assessments and estimates.
For example, in 2014, a putative class action lawsuit was filed against our Predecessor related to the compliance of its product labels with various state and federal laws. The case settled for a nominal amount and was later dismissed with prejudice in July 2014 after SkinnyPop Popcorn LLC updated its
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product labels. From time to time, we have received threats by plaintiffs attorneys to bring similar class action lawsuits related to other alleged product label claims, including relating to the BFY nature of our products. We would vigorously defend any threatened lawsuit if brought. Such a lawsuit or related or similar claims or lawsuits may be brought against us in the future and the cost of defending against any such claims could be significant. There is an additional risk that these types of suits may lead to consumer confusion, distrust and additional legal challenges for companies faced with them. Should we become subject to related or additional unforeseen lawsuits, including claims related to our products or their labeling or advertising, consumers may avoid purchasing our products or seek alternative products, even if the basis for the claims against us is unfounded. Additionally, adverse publicity about any lawsuit in which we are involved may further discourage consumers from buying our products. Any loss of confidence on the part of consumers in the truthfulness of our labeling or ingredient claims would be difficult and costly to overcome and may significantly reduce our brand value. Uncertainty as to the ingredients used in our products, regardless of the cause, may have a substantial and adverse effect on our brand and our business, results of operations and financial condition. In addition, some lawsuits have been filed against companies who make natural claims on their products. We make no natural claims on our products, but we do currently label our SkinnyPop products with No Artificial Anything.
We have also been a party to several claims and proceedings in both the US Patent and Trademark Office and federal court regarding competitors attempted or actual infringement of the SKINNYPOP trademark. Each of these proceedings has resulted in a resolution whereby the competitor has expressly acknowledged our exclusive trademark rights to use SKINNY with respect to popcorn products. In some instances, however, we have expressly acknowledged the competitors rights to the term SKINNY with respect to non-popcorn snack foods. Additional matters may continue to arise from time to time where other competitors use the term SKINNY to refer to their products, and we may or may not be able to assert our trademark rights based on the specific facts in each case. We will continue to monitor and address such facts on a case-by-case basis.
We may not be able to adequately protect our intellectual property and other proprietary rights that are material to our business.
Our ability to compete effectively depends in part upon protection of our rights in trademarks, trade dress, copyrights and other intellectual property rights we own or license. Our use of contractual provisions, confidentiality procedures and agreements, and trademark, copyright, unfair competition, trade secret and other laws to protect our intellectual property and other proprietary rights may not be adequate. We may not be able to preclude third parties from using the term SKINNY with respect to food or beverage products, and may not be able to leverage our branding beyond our current product offerings. Litigation may be necessary to enforce our intellectual property rights and protect our proprietary information, or to defend against claims by third parties that our products or our use of intellectual property infringe their intellectual property rights. Any litigation or claims brought by or against us could result in substantial costs and diversion of our resources. A successful claim of trademark, copyright or other intellectual property infringement against us could prevent us from providing our products, which could harm our business, financial condition or results of operations. In addition, a breakdown in our internal policies and procedures may lead to an unintentional disclosure of our proprietary, confidential or material non-public information, which could in turn harm our business, financial condition or results of operations.
We may not be successful in implementing our growth strategy, including without limitation, enhancing our brand recognition, increasing distribution of our products, attracting new consumers to our brands, and introducing new products and product extensions, either on a timely basis or at all.
Our future success depends in large part on our ability to implement our growth strategy, including without limitation, enhancing our brand recognition, increasing distribution of our products,
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attracting new consumers to our brands, driving repeat purchase of our products and introducing new products and product extensions. Our ability to implement our growth strategy depends, among other things, on our ability to develop new products, identify and acquire additional product lines and businesses, secure shelf space in grocery stores and supermarkets, increase customer awareness of our brands, enter into distribution and other strategic arrangements with third-party retailers and other potential distributors of our products and compete with numerous other companies and products. In late 2014 and early 2015, SkinnyPop achieved significant distribution gains with some of the largest U.S. retail chains, including Walmart, Target and CVS Pharmacy. We cannot provide assurances to you that these customers will achieve performances comparable to our more seasoned retail customers nor that we will continue to expand retail distribution by adding more retail locations or SKU varieties as we have done with several other key customers in the past. We also cannot assure you that we will be able to successfully implement our growth strategy and continue to maintain growth in our sales. If we fail to implement our growth strategy, our sales and profitability may be adversely affected.
We may be unable to successfully identify and execute or integrate acquisitions.
On April 17, 2015 we acquired Paqui, which we refer to in this prospectus as the Paqui Acquisition. In addition, we plan to selectively pursue acquisitions in the future, to continue to grow and increase our profitability. Our acquisition strategy is based on identifying and acquiring brands with products that complement our existing products and identifying and acquiring brands in new categories and in new geographies for purposes of expanding our platform of healthier snacks. However, although we regularly evaluate multiple acquisition candidates, we cannot be certain that we will be able to successfully identify suitable acquisition candidates, negotiate acquisitions of identified candidates on terms acceptable to us, or integrate acquisitions that we complete. Acquisitions involve numerous risks and uncertainties, including intense competition for suitable acquisition targets, which could increase prices and/or adversely affect our ability to consummate deals on favorable or acceptable terms, the potential unavailability of financial resources necessary to consummate acquisitions in the future, the risk that we improperly value and price a target, the potential inability to identify all of the risks and liabilities inherent in a target company notwithstanding our due diligence efforts, the diversion of managements attention from the operations of our business and strain on our existing personnel, increased leverage due to additional debt financing that may be required to complete an acquisition, dilution of our stockholders net current book value per share if we issue additional equity securities to finance an acquisition, difficulties in identifying suitable acquisition targets or in completing any transactions identified on sufficiently favorable terms and the need to obtain regulatory or other governmental approvals that may be necessary to complete acquisitions. In addition, any future acquisitions may pose risks associated with entry into new geographic markets, including outside the United States, distribution channels, lines of business or product categories, where we may not have significant or any prior experience and where we may not be as successful or profitable as we are in businesses and geographic regions where we have greater familiarity and brand recognition. Potential acquisitions may also entail significant transaction costs and require a significant amount of management time, even where we are unable to consummate or decide not to pursue a particular transaction.
In addition, even when acquisitions, such as the Paqui Acquisition, are completed, integration of acquired entities can involve significant difficulties, such as failure to achieve financial or operating objectives with respect to an acquisition, strain on our personnel, systems and operational and managerial controls and procedures, the need to modify systems or to add management resources, difficulties in the integration and retention of customers or personnel and the integration and effective deployment of operations or technologies, amortization of acquired assets (which would reduce future reported earnings), possible adverse short-term effects on cash flows or operating results, diversion of managements attention from the operations of our business, integrating personnel with diverse backgrounds and organizational cultures, coordinating sales and marketing functions and failure to obtain and retain key personnel of an acquired business. Failure to manage these acquisition growth risks could have an adverse effect on us.
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Our continued success depends to a large extent on our ability to innovate successfully and on a cost-effective basis.
The food industry and retailers in the grocery industry use new products as a way of creating excitement and variety of choices in order to attract consumers. Therefore, a key element of our growth strategy is to introduce new products and to successfully innovate our existing products and to keep up with changing consumer tastes and trends. Success in product development is affected by our ability to anticipate consumer preferences, to leverage our research and development capabilities, and to utilize our managements ability to launch new or improved products successfully and on a cost-effective basis. It is possible that we will be unable to develop new products to address consumer demands.
The development and introduction of new products requires substantial research and development and marketing expenditures, which we may be unable to recover if the new products do not achieve commercial success and gain widespread market acceptance. Product innovation may also result in increased costs resulting from the use of new manufacturing techniques, capital expenditures, new raw materials and ingredients, new product formulas and possibly new manufacturers. There may also be regulatory restrictions on the production and advertising of our new products, and our new products may cannibalize sales of our existing products. In addition, underperformance of new product launches would damage overall brand credibility with customers and consumers.
Further, new products may not achieve success in the marketplace, due to lack of demand, failure to meet consumer tastes or otherwise. If we are unsuccessful in our product innovation efforts and demand for our products declines, our business would be negatively affected.
Additionally, we do not have exclusive rights to the term SKINNY and therefore other companies in the food and beverage categories could use the term, which would inherently limit our ability to enter new categories with our anchor brand.
Slotting fees and customer charges or charge-backs for promotion allowances, cooperative advertising and damaged, undelivered or unsold food products may have a significant impact on our operating results and may disrupt our customer relationships.
Retailers in the grocery industry charge slotting fees for access to shelf space and often enter into promotional and advertising arrangements with manufacturers that result in the sharing of promotional and advertising costs among the retail customer, distributor or manufacturer. As the retail grocery industry has consolidated and become more competitive, retail customers have sought greater participation by manufacturers in cooperative promotional and advertising arrangements, and are more inclined to pass on unanticipated increases in promotional and advertising costs to manufacturers. Additionally, retailers are exhibiting a greater willingness to take deductions for damaged, undelivered and unsold products or to return unsold products to manufacturers. If we are charged significant and unanticipated promotional allowances or advertising charges by retail customers, or if our customers take substantial charge-backs or return material amounts of our products, the operating results and liquidity of our business could be harmed, perhaps substantially. Moreover, an unresolved disagreement with a retail customer concerning promotional allowances, advertising charges, charge-backs or returns could significantly disrupt or cause the termination of a customer relationship, immediately reducing our sales and liquidity. Because of the limited number of retail customers in the U.S. grocery market, the loss of even a single retail customer could have a long-term negative impact on our financial condition and net sales.
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Changes in retail distribution arrangements can result in the temporary loss of retail shelf space and disrupt sales of food products, causing our sales to fall.
From time to time, retailers change distribution centers that supply some of their retail stores. If a new distribution center has not previously distributed our products in that region, it may take time to get a retailers distribution center to begin distributing new products in its region. Even if a retailer approves the distribution of products in a new region, product sales may decline while the transition in distribution takes place. If we do not get approval to have our products offered in a new distribution region or if getting this approval takes longer than anticipated, our sales and operating results may suffer.
Fluctuations in our results of operations from quarter to quarter because of changes in our promotional activities may impact, and may have a disproportionate effect on, our overall financial condition and results of operations.
Our business is subject to quarterly fluctuations due to the timing of and demand for customer-driven promotional activities, which may have a disproportionate effect on our results of operations. Historically, we have offered a variety of sales and promotion incentives to our customers and to consumers, such as price discounts, consumer coupons, volume rebates, cooperative marketing programs, slotting fees and in-store displays. Our net sales are periodically influenced by the introduction and discontinuance of sales and promotion incentives. Reductions in overall sales and promotion incentives could impact our net sales and affect our results of operations in any particular fiscal quarter.
In addition, our net sales increased $76.6 million, or 138%, from $55.7 million for the year ended December 31, 2013 to $132.4 million for the Pro Forma Year Ended December 31, 2014 (Unaudited). While we expect our net sales to increase in absolute dollars in future periods, we expect that our net sales growth rate will not keep pace with our net sales growth rate in prior periods, due to the increasing cumulative size of the net sales base on which future growth rates will be measured.
Historical quarter-to-quarter and period-over-period comparisons of our sales and operating results are not necessarily indicative of future quarter-to-quarter and period-over-period results. You should not rely on the results of a single fiscal quarter or period as an indication of our annual results or our future performance.
Our future results of operations may be adversely affected by increased fuel costs.
Many aspects of our business have been, and may continue to be, directly affected by the rising cost of fuel. Increased fuel costs result in increased costs for the products and services we receive from our third-party providers including, but not limited to, increased distribution costs for our products and increased packaging costs. As the cost of doing business increases, we may not be able to pass these higher costs on to our customers and, therefore, any such cost increases may adversely affect our earnings. In addition, if fuel costs decline we may not benefit from these decreases because our customers may require us to pass on the benefit of lower prices to them.
Changes in the legal and regulatory environment could limit our business activities, increase our operating costs, reduce demand for our products or result in litigation.
The conduct of our businesses, including the production, storage, distribution, sale, display, advertising, marketing, labeling, health and safety practices, transportation and use of many of our products, are subject to various laws and regulations administered by federal, state and local governmental agencies in the United States, as well as to laws and regulations administered by government entities and agencies outside the United States in markets in which our products or components thereof (such as packaging) may be made, manufactured or sold. These laws and regulations and interpretations thereof may change, sometimes dramatically, as a result of a variety of factors, including political, economic or social events. Such changes may include changes in:
| food and drug laws (including FDA regulations); |
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| laws related to product labeling; |
| advertising and marketing laws and practices; |
| laws and programs restricting the sale and advertising of certain of our products; |
| laws and programs aimed at reducing, restricting or eliminating ingredients present in certain of our products; |
| laws and programs aimed at discouraging the consumption of products or ingredients or altering the package or portion size of certain of our products; |
| increased regulatory scrutiny of, and increased litigation involving, product claims and concerns regarding the effects on health of ingredients in, or attributes of, certain of our products; |
| state consumer protection and disclosure laws; |
| taxation requirements, including the imposition or proposed imposition of new or increased taxes or other limitations on the sale of our products; competition laws; |
| anti-corruption laws; |
| employment laws; |
| privacy laws; |
| laws regulating the price we may charge for our products; and |
| farming and environmental laws. |
New laws, regulations or governmental policy and their related interpretations, or changes in any of the foregoing, including taxes or other limitations on the sale of our products, ingredients contained in our products or commodities used in the production of our products, may alter the environment in which we do business and, therefore, may impact our operating results or increase our costs or liabilities.
Loss of our key management or other personnel, or an inability to attract and retain such management and other personnel, could negatively impact our business.
Our success is substantially dependent on the continued service of certain members of our senior management, including Thomas Ennis, our Chief Executive Officer, or CEO, and Brian Goldberg, our Chief Financial Officer, or CFO. These executives have been primarily responsible for determining the strategic direction of our business and for executing our growth strategy and are integral to our brand and culture, and the reputation we enjoy with suppliers, contract manufacturers, distributors, retailers and consumers. The loss of the services of any of these executives could have a material adverse effect on our business and prospects, as we may not be able to find suitable individuals to replace them on a timely basis, if at all. In addition, any such departure could be viewed in a negative light by investors and analysts, which may cause the price of our common stock to decline. We have employment agreements with our key senior executives, including our CEO, CFO and Jason Shiver, our Senior Vice President of Sales, and each of our Founders. However, we do not maintain key-person life insurance with respect to any of them. In 2016, we expect to pay the Founders approximately $25.3 million of which $11.5 million has been accrued as of March 31, 2015. The Founders employment agreements each expire on December 31, 2015.
Additionally, we also depend on our ability to attract and retain qualified personnel to operate and expand our business. If we fail to attract talented new employees, our business and results of operations could be negatively affected.
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As a result of our rapid growth over the past few years, we need to continue developing an infrastructure and workforce sufficient to meet the growing demands for our products.
We have experienced rapid growth in the past few years, which included growing our net sales from $55.7 million in 2013 to $132.4 million in 2014. Rapid growth involves various risks related to ensuring that our infrastructure and personnel are sufficient to meet the growing demand for our products. For example, we must seek to identify our personnel needs in light of expected demand for our products, and we will need to identify, recruit, train and retain qualified employees in order to serve this anticipated demand, in all areas of our operations. Because we may hire additional employees in order to meet potential future needs and to ensure that our sales growth does not outgrow our infrastructure, we may experience higher levels of costs of goods sold and general and administrative expense as we build this infrastructure. While we do not anticipate extensive management needs, as we grow, we may add additional layers of management, process and bureaucracy into our governing structure. In doing so, we risk losing qualified employees and members of management who were attracted to our entrepreneurial culture but who may not want to remain at a larger company.
In addition, with sales and demand growing rapidly, we need to ensure that we have sufficient manufacturing capacity, both internal capacity and manufacturing arrangements, to meet actual and potential demand for our products. This could require us to make significant capital expenditure investments in order to make sure we have sufficient manufacturing capacity. If growth does not materialize as planned, these large investments could increase our cost of goods sold without increasing our profitability.
There can be no assurance that we will be successful in all of these efforts, and any failure to maintain sufficient infrastructure and personnel will have an adverse effect on our ability to grow and improve our profitability.
A failure of our new enterprise resource planning, or ERP, system could impact our ability to operate our business, lead to internal control and reporting weaknesses and adversely affect our results of operations and financial condition.
We have recently implemented a new ERP system to provide for greater depth and breadth of functionality and effectively manage our business data, communications, supply chain, order entry and fulfillment, inventory and warehouse management and other business processes. A failure of our new system to perform as we anticipate may result in transaction errors, processing inefficiencies and sales losses, may otherwise disrupt our operations and materially and adversely affect our business, results of operations and financial condition and may harm our ability to accurately forecast sales demand, manage our supply chain and production facilities, fulfill customer orders and report financial and management information on a timely and accurate basis. In addition, due to the systemic internal control features within ERP systems, we may experience difficulties that may affect our internal control over financial reporting, which may create a significant deficiency or material weakness in our overall internal controls. The risks associated with a new ERP system are greater for us as a newly public company.
We have a limited operating history, and our historical and as adjusted and as further adjusted financial information is not necessarily representative of the results we may achieve in the future.
Through our Predecessor, we have been in operation since 2010. However, we only have two years of available audited consolidated financial statements. Our relatively limited available historical financial information does not necessarily reflect our future financial position, results of operations, or cash flows, and the occurrence of any of the risks discussed in this Risk Factors section, or any other event, could cause our future financial position, results of operations, or cash flows to materially differ from our historical and as adjusted and as further adjusted financial information. While we have been profitable in the past, we cannot assure you that our profits will continue, at a similar level or at all.
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We rely on information technology systems, and any inadequacy, failure, interruption or security breach of those systems may harm our ability to effectively operate our business.
We are dependent on various information technology systems, including, but not limited to, networks, applications and outsourced services in connection with the operation of our business. A failure of our information technology systems to perform as we anticipate could disrupt our business and result in transaction errors, processing inefficiencies and sales losses, causing our business to suffer. In addition, our information technology systems may be vulnerable to damage or interruption from circumstances beyond our control, including fire, natural disasters, systems failures, viruses and security breaches. Any such damage or interruption could have a material adverse effect on our business.
In addition, we sell our products over the internet through third-party websites, including those operated by Amazon.com. The website operations of such third parties may be affected by reliance on other third-party hardware and software providers, technology changes, risks related to the failure of computer systems through which these website operations are conducted, telecommunications failures, electronic break-ins and similar disruptions. Furthermore, the ability of our third-party partners to conduct these website operations may be affected by liability for online content and state and federal privacy laws.
Further, because of our rapid growth, we need to ensure that we have sufficient personnel to manage our growing IT infrastructure, and that our systems generate sufficient information and reports so that our management team can better anticipate future business needs. As we grow, we may decide in the future to install a new company-wide information technology system. Any future migration to a new company-wide information technology system would be costly and potentially disruptive to our business.
Our indebtedness could adversely affect our financial condition and ability to operate our company, and we may incur additional debt.
As of December 31, 2014 and March 31, 2015, we had outstanding indebtedness in the aggregate principal amount of $200 million and $197.5 million, respectively. In May 2015, in connection with our Third Amended Credit Facility and as part of the May 2015 Special Dividend, we increased our term loan borrowings by $7.5 million to a total of $205 million, net of principal payments made in the first quarter of $2.5 million, and our revolving facility by $17.5 million to a total of $25 million and made a revolving loan borrowing of $15 million. The proceeds of the additional borrowings were used to fund the May 2015 Special Dividend. Our credit agreement, or the Credit Agreement, with a syndicate of lenders led by Jefferies Finance LLC, is secured by substantially all of our assets.
Our debt level and the terms of our financing arrangements could adversely affect our financial condition and limit our ability to successfully implement our growth strategy. In addition, our ability to increase the uncommitted portion of our revolving facility may be limited by our debt level or other factors.
Our ability to meet our debt service obligations will depend on our future performance, which will be affected by the other risk factors described in this prospectus. For the year ended December 31, 2014, our actual interest expense was $4.3 million, for the Pro Forma Year Ended December 31, 2014 (Unaudited) our pro forma interest expense would have been $12.9 million and we expect our interest expense for the year ended December 31, 2015 to be approximately $11.5 million. In addition, we expect to use $10.2 million of cash to make principal payments in 2015. If we do not generate enough cash flow to pay our debt service obligations, we may be required to refinance all or part of our existing debt, sell our assets, borrow more money or raise equity. There is no guarantee that we will be able to take any of these actions on a timely basis, on terms satisfactory to us, or at all.
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Our outstanding indebtedness under the Credit Agreement bears interest at variable rates. If market interest rates increase, variable rate debt will create higher debt service requirements, which could adversely affect our cash flow.
The Credit Agreement governing our credit facility contains various covenants that impose restrictions on us that may affect our ability to operate our business if we fail to meet those covenants or otherwise suffer a default thereunder.
We are required to comply with certain financial maintenance covenants pursuant to the Credit Agreement as of the end of each fiscal quarter, including a total funded debt ratio and a minimum fixed charge coverage ratio. The Credit Agreement contains other negative incurrence-based covenants that, among other things, limit our ability to:
| borrow money or guarantee debt; |
| create liens; |
| make specified types of investments and acquisitions; |
| pay dividends on or redeem or repurchase stock; |
| enter into new lines of business; |
| enter into transactions with affiliates; and |
| sell assets or merge with other companies. |
Should we be in default under any of such covenants, Jefferies Finance LLC shall have the right, upon written notice and after the expiration of any applicable period during which such default may be cured, to demand immediate payment of all of the then-unpaid principal and accrued but unpaid interest under the Credit Agreement and would permit lenders to foreclose upon the collateral securing the debt. As of March 31, 2015, we believe that we were in compliance with all covenants of the Credit Agreement.
As we execute our business strategy, we may not be able to remain in compliance with our financial covenants because various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants. These restrictions on the operation of our business through the requirement that we meet certain ratios to take certain actions could harm us by, among other things, limiting our ability to take advantage of financing, merger and acquisition opportunities and other corporate opportunities. Additionally, any acceleration of the borrowings under the Credit Agreement prior to the applicable maturity dates could have a material adverse effect upon our business, financial condition and results of operations. See Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtedness.
To the extent we further grow our business outside of the United States and Canada, we will face risks associated with conducting business in foreign markets.
We currently conduct most of our business in the United States and Canada, but we are evaluating the possibility of doing business in certain other foreign countries. The substantial up-front investment required, the lack of consumer awareness of our products in jurisdictions outside of the United States and Canada, differences in consumer preferences and trends between the United States and Canada and other jurisdictions, the risk of inadequate intellectual property protections and differences in packaging, labeling, food and related laws, rules and regulations are all substantial matters that need to be evaluated prior to doing business in new territories. To the extent we grow our business outside of the United States and Canada, we could be adversely affected by economic, legal,
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political and regulatory developments in the countries in which we do business in the future or in which we expand our business, particularly those countries that have historically experienced a high degree of political or economic instability.
Examples of risks inherent in doing business outside of North America include changes in the political and economic conditions in the countries in which we operate, unexpected changes in regulatory requirements, changes in tariffs, the adoption of foreign or U.S. laws limiting exports to or imports from certain foreign countries, fluctuations in currency exchange rates and the value of the U.S. dollar, restrictions on repatriation of earnings, expropriation of property without fair compensation, weak protection of intellectual property rights and the acceptance of business practices that are not consistent with or are antithetical to prevailing business practices we are accustomed to in the United States, including export compliance and anti-bribery practices and governmental sanctions. We may also face difficulties in operations and diversion of management time in connection with establishing our business in countries where we have not operated before.
Doing business outside the United States requires us to comply with the laws and regulations of the U.S. government and various foreign jurisdictions, which place restrictions on our operations, trade practices, partners and investment decisions. In particular, our operations are subject to U.S. and foreign anti-corruption and trade control laws and regulations, such as the Foreign Corrupt Practices Act, or FCPA, export controls and economic sanctions programs, including those administered by the U.S. Treasury Departments Office of Foreign Assets Control, or OFAC. As a result of doing business in foreign countries and with foreign partners, we are exposed to a heightened risk of violating anti-corruption and trade control laws and sanctions regulations. The FCPA prohibits us from providing anything of value to foreign officials for the purposes of obtaining or retaining business or securing any improper business advantage. In addition, the United Kingdom Bribery Act, or the Bribery Act, extends beyond bribery of foreign public officials and also applies to transactions with individuals that a government does not employ. The provisions of the Bribery Act are also more onerous than the FCPA in a number of other respects, including jurisdiction, non-exemption of facilitation payments and penalties. Our continued expansion outside the United States, including in developing countries, and our development of new partnerships and joint venture relationships worldwide, could increase the risk of FCPA, OFAC or Bribery Act violations in the future. Violations of anti-corruption and trade control laws and sanctions regulations are punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts and revocations or restrictions of licenses, as well as criminal fines and imprisonment.
Period-to-period comparisons may not be meaningful given the Sponsor Acquisition of SkinnyPop by TA Associates in 2014 and may not be representative of our future performance.
Due to the Sponsor Acquisition, which was consummated on July 17, 2014, it may be difficult for you to compare our Predecessor and Successor financial results. The Sponsor Acquisition was accounted for utilizing acquisition method accounting, which resulted in new valuations for the assets and liabilities of SkinnyPop to their fair values on July 17, 2014. In addition, we are recognizing the Founder Contingent Compensation ratably over the 18 months after the date of completion of the Sponsor Acquisition. Accordingly, our historical financial information may be of limited use in evaluating our historical performance and comparing it to other periods. Additionally, due to the new valuations for the assets and liabilities of SkinnyPop, our Predecessor financial results may not be representative of our future performance. For example, for the year ended December 31, 2014, on an unaudited pro forma basis, our net income was $13.6 million, a 45% decrease from the year ended December 31, 2013.
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The pro forma financial information in this prospectus is presented for illustrative purposes only and does not represent what the results of operations of the combined company would have been had the Sponsor Acquisition, the December 2014 Special Dividend or the May 2015 Special Dividend occurred on January 1, 2014, the date assumed for purposes of that pro forma information, nor does it represent the actual financial position or results of operations of the combined company following the Sponsor Acquisition. In addition, the pro forma financial information does not give effect to this offering.
The pro forma financial information in this prospectus is derived from our consolidated results of operations giving pro forma effect to the Sponsor Acquisition, the December 2014 Special Dividend and the May 2015 Special Dividend described under Managements Discussion and Analysis of Financial Condition and Results of OperationsThe Sponsor Acquisition and Subsequent Financings, as if such transactions occurred on January 1, 2014. It is presented for illustrative purposes only and contains certain estimates and assumptions about the Sponsor Acquisition, the December 2014 Special Dividend and the May 2015 Special Dividend. It does not give effect to this offering, particularly the impact of the tax receivable agreement. The preparation of this pro forma financial information is based on certain assumptions and estimates that we believe are reasonable. Our assumptions may prove to be inaccurate over time and may be affected by other factors. Accordingly, the pro forma financial information may not reflect what our results of operations, financial positions and cash flows would have been had the Sponsor Acquisition, the December 2014 Special Dividend or the May 2015 Special Dividend, respectively, occurred during the periods presented or what our results of operations, financial positions and cash flows will be in the future. The pro forma information contained in this prospectus is based on adjustments that our management believes are reasonable. Our estimate of these adjustments and allocation may differ from actual amounts that we report in the future.
The summary statement of income data for the year ended December 31, 2012 and the selected consolidated financial data as of and for the year ended December 31, 2012, or collectively, the Unaudited 2012 Financial Data, presented in this prospectus was not audited and investors are cautioned not to place undue reliance on such data.
The Unaudited 2012 Financial Data included in this prospectus was based on our unaudited consolidated financial statements that are not included in this prospectus. This financial data was not audited for any period and was not subject to adjustments or procedures, closing or otherwise. The Unaudited 2012 Financial Data included in this prospectus involves estimates, assumptions and judgments and is based on the Predecessors books and records and may not reflect what our results of operations would have been had the consolidated financial statements for the relevant periods been audited. The Unaudited 2012 Financial Data could materially vary from the results of operations had they been audited. Investors are cautioned not to place undue reliance on the Unaudited 2012 Financial Data.
Our tax receivable agreement will require us to make cash payments to the former holders of units in Topco in respect of certain tax benefits to which we may become entitled, and we expect that the payments we will be required to make will be substantial.
In connection with the consummation of the Corporate Reorganization, which will occur immediately prior to the consummation of this offering, we will enter into a tax receivable agreement with the former holders of units of Topco. Pursuant to the tax receivable agreement, we will be required to make cash payments to the former holders of units of Topco equal to 85% of the tax benefits, if any, that we actually realize, or in some circumstances are deemed to realize, as a result of certain tax attributes that were generated when SkinnyPop was acquired by affiliates of TA Associates in July 2014. The amount of the cash payments that we may be required to make under the tax receivable agreement is expected to be significant. Assuming no material changes in the relevant tax law and that we earn sufficient taxable
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income to realize all tax benefits that are subject to the tax receivable agreements, we expect that the reduction in tax payments for us associated with the federal, state and local tax benefits described above would aggregate to approximately $112.4 million through 2030. Under such scenario we would be required to pay the holders of existing units in Topco 85% of such amount, or $95.5 million through 2030. Payments under the tax receivable agreement may vary from the foregoing estimates and will be based on the tax reporting positions that we determine, which tax reporting positions will be based on the advice of our tax advisors. Any payments made by us to former holders of units of Topco under the tax receivable agreement will generally reduce the amount of overall cash flow that might have otherwise been available to us. If the Internal Revenue Service, or IRS, were to successfully challenge the tax benefits that give rise to any payments under the tax receivable agreement, our future payments under the tax receivable agreement to the former holders of units of Topco would be reduced by the amount of such payments, but the tax receivable agreement does not require the former holders of units of Topco to reimburse us for the amount of such payments to the extent they exceed any future amounts payable under the tax receivable agreement. Our obligation to make timely payments under the tax receivable agreement is not conditioned upon, and will not be modified based upon, our historical net income for any previous period or our ability to generate net income in any future period. If, however, we fail to make any payments on a timely basis under the tax receivable agreement because we do not have sufficient funds to make such payment despite using reasonable best efforts to obtain funds to make such payment (including by causing our subsidiaries to distribute or lend funds to us for such payment and accessing any sources of available credit to fund such payment), such failure will not be deemed to be a breach of a material obligation under the tax receivable agreement that would give rise to an acceleration of our payment obligations under the agreement. To the extent that we are unable to make timely payments under the tax receivable agreement for this or any other reason, the unpaid amounts will be deferred and will accrue interest until paid by us. Furthermore, our future obligation to make payments under the tax receivable agreement could make us a less attractive target for an acquisition, particularly in the case of an acquirer that cannot use some or all of the tax benefits that may be deemed realized under the tax receivable agreement. Unless earlier terminated in accordance with its terms, the tax receivable agreement will continue in force and effect until there is no further potential for tax benefit payments to be made by us to the former holders of existing units in Topco in respect of the U.S. federal, state and local tax benefits that are the subject of such agreement. Based on current tax rules and regulations as of the date of this prospectus, we would expect the potential for tax benefit payments to cease no later than 2030 (or approximately fifteen years after the date of this offering). For more information, see Certain Relationships and Related Party TransactionsTax Receivable Agreement.
Disruptions in the worldwide economy may adversely affect our business, results of operations, and financial condition.
Adverse and uncertain economic conditions may impact distributor, retailer and consumer demand for our products. In addition, our ability to manage normal commercial relationships with our suppliers, contract manufacturers, distributors, retailers, consumers and creditors may suffer. Consumers may shift purchases to lower-priced or other perceived value offerings during economic downturns, making it more difficult to sell our premium products. During economic downturns, it may be more difficult to convince consumers to switch to our brands or convince new users to choose our brands without expensive sampling programs and price promotions. In particular, consumers may reduce the amount of products with no GMOs, gluten, or preservatives that they purchase when there are conventional offerings of similar products, which generally have lower retail prices. In addition, consumers may choose to purchase private-label products rather than branded products because they are generally less expensive. Distributors and retailers may become more conservative in response to these conditions and seek to reduce their inventories. For example, during the economic downturn from 2007 through 2009, distributors and retailers significantly reduced their inventories. Our results of operations depend upon, among other things, our ability to maintain and increase sales volume with
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our existing distributors and retailers, to attract new consumers and to provide products that appeal to consumers at prices they are willing and able to pay. Prolonged unfavorable economic conditions may have an adverse effect on our sales and profitability.
An impairment of goodwill could materially adversely affect our net income.
We have significant goodwill, which amounted to 0% and 13.5% of our total assets as of December 31, 2013 and 2014, respectively. Goodwill represents the excess of the purchase price over the fair value of the assets acquired and the liabilities assumed. In accordance with GAAP, we first assess qualitative factors to determine whether it is more likely than not that the fair value of our sole reporting unit is less than its carrying amount as a basis to determine whether it is necessary to perform the two-step goodwill impairment test, which we perform annually in the fourth fiscal quarter and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Future events that may trigger impairment include, but are not limited to, significant adverse change in customer demand, the business climate or a significant decrease in expected cash flows. When impaired, the carrying value of goodwill is written down to fair value. In the event that an impairment to goodwill is identified, an immediate charge to earnings would be recorded, which would adversely affect our operating results. See Managements Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting Policies and EstimatesGoodwill and Intangible Assets.
We rely on sales agents for our products and there could be a disruption in our ability to sell products to our customers if our relationship with a major sales agent is terminated.
We are represented by 20 agents who represent almost all of our product line to supermarkets and food stores. There are a very limited number of national sales agents in the snack food industry. Our agreements with these agents are terminable by either us or them after satisfaction of a short notice period. The termination of these agreements would require us to seek other sales agents, likely causing significant disruption to our business, and could affect our relationships with our customers. New sales agents would also potentially face conflicts of interest with respect to their existing customers.
A determination that the employees of our current third-party manufacturer or any future third-party co-manufacturers constitute our employees could have a material adverse effect on us.
We currently outsource the manufacturing of all of our products to a third-party co-manufacturer and we expect that we will continue to outsource the manufacturing of all of our products to one or more third-party manufacturers in the future. We do not consider employees of these third-party manufacturers to be our employees. As such, we do not withhold federal or state income or other employment related taxes, make federal or state unemployment tax or Federal Insurance Contributions Act payments, provide workers compensation insurance or other employee-related benefits with respect to these manufacturers employees. Recently, there has been an increase in litigation against companies across industries claiming that certain individuals associated with outsourced business functions should be considered employees. Although we are not unique in our outsourcing of certain aspects of our business, such as manufacturing operations, to third parties, there is a risk that such claims may be brought against us. This risk would be increased to the extent that any of the employees of our third-party manufacturers work exclusively on the manufacture of our products. In the event of a determination by a court, federal or state taxing authorities or other relevant governmental authorities that the employees of our third-party manufacturers constitute our employees, we may be adversely affected and subject to retroactive taxes and penalties.
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Risks Related to Ownership of Our Common Stock and this Offering
Our stock price may be volatile or may decline regardless of our operating performance, and you may lose part or all of your investment.
The market price of our common stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including:
| market conditions or trends in the BFY packaged food industry or in the economy as a whole; |
| actions by competitors; |
| actual or anticipated growth rates relative to our competitors; |
| the publics response to press releases or other public announcements by us or third parties, including our filings with the Securities and Exchange Commission, or SEC; |
| economic, legal and regulatory factors unrelated to our performance; |
| any future guidance we may provide to the public, any changes in such guidance or any difference between our guidance and actual results; |
| changes in financial estimates or recommendations by any securities analysts who follow our common stock; |
| speculation by the press or investment community regarding our business; |
| litigation; |
| changes in key personnel; and |
| future sales of our common stock by our officers, directors and significant stockholders. |
In addition, the stock markets, including the NYSE, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were involved in securities litigation, we could incur substantial costs and our resources and the attention of management could be diverted from our business.
Future sales of our common stock, or the perception in the public markets that these sales may occur, may depress our stock price.
The market price of our common stock could decline significantly as a result of sales of a large number of shares of our common stock in the market following this initial offering. These sales, or the perception that these sales might occur, could depress the market price of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. See Shares Eligible for Future Sale.
In connection with this offering, we, our directors, certain of our executive officers and the selling stockholders have each agreed to certain lock-up restrictions. We and they, subject to certain exceptions, will not be permitted to dispose of or hedge any shares of our common stock for 180 days (subject to extension) after the date of this prospectus, except as discussed in Shares Eligible for Future Sale, without the prior consent of the representatives. The representatives may, in their sole discretion, release all or any portion of the shares of our common stock from the restrictions in any of the lock-up agreements described above. See Underwriting.
Also, in the future, we may issue shares of our common stock in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock.
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Concentration of ownership among our existing executive officers, directors and principal stockholders, and our stockholders agreement with TA Associates, may prevent new investors from influencing significant corporate decisions.
Upon the consummation of this offering, our selling stockholders will own, in the aggregate, approximately % of our outstanding common stock (or approximately % if the underwriters exercise their option to purchase additional shares). As a result, these stockholders will be able to exercise significant control over all matters requiring stockholder approval, including the election of directors, amendment of our amended and restated certificate of incorporation and approval of significant corporate transactions and will have significant control over our management and policies. This concentration of influence could be disadvantageous to other stockholders with interests different from those of the selling stockholders. As a result of these ownership positions, these stockholders could take actions that have the effect of delaying or preventing a change in control of us or discouraging others from making tender offers for our shares, which could prevent stockholders from receiving a premium for their shares. These actions may be taken even if other stockholders oppose them. The concentration of voting power held by the selling stockholders may have an adverse effect on the price of our common stock. The interests of these stockholders may not be consistent with your interests as a stockholder.
In addition, we and entities affiliated with TA Associates intend to enter into a stockholders agreement in connection with this offering, which we refer to as our stockholders agreement. Under our stockholders agreement, TA Associates will have the right to designate three of the members of our board of directors if TA Associates owns at least 50% or more of the shares they hold immediately following the consummation of this offering regardless of the percentage such shares represent of our total outstanding shares, two members of our board of directors if TA Associates owns between 25% and 50% of the shares they hold immediately following the consummation of this offering regardless of the percentage such shares represent of our total outstanding shares and one member of our board of directors if TA Associates owns between 12.5% and 25% of the shares they hold immediately following the consummation of this offering regardless of the percentage such shares represent of our total outstanding shares.
Our stockholders agreement will also provide that so long as the entities affiliated with TA Associates hold at least 25% of the shares they hold immediately following the consummation of this offering regardless of the percentage such shares represent of our total outstanding shares, we, and our subsidiaries, shall not take the following actions (or enter into an agreement to take such actions) without the approval of at least one director designated by TA Associates:
| increase or decrease the authorized number of members of our board of directors; |
| amend our amended and restated certificate of incorporation or amended and restated bylaws or the organizational documents of any of our subsidiaries; |
| issue, create or assume any debt or equity security or debt obligation, or refinance, repurchase or prepay any security (other than repurchases of our common stock in accordance with agreements previously approved by our board of directors, including at least one director designated by TA Associates) or debt obligation; |
| pay or declare any dividend or make any distribution on, or repurchase or redeem shares of our common stock (other than repurchases of our common stock in accordance with agreements previously approved by our board of directors, including at least one director designated by TA Associates); |
| effect any sale, liquidation or dissolution of the Company, or sell, transfer or otherwise dispose of any of the material assets or properties of the Company or any of its subsidiaries, or merge with or into, or consolidate with, another entity or effect any recapitalization, reorganization, change of form of organization, forward or reverse split, dividend or similar transaction; |
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| acquire any business, material assets or property for consideration in excess of $15,000,000, whether by acquisition of assets, capital stock or otherwise, and whether in consideration of the payment of cash, the issuance of capital stock or otherwise or make any investment in any person or entity in an amount in excess of $15,000,000 |
| hire or terminate any our executive officers, or enter into, amend or modify, or waive any material term of any employment agreement or material term of employment with any of our executive officers; or |
| take any action to initiate, to cause or that would result in, the voluntary bankruptcy, insolvency, dissolution, liquidation or winding up of the Company or any of its subsidiaries. |
None of the proceeds from the sale of shares of common stock by the selling stockholders in this offering will be available to fund our operations or to pay dividends.
We will not receive any proceeds from the sale of shares of common stock by the selling stockholders in this offering. The selling stockholders, which are investment funds and entities affiliated with TA Associates and other holders of existing units in Topco to be identified in this prospectus, will receive all proceeds from the sale of shares. Consequently, none of the proceeds from such sale will be available to fund our operations, capital expenditures or acquisition opportunities or to pay dividends. See Use of Proceeds and Principal and Selling Stockholders.
We identified a material weakness in connection with our 2014 audit. If we fail to remediate that material weakness and otherwise establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, it could have a material adverse effect on our business and stock price.
As a public company, we will be required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which will require, beginning with our Annual Report on Form 10-K for the year ended December 31, 2016, annual management assessments of the effectiveness of our internal control over financial reporting. Additionally, as of the later of the filing of such Annual Report and the date we are no longer an emerging growth company we will require a report by our independent registered public accounting firm that addresses the effectiveness of our internal control over financial reporting. During the course of our testing, we may identify deficiencies that we may not be able to remediate in time to meet our deadline for compliance with Section 404.
Testing and maintaining internal control can divert our managements attention from other matters that are important to the operation of our business. We also expect the regulations to increase our legal and financial compliance costs, make it more difficult to attract and retain qualified executive officers and members of our Board, particularly to serve on our audit committee, and make some activities more difficult, time-consuming and costly. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 and, when applicable to us, our independent registered public accounting firm may not be able or willing to issue an unqualified report on the effectiveness of our internal control over financial reporting. If we conclude that our internal control over financial reporting is not effective, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or their effect on our operations because there is presently no precedent available by which to measure compliance adequacy.
In connection with the 2014 audit of our financial statements, we identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on
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a timely basis. This material weakness related to our presentation and classification of certain promotional obligations in the consolidated financial statements as well as our accounting for pricing concessions. We are in the process of developing a remediation plan with respect to the tracking of demonstration expenses and pricing concessions along with developing and evaluating our other internal controls.
We cannot predict the success of remediation plan or the outcome of our review at this time. During the course of the review, we may identify additional control deficiencies, which could give rise to other material weaknesses in addition to the one previously identified. We may also find that our previous and planned remediation measures have not been successful to the extent we expected, if at all. As a result, our ability to report our financial results on a timely and accurate basis may be adversely affected, we may be subject to sanctions or investigations by regulatory authorities, and investors may lose confidence in our financial information, which in turn could adversely affect the market price of our common stock.
Our costs will increase significantly as a result of operating as a public company, and our management will be required to devote substantial time to complying with public company regulations.
As a public company with SEC reporting, regulatory and stock exchange listing requirements, we will incur additional legal, accounting, compliance and other expenses that we have not incurred historically. After the consummation of this offering, we will be obligated to file with the SEC annual and quarterly information and other reports that are specified in Section 13 and other sections of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and therefore will need to have the ability to prepare consolidated financial statements that are compliant with all SEC reporting requirements on a timely basis. In addition, we will be subject to other reporting and corporate governance requirements, including certain requirements of the and certain provisions of Sarbanes-Oxley and the regulations promulgated thereunder, which will impose significant compliance obligations upon us.
We are an emerging growth company, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an emerging growth company, or EGC, as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price may be more volatile.
Although the JOBS Act permits an EGC such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies, we are choosing to opt out of this provision, and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
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If securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if our operating results do not meet the expectations of the investor community, one or more of the analysts who cover our company may change their recommendations regarding our company, and our stock price could decline.
Provisions of our amended and restated certificate of incorporation, amended and restated bylaws, our stockholders agreement and the General Corporation Law of the State of Delaware could prevent an acquisition or other change in control of our Company that may be beneficial to our stockholders.
Our amended and restated certificate of incorporation, amended and restated bylaws and provisions of the General Corporation Law of the State of Delaware, or the DGCL, to which we are subject contain provisions that could discourage, delay, or prevent a change in control of our Company or changes in our board of directors and management that the stockholders of our Company may deem advantageous.
After this offering, for as long as TA Associates continues to own a substantial number of shares of our common stock, representing a substantial number of votes entitled to be cast by holders of our common stock, it will have the ability to control decisions regarding an acquisition of us by a third party that are subject to a vote of our stockholders. In addition, our stockholders agreement will provide that so long as the entities affiliated with TA Associates hold at least 25% of the shares they hold immediately following the consummation of this offering regardless of the percentage such shares represent of our total outstanding shares, we, and our subsidiaries, shall not, without the approval of at least one director designated by TA Associates, amend our amended and restated certificate of incorporation or amended and restated bylaws or effect any sale, liquidation or dissolution of the Company, or sell, transfer or otherwise dispose of any of the material assets or properties of the Company or any of its subsidiaries. Accordingly, even though TA Associates may own a small percentage of our total outstanding shares of our common stock, they will continue to have substantial influence on our business and strategy. For more information, see Certain Relationships and Related Party TransactionsStockholders Agreement.
In addition, our amended and restated certificate of incorporation, amended and restated bylaws and the DGCL contain provisions that could make it more difficult for a third party to acquire us without the consent of our board of directors. These provisions include a classified board of directors with each class serving three-year staggered terms, restrictions on the ability of our stockholders to remove directors, the inability of our stockholders to fill vacancies on our board of directors, in certain instances supermajority voting requirements for stockholders to amend our amended and restated certificate of incorporation and amended and restated bylaws, prohibition on action by our stockholders by written consent, advance notice requirements for stockholder proposals and director nominations, and the inability of our stockholders to call special meetings of stockholders. In addition, our board of directors has the right to issue preferred stock without stockholder approval, which could be used to dilute the stock ownership of a potential hostile acquirer. Moreover, we will be subject to the restrictions on business combinations set forth in Section 203 of the DGCL, which generally will prohibit us from engaging in a business combination with a person who owns in excess of 15% of our outstanding voting stock for a period of three years after the time of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless, among other exceptions, the transaction is approved in a prescribed manner. Although we believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics and thereby provide for an opportunity to receive a higher
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bid by requiring potential acquirers to negotiate with our board of directors, these provisions apply even if the offer may be considered beneficial by some stockholders. See Description of Capital Stock.
Futures sales or other issuances of our common stock or issuances of securities convertible into our common stock would result in dilution to our stockholders and could adversely impact the market price of our common stock.
As of , 2015, and assuming the consummation of the Corporate Reorganization and the associated exchange or conversion of units of Topco for shares of our common stock or restricted stock, as applicable, we had outstanding 75,000,000 shares of our common stock and shares of our restricted stock. In the future we may sell additional shares of our common stock or securities convertible into our common stock to raise capital or issue additional shares of our common stock or securities convertible into our common stock as consideration for future acquisitions, which would dilute the voting power and ownership percentage of our stockholders. In addition, we have a substantial number of shares of restricted stock that is subject to additional vesting, and the vesting of such shares will result in additional dilution of the voting power and ownership percentage of our stockholders. We cannot predict the size of future issuances of our common stock or securities convertible into our common stock or the effect, if any, that such future issuances might have on the market price for our common stock. The issuance and sale of substantial amounts of our common stock or securities convertible into our common stock, or the perception that such issuances and sales may occur, could also materially and adversely affect the market price of our common stock and impair our ability to raise capital through the issuance of additional equity securities.
No trading market currently exists for our common stock. We cannot assure you that an active trading market will develop for our common stock.
There currently is no public market for shares of our common stock. We cannot predict the extent to which investor interest in our Company will lead to the development of a trading market on the NYSE or otherwise, or how liquid that market might be. If an active market does not develop, you may have difficulty selling your shares of our common stock. The initial public offering price for our common stock has been determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following the consummation of this offering.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as may, will, should, expects, plans, anticipates, could, intends, target, projects, contemplates, believes, estimates, predicts, potential or continue or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:
| our future financial performance, including our net sales, cost of goods sold, gross profit or gross profit margin, operating expenses, ability to generate positive cash flow and ability to achieve and maintain profitability; |
| our ability to maintain, protect and enhance our brands; |
| our ability to attract and retain customers; |
| the sufficiency of our cash and cash equivalents to meet our liquidity needs and service our indebtedness; |
| our ability to produce sufficient quantities of our products to meet demands; |
| demand fluctuations for our products; |
| our ability to successfully innovate and compete in the food industry; |
| changing trends, preferences and tastes in the food industry; |
| our ability to successfully expand in our existing markets and into new U.S. and international markets; |
| worldwide economic conditions and their impact on consumer spending; |
| our expectations concerning relationships with third parties; |
| our ability to effectively manage our growth and future expenses; |
| future acquisitions of or investments in complementary companies or products; |
| changes in regulatory requirements in our industry and our ability to comply with those requirements; and |
| the attraction and retention of qualified employees and key personnel. |
We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in Risk Factors and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
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The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
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The diagram below depicts our organizational structure immediately prior to the consummation of this offering:
Topco (TA Topco 1, LLC)
Currently, the capital structure of Topco consists of four classes of membership units: (i) Class A Units, or preferred units, (ii) Class B Units, or common units, (iii) Class C-1 Units, which are profit interests and (iv) Class C-2 Units, which are profit interests (together with the Class C-1 Units, the Class C Units). Topco is the ultimate parent company of SkinnyPop Popcorn LLC, or SkinnyPop, which is the current operating company for our business operations. Topco owns 100% of the capital stock of Amplify Snack Brands, Inc., and Amplify Snack Brands, Inc. owns 100% of the membership units in SkinnyPop.
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The Corporate Reorganization
Immediately prior to the consummation of this offering, a series of related reorganization transactions will occur in the following sequence:
| Topco will liquidate in accordance with the terms and conditions of Topcos existing limited liability company agreement. We refer to this transaction in this prospectus as the Topco Liquidation. The holders of existing units in Topco will receive, as a result of the Topco Liquidation, 100% of the capital stock of the Company. The capital stock of the Company will be allocated to such unit holders pursuant to the distribution provisions of the existing limited liability company agreement of Topco based upon the liquidation value of Topco, assuming it was liquidated at the time of this offering with a value implied by the initial public offering price of the shares of common stock to be sold in this offering. Topco will cease to exist following the Topco Liquidation. |
| The Company will enter into a tax receivable agreement with the former holders of existing units in Topco pursuant to which such holders will receive the right to future payments from Amplify Snack Brands, Inc. See Tax Receivable Agreement. |
We refer to the foregoing transactions, collectively, as the Corporate Reorganization.
Immediately following the Corporate Reorganization, the selling stockholders identified in this prospectus will offer shares of common stock of Amplify Snack Brands, Inc. to the public pursuant to the terms of the offering described in this prospectus (or shares of common stock if the underwriters exercise in full their option to purchase additional shares of common stock from the selling stockholders). The holders of existing units in Topco, including the selling stockholders, will have the right to receive future payments pursuant to that certain tax receivable agreement described below in Tax Receivable Agreement. New investors in this offering will not receive the right to receive any future payments pursuant to the tax receivable agreement.
As a result of the Corporate Reorganization and the subsequent consummation of the offering described in this prospectus:
| investors in this offering will collectively own shares of common stock of Amplify Snack Brands, Inc. (or shares of common stock if the underwriters exercise in full their option to purchase additional shares of common stock from the selling stockholders identified in this prospectus); and |
| existing holders of units in Topco will collectively own shares of common stock of Amplify Snack Brands, Inc. (or shares of common stock if the underwriters exercise in full their option to purchase additional shares of common stock from the selling stockholders identified in this prospectus). |
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The diagram below depicts our organizational structure immediately following the consummation of this offering:
Tax Receivable Agreement
Pursuant to the tax receivable agreement to be entered into immediately prior to the consummation of this offering, the former holders of existing units in Topco will receive the right to future payments equal to 85% of the U.S. federal, state and local tax benefits realized by us and our subsidiaries from the utilization of certain tax attributes that were generated when SkinnyPop was acquired by affiliates of TA Associates in July 2014. Amplify Snack Brands, Inc. will retain approximately 15% of the U.S. federal, state and local tax benefits realized from the utilization of such tax attributes. Unless earlier terminated in accordance with its terms, the tax receivable agreement will continue in force and effect until there is no further potential for tax benefit payments to be made by us to the former holders of existing units in Topco in respect of the U.S. federal, state and local tax benefits that are the subject of the agreement. Based on current tax rules and regulations as of the date of this prospectus, we would expect the potential for tax benefit payments to cease no later than 2030 (or approximately fifteen years after the date of this offering).
The amount payable to the holders of existing units in Topco under the tax receivable agreement will be based on an annual calculation of the reduction in our U.S. federal, state and local taxes resulting from the utilization of these tax attributes. For purposes of determining the reduction in taxes resulting from the utilization of pre-IPO tax attributes, we will be required to assume that pre-IPO tax attributes are utilized before any other attributes. We expect that the payments that we may make under the tax receivable agreement may be substantial. In addition, if the IRS were to successfully challenge the tax benefits that give rise to any payments under the tax receivable agreement, our future payments under the tax receivable agreement to the former holders of units of Topco would be
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reduced by the amount of such payments, but the tax receivable agreement does not require the former holders of units of Topco to reimburse us for the amount of such payments to the extent they exceed any future amounts payable under the tax receivable agreement.
Payment under the tax receivable agreement may be accelerated in the event of certain mergers, stock or asset sales, other forms of combinations or other changes of control or upon a breach by us of our material obligations under the tax receivable agreement (such as by failing to make a payment within three months of the date on which such payment is due). Such accelerated payment would be based on the present value of projected future payments under the tax receivable agreement as of the date of the accelerating event. Such projected future payments could differ from the payments that would otherwise have resulted under the tax receivable agreement from our actual tax benefits realized from utilizing the pre-IPO tax attributes.
Our obligation to make timely payments under the tax receivable agreement is not conditioned upon, and will not be modified based upon, our historical net income for any previous period or our ability to generate net income in any future period. If, however, we fail to make any payments on a timely basis under the tax receivable agreement because we do not have sufficient funds to make such payment despite using reasonable best efforts to obtain funds to make such payment (including by causing our subsidiaries to distribute or lend funds for such payment and accessing any sources of available credit to fund such payment), such failure will not be deemed to be a breach of a material obligation under the tax receivable agreement that would give rise to an acceleration of our payment obligations under the agreement. To the extent that we are unable to make timely payments under the tax receivable agreement for this or any other reason, the unpaid amounts will be deferred and will accrue interest until paid by us.
The form of tax receivable agreement is filed as an exhibit to the registration statement of which this prospectus is a part.
Treatment of Outstanding Equity Awards of Topco
In connection with the Corporate Reorganization, all of the outstanding equity awards (which are currently comprised of Class C units of Topco consisting of C-1 units and C-2 units) that have been granted under the TA Topco 1, LLC 2014 Equity Incentive Plan will be converted into shares of the common stock and restricted stock of Amplify Snack Brands, Inc. The portion of the outstanding Class C units that have vested as of the consummation of the Corporate Reorganization will be converted into shares of our common stock and the remaining portion of unvested outstanding Class C units will be converted into shares of Amplify Snack Brands restricted stock, which will be granted under our 2015 Plan. As a result, we will grant shares of common stock and restricted stock to current awardees under the 2015 Plan in connection with the Corporate Reorganization. The shares of restricted stock will be subject to time-based vesting conditions, in accordance with the terms and conditions of the Class C units from which such shares are converted.
Holding Company Structure
Following the consummation of the Corporate Reorganization, Amplify Snack Brands, Inc. will be a holding company, and its sole material asset will be 100% of the membership units in SkinnyPop. As the sole and managing member of SkinnyPop, the Company will operate and control all of the business and affairs of SkinnyPop, Paqui and any other subsidiaries of the Company, through which we conduct our business. The Company will consolidate the financial results of its subsidiaries, including SkinnyPop and Paqui. Pursuant to the limited liability company agreement of SkinnyPop, the Company will have the right to determine when distributions will be made to the Company and the amount of any such distributions.
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The selling stockholders, which include certain of our directors and officers, are selling all of the shares of our common stock being sold in this offering, including any shares that may be sold in connection with the exercise of the underwriters option to purchase additional shares. See Principal and Selling Stockholders. Accordingly, we will not receive any proceeds from the sale of shares of our common stock in this offering. We will bear all costs, fees and expenses in connection with this offering, which are estimated to be $ , except that the selling stockholders will pay all underwriting commissions and discounts.
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Except as described below, we have not declared or paid a cash dividend on our capital stock. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition results of operations, capital requirements, contractual restrictions, general business conditions and other factors that our board of directors may deem relevant. The Credit Agreement governing our credit facility prohibits the payment of any dividends without obtaining the prior written consent of the lenders representing a majority of the outstanding principal under the Credit Agreement, other than dividends payable solely in our common stock.
In December 2014, SkinnyPop made a $59.8 million distribution to the Company in connection with the second amendment to our Credit Agreement. The Company then distributed such amount to Topco, which then distributed such amount to its members. We refer to this distribution as the December 2014 Special Dividend.
In May 2015, SkinnyPop made a $22.3 million distribution to the Company in connection with our Third Amended Credit Facility. The Company then distributed such amount to Topco, which then distributed such amount to its members. For more information about this distribution, which we refer to as the May 2015 Special Dividend, as well as the December 2014 Special Dividend, see Managements Discussion and Analysis of Financial Condition and Results of OperationsThe Sponsor Acquisition and Subsequent Financings.
We do not currently intend to declare or pay any similar special dividends in the foreseeable future.
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The following table sets forth cash and cash equivalents, as well as our capitalization, as of , 2015 as follows:
| on an actual historical basis for the Company and its consolidated subsidiaries; |
| on an adjusted basis to give effect to the completion of the Corporate Reorganization prior to the consummation of this offering (see Corporate Reorganization); and |
| on an as further adjusted basis giving effect to the adjustments set forth above and the sale of shares of common stock by the selling stockholders in this offering, based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the payment of the Performance Bonus Payments, the May 2015 Special Dividend and the estimated offering expenses payable by us. |
The as further adjusted information set forth in the table below is illustrative only and will be adjusted based on the actual initial public offering price and other final terms of this offering. You should read this table together with our audited consolidated financial statements and related notes, and Selected Consolidated Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors that are included elsewhere in this prospectus.
(1) | The as adjusted cash and cash equivalents reflects . The as further adjusted cash and cash equivalents reflects the payment of the Performance Bonus Payments, the May 2015 Special Dividend and the estimated offering expenses payable by us. |
(2) | The as adjusted additional paid-in capital reflects . |
(3) | If the underwriters option to purchase additional shares from the selling stockholders were exercised in full, as further adjusted cash and cash equivalents, additional paid-in capital, total stockholders/members equity and shares issued and outstanding as of , 2015 would not change. |
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The as adjusted and as further adjusted columns in the table above include the following:
| shares of our common stock that are issuable upon the conversion of Class C units of Topco that were issued, outstanding and vested as of , 2015, which conversion will occur in connection with the Corporate Reorganization; and |
| shares of our restricted stock issuable upon the conversion of Class C units of Topco that were issued, outstanding and unvested as of , 2015, which conversion will occur in connection with the Corporate Reorganization. |
The as adjusted and as further adjusted columns in the table above exclude the following:
| shares of common stock reserved for future issuance under our 2015 Stock Option and Incentive Plan, which will become effective upon the consummation of this offering, and which contains provisions that automatically increase its share reserve each year. |
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If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the pro forma as adjusted net tangible book value per share of common stock immediately after the completion of this offering.
Net tangible book value per share is determined by dividing our total tangible assets less our total liabilities by the number of shares of our common stock outstanding. Our historical net tangible book value as of , 2015 was $ million, or $ per share. Our historical net tangible book value excludes $ million of goodwill and intangible assets and $ million of net deferred tax assetslong term.
Because all of the shares of our common stock to be sold in this offering, including those subject to the underwriters option to purchase additional shares, will be sold by the selling stockholders, there will be no increase in the number of shares of our common stock outstanding as a result of this offering. The common stock to be sold by the selling stockholders is common stock that will be currently issued and outstanding following the Corporate Reorganization. Accordingly, our pro forma net tangible book value as of , 2015, would be unchanged at $ million, or $ per share, prior to giving effect to the payment by us of the Performance Bonus Payments, the May 2015 Special Dividend and estimated offering expenses of $ million in connection with this offering.
After deducting the payment of the Performance Bonus Payments, the May 2015 Special Dividend and the estimated offering expenses payable by us in connection with this offering, our pro forma as adjusted net tangible book value as of , 2015 would have been $ million, or $ per share. This represents an immediate decrease in pro forma net tangible book value of $ per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of $ per share to investors purchasing shares of common stock in this offering at the assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus.
The following table illustrates this dilution:
Assumed initial public offering price per share |
$ | |||||||
Pro forma net tangible book value per share as of , 2015 |
$ | |||||||
Decrease in pro forma net tangible book value per share attributable this offering |
||||||||
Pro forma as adjusted net tangible book value per share immediately after this offering |
||||||||
|
|
|||||||
Dilution in pro forma net tangible book value share to new investors in this offering |
$ | |||||||
|
|
Each $1.00 increase or decrease in the assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would not affect our pro forma as adjusted net tangible book value per share to new investors, but would increase or decrease, as applicable, dilution per share to new investors in this offering by $ .
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The number of shares of common stock that will be outstanding after this offering is based on 75,000,000 shares outstanding as of , 2015, and includes:
| shares of our common stock that are issuable upon the conversion of Class C units of Topco that were issued and outstanding and vested as of , 2015, which conversion will occur in connection with the Corporate Reorganization; and |
| shares of our restricted stock issuable upon the conversion of Class C units of Topco that were issued and outstanding and unvested as of , 2015, which conversion will occur in connection with the Corporate Reorganization as described above. |
The number of shares of common stock that will be outstanding after this offering excludes:
| shares of common stock reserved for future issuance under our 2015 Plan, which will become effective upon the consummation of this offering, and which contains provisions that automatically increase its share reserve each year. |
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated statements of income for the fiscal year ended December 31, 2014 and the three months ended March 31, 2014 and 2015 present our consolidated results of operations giving pro forma effect to the Sponsor Acquisition, the December 2014 Special Dividend and the May 2015 Special Dividend described below under Managements Discussion and Analysis of Financial Condition and Results of OperationsThe Sponsor Acquisition and Subsequent Financings, as if such transactions had occurred on January 1, 2014. The unaudited pro forma condensed consolidated balance sheet as of March 31, 2015 presents our consolidated balance sheet giving effect to the May 2015 Special Dividend as if it had occurred on March 31, 2015. The pro forma financial information does not give effect to this offering, including the use of cash for offering expenses, the Performance Bonus Payments and the tax receivable agreement. The pro forma adjustments are based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of these transactions on the historical financial information of our Predecessor and Successor entities, as applicable.
The unaudited pro forma condensed consolidated financial information should be read together with Managements Discussion and Analysis of Financial Condition and Results of Operations, Risk Factors and the historical consolidated financial statements and related notes included elsewhere in this prospectus.
The Sponsor Acquisition was accounted for using the acquisition method of accounting. The initial estimated fair values of the acquired assets and assumed liabilities as of the date of acquisition, which are based on the consideration paid and estimates and our assumptions, are reflected herein. As explained in more detail in the accompanying Notes to the Unaudited Pro Forma Condensed Statement of Operations, the total purchase price of approximately $320 million to acquire the SkinnyPop business has been allocated to the assets acquired and assumed liabilities of SkinnyPop based upon estimated fair values at the date of acquisition. Independent valuation specialists conducted analyses in order to assist our management in determining the fair values of the acquired assets and liabilities assumed. Our management is responsible for these internal and third-party valuations and appraisals and they are continuing to review the amounts and allocations to finalize these amounts. Although our review is substantially complete and there are no pending items associated with accounting for the acquisition, we have one year from the date of completion of the Sponsor Acquisition to finalize these amounts and are therefore continuing to review.
The unaudited pro forma consolidated financial information is included for informational purposes only and does not purport to reflect the results of operations of Amplify Snack Brands, Inc. that would have occurred had the Sponsor Acquisition, the December 2014 Special Dividend or the May 2015 Special Dividend occurred on January 1, 2014. The unaudited pro forma consolidated financial information contains a variety of adjustments, assumptions and estimates, is subject to numerous other uncertainties and the assumptions and adjustments as described in the accompanying notes hereto and should not be relied upon as being indicative of our results of operations had the Sponsor Acquisition, the December 2014 Special Dividend and the May 2015 Special Dividend occurred on the dates assumed. The unaudited pro forma consolidated financial information also does not project our results of operations for any future period or date. The unaudited pro forma consolidated financial information does not include results of the Paqui, LLC acquisition. Company management evaluated the impact to the Companys financial statements of the Paqui, LLC acquisition and concluded that the impact was not large enough to require or separately warrant the inclusion of pro forma financial results inclusive of Paqui, LLC under applicable SEC rules and regulations or under GAAP.
The pro forma adjustments give effect to the following items in connection with the Sponsor Acquisition, the December 2014 Special Dividend and the May 2015 Special Dividend:
| the asset and liability valuations and related purchase price allocations associated with the Sponsor Acquisition; |
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| the effect of the incurrence of a $150 million term loan and a $7.5 million revolving facility in connection with the Sponsor Acquisition; |
| the incurrence of an incremental $50 million under the Credit Agreement governing the $150 million term loan, increasing the aggregate term loan to $200 million, as part of the December 2014 Special Dividend; |
| the incurrence of an incremental $7.5 million under the Credit Agreement governing the $200 million term loan, increasing the aggregate term loan to $207.5 million and the incurrence of a $15 million borrowing under our revolving facility increasing the aggregate revolving facility to $25 million, each as part of the May 2015 Special Dividend; |
| the estimated compensation expense associated with the Founder Contingent Compensation in connection with the Sponsor Acquisition, based on our achievement of certain contribution margin benchmarks during the fiscal year 2015, and the tax benefit, to the extent realized by us, associated with the arrangement; and |
| the associated income tax expense effect of the above adjustments. |
62
AMPLIFY SNACK BRANDS, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Income
For the Year Ended December 31, 2014
Historical(1) | Pro Forma | |||||||||||||||||||
Predecessor | Successor | Combined | ||||||||||||||||||
In thousands, except share and per unit/share information |
January 1,
2014 to July 16, 2014 |
July 17, 2014
to December 31, 2014 |
Pro Forma
Adjustments |
Year Ended
December 31, 2014 |
||||||||||||||||
Net sales(2) |
$ | 68,353 | $ | 64,004 | $ | | $ | 132,357 | ||||||||||||
Cost of goods sold(2) |
29,429 | 28,724 | | 58,153 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
38,924 | 35,280 | | 74,204 | ||||||||||||||||
Sales & marketing expenses |
5,661 | 6,977 | | 12,638 | ||||||||||||||||
General & administrative expenses |
1,394 | 13,611 | 12,233 | (3)(4) | 27,238 | |||||||||||||||
Sponsor Acquisition-related expenses |
1,288 | 2,215 | (2,993 | )(5) | 510 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expenses |
8,343 | 22,803 | 9,240 | 40,386 | ||||||||||||||||
Operating income |
30,581 | 12,477 | (9,240 | ) | 33,818 | |||||||||||||||
Interest expense |
| 4,253 | 8,631 | (6) | 12,884 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Pre-tax income |
30,581 | 8,224 | (17,871 | ) | 20,934 | |||||||||||||||
Income tax expense |
| 3,486 | 3,840 | (7) | 7,326 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
$ | 30,581 | $ | 4,738 | $ | (21,711 | ) | $ | 13,608 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Basic and diluted earnings per unit/share |
$ | 76,452.74 | $ | .06 | $ | .18 | ||||||||||||||
Basic and diluted weighted average units/shares outstanding: |
400 | 75,000,000 | 75,000,000 |
(1) | The amounts in these columns represent our Predecessors and Successors historical results of operations for the periods reflected. |
(2) | Includes the effect of $0.4 million of additional cost of sales associated with inventory acquired. |
(3) | This adjustment reflects the incremental amortization expense associated with the allocation of purchase price to finite-lived identifiable intangible assets consisting of amortization related to customer relationships and the non-competition agreements entered into with the Founders. |
(4) | This adjustment reflects the incremental compensation expense associated with the Founder Contingent Compensation that would have been recognized if the employment agreements with the Founders had been in effect for the full year. The total estimated obligation of $26.8 million is being recognized ratably over the 18-month contractual service period. See Note 1 to our audited consolidated financial statements included elsewhere in this prospectus for more information. |
(5) | This reflects an adjustment to exclude the non-recurring Sponsor Acquisition-related expenses, which consist of the following: |
Predecessor | Successor | |||||||||
January 1,
2014 to July 16, 2014 |
July 17, 2014 to
December 31, 2014 |
|||||||||
Transaction bonuses(i) |
$ | 778 | $ | | ||||||
Sponsor transaction costs(ii) |
| 2,215 | ||||||||
|
|
|
|
|||||||
Total |
$ | 778 | $ | 2,215 | ||||||
|
|
|
|
i. | Represents transaction bonuses paid to employees in connection with the Sponsor Acquisition. |
ii. | Represents legal, accounting, tax, insurance and other diligence fees paid to consultants in connection with the Sponsor Acquisition. |
63
AMPLIFY SNACK BRANDS, INC.
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income
For the Year Ended December 31, 2014
(6) | This adjustment reflects the following adjustments to increase interest expense as a result of the $150 million term loan and a $7.5 million revolving facility in connection with the Sponsor Acquisition; the incurrence of an incremental $50 million term loan increasing the aggregate term loan to $200 million, as part of the December 2014 Special Dividend and the incurrence of an incremental $7.5 million term loan increasing the aggregate term loan to $207.5 million as well as the incurrence of a $15 million borrowing under our revolving facility, increasing the aggregate revolving facility to $25 million each as part of the May 2015 Special Dividend: |
(i) | Reflects the impact of scheduled amortization payments. Assumes an interest rate of 5.50% per annum. A 1 ⁄ 8 % change in the interest rate would change our annual interest expense by $0.3 million. |
(7) | Reflects the statutory tax rate of 35%. |
Unaudited Pro Forma Condensed Consolidated Statement of Income
For the Three Months Ended March 31, 2015
Historical(1) | Pro Forma | |||||||||||
(In thousands, except share and per share information) |
Three months
ended March 31, 2015 |
Pro Forma
Adjustments |
Three months
ended March 31, 2015 |
|||||||||
Net Sales |
$ | 44,275 | $ | | $ | 44,275 | ||||||
Cost of goods sold |
19,866 | | 19,866 | |||||||||
|
|
|
|
|
|
|||||||
Gross Profit |
24,409 | | 24,409 | |||||||||
Sales and marketing expenses |
3,618 | | 3,618 | |||||||||
General and administrative expenses |
9,032 | | 9,032 | |||||||||
Sponsor Acquisition-related expenses |
| | | |||||||||
|
|
|
|
|
|
|||||||
Total operating expenses |
12,650 | | 12,650 | |||||||||
Operating income |
11,759 | | 11,759 | |||||||||
Interest expense |
2,955 | 178 | (2) | 3,133 | ||||||||
|
|
|
|
|
|
|||||||
Pre-tax income |
8,804 | (178 | ) | 8,626 | ||||||||
Income tax expense |
3,900 | (881 | )(3) | 3,019 | ||||||||
|
|
|
|
|
|
|||||||
Net income |
$ | 4,904 | $ | 703 | $ | 5,607 | ||||||
|
|
|
|
|
|
|||||||
Basic and diluted earnings per share |
$ | .07 | $ | .07 | ||||||||
Basic and diluted weighted average shares outstanding |
75,000,000 | 75,000,000 |
(1) | The amounts in these columns represent our Successors historical results of operations for the three months ended March 31, 2015. |
64
(2) | This adjustment reflects the following adjustments to interest expense as a result of the $150 million term loan and a $7.5 million revolving facility in connection with the Sponsor Acquisition; the incurrence of an incremental $50 million term loan increasing the aggregate term loan to $200 million as part of the December 2014 Special Dividend and the incurrence of an incremental $7.5 million term loan increasing the aggregate term loan to $207.5 million as well as the incurrence of a $15 million borrowing under our revolving facility, increasing the aggregate revolving facility to $25 million each as part of the May 2015 Special Dividend: |
(i) | Reflects the impact of scheduled amortization payments. Assumes an interest rate of 5.5% per annum. A 1/8% change in the interest rate would change our quarterly interest expense by $0.1 million. |
(3) | Reflects the statutory tax rate of 35%. |
Unaudited Pro Forma Condensed Consolidated Statement of Income
For the Three Months Ended March 31, 2014
Historical(1) | Pro Forma | |||||||||||
(In thousands, except share and per share information) |
Three months
ended March 31, 2014 |
Pro Forma
Adjustments |
Three months
ended March 31, 2014 |
|||||||||
Net Sales |
$ | 25,706 | $ | | $ | 25,706 | ||||||
Cost of goods sold |
11,378 | | 11,378 | |||||||||
|
|
|
|
|
|
|||||||
Gross Profit |
14,328 | | 14,328 | |||||||||
Sales and marketing expenses |
1,945 | | 1,945 | |||||||||
General and administrative expenses |
669 | 5,644 | (4) | 6,313 | ||||||||
Sponsor Acquisition-related expenses |
| | | |||||||||
|
|
|
|
|
|
|||||||
Total operating expenses |
2,614 | 5,644 | 8,258 | |||||||||
Operating income |
11,714 | (5,644 | ) | 6,070 | ||||||||
Interest expense |
| 3,274 | (2) | 3,274 | ||||||||
|
|
|
|
|
|
|||||||
Pre-tax income |
11,714 | (8,918 | ) | 2,796 | ||||||||
Income tax expense |
| (979 | )(3) | 979 | ||||||||
|
|
|
|
|
|
|||||||
Net income |
$ | 11,714 | $ | (9,897 | ) | $ | 1,817 | |||||
|
|
|
|
|
|
|||||||
Basic and diluted earnings per share |
$ | 29,285.11 | $ | 0.02 | ||||||||
Basic and diluted weighted average shares outstanding |
400 | 75,000,000 |
(1) | The amounts in these columns represent our Predecessors historical results of operations for the three months ended March 31, 2014. |
(2) | This adjustment reflects the following adjustments to interest expense as a result of the $150 million term loan and a $7.5 million revolving facility in connection with the Sponsor Acquisition; the incurrence of an incremental $50 million term loan increasing the aggregate term loan to $200 million, as part of the December 2014 Special Dividend and the incurrence of an incremental $7.5 million term loan increasing the aggregate term loan to $207.5 million as well as the incurrence of a $15 million borrowing under our revolving facility, increasing the aggregate revolving facility to $25 million each as part of the May 2015 Special Dividend: |
(i) | Reflects the impact of scheduled amortization payments. Assumes an interest rate of 5.5% per annum. A 1/8% change in the interest rate would change our quarterly interest expense by $0.1 million. |
65
(3) | Reflects the statutory tax rate of 35%. |
(4) | This adjustment reflects the incremental amortization expense associated with the allocation of purchase price to finite-lived identifiable intangible assets consisting of amortization related to customer relationships and the non-competition agreements entered into with the Founders. |
AMPLIFY SNACK BRANDS, INC.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of March 31, 2015
(1) | The amounts in this column represents our Successors balance sheet as of March 31, 2015. |
(2) | This adjustment reflects (i) the incurrence of an incremental $7.5 million term loan increasing the aggregate term loan to $205 million (after the payment of a scheduled principal payment), as well as the incurrence of a $15 million borrowing under our revolving facility, increasing the aggregate revolving facility to $25 million, each as part of the May 2015 Special Dividend and (ii) the accrual of the May 2015 Special Dividend. |
66
Pro forma debt components: |
||||
Incremental term loan |
$ | 7,500 | ||
Revolving facility |
15,000 | |||
|
|
|||
Total pro forma debt increase |
22,500 | |||
Less: deferred financing costs paid |
(119 | ) | ||
Less: other transaction fees paid |
(96 | ) | ||
|
|
|||
Total dividend payable |
$ | 22,285 | ||
|
|
67
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth our historical consolidated financial data. We have derived the selected (1) statements of income data for the year ended December 31, 2013 and the period from January 1, 2014 to July 16, 2014 for the Predecessor (as discussed below) and for the period from July 17, 2014 to December 31, 2014 for the Successor (as discussed below) and (2) balance sheet data as of December 31, 2014 from our audited consolidated financial statements and related notes included elsewhere in this prospectus. We have derived the following selected consolidated financial data as of and for the year ended December 31, 2012, or the 2012 Financial Data, from our unaudited consolidated financial statements that are not included in this prospectus. We caution you not to place undue reliance on the 2012 Financial Data. We have derived the selected (1) statements of income data for the three months ended March 31, 2014 for the Predecessor and the three months ended March 31, 2015 for the Successor and (2) balance sheet data as of March 31, 2015 from our unaudited condensed consolidated financial statements and related notes included elsewhere in this prospectus. Our unaudited condensed consolidated financial statements were prepared on a basis consistent with our audited consolidated financial statements and include, in managements opinion, all normal recurring adjustments necessary for the fair presentation of the financial information set forth in those statements included elsewhere in this prospectus.
Our financial data prior to the date of the Sponsor Acquisition, which are the years ended December 31, 2012 and December 31, 2013 and the period from January 1, 2014 to July 16, 2014, are presented as the financial data of the Predecessor, which includes the results of the then-existing SkinnyPop Popcorn LLC. The financial data after the date of the Sponsor Acquisition, which are the period from July 17, 2014 to December 31, 2014 and the three months ended March 31, 2015, are presented as the financial data of the Successor. The balance sheet data as of December 31, 2013 is presented as the balance sheet of the Predecessor and as of December 31, 2014 and March 31, 2015 is presented as the balance sheet of the Successor. The Predecessor and Successor financial data has been prepared on different accounting bases and therefore the sum of the data for the two reporting periods should not be used as an indicator of our full year performance.
After the consummation of the Sponsor Acquisition, the Company along with its subsidiary SkinnyPop Popcorn LLC, are referred to collectively in this prospectus as the Successor. Prior to the consummation of the Sponsor Acquisition, SkinnyPop Popcorn LLC is referred to in this prospectus as the Predecessor. We applied Financial Accounting Standards Boards, or FASB, Accounting Standards Codification Topic 805, Business Combinations on July 17, 2014, the closing date of the Sponsor Acquisition, and as a result, the merger consideration in the Sponsor Acquisition was allocated to the respective fair values of the assets acquired and liabilities assumed from the Predecessor. The fair value of identifiable intangibles was recorded at $265.3 million. For the period from July 17, 2014 to December 31, 2014, the Successors general and administrative expenses increased by $1.9 million as amortization was recorded. For the three months ended March 31, 2015, amortization expense was $1.0 million. As a result of the application of acquisition method accounting, the Successor balances and amounts presented in the audited consolidated financial statements and footnotes are not comparable with those of the Predecessor. Our historical results are not necessarily indicative of the results that may be expected in the future, and our interim results are not necessarily indicative of the results to be expected for the full year or any other period.
68
You should read the following selected consolidated financial data below in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations, Risk Factors, Capitalization, Unaudited Pro Forma Condensed Consolidated Financial Information and all of our consolidated financial statements and related notes included elsewhere in this prospectus.
Predecessor | Successor | Predecessor | Successor | |||||||||||||||||||||
(In thousands, except share
and per share information) |
Year
ended December 31, 2012 |
Year
ended December 31, 2013 |
January 1,
2014 to July 16, 2014 |
July 17,
2014 to December 31, 2014 |
Three
Months ended March 31, 2014 |
Three
Months ended March 31, 2015 |
||||||||||||||||||
Statement of Income Data: |
||||||||||||||||||||||||
Net sales |
$ | 16,019 | $ | 55,710 | $ | 68,353 | $ | 64,004 | $ | 25,706 | $ | 44,275 | ||||||||||||
Cost of goods sold |
7,047 | 23,054 | 29,429 | 28,724 | 11,378 | 19,866 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
8,972 | 32,656 | 38,924 | 35,280 | 14,328 | 24,409 | ||||||||||||||||||
Sales & marketing expenses |
1,495 | 5,938 | 5,661 | 6,977 | 1,945 | 3,618 | ||||||||||||||||||
General & administrative expenses |
679 | 1,960 | 1,394 | 13,611 | 669 | 9,032 | ||||||||||||||||||
Sponsor Acquisition-related expenses(1) |
| | 1,288 | 2,215 | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expenses |
2,174 | 7,898 | 8,343 | 22,803 | 2,614 | 12,650 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating income |
6,798 | 24,758 | 30,581 | 12,477 | 11,714 | 11,759 | ||||||||||||||||||
Interest expense |
| | | 4,253 | | 2,955 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Pre-tax income |
6,798 | 24,758 | 30,581 | 8,224 | 11,714 | 8,804 | ||||||||||||||||||
Income tax expense |
| | | 3,486 | | 3,900 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
$ | 6,798 | $ | 24,758 | $ | 30,581 | $ | 4,738 | $ | 11,714 | $ | 4,904 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Basic and diluted earnings per unit/share(2) |
$ | 16,995.01 | $ | 61,895.01 | $ | 76,452.74 | $ | 0.06 | $ | 29,285.11 | $ | 0.07 | ||||||||||||
Basic and diluted weighted average units/shares outstanding(2) |
400 | 400 | 400 | 75,000,000 | 400 | 75,000,000 | ||||||||||||||||||
Cash Flow Data: |
||||||||||||||||||||||||
Cash from operating activities |
$ | 6,386 | $ | 22,469 | $ | 26,339 | $ | 12,719 | $ | 11,640 | $ | 14,142 | ||||||||||||
Cash used in investing activities |
(16 | ) | (456 | ) | (278 | ) | (294,630 | ) | (82 | ) | (370 | ) | ||||||||||||
Cash from (used in) financing activities |
(5,848 | ) | (19,362 | ) | (28,533 | ) | 287,526 | (9,687 | ) | (2,500 | ) |
(1) | In the period from January 1 to July 16, 2014 and the period from July 17 to December 31, 2014, the Sponsor Acquisition-related expenses reflect the Sponsor Acquisition. |
(2) | See Note 2 and Note 15 to our audited consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate basic and diluted earnings per unit/share and the weighted average units/shares outstanding used in the computation of the per unit/share amounts. |
(In thousands) | Predecessor | Successor | ||||||||||||||||
At December 31,
2012 |
At December 31,
2013 |
At December 31,
2014 |
At March 31,
2015 |
|||||||||||||||
Balance Sheet Data: |
||||||||||||||||||
Cash and cash equivalents |
$ | 870 | $ | 3,519 | $ | 5,615 | $ | 16,887 | ||||||||||
Working capital(1) |
1,671 | 6,599 | 3,378 | 12,185 | ||||||||||||||
Property and equipmentnet |
| 468 | 746 | 1,029 | ||||||||||||||
Other assets |
| | 313,387 | 312,447 | ||||||||||||||
Total assets |
2,550 | 11,053 | 338,891 | 350,491 | ||||||||||||||
Total indebtedness(2) |
| | 206,936 | 209,394 | ||||||||||||||
Total stockholders/members equity |
1,671 | 7,067 | 121,168 | 126,860 |
(1) | Working capital is the sum of current assets less current liabilities. |
(2) | Total indebtedness consists of the accrued amounts due in connection with the Founder Contingent Compensation, the actual outstanding principal amount of the term loan under our Credit Agreement and other current liabilities. See Unaudited Pro Forma Condensed Consolidated Financial Information. |
69
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Selected Consolidated Financial Data and our consolidated financial statements and related notes thereto included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in Risk Factors included elsewhere in this prospectus.
Overview
Amplify Snack Brands is a high growth, snack food company focused on developing and marketing products that appeal to consumers growing preference for BFY snacks. Our anchor brand, SkinnyPop, is a rapidly-growing, highly-profitable and market-leading BFY RTE popcorn brand. We recently acquired a second BFY brand, Paqui, an emerging BFY tortilla chip brand, that has many of the same key taste and BFY attributes as SkinnyPop. We believe that our focus on building a portfolio of exclusively BFY snack brands will allow us to leverage our platform to realize material synergies across our family of BFY brands, as well as allow our retail customers to consolidate their vendor relationships in this large and growing segment.
Our SkinnyPop brand sells premium products made from high-quality, simple ingredients and is sold in over 47,000 retail locations in the United States and Canada. We distribute our products across a wide variety of retail channels, including natural and conventional grocery, drug, convenience, club and mass merchandise. We also have a presence in the foodservice and selected other non-food retail channels. Our SkinnyPop product portfolio consists of four core flavors (Original, Black Pepper, White Cheddar Flavor and Naturally Sweet), along with occasional rotational flavors, which are sold in a variety of packaging sizes and marketed under the SkinnyPop brand. Our SkinnyPop brand has experienced strong growth, driven by distribution gains, increases in sales velocities and new product introductions. As is evidenced by our high repeat purchase patterns, we have built a loyal and growing customer base for our SkinnyPop brand. Additionally, we believe retailers find our SkinnyPop products to be attractive because of our premium price points and strong sales velocities. While SkinnyPops growth has been rapid, we believe significant opportunity exists for continued growth.
Our corporate vision is to continue to build a diversified and BFY-focused snacking company that aligns with continued increases in consumer preferences for BFY products and overall snacking trends. We believe this focus gives us a competitive advantage in the large and intensely competitive snack foods market. We intend to achieve our goal by both developing and acquiring snacking brands and products that deliver exceptional taste, align with our BFY mission and allow us to leverage our management and infrastructure to help drive net sales growth and increased profitability.
Components of Our Results of Operations and Trends Affecting Our Business
Net Sales
Our net sales are derived from the sale of our products to our retailer customers, who purchase either directly from us or through third party distributors. Our products are sold to consumers through an increasing number of locations primarily in the natural and conventional grocery, drug and convenience, club and mass merchandise retail channels. We also have a growing presence in the foodservice and selected other non-food retail channels. Historically, all of our products have been sold
70
under the SkinnyPop brand, which we continue to roll out in leading retailers across the United States. In April 2015, we acquired Paqui, a BFY tortilla chip brand.
Our net sales growth is driven by the following factors:
| Increased penetration of our more established retail channels, including the drug, natural and conventional grocery and club distribution channels as well as continued expansion into other sizeable distribution channels; |
| Increasing sales velocity driven by growing awareness and consumer loyalty; |
| Continued share gain by BFY products in the large and growing U.S. salty snacking market; |
| The RTE popcorn category, into which we sell our SkinnyPop products, which was the fastest growing category across all U.S. salty snacking categories in 2014, with a growth rate of 22.6%; and |
| Consumer trends and preferences, including a greater focus on health and wellness, increase consumption of smaller, more frequent meals throughout the day and a strong preference for convenient BFY products. |
Our net sales increased by $76.7 million, or 138%, from $55.7 million for the year ended December 31, 2013 to $132.4 million for the Pro Forma Year Ended December 31, 2014 (Unaudited) and by $18.6 million, or 72%, from $25.7 million for the three months ended March 31, 2014 to $44.3 million for the three months ended March 31, 2015. While we expect our net sales to increase in absolute dollar in future periods, we expect that our net sales growth rate will not keep pace with our net sales growth rate in prior periods, due to the increasing cumulative size of the net sales base on which future growth rates will be measured.
Sales are recorded net of discounts, allowances, coupons, slotting fees and trade advertising that we offer our customers. Such amounts are estimated and recorded as a reduction in total gross sales in order to arrive at reported net sales. Management believes that net sales is the most appropriate measure of our revenues and the most useful measure for investors in understanding our business over time. Our net sales are periodically influenced by the introduction and discontinuance of sales and promotion incentives. We anticipate that promotional activities will continue to impact our net sales and that changes in such activities will continue to impact period-over-period results.
Our two largest customers in 2014, Costco and Sams Club, represented approximately 34.7% and 20.9% of our net sales on a pro forma unaudited basis for the year. We believe our relationships with these retailers have helped us increase the brand awareness for SkinnyPop and thereby enabled incremental sales to new and existing customers. In recent months, we have significantly increased both the number of retail locations where our products are sold and the number of our products found in individual retail locations across a variety of retail channels. We believe that by increasing penetration in all of our distribution channels, combined with greater brand awareness, new product introductions and favorable consumer trends, we will continue to drive our net sales growth in future periods. Although we have continued to grow and diversify our customer base, we expect that most of our sales will continue to come from a relatively small number of customers for the foreseeable future. In addition, we do not have purchase commitments or minimum volume requirements with any of our customers; accordingly, our net sales may fluctuate significantly from period to period.
We sell our products in varying package sizes and through multiple distribution channels. We do not charge the same price for our products on a per ounce basis across package sizes and we do not charge the same price for the same product across all distribution channels. Accordingly, the amount of our net sales that we recognize will vary from period to period depending on the mix of package sizes sold and distribution channels sold through during those periods.
71
Gross Profit
Our gross profit reflects our net sales less our cost of goods sold, which consists of the costs of ingredients, packaging materials, contract manufacturing fees, shipping and handling costs, in-bound freight charges, equipment repairs, reserves for inventory obsolescence and depreciation of manufacturing equipment.
Our gross profit margins are impacted by input costs, which are subject to pricing movements driven by market supply and demand, and against which we do not engage in any hedging of our financial exposure. In recent periods, the prices of yellow corn (which impacts the price of popcorn kernels), sunflower oil and fuel have been priced below their respective historical five-year averages and we have realized some benefits from these low prices in the form of reduced cost of goods sold and resulting higher gross profit margins. We expect to mitigate any adverse movement in input costs through a combination of cost management and price increases. However, if our mitigation strategies do not eliminate increased costs, we may be unable to pass any such adverse movement in input costs onto our customers, which may thereby increase our cost of goods sold and, thus, reduce our gross profit. In addition, if our input costs decline, we may be asked to pass along these reduced costs to our customers in the form of lower prices for our products.
All of our SkinnyPop products are currently sourced from a single third-party co-manufacturing facility dedicated solely to manufacturing our products. We are subject to fluctuations in the cost of labor as well as the cost of film and corrugate for packaging of our products because these costs, plus a markup, are passed on to us by our single third-party co-manufacturer. Our relationship and contract terms with this third-party afforded us the opportunity to rapidly scale our business while maintaining our existing product quality, and provided us with significant predictability around contract manufacturing fees, and, as such, mitigated fluctuations in our cost of goods sold. While this relationship has historically been a benefit to us as we built our business, it also exposed us to the risks of relying on a single manufacturer and production facility.
Our gross profit increased by $41.5 million, or 127%, from $32.7 million for the year ended December 31, 2013 to $74.2 million for the Pro Forma Year Ended December 31, 2014 (Unaudited) and by $10.1 million, or 70%, from $14.3 million for the three months ended March 31, 2014 to $24.4 million for the three months ended March 31, 2015, driven by strong growth in net sales. Our gross profit margin decreased modestly from 58.6% for the year ended December 31, 2013 to 56.1% for the Pro Forma Year Ended December 31, 2014 (Unaudited), reflecting the effect of higher input costs and promotional activities. Our gross profit margin decreased modestly from 55.7% for the three months ended March 31, 2014 to 55.1% for the three months ended March 31, 2015, driven by higher trade promotional spending. While we expect our gross profit to increase in absolute dollars in future periods, we expect that our gross profit as a percentage of net sales will fluctuate and may decrease as a result of the competitive and other factors described herein.
Operating Expenses
Sales and Marketing Expenses
Sales and marketing expenses include salaries and wages, commissions, bonuses and incentives for our sales and marketing personnel, broker fees, sales-related travel and entertainment expenses and other marketing and advertising expenses. Our marketing programs also include selective event sponsorships designed to increase brand awareness and to provide opportunities to sample branded products to consumers. Included in sales and marketing expense are costs and fees relating to the execution of in-store product demonstrations.
Our sales and marketing expenses have remained relatively flat as a percentage of our net sales in recent periods, but we expect that our sales and marketing expenses in future periods will increase,
72
as measured in both absolute dollars and as a percentage of our net sales, as we invest to support new product releases and drive greater brand awareness, attract new customers and increase household penetration.
General and Administrative Expenses
General and administrative expenses include salaries and wages for our management and general administrative personnel, liabilities associated with the Founder Contingent Compensation, depreciation of non-manufacturing property and equipment, professional fees to service providers including accounting and legal (both in connection with the Sponsor Acquisition, the December 2014 Special Dividend and the May 2015 Special Dividend, as well as costs incurred in the ordinary course of our business), costs associated with the implementation and utilization of our new corporate ERP system, amortization of intangible assets, insurance, travel and other operating expenses.
We continue to increase headcount, particularly in our management and finance departments, to support our continued growth. We expect our general and administrative expenses to continue to increase in absolute dollars as we incur increased costs related to the growth of our business and our operation as a public company, which could impact our future operating profitability. After this offering, we expect to incur incremental annual costs related to operating as a public company in the range of $1.5 to $2.0 million.
Sponsor Acquisition-related Expenses
Sponsor Acquisition-related expenses with respect to Predecessor periods consist of (i) transaction expenses incurred by the Predecessor in connection with the Sponsor Acquisition and paid to the Predecessors advisors and (ii) transaction bonuses paid to employees of the Predecessor in connection with the Sponsor Acquisition. Sponsor Acquisition-related expenses for Successor periods consist of legal, accounting, tax, insurance and other diligence fees paid by the Successor to consultants in connection with the Sponsor Acquisition.
Interest Expense
In July 2014, SkinnyPop Popcorn LLC entered into senior secured credit facilities in connection with the Sponsor Acquisition. Interest expense in our results of operations consists of interest and commitment fees payable pursuant to these senior secured credit facilities, as well as costs incurred in connection with such debt financing that have been deferred and are being amortized using the effective interest method over the term of the indebtedness. The senior secured credit facilities consist of a term loan facility and a revolving facility. Proceeds from the initial term loan borrowings were primarily used to finance the Sponsor Acquisition and to pay fees and expenses in connection therewith. Proceeds from additional borrowings under the term loan facility were used to pay a $59.8 million distribution to the Company in 2014 to provide liquidity to our ultimate equityholders. The revolving facility may be used by us for working capital and for other general corporate purposes, including acquisitions and investments and dividends and distributions. See Indebtedness and Note 8 in the notes to our consolidated financial statements included elsewhere in this prospectus for additional information.
At December 31, 2014 and March 31, 2015, we had $200 million and $197.5 million, respectively, outstanding under the term loan facility and no borrowings outstanding under the revolving facility. In May 2015, in connection with our Third Amended Credit Facility and as part of the May 2015 Special Dividend, we increased our term loan borrowings by $7.5 million to a total of $205 million, net of principal payments made in the first quarter of $2.5 million, and our revolving facility by $17.5 million to a total of $25 million and made a revolving loan borrowing of $15 million. The interest rates for the outstanding obligations at December 31, 2014 and March 31, 2015 for the term loan facility were LIBOR (with a 1.00% LIBOR floor) plus 4.5%, or 5.5% per annum. The commitment fee on the unused
73
revolving facility was 0.5% per annum. The interest rates and commitment fee on the unused revolving facility remained unchanged in connection with our Third Amended Credit Facility. Assuming the interest rate and the outstanding principal amount of our indebtedness remains the same, we expect our cash interest expense to be approximately $11.5 million in 2015. This is a substantial increase from 2014. We also expect to use $10.2 million in cash in 2015 to make required principal payments on our term loans in accordance with the maturity schedule set forth below.
As of
March 31, 2015 |
||||
Remainder of 2015 |
$ | 7,688 | ||
2016 |
10,250 | |||
2017 |
10,250 | |||
2018 |
10,250 | |||
2019 |
166,562 | |||
|
|
|||
Total . |
$ | 205,000 | ||
|
|
Competitive Factors
Competitive factors in the snack food industry include product quality and taste, brand awareness among consumers, access to supermarket shelf space, price, advertising and promotion, variety of snacks offered, nutritional content, product packaging and package design. Although we have been able to compete effectively, we expect these competitive factors to continue to impact our business.
The Sponsor Acquisition and Subsequent Financings
The Sponsor Acquisition
On July 17, 2014, the Predecessor was acquired by investment funds and entities associated with TA Associates, a private equity entity. We refer to this transaction as the Sponsor Acquisition. To effect the Sponsor Acquisition, the Predecessors members entered into a Unit Purchase Agreement, or the Purchase Agreement, with us and TA Midco 1, LLC, or Midco, whereby the Predecessors members contributed all units of the Predecessor to Midco in exchange for cash and rollover stock. The Predecessor then merged with and into Midco, with Midco as the surviving entity. Midco subsequently changed its name to SkinnyPop Popcorn LLC, a subsidiary of the Company. The parties agreed to consummate the Sponsor Acquisition, subject to the terms and conditions set forth in the Purchase Agreement, for an aggregate purchase consideration of $320 million, which included rollover stock from the Predecessors members representing approximately 14% of the Company. A portion of the purchase consideration is being held in escrow to secure post-closing purchase price adjustments and indemnity claims. The aggregate purchase consideration, and related fees and expenses, were funded by the equity investment in Topco by TA Associates, as well as from certain members of management, and the net proceeds from the borrowing of $150 million under the Credit Agreement. For more information on the Credit Agreement, see Indebtedness.
The December 2014 Special Dividend
In December 2014, SkinnyPop made a distribution of $59.8 million to us, which we distributed to our parent, Topco, who subsequently distributed such proceeds to its unit holders according to the terms of Topcos Amended and Restated Limited Liability Company Agreement. We refer to this distribution as the December 2014 Special Dividend. The December 2014 Special Dividend was paid in order to provide a return on investment and liquidity to our equity holders and was not used to pay any part of the consideration for the Sponsor Acquisition. We paid for the December 2014 Special Dividend, in part, with the proceeds of the second amendment to our Credit Amendment. For more information on the Credit Agreement and the amendments thereto, see Indebtedness.
74
The May 2015 Special Dividend
In May 2015, SkinnyPop made a distribution of $22.3 million to us, which we distributed to our parent, Topco, which subsequently distributed such proceeds to its unit holders according to the terms of Topcos Amended and Restated Limited Liability Company Agreement. We refer to this distribution as the May 2015 Special Dividend. The May 2015 Special Dividend was paid in order to provide a return on investment and liquidity to our equityholders and was not used to pay any part of the consideration of the Sponsor Acquisition. We paid for the May 2015 Special Dividend with the proceeds from borrowings under the Third Amended Credit Facility. For more information on the Credit Facility and the amendments thereto, see Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtedness.
The board of directors considered a number of different factors in making its determination to declare and distribute the December 2014 Special Dividend and the May 2015 Special Dividend using proceeds from the Companys Second Amended Credit Facility and Third Amended Credit Facility, respectively. As an overall objective, the board of directors desired to provide its stockholders with a modest return on equity capital in a manner that also optimized the Companys balance sheet from a corporate finance perspective. Given the Companys historical levels of operating cash flow less capital expenditures, the board of directors believed that incurring additional indebtedness at historically-favorable market rates would allow the Company to reduce its cost of capital, while at the same time preserving the Companys ability to fund future acquisitions and meet the Companys future growth objectives. The board of directors reviewed various analyses (some of which were prepared for the board of directors by independent third party advisors) regarding the Companys expected pro forma interest and fixed charge coverage ratios and the Companys ongoing ability to meet its pro forma debt service requirements for the foreseeable future. After considering all of these factors, the board of directors determined to pay both the December 2015 Special Dividend and the May 2015 Special Dividend, and to fund such dividends using proceeds from the Companys Second Amended Credit Facility and Third Amended Credit Facility, respectively.
Results of Operations
Our results of operations prior to the date of the Sponsor Acquisition are presented as the results of the Predecessor, SkinnyPop Popcorn LLC. The results of operations, including the Sponsor Acquisition and results thereafter, are presented as the results of the Successor, the Company and its consolidated subsidiaries. The Pro Forma Year Ended December 31, 2014 (Unaudited) represents the unaudited pro forma condensed consolidated statement of income for the year ended December 31, 2014 after giving pro forma effect to the Sponsor Acquisition, the December 2014 Special Dividend and the May 2015 Special Dividend as if such transactions had occurred on January 1, 2014, as more fully described in Unaudited Pro Forma Condensed Consolidated Financial Information, which section includes a comparative presentation showing all pro forma adjustments made to our historical statements of income for the Predecessor and Successor periods in accordance with the rules and regulations of the SEC. We believe it provides useful information in assessing our business. See Unaudited Pro Forma Condensed Consolidated Financial Information. The unaudited pro forma condensed consolidated statement of income is included for informational purposes only and does not purport to reflect the results of operations of Amplify Snack Brands, Inc. that would have occurred had the Sponsor Acquisition, the December 2014 Special Dividend or the May 2015 Special Dividend occurred on January 1, 2014. The unaudited pro forma condensed consolidated statement of income contains a variety of adjustments, assumptions and estimates, is subject to numerous other uncertainties and the assumptions and adjustments as described in the accompanying notes hereto and should not be relied upon as being indicative of our results of operations had the Sponsor Acquisition, the December 2014 Special Dividend and the May 2015 Special Dividend occurred on the dates assumed. The unaudited pro forma condensed consolidated statement of income also does not project our results of operations for any future period or date. The unaudited pro forma condensed consolidated statement of income does not include results of the Paqui, LLC acquisition. Company management
75
evaluated the impact to the Companys financial statements of the Paqui, LLC acquisition and concluded that the impact was not large enough to require or separately warrant the inclusion of pro forma financial results inclusive of Paqui, LLC under applicable SEC rules and regulations or under GAAP.
The following tables set forth our statements of income for the periods presented in dollars and as a percentage of our net sales:
Predecessor | Successor | |||||||||||||||||
(In thousands, except percentage information) |
Three months
ended March 31, 2014 |
% of
Net Sales |
Three months
ended March 31, 2015 |
% of
Net Sales |
||||||||||||||
Net sales |
$ | 25,706 | 100 | % | $ | 44,275 | 100 | % | ||||||||||
Cost of goods sold |
11,378 | 44 | % | 19,866 | 45 | % | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Gross Profit |
14,328 | 56 | % | 24,409 | 55 | % | ||||||||||||
Sales & marketing expenses |
1,945 | 7 | % | 3,618 | 8 | % | ||||||||||||
General & administrative expenses |
669 | 3 | % | 9,032 | 20 | % | ||||||||||||
Sponsor acquisition-related expense |
| 0 | % | | 0 | % | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
2,614 | 10 | % | 12,650 | 28 | % | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Operating income |
11,714 | 46 | % | 11,759 | 27 | % | ||||||||||||
Interest expense |
| 0 | % | 2,955 | 7 | % | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Pre-tax income |
11,714 | 46 | % | 8,804 | 20 | % | ||||||||||||
Income tax expense |
| 0 | % | 3,900 | 9 | % | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Net income(1) |
$ | 11,714 | 46 | % | $ | 4,904 | 11 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Other Financial Information (Non-GAAP): |
||||||||||||||||||
Adjusted EBITDA(2) |
$ | 11,748 | 46 | % | $ | 19,231 | 43 | % | ||||||||||
Operating cash flow less capital expenditures(3) |
$ | 11,558 | 45 | % | $ | 13,772 | 31 | % |
(1) | For the three months ended March 31, 2014, on a pro forma basis, as described in Unaudited Pro Forma Condensed Consolidated Financial Information, our net income would have been $1.8 million. |
(2) | See Non GAAP Financial MeasuresAdjusted EBITDA for more information and a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. |
(3) | See Non GAAP Financial MeasuresOperating Cash Flow Less Capital Expenditures for more information and a reconciliation of operating cash flow less capital expenditures to cash from operating activities, the most directly comparable financial measure calculated and presented in accordance with GAAP. |
(In thousands, except percentage
information) |
Predecessor | Successor | Pro Forma | |||||||||||||||||||||||
Year ended
December 31, 2013 |
% of
Net Sales |
January 1,
2014 to July 16, 2014 |
July 17, 2014
to December 31, 2014 |
Year ended
December 31, 2014 |
% of
Net Sales |
|||||||||||||||||||||
Net sales |
$ | 55,710 | 100 | % | $ | 68,353 | $ | 64,004 | $ | 132,357 | 100 | % | ||||||||||||||
Cost of goods sold |
23,054 | 41 | 29,429 | 28,724 | 58,153 | 44 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Gross Profit |
32,656 | 59 | 38,924 | 35,280 | 74,204 | 56 | ||||||||||||||||||||
Sales & marketing expenses |
5,938 | 11 | 5,661 | 6,977 | 12,638 | 10 | ||||||||||||||||||||
General & administrative expenses |
1,960 | 4 | 1,394 | 13,611 | 27,238 | 21 | ||||||||||||||||||||
Sponsor acquisition-related expense |
| | 1,288 | 2,215 | 510 | 0 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total operating expenses |
7,898 | 14 | 8,343 | 22,803 | 40,386 | 31 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Operating income |
24,758 | 44 | 30,581 | 12,477 | 33,818 | 26 | ||||||||||||||||||||
Interest expense |
| | | 4,253 | 12,884 | 10 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Pre-tax income |
24,758 | 44 | 30,581 | 8,224 | 20,934 | 16 | ||||||||||||||||||||
Income tax expense |
| | | 3,486 | 7,326 | 6 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Net income |
$ | 24,758 | 44 | % | $ | 30,581 | $ | 4,738 | $ | 13,608 | 10 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Other Financial Information (Non-GAAP): |
||||||||||||||||||||||||||
Adjusted EBITDA(1) |
$ | 24,805 | 45 | % | $ | 31,947 | $ | 26,592 | $ | 58,539 | 44 | % | ||||||||||||||
Operating cash flow less capital expenditures(2) |
$ | 22,013 | 40 | % | $ | 26,061 | $ | 12,541 | | |
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(1) | See Non-GAAP Financial MeasuresAdjusted EBITDA for more information and a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. |
(2) | See Non-GAAP Financial MeasuresOperating Cash Flow Less Capital Expenditures for more information and a reconciliation of operating cash flow less capital expenditures to cash from operating activities, the most directly comparable financial measure calculated and presented in accordance with GAAP. |
Non-GAAP Financial Measures
We include Adjusted EBITDA and operating cash flow less capital expenditures, which we refer to as the non-GAAP metrics, in this prospectus because they are important measures upon which our management assesses our operating performance. We use Adjusted EBITDA as a key performance metric because we believe it facilitates operating performance comparisons from period-to-period by excluding potential differences primarily caused by variations in capital structures, tax positions, the impact of depreciation and amortization expense on our fixed assets and the impact of equity-based compensation expense. In addition, our Credit Agreement contains financial maintenance covenants, including a total funded debt ratio and a minimum fixed charged ratio, that use Adjusted EBITDA as one of their inputs. We include operating cash flow less capital expenditures in this prospectus because we believe capital expenditures are essential to maintaining our operational capabilities and are a recurring and necessary use of cash. We view operating cash flow less capital expenditures as a key performance metric because it reflects changes in, or cash requirements for, our working capital needs, and is useful in evaluating the amount of cash available for discretionary investments. Because such non-GAAP metrics facilitate internal comparisons of our historical operating performance on a more consistent basis, we also use them for business planning purposes, to incentivize and compensate our management personnel, and in evaluating acquisition opportunities. In addition, we believe the non-GAAP metrics and similar measures are widely used by investors, securities analysts, ratings agencies and other parties in evaluating companies in our industry as a measure of financial performance and debt-service capabilities.
Our use of non-GAAP metrics has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
| Adjusted EBITDA metric does not reflect our cash expenditures for capital equipment or other contractual commitments; |
| Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect capital expenditure requirements for such replacements; |
| Adjusted EBITDA metrics may not reflect changes in, or cash requirements for, our working capital needs; |
| Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness; |
| Operating cash flow less capital expenditures does not reflect other non-discretionary expenditures such as mandatory debt service requirements or acquisition consideration paid that could impact residual cash flow available for discretionary expenditures; and |
| Other companies, including companies in our industry, may calculate Adjusted EBITDA and other non-GAAP measures differently, which reduces their usefulness as a comparative measure. |
In evaluating non-GAAP metrics, you should be aware that in the future we will incur expenses similar to the adjustments in this presentation. Our presentation of any non-GAAP metrics should not
77
be construed as an inference that our future results will be unaffected by these expenses or any other expenses, whether or not they are unusual or non-recurring items. When evaluating our performance, you should consider the non-GAAP metrics alongside other financial performance measures, including our net income and other GAAP results.
Adjusted EBITDA
Adjusted EBITDA is a financial performance measure that is not calculated in accordance with GAAP. We define Adjusted EBITDA as net income adjusted to exclude, when appropriate, interest expense, income tax expense, depreciation, amortization of intangible assets, Founder Contingent Compensation expense, inventory fair value adjustment, equity-based compensation expenses, expenses related to the Sponsor Acquisition and other non-operational items. Below, we have provided a reconciliation of Adjusted EBITDA to our net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. Adjusted EBITDA should not be considered as an alternative to net income or any other measure of financial performance calculated and presented in accordance with GAAP. Our Adjusted EBITDA may not be comparable to similarly titled measures of other organizations because other organizations may not calculate Adjusted EBITDA in the same manner as we calculate the measure.
The following tables present a reconciliation of Adjusted EBITDA to our net income, the most directly comparable GAAP measure, for each of the periods indicated:
Predecessor | Successor | |||||||||
(In thousands) |
Three months
ended March 31, 2014 |
Three months
ended March 31, 2015 |
||||||||
Net income |
$ | 11,714 | $ | 4,904 | ||||||
Non-GAAP adjustments: |
||||||||||
Interest expense |
| 2,955 | ||||||||
Income tax expense |
| 3,900 | ||||||||
Depreciation |
34 | 47 | ||||||||
Amortization of intangible assets |
| 1,042 | ||||||||
Equity-based compensation expenses |
| 788 | ||||||||
Founder Contingent Compensation(1) |
| 4,602 | ||||||||
Executive recruitment(2) |
| 308 | ||||||||
Other professional services(3) |
| 685 | ||||||||
|
|
|
|
|||||||
Adjusted EBITDA |
$ | 11,748 | $ | 19,231 | ||||||
|
|
|
|
(1) | Represents compensation expense associated with the Founder Contingent Compensation. See Note 1 to our audited consolidated financial statements included elsewhere in this prospectus for more information. |
(2) | Represents the recognized expense associated with sign-on and retention bonuses for certain executive hires and certain recruiting fees. We are permitted to add back expenses of this type in determining Adjusted EBITDA under the Credit Agreement governing our term loan. Adjusted EBITDA (as defined therein) is used thereunder in determining our financial maintenance covenants and for calculating ratios in our debt incurrence covenants and is therefore an important measure of our financial performance and our ability to take certain actions in operating our business. See Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtedness for more information. |
(3) | Represents transaction costs associated with legal and accounting services. |
Predecessor | Successor | Pro Forma(9) | ||||||||||||||||
(In thousands) |
Year ended
December 31, 2013 |
January 1,
2014 to July 16, 2014 |
July 17, 2014 to
December 31, 2014 |
Year ended
December 31, 2014 |
||||||||||||||
Net income |
$ | 24,758 | $ | 30,581 | $ | 4,738 | $ | 13,608 | ||||||||||
Non-GAAP adjustments: |
||||||||||||||||||
Interest expense(1) |
| | 4,253 | 12,884 | ||||||||||||||
Income tax expense(2) |
| | 3,486 | 7,326 | ||||||||||||||
Depreciation |
47 | 78 | 99 | 177 | ||||||||||||||
Amortization of intangible assets(3) |
| | 1,904 | 4,166 | ||||||||||||||
Inventory fair value adjustment(4) |
| | 401 | 401 | ||||||||||||||
Equity-based compensation expenses |
| | 235 | 235 | ||||||||||||||
Founder Contingent Compensation(5) |
| | 8,437 | 18,408 | ||||||||||||||
Sponsor Acquisition-related expenses(6) |
| 1,288 | 2,215 | 510 | ||||||||||||||
Recapitalization expenses(7) |
| | 178 | 178 | ||||||||||||||
Executive recruitment(8) |
| | 646 | 646 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Adjusted EBITDA |
$ | 24,805 | $ | 31,947 | $ | 26,592 | $ | 58,539 | ||||||||||
|
|
|
|
|
|
|
|
78
(1) | Represents interest expense of $4.3 million recorded in Successor period from July 17, 2014 to December 31, 2014, and $12.9 million recorded in the Pro Forma Year Ended December 31, 2014 (Unaudited) as more fully described in Unaudited Pro Forma Condensed Consolidated Financial Information. |
(2) | Represents income tax expense of $3.5 million recorded in Successor period from July 17, 2014 to December 31, 2014, and $7.3 million recorded in the Pro Forma Year Ended December 31, 2014 (Unaudited) as more fully described in Unaudited Pro Forma Condensed Consolidated Financial Information. |
(3) | Represents amortization of intangible assets of $1.9 million recorded in Successor period from July 17, 2014 to December 31, 2014, and $4.2 million reflected as a component of general & administrative expenses in the Pro Forma Year Ended December 31, 2014 (Unaudited) as more fully described in Unaudited Pro Forma Condensed Consolidated Financial Information. |
(4) | This adjustment reflects the elimination of the $0.4 million increase in cost of goods sold related to the Sponsor Acquisition. |
(5) | Represents compensation expense associated with the Founder Contingent Compensation of $8.4 million recorded in Successor period from July 17, 2014 to December 31, 2014 (see Note 1 to our audited consolidated financial statements included elsewhere in this prospectus for more information), and $18.4 million reflected as a component of general & administrative expenses in the Pro Forma Year Ended December 31, 2014 (Unaudited) as more fully described in Unaudited Pro Forma Condensed Consolidated Financial Information. |
(6) | Represents the following: |
Predecessor | Successor | Pro Forma | ||||||||||||||||
(In thousands) |
Year ended
December 31, 2013 |
January 1,
2014 to July 16, 2014 |
July 17, 2014 to
December 31, 2014 |
Year ended
December 31, 2014 |
||||||||||||||
Predecessor transaction costs(i) |
$ | | $ | 510 | $ | | $ | 510 | ||||||||||
Transaction bonuses(ii) |
| 778 | | | ||||||||||||||
Sponsor transaction costs(iii) |
| | 2,215 | | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | | $ | 1,288 | $ | 2,215 | $ | 510 | ||||||||||
|
|
|
|
|
|
|
|
i. | Represents a supplemental transaction payment and related expenses of $0.5 million paid to Precision Capital, an advisor to the Predecessor, in connection with the Sponsor Acquisition, in recognition of the services that were provided by Precision Capital Group, LLC to the Predecessor. Although the Predecessor was not contractually obligated to pay such amounts, we believe that such payments would not have been made by the Predecessor to Precision Capital Group, LLC but for the consummation of the Sponsor Acquisition. In addition, we are permitted to add back expenses of this type in determining Adjusted EBITDA under the Credit Agreement governing our term loan. Adjusted EBITDA (as defined therein) is used thereunder in determining our financial maintenance covenants and is therefore an important measure of our operating performance. See Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtedness for more information. |
ii. | Represents transaction bonuses paid to employees in connection with the Sponsor Acquisition. These have been excluded from the Pro Forma Year Ended December 31, 2014 (Unaudited) net income as more fully described in Unaudited Pro Forma Condensed Consolidated Financial Information, and therefore no further adjustment is required in reconciling Pro Forma Year Ended December 31, 2014 (Unaudited) net income to Adjusted EBITDA. |
iii. | Represents legal, accounting, tax, insurance and other diligence fees paid to consultants in connection with the Sponsor Acquisition. These have been excluded from the Pro Forma Year Ended December 31, 2014 (Unaudited) net income as more fully described in Unaudited Pro Forma Condensed Consolidated Financial Information, and therefore no further adjustment is required in reconciling Pro Forma Year Ended December 31, 2014 (Unaudited) net income to Adjusted EBITDA. |
(7) | Represents the expenses we incurred in connection with the December 2014 Special Dividend. We are permitted to add back expenses of this type in determining Adjusted EBITDA under the Credit Agreement governing our term loan. Adjusted EBITDA (as defined therein) is used thereunder in determining our financial maintenance covenants and is therefore an important measure of our operating performance. See Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtedness for more information. |
(8) | Represents the recognized expense associated with sign-on and retention bonuses for certain executive hires and certain recruiting fees. We are permitted to add back expenses of this type in determining Adjusted EBITDA under the Credit Agreement governing our term loan. Adjusted EBITDA (as defined therein) is used thereunder in determining our financial maintenance covenants and for calculating ratios in our debt incurrence covenants and is therefore an important measure of our operating performance and our ability to take certain actions in operating our business. See Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtedness for more information. |
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(9) | Represents Pro Forma Year Ended December 31, 2014 (Unaudited) net income, as more fully described in Unaudited Pro Forma Condensed Consolidated Financial Information, adjusted to exclude, when appropriate, interest expense, income tax expense, depreciation, amortization of intangible assets, Founder Contingent Compensation expense, inventory fair value adjustment, equity-based compensation expenses, expenses related to the Sponsor Acquisition and other non-operational items. |
Our Credit Agreement contains financial maintenance covenants, including a total funded debt ratio and a minimum fixed charge ratio, that use Adjusted EBITDA as one of their inputs. Accordingly, we have provided a reconciliation of Adjusted EBITDA to our cash from operating activities, the most directly comparable liquidity measure calculated and presented in accordance with GAAP. Adjusted EBITDA should not be considered as an alternative to cash from operating activities or any other measure of liquidity calculated and presented in accordance with GAAP. Our Adjusted EBITDA may not be comparable to similarly titled measures of other organizations because other organizations may not calculate Adjusted EBITDA in the same manner we calculate the measure. For more information on our Credit Agreement, its material terms, including the financial maintenance covenants, the amounts or limits required for compliance with the covenants and the effects of non-compliance with these covenants, see Indebtedness.
The following tables present a reconciliation of Adjusted EBITDA to our cash from operating activities for each of the periods indicated:
Predecessor |
|
Successor | ||||||||
(In thousands) |
Three months
ended March 31, 2014 |
|
Three months
ended March 31, 2015 |
|||||||
Cash from operating activities |
$ | 11,640 | $ | 14,142 | ||||||
Reconciling items: |
||||||||||
Interest expense |
| 2,955 | ||||||||
Income tax expense |
| 3,900 | ||||||||
Deferred income taxes(1) |
| 247 | ||||||||
Amortization of deferred financing costs(2) |
| (185 | ) | |||||||
Net change in operating assets and liabilities, net of effects of acquisition |
108 | (2,821 | ) | |||||||
Executive recruitment(3) |
| 308 | ||||||||
Other professional services(4) |
| 685 | ||||||||
|
|
|
|
|
||||||
Adjusted EBITDA |
$ | 11,748 | $ | 19,231 | ||||||
|
|
|
|
|
(1) | Represents a non-cash component of income tax expense above. |
(2) | Represents a non-cash component of interest tax expense above. |
(3) | Represents the recognized expense associated with sign-on and retention bonuses for certain executive hires and certain recruiting fees. We are permitted to add back expenses of this type in determining Adjusted EBITDA under the Credit Agreement governing our term loan. Adjusted EBITDA (as defined therein) is used thereunder in determining our financial maintenance covenants and for calculating ratios in our debt incurrence covenants and is therefore an important measure of our financial performance and our ability to take certain actions in operating our business. See Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtedness for more information. |
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(4) | Represents transaction costs associated with legal and accounting services. |
Predecessor | Successor | |||||||||||||
(In thousands) |
Year ended
December 31, 2013 |
January 1, 2014
to July 16, 2014 |
July 17, 2014 to
December 31, 2014 |
|||||||||||
Cash from operating activities |
$ | 22,469 | $ | 26,339 | $ | 12,719 | ||||||||
Reconciling items: |
||||||||||||||
Interest expense |
| | 4,253 | |||||||||||
Income tax expense |
| | 3,486 | |||||||||||
Deferred income taxes(1) |
| | 3,126 | |||||||||||
Amortization of deferred financing costs(2) |
| | (292 | ) | ||||||||||
Net change in operating assets and liabilities, net of effects of acquisition |
2,336 | 4,320 | (1,640 | ) | ||||||||||
Inventory fair value adjustment |
| | 401 | |||||||||||
Founder Contingent Compensation (3) |
| | 1,500 | |||||||||||
Sponsor Acquisition-related expenses(4) |
| 1,288 | 2,215 | |||||||||||
Recapitalization expenses(5) |
| | 178 | |||||||||||
Executive recruitment(6) |
| | 646 | |||||||||||
|
|
|
|
|
|
|||||||||
Adjusted EBITDA |
$ | 24,805 | $ | 31,947 | $ | 26,592 | ||||||||
|
|
|
|
|
|
(1) | Represents a non-cash component of income tax expense above. |
(2) | Represents a non-cash component of interest tax expense above. |
(3) | This adjustment reflects the prepayment of Founder Contingent Compensation. See Note 1 to our audited consolidated financial statements included elsewhere in this prospectus for more information. |
(4) | Represents the following: |
Predecessor | Successor | |||||||||||||
(In thousands) |
Year ended
December 31, 2013 |
January 1,
2014 to July 16, 2014 |
July 17, 2014 to
December 31, 2014 |
|||||||||||
Predecessor transaction costs(i) |
$ | | $ | 510 | $ | | ||||||||
Transaction bonuses(ii) |
| 778 | | |||||||||||
Sponsor transaction costs(iii) |
| | 2,215 | |||||||||||
|
|
|
|
|
|
|||||||||
Total |
$ | | $ | 1,288 | $ | 2,215 | ||||||||
|
|
|
|
|
|
i. | Represents a supplemental transaction payment and related expenses of $0.5 million paid to Precision Capital, an advisor to the Predecessor, in connection with the Sponsor Acquisition, in recognition of the services that were provided by Precision Capital Group, LLC to the Predecessor. Although the Predecessor was not contractually obligated to pay such amounts, we believe that such payments would not have been made by the Predecessor to Precision Capital Group, LLC but for the consummation of the Sponsor Acquisition. In addition, we are permitted to add back expenses of this type in determining Adjusted EBITDA under the Credit Agreement governing our term loan. Adjusted EBITDA (as defined therein) is used thereunder in determining our financial maintenance covenants and is therefore an important measure of our operating performance. See Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtedness for more information. |
ii. | Represents transaction bonuses paid to employees in connection with the Sponsor Acquisition. These have been excluded from the Pro Forma Year Ended December 31, 2014 (Unaudited) net income as more fully described in Unaudited Pro Forma Condensed Consolidated Financial Information, and therefore no further adjustment is required in reconciling Pro Forma Year Ended December 31, 2014 (Unaudited) net income to Adjusted EBITDA. |
iii. | Represents legal, accounting, tax, insurance and other diligence fees paid to consultants in connection with the Sponsor Acquisition. These have been excluded from the Pro Forma Year Ended December 31, 2014 (Unaudited) net income as more fully described in Unaudited Pro Forma Condensed Consolidated Financial Information, and therefore no further adjustment is required in reconciling Pro Forma Year Ended December 31, 2014 (Unaudited) net income to Adjusted EBITDA. |
(5) | Represents the expenses we incurred in connection with the December 2014 Special Dividend. We are permitted to add back expenses of this type in determining Adjusted EBITDA under the Credit Agreement governing our term loan. Adjusted EBITDA (as defined therein) is used thereunder in determining our financial maintenance covenants and is therefore an important measure of our operating performance. See Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtedness for more information. |
(6) |
Represents the recognized expense associated with sign-on and retention bonuses for certain executive hires and certain recruiting fees. We are permitted to add back expenses of this type in determining Adjusted EBITDA under the Credit Agreement governing our term loan. Adjusted EBITDA (as defined therein) is used thereunder in determining our financial |
81
maintenance covenants and for calculating ratios in our debt incurrence covenants and is therefore an important measure of our operating performance and our ability to take certain actions in operating our business. See Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtedness for more information. |
Operating Cash Flow Less Capital Expenditures
Operating cash flow less capital expenditures is a financial measure that is not calculated in accordance with GAAP. We define operating cash flow less capital expenditures as cash from operating activities, which is the most comparable GAAP financial measure, reduced by capital expenditures. Below, we have provided a reconciliation of operating cash flow less capital expenditures to our cash from operating activities, the most directly comparable financial measure calculated and presented in accordance with GAAP. Operating cash flow less capital expenditures should not be considered as an alternative to cash from operating activities or any other measure of financial performance calculated and presented in accordance with GAAP. Our operating cash flow less capital expenditures may not be comparable to similarly titled measures of other organizations because other organizations may not calculate operating cash flow less capital expenditures in the same manner as we calculate the measure. Since capital spending is essential to maintaining our operational capabilities, we believe that it is a recurring and necessary use of cash. As such, we believe investors should also consider capital spending when evaluating our cash from operating activities. We view operating cash flow less capital expenditures as an important measure because it reflects changes in, or cash requirements for, our working capital needs, and is one factor in evaluating the amount of cash available for discretionary investments.
The following tables present a reconciliation of operating cash flow less capital expenditures to cash from operating activities, the most directly comparable GAAP measure, for each of the periods indicated:
Predecessor | Successor | |||||||||
(In thousands) |
Three months
ended March 31, 2014 |
Three months
ended March 31, 2015 |
||||||||
Cash from operating activities |
$ | 11,640 | $ | 14,142 | ||||||
Capital expenditures |
(82 | ) | (370 | ) | ||||||
|
|
|
|
|||||||
Operating cash flow less capital expenditures |
$ | 11,558 | $ | 13,772 | ||||||
|
|
|
|
Predecessor | Successor | |||||||||||||
(In thousands) |
Year ended
December 31, 2013 |
January 1,
2014 to July 16, 2014 |
July 17,
2014 to December 31, 2014 |
|||||||||||
Cash from operating activities |
$ | 22,469 | $ | 26,339 | $ | 12,719 | ||||||||
Capital expenditures |
(456 | ) | (278 | ) | (178 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Operating cash flow less capital expenditures |
$ | 22,013 | $ | 26,061 | $ | 12,541 | ||||||||
|
|
|
|
|
|
82
Comparison of the Three Months Ended March 31, 2014 and 2015
Predecessor | Successor | Change | ||||||||||||||
(In thousands, except percentage information) |
Three months
ended March 31, 2014 |
Three months
ended March 31, 2015 |
$ | % | ||||||||||||
Net sales |
$ | 25,706 | $ | 44,275 | $ | 18,569 | 72 | % | ||||||||
Cost of goods sold |
11,378 | 19,866 | 8,488 | 75 | % | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
14,328 | 24,409 | 10,081 | 70 | % | |||||||||||
Sales and marketing expenses |
1,945 | 3,618 | 1,673 | 86 | % | |||||||||||
General and administrative expenses |
669 | 9,032 | 8,363 | 1,250 | % | |||||||||||
Sponsor acquisition-related expense |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
2,614 | 12,650 | 10,036 | 384 | % | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income |
11,714 | 11,759 | 45 | 0 | % | |||||||||||
Interest expense |
| 2,955 | 2,955 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Pre-tax income |
11,714 | 8,804 | (2,910 | ) | -25 | % | ||||||||||
Income tax expense |
| 3,900 | 3,900 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 11,714 | $ | 4,904 | $ | (6,810 | ) | -58 | % | |||||||
|
|
|
|
|
|
|
|
|||||||||
Other Financial Information (Non-GAAP): |
||||||||||||||||
Adjusted EBITDA(1) |
$ | 11,748 | $ | 19,231 | $ | 7,483 | 64 | % | ||||||||
Operating cash flow less capital expenditures(2) |
$ | 11,558 | $ | 13,772 | $ | 2,214 | 19 | % |
(1) | See Non-GAAP Financial MeasuresAdjusted EBITDA for more information and a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. |
(2) | See Non-GAAP Financial MeasuresOperating Cash Flow Less Capital Expenditures for more information and a reconciliation of operating cash flow less capital expenditures to cash from operating activities, the most directly comparable financial measure calculated and presented in accordance with GAAP. |
Net Sales
Net sales increased $18.6 million, or 72%, from $25.7 million for the three months ended March 31, 2014 to $44.3 million for the three months ended March 31, 2015. Our net sales growth has been primarily driven by volume increases resulting from increases in both the number of distribution points and sales to existing customers and the addition of new customers, primarily in the drug, conventional grocery and mass merchandiser channels. Volume increases resulted in an increase in net sales of approximately $15.8 million. Total Distribution Points increased 104% from 76 at March 31, 2014 to 155 at March 31, 2015. New customers acquired after March 31, 2014 accounted for approximately $2.8 million of the increase in net sales. Product price changes did not significantly impact sales growth from quarter to quarter.
Cost of Goods Sold
Cost of goods sold increased $8.5 million, or 75%, from $11.4 million for the three months ended March 31, 2014 to $19.9 million for the three months ended March 31, 2015. The increase in cost goods sold was primarily driven by increased sales volume. The product cost component of cost of goods sold increased $7.6 million, or 73%, from $10.4 million for the three months ended March 31, 2014 to $18.0 million for the three months ended March 31, 2015. The shipping and handling cost component of cost of goods sold increased $0.9 million, or 90%, from $1.0 million for the three months ended March 31, 2014 to $1.9 million for the three months ended March 31, 2015. The volume increase resulted in a cost of goods sold increase of approximately $9.0 million in the three months ended March 31, 2015. Rate decreases resulted in a cost of goods sold decrease of approximately $0.5 million in three months ended March 31, 2015.
83
Gross Profit
Gross profit increased $10.1 million, or 70%, from $14.3 million for the three months ended March 31, 2014 to $24.4 million for the three months ended March 31, 2015. The increase primarily related to the increase in net sales. Gross profit as a percentage of net sales declined approximately 60 basis points, from 55.7% for the three months ended March 31, 2014 to 55.1% for the three months ended March 31, 2015. The decrease in gross profit as a percentage of net sales was primarily a result of higher trade promotional spending in 2015 resulting from our increased product distribution. Trade promotional spending increased $5.0 million from the three months ended March 31, 2014 to the three months ended March 31, 2015.
Sales and Marketing Expenses
Sales and marketing expenses increased $1.7 million, or 86%, from $1.9 million for the three months ended March 31, 2014 to $3.6 million for the three months ended March 31, 2015. The increase was due primarily to increases in compensation expense for sales and marketing personnel of $0.9 million as we began to build out our internal sales team in 2014. Demonstrations expense increased $0.3 million driven by increased investment in consumer trial activities. Sales and marketing expenses as a percentage of net sales were 7.6% for the three months ended March 31, 2014 and 8.2% for the three months ended March 31, 2015, representing consistent sales and marketing efforts in proportion to net sales.
General and Administrative Expenses
General and administrative expenses increased $8.4 million, or 1,250%, from $0.7 million for the three months ended March 31, 2014 to $9.0 million for the three months ended March 31, 2015. The increase was due primarily to higher compensation expense associated with the Founder Contingent Compensation of $4.6 million, equity-based compensation of $0.8 million, an increase in amortization expense of $1.0 million associated with the Sponsor Acquisition, an increase in compensation expense of $0.9 million and an increase in professional fees of $0.9 million due to increased headcount and professional services to support our growth and operations. General and administrative expenses as a percentage of net sales increased from 2.6% for the three months ended March 31, 2014 to 20.4% for the three months ended March 31, 2015. The increase was a result of the factors described above.
Operating Income
As a result of the factors above, operating income was $11.7 million for the three months ended March 31, 2014 compared to operating income of $11.8 million for the three months ended March 31, 2015. Operating income as a percentage of net sales decreased from 45.6% in the three months ended March 31, 2014 to 26.6% in the three months ended March 31, 2015.
Interest Expense
The Company did not incur interest expense for the three months ended March 31, 2014 compared to $3.0 million for the three months ended March 31, 2015. Interest expense increased due to the incurrence of term loan borrowings in connection with the Sponsor Acquisition and the December 2014 Special Dividend.
Income Tax Expense
Our effective tax rate was 44.3% for the Successor three months ended March 31, 2015. The difference between the consolidated effective income tax rate and the U.S. federal statutory rate is primarily attributable to state taxes, net of federal benefit. The Predecessor was not subject to federal income tax.
84
Net Income
As a result of the increase in net sales, gross profit, operating expenses, and interest expense, as well as the other factors described above, net income decreased $6.8 million, or 58%, from $11.7 million for the three months ended March 31, 2014 to $4.9 million for the three months ended March 31, 2015 (as compared to $5.6 million for the three months ended March 31, 2015 and $1.8 million for the three months ended March 31, 2014, each on a pro forma basis). See Unaudited Pro Forma Condensed Consolidated Financial Information.
Adjusted EBITDA
As a result of the factors above, Adjusted EBITDA increased $7.5 million, or 64%, from $11.7 million for the three months ended March 31, 2014 to $19.2 million for the three months ended March 31, 2015. Adjusted EBITDA as a percentage of net sales decreased 230 basis points from 45.7% in the three months ended March 31, 2014 to 43.4% in the three months ended March 31, 2015. See Non-GAAP Financial MeasuresAdjusted EBITDA for more information and a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.
Operating Cash Flow Less Capital Expenditures
Operating cash flow less capital expenditures increased $2.2 million, or 19%, from $11.6 million for the three months ended March 31, 2014 to $13.8 million for the three months ended March 31, 2015. The increase was due primarily to the factors above, offset partially by interest and income tax payments in the Successor three months ended March 31, 2015. Mainly due to these factors, operating cash flow less capital expenditures as a percentage of net sales decreased from 45.0% in the three months ended March 31, 2014 to 31.1% in the three months ended March 31, 2015. See Non-GAAP Financial MeasuresOperating Cash Flow Less Capital Expenditures for more information and a reconciliation of operating cash flow less capital expenditures to cash flow from operations, the most directly comparable financial measure calculated and presented in accordance with GAAP.
Notes Regarding Pro Forma Results of Operations and Selected Consolidated Financial and Operating Information due to the Acquisition
Under GAAP, the audited consolidated financial statements for our fiscal year ended December 31, 2014 are presented in two distinct periods, as Predecessor and Successor entities, and are not comparable. However, in order to facilitate a discussion of our results of operations, liquidity and capital resources compared to a similar period within this Managements Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, we prepared and are presenting financial information for the Pro Forma Year Ended December 31, 2014 (Unaudited). The Predecessor and Successor periods are presented on two different bases of accounting. The pro forma results may not be indicative of future results or financial presentation. Wherever practicable, the discussion below compares the pro forma consolidated financial statements for the Pro Forma Year Ended December 31, 2014 (Unaudited) to the consolidated financial statements for the fiscal year ended December 31, 2013. We believe this presentation provides the reader a more meaningful comparison of our operating results in the year ended December 31, 2014 with the other periods presented because it demonstrates our underlying business performance and reflects managements assessment of our business. See Risk FactorsPeriod-to-period comparisons may not be meaningful given the Sponsor Acquisition of SkinnyPop by TA Associates in 2014 and may not be representative of our future performance and Risk FactorsThe pro forma financial information in this prospectus is presented for illustrative purposes only and does not represent what the results of operations of the
85
combined company would have been had the Sponsor Acquisition, the December 2014 Special Dividend or the May 2015 Special Dividend occurred on January 1, 2014, the date assumed for purposes of that pro forma information, nor does it represent the actual financial position or results of operations of the combined company following the Sponsor Acquisition.
Comparison of the Years Ended December 31, 2013 and 2014
Predecessor | Successor |
Pro Forma
(Unaudited) |
Change | |||||||||||||||||||||||
(In thousands, except percentage information) |
Year
ended December 31, 2013 |
January 1,
2014 to July 16, 2014 |
July 17,
2014 to December 31, 2014 |
Year ended
December 31, 2014 |
$ | % | ||||||||||||||||||||
Net Sales |
$ | 55,710 | $ | 68,353 | $ | 64,004 | $ | 132,357 | $ | 76,647 | 138 | % | ||||||||||||||
Cost of Goods Sold |
23,054 | 29,429 | 28,724 | 58,153 | 35,099 | 152 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Gross Profit |
32,656 | 38,924 | 35,280 | 74,204 | 41,548 | 127 | ||||||||||||||||||||
Sales & marketing expenses |
5,938 | 5,661 | 6,977 | 12,638 | 6,700 | 113 | ||||||||||||||||||||
General & administrative expenses |
1,960 | 1,394 | 13,611 | 27,238 | 25,278 | 1,290 | ||||||||||||||||||||
Sponsor acquisition-related expenses |
| 1,288 | 2,215 | 510 | 510 | | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total operating expenses |
7,898 | 8,343 | 22,803 | 40,386 | 32,488 | 411 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Operating income |
24,758 | 30,581 | 12,477 | 33,818 | 9,060 | 37 | ||||||||||||||||||||
Interest expense |
| | 4,253 | 12,884 | 12,884 | | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Pre-tax income |
24,758 | 30,581 | 8,224 | 20,934 | (3,824 | ) | (15 | ) | ||||||||||||||||||
Income tax expense |
| | 3,486 | 7,326 | 7,326 | | ||||||||||||||||||||
Net income |
$ | 24,758 | $ | 30,581 | $ | 4,738 | $ | 13,608 | $ | (11,150 | ) | 45 | % | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Other Financial Information (Non-GAAP): |
||||||||||||||||||||||||||
Adjusted EBITDA(1) |
$ | 24,805 | $ | 31,947 | $ | 26,592 | $ | 58,539 | $ | 33,734 | 136 | % | ||||||||||||||
Operating cash flow less capital expenditures(2) |
$ | 22,013 | $ | 26,061 | $ | 12,541 | N/A | N/A | N/A |
(1) | See Non-GAAP Financial MeasuresAdjusted EBITDA for more information and a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. |
(2) | See Non-GAAP Financial MeasuresOperating Cash Flow Less Capital Expenditures for more information and a reconciliation of operating cash flow less capital expenditures to cash from operating activities, the most directly comparable financial measure calculated and presented in accordance with GAAP. |
Net Sales
Net sales increased $76.6 million, or 138%, from $55.7 million for the year ended December 31, 2013 to $132.4 million for the Pro Forma Year Ended December 31, 2014 (Unaudited). Our net sales growth has been primarily driven by volume increases resulting from increases in both the number of distribution points and sales to existing customers and the addition of new customers, primarily in the drug, conventional grocery and mass merchandiser channels. Volume increases resulted in an increase in net sales of approximately $73.0 million. Total distribution points increased 178% from 49 at December 31, 2013 to 136 at December 31, 2014. New customers acquired during 2014 accounted for approximately $3.6 million of the increase in net sales. Product price changes did not significantly impact sales growth from period to period.
Cost of Goods Sold
Cost of goods sold increased $35.1 million, or 152%, from $23.1 million for the year ended December 31, 2013 to $58.2 million for the Pro Forma Year Ended December 31, 2014 (Unaudited). The increase in cost goods sold was primarily driven by increased sales volume. The product cost
86
component of cost of goods sold increased $31.5 million, or 147%, from $21.4 million for the year ended December 31, 2013 to $52.9 million for the Pro Forma Year Ended December 31, 2014 (Unaudited). The shipping and handling cost component of cost of goods sold increased $3.6 million, or 212%, from $1.7 million for the year ended December 31, 2013 to $5.3 million for the Pro Forma Year Ended December 31, 2014 (Unaudited). The volume increase resulted in a cost of goods sold increase of approximately $34.7 million in Pro Forma Year Ended December 31, 2014 (Unaudited). Rate increases resulted in a cost of goods sold increase of approximately $0.4 million in Pro Forma Year Ended December 31, 2014 (Unaudited).
Gross Profit
Gross profit increased $41.5 million, or 127%, from $32.7 million for the year ended December 31, 2013 to $74.2 million for the Pro Forma Year Ended December 31, 2014 (Unaudited). The increase primarily related to the increase in net sales. Gross profit as a percentage of net sales declined approximately 250 basis points, from 58.6% for the year ended December 31, 2013 to 56.1% for the Pro Forma Year Ended December 31, 2014 (Unaudited). The decrease in gross profit as a percentage of net sales was primarily a result of higher trade promotional spending in 2014 resulting from our increased product distribution. Trade promotional spending increased $14.7 million from the year ended December 31, 2013 to the Pro Forma Year Ended December 31, 2014 (Unaudited).
Sales and Marketing Expenses
Sales and marketing expenses increased $6.7 million, or 113%, from $5.9 million for the year ended December 31, 2013 to $12.6 million for the Pro Forma Year Ended December 31, 2014 (Unaudited). The increase was due primarily to increases in demonstrations expense of $2.0 million and broker fees of $3.0 million related to the increase in net sales. Compensation expense for sales and marketing personnel also increased $1.0 million as we began to build out our internal sales team in 2014. Sales and marketing expenses as a percentage of net sales were 10.7% for the year ended December 31, 2013 and 9.5% for the Pro Forma Year Ended December 31, 2014 (Unaudited), representing consistent sales and marketing efforts in proportion to net sales.
General and Administrative Expenses
General and administrative expenses increased $25.3 million, or 1290%, from $2.0 million for the year ended December 31, 2013 to $27.2 million for the Pro Forma Year Ended December 31, 2014 (Unaudited). The increase was due primarily to an increase in compensation expense associated with the Founder Contingent Compensation of $18.4 million, an increase in amortization expense of $4.2 million associated with the Sponsor Acquisition, an increase in compensation expense of $1.2 million and an increase in professional fees of $1.2 million due to increased headcount and professional services to support our growth and operations. General and administrative expenses as a percentage of net sales increased from 3.5% for the year ended December 31, 2013 to 20.6% for the Pro Forma Year Ended December 31, 2014 (Unaudited). The increase was a result of the factors described above.
The Sponsor Acquisition-Related Costs
The Sponsor Acquisition-related costs for the Pro Forma Year Ended December 31, 2014 (Unaudited) included a total of $0.5 million. These costs primarily included a supplemental transaction payment and related expenses paid to Precision Capital, an advisor to Predecessor, in connection with the Sponsor Acquisition. There were no such costs in the year ended December 31, 2013.
87
Operating Income
As a result of the factors above, operating income was $24.8 million for the year ended December 31, 2013 compared to operating income of $33.8 million for the Pro Forma Year Ended December 31, 2014 (Unaudited). Operating income as a percentage of net sales decreased from 44.4% in the year ended December 31, 2013 to 25.6% in the Pro Forma Year Ended December 31, 2014 (Unaudited).
Interest Expense
Interest expense was $0.0 million for the year ended December 31, 2013 compared to $12.9 million for the Pro Forma Year Ended December 31, 2014 (Unaudited). Interest expense increased in 2014 due to the incurrence of term loan and revolver borrowings in connection with the Sponsor Acquisition, the December 2014 Special Dividend and the May 2015 Special Dividend.
Income Tax Expense
Our effective tax rate was 42.4% for the Successor period in 2014. The difference between the consolidated effective income tax rate for the Successor period and the U.S. federal statutory rate is primarily attributable to state taxes, net of federal benefit. The Predecessor was not subject to federal income tax. See Note 12 of the audited consolidated financial statements included elsewhere in this prospectus for further detail.
In connection with the Corporate Reorganization, the former holders of existing units in Topco will receive the right to receive future payments pursuant to a tax receivable agreement. This tax receivable agreement will provide that we will be obligated to make annual payments to the holders of existing units in Topco equal to 85% of the U.S. federal, state and local tax benefits realized by us and our subsidiaries from the utilization of certain tax attributes that were generated when we were acquired by affiliates of TA Associates in July 2014. We will retain approximately 15% of the U.S. federal, state and local tax benefits realized from the utilization of such tax attributes.
The amount payable to the holders of existing units in Topco under the tax receivable agreement will be based on an annual calculation of the reduction in our U.S. federal, state and local taxes resulting from the utilization of these tax attributes. For purposes of determining the reduction in taxes resulting from the utilization of pre-IPO tax attributes, we will be required to assume that pre-IPO tax attributes are utilized before any other attributes. We expect that the payments that we may make under the tax receivable agreement may be substantial. In addition, if the IRS were to successfully challenge the tax benefits that give rise to any payments under the tax receivable agreement, our future payments under the tax receivable agreement to the former holders of units of Topco would be reduced by the amount of such payments, but the tax receivable agreement does not require the former holders of units of Topco to reimburse us for the amount of such payments to the extent they exceed any future amounts payable under the tax receivable agreement.
Payment under the tax receivable agreement would be accelerated in the event of a change of control including without limitation by way of mergers, stock or asset sales, other forms of combinations or upon a breach by us of our material obligations under the tax receivable agreement (such as by failing to make a payment within three months of the date on which such payment is due). Such accelerated payment would be based on the present value of projected future payments under the tax receivable agreement as of the date of the accelerating event. Such projected future payments could differ from the payments that would otherwise have resulted under the tax receivable agreement from our actual tax benefits realized from utilizing the pre-IPO tax attributes. For more information on the tax receivable agreement, see Certain Relationships and Related Party TransactionsTax Receivable Agreement.
88
Net Income
As a result of the increase in Founder Contingent Compensation, amortization expense in connection with the Sponsor Acquisition, and interest expense in connection with the Sponsor Acquisition, the December 2014 Special Dividend and the May 2015 Special Dividend, as well as the other factors described above, net income decreased $11.2 million, or 45%, from $24.8 million for the year ended December 31, 2013 to $13.6 million for the Pro Forma Year Ended December 31, 2014 (Unaudited).
Adjusted EBITDA
As a result of the factors above, Adjusted EBITDA increased $33.7 million, or 136%, from $24.8 million for the year ended December 31, 2013 to $58.5 million for the Pro Forma Year Ended December 31, 2014 (Unaudited). Adjusted EBITDA as a percentage of net sales decreased 30 basis points from 44.5% in the year ended December 31, 2013 to 44.2% in the Pro Forma Year Ended December 31, 2014 (Unaudited). See Non-GAAP Financial MeasuresAdjusted EBITDA for more information and a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.
Operating Cash Flow Less Capital Expenditures
Operating cash flow less capital expenditures was $22.0 million for the year ended December 31, 2013, $26.1 million for the Predecessor period from January 1, 2014 to July 16, 2014 and $12.5 million for the Successor period from July 17, 2014 to December 31, 2014. These represented 39.5%, 38.1%, and 19.6% of net sales, respectively. The decrease in the Successor period from July 17, 2014 to December 31, 2014 was due primarily to interest and income tax payments. See Non-GAAP Financial MeasuresOperating Cash Flow Less Capital Expenditures for more information and a reconciliation of operating cash flow less capital expenditures to cash flow from operations, the most directly comparable financial measure calculated and presented in accordance with GAAP.
89
Quarterly Results of Operations
The following unaudited quarterly statements of income data for each of the nine quarters ended March 31, 2015 have been prepared on a basis consistent with our audited annual financial statements and include, in the opinion of management, all normal recurring adjustments necessary for the fair statement of the financial information contained in those statements. These quarterly results of operations are not necessarily indicative of the results of operations that may be expected in the future and the results of operations in the periods presented are not necessarily indicative of results to be expected for any other period. The following quarterly financial data should be read in conjunction with all of our consolidated financial statements and the related notes included elsewhere in this prospectus.
(In thousands, except percentage information) 2014 |
Predecessor | Successor | ||||||||||||||||||||||||
Three
months ended March 31, 2014 |
Three
months ended June 30, 2014 |
July 1,
2014 to July 16, 2014 |
July 17,
2014 to September 30, 2014 |
Three
months ended December 31, 2014 |
Three
months ended March 31, 2015 |
|||||||||||||||||||||
Results of Operations Data: |
||||||||||||||||||||||||||
Net sales |
$ | 25,706 | $ | 35,462 | $ | 7,185 | $ | 30,957 | $ | 33,047 | $ | 44,275 | ||||||||||||||
Gross profit |
14,328 | 20,130 | 4,466 | 16,702 | 18,578 | 24,409 | ||||||||||||||||||||
Sales & marketing expenses |
1,945 | 2,652 | 1,065 | 3,261 | 3,715 | 3,618 | ||||||||||||||||||||
General & administrative expenses |
669 | 599 | 126 | 5,493 | 8,118 | 9,032 | ||||||||||||||||||||
Sponsor Acquisition-related expenses |
| | 1,288 | 2,215 | | | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Operating income |
11,714 | 16,879 | 1,987 | 5,733 | 6,745 | 11,759 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net income |
$ | 11,714 | $ | 16,879 | $ | 1,987 | $ | 2,126 | $ | 2,613 | $ | 4,904 | ||||||||||||||
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|
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|
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|
|||||||||||||||
Other Financial Information
|
||||||||||||||||||||||||||
Adjusted EBITDA(1) |
$ | 11,748 | $ | 16,915 | $ | 3,284 | $ | 13,232 | $ | 13,360 | $ | 19,231 | ||||||||||||||
Operating cash flow less capital expenditures(2) |
$ | 11,558 | $ | 13,663 | $ | 841 | $ | 12,407 | $ | 133 | $ | 13,772 | ||||||||||||||
Percentage of Net Sales: |
||||||||||||||||||||||||||
Net sales |
100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||
Gross profit |
56 | 57 | 62 | 54 | 56 | 55 | ||||||||||||||||||||
Sales & marketing expenses |
8 | 7 | 15 | 11 | 11 | 8 | ||||||||||||||||||||
General & administrative expenses |
3 | 2 | 2 | 18 | 25 | 21 | ||||||||||||||||||||
Sponsor Acquisition-related expenses |
| | 18 | 7 | | | ||||||||||||||||||||
Operating income |
46 | 48 | 28 | 19 | 20 | 26 | ||||||||||||||||||||
Net income |
46 | % | 48 | % | 28 | % | 8 | % | 7 | % | 11 | % | ||||||||||||||
Other Financial Information: |
||||||||||||||||||||||||||
Adjusted EBITDA(1) |
46 | % | 48 | % | 46 | % | 43 | % | 40 | % | 43 | % | ||||||||||||||
Operating cash flow less capital expenditures(2) |
45 | % | 39 | % | 12 | % | 40 | % | 0 | % | 31 | % |
(1) | See Non-GAAP Financial MeasuresAdjusted EBITDA below for more information and below for a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. |
(2) | See Non-GAAP Financial MeasuresOperating Cash Flow Less Capital Expenditures below for more information and below for a reconciliation of operating cash flow less capital expenditures to cash from operating activities, the most directly comparable financial measure calculated and presented in accordance with GAAP. |
90
(In thousands, except for percentage information) 2013 |
Predecessor | |||||||||||||||
Three months
ended March 31, 2013 |
Three months
ended June 30, 2013 |
Three months
ended September 30, 2013 |
Three months
ended December 31, 2013 |
|||||||||||||
Results of Operations Data: |
||||||||||||||||
Net sales |
$ | 8,247 | $ | 12,727 | $ | 14,701 | $ | 20,035 | ||||||||
Gross profit |
4,945 | 7,142 | 9,272 | 11,297 | ||||||||||||
Sales & marketing expenses |
881 | 1,279 | 1,768 | 2,010 | ||||||||||||
General & administrative expenses |
288 | 386 | 286 | 1,000 | ||||||||||||
Sponsor Acquisition-related expenses |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income |
3,776 | 5,477 | 7,218 | 8,287 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 3,776 | $ | 5,477 | $ | 7,218 | $ | 8,287 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Other Financial Information (Non-GAAP): |
||||||||||||||||
Adjusted EBITDA(1) |
$ | 3,780 | $ | 5,489 | $ | 7,230 | $ | 8,306 | ||||||||
Operating cash flow less capital expenditures(2) |
$ | 3,924 | $ | 4,047 | $ | 7,066 | $ | 6,976 | ||||||||
Percentage of Net Sales: |
||||||||||||||||
Net sales |
100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Gross profit |
60 | 56 | 63 | 56 | ||||||||||||
Sales & marketing expenses |
11 | 10 | 12 | 10 | ||||||||||||
General & administrative expenses |
3 | 3 | 2 | 5 | ||||||||||||
Sponsor Acquisition-related expenses |
| | | | ||||||||||||
Operating income |
46 | 43 | 49 | 41 | ||||||||||||
Net income |
46 | % | 43 | % | 49 | % | 41 | % | ||||||||
Other Financial Information (Non-GAAP): |
||||||||||||||||
Adjusted EBITDA(1) |
46 | % | 43 | % | 49 | % | 41 | % | ||||||||
Operating cash flow less capital expenditures(2) |
48 | % | 32 | % | 48 | % | 35 | % |
(1) | See Non-GAAP Financial MeasuresAdjusted EBITDA below for more information and below for a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. |
(2) | See Non-GAAP Financial MeasuresOperating Cash Flow Less Capital Expenditures below for more information and below for a reconciliation of operating cash flow less capital expenditures to cash from operating activities, the most directly comparable financial measure calculated and presented in accordance with GAAP. |
91
Adjusted EBITDA
The following table presents a reconciliation of Adjusted EBITDA to our net income, the most directly comparable GAAP measure, for each of the periods indicated below. See Non-GAAP Financial Measures for more information on our use and the limitations of Adjusted EBITDA as a measure of our financial performance.
(In thousands) 2014 |
Predecessor | Successor | ||||||||||||||||||||||||
Three
months ended March 31, 2014 |
Three
months ended June 30, 2014 |
July 1,
2014 to July 16, 2014 |
July 17,
2014 to September 30, 2014 |
Three
months ended December 31, 2014 |
Three
months ended March 31, 2015 |
|||||||||||||||||||||
Net income |
$ | 11,714 | $ | 16,879 | $ | 1,987 | $ | 2,126 | $ | 2,613 | $ | 4,904 | ||||||||||||||
Non-GAAP adjustments: |
||||||||||||||||||||||||||
Interest expense |
| | | 1,853 | 2,400 | 2,955 | ||||||||||||||||||||
Income tax expense |
| | | 1,754 | 1,732 | 3,900 | ||||||||||||||||||||
Depreciation |
34 | 36 | 9 | 49 | 49 | 47 | ||||||||||||||||||||
Amortization of intangible assets |
| | | 862 | 1,042 | 1,042 | ||||||||||||||||||||
Inventory fair value adjustment(1) |
| | | 401 | | | ||||||||||||||||||||
Equity-based compensation expenses |
| | | | 235 | 788 | ||||||||||||||||||||
Founder Contingent Compensation(2) |
| | | 3,835 | 4,602 | 4,602 | ||||||||||||||||||||
Sponsor Acquisition-related expenses(3) |
| | 1,288 | 2,215 | | | ||||||||||||||||||||
Recapitalization expenses(4) |
| | | | 178 | | ||||||||||||||||||||
Executive recruitment(5) |
| | | 137 | 509 | 308 | ||||||||||||||||||||
Other professional services(6) |
| | | | | 685 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Adjusted EBITDA |
$ | 11,748 | $ | 16,915 | $ | 3,284 | $ | 13,232 | $ | 13,360 | $ | 19,231 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | This adjustment reflects the elimination of the $0.4 million increase in cost of goods sold related to the Sponsor Acquisition. |
(2) | Represents compensation expense associated with the Founder Contingent Compensation. See Note 1 to our audited consolidated financial statements included elsewhere in this prospectus for more information. |
(3) | Represents the following: |
Predecessor | Successor | |||||||||||||||||||||||||
(In thousands) |
Three months
ended March 31, 2014 |
Three months
ended June 30, 2014 |
July 1,
2014 to July 16, 2014 |
July 17, 2014
to September 30, 2014 |
Three months
ended December 31, 2014 |
Three months
ended March 31, 2015 |
||||||||||||||||||||
Predecessor transaction costs(i) |
$ | | $ | | $ | 510 | $ | | $ | | $ | | ||||||||||||||
Transaction bonuses(ii) |
| | 778 | | $ | | $ | | ||||||||||||||||||
Sponsor transaction costs(iii) |
| | | 2,215 | $ | | $ | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | | $ | | $ | 1,288 | $ | 2,215 | $ | | $ | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
i. | Represents a supplemental transaction payment and related expenses of $0.5 million paid to Precision Capital, an advisor to the Predecessor, in connection with the Sponsor Acquisition, in recognition of the services that were provided by Precision Capital Group, LLC to the Predecessor. Although the Predecessor was not contractually obligated to pay such amounts, we believe that such payments would not have been made by the Predecessor to Precision Capital Group, LLC but for the consummation of the Sponsor Acquisition. In addition, we are permitted to add back expenses of this type in determining Adjusted EBITDA under the Credit Agreement governing our term loan. Adjusted EBITDA (as defined therein) is used thereunder in determining our financial maintenance covenants and is therefore an important measure of our operating performance. See Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtedness for more information. |
ii. | Represents transaction bonuses paid to employees in connection with the Sponsor Acquisition. |
iii. | Represents legal, accounting, tax, insurance and other diligence fees paid to consultants in connection with the Sponsor Acquisition. |
(4) | Represents the expenses we incurred in connection with the December 2014 Special Dividend. We are permitted to add back expenses of this type in determining Adjusted EBITDA under the credit agreement governing our term loan. Adjusted EBITDA (as defined therein) is used thereunder in determining our financial maintenance covenants and is therefore an important measure of our operating performance. See Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtedness for more information. |
92
(5) | Represents the recognized expense associated with sign-on and retention bonuses for certain executive hires, and certain recruiting fees. We are permitted to add back expenses of this type in determining Adjusted EBITDA under the Credit Agreement governing our term loan. Adjusted EBITDA (as defined therein) is used thereunder in determining our financial maintenance covenants and for calculating ratios in our debt incurrence covenants and is therefore an important measure of our financial performance and our ability to take certain actions in operating our business. See Managements Discussion and Analysis of Financial Condition and Results of OperationIndebtedness for more information. |
(6) | Represents transaction costs associated with legal and accounting services. |
(In thousands) 2013 |
Three Months Ended | |||||||||||||||
March 31,
2013 Predecessor |
June 30,
2013 Predecessor |
September 30,
2013 Predecessor |
December 31,
2013 Predecessor |
|||||||||||||
Net income |
$ | 3,776 | $ | 5,477 | $ | 7,218 | $ | 8,287 | ||||||||
Non-GAAP adjustments: |
||||||||||||||||
Interest expense |
| | | | ||||||||||||
Income tax expense |
| | | | ||||||||||||
Depreciation |
3 | 11 | 12 | 21 | ||||||||||||
Amortization of intangible assets |
| | | | ||||||||||||
Non-cash equity-based compensation |
| | | | ||||||||||||
Founder Contingent Compensation |
| | | | ||||||||||||
Sponsor Acquisition-related expenses |
| | | | ||||||||||||
Recapitalization expenses |
| | | | ||||||||||||
Executive recruitment |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted EBITDA |
$ | 3,779 | $ | 5,488 | $ | 7,230 | $ | 8,308 | ||||||||
|
|
|
|
|
|
|
|
The following tables present a reconciliation of Adjusted EBITDA to our cash from operating activities:
Predecessor |
|
Successor | ||||||||||||||||||||||||
(In thousands) |
Three
months ended March 31, 2014 |
Three
months ended June 30, 2014 |
July 1,
2014 to July 16, 2014 |
|
July 17, 2014
to September 30, 2014 |
Three
months ended December 31, 2014 |
Three
months ended March 31, 2015 |
|||||||||||||||||||
Cash from operating activities |
$ | 11,640 | $ | 13,858 | $ | 841 | $ | 12,515 | $ | 204 | $ | 14,142 | ||||||||||||||
Reconciling items: |
||||||||||||||||||||||||||
Interest expense |
| | | 1,853 | 2,400 | 2,955 | ||||||||||||||||||||
Income tax expense |
| | | 1,754 | 1,732 | 3,900 | ||||||||||||||||||||
Deferred income taxes (1) |
| | | | 3,126 | 247 | ||||||||||||||||||||
Amortization of deferred financing costs (2) |
| | | (127 | ) | (165 | ) | (185 | ) | |||||||||||||||||
Net changes in operating assets and liabilities, net of effects of acquisition |
108 | 3,057 | 1,155 | (5,516 | ) | 3,876 | (2,821 | ) | ||||||||||||||||||
Inventory fair value adjustment |
| | | 401 | | | ||||||||||||||||||||
Founder Contingent Compensation (3) |
| | | | 1,500 | | ||||||||||||||||||||
Sponsor Acquisition-related expenses |
| | 1,288 | 2,215 | | | ||||||||||||||||||||
Recapitalization expenses |
| | | | 178 | | ||||||||||||||||||||
Executive recruitment |
| | | 137 | 509 | 308 | ||||||||||||||||||||
Other professional services |
| | | | | 685 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Adjusted EBITDA |
$ | 11,748 | $ | 16,915 | $ | 3,284 | $ | 13,232 | $ | 13,360 | $ | 19,231 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Represents a non-cash component of income tax expense above. |
(2) | Represents a non-cash component of interest expense above. |
93
(3) | This adjustment reflects the prepayment of Founder Contingent Compensation. See Note 1 to our audited consolidated financial statements included elsewhere in this prospectus for more information. |
Three Months Ended | ||||||||||||||||
(In thousands) |
March 31,
2013 Predcessor |
June 30,
2013 Predcessor |
September 30,
2013 Predcessor |
December 31,
2013 Predcessor |
||||||||||||
Cash from operating activities |
$ | 4,062 | $ | 4,069 | $ | 7,112 | $ | 7,226 | ||||||||
Reconciling items: |
||||||||||||||||
Net changes in operating assets and liabilities |
(283 | ) | 1,419 | 118 | 1,082 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted EBITDA |
$ | 3,779 | $ | 5,488 | $ | 7,230 | $ | 8,308 | ||||||||
|
|
|
|
|
|
|
|
Operating Cash Flow Less Capital Expenditures
The following table presents a reconciliation of operating cash flow less capital expenditure to our cash from operating activities, the most directly comparable GAAP measure, for each of the periods indicated below. See Non-GAAP Financial Measures for more information on our use and the limitations of operating cash flow less capital expenditures as a measure of our financial performance.
(In thousands) 2014 |
Predecessor | Successor | ||||||||||||||||||||||||
Three
months ended March 31, 2014 |
Three
months ended June 30, 2014 |
July 1,
2014 to July 16, 2014 |
July 17,
2014 to September 30, 2014 |
Three
months ended December 31, 2014 |
Three
months ended March 31, 2015 |
|||||||||||||||||||||
Cash from operating activities |
$ | 11,640 | $ | 13,858 | $ | 841 | $ | 12,515 | $ | 204 | $ | 14,142 | ||||||||||||||
Capital expenditures |
(82 | ) | (195 | ) | | (108 | ) | (71 | ) | (370 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Operating cash flow less capital expenditures |
$ | 11,558 | $ | 13,663 | $ | 841 | $ | 12,407 | $ | 133 | $ | 13,772 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) 2013 |
Predecessor | |||||||||||||||
Three
months ended March 31, 2013 |
Three
months ended June 30, 2013 |
Three
months ended September 30, 2013 |
Three
months ended December 31, 2013 |
|||||||||||||
Cash from operating activities |
$ | 4,062 | $ | 4,069 | $ | 7,112 | $ | 7,226 | ||||||||
Capital expenditures |
(138 | ) | (22 | ) | (46 | ) | (250 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating cash flow less capital expenditures |
$ | 3,924 | $ | 4,047 | $ | 7,066 | $ | 6,976 | ||||||||
|
|
|
|
|
|
|
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Quarterly Trends
Historically, we have experienced greater quarterly net sales around the time of our customers merchandising and promotional activities. We had significant merchandising and promotional activities with major customers predominately in the first and third quarters in 2014, with net sales for such activities taking place in the fourth quarter of 2013 and the third quarter of 2014, respectively. Generally, inventory levels and working capital requirements increase during the period of or the period prior to the merchandising, sampling and promotional activity period, in order to support higher levels of net sales from those promotional activities. We anticipate that the impact of merchandising and promotional activities on our net sales and working capital is likely to continue, but we cannot predict whether this trend will follow a regular annual pattern according to traditional calendar seasons. Accordingly, our results of operations for any particular quarter may not be indicative of the results we expect for the full year.
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Liquidity and Capital Resources
Liquidity represents our ability to generate sufficient cash from operating activities to satisfy obligations, as well as our ability to obtain appropriate financing. Therefore, liquidity cannot be considered separately from capital resources that consist primarily of current and potentially available funds for use in achieving our objectives. Currently, our liquidity needs arise mainly from working capital requirements, primarily related to our purchases of ingredients and interest and principal payments on our outstanding indebtedness and, to a lesser extent, to capital expenditures. We believe our cash on hand and cash to be provided from our operations, in addition to borrowings available under our credit facility, will be sufficient to fund our contractual commitments, including with respect to the Founders Contingent Compensation and the tax receivable agreement, repay our obligations as required and meet our operational requirements for at least the next 12 months. In addition, we have an uncommitted incremental revolving facility that we believe would be available if we requested it from lenders. As of December 31, 2014 and March 31, 2015, $7.5 million was available for borrowing under our revolving facility and we had $5.6 million and $16.9 million of cash and cash equivalents on hand, respectively.
The interest expense on our outstanding indebtedness for the year ended December 31, 2014 on a pro forma basis would have been $12.2 million had the $207.5 million aggregate principal amount of debt under the Credit Facility been incurred on January 1, 2014. The interest expense on our outstanding indebtedness for the year ending December 31, 2015 is expected to be approximately $11.5 million assuming the interest rate remains constant and that we make only required amortization payments. In 2016, we expect to use approximately $25 million in cash to pay the Founder Contingent Compensation. We expect to fund this payment through a combination of borrowings under our revolving facility and cash on hand. In addition, we expect to use cash to make payments under the tax receivable agreement and such amounts are expected to be significant over the next fifteen years.
The following table summarizes our cash flows for the periods indicated:
(In thousands) | Predecessor | Successor | Predecessor | Successor | ||||||||||||||||
Year ended
December 31, 2013 |
January 1,
2014 to July 16, 2014 |
July 17,
2014 to December 31, 2014 |
Three
months ended March 31, 2014 |
Three
months ended March 31, 2015 |
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Cash from operating activities |
$ | 22,469 | $ | 26,339 | $ | 12,719 | $ | 11,640 | $ | 14,142 | ||||||||||
Cash used in investing activities |
(456 | ) | (278 | ) | (294,630 | ) | (82 | ) | (370 | ) | ||||||||||
Cash from (used in) financing activities |
$ | (19,362 | ) | $ | (28,533 | ) | $ | 287,526 | $ | (9,687 | ) | $ | (2,500 | ) | ||||||
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Cash and Cash Flow
Cash from Operating Activities
Operating activities provided $11.6 million of cash during the three months ended March 31, 2014 primarily due to our net income of $11.7 million. Changes in operating asset and liability accounts represented a $0.1 million net use of cash during the quarter.
Operating activities provided $14.1 million of cash during the three months ended March 31, 2015 primarily due to our net income of $4.9 million, which was reduced by $4.6 million for Founder Contingent Compensation, $1.1 million for depreciation and amortization and $0.2 million for the amortization of deferred financing costs. Changes in operating asset and liability accounts represented a $2.8 million net source of cash, which was primarily comprised of a $2.6 million decrease in inventory mainly due to the timing of promotional activities, a $3.4 million increase in accrued liabilities mainly due to accrued income taxes, and offset by a $3.3 million increase accounts receivable driven by increased sales and business activity.
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Operating activities provided $22.5 million of cash during the year ended December 31, 2013, primarily due to our net income of $24.8 million. Changes in operating asset and liability accounts represented a $2.3 million net use of cash during the year ended December 31, 2013.
Operating activities provided $26.3 million of cash during the Predecessor period from January 1, 2014 to July 16, 2014 primarily due to our net income of $30.6 million, which was reduced by $0.1 million for depreciation and amortization. Changes in operating asset and liability accounts represented a $4.3 million use of cash, which was primarily comprised of a $4.6 million increase in accounts receivable and a $1.0 million increase in inventory, offset by a $0.9 million increase in accounts payable and accrued expenses. This net use of cash was primarily driven by increased sales and business activity.
Operating activities provided $12.7 million of cash during the Successor period from July 17, 2014 to December 31, 2014 primarily due to our net income of $4.7 million, which was reduced by $6.9 million for Founder Contingent Compensation, $2.0 million for depreciation and amortization and $0.3 million for the amortization of deferred financing costs. Changes in operating asset and liability accounts represented a $1.6 million net source of cash, which was primarily comprised of a $0.8 million increase in accounts receivable and a $3.0 million increase in inventory, offset by a $5.9 million increase in accounts payable and accrued expense.
Cash Used in Investing Activities
For the three months ended March 31, 2014, cash used in investing activities consisted of capital expenditures of $0.1 million.
For the three months ended March 31, 2015, cash used in investing activities consisted of capital expenditures of $0.4 million primarily for the purchase of leasehold improvements for our new corporate headquarters in Austin, Texas.
For the year ended December 31, 2013, cash used in investing activities consisted of capital expenditures of $0.5 million. The major areas of expenditures were for maintenance capital and production equipment located at our co-manufacturer.
For the Predecessor period from January 1, 2014 to July 16, 2014, cash used in investing activities consisted of capital expenditures of $0.3 million. Capital expenditures were primarily for production equipment located at our co-manufacturers facility.
For the Successor period from July 17, 2014 to December 31, 2014, cash used in investing activities included $294.5 million of cash used in the Sponsor Acquisition, net of cash acquired, and capital expenditures of $0.2 million. Capital expenditures were primarily for production equipment located at our co-manufacturers facility.
Cash from (Used in) Financing Activities
Cash used in financing activities for the three months ended March 31, 2014 included cash paid as distributions to the members of the Predecessor entity.
Cash used in financing activities for the three months ended March 31, 2015 included a required payment against the principal outstanding in accordance with the maturity schedule of our long-term debt.
Cash from (used in) financing activities for the year ended December 31, 2013 included cash paid as distributions to the members of the Predecessor entity.
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Cash used in financing activities for the Predecessor period from January 1, 2014 to July 16, 2014, included cash paid as distributions to the members of the Predecessor entity.
Cash from (used in) financing activities for the Successor period from July 17, 2014 to December 31, 2014 included an equity contribution of $151.0 million in connection with the Sponsor Acquisition and proceeds from the issuance of the term loans of $200.0 million, net of fees and expenses of $3.7 million. These inflows were partially offset by $59.8 million of distributions paid to members of Topco.
In connection with the Corporate Reorganization, the former holders of existing units in Topco will receive the right to receive future payments pursuant to a tax receivable agreement. The amount payable to the holders of existing units in Topco under the tax receivable agreement will be based on an annual calculation of the reduction in our U.S. federal, state and local taxes resulting from the utilization of certain pre-IPO tax attributes. See Certain Relationships and Related Party TransactionsTax Receivable Agreement. We expect that the payments that we may be required to make under the tax receivable agreement may be substantial. Assuming no material changes in the relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are subject to the tax receivable agreements, we expect that the reduction in tax payments for us associated with the federal, state and local tax benefits described above would aggregate to approximately $112.4 million through 2030. Under such scenario we would be required to pay the holders of existing units in Topco 85% of such amount, or $95.5 million through 2030. The actual amounts may materially differ from these hypothetical amounts, as potential future reductions in tax payments for us and tax receivable agreement payments by us will be calculated using prevailing tax rates applicable to us over the life of the tax receivable agreements and will be dependent on us generating sufficient future taxable income to realize the benefit. Payments will be made by us on an annual basis (assuming we earn sufficient taxable income in a given fiscal year so as to realize tax benefits) beginning in 2016 with respect to the 2015 tax year and generally within 60 days following the filing by us of our U.S. federal income tax return for the preceding fiscal year. Payments under the tax receivable agreements are not conditioned upon the holders of existing units in Topco continuing to own shares of our capital stock or other securities.
It is possible that future transactions or events could increase or decrease the actual tax benefits realized and the corresponding tax receivable agreement payments that are payable by us. We expect to fund our obligations under the tax receivable agreement with cash flow from operating activities and borrowings under our revolving facility to the extent available. There may be a material negative effect on our liquidity if, as a result of timing discrepancies or otherwise, the payments under the tax receivable agreement exceed the actual benefits we realize in respect of the tax attributes subject to the tax receivable agreement, or if distributions to the Company by our wholly-owned subsidiaries are not sufficient to permit the Company to make payments under the tax receivable agreement after it has paid taxes. In addition, if the IRS were to successfully challenge the tax benefits that give rise to any payments under the tax receivable agreement, our future payments under the tax receivable agreement to the former holders of units of Topco would be reduced by the amount of such payments, but the tax receivable agreement does not require the former holders of units of Topco to reimburse us for the amount of such payments to the extent they exceed any future amounts payable under the tax receivable agreement. Also, if we elect to terminate the tax receivable agreement early, we would be required to make an immediate payment equal to the present value of the anticipated future tax benefits, which upfront payment may be made years in advance of the actual realization of such future benefits (if any). In these situations, our obligations under the tax receivable agreement could have a substantial negative impact on our liquidity and we may not be able to finance our obligations under the tax receivable agreement.
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Indebtedness
On July 17, 2014, SkinnyPop Popcorn LLC entered into the Credit Agreement, which provided for a $150.0 million term loan facility and a $7.5 million revolving facility (with sublimits for swingline loans and the issuance of letters of credit). These senior secured credit facilities, or the Credit Facility, were guaranteed by the Company. The Credit Facility will mature on July 17, 2019, with an option to extend the maturity of the term loan with the consent of lenders willing to provide such extension.
The Credit Facility replaced our prior line of credit, which had a zero balance immediately prior to the entry into the Credit Facility. Immediately after the closing of the Credit Facility, total outstanding debt under the Credit Facility was approximately $150.0 million in term loan debt and $0 in borrowings under the revolving facility.
On August 18, 2014, we amended the Credit Facility, or the Amended Credit Facility, to remove certain total funded debt-to-EBITDA interest rate reductions and implement a static interest rate margin based on either the Eurodollar Rate or the Base Rate (as each is defined in the Amended Credit Facility).
On December 23, 2014, we amended the Amended Credit Facility to increase our term loan borrowings by $50.0 million to a total of $200.0 million, with such borrowings having the same interest rate as the original term loans under the Amended Credit Facility. In addition, we amended the financial covenants in the Amended Credit Facility to increase the total funded debt-to-EBITDA covenant for each quarterly period to reflect our higher leverage. The Amended Credit Facility, as so amended is referred to as the Second Amended Credit Facility. The interest rate on our outstanding indebtedness was 5.5% per annum at December 31, 2014 and March 31, 2015.
On May 29, 2015, we amended the Second Amended Credit Facility to increase our term loan borrowings by $7.5 million to a total of $205 million, net of principal payments made in the first quarter of $2.5 million, and our revolving facility by $17.5 million to a total of $25 million and made a revolving loan borrowing of $15 million. The Second Amended Credit Facility, as so amended, is referred to as the Third Amended Credit Facility. At the closing of the Third Amended Credit Facility, we borrowed $15 million under our revolving facility, which, along with our term loan borrowings, have the same interest rate as the term and revolving loans under the Second Amended Credit Facility. The interest rate on our outstanding indebtedness was 5.5% per annum at December 31, 2014 and March 31, 2015. Assuming the interest rate and the outstanding principal amount of our indebtedness remains the same, we expect our actual cash interest expense to be approximately $11.5 million in 2015. This is a substantial increase from 2014 when our actual cash interest expense was $4.0 million in the Successor period from July 17, 2014 to December 31, 2014. We also expect to use $10.2 million in cash in 2015 to make required principal payments against the total principal outstanding in accordance with the maturity schedule.
Proceeds from the initial term loan borrowings were primarily used to finance the Sponsor Acquisition and to pay fees and expenses in connection therewith. Proceeds of the Second Amended Credit Facility were primarily used to pay the December 2014 Special Dividend to the equity holders of Topco. Proceeds from the Third Amended Credit Facility were primarily used to pay the May 2015 Special Dividend to the equity holders of Topco. In the future, we may use the revolving facility for working capital and for other general corporate purposes, including acquisitions, investments, dividends and distributions, to the extent permitted under the Third Amended Credit Facility. The Third Amended Credit Facility also provides that, upon satisfaction of certain conditions, we may increase the aggregate principal amount of the loans outstanding thereunder by an amount not to exceed $50.0 million, subject to receipt of additional lending commitments for such loans.
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In connection with the Corporate Reorganization, we will further amend the Third Amended Credit Agreement to permit us to enter into the tax receivable agreement and the payments to be made thereunder.
Interest
Outstanding term loan borrowings under the Third Amended Credit Facility bear interest at a rate per annum equal to (a) the Eurodollar Rate plus 4.50% or (b) the Base Rate (equal in this context to the greater of (i) the prime rate, (ii) the federal funds rate plus 1/2 of 1.00% and (iii) the Eurodollar Rate plus 1.00%) (but subject to a minimum of 2.00%) plus 3.50%. The term loans under the Third Amended Credit Facility will amortize in equal quarterly installments of 1.25% of the principal amount of $207.5 million beginning on June 30, 2015, with the balance due at maturity.
Outstanding amounts under the revolving facility bear interest at a rate per annum equal to (a) the Eurodollar Rate plus 4.50% or (b) the Base Rate (equal in this context to the greater of (i) the prime rate, (ii) the federal funds rate plus 1/2 of 1.00% and (iii) the Eurodollar Rate plus 1.00%) (but subject to a minimum of 2.00%) plus 3.50%. We are required to pay a commitment fee on the unused commitments under the revolving facility at a rate equal to 0.50% per annum.
Guarantees
The loans and other obligations under the Third Amended Credit Facility (including in respect of hedging agreements and cash management obligations) are (a) guaranteed by the Company and its existing and future wholly-owned U.S. subsidiaries and (b) secured by substantially all of the assets of the Company and its existing and future wholly-owned U.S. subsidiaries, in each case subject to certain customary exceptions and limitations.
Covenants
As of the last day of any fiscal quarter of the Company, the terms of the Third Amended Credit Facility require the Company and its subsidiaries (on a consolidated basis and subject to certain customary exceptions) to maintain (x) a maximum total funded debt to consolidated EBITDA ratio of not more than 4.25 to 1.0, initially, and decreasing to 2.25 to 1.0 over the term of the Third Amended Credit Facility and (y) a minimum fixed charge coverage ratio of not less than 1.10 to 1.00. As of December 31, 2014 and March 31, 2015, we were in compliance with our financial covenants.
In addition, the Third Amended Credit Facility contains (a) customary provisions related to mandatory prepayment of the loans thereunder with (i) 50% of Excess Cash Flow (as defined in the Third Amended Credit Facility), subject to step-downs to 25% and 0% of Excess Cash Flow at certain leverage-based thresholds and (ii) the proceeds of asset sales and casualty events (subject to certain customary limitations, exceptions and reinvestment rights) and (b) certain covenants that, among other things, restrict additional indebtedness, liens and encumbrances, investments, acquisitions, loans and advances, mergers, consolidations and asset dispositions, dividends and other restricted payments, transactions with affiliates and other matters customarily restricted in such agreements, in each case, subject to certain customary exceptions. The first payment based on Excess Cash Flow (as defined in the Third Amended Credit Facility) is dependent on our results for the year ended December 31, 2015 and due not later than May 6, 2016.
Although the Third Amended Credit Facility generally prohibits payments and dividends and distributions, we are permitted, subject to certain customary conditions such as the absence of events of default and compliance with financial covenants, to make payments, dividends or distributions including (a) earnout payments, (b) payments, dividends or distributions in cash from retained excess
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cash flow and certain proceeds from distributions from or sales of investments, (c) payments, dividends or distributions in an unlimited amount from the proceeds of equity issuances and (d) payments, dividends or distributions not to exceed $5.0 million in the aggregate.
Under the Third Amended Credit Facility, the Founder Contingent Compensation may be paid at any time so long as no payment default under the Third Amended Credit Facility has occurred and is continuing and, immediately after giving effect to such payment, the Company has at least $5.0 million of cash and cash equivalents subject to a first priority lien in favor of the lenders party thereto plus availability under the revolving facility. In the event we are not permitted to pay the Founder Contingent Compensation under the Third Amended Credit Facility we will no longer be obligated to make such payment under the employment agreements with the Founders subject to limited exceptions.
The Third Amended Credit Facility also contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to certain material indebtedness in excess of specified amounts, certain events of bankruptcy and insolvency, certain ERISA events, judgments in excess of specified amounts, certain impairments to the guarantees or collateral documents and change in control defaults.
Other
Certain of the lenders under the Third Amended Credit Facility (or their affiliates) may provide, certain commercial banking, financial advisory and investment banking services in the ordinary course of business for us and our subsidiaries, for which they receive customary fees and commissions.
Contractual Obligations and Other Commitments
The following table summarizes our contractual obligations as of December 31, 2014:
(In thousands)
Contractual Obligations:
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Payments Due by Period | |||||||||||||||||||
Less Than 1 year | 1 to 3 Years | 3 to 5 Years | More Than 5 Years | Total | ||||||||||||||||
Long-term debt |
$ | 10,000 | $ | 20,000 | $ | 170,000 | $ | | $ | 200,000 | ||||||||||
Interest on long-term debt |
10,794 | 19,938 | 14,220 | | 44,952 | |||||||||||||||
Founder Contingent Compensation(1) |
593 | 6,343 | | | 6,936 | |||||||||||||||
Operating leases(2) |
27 | 47 | | | 74 | |||||||||||||||
Purchase commitments(3) |
10,397 | 2,900 | | | 13,297 | |||||||||||||||
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Total contractual obligations |
$ | 31,811 | $ | 49,228 | $ | 184,220 | $ | | $ | 265,259 | ||||||||||
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(1) | Reflects the accrued amount related to the Founder Contingent Compensation which is being recognized ratably over the contractual service period through December 31, 2015. We expect to pay approximately $25 million in cash in 2016, which will be fully accrued by December 31, 2015. We have not included the full cash amount in this table because the founders must remain employees of the Company as of December 31, 2015 in order for the Company to be contractually obligated to pay the Founder Contingent Compensation in 2016. Timing of the related payments are disclosed elsewhere in this prospectus. See Executive CompensationEmployment Agreements and Termination of Employment and Change in Control Agreement. |
(2) | Operating leases include total future minimum rent payments under noncancelable operating lease agreements. We lease an office of approximately 2,200 square feet of space at 8135 Monticello Ave, Skokie, IL pursuant to a lease agreement with a related party that expires in August 2017. See Certain Relationships and Related Party TransactionsMonticello Partners LLC Lease Agreement. |
(3) | We have non-cancelable purchase commitments, directly or through co-manufacturers, to purchase ingredients to be used in the future to manufacture products. We have not reflected any minimum purchase requirements, termination fees or penalty fees under our contract with Assemblers. |
Upon termination of our Manufacturing and Supply Agreement with the Companys co-manufacturer of certain snack products, we would be obligated to purchase any unused packaging material.
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Off-Balance Sheet Arrangements
We do not have off-balance sheet arrangements, financings or other relationships with unconsolidated entities or other persons.
Segment Information
We have determined that we operate as one segment: the marketing and distribution of BFY, RTE snacking products. Our chief executive officer is considered to be our chief operating decision maker. He reviews our operating results on an aggregate basis for purposes of allocating resources and evaluating financial performance.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to certain market risks in the ordinary course of our business. These risks primarily include market sensitivities as follows:
Ingredient Risk
We purchase ingredients, including popcorn kernels, sunflower oil, flavoring and packaging materials used in the contract manufacturing of our products. These ingredients are subject to price fluctuations that may create price risk. A hypothetical 10% increase or decrease in the weighted-average cost of our primary ingredients as of December 31, 2014 and December 31, 2013 would have resulted in an increase or decrease to cost of goods sold of approximately $2.9 million and $1.5 million, respectively. We seek to mitigate the impact of ingredient cost increases through forward-pricing contracts and taking physical delivery of future ingredient needs. We strive to offset the impact of ingredient cost increases with a combination of cost savings initiatives and efficiencies and price increases to our customers.
Interest Rate Risk
We currently do not engage in any interest rate hedging activity and currently have no intention to do so in the foreseeable future. Based on the average interest rate on the Credit Facility during the period from July 17, 2014 to December 31, 2014 and to the extent that borrowings were outstanding, we do not believe that a 1.0% change in the interest rate would have a material effect on our results of operations or financial condition. A 1 ⁄ 8 % change in the annual interest rate would change the annual interest expense on the variable rate portion of our long-term borrowings under the Third Amended Credit Facility by approximately $0.3 million.
We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. We have not been exposed nor do we anticipate being exposed to material risks due to a change in interest rates.
Foreign Exchange Risk
Our sales and costs are denominated in U.S. dollars and are not subject to foreign exchange risk. However, to the extent our sourcing strategy changes or we commence generating net sales outside of the United States and Canada that are denominated in currencies other than the U.S. dollar, our results of operations could be impacted by changes in exchange rates.
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Inflation
Inflationary factors, such as increases in the cost of goods sold and selling, general and administrative expenses, may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross profit margin and selling, general and administrative expenses as a percentage of net sales if the selling prices of our products do not increase to cover these increased costs.
Internal Control Over Financial Reporting
As a public company, we will be required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which will require, beginning with our Annual Report on Form 10-K for the year ended December 31, 2016, annual management assessments of the effectiveness of our internal control over financial reporting. Additionally, as of the later of the filing of such Annual Report and the date we are no longer an emerging growth company we will require a report by our independent registered public accounting firm that addresses the effectiveness of our internal control over financial reporting. During the course of our testing, we may identify deficiencies that we may not be able to remediate in time to meet our deadline for compliance with Section 404.
In connection with the 2014 audit of our financial statements, we identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. This material weakness related to our presentation and classification of certain promotional obligations in the consolidated financial statements as well as our accounting for pricing concessions. We are in the process of developing a remediation plan with respect to the tracking of demonstration expenses and pricing concessions along with developing and evaluating our other internal controls. See Risk FactorsRisks Related to Ownership of Our Common Stock and this Offering.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable. In many instances, we could have reasonably used different accounting estimates, and in other instances changes in the accounting estimates are reasonably likely to occur from period-to-period. Actual results could differ significantly from our estimates. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving our judgments and estimates.
Recognition of Net Sales, Sales Incentives and Trade Accounts Receivable
Net sales are recognized when the earnings process is complete and the risks and rewards of ownership have transferred to the customer, which occurs upon the receipt and acceptance of product by the customer. Our customers are primarily businesses that are stocking our products. The earnings
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process is generally complete once the customer order has been placed and approved and the product shipped has been received by the customer or when product is picked up by our customers at our manufacturing location, though in certain circumstances the earnings process is completed when a customer picks ups product at our manufacturing and that product is delivered to the customers warehouse. Product is sold to customers on credit terms established on a customer-by-customer basis. The credit factors used include historical performance, current economic conditions and the nature and volume of the product.
We offer our customers a variety of sales and incentive programs, including discounts, coupons, slotting fees, in-store displays and trade advertising. The more significant programs we offer include:
Price discounts certain price discounts are provided in the form of allowances at the time of invoicing while others are provided based on future consumer purchasing activity.
Coupons we participate in coupon programs with customers, including multi-vendor mailer coupon programs with club retailers.
In-store displays we authorize in-store displays and pay a fee to the customer for the promotional feature.
The costs of these programs are recognized at the time the related sales are recorded and are classified as a reduction in net sales. These program costs are recorded based on estimated participation and performance levels of the offered programs, based upon factors such as historical trends with similar promotions, expectations regarding customer and consumer participation and sales and payment trends with similar previously offered programs. We maintain a sales and promotional incentive allowance at the end of each period for the estimated trade program costs incurred but unpaid, which is recorded as a reduction in our trade accounts receivable balance. Evaluating these estimates requires management judgment and, as such, actual results may differ from our estimates. Historically, differences between estimated and actual trade program costs are generally not material and are recognized as a change in sales and promotional incentive allowance in the period such differences are determined. Trade promotions included in net sales were $5.2 million in the year ended December 31, 2013, were $8.7 million for the Predecessor period from January 1, 2014 to July 16, 2014 and were $11.4 million in Successor period from July 17, 2014 to December 31, 2014.
We extend unsecured credit to our customers in the ordinary course of business and make efforts to mitigate the associated credit risk by performing credit checks and actively pursuing past due accounts. Accounts are charged to bad debt expense as they are deemed uncollectible based upon a periodic review of aging and collections.
As of December 31, 2013, December 31, 2014 and March 31, 2015, we recorded total allowances against trade accounts receivable of $1.7 million, $3.0 million and $2.3 million, respectively. Recoveries of receivables previously written off are recorded when received.
Inventories
Inventories are valued at the lower of cost or market using the weighted-average cost method.
Write-downs are provided for finished goods expected to become non-saleable due to age and provisions are specifically made for slow moving or obsolete raw ingredients and packaging. We also adjust the carrying value of our inventories when we believe that the net realizable value is less than the carrying value. These adjustments are estimates that require management judgment. Actual results could vary from our estimates and additional inventory write-downs could be required.
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Goodwill and Intangible Assets
In connection with the Sponsor Acquisition, we recorded $45.7 million of goodwill resulting from the excess of aggregate purchase consideration over the fair value of the assets acquired and liabilities assumed.
Goodwill is tested annually for impairment or more frequently if events or changes in circumstances indicate, more likely than not, that impairment may have occurred. We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Otherwise, the impairment analysis for goodwill includes a comparison of our carrying value (including goodwill) to our estimated fair value. If the fair value does not exceed the carrying value, then an additional analysis would be performed to allocate the fair value to all of our assets and liabilities as if it had been acquired in a business combination and the fair value was our purchase consideration. If the excess of the fair value of our identifiable assets and liabilities is less than the carrying value of recorded goodwill, an impairment charge is recorded for the difference. We will perform our annual assessment of goodwill as of July 1 of each fiscal year. Given the goodwill included on our consolidated balance sheet was measured and recorded in the current year, an impairment test was not performed during the period ended December 31, 2014.
Other intangible assets are comprised of both finite and indefinite-lived intangible assets. Indefinite-lived intangible assets, including our trade name, are not amortized. We have the option to first assess the qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. Otherwise, indefinite-lived intangible assets are tested annually for impairment, or more frequently if events or changes in circumstances indicate, in managements judgment, that the asset might be impaired. In assessing the recoverability of indefinite-lived intangible assets, we must make assumptions about the estimated future cash flows and other factors to determine the fair value of these assets.
An intangible asset is determined to have an indefinite useful life when there are no legal, regulatory, contractual, competitive, economic, or any other factors that may limit the period over which the asset is expected to contribute directly or indirectly to our future cash flows. In each reporting period, we also evaluate the remaining useful life of an intangible asset that is not being amortized to determine whether events and circumstances continue to support an indefinite useful life. If an intangible asset that is not being amortized is determined to have a finite useful life, the asset will be amortized prospectively over the estimated remaining useful life and accounted for in the same manner as intangible assets subject to amortization.
Income Taxes
Deferred income taxes are provided for the differences between the basis of assets and liabilities for financial reporting and income tax purposes. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. We record a liability for all tax positions if it is not more likely than not that the position is sustainable based on its technical merits. At December 31, 2014, we had no valuation allowance nor any uncertain tax positions.
Considerable management judgment is necessary to assess the inherent uncertainties related to the interpretations of complex tax laws, regulations and taxing authority rulings, as well as to the expiration of statues of limitations in the jurisdictions in which we operate.
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Equity-Based Compensation
We record equity-based compensation in accordance with the FASB ASC Topic 718, CompensationStock Compensation, which requires the measurement and recognition of compensation expense for all equity-based payment awards made to employees and directors including incentive units and employee stock options based on estimated fair values. There was no stock compensation expense in 2013 or for the Predecessor period from January 1, 2014 to July 16, 2014. Stock compensation amounted to $0.2 million for the Successor period from July 17, 2014 to December 31, 2014.
Both Class C-1 and C-2 units are time-based units, however the Class C-2 units are also subject to a performance hurdle related to a tiered distribution if certain criteria are met. This performance hurdle is subject to the realization by Class A unitholders, through one or more distribution events, of an aggregate amount of proceeds in respect of their Class A Units equal to three times such members aggregate Class A contribution amount, taking into account all proceeds received by such members in respect of their Class A Units from such distribution events.
The fair value of each award is estimated on the grant date using a two-step process. See Valuation of our Equity Awards below for further discussion of the valuation process. The equity-based compensation expense, net of forfeitures, is recognized on a straight-line basis over the requisite service period of the awards, which corresponds to the vesting periods of the awards.
Valuation of our Equity Awards
In the absence of a public trading market for our securities, our board of directors has determined the estimated fair value of the equity-based compensation awards at the date of grant based upon several factors, including its consideration of input from management and contemporaneous third-party valuations.
The valuation of Topcos equity was determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid Valuation of Privately-Held-Company Equity Securities Issued as Compensation . The assumptions we used in the valuation models are highly complex and subjective. We based our assumptions on future expectations combined with management judgment and considered numerous objective and subjective factors to determine the fair value of the equity awards as of the grant date including, but not limited to, the following factors:
| lack of marketability; |
| our actual operating and financial performance; |
| current business conditions and projections; |
| the U.S. capital market conditions; |
| our stage of development; and |
| likelihood of achieving a liquidity event, such as this offering, given prevailing market conditions. |
The valuation of the equity-based compensation awards involved a two-step process. First, we determined our business equity value using an enterprise value based on the income approach, specifically a discounted cash flow, or DCF, analysis. A market approach, which estimates the fair value of the Company, by applying market multiples of comparable peer companies in our industry or similar lines of business to our historical and/or projected financial metrics, was also developed to corroborate the reasonableness of the DCF indication of enterprise value. The values determined by
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the income and the market approach were comparable. Second, the business equity value was allocated among the securities that comprise the capital structure of the Company using the Option-Pricing Method, or OPM, as described in the AICPA Practice Aid entitled Valuation of Privately-Held-Company Equity Securities Issued as Compensation . See below for a description of the valuation and allocation methods.
The DCF analysis required the development of the forecasted future financial performance of the Company, including revenues, operating expenses and taxes, as well as working capital and capital asset requirements. The discrete forecast period analyzed extends to the point at which the Company will be expected to have reached a steady state of growth and profitability. The projected cash flows of the discrete forecast period are discounted to a present value employing a discount rate that properly accounts for the estimated market weighted average cost of capital. Finally, an assumption is made regarding the sustainable long-term rate of growth beyond the discrete forecast period, and a residual value is estimated and discounted to a present value. The sum of the present value of the discrete cash flows and the residual, or terminal value represents the estimated fair value of the total enterprise value of the Company. This value is then adjusted for non-operational assets, liabilities and interest bearing debt to conclude the equity value of the Company.
The financial forecasts prepared took into account our past results and expected future financial performance. There is inherent uncertainty in these estimates as the assumptions used are highly subjective and may change as a result of new operating data and economic and other conditions that may impact our business.
Once the equity value of the Company is estimated, it is then allocated among the various classes of securities to arrive at the fair value of the awards. For this allocation, the OPM was used for all grants. The OPM entails allocating the equity value to the various share classes based upon their respective claims on a series of call options with strike prices at various value levels depending upon the rights and preferences of each class. A Black-Scholes option pricing model is employed to value the call options. This model defines the securities fair values as functions of the current fair value of a company and requires the use of assumptions such as the anticipated holding period and the estimated volatility of the equity securities.
The following table summarizes the key assumptions used in the OPM allocation as of December 4, 2014:
Assumptions |
||
Time to liquidity event |
2 years | |
Volatility |
30.00% | |
Risk-free rate |
0.55% | |
Dividend yield |
0.00% | |
Lack of marketability discount |
16% |
The expected term of 2 years represents managements expected time to a liquidity event as of the valuation date. The volatility assumption is based on the estimated stock price volatility of a peer group of comparable public companies over a similar term. The risk-free rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term. As of December 4, 2014, the only grant date in 2014, we used an expected dividend yield of zero as we had never declared or paid any cash dividends and at that time did not plan to pay cash dividends in the foreseeable future.
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The value derived from the OPM model was reduced by a 16% lack of marketability discount in the determination of fair values of the awards at the grant date. A discount for lack of marketability was applied to reflect the increased risk arising from the inability to readily sell the equity awards.
After the consummation of this offering, our board of directors will determine the fair value of each share of underlying common stock based on the closing price of our common stock as reported on the date of grant. As such, the assumptions used in the valuation models discussed above will no longer be necessary in the valuation of equity-based compensation award s.
For awards granted on February 24, 2015, we have used the Probability Weighted Expected Return Method, or PWERM, whereby the value of the various classes of securities is estimated based upon the analysis of future values for the company assuming various possible future liquidity events such as an initial public offering, or IPO, sale or merger. Share value is based upon the probability-weighted present value of expected future net cash flows, considering each of the possible future events, as well as the rights and preferences of each share class. The PWERM was selected due to the established nature of the Company, the prospect of a near term exit via an IPO or sale, and our ability to reasonably forecast financial performance.
First, future enterprise values of the Company were estimated using a range of Enterprise-to-EBITDA multiples. The valuation multiple range was established by consideration of valuation multiples indicated by the comparable public company and comparable transaction methods, both versions of the Market Approach. A DCF analysis was also performed to corroborate the Market Approach indications of value.
Second, the Companys implied equity value was allocated among the various classes of securities using the PWERM. To apply the PWERM, we first estimated future enterprise values under various exit scenarios, and adjusted projected values of cash and debt for each scenario to determine the total expected equity value of the Company at the exit date. As of February 24, 2015, the PWERM analysis reflected the Companys belief that there was a 60% probability that the Company would complete an initial public offering and a 40% probability of a sale of the Company. The valuation used a risk adjusted discount rate of 14% and an estimated time to a liquidity event of 6 months.
The aggregate value of the Class C-1 and Class C-2 units derived from the PWERM allocation method was then divided by the number of respective units outstanding to arrive at the per unit value. A lack of marketability discount was applied to reflect the increased risk arising from the inability to readily sell the units. This discount was 12% under an assumed IPO scenario and 8% under an assumed sale scenario. The higher discount under the IPO scenario reflects a potential delay in liquidity, relative to a sale scenario, due to typical IPO lock-up provisions.
The key subjective factors and assumptions used in our valuation of February 24, 2015 grants primarily consisted of:
| the probability and timing of the various possible liquidity events; |
| the selection of the appropriate market comparable transactions; |
| the selection of the appropriate comparable publicly traded companies; |
| the financial forecasts utilized to determine future cash balances and necessary capital requirements; |
| the estimated weighted-average cost of capital; and |
| the discount for lack of marketability. |
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The intrinsic value of all outstanding equity awards at March 31, 2015 was $ million, based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus.
Recently Issued and Adopted Accounting Pronouncements
Under the JOBS Act, we meet the definition of an emerging growth company. We have irrevocably elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. See Note 2 of the audited consolidated financial statements included elsewhere in this prospectus for further detail.
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Our Company
Amplify Snack Brands is a high growth, snack food company focused on developing and marketing brands and products that appeal to consumers growing preference for BFY snacks. Our anchor brand, SkinnyPop, is a rapidly growing, highly profitable and market leading BFY RTE popcorn brand. Through its simple, major allergen-free and non-GMO ingredients, SkinnyPop embodies our BFY mission and has amassed a loyal and growing customer base across a wide range of food distribution channels in the United States. SkinnyPops continued success and robust financial characteristics, combined with our experienced and talented management team, position us to become an industry-leading BFY snacking company that capitalizes on the potential of great-tasting and high quality BFY snack brands that we create and acquire. To that end, in April 2015, we acquired Paqui LLC, or Paqui, an emerging BFY tortilla chip brand that has many of the same key taste and BFY attributes as SkinnyPop. Paqui allows us to leverage our infrastructure to help grow into an adjacent snacking sub-segment with a second innovative BFY brand. We believe that our focus on building a portfolio of exclusively BFY snack brands differentiates us and will allow us to leverage our platform to realize material synergies across our family of BFY brands, as well as allow our retail customers to consolidate their vendor relationships in this large and growing category.
We target sizeable global and U.S. markets, with Nielsen estimating global retail snack sales to be in excess of $370 billion and North American snack retail sales in excess of $120 billion for the twelve months ended March 31, 2014. We estimate the U.S. salty snack segment to be approximately $18 billion in annual retail sales and that it will grow approximately 3% to 4% per year through 2019. To date, our focus has been on developing brands in the rapidly growing BFY sub-segment of the salty snacks. We believe that within the salty snack segment, BFY-focused brands are taking share from and growing faster than conventional brands, and management estimates that BFY-focused brands experienced aggregate growth in excess of 10% in 2014. Outside the United States, estimates for the size and growth rates of the BFY category of the snacks market are difficult to aggregate, but we believe similar trends are becoming more prevalent globally. We believe the growth rate being experienced by BFY-focused brands is driven by a variety of favorable consumer trends, including a greater focus on health and wellness, increased consumption of smaller, more frequent meals throughout the day and a strong preference for convenient BFY products. Over time, we expect to explore the development and acquisition of additional BFY brands within other U.S. and global segments of the overall snacking market.
Our SkinnyPop brand was established in 2010 by Pam Netzky and Andy Friedman, who saw an opportunity to develop a new popcorn product that would offer consumers a BFY alternative to existing RTE, microwave and movie theatre style popcorn products. SkinnyPop quickly developed a loyal and passionate consumer following and by 2014 had become a $132.4 million net sales brand. The SkinnyPop brand embodies our BFY mission while also providing rapid net sales and earnings growth, robust and steady margins, and strong cash flows to help facilitate further investments in organic and inorganic growth opportunities. We have invested significantly to grow the SkinnyPop brand and our Company. We have compiled an experienced and talented group of entrepreneurial and classically trained executives to lead and grow the business. We believe we have established a world class BFY snacking platform, supported by strong senior management and talented sales, operations and marketing teams. This infrastructure positions us to continue to drive growth and innovation across a diversified group of BFY brands.
We believe SkinnyPop continues to take meaningful market share from a variety of sizeable sub-segments of the overall U.S. salty snack segment, although the brand competes most directly in the RTE popcorn sub-segment of salty snacks. The overall U.S. popcorn sub-segment is estimated at $1.9 billion in 2014 and grew 8.1% over the prior year. The $966 million RTE popcorn sub-segment is
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the fastest growing sub-segment within U.S. salty snacks, growing at a compound annual growth rate of 14.6% since 2010. Our research indicates the growth in RTE popcorn is partially attributable to a shift by consumers from eating microwave popcorn to eating RTE popcorn, but is primarily driven by consumers increasingly choosing RTE popcorn over other conventional salty snack alternatives. Within RTE popcorn, SkinnyPop was the fastest growing brand of scale in 2014, increasing its share of the sub-segment by 6.5 percentage points to 12.1% and accounting for more than 40% of total sub-segment growth. Additionally, in 2015, weekly sales of SkinnyPop products, as measured by IRI U.S. Multi-Outlet, have surpassed most other competitive RTE popcorn brands and caught up with the sub-segment leader. SkinnyPop is an increasingly strong and recognizable brand that has exhibited rapid organic growth since its founding. This growth has been driven by continued gains in both distribution and sales velocity.
ACV and Sales Velocity Trends
(1) | Sales velocity is measured using IRIs Dollars per $MM ACV metric which IRI defines as the total product sales per million dollars of annual ACV of stores selling the product. This metric represents the retail sales efficiency for a product in relation to its distribution. Using the ACV of stores selling a product means this measure controls for store size, and can be used to determine how well a product sold while controlling for weighted distribution. |
Despite SkinnyPops recent growth and a market leading BFY presence, we believe significant opportunities remain for continued growth. For example, as of December 31, 2014, SkinnyPops household penetration, which represents the percentage of households that have purchased SkinnyPop over the prior 52 weeks, stood at 5.2% compared to an average of approximately 22.7% for the top 25 salty snack brands by dollar retail sales according to IRI data. SkinnyPop also has the opportunity to grow by increasing its product range in stores where the brand already has some presence. The average number of SkinnyPop Universal Product Codes, or UPCs, per retail location is 2.3, which is below our primary competitors who average approximately 5.6 UPCs per location. Retail locations represent the number of stores in the IRI-defined universe where SkinnyPop has sold at least once in the past 52 weeks. Additionally, at December 31, 2014, our Total Distribution Points stood at approximately 136, versus an average of 919 TDPs for the top 25 leading salty snack brands. We plan to continue to grow SkinnyPop by increasing its distribution, household penetration, product offerings per retail location and sales velocity, all of which will be supported by increasing brand awareness, new product introductions and favorable consumer trends.
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Total Distribution Points (1)
(1) | Total Distribution Points is an IRI metric used to illustrate the distribution of a brand while taking into account the number of UPCs selling within that brand. TDPs are not determined by reference to any GAAP financial measure over any period. |
(2) | The top 25 salty snack brands are those brands with the highest dollar retail sales in 2014 according to IRI data. |
Inorganic growth is also a strategic priority for us. We believe there are a large number of attractive brands that may be suitable acquisition targets. We intend to focus our strategic acquisitions efforts on premium BFY snacking brands that taste great, align with our BFY mission, have some proof of concept in retail and are well positioned to compete within existing large addressable markets and allow us to leverage our sales, marketing and distribution infrastructure to add meaningful value. We plan to build on our success in SkinnyPop and leverage our skilled team to drive additional platform growth across our BFY portfolio.
Company Growth and Performance
We have experienced strong financial performance over the past several years, including:
| Net sales increased from $55.7 million in the year ended December 31, 2013 to $132.4 million in the Pro Forma Year Ended December 31, 2014 (Unaudited), representing growth of 137.6% and increased from $25.7 million in the three months ended March 31, 2014 to $44.3 million in the three months ended March 31, 2015, representing growth of 72.2%; |
| Consistent gross profit and Adjusted EBITDA margins of 58.6% and 44.5%, respectively, for the year ended December 31, 2013, 56.1% and 44.2%, for the Pro Forma Year Ended December 31, 2014 (Unaudited) respectively, and 55.7% and 45.7%, respectively, for the three months ended March 31, 2014 and 55.1% and 43.4%, respectively, for the three months ended March 31, 2015; |
| Net income under GAAP decreased from $24.8 million in the year ended December 31, 2013 to $13.6 million for the Pro Forma Year Ended December 31, 2014 (Unaudited), representing a decrease of 45%, reflecting the Sponsor Acquisition, the Founder Contingent Compensation, the December 2014 Special Dividend and the May 2015 Special Dividend, and decreased from $11.7 million for the three months ended March 31, 2014 to $4.9 million for the three months ended March 31, 2015, representing a decrease of 58%. See Unaudited Pro Forma Condensed Consolidated Financial Information; |
| Adjusted EBITDA increased from $24.8 million in year ended December 31, 2013 to $58.5 million in the Pro Forma Year Ended December 31, 2014 (Unaudited), representing growth of 136% and increased from $11.7 million in the three months ended March 31, 2014 to $19.2 million in the three months ended March 31, 2015, representing growth of 63.7%; and |
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| Cash from operating activities was $26.3 million for the Predecessor period from January 1, 2014 to July 16, 2014, $12.7 million for the Successor period from July 17, 2014 to December 31, 2014, and $14.1 million for the three months ended March 31, 2015, and operating cash flow less capital expenditures was $26.1 million for the Predecessor period from January 1, 2014 to July 16, 2014, $12.5 million for the Successor period from July 17, 2014 to December 31, 2014, and $13.8 million for the three months ended March 31, 2015, driven by our asset-light and outsourced manufacturing model, which requires low levels of capital investment. |
Industry Overview
Nielsen estimates the global snack market, as of March 2014, was in excess of $370 billion in annual retail sales, and growing at 2% annually when adjusted for inflation. Sweet and salty snacks are among the largest segments in the overall snack market. SkinnyPop and Paqui brands currently compete in the salty snack segment, which includes products such as potato chips, tortilla chips, popcorn, cheese snacks and pretzels. IRI and Mintel estimate that these sub-segments totaled approximately $21 billion and $18 billion in U.S. retail sales, respectively, in 2014. Mintel forecasts that sub-segments within the salty snacks segment will grow between 2.2% per year (pretzels) and 6.0% per year (popcorn) through 2019, with popcorn serving as the fastest growing product within salty snacks. While we do not currently offer products in the potato chip, cheese snack or pretzel sub-segments, we may consider entering these markets in the future. We believe leading BFY brands within the salty snack segment grew at a rate in excess of 10% in 2014, significantly outpacing overall salty snack segment growth in the United States.
We believe growth in BFY snacks is driven by various factors, including the increasing importance of snacking in many consumers diets, heightened awareness of the importance of a healthier diet, coupled with increased understanding and focus on importance of nutrition to long-term health and wellness. As the IRI 2015 State of the Snack Food Industry report indicates, consumers are increasingly eating smaller meals more frequently throughout the day and 41% of consumers snack at least three times a day. We believe these consumers are recognizing the associated benefits of keeping metabolism elevated, normalizing blood sugar and reducing hunger and the associated urge to overeat. Consumers are also increasingly aware of their snacking choices, are demanding great tasting BFY products that can meet specific dietary requirements and are focusing on products with simple and more easily understandable ingredients. Additionally, millennial consumers have shown a stronger affinity for snacking than their boomer counterparts which we believe will provide future positive tailwinds in the snacking market.
IRI estimates that total retail sales of popcorn in the United States were approximately $1.9 billion for 2014. The RTE popcorn sub-segment grew by 22.6% in 2014 to approximately $966 million in retail sales, while the microwave popcorn sub-segment declined by 3.6% over the same period to $853 million in retail sales. Popcorn remained relatively flat at $122 million in retail sales in 2014. According to IRI data, SkinnyPop was the fastest growing RTE popcorn brand of scale in 2014 and accounted for more than 40% of total sub-segment growth. Since 2010 the RTE popcorn sub-segment has grown at a compound annual growth rate of approximately 14.6%, making it the fastest growing sub-segment in salty snacks. We believe that this growth has been largely achieved by converting consumers from conventional salty snack products to RTE popcorn, as consumers become aware of the great taste and healthier characteristics offered by RTE popcorn. Some of the growth has also been achieved by consumers changing preference for RTE popcorn compared to traditional popcorn. We believe RTE popcorn has thus far been underrepresented as a percentage of snack foods consumed because it is only in recent years that pre-packaged, RTE popcorn has emerged as a convenient, BFY option that offers a high level of freshness. This emergence was driven by both the overall BFY segment, coupled with developments in packaging and ingredients that have facilitated
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significant improvements in freshness and taste. We believe consumers are increasingly purchasing RTE popcorn because of their historical familiarity with traditional popcorn and because of consumer trends towards BFY snacks.
IRI estimates that total retail sales of tortilla chips in the United States have grown at a compound annual growth rate of 5.3% between 2010 and 2014 to $4.7 billion in 2014. Frito Lays tortilla chips have an estimated combined share of approximately 68% of the tortilla chip sub-segment. Given the fragmented nature of the BFY tortilla chip sub-segment, we believe that there is a significant opportunity to create a market-leading and great-tasting BFY brand.
Beyond popcorn and tortilla chips, there are several other sizeable sub-segments within salty snacks such as potato chips, cheese snacks and pretzels at approximately $7.2 billion, $1.8 billion and $1.2 billion, respectively, in total retail sales in the United States in 2014 according to IRI data. There is a significant potential opportunity to grow retail sales across multiple large categories as consumers are increasingly substituting for BFY snacks within these categories. Continued BFY substitution has the potential to significantly expand SkinnyPops and Paquis addressable markets. We believe that the growth of BFY snacks will continue to be supported by increased consumer focus on healthier lifestyles. We also believe that as a result of these consumer trends, distribution channels will continue to stock an increasing number of BFY snacks.
We believe that Amplify Snack Brands is well positioned to benefit from these market trends and preferences in the coming years.
Our Competitive Strengths
We believe the continued growth and profitability of our company will be driven by the following competitive strengths:
| Strong consumer appeal of our SkinnyPop brand : The SkinnyPop brand is a leading RTE popcorn brand with strong consumer loyalty and one of the fastest growing brands in the entire salty snack segment. The SkinnyPop brand is differentiated in that it has a clear BFY positioning while also appealing to a more mainstream customer. SkinnyPops BFY positioning is reinforced through our unique packaging, which communicates the key attributes of our brand including a simple, short ingredient list that is major allergen-free and contains only non-GMO ingredients. According to IRI data, SkinnyPop has the highest level of repeat purchase in the RTE popcorn sub-segment and one of the highest rates of repeat purchase relative to overall salty snacks leaders. We believe our loyal consumer following will enable SkinnyPop to maintain its premium brand position in the RTE popcorn sub-segment, and drive continued growth in share across broader salty snacks. |
|
Highly attractive brand for retailers: SkinnyPops premium price point and strong sales velocities generate profits relative to the shelf space our SkinnyPop products occupy, making these products highly attractive to a diverse set of retailers across various distribution channels. On average, versus other leading RTE popcorn brands we commanded a more than 20% price premium in 2014. SkinnyPops sales velocities were $141 per million dollars of annual ACV of retail locations selling the product in 2014 as compared with other leading RTE popcorn brands whose product had average sales velocities of $132 per million dollars of annual ACV during the same period. Retailers also find SkinnyPop customers desirable not only because SkinnyPop consumers spent approximately twice as much per visit on SkinnyPop products, and purchased SkinnyPop products more frequently, as compared to competitive RTE popcorn products in 2014 but also because SkinnyPops consumers average total expenditure per visit in dollars was approximately 33% more than the dollars spent by consumers of SkinnyPops |
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closest competitors in 2014. We believe all of these characteristics are compelling and will continue to encourage retailers to carry a greater number of our products and improve the shelf space and positioning of SkinnyPop within their stores. This increased distribution and enhanced in-store placement has been apparent with some of our larger and longer tenured customers, such as Whole Foods, Costco, Kroger, Sams Club and Walgreens. All of these accounts have increased both points of distribution and product mix due to our strong retail performance. |
| Attractive financial profile : We have a strong financial profile characterized by net sales growth of 137.6% and 72.2%, gross profit margin of 56.1% and 55.1% and Adjusted EBITDA margin of 44.2% and 43.4% in the Pro Forma Year Ended December 31, 2014 (Unaudited) and the three months ended March 31, 2015, respectively. Our gross profit and Adjusted EBITDA margins have been consistent over time. We are also highly cash generative given our outsourced manufacturing model which requires modest capital investment and low net working capital. Historically, this strong free cash flow generation has provided us with financial flexibility to execute its business plan. |
| BFY-focused snacking platform : With SkinnyPop as the anchor brand in our BFY-focused snacking platform, we believe that we will be able to increase our share of the large and growing global snack industry. We believe that, in addition to the strength of the SkinnyPop brand, we are well positioned to capitalize on several strengths as we continue to expand our platform: |
| Culture of innovation : Because of our focus and ability to innovative BFY brands and nurture them, we believe we are attractive to entrepreneurs who are looking for a strategic partner as evidenced by our recent acquisition of Paqui. |
| Experienced management team : We have established a well-regarded, experienced management team who possess both entrepreneurial and classically-trained skill sets gained through their extensive branded consumer products experience. Their talent has guided SkinnyPops growth and established an infrastructure that can be leveraged to expand into additional snacking segments either through new product introductions or through acquisitions. Our management team seeks to identify and evaluate potential acquisition or partnership opportunities that would complement our BFY platform, and their combination of entrepreneurial skills and experience enables them to nurture and develop leading BFY brands in order to integrate and grow them as part of our broader BFY focused platform. |
| Established infrastructure : We have built a strong sales, marketing and supply chain infrastructure with the objective of growing our existing and new brands that we add to the platform. We have the ability to leverage our sales force and strong relationships with our retail customers and distributors to help our brands gain distribution; leverage our operations team for improved demand planning and additional margin opportunities; and leverage our suppliers for purchasing and marketing resources for brand building. |
Our Growth Strategies
We intend to continue growing net sales and profitability through the following growth strategies:
|
Expand distribution through new customer wins : We plan to capitalize on the strength of our SkinnyPop brand, positive market trends and our attractive retailer economics in order to penetrate new customers and increase the number of stores carrying our SkinnyPop and Paqui brands. SkinnyPops Total Distribution Points have increased from 49 points as of year-end 2013 to 136 points as of year-end 2014, but this remains well below the average of the top 25 salty snacks brands who average more than 919 points. We believe we have additional growth |
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opportunities in our core distribution channels, including natural and conventional grocery, drug, convenience, club, mass merchandise and in new channels. Based on IRI data, management estimates that as of December 31, 2014, SkinnyPop currently has less than 20% retail penetration within the more than 250,000 potential U.S. retail locations. Beyond our core channels, we also plan to pursue growth in alternative channels and retailers including foodservice outlets, home hardware stores, airport kiosks and college bookstores. |
| Continue to increase shelf space with existing customers: While SkinnyPop is highly attractive to retail customers given its premium price and attractive sales velocities, the average retail location carries only 2.3 of our UPCs per store compared to approximately 5.6 for our largest RTE popcorn competitors. Our larger and longer-term relationships with retail customers such as Whole Foods, Costco, Kroger, Sams Club and Walgreens have demonstrated our ability to consistently increase shelf space through increased products offerings, promotional support and new flavor offerings. We will continue to capitalize on the strong consumer appeal and attractive economics to retailers to increase UPCs per retailer and improve and increase our shelf space with both existing and new customers. |
| Continue to grow awareness and expand household penetration : Consumers who purchase SkinnyPop have a strong affinity for the brand as evidenced by our high level of repeat purchase. Yet, our 2014 research indicated that less than 30% of US households had aided awareness of our brand as compared to more established snack brands that have aided awareness in excess of 90%. However, IRI data as of December 31, 2014 indicates that for that year, only 5.2% of households have purchased SkinnyPop compared to 22.7% of households purchasing the top 25 salty snack brands. We intend to increase our household penetration through marketing, including product sampling, social media tools and advertising, to educate consumers about our brands and benefits of our BFY snacks. According to IRI consumption data, our market share in the U.S. salty snacks segment is less than 1%, and our market share in the rapidly growing RTE popcorn sub-segment is approximately 12%. |
| Continue product innovation and brand extensions : We intend to improve and strengthen our product offering by creating new and innovative flavors, packaging alternatives and additional products, while maintaining a focus on simple ingredients and BFY snacks that appeal to consumers. Our product innovation encompasses multiple elements, from offering a broad range of varied packaging, new flavors and formats for current products to developing new and innovative brand extensions that we can grow on our current platform. |
| Leverage platform to expand in attractive snacking categories : We intend to expand our business through the introduction of additional brands and products in the BFY snacking segment in order to generate incremental growth opportunities and synergies. We are actively looking to identify and evaluate new acquisition opportunities to complement our platform. Our Company culture makes us a natural choice for potential targets who wish to maintain an entrepreneurial culture and accelerate the growth of their brands utilizing our strong, established infrastructure. Most recently, our acquisition of Paqui tortilla chips has diversified our portfolio into the large tortilla chips category. Paqui is well aligned with our BFY mission as it is an organic, non-MSG, non-GMO, gluten-free snack. We intend to continue to expand into new BFY snacking categories and gain share across the broader snacking market. |
| Pursue international expansion opportunities : We are currently selling SkinnyPop in Canada, and have a short-term objective to expand our Canadian distribution. We will also look to expand international distribution with our global retail partners, prioritizing sizeable, high-growth markets. According to Nielsen, North America represents approximately one-third of the global snacking market, and recent trends in North America, including a focus on BFY products, are becoming prevalent globally. We believe our brands will resonate well with consumers in markets outside North America. |
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Our Company History
Our first and principal brand, SkinnyPop, was launched in August 2010 by Pam Netzky and Andy Friedman. Pam and Andy established a small Chicago-area based retail and wholesale popcorn concept in 2007 called Wells Street Popcorn. Wells Street Popcorn was a decadent Chicago-style popcorn concept that was growing and profitable but also difficult to scale as the core product was heavily coated in highly caloric and dense toppings and did not align with BFY consumer trends.
Pam and Andy used their extensive knowledge of popcorn and founded SkinnyPop based on a few key principles; the product had to taste fresh and delicious, have a limited number of ingredients in each bag and be non-GMO, gluten-free and major allergen-free.
SkinnyPop garnered its early distribution primarily in the natural and specialty grocery channels with chains such as Whole Foods, Sprouts and The Fresh Market. After demonstrating strong retail performance in those channels, Costcos Midwest region took the brand into its stores and helped build consumer trials and has continued to support its growth. As a result of SkinnyPops strong sales velocities and unique brand positioning, Walgreens picked up the brand in 2012. In 2013, we adopted a more sophisticated approach to sales and marketing and rapidly accelerated our sales growth into key customers such as Sams Club, Kroger, Ahold and Publix.
In 2014, TA Associates made a significant equity investment in us, acquiring control and providing capital for both organic and acquisition focused growth. TA Associates recruited a professional management team with extensive consumer products and food and beverage-specific experience and helped put additional financial and operational systems in place to enhance our sales planning, ordering, customer service and financial reporting capabilities. Under new management, we have significantly expanded our SkinnyPop brand and gained full distribution with several major customers including Walmart, CVS, Target and Wawa.
In April 2015, we acquired Paqui, our first acquisition. Management believes Paqui has great potential and plans to rapidly expand its distribution in 2015 and 2016.
Our Products
Our products are comprised of our cornerstone brand, SkinnyPop, and our recently acquired brand, Paqui.
SkinnyPop
The SkinnyPop brand is the cornerstone of our BFY snacking platform. The brand grew 137.6% between 2013 and 2014 to achieve $132.4 million in net sales for the Pro Forma Year Ended December 31, 2014 (Unaudited). All SkinnyPop flavors are cooked with three core ingredients; popcorn, sunflower oil and salt. The core SkinnyPop product portfolio is currently comprised of four flavors: Original, Black Pepper, White Cheddar Flavor and Naturally Sweet. We also collaborated with Kroger for an in-and-out offering, Hatch Chile, in 2014 and expect to continue these types of collaborations going forward. Whether the product is a core or rotational flavor, we strictly maintain our focus and commitment to using a limited number of simple ingredients. While the ingredients are simple, we have developed a unique combination of proprietary cooking process and carefully selected premium ingredients to achieve a desirable taste profile. Additionally, our SkinnyPop products are major allergen-free, non-GMO, gluten-free and artificial preservative-free, making them a tasty BFY snack.
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SkinnyPop has a loyal and growing consumer following that has supported rapid growth of the brand and, as of December 31, 2014, was sold in approximately 47,000 retail locations. Our customers enjoy the product and continue to repurchase once they have sampled it, as is evidenced by our best-in-class repeat purchase patterns for the year ended December 31, 2014. We believe SkinnyPop is also attractive to our retail customers because our products sell at a premium price relative to our closest RTE popcorn competitors and have strong sales velocities; these two factors together provide our retailers with a desirable high dollar profit per facing. Furthermore, our product is offered in several alternative package formats to cater to different distribution channels: 4.4oz bags, multiple club size bags and a variety of single serving size bags. To date our Black Pepper and Naturally Sweet products only come in the 4.4oz bags. The brand was initially established through distribution in the natural and organic channel at retailers such as Whole Foods, Sprouts and The Fresh Market, and has subsequently expanded penetration into the conventional grocery, drug, club and mass merchandisers channels, as well as expanding to new and alternative channels including convenience stores and food service. We have long standing relationships with key retailers including Whole Foods, Sprouts, Costco, Sams Club, Kroger and Walgreens; and have recently gained national distribution with several major customers including Walmart, CVS, Target and Wawa. With this extensive and growing distribution network, we believe that SkinnyPop is well positioned to achieve continued future growth.
Paqui Tortilla Chips
In April 2015, we acquired Paqui, which is based in Austin, Texas. Paqui is a good example of how we intend to leverage our platform to help innovative brands grow. We believe the Paqui product has a desirable taste profile, aligns well with our BFY strategy and provides an entry point into the $4.7 billion tortilla chip sub-segment, where no clear BFY market leader has emerged. Paqui, which is derived from the Aztec word that means to be happy, produces tortilla chips that taste great but are also non-GMO, gluten-free, trans fats-free, cholesterol-free and contain no MSG or artificial flavors. Paquis tortilla chips currently come in an assortment of sizes and six core flavors: Original Delights, Cowboy Ranch, Roasted Jalapeno, Grilled Habanero, Very Verde Good and Haunted Ghost Pepper. We plan to add traditional flavors to the line and believe we can add sales, marketing and operational support to help build the brand, win a larger share of the tortilla chips category and become a strong contributor to the overall Company.
Product Innovation
Given we compete in the global snack category, innovation is, and will continue to be, an important component of our growth strategy moving forward. As is discussed above, we have leveraged the success of our Original SkinnyPop flavor and resulting growth in brand equity to successfully launch new flavors and new packaging formats. Our innovation strategy is based on our ongoing research into consumers BFY snacking needs. We will continue to conduct extensive consumer research in order to develop successful new products including product flavor and concept testing, marketing and trend analyses and consumer prototype testing. As part of our innovation process we collaborate with nationally recognized third-party flavor houses and product development firms for new product development and then conduct our own proprietary consumer research to identify and improve upon winning new product concepts. Utilizing our talented and experienced sales organization we then launch these new products into the marketplace across retail channels. Given our relatively low household penetration to date, we remain focused on ensuring consumers initial trial with our brand comes through one of our core flavor offerings. Over time we expect to add both rotational, and perhaps seasonal, flavor offerings as well as new formats for product offerings to our product mix. We currently have plans to launch two to three new products over the next twelve months.
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Customers and Distribution
We market our products predominantly throughout the United States, and sell our products through several distribution channels including natural and conventional grocery, drug, convenience, club, mass merchandise and a variety of alternative channels. Because of our brand loyalty and high-quality products, we believe there are strong growth prospects for us in each of these channels, in addition to a variety of new channels of distribution we are actively pursuing.
| Natural Grocery: Given the BFY characteristics of our SkinnyPop brand, our products were well received by this channel when first launched in a meaningful way in 2011. Customers in this channel include chains such as Whole Foods, Sprouts and The Fresh Market. Similarly, our Paqui brand is rooted in the natural grocery channel, with Whole Foods serving as a key initial customer. In the Pro Forma Year Ended December 31, 2014 (Unaudited), we estimate that the natural grocery channel represented approximately 4.1% of net sales. |
| Club and Mass Merchandisers : Our key customers in this channel include large national and regional retailers such as Costco, Sams Club, BJs, Target and Walmart. SkinnyPop has had a strong and growing relationship with Costco since their Mid-West region began supporting the brand in 2012. Sams Club has been a rapidly growing and valuable customer since our launch with them 2013. BJs also gained significant SkinnyPop distribution in 2013 and continues to support the brand. Most recently SkinnyPop began nationwide distribution with Target and Walmart in early 2015. In the Pro Forma Year Ended December 31, 2014 (Unaudited), we estimate that the club and mass merchandiser channel represented approximately 61.1% of net sales. |
| Conventional Grocery : We have grown our conventional grocery business rapidly since 2013. Our customers in this channel include large national and regional chains such as Kroger, Publix, Ahold, Wegmans, Albertsons and Safeway. Our Paqui brand currently has an emerging but strong relationship with Kroger. In the Pro Forma Year Ended December 31, 2014 (Unaudited), we estimate that the grocery channel represented approximately 27.2% of net sales. |
| Drug Stores : Walgreens first became a customer of SkinnyPop in 2012 and has continued to expand distribution over time through both increased locations and increased product offerings. In January of 2015 CVS committed to chain-wide distribution over the course of 2015. In the Pro Forma Year Ended December 31, 2014 (Unaudited), we estimate that the drug store channel represented approximately 6.3% of net sales. |
| Convenience Stores : The convenience channel represents an important outlet for snack foods. As of late 2014 and early 2015, we have been expanding distribution in this channel with new customer acquisitions such as Wawa, Caseys, The Pantry and select divisions of Circle K and 7-Eleven. In the Pro Forma Year Ended December 31, 2014 (Unaudited), we estimate that the convenience store channel represented approximately 0.6% of net sales. Management believes there is significant opportunity to expand distribution in the convenience channel. |
| Alternative Channels : Our customers in this channel include retailers such as Bed, Bath and Beyond and Hudson News. Additional and reasonably large opportunities in this channel would include increased foodservice and vending distribution, as well as potential international distribution opportunities. In the Pro Forma Year Ended December 31, 2014 (Unaudited), we estimate that the alternative store channel represented approximately 0.7% of net sales. |
We estimate that the breakdown of our net sales by channel for the year ended December 31, 2013 was comparable to the breakdown in Pro Forma Year Ended December 31, 2014 (Unaudited).
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We sell our products directly to retailers and through distributors.
| Direct Sales : We largely rely on our direct sales force in combination with traditional sales brokerage firms to sell to and service customers in the majority of our key distribution channels. In the Pro Forma Year Ended December 31, 2014 (Unaudited), management estimates that 78.7% of our net sales was generated through direct sales. |
| Distributors : The majority of our natural and organic grocery customers, as well as some regional customers in other channels, are serviced through independent food distributors that purchase products for us for resale to retailers, taking title to the products upon purchase. The prices retailers pay for these products are set by our distributors, at their sole discretion, although we may influence the retail price with the use of promotional incentives. In the Pro Forma Year Ended December 31, 2014 (Unaudited), 21.3% of our net sales were generated from sales to distributors. |
Marketing and Advertising
The SkinnyPop brand was built primarily through our differentiated packaging and unique BFY proposition and taste profile, as opposed to brand building through significant traditional marketing spend. As we continue to build the brand, we aim to create impactful marketing communication and activation to drive awareness, trial and repeat business and cement brand loyalty. Given our relatively low household penetration, our current marketing efforts remain focused on increasing awareness, stimulating trial and reaching a broader consumer base. We believe we have significant opportunity to grow our business by increasing communications about our brand and product attributes to a wider audience of consumers. To achieve our objectives, we will continue to actively use social media and other grassroots marketing efforts that encourage a personal dialogue with consumers. We also intend to employ field marketing in order to provide product samples to consumers, as we believe that once we can get consumers to try our products they will purchase them on a frequent basis.
Our Supply Chain
Ingredients
SkinnyPops raw materials consist primarily of popcorn kernels, salt and sunflower oil. We believe we adhere to rigorous standards in determining raw material quality and safety. We use a specified popcorn kernel for all of our RTE popcorn production and secure our popcorn largely from two popcorn suppliers. Our sunflower oil is largely purchased through a single vendor, although we expect this base to expand over time. We often enter directly into forward pricing contracts with certain ingredient suppliers in order to mitigate the impact of commodity cost fluctuations, but we have not historically entered into any hedging agreements. In the Pro Forma Year Ended December 31, 2014 (Unaudited), our contracted ingredients represented approximately 12% of our cost of goods sold. We are currently in discussion with additional raw material suppliers to develop secondary and tertiary suppliers to mitigate supply risks and create purchasing leverage.
Packaging
SkinnyPop packaging consists of the corrugated cartons and the bag itself, which is made out of flexible film. Our cartons are dual sourced and all SKUs have detailed specifications. These specifications are validated at the supplier with a signed SKU specific certification for every inbound purchase order and checked again when received. The film also is dual sourced. The structure of the film is the most commonly used film in the snack food industry; it is a multi-layer plastic that provides a superior barrier from moisture to ensure the freshest product possible. As with the corrugated cartons, all film meets specifications that are validated at the supplier with a signed SKU specific certification
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and then validated again by the production facility. All of the validations of packaging specifications are completed to ensure the quality and appearance of SkinnyPop packaging is superior in the marketplace.
Manufacturing
In order to efficiently manufacture our popcorn products, we have a long-term contract with a SQF Level 2 certified co-manufacturer to make our products according to our proprietary formulas and specifications. All of our manufacturing is outsourced to our co-manufacturing partner, although we own all of the popcorn poppers used in marking our products, as they are built to our customized specifications. Our RTE popcorn co-manufacturing partner is prohibited from producing competing RTE popcorn for any other party. Our manufacturing partner is located in Chicago, Illinois, and is a dedicated peanut-free, tree nut-free, gluten-free and dairy-free facility. We are currently in discussions with additional co-manufacturing companies to serve as secondary suppliers for our RTE popcorn in order to mitigate production risks and create purchasing leverage. Our Paqui products are currently made at a single manufacturing facility located in Austin, Texas. As is the case with our popcorn production we plan to seek out additional contract manufacturers for our Paqui branded products.
Quality Control
Our products are manufactured in facilities that have programs and controls in place regarding consistent quality and food safety. Product attributes, such as taste, aroma, texture and appearance are regularly monitored. Good Manufacturing Practices and comprehensive Food Safety programs are designed to produce a safe, wholesome product. Our suppliers are required to have equally robust processes in place and confirm their compliance with product specifications with Letters of Guaranty and Certificates of Analysis for shipments of raw materials to be used in our Products. Finally, random samples of our finished goods are sent regularly to a third-party laboratory for testing.
Order Fulfillment
In order to best serve our customers and maximize flexibility, SkinnyPop employs a third-party co-manufacturer. The facility runs production on SkinnyPop-developed lines optimized to reduce production cycle times and minimize lot size. As a result, we are able to operate with a minimal amount of inventory, which we believe ensures fresh product in the marketplace. In addition, SkinnyPops order fill rates are near 100% for the first quarter of 2015, providing consistency of service to our customer base. Approximately 50% of customers order volumes are picked up directly from SkinnyPops co-manufacturer, with remaining order volumes being delivered by third-party carriers managed by us. Outbound orders consist of full truckload, intermodal and less-than-truckload shipments. SkinnyPops customer service is managed in house and is centralized to ensure the highest level of customer service possible.
Competition
We operate in a highly competitive environment and face competition in each of our product categories. We have numerous competitors of varying sizes, including manufacturers of private-label products, as well as manufacturers of other branded food products, that compete for trade merchandising support and consumer dollars. We compete with large conventional consumer packaged foods companies such as Frito Lay, Inc., a subsidiary of PepsiCo, Inc., The Kellogg Company, ConAgra Foods, Inc., Diamond Foods, Inc., General Mills, Inc. and Snyders-Lance, Inc. We also compete directly with smaller, local or regional BFY snack and RTE popcorn companies including Popcorn Indiana and Angies as well as private-label RTE popcorn products manufactured by retailers,
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some of which are our customers. An increasing focus on BFY products in the marketplace will likely increase these competitive pressures within the category in future periods.
Competitive factors in our industry include product quality and taste, brand awareness and loyalty among consumers, product variety, ingredients, interesting or unique product names, innovation of on-trend snacks, product packaging and package design, access to supermarket shelf space, reputation, price, advertising, promotion and nutritional claims. We believe that we currently compete effectively with respect to each of these factors.
Employees
As of March 31, 2015, we had 31 employees, 13 of whom are located in our Austin, Texas headquarters, six of whom are in our customer service center in Chicago and 12 of whom are sales personnel throughout the country who work remotely. We are continuing to build our workforce with experienced individuals in order to serve our operations. None of our employees is represented by a labor union with respect to his or her employment with us. We believe our relationship with our employees is satisfactory.
Properties
In February 2015, we entered into a lease effective through March 2024 for approximately 11,000 square feet of office space that houses our principal offices in Austin, Texas. We also have a customer service call center located in Skokie, Illinois that consists of approximately 2,200 square feet and is subject to a lease agreement that expires in August 2017. We believe our facilities are sufficient for our current needs.
Trademarks and Other Intellectual Property
We believe that our intellectual property has substantial value and has contributed significantly to the success of our business. Our primary trademarks include SKINNYPOP, SKINNYPACK, THE BIG SKINNY and DONT WORRY BE PAQUI all of which are registered with the U.S. Patent and Trademark Office. Our trademarks are valuable assets that reinforce the distinctiveness of our brand and our consumers favorable perception of our products and brands. Certain of our marks are also pending registration in Canada. Our web content and the domain name, www.amplifysnackbrands.com, are owned by us and the content is copyright protected. We also rely on unpatented proprietary expertise, recipes and formulations, continuing innovation and other trade secrets to develop and maintain our competitive position.
Government Regulation
Along with our co-manufacturers, brokers, distributors and ingredients and packaging suppliers, we are subject to extensive laws and regulations in the United States by federal, state and local government authorities. In the United States, the federal agencies governing the manufacture, distribution and advertising of our products include, among others, the FTC, the FDA, the USDA, the U.S. Environmental Protection Agency and the Occupational Safety and Health Administration and similar state and local agencies. Under various statutes, these agencies, among other things, prescribe the requirements and establish the standards for quality and safety and regulate our marketing and advertising to consumers. Certain of these agencies, in certain circumstances, must not only approve our products, but also review the manufacturing processes and facilities used to produce these
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products before they can be marketed in the United States. We are also subject to the laws of Canada, including the Canadian Food Inspection Agency, as well as provincial and local regulations.
We are subject to labor and employment laws, laws governing advertising, privacy laws, safety regulations and other laws, including consumer protection regulations that regulate retailers or govern the promotion and sale of merchandise. Our operations, and those of our contract co-manufacturers, distributors and suppliers, also are subject to various laws and regulations relating to environmental protection and worker health and safety matters. We monitor changes in these laws and believe that we are in material compliance with applicable laws.
Geographic Information
For a description of our net sales and long-lived assets by geographic area, see Note 11 to our consolidated financial statements included elsewhere in this prospectus.
Legal Proceedings
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We have received, and may in the future continue to receive, claims from third parties asserting, among other things, infringement of their intellectual property rights. Future litigation may be necessary to defend ourselves, our partners and our customers by determining the scope, enforceability and validity of third-party proprietary rights or to establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors. See Risk FactorsLitigation or legal proceedings could expose us to significant liabilities and have a negative impact on our reputation.
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Executive Officers, Directors and Founders
The following table provides information regarding our executive officers and directors as of March 31, 2015.
Name |
Age |
Position |
||
Executive Officers: |
||||
Thomas C. Ennis |
48 | Chief Executive Officer, President and Director | ||
Brian Goldberg |
41 | Chief Financial Officer | ||
Jason Shiver |
42 | Senior Vice President of Sales | ||
Non-Employee Directors: |
||||
Jeffrey S. Barber (2)(3) |
42 | Chairman of the Board of Directors | ||
William David Christ II (1)(3) |
36 | Director | ||
Chris Elshaw (1)(2)(3) |
55 | Director | ||
John K. Haley (1)(3) |
64 | Director | ||
Dawn Hudson (2) (3) |
57 | Director | ||
Founders and Directors: |
||||
Andrew S. Friedman |
46 | Senior Advisor and Director | ||
Pamela L. Netzky |
40 | Senior Advisor and Director |
(1) | Member of our audit committee. |
(2) | Member of our compensation committee. |
(3) | Member of our nominating and corporate governance committee. |
Executive Officers
Thomas C. Ennis . Mr. Ennis has served as our Chief Executive Officer, President, and has been a member of our board of directors since July 2014. From June 2009 to July 2014, Mr. Ennis served as the President and Chief Executive Officer of Oberto Sausage Co., Inc., a company manufacturing meat snacks, doing business as Oberto Brands. From August 2007 to June 2009, Mr. Ennis served as the Vice President of Marketing at Oberto Brands. From 2005 to 2007, Mr. Ennis served as the Vice President of Marketing at Maggianos, a Brinker International, Inc. national restaurant chain. From 2003 to 2005, Mr. Ennis was Marketing Director at The Dial Corporation, a personal care and household cleaning product company. From July 1996 to August 1997 and from April 1998 to 2003, Mr. Ennis served in various brand management roles at Unilever United States, Inc. From August 1997 to April 1998, Mr. Ennis worked at Nestle S.A., a food and beverage company. From 2012 to 2014, Mr. Ennis served as a member of the board of directors of Toosum Healthy Foods LLC, a private company manufacturing BFY, all-natural snack bars. Mr. Ennis holds a Bachelor of Arts in History and minor in English from Fordham University and a Master of Business Administration with a concentration in marketing from the University of Texas at Austin.
We believe that Mr. Ennis is qualified to serve as a member of our board of directors because of his previous experience as Chief Executive Officer of a major snack food company and his deep experience and knowledge of the snack food industry.
Brian Goldberg . Mr. Goldberg has served as our Chief Financial Officer since September 2014. From January 2013 to September 2014, Mr. Goldberg served as the Chief Financial Officer at
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Enersciences Holdings, LLC, a company focused on developing technology solutions for the energy industry, and Mr. Goldberg continues to serve on its board of directors. From January 2012 until December 2012, Mr. Goldberg served as the Chief Financial Officer at Badlands Power Fuels, LLC, an environmental services provider. From 2005 to December 2011, Mr. Goldberg served as the Chief Financial Officer and Chief Operating Officer at Sweet Leaf Tea Company, a beverage company. After Sweet Leaf Tea Company was sold to Nestle S.A., Mr. Goldberg was retained by Nestle to manage the integration. From 2004 to 2005, Mr. Goldberg served as Vice President of New Capital Partners, a private equity firm. Mr. Goldberg also serves, and has served on the boards of several private companies, including Rumble Drinks, a company manufacturing pre-packaged shakes, since September 2013; Runa LLC, a beverage company, from October 2012 to September 2014; and Freed Foods, Inc., an organic baby foods company doing business as NurtureMe since June 2011. Mr. Goldberg holds a Bachelor of Science in Management with a major in accounting from Tulane University, a Master of Accountancy with an emphasis in taxation from the University of Georgia, and a Master of Business Administration from The Darden School at The University of Virginia.
Jason Shiver . Mr. Shiver has served as our Senior Vice President of Sales since July 2014. From May 2013 until July 2014, Mr. Shiver was employed by Precision Capital Group, LLC and served as Vice President of Sales at SkinnyPop. From April 2012 to December 2013, Mr. Shiver served as the General Manager and Senior Vice President of Sales for Rickland Orchards, LLC, a yogurt snack company. From February 2008 to March 2012, Mr. Shiver served as the Senior Vice President of Sales and Marketing at Glutino USA, Inc., a gluten-free snack food company, which was acquired by Boulder Brands, Inc., a diversified food company. From May 2003 to January 2008, Mr. Shiver held several roles at Atkins Nutritionals, Inc., the leader in low-carb foods and beverages, including Vice President of Sales. From September 2001 to May 2003, Mr. Shiver was a Southeast Regional Sales Manager at Acirca, Inc., an organic foods and beverages company. From August 2000 to September 2001, Mr. Shiver was a National Account Manager at Arizona Beverages USA LLC. Mr. Shiver holds a Bachelor of Science in Marketing from University of South Florida.
Non-Employee Directors
Jeffrey S. Barber . Mr. Barber has served as a member of our board of directors since July 2014, and chairman of the board of directors since April 2015. Mr. Barber joined TA Associates, a leading growth private equity firm, in 2001 and has served as a Managing Director since 2007. Currently, Mr. Barber co-heads TA Associates North American Consumer and Healthcare Group and serves or has served on the boards of several public and private companies including, Tectum Holdings, Inc., a vehicle products company, since 2014; Full Sail University, since 2011; the Los Angeles Film School, since 2011; Vatterott College, an educational services company, since 2009; Cath Kidston Ltd, a fashion company, from 2010 to 2015; Dymatize Enterprises LLC, a nutritional supplements company, from December 2010 to February 2014 and Tempur Sealy International, Inc., a publicly-traded mattress company, from 2002 to 2009. Mr. Barber also serves as a Trustee of The Johns Hopkins University, The Buckingham, Brown and Nichols School and the US Lacrosse Foundation. Mr. Barber holds a Bachelor of Arts from Johns Hopkins University and a Masters of Business Administration from Columbia School of Business.
We believe that Mr. Barber is qualified to serve as a member of our board of directors because of his experience as a seasoned investor, a current and former director of many companies, including a public company, and his financial expertise.
William David Christ II . Mr. Christ has served as a member of our board of directors since July 2014. Mr. Christ joined TA Associates in 2003, where he now serves as a Director, and is primarily focused on investments in the consumer products, retail and restaurant industries. Mr. Christ currently serves or has served on the boards of several private companies including Towne Park, LLC, a
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hospitality services company from December 2013 to December 2014; Dymatize Enterprises LLC, a nutritional supplements company, from December 2010 to February 2014; Vatterott College, an educational services company, from November 2009 to June 2014; and Microban International Ltd., a branded ingredient company, from October 2008 to December 2011. Mr. Christ holds a Bachelor of Science in Business Administration from Washington and Lee University and a Master of Business Administration from the Tuck School of Business at Dartmouth College.
We believe that Mr. Christ is qualified to serve as a member of our board of directors because of his experience as a current and former director of many companies and his financial expertise.
Chris Elshaw . Mr. Elshaw has served on our board of directors since May 2015. From May 2009 until February 2014, Mr. Elshaw served as Executive Vice President and Chief Operating Officer of Revlon Inc. and its affiliates, a global cosmetics company. From October 2007 until May 2009, Mr. Elshaw served as Revlons Executive Vice President and General Manager, U.S. Region. From July 2002 until October 2007, Mr. Elshaw held several leadership roles within Revlon, including Senior Vice President and Managing Director, Europe, Middle East and Canada. From 1996 until 2002, Mr. Elshaw held several senior general management positions at Bristol-Myers Squibb Company (Clairol Division), a global pharmaceuticals company, including serving as General Manager of the U.K. and Ireland division. From November 2007 until February 2014, Mr. Elshaw served as a board member of the Personal Care Products Council, a cosmetic and personal care products industry association, and from February 2012 to February 2014, served as its Vice Chairman.
We believe that Mr. Elshaw is qualified to serve as a member of our board of directors because of his experience serving in leadership roles at various public companies.
John K. Haley . Mr. Haley has served on our board of directors since April 2015. Mr. Haley currently serves as a member of the board of directors, a member of the compensation committee and chair of the audit committee at General Growth Properties, Inc., a publicly-traded real estate investment trust, and a member of the board of directors at Bedrock Brands Inc., a consumer products company. Mr. Haley also acts as a consultant, assisting with financial due diligence for private equity firms. From October 2010 to February 2014, Mr. Haley served as a member of the board of directors and chair of the audit committee at Body Central, Corp., a fashion apparel and accessories retailer. From November 2010 to September 2012, Mr. Haley served as a member of the board of directors at JW Childs Acquisition Corporation, a special purpose acquisition company. From 1978 to 2009, Mr. Haley held various positions, including Partner, at Ernst & Young LLP. Mr. Haley has a Bachelor of Science in Business Administration with a concentration in Accounting from Northeastern University.
We believe that Mr. Haley is qualified to serve as a member of our board of directors because of his experience as a current and former director of many companies and his accounting expertise.
Dawn Hudson . Ms. Hudson has served on our board of directors since October 2014. Since September 2014, Ms. Hudson has been the Chief Marketing Officer of the National Football League, a professional sports league. From March 2009 to September 2014, Ms. Hudson was a Vice-Chairman at The Parthenon Group, a global boutique consulting firm, serving as head of its consumer practice. Between 2002 and 2007, Ms. Hudson held several roles at Pepsi-Cola North America, a multi-national beverage company and division of PepsiCo, Inc., including President and Chief Executive Officer of Pepsi-Cola North America and PepsiCo Food Service from 2005 to 2007. Ms. Hudson also served as Executive Vice President of Sales and Marketing at Frito-Lay North America, Inc., an international snack food company, from 1996 to 1998. Ms. Hudson currently serves as a member of the board of directors, compensation committee and governance committee of Lowes Companies, Inc., a chain of retail home improvement and appliance stores; as a member of the board of directors and audit committee of Nvidia Corp., a visual computing company; and as a member of the board of Interpublic Group of Companies, Inc., a marketing solutions company. From May 2008 to March 2014,
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Ms. Hudson served on the board of directors of Allergan Inc., a pharmaceutical company, from 2010 to 2012, Ms. Hudson served on the board of PF Changs China Bistro, Inc., a restaurant chain, and from 2008 to 2010, she served as Chairman of the board of the Ladies Professional Golf Association, a professional golfing organization. Ms. Hudson holds a Bachelor of Arts from Dartmouth College.
We believe that Ms. Hudson is qualified to serve as a member of our board of directors because of her experience as a current and former director of many companies, including public companies, her experience as a chief executive officer and her knowledge of the snack food industry.
Founders and Directors
Andrew S. Friedman . Mr. Friedman is our founder and has served as our Senior Advisor and on our board of directors since July 2014. From August 2010 to July 2014, Mr. Friedman served as the Chief Executive Officer of SkinnyPop Popcorn LLC, our Predecessor. From 2008 to 2010, Mr. Friedman co-founded and served as Chief Executive Officer of Wells Street Popcorn, LLC, a retail popcorn company. Mr. Friedman holds a Bachelor of Arts in Organizational Management from the University of Michigan and a Master of Business Administration with a major in Finance from The Wharton School of the University of Pennsylvania.
We believe that Mr. Friedman is qualified to serve as a member of our board of directors because of his experience and perspective as our founder and former Chief Executive Officer of our Predecessor.
Pamela L. Netzky . Ms. Netzky is our founder and served as our Senior Advisor and on our board of directors since July 2014. From August 2010 to July 2014, Mr. Netzky also served as the President of SkinnyPop Popcorn LLC, our Predecessor. From 2008 to 2010, Ms. Netzky co-founded and served as the Chief Operating Officer of Wells Street Popcorn, LLC, a retail popcorn company. Ms. Netzky holds a Bachelor of Arts in Communications from DePaul University.
We believe that Ms. Netzky is qualified to serve as a member of our board of directors because of her experience and perspective as our founder and former President of our Predecessor.
Each executive officer serves at the discretion of our board of directors and holds office until his or her successor is duly elected and qualified or until his or her earlier resignation or removal. There are no family relationships among any of our directors or executive officers.
The members of the board of directors and the officers of the Company also constitute all of the members of the board of managers and all of the officers of Topco. Topco will be liquidated in connection with the Corporate Reorganization in connection with this offering. See Corporate Reorganization.
Other Employees
Our management team also includes Matt McQuinn, Vice President of Marketing, who has 21 years of experience and previously held positions with General Mills and Accenture and Steve Galinski, Vice President of Supply Chain, who has 25 years of experience and previously held positions with CSM Bakery Products, Atkins, Fiji Water, Danone and Roadtex LTL.
Codes of Business Conduct and Ethics
Prior to the consummation of this offering, our board of directors will adopt a code of business conduct and ethics that will apply to all of our employees, officers and directors, including our Chief Executive Officer, Chief Financial Officer and other executive and senior financial officers.
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Board of Directors
Our business and affairs are managed under the direction of our board of directors. The number of directors will be fixed by our board of directors, subject to the terms of our amended and restated certificate of incorporation and amended and restated bylaws that will become effective immediately prior to the consummation of this offering. Our board of directors will consist of seven directors, four of whom will qualify as independent under the NYSE listing standards.
In accordance with our amended and restated certificate of incorporation and our amended and restated bylaws, immediately after the consummation of this offering our board of directors will be divided into three classes with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. Our directors will be divided among the three classes as follows:
| the Class I directors will be Messrs. Christ and Elshaw and Ms. Netzky, and their terms will expire at the annual meeting of stockholders to be held in 2016; |
| the Class II directors will be Mr. Friedman and Ms. Hudson, and their terms will expire at the annual meeting of stockholders to be held in 2017; and |
| the Class III directors will be Messrs. Barber, Ennis and Haley, and their terms will expire at the annual meeting of stockholders to be held in 2018. |
Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors.
This classification of our board of directors may have the effect of delaying or preventing changes in control of our company.
Under our stockholders agreement, TA Associates will have the right to designate three of the members of our board of directors if TA Associates owns at least 50% or more of the shares they hold immediately following the consummation of this offering regardless of the percentage such shares represent of our total outstanding shares, two members of our board of directors if TA Associates owns between 25% and 50% of the shares they hold immediately following the consummation of this offering regardless of the percentage such shares represent of our total outstanding shares, and one member of our board of directors if TA Associates owns between 12.5% and 25% of the shares they hold immediately following the consummation of this offering regardless of the percentage such shares represent of our total outstanding shares. Our stockholders agreement provides that the initial board members designated by TA Associates shall be Messrs. Barber and Christ, and one vacancy. For more information regarding our stockholders agreement, see Certain Relationships and Related Party TransactionsStockholders Agreement.
Director Independence
Our board of directors has undertaken a review of the independence of each director. Based on information provided by each director concerning his or her background, employment and affiliations, our board of directors has determined that Messrs. Elshaw, Haley, Barber and Christ and Ms. Hudson do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is independent as that term is defined under the listing standards of the NYSE. In making these determinations, our board of directors considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director, and the transactions involving them described in Non-Employee Director Compensation and Certain Relationships and Related Party Transactions.
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Committees of the Board of Directors
Our board of directors has established or will establish, effective prior to the consummation of this offering, an audit committee, a compensation committee and a nominating and governance committee. The composition and responsibilities of each of the committees of our board of directors is described below. Members will serve on these committees until their resignation or until as otherwise determined by our board of directors.
Audit Committee
Immediately following the consummation of this offering, our audit committee will consist of Messrs. Christ, Elshaw and Haley. Mr. Haley will serve as chairman of the audit committee. Under the NYSE listing standards and applicable SEC rules, we are required to have three members of the audit committee. Subject to phase-in rules, the NYSE and Rule 10A-3 of the Exchange Act requires that the audit committee of a listed company be comprised solely of independent directors. Because we have applied to list our securities on the NYSE in connection with this offering, we have twelve months from the date our securities are first listed on the NYSE to comply with the audit committee independence requirements. Mr. Christ, who is not an independent director for audit committee purposes, will serve on the audit committee until an additional independent director is appointed. The other members named in this committee are independent.
In addition, our board of directors has determined that Mr. Haley is an audit committee financial expert within the meaning of Item 407(d) of Regulation S-K under the 1933 Securities Act, as amended, or the Securities Act.
Our audit committee will, among other things:
| select a qualified firm to serve as the independent registered public accounting firm to audit our consolidated financial statements; |
| help to ensure the independence and performance of the independent registered public accounting firm; |
| discuss the scope and results of the audit with the independent registered public accounting firm, and review, with management and the independent registered public accounting firm, our interim and year-end results of operations; |
| develop procedures for employees to submit concerns anonymously about questionable accounting or audit matters; |
| review our policies on risk assessment and risk management; |
| review related party transactions; |
| obtain and review a report by the independent registered public accounting firm at least annually, that describes our internal control procedures, any material issues with such procedures and any steps taken to deal with such issues; and |
| approve (or, as permitted, pre-approve) all audit and all permissible non-audit services, other than de minimis non-audit services, to be performed by the independent registered public accounting firm. |
Our audit committee will operate under a written charter, to be effective prior to the consummation of this offering, that satisfies the applicable rules of the SEC and the listing standards of the NYSE.
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Compensation Committee
Immediately following the consummation of this offering, our compensation committee will consist of Messrs. Barber, Elshaw and Ms. Hudson, with Ms. Hudson serving as Chairperson. The composition of our compensation committee meets the requirements for independence under the NYSE listing standards and SEC rules and regulations. Each member of the compensation committee is also a non-employee director, as defined pursuant to Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code, or the Code. The purpose of our compensation committee is to discharge the responsibilities of our board of directors relating to compensation of our executive officers. Our compensation committee, among other things:
| reviews, approves and determines, or make recommendations to our board of directors regarding, the compensation of our executive officers; |
| administers our stock and equity incentive plans; |
| reviews and approves and make recommendations to our board of directors regarding incentive compensation and equity plans; and |
| establishes and reviews general policies relating to compensation and benefits of our employees. |
Our compensation committee will operate under a written charter, to be effective prior to the consummation of this offering, that satisfies the applicable rules of the SEC and the listing standards of the NYSE.
Nominating and Governance Committee
Immediately following the consummation of this offering, our nominating and governance committee will consist of Messrs. Barber, Christ, Elshaw and Haley and Ms. Hudson, with Mr. Christ serving as Chairman. The composition of our nominating and governance committee meets the requirements for independence under the NYSE listing standards and SEC rules and regulations. Our nominating and governance committee will, among other things:
| identify, evaluate and select, or make recommendations to our board of directors regarding, nominees for election to our board of directors and its committees; |
| evaluate the performance of our board of directors and of individual directors; |
| consider and make recommendations to our board of directors regarding the composition of our board of directors and its committees; |
| review developments in corporate governance practices; |
| evaluate the adequacy of our corporate governance practices and reporting; and |
| develop and make recommendations to our board of directors regarding corporate governance guidelines and matters. |
The nominating and governance committee will operate under a written charter, to be effective prior to the consummation of this offering that satisfies the applicable listing requirements and rules of the NYSE.
Risk Oversight
Our board of directors has an oversight role, as a whole and also at the committee level, in overseeing management of our risks. Our board of directors regularly reviews information regarding our credit, liquidity and operations, as well as the risks associated with each. The compensation
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committee of the board of directors is responsible for overseeing the management of risks relating to our employee compensation plans and the audit committee of the board of directors oversees the management of financial risks. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire board of directors is regularly informed through committee reports about such risk.
Compensation Committee Interlocks and Insider Participation
None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.
Jeffrey S. Barber, member of our compensation committee, is affiliated with TA Associates. In July 2014, investment funds managed by TA Associates acquired a controlling interest in our parent company, Topco. Certain of our stockholders, including TA Associates, will be parties to our registration rights agreement and are entitled to specified registration rights thereunder. We also intend to enter into our stockholders agreement with TA Associates in connection with this offering. We have described each of these transactions in more detail under the section captioned Certain Relationships and Related Party Transactions.
Non-Employee Director Compensation
Prior to this offering, we did not have a formal policy or plan under which to make equity award grants or to pay cash retainers to our non-employee directors. Non-employee directors who were not affiliated with TA Associates generally received a cash fee of $15,000 for every meeting attended in person and $5,000 for every meeting attended telephonically, as well as an initial equity grant of 288,812.70 Class C-1 units of Topco. Employee directors did not receive additional compensation for service as a member of our board of directors.
In connection with the Corporate Reorganization, each Class C-1 unit granted under the TA Topco 1, LLC 2014 Equity Incentive Plan, or the 2014 Plan, to our directors will be converted into the corresponding number of shares of common stock and/or restricted stock of Amplify Snack Brands, Inc., which will be granted under our 2015 Plan. The portion of the outstanding Class C-1 units that have vested as of the time of the Corporate Reorganization will be converted into shares of common stock and the remaining portion of unvested outstanding Class C-1 units will be converted into shares of restricted stock. As a result, we will grant shares of common stock and restricted stock to our directors on this basis in connection with the Corporate Reorganization. The shares of restricted stock will be subject to time-based vesting conditions, in accordance with the terms and conditions of the Class C-1 units from which such shares were converted. See Corporate Reorganization. The number of shares of restricted stock and common stock to be issued to our 2014 directors (other than Messrs. Ennis and Friedman and Ms. Netzky) in connection with the Corporate Reorganization are set forth in the table below. The shares of common stock and restricted stock that will be granted to Messrs. Ennis and Friedman and Ms. Netzky are presented in Executive CompensationTreatment of Equity Interests in the Corporate Reorganization.
Name |
Number of Class C-1 Units |
Number of Shares of
Restricted Stock |
Number of Shares of
Common Stock |
|||||||||
Jeffrey S. Barber |
| | | |||||||||
William D. Christ |
| | | |||||||||
Frank Doyle(1) |
288,812.70 | |||||||||||
James Hart(2) |
| | | |||||||||
Dawn Hudson(3) |
288,812.70 |
(1) | Mr. Doyle was appointed to our board of directors on October 1, 2014 and resigned on December 16, 2014. |
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(2) | Mr. Hart was appointed to our board of directors on July 14, 2014 and resigned on March 25, 2015. |
(3) | Ms. Hudson was appointed to our Board on October 1, 2014. |
In July 2015, our board of directors will adopt a non-employee director compensation policy, to be effective as of the completion of this offering, that is designed to provide a total compensation package that enables us to attract and retain, on a long-term basis, high-caliber non-employee directors. Under this policy, all non-employee directors will be paid cash compensation as set forth below:
Board of Directors |
Annual Retainer | |||
All non-employee members |
$ | 55,000 | ||
Additional Annual Retainers | ||||
Chairperson of the board of directors |
$ | 35,000 | ||
Audit Committee Chairperson |
$ | 15,000 | ||
Audit Committee member |
$ | 2,500 | ||
Compensation Committee Chairperson |
$ | 10,000 | ||
Compensation Committee member |
$ | 2,500 | ||
Nominating and Corporate Governance Committee Chairperson |
$ | 5,000 | ||
Nominating and Corporate Governance Committee member |
$ | 2,500 |
In addition, under the policy, we will reimburse all reasonable out-of-pocket expenses incurred by non-employee directors in attending board of directors or committee meetings.
Director Compensation Table2014
The following table presents the total compensation for each person who served as a member of our board of directors during the year ended December 31, 2014. Thomas Ennis, who is our Chief Executive Officer, as well as Andrew Friedman and Pamela Netzky, our Senior Advisors, were employees during fiscal year 2014 and received no additional compensation for their services as members of our Board. The compensation received by Messrs. Ennis and Friedman and Ms. Netzky, as Named Executive Officers of the Company is presented in Executive CompensationSummary Compensation Table2014. The table below assumes the completion of the Corporate Reorganization prior to the consummation of this offering.
Director Name(1) |
Fees Earned or Paid in
Cash ($) |
Stock Awards ($)(2) |
Total
($) |
|||||||||
Jeffrey S. Barber |
| | | |||||||||
William D. Christ |
| | | |||||||||
Frank Doyle |
15,000 | 274,372(3) | 289,372 | |||||||||
James Hart |
| | | |||||||||
Dawn Hudson |
15,000 | 274,372(3) | 289,372 |
(1) | Each director other than Ms. Hudson and Mr. Doyle was appointed to the board of directors on July 14, 2014, in connection with the Sponsor Acquisition. Messrs. Barber, Christ and Hart were affiliated with TA Associates. As of December 31, 2014, Mr. Doyle and Ms. Hudson each had shares of restricted stock outstanding and Messrs. Barber, Christ and Hart each had 0 shares of restricted stock outstanding. |
(2) | The amounts reported in the Stock Awards column represent the aggregate grant date fair value of equity-based compensation granted to the non-employee members of our board of directors during the year ended December 31, 2014 as |
computed in accordance with FASB ASC Topic 718. Pursuant to SEC rules, these amounts exclude the impact of estimated forfeitures related to service-based vesting conditions. The assumptions used in calculating the aggregate grant date fair value of shares reported in the Stock Awards column are set forth in Note 14 to our audited consolidated financial statements included elsewhere in this prospectus. The amounts reported in this column reflect the accounting cost for these shares and do not correspond to the actual economic value that may be received by the non-employee members of our board of directors for the shares. |
(3) | The shares of restricted stock vest 25% on December 2, 2015, and thereafter, 2.0833% on the final day of each of the following 36 months, subject to the non-employee directors continued service to the Company through each applicable vesting date. Upon a termination of his or her service relationship by the Company, all unvested shares will be forfeited and all vested shares may be repurchased by the Company. In the event of a sale of the Company (as defined in each non-employee directors award agreement), all unvested shares will be fully vested. |
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Summary Compensation Table2014
The following table presents information regarding the compensation awarded to, earned by, and paid to each individual who served as our principal executive officer and the two most highly-compensated executive officers (other than the principal executive officer) who were serving as executive officers at the end of the year ended December 31, 2014. All of these individuals are collectively referred to as our Named Executive Officers.
Name and Principal Position |
Year | Salary($) | Bonus($) |
Stock
Awards ($)(1) |
Non-Equity
Incentive Plan Compensation ($) |
All Other
Compensation ($) |
Total ($) | |||||||||||||||||||||
Current Named Executive Officers: |
|
|||||||||||||||||||||||||||
Thomas Ennis Chief Executive Officer |
2014 | 310,213 | 420,000 | (2) | 3,499,314 | | 50,100 | (3) | 4,279,627 | |||||||||||||||||||
Brian Goldberg Chief Financial Officer |
2014 | 87,500 | 400,000 | (4) | 1,544,814 | | 3,900 | (5) | 2,036,214 | |||||||||||||||||||
Jason Shiver Senior Vice President of Sales |
2014 | 154,006 | 70,000 | (6) | 1,235,852 | 50,000 | (7) | 6,000 | (5) | 1,515,858 | ||||||||||||||||||
Former Executive Officers: |
|
|||||||||||||||||||||||||||
Andrew Friedman(8) Senior Advisor and Former Chief Executive Officer |
2014 | 355,769 | 750,000 | (9) | | | 323,627 | (10) | 1,429,396 | |||||||||||||||||||
Pamela Netzky(8) Senior Advisor and Former President |
2014 | 355,769 | 750,000 | (9) | | | 323,627 | (10) | 1,429,396 |
(1) | The amounts reported in the Stock Awards column represent the aggregate grant date fair value of the equity-based compensation granted to the Named Executive Officers as computed in accordance with FASB ASC Topic 718, and assuming the consummation of the Corporate Reorganization. Pursuant to SEC rules, these amounts exclude the impact of estimated forfeitures related to service-based vesting conditions. The assumptions used in calculating the aggregate grant date fair value of the shares reported in the Stock Awards column are set forth in Note 14 to the audited consolidated financial statements included elsewhere in this prospectus. The amounts reported in this column reflect the accounting cost for these shares and do not correspond to the actual economic value that may be received by the Named Executive Officers for the shares. |
(2) | Mr. Ennis received a one-time signing bonus equal to $420,000. If, within the first anniversary of employment with Topco, Mr. Ennis is terminated by Topco for cause (as defined in his employment agreement, as discussed in Executive CompensationEmployment Agreements and Termination of Employment and Change in Control Arrangements below) or he voluntarily resigns from Topco without good reason (as defined in his employment agreement, as discussed in Executive CompensationEmployment Agreements and Termination of Employment and Change in Control Arrangements below), then Mr. Ennis must repay to Topco the full amount of the signing bonus. |
(3) | The amount includes reimbursements by Topco for temporary housing, travel and relocation expenses, as well as reimbursements by Topco for automobile-related expenses and mobile telephone charges. |
(4) | Mr. Goldberg is entitled to a one-time signing bonus equal to $400,000; $175,000 of which was paid in October 2014 and $225,000 of which was paid in January 2015. If Mr. Goldberg is terminated by Topco for cause (as defined in his employment agreement, as discussed in Executive CompensationEmployment Agreements and Termination of Employment and Change in Control Arrangements below) or he voluntarily resigns from Topco without good reason (as defined in his employment agreement, as discussed in Executive CompensationEmployment Agreements and Termination of Employment and Change in Control Arrangements below), (i) after December 31, 2014 but on or before March 31, 2015, then Mr. Goldberg must repay to Topco $225,000; (ii) after March 31, 2015 but on or before June 30, 2015, then Mr. Goldberg must repay to Topco $150,000; or (iii) after June 30, 2015 but on or before September 30, 2015, then Mr. Goldberg must repay to Topco $75,000. |
(5) | The amount includes reimbursements by Topco for automobile-related expenses and mobile telephone charges. |
(6) | Mr. Shiver received a one-time signing bonus equal to $70,000. If, within the first anniversary of employment with Topco, Mr. Shiver is terminated by Topco for cause (as defined in his employment agreement, as discussed in Executive CompensationEmployment Agreements and Terminations of Employment and Change in Control Arrangements below) or he voluntarily resigns from Topco without good reason (as defined in his employment agreement, as discussed in Executive CompensationEmployment and Termination of Employment and Change in Control Agreements Arrangements below), then Mr. Shiver must repay to Topco the full amount of the signing bonus. |
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(7) | Pursuant to Mr. Shivers employment agreement, Mr. Shiver was entitled to earn a bonus for the period commencing on July 17, 2014 and ending December 31, 2014 based on Topcos EBITDA for 2014. |
(8) | Mr. Friedman and Ms. Netzky served as Chief Executive Officer and President, respectively, of our Predecessor during fiscal year 2014 until they became Senior Advisors to SkinnyPop Popcorn LLC following the Sponsor Acquisition in July 2014. Ms. Netzky served in a capacity similar to Mr. Friedman prior to July 2014. |
(9) | Mr. Friedman and Ms. Netzky may each receive an additional bonus compensation amount of up to $10 million, based on various contribution margin metrics in fiscal year 2015, and subject to their continued employment though fiscal year 2015. In December 2014, Mr. Friedman and Ms. Netzky each received an advancement of $750,000 of the compensation amount. SkinnyPop Popcorn LLC has no clawback or similar right with respect to the advanced compensation amount and neither Mr. Friedman nor Ms. Netzky has any obligation to repay such amount to SkinnyPop Popcorn LLC under any circumstances. |
(10) | The amount includes tax gross-ups for the advancement of compensation received in December 2014. |
Employment Agreements and Termination of Employment and Change in Control Arrangements
We initially entered into employment agreements with each of our named executive officers in connection with the Sponsor Acquisition or his initial employment with us, if later (collectively, the Prior Agreements), which are summarized below, and intend to replace the Prior Agreements for Messrs. Ennis, Goldberg and Shiver with new employment agreements, as further described below, in connection with our initial public offering. These new employment agreements set forth the terms and conditions of employment of each named executive officer, including initial base salary, target annual bonus opportunity and standard employee benefit plan participation. These new employment agreements also contain provisions that provide for certain payments and benefits in the event of a termination of employment. Mr. Friedman and Ms. Netzky will not enter into new employment agreements in connection with this offering and their Prior Agreements will terminate on December 31, 2015.
New Employment Agreements for Thomas Ennis, Brian Goldberg and Jason Shiver
In July 2015, we will enter into new employment agreements with each of Messrs. Ennis, Goldberg and Shiver, effective as of the completion of this offering, pursuant to which they will continue to serve as our Chief Executive Officer, Chief Financial Officer and Senior Vice President of Sales, respectively. The terms of the new employment agreements are substantially similar to each other and provide for at-will employment. The agreements also set forth initial base salaries of $500,000, $300,000 and $250,000 for Messrs. Ennis, Goldberg and Shiver, respectively, annual target bonuses of 50% of each executives applicable base salary, eligibility to participate in benefit plans generally and reimbursement of up to $1,100 per month for automobile-related expenses and mobile telephone charges.
Involuntary Termination of Employment
Pursuant to the new employment agreements, in the event the applicable executive is terminated by us without cause (as defined in the agreement) or he resigns for good reason (as defined in the agreement), subject to the delivery of a fully effective release of claims and continued compliance with applicable restrictive covenants, the executive will be entitled to (i) a cash severance equal to 100% of his base salary (payable in 12 equal installments) and (ii) up to 12 monthly cash payments equal to our monthly contribution for health insurance for the executive.
Involuntary Termination of Employment in Connection with a Change in Control
In the event an executive is terminated by us without cause or he resigns for good reason, each within 24 months following a change in control, subject to the delivery of a fully effective release of claims and continued compliance with applicable restrictive covenants, the executive will not be entitled to the severance benefits described above, but will instead be entitled to the following: (i) a
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cash severance equal to 200% of his base salary (payable in 24 equal installments), (ii) up to 24 monthly cash payments equal to our monthly contribution for health insurance for the executive and (iii) full accelerated vesting of all outstanding and unvested equity awards of the Company held by the executives.
The payments and benefits provided under the new employment agreements in connection with a change in control may not be eligible for federal income tax deduction for the Company pursuant to Section 280G of the Internal Revenue Code. These payments and benefits may also be subject to an excise tax under Section 4999 of the Internal Revenue Code. If the payments or benefits payable to each executive in connection with a change in control would be subject to the excise tax imposed under Section 4999 of the Internal Revenue Code, then those payments or benefits will be reduced if such reduction would result in a higher net after-tax benefit to him.
Pursuant to the new employment agreements, each of Messrs. Ennis, Goldberg and Shiver will be subject to standard perpetual confidentiality and nondisclosure, assignment of IP work product and 18-month post-termination noncompetition and non-solicitation of employees, independent contractors and customers covenants.
Change in Control
The new employment agreements also provide that in the event of a change in control where the parties thereto do not provide for the assumption, continuation or substitution of equity awards of the Company, any and all outstanding and unvested equity awards held by the applicable executive with vesting, conditions or restrictions that are solely time-based will become fully vested as of the effective time of the change in control.
Prior Agreements
Thomas Ennis
On July 17, 2014, Topco entered into an employment agreement with Mr. Ennis for the position of Chief Executive Officer. The employment agreement provides for his at-will employment and sets forth his initial annual base salary of $500,000; his annual target bonus of $250,000 (effective January 1, 2015) based on the achievement of certain net revenue and EBITDA goals for 2015 as determined by the Companys board of directors; his one-time signing bonus of $420,000 that was subject to full repayment if Topco terminates him for cause (as defined in the employment agreement) or he voluntarily resigns without good reason (as defined in the employment agreement) within the first year of employment; his one-time retention bonus of $415,000 that was payable upon the earlier of (i) Mr. Ennis completion of his first year of employment with Topco and (ii) upon a termination by Topco without cause; his reimbursements for temporary housing, travel and moving expenses through August 30, 2015 (up to $4,000 per month for temporary housing, up to 10 business class round-trip airline tickets per calendar quarter for travel to Topcos headquarters and up to $25,000 for moving); his reimbursements for automobile-related expenses and mobile telephone charges up to a monthly aggregate cap of $1,100; his initial equity grants of our Class C-1 and Class C-2 units; his right to purchase our Class A and Class B units under certain circumstances; and his eligibility to participate in our benefit plans generally. Mr. Ennis was also subject to standard perpetual confidentiality and nondisclosure, assigning of IP work product and 18-month post-termination noncompetition and non-solicitation of employees, independent contractors and customers covenants.
In the event that Mr. Ennis employment was terminated by Topco without cause or he resigned for good reason, subject to his delivery of a fully effective release of claims, he was entitled to cash severance equal to twelve months of his then-current base salary (payable over twelve months) plus a monthly
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payment equal to Mr. Ennis COBRA premium for twelve months. Mr. Ennis equity awards were also subject to certain acceleration of vesting provisions, pursuant to his equity award agreements, as discussed in Executive CompensationOutstanding Equity Awards at Fiscal Year-End Table2014 below.
Brian Goldberg
On September 2, 2014, Topco entered into an employment agreement with Mr. Goldberg for the position of Chief Financial Officer. The employment agreement provided for his at-will employment and sets forth his initial base salary of $300,000; his annual target bonus equal to 50% of his base salary (effective January 1, 2015) based on the achievement of certain net revenue and EBITDA goals for 2015 as determined by the Companys board of directors; his one-time signing bonus of up to $400,000 (of which, $100,000 was used to purchase Class A units, $75,000 was be paid within 30 days of Mr. Goldbergs start date and $225,000 was paid in January 2015); his reimbursements for automobile-related expenses and mobile telephone charges up to a monthly aggregate cap of up to $1,100; his initial equity grants of our Class C-1 and Class C-2 units; his eligibility to purchase our Class A and Class B units under certain circumstances; and his eligibility to participate in our benefit plans generally. Mr. Goldbergs signing bonus was subject to repayment as follows: (i) if he was terminated by Topco for cause (as defined in the employment agreement) or he voluntarily resigned without good reason (as defined in the employment agreement) after March 31, 2015 but on or before June 30, 2015, he must repay to Topco $150,000 and (ii) if he was terminated by Topco for cause or he voluntarily resigned without good reason after June 30, 2015 but on or before September 30, 2015, he must repay to Topco $75,000. Mr. Goldberg was also subject to standard perpetual confidentiality and nondisclosure, assignment of IP work product and 18-month post-termination noncompetition and non-solicitation of employees, independent contractors and customers covenants.
In the event that Mr. Goldbergs employment was terminated by Topco without cause or he resigned for good reason, and subject to his delivery of a fully effective release of claims, he was entitled to cash severance equal to twelve months of his then-current base salary (payable over twelve months) plus a monthly payment equal to Mr. Goldbergs COBRA premiums for twelve months.
Jason Shiver
On July 17, 2014, Topco entered into an employment agreement with Mr. Shiver for the position of Senior Vice President of Sales. The employment agreement provided for his at-will employment and sets forth his initial base salary of $250,000; his annual target bonus of $125,000 (effective January 1, 2015) based on the achievement of certain net revenue and EBITDA goals for 2015 as determined by the Companys board of directors; his one-time signing bonus of $70,000 that was subject to full repayment if Topco terminated him for cause (as defined in the employment agreement) or he voluntarily resigned without good reason (as defined in the employment agreement) within the first year of employment; his reimbursements for automobile-related expenses and mobile telephone charges up to a monthly aggregate cap of up to $1,100; his initial equity grants of our Class C-1 and Class C-2 units; and his eligibility to participate in our benefit plans generally. Mr. Shiver was also subject to standard perpetual confidentiality and nondisclosure, assignment of IP work product and 18-month post-termination noncompetition and non-solicitation of employees, independent contractors and customers covenants.
In the event that Mr. Shivers employment was terminated by Topco without cause or he resigned for good reason, and subject to his delivery of a fully effective release of claims, he was entitled to cash severance equal to twelve months of his then-current base salary (payable over twelve months) plus a monthly payment equal to Mr. Shivers COBRA premiums for twelve months.
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Employment with Precision Capital Group, LLC
Prior to July 17, 2014, Mr. Shiver was employed by Precision Capital Group, LLC, which provided business consulting services to Topco, including, but not limited to, servicing vendor contracts, providing operational support and assisting Topco in sales and marketing operations. As part of Precision Capital Group, LLC, Mr. Shiver helped to provide such business consulting services to Topco and assisted with the Sponsor Acquisition. While at Precision Capital Group, LLC, Mr. Shiver was paid a salary, as well as bonuses, by Precision Capital Group, LLC. Further information regarding Precision Capital Group, LLC can be found in Certain Relationships and Related Party TransactionsPrecision Capital Group LLC Consulting Services Agreements.
Andrew Friedman and Pamela Netzky
Prior to July 17, 2014, Mr. Friedman and Ms. Netzky served as our Chief Executive Officer and President, respectively. On July 17, 2014, TA Midco 1, LLC (now known as SkinnyPop Popcorn LLC) entered into an employment agreement with each of Mr. Friedman and Ms. Netzky for the position of Senior Advisor. The terms of the agreements are until December 31, 2015, unless terminated earlier. The employment agreements set forth each executives initial annual base salary of $200,000 and eligibility to participate in our benefit plans generally. The employment agreements also provide for each executives eligibility to receive a cash payment of up to $10 million (the cash payment), based on achievement by SkinnyPop Popcorn LLC of certain contribution margin metrics during the period commencing on January 1, 2015 and ending on December 31, 2015. Furthermore, in connection with the payments, SkinnyPop Popcorn LLC will provide each executive with an additional tax benefit equal to (i) in the case of the taxable year in which the cash payment is paid or any subsequent taxable year, the net excess (if any) of (A) the taxes that would have been paid by SkinnyPop Popcorn LLC in respect of such taxable year calculated without taking into account the payment of the cash payment over (B) the actual taxes payable by SkinnyPop Popcorn LLC in respect of such taxable year and (ii) in the case of any taxable year prior to the year in which the cash payment is paid, the amount of any tax refund resulting from carrying back any operating losses to the extent attributable to the cash payment. Mr. Friedman and Ms. Netzky are each also subject to standard perpetual confidentiality and nondisclosure and assignment of intellectual property work product covenants, as well as noncompetition and non-solicitation of employees, independent contractors and customers covenants through the later of (1) seven years after the Sponsor Acquisition and (2) 18 months after Mr. Friedman or Ms. Netzky, as applicable, ceases to provide services to SkinnyPop Popcorn LLC. On December 23, 2014, Mr. Friedman and Ms. Netzky each entered into an agreement with SkinnyPop Popcorn LLC, pursuant to which each executive received an advancement of $750,000 of the cash payment. The agreements do not subject Mr. Friedman or Ms. Netzky to any clawback provisions with respect to the advanced cash payment and neither executive has any obligation to repay such amount to SkinnyPop Popcorn LLC under any circumstances.
For each of Mr. Friedman and Ms. Netzky, in the event of a termination due to death, by SkinnyPop Popcorn LLC without cause or by the executive for good reason, and subject to his or her, as applicable, delivery of a fully effective release of claims, the executive will be entitled to continued base salary through December 31, 2015 (paid in accordance with SkinnyPop Popcorn LLCs standard payroll procedures) and a monthly payment equal to the executives COBRA premium through December 31, 2015. In addition, each executive will remain eligible to receive the cash payment as if he or she were still employed by SkinnyPop Popcorn LLC.
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Treatment of Equity Interests in the Corporate Reorganization
In connection with the Corporate Reorganization, outstanding Class C units granted under our 2014 Plan will be converted into shares of common stock and restricted stock of Amplify Snack Brands, Inc., which will be granted under our 2015 Plan. The portion of the outstanding Class C units that have vested as of the time of the Corporate Reorganization will be converted into shares of common stock and the remaining portion of unvested outstanding Class C units will be converted into shares of restricted stock. As a result, we will issue shares of common stock and restricted stock to our Named Executive Officers in connection with the Corporate Reorganization. The shares of restricted stock will be subject to time-based vesting conditions, in accordance with the terms and conditions of the Class C units from which such shares were converted. See Corporate Reorganization. The number of shares of restricted stock and common stock to be issued to our Named Executive Officers in connection with the Corporate Reorganization is set forth in the table below.
Name |
Number of Class
C-1 Units |
Number of
Shares of Restricted Stock |
Number of
Shares of Common Stock |
Number of Class
C-2 Units |
Number of
Shares of Restricted Stock |
Number of
Shares of Common Stock |
||||||||||
Current Named Executive Officers: |
||||||||||||||||
Thomas Ennis |
3,245,086.52 | 2,313,787.18 | ||||||||||||||
Brian Goldberg |
1,352,119.39 | 1,446,116.99 | ||||||||||||||
Jason Shiver |
1,081,695.51 | 1,156,893.59 | ||||||||||||||
Former Named Executive Officers: |
||||||||||||||||
Andrew Friedman |
| | | | | | ||||||||||
Pamela Netzky |
| | | | | |
Outstanding Equity Awards at Fiscal Year-End Table2014
The following table summarizes, for each of the Named Executive Officers, the outstanding shares of restricted stock held by our Named Executive Officers as of December 31, 2014. The table assumes the completion of the Corporate Reorganization prior to the consummation of this offering and the conversion of outstanding Class C units as described above.
Stock Awards(1) | ||||||||||||||||
Name |
Number of Shares or
Units of Stock that Have Not Vested(#) |
Market Value of
Shares or Units of Stock that Have Not Vested($) |
Equity Incentive Plan
Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested(#) |
Equity Incentive
Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested ($) |
||||||||||||
Current Named Executive Officers: |
|
|||||||||||||||
Thomas Ennis |
(2) | | | |||||||||||||
Brian Goldberg |
(2) | | | |||||||||||||
Jason Shiver |
(2) | | | |||||||||||||
Former Named Executive Officers: |
|
|||||||||||||||
Andrew Friedman |
| | | | ||||||||||||
Pamela Netzky |
| | | |
(1) | Assumes an initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus. |
(2) | The shares of restricted stock vest 25% on the first anniversary of the vesting reference date (July 7, 2014 for Mr. Ennis, July 17, 2014 for Mr. Shiver and September 15, 2014 for Mr. Goldberg), and thereafter, 2.0833% on the final day of each of the following 36 months, subject to the Named Executive Officers continued employment with Topco through each applicable vesting date. Upon a termination by Topco without cause (as defined in the Named Executive Officers award agreement), all unvested shares will be forfeited and all vested shares may be repurchased by Topco. For Mr. Ennis only, in the event of a sale of the Company (as defined in Mr. Ennis award agreement), all unvested shares will be fully vested. |
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In connection with this offering, we will pay the Performance Bonus Payments of $500,000, $350,000 and $300,000 to Messrs. Ennis, Goldberg and Shiver, respectively, and $350,000 to be allocated to other employees, to be paid upon the consummation of this offering. We determined that these Performance Bonus Payments were warranted based on the exceptional leadership of each of Messrs. Ennis, Goldberg and Shiver, who drove the Companys continued growth trajectory during 2015 while also preparing the Company for this offering. The board of directors reviewed the efforts of these individuals during this time period and determined their performance, in this unique situation, to be above and beyond what was expected as part of their existing employment arrangements. As such, the board of directors approved these one-time, transaction related bonuses, which were derived based on a calculation of one times the base salary for Mr. Ennis and one times the base salary plus $50,000 for Messrs. Goldberg and Shiver. The board of directors also approved a $350,000 transaction bonus pool that will be paid to the non-executive leadership team and general employee base, in recognition of related and similar extraordinary efforts, to be paid upon the consummation of this offering.
Employee Benefit and Stock Plans
2015 Stock Option and Incentive Plan
Our 2015 Stock Option and Incentive Plan, or our 2015 Plan, was adopted by our board of directors and approved by our stockholders in , 2015 and will become effective immediately prior to the consummation of this offering. The 2015 Plan will replace the 2014 Plan, as our board of directors has determined not to make additional awards under that plan following the consummation of this offering. The 2015 Plan allows the compensation committee to make equity-based incentive awards to our officers, employees, non-employee directors and consultants.
We have initially reserved 13,050,000 shares of our common stock for the issuance of awards under the 2015 Plan. This number is subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization.
The shares we issue under the 2015 Plan will be authorized but unissued shares or shares that we reacquire. The shares of common stock underlying any awards that are forfeited, cancelled, expire or are otherwise terminated (other than by exercise) under the 2015 Plan will be added back to the shares of common stock available for issuance under the 2015 Plan. Notwithstanding the foregoing, shares tendered or held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding and shares that are subject to a stock appreciation right and that are not issued upon settlement thereof will not be added back to the shares available for issuance under the 2015 Plan.
Stock options and stock appreciation rights with respect to no more than 750,000 shares of common stock may be granted to any one individual in any one calendar year and the maximum performance-based award payable to any one covered employee during a performance cycle under the 2015 Plan is 750,000 shares of common stock or $10 million in the case of cash-based performance awards. The maximum number of shares that may be issued as incentive stock options may not exceed 13,050,000 shares. The value of all awards awarded under the 2015 Plan, plus all other cash compensation paid by us to any non-employee director in any calendar year will not exceed $500,000. For purposes of this limitation, the value of any award will be its grant date fair value, as determined in accordance with FASB ASC 718 but excluding the impact of estimated forfeitures related to service-based vesting provisions.
The 2015 Plan will be administered by our compensation committee. Our compensation committee has full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, to accelerate vesting of awards upon
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certain termination events or a change of control, to extend the exercisability of options, to interpret provisions and adopt rules and guidelines, and to determine and modify from time to time the specific terms and conditions of each award, subject to the provisions of the 2015 Plan. Persons eligible to participate in the 2015 Plan will be those full-or part-time officers, employees, non-employee directors and consultants as selected from time to time by our compensation committee in its discretion.
The 2015 Plan permits the granting of both (1) options to purchase common stock intended to qualify as incentive stock options under Section 422 of the Code and (2) options that do not so qualify. The option exercise price of each option will be determined by our compensation committee but may not be less than 100% of the fair market value of our common stock on the date of grant. In the event an incentive stock option is granted to an employee who owns or is deemed to own more than 10% of the combined voting power of all classes of stock of us or any parent or subsidiary corporation, or a 10% owner, the option exercise price of such option may not be less than 110% of the fair market value of our common stock on the date of grant. The term of each option will be fixed by our compensation committee and may not exceed ten years from the date of grant (five years in the case of an incentive stock option held by a 10% owner). Our compensation committee will determine at what time or times each option may be exercised. To the extent required for incentive stock option treatment under Section 422 of the Code, the aggregate fair market value (determined as of the time of grant) of the shares of stock with respect to which incentive stock options become exercisable for the first time by an optionee during any calendar year must not exceed $100,000. To the extent that any stock option exceeds this limit, it will constitute a nonqualified stock option.
Our compensation committee may award stock appreciation rights subject to such conditions and restrictions as it may determine. Stock appreciation rights entitle the recipient to shares of common stock, or cash to the extent provided in an award agreement, equal to the value of the appreciation in our stock price over the exercise price. The exercise price may not be less than 100% of fair market value of the common stock on the date of grant. The term of a stock appreciation right may not exceed ten years.
Our compensation committee may award restricted shares of common stock and restricted stock units to participants subject to such conditions and restrictions as it may determine. These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with us through a specified vesting period. Our compensation committee may also grant shares of common stock that are free from any restrictions under the 2015 Plan. Unrestricted common stock may be granted to participants in recognition of past services or for other valid consideration and may be issued in lieu of cash compensation due to such participant.
Our compensation committee may grant performance share awards to participants that entitle the recipient to receive awards of common stock upon the achievement of certain performance goals and such other conditions as our compensation committee shall determine. Our compensation committee may grant dividend equivalent rights to participants that entitle the recipient to receive credits for dividends that would be paid if the recipient had held a specified number of shares of common stock.
Our compensation committee may grant cash bonuses under the 2015 Plan to participants, subject to the achievement of certain performance goals.
Our compensation committee may grant awards of restricted stock, restricted stock units, performance shares or cash-based awards under the 2015 Plan that are intended to qualify as performance-based compensation under Section 162(m) of the Code. Such awards will only vest or become payable upon the attainment of performance goals that are established by our compensation committee and related to one or more performance criteria. The performance criteria that could be used with respect to any such awards include: total stockholder return, earnings before interest, taxes,
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depreciation and amortization, net income (loss) (either before or after interest, taxes, depreciation and amortization), changes in the market price of our common stock, economic value-added, funds from operations or similar measure, sales or revenue, acquisitions or strategic transactions, operating income (loss), cash flow (including, but not limited to, operating cash flow and free cash flow), return on capital, assets, equity, or investment, return on sales, gross or net profit levels, productivity, expense, margins, operating efficiency, customer satisfaction, working capital, earnings (loss) per share of stock, sales or market shares and number of customers, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to the results of a peer group. Our compensation committee is permitted to adjust the calculation of performance goals to exclude unusual or infrequently occurring items, including asset write-downs, litigation, changes in tax law and accounting principles, accruals for reorganizations, acquisitions, divestitures, annual incentive payments and capital changes.
The 2015 Plan provides that upon the effectiveness of a sale event, as defined in the 2015 Plan, an acquirer or successor entity may assume, continue or substitute for the outstanding awards under the 2015 Plan. To the extent that awards granted under the 2015 Plan are not assumed or continued or substituted by the successor entity, all unvested awards granted under the 2015 Plan shall terminate. In such case, except as may be otherwise provided in the relevant award agreement, all options and stock appreciation rights with time-based vesting, conditions or restrictions that are not exercisable immediately prior to the sale event will become fully exercisable as of the sale event, all other awards with time-based vesting, conditions or restrictions will become fully vested and nonforfeitable as of the sale event, and all awards with conditions and restrictions relating to the attainment of performance goals may become vested and nonforfeitable in connection with the sale event in the plan administrators discretion or to the extent specified in the relevant award agreement. In the event of such termination, individuals holding options and stock appreciation rights will be permitted to exercise such options and stock appreciation rights (to the extent exercisable) prior to the sale event. In addition, in connection with the termination of the 2015 Plan upon a sale event, we may make or provide for a cash payment to participants holding vested and exercisable options and stock appreciation rights equal to the difference between the per share cash consideration payable to stockholders in the sale event and the exercise price of the options or stock appreciation rights.
Our board of directors may amend or discontinue the 2015 Plan and our compensation committee may amend or cancel outstanding awards for purposes of satisfying changes in law or any other lawful purpose, but no such action may adversely affect rights under an award without the holders consent. Certain amendments to the 2015 Plan require the approval of our stockholders.
No awards may be granted under the 2015 Plan after the date that is ten years from the date of stockholder approval of the 2015 Plan. No awards under the 2015 Plan have been made prior to the date hereof.
TA Topco 1, LLC Equity Incentive Plan
Our 2014 Plan was adopted by our board of directors and approved by our stockholders in July 2014. As of December 31, 2014, 12,526,604 Class C units were outstanding under the 2014 Plan. In the event that any outstanding awards under the 2014 Plan were forfeited, cancelled, reacquired by Topco prior to vesting or otherwise terminated, the number of units underlying such award became available for grant under the 2014 Plan. Our board of directors has determined not to grant any further awards under the 2014 Plan after the completion of Corporate Reorganization and the offering. Following the consummation of the Corporate Reorganization, we expect to make future awards under the 2015 Plan.
Our employees, officers, directors, manager and consultants, as well as employees, officers, directors, managers and consultants of our subsidiaries, were eligible to participate in the 2014 Plan.
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Our board of directors administered the 2014 Plan. The plan administrator had the authority to select award recipients, determine the size, types and terms of awards, interpret the plan and prescribe, amend and rescind rules and make all other determinations necessary or desirable for the administration of the 2014 Plan.
Units granted were subject to the terms and conditions of Topcos Amended and Restated Limited Liability Company Agreement, or the LLC Agreement, as well as the terms and conditions of the 2014 Plan.
In the event of sale event (as defined in the LLC Agreement), the 2014 Plan provided that each unvested unit would be immediately forfeited, unless such units were assumed, continued or substituted with a comparable award by our successor company or its parent. In the event that the unvested units terminated in connection with a transaction, Topco may have provided each unit holder with a cash payment equal to the fair market value of a unit multiplied by the number of units.
Subject to any additional transfer restrictions set forth in the LLC Agreement, units granted under the 2014 Plan could not be sold, exchanged, transferred, assigned, distributed, pledged or otherwise disposed of or encumbered without the prior consent of the plan administrator.
The board of directors had the authority to amend or modify the 2014 Plan at any time; provided, that any amendment that adversely affected rights under any outstanding award would have required consent by the holder of such award.
The 2014 Plan will terminate upon the consummation of the Corporate Reorganization and we do not expect to make any additional grants under our 2014 Plan upon adoption of the 2015 Plan in connection with the Corporate Reorganization.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In addition to the compensation arrangements, including employment, termination of employment and change in control arrangements and indemnification arrangements, discussed, when required, in Management and Executive Compensation and the registration rights described in Description of Capital StockRegistration Rights, the following is a description of each transaction since January 1, 2012 and each currently proposed transaction in which:
| we have been or are to be a participant; |
| the amount involved exceeded or exceeds $120,000; and |
| any of our directors, executive officers, or holders of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest. |
The Sponsor Acquisition
In July 2014, investment funds managed by TA Associates acquired a controlling interest in our parent company, Topco, for an aggregate purchase price of approximately $320 million which was paid in a combination of cash and equity. At the time of the Sponsor Acquisition, TA Associates and the other members of Topco entered into the LLC Agreement setting forth the nature of each investors ownership interests in Topco and governing the election of managers, rights to participate in future financings, transfers of equity interests, rights to distributions, indemnification of specified persons, voting rights and approval requirements for specified corporate actions.
In connection with the Sponsor Acquisition, the following occurred:
| We entered into employment agreements with the Founders, which include the Founder Contingent Compensation. See Executive CompensationEmployment Agreements and Termination of Employment and Change in Control Agreements. |
| We entered into a Transition Services Agreement with Precision Capital Group, LLC, which held equity interests in SkinnyPop Popcorn LLC prior to the Sponsor Acquisition and which continues to hold equity interests in Topco, to provide us with sales and related services. |
Concurrently with the Sponsor Acquisition, specified current and former managers and executive officers invested in Topco through a contribution and rollover of previously held equity interests in our company. Upon the consummation of this offering, such interest will represent the following numbers of shares of common stock.
Name |
Shares (1) | |
Jason Shiver |
||
Andrew Friedman |
||
Pamela Netzky |
(1) | Assumes an initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. |
On December 23, 2014, we amended our existing credit facility in order to permit additional borrowing thereunder in an amount equal to $50 million. Immediately thereafter, our company used the proceeds from such additional borrowing to make a $1.5 million prepayment of our Founder Contingent Compensation obligations and distributed the remaining proceeds to its parent, which subsequently distributed such proceeds to Topco, which subsequently distributed such proceeds to Topcos members in accordance with the LLC Agreement.
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The December 2014 Special Dividend
In December 2014, SkinnyPop made a distribution of $59.8 million to us and we distributed it to our parent, Topco, which subsequently distributed such proceeds to its unit holders. We refer to this distribution as the December 2014 Special Dividend. The December 2014 Special Dividend was paid in order to provide a return on investment and liquidity to our equityholders and was not used to pay any part of the consideration of the Sponsor Acquisition. We paid for the December 2014 Special Dividend, in part, with the proceeds from borrowings under the Second Amended Credit Facility. For more information on the Credit Facility and the amendments thereto, see Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtedness.
The May 2015 Special Dividend
In May 2015, SkinnyPop made a distribution of $22.3 million to us which we distributed to our parent, Topco, which subsequently distributed such proceeds to its unit holders according to the terms of Topcos Amended and Restated Limited Liability Agreement. We refer to this distribution as the May 2015 Special Dividend. The May 2015 Special Dividend was paid in order to provide a return on investment and liquidity to our equityholders and was not used to pay any part of the consideration of the Sponsor Acquisition. We paid for the May 2015 Special Dividend with the proceeds from borrowings under the Third Amended Credit Facility. For more information on the Credit Facility and the amendments thereto, see Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtedness.
The board of directors considered a number of different factors in making its determination to declare and distribute the December 2014 Special Dividend and the May 2015 Special Dividend using proceeds from the Companys Second Amended Credit Facility and Third Amended Credit Facility, respectively. As an overall objective, the board of directors desired to provide its stockholders with a modest return on equity capital in a manner that also optimized the Companys balance sheet from a corporate finance perspective. Given the Companys historical levels of operating cash flow less capital expenditures, the board of directors believed that incurring additional indebtedness at historically-favorable market rates would allow the Company to reduce its cost of capital, while at the same time preserving the Companys ability to fund future acquisitions and meet the Companys future growth objectives. The board of directors reviewed various analyses (some of which were prepared for the board of directors by independent third party advisors) regarding the Companys expected pro forma interest and fixed charge coverage ratios and the Companys ongoing ability to meet its pro forma debt service requirements for the foreseeable future. After considering all of these factors, the board of directors determined to pay both the December 2015 Special Dividend and the May 2015 Special Dividend, and to fund such dividends using proceeds from the Companys Second Amended Credit Facility and Third Amended Credit Facility, respectively.
Precision Capital Group LLC Consulting Services Agreements
We entered into two consulting services agreements with one of our stockholders, Precision Capital Group LLC, or Precision. Jason Shiver, our executive vice president of sales, is a former employee, and a current equity holder, of Precision. In addition to his investment in us in connection with the Sponsor Acquisition, in 2013, Mr. Shiver also invested in us through Precision.
Sales Consulting Services Agreement
We entered into a sales consulting services agreement with Precision. Under the terms of this sales consulting services agreement, which we refer to as the Precision Sales Consulting Agreement, Precision agreed to provide sales professionals to work on behalf of the Company. Such sales professionals were entitled to a monthly stipend plus a commission based on sales performance. The
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Precision sales professionals were, at the time of the agreement, employees of Precision. In 2013, fees for consulting services under this agreement were $0.6 million. For the period from January 1, 2014 to July 16, 2014, we incurred operating expenses of $0.9 million for sales consulting services under the Precision Sales Consulting Agreement. The Precision Sales Consulting Agreement was terminated on July 17, 2014 in connection with the Sponsor Acquisition.
Business Consulting Services Agreement
We entered into a business consulting agreement with Precision, which we refer to as the Precision Business Consulting Agreement and, together with the Precision Sales Consulting Agreement, the Precision Agreements. Under the Precision Business Consulting Agreement, Precision provided business consulting services to us. For the period from January 1, 2014 to July 16, 2014, we expensed $0.1 million for consulting services under this agreement. The Precision Business Consulting Agreement was terminated on July 17, 2014 in connection with the Sponsor Acquisition.
Transition Services Agreement
The Precision Agreements were terminated on July 18, 2014, in connection with the Sponsor Acquisition. In connection with the termination of the Precision Agreements, we entered into a transition services agreement with Precision whereby, for a period of 90 days, Precision agreed to provide substantially the same services as it was providing under the Precision Agreements in exchange for payment of an $0.1 million monthly consulting fee and certain performance bonuses. The transition services agreement was subsequently amended in October 2014 to increase the performance bonuses payable thereunder. The transition services agreement was not renewed at the expiration of its term.
Monticello Partners LLC Lease Agreement
We lease office space from a related party, Monticello Partners, LLC, which is wholly-owned by two of our directors, Pamela Netzky and Andrew Friedman. The lease agreement expires on August 31, 2017. Under the lease agreement, we are responsible for all taxes and utilities for the office space. In 2014, we expensed $25,600 in rent under this agreement.
Future minimum annual lease payments for this lease, which had a non-cancelable lease term in excess of one year as of December 31, 2014, were as follows (in thousands):
2015 |
$ | 27 | ||
2016 |
28 | |||
2017 |
19 | |||
|
|
|||
Total |
$ | 74 | ||
|
|
Registration Rights Agreement
In connection with this offering, we intend to enter into a Registration Rights Agreement with certain holders of our common stock.
Stockholders Agreement
We and entities affiliated with TA Associates intend to enter into a stockholders agreement in connection with this offering, which we refer to as our stockholders agreement. Under our stockholders agreement, TA Associates will have the right to designate three of the members of our board of
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directors if TA Associates owns at least 50% or more of the shares they hold immediately following the consummation of this offering regardless of the percentage such shares represent of our total outstanding shares, two members of our board of directors if TA Associates owns between 25% and 50% of the shares they hold immediately following the consummation of this offering regardless of the percentage such shares represent of our total outstanding shares and one member of our board of directors if TA Associates owns between 12.5% and 25% of the shares they hold immediately following the consummation of this offering regardless of the percentage such shares represent of our total outstanding shares.
Our stockholders agreement will also provide that so long as the entities affiliated with TA Associates hold at least 25% of the shares they hold immediately following the consummation of this offering regardless of the percentage such shares represent of our total outstanding shares, we, and our subsidiaries, shall not take the following actions (or enter into an agreement to take such actions) without the approval of at least one director designated by TA Associates:
| increase or decrease the authorized number of members of our board of directors; |
| amend our amended and restated certificate of incorporation or amended and restated bylaws or the organizational documents of any of our subsidiaries; |
| issue, create or assume any debt or equity security or debt obligation, or refinance, repurchase or prepay any security (other than repurchases of our common stock in accordance with agreements previously approved by our board of directors, including at least one director designated by TA Associates) or debt obligation; |
| pay or declare any dividend or make any distribution on, or repurchase or redeem shares of our common stock (other than repurchases of our common stock in accordance with agreements previously approved by our board of directors, including at least one director designated by TA Associates); |
| effect any sale, liquidation or dissolution of the Company, or sell, transfer or otherwise dispose of any of the material assets or properties of the Company or any of its subsidiaries, or merge with or into, or consolidate with, another entity or effect any recapitalization, reorganization, change of form of organization, forward or reverse split, dividend or similar transaction; |
| acquire any business, material assets or property for consideration in excess of $15,000,000, whether by acquisition of assets, capital stock or otherwise, and whether in consideration of the payment of cash, the issuance of capital stock or otherwise or make any investment in any person or entity in an amount in excess of $15,000,000; |
| hire or terminate any our executive officers, or enter into, amend or modify or waive any material term of any employment agreement or material term of employment with any of our executive officers; or |
| take any action to initiate, to cause or that would result in, the voluntary bankruptcy, insolvency, dissolution, liquidation or winding up of the Company or any of its subsidiaries. |
For more information, see Risk FactorsConcentration of ownership among our existing executive officers, directors and principal stockholders, and our stockholders agreement with TA Associates, may prevent new investors from influencing significant corporate decisions.
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Tax Receivable Agreement
In connection with the Corporate Reorganization, the former holders of existing units in Topco will receive the right to receive future payments pursuant to a tax receivable agreement. This tax receivable agreement will provide that we will be obligated to make annual payments to the holders of existing units in Topco equal to 85% of the U.S. federal, state and local tax benefits realized by us and our subsidiaries from the utilization of certain tax attributes that were generated when we were acquired by affiliates of TA Associates in July 2014. We will retain approximately 15% of the U.S. federal, state and local tax benefits realized from the utilization of such tax attributes. Unless earlier terminated in accordance with its terms, the tax receivable agreement will continue in force and effect until there is no further potential for tax benefit payments to be made by us to the former holders of existing units in Topco in respect of the historical U.S. federal, state and local tax benefits that are the subject of the agreement. Based on current tax rules and regulations as of the date of this prospectus, we would expect the potential for tax benefit payments to cease no later than 2030 (or approximately fifteen years after the date of this offering).
The amount payable to the holders of existing units in Topco under the tax receivable agreement will be based on an annual calculation of the reduction in our U.S. federal, state and local taxes resulting from the utilization of these tax attributes. For purposes of determining the reduction in taxes resulting from the utilization of pre-IPO tax attributes, we will be required to assume that pre-IPO tax attributes are utilized before any other attributes. We expect that the payments that we may make under the tax receivable agreement may be substantial. Assuming no material changes in the relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are subject to the tax receivable agreements, we expect that the reduction in tax payments for us associated with the federal, state and local tax benefits described above would aggregate to approximately $112.4 million through 2030. Under such scenario we would be required to pay the holders of existing units in Topco 85% of such amount, or $95.5 million through 2030. The actual amounts may materially differ from these hypothetical amounts, as potential future reductions in tax payments for us and tax receivable agreement payments by us will be calculated using prevailing tax rates applicable to us over the life of the tax receivable agreements and will be dependent on us generating sufficient future taxable income to realize the benefit. Payments will be made by us on an annual basis (assuming we earn sufficient taxable income in a given fiscal year so as to realize tax benefits) and generally within 60 days following the filing by us of our U.S. federal income tax return for the preceding fiscal year. In addition, if the IRS were to successfully challenge the tax benefits that give rise to any payments under the tax receivable agreement, our future payments under the tax receivable agreement to the former holders of units of Topco would be reduced by the amount of such payments, but the tax receivable agreement does not require the former holders of units of Topco to reimburse us for the amount of such payments to the extent they exceed any future amounts payable under the tax receivable agreement.
Payment under the tax receivable agreement may be accelerated in the event of certain mergers, stock or asset sales, other forms of combinations or other changes of control or upon a breach by us of our material obligations under the tax receivable agreement (such as by failing to make a payment within three months of the date on which such payment is due). Such accelerated payment would be based on the present value of projected future payments under the tax receivable agreement as of the date of the accelerating event. Such projected future payments could differ from the payments that would otherwise have resulted under the tax receivable agreement from our actual tax benefits realized from utilizing the pre-IPO tax attributes.
Our obligation to make timely payments under the tax receivable agreement is not conditioned upon, and will not be modified based upon, our historical net income for any previous period or our ability to generate net income in any future period. If, however, we fail to make any payments on a
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timely basis under the tax receivable agreement because we do not have sufficient funds to make such payment despite using reasonable best efforts to obtain funds to make such payment (including by causing our subsidiaries to distribute or lend funds to us for such payment and accessing any sources of available credit to fund such payment), such failure will not be deemed to be a breach of a material obligation under the tax receivable agreement that would give rise to an acceleration of our payment obligations under the agreement. To the extent that we are unable to make timely payments under the tax receivable agreement for this or any other reason, the unpaid amounts will be deferred and will accrue interest until paid by us.
Other Transactions
We have granted Class C units of Topco to our executive officers and certain of our directors. See Executive CompensationTreatment of Equity Interests in the Corporate Reorganization and ManagementNon-Employee Director Compensation for a description of these units. These units will convert into shares of common stock or restricted stock, as applicable, in connection with the Corporate Reorganization that will be consummated immediately prior to the consummation of this offering.
We have entered into change in control arrangements with certain of our executive officers that, among other things, provide for certain severance and change in control benefits. See Executive CompensationEmployment Agreements and Termination of Employment and Change in Control Arrangements for more information regarding these agreements.
In connection with this offering, we will pay the Performance Bonus Payments of $500,000, $350,000 and $300,000 to Messrs. Ennis, Goldberg and Shiver, respectively, and $350,000 to be allocated to other employees.
Other than as described above in Certain Relationships and Related Party Transactions, since January 1, 2012, we have not entered into any transactions, nor are there any currently proposed transactions, between us and a related party where the amount involved exceeds, or would exceed, $120,000, and in which any related person had or will have a direct or indirect material interest. We believe the terms of the transactions described above were comparable to terms we could have obtained in arms-length dealings with unrelated third parties.
Limitation of Liability and Indemnification of Officers and Directors
Prior to the consummation of this offering, we expect to adopt an amended and restated certificate of incorporation, which will become effective immediately prior to the consummation of this offering, and which will contain provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for the following:
| any breach of their duty of loyalty to our company or our stockholders; |
| any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; |
| unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or |
| any transaction from which they derived an improper personal benefit. |
Any amendment to, or repeal of, these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to that amendment or repeal. If the Delaware General Corporation Law is amended to provide for further limitations on the
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personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the Delaware General Corporation Law.
In addition, prior to the consummation of this offering, we expect to adopt amended and restated bylaws which will provide that we will indemnify, to the fullest extent permitted by law, any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that he or she is or was one of our directors or officers or is or was serving at our request as a director or officer of another corporation, partnership, joint venture, trust or other enterprise. Our amended and restated bylaws are expected to provide that we may indemnify to the fullest extent permitted by law any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that he or she is or was one of our employees or agents or is or was serving at our request as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise. Our amended and restated bylaws will also provide that we must advance expenses incurred by or on behalf of a director or officer in advance of the final disposition of any action or proceeding, subject to very limited exceptions.
Further, prior to the consummation of this offering, we expect to enter into indemnification agreements with each of our directors and executive officers that may be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. These indemnification agreements will require us, among other things, to indemnify our directors and executive officers against liabilities that may arise by reason of their status or service. These indemnification agreements will also require us to advance all expenses incurred by the directors and executive officers in investigating or defending any such action, suit or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers.
The limitation of liability and indemnification provisions that are expected to be included in our amended and restated certificate of incorporation, amended restated bylaws and indemnification agreements that we enter into with our directors and executive officers may discourage stockholders from bringing a lawsuit against our directors and executive officers for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against our directors and executive officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholders investment may be harmed to the extent that we pay the costs of settlement and damage awards against directors and executive officers as required by these indemnification provisions. At present, we are not aware of any pending litigation or proceeding involving any person who is or was one of our directors, officers, employees or other agents or is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.
We have obtained insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and executive officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or executive officer, including claims relating to public securities matters, and to us with respect to payments that may be made by us to these directors and executive officers pursuant to our indemnification obligations or otherwise as a matter of law.
Certain of our non-employee directors may, through their relationships with their employers, be insured and/or indemnified against certain liabilities incurred in their capacity as members of our board of directors.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling our company pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
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Policies and Procedures for Related Party Transactions
Following the consummation of this offering, the audit committee will have the primary responsibility for reviewing and approving or disapproving related party transactions, which are transactions between us and related persons in which the aggregate amount involved exceeds or may be expected to exceed $120,000 and in which a related person has or will have a direct or indirect material interest. For purposes of this policy, a related person will be defined as a director, executive officer, nominee for director, or greater than 5% beneficial owner of our common stock, in each case since the beginning of the most recently completed year, and their immediate family members. Our audit committee charter will provide that the audit committee shall review and approve or disapprove any related party transactions. As of the date of this prospectus, we have not adopted any formal standards, policies or procedures governing the review and approval of related party transactions, but we expect that our audit committee will do so in the future.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of , 2015, and as adjusted to reflect the sale of common stock offered by the selling stockholders in this offering assuming no exercise of the underwriters option to purchase additional shares, for:
| each of our executive officers; |
| each of our directors; |
| all of our directors and executive officers as a group; |
| each of the selling stockholders; and |
| each person known by us to be the beneficial owner of more than five percent of any class of our voting securities. |
We have determined beneficial ownership in accordance with the rules of the SEC, and thus it represents sole or shared voting or investment power with respect to our securities. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares that they beneficially owned, subject to community property laws where applicable.
We have based percentage ownership of our common stock before this offering on shares of our common stock outstanding as of , 2015, after giving effect to the completion of the Corporate Reorganization. Percentage ownership of our common stock after this offering assumes the sale of shares of common stock by the selling stockholders in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus.
As discussed under Corporate Reorganization, the allocation of common stock among our existing stockholders and selling stockholders will be determined pursuant to the distribution provision of Topcos existing limited liability company agreement, based upon the liquidation value of Topco, assuming it was liquidated at the time of this offering with a value implied by the initial public offering price of the shares of common stock sold in this offering. The table below assumes that the shares of common stock to be sold in this offering are sold at an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus. Accordingly, the precise holdings of common stock by particular existing stockholders or selling stockholders could differ from that presented in the table below.
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Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Amplify Snack Brands, Inc., 500 West 5 th Street, Austin, Texas 78701.
Certain of our directors and officers will be selling stockholders in this offering.
* | Less than one percent (1%). |
(1) | Consists of (i) shares of common stock and (ii) shares of restricted stock subject to continued vesting as of , 2015. |
(2) | Consists of (i) shares of common stock and (ii) shares of restricted stock subject to continued vesting as of , 2015. |
(3) | Consists of (i) shares of common stock and (ii) shares of restricted stock subject to continued vesting as of , 2015. |
(4) | Consists of (i) shares of common stock and (ii) shares of restricted stock subject to continued vesting as of , 2015. |
(5) | Consists of (i) shares of common stock and (ii) shares of restricted stock subject to continued vesting as of , 2015. |
(6) | Consists of (i) shares of common stock and (ii) shares of restricted stock subject to continued vesting as of , 2015. |
(7) | Consists of (i) shares of common stock held by A&J Popcorn Holdings, LLC in which Mr. Friedman has sole voting and dispositive power and (ii) shares of restricted stock held by A&J Popcorn Holdings, LLC in which Mr. Friedman has sole voting and dispositive power subject to continued vesting as of , 2015. |
(8) | Consists of (i) shares of common stock and (ii) shares of restricted stock subject to continued vesting as of , 2015. |
(9) | Consists of (i) shares of common stock and (ii) shares of restricted stock subject to continued vesting as of , 2015. |
(10) | Consists of (i) shares of common stock held by P&A Capital LLC in which Ms. Netzky has sole voting and dispositive power and (ii) shares of restricted stock held by P&A Capital LLC in which Ms. Netzky has sole voting and dispositive power subject to continued vesting as of , 2015. |
(11) | Consists of (i) shares of common stock and (ii) shares of restricted stock subject to continued vesting as of , 2015. |
(12) |
Consists of (i) shares held by TA XI L.P., (ii) shares held by TA Atlantic and Pacific VII-A L.P., (iii) shares held by TA Atlantic and Pacific VII-B L.P. and (iv) shares held by TA Investors IV L.P. (the TA Associates Funds). TA Associates, L.P. is the ultimate general partner or manager of each of such entity. Investment and voting control of the TA Associates Funds is held by TA Associates, L.P. No stockholder, director or officer of TA Associates, L.P. has voting or investment power with respect to our shares of |
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common stock held by the TA Associates Funds. Voting and investment power with respect to such shares is vested in a four-person investment committee consisting of the following employees of TA Associates, L.P.: Jeffrey Barber, William D. Christ, Roger B. Kafker and Richard Tadler. The address of each TA Associates Fund is 200 Clarendon Street, 56th floor, Boston, Massachusetts 02116. |
(13) | Consists of shares of common stock. Voting and investment power with respect to such shares has been delegated to Steven J. Rush and James D. Farris. The address of BNP Paribas North America, Inc. is 787 Seventh Avenue, New York, New York 10019. |
(14) | Consists of shares of common stock. Voting and investment power with respect to such shares is held by Jason Cohen. The address of Precision Capital Group, LLC is 100 Passaic Avenue, Suite 100, Fairfield, New Jersey 07006. |
(15) | Represents shares held by 5 selling stockholders not listed above who, as a group, own less than 1% of our outstanding common stock prior to this offering. Of these selling stockholders, 3 are current non-executive employees of the Company. |
Relationship with Selling Stockholders
All of the shares sold in this offering will be sold by investment funds and entities affiliated with TA Associates and other holders of existing units in Topco to be identified in this prospectus. For additional information with respect to TA Associates and its relationship with us, please see Certain Relationships and Related Party Transactions.
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General
The following description summarizes the most important terms of our capital stock, as they are expected to be in effect upon the consummation of this offering. We expect to adopt an amended and restated certificate of incorporation and amended and restated bylaws in connection with this offering, and this description summarizes the provisions that are expected to be included in such documents. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description of the matters set forth in this Description of Capital Stock, you should refer to our amended and restated certificate of incorporation, amended and restated bylaws, registration rights agreement and stockholders agreement which are included as exhibits to the registration statement of which this prospectus is a part, and to the applicable provisions of Delaware law. Immediately following the consummation of this offering, our authorized capital stock will consist of 375,000,000 shares of common stock, $0.0001 par value per share, and 10,000,000 shares of undesignated preferred stock, $0.0001 par value per share.
Assuming the completion of the Corporate Reorganization which will occur prior to this offering, as of , 2015, there were 75,000,000 shares of our common stock outstanding, held by stockholders of record, and no shares of our convertible preferred stock outstanding. Our board of directors is authorized, without stockholder approval except as required by the listing standards of the NYSE to issue additional shares of our capital stock.
Common Stock
Dividend Rights
Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of our common stock are entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that our board of directors may determine.
Voting Rights
Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. We have not provided for cumulative voting for the election of directors in our amended and restated certificate of incorporation. Our amended and restated certificate of incorporation establishes a classified board of directors that is divided into three classes with staggered three-year terms. Only the directors in one class will be subject to election by a plurality of the votes cast at each annual meeting of our stockholders, with the directors in the other classes continuing for the remainder of their respective three-year terms.
No Preemptive or Similar Rights
Our common stock is not entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions.
Right to Receive Liquidation Distributions
If we become subject to a liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our common stock and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock.
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Fully Paid and Non-Assessable
All of the outstanding shares of our common stock are, and the shares of our common stock to be issued pursuant to this offering will be, fully paid and non-assessable.
Preferred Stock
Following this offering, our board of directors will be authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences and rights of the shares of each series and any of its qualifications, limitations or restrictions, in each case without further vote or action by our stockholders. Our board of directors can also increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in our control of our company and might adversely affect the market price of our common stock and the voting and other rights of the holders of our common stock. We have no current plan to issue any shares of preferred stock.
Restricted Stock
As of , 2015, assuming the consummation of the Corporate Reorganization, we had outstanding shares of our restricted stock that remains subject to continued vesting. Our shares of restricted stock will be issued upon the conversion of Class C units of Topco into shares of our common stock and restricted stock, as applicable, in the Corporate Reorganization that will be consummated immediately prior to the consummation of this offering.
Registration Rights
In connection with this offering, we intend to enter into a Registration Rights Agreement with certain holders of our common stock. The Registration Rights Agreement will provide such stockholders with rights with respect to the registration of their shares under the Securities Act. The registration rights set forth in the Registration Rights Agreement will terminate, with respect to any particular stockholder, with the prior written consent of TA Associates in connection with a Change of Control (as defined in the Registration Rights Agreement), on the date such stockholder does not beneficially own any shares subject to the agreement, or, if earlier, when such stockholder is able to freely trade its shares without restriction on the basis of the volume limitations under Rule 144 of the Securities Act. We will pay the registration expenses (other than underwriting discounts, selling commissions and stock transfer taxes) of the holders of the shares registered pursuant to the registrations described below. In an underwritten offering, the managing underwriter, if any, has the right, subject to specified conditions, to limit the number of shares such holders may include.
Demand Registration Rights
After the consummation of this offering, TA Associates will be entitled to certain demand registration rights. If we determine that it would be materially detrimental to our stockholders to effect such a demand registration, we will have the right to defer such registration, not more than once in any 12-month period, for a period of 90 days. Additionally, we will not be required to effect a demand registration during the period beginning 60 days prior to our good faith estimate of the date of the filing of, and ending 180 days following the effectiveness of, a registration statement relating to the public offering of our common stock.
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Piggyback Registration Rights
After the consummation of this offering, if we propose to register the offer and sale of our common stock under the Securities Act, in connection with the public offering of such common stock the holders of up to approximately shares of our common stock will be entitled to certain piggyback registration rights allowing the holders to include their shares in such registration, subject to certain marketing and other limitations. As a result, whenever we propose to file a registration statement under the Securities Act, other than with respect to (1) a registration related to a company stock plan, (2) a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the public offering of our common stock, (3) a registration relating to an SEC Rule 145 transaction or (4) a registration in which the only common stock being registered is common stock issuable upon the conversion of debt securities that are also being registered, the holders of these shares are entitled to notice of the registration and have the right, subject to certain limitations, to include their shares in the registration.
S-3 Registration Rights
After the consummation of this offering, the holders of up to approximately shares of our common stock may make a written request that we register the offer and sale of their shares on a registration statement on Form S-3 if we are eligible to file a registration statement on Form S-3 so long as the request is received from stockholders representing 20% of shares subject to this agreement and the request covers at least that number of shares with an anticipated offering price, net of underwriting discounts, selling commissions and stock transfer taxes, of at least $5 million. These stockholders may make an unlimited number of requests for registration on Form S-3; however, we will not be required to effect a registration on Form S-3 if we have effected two such registrations within the 12-month period preceding the date of the request. Additionally, if we determine that it would be seriously detrimental to our stockholders to effect such a registration, we have the right to defer such registration, not more than once in any 12-month period, for a period of up to 90 days.
Stockholders Agreement
For a description of the stockholders agreement that we intend to enter with entities affiliated with TA Associates, see Certain Relationships and Related Party TransactionsStockholders Agreement.
Anti-Takeover Provisions
The provisions of Delaware law, our amended and restated certificate of incorporation and our amended and restated bylaws, which are summarized below, may have the effect of delaying, deferring or discouraging another person from acquiring control of our company. They are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.
Delaware Law
We are governed by the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a public Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A business combination includes mergers, asset sales or other
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transactions resulting in a financial benefit to the stockholder. An interested stockholder is a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of the corporations outstanding voting stock. These provisions may have the effect of delaying, deferring or preventing a change in our control.
Amended and Restated Certificate of Incorporation and Amended and Restated Bylaw Provisions
Our amended and restated certificate of incorporation and our amended and restated bylaws include a number of provisions that could deter hostile takeovers or delay or prevent changes in control of our board of directors or management team, including the following:
| Board of Directors Vacancies. Our amended and restated certificate of incorporation and amended and restated bylaws authorize only our board of directors to fill vacant directorships, including newly created seats. In addition, the number of directors constituting our board of directors will be permitted to be set only by a resolution adopted by a majority vote of our entire board of directors. These provisions would prevent a stockholder from increasing the size of our board of directors and then gaining control of our board of directors by filling the resulting vacancies with its own nominees. This makes it more difficult to change the composition of our board of directors and promotes continuity of management. |
| Classified Board. Our amended and restated certificate of incorporation and amended and restated bylaws provide that our board of directors is classified into three classes of directors. A third party may be discouraged from making a tender offer or otherwise attempting to obtain control of us as it is more difficult and time consuming for stockholders to replace a majority of the directors on a classified board of directors. |
| Stockholder Action; Special Meeting of Stockholders. Our amended and restated certificate of incorporation provides that our stockholders may not take action by written consent, but may only take action at annual or special meetings of our stockholders. As a result, a holder controlling a majority of our capital stock would not be able to amend our amended and restated bylaws or remove directors without holding a meeting of our stockholders called in accordance with our amended and restated bylaws. Our amended and restated bylaws will further provide that special meetings of our stockholders may be called only by a majority of our board of directors, the Chairman of our board of directors, our Chief Executive Officer or our President, thus prohibiting a stockholder from calling a special meeting. These provisions might delay the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take any action, including the removal of directors. |
| Advance Notice Requirements for Stockholder Proposals and Director Nominations. Our amended and restated bylaws will provide advance notice procedures for stockholders seeking to bring business before our annual meeting of stockholders or to nominate candidates for election as directors at our annual meeting of stockholders. Our amended and restated bylaws will also specify certain requirements regarding the form and content of a stockholders notice. These provisions might preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders if the proper procedures are not followed. We expect that these provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirers own slate of directors or otherwise attempting to obtain control of our company. |
| No Cumulative Voting. The Delaware General Corporation Law provides that stockholders are not entitled to cumulate votes in the election of directors unless a corporations certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation does not provide for cumulative voting. |
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| Directors Removed Only for Cause. Our amended and restated certificate of incorporation provides that stockholders may remove directors only for cause. |
| Amendment of Charter Provisions. Any amendment of the above provisions in our amended and restated certificate of incorporation would require approval by holders of at least two-thirds of our then-outstanding common stock. |
| Issuance of Undesignated Preferred Stock . Our board of directors has the authority, without further action by the stockholders, to issue up to shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by our board of directors. The existence of authorized but unissued shares of preferred stock would enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or other means. |
Transfer Agent and Registrar
Upon the consummation of this offering, the transfer agent and registrar for our common stock will be American Stock Transfer & Trust Company, LLC.
Listing
We have applied to list our common stock on the NYSE under the symbol BETR.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock, and we cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time. Future sales of our common stock in the public market, or the availability of such shares for sale in the public market, could adversely affect market prices prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of our common stock in the public market after such restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price at such time and our ability to raise equity capital in the future.
Following the consummation of this offering, based on the number of shares of our capital stock outstanding as of , 2015, we will have a total of shares of our common stock outstanding. Of these outstanding shares, all of the shares of common stock sold in this offering will be freely tradable, except that any shares purchased in this offering by our affiliates, as that term is defined in Rule 144 under the Securities Act, would only be able to be sold in compliance with the Rule 144 limitations described below.
The remaining outstanding shares of our common stock will be deemed restricted securities as defined in Rule 144. Restricted securities may be sold in the public market only if they are registered or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act, which rules are summarized below. In addition, all of our executive officers, directors and holders of substantially all of our common stock and securities convertible into or exchangeable for our common stock have entered into market standoff agreements with us or lock-up agreements with the underwriters under which they have agreed, subject to specific exceptions, not to sell any of our stock for at least 180 days following the date of this prospectus. As a result of these agreements, subject to the provisions of Rule 144 or Rule 701, based on an assumed offering date of , 2015, shares will be available for sale in the public market as follows:
| beginning on the date of this prospectus, the shares of common stock sold in this offering will be immediately available for sale in the public market; |
| beginning 181 days after the date of this prospectus, additional shares of common stock may become eligible for sale in the public market upon the satisfaction of certain conditions as set forth in Lock-Up Agreements, of which shares would be held by affiliates and subject to the volume and other restrictions of Rule 144, as described below; and |
| the remainder of the shares of common stock will be eligible for sale in the public market from time to time thereafter, subject in some cases to the volume and other restrictions of Rule 144, as described below. |
Lock-Up Agreements
We, our executive officers, directors and holders of substantially all of our common stock and securities convertible into or exchangeable for our common stock, have agreed or will agree that, subject to certain exceptions, for a period of 180 days from the date of this prospectus, we and they will not, without the prior written consent of Goldman, Sachs & Co. and Jefferies LLC, dispose of or hedge any shares or any securities convertible into or exchangeable for shares of our capital stock. Goldman, Sachs & Co. and Jefferies LLC may, in their discretion, and with our consent, release any of the securities subject to these lock-up agreements at any time.
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Rule 144
In general, under Rule 144 as currently in effect, once we have been subject to the public company reporting requirements of Section 13 or Section 15(d) of the Exchange Act for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144.
In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up agreements described above, within any three-month period, a number of shares that does not exceed the greater of:
| 1% of the number of shares of our common stock then outstanding, which will equal approximately shares immediately after this offering; or |
| the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale. |
Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
Rule 701
Rule 701 generally allows a stockholder who purchased shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required by that rule to wait until 90 days after the date of this prospectus before selling those shares pursuant to Rule 701.
Registration Rights
In connection with this offering, we plan to enter into a Registration Rights Agreement, pursuant to which the holders of up to shares of our common stock, or their transferees, will be entitled to certain rights with respect to the registration of the offer and sale of those shares under the Securities Act. See Description of Capital StockRegistration Rights for a description of these registration rights. If the offer and sale of these shares is registered, the shares will be freely tradable without restriction under the Securities Act, and a large number of shares may be sold into the public market.
Registration Statement on Form S-8
We intend to file a registration statement on Form S-8 under the Securities Act to register all of the shares of common stock issued or reserved for issuance under our 2015 Stock Option and Incentive Plan. We expect to file this registration statement as promptly as possible after the
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consummation of this offering. Shares covered by this registration statement will be eligible for sale in the public market, subject to the Rule 144 limitations applicable to affiliates, vesting restrictions and any applicable lock-up agreements and market standoff agreements.
Outstanding Equity Awards
In connection with the Corporate Reorganization, outstanding Class C units granted under our 2014 Plan will be converted into shares of common stock and restricted stock of Amplify Snack Brands, Inc., which will be granted under our 2015 Plan. The portion of the outstanding Class C units that have vested as of the time of the Corporate Reorganization will be converted into shares of common stock and the remaining portion of unvested outstanding Class C units will be converted into shares of restricted stock. As a result, we will issue shares of common stock and restricted stock to our Named Executive Officers in connection with the Corporate Reorganization. The shares of restricted stock will be subject to time-based vesting conditions, in accordance with the terms and conditions of the Class C units from which such shares were converted. See Corporate Reorganization.
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CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a summary of certain material U.S. federal income tax considerations for non-U.S. holders (as defined below) relating to the acquisition, ownership and disposition of common stock issued pursuant to this offering. This summary deals only with common stock held as a capital asset (within the meaning of Section 1221 of the Code), by a holder and does not discuss the U.S. federal income tax considerations applicable to a holder that is subject to special treatment under U.S. federal income tax laws, including, but not limited to:
| banks, insurance companies or other financial institutions; |
| persons subject to the alternative minimum tax; |
| tax-exempt organizations; |
| an integral part or controlled entity of a foreign sovereign; |
| dealers in securities or currencies; |
| traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; |
| controlled foreign corporations or passive foreign investment companies; |
| certain former citizens or long-term residents of the United States; |
| persons who hold our common stock as a position in a hedging transaction, straddle, conversion transaction or other risk reduction transaction; |
| persons deemed to sell our common stock under the constructive sale provisions of the Code; or |
| persons who hold our common stock other than as a capital asset (generally, an asset held for investment purposes). |
This summary is based upon provisions of the Code, applicable U.S. Treasury regulations promulgated thereunder, published rulings and judicial decisions, all as in effect as of the date hereof. Those authorities may be changed, perhaps retroactively, or may be subject to differing interpretations, which could result in U.S. federal income tax consequences different from those discussed below. This summary does not address all aspects of U.S. federal income tax, does not deal with all tax considerations that may be relevant to non-U.S. holders in light of their personal circumstances and does not address the Medicare tax imposed on certain investment income or any state, local, foreign, gift, estate or alternative minimum tax considerations.
For purposes of this discussion, a U.S. holder is a beneficial holder of common stock that is: an individual citizen or resident of the United States; a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; an estate the income of which is subject to U.S. federal income taxation regardless of its source; or a trust if it (1) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
For purposes of this discussion a non-U.S. holder is a beneficial holder of common stock that is neither a U.S. holder nor a partnership (or any other entity or arrangement that is treated as a partnership) for U.S. federal income tax purposes. However, neither the term U.S. holder nor the term non-U.S. holder includes any entity or other person that is subject to special treatment under the Code.
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If a partnership (or an entity or arrangement that is treated as a partnership for U.S. federal income tax purposes) holds common stock, the U.S. federal income tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. A partner of a partnership holding common stock is urged to consult its own tax advisors.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THEIR PARTICULAR U.S. FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR SPECIFIC SITUATIONS, AS WELL AS THE TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL OR NON-U.S. TAX LAWS AND ANY OTHER U.S. FEDERAL TAX LAWS (INCLUDING THE U.S. FEDERAL ESTATE AND GIFT TAX LAWS).
Distributions on our Common Stock
Distributions with respect to common stock, if any, generally will constitute dividends for U.S. federal income tax purposes to the extent paid out of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. Any portion of a distribution in excess of current or accumulated earnings and profits will be treated as a return of capital and will first be applied to reduce the holders tax basis in its common stock, but not below zero. Any remaining amount will then be treated as gain from the sale or exchange of the common stock and will be treated as described under Disposition of our Common Stock below.
Distributions treated as dividends that are paid to a non-U.S. holder, if any, with respect to shares of our common stock will be subject to U.S. federal withholding tax at a rate of 30% (or lower applicable income tax treaty rate) of the gross amount of the dividends unless the dividends are effectively connected with the non-U.S. holders conduct of a trade or business in the United States. If a non-U.S. holder is engaged in a trade or business in the United States and dividends with respect to the common stock are effectively connected with the conduct of that trade or business and, if required by an applicable income tax treaty, are attributable to a U.S. permanent establishment, then although the non-U.S. holder will generally be exempt from the 30% U.S. federal withholding tax, provided certain certification requirements are satisfied, the non-U.S. holder will be subject to U.S. federal income tax on those dividends on a net income basis at regular graduated U.S. federal income tax rates in the same manner as if such holder were a resident of the United States. Any such effectively connected income received by a foreign corporation may, under certain circumstances, be subject to an additional branch profits tax equal to 30% (or lower applicable income tax treaty rate) of its effectively connected earnings and profits for the taxable year, as adjusted under the Code. To claim the exemption from withholding with respect to any such effectively connected income, the non-U.S. holder must generally furnish to us or our paying agent a properly executed IRS Form W-8ECI (or applicable successor form). A non-U.S. holder of shares of our common stock who wishes to claim the benefit of an exemption or reduced rate of withholding tax under an applicable treaty must furnish to us or our paying agent a valid IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable (or applicable successor form) certifying such holders qualification for the exemption or reduced rate. If a non-U.S. holder is eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty, the non-U.S. holder may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS. Non-U.S. holders are urged to consult their tax advisors regarding their entitlement to benefits under a relevant income tax treaty.
Disposition of our Common Stock
Non-U.S. holders may recognize gain upon the sale, exchange, redemption or other taxable disposition of common stock. Subject to discussions below regarding backup withholding and foreign accounts, such gain generally will not be subject to U.S. federal income tax unless: (i) that gain is
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effectively connected with the non-U.S. holders conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, is attributable to a U.S. permanent establishment maintained by the non-U.S. holder); (ii) the non-U.S. holder is a nonresident alien individual who is present in the United States for a period or periods aggregating 183 days or more during the taxable year of that disposition, and certain other conditions are met; or (iii) we are or have been a U.S. real property holding corporation for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition or the holders holding period for our common stock, and certain other requirements are met. We believe that we are not and we do not anticipate becoming a U.S. real property holding corporation for U.S. federal income tax purposes.
If a non-U.S. holder is an individual described in clause (i) of the preceding paragraph, the non-U.S. holder will generally be subject to tax on a net income basis at the regular graduated U.S. federal individual income tax rates in the same manner as if such holder were a resident of the United States, unless an applicable income tax treaty provides otherwise. If the non-U.S. holder is an individual described in clause (ii) of the preceding paragraph, the non-U.S. holder will generally be subject to a flat 30% tax on the gain, which may be offset by certain U.S. source capital losses even though the non-U.S. holder is not considered a resident of the United States, provided that the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses. If a non-U.S. holder is a foreign corporation that falls under clause (i) of the preceding paragraph, it will be subject to tax on a net income basis at the regular graduated U.S. federal corporate income tax rates in the same manner as if it were a resident of the United States and, in addition, the non-U.S. holder may be subject to the branch profits tax at a rate equal to 30% (or lower applicable income tax treaty rate) of its effectively connected earnings and profits.
Information Reporting and Backup Withholding Tax
We report to our non-U.S. holders and the IRS the amount of dividends paid during each calendar year and the amount of any tax withheld. All distributions to holders of common stock are subject to any applicable withholding. Information-reporting requirements apply even if no withholding was required because the distributions were effectively connected with the non-U.S. holders conduct of a United States trade or business or withholding was reduced or eliminated by an applicable income tax treaty. This information also may be made available under a specific treaty or agreement with the tax authorities in the country in which the non-U.S. holder resides or is established. Under U.S. federal income tax law, interest, dividends and other reportable payments may, under certain circumstances, be subject to backup withholding at the then-applicable rate, which is currently 28%. Backup withholding, however, generally will not apply to distributions to a non-U.S. holder of our common stock, provided the non-U.S. holder furnishes to us or our paying agent the required certification as to its non-U.S. status, such as by providing a valid IRS Form W-8BEN, IRS Form W-8BEN-E or IRS Form W-8ECI (as applicable), or certain other requirements are met. Notwithstanding the foregoing, backup withholding may apply if either we or our paying agent has actual knowledge, or reason to know, that the holder is a U.S. person that is not an exempt recipient.
Information reporting and backup withholding generally are not required with respect to the amount of any proceeds from the sale of a non-U.S. holders shares of our common stock outside the United States through a foreign office of a foreign broker that does not have certain specified connections to the United States. If a non-U.S. holder sells its shares of our common stock through a U.S. broker or the U.S. office of a foreign broker, however, the broker will be required to report to the IRS the amount of proceeds paid to such non-U.S. holder, and to backup withhold on that amount, unless such non-U.S. holder is an exempt recipient or provides appropriate certification as to its non-U.S. status. Information reporting will also apply if a non-U.S. holder sells its shares of our common stock through a foreign broker deriving more than a specified percentage of its income from U.S.
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sources or having certain other connections to the United States, unless such non-U.S. holder is an exempt recipient or the broker has documentary evidence in its records of such non-U.S. holders non-U.S. status and certain other conditions are met.
Backup withholding is not an additional tax but merely an advance payment of U.S. federal income tax, which may be refunded to the extent it results in an overpayment of tax and the appropriate information is timely supplied to the IRS.
Foreign Account Tax Compliance Act
Sections 1471 through 1474 of the Code, provisions commonly known as FATCA, and guidance issued and intergovernmental agreements entered into thereunder, may impose a 30% withholding tax on dividends and, for a disposition of our common stock occurring after December 31, 2016, the gross proceeds from such disposition, in each case paid to (i) a foreign financial institution (as specifically defined under FATCA), unless the foreign financial institution undertakes certain diligence and reporting obligations and other specified requirements are satisfied or (ii) a non-financial foreign entity, (as specifically defined under FATCA) unless the non-financial foreign entity either certifies it does not have any substantial U.S. owners or furnishes identifying information regarding each substantial U.S. owner and other specified requirements are satisfied. Non-U.S. holders may be required to enter into an agreement with the U.S. Treasury relating to certain reporting, withholding and other obligations under FATCA, or may be required to comply with reporting and other compliance obligations under an intergovernmental agreement between their country of organization and the U.S. Treasury. If a non-U.S. holder does not provide us with the information necessary to comply with FATCA, it is possible that distributions to such non-U.S. holder that are attributable to withholdable payments, such as dividends, will be subject to the 30% withholding tax. Prospective investors should consult their own tax advisers regarding this legislation.
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We, the selling stockholders and the underwriters named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman, Sachs & Co. and Jefferies LLC are the representatives of the underwriters.
Underwriters |
Number of Shares | |
Goldman, Sachs & Co. |
||
Jefferies LLC |
||
Credit Suisse Securities (USA) LLC |
||
SunTrust Robinson Humphrey, Inc. |
||
William Blair & Company, L.L.C. |
||
Piper Jaffray & Co. |
||
Total |
||
|
The underwriters are committed to take and pay for all of the shares being offered, if any are taken, other than the shares covered by the option described below unless and until this option is exercised.
The underwriters have an option to buy up to an additional shares from the selling stockholders. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by the selling stockholders. Such amounts are shown assuming both no exercise and full exercise of the underwriters option to purchase additional shares.
Paid by the Selling Stockholders |
No Exercise | Full Exercise | ||||||
Per Share |
$ | $ | ||||||
Total |
$ | $ |
Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $ per share from the initial public offering price. After the initial offering of the shares, the representatives may change the offering price and the other selling terms. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters right to reject any order in whole or in part.
We and our officers, directors and holders of substantially all of our common stock have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of the representatives. This agreement does not apply to any existing employee benefit plans. See Shares Eligible for Future Sale for a discussion of certain transfer restrictions.
Prior to the offering, there has been no public market for the shares. The initial public offering price has been negotiated among us, the selling stockholders and the representatives. Among the factors to be considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, will be our historical performance, estimates of our business potential and earnings prospects, an assessment of our management and the consideration of the above factors in relation to market valuation of companies in related businesses.
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We have applied to list our common stock on the NYSE under the symbol BETR.
In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering, and a short position represents the amount of such sales that have not been covered by subsequent purchases. A covered short position is a short position that is not greater than the amount of additional shares for which the underwriters option described above may be exercised. The underwriters may cover any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to cover the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares pursuant to the option described above. Naked short sales are any short sales that create a short position greater than the amount of additional shares for which the option described above may be exercised. The underwriters must cover any such naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.
Purchases to cover a short position and stabilizing transactions, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of our common stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. The underwriters are not required to engage in these activities and may end any of these activities at any time. These transactions may be effected on the NYSE, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered.
We and the selling stockholders estimate that the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $ . We will also pay up to $40,000 of reasonable fees and expenses of counsel related to the review by the Financial Industry Regulatory Authority, Inc. of the terms of the sale of the shares offered hereby.
We and the selling stockholders have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933.
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the underwriters and their respective affiliates have provided, and may in the future provide, a variety of these services to the issuer and to persons and entities with relationships with the issuer, for which they received or will receive customary fees and expenses. Affiliates of Jefferies LLC, Goldman, Sachs & Co. and SunTrust Robinson Humphrey, Inc. are lenders under our Third Amended Credit Facility.
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In the ordinary course of their various business activities, the underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the issuer (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the issuer. The underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), each underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date) it has not made and will not make an offer of shares to the public in that Relevant Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of shares to the public in that Relevant Member State at any time:
(a) | to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities; |
(b) | to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 43,000,000 and (3) an annual net turnover of more than 50,000,000, as shown in its last annual or consolidated accounts; |
(c) | to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the representatives for any such offer; or |
(d) | in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive. |
For the purposes of this provision, the expression an offer of shares to the public in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.
Each underwriter has represented and agreed that:
(a) | it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of the shares in circumstances in which Section 21(1) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, or FSMA, would not, if the Issuer was not an authorised person, apply to the Issuer; and |
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(b) | it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom. |
Hong Kong
The shares may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to professional investors within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a prospectus within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the SFA), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the shares are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the shares under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.
Japan
The securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law) and each underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.
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The validity of the shares of common stock offered by this prospectus will be passed upon for us by Goodwin Procter LLP, Boston, Massachusetts. Cravath, Swaine & Moore, LLP, New York, New York, has represented the underwriters.
The consolidated financial statements as of December 31, 2014 (Successor) and 2013 (Predecessor), and for the period from July 17, 2014 to December 31, 2014 (Successor), for the period from January 1, 2014 to July 16, 2014 (Predecessor), and for the year ended December 31, 2013 (Predecessor), included in this prospectus have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein (which report expresses an unqualified opinion on the financial statements and includes explanatory paragraphs referring to the acquisition of SkinnyPop Popcorn LLC and the retrospective adjustment of the financial statements for a stock split). Such consolidated financial statements have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement, some of which is contained in exhibits to the registration statement as permitted by the rules and regulations of the SEC. For further information with respect to us and our common stock, we refer you to the registration statement, including the exhibits filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document is not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, please see the copy of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit. You may obtain copies of this information by mail from the Public Reference Section of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at prescribed rates. You may obtain information on the operation of the public reference rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.
As a result of this offering, we will become subject to the information and reporting requirements of the Exchange Act, and, in accordance with this law, will file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SECs public reference facilities and the website of the SEC referred to above. We also maintain a website at www.amplifysnackbrands.com. Upon completion of this offering, you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained on our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only.
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AMPLIFY SNACK BRANDS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Financial Statements |
Page | |||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 |
Unaudited Financial Statements |
Page | |||
F-30 | ||||
F-31 | ||||
Condensed Consolidated Statements of Stockholders/Members Equity |
F-32 | |||
F-33 | ||||
F-34 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholder of
Amplify Snack Brands, Inc. (formerly known as TA Holdings 1, Inc.)
Austin, Texas
We have audited the accompanying consolidated balance sheets of Amplify Snack Brands, Inc. (formerly known as TA Holdings 1, Inc.) and subsidiary (the Company) as of December 31, 2014 (Successor) and 2013 (Predecessor), and the related consolidated statements of income, stockholders/members equity and cash flows for the period from July 17, 2014 to December 31, 2014 (Successor), for the period from January 1, 2014 to July 16, 2014 (Predecessor), and for the year ended December 31, 2013 (Predecessor). These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Amplify Snack Brands, Inc. and its subsidiary as of December 31, 2014 (Successor) and 2013 (Predecessor), and the results of their operations and their cash flows for the period from July 17, 2014 to December 31, 2014 (Successor), for the period from January 1, 2014 to July 16, 2014 (Predecessor), and for the year ended December 31, 2013 (Predecessor), in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, on July 17, 2014, the Company acquired 100% of the membership units of SkinnyPop Popcorn LLC for an aggregate purchase price of $320 million. The acquisition has been accounted for under the acquisition method of accounting, whereby the purchase consideration was allocated to the tangible and intangible net assets acquired and liabilities assumed at their estimated fair values on the date of acquisition. The acquisition results in a new basis of accounting beginning on July 17, 2014.
As discussed in Note 15, to the consolidated financial statements, the accompanying Successor financial statements have been retrospectively adjusted for the effects of a stock split.
/s/ Deloitte & Touche LLP
Austin, Texas
April 29, 2015 (July 16, 2015 as to the effects of the stock split described in Note 15)
F-2
AMPLIFY SNACK BRANDS, INC.
Consolidated Statements of Income
(In thousands, except shares outstanding and per share information)
Predecessor | Predecessor | Successor | ||||||||||||
Year Ended
December 31, 2013 |
January 1, 2014 to
July 16, 2014 |
July 17, 2014 to
December 31, 2014 |
||||||||||||
NET SALES |
$ | 55,710 | $ | 68,353 | $ | 64,004 | ||||||||
COST OF GOODS SOLD |
23,054 | 29,429 | 28,724 | |||||||||||
|
|
|
|
|
|
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GROSS PROFIT |
32,656 | 38,924 | 35,280 | |||||||||||
Sales & marketing expenses |
5,938 | 5,661 | 6,977 | |||||||||||
General & administrative expenses |
1,960 | 1,394 | 13,611 | |||||||||||
Sponsor acquisition-related expenses |
| 1,288 | 2,215 | |||||||||||
|
|
|
|
|
|
|||||||||
TOTAL OPERATING EXPENSES |
7,898 | 8,343 | 22,803 | |||||||||||
OPERATING INCOME |
24,758 | 30,581 | 12,477 | |||||||||||
Interest expense |
| | 4,253 | |||||||||||
|
|
|
|
|
|
|||||||||
PRE-TAX INCOME |
24,758 | 30,581 | 8,224 | |||||||||||
Income tax expense |
| | 3,486 | |||||||||||
|
|
|
|
|
|
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NET INCOME |
$ | 24,758 | $ | 30,581 | $ | 4,738 | ||||||||
|
|
|
|
|
|
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Basic and diluted earnings per unit/share |
$ | 61,895.01 | $ | 76,452.74 | $ | .06 | ||||||||
Basic and diluted weighted average units/shares outstanding |
400 | 400 | 75,000,000 |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
AMPLIFY SNACK BRANDS, INC.
(In thousands, except for number of units and shares and per share data)
The accompanying notes are an integral part of these consolidated financial statements.
F-4
AMPLIFY SNACK BRANDS, INC.
Consolidated Statements of Stockholders/Members Equity
(In thousands, except for number of units and shares)
Units |
Additional Paid in
Capital |
Retained
Earnings |
Total | |||||||||||||||||
Units | Amount | |||||||||||||||||||
Predecessor |
||||||||||||||||||||
BALANCE January 1, 2013 |
400 | $ | | $ | | $ | 1,671 | $ | 1,671 | |||||||||||
Net income |
| | | 24,758 | 24,758 | |||||||||||||||
Distributions paid |
| | | (19,362 | ) | (19,362 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
BALANCEDecember 31, 2013 |
400 | $ | | $ | | $ | 7,067 | $ | 7,067 | |||||||||||
Net income |
| | | 30,581 | 30,581 | |||||||||||||||
Distributions paid |
| | | (28,533 | ) | (28,533 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
BALANCEJuly 16, 2014 |
400 | $ | | $ | | $ | 9,115 | $ | 9,115 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Common Stock |
Additional Paid in
Capital |
Retained
Earnings |
Total | |||||||||||||||||
Shares | Amount | |||||||||||||||||||
Successor |
||||||||||||||||||||
BALANCEJuly 17, 2014 |
| $ | | $ | | $ | | $ | | |||||||||||
Net initial capital contributions |
75,000,000 | | 175,950 | | 175,950 | |||||||||||||||
Capital distributions |
| | (59,755 | ) | | (59,755 | ) | |||||||||||||
Net income |
| | | 4,738 | 4,738 | |||||||||||||||
Equity-based incentive compensation |
| | 235 | | 235 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
BALANCEDecember 31, 2014 |
75,000,000 | $ | | $ | 116,430 | $ | 4,738 | $ | 121,168 | |||||||||||
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
AMPLIFY SNACK BRANDS, INC.
Consolidated Statements of Cash Flows
(In thousands)
Predecessor | Predecessor | Successor | ||||||||||||
Year Ended
December 31, 2013 |
January 1, 2014
to July 16, 2014 |
July 17, 2014
to December 31, 2014 |
||||||||||||
Cash from operating activities: |
||||||||||||||
Net income |
$ | 24,758 | $ | 30,581 | $ | 4,738 | ||||||||
Adjustments to reconcile net income to cash from operating activities: |
||||||||||||||
Depreciation |
47 | 78 | 99 | |||||||||||
Amortization of intangible assets |
| | 1,904 | |||||||||||
Amortization of deferred financing costs |
| | 292 | |||||||||||
Deferred income taxes |
| | (3,126 | ) | ||||||||||
Equity-based compensation expense |
| | 235 | |||||||||||
Founder Contingent Compensation |
| | 6,937 | |||||||||||
Changes in operating assets and liabilities, net of effects of acquisition: |
||||||||||||||
Accounts receivable |
(3,347 | ) | (4,600 | ) | (763 | ) | ||||||||
Inventories |
(1,687 | ) | (956 | ) | (2,964 | ) | ||||||||
Other current assets |
(351 | ) | 353 | (551 | ) | |||||||||
Accounts payable |
1,558 | 952 | 3,231 | |||||||||||
Accrued liabilities |
1,491 | (69 | ) | 2,687 | ||||||||||
|
|
|
|
|
|
|||||||||
Cash from operating activities |
22,469 | 26,339 | 12,719 | |||||||||||
Cash from investing activities: |
||||||||||||||
Capital expenditures |
(456 | ) | (278 | ) | (178 | ) | ||||||||
Purchase of Predecessor, net of cash acquired |
| | (294,452 | ) | ||||||||||
|
|
|
|
|
|
|||||||||
Cash used in investing activities |
(456 | ) | (278 | ) | (294,630 | ) | ||||||||
Cash from financing activities: |
||||||||||||||
Capital distributions |
(19,362 | ) | (28,533 | ) | (59,755 | ) | ||||||||
Proceeds from issuance of common stock |
| | 150,950 | |||||||||||
Deferred financing costs |
| | (3,669 | ) | ||||||||||
Proceeds from issuance of senior debt |
| | 200,000 | |||||||||||
|
|
|
|
|
|
|||||||||
Cash from (used in) financing activities |
(19,362 | ) | (28,533 | ) | 287,526 | |||||||||
|
|
|
|
|
|
|||||||||
Increase (decrease) in cash and cash equivalents |
2,651 | (2,472 | ) | 5,615 | ||||||||||
Cash and cash equivalentsBeginning of period |
868 | 3,519 | | |||||||||||
|
|
|
|
|
|
|||||||||
Cash and cash equivalentsEnd of period |
3,519 | 1,047 | 5,615 | |||||||||||
Supplemental disclosure of cash flow information: |
||||||||||||||
Cash paid during the period: |
||||||||||||||
Income taxes |
$ | | $ | | $ | 5,600 | ||||||||
Interest |
| | 3,961 | |||||||||||
Non-cash activities during the period: |
||||||||||||||
Purchase of Predecessor, non-cash consideration |
| | 25,000 |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
AMPLIFY SNACK BRANDS, INC.
Notes to Consolidated Financial Statements
1. BUSINESS AND BASIS OF PRESENTATION
We are a high growth, snack food company focused on developing and marketing products that appeal to consumers growing preference for Better-For-You (BFY) snacks. We contract with a third-party firm to manufacture our products, and we operate in multiple channels of trade to distribute our products to consumers.
Amplify Snack Brands, Inc. is a wholly-owned subsidiary of TA Topco 1, LLC (Topco). Pursuant to the terms of the Corporate Reorganization that will be completed prior to the consummation of this offering, Topco will dissolve and in liquidation, will distribute all of the shares of capital stock of Amplify Snack Brands, Inc. to its members in accordance with the limited liability company agreement of Topco. Amplify Snack Brands, Inc. currently owns 100% of the membership units of its subsidiary SkinnyPop Popcorn LLC (collectively the Company).
On July 17, 2014, SkinnyPop Popcorn LLC (Predecessor) was acquired (the Sponsor Acquisition) by investment funds and entities associated with TA Associates, L.P., a private equity entity (TA Associates). To affect the Sponsor Acquisition, the Predecessors members entered into a Unit Purchase Agreement (the Purchase Agreement) with Amplify Snack Brands, Inc. and TA Midco 1, LLC (Midco), whereby the members contributed all units of the Predecessor to Midco in exchange for cash and rollover stock. The Predecessor then merged with and into Midco, with Midco as the surviving entity. Midco subsequently changed its name to SkinnyPop Popcorn LLC, a subsidiary of Amplify Snack Brands, Inc.
The parties agreed to consummate the Sponsor Acquisition, subject to the terms and conditions set forth in the Unit Purchase Agreement, for an aggregate purchase consideration of $320 million, which included rollover stock from the Predecessors members representing approximately 14% of the Company. A portion of the purchase consideration is being held in escrow to secure post-closing purchase price adjustments and indemnity claims. The aggregate purchase consideration, plus related fees and expenses, was funded by the equity investment in Topco by affiliates of TA Associates as well as from certain members of management, and the net proceeds from the borrowing of a $150 million Term Loan due 2019 that bears initial interest at LIBOR (with a 1.00% LIBOR floor) plus 4.5% per annum. The Sponsor Acquisition and the financing transaction described above are collectively referred to herein as the Transactions. See Note 8 for a summary of the terms of the Term Loan.
The Transactions were consummated on July 17, 2014. The accompanying consolidated financial statements are presented for two periods: predecessor and successor, which relate to the periods preceding and succeeding the Sponsor Acquisition, respectively. The Sponsor Acquisition results in a new basis of accounting beginning on July 17, 2014 and the financial reporting periods are presented as follows:
| The year ended December 31, 2014 includes the predecessor period of the Company from January 1, 2014 to July 16, 2014 and the successor period, reflecting the Sponsor Acquisition from July 17, 2014 to December 31, 2014. |
| The 2013 period presented is the predecessor period. |
Total fees and expenses related to the Transactions aggregated to approximately $6.6 million consisting of $1.3 million of Sponsor Acquisition-related costs recognized in the predecessor period, $2.2 million of Sponsor Acquisition-related costs recognized in the successor period, and $3.1 million of deferred financing costs, also recognized in the successor period.
F-7
AMPLIFY SNACK BRANDS, INC.
The Sponsor Acquisition has been accounted for under the acquisition method of accounting, whereby the purchase consideration was allocated to the tangible and intangible net assets acquired and liabilities assumed at their estimated fair values on the date of acquisition. The excess purchase consideration over fair value of net assets acquired and liabilities assumed was recorded as goodwill and represents a value attributable to brand scalability and revenue growth potential, in excess of value attributable to trade name intangible asset, associated with the Companys products and position in the BFY snack category. Of the $45.7 million of goodwill recorded by the Company, $19.2 million is expected to be deductible for income tax purposes. The fair value measurements for intangible assets were calculated using a discounted cash flow approach, which includes unobservable inputs classified as Level 3 within the fair value hierarchy. The amount and timing of future cash flows was based on the Companys most recent operational forecasts. In preparing the purchase price allocations, the Company considered a report of a third party valuation expert. Our management is responsible for these internal and third-party valuations and appraisals and they are continuing to review the amounts and allocations to finalize these amounts. We have one year from the date of completion of the Sponsor Acquisition to finalize these amounts and are therefore continuing to review the valuation and contractual obligations.
The following table summarizes the purchase consideration and estimated fair value of assets acquired and liabilities assumed at the date of acquisition (in thousands):
Purchase consideration: |
||||
Cash paid as purchase consideration |
$ | 280,750 | ||
Cash paid into escrow |
14,250 | |||
Value of equity issued |
25,000 | |||
|
|
|||
Total purchase consideration |
$ | 320,000 | ||
Less: Cash and cash equivalents acquired |
548 | |||
|
|
|||
Total purchase pricenet of cash and cash equivalents acquired |
319,452 | |||
|
|
|||
Fair value of net assets acquired and liabilities assumed: |
||||
Current assets |
$ | 12,671 | ||
Property and equipment |
667 | |||
Indefinite-lived identifiable intangible assettrade name |
202,900 | |||
Definite-lived identifiable intangible assetscustomer relationships |
62,300 | |||
Definite-lived identifiable intangible assetsnon-competition agreements |
90 | |||
Current liabilities |
(4,870 | ) | ||
|
|
|||
Total fair value of net assets acquired and liabilities assumed |
$ | 273,758 | ||
|
|
|||
Excess purchase consideration over fair value of net assets acquired (goodwill) |
$ | 45,694 | ||
|
|
In connection with the Sponsor Acquisition, the Companys founders entered into employment agreements with the Company through December 31, 2015. Under the terms of these agreements, and subject to continuing employment, the founders are each eligible to receive up to $10 million upon the Companys achievement of certain contribution margin benchmarks during the period commencing on January 1, 2015 and ending on December 31, 2015. The founders are also eligible to receive further payment contingent on the potential future tax savings associated with the deductibility of the payments under these agreements. At December 31, 2014, all payments under these agreements are expected to amount to $26.8 million (the Founder Contingent Compensation), including the expected benefit associated with the tax savings. On December 23, 2014, the Company entered into a Prepayment Agreement with the founders to reflect a $750,000 bonus payment to each founder and a reduction of the Companys future Founder Contingent Compensation obligations. The Company is recognizing the fair value of the associated obligation ratably over the contractual service period. Total expense related thereto amounted to $8.4 million in the successor period from July 17, 2014 to December 31, 2014.
F-8
AMPLIFY SNACK BRANDS, INC.
Pro Forma Combined Financial Information (Unaudited)
The following unaudited pro forma combined financial information reflects the consolidated statements of income of the Company as if the Sponsor Acquisition had occurred as of January 1, 2013. The pro forma information includes adjustments primarily related to the amortization of intangible assets acquired, the fair value of inventory acquired, interest expense associated with the $150 million Term Loan to finance the Sponsor Acquisition and does not reflect the $50 million increase in connection with the December 2014 Special Dividend. The pro forma combined financial information is not necessarily indicative of the results of operations as they would have been had the transaction been effected on the assumed date (in thousands, except per share data):
(Unaudited) |
Pro forma
Year Ended December 31, 2013 |
Pro forma
Year Ended December 31, 2014 Combined (Non-GAAP) |
||||||
Net sales |
$ | 55,710 | $ | 132,357 | ||||
Net income (loss) |
(6,881 | ) | 23,546 | |||||
Basic and diluted net income (loss) per share |
$ | (0.09 | ) | $ | 0.31 |
Pro forma year ended December 31, 2014 was adjusted to exclude $3.5 million of non-recurring Sponsor Acquisition-related expenses and $0.4 million of additional cost of sales associated with inventory acquired. Pro forma year ended December 31, 2013 was adjusted to include these charges.
The foregoing information reflects the estimated compensation expense associated with the Founder Contingent Compensation (as defined above) in connection with the Sponsor Acquisition, based on our achievement of certain contribution margin benchmarks during the fiscal year 2015, and the tax benefit, to the extent realized by us, associated with the arrangement, that would have been recognized if the employment agreements had been in effect from January 1, 2013. The total estimated obligation of $26.8 million is being recognized ratably over the approximately 18-month contractual service period.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (GAAP) and include the accounts of Amplify Snack Brands, Inc. and SkinnyPop Popcorn LLC, its wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The consolidated financial statements are prepared in conformity with GAAP. Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. The Company routinely evaluates its estimates, including those related to accruals and allowances for customer programs and incentives, bad debts, income taxes, long-lived assets, inventories, equity-based compensation, accrued broker commissions and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
F-9
AMPLIFY SNACK BRANDS, INC.
Significant Risks and Uncertainties
The Companys future results of operations involve a number of risks and uncertainties. Factors that could affect the Companys future operating results and cause actual results to vary materially from expectations include, but are not limited to, fluctuations in commodity prices, specifically popcorn kernels and sunflower oil, continued acceptance of the Companys products, competition from substitute products and larger companies and dependence on strategic relationships. The Company relies on contract manufacturers to manufacture and third-party logistics to distribute its products. The Companys manufacturers and suppliers may encounter supply interruptions or problems during manufacturing due to a variety of reasons, including failure to comply with applicable regulations, equipment malfunction and weather and environmental factors, any of which could delay or impede the Companys ability to meet demand.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1Quoted prices in active markets for identical assets or liabilities.
Level 2Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The categorization of a financial instrument within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The carrying amounts of the Companys financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. Our debt bears interest at a variable interest rate plus an applicable margin and, therefore, approximates fair value.
The following table presents liabilities measured at fair value on a recurring basis:
Predecessor | Successor | |||||||
At December 31,
2013 |
At December 31,
2014 |
|||||||
Liabilities: |
||||||||
Founder Contingent Compensationshort term |
$ | | $ | 593 | ||||
Founder Contingent Compensationlong term |
$ | | 6,343 | |||||
|
|
|
|
|||||
Total Founder Contingent Compensation(i) |
$ | | $ | 6,936 |
(i) | Founder Contingent Compensation liability fair value measurements based upon unobservable inputs (Level 3). See Note 1 for more information. |
Considerable judgment is required in developing the estimate of fair value of Founder Contingent Compensation. The use of different assumptions or valuation methodologies could have a material effect on the estimated fair value amounts.
F-10
AMPLIFY SNACK BRANDS, INC.
The fair value measurement of the Founder Contingent Compensation obligation relates to the employment agreements entered into in connection with the Sponsor Acquisition. The current portion is included in other current liabilities in the consolidated balance sheet. The fair value measurement is based upon significant inputs not observable in the market. Changes in the value of the obligation are recorded as income or expense in our consolidated statements of income. To determine the fair value, we valued the total contingent compensation liability based on the expected probability weighted compensation payments corresponding to the performance thresholds agreed to under the applicable employment agreements, as well as the associated income tax benefit using the estimated tax rates that will be in effect. The current estimate represents the recognizable portion based on the maximum potential obligation allowable under the employment agreements. As discussed in Note 1, the Company is recognizing the fair value of the associated obligation ratably over the contractual service period.
Cash and Cash Equivalents
Cash and cash equivalents include cash and money market funds with an original maturity of 90 days or less.
Inventories
Inventories are valued at the lower of cost or market using the weighted-average cost method. The Company procures certain raw material inputs and packaging from suppliers and contracts with a third-party firm to assemble and warehouse finished product. The third-party co-manufacturer invoices the Company monthly for labor and certain raw material inputs upon the sale of finished product to customers during that period.
Write-downs are provided for finished goods expected to become non-saleable due to age and provisions are specifically made for slow moving or obsolete raw ingredients and packaging. The Company also adjusts the carrying value of its inventories when it believes that the net realizable value is less than the carrying value. These write-downs are measured as the difference between the cost of the inventory, including estimated costs to complete, and estimated selling prices. Charges related to slow moving or obsolete items are recorded as a component of cost of goods sold. Charges related to packaging redesigns are recorded as a component of selling and marketing. Once inventory is written down, a new, lower-cost basis for that inventory is established.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation on equipment is provided in amounts sufficient to relate the cost of the assets to operations over their estimated service lives ranging from 5-7 years using the straight-line method. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful lives. Maintenance and repairs are charged to expense as incurred. Assets not yet placed in use are not depreciated.
The useful lives of the property and equipment are as follows:
Machinery and equipment | 5 years | |
Furniture and fixtures | 5 to 7 years | |
Leasehold improvements | Shorter of lease term or estimated useful life |
We continually evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets may warrant revision, or that the remaining balance
F-11
AMPLIFY SNACK BRANDS, INC.
of these assets may not be recoverable. When deemed necessary, we complete this evaluation by comparing the carrying amount of the assets against the estimated undiscounted future cash flows associated with them. If such evaluations indicate that the future undiscounted cash flows of amortizable long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their estimated fair values.
Deferred Financing Costs
Costs incurred in connection with debt issuances have been deferred, and are being amortized using the effective interest method over the term of the related instrument as interest expense.
Goodwill and Intangible Assets
In connection with the Sponsor Acquisition, the Company recorded $45.7 million of goodwill resulting from the excess of aggregate purchase consideration over the fair value of the assets acquired and liabilities assumed.
Goodwill is tested annually for impairment or more frequently if events or changes in circumstances indicate that impairment may have occurred. We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Otherwise, the impairment analysis for goodwill includes a comparison of our carrying value (including goodwill) to our estimated fair value. If the fair value does not exceed the carrying value, then an additional analysis would be performed to allocate the fair value to all of our assets and liabilities as if it had been acquired in a business combination and the fair value was our purchase consideration. If the excess of the fair value of our identifiable assets and liabilities is less than the carrying value of recorded goodwill, an impairment charge is recorded for the difference. The Company will perform its annual assessment of goodwill as of July 1 of each fiscal year.
Other intangible assets are comprised of both finite and indefinite-lived intangible assets. Indefinite-lived intangible assets, including our trade name, are not amortized. The Company has the option to first assess the qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. Otherwise, indefinite-lived intangible assets are tested annually for impairment, or more frequently if events or changes in circumstances indicate that the asset might be impaired.
An intangible asset is determined to have an indefinite useful life when there are no legal, regulatory, contractual, competitive, economic or any other factors that may limit the period over which the asset is expected to contribute directly or indirectly to our future cash flows. In each reporting period, we also evaluate the remaining useful life of an intangible asset that is not being amortized to determine whether events and circumstances continue to support an indefinite useful life. If an intangible asset that is not being amortized is determined to have a finite useful life, the asset will be amortized prospectively over the estimated remaining useful life and accounted for in the same manner as intangible assets subject to amortization.
The Company generally expenses legal and related costs incurred in defending or protecting its intellectual property unless it can be established that such costs have added economic value to the business enterprise, in which case it capitalizes the costs incurred as part of intangible assets.
F-12
AMPLIFY SNACK BRANDS, INC.
Impairment of Long-lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and prior to any annual impairment test. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. There was no impairment of long-lived assets during the periods ended December 31, 2013 and 2014.
Recognition of Net Sales, Sales Incentives and Trade Accounts Receivable
Net sales are recognized when the earnings process is complete and the risks and rewards of ownership have transferred to the customer, which occurs upon the receipt and acceptance of product by the customer. The Companys customers are primarily businesses that are stocking its products. The earnings process is complete once the customer order has been placed and approved and the product shipped has been received by the customer or when product is picked up by the Companys customers at the Companys co-manufacturer. Product is sold to customers on credit terms established on a customer-by-customer basis. The credit factors used include historical performance, current economic conditions and the nature and volume of the product.
The Company offers its customers a variety of sales and incentive programs, including price discounts, coupons, slotting fees, in-store displays and trade advertising. The costs of these programs are recognized at the time the related sales are recorded and are classified as a reduction in net sales. These program costs are estimated based on a number of factors including customer participation and performance levels. Trade promotions included in net sales were $5.2 million in the year ended December 31, 2013, were $8.7 million for the predecessor period from January 1, 2014 to July 16, 2014 and were $11.4 million in successor period from July 17, 2014 to December 31, 2014.
The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated credit risk by performing credit checks and actively pursuing past due accounts. Accounts are charged to bad debt expense as they are deemed uncollectible based upon a periodic review of aging and collections.
F-13
AMPLIFY SNACK BRANDS, INC.
As of December 31, 2013 and 2014, the Company recorded total allowances against trade accounts receivable of $1.7 million and $3.0 million, respectively. Recoveries of receivables previously written off are recorded when received.
(In Thousands) | Additions | Deductions | ||||||||||||||||||
Balance at
Beginning of Period |
Charged to
Costs and Expenses |
Charged
to Other Accounts |
Write-Offs and
Adjustments |
Balance at
End of Period |
||||||||||||||||
December 31, 2013 (Predecessor) |
||||||||||||||||||||
Allowances deducted from assets to which they apply |
||||||||||||||||||||
Allowance for doubtful accounts |
74 | 46 | | | 120 | |||||||||||||||
Allowance for promotional activities |
44 | 5,243 | | (3,730 | ) | 1,557 | ||||||||||||||
July 16, 2014 (Predecessor) |
||||||||||||||||||||
Allowances deducted from assets to which they apply |
||||||||||||||||||||
Allowance for doubtful accounts |
120 | | | (80 | ) | 40 | ||||||||||||||
Allowance for promotional activities |
1,557 | 8,726 | | (9,380 | ) | 903 | ||||||||||||||
December 31, 2014 (Successor) |
||||||||||||||||||||
Allowances deducted from assets to which they apply |
||||||||||||||||||||
Allowance for doubtful accounts |
40 | 60 | | | 100 | |||||||||||||||
Allowance for promotional activities |
903 | 11,357 | | (9,399 | ) | 2,861 |
Cost of Goods Sold
Cost of goods sold consists of the costs of ingredients and packaging utilized in the manufacture of products, contract manufacturing fees, shipping and handling costs to external customers, equipment repairs, in-bound freight charges, reserves for inventory obsolescence and depreciation of manufacturing equipment.
Sales and Marketing Expenses
Sales and marketing expenses include salaries and wages, commissions, broker fees, bonuses and incentives and other marketing and advertising expenses.
Also included in sales and marketing expense are costs and fees relating to the execution of in-store product demonstrations with club stores or grocery retailers, which were $3.1 million in 2013, $2.4 million for the predecessor period from January 1, 2014 to July 16, 2014, and $2.5 million for the successor period from July 17, 2014 to December 31, 2014. The cost of product used in the demonstrations, which is insignificant, and the fees paid to the independent third-party providers who conduct the in-store demonstrations, are recorded as an expense when the event occurs. Product demonstrations are conducted by independent third-party providers designated by the various retailer or club chains. During the in-store demonstrations, the consumers in the stores receive small samples of our products. The consumers are not required to purchase our product in order to receive the sample.
General and Administrative Expenses
General and administrative expenses include salaries and wages, founder employment costs, depreciation of property and equipment, professional fees, amortization of intangible assets, insurance, travel and other operating expenses.
F-14
AMPLIFY SNACK BRANDS, INC.
Equity-Based Compensation
The Company records equity-based compensation in accordance with the Financial Accounting Standards Boards (FASB) Accounting Standards Codification (ASC) Topic 718, CompensationStock Compensation, which requires the measurement and recognition of compensation expense for all equity-based payment awards made to employees and directors including incentive units or employee stock options based on estimated fair values. The fair value of each award is estimated on the grant date using a two-step process. See Note 14 for a further discussion of the valuation process. The equity-based compensation expense, net of forfeitures, is recognized using a straight-line basis over the requisite service period of the awards, which corresponds to the vesting periods of the awards. Compensation expense amounted to $0 million in 2013, $0 million for the predecessor period from January 1, 2014 to July 16, 2014, and $0.2 million for the successor period from July 17, 2014 to December 31, 2014.
Segment Reporting
FASB ASC Topic 280, Segment Reporting, establishes standards for reporting information about a companys operating segments. The Company determined its operating segment on the same basis that it uses to evaluate its performance internally. The Company has one business activity, marketing and distribution of BFY ready-to-eat snacking products, and operates as one operating segment. The Companys chief operating decision-maker, its chief executive officer, reviews its operating results on an aggregate basis for purposes of allocating resources and evaluating financial performance.
Concentration Risk
Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash, cash equivalents and trade receivables. We maintain the majority of our cash and cash equivalents in the form of demand deposits with financial institutions that management believes are creditworthy.
The Company has one customer that, in total, accounted for 35.6% of net sales during 2013, 33.2% of net sales during the predecessor period from January 1, 2014 to July 16, 2014 and 36.3% of net sales during the successor period from July 17, 2014 to December 31, 2014. This customer represented 59.2% and 20.1% of the accounts receivable balances outstanding at December 31, 2013 and 2014, respectively. A second customer accounted for 21.6% of net sales during 2013, 21.5% of net sales during the predecessor period from January 1, 2014 to July 16, 2014 and 20.3% of net sales during the successor period from July 17, 2014 to December 31, 2014. This customer represented 15.8% and 33.1% of the accounts receivable balances outstanding at December 31, 2013 and 2014, respectively.
The Company relies on a limited number of suppliers for the ingredients used in manufacturing its products. In order to mitigate any adverse impact from a disruption of supply, the Company attempts to maintain an adequate supply of ingredients and believes that other vendors would be able to provide similar ingredients if supplies were disrupted. The Company outsources the manufacturing of its products to a co-manufacturer in the United States. The co-manufacturer represented 67.6% and 63.7% of accounts payable at December 31, 2013 and 2014, respectively. One other raw material vendor represented 18.0% of accounts payable at December 31, 2013.
F-15
AMPLIFY SNACK BRANDS, INC.
Earnings per Unit/Share
The Company follows FASB ASC Topic 260 Earnings Per Share to account for earnings per unit/share. Basic earnings per unit/share has been computed based upon the weighted average number of common units/shares outstanding. Diluted earnings per unit/share has been computed based upon the weighted average number of common units/shares outstanding plus the effect of all potentially dilutive common units/stock equivalents, except when the effect would be anti-dilutive.
Income Taxes
Deferred income taxes are provided for the differences between the basis of assets and liabilities for financial reporting and income tax purposes. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company records a liability for all tax positions if it is not more likely than not that the position is sustainable based on its technical merits.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition, and most industry-specific guidance throughout the Codification. The standard requires entities to recognize the amount of revenue that reflects the consideration to which the company expects to be entitled in exchange for the transfer of promised goods or services to customers. This ASU is effective for fiscal years beginning after December 15, 2016, and for interim periods within those fiscal years. The Company is in the process of assessing both the method and the impact of the adoption of ASU 2014-09 on its financial position, results of operations, cash flows and financial statement disclosures.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial StatementsGoing Concern: Disclosures about an Entitys Ability to Continue as a Going Concern. The new standard requires management to perform interim and annual assessments of an entitys ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entitys ability to continue as a going concern. The new guidance is effective for annual periods ending after December 15, 2016, and interim periods thereafter. The Company is currently assessing the impact of the adoption of ASU No. 2014-15 on its financial position, results of operations and financial statement disclosures.
3. INVENTORY
Inventories, net consist of the following (in thousands):
Predecessor | Successor | |||||||
December 31,
2013 |
December 31,
2014 |
|||||||
Raw materials: |
||||||||
Popcorn kernels |
$ | 548 | $ | 654 | ||||
Sunflower oil |
215 | 2,459 | ||||||
Seasonings |
82 | 1,150 | ||||||
Finished goods |
1,163 | 2,067 | ||||||
|
|
|
|
|||||
Inventories |
$ | 2,008 | $ | 6,330 | ||||
|
|
|
|
F-16
AMPLIFY SNACK BRANDS, INC.
4. PROPERTY AND EQUIPMENT
Property and equipment are valued at cost. Property and equipment, net consist of the following (in thousands):
Predecessor | Successor | |||||||
December 31,
2013 |
December 31,
2014 |
|||||||
Machinery and equipment |
$ | 511 | $ | 929 | ||||
Furniture and fixtures |
20 | 44 | ||||||
Leasehold improvements |
| 13 | ||||||
|
|
|
|
|||||
Total property and equipment |
531 | 986 | ||||||
Less: Accumulated depreciation |
(63 | ) | (240 | ) | ||||
|
|
|
|
|||||
Property and equipment, net |
$ | 468 | $ | 746 | ||||
|
|
|
|
Depreciation expense amounted to $0.1 million for the successor period from July 17, 2014 to December 31, 2014, $0.1 million for the predecessor period from January 1, 2014 to July 16, 2014, and $0.1 million in 2013.
5. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consist of the following (in thousands):
Predecessor | Successor | |||||||||
Estimated Useful
Life |
December 31,
2013 |
December 31,
2014 |
||||||||
Goodwill: |
||||||||||
Beginning balance |
$ | | $ | | ||||||
Acquired during the year |
| 45,694 | ||||||||
|
|
|
|
|||||||
Ending balance |
$ | | $ | 45,694 | ||||||
|
|
|
|
|||||||
Intangible assets: |
||||||||||
Trade name |
Indefinite | $ | | $ | 202,900 | |||||
Customer relationship |
15 years | | 62,300 | |||||||
Non-competition agreement |
7 years | | 90 | |||||||
|
|
|
|
|||||||
$ | | $ | 265,290 | |||||||
Less: Accumulated amortization |
| (1,904 | ) | |||||||
|
|
|
|
|||||||
Intangible assets, net |
$ | | $ | 263,386 | ||||||
|
|
|
|
There was no amortization of intangibles in 2013 and for the predecessor period from January 1, 2014 to July 16, 2014. Amortization for intangibles totaled $1.9 million for the successor period from July 17, 2014 to December 31, 2014, and is included as part of general and administrative expense. The weighted average remaining amortization period of intangible assets at December 31, 2014 was 14.6 years.
F-17
AMPLIFY SNACK BRANDS, INC.
The estimated annual amortization expenses related to amortizable intangible assets is as follows for the years ending December 31 (in thousands):
2015 |
$ | 4,166 | ||
2016 |
4,166 | |||
2017 |
4,166 | |||
2018 |
4,166 | |||
2019 |
4,166 | |||
Thereafter |
39,656 |
6. DEFERRED FINANCING COSTS
Deferred financing costs consist of the following (in thousands):
Predecessor | Successor | |||||||
December 31,
2013 |
December 31,
2014 |
|||||||
Deferred financing costs |
$ | | $ | 3,669 | ||||
Less: accumulated amortization |
| (292 | ) | |||||
|
|
|
|
|||||
Deferred financing costs, net |
$ | | $ | 3,377 | ||||
|
|
|
|
Amortization expense for deferred financing costs totaled $0.0 million in 2013, $0.0 million for the predecessor period from January 1, 2014 to July 16, 2014, and $0.3 million for the successor period from July 17, 2014 to December 31, 2014, and is included as part of interest expense.
7. ACCRUED LIABILITIES
The following table shows the components of accrued liabilities (in thousands):
Predecessor | Successor | |||||||||
December 31,
2013 |
December 31,
2014 |
|||||||||
Accrued Income Taxes |
$ | | $ | 1,012 | ||||||
Unbilled Inventory |
429 | 1,178 | ||||||||
Accrued Commissions |
429 | 805 | ||||||||
Accrued Bonuses |
600 | 536 | ||||||||
Accrued Marketing Expense |
0 | 411 | ||||||||
Other Accrued Liabilities |
$ | 268 | $ | 402 | ||||||
|
|
|
|
|||||||
Total Accrued Liabilities |
$ | 1,726 | $ | 4,344 | ||||||
|
|
|
|
8. LONG-TERM DEBT AND LINE OF CREDIT
Long-term debt consists of the following (in thousands):
Predecessor | Successor | |||||||||
December 31,
2013 |
December 31,
2014 |
|||||||||
Term loan |
$ | | $ | 200,000 | ||||||
Revolver |
| | ||||||||
Total debt |
| $ | 200,000 | |||||||
|
|
|
|
|||||||
Less: Current portion |
| 10,000 | ||||||||
|
|
|
|
|||||||
Long-term debt |
$ | | $ | 190,000 | ||||||
|
|
|
|
F-18
AMPLIFY SNACK BRANDS, INC.
The interest rates for outstanding obligations at December 31, 2014 for the Term Loan (as defined below) was 5.5%, while the commitment fee on the unused line was 0.5%.
On July 17, 2014, SkinnyPop Popcorn LLC entered into the Credit Agreement, which provided for a $150.0 million term loan facility and a $7.5 million revolving facility (with sublimits for swingline loans and the issuance of letters of credit). These senior secured credit facilities, or the Credit Facility, were guaranteed by the Company. The Credit Facility will mature on July 17, 2019, with an option to extend the maturity of the term loan with the consent of lenders willing to provide such extension.
The Credit Facility replaced the Companys prior line of credit, which had a zero balance immediately prior to the entry into the Credit Facility. Immediately after the closing of the Credit Facility, total outstanding debt under the Credit Facility was approximately $150.0 million in term loan debt and $0 in borrowings under the revolving facility.
On August 18, 2014, we amended the Credit Facility, or the Amended Credit Facility, to remove certain total funded debt-to-EBITDA interest rate reductions and implement a static interest rate margin based on either the Eurodollar Rate or the Base Rate (as each is defined in the Amended Credit Facility).
On December 23, 2014, we amended the Amended Credit Facility to increase our term loan borrowings by $50.0 million to a total of $200.0 million, with such borrowings having the same interest rate as the original term loans under the Amended Credit Facility. In addition, we amended the financial covenants in the Amended Credit Facility to increase the total funded debt-to-EBITDA covenant for each quarterly period to reflect our higher leverage. The Amended Credit Facility, as amended, is referred to as the Second Amended Credit Facility. The interest rate on our outstanding indebtedness was 5.5% per annum as of December 31, 2014.
Proceeds from the initial term loan borrowings were primarily used to finance the Sponsor Acquisition and to pay fees and expenses in connection therewith. Proceeds of the Second Amended Credit Facility were primarily used to pay the December 2014 Special Dividend to the equityholders of Topco as discussed in Note 13. In the future, we may use the revolving facility for working capital and for other general corporate purposes, including acquisitions and investments and dividends and distributions, to the extent permitted under the Second Amended Credit Facility. The Second Amended Credit Facility also provides that, upon satisfaction of certain conditions, we may increase the aggregate principal amount of the loans outstanding thereunder by an amount not to exceed $50.0 million, subject to receipt of additional lending commitments for such loans.
Interest
Outstanding term loan borrowings under the Second Amended Credit Facility bear interest at a rate per annum equal to (a) the Eurodollar Rate plus 4.50% or (b) the Base Rate (equal in this context to the greater of (i) the prime rate, (ii) the federal funds rate plus 1/2 of 1.00% and (iii) the Eurodollar Rate plus 1.00%) (but subject to a minimum of 2.00%) plus 3.50%. The term loans under the Second Amended Credit Facility will amortize in equal quarterly installments of 1.25% of the initial principal amount $200 million beginning on December 31, 2014, with the balance due at maturity.
Outstanding amounts under the revolving facility bear interest at a rate per annum equal to (a) the Eurodollar Rate plus 4.50% or (b) the Base Rate (equal in this context to the greater of (i) the prime rate, (ii) the federal funds rate plus 1/2 of 1.00% and (iii) the Eurodollar Rate plus 1.00%) (but subject to a minimum of 2.00%) plus 3.50%. We are required to pay a commitment fee on the unused commitments under the revolving facility at a rate equal to 0.50% per annum.
F-19
AMPLIFY SNACK BRANDS, INC.
Guarantees
The loans and other obligations under the Second Amended Credit Facility (including in respect of hedging agreements and cash management obligations) are (a) guaranteed by the Company and its existing and future wholly-owned U.S. subsidiaries and (b) secured by substantially all of the assets of the Company and its existing and future wholly-owned U.S. subsidiaries, in each case subject to certain customary exceptions and limitations.
Covenants
As of the last day of any fiscal quarter of the Company, the terms of the Second Amended Credit Facility require the Company and its subsidiaries (on a consolidated basis and subject to certain customary exceptions) to maintain (x) a maximum total funded debt to consolidated EBITDA ratio of not more than 4.25 to 1.0, initially, and decreasing to 2.25 to 1.0 over the term of the Second Amended Credit Facility and (y) a minimum fixed charge coverage ratio of not less than 1.10 to 1.00. As of December 31, 2014 we were in compliance with our financial covenants.
In addition, the Second Amended Credit Facility contains (a) customary provisions related to mandatory prepayment of the loans thereunder with (i) 50% of Excess Cash Flow (as defined in the Second Amended Credit Facility), subject to step-downs to 25% and 0% of Excess Cash Flow at certain leverage-based thresholds and (ii) the proceeds of asset sales and casualty events (subject to certain customary limitations, exceptions and reinvestment rights) and (b) certain covenants that, among other things, restrict additional indebtedness, liens and encumbrances, investments, acquisitions, loans and advances, mergers, consolidations and asset dispositions, dividends and other restricted payments, transactions with affiliates and other matters customarily restricted in such agreements, in each case, subject to certain customary exceptions. The first payment based on Excess Cash Flow (as defined in the Second Amended Credit Facility) is dependent on our results for the year ended December 31, 2015 and due not later than May 6, 2016.
Although the Second Amended Credit Facility generally prohibits payments and dividends and distributions, we are permitted, subject to certain customary conditions such absence of events of default and compliance with financial covenants, to make payments, dividends or distributions including (a) earnout payments, (b) payments, dividends or distributions in cash from retained excess cash flow and certain proceeds from distributions from or sales of investments, (c) payments, dividends or distributions in an unlimited amount from the proceeds of equity issuances and (d) payments, dividends or distributions not to exceed $5.0 million in the aggregate.
Under the Second Amended Credit Facility the Founder Contingent Compensation may be paid at any time so long as no payment default under the Second Amended Credit Facility has occurred and is continuing and, immediately after giving effect to such payment, the Company has at least $5.0 million of cash and cash equivalents subject to a first priority lien in favor of the lenders party thereto plus availability under the revolving facility. In the event we are not permitted to pay the Founder Contingent Compensation under the Second Amended Credit Facility we are no longer obligated to make such payment under the employment agreements with the Founders subject to limited exception.
The Second Amended Credit Facility also contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to certain material indebtedness in excess of specified amounts, certain events of bankruptcy and insolvency, certain ERISA events, judgments in excess of specified amounts, certain impairments to the guarantees or collateral documents, and change in control defaults.
F-20
AMPLIFY SNACK BRANDS, INC.
Other
Certain of the lenders under the Second Amended Credit Facility (or their affiliates) may provide, certain commercial banking, financial advisory, and investment banking services in the ordinary course of business for the Company and its subsidiaries, for which they receive customary fees and commissions.
Annual maturities of long-term debt as of December 31, 2014 are as follows (in thousands):
2015 |
$ | 10,000 | ||
2016 |
10,000 | |||
2017 |
10,000 | |||
2018 |
10,000 | |||
2019 |
160,000 | |||
|
|
|||
Total |
$ | 200,000 | ||
|
|
9. RELATED PARTY TRANSACTIONS
Employment Agreements
In connection with the Sponsor Acquisition, we entered into employment agreements with certain of our managers who held equity interests in our company prior to the acquisition and continue to hold equity interests in Topco. We entered into employment agreements with the Founders, which include the Founder Contingent Compensation. The employment agreements set forth each executives initial annual base salary of $200,000 and eligibility to participate in our benefit plans generally. The employment agreements also provide for each executives eligibility to receive a cash payment of up to $10 million (the cash payment), based on achievement by SkinnyPop Popcorn LLC of certain contribution margin metrics during the period commencing on January 1, 2015 and ending on December 1, 2015. Furthermore, in connection with the payments, SkinnyPop Popcorn LLC will provide each executive with an additional tax benefit equal to (i) in the case of the taxable year in which the cash payment is paid or any subsequent taxable year, the net excess (if any) of (A) the taxes that would have been paid by SkinnyPop Popcorn LLC in respect of such taxable year calculated without taking into account the payment of the cash payment over (B) the actual taxes payable by SkinnyPop Popcorn LLC in respect of such taxable year and (ii) in the case of any taxable year prior to the year in which the cash payment is paid, the amount of any tax refund resulting from carrying back any operating losses to the extent attributable to the cash payment. See Note 1.
Precision Capital Group LLC Consulting Services Agreements
We entered into two consulting services agreements with one of our stockholders, Precision Capital Group LLC, or (Precision). Jason Shiver, our executive vice president of sales, is a former employee, and a current equity holder, of Precision. In addition to his investment in the Company in connection with the Sponsor Acquisition, in 2013, Mr. Shiver also invested in the Company through Precision.
Sales Consulting Services Agreement
We entered into a sales consulting services agreements with Precision. Under the terms of this sales consulting services agreement, which we refer to as the Precision Sales Consulting Agreement, Precision agreed to provide sales professionals to work on behalf of the Company. Such sales professionals were entitled to a monthly stipend plus a commission based on sales performance. The Precision sales professionals were, at the time of the agreement, employees of Precision. Fees for
F-21
AMPLIFY SNACK BRANDS, INC.
consulting services under this agreement totaled $0.6 million in 2013, $0.9 million for the predecessor period from January 1, 2014 to July 16, 2014, and $0.0 million for the successor period from July 17, 2014 to December 31, 2014, and are included as part of sales and marketing expense.
Business Consulting Services Agreement
We entered into a business consulting agreement with Precision, which, together with the Precision Sales Consulting Agreement, we refer to as the Precision Agreements. Under this agreement, Precision provided business consulting services to us. Fees for consulting services under this agreement totaled $0.1 million in 2013, $0.1 million for the predecessor period from January 1, 2014 to July 16, 2014, and $0.0 million for the successor period from July 17, 2014 to December 31, 2014, and are included as part of sales and marketing expense.
Transition Services Agreement
The Precision Agreements were terminated on July 18, 2014, in connection with the Sponsor Acquisition. In connection with the termination of the Precision Agreements, we entered into a transition services agreement with Precision whereby, for a period of 90 days, Precision agreed to provide substantially the same services as it was providing under the Precision Agreements. The transition services agreement was not renewed at the expiration of its term. Fees for transition services under this agreement totaled $0.3 million for the successor period from July 17, 2014 to December 31, 2014.
Fees paid to Precision of $0.5 million were included in Sponsor Acquisition-related expenses in the predecessor period from January 1, 2014 to July 16, 2014.
Monticello Partners LLC Lease Agreement
The Company leases office space from a related party, Monticello Partners LLC, which is wholly-owned by one of Topcos unitholders. The lease agreement expires on August 31, 2017. The Company is responsible for all taxes and utilities. Payments under this agreement were not material to the periods presented.
Future minimum lease payments for this lease, which had a non-cancelable lease term in excess of one year as of December 31, 2014, were as follows (in thousands):
2015 |
$ | 27 | ||
2016 |
28 | |||
2017 |
19 | |||
|
|
|||
Total |
$ | 74 | ||
|
|
10. COMMITMENTS AND CONTINGENCIES
Purchase Commitments
The Company entered into certain supply contracts for their popcorn kernels for various periods through October 2016. As of December 31, 2014 the Companys purchase commitments remaining under these contracts totaled $13.3 million. The contract also stipulates that if the Company fails to purchase the stated quantities within the time period specified, the Company could either (1) buy all remaining quantities under the contract, or (2) pay liquidated damages, including payment of the excess of the contract price over the market price for all remaining contracted quantities not purchased.
F-22
AMPLIFY SNACK BRANDS, INC.
On February 27, 2014, the Company entered into an exclusive Manufacturing and Supply Agreement with the Companys co-manufacturer for the production of certain snack products including popcorn and popcorn products. Upon termination, under the terms of the agreement, the Company would be obligated to purchase any packaging materials purchased by the co-manufacturer in reasonable anticipation of one or more forecasts provided by the Company. At December 31, 2014, the approximate value of packaging material was $1.9 million.
Lease Commitments
Rent expense from operating leases totaled $0.0 million for the successor period from July 17, 2014 to December 31, 2014, $0.0 million for the predecessor period from January 1, 2014 to July 16, 2014, and $0.0 million in 2013. As of December 31, 2014, minimum rental commitments under non-cancellable operating leases were (in thousands):
2015 |
$ | 27 | ||
2016 |
28 | |||
2017 |
19 | |||
|
|
|||
Total |
$ | 74 | ||
|
|
Legal Matters
From time to time, the Company is subject to claims and assessments in the ordinary course of business. The Company is not currently a party to any litigation matter that, individually or in the aggregate, is expected to have a material adverse effect on the Companys business, financial condition, results from operations or cash flow.
In February 2014, a class action complaint was filed against the Company in California alleging that the Companys products were mislabeled in various respects in violation of Californias unfair competition and consumer advertising laws. The Company and plaintiffs entered into a settlement agreement in July 2014, which was not material to the financial position, results of operations or cash flows of the Company.
11. GEOGRAPHIC INFORMATION
Our net sales by geographic area are as follows (in thousands):
Year ended
December 31, 2013 |
Predecessor | Successor | ||||||||||
January 1, 2014
to July 16, 2014 |
July 17, 2014 to
December 31, 2014 |
|||||||||||
United States |
$ | 54,587 | $ | 64,809 | $ | 60,833 | ||||||
Canada |
$ | 1,123 | $ | 3,544 | $ | 3,171 |
All of our long-lived assets are located in the United States.
F-23
AMPLIFY SNACK BRANDS, INC.
12. INCOME TAXES
The components of the provision (benefit) for income taxes attributable to continuing operations are as follows:
Successor | ||||
July 17, 2014 to
December 31, 2014 |
||||
Income tax provision (benefit): |
||||
Current: |
||||
Federal |
$ | 5,224 | ||
State |
1,388 | |||
|
|
|||
Total current |
$ | 6,612 | ||
|
|
|||
Deferred: |
||||
Federal |
(2,478 | ) | ||
State |
(648 | ) | ||
|
|
|||
Total deferred |
(3,126 | ) | ||
|
|
|||
Total provision (benefit) |
$ | 3,486 | ||
|
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Companys deferred taxes are as follows:
Successor | ||||
December 31,
2014 |
||||
Deferred tax assets |
||||
Allowance for bad debt |
40 | |||
Allowance for promotional activity |
1,120 | |||
Accrued expenses and other |
682 | |||
Inventories |
490 | |||
Acquisition costs |
897 | |||
Contingent compensation |
2,569 | |||
|
|
|||
Total deferred tax assets |
5,798 | |||
Deferred tax liabilities |
||||
Prepaid Expenses |
(136 | ) | ||
Depreciation and amortization |
(2,536 | ) | ||
|
|
|||
Total deferred tax liabilities |
(2,672 | ) | ||
|
|
|||
Net deferred tax asset |
3,126 | |||
|
|
F-24
AMPLIFY SNACK BRANDS, INC.
The Companys income tax expense attributable to continuing operations differs from the expected tax benefit amount computed by applying the statutory federal income tax rate of 35% to income before taxes for the Successor period ended December 31, 2014 primarily as a result of the following:
Successor | ||||
July 17, 2014 to
December 31, 2014 |
||||
Income tax at U.S. statutory rate |
35.0 | % | ||
Effect of: |
||||
State taxes, net of federal benefit |
5.8 | % | ||
Other permanent items |
1.1 | % | ||
Other |
0.5 | % | ||
|
|
|||
Income tax provision effective rate |
42.4 | % | ||
|
|
The tax year 2014 remains open to examination by the major taxing jurisdictions to which the Company is subject. The Company is not currently under audit in any major taxing jurisdiction.
The Company does not have any uncertain tax positions as of December 31, 2014. The Companys policy is to accrue interest and penalties related to uncertain tax positions as a component of income tax expense. For the periods presented, the Company did not recognize any interest or penalties.
13. STOCKHOLDERS/MEMBERS EQUITY
In connection with the Sponsor Acquisition, TA Associates and other members of Topco entered into a limited liability company agreement, which provided for, among other things, the issuance of four classes of units: (i) Class A Units, or preferred units, (ii) Class B Units, or common units, (iii) Class C-1 Units, which are profit interests and (iv) Class C-2 Units, which are profit interests (together with the Class C-1 Units, the Class C Units). Topco is the ultimate parent company of the Company.
Only the Class A Units and Class B Units have voting rights, as specifically set forth in the Amended and Restated Limited Liability Company Agreement of TA Topco 1, LLC, or the LLC Agreement. Each Class A Unit or Class B Unit entitles the holder to one (1) vote per Class A Unit or Class B Unit, respectively, on any matters to be decided by a vote of such members. No other class of units have voting rights. In the event of liquidation, preferred unit holders are entitled to return of the face amount of their contributions before any distributions are made to common or Class C Unit holders. Preferred and common unit holders are also entitled to a priority operating return before any income is allocated to Class C common unit holders. In the event of a liquidation, preferred and common unit holders are entitled to their accumulated priority operating return before any distributions are made to Class C common unit holders.
During the period ended December 31, 2014, the Company made a distribution of $59.8 million to its parent Topco, which subsequently distributed such proceeds to its unit holders. The Company refers to this distribution as the December 2014 Special Dividend.
F-25
AMPLIFY SNACK BRANDS, INC.
14. EQUITY-BASED COMPENSATION
Certain employees participate in the Companys parent, TA Topco 1, LLCs Equity Incentive Plan. The 2014 Plan was adopted by Topcos board of directors and approved by its unitholders in July 2014. As of December 31, 2014, 6,955,194 Class C-1 units and 5,571,410 Class C-2 units were outstanding under the 2014 Plan and 101,152,914 Class C-1 units and 110,052,235 Class C-2 units remained available for future grant under the terms of the 2014 Plan. The Class C units represent profit interests and have no capital contribution requirement. In the event that any outstanding awards under the 2014 Plan are forfeited, cancelled, reacquired by Topco prior to vesting or otherwise terminated, the number of units underlying such award will becomes available for grant under the 2014 Plan.
Because the Company is a wholly-owned subsidiary of Topco, its employees, officers, directors, manager and consultants, as well as employees, officers, directors, managers and consultants of its subsidiaries, were eligible to participate in the 2014 Plan. Topcos board of directors administers the 2014 Plan. The plan administrator may select award recipients, determine the size, types and terms of awards, interpret the plan and prescribe, amend and rescind rules and make all other determinations necessary or desirable for the administration of the 2014 Plan.
Units granted are subject to the terms and conditions of the LLC Agreement, as well as the terms and conditions of the 2014 Plan. Both Class C-1 and C-2 units are time-based units, however the Class C-2 units are also subject to a performance hurdle related to a tiered distribution if certain criteria are met. This performance hurdle is subject to the realization by Class A unit-holders, through one or more distribution events, of an aggregate amount of proceeds in respect of their Class A Units equal to three times such members aggregate Class A contribution amount, taking into account all proceeds received by such members in respect of their Class A Units from such distribution events. The Class C units vest 25% on the first anniversary of the vesting reference date applicable to individual grants, and thereafter, 2.0833% on the final day of each of the following 36 months, subject to continued service through each applicable vesting date. Upon a termination of service relationship by Topco, all unvested units will be forfeited and all vested units may be repurchased by Topco.
In the event of Sale Event (as defined in the LLC Agreement), the 2014 Plan provides that each unvested unit will be immediately forfeited, unless such units will be assumed, continued or substituted with a comparable award by the Companys successor company or its parent. In the event that the unvested units terminate in connection with a transaction, TA Topco 1, LLC may provide each unit holder with a cash payment equal to the fair market value of a unit multiplied by the number of units.
Subject to any additional transfer restrictions set forth in the LLC Agreement, units granted under the 2014 Plan may not be sold, exchanged, transferred, assigned, distributed, pledged or otherwise disposed of or encumbered without the prior consent of the plan administrator.
Topcos board of directors may amend or modify the 2014 Plan at any time; provided, that any amendment that adversely affects rights under any outstanding award will require consent by the holder of such award. The 2014 Plan will terminate upon the consummation of an initial public offering.
In connection with the Corporate Reorganization, all of the outstanding equity awards that have been granted under the TA Topco 1, LLC 2014 Equity Incentive Plan will be converted into shares of the common stock and restricted stock of Amplify Snack Brands, Inc. The portion of the outstanding Class C units that have vested as of the consummation of the Corporate Reorganization will be converted into shares of common stock and the remaining portion of unvested outstanding Class C units will be converted into shares of Amplify Snack Brands restricted stock, which will be granted under the 2015 Plan. The shares of restricted stock will be subject to time-based vesting conditions, in accordance with the terms and conditions of the Class C units from which such shares are converted.
F-26
AMPLIFY SNACK BRANDS, INC.
The following summarizes the activity of the unvested incentive units for the period from July 17, 2014 to December 31, 2014:
Successor | ||||||||
July 17, 2014 to
December 31, 2014 |
||||||||
Class C-1
Units |
Class C-2
Units |
|||||||
Number of units |
||||||||
Non-vested as of July 17, 2014 |
| | ||||||
Issued |
6,955,194 | 5,571,410 | ||||||
Forfeited |
| | ||||||
Vested |
| | ||||||
Non-vested as of December 31, 2014 |
6,955,194 | 5,571,410 | ||||||
Expected to vest at December 31, 2014 |
6,955,194 | 5,571,410 | ||||||
Weighted Average Grant Date Fair Value |
||||||||
Non-vested as of July 17, 2014 |
$ | | | |||||
Issued |
$ | 0.95 | 0.18 | |||||
Forfeited |
| | ||||||
Vested |
| | ||||||
Non-vested as of December 31, 2014 |
$ | 0.95 | 0.18 | |||||
(In Thousands) |
||||||||
Compensation expense recorded during the period |
$ | 191 | 44 | |||||
Unamortized costs at December 31, 2014 |
$ | 6,416 | 959 |
At December 31, 2014, the weighted-average remaining vesting term of unvested units was approximately 44 months.
Valuation of our Equity Awards
In the absence of a public trading market for our securities, the Companys board of directors has determined the estimated fair value of the equity-based compensation awards at the date of grant based upon several factors, including its consideration of input from management and contemporaneous third-party valuations.
The valuation of Topcos equity was determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid Valuation of Privately-Held-Company Equity Securities Issued as Compensation . The assumptions we used in the valuation models are highly complex and subjective. The Company bases its assumptions on future expectations combined with management judgment and considered numerous objective and subjective factors to determine the fair value of the equity awards as of the grant date including, but not limited to, the following factors:
| lack of marketability; |
| the Companys actual operating and financial performance; |
| current business conditions and projections; |
| the U.S. capital market conditions; |
| the Companys stage of development; and |
| likelihood of achieving a liquidity event, such as this offering, given prevailing market conditions. |
F-27
AMPLIFY SNACK BRANDS, INC.
The valuation of the equity-based compensation awards involved a two-step process. First, the Company determined its business equity value using an enterprise value based on the income approach, specifically a discounted cash flow, or DCF, analysis. A market approach, which estimates the fair value of the Company, by applying market multiples of comparable peer companies in its industry or similar lines of business to its historical and/or projected financial metrics, was also developed to corroborate the reasonableness of the DCF indication of enterprise value. The values determined by the income and the market approach were comparable. Second, the business equity value was allocated among the securities that comprise the capital structure of the Company using the Option-Pricing Method, or OPM, as described in the AICPA Practice Aid entitled Valuation of Privately-Held-Company Equity Securities Issued as Compensation . See below for a description of the valuation and allocation methods.
The DCF analysis required the development of the forecasted future financial performance of the Company, including revenues, operating expenses and taxes, as well as working capital and capital asset requirements. The discrete forecast period analyzed extends to the point at which the Company will be expected to have reached a steady state of growth and profitability. The projected cash flows of the discrete forecast period are discounted to a present value employing a discount rate that properly accounts for the estimated market weighted average cost of capital. Finally, an assumption is made regarding the sustainable long-term rate of growth beyond the discrete forecast period, and a residual value is estimated and discounted to a present value. The sum of the present value of the discrete cash flows and the residual, or terminal value represents the estimated fair value of the total enterprise value of the Company. This value is then adjusted for non-operational assets, liabilities and interest bearing debt to conclude the equity value of the Company.
The financial forecasts prepared took into account the Companys past results and expected future financial performance. There is inherent uncertainty in these estimates as the assumptions used are highly subjective and may change as a result of new operating data and economic and other conditions that may impact the Companys business.
Once the equity value of the Company is estimated, it is then allocated among the various classes of securities to arrive at the fair value of the awards. For this allocation, the OPM was used for all grants. The OPM entails allocating the equity value to the various share classes based upon their respective claims on a series of call options with strike prices at various value levels depending upon the rights and preferences of each class. A Black-Scholes option pricing model is employed to value the call options. This model defines the securities fair values as functions of the current fair value of a company and requires the use of assumptions such as the anticipated holding period and the estimated volatility of the equity securities.
The following table summarizes the key assumptions used in the OPM allocation as of December 4, 2014:
Assumptions |
||||
Time to liquidity event |
2 years | |||
Volatility |
30.00 | % | ||
Risk-free rate |
0.55 | % | ||
Dividend yield |
0.00 | % | ||
Lack of marketability discount |
16 | % |
F-28
AMPLIFY SNACK BRANDS, INC.
The expected term of 2 years represents managements expected time to a liquidity event as of the valuation date. The volatility assumption is based on the estimated stock price volatility of a peer group of comparable public companies over a similar term. The risk-free rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term. As of December 4, 2014, the only grant date in 2014, the Company used an expected dividend yield of zero as we had never declared or paid any cash dividends and at that time did not plan to pay cash dividends in the foreseeable future.
The value derived from the OPM model was reduced by a 16% lack of marketability discount in the determination of fair values of the awards at the grant date. A discount for lack of marketability was applied to reflect the increased risk arising from the inability to readily sell the equity awards.
15. SUBSEQUENT EVENTS
In April 2015, the Company acquired 100% of the shares of Paqui, LLC, a manufacturer and marketer of tortilla chips and pre-packaged tortillas.
Employee Benefit Plans
On April 1, 2015, the Company established a retirement savings plan under Section 401(k) of the Internal Revenue Code. This plan covers all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. Under the plan, the Company matches 100% up to a maximum of 6% of eligible compensation, not to exceed annual IRS contribution limits. Contribution expense was not material.
Operating Leases
The Company entered into an operating lease for its headquarters office location in Austin, Texas. The lease was effective February 26, 2015 and has a nine year term.
Forward Stock Split
On July 14, 2015, the Company filed a Certificate of Amendment to its Certificate of Incorporation to effect a 75,000 for 1 forward stock split of its outstanding common stock and to increase the authorized shares of common stock to 75,000,000. The par value per share was not adjusted as a result of the forward stock split. All issued and outstanding shares of common stock and the related per share amounts contained in the consolidated financial statements have been retroactively adjusted to reflect the forward stock split for all periods presented.
F-29
AMPLIFY SNACK BRANDS, INC.
Condensed Consolidated Statements of Income
(unaudited)
(In thousands, except shares outstanding and per share information)
Predecessor | Successor | |||||||||
Three Months
Ended March 31, 2014 |
Three Months
Ended March 31, 2015 |
|||||||||
NET SALES |
$ | 25,706 | $ | 44,275 | ||||||
COST OF GOODS SOLD |
11,378 | 19,866 | ||||||||
|
|
|
|
|||||||
GROSS PROFIT |
14,328 | 24,409 | ||||||||
Sales & marketing expenses |
1,945 | 3,618 | ||||||||
General & administrative expenses |
669 | 9,032 | ||||||||
|
|
|
|
|||||||
TOTAL OPERATING EXPENSES |
2,614 | 12,650 | ||||||||
OPERATING INCOME |
11,714 | 11,759 | ||||||||
Interest expense |
| 2,955 | ||||||||
|
|
|
|
|||||||
PRE-TAX INCOME |
11,714 | 8,804 | ||||||||
Income tax expense |
| 3,900 | ||||||||
|
|
|
|
|||||||
NET INCOME |
$ | 11,714 | $ | 4,904 | ||||||
|
|
|
|
|||||||
Basic and diluted earnings per unit/share |
$ | 29,285.11 | $ | .07 | ||||||
Basic and diluted weighted average units/shares outstanding |
400 | 75,000,000 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-30
AMPLIFY SNACK BRANDS, INC.
Condensed Consolidated Balance Sheets
(unaudited)
(In thousands, except for number of units and shares and per share data)
(1) | The Supplemental Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2015 reflects (i) the incurrence of an incremental $7.5 million term loan increasing the aggregate term loan to $205 million (after the payment of a scheduled principal payment), as well as the incurrence of a $15 million borrowing under our revolving facility, increasing the aggregate revolving facility to $25 million, each as part of the May 2015 Special Dividend and (ii) the accrual of the May 2015 Special Dividend. |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-31
AMPLIFY SNACK BRANDS, INC.
Condensed Consolidated Statement of Shareholders Equity
(unaudited)
(In thousands, except for number of units and shares)
Common Stock |
Additional Paid
in Capital |
Retained
Earnings |
Total | |||||||||||||||||
Shares | Amount | |||||||||||||||||||
Predecessor |
||||||||||||||||||||
BALANCEDecember 31, 2013 |
400 | $ | | $ | | $ | 7,067 | $ | 7,067 | |||||||||||
Net income |
| | | 11,714 | 11,714 | |||||||||||||||
Distributions paid |
| | | (9,687 | ) | (9,687 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
BALANCEMarch 31, 2014 |
400 | $ | | $ | | $ | 9,094 | $ | 9,094 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Successor |
||||||||||||||||||||
BALANCEDecember 31, 2014 |
75,000,000 | $ | | $ | 116,430 | $ | 4,738 | $ | 121,168 | |||||||||||
Net income |
| | | 4,904 | 4,904 | |||||||||||||||
Equity-based incentive compensation |
| | 788 | | 788 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
BALANCEMarch 31, 2015 |
75,000,000 | $ | | $ | 117,218 | $ | 9,642 | $ | 126,860 | |||||||||||
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-32
AMPLIFY SNACK BRANDS, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(In thousands)
Predecessor | Successor | |||||||||
Three Months
Ended March 31, 2014 |
Three Months
Ended March 31, 2015 |
|||||||||
Cash from operating activities: |
||||||||||
Net income |
$ | 11,714 | $ | 4,904 | ||||||
Adjustments to reconcile net income to net cash from operating activities: |
||||||||||
Depreciation |
34 | 47 | ||||||||
Amortization of intangible assets |
| 1,042 | ||||||||
Amortization of deferred financing costs |
| 185 | ||||||||
Deferred income taxes |
| (247 | ) | |||||||
Equity-based compensation expense |
| 788 | ||||||||
Founder Contingent Compensation |
| 4,602 | ||||||||
Changes in operating assets and liabilities, net of effects of acquisition: |
||||||||||
Accounts receivable |
(1,771 | ) | (3,253 | ) | ||||||
Inventories |
818 | 2,562 | ||||||||
Other current assets |
271 | (294 | ) | |||||||
Deferred rent and lease incentive liability |
| 356 | ||||||||
Accounts payable |
1,118 | 57 | ||||||||
Accrued liabilities |
(544 | ) | 3,393 | |||||||
|
|
|
|
|||||||
Total adjustments |
(74) | 9,238 | ||||||||
|
|
|
|
|||||||
Cash from operating activities |
11,640 | 14,142 | ||||||||
Cash from investing activities: |
||||||||||
Acquisition of property and equipment |
(82 | ) | (370 | ) | ||||||
Purchase of Predecessor, net of cash acquired |
| |||||||||
|
|
|
|
|||||||
Cash used in investing activities |
(82 | ) | (370 | ) | ||||||
Cash from financing activities: |
||||||||||
Capital distributions |
(9,687 | ) | | |||||||
Payments on term loan |
(2,500 | ) | ||||||||
|
|
|
|
|||||||
Cash used in financing activities |
(9,687 | ) | (2,500 | ) | ||||||
|
|
|
|
|||||||
Increase in cash and cash equivalents |
1,871 | 11,272 | ||||||||
CashBeginning of period |
3,519 | 5,615 | ||||||||
|
|
|
|
|||||||
CashEnd of period |
5,390 | 16,887 | ||||||||
Supplemental disclosure of cash flow information: |
||||||||||
Income taxes |
$ | | $ | 1,262 | ||||||
Interest |
$ | | $ | 2,772 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-33
AMPLIFY SNACK BRANDS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. BUSINESS AND BASIS OF PRESENTATION
We are a high growth, snack food company focused on developing and marketing products that appeal to consumers growing preference for Better-For-You (BFY) snacks. We contract with a third-party firm to manufacture our products, and we operate in multiple channels of trade to distribute our products to consumers.
Amplify Snack Brands, Inc. is a wholly-owned subsidiary of TA Topco 1, LLC (Topco). Pursuant to the terms of the Corporate Reorganization that will be completed prior to the consummation of this offering, Topco will dissolve and in liquidation, will distribute all of the shares of capital stock of Amplify Snack Brands, Inc. to its members in accordance with the limited liability company agreement of Topco. Amplify Snack Brands, Inc. currently owns 100% of the membership units of its subsidiary SkinnyPop Popcorn LLC (collectively the Company).
On July 17, 2014, SkinnyPop Popcorn LLC (Predecessor) was acquired (the Sponsor Acquisition) by investment funds and entities associated with TA Associates, L.P., a private equity entity (TA Associates). To affect the Sponsor Acquisition, the Predecessors members entered into a Unit Purchase Agreement (the Purchase Agreement) with Amplify Snack Brands, Inc. and TA Midco 1, LLC (Midco), whereby the members contributed all units of the Predecessor to Midco in exchange for cash and rollover stock. The Predecessor then merged with and into Midco, with Midco as the surviving entity. Midco subsequently changed its name to SkinnyPop Popcorn LLC, a subsidiary of Amplify Snack Brands, Inc.
The parties agreed to consummate the Sponsor Acquisition, subject to the terms and conditions set forth in the Unit Purchase Agreement, for an aggregate purchase consideration of $320 million, which included rollover stock from the Predecessors members representing approximately 14% of the Company. A portion of the purchase consideration is being held in escrow to secure post-closing purchase price adjustments and indemnity claims. The aggregate purchase consideration, plus related fees and expenses, was funded by the equity investment in Topco by affiliates of TA Associates as well as from certain members of management, and the net proceeds from the borrowing of a $150 million Term Loan due 2019 that bears initial interest at LIBOR (with a 1.00% LIBOR floor) plus 4.5% per annum. The Sponsor Acquisition and the financing transaction described above are collectively referred to herein as the Transactions. See Note 8 for a summary of the terms of the Term Loan.
The Transactions were consummated on July 17, 2014. The accompanying interim condensed consolidated financial statements are presented for two periods: predecessor and successor, which relate to the periods preceding and succeeding the Sponsor Acquisition, respectively. The Sponsor Acquisition results in a new basis of accounting beginning on July 17, 2014 and the financial reporting periods are presented as follows:
| The three months ended March 31, 2015 reflects the successor period, reflecting the Sponsor Acquisition. |
| The three months ended March 31, 2014 is the predecessor period. The interim condensed consolidated financial statements for this predecessor period have been prepared using the historical basis of accounting for the Company. As a result of the Sponsor Acquisition and the associated acquisition accounting, the interim condensed consolidated financial statements of the successor are not comparable to periods preceding the Sponsor Acquisition. |
F-34
AMPLIFY SNACK BRANDS, INC.
Total fees and expenses related to the Transactions aggregated to approximately $6.6 million consisting of $1.3 million of Sponsor Acquisition-related costs recognized in the predecessor period ($0.0 during the three months ended March 31, 2014), $2.2 million of Sponsor Acquisition-related costs recognized in the successor period ($0.0 during the three months ended March 31, 2015) and $3.1 million of deferred financing costs, also recognized in the successor period.
The Sponsor Acquisition has been accounted for under the acquisition method of accounting, whereby the purchase consideration was allocated to the tangible and intangible net assets acquired and liabilities assumed at their estimated fair values on the date of acquisition. The excess purchase consideration over fair value of net assets acquired and liabilities assumed was recorded as goodwill and represents a value attributable to brand recognition associated with the Companys products and position in the BFY snack category. Of the $45.7 million of goodwill recorded by the Company, $19.2 million is expected to be deductible for income tax purposes. The fair value measurements for intangible assets were calculated using a discounted cash flow approach, which includes unobservable inputs classified as Level 3 within the fair value hierarchy. The amount and timing of future cash flows were based on the Companys most recent operational forecasts. In preparing the purchase price allocations, the Company considered a report of a third party valuation expert. The Company has completed its review of the purchase consideration and estimated fair value of assets acquired and liabilities assumed at the date of acquisition.
The following table summarizes the purchase consideration and estimated fair value of assets acquired and liabilities assumed at the date of acquisition (in thousands):
Purchase consideration: |
||||
Cash paid as purchase consideration |
$ | 280,750 | ||
Cash paid into escrow |
14,250 | |||
Value of equity issued |
25,000 | |||
|
|
|||
Total purchase consideration |
$ | 320,000 | ||
Less: Cash and cash equivalents acquired |
548 | |||
|
|
|||
Total purchase pricenet of cash and cash equivalents acquired |
319,452 | |||
|
|
|||
Fair value of net assets acquired and liabilities assumed: |
||||
Current assets |
$ | 12,671 | ||
Property and equipment |
667 | |||
Indefinite-lived identifiable intangible assettrade name |
202,900 | |||
Definite-lived identifiable intangible assetscustomer relationships |
62,300 | |||
Definite-lived identifiable intangible assetsnon-competition agreements |
90 | |||
Current liabilities |
(4,870 | ) | ||
|
|
|||
Total fair value of net assets acquired and liabilities assumed |
$ | 273,758 | ||
|
|
|||
Excess purchase consideration over fair value of net assets acquired (goodwill) |
$ | 45,694 | ||
|
|
In connection with the Sponsor Acquisition, the Companys founders entered into employment agreements with the Company through December 31, 2015. Under the terms of these agreements, and subject to continuing employment, the founders are each eligible to receive up to $10 million upon the Companys achievement of certain contribution margin benchmarks during the period commencing on January 1, 2015 and ending on December 31, 2015. The founders are also eligible to receive further payment contingent on the potential future tax savings associated with the deductibility of the payments under these agreements. At March 31, 2015, all payments under these agreements were
F-35
AMPLIFY SNACK BRANDS, INC.
expected to amount to $26.8 million (the Founder Contingent Compensation), including the expected benefit associated with the tax savings. On December 23, 2014, the Company entered into a Prepayment Agreement with the founders to reflect a $750,000 bonus payment to each founder and a reduction of the Companys future Founder Contingent Compensation obligations. The Company is recognizing the fair value of the associated obligation ratably over the contractual service period. Total expense related thereto amounted to $4.6 million in the successor three months ended March 31, 2015.
Staff Accounting Bulletin 1.B.3 requires that certain dividends declared subsequent to the balance sheet date be reflected in a supplemental pro forma balance sheet. The Supplemental Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2015 reflects (i) the incurrence of an incremental $7.5 million term loan increasing the aggregate term loan to $205 million (after the payment of a scheduled principal payment), as well as the incurrence of a $15 million borrowing under our revolving facility, increasing the aggregate revolving facility to $25 million, each as part of the May 2015 Special Dividend and (ii) the accrual of the May 2015 Special Dividend.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying interim condensed consolidated balance sheets as of December 31, 2014 and March 31, 2015, the interim condensed consolidated statement of stockholders/members equity for the three months ended March 31, 2015, and the interim condensed consolidated statements of operations for the three months ended March 31, 2014 and 2015, and the interim condensed consolidated statements of cash flows for the three months ended March 31, 2014 and 2015 are unaudited. These interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and the applicable rules and regulations of the Securities and Exchange Commission (SEC) for interim financial information. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These interim condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto contained elsewhere in this prospectus. The December 31, 2014 condensed consolidated balance sheet included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by U.S. GAAP for audited financial statements.
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to state fairly our financial position as of March 31, 2015 and results of our operations for the three months ended March 31, 2014 and 2015, and cash flows for the three months ended March 31, 2014 and 2015. The interim results for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.
The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, SkinnyPop Popcorn LLC. All intercompany balances and transactions have been eliminated in consolidation.
F-36
AMPLIFY SNACK BRANDS, INC.
Use of Estimates
The unaudited interim condensed consolidated financial statements are prepared in conformity with GAAP. Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. The Company routinely evaluates its estimates, including those related to accruals and allowances for customer programs and incentives, bad debts, income taxes, long-lived assets, inventories, equity-based compensation, accrued broker commissions and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1Quoted prices in active markets for identical assets or liabilities.
Level 2Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The categorization of a financial instrument within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The carrying amounts of the Companys financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. Our debt bears interest at a variable interest rate plus an applicable margin and, therefore, approximates fair value.
The following table presents liabilities measured at fair value on a recurring basis:
Successor | ||||||||
December 31,
2014 |
March 31,
2015 |
|||||||
Liabilities: |
||||||||
Founder Contingent Compensationshort term |
$ | 593 | $ | 593 | ||||
Founder Contingent Compensationlong term |
6,343 | 10,945 | ||||||
|
|
|
|
|||||
Total Founder Contingent Compensation(i) |
$ | 6,936 | $ | 11,538 |
(i) | Founder Contingent Compensation liability fair value measurements based upon unobservable inputs (Level 3). See Note 1 for more information. |
Considerable judgment is required in developing the estimate of fair value of Founder Contingent Compensation. The use of different assumptions or valuation methodologies could have a material effect on the estimated fair value amounts.
F-37
AMPLIFY SNACK BRANDS, INC.
The fair value measurement of the Founder Contingent Compensation obligation relates to the employment agreements entered into in connection with the Sponsor Acquisition. The current portion is included in other current liabilities in the consolidated balance sheet. The fair value measurement is based upon significant inputs not observable in the market. Changes in the value of the obligation are recorded as income or expense in our consolidated statements of income. To determine the fair value, we valued the total contingent compensation liability based on the expected probability weighted compensation payments corresponding to the performance thresholds agreed to under the applicable employment agreements, as well as the associated income tax benefit using the estimated tax rates that will be in effect. The current estimate represents the recognizable portion based on the maximum potential obligation allowable under the employment agreements. As discussed in Note 1, the Company is recognizing the fair value of the associated obligation ratably over the contractual service period.
Recognition of Net Sales, Sales Incentives and Trade Accounts Receivable
The Company offers its customers a variety of sales and incentive programs, including price discounts, coupons, slotting fees, in-store displays and trade advertising. The costs of these programs are recognized at the time the related sales are recorded and are classified as a reduction in net sales. These program costs are estimated based on a number of factors including customer participation and performance levels.
As of December 31, 2014 and March 31, 2015, the Company recorded total allowances against trade accounts receivable of $3.0 million and $2.3 million, respectively. Recoveries of receivables previously written off are recorded when received.
Concentration Risk
Customers with 10% or more of the Companys net sales consist of the following:
Net Sales | ||||||||
Costco | Sams Club | |||||||
Three Months Ended March 31, |
||||||||
2015 |
35 | % | 15 | % | ||||
2014 |
33 | % | 22 | % |
As of March 31, 2015, Costco and Sams Club represented 24% and 13%, respectively, of the accounts receivable balances outstanding. The same two customers represented 18% and 31%, respectively, of accounts receivable as of December 31, 2014.
The Company outsources the manufacturing of its products to Assemblers, a co-manufacturer in the United States. Assemblers represented 64% and 74% of accounts payable at December 31, 2014 and March 31, 2015, respectively.
Earnings per Unit/Share
The Company follows FASB ASC Topic 260 Earnings Per Share to account for earnings per unit/share. Basic earnings per unit/share has been computed based upon the weighted average number of common units/shares outstanding. Diluted earnings per unit/share has been computed based upon the weighted average number of common units/shares outstanding plus the effect of all potentially dilutive common units/stock equivalents, except when the effect would be anti-dilutive.
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AMPLIFY SNACK BRANDS, INC.
Forward Stock Split
On July 14, 2015, the Company filed a Certificate of Amendment to its Certificate of Incorporation to effect a 75,000 for 1 forward stock split of its outstanding common stock and to increase the authorized shares of common stock to 75,000,000. The par value per share was not adjusted as a result of the forward stock split. All issued and outstanding shares of common stock and the related per share amounts contained in the consolidated financial statements have been retroactively adjusted to reflect the forward stock split for all relevant periods presented.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition, and most industry-specific guidance throughout the Codification. The standard requires entities to recognize the amount of revenue that reflects the consideration to which the company expects to be entitled in exchange for the transfer of promised goods or services to customers. This ASU is effective for fiscal years beginning after December 15, 2016, and for interim periods within those fiscal years. On April 1, 2015, the FASB voted to propose a one-year deferral of the effective date but to permit entities to adopt the standard on the original effective date if they choose. If the deferral is approved, the standard will be effective for interim and annual periods beginning after December 15, 2017. The Company is in the process of assessing both the method and the impact of the adoption of ASU 2014-09 on its financial position, results of operations, cash flows and financial statement disclosures.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial StatementsGoing Concern: Disclosures about an Entitys Ability to Continue as a Going Concern. The new standard requires management to perform interim and annual assessments of an entitys ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entitys ability to continue as a going concern. The new guidance is effective for annual periods ending after December 15, 2016, and interim periods thereafter. The Company is currently assessing the impact of the adoption of ASU No. 2014-15 on its financial position, results of operations and financial statement disclosures.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which changes the presentation of debt issuance costs in financial statements. ASU No. 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability, rather than as an asset. Amortization of the costs will continue to be reported as interest expense. The ASU is effective for annual reporting periods beginning after December 15, 2016. The new guidance will be applied retrospectively to each prior period presented. The Company currently presents debt issuance costs as an asset and upon adoption of this ASU in 2017, will present such debt issuance costs as a direct deduction from the related debt liability.
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AMPLIFY SNACK BRANDS, INC.
3. INVENTORY
Inventories, net consist of the following (in thousands):
Successor | ||||||||
December 31,
2014 |
March 31,
2015 |
|||||||
Raw materials: |
||||||||
Corn kernels |
$ | 654 | $ | 229 | ||||
Sunflower oil |
2,459 | 913 | ||||||
Seasonings |
1,150 | 668 | ||||||
Finished goods |
2,067 | 1,958 | ||||||
|
|
|
|
|||||
Inventories, net |
$ | 6,330 | $ | 3,768 | ||||
|
|
|
|
4. PROPERTY AND EQUIPMENT
Property and equipment are valued at cost. Property and equipment, net consist of the following (in thousands):
Successor | ||||||||
December 31,
2014 |
March 31,
2015 |
|||||||
Machinery and equipment |
$ | 929 | $ | 929 | ||||
Furniture and fixtures |
44 | 44 | ||||||
Leasehold improvements |
13 | 343 | ||||||
|
|
|
|
|||||
Total property and equipment |
986 | 1,316 | ||||||
Less: Accumulated depreciation |
(240 | ) | (287 | ) | ||||
|
|
|
|
|||||
Property and equipment, net |
$ | 746 | $ | 1,029 | ||||
|
|
|
|
Depreciation expense amounted to $34,000 for the predecessor three months ended March 31, 2014, and $47,000 for the successor three months ended March 31, 2015.
5. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consist of the following (in thousands):
Successor | ||||||||||
Estimated Useful
Life |
December 31,
2014 |
March 31,
2015 |
||||||||
Goodwill: |
||||||||||
Beginning balance |
$ | | 45,694 | |||||||
Acquired during the year |
45,694 | | ||||||||
|
|
|
|
|||||||
Ending balance |
$ | 45,694 | $ | 45,694 | ||||||
|
|
|
|
|||||||
Intangible assets: |
||||||||||
Trade name |
Indefinite | $ | 202,900 | 202,900 | ||||||
Customer relationship |
15 years | 62,300 | 62,300 | |||||||
Non-competition agreement |
7 years | 90 | 90 | |||||||
|
|
|
|
|||||||
$ | 265,290 | $ | 265,290 | |||||||
Less: Accumulated amortization |
(1,904 | ) | (2,946 | ) | ||||||
|
|
|
|
|||||||
Intangible assets, net |
$ | 263,386 | $ | 262,344 | ||||||
|
|
|
|
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AMPLIFY SNACK BRANDS, INC.
Amortization of amortizable intangibles totaled $0.0 million for the predecessor three months ended March 31, 2014, and $1.0 million for the successor three months ended March 31, 2015, and is included as part of general and administrative expense.
The estimated future amortization expenses related to amortizable intangible assets is as follows as of March 31, 2015 (in thousands):
Remainder of 2015 |
$ | 3,125 | ||
2016 |
4,166 | |||
2017 |
4,166 | |||
2018 |
4,166 | |||
2019 |
4,166 | |||
Thereafter |
39,655 |
6. DEFERRED FINANCING COSTS
Deferred financing costs consist of the following (in thousands):
December 31,
2014 |
March 31,
2015 |
|||||||
Deferred financing costs |
$ | 3,669 | $ | 3,669 | ||||
Less: accumulated amortization |
(292 | ) | (477 | ) | ||||
|
|
|
|
|||||
Deferred financing costs, net |
$ | 3,377 | $ | 3,192 | ||||
|
|
|
|
Amortization expense for deferred financing costs totaled $0 million for the predecessor three months ended March 31, 2014 and $0.2 million for the successor three months ended March 31, 2015, and is included as part of interest expense.
7. ACCRUED LIABILITIES
The following table shows the components of accrued liabilities (in thousands):
Successor | ||||||||
December 31,
2014 |
March 31,
2015 |
|||||||
Accrued Income Taxes |
$ | 1,012 | $ | 3,895 | ||||
Unbilled Inventory |
1,178 | 961 | ||||||
Accrued Commissions |
805 | 801 | ||||||
Accrued Bonuses |
536 | 699 | ||||||
Accrued Marketing Expense |
411 | 15 | ||||||
Accrued Professional Fees |
145 | 830 | ||||||
Other Accrued Liabilities |
257 | 536 | ||||||
|
|
|
|
|||||
Total Accrued Liabilities |
$ | 4,344 | $ | 7,737 | ||||
|
|
|
|
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AMPLIFY SNACK BRANDS, INC.
8. LONG-TERM DEBT AND LINE OF CREDIT
Long-term debt consists of the following (in thousands):
Successor | ||||||||
December 31,
2014 |
March 31,
2015 |
|||||||
Term loan |
$ | 200,000 | $ | 197,500 | ||||
Revolver |
| | ||||||
|
|
|
|
|||||
Total debt |
$ | 200,000 | $ | 197,500 | ||||
Less: Current portion |
10,000 | 10,000 | ||||||
|
|
|
|
|||||
Long-term debt |
$ | 190,000 | $ | 187,500 | ||||
|
|
|
|
The interest rates for outstanding obligations at March 31, 2015 for the Term Loan (as defined below) was 5.5%, while the commitment fee on the unused line was 0.5%.
On July 17, 2014, SkinnyPop Popcorn LLC entered into the Credit Agreement, which provided for a $150.0 million term loan facility and a $7.5 million revolving facility (with sublimits for swingline loans and the issuance of letters of credit). These senior secured credit facilities, or the Credit Facility, were guaranteed by the Company. The Credit Facility will mature on July 17, 2019, with an option to extend the maturity of the term loan with the consent of lenders willing to provide such extension.
The Credit Facility replaced the Companys prior line of credit, which had a zero balance immediately prior to the entry into the Credit Facility. Immediately after the closing of the Credit Facility, total outstanding debt under the Credit Facility was approximately $150.0 million in term loan debt and $0 in borrowings under the revolving facility.
On August 18, 2014, the Company amended the Credit Facility, or the Amended Credit Facility, to remove certain total funded debt-to-EBITDA interest rate reductions and implement a static interest rate margin based on either the Eurodollar Rate or the Base Rate (as each is defined in the Amended Credit Facility).
On December 23, 2014, the Company amended the Amended Credit Facility to increase its term loan borrowings by $50.0 million to a total of $200.0 million, with such borrowings having the same interest rate as the original term loans under the Amended Credit Facility. In addition, the Company amended the financial covenants in the Amended Credit Facility to increase the total funded debt-to-EBITDA covenant for each quarterly period to reflect our higher leverage. The Amended Credit Facility, as so amended, is referred to as the Second Amended Credit Facility. The interest rate on the Companys outstanding indebtedness was 5.5% per annum as of March 31, 2015.
On May 29, 2015, the Company amended the Second Amended Credit Facility which is discussed further in the subsequent event footnote 14.
Proceeds from the initial term loan borrowings were primarily used to finance the Sponsor Acquisition and to pay fees and expenses in connection therewith. Proceeds of the Second Amended Credit Facility were primarily used to pay the December 2014 Special Dividend to the equity holders of Topco as discussed in Note 8. In the future, we may use the revolving facility for working capital and for other general corporate purposes, including acquisitions and investments and dividends and distributions, to the extent permitted under the Third Amended Credit Facility. The Second Amended
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AMPLIFY SNACK BRANDS, INC.
Credit Facility also provides that, upon satisfaction of certain conditions, the Company may increase the aggregate principal amount of the loans outstanding thereunder by an amount not to exceed $50.0 million, subject to receipt of additional lending commitments for such loans.
Interest
Outstanding term loan borrowings under the Second Amended Credit Facility bear interest at a rate per annum equal to (a) the Eurodollar Rate plus 4.50% or (b) the Base Rate (equal in this context to the greater of (i) the prime rate, (ii) the federal funds rate plus 1/2 of 1.00% and (iii) the Eurodollar Rate plus 1.00%) (but subject to a minimum of 2.00%) plus 3.50%. The term loans under the Second Amended Credit Facility will amortize in equal quarterly installments of 1.25% of the initial principal amount $200.0 million beginning on December 31, 2014, with the balance due at maturity.
Outstanding amounts under the revolving facility bear interest at a rate per annum equal to (a) the Eurodollar Rate plus 4.50% or (b) the Base Rate (equal in this context to the greater of (i) the prime rate, (ii) the federal funds rate plus 1/2 of 1.00% and (iii) the Eurodollar Rate plus 1.00%) (but subject to a minimum of 2.00%) plus 3.50%. We are required to pay a commitment fee on the unused commitments under the revolving facility at a rate equal to 0.50% per annum.
Guarantees
The loans and other obligations under the Second Amended Credit Facility (including in respect of hedging agreements and cash management obligations) are (a) guaranteed by the Company and its existing and future wholly-owned U.S. subsidiaries and (b) secured by substantially all of the assets of the Company and its existing and future wholly-owned U.S. subsidiaries, in each case subject to certain customary exceptions and limitations.
Covenants
As of the last day of any fiscal quarter of the Company, the terms of the Second Amended Credit Facility require the Company and its subsidiaries (on a consolidated basis and subject to certain customary exceptions) to maintain (x) a maximum total funded debt to consolidated EBITDA ratio of not more than 4.25 to 1.0, initially, and decreasing to 2.25 to 1.0 over the term of the Second Amended Credit Facility and (y) a minimum fixed charge coverage ratio of not less than 1.10 to 1.00. As of March 31, 2015 we were in compliance with our financial covenants.
In addition, the Second Amended Credit Facility contains (a) customary provisions related to mandatory prepayment of the loans thereunder with (i) 50% of Excess Cash Flow (as defined in the Second Amended Credit Facility), subject to step-downs to 25% and 0% of Excess Cash Flow at certain leverage-based thresholds and (ii) the proceeds of asset sales and casualty events (subject to certain customary limitations, exceptions and reinvestment rights) and (b) certain covenants that, among other things, restrict additional indebtedness, liens and encumbrances, investments, acquisitions, loans and advances, mergers, consolidations and asset dispositions, dividends and other restricted payments, transactions with affiliates and other matters customarily restricted in such agreements, in each case, subject to certain customary exceptions. The first payment based on Excess Cash Flow (as defined in the Second Amended Credit Facility) is dependent on our results for the year ended December 31, 2015 and due not later than May 6, 2016.
Although the Second Amended Credit Facility generally prohibits payments and dividends and distributions, we are permitted, subject to certain customary conditions such absence of events of
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AMPLIFY SNACK BRANDS, INC.
default and compliance with financial covenants, to make payments, dividends or distributions including (a) earnout payments, (b) payments, dividends or distributions in cash from retained excess cash flow and certain proceeds from distributions from or sales of investments, (c) payments, dividends or distributions in an unlimited amount from the proceeds of equity issuances and (d) payments, dividends or distributions not to exceed $5.0 million in the aggregate.
Under the Second Amended Credit Facility the Founder Contingent Compensation may be paid at any time so long as no payment default under the Second Amended Credit Facility has occurred and is continuing and, immediately after giving effect to such payment, the Company has at least $5.0 million of cash and cash equivalents subject to a first priority lien in favor of the lenders party thereto plus availability under the revolving facility. In the event we are not permitted to pay the Founder Contingent Compensation under the Second Amended Credit Facility we are no longer obligated to make such payment under the employment agreements with the Founders subject to limited exception.
The Second Amended Credit Facility also contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to certain material indebtedness in excess of specified amounts, certain events of bankruptcy and insolvency, certain ERISA events, judgments in excess of specified amounts, certain impairments to the guarantees or collateral documents, and change in control defaults.
Other
Certain of the lenders under the Second Amended Credit Facility (or their affiliates) may provide, certain commercial banking, financial advisory and investment banking services in the ordinary course of business for the Company and its subsidiaries, for which they receive customary fees and commissions.
Annual maturities of long-term debt as of March 31, 2015 are as follows (in thousands):
Remainder of 2015 |
$ | 7,500 | ||
2016 |
10,000 | |||
2017 |
10,000 | |||
2018 |
10,000 | |||
2019 |
160,000 | |||
|
|
|||
Total |
$ | 197,500 | ||
|
|
9. RELATED PARTY TRANSACTIONS
Employment Agreements
In connection with the Sponsor Acquisition, we entered into employment agreements with certain of our managers who held equity interests in our company prior to the acquisition and continue to hold equity interests in Topco. We entered into employment agreements with the Founders, which include the Founder Contingent Compensation. The employment agreements set forth each executives initial annual base salary of $200,000 and eligibility to participate in our benefit plans generally. The employment agreements also provide for each executives eligibility to receive a cash payment of up to $10 million (the cash payment), based on achievement by SkinnyPop Popcorn LLC of certain contribution margin metrics during the period commencing on January 1, 2015 and ending on December 1, 2015. Furthermore, in connection with the payments, SkinnyPop Popcorn LLC will
F-44
AMPLIFY SNACK BRANDS, INC.
provide each executive with an additional tax benefit equal to (i) in the case of the taxable year in which the cash payment is paid or any subsequent taxable year, the net excess (if any) of (A) the taxes that would have been paid by SkinnyPop Popcorn LLC in respect of such taxable year calculated without taking into account the payment of the cash payment over (B) the actual taxes payable by SkinnyPop Popcorn LLC in respect of such taxable year and (ii) in the case of any taxable year prior to the year in which the cash payment is paid, the amount of any tax refund resulting from carrying back any operating losses to the extent attributable to the cash payment. See Note 1.
Precision Capital Group LLC Consulting Services Agreements
We entered into two consulting services agreements with one of our stockholders, Precision Capital Group LLC, or (Precision). Jason Shiver, our executive vice president of sales, is a former employee, and a current equity holder, of Precision. In addition to his investment in the Company in connection with the Sponsor Acquisition, in 2013, Mr. Shiver also invested in the Company through Precision.
Sales Consulting Services Agreement
We entered into a sales consulting services agreements with Precision. Under the terms of this sales consulting services agreement, which we refer to as the Precision Sales Consulting Agreement, Precision agreed to provide sales professionals to work on behalf of the Company. Such sales professionals were entitled to a monthly stipend plus a commission based on sales performance. The Precision sales professionals were, at the time of the agreement, employees of Precision. Fees for consulting services under this agreement totaled $0.3 million for the predecessor three months ended March 31, 2014, and $0.0 million for the successor three months ended March 31, 2015, and are included as part of sales and marketing expense.
Business Consulting Services Agreement
We entered into a business consulting agreement with Precision, which, together with the Precision Sales Consulting Agreement, we refer to as the Precision Agreements. Under this agreement, Precision provided business consulting services to us. Fees for consulting services under this agreement totaled $36,000 for the predecessor three months ended March 31, 2014, and $0.0 million for the successor three months ended March 31, 2015, and are included as part of sales and marketing expense.
Transition Services Agreement
The Precision Agreements were terminated on July 18, 2014, in connection with the Sponsor Acquisition. In connection with the termination of the Precision Agreements, we entered into a transition services agreement with Precision whereby, for a period of 90 days, Precision agreed to provide substantially the same services as it was providing under the Precision Agreements. The transition services agreement was not renewed at the expiration of its term. Because the transition services agreement was completed in 2014 no transition services were provided during the three months ended March 31, 2015 and accordingly, there were no fees for transition services under this agreement for the Successor for the three months ended March 31, 2015.
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AMPLIFY SNACK BRANDS, INC.
Monticello Partners LLC Lease Agreement
The Company leases office space from a related party, Monticello Partners LLC, which is wholly owned by one of Topcos unitholders. The lease agreement expires on August 31, 2017. The Company is responsible for all taxes and utilities. Payments under this agreement were not material to the periods presented.
Future minimum lease payments for this lease, which had a non-cancelable lease term in excess of one year as of March 31, 2015, were as follows (in thousands):
Remainder of 2015 |
$ | 20 | ||
2016 |
28 | |||
2017 |
19 | |||
|
|
|||
Total |
$ | 67 | ||
|
|
10. COMMITMENTS AND CONTINGENCIES
Purchase Commitments
The Company entered into certain supply contracts for their popcorn kernels for various periods through October 2016. As of March 31, 2015, the Companys purchase commitments remaining under these contracts totaled $15.9 million. The contract also stipulates that if the Company fails to purchase the stated quantities within the time period specified, the Company could either (1) buy all remaining quantities under the contract, or (2) pay liquidated damages, including payment of the excess of the contract price over the market price for all remaining contracted quantities not purchased.
On February 27, 2014, the Company entered into an exclusive Manufacturing and Supply Agreement with the Companys co-manufacturer for the production of certain snack products including popcorn and popcorn products. Upon termination, under the terms of the agreement, the Company would be obligated to purchase any packaging materials purchased by the co-manufacturer in reasonable anticipation of one or more forecasts provided by the Company. At March 31, 2015, the approximate value of packaging material was $1.8 million.
Lease Commitments
The Company entered into an operating lease for its headquarters office location in Austin, Texas. The lease was effective February 26, 2015 and has a nine year term.
Rent expense from operating leases totaled $36,000 for the predecessor three months ended March 31, 2014, and $6,000 for the successor three months ended March 31, 2015. As of March 31, 2015, minimum rental commitments under noncancellable operating leases were (in thousands):
Remainder of 2015 |
$ | 184 | ||
2016 |
360 | |||
2017 |
360 | |||
2018 |
349 | |||
2019 |
357 | |||
Thereafter |
1,708 | |||
|
|
|||
Total |
$ | 3,318 | ||
|
|
F-46
AMPLIFY SNACK BRANDS, INC.
Legal Matters
From time to time, the Company is subject to claims and assessments in the ordinary course of business. The Company is not currently a party to any litigation matter that, individually or in the aggregate, is expected to have a material adverse effect on the Companys business, financial condition, results from operations or cash flow.
In February 2014, a class action complaint was filed against the Company in California alleging that the Companys products were mislabeled in various respects in violation of Californias unfair competition and consumer advertising laws. The Company and plaintiffs entered into a settlement agreement in July 2014, which was not material to the financial position, results of operations cash flows of the Company.
11. GEOGRAPHIC INFORMATION
Our net sales by geographic area are as follows (in thousands):
Predecessor | Successor | |||||||
Three Months
Ended March 31, 2014 |
Three Months
Ended March 31, 2015 |
|||||||
United States |
$ | 24,708 | $ | 41,838 | ||||
Canada |
998 | 2,437 |
All of our long-lived assets are located in the United States.
12. INCOME TAXES
Our effective tax rate for the year is dependent on many factors, including the impact of enacted tax laws in jurisdictions in which we operate and the amount of pretax income we earn. The effective tax rate was 0% and 44.3% for the three months ended March 31, 2014, and 2015, respectively. The increase in tax rate is due to the Company becoming a tax paying entity in 2015 when the Company was not previously in 2014.
13. EQUITY-BASED COMPENSATION
Certain employees participate in the Companys parent, TA Topco 1, LLCs Equity Incentive Plan. The 2014 Plan was adopted by Topcos board of directors and approved by its unitholders in July 2014. As of March 31, 2015, 7,231,576 Class C-1 units and 5,854,923 Class C-2 units were outstanding under the 2014 Plan and 881,140 Class C-1 units and 1,664,886 Class C-2 units remained available for future grant under the terms of the 2014 Plan. The Class C units represent profit interests and have no capital contribution requirement. In the event that any outstanding awards under the 2014 Plan are forfeited, cancelled, reacquired by Topco prior to vesting or otherwise terminated, the number of units underlying such award will becomes available for grant under the 2014 Plan.
Because the Company is a wholly-owned subsidiary of Topco, its employees, officers, directors, manager and consultants, as well as employees, officers, directors, managers and consultants of its subsidiaries, were eligible to participate in the 2014 Plan. Topcos board of directors administers the 2014 Plan. The plan administrator may select award recipients, determine the size, types and terms of awards, interpret the plan and prescribe, amend and rescind rules and make all other determinations necessary or desirable for the administration of the 2014 Plan.
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AMPLIFY SNACK BRANDS, INC.
Units granted are subject to the terms and conditions of the LLC Agreement, as well as the terms and conditions of the 2014 Plan. Both Class C-1 and C-2 units are time-based units, however the Class C-2 units are also subject to a performance hurdle related to a tiered distribution if certain criteria are met. This performance hurdle is subject to the realization by Class A unit-holders, through one or more distribution events, of an aggregate amount of proceeds in respect of their Class A Units equal to three times such members aggregate Class A contribution amount, taking into account all proceeds received by such members in respect of their Class A Units from such distribution events. The Class C units vest 25% on the first anniversary of the vesting reference date applicable to individual grants, and thereafter, 2.0833% on the final day of each of the following 36 months, subject to continued service through each applicable vesting date. Upon a termination of service relationship by Topco, all unvested units will be forfeited and all vested units may be repurchased by Topco.
In the event of Sale Event (as defined in the LLC Agreement), the 2014 Plan provides that each unvested unit will be immediately forfeited, unless such units will be assumed, continued or substituted with a comparable award by the Companys successor company or its parent. In the event that the unvested units terminate in connection with a transaction, TA Topco 1, LLC may provide each unit holder with a cash payment equal to the fair market value of a unit multiplied by the number of units.
Subject to any additional transfer restrictions set forth in the LLC Agreement, units granted under the 2014 Plan may not be sold, exchanged, transferred, assigned, distributed, pledged or otherwise disposed of or encumbered without the prior consent of the plan administrator.
Topcos board of directors may amend or modify the 2014 Plan at any time; provided, that any amendment that adversely affects rights under any outstanding award will require consent by the holder of such award. The 2014 Plan will terminate upon the consummation of an initial public offering.
In connection with the Corporate Reorganization, all of the outstanding equity awards that have been granted under the TA Topco 1, LLC 2014 Equity Incentive Plan will be converted into shares of the common stock and restricted stock of Amplify Snack Brands, Inc. The portion of the outstanding Class C units that have vested as of the consummation of the Corporate Reorganization will be converted into shares of common stock and the remaining portion of unvested outstanding Class C units will be converted into shares of Amplify Snack Brands restricted stock, which will be granted under the 2015 Plan. The shares of restricted stock will be subject to time-based vesting conditions, in accordance with the terms and conditions of the Class C units from which such shares are converted.
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AMPLIFY SNACK BRANDS, INC.
The following summarizes the activity of the unvested incentive units for the three months ended March 31, 2015:
Successor | ||||||||
Three Months Ended March 31,
2015 |
||||||||
Class C-1 Units | Class C-2 Units | |||||||
Number of units |
||||||||
Non-vested as of December 31, 2014 |
6,955,914 | 5,571,410 | ||||||
Issued |
276,383 | 283,439 | ||||||
Forfeited |
| | ||||||
Vested |
| | ||||||
Non-vested as of March 31, 2015 |
7,231,576 | 5,854,923 | ||||||
Expected to vest at March 31, 2015 |
7,231,576 | 5,854,923 | ||||||
Weighted Average Grant Date Fair Value |
||||||||
Non-vested as of December 31, 2014 |
$ | 0.95 | $ | 0.18 | ||||
Issued |
0.25 | 0.25 | ||||||
Forfeited |
| | ||||||
Vested |
| | ||||||
Non-vested as of March 31, 2015 |
$ | 0.92 | $ | 0.18 | ||||
(In Thousands) |
||||||||
Compensation expense recorded during the period |
$ | 684 | $ | 104 | ||||
Unamortized costs at March 31, 2015 |
$ | 5,788 | $ | 939 |
At March 31, 2015, the weighted-average remaining vesting term of unvested units was approximately 41 months.
Valuation of our Equity Awards
In the absence of a public trading market for our securities, the Companys board of directors has determined the estimated fair value of the equity-based compensation awards at the date of grant based upon several factors, including its consideration of input from management and contemporaneous third-party valuations.
The valuation of Topcos equity was determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid Valuation of Privately-Held-Company Equity Securities Issued as Compensation . The assumptions we used in the valuation models are highly complex and subjective. The Company bases its assumptions on future expectations combined with management judgment and considered numerous objective and subjective factors to determine the fair value of the equity awards as of the grant date including, but not limited to, the following factors:
| lack of marketability; |
| the Companys actual operating and financial performance; |
| current business conditions and projections; |
| the U.S. capital market conditions; |
| the Companys stage of development; and |
| likelihood of achieving a liquidity event, such as this offering, given prevailing market conditions. |
F-49
AMPLIFY SNACK BRANDS, INC.
The valuation of the equity-based compensation awards involved a two-step process. First, the Company determined its business equity value using an enterprise value based on the income approach, specifically a discounted cash flow, or DCF, analysis. A market approach, which estimates the fair value of the Company, by applying market multiples of comparable peer companies in its industry or similar lines of business to its historical and/or projected financial metrics, was also developed to corroborate the reasonableness of the DCF indication of enterprise value.
The values determined by the income and the market approach were comparable. Second, the business equity value was allocated among the securities that comprise the capital structure of the Company using the Option-Pricing Method, or OPM, as described in the AICPA Practice Aid entitled Valuation of Privately-Held-Company Equity Securities Issued as Compensation . See below for a description of the valuation and allocation methods.
The DCF analysis required the development of the forecasted future financial performance of the Company, including revenues, operating expenses and taxes, as well as working capital and capital asset requirements. The discrete forecast period analyzed extends to the point at which the Company will be expected to have reached a steady state of growth and profitability. The projected cash flows of the discrete forecast period are discounted to a present value employing a discount rate that properly accounts for the estimated market weighted average cost of capital. Finally, an assumption is made regarding the sustainable long-term rate of growth beyond the discrete forecast period, and a residual value is estimated and discounted to a present value. The sum of the present value of the discrete cash flows and the residual, or terminal value represents the estimated fair value of the total enterprise value of the Company. This value is then adjusted for non-operational assets, liabilities and interest bearing debt to conclude the equity value of the Company.
The financial forecasts prepared took into account the Companys past results and expected future financial performance. There is inherent uncertainty in these estimates as the assumptions used are highly subjective and may change as a result of new operating data and economic and other conditions that may impact the Companys business.
Once the equity value of the Company is estimated, it is then allocated among the various classes of securities to arrive at the fair value of the awards. For this allocation, the OPM was used for all grants. The OPM entails allocating the equity value to the various share classes based upon their respective claims on a series of call options with strike prices at various value levels depending upon the rights and preferences of each class. A Black-Scholes option pricing model is employed to value the call options. This model defines the securities fair values as functions of the current fair value of a company and requires the use of assumptions such as the anticipated holding period and the estimated volatility of the equity securities.
The following table summarizes the key assumptions used in the OPM allocation as of December 4, 2014:
Assumptions | ||||
Time to liquidity event |
2 years | |||
Volatility |
30.00% | |||
Risk-free rate |
0.55% | |||
Dividend yield |
0.00% | |||
Lack of marketability discount |
16% |
F-50
AMPLIFY SNACK BRANDS, INC.
The expected term of 2 years represents managements expected time to a liquidity event as of the valuation date. The volatility assumption is based on the estimated stock price volatility of a peer group of comparable public companies over a similar term. The risk-free rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term. As of December 4, 2014, the only grant date in 2014, the Company used an expected dividend yield of zero as we had never declared or paid any ordinary cash dividends and at that time did not plan to pay cash dividends in the foreseeable future.
The value derived from the OPM model was reduced by a 16% lack of marketability discount in the determination of fair values of the awards at the grant date. A discount for lack of marketability was applied to reflect the increased risk arising from the inability to readily sell the equity awards.
For awards granted on February 24, 2015, we have used the Probability Weighted Expected Return Method, or PWERM, whereby the value of the various classes of securities is estimated based upon the analysis of future values for the company assuming various possible future liquidity events such as an initial public offering, or IPO, sale or merger. Share value is based upon the probability-weighted present value of expected future net cash flows, considering each of the possible future events, as well as the rights and preferences of each share class. The PWERM was selected due to the established nature of the Company, the prospect of a near term exit via an IPO or sale, and our ability to reasonably forecast financial performance.
First, future enterprise values of the Company were estimated using a range of Enterprise-to-EBITDA multiples. The valuation multiple range was established by consideration of valuation multiples indicated by the comparable public company and comparable transaction methods, both versions of the Market Approach. A DCF analysis was also performed to corroborate the Market Approach indications of value.
Second, the Companys implied equity value was allocated among the various classes of securities using the PWERM. To apply the PWERM, we first estimated future enterprise values under various exit scenarios, and adjusted projected values of cash and debt for each scenario to determine the total expected equity value of the Company at the exit date. As of February 24, 2015, the PWERM analysis reflected the Companys belief that there was a 60% probability that the Company would complete an initial public offering and a 40% probability of a sale of the Company. The valuation used a risk adjusted discount rate of 14% and an estimated time to a liquidity event of 6 months.
The aggregate value of the Class C-1 and Class C-2 units derived from the PWERM allocation method was then divided by the number of respective units outstanding to arrive at the per unit value. A lack of marketability discount was applied to reflect the increased risk arising from the inability to readily sell the units. This discount was 12% under an assumed IPO scenario and 8% under an assumed sale scenario. The higher discount under the IPO scenario reflects a potential delay in liquidity, relative to a sale scenario, due to typical IPO lock-up provisions.
The key subjective factors and assumptions used in our valuation of February 24, 2015 grants primarily consisted of:
| the probability and timing of the various possible liquidity events; |
| the selection of the appropriate market comparable transactions; |
| the selection of the appropriate comparable publicly traded companies; |
| the financial forecasts utilized to determine future cash balances and necessary capital requirements; |
F-51
AMPLIFY SNACK BRANDS, INC.
| the estimated weighted-average cost of capital; and |
| the discount for lack of marketability. |
14. SUBSEQUENT EVENTS
The Company evaluated all events or transactions that occurred after March 31, 2015 up through the date the Company issued these financial statements.
In April 2015, the Company acquired 100% of the shares of Paqui, LLC, a manufacturer and marketer of tortilla chips and pre-packaged tortillas. In addition, Company management also evaluated the acquisition under ASC Topic 805 related to business combinations and concluded that the acquisition would not otherwise have an impact on the Companys financial statements that would separately require the presentation of separate financial statements for Paqui, LLC in the Amendment.
On April 29, 2015 the Company and Assemblers Food Packaging LLC (Assemblers) entered into an amendment (the Assemblers Amendment) to their manufacture and supply agreement dated February 27, 2014 (the Assemblers Contract). The Assemblers Amendment extended the initial term of the Assemblers Contract. Additionally, the Assemblers Amendment obligates the Company to pay a termination fee to Assemblers in the event the Company terminates the Assemblers Contract during its term. Further, the Company is obligated to make certain annual minimum purchases from Assemblers. In the event that the Company fails to make the minimum purchases for any year and Assemblers is no longer the Companys exclusive manufacturer, the Company will become obligated to pay a penalty fee to Assemblers.
On May 29, 2015, the Company amended the Second Amended Credit Facility to increase its term loan borrowings by $7.5 million to a total of $205 million, net of principal payments made in the first quarter of $2.5 million, and its revolving facility by $17.5 million to a total of $25 million. The Second Amended Credit Facility, as so amended, is referred to as the Third Amended Credit Facility. At the closing of the Third Amended Credit Facility, the Company borrowed $15 million under its revolving facility, which, along with its term loan borrowings, have the same interest rate as the term and revolving loans under the Second Amended Credit Facility. The interest rate on the Companys outstanding indebtedness was 5.5% per annum at December 31, 2014 and March 31, 2015. Proceeds of the Third Amended Credit Facility were primarily used to pay the May 2015 Special Dividend.
Employee Benefit Plans
On April 1, 2015, the Company established a retirement savings plan under Section 401(k) of the Internal Revenue Code. This plan covers all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. Under the plan, the Company matches 100% up to a maximum of 6% of eligible compensation, not to exceed annual IRS contribution limits.
Forward Stock Split
On July 14, 2015, the Company filed a Certificate of Amendment to its Certificate of Incorporation to effect a 75,000 for 1 forward stock split of its outstanding common stock and to increase the authorized shares of common stock to 75,000,000. The par value per share was not adjusted as a result of the forward stock split. All issued and outstanding shares of common stock and the related per share amounts contained in the consolidated financial statements have been retroactively adjusted to reflect the forward stock split for all relevant periods presented.
F-52
Shares
Amplify Snack Brands, Inc.
Common Stock
PROSPECTUS
, 2015
Until , 2015 (25 days after the date of this prospectus), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealers obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses to be paid by us in connection with this offering. All amounts shown are estimates except for the SEC registration fee, the FINRA filing fee, and the listing fee.
SEC registration fee |
$ | 23,240 | ||
FINRA filing fee |
30,500 | |||
Listing fee |
250,000 | |||
Printing and engraving |
* | |||
Legal fees and expenses |
* | |||
Accounting fees and expenses |
* | |||
Financial advisor fees |
* | |||
Custodian transfer agent and registrar fees |
* | |||
Miscellaneous |
* | |||
|
|
|||
Total |
$ | * | ||
|
|
* | To be completed by amendment. |
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a corporations board of directors to grant, and authorizes a court to award, indemnity to officers, directors and other corporate agents.
Prior to the consummation of this offering, we expect to adopt an amended and restated certificate of incorporation, which will become effective immediately prior to the consummation of this offering, and which will contain provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for the following:
| any breach of their duty of loyalty to our company or our stockholders; |
| any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; |
| unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or |
| any transaction from which they derived an improper personal benefit. |
Any amendment to, or repeal of, these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to that amendment or repeal. If the Delaware General Corporation Law is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the Delaware General Corporation Law.
In addition, prior to the consummation of this offering, we expect to adopt amended and restated bylaws which will provide that we will indemnify, to the fullest extent permitted by law, any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that he or she is or was one of our directors or officers or is or was serving at our request as a
II-1
director or officer of another corporation, partnership, joint venture, trust or other enterprise. Our amended and restated bylaws are expected to provide that we may indemnify to the fullest extent permitted by law any person who is or was a party or is threatened to be made a party to any action, suit, or proceeding by reason of the fact that he or she is or was one of our employees or agents or is or was serving at our request as an employee or agent of another corporation, partnership, joint venture, trust, or other enterprise. Our amended and restated bylaws will also provide that we must advance expenses incurred by or on behalf of a director or officer in advance of the final disposition of any action or proceeding, subject to very limited exceptions.
Further, prior to the consummation of this offering, we expect to enter into indemnification agreements with each of our directors and executive officers that may be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. These indemnification agreements will require us, among other things, to indemnify our directors and executive officers against liabilities that may arise by reason of their status or service. These indemnification agreements will also require us to advance all expenses incurred by the directors and executive officers in investigating or defending any such action, suit or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers.
The limitation of liability and indemnification provisions that are expected to be included in our amended and restated certificate of incorporation, amended restated bylaws and in indemnification agreements that we enter into with our directors and executive officers may discourage stockholders from bringing a lawsuit against our directors and executive officers for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against our directors and executive officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholders investment may be harmed to the extent that we pay the costs of settlement and damage awards against directors and executive officers as required by these indemnification provisions. At present, we are not aware of any pending litigation or proceeding involving any person who is or was one of our directors, officers, employees or other agents or is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.
We have obtained insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and executive officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or executive officer, including claims relating to public securities matters, and to us with respect to payments that may be made by us to these directors and executive officers pursuant to our indemnification obligations or otherwise as a matter of law.
The underwriting agreement filed as Exhibit 1.1 to this registration statement provides for indemnification by the underwriters of the Registrant and its officers and directors for certain liabilities arising under the Securities Act and otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES .
In connection with the Sponsor Acquisition, on July 2, 2014, the registrant issued 1,000 shares or 75,000,000 after taking into account the 75,000 for 1 forward stock split of the registrants common stock, par value $0.0001 per share, to TA Topco 1, LLC, such that the registrant was a wholly-owned subsidiary of TA Topco 1, LLC. The issuance of such shares of common stock was not registered under the Securities Act because the shares were offered and sold in a transaction exempt from registration under Section 4(a)(2) of the Securities Act.
II-2
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
See the Exhibit Index on the page immediately following the signature page for a list of exhibits filed as part of this registration statement on Form S-1, which Exhibit Index is incorporated herein by reference.
(b) No financial statement schedules are provided because the information is not required or is either shown in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, or the Act, may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) | For purposes of determining any liability under the Securities Act of 1933, as amended, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933, as amended, shall be deemed to be part of this registration statement as of the time it was declared effective. |
(2) | For the purpose of determining any liability under the Securities Act of 1933, as amended, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Austin, State of Texas, on July 16, 2015.
AMPLIFY SNACK BRANDS, INC. |
||
By: |
/s/ Thomas C. Ennis |
|
Thomas C. Ennis | ||
Chief Executive Officer |
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated.
Signature |
Title |
Date |
||
/s/ Thomas C. Ennis Thomas C. Ennis |
Chief Executive Officer and Director (Principal Executive Officer) |
July 16, 2015 | ||
/s/ Brian Goldberg Brian Goldberg |
Chief Financial Officer (Principal Accounting and Financial Officer) |
July 16, 2015 | ||
* Jeffrey S. Barber |
Director | July 16, 2015 | ||
* William David Christ II |
Director | July 16, 2015 | ||
* Chris Elshaw |
Director | July 16, 2015 | ||
* Andrew S. Friedman |
Director | July 16, 2015 | ||
* John K. Haley |
Director | July 16, 2015 | ||
* Dawn Hudson |
Director | July 16, 2015 | ||
* Pamela L. Netzky |
Director | July 16, 2015 |
*By: | /s/ Thomas C. Ennis | |
|
||
Thomas C. Ennis Attorney-in-Fact |
II-4
EXHIBIT INDEX
Exhibit
|
Description |
|
1.1 | Form of Underwriting Agreement. | |
3.1 | Certificate of Incorporation of the Registrant, as currently in effect. | |
3.2* | Form of Amended and Restated Certificate of Incorporation of the Registrant to be in effect immediately prior to the consummation of this offering. | |
3.3 | Bylaws of the Registrant, as currently in effect. | |
3.4 | Form of Amended and Restated Bylaws of the Registrant to be adopted immediately prior to the consummation of this offering. | |
4.1 | Form of common stock certificate of the Registrant. | |
4.2 | Form of Registration Rights Agreement, by and among the Registrant and certain of its stockholders. | |
4.3 | Form of Stockholders Agreement, by and among the Registrant and certain of its stockholders. | |
5.1* | Opinion of Goodwin Procter LLP. | |
10.1# | Forms of Indemnification Agreement. | |
10.2# | 2015 Stock Option and Incentive Plan, and related form agreements thereunder. | |
10.3#** | Employment Agreement, dated July 17, 2014, by and between Thomas C. Ennis and TA Topco 1, LLC. | |
10.4#** | Employment Agreement, dated September 2, 2014, by and between Brian Goldberg and TA Topco 1, LLC. | |
10.5#** | Employment Agreement, dated July 17, 2014, by and between Jason Shiver and TA Topco 1, LLC. | |
10.6#** | Employment Agreement, dated July 17, 2014, by and between SkinnyPop Popcorn LLC and Pamela L. Netzky. | |
10.7#** | Employment Agreement, dated July 17, 2014, by and between SkinnyPop Popcorn LLC and Andrew S. Friedman. | |
10.8** | Office Lease, dated as of February 26, 2015, by and between International Bank of Commerce and the Registrant. | |
10.9** | Credit Agreement, dated as of July 17, 2014, by and among the Registrant, SkinnyPop Popcorn LLC, the lenders party thereto, Jefferies Finance LLC and BNP Paribas Securities Corp. | |
10.10** | First Amendment to the Credit Agreement, dated as of August 18, 2014, by and among the Registrant, SkinnyPop Popcorn LLC, the lenders party thereto, Jefferies Finance LLC and BNP Paribas Securities Corp. | |
10.11** | Second Amendment to the Credit Agreement, dated as of December 23, 2014, by and among the Registrant, SkinnyPop Popcorn LLC, the lenders party thereto, Jefferies Finance LLC and BNP Paribas Securities Corp. | |
10.12** | Collateral Agreement, dated as of July 17, 2014, by and among SkinnyPop Popcorn LLC, the Registrant and Jefferies Finance, LLC. |
Exhibit
|
Description |
|
10.13** | Manufacturing and Supply Agreement, dated February 27, 2014, between SkinnyPop Popcorn LLC and Assemblers Food Packaging LLC as amended by Addendum No. 1 to the Manufacturing and Supply Agreement, dated April 29, 2015. | |
10.14** | Contract Regarding Sale of Goods No. 14-3-31, dated April 1, 2014, by and between Preferred Popcorn, LLC and Skinny Pop Popcorn, as amended by the second addendum to Contract Regarding Sale of Goods dated September 8, 2014. | |
10.15** | Contract Regarding Sale of Goods No. 14-12-23, dated January 22, 2015, by and between Preferred Popcorn, LLC and Skinny Pop Popcorn. | |
10.16** |
Contract Regarding Sale of Goods No. 15-1-23, dated February 14, 2015, by and between Preferred Popcorn, LLC and Skinny Pop Popcorn. |
|
10.17** | Contract Regarding Sale of Goods No. 15-1-27, dated February 14, 2015, by and between Preferred Popcorn, LLC and Skinny Pop Popcorn. | |
10.18 | Form of Tax Receivable Agreement. | |
10.19** | Offer Letter, dated September 23, 2014, by and between TA Topco 1, LLC and Dawn Hudson. | |
10.20** | Offer Letter, dated March 13, 2015, by and between TA Topco 1, LLC and John K. Haley. | |
10.21** | Offer Letter, dated May 7, 2015, by and between TA Topco 1, LLC and Chris Elshaw. | |
10.22** | Third Amendment to the Credit Agreement, dated as of May 29, 2015, by and among the Registrant, SkinnyPop Popcorn LLC, the lenders party thereto and Jefferies Finance LLC. | |
10.23 | Form of Fourth Amendment to the Credit Agreement, by and among the Registrant, SkinnyPop Popcorn LLC, the lenders party thereto and Jefferies Finance LLC. | |
10.24# | Non-Employee Director Compensation Policy. | |
10.25# | Form of Employment Agreement with the Registrants executive officers. | |
21.1** | List of subsidiaries of the Registrant. | |
23.1 | Consent of Deloitte & Touche LLP, independent registered public accounting firm. | |
23.2* | Consent of Goodwin Procter LLP (included in Exhibit 5.1). | |
24.1** | Power of Attorney (see page II-4 of this Registration Statement on Form S-1). |
* | To be filed by amendment. |
** | Previously filed. |
# | Indicates management contract or compensatory plan, contract or agreement. |
| Confidential treatment requested as to certain portions of this exhibit, which portions have been omitted and submitted separately to the Securities and Exchange Commission. |
Exhibit 1.1
Amplify Snack Brands, Inc.
[ ● ] shares
Common Stock, Par Value $0.0001 Per Share
Underwriting Agreement
[●], 2015
Goldman, Sachs & Co.
200 West Street
New York, New York 10282
Jefferies LLC
520 Madison Avenue
New York, New York 10022
As representatives of the several Underwriters
named in Schedule I hereto,
Ladies and Gentlemen:
The stockholders named in Schedule II hereto (the Selling Stockholders ) of Amplify Snack Brands, Inc. a Delaware corporation (the Company ), propose, subject to the terms and conditions stated herein, to sell (the Offering ) to the Underwriters named in Schedule I hereto (the Underwriters ), for whom Goldman, Sachs & Co. and Jefferies LLC are acting as representatives (the Representatives ), an aggregate of [●] shares (the Firm Shares ) of common stock of the Company, par value $0.0001 per share ( Stock ), and, at the election of the Underwriters, up to [●] additional shares (the Optional Shares ) of Stock of the Company (the Firm Shares and the Optional Shares that the Underwriters elect to purchase pursuant to Section 3 hereof are herein collectively called the Shares .)
In connection with the liquidation of TA TopCo 1, LLC, a Delaware limited liability company ( Topco ), on July [●], 2015, the shares of the Company were distributed to the members of Topco pursuant to the Second Amended and Restated Limited Liability Company Agreement of Topco dated as of January 23, 2015. The foregoing transactions shall have been completed prior to the First Time of Delivery as described in the Pricing Disclosure Package. These transactions are collectively referred to as the Corporate Reorganization and the
agreements associated therewith are collectively referred to as the Reorganization Agreements. All references to the Company shall be deemed to be the Company after giving effect to the Corporate Reorganization.
1. The Company represents and warrants to, and agrees with, each of the Underwriters and the Selling Stockholders that:
(a) A registration statement on Form S-1 (File No. 333-205274) (the Initial Registration Statement ) in respect of the Shares has been filed with the Securities and Exchange Commission (the Commission ); the Initial Registration Statement and any post-effective amendment thereto, each in the form heretofore delivered to you, and, excluding exhibits thereto, to you for each of the other Underwriters, have been declared effective by the Commission in such form; other than a registration statement, if any, increasing the size of the offering (a Rule 462(b) Registration Statement ), filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the Act ), which became effective upon filing, no other document with respect to the Initial Registration Statement has heretofore been filed with the Commission; and no stop order suspending the effectiveness of the Initial Registration Statement, any post-effective amendment thereto or the Rule 462(b) Registration Statement, if any, has been issued and no proceeding for that purpose has been initiated or, to the Companys knowledge, threatened by the Commission (any preliminary prospectus included in the Initial Registration Statement or filed with the Commission pursuant to Rule 424(a) of the rules and regulations of the Commission under the Act is hereinafter called a Preliminary Prospectus ; the various parts of the Initial Registration Statement and the Rule 462(b) Registration Statement, if any, including all exhibits thereto and including the information contained in the form of final prospectus filed with the Commission pursuant to Rule 424(b) under the Act in accordance with Section 6(a) hereof and deemed by virtue of Rule 430A under the Act to be part of the Initial Registration Statement at the time it was declared effective, each as amended at the time such part of the Initial Registration Statement became effective or such part of the Rule 462(b) Registration Statement, if any, became or hereafter becomes effective, are hereinafter collectively called the Registration Statement ; the Preliminary Prospectus relating to the Shares that was included in the Registration Statement immediately prior to the Applicable Time (as defined in Section 1(d) hereof) is hereinafter called the Pricing Prospectus ; such final prospectus, in the form first filed pursuant to Rule 424(b) under the Act, is hereinafter called the Prospectus ; and any issuer free writing prospectus as defined in Rule 433 under the Act related to the Shares is hereinafter called an Issuer Free Writing Prospectus );
2
(b) No order preventing or suspending the use of any Preliminary Prospectus or any Issuer Free Writing Prospectus has been issued by the Commission, and each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided , however , that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through the Representatives expressly for use therein (the Underwriter Information ) or by a Selling Stockholder expressly for use in the preparation of the answers therein to Items 7 and 11(m) of Form S-1 (the Selling Stockholders Information );
(c) Any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Act is hereinafter called a Section 5(d) Communication ; and any Section 5(d) Communication that is a written communication within the meaning of Rule 405 under the Act is hereinafter called a Section 5(d) Writing ;
(d) For the purposes of this Agreement, the Applicable Time is [●][a.m/p.m.] (Eastern time) on the date of this Agreement. The Pricing Prospectus, as supplemented by the information listed on Schedule III(c) hereto, taken together (collectively, the Pricing Disclosure Package ), as of the Applicable Time, did not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and each Issuer Free Writing Prospectus listed on Schedule III(a) hereto does not conflict with the information contained in the Registration Statement, the Pricing Prospectus or the Prospectus and each such Issuer Free Writing Prospectus and each Section 5(d) Writing listed on Schedule III(b) hereto, each as supplemented by and taken together with the Pricing Disclosure Package, as of the Applicable Time, did not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided , however , that this representation and warranty shall not apply to
3
statements or omissions made in an Issuer Free Writing Prospectus or Section 5(d) Writing in reliance upon and in conformity with the Underwriter Information or the Selling Stockholders Information;
(e) The Registration Statement conforms, and the Prospectus and any further amendments or supplements to the Registration Statement or the Prospectus will conform, in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and do not and will not, as of the applicable effective date as to each part of the Registration Statement and any amendment thereto and as of the applicable filing date as to the Prospectus and any amendment or supplement thereto, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided , however , that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with the Underwriter Information or the Selling Stockholders Information;
(f) The Company has full corporate power and authority to execute and deliver this Agreement and perform its other obligations hereunder; and all action required to be taken by the Company for the due authorization, execution and delivery of this Agreement and, as applicable, the consummation of the transactions contemplated hereby has been duly and validly taken;
(g) Neither the Company nor any of its subsidiaries has sustained, since the date of the latest audited financial statements included in the Pricing Prospectus, any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor disturbance or dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Pricing Prospectus; and, since the respective dates as of which information is given in the Registration Statement and the Pricing Prospectus, there has not been any change in the capital stock (other than in connection with the Corporate Reorganization as described in the Pricing Prospectus) or long-term debt of the Company or any of its subsidiaries or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, properties, financial position, stockholders equity or results of operations of the Company and its subsidiaries, taken as a whole (each such change or development, a Material Adverse Effect ) otherwise than as set forth or contemplated in the Pricing Prospectus;
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(h) Neither the Company nor any of its subsidiaries own any real property. The Company and its subsidiaries have good and marketable title to all personal property owned by them (other than with respect to Intellectual Property, which is addressed exclusively in subsection (y) below), free and clear of all liens, encumbrances and defects except such as are described in the Pricing Prospectus or such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries; and, to the Companys knowledge, any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases (subject to the effects of (A) bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer, reorganization, moratorium or other similar laws relating to or affecting the rights or remedies of creditors generally; (B) the application of general principles of equity (including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, regardless of whether enforcement is considered in proceedings at law or in equity); and (C) applicable law and public policy with respect to rights to indemnity and contribution) with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries;
(i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the state of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the Pricing Prospectus, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, except where the failure to be so qualified or in good standing would not individually or in the aggregate have a Material Adverse Effect; and each subsidiary of the Company has been duly organized and is validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, except where the failure to be in good standing would not individually or in the aggregate have a Material Adverse Effect;
(j) The Company will have, immediately following the consummation of the Corporate Reorganization, an authorized capitalization as set forth in the Pricing Prospectus and all of the issued shares of capital stock of the Company, including the Shares, have been duly and validly authorized and issued and are fully paid and non-assessable and conform to the description of the Stock contained in the
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Pricing Disclosure Package and the Prospectus; and all of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued, and are fully paid and non-assessable and (except for directors qualifying shares) are owned directly or indirectly by the Company and except as otherwise set forth in the Pricing Prospectus, free and clear of all liens, encumbrances, equities or claims;
(k) As of (i) the date of this agreement, (A) the Reorganization Agreements have been duly authorized and [when] executed and delivered, [will be] [are] legally valid and binding and enforceable against the Company in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors rights generally or by general equitable principles, (B) the Company [will have] [has] filed all notices, reports, documents or other information required to be filed by it pursuant to, and [will have] [has] obtained any and all authorizations, approvals, orders, consents, licenses, certificates, permits, registrations or qualifications required to be obtained under, and [will have] [has] otherwise complied with all requirements of, all applicable laws in connection with the consummation of all of the transactions in connection with the Corporate Reorganization described in the Pricing Disclosure Package except where the failure to so file, obtain or comply would not individually or in the aggregate, have a Material Adverse Effect, (C) the execution and delivery of the Reorganization Agreements [will not] [does not] result in a violation of the provisions of the Certificate of Incorporation and By-laws or similar organizational documents of any of the parties thereto, and (D) the execution and delivery of the Reorganization Agreements [will not] [does not] conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which the Company or any party to the Reorganization Agreements is subject except where such conflict, breach or violation would not individually or in the aggregate, have a Material Adverse Effect, and, (ii) as of the First Time of Delivery, the Corporate Reorganization shall have been completed substantially in the manner described in the Pricing Prospectus;
(l) The compliance by the Company with its obligations under this Agreement and the consummation of the transactions herein contemplated will not (A) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, lease or other
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agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, (B) result in any violation of the provisions of the Certificate of Incorporation or By-laws or similar organizational documents of the Company or any of its subsidiaries or (C) result in violation of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties, except in the case of (A) and (C) for such violations that would not, individually or in the aggregate, have a Material Adverse Effect; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the sale of the Shares or the consummation by the Company of the transactions contemplated by this Agreement, except for the registration under the Act of the Shares, the approval by the Financial Industry Regulatory Authority ( FINRA ) of the underwriting terms and arrangements, and such consents, approvals, authorizations, orders, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters;
(m) Neither the Company nor any of its subsidiaries is (A) in violation of its Certificate of Incorporation or By-laws (or similar organizational documents) or (B) in default, and no event has occurred that, with the notice or lapse of time or both, would constitute such a default in the performance or observance of any obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it, the Shares or any of its properties may be bound, except for such defaults as would not individually or in the aggregate have a Material Adverse Effect;
(n) The statements set forth in the Pricing Prospectus and Prospectus under the caption Description of Capital Stock, insofar as they purport to constitute a summary of the terms of the Stock, under the caption Material U.S. Federal Income Tax Consequences to Non U.S. Holders, and under the caption Underwriting, insofar as they purport to describe the provisions of the laws and documents referred to therein, are accurate, complete and fair;
(o) Other than as set forth in the Pricing Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries, or, to the Companys knowledge, any officer
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or director of the Company is a party or of which any property or assets of the Company or any of its subsidiaries or, to the Companys knowledge, any officer or director of the Company is the subject which, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a material adverse effect on the current or future financial position, stockholders equity or results of operations of the Company and its subsidiaries; and, to the Companys knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others;
(p) The Company is not and, after giving effect to the offering and sale of the Shares by the Selling Stockholders will not be, an investment company, as such term is defined in the Investment Company Act of 1940, as amended (the Investment Company Act );
(q) At the time of filing the Initial Registration Statement, the Company was not, and as of the Applicable Time is not, an ineligible issuer as defined under Rule 405 under the Act;
(r) Deloitte & Touche LLP, who have certified certain financial statements of the Company and its subsidiaries, are independent public accountants as required by the Act and the rules and regulations of the Commission thereunder;
(s) Except as set forth in the Pricing Prospectus and the Prospectus, the Company maintains a system of internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended (the Exchange Act )) that complies with the requirements of the Exchange Act and has been designed by the Companys principal executive officer and principal financial officer, or under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles ( GAAP ). The Companys internal accounting controls are sufficient to provide reasonable assurance that (i) transactions are executed in accordance with managements general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with managements general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the Pricing Prospectus, the Company is not aware of any
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material weaknesses in its internal control over financial reporting (it being understood that this subsection shall not require the Company to comply with Section 404 of the Sarbanes-Oxley Act of 2002 as of an earlier date than it would otherwise be required to so comply under applicable law);
(t) Except as disclosed in the Pricing Prospectus, since the date of the latest audited financial statements included in the Pricing Prospectus, there has been no change in the Companys internal control over financial reporting that has materially and adversely affected, or is reasonably likely to materially and adversely affect, the Companys internal control over financial reporting;
(u) Except as set forth in the Pricing Prospectus and the Prospectus, the Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) that comply with the requirements of the Exchange Act; such disclosure controls and procedures have been designed to ensure that material information relating to the Company and its subsidiaries is made known to the Companys principal executive officer and principal financial officer by others within those entities; and such disclosure controls and procedures are effective as of the Applicable Time;
(v) Neither the Company nor any of its subsidiaries nor, to the knowledge of the Company, any director, officer, agent, employee, affiliate or other person associated with or acting on behalf of the Company or any of its subsidiaries has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977; (iv) violated or is in violation of any provision of the Bribery Act 2010 of the United Kingdom; or (v) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment;
(w) The operations of the Company and its subsidiaries are and have been conducted at all times in compliance in all material respects with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions in which the Company and its subsidiaries conduct business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental
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agency having jurisdiction over the Company and any of its subsidiaries (collectively, the Money Laundering Laws ); and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Money Laundering Laws is pending or, to the knowledge of the Company, threatened;
(x) Neither the Company nor any of its subsidiaries nor, to the knowledge of the Company, any director, officer, agent, employee, affiliate or other person in each case acting on behalf of the Company or any of its subsidiaries is currently the subject or the target of any sanctions administered or enforced by the U.S. Government, including, without limitation, the Office of Foreign Assets Control of the U.S. Department of the Treasury, or other relevant sanctions authority;
(y) The Company and its subsidiaries are in compliance with, and conduct their businesses in conformity with, all applicable laws and regulations in all material respects. There are no material proceedings that are pending or, to the knowledge of the Company, threatened, against the Company or any of its subsidiaries under any laws, regulations, ordinances, rules, orders judgments, decrees, permits or other legal requirements of any governmental authority. Neither the Company nor any of its subsidiaries has violated, or has received notice with respect to any material violation of any such laws;
(z) No labor dispute with or disturbance by the employees of the Company or any of its subsidiaries exists or, to the Companys knowledge, is threatened, and the Company has not received notice, or otherwise become aware, of any existing, threatened or imminent labor disturbance by the employees of any of its principal suppliers, manufacturers or contractors that would, in each case, reasonably be expected to have a Material Adverse Effect;
(aa) The Company and its subsidiaries own, possess or license, all rights to patents, licenses, proprietary inventions, copyrights, know-how (including trade secrets and other unpatented or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks or trade names (collectively, Intellectual Property ) necessary to conduct the business now operated by them, and neither the Company nor any of its subsidiaries has received any written notice of a infringement of or a conflict with asserted Intellectual Property rights of others with respect to any of the foregoing, except for such infringements or conflicts that would not, individually or in the aggregate, have a Material Adverse Effect;
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(bb) Except as otherwise disclosed in the Pricing Prospectus, the Company and each subsidiary possess such valid and current licenses, certificates, authorizations or permits issued by the appropriate state, U.S. or non-U.S. regulatory agencies or bodies necessary to conduct their respective businesses except to the extent that such failure to possess would not individually in the aggregate have a Material Adverse Effect, and neither the Company nor any subsidiary has received any notice of proceedings relating to the revocation or modification of, or non-compliance with, any such license, certificate, authorization or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, could have a Material Adverse Effect.
(cc) Except as disclosed in the Pricing Prospectus in connection with the restrictive covenants in the Companys credit agreement, no subsidiary is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such subsidiarys capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiarys property or assets to the Company or any other subsidiary of the Company;
(dd) (A) The Company and its subsidiaries are in compliance in all material respects with any applicable foreign, federal, state or local statute, law, rule, regulation, ordinance, code, policy or rule of common law or any judicial or administrative interpretation thereof having the force and effect of law, including any judicial or administrative order, consent, decree or judgment having the force and effect of law relating to pollution or protection of the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, insofar as it may be affected by the release of, or exposure to, Hazardous Materials (as defined below), human health and safety, including laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products (collectively, Hazardous Materials ) or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, Environmental Laws ) except for such violations that would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect; (B) the Company and its subsidiaries have all material permits, authorizations and approvals required under any applicable Environmental Laws and are necessary for the operation of the business and are each in compliance with their requirements in all
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material respects; (C) there are no pending or, to the Companys knowledge, threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of non-compliance or violation, investigation or proceedings (collectively, Actions ) relating to any Environmental Law against the Company or any of its subsidiaries except for such Actions that would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect; and (D) to the Companys knowledge, there are no events or circumstances that could reasonably be expected to form the basis of an order against or other obligation of the Company pursuant to any Environmental Law for material clean-up or remediation relating to Hazardous Materials or any Environmental Laws;
(ee) Neither the Company nor any of its subsidiaries has any costs or liabilities associated with Environmental Laws (including any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties) that would reasonably be expected to result in a Material Adverse Effect;
(ff) Except as set forth in the Pricing Prospectus and the Prospectus, the Company has not, and, to its knowledge, no one acting on its behalf has, (A) taken, directly or indirectly, any action designed to cause or to result in, or that has constituted or that might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company or any of its subsidiaries to facilitate the sale or resale of any of the Shares, (B) sold, bid for, purchased, or paid anyone any compensation for soliciting purchases of, the Shares, or (C) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company or any of its subsidiaries to facilitate the sale or resale of the Shares, in each case, other than as contemplated in this Agreement;
(gg) The Company and its subsidiaries (i) have filed all material non-U.S. and U.S. federal, state and local tax returns with the appropriate tax authorities that are required to be filed, or have duly requested extensions thereof, and (ii) have paid all taxes due and required to be paid by them and any other assessment, fine or penalty levied against any of them to the extent that any of the foregoing is due and payable, except for any such tax or other assessment, fine or penalty that is currently being contested in good faith and for which adequate reserves have been established in accordance with GAAP;
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(hh) Except as disclosed in the Pricing Prospectus under the caption Certain Relationships and Related Party Transactions, there are no persons with registration or other similar rights to have any equity or debt securities, including securities that are convertible into or exchangeable for equity securities, registered pursuant to the Registration Statement or otherwise registered by the Company under the Act;
(ii) The Company and its subsidiaries, taken as a whole, are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as the Company believes are prudent and customary in the businesses in which they are engaged; and neither the Company nor any of its subsidiaries has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect;
(jj) The financial statements included in the Pricing Prospectus present fairly in all material respects the financial position of the Company and its consolidated subsidiaries as of the dates shown and its results of operations and cash flows for the periods shown; such financial statements have been prepared in conformity with GAAP applied on a consistent basis; and the other financial information of the Company in the Pricing Prospectus has been derived from the accounting records or other books and records of the Company and its subsidiaries and presents fairly in all material respects the information shown thereby;
(kk) The statistical and market-related data included in the Pricing Prospectus are based on or derived from sources which the Company believes are reliable and accurate;
(ll) The unaudited pro forma condensed consolidated statements of income included in the Registration Statement comply as to form in all material respects with the applicable accounting requirements of Rule 11-02 of Regulation S-X and with the applicable accounting requirements of the Act and the related rules and regulations adopted by the SEC and the pro forma adjustments thereto have been properly applied to the historical amounts in the compilation of those statements;
(mm) The Stock has been approved for listing, subject to notice of issuance, on the New York Stock Exchange ( NYSE ) under the symbol BETR;
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(nn) Except as set forth in the Pricing Prospectus and the Prospectus, as of the Applicable Time, the Company will be in compliance in all material respects with all applicable provisions of the Sarbanes-Oxley Act of 2002, the rules and regulations promulgated in connection therewith and the rules of NYSE that are effective and applicable to the Company as of the Applicable Time;
(oo) No prohibited transaction (as defined in Section 406 of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ( ERISA ), or Section 4975 of the Internal Revenue Code of 1986, as amended from time to time (the Code )) or failure to satisfy the minimum funding standard or minimum required contribution (as such terms are defined in Section 412 or 430 of the Code or Section 302 of ERISA) or any of the events set forth in Section 4043(b) of ERISA (other than events with respect to which the 30-day notice requirement under Section 4043 of ERISA has been waived) has occurred with respect to any employee benefit plan of the Company or any of its subsidiaries would, individually or in the aggregate, result in a Material Adverse Effect; each such employee benefit plan has been maintained in compliance with its terms and the requirements of applicable law, including ERISA and the Code, except where any noncompliance, individually or in the aggregate, would not have a Material Adverse Effect; the Company and its subsidiaries have not incurred and do not expect to incur liability under Title IV of ERISA with respect to the termination of, or withdrawal from, any pension plan that would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; and
(pp) From the time of initial confidential submission of a registration statement relating to the Shares with the Commission (or, if earlier, the first date on which a Section 5(d) Communication was made) through the date hereof, the Company has been and is an emerging growth company as defined in Section 2(a)(19) of the Act (an Emerging Growth Company );
2. Each of the Selling Stockholders, severally and not jointly, represents and warrants to, and agrees with, each of the Underwriters and the Company that:
(a) All consents, approvals, authorizations and orders necessary for the execution and delivery by such Selling Stockholder of this Agreement, the Power of Attorney and the Custody
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Agreement hereinafter referred to, and for the sale and delivery of the Shares to be sold by such Selling Stockholder hereunder, have been obtained; and such Selling Stockholder has full right, power and authority to enter into this Agreement, the Power of Attorney and the Custody Agreement, and to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder hereunder;
(b) The sale of the Shares to be sold by such Selling Stockholder hereunder and the compliance by such Selling Stockholder with its obligations under this Agreement, the Power of Attorney and the Custody Agreement, and the consummation by such Selling Stockholder of the transactions herein and therein contemplated will not (A) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder is bound or to which any of the property or assets of such Selling Stockholder is subject, (B) result in any violation of the provisions of the Certificate of Incorporation or By-laws (or similar organizational documents) of such Selling Stockholder if such Selling Stockholder is a corporation or other entity or (C) result in any violation of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over such Selling Stockholder or any of its subsidiaries or any property or assets of such Selling Stockholder; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental body or agency having jurisdiction over such Selling Stockholder or any of its subsidiaries is required for the performance by such Selling Stockholder of its obligations under this Agreement, the Power of Attorney and the Custody Agreement, and the consummation by such Selling Stockholder of the transactions contemplated by this Agreement, the Power of Attorney and the Custody Agreement, in connection with the Shares to be sold by such Selling Stockholder hereunder, except the registration under the Act of the Shares, registration of the Stock under the Exchange Act, the approval by FINRA of the underwriting terms and arrangements and such consents, approvals, authorizations, orders, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters as to which such Selling Stockholder makes no representation;
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(c) Such Selling Stockholder has, and immediately prior to each Time of Delivery (as defined in Section 5(a) hereof) such Selling Stockholder will have, good and valid title to the Shares to be sold by such Selling Stockholder hereunder at such Time of Delivery, free and clear of all liens, encumbrances, equities or claims; and, upon delivery of such Shares and payment therefor pursuant hereto, good and valid title to such Shares, free and clear of all liens, encumbrances, equities or claims, will pass to the several Underwriters;
(d) Prior to the date hereof, such Selling Stockholder has executed and delivered to the Representatives a lock-up agreement, substantially in the form set forth in Annex I hereto;
(e) Such Selling Stockholder has not taken and will not take, directly or indirectly, any action that is designed to or that has constituted or that might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares;
(f) Such Selling Stockholder is not prompted by any material non-public information concerning the Company or any of its subsidiaries that is not disclosed in the Pricing Prospectus to sell its Shares pursuant to this Agreement;
(g) To the extent that any statements or omissions made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement to any of the foregoing, or any Issuer Free Writing Prospectus or Section 5(d) Writing, are made in reliance upon and in conformity with the Selling Stockholders Information, such Registration Statement, Preliminary Prospectus, Issuer Free Writing Prospectus or section 5(d) Writing did, and the Prospectus and any further amendments or supplements to the Registration Statement and the Prospectus, when they become effective or are filed with the Commission, as the case may be, will conform in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading;
(h) In order to document the Underwriters compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 with respect to the transactions herein
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contemplated, such Selling Stockholder will deliver to you prior to or at the First Time of Delivery (as hereinafter defined) a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof);
(i) This Agreement has been duly authorized, executed and delivered by or on behalf of such Selling Stockholder; and such Agreement is enforceable against such Selling Stockholder in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors or by general equitable principles;
(j) Book-entry securities entitlements representing all of the Shares to be sold by such Selling Stockholder hereunder have been placed in custody under a Custody Agreement, in the form heretofore furnished to you (the Custody Agreement ), duly executed and delivered by such Selling Stockholder to American Stock Transfer & Trust Company, LLC, as custodian (the Custodian ), and such Selling Stockholder has duly executed and delivered a Power of Attorney, in the form heretofore furnished to you (the Power of Attorney ), appointing the persons indicated in Schedule II hereto, and each of them, as such Selling Stockholders attorneys-in-fact (the Attorneys-in-Fact ) with authority to execute and deliver this Agreement on behalf of such Selling Stockholder, to determine the purchase price to be paid by the Underwriters to the Selling Stockholders as provided in Section 2 hereof, to authorize the delivery of the Shares to be sold by such Selling Stockholder hereunder and otherwise to act on behalf of such Selling Stockholder in connection with the transactions contemplated by this Agreement and the Custody Agreement;
(k) The Shares represented by the book-entry securities entitlements held in custody for such Selling Stockholder under the Custody Agreement are subject to the interests of the Underwriters hereunder; the arrangements made by such Selling Stockholder for such custody, and the appointment by such Selling Stockholder of the Attorneys-in-Fact by the Power of Attorney, are to that extent irrevocable; the obligations of the Selling Stockholders hereunder shall not be terminated by operation of law, whether by the death or incapacity of any Selling Stockholder or, in the case of an estate or trust, by the death or incapacity of any executor or
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trustee or the termination of such estate or trust, or in the case of a partnership or corporation, by the dissolution of such partnership or corporation, or by the occurrence of any other event; if any Selling Stockholder or any such executor or trustee should die or become incapacitated, or if any such estate or trust should be terminated, or if any such partnership or corporation should be dissolved, or if any other such event should occur, before the delivery of the Shares to be sold by such Selling Stockholder hereunder, book-entry securities entitlements representing the Shares to be sold by such Selling Stockholder hereunder shall be delivered by or on behalf of the Selling Stockholders in accordance with the terms and conditions of this Agreement and of the Custody Agreements; and actions taken by the Attorneys-in-Fact pursuant to the Powers of Attorney shall be as valid as if such death, incapacity, termination, dissolution or other event had not occurred, regardless of whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall have received notice of such death, incapacity, termination, dissolution or other event; and
(l) There are no material agreements or arrangements relating to the Company or its subsidiaries to which such Selling Stockholder, or, to such Selling Stockholders knowledge, any direct or indirect member, partner or shareholder of such Selling Stockholder, is a party, which are required to be described in the Registration Statement or the Pricing Prospectus or to be filed as exhibits thereto that are not so described or filed.
3. Subject to the terms and conditions herein set forth, (a) each of the Selling Stockholders agree, severally and not jointly, to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from each of the Selling Stockholders, at a purchase price per share of $[●], the number of Firm Shares (to be adjusted by you so as to eliminate fractional shares) determined by multiplying the aggregate number of Firm Shares to be sold by each of the Selling Stockholders as set forth opposite their respective names in Schedule II hereto by a fraction, the numerator of which is the aggregate number of Firm Shares to be purchased by such Underwriter as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the aggregate number of Firm Shares to be purchased by all of the Underwriters from all of the Selling Stockholders hereunder, and (b) in the event and to the extent that the Underwriters shall exercise the election to purchase Optional Shares as provided below, the Selling Stockholders, as and to the extent indicated in Schedule II hereto, agree severally and not jointly, to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from each of the Selling Stockholders, at the purchase price
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per share set forth in clause (a) of this Section 3, that portion of the number of Optional Shares as to which such election shall have been exercised (to be adjusted by you so as to eliminate fractional shares) determined by multiplying such number of Optional Shares by a fraction, the numerator of which is the maximum number of Optional Shares which such Underwriter is entitled to purchase as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the maximum number of Optional Shares that all of the Underwriters are entitled to purchase hereunder.
The Selling Stockholders, as and to the extent indicated in Schedule II hereto, hereby grant, severally and not jointly, to the Underwriters the right to purchase at their election up to [●] Optional Shares, at the purchase price per share set forth in the paragraph above. Any such election to purchase Optional Shares shall be made in proportion to the number of Optional Shares to be sold by each Selling Stockholder. Any such election to purchase Optional Shares may be exercised only by written notice from you to the Attorneys-in-Fact given within a period of 30 calendar days after the date of this Agreement and setting forth the aggregate number of Optional Shares to be purchased and the date on which such Optional Shares are to be delivered, as determined by you but in no event earlier than the First Time of Delivery (as defined in Section 5(a) hereof) or, unless you and the Attorneys-in-Fact otherwise agree in writing, no earlier than two and no later than ten business days after the date of such notice.
4. Upon the authorization by you of the release of the Firm Shares, the several Underwriters propose to offer the Firm Shares for sale upon the terms and conditions set forth in the Prospectus.
5. (a) The Shares to be purchased by each Underwriter hereunder, in electronic form, and in such authorized denominations and registered in such names as the Representatives may request upon at least 48 hours prior notice to the Selling Stockholders shall be delivered by or on behalf of the Selling Stockholders to the Representatives, through the facilities of the Depository Trust Company ( DTC ), for the account of such Underwriter, against payment by or on behalf of such Underwriter of the purchase price therefor by wire transfer of Federal (same-day) funds to the account specified by the Selling Stockholders to the Representatives at least 48 hours in advance. The Company and the Selling Stockholders will cause the certificates, if any, representing the Shares to be made available for checking and packaging at least 24 hours prior to the Time of Delivery (as defined below) with respect thereto at the office of DTC or its designated custodian (the Designated Office ). The time and date of such delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m., New York City time, on [●], 2015, or such other time and date as the Representatives and the Attorneys-in-Fact may agree upon in writing, and, with respect to the Optional Shares, 9:30 a.m., New York City time, on the date
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specified by the Representatives in the written notice given by the Representatives of the Underwriters election to purchase such Optional Shares, or such other time and date as the Representatives and the Attorneys-in-Fact may agree upon in writing. Such time and date for delivery of the Firm Shares is herein called the First Time of Delivery , such time and date for delivery of the Optional Shares, if not the First Time of Delivery, is herein called the Second Time of Delivery , and each such time and date for delivery is herein called a Time of Delivery .
(b) The documents to be delivered at each Time of Delivery by or on behalf of the parties hereto pursuant to Section 9 hereof, including the cross receipt for the Shares and any additional documents requested by the Underwriters pursuant to Section 9(m) hereof, will be delivered at the offices of Cravath, Swaine & Moore LLP, 825 Eighth Avenue, New York, New York 10019 (the Closing Location ), and the Shares will be delivered at the Designated Office, all at such Time of Delivery. A meeting will be held at the Closing Location at 5:00 p.m., New York City time, on the New York Business Day next preceding such Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. For the purposes of this Section 5, New York Business Day shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York City are generally authorized or obligated by law or executive order to close.
6. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file such Prospectus pursuant to Rule 424(b) under the Act not later than the Commissions close of business on the second business day following the execution and delivery of this Agreement, or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Act; to make no further amendment or any supplement to the Registration Statement or the Prospectus without the consent of the Representatives promptly after reasonable notice thereof (which consent shall not be unreasonably withheld or delayed); to advise you and the Selling Stockholders, promptly after it receives
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notice thereof, of the time when any amendment to the Registration Statement has been filed or becomes effective or any amendment or supplement to the Prospectus has been filed and to furnish you and the Selling Stockholders with copies thereof; to file promptly all material required to be filed by the Company with the Commission pursuant to Rule 433(d) under the Act; to advise you and the Selling Stockholders, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or other prospectus in respect of the Shares, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or the Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or other prospectus relating to the Shares or suspending any such qualification, to promptly use its best efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may reasonably request to qualify (or obtain an exemption from qualification for) the Shares for offering and sale under the securities laws of such jurisdictions as you may reasonably request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Shares, provided that in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process or subject itself to taxation for doing business in any jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York Business Day next succeeding the date of this Agreement (or such later time as may be agreed to by the Company, the Attorneys-in-Fact and the Representatives) and from time to time, to furnish the Underwriters with written and electronic copies of the Prospectus in New York City in such quantities as you may reasonably request, and, if the delivery of a prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Act) is, based on the advice of counsel, required at any time prior to the expiration of nine months after the time of issue of the Prospectus in connection with the offering or sale of the Shares and if at such time any event shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Act) is delivered, not misleading, or, if for any other reason it shall be necessary during such same period to amend or supplement the Prospectus in order to comply with the Act, to notify you and upon your request to prepare and furnish without charge to each Underwriter and
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to any dealer (whose names and addresses the Underwriters shall furnish to the Company) in securities as many written and electronic copies as you may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance; and in case any Underwriter is required to deliver a prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Act) in connection with sales of any of the Shares at any time nine months or more after the time of issue of the Prospectus, upon your request, but at the expense of such Underwriter, to prepare and deliver to such Underwriter as many written and electronic copies as you may request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its security holders (which may be satisfied by filing with the Commissions Electronic Data Gathering, Analysis, and Retrieval System ( EDGAR )) as soon as practicable, but in any event not later than sixteen months after the effective date of the Registration Statement (as defined in Rule 158(c) under the Act), an earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations of the Commission thereunder (including, at the option of the Company, Rule 158);
(e) (1) During the period beginning from the date hereof and continuing to and including the date 180 days after the date of the Prospectus (the initial Lock-Up Period ), not to (and not to publicly announce its intention to) offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise dispose of, or file a registration statement relating to, any shares of Stock and any securities of the Company that are substantially similar to the Shares, including but not limited to any options or warrants to purchase shares of Stock or any securities that are convertible into or exchangeable for, or that represent the right to receive, Stock or any such substantially similar securities; provided, however, that the foregoing restrictions shall not apply to (a) the issuance by the Company of shares of Stock upon the conversion or exchange of equity incentive units and securities outstanding on the date hereof in connection with the Corporate Reorganization, provided that such equity incentive units or securities are disclosed in the Pricing Prospectus, (b) the issuance by the Company of Stock or any securities convertible into, exchangeable for or that represent the right to receive shares of Stock, in each case pursuant to the Companys equity plans disclosed in the Pricing Prospectus, (c) the entry into an agreement providing for the issuance by the Company of shares of Stock or any security convertible into or exercisable for shares of Stock in connection with the acquisition by the Company or any of its subsidiaries of the securities, business, property or other assets of another person or entity
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or pursuant to an employee benefit plan assumed by the Company in connection with such acquisition, and the issuance of any such securities pursuant to any such agreement or (d) the entry into any agreement providing for the issuance of shares of Stock or any security convertible into or exercisable for shares of Stock in connection with joint ventures, commercial relationships or other strategic transactions, and the issuance of any such securities pursuant to any such agreement; provided that in the case of clauses (c) and (d), the aggregate number of shares of Stock that the Company may sell or issue or agree to sell or issue pursuant to clauses (c) and (d) shall not exceed 10% of the total number of shares of the Stock issued and outstanding immediately following the completion of the transactions contemplated by this Agreement; and provided further, that in the case of clauses (b) through (d) that the Company shall (i) cause each recipient of such securities to execute and deliver to you, on or prior to the issuance of such securities, a lock-up agreement on substantially the same terms as the lock-up agreements referenced in Section 9(k) hereof for the remainder of the Lock-Up Period, and (ii) enter stop transfer instructions with the Companys transfer agent and registrar on such securities, which the Company agrees it will not waive or amend, without the prior written consent of the Representatives;
(2) If the Representatives, in their sole discretion, agree to release or waive the restrictions set forth in a lock-up letter pursuant to Section 6(e)(1) hereof, for an officer or director of the Company, and provide the Company with notice of the impending release or waiver at least three business days before the effective date of the release or waiver (indicating the effective date of such release or waiver in such notice to the Company), the Company agrees to announce the impending release or waiver by a press release substantially in the form of Annex II hereto through a major news service at least two business days before the effective date of the release or waiver.
(f) During a period of three years from the effective date of the Registration Statement, so long as the Company is subject to the reporting requirements of either Section 13 or Section 15(d) of the Exchange Act, to furnish to its stockholders as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, stockholders equity and cash flows of the Company and its consolidated subsidiaries certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the effective date of the Registration Statement), to make available to its stockholders consolidated summary financial information of the Company and its subsidiaries for such quarter in reasonable detail; provided that the Company may satisfy the requirements of this subsection by filing such information with the Commission via EDGAR;
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(g) During a period of three years from the effective date of the Registration Statement so long as the Company is subject to the reporting requirements of either Section 13 or Section 15(d) of the Exchange Act, to furnish to you copies of all reports or other communications (financial or other) furnished to stockholders, and to deliver to you as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated in reports furnished to its stockholders generally or to the Commission); provided that the Company may satisfy the requirements of this subsection by filing such information with the Commission via EDGAR;
(h) To use its best efforts to list for trading, subject to notice of issuance, the Shares on the NYSE;
(i) To file with the Commission such information on Form 10-Q or Form 10-K as may be required by Rule 463 under the Act;
(j) If the Company elects to rely upon Rule 462(b), the Company shall file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) by 10:00 p.m., Washington, D.C. time, on the date of this Agreement, and the Company shall at the time of filing either pay to the Commission the filing fee for the Rule 462(b) Registration Statement or give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the Act;
(k) Upon request of any Underwriter, to furnish, or cause to be furnished, to such Underwriter an electronic version of the Companys trademarks, servicemarks and corporate logo for use on the website, if any, operated by such Underwriter for the purpose of facilitating the online offering of the Shares (the License ); provided, however , that the License shall be used solely for the purpose described above, is granted without any fee and may not be assigned or transferred; and
(l) To promptly notify you if the Company ceases to be an Emerging Growth Company at any time prior to the later of (i) completion of the distribution of the Shares within the meaning of the Act and (ii) completion of the Lock Up Period referred to in Section 6(e) hereof.
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7. (a) The Company represents and agrees that, without the prior consent of the Representatives, it has not made and will not make any offer relating to the Shares that would constitute a free writing prospectus as defined in Rule 405 under the Act; each Underwriter represents and agrees that, without the prior consent of the Company and the Representatives, it has not made and will not make any offer relating to the Shares that would constitute a free writing prospectus; and each Selling Stockholder, severally and not jointly, represents and agrees that, without the prior written consent of the Company and the Representatives, it has not made and will not make any offer relating to the Shares that would constitute a free writing prospectus; any such free writing prospectus the use of which has been consented to by the Company, the Selling Stockholders and the Representatives is listed on Schedule III(a) hereto;
(b) The Company represents and agrees that (i) it has not engaged in, or authorized any other person to engage in, any Section 5(d) Communications, other than Section 5(d) Communications with the prior consent of the Representatives with entities that are qualified institutional buyers as defined in Rule 144A under the Act or institutions that are accredited investors as defined in Rule 501(a) under the Act; and (ii) it has not distributed, or authorized any other person to distribute, any Section 5(d) Writings, other than those distributed with the prior consent of the Representatives that are listed on Schedule III(b) hereto; and the Company reconfirms that the Underwriters have been authorized to act on its behalf in engaging in Section 5(d) Communications;
(c) The Company has complied and will comply with the requirements of Rule 433 under the Act applicable to any Issuer Free Writing Prospectus, including timely filing with the Commission or retention where required and legending; and the Company represents that it has satisfied and agrees that it will satisfy the conditions under Rule 433 under the Act to avoid a requirement to file with the Commission any electronic road show;
(d) Each Underwriter represents and agrees that (i) any Section 5(d) Communications undertaken by it were with entities that are qualified institutional buyers as defined in Rule 144A under the Act or institutions that are accredited investors as defined in Rule 501(a) under the Act and (ii) it will not distribute, or authorize any other person to distribute, any Section 5(d) Writing, other than those distributed with the prior consent of the Company; and
(e) The Company agrees that if at any time following issuance of an Issuer Free Writing Prospectus or Section 5(d) Writing prepared or
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authorized by it, any event occurred or occurs as a result of which such Issuer Free Writing Prospectus or Section 5(d) Writing prepared or authorized by it would conflict with the information in the Registration Statement, the Pricing Prospectus or the Prospectus or would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances then prevailing, not misleading, the Company will give prompt notice thereof to the Representatives and, if requested by the Representatives, will prepare and furnish without charge to each Underwriter an Issuer Free Writing Prospectus, Section 5(d) Writing or other document which will correct such conflict, statement or omission; provided , however , that this representation and warranty shall not apply to any statements or omissions in an Issuer Free Writing Prospectus or Section 5(d) Writing prepared or authorized by the Company made in reliance upon and in conformity with the Underwriter Information.
8. (a) The Company and each Selling Stockholder covenant and agree with one another and with the several Underwriters that the Company will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Companys counsel and accountants and counsel for the Selling Stockholders in connection with the registration of the Shares under the Act and all other expenses incurred in connection with the preparation, printing, reproduction and filing of the Registration Statement, any Preliminary Prospectus, any Issuer Free Writing Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; (ii) the cost of printing or producing any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum, if any, closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Shares; (iii) all expenses incurred in connection with the qualification of the Shares for offering and sale under state securities laws as provided in Section 6(b) hereof, including the reasonable and documented fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky survey; (iv) all fees and expenses in connection with listing the Shares on the NYSE; (v) the filing fees incident to, and the reasonable and documented fees and disbursements of counsel for the Underwriters in connection with, any required review by FINRA of the terms of the sale of the Shares; (vi) the cost of preparing stock certificates; (vii) the cost and charges of any transfer agent or registrar; (viii) the costs and expenses of the Company relating to investor presentations on any road show undertaken in connection with the marketing of the Shares, including without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations, travel and lodging expenses of the representatives and officers of the Company and any such consultants (not including the
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Underwriters and their representatives) and the cost of aircraft and other transportation chartered in connection with the road show; provided, however, that the cost of any aircraft chartered in connection with the road show shall be paid 50% by the Company and 50% by the Underwriters; and (ix) all other costs and expenses incident to the performance of its obligations hereunder that are not otherwise specifically provided for in this Section; provided, however, that the amount payable by the Company and the Selling Stockholders pursuant to subsection (iii) and the reasonable and documented fees and disbursements of counsel to the Underwriters described in subsection (a)(v) of this Section 8 shall not exceed $40,000 in the aggregate, and (b) each Selling Stockholder, severally and jointly, covenants and agrees with the Company and the several Underwriters that (i) subject to the following sentence, such Selling Stockholder will pay or cause to be paid all taxes incident to the sale and delivery of the Shares to be sold by such Selling Stockholder to the Underwriters hereunder, (ii) each Selling Stockholders pro rata share of the fees and expenses of the Attorneys-in-Fact and the Custodian, and (iii) the underwriting discount and commission associated with the Shares to be sold by such Selling Stockholder hereunder shall be deducted from such Selling Stockholders proceeds from the sale of such Shares. In connection with clause (i) of the preceding sentence, the Underwriters agree to pay New York State stock transfer tax, and each Selling Stockholder agrees to reimburse the Underwriters for associated carrying costs if such tax payment is not rebated on the day of payment and for any portion of such tax payment not rebated. It is understood, however, that, except as provided in this Section, and Sections 10 and 13 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel, stock transfer taxes on resale of any of the Shares by them, and any advertising expenses connected with any offers they may make.
9. The obligations of the Underwriters hereunder, as to the Shares to be delivered at each Time of Delivery, shall be subject, in their discretion, to the condition that all representations and warranties and other statements of the Company and of the Selling Stockholders herein are, at and as of such Time of Delivery, true and correct, the condition that the Company and the Selling Stockholders shall have performed all of its and their obligations hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) under the Act within the applicable time period prescribed for such filing by the rules and regulations under the Act and in accordance with Section 6(a) hereof; all material required to be filed by the Company pursuant to Rule 433(d) under the Act shall have been filed with the Commission within the applicable time period prescribed for such filing by Rule 433; if the Company has elected to rely upon Rule 462(b) under the Act, the Rule 462(b) Registration Statement shall
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have become effective by 10:00 p.m., Washington, D.C. time, on the date of this Agreement; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; no stop order suspending or preventing the use of the Prospectus or any Issuer Free Writing Prospectus shall have been initiated or threatened by the Commission; and all requests for additional information on the part of the Commission shall have been complied with to your reasonable satisfaction;
(b) Cravath, Swaine & Moore LLP, counsel for the Underwriters, shall have furnished to you their written opinion and letter each dated such Time of Delivery, in form and substance satisfactory to the Representatives;
(c) Goodwin Procter LLP, counsel for the Company, shall have furnished to you their written opinion in the form set forth in Annex III(a) hereto, dated such Time of Delivery, in form and substance satisfactory to the Representatives;
(d) Goodwin Procter LLP, counsel for the Company, shall have furnished to a letter in the form set forth in Annex III(b) hereto, dated such Time of Delivery, in form and substance satisfactory to the Representatives;
(e) The respective counsel for each of the Selling Stockholders, as indicated in Schedule II hereto, each shall have furnished to you their written opinion with respect to each of the Selling Stockholders for whom they are acting as counsel in the form set forth in Annex IV hereto, dated such Time of Delivery, in form and substance satisfactory to the Representatives;
(f) On the date of the Prospectus at a time prior to the execution of this Agreement, at 9:30 a.m., New York City time, on the effective date of any post-effective amendment to the Registration Statement filed subsequent to the date of this Agreement and also at each Time of Delivery, Deloitte & Touche LLP shall have furnished to you a letter or letters, dated the respective dates of delivery thereof, in form and substance satisfactory to the Representatives;
(g) (i) The Company and its subsidiaries, taken as a whole, shall not have sustained since the date of the latest audited financial statements included in the Pricing Prospectus any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor
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disturbance or dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Pricing Prospectus, and (ii) since the respective dates as of which information is given in the Pricing Prospectus there shall not have been any change in the capital stock (other than in connection with the Corporate Reorganization described in the Pricing Prospectus) or long-term debt of the Company or any of its subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, properties, financial position, stockholders equity or results of operations of the Company and its subsidiaries, taken as a whole, otherwise than as set forth or contemplated in the Pricing Prospectus, the effect of which, in any such case described in clause (i) or (ii), is in the judgment of the Representatives so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Pricing Prospectus;
(h) On or after the Applicable Time (i) no downgrading shall have occurred in the rating accorded the Companys debt securities by any nationally recognized statistical rating organization, as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Companys or any of its subsidiaries debt securities;
(i) On or after the Applicable Time, there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the NYSE or NASDAQ; (ii) a suspension or material limitation in trading in the Companys securities on the NYSE; (iii) a general moratorium on commercial banking activities declared by either Federal or New York State authorities or a material disruption in commercial banking or securities settlement or clearance services in the United States; (iv) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war; or (v) the occurrence of any other calamity or crisis or any change in financial, political or economic conditions in the United States or elsewhere, if the effect of any such event specified in clause (iv) or (v) in the judgment of the Representatives makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus;
(j) The Shares to be sold at such Time of Delivery shall have been duly listed subject only to notice of issuance on the NYSE;
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(k) The Company shall have obtained and delivered to the Underwriters executed copies of an agreement from each of the parties listed on Schedule IV hereto, in the form set forth in Annex I hereto;
(l) The Company shall have complied with the provisions of Section 6(c) hereof with respect to the furnishing of prospectuses on the New York Business Day next succeeding the date of this Agreement;
(m) The Company and the Selling Stockholders shall have furnished or caused to be furnished to you at such Time of Delivery certificates of officers of the Company and the Selling Stockholders, respectively, satisfactory to you as to the accuracy of the representations and warranties of the Company and the Selling Stockholders, respectively, herein at and as of such Time of Delivery, as to the performance by the Company and the Selling Stockholders of all of their respective obligations hereunder to be performed at or prior to such Time of Delivery, and as to such other matters as you may reasonably request, and the Company shall have furnished or cause to be furnished certificates as to the matters set forth in subsections (a) and (g) of this section;
(n) The Representatives shall have received certificates with respect to the Companys financial information for the three months ended June 30, 2015, dated the Applicable Time and the Time of Delivery, of the Chief Financial Officer of the Company in form and substance satisfactory to the Representatives; and
(o) On or prior to [the Applicable time] [the First Time of Delivery], the Company will have completed the Corporate Reorganization in the manner described in the Pricing Prospectus.
10. (a) The Company will indemnify and hold harmless each Underwriter together with its partners, members, directors, officers and its affiliates, and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, any Issuer Free Writing Prospectus or any issuer information filed or required to be filed pursuant to Rule 433(d) under the Act, or any Section 5(d) Writing prepared or authorized by the Company, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the
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statements therein not misleading and will reimburse each such person for any legal or other expenses reasonably incurred by such person in connection with investigating or defending any such action or claim as such expenses are incurred; provided , however , that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus or any Section 5(d) Writing, in reliance upon and in conformity with the Underwriter Information.
(b) The Company will indemnify and hold harmless each Selling Stockholder together with its partners, members, directors, officers and its affiliates, and each person, if any, who controls such Selling Stockholder within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against any losses, claims, damages or liabilities, joint or several, to which such Selling Stockholder may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, any Issuer Free Writing Prospectus or any issuer information filed or required to be filed pursuant to Rule 433(d) under the Act, or any Section 5(d) Writing prepared or authorized by the Company, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading and will reimburse each such person for any legal or other expenses reasonably incurred by such person in connection with investigating or defending any such action or claim as such expenses are incurred; provided , however , that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus or any Section 5(d) Writing, in reliance upon and in conformity with the Underwriter Information or the Selling Stockholders Information.
(c) Each of the Selling Stockholders, severally and not jointly, will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter
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may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, any Issuer Free Writing Prospectus or Section 5(d) Writing, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus or any such amendment or supplement thereto or any Issuer Free Writing Prospectus or Section 5(d) Writing, in reliance upon and in conformity with the Selling Stockholders Information; and will reimburse each such person for any legal or other expenses reasonably incurred by such person in connection with investigating or defending any such action or claim as such expenses are incurred; provided , however , that the Selling Stockholder shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Agreement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus or any amendment or supplement thereto or any Issuer Free Writing Prospectus or Section 5(d) Writing in reliance upon and in conformity with the Underwriter Information; provided , further , that the liability of any Selling Stockholder pursuant to this subsection (b) shall not exceed the proceeds (net of any underwriting discounts and commissions but before deducting expenses) from the sale of the Shares sold by such Selling Stockholder hereunder (the Selling Stockholder Proceeds).
(d) Each Underwriter will, severally and not jointly, indemnify and hold harmless the Company and each Selling Stockholder against any losses, claims, damages or liabilities to which the Company or such Selling Stockholder may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus or any Section 5(d) Writing, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the
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statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus or any Section 5(d) Writing, in reliance upon and in conformity with the Underwriter Information; and will reimburse the Company and each Selling Stockholder for any legal or other expenses reasonably incurred by the Company or such Selling Stockholder in connection with investigating or defending any such action or claim as such expenses are incurred.
(e) Promptly after receipt by an indemnified party under subsection (a), (b), (c) or (d) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from (i) any liability which it may have to any indemnified party under such subsection unless and to the extent it has been materially prejudiced through the forfeiture by the indemnifying party of substantial rights and defenses or (ii) any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party.
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(f) If the indemnification provided for in this Section 10 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a), (b), (c) or (d) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholders, on the one hand, and the Underwriters, on the other, from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (e) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and the Selling Stockholders, on the one hand, and the Underwriters, on the other, in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Selling Stockholders bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Stockholders Information, on the one hand, or the Underwriter Information, on the other, and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, each of the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this subsection (f) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (f). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect
34
thereof) referred to above in this subsection (f) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (f), (i) no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and (ii) the contribution by any Selling Stockholder pursuant to this subsection (f) shall not exceed, for each such Selling Stockholder, the Selling Stockholder Proceeds (reduced by any amounts such Selling Stockholder is obligated to pay under subsection (c) above). No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters obligations in this subsection (f) to contribute are several in proportion to their respective underwriting obligations and not joint. In addition, the Selling Stockholders respective obligations in this subsection (f) to contribute are several in proportion to their respective sale obligations and not joint.
(g) The obligations of the Company and the Selling Stockholders under this Section 10 shall be in addition to any liability which the Company and the respective Selling Stockholders may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act and each broker-dealer affiliate of any Underwriter; and the obligations of the Underwriters under this Section 10 shall be in addition to any liability that the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company (including any person who, with his or her consent, is named in the Registration Statement as about to become a director of the Company) and to each person, if any, who controls the Company or any Selling Stockholders within the meaning of the Act.
11. (a) If any Underwriter shall default in its obligation to purchase the Shares that it has agreed to purchase hereunder at a Time of Delivery, you may in your discretion arrange for you or another party or other parties to purchase such Shares on the terms contained herein. If within thirty-six hours after such default by any Underwriter you do not arrange for the purchase of such Shares, then the Selling Stockholders shall be entitled to a further period of thirty-six hours within which to procure another party or other parties reasonably satisfactory to you to purchase such Shares on such terms. In the event that, within the respective
35
prescribed periods, you notify the Selling Stockholders that you have so arranged for the purchase of such Shares, or a Selling Stockholder notifies you that it has so arranged for the purchase of such Shares, you or the Selling Stockholders shall have the right to postpone such Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees to file promptly any amendments or supplements to the Registration Statement or the Prospectus which, in your opinion, may thereby be made necessary. The term Underwriter as used in this Agreement shall include any person substituted under this section with like effect as if such person had originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Selling Stockholders as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased does not exceed one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, then the Selling Stockholders shall have the right to require each non-defaulting Underwriter to purchase the number of Shares which such Underwriter agreed to purchase hereunder at such Time of Delivery and, in addition, to require each non-defaulting Underwriter to purchase its pro rata share (based on the number of Shares which such Underwriter agreed to purchase hereunder) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made; but nothing herein shall relieve a defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Selling Stockholders as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased exceeds one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, or if the Selling Stockholders shall not exercise the right described in subsection (b) above to require non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement (or, with respect to the Second Time of Delivery, the obligations of the Underwriters to purchase and of the Selling Stockholders to sell the Optional Shares) shall thereupon terminate, without liability on the part of any non-defaulting Underwriter or the Selling Stockholders, except for the expenses to be borne by the Selling Stockholders; the Underwriters as provided in Section 8 hereof and the indemnity and contribution agreements in Section 10 hereof; but nothing herein shall relieve a defaulting Underwriter from liability for its default.
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12. The respective indemnities, agreements, representations, warranties and other statements of the Company, the Selling Stockholders and the several Underwriters, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter or any controlling person of any Underwriter, or the Company, or any Selling Stockholder, or any officer or director or controlling person of the Company, or any controlling person of any Selling Stockholder, and shall survive delivery of and payment for the Shares.
13. If this Agreement shall be terminated pursuant to Section 11 hereof, neither the Company nor the Selling Stockholders shall then be under any liability to any Underwriter except as provided in Sections 8 and 10 hereof; but, if for any other reason (other than those set forth in clauses (i), (iii), (iv) and (v) of Section 9(i)), any Shares are not delivered by or on behalf of the Selling Stockholders as provided herein, the Selling Stockholders will reimburse the Underwriters through you for all reasonable out-of-pocket expenses approved in writing by you, including reasonable and documented fees and disbursements of counsel, reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Shares not so delivered, but the Company and the Selling Stockholders shall then be under no further liability to any Underwriter except as provided in Sections 8 and 10 hereof.
14. In all dealings hereunder, the Representatives jointly shall act on behalf of each of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by the Representatives, and in all dealings with any Selling Stockholder hereunder, the Representatives and the Company shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of such Selling Stockholder or given by an or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in writing, and if to the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to the Representatives at Goldman, Sachs & Co., 200 West Street, New York, New York 10282-2198, Attention: Registration Department and Jefferies LLC, 520 Madison Avenue, New York, New York, 10022, Attention: General Counsel; if to any Selling Stockholder shall be delivered or sent by mail, telex or facsimile transmission to counsel for such Selling Stockholder at its address set forth in Schedule II hereto; if to the Company shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth in the Registration Statement, Attention: Secretary, and if to
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any stockholder that has delivered a lock-up letter described in Section 9(k) hereof shall be delivered or sent by mail to his or her respective address provided in Schedule IV hereto or such other address as such stockholder provides in writing to the Company; provided , however , that any notice to an Underwriter pursuant to Section 10(d) hereof shall be delivered or sent by mail, telex or facsimile transmission to such Underwriter at its address set forth in its Underwriters Questionnaire which address will be supplied to the Company or the Selling Stockholders by you upon request; provided, further , that notices under subsection 6(e) shall be in writing, and if to the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to the Representatives at Goldman, Sachs & Co., 200 West Street, New York, New York 10282-2198, Attention: Control Room and Jefferies LLC, 520 Madison Avenue, New York, New York 10022, Attention: General Counsel. Any such statements, requests, notices or agreements shall take effect upon receipt thereof.
In accordance with the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), the Underwriters are required to obtain, verify and record information that identifies their respective clients, including the Company and the Selling Stockholders, which information may include the name and address of their respective clients, as well as other information that will allow the Underwriters to properly identify their respective clients.
15. This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters, the Company and the Selling Stockholders and, to the extent provided in Sections 10 and 12 hereof, the officers and directors of the Company and each person who controls the Company, any of the Selling Stockholders or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign by reason merely of such purchase.
16. Time shall be of the essence of this Agreement. As used herein, the term business day shall mean any day when the Commissions office in Washington, D.C. is open for business.
17. The Company and the Selling Stockholders acknowledge and agree that (i) the purchase and sale of the Shares pursuant to this Agreement is an arms-length commercial transaction between the Company and the Selling Stockholders, on the one hand, and the several Underwriters, on the other, (ii) in connection therewith and with the process leading to such transaction each Underwriter is acting solely as a principal and not the agent or fiduciary of the Company or any Selling Stockholder, (iii) no Underwriter has assumed an advisory or fiduciary responsibility in favor of the Company or any Selling Stockholder with respect to the offering contemplated hereby or the process
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leading thereto (irrespective of whether such Underwriter has advised or is currently advising the Company or any Selling Stockholder on other matters) or any other obligation to the Company or any Selling Stockholder except the obligations expressly set forth in this Agreement and (iv) the Company and the Selling Stockholders have each consulted their respective own legal and financial advisors to the extent they deemed appropriate. The Company and the Selling Stockholders agree that they will not claim that the Underwriters, or any of them, have rendered advisory services of any nature or respect, or owe a fiduciary or similar duty to the Company or any Selling Stockholder, in connection with such transaction or the process leading thereto.
18. This Agreement supersedes all prior agreements and understandings (whether written or oral) among the Company, the Selling Stockholders and the Underwriters, or any of them, with respect to the subject matter hereof.
19. THIS AGREEMENT AND ANY MATTERS RELATED TO THIS TRANSACTION SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS THAT WOULD RESULT IN THE APPLICATION OF ANY LAW OTHER THAN THE LAWS OF THE STATE OF NEW YORK. The parties hereto agree that any suit or proceeding arising in respect of this agreement or our engagement will be tried exclusively in the U.S. District Court for the Southern District of New York or, if that court does not have subject matter jurisdiction, in any state court located in The City and County of New York and the parties hereto agree to submit to the jurisdiction of, and to venue in, such courts.
20. The Company and each of the Underwriters and Selling Stockholders hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
21. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument.
22. Notwithstanding anything herein to the contrary, the Company and the Selling Stockholders are authorized to disclose to any persons the U.S. Federal and state income tax treatment and tax structure of the potential transaction and all materials of any kind (including tax opinions and other tax analyses) provided to the Company and the Selling Stockholders relating to that treatment and structure, without the Underwriters imposing any limitation of any kind. However, any information relating to the tax treatment and tax structure shall remain confidential (and the foregoing sentence shall not apply) to the extent necessary to enable any person to comply with securities laws. For this purpose, tax structure is limited to any facts that may be relevant to that treatment.
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If the foregoing is in accordance with your understanding, please sign and return to us counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Underwriters, this letter and such acceptance hereof shall constitute a binding agreement among each of the Underwriters, the Company and each of the Selling Stockholders. It is understood that your acceptance of this letter on behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement among Underwriters, the form of which shall be submitted to the Company and the Selling Stockholders for examination, upon request, but without warranty on your part as to the authority of the signers thereof.
Very truly yours, | ||
Amplify Snack Brands, Inc. | ||
By: |
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|
Name: | ||
Title: | ||
The Selling Stockholders named in Schedule II hereto, acting severally | ||
By: |
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|
Name: | ||
Title: | ||
As Attorneys-in-Fact acting on behalf of the selling stockholders named in Schedule II to this Agreement. |
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Accepted as of the date hereof: | ||
Goldman, Sachs & Co. | ||
By: |
|
|
Name: | ||
Title: |
41
Accepted as of the date hereof: | ||
Jefferies LLC | ||
By: |
|
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Name: | ||
Title: |
42
SCHEDULE I
Underwriter |
Total Number
of Firm Shares to be Purchased |
Number of
Optional Shares to be Purchased if Maximum Option Exercised |
||
Goldman, Sachs & Co. |
||||
Jefferies LLC |
||||
Credit Suisse Securities (USA) LLC |
||||
SunTrust Robinson Humphrey, Inc |
||||
William Blair & Company, L.L.C. |
||||
Piper Jaffray & Co. |
||||
|
|
|||
Total |
||||
|
|
A-1
SCHEDULE II
Total
Number of Firm Shares to be Sold |
Number of
Optional Shares to be Sold if Maximum Option Exercised |
|||
[NAMES OF SELLING STOCKHOLDERS] |
||||
|
|
|||
Total |
||||
|
|
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SCHEDULE III
(a) Issuer Free Writing Prospectuses:
(b) Section 5(d) Writings:
(c) Information other than the Pricing Prospectus that comprise the Pricing Disclosure Package:
The initial public offering price per share for the Shares is $[●].
The number of Shares purchased by the Underwriters is [●].
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SCHEDULE IV
Persons Subject to Lock-Up Agreements
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ANNEX I
SkinnyPop Popcorn LLC
Lock-Up Agreement
, 2015
Goldman, Sachs & Co.
200 West Street
New York, NY 10282-2198
Jefferies LLC
520 Madison Avenue
New York, New York 10022
Re: SkinnyPop Popcorn LLCLock-Up Agreement
Ladies and Gentlemen:
The undersigned understands that Goldman, Sachs & Co. and Jefferies LLC, as representatives (the Representatives ), propose to enter into an underwriting agreement (the Underwriting Agreement ) on behalf of the several Underwriters named in Schedule I to such agreement (collectively, the Underwriters ), with the entity (the Company ) that will own the assets, liabilities and business of SkinnyPop Popcorn LLC and be named as the Registrant in the S-1 Registration Statement, and with the selling stockholders named in Schedule II to such agreement, providing for a public offering (the Public Offering ) of shares (the Shares ) of common stock of the Company (the Common Stock ) pursuant to a Registration Statement on Form S-1 to be filed with the Securities and Exchange Commission (the SEC ).
In consideration of the agreement by the Underwriters to offer and sell the Shares, and of other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the undersigned agrees that, during the period specified in the following paragraph (the Lock-Up Period ), the undersigned will not (and will not publicly announce their intention to) offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise dispose of any shares of Common Stock of the Company, or any options or warrants to purchase any shares of Common Stock of the Company, or any securities convertible into, exchangeable for or that represent the right to receive shares of Common Stock of the Company, whether now owned or hereafter acquired, owned directly by the undersigned (including holding as a custodian) or with respect to which the undersigned has beneficial ownership within the rules and regulations of the SEC (collectively the Undersigneds Shares ), other than any Shares sold pursuant to the Public Offering or
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transferred pursuant to the Corporate Reorganization (as such term is defined in the final prospectus used to sell the Shares) or otherwise provided herein. The foregoing restriction is expressly agreed to preclude the undersigned from engaging in any hedging or other transaction which is designed to or which reasonably could be expected to lead to or result in a sale or disposition of the Undersigneds Shares even if such Shares would be disposed of by someone other than the undersigned. Such prohibited hedging or other transactions would include without limitation any short sale or any purchase, sale or grant of any right (including without limitation any put or call option) with respect to any of the Undersigneds Shares or with respect to any security that includes, relates to, or derives any significant part of its value from such Shares. If the undersigned is an officer or director of the issuer, if there is an issuer-directed Share program as part of the Public Offering, the undersigned further agrees that the foregoing provisions shall be equally applicable to any issuer-directed Shares the undersigned may purchase in the Public Offering.
The initial Lock-Up Period will commence on the date of this lock-up agreement (the Lock-Up Agreement ) and continue for 180 days after the Public Offering date set forth on the final prospectus used to sell the Shares (the Public Offering Date ) pursuant to the Underwriting Agreement.
If the undersigned is an officer or director of the Company, (i) the Representatives agree that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of shares of Common Stock, the Representatives will notify the Company of the impending release or waiver, and (ii) the Company has agreed or will agree in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two business days before the effective date of the release or waiver. Any release or waiver granted by the Representatives hereunder to any such officer or director shall only be effective two business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this letter to the extent and for the duration that such terms remain in effect at the time of the transfer.
Notwithstanding the foregoing, the undersigned may (a) transfer the Undersigneds Shares (i) acquired in open market transactions on or after the Public Offering Date, (ii) as a bona fide gift or gifts, provided that the donee or donees thereof agree to be bound in writing by the restrictions set forth herein, (iii) to any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned, or if the undersigned is a trust, to any beneficiary (including such beneficiarys estate) of the undersigned, provided that the trustee of the trust or such beneficiary agrees to be bound in writing by the restrictions set forth herein, and provided further that any such transfer shall not involve a disposition for value, (iv) if the undersigned is a corporation, partnership, limited liability company, trust or other business entity (A) to another corporation, partnership, limited liability company, trust or other business entity that is a controlled affiliate (as affiliate is defined in Rule 405 promulgated under the
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Securities Act of 1933, as amended) of the undersigned, or to any investment fund or other entity controlled or managed by the undersigned or controlled affiliates of the undersigned, or (B) as part of a distribution, transfer or disposition without consideration by the undersigned to its stockholders, partners, members, beneficiaries or other equity holders, provided that in the case of any transfer contemplated in (A) or (B) above, it shall be a condition to the transfer that (x) each transferee executes an agreement stating that the transferee is receiving and holding such Shares of Common Stock subject to the provisions of this Lock-Up Agreement and (y) there shall be no further transfer of such Shares of Common Stock except in accordance with this Lock-Up Agreement, (v) by will or intestate succession upon the death of the undersigned, provided that the transferee agrees to be bound in writing by the restrictions set forth herein, (vi) in connection with the exercise (including any net or cashless exercise) or settlement of stock options, restricted stock units or other equity awards pursuant to an employee benefit plan described in the final prospectus used for the Public Offering and expiring during the Lock-Up Period (and any transfer necessary to generate such amount of cash needed for the payment of taxes, including estimated taxes, due as a result of such vesting or exercise whether by means of a net settlement or otherwise), provided that any such shares of Common Stock received upon such vesting or exercise shall be subject to the terms of this Lock-Up Agreement, (vii) to the Company in connection with the repurchase of shares of Common Stock issued pursuant to an employee benefit plan disclosed in the final prospectus used for the Public Offering or pursuant to the agreements pursuant to which such shares were issued as disclosed in the final prospectus used for the Public Offering, (viii) pursuant to a bona fide third-party tender offer, merger, consolidation or other similar transaction made to all holders of the Companys capital stock involving a change of control of the Company, provided that in the event that such tender offer, merger, consolidation or other such transaction is not completed, the Shares held by the undersigned shall remain subject to the provisions of this Lock-Up Agreement, (ix) by operation of law, such as pursuant to a qualified domestic order or in connection with a divorce settlement, provided that each such transferee executes an agreement stating that the transferee is receiving and holding such capital stock subject to the provisions of this Lock-Up Agreement, or (x) with the prior written consent of the Representatives on behalf of the Underwriters, or (b) enter into a written plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the Exchange Act ) relating to the sale of securities of the Company (a Trading Plan ) provided that (i) the securities subject to such Trading Plan may not be transferred, sold or otherwise disposed of during the Lock-Up Period and (ii) no public disclosure of the entry into such a Trading Plan shall be required or shall be voluntarily made by any person until after the expiration of the Lock-Up Period. In addition, with respect to clauses (a)(i) through (vii) above, it shall be a condition to such transfer that no filing under Section 16(a) of the Exchange Act nor any other public filing or disclosure of such transfer by or on behalf of the undersigned shall be required or shall be voluntarily made in connection with such transfer during the Lock-Up Period.
For purposes of this Lock-Up Agreement, immediate family shall mean any relationship by blood, marriage, civil union, domestic partnership or adoption, not more remote than first cousin. The undersigned now has, and, except as contemplated by clauses (a) and
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(b) above, for the duration of this Lock-Up Agreement will have, good and marketable title to the Undersigneds Shares, free and clear of all liens, encumbrances and claims whatsoever. The undersigned also agrees and consents to the entry of stop transfer instructions with the Companys transfer agent and registrar against the transfer of the Undersigneds Shares except in compliance with the foregoing restrictions.
This Lock-Up Agreement and any matters related to it shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflict of laws that would result in the application of any law other than the laws of the State of New York. The undersigned agrees that any suit or proceeding arising in respect of this Lock-Up Agreement will be tried exclusively in the U.S. District Court for the Southern District of New York or, if that court does not have subject matter jurisdiction, in any state court located in the City and County of New York and the undersigned agrees to submit to the jurisdiction of, and to venue in, such courts.
Notwithstanding anything to the contrary contained herein, this Lock-Up Agreement will automatically terminate and the undersigned will be released from all of his, her or its obligations hereunder upon the earliest to occur, if any, of (i) the Company, on the one hand, or the Representatives, on the other hand, advises in writing that it has determined not to proceed with the Public Offering and withdraws, (ii) the Company files an application with the SEC to withdraw the registration statement related to the Public Offering, (iii) the Underwriting Agreement is executed but is terminated (other than the provisions thereof which survive termination) prior to payment for and delivery of the shares of Common Stock of the Company to be sold thereunder, or (iv) October 31, 2015, in the event that the Underwriting Agreement has not been executed by such date (provided that the Company may by written notice to the undersigned prior to October 31, 2015 extend such date for a period of up to an additional three months).
In the event that either of the Representatives withdraws from or declines to participate in the Public Offering, all references to the Representatives contained in this Lock-Up Agreement shall be deemed to refer to the sole Representative that continues to participate in the Public Offering (the Sole Representative ), and, in such event, any written consent, waiver or notice given or delivered in connection with this Lock-Up Agreement by the Sole Representative shall be deemed to be sufficient and effective for all purposes under this Lock-Up Agreement.
The undersigned understands that the Company and the Underwriters are relying upon this Lock-Up Agreement in proceeding toward consummation of the offering. Nothing in this Lock-Up Agreement shall prevent the undersigned from making a demand for, or exercising any right with respect to, the registration of the Undersigneds Shares, except for any such demand or any such exercise that is publicly disclosed (or required to be publicly disclosed) by the undersigned or any of its affiliates or the Company or any of its affiliates prior to the expiration of the Lock-Up Period; provided that in no event shall the Company be required or permitted to file a registration statement pursuant to such demand or such exercise prior to the expiration of the Lock-Up Period without the prior written consent of the
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Representatives. The undersigned further understands that this Lock-Up Agreement is irrevocable and shall be binding upon the undersigneds heirs, legal representatives, successors, and assigns.
Very truly yours, |
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Exact Name of Shareholder |
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Authorized Signature |
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Title |
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ANNEX II
Form of Press Release
Amplify Snack Brands, Inc.
[Date]
([Company]) announced today that Goldman, Sachs & Co. and Jefferies LLC, the joint book-running managers in the Companys recent public sale of shares of common stock, are [waiving] [releasing] a lock-up restriction with respect to shares of the Companys common stock held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on , 20[15/16], and the shares may be sold on or after such date.
This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.
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ANNEX III(a)
Form of Opinion of Goodwin Procter
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ANNEX III(b)
Form of Negative Assurance Letter of Goodwin Procter
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ANNEX IV
Form of Opinion of Selling Stockholders Counsel
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Exhibit 3.1
CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF INCORPORATION OF
AMPLIFY SNACK BRANDS, INC.
Amplify Snack Brands, Inc. (the Corporation ), a corporation organized and existing under the General Corporation Law of the State of Delaware (the DGCL ), DOES HEREBY CERTIFY:
1. The date on which the Certificate of Incorporation of the Company was originally filed with the Secretary of State of the State of Delaware is July 2, 2014, under the name of TA Holdings 1, Inc.
2. Pursuant to Section 242 of the DGCL, this Certificate of Amendment to Certificate of Incorporation (this Amendment ) amends the provisions of the Certificate of Incorporation of the Corporation as amended prior to the date hereof (the Certificate ).
3. This Amendment has been has been duly approved by the Board of Directors of the Corporation and by the stockholders of the Corporation pursuant to Sections 141, 228 and 242 of the DGCL.
4. The Certificate is hereby amended by striking out Article Fourth of the Certificate in its entirety and substituting the following in lieu thereof:
The total number of shares of common stock which the Corporation shall have authority to issue is 75,000,000 shares, $0.0001 par value ( Common Stock ). Effective immediately upon the filing of this Certificate of Amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware (the Effective Time ), every one share of Common Stock then issued and outstanding or held in the treasury of the Corporation immediately prior to the Effective Time shall automatically be divided into seventy-five thousand (75,000) shares of Common Stock, without any further action by the holders of such shares of Common Stock (the Forward Stock Split ). Each holder of record of a certificate or certificates for one or more shares of Common Stock immediately prior to the Effective Time shall be entitled to receive, as soon as practicable following surrender to the Corporation of such certificate or certificates, a certificate representing the number of shares of Common Stock to which such holder shall be entitled pursuant to the Forward Stock Split. Any certificate for shares of Common Stock not so surrendered shall be deemed to represent the number of shares of Common Stock issuable upon its surrender pursuant to this paragraph.
IN WITNESS WHEREOF, the undersigned authorized officer of the Corporation, has executed this Certificate of Amendment to Certificate of Incorporation as of July 14, 2015.
AMPLIFY SNACK BRANDS, INC. | ||
/s/ Thomas Ennis |
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Name: |
Thomas Ennis | |
Title: |
President |
Exhibit 3.3
BY-LAWS
of
TA HOLDINGS 1, INC.
(the Corporation)
Article I - Stockholders
1. Annual Meeting. The annual meeting of stockholders shall be held for the election of directors each year at such place, date and time as shall be designated by the Board of Directors. Any other proper business may be transacted at the annual meeting. If no date for the annual meeting is established or said meeting is not held on the date established as provided above, a special meeting in lieu thereof may be held or there may be action by written consent of the stockholders on matters to be voted on at the annual meeting, and such special meeting or written consent shall have for the purposes of these By-laws or otherwise all the force and effect of an annual meeting.
2. Special Meetings . Special meetings of stockholders may be called by the Chief Executive Officer, if one is elected, or, if there is no Chief Executive Officer, a President. Special meetings of stockholders shall be called by the Chief Executive Officer, President or Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of stockholders owning at least twenty percent of the issued and outstanding shares of any class of stock of the Corporation. Such request shall state the purpose or purposes of the proposed meeting. Special meetings may not be called by any other person or persons. The call for the meeting shall state the place, date, hour and purposes of the meeting. Only the purposes specified in the notice of special meeting shall be considered or dealt with at such special meeting.
3. Notice of Meetings . Whenever stockholders are required or permitted to take any action at a meeting, a notice stating the place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present and vote at such meeting, and, in the case of a special meeting, the purpose or purposes of the meeting, shall be given by the Secretary (or other person authorized by these By-laws or by law) not less than ten (10) nor more than sixty (60) days before the meeting to each stockholder entitled to vote thereat and to each stockholder who, under the Certificate of Incorporation or under these By-laws is entitled to such notice. If mailed, notice is given when deposited in the mail, postage prepaid, directed to such stockholder at such stockholders address as it appears in the records of the Corporation. Without limiting the manner by which notice otherwise may be effectively given to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the Delaware General Corporation Law (the DGCL).
If a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place, if any, and the means of remote communications, if any,
by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken, except that if the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
4. Quorum . The holders of a majority in interest of all stock issued, outstanding and entitled to vote at a meeting, present in person or represented by proxy, shall constitute a quorum. Any meeting may be adjourned from time to time by a majority of the votes properly cast upon the question, whether or not a quorum is present. The stockholders present at a duly constituted meeting may continue to transact business until adjournment notwithstanding the withdrawal of enough stockholders to reduce the voting shares below a quorum.
5. Voting and Proxies . Except as otherwise provided by the Certificate of Incorporation or by law, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by such stockholder which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by either written proxy or by a transmission permitted by Section 212(c) of the DGCL, but no proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period or is irrevocable and coupled with an interest. Proxies shall be filed with the Secretary of the meeting, or of any adjournment thereof. Except as otherwise limited therein, proxies shall entitle the persons authorized thereby to vote at any adjournment of such meeting.
6. Action at Meeting . When a quorum is present, any matter before the meeting shall be decided by vote of the holders of a majority of the shares of stock voting on such matter except where a larger vote is required by law, by the Certificate of Incorporation or by these By-laws. Any election of directors by stockholders shall be determined by a plurality of the votes cast, except where a larger vote is required by law, by the Certificate of Incorporation or by these By-laws. The Corporation shall not directly or indirectly vote any share of its own stock; provided, however, that the Corporation may vote shares which it holds in a fiduciary capacity to the extent permitted by law.
7. Presiding Officer . Meetings of stockholders shall be presided over by the Chairman of the Board, if one is elected, or in his or her absence, the Vice Chairman of the Board, if one is elected, or if neither is elected or in their absence, a President or Chief Executive Officer. The Board of Directors shall have the authority to appoint a temporary presiding officer to serve at any meeting of the stockholders if the Chairman of the Board, the Vice Chairman of the Board, a President or a Chief Executive Officer is unable to do so for any reason.
8. Conduct of Meetings . The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the presiding officer of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or
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procedures, whether adopted by the Board of Directors or prescribed by the presiding officer of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board of Directors or the presiding officer of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
9. Action without a Meeting . Unless otherwise provided in the Certificate of Incorporation, any action required or permitted by law to be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office, by hand or by certified mail, return receipt requested, or to the Corporations principal place of business or to the officer of the Corporation having custody of the minute book. Every written consent shall bear the date of signature and no written consent shall be effective unless, within sixty (60) days of the earliest dated consent delivered pursuant to these By-laws, written consents signed by a sufficient number of stockholders entitled to take action are delivered to the Corporation in the manner set forth in these By-laws. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.
10. Stockholder Lists . The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Nothing contained in this Section 10 shall require the Corporation to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, for a period of at least ten (10) days prior to the meeting in the manner provided by law. The list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law.
Article II - Directors
1. Powers . The business of the Corporation shall be managed by or under the direction of a Board of Directors who may exercise all the powers of the Corporation except as otherwise provided by law, by the Certificate of Incorporation or by these By-laws. In the event of a vacancy in the Board of Directors, the remaining directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled.
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2. Number and Qualification . Unless otherwise provided in the Certificate of Incorporation or in these By-laws, the number of directors which shall constitute the whole board shall be determined from time to time by resolution of the Board of Directors. Directors need not be stockholders.
3. Vacancies; Reduction of Board . A majority of the directors then in office, although less than a quorum, or a sole remaining Director, may fill vacancies in the Board of Directors occurring for any reason and newly created directorships resulting from any increase in the authorized number of directors. In lieu of filling any vacancy, the Board of Directors may reduce the number of directors.
4. Tenure . Except as otherwise provided by law, by the Certificate of Incorporation or by these By-laws, directors shall hold office until their successors are elected and qualified or until their earlier resignation or removal. Any director may resign at any time upon notice given in writing or by electronic transmission to the Corporation. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.
5. Removal . To the extent permitted by law, a director may be removed from office with or without cause by vote of the holders of a majority of the shares of stock entitled to vote in the election of directors.
6. Meetings . Regular meetings of the Board of Directors may be held without notice at such time, date and place as the Board of Directors may from time to time determine. Special meetings of the Board of Directors may be called, orally or in writing, by the Chief Executive Officer, if one is elected, or, if there is no Chief Executive Officer, the President, or by two or more Directors, designating the time, date and place thereof. Directors may participate in meetings of the Board of Directors by means of conference telephone or other communications equipment by means of which all directors participating in the meeting can hear each other, and participation in a meeting in accordance herewith shall constitute presence in person at such meeting.
7. Notice of Meetings . Notice of the time, date and place of all special meetings of the Board of Directors shall be given to each director by the Secretary, or Assistant Secretary, or in case of the death, absence, incapacity or refusal of such persons, by the officer or one of the directors calling the meeting. Notice shall be given to each director in person, by telephone, or by facsimile, electronic mail or other form of electronic communications, sent to such directors business or home address at least twenty-four (24) hours in advance of the meeting, or by written notice mailed to such directors business or home address at least forty-eight (48) hours in advance of the meeting.
8. Quorum . At any meeting of the Board of Directors, a majority of the total number of directors shall constitute a quorum for the transaction of business. Less than a quorum may adjourn any meeting from time to time and the meeting may be held as adjourned without further notice.
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9. Action at Meeting . At any meeting of the Board of Directors at which a quorum is present, unless otherwise provided in the following sentence, a majority of the directors present may take any action on behalf of the Board of Directors, unless a larger number is required by law, by the Certificate of Incorporation or by these By-laws. So long as there are two (2) or fewer Directors, any action to be taken by the Board of Directors shall require the approval of all Directors.
10. Action by Consent . Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board of Directors consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the records of the meetings of the Board of Directors. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
11. Committees . The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, establish one or more committees, each committee to consist of one or more directors. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent permitted by law and to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval or (ii) adopting, amending or repealing any provision of these By-laws.
Except as the Board of Directors may otherwise determine, any such committee may make rules for the conduct of its business, but in the absence of such rules its business shall be conducted so far as possible in the same manner as is provided in these By-laws for the Board of Directors. All members of such committees shall hold their committee offices at the pleasure of the Board of Directors, and the Board may abolish any committee at any time.
Article III - Officers
1. Enumeration . The officers of the Corporation shall consist of one or more Presidents (who, if there is more than one, shall be referred to as Co-Presidents), a Treasurer, a Secretary, and such other officers, including, without limitation, a Chief Executive Officer and one or more Vice Presidents (including Executive Vice Presidents or Senior Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and Assistant Secretaries, as the Board of
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Directors may determine. The Board of Directors may elect from among its members a Chairman of the Board and a Vice Chairman of the Board.
2. Election. The Presidents , Treasurer and Secretary shall be elected annually by the Board of Directors at their first meeting following the annual meeting of stockholders. Other officers may be chosen by the Board of Directors at such meeting or at any other meeting.
3. Qualification . No officer need be a stockholder or Director. Any two or more offices may be held by the same person. Any officer may be required by the Board of Directors to give bond for the faithful performance of such officers duties in such amount and with such sureties as the Board of Directors may determine.
4. Tenure . Except as otherwise provided by the Certificate of Incorporation or by these By-laws, each of the officers of the Corporation shall hold office until the first meeting of the Board of Directors following the next annual meeting of stockholders and until such officers successor is elected and qualified or until such officers earlier resignation or removal. Any officer may resign by delivering his or her written resignation to the Corporation, and such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.
5. Removal . The Board of Directors may remove any officer with or without cause by a vote of a majority of the directors then in office.
6. Vacancies . Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors.
7. Chairman of the Board and Vice Chairman . Unless otherwise provided by the Board of Directors, the Chairman of the Board of Directors, if one is elected, shall preside, when present, at all meetings of the stockholders and the Board of Directors. The Chairman of the Board shall have such other powers and shall perform such duties as the Board of Directors may from time to time designate.
Unless otherwise provided by the Board of Directors, in the absence of the Chairman of the Board, the Vice Chairman of the Board, if one is elected, shall preside, when present, at all meetings of the stockholders and the Board of Directors. The Vice Chairman of the Board shall have such other powers and shall perform such duties as the Board of Directors may from time to time designate.
8. Chief Executive Officer . The Chief Executive Officer, if one is elected, shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.
9. Presidents . The Presidents shall, subject to the direction of the Board of Directors, each have general supervision and control of the Corporations business and any action that would typically be taken by a President may be taken by any Co-President. If there is no Chairman of the Board or Vice Chairman of the Board, a President shall preside, when present, at all meetings of stockholders and the Board of Directors. The Presidents shall have such other powers and shall perform such duties as the Board of Directors may from time to time designate.
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10. Vice Presidents and Assistant Vice Presidents . Any Vice President (including any Executive Vice President or Senior Vice President) and any Assistant Vice President shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.
11. Treasurer and Assistant Treasurers . The Treasurer shall, subject to the direction of the Board of Directors, have general charge of the financial affairs of the Corporation and shall cause to be kept accurate books of account. The Treasurer shall have custody of all funds, securities, and valuable documents of the Corporation, except as the Board of Directors may otherwise provide. The Treasurer shall have such other powers and shall perform such duties as the Board of Directors may from time to time designate.
Any Assistant Treasurer shall have such powers and perform such duties as the Board of Directors may from time to time designate.
12. Secretary and Assistant Secretaries . The Secretary shall record the proceedings of all meetings of the stockholders and the Board of Directors (including committees of the Board) in books kept for that purpose. In the absence of the Secretary from any such meeting an Assistant Secretary, or if such person is absent, a temporary secretary chosen at the meeting, shall record the proceedings thereof. The Secretary shall have charge of the stock ledger (which may, however, be kept by any transfer or other agent of the Corporation) and shall have such other duties and powers as may be designated from time to time by the Board of Directors.
Any Assistant Secretary shall have such powers and perform such duties as the Board of Directors may from time to time designate.
13. Other Powers and Duties . Subject to these By-laws, each officer of the Corporation shall have in addition to the duties and powers specifically set forth in these By-laws, such duties and powers as are customarily incident to such officers office, and such duties and powers as may be designated from time to time by the Board of Directors.
Article IV - Capital Stock
1. Certificates of Stock . Each stockholder shall be entitled to a certificate of the capital stock of the Corporation in such form as may from time to time be prescribed by the Board of Directors. Such certificate shall be signed by a President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. Such signatures may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the time of its issue. Every certificate for shares of stock which are subject to any restriction on transfer and every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall contain such legend with respect thereto as is required by law. The Corporation shall be permitted to issue fractional shares.
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2. Transfers . Subject to any restrictions on transfer, shares of stock may be transferred on the books of the Corporation by the surrender to the Corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment or power of attorney properly executed, with transfer stamps (if necessary) affixed, and with such proof of the authenticity of signature as the Corporation or its transfer agent may reasonably require.
3. Record Holders . Except as may otherwise be required by law, by the Certificate of Incorporation or by these By-laws, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the Corporation in accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to notify the Corporation of such stockholders post office address.
4. Record Date . In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not precede the date on which it is established, and which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, more than ten (10) days after the date on which the record date for stockholder consent without a meeting is established, nor more than sixty (60) days prior to any other action. In such case only stockholders of record on such record date shall be so entitled notwithstanding any transfer of stock on the books of the Corporation after the record date.
If no record date is fixed, (a) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, (b) the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in this state, to its principal place of business, or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded, and (c) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
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5. Lost Certificates . The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.
Article V - Indemnification
1. Definitions . For purposes of this Article V:
(a) Corporate Status describes the status of a person who is serving or has served (i) as a Director of the Corporation, (ii) as an Officer of the Corporation, or (iii) as a director, partner, trustee, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Corporation. For purposes of this Section 1(a), an Officer or Director of the Corporation who is serving or has served as a director, partner, trustee, officer, employee or agent of a Subsidiary shall be deemed to be serving at the request of the Corporation. Notwithstanding the foregoing, Corporate Status shall not include the status of a person who is serving or has served as a director, officer, employee or agent of a constituent corporation absorbed in a merger or consolidation transaction with the Corporation with respect to such persons activities prior to said transaction, unless specifically authorized by the Board of Directors or the stockholders of the Corporation;
(b) Director means any person who serves or has served the Corporation as a director on the Board of Directors of the Corporation;
(c) Disinterested Director means, with respect to a specific Proceeding in respect of which indemnification is sought hereunder, a Director of the Corporation who is not and was not a party to such Proceeding;
(d) Expenses means all reasonable attorneys fees, retainers, court costs, transcript costs, fees of expert witnesses, private investigators and professional advisors (including, without limitation, accountants and investment bankers), travel expenses, duplicating costs, printing and binding costs, costs of preparation of demonstrative evidence and other courtroom presentation aids and devices, costs incurred in connection with document review, organization, imaging and computerization, telephone charges, postage, delivery service fees, and all other disbursements, costs or expenses of the type customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, settling or otherwise participating in, a Proceeding;
(e) Non-Officer Employee means any person who serves or has served as an employee or agent of the Corporation, but who is not or was not a Director or Officer;
(f) Officer means any person who serves or has served the Corporation as an officer appointed by the Board of Directors of the Corporation;
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(g) Proceeding means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, inquiry, investigation, administrative hearing or other proceeding, whether civil, criminal, administrative, arbitrative or investigative; and
(h) Subsidiary shall mean any corporation, partnership, limited liability company, joint venture, trust or other entity of which the Corporation owns (either directly or through or together with another Subsidiary of the Corporation) either (i) a general partner, managing member or other similar interest or (ii) (A) 50% or more of the voting power of the voting capital equity interests of such corporation, partnership, limited liability company, joint venture or other entity, or (B) 50% or more of the outstanding voting capital stock or other voting equity interests of such corporation, partnership, limited liability company, joint venture or other entity.
2. Indemnification of Directors and Officers . Subject to the operation of Section 4 of this Article V of these By-laws, each Director and Officer shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment) against any and all Expenses, judgments, penalties, fines and amounts reasonably paid in settlement that are incurred by such Director or Officer or on such Directors or Officers behalf in connection with any threatened, pending or completed Proceeding or any claim, issue or matter therein, which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Directors or Officers Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The rights of indemnification provided by this Section 2 shall continue as to a Director or Officer after he or she has ceased to be a Director or Officer and shall inure to the benefit of his or her heirs, executors, administrators and personal representatives. Notwithstanding the foregoing, the Corporation shall indemnify any Director or Officer seeking indemnification in connection with a Proceeding initiated by such Director or Officer only if such Proceeding was authorized by the Board of Directors of the Corporation, unless such Proceeding was brought to enforce an Officer or Directors rights to indemnification or, in the case of Directors, advancement of Expenses under these By-laws in accordance with the provisions set forth herein.
3. Indemnification of Non-Officer Employees . Subject to the operation of Section 4 of this Article V of these By-laws, each Non-Officer Employee may, in the discretion of the Board of Directors of the Corporation, be indemnified by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended, against any or all Expenses, judgments, penalties, fines and amounts reasonably paid in settlement that are incurred by such Non-Officer Employee or on such Non-Officer Employees behalf in connection with any threatened, pending or completed Proceeding, or any claim, issue or matter therein, which such Non-Officer Employee is, or is threatened to be made, a party to or participant in by reason of such Non-Officer Employees Corporate Status, if such Non-Officer Employee acted in good faith and in a manner such Non-Officer Employee reasonably believed
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to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The rights of indemnification provided by this Section 3 shall exist as to a Non-Officer Employee after he or she has ceased to be a Non-Officer Employee and shall inure to the benefit of his or her heirs, personal representatives, executors and administrators. Notwithstanding the foregoing, the Corporation may indemnify any Non-Officer Employee seeking indemnification in connection with a Proceeding initiated by such Non-Officer Employee only if such Proceeding was authorized by the Board of Directors of the Corporation.
4. Good Faith . Unless ordered by a court, no indemnification shall be provided pursuant to this Article V to a Director, to an Officer or to a Non-Officer Employee unless a determination shall have been made that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal Proceeding, such person had no reasonable cause to believe his or her conduct was unlawful. Such determination shall be made by (a) a majority vote of the Disinterested Directors, even though less than a quorum of the Board of Directors, (b) a committee comprised of Disinterested Directors, such committee having been designated by a majority vote of the Disinterested Directors (even though less than a quorum), (c) if there are no such Disinterested Directors, or if a majority of Disinterested Directors so directs, by independent legal counsel in a written opinion, or (d) by the stockholders of the Corporation.
5. Advancement of Expenses to Directors and Officers Prior to Final Disposition .
(a) The Corporation shall advance all Expenses incurred by or on behalf of any Director or Officer in connection with any Proceeding in which such Director or Officer is involved by reason of such Directors or Officers Corporate Status within ten (10) days after the receipt by the Corporation of a written statement from such Director or Officer requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Director or Officer and shall be preceded or accompanied by an undertaking by or on behalf of such Director or Officer to repay any Expenses so advanced if it shall ultimately be determined that such Director or Officer is not entitled to be indemnified against such Expenses.
(b) If a claim for advancement of Expenses hereunder by a Director or Officer is not paid in full by the Corporation within 10 days after receipt by the Corporation of documentation of Expenses and the required undertaking, such Director or Officer may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and if successful in whole or in part, such Director or Officer shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such advancement of Expenses under this Article V shall not be a defense to the action and shall not create a presumption that such advancement is not permissible. The burden of proving that a Director or Officer is not entitled to an advancement of expenses shall be on the Corporation.
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(c) In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Director or Officer has not met any applicable standard for indemnification set forth in the DGCL.
6. Advancement of Expenses to Non-Officer Employees Prior to Final Disposition .
(a) The Corporation may, at the discretion of the Board of Directors of the Corporation, advance any or all Expenses incurred by or on behalf of any Non-Officer Employee in connection with any Proceeding in which such is involved by reason of the Corporate Status of such Non-Officer Employee upon the receipt by the Corporation of a statement or statements from such Non-Officer Employee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Non-Officer Employee and shall be preceded or accompanied by an undertaking by or on behalf of such to repay any Expenses so advanced if it shall ultimately be determined that such Non-Officer Employee is not entitled to be indemnified against such Expenses.
(b) In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Non-Officer Employee has not met any applicable standard for indemnification set forth in the DGCL.
7. Contractual Nature of Rights .
(a) The foregoing provisions of this Article V shall be deemed to be a contract between the Corporation and each Director and Officer entitled to the benefits hereof at any time while this Article V is in effect, and any repeal or modification thereof shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any Proceeding theretofore or thereafter brought based in whole or in part upon any such state of facts.
(b) If a claim for indemnification hereunder by a Director or Officer is not paid in full by the Corporation within 60 days after receipt by the Corporation of a written claim for indemnification, such Director or Officer may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and if successful in whole or in part, such Director or Officer shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such indemnification under this Article V shall not be a defense to the action and shall not create a presumption that such indemnification is not permissible. The burden of proving that a Director or Officer is not entitled to indemnification shall be on the Corporation.
(c) In any suit brought by a Director or Officer to enforce a right to indemnification hereunder, it shall be a defense that such Director or Officer has not met any applicable standard for indemnification set forth in the DGCL.
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8. Non-Exclusivity of Rights . The rights to indemnification and advancement of Expenses set forth in this Article V shall not be exclusive of any other right which any Director, Officer, or Non-Officer Employee may have or hereafter acquire under any statute, provision of the Certificate or these By-laws, agreement, vote of stockholders or Disinterested Directors or otherwise.
9. Insurance . The Corporation may maintain insurance, at its expense, to protect itself and any Director, Officer or Non-Officer Employee against any liability of any character asserted against or incurred by the Corporation or any such Director, Officer or Non-Officer Employee, or arising out of any such persons Corporate Status, whether or not the Corporation would have the power to indemnify such person against such liability under the DGCL or the provisions of this Article V.
10. Other Indemnification . The Corporations obligation, if any, to indemnify any person under this Article V as a result of such person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, employee benefit plan or enterprise.
Article VI - Miscellaneous Provisions
1. Fiscal Year . Except as otherwise determined by the Board of Directors, the fiscal year of the Corporation shall end on December 31 of each year.
2. Seal . The Board of Directors shall have power to adopt and alter the seal of the Corporation.
3. Execution of Instruments . Subject to any limitations which may be set forth in a resolution of the Board of Directors, all deeds, leases, transfers, contracts, bonds, notes and other obligations to be entered into by the Corporation in the ordinary course of its business without director action may be executed on behalf of the Corporation by, a President, or by any other officer, employee or agent of the Corporation as the Board of Directors may authorize.
4. Voting of Securities . Unless the Board of Directors otherwise provides, a President, any Vice President or the Treasurer may waive notice of and act on behalf of this Corporation, or appoint another person or persons to act as proxy or attorney in fact for this Corporation with or without discretionary power and/or power of substitution, at any meeting of stockholders or shareholders of any other corporation or organization, any of whose securities are held by this Corporation.
5. Resident Agent . The Board of Directors may appoint a resident agent upon whom legal process may be served in any action or proceeding against the Corporation.
6. Corporate Records . The original or attested copies of the Certificate of Incorporation, By-laws and records of all meetings of the incorporators, stockholders and the Board of Directors and the stock and transfer records, which shall contain the names of all
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stockholders, their record addresses and the amount of stock held by each, shall be kept at the principal office of the Corporation, at the office of its counsel, or at an office of its transfer agent.
7. Certificate of Incorporation . All references in these By-laws to the Certificate of Incorporation shall be deemed to refer to the Certificate of Incorporation of the Corporation, as amended and in effect from time to time.
8. Amendments . These By-laws may be altered, amended or repealed, and new By-laws may be adopted, by the stockholders or by the Board of Directors; provided, that (a) the Board of Directors may not alter, amend or repeal any provision of these By-laws which by law, by the Certificate of Incorporation or by these By-laws requires action by the stockholders and (b) any alteration, amendment or repeal of these By-laws by the Board of Directors and any new By-law adopted by the Board of Directors may be altered, amended or repealed by the stockholders.
9. Waiver of Notice . Whenever notice is required to be given under any provision of these By-laws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting needs to be specified in any written waiver or any waiver by electronic transmission.
Adopted by the Board of Directors on: July 2, 2014
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Exhibit 3.4
AMENDED AND RESTATED
BY-LAWS
OF
AMPLIFY SNACK BRANDS, INC.
(the Corporation)
ARTICLE I
Stockholders
SECTION 1. Annual Meeting . The annual meeting of stockholders of the Corporation (any such meeting being referred to in these By-laws as an Annual Meeting) shall be held at the hour, date and place within or without the United States which is fixed by the Board of Directors, which time, date and place may subsequently be changed at any time by vote of the Board of Directors. If no Annual Meeting has been held for a period of thirteen (13) months after the Corporations last Annual Meeting, a special meeting in lieu thereof may be held, and such special meeting shall have, for the purposes of these By-laws or otherwise, all the force and effect of an Annual Meeting. Any and all references hereafter in these By-laws to an Annual Meeting or Annual Meetings shall be deemed to also refer to any special meeting(s) in lieu thereof.
SECTION 2. Notice of Stockholder Business and Nominations .
(a) Annual Meetings of Stockholders .
(1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of other business to be considered by the stockholders may be brought before an Annual Meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this By-law, who is entitled to vote at the meeting, who is present (in person or by proxy) at the meeting and who complies with the notice procedures set forth in this By-law as to such nomination or business. For the avoidance of doubt, the foregoing clause (ii) shall be the exclusive means for a stockholder to bring nominations or business properly before an Annual Meeting (other than matters properly brought under Rule 14a-8 (or any successor rule) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), and such stockholder must comply with the notice and other procedures set forth in Article I, Section 2(a)(2) and (3) of this By-law to bring such nominations or business properly before an Annual Meeting. In addition to the other requirements set forth in this By-law, for any proposal of business to be considered at an Annual Meeting, it must be a proper subject for action by stockholders of the Corporation under Delaware law.
(2) For nominations or other business to be properly brought before an Annual Meeting by a stockholder pursuant to clause (ii) of Article I, Section 2(a)(1) of this By-law, the stockholder must (i) have given Timely Notice (as defined below) thereof in writing to
the Secretary of the Corporation, (ii) have provided any updates or supplements to such notice at the times and in the forms required by this By-law and (iii) together with the beneficial owner(s), if any, on whose behalf the nomination or business proposal is made, have acted in accordance with the representations set forth in the Solicitation Statement (as defined below) required by this By-law. To be timely, a stockholders written notice shall be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the one-year anniversary of the preceding years Annual Meeting; provided , however , that in the event the Annual Meeting is first convened more than thirty (30) days before or more than sixty (60) days after such anniversary date, or if no Annual Meeting were held in the preceding year, notice by the stockholder to be timely must be received by the Secretary of the Corporation not later than the close of business on the later of the ninetieth (90th) day prior to the scheduled date of such Annual Meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made (such notice within such time periods shall be referred to as Timely Notice). Notwithstanding anything to the contrary provided herein, for the first Annual Meeting following the initial public offering of common stock of the Corporation, a stockholders notice shall be timely if received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the later of the ninetieth (90th) day prior to the scheduled date of such Annual Meeting or the tenth (10th) day following the day on which public announcement of the date of such Annual Meeting is first made or sent by the Corporation. Such stockholders Timely Notice shall set forth:
(A) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including such persons written consent to being named in the proxy statement as a nominee and to serving as a director if elected);
(B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting, and any material interest in such business of each Proposing Person (as defined below);
(C)(i) the name and address of the stockholder giving the notice, as they appear on the Corporations books, and the names and addresses of the other Proposing Persons (if any) and (ii) as to each Proposing Person, the following information: (a) the class or series and number of all shares of capital stock of the Corporation which are, directly or indirectly, owned beneficially or of record by such Proposing Person or any of its affiliates or associates (as such terms are defined in Rule 12b-2 promulgated under the Exchange Act), including any shares of any class or series of capital stock of the Corporation as to which such Proposing Person or any of its affiliates or associates has a right to acquire beneficial ownership at any time in the future; (b) all Synthetic Equity Interests (as defined below) in which such Proposing Person or any of its affiliates or associates, directly or indirectly, holds an interest including a description of the material terms of each such Synthetic Equity Interest, including without limitation, identification of the counterparty to each such Synthetic Equity Interest and
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disclosure, for each such Synthetic Equity Interest, as to (x) whether or not such Synthetic Equity Interest conveys any voting rights, directly or indirectly, in such shares to such Proposing Person, (y) whether or not such Synthetic Equity Interest is required to be, or is capable of being, settled through delivery of such shares and (z) whether or not such Proposing Person and/or, to the extent known, the counterparty to such Synthetic Equity Interest has entered into other transactions that hedge or mitigate the economic effect of such Synthetic Equity Interest; (c) any proxy (other than a revocable proxy given in response to a public proxy solicitation made pursuant to, and in accordance with, the Exchange Act), agreement, arrangement, understanding or relationship pursuant to which such Proposing Person has or shares a right to, directly or indirectly, vote any shares of any class or series of capital stock of the Corporation; (d) any rights to dividends or other distributions on the shares of any class or series of capital stock of the Corporation, directly or indirectly, owned beneficially by such Proposing Person that are separated or separable from the underlying shares of the Corporation; and (e) any performance-related fees (other than an asset based fee) that such Proposing Person, directly or indirectly, is entitled to based on any increase or decrease in the value of shares of any class or series of capital stock of the Corporation or any Synthetic Equity Interests (the disclosures to be made pursuant to the foregoing clauses (a) through (e) are referred to, collectively, as Material Ownership Interests) and (iii) a description of the material terms of all agreements, arrangements or understandings (whether or not in writing) entered into by any Proposing Person or any of its affiliates or associates with any other person for the purpose of acquiring, holding, disposing or voting of any shares of any class or series of capital stock of the Corporation;
(D)(i) a description of all agreements, arrangements or understandings by and among any of the Proposing Persons, or by and among any Proposing Persons and any other person (including with any proposed nominee(s)), pertaining to the nomination(s) or other business proposed to be brought before the meeting of stockholders (which description shall identify the name of each other person who is party to such an agreement, arrangement or understanding), and (ii) identification of the names and addresses of other stockholders (including beneficial owners) known by any of the Proposing Persons to support such nominations or other business proposal(s), and to the extent known the class and number of all shares of the Corporations capital stock owned beneficially or of record by such other stockholder(s) or other beneficial owner(s); and
(E) a statement whether or not the stockholder giving the notice and/or the other Proposing Person(s), if any, will deliver a proxy statement and form of proxy to holders of, in the case of a business proposal, at least the percentage of voting power of all of the shares of capital stock of the Corporation required under applicable law to approve the proposal or, in the case of a nomination or nominations, at least the percentage of voting power of all of the shares of capital stock of the Corporation reasonably believed by such Proposing Person to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder (such statement, the Solicitation Statement).
For purposes of this Article I of these By-laws, the term Proposing Person shall mean the following persons: (i) the stockholder of record providing the notice of nominations or business proposed to be brought before a stockholders meeting, and (ii) the beneficial owner(s), if different, on whose behalf the nominations or business proposed to be brought before a
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stockholders meeting is made. For purposes of this Section 2 of Article I of these By-laws, the term Synthetic Equity Interest shall mean any transaction, agreement or arrangement (or series of transactions, agreements or arrangements), including, without limitation, any derivative, swap, hedge, repurchase or so-called stock borrowing agreement or arrangement, the purpose or effect of which is to, directly or indirectly: (a) give a person or entity economic benefit and/or risk similar to ownership of shares of any class or series of capital stock of the Corporation, in whole or in part, including due to the fact that such transaction, agreement or arrangement provides, directly or indirectly, the opportunity to profit or avoid a loss from any increase or decrease in the value of any shares of any class or series of capital stock of the Corporation, (b) mitigate loss to, reduce the economic risk of or manage the risk of share price changes for, any person or entity with respect to any shares of any class or series of capital stock of the Corporation, (c) otherwise provide in any manner the opportunity to profit or avoid a loss from any decrease in the value of any shares of any class or series of capital stock of the Corporation, or (d) increase or decrease the voting power of any person or entity with respect to any shares of any class or series of capital stock of the Corporation.
(3) A stockholder providing Timely Notice of nominations or business proposed to be brought before an Annual Meeting shall further update and supplement such notice, if necessary, so that the information (including, without limitation, the Material Ownership Interests information) provided or required to be provided in such notice pursuant to this By-law shall be true and correct as of the record date for the meeting and as of the date that is ten (10) business days prior to such Annual Meeting, and such update and supplement shall be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the fifth (5th) business day after the record date for the Annual Meeting (in the case of the update and supplement required to be made as of the record date), and not later than the close of business on the eighth (8th) business day prior to the date of the Annual Meeting (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting).
(4) Notwithstanding anything in the second sentence of Article I, Section 2(a)(2) of this By-law to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least ten (10) days before the last day a stockholder may deliver a notice of nomination in accordance with the second sentence of Article I, Section 2(a)(2), a stockholders notice required by this By-law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be received by the Secretary of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation.
(b) General .
(1) Only such persons who are nominated in accordance with the provisions of this By-law shall be eligible for election and to serve as directors and only such business shall be conducted at an Annual Meeting as shall have been brought before the meeting in accordance
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with the provisions of this By-law or in accordance with Rule 14a-8 under the Exchange Act. The Board of Directors or a designated committee thereof shall have the power to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the provisions of this By-law. If neither the Board of Directors nor such designated committee makes a determination as to whether any stockholder proposal or nomination was made in accordance with the provisions of this By-law, the presiding officer of the Annual Meeting shall have the power and duty to determine whether the stockholder proposal or nomination was made in accordance with the provisions of this By-law. If the Board of Directors or a designated committee thereof or the presiding officer, as applicable, determines that any stockholder proposal or nomination was not made in accordance with the provisions of this By-law, such proposal or nomination shall be disregarded and shall not be presented for action at the Annual Meeting.
(2) Except as otherwise required by law, nothing in this Article I, Section 2 shall obligate the Corporation or the Board of Directors to include in any proxy statement or other stockholder communication distributed on behalf of the Corporation or the Board of Directors information with respect to any nominee for director or any other matter of business submitted by a stockholder.
(3) Notwithstanding the foregoing provisions of this Article I, Section 2, if the nominating or proposing stockholder (or a qualified representative of the stockholder) does not appear at the Annual Meeting to present a nomination or any business, such nomination or business shall be disregarded, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Article I, Section 2, to be considered a qualified representative of the proposing stockholder, a person must be authorized by a written instrument executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such written instrument or electronic transmission, or a reliable reproduction of the written instrument or electronic transmission, to the presiding officer at the meeting of stockholders.
(4) For purposes of this By-law, public announcement shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(5) Notwithstanding the foregoing provisions of this By-law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-law. Nothing in this By-law shall be deemed to affect any rights of (i) stockholders to have proposals included in the Corporations proxy statement pursuant to Rule 14a-8 (or any successor rule), as applicable, under the Exchange Act and, to the extent required by such rule, have such proposals considered and voted on at an Annual Meeting or (ii) the holders of any series of Undesignated Preferred Stock to elect directors under specified circumstances.
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SECTION 3. Special Meetings . Except as otherwise required by statute and subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock, special meetings of the stockholders of the Corporation may be called only by the Board of Directors, the Chairperson of the Board of Directors, or the Chief Executive Officer acting pursuant to a resolution approved by the affirmative vote of a majority of the Directors then in office. The Board of Directors may postpone or reschedule any previously scheduled special meeting of stockholders. Only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders of the Corporation. Nominations of persons for election to the Board of Directors of the Corporation and stockholder proposals of other business shall not be brought before a special meeting of stockholders to be considered by the stockholders unless such special meeting is held in lieu of an annual meeting of stockholders in accordance with Article I, Section 1 of these By-laws, in which case such special meeting in lieu thereof shall be deemed an Annual Meeting for purposes of these By-laws and the provisions of Article I, Section 2 of these By-laws shall govern such special meeting.
SECTION 4. Notice of Meetings; Adjournments .
(a) A notice of each Annual Meeting stating the hour, date and place, if any, of such Annual Meeting and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, shall be given not less than ten (10) days nor more than sixty (60) days before the Annual Meeting, to each stockholder entitled to vote thereat by delivering such notice to such stockholder or by mailing it, postage prepaid, addressed to such stockholder at the address of such stockholder as it appears on the Corporations stock transfer books. Without limiting the manner by which notice may otherwise be given to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the Delaware General Corporation Law (DGCL).
(b) Notice of all special meetings of stockholders shall be given in the same manner as provided for Annual Meetings, except that the notice of all special meetings shall state the purpose or purposes for which the meeting has been called.
(c) Notice of an Annual Meeting or special meeting of stockholders need not be given to a stockholder if a waiver of notice is executed, or waiver of notice by electronic transmission is provided, before or after such meeting by such stockholder or if such stockholder attends such meeting, unless such attendance is for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting was not lawfully called or convened.
(d) The Board of Directors may postpone and reschedule any previously scheduled Annual Meeting or special meeting of stockholders and any record date with respect thereto, regardless of whether any notice or public disclosure with respect to any such meeting has been sent or made pursuant to Section 2 of this Article I of these By-laws or otherwise. In no event shall the public announcement of an adjournment, postponement or rescheduling of any previously scheduled meeting of stockholders commence a new time period for the giving of a stockholders notice under this Article I of these By-laws.
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(e) When any meeting is convened, the presiding officer may adjourn the meeting if (i) no quorum is present for the transaction of business, (ii) the Board of Directors determines that adjournment is necessary or appropriate to enable the stockholders to consider fully information which the Board of Directors determines has not been made sufficiently or timely available to stockholders, or (iii) the Board of Directors determines that adjournment is otherwise in the best interests of the Corporation. When any Annual Meeting or special meeting of stockholders is adjourned to another hour, date or place, notice need not be given of the adjourned meeting other than an announcement at the meeting at which the adjournment is taken of the hour, date and place, if any, to which the meeting is adjourned and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting; provided, however, that if the adjournment is for more than thirty (30) days from the meeting date, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting shall be given to each stockholder of record entitled to vote thereat and each stockholder who, by law or under the Certificate of Incorporation of the Corporation (as the same may hereafter be amended and/or restated, the Certificate) or these By-laws, is entitled to such notice.
SECTION 5. Quorum . A majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum at any meeting of stockholders. If less than a quorum is present at a meeting, the holders of voting stock representing a majority of the voting power present at the meeting or the presiding officer may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice, except as provided in Section 4 of this Article I. At such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed. The stockholders present at a duly constituted meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
SECTION 6. Voting and Proxies . Stockholders shall have one vote for each share of stock entitled to vote owned by them of record according to the stock ledger of the Corporation as of the record date, unless otherwise provided by law or by the Certificate. Stockholders may vote either (i) in person, (ii) by written proxy or (iii) by a transmission permitted by Section 212(c) of the DGCL. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission permitted by Section 212(c) of the DGCL may be substituted for or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. Proxies shall be filed in accordance with the procedures established for the meeting of stockholders. Except as otherwise limited therein or as otherwise provided by law, proxies authorizing a person to vote at a specific meeting shall entitle the persons authorized thereby to vote at any adjournment of such meeting, but they shall not be valid after final adjournment of such meeting. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by or on behalf of any one of them unless at or prior to the exercise of the proxy the Corporation receives a specific written notice to the contrary from any one of them.
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SECTION 7. Action at Meeting . When a quorum is present at any meeting of stockholders, any matter before any such meeting (other than an election of a director or directors) shall be decided by a majority of the votes properly cast for and against such matter, except where a larger vote is required by law, by the Certificate or by these By-laws. Any election of directors by stockholders shall be determined by a plurality of the votes properly cast on the election of directors.
SECTION 8. Stockholder Lists . The Secretary or an Assistant Secretary (or the Corporations transfer agent or other person authorized by these By-laws or by law) shall prepare and make, at least ten (10) days before every Annual Meeting or special meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for a period of at least ten (10) days prior to the meeting in the manner provided by law. The list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law.
SECTION 9. Presiding Officer . The Board of Directors shall designate a representative to preside over all Annual Meetings or special meetings of stockholders, provided that if the Board of Directors does not so designate such a presiding officer, then the Chairperson of the Board, if one is elected, shall preside over such meetings. If the Board of Directors does not so designate such a presiding officer and there is no Chairperson of the Board or the Chairperson of the Board is unable to so preside or is absent, then the Chief Executive Officer, if one is elected, shall preside over such meetings, provided further that if there is no Chief Executive Officer or the Chief Executive Officer is unable to so preside or is absent, then the President shall preside over such meetings. The presiding officer at any Annual Meeting or special meeting of stockholders shall have the power, among other things, to adjourn such meeting at any time and from time to time, subject to Sections 4 and 5 of this Article I. The order of business and all other matters of procedure at any meeting of the stockholders shall be determined by the presiding officer.
SECTION 10. Inspectors of Elections . The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the presiding officer shall appoint one or more inspectors to act at the meeting. Any inspector may, but need not, be an officer, employee or agent of the Corporation. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall perform such duties as are required by the DGCL, including the counting of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. The presiding officer may review all determinations made by the inspectors, and in so doing the
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presiding officer shall be entitled to exercise his or her sole judgment and discretion and he or she shall not be bound by any determinations made by the inspectors. All determinations by the inspectors and, if applicable, the presiding officer, shall be subject to further review by any court of competent jurisdiction.
ARTICLE II
Directors
SECTION 1. Powers . The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors except as otherwise provided by the Certificate or required by law.
SECTION 2. Number and Terms . The number of directors of the Corporation shall be fixed solely and exclusively by resolution duly adopted from time to time by the Board of Directors. The directors shall hold office in the manner provided in the Certificate.
SECTION 3. Qualification . No director need be a stockholder of the Corporation.
SECTION 4. Vacancies . Vacancies in the Board of Directors shall be filled in the manner provided in the Certificate.
SECTION 5. Removal . Directors may be removed from office only in the manner provided in the Certificate.
SECTION 6. Resignation . A director may resign at any time by giving written notice to the Chairperson of the Board, if one is elected, the Chief Executive Officer, the President or the Secretary. A resignation shall be effective upon receipt, unless the resignation otherwise provides.
SECTION 7. Regular Meetings . The regular annual meeting of the Board of Directors shall be held, without notice other than this Section 7, on the same date and at the same place as the Annual Meeting following the close of such meeting of stockholders. Other regular meetings of the Board of Directors may be held at such hour, date and place as the Board of Directors may by resolution from time to time determine and publicize by means of reasonable notice given to any director who is not present at the meeting at which such resolution is adopted.
SECTION 8. Special Meetings . Special meetings of the Board of Directors may be called, orally or in writing, by or at the request of a majority of the directors, the Chairperson of the Board, if one is elected, or the Chief Executive Officer or the President. The person calling any such special meeting of the Board of Directors may fix the hour, date and place thereof.
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SECTION 9. Notice of Meetings . Notice of the hour, date and place of all special meetings of the Board of Directors shall be given to each director by the Secretary or an Assistant Secretary, or in case of the death, absence, incapacity or refusal of such persons, by the Chairperson of the Board, if one is elected, or the the Chief Executive Officer or the President or such other officer designated by the Chairperson of the Board, if one is elected, or the Chief Executive Officer or President. Notice of any special meeting of the Board of Directors shall be given to each director in person, by telephone, or by facsimile, electronic mail or other form of electronic communication, sent to his or her business or home address, at least twenty-four (24) hours in advance of the meeting, or by written notice mailed to his or her business or home address, at least forty-eight (48) hours in advance of the meeting. Such notice shall be deemed to be delivered when hand-delivered to such address, read to such director by telephone, deposited in the mail so addressed, with postage thereon prepaid if mailed, dispatched or transmitted if sent by facsimile transmission or by electronic mail or other form of electronic communications. A written waiver of notice signed before or after a meeting by a director and filed with the records of the meeting shall be deemed to be equivalent to notice of the meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because such meeting is not lawfully called or convened. Except as otherwise required by law, by the Certificate or by these By-laws, neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.
SECTION 10. Quorum . At any meeting of the Board of Directors, a majority of the total number of directors shall constitute a quorum for the transaction of business, but if less than a quorum is present at a meeting, a majority of the directors present may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice. Any business which might have been transacted at the meeting as originally noticed may be transacted at such adjourned meeting at which a quorum is present. For purposes of this section, the total number of directors includes any unfilled vacancies on the Board of Directors.
SECTION 11. Action at Meeting . At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of the directors present shall constitute action by the Board of Directors, unless otherwise required by law, by the Certificate or by these By-laws.
SECTION 12. Action by Consent . Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board of Directors consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the records of the meetings of the Board of Directors. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form. Such consent shall be treated as a resolution of the Board of Directors for all purposes.
SECTION 13. Manner of Participation . Directors may participate in meetings of the Board of Directors by means of conference telephone or other communications equipment by means of which all directors participating in the meeting can hear each other, and participation in a meeting in accordance herewith shall constitute presence in person at such meeting for purposes of these By-laws.
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SECTION 14. Presiding Director . The Board of Directors shall designate a representative to preside over all meetings of the Board of Directors, provided that if the Board of Directors does not so designate such a presiding director or such designated presiding director is unable to so preside or is absent, then the Chairperson of the Board, if one is elected, shall preside over all meetings of the Board of Directors. If both the designated presiding director, if one is so designated, and the Chairperson of the Board, if one is elected, are unable to preside or are absent, the Board of Directors shall designate an alternate representative to preside over a meeting of the Board of Directors.
SECTION 15. Committees . The Board of Directors, by vote of a majority of the directors then in office, may elect one or more committees, including, without limitation, a Compensation Committee, a Nominating & Corporate Governance Committee and an Audit Committee, and may delegate thereto some or all of its powers except those which by law, by the Certificate or by these By-laws may not be delegated. Except as the Board of Directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Board of Directors or in such rules, its business shall be conducted so far as possible in the same manner as is provided by these By-laws for the Board of Directors. All members of such committees shall hold such offices at the pleasure of the Board of Directors. The Board of Directors may abolish any such committee at any time. Any committee to which the Board of Directors delegates any of its powers or duties shall keep records of its meetings and shall report its action to the Board of Directors.
SECTION 16. Compensation of Directors . Directors shall receive such compensation for their services as shall be determined by a majority of the Board of Directors, or a designated committee thereof, provided that directors who are serving the Corporation as employees and who receive compensation for their services as such, shall not receive any salary or other compensation for their services as directors of the Corporation.
ARTICLE III
Officers
SECTION 1. Enumeration . The officers of the Corporation shall consist of a President, a Treasurer, a Secretary and such other officers, including, without limitation, a Chairperson of the Board of Directors, a Chief Executive Officer and one or more Vice Presidents (including Executive Vice Presidents or Senior Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and Assistant Secretaries, as the Board of Directors may determine.
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SECTION 2. Election . At the regular annual meeting of the Board of Directors following the Annual Meeting, the Board of Directors shall elect the Chief Executive Officer, the President, the Treasurer and the Secretary. Other officers may be elected by the Board of Directors at such regular annual meeting of the Board of Directors or at any other regular or special meeting.
SECTION 3. Qualification . No officer need be a stockholder or a director. Any person may occupy more than one office of the Corporation at any time.
SECTION 4. Tenure . Except as otherwise provided by the Certificate or by these By-laws, each of the officers of the Corporation shall hold office until the regular annual meeting of the Board of Directors following the next Annual Meeting and until his or her successor is elected and qualified or until his or her earlier resignation or removal.
SECTION 5. Resignation . Any officer may resign by delivering his or her written resignation to the Corporation addressed to the Chief Executive Officer, the President or the Secretary, and such resignation shall be effective upon receipt, unless the resignation otherwise provides.
SECTION 6. Removal . Except as otherwise provided by law, the Board of Directors may remove any officer with or without cause by the affirmative vote of a majority of the directors then in office.
SECTION 7. Absence or Disability . In the event of the absence or disability of any officer, the Board of Directors may designate another officer to act temporarily in place of such absent or disabled officer.
SECTION 8. Vacancies . Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors.
SECTION 9. President . The President shall, subject to the direction of the Board of Directors, have such powers and shall perform such duties as the Board of Directors may from time to time designate.
SECTION 10. Chairperson of the Board . The Chairperson of the Board, if one is elected, shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.
SECTION 11. Chief Executive Officer . The Chief Executive Officer, if one is elected, shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.
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SECTION 12. Vice Presidents and Assistant Vice Presidents . Any Vice President (including any Executive Vice President or Senior Vice President) and any Assistant Vice President shall have such powers and shall perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.
SECTION 13. Treasurer and Assistant Treasurers . The Treasurer shall, subject to the direction of the Board of Directors and except as the Board of Directors or the Chief Executive Officer may otherwise provide, have general charge of the financial affairs of the Corporation and shall cause to be kept accurate books of account. The Treasurer shall have custody of all funds, securities, and valuable documents of the Corporation. He or she shall have such other duties and powers as may be designated from time to time by the Board of Directors or the Chief Executive Officer. Any Assistant Treasurer shall have such powers and perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.
SECTION 14. Secretary and Assistant Secretaries . The Secretary shall record all the proceedings of the meetings of the stockholders and the Board of Directors (including committees of the Board of Directors) in books kept for that purpose. In his or her absence from any such meeting, a temporary secretary chosen at the meeting shall record the proceedings thereof. The Secretary shall have charge of the stock ledger (which may, however, be kept by any transfer or other agent of the Corporation). The Secretary shall have custody of the seal of the Corporation, and the Secretary, or an Assistant Secretary shall have authority to affix it to any instrument requiring it, and, when so affixed, the seal may be attested by his or her signature or that of an Assistant Secretary. The Secretary shall have such other duties and powers as may be designated from time to time by the Board of Directors or the Chief Executive Officer. In the absence of the Secretary, any Assistant Secretary may perform his or her duties and responsibilities. Any Assistant Secretary shall have such powers and perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.
SECTION 15. Other Powers and Duties . Subject to these By-laws and to such limitations as the Board of Directors may from time to time prescribe, the officers of the Corporation shall each have such powers and duties as generally pertain to their respective offices, as well as such powers and duties as from time to time may be conferred by the Board of Directors or the Chief Executive Officer.
ARTICLE IV
Capital Stock
SECTION 1. Certificates of Stock . Each stockholder shall be entitled to a certificate of the capital stock of the Corporation in such form as may from time to time be prescribed by the Board of Directors. Such certificate shall be signed by the Chairperson of the Board, the Chief Executive Officer, the President or a Vice President and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. The Corporation seal and the signatures by the Corporations officers, the transfer agent or the registrar may be facsimiles. In case any
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officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the time of its issue. Every certificate for shares of stock which are subject to any restriction on transfer and every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall contain such legend with respect thereto as is required by law. Notwithstanding anything to the contrary provided in these Bylaws, the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares (except that the foregoing shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation), and by the approval and adoption of these Bylaws the Board of Directors has determined that all classes or series of the Corporations stock may be uncertificated, whether upon original issuance, re-issuance, or subsequent transfer.
SECTION 2. Transfers . Subject to any restrictions on transfer and unless otherwise provided by the Board of Directors, shares of stock that are represented by a certificate may be transferred on the books of the Corporation by the surrender to the Corporation or its transfer agent of the certificate theretofore properly endorsed or accompanied by a written assignment or power of attorney properly executed, with transfer stamps (if necessary) affixed, and with such proof of the authenticity of signature as the Corporation or its transfer agent may reasonably require. Shares of stock that are not represented by a certificate may be transferred on the books of the Corporation by submitting to the Corporation or its transfer agent such evidence of transfer and following such other procedures as the Corporation or its transfer agent may require.
SECTION 3. Record Holders . Except as may otherwise be required by law, by the Certificate or by these By-laws, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the Corporation in accordance with the requirements of these By-laws.
SECTION 4. Record Date . In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date: (a) in the case of determination of stockholders entitled to vote at any meeting of stockholders, shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting and (b) in the case of any other action, shall not be more than sixty (60) days prior to such other action. If no record date is fixed: (i) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the
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day next preceding the day on which the meeting is held; and (ii) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
SECTION 5. Replacement of Certificates . In case of the alleged loss, destruction or mutilation of a certificate of stock of the Corporation, a duplicate certificate may be issued in place thereof, upon such terms as the Board of Directors may prescribe.
ARTICLE V
Indemnification
SECTION 1. Definitions . For purposes of this Article:
(a) Corporate Status describes the status of a person who is serving or has served (i) as a Director of the Corporation, (ii) as an Officer of the Corporation, (iii) as a Non-Officer Employee of the Corporation, or (iv) as a director, partner, trustee, officer, employee or agent of any other corporation, partnership, limited liability company, joint venture, trust, employee benefit plan, foundation, association, organization or other legal entity which such person is or was serving at the request of the Corporation. For purposes of this Section 1(a), a Director, Officer or Non-Officer Employee of the Corporation who is serving or has served as a director, partner, trustee, officer, employee or agent of a Subsidiary shall be deemed to be serving at the request of the Corporation. Notwithstanding the foregoing, Corporate Status shall not include the status of a person who is serving or has served as a director, officer, employee or agent of a constituent corporation absorbed in a merger or consolidation transaction with the Corporation with respect to such persons activities prior to said transaction, unless specifically authorized by the Board of Directors or the stockholders of the Corporation;
(b) Director means any person who serves or has served the Corporation as a director on the Board of Directors of the Corporation;
(c) Disinterested Director means, with respect to each Proceeding in respect of which indemnification is sought hereunder, a Director of the Corporation who is not and was not a party to such Proceeding;
(d) Expenses means all attorneys fees, retainers, court costs, transcript costs, fees of expert witnesses, private investigators and professional advisors (including, without limitation, accountants and investment bankers), travel expenses, duplicating costs, printing and binding costs, costs of preparation of demonstrative evidence and other courtroom presentation aids and devices, costs incurred in connection with document review, organization, imaging and computerization, telephone charges, postage, delivery service fees, and all other disbursements, costs or expenses of the type customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, settling or otherwise participating in, a Proceeding;
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(e) Liabilities means judgments, damages, liabilities, losses, penalties, excise taxes, fines and amounts paid in settlement;
(f) Non-Officer Employee means any person who serves or has served as an employee or agent of the Corporation, but who is not or was not a Director or Officer;
(g) Officer means any person who serves or has served the Corporation as an officer of the Corporation appointed by the Board of Directors of the Corporation;
(h) Proceeding means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, inquiry, investigation, administrative hearing or other proceeding, whether civil, criminal, administrative, arbitrative or investigative; and
(i) Subsidiary shall mean any corporation, partnership, limited liability company, joint venture, trust or other entity of which the Corporation owns (either directly or through or together with another Subsidiary of the Corporation) either (i) a general partner, managing member or other similar interest or (ii) (A) fifty percent (50%) or more of the voting power of the voting capital equity interests of such corporation, partnership, limited liability company, joint venture or other entity, or (B) fifty percent (50%) or more of the outstanding voting capital stock or other voting equity interests of such corporation, partnership, limited liability company, joint venture or other entity.
SECTION 2. Indemnification of Directors and Officers .
(a) Subject to the operation of Section 4 of this Article V of these By-laws, each Director and Officer shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), and to the extent authorized in this Section 2.
(1) Actions, Suits and Proceedings Other than By or In the Right of the Corporation . Each Director and Officer shall be indemnified and held harmless by the Corporation against any and all Expenses and Liabilities that are incurred or paid by such Director or Officer or on such Directors or Officers behalf in connection with any Proceeding or any claim, issue or matter therein (other than an action by or in the right of the Corporation), which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Directors or Officers Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful.
(2) Actions, Suits and Proceedings By or In the Right of the Corporation . Each Director and Officer shall be indemnified and held harmless by the Corporation against any and all Expenses that are incurred by such Director or Officer or on such Directors or Officers behalf in connection with any Proceeding or any claim, issue or matter therein by or in the right
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of the Corporation, which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Directors or Officers Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed to the best interests of the Corporation; provided, however, that no indemnification shall be made under this Section 2(a)(2) in respect of any claim, issue or matter as to which such Director or Officer shall have been finally adjudged by a court of competent jurisdiction to be liable to the Corporation, unless, and only to the extent that, the Court of Chancery or another court in which such Proceeding was brought shall determine upon application that, despite adjudication of liability, but in view of all the circumstances of the case, such Director or Officer is fairly and reasonably entitled to indemnification for such Expenses that such court deems proper.
(3) Survival of Rights . The rights of indemnification provided by this Section 2 shall continue as to a Director or Officer after he or she has ceased to be a Director or Officer and shall inure to the benefit of his or her heirs, executors, administrators and personal representatives.
(4) Actions by Directors or Officers . Notwithstanding the foregoing, the Corporation shall indemnify any Director or Officer seeking indemnification in connection with a Proceeding initiated by such Director or Officer only if such Proceeding (including any parts of such Proceeding not initiated by such Director or Officer) was authorized in advance by the Board of Directors of the Corporation, unless such Proceeding was brought to enforce such Officers or Directors rights to indemnification or, in the case of Directors, advancement of Expenses under these By-laws in accordance with the provisions set forth herein.
SECTION 3. Indemnification of Non-Officer Employees . Subject to the operation of Section 4 of this Article V of these By-laws, each Non-Officer Employee may, in the discretion of the Board of Directors of the Corporation, be indemnified by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended, against any or all Expenses and Liabilities that are incurred by such Non-Officer Employee or on such Non-Officer Employees behalf in connection with any threatened, pending or completed Proceeding, or any claim, issue or matter therein, which such Non-Officer Employee is, or is threatened to be made, a party to or participant in by reason of such Non-Officer Employees Corporate Status, if such Non-Officer Employee acted in good faith and in a manner such Non-Officer Employee reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The rights of indemnification provided by this Section 3 shall exist as to a Non-Officer Employee after he or she has ceased to be a Non-Officer Employee and shall inure to the benefit of his or her heirs, personal representatives, executors and administrators. Notwithstanding the foregoing, the Corporation may indemnify any Non-Officer Employee seeking indemnification in connection with a Proceeding initiated by such Non-Officer Employee only if such Proceeding was authorized in advance by the Board of Directors of the Corporation.
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SECTION 4. Determination . Unless ordered by a court, no indemnification shall be provided pursuant to this Article V to a Director, to an Officer or to a Non-Officer Employee unless a determination shall have been made that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal Proceeding, such person had no reasonable cause to believe his or her conduct was unlawful. Such determination shall be made by (a) a majority vote of the Disinterested Directors, even though less than a quorum of the Board of Directors, (b) a committee comprised of Disinterested Directors, such committee having been designated by a majority vote of the Disinterested Directors (even though less than a quorum), (c) if there are no such Disinterested Directors, or if a majority of Disinterested Directors so directs, by independent legal counsel in a written opinion, or (d) by the stockholders of the Corporation.
SECTION 5. Advancement of Expenses to Directors Prior to Final Disposition .
(a) The Corporation shall advance all Expenses incurred by or on behalf of any Director in connection with any Proceeding in which such Director is involved by reason of such Directors Corporate Status within thirty (30) days after the receipt by the Corporation of a written statement from such Director requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Director and shall be preceded or accompanied by an undertaking by or on behalf of such Director to repay any Expenses so advanced if it shall ultimately be determined that such Director is not entitled to be indemnified against such Expenses. Notwithstanding the foregoing, the Corporation shall advance all Expenses incurred by or on behalf of any Director seeking advancement of expenses hereunder in connection with a Proceeding initiated by such Director only if such Proceeding (including any parts of such Proceeding not initiated by such Director) was (i) authorized by the Board of Directors of the Corporation, or (ii) brought to enforce such Directors rights to indemnification or advancement of Expenses under these By-laws.
(b) If a claim for advancement of Expenses hereunder by a Director is not paid in full by the Corporation within thirty (30) days after receipt by the Corporation of documentation of Expenses and the required undertaking, such Director may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and if successful in whole or in part, such Director shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such advancement of Expenses under this Article V shall not be a defense to an action brought by a Director for recovery of the unpaid amount of an advancement claim and shall not create a presumption that such advancement is not permissible. The burden of proving that a Director is not entitled to an advancement of expenses shall be on the Corporation.
(c) In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Director has not met any applicable standard for indemnification set forth in the DGCL.
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SECTION 6. Advancement of Expenses to Officers and Non-Officer Employees Prior to Final Disposition .
(a) The Corporation may, at the discretion of the Board of Directors of the Corporation, advance any or all Expenses incurred by or on behalf of any Officer or any Non-Officer Employee in connection with any Proceeding in which such person is involved by reason of his or her Corporate Status as an Officer or Non-Officer Employee upon the receipt by the Corporation of a statement or statements from such Officer or Non-Officer Employee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Officer or Non-Officer Employee and shall be preceded or accompanied by an undertaking by or on behalf of such person to repay any Expenses so advanced if it shall ultimately be determined that such Officer or Non-Officer Employee is not entitled to be indemnified against such Expenses.
(b) In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Officer or Non-Officer Employee has not met any applicable standard for indemnification set forth in the DGCL.
SECTION 7. Contractual Nature of Rights .
(a) The provisions of this Article V shall be deemed to be a contract between the Corporation and each Director and Officer entitled to the benefits hereof at any time while this Article V is in effect, in consideration of such persons past or current and any future performance of services for the Corporation. Neither amendment, repeal or modification of any provision of this Article V nor the adoption of any provision of the Certificate of Incorporation inconsistent with this Article V shall eliminate or reduce any right conferred by this Article V in respect of any act or omission occurring, or any cause of action or claim that accrues or arises or any state of facts existing, at the time of or before such amendment, repeal, modification or adoption of an inconsistent provision (even in the case of a proceeding based on such a state of facts that is commenced after such time), and all rights to indemnification and advancement of Expenses granted herein or arising out of any act or omission shall vest at the time of the act or omission in question, regardless of when or if any proceeding with respect to such act or omission is commenced. The rights to indemnification and to advancement of expenses provided by, or granted pursuant to, this Article V shall continue notwithstanding that the person has ceased to be a director or officer of the Corporation and shall inure to the benefit of the estate, heirs, executors, administrators, legatees and distributees of such person.
(b) If a claim for indemnification hereunder by a Director or Officer is not paid in full by the Corporation within sixty (60) days after receipt by the Corporation of a written claim for indemnification, such Director or Officer may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and if successful in whole or in part, such Director or Officer shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the
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permissibility of such indemnification under this Article V shall not be a defense to an action brought by a Director or Officer for recovery of the unpaid amount of an indemnification claim and shall not create a presumption that such indemnification is not permissible. The burden of proving that a Director or Officer is not entitled to indemnification shall be on the Corporation.
(c) In any suit brought by a Director or Officer to enforce a right to indemnification hereunder, it shall be a defense that such Director or Officer has not met any applicable standard for indemnification set forth in the DGCL.
SECTION 8. Non-Exclusivity of Rights . The rights to indemnification and to advancement of Expenses set forth in this Article V shall not be exclusive of any other right which any Director, Officer, or Non-Officer Employee may have or hereafter acquire under any statute, provision of the Certificate or these By-laws, agreement, vote of stockholders or Disinterested Directors or otherwise.
SECTION 9. Insurance . The Corporation may maintain insurance, at its expense, to protect itself and any Director, Officer or Non-Officer Employee against any liability of any character asserted against or incurred by the Corporation or any such Director, Officer or Non-Officer Employee, or arising out of any such persons Corporate Status, whether or not the Corporation would have the power to indemnify such person against such liability under the DGCL or the provisions of this Article V.
SECTION 10. Other Indemnification . The Corporations obligation, if any, to indemnify or provide advancement of Expenses to any person under this Article V as a result of such person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount such person may collect as indemnification or advancement of Expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or enterprise (the Primary Indemnitor). Any indemnification or advancement of Expenses under this Article V owed by the Corporation as a result of a person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall only be in excess of, and shall be secondary to, the indemnification or advancement of Expenses available from the applicable Primary Indemnitor(s) and any applicable insurance policies.
ARTICLE VI
Miscellaneous Provisions
SECTION 1. Fiscal Year . The fiscal year of the Corporation shall be determined by the Board of Directors.
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SECTION 2. Seal . The Board of Directors shall have power to adopt and alter the seal of the Corporation.
SECTION 3. Execution of Instruments . All deeds, leases, transfers, contracts, bonds, notes and other obligations to be entered into by the Corporation in the ordinary course of its business without director action may be executed on behalf of the Corporation by the Chairperson of the Board, if one is elected, the Chief Executive Officer, the President or the Treasurer or any other officer, employee or agent of the Corporation as the Board of Directors or the executive committee of the Board may authorize.
SECTION 4. Voting of Securities . Unless the Board of Directors otherwise provides, the Chairperson of the Board, if one is elected, the Chief Executive Officer, the President or the Treasurer may waive notice of and act on behalf of the Corporation, or appoint another person or persons to act as proxy or attorney in fact for the Corporation with or without discretionary power and/or power of substitution, at any meeting of stockholders or shareholders of any other corporation or organization, any of whose securities are held by the Corporation.
SECTION 5. Resident Agent . The Board of Directors may appoint a resident agent upon whom legal process may be served in any action or proceeding against the Corporation.
SECTION 6. Corporate Records . The original or attested copies of the Certificate, By-laws and records of all meetings of the incorporators, stockholders and the Board of Directors and the stock transfer books, which shall contain the names of all stockholders, their record addresses and the amount of stock held by each, may be kept outside the State of Delaware and shall be kept at the principal office of the Corporation, at an office of its counsel, at an office of its transfer agent or at such other place or places as may be designated from time to time by the Board of Directors.
SECTION 7. Certificate . All references in these By-laws to the Certificate shall be deemed to refer to the Amended and Restated Certificate of Incorporation of the Corporation, as amended and/or restated and in effect from time to time.
SECTION 8. Amendment of By-laws .
(a) Amendment by Directors . Except as provided otherwise by law, these By-laws may be amended or repealed by the Board of Directors by the affirmative vote of a majority of the directors then in office.
(b) Amendment by Stockholders . These By-laws may be amended or repealed at any Annual Meeting, or special meeting of stockholders called for such purpose in accordance with these By-Laws, by the affirmative vote of at least seventy-five percent (75%) of the outstanding shares entitled to vote on such amendment or repeal, voting together as a single class; provided, however, that if the Board of Directors recommends that stockholders approve such amendment or repeal at such meeting of stockholders, such amendment or repeal shall only require the
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affirmative vote of the majority of the outstanding shares entitled to vote on such amendment or repeal, voting together as a single class. Notwithstanding the foregoing, stockholder approval shall not be required unless mandated by the Certificate, these By-laws, or other applicable law.
SECTION 9. Notices . If mailed, notice to stockholders shall be deemed given when deposited in the mail, postage prepaid, directed to the stockholder at such stockholders address as it appears on the records of the Corporation. Without limiting the manner by which notice otherwise may be given to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the DGCL.
SECTION 10. Waivers . A written waiver of any notice, signed by a stockholder or director, or waiver by electronic transmission by such person, whether given before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such person. Neither the business to be transacted at, nor the purpose of, any meeting need be specified in such a waiver.
Adopted , 2015
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Exhibit 4.1
NUMBER
AS
Amplify
SNACK BRANDS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SHARES
CUSIP 03211L 10 2
SEE REVERSE FOR CERTAIN DEFINITIONS
This certifies that
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK PAR VALUE $0.0001 PAR VALUE PER SHARE, OF
Amplify Snack Brands, Inc.
transferable on the books of the corporation in
person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
Dated:
Chief Executive Officer
AMPLIFY SNACK BRANDS, INC.
CORPORATE
SEAL
JULY 2, 2014
DELAWARE
Chief Financial Officer
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC
(NEW YORK, NY)
TRANSFER AGENT AND REGISTRAR
BY:
AUTHORIZED SIGNATURE
HERITAGE BANKNOTE
The Corporation shall furnish without charge to each stockholder who so requests a statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock of the Corporation or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Such requests shall be made to the Corporations Secretary at the principal office of the Corporation.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED THE CORPORATION WILL REQUIRE A BOND INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM | | as tenants in common | ||
TEN ENT | | as tenants by the entireties | ||
JT TEN | | as joint tenants with right of | ||
survivorship and not as tenants | ||||
in common | ||||
COM PROP | | as community property |
UNIF GIFT MIN ACT | |
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Custodian |
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(Cust) | (Minor) | |||||||
under Uniform Gifts to Minors |
Act |
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(State) |
UNIF TRF MIN ACT | |
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Custodian (until age ) | |||||
(Cust) | ||||||||
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under Uniform Transfers | |||||||
(Minor) |
to Minors Act |
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(State) |
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, |
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hereby sell(s), assign(s) and transfer(s) unto |
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE | ||||
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
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shares |
of the capital stock represented by within Certificate, and do hereby irrevocably constitute and appoint
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attorney-in-fact |
to transfer the said stock on the books of the within named Corporation with full power of the substitution in the premises.
Dated |
X |
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X |
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Signature(s) Guaranteed: | NOTICE: | THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER. |
By |
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THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION, (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. GUARANTEES BY A NOTARY PUBLIC ARE NOT ACCEPTABLE. SIGNATURE GUARANTEES MUST NOT BE DATED. |
Exhibit 4.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this Agreement ), is made as of the day of , 2015, by and among Amplify Snack Brands, Inc. a Delaware corporation (the Company ), each of the stockholders listed on Schedule A hereto, each of which is referred to in this Agreement as a TA Member , and each of the stockholders listed on Schedule B hereto, each of whom is referred to herein as a Non-TA Stockholder .
RECITALS
WHEREAS , as of the date hereof, the Holders (as defined below) own Registrable Securities (as defined below); and
WHEREAS , the parties desire to set forth certain registration rights applicable to the Registrable Securities.
NOW, THEREFORE , in consideration of the foregoing and the mutual promises, covenants and agreements of the parties hereto, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Definitions . For purposes of this Agreement:
1.1 Affiliate means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such Person, including without limitation any general partner, managing member, officer or director of such Person or any private equity fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company with, such Person; provided , however , that no securityholder of the Company shall be deemed an Affiliate of any other securityholder of the Company solely by reason of an investment in the Company; provided further that portfolio companies (as such term is commonly used in the private equity industry) of the TA Members and limited partners, non-managing members or other similar direct or indirect investors in the TA Members shall be deemed to not be Affiliates of the TA Members.
1.2 Change of Control means the occurrence of any of the following: (i) the sale, lease or transfer, in one or a series of related transactions, of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, to any Person other than the TA Members or their Affiliates or (ii) the acquisition by any Person or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision), including any group acting for the purpose of acquiring, holding or disposing of securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act, or any successor provision), other than the TA Members or their Affiliates, in a single transaction or in a related series of transactions, by way of merger, consolidation or other business combination or purchase of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision) of more than 50% of the Companys Common Stock.
1.3 Common Stock means shares of the Companys common stock, par value $0.0001 per share.
1.4 Damages means any loss, damage, claim or liability (joint or several) to which a party hereto may become subject under the Securities Act, the Exchange Act, or other federal or state law, insofar as such loss, damage, claim or liability (or any action in respect thereof) arises out of or is based upon: (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement of the Company, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) an omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the indemnifying party (or any of its agents or Affiliates) of the Securities Act, the Exchange Act, any state securities law, or any rule or regulation promulgated under the Securities Act, the Exchange Act, or any state securities law.
1.5 Effectiveness Date means the date on which the TA Members are no longer subject to any underwriters lock-up or other similar contractual restriction on the sale of Registrable Securities in connection with an IPO.
1.6 Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
1.7 Excluded Registration means (i) a registration relating to the sale of securities to employees of the Company or a subsidiary pursuant to a stock option, stock purchase, or similar plan; (ii) a registration relating to an SEC Rule 145 transaction; (iii) a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities; or (iv) a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered.
1.8 Form S-1 means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC.
1.9 Form S-3 means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC that permits incorporation of substantial information by reference to other documents filed by the Company with the SEC.
1.10 Holder means any holder of Registrable Securities who is a party to this Agreement.
1.11 Initiating Holders means, collectively, Holders who properly initiate a registration request under this Agreement.
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1.12 IPO means the Companys first underwritten public offering of its Common Stock under the Securities Act.
1.13 Non-TA Registrable Securities means (i) the shares of Common Stock held by the Non-TA Stockholders, and (ii) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of such shares.
1.14 Person means any individual, corporation, partnership, trust, limited liability company, association or other entity.
1.15 Registrable Securities means (i) the Common Stock held by the TA Members and Non-TA Stockholders; provided , however , that the Non-TA Registrable Securities shall not be deemed Registrable Securities and the Non-TA Stockholders shall not be deemed Holders for the purposes of Subsections 2.1(a), 2.10 and 3.7 , and (ii) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares referenced in clause (i) above; excluding in all cases, however, any Registrable Securities sold by a Person in a transaction in which the applicable rights under this Agreement are not assigned pursuant to Subsection 3.2 .
1.16 Registrable Securities then outstanding means the number of shares determined by adding the number of shares of outstanding Common Stock that are Registrable Securities and the number of shares of Common Stock issuable (directly or indirectly) pursuant to then exercisable and/or convertible securities that are Registrable Securities.
1.17 SEC means the Securities and Exchange Commission.
1.18 SEC Rule 144 means Rule 144 promulgated by the SEC under the Securities Act.
1.19 SEC Rule 145 means Rule 145 promulgated by the SEC under the Securities Act.
1.20 Securities Act means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
1.21 Selling Expenses means all underwriting discounts, selling commissions, and stock transfer taxes applicable to the sale of Registrable Securities, and fees and disbursements of counsel for any Holder, except for the fees and disbursements of the Selling Holder Counsel borne and paid by the Company as provided in Subsection 2.6 .
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2. Registration Rights . The Company covenants and agrees as follows:
2.1 Demand Registration .
(a) Form S-1 Demand . If at any time after the Effectiveness Date, the Company receives a request from one or more TA Members that the Company file a Form S-1 registration statement, then the Company shall (x) within ten (10) days after the date such request is given, give notice thereof (the Demand Notice ) to all Holders other than the Initiating Holders; and (y) as soon as practicable, and in any event within ninety (90) days after the date such request is given by the Initiating Holders, file a Form S-1 registration statement under the Securities Act covering all Registrable Securities that the Initiating Holders requested to be registered and any additional Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within twenty (20) days of the date the Demand Notice is given, and in each case, subject to the limitations of Subsections 2.1(c) and 2.3.
(b) Form S-3 Demand . If at any time when it is eligible to use a Form S-3 registration statement, the Company receives a request from Holders of at least twenty percent (20%) of the Registrable Securities then outstanding that the Company file a Form S-3 registration statement with respect to outstanding Registrable Securities of such Holders having an anticipated aggregate offering price, net of Selling Expenses, of at least $5 million, then the Company shall (i) within ten (10) days after the date such request is given, give a Demand Notice to all Holders other than the Initiating Holders; and (ii) as soon as practicable, and in any event within forty-five (45) days after the date such request is given by the Initiating Holders, file a Form S-3 registration statement under the Securities Act covering all Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within twenty (20) days of the date the Demand Notice is given, and in each case, subject to the limitations of Subsections 2.1(c) and 2.3 .
(c) Notwithstanding the foregoing obligations, if the Company furnishes to Holders requesting a registration pursuant to this Subsection 2.1 a certificate signed by the Companys chief executive officer stating that in the good faith judgment of the Companys Board of Directors it would be materially detrimental to the Company and its stockholders for such registration statement to either become effective or remain effective for as long as such registration statement otherwise would be required to remain effective, because such action would (i) materially interfere with a significant acquisition, corporate reorganization, or other similar transaction involving the Company; (ii) require premature disclosure of material information that the Company has a bona fide business purpose for preserving as confidential; or (iii) render the Company unable to comply with requirements under the Securities Act or Exchange Act, then the Company shall have the right to defer taking action with respect to such filing, and any time periods with respect to filing or effectiveness thereof shall be tolled correspondingly, for a period of not more than ninety (90) days after the request of the Initiating Holders is given; provided , however , that the Company may not invoke this right more than once in any twelve (12) month period; and provided further that the Company shall not register any securities for its own account or that of any other stockholder during such ninety (90) day period other than pursuant to a registration relating to the sale of securities to employees of the Company or a subsidiary pursuant to a stock option, stock purchase, or similar plan; a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities; or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered.
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(d) The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Subsection 2.1(a)(i) during the period that is sixty (60) days before the Companys good faith estimate of the date of filing of, and ending on a date that is one-hundred eighty (180) days after the effective date of, a Company-initiated registration, provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; or (ii) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Subsection 2.1(b) . The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Subsection 2.1(b) (i) during the period that is thirty (30) days before the Companys good faith estimate of the date of filing of, and ending on a date that is ninety (90) days after the effective date of, a Company-initiated registration, provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; or (ii) if the Company has effected two registrations pursuant to Subsection 2.1(b) within the twelve (12) month period immediately preceding the date of such request. A registration shall not be counted as effected for purposes of this Subsection 2.1(d) until such time as the applicable registration statement has been declared effective by the SEC, unless the Initiating Holders withdraw their request for such registration, elect not to pay the registration expenses therefor, and forfeit their right to one demand registration statement pursuant to Subsection 2.6 , in which case such withdrawn registration statement shall be counted as effected for purposes of this Subsection 2.1(d) .
2.2 Company Registration . If the Company proposes to register (including, for this purpose, a registration effected by the Company for stockholders other than the Holders) any of its Common Stock under the Securities Act in connection with the public offering of such securities solely for cash (other than in an Excluded Registration), the Company shall, at such time, promptly give each Holder notice of such registration. Upon the request of each Holder given within twenty (20) days after such notice is given by the Company, the Company shall, subject to the provisions of Subsection 2.3 , cause to be registered all of the Registrable Securities that each such Holder has requested to be included in such registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Subsection 2.2 before the effective date of such registration, whether or not any Holder has elected to include Registrable Securities in such registration. The expenses (other than Selling Expenses) of such withdrawn registration shall be borne by the Company in accordance with Subsection 2.6 .
2.3 Underwriting Requirements .
(a) If, pursuant to Subsection 2.1 , the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Subsection 2.1 , and the Company shall include such information in the Demand Notice. The underwriter(s) will be selected by the Initiating Holders, subject only to the reasonable approval of the Company. In such event, the right of any Holder to include such Holders Registrable Securities in such
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registration shall be conditioned upon such Holders participation in such underwriting and the inclusion of such Holders Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Subsection 2.4(e) ) enter into an underwriting agreement in customary form with the underwriter(s) selected for such underwriting. Notwithstanding any other provision of this Subsection 2.3 , if the managing underwriter(s) advise(s) the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities that otherwise would be underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be allocated (i) first to the TA Members participating in such underwriting, if any, and then (ii) among such other Holders of Registrable Securities, including the Initiating Holders, if applicable, in proportion (as nearly as practicable) to the number of Registrable Securities owned by each Holder or in such other proportion as shall mutually be agreed to by all such selling Holders; provided , however , that the number of Registrable Securities held by the Holders to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting.
(b) In connection with any offering involving an underwriting of shares of the Companys capital stock pursuant to Subsection 2.2 , the Company shall not be required to include any of the Holders Registrable Securities in such underwriting unless the Holders accept the terms of the underwriting as agreed upon between the Company and its underwriters, and then only in such quantity as the underwriters in their sole discretion determine will not jeopardize the success of the offering by the Company. If the total number of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the number of securities to be sold (other than by the Company) that the underwriters in their reasonable discretion determine is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters and the Company in their sole discretion determine will not jeopardize the success of the offering. If the underwriters determine that less than all of the Registrable Securities requested to be registered can be included in such offering, then the Registrable Securities that are included in such offering shall be allocated among the selling Holders in proportion (as nearly as practicable to) the number of Registrable Securities owned by each selling Holder or in such other proportions as shall mutually be agreed to by all such selling Holders. Notwithstanding the foregoing, in no event shall (i) the number of Registrable Securities included in the offering be reduced unless all other securities (other than securities to be sold by the Company) are first entirely excluded from the offering, (ii) the number of Registrable Securities included in the offering be reduced below thirty percent (30%) of the total number of securities included in such offering, or (iii) notwithstanding (ii) above, all Non-TA Registrable Securities be excluded from such underwriting before any Registrable Securities held by TA Members are excluded from such offering. For purposes of the provision in this Subsection 2.3(b) concerning apportionment, for any selling Holder that is a partnership, limited liability company, or corporation, the partners, members, retired partners, retired members, stockholders, and Affiliates of such Holder, or the estates and Immediate Family Members of any such partners, retired partners, members, and retired members and any trusts for the benefit of any of the foregoing Persons, shall be deemed to be a single selling Holder, and any pro rata reduction with respect to such selling Holder shall be based upon the aggregate number of Registrable Securities owned by all Persons included in such selling Holder, as defined in this sentence.
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(c) For purposes of Subsection 2.1 , a registration shall not be counted as effected if, as a result of an exercise of the underwriters cutback provisions in Subsection 2.3(a) , fewer than fifty percent (50%) of the total number of Registrable Securities that Holders have requested to be included in such registration statement are actually included.
2.4 Obligations of the Company . Whenever required under this Section 2 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:
(a) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such registration statement to become effective and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to one hundred twenty (120) days or, if earlier, until the distribution contemplated in the registration statement has been completed; provided , however , that (i) such one hundred twenty (120) day period shall be extended for a period of time equal to the period the Holder refrains, at the request of an underwriter of Common Stock (or other securities) of the Company, from selling any securities included in such registration, and (ii) in the case of any registration of Registrable Securities on Form S-3 that are intended to be offered on a continuous or delayed basis, subject to compliance with applicable SEC rules, such one hundred twenty (120) day period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold;
(b) prepare and file with the SEC such amendments and supplements to such registration statement, and the prospectus used in connection with such registration statement, as may be necessary to comply with the Securities Act in order to enable the disposition of all securities covered by such registration statement;
(c) furnish to the selling Holders such numbers of copies of a prospectus, including a preliminary prospectus, as required by the Securities Act, and such other documents as the Holders may reasonably request in order to facilitate their disposition of their Registrable Securities;
(d) use its commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or blue-sky laws of such jurisdictions as shall be reasonably requested by the selling Holders; provided that the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;
(e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the underwriter(s) of such offering;
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(f) use its commercially reasonable efforts to cause all such Registrable Securities covered by such registration statement to be listed on a national securities exchange or trading system and each securities exchange and trading system (if any) on which similar securities issued by the Company are then listed;
(g) provide a transfer agent and registrar for all Registrable Securities registered pursuant to this Agreement and provide a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration;
(h) promptly make available for inspection by the selling Holders, any underwriter(s) participating in any disposition pursuant to such registration statement, and any attorney or accountant or other agent retained by any such underwriter or selected by the selling Holders, all financial and other records, pertinent corporate documents, and properties of the Company, and cause the Companys officers, directors, employees, and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant, or agent, in each case, as necessary or advisable to verify the accuracy of the information in such registration statement and to conduct appropriate due diligence in connection therewith;
(i) notify each selling Holder, promptly after the Company receives notice thereof, of the time when such registration statement has been declared effective or a supplement to any prospectus forming a part of such registration statement has been filed; and
(j) after such registration statement becomes effective, notify each selling Holder of any request by the SEC that the Company amend or supplement such registration statement or prospectus.
In addition, the Company shall ensure that, at all times after any registration statement covering a public offering of securities of the Company under the Securities Act shall have become effective, its insider trading policy shall provide that the Companys directors may implement a trading program under Rule 10b5-1 of the Exchange Act.
2.5 Furnish Information . It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 2 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as is reasonably required to effect the registration of such Holders Registrable Securities.
2.6 Expenses of Registration . All expenses (other than Selling Expenses) incurred in connection with registrations, filings, or qualifications pursuant to Section 2 , including all registration, filing, and qualification fees; printers and accounting fees; fees and disbursements of counsel for the Company; and the reasonable fees and disbursements of one counsel for the selling Holders ( Selling Holder Counsel ), shall be borne and paid by the Company; provided , however , that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Subsection 2.1 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities
8
to be registered (in which case all selling Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be included in the withdrawn registration), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one registration pursuant to Subsections 2.1(a) or 2.1(b) , as the case may be; provided further that if, at the time of such withdrawal, the Holders shall have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness after learning of such information then the Holders shall not be required to pay any of such expenses and shall not forfeit their right to one registration pursuant to Subsections 2.1(a) or 2.1(b) . All Selling Expenses relating to Registrable Securities registered pursuant to this Section 2 shall be borne and paid by the Holders pro rata on the basis of the number of Registrable Securities registered on their behalf.
2.7 Delay of Registration . No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any registration pursuant to this Agreement as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2 .
2.8 Indemnification . If any Registrable Securities are included in a registration statement under this Section 2 :
(a) To the extent permitted by law, the Company will indemnify and hold harmless each selling Holder, and the partners, members, officers, directors, and stockholders of each such Holder; legal counsel and accountants for each such Holder; any underwriter (as defined in the Securities Act) for each such Holder; and each Person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any Damages, and the Company will pay to each such Holder, underwriter, controlling Person, or other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided , however , that the indemnity agreement contained in this Subsection 2.8(a) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable for any Damages to the extent that they arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of any such Holder, underwriter, controlling Person, or other aforementioned Person expressly for use in connection with such registration.
(b) To the extent permitted by law, each selling Holder, severally and not jointly, will indemnify and hold harmless the Company, and each of its directors, each of its officers who has signed the registration statement, each Person (if any), who controls the Company within the meaning of the Securities Act, legal counsel and accountants for the Company, any underwriter (as defined in the Securities Act), any other Holder selling securities in such registration statement, and any controlling Person of any such underwriter or other Holder, against any Damages, in each case only to the extent that such Damages arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of such selling Holder expressly for use in connection with
9
such registration; and each such selling Holder will pay to the Company and each other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided , however , that the indemnity agreement contained in this Subsection 2.8(b) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided further that in no event shall the aggregate amounts payable by any Holder by way of indemnity or contribution under Subsections 2.8(b) and 2.8(d) exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of fraud or willful misconduct by such Holder.
(c) Promptly after receipt by an indemnified party under this Subsection 2.8 of notice of the commencement of any action (including any governmental action) for which a party may be entitled to indemnification hereunder, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Subsection 2.8 , give the indemnifying party notice of the commencement thereof. The indemnifying party shall have the right to participate in such action and, to the extent the indemnifying party so desires, participate jointly with any other indemnifying party to which notice has been given, and to assume the defense thereof with counsel mutually satisfactory to the parties; provided , however , that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such action. The failure to give notice to the indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of any liability to the indemnified party under this Subsection 2.8 , to the extent that such failure materially prejudices the indemnifying partys ability to defend such action. The failure to give notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Subsection 2.8 .
(d) To provide for just and equitable contribution to joint liability under the Securities Act in any case in which either: (i) any party otherwise entitled to indemnification hereunder makes a claim for indemnification pursuant to this Subsection 2.8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case, notwithstanding the fact that this Subsection 2.8 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any party hereto for which indemnification is provided under this Subsection 2.8 , then, and in each such case, such parties will contribute to the aggregate losses, claims, damages, liabilities, or expenses to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of each of the indemnifying party and the indemnified party in connection with the statements, omissions, or other actions that resulted in such loss, claim, damage, liability, or expense, as well as to reflect any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the
10
untrue or allegedly untrue statement of a material fact, or the omission or alleged omission of a material fact, relates to information supplied by the indemnifying party or by the indemnified party and the parties relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission; provided , however , that, in any such case (x) no Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement, and (y) no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation; and provided further that in no event shall a Holders liability pursuant to this Subsection 2.8(d) , when combined with the amounts paid or payable by such Holder pursuant to Subsection 2.8(b) , exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of willful misconduct or fraud by such Holder.
(e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.
(f) Unless otherwise superseded by an underwriting agreement entered into in connection with the underwritten public offering, the obligations of the Company and Holders under this Subsection 2.8 shall survive the completion of any offering of Registrable Securities in a registration under this Section 2 , and otherwise shall survive the termination of this Agreement.
2.9 Reports Under Exchange Act . With a view to making available to the Holders the benefits of SEC Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company shall:
(a) make and keep available adequate current public information, as those terms are understood and defined in SEC Rule 144, at all times after the effective date of the registration statement filed by the Company for the IPO;
(b) use commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after the Company has become subject to such reporting requirements); and
(c) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) to the extent accurate, a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the registration statement filed by the Company for the IPO), the Securities Act, and the Exchange Act (at any time after the Company has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after the Company so qualifies) and (ii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration (at any time after the Company has become subject to the reporting requirements under the Exchange Act) or pursuant to Form S-3 (at any time after the Company so qualifies to use such form).
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2.10 Limitations on Subsequent Registration Rights . From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company that (i) would allow such holder or prospective holder (i) to include such securities in any registration unless, under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the number of the Registrable Securities of the Holders that are included; or (ii) allow such holder or prospective holder to initiate a demand for registration of any securities held by such holder or prospective holder.
3. Miscellaneous .
3.1 Term . This Agreement shall terminate with respect to any Holder (a) with the prior written consent of the TA Members in connection with the consummation of a Change of Control, (b) at such time as such Holder does not beneficially own any Registrable Securities, or (c) if earlier, on the date on which such Holders Registrable Securities would be freely tradable by such Holder without restriction on the basis of volume limitations under Rule 144. Notwithstanding the foregoing, the provisions of Sections 2.8 and this Section 3 shall survive any such termination. Upon the written request of the Company, each Holder agrees to promptly deliver a certificate to the Company setting forth the number of Registrable Securities then beneficially owned by such Holder.
3.2 Successors and Assigns . The rights under this Agreement may be assigned (but only with all related obligations) by a Holder to a transferee of Registrable Securities that (i) is an Affiliate of a Holder; or (ii) is a Holders Immediate Family Member or trust for the benefit of an individual Holder or one or more of such Holders Immediate Family Members; provided , however , that (x) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee and the Registrable Securities with respect to which such rights are being transferred; and (y) such transferee agrees in a written instrument delivered to the Company to be bound by and subject to the terms and conditions of this Agreement. For the purposes of determining the number of shares of Registrable Securities held by a transferee, the holdings of a transferee (1) that is an Affiliate or stockholder of a Holder; (2) who is a Holders Immediate Family Member; or (3) that is a trust for the benefit of an individual Holder or such Holders Immediate Family Member shall be aggregated together and with those of the transferring Holder; provided further that all transferees who would not qualify individually for assignment of rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices, or taking any action under this Agreement. The terms and conditions of this Agreement inure to the benefit of and are binding upon the respective successors and permitted assignees of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assignees any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein.
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3.3 Governing Law . This Agreement shall be governed by the internal law of the State of Delaware.
3.4 Counterparts . This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g. , www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes .
3.5 Titles and Subtitles . The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing or interpreting this Agreement.
3.6 Notices . All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or (i) personal delivery to the party to be notified; (ii) when sent, if sent by electronic mail or facsimile during the recipients normal business hours, and if not sent during normal business hours, then on the recipients next business day; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) business day after the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next-day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their addresses as set forth on Schedule A or Schedule B (as applicable) hereto, or to the principal office of the Company and to the attention of the Chief Executive Officer, in the case of the Company, or to such email address, facsimile number, or address as subsequently modified by written notice given in accordance with this Subsection 3.6 .
3.7 Amendments and Waivers . Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with the written consent of the Company and the holders of a majority of the Registrable Securities then outstanding; provided that any provision hereof may be waived by any waiving party on such partys own behalf, without the consent of any other party. The Company shall give prompt notice of any amendment or termination hereof or waiver hereunder to any party hereto that did not consent in writing to such amendment, termination, or waiver. Any amendment, termination, or waiver effected in accordance with this Subsection 3.7 shall be binding on all parties hereto, regardless of whether any such party has consented thereto. No waivers of or exceptions to any term, condition, or provision of this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such term, condition, or provision.
3.8 Severability . In case any one or more of the provisions contained in this Agreement is for any reason held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, and such invalid, illegal, or unenforceable provision shall be reformed and construed so that it will be valid, legal, and enforceable to the maximum extent permitted by law.
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3.9 Aggregation of Stock . All shares of Registrable Securities held or acquired by Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement and such Affiliated persons may apportion such rights as among themselves in any manner they deem appropriate.
3.10 Entire Agreement . This Agreement (including any Schedules and Exhibits hereto) constitutes the full and entire understanding and agreement among the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties is expressly canceled.
3.11 Dispute Resolution . The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts of Delaware and to the jurisdiction of the United States District Court for the District of Delaware for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the state courts of Delaware or the United States District Court for the District of Delaware, and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court.
WAIVER OF JURY TRIAL: EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE), BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
3.12 Delays or Omissions . No delay or omission to exercise any right, power, or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power, or remedy of such nonbreaching or nondefaulting party, nor shall it be construed to be a waiver of or acquiescence to any such breach or default, or to any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies, whether under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
AMPLIFY SNACK BRANDS, INC. | ||
By: | ||
Name: | ||
Title: |
S IGNATURE P AGE TO R EGISTRATION R IGHTS A GREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
TA MEMBERS :
TA XI, L.P. |
||
By: | TA Associates XI GP, L.P. | |
Its: | General Partner | |
By: | TA Associates, L.P. | |
Its: | General Partner | |
By: | ||
Name: Thomas Alber | ||
Title: Chief Financial Officer |
TA ATLANTIC AND PACIFIC VII-A L.P. | ||
By: | TA Associates AP VII GP L.P. | |
Its: | General Partner | |
By: | TA Associates, L.P. | |
Its: | General Partner | |
By: | ||
Name: Thomas Alber | ||
Title: Chief Financial Officer |
TA ATLANTIC AND PACIFIC VII-B L.P. | ||
By: | TA Associates AP VII GP L.P. | |
Its: | General Partner | |
By: | TA Associates, L.P. | |
Its: | General Partner | |
By: | ||
Name: Thomas Alber | ||
Title: Chief Financial Officer |
TA INVESTORS IV, L.P. | ||
By: | TA Associates, L.P. | |
Its: | General Partner | |
By: | ||
Name: Thomas Alber | ||
Title: Chief Financial Officer |
S IGNATURE P AGE TO R EGISTRATION R IGHTS A GREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
NON-TA STOCKHOLDERS :
|
Andrew S. Friedman |
|
Pamela L. Netzky |
PRECISION CAPITAL GROUP, LLC | ||
By: | ||
Name: | ||
Title: |
S IGNATURE P AGE TO R EGISTRATION R IGHTS A GREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
NON-TA STOCKHOLDERS :
|
Michael Eiserman |
|
Judith Eiserman |
|
Jeffrey Eiserman |
|
Heather Eiserman |
S IGNATURE P AGE TO R EGISTRATION R IGHTS A GREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
NON-TA STOCKHOLDERS :
|
Jason Shiver |
|
Thomas C. Ennis |
|
Brian Goldberg |
|
Dawn Hudson |
S IGNATURE P AGE TO R EGISTRATION R IGHTS A GREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
NON-TA STOCKHOLDERS :
THE FRANCIS A. DOYLE, III 2012 FAMILY TRUST | ||
By: | ||
Name: | Donna M. Doyle | |
Title: | Trustee | |
By: | ||
Name: | Thomas OToole | |
Title: | Trustee |
THE DONNA M. DOYLE, III 2012 FAMILY TRUST | ||
By: | ||
Name: | Francis A. Doyle | |
Title: | Trustee | |
By: | ||
Name: | Thomas OToole | |
Title: | Trustee |
S IGNATURE P AGE TO R EGISTRATION R IGHTS A GREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
NON-TA STOCKHOLDERS :
PARTNERS GROUP CAPITAL LLC | ||
By: | Partners Group (USA) Inc., as managing member | |
By: | Partners Group (Guernsey) Limited, under power of attorney | |
By: | ||
Name: | ||
Title: | ||
PARTNERS GROUP GLOBAL VALUE SICAV | ||
By: | Partners Group (Guernsey) Limited, under power of attorney | |
By: | ||
Name: | ||
Title: |
S IGNATURE P AGE TO R EGISTRATION R IGHTS A GREEMENT
SCHEDULE A
TA Members
TA XI, L.P.
TA Atlantic and Pacific VII-A L.P.
TA Atlantic and Pacific VII-B L.P.
TA Investors IV, L.P.
SCHEDULE B
Non-TA Members
Thomas C. Ennis
Jason Shiver
Brian Goldberg
The Francis A. Doyle, III 2012 Family Trust
The Donna M. Doyle, III 2012 Family Trust
Dawn Hudson
BNP Paribas North America, Inc.
Partners Group Global Value SICAV
Partners Group Company LLC
Andrew S. Friedman
Pamela L. Netzky
Michael and Judith Eiserman
Jeffrey and Heather Eiserman
Precision Capital Group, LLC
Exhibit 4.3
STOCKHOLDERS AGREEMENT
This STOCKHOLDERS AGREEMENT (this Agreement), dated as of [ ], is entered into by and among Amplify Snack Brands, Inc., a Delaware corporation (the Company) and each of the TA Stockholders (as defined below).
WITNESSETH :
WHEREAS, the Company is currently contemplating an initial public offering (the IPO) of shares of its common stock, par value $0.0001 per share; and
WHEREAS, in connection with, and effective upon, the closing of the IPO, the Company and the Stockholders wish to set forth certain understandings between such parties, including with respect to certain governance matters.
NOW, THEREFORE, in consideration of the mutual promises of the parties hereto, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is mutually agreed by and among the Company and the TA Stockholders as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Definitions . As used in this Agreement, the following terms have the following meanings:
Affiliate means, with respect to any Person, any other Person which is controlling, controlled by, or under common control with (directly or indirectly through any Person) the Person referred to. The term control (including, with correlative meaning, the terms controlled by and under common control with) as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.
Agreement has the meaning set forth in the preamble.
Board means the board of directors of the Company.
Business Day means any day of the year on which national banking institutions in New York, New York are open to the public for conducting business and are not required or authorized to close.
Closing means the closing of the IPO; provided, however, that to the extent that the underwriters in the IPO exercise their right to purchase additional Company Shares (on one or more occasions from stockholders of the Company), then the term Closing as used herein shall mean the final closing of sales of Company Shares pursuant to the exercise of such underwriter option.
Common Stock means the common stock, par value $0.0001 per share, of the Company and any securities issued in respect thereof, or in substitution therefor, in connection with any stock split, dividend or combination, or any reclassification, recapitalization, merger, consolidation, exchange or other similar reorganization.
Company has the meaning set forth in the preamble.
Company Shares means issued and outstanding shares of Common Stock.
Credit Agreement means that certain Credit Agreement, dated as of July 17, 2014, by and among the Company, SkinnyPop Popcorn LLC, the lenders party thereto, Jefferies Finance LLC and BNP Paribas Securities Corp., as amended by the First Amendment to Credit Agreement dated as of August 18, 2014, the Second Amendment to Credit Agreement dated as of December 23, 2014, the Third Amendment to Credit Agreement dated as of May 29, 2015 and the [ Fourth ] Amendment to Credit Agreement dated as of [ July [ ], 2015 ], together with all other agreements and documents entered into pursuant to the terms thereof or in connection therewith, in all cases, as amended, modified or supplemented from time to time, and any successor credit agreement or other financing used to refinance the initial credit agreement.
Exchange Act means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations promulgated thereunder.
Indebtedness means, with respect to any Person, (i) any liability, contingent or otherwise, of such Person (whether matured or unmatured) (A) for borrowed money (whether or not recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (B) evidenced by a bond, note, debenture or similar instrument (including a purchase money obligation) given in connection with the acquisition of any property or assets or upon which interest payments are customarily made, (C) for any letter of credit, hedging or swap agreement or performance bond for the benefit of such Person, (D) for the payment of money relating to a capitalized lease obligation or under conditional sale or other title retention agreements, (E) for any purchase price associated with any acquisition of assets or business (including any deferred purchase price, assumption of Indebtedness, non-competition payments or other forms of consideration), (F) that would be classified as indebtedness on a balance sheet under generally accepted accounting principles in the United States or is secured by any encumbrance, mortgage, pledge, lien (statutory or other), hypothecation, deposit arrangement, charge or other security interest or restriction on use or transfer of any kind upon any property or assets of any character, or upon the income or profits therefrom, owned by such Person or (G) under off balance sheet financing arrangements; (ii) any liability of others of the kind described in the preceding clause (i), which the Person has guaranteed or which is otherwise its legal liability, contingent or otherwise; and (iii) any and all deferrals, renewals, extensions or refinancing of, or amendments, modifications of supplements to, any liability of the kind described in any of the preceding clauses (i) or (ii).
IPO has the meaning set forth in the recitals.
Parties means the Company and the TA Stockholders.
Permitted Indebtedness means any Indebtedness of the Company or its Subsidiaries outstanding pursuant to the Credit Agreement.
Person means any individual, sole proprietorship, partnership, joint venture, limited liability company, limited liability partnership, trust, estate, unincorporated organization, association, corporation, institution or other entity.
Preferred Stock means the preferred stock, par value $0.0001 per share, of the Company and any securities issued in respect thereof, or in substitution therefor, in connection with any stock split, dividend or combination, or any reclassification, recapitalization, merger, consolidation, exchange or other similar reorganization.
Registration Rights Agreement means the Registration Rights Agreement dated as of the date hereof, by and among the Company, the TA Stockholders and the other parties thereto, as amended, modified or supplemented from time to time.
Sale of the Company means, (a) any consolidation, merger or recapitalization of the Company, or any sale, exchange, conveyance or other disposition of Company Shares in a single transaction or a series of transactions, in which the equity holders of the Company immediately prior to such consolidation, merger, recapitalization, sale, transaction or first of such series of transactions, own less than fifty percent (50%) of the Companys or any successor entitys issued and outstanding Company Shares immediately after such consolidation, merger, recapitalization, sale, transaction or series of such transactions (provided that, for the avoidance of doubt, the IPO shall not constitute a Sale of the Company); or (b) any sale, lease or other disposition of all or substantially all of the assets of the Company and its Subsidiaries on a consolidated basis.
Securities Act means the Securities Act of 1933, as amended from time to time, and the rules and regulations promulgated thereunder.
Subsidiary of any Person means any Person (i) of which a majority of the outstanding voting securities or other voting equity interests are owned, directly or indirectly, by such first Person or any Subsidiary of such first Person or (ii) with respect to which such Person or any of its Subsidiaries is a general partner or managing member or is allocated or has the right to be allocated (through partnership interests or otherwise) a majority of such second Persons gains or losses.
TA Director has the meaning set forth in Section 2.01 of this Agreement.
TA Stockholders means, collectively, TA XI, L.P., TA Atlantic and Pacific VII-A L.P., TA Atlantic and Pacific VII-B L.P. and TA Investors IV L.P. and any of their respective Affiliates that are or become the holders of any Company Shares.
Section 1.02. Other Interpretive Provisions . (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.
(b) The words hereof, herein, hereunder and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement; and subsection and Section references are to this Agreement unless otherwise specified.
(c) The term including is not limiting and means including without limitation.
(d) The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement.
(e) Whenever the context requires, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms.
(f) For all purposes under this Agreement, when determining the percentage represented by the number of Company Shares owned by the TA Stockholders at any time relative to the number of Company Shares owned by the TA Stockholders as of immediately following the Closing, such determination shall be (i) aggregated such that all Company Shares held or acquired by Affiliates of the TA Stockholders are treated together for the purpose of determining the availability of any rights under this Agreement and (ii) equitably adjusted to appropriately account for any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into capital stock), reorganization, reclassification, combination, recapitalization or other like change with respect to the Company Shares occurring after the Closing and prior to such determination, to the extent necessary to provide the parties with the same effect as contemplated by this Agreement prior to such stock split, reverse stock split, stock dividend, reorganization, reclassification, combination, recapitalization or other like change.
ARTICLE II
CORPORATE GOVERNANCE
Section 2.01. TA Designees to the Board . For so long as the TA Stockholders collectively own a number of Company Shares representing at least the percentage shown below of the number of Company Shares collectively owned by the TA Stockholders as of immediately following the Closing, there shall be included in the slate of nominees recommended by the Board for election as directors at each applicable annual or special meeting of stockholders at which directors are to be elected (adjusted as appropriate to take into account the Companys classified Board structure) that number of individuals designated by the TA Stockholders that, if elected, will result in the TA Stockholders having the number of directors serving on the Board that is shown below (each such director, a TA Director , the initial TA Directors being Jeffrey S. Barber, William D. Christ and one vacancy).
Percent |
Number of Directors |
|
50% or greater |
3 | |
Less than 50% but greater than or equal to 25% |
2 | |
Less than 25% but greater than or equal to 12.5% |
1 | |
Less than 12.5% |
0 |
The Company shall (i) include any such applicable individuals as nominee(s) in the proxy statement and other proxy materials circulated with respect to the applicable election of directors, (ii) recommend in such proxy statement and materials that the stockholders of the Company vote in favor of the election of such nominee(s) to the Board and (iii) otherwise use its best efforts to cause such nominees to be elected to the Board.
ARTICLE III
APPROVAL RIGHTS
Section 3.01. Approval Rights .
(a) For so long as the TA Stockholders collectively own a number of Company Shares representing at least 25% of the number of Company Shares collectively owned by the TA Stockholders as of immediately following the Closing, then the Company shall not take or commit to take, and (to the extent applicable) shall not cause or permit any of its Subsidiaries to take or commit to take, directly or indirectly, whether by amendment, merger, consolidation, reorganization or otherwise, any of the following actions without the approval at least one TA Director:
(i) issue any debt or equity security or debt obligation of such Person or on its assets, or refinance, repurchase or prepay any security (other than repurchases of Company Shares in accordance with agreements previously approved by the Board, including at least one TA Director) (except as expressly permitted herein) or debt obligation; create, incur or assume any Indebtedness, other than Permitted Indebtedness; or amend, restate, extend, modify or waive any right with respect to Indebtedness or the documentation relating thereto;
(ii) pay or declare any dividend or make any distribution on, or repurchase or redeem any Company Shares (other than repurchases of Company Shares in accordance with agreements previously approved by the Board, including at least one TA Director);
(iii) effect any Sale of the Company or liquidation or dissolution of the Company, or sell, transfer or otherwise dispose of any of the material assets or properties of the Company or any of its Subsidiaries;
(iv) merge with or into, or consolidate with, another entity or effect any recapitalization, reorganization, change of form of organization, forward or reverse split, dividend or similar transaction;
(v) acquire any corporation, business concern or other material assets or property for consideration in excess of $15,000,000, whether by acquisition of assets, capital stock or otherwise, and whether in consideration of the payment of cash, the issuance of capital stock or otherwise or make any investment in any Person in an amount in excess of $15,000,000;
(vi) amend the Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws of the Company or the organizational documents of any Subsidiary;
(vii) increase or decrease the authorized number of members of the Board of the Company;
(viii) hire or terminate any executive officer of the Company, or enter into, amend, extend, waive or modify, or waive or fail to enforce any material term of, any employment agreement or material term of employment with any such Person;
(ix) take any action that would cause the voluntary bankruptcy or insolvency of such Person, confess judgment against such Person, or make an assignment for the benefit of the creditors of all or substantially all of the assets of such Person;
(x) take any action to initiate, to cause or that would result in, the dissolution, liquidation, winding up or termination of such Person (or the business or affairs thereof); or
(xi) enter into any agreement to do any of the foregoing.
ARTICLE IV
MISCELLANEOUS
Section 4.01. Termination . This Agreement shall terminate automatically (without any action by any Party) as of the date that the TA Stockholders no longer have the right to designate any directors pursuant to Section 2.01.
Section 4.02. Amendments . The terms and provisions of this Agreement may be modified or amended at any time and from time to time only by approval of the TA Stockholders and the Company.
Section 4.03. Notices . In the event a notice or other document is required to be sent hereunder to the Company or any TA Stockholder, such notice or other document shall be in writing and shall be considered given and received, in all respects when personally delivered, or when sent by express or courier service or United States registered or certified mail, return receipt requested and postage and other fees prepaid, or by electronic mail, on the day such notice or document is personally delivered or delivered by electronic mail or on the third Business Day following the day on which such notice or other document is delivered to any such commercial delivery service as aforesaid. Any notice and document shall be addressed to the party entitled to receive such notice or other document (a) in the case of the Company, at 500 West 5 th Street, Suite 1350, Austin, Texas 78701, Attention: Chief Executive Officer and (b) in the case of any TA Stockholder, at such TA Stockholders address shown on the signature pages hereto, or at such other address as any such party shall request in a written notice sent to the Company.
Section 4.04. Governing Law; Jurisdiction . This Agreement and any dispute arising out of, relating to or in connection with this Agreement, shall be construed (both as to validity and performance), interpreted and enforced in accordance with the laws of the State of Delaware, without regard to any conflicts of law provisions thereof that would result in the application of the laws of any other jurisdiction. Any action against any party relating to the foregoing shall be brought exclusively in the Chancery Court of the State of Delaware located in Wilmington, Delaware (or, if the Chancery Court of the State of Delaware declines to accept jurisdiction over a particular matter, any state court located in Wilmington, Delaware or the United States District Court for the District of Delaware) and appellate courts thereof. The parties hereby irrevocably waive, to the fullest extent permitted by applicable law, any objection that they may now or hereafter have to the laying of venue of any such action brought in such court or any defense of inconvenient forum for the maintenance of such action. Each party agrees that service of summons and complaint or any other process that might be served in any action may be made on such party by sending or delivering a copy of the process to the party to be served by registered mail, return receipt requested, at the address of the party provided for the giving of notices in Section 4.03. Nothing in this Section 4.04, however, shall affect the right of any party to serve legal process in any other manner permitted by law.
Section 4.05. Entire Agreement . This Agreement, together with the Registration Rights Agreement, embodies the entire agreement and understanding of the Parties and supersedes all prior agreements and understandings between the Parties with respect to the subject matter hereof and thereof.
Section 4.06. Waivers . No waiver of any breach of any of the terms of this Agreement shall be effective unless such waiver is made expressly in writing and executed and delivered by the party against
whom such waiver is claimed. No waiver of any breach shall be deemed to be a further or continuing waiver of such breach or a waiver of any other or subsequent breach. Except as otherwise expressly provided herein, no failure on the part of any party to exercise, and no delay in exercising, any right, power or remedy hereunder, or otherwise available in respect hereof at law or in equity, shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such party preclude any other or further exercise thereof, or the exercise of any other right, power or remedy.
Section 4.07. Severability . If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
Section 4.08. Counterparts; Electronic Signatures . This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. Facsimile, .pdf and other electronic signatures to this Agreement shall have the same effect as original signatures.
Section 4.09. Binding Effect; Assignment . Except as otherwise provided in this Agreement to the contrary, this Agreement shall be binding upon and inure to the benefit of the Company, the TA Stockholders and their respective heirs, legal representatives, executors, administrators, successors and permitted assigns. The rights and obligations of the Company under this Agreement shall not be assignable without the prior written consent of the TA Stockholders and any attempted assignment of rights or obligations in violation of this Section 4.09 shall be null and void.
Section 4.10. Specific Performance . It is hereby agreed and acknowledged that it will be impossible to measure in money the damages that would be suffered if the parties fail to comply with any of the obligations herein imposed on them and that, in the event of any such failure, an aggrieved Person will be irreparably damaged and will not have an adequate remedy at law. Any such party shall, therefore, be entitled (in addition to any other remedy to which such party may be entitled at law or in equity) to injunctive relief, including specific performance, to enforce such obligations, without the posting of any bond and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law.
Section 4.11. Time of the Essence . The parties agree that time shall be of the essence in the performance of this Agreement.
[SIGNATURE PAGES FOLLOW]
Exhibit 10.1
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ( Agreement ) is made as of by and between Amplify Snack Brands, Inc., a Delaware corporation (the Company ), and ( Indemnitee ).
RECITALS
WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company;
WHEREAS, in order to induce Indemnitee to provide or continue to provide services to the Company, the Company wishes to provide for the indemnification of, and advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, the Certificate of Incorporation (the Charter ) and the Bylaws (the Bylaws ) of the Company require indemnification of the officers and directors of the Company, and Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (the DGCL );
WHEREAS, the Charter, the Bylaws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the board of directors, officers and other persons with respect to indemnification;
WHEREAS, the Board of Directors of the Company (the Board ) has determined that the increased difficulty in attracting and retaining highly qualified persons such as Indemnitee is detrimental to the best interests of the Companys stockholders;
WHEREAS, it is reasonable and prudent for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law, regardless of any amendment or revocation of the Charter or the Bylaws, so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;
WHEREAS, this Agreement is a supplement to and in furtherance of the indemnification provided in the Charter, the Bylaws and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder; and
[WHEREAS, Indemnitee has certain rights to indemnification and/or insurance provided by [Name of Fund/Sponsor] which Indemnitee and [Name of Fund/Sponsor] intend to be secondary to the primary obligation of the Company to indemnify Indemnitee as provided in this Agreement, with the Companys acknowledgment and agreement to the foregoing being a material condition to Indemnitees willingness to serve or continue to serve on the Board.]
NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:
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Section 1. Services to the Company . Indemnitee agrees to serve as a director of the Company. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position. This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any Enterprise) and Indemnitee.
Section 2. Definitions .
As used in this Agreement:
(a) Change in Control shall mean (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Companys outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the Stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Companys outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company.
(b) Corporate Status describes the status of a person as a current or former director of the Company or current or former director, manager, partner, officer, employee, agent or trustee of any other Enterprise which such person is or was serving at the request of the Company.
(c) Enforcement Expenses shall include all reasonable attorneys fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket disbursements or expenses of the types customarily incurred in connection with an action to enforce indemnification or advancement rights, or an appeal from such action. Expenses, however, shall not include fees, salaries, wages or benefits owed to Indemnitee.
(d) Enterprise shall mean any corporation (other than the Company), partnership, joint venture, trust, employee benefit plan, limited liability company, or other legal entity of which Indemnitee is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee, including without limitation, any subsidiary of the Company.
(e) Expenses shall include all reasonable attorneys fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise
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participating in, a Proceeding or an appeal resulting from a Proceeding. Expenses, however, shall not include amounts paid in settlement by Indemnitee, the amount of judgments or fines against Indemnitee or fees, salaries, wages or benefits owed to Indemnitee.
(f) Independent Counsel means a law firm, or a partner (or, if applicable, member or shareholder) of such a law firm, that is experienced in matters of Delaware corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company, any subsidiary of the Company, any Enterprise or Indemnitee in any matter material to any such party; or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitees rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
(g) The term Proceeding shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, regulatory or investigative nature, and whether formal or informal, in which Indemnitee was, is or will be involved as a party or otherwise by reason of the fact that Indemnitee is or was a director of the Company or is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any Enterprise or by reason of any action taken by Indemnitee or of any action taken on his or her part while acting as a director of the Company or while serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any Enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement or advancement of expenses can be provided under this Agreement; provided , however , that the term Proceeding shall not include any action, suit or arbitration, or part thereof, initiated by Indemnitee to enforce Indemnitees rights under this Agreement as provided for in Section 12(a) of this Agreement.
Section 3. Indemnity in Third-Party Proceedings . The Company shall indemnify Indemnitee to the extent set forth in this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified against all Expenses, judgments, fines, penalties, excise taxes, and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding, had no reasonable cause to believe that his or her conduct was unlawful.
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Section 4. Indemnity in Proceedings by or in the Right of the Company . The Company shall indemnify Indemnitee to the extent set forth in this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that the Delaware Court of Chancery (the Delaware Court ) shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such expenses as the Delaware Court shall deem proper.
Section 5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful . Notwithstanding any other provisions of this Agreement and except as provided in Section 7, to the extent that Indemnitee is a party to or a participant in any Proceeding and is successful in such Proceeding or in defense of any claim, issue or matter therein, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
Section 6. Reimbursement for Expenses of a Witness or in Response to a Subpoena . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee, by reason of his or her Corporate Status, (i) is a witness in any Proceeding to which Indemnitee is not a party and is not threatened to be made a party or (ii) receives a subpoena with respect to any Proceeding to which Indemnitee is not a party and is not threatened to be made a party, the Company shall reimburse Indemnitee for all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.
Section 7. Exclusions . Notwithstanding any provision in this Agreement to the contrary, the Company shall not be obligated under this Agreement:
(a) to indemnify for amounts otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received such amounts under any insurance policy, contract, agreement or otherwise[; provided that the foregoing shall not affect the rights of Indemnitee or the Fund Indemnitors as set forth in Section 13(c)];
(b) to indemnify for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law;
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(c) to indemnify with respect to any Proceeding, or part thereof, brought by Indemnitee against the Company, any legal entity which it controls, any director or officer thereof or any third party, unless (i) the Board has consented to the initiation of such Proceeding or part thereof and (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; provided , however , that this Section 7(c) shall not apply to (A) counterclaims or affirmative defenses asserted by Indemnitee in an action brought against Indemnitee or (B) any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors and officers liability insurance policies maintained by the Company in the suit for which indemnification or advancement is being sought as described in Section 12; or
(d) to provide any indemnification or advancement of expenses that is prohibited by applicable law (as such law exists at the time payment would otherwise be required pursuant to this Agreement).
Section 8. Advancement of Expenses . Subject to Section 9(b), the Company shall advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding, and such advancement shall be made within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances (including any invoices received by Indemnitee, which such invoices may be redacted as necessary to avoid the waiver of any privilege accorded by applicable law) from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitees ability to repay the expenses and without regard to Indemnitees ultimate entitlement to indemnification under the other provisions of this Agreement. Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement which shall constitute an undertaking providing that Indemnitee undertakes to the fullest extent required by law to repay the advance if and to the extent that it is ultimately determined by a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is not entitled to be indemnified by the Company. The right to advances under this paragraph shall in all events continue until final disposition of any Proceeding, including any appeal therein. Nothing in this Section 8 shall limit Indemnitees right to advancement pursuant to Section 12(e) of this Agreement.
Section 9. Procedure for Notification and Defense of Claim .
(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request therefor specifying the basis for the claim, the amounts for which Indemnitee is seeking payment under this Agreement, and all documentation related thereto as reasonably requested by the Company.
(b) In the event that the Company shall be obligated hereunder to provide indemnification for or make any advancement of Expenses with respect to any Proceeding, the Company shall be entitled to assume the defense of such Proceeding, or any claim, issue or matter therein, with counsel approved by Indemnitee (which approval shall not be unreasonably
5
withheld or delayed) upon the delivery to Indemnitee of written notice of the Companys election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees or expenses of separate counsel subsequently employed by or on behalf of Indemnitee with respect to the same Proceeding; provided that (i) Indemnitee shall have the right to employ separate counsel in any such Proceeding at Indemnitees expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of such defense, or (C) the Company shall not continue to retain such counsel to defend such Proceeding, then the fees and expenses actually and reasonably incurred by Indemnitee with respect to his or her separate counsel shall be Expenses hereunder.
(c) In the event that the Company does not assume the defense in a Proceeding pursuant to paragraph (b) above, then the Company will be entitled to participate in the Proceeding at its own expense.
(d) The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding effected without its prior written consent (which consent shall not be unreasonably withheld or delayed). The Company shall not, without the prior written consent of Indemnitee (which consent shall not be unreasonably withheld or delayed), enter into any settlement which (i) includes an admission of fault of Indemnitee, any non-monetary remedy imposed on Indemnitee or any monetary damages for which Indemnitee is not wholly and actually indemnified hereunder or (ii) with respect to any Proceeding with respect to which Indemnitee may be or is made a party or may be otherwise entitled to seek indemnification hereunder, does not include the full release of Indemnitee from all liability in respect of such Proceeding.
Section 10. Procedure Upon Application for Indemnification .
(a) Upon written request by Indemnitee for indemnification pursuant to Section 9(a), a determination, if such determination is required by applicable law, with respect to Indemnitees entitlement to indemnification hereunder shall be made in the specific case by one of the following methods: (x) if a Change in Control shall have occurred, by Independent Counsel in a written opinion to the Board; or (y) if a Change in Control shall not have occurred: (i) by a majority vote of the disinterested directors, even though less than a quorum; (ii) by a committee of disinterested directors designated by a majority vote of the disinterested directors, even though less than a quorum; or (iii) if there are no disinterested directors or if the disinterested directors so direct, by Independent Counsel in a written opinion to the Board. For purposes hereof, disinterested directors are those members of the Board who are not parties to the action, suit or proceeding in respect of which indemnification is sought. In the case that such determination is made by Independent Counsel, a copy of Independent Counsels written opinion shall be delivered to Indemnitee and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within thirty (30) days after such determination. Indemnitee shall cooperate with the Independent Counsel or the Company, as applicable, in making such determination with respect to Indemnitees entitlement to
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indemnification, including providing to such counsel or the Company, upon reasonable advance request, any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any out-of-pocket costs or expenses (including reasonable attorneys fees and disbursements) actually and reasonably incurred by Indemnitee in so cooperating with the Independent Counsel or the Company shall be borne by the Company (irrespective of the determination as to Indemnitees entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(b) If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 10(a), the Independent Counsel shall be selected by the Board if a Change in Control shall not have occurred or, if a Change in Control shall have occurred, by Indemnitee. Indemnitee or the Company, as the case may be, may, within ten (10) days after written notice of such selection, deliver to the Company or Indemnitee, as the case may be, a written objection to such selection; provided , however , that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or the Delaware Court has determined that such objection is without merit. If, within twenty (20) days after the later of (i) submission by Indemnitee of a written request for indemnification pursuant to Section 9(a), and (ii) the final disposition of the Proceeding, including any appeal therein, no Independent Counsel shall have been selected without objection, either Indemnitee or the Company may petition the Delaware Court for resolution of any objection which shall have been made by Indemnitee or the Company to the selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate. The person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 10(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 12(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).
Section 11. Presumptions and Effect of Certain Proceedings .
(a) To the extent permitted by applicable law, in making a determination with respect to entitlement to indemnification hereunder, it shall be presumed that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 9(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption.
(b) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of guilty, nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that
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Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.
(c) The knowledge and/or actions, or failure to act, of any director, manager, partner, officer, employee, agent or trustee of the Company, any subsidiary of the Company, or any Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.
Section 12. Remedies of Indemnitee .
(a) Subject to Section 12(f), in the event that (i) a determination is made pursuant to Section 10 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 10(a) of this Agreement within sixty (60) days after receipt by the Company of the request for indemnification for which a determination is to be made other than by Independent Counsel, (iv) payment of indemnification or reimbursement of expenses is not made pursuant to Section 5 or 6 or the last sentence of Section 10(a) of this Agreement within thirty (30) days after receipt by the Company of a written request therefor (including any invoices received by Indemnitee, which such invoices may be redacted as necessary to avoid the waiver of any privilege accorded by applicable law) or (v) payment of indemnification pursuant to Section 3 or 4 of this Agreement is not made within thirty (30) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by the Delaware Court of his or her entitlement to such indemnification or advancement. Alternatively, Indemnitee, at his or her option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 12(a); provided , however , that the foregoing time limitation shall not apply in respect of a proceeding brought by Indemnitee to enforce his or her rights under Section 5 of this Agreement. The Company shall not oppose Indemnitees right to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 12 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 12, the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement, as the case may be.
(c) If a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 12, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact
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necessary to make Indemnitees statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.
(e) The Company shall indemnify Indemnitee to the fullest extent permitted by law against any and all Enforcement Expenses and, if requested by Indemnitee, shall (within thirty (30) days after receipt by the Company of a written request therefor) advance, to the extent not prohibited by law, such Enforcement Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors and officers liability insurance policies maintained by the Company in the suit for which indemnification or advancement is being sought. Such written request for advancement shall include invoices received by Indemnitee in connection with such Enforcement Expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditures made that would cause Indemnitee to waive any privilege accorded by applicable law need not be included with the invoice.
(f) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding, including any appeal therein.
Section 13. Non-exclusivity; Survival of Rights; Insurance; [Primacy of Indemnification;] Subrogation .
(a) The rights of indemnification and to receive advancement as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his or her Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement than would be afforded currently under the Charter, Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, managers, partners, officers, employees, agents or trustees of the Company or of any other Enterprise, Indemnitee shall be covered by such policy
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or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, manager, partner, officer, employee, agent or trustee under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies.
(c) [The Company hereby acknowledges that Indemnitee has certain rights to indemnification, advancement of expenses and/or insurance provided by [Name of Fund/Sponsor] and certain of [its][their] affiliates (collectively, the Fund Indemnitors ). The Company hereby agrees (i) that it is the indemnitor of first resort ( i.e. , its obligations to Indemnitee are primary and any obligation of the Fund Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Indemnitee are secondary), (ii) that it shall be required to advance the full amount of expenses incurred by Indemnitee and shall be liable for the full amount of all Expenses, judgments, penalties, fines and amounts paid in settlement to the extent legally permitted and as required by the terms of this Agreement and the Charter and/or Bylaws (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against the Fund Indemnitors, and (iii) that it irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Fund Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing and the Fund Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and Indemnitee agree that the Fund Indemnitors are express third party beneficiaries of the terms of this Section 13(c).]
(d) [Except as provided in paragraph (c) above,] [I/i]n the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee [(other than against the Fund Indemnitors)], who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
(e) [Except as provided in paragraph (c) above,] [T/t]he Companys obligation to provide indemnification or advancement hereunder to Indemnitee who is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement from such other Enterprise.
Section 14. Duration of Agreement . This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as a director of the Company and any other Enterprise for which Indemnitee is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee or (b) one (1) year after the final termination of any Proceeding, including any appeal, then pending in respect of which Indemnitee is granted rights of indemnification or advancement
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hereunder and of any proceeding commenced by Indemnitee pursuant to Section 12 of this Agreement relating thereto. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and his or her heirs, executors and administrators. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.
Section 15. Severability . If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.
Section 16. Enforcement .
(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve or continue to serve as a director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director of the Company.
(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided , however , that this Agreement is a supplement to and in furtherance of the Charter, the Bylaws and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.
Section 17. Modification and Waiver . No supplement, modification or amendment, or waiver of any provision, of this Agreement shall be binding unless executed in writing by the parties thereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver. No supplement, modification or amendment of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee prior to such supplement, modification or amendment.
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Section 18. Notice by Indemnitee . Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification, reimbursement or advancement as provided hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise.
Section 19. Notices . All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed, (iii) mailed by reputable overnight courier and receipted for by the party to whom said notice or other communication shall have been directed or (iv) sent by facsimile transmission, with receipt of oral confirmation that such transmission has been received:
(a) If to Indemnitee, at such address as Indemnitee shall provide to the Company.
(b) If to the Company to:
Amplify Snack Brands, Inc.
500 West 5 th Street, Suite 1350
Austin, Texas 78701
Attention: Chief Executive Officer
or to any other address as may have been furnished to Indemnitee by the Company.
Section 20. Contribution . To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any Proceeding in such proportion as is deemed fair and reasonable in light of all of the circumstances in order to reflect (i) the relative benefits received by the Company and Indemnitee in connection with the event(s) and/or transaction(s) giving rise to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transactions.
Section 21. Internal Revenue Code Section 409A . The Company intends for this Agreement to comply with the Indemnification exception under Section 1.409A-1(b)(10) of the regulations promulgated under the Internal Revenue Code of 1986, as amended (the Code ), which provides that indemnification of, or the purchase of an insurance policy providing for payments of, all or part of the expenses incurred or damages paid or payable by Indemnitee with respect to a bona fide claim against Indemnitee or the Company do not provide for a deferral of compensation, subject to Section 409A of the Code, where such claim is based on actions or failures to act by Indemnitee in his or her capacity as a service provider of the Company. The parties intend that this Agreement be interpreted and construed with such intent.
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Section 22. Applicable Law and Consent to Jurisdiction . This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 12(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court, and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) consent to service of process at the address set forth in Section 19 of this Agreement with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.
Section 23. Headings . The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
Section 24. Identical Counterparts . This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.
AMPLIFY SNACK BRANDS, INC. | ||
By: | ||
Name: | ||
Title: | ||
[Name of Indemnitee] |
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ( Agreement ) is made as of by and between Amplify Snack Brands, Inc. a Delaware corporation (the Company ), and ( Indemnitee ).
RECITALS
WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company;
WHEREAS, in order to induce Indemnitee to provide or continue to provide services to the Company, the Company wishes to provide for the indemnification of, and advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, the Certificate of Incorporation (the Charter ) and the Bylaws (the Bylaws ) of the Company require indemnification of the officers and directors of the Company, and Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (the DGCL );
WHEREAS, the Charter, the Bylaws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the board of directors, officers and other persons with respect to indemnification;
WHEREAS, the Board of Directors of the Company (the Board ) has determined that the increased difficulty in attracting and retaining highly qualified persons such as Indemnitee is detrimental to the best interests of the Companys stockholders;
WHEREAS, it is reasonable and prudent for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law, regardless of any amendment or revocation of the Charter or the Bylaws, so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified; and
WHEREAS, this Agreement is a supplement to and in furtherance of the indemnification provided in the Charter, the Bylaws and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.
NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:
Section 1. Services to the Company . Indemnitee agrees to serve as an officer of the Company. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position. This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any Enterprise) and Indemnitee.
Section 2. Definitions .
As used in this Agreement:
(a) Change in Control shall mean (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Companys outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the Stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Companys outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company.
(b) Corporate Status describes the status of a person as a current or former officer of the Company or current or former director, manager, partner, officer, employee, agent or trustee of any other Enterprise which such person is or was serving at the request of the Company.
(c) Enforcement Expenses shall include all reasonable attorneys fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket disbursements or expenses of the types customarily incurred in connection with an action to enforce indemnification or advancement rights, or an appeal from such action. Expenses, however, shall not include fees, salaries, wages or benefits owed to Indemnitee.
(d) Enterprise shall mean any corporation (other than the Company), partnership, joint venture, trust, employee benefit plan, limited liability company, or other legal entity of which Indemnitee is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee, including without limitation, any subsidiary of the Company.
(e) Expenses shall include all reasonable attorneys fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding or an appeal resulting from a Proceeding. Expenses, however, shall not include amounts paid in settlement by Indemnitee, the amount of judgments or fines against Indemnitee or fees, salaries, wages or benefits owed to Indemnitee.
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(f) Independent Counsel means a law firm, or a partner (or, if applicable, member or shareholder) of such a law firm, that is experienced in matters of Delaware corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company, any subsidiary of the Company, any Enterprise or Indemnitee in any matter material to any such party; or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitees rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
(g) The term Proceeding shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, regulatory or investigative nature, and whether formal or informal, in which Indemnitee was, is or will be involved as a party or otherwise by reason of the fact that Indemnitee is or was an officer of the Company or is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any Enterprise or by reason of any action taken by Indemnitee or of any action taken on his or her part while acting as an officer of the Company or while serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any Enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement or advancement of expenses can be provided under this Agreement; provided , however , that the term Proceeding shall not include any action, suit or arbitration, or part thereof, initiated by Indemnitee to enforce Indemnitees rights under this Agreement as provided for in Section 12(a) of this Agreement.
Section 3. Indemnity in Third-Party Proceedings . The Company shall indemnify Indemnitee to the extent set forth in this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified against all Expenses, judgments, fines, penalties, excise taxes, and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding, had no reasonable cause to believe that his or her conduct was unlawful.
Section 4. Indemnity in Proceedings by or in the Right of the Company . The Company shall indemnify Indemnitee to the extent set forth in this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4, Indemnitee shall be
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indemnified against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that the Delaware Court of Chancery (the Delaware Court ) shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such expenses as the Delaware Court shall deem proper.
Section 5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful . Notwithstanding any other provisions of this Agreement and except as provided in Section 7, to the extent that Indemnitee is a party to or a participant in any Proceeding and is successful in such Proceeding or in defense of any claim, issue or matter therein, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
Section 6. Reimbursement for Expenses of a Witness or in Response to a Subpoena . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee, by reason of his or her Corporate Status, (i) is a witness in any Proceeding to which Indemnitee is not a party and is not threatened to be made a party or (ii) receives a subpoena with respect to any Proceeding to which Indemnitee is not a party and is not threatened to be made a party, the Company shall reimburse Indemnitee for all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.
Section 7. Exclusions . Notwithstanding any provision in this Agreement to the contrary, the Company shall not be obligated under this Agreement:
(a) to indemnify for amounts otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received such amounts under any insurance policy, contract, agreement or otherwise;
(b) to indemnify for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law;
(c) to indemnify for any reimbursement of, or payment to, the Company by Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the Company pursuant to any formal policy of the Company adopted by the Board (or a committee thereof), or any other remuneration paid to Indemnitee if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law;
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(d) to indemnify with respect to any Proceeding, or part thereof, brought by Indemnitee against the Company, any legal entity which it controls, any director or officer thereof or any third party, unless (i) the Board has consented to the initiation of such Proceeding or part thereof and (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; provided , however , that this Section 7(d) shall not apply to (A) counterclaims or affirmative defenses asserted by Indemnitee in an action brought against Indemnitee or (B) any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors and officers liability insurance policies maintained by the Company in the suit for which indemnification or advancement is being sought as described in Section 12; or
(e) to provide any indemnification or advancement of expenses that is prohibited by applicable law (as such law exists at the time payment would otherwise be required pursuant to this Agreement).
Section 8. Advancement of Expenses . Subject to Section 9(b), the Company shall advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding, and such advancement shall be made within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances (including any invoices received by Indemnitee, which such invoices may be redacted as necessary to avoid the waiver of any privilege accorded by applicable law) from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitees ability to repay the expenses and without regard to Indemnitees ultimate entitlement to indemnification under the other provisions of this Agreement. Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement which shall constitute an undertaking providing that Indemnitee undertakes to the fullest extent required by law to repay the advance if and to the extent that it is ultimately determined by a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is not entitled to be indemnified by the Company. The right to advances under this paragraph shall in all events continue until final disposition of any Proceeding, including any appeal therein. Nothing in this Section 8 shall limit Indemnitees right to advancement pursuant to Section 12(e) of this Agreement.
Section 9. Procedure for Notification and Defense of Claim .
(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request therefor specifying the basis for the claim, the amounts for which Indemnitee is seeking payment under this Agreement, and all documentation related thereto as reasonably requested by the Company.
(b) In the event that the Company shall be obligated hereunder to provide indemnification for or make any advancement of Expenses with respect to any Proceeding, the Company shall be entitled to assume the defense of such Proceeding, or any claim, issue or
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matter therein, with counsel approved by Indemnitee (which approval shall not be unreasonably withheld or delayed) upon the delivery to Indemnitee of written notice of the Companys election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees or expenses of separate counsel subsequently employed by or on behalf of Indemnitee with respect to the same Proceeding; provided that (i) Indemnitee shall have the right to employ separate counsel in any such Proceeding at Indemnitees expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of such defense, or (C) the Company shall not continue to retain such counsel to defend such Proceeding, then the fees and expenses actually and reasonably incurred by Indemnitee with respect to his or her separate counsel shall be Expenses hereunder.
(c) In the event that the Company does not assume the defense in a Proceeding pursuant to paragraph (b) above, then the Company will be entitled to participate in the Proceeding at its own expense.
(d) The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding effected without its prior written consent (which consent shall not be unreasonably withheld or delayed). The Company shall not, without the prior written consent of Indemnitee (which consent shall not be unreasonably withheld or delayed), enter into any settlement which (i) includes an admission of fault of Indemnitee, any non-monetary remedy imposed on Indemnitee or any monetary damages for which Indemnitee is not wholly and actually indemnified hereunder or (ii) with respect to any Proceeding with respect to which Indemnitee may be or is made a party or may be otherwise entitled to seek indemnification hereunder, does not include the full release of Indemnitee from all liability in respect of such Proceeding.
Section 10. Procedure Upon Application for Indemnification .
(a) Upon written request by Indemnitee for indemnification pursuant to Section 9(a), a determination, if such determination is required by applicable law, with respect to Indemnitees entitlement to indemnification hereunder shall be made in the specific case by one of the following methods: (x) if a Change in Control shall have occurred and indemnification is being requested by Indemnitee hereunder in his or her capacity as a director of the Company, by Independent Counsel in a written opinion to the Board; or (y) in any other case, (i) by a majority vote of the disinterested directors, even though less than a quorum; (ii) by a committee of disinterested directors designated by a majority vote of the disinterested directors, even though less than a quorum; or (iii) if there are no disinterested directors or if the disinterested directors so direct, by Independent Counsel in a written opinion to the Board. For purposes hereof, disinterested directors are those members of the Board who are not parties to the action, suit or proceeding in respect of which indemnification is sought. In the case that such determination is made by Independent Counsel, a copy of Independent Counsels written opinion shall be delivered to Indemnitee and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within thirty (30) days after such determination.
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Indemnitee shall cooperate with the Independent Counsel or the Company, as applicable, in making such determination with respect to Indemnitees entitlement to indemnification, including providing to such counsel or the Company, upon reasonable advance request, any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any out-of-pocket costs or expenses (including reasonable attorneys fees and disbursements) actually and reasonably incurred by Indemnitee in so cooperating with the Independent Counsel or the Company shall be borne by the Company (irrespective of the determination as to Indemnitees entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(b) If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 10(a), the Independent Counsel shall be selected by the Board; provided that, if a Change in Control shall have occurred and indemnification is being requested by Indemnitee hereunder in his or her capacity as a director of the Company, the Independent Counsel shall be selected by Indemnitee. Indemnitee or the Company, as the case may be, may, within ten (10) days after written notice of such selection, deliver to the Company a written objection to such selection; provided , however , that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or the Delaware Court has determined that such objection is without merit. If, within twenty (20) days after the later of (i) submission by Indemnitee of a written request for indemnification pursuant to Section 9(a), and (ii) the final disposition of the Proceeding, including any appeal therein, no Independent Counsel shall have been selected without objection, either Indemnitee or the Company may petition the Delaware Court for resolution of any objection which shall have been made by Indemnitee or the Company to the selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate. The person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 10(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 12(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).
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Section 11. Presumptions and Effect of Certain Proceedings .
(a) To the extent permitted by applicable law, in making a determination with respect to entitlement to indemnification hereunder, it shall be presumed that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 9(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption.
(b) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of guilty, nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.
(c) The knowledge and/or actions, or failure to act, of any director, manager, partner, officer, employee, agent or trustee of the Company, any subsidiary of the Company, or any Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.
Section 12. Remedies of Indemnitee .
(a) Subject to Section 12(f), in the event that (i) a determination is made pursuant to Section 10 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 10(a) of this Agreement within sixty (60) days after receipt by the Company of the request for indemnification for which a determination is to be made other than by Independent Counsel, (iv) payment of indemnification or reimbursement of expenses is not made pursuant to Section 5 or 6 or the last sentence of Section 10(a) of this Agreement within thirty (30) days after receipt by the Company of a written request therefor (including any invoices received by Indemnitee, which such invoices may be redacted as necessary to avoid the waiver of any privilege accorded by applicable law) or (v) payment of indemnification pursuant to Section 3 or 4 of this Agreement is not made within thirty (30) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by the Delaware Court of his or her entitlement to such indemnification or advancement. Alternatively, Indemnitee, at his or her option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 12(a); provided , however , that the foregoing time limitation shall not apply in respect of a proceeding brought by Indemnitee to enforce his or her rights under Section 5 of this Agreement. The Company shall not oppose Indemnitees right to seek any such adjudication or award in arbitration.
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(b) In the event that a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 12 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 12, the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement, as the case may be.
(c) If a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 12, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitees statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.
(e) The Company shall indemnify Indemnitee to the fullest extent permitted by law against any and all Enforcement Expenses and, if requested by Indemnitee, shall (within thirty (30) days after receipt by the Company of a written request therefor) advance, to the extent not prohibited by law, such Enforcement Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors and officers liability insurance policies maintained by the Company in the suit for which indemnification or advancement is being sought. Such written request for advancement shall include invoices received by Indemnitee in connection with such Enforcement Expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditures made that would cause Indemnitee to waive any privilege accorded by applicable law need not be included with the invoice.
(f) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding, including any appeal therein.
Section 13. Non-exclusivity; Survival of Rights; Insurance; Subrogation .
(a) The rights of indemnification and to receive advancement as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his or her Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in
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Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement than would be afforded currently under the Charter, Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, managers, partners, officers, employees, agents or trustees of the Company or of any other Enterprise, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, manager, partner, officer, employee, agent or trustee under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies.
(c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
(d) The Companys obligation to provide indemnification or advancement hereunder to Indemnitee who is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement from such other Enterprise.
Section 14. Duration of Agreement . This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as [both a director and] an officer of the Company and any other Enterprise for which Indemnitee is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee or (b) one (1) year after the final termination of any Proceeding, including any appeal, then pending in respect of which Indemnitee is granted rights of indemnification or advancement hereunder and of any proceeding commenced by Indemnitee pursuant to Section 12 of this Agreement relating thereto. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and his or her heirs, executors and administrators. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.
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Section 15. Severability . If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.
Section 16. Enforcement .
(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to continue to serve as an officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as an officer of the Company.
(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided , however , that this Agreement is a supplement to and in furtherance of the Charter, the Bylaws and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.
Section 17. Modification and Waiver . No supplement, modification or amendment, or waiver of any provision, of this Agreement shall be binding unless executed in writing by the parties thereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver. No supplement, modification or amendment of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee prior to such supplement, modification or amendment.
Section 18. Notice by Indemnitee . Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification, reimbursement or advancement as provided hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise.
Section 19. Notices . All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (ii) mailed by certified or registered mail with postage prepaid, on the third
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business day after the date on which it is so mailed, (iii) mailed by reputable overnight courier and receipted for by the party to whom said notice or other communication shall have been directed or (iv) sent by facsimile transmission, with receipt of oral confirmation that such transmission has been received:
(a) | If to Indemnitee, at such address as Indemnitee shall provide to the Company. |
(b) | If to the Company to: |
Amplify Snack Brands, Inc. |
500 West 5 th Street, Suite 1350 |
Austin, Texas 78701 |
Attention: Chief Executive Officer |
or to any other address as may have been furnished to Indemnitee by the Company.
Section 20. Contribution . To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any Proceeding in such proportion as is deemed fair and reasonable in light of all of the circumstances in order to reflect (i) the relative benefits received by the Company and Indemnitee in connection with the event(s) and/or transaction(s) giving rise to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transactions.
Section 21. Internal Revenue Code Section 409A . The Company intends for this Agreement to comply with the Indemnification exception under Section 1.409A-1(b)(10) of the regulations promulgated under the Internal Revenue Code of 1986, as amended (the Code ), which provides that indemnification of, or the purchase of an insurance policy providing for payments of, all or part of the expenses incurred or damages paid or payable by Indemnitee with respect to a bona fide claim against Indemnitee or the Company do not provide for a deferral of compensation, subject to Section 409A of the Code, where such claim is based on actions or failures to act by Indemnitee in his or her capacity as a service provider of the Company. The parties intend that this Agreement be interpreted and construed with such intent.
Section 22. Applicable Law and Consent to Jurisdiction . This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 12(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court, and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) consent to service of process at the address set forth in Section 19 of this
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Agreement with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.
Section 23. Headings . The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
Section 24. Identical Counterparts . This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.
AMPLIFY SNACK BRANDS, INC. | ||
By: | ||
Name: | ||
Title: |
[Name of Indemnitee] |
Exhibit 10.2
AMPLIFY SNACK BRANDS, INC.
2015 STOCK OPTION AND INCENTIVE PLAN
SECTION 1. | GENERAL PURPOSE OF THE PLAN; DEFINITIONS |
The name of the plan is the Amplify Snack Brands, Inc. 2015 Stock Option and Incentive Plan (the Plan). The purpose of the Plan is to encourage and enable the officers, employees, Non-Employee Directors and Consultants of Amplify Snack Brands, Inc. (the Company) and its Subsidiaries upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business to acquire a proprietary interest in the Company. It is anticipated that providing such persons with a direct stake in the Companys welfare will assure a closer identification of their interests with those of the Company and its stockholders, thereby stimulating their efforts on the Companys behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
Act means the Securities Act of 1933, as amended, and the rules and regulations thereunder.
Administrator means either the Board or the compensation committee of the Board or a similar committee performing the functions of the compensation committee and which is comprised of not less than two Non-Employee Directors who are independent.
Award or Awards, except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock Units, Restricted Stock Awards, Unrestricted Stock Awards, Cash-Based Awards, Performance Share Awards and Dividend Equivalent Rights.
Award Certificate means a written or electronic document setting forth the terms and provisions applicable to an Award granted under the Plan. Each Award Certificate is subject to the terms and conditions of the Plan.
Board means the Board of Directors of the Company.
Cash-Based Award means an Award entitling the recipient to receive a cash-denominated payment.
Code means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations.
Consultant means any natural person that provides bona fide services to the Company, and such services are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Companys securities.
Covered Employee means an employee who is a Covered Employee within the meaning of Section 162(m) of the Code.
Dividend Equivalent Right means an Award entitling the grantee to receive credits based on cash dividends that would have been paid on the shares of Stock specified in the Dividend Equivalent Right (or other award to which it relates) if such shares had been issued to and held by the grantee.
Effective Date means the date on which the Plan becomes effective as set forth in Section 21.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
Fair Market Value of the Stock on any given date means the fair market value of the Stock determined in good faith by the Administrator; provided, however, that if the Stock is admitted to quotation on the National Association of Securities Dealers Automated Quotation System (NASDAQ), NASDAQ Global Market or another national securities exchange, the determination shall be made by reference to market quotations. If there are no market quotations for such date, the determination shall be made by reference to the last date preceding such date for which there are market quotations; provided further, however, that if the date for which Fair Market Value is determined is the first day when trading prices for the Stock are reported on a national securities exchange, the Fair Market Value shall be the Price to the Public (or equivalent) set forth on the cover page for the final prospectus relating to the Companys Initial Public Offering.
Incentive Stock Option means any Stock Option designated and qualified as an incentive stock option as defined in Section 422 of the Code.
Initial Public Offering means the first underwritten, firm commitment public offering pursuant to an effective registration statement under the Act covering the offer and sale by the Company of its equity securities, or such other event as a result of or following which the Stock shall be publicly held.
Non-Employee Director means a member of the Board who is not also an employee of the Company or any Subsidiary.
Non-Qualified Stock Option means any Stock Option that is not an Incentive Stock Option.
Option or Stock Option means any option to purchase shares of Stock granted pursuant to Section 5.
Performance-Based Award means any Restricted Stock Award, Restricted Stock Units, Performance Share Award or Cash-Based Award granted to a Covered Employee that is intended to qualify as performance-based compensation under Section 162(m) of the Code and the regulations promulgated thereunder.
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Performance Criteria means the criteria that the Administrator selects for purposes of establishing the Performance Goal or Performance Goals for an individual for a Performance Cycle. The Performance Criteria (which shall be applicable to the organizational level specified by the Administrator, including, but not limited to, the Company or a unit, division, group, or Subsidiary of the Company) that will be used to establish Performance Goals are limited to the following: total shareholder return, earnings before interest, taxes, depreciation and amortization, net income (loss) (either before or after interest, taxes, depreciation and/or amortization), changes in the market price of the Stock, economic value-added, funds from operations or similar measure, sales or revenue, acquisitions or strategic transactions, operating income (loss), cash flow (including, but not limited to, operating cash flow and free cash flow), return on capital, assets, equity, or investment, return on sales, gross or net profit levels, productivity, expense, margins, operating efficiency, customer satisfaction, working capital, earnings (loss) per share of Stock, sales or market shares and number of customers, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group. The Committee may appropriately adjust any evaluation performance under a Performance Criterion to exclude any of the following events that occurs during a Performance Cycle: (i) asset write-downs or impairments, (ii) litigation or claim judgments or settlements, (iii) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reporting results, (iv) accruals for reorganizations and restructuring programs, (v) acquisitions or divestitures, (vi) annual incentive payments or other bonuses, (vii) capital charges and (viii) any item of an unusual nature or of a type that indicates infrequency of occurrence, or both, including those described in the Financial Accounting Standards Boards authoritative guidance and/or in managements discussion and analysis of financial condition of operations appearing the Companys annual report to stockholders for the applicable year.
Performance Cycle means one or more periods of time, which may be of varying and overlapping durations, as the Administrator may select, over which the attainment of one or more Performance Criteria will be measured for the purpose of determining a grantees right to and the payment of a Restricted Stock Award, Restricted Stock Units, Performance Share Award or Cash-Based Award, the vesting and/or payment of which is subject to the attainment of one or more Performance Goals. Each such period shall not be less than 12 months.
Performance Goals means, for a Performance Cycle, the specific goals established in writing by the Administrator for a Performance Cycle based upon the Performance Criteria.
Performance Share Award means an Award entitling the recipient to acquire shares of Stock upon the attainment of specified performance goals.
Restricted Shares means the shares of Stock underlying a Restricted Stock Award that remain subject to a risk of forfeiture or the Companys right of repurchase.
Restricted Stock Award means an Award of Restricted Shares subject to such restrictions and conditions as the Administrator may determine at the time of grant.
Restricted Stock Units means an Award of stock units subject to such restrictions and conditions as the Administrator may determine at the time of grant.
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Sale Event shall mean (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Companys outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the Stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Companys outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company.
Sale Price means the value as determined by the Administrator of the consideration payable, or otherwise to be received by stockholders, per share of Stock pursuant to a Sale Event.
Section 409A means Section 409A of the Code and the regulations and other guidance promulgated thereunder.
Stock means the Common Stock, par value $0.0001 per share, of the Company, subject to adjustments pursuant to Section 3.
Stock Appreciation Right means an Award entitling the recipient to receive shares of Stock (or, to the extent expressly provided in the Award Certificate, cash) having a value equal to the excess of the Fair Market Value of the Stock on the date of exercise over the exercise price of the Stock Appreciation Right multiplied by the number of shares of Stock with respect to which the Stock Appreciation Right shall have been exercised.
Subsidiary means any corporation or other entity (other than the Company) in which the Company has at least a 50 percent interest, either directly or indirectly.
Ten Percent Owner means an employee who owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent or subsidiary corporation.
Unrestricted Stock Award means an Award of shares of Stock free of any restrictions.
SECTION 2. | ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT GRANTEES AND DETERMINE AWARDS |
(a) Administration of Plan . The Plan shall be administered by the Administrator.
(b) Powers of Administrator . The Administrator shall have the power and authority to grant Awards consistent with the terms of the Plan, including the power and authority:
(i) to select the individuals to whom Awards may from time to time be granted;
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(ii) to determine the time or times of grant, and the extent, if any, of Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Restricted Stock Units, Unrestricted Stock Awards, Cash-Based Awards, Performance Share Awards and Dividend Equivalent Rights, or any combination of the foregoing, granted to any one or more grantees;
(iii) to determine the number of shares of Stock to be covered by any Award;
(iv) to determine and modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and grantees, and to approve the forms of Award Certificates;
(v) to accelerate at any time the exercisability or vesting of all or any portion of any Award in circumstances involving the grantees death, disability, retirement or termination of employment, or a change in control (including a Sale Event);
(vi) subject to the provisions of Section 5(c), to extend at any time the period in which Stock Options may be exercised; and
(vii) at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Award (including related written instruments); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Administrator shall be binding on all persons, including the Company and Plan grantees.
(c) Delegation of Authority to Grant Awards . Subject to applicable law, the Administrator, in its discretion, may delegate to the Chief Executive Officer of the Company all or part of the Administrators authority and duties with respect to the granting of Awards to individuals who are (i) not subject to the reporting and other provisions of Section 16 of the Exchange Act and (ii) not Covered Employees. Any such delegation by the Administrator shall include a limitation as to the amount of Stock underlying Awards that may be granted during the period of the delegation and shall contain guidelines as to the determination of the exercise price and the vesting criteria. The Administrator may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Administrators delegate or delegates that were consistent with the terms of the Plan.
(d) Award Certificate . Awards under the Plan shall be evidenced by Award Certificates that set forth the terms, conditions and limitations for each Award which may include, without limitation, the term of an Award and the provisions applicable in the event employment or service terminates.
(e) Indemnification . Neither the Board nor the Administrator, nor any member of either or any delegate thereof, shall be liable for any act, omission, interpretation, construction or
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determination made in good faith in connection with the Plan, and the members of the Board and the Administrator (and any delegate thereof) shall be entitled in all cases to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, reasonable attorneys fees) arising or resulting therefrom to the fullest extent permitted by law and/or under the Companys articles or bylaws or any directors and officers liability insurance coverage which may be in effect from time to time and/or any indemnification agreement between such individual and the Company.
(f) Foreign Award Recipients . Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and its Subsidiaries operate or have employees or other individuals eligible for Awards, the Administrator, in its sole discretion, shall have the power and authority to: (i) determine which Subsidiaries shall be covered by the Plan; (ii) determine which individuals outside the United States are eligible to participate in the Plan; (iii) modify the terms and conditions of any Award granted to individuals outside the United States to comply with applicable foreign laws; (iv) establish subplans and modify exercise procedures and other terms and procedures, to the extent the Administrator determines such actions to be necessary or advisable (and such subplans and/or modifications shall be attached to this Plan as appendices); provided, however, that no such subplans and/or modifications shall increase the share limitations contained in Section 3(a) hereof; and (v) take any action, before or after an Award is made, that the Administrator determines to be necessary or advisable to obtain approval or comply with any local governmental regulatory exemptions or approvals. Notwithstanding the foregoing, the Administrator may not take any actions hereunder, and no Awards shall be granted, that would violate the Exchange Act or any other applicable United States securities law, the Code, or any other applicable United States governing statute or law.
SECTION 3. | STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION |
(a) Stock Issuable . The maximum number of shares of Stock reserved and available for issuance under the Plan shall be 13,050,000 shares, subject to adjustment as provided in Section 3(b). For purposes of this limitation, the shares of Stock underlying any Awards that are forfeited, canceled or otherwise terminated (other than by exercise) shall be added back to the shares of Stock available for issuance under the Plan. Notwithstanding the foregoing, the following shares shall not be added to the shares authorized for grant under the Plan: (i) shares tendered or held back upon exercise of an Option or settlement of an Award to cover the exercise price or tax withholding, and (ii) shares subject to a Stock Appreciation Right that are not issued in connection with the stock settlement of the Stock Appreciation Right upon exercise thereof. In the event the Company repurchases shares of Stock on the open market, such shares shall not be added to the shares of Stock available for issuance under the Plan. Subject to such overall limitations, shares of Stock may be issued up to such maximum number pursuant to any type or types of Award; provided, however, that Stock Options or Stock Appreciation Rights with respect to no more than 750,000 shares of Stock may be granted to any one individual grantee during any one calendar year period, and no more than 13,050,000 shares of the Stock may be issued in the form of Incentive Stock Options. Notwithstanding anything to the contrary in this Plan, the value of all Awards awarded under this Plan plus all other cash compensation paid by the Company to any Non-Employee Director in any calendar year shall not exceed $500,000. For the purpose of this limitation, the value of any Award shall be its grant date fair value, as
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determined in accordance with FASB ASC 718 but excluding the impact of estimated forfeitures related to service-based vesting provisions. The shares available for issuance under the Plan may be authorized but unissued shares of Stock or shares of Stock reacquired by the Company.
(b) Changes in Stock . Subject to Section 3(c) hereof, if, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Companys capital stock, the outstanding shares of Stock are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Stock or other securities, or, if, as a result of any merger or consolidation, sale of all or substantially all of the assets of the Company, the outstanding shares of Stock are converted into or exchanged for securities of the Company or any successor entity (or a parent or subsidiary thereof), the Administrator shall make an appropriate or proportionate adjustment in (i) the maximum number of shares reserved for issuance under the Plan, including the maximum number of shares that may be issued in the form of Incentive Stock Options, (ii) the number of Stock Options or Stock Appreciation Rights that can be granted to any one individual grantee and the maximum number of shares that may be granted under a Performance-Based Award, (iii) the number and kind of shares or other securities subject to any then outstanding Awards under the Plan, (iv) the repurchase price, if any, per share subject to each outstanding Restricted Stock Award, and (v) the exercise price for each share subject to any then outstanding Stock Options and Stock Appreciation Rights under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of Stock Options and Stock Appreciation Rights) as to which such Stock Options and Stock Appreciation Rights remain exercisable. The Administrator shall also make equitable or proportionate adjustments in the number of shares subject to outstanding Awards and the exercise price and the terms of outstanding Awards to take into consideration cash dividends paid other than in the ordinary course or any other extraordinary corporate event. The adjustment by the Administrator shall be final, binding and conclusive. No fractional shares of Stock shall be issued under the Plan resulting from any such adjustment, but the Administrator in its discretion may make a cash payment in lieu of fractional shares.
(c) Mergers and Other Transactions . In the case of and subject to the consummation of a Sale Event, the parties thereto may cause the assumption or continuation of Awards theretofore granted by the successor entity, or the substitution of such Awards with new Awards of the successor entity or parent thereof, with appropriate adjustment as to the number and kind of shares and, if appropriate, the per share exercise prices, as such parties shall agree. To the extent the parties to such Sale Event do not provide for the assumption, continuation or substitution of Awards, upon the effective time of the Sale Event, the Plan and all outstanding Awards granted hereunder shall terminate. In such case, except as may be otherwise provided in the relevant Award Certificate, all Options and Stock Appreciation Rights with time-based vesting, conditions or restrictions that are not exercisable immediately prior to the effective time of the Sale Event shall become fully exercisable as of the effective time of the Sale Event, all other Awards with time-based vesting, conditions or restrictions shall become fully vested and nonforfeitable as of the effective time of the Sale Event, and all Awards with conditions and restrictions relating to the attainment of performance goals may become vested and nonforfeitable in connection with a Sale Event in the Administrators discretion or to the extent specified in the relevant Award Certificate. In the event of such termination, (i) the Company
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shall have the option (in its sole discretion) to make or provide for a cash payment to the grantees holding Options and Stock Appreciation Rights, in exchange for the cancellation thereof, in an amount equal to the difference between (A) the Sale Price multiplied by the number of shares of Stock subject to outstanding Options and Stock Appreciation Rights (to the extent then exercisable at prices not in excess of the Sale Price) and (B) the aggregate exercise price of all such outstanding Options and Stock Appreciation Rights; or (ii) each grantee shall be permitted, within a specified period of time prior to the consummation of the Sale Event as determined by the Administrator, to exercise all outstanding Options and Stock Appreciation Rights (to the extent then exercisable) held by such grantee.
SECTION 4. | ELIGIBILITY |
Grantees under the Plan will be such full or part-time officers and other employees, Non-Employee Directors and Consultants of the Company and its Subsidiaries as are selected from time to time by the Administrator in its sole discretion.
SECTION 5. | STOCK OPTIONS |
(a) Award of Stock Options . The Administrator may grant Stock Options under the Plan. Any Stock Option granted under the Plan shall be in such form as the Administrator may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock Options or Non-Qualified Stock Options. Incentive Stock Options may be granted only to employees of the Company or any Subsidiary that is a subsidiary corporation within the meaning of Section 424(f) of the Code. To the extent that any Option does not qualify as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock Option.
Stock Options granted pursuant to this Section 5 shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable. If the Administrator so determines, Stock Options may be granted in lieu of cash compensation at the optionees election, subject to such terms and conditions as the Administrator may establish.
(b) Exercise Price . The exercise price per share for the Stock covered by a Stock Option granted pursuant to this Section 5 shall be determined by the Administrator at the time of grant but shall not be less than 100 percent of the Fair Market Value on the date of grant. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the option price of such Incentive Stock Option shall be not less than 110 percent of the Fair Market Value on the grant date.
(c) Option Term . The term of each Stock Option shall be fixed by the Administrator, but no Stock Option shall be exercisable more than ten years after the date the Stock Option is granted. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the term of such Stock Option shall be no more than five years from the date of grant.
(d) Exercisability; Rights of a Stockholder . Stock Options shall become exercisable at such time or times, whether or not in installments, as shall be determined by the Administrator
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at or after the grant date. The Administrator may at any time accelerate the exercisability of all or any portion of any Stock Option. An optionee shall have the rights of a stockholder only as to shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options.
(e) Method of Exercise . Stock Options may be exercised in whole or in part, by giving written or electronic notice of exercise to the Company, specifying the number of shares to be purchased. Payment of the purchase price may be made by one or more of the following methods except to the extent otherwise provided in the Option Award Certificate:
(i) In cash, by certified or bank check or other instrument acceptable to the Administrator;
(ii) Through the delivery (or attestation to the ownership following such procedures as the Company may prescribe) of shares of Stock that are not then subject to restrictions under any Company plan. Such surrendered shares shall be valued at Fair Market Value on the exercise date;
(iii) By the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company for the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Company shall prescribe as a condition of such payment procedure; or
(iv) With respect to Stock Options that are not Incentive Stock Options, by a net exercise arrangement pursuant to which the Company will reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price.
Payment instruments will be received subject to collection. The transfer to the optionee on the records of the Company or of the transfer agent of the shares of Stock to be purchased pursuant to the exercise of a Stock Option will be contingent upon receipt from the optionee (or a purchaser acting in his stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such shares and the fulfillment of any other requirements contained in the Option Award Certificate or applicable provisions of laws (including the satisfaction of any withholding taxes that the Company is obligated to withhold with respect to the optionee). In the event an optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the optionee upon the exercise of the Stock Option shall be net of the number of attested shares. In the event that the Company establishes, for itself or using the services of a third party, an automated system for the exercise of Stock Options, such as a system using an internet website or interactive voice response, then the paperless exercise of Stock Options may be permitted through the use of such an automated system.
(f) Annual Limit on Incentive Stock Options . To the extent required for incentive stock option treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the shares of Stock with respect to which Incentive Stock
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Options granted under this Plan and any other plan of the Company or its parent and subsidiary corporations become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000. To the extent that any Stock Option exceeds this limit, it shall constitute a Non-Qualified Stock Option.
SECTION 6. | STOCK APPRECIATION RIGHTS |
(a) Award of Stock Appreciation Rights . The Administrator may grant Stock Appreciation Rights under the Plan. A Stock Appreciation Right is an Award entitling the recipient to receive shares of Stock having a value equal to the excess of the Fair Market Value of a share of Stock on the date of exercise over the exercise price of the Stock Appreciation Right multiplied by the number of shares of Stock with respect to which the Stock Appreciation Right shall have been exercised.
(b) Exercise Price of Stock Appreciation Rights . The exercise price of a Stock Appreciation Right shall not be less than 100 percent of the Fair Market Value of the Stock on the date of grant.
(c) Grant and Exercise of Stock Appreciation Rights . Stock Appreciation Rights may be granted by the Administrator independently of any Stock Option granted pursuant to Section 5 of the Plan.
(d) Terms and Conditions of Stock Appreciation Rights . Stock Appreciation Rights shall be subject to such terms and conditions as shall be determined from time to time by the Administrator. The term of a Stock Appreciation Right may not exceed ten years.
SECTION 7. | RESTRICTED STOCK AWARDS |
(a) Nature of Restricted Stock Awards . The Administrator may grant Restricted Stock Awards under the Plan. A Restricted Stock Award is any Award of Restricted Shares subject to such restrictions and conditions as the Administrator may determine at the time of grant. Conditions may be based on continuing employment (or other service relationship) and/or achievement of pre-established performance goals and objectives. The terms and conditions of each such Award shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees.
(b) Rights as a Stockholder . Upon the grant of the Restricted Stock Award and payment of any applicable purchase price, a grantee shall have the rights of a stockholder with respect to the voting of the Restricted Shares and receipt of dividends; provided that if the lapse of restrictions with respect to the Restricted Stock Award is tied to the attainment of performance goals, any dividends paid by the Company during the performance period shall accrue and shall not be paid to the grantee until and to the extent the performance goals are met with respect to the Restricted Stock Award. Unless the Administrator shall otherwise determine, (i) uncertificated Restricted Shares shall be accompanied by a notation on the records of the Company or the transfer agent to the effect that they are subject to forfeiture until such Restricted Shares are vested as provided in Section 7(d) below, and (ii) certificated Restricted Shares shall remain in the possession of the Company until such Restricted Shares are vested as provided in Section 7(d) below, and the grantee shall be required, as a condition of the grant, to deliver to the Company such instruments of transfer as the Administrator may prescribe.
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(c) Restrictions . Restricted Shares may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the Restricted Stock Award Certificate. Except as may otherwise be provided by the Administrator either in the Award Certificate or, subject to Section 18 below, in writing after the Award is issued, if a grantees employment (or other service relationship) with the Company and its Subsidiaries terminates for any reason, any Restricted Shares that have not vested at the time of termination shall automatically and without any requirement of notice to such grantee from or other action by or on behalf of, the Company be deemed to have been reacquired by the Company at its original purchase price (if any) from such grantee or such grantees legal representative simultaneously with such termination of employment (or other service relationship), and thereafter shall cease to represent any ownership of the Company by the grantee or rights of the grantee as a stockholder. Following such deemed reacquisition of Restricted Shares that are represented by physical certificates, a grantee shall surrender such certificates to the Company upon request without consideration.
(d) Vesting of Restricted Shares . The Administrator at the time of grant shall specify the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the non-transferability of the Restricted Shares and the Companys right of repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or the attainment of such pre-established performance goals, objectives and other conditions, the shares on which all restrictions have lapsed shall no longer be Restricted Shares and shall be deemed vested.
SECTION 8. | RESTRICTED STOCK UNITS |
(a) Nature of Restricted Stock Units . The Administrator may grant Restricted Stock Units under the Plan. A Restricted Stock Unit is an Award of stock units that may be settled in shares of Stock (or, to the extent expressly provided in the Award Certificate, cash) upon the satisfaction of such restrictions and conditions at the time of grant. Conditions may be based on continuing employment (or other service relationship) and/or achievement of pre-established performance goals and objectives. The terms and conditions of each such Award shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees. Except in the case of Restricted Stock Units with a deferred settlement date that complies with Section 409A, at the end of the vesting period, the Restricted Stock Units, to the extent vested, shall be settled in the form of shares of Stock. Restricted Stock Units with deferred settlement dates are subject to Section 409A and shall contain such additional terms and conditions as the Administrator shall determine in its sole discretion in order to comply with the requirements of Section 409A.
(b) Election to Receive Restricted Stock Units in Lieu of Compensation . The Administrator may, in its sole discretion, permit a grantee to elect to receive a portion of future compensation otherwise due to such grantee in the form of an award of Restricted Stock Units. Any such election shall be made in writing and shall be delivered to the Company no later than the date specified by the Administrator and in accordance with Section 409A and such other rules and procedures established by the Administrator. Any such future cash compensation that
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the grantee elects to defer shall be converted to a fixed number of Restricted Stock Units based on the Fair Market Value of Stock on the date the compensation would otherwise have been paid to the grantee if such payment had not been deferred as provided herein. The Administrator shall have the sole right to determine whether and under what circumstances to permit such elections and to impose such limitations and other terms and conditions thereon as the Administrator deems appropriate. Any Restricted Stock Units that are elected to be received in lieu of cash compensation shall be fully vested, unless otherwise provided in the Award Certificate.
(c) Rights as a Stockholder . A grantee shall have the rights as a stockholder only as to shares of Stock acquired by the grantee upon settlement of Restricted Stock Units; provided, however, that the grantee may be credited with Dividend Equivalent Rights with respect to the stock units underlying his Restricted Stock Units, subject to the provisions of Section 11 and such terms and conditions as the Administrator may determine.
(d) Termination . Except as may otherwise be provided by the Administrator either in the Award Certificate or, subject to Section 18 below, in writing after the Award is issued, a grantees right in all Restricted Stock Units that have not vested shall automatically terminate upon the grantees termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.
SECTION 9. | UNRESTRICTED STOCK AWARDS |
Grant or Sale of Unrestricted Stock . The Administrator may grant (or sell at par value or such higher purchase price determined by the Administrator) an Unrestricted Stock Award under the Plan. An Unrestricted Stock Award is an Award pursuant to which the grantee may receive shares of Stock free of any restrictions under the Plan. Unrestricted Stock Awards may be granted in respect of past services or other valid consideration, or in lieu of cash compensation due to such grantee.
SECTION 10. | CASH-BASED AWARDS |
Grant of Cash-Based Awards . The Administrator may grant Cash-Based Awards under the Plan. A Cash-Based Award is an Award that entitles the grantee to a payment in cash upon the attainment of specified Performance Goals. The Administrator shall determine the maximum duration of the Cash-Based Award, the amount of cash to which the Cash-Based Award pertains, the conditions upon which the Cash-Based Award shall become vested or payable, and such other provisions as the Administrator shall determine. Each Cash-Based Award shall specify a cash-denominated payment amount, formula or payment ranges as determined by the Administrator. Payment, if any, with respect to a Cash-Based Award shall be made in accordance with the terms of the Award and may be made in cash.
SECTION 11. | PERFORMANCE SHARE AWARDS |
(a) Nature of Performance Share Awards . The Administrator may grant Performance Share Awards under the Plan. A Performance Share Award is an Award entitling the grantee to receive shares of Stock upon the attainment of performance goals. The Administrator shall determine whether and to whom Performance Share Awards shall be granted, the performance goals, the periods during which performance is to be measured, which may not be less than one year except in the case of a Sale Event, and such other limitations and conditions as the Administrator shall determine.
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(b) Rights as a Stockholder . A grantee receiving a Performance Share Award shall have the rights of a stockholder only as to shares of Stock actually received by the grantee under the Plan and not with respect to shares subject to the Award but not actually received by the grantee. A grantee shall be entitled to receive shares of Stock under a Performance Share Award only upon satisfaction of all conditions specified in the Performance Share Award Certificate (or in a performance plan adopted by the Administrator).
(c) Termination . Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 18 below, in writing after the Award is issued, a grantees rights in all Performance Share Awards shall automatically terminate upon the grantees termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.
SECTION 12. | PERFORMANCE-BASED AWARDS TO COVERED EMPLOYEES |
(a) Performance-Based Awards . The Administrator may grant one or more Performance-Based Awards in the form of a Restricted Stock Award, Restricted Stock Units, Performance Share Awards or Cash-Based Award payable upon the attainment of Performance Goals that are established by the Administrator and relate to one or more of the Performance Criteria, in each case on a specified date or dates or over any period or periods determined by the Administrator. The Administrator shall define in an objective fashion the manner of calculating the Performance Criteria it selects to use for any Performance Cycle. Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall Company performance or the performance of a division, business unit, or an individual. Each Performance-Based Award shall comply with the provisions set forth below.
(b) Grant of Performance-Based Awards . With respect to each Performance-Based Award granted to a Covered Employee, the Administrator shall select, within the first 90 days of a Performance Cycle (or, if shorter, within the maximum period allowed under Section 162(m) of the Code) the Performance Criteria for such grant, and the Performance Goals with respect to each Performance Criterion (including a threshold level of performance below which no amount will become payable with respect to such Award). Each Performance-Based Award will specify the amount payable, or the formula for determining the amount payable, upon achievement of the various applicable performance targets. The Performance Criteria established by the Administrator may be (but need not be) different for each Performance Cycle and different Performance Goals may be applicable to Performance-Based Awards to different Covered Employees.
(c) Payment of Performance-Based Awards . Following the completion of a Performance Cycle, the Administrator shall meet to review and certify in writing whether, and to what extent, the Performance Goals for the Performance Cycle have been achieved and, if so, to also calculate and certify in writing the amount of the Performance-Based Awards earned for the Performance Cycle. The Administrator shall then determine the actual size of each Covered
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Employees Performance-Based Award. The Administrator may, in its sole discretion, use negative discretion to reduce or eliminate the actual size of each Covered Employees Performance-Based Award, but in no event may the Administrator increase such actual size.
(d) Maximum Award Payable . The maximum Performance-Based Award payable to any one Covered Employee under the Plan for a Performance Cycle is 750,000 shares of Stock (subject to adjustment as provided in Section 3(b) hereof) or $10 million in the case of a Performance-Based Award that is a Cash-Based Award.
SECTION 13. | DIVIDEND EQUIVALENT RIGHTS |
(a) Dividend Equivalent Rights . The Administrator may grant Dividend Equivalent Rights under the Plan. A Dividend Equivalent Right is an Award entitling the grantee to receive credits based on cash dividends that would have been paid on the shares of Stock specified in the Dividend Equivalent Right (or other Award to which it relates) if such shares had been issued to the grantee. A Dividend Equivalent Right may be granted hereunder to any grantee as a component of an award of Restricted Stock Units, Restricted Stock Award or Performance Share Award or as a freestanding award. The terms and conditions of Dividend Equivalent Rights shall be specified in the Award Certificate. Dividend equivalents credited to the holder of a Dividend Equivalent Right may be paid currently or at the end of a vesting period in cash or may be deemed to be reinvested in additional shares of Stock, which may thereafter accrue additional equivalents. Any such reinvestment shall be at Fair Market Value on the date of reinvestment or such other price as may then apply under a dividend reinvestment plan sponsored by the Company, if any. Dividend Equivalent Rights may be settled in cash or shares of Stock or a combination thereof, in a single installment or installments. A Dividend Equivalent Right granted as a component of an Award of Restricted Stock Units or Performance Share Award shall provide that such Dividend Equivalent Right shall be settled only upon settlement or payment of, or lapse of restrictions on, such other Award, and that such Dividend Equivalent Right shall expire or be forfeited or annulled under the same conditions as such other Award.
(b) Termination . Except as may otherwise be provided by the Administrator either in the Award Certificate or, subject to Section 18 below, in writing after the Award is issued, a grantees rights in all Dividend Equivalent Rights shall automatically terminate upon the grantees termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.
SECTION 14. | TRANSFERABILITY OF AWARDS |
(a) Transferability . Except as provided in Section 14(b) below, during a grantees lifetime, his or her Awards shall be exercisable only by the grantee, or by the grantees legal representative or guardian in the event of the grantees incapacity. No Awards shall be sold, assigned, transferred or otherwise encumbered or disposed of by a grantee other than by will or by the laws of descent and distribution or pursuant to a domestic relations order. No Awards shall be subject, in whole or in part, to attachment, execution, or levy of any kind, and any purported transfer in violation hereof shall be null and void.
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(b) Administrator Action . Notwithstanding Section 14(a), the Administrator, in its discretion, may provide either in the Award Certificate regarding a given Award or by subsequent written approval that the grantee (who is an employee or director) may transfer his or her Non-Qualified Options to his or her immediate family members, to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners, provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Award. In no event may an Award be transferred by a grantee for value.
(c) Family Member . For purposes of Section 14(b), family member shall mean a grantees child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the grantees household (other than a tenant of the grantee), a trust in which these persons (or the grantee) have more than 50 percent of the beneficial interest, a foundation in which these persons (or the grantee) control the management of assets, and any other entity in which these persons (or the grantee) own more than 50 percent of the voting interests.
(d) Designation of Beneficiary . To the extent permitted by the Company, each grantee to whom an Award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any Award or receive any payment under any Award payable on or after the grantees death. Any such designation shall be on a form provided for that purpose by the Administrator and shall not be effective until received by the Administrator. If no beneficiary has been designated by a deceased grantee, or if the designated beneficiaries have predeceased the grantee, the beneficiary shall be the grantees estate.
SECTION 15. | TAX WITHHOLDING |
(a) Payment by Grantee . Each grantee shall, no later than the date as of which the value of an Award or of any Stock or other amounts received thereunder first becomes includable in the gross income of the grantee for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Administrator regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld by the Company with respect to such income. The Company and its Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the grantee. The Companys obligation to deliver evidence of book entry (or stock certificates) to any grantee is subject to and conditioned on tax withholding obligations being satisfied by the grantee.
(b) Payment in Stock . Subject to approval by the Administrator, a grantee may elect to have the Companys minimum required tax withholding obligation satisfied, in whole or in part, by authorizing the Company to withhold from shares of Stock to be issued pursuant to any Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due. The Administrator may also require Awards to be subject to mandatory share withholding up to the required withholding amount. For purposes of share withholding, the Fair Market Value of withheld shares shall be determined in the same manner as the value of Stock includible in income of the Participants.
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SECTION 16. | SECTION 409A AWARDS |
To the extent that any Award is determined to constitute nonqualified deferred compensation within the meaning of Section 409A (a 409A Award), the Award shall be subject to such additional rules and requirements as specified by the Administrator from time to time in order to comply with Section 409A. In this regard, if any amount under a 409A Award is payable upon a separation from service (within the meaning of Section 409A) to a grantee who is then considered a specified employee (within the meaning of Section 409A), then no such payment shall be made prior to the date that is the earlier of (i) six months and one day after the grantees separation from service, or (ii) the grantees death, but only to the extent such delay is necessary to prevent such payment from being subject to interest, penalties and/or additional tax imposed pursuant to Section 409A. Further, the settlement of any such Award may not be accelerated except to the extent permitted by Section 409A.
SECTION 17. | TERMINATION OF EMPLOYMENT, TRANSFER, LEAVE OF ABSENCE, ETC. |
(a) Termination of Employment . If the grantees employer ceases to be a Subsidiary, the grantee shall be deemed to have terminated employment for purposes of the Plan.
(b) For purposes of the Plan, the following events shall not be deemed a termination of employment:
(i) a transfer to the employment of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another; or
(ii) an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the employees right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Administrator otherwise so provides in writing.
SECTION 18. | AMENDMENTS AND TERMINATION |
The Board may, at any time, amend or discontinue the Plan and the Administrator may, at any time, amend or cancel any outstanding Award for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the holders consent. Except as provided in Section 3(b) or 3(c), without prior stockholder approval, in no event may the Administrator exercise its discretion to reduce the exercise price of outstanding Stock Options or Stock Appreciation Rights or effect repricing through cancellation and re-grants or cancellation of Stock Options or Stock Appreciation Rights in exchange for cash or other Awards. To the extent required under the rules of any securities exchange or market system on which the Stock is listed, to the extent determined by the Administrator to be required by the Code to ensure that Incentive Stock Options granted under the Plan are qualified under Section 422 of the Code, or to ensure that compensation earned under Awards qualifies as performance-based compensation under Section 162(m) of the Code, Plan amendments shall be subject to approval by the Company stockholders entitled to vote at a meeting of stockholders. Nothing in this Section 18 shall limit the Administrators authority to take any action permitted pursuant to Section 3(b) or 3(c).
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SECTION 19. | STATUS OF PLAN |
With respect to the portion of any Award that has not been exercised and any payments in cash, Stock or other consideration not received by a grantee, a grantee shall have no rights greater than those of a general creditor of the Company unless the Administrator shall otherwise expressly determine in connection with any Award or Awards. In its sole discretion, the Administrator may authorize the creation of trusts or other arrangements to meet the Companys obligations to deliver Stock or make payments with respect to Awards hereunder, provided that the existence of such trusts or other arrangements is consistent with the foregoing sentence.
SECTION 20. | GENERAL PROVISIONS |
(a) No Distribution . The Administrator may require each person acquiring Stock pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof.
(b) Delivery of Stock Certificates . Stock certificates to grantees under this Plan shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the United States mail, addressed to the grantee, at the grantees last known address on file with the Company. Uncertificated Stock shall be deemed delivered for all purposes when the Company or a Stock transfer agent of the Company shall have given to the grantee by electronic mail (with proof of receipt) or by United States mail, addressed to the grantee, at the grantees last known address on file with the Company, notice of issuance and recorded the issuance in its records (which may include electronic book entry records). Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates evidencing shares of Stock pursuant to the exercise of any Award, unless and until the Administrator has determined, with advice of counsel (to the extent the Administrator deems such advice necessary or advisable), that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the shares of Stock are listed, quoted or traded. All Stock certificates delivered pursuant to the Plan shall be subject to any stop-transfer orders and other restrictions as the Administrator deems necessary or advisable to comply with federal, state or foreign jurisdiction, securities or other laws, rules and quotation system on which the Stock is listed, quoted or traded. The Administrator may place legends on any Stock certificate to reference restrictions applicable to the Stock. In addition to the terms and conditions provided herein, the Administrator may require that an individual make such reasonable covenants, agreements, and representations as the Administrator, in its discretion, deems necessary or advisable in order to comply with any such laws, regulations, or requirements. The Administrator shall have the right to require any individual to comply with any timing or other restrictions with respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Administrator.
(c) Stockholder Rights . Until Stock is deemed delivered in accordance with Section 20(b), no right to vote or receive dividends or any other rights of a stockholder will exist with respect to shares of Stock to be issued in connection with an Award, notwithstanding the exercise of a Stock Option or any other action by the grantee with respect to an Award.
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(d) Other Compensation Arrangements; No Employment Rights . Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, including trusts, and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of this Plan and the grant of Awards do not confer upon any employee any right to continued employment with the Company or any Subsidiary.
(e) Trading Policy Restrictions . Option exercises and other Awards under the Plan shall be subject to the Companys insider trading policies and procedures, as in effect from time to time.
(f) Clawback Policy . Awards under the Plan shall be subject to the Companys clawback policy, as in effect from time to time.
SECTION 21. | EFFECTIVE DATE OF PLAN |
This Plan shall become effective after stockholder approval in accordance with applicable state law and immediately prior to the closing of the Companys Initial Public Offering, the Companys bylaws and articles of incorporation, and applicable stock exchange rules. No grants of Stock Options and other Awards may be made hereunder after the tenth anniversary of the Effective Date and no grants of Incentive Stock Options may be made hereunder after the tenth anniversary of the date the Plan is approved by the Board.
SECTION 22. | GOVERNING LAW |
This Plan and all Awards and actions taken thereunder shall be governed by, and construed in accordance with, the laws of the State of Texas, applied without regard to conflict of law principles.
DATE APPROVED BY BOARD OF DIRECTORS: July 13, 2015
DATE APPROVED BY STOCKHOLDERS:
18
Exhibit 10.18
SKINNYPOP
TAX RECEIVABLE AGREEMENT
among
AMPLIFY SNACK BRANDS, INC.
THE STOCKHOLDERS IDENTIFIED HEREIN
and
[ INSERT STOCKHOLDERS REPRESENTATIVE ]
Dated as of [ ],2015
TABLE OF CONTENTS
Page | ||||||
ARTICLE I DEFINITIONS |
1 | |||||
Section 1.01 |
Definitions |
1 | ||||
ARTICLE II DETERMINATION OF REALIZED TAX BENEFIT |
7 | |||||
Section 2.01 |
Basis Adjustment |
7 | ||||
Section 2.02 |
Realized Tax Benefit and Realized Tax Detriment |
7 | ||||
Section 2.03 |
Procedures. Amendments |
8 | ||||
ARTICLE III TAX BENEFIT PAYMENTS |
9 | |||||
Section 3.01 |
Payments |
9 | ||||
Section 3.02 |
No Duplicative Payments |
10 | ||||
ARTICLE IV TERMINATION |
10 | |||||
Section 4.01 |
Termination. Early Termination and Breach of Agreement |
10 | ||||
Section 4.02 |
Early Termination Notice |
11 | ||||
Section 4.03 |
Payment upon Early Termination |
12 | ||||
ARTICLE V TRANSFERS |
12 | |||||
Section 5.01 |
Generally |
12 | ||||
Section 5.02 |
Drag-Along Right |
12 | ||||
ARTICLE VI SUBORDINATION AND LATE PAYMENTS |
13 | |||||
Section 6.01 |
Subordination |
13 | ||||
Section 6.02 |
Late Payments by the Corporate Taxpayer |
13 | ||||
ARTICLE VII |
13 | |||||
NO DISPUTES; CONSISTENCY; COOPERATION |
13 | |||||
Section 7.01 |
Participation in the Corporate Taxpayers Tax Matters |
13 | ||||
Section 7.02 |
Tax Reporting and Consistency |
14 | ||||
Section 7.03 |
Cooperation |
14 | ||||
ARTICLE VIII MISCELLANEOUS |
15 | |||||
Section 8.01 |
Notices |
15 | ||||
Section 8.02 |
Binding Effect: Benefit: Assignment |
15 | ||||
Section 8.03 |
Resolution of Disputes |
16 | ||||
Section 8.04 |
Counterparts |
17 | ||||
Section 8.05 |
Entire Agreement |
17 | ||||
Section 8.06 |
Severability |
17 | ||||
Section 8.07 |
Amendment |
17 | ||||
Section 8.08 |
Governing Law |
17 | ||||
Section 8.09 |
Reconciliation |
18 | ||||
Section 8.10 |
Withholding |
18 | ||||
Section 8.11 |
Admission of the Corporate Taxpayer into a Consolidated Group: Transfers of Corporate Assets |
19 | ||||
Section 8.12 |
Confidentiality |
19 | ||||
Section 8.13 |
Appointment of Stockholders Representative |
19 |
i
TAX RECEIVABLE AGREEMENT
This TAX RECEIVABLE AGREEMENT (as amended from time to time, this Agreement ) dated as of [●], 2015, is hereby entered into by and among Amplify Snack Brands, Inc., a Delaware corporation (the Corporate Taxpayer ), the persons identified as Stockholders on the signature pages hereto (each, a Stockholder and together, the Stockholders ) and TA XI, L.P., a Delaware limited partnership, in its capacity as representative of the Stockholders (the Stockholders Representative ).
WHEREAS , on [●], 2015, TA Topco 1, LLC, a Delaware limited liability company ( Topco ) dissolved and distributed its assets in accordance with the terms of Topcos existing limited liability company agreement (the Topco Dissolution ), and the Stockholders received, as a result of the Topco Dissolution, 100% of the capital stock of the Corporate Taxpayer;
WHEREAS , the Corporate Taxpayer intends to effect the IPO (as defined below);
WHEREAS , after the IPO Date (as defined below), the income, gain, loss, expense and other Tax (as defined below) items of the Corporate Taxpayer may be affected by the Basis Adjustment (as defined below); and
WHEREAS , the parties to this Agreement desire to make certain arrangements with respect to the effect of the Basis Adjustment on the actual liability for Taxes of the Corporate Taxpayer.
NOW, THEREFORE , in consideration of the foregoing and the respective covenants and agreements set forth herein, and intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions .
(a) The following terms shall have the following meanings for the purposes of this Agreement:
Affiliate means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person.
Agreed Rate means LIBOR plus 100 basis points.
Bankruptcy Code means Title 11 of the United States Code.
Basis Adjustment means (i) the adjustment to the tax basis of an Original Asset as a result of the Historical Transaction and (ii) any subsequent adjustment in the tax basis of an Original Asset determined, in whole or in part, by reference to any prior Original Asset adjustment.
A Beneficial Owner of a security is a Person who directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares: (i) voting power, which includes the power to vote, or to direct the voting of, such security and/or (ii) investment power, which includes the power to dispose of or to direct the disposition of such security.
Board means the board of directors of the Corporate Taxpayer.
Business Day means Monday through Friday of each week, except that a legal holiday recognized as such by the government of the United States of America or the State of New York shall not be regarded as a Business Day.
Change of Control means the occurrence of any of the following events:
(i) any Person or any group of Persons acting together which would constitute a group for purposes of Section 13(d) of the Securities and Exchange Act of 1934, or any successor provisions thereto, excluding a corporation or other entity owned, directly or indirectly, by the stockholders of the Corporate Taxpayer in substantially the same proportions as their ownership of stock in the Corporate Taxpayer, is or becomes the Beneficial Owner, directly or indirectly, of securities of the Corporate Taxpayer representing more than 50% of the combined voting power of the Corporate Taxpayers then outstanding voting securities; or
(ii) the following individuals cease for any reason to constitute a majority of the number of directors of the Corporate Taxpayer then serving: individuals who, on the IPO Date, constitute the Board and any new director whose appointment or election by the Board or nomination for election by the Corporate Taxpayers shareholders was approved or recommended by a vote of at least a majority of the directors then still in office who either were directors on the IPO Date or whose appointment, election or nomination for election was previously so approved or recommended by the directors referred to in this clause (ii); or
(iii) there is consummated a merger or consolidation of the Corporate Taxpayer with any other corporation or other entity, and, immediately after the consummation of such merger or consolidation, either (x) the Board immediately prior to the merger or consolidation does not constitute at least a majority of the board of directors of the company surviving the merger or, if the surviving company is a Subsidiary, the ultimate parent thereof) or (y) the voting securities of the Corporate Taxpayer immediately prior to such merger or consolidation do not continue to represent or are not converted into more than 50% of the combined voting power of the then outstanding voting securities of the Person resulting from such merger or consolidation or, if the surviving company is a Subsidiary, the ultimate parent thereof, or
(iv) the shareholders of the Corporate Taxpayer approve a plan of complete liquidation or dissolution of the Corporate Taxpayer or there is consummated an agreement or series of related agreements for the sale or other disposition, directly or
2
indirectly, by the Corporate Taxpayer of all or substantially all of the Corporate Taxpayers assets, other than such sale or other disposition by the Corporate Taxpayer of all or substantially all of the Corporate Taxpayers assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by shareholders of the Corporate Taxpayer in substantially the same proportions as their ownership of the Corporate Taxpayer immediately prior to such sale.
Notwithstanding the foregoing, except with respect to clause (ii) and clause (iii)(x) above, a Change of Control shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the shares of the Corporate Taxpayer immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in, and own substantially all of the shares of) an entity which owns all or substantially all of the assets of the Corporate Taxpayer immediately following such transaction or series of transactions.
Code means the Internal Revenue Code of 1986, as amended.
Control means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.
Corporate Taxpayer Return means the federal and/or state and/or local Tax Return, as applicable, of the Corporate Taxpayer filed with respect to Taxes of any Taxable Year.
Cumulative Net Realized Tax Benefit for a Taxable Year means the cumulative amount of Realized Tax Benefits for all Taxable Years of the Corporate Taxpayer, up to and including such Taxable Year, net of the cumulative amount of Realized Tax Detriments for the same period. The Realized Tax Benefit and Realized Tax Detriment for each Taxable Year shall be determined based on the most recent Tax Benefit Schedule or Amended Schedule, if any, in existence at the time of such determination.
Default Rate means LIBOR plus 500 basis points.
Determination shall have the meaning ascribed to such term in Section 1313(a) of the Code or similar provision of state and local tax law, as applicable, or any other event (including the execution of IRS Form 870-AD) that finally and conclusively establishes the amount of any liability for Tax and shall also include the acquiescence of the Corporate Taxpayer to the amount of any assessed liability for Tax.
Early Termination Date means the date of an Early Termination Notice for purposes of determining the Early Termination Payment.
Early Termination Rate means the lesser of (i) 6.5% per annum, compounded annually, and (ii) LIBOR plus 100 basis points.
Governmental Authority means foreign, federal, state, local or other governmental authority, regulatory body, court, tribunal, arbitral body, administrative agency, commission, stock exchange or listing authority, or other instrumentality thereof.
3
Historical Transaction means the acquisition of SkinnyPop by Topco and its Affiliates pursuant to that Unit Purchase Agreement, dated as of July 17, 2014.
Hypothetical Tax Liability means, with respect to any Taxable Year, the liability for Taxes of the Corporate Taxpayer (or the other members of the consolidated group of which the Corporate Taxpayer is the parent), using the same methods, elections, conventions and similar practices used on the relevant Corporate Taxpayer Return, but (i) using the Non-Stepped Up Tax Basis as reflected on the Basis Schedule, including amendments thereto for the Taxable Year and (ii) without taking into account the carryover or carryback of any Tax item (or portions thereof) that is attributable to or (without duplication) available for use because of the prior use of any of the Basis Adjustments.
IPO means the initial public offering of [Common Stock] of the Corporate Taxpayer.
IPO Date means the closing date of the IPO.
IRS means the U.S. Internal Revenue Service.
LIBOR means during any period, an interest rate per annum equal to the one-year LIBOR reported, on the date two days prior to the first day of such period, on the Telerate Page 3750 (or if such screen shall cease to be publicly available, as reported on Reuters Screen page LIBOR01 or by any other publicly available source of such market rate) for London interbank offered rates for United States dollar deposits for such period.
Non-Stepped Up Tax Basis means, with respect to any Original Asset at any time, the Tax basis that such asset would have had at such time if no Basis Adjustments had been made.
Original Assets means the assets owned by the Corporate Taxpayer and its Subsidiaries (including, for the avoidance of doubt, SkinnyPop) at the time of the IPO. An Original Asset also includes any asset that is substituted basis property under Section 7701(a)(42) of the Code with respect to an Original Asset.
Ownership Percentage means, in the case of any Stockholder, a fraction (a) the numerator of which is the number of [Common Stock] in the Corporate Taxpayer owned by such Stockholder immediately prior to the closing of the IPO, and (b) the denominator of which is the number of [Common Stock] in the Corporate Taxpayer as of immediately prior to the closing of the IPO.
Payment Date means any date on which a payment is required to be made pursuant to this Agreement.
Person means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, governmental entity or other entity.
Realized Tax Benefit means, for a Taxable Year, the excess, if any, of the Hypothetical Tax Liability over the actual liability for Taxes of the Corporate Taxpayer (or the other members of the consolidated group of which the Corporate Taxpayer is the parent) for such
4
Taxable Year. If all or a portion of the actual liability for such Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Benefit unless and until there has been a Determination.
Realized Tax Detriment means, for a Taxable Year, the excess, if any, of the actual liability for Taxes of the Corporate Taxpayer (or the other members of the consolidated group of which the Corporate Taxpayer is the parent) for such Taxable Year, over the Hypothetical Tax Liability for such Taxable Year. If all or a portion of the actual liability for such Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Detriment unless and until there has been a Determination.
Schedule means any of the following: (i) the Basis Schedule, (ii) a Tax Benefit Schedule, or (iii) the Early Termination Schedule.
SkinnyPop means SkinnyPop Popcorn LLC, a Delaware limited liability company and wholly-owned Subsidiary of the Corporate Taxpayer.
Stockholders means the stockholders of the Corporate Taxpayer listed on Exhibit A, and each of the successors and assigns thereto.
Subsidiaries means, with respect to any Person, as of any date of determination, any other Person as to which such Person, owns, directly or indirectly, or otherwise controls more than 50% of the voting power or other similar interests or the sole general partner interest or managing member or similar interest of such Person.
Tax Return means any return, declaration, report or similar statement required to be filed with respect to Taxes (including any attached schedules), including any information return, claim for refund, amended return and declaration of estimated Tax.
Taxable Year means a taxable year of the Corporate Taxpayer as defined in Section 441(b) of the Code or comparable section of state or local tax law, as applicable (and, therefore, for the avoidance of doubt, may include a period of less than 12 months for which a Tax Return is made), ending on or after the IPO Date.
Taxes means any and all U.S. federal, state and local taxes, assessments or similar charges that are based on or measured with respect to net income or profits, and any interest related to such Tax.
Taxing Authority shall mean any domestic, federal, national, state, county or municipal or other local government, any subdivision, agency, commission or authority thereof) or any quasi-governmental body exercising any taxing authority or any other authority exercising Tax regulatory authority.
Treasury Regulations means the final, temporary and proposed regulations under the Code promulgated from time to time (including corresponding provisions and succeeding provisions) as in effect for the relevant taxable period.
5
Valuation Assumptions shall mean, as of an Early Termination Date, the assumptions that (1) in each Taxable Year ending on or after such Early Termination Date, the Corporate Taxpayer will have taxable income sufficient to fully utilize the deductions arising from the Basis Adjustments during such Taxable Year or future Taxable Years (including, for the avoidance of doubt, Basis Adjustments that would result from future Tax Benefit Payments that would be paid in accordance with the Valuation Assumptions) in which such deductions would become available, (2) the U.S. federal income tax rates and state and local income tax rates that will be in effect for each such Taxable Year will be those specified for each such Taxable Year by the Code and other law as in effect on the Early Termination Date, (3) any loss carryovers generated by deductions arising from Basis Adjustments that are available as of such Early Termination Date will be utilized by the Corporate Taxpayer on a pro rata basis from the Early Termination Date through the scheduled expiration date of such loss carryovers, and (4) any non-amortizable assets will be disposed of on the fifteenth anniversary of the applicable Basis Adjustment; provided , that in the event of a Change of Control, such non-amortizable assets shall be deemed disposed of at the time of sale of the relevant asset (if earlier than such fifteenth anniversary).
(b) Each of the following terms is defined in the Section set forth opposite such term:
Term |
Section |
|
Agreement | Preamble | |
Amended Schedule | 2.03(b) | |
Basis Schedule | 2.01 | |
Corporate Taxpayer | Preamble | |
Dispute | 8.03(a) | |
Early Termination Effective Date | 4.02 | |
Early Termination Notice | 4.02 | |
Early Termination Payment | 4.03(b) | |
Early Termination Schedule | 4.02 | |
8.01 | ||
Expert | 8.09 | |
Interest Amount | 3.01(b) | |
Material Objection Notice | 4.02 | |
Net Tax Benefit | 3.01(b) | |
Objection Notice | 2.03(a) | |
Reconciliation Dispute | 8.09 | |
Reconciliation Procedures | 2.03(a) | |
Senior Obligations | 5.01 | |
Stockholders Representative | Preamble | |
TA Stockholders | 5.02(a) | |
Tax Benefit Payment | 3.01(b) | |
Third Party Sale | 5.02(a) | |
Topco | Recitals | |
Topco Dissolution | Recitals |
(c) Other Definitional and Interpretative Provisions . The words hereof, herein and hereunder and words of like import used in this Agreement shall refer to this Agreement as a
6
whole and not to any particular provision of this Agreement. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof References to Articles and Sections are to Articles and Sections of this Agreement unless otherwise specified. Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular. Whenever the words include, includes or including are used in this Agreement, they shall be deemed to be followed by the words without limitation, whether or not they are in feet followed by those words or words of like import. Writing, written and comparable terms refer to printing, typing and other means of reproducing words (including electronic media) in a visible form. References to any statute shall be deemed to refer to such statute as amended from time to time and to any rules or regulations promulgated thereunder. References to any agreement or contract are to that agreement or contract as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof References to any Person include the successors and permitted assigns of that Person. References from or through any date mean, unless otherwise specified, from and including or through and including, respectively.
ARTICLE II
DETERMINATION OF REALIZED TAX BENEFIT
Section 2.01 Basis Adjustment . Following the IPO Date, at least 60 calendar days prior to the filing of the U.S. federal income tax return of the Corporate Taxpayer for the Taxable Year that includes the IPO Date, the Corporate Taxpayer shall deliver to the Stockholders Representative a schedule (the Basis Schedule ) that shows, in reasonable detail, the information necessary to perform the calculations required by this Agreement, including estimates of (i) the Non-Stepped Up Tax Basis of the Original Assets immediately prior to the IPO Date, (ii) the Basis Adjustments with respect to the Original Assets, calculated in the aggregate, (iii) the period (or periods) over which the Original Assets are amortizable and/or depreciable, and (iv) the period (or periods) over which such Basis Adjustments are amortizable and/or depreciable.
Section 2.02 Realized Tax Benefit and Realized Tax Detriment .
(a) Tax Benefit Schedule . Within 30 calendar days after the filing of the U.S. federal income tax return of the Corporate Taxpayer for any Taxable Year, the Corporate Taxpayer shall provide to the Stockholders Representative a schedule showing, in reasonable detail, the calculation of the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year (a Tax Benefit Schedule ). The Tax Benefit Schedule will become final as provided in Section 2.03(a) and may be amended as provided in Section 2.03(b) (subject to the procedures set forth in Section 2.03(b) ).
(b) Applicable Principles . The Realized Tax Benefit or Realized Tax Detriment for each Taxable Year is intended to measure the decrease or increase in the actual liability for Taxes of the Corporate Taxpayer for such Taxable Year attributable to the Basis Adjustments, determined using a with and without methodology. Carryovers or carrybacks of any Tax item attributable to the Basis Adjustment shall be considered to be subject to the rules of the Code and the Treasury Regulations or the appropriate provisions of U.S. state and local
7
income and franchise tax law, as applicable, governing the use, limitation and expiration of carryovers or carrybacks of the relevant type. If a carryover or carryback of any Tax item includes a portion that is attributable to the Basis Adjustment and another portion that is not, such portions shall be considered to be used in accordance with the with and without methodology.
Section 2.03 Procedures. Amendments .
(a) Procedure . Every time the Corporate Taxpayer delivers to the Stockholders Representative an applicable Schedule under this Agreement, including any Amended Schedule delivered pursuant to Section 2.03(b) and any Early Termination Schedule or amended Early Termination Schedule, the Corporate Taxpayer shall also (x) deliver to the Stockholders Representative schedules, valuation reports (if any), and work papers, as determined by the Corporate Taxpayer or requested by the Stockholders Representative, providing reasonable detail regarding the preparation of the Schedule and (y) allow the Stockholders Representative reasonable access at no cost to the appropriate representatives at the Corporate Taxpayer, as determined by the Corporate Taxpayer or requested by the Stockholders Representative, in connection with a review of such Schedule. Without limiting the application of the preceding sentence, each time the Corporate Taxpayer delivers to the Stockholders Representative a Tax Benefit Schedule, in addition to the Tax Benefit Schedule duly completed, the Corporate Taxpayer shall deliver to the Stockholders Representative the Corporate Taxpayer Return, the reasonably detailed calculation by the Corporate Taxpayer of the Hypothetical Tax Liability, the reasonably detailed calculation by the Corporate Taxpayer of the actual Tax liability, as well as any other work papers as determined by the Corporate Taxpayer or requested by the Stockholders Representative. An applicable Schedule or amendment thereto shall become final and binding on all parties 30 calendar days from the first date on which the Stockholders Representative has received the applicable Schedule or amendment thereto unless the Stockholders Representative (i) within 30 calendar days after receiving an applicable Schedule or amendment thereto, provides the Corporate Taxpayer with notice of a material objection to such Schedule ( Objection Notice ) made in good faith or (ii) provides a written waiver of such right of any Objection Notice within the period described in clause (i) above, in which case such Schedule or amendment thereto becomes binding on the date the waiver is received by the Corporate Taxpayer. If the parties, for any reason, are unable to successfully resolve the issues raised in the Objection Notice within 30 calendar days after receipt by the Corporate Taxpayer of an Objection Notice, the Corporate Taxpayer and the Stockholders Representative shall employ the reconciliation procedures as described in Section 8.09 (the Reconciliation Procedures ).
(b) Amended Schedule . The applicable Schedule for any Taxable Year may be amended from time to time by the Corporate Taxpayer (i) in connection with a Determination affecting such Schedule, (ii) to correct inaccuracies in the Schedule identified as a result of the receipt of additional factual information relating to a Taxable Year after the date the Schedule was provided to the Stockholders Representative, (iii) to comply with the Experts determination under the Reconciliation Procedures, (iv) to reflect a change in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to a carryback or carry forward of a loss or other tax item to such Taxable Year, or (v) to reflect a change in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to an amended Tax Return filed for such Taxable Year (any such Schedule, an Amended Schedule ). The Corporate Taxpayer shall provide an Amended Schedule to the Stockholders Representative within 30 calendar days of the occurrence of an event referenced in clauses (i) through (v) of the preceding sentence.
8
ARTICLE III
TAX BENEFIT PAYMENTS
Section 3.01 Payments .
(a) Within five (5) Business Days after a Tax Benefit Schedule with respect to a Taxable Year becomes final in accordance with Section 2.03(a) , the Corporate Taxpayer shall pay to each Stockholder its share (based on such Stockholders Ownership Percentage) for such Taxable Year of the Tax Benefit Payment in the amount determined pursuant to Section 3.01(b) . Such portion of the Tax Benefit Payment shall be made by wire transfer of immediately available funds to the bank account previously designated by the applicable Stockholder to the Corporate Taxpayer or as otherwise agreed by the Corporate Taxpayer and such Stockholder. For the avoidance of doubt, no Tax Benefit Payment shall be made in respect of estimated tax payments, including federal estimated income tax payments.
(b) The Tax Benefit Payment means an amount, not less than zero, equal to the sum of the amount of the Net Tax Benefit and the related Interest Amount. Subject to Section 3.03(a) , the Net Tax Benefit for a Taxable Year shall be an amount equal to the excess, if any, of 85% of the Cumulative Net Realized Tax Benefit as of the end of such Taxable Year over the total amount of Tax Benefit Payments previously made under this Section 3.01 (excluding payments attributable to Interest Amounts); provided , for the avoidance of doubt, that a Stockholder shall not be required to return any portion of any previously made Tax Benefit Payment. The Interest Amount shall equal the interest on the amount of the Net Tax Benefit calculated at the Agreed Rate from the due date (without extensions) for filing the Corporate Taxpayer Return with respect to Taxes for such Taxable Year until the Payment Date of the applicable Tax Benefit Payment. Notwithstanding the foregoing, unless a Stockholder elects to receive the lump-sum payment pursuant to the following sentence, for each Taxable Year ending on or after the date of a Change of Control, all Tax Benefit Payments shall be calculated by utilizing Valuation Assumptions (1) and (3), substituting in each case the terms the closing date of a Change of Control for an Early Termination Date . In connection with any Change of Control (other than a Change of Control caused solely by the applicable Stockholder), at the election of a Stockholder, all obligations hereunder with respect to such Stockholder shall be accelerated and such obligations shall be calculated as if an Early Termination Notice had been delivered on the date of such election and shall include, but not be limited to, (1) the Early Termination Payment to such Stockholder calculated as if an Early Termination Notice had been delivered on the date of such election, (2) any Tax Benefit Payment agreed to by the Corporate Taxpayer and such Stockholder as due and payable but unpaid as of the date of such Stockholders election, and (3) any Tax Benefit Payment due for the Taxable Year ending with or including the date of such Stockholders election; provided , that procedures similar to the procedures of Section 4.02 shall apply with respect to the determination of the amount payable by the Corporate Taxpayer pursuant to this sentence. Notwithstanding anything to the contrary in this Agreement, after any lump-sum payment under this Section 3.01(b) or Article IV in respect of present or future Tax attributes subject to this Agreement, the Tax Benefit Payment,
9
Net Tax Benefit and components thereof shall be calculated without taking into account any such attributes with respect to which a lump sum payment had been made or any such lump-sum payment.
Section 3.02 No Duplicative Payments . It is intended that the provisions of this Agreement will not result in duplicative payment of any amount (including interest) required under this Agreement. The provisions of this Agreement shall be construed in the appropriate manner to ensure such intentions are realized.
ARTICLE IV
TERMINATION
Section 4.01 Termination. Early Termination and Breach of Agreement .
(a) Unless terminated earlier pursuant to Section 4.01(b) or Section 4.01(c ), this Agreement will terminate when there is no further potential for a Tax Benefit Payment pursuant to this Agreement. Tax Benefit Payments under this Agreement are not conditioned on any Stockholder retaining an interest in the Corporate Taxpayer (or any successor thereto).
(b) The Corporate Taxpayer may terminate this Agreement with respect to a Stockholder by paying to such Stockholder the Early Termination Payment; provided , however , that the Corporate Taxpayer may withdraw any notice to execute its termination rights under this Section 4.01(b) prior to the time at which any Early Termination Payment has been paid. Upon payment of the Early Termination Payment to a Stockholder by the Corporate Taxpayer in accordance with this Section 4.01(b) , neither such Stockholder nor the Corporate Taxpayer shall have any further payment obligations under this Agreement, other than for any (1) Tax Benefit Payment agreed to by the Corporate Taxpayer and such Stockholder as due and payable but unpaid as of the Early Termination Notice and (2) Tax Benefit Payment due for the Taxable Year ending with or including the date of the Early Termination Notice (except to the extent that the amount described in clause (2) is included in the Early Termination Payment). If the Corporate Taxpayer terminates, or proposes to terminate this Agreement with respect to any Stockholder, then each Stockholder shall have the right to cause the Corporate Taxpayer to make an Early Termination Payment to it under this Agreement; provided that the procedures of this Article IV shall apply to such Early Termination Payment as if the Corporate Taxpayer had delivered an Early Termination Notice to such Stockholder.
(c) In the event that the Corporate Taxpayer breaches any of its material obligations under this Agreement, whether as a result of failure to make any payment when due, failure to honor any other material obligation required hereunder or by operation of law as a result of the rejection of this Agreement in a case commenced under the Bankruptcy Code or otherwise, then all obligations with respect to a Stockholder hereunder shall be accelerated and such obligations shall be calculated as if an Early Termination Notice had been delivered on the date of such breach and shall include, but not be limited to, (1) the Early Termination Payment with respect to such Stockholder calculated as if an Early Termination Notice had been delivered on the date of a breach, (2) any Tax Benefit Payment agreed to by the Corporate Taxpayer and such Stockholder as due and payable but unpaid as of the date of a breach, and (3) any Tax
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Benefit Payment due for the Taxable Year ending with or including the date of a breach; provided that procedures similar to the procedures of Section 4.02 shall apply with respect to the determination of the amount payable by the Corporate Taxpayer pursuant to this sentence. Notwithstanding the foregoing, in the event that the Corporate Taxpayer breaches this Agreement, each Stockholder shall be entitled to elect to receive the amounts set forth in clauses (1), (2) and (3) above or to seek specific performance of the terms hereof. The parties agree that the failure to make any payment due pursuant to this Agreement within three months of the date such payment is due shall be deemed to be a breach of a material obligation under this Agreement for all purposes of this Agreement, and that it will not be considered to be a breach of a material obligation under this Agreement to make a payment due pursuant to this Agreement within three months of the date such payment is due. Notwithstanding anything in this Agreement to the contrary, it shall not be a breach of this Agreement if the Corporate Taxpayer fails to make any payment due pursuant to this Agreement when due to the extent the Corporate Taxpayer has insufficient funds to make such payment despite using reasonable best efforts to obtain funds to make such payment (including by causing Subsidiaries to distribute or lend funds for such payment and access any sources of available credit to fund such payment); provided that the interest provisions of Section 6.02 shall apply to such late payment (unless the Corporate Taxpayer does not have sufficient cash to make such payment as a result of limitations imposed by existing credit agreements to which the Corporate Taxpayer or its Subsidiaries is a party which limitations are effective as of the date of this Agreement, in which case Section 6.02 shall apply, but the Default Rate shall be replaced by the Agreed Rate); provided , further , that the Corporate Taxpayer shall promptly (and in any event, within two (2) Business Days), pay all such unpaid payments, together with accrued and unpaid interest thereon, immediately following such time that the Corporate Taxpayer has, and to the extent the Corporate Taxpayer has, sufficient funds to make such payment, and the failure of the Corporate Taxpayer to do so shall constitute a breach of this Agreement. For the avoidance of doubt, all cash and cash equivalents used or to be used to pay dividends by, or repurchase equity securities of the Corporate Taxpayer shall be deemed to be funds sufficient and available to pay such unpaid payments, together with any accrued and unpaid interest thereon.
Section 4.02 Early Termination Notice . If the Corporate Taxpayer chooses to exercise its right of early termination with respect to a Stockholder under Section 4.01(b) above, the Corporate Taxpayer shall deliver to the Stockholders Representative, on behalf of such Stockholder, notice of such intention to exercise such right ( Early Termination Notice ) and a schedule (the Early Termination Schedule ) specifying the Corporate Taxpayers intention to exercise such right and showing in reasonable detail the calculation of the Early Termination Payment for such Stockholder. The Early Termination Schedule shall become final and binding on a Stockholder 30 calendar days from the first date on which the Stockholders Representative has received such Schedule or amendment thereto unless the Stockholders Representative (i) within 30 calendar days after receiving the Early Termination Schedule, provides the Corporate Taxpayer with notice of a material objection to such Schedule made in good faith ( Material Objection Notice ) or (ii) provides a written waiver of such right of a Material Objection Notice within the period described in clause (i) above, in which case such Schedule becomes binding on the date the waiver is received by the Corporate Taxpayer (such 30 calendar day date as modified, if at all, by clauses (i) or (ii), the Early Termination Effective Date ). If the Corporate Taxpayer and the Stockholders Representative, for any reason, are unable to successfully resolve the issues raised in such notice within 30 calendar days after receipt by the Corporate Taxpayer of the Material Objection Notice, the Corporate Taxpayer and the Stockholders Representative shall employ the Reconciliation Procedures.
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Section 4.03 Payment upon Early Termination .
(a) Within three Business Days after the Early Termination Effective Date, the Corporate Taxpayer shall pay to the applicable Stockholder an amount equal to the Early Termination Payment with respect to such Stockholder. Such payment shall be made by wire transfer of immediately available funds to a bank account or accounts designated by the applicable Stockholder or as otherwise agreed by the Corporate Taxpayer and such Stockholder.
(b) Early Termination Payment , with respect to a Stockholder, shall equal the present value, discounted at the Early Termination Rate as of the Early Termination Effective Date, of all Tax Benefit Payments that would be required to be paid by the Corporate Taxpayer to such Stockholder beginning from the Early Termination Date and assuming that the Valuation Assumptions are applied.
ARTICLE V
TRANSFERS
Section 5.01 Generally . Subject to Section 5.02(b) and Section 8.02(b) of this Agreement, each Stockholder may, directly or indirectly, sell, assign or transfer its rights hereunder (including, without limitation, such Stockholders share (based on such Stockholders Ownership Percentage) of the Tax Benefit Payments payable pursuant to this Agreement) to a third party. In the event of a transfer pursuant to this Section 5.01 , the transferring Stockholder shall give the Corporate Taxpayer and the Stockholders Representative notice of any such transfer, which notice shall include the name of the ultimate transferee not less than ten (10) Business Days prior to the effective time of such transfer.
Section 5.02 Drag-Along Right .
(a) In the event that TA XI, L.P., TA Atlantic and Pacific VII-A L.P., TA Atlantic and Pacific VII-B L.P., TA Investors IV, L.P. or any of their respective affiliates or permitted transferees (collectively, the TA Stockholders ) and the Stockholders Representative propose to sell, assign or transfer all of the rights of the Stockholders under this Agreement to a third party (a Third Party Sale ), then, upon written notice of such proposed sale, assignment or transfer being provided by the Stockholders Representative to each Stockholder, each Stockholder (other than the TA Stockholders) hereby agrees:
(i) To execute and deliver all related documentation and take such other action in support of a Third Party Sale as shall reasonably be requested by the Corporate Taxpayer, the TA Stockholders or the Stockholders Representative in order to consummate the Third Party Sale, including, without limitation, executing and delivering instruments of conveyance and transfer of each such Stockholders rights hereunder;
(ii) Not to independently sell, assign or transfer such Stockholders rights hereunder to any third party from and after the date on which such Stockholder received the foregoing written notice without the consent of the TA Stockholders; and
(iii) Not to otherwise take any action that might delay, impede or otherwise materially and adversely affect such Third Party Sale.
(b) The TA Stockholders, in exercising their rights under this Section 5.02 , shall have complete discretion over the terms and conditions of any Third Party Sale, including, without limitation, price, type of consideration and payment terms; provided , that the type of consideration and payment terms applicable with respect to the sale of each Stockholders rights hereunder are identical and each Stockholder receives such Stockholders pro rata portion of the consideration paid in respect of the Third Party Sale based on such Stockholders Ownership Percentage.
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ARTICLE VI
SUBORDINATION AND LATE PAYMENTS
Section 6.01 Subordination . Notwithstanding any other provision of this Agreement to the contrary, any Tax Benefit Payment or Early Termination Payment required to be made by the Corporate Taxpayer to a Stockholder under this Agreement shall rank subordinate and junior in right of payment to any principal, interest or other amounts due and payable in respect of any obligations in respect of indebtedness for borrowed money of the Corporate Taxpayer and its Subsidiaries ( Senior Obligations ) and shall rank pari passu with all current or future unsecured obligations of the Corporate Taxpayer that are not Senior Obligations.
Section 6.02 Late Payments by the Corporate Taxpayer . The amount of all or any portion of any Tax Benefit Payment or Early Termination Payment not made to a Stockholder when due under the terms of this Agreement shall be payable together with any interest thereon, computed at the Default Rate and commencing from the date on which such Tax Benefit Payment or Early Termination Payment was due and payable.
ARTICLE VII
NO DISPUTES; CONSISTENCY; COOPERATION
Section 7.01 Participation in the Corporate Taxpayers Tax Matters . Except as otherwise provided herein, the Corporate Taxpayer shall have full responsibility for, and sole discretion over, all Tax matters concerning the Corporate Taxpayer and its Subsidiaries, including the preparation, filing or amending of any Tax Return and defending, contesting or settling any issue pertaining to Taxes, subject to a requirement that the Corporate Taxpayer and its Subsidiaries act in good faith in connection with their control of any matter which is reasonably expected to affect any Stockholders rights and obligations under this Agreement. Notwithstanding the foregoing, the Corporate Taxpayer shall notify the Stockholders Representative of, and keep the Stockholders Representative reasonably informed with respect to, the portion of any audit of the Corporate Taxpayer or any of its Subsidiaries by a Taxing Authority the outcome of which is reasonably expected to affect the rights and obligations of the Stockholders under this Agreement, and shall provide to the Stockholders Representative reasonable opportunity to provide information and other input to the Corporate Taxpayer, its Subsidiaries and their respective advisors concerning the conduct of any such portion of such audit.
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Section 7.02 Tax Reporting and Consistency .
(a) Each Stockholder, the Stockholders Representative and the Corporate Taxpayer agree that by entering into this Agreement, each Stockholder is receiving a distribution in an amount equal to the fair market value of its rights under this Agreement, as jointly determined by the Corporate Taxpayer and the Stockholders Representative, and that such distribution is subject to Section 301 of the Code for U.S. federal income tax purposes and any similar or comparable state law provision for state tax purposes. Each such party shall file all Tax Returns in accordance with such treatment described in the previous sentence, unless otherwise required by a determination within the meaning of Section 1313 of the Code.
(b) The Corporate Taxpayer, the Stockholders Representative and the Stockholders agree to report and cause to be reported for all purposes, including federal, state and local Tax purposes and financial reporting purposes, all Tax-related items (including the Basis Adjustments and each Tax Benefit Payment) in a manner consistent with that specified in Section 7.02(a) and by the Corporate Taxpayer in any Schedule required to be provided by or on behalf of the Corporate Taxpayer under this Agreement unless otherwise required by law. Any dispute as to required Tax or financial reporting shall be subject to Section 8.09 .
Section 7.03 Cooperation . Each of the Corporate Taxpayer and the Stockholders (through the Stockholders Representative) shall (a) furnish to the other party in a timely manner such information, documents and other materials as the other party may reasonably request for purposes of making any determination or computation necessary or appropriate under this Agreement, preparing any Tax Return or contesting or defending any audit, examination or controversy with any Taxing Authority, (b) make itself available to the other party and its representatives to provide explanations of documents and materials and such other information as the other party or its representatives may reasonably request in connection with any of the matters described in clause (a) above, and (c) reasonably cooperate in connection with any such matter, and the Corporate Taxpayer shall reimburse the Stockholders Representative for any reasonable third-party costs and expenses incurred pursuant to this Section 7.03 .
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ARTICLE VIII
MISCELLANEOUS
Section 8.01 Notices . All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission and electronic mail ( e-mail ) transmission, so long as a receipt of such e-mail is requested and received) and shall be given to such party as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice:
If to the Corporate Taxpayer, addressed to it at:
Amplify Snack Brands, Inc.
c/o TA Associates Management, L.P.
200 Clarendon Street, 56th Floor
Boston, MA 02116
Attention: [ ]
Facsimile No.: [ ]
E-mail: [ ]
With copies (which shall not constitute notice) to:
[ ]
[ ]
[ ]
Attention: | [ ] | |
Facsimile No.: | [ ] | |
E-mail: | [ ] |
If to the Stockholders Representative, addressed to it at:
[ ]
[ ]
[ ]
Attention: | [ ] | |
Facsimile No.: | [ ] | |
E-mail: | [ ] |
With copies (which shall not constitute notice) to:
[ ]
[ ]
[ ]
Attention: | [ ] | |
Facsimile No.: | [ ] | |
E-mail: | [ ] |
All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. on a Business Day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed to have been received on the next succeeding Business Day in the place of receipt.
Section 8.02 Binding Effect: Benefit: Assignment .
(a) The provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. No provision of this Agreement is intended to confer any rights, benefits, remedies, obligations or liabilities hereunder upon any Person other than the parties hereto and their respective successors and assigns. The Corporate Taxpayer shall require and cause any direct or indirect successor (whether by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporate Taxpayer, by written agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporate Taxpayer would be required to perform if no such succession had taken place.
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(b) A Stockholder may assign any of its rights under this Agreement to any Person as long as such transferee has executed and delivered, or, in connection with such transfer, executes and delivers, a joinder to this Agreement, in form of Exhibit B, agreeing to become a Stockholder for all purposes of this Agreement, except as otherwise provided in such joinder; provided , that a Stockholders rights under this Agreement shall be assignable by such Stockholder under the procedure in this Section 8.02(b) regardless of whether such Stockholder continues to hold any interests in the Corporate Taxpayer or has fully transferred any such interests.
Section 8.03 Resolution of Disputes .
(a) Except for Reconciliation Disputes subject to Section 8.09 , any and all disputes which cannot be settled amicably, including any ancillary claims of any party, arising out of, relating to or in connection with the validity, negotiation, execution, interpretation, performance or non-performance of this Agreement (including the validity, scope and enforceability of this arbitration provision) (each a Dispute ) shall be finally settled by arbitration conducted by a single arbitrator in Delaware in accordance with the then-existing Rules of Arbitration of the International Chamber of Commerce. If the parties to the Dispute fail to agree on the selection of an arbitrator within ten (10) days of the receipt of the request for arbitration, the International Chamber of Commerce shall make the appointment. The arbitrator shall be a lawyer admitted to the practice of law in the State of Delaware and shall conduct the proceedings in the English language. Performance under this Agreement shall continue if reasonably possible during any arbitration proceedings.
(b) Notwithstanding the provisions of paragraph (a), the Corporate Taxpayer may bring an action or special proceeding in any court of competent jurisdiction for the purpose of compelling a party to arbitrate, seeking temporary or preliminary relief in aid of an arbitration hereunder, and/or enforcing an arbitration award and, for the purposes of this paragraph (b), each Stockholder (through the Stockholders Representative) (i) expressly consents to the application of paragraph (c) of this Section 8.03 to any such action or proceeding, (ii) agrees that proof shall not be required that monetary damages for breach of the provisions of this Agreement would be difficult to calculate and that remedies at law would be inadequate, and (iii) irrevocably appoints the Corporate Taxpayer as agent of the Stockholders Representative for service of process in connection with any such action or proceeding and agrees that service of process upon such agent, who shall promptly advise the Stockholders Representative of any such service of process, shall be deemed in every respect effective service of process upon such Stockholder in any such action or proceeding.
(c) EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE CHANCERY COURT OF THE STATE OF DELAWARE OR, IF SUCH COURT DECLINES JURISDICTION, THE COURTS OF THE STATE OF DELAWARE SITTING IN WILMINGTON, DELAWARE, AND OF THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE SITTING IN WILMINGTON, DELAWARE, AND ANY APPELLATE COURT FROM ANY THEREOF, FOR THE
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PURPOSE OF ANY JUDICIAL PROCEEDING BROUGHT IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 8.03 , OR ANY JUDICIAL PROCEEDING ANCILLARY TO AN ARBITRATION OR CONTEMPLATED ARBITRATION ARISING OUT OF OR RELATING TO OR CONCERNING THIS AGREEMENT. Such ancillary judicial proceedings include any suit, action or proceeding to compel arbitration, to obtain temporary or preliminary judicial relief in aid of arbitration, or to confirm an arbitration award. The parties acknowledge that the fora designated by this paragraph (c) have a reasonable relation to this Agreement, and to the parties relationship with one another.
(d) The parties hereby waive, to the fullest extent permitted by applicable law, any objection which they now or hereafter may have to personal jurisdiction or to the laying of venue of any such ancillary suit, action or proceeding brought in any court referred to in the preceding paragraph of this Section 8.03 and such parties agree not to plead or claim the same.
Section 8.04 Counterparts . This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Until and unless each party has received a counterpart hereof signed by the other party hereto, this Agreement shall have no effect and no party shall have any right or obligation hereunder (whether by virtue of any other oral or written agreement or other communication).
Section 8.05 Entire Agreement . This Agreement constitutes the entire agreement between the parties with respect to the subject matter of this Agreement and supersedes all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter of this Agreement. Except to the extent provided in Section 3.03 , nothing in this Agreement shall create any third-party beneficiary rights in favor of any Person or other party hereto.
Section 8.06 Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other Governmental Authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the fullest extent possible.
Section 8.07 Amendment . No provision of this Agreement may be amended unless such amendment is approved in writing by the Corporate Taxpayer and the Stockholders. No provision of this Agreement may be waived unless such waiver is in writing and signed by the party against whom the waiver is to be effective.
Section 8.08 Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflicts of law rules of such State that would result in the application of the laws of any other State.
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Section 8.09 Reconciliation . In the event that the Corporate Taxpayer and a Stockholder (through the Stockholders Representative) are unable to resolve a disagreement with respect to the matters governed by Sections 2.03 , 3.01(b) , 4.02 and 7.02 within the relevant period designated in this Agreement ( Reconciliation Dispute ), the Reconciliation Dispute shall be submitted for determination to a nationally recognized expert (the Expert ) in the particular area of disagreement mutually acceptable to both parties. The Expert shall be a partner or principal in a nationally recognized accounting or law firm, and unless the Corporate Taxpayer and the Stockholders Representative agree otherwise, the Expert shall not, and the firm that employs the Expert shall not, have any material relationship with the Corporate Taxpayer or such Stockholder or other actual or potential conflict of interest. If the parties are unable to agree on an Expert within fifteen (15) calendar days of receipt by the respondent(s) of written notice of a Reconciliation Dispute, the Expert shall be appointed by the International Chamber of Commerce Centre for Expertise. The Expert shall resolve any matter relating to the Basis Schedule or an amendment thereto or the Early Termination Schedule or an amendment thereto within 30 calendar days and shall resolve any matter relating to a Tax Benefit Schedule or an amendment thereto within 15 calendar days or as soon thereafter as is reasonably practicable, in each case after the matter has been submitted to the Expert for resolution. Notwithstanding the preceding sentence, if the matter is not resolved before any payment that is the subject of a disagreement would be due (in the absence of such disagreement) or any Tax Return reflecting the subject of a disagreement is due, the undisputed amount shall be paid on the date prescribed by this Agreement and such Tax Return may be filed as prepared by the Corporate Taxpayer, subject to adjustment or amendment upon resolution. The costs and expenses relating to the engagement of such Expert or amending any Tax Return shall be borne by the Corporate Taxpayer, except as provided in the next sentence. The Corporate Taxpayer and such Stockholder shall bear their own costs and expenses of such proceeding, unless (i) the Expert substantially adopts such Stockholders position, in which case the Corporate Taxpayer shall reimburse such Stockholder for any reasonable out-of-pocket costs and expenses in such proceeding, or (ii) the Expert substantially adopts the Corporate Taxpayers position, in which case such Stockholder shall reimburse the Corporate Taxpayer for any reasonable out-of-pocket costs and expenses in such proceeding. Any dispute as to whether a dispute is a Reconciliation Dispute within the meaning of this Section 8.09 shall be decided by the Expert. The Expert shall finally determine any Reconciliation Dispute and the determinations of the Expert pursuant to this Section 8.09 shall be binding on the Corporate Taxpayer and such Stockholder and may be entered and enforced in any court having jurisdiction.
Section 8.10 Withholding . The Corporate Taxpayer shall be entitled to deduct and withhold from any payment payable pursuant to this Agreement such amounts as the Corporate Taxpayer is required to deduct and withhold with respect to the making of such payment under the Code or any provision of state, local or foreign tax law. To the extent that amounts are so withheld and paid over to the appropriate Taxing Authority by the Corporate Taxpayer, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the applicable Stockholder.
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Section 8.11 Admission of the Corporate Taxpayer into a Consolidated Group: Transfers of Corporate Assets .
(a) If the Corporate Taxpayer is or becomes a member of an affiliated or consolidated group of corporations that files a consolidated income tax return pursuant to Sections 1501 et seq. of the Code or any corresponding provisions of state or local law, then: (i) the provisions of this Agreement shall be applied with respect to the group as a whole; and (ii) Tax Benefit Payments, Early Termination Payments and other applicable items hereunder shall be computed with reference to the consolidated taxable income of the group as a whole.
(b) If any entity that is obligated to make a Tax Benefit Payment or Early Termination Payment hereunder transfers one or more assets to a corporation (or a Person classified as a corporation for U.S. federal income tax purposes) with which such entity does not file a consolidated tax return pursuant to Section 1501 of the Code, such entity, for purposes of calculating the amount of any Tax Benefit Payment or Early Termination Payment (e.g., calculating the gross income of the entity and determining the Realized Tax Benefit of such entity) due hereunder, shall be treated as having disposed of such asset in a fully taxable transaction on the date of such contribution. The consideration deemed to be received by such entity shall be equal to the fair market value of the contributed asset. For purposes of this Section 8.11 , a transfer of a partnership interest shall be treated as a transfer of the transferring partners share of each of the assets and liabilities of that partnership.
Section 8.12 Confidentiality . Each Stockholder (through the Stockholders Representative) and each of its assignees acknowledges and agrees that the information of the Corporate Taxpayer is confidential and, except in the course of performing any duties as necessary for the Corporate Taxpayer and its Affiliates, as required by law or legal process or to enforce the terms of this Agreement, shall keep and retain in the strictest confidence and not disclose to any Person all confidential matters of the Corporate Taxpayer or the Stockholders acquired pursuant to this Agreement. This Section 8.12 shall not apply to (i) any information that has been made publicly available by the Corporate Taxpayer or any of its Affiliates, becomes public knowledge (except as a result of an act of any Stockholder in violation of this Agreement) or is generally known to the business community; and (ii) the disclosure of information to the extent necessary for any Stockholder to prepare and file its Tax Returns, to respond to any inquiries regarding the same from any Taxing Authority or to prosecute or defend any action, proceeding or audit by any Taxing Authority with respect to such returns. Notwithstanding anything to the contrary herein, each Stockholder (and each employee, representative or other agent of such Stockholder) may disclose to any and all Persons, without limitation of any kind, the tax treatment and tax structure of (x) the Corporate Taxpayer and (y) any of its transactions, and all materials of any kind (including opinions or other tax analyses) that are provided to such Stockholder relating to such tax treatment and tax structure.
Section 8.13 Appointment of Stockholders Representative .
(a) Appointment. Without further action of any of the Corporate Taxpayer, the Stockholders Representative or any Stockholder, and as partial consideration of the benefits conferred by this Agreement, the Stockholders Representative is hereby irrevocably constituted and appointed, with full power of substitution, to act in the name, place and stead of each Stockholder with respect to the taking by the Stockholders Representative of any and all actions and the making of any decisions required or permitted to be taken by the Stockholders Representative under this Agreement (and any potential agreement with the Corporate Taxpayer to terminate this Agreement
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earlier than such time as is provided in Section 4.01 provided that any payment made by the Corporate Taxpayer upon such an early termination shall be paid to each Stockholder based on such Stockholders Ownership Percentage). The power of attorney granted herein is coupled with an interest and is irrevocable and may be delegated by the Stockholders Representative. No bond shall be required of the Stockholders Representative, and the Stockholders Representative shall receive no compensation for its services.
(b) Expenses . If at any time the Stockholders Representative shall incur out of pocket expenses in connection with exercise of its duties hereunder, upon written notice to the Corporate Taxpayer from the Stockholders Representative of documented costs and expenses (including fees and disbursements of counsel and accountants) incurred by the Stockholders Representative in connection with the performance of its rights or obligations under this Agreement and the taking of any and all actions in connection therewith, the Corporate Taxpayer shall reduce any future payments (if any) due to the Stockholders hereunder pro rata (based on their respective Ownership Percentages) by the amount of such expenses which it shall instead remit directly to the Stockholders Representative. In connection with the performance of its rights and obligations under this Agreement and the taking of any and all actions in connection therewith, the Stockholders Representative shall not be required to expend any of its own funds (though, for the avoidance of doubt, it may do so at any time and from time to time in its sole discretion).
(c) Limitation on Liability . The Stockholders Representative shall not be liable to any Stockholder for any act of the Stockholders Representative arising out of or in connection with the acceptance or administration of its duties under this Agreement, except to the extent any liability, loss, damage, penalty, fine, cost or expense is actually incurred by such Stockholder as a proximate result of the gross negligence, bad faith or willful misconduct of the Stockholders Representative (it being understood that any act done or omitted pursuant to the advice of legal counsel shall be conclusive evidence of such good faith and reasonable judgment). The Stockholders Representative shall not be liable for, and shall be indemnified by the Stockholders (on a several but not joint basis) for, any liability, loss, damage, penalty or fine incurred by the Stockholders Representative (and any cost or expense incurred by the Stockholders Representative in connection therewith and herewith and not previously reimbursed pursuant to Section 8.13(b) above) arising out of or in connection with the acceptance or administration of its duties under this Agreement, except to the extent that any such liability, loss, damage, penalty, fine, cost or expense is the proximate result of the gross negligence, bad faith or willful misconduct of the Stockholders Representative (it being understood that any act done or omitted pursuant to the advice of legal counsel shall be conclusive evidence of such good faith and reasonable judgment); provided, however in no event shall any Stockholder be obligated to indemnify the Stockholders Representative hereunder for any liability, loss, damage, penalty, fine, cost or expense to the extent (and only to the extent) that the aggregate amount of all liabilities, losses, damages, penalties, fines, costs and expenses indemnified by such Stockholder hereunder is or would be in excess of the aggregate payments under this Agreement actually remitted to such Stockholder. Each Stockholders receipt of any and all benefits to which such Stockholder is entitled under this Agreement, if any, is conditioned upon and subject to such Stockholders acceptance of all obligations, including the obligations of this Section 8.13(c) , applicable to such Stockholder under this Agreement.
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(d) Actions of the Stockholders Representative . Any decision, act, consent or instruction of the Stockholders Representative shall constitute a decision of all Stockholders and shall be final, binding and conclusive upon each Stockholder, and the Corporate Taxpayer may rely upon any decision, act, consent or instruction of the Stockholders Representative as being the decision, act, consent or instruction of each Stockholder. The Corporate Taxpayer is hereby relieved from any liability to any Person for any acts done by the Corporate Taxpayer in accordance with any such decision, act, consent or instruction of the Stockholders Representative.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the Corporate Taxpayer and the Stockholders Representative set forth below have duly executed this Agreement as of the date first written above.
CORPORATE TAXPAYER : | ||
AMPLIFY SNACK BRANDS, INC. | ||
By: |
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Name: | ||
Title: | ||
STOCKHOLDERS REPRESENTATIVE : | ||
[INSERT STOCKHOLDER REPRESENTATIVE] | ||
By: |
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Name: | ||
Title: | ||
STOCKHOLDERS : | ||
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Name: |
Signature Page to Tax Receivable Agreement
Exhibit A
Stockholders
[Insert list of Stockholders]
Exhibits Page 1
Exhibit B
Form of Joinder
This JOINDER (this Joinder ) to the Tax Receivable Agreement (as defined below), dated as of , by and among Amplify Snack Brands, Inc., a Delaware corporation (the Corporate Taxpayer ) and ( Permitted Transferee ).
WHEREAS, on , Permitted Transferee acquired (the Acquisition ) the right to receive any and all payments that may become due and payable under the Tax Receivable Agreement (as defined below) (the Acquired Interests ) from ( Transferor ); and
WHEREAS, Transferor, in connection with the Acquisition, has required Permitted Transferee to execute and deliver this Joinder pursuant to Section 8.02(b) of the Tax Receivable Agreement, dated as of [●], 2015, by and among the Corporate Taxpayer, the persons identified as Stockholders on the signature page thereto, and [ ], a [ ] [ ], in its capacity as representative of the Stockholders (the Tax Receivable Agreement ).
NOW, THEREFORE, in consideration of the foregoing and the respective covenants and agreements set forth herein, and intending to be legally bound hereby, the parties hereto agree as follows:
Section 1.01 Definitions . To the extent capitalized words used in this Joinder are not defined in this Joinder, such words shall have the respective meanings set forth in the Tax Receivable Agreement.
Section 1.02 Joinder . Permitted Transferee hereby acknowledges and agrees to become a Stockholder (as defined in the Tax Receivable Agreement) for all purposes of the Tax Receivable Agreement. Permitted Transferee hereby acknowledges the terms of Section 8.02(b) of the Tax Receivable Agreement and agrees to be bound by Section 8.12 of the Tax Receivable Agreement.
Section 1.03 Notice . Any notice, request, consent, claim, demand, approval, waiver or other communication hereunder to Permitted Transferee shall be delivered or sent to Permitted Transferee at the address set forth on the signature page hereto in accordance with Section 8.01 of the Tax Receivable Agreement.
Section 1.04 Governing Law . This Joinder shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflicts of law rules of such State that would result in the application of the laws of any other State.
IN WITNESS WHEREOF, this Joinder has been duly executed and delivered by Permitted Transferee as of the date first above written.
Exhibits Page 2
[PERMITTED TRANSFEREE] | ||
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Exhibits Page 3
Exhibit 10.23
Execution Version
FOURTH AMENDMENT TO CREDIT AGREEMENT
FOURTH AMENDMENT TO CREDIT AGREEMENT (this Fourth Amendment ), dated as of [ ], 2015, among SKINNYPOP POPCORN LLC (formerly known as TA MIDCO 1, LLC), a Delaware limited liability company (the Borrower ), AMPLIFY SNACK BRANDS, INC. (formerly known as TA HOLDINGS 1, INC.), a Delaware corporation ( Holdings ), the Lenders party hereto, and JEFFERIES FINANCE LLC, as the administrative agent for the Lenders (in such capacity, the Administrative Agent ). All capitalized terms used herein (including in this preamble) and not otherwise defined herein shall have the respective meanings provided such terms in the Credit Agreement referred to below.
W I T N E S S E T H :
WHEREAS, the Borrower, the Guarantors, the Lenders (each such Lender party to the Credit Agreement immediately prior to giving effect to this Fourth Amendment, an Existing Lender ), the Administrative Agent and the other parties thereto are parties to that certain Credit Agreement, dated as of July 17, 2014 (as amended by that certain First Amendment to Credit Agreement, dated as of August 18, 2014, that certain Second Amendment to Credit Agreement, dated as of December 23, 2014 and that certain Third Amendment to Credit Agreement, dated as of May 29, 2015, the Credit Agreement );
WHEREAS , the Borrower has previously notified the Administrative Agent that it intends to enter into that certain Tax Receivable Agreement, dated as of [ ], 2015, between Holdings and [stockholder representative] (the Tax Receivable Agreement );
WHEREAS, each of the Borrower, the Administrative Agent and each Lender party hereto desires to amend the Credit Agreement to, among other things, (i) permit the transactions contemplated by the Tax Receivable Agreement and effect certain amendments to the Credit Agreement in connectin therewith as set forth herein and (b) pay fees and expenses incurred in connection with the foregoing and in connection with this Fourth Amendment (collectively, the Transactions ); and
WHEREAS, the Borrower has requested that the Administrative Agent and the Lenders consent to the Transactions and the amendment of certain terms and provisions of the Credit Agreement as set forth herein, and, subject to the satisfaction of the conditions set forth herein, the Administrative Agent and the Lenders signatory hereto are willing to do so, subject to the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which is acknowledged by each party hereto, it is agreed:
I. Amendments to Credit Agreement . Subject to the satisfaction of the conditions set forth in Section V.E hereof, on and as of the Fourth Amendment Effective Date, the Credit Agreement is hereby amended as follows:
A. Section 1.01 of the Credit Agreement is hereby amended by inserting the following definitions in the proper alphabetical order:
Fourth Amendment means the Fourth Amendment to Credit Agreement, dated as of the Fourth Amendment Effective Date, by and among the Borrower, Holdings, the Administrative Agent, and the Lenders party thereto.
Fourth Amendment Effective Date means the effective date of the Tax Receivable Agreement.
Tax Receivable Agreement means that certain Tax Receivable Agreement, dated as of date of the initial public offering of Holdings contemplated by and made pursuant to that certain Form S-1 Registration Statement filed with the Securities and Exchange Commission on June 26, 2015, between Holdings and [stockholder representative].
B. The definition of Excess Cash Flow in Section 1.01 of the Credit Agreement is hereby amended by deleting and at the end of clause (b)(xv) thereof, deleting . at the end of clause (b)(xvi) and inserting ; and in its place and inserting the following new clause (b)(xvii) at the end thereof:
(xvii) the amount of Restricted Payments made in cash during such period pursuant to Section 6.06(a)(xix).
C. Section 1.01 of the Credit Agreement is hereby amended by amending and restating the definition of Indebtedness set forth therein in its entirety as follows:
Indebtedness of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (d) all obligations of such Person in respect of the deferred purchase price of property or services (excluding (i) trade accounts payable in the ordinary course of business, (ii) any earn-out obligation until such obligation is not paid after becoming due and payable or such obligation is reflected on the balance sheet in accordance with GAAP and (iii) accruals for payroll and other liabilities accrued in the ordinary course of business), (e) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (f) all Guarantees by such Person of Indebtedness of others, (g) all Capital Lease Obligations of such Person, (h) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, (i) all obligations of such Person under Swap Agreements, (j) all obligations, contingent or otherwise, of such Person in respect of bankers acceptances and (k) all obligations of such Person with respect to the redemption, repurchase, repayment, return of capital or other similar obligations in respect of Disqualified Equity Interests; provided that the term Indebtedness shall not include (w) deferred or prepaid revenue, (x) purchase price holdbacks in respect of a portion of the purchase price of an asset to satisfy warranty or other unperformed obligations of the seller in the ordinary course of business, (y) for the avoidance of doubt, any Qualified Equity Interests or (z) Indebtedness, any liability or any other obligations arising under the Tax Receivable Agreement. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Persons ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. The
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amount of Indebtedness of any Person shall for purposes of clause (e) above (unless such Indebtedness has been assumed by such Person) be deemed to be equal to the lesser of (A) the aggregate unpaid amount of such Indebtedness and (B) the fair market value of the property encumbered thereby as determined by such Person in good faith.
D. Section 6.06(a) of the Credit Agreement is hereby amended by deleting and at the end of clause (xvii) thereof, inserting and after the ; at the end of clause (xviii) thereof and inserting the following new clause (xix) at the end thereof:
(xix) the Borrower and Holdings may make Restricted Payments pursuant to the Tax Receivable Agreement.
E. Section 6.07 of the Credit Agreement is hereby amended by deleting and at the end of clause (xvii) thereof, deleting . at the end of clause (xviii) and inserting ; and in its place and inserting the following new clause (xix) at the end thereof:
(xix) transactions pursuant to the Tax Receivable Agreement.
F. Section 6.09 of the Credit Agreement is hereby amended and restated in its entirety as follows:
Section 6.09 Amendment of Junior Financing, Organizational Documents and the Tax Receivable Agreement . Neither Holdings nor the Borrower will, nor will they permit any Restricted Subsidiary to, (x) amend, modify, waive, terminate or release (a) the documentation governing any Junior Financing in violation of any subordination or intercreditor agreement applicable thereto or (b) any Organizational Document, if the effect of such amendment, modification, waiver, termination or release is materially adverse to the Lenders or (y) amend, modify or waive any terms of the Tax Receivable Agreement if the effect of such amendment, modification or waiver is materially adverse to the Lenders (it being agreed and understood that any amendment or modification to the Tax Benefit Payment (as defined in the Tax Receivable Agreement) that materially increases the Tax Benefit Payment shall be deemed materially adverse to the Lenders).
II. Consent and Acknowledgment . As of the Fourth Amendment Effective Date, in reliance upon the representations and warranties of the Loan Parties set forth in the Credit Agreement and in this Fourth Amendment, and notwithstanding anything to the contrary contained in the Credit Agreement or any other Loan Document, the Administrative Agent and the Lenders signatory hereto consent to the amendments to the Credit Agreement as set forth in Section I of this Fourth Amendment.
III. Miscellaneous Provisions .
A. In order to induce the undersigned to enter into this Fourth Amendment, each Loan Party hereby represents and warrants to the Lenders on and as of the Fourth Amendment Effective Date that:
1. Each Loan Party is duly organized, validly existing and in good standing (to the extent such concept exists in the relevant jurisdictions) under the laws of the jurisdiction of its organization, has the corporate or other organizational power and authority to, except as would not reasonably be expected to have a Material Adverse Effect, carry on its business as now conducted and as proposed to be conducted and to execute, deliver and perform its obligations under this Fourth
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Amendment and to effect the Transactions and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required.
2. The performance of this Fourth Amendment is within such Loan Partys organizational powers and has been duly authorized by all necessary corporate or other organizational action on the part of such Loan Party. This Fourth Amendment has been duly executed and delivered by such Loan Party and constitutes, and each other Loan Document to which such Loan Party is a party as of the date hereof, constitutes, a legal, valid and binding obligation of such Loan Party, enforceable in accordance with its terms, subject to (i) the effects of bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or other similar laws affecting creditors rights generally, (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and (iii) implied covenants of good faith and fair dealing.
3. The performance of the transactions contemplated by this Fourth Amendment and the execution and delivery of this Fourth Amendment (a) do not require any consent, exemption, authorization or approval of, registration or filing with, or any other action by, any Governmental Authority or third party, except (i) such as have been obtained or made and are in full force and effect and (ii) consents, approvals, exemptions, authorizations, registrations, filings, permits or actions the failure of which to obtain or perform would not reasonably be expected to result in a Material Adverse Effect, (b) will not violate the Organizational Documents of such Loan Party, (c) will not violate or result in a default or require any consent or approval under any indenture, instrument, agreement, or other document binding upon such Loan Party or its property or to which such Loan Party or its property is subject, or give rise to a right thereunder to require any payment to be made by such Loan Party, except for violations, defaults or the creation of such rights that could not reasonably be expected to result in a Material Adverse Effect, (d) will not violate any Requirements of Law, except for violations that could not reasonably be expected to have a Material Adverse Effect, and (e) will not result in the creation or imposition of any Lien on any property of such Loan Party, except Liens created by the Security Documents and Liens permitted under the Loan Documents.
B. This Fourth Amendment is limited to the matters specified herein and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Loan Document.
C. This Fourth Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original but all such counterparts together shall constitute but one and the same instrument. Signature pages may be detached from multiple separate counterparts and attached to a single counterpart. Delivery of an executed signature page of this Fourth Amendment by facsimile transmission or other electronic transmission (including .pdf) shall be as effective as delivery of a manually executed counterpart thereof.
D. The parties hereto hereby acknowledge and agree that this Fourth Amendment is a Loan Document and is subject to Sections 9.09 and 9.10 of the Credit Agreement, the terms of which are incorporated by reference herein, mutatis mutandis , as if set forth in their entirety herein.
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E. This Fourth Amendment shall become effective on the date ( Fourth Amendment Effective Date ) when:
1. The Administrative Agent (or its counsel) shall have received (a) from the Borrower, Holdings and Existing Lenders constituting the Required Lenders, either (i) a counterpart of this Fourth Amendment signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include facsimile or other electronic transmission of a signed counterpart of this Fourth Amendment) that such party has signed a counterpart of this Fourth Amendment, each of which shall have been delivered (including by way of facsimile or other electronic transmission) to the Administrative Agent, c/o Proskauer Rose LLP, Eleven Times Square, New York, NY 10036, Attention: Andrew Eiger (facsimile number: 212-969-2900 / e-mail address: aeiger@proskauer.com).
2. The Administrative Agent shall have received a duly executed copy of the Tax Receivable Agreement.
3. The Administrative Agent shall have received to the extent estimated or invoiced prior to the Effective Date, payment of all reasonable out-of-pocket expenses required to be reimbursed or paid by any Loan Party under Section 9.03(a) of the Credit Agreement).
4. The Administrative Agent shall have received a certificate, dated the Fourth Amendment Effective Date and signed by a Responsible Officer of the Borrower on behalf of each Loan Party, confirming compliance with the conditions precedent set forth in paragraphs 5 and 6 below.
5. At the time of and immediately after giving effect to the Transactions, no Default or Event of Default shall have occurred and be continuing.
6. The representations and warranties of each Loan Party contained in Section V.A above and in the other Loan Documents shall be true and correct in all material respects on and as of the Fourth Amendment Effective Date; provided that, to the extent that such representations and warranties specifically refer to an earlier date, they shall be true and correct in all material respects as of such earlier date; provided further that any representation and warranty that is qualified as to materiality, Material Adverse Effect or similar language shall be true and correct in all respects on the Fourth Amendment Effective Date or on such earlier date, as the case may be.
F. Each Loan Party listed on the signatures pages hereof consents to the terms hereof and hereby acknowledges and agrees that any Loan Document to which it is a party or otherwise bound shall continue in full force and effect (including, without limitation, the pledge and security interest in the Collateral granted by it pursuant to the Security Documents). Each of the Loan Parties party hereto (in its capacity as debtor, grantor, pledger, guarantor, assignor, or in any other similar capacity in which such Loan Party grants liens or security interests in its property or otherwise acts as accommodation party or guarantor, as the case may be) hereby (i) acknowledges and agrees that this Fourth Amendment does not constitute a novation or termination of the Secured Obligations under the Collateral Agreement or other Loan Documents as in effect prior to the Fourth Amendment Effective Date and which remain outstanding as of the Fourth Amendment Effective Date, (ii) acknowledges and agrees that the Secured Obligations under the Collateral Agreement and the other Loan Documents (as amended
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hereby) are in all respects continuing, (iii) ratifies and reaffirms all of its payment and performance obligations, contingent or otherwise, under each of the Loan Documents to which it is a party (after giving effect hereto), (iv) to the extent such Loan Party granted Liens on any of its Collateral pursuant to any such Loan Document as security for or otherwise guaranteed the Borrowers Secured Obligations under or with respect to the Loan Documents, ratifies and reaffirms such guarantee and grant of security interests and Liens and confirms and agrees that such security interests and Liens are in all respects continuing and in full force and effect and shall continue to secure all of the Secured Obligations under the Collateral Agreement or other Loan Documents, including, without limitation, all of the Secured Obligations as amended hereby and (v) agrees that this Fourth Amendment shall in no manner impair or otherwise adversely affect any of such Liens.
Each Loan Party acknowledges and agrees that nothing in the Credit Agreement, this Fourth Amendment or any other Loan Document shall be deemed to require the consent of such Loan Party to any future waiver of the terms of the Credit Agreement.
G. From and after the Fourth Amendment Effective Date, each reference in the Credit Agreement to this Agreement, hereunder, hereof or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the Credit Agreement, thereunder, thereof or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended by this Fourth Amendment.
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IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Fourth Amendment as of the date first above written.
Borrower: | SKINNYPOP POPCORN LLC | |||||
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Holdings: | AMPLIFY SNACK BRANDS, INC. | |||||
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SkinnyPop Signature Page to Fourth Amendment to Credit Agreement
JEFFERIES FINANCE LLC , as Administrative Agent | ||||
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SkinnyPop Signature Page to Fourth Amendment to Credit Agreement
JEFFERIES FINANCE LLC , as an Existing Lender | ||||
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SkinnyPop Signature Page to Fourth Amendment to Credit Agreement
[INSERT LENDER NAME], as an existing Lender | ||||||
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SkinnyPop Signature Page to Fourth Amendment to Credit Agreement
Exhibit 10.24
Amplify Snack Brands, Inc.
Non-Employee Director Compensation Policy
The purpose of this Non-Employee Director Compensation Policy (the Policy ) of Amplify Snack Brands, Inc., a Delaware corporation (the Company ), is to provide a total compensation package that enables the Company to attract and retain, on a long-term basis, high-caliber directors who are not employees or officers of the Company or its subsidiaries ( Outside Directors ). In furtherance of the purpose stated above, all Outside Directors shall be paid compensation for services provided to the Company as set forth below:
I. Cash Retainers
(a) | Annual Retainer for Board Membership : $55,000 per annum for general availability and participation in meetings and conference calls of our Board of Directors. |
(b) | Additional Retainers for Committee Membership : |
Audit Committee Chairperson: |
$ | 15,000 per annum | ||
Audit Committee member: |
$ | 2,500 per annum | ||
Compensation Committee Chairperson: |
$ | 10,000 per annum | ||
Compensation Committee member: |
$ | 2,500 per annum | ||
Nominating and Corporate Governance Committee Chairperson: |
$ | 5,000 per annum | ||
Nominating and Corporate Governance Committee member: |
$ | 2,500 per annum |
(c) | Additional Retainers for Chairperson of the Board : $35,000 per annum to acknowledge the additional responsibilities and time commitment of the Chairperson role. |
II. Expenses
The Company will reimburse all reasonable out-of-pocket expenses incurred by Outside Directors in attending meetings of the Board or any Committee thereof.
Exhibit 10.25
FORM OF
EMPLOYMENT AGREEMENT
This Employment Agreement (Agreement) is between Amplify Snack Brands, Inc., a Delaware corporation (the Company), and (the Executive) and is made effective as of the closing of the Companys first underwritten public offering of its equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended (the IPO), provided the IPO is consummated prior to , 2015 (the Effective Date).
WHEREAS, the Company and the Executive previously entered in an employment agreement, dated , which the Company and the Executive intend to replace with this Agreement; and
WHEREAS, the Company desires to continue to employ the Executive and the Executive desires to continue to be employed by the Company on the new terms and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Employment .
(a) Term . The term of this Agreement shall commence on the Effective Date and continue until terminated in accordance with the provisions of Section 3 (the Term). The Executives employment with the Company shall be at will, meaning that the Executives employment may be terminated by the Company or the Executive at any time and for any reason.
(b) Position and Duties . During the Term, the Executive shall serve as the of the Company, and shall have supervision and control over and responsibility for the day-to-day business and affairs of the Company and shall have such other powers and duties as may from time to time be prescribed by the [Board of Directors of the Company (the Board)] [Chief Executive Officer of the Company (the CEO) or other authorized executive], provided that such duties are consistent with the Executives position or other positions that he may hold from time to time. The Executive shall report to the [Board][CEO]. The Executive shall devote his full working time and efforts to the business and affairs of the Company. Notwithstanding the foregoing, the Executive may serve on other boards of directors, with the approval of the [Board][Board of Directors of the Company (the Board)], or engage in religious, charitable or other community activities as long as such services and activities are disclosed to the Board and do not materially interfere with the Executives performance of his duties to the Company as provided in this Agreement[; provided, however, that unless the Executive receives express written permission from the Board, the Executive may serve on the board of directors of up to a maximum of two (2) entities that are not a Competing Business (as defined herein). The Executives service on such board(s) is conditioned upon the Executive disclosing in writing to the Board the name and address of the entities for which the Executive is providing such service as a board member.].
2. Compensation and Related Matters .
(a) Base Salary . During the Term, the Executives initial annual base salary shall be dollars ($ ). The Executives base salary shall be redetermined annually by the Board or the Compensation Committee. The annual base salary in effect at any given time is referred to herein as Base Salary. The Base Salary shall be payable in a manner that is consistent with the Companys usual payroll practices for senior executives.
(b) Incentive Compensation . During the Term, the Executive shall be eligible to receive cash incentive compensation as determined by the Board or the Compensation Committee from time to time. The Executives target annual incentive compensation shall be fifty percent (50%) of his Base Salary (which actual incentive compensation, for the avoidance of doubt, may exceed fifty percent (50%) of his Base Salary). To earn incentive compensation, the Executive must be employed by the Company on the day such incentive compensation is paid.
(c) Expenses . The Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him during the Term in performing services hereunder, in accordance with the policies and procedures then in effect and established by the Company for its senior executive officers.
(d) Other Benefits . During the Term, the Executive shall be eligible to participate in or receive benefits under the Companys employee benefit plans in effect from time to time, subject to the terms of such plans.
(e) Vacations . During the Term, the Executive shall be entitled to accrue paid vacation in accordance with the Companys applicable vacation policy.
(f) Automobile and Mobile Phone Allowance . During the Term, the Company shall reimburse the Executive for documented automobile-related expenses (i.e., lease payments, registration, insurance, maintenance, auto cleaning) and mobile telephone charges up to a monthly aggregate cap of $1,100 (prorated for any partial month of service to the Company).
3. Termination . During the Term, the Executives employment hereunder may be terminated without any breach of this Agreement under the following circumstances:
(a) Death . The Executives employment hereunder shall terminate upon his death.
(b) Disability . The Company may terminate the Executives employment if he is disabled and unable to perform the essential functions of the Executives then existing position or positions under this Agreement with or without reasonable accommodation for a period of one hundred eighty (180) days (which need not be consecutive) in any 12-month period. If any question shall arise as to whether during any period the Executive is disabled so as to be unable to perform the essential functions of the Executives then existing position or positions with or without reasonable accommodation, the Executive may, and at the request of the Company shall, submit to the Company a certification in reasonable detail by a physician selected by the Company to whom the Executive or the Executives guardian has no reasonable
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objection as to whether the Executive is so disabled or how long such disability is expected to continue, and such certification shall for the purposes of this Agreement be conclusive of the issue. The Executive shall cooperate with any reasonable request of the physician in connection with such certification. If such question shall arise and the Executive shall fail to submit such certification, the Companys determination of such issue shall be binding on the Executive. Nothing in this Section 3(b) shall be construed to waive the Executives rights, if any, under existing law including, without limitation, the Family and Medical Leave Act of 1993, 29 U.S.C. §2601 et seq . and the Americans with Disabilities Act, 42 U.S.C. §12101 et seq.
(c) Termination by Company for Cause . The Company may terminate the Executives employment hereunder for Cause. For purposes of this Agreement, Cause shall mean: (i) conduct by the Executive constituting a material act of misconduct in connection with the performance of the Executives duties, including, without limitation, misappropriation of funds or property of the Company or any of its subsidiaries or affiliates; (ii) the indictment of the Executive for any felony involving deceit, dishonesty or fraud, or any criminal conduct by the Executive that would reasonably be expected to result in material injury or reputational harm to the Company or any of its subsidiaries and affiliates if the Executive was retained in his position; (iii) continued non-performance by the Executive of the Executives duties hereunder (other than by reason of the Executives physical or mental illness, incapacity or disability) which has continued for more than thirty (30) days following written notice of such non-performance from the [Board][CEO]; (iv) a material breach by the Executive of any of the provisions contained in this Agreement which has continued for more than thirty (30) days following written notice of such non-performance from the [Board][CEO]; (v) a material violation by the Executive of the Companys written employment policies which has continued for more than thirty (30) days following written notice of such non-performance from the [Board][CEO]; provided , that the cure period specified in this clause (v) shall not apply to material violations of Section 7 of this Agreement; or (vi) failure to reasonably cooperate with a bona fide internal investigation or an investigation by regulatory or law enforcement authorities, after being instructed by the Company to cooperate, or the willful destruction or failure to preserve documents or other materials known to be relevant to such investigation or the inducement of others to fail to reasonably cooperate or to produce documents or other materials in connection with such investigation.
(d) Termination Without Cause . The Company may terminate the Executives employment hereunder at any time without Cause. Any termination by the Company of the Executives employment under this Agreement which does not constitute a termination for Cause under Section 3(c) and does not result from the death or disability of the Executive under Section 3(a) or (b) shall be deemed a termination without Cause.
(e) Termination by the Executive . The Executive may terminate his employment hereunder at any time for any reason, including but not limited to Good Reason. For purposes of this Agreement, Good Reason shall mean that the Executive has complied with the Good Reason Process (hereinafter defined) following the occurrence of any of the following events without the Executives express written consent: (i) a material diminution in the Executives responsibilities, authority or duties; (ii) a material diminution in the Executives Base Salary except for across-the-board salary reductions based on the Companys financial performance similarly affecting all or substantially all senior management employees of the
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Company; (iii) the material breach by the Company of (A) this Agreement or (B) any other agreement between the Executive (on the one hand) and the Company or any of its subsidiaries or affiliates (on the other hand) relating to (x) any grant, award or issuance by the Company of any equity or debt securities to the Executive (including any stock option or restricted stock awards) or (y) indemnification of the Executive by the Company or any of its subsidiaries; or (iv) the relocation of Executives principal place of employment by more than fifty (50) miles from its then current location. Good Reason Process shall mean that (i) the Executive reasonably determines in good faith that a Good Reason condition has occurred; (ii) the Executive notifies the Company in writing of the first occurrence of the Good Reason condition within sixty (60) days of the first occurrence of such condition; (iii) the Executive cooperates in good faith with the Companys efforts, for a period not less than thirty (30) days following such notice (the Cure Period) to remedy the condition; (iv) notwithstanding such efforts, the Good Reason condition continues to exist; and (v) the Executive terminates his employment within sixty (60) days after the end of the Cure Period. If the Company cures the Good Reason condition during the Cure Period, Good Reason shall be deemed not to have occurred.
(f) Notice of Termination . Except for termination as specified in Section 3(a), any termination of the Executives employment by the Company or any such termination by the Executive shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a Notice of Termination shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon.
(g) Date of Termination . Date of Termination shall mean: (i) if the Executives employment is terminated by his death, the date of his death; (ii) if the Executives employment is terminated on account of disability under Section 3(b) or by the Company for Cause under Section 3(c), the date on which Notice of Termination is given; (iii) if the Executives employment is terminated by the Company under Section 3(d), the date on which a Notice of Termination is given; (iv) if the Executives employment is terminated by the Executive under Section 3(e) without Good Reason, thirty (30) days after the date on which a Notice of Termination is given, and (v) if the Executives employment is terminated by the Executive under Section 3(e) with Good Reason, the date on which a Notice of Termination is given after the end of the Cure Period. Notwithstanding the foregoing, in the event that either party gives a Notice of Termination, the Company may unilaterally accelerate the Date of Termination.
(h) Insurance . In no event shall the termination of the Executives employment by the Company or any such termination by the Executive pursuant to this Agreement release any claim by the Executive for indemnification that he is otherwise entitled to under any director or officers insurance policy or any articles, bylaws or other foundation documents of the Company. Without limiting the foregoing, the Company shall provide Executive with reasonable directors and officers insurance coverage that is at least as favorable as the coverage in existence on the date of this Agreement (the Existing D&O Coverage); provided, however, that in no event shall the Company be obligated to maintain directors and officers insurance coverage to the extent that premiums thereunder exceed 200% of the premiums payable by the Company under the Existing D&O Coverage on the date hereof (the Threshold); provided, further, that to the extent such premiums exceed the foregoing Threshold, the Company shall obtain directors and officers insurance coverage on terms as
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similar as reasonably practicable to the terms of the Existing D&O Coverage without exceeding the Threshold. Such insurance coverage shall continue in effect during the Term and after the Term ends for a period of six (6) years thereafter. The cost of such coverage shall be paid by the Company. Notwithstanding anything to the contrary in this Agreement, including but not limited to Section 24, upon the occurrence of a Change in Control of the Company, the obligations set forth in this section shall terminate, provided that the Company shall (x) secure tail insurance with respect to the Existing D&O Insurance on reasonable terms and conditions of coverage, and (y) require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to honor any indemnification obligations that the Executive is otherwise entitled to under any articles, bylaws or other foundation documents of the Company in the same manner as the Companys directors and officers immediately prior to such Change in Control.
4. Compensation Upon Termination .
(a) Termination Generally . If the Executives employment with the Company is terminated for any reason, the Company shall pay or provide to the Executive (or to his authorized representative or estate) (i) any Base Salary earned through the Date of Termination, unpaid expense reimbursements (subject to, and in accordance with, Section 2(c) of this Agreement) and unused vacation that accrued through the Date of Termination on or before the time required by law but in no event more than thirty (30) days after the Executives Date of Termination; and (ii) any vested benefits the Executive may have under any employee benefit plan of the Company through the Date of Termination, which vested benefits shall be paid and/or provided in accordance with the terms of such employee benefit plans (collectively, the Accrued Benefits).
(b) Termination by the Company Without Cause or by the Executive with Good Reason . During the Term, if the Executives employment is terminated by the Company without Cause as provided in Section 3(d), or the Executive terminates his employment for Good Reason as provided in Section 3(e), then the Company shall pay the Executive his Accrued Benefits. In addition, subject to the Executive signing a separation agreement containing, among other provisions, a general release of claims in favor of the Company and related persons and entities, confidentiality, return of property and non-disparagement, in a form and manner satisfactory to the Company (the Separation Agreement and Release) and the Separation Agreement and Release becoming fully effective, all within the time frame set forth in the Separation Agreement and Release:
(i) the Company shall pay the Executive an amount equal to one hundred percent (100%) of the Executives Base Salary (the Severance Amount); and
(ii) if the Executive was participating in the Companys group health plan immediately prior to the Date of Termination and elects COBRA health continuation, then the Company shall pay to the Executive a monthly cash payment for twelve (12) months or the Executives COBRA health continuation period, whichever ends earlier, in an amount equal to the monthly employer contribution that the Company would have made to provide health insurance to the Executive if the Executive had remained employed by the Company; and
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(iii) the amounts payable under this Section 4(b) shall be paid out in substantially equal installments in accordance with the Companys payroll practice over twelve (12) months commencing within sixty (60) days after the Date of Termination; provided, however, that if the 60-day period begins in one (1) calendar year and ends in a second calendar year, the Severance Amount shall begin to be paid in the second calendar year by the last day of such 60-day period; provided, further, that the initial payment shall include a catch-up payment to cover amounts retroactive to the day immediately following the Date of Termination. Each payment pursuant to this Agreement is intended to constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2).
(iv) The receipt of any severance payments or benefits pursuant to Section 4 shall be subject to Executive not violating the restrictive covenants referenced in Sections 7, 8 and 9 of this Agreement (the Restrictive Covenants). In the event Executive breaches the Restrictive Covenants, in addition to all other legal and equitable remedies, the Company shall have the right to terminate or suspend all continuing payments and benefits to which Executive may otherwise be entitled pursuant to Section 4 without affecting the Executives release or Executives obligations under the Separation Agreement and Release.
5. Change in Control Payment . The provisions of this Section 5 set forth certain terms of an agreement reached between the Executive and the Company regarding the Executives rights and obligations upon the occurrence of a Change in Control of the Company. These provisions are intended to assure and encourage in advance the Executives continued attention and dedication to his assigned duties and his objectivity during the pendency and after the occurrence of any such event. These provisions shall apply in lieu of, and expressly supersede, the provisions of Section 4(b) regarding severance pay and benefits upon a termination of employment, if such termination of employment occurs within twenty-four (24) months after the occurrence of the first event constituting a Change in Control. These provisions shall terminate and be of no further force or effect beginning twenty-four (24) months after the occurrence of a Change in Control.
(a) Change in Control . During the Term, if within twenty-four (24) months after a Change in Control, the Executives employment is terminated by the Company without Cause as provided in Section 3(d) or the Executive terminates his employment for Good Reason as provided in Section 3(e), then the Company shall pay the Executive his Accrued Benefits. In addition, subject to the signing of the Separation Agreement and Release by the Executive and the Separation Agreement and Release becoming irrevocable, all within sixty (60) days after the Date of Termination,
(i) the Company shall pay the Executive an amount equal to two hundred percent (200%) of the Executives Base Salary (or the Executives Base Salary in effect immediately prior to the Change in Control, if higher); and
(ii) notwithstanding anything to the contrary in any applicable option agreement or stock-based award agreement, the vesting of all stock options and other stock-based awards outstanding and held by the Executive shall immediately accelerate and become fully vested and exercisable or nonforfeitable as of the Date of Termination; and
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(iii) if the Executive was participating in the Companys group health plan immediately prior to the Date of Termination and elects COBRA health continuation, then the Company shall pay to the Executive a monthly cash payment for twenty-four (24) months or the Executives COBRA health continuation period, whichever ends earlier, in an amount equal to the monthly employer contribution that the Company would have made to provide health insurance to the Executive if the Executive had remained employed by the Company; and
(iv) The amounts payable under this Section 5(a) shall be paid out in substantially equal installments in accordance with the Companys payroll practice over twenty-four (24) months commencing within sixty (60) days after the Date of Termination; provided, however, that if the 60-day period begins in one (1) calendar year and ends in a second calendar year, such payment shall be paid or commence to be paid in the second calendar year by the last day of such 60-day period; provided, further, that the initial payment shall include a catch-up payment to cover amounts retroactive to the day immediately following the Date of Termination. Each payment pursuant to this Agreement is intended to constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2).
(b) The receipt of any severance payments or benefits pursuant to Section 5 shall be subject to Executive not violating the Restrictive Covenants. In the event Executive breaches the Restrictive Covenants, in addition to all other legal and equitable remedies, the Company shall have the right to terminate or suspend all continuing payments and benefits to which Executive may otherwise be entitled pursuant to Section 5 without affecting the Executives release or Executives obligations under the Separation Agreement and Release.
(c) Additional Limitation .
(i) Anything in this Agreement to the contrary notwithstanding, in the event that the amount of any compensation, payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, calculated in a manner consistent with Section 280G of the Internal Revenue Code of 1986, as amended (the Code) and the applicable regulations thereunder (the Severance Payments), would be subject to the excise tax imposed by Section 4999 of the Code, the following provisions shall apply:
(A) If the Severance Payments, reduced by the sum of (1) the Excise Tax and (2) the total of the federal, state, and local income and employment taxes payable by the Executive on the amount of the Severance Payments which are in excess of the Threshold Amount, are greater than or equal to the Threshold Amount, the Executive shall be entitled to the full benefits payable under this Agreement.
(B) If the Threshold Amount is less than (x) the Severance Payments, but greater than (y) the Severance Payments reduced by the sum of (1) the Excise Tax and (2) the total of the federal, state, and local income and employment taxes on the amount of the Severance Payments which are in excess of the Threshold Amount, then the Severance Payments shall be reduced (but not below zero) to the extent necessary so that the sum of all Severance Payments shall not exceed the Threshold Amount. In such event, the Severance Payments shall be reduced in the following order: (1) cash payments not subject to Section 409A of the Code; (2) cash payments subject to Section 409A of the Code; (3) equity-based payments and acceleration; and (4) non-cash forms of benefits. To the extent any payment is to be made over time (e.g., in installments, etc.), then the payments shall be reduced in reverse chronological order.
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(ii) For the purposes of this Section 5(c), Threshold Amount shall mean three (3) times the Executives base amount within the meaning of Section 280G(b)(3) of the Code and the regulations promulgated thereunder less one dollar ($1.00); and Excise Tax shall mean the excise tax imposed by Section 4999 of the Code, and any interest or penalties incurred by the Executive with respect to such excise tax.
(iii) The determination as to which of the alternative provisions of Section 5(c)(i) shall apply to the Executive shall be made by a nationally recognized accounting firm selected by the Company (the Accounting Firm), which shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the Date of Termination, if applicable, or at such earlier time as is reasonably requested by the Company or the Executive. For purposes of determining which of the alternative provisions of Section 5(c)(i) shall apply, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in the state and locality of the Executives residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. Any determination by the Accounting Firm shall be binding upon the Company and the Executive.
(d) Definitions . For purposes of this Section 5, the following terms shall have the following meanings:
Change in Control shall mean Sale Event, as such term is defined in the Companys 2015 Stock Option and Incentive Plan.
(e) Acceleration of Time-Based Equity Awards . Notwithstanding the foregoing, in the event of a Change in Control where the parties to such Change in Control do not provide for the assumption, continuation or substitution of equity awards of the Company, any and all outstanding and unvested stock options and stock appreciation rights held by the Executive with vesting, conditions, or restrictions that are solely time-based and that are not exercisable immediately prior to the effective time of the Change in Control shall become fully
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exercisable as of the effective time of the Change in Control and all other outstanding and unvested equity awards (including any restricted stock awards) held by the Executive with vesting, conditions or restrictions that are solely time-based shall become fully vested and nonforfeitable as of the effective time of the Change in Control. Except to the extent expressly agreed to in writing by the Company and the Executive, any and all equity award agreements evidencing equity awards of the Company issued to the Executive from and after the date hereof shall be consistent with the terms of this Section 3(e) , notwithstanding any provisions to the contrary contained in any stock option, equity incentive, or similar plan in effect from and after the date hereof.
6. Section 409A .
(a) Anything in this Agreement to the contrary notwithstanding, if at the time of the Executives separation from service within the meaning of Section 409A of the Code, the Company determines that the Executive is a specified employee within the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that the Executive becomes entitled to under this Agreement on account of the Executives separation from service would be considered deferred compensation otherwise subject to the twenty percent (20%) additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (A) six (6) months and one (1) day after the Executives separation from service, or (B) the Executives death. If any such delayed cash payment is otherwise payable on an installment basis, the first payment shall include a catch-up payment covering amounts that would otherwise have been paid during the six-month period but for the application of this provision, and the balance of the installments shall be payable in accordance with their original schedule.
(b) All in-kind benefits provided and expenses eligible for reimbursement under this Agreement shall be provided by the Company or incurred by the Executive during the time periods set forth in this Agreement. All reimbursements shall be paid as soon as administratively practicable, but in no event shall any reimbursement be paid after the last day of the taxable year following the taxable year in which the expense was incurred. The amount of in-kind benefits provided or reimbursable expenses incurred in one (1) taxable year shall not affect the in-kind benefits to be provided or the expenses eligible for reimbursement in any other taxable year (except for any lifetime or other aggregate limitation applicable to medical expenses). Such right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.
(c) To the extent that any payment or benefit described in this Agreement constitutes non-qualified deferred compensation under Section 409A of the Code, and to the extent that such payment or benefit is payable upon the Executives termination of employment, then such payments or benefits shall be payable only upon the Executives separation from service. The determination of whether and when a separation from service has occurred shall be made in accordance with the presumptions set forth in Treasury Regulation Section 1.409A-1(h).
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(d) The parties intend that this Agreement shall be administered in accordance with Section 409A of the Code. To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder comply with Section 409A of the Code. Each payment pursuant to this Agreement is intended to constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2). The parties agree that this Agreement may be amended, as reasonably requested by either party, and as may be necessary to fully comply with Section 409A of the Code and all related rules and regulations in order to preserve the payments and benefits provided hereunder without additional cost to either party.
(e) The Company makes no representation or warranty and shall have no liability to the Executive or any other person if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A of the Code but do not satisfy an exemption from, or the conditions of, such Section.
7. Nondisclosure/Confidentiality .
(a) Confidential Information . As used in this Agreement, Confidential Information shall mean information belonging to the Company or any of its affiliates or related entities, as applicable (together, the Protected Parties and each of them, a Protected Party) which is of value to any of the Protected Parties in the course of conducting its business and the disclosure of which could result in a competitive or other disadvantage to a Protected Party. Confidential Information includes, without limitation:
(i) the identity of any current or prospective customers, clients, suppliers or vendors;
(ii) information relating to the business, products, affairs and finances of any of the Protected Parties;
(iii) information relating to the manufacture, production, distribution, marketing, or sale of any product sold by any of the Protected Parties;
(iv) technical data and know-how relating to the business of any of the Protected Parties;
(v) any information relating to technology, marketing and business plans or strategies of any of the Protected Parties;
(vi) any non-public management accounting or other similar financial information that would typically be included in the financial statements of any of the Protected Parties, including without limitation, the amount of the assets, liabilities, net worth, revenues or net income of any of the Protected Parties;
(vii) names and addresses of any of the customers, clients, suppliers, vendors and employees of any of the Protected Parties, and details of any independent contractor or agency arrangements of any of the Protected Parties;
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(viii) non-public information relating to legal and professional dealings, real property, tangible property, finances, business, and investment activities, and other personal affairs of any of the Protected Parties;
(ix) any and all books, notes, memoranda, records, correspondence, documents, computer and other discs and tapes, data listings, codes, designs, drawings and other documents and materials (whether made or created by the Executive or otherwise) relating to the business of any of the Protected Parties; and
(x) any other non-public information gained in the course of the Executives employment with any of the Protected Parties that could reasonably be expected to prove harmful to any of the Protected Parties if disclosed to third parties, including without limitation, any information that could be reasonably expected to aid a competitor or potential competitor of any of the Protected Parties.
Notwithstanding the foregoing, Confidential Information does not include information in the public domain, unless due to breach of the Executives duties under Section 7(b).
(b) Confidentiality . The Executive understands and agrees that the Executives employment with the Company shall create a relationship of confidence and trust between the Executive and the Company with respect to all Confidential Information. At all times, both during the Executives employment with the Company and after its termination, the Executive shall keep in confidence and trust all such Confidential Information, and shall not use or disclose any such Confidential Information without the written consent of the Company, except as may be necessary in the ordinary course of performing the Executives duties to the Company.
(c) Company Property . All documents, records, data, apparatus, equipment and other physical property, whether or not pertaining to Confidential Information, which are furnished to the Executive by the Company or any other Protected Party or are produced by the Executive in connection with the Executives employment shall be and remain the sole property of the Company. The Executive shall return to the Company all such materials and property as and when requested by the Company.
8. Noncompetition and Nonsolicitation .
(a) During the Executives employment with the Company and continuing through eighteen (18) months after the Date of Termination (the Restricted Period), the Executive (i) shall not, directly or indirectly, whether as owner, partner, shareholder, consultant, agent, employee, co-venturer or otherwise, engage, participate, assist or invest or actively prepare to engage, participate, assist or invest in any Competing Business (as hereinafter defined); (ii) shall refrain from directly or indirectly employing, attempting to employ, recruiting, hiring or otherwise soliciting, inducing or influencing any person to leave employment with any of the Protected Parties; and (iii) shall refrain from soliciting or encouraging any customer, supplier, consultant or vendor to terminate or otherwise modify adversely its business relationship with any of the Protected Parties. The Executive understands that the restrictions set forth in this Section 8 are intended to protect the interest of each of the
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Protected Parties in its Confidential Information, goodwill and established employee, customer, supplier, consultant and vendor relationships and goodwill, and agrees that such restrictions are reasonable and appropriate for this purpose.
(b) For purposes of this Agreement, the term Competing Business shall mean (i) any business engaged in manufacturing, producing, distributing, marketing, selling, or purchasing popcorn or popcorn-related products, (ii) any other business carried on by the Company and/or its affiliates over the course of the Restricted Period (irrespective of whether such business is carried on by the Company and/or any of its affiliates as of the Effective Date); and (iii) any business in an active phase of development at the Company and/or any of its affiliates over the course of the Restricted Period (irrespective of whether such business is carried on by the Company and/or any of its affiliates as of the Effective Date); provided, however, that Competing Business shall not include any business unrelated to popcorn in which the Executive as of the Effective Date holds a passive investment interest (i.e., no involvement whatsoever in the management or operation of the business, including no involvement with or position on the board of directors of such business).
(c) The restrictions in this Section 8 shall apply to any conduct in (i) the United States of America; (ii) any geographic area in which the Company or its affiliates has sold, is then selling, or is actively planning to sell its products or services; and (iii) any other geographic area in which the Company or its affiliates has operated, is then operating or is actively planning to operate its business.
9. Work Product . As used in this Agreement, the term Work Product means all inventions, innovations, improvements, technical information, systems, software developments, methods, designs, analyses, drawings, reports, service marks, trademarks, trade names, logos and all similar or related information (whether patentable or unpatentable, copyrightable, registerable as a trademark, reduced to writing, or otherwise) which relates to the Companys or any of its affiliates actual or anticipated business, research and development or existing or future products or services and which are or were conceived, developed or made by the Executive (whether or not during usual business hours, whether or not by the use of the facilities of the Company or any of its affiliates, and whether or not alone or in conjunction with any other person) while employed by the Company together with all patent applications, letters patent, trademark, trade name and service mark applications or registrations, copyrights and reissues thereof that may be granted for or upon any of the foregoing. All Work Product that the Executive may discover, invent or originate during the Term, shall be the exclusive property of the Company, and its affiliates, as applicable, and the Executive hereby assigns all of the Executives right, title and interest in and to such Work Product to the Company or its applicable affiliate, including all intellectual property rights therein. The Executive shall promptly disclose all Work Product to the Company, shall execute at the request of the Company any assignments or other documents the Company may deem necessary to protect or perfect its (or any of its affiliates, as applicable) rights therein, and shall assist the Company, at the Companys expense, in obtaining, defending and enforcing the Companys (or any of its affiliates, as applicable) rights therein. The Executive hereby appoints the Company as his attorney-in-fact to execute on his behalf any assignments or other documents deemed necessary by the Company to protect or perfect the Companys (and any of its affiliates, as applicable) rights to any Work Product.
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10. Third-Party Agreements and Rights . The Executive represents to the Company that the Executives execution of this Agreement, the Executives employment with the Company and the performance of the Executives duties for the Company as contemplated under this Agreement shall not violate any obligations the Executive may have to any previous employer or other party. In the Executives work for the Company, the Executive shall not disclose or make use of any information in violation of any agreements with or rights of any such previous employer or other party, and the Executive shall not bring to the premises of the Company any copies or other tangible embodiments of non-public information belonging to or obtained from any such previous employment or other party.
11. Litigation and Regulatory Cooperation . During and after the Executives employment, the Executive shall cooperate fully with the Company in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company which relate to events or occurrences that transpired while the Executive was employed by the Company. The Executives full cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. During and after the Executives employment, the Executive also shall cooperate fully with the Company in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while the Executive was employed by the Company. The Company shall reimburse the Executive for any reasonable out-of-pocket expenses incurred in connection with the Executives performance of obligations pursuant to this Section 11.
12. Remedies . The Executive acknowledges that the restrictions contained in this Agreement are reasonable and necessary to protect the Companys legitimate business interests and that any violation of the provisions contained herein would result in irreparable injury to the Company and that monetary damages may not be sufficient to compensate the Company for any economic loss which may be incurred by reason of breach of the restrictions contained herein. In the event of a breach or a threatened breach by the Executive of any provision contained herein, the Company shall be entitled to a temporary restraining order and injunctive relief restraining the Executive from the commission of any breach, shall not be required to provide any bond or other security in connection with obtaining any such equitable remedy and shall be entitled to recover the Companys reasonable attorneys fees, costs and expenses related to the breach or threatened breach. Nothing contained in this Section 12 shall be construed as prohibiting the Company from pursuing any other remedies available to it for any breach or threatened breach, including, without limitation, the recovery of money damages.
13. Consent to Jurisdiction . The parties hereby consent to the jurisdiction of the federal and state courts located in Travis County, Texas with respect to all matters rising under this Agreement. Accordingly, with respect to any such court action, the Executive (a) submits to the personal jurisdiction of such courts; (b) consents to service of process; and (c) waives any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction or service of process.
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14. Integration . This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements between the parties concerning such subject matter.
15. Withholding . All payments made by the Company to the Executive under this Agreement shall be net of any tax or other amounts required to be withheld by the Company under applicable law.
16. Successor to the Executive . This Agreement shall inure to the benefit of and be enforceable by the Executives personal representatives, executors, administrators, heirs, distributees, devisees and legatees. In the event of the Executives death after his termination of employment but prior to the completion by the Company of all payments due him under this Agreement, the Company shall continue such payments to the Executives beneficiary designated in writing to the Company prior to his death (or to his estate, if the Executive fails to make such designation).
17. Enforceability . If any portion or provision of this Agreement (including, without limitation, any portion or provision of any section of this Agreement) shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.
18. Survival . The provisions of this Agreement shall survive the termination of this Agreement and/or the termination of the Executives employment to the extent necessary to effectuate the terms contained herein.
19. Waiver . No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.
20. Notices . Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by a nationally recognized overnight courier service or by registered or certified mail, postage prepaid, return receipt requested, to the Executive at the last address the Executive has filed in writing with the Company or, in the case of the Company, at its main offices, attention of the Board.
21. Amendment . This Agreement may be amended or modified only by a written instrument signed by the Executive and by a duly authorized representative of the Company.
22. Governing Law . This is a Texas contract and shall be construed under and be governed in all respects by the laws of the State of Texas, without giving effect to the conflict of laws principles of such State.
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23. Counterparts . This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be taken to be an original; but such counterparts shall together constitute one and the same document.
24. Successor to Company . The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a material breach of this Agreement.
25. Gender Neutral . Wherever used herein, a pronoun in the masculine gender shall be considered as including the feminine gender unless the context clearly indicates otherwise.
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IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date and year first above written.
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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Amendment No. 1 to the Registration Statement on Form S-1 of our report dated April 29, 2015 (July 16, 2015 as to the effects of the stock split described in Note 15) relating to the consolidated financial statements of Amplify Snack Brands, Inc. (formerly known as TA Holdings 1, Inc.) and subsidiary (which report expresses an unqualified opinion and includes explanatory paragraphs referring to the acquisition of SkinnyPop Popcorn LLC and the retrospective adjustment of the financial statements for a stock split), appearing in the Prospectus, which is part of this Registration Statement, and to the reference to us under the heading Experts in such Prospectus.
/s/ Deloitte & Touche LLP
Austin, TX
July 16, 2015