PROPOSAL 1

TO APPROVE THE ISSUANCE OF THE ACQUISITION SHARES

The Board of Directors recommends a vote “FOR” the approval of Proposal 1, as set forth below.

Overview

On December 22, 2017, we entered into the Merger Agreement by and among us and certain wholly-owned merger subsidiaries, on the one hand, and Taylor, Taylor Parent and, solely for purposes of certain sections therein, CP Taylor GP, LLC, on the other hand, pursuant to which we will acquire all of the outstanding capital stock of Taylor through a two-step subsidiary merger, and Taylor will become a wholly-owned subsidiary of the Company (the “Acquisition”) if the conditions to consummation of the Acquisition are satisfied or waived in accordance with the terms of the Merger Agreement.

Our Board of Directors unanimously approved our acquisition of Taylor on December 19, 2017. No stockholder vote was required for the entry into the Merger Agreement, and no stockholder vote is required for the consummation of the Acquisition pursuant to the Merger Agreement. We are therefore not seeking any approval or ratification of the Acquisition at the special meeting. Under Delaware law, our stockholders do not have any “dissenters’ rights” or rights to an appraisal of the value of their shares in connection with the Acquisition or this Proposal.

Pursuant to the terms of the Merger Agreement, the Company will acquire all of the outstanding capital stock of Taylor pursuant to a transaction that is intended to be treated as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986 (the “Internal Revenue Code”) where the Company remains a publicly traded company and, in the form of a forward merger, that is structured as “two step”. A subsidiary of and newly formed by the Company shall be merged with and into Taylor, whereupon the separate existence of the subsidiary will cease and Taylor will continue as the surviving entity, known as the “Initial Surviving Company.” The Initial Surviving Company will then be merged with and into another subsidiary of and newly formed by of the Company, whereupon the Initial Surviving Company will cease to exist and the subsidiary will continue as the surviving entity, known as the “Ultimate Surviving Subsidiary.” At the closing, the equity holder of Taylor will receive (a) $27.5 million of cash consideration subject to the escrow and adjustment provisions as described in the Merger Agreement and (b) the Acquisition Shares, which shall be that number of shares of newly issued common stock of the Company representing 27% of the outstanding shares of the common stock of the Company, on a Closing Fully Diluted Basis as of immediately following the consummation of the Acquisition after taking into effect the issuance thereof (rounded up to the nearest share). A portion of the cash consideration received by Taylor’s equity holders pursuant to the Acquisition shall be used to redeem all of Taylor’s outstanding preferred interests held by an unaffiliated third party.

Following the consummation and as a result of the Acquisition, if consummated, the Acquisition Shares will constitute approximately 27% of the Company’s outstanding common stock on a Closing Fully Diluted Basis (rounded up to the nearest share).

The approval by our stockholders of the issuance of the Acquisition Shares is a condition to the consummation of the Acquisition in order to comply with NASDAQ listing rules, as further described below. In the event that the issuance of the Acquisition Shares is not approved at the special meeting, we will not be able to consummate the Acquisition, and the Merger Agreement may be terminated in accordance with its terms. The Merger Agreement is summarized later in this section, and a copy of the Merger Agreement is attached to this proxy statement as Annex A .

The equity interests of Taylor’s capital stock are privately held and not traded in a public market. The Acquisition Shares that will be issued if Proposal 1 is approved will be issued to Taylor Parent in a private placement exempt from the registration requirements of the U.S. federal securities laws.

 

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Stockholder Approval Requirement for Proposal 1

Our common stock is listed on the NASDAQ Capital Market, and we are subject to the NASDAQ listing standards set forth in its listing rules (the “Listing Rules”). Although we are not required to obtain stockholder approval in connection with our acquisition of Taylor, we are required under Listing Rule 5635(a)(1), Listing Rule 5635(b) and Listing Rule 5635(d) to seek stockholder approval of our proposed issuance of the Acquisition Shares at the consummation of the Acquisition.

Listing Rule 5635(a)(1) requires stockholder approval prior to the issuance of securities “in connection with” the acquisition of the stock or assets of another company, where due to the present or potential issuance of common stock (or securities convertible into or exercisable for common stock), other than a public offering for cash, the common stock to be issued (a) constitutes voting power in excess of 20% of the outstanding voting power prior to the issuance or (b) is or will be in excess of 20% of the outstanding common stock prior to the issuance. In addition, Listing Rule 5635(b) requires stockholder approval prior to the issuance of securities when such issuance or potential issuance will result in a change of control of a company. NASDAQ may deem a change of control to occur when, as a result of an issuance, an investor or a group would own, or have the right to acquire, 20% or more of the outstanding shares of common stock or voting power and such ownership or voting power would be the largest ownership position of the issuer.

The total shares proposed to be issued to Taylor Parent will constitute 27% of the total voting power of the Company’s voting securities on a Closing Fully Diluted Basis following the consummation of the Acquisition (rounded up to the nearest share).

In addition, under NASDAQ Listing Rule 5635(d), prior stockholder approval is required for the issuance, other than in a public offering, of securities convertible into common stock at a price less than the greater of book or market value of the common stock if the securities are convertible into 20% or more of a company’s common stock. Because the Acquisition Shares will be issued in exchange for all of the capital stock of Taylor, the deemed issuance price of the Acquisition Shares may be less than the greater of the book or market value of our common stock immediately before the closing of the Acquisition. If the proposal is approved, the issuance of the Acquisition Shares will exceed 20% of our common stock currently outstanding. Because the issuance price may be below the greater of the book or market value of our Common Stock immediately prior to the consummation of the Acquisition, the NASDAQ Listing Rules may require that we obtain stockholder approval of the issuance of the Acquisition Shares at the consummation of the Acquisition. Therefore, we are requesting stockholder approval for the issuance of the Acquisition Shares under the NASDAQ Listing Rules.

Voting Agreement

In connection with the Merger Agreement, at the specific request of Taylor and Taylor Parent and as an inducement to their willingness to enter into the Merger Agreement, certain of our stockholders, including our Chief Executive Officer, Jeffrey Siegel, our Chief Operating Officer, Ronald Shiftan, our President, Daniel Siegel and our Executive Vice-President – Global Supply Chain, Clifford Siegel entered into a Voting Agreement with Taylor Parent, whereby each of the Agreed Voting Persons agreed, among other things, to vote all of the shares of our common stock beneficially owned (other than with respect to unexercised options held by such persons) by such Agreed Voting Persons in favor of the approval of the issuance of the Acquisition Shares. Further, the Agreed Voting Persons agreed during the term such person’s respective voting restrictions under the Voting Agreement are in effect, not to, directly or indirectly Transfer, or enter into any contract, option, or other arrangement or understanding providing for the Transfer of any of the shares of our common stock beneficially owned by such Agreed Voting Person, except for certain permitted Transfers as described in the Voting Agreement. As of the record date, the Agreed Voting Persons beneficially owned (excluding shares underlying unexercised options) approximately 12% of the total outstanding shares of our common stock. A copy of the form of Voting Agreement is included as Annex C to this proxy statement.

 

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Background of the Taylor Acquisition

As part of its ongoing activities, the Company’s Board of Directors and senior management regularly evaluate the Company’s business operations, growth as an independent company, and long-term strategic opportunities, including prospects for mergers and acquisitions, each with a view towards maximizing stockholder value. These evaluations consider all aspects of the Company’s business and its financial performance and condition, including relations with the Company’s principal customers, its prospects for new business with existing customers and business with new customers, and the potential deployment of the Company’s available borrowing capacity and its access to the capital markets for potential acquisitions and cash and borrowing capacity for working capital requirements for organic growth.

During the spring and summer months of 2017, the Company’s management evaluated a number of potential acquisition opportunities. One of the opportunities considered was the acquisition of Fitz & Floyd, which the Company completed in September 2017.

In summer 2017, Mr. Robert B. Kay, the Chief Executive Officer of Taylor, called Mr. Jeffrey Siegel, the chairman and Chief Executive Officer of the Company, requesting that they schedule a meeting. Mr. Kay did not disclose the reason for the meeting. Mr. Kay and Mr. Jeffrey Siegel agreed to meet at the Company’s showroom in New York City on July 31, 2017. At that meeting, Mr. Kay proposed that the Company acquire Taylor in a transaction whereby the Company would issue new shares of its common stock in exchange for all of the equity of Taylor. Mr. Jeffrey Siegel responded that the proposal was interesting, but that more time was needed to consider whether this approach made sense to the Company in light of its strategic view of maximizing stockholder value.

On August 3, 2017, at a meeting of the Strategic Planning Committee of the Company’s Board of Directors, which was attended by all of the members of the Company’s Board of Directors, Mr. Ronald Shiftan, the Company’s Vice Chairman and Chief Operating Officer, updated the committee about the discussions between Mr. Siegel and Mr. Kay regarding a potential acquisition of Taylor by the Company. After some discussion, the committee agreed that the Company should continue discussions with Taylor regarding a potential transaction.

On August 18, 2017, Mr. Jeffrey Siegel and Mr. Kay met again to further discuss a potential transaction in which the Company would acquire Taylor. At the meeting, Mr. Jeffrey Siegel and Mr. Kay discussed the structure of the potential transaction, with the Company as the acquirer and Mr. Kay becoming the Chief Executive Officer of the Company following the consummation of such transaction. Also, at this meeting Mr. Kay provided Mr. Jeffrey Siegel additional information regarding Taylor’s financial and business operations and performance and its capitalization, proposing that Taylor equity holders should own approximately 33.5% of the Company, pro-forma following the consummation of the transaction.

On August 21, 2017, the parties executed a mutual non-disclosure agreement to facilitate the sharing of confidential information relating to the transaction.

Throughout the remainder of August 2017, Mr. Jeffrey Siegel and Mr. Kay continued to discuss the potential transaction and how to progress the evaluation of the transaction within their respective organizations, including by visits at the offices of each of the Company and Taylor.

On August 28, 2017, Mr. Shiftan notified the Company’s Board of Directors by email that the Company’s senior management team was continuing to engage in discussions with Taylor regarding the Company’s possible acquisition of Taylor.

Throughout early September 2017, senior management of the Company and Taylor conducted several telephone conversations regarding scheduling follow-up meetings and visits to each party’s respective offices and a proposed agenda for such meetings and visits.

 

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On September 11, 2017, Mr. Jeffrey Siegel, Mr. Daniel Siegel, the President of the Company, Mr. Shiftan and Mr. Laurence Winoker, the Chief Financial Officer of the Company, met with Mr. Kay at Taylor’s offices in Seattle. Also present at the meeting were Taylor executives Terry Reilly, Taylor’s Executive Vice President of Sales, Tim Simmone, Taylor’s Chief Operating Officer, Kevin Clisham, Taylor’s Chief Marketing Officer, Anthony Dickson, Taylor’s Senior Vice President of Product Development and David Camp, Taylor’s Chief Financial Officer, as well as Bruce Pollack and Michael Schnabel, senior executives from Centre Partners Management, LLC (“Centre”), a private equity firm managing funds that beneficially own the majority of the equity interests of Taylor. Mr. Kay gave a presentation on Taylor to the representatives of the Company in which he described Taylor’s history, current and historic financial and operational performance and growth potential.

On September 19, 2017, representatives of Taylor met with representatives of the Company at the Company’s offices in Garden City. Representatives of the Company included Mr. Jeffrey Siegel, Mr. Daniel Siegel, Mr. Shiftan, Mr. Winoker and Mr. Clifford Siegel, the Executive Vice President of Global Supply Chain of the Company. At the meeting, Mr. Jeffrey Siegel, Mr. Daniel Siegel and Mr. Shiftan presented an overview of the Company, including an overview of the Company’s various businesses and its competitors. Additionally, the Company’s division presidents each gave a presentation on their respective Company divisions.

On October 4, 2017, Mr. Jeffrey Siegel, Mr. Shiftan and Mr. Winoker met with JPMorgan, the Company’s current lenders, at the Company’s offices to discuss a proposed transaction structure for financing the potential acquisition of Taylor.

On October 5, 2017, Mr. Jeffrey Siegel and Mr. Daniel Siegel met with Mr. Kay at the Company’s showroom in New York City to discuss post-closing roles with the Company for individuals employed by Taylor.

On October 6, 2017, the Company engaged its outside legal counsel, Morgan, Lewis & Bockius LLP (“Morgan Lewis”) to assist in evaluating the potential transaction.

On October 11, 2017, representatives of Morgan Lewis met with Mr. Shiftan. Mr. Jeffrey Siegel, Mr. Winoker and Ms. Sara Shindel, General Counsel and Secretary of the Company, at the Company’s offices in Garden City to discuss the proposed transaction, including deal structure, diligence, financing and timing.

On October 13, 2017, pursuant to Mr. Kay’s suggestion that the Company and Taylor meet to pursue further discussions, Mr. Shiftan, Mr. Jeffrey Siegel, Mr. Daniel Siegel and Mr. Winoker met with Mr. Kay and Mr. Pollack and Mr. Schnabel at Centre’s offices in New York City to discuss the valuation of Taylor and structure of the proposed transaction. At this meeting, Mr. Kay and the representatives of Centre proposed a transaction whereby the Company would acquire Taylor in exchange for shares of the Company’s common stock equal to 30% of the Company’s common stock, on a fully diluted, pro forma, basis and the Company would assume Taylor’s outstanding indebtedness. The representatives of the Company disagreed with Mr. Kay’s and Centre’s proposal and each side agreed to review the proposed transaction and reconvene on October 16, 2017.

On October 16, 2017, Mr. Shiftan, Mr. Jeffrey Siegel and Mr. Daniel Siegel met again with Mr. Kay, Mr. Pollack and Mr. Schnabel at Centre’s office. The representatives of the Company proposed to reduce the percentage of shares of the Company’s common stock to be issued to Taylor’s equity holders from 30% to 27%. After further discussion, the parties agreed, subject to confirmatory due diligence and negotiation of other material terms, that the Company would acquire Taylor for $27.5 million, plus 27% of the Company’s common stock, on a fully diluted, pro forma, basis.

On October 17, 2017, the Company and Taylor reached a preliminary agreement on certain material terms of the potential transaction and agreed that Morgan Lewis would prepare a term sheet reflecting such terms. The term sheet would include that in connection with the proposed transaction, as consideration for acquiring Taylor, the Company would pay $27.5 million in cash to Taylor’s equity holders, adjusted for certain customary matters, and issue to equity holders of Taylor new shares of common stock of the Company representing 27% of the

 

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Company’s common stock, on a fully diluted, pro forma, basis. The term sheet would also include that the Company would assume certain amounts of Taylor’s debt and pay certain of its expenses incurred in connection with the proposed transaction. Additionally, Taylor, Centre and the Company agreed that following the consummation of the transaction, the Company’s Board of Directors would be expanded from 10 to 13 directors, one of whom would be Mr. Kay and two of whom would be Centre designees. Additionally, Mr. Jeffrey Siegel would become executive chairman of the Company and Mr. Kay would become the Company’s Chief Executive Officer. At this meeting, Centre also proposed that the Company grant Centre certain post-closing consent rights in connection with the transaction and agreed to propose specific rights. The Company’s senior management agreed to review those proposed rights upon receipt from Centre.

On October 18, 2017, Centre provided the Company with a list of proposed post-closing consent rights.

On October 23, 2017, the Company sent a draft of the term sheet and a draft of the standstill agreement to Taylor and Centre.

Also on October 23, 2017, the Company’s Board of Directors held a telephonic special meeting. During the meeting, the Company’s management discussed with the Board of Directors the details surrounding the potential Taylor acquisition, including what businesses Taylor owns and the potential synergies between the Company and Taylor. Mr. Shiftan described to the Board of Directors how the transaction was being structured and informed the Company’s Board of Directors that the Company and Morgan Lewis were in the process of preparing and negotiating a non-binding term sheet, which was previously provided to the Company’s Board of Directors. Mr. Shiftan answered questions from the Company’s Board of Directors about the potential transaction and the Company’s Board of Directors requested that the Company provide further insight into the due diligence process and timing of the potential transaction at the next regularly scheduled Board of Directors meeting on November 7, 2017.

On October 27, 2017, representatives of the Company, Morgan Lewis, Taylor, Centre and Paul, Weiss, Rifkind, Wharton & Garrison LLP (“Paul Weiss”) met at Centre’s offices in New York City to discuss certain key points of the proposed acquisition, including the method for calculating the number of outstanding shares of the Company’s common stock on a fully diluted basis, the effect of a termination of a signed transaction agreement prior to closing the transaction and the Company’s obligations with respect to such termination. The parties also generally discussed a timeline for the transaction and the nature of the diligence to be conducted by each party.

Throughout the remainder of October 2017 through November 14, 2017, the parties continued to negotiate the term sheet and standstill agreement. Included among the key issues negotiated were the structure of the transaction, the method for calculating the number of outstanding shares of the Company’s common stock on a fully diluted basis, Centre’s post-closing registration rights and restrictions on Centre’s actions post-closing, the Company’s post-closing recourse for breaches of representations and warranties and for other matters, Taylor’s rights with respect to termination of the agreement and the Company’s obligations with respect to Taylor’s expenses.

On November 3, 2017, the Company distributed a draft of the term sheet to the Board of Directors.

On November 7, 2017, a regularly scheduled meeting of the Company’s Board of Directors was held. At that meeting, Mr. Shiftan reported on the Company’s potential acquisition of Taylor. Mr. Shiftan told the directors that Taylor’s top customer is Starbucks Corporation. Mr. Shiftan also informed the Company’s Board of Directors that the draft term sheet previously distributed to the Company’s Board of Directors on November 3, 2017 was still being negotiated. Mr. Shiftan discussed the termination fee proposals that were being negotiated and the status of the discussions with Taylor and Centre.

On November 14, 2017, the parties finalized and executed the term sheet and standstill agreement.

On November 14, 2017, Morgan Lewis delivered to Paul Weiss a list of due diligence requests regarding operations of Taylor.

 

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On November 20, 2017, the Company retained Ernst & Young LLP (“EY”) to assist in the financial and accounting due diligence.

On November 24, 2017, Taylor provided the Company and its advisors with access to an electronic data room containing certain due diligence materials regarding Taylor. Upon receipt of such access, the Company and its advisors commenced a due diligence review of materials delivered by Taylor.

On November 27, 2017, Mr. Shiftan spoke by telephone with Houlihan Lokey to discuss potentially retaining Houlihan Lokey to deliver an opinion with respect to the fairness of the consideration to be paid by the Company in connection with a potential acquisition of Taylor.

On November 29, 2017, Morgan Lewis delivered an initial draft of the Merger Agreement to Paul Weiss. Also on that date the Company provided Taylor and its advisors with access to an electronic data room containing certain due diligence materials regarding the Company.

On December 1, 2017, the Company retained Houlihan Lokey to deliver an opinion with respect to the fairness of the consideration to be paid by the Company in connection with the potential acquisition of Taylor and contacted Sawaya Partners, LLC (“Sawaya”) to perform certain financial advisory services with respect to the potential acquisition of Taylor. The Company considered certain potential conflicts of interest when determining whether to engage Sawaya, including Sawaya’s potential receipt of a $1,500,000 success fee if the Acquisition is consummated, as compared to a $500,000 termination fee if the Merger Agreement is terminated, as well as services previously provided by Sawaya to Taylor and persons or entities with relationships with Taylor, including Sawaya’s representation of the former owners of Taylor in connection with the sale of Taylor to its current owners, Sawaya’s performance of services to Taylor in connection with a potential sale process in mid-2016 and Sawaya’s performance of services to another company, of which Mr. Kay was then the Chief Executive Officer, in connection with a sale process. After careful consideration, the Company concluded that such potential conflicts of interest would not impair Sawaya’s ability to objectively and professionally provide services and render advice to the Company and that the engagement of Sawaya was in the best interests of the Company and its stockholders.

On December 4, 2017, representatives of the Company, Centre, Taylor and Sawaya met at the Company’s offices in Garden City to further discuss potential synergies that could arise in connection with the Company’s acquisition of Taylor and the process for obtaining the financial information and diligence needed in order to prepare a draft lender presentation and an investor presentation for the potential acquisition of Taylor.

On December 4, 2017, Morgan Lewis delivered an initial draft of the Stockholders Agreement to Paul Weiss.

On December 6, 2017, Paul Weiss delivered comments to the Merger Agreement to Morgan Lewis. Among other things, these comments included that the cash to be paid to Taylor Parent at the consummation of the Acquisition would be reduced by the amount needed to redeem the preferred equity in Taylor from its holders and additional restrictions on the Company’s ability to address alternative transactions during the interim period and on the Company’s Board of Directors’s ability to change its recommendation to the Company’s stockholders. These comments also included an expansion of the Company’s obligations to reimburse Taylor Parent’s expenses upon termination of the Merger Agreement.

On December 8, 2017, Mr. Jeffrey Siegel held a telephonic discussion with the chairperson of the compensation committee of the Company’s Board of Directors to discuss the terms of Mr. Kay’s compensation as Chief Executive Officer of the Company. Following such meeting, the Company’s management team instructed Morgan Lewis to prepare an employment agreement for Mr. Kay.

On December 8, 2017, members of the Company’s management team met telephonically with Morgan Lewis to discuss the comments to the Merger Agreement received from Paul Weiss on December 6, 2017. The

 

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Company instructed Morgan Lewis to prepare a response that, among other things, addressed treatment of the holders of Taylor’s preferred equity.

On December 8, 2017, the Company signed an engagement letter with Sawaya, who the Company had been working with since the beginning of December 2017, to perform certain financial advisory services for the Company.

On December 10, 2017, Paul Weiss delivered an initial draft of the Voting Agreement and comments to the Stockholders Agreement to Morgan Lewis. Among other things, the comments to the Stockholders Agreement proposed certain additional rights of Taylor Parent with respect to registration of the shares of the Company’s common stock and removed the obligation of Taylor Parent to vote its shares of the Company’s common stock in the manner recommended by the Company’s Board of Directors.

On December 11, 2017, following a telephonic discussion between the Company’s management team and Morgan Lewis regarding the Merger Agreement, Morgan Lewis delivered a revised draft of the Merger Agreement to Paul Weiss. Such revised draft included that the holders of Taylor’s preferred equity would be parties to the Merger Agreement and removed many of the restrictions on the Company’s ability to address alternative transactions during the interim period and on the Company’s Board of Directors’s ability to change its recommendation to the Company’s stockholders that had been included in the comments received from Taylor’s and Centre’s counsel on December 6, 2017.

On December 12, 2017, the Company’s counsel and Taylor’s and Centre’s counsel met telephonically to address the remaining open issues in the Merger Agreement.

On December 12, 2017, members of the Company’s management met separately with potential lenders, including JPMorgan and Golub Capital. At each of these meetings, the lenders provided the Company with a time schedule for the commitment letter process and a summary of indicative terms for senior secured credit facilities, including pricing, commitment fees, commitment period, conditions precedent and other terms.

On December 13, 2017, Paul Weiss distributed a list of issues relating to the Merger Agreement for the parties to discuss. Among the items included on such list were treatment of Taylor’s preferred equity, whether certain items would be deemed indebtedness of Taylor, the restrictions on the Company’s ability to address alternative transactions during the interim period and on the Company’s Board of Directors’s ability to change its recommendation to the Company’s stockholders and whether Centre would be subject to any restrictive covenants post-consummation of the Acquisition.

On December 13, 2017, members of the Compensation Committee of the Company’s Board of Directors met and discussed the terms of Mr. Kay’s employment agreement.

On December 14, 2017, the members of the Nominating and Governance Committee of the Company’s Board of Directors met telephonically to further discuss the terms of Mr. Kay’s employment agreement and other terms of the transaction.

On December 14, 2017, Morgan Lewis circulated revised drafts of the Stockholders Agreement and Voting Agreement to Paul Weiss.

On December 14, 2017 representatives of the Company, Taylor and Centre, together with their respective counsel, met telephonically to discuss the issues list previously distributed by Paul Weiss. On such call, the parties negotiated each of the items included on the issues list, including, that Taylor Parent would indemnify the Company for losses arising from post-closing claims against Taylor made by current holders of Taylor’s preferred equity and that post-closing payments relating to Taylor’s Chef’n acquisition would be considered indebtedness of Taylor for purposes of determining the consideration to be paid by the Company at the consummation of the Acquisition.

On December 15, 2017, Morgan Lewis and Paul Weiss met telephonically to continue to address open issues in the Merger Agreement.

 

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Throughout December 15, 2017 to December 19, 2017, the parties continued negotiations and the parties’ legal advisors worked to finalize the Merger Agreement and the related agreements.

On December 18, 2017, at a meeting of the Compensation Committee of the Company’s Board of Directors, the Compensation Committee approved the terms of Mr. Kay’s employment agreement and recommended that the Company’s Board of Directors also approve such terms.

On December 19, 2017, the Company’s independent members of the Company’s Board of Directors and Mr. Craig Phillips, a non-independent member of the Company’s Board of Directors, met with and interviewed Mr. Kay. Following that meeting, a special meeting of the Company’s Board of Directors was held.

At that meeting, the Company’s Board of Directors met with the Company’s management and advisors to discuss the proposed transaction. At that Board of Directors meeting, EY provided the Company’s Board of Directors with a description of its due diligence findings and answered questions raised by, and discussed its findings with, the directors.

Also, at that meeting Houlihan Lokey reviewed and discussed its financial analyses and thereafter, at the request of the Company’s Board of Directors, rendered its oral opinion, (which was subsequently confirmed in writing by delivery of Houlihan Lokey’s written opinion addressed to the Company’s Board of Directors dated December 19, 2017) with respect to the fairness, from a financial point of view, of the Total Consideration to be paid by the Company in the Acquisition pursuant to the Merger Agreement. (see “— Opinion of the Financial Advisor to the Board of Directors” below).

Following the presentations by EY and Houlihan Lokey, Morgan Lewis reviewed for the Company’s Board of Directors the key terms relating to the Merger Agreement and the related agreements and Morgan Lewis’s due diligence review. Following the presentation, the directors addressed questions to, and discussed the proposed transaction with, members of the Company’s management and Company’s legal advisors. After extensive discussions, the members of the Nominating and Governance Committee of the Company’s Board of Directors and Mr. Phillips met and held further discussions.

Thereafter, all members of the Company’s Board of Directors reconvened and Mr. Winoker presented to the Company’s Board of Directors the key terms of the debt that the Company would use to finance the transaction. Following this presentation, Mr. Winoker answered questions raised by, and discussed the terms of the financing with, the directors.

Following the discussion with Mr. Winoker regarding the proposed financing, the Company’s Board of Directors continued meeting and determined that the transactions contemplated by the Merger Agreement and the related transactions and agreements were in the best interests of the Company and its stockholders, and the Company’s Board of Directors unanimously voted to approve the Merger Agreement and the related transactions and agreements, with any such changes as approved by the Company’s senior management, and to recommend to the Company’s stockholders that they approve the issuance of shares of common stock of the Company pursuant to the Merger Agreement.

After the meeting of the Company’s Board of Directors adjourned on December 19, 2017, the Company and Taylor continued to negotiate the definitive transaction documents and on December 22, 2017, the Merger Agreement and the related agreements were executed.

The Company filed a press release on December 22, 2017 announcing the Acquisition.

Early termination of the waiting period under the HSR Act was granted on January 8, 2018.

 

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Summary of the Acquisition

The Parties Involved in the Acquisition

Lifetime Brands, Inc.

The Company designs, sources and sells branded kitchenware, tableware and other products used in the home and markets its products under a number of widely-recognized brand names and trademarks, which are either owned or licensed by the Company, or through retailers’ private labels and their licensed brands. The Company’s products, which are targeted primarily towards consumer purchases of moderately priced kitchenware, tableware and housewares, are sold through virtually every major level of trade. The Company generally markets several lines within each of its product categories under more than one brand. The Company sells its products directly to retailers (including through their Internet websites) and, to a lesser extent, to distributors. The Company’s wholesale customers include mass merchants, specialty stores, national chains, department stores, warehouse clubs, supermarkets, off-price retailers, home and garden centers, pharmacies and Internet retailers. The Company also sells a limited selection of its products directly to consumers through its own Internet websites. At the heart of the Company is a culture of innovation. The Company has a presence in international markets through subsidiaries and affiliate companies that are based outside of the United States. The Company continually evaluates opportunities to expand the reach of its brands and to invest in other companies that operate principally outside the United States and that own or license complementary brands.

The Company’s segments include three categories, U.S. Wholesale, International and Retail Direct. The Company’s product categories include two categories of products used to prepare, serve and consume foods, Kitchenware (kitchen tools and gadgets, cutlery, cutting boards, shears, cookware, pantryware, spice racks and bakeware) and Tableware (dinnerware, stemware, flatware and giftware); and one category, Home Solutions, which comprises other products used in the home (thermal beverageware, food storage, neoprene travel products and home décor).

The Company’s top brands and their respective product categories are:

 

Brand		Licensed/Owned		Product Category
Farberware  ®		Licensed  (1)		Kitchenware
Mikasa  ®		Owned		Tableware and Home Solutions
KitchenAid  ®		Licensed		Kitchenware
Pfaltzgraff  ®		Owned		Kitchenware, Tableware and Home Solutions
KitchenCraft  ®		Owned		Kitchenware
Sabatier  ®		Licensed		Kitchenware
Mossy Oak  ®		Licensed		Kitchenware, Tableware and Home Solutions
Kamenstein  ®		Owned		Kitchenware
MasterClass  ®		Owned		Kitchenware
Towle  ®		Owned		Tableware
Fred  ®		Owned		Kitchenware
Copco  ®		Owned		Kitchenware and Home Solutions
Chicago™ Metallic		Licensed  (2)		Kitchenware
Wilton Armetale  ®		Owned		Tableware
Swing-A-Way  ®		Owned		Kitchenware
Fitz&Floyd ®		Owned		Tableware and Home Solutions

 

(1)	The Company has a royalty free license to utilize the Farberware ® brand for kitchenware and tableware products for a term that expires in 2195, subject to earlier termination under certain circumstances.

(2)	The Company has an exclusive perpetual, royalty free, license to use the Chicago TM Metallic trademark.

The Company’s products are sold globally to a diverse customer base including mass merchants (such as Walmart and Target), specialty stores (such as Bed Bath & Beyond and Dunelm), national chains (such as Kohl’s and JCPenney), department stores (such as Macy’s and Belk), warehouse clubs (such as Costco, Sam’s Club and

 

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BJs), supermarkets (such as Stop & Shop, Meijer, Winn-Dixie, Kroger, Tesco and Sainsbury’s), off-price retailers (such as TJX Companies, Ross Stores and Big Lots), home and garden centers (such as TrueValue, ACE Hardware Stores and Wyevale), pharmacies (such as Walgreens) and Internet retailers (such as Amazon). The Company generally collaborates with its largest wholesale customers and in many instances produces specific versions of the Company’s product lines with exclusive designs and/or packaging for their stores.

The Company is a Delaware corporation, incorporated on December 22, 1983. The Company’s headquarters is located at 1000 Stewart Avenue, Garden City, New York 11530.

For a description of our history and development, business and organizational structure, see our Annual Report on Form 10-K for our fiscal year ended December 31, 2016. See “Where You Can Find Additional Information” for a description of how to obtain a copy of our Annual Report and other SEC filings.

Taylor Holdco, LLC

Taylor and its subsidiaries (dba Filament Brands) primarily design, market and distribute consumer and food service precision measurement products, including kitchen scales, thermometers and timers, bath scales, wine accessories, kitchen tools, hydration products and select outdoor products to major retailers in the United States, Canada and select distributors throughout Europe and Asia. Taylor distributes products under the Taylor, Salter, Springfield, HoMedics, Rabbit, Houdini, Metrokane, Mako, EatSmart, TravelWise, Chef’n, Vibe, d.stil, RBT and private label brand names. Taylor is a Delaware limited liability company, incorporated on May 11, 2012.

Taylor

Taylor is a leader and recognized expert in precision measurement products, including kitchen scales and thermometers, bath scales and weather and outdoor household products. Over time, Taylor has broadened its brand portfolio to include owned brands such as Taylor and Springfield, premium brands under long-term licenses such as HoMedics and Salter, selected lifestyle brands under license such as The Biggest Loser and Bowflex, as well as private label products for select customers.

Chef’n

Taylor acquired the Chef’n brand on December 23, 2014. Chef’n is a leading global housewares products business that provides inventive, fun and highly functional products sold through retailers and distributors who are leaders in their categories. Product offerings include kitchen gadgets, kitchen tools, measuring and baking equipment, grinders, cleaning utensils, strainers and steamers, salad preparation tools, beverageware and other accessories sold under the Chef’n, Vibe and d.stil brands as well as through private label brands for select customers.

Metrokane

Metrokane was acquired by Taylor in 2013 and is a leading North American marketer of wine accessories and barware — including corkscrews, decanters, aerators, wine preservers, cocktail shakers, citrus juicers and bar tools. Metrokane products have wide distribution. They are sold, primarily under the nationally advertised Rabbit and Houdini brand names, by department stores, big box retailers, discount chains, wine & liquor stores and online merchants. Retailers and consumers look to Metrokane for innovative products, starting with the Original Rabbit corkscrew and more recently with Rabbit Automatic Electric Corkscrew and the Rabbit Freezable Whiskey Glasses.

 

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Taylor’s top brands and their respective product categories are:

 

Brand		Licensed/Owned		Product Category
Taylor		Owned		Kitchen, Bath, Weather
Rabbit		Owned		Wine/Bar
Chef’n		Owned		Kitchen Gadgets
Eatsmart		Owned		Kitchen, Bath
Houdini		Owned		Wine/Bar
HoMedics		Licensed		Bath, Kitchen
Vibe		Owned		Kitchen Gadget
Salter		Licensed		Kitchen, Bath
Springfield		Licensed		Weather, Kitchen
The Biggest Loser		Licensed		Kitchen, Bath
RBT		Owned		Wine/Bar
d.stil		Owned		Hydration
Bowflex		Licensed		Bath
TravelWise		Owned		Luggage
PlanetBox		Owned		Kitchen
Mako		Owned		Wine/Bar

Customers

Taylor’s wholesale customers include mass merchants, specialty stores, national chains, department stores, warehouse clubs, supermarkets, off-price retailers, food service distributors and Internet retailers.

Taylor’s products are sold globally to a diverse customer base including mass merchants (such as Target and Wal-Mart), specialty stores (such as World Kitchen and Old Time Pottery), national chains (such as Williams Sonoma, Sur La Table and Kohl’s), department stores (such as Macy’s), warehouse clubs (such as Costco, Sam’s Club and BJ’s), supermarkets (such as Publix, Kroger and HEB), off-price retailers (such as TJX Companies), food service distributors (such as US Foods, Clark Food Service and Jetro), Internet retailers (such as Amazon) and food and beverage outlets (such as Starbucks). Taylor also does business with independent retailers, including through business-to-business Internet sites aimed at independent retailers.

Taylor’s brands also operate their own consumer Internet sites that provide information about products and offer consumers the opportunity to purchase products directly.

During the year ended March 31, 2017, Taylor’s largest customer, Starbucks, accounted for 24% of net sales. As of March 31, 2017, Starbucks accounted for 38% accounts receivable.

Distribution

Taylor sells its products directly to retailers and, to a lesser extent, to distributors. Taylor also sells a limited quantity of products to individual consumers and smaller retailers through its own Internet sites and through Amazon.com. Taylor distributes most of their products through a third-party logistics provider in Memphis, TN. For some international sales, Taylor distributes through a third-party logistics provider in Shenzhen, China. Taylor distributes some industrial and all direct-to-consumer sales out of a leased facility in Las Cruces, NM. The Las Cruces facility is 33,040 square feet in total, of which 23,491 square feet is allocated to distribution.

Sales and Marketing

Taylor’s sales and marketing staff coordinates directly with its wholesale customers to devise marketing strategies and merchandising concepts and to furnish advice on advertising and product promotion. Taylor has developed many promotional programs for use in the ordinary course of business to promote sales throughout the year.

 

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Design and Innovation

At the heart of Taylor’s brands is a culture of innovation, design and detail. Taylor’s global in-house design and development teams currently consist of 17 professional designers, artists and engineers. Utilizing the latest available design tools, technology and materials, these teams create new products, redesign existing products and create packaging and merchandising concepts.

Sources of Supply

Taylor sources its products from hundreds of suppliers. Most of Taylor’s suppliers are located in China. Products are ordered substantially in advance of the anticipated time of their sale by Taylor. Taylor does not have any formal long-term arrangements with any of its suppliers and its arrangements with most manufacturers allow for flexibility in modifying the quantity, composition and delivery dates of orders.

Manufacturing

Taylor sources all of its products and does not have any manufacturing resources.

Competition

The markets for food services, kitchenware and other products used in the home are highly competitive and include numerous domestic and foreign competitors, some of which are larger than Taylor. The primary competitive factors in selling such products to retailers are innovative products, brand, quality, aesthetic appeal to consumers, packaging, breadth of product line, distribution capability and selling price.

Intellectual Property

Taylor owns approximately 371 issued design and utility patents and has approximately 43 pending. Taylor believes that the expiration of any of its patents would not have a material adverse effect on its business.

Backlog

Backlog is not material to Taylor’s business, because actual confirmed orders from its customers are typically received within close proximity to the required shipment dates.

Employees

As of September 30, 2017, Taylor had a total of 154 full-time employees. None of Taylor’s employees are represented by a labor union or subject to collective bargaining agreements.

Regulatory Matters

Taylor is subject to significant regulation by various governmental, regulatory and other administrative authorities.

As a distributor of consumer products, the Company is subject to the Consumer Products Safety Act in the United States and the Consumer Protection Act in the United Kingdom. Additionally, laws regulating certain consumer products exist in some cities and states, as well as in other countries in which Taylor or its subsidiaries and affiliates sell products.

Taylor’s operations also are subject to national, state and local environmental and health and safety laws and regulations, including those that impose workplace standards and regulate the discharge of pollutants into the environment and establish standards for the handling, generation, emission, release, discharge, treatment, storage and disposal of materials and substances including solid and hazardous wastes.

 

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Taylor is subject to risks and uncertainties associated with economic and political conditions in foreign countries, including but not limited to, foreign government regulations, taxes including value-added taxes, import and export duties and quotas, anti-dumping regulations and related tariffs associated with certain types of products, incidents and fears involving security, terrorism and wars, political unrest and other restrictions on trade and travel.

Geographic Information

Most of Taylor sales are within the United States. For the twelve months ended March 31, 2017 international sales represented 5.3% of Taylor net sales.

Taylor Parent, LLC

Taylor Parent owns all of the common equity interests of Taylor and is controlled by affiliates of Centre.

Taylor’s Management’s Discussion and Analysis of Financial Conditions and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements of Taylor and notes thereto included elsewhere herein. This discussion contains forward-looking statements relating to future events and the future performance of Taylor based on Taylor’s current expectations, assumptions, estimates and projections about it and Taylor’s industry. These forward-looking statements involve risks and uncertainties. Taylor’s actual results and timing of various events could differ materially from those anticipated in such forward-looking statements as a result of a variety of factors, as more fully described in this section and elsewhere herein including those discussed under “Disclosures regarding Forward-Looking Statements” and “Quantitative and Qualitative Disclosures Regarding Market Risk.” Taylor undertakes no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

About Taylor

On June 8, 2012, Taylor Acquisition, Inc. was formed and subsequently acquired the net assets of Taylor North American Scales from FKA Distributing Co. d/b/a HoMedics, Inc. Taylor North American Scales was a combination of Taylor Precision Products, the HoMedics USA bath scale business segment, the HoMedics Group Canada measurement products business segment and Springfield Acquisition Co. LLC intellectual property. Upon consummation of such acquisition, Taylor Acquisition, Inc. changed its name to Taylor Precision Products, Inc.

Taylor acquired the assets of Health Tools LLC on November 8, 2013 and Metrokane Inc. on November 12, 2013. Health Tools LLC sources and sells precision kitchen and bathroom scales and travel packing accessories to customers based in the United States and Canada under the EatSmart and TravelWise brand names. Metrokane Inc. designs, sources, markets, and distributes high quality wine corkscrews, barware, and wine accessories under the Rabbit, RBT, Houdini, and, Metrokane brand names.

Taylor acquired the stock of Chef’n Corporation on December 23, 2014 in a cash and stock transaction. Chef’n designs, sources, markets, and distributes worldwide innovative kitchen tools and hydration products under the Chef’n, Vibe, d.stil and private label brand names.

Seasonality

Taylor’s business and working capital needs are moderately seasonal, with more sales occurring in Taylor’s third quarter (October to December) than any other quarter of the year. For the year ended March 31, 2017 net sales in the third quarter accounted for 31% of total annual net sales.

 

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Impact of Inflation

Inflation rates in the United States and in major foreign countries where Taylor operates have not had a significant impact on its results of operations or financial position during 2017, 2016 or 2015. Taylor will continue its practice of monitoring costs and adjusting prices, accordingly.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued new authoritative accounting guidance on revenue from contracts with customers. The new standard provides new criteria for recognizing revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which Taylor expects to be entitled in exchange for those goods or services. It also requires expanded disclosures to provide greater insight into both revenue that has been recognized and revenue that is expected to be recognized in the future from existing contracts. Quantitative and qualitative information will be provided about the significant judgments and changes in those judgments that management made to determine the revenue that is recorded. In August 2015, the FASB changed the effective date of the new revenue recognition accounting guidance for private companies to be for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for annual periods beginning after the original effective date of December 15, 2016. Taylor is in the process of evaluating the impact of the new standard on the consolidated financial statements and the timing of the adoption.

In November 2015, the FASB issued new authoritative accounting guidance on simplifying the presentation of deferred income taxes, which requires that deferred income tax liabilities and assets be presented as a net non-current deferred tax asset or liability by jurisdiction on the balance sheet. The current requirement that deferred tax assets and liabilities of a tax-paying component of an entity be offset and presented as a single amount is unchanged. This guidance is effective for periods beginning after December 15, 2017; however, earlier adoption is permitted for all entities for any interim or annual statements that have not been issued. Taylor is in the process of evaluating the impact of the new standard on the consolidated financial statements and the timing of the adoption.

In February 2016, the FASB issued new authoritative accounting guidance on leases which increases transparency and comparability for lease transactions. The new standard brings substantially all leases on the balance sheets for operating lease arrangements with lease terms greater than 12 months for lessees. This update will require a modified retrospective application, which includes a number of optional practical expedients related to the identification and classification of leases commenced before the effective date. The new standard is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. Taylor is in the process of assessing the impact of the new standard on the consolidated financial statements and the timing of the adoption.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment . ASU 2017-04 simplifies how entities assess goodwill for impairment by eliminating Step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The ASU is effective for the Company’s fiscal year ended March 31, 2023. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is in the process of assessing the impact of the new standard on the consolidated financial statements upon adoption.

 

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Results of Operations

The following is summarized consolidated results of operations for Taylor for the six months ended September 30, 2017 and 2016.

 

		Six Months Ended September 30,
		2017				2016
		unaudited (in thousands)
Net sales		$	74,812			$	75,012
Cost of goods sold			43,609				41,913
Gross profit			31,203				33,099
Selling, general, and administrative expenses			25,216				25,804
Change in fair value of purchase consideration			42				—
Income from operations			5,945				7,295
Interest expense			(7,691	)			(7,914	)
Redeemable Preferred Interest			(1,932	)			(1,668	)
Other expense, net			(51	)			(59	)
Loss before income tax benefit			(3,729	)			(2,346	)
Income tax benefit			1,169				162
Net loss		$	(2,560	)		$	(2,184	)

The following is summarized consolidated results of operations for Taylor for the years ended March 31, 2017, 2016 and 2015.

 

		Year Ended March 31,
		2017				2016				2015
		(in thousands)
Net sales		$	173,706			$	179,689			$	135,010
Cost of goods sold			98,987				106,324				76,819
Gross profit			74,719				73,365				58,191
Selling, general, and administrative expenses			55,897				53,047				39,975
Acquisition-related expenses			—				—				2,444
Impairment charges			2,100				4,300				10,854
Change in fair value of purchase consideration			646				1,123				(4,390	)
Gain on sale of China factory			—				—				(715	)
Income from operations			16,076				14,895				10,023
Interest expense			(15,487	)			(16,475	)			(14,134	)
Redeemable Preferred Interest			(3,338	)			(2,880	)			(2,486	)
Other expense, net			11				(588	)			(514	)
Loss before income tax benefit			(2,738	)			(5,048	)			(7,111	)
Income tax benefit			622				1,652				3,039
Net loss		$	(2,116	)		$	(3,396	)		$	(4,072	)

Six months ended September 30, 2017 compared to six months ended September 30, 2016

Net sales

Net sales for the six months ended September 30, 2017 were $74.8 million, a decrease of $0.2 million, or 0.3%, compared to net sales of $75.0 million in 2016. The decrease is primarily due to an increase in customer allowances.

Gross profit

Gross profit for the six months ended September 30, 2017 was $31.2 million, a decrease of $1.9 million or 5.7%, compared to gross profit of $33.1 million in 2016. Gross margin for the six months ended September 30, 2017

 

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was 41.7% compared to 44.1% in 2016. The decrease in gross profit and gross margin is attributable to more competitive pricing, particularly in the e-commerce business and a change in product mix.

Operating expenses

Operating expenses for the six months ended September 30, 2017 were $25.3 million, a decrease of $0.5 million, or 1.9%, as compared to $25.8 million for 2016. In 2017, substantially all operating expenses were attributable to selling, general and administrative expenses (“SG&A”) and in 2016 all of the operating expenses were attributable to SG&A. The decrease in SG&A expenses is primarily due a reduction in amortization expense as certain intangible assets are fully amortized.

Interest expense

Interest expense for the six months ended September 30, 2017 was $7.7 million compared to $7.9 million for 2016. The decrease was attributable to lower outstanding debt balances based on scheduled and prepaid principal payments.

Redeemable preferred interest

Redeemable preferred interest for the six months ended September 30, 2017 was $1.9 million compared to $1.7 million for 2016. The increase was due to interest accretion on redeemable preferred units.

Income tax benefit

Income tax benefit was $1.2 million for the six months ended September 30, 2017 and $0.2 million in 2016. The effective tax rate for 2017 was 31.3%, compared to 6.9% for 2016. The higher effective tax rate in 2017 primarily reflects state rate changes and redeemable preferred interest expense.

Year ended March 31, 2017 compared to year ended March 31, 2016

Net sales

Net sales for the year ended March 31, 2017 were $173.7 million, a decrease of $6.0 million, or 3.3%, compared to net sales of $179.7 million in 2016. The decrease is primarily attributable to a reduction in volume in the Chef’n, EatSmart, and Rabbit product lines, due to 2016 sales of slow moving and excess inventory.

Gross profit

Gross profit for the year ended March 31, 2017 was $74.7 million, an increase of $1.3 million or 1.8%, compared to gross profit of $73.4 million in 2016. Gross margin for 2017 was 43% compared to 40.8% in 2016. The 2016 gross margin reflects the sales of slow moving and excess inventory which were at lower margins and not repeated in the 2017 period. The 2017 gross margin improvement also reflects the full year impact of certain low margin Chef’n product lines being de-emphasized.

Operating expenses

Operating expenses for the year ended March 31, 2017 were $58.6 million, an increase of $0.1 million, as compared to $58.5 million for 2016.

In 2017, SG&A expenses increased by $2.9 million primarily due to non-recurring expenses related to Metrokane litigation and one-time costs to relocate the accounting function to the Seattle office.

 

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Impairment charges for the year ended March 31, 2017 were $2.1 million, as compared to $4.3 million in 2016 related to the valuation of certain indefinite-lived trade names. In 2017 the fair value of the Rabbit, Houdini, and Metrokane trade names were determined to be lower than the carrying values and, therefore, Taylor recognized impairment charges of $0.8 million, $1.2 million, and $0.1 million related to these trade names, respectively. In 2016 the fair value of the Houdini and Metrokane trade names were determined to be lower than the carrying values and, therefore, Taylor recognized impairment charges of $0.7 million and $3.6 million related to these trade names, respectively.

Change in fair value of purchase consideration for the year ended March 31, 2017 was $0.6 million and $1.1 million in 2016. The changes were based on new information available at the respective balance sheet dates related to the Chef’n acquisition. The contingent consideration payable is due February 2018.

Interest expense

Interest expense for the year ended March 31, 2017 was $15.5 million compared to $16.5 million for 2016. The decrease is attributable to lower outstanding debt balances related to scheduled and prepaid principal payments.

Redeemable preferred interest

Redeemable preferred interest for the year ended March 31, 2017 was $3.3 million compared to $2.9 million for 2016. The increase is due to interest accretion for redeemable preferred units.

Other expense

Other expense for the year ended March 31,2017 was less than $0.1 million compared to $0.6 million in 2016. In 2017, other expense included unused line fees associated with the revolving line of credit.

Income tax benefit

Income tax benefit was $0.6 million in the year ended March 31, 2017 and $1.7 million in 2016. The effective tax rate for 2017 was 22.7% compared to 32.7% for 2016. The lower effective tax rate in 2017 is due state tax rate changes, redeemable preferred interest expense and transaction expenses.

Year ended March 31, 2016 compared to year ended March 31, 2015

Net sales

Net sales for the year ended March 31, 2016 were $179.7, an increase of $44.7 million, or 33.1%, compared to net sales of $135.0 million in 2015. The increase in net sales in 2016 was primarily due to the full year impact of the acquisition of Chef’n in December 2014.

Gross profit

Gross profit for the year ended March 31, 2016 was $73.4 million, an increase of $15.2 million, or 26.1%, compared to gross profit of $58.2 million in 2015. The increase was primarily due to the full year impact of the acquisition of Chef’n. Gross margin for 2016 was 40.8% compared to 43.1% in 2015. The decrease in gross margin is attributable to lower margins on the acquired Chef’n business and lower margin on sales of slow moving and excess inventory from acquired businesses, partially offset by margin accretion on existing business.

Operating expenses

Operating expenses for the year ended March 31, 2016 were $58.5 million, an increase of $10.3 million, or 21.4%, as compared to $48.2 million for 2015.

 

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In 2016, SG&A expenses increased $13.0 million, as compared to 2015, primarily due to the full year impact of the acquisition of Chef’n.

Acquisition-related expenses in 2015 were $2.4 million related to legal and accounting fees, agent fees, and closing fees paid to the parties involved in the acquisition of Chef’n.

Impairment charges for the year ended March 31, 2016 were $4.3 million, as compared to $10.9 million in 2015. In 2016 the fair value of the Houdini and Metrokane trade names were determined to be lower than the carrying values and, therefore, Taylor recognized impairment charges of $0.7 million and $3.6 million related to these trade names, respectively. In 2015 the fair value of the Rabbit, Houdini, and Metrokane trade names were determined to be lower than the carrying values and, therefore, Taylor recognized impairment charges of $5.6 million, $3.5 million, and $0.1 million related to these trade names, respectively. As a result of the impairment of these trade names, Taylor evaluated the Metrokane technology finite-lived intangible asset for impairment. The fair value of the Metrokane technology finite-lived intangible asset was lower than the carrying value and, therefore, Taylor recognized an impairment charge of $1.7 million.

The fair value of purchase consideration increased $1.1 million for the year ended March 31, 2016, as compared to a decrease in fair value of $4.4 million in 2015. The 2016 change was primarily attributable to the revaluation of contingent consideration payable related to the Chef’n acquisition. The contingent consideration payable is due February 2018. The 2015 period credit is related to the change in fair value of contingent consideration for the EatSmart acquisition.

Interest expense

Interest expense for the year ended March 31, 2016 was $16.5 million compared to $14.1 million for 2015. The increase was attributable to higher outstanding balances due to borrowings for the Chef’n acquisition.

Redeemable preferred interest

Redeemable preferred interest for the year ended March 31, 2016 was $2.9 million compared to $2.5 million for 2015. The increase was attributable to interest accretion for redeemable preferred units.

Other expense

Other expense in the year ended March 31, 2016 was $0.6 million compared to $0.5 million in 2015.

Income tax benefit

The income tax benefit was $1.7 million in the year ended March 31, 2016 and $3.0 million in 2015. The effective tax rate for 2016 was 32.7%, compared to 42.7% for 2015. The lower effective tax rate in 2016 is due to changes in state tax rates, redeemable preferred interest expense and transaction expenses.

Liquidity and Capital Resources

Taylor’s principal sources of cash to fund liquidity needs are: (i) cash provided by operating activities and (ii) borrowings available under its revolving line of credit (the “Revolver”) under its Senior Credit Agreement dated June 8, 2012 (as amended, the “Credit Agreement”). Taylor’s primary use of funds consist of working capital requirements, capital expenditures, acquisitions and investments and payments of principal and interest on its debt.

 

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At September 30, 2017, Taylor had cash of $11.5 million compared to $13.9 million at September 30, 2016, and working capital of $14.1 million at September 30, 2017 compared to $41.8 million at September 30, 2016. There were no borrowings outstanding under the revolver as of September 30, 2017 and 2016. Availability under its Revolver was $20.0 million at September 30, 2017 and September 30, 2016.

At March 31, 2017, Taylor had cash of $16.9 million compared to $7.3 million at March 31, 2016 and $1.7 million at March 31, 2015, working capital of $39.8 million at March 31, 2017 compared to $39.2 million at March 31, 2016 and $37.2 million at March 31, 2015 and the current ratio (current assets to current liabilities) was 2.27 to 1 at March 31, 2017 compared to 2.94 to 1 at March 31, 2016 and 2.68 at March 31, 2015. There were no borrowings outstanding under the revolver as of March 31, 2017 and 2016. Availability under its Revolver was $20.0 million at March 31, 2017.

Taylor believes that availability under its Revolver and cash flows from operations are sufficient to fund its operations for the next twelve months. However, if circumstances were to adversely change, Taylor may seek alternative sources of liquidity including debt and/or equity financing. However, there can be no assurance that any such alternative sources would be available or sufficient. Taylor closely monitors the creditworthiness of its customers. Based upon its evaluation of changes in customers’ creditworthiness, Taylor may modify credit limits and/or terms of sale. However, notwithstanding Taylor’s efforts to monitor its customers’ financial condition, Taylor could be materially adversely affected by changes in the future

Credit facilities

Taylor’s Credit Agreement, which matures on November 6, 2018, provides for a $20.0 million Revolver and term loans. The Revolver and term loans had an outstanding balance of $0.0 million and $180.2 million, respectively, as of September 30, 2017. Taylor is required to make quarterly principal payments, adjusted for any prepayments, on the term loans in the amount of 0.625% of outstanding principal balance for quarters in fiscal year 2016, and 1.25% of outstanding principal balance for quarters thereafter, with the remainder due on the maturity date. Taylor may make prepayments as allowed under the Credit Agreement, which are applied against future principal installments. At Taylor’s option, borrowings under the Revolver and terms loans are based on London InterBank Offered Rate (LIBOR) plus 4.5% or the base rate, as defined by the terms of the Credit Agreement, with a floor of 5.5%. At March 31, 2017 and 2016, the interest rate for the term loans was based on LIBOR and stated at 5.5%. At March 31, 2017 and 2016, interest payable of $1.3 million was outstanding.

In December 2014, Taylor amended its Subordinated Credit Agreement (“Subordinated Debt”) dated June 8, 2012, which was previously amended in November 2013. The original agreement dated June 8, 2012 provided for $25.6 million in term debt which was outstanding at the time of amendment. The first amendment provided for an increase in the Subordinated Debt of $19.2 million, for a total of $44.8 million, with the ability to draw additional notes under the amended agreement of up to $22.1 million. The second amendment provided for an increase in the Subordinated Debt of $6.9 million, for a total of $51.7 million. The Subordinated Debt matures on May 6, 2019. No principal payments are required until maturity. The Subordinated Debt carries cash interest of 13% including, at the option of Taylor, payment-in-kind interest of 2% payable quarterly. At March 31, 2017 and 2016, interest payable of $0.0 million and $1.7 million, respectively, was accrued.

The Credit Agreement and Subordinated Debt agreement contain restrictive covenants, including, but not limited to, limitations on capital expenditures and require maintenance of minimum leverage and fixed charge coverage ratios. The outstanding debt is collateralized by substantially all of Taylor’s assets. Taylor was in compliance with all covenants as of March 31, 2017.

Inventory

Inventory, a large component of Taylor’s working capital, is expected to fluctuate from period to period, with inventory levels higher primarily in the August through December time period. Taylor also expects inventory

 

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turnover to fluctuate from period to period based on product and customer mix. Certain product categories have lower inventory turnover rates as a result of minimum order quantities from Taylor’s vendors and customer replenishment needs. Certain other product categories experience higher inventory turns due to lower minimum order quantities or trending sale demands. For the six months ended September 30, 2017, inventory turnover was 3.4 times, or 107 days, as compared to 3.4 times, or 106 days, for the six months ended September 30, 2016. The decrease in turnover is driven by a decrease in sales of inventoried items versus an increase in sales of direct import items in the first six months of the fiscal year.

Operating activities

Net cash provided by operating activities was $1.0 million for the six months ended September 30, 2017 compared to $7.1 million in 2016. The decrease from 2016 to 2017 was primarily attributable to timing of sales activity and related collections from customers and an increase in inventory in 2017.

Net cash provided by operating activities was $15.3 million for the year ended March 31,2017, as compared to $22.5 million in 2016 and $12.1 million in 2015. The decrease from 2016 to 2017 was primarily attributable to timing of sales activity and related collections from customers. The increase from 2015 to 2016 was primarily attributable to the full operating cash impact of the Chef’n.

Investing activities

Net cash used in investing activities was $0.8 million for the six months ended September 30, 2017, as compared to $0.5 million in 2016. The 2017 and 2016 investing activity primarily represents capital expenditures for product tooling and information technology systems.

Net cash used in investing activities was $1.8 million for the year ended March 31, 2017, as compared to $1.5 million in 2016 and $45.7 million in 2015. The 2017 and 2016 investing activity represents capital expenditures for product tooling and information technology systems. The 2015 investing activity included the acquisition of Chef’n and capital expenditures, partially offset by the sale of the China factory.

Financing activities

Net cash used in financing activities was $5.3 million in the six months ended September 30, 2017 related to scheduled and early principal payments on debt.

Net cash used in financing activities was $4.0 million and $15.5 million for the year ended March 31, 2017 and 2016, respectively, related to scheduled and early principal payments on debt. Net cash provided by financing activities was $34.2 million in 2015 due to borrowings related to the acquisition of Chef’n, partially offset by scheduled principal payment on debt.

Contractual Obligations

As of March 31, 2017, Taylor’s contractual obligations were as follows (in thousands):

 

		Total				Less Than 1 Year				1-3 Years				3-5 Years				More Than 5 Years
Long-Term Debt Obligation		$	185,472			$	3,586			$	181,886			$	—			$	—
Mandatorily Redeemable Preferred Units			24,374				—				24,374				—				—
Operating Lease Obligation			2,937				1,040				1,781				116				—
Chef’n Purchase Earnout			8,309				8,309				—				—				—
Total		$	221,092			$	12,935			$	208,041			$	116				—

 

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Summary of Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and notes. Actual results could differ from those estimates.

Trade Receivables

Collateral or other security is generally not required on trade receivables. Taylor monitors the credit quality of its customers, and an allowance for doubtful accounts is maintained at a level management believes is sufficient to cover potential credit losses based on historical bad debt write-off experience and specific risks identified for uncollected accounts. Trade receivables are charged off against the allowance when it is determined that the receivable will not be collected. Trade receivables are presented net of reserves for estimated customer returns and allowances, at net realizable value.

Inventories

Inventories consist primarily of finished goods and are valued at the lower of cost or market. Cost is determined using the first-in, first-out method. Certain slow-moving items have been reduced to net realizable value based on recent sales activity and management’s best estimate of future transactions.

Long-Lived Assets

Long-lived assets and identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable. Recoverability of long-lived assets or groups of assets is assessed based on a comparison of the carrying amount to the estimated, future net cash flows. If estimated future undiscounted net cash flows are less than the carrying amount, the asset is considered impaired and expense is recorded at an amount required to reduce the carrying amount to fair value.

Intangible assets with finite lives are generally amortized using the straight-line method over their estimated economic useful lives ranging from 5 to 15 years.

Goodwill and Indefinite-Lived Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations accounted for under the acquisition method of accounting. Goodwill is not amortized. Taylor tests goodwill annually as of March 31 at the reporting unit level. Taylor has determined that it has one reporting unit. At each impairment testing date, Taylor performs a quantitative assessment of goodwill and compares the fair value of the reporting unit to its carrying amount. To the extent the carrying amount exceeds its fair value, a second step would be performed to compute the amount of impairment as the difference between the implied fair value of goodwill and the carrying value.

The second impairment assessment, if required, involves allocating the reporting unit’s fair value to all of its recognized and unrecognized assets and liabilities in order to determine the implied fair value of the reporting unit’s goodwill as of the assessment date. The implied fair value of the reporting unit’s goodwill is then compared to the carrying amount of goodwill to quantify an impairment charge as of the assessment date. For the years ended March 31, 2017, 2016 and 2015, based on the results of our quantitative analyses, Taylor determined there was no impairment of goodwill.

Indefinite-lived intangible assets are reviewed for impairment annually as of March 31 and whenever events or circumstances indicate that the carrying value may not be recoverable. Taylor recognized impairment of certain indefinite-lived intangible assets during the fiscal years ended March 31, 2017, 2016, and 2015.

 

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Income Taxes

Taylor’s subsidiary, Taylor Precision Products, Inc., is a corporation formed under Subchapter C of the Internal Revenue Code and is subject to corporate taxes. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred income tax expense is measured by the change in the deferred tax assets or liabilities during the year.

Taylor recognizes the tax benefit from uncertain tax positions only if it is more likely than not that the tax positions will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Management believes Taylor has no unrecognized tax benefits. Taylor’s policy for recording interest and penalties associated with examinations by tax authorities is to record such items as a component of income tax expense.

Taylor and its subsidiaries’ tax years ending in 2012 through 2016 remain open to examination by federal and state tax authorities. Taylor files state income tax returns in multiple jurisdictions, each with unique laws regarding statutes of limitations.

On December 22, 2017, the “Tax Cuts and Jobs Act” tax reform was signed into law. The provisions of the new law, including the U.S. Corporate rate reductions, are generally effective in 2018. The value of the deferred tax assets on Taylor’s balance sheet as of September 30, 2017 of $11.3 million, could significantly change as a result of the reduced U.S. corporate income tax rate. While the effects have not been determined, the results of operations for the fourth quarter of fiscal 2018 could be adversely affected by a non-cash charge to reflect the reduction in value of these assets.

Fair Value Measurements

Taylor follows FASB Accounting Standards Codification (“ASC”) Topic 820-10, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the most advantageous market for the asset or liability in an orderly transaction. Fair value measurement is based on a hierarchy of observable or unobservable inputs. The standard describes three levels of inputs that may be used to measure fair value.

Level 1 — Inputs to the valuation methodology are quoted prices available in active markets for identical investments as of the reporting date;

Level 2 — Inputs to the valuation methodology other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and the fair value can be determined through the use of models or other valuation methodologies; and

Level 3 — Inputs to valuation methodology are unobservable inputs in situations where there is little or no market activity of the asset and liability and the reporting entity makes estimates or assumptions relating to the pricing of the asset or liability including assumptions regarding risk.

Taylor followed purchase accounting conventions as prescribed by ASC 805, Business Combinations , to establish the opening balance sheet of the acquired entities for all its acquisitions. The fair value measurement methods used to estimate the fair value of the assets acquired and liabilities assumed at the acquisition date utilized a number of significant unobservable inputs of Level 3 assumptions. These assumptions included, among other things, projections of future operating results, the implied fair value of assets using an income approach by preparing a discounted cash flow analysis, and other subjective assumptions.

 

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The carrying values of financial instruments such as cash, accounts receivable, accounts payable, and accrued expenses are reasonable estimates of their fair value because of the short maturity of these items. Taylor believes that the current carrying amount of its long-term debt approximates fair value because the interest rates on these instruments are subject to change with, or approximate, market interest rates.

Revenue Recognition

Taylor recognizes revenues when the following criteria are met: persuasive evidence of an agreement exists, upon the later of shipment of product to the customer or when title to the product transfers to the customer per the terms of the sales contract, Taylor’s price to the buyer is fixed and determinable, and collectability is reasonably assured. Revenues are recorded net of estimated sales returns and allowances.

Customer Rebates and Consumer Advertising

Taylor participates in cooperative advertising and other rebate programs with its customers, including volume rebates. These amounts are reflected as a reduction to net sales. Taylor expenses all consumer advertising costs as incurred.

The reserves for cooperative advertising and other rebates are included in net receivables. Reserves are estimated using historical experience and terms of existing arrangements with customers.

Merchandise Returns

Sales returns under merchandise return programs are reflected in net sales. Reserves for estimated merchandise returns included in net receivables are estimated using historical experience.

Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may impact the consolidated financial position, results of operations or cash flows of Taylor. Taylor is exposed to market risk associated with changes in interest rates. Taylor believes it has moderate exposure to this risk. Taylor assesses market risk based on changes in interest rates utilizing a sensitivity analysis that measures the potential loss in earnings and cash flows based on a hypothetical 10% or 100 basis point change in these rates.

Taylor’s Revolving Credit Facility and Term Loan, provided for under the Credit Agreement bear interest at variable rates. The Credit Agreement provides for interest rates linked to one of the Adjusted LIBOR or the Prime Rate; and, therefore, Taylor is subject to increases and decreases in interest expense resulting from fluctuations in interest rates. As of March 31, 2017, approximately $133.8 million of Taylor’s debt carries a variable rate of interest, as compared to $137.7 million at March 31, 2016. A hypothetical and instantaneous 100 basis point increase in Taylor’s variable interest rates would increase interest expense by approximately $1.4 million over a twelve-month period. The sensitivity analysis above assumes interest rate changes are instantaneous and parallel shifts in the yield curve.

With the proposed transaction Taylor’s debt would be extinguished and the risk discussed above would cease to exist.

The Merger Agreement

The following description summarizes the material terms of the Merger Agreement. However, it may not contain all of the information that may be important to your consideration of the proposed issuance of the Acquisition Shares. We encourage you to read the Merger Agreement in full, a copy of which is attached as Annex A .

 

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The description of the Merger Agreement in this proxy statement has been included to provide you with information regarding its terms, and we recommend that you read carefully the Merger Agreement in its entirety. Except for its status as the contractual document that establishes and governs the legal relations among the parties with respect to the Acquisition, we do not intend for its text to be a source of factual, business, or operational information about the Company or Taylor. That kind of information can be found elsewhere in this proxy statement. The Merger Agreement contains representations and warranties of the parties as of specific dates and may have been used for the purposes of allocating risk between the parties other than establishing matters as facts. Those representations and warranties are qualified in several important respects, which you should consider as you read them in the Merger Agreement, including contractual standards of materiality that may be different from what may be viewed as material to stockholders. Only the parties themselves may enforce and rely on the terms of the Merger Agreement. As stockholders, you are not third party beneficiaries of the Merger Agreement and therefore may not directly enforce or rely upon its terms and conditions and you should not rely on its representations, warranties, or covenants as characterizations of the actual state of facts or condition of the Company, Taylor, Taylor Parent or any of their respective affiliates. Moreover, information concerning the subject matter of the representations and warranties may have changed since the date of the Merger Agreement and subsequently developed or new information qualifying a representation or warranty may have been included in this proxy statement.

The Acquisition

If the conditions to consummation of the Acquisition are satisfied or waived in accordance with the terms of the Merger Agreement, the Company will acquire the entire capital stock of Taylor, and Taylor will become a wholly-owned subsidiary of the Company.

Consideration

If the Acquisition is consummated, Taylor will become a wholly-owned subsidiary of the Company and the equity holder of Taylor will be entitled to receive:

 

•

(a)(i) $27.5 million payable in cash, minus (ii) the Funded Debt Deficit (as defined in the Merger Agreement), if any, plus (iii) the Funded Debt Surplus (as defined in the Merger Agreement), if any, minus (iv) the Tax Deficit (as defined in the Merger Agreement), if any, plus (v) the Working Capital Surplus (as defined in the Merger Agreement), if any, minus , (vi) the Working Capital Deficit, if any, minus (vii) the Transaction Expense Deficit, if any; plus

 

•

(b) a number of shares of newly issued common stock of the Company representing 27% of the outstanding shares of common stock of the Company, on a Closing Fully Diluted Basis as of immediately following the consummation of the Acquisition after taking into effect the issuance thereof (rounded up to the nearest share).

For purposes of the Merger Agreement, “Closing Fully Diluted Basis” means, as of the time of determination, the sum of (a) the number of registered and unregistered shares of common stock of the Company issued and outstanding (excluding any unvested restricted shares of common stock of the Company), plus (b) the number of shares of common stock of the Company issuable upon the exercise of all vested and unvested in-the-money stock options of the Company (calculated using the treasury stock method, based on the average of the closing stock price of shares of common stock of the Company on the last 20 trading days prior to the day that is two business days prior to the closing date of the Acquisition), plus (c) the number of shares of unvested restricted common stock of the Company that will vest by June 22, 2018 pursuant to the terms of the agreements in which such shares were granted.

A portion of the cash consideration received by Taylor Parent pursuant to the Acquisition shall be used to redeem all of Taylor’s outstanding preferred interests held by an unaffiliated third party.

 

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Limitation on Solicitation and Considering Transaction Proposals

The Merger Agreement restricts our ability to solicit or engage in discussions or negotiations with third parties regarding alternative transaction proposals of our Company. However, subject to specified conditions, we may furnish information to, or enter into discussions or negotiations with, a third party in response to an unsolicited transaction proposal from such third party if our Board of Directors determines in good faith (after consultation with its outside legal counsel) that failure to approve and cause the Company to take such action would be reasonably likely to be inconsistent with the exercise of its fiduciary duties to stockholders of the Company. If the Board of Directors takes such actions and terminates the Merger Agreement and we enter into an alternative transaction within nine months thereafter, we would become obligated to pay a termination fee to Taylor Parent equal to $9 million.

Termination of the Merger Agreement

The Merger Agreement may be terminated and the Acquisition may be abandoned at any time at or prior to the consummation of the Acquisition:

 

•

in writing, by mutual consent of the Company and Taylor Parent;

 

•

by the Company (so long as it is not in material breach of its obligations in a manner as would cause the conditions to closing relating to its own compliance with its representations, warranties and agreements not to be satisfied), if either (i) there has been a breach of, or inaccuracy in, any representation or warranty, or (ii) any of Taylor or Taylor Parent has breached or violated any covenant or other agreement contained in the Merger Agreement, in each case, which breach or inaccuracy or violation (A) would result in, or would reasonably be expected to result in, the failure to satisfy a condition as set forth in the Merger Agreement and (B) cannot be or has not been cured by the earlier of the date which is twenty days after the Company notifies Taylor of such breach, inaccuracy or violation or the Outside Date (as defined below);

 

•

by Taylor Parent (so long as it is not in material breach of its obligations in a manner as would cause the conditions to closing relating to its own compliance with its representations, warranties and agreements not to be satisfied), if either (i) there has been a breach of, or inaccuracy in, any representation or warranty of the Company, or (ii) the Company has breached or violated any covenant contained in the Merger Agreement, in each case which breach, inaccuracy or violation (A) would result in, or would reasonably be expected to result in, the failure to satisfy a condition as set forth in the Merger Agreement and (B) cannot be or has not been cured by the earlier of the date which is 20 days after Taylor Parent notifies the Company of such breach, accuracy or violation or the Outside Date;

 

•

by either Taylor Parent or the Company if the Merger has not been consummated on or before June 20, 2018 (the “Outside Date”); provided that such right to terminate the Merger Agreement shall not be available to any party whose breach of any provision of the Merger Agreement results in the failure of the Acquisition to be consummated by such time;

 

•

by the Company or Taylor Parent, if

 

i.

the Company stockholder meeting (including any adjournments thereof) shall have been held and completed; and

 

ii.

Company’s stockholders have not approved the issuance of the Acquisition Shares;

 

•

by the Company or Taylor Parent, (a) if the Company makes a change in recommendation or (b) the Company’s Board of Directors, (i) after receipt by the Company of an unsolicited offer to effect an alternative transaction in connection with such alternative transaction or (ii) as a result of an intervening event, determines in good faith, following consultation with outside legal counsel that, failing to terminate the Merger Agreement would be reasonably likely to be inconsistent with the Company’s Board of Directors’s exercise of its fiduciary obligations to the Company stockholders, in each case, following a five business day notice and renegotiation period;

 

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•

upon written notice from Taylor Parent to the Company ( provided that Taylor Parent or Taylor is not then in material breach of any of its respective representations, warranties, covenants or other obligations under the Merger Agreement in a manner as would cause the conditions to closing relating to its own compliance with its representations, warranties and agreements not to be satisfied), if the Company has willfully and intentionally breached the exclusivity, proxy or stockholder meeting sections of the Merger Agreement and such breach shall not have been cured prior to the tenth day after written notice from Taylor Parent of such breach is received by the Company (such notice to describe such breach in reasonable detail); or

 

•

by either Taylor Parent or the Company if consummation of the Acquisition would violate any nonappealable final order of any governmental authority having competent jurisdiction.

We have agreed to pay Taylor Parent a termination fee of $9 million if one of the following occurs:

 

•

We or Taylor Parent terminates the Merger Agreement because:

 

•

the Board of Directors changes its recommendation that our stockholders vote “FOR” Proposal 1; or

 

•

the Board of Directors (i) after receipt by the Company of an unsolicited offer to effect an alternative transaction or (ii) as a result of an intervening event, determines in good faith, following consultation with outside legal counsel, that failing to terminate the Merger Agreement would be reasonably likely to be inconsistent with our Board of Directors’s exercise of its fiduciary obligations to the Company stockholders, subject to certain exceptions set forth in the Merger Agreement.

 

•

Taylor Parent terminates the Merger Agreement because:

 

•

we willfully and intentionally breached the exclusivity, proxy or stockholder meeting sections of the Merger Agreement.

If the Merger Agreement is terminated because of our failure to obtain the required stockholder approval, our breach of the Merger Agreement or the merger was not consummated on or before June 20, 2018 and (i) at the time of such termination we received an alternative transaction proposal and (ii) we consummate an alternative transaction within nine months of the termination of the Merger Agreement, we have agreed to pay Taylor Parent a termination fee of $9 million (less any transaction expense fee previously paid).

If the Merger Agreement is terminated due to our failure to obtain the required stockholder approval (unless, at such time, Taylor Parent or Taylor is in breach of the Merger Agreement such that we would have been entitled to terminate the Merger Agreement), then we have agreed to pay Taylor Parent up to $3 million of reasonable and documented out-of-pocket expenses, which amount of expense reimbursement will be deducted from any termination fee payable.

Regulatory Matters

Under the United States Hart-Scott-Rodino (“HSR Act”), parties to certain large mergers and acquisitions must file premerger notification and wait for government review. Early termination of the waiting period under the HSR Act was granted on January 8, 2018. The parties to the Merger Agreement do not believe that the transactions are subject to any waiting period or similar requirement under the antitrust laws of any other jurisdiction.

Representations and Warranties

The Merger Agreement contains representations and warranties for the Company, Taylor and Taylor Parent related to, but not limited to:

 

•

organization of the Company, Taylor and Taylor Parent;

 

•

valid authorization of the Company, Taylor and Taylor Parent to execute and deliver the Merger Agreement;

 

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•

no consents and approvals required for the Acquisition and no violations of applicable law;

 

•

no litigation pending or threatened against the Company;

 

•

financial capability of the Company to consummate the Acquisition;

 

•

the subsidiaries formed for the “two-step” merger are formed solely for the Acquisition;

 

•

certain fees are not required to be paid or born by the Company or Taylor Parent;

 

•

issuance of newly issued common stock of the Company shall be duly authorized;

 

•

SEC filings required to be filed shall be timely filed by the Company, accuracy of Company common stock and representative Company financials;

 

•

completeness of Proxy Statement;

 

•

disclosure of the Company’s compliance with law;

 

•

capitalization of Taylor;

 

•

complete list of Taylor’s subsidiaries;

 

•

Taylor’s company records shall contain true, correct and complete copies of all minutes and written consents;

 

•

disclosure of Taylor’s material contracts and material customers and suppliers;

 

•

disclosure of Taylor’s real estate;

 

•

disclosure of Taylor’s intellectual property;

 

•

disclosure of Taylor’s tax returns and taxes;

 

•

disclosure of Taylor’s permits; compliance with law;

 

•

disclosure of Taylor’s benefit plans;

 

•

disclosure of Taylor’s insurance policies;

 

•

disclosure of Taylor’s affiliate transactions; and

 

•

disclosure of Taylor’s product warranties.

Conditions to the Acquisition

The respective obligations of the Parties to consummate the Acquisition are subject to the satisfaction of the following conditions as of the closing date of the Acquisition:

 

•

no effective injunction, writ or preliminary restraining order or any order of any nature issued by any governmental authority of competent jurisdiction to the effect that the Acquisition may not be consummated as provided in the Merger Agreement.

 

•

the applicable waiting periods under the HSR Act or any applicable non-U.S. antitrust and competition laws shall have expired or been terminated, if applicable.

 

•

the Company stockholders shall have approved the required approval matters as defined in the Merger Agreement.

 

•

the Debt Financing shall have occurred (or will occur simultaneously with the Closing) and the Company shall have received executed payoff letters.

The obligations of the Company to consummate the Acquisition are subject to the satisfaction of the following conditions as of the closing date of the Acquisition:

 

•

the representations and warranties of Taylor and Taylor Parent in the Merger Agreement shall be true and correct in all respects (other than certain fundamental representations and warranties which shall be true in all respects, other than with respect to certain de minimis exceptions as further described in the

 

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Merger Agreement) as of the date of the Merger Agreement and as of the closing date of the Acquisition as if made at and as of such time (except for representations and warranties that speak as of a specific date, in which case such representations and warranties need only be true and correct as of such date), except where the failure of such representations and warranties to be so true and correct would not, or would not be reasonably likely to, individually or in the aggregate, result in a material adverse effect as defined in the Merger Agreement (ignoring for the purposes of this sentence any qualifications as to material adverse effect or “materiality” contained in such representations or warranties).

 

•

Taylor and Taylor Parent shall have performed in all material respects all of their respective obligations required to be performed under the Merger Agreement at or prior to the consummation of the Acquisition.

 

•

as of the date of the Merger Agreement, there shall not have been, individually or in the aggregate, a material adverse effect or seller material adverse effect, each as defined in the Merger Agreement.

 

•

there shall be no holders of equity interests in Taylor that have properly demanded appraisal of, or dissents’ rights with respect to, such interests pursuant to Section 18-210 of the Delaware Limited Liability Company Act or the operating agreement of Taylor.

 

•

the funded debt deficit as defined in the Merger Agreement shall not exceed the cash consideration calculated pursuant to the Merger Agreement.

 

•

certain specified contracts shall have been terminated pursuant to an agreement in form and substance reasonably satisfactory to the Company.

 

•

the delivery by Taylor of a tax representations letter.

 

•

the required vote of Taylor’s stockholders shall remain in effect.

 

•

the cash consideration to be paid to Taylor Parent shall be greater than zero.

 

•

the Company shall be reasonably satisfied that the redemption of Taylor’s outstanding preferred interests will take place immediately prior to the consummation of the Acquisition.

 

•

Taylor shall have delivered notices of prepayment within the time periods required by the relevant agreements governing the Taylor funded debt as defined in the Merger Agreement and executed payoff letters.

The obligation of Taylor and Taylor Parent to consummate the Acquisition is subject to the satisfaction of the following conditions as of the closing date of the Acquisition:

 

•

the representations and warranties of the Company in the Merger Agreement shall be true and correct in all respects (other than certain fundamental representations and warranties which shall be true in all respects, other than with respect to certain de minimis exceptions as further described in the Merger Agreement) as of date of the Merger Agreement and as of the closing date of the Acquisition as if made at and as of such time (except for representations and warranties that speak as of a specific date, in which case such representations and warranties need only be true and correct as of such date), except where the failure of such representations and warranties to be so true and correct would not, or would not be reasonably likely to, have a material adverse effect as defined in the Merger Agreement (ignoring for the purposes of this sentence any qualifications as to material adverse effect or “materiality” contained in such representations or warranties).

 

•

the delivery by the Company of a tax representation letter.

 

•

the Company shall have performed in all material respects all of its obligations required to be performed under the Merger Agreement at or prior to the consummation of the Acquisition.

 

•

as of the date of the Merger Agreement, there shall not have been, individually or in the aggregate, a buyer material adverse effect, as defined in the Merger Agreement.

 

•

Bruce Pollack and Michael Schnabel shall have been appointed to the Board of Directors.

 

64

Fees and Expenses

If the Acquisition is consummated, all costs and expenses incurred in connection with the Merger Agreement, the Acquisition, the issuance of the Acquisition Shares and the other transactions contemplated thereby will be paid by the party incurring such costs and expenses except as otherwise provided in the Merger Agreement.

Resale Limitations; Registration Rights Agreement

The issuance of the Acquisition Shares, if issued, will be exempt from registration under the Securities Act of 1933 (the “Securities Act”) by reason of Section 4(2) thereof and/or Regulation D promulgated under the Securities Act. Therefore, the Acquisition Shares may not be resold unless the shares become registered or an exemption from registration under the Securities Act is available. However, pursuant to the Stockholders Agreement, we would grant the holders of the Acquisition Shares customary registration rights, including at least one demand right on Form S-1 and unlimited demands on Form S-3. Beginning January 1, 2020, Taylor Parent shall be entitled to customary piggyback registration rights with regard to any equity offering the Company undertakes, other than those registered on a Form S-4 or Form S-8 registration statement, subject to customary cut-back provisions. Prior to January 1, 2020, Taylor Parent may not sell, offer or agree to sell, or otherwise transfer (in each case, subject to customary exceptions to be mutually agreed), directly or indirectly, any of the shares of the Company acquired as part of the Acquisition. Taylor Parent shall agree to customary lock-up obligations in connection with any registered offerings and, so long as any directors designated by Taylor Parent serve on the Board, shall comply with the stock trading restrictions contained in the Company’s stock trading policy, but only to the extent that the Company’s directors and officers are subject to the same lock-up obligations and stock trading restrictions. In the event that the managing underwriter advises us in writing that marketing factors require a limitation on the number of shares that can be included in the registration statement, the shares will be included in the registration statement in an agreed order of preference.

Debt Financing

Concurrent with the Acquisition, and pursuant to the Commitment Letter, dated as of December 22, 2017, by and among the Company, JPMorgan and Golub Capital, the Company expects to enter into (1) the ABL Credit Agreement among JPMorgan, as administrative agent, the lenders from time to time party thereto, the Company, the foreign subsidiary borrowers from time to time party thereto, and certain of its other domestic and foreign subsidiaries from time to time party thereto providing for a senior secured asset-based $150.0 million revolving credit facility with a maturity five years from the completion of the Acquisition and (2) the Term Loan Credit Agreement among JPMorgan, as term loan administrative agent, Golub Capital, as lender, and the other lenders from time to time party thereto and the Company providing for a $275.0 million term loan facility with a maturity seven years from the completion of the Acquisition and quarterly principal payments equal to 1% per annum of the original amount of the term loan facility.

The Company intends to use the proceeds of the above-referenced loans (i) to prepay certain existing indebtedness of Taylor and its subsidiaries, (ii) to pay the purchase price in connection with the Acquisition, (iii) to pay the fees, costs and expenses incurred in connection with the Acquisition and the prepayment and the refinancing referenced in this paragraph, (iv) to refinance outstanding borrowings under the Existing Credit Agreement, and (v) for working capital needs and for general corporate purposes.

Borrowings under the ABL Credit Agreement shall bear interest at the Alternate Base Rate (“ABR”) (as defined below) or the Adjusted LIBO Rate (as defined below) plus, in each case, the Applicable Margin (as defined in Exhibit B to the Commitment Letter). ABR means the highest of (a) the prime rate of interest announced from time to time by JPMorgan or its parent, (b) the greater of (i) the federal funds effective rate and (ii) the overnight bank funding rate from time to time (but not less than zero) plus 0.5% and (c) the Adjusted LIBO Rate (subject to the interest rate floor set forth therein) for a one-month interest period on such day plus 1%. Adjusted LIBO Rate means the LIBO rate (the rate (but not less than zero) at which eurocurrency deposits in

 

65

the London interbank market for one, two, three or six months (as selected by the Borrowers (as defined in the Commitment Letter)) are quoted on the applicable Reuters screen, as adjusted for statutory reserve requirements for eurocurrency liabilities.

Under the ABL Credit Agreement, for any ABR revolving loans and Adjusted LIBO Rate revolving loans, the Applicable Margin will be based on the Company’s Total Leverage Ratio (as defined in the Commitment Letter), tested quarterly. The ABR margin for revolving loans is 0.25% to 0.75%. The margin for Adjusted LIBO Rate revolving loans is 1.25% to 1.75%.

Borrowings under the Term Loan Agreement shall bear interest at the Term Loan Alternate Base Rate (“Term Loan ABR”) or the Term Loan Adjusted LIBO Rate (as defined below) plus, in each case, the Applicable Margin (as defined in Exhibit C to the Commitment Letter). Term Loan ABR means the highest of (a) the prime rate of interest announced from time to time by JPMorgan or its parent, (b) the greater of (i) the federal funds effective rate and (ii) the overnight bank funding rate from time to time (but not less than zero) plus 0.5%, (c) the Term Loan Adjusted LIBO Rate for a one-month interest period on such day plus 1%, and 2% per annum. The Term Loan Adjusted LIBO Rate means the LIBO rate (the rate (but not less than 1%) at which eurocurrency deposits in the London interbank market for one, two, three or six months (as selected by the Company) are quoted on the applicable Reuters screen, as adjusted for statutory reserve requirements for eurocurrency liabilities). The Term Loan ABR margin for the term loans is 3.00%. For Term Loan Adjusted LIBO Rate term loans, the margin is 4.00%.

The obligations under the ABL Credit Agreement will be secured by liens on substantially all assets of the ABL Loan Parties (consisting of the Borrowers, the domestic subsidiary guarantors and the foreign subsidiary guarantors), subject to customary exceptions and materiality standards to be mutually agreed. The obligations under the Term Loan Credit Agreement will be secured by liens on substantially all assets of the Term Loan Parties (consisting of the Company and the material domestic subsidiaries of the Company), subject to customary exceptions and materiality standards to be mutually agreed. The liens securing the ABL Credit Financing will be first priority in the case of ABL Priority Collateral (as defined in Exhibit B to the Commitment Letter) and second priority in the case of Term Priority Collateral (as defined in Exhibit B to the Commitment Letter), while the liens securing the Term Loan Credit Financing will be first priority in the case of Term Priority Collateral and second priority in the case of ABL Priority Collateral (which, in the case of the Term Loan Credit Financing, shall be limited to assets of the Term Loan Parties) in each case, subject to a customary intercreditor agreement. Assets of any foreign entity constituting collateral securing the ABL Facility shall not secure the Term Loan Facility and shall not constitute Term Priority Collateral.

The documentation of the ABL Credit Financing will contain representations and warranties, affirmative and negative covenants, and events of default customary for financings of its type and substantially consistent with those set forth in the Existing Credit Agreement with certain exceptions. Negative covenants will include limitations on additional indebtedness, liens, acquisitions, investments and payment of dividends, among other things. Further, the ABL Credit Agreement will have a financial covenant requiring a minimum fixed charge coverage ratio of 1.10 to 1.00 to be triggered in the event that Availability (as defined in the Commitment Letter) is less than the greater of $15 million and 10% of the ABL commitments and to remain effective until Availability equals or exceeds such threshold for 45 consecutive days. Availability under the ABL Credit Agreement will be based on the Domestic Borrowing Base and Foreign Borrowing Base (each as defined in the Commitment Letter), composed of certain percentages of eligible accounts receivable and inventory. The ABL Credit Agreement will provide for springing cash dominion permitting JPMorgan, as administrative agent, to exercise full cash dominion over the ABL Loan Parties’ bank accounts (other than U.K. collection accounts and other accounts to be agreed) (a) when an event of default has occurred and is continuing or (b) commencing when Availability is less than the greater of $20 million and 15% of the ABL Commitments and continuing until Availability equals or exceeds the greater of $20 million and 15% of the ABL Commitments for 45 consecutive days. The ABL Credit Agreement will feature a post-closing uncommitted accordion of $50 million.

 

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The documentation of the Term Loan Credit Financing will contain representations and warranties, affirmative and negative covenants, and events of default customary for loan agreements in the institutional term loan B market for similarly sized term loan facilities. Pursuant to the Commitment Letter, there will be a customary “Available Amount” to create additional capacity under certain negative covenants to be agreed, which such amount shall include a “starter basket” of $15 million and a “builder basket” based on retained excess cash flow. There will be no financial maintenance covenants with respect to the Term Loan Credit Financing. The documentation of the Term Loan Credit Financing will require mandatory prepayments in amounts equal to, with agreed exceptions, the following (a) 100% of net cash proceeds of any debt incurrence by the Company or any domestic subsidiary after the Closing Date, (b) 100% of net cash proceeds of any sale or other disposition (with customary reinvestment rights) and (c) 50% of Excess Cash Flow (to be defined, but not less favorable to the Company than the definition in the Existing Credit Agreement) for each fiscal year of the Company commencing with the fiscal year ending December 31, 2019, subject to steps-downs to 25% and 0% based on Total Net Leverage Ratio (as defined in the Commitment Letter) levels described in the Commitment Letter. The Term Loan Credit Agreement will permit the Company to add one or more incremental term loan facilities to the Term Loan Facility in an amount not to exceed $50 million, plus an unlimited amount up to a Secured Net Leverage Ratio (as defined in the Commitment Letter) of no greater than 3.75 to 1.00 and satisfaction of other customary conditions, including that any such incremental facility within 12 months of the Closing Date will be subject to a 50 basis points “most favored nations” clause.

The availability and initial funding of the credit facilities are subject to the satisfaction (or waiver) of solely the conditions set forth in Exhibit D to the Commitment Letter, described below, subject to the Limited Conditionality Provision described below.

The Limited Conditionality Provision provides that (a) the only representations relating to the parties to the Merger Agreement and their respective subsidiaries and respective businesses the accuracy of which shall be a condition to availability of the credit facilities on the Closing Date shall be (i) such of the representations made regarding Taylor in the Merger Agreement as are material to the interests of the Lenders, but only to the extent that the accuracy of any such representation is a condition to the Company’s (or any of its affiliates’) obligations to close the Acquisition under the Merger Agreement or the Company (or any of its affiliates) has the right to terminate its (or any of its affiliates’) obligations under the Merger Agreement or decline to consummate the Acquisition as a result of a breach of such representations in the Merger Agreement (the “Merger Agreement Representations”) and (ii) the Specified Representations (as defined below), and (b) the terms of the Credit Documentation shall be in a form such that they do not impair the availability of the credit facilities upon the consummation of the Acquisition if the conditions set forth in this paragraph and in Exhibit D to the Commitment Letter (described below), are satisfied (or waived by the Commitment Parties) (it being understood that, to the extent any collateral (including the grant or perfection of any security interest) referred to in the Commitment Letter is not or cannot be provided upon the consummation of the Acquisition (other than the grant and perfection of security interests (i) in assets with respect to which a lien may be perfected solely by the filing of a financing statement under the Uniform Commercial Code (“UCC”), or (ii) in the equity interests, if any, of Taylor or the wholly owned material domestic subsidiaries of the Target (to the extent required by the Commitment Letter (provided that such equity securities will be required to be delivered upon the consummation of the Acquisition only to the extent received by the Company after commercially reasonable efforts)) with respect to which a lien may be perfected by the delivery of an equity certificate) after commercially reasonable efforts and without undue burden or expense, then the provision and perfection of such collateral shall not constitute a condition precedent to the availability and initial funding of the credit facilities upon the consummation of the Acquisition, but may instead be provided thereafter pursuant to arrangements to be mutually agreed by the Administrative Agent and the Company). For purposes hereof, “Specified Representations” means the representations and warranties referred to in the Commitment Letter relating to corporate or other organizational existence, organizational power and authority of the Company and the guarantors to enter into and perform the Credit Documentation, due authorization, execution and delivery by the Company and the guarantors of, performance of, and enforceability against the Company and the guarantors of, the Credit Documentation, effectiveness, validity and perfection of first priority (subject to permitted liens) liens

 

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under the security documents (subject to the limitations set forth in the preceding sentence), no conflicts of the Credit Documentation with the organizational documents of the Company and the guarantors, use of proceeds not violating margin regulations, anti-corruption laws, sanctions and The PATRIOT Act, Investment Company Act, solvency as of the Closing Date (after giving effect to the Acquisition and the financing in connection therewith) of the Company and its subsidiaries on a consolidated basis (solvency to be defined in a manner consistent with the manner in which solvency is determined in the solvency certificate to be delivered pursuant to clause (1) of Exhibit D, as described below) Federal Reserve margin regulations and anti-corruption laws and sanctions.

The conditions to closing set forth in Exhibit D to the Commitment Letter consist of the following: (1) execution and delivery of the Credit Documentation, (2) repayment of all indebtedness to be repaid prior to the consummation of the Acquisition, release of liens, other than permitted liens and, after the Acquisition, no remaining indebtedness of the Company or any of its subsidiaries other than as agreed upon, (3) consummation of the Acquisition without amendment, waiver, consent or request under the Merger Agreement in any way that is materially adverse to the Lenders in their capacities as such, (4) the closing and effectiveness of, and initial funding under, the credit facilities occurring on or before the earlier to occur of (A) 5:00 p.m., New York City time, on June 20, 2018 and (B) the closing of the Acquisition with or without the credit facilities, (5) receipt by the Commitment Parties of certain historical financial statements of Taylor and its subsidiaries, including Taylor Precision Products, Inc., (6) receipt by the Commitment Parties of certain pro forma financial statements of the Company and its subsidiaries, prepared after giving effect to the Transactions including the Acquisition as if the Acquisition had occurred as of such date (in the case of such balance sheet) or at the beginning of such period (in the case of such statement of income), (7) (a) each of the Merger Agreement Representations being true and correct in all material respects (and in all respects if qualified by material adverse effect or other materiality qualifier); and (b) each of the Specified Representations being true and correct in all material respects (and in all respects if qualified by material adverse effect or other materiality qualifier), (8) receipt by the Administrative Agents, within specified time periods, of requested documentation and other information under applicable “know your customer” and anti-money laundering rules and regulations, (9) payment of certain fees and expenses due and payable to the Commitment Parties and the Lenders and required to be paid on or prior to the Closing Date, (10) all actions necessary to establish that the applicable Administrative Agent will have a perfected security interest (subject to liens permitted under the Credit Documentation) in the Collateral having been taken, subject to the Limited Conditionality Provision described above, (11) the Lead Arrangers (a) having have received the items described in clauses 5 and 6 in this paragraph (collectively, the “Required Information”) and (b) having been afforded a period of 15 consecutive business days from the date of receipt of the Required Information to syndicate the credit facilities, which period shall not commence prior to January 3, 2018 and shall exclude certain agreed upon dates, (12) since the date of the Merger Agreement, there shall not have been, individually or in the aggregate, a Material Adverse Effect, as defined in the Merger Agreement, and (13) solely with respect to the ABL Facility, the ABL Administrative Agent shall have received a Borrowing Base certificate prepared as of a specified date prior to consummation of the Acquisition.

Board of Directors and Management of the Company Following the Acquisition; Stockholders Agreement

Following the consummation of the Acquisition, the Company’s Board of Directors will be expanded to 13 directors, 10 of whom initially will be the current members of our Board of Directors, one of whom is expected to be Robert B. Kay, the Chief Executive Officer of Taylor who is expected to become our Chief Executive Officer and two of whom are expected to be Bruce Pollack and Michael Schnabel. In connection with the consummation of the Acquisition, the Company and Taylor Parent will enter into a Stockholders Agreement pursuant to which:

 

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For so long as Taylor Parent beneficially owns at least 20% of the outstanding common stock on a Future Fully Diluted Basis, up to two persons designated by Taylor Parent will be nominated for election to the Board of Directors at each meeting of stockholders at which members of our Board of Directors are elected;

 

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•

For so long as Taylor Parent beneficially owns less than 20%, but greater than 10% of the outstanding common stock on a Future Fully Diluted Basis, one person designated by Taylor Parent will be nominated for election to the Board of Directors at each meeting of stockholders at which members of our Board of Directors are elected;

 

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If Taylor Parent beneficially owns less than 10% of the outstanding common stock on a Future Fully Diluted Basis, then Taylor Parent shall have no right to designate anyone for election to the Board of Directors;

 

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Taylor Parent will agree not to nominate any person for election to our Board of Directors other than in accordance with the right to designate directors for nomination described above; and

 

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Taylor Parent will agree not to initiate, propose or otherwise solicit, or participate in the solicitation of stockholders for the approval of, any stockholder proposals with respect to the Company.

Jeffrey Siegel will continue to serve the Company in a new role as the Company’s Executive Chairman of the Board. Ronald Shiftan will continue to serve as the Company’s Vice Chairman of the Board and Chief Operating Officer.

For purposes of the Stockholders Agreement, “Future Fully Diluted Basis” means, as of the time of determination, the sum of (a) the number of registered and unregistered shares of common stock of the Company issued and outstanding (excluding any unvested restricted shares of Common Stock), plus (b) the number of shares of common stock of the Company issuable upon the exercise of all vested and unvested in-the-money stock options of the Company (calculated using the treasury stock method, based on the average of the closing stock price of shares of Common Stock of the last 20 trading days prior to the date of determination, weighted for volume), plus (c) the number of shares of unvested restricted common stock of the Company that will vest within 12 months of the applicable date of determination pursuant to the terms of the agreements in which such shares were granted.

The Stockholders Agreement will also provide that, for so long as Taylor Parent continues to beneficially own at least 50% of the Acquisition Shares, neither the Company nor any of its subsidiaries may take any of the following actions without the approval of the directors designated by Taylor Parent, such approval not to be unreasonably withheld:

 

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Enter into any agreement for a transaction that would result in a change of control of the Company;

 

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Consummate any transaction for the sale of all or substantially all of the Company’s assets;

 

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File for reorganization pursuant to Chapter 11, or for liquidation pursuant to Chapter 7, of the U.S. Bankruptcy Code;

 

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Liquidate or dissolve the business and affairs of the Company;

 

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Take any Board of Directors actions to seek an amendment to the Company Certificate of Incorporation or approve, or recommend that the Company’s stockholders approve, an amendment to our Amended and Restated Bylaws, except as required by DE Law (as defined in the Merger Agreement) or other applicable law and other than amendments that would not materially and disproportionately affect Taylor Parent;

 

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Incur additional debt in excess of $100 million in the aggregate, subject to certain exceptions;

 

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Acquire or dispose of assets or a business, in each case with an individual value in excess of $100 million;

 

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Terminate the employment of the Chief Executive Officer, other than for cause (in which case the Company shall consult in good faith with Taylor Parent on a replacement Chief Executive Officer); and

 

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•

Adopt a stockholder rights plan that does not exempt as “grandfathered persons” the stockholders party to the Stockholders Agreement and their affiliates from being deemed “acquiring persons” due to their beneficial ownership of the common stock of the Company upon the public announcement of adoption of such stockholder rights plan (it being understood that no such plan shall restrict any stockholder party to the Stockholders Agreement or its affiliates from acquiring, in the aggregate, common stock up to the level of their aggregate percentage beneficial ownership as of the public announcement of the adoption of such stockholder rights plan).

Director Designees

Robert B. Kay , age 55, is expected to become the Chief Executive Officer and a director of the Company upon the consummation of the Acquisition. Mr. Kay has served as the Chairman and Chief Executive Officer of Taylor since June 2012. Mr. Kay began his career at Deloitte & Touche where he spent six years as a management consultant. From 1993 until 1998, he served as the Senior Vice President and Chief Financial Officer of Oxford Resources Corp., a NASDAQ listed consumer finance company. From 1999 to 2005, Mr Kay was President and Chief Executive Officer of Key Components, Inc., a diversified industrial company. In 2006, Mr Kay joined Kaz, Inc. as Executive Chairman until the company was sold to a publicly traded strategic buyer in 2010. Mr. Kay has been a member of the operating partner network of Centre Partners Management, LLC, which, through its affiliates, beneficially owns a majority of the capital stock of Taylor Parent, since 2005. Mr. Kay also serves on the board of Nearly Natural, LLC. Mr. Kay received a B.S. from Cornell University and a Master’s Degree from Columbia University.

Bruce Pollack , age 58, is expected to become a member of our Board of Directors upon the consummation of the Acquisition. Mr. Pollack joined Centre Partners Management, LLC in 1991 and serves as a Managing Partner. Mr. Pollack began his career in the investment banking division of Becker Paribas Incorporated and Merrill Lynch Capital Markets. Mr. Pollack currently serves as a Director of Taylor Precision Products, Inc., K2 Pure Solutions, L.P., Sun Orchard, Inc., Nearly Natural, LLC and U.S. Retirement & Benefits Partners, Inc., each a portfolio company of Centre Partners Management, LLC. Mr. Pollack previously served on the Boards of a number of companies including Captain D’s, LLC, Bellisio Foods, Inc., Bumble Bee Foods, L.P., the Connors Bros. Income Fund, Distant Lands Trading Co., Inc., Garden Fresh Holdings, Inc., The Johnny Rockets Group, Inc., KIK Corporation Holdings, Inc., Muzak L.P., Salton, Inc., Ross Aviation, LLC and several other private companies. He is on the Board of Governors of the Weizmann Institute of Science and serves as a Trustee at Brandeis University. Mr. Pollack received a B.A. from Brandeis University.

Michael Schnabel , age 40, is expected to become a member of our Board of Directors upon the consummation of the Acquisition. Mr. Schnabel joined Centre Partners Management, LLC in 2002 and serves as a Managing Director. Prior to joining Centre, he served as Director of Finance at OmniSky Corporation after having worked in Donaldson, Lufkin & Jenrette Securities Corp.’s investment banking department. Mr. Schnabel is currently a Director of Covenant Care, LLC, Taylor Precision Products, Inc., Nearly Natural, LLC and Sun Orchard, Inc., each a portfolio company of Centre Partners Management, LLC. He previously served on the Boards of ActionEmco Acquisition, LLC, Bellisio Foods, Inc., Captain D’s, LLC, Group Dekko Holdings, Inc. and Uno Restaurant Holdings Corp. Mr. Schnabel received a B.S. from Duke University.

Kay Employment Agreement

In connection with the execution of the Merger Agreement, Robert B. Kay, the current Chief Executive Officer of Taylor, agreed to enter into, effective as of and conditioned upon the consummation of the Acquisition, an employment agreement with the Company (the “Kay Employment Agreement”). Under the Kay Employment Agreement, Mr. Kay agrees to be employed by us as our Chief Executive Officer. Mr. Kay shall be appointed to the Board of Directors as of the consummation of the Acquisition. With respect to each applicable

 

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election thereafter during the term of the Kay Employment Agreement, the Company’s Nominating and Governance Committee shall nominate Mr. Kay for re-election to the Board of Directors.

The term of Mr. Kay’s employment, under the Kay Employment Agreement, will begin on the consummation of the Acquisition and will continue through the third anniversary of the consummation of the Acquisition, with automatic renewals for additional one-year periods unless his employment is terminated by either us or Mr. Kay. The Kay Employment Agreement provides for an annual base salary of $800,000.

Under the Kay Employment Agreement, the Company will pay Mr. Kay an automobile allowance of up to $1,500 per month.

For each year during the term of Mr. Kay’s employment, Mr. Kay will receive performance bonuses (i) based on the Company’s Adjusted Income Before Income Taxes for such year (the “Annual Adjusted IBIT Performance Bonus”), with a target of 87.5% of Mr. Kay’s base salary, and (ii) based on Mr. Kay having met certain individual performance goals for such year (the “Individual Goal Target Bonus”), with a target of 25% of Mr. Kay’s base salary. In the event that the consummation of the Acquisition occurs after April 1, 2018, any Annual Adjusted IBIT Performance Bonus and any Annual Individual Goal Bonus payable to Mr. Kay for 2018 shall be pro-rated, based on his period of employment by the Company during 2018.

The Company shall grant to Mr. Kay, as soon as practicable following the consummation of the Acquisition:

(i) 50,000 restricted shares pursuant to the LTIP. The restrictions on these 50,000 restricted shares terminate on each of the first, second, and third anniversaries of the consummation of the Acquisition, subject to the terms and conditions of the LTIP; and

(ii) 50,000 performance-based deferred stock units pursuant to the LTIP, subject to the terms and conditions established by the Compensation Committee of our Board and the terms and conditions of the LTIP. The performance goals and other vesting terms applicable to these 50,000 performance-based deferred stock units shall be no less favorable than those granted to other named executive officers in respect of the performance period commencing in 2018.

(iii) an option to purchase 150,000 shares of the Company’s common stock pursuant to the LTIP. The option will be exercisable at the closing price of the common stock on the date of grant (which shall be within three business days following the consummation of the Acquisition). The option shall vest as to 50,000 shares on each of the first, second, and third anniversaries of the consummation of the Acquisition, subject to the terms and conditions of the LTIP. These options shall be granted as incentive stock options, to the maximum extent permitted by the Internal Revenue Code, and any options which are not granted as incentive stock options shall be granted as nonqualified stock options.

The restricted shares and options are subject to earlier vesting, as provided in the Kay Employment Agreement.

The Kay Employment Agreement further provides for payments to Mr. Kay upon the termination of his employment. If Mr. Kay’s employment is terminated during the term of his employment agreement for any reason, we shall pay Mr. Kay the following amounts (collectively, “Kay Accrued Obligations”):

 

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His base salary for the period accrued up to and including the date of termination of his employment;

 

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An amount in lieu of any accrued but unused vacation time;

 

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The amount of any unreimbursed expenses; and

 

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All benefits that are accrued and vested through the date of termination under all employee benefit plans of the Company.

 

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If Mr. Kay’s employment is terminated by reason of Mr. Kay’s death, then Mr. Kay’s estate shall receive payment of the Kay Accrued Obligations plus any Pro-Rated Performance Bonus (defined as follows) accrued through the effective date of his termination of employment to which Mr. Kay may be entitled. The “Pro-Rated Performance Bonus” for a particular fiscal year is the amount equal to the Annual Adjusted IBIT Performance Bonus for the fiscal year that would have been payable to Mr. Kay by the Company, as determined by the Board, if the agreement had not been terminated during the year, pro-rated for the months during the year preceding the termination.

In the event that Mr. Kay’s employment is terminated due to total disability, in addition to the Kay Accrued Obligations, Mr. Kay shall receive an amount equal to his base salary for a period of six months from the date of termination plus any Pro-Rated Performance Bonus (as defined above) accrued through the effective date of his termination of employment to which Mr. Kay may be entitled.

Upon any termination of Mr. Kay’s employment either (i) voluntarily by Mr. Kay (other than for good reason, as defined in the Kay Employment Agreement) or (ii) by us for cause (as defined in the Kay Employment Agreement), all payments, salary and other benefits thereunder shall cease at the date of termination, with the exception of the Kay Accrued Obligations.

In the event that (i) Mr. Kay’s employment is terminated by us without cause, (ii) his employment agreement is terminated by Mr. Kay for good reason or (iii) we choose not to renew the term of the Kay Employment Agreement, in each case outside of the context of a Change of Control, as defined below, then the following conditions shall apply. If Mr. Kay’s employment is terminated by us without cause or by Mr. Kay for good reason, then Mr. Kay shall be entitled to receive, conditioned (except with respect to the Kay Accrued Obligations) upon his execution and non-revocation of a release of all claims against the Company:

 

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The Kay Accrued Obligations;

 

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Reimbursement for certain medical and dental benefits set forth in the Kay Employment Agreement for a period of 12 months;

 

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2.0 times Mr. Kay’s base salary as in effect at the date of termination payable over a period of 24 months from the date of termination;

 

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The Pro-Rated Performance Bonus (as defined above) for the fiscal year in which the effective date of the termination occurs, payable at the same time as the performance bonus for such fiscal year would otherwise have been paid; and

 

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2.0 times an amount equal to 112.5% of Mr. Kay’s annual base salary in effect at the time of termination (such amount, the “Target Bonus”).

Mr. Kay’s then-outstanding stock options shall immediately vest and become exercisable in their entirety and all restrictions on shares of restricted stock granted by us to Mr. Kay on which any restrictions shall not have terminated shall immediately terminate, subject to the terms of the LTIP.

If Mr. Kay’s employment is terminated by reason of our failure to renew the term of his employment under his employment agreement, Mr. Kay shall be entitled to receive, conditioned (except with respect to the Kay Accrued Obligations) upon his execution and non-revocation of a release of all claims against the Company, as severance, an amount equal to:

 

•

The Kay Accrued Obligations;

 

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Reimbursement for certain medical and dental benefits set forth in the Kay Employment Agreement for a period of 12 months;

 

•

1.0 times Mr. Kay’s base salary as in effect at the date of termination payable over a period of 12 months from the date of expiration of the initial term or any renewal term of his employment, as applicable; and

 

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•

The Annual Adjusted IBIT Performance Bonus for the fiscal year in which the effective date of the expiration occurs, payable at the same time as the Annual Adjusted IBIT Performance Bonus for such fiscal year would otherwise have been paid.

Mr. Kay’s then-outstanding stock options shall immediately vest and become exercisable in their entirety and all restrictions on shares of restricted stock granted by us to Mr. Kay on which any restrictions shall not have terminated shall immediately terminate, subject to the terms of the LTIP.

In the event that Mr. Kay’s employment is terminated by Mr. Kay for good reason or by us without cause or upon expiration of the term following our delivery of a notice of non-renewal, in each case upon or within two years following a Change of Control, Mr. Kay shall be entitled to receive, conditioned (except with respect to the Kay Accrued Obligations) upon his execution and non-revocation of a release of all claims against the Company:

 

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The Kay Accrued Obligations;

 

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A cash payment equal to 2.0 times his annual base salary in effect at the effective date of the Change of Control, or if greater, 2.0 times his annual base salary in effect as of his termination of employment;

 

•

The Pro-Rated Performance Bonus (as defined above) for the fiscal year in which the effective date of the termination occurs, payable at the same time as the Annual Adjusted IBIT Performance Bonus for such fiscal year would otherwise have been paid;

 

•

2.0 times the Target Bonus (as defined above), using the greater of Mr. Kay’s base salary in effect at the time of termination and base salary in effect at the time of the Change of Control; and

 

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Reimbursement for certain medical and dental benefits set forth in his employment agreement for a period of 12 months.

All of Mr. Kay’s then-outstanding stock options shall vest and become immediately exercisable and all restrictions on shares of restricted stock granted by us to Mr. Kay on which any restrictions shall not have terminated shall immediately terminate, subject to the terms of the LTIP.

In the event that Mr. Kay’s employment is terminated by Mr. Kay for good reason or by us without cause or upon expiration of the term following our delivery of a notice of non-renewal, and in each case, within 90 days following such termination, a Change of Control occurs, then Mr. Kay shall be entitled to receive a payment equal to the excess of the base salary severance payments that would have been due to him had he been terminated within two years following a Change of Control, less the amount of base salary severance payments already paid to him. Additionally, in the event that termination is on account of our delivery of a notice of non-renewal, Mr. Kay shall be entitled to receive two times his Target Bonus (as defined above), payable within 60 days following the change of control.

If all or any portion of the payments and benefits would constitute a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code (or a similar or successor provision), we shall reduce such payments to the extent necessary so that (i) no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code (or a similar or successor provision) and (ii) by reason of such reduction, the net after-tax benefit to Mr. Kay shall exceed the net after-tax benefit to him if such reduction were not made. In addition, if we request that Taylor Parent submit any payments and benefits to Mr. Kay under the Kay Employment Agreement to a vote of stockholders of Taylor Parent or an applicable affiliate in order to avoid such payments and benefits being treated as “parachute payments” under Section 280G of the Internal Revenue Code (or a similar or successor provision), and applicable stockholder approval is not obtained, then Mr. Kay’s rights to such payments or benefits will be reduced or eliminated to the extent necessary to avoid any portion of such payments or benefits being treated as parachute payments.

If Mr. Kay prevails in any legal action to enforce rights under the Kay Employment Agreement, the Company will reimburse Mr. Kay for reasonable attorneys’ fees and costs.

 

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Additional terms included in the Kay Employment Agreement are: (i) a form of release of claims to be executed by Mr. Kay in order to receive any severance payments and benefits under the Kay Employment Agreement, (ii) reimbursement on a one-time basis of up to $10,000 for reasonable legal fees incurred by Mr. Kay in connection with the preparation, negotiation and execution of the Kay Employment Agreement and ancillary documents, (iii) reimbursement to Mr. Kay of up to a total of $35,000 during any calendar year for legal, financial, investment, tax advice and/or estate planning services, and (iv) non-competition and non-solicitation restrictions which apply during the employment term and for a period of one year (for the non-competition restrictions) and two years (for the non-solicitation restrictions) following termination of employment.

“Change of Control” under the Kay Employment Agreement means (A) the consummation of a merger or consolidation of the Company, with or into another entity or any other corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving entity’s issued shares or securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not shareholders of the Company 180 days prior to such merger, consolidation or other reorganization; (B) the sale, transfer or other disposition of all or substantially all of the Company’s assets; (C) a change in the composition of the Board of Directors, as a result of which fewer than 50% of the incumbent directors are directors who had been directors of the Company on the date 24 months prior to the date of the event that may constitute a Change of Control; or (D) any transaction as a result of which any person is the “beneficial owner” (as defined in Rule 13-d-3 under Exchange Act), directly or indirectly, of securities of the Company representing at least 50% of the total voting power represented by the Company’s then outstanding voting securities. The term “person” shall have the same meaning as when used in Sections 13(d) and 14(d) of the Exchange Act but shall exclude (i) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or of any subsidiary of the Company and (ii) a company owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the ordinary shares of the Company. The transactions contemplated by the Acquisition are expressly excluded from the definition of Change of Control under the Kay Employment Agreement.

Employment, Severance and Change of Control Agreements

The following discussion describes the different contractual arrangements and other rights of our named executive officers that could be triggered in connection with a Change of Control, as defined in their respective employment agreements and described below, and, with respect to double trigger arrangements, in the event that a termination of the executive’s employment were to occur in connection with a Change of Control. The transactions contemplated by the Acquisition are not expected to constitute a Change of Control for purposes of the J. Siegel Employment Agreement, the Shiftan Employment Agreement, the D. Siegel Employment Agreement and the Winoker Employment Agreement, as defined below.

Jeffrey Siegel . During 2017, Jeffrey Siegel was employed by us as Chairman of our Board, Chief Executive Officer and a director pursuant to an employment agreement dated as of March 12, 2014, as amended and restated as of January 12, 2017, and as amended as of November 8, 2017 (the “J. Siegel Employment Agreement”). The J. Siegel Employment Agreement, extended the term of Mr. J. Siegel’s employment through December 31, 2019, with automatic renewals for two additional one-year periods unless his employment is terminated by either us or Mr. J. Siegel, and provides for an annual base salary of $990,000. The J. Siegel Employment Agreement further provides for payments to Mr. J. Siegel upon the termination of his employment. If Mr. J. Siegel’s employment is terminated by us for cause or if Mr. J. Siegel resigns other than for good reason (each as defined in the J. Siegel Employment Agreement), Mr. J. Siegel shall be entitled to be paid the following amounts (collectively, the “J. Siegel Accrued Obligations”):

 

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His salary accrued up to and including the date of termination or resignation of his employment;

 

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An amount in lieu of any accrued but unused vacation time; and

 

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The amount of any unreimbursed expenses.

 

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In addition, Mr. J. Siegel shall be entitled to exercise any then-outstanding stock options granted to Mr. J. Siegel that shall have vested on or prior to such termination or resignation of employment.

If Mr. J. Siegel’s employment is terminated (i) by us for any reason other than cause, (ii) by Mr. J. Siegel for good reason (in the case of (i) or (ii), other than in connection with a Change of Control, as defined below and each as defined in such J. Siegel Employment Agreement), (iii) by us or Mr. J. Siegel due to Mr. J. Siegel’s disability or (iv) by reason of Mr. J. Siegel’s death (collectively, a “J. Siegel Involuntary Termination”), Mr. J. Siegel shall be entitled to payment of the J. Siegel Accrued Obligations as well as the following severance payments (“J. Siegel Severance Payments”), conditioned (except in the case of death) upon his execution and non-revocation of a release of all claims against the Company:

 

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3.0 times his salary;

 

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3.0 times his annual target bonus in effect for the year in which the termination occurs; and

 

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If termination occurs on or prior to June 30 of any year, a pro-rated amount of Mr. J. Siegel’s “Annual Adjusted IBIT Performance Bonus” for the year in which such J. Siegel Involuntary Termination occurs accrued to the date of termination and if termination occurs on or following July 1 of any year, the Annual Adjusted IBIT Performance Bonus for the year in which such J. Siegel Involuntary Termination occurs, accrued to the date of termination (without pro-ration).

In addition, Mr. J. Siegel shall continue to participate, at our expense, in our health and medical plans and in any other benefits provided by us to Mr. J. Siegel at the time of such J. Siegel Involuntary Termination until the end of the term of his employment under his J. Siegel Employment Agreement or until Mr. J. Siegel obtains other employment, whichever occurs first. In addition, in the event of a J. Siegel Involuntary Termination, all of Mr. J. Siegel’s then outstanding stock options shall be immediately vested and exercisable and the restrictions on his restricted stock shall immediately terminate, to the extent permitted under the LTIP.

No J. Siegel Severance Payments shall be payable if Mr. Siegel’s employment with us ends at the expiration or non-renewal of the term of his employment under his J. Siegel Employment Agreement.

If, during the term of his employment, we undergo a Change of Control and either (i) Mr. J. Siegel’s employment is, within two years thereafter, terminated under circumstances that would constitute a J. Siegel Involuntary Termination or Mr. J. Siegel’s employment is terminated upon expiration of the term following a notice of non-renewal provided by us, or (ii) Mr. J. Siegel undergoes a J. Siegel Involuntary Termination or Mr. J. Siegel’s employment is terminated upon expiration of the term following a notice of non-renewal provided by us and within 90 days of the J. Siegel Involuntary Termination or such expiration of the term we execute a definitive agreement to enter into a transaction the consummation of which would result in a Change of Control and such transaction is actually consummated, then Mr. J. Siegel shall be entitled to all payments and benefits as described above with respect to a J. Siegel Involuntary Termination, calculated using the annual target bonus for the year in which the Change of Control occurs, and using the greater of Mr. J. Siegel’s base salary in effect at the time of termination and base salary in effect at the time of the Change of Control. These payments and benefits, other than the J. Siegel Accrued Obligations, are conditioned upon his execution and non-revocation of a release of all claims against the Company. All of Mr. J. Siegel’s then-outstanding stock options shall be immediately vested and exercisable and all restrictions on his restricted stock shall immediately terminate, to the extent permitted under the LTIP. If all or any portion of the payments and benefits would constitute a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code (or a similar or successor provision), we shall reduce such payments to the extent necessary so that (i) no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code (or a similar or successor provision); and (ii) by reason of such reduction, the net after-tax benefit to Mr. J. Siegel shall exceed the net after-tax benefit to him if such reduction were not made.

In the event of Mr. J. Siegel’s disability, either we or Mr. J. Siegel shall be entitled to terminate Mr. J. Siegel’s employment. In the event that Mr. J. Siegel elects to terminate his employment due to disability, such

 

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termination shall be deemed to be a J. Siegel Involuntary Termination and, in such circumstance, or if we terminate Mr. J. Siegel’s employment, Mr. J. Siegel shall be entitled to payment of the J. Siegel Accrued Obligations, the J. Siegel Severance Payments and any disability benefits that are provided under the terms of any pension, medical, disability and life insurance plan applicable to our senior executives, applicable to Mr. Siegel at the time of his disability.

In the event of Mr. J. Siegel’s death, the J. Siegel Accrued Obligations and the J. Siegel Severance Payments shall be paid to Mr. J. Siegel’s beneficiary. Mr. J. Siegel’s beneficiary shall also be entitled to any death benefits that are provided under the terms of any pension, medical, disability and life insurance plan applicable to our senior executives, applicable to Mr. J. Siegel at the time of death.

If Mr. J. Siegel’s employment is terminated by reason of the expiration of the term of his employment under his J. Siegel Employment Agreement other than in connection with a Change of Control as described above, Mr. J. Siegel shall be entitled to payment of the J. Siegel Accrued Obligations. In addition, in such event, we shall pay Mr. J. Siegel as severance, conditioned upon his execution and non-revocation of a release of all claims against the Company, an amount equal to:

 

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2.0 times his salary; and

 

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2.0 times the average of the sum of the Annual Adjusted IBIT Performance Bonus and the Annual Individual Goal Bonus paid by us to Mr. J. Siegel, with respect to the year ending on the date on which Mr. J. Siegel’s employment is terminated by reason of the expiration of the term and each of the two immediately preceding years.

In addition, all of Mr. J. Siegel’s then-outstanding stock options shall be immediately vested and exercisable and the restrictions on his restricted stock shall immediately terminate.

Notwithstanding the termination of Mr. J. Siegel’s employment (other than for cause or by reason of his death) we shall continue to provide reimbursement for the premiums on the life insurance policies on the life of Mr. J. Siegel to which he is entitled pursuant to his employment agreement immediately prior to such termination. If Mr. J. Siegel’s employment is terminated for any reason other than by reason of his death, Mr. J. Siegel will have the right to assume the life insurance policy in his name owned by the Company.

Ronald Shiftan . During 2017, Ronald Shiftan was employed by us as our Vice Chairman and Chief Operating Officer pursuant to an employment agreement dated August 10, 2009, as amended as of November 9, 2010, as amended and restated as of December 20, 2012, as amended and restated as of November 24, 2015, and as amended as of November 8, 2017 (the “Shiftan Employment Agreement”). The Shiftan Employment Agreement provides that the term of Mr. Shiftan’s employment extends through December 31, 2018, with automatic renewals for additional one-year periods unless his employment is terminated by either us or Mr. Shiftan, and provides for an annual base salary of $650,000. The Shiftan Employment Agreement further provides for payments to Mr. Shiftan upon the termination of his employment. If Mr. Shiftan’s employment is terminated by us for cause or if Mr. Shiftan resigns other than for good reason (each as defined in the Shiftan Employment Agreement), Mr. Shiftan shall be entitled to be paid the following amounts (collectively, the “Shiftan Accrued Obligations”):

 

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His salary accrued up to and including the date of termination or resignation of his employment;

 

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An amount in lieu of any accrued but unused vacation time; and

 

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The amount of any unreimbursed expenses.

Notwithstanding anything to the contrary in his employment agreement, Mr. Shiftan shall be entitled to exercise any then-outstanding stock options granted to Mr. Shiftan that shall have vested on or prior to such termination or resignation of employment.

If Mr. Shiftan’s employment is terminated (i) by us for any reason other than cause (as defined in the Shiftan Employment Agreement), (ii) by Mr. Shiftan for good reason (as defined in the Shiftan Employment

 

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Agreement), (iii) by us or Mr. Shiftan due to Mr. Shiftan’s disability or (iv) by reason of Mr. Shiftan’s death (such a resignation or termination being hereinafter referred to as an “Shiftan Involuntary Termination”), Mr. Shiftan shall be entitled to payment of the Shiftan Accrued Obligations as well as the following amounts (the “Shiftan Severance Payments”), conditioned (except in the case of death) upon his execution and non-revocation of a release of all claims against the Company:

 

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3.0 times his salary;

 

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3.0 times his annual target bonus in effect for the year in which the termination occurs; and

 

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The Annual Adjusted IBIT Performance Bonus accrued to the date of termination.

In addition, Mr. Shiftan shall continue to participate, at our expense, in our health and medical plans and in any other benefits provided by us to Mr. Shiftan at the time of such Shiftan Involuntary Termination until the end of the term of his employment under his Shiftan Employment Agreement or until Mr. Shiftan obtains other employment, whichever occurs first. Furthermore, in the event of a Shiftan Involuntary Termination, all of Mr. Shiftan’s then-outstanding stock options shall be immediately vested and exercisable and all restrictions on Mr. Shiftan’s restricted shares shall immediately terminate, to the extent permitted under the LTIP.

If, during the term of Mr. Shiftan’s employment we undergo a Change of Control and either (i) Mr. Shiftan’s employment is within two years thereafter terminated under circumstances that would constitute a Shiftan Involuntary Termination or Mr. Shiftan’s employment is terminated upon expiration of the term following a notice of non-renewal provided by us, or (ii) Mr. Shiftan undergoes a Shiftan Involuntary Termination or Mr. Shiftan’s employment is terminated upon expiration of the term following a notice of non-renewal provided by us and within 90 days of the Shiftan Involuntary Termination or such expiration of the term we execute a definitive agreement to enter into a transaction the consummation of which would result in a Change of Control and such transaction is actually consummated, then Mr. Shiftan shall be entitled to all payments, benefits and stock-based compensation as outlined under the Shiftan Involuntary Termination section above, calculated using the annual target bonus for the year in which the Change of Control occurs, and using the greater of Mr. Shiftan’s base salary in effect at the time of termination and Mr. Shiftan’s base salary in effect at the time of the Change of Control. These payments and benefits, other than the Shiftan Accrued Obligations, are conditioned upon Mr. Shiftan’s execution and non-revocation of a release of all claims against the Company. If all or any portion of the payments and benefits would constitute a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code (or a similar or successor provision), we shall reduce such payments to the extent necessary so that (i) no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code (or a similar or successor provision) and (ii) by reason of such reduction, the net after-tax benefit to Mr. Shiftan shall exceed the net after-tax benefit if such reduction were not made.

In the event of Mr. Shiftan’s disability, either we or Mr. Shiftan shall be entitled to terminate Mr. Shiftan’s employment. In the event that Mr. Shiftan elects to terminate his employment due to disability, such termination shall be deemed to be a Shiftan Involuntary Termination and, in such circumstance, or if we terminate Mr. Shiftan’s employment, Mr. Shiftan shall be entitled to payment of the Shiftan Accrued Obligations, the Shiftan Severance Payments and any disability benefits that are provided under the terms of any pension, medical, disability and life insurance plan applicable to our senior executives, applicable to Mr. Shiftan at the time of his disability.

In the event of Mr. Shiftan’s death, the Shiftan Accrued Obligations and the Shiftan Severance Payments shall be paid to Mr. Shiftan’s beneficiary. Mr. Shiftan’s beneficiary shall also be entitled to any death benefits that are provided under the terms of any pension, medical, disability and life insurance plan applicable to our senior executives, applicable to Mr. Shiftan at the time of death.

If Mr. Shiftan’s employment is terminated by reason of the expiration of the term of his employment under his Shiftan Employment Agreement other than in connection with a Change of Control as described above,

 

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Mr. Shiftan is entitled to payment of the Shiftan Accrued Obligations. In addition, in such event, we shall pay Mr. Shiftan as severance, conditioned upon his execution and non-revocation of a release of all claims against the Company, an amount equal to:

 

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1.0 times his salary; and

 

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The average of the sum of the Annual Adjusted IBIT Performance Bonus and the Annual Individual Goal Bonus paid by us to Mr. Shiftan, with respect to the year ending on the date on which Mr. Shiftan’s employment is terminated by reason of the expiration of the term and each of the two immediately preceding years.

In addition, all of Mr. Shiftan’s then-outstanding stock options shall be immediately vested and exercisable and all restrictions on Mr. Shiftan’s restricted shares shall immediately terminate, to the extent permitted under the LTIP.

If Mr. Shiftan’s employment is terminated for any reason other than by reason of his death, Mr. Shiftan will have the right to assume the life insurance policy in his name owned by the Company.

Daniel Siegel . During 2017, Daniel Siegel was employed by us as our President pursuant to an employment agreement dated November 28, 2014, effective as of August 1, 2014, and as amended as of April 27, 2015. Mr. D. Siegel entered into a new agreement, dated as of November 8, 2017, effective as of January 1, 2018 (the “D. Siegel Employment Agreement”). The D. Siegel Employment Agreement provides that the term of Mr. D. Siegel’s employment shall be through December 31, 2020, with automatic renewals for additional one-year periods unless his employment is terminated by either us or Mr. D. Siegel, and provides for an annual base salary of $512,500 for the period through June 30, 2019 and a base salary of $550,000 for the period after July 1, 2019. The D. Siegel Employment Agreement further provides for payments to Mr. D. Siegel upon the termination of his employment. If Mr. D. Siegel’s employment is terminated during the term of his D. Siegel Employment Agreement for any reason, we shall pay Mr. D. Siegel the following amounts (collectively, “D. Siegel Accrued Obligations”):

 

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His base salary for the period accrued up to and including the date of termination of his employment;

 

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An amount in lieu of any accrued but unused vacation time;

 

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The amount of any unreimbursed expenses; and

 

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All benefits that are accrued and vested through the date of termination under all employee benefit plans of the Company.

If Mr. D. Siegel’s employment is terminated by reason of Mr. D. Siegel’s death, then Mr. D. Siegel’s estate shall receive payment of the D. Siegel Accrued Obligations plus any Pro-Rated Performance Bonus accrued through the effective date of his termination of employment to which Mr. D. Siegel may be entitled. The Pro-Rated Performance Bonus for a particular fiscal year is the amount equal to the Annual Adjusted IBIT Performance Bonus for the fiscal year that would have been payable to Mr. D. Siegel by the Company, as determined by the Board, if the agreement had not been terminated during the year, pro-rated for the months during the year preceding the termination.

In the event that Mr. D. Siegel’s employment is terminated due to total disability, in addition to the D. Siegel Accrued Obligations, Mr. D. Siegel shall receive an amount equal to his base salary for a period of six months from the date of termination plus any Pro-Rated Performance Bonus accrued through the effective date of his termination of employment to which Mr. D. Siegel may be entitled.

Upon any termination of Mr. D. Siegel’s employment either (i) voluntarily by Mr. D. Siegel (other than for good reason, as defined in the D. Siegel Employment Agreement) or (ii) by us for cause (as defined in the D. Siegel Employment Agreement), all payments, salary and other benefits thereunder shall cease at the date of termination, with the exception of the D. Siegel Accrued Obligations.

 

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In the event that (i) Mr. D. Siegel’s employment is terminated by us without cause, or (ii) his employment agreement is terminated by Mr. D. Siegel for good reason or (iii) we choose not to renew the term of the D. Siegel Employment Agreement, in each case outside of the context of a Change of Control, as described below, then the following conditions shall apply. If Mr. D. Siegel’s employment is terminated by us without cause or by Mr. D. Siegel for good reason, then Mr. D. Siegel shall be entitled to receive, conditioned (except with respect to the D. Siegel Accrued Obligations) upon his execution and non-revocation of a release of all claims against the Company:

 

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The D. Siegel Accrued Obligations;

 

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Certain medical and dental benefits set forth in Mr. D. Siegel’s employment agreement for a period of 12 months;

 

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2.0 times Mr. D. Siegel’s base salary as in effect at the date of termination payable over a period of 24 months from the date of termination;

 

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The Pro-Rated Performance Bonus for the fiscal year in which the effective date of the termination occurs, payable at the same time as the Performance Bonus for such fiscal year would otherwise have been paid; and

 

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2.0 times an amount equal to 112.5% of Mr. Siegel’s annual base salary in effect at the time of termination (such amount, the “D. Siegel Target Bonus”).

Mr. D. Siegel’s then-outstanding stock options shall immediately vest and become exercisable in their entirety and all restrictions on shares of restricted stock granted by us to Mr. D. Siegel on which any restrictions shall not have terminated shall immediately terminate, subject to the terms of the LTIP.

If Mr. D. Siegel’s employment is terminated by reason of our failure to renew the term of his employment under his D. Siegel Employment Agreement, Mr. D. Siegel shall be entitled to receive, conditioned (except with respect to the D. Siegel Accrued Obligations) upon his execution and non-revocation of a release of all claims against the Company, as severance, an amount equal to:

 

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The D. Siegel Accrued Obligations;

 

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Certain medical and dental benefits set forth in the D. Siegel Employment Agreement for a period of 12 months;

 

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1.0 times Mr. D. Siegel’s base salary as in effect at the date of termination payable over a period of 12 months from the date of expiration of the initial term or any renewal term of his employment, as applicable; and

 

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The Annual Adjusted IBIT Performance Bonus for the fiscal year in which the effective date of the expiration occurs, payable at the same time as the Annual Adjusted IBIT Performance Bonus for such fiscal year would otherwise have been paid.

Mr. D. Siegel’s then-outstanding stock options shall immediately vest and become exercisable in their entirety and all restrictions on shares of restricted stock granted by us to Mr. Siegel on which any restrictions shall not have terminated shall immediately terminate, subject to the terms of the LTIP.

In the event that Mr. D. Siegel’s employment is terminated by Mr. D. Siegel for good reason or by us without cause or upon expiration of the term following our delivery of a notice of non-renewal, in each case upon or within two years following a Change of Control, Mr. D. Siegel shall be entitled to receive, conditioned (except with respect to the D. Siegel Accrued Obligations) upon his execution and non-revocation of a release of all claims against the Company:

 

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The D. Siegel Accrued Obligations;

 

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A cash payment equal to 2.0 times his annual base salary in effect at the effective date of the Change of Control, or if greater, 2.0 times his annual base salary in effect as of his termination of employment;

 

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The Pro-Rated Performance Bonus for the fiscal year in which the effective date of the termination occurs, payable at the same time as the Annual Adjusted IBIT Performance Bonus for such fiscal year would otherwise have been paid;

 

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2.0 times the D. Siegel Target Bonus, using the greater of Mr. D. Siegel’s base salary in effect at the time of termination and base salary in effect at the time of the Change of Control; and

 

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Certain medical and dental benefits set forth in his employment agreement for a period of 12 months.

All of Mr. D. Siegel’s then-outstanding stock options shall vest and become immediately exercisable and all restrictions on shares of restricted stock granted by us to Mr. D. Siegel on which any restrictions shall not have terminated shall immediately terminate, subject to the terms of the LTIP.

In the event that Mr. D. Siegel’s employment is terminated by Mr. D. Siegel for good reason or by us without cause or upon expiration of the term following our delivery of a notice of non-renewal, and in each case, within 90 days following such termination, a Change of Control occurs, then Mr. D. Siegel shall be entitled to receive a payment equal to the excess of the base salary severance payments that would have been due to him had he been terminated within two years following a Change of Control, less the amount of base salary severance payments already paid to him. Additionally, in the event that termination is on account of our delivery of a notice of non-renewal, Mr. D. Siegel shall be entitled to receive two times his Target Bonus, payable within 60 days following the change of control.

If all or any portion of the payments and benefits would constitute a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code (or a similar or successor provision), we shall reduce such payments to the extent necessary so that (i) no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code (or a similar or successor provision) and (ii) by reason of such reduction, the net after-tax benefit to Mr. D. Siegel shall exceed the net after-tax benefit to him if such reduction were not made.

Laurence Winoker . During 2017, Laurence Winoker was employed by us as our Senior Vice-President —Finance, Treasurer and Chief Financial Officer pursuant to an employment agreement dated as of June 28, 2007, as amended as of March 8, 2010 and April 12, 2012, as amended and restated as of September 10, 2015 and as amended November 8, 2017 (the “Winoker Employment Agreement”). The Winoker Employment Agreement provides that the initial term of Mr. Winoker’s employment was through July 1, 2016, with automatic renewals for additional one-year periods unless his employment is terminated by either us or Mr. Winoker. The Winoker Employment Agreement provides for an annual base salary of $425,000. The Winoker Employment Agreement further provides for payments to Mr. Winoker upon the termination of his employment. If Mr. Winoker’s employment is terminated during the term of the Winoker Employment Agreement for any reason, we shall pay Mr. Winoker the following amounts (collectively, “Winoker Accrued Obligations”):

 

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His base salary for the period accrued up to and including the date of termination of his employment;

 

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An amount in lieu of any accrued but unused vacation time;

 

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The amount of any unreimbursed expenses; and

 

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The amount of any unpaid Annual Adjusted IBIT Performance Bonus or an Annual Individual Goal Bonus (each, a “Performance Bonus”), including any Pro-Rated Performance Bonus under the agreement. (The Pro-Rated Performance Bonus for a particular fiscal year is the amount equal to the Performance Bonus for the fiscal year that would have been payable to Mr. Winoker by the Company if the agreement had not been terminated during the year, pro-rated for the months during the year preceding the termination.)

 

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If Mr. Winoker’s employment is terminated by reason of Mr. Winoker’s death, then Mr. Winoker’s estate shall receive payment in respect of the Winoker Accrued Obligations. In the event that Mr. Winoker’s employment is terminated due to total disability, in addition to the Winoker Accrued Obligations, Mr. Winoker shall receive an amount equal to his base salary for a period of six months from the date of termination. Upon any termination of the Winoker Employment Agreement either (i) voluntarily by Mr. Winoker (except if he is voluntarily terminating his employment for good reason, as defined in the Winoker Employment Agreement) or (ii) by us for cause (as defined in the Winoker Employment Agreement), all payments, salary and other benefits thereunder shall cease at the date of termination, with the exception of the Winoker Accrued Obligations.

In the event that (i) Mr. Winoker’s employment is terminated by us without cause, or (ii) Mr. Winoker’s employment is terminated by Mr. Winoker for good reason, in each case outside of the context of a Change of Control, as described below, then Mr. Winoker shall be entitled to receive, conditioned (except with respect to the Winoker Accrued Obligations) upon his execution and non-revocation of a release of all claims against the Company:

 

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The Winoker Accrued Obligations;

 

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Certain medical and dental benefits set forth in his amended and restated employment agreement for a period of 12 months;

 

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2.0 times Mr. Winoker’s base salary as in effect at the date of termination payable over a period of 24 months from the date of termination;

 

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The Pro-Rated Performance Bonus for the fiscal year in which the effective date of the termination occurs, payable at the same time as the Performance Bonus for such fiscal year would otherwise have been paid; and

 

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2.0 times an amount equal to 62.5% of Mr. Winoker’s annual base salary in effect at the time of termination (such amount, the “Winoker Target Bonus”).

Mr. Winoker’s then-outstanding stock options shall immediately vest and become exercisable in their entirety and all restrictions on shares of restricted stock granted by us to Mr. Winoker on which any restrictions shall not have terminated shall immediately terminate, subject to the terms of the LTIP.

If we do not offer employment to Mr. Winoker beyond the initial term or any renewal term, upon the normal expiration of the initial term or any renewal term of his employment, as applicable, Mr. Winoker shall be entitled to receive, conditioned (except with respect to the Winoker Accrued Obligations) upon his execution and non-revocation of a release of all claims against the Company:

 

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The Winoker Accrued Obligations;

 

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Certain medical and dental benefits set forth in the Winoker Employment Agreement for a period of 12 months;

 

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An amount equal to Mr. Winoker’s base salary as in effect upon the expiration of the initial term or any renewal term of the Winoker Employment Agreement, as applicable, payable over a period of 12 months from the expiration of the initial term or any renewal term, as applicable;

 

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The Performance Bonus for the fiscal year in which the effective date of the termination occurs, payable at the same time as the Performance Bonus for such fiscal year would otherwise have been paid; and

 

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Mr. Winoker’s then-outstanding stock options shall immediately vest and become exercisable in their entirety and all restrictions on shares of restricted stock granted by us to Mr. Winoker on which any restrictions shall not have terminated shall immediately terminate, subject to the terms of the LTIP.

If, during the term of Mr. Winoker’s employment, we undergo a Change of Control and either (i) within two years thereafter, Mr. Winoker is terminated by the Company without cause, Mr. Winoker voluntarily terminates

 

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his employment for good reason, or Mr. Winoker’s employment terminates upon expiration of the term following a notice of non-renewal provided by us; or (ii) Mr. Winoker is terminated by us without cause, Mr. Winoker voluntarily terminates his employment for good reason, or Mr. Winoker’s employment terminates upon expiration of the term following a notice of non-renewal provided by us within 90 days of the termination, we execute a definitive agreement to enter into a transaction the consummation of which would result in a Change of Control and such transaction is actually consummated, Mr. Winoker shall be entitled to receive, conditioned (except with respect to the Winoker Accrued Obligations) upon his execution and non-revocation of a release of all claims against the Company:

 

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The Winoker Accrued Obligations;

 

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A cash payment equal to 200% of Mr. Winoker’s annual base salary in effect at the effective date of the Change of Control or if greater, 200% of Mr. Winoker’s base salary in effect at the effective date of termination;

 

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The Pro-Rated Performance Bonus for the fiscal year in which the effective date of the termination occurs, payable at the same time as the Performance Bonus for such fiscal year would otherwise have been paid;

 

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2.0 times the Winoker Target Bonus;

 

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Certain medical and dental benefits set forth in his amended and restated employment agreement for a period of 12 months; and

 

•

All of Mr. Winoker’s then-outstanding stock options shall vest and become immediately exercisable and all restrictions on shares of restricted stock granted by us to Mr. Winoker on which any restrictions shall not have terminated shall immediately terminate, subject to the terms of the LTIP.

If, however, all or any portion of the payments and benefits would constitute a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code (or a similar or successor provision), we shall reduce such payments to the extent necessary so that (i) no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code (or a similar or successor provision) and (ii) by reason of such reduction, the net after-tax benefit to Mr. Winoker shall exceed the net after-tax benefit to him if such reduction were not made.

“Change of Control” means (A) the consummation of a merger or consolidation of the Company, with or into another entity or any other corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving entity’s issued shares or securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not shareholders of the Company 180 days prior to such merger, consolidation or other reorganization; (B) the sale, transfer or other disposition of all or substantially all of the Company’s assets; (C) a change in the composition of the Board of Directors, as a result of which fewer than 50% of the incumbent directors are directors who had been directors of the Company on the date 24 months prior to the date of the event that may constitute a Change of Control; or (D) any transaction as a result of which any person is the “beneficial owner” (as defined in Rule 13-d-3 under Exchange Act), directly or indirectly, of securities of the Company representing at least 50% of the total voting power represented by the Company’s then outstanding voting securities. The term “person” shall have the same meaning as when used in Sections 13(d) and 14(d) of the Exchange Act but shall exclude (i) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or of any subsidiary of the Company and (ii) a company owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of the ordinary shares of the Company. The transactions contemplated by the Acquisition are not expected to constitute a Change of Control for purposes of the J. Siegel Employment Agreement, the Shiftan Employment Agreement, the D. Siegel Employment Agreement and the Winoker Employment Agreement.

 

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Golden Parachute Compensation

The following table sets forth the estimated amounts of “golden parachute” compensation (for purposes of Item 402(t) of Regulation S-K) that each of our named executive officers could receive in connection with a Change of Control transaction and is discussed for informational purposes. Except as otherwise described in this proxy statement, the transactions contemplated by the Acquisition do not constitute a Change of Control, and therefore the below payments and benefits are not affected by the Acquisition. None of the named executive officers are entitled to receive any payments or benefits solely as a result of a Change of Control of the Company. The amounts in the table assume, where applicable, that the named executive officer’s employment is terminated in circumstances that would trigger the right to receive severance benefits in connection with a Change of Control of the Company under the agreements described above (a “Qualifying Termination”), that the named executive officer satisfies all conditions applicable to such payments as described above, including the execution and non-revocation of a release of all claims against the Company, and that such a Qualifying Termination of the executive’s employment occurred on December 31, 2017. As described elsewhere in this proxy statement, the Acquisition would constitute a “Change of Control” under the LTIP if the number of Acquisition Shares exceeds 30% of the number of shares of common stock outstanding at the consummation of the Acquisition. The actual amounts that would be paid upon a named executive officer’s termination of employment can be determined only at the time of such executive’s separation from the Company. As a result, the actual amounts received by a named executive officer may differ in material respects from the amounts set forth below.

GOLDEN PARACHUTE COMPENSATION TABLE

 

Name		Cash ($) (1)				Equity ($) (2)				Pension / NQDC ($)				Perquisites / Benefits ($) (3)				Tax Reimbursement ($)				Other ($)				Total ($)
Jeffrey Siegel		$	7,672,500			$	605,006				—			$	360,102				—				—			$	8,637,608
Ronald Shiftan		$	4,582,500			$	576,487				—			$	105,671				—				—			$	5,264,658
Daniel Siegel		$	2,562,500			$	495,000				—			$	27,768				—				—			$	3,085,268
Laurence Winoker		$	1,646,875			$	309,375				—			$	22,017				—				—			$	1,978,267

 

(1)

Consists of (i) cash severance payable by the Company of $6,682,500 to Mr. Jeffrey Siegel, $3,997,500 to Mr. Shiftan, $2,178,125 to Mr. Daniel Siegel and $1,381,250 to Mr. Winoker, in each case, pursuant to the respective employment agreement with such named executive officer described above, and in each case payable in a lump sum within 60 days (in the case of Mr. Jeffrey Siegel, Mr. Daniel Siegel and Mr. Winoker) or 30 days (in the case of Mr. Shiftan) following the executive’s termination of employment, and (ii) accrued or pro-rated bonus amounts payable by the Company of $990,000 to Mr. Jeffrey Siegel, $585,000 to Mr. Shiftan, $384,375 to Mr. Daniel Siegel and $265,625 to Mr. Winoker. The cash severance payable to Mr. Daniel Siegel has been calculated in accordance with the agreement dated November 8, 2017 and reflects his salary increase pursuant thereto that became effective as of January 1, 2018. Messrs. Jeffrey Siegel and Shiftan’s employment agreements provide for the Annual Adjusted IBIIT Performance Bonus accrued to the date of termination, calculated in accordance with their respective employment agreements, to be paid upon a Change of Control. The Company has estimated such amounts to be equal to the target payment of their respective Annual Adjusted IBIIT Performance Bonus. Such amounts payable to Messrs. Jeffrey Siegel and Shiftan would be payable within 10 days of the Company filing its Annual Report on Form 10-K for the year of termination, except that if the IRS establishes an earlier date by which such payments must be made in order to be deductible in the year of termination, the Company will pay an amount (either the full amount, if determinable, or 90% of the Company’s good faith estimate) by such date, subject to conditions set forth in the applicable employment agreement. Messrs. Daniel Siegel and Winoker’s employment agreements provide for the pro-rated Performance Bonus for the fiscal year in which the effective date of termination occurs to be paid upon a Change of Control. The Company has estimated such amounts to be equal to the target payment of the respective Performance Bonus. Such

 

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amounts payable to Messrs. Daniel Siegel and Winoker would be payable at the time the Performance Bonus for the year of termination would normally be paid.

(2)

Consists of (i) the intrinsic value of unvested stock options of $53,998 for Mr. Shiftan that would accelerate, (ii) the value of shares of restricted stock of $324,506 for Mr. Jeffrey Siegel, $241,989 for Mr. Shiftan, $214,500 for Mr. Daniel Siegel and $136,125 for Mr. Winoker and (iii) the value of performance stock units of $280,500 for Messrs. Jeffrey Siegel, Shiftan and Daniel Siegel and $173,250 for Mr. Winoker, assuming performance targets are satisfied, in each case, based upon the closing price of the Company’s common stock of $16.50 on December 29, 2017.

(3)

Consists of (i) health insurance premiums paid by the Company on behalf of the named executive officer of $7,794 for Mr. Jeffrey Siegel, $5,671 for Mr. Shiftan, $8,056 for Mr. Daniel Siegel and $5,671 for Mr. Winoker, (ii) reimbursement by the Company of insurance and professional fees of $200,000 for Mr. Jeffrey Siegel and $75,000 for Mr. Shiftan and (iii) payout by the Company of accrued vacation benefits of $152,308 for Mr. Jeffrey Siegel, $25,000 for Mr. Shiftan, $19,712 for Mr. Daniel Siegel and $16,346 for Mr. Winoker.

Effects of Proposal

If our stockholders do not approve Proposal 1:

 

•

We will not be able to consummate the Acquisition of Taylor on the terms set forth in the Merger Agreement, and Taylor Parent will have the right to terminate the Merger Agreement.

 

•

We will be required to pay Taylor Parent up to $3 million of reasonable and documented out-of-pocket expenses.

If our stockholders do approve Proposal 1:

 

•

Taylor will become a wholly-owned subsidiary of the Company and Taylor Parent will be entitled to receive the Total Consideration, such that, following the consummation of the Acquisition, Taylor Parent will own, by virtue of the issuance of the Acquisition Shares, 27% of the common stock of the Company on a fully diluted basis (rounded up to the nearest share), including shares issuable upon the exercise of all vested and unvested in-the-money stock options and unvested restricted shares of common stock that will vest by June 22, 2018 pursuant to the terms of the agreements in which such shares were granted, determined as described in the attached proxy statement, following the consummation of the Acquisition.

 

•

We will enter into a Stockholders Agreement with Taylor Parent which will contain certain veto and consent rights.

 

•

We will increase the size of the Board of Directors of the Company to 13 directors at the consummation of the Acquisition, 10 of whom initially will be the current members of our Board of Directors, one of whom is expected to be Robert B. Kay, the current Chief Executive Officer of Taylor, and two of whom are expected to be designated by Taylor Parent (initially expected to be Bruce Pollack and Michael Schnabel). Mr. Kay is expected to become Chief Executive Officer of the Company.

Certain Unaudited Prospective Financial Information Utilized by Our Board of Directors and Financial Advisors

Although the Company may periodically publish limited public guidance concerning its expected financial performance, we do not, as a matter of course, publicly disclose detailed long-term financial forecasts or internal projections as to future performance, earnings or other results given, among other reasons, the uncertainty of the underlying assumptions and estimates. However, in connection with our Board of Director’s consideration of the Acquisition, our management prepared certain non-public unaudited financial projections for the years 2017 through 2022 on a stand-alone basis without giving effect to the Acquisition. A summary of the stand-alone

 

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unaudited financial projections (the “Company Projections”) that were furnished to our Company’s Board of Directors, Sawaya Partners and to Houlihan Lokey and considered by Sawaya Partners and Houlihan Lokey in connection with their respective financial analyses and, in the case of Houlihan Lokey for its use and reliance in connection with the opinion, is set forth below.

Taylor’s management also prepared certain unaudited financial projections regarding Taylor’s future performance for the years 2017 through 2022 on a stand-alone basis without giving effect to the Acquisition. A summary of the stand-alone unaudited Taylor projections (the “Taylor Projections”) that were furnished to our Company’s Board of Directors, Sawaya Partners and to Houlihan Lokey and considered by Sawaya Partners and Houlihan Lokey in connection with their respective financial analyses and, in the case of Houlihan Lokey for its use and reliance in connection with the opinion, is set forth below. See “—Effects of the Proposal – Opinion of the Financial Advisor to the Board of Directors”.

The Company’s management has also prepared certain unaudited financial projections regarding the Company’s future performance for the years 2017 through 2022 on a combined basis giving effect to the Acquisition. A summary of the combined unaudited Company projections (the “Pro Forma Projections” and, together with the Company Projections and Taylor Projections, the “Projections”) is set forth below. The Pro Forma Projections were prepared for inclusion in this proxy statement and were not provided to or relied upon by Sawaya Partners or Houlihan Lokey in connection with their respective financial analyses or, in the case of Houlihan Lokey, its opinion.

The Projections were not prepared for the purpose of public disclosure, nor where they prepared in compliance with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts or projections, or GAAP. The summary of the Projections is not being included in this proxy statement to influence your decision whether to vote in favor of Proposal 1 or any other proposal at the special meeting, but because the Company Projections and Taylor Projections were furnished to our Board of Directors, Sawaya Partners and Houlihan Lokey, while the Pro Forma Projections are being included for informational purposes. The inclusion of the Projections in this proxy statement should not be regarded as an indication that any of our Board of Directors, our financial advisors or any other recipient of the Projections considered, or now considers, the Projections to be material or necessarily predictive of actual future results or events, and the Projections should not be relied upon as such.

Financial Projections Related to the Company

The following table presents the Company projections of Net Sales and Adjusted EBITDA for the fiscal years 2017 through 2022 (in millions):

 

		2017				2018				2019				2020				2021				2022
Net Sales		$	585.0			$	604.0			$	619.1			$	634.5			$	650.4			$	666.7
Adjusted EBITDA (1)		$	41.0			$	42.4			$	43.4			$	44.4			$	45.4			$	46.4

 

(1)

Adjusted EBITDA excludes stock compensation expense and certain other non-cash items, restructuring and acquisition costs and other items that are one-time in nature. In performing its analysis, Houlihan Lokey did not add back stock compensation expense of $3.4, $3.9, $4.4, $4.5, $4.6 and $4.5 in 2017, 2018, 2019, 2020, 2021 and 2022, respectively.

Because the unaudited financial projections were developed for the Company on a stand-alone basis without giving effect to the Acquisition, the unaudited financial projections do not give effect to the Acquisition or any changes to the Company’s operations or strategy that may be implemented after the completion of the Acquisition, including any potential synergies realized as a result of the Acquisition, or to any costs related to, or that may arise in connection with, the Acquisition, including the effect of any failure of the Acquisition to occur. These projections were also prepared in accordance with the methodology used by the Company to project compliance with the financial covenants in the Existing Credit Agreement and, accordingly, reflect assumptions

 

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necessary or appropriate in connection therewith and exclude other assumptions, including management’s expectation of $9-$12 million of annual savings from Lifetime Next, its strategic initiative to accelerate growth and improve profitability.

Such projections reflect the same assumptions and exclusions of non-recurring events reflected in the Company’s Adjusted EBITDA presented in its quarterly earnings releases and used for determining compliance with the covenants in the Company’s loan agreements.

Financial Projections Related to Taylor

The following table presents the Taylor financial projections of Net Sales and Adjusted EBITDA for the calendar years 2017 through 2022 (in millions):

 

		2017				2018				2019				2020				2021				2022
Net Sales		$	175.2			$	182.5			$	186.0			$	189.6			$	193.3			$	197.1
Adjusted EBITDA (1)		$	34.5			$	38.4			$	39.0			$	40.3			$	41.6			$	42.9

 

(1)	Adjusted EBITDA excludes management and Board of Director fees, acquisition adjustments and other expenses that are one-time in nature

Pro Forma EPS Projections Related to the Acquisition

The following table presents the Company’s financial projections of EPS for the Company on a stand-alone basis and pro forma for the Acquisition for the fiscal years 2017 through 2022:

 

		2017				2018				2019				2020				2021				2022
Company Stand-alone		$	0.57			$	0.94			$	1.14			$	1.18			$	1.25			$	1.34
Pro Forma Combined (1)			N/A			$	1.28			$	1.55			$	1.68			$	1.83			$	2.00

 

(1)	Pro Forma Combined EPS assumes synergies of $8.1 million.

As part of the Acquisition, the Company will benefit from tax-deductible amortization of certain intangible assets of $13.9 million annually for approximately the next ten years related to Taylor’s prior acquisitions.

Opinion of the Financial Advisor to the Board of Directors

On December 19, 2017, Houlihan Lokey verbally rendered its opinion to our Board of Directors (which was subsequently confirmed in writing by delivery of Houlihan Lokey’s written opinion addressed to our Board of Directors dated December 19, 2017), as to the fairness, from a financial point of view, of the Total Consideration to be paid by the Company in the Acquisition pursuant to the Merger Agreement.

Houlihan Lokey’s opinion was directed to our Board of Directors (in its capacity as such) and only addressed as to the fairness, from a financial point of view, to the Company of the Total Consideration to be paid by the Company in the Acquisition pursuant to the Merger Agreement and did not address any other aspect or implication of the Acquisition or any other agreement (including the Stockholders Agreement), arrangement or understanding. The summary of Houlihan Lokey’s opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is attached as Annex D to this proxy statement and describes the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in connection with the preparation of its opinion. However, neither Houlihan Lokey’s opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and do not constitute,

 

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advice or a recommendation to our Board of Directors, any security holder of the Company or any other person as to how to act or vote with respect to any matter relating to the Acquisition.

In arriving at its opinion, Houlihan Lokey, among other things:

 

1.

reviewed a draft, dated December 17, 2017, of the Merger Agreement;

 

2.

reviewed certain publicly available business and financial information relating to Taylor and the Company that it deemed to be relevant;

 

3.

reviewed certain information relating to the historical, current and future operations, financial condition and prospects of Taylor and the Company made available by Taylor and the Company, including (a) financial projections prepared by the managements of Taylor and the Company relating to Taylor and the Company for the fiscal years ending 2017 through 2022, and (b) certain forecasts and estimates of potential cost savings, operating efficiencies, revenue effects and other synergies expected to result from the Acquisition, all as prepared by the management of the Company (the “Synergies”);

 

4.

spoke with certain members of the managements of Taylor and the Company regarding the respective businesses, operations, financial condition and prospects of Taylor and the Company, the Acquisition and related matters;

 

5.

compared the financial and operating performance of Taylor and the Company with that of certain public companies that Houlihan Lokey deemed to be relevant;

 

6.

considered the publicly available financial terms of certain transactions that Houlihan Lokey deemed to be relevant;

 

7.

reviewed the current and historical market prices and trading volume for the common stock of the Company, and the historical market prices of the publicly traded securities of certain other companies that Houlihan Lokey deemed to be relevant;

 

8.

compared the relative contributions of Taylor and the Company to certain financial statistics of the combined company on a pro forma basis;

 

9.

reviewed certain potential pro forma financial effects of the Acquisition on earnings per share of the Company; and

 

10.

conducted such other financial studies, analyses and inquiries and considered such other information and factors as Houlihan Lokey deemed appropriate.

Houlihan Lokey relied upon and assumed, without independent verification, the accuracy and completeness of all data, material and other information furnished, or otherwise made available, to Houlihan Lokey, discussed with or reviewed by Houlihan Lokey, or publicly available, and did not assume any responsibility with respect to such data, material and other information. At the direction of management of the Company, Houlihan Lokey relied upon financial projections for Taylor prepared by management of Taylor. In addition, managements of Taylor and the Company have advised Houlihan Lokey, and Houlihan Lokey assumed, that the financial projections reviewed by Houlihan Lokey were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of such managements as to the future financial results and condition of Taylor and the Company, and Houlihan Lokey expressed no opinion with respect to such projections or the assumptions on which they were based. Furthermore, upon the advice of the management of the Company, Houlihan Lokey assumed that the estimated Synergies reviewed by Houlihan Lokey were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of the management of the Company and that the Synergies would be realized in the amounts and the time periods indicated thereby, and Houlihan Lokey expressed no opinion with respect to such Synergies or the assumptions on which they are based. Houlihan Lokey assumed, at the direction of management of the Company, that the Acquisition Shares will consist of 5,590,301 shares of common stock of the Company. Houlihan Lokey relied upon and assumed, without

 

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independent verification, that there had been no change in the businesses, assets, liabilities, financial condition, results of operations, cash flows or prospects of Taylor or the Company since the respective dates of the most recent financial statements and other information, financial or otherwise, provided to Houlihan Lokey that would be material to its analyses or its opinion, and that there was no information or any facts that would make any of the information reviewed by Houlihan Lokey incomplete or misleading. Houlihan Lokey relied upon and assumed, without independent verification, the assessments of the management of the Company as to the existing and future relationships, agreements and arrangements with, and the Company’s ability to attract and retain, key customers, distributors, suppliers and other commercial relationships, and employees, of Taylor. In addition, Houlihan Lokey relied upon, without independent verification, the assessment of the management of the Company as to its ability to integrate the businesses of Taylor and the Company, and Houlihan Lokey assumed, at the direction of the Company, that there would be no developments with respect to any such matters that would affect its analyses or its opinion.

Houlihan Lokey relied upon and assumed, without independent verification, that (a) the representations and warranties of all parties to the Merger Agreement and all other related documents and instruments that are referred to therein are true and correct, (b) each party to the Merger Agreement and other related documents and instruments will fully and timely perform all of the covenants and agreements required to be performed by such party, (c) all conditions to the consummation of the Acquisition will be satisfied without waiver thereof, (d) the Redemption (as defined in the Merger Agreement) will be consummated prior to the Acquisition, and (e) the Acquisition will be consummated in a timely manner in accordance with the terms described in the Merger Agreement and other related documents and instruments, without any amendments or modifications thereto. Houlihan Lokey also assumed, with the consent of our Board of Directors, that the Acquisition will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. Houlihan Lokey relied upon and assumed, without independent verification, that (i) the Acquisition will be consummated in a manner that complies in all respects with all applicable foreign, federal and state statutes, rules and regulations, and (ii) all governmental, regulatory, and other consents and approvals necessary for the consummation of the Acquisition will be obtained and that no delay, limitations, restrictions or conditions will be imposed or amendments, modifications or waivers made that would result in the disposition of any assets of Taylor or the Company, or otherwise have an effect on the Acquisition, Taylor, the Company or any expected benefits of the Acquisition that would be material to Houlihan Lokey’s analyses or its opinion. Houlihan Lokey also relied upon and assumed, without independent verification, at the direction of the Company, that any adjustments to the Total Consideration pursuant to the Merger Agreement will not be material to its analyses or its opinion. In addition, Houlihan Lokey relied upon and assumed, without independent verification, that the final form of the Merger Agreement would not differ in any respect from the draft of the Merger Agreement identified above.

Furthermore, in connection with its opinion, Houlihan Lokey was not requested to make, and has not made, any physical inspection or independent appraisal or evaluation of any of the assets, properties or liabilities (fixed, contingent, derivative, off-balance-sheet or otherwise) of Taylor, the Company or any other party, nor was Houlihan Lokey provided with any such appraisal or evaluation. Houlihan Lokey did not estimate, and expressed no opinion regarding, the liquidation value of any entity or business. Houlihan Lokey undertook no independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which Taylor or the Company is or may be a party or is or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which Taylor or the Company is or may be a party or is or may be subject.

Houlihan Lokey was not requested to, and did not, (a) initiate or participate in any discussions or negotiations with, or solicit any indications of interest from, third parties with respect to the Acquisition, the securities, assets, businesses or operations of Taylor or any other party, or any alternatives to the Acquisition, (b) negotiate the terms of the Acquisition, or (c) advise our Board of Directors or any other party with respect to alternatives to the Acquisition. Houlihan Lokey’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Houlihan Lokey as of, the date thereof. Houlihan Lokey has not undertaken, and is under no obligation, to update, revise, reaffirm or withdraw

 

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the opinion, or otherwise comment on or consider events occurring or coming to its attention after the date thereof. Houlihan Lokey did not express any opinion as to what the value of the common stock of the Company actually will be when issued pursuant to the Acquisition or the price or range of prices at which the common stock of the Company may be purchased or sold, or otherwise be transferable, at any time.

Houlihan Lokey’s opinion was furnished for the use of our Board of Directors (in its capacity as such) in connection with its evaluation of the Acquisition and may not be used for any other purpose without Houlihan Lokey’s prior written consent. Houlihan Lokey’s opinion was not intended to be, and does not constitute, a recommendation to our Board of Directors, any security holder or any other party as to how to act or vote with respect to any matter relating to the Acquisition or otherwise.

Houlihan Lokey was not requested to opine as to, and its opinion does not express an opinion as to or otherwise address, among other things: (i) the underlying business decision of our Board of Directors, the Company, its security holders or any other party to proceed with or effect the Acquisition, (ii) the terms of any arrangements, understandings, agreements (including the Stockholders Agreement) or documents related to, or the form, structure or any other portion or aspect of, the Acquisition or otherwise (other than the Total Consideration to the extent expressly specified therein), (iii) the fairness of any portion or aspect of the Acquisition to the holders of any class of securities, creditors or other constituencies of the Company, or to any other party, except if and only to the extent expressly set forth in the last sentence of the opinion, (iv) the relative merits of the Acquisition as compared to any alternative business strategies or transactions that might be available for the Company or any other party, (v) the fairness of any portion or aspect of the Acquisition to any one class or group of the Company’s or any other party’s security holders or other constituents vis-à-vis any other class or group of the Company’s or such other party’s security holders or other constituents (including, without limitation, the allocation of any consideration amongst or within such classes or groups of security holders or other constituents), (vi) whether or not Taylor Parent, Taylor, the Company, its security holders or any other party is receiving or paying reasonably equivalent value in the Acquisition, (vii) the solvency, creditworthiness or fair value of Taylor, the Company or any other participant in the Acquisition, or any of their respective assets, under any applicable laws relating to bankruptcy, insolvency, fraudulent conveyance or similar matters, or (viii) the fairness, financial or otherwise, of the amount, nature or any other aspect of any compensation to or consideration payable to or received by any officers, directors or employees of any party to the Acquisition, any class of such persons or any other party, relative to the Total Consideration or otherwise. Furthermore, no opinion, counsel or interpretation was intended in matters that require legal, regulatory, accounting, insurance, tax or other similar professional advice. Houlihan Lokey assumed that such opinions, counsel or interpretations had been or would be obtained from the appropriate professional sources. Furthermore, Houlihan Lokey relied, with the consent of our Board of Directors, on the assessments by our Board of Directors, the Company and its advisors, as to all legal, regulatory, accounting, insurance and tax matters with respect to Taylor, the Company and the Acquisition or otherwise.

In performing its analyses, Houlihan Lokey considered general business, economic, industry and market conditions, financial and otherwise, and other matters as they existed on, and could be evaluated as of, the date of its opinion. No company, transaction or business used in Houlihan Lokey’s analyses for comparative purposes is identical to Taylor, the Company or the proposed transaction and an evaluation of the results of those analyses is not entirely mathematical. As a consequence, mathematical derivations (such as the high, low, mean and median) of financial data are not by themselves meaningful and in selecting the ranges of multiples to be applied were considered in conjunction with experience and the exercise of judgment. The estimates contained in the financial forecasts prepared by the management of Taylor and the Company and the implied reference range values indicated by Houlihan Lokey’s analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, any analyses relating to the value of assets, businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond the control of the Company. Much of the information used in, and accordingly the results of, Houlihan Lokey’s analyses are inherently subject to substantial uncertainty.

 

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Houlihan Lokey’s opinion was only one of many factors considered by our Board of Directors in evaluating the proposed transaction. Neither Houlihan Lokey’s opinion nor its analyses were determinative of the consideration or of the views of our Board of Directors or management with respect to the transaction or the consideration. Under the terms of its engagement by the Company, neither Houlihan Lokey’s opinion nor any other advice or services rendered by it in connection with the proposed transaction or otherwise, should be construed as creating, and Houlihan Lokey should not be deemed to have, any fiduciary duty to, or agency relationships with, our Board of Directors, the Company, Taylor, any security holder or creditor of the Company or Taylor or any other person, regardless of any prior or ongoing advice or relationships. The type and amount of consideration payable in the transaction were determined through negotiation between the Company and Taylor, and the decision to enter into the Merger Agreement was solely that of our Board of Directors.

Financial Analyses

In preparing its opinion to our Board of Directors, Houlihan Lokey performed a variety of analyses, including those described below. The summary of Houlihan Lokey’s analyses is not a complete description of the analyses underlying Houlihan Lokey’s opinion. The preparation of such an opinion is a complex process involving various quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytical methods employed and the adaptation and application of these methods to the unique facts and circumstances presented. As a consequence, neither Houlihan Lokey’s opinion nor its underlying analyses is readily susceptible to summary description. Houlihan Lokey arrived at its opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any individual analysis, methodology or factor. While the results of each analysis were taken into account in reaching Houlihan Lokey’s overall conclusion with respect to fairness, Houlihan Lokey did not make separate or quantifiable judgments regarding individual analyses. No company, transaction or business used in Houlihan Lokey’s analyses for comparative purposes is identical to Taylor, the Company or the Acquisition. Accordingly, Houlihan Lokey believes that its analyses and the following summary must be considered as a whole and that selecting portions of its analyses, methodologies and factors, without considering all analyses, methodologies and factors, could create a misleading or incomplete view of the processes underlying Houlihan Lokey’s analyses and opinion. The analyses summarized below include information presented in tabular format.

The following is a summary of the material financial analyses performed by Houlihan Lokey in connection with the preparation of its opinion and reviewed with our Board of Directors on December 19, 2017. The order of the analyses does not represent relative importance or weight given to those analyses by Houlihan Lokey. The tables alone do not constitute a complete description of the analyses. Considering the data in the tables below without considering the full narrative description of the analyses, as well as the methodologies underlying, and the assumptions, qualifications and limitations affecting, each analysis, could create a misleading or incomplete view of Houlihan Lokey’s analyses.

For purposes of its analyses, Houlihan Lokey reviewed a number of financial and operating metrics of Taylor and the Company, including:

 

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Enterprise Value — generally, the value as of a specified date of the relevant company’s outstanding equity securities (taking into account outstanding options and other securities convertible, exercisable or exchangeable into or for equity securities of the company) plus the amount of its net debt (the amount of its outstanding indebtedness, non-convertible preferred stock, capital lease obligations and non-controlling interests less the amount of cash and cash equivalents on its balance sheet).

 

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EBITDA — generally, the amount of the relevant company’s earnings before interest, taxes, depreciation and amortization for a specified time period.

 

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Adjusted EBITDA — generally, the amount of the relevant company’s earnings before interest, taxes, depreciation and amortization, adjusted for certain non-recurring items, for a specified time period.

 

 

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