EFTA02632233.pdf

From: Richard Kahn Sent: Wednesday, September 6, 2017 8:18 PM To: Jeffrey E. Subject: Fwd: Next Richard Kahn HBRK Associates Inc. 575 =exington Avenue 4th Floor New York, NY 10022 tel= fa cel Begin forwarded message: From: =/b>Neale Attenborough Subject: =/b>RE: Next Date: =/b>September 6, 2017 at 4:16:37 PM =DT To: =/b>Richard Kah Cc: Chris Lawler Tyler Sheen I do not agree to your premise on the face =f it because we are already starting at a substantially discounted =aluation in light of these contingent liabilities already. This =s why I want them detailed precisely. I am sure you or your =lient (who would know them much better than we do) can articulate what =hey are specifically. From: Richard Kahn [mails Sent: Wednesday, September 0 , = 17 4:12 PM To: Neale Attenborough Cc: Chris Lawler; Tyler =hean Subject: Re: Next neale, EFTA_R1_01853270 EFTA02632233  frankly, I don't have them, however I =ould have thought you did... lets try to see if there is a deal and =hen we all can agree on what the contingencies are... you will certainly agree that if they pertain to the period =f your ownership you will be responsible for your share...and =ctions relating to liabilities after closing is another story thank you Richard Kahn HBRK Associates Inc. 575 =exington Avenue 4th Floor New York, NY 10022 to fa ce On Se 6 2017 at =:51 PM, Neale Attenborough <mailto > wrote: What are the specific actions you refer to as Paris, Milan =nd New York, with case numbers and a summary of the cases. From: Richard Kahn [mailsc Sent: Wednesday, September 06, =017 3:47 PM To: Neale Attenborough Cc: Chris Lawler; Tyler =hean Subject: Re: Next contigent liabilities are paris, milan, and the new york =awsuit that is looking to form a class... this is obviously =eparate and apart from all actions that might be brought that would be =elevant to the time of your ownership. Richard Kahn HBRK Associates Inc. 575 Lexington Avenue 4th Floor New York =Y 10022 tel fa ce 2 EFTA_R1_01853271 EFTA02632234  On Se 6 2017, at =:16 PM, Neale Attenborough <mailt wrote: We =ave a term sheet ready and will forward once we receive the list of =ontingent liabilities you would like us to consider, as we agreed on =ur last call. On Se 5 2017, =t 10:02 AM, Richard Kahn <mailt wrote: When can I expect your term sheet with details that =e discussed explaining exactly what entity will be selling what...<=:p class=""> I would assume your offer of 8 million cash and 1 million a =ear for three years would allow for the litigation expense and =iability (if any) to come out of the future payments... so =robably 5 years needed... Please advise Thank you Richard Kahn HBRK =ssociates Inc. 575 Lexington Avenue 4th =loor New York, NY 10022 tel fax cell On Aug 31, 2017, at =:02 AM, Neale Attenborough <mailtc wrote: As we agreed yesterday: We will lay our a term sheet which includes the =eal I spoke of yesterday. It will include all the entities that =ill be involved and the concept of some cash paid over time. You will detail exactly which potential =iabilities you speak of below you would like us to consider. We can then see fit is possible to hammer out a =eal. 3 EFTA_R1_01853272 EFTA02632235  Thanks. On Aug 31, 2017, at 5:55 AM, =ichard Kahn >=wrote: To move this along I would suggest the =ollowing: a rough detailed draft of a term sheet with seller =ompanies detailed. how many entities? an amount of cash =eft back and an amount of dollars also spread over a number of years. =nbsp;default suggestions and your ideas on how =o deal with liablity. ie ny class action =aiting to be certified. . others like paris =tc. thank you. Richard Kahn HBRK Associates Inc. 575 Lexington Avenue, 4th Floor New York, NY 10022 Tel Fa Ce On Aug 30, 2017, at 7:16 AM, =ichard Kahn <mailtc >=wrote: I would add that you are selling an offshore vehicle formed =nder an agreement that puzzles me. The whole co =s not for sale and if so we might argue along some similar but less =xagerrated lines multiples of large biz from years =go. I guess if you find the dramatically too =ow, you might offer to buy out Faith and Joel , using your =ormulas. with a premium for control. Jeffrey =s set to join the call and has authority to make the decision to accept =r reject. Richard Kahn HBRK Associates Inc. 575 Lexington Avenue, 4th Floor New York NY 10022 Phone Fa Cel On Aug 30, 2017, at 6:25 AM, =ichard Kahn anailtc >=wrote: i already pointed out currency exchange, board fees etc. as a =ad number in your calculations. sorry....the other =ransactions that we know very well are far from relevant. . if =aith and joel walk there is NO business which is hardly the same idea =s IMG where multi divisions exist and succession is =lanned. I do not know what cash was on the balance =heet when you bought it. The open gate =ransaction to summarize was a stepping into your =hoes for only 6 million or roughly the same as the current offer. =nbsp; taking out cash 14 of the 15 mil which has not come =ut. and even on your calculation of 8 cash would mean 3.2 to you =ack then... and then leveraging the biz. / the liability to =he buyer was no where near that to golden gate. sorry. . = We can go back and forth on comps and can show mom and =op at 1 to 3 <x-apple-data-detectors://1> times ebitda.. so lets =ry to short circuit a tiresome uncessary excercise, as i =ee it the current bid offer is 5 bid and approx 9.2 =ffer. open gates 6 + 3.2 from 2 years ago with =ore growth potential and lower cash out. multiples from before =igital photos and amazon. sorry I am suprised that you would =nflate current Ebitda, pull multiples from many years ago to biz =hat are 4 EFTA_R1_01853273 EFTA02632236 tangential. leave out liabilites even of lawsuits that =ou know about, and then pick a cash number to subtract for =nterprise value. If I have misunderstood and you are not really sellers =hen I will not be insulted if you decide to cancel our call. Richard Kahn HBRK Associates Inc. 575 Lexington Avenue, 4th Floor New York, NY 10022 Te Fa Cel On Aug 29, 2017, at 10:40 PM, =eale Attenborough >=wrote: cniailtc Richard, Not funny at all, just =actual. I think if we are to ultimately agree on =alue it will be important we agree on a set of facts: 1. TIM EBITDA is $6.7Million. If you =isagree, please let us know precisely what items you disagree with in =he number and we can discuss. 2. The current cash balance for the company =s $13.1 Million. 3. The past three comparable transactions for =ompanies in this market average an enterprise value at —10x multiple of =BITDA a. Wilhelmina: 7x (average meaningful trading =ultiple since 2010) b. Creative Artists Agency: 10x (TPG =cquisition, 2014) c. IMG: 13x (WME acquisition, =013) 4. We invested $18 million for a 42% stake in =he business, implying an enterprise value of $42.9 million. 5. We received a bona fide offer from =penGate Capital which would have resulted in $18 million in proceeds =or us (and in fact a $17 million distribution to Faith and Joel), and =hile they were, as you point out, contemplating leverage in the =lt;3x EBITDA range, it is in fact a relevant data point and an =ndependent look at value. 6. One other note that is relevant to us, is =hat when Elite Models in Europe contacted us with an interest in buying =he company, Faith told me to relay to them that they would not =ontemplate selling to Elite for less than $100 million (which at the =ime was a +10x synergy-adjusted EBITDA value). Ultimately they =alked based on that value requirement. I would hope you agree =hat the following is a commonly agreed upon formula for =alue: a. Enterprise value = EBITDA x Market =ultiple b. Equity Value = Enterprise Value + net =ash (or — net debt). One matter of judgment =s what of the cash balance is "excess cash". Joel =as said he believes all the cash is due to the models. The facts =how that in the ordinary course of business the collection of =eceivables offsets the payables and in the past three years, the cash =alance has only fluctuated at most by $3 million, meaning anywhere from =8-10 million on the balance sheet should be considered to be "exc=ss cash", not needed for day-to-day operations. I have =ttached both a three year cash balance tracker and a current balance =heet for your review. 5 EFTA_R1_01853274 EFTA02632237  Using the above, a very =odest calculation of value would be $6.7 million of EBITDA x 5 multiple =a 50% discount to the market) or an enterprise value of $33.5 million =nd if we took a conservative view of what excess cash is at the moment =f $8 million, would result in a total equity value of $41.5 =illion. Our 42% would equate to $17.4 million of proceeds to =s. That is at a multiple that has been deeply discounted to the =arket comps that were actually paid for companies in the same =usiness. We are, however, willing to take much less =han this very discounted value calculation, as I have mentioned to you =efore. However, your proposal of $5 million of proceeds to us =epresents an equity value of $11.9 million ($51.42), an enterprise =alue of $3.9 million ($11.9 million - $8 million of excess cash) or an =BITDA multiple of 0.58x ($6.7 x 0.58 = $3.9 enterprise value), a =evel that is far too low for us to accept. I look forward to our =iscussion tomorrow morning. Neale From: Richard Kahn (rnailtc <mailtc Sent: Friday, August 25, 2017 =1:51 AM To: Neale Attenborough Cc: Chris Lawler Subject: Re: Next Pretty funny =eale... Even the silly open gate proposal was in =ssence stepping into your shoes for only 6 million cash. BACK THEN =! Then proposing to distribute =hat they estimated to be almost the full total (14 of the 15 million) =f cash on the balance sheet. Chris i must point out that is more =han it totals today. Then having Joel, Faith, etc leverage =hemselves up by borrowing at 7 percent against the entire co in =rder to make a further distribution of an additional 15 million which =nbsp;on paper creates a highly inflated enterprise value. He only =roposed 6 million cash infusion which is around the same amount that =ou are currently being offered. They valued faith and joels =ngoing equity (that they proposed they "keep in") silly, =t 8mm which is roughly the same as we suggested. Financial =ngineering done well is like lipstick.. however not done well is also =ike lipstick. :) This is a personal service =usiness, no more no less and suggesting that they leverage themselves =p so you that they can pay themselves a higher salary fails the HBS =irst year class that i am aware you have taken. Regarding =nbsp;the 18 million, we have distributions from Next directly to =he former shareholders of the claxon offshore entity of approx 3. =nbsp;Regarding the receivables you can ask millie... =orry PS Faith =nd joel will have to borrow the money to buy you out at 5. . can be =one, but not so easy. they have never taken out real money =rom the company in any form: salary etc.... hence they have =ittle net worth and current lenders are not that comfortable with the =otential liabilities.... On Aug 24, 2017, at 4:50 PM, Neale Attenborough wrote: I look forward to our =onversation. 6 EFTA_R1_01853275 EFTA02632238  For=the record, we did actually pay $18MM for 42% of this business in =008. At the time that represented an —8x multiple of =BIT0A. That is not a fictitious number. In addition we did receive a bid for about the same amount from Open Gate Capital, a =eputable private equity firm. I do not understand why you say =hat ii is "hardly legitimate". While I did say we =idn't expect to receive what we paid, I did not say it was =mmaterial. I =on't follow most of what you say below and look forward to =earing your clarification. However, can you please clarify one =tatement specifically? What do you mean when you say the current =eceivables have not be reviewed in years? Thanks, Neale From: Richard Kahn [mailto <mailt Sent: Thursday, August 24, 2017 =:45 PM To: Neale Attenborough Cc: Chris Lawler Subject: Next confirmed thank you We have reviewed your statements that you sent to us along =ith the K-1's and some financials. Frankly, some =f the numbers are inaccurate as a result of millie. Your annual =inancial statements were reviewed but not audited - shame on all of =ou... Your calculation of Ebitda includes things =ike adding back foreign exchange costs? board fees etc. =nbsp;That is not the way we look at what is unfortunately for =11 merely a personal service business. Faith and Joel make up the business, nothing =ore. We calculate the Ebidta, which we think is an odd way =f measuring value of a personal service biz with lots of competition =nd small growth opportuinties if any. Giving you the =enefit of the doubt, and ignoring how much you paid or if some of =hat money was repaid directly to the former owners of Claxon and not =ruly understanding what you described as a fixed tax payment per =uarter (ie based on what I think looking back over the past three =ears) ebitda looks like 4-5 million. We have bought many =mall biz and usually pay mom and pops for 1.3 times ebita or more =sually 4 times net income. We are finding it rifficult to get to more than a 15 million total value for Next ( not =ncluding liabilities). The 18 million dollar bid that you mentioned =aith said was hardly legitimate. I think further review of the =ccounting tax etc. is probably a waste of all our time. As you rightly said, what you initially paid is somewhat if not totatly =mmaterial to todays value. You have not factored in the =iabilities, both reputationally and fiscal yet. I think =he 5 million cash offer or 6m over time is fair. I look forward =o our conversation on tuesday. As another note, the current =eceivables have not been reviewed for years... Rich On Aug 24, 2017, at 3:28 PM, Neale =ttenborough <mailto >=wrote: 7 EFTA_R1_01853276 EFTA02632239  Disclaimer: This message contains information that may be =onfidential and/or privileged and is intended only for the person(s) =amed. Any use, distribution, copying or disclosure to any other person =s strictly prohibited. If you received this transmission in error, =lease notify the sender by reply e-mail and then destroy the message. =pinions, conclusions, and other information in this message that do not =elate to the official business of Golden Gate Capital shall be =nderstood to be neither given nor endorsed by the company. Where =pplicable, any information contained in this e-mail is subject to the =erms and conditions in the relevant governing agreement. <Mail Attachment.ics> 4=lockquote> <170829 - Next - Jun'17 Balance Sheets.pdf> <170816 Next - Min =ash =nalysis.pdf> <=blockquote> =/blockquote> 8 EFTA_R1_01853277 EFTA02632240