EFTA02631053

From: jeffrey E. <jeevacation@gmail.com> Sent: Wednesday, September 6, 2017 8:08 PM To: Richard Kahn Subject: Re: Next neale , franky, I dont have them. I would have=thought you did, however lets try to see if there is a =eal, and then we all can agree on what the contigencies are.. =C240 You will cerrtainly agree that if they pertain to the period o= your ownership. you are responsible for your share. , a=tions relation to liabilites after closing is another st=ry On =ed, Sep 6, 2017 at 10:04 PM, Richard Kahn ‹ > wrote: please advise thank you Richard Kahn HBRK Associates Inc. 575 Lexington Avenue 4th =Ioor New York, NY 10022 tel fax cel Begin forwarded message: From: Neale Attenborough <neale@goldengatec=p.com> Subj=ct: RE: Next Date: September 6, 2017 at 3:51:=6 PM EDT To: <=span>Richard Kahn Cc: Chris Lawler Tyler Shean What are the specific actions you refer to as Paris, Milan and New Yo=k, with case numbers and a summary of the cases. EFTA_R1_01851103 EFTA02631053 From: Richard Kahn Sent: </=> W=dnesday, eptem er , :4 To: Neale Attenborough Cc:=/b> Subject: Re: Next contigent liabilities are paris, milan, and the new York =awsuit that is looking to form a class... this is obviously separate and apart from all actions that m=ght be brought that would be relevant to the time of your ownership. <=iv> Richard Kahn HBRK Associates4)=A0Inc. 575 Lexington Avenue 4th Floor New York, NY 10022te1 212-971-1306 <tel:(212)%20971-1306> fax cell On Sep 6, 2017, at 3:16 PM, Neale Attenborough We have a term sheet ready and will for=ard once we receive the list of contingent liabilities you would like us t= consider, as we agreed on our last call. On Se. 5 2017 at 10:02 AM, Richard=Kahn When can I expect your term sheet w=th details that we discussed explaining exactly what entity will be sellin= what... I would assu=e your offer of 8 million cash and 1 million a year for three years would =Ilow for the litigation expense and liability (if any) to come out of the =uture payments... so probably 5 years needed... Please advise Thank you =U> Richard=Kahn HBRK Associates Inc. 575 Lexington Avenue 4th FloorNew York, NY 10022 tel fax =el 2 EFTA_R1_01851104 EFTA02631054 On Aug 31, 2017, at 7:0= AM, Neale Attenborough wrote: As we agreed yesterday:=/u> <=div> We will lay our a term sheet which includes the=deal I spoke of yesterday. It will include all the entities that wit= be involved and the concept of some cash paid over time. You will detail exactly which potential liabilities you speak=of below you would like us to consider. We c=n then see fit is possible to hammer out a deal. Thanks. <=pan style="font-size:18ptIont-family:Helvetica,sans-serif">*=A0 </=iv> n Aug 31, 2017, at 5:55 AM, Richard Kahn <=a le="color:purple;text-decor=tion:underline" wrote: To move this along I w=uld suggest the following: a rough detailed draft of a term sheet w=th seller companies detailed. how many entities? an amount of=cash left back and an amount of dollars also spread over a number of years= default suggestions and your ideas on how =o deal with liablity. ie ny class action wai=ing to be certified.. others like paris etc. 4,=A0thank you. Richard Kahn HBRK Associates Inc. 575 Lexington Avenue, 4th Floor New York, NY 10022 Tel Fa Cel =n Aug 30, 2017, at 7:16 AM, Richard Kahn w=ote: I would add that you are selling an o=fshore vehicle formed under an agreement that puzzles me. Q=A0 The whole co is not for sale and if so we might argue along some =imilar but less exagerrated lines multiples of large biz40=A0 from years ago. I guess if you find the dramati=ally too low, you might offer to buy out Faith and Joel , using your=formulas. with a premium for control. Jeffrey is =et to join the call and has authority to make the decision to accept or re=ect. Richar= Kahn HBRK Associat=s Inc. 3 EFTA_R1_01851105 EFTA02631055 575 Lexington Aven=e, 4th Floor <=pan style="font-size:18ptfont-family:Helvetica,sans-serif">New York, NY=10O22 Phone Fax Cell On Aug 30, 2017, at 6:25 =M, Richard Kahn <richardkahn12@gmail.com <mailto:richardkahn12@gmail.com» wrote: i already pointed out currency exchange, board fees etc. as = bad number in your calculations. sorry....the other transacti=ns that we know very well are far from relevant.. if faith and joel=walk there is NO business which is hardly the same idea as IMG where multi=divisions exist and succession is planned. I do not know=what cash was on the balance sheet when you bought it. =C240 The open gate transaction to summarize was a stepping in=o your shoes for only 6 million or roughly the same as the current o=fer. taking out cash 14 of the 15 mil which has not come out.=C240 and even on your calculation of 8 cash would mean 3.2 to you back th=n and then leveraging the biz. / the liability to the buyer=was no where near that to golden gate. sorry.. . We can=go back and forth on comps and can show morn and pop at 1 to 3</=pan> times ebitda.. so lets try to short circuit a t=resome uncessary excercise, as i see it the current bid offer =s 5 bid and approx 9.2 offer. open gates 6 + 3.2 =rom 2 years ago with more growth potential and lower cash out. multi=les from before digital photos and amazon. sorry I am suprised t=at you would inflate current Ebitda, pull multiples from many years =go to biz that are tangential. leave out liabilites even of lawsuits=that you know about, and then pick a cash number to subtract for ent=rprise value. If I have misunderstood and you are not really sellers then = will not be insulted if you decide to cancel our call. Richard Kah= HBRK Associates Inc. 575 Lexington Avenue, 4th Floor=u> New York. NY 10022= an> Tel Fax Cell On Aug 29, 2017, at 10:40 PM, wrote: <=div> Richard, Not funny at all, just factual. I think if we are to u=timately agree on value it will be important we agree on a set of facts:</=pan> </=pan> 1. TTM EBITDA is $6.7Mil=ion. If you disagree, please let us know precisely what items you di=agree with in the number and we can discuss. 2. Q=A0 =C2*The current cash balance for the company is $13=1 Million. IMG: 13x (WME acquisition, 2013) =div style="margin-left:0.5in"> 4. =C2,0 4)=A0We invested $18 million for a 42% stake in the bus=ness, implying an enterprise value of $42.9 million.<=div> =. 40=A0 We received a bona fide offer from OpenGat= Capital which would have resulted in $18 million in proceeds for us (and =n fact a $17 million distribution to Faith and Joel), and while they 4 EFTA_R1_01851106 EFTA02631056 were,=as you point out, contemplating leverage in the <3x EBITDA range,=it is in fact a relevant data point and an independent look at value. 6. One other note that is re=evant to us, is that when Elite Models in Europe contacted us with an inte=est in buying the company, Faith told me to relay to them that they would =ot contemplate selling to Elite for less than $100 million (which at the t=me was a +10x synergy-adjusted EBITDA value). Ultimately they walked=based on that value requirement. I would hope you agree that the following is a c=mmonly agreed upon formula for value: a. =C240 Enterprise value = EBITDA x Market Multiple</=> =span style="font-size:11ptfont-family:Calibri,sans- seriecolor:rgb(31,7=,125)">b. =C24> Equity Value = Enterprise Value + net=cash (or — net debt). One matter of judgment is what of the cash balance =s "excess cash". Joel has said he believes all the c=sh is due to the models. The facts show that in the ordinary course =f business the collection of receivables offsets the payables and in the p=st three years, the cash balance has only fluctuated at most by $3 million= meaning anywhere from $8-10 million on the balance sheet should be consid=red to be "excess cash", not needed for day-to-day operati=ns. I have attached both a three year cash balance tracker and a cur=ent balance sheet for your review. Using the above, a very modest calculation of =alue would be $6.7 million of EBITDA x 5 multiple (a 50% discount to the m=rket) or an enterprise value of $33.5 million and if we took a conservativ= view of what excess cash is at the moment of $8 million, would result in = total equity value of $41.5 million. Our 42% would equate to $17.4 =illion of proceeds to us. That is at a multiple that has been deeply=discounted to the market comps that were actually paid for companies in th= same business. We are, however, willing to take much less than this very discoun=ed value calculation, as I have mentioned to you before. However, yo=r proposal of $5 million of proceeds to us represents an equity value of $=1.9 million ($5/.42), an enterprise value of $3.9 million ($11.9 million -=$8 million of excess cash) or an EBITDA multiple of 0.58x ($6.7 x 0.58 ==$3.9 enterprise value), a level that is far too low for us to accept. I look forw=rd to our discussion tomorrow morning. Neale From: <=b> Richard Kahn Sent: Friday, August 25, 2017 11:51 AMTo:4>=A0Neale Attenborough Cc: Chris Lawler Subject: Re: Next=/span> =C24> Prett= funny Neale... Even the silly open gate proposal was in essence stepping into you= shoes for only 6 million cash. BACK THEN !! Then proposing to distribute wh=t they estimated to be almost the full total (14 of the 15 million) of cas= on the balance sheet. Chris i must point out that is more than it t=tals today. Then having Joel, Faith, etc leverage themselves up by=C24) borrowing at 7 percent against the entire co in order to make a furt=er distribution of an additional 15 million which on paper creates a=highly inflated enterprise value. He only proposed 6 million cash in=usion which is around the same amount that you are currently being offered= They valued faith and joels ongoing equity (that they proposed the= "keep in") silly, at 8mm which is roughly the same as =e suggested. Financial engineering done well is like lipstick.= however not done well is also like lipstick. :) T=is is a personal service EFTA_R1_01851107 EFTA02631057 business, no more no less and suggesting that the= leverage themselves up so you that they can pay themselves a higher salar= fails the HBS first year class that i am aware you have taken. Rega=ding the 18 million, we have distributions from Next directly =o the former shareholders of the claxon offshore entity of approx 3. =Regarding the receivables you can ask millie... sorry PS 41>=A0 Faith and Joel will have to borrow the money to buy you out at 5.. can=be done, but not so easy. they have never taken out real money=from the company in any form: salary etc.... hence they have l=ttle net worth and current lenders are not that comfortable with the poten=ial liabilities.... <=iv> =div style="margin:0in 0in 0.0001ptfont-size:12pt;font-familyfTimes=New Roman',serif"> On=Aug 24, 2017, at 4:50 PM, Neale Attenborough =gt; wrote: Q=A0 = look forward to our conversation. <=iv> c/=iv> For the record, we did a=tually pay $18MM for 42% of this business in 2008. At the time that =epresented an - 8x multiple of EBITDA. That is not a fictitious numbe=. In addition we did receive a bid for about the same amount from Op=n Gate Capital, a reputable private equity firm. I do not understand=why you say that ii is "hardly legitimate". While I =id say we didn't expect to receive what we paid, I did not say it =as immaterial. I don't follow most of what you say=below and look forward to hearing your clarification. However, can y=u please clarify one statement specifically? What do you mean when y=u say the current receivables have not be reviewed in years?=u> Thanks, Neale <=iv> <=div> </=iv> <1=> From: Richard Kahn Sent: <=b> =hursday, August 24, 2017 3:45 PM To: Neale Attenborough Cc: Ch=is Lawler Subject: Next =/div> confirmed thank you <=div> =/div> We have review=d your statements that you sent to us along with the K-1's and som= financials. Frankly, some of the numbers are inaccurate as a=result of millie. Your annual financial statements 6 EFTA_R1_01851108 EFTA02631058 were reviewed but=not audited - shame on all of you... Your calculation o= Ebitda includes things like adding back foreign exchange costs? boa=d fees etc. That is not the way we look at what is unfortunat=ly for all merely a personal service business. </=iv> <=div> Faith and Joel make =p the business, nothing more. We calculate the Ebidta, which w= think is an odd way of measuring value of a personal service biz with lot= of competition and small growth opportuinties if any. G=ving you the benefit of the doubt, and ignoring how much you paid or=if some of that money was repaid directly to the former owners of Claxon a=d not truly understanding what you described as a fixed tax payment per qu=rter (ie based on what I think looking back over the past three years) 4P=A0ebitda looks like 4-5 million. We have bought many small biz and =sually pay mom and pops for 1- 3 times ebita or more usually 4 times net i=come. We are finding it difficult to get to more than a =5 million total value for Next ( not including liabilities). The 18 millio= dollar bid that you mentioned Faith said was hardly legitimate. I =hink further review of the accounting tax etc. is probably a waste of all =ur time. As you rightly said, what you initially paid is somewhat if=not totatly immaterial to todays value. You have not factored=in the liabilities, both reputationally and fiscal yet. I thi=k the 5 million cash offer or 6m over time is fair. I look forward =o our conversation on tuesday. As another note, the current re=eivables have not been reviewed for years... 4)=AO =C240 Disclaimer: This message contains information that may be confident=al and/or privileged and is intended only for the person(s) named. Any use= distribution, copying or disclosure to any other person is strictly prohi=ited. If you received this transmission in error, please notify the sender=by reply e-mail and then destroy the message. Opinions, conclusions, and o=her information in this message that do not relate to the official busines= of Golden Gate Capital shall be understood to be neither given nor endors=d by the company. Where applicable, any information contained in this e-ma=l is subject to the terms and conditions in the relevant governing agreeme=t. =/span> <Mail Attachment.ics> </=iv> <170829 - N=xt - Jun'17 Balance Sheets.pdf> <170816 Next - Min Cash Analysis.pdf> </=iv> 7 EFTA_R1_01851109 EFTA02631059 =C2. please note The information contained in this communic=tion is confidential, may be attorney-client privileged, may constit=te inside information, and is intended only for the use of the addresse=. It is the property of JEE Unauthorized use, disclosure or copying =f this communication or any part thereof is strictly prohibited and =ay be unlawful. If you have received this communication in error, pleas= notify us immediately by return e-mail or by e-mail to jeevacation@gmail.com, andar>destroy this communication and all copies thereof, including all atta=hments. copyright -all rights reserved --94eb2c0dd612efbe3305588ae663-- conversation-id 33896 date-last-viewed 0 date-received 1504728486 flags 8590195713 gmail-label-ids 7 6 remote-id 747139 8 EFTA_R1_01851110 EFTA02631060