Richard Kahn

From: Sent: To: Cc: Subject: Richard Kahn HBRK Associat=s Inc. 575 Lexington Avenue, 4th Floor Begin forwarded message: Richard Kahn < III Wednesday, August 30, 2017 2:56 AM Fwd: Next • ,. From: Neale Attenborough c: MDate:</=> August 29, 2017 at 10:50:47 PM EDT To: Richard Kahn Cc= Chris Lawler <mailto >, Tyler Shean <mailto > Subject: Re: Next</=> wrote: She did. On Aug 29, 2017, at 10:48 PM, Richard Kahn <; <mailto > > Did heather send dial in number. Please advise. Thank you. Richard Kahn HBRK Associates Inc. 575 Lexington Avenue, 4th Floor New York, NY 10022 On Au 29, 2017, at 10:40 PM, Neale Attenborough <mailto > wrote: EFTA_R1_01333710 EFTA02353336 Richard,<=p> Not funny at all, just fact=al. I think if we are to ultima=ely agree on value it will be important we agree on a set of facts: 1. = TTM EBITDA is $=.7Million. If you disagree, please let us know precisely what items y=u disagree with in the number and we can discuss. 2. = The current cas= balance for the company is $13.1 Million. 3. = The past three c=mparable transactions for companies in this market average an enterprise va=ue at -10x multiple of EBITDA a. =nbsp; Wilhelmina: 7x (=verage meaningful trading multiple since 2010) b. =nbsp; Creative Artist= Agency: 10x (TPG acquisition, 2014) c. =nbsp; IMG: 13x (WME a=quisition, 2013) 4. = We invested $18=million for a 42% stake in the business, implying an enterprise value of $4=.9 million. 5. = We received a b=na fide offer from OpenGate Capital which would have resulted in $18 millio= in proceeds for us (and in fact a $17 million distribution to Faith and Joel), and while they were, as you point out, contemplat=ng leverage in the <3x EBITDA range, it is in fact a relevant data point=and an independent look at value. 6. = One other note t=at is relevant to us, is that when Elite Models in Europe contacted us with=an interest in buying the company, Faith told me to relay to them that they would not contemplate selling to Elite for less t=an $100 million (which at the time was a +10x synergy-adjusted EBITDA value=. Ultimately they walked based on that value requirement.aspan> I would hope you agree that=the following is a commonly agreed upon formula for value: a. =nbsp; Enterprise valu= = EBITDA x Market Multiple b. =nbsp; Equity Value ==Enterprise Value + net cash (or — net debt). 2 EFTA_R1_01333711 EFTA02353337 One matter of judgment is w=at of the cash balance is "excess cash". Joel has sai= he believes all the cash is due to the models. The facts show that i= the ordinary course of business the collection of receivables offsets the payab=es and in the past three years, the cash balance has only fluctuated at mos= by $3 million, meaning anywhere from $8-10 million on the balance sheet sh=uld be considered to be "excess cash", not needed for day-to-day operations. I have attached b=th a three year cash balance tracker and a current balance sheet for your r=view. Using the above, a very mod=st 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 and if we took a conservative view of what excess cash is at the mo=ent of $8 million, would result in a total equity value of $41.5 million.&n=sp; Our 42% would equate to $17.4 million of proceeds to us. That is a= a multiple that has been deeply discounted to the market comps that were actually paid for companies in the same busin=ss. We are, however, willing to=take much less than this very discounted value calculation, as I have menti=ned to you before. However, your proposal of $5 million of proceeds to us represents an equity value of $11.9 million ($5/.42), an e=terprise value of $3.9 million ($11.9 million - $8 million of excess cash) o= an EBITDA multiple of O.58x ($6.7 x 0.58 = $3.9 enterprise value), a lev=l that is far too low for us to accept. I look forward to our discu=sion tomorrow morning. Neale From: Richard Kah= [mailto Sent: Friday, August 25, 2017 11:51 AM To: Neale Attenborough Cc: Chris Lawler Subject: Re: Next <make Pretty funny Neale... Even the silly open gate proposal was in essence step=ing into your shoes for only 6 million cash. BACK THEN !! Then proposing to dist=ibute what they estimated to be almost the full total (14 of the 15 million= of cash on the balance sheet. Chris i must point out that is more th=n it totals today. Then having Joel, Faith, 3 EFTA_R1_01333712 EFTA02353338 etc leverage themselves up by borrowing at 7 percent against t=e entire co in order to make a further distribution of an additional 15 mil=ion which on paper creates a highly inflated enterprise value. =e only proposed 6 million cash infusion which is around the same amount that you are currently being offered. They=valued faith and joels ongoing equity (that they proposed they "keep in =9D) silly, at 8mm which is roughly the same as we suggested. &nb=p; Financial engineering done well is like lipstick.. however not done well is also like lipstick.:) Thi= is a personal service business, no more no less and suggesting that they l=verage themselves up so you that they can pay themselves a higher salary fa=ls the HBS first year class that i am aware you have taken. Regarding the 18 million, we have distributio=s from Next directly to the former shareholders of the claxon offshore enti=y of approx 3. Regarding the receivables you can ask millie... s=rry PS Faith and joel will=have to borrow the money to buy you out at 5.. can be done, but not so eas=. they have never taken out real money from the company in any f=rm: salary etc.... hence they have little net worth and current= lenders are not that comfortable with the potential liabilities.... &n=sp; On Aug 24, 2017, at 4:50 PM, Neale Attenborough «= href="mailto > wr=te: I look forward to our conve=sation. For the record, we did actu=lly pay $18MM for 42% of this business in 2008. At the time that repr=sented an -8x multiple of EBITDA. That is not a fictitious number. In addition we did receive a bid for about the same amount fr=m Open Gate Capital, a reputable private equity firm. I do not unders=and why you say that ii is "hardly legitimate". While=l did say we didn't expect to receive what we paid, I did not say it was immaterial. I don't follow most=of what you say below and look forward to hearing your clarification. =However, can you please clarify one statement specifically? What do you mean when you say the current receivables have not be reviewed in ye=rs? Thanks,</=> Neale 4 EFTA_R1_01333713 EFTA02353339 From: Richard Kahn [mailto cmailto > Sent: Thursday, Aug=st 24, 2017 3:45 PM To: Neale Attenboro=gh Cc: Chris Lawler Subject: Next confirmed thank you We have reviewed your statements that you sent to us a=ong with the K-1's and some financials. Frankly, some o= the numbers are inaccurate as a result of millie. Your annual financ=al statements were reviewed but not audited - shame on all of you... Your calculation of Ebitda includes thi=gs like adding back foreign exchange costs? board fees etc. Tha= is not the way we look at what is unfortunately for all merely a pe=sonal service business. Faith and Joel make up the business, nothing more.&nb=p; We calculate the Ebidta, which we think is an odd way of measuring=value of a personal service biz with lots of competition and small growth o=portuinties if any. Giving 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 and not truly understand=ng what you described as a fixed tax payment per quarter (ie based on what l=think looking back over the past three years) ebitda looks like 4-5 million. We have bought man= small biz and usually pay mom and pops for 1- 3 times ebita or more usuall= 4 times net income. We are finding it difficult to get t= more than a 15 million total value for Next ( not including liabilities). The 18 million dollar bid that you mentioned Faith said was h=rdly legitimate. I think further review of the accounting tax etc. i= probably a waste of all our time. As you rightly said, what you init=ally paid is somewhat if not totatly immaterial to todays value. You have not factored in the liabilities,&nbs=; both reputationally and fiscal yet. I think the 5 million cash off=r or 6m over time is fair. I look forward to our conversation on tue=day. As another note, the current receivables have not been reviewed for years... Rich href="mailto On Aug 24, 2017, at 3:28 PM, Neale Attenborough «= wrote: 5 EFTA_R1_01333714 EFTA02353340 Disclaimer: This message contains informa=ion that may be confidential and/or privileged and is intended only for the=person(s) named. Any use, distribution, copying or disclosure to any other person is strictly prohibited. If you received this transmissi=n in error, please notify the sender by reply e-mail and then destroy the m=ssage. Opinions, conclusions, and other information in this message that do=not relate to the official business of Golden Gate Capital shall be understood to be neither given nor endorsed=by the company. Where applicable, any information contained in this e-mail i= subject to the terms and conditions in the relevant governing agreement. <Mail Attachment.ics> <170829 - Next - Jun'17 Balance Sheets.pdf> <170816 Next - Min Cash Analysis.pdf> 6 EFTA_R1_01333715 EFTA02353341