PREM14C 1 d445501dprem14c.htm SCHEDULE 14C SCHEDULE 14C
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

SCHEDULE 14C INFORMATION

INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

 

Check the appropriate box:

 

x  

Preliminary Information Statement

 

¨  

Confidential, for use of the Commission Only (as permitted by Rule 14c-5(d)(2))

 

¨  

Definitive Information Statement

SCHIFF NUTRITION INTERNATIONAL, INC.

(Name of Registrant as Specified in its Charter)

Payment of Filing Fee (Check the appropriate box):

 

¨  

No fee required.

 

x  

Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11

 

  (1) Title of each class of securities to which transaction applies:

Class A common stock, par value $0.01 per share, of Schiff Nutrition International, Inc. (“Class A Common Stock”)

Class B common stock, par value $0.01 per share, of Schiff Nutrition International, Inc. (“Class B Common Stock”)

 

 

 

  (2) Aggregate number of securities to which transaction applies: 21,858,086 shares of Class A Common Stock (including restricted stock awards), 7,486,574 shares of Class B Common Stock, options to purchase 2,786,143 shares of Class A Common Stock and 272,101 restricted stock units.

 

 

 

  (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

  

 

The filing fee was determined based upon the sum of (A) 21,858,086 shares of Class A Common Stock (including shares of Class A Common Stock issued pursuant to restricted stock awards) multiplied by $42.00 per share, (B) 7,486,574 shares of Class B Common Stock multiplied by $42.00 per share, (C) 2,786,143 shares of Class A Common Stock underlying options multiplied by $31.13 (which is the difference between $42.00 and the weighted average exercise price with respect to such options of $10.87 per share) and (D) 272,101 restricted stock units multiplied by $42.00 per share. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying 0.00013640 by the sum of the preceding sentence.

 

  (4) Proposed maximum aggregate value of transaction:

$1,330,636,593.59

 

 

 

  (5) Total fee paid:

$181,498.83

 

 

 

¨  

Fee paid previously with preliminary materials.

 

¨  

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.

 

  (1) Amount Previously Paid:

 

  

 

 

  (2) Form, Schedule or Registration Statement No:

 

  

 

 

  (3) Filing party:

 

  

 

 

  (4) Date Filed:

 

  

 

 

 

 


Table of Contents

PRELIMINARY COPY—SUBJECT TO COMPLETION AND CONSUMMATION OF THE OFFER

LOGO

2002 South 5070 West

Salt Lake City, Utah 84104

NOTICE OF ACTION BY WRITTEN CONSENT AND APPRAISAL RIGHTS

AND

INFORMATION STATEMENT

WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.

[], 2012

To our Stockholders:

This notice of action by written consent and appraisal rights and the accompanying information statement are being furnished to the holders of Class A and Class B common stock of Schiff Nutrition International, Inc., a Delaware corporation, that we refer to as “Schiff” or the “Company,” in connection with the Agreement and Plan of Merger, dated as of November 21, 2012, and as it may be amended from time to time (the “Merger Agreement”), by and among Reckitt Benckiser LLC, a Delaware limited liability company (“Parent”), Ascot Acquisition Corp., a Delaware corporation (“Purchaser”), a wholly-owned subsidiary of Parent, the Company and, solely for purposes of Section 6.17 thereof, Reckitt Benckiser Group plc, a public limited company organized under the laws of England and Wales (“Ultimate Parent”). A copy of the Merger Agreement is attached as Annex A to the accompanying information statement.

On November 16, 2012, Purchaser commenced a tender offer (as amended or supplemented from time to time, the “Offer”) to purchase all of the outstanding Class A common stock, par value $0.01 (“Class A Common Stock”), and Class B common stock, par value $0.01 (“Class B Common Stock”), of Schiff (the Class A Common Stock and the Class B Common Stock, together, the “Shares”) for consideration per Share consisting of an amount net to the seller in cash equal to $42.00 (the “Offer Price”) without interest, less any applicable withholding taxes, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated November 16, 2012 and amended and restated on November 27, 2012 (as amended or supplemented from time to time, the “Offer to Purchase”), and in the related amended and restated Letter of Transmittal (as amended or supplemented from time to time, the “Letter of Transmittal”). The Offer was consummated on []. Following the consummation of the Offer, the Merger Agreement provides that, among other things, upon its terms and subject to the satisfaction or written waiver of each of the applicable conditions set forth therein, Purchaser will be merged with and into the Company (the “Merger”), and the Company will continue as the surviving corporation and wholly owned subsidiary of Parent (the “Surviving Corporation”). At the effective time of the Merger (the “Effective Time”), all remaining outstanding Shares not tendered in the Offer (other than Shares held by stockholders who are entitled to demand and properly demand appraisal under Section 262 of the General Corporation Law of the State of Delaware (the “DGCL”), Shares held in the Company’s treasury or Shares owned by Parent, Purchaser or any subsidiary of Parent, Purchaser or the Company) will be cancelled and converted into the right to receive the Offer Price (the “Merger Consideration”).

If the Merger is completed, you will be entitled to receive $42.00 in cash, without interest and less any applicable withholding taxes, for each Share owned by you and not previously tendered in the Offer (unless you have properly exercised your appraisal rights under Section 262 of the DGCL with respect to such Shares).


Table of Contents

At a meeting of the Company’s board of directors (the “Company Board”) held on November 21, 2012, the Company Board, upon the terms and subject to the conditions set forth in the Merger Agreement, (i) determined that the Offer, the Merger and the other transactions contemplated by the Merger Agreement are fair to and in the best interests of the Company and its stockholders, (ii) approved and declared advisable the Merger Agreement, the Offer, the Merger and the other transactions contemplated thereby in accordance with the requirements of the DGCL, (iii) recommended that the Company’s stockholders vote their Shares in favor of adopting the Merger Agreement by written consent in lieu of a meeting and (iv) resolved to recommend that the Company’s stockholders accept the Offer and tender their Shares pursuant to the Offer.

Under Section 251 of the DGCL, the adoption of the Merger Agreement by the Company’s stockholders required the affirmative vote or written consent of stockholders holding in the aggregate Shares representing a majority of the voting power of the issued and outstanding Shares. On November 21, 2012, Weider Health and Fitness and TPG STAR SNI, L.P. (collectively, the “Principal Stockholders”), which on such date beneficially owned 14,973,148 Shares representing approximately 85.14% of the voting power of the issued and outstanding Shares, executed a written consent in lieu of a meeting adopting and approving in all respects the Merger Agreement and the transactions contemplated thereby, including the Merger (the “Written Consent”) and delivered the Written Consent to the Company. While the Written Consent was effective upon its delivery to the Company in accordance with the DGCL, the Written Consent shall be of no further force or effect following termination, if any, of the Merger Agreement in accordance with its terms. As a result, no further action by any stockholder of the Company is required under applicable law or the Merger Agreement (or otherwise) to adopt the Merger Agreement or to authorize the transactions contemplated thereby, and the Company will not be soliciting your adoption of the Merger Agreement and will not call a stockholders meeting for purposes of voting on the adoption of the Merger Agreement.

This notice and the accompanying information statement shall constitute notice to you from the Company of the Written Consent, as contemplated by Section 228 of the DGCL.

Under Section 262 of the DGCL, if the Merger is completed, subject to compliance with the requirements of Section 262 of the DGCL, holders of Shares, other than the Principal Stockholders, will have the right to seek an appraisal of, and be paid the “fair value” of, their Shares (as determined by the Court of Chancery of the State of Delaware (“Chancery Court”)) instead of receiving the Merger Consideration, as long as such holders did not tender such Shares in the Offer or consent to the adoption of the Merger Agreement. In order to exercise your appraisal rights, you must submit a written demand for an appraisal no later than 20 days after the date of mailing of this notice and the accompanying information statement, or [], 2012, and comply with other procedures set forth in Section 262 of the DGCL, which are summarized in the accompanying information statement. A copy of Section 262 of the DGCL is attached to the accompanying information statement as Annex C.

This notice and the accompanying information statement shall constitute notice to you from the Company of the availability of appraisal rights under Section 262 of the DGCL.

We urge you to read the entire information statement carefully. Please do not send in your Share certificates at this time. If the Merger is completed, you will receive instructions regarding the surrender of your Share certificates and payment for your Shares.

BY ORDER OF THE BOARD OF DIRECTORS,

LOGO

Tarang P. Amin

President and Chief Executive Officer

Neither the U.S. Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the Merger, passed upon the fairness of the Merger or passed upon the adequacy or accuracy of the disclosures in this notice or the accompanying information statement. Any representation to the contrary is a criminal offense.

This information statement is dated [], 2012 and is first being mailed to our stockholders on [], 2012.


Table of Contents

TABLE OF CONTENTS

 

     Page  

QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS

     iii   

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

     vii   

SUMMARY

     viii   

The Companies

     viii   

The Offer

     ix   

The Merger

     ix   

The Merger Consideration

     ix   

Reasons for the Merger

     ix   

Required Stockholder Approval for the Merger

     x   

Opinion of Houlihan Lokey

     x   

The Merger Agreement

     xi   

Interests of Our Directors, Executive Officers and Affiliates in the Merger

     xiii   

Material United States Federal Income Tax Consequences

     xiii   

Regulatory Matters

     xiii   

Appraisal Rights

     xiv   

Procedures for Receiving Merger Consideration

     xiv   

Market Price of Class A Common Stock

     xiv   

THE COMPANIES

     1   

Schiff Nutrition International, Inc.

     1   

Reckitt Benckiser Group plc

     1   

Reckitt Benckiser LLC

     1   

Ascot Acquisition Corp.

     1   

THE TRANSACTIONS

     2   

Background to the Transactions

     2   

Recommendation of Our Board of Directors and Its Reasons for the Recommendation

     15   

Opinion of Houlihan Lokey

     19   

Financial Information and Projections

     28   

Treatment of Company Options, Company RSUs and Company Restricted Shares

     37   

Interests of Our Directors, Executive Officers and Affiliates in the Merger

     37   

Regulatory Matters

     45   

Appraisal Rights

     45   

Material United States Federal Income Tax Consequences

     49   

Delisting and Deregistration of Class A Common Stock

     51   

THE MERGER AGREEMENT

     52   

Explanatory Note Regarding the Merger Agreement

     52   

The Offer

     52   

Terms and Conditions of the Offer

     52   

Extensions of the Offer; Subsequent Offering Period

     53   

Effect of the Merger; Directors and Officers; Certificate of Incorporation and Bylaws

     53   

Closing; When the Merger Becomes Effective

     54   

Short Form Merger

     54   

The Company’s Board of Directors

     54   

Top-Up Option

     55   

Merger Consideration

     56   

Procedures for Payment of Merger Consideration

     57   

Transfers of Ownership and Lost Stock Certificates

     57   

Representations and Warranties

     58   

Material Adverse Effect

     59   

Interim Operations of the Company

     60   

 

i


Table of Contents
     Page  

Necessary Efforts

     62   

Written Consent

     63   

Non-Solicitation of Acquisition Proposals

     63   

Company Board Recommendation

     64   

Employee Benefit Matters

     65   

Indemnification and Insurance

     65   

Conditions to the Merger

     66   

Termination of the Merger Agreement

     66   

Breakup Fee

     67   

Fees and Expenses

     68   

Amendment and Waiver

     68   

Guarantee of Ultimate Parent

     68   

STOCK OWNERSHIP OF BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT

     70   

WHERE YOU CAN FIND MORE INFORMATION

     73   

 

ANNEXES

     

Annex A

   Agreement and Plan of Merger   

Annex B

   Written Consent   

Annex C

   Section 262 of the Delaware General Corporation Law   

Annex D

   Opinion of Houlihan Lokey Capital, Inc.   

 

ii


Table of Contents

QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS

The following questions and answers are intended to address briefly some commonly asked questions regarding the Offer and the Merger (together, the “Transactions”) and the Merger Agreement. These questions and answers may not address all questions that may be important to you as a Schiff stockholder. Please refer to the additional information contained elsewhere in this information statement, the annexes to this information statement and the documents referred to in this information statement.

Unless otherwise indicated or the context requires otherwise, all references to “Schiff,” the “Company,” “we,” “us” or “our” refer to Schiff Nutrition International, Inc.; all references to “Ultimate Parent” refer to Reckitt Benckiser Group plc, a public limited company organized under the laws of England and Wales; all references to “Parent” refer to Reckitt Benckiser LLC, an indirect and wholly-owned subsidiary of Ultimate Parent; all references to “Purchaser” refer to Ascot Acquisition Corp., a direct and wholly-owned subsidiary of Parent and an indirect wholly-owned subsidiary of Ultimate Parent; all references to “Merger Agreement” refer to the Agreement and Plan of Merger, dated as of November 21, 2012, by and among Schiff, Purchaser, Parent and, solely for purposes of Section 6.17 thereof, Ultimate Parent, a copy of which is attached as Annex A to this information statement, as it may be amended from time to time; all references to the “Merger” refer to the merger contemplated by the Merger Agreement; and all references to the “Principal Stockholders” refer to Weider Health and Fitness (“Weider”) and TPG STAR SNI, L.P. (“TPG”), which together owned approximately 34.25% of the outstanding shares of the Class A common stock, par value $0.01 (“Class A Common Stock”), and 100% of the outstanding shares of the Class B common stock, par value $0.01 (“Class B Common Stock”), of Schiff (the Class A Common Stock and the Class B Common Stock, together, the “Shares”) as of the date of the Merger Agreement.

 

Q: What is the proposed transaction, and what are the reasons for it?

 

A: The proposed transaction is the acquisition of the Company by Parent pursuant to the Merger Agreement. Upon the terms and subject to satisfaction or waiver of the conditions under the Merger Agreement, Purchaser will merge with and into the Company, with the Company being the surviving corporation (the “Surviving Corporation”) and becoming a wholly owned subsidiary of Parent. The reasons for the Merger are discussed in more detail in “The Merger—Recommendation of Our Board of Directors and Its Reasons for the Recommendation” beginning on page 15.

 

Q: Did Purchaser commence a tender offer for the Shares?

 

A: Yes. On November 16, 2012, Purchaser commenced a tender offer (as amended or supplemented from time to time, the “Offer”) to purchase all of the outstanding Shares for consideration per share consisting of an amount net to the seller in cash equal to $42.00 (the “Offer Price”) without interest, less any applicable withholding taxes, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated November 16, 2012 and amended and restated on November 27, 2012 (as amended or supplemented from time to time, the “Offer to Purchase”), and in the related amended and restated Letter of Transmittal (as amended or supplemented from time to time, the “Letter of Transmittal”). The Offer was made pursuant to the Merger Agreement and was consummated on [].

The Offer is described in a Tender Offer Statement on Schedule TO, filed by Purchaser with the Securities and Exchange Commission (the “SEC”) on November 16, 2012, as amended by Amendment No. 1 to the Schedule TO filed on November 21, 2012, and as further amended by Amendment No. 2 to the Schedule TO filed on November 27, 2012 (as amended or supplemented from time to time, the “Schedule TO”).

Following the consummation of the Offer, the Merger Agreement provides that, among other things, upon its terms and subject to the satisfaction or written waiver of each of the applicable conditions set forth therein, Purchaser will be merged with and into the Company, and the Company will continue as the Surviving Corporation and a wholly-owned subsidiary of Parent. At the effective time of the Merger (the

 

iii


Table of Contents

“Effective Time”), all remaining outstanding Shares not tendered in the Offer (other than Shares held by stockholders who are entitled to demand and properly demand appraisal under Section 262 of the General Corporation Law of the State of Delaware (the “DGCL”), Shares held in the Company’s treasury or Shares owned by Parent, Purchaser or any subsidiary of Parent, Purchaser or the Company) will be cancelled and converted into the right to receive the Offer Price (the “Merger Consideration”).

 

Q: What will I be entitled to receive in the Merger?

 

A: If the Merger is completed, you will be entitled to receive $42.00 in cash, without interest and less any applicable withholding taxes, for each Share that you own and have not previously tendered in the Offer, unless you properly exercise, and do not withdraw or fail to perfect, appraisal rights under Section 262 of the DGCL. For example, if you own 100 Shares, you would be entitled to receive $4,200 in cash in exchange for your Shares, without interest and less any applicable withholding taxes. You will receive no equity interest in Parent, and after the Effective Time, you will have no equity interest in the Surviving Corporation.

 

Q: When do you expect the Merger to be completed?

 

A: We are working to complete the Merger as quickly as possible. We expect to complete the Merger promptly after all of the conditions to the Merger have been satisfied or waived.

 

Q: What happens if the Merger is not completed?

 

A: If the Merger is not completed for any reason, stockholders will not receive any payment for their Shares in connection with the Merger. Instead, the Company will remain a publicly traded company, and such shares will continue to be traded on the New York Stock Exchange (the “NYSE”).

 

Q: Why am I not being asked to vote on the Merger?

 

A: Section 251 of the DGCL requires the adoption of the Merger Agreement by the affirmative vote or written consent of Company stockholders holding in the aggregate Shares representing a majority of the voting power of the issued and outstanding Shares. On November 21, 2012, the Principal Stockholders, which on such date beneficially owned 14,973,148 Shares representing approximately 85.14% of the voting power of the issued and outstanding Shares, executed a written consent in lieu of a meeting, a copy of which is attached to this information statement as Annex B, adopting and approving in all respects the Merger Agreement and the transactions contemplated thereby, including the Merger (the “Written Consent”), and delivered such Written Consent to the Company. Therefore, your vote is not required and is not being sought. A special meeting of Company stockholders is not required and will not be held. We are not asking you for a proxy, and you are requested not to send us a proxy.

 

Q: Why did I receive this information statement?

 

A: Applicable laws and securities regulations require us to provide you with notice of the Written Consent delivered by the Principal Stockholders to the Company, as well as other information regarding the Merger, even though your vote or consent is neither required nor requested to adopt or authorize the Merger Agreement or complete the Merger. This information statement also constitutes notice to you of the availability of appraisal rights under Section 262 of the DGCL, a copy of which is attached to this information statement as Annex C.

 

Q: Did the Company Board approve and recommend the Merger Agreement?

 

A:

Yes. On November 21, 2012, the Company’s board of directors (the “Company Board”), upon the terms and subject to the conditions set forth in the Merger Agreement, (i) determined that the Offer, the Merger and

 

iv


Table of Contents
  the other transactions contemplated by the Merger Agreement are fair to and in the best interests of the Company and its stockholders, (ii) approved and declared advisable the Merger Agreement, the Offer, the Merger and the other transactions contemplated thereby in accordance with the requirements of the DGCL, (iii) recommended that the Company’s stockholders vote their Shares in favor of adopting the Merger Agreement by written consent in lieu of a meeting and (iv) resolved to recommend that the Company’s stockholders accept the Offer and tender their Shares pursuant to the Offer (the “Company Board Recommendation”).

 

Q: What happens if I sell my shares before completion of the Merger?

 

A: If you transfer your Shares, you will have transferred your right to receive the Merger Consideration in the Merger. To receive the Merger Consideration, you must hold your Shares through completion of the Merger.

 

Q: Should I send in my Share certificates now?

 

A: No. You will be sent a letter of transmittal with related instructions after completion of the Merger, describing how you may exchange your Shares for the Merger Consideration. If your Shares are held in “street name” by your bank, brokerage firm, trust or other nominee, you should contact your bank, brokerage firm, trust or other nominee. Please do NOT return your Share certificate(s) to the Company.

 

Q: Will the Merger Consideration I receive in the Merger increase if the Company’s operations improve or if the price of Common Stock increases above the Merger Consideration?

 

A: No. The value of the Merger Consideration is fixed. The Merger Agreement does not contain any provision that would adjust the Merger Consideration based on fluctuations in the price of Shares, the amount of working capital held by the Company at the Effective Time or changes in the results of operations of the Company before the Effective Time.

 

Q: Is the Merger subject to the fulfillment of certain conditions?

 

A: Yes. Before the Merger can be completed, the Company, Parent and Purchaser must fulfill or, if permissible, waive several closing conditions. If these conditions are not satisfied or waived, the Merger will not be completed. See “The Merger Agreement—Conditions to the Merger” beginning on page 66.

 

Q: If I did not consent to the adoption of the Merger Agreement or tender my Shares in the Offer, am I entitled to appraisal rights?

 

A: Yes. You are entitled to seek appraisal of the fair value of your Shares under Section 262 of the DGCL in connection with the Merger so long as you did not tender your Shares in the Offer and you follow precisely all the steps required to perfect your rights under Delaware law. See “The Merger—Appraisal Rights” beginning on page 46.

 

Q: Will I owe taxes as a result of the Merger?

 

A:

The receipt by a U.S. holder (as defined in “The Merger—Material United States Federal Income Tax Consequences,” beginning on page 49) of cash in exchange for Shares pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes. As a result, assuming you are a U.S. holder, you will generally recognize capital gain or loss in an amount equal to the difference between (x) the amount of cash you receive (determined before the deduction of any applicable withholding taxes) in the Merger and (y) the adjusted tax basis of your Shares exchanged for cash in the Merger. See “The Merger—Material United States Federal Income Tax Consequences” beginning on page 49 for more information, including

 

v


Table of Contents
  material U.S. federal income tax consequences of the Merger to non-U.S. holders. Because tax matters can be complicated and the tax consequences of the Merger to you will depend on your particular circumstances, we urge you to consult your tax advisor for a complete analysis of the effect of the Merger on your U.S. federal, state and local or foreign taxes.

 

Q: Where can I find more information about the Company?

 

A: We file periodic reports and other information with the U.S. Securities and Exchange Commission (the “SEC”). You may read and copy this information at the SEC’s public reference facilities. Please call the SEC at (800) SEC-0330 for information about these facilities. This information is also available on the internet site maintained by the SEC at www.sec.gov. For a more detailed description of the available information, please refer to the section entitled “Where You Can Find More Information” beginning on page 73.

 

Q: Who can help answer my questions?

 

A: If you have more questions about the Merger, please contact Lippert/Heilshorn & Associates, our Investor Relations contact, at (415) 433-3777. If your broker holds your shares, you should call your broker for additional information. If you have questions about the Offer, you may call MacKenzie Partners, Inc., the Information Agent for the Offer, toll-free at (800) 322-2885 or at (212) 929-5500, call collect.

 

vi


Table of Contents

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

Certain statements either contained in or incorporated by reference into this document, other than purely historical information, including estimates, projections and statements relating to the Company’s business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally include statements that are predictive in nature and depend upon or refer to future events or conditions, and include words such as “believes,” “plans,” “anticipates,” “projects,” “estimates,” “expects,” “intends,” “strategy,” “future,” “opportunity,” “may,” “will,” “should,” “could,” “potential,” or similar expressions. Such forward-looking statements include the ability of the Ultimate Parent, Parent, Purchaser and the Company to complete the transactions contemplated by the Merger Agreement, including the parties’ ability to satisfy the conditions to the consummation of the Merger.

The forward-looking statements contained in this document are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Actual results may differ materially from current expectations because of risks associated with uncertainties as to the timing of the Merger; the possibility that various conditions to the consummation of the Merger may not be satisfied or waived; the effects of disruption from the transactions on the Company’s business and the fact that the announcement and pendency of the transactions may make it more difficult to establish or maintain relationships with employees, suppliers and other business partners; the risk that stockholder litigation in connection with the Merger may result in significant costs of defense, indemnification and liability; the possibility that, following consummation of the Offer and prior to the Merger becoming effective, there may then be so few remaining stockholders and publicly held Shares that such Shares will no longer be eligible to be traded on the NYSE or other securities exchange, there may not be a public trading market for such Shares, and Schiff may cease making filings with the SEC or otherwise cease being required to comply with the SEC rules relating to publicly held companies; other risks and uncertainties pertaining to the business of the Company, including dependence on sales of Move Free®, MegaRed® and Airborne® products, dependence on individual customers, adverse publicity or consumer perception regarding the Company’s nutritional supplements and/or their ingredients, similar products distributed by other companies or the nutritional supplement industry generally, the impact of competitive products and pricing pressure (including expansion of private label products), the inability to successfully bid on new and existing private label business and the impact of raw material pricing, availability and quality (particularly relating to joint care products and ingredients from third-party suppliers outside the United States, including China); claims that the Company’s products infringe the intellectual property rights of others; the inability to enforce or protect intellectual property rights and proprietary techniques against infringement; the inability to successfully launch and maintain sales outside of the United States while maintaining the integrity of the products sold and complying with local regulations; the inability to appropriately respond to changing consumer preferences and demand for new products; the inability to gain or maintain market distribution for new products or product enhancements; litigation and government or administrative regulatory action in the United States and internationally, including FDA enforcement and product liability claims; the inability or increased cost to obtain sufficient levels of product liability and general insurance; the inability to comply with existing or new regulations, both in the United States and abroad, and adverse actions regarding product formulation, claims or advertising; product recalls or a significant amount of product returns; dependence on a single manufacturing facility and potential disruptions of the Company’s manufacturing operations; the inability to maintain or attract key personnel; interruptions to the Company’s information technology systems; control by the Company’s principal stockholders; and other risks detailed in the Company’s public filings with the SEC from time to time, including the Company’s most recent Annual Report on Form 10-K for the year ended May 31, 2012 and Quarterly Reports on Form 10-Q. The reader is cautioned not to unduly rely on these forward-looking statements. The Company expressly disclaims any intent or obligation to update or revise publicly these forward-looking statements except as required by law.

 

vii


Table of Contents

SUMMARY

This summary highlights selected information from this information statement and may not contain all the information about the Merger that is important to you. To understand the Merger fully and for a more complete description of the legal terms of the Merger, you should read carefully this information statement in its entirety, including the annexes, and the other documents to which we have referred you.

The Companies (page 1)

Schiff Nutrition International, Inc.

The Company is a leading nutritional supplement company offering vitamins, nutrition supplements and nutrition bars in the United States and abroad. The Company’s portfolio of well-known brands, including MegaRed®, Move Free®, Airborne®, Tiger’s Milk®, Digestive Advantage® and Schiff® Vitamins, is marketed primarily through the mass market (including club) and, to a lesser extent, health food store, distribution channels.

The Company’s principal offices are located at 2002 South 5070 West, Salt Lake City, Utah 84104, and its telephone number is (801) 975-5000. The Company was incorporated in Delaware in 1996.

For additional information about Schiff and its business, see “Where You Can Find More Information” beginning on page 73.

Ultimate Parent

Ultimate Parent is a United Kingdom public limited company. The business address of Ultimate Parent is Turner House, 103-105 Bath Road, Slough, Berkshire, SL1 3UH, UK. The business telephone number of Ultimate Parent is 44 (0) 1753-217800. Ultimate Parent is a multinational consumer goods company headquartered in Slough, United Kingdom. It is one of the world’s leading manufacturers and marketers of branded products in household, health, and personal care. Ultimate Parent was formed in 1999 by the merger of the UK-based Reckitt & Colman plc and the Netherlands-based Benckiser NV and its brands include Dettol, Strepsils, Veet, Air Wick, Calgon, Clearasil, Cillit Bang, Durex and Vanish. It has operations in over 60 countries and its products are sold in almost 200 countries. Ultimate Parent has approximately 50 manufacturing facilities worldwide and more than 32,000 employees across the globe. Ultimate Parent is listed on the London Stock Exchange (LSE: RB) and is a constituent of the FTSE 100 Index and its current market capitalization is approximately £27.55 billion.

Parent

Parent is a Delaware limited liability company. The business address of Parent is 399 Interpace Parkway, P.O. Box 225, Parsippany, NJ 07054-0225. The business telephone number of Parent is (973) 404-2600. Parent is an indirect wholly-owned subsidiary of Ultimate Parent. Parent manufactures, markets and sells household and cleaning products in North America, including cleaners, disinfectants and deodorizers for household use and its products serve the chemical and household products industries. Such products include high-profile brands such as Clearasil, Mucinex, Lysol disinfectant cleaner, Calgon water softeners and Finish dishwasher detergent.

Purchaser

Purchaser is a Delaware corporation incorporated on November 13, 2012, a wholly-owned direct subsidiary of Parent and a wholly-owned indirect subsidiary of Ultimate Parent, and was formed solely for the purpose of engaging in the transactions contemplated by the Offer and the Merger. To date, Purchaser has not carried on any activities other than those related to its formation and entering into the Merger Agreement and the transactions

 

 

viii


Table of Contents

contemplated thereby, including, without limitation, the commencement of the Offer. The principal executive offices of Purchaser are located at 399 Interpace Parkway, P.O. Box 225, Parsippany, NJ 07054-0225. The business telephone number of Purchaser is (973) 404-2600.

The Offer (page 52)

On November 16, 2012, Purchaser commenced the Offer to purchase all of the outstanding Shares for consideration per share consisting of an amount net to the seller in cash equal to $42.00 without interest, less any applicable withholding taxes, upon the terms and subject to the conditions set forth in the Offer to Purchase and in the related Letter of Transmittal. The Offer was made pursuant to the Merger Agreement and was consummated on [].

The Offer is described in the Schedule TO filed by Purchaser with the SEC on November 16, 2012, as amended by Amendment No. 1 to the Schedule TO filed on November 21, 2012, and as further amended by Amendment No. 2 to the Schedule TO filed on November 27, 2012.

Following the consummation of the Offer, the Merger Agreement provides that, among other things, upon its terms and subject to the satisfaction or written waiver of each of the applicable conditions set forth therein, Purchaser will be merged with and into the Company, and the Company will continue as the Surviving Corporation. In the event Parent, Purchaser and their respective affiliates acquire at least 90% of the outstanding shares of each class of Shares (the “Short Form Threshold”), including through exercise of the Top-Up Option (as defined under the heading “The Merger Agreement—Top-Up Option” below), the Merger may be effected as a “short-form” merger under and in accordance with Section 253 of the DGCL without a meeting or written consent of the stockholders of the Company to approve the adoption of the Merger Agreement. At the Effective Time, all remaining outstanding Shares not tendered in the Offer (other than Shares held by stockholders who are entitled to demand and properly demand appraisal under Section 262 of the DGCL, shares held in the Company’s treasury or shares owned by Parent, Purchaser or any subsidiary of Parent, Purchaser or the Company) will be cancelled and converted into the right to receive the Merger Consideration.

The Merger (page 52)

On November 21, 2012, the Company entered into the Merger Agreement with Purchaser, Parent and, solely for purposes of Section 6.17 thereof, Ultimate Parent. Upon the terms and subject to the conditions provided in the Merger Agreement, and in accordance with the DGCL, at the Effective Time, Purchaser will merge with and into the Company, with the Company continuing as the Surviving Corporation. As a result, the Company will become a wholly-owned subsidiary of Parent. Since the Merger Consideration will be paid in cash, you will receive no equity interest in Parent, and after the Effective Time you will have no equity interest in the Surviving Corporation.

The Merger Consideration (page 56)

Upon consummation of the Merger, each Share issued and outstanding immediately prior to the consummation of the Merger, except for Shares (i) held by stockholders who are entitled to demand and who properly demand appraisal under Section 262 of the DGCL for such shares and (ii) owned by the Company as treasury stock, by any of the Company’s subsidiaries or by Purchaser, Parent or any of their respective subsidiaries, will be cancelled and converted into the right to receive the Merger Consideration, without interest, upon surrender of each respective share certificate and/or letter of transmittal, whichever is applicable.

Reasons for the Merger (page 15)

After consideration of various factors, the Company Board has (i) determined that the Offer, the Merger and the other transactions contemplated by the Merger Agreement are fair to and in the best interests of the Company

 

 

ix


Table of Contents

and its stockholders, (ii) approved and declared advisable the Merger Agreement, the Offer, the Merger and the other transactions contemplated thereby in accordance with the requirements of the DGCL, (iii) recommended that the Company’s stockholders vote their Shares in favor of adopting the Merger Agreement by written consent in lieu of a meeting and (iv) resolved to recommend that the Company’s stockholders accept the Offer and tender their Shares pursuant to the Offer.

For a discussion of the material factors considered by the Company Board in reaching its conclusions, see “The Merger—Recommendation of Our Board of Directors and Its Reasons for the Recommendation” beginning on page 15.

Required Stockholder Approval for the Merger (page 63 and Annex B)

Under Delaware law, the adoption of the Merger Agreement by our stockholders requires the affirmative vote or written consent of stockholders of the Company holding in the aggregate Shares representing at least a majority of the voting power of the issued and outstanding Shares (the “Company Stockholder Approval”). On November 21, 2012, the Principal Stockholders, which on such date beneficially owned 14,973,148 Shares representing approximately 85.14% of the voting power of the issued and outstanding Shares, delivered the Written Consent adopting the Merger Agreement and approving the transactions contemplated thereby, including the Merger. No further action by any other Company stockholder is required under applicable law or the Merger Agreement in connection with the adoption of the Merger Agreement. As a result, the Company is not soliciting your vote for the adoption of the Merger Agreement and will not call a stockholders meeting for purposes of voting on the adoption of the Merger Agreement. No action by the stockholders of Parent is required to complete the Merger.

When actions are taken by written consent of less than all of the stockholders entitled to vote on a matter, Delaware law requires notice of the action to those stockholders who did not consent in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting. This information statement and the notice attached hereto constitute notice to you of action by written consent as required by Delaware law.

Opinion of Houlihan Lokey (page 19 and Annex D)

On November 21, 2012, Houlihan Lokey Capital, Inc. (“Houlihan Lokey”), rendered an oral opinion to the Company Board (which was confirmed in writing by delivery of Houlihan Lokey’s written opinion dated November 21, 2012), as to the fairness, from a financial point of view, of the Offer Price and the Merger Consideration to be received in the Offer and the Merger, respectively, by the holders of the Class A Common Stock, collectively as a group, as of November 21, 2012, based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in preparing its opinion.

Houlihan Lokey’s opinion was directed to the Company Board and only addressed the fairness from a financial point of view of the Offer Price and the Merger Consideration to be received by the holders of Class A Common Stock in the Offer and the Merger, respectively, and does not address any other aspect or implication of the Transactions. The summary of Houlihan Lokey’s opinion in this information statement is qualified in its entirety by reference to the full text of its written opinion, which is included as Annex D to this information statement and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in preparing its opinion. However, neither Houlihan Lokey’s opinion nor the summary of its opinion and the related analyses set forth in this information statement are intended to be, and do not constitute advice or a recommendation to the Company Board or any stockholder as to how to act with respect to the Offer, the Merger or related matters.

 

 

x


Table of Contents

The Merger Agreement

Treatment of Shares, Stock Options, Restricted Stock Units and Restricted Shares (page 37)

 

   

Shares. At the Effective Time, each outstanding Share, other than Shares (i) held by stockholders who are entitled to demand and who properly demand appraisal under Section 262 of the DGCL for such Shares and (ii) owned by the Company as treasury stock, by any of the Company’s subsidiaries or by Parent, Purchaser or any of their respective subsidiaries, will be cancelled and converted into the right to receive the Merger Consideration.

 

   

Company Options. Immediately prior to the Effective Time, each unexpired and unexercised option to purchase Shares (each, a “Company Option”) under any stock option plan of the Company, including the Company’s 1997 Equity Participation Plan and the 2004 Incentive Award Plan, each, as amended, or any other plan, agreement or arrangement (the “Company Stock Option Plans”), whether or not then exercisable or vested, will be cancelled and, in exchange therefor, each such former holder of such cancelled Company Option will only be entitled to receive, in consideration of the cancellation of such Company Option and in full settlement therefor, a payment in cash of an amount equal to the product of (A) the total number of Shares previously subject to such Company Option and (B) the excess, if any, of the Merger Consideration over the exercise price per Share previously subject to such Company Option.

 

   

Company RSUs. Immediately prior to the Offer Acceptance Time, but conditioned upon the consummation of the Offer, each outstanding restricted stock unit awarded pursuant to any Company Stock Option Plan (the “Company RSUs”) vested and became free of any restrictions and the Company thereafter delivered with respect to such Company RSU (i) Shares and (ii) the amount of any declared but unpaid dividends to the holder thereof in settlement of each such Company RSU. At the Effective Time, each Share issued in respect of the Company RSUs (that has not otherwise been tendered in the Offer or in any subsequent offering period) will be converted into the right to receive the Merger Consideration.

 

   

Company Restricted Shares. Immediately prior to the Offer Acceptance Time (as defined under the heading “The Merger Agreement—Termination of the Merger Agreement”), but conditioned upon the consummation of the Offer, each outstanding restricted share awarded pursuant to any Company Stock Option Plan (the “Company Restricted Shares”) vested and became free of any restrictions, and the Company delivered the amount of any declared but unpaid dividends with respect to such Company Restricted Share. At the Effective Time, each Company Restricted Share (that has not otherwise been tendered in the Offer or in any subsequent offering period) will be converted into the right to receive the Merger Consideration.

Conditions to the Consummation of the Merger (page 66)

The obligations of the parties to consummate the Merger are subject to the satisfaction or waiver on or prior to the date of closing of the following conditions:

 

   

(i) the Merger Agreement shall have been adopted by the Company’s stockholders by the Company Stockholder Approval and an information statement shall have been cleared by the SEC and mailed to stockholders of the Company at least twenty calendar days prior to the consummation of the Merger or (ii) all of the conditions necessary to satisfy Section 253 of the DGCL for a short form merger shall have been satisfied;

 

   

no temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other law preventing the consummation of the Merger shall be in effect; and

 

 

xi


Table of Contents
   

Purchaser (or Parent on Purchaser’s behalf) shall have accepted for payment and paid for all of the Shares validly tendered pursuant to the Offer and not withdrawn.

Non-Solicitation of Acquisition Proposals (page 63)

Under the terms of the Merger Agreement, the Company agreed to immediately cease, and cause its representatives to immediately cease, and cause to be terminated any solicitation, encouragement, activities, discussions or negotiations with any persons that may be ongoing with respect to any acquisition proposal. Further, the Company has agreed not to, and to cause certain of its representatives, not to, directly or indirectly, solicit, initiate, seek, encourage or facilitate (whether publicly or otherwise) any inquiry, expression of interest, proposal or offer with respect to, or that may reasonably be expected to lead to, an acquisition proposal or enter into, participate in, maintain or continue any discussions or negotiations relating to, any acquisition proposal with any person other than Parent or Purchaser.

Termination of the Merger Agreement (page 66)

The Merger Agreement may be terminated and the Offer and the Merger abandoned by mutual written consent prior to the Effective Time, or by either party in the event (i) that the Offer Acceptance Time did not occur on or before April 1, 2013 (the “Outside Date”) or (ii) a final and non-appealable order or ruling has been issued by a court or other governmental entity restraining, enjoining or otherwise prohibiting the consummation of the Offer, the Merger or imposing a non-required remedy, and the terminating party has used its reasonable best efforts to resist, resolve or lift, as applicable, such order or ruling.

Pursuant to its terms, the Merger Agreement may be terminated by the Company (i) if there is an uncured inaccuracy in any representation or warranty of Parent or Purchaser contained in the Merger Agreement or Parent or Purchaser has breached any of their covenants in the Merger Agreement, in each case, in a manner that has had or is reasonably likely to have, individually or in the aggregate, a Parent Material Adverse Effect (as defined under the heading “The Merger Agreement-Material Adverse Effect” below), and such inaccuracy or breach is not capable of cure or at least fifteen calendar days has elapsed since the date of delivery of written notice by the Company to Parent of such inaccuracy or breach, and (ii) at any time prior to but not after the time at which the Written Consent was executed, concurrently with the Company Board’s causing the Company to enter into any agreement, letter of intent, memorandum of understanding, agreement in principle or contract providing for or otherwise relating to a Superior Proposal (as defined under the heading “The Merger Agreement—Non-Solicitation of Acquisition Proposals” below); provided, however, that the Company was not able to terminate the Merger Agreement under subsection (ii) above unless it complied in all material respects with its obligations under the non-solicitation provision in the Merger Agreement. The Written Consent was executed following the execution of the Merger Agreement and accordingly the Company is no longer able to terminate the Merger Agreement pursuant to subsection (ii) above.

The Merger Agreement may be terminated by Parent (i) if there is an uncured inaccuracy in any representation or warranty of the Company contained in Merger Agreement or the Company has breached any of its covenants in the Merger Agreement such that relevant conditions to the Offer are not satisfied and such inaccuracy or breach is not capable of cure or at least fifteen calendar days has elapsed since the date of delivery of written notice by Parent to the Company of such inaccuracy or breach, or (ii) if, within 24 hours after the execution and delivery of the Merger Agreement by the parties, (A) the Written Consent was not delivered to the Company or (B) the Company did not deliver to Parent a certified copy of such Written Consent. The Written Consent was executed following the execution of the Merger Agreement and accordingly Parent is no longer able to terminate the Merger Agreement pursuant to subsection (ii) above.

A more detailed description of the foregoing circumstances and other circumstances under which the Company or Parent may terminate the Merger Agreement is provided in “The Merger Agreement—Termination of the Merger Agreement” beginning on page 66.

 

 

xii


Table of Contents

Breakup Fee (page 67)

If the Merger Agreement is terminated, the Company may be required under circumstances specified in the Merger Agreement to pay to Parent a termination fee of $22.0 million, as described under “The Merger Agreement—Breakup Fee” beginning on page 67.

Interests of Our Directors, Executive Officers and Affiliates in the Merger (page 37)

You should be aware that the Company’s executive officers, directors and certain affiliates have interests in the Merger that may be different from, or in addition to, the interests of the Company stockholders generally. The Company Board was aware of these interests and considered them, among other matters, in approving the Merger Agreement. These interests are described below in “The Merger—Interests of Our Directors, Executive Officers and Affiliates in the Merger” beginning on page 37.

Material United States Federal Income Tax Consequences (page 49)

If you are a U.S. holder (as defined in “The Merger—Material United States Federal Income Tax Consequences” beginning on page 49), the receipt of cash in exchange for Shares pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes. A U.S. holder of Shares receiving cash pursuant to the Merger generally will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference between (x) the amount of cash the U.S. holder receives (determined before deduction of any applicable withholding taxes) and (y) the adjusted tax basis of the exchanged Shares.

If you are a non-U.S. holder (as defined in “The Merger—Material United States Federal Income Tax Consequences”), the receipt of cash in exchange for Shares pursuant to the Merger will generally not be a taxable transaction to you for U.S. federal income tax purposes unless (i) you are an individual who is present in the United States for 183 or more days during the taxable year of such disposition and certain other conditions are met or (ii) the gain is effectively connected with your conduct of a trade or business in the United States, and, if required by an applicable tax treaty, also attributable to a permanent establishment maintained by you in the United States.

Holders of Shares should consult their tax advisor about the U.S. federal, state, local and foreign tax consequences of the Merger.

See “The Merger—Material United States Federal Income Tax Consequences” beginning on page 49.

Regulatory Matters (page 45)

The Merger is subject to review by the Antitrust Division of the U.S. Department of Justice (the “Antitrust Division”) and the U.S. Federal Trade Commission (“FTC”) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the regulations thereunder (the “HSR Act”). The HSR Act provides that transactions like the Merger may not be completed until certain information and documents have been submitted to the Antitrust Division and the FTC and the applicable waiting period has expired or been terminated. On November 16, 2012, Ultimate Parent made the requisite filings with the Antitrust Division and the FTC pursuant to the HSR Act and requested early termination of the initial 15-day waiting period for cash tender offers. The applicable waiting period under the HSR Act was initially set to expire at 11:59 p.m. New York City time on December 3, 2012, unless earlier terminated or extended. On November 27, 2012, the Company and Ultimate Parent were notified that the Antitrust Division and the FTC granted early termination of the required waiting period under the HSR Act with respect to the Offer and the Merger.

 

 

xiii


Table of Contents

Appraisal Rights (page 46)

Pursuant to Section 262 of the DGCL, stockholders (other than the Principal Stockholders) who do not wish to accept the consideration payable for their Shares pursuant to the Merger may seek judicial appraisal of the fair value of their shares by the Chancery Court. The judicially determined fair value under Section 262 could be greater than, equal to or less than the $42.00 per share that our stockholders are entitled to receive in the Merger. To qualify for these rights, you must make a written demand for appraisal on or prior to [], 2012, which is the date that is 20 days following the mailing of this information statement, and otherwise comply precisely with the procedures set forth in Section 262 of the DGCL for exercising appraisal rights. For a summary of these procedures, see “The Merger—Appraisal Rights” beginning on page 46. A copy of Section 262 of the DGCL is attached to this information statement as Annex C. We encourage you to read these provisions carefully and in their entirety.

Procedures for Receiving Merger Consideration (page 57)

Shortly after the Effective Time, a paying agent will mail a letter of transmittal and instructions to you and the other Company stockholders. The letter of transmittal and instructions will tell you how to receive the Merger Consideration in exchange for your Shares.

Market Price of Class A Common Stock

Our Class A Common Stock is listed on the NYSE under the trading symbol “SHF”. The closing sale price of Class A Common on the NYSE on October 26, 2012, which was the last trading day before we announced the Bayer Merger (as defined under the heading “The Transactions—Background to the Transactions”), was $23.19. On November 28, 2012, the last trading day before the date of this information statement, the closing price of Class A Common Stock on the NYSE was $41.99.

 

 

xiv


Table of Contents

THE COMPANIES

Schiff Nutrition International, Inc.

The Company is a leading nutritional supplement company offering vitamins, nutrition supplements and nutrition bars in the United States and abroad. The Company’s portfolio of well-known brands, including MegaRed®, Move Free®, Airborne®, Tiger’s Milk®, Digestive Advantage® and Schiff® Vitamins, is marketed primarily through the mass market (including club) and, to a lesser extent, health food store, distribution channels.

The Company’s principal offices are located at 2002 South 5070 West, Salt Lake City, Utah 84104, and its telephone number is (801) 975-5000. The Company was incorporated in Delaware in 1996.

For additional information about Schiff and its business, see “Where You Can Find More Information” beginning on page 73.

Reckitt Benckiser Group plc

Ultimate Parent is a United Kingdom public limited company. The business address of Ultimate Parent is Turner House, 103-105 Bath Road, Slough, Berkshire, SL1 3UH, UK. The business telephone number of Ultimate Parent is 44 (0) 1753-217800. Ultimate Parent is a multinational consumer goods company headquartered in Slough, United Kingdom. It is one of the world’s leading manufacturers and marketers of branded products in household, health, and personal care. Ultimate Parent was formed in 1999 by the merger of the UK-based Reckitt & Colman plc and the Netherlands-based Benckiser NV and its brands include Dettol, Strepsils, Veet, Air Wick, Calgon, Clearasil, Cillit Bang, Durex and Vanish. It has operations in over 60 countries and its products are sold in almost 200 countries. Ultimate Parent has approximately 50 manufacturing facilities worldwide and more than 32,000 employees across the globe. Ultimate Parent is listed on the London Stock Exchange (LSE: RB) and is a constituent of the FTSE 100 Index and its current market capitalization is approximately £27.55 billion.

Reckitt Benckiser LLC

Parent is a Delaware limited liability company. The business address of Parent is 399 Interpace Parkway, P.O. Box 225, Parsippany, NJ 07054-0225. The business telephone number of Parent is (973) 404-2600. Parent is an indirect wholly-owned subsidiary of Ultimate Parent. Parent manufactures, markets and sells household and cleaning products in North America, including cleaners, disinfectants and deodorizers for household use and its products serve the chemical and household products industries. Such products include high-profile brands such as Clearasil, Mucinex, Lysol disinfectant cleaner, Calgon water softeners and Finish dishwasher detergent.

Ascot Acquisition Corp.

Purchaser is a Delaware corporation incorporated on November 13, 2012, a wholly-owned direct subsidiary of Parent and a wholly-owned indirect subsidiary of Ultimate Parent, and was formed solely for the purpose of engaging in the transactions contemplated by the Offer and the Merger. To date, Purchaser has not carried on any activities other than those related to its formation and entering into the Merger Agreement and the transactions contemplated thereby, including, without limitation, the commencement of the Offer. The principal executive offices of Purchaser are located at 399 Interpace Parkway, P.O. Box 225, Parsippany, NJ 07054-0225. The business telephone number of Purchaser is (973) 404-2600.

 

1


Table of Contents

THE TRANSACTIONS

Background to the Transactions

In the ordinary course of business, the Company Board, the Transactions Committee of the Company Board (the “Committee”), which consisted, until September 3, 3012, of Messrs. Matthew T. Hobart, Michael Hyatt, William E. McGlashan, Roger Kimmel and Richard G. Wolford, and the Company’s senior management regularly review and assess various strategic alternatives available to the Company that may enhance stockholder value. In connection with this activity, the Committee generally oversees and manages such review and assessment and any related review or interaction with Company management. In the ordinary course, Mr. John Bailey, who is affiliated with TPG, has regularly assisted the Company with its business development efforts, including the Company’s acquisition of assets from Ganeden Biotech Inc. and purchase of Airborne Inc. (“Airborne”), and, at the Committee’s instruction, has served as a lead negotiator with third parties in these business development efforts.

During the week of April 2, 2012, Mr. Bailey had general conversations with several industry contacts, including Houlihan Lokey who had advised the Company on the recent acquisition of Airborne. The industry contacts, including Houlihan Lokey, indicated a belief that Bayer HealthCare LLC (“Bayer”) would have a strong level of interest in the Company. Mr. Bailey indicated that he did not believe that the Company was in a position to enter into strategic discussions at such time given its recent acquisition of Airborne and other ongoing initiatives at the Company, but that he would be amenable to a meeting to discuss the industry and the overall strategic visions of each of the respective companies.

On May 8, 2012, Mr. Bailey met with several representatives of Bayer at Houlihan Lokey’s offices in New York to discuss the industry and the Company’s strategic vision. Bayer discussed the vision for Bayer HealthCare’s Consumer Care business as well and, as part of that discussion, indicated an interest in a possible transaction with the Company. Mr. Bailey indicated that while the Company was not looking for suitors, he acknowledged that a good faith indication of interest would be considered. He also outlined the level of due diligence and preparation that would be necessary for a proposed transaction of this nature with the Company. Mr. Bailey also stressed that any valuation of the Company would need to be very attractive in order to warrant consideration. Bayer indicated that it would begin such preparation and diligence and would complete it in advance of any offer.

From May 8 through August 16, 2012, Mr. Bailey had periodic conversations with members of the Committee regarding his discussions with Bayer. The Committee members provided Mr. Bailey with their feedback on these discussions.

On July 10, 2012, Mr. Bailey spoke by telephone with representatives of Bayer. On the call, Bayer indicated that it had completed a broad, cross-functional review of publicly available information and products sold at retail, and continued to be interested in having a broader strategic discussion at the appropriate time.

On July 25, 2012, Mr. Bailey received an email outlining Bayer’s continued interest in the Company, the completion of its internal diligence and its intent to communicate a preliminary proposal during the week of August 13th.

On August 16, 2012, Mr. Bailey had a telephonic meeting with representatives of Bayer, during which they outlined their interest in approaching the Company with a potential indication of interest in acquiring the Company at a price of $28.00 per Share. After asking several clarifying questions around form of consideration and ability to finance, timeline for completion of diligence and approvals, Mr. Bailey stated that, for many reasons, an indication of interest at that level was unlikely to be one that the Company Board would support. He thanked representatives of Bayer for their effort and time and encouraged them to reflect on the proposed indication of interest and come back if there was interest at a higher level.

 

2


Table of Contents

On August 21, 2012, the Committee had a telephonic meeting during which Mr. Bailey reported on his latest discussion with representatives of Bayer and their indication of interest in acquiring the Company at a price of $28.00 per Share. The Committee agreed that a higher indication of interest would be required to continue discussions and authorized Mr. Bailey to communicate as such to Bayer.

On August 30, 2012, Mr. Bailey and Mr. William McGlashan, a member of the Company Board and an affiliate of TPG, had a telephonic meeting with representatives of Bayer, during which Bayer’s representatives proposed a transaction price of $30.00-$32.00 per Share, subject to completion of due diligence. Bayer’s representatives stated their belief that in a transaction at this value, the Company would be exceptionally fully valued. Messrs. Bailey and McGlashan indicated that they would discuss the indication of interest with members of the Company Board. Mr. Bailey indicated that the Company would expect any definitive agreement to contain a “go-shop” provision enabling the Company to solicit alternative proposals after the execution of definitive documentation. Bayer’s representatives did not respond to this comment.

On September 3, 2012, the Company Board held a telephonic meeting, the purpose of which was to discuss the recent indication of interest received from Bayer. The Company Board discussed the process and strategy for engaging in further discussions with Bayer and authorized Mr. Bailey to communicate to Bayer that the Company was prepared to engage in discussions if Bayer was prepared to work confidentially and quickly and to further increase the proposed price included in its indication of interest. The Company Board discussed the significant premium proposed and other terms of Bayer’s indication of interest. The Company Board discussed the advisability of attempting to negotiate for a “go-shop” provision. The Company Board also discussed the role and membership of the Committee. The Company Board agreed that: (i) the Committee charter should be amended to specifically expand the authority of the Committee to include the review, evaluation and negotiation of strategic transactions involving the sale of the Company, (ii) the membership of the Committee would be Messrs. Eric Weider, Matthew Hobart, Michael Hyatt, William McGlashan and Rick Wolford and (iii) Mr. Hyatt should serve as chair of the Committee.

On September 4, 2012, Mr. Bailey had a telephonic discussion with representatives of Bayer, during which he expressed the Company Board’s willingness to explore a potential transaction, but that the Company would not be willing to proceed unless Bayer was willing to work confidentially and in a manner not disruptive to the Company’s business or prospects. Mr. Bailey also stated that the Company would not be willing to proceed unless Bayer increased its proposed price. Mr. Bailey again advised Bayer of the Company’s desire for a “go-shop” provision.

Later on September 4, 2012, the Committee held a telephonic meeting, during which Mr. Bailey provided an update on his discussions with representatives of Bayer. The Committee discussed the selection of financial advisors for a potential transaction and authorized the Company to retain and negotiate agreements with each of Rothschild Inc. and Houlihan Lokey, as the Company’s financial advisors, with Houlihan Lokey’s services to also include rendering a fairness opinion, and with such agreements to be subject to the final approval of the Committee. The Committee also approved retaining Latham & Watkins LLP (“Latham & Watkins”) as the Company’s legal advisors for any potential sale transaction.

On September 10, 2012, Mr. Bailey had a telephonic discussion with representatives from Bayer, during which Bayer indicated that, after further analysis and discussion, it would be prepared to submit to the Company a formal, written, non-binding proposal at a valuation range of $32.00-$34.00 per Share. Bayer also undertook to work quickly and confidentially.

Also on September 10, 2012, Dr. Joerg Reinhardt, CEO of Bayer HealthCare, called Mr. Tarang Amin, the Company’s Chief Executive Officer, to underscore this message.

On September 11, 2012, representatives of Bayer emailed Mr. Amin a preliminary, non-binding proposal letter indicating Bayer’s interest in exploring a potential acquisition of the Company at a price range of $32.00 to

 

3


Table of Contents

$34.00 per Share. Bayer proposed a three to four week timeline for due diligence and the negotiation of a definitive agreement with respect to such transaction. The letter included Bayer’s proposal that the Company negotiate exclusively with Bayer and not undertake discussions with any party that might approach the Company with an alternative proposal.

Later on September 11, 2012, the Committee held a telephonic meeting during which Mr. Bailey updated the Committee on his recent discussions with representatives of Bayer. The Committee reviewed the terms of the preliminary proposal letter and discussed proposed responses. After this discussion, Mr. Kimmel, who was attending the meeting in his capacity as Vice Chairman of Rothschild Inc., departed the meeting. The Committee then discussed the terms of a proposed engagement letter with Rothschild Inc. The Committee authorized the officers of the Company to continue to negotiate the engagement letter with Rothschild Inc. for review and approval by the Committee. The Committee directed Mr. Bailey to seek clarification surrounding Bayer’s request for exclusivity, to indicate that the Company would not be amenable to an exclusivity agreement and to reiterate the Company’s related expectation of a “go-shop” provision in any definitive agreement.

On September 12, 2012, Bayer sent to the Company a preliminary list of due diligence requests.

On September 13, 2012, Mr. Bailey had a telephonic conversation with representatives of Bayer to clarify and discuss certain terms of the preliminary proposal letter, including the request that the Company not conduct discussions concerning other possible acquisition transactions. Mr. Bailey rejected Bayer’s request for an exclusivity agreement. The Bayer representatives stated their belief that Bayer’s proposal valued the Company exceptionally fully and informed Mr. Bailey that Bayer’s willingness to bid at the proposed price in any competitive process could not be assured. They further stated that in light of the financial value set forth in Bayer’s proposal, Bayer would not accept a “go-shop” provision in any definitive agreement. Mr. Bailey noted that the request to not shop the Company was inconsistent with prior discussions where he had indicated the Company’s expectation of a “go shop” provision in any definitive agreement and also noted that he would need to discuss this further with the Committee.

On September 14, 2012, the Committee held a telephonic meeting. Prior to Mr. Kimmel joining the meeting, the Committee authorized and directed the officers of the Company to execute and deliver, on behalf of the Company, the engagement letter with Rothschild Inc. in substantially the form discussed with the Committee. After Mr. Kimmel joined the meeting on behalf of Rothschild Inc., Mr. Bailey updated the Committee on his discussions with representatives from Bayer since the prior Committee meeting. The Committee again discussed the terms of the preliminary proposal letter received from Bayer. Latham & Watkins made a presentation on, and led a discussion of, the Company Board’s fiduciary duties, and the Committee, together with Mr. Kimmel on behalf of Rothschild Inc., had a discussion regarding potential contract terms, Bayer’s indication of interest and the potential timing of a transaction with Bayer. The Committee then directed representatives of the Company to continue discussions with Bayer concerning a potential Company sale transaction, including providing Bayer with diligence materials and negotiating the terms of a possible definitive agreement, all subject to continued oversight by the Committee and ultimate approval by the Company Board of any definitive agreement, as well as making clear that deal protection provisions would remain an open point, subject to further discussion and negotiation.

Later on September 14, 2012, the Company executed its engagement letter with Rothschild Inc. as a financial advisor in connection with a potential Company sale transaction.

Between September 15, 2012 and September 19, 2012, representatives of the Company, Bayer and Latham & Watkins negotiated the terms of a confidentiality agreement. In the course of discussions, Bayer acceded to the Company’s proposal for a standstill agreement prohibiting Bayer AG and its affiliates from initiating a change of control of the Company without the consent of the Company Board.

On September 19, 2012, Bayer AG and the Company executed a confidentiality agreement, which included a standstill provision (the “Bayer Confidentiality Agreement”).

 

4


Table of Contents

On September 21, 2012, the Company provided access to due diligence materials to Bayer through an online data room.

On September 25, 2012, Mr. Bailey had a call with Bayer to discuss the status of various diligence items. On the same day, Latham & Watkins sent to Bayer’s legal counsel, Sullivan & Cromwell LLP (“Sullivan & Cromwell”), an initial draft of the agreement and plan of Merger by and among Bayer, Willow Road Company and the Company (the “Bayer Merger Agreement”) with respect to the potential transaction (the “Bayer Merger”) to be negotiated concurrently with Bayer’s completion of due diligence. The draft Bayer Merger Agreement provided that Bayer would make a tender offer with closing conditioned upon the tender of a majority of the outstanding Shares on a fully-diluted basis. The draft also provided for a 30-day “go-shop” period during which the Company could solicit alternative proposals from other parties, followed by a “no-shop” period during which the Company could pursue unsolicited alternative proposals.

On September 26, 2012, Latham & Watkins called Sullivan & Cromwell to discuss logistics and process with respect to both legal diligence and Bayer’s review of the draft Bayer Merger Agreement.

On September 27 and 28, 2012, representatives of Bayer, Merrill Lynch, Pierce, Fenner & Smith Incorporated (Bayer’s financial advisor) and Sullivan & Cromwell conducted in-person due diligence sessions with members of the Company’s management, representatives of TPG, representatives of Rothschild Inc. and representatives of Houlihan Lokey. After these sessions, representatives of Bayer met with Mr. Bailey and provided a general overview of the Bayer approval process that would be necessary in connection with the potential transaction.

On October 3, 2012, the Committee held a telephonic meeting, during which Mr. Bailey and Mr. Amin provided a summary of the in-person due diligence sessions held on September 27 and 28, 2012 and discussed Bayer’s areas of due diligence focus and follow-up action items. The Committee also reviewed the terms of the Company’s engagement letter with Houlihan Lokey, a copy of which had been previously distributed to the Committee, and approved the engagement letter on the terms presented. Later on that day, the Company executed its engagement letter with Houlihan Lokey as a financial advisor in connection with a potential Company sale transaction.

On October 3, 2012, Sullivan & Cromwell called Latham & Watkins to discuss the transaction structure and the Company’s “go-shop” proposal.

On October 5, 2012, Sullivan & Cromwell sent to Latham & Watkins a revised draft of the Bayer Merger Agreement reflecting a structure under which the Bayer Merger Agreement would be adopted by written consent of the Company’s stockholders and under which the Company would have almost no ability to solicit, pursue or accept any alternative proposals following execution of the Bayer Merger Agreement.

On October 6, 2012, the Committee held a telephonic meeting, during which Mr. Bailey updated the Committee on his discussions with representatives from Bayer and a representative of Latham & Watkins updated the Committee on their discussions with Sullivan & Cromwell and issues presented by the revised draft Bayer Merger Agreement. The Committee, as well as Mr. Kimmel who attended on behalf of Rothschild Inc., discussed various provisions in the revised draft Bayer Merger Agreement, after which the Committee requested that Mr. Bailey promptly communicate to Bayer the Company’s objections to certain points in the revised draft Bayer Merger Agreement, including the removal of the “go-shop” provision. Later in the day on October 6, 2012, Mr. Bailey called certain representatives of Bayer and communicated these objections.

On October 7, 2012, Messrs. Bailey and McGlashan called certain representatives of Bayer again to reiterate the Committee’s objections and to realign the overall transaction process. Representatives of Latham & Watkins and Sullivan & Cromwell had a telephonic negotiating session concerning the Bayer Merger Agreement. Although progress was made on various points, representatives of Latham & Watkins indicated that the

 

5


Table of Contents

Company would not be prepared to discuss alternative proposal provisions further until Bayer provided a more definitive indication of value. Later that day, Latham & Watkins delivered to Sullivan & Cromwell a material issues list of open points in the revised Bayer Merger Agreement.

On October 8, 2012, Mr. Bailey spoke to representatives of Bayer to discuss the status of diligence items and key points in the revised Bayer Merger Agreement and indicated that the Company would not be prepared to discuss alternative proposal provisions further until Bayer provided a more definitive indication of value and that a high value would be required for the Company to consider a definitive agreement that did not include a “go-shop” provision. Latham & Watkins and Sullivan & Cromwell conducted additional negotiations on October 8, 2012, but various material issues related to alternative proposals remained unresolved.

On October 9, 2012, Mr. Bailey had various calls with representatives from Bayer to discuss the status of diligence and key points in the Bayer Merger Agreement, and Latham & Watkins sent a revised draft of the Bayer Merger Agreement to Sullivan & Cromwell later that day.

On October 11, 2012, Sullivan & Cromwell sent to Latham & Watkins a revised draft of the Bayer Merger Agreement. This draft reflected a resolution of additional issues in the agreement, but no resolution of the alternative proposal issues.

On October 13, 2012, Mr. Bailey had a call with certain representatives of Bayer concerning the revised draft Bayer Merger Agreement and the transaction process generally.

Also on October 13, 2012, the Company Board held a telephonic meeting to review and approve financial projections prepared by the Company’s management for use by the Company Board and the Company’s financial advisors in considering the proposed transaction with Bayer. Mr. Bailey and representatives of Latham & Watkins also updated the Company Board on the status of the diligence process and negotiations with Bayer.

Later on October 13, 2012, Latham & Watkins had a telephonic negotiating session with Sullivan & Cromwell regarding outstanding issues in the draft Bayer Merger Agreement.

On October 15, 2012, Latham & Watkins sent to Sullivan & Cromwell a revised draft of the Bayer Merger Agreement. This draft reflected a resolution of additional issues in the agreement, but no resolution of the alternative proposal issues.

On October 16, 2012, Mr. Bailey had discussions with representatives from Bayer, during which Bayer further described its internal approval process, timing for remaining approvals and certain key points in the Bayer Merger Agreement.

On October 18, 2012, Sullivan & Cromwell sent to Latham & Watkins the proposed form of Written Consent and drafts of the stockholder support agreements.

On October 19 and 20, 2012, Mr. Bailey called certain representatives from Bayer to discuss certain items in the disclosure schedules to the Bayer Merger Agreement.

On October 22, 2012, Mr. Bailey had a call with certain representatives of Bayer, during which Bayer indicated that the board of management of Bayer AG, the ultimate parent entity of Bayer, expressed support for a proposed transaction at the upper end of the $32.00 to $34.00 range, subject to resolution of the alternative proposal provisions. Mr. Bailey asked Bayer to have Sullivan & Cromwell send to Latham & Watkins a proposal regarding the alternative proposal provisions. Later in the day on October 22, 2012, Latham & Watkins and Sullivan & Cromwell negotiated open issues in the Bayer Merger Agreement, and Sullivan & Cromwell sent to Latham & Watkins a revised draft of the Bayer Merger Agreement. This draft proposed a structure under which the Bayer Merger Agreement would be submitted for approval by written consent of the Company’s stockholders

 

6


Table of Contents

and the Company Board would have a 30-day “window-shop” period in which it could terminate the Bayer Merger Agreement to accept an unsolicited superior proposal, subject to payment of a termination fee. The draft did not propose a transaction price or termination fee amount.

On October 23, 2012, Latham & Watkins had a teleconference call with Sullivan & Cromwell to negotiate the open issues in the Bayer Merger Agreement, and Latham & Watkins later sent to Sullivan & Cromwell a revised draft of the Bayer Merger Agreement.

On October 25, 2012, the Company Board had an in-person meeting, during which the directors discussed the current status of negotiations with Bayer. Representatives of Latham & Watkins led a discussion with the Company Board concerning the Company Board’s fiduciary duties. Representatives of Rothschild Inc. then led a discussion concerning various Company valuation analyses and then (including Mr. Kimmel) left the meeting for the duration of the following discussion. Representatives of Houlihan Lokey then joined the meeting and led a discussion concerning recent mergers and acquisition transactions in the vitamins, minerals and supplements (“VMS”) industry and such transactions’ impact on the value that the Company Board could expect in a potential sale transaction, as well as a discussion of possible other acquirors. As part of this discussion, representatives of Houlihan Lokey stated their belief that the Company was unlikely to find another buyer at this time willing to pay more than $34.00 per Share. The Company Board discussed alternatives to a transaction with Bayer and considered whether Bayer’s proposal at $34.00 per Share was the best available strategic option for the Company, including the possibility of continuing to operate as an independent company. Latham & Watkins reviewed the proposed structure of the transaction and the material terms of the draft Bayer Merger Agreement, including, among other matters, (i) Bayer’s proposal that the Bayer Merger Agreement be adopted by written consent of the largest stockholders of the Company, rather than by a vote of stockholders at a stockholders’ meeting, (ii) the ability of the Company, notwithstanding such written consent, for a period of 30 days following execution of the Bayer Merger Agreement to terminate the Bayer Merger Agreement in order to accept an unsolicited superior proposal for the Company and (iii) the provisions concerning the termination fee proposed to be payable by the Company and the circumstances under which such fee would be payable.

On October 26, 2012, Mr. Bailey and Mr. Scott Milsten, General Counsel of the Company, and representatives from Bayer, along with each party’s outside legal counsel had a teleconference call to discuss remaining open items. On this call, the Bayer representatives stated that, subject to approval of the supervisory board of Bayer AG, Bayer would be prepared to pay $34.00 per Share, and would be willing to set the termination fee at $22 million, if the Company Board approved the Bayer Merger Agreement in substantially the same form as the last draft circulated between the parties’ counsel.

On October 26 and 27, 2012, the Company and Bayer, acting through their respective legal advisors, negotiated most remaining terms of the draft Bayer Merger Agreement and related ancillary documents. After further discussions, the Company provided a revised draft of the Bayer Merger Agreement to Bayer on October 27, 2012.

On October 29, 2012, the supervisory board of Bayer AG, the ultimate parent entity of Bayer, approved the transaction at a price of $34.00 per Share.

On October 29, 2012, at a meeting of the Company Board, Latham & Watkins reviewed with the Company Board the proposed final terms of the Bayer Merger Agreement. Houlihan Lokey then reviewed with the Company Board certain financial analyses, and rendered to the Company Board its opinion dated October 29, 2012, to the effect that, as of that date and based upon and subject to the various assumptions, qualifications and limitations in the review undertaken, and other matters set forth therein, the aggregate consideration of $34.00 per share to be received in the Bayer Merger by holders of shares of Class A Common Stock was fair, from a financial point of view, to such holders. After further deliberation and discussion, with Mr. Kimmel abstaining from the vote, the Company Board (i) determined that the Bayer Merger and the other transactions contemplated by the Bayer Merger Agreement are fair to and in the best interests of the Company and its stockholders,

 

7


Table of Contents

(ii) approved and declared advisable the Bayer Merger Agreement, the Bayer Merger and the other transactions contemplated by the Bayer Merger Agreement in accordance with the requirements of the DGCL and (iii) recommended that the Company’s stockholders vote their Shares in favor of adopting the Bayer Merger Agreement.

On October 29, 2012, Bayer, Willow Road Company, a Delaware corporation and a wholly-owned subsidiary of Bayer, and the Company entered into the Bayer Merger Agreement, and Weider and TPG each entered into support agreements with respect to the merger contemplated thereunder. Shortly following the execution of the Bayer Merger Agreement, Weider and TPG each executed the Written Consent adopting the Bayer Merger Agreement, and the Company delivered to Bayer a certified copy of the Written Consent as required under the terms of the Bayer Merger Agreement.

The transaction was announced pursuant to a joint press release issued by Bayer and the Company prior to stock market open on October 30, 2012.

On November 5, 2012, the Company filed the Schedule 14C relating to the Bayer Merger with the SEC.

On November 15, 2012, immediately preceding Ultimate Parent’s issuance of a press release announcing its intention to commence the unsolicited Offer, and immediately following notification thereof to Latham & Watkins LLP by Paul, Weiss, Rifkin, Wharton & Garrison LLP, legal advisor to Ultimate Parent (“Paul Weiss”) and to Mr. Bailey and Mr. McGlashan by Morgan Stanley, financial advisor to Ultimate Parent (“Morgan Stanley”), the chief executive officer of Ultimate Parent delivered the following letter to the Company Board (“Bid Letter”):

Eric Weider

Chairman of the Board

Schiff Nutrition International, Inc.

2002 South 5070 West

Salt Lake City, Utah 84104

Dear Mr. Weider:

We are pleased to submit this proposal by Reckitt Benckiser Group plc (“Reckitt”) to acquire all of the outstanding common stock of Schiff Nutrition International, Inc. (“Schiff” or the “Company”). We have been highly impressed with the performance of Schiff over time and believe you have developed an outstanding portfolio of differentiated products. We believe VMS is a very attractive market segment and view a business combination of Schiff and our company as a unique opportunity to establish an exciting new growth platform. In order to secure this opportunity, we have devoted substantial resources to constructing a proposal that combines enhanced value for your shareholders, speed of execution and certainty of closing. Our proposal is clearly superior to the Company’s existing transaction with Bayer Healthcare LLC (“Bayer”).

We propose to acquire all of the outstanding common stock of Schiff for $42.00 per share in cash. This represents a 23.5% premium to the price payable in the Bayer transaction.

We recognize that it may be in the best interests of the Company’s shareholders to complete a transaction prior to the end of this year. In order to facilitate this, and in light of the limited time permitted under your merger agreement with Bayer, concurrent with our submission of this proposal we are publicly announcing the commencement of a tender offer (the “Offer”) to acquire all of the outstanding common stock of the Company at the price set forth above. The Offer is subject to, among other customary conditions, (i) the termination of the merger agreement with Bayer and of the support agreements between Bayer and each of Weider Health and Fitness (“Weider”) and TPG STAR SNI, L.P. (“TPG” and, together

 

8


Table of Contents

with Weider, the “Controlling Shareholders”), (ii) the execution by the Company of a merger agreement, and the execution by each of the Controlling Shareholders of tender and support agreements, in each case in form and substance reasonably acceptable to Reckitt and (iii) completion of the limited confirmatory due diligence described below. Promptly following execution of definitive agreements with the Company and the Controlling Shareholders, we would amend the Offer in order to remove each of these conditions to the Offer.

Neither our proposal nor the Offer is subject to any financing contingency. We currently have sufficient funds through our cash on-hand and available facilities to finance the transaction. Reckitt’s Board of Directors has approved this proposal, which is not subject to any additional internal approvals or shareholder approvals. While the Offer is subject to expiration or early termination of the Hart-Scott-Rodino waiting period, we do not expect our transaction would raise any substantive antitrust issues. We require only limited confirmatory due diligence, which we believe can be completed within three days of being granted full access to Schiff and the existing on-line data room, which was made available to Bayer. A list of our brief diligence requirements is provided as Annex A to this letter.

We have enclosed with this proposal a draft merger agreement and draft tender and support agreements. Each of these agreements is substantially identical to the current agreements with Bayer, other than those mechanical features necessary to convert the transaction to a tender offer and the elimination of the mechanics for terminating the agreement in order to accept a future acquisition proposal. Subject to satisfactory completion of our limited confirmatory due diligence, and termination of the agreements with Bayer, we would be prepared to execute these agreements in the forms attached, supplemented by the relevant and mutually agreed disclosure letter.

Reckitt is a global consumer goods leader in health, hygiene and home. With a purpose of delivering innovative solutions for healthier lives and happier homes, Reckitt is in the top 25 of companies listed on the London Stock Exchange. Since 2000, net revenues have doubled and the market cap has quadrupled. Today it is the global No 1 or No 2 in the majority of its fast-growing categories, driven by an exceptional rate of innovation. Its health, hygiene and home portfolio is led by 19 global powerbrands including Nurofen, Strepsils, Gaviscon, Mucinex, Durex, Scholl, Lysol, Dettol, Clearasil, Veet, Harpic, Bang, Mortein, Finish, Vanish, Woolite, Calgon, Airwick, and French’s, and they account for 70% of net revenue. Reckitt has operations in over 60 countries, with headquarters in the UK, Singapore, Dubai and Amsterdam, and sales in almost 200 countries. The company employs about 38,000 people worldwide.

Reckitt has a strong track record of successful acquisitions, completing over $10 billion of transactions since 2005. Our experience includes public company transactions across various jurisdictions, including our acquisition of Adams Respiratory Therapeutics for $2.1 billion. We are confident that Schiff will continue to prosper within our franchise and that a transaction will not only create substantial and immediate value for your company’s shareholders in excess of the value of your transaction with Bayer, but will also deliver ongoing benefits to your customers, employees and partners.

In summary, our proposal offers the Company the opportunity to enter into a transaction that provides a substantial premium over the price Bayer has agreed to pay and otherwise on substantially identical terms to the Bayer transaction. With your timely cooperation, our transaction will close before year end. We trust that the degree of resources we have devoted to the development of this proposal and to the launching of the Offer demonstrate to the Board our determination in pursuing this opportunity and our dedication to achieving a mutually beneficial transaction in the most timely manner possible. Accordingly, we urge you and your Board of Directors promptly to take those actions necessary under the Bayer agreement in order to afford us the opportunity to complete our due diligence and commence discussions with management and your advisors. We wish to afford your shareholders the compelling value this proposal presents at the earliest possible time and certainly before year end.

 

9


Table of Contents

We and our advisors, including Morgan Stanley and Paul, Weiss, Rifkind, Wharton & Garrison, LLP, stand ready to engage immediately to finalize an agreement and look forward to consummating a mutually beneficial transaction in the coming days.

 

Sincerely,
/s/ Rakesh Kapoor
Rakesh Kapoor
Chief Executive Officer
Reckitt Benckiser Group plc

Paul Weiss also sent to Latham & Watkins a complete set of Ultimate Parent’s unsolicited proposed transaction materials, including, in addition to the Bid Letter, a proposed draft Merger Agreement, a proposed draft Tender and Support Agreement for each of Weider and TPG (the “Tender and Support Agreements”), a due diligence request list and a notice letter that Ultimate Parent intended to file notification under the HSR Act of the intent to acquire voting securities of the Company (collectively, the “Competing Acquisition Proposal”). The material terms of the Competing Acquisition Proposal included the proposed purchase, pursuant to the Offer to be commenced on November 16, 2012, of all of the outstanding Shares at a price of $42.00 per Share, a proposed Merger Agreement that contemplated adoption of the Merger Agreement by a Written Consent (to be delivered within 24 hours of entry into the proposed Merger Agreement), but that excluded any window shop period (following delivery of the written consent), and proposed tender and support agreements to be executed by TPG, Weider and directors and executive officers of the Company. Later that evening, Purchaser filed a Schedule TO-C with the SEC with respect to its intention to commence the Offer as outlined in the Competing Acquisition Proposal.

On the evening of November 15, 2012, the Company Board met, along with representatives from each of its financial advisors and outside legal counsel, to review the terms and conditions of the Competing Acquisition Proposal. The Company Board and its advisors reviewed the significant increase in the proposed price per Share compared to the Bayer Merger Agreement, the commitment to the proposed transaction communicated in the Bid Letter and by Paul Weiss and Morgan Stanley, the likelihood of completing an alternative transaction including timing with respect thereto and the financial capacity and opportunity for Bayer to potentially increase the consideration payable pursuant to the Bayer Merger Agreement. The Company Board discussed its continued focus on retaining some type of window-shop period in any proposed alternative merger agreement. Following additional review and discussion, the Company Board, with Mr. Kimmel abstaining, determined, in good faith, that the Competing Acquisition Proposal was reasonably likely to lead to a superior proposal (as defined by the Bayer Merger Agreement). Accordingly, the Company Board determined, pursuant to, and in accordance with, the terms of the Bayer Merger Agreement, to permit the Company to furnish information to, and participate in discussions and negotiations with, Ultimate Parent and its representatives with respect to the Competing Acquisition Proposal subject to the entry into an Acceptable Confidentiality Agreement (as defined in the Bayer Merger Agreement). Following this meeting, the Company instructed Latham & Watkins to provide Paul Weiss with a proposed form of Acceptable Confidentiality Agreement, which included the same terms as the Bayer Confidentiality Agreement but did not include a standstill provision.

On November 16, 2012, the Company provided Bayer and Sullivan & Cromwell with written notice of the receipt of the unsolicited Competing Acquisition Proposal and the Company Board’s determination to furnish information to, and participate in negotiations and discussions with, Ultimate Parent and its representatives, in each case in accordance with the Bayer Merger Agreement and subject to entry into an acceptable confidentiality agreement. Mr. Bailey and Latham & Watkins each communicated the determination telephonically to Bayer and Sullivan & Cromwell, respectively. Later in the day, the Company also provided Bayer and Sullivan & Cromwell with the complete set of materials provided by Ultimate Parent in connection with the Competing Acquisition Proposal.

 

10


Table of Contents

On November 16, 2012, Purchaser formally commenced the Offer and filed a Schedule TO and related exhibits with the SEC. Also on November 16, 2012, Paul Weiss sent the Company a request, pursuant to Rule 14d-5 of the Exchange Act, for the Company’s stockholder list and security position listings (“Rule 14d-5 Demand Letter”).

On the morning of November 17, 2012, the Company and Ultimate Parent entered into the Confidentiality Agreement on the same terms as the Bayer Confidentiality Agreement (excluding a standstill provision). The Company then provided access to Ultimate Parent and its representatives to due diligence materials on its online data room. Access to information was made available on the same basis as provided to Bayer, including certain additional information as requested by Ultimate Parent. Also on that date, advisors to the parties had conversations regarding coordination of due diligence activities and management meetings to commence that weekend and early the following week, respectively.

On November 17, 2012, Morgan Stanley contacted Mr. McGlashan to discuss Ultimate Parent’s proposal and its strong interest and commitment to the proposed transaction. Morgan Stanley indicated that Ultimate Parent was prepared to act expeditiously in due diligence review and described its business rationale for a combination of the Company’s business into Ultimate Parent’s global platform.

On November 17, 2012, the Company provided written notice to Bayer and Sullivan & Cromwell regarding receipt of the Rule 14d-5 Demand Letter, entry into the Confidentiality Agreement and the provision of access to Ultimate Parent and its representatives to the online data room (with notice that any additional due diligence materials presented to Ultimate Parent would be provided to Bayer via the online data room in accordance with the terms of the Bayer Merger Agreement).

On November 18, 2012, Latham & Watkins had multiple telephonic discussions with Paul Weiss regarding the Competing Acquisition Proposal, including provisions in the draft Merger Agreement and form Tender and Support Agreement, as well as general transaction terms. In particular, on behalf of the Company, Latham & Watkins emphasized the Company Board’s continued focus on retaining some window-shop period as in the Bayer Merger Agreement. Paul Weiss noted that any continued window-shop period would not be acceptable to Ultimate Parent given the level of the Offer Price.

On November 18, 2012, the Company Board held a telephonic meeting, including representatives from each of its financial advisors and outside legal counsel, to discuss the Competing Acquisition Proposal, the diligence process commenced to date and compliance with notice and other provisions under the Bayer Merger Agreement. The Company Board discussed, with input from its financial advisors and outside legal counsel, the details of the Competing Acquisition Proposal and whether or not the Company Board could, at this time and with the information provided in the Competing Acquisition Proposal and Ultimate Parent’s commitment regarding the proposed transaction as conveyed by Morgan Stanley and Paul Weiss, make a determination that it intended to make a change of Company Board recommendation or terminate the Bayer Merger Agreement (in each case as defined in and in accordance with the Bayer Merger Agreement). The Company Board and its advisors reviewed the significant increase in the proposed price per Share represented by the Offer Price compared to the Bayer Merger Agreement, the commitment to the proposed transaction communicated in the Bid Letter and by Paul Weiss and Morgan Stanley, Ultimate Parent’s ability to complete an alternative transaction without financing and the likelihood of completing an alternative transaction (including timing with respect thereto). Representatives of Houlihan Lokey provided for the Company Board an overview of Ultimate Parent, its global business and brands, its market position and publicly stated strategic goals in the consumer healthcare industry, publicly available information with respect to its financial condition and ability to finance the proposed transaction and its prior successful consumer health acquisition activity, including its acquisitions of Boots Healthcare International, Adams Respiratory, SSL International and Paras Pharmaceuticals. Representatives of Latham & Watkins discussed the Company Board’s fiduciary obligations as well as the requirements of the Bayer Merger Agreement. Following additional review and discussion, the Company Board determined, with Mr. Kimmel abstaining, that the Competing Acquisition Proposal constituted a superior proposal (as defined in the Bayer

 

11


Table of Contents

Merger Agreement) and that the Company Board intended to make a change to the Company Board recommendation or terminate the Bayer Merger Agreement. The Company Board directed Latham & Watkins to continue to press for a window-shop period in any alternative merger agreement. Following this determination, as instructed by the Company Board, the Company sent a written notice to Bayer, in compliance with the Bayer Merger Agreement, regarding the determination of the Company Board and the commencement of the four business day notice period during which Bayer could choose to negotiate with the Company and adjust the terms of the Bayer Merger Agreement such that the Competing Acquisition Proposal would not be a Superior Proposal (as defined by the Bayer Merger Agreement).

On November 19, 2012, the Company and its financial advisors hosted a management presentation and due diligence sessions for Ultimate Parent and its representatives, including Morgan Stanley, in the San Francisco office of Latham & Watkins.

On November 19, 2012, Latham & Watkins had telephonic discussions with Paul Weiss regarding the Competing Acquisition Proposal and the proposed transaction documents. In particular, Latham & Watkins emphasized the Company Board’s continued focus on a window-shop period in any alternative merger agreement. Paul Weiss reiterated that any continued window-shop period would not be acceptable to Ultimate Parent given the level of the Offer Price. Latham & Watkins told Paul Weiss to expect Company comments to the proposed merger agreement and other transaction agreements later that day. That afternoon, Paul Weiss delivered to Latham & Watkins the proposed form of tender and support agreement for executive officers and directors of the Company (the “D&O Agreements”).

Following market close on November 19, 2012, Sullivan & Cromwell contacted Latham & Watkins to convey Bayer’s determination that it would not increase the consideration of $34.00 per Share provided in the Bayer Merger Agreement. Sullivan & Cromwell confirmed that such determination would be made in writing to the Company later that day (and publicly filed on a Schedule 13D amendment with the SEC prior to the market opening the following morning). The notice letter would also waive the four business day matching period afforded to Bayer with respect to the Competing Acquisition Proposal as long as there were not any material revisions to the financial or other material terms of such proposal.

Following the notice from Sullivan & Cromwell of Bayer’s intended disclosure, the Company Board convened a telephonic meeting in the early evening of November 19, 2012. The Company Board, along with its financial advisors and outside legal counsel, discussed the developments with Bayer, the status of the Competing Acquisition Proposal and due diligence by and negotiations with Ultimate Parent and its representatives to date, the fiduciary duties applicable to the Company Board in connection with its consideration of an alternative proposal, the terms and the conditions of the Bayer Merger Agreement (that continued to apply until such time, if any, as the Bayer Merger Agreement was terminated pursuant to its terms) and related strategy for communicating and managing any proposed transaction with Ultimate Parent.

The Company Board convened another telephonic meeting later in the evening of November 19, 2012, along with its financial advisors and outside legal counsel, to further discuss transaction developments with Bayer and next steps regarding the proposed transaction with Ultimate Parent. The Company Board instructed Latham & Watkins to continue to negotiate with Paul Weiss regarding the window-shop provision in the proposed Merger Agreement with Ultimate Parent and to continue to prepare for a potential transaction with Ultimate Parent (subject to the requirements of the Bayer Merger Agreement) as expeditiously as possible. Later that evening, Latham & Watkins distributed Company comments to the draft Merger Agreement, which included a provision for a window-shop period.

 

12


Table of Contents

Later that evening, Bayer delivered to the Company, with a copy from Sullivan & Cromwell to Latham &Watkins, written notice that it had decided not to propose any increase to the $34.00 per Share consideration set forth in the Bayer Merger Agreement and that it would grant a waiver of the four day notice provision otherwise required by the Bayer Merger Agreement with respect to the Competing Acquisition Proposal, as follows:

Schiff Nutrition International, Inc.

2002 South 5070 West

Salt Lake City, UT 84104-4726

Attention: General Counsel

Facsimile No.: (801) 975-1924

Re: Agreement and Plan of Merger

Dear Mr. Milsten:

Reference is made to: (i) that certain Agreement and Plan of Merger, dated as of October 29, 2012 (the “Merger Agreement”), by and among Bayer HealthCare LLC, a Delaware limited liability company (“Parent”), Willow Road Company, a Delaware corporation and a wholly-owned Subsidiary of Parent (“Merger Sub”), and Schiff Nutrition International, Inc., a Delaware corporation (the “Company”); and (ii) your letter to Dr. Jan Heinemann dated November 18, 2012 (the “November 18 Letter”), which gave notice with respect to the $42.00 per common share, all cash Acquisition Proposal from Reckitt Benckiser Group plc dated November 15, 2012 (the “November 18 Proposal”). All capitalized terms used but not otherwise defined herein shall have the definitions set forth in the Merger Agreement.

Bayer AG’s Board of Management has decided not to propose any increase to the Merger Consideration payable in respect of the Company Common Stock in response to the November 18 Proposal. Bayer AG’s Board of Management continues to believe that the Merger transaction would represent a logical and strategic addition for Bayer’s Consumer Care business. However, it came to the conclusion that entering a competitive bidding process in response to the November 18 Proposal would result in a price outside Bayer’s set financial criteria. Having completed a number of successful acquisitions, Bayer plans to continue its strategy to augment organic growth with strategic bolt-on acquisitions.

Parent and Merger Sub hereby waive the conditions set forth in clauses i. and ii. of the second proviso of the first sentence of Section 5.3(f) of the Merger Agreement (the “Waived Conditions”) solely with respect to the November 18 Proposal. This waiver applies solely to the Waived Conditions, so that the actions specified in clauses (y) and (z) of such proviso (the “Actions”) may not be taken with respect to the November 18 Proposal unless the Company complies with the other provisions of Section 5.3(f), including the first proviso to such sentence, clause iii. of the second proviso to such sentence, and the sentences following clause iii, as well as any other provision of the Agreement that would be applicable to the Actions. This waiver does not and shall not apply to any Acquisition Proposal other than the November 18 Proposal or any actions taken with respect thereto, and in the event of any material revisions to the financial or other material terms of the November 18 Proposal, the applicable provisions of Section 5.3(f) of the Merger Agreement shall continue to apply. This waiver does not and shall not apply to any failure to comply with any provision of the Merger Agreement other than the Waived Conditions, and Parent and Merger Sub reserve all rights with respect to any such failure.

 

Bayer Healthcare LLC

By: 

 

/s/ William B. Dodero

Name: 

  William B. Dodero

Title: 

  Assistant Secretary

 

13


Table of Contents

Willow Road Company

By: 

 

/s/ William B. Dodero

Name: 

  William B. Dodero

Title: 

  Secretary

CC:

Sullivan & Cromwell LLP

125 Broad Street

New York, NY 10004

Attention: Matthew G. Hurd

Facsimile No.: (212) 558-3588

Latham & Watkins LLP

140 Scott Drive

Menlo Park, California 94062

Attention: Tad Freese

Jamie Leigh

Facsimile No.: (650) 463-2600

Schiff Nutrition International, Inc.

2101 Park Avenue, Suite 101

Emeryville, CA 94608

Attention: General Counsel

Facsimile No.: (510) 922-1271

On the morning of November 20, 2012, Bayer included the letter to the Company described above in an amended Schedule 13D filed with the SEC.

Also on November 20, 2012, the Company continued due diligence presentations for Ultimate Parent and its representatives at the Company’s Salt Lake City, Utah plant location and at management offices in Emeryville, California, respectively.

During the course of the day on November 20, 2012, Latham & Watkins and Paul Weiss continued to discuss outstanding issues in the draft Merger Agreement and other transaction documents. In response to the Company’s proposed window-shop provision included in comments to the proposed Merger Agreement, Paul Weiss again communicated that Ultimate Parent would not agree to this provision, sent a follow-up email to Latham & Watkins reiterating this position and sent a proposed final draft Merger Agreement to Latham & Watkins that deleted this provision. Respective outside legal counsel had several conversations in order to resolve other outstanding issues and to discuss logistics for potentially executing and announcing a definitive transaction, in each case subject to approval of Company Board and compliance with the terms of the Bayer Merger Agreement.

On November 21, 2012, the Company Board held a telephonic meeting, including representatives from each of its financial advisors and outside legal counsel, to review and discuss the Competing Acquisition Proposal, including Ultimate Parent’s condition for proceeding that no window-shop period be included in the proposed final draft Merger Agreement, the Tender and Support Agreements and D&O Agreements and the recent developments and disclosure by Bayer. Latham & Watkins reviewed the terms and conditions of the proposed transaction documents, the discussions held with Paul Weiss to date, the Company Board’s fiduciary duties and compliance with the terms of the Bayer Merger Agreement, in each case in connection with the proposed transaction with Ultimate Parent. Representatives of Houlihan Lokey then reviewed with the Company Board certain financial analyses as more fully described under the heading “The Merger—Opinion of Houlihan Lokey,” and noted that the Offer Price represented, to their knowledge, the highest implied transaction value for a target

 

14


Table of Contents

business in the VMS industry with sales of over $100 million, as a multiple of earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the latest twelve months for which financial information had been made public (“LTM”) as of the public announcement date of any such transaction, and rendered to the Company Board Houlihan Lokey’s opinion dated November 21, 2012, to the effect that, as of that date and based upon and subject to the various assumptions, qualifications and limitations in the review undertaken, and other matters set forth therein, the aggregate consideration of $42.00 per share to be received in the Offer and the Merger by holders of Class A Common Stock was fair, from a financial point of view, to such holders, collectively as a group. The Company Board discussed the proposed terms of the Merger Agreement and the substantial premium to be paid pursuant to the terms of the Offer and the Merger. After further discussion and deliberation, with Mr. Kimmel abstaining from the vote, the Company Board determined, with respect to the Bayer Merger Agreement, (i) that the proposed transaction with Ultimate Parent was a superior proposal as compared to the transaction contemplated by the Bayer Merger Agreement (as defined therein), (ii) to terminate the Bayer Merger Agreement in accordance with its terms and concurrently pay to Bayer the $22 million breakup fee required in connection with such termination and (iii) to notify Bayer of such determination. The Company Board also, with respect to the transaction proposed with Ultimate Parent and upon the terms and conditions set forth in the Merger Agreement, (i) determined that each of the Offer, the Merger and the other transactions contemplated by the Merger Agreement is fair to and in the best interests of the Company and its stockholders, (ii) approved and declared advisable the Merger Agreement, the Offer, the Merger and the other transactions contemplated thereby in accordance with the requirements of the DGCL and (iii) recommended that the Company’s stockholders vote their Shares in favor of adopting the Merger Agreement by written consent in lieu of a meeting and resolved to recommend that the Company’s stockholders accept the Offer and tender their Shares pursuant to the Offer. The Company Board then instructed the Company and Latham & Watkins to provide written notice to Bayer of its determination, and following such action and confirmation of the payment of the breakup fee, to proceed with the transaction with Ultimate Parent.

Immediately following the close of market on November 21, 2012, after receiving confirmation of the payment of the breakup fee, the Company provided written notice to Bayer regarding termination of the Bayer Merger Agreement pursuant to the terms thereof. Shortly thereafter, the relevant parties executed the Merger Agreement, the Tender and Support Agreement and the D&O Support Agreements. Following execution of the definitive agreements, TPG and Weider delivered the executed Written Consent.

The transaction was announced pursuant to a press release issued by Ultimate Parent following the close of market on November 21, 2012.

The Offer was consummated on [].

Recommendation of Our Board of Directors and Its Reasons for the Recommendation

Recommendation of the Company Board.

At a meeting of the Company Board held on November 21, 2012, the Company Board, upon the terms and subject to the conditions set forth in the Merger Agreement, (i) determined that the Offer, the Merger and the other transactions contemplated by the Merger Agreement are fair to and in the best interests of the Company and its stockholders, (ii) approved and declared advisable the Merger Agreement, the Offer, the Merger and the other transactions contemplated thereby in accordance with the requirements of the DGCL, (iii) recommended that the Company’s stockholders vote their Shares in favor of adopting the Merger Agreement by written consent in lieu of a meeting and (iv) resolved to recommend that the Company’s stockholders accept the Offer and tender their Shares pursuant to the Offer.

Immediately after the execution of the Merger Agreement and in lieu of calling a meeting of the Company’s stockholders, the Company submitted the Written Consent to the Principal Stockholders with respect to adopting the Merger Agreement. On November 21, 2012, the Written Consent was executed by each of the Principal Stockholders and, thereby, the Merger Agreement was adopted by Company stockholders holding a majority of the total voting power of the outstanding Shares.

 

15


Table of Contents

Reasons for the Recommendation of the Company Board.

In evaluating the Offer, the Merger and the Merger Agreement, the Company Board consulted with the Company’s senior management, Latham & Watkins and the financial advisors to the Company Board, Houlihan Lokey and Rothschild Inc., and, in the course of reaching its determination to approve the Offer, the Merger and the Merger Agreement and the transactions contemplated thereby, and to recommend that the Company’s stockholders tender their Shares to Purchaser in the Offer and provide the Stockholder Written Consent, the Company Board considered the following material factors and benefits of the Offer and the Merger:

 

   

Premium to Bayer Offer. The Company Board considered the fact that the Offer Price of $42.00 to be received by Company stockholders represents a 23.5% premium over the consideration offered pursuant to the Bayer Merger Agreement.

 

   

Premium to Market Price. The Company Board considered the fact that the Offer Price of $42.00 to be received by Company stockholders in the Offer and the Merger represents a significant premium over the market prices at which shares of Class A Common Stock traded prior to the announcement of the execution of the Bayer Merger Agreement, including the fact that the Offer Price of $42.00 represented a premium of approximately:

 

   

81.1% over the $23.19 closing price per share of Class A Common Stock on October 26, 2012, the last trading day before the announcement of the execution of the Bayer Merger Agreement;

 

   

74.7% over the $24.04 average price per share of Class A Common Stock for the one-month period ended October 26, 2012;

 

   

95.3% over the $21.50 average price per share of Class A Common Stock for the three-month period ended October 26, 2012;

 

   

117.1% over the $19.35 average price per share of Class A Common Stock for the six-month period ended October 26, 2012; and

 

   

170.4% over the $15.53 average price per share of Class A Common Stock for the one-year period ended October 26, 2012.

 

   

Results of Bayer Merger Agreement Negotiations and Window-Shop Period. The Company Board considered the course of extended negotiations with Bayer, as well the results of the window-shop provision included in the Bayer Merger Agreement which ultimately led to the unsolicited $42.00 per Share Offer Price proposed by Ultimate Parent. The Company Board also considered its historical negotiations with Bayer and Bayer’s public disclosure regarding its determination not to increase the $34.00 per Share consideration in the Bayer Merger Agreement, the 23.5% premium proposed in the Offer as compared to the per Share consideration provided in the Bayer Merger Agreement and the

Company Board’s belief that, based on this historical activity and negotiations with Ultimate Parent, that the Offer Price represented the best opportunity for the Company’s stockholders.

 

   

Liquidity. The Offer Price and the Merger Consideration consist solely of cash, which provides immediate liquidity and certainty of value to the Company’s stockholders compared to any transaction in which stockholders would receive shares of an acquirer’s stock.

 

   

Lack of Current Liquidity of the Class A Common Stock. The Principal Stockholders owned approximately 51.03% of the outstanding Shares as a long-term investment as of the date of the Merger Agreement, and, as a result, a trading market existed for only a minority of the outstanding Shares. The average daily trading volume of the Class A Common Stock during the three months ended on November 19, 2012 was 312,861 shares. The average daily trading volume of the Class A Common Stock during the three months ended on October 26, 2012 (prior to announcement of the Bayer Merger Agreement) was 82,488 shares.

 

   

Schiff’s Business and Financial Condition and Prospects. The Company Board considered its understanding of the Company’s current and historical financial condition, results of operations,

 

16


Table of Contents
 

competitive position, strategic options and prospects, as well as the financial plan and prospects of the Company were it to remain an independent public company and the potential impact of those factors on the trading price of the Class A Common Stock (which cannot be quantified numerically).

 

   

Risks of Remaining Independent. The Company Board considered the advantages of entering into the Merger Agreement in comparison with the risks of remaining independent, including our management’s views on full year 2013 performance and long-term financial projections as a standalone company, the risks inherent in the nutritional supplement industry, potential changes in laws affecting that industry, the economy and capital markets as a whole, and the various additional risks and uncertainties that are listed in Item 1A of Part I or Part II, as applicable, of our most recent annual and quarterly reports.

 

   

Support of the Principal Stockholders. The Company Board considered the support of the Principal Stockholders, which controlled approximately 85.14% of the aggregate voting power of the outstanding Shares as of the date of the execution of the Merger Agreement and which will be receiving the same form and amount of consideration in the Offer and the Merger (as applicable) for their Shares as all other stockholders, as evidenced by their execution and delivery of the Tender and Support Agreements.

 

   

Support of the Directors and Officers. The Company Board considered the support of the directors and officers party to the D&O Agreements, which controlled approximately 8.3% of the aggregate voting power of the Shares as of the date of the execution of the Merger Agreement and which will be receiving the same form and amount of consideration in the Offer and the Merger (as applicable) for their Shares as all other stockholders, as evidenced by their execution and delivery of the D&O Agreements.

 

   

Tender Offer Structure. The Company Board considered the fact that the transaction is structured as a tender offer, which can be completed, and cash consideration can be delivered to the Company’s stockholders, promptly, reducing the period of uncertainty during the pendency of the transaction on the Company’s stockholders, employees and business partners and the fact that the completion of the Offer will be followed by a second-step merger, in which stockholders who do not tender their shares in the Offer will receive the same consideration as the Offer Price.

 

   

Opinion of Houlihan Lokey. The Company Board considered the financial analysis reviewed by Houlihan Lokey with the Company Board, and the oral opinion to the Company Board (which was confirmed in writing by delivery of Houlihan Lokey’s written opinion dated November 21, 2012), with respect to the fairness, from a financial point of view, of the Offer Price and Merger Consideration to be received in the Offer and the Merger, respectively, by holders of the Class A Common Stock, collectively as a group, as of November 21, 2012, based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in preparing its opinion, as more fully described under the heading “The Merger—Opinion of Houlihan Lokey.”

 

   

Availability of Appraisal Rights. Stockholders do not have appraisal rights in connection with the Offer. However, if the Merger is consummated, statutory appraisal rights will be available to the Company’s stockholders who do not tender their Shares in the Offer, continue to hold Shares at the time of the consummation of the Merger, neither vote in favor of the Merger nor consent thereto in writing and otherwise comply with all the required procedures under the DGCL, which would allow such stockholders to seek appraisal of the fair value of their Shares as determined by the Chancery Court.

The Company Board also considered a variety of risks and other potentially negative factors of the Offer, the Merger, the Merger Agreement and the other transactions contemplated thereby, including the following:

 

   

No Stockholder Participation in Future Growth or Earnings. The nature of the transaction as a cash transaction would prevent stockholders from participating in any future earnings or growth of the

 

17


Table of Contents
 

Company, and stockholders would not benefit from any potential future appreciation in the value of the Shares, including any value that could be achieved if the Company engaged in future strategic or other transactions or as a result of improvements to the Company’s operations.

 

   

Tax Considerations. An all cash transaction would be taxable to stockholders that are U.S. holders for U.S. federal income tax purposes.

 

   

Effect of Public Announcement. The Company Board considered the potentially negative effect of a public announcement of the Merger Agreement on the Company’s operations and employees and its ability to attract and retain key management and personnel.

 

   

Effect of Failure to Complete Transactions. The Company Board considered potential negative effects if the Offer, the Merger and the other transactions contemplated by the Merger Agreement were not consummated, including:

 

   

the trading price of the Class A Common Stock would likely be adversely affected;

 

   

the Company would have incurred significant transaction and opportunity costs attempting to consummate the Offer, the Merger and the other transactions contemplated by the Merger Agreement;

 

   

the Company could lose customers, suppliers, business partners and employees after the announcement of the entry into the Merger Agreement;

 

   

the Company’s business may be subject to significant disruption;

 

   

the market’s perceptions of the Company’s prospects could be adversely affected; and

 

   

the Company’s directors, officers and other employees would have expended considerable time and effort to consummate the Offer, the Merger and the other transactions contemplated by the Merger Agreement.

 

   

Interim Restrictions on Business. The Company Board considered restrictions in the Merger Agreement on the conduct of the Company’s business prior to the consummation of the Merger that require the Company to operate its business in the ordinary course of business and other restrictions, other than with the consent of Parent, that could delay or prevent the Company from undertaking business opportunities that could arise prior to the consummation of the Merger.

 

   

Bayer Merger Agreement Breakup Fee. The Company Board considered the fact that, in connection with any termination of the Bayer Merger Agreement, the Company would be required to pay to Bayer a breakup fee of $22.0 million.

 

   

Interests of the Company Board, Management and Certain Affiliates. The Company Board considered the possibility that the executive officers, directors and certain affiliates of the Company could have interests in the transactions contemplated by the Merger Agreement that would be different from, or in addition to, those of the Company’s stockholders.

The Company Board concluded that the risks and potentially negative factors relevant to the Transactions were outweighed by the potential benefits that it expected the Company and the Company’s stockholders would achieve as a result of the Transactions. The foregoing discussion summarizes the material information and factors considered by the Company Board in their consideration of the Transactions. The foregoing discussion of the Company Board’s reasons for its recommendation to accept the Transactions is not intended to be exhaustive, but addresses the material information and factors considered by the Company Board in its consideration of the Transactions. The Company Board did not find it practicable to, and did not quantify or otherwise assign relative weights to, the specific reasons underlying its determination and recommendation. Rather, the Company Board viewed its determinations and recommendations as being based on the totality of the information and factors presented to and considered by the Company Board.

 

18


Table of Contents

Opinion of Houlihan Lokey

On November 21, 2012, Houlihan Lokey rendered an oral opinion to the Company Board (which was confirmed in writing by delivery of Houlihan Lokey’s written opinion dated November 21, 2012), to the effect that, as of November 21, 2012, based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in preparing its opinion, the Offer Price and Merger Consideration to be received in the Offer and the Merger, respectively, by the holders of Class A Common Stock, collectively as a group, was fair, from a financial point of view.

Houlihan Lokey’s opinion was directed to the Company Board and only addressed the fairness from a financial point of view of the Offer Price and Merger Consideration to be received by the holders of Class A Common Stock in the Offer and the Merger, respectively, and does not address any other aspect or implication of the Transactions. The summary of Houlihan Lokey’s opinion in this information statement is qualified in its entirety by reference to the full text of its written opinion, which is included as Annex D to this information statement and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in preparing its opinion. However, neither Houlihan Lokey’s opinion nor the summary of its opinion and the related analyses set forth in this information statement are intended to be, and do not constitute, advice or a recommendation to the Company Board or any stockholder as to how to act or vote with respect to the Offer, the Merger or related matters.

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

 

   

reviewed the following agreements and documents:

 

   

final draft of the Merger Agreement;

 

   

final draft of the Letter Agreements, dated November 21, 2012, between Parent and Purchaser, on the one hand, and the director and officer holders of Shares party thereto, on the other hand;

 

   

final draft of the Letter Agreement, dated November 21, 2012, between TPG, Parent and Purchaser;

 

   

final draft of the Letter Agreement, dated November 21, 2012, between Weider, Parent and Purchaser;

 

   

Amended and Restated Certificate of Incorporation of Schiff Nutrition International, Inc.;

 

   

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

 

   

reviewed certain information relating to the Company’s historical, current and future operations, financial condition and prospects of the Company made available to Houlihan Lokey by the Company, including (i) historical financial information of the Company pro forma for the Company’s acquisition of Airborne and (ii) financial projections (and adjustments thereto) relating to the Company for the fiscal years ending 2013 through 2017, which include certain forecasts and estimates of potential cost savings, operating efficiencies, revenue effects and other synergies expected to result from the Company’s acquisition of Airborne, all as prepared by management of the Company (the “Synergies”);

 

   

spoke with certain members of the management of the Company and certain of its representatives and advisors regarding the business, operations, financial condition and prospects of the Company, the Merger and related matters;

 

   

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

 

   

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

 

19


Table of Contents
   

reviewed the current and historical market prices and trading volume of the Class A Common Stock, and the current and historical market prices of the publicly traded securities of certain other companies that Houlihan Lokey deemed to be relevant; and

 

   

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. In addition, the management of the Company advised Houlihan Lokey, and Houlihan Lokey assumed, that the financial projections (and adjustments thereto) 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 as to the future financial results and condition of the Company, and Houlihan Lokey expressed no opinion with respect to such projections or the assumptions on which they are based. In reaching its opinion conclusions, upon the advice of the management of the Company, Houlihan Lokey assumed that the estimated Synergies it reviewed 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 will 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 relied upon and assumed, without independent verification, that there was no change in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of 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 is 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, that (a) the representations and warranties of all parties to the agreements identified above and all other related documents and instruments that are referred to therein are true and correct, (b) each party to all such agreements 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 Offer and the Merger will be satisfied without waiver thereof, and (d) the Offer and the Merger will be consummated in a timely manner in accordance with the terms described in all such agreements and other related documents and instruments, without any amendments or modifications thereto. Houlihan Lokey also relied upon and assumed, without independent verification, that (i) the Offer and the Merger will be consummated in a manner that complies in all respects with all applicable international, federal and state statutes, rules and regulations, and (ii) all governmental, regulatory, and other consents and approvals necessary for the consummation of the Offer and the Merger will be obtained and that no delay, limitations, restrictions or conditions will be imposed or amendments, modifications or waivers made that would have an effect on the Offer or the Merger, or the Company or any expected benefits of the Offer or the Merger that would be material to Houlihan Lokey’s analyses or its opinion. In addition, Houlihan Lokey relied upon and assumed, without independent verification, that the final forms of any draft documents identified above would not differ in any respect from the drafts of said documents.

Furthermore, in connection with its opinion, Houlihan Lokey was not requested to make, and did not make, 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 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 did not undertake an independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which 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 the Company is or may be a party or is or may be subject. Houlihan Lokey also expressed no opinion as to the price or range of prices at which (i) shares of Class A Common Stock will trade, or (ii) shares of Class B Common Stock may be transferable, at any time.

 

20


Table of Contents

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 of its opinion. Houlihan Lokey did not undertake, and was under no obligation, to update, revise, reaffirm or withdraw its opinion, or otherwise comment on or consider events occurring or coming to its attention after the date of its opinion.

Houlihan Lokey’s opinion was furnished for the use of the Company Board (solely in its capacity as such) in connection with its evaluation of the Offer and the Merger and may not be used for any other purpose without Houlihan Lokey’s prior written consent. Houlihan Lokey’s opinion should not be construed as creating any fiduciary duty on Houlihan Lokey’s part to any party. The opinion of Houlihan Lokey was not intended to be, and does not constitute, a recommendation to the Company Board, the Company, any security holder or any other party as to how to act or vote with respect to any matter relating to the Offer, the Merger or otherwise.

Houlihan Lokey was not requested to opine as to, and its opinion did not express an opinion as to or otherwise address, among other things: (i) the underlying business decision of the Company, Parent, Ultimate Parent, their respective security holders or any other party to proceed with or effect the Offer and the Merger, (ii) the terms of any arrangements, understandings, agreements or documents related to, or the form, structure or any other portion or aspect of, the Offer or the Merger or otherwise (other than the Offer Price and Merger Consideration), including, without limitation, the form or structure of the Offer or the Merger or any terms, aspects or implications of any support agreements, standstill agreements or other arrangements, agreements or understandings entered into in connection with the Offer or the Merger or otherwise, (iii) the fairness of any portion or aspect of the Offer or the Merger to the holders of any class of securities (including, without limitation, the holders of Class B Common Stock), creditors or other constituencies of the Company, Parent, Ultimate Parent or to any other party, except if and only to the extent expressly set forth in the last sentence of its opinion, (iv) the relative merits of the Offer or the Merger as compared to any alternative business strategies or transactions that might be available for the Company, Parent, Ultimate Parent or any other party, (v) the fairness of any portion or aspect of the Offer or the Merger to any one class or group of the Company’s, Parent’s, Ultimate Parent’s or any other party’s security holders or other constituents vis-à-vis any other class or group of the Company’s, Parent’s, Ultimate Parent’s or such other party’s security holders or other constituents (including, without limitation, the allocation of any consideration between, amongst or within such classes or groups of security holders (including, without limitation, classes of Shares) or other constituents), (vi) whether or not the Company, Parent, Ultimate Parent, their respective security holders or any other party is receiving or paying reasonably equivalent value in the Offer or the Merger, (vii) the solvency, creditworthiness or fair value of the Company, Parent, Ultimate Parent or any other participant in the Offer or the Merger, 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 Offer and the Merger, any class of such persons or any other party, relative to the Offer Price or otherwise. In rendering its opinion, Houlihan Lokey was not requested to, and did not, take into account different classes or attributes of the Shares or the individual circumstances of specific holders with respect to control, voting or other rights or aspects which may distinguish such holders. 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 have been or will be obtained from the appropriate professional sources. Furthermore, Houlihan Lokey relied, with the consent of the Company, on the assessments by the Company and its advisors, as to all legal, regulatory, accounting, insurance and tax matters with respect to the Company, Parent, Ultimate Parent and the Offer, the Merger or otherwise.

In preparing its opinion to the Company Board, 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 a fairness 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 a fairness opinion nor its underlying analyses is readily

 

21


Table of Contents

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. 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 or focusing on information presented in tabular format, without considering all analyses, methodologies and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying Houlihan Lokey’s analyses and opinion. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques.

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 the opinion. Houlihan Lokey’s analyses involved judgments and assumptions with regard to industry performance, general business, economic, regulatory, market and financial conditions and other matters, many of which are beyond the control of the Company, such as the impact of competition on the business of the Company and on the industry generally, industry growth and the absence of any material change in the financial condition and prospects of the Company or the industry or in the markets generally. No company, transaction or business used in Houlihan Lokey’s analyses for comparative purposes is identical to the Company, the Offer or the Merger and an evaluation of the results of those analyses is not entirely mathematical. Houlihan Lokey believes that mathematical derivations (such as determining average and median) of financial data are not by themselves meaningful and should be considered together with qualities, judgments and informed assumptions. The estimates contained in the Company’s analyses 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.

Houlihan Lokey’s opinion was provided to the Company Board in connection with its evaluation of the Offer and the Merger and was only one of many factors considered by the Company Board in evaluating the Offer and the Merger. Neither Houlihan Lokey’s opinion nor its analyses were determinative of the Offer Price or the Merger Consideration or of the views of the Company Board or management of the Company with respect to the Offer, the Offer Price or the Merger or the Merger Consideration. The type and amount of consideration payable in the Offer and the Merger were determined through negotiation between the Company and Parent, and the decision for the Company to enter into the Merger was solely that of the Company Board.

The following is a summary of the material analyses reviewed by Houlihan Lokey with the Company Board in connection with Houlihan Lokey’s opinion rendered on November 21, 2012. The order of the analyses does not represent relative importance or weight given to those analyses by Houlihan Lokey. The analyses summarized below include information presented in tabular format. 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, including:

 

   

Enterprise Value calculated as the value of the relevant company’s outstanding equity securities (taking into account its outstanding warrants and other convertible securities) based on the relevant company’s closing stock price, or equity value, plus net debt (calculated as outstanding indebtedness, preferred stock and capital lease obligations less the amount of cash on its balance sheet), as of a specified date.

 

   

EBITDA.

 

22


Table of Contents
   

Earnings before interest, taxes, depreciation, and amortization, adjusted for certain non-recurring items, or Adjusted EBITDA.

Unless the context indicates otherwise, enterprise values derived from the selected companies analysis described below were calculated using (i) the closing price per share of Class A Common Stock as of October 26, 2012, the last trading day prior to the announcement of the Bayer Merger Agreement, and the common stock of the selected VMS companies listed below as of November 19, 2012, and (ii) net debt amounts for the Company as indicated in the Company’s quarterly report on Form 10-Q for the quarter ended August 31, 2012 and for each of the selected companies listed below as indicated in public filings available as of November 19, 2012; transaction values for the target companies derived from the selected transactions analysis listed below were calculated as of the public announcement date of the relevant transaction based on the estimated purchase prices paid in the selected transactions. Accordingly, this information may not reflect current or future market conditions. The calculations of LTM Adjusted EBITDA for the Company were as of the twelve months ended August 31, 2012 (and are set forth as “Pro Forma Adjusted EBITDA” for the last twelve months ended August 31, 2012 as more fully described below under “The Merger—Financial Information and Projections”), and, for each of the selected companies listed below, is based on publicly available information as of November 19, 2012. Estimates of Adjusted EBITDA for the next fiscal year for which financial information has not been made public (“NFY”) for the Company were based on estimates provided by the management of the Company and were for the fiscal year ending May 31, 2013. Estimates of NFY Adjusted EBITDA for each of the selected VMS companies listed below were based on certain publicly available consensus research analyst estimates for those VMS companies and may have been calendarized to approximate the Company’s fiscal year end of May 31, 2013. Additionally, unless the context indicates otherwise, (i) financial information for the Company is pro forma for the Company’s acquisition of Airborne, including Synergies, the amounts and time periods of realization as estimated by the management of the Company, (ii) estimated Adjusted EBITDA for the Company includes stock based compensation as an expense (resulting in a lower Adjusted EBITDA than as more fully described below under “The Merger—Financial Information and Projections”) and (iii) calculations for “the present value of Tax Shield” referred to below were based on the present value of tax benefits assuming a weighted average cost of capital of 8%.

Selected Companies Analysis. Houlihan Lokey calculated certain multiples of enterprise value based on certain financial data for the Company and those publicly traded VMS companies identified by Houlihan Lokey that, in the judgment of Houlihan Lokey, were not part of larger, diversified pharmaceutical companies. The calculated multiples included (i) enterprise value as a multiple of LTM Adjusted EBITDA, and (ii) enterprise value as a multiple of estimated NFY Adjusted EBITDA. The list of selected companies and the related multiples for such selected companies are set forth below.

 

Enterprise Value as a Multiple of:

 
     LTM Adjusted EBITDA      NFY Adjusted EBITDA  

Herbalife Ltd.

     7.6x         7.1x   

Nu Skin Enterprises Inc.

     6.8x         6.3x   

Glanbia plc

     12.1x         11.7x   

Vitamin Shoppe, Inc.

     14.8x         13.5x   

USANA Health Sciences Inc.

     5.9x         5.3x   

Atrium Innovations Inc.

     6.7x         6.5x   

Perrigo Co.

     13.6x         11.8x   

Prestige Brands Holdings, Inc.

     11.8x         9.8x   

The Hain Celestial Group, Inc.

     17.9x         14.7x   

 

23


Table of Contents

The related mean and median multiples for such selected companies were as follows:

 

Enterprise Value as a Multiple of:

 
     LTM Adjusted EBITDA      NFY Adjusted EBITDA  

Mean

     10.8x         9.6x   

Median

     11.8x         9.8x   

From this data, Houlihan Lokey selected implied enterprise value reference ranges for the Company using LTM Adjusted EBITDA multiples of 11.0x to 14.0x and 2013 FYE Adjusted EBITDA multiples of 9.0x to 12.0x. Houlihan Lokey selected these ranges based on a comparison of the Company’s estimated growth and profitability as compared to the selected companies. Houlihan Lokey then adjusted these ranges to reflect net debt outstanding and the present value of the Tax Shield, each as described above, as well as Shares outstanding as of November 19, 2012 (as estimated by management of the Company using the treasury stock method) to arrive at a per share implied equity reference range. This analysis indicated the following implied per share reference range for the Company, as compared to the per share Offer Price:

 

Implied Per Share Equity Reference
Range for the Company based on
LTM Adjusted EBITDA

   Implied Per Share Equity Reference
Range for the Company  based on
2013 FYE Adjusted EBITDA
     Per Share Offer
Price
 

$16.25 - $21.75

   $ 17.40 - $24.51       $ 42.00   

Selected Transactions Analysis. Houlihan Lokey calculated certain enterprise value multiples based on the estimated purchase prices paid in the following selected publicly announced VMS transactions from 2009 to 2012 and from 2002 to 2012. These transactions constituted all VMS transactions during such time period identified by Houlihan Lokey, involving both publicly traded and privately held VMS companies, other than those transactions whose terms were not publicly disclosed. The calculated multiples included transaction value as a multiple of LTM Adjusted EBITDA. The list of selected transactions from 2009 to 2012 and the related multiples are set forth below.

 

Announcement Date

  

Acquiror

  

Target

   Transaction
Value/
LTM
EBITDA
 

08/20/2012

   Church & Dwight Co. Inc.    Avid Health Inc.      11.2x   

04/02/2012

   Schiff Nutrition International, Inc.    Airborne Inc.      12.5x   

01/19/2011

   Glanbia PLC    Bio-Engineered Supplements & Nutrition      8.3x   

01/04/2011

   Atrium Biotech Investments (subsidiary of Atrium Innovations)    Seroyal International Inc.      7.5x   

07/15/2010

   The Carlyle Group    NBTY Inc.      7.7x   

01/21/2010

   Martek Biosciences Corp., Subsidiary of Royal DSM N.V.    Amerifit Brands, Inc.      8.9x   

09/21/2009

   Atrium Innovations Inc.    Garden of Life Inc.      11.2x   

 

24


Table of Contents

The list of additional selected transactions from 2002 to 2008 and the related multiples are set forth below.

 

Announcement Date

  

Acquiror

  

Target

   Transaction
Value/
LTM
EBITDA
 

08/25/2008

   Glanbia PLC    Optimum Nutrition Inc.      NA   

02/09/2007

   Ares Management LLC and Ontario Teachers Pension    GNC Corporation      10.9x   

02/06/2006

   CK Life Sciences International    Vitaquest International LLC      11.2x   

09/06/2006

   Glanbia PLC    Seltzer Ingredients Inc.      NA   

06/06/2005

   NBTY Inc.    Solgar Inc.      NA   

07/19/2004

   Bayer AG    Roche Consumer Health      12.0x   

04/02/2004

   Ripplewood Holdings LLC and Activated Holdings LLC    Shaklee’s Worldwide Business      8.0x   

10/16/2003

   Apollo Management LLC    GNC Corp.      8.1x   

06/10/2003

   NBTY Inc.    Rexall Sundown Inc.      NA   

08/16/2002

   Fremont Partners    Nellson Nutraceutical      9.5x   

09/03/2002

   DSM N.V.    Roche’s Vitamins      5.9x   

04/10/2002

   Herbalife Ltd. Backed by Whitney & Co. and Golden Gate Capital    Herbalife International Inc.      5.0x   

 

For the purposes of the table set forth above, “NA” means “not available.”

This analysis indicated the following mean and median multiples for the selected transactions:

 

Transaction Value as a Multiple of LTM Adjusted EBITDA

 
     Transactions from
2009-2012
     All Transactions  

Mean

     9.6x         9.2x   

Median

     8.9x         8.9x   

From this data, Houlihan Lokey selected implied transaction values reference ranges for the Company using LTM Adjusted EBITDA multiples of 9.0x to 13.0x. Houlihan Lokey selected these ranges based on a comparison of the Company’s estimated growth and profitability as compared to the target companies subject to the selected transactions. Houlihan Lokey then adjusted these ranges to reflect net debt outstanding and the present value of the Tax Shield, each as described above, as well as Shares outstanding as of November 19, 2012 (as estimated by management of the Company using the treasury stock method) to arrive at a per share implied equity reference range. This analysis indicated the following per share reference range for the Company, as compared to the per share Offer Price:

 

Implied Per Share Equity Reference Range for
the Company based on LTM Adjusted
EBITDA

   Per Share Offer
Price

$12.59 - $19.92

   $42.00

Discounted Cash Flow Analysis. Houlihan Lokey performed a discounted cash flow analysis of the Company by calculating the estimated net present value of the unlevered, after-tax free cash flows that the Company was forecasted to generate through May 31, 2017, based on internal estimates provided by the management of the Company, as set forth below under “The Merger—Financial Information and Projections;” provided, however, that Houlihan Lokey did not differentiate between deductible and non-deductible amortization; it instead calculated the present value of the Tax Shield, as described above. Houlihan Lokey calculated terminal values for the Company by applying a range of terminal value multiples of 10.5x to 11.5x to the Company’s fiscal year 2017 estimated EBITDA. Houlihan Lokey selected the terminal value multiple range based on a review of the LTM Adjusted EBITDA and NFY Adjusted EBITDA multiples for the selected

 

25


Table of Contents

companies referred to above. The present values of the cash flows and terminal values were then calculated using discount rates ranging from 7.0% to 9.0%. Houlihan Lokey selected the discount rate range based upon a review of the Company’s observed weighted average cost of capital (“WACC”) and the observed WACCs of the selected companies referred to above. Houlihan Lokey then adjusted these ranges to reflect net debt outstanding and the present value of the Tax Shield as described above and to reflect the Shares outstanding as of November 19, 2012 (as estimated by the management of the Company using the treasury stock method). The discounted cash flow analysis indicated the following implied per share reference range for the Company, as compared to the per share Offer Price:

 

Implied Per Share

Equity Reference Range for the Company

 

Per Share Offer
Price

$29.84 - $35.34

  $42.00

Other Factors

Historical Trading Ratio Analysis. Houlihan Lokey reviewed certain historical stock price information based on the average closing stock price for the Class A Common Stock over certain periods during the one year period prior to October 30, 2012. This review indicated the following implied premium of per share Offer Price over the average closing stock price of Class A Common Stock:

 

Trading Period
Prior to
October 30, 2012

 

Class A Common Stock Closing
Stock Price

 

Implied Premium of Per Share
Offer Price over
Average Closing Stock Price
of Class A Common Stock

1 day

  $23.19   81.1%

5 days

  $23.32   80.1%

10 days

  $23.68   77.4%

1 month

  $24.04   74.7%

3 month

  $21.42   96.0%

6 months

  $19.32   117.4%

1 year

  $15.53   170.4%

Premiums Paid Analysis. Additionally, Houlihan Lokey reviewed implied premiums paid in the following selected transactions involving public target companies in the branded consumer industry, including VMS companies, between 2009 and November 19, 2012 for each of one trading day, five trading days and one calendar month prior to the announcement of the applicable transaction. The list of selected transactions and the related multiples are set forth below.

 

Announcement
Date

 

Acquiror

 

Target

  Implied Premiums Paid  
            1 Trading
Day
    5 Trading
Days
    1 Calendar
Month
 

10/14/2011

  Unilever   Concern Kalina OAO     54.5     52.7     129.3

01/09/2011

  DuPont Denmark Holding ApS   Danisco A/S     25.5     27.5     43.4

11/08/2010

  TPG Capital L.P.   Avon Products Company Limited     34.5     37.0     34.5

09/27/2010

  Conopco Inc. (Subsidiary of Unilever)   Alberto Culver Company     19.1     18.4     19.8

07/15/2010

  The Carlyle Group   NBTY Inc.     46.8     55.6     47.7

01/14/2010

  Shiseido Co. Ltd.   Bare Escentuals Inc.     42.9     38.5     46.2

12/21/2009

  Sanofi-Aventis   Chattem Inc.     33.6     36.0     40.7

 

26


Table of Contents

This analysis indicated the following mean and median premiums for the selected transactions:

 

Implied Premiums Paid

 
     1 Trading Day     5 Trading Days     1 Calendar Month  

Mean

     36.7     38.0     51.7

Median

     34.5     37.0     43.4

Houlihan Lokey noted these implied premiums as compared to the corresponding implied premiums for the Offer Price over the closing stock price of the Company’s Class A Common Stock of 81.1%, 80.1% and 74.7% for the one trading day, five trading days and one calendar month, respectively, prior to October 26, 2012, the last trading day prior to the announcement of the Bayer Merger.

Other Matters

Houlihan Lokey was engaged by the Company to act as its financial advisor in connection with the Offer and the Merger and to provide financial advisory services, including an opinion to the Company Board regarding the fairness, from a financial point of view, of the Offer Price to be received in the Offer and the Merger Consideration to be received in the Merger, by the holders of Class A Common Stock. The Company engaged Houlihan Lokey based on Houlihan Lokey’s experience and reputation. Houlihan Lokey is regularly engaged to provide advisory services in connection with mergers and acquisitions, financings, and financial restructurings. Houlihan Lokey was entitled to receive $1,000,000 for its services upon the delivery of its opinion, regardless of the conclusion reached therein, and none of which was contingent upon the successful completion of any portion or aspect of the transactions contemplated by the Merger Agreement. In addition, Houlihan Lokey will be entitled to an additional fee based on the ultimate transaction value of the Offer and the Merger, which fee was estimated at the signing of the Merger Agreement to be approximately $2,205,586, payable upon consummation of the Offer. The Company has also agreed to reimburse Houlihan Lokey for certain expenses and to indemnify Houlihan Lokey, its affiliates and certain related parties against certain liabilities and expenses, including certain liabilities under the federal securities laws arising out of or relating to Houlihan Lokey’s engagement.

In the ordinary course of business, certain of Houlihan Lokey’s employees and affiliates, as well as investment funds in which they may have financial interests or with which they may co-invest, may acquire, hold or sell, long or short positions, or trade, in debt, equity, and other securities and financial instruments (including loans and other obligations) of, or investments in, the Company, Parent, Ultimate Parent or any other party that may be involved in the Offer and the Merger and their respective affiliates or any currency or commodity that may be involved in the Offer and the Merger.

Houlihan Lokey and certain of its affiliates have in the past provided and are currently providing investment banking, financial advisory and other financial services to the Company and one or more security holders, affiliates and/or portfolio companies of investment funds affiliated or associated with TPG (TPG, collectively with private equity and investment funds affiliated or associated therewith and the portfolio companies thereof, “TPG Group”), which Houlihan Lokey understands collectively directly or indirectly own a significant interest in the Company, for which Houlihan Lokey and its affiliates have received, and may receive, compensation, including, among other things, (a) having provided valuation and transaction advisory services to TPG, (b) having acted as financial advisor to TPG Group in connection with its acquisition of Ontex International (“Ontex”), which transaction closed in November, 2010, (c) having acted as financial advisor to British Vita Unlimited (“British Vita”), an affiliate of TPG Group, in connection with a sale of part of one of its divisions, which transaction closed in September 2012, and (d) having acted as financial advisor to the Company in connection with its acquisition of Airborne, which transaction closed in March 2012. In connection with the Ontex, British Vita and Airborne transactions, Houlihan Lokey has received aggregate fees of approximately $3,566,000. Houlihan Lokey and certain of its affiliates may provide investment banking, financial advisory and other financial services to the Company, Parent, Ultimate Parent, TPG Group, other participants in the Offer and the Merger or certain of their respective affiliates or security holders in the future, for which Houlihan Lokey and its affiliates may receive compensation. In addition, Houlihan Lokey and certain of its affiliates and certain of their respective employees may have committed to invest in private equity or other investment funds managed or

 

27


Table of Contents

advised by TPG, other participants in the Offer and the Merger or certain of their respective affiliates, and in portfolio companies of such funds, and may have co-invested with TPG Group, other participants in the Merger or certain of their respective affiliates or security holders, and may do so in the future. Furthermore, in connection with bankruptcies, restructurings, and similar matters, Houlihan Lokey and certain of its affiliates may have in the past acted, may currently be acting and may in the future act as financial advisor to debtors, creditors, equity holders, trustees and other interested parties (including, without limitation, formal and informal committees or groups of creditors) that may have included or represented and may include or represent, directly or indirectly, or may be or have been adverse to, the Company, Parent, Ultimate Parent, TPG Group, other participants in the Offer and the Merger or certain of their respective affiliates or security holders, for which advice and services Houlihan Lokey and its affiliates have received and may receive compensation. Notwithstanding the foregoing, Houlihan Lokey has not provided investment banking, financial advisory or other financial services to Ultimate Parent or any of its affiliates during the past two years in connection with which it would be entitled to any material compensation.

Financial Information and Projections

Historically, the Company has prepared and provided public guidance as to certain of the Company’s projected annual financial performance measures with respect to the then current fiscal year in its press release announcing its financial results for the immediately preceding quarter or fiscal year and has publicly updated that guidance from time to time. A press release containing the Company’s most recent public guidance as to financial performance for fiscal year 2013 was furnished to the SEC in a Current Report on Form 8-K on September 18, 2012.

 

28


Table of Contents

In connection with the Company Board’s evaluation of the Bayer Merger and the other transactions contemplated by the Bayer Merger Agreement, the Company’s management prepared projections of the Company’s stand-alone financial performance for each of fiscal years 2013, 2014, 2015 and 2016, as well as certain adjustments to fiscal year 2012 (the “Financial Information”). The Financial Information was provided to the Company Board on October 12, 2012 and reviewed and discussed at a meeting of the Company Board on October 13, 2012. The following is the Financial Information that was presented:

 

Financial Information (As of October 12, 2012)                                    
($ in ‘000s)                                    
Income statement                                    

Fiscal Year End (FYE) 5/31

  2012A1,2     2013E     2014E     2015E     2016E3     CAGR
‘13-’16
 

Joint

  $ 96,953      $ 101,996      $ 105,056      $ 108,208      $ 111,454        3.0

Growth

      5.2     3.0     3.0     3.0  

Mega Red

  $ 71,560      $ 102,893      $ 128,617      $ 147,909      $ 170,096        18.2

Growth

      43.8     25.0     15.0     15.0  

Airborne

  $ 71,531      $ 81,200      $ 86,072      $ 91,236      $ 96,710        6.0

Growth

      13.5     6.0     6.0     6.0  

Probiotics

  $ 19,657      $ 28,828      $ 31,134      $ 33,625      $ 36,315        8.0

Growth

      46.7     8.0     8.0     8.0  

Specialty

  $ 20,420      $ 22,033      $ 22,033      $ 22,033      $ 22,033        —     

Growth

      7.9     —          —          —       

Bars

  $ 9,240      $ 9,630      $ 9,630      $ 9,630      $ 9,630        —     

Growth

      4.2     —          —          —       

Direct

    —        $ 1,986      $ 4,620      $ 14,810      $ 25,000        132.6

Growth

      —          132.6     220.6     68.8  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total branded

  $ 289,361      $ 348,566      $ 387,161      $ 427,450      $ 471,237        10.6

Growth

      20.5     11.1     10.4     10.2  

Private label

  $ 37,398      $ 36,498      $ 29,867      $ 24,441      $ 20,000        (18.2 %) 

Growth

      (2.4 %)      (18.2 %)      (18.2 %)      (18.2 %)   

Other

  $ 45        —          —          —          —       
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total Net Sales

  $ 326,805      $ 385,064      $ 417,028      $ 451,891      $ 491,237        8.5

Growth

      17.8     8.3     8.4     8.7  

Gross Margin

           

Forecast

      51.9     55.0     56.0     56.5  

Forecast pro forma

    49.7     54.0     55.0     56.0     56.5  

Gross Profit

           

Forecast

    $ 200,017      $ 229,365      $ 253,059      $ 277,549        11.5

Forecast pro forma

  $ 162,400      $ 208,068 4    $ 229,365      $ 253,059      $ 277,549        10.1

Selling & Marketing

  $ 74,906      $ 88,476      $ 98,002      $ 106,194      $ 115,441        9.3

as % of net sales

    22.9     23.0     23.5     23.5     23.5  

Other operating expenses

  $ 53,161      $ 49,443        54,005        58,068        61,356        7.5

as % of net sales

    16.3     12.8     13.0     12.9     12.5  

EBIT

           

Forecast

    $ 62,098      $ 77,359      $ 88,797      $ 100,753        17.5

Margin

      16.1     18.6     19.7     20.5  

Forecast pro forma

  $ 34,333      $ 70,149      $ 77,359      $ 88,797      $ 100,753        12.8

Margin

    10.5     18.2     18.6     19.7     20.5  

Non recurring adjustments

           

Transaction costs (2012A) Purchase

           

Accounting (2013E)

  $ 7,866      $ 2,525        —          —          —       

 

29


Table of Contents

(continued from prior page)

 

Fiscal Year End (FYE) 5/31

  2012A1,2     2013E     2014E     2015E     2016E3     CAGR
‘13-’16
 

Adjusted EBIT

           

Forecast

    $ 64,623      $ 77,359      $ 88,797      $ 100,753        16.0

Margin

      16.8     18.6     19.7     20.5  

Forecast pro forma

  $ 42,199      $ 70,149      $ 77,359      $ 88,797      $ 100,753        12.8

Margin

    12.9     18.2     18.6     19.7     20.5  

Depreciation

  $ 4,232      $ 4,324      $ 3,025      $ 3,300      $ 3,900     

Amortization

  $ 2,029      $ 6,056      $ 6,000      $ 5,650      $ 5,800     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

D&A

  $ 6,261      $  10,380      $ 9,025      $ 8,950      $ 9,700     

Stock based compensation

  $ 2,911      $ 4,059      $ 5,500      $ 5,700      $ 6,100     

Adjusted EBITDA

           

Forecast

    $ 79,062      $  91,884      $ 103,447      $ 116,553        13.8

Margin

      20.5     22.0     22.9     23.7  

Forecast pro forma

  $ 51,371      $ 84,588      $ 91,884      $ 103,447      $ 116,553        11.3

Margin

    15.7     22.0     22.0     22.9     23.7  
Cash flow items                                    

FYE 5/31

  2012A1,2     2013E     2014E     2015E     2016E        

Capex

  $ 2,732      $ 5,000      $ 3,000      $ 6,000      $ 4,000     

as % of net sales

    0.8     1.3     0.7     1.3     0.8  

as % of depreciation

    65     116     99     182     103  

Working capital

  $ 41,055      $  35,700      $  38,663      $   41,895      $   45,543     

as % of net sales

    12.6     9.3     9.3     9.3     9.3  

Change in working capital

    $ (5,355   $ 2,963      $ 3,232      $ 3,648     
Free cash flow calculation                                    

FYE 5/31

        2013E     2014E     2015E     2016E        

EBIT

    $ 62,098      $ 77,359      $   88,797      $ 100,753     

Plus: Amortization non deductible

    $ 3,792      $ 3,481      $ 3,383      $ 3,300     
   

 

 

   

 

 

   

 

 

   

 

 

   

EBITA

    $ 65,890      $ 80,840      $ 92,180      $ 104,053     

Less: taxes on EBITA

    $ (25,038   $ (30,719   $ (35,028   $ (39,540  

Plus: depreciation

    $ 4,324      $ 3,025      $ 3,300      $ 3,900     

Plus: deductible amortization

    $ 2,264      $ 2,519      $ 2,267      $ 2,500     

Plus: purchase accounting adjustment

    $ 2,525        —          —          —       

Less: capex

    $ (5,000   $ (3,000   $ (6,000   $ (4,000  

Less: change in working capital

    $ 5,355      $ (2,963   $ (3,232   $ (3,648  
   

 

 

   

 

 

   

 

 

   

 

 

   

Free Cash Flows (FCF)

    $ 50,320      $ 49,701      $ 53,486      $ 63,265     

Plus: stock based compensation

    $ 4,059      $ 5,500      $ 5,700      $ 6,100     
   

 

 

   

 

 

   

 

 

   

 

 

   

Adjusted FCF

    $ 54,379      $ 55,201      $ 59,186      $ 69,365     

Other

           

Corporate tax rate

      38.0     38.0     38.0     38.0  

Note

1 FYE 2012 figures represent pro forma financial figures following the Company’s acquisition of Airborne without adjustments for synergies.

 

2 For the purposes of this table, “2012A” refers to actual results for the 2012 fiscal year, “2013E,” “2014E,” “2015E” and “2016E” refer to estimated results for fiscal years 2013-2016, respectively, and “CAGR” refers to Compound Annual Growth Rate.

 

3 Selected fiscal year 2017 projections, prepared separately from the projections for 2013-2016, were adopted by management on November 21, 2012 (see financial information provided as of October 29, 2012 and related footnotes thereto in the table that follows). Prior to such time, management confirmed to the Company’s financial advisors the use of the same net sales growth rate and adjusted EBITDA margin assumptions for fiscal year 2017 projections as those used for fiscal year 2016 projections.

 

4 Reflects adjustment for cost of goods sold (“COGS”) synergies to be realized with respect to Airborne and a one-time inventory charge to cost of sales due to inventory purchase accounting, which flows through forecast pro forma figures for EBIT, Adjusted EBIT and Adjusted EBITDA.

 

30


Table of Contents

The Financial Information was prepared for use only by the Company Board and its financial advisors in connection with the evaluation of the Bayer Merger and the other transactions contemplated by the Bayer Merger Agreement (and later, the Merger and the other transactions contemplated by the Merger Agreement) and was not intended to act as public guidance regarding the Company’s future financial performance. In addition, on September 27, 2012, in connection with an in-person due diligence presentation by the Company’s management, the Company provided to Bayer financial projections with respect to Net Sales, Gross Profit, Contribution Margin, Operating Income, EBITDA and Adjusted EBITDA for fiscal year 2013 (including the information with respect to certain adjustments with respect to the Company’s Airborne acquisition set forth below), which were identical to the projections provided to the Company Board on October 12, 2012 and were provided to Bayer in the interests of time in order to help facilitate Bayer’s due diligence process.

As a result of the Company Board’s review on October 13, 2012 and in connection with additional review of the Financial Information by management with the Company’s financial advisors, the Financial Information was updated on October 29, 2012 in order to further update management’s assumptions and view of the Company’s prospects, and such updates reflected (i) a 4% growth compound annual growth rate in net sales of “Specialty” and “Bars” branded products, (ii) the removal of a purchase accounting adjustment to EBITA, as this was already accounted for in the adjustment for changes in working capital and (iii) the deductible amortization of certain intangible assets over a 15-year period. The following is the updated Financial Information that was presented:

 

Financial Information (As of October 29, 2012)                                
($ in ‘000s)                                          
Income statement                                          

Fiscal Year End (FYE) 5/31

  2012A1,2     2013E     2014E     2015E     2016E     2017E3     CAGR
‘13-’16
 

Joint

  $ 96,953      $ 101,996      $ 105,056      $ 108,208      $ 111,454          3.0

Growth

      5.2     3.0     3.0     3.0    

Mega Red

  $ 71,560      $ 102,893      $ 128,617      $ 147,909      $ 170,096          18.2

Growth

      43.8     25.0     15.0     15.0    

Airborne

  $ 71,531      $ 81,200      $ 86,072      $ 91,236      $ 96,710          6.0

Growth

      13.5     6.0     6.0     6.0    

Probiotics

  $ 19,657      $ 28,828      $ 31,134      $ 33,625      $ 36,315          8.0

Growth

      46.7     8.0     8.0     8.0    

Specialty

  $ 20,420      $ 22,033      $ 22,914      $ 23,830      $ 24,784          4.0

Growth

      7.9     4.0     4.0     4.0    

Bars

  $ 9,240      $ 9,630      $ 10,015      $ 10,415      $ 10,832          4.0

Growth

      4.2     4.0     4.0     4.0    

Direct

    —        $ 1,986      $ 4,620      $ 14,810      $ 25,000          132.6

Growth

      —          132.6     220.6     68.8    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Total branded

  $ 289,361      $ 348,566      $ 388,428      $ 430,034      $ 475,191          10.9

Growth

      20.5     11.4     10.7     10.5    

Private label

  $ 37,398      $ 36,498      $ 29,867      $ 24,441      $ 20,000          (18.2 %) 

Growth

      (2.4 %)      (18.2 %)      (18.2 %)      (18.2 %)     

Other

  $ 45        —          —          —          —         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Total Net Sales

  $ 326,805      $ 385,064      $ 418,295      $ 454,475      $ 495,191      $ 539,554        8.7 % 

Growth

      17.8     8.6     8.6     9.0     9.0  

Gross Margin

             

Forecast

      51.9     55.0     56.0     56.5     56.5  

Forecast pro forma

    49.7     54.0     55.0     56.0     56.5    

Gross Profit

             

Forecast

    $ 200,017      $ 230,062      $ 254,506      $ 279,783      $ 304,848        11.8

Forecast pro forma

  $ 162,400      $ 208,068 4    $ 230,062      $ 254,506      $ 279,783          10.4

Selling & Marketing

  $ 74,906      $ 88,476      $ 98,299      $ 106,802      $ 116,370          9.6

as % of net sales

    22.9     23.0     23.5     23.5     23.5    

Other operating expenses

  $ 53,161      $ 49,443      $ 54,169      $ 58,400      $ 61,849          7.7

as % of net sales

    16.3     12.8     13.0     12.9     12.5    

 

31


Table of Contents

(continued from prior page)

 

Fiscal Year End (FYE) 5/31

   2012A1,2     2013E     2014E     2015E     2016E     2017E3     CAGR
‘13-’16
 

EBIT

              

Forecast

     $ 62,098      $ 77,594      $ 89,304      $ 101,564      $ 111,163        17.8 % 

Margin

       16.1     18.6     19.7     20.5     20.6  

Forecast pro forma

   $ 34,333      $ 70,149      $ 77,594      $ 89,304      $ 101,564          13.1 % 

Margin

     10.5     18.2     18.6     19.7     20.5    

Non recurring adjustments

              

Transaction costs (2012A) Purchase Accounting (2013E)

   $ 7,866      $ 2,525        —          —          —         

Adjusted EBIT

              

Forecast

     $ 64,623      $ 77,594      $ 89,304      $ 101,564          16.3

Margin

       16.8     18.6     19.7     20.5    

Forecast pro forma

   $ 42,199      $ 70,149      $ 77,594      $ 89,304      $ 101,564          13.1

Margin

     12.9     18.2     18.6     19.7     20.5    

Depreciation

   $ 4,232      $ 4,324      $ 3,025      $ 3,300      $ 3,900      $ 4,249     

Amortization

   $ 2,029      $ 6,056      $ 6,000      $ 5,650      $ 5,800      $ 5,820     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

D&A

   $ 6,261      $ 10,380      $ 9,025      $ 8,950      $ 9,700      $ 10,069     

Stock based compensation

   $ 2,911      $ 4,059      $ 5,500      $ 5,700      $ 6,100       

Adjusted EBITDA

              

Forecast

     $ 79,062      $ 92,119      $ 103,954      $ 117,364      $ 121,232        14.1 % 

Margin

       20.5     22.0     22.9     23.7     22.5  

Forecast pro forma

   $ 51,371      $ 84,588      $ 92,119      $ 103,954      $ 117,364          11.5 % 

Margin

     15.7     22.0     22.0     22.9     23.7    

Cash flow items

 

FYE 5/31

   2012A1,2     2013E     2014E     2015E     2016E     2017E3      

Capex

   $ 2,732      $ 5,000      $ 3,000      $ 6,000      $ 4,000      $    4,358     

as % of net sales

     0.8     1.3     0.7     1.3     0.8     0.8  

as % of depreciation

     65     116     99     182     103     103  

Working capital

   $ 41,055      $ 35,700      $ 38,781      $   42,135      $   45,910       

as % of net sales

     12.6     9.3     9.3     9.3     9.3    

Change in working capital

     $ (5,355   $ 3,081      $ 3,354      $ 3,775      $ 4,113     

 

32


Table of Contents

(continued from prior page)

Free cash flow calculation

 

FYE 5/31

   2013E     2014E     2015E     2016E     2017E  

EBIT

   $ 62,098      $ 77,594      $ 89,304      $ 101,564      $ 111,163   

Plus: Amortization non deductible

   $ 4,004      $ 3,948      $ 3,598      $ 3,748      $ 3,768   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITA

   $ 66,102      $ 81,542      $ 92,902      $ 105,312      $ 114,930   

Less: taxes on EBITA

   $ (25,119   $ (30,986   $ (35,303   $ (40,018   $ (43,673

Plus: depreciation

   $ 4,324      $ 3,025      $ 3,300      $ 3,900      $ 4,249   

Plus: deductible amortization

   $ 2,052      $ 2,052      $ 2,052      $ 2,052      $ 2,052   

Less: capex

   $ (5,000   $ (3,000   $ (6,000   $ (4,000   $ (4,358

Less: change in working capital

   $ 5,355      $ (3,081   $ (3,354   $ (3,775   $ (4,113
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Free Cash Flows (FCF)

   $ 47,714      $ 49,552      $ 53,597      $ 63,470      $ 69,087   

Plus: stock based compensation

   $ 4,059      $ 5,500      $ 5,700      $ 6,100     
  

 

 

   

 

 

   

 

 

   

 

 

   

Adjusted FCF

   $ 51,773      $ 55,052      $ 59,297      $ 69,570     

Other

          

Corporate tax rate

     38.0     38.0     38.0     38.0     38.0

Note

 

1 FYE 2012 figures represent pro forma financial figures following the Company’s acquisition of Airborne without adjustments for synergies.

 

2 For the purposes of this table, “2012A” refers to actual results for the 2012 fiscal year, “2013E,” “2014E,” “2015E,” “2016E” and “2017E” refer to estimated results for fiscal years 2013-2017, respectively, and “CAGR” refers to Compound Annual Growth Rate.

 

3 Selected fiscal year 2017 projections, prepared separately from the projections for 2013-2016 and included in the table above, were adopted by management on November 21, 2012. Prior to such time, management confirmed to the Company’s financial advisors the use of the same net sales growth rate and adjusted EBITDA margin assumptions for fiscal year 2017 projections as those used for fiscal year 2016 projections.

 

4 Reflects adjustment for COGS synergies to be realized with respect to Airborne and a one-time inventory charge to cost of sales due to inventory purchase accounting, which flows through forecast pro forma figures for EBIT, Adjusted EBIT and Adjusted EBITDA.

 

33


Table of Contents

In addition to the Financial Information set forth above, Company management presented to the Company’s financial advisors and Bayer information for the fiscal year ended May 31, 2012 reflective of certain synergies resulting from the Company’s Airborne acquisition and the elimination of certain non-recurring charges. The following is the additional information that was presented:

($ in ‘000s)

 

EBIT

  

FYE 2012A1

   $ 34,333   

Reconciliation

  

Plus: Depreciation

   $ 198   

Plus: Incremental Amortization

   $ (3,304

Plus: Acquisition related

   $ 3,471   

Plus: Other non-recurring

   $ 150   

Plus: Airborne G&A synergies2

   $ 8,072   
  

 

 

 

As Adjusted with Synergies

   $ 42,920   
  

 

 

 

Pro Forma Adjusted EBITDA

  

FYE 2012A1

   $ 51,371   

Reconciliation

  

Less: Stock-Based Compensation

   $ (2,911

Plus: Other non-recurring

   $ 2,362   

Plus: Airborne cogs synergies—realized

   $ 779   

Plus: Airborne G&A synergies2

   $ 8,072   
  

 

 

 

As Adjusted with Synergies

   $ 59,673   
  

 

 

 

 

1 Same figures as presented in financial information charts dated October 12 and 29, 2012 above.
2 General and administrative expenses at Airborne eliminated, with the exception of insurance expense.

On November 19, 2012, in connection with an in-person due diligence presentation by the Company’s management, the Company provided to Parent the Financial Information identical to that provided to Bayer.

 

34


Table of Contents

Company management also prepared and presented to the Company’s financial advisors financial information for the last 12 months ended August 31, 2012. The following is the additional information that was presented:

Last Twelve Months (LTM) Ended August 31, 2012

($ in ‘000s)

 

Net sales

   $ 337,597   

Cost of goods sold

   $ 171,388   
  

 

 

 

Gross profit

   $ 166,208   

Total operating expenses

   $ 127,114   

Income from operations (EBIT)

   $ 39,095   

Other income (expense):

  

Interest income

   $ 46   

Interest expense

   $ (13,813

Other, net

   $ 56   
  

 

 

 

Total other income (expense)

   $ (13,711

Income before income taxes

   $ 25,383   

Income tax expense

   $ 9,646   
  

 

 

 

Net income

   $ 15,738   

Adjusted Pro Forma Net Income

  

Net income

   $ 15,738   

Less: PF Interest expense

   $ (2,339

Less: PF Amortization expense

   $ (720

Plus: Acquisition related

   $ 4,387   

Plus: Inventory charge

   $ 1,550   

Plus: Airborne cogs synergies—realized

   $ 779   

Plus: Other non-recurring

   $ 1,982   

Plus: Airborne G&A synergies

     —     
  

 

 

 

Total adjustments

   $ 5,639   

Less: tax expense

   $ (2,143
  

 

 

 

Total AT adjustments

   $ 3,496   
  

 

 

 

Pro Forma Adjusted Net Income

   $ 19,234   

Adjusted Pro Forma EBITDA

  

EBIT

   $ 39,095   

Plus: Depreciation

   $ 4,190   

Plus: Amortization

   $ 6,212   

Plus: Acquisition related

   $ 4,387   

Plus: Inventory charge

   $ 1,550   

Plus: Airborne cogs synergies—realized

   $ 779   

Plus: Other non-recurring

   $ 1,832   

Plus: Airborne G&A synergies

     —     
  

 

 

 

Total adjustments

   $ 18,950   
  

 

 

 

Pro Forma Adjusted EBITDA

   $ 58,045   
  

 

 

 

The Financial Information was necessarily based on a variety of assumptions and estimates. The assumptions and estimates underlying the Financial Information may not be realized and are inherently subject to significant business, economic and competitive uncertainties and contingencies, all of which are difficult to

 

35


Table of Contents

predict and many of which are beyond the Company’s control. The assumptions and estimates used to create the Financial Information involve judgments made with respect to, among other things, sales growth rates, market size and growth rates, market share, future pricing, levels of operating expenses, and probability of success, all of which are difficult to predict. The Financial Information also reflects assumptions as to certain business decisions that do not reflect any of the effects of the Merger, or any other changes that may in the future affect the Company or its assets, business, operations, properties, policies, corporate structure, capitalization and management as a result of the Merger or otherwise. Accordingly, there can be no assurance that the assumptions and estimates used to prepare the Financial Information will prove to be accurate, and actual results may materially differ. The Financial Information is forward-looking statements and should not be relied upon as predictive of actual future results.

The inclusion of the Financial Information in this information statement should not be regarded as an indication that the Company or any of its advisors or representatives considered or consider the Financial Information to be an accurate prediction of future events, and the Financial Information should not be relied upon as such. Neither of the Company nor its advisors or representatives has made or makes any representation regarding the information contained in the Financial Information, and except as may be required by applicable securities laws, none of them intend to update or otherwise revise or reconcile the Financial Information to reflect circumstances existing after the date such Financial Information were generated or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the Financial Information are shown to be in error.

The Company’s stockholders are cautioned not to place undue reliance on the Financial Information included in this information statement, and such projected financial information should not be regarded as an indication that the Company, the Company Board, Houlihan Lokey or any other person considered, or now considers, them to be reliable predictions of future results, and they should not be relied upon as such.

Although presented with numerical specificity, the Financial Information is not fact and reflect numerous assumptions and estimates as to future events and the probability of such events made by the Company’s management, including assumptions and estimates noted above. Moreover, the Financial Information is based on certain future business decisions that are subject to change. The Financial Information generally takes into account estimated taxes and existing net operating loss carry forwards.

The Financial Information should be read together with the historical financial statements of the Company, which have been filed with the SEC, and the other information regarding the Company contained elsewhere in this information statement. The Financial information was not prepared with a view toward public disclosure, nor was it prepared with a view toward compliance with the published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The Financial Information does not purport to present operations in accordance with U.S. generally accepted accounting principles. Neither the Company’s independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information. The report of such independent registered public accounting firm included in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2012 relates to the Company’s historical financial information. It does not extend to the Financial Information and should not be read as doing so.

The Financial Information does not and should not be read to update, modify or affirm any prior financial guidance issued by the Company. You are cautioned not to place undue reliance on this information.

 

36


Table of Contents

Treatment of Company Options, Company RSUs and Company Restricted Shares

Treatment of Company Options. Under the terms of the Merger Agreement, immediately prior to the Effective Time, each Company Option under any Company Stock Option Plan, whether or not then exercisable or vested, will be cancelled and, in exchange therefor, each such former holder of such cancelled Company Option will only be entitled to receive, in consideration of the cancellation of such Company Option and in full settlement therefor, a payment in cash of an amount equal to the product of (A) the total number of Shares previously subject to such Company Option and (B) the excess, if any, of the Merger Consideration over the exercise price per Share previously subject to such Company Option, without interest and less any applicable withholding taxes.

Treatment of Company RSUs. Under the terms of the Merger Agreement, immediately prior to the Offer Acceptance Time, but conditioned upon the consummation of the Offer, each Company RSU awarded pursuant to any Company Stock Option Plan vested and became free of any restrictions and the Company thereafter delivered with respect to such Company RSU (i) Shares and (ii) the amount of any declared but unpaid dividends to the holder thereof in settlement of each such Company RSU. At the Effective Time, each Share issued in respect of the Company RSUs (that has not otherwise been tendered in the Offer or in any subsequent offering period) will be converted into the right to receive the Merger Consideration, without interest and less any applicable withholding taxes.

Treatment of Restricted Shares. Under the terms of the Merger Agreement, immediately prior to the Offer Acceptance Time, but conditioned upon the consummation of the Offer, each Company Restricted Share awarded pursuant to any Company Stock Option Plan vested and became free of any restrictions, and the Company delivered the amount of any declared but unpaid dividends with respect to such Company Restricted Share. At the Effective Time, each Company Restricted Share (that has not otherwise been tendered in the Offer or in any subsequent offering period) will be converted into the right to receive the Merger Consideration, without interest and less any applicable withholding taxes.

Interests of Our Directors, Executive Officers and Affiliates in the Merger

Overview.

Our directors, executive officers and certain affiliates may have agreements or arrangements that provide them with interests in the Merger that differ from, or are in addition to, those of other Company stockholders. The Company Board was aware of these agreements and arrangements as they relate to our directors, executive officers and affiliates during its deliberations of the merits of the Merger Agreement and in determining to recommend to our stockholders that they vote their Shares in favor of adopting the Merger Agreement.

Consideration for Shares at the Effective Time of the Merger.

At the Effective Time, Shares beneficially owned by the executive officers and directors of the Company and their respective affiliates that were not tendered in the Offer will be converted into the right to receive the same cash consideration on the same terms and conditions as the other stockholders of the Company.

As of November 26, 2012, TPG, which is affiliated with Matthew T. Hobart and William E. McGlashan, Jr. on the Company Board, beneficially owned, in the aggregate, 7,486,574 Shares. If the Transactions are completed, TPG will be entitled to receive an aggregate of $314,436,108 in cash, without interest and less any applicable withholding taxes.

As of November 26, 2012, Weider, which is affiliated with Eric Weider on the Company Board, beneficially owned, in the aggregate, 7,486,574 Shares. If the Transactions are completed, Weider will be entitled to receive an aggregate of $314,436,108 in cash, without interest and less any applicable withholding taxes.

 

37


Table of Contents

As of November 26, 2012, the directors and named executive officers of the Company and their respective affiliates beneficially owned, in the aggregate, 15,626,744 Shares, excluding vested and unvested equity awards, which are discussed below under “The Transactions—Interests of Our Directors, Executive Officers and Affiliates in the Merger—Company Options, Company RSUs and Company Restricted Shares to be Cashed Out in the Merger.” If the Merger is completed, the named executive officers and directors of the Company and their respective affiliates will be entitled to receive an aggregate of $656,323,248 in cash, without interest and less any applicable withholding taxes. Certain directors and officers have also entered into D&O Agreements (see “Agreements with Executive Officers and Directors” below).

Company Options, Company RSUs and Company Restricted Shares to be Cashed Out in the Merger

Please see “The Merger Agreement—Treatment of Company Options, Company RSUs and Company Restricted Shares” beginning on page 37 for a discussion of the treatment of the outstanding vested and unvested Company Options, Company RSUs and Company Restricted Shares held by our directors and named executive officers at the closing of the Merger.

The table below sets forth information regarding the cash proceeds that each of the Company’s directors and named executive officers would receive at the closing of the Transactions with respect of the cash-out of equity-based compensation awards and assuming that the Transactions are consummated on December 14, 2012.

 

    Value of Vested
Company
Options
    Value of
Unvested
Company
Options that
vest
immediately
prior to the
Offer
Acceptance
Time
    Value of
Company
RSUs
    Value of
Unvested
Company
Restricted
Shares
    Value of
Unpaid
Dividend
Acceleration
    Total Cash
Payment with
Respect to all
Equity
Compensation
 

Directors

           

Tarang P. Amin*

  $ 18,122,500.68      $ 17,573,358.40        —        $ 5,498,220.00        —        $ 41,194,079.08   

Ronald L. Corey

  $ 1,478,250.00        —        $ 2,625,672.00      $ 89,880.00      $ 84,570.90      $ 4,278,372.90   

Matthew T. Hobart

    —          —          —          —          —          —     

Michael Hyatt

    —          —          —        $ 465,318.00        —        $ 465,318.00   

Eugene B. Jones

    —          —          —        $ 465,318.00        —        $ 465,318.00   

Roger H. Kimmel

  $ 1,006,625.00        —        $ 2,330,874.00      $ 293,790.00      $ 100,189.80      $ 3,731,478.80   

George F. Lengvari

    —          —          —        $ 631,218.00        —        $ 631,218.00   

William E. McGlashan, Jr.

    —          —          —          —          —          —     

Brian T. Swette

    —          —          —        $ 424,158.00        —        $ 424,158.00   

Eric Weider

    —          —          —          —          —          —     

Richard G. Wolford

    —          —          —        $ 509,586.00        —        $ 509,586.00   

Other Named Executive Officers

           

Joseph W. Baty

  $ 1,176,100.00      $ 4,704,400.00      $ 5,037,396.00        —        $ 383,801.60      $ 11,301,697.60   

Scott K. Milsten

  $ 920,700.00      $ 3,682,800.00        —          —          —        $ 4,603,500.00   

Jennifer Steeves-Kiss

  $ 990,080.00      $ 3,960,320.00        —          —          —        $ 4,950,400.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

All Directors and Named Executive Officers (14 persons)

  $ 23,694,255.68      $ 29,920,878.40      $ 9,993,942.00      $ 8,377,488.00      $ 568,562.30      $ 72,555,126.38   

 

* Mr. Amin is also a named executive officer.

 

38


Table of Contents

Transaction Bonus Agreements.

In October 2012, in connection with the Bayer Merger Agreement, the Company entered into transaction bonus agreements (each, as amended from time to time, a “Transaction Bonus Agreement” and together the “Transaction Bonus Agreements”) with each of Tarang P. Amin, Scott K. Milsten and Jennifer Steeves-Kiss, pursuant to which the Company agreed to pay to each such executive officer a lump-sum cash bonus of $5,000,000, $450,000 and $450,000 respectively, less any applicable withholding taxes, if (i) the Bayer Merger were to occur on or before December 31, 2012 and (ii) such executive officer were to remain employed by the Company through the closing of the Bayer Merger or had been terminated without “cause” (as defined in each executive officer’s employment agreement and described below). These transaction bonuses were given to encourage a fast and successful merger with Bayer and to encourage Messrs. Amin and Milsten and Ms. Steeves-Kiss to remain employed with the Company through its closing. In determining the amounts of these transaction bonuses, the Company Board and the Compensation Committee of the Company Board considered, among other factors, management performance, in particular, the efforts devoted by these individuals in the months preceding the negotiation of the Bayer Merger Agreement, the fully valued price to be paid by Bayer in connection with the Bayer Merger, and the fact that these executives could owe excise taxes under Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) in respect of the amounts that they would otherwise receive in connection with the Bayer Merger. As the purpose of these transaction bonuses remained applicable with respect to a fast and successful consummation of the Offer, the Company Board and the compensation committee of the Company Board approved, and the Company entered into, amended and restated Transaction Bonus Agreements with each of the executives, which provide for the same bonus to be paid at the Offer Acceptance Time, but in all other respects the terms and conditions for such bonuses remain the same.

Pro Rata Bonuses.

The Company has determined to pay annual bonuses based on performance and pro-rated through the date of the Merger. Assuming a closing of the Merger on December 14, 2012 and that 200% of target performance is achieved, Messrs. Amin, Baty and Milsten and Ms. Steeves-Kiss will receive pro-rata bonuses in the amount of $525,000.00, $208,541.67, $151,666.67 and $128,333.33 respectively.

Executive Employment Agreements.

Agreement with Mr. Amin. Under the terms of Mr. Amin’s existing employment agreement, if he is terminated “without cause” or he resigns for “good reason” (each as defined below), Mr. Amin will be entitled to the following payments and benefits, subject to the execution of a general release of claims and continued compliance with the restrictive covenants under the employment agreement:

 

   

a severance payment equal to two times his annual base salary in effect on the date of such termination, payable in equal installments over the 12 month period following such termination;

 

   

a pro-rata bonus, payable at the time the Company’s annual bonuses for such fiscal year would otherwise have been paid, provided that Mr. Amin has been employed for at least six months of the fiscal year in which such termination occurs. However, Mr. Amin’s Transaction Bonus Agreement provides that if he is terminated during fiscal 2013, the pro rata bonus payable as severance, if any, will be calculated based solely on his annual bonus opportunity and performance from and after the closing of the Merger and will not include the pro rata bonus paid in connection with the Merger; and

 

   

continued medical and dental coverage under COBRA and reimbursement to Mr. Amin of any premium costs charged to him for such coverage for the 18 month period following such termination; provided, however, that the coverage will terminate if the executive becomes eligible to receive medical and dental coverage from a subsequent employer.

Under the employment agreement, “cause” is generally defined as the executive’s (a) breach of his obligations under the employment agreement which constitutes material nonperformance by the executive of his

 

39


Table of Contents

obligations and duties under the employment agreement, which the executive has failed to remedy after the Company Board has given the executive written notice of, and at least 15 days to remedy, such breach; (b) commission of an act of fraud, embezzlement, misappropriation, willful misconduct or breach of fiduciary duty against the Company; (c) material breach of the restrictive covenants in the employment agreement; (d) conviction, plea of no contest or nolo contendere, deferred adjudication or unadjudicated probation for any felony or any crime involving moral turpitude; (e) failure to carry out, or comply with, in any material respect, any lawful directive of the Company Board which the executive has failed to remedy after the Company Board has given the executive written notice of, and at least 15 days to remedy, such failure; or (f) unlawful use or possession of illegal drugs. “Good reason” is generally defined as any one of the following conducts or events that is not cured by the Company within 30 days after the executive’s notice in writing to the Company of his intent to terminate his employment for good reason: (a) a material default in the Company’s performance of its obligations under the employment agreement; (b) a significant diminution of the executive’s responsibilities, duties or authority as president and chief executive officer of the Company, or a material diminution of the executive’s base compensation, unless such diminution is mutually agreed between the executive and the Company; or (c) the relocation of the executive’s principal office, without his consent, to a location that is in excess of 50 miles from the San Francisco Bay area.

Agreement with Mr. Baty. Under the terms of the existing employment agreement with Mr. Baty, if Mr. Baty terminates his employment for “good reason” or the Company terminates his employment without “cause” (each as defined below) during the 90-day period prior to or the 12-month period following the consummation of a change in control, he will be entitled to the following payments and benefits, subject to the execution of a general release of claims:

 

   

a severance payment equal to 150 percent of the sum of: (i) his then annual base salary; plus (ii) the greater of (a) his prior year’s bonus, (b) the average of his annual bonuses for the past three years and (c) 50 percent of his annual base salary, payable in 36 semi-monthly installments;

 

   

continued medical and dental coverage under COBRA with the Company reimbursing him for any difference between the COBRA premium costs charged to him for such coverage for the 18 month period following such termination and the rate he would pay as an active employee; provided, however, that the coverage will terminate if the executive becomes eligible to receive medical and dental coverage from a subsequent employer; and

 

   

tax gross-up payments to the extent the executive would be subject to the excise tax imposed under Section 280G of the Code.

For this purpose, “cause” is generally defined as (a) gross, fraudulent or willful misconduct; (b) substantial and willful failure to perform specific and lawful directives of the Company Board or superior employee of the Company; (c) willful and knowing violation of any rules or regulation of a governmental or regulatory body which is materially injurious to our financial condition; (d) conviction of or plea of guilty or nolo contendere to felony or fraud; (e) drug, alcohol or substance abuse; or (f) material breach of the employment agreement. “Good reason” is generally defined as any one of the following conducts or events which occurs without the executive’s consent, and is not cured by the Company within 30 days after the executive’s notice in writing to the Company within 90 days of the first happening of the conduct or event (and the executive terminates employment with the Company no later than 180 days after the first happening of such conduct or event specified in the notice): (a) a material diminution of the executive’s authority, responsibility, duties or compensation; or (b) a relocation of the executive’s principal place of business to a location that represents a material change in geographic location (including any involuntary relocation that is more than 50 miles from the executive’s current principal place of business). If the Minimum Condition is satisfied in accordance with the terms of the Merger Agreement, the consummation of the Offer will constitute a “change in control” for purposes of Mr. Baty’s employment agreement.

Agreements with Mr. Milsten and Ms. Steeves-Kiss. Pursuant to the existing employment agreements with each of Mr. Milsten and Ms. Steeves-Kiss, if the Company terminates the executive’s employment without

 

40


Table of Contents

“cause” or the executive resigns for “good reason” (each as defined below), the executive will be entitled to the following payments and benefits, subject to the execution of a general release of claims and continued compliance with the restrictive covenants in his or her employment agreement:

 

   

a severance payment equal to the executive’s annual base salary in effect on the date of such termination, payable in equal installments over the twelve-month period following such termination;

 

   

the amount of any annual bonus earned for any previous fiscal year that has not been paid; and

 

   

continued medical and dental coverage under COBRA with the Company reimbursing the executive for any difference between the COBRA premium costs charged to the executive for such coverage for the 12 month period following such termination and the rate the executive would pay as an active employee; provided, however, that the coverage will terminate if the executive becomes eligible to receive medical and dental coverage from a subsequent employer.

Under the agreements, “cause” is generally defined as the executive’s: (a) gross or willful misconduct at any time during the executive’s employment by the Company; (b) substantial and willful failure to perform specific and lawful directives of the Company Board or a superior employee of the Company, in any material respect, which the executive has failed to remedy after the Company has given executive written notice of, and at least 20 days to remedy; (c) for Ms. Steeves-Kiss only, willful and knowing violation of any rules or regulations of any governmental or regulatory body, which is materially injurious to the financial condition of the Company; (d) conviction of or plea of guilty or nolo contendere to a felony or fraud during the executive’s employment with the Company; (e) unlawful use (including being under the influence) or possession of illegal drugs; or (f) material breach of the terms of the employment agreement which is not corrected after written notice and a reasonable cure period not to exceed 20 days. “Good reason” is generally defined as any one of the following conducts or events which occurs without the executive’s consent, and is not cured by the Company within 20 days after the executive’s notice in writing to the Company within 90 days of the first happening of the conduct or event (and the executive terminates employment with the Company no later than 180 days after the first happening of such conduct or event specified in the notice): (a) the Company’s material diminution of the executive’s authority, responsibilities, duties or compensation; (b) any relocation of the executive’s principal place of business without executive’s consent to a location that is in excess of 50 miles from its location on the date of the employment agreement; or (c) a material default in the performance of the Company’s obligations under the employment agreement.

The consummation of the Offer constitutes a “change in control” under each employment agreement with each of the Company’s named executive officers and the Company Stock Option Plans. The following table sets forth the estimated amounts of compensation that each of our named executive officers, Tarang P. Amin, Joseph W. Baty, Scott K. Milsten and Jennifer Steeves-Kiss, could receive that are based on or otherwise relate to the Transactions. These amounts have been calculated assuming the Transactions are consummated on December 14, 2012 and, where applicable, assuming each named executive officer experiences a qualifying termination of employment (as discussed in more detail above under “Executive Employment Agreements”) as of December 14, 2012. Certain of the amounts payable may vary depending on the actual date of consummation of the Offer, the Merger and any qualifying termination, if any. Receipt of compensation under the executive employment agreements is conditioned on the execution of a release of claims against the Company and, for Messrs. Amin and Milsten and Ms. Steeves-Kiss, continued compliance with the restrictive covenants in his or her employment agreement.

 

Name

  Cash ($)(1)     Equity ($)(2)     Perquisites/
Benefits  ($)(3)
    Tax
Reimbursement  ($)
    Other ($)     Total  

Tarang P. Amin

  $ 6,425,000.00      $ 23,071,578.40      $ 27,026.64        —          —        $ 29,523,605.04   

Joseph W. Baty

  $ 1,179,471.05      $ 10,125,597.60      $ 11,200.68        —          —        $ 11,316,269.33   

Scott K. Milsten

  $ 926,666.67      $ 3,682,800.00      $ 11,522.40        —          —        $ 4,620,989.07   

Jennifer Steeves-Kiss

  $ 853,333.33      $ 3,960,320.00      $ 5,749.20        —          —        $ 4,819,402.53   

 

41


Table of Contents
(1) The estimated amounts for each named executive officer are as follows:

 

Name

   Cash
Severance ($)
     Transaction
Bonus  ($)
     Pro-Rata
Bonus  ($)
 

Tarang P. Amin

   $ 900,000.00       $ 5,000,000.00       $ 525,000.00   

Joseph W. Baty

   $ 970,929.38         —         $ 208,541.67   

Scott K. Milsten

   $ 325,000.00       $ 450,000.00       $ 151,666.67   

Jennifer Steeves-Kiss

   $ 275,000.00       $ 450,000.00       $ 128,333.33   

Cash severance is a “double-trigger” amount payable only if the executive’s employment is terminated without cause or for good reason. Transaction bonuses are “single-trigger” payable upon consummation of the Offer, assuming the Offer is consummated in 2012 and the executives remain employed by the Company through the consummation of the Offer or are terminated without cause (as defined in the applicable employment agreement) prior to the consummation of the Offer. The Pro-Rata Bonus is “single-trigger” payable upon consummation of the Merger.

 

(2) All equity payments are “single-trigger” and represent the value of unvested and unexercised in-the-money Company Options immediately prior to the Offer Acceptance Time and the issuance of Shares immediately prior to the Offer Acceptance Time upon settlement of Company RSUs or vesting of unvested Company Restricted Shares.

 

Name

  Aggregate Value
of “in-the money”
Company Stock
Options that
would Vest
    Aggregate Value
of Company
RSUs
    Aggregate Value
of Unpaid
Dividends on
Company RSUs
and Company
Restricted
Shares
    Aggregate Value
of Company
Restricted
Shares that
would Vest
    Total  

Tarang P. Amin

  $ 17,573,358.40        —          —        $ 5,498,220.00      $ 23,071,578.40   

Joseph W. Baty

  $ 4,704,400.00      $ 5,037,396.00      $ 383,801.60        —        $ 10,125,597.60   

Scott K. Milsten

  $ 3,682,800.00        —          —          —        $ 3,682,800.00   

Jennifer Steeves-Kiss

  $ 3,960,320.00        —          —          —        $ 3,960,320.00   

 

(3) All amounts are “double-trigger.” In the case of Mr. Amin, the amount represents the cost of continued medical and dental coverage under COBRA and reimbursement of any premium costs charged to him for such coverage for a period of 18 months. In the case of Messrs. Baty and Milsten and Ms. Steeves-Kiss, the amounts represent the cost of continued medical and dental coverage under COBRA and reimbursement for any difference between the COBRA premium costs charged to him or her and the rate he or she would pay as an active employee, for a period of 18 months for Mr. Baty, and 12 months, in the case of Mr. Milsten and Ms. Steeves-Kiss. However, the coverage will terminate if the named executive officer becomes eligible to receive medical and dental coverage from a subsequent employer.

Directors’ and Officers’ Insurance and Indemnification.

Section 145 of the DGCL provides that a corporation has the power to indemnify a director, officer, employee or agent of the corporation and certain other persons serving at the request of the corporation in related capacities against amounts paid and expenses incurred in connection with an action or proceeding to which such person is or is threatened to be made a party by reason of such position, if such person shall have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, in any criminal proceeding, if such person had no reasonable cause to believe such conduct was unlawful. In addition, the Company may advance expenses incurred in connection with any such proceeding upon, in the case of a current director or officer, receipt of an undertaking to repay the amounts so advanced if indemnification is ultimately not permitted. In the case of actions brought by or in the right of the corporation, such indemnification is limited to expenses and no indemnification shall be made with respect to any matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the adjudicating court or the Chancery Court determines that such indemnification is proper under the circumstances.

 

42


Table of Contents

The Company has entered into indemnification agreements with its directors and executive officers (the “Indemnification Agreements”). The Indemnification Agreements provide rights that supplement those provided under the DGCL and in the Company’s certificate of incorporation and bylaws. The Indemnification Agreements provide for the indemnification of and advancement of expenses to the indemnitee to the fullest extent permitted by applicable law if indemnitee is named in or made a party to or a participant in any proceeding (including a proceeding by or in the right of the Company to procure a judgment in its favor) by reason of the fact that the indemnitee is or was a director or officer of the Company, by reason of any action taken by him or of any action on his part while acting as director or officer of the Company or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee or agent of another subsidiary, corporation, limited liability company, partnership, joint venture, trust or other enterprise, against all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by indemnitee in connection with any such proceeding. Under the Indemnification Agreements, indemnification will not be provided where (i) indemnitee is actually reimbursed pursuant to an insurance policy as may exist for the indemnitee’s benefit, except in respect of any indemnification exceeding the reimbursement under such insurance policy, (ii) the payment of profits arises from violations of Section 16(b) of the Exchange Act or (iii) claims are initiated or brought voluntarily by indemnitee, with certain limited exceptions.

The Company also maintains insurance on behalf of its directors and officers insuring them against liability asserted against them in their capacities as directors or officers or arising out of such status.

Pursuant to the Merger Agreement, for a period of six years from and after the Effective Time, Parent has agreed to indemnify and hold harmless all past and present directors and officers of the Company to the same extent such persons are indemnified as of the date of the Merger Agreement by the Company pursuant to applicable law, the Company’s certificate of incorporation and bylaws and the Indemnification Agreements arising out of acts or omissions in their capacity as directors or officers of the Company or any of its subsidiaries occurring at or prior to the Effective Time. Parent has also agreed to cause the Indemnification Agreements to continue in full force and effect in accordance with their terms following the Effective Time and advance expenses (including reasonable legal fees and expenses) incurred in the defense of any proceedings with respect to such matters in accordance with the procedures set forth in the Indemnification Agreements.

The Merger Agreement further provides that, for a period of six years from and after the Effective Time, Parent must cause the Surviving Corporation to maintain for the benefit of the Company’s directors and officers, as of the date of the Merger Agreement and as of the Effective Time, an insurance and indemnification policy that provides coverage for events occurring prior to the Effective Time that is substantially equivalent to and in any event not less favorable in the aggregate than the Company’s existing policy. In no event will the Surviving Corporation be required to spend an annual premium amount greater than 250% of the last annual premium paid prior to the date of the Merger Agreement by the Company to obtain such insurance. In lieu of the foregoing, the Company may choose to purchase a six-year prepaid tail policy with terms and conditions substantially similar to its existing policy, and Parent must cause the surviving corporation to maintain such policy in full force and effect and continue to honor the obligations thereunder. If substantially equivalent insurance is unavailable, Parent will buy the best available coverage.

Employee Matters.

For 12 months following the Effective Time, Parent will provide, and will cause to be provided, to each employee of the Company who continues to be employed by Parent or any of its subsidiaries annual base salary or base wages and short-term target cash incentive compensation opportunities that are no less favorable than the annual base salary or base wages and short-term target cash incentive compensation opportunities provided to such Company employees immediately prior to the Effective Time. After the Effective Time, Parent must also provide pension, health and welfare benefits to such Company employees who work more than 20 hours per week that are at least as favorable in the aggregate to those provided to similarly situated employees of Parent, although Parent may elect to continue Company employees who work more than 20 hours per week in their

 

43


Table of Contents

existing Company benefit plans for a transition period. The Merger Agreement further requires that the Company or the Surviving Corporation, as applicable, honor in accordance with their terms certain employment, severance and change of control agreements and arrangements previously disclosed to Parent.

Under the Merger Agreement, Parent must use its reasonable best efforts to credit each Company employee for his or her years of service with the Company prior to the Effective Time for purposes of vesting, eligibility to participate and levels of benefits (but not benefit accrual under any defined benefit plan or frozen benefit plan of Parent or vesting under any equity incentive plan) under the 401(k) plan, severance pay plan, vacation plan, short term disability plan, active employee medical, dental, vision and prescription drug plan, active employee life insurance plan and service award of Parent (the “New Plans”) and its subsidiaries in which Company employees first become eligible to participate after the Effective Time; provided, that the foregoing will not apply for purposes of qualifying for subsidized early retirement benefits, retiree medical benefits or life benefits, or to the extent that its application would result in a duplication of benefits with respect to the same period of service.

In addition, Parent must use its commercially reasonable efforts to cause (i) each Company employee to be immediately eligible to participate, without any waiting time, in any and all New Plans and (ii) for purposes of each New Plan providing medical, dental, pharmaceutical and/or vision benefits to any Company employee, all pre-existing condition exclusions and actively-at-work requirements of such New Plan to be waived for such Company employee and his or her covered dependents, to the extent such conditions were inapplicable or waived under the comparable Company benefit plans in which such employee participated immediately prior to the Effective Time.

Agreements with Executive Officers and Directors.

The following directors and executive officers of the Company have entered into D&O Agreements with Parent and Purchaser pursuant to which such directors and officers have agreed to, among other things, (i) tender in the Offer, or any subsequent offering period, as applicable, all Shares held by them (including Company Restricted Shares, Shares issuable upon vesting of Company RSUs and Shares issuable upon the permitted exercise of Company Options) and (ii) with respect to each Company Option held by them, refrain from exercising such Company Option prior to its cancellation in the Merger, except under certain specific circumstances: Tarang Amin, Richard Baruch, Joseph Baty, Ronald Corey, Jon Fieldman, Matthew Hobart, Michael Hyatt, Eugene Jones, George Lengvari, William McGlashan, Scott Milsten, Jennifer Steeves-Kiss, Brian T. Swette, Eric Weider and Richard Wolford. The Company is not a party to the any of these agreements.

Agreement with Rothschild.

Roger Kimmel, a director of the Company, has been Vice Chairman of Rothschild Inc., an investment banking firm, since January 2001. Pursuant to a letter agreement, dated as of September 14, 2012, Rothschild Inc. has been providing management, financial advisory and investment banking services to the Company. In connection therewith, the Company is required to pay an advisory fee to Rothschild Inc. upon the closing of the Offer, which would amount to approximately $5,144,854.95.

Tender and Support Agreements.

Each of Weider and TPG have entered into a definitive Tender and Support Agreement which, among other things, obligates such stockholder, solely in its capacity as a stockholder, (i) to tender all its Shares in the Offer, (ii) to restrict the transfer of its Shares except under certain circumstances, and (iii) to agree to be bound by the non-solicitation provisions in the Merger Agreement. The Company is not a party to the Tender and Support Agreements. Weider is the record holder of 7,486,574 shares of Class B Common Stock and TPG is the record holder of 7,486,574 shares of Class A Common Stock which collectively constitute approximately 85.14% of the total outstanding voting power of Shares.

 

44


Table of Contents

Standstill Agreement, Stockholders Agreement and Registration Rights Agreement.

In connection with TPG’s purchase of 7,486,574 shares of Class A Common Stock from Weider on October 14, 2010, TPG entered into that certain Standstill Agreement, dated as of October 14, 2010, as amended on October 29, 2012 and November 21, 2012, by and between the Company and TPG, and that certain Stockholders Agreement, dated as of October 14, 2010, by and between Weider and TPG. As contemplated by the Stockholders Agreement, on August 10, 2012, the Company entered into that certain Registration Rights Agreement, dated as of August 10, 2012, by and among the Company, TPG and Weider. These agreements shall cease to have any effect following consummation of the Merger.

Stockholder Written Consent.

Immediately after the execution of the Merger Agreement and in lieu of calling a meeting of the Company’s stockholders, the Company submitted the Written Consent to the Principal Stockholders with respect to adopting the Merger Agreement. On November 21, 2012, the Stockholder Written Consent was executed by each of the Principal Stockholders and, thereby, the Merger Agreement was adopted by Company stockholders holding a majority of the total voting power of the outstanding Shares.

Certain Interests of the Principal Stockholders.

Certain directors of the Company were nominated by the Principal Stockholders and may also serve as executive officers or managers of such entities.

Regulatory Matters

The purchase of Shares pursuant to the Offer is subject to review by the Antitrust Division of the Department of Justice (the “Antitrust Division”) and the FTC under the HSR Act. The HSR Act provides that transactions like the Offer may not be completed until certain information and documents have been submitted to the Antitrust Division and the FTC and the applicable waiting period has expired or been terminated. On November 16, 2012, Ultimate Parent made the requisite filings with the Antitrust Division and the FTC pursuant to the HSR Act and requested early termination of the initial 15-day waiting period for cash tender offers. The applicable waiting period under the HSR Act was initially set to expire at 11:59 p.m. New York City time on December 3, 2012, unless earlier terminated or extended. On November 27, 2012, the Company and Ultimate Parent were notified that the Antitrust Division and the FTC granted early termination of the required waiting period under the HSR Act with respect to the Offer and the Merger. Accordingly, the condition to the Offer that any waiting period under the HSR Act shall have expired or been earlier terminated was satisfied.

Under the Merger Agreement, both the Company and Parent have agreed, subject to certain limitations, to use their reasonable best efforts to obtain all required governmental approvals and avoid any action or proceeding by a governmental entity in connection with the execution of the Merger Agreement and completion of the Offer and the Merger. Except as noted above with respect to the required filings under the HSR Act and the filing of a certificate of merger in Delaware at or before the Effective Time, and the satisfaction of our filing obligations under the Exchange Act, we are unaware of any material federal, state or foreign regulatory requirements or approvals required for the execution of the Merger Agreement or completion of the Offer, the Merger or the other transactions contemplated by the Merger Agreement.

Appraisal Rights

Holders of Shares who did not tender their Shares in the Offer, who do not vote in favor of or consent to the adoption of the Merger Agreement and who properly demand appraisal of their shares will be entitled to appraisal rights in connection with the Merger under Section 262 of the DGCL.

 

45


Table of Contents

The following discussion is not a complete statement of the law pertaining to appraisal rights under the DGCL and is qualified in its entirety by the full text of Section 262 of the DGCL which is attached to this information statement as Annex C. The following summary does not constitute any legal or other advice nor does it constitute a recommendation that stockholders exercise their appraisal rights under Section 262 of the DGCL.

Under Section 262 of the DGCL, holders of Shares who do not vote in favor of or consent to the adoption of the Merger Agreement and who otherwise follow the procedures set forth in Section 262 of the DGCL will be entitled to have their shares appraised by the Chancery Court, and to receive payment in cash of the “fair value” of the shares, exclusive of any element of value arising from the accomplishment or expectation of the Merger, as determined by the Chancery Court, together with interest, if any, to be paid upon the amount determined to be the fair value.

Under Section 262 of the DGCL, where a merger agreement relating to a proposed merger is adopted by stockholders acting by written consent in lieu of a meeting of the stockholders, the corporation must notify each of its stockholders who was a stockholder on the record date (which may be fixed in advance by the corporation (not more than ten (10) days prior to the date of the notice), or if not fixed in advance, will either be the day before the notice is given (if sent prior to the Effective Time) or will be the date of the Effective Time (if sent following the Effective Time)) that appraisal rights are available, and must include in each such notice a copy of Section 262 of the DGCL. This information statement constitutes such notice to the holders of Shares and Section 262 of the DGCL is attached to this information statement as Annex C. Any stockholder who wishes to exercise such appraisal rights or who wishes to preserve his, her or its right to do so should review the following discussion and Annex C carefully, because failure to timely and properly comply with the procedures specified will result in the loss of appraisal rights under the DGCL.

Filing Written Demand. Holders of Shares who desire to exercise their appraisal rights must demand in writing appraisal of their Shares no later than twenty (20) days after the date of mailing of the information statement (which includes the notice of written consent and appraisal rights), or [], 2012. A demand for appraisal will be sufficient if it reasonably informs the Company of the identity of the stockholder and that such stockholder intends thereby to demand appraisal of such stockholder’s Shares. If you wish to exercise your appraisal rights you must be the record holder of such Shares on the date the written demand for appraisal is made and you must continue to hold such Shares through the Effective Time. Accordingly, a stockholder who is the record holder of Shares on the date the written demand for appraisal is made, but who thereafter transfers such shares prior to the Effective Time, will lose any right to appraisal in respect of such shares.

Only a holder of record of Shares is entitled to demand an appraisal of the shares registered in that holder’s name. A demand for appraisal in respect of Shares should be executed by or on behalf of the holder of record, fully and correctly, as the holder’s name appears on the holder’s stock certificates. If the shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of the demand should be made in that capacity, and if the shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or on behalf of all joint owners. An authorized agent, including an agent for two or more joint owners, may execute a demand for appraisal on behalf of a holder of record; however, the agent must identify the record owner or owners and expressly disclose that, in executing the demand, the agent is acting as agent for the record owner or owners. If the shares are held in “street name” by a broker, bank or nominee, the broker, bank or nominee may exercise appraisal rights with respect to the shares held for one or more beneficial owners while not exercising the rights with respect to the shares held for other beneficial owners; in such case, however, the written demand should set forth the number of shares as to which appraisal is sought and where no number of shares is expressly mentioned the demand will be presumed to cover all Shares held in the name of the record owner. Stockholders who hold their shares in brokerage accounts or other nominee forms and who wish to exercise appraisal rights are urged to consult with their brokers to determine the appropriate procedures for the making of a demand for appraisal by such a nominee.

 

46


Table of Contents

All written demands for appraisal pursuant to Section 262 of the DGCL should be sent or delivered to the Company at 2002 South 5070 West, Salt Lake City, Utah 84104, Attention: General Counsel.

At any time within 60 days after the Effective Time, any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party may withdraw his, her or its demand for appraisal and accept the consideration offered pursuant to the Merger Agreement by delivering to the Company, as the Surviving Corporation, a written withdrawal of the demand for appraisal. However, any such attempt to withdraw the demand made more than 60 days after the Effective Time will require written approval of the Surviving Corporation. No appraisal proceeding in the Chancery Court will be dismissed as to any stockholder without the approval of the Chancery Court, and such approval may be conditioned upon such terms as the Chancery Court deems just; provided, however, that any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party may withdraw his, her or its demand for appraisal and accept the Merger Consideration offered pursuant to the Merger Agreement within 60 days after the Effective Time. If the Surviving Corporation does not approve a request to withdraw a demand for appraisal when that approval is required, or, except with respect to any stockholder who withdraws such stockholder’s right to appraisal in accordance with the proviso in the immediately preceding sentence, if the Chancery Court does not approve the dismissal of an appraisal proceeding, the stockholder will be entitled to receive only the appraised value determined in any such appraisal proceeding, which value could be less than, equal to or more than the consideration being offered pursuant to the Merger Agreement.

Notice by the Surviving Corporation. Within ten days after the Effective Time, the Surviving Corporation must notify each holder of Shares of the Effective Time, provided that if such notice is sent more than 20 days following the mailing of this information statement, which includes notice of the adoption of the Merger Agreement, then the notice of the Effective Time need only be given to each stockholder who has made a written demand for appraisal in accordance with Section 262 of the DGCL, and who has not voted in favor of or consented to the adoption of the Merger Agreement.

Filing a Petition for Appraisal. Within 120 days after the Effective Time, but not thereafter, the Surviving Corporation or any holder of Shares who has complied with Section 262 of the DGCL and is entitled to appraisal rights under Section 262 of the DGCL may commence an appraisal proceeding by filing a petition in the Chancery Court demanding a determination of the fair value of the shares held by all dissenting holders. The Surviving Corporation is under no obligation to, and has no present intention to, file such a petition, and holders should not assume that the Surviving Corporation will file a petition. Within 120 days after the Effective Time, any holder of Shares who has complied with the requirements for exercise of appraisal rights will be entitled, upon written request, to receive from the Surviving Corporation a statement setting forth the aggregate number of shares not voted in favor of the adoption of the Merger Agreement and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. The statement must be mailed within ten days after a written request for the statement has been received by the Surviving Corporation or within ten days after the expiration of the period for delivery of demands for appraisal, whichever is later. Notwithstanding the foregoing, a person who is the beneficial owner of Shares held either in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file a petition for appraisal or request from the Company the statement described in this paragraph.

If a petition for an appraisal is timely filed by a holder of Shares and a copy thereof is served upon the Surviving Corporation, the Surviving Corporation will then be obligated within 20 days to file with the Delaware Register in Chancery a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares and with whom agreements as to the value of their shares have not been reached. After notice to the stockholders as required by the court, the Chancery Court is empowered to conduct a hearing on the petition to determine those stockholders who have complied with Section 262 of the DGCL and who have become entitled to appraisal rights thereunder. The Chancery Court may require the stockholders who demanded payment for their shares to submit their stock certificates to the Delaware Register in Chancery for notation thereon of the pendency of the appraisal proceeding; and if any stockholder fails to comply with the direction, the Chancery Court may dismiss the proceedings as to the stockholder.

 

47


Table of Contents

Determination of Fair Value. After the Chancery Court determines the holders of Shares entitled to appraisal, the appraisal proceeding shall be conducted in accordance with the rules of the Chancery Court, including any rules specifically governing appraisal proceedings. Through such proceeding, the Chancery Court shall determine the “fair value” of the shares, exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with interest, if any, to be paid upon the amount determined to be the fair value. Unless the Chancery Court in its discretion determines otherwise for good cause shown, interest from the Effective Time through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the Effective Time and the date of payment of the judgment.

In determining fair value, the Chancery Court will take into account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods that are generally considered acceptable in the financial community and otherwise admissible in court” should be considered, and that “fair price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court stated that, in making this determination of fair value, the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts that could be ascertained as of the date of the Merger that throw any light on future prospects of the merged corporation. Section 262 of the DGCL provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Delaware Supreme Court also stated that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.”

Stockholders considering seeking appraisal should be aware that the fair value of their shares as so determined could be more than, the same as or less than the consideration they would receive pursuant to the Merger if they did not seek appraisal of their shares and that an investment banking opinion as to fairness from a financial point of view is not necessarily an opinion as to fair value under Section 262 of the DGCL. Although we believe that the Merger Consideration is fair, no representation is made as to the outcome of the appraisal of fair value as determined by the Chancery Court, and stockholders should recognize that such an appraisal could result in a determination of a value higher or lower than, or the same as, the Merger Consideration. Neither Parent nor the Company currently anticipate offering more than the applicable Merger Consideration to any of our stockholders exercising appraisal rights, and reserve the right to assert, in any appraisal proceeding, that for purposes of Section 262 of the DGCL, the “fair value” of a Share is less than the Merger Consideration. The Delaware courts have stated that the methods which are generally considered acceptable in the financial community and otherwise admissible in court may be considered in the appraisal proceedings. In addition, the Delaware courts have decided that the statutory appraisal remedy, depending on factual circumstances, may or may not be a dissenting stockholder’s exclusive remedy.

If a petition for appraisal is not timely filed, then the right to an appraisal will cease. The costs of the action (which do not include attorneys’ fees or the fees and expenses of experts) may be determined by the Chancery Court and taxed upon the parties as the Chancery Court deems equitable under the circumstances. Upon application of a stockholder, the Chancery Court may order all or a portion of the expenses incurred by a stockholder in connection with an appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts utilized in the appraisal proceeding, to be charged pro rata against the value of all the shares entitled to be appraised.

If any stockholder who demands appraisal of Shares under Section 262 of the DGCL fails to perfect, successfully withdraws or loses such holder’s right to appraisal, the stockholder’s Shares will be deemed to have been converted at the Effective Time into the right to receive the Merger Consideration pursuant to the Merger

 

48


Table of Contents

Agreement. A stockholder will fail to perfect, or effectively lose, the holder’s right to appraisal if no petition for appraisal is filed within 120 days after the Effective Time. In addition, as indicated above, at any time within 60 days after the Effective Time, a stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party may withdraw his, her or its demand for appraisal in accordance with Section 262 of the DGCL and accept the Merger Consideration offered pursuant to the Merger Agreement.

Failure to comply strictly with the requirements of Section 262 of the DGCL will result in the loss of a stockholder’s statutory appraisal rights. Consequently, any stockholder wishing to exercise appraisal rights is urged to consult legal counsel before attempting to exercise those rights.

Material United States Federal Income Tax Consequences

The following discussion is a general summary of the material U.S. federal income tax consequences to holders of Shares of the exchange of Shares for cash pursuant to the Merger. This discussion is not a complete analysis of all of the potential U.S. federal income tax consequences relating thereto, nor does it address any estate and gift tax consequences or any tax consequences arising under any state, local or foreign tax laws. This discussion is based upon the provisions of the Code, the U.S. Treasury Regulations promulgated thereunder, judicial decisions and published rulings and administrative pronouncements of the Internal Revenue Service (the “IRS”), all as in effect as of the date of this information statement. These authorities may change, possibly retroactively, resulting in U.S. federal income tax consequences different from those discussed below. No ruling has been or will be sought from the IRS with respect to the matters discussed below, and there can be no assurance that the IRS will not take a contrary position regarding the tax consequences of the Merger or that any such contrary position would not be sustained by a court.

This discussion is limited to holders of Shares who hold their shares as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax considerations that may be relevant to a holder of Shares in light of such holder’s particular circumstances, nor does it discuss the special considerations applicable to holders of Shares subject to special treatment under U.S. federal income tax laws, including, without limitation:

 

   

insurance companies;

 

   

banks or other financial institutions;

 

   

mutual funds;

 

   

tax-deferred or other retirement accounts;

 

   

holders subject to the alternative minimum tax;

 

   

partnerships, S corporations or other pass-through entities;

 

   

tax-exempt organizations;

 

   

brokers, dealers or traders in securities, commodities or currencies;

 

   

controlled foreign corporations or passive foreign investment companies;

 

   

U.S. expatriates and certain former citizens or long-term residents of the United States;

 

   

holders who hold their Shares as part of a hedge, straddle, or other risk reduction strategy or as part of a hedging or conversion transaction or other integrated investment;

 

   

U.S. holders (as defined below) whose functional currency is not the U.S. dollar;

 

   

non-U.S. holders (as defined below) owning (actually or constructively) more than five percent of the Shares at any time during the previous five years; and

 

   

holders who will own, actually or constructively, any stock of Parent or the Surviving Corporation at the Effective Time.

 

49


Table of Contents

In addition, this discussion does not address the U.S. federal income tax consequences to holders of Shares who acquired their shares through stock option or stock purchase plan programs or in other compensatory arrangements, or those who exercise appraisal rights under the DGCL.

WE URGE YOU TO CONSULT YOUR TAX ADVISOR REGARDING THE U.S. FEDERAL TAX CONSEQUENCES OF THE MERGER IN RESPECT OF YOUR PARTICULAR CIRCUMSTANCES, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL OR FOREIGN TAX LAWS.

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of Shares who is treated, for U.S. federal income tax purposes as:

 

   

an individual citizen or resident of the United States;

 

   

a corporation (or other entity taxed as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

 

   

a trust if (i) its administration is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (ii) it has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person for U.S. federal income tax purposes; or

 

   

an estate the income of which is subject to U.S. federal income tax regardless of its source.

A “non-U.S. holder” is a beneficial owner of Shares who is not a partnership (or other entity taxed as a partnership for U.S. federal income tax purposes) or a U.S. holder.

If a partnership (or other entity taxed as a partnership for U.S. federal income tax purposes) holds Shares, the tax treatment of a partner in the partnership generally will depend on the status of the partner and upon the activities of the partnership. Accordingly, partnerships that hold Shares and partners in such partnerships are urged to consult their tax advisors regarding the specific U.S. federal income tax consequences to them.

U.S. Holders

Payments with Respect to Shares

The receipt of cash in exchange for Shares pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes. A U.S. holder generally will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount of cash received pursuant to the Merger (determined before the deduction of any applicable withholding taxes) and such U.S. holder’s adjusted tax basis in the Shares exchanged for cash pursuant to the Merger. Such gain or loss generally will be long-term capital gain or loss if the U.S. holder’s holding period for such Shares exceeded one year. Long-term capital gains for noncorporate U.S. holders, including individuals, are generally taxable at a reduced rate. The deductibility of capital losses is subject to limitations. Gain or loss must be calculated separately for each block of Shares (i.e., Shares acquired at the same cost in a single transaction) exchanged for cash pursuant to the Merger.

Information Reporting and Backup Withholding

Payments made to U.S. holders pursuant to the Merger generally will be subject to information reporting and may be subject to backup withholding. To avoid backup withholding, U.S. holders that do not otherwise establish an exemption must complete and return the IRS Form W-9 included as part of the letter of transmittal, certifying that such U.S. holder is a U.S. person, the taxpayer identification number provided is correct, and that such U.S. holder is not subject to backup withholding, provided that they appropriately establish an exemption. Backup withholding is not an additional tax. U.S. holders may use amounts withheld as a credit against their U.S. federal income tax liability or may claim a refund of any excess amounts withheld by timely filing a claim for refund with the IRS.

 

50


Table of Contents

Non-U.S. Holders

Payments with Respect to Shares

A non-U.S. holder generally will not be subject to U.S. federal income tax on any gain realized on the receipt of cash in exchange for Shares pursuant to the Merger unless:

 

   

the gain is effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, is also attributable to a permanent establishment); or

 

   

the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of the Merger and certain other conditions are met;

Unless a tax treaty provides otherwise, gain described in the first bullet point above will be subject to U.S. federal income tax on a net income basis in the same manner as if the non-U.S. holder were a resident of the United States, and non-U.S. holders that are foreign corporations may also be subject to a 30% branch profits tax (or applicable lower treaty rate). Gains described in the second bullet point above generally will be subject to U.S. federal income tax at a flat 30% rate, but may be offset by U.S. source capital losses. Non-U.S. holders are urged to consult any applicable tax treaties that may provide for different rules.

Information Reporting and Backup Withholding

Payments made to a non-U.S. holder pursuant to the Merger will be subject to information reporting and, in certain circumstances, backup withholding. Non-U.S. holders generally can avoid backup withholding by providing a properly executed IRS Form W-8BEN (or an IRS Form W-8ECI if the non-U.S. holder’s gain is effectively connected with the conduct of a U.S. trade or business) or otherwise establishing an exemption. Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules may be refunded or credited against a non-U.S. holder’s U.S. federal income tax liability, if any, provided that such non-U.S. holder furnishes the required information to the IRS in a timely manner.

Delisting and Deregistration of Class A Common Stock

If the Merger is completed, the Class A Common Stock will be delisted from the NYSE and deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and we will no longer file periodic reports with the SEC on account of the Class A Common Stock.

 

51


Table of Contents

THE MERGER AGREEMENT

This section describes the material terms of the Merger Agreement. The description in this section and elsewhere in this information statement is qualified in its entirety by reference to the complete text of the Merger Agreement, a copy of which is attached as Annex A and is incorporated by reference into this information statement. This summary may not contain all of the information about the Merger Agreement that is important to you. We encourage you to read the Merger Agreement carefully and in its entirety. This section is not intended to provide you with factual information about us. Such information can be found elsewhere in this information statement and in the public filings we make with the SEC, as described in the section entitled, “Where You Can Find More Information,” beginning on page 73.

Explanatory Note Regarding the Merger Agreement

The Merger Agreement has been included to provide investors and security holders with information regarding its terms. It is not intended to provide any other factual information about the Company, Parent or any of their respective subsidiaries or affiliates. The representations, warranties and covenants contained in the Merger Agreement: were made by the parties thereto only for purposes of that agreement and as of specific dates; were made solely for the benefit of the parties to the Merger Agreement; may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures exchanged between the parties in connection with the execution of the Merger Agreement (such disclosures include information that has been included in the Company’s public disclosures, as well as additional non-public information); may have been made for the purposes of allocating contractual risk between the parties to the Merger Agreement instead of establishing these matters as facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company or Parent or any of their respective subsidiaries or affiliates. Additionally, the representations, warranties, covenants, conditions and other terms of the Merger Agreement may be subject to subsequent waiver or modification. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures.

The Offer

The Merger Agreement provides that, subject to the satisfaction of the Minimum Condition and other conditions that are described in Annex I of the Merger Agreement, Parent will cause Purchaser to accept for payment, and Purchaser will accept for payment, all Shares validly tendered and not properly withdrawn pursuant to the Offer promptly after the Expiration Date (as defined below). Unless extended pursuant to and in accordance with the terms of the Merger Agreement, the Offer shall initially be scheduled to expire at 11:59 p.m., New York City time, on the date that is the later of (i) Friday, December 14, 2012 or (ii) the date that is five business days following the date of filing with the SEC of the amended Offer documents, or in the event that the initial Expiration Date has been extended, the date and time to which the Offer has been so extended (the “Expiration Date”).

Terms and Conditions of the Offer

Purchaser expressly reserves the right to (i) increase the Offer Price, (ii) waive any Offer Condition (provided that Purchaser will not waive the Minimum Condition without the prior written consent of the Company (except solely to remove the requirement to calculate such condition on a fully diluted basis)) and (iii) make any other changes in the terms and conditions of the Offer not inconsistent with the terms of the Merger Agreement, in each case subject to extending the Offer as required by applicable law.

 

52


Table of Contents

Purchaser’s obligations to accept for payment, and pay for, any Shares tendered pursuant to the Offer are subject to: (i) there being validly tendered in accordance with the terms of the Offer and not validly withdrawn prior to the Expiration Date that number of Shares, that, when added to the Shares then beneficially owned by Parent and its Subsidiaries would represent, after giving effect to Purchaser’s acceptance for payment of Shares tendered in the Offer and the conversion of Class B Common Stock into Class A Common Stock, one Share more than Shares representing fifty percent (50%) of the total outstanding voting power of the Shares on a fully-diluted basis (which includes all Shares issuable upon the exercise, conversion or exchange of any options, rights and securities exercisable or convertible into Shares then outstanding (other than any Shares issuable pursuant to the Top-Up Option and any Shares issuable upon the exercise of any Company Option held by any director or officer who has executed a D&O Agreement) regardless of whether or not then vested) (the “Minimum Condition”), (ii) the expiration or earlier termination of any applicable waiting period under the HSR Act, and (iii) other customary conditions (the “Offer Conditions”). On November 27, 2012, we were notified by the FTC that the early termination of the HSR waiting period has been granted, effective immediately, thereby satisfying the related condition to the Offer.

The Offer Conditions are for the sole benefit of Parent and Purchaser, and Purchaser or Parent may waive, in whole or in part, any condition to the Offer from time to time, in Purchaser’s or Parent’s sole discretion, provided that Purchaser may not (i) decrease the Offer Price, (ii) change the form of consideration payable in the Offer, (iii) decrease the maximum number of Shares sought to be purchased in the Offer, (iv) add to, or impose conditions to the Offer, other than the Offer Conditions, (v) amend or modify any of the Offer Conditions or any of the terms of the Offer in a manner adverse to the holders of Shares or that would, individually or in the aggregate, reasonably be expected to prevent, materially delay or impair the ability of Parent or Purchaser to consummate the Offer, the Merger or the other transactions contemplated under the Merger Agreement, (vi) waive or change the Minimum Condition (except solely to remove the requirement to calculate such condition on a fully diluted basis) or (vii) extend or otherwise change the Expiration Date in a manner other than as required or permitted by the Merger Agreement, in each case, without the prior written consent of the Company.

Extensions of the Offer; Subsequent Offering Period

The Merger Agreement provides that the Offer shall be extended, among other things (a) for periods of not more than five business days each or such other number of business days, but not beyond the Outside Date, in order to permit the satisfaction of all remaining conditions (subject to the right of Purchaser to waive any such condition, other than the Minimum Condition (except solely to remove the requirement to calculate such condition on a fully diluted basis), in accordance with the Merger Agreement), and (b) for any period or periods required by applicable law, interpretation or position of the SEC or its staff or the NYSE or its staff; provided, that Purchaser will not be required to extend the offer beyond the Outside Date. The Merger Agreement reserves the right of Purchaser in the Offer documents to provide for a subsequent offering period (within the meaning of Rule 14d-11 promulgated under the Exchange Act) in compliance with Rule 14d-11 promulgated under the Exchange Act of not fewer than three business days nor more than twenty (20) business days (for this purpose calculated in accordance with Rule 14d-1(g)(3) under the Exchange Act) immediately following the expiration of the Offer. Under the terms of the Merger Agreement, Purchaser will offer a subsequent offering period of three business days at the request of Schiff if, immediately following the expiration of the Offer, Parent does not own, by virtue of the Offer or otherwise, at least 90% of the outstanding shares of each class of Shares and such threshold cannot be reached through the immediate exercise of the Top-Up Option in accordance with its terms.

Effect of the Merger; Directors and Officers; Certificate of Incorporation and Bylaws

The Merger Agreement provides for the merger of the Purchaser with and into the Company upon the terms, and subject to the conditions, set forth in the Merger Agreement. As the Surviving Corporation, the Company will continue to exist following the Merger as a wholly-owned subsidiary of Parent. Ultimate Parent is a party to the Merger Agreement as guarantor to the obligations of Parent and the Purchaser.

 

53


Table of Contents

The directors of the Purchaser immediately prior to the Effective Time will be the directors of the Surviving Corporation until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. The officers of the Company immediately prior to the Effective Time will be the officers of the Surviving Corporation, each to hold office until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be.

The certificate of incorporation of the Surviving Corporation will, by virtue of the Merger, be amended so as to read as set forth in the form of certificate of incorporation attached as an exhibit to the Merger Agreement, until thereafter amended in accordance with its terms or the terms of the Merger Agreement or as provided by applicable law. In addition, the Company and the Surviving Corporation will take all necessary action such that, at the Effective Time, the bylaws of the Surviving Corporation will be amended so as to read as set forth in the form of bylaws attached as an exhibit to the Merger Agreement, until thereafter amended in accordance with their terms or as provided by applicable law.

Closing; When the Merger Becomes Effective

The closing of the Merger will be required to take place on a date to be specified by the parties, as promptly as practicable after the (to the extent permitted by applicable law and the Merger Agreement) satisfaction or waiver of all of the conditions to the closing (described under “The Merger Agreement—Conditions to the Merger”), but in any event no later than the second business day thereafter (other than the conditions that by their terms are to be satisfied at the closing, but subject to satisfaction or waiver of those conditions) or on such other date that the Company and Parent may agree in writing.

The Effective Time will occur upon the filing of a certificate of merger with the Secretary of State of the State of Delaware (or at such later date as the Company and Parent may agree and specify in the certificate of merger).

Short Form Merger

The Merger Agreement provides that if Parent shall own by virtue of the Offer, including pursuant to the Top-Up Option, if applicable, or otherwise at least 90% of the total then outstanding shares of each class of Shares (determined on a fully diluted basis), the parties thereto will take all necessary and appropriate action to cause the merger of the Purchaser and the Company to become effective as soon as reasonably practicable after such acquisition without a stockholders’ meeting in accordance with Section 253 of the DGCL.

The Company’s Board of Directors

Promptly upon the Offer Acceptance Time (as defined below) and all times thereafter, Purchaser will be entitled to designate a number of directors to the extent permitted by applicable law and the rules and regulations of the NYSE Listed Company Manual, rounded up to the next whole number, to the Company Board that is equal to the product of (a) the total number of directors on the Company Board (after giving effect to the directors designated by us) multiplied by (b) the percentage that the aggregate voting power of Shares beneficially owned by Parent, Purchaser and any of their affiliates bears to the total voting power of Shares then outstanding, and the Company will, upon Purchaser’s request at any time following the purchase of and payment for Shares pursuant to the Offer, take all actions necessary to (i) appoint to the Company Board the individuals designated by Purchaser and permitted to be so designated as described above, including, but not limited to, promptly filling vacancies or newly created directorships on the Company Board, promptly increasing the size of the Company Board (including by amending the Company’s bylaws if necessary so as to increase the size of the Company Board) and/or promptly securing the resignations of the number of its incumbent directors as are necessary or desirable to enable Purchaser’s designees to be so elected or designated to the Company Board, and (ii) cause Purchaser’s designees to be so appointed at such time. The Company will, upon Purchaser’s request following the Offer Acceptance Time, cause directors designated by Purchaser to constitute the same percentage (rounded

 

54


Table of Contents

up to the next whole number) as is on the Company Board of each committee of the Company Board to the extent permitted by applicable Laws and the NYSE Listed Company Manual. The Company will take all actions required pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 in order to fulfill its obligations above, including mailing to stockholders the information required by Section 14(f) of the Exchange Act and Rule 14f-1 not later than such time as is necessary to enable Purchaser’s designees to be designated to the Company Board at the Offer Acceptance Time.

In the event that directors designated by Purchaser are designated to the Company Board, then until the Effective Time, the Company will cause the Company Board to maintain three directors who are members of the Company Board on the date of the Merger Agreement and who are not officers, directors or employees of Parent, Purchaser, or any of their affiliates, each of whom will be an “independent director” under Section 303A.00 of the NYSE Listed Company Manual and eligible to serve on the Company’s audit committee under the Exchange Act and NYSE Listed Company Manual (the “Continuing Directors”). After the Offer Acceptance Time and prior to the Effective Time, if Purchaser’s designees constitute a majority of the Company Board, the affirmative vote of a majority of the Continuing Directors will (in addition to the approval rights of the Company Board or the stockholders of the Company as may be required by the Company’s amended and restated certificate of incorporation or bylaws or by applicable law) be required (i) for the Company to amend, modify or terminate the Merger Agreement, (ii) for the Company to extend the time of performance of any of the obligations or other acts of Parent or Purchaser under the Merger Agreement, (iii) to exercise or waive any of the Company’s material rights, benefits or remedies under the Merger Agreement, (iv) to amend the Company’s amended and restated certificate of incorporation or bylaws if such action would adversely affect or would reasonably be expected to adversely affect the holders of Shares (other than Parent or Purchaser), or (v) to take any other action of the Company Board under or in connection with the Merger Agreement if such action would adversely affect (in a non-de minimis manner), or would reasonably be expected to adversely affect (in a non-de minimis manner), the Company’s stockholders (other than Parent or Purchaser).

Top-Up Option

Pursuant to the terms of the Merger Agreement, the Company has granted Parent and Purchaser an option (the “Top-Up Option”) to purchase from the Company the number of Shares (such shares, the “Top-Up Option Shares”) equal to the lesser of (i) the number of Shares of each class of Shares that, when added to the number of Shares owned by Parent and its Subsidiaries at the time of exercise of the Top-Up Option, constitutes one share more than 90% of the number of Shares that would be outstanding in each class of Shares immediately after the issuance of all Shares subject to the Top-Up Option on a fully diluted basis and (ii) the aggregate number of Shares that the Company is authorized to issue under its articles of incorporation, but that are not issued and outstanding (and are not subscribed for or otherwise committed to be issued) at the time of exercise of the Top-Up Option, at a price per Share equal to the Offer Price. The Top-Up Option will terminate upon the earlier to occur of (A) the Effective Time and (B) the termination of the Merger Agreement in accordance with its terms. The Merger Agreement provides that the obligation of the Company to deliver Top-Up Option Shares upon the exercise of the Top-Up Option will be subject to the following conditions, unless waived by the Company: (i) no order of any governmental entity shall have restrained, enjoined or otherwise prohibited the exercise of the Top-Up Option or the delivery of the Top-Up Option Shares in respect of such exercise; and (ii) Purchaser shall have accepted for payment and paid for all Shares validly tendered in the Offer and not withdrawn.

The Top-Up Option may be exercised by Purchaser or Parent, in whole and not in part, on or prior to the fifth business day after the later of the Offer Acceptance Time and the expiration of any subsequent offering period if Parent and Purchaser do not own in the aggregate at least 90% of the total then-outstanding shares of each class of Shares (determined on a fully diluted basis); provided, however, that the obligation of the Company to deliver Top-Up Option Shares upon the exercise of the Top-Up Option will be subject to the conditions that (i) no judgment, injunction, order or decree of any governmental authority will prohibit the exercise of the Top-Up Option or the delivery of the Top-Up Option Shares in respect of such exercise; and (ii) Purchaser has accepted for payment and paid for all Shares validly tendered in the Offer and not withdrawn.

 

55


Table of Contents

The Top-Up Option is intended to expedite the timing of the consummation of the Merger (after consummation of the Offer, at which time Schiff would be a majority-owned subsidiary of Parent, which would have the requisite voting power to cause stockholder adoption of the Merger Agreement, even without exercise of the Top-Up Option) by permitting the Merger to occur pursuant to Delaware’s “short-form” merger statute, Section 253 of the DGCL, without any vote of Schiff’s stockholders or any required filings associated with the utilization of written consents in lieu of a meeting of stockholders.

The aggregate purchase price payable for the Top-Up Option Shares will be determined by multiplying the number of Top-Up Option Shares by the Offer Price. Such purchase price may be paid by Parent or Purchaser, at its election, either (i) entirely in cash, (ii) by payment in cash of no less than $0.01 per share and payment of the balance by executing and delivering to the Company a promissory note (with full recourse to Parent) having a principal amount equal to the difference between the purchase price and the aggregate par value of the Top-Up Option Shares or (iii) any combination thereof.

Merger Consideration

Conversion of Shares

At the Effective Time, each Share issued and outstanding immediately prior to the Effective Time, other than Shares held by stockholders who are entitled to demand and properly demand appraisal under Section 262 of the DGCL, Shares held in treasury by the Company or Shares owned by any of the Company’s subsidiaries or by Parent, Purchaser or any of their respective subsidiaries, will automatically be cancelled and converted into the right to receive the Merger Consideration, upon surrender of each respective Share certificate and/or letter of transmittal, as applicable.

Treatment of Company Options and Other Equity-Based Awards

Company Options. Immediately prior to the Effective Time, each outstanding Company Option under any Company Stock Option Plan, whether or not then exercisable or vested, will be cancelled and, in exchange therefor, each such former holder of such cancelled Company Option will only be entitled to receive, in consideration of the cancellation of such Company Option and in full settlement therefor, a payment in cash of an amount equal to the product of (i) the total number of Shares previously subject to such Company Option and (ii) the excess, if any, of the Merger Consideration over the exercise price per Share previously subject to such option, without interest and less any applicable withholding taxes.

Company RSUs. Immediately prior to the Offer Acceptance Time, but conditioned upon the consummation of the Offer, each outstanding Company RSU, vested and became free of any restrictions and the Company thereafter delivered with respect to such Company RSU (i) Shares and (ii) the amount of any declared but unpaid dividends to the holder thereof in settlement of each such Company RSU. At the Effective Time, each Share issued in respect of the Company RSUs (that has not otherwise been tendered in the Offer or in any subsequent offering period) will be converted into the right to receive the Merger Consideration.

Company Restricted Shares. Immediately prior to the Offer Acceptance Time, but conditioned upon the consummation of the Offer, each Company Restricted Share vested and became free of any restrictions, and the Company delivered with respect to such Company Restricted Share the amount of any declared but unpaid dividends to the holder thereof in settlement of each such Company Restricted Share. At the Effective Time, each Company Restricted Share (that has not otherwise been tendered in the Offer or in any subsequent offering period) will be converted into the right to receive the Merger Consideration.

Procedures for Payment of Merger Consideration

At or prior to the Effective Time, Parent will designate a reputable bank or trust company, mutually agreeable to both Parent and the Company, to act as the paying agent for purposes of effecting the payment of the

 

56


Table of Contents

Merger Consideration in connection with the Merger. At or promptly after the Effective Time, Parent or the Purchaser will deposit, or cause to be deposited, with the paying agent the aggregate Merger Consideration to which holders of Shares will be entitled at the Effective Time pursuant to the Merger Agreement, together with the aggregate payments to holders of Company Options and Company RSUs (except to the extent that Parent determines to make any such payments with respect to Company Options and Company RSUs to employees through the payroll of the Surviving Corporation).

As promptly as practicable after the Effective Time, Parent will cause the paying agent to mail to each holder of record of a certificate or certificates that represented Shares (“Certificates”) or non-certificated Shares represented by book-entry (“Book-Entry Shares”), in each case, which Shares were converted into the right to receive the Merger Consideration at the Effective Time pursuant to the Merger Agreement: (i) a letter of transmittal and (ii) instructions for effecting the surrender of the Certificates or Book-Entry Shares in exchange for payment of the Merger Consideration.

Upon surrender of Certificates and Book-Entry Shares for cancellation to the paying agent or to another agent as may be appointed by Parent, and upon delivery of a letter of transmittal, duly executed and in proper form, with respect to such Certificates or Book-Entry Shares, the holder of such Certificates or Book-Entry Shares will be entitled to receive the Merger Consideration for each Share formerly represented by such Certificates and for each Book-Entry Share. Any Certificates and Book-Entry Shares so surrendered will be cancelled. Until surrendered as contemplated by the Merger Agreement, each Certificate or Book-Entry Share will be deemed at any time after the Effective Time to represent only the right to receive the Merger Consideration in cash as contemplated by the Merger Agreement, without any interest accruing thereon.

Each of Parent and the Surviving Corporation will be entitled to deduct and withhold from the consideration otherwise payable pursuant to the Merger Agreement to any holder of Shares such amounts as it is required to deduct and withhold with respect to the making of such payment under applicable tax law. To the extent that amounts are so withheld and deducted by the Surviving Corporation or Parent, as the case may be, such withheld and deducted amounts (i) must be remitted by Parent or the Surviving Corporation, as applicable, to the applicable governmental entity and (ii) will be treated for all purposes of the Merger Agreement as having been paid to the holder of Shares in respect of which such deduction and withholding was made by the Surviving Corporation or Parent, as the case may be.

Certificates and Book Entry Shares should not be surrendered for exchange by Company stockholders prior to the completion of the Merger and should be sent only pursuant to instructions set forth in the letters of transmittal which the Merger Agreement provides will be mailed to Company stockholders promptly following the completion of the Merger.

Transfers of Ownership and Lost Stock Certificates

If payment of the Merger Consideration is to be made to a person other than the person in whose name any surrendered Certificate is registered, the surrendered Certificate must be properly endorsed or will be otherwise in proper form for transfer, and the persons requesting such payment must have paid any transfer or similar taxes required by reason of the payment of the Merger Consideration to a person other than the registered holder of the Certificate.

In the event that any Certificates have been lost, stolen or destroyed, the paying agent will issue the Merger Consideration in exchange for such lost, stolen or destroyed Certificates upon the making of an affidavit of that fact by the holder claiming such Certificate to be lost, stolen or destroyed and, if required by Parent, the payment of a bond in such sum as Parent may reasonably direct as indemnity against any claim that may be made against Parent, Purchaser, the Surviving Corporation or the paying agent with respect to the Certificates alleged to have been lost, stolen or destroyed.

 

57


Table of Contents

Representations and Warranties

The Merger Agreement contains customary representations and warranties made by the Company to Parent. Specifically, the representations and warranties of the Company in the Merger Agreement (many of which are qualified by concepts of knowledge, materiality and/or dollar thresholds and are further modified and limited by confidential disclosure schedules which have been delivered by the Company to Parent) relate to the following subject matters, among other things:

 

   

organization, qualification and subsidiaries;

 

   

capitalization;

 

   

due authorization of the transactions contemplated by the Offer and under the Merger Agreement;

 

   

non-contravention of laws, charter documents and contracts;

 

   

required filings and consents;

 

   

permits and compliance with laws;

 

   

SEC filings and financial statements;

 

   

internal controls;

 

   

state takeover laws;

 

   

undisclosed liabilities;

 

   

absence of certain changes since June 1, 2012;

 

   

employee benefit plans;

 

   

labor and other employment matters;

 

   

contracts;

 

   

litigation;

 

   

environmental matters;

 

   

intellectual property;

 

   

tax matters;

 

   

insurance;

 

   

properties and assets;

 

   

real property;

 

   

delivery of fairness opinion;

 

   

required vote of the Company’s stockholders to adopt the Merger Agreement;

 

   

brokers and financial advisors;

 

   

related party transactions;

 

   

certain regulatory matters;

 

   

accuracy of information included in the Offer, the Company’s Tender Offer Solicitation/Recommendation Statement on Schedule 14D-9 (the “Schedule 14D-9”) and this information statement; and

 

   

the termination of the Bayer Merger Agreement.

 

58


Table of Contents

The Merger Agreement also contains customary representations and warranties made by Parent and Purchaser to the Company. Specifically, the representations and warranties of Parent and Purchaser in the Merger Agreement (many of which are qualified by concepts of knowledge, materiality and/or dollar thresholds and are further modified and limited by confidential disclosure schedules delivered by Parent to the Company) relate to the following subject matters, among other things:

 

   

organization and qualification;

 

   

due authorization of the transactions contemplated by the Offer and under the Merger Agreement;

 

   

non-contravention of laws, charter documents and contracts;

 

   

required filings and consents;

 

   

litigation;

 

   

ownership of Shares;

 

   

sufficiency of funds;

 

   

ownership of Purchaser;

 

   

no prior activities of Purchaser;

 

   

management arrangements;

 

   

brokers and financial advisors; and

 

   

accuracy of information included in the Offer, the Schedule 14D-9 and this information statement.

The representations and warranties of each of the parties to the Merger Agreement will expire upon the completion of the Merger.

Material Adverse Effect

Several of the representations, warranties, covenants, closing conditions and termination provisions contained in the Merger Agreement refer to the concept of a “Company Material Adverse Effect” or “Parent Material Adverse Effect.”

For purposes of the Merger Agreement, a “Company Material Adverse Effect” means any change, event, development, condition, occurrence or effect that (i) is, or would reasonably be expected to be, materially adverse to the business, financial condition, assets, liabilities or results of operations of the Company and its subsidiaries, taken as a whole or (ii) prevents or materially delays, or would reasonably be expected to prevent or materially delay, consummation of the Merger or performance by the Company of any of its material obligations under the Merger Agreement; provided, however, that, for purposes of (i), none of the following will be deemed in themselves, either alone or in combination, to constitute, and that none of the following may be taken into account in determining whether there has been or will be, a Company Material Adverse Effect:

 

   

any change generally affecting the economy, financial markets or political, economic or regulatory conditions in the United States;

 

   

general financial, credit or capital market conditions, including interest rates or exchange rates, or any changes therein;

 

   

any change that generally affects the nutritional supplement industry in the United States;

 

   

any change proximately caused by the negotiation, execution, announcement, pendency or pursuit of the transactions contemplated by the Merger Agreement, including the Merger, including any litigation resulting therefrom; provided, that this exception does not apply to specified representations to the extent that the purpose of such representations is to address consequences resulting from the

 

59


Table of Contents
 

negotiation, execution, announcement, pendency or pursuit of the transactions contemplated by the Merger Agreement, including the Merger;

 

   

any change proximately caused by the Company’s compliance with the terms of the Merger Agreement, or action taken, or failure to act, to which Parent has consented;

 

   

acts of war (whether or not declared), the commencement, continuation or escalation of a war, acts of armed hostility, sabotage or terrorism or other international or national calamity or any material worsening of such conditions threatened or existing as of the date of entering into the Merger Agreement;

 

   

changes in laws after the date of entering into the Merger Agreement;

 

   

changes in GAAP after the date of entering into the Merger Agreement;

 

   

any failure by the Company to meet any published or internally prepared estimates of revenues, earnings or other economic performance for any period ending on or after the date of entering into the Merger Agreement; or

 

   

a decline in the price of Class A Common Stock on the New York Stock Exchange or any other market in which such securities are quoted for purchase and sale;

provided, further, that (A) the events set forth in the third, sixth, seventh and eighth sub-bullets above (changes generally affecting the nutritional supplement industry, acts of war, changes in laws and GAAP) may be taken into account to the extent that such events have a material and disproportionate impact on the Company and its subsidiaries and (B) the underlying cause of the events set forth in the last two sub-bullets above (failure to meet projections or declines in trading price) that are not otherwise excluded from the definition of a Company Material Adverse Effect may be taken into account.

The Merger Agreement also provides that a “Parent Material Adverse Effect” means any change, event, development, condition, occurrence or effect that prevents or materially delays, or would reasonably be expected to prevent or materially delay, consummation of the Offer, the Merger or performance by Parent or Purchaser of any of their material obligations under the Merger Agreement.

Interim Operations of the Company

From the date of entering into the Merger Agreement through the Effective Time, the Company will be required to (and will cause its subsidiaries to) conduct its operations in the ordinary course of business and use commercially reasonable efforts to preserve substantially intact its business organization and maintain existing relations and goodwill with customers, suppliers and employees in the ordinary course of business consistent with past practice.

In addition, during the same period, the Company, subject to certain exceptions, will not, and will not permit its subsidiaries to, without the prior written consent of Parent (which consent will not be unreasonably withheld, delayed or conditioned):

 

   

amend or otherwise change its certificate of incorporation or bylaws or equivalent organizational documents;

 

   

issue, sell, pledge, dispose of, grant, transfer or encumber, or authorize the issuance, sale, pledge, disposition, grant, transfer, or encumbrance of, any shares of capital stock of, or other equity interests in, the Company or any of its subsidiaries of any class, or securities convertible into, or exchangeable or exercisable for, any shares of such capital stock or other equity interests, or any options, warrants or other rights of any kind to acquire any shares of such capital stock or other equity interests or such convertible or exchangeable securities, or any other ownership interest, of the Company or any of its subsidiaries, other than the issuance of Shares upon (i) the vesting of outstanding Company RSUs or

 

60


Table of Contents
 

Company Restricted Shares, (ii) the exercise of outstanding Company Options as of the date of entering into the Merger Agreement in accordance with their terms or (iii) in connection with the Top-Up Option;

 

   

sell, pledge, dispose of, let lapse, abandon, assign, transfer, lease, license, guarantee or encumber any material property or assets of the Company or its subsidiaries (including any registered intellectual property and unregistered owned intellectual property), except (i) to the extent required pursuant to contracts in effect prior to the date of entering into the Merger Agreement, (ii) pursuant to the sale, purchase or licensing of inventory, raw materials, equipment, goods, or other supplies in the ordinary course of business consistent with past practice or (iii) for non-exclusive licenses in the ordinary course of business consistent with past practice with a fair market value not in excess of $2,500,000 in the aggregate;

 

   

declare, set aside, make or pay any dividend or other distribution (whether payable in cash, stock, property or a combination thereof) with respect to any of its capital stock (other than dividends paid by a wholly-owned subsidiary of the Company to the Company or another wholly-owned subsidiary of the Company) or enter into any agreement with respect to the voting or registration of its capital stock;

 

   

reclassify, combine, split, subdivide or amend the terms of, or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock, other equity interests or any other securities, or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or other securities, in each case other than in connection with the Top-Up Option;

 

   

merge or consolidate the Company or any of its subsidiaries with any person or adopt a plan of complete or partial liquidation or resolutions providing for a complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization of the Company or any of its subsidiaries, or otherwise enter into any agreements imposing material restrictions on the assets, operations or businesses of the Company or any of its subsidiaries;

 

   

enter into a new line of business (other than currently-projected extensions of existing product lines);

 

   

acquire (including, without limitation, by merger, consolidation, or acquisition of stock or assets) any interest in any person or any division thereof or any assets, other than acquisitions of assets in the ordinary course of business consistent with past practice and any other acquisitions for consideration that is individually not in excess of $2,500,000, or in the aggregate not in excess of $5,000,000;

 

   

incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse, or otherwise become responsible for the obligations of any person (other than a wholly-owned subsidiary of the Company) for borrowed money;

 

   

make any loans, advances, guarantees or capital contributions to, or investments in, any other person (other than any wholly-owned subsidiary of the Company) in excess of $2,500,000 in the aggregate;

 

   

terminate, cancel or amend certain material contracts, or cancel, modify or waive any rights thereunder, or enter into or amend any contract that, if existing on the date hereof, would be among such material contracts;

 

   

make or authorize any capital expenditure in excess of the Company’s capital expenditure budget as disclosed to Parent prior to the date of entering into the Merger Agreement, other than capital expenditures that are not, in the aggregate, in excess of $2,500,000;

 

   

except to the extent required by (i) applicable law, (ii) the existing terms of any of the Company’s benefit plans or (iii) contractual commitments or corporate policies with respect to severance or termination pay as in existence on the date of entering into the Merger Agreement and as disclosed to Parent: (A) increase in any manner the compensation, bonus or benefits payable or to become payable to its service providers (except for increases in the ordinary course of business consistent with past practice in base salaries or base wages of employees of the Company or any of its subsidiaries), (B) grant any additional rights to severance or termination pay to, or enter into any severance

 

61


Table of Contents
 

agreement with, any service provider, or establish, adopt, enter into or amend any Company benefit plan, (C) grant any new awards under any Company benefit plan, (D) amend or modify any outstanding award under any Company benefit plan, (E) take any action to amend, waive or accelerate the vesting criteria or vesting requirements of payment of any compensation or benefit under any Company benefit plan or remove any existing restrictions in any Company benefit plans or awards made thereunder, (F) take any action to accelerate the payment, or to fund or in any other way secure the payment, of compensation or benefits under any Company benefit plan, to the extent not already provided in any such Company benefit plan or (G) change any actuarial or other assumptions used to calculate funding obligations with respect to any Company benefit plan or to change the manner in which contributions to such plans are made or the basis on which such contributions are determined, except as may be required by GAAP or applicable laws;

 

   

forgive any loans to service providers or any of their respective affiliates;

 

   

make any material change in accounting policies, practices, principles, methods or procedures, other than as required by GAAP or by a governmental entity;

 

   

encourage customers to make payments earlier than would otherwise reasonably be expected (based on past practice) to be made to the Company or any of its subsidiaries, or agree to payment terms or conditions with suppliers that are not consistent in all material respects with past practice;

 

   

compromise, settle or agree to settle any proceeding (including any proceeding relating to the Merger Agreement or the transactions contemplated thereby) other than compromises, settlements or agreements in the ordinary course of business that involve only the payment of monetary damages not in excess of $2,500,000 individually or $5,000,000 in the aggregate, in any case without the imposition of equitable relief on, or the admission of wrongdoing by, the Company or any of its subsidiaries;

 

   

(i) make, change, or rescind any material tax election, (ii) file any material amended tax return of the Company or any of its subsidiaries, (iii) or adopt or change any material method or period of tax accounting, (iv) settle or compromise any material claim relating to taxes; (v) surrender any material claim for a refund of Taxes; (vi) enter into any “closing agreement” as described in Section 7121 of the Code with respect to material taxes; or (vii) consent to any extension or waiver of the limitation period applicable to any material tax claim or assessment (other than pursuant to extensions of time to file tax returns obtained in the ordinary course of business);

 

   

write up, write down or write off the book value of any assets, except for depreciation and amortization and normal valuation adjustments to accounts receivable and inventory in accordance with GAAP consistently applied;

 

   

pre-pay any long-term debt; or

 

   

authorize or enter into any contract or otherwise make any commitment, in each case to do any of the foregoing.

Necessary Efforts

The Merger Agreement requires the Company and Parent to use their reasonable best efforts to take, or cause to be taken, all appropriate action and do, or cause to be done, all things necessary, proper or advisable under applicable law or otherwise to consummate and make effective the transactions contemplated by the Merger Agreement, including actions required to obtain, or cause their affiliates to obtain, any government clearances or approvals required for the consummation of the transactions contemplated by the Merger Agreement under applicable antitrust laws; provided, that Ultimate Parent and its affiliates will not be required to agree to sell, divest, transfer or dispose of any of the assets or businesses held by any of them in conjunction with seeking such approvals (a “Structural Remedy”). The Merger Agreement also requires that the parties make, or cause their affiliates to make, all necessary filings under applicable law with respect to the Merger Agreement, the Merger and the Offer including the HSR Act, within three business days after the date of executing the

 

62


Table of Contents

Merger Agreement. Further, as soon as reasonably practicable following the execution and delivery of the Written Consent and not later than five business days thereafter, the Company must also file an information statement on Schedule 14C relating to the Merger and the Merger Agreement in accordance with federal proxy rules.

Written Consent

Pursuant to the terms of the Merger Agreement, immediately after the execution of the Merger Agreement and in lieu of calling a meeting of the Company’s stockholders, the Company submitted the form of stockholder written consent attached to the Merger Agreement with respect to the adoption of the Merger Agreement to the Principal Stockholders. Upon the execution and delivery of the form of stockholder written consent to the Company in accordance with the DGCL, the Company delivered a copy of the executed form of stockholder written consent to Parent, certified as correct and complete by an executive officer of the Company.

On November 21, 2012, the Principal Stockholders, which on such date beneficially owned 14,973,148 Shares representing approximately 85.14% voting power of the issued and outstanding Shares, delivered the Written Consent to the Company adopting the Merger Agreement and approving in all respects the Merger and the other transactions contemplated by the Merger Agreement.

Non-Solicitation of Acquisition Proposals

Pursuant to the Merger Agreement, the Company must, and must cause its representatives to:

 

   

immediately cease and cause to be terminated any solicitation, encouragement, activities, discussions or negotiations with any persons that may be ongoing with respect to any Acquisition Proposal;

 

   

take the necessary steps to promptly inform such persons of the Company’s non-solicitation obligations under the Merger Agreement;

 

   

immediately instruct each person that has previously executed a confidentiality agreement in connection with such person’s consideration of an Acquisition Proposal to return to the Company or destroy any non-public information previously furnished to such person or to any person’s representatives by or on behalf of the Company or any of its subsidiaries; and

 

   

enforce (and not release, waive, amend or modify the provisions of) any confidentiality, non-solicit, non-use or standstill agreements entered into with any person.

Further, the Company must not, and must cause its representatives not to, directly or indirectly:

 

   

solicit, initiate, seek or knowingly encourage or facilitate or take any action to solicit, initiate or seek or knowingly encourage or facilitate any inquiry, expression of interest, proposal or offer that constitutes or would reasonably be expected to lead to an Acquisition Proposal;

 

   

enter into, participate in, maintain or continue any discussions or negotiations relating to, any Acquisition Proposal with any person other than Parent or Purchaser;

 

   

furnish to any Person other than Parent or Purchaser any non-public information that the Company believes or should reasonably expect would be used for the purposes of formulating any Acquisition Proposal;

 

   

enter into any agreement, letter of intent, memorandum of understanding, agreement in principle or contract providing for or otherwise relating to any Acquisition Proposal; or

 

   

submit any acquisition proposal or any matter related thereto to the vote of the stockholders of the Company.

 

63


Table of Contents

No later than 48 hours after the date of entering into the Merger Agreement, the Company must notify Parent in writing of the identity of any person that submitted an Acquisition Proposal (as defined below) within one year prior to the date of the Merger Agreement.

From and after the date of the entering into the Merger Agreement, the Company must promptly (and in any event within 24 hours) provide Parent with (i) a written description of any inquiry, expression of interest, proposal or offer relating to an Acquisition Proposal, or any request for information that would reasonably be expected to lead to an Acquisition Proposal, that is received by the Company or any subsidiary or representative of the Company, including in such description the identity of the person from which such inquiry, expression of interest, proposal, offer or request for information was received (the “Other Interested Party”); and (ii) a copy of each material written communication and a summary of each material oral communication transmitted by or on behalf of the Other Interested Party or any of its representatives or transmitted on behalf of the Company, any of its subsidiaries or any No-Shop Representative to the Other Interested Party or any of its representatives. The Merger Agreement defines “No-Shop Representatives” to mean, collectively, (a) the Company’s Representatives, (b) the Company Subsidiaries and each of their respective Representatives, (c) TPG, its affiliates, and each of their respective Representatives and (d) Weider, its affiliates, and each of their respective Representatives.

The Merger Agreement defines an “Acquisition Proposal” as any offer or proposal concerning any:

 

   

merger, joint venture, partnership, consolidation, dissolution, liquidation, tender offer, recapitalization, reorganization, share exchange, business combination or similar transaction involving the Company or any of its subsidiaries;

 

   

sale, lease or other disposition of assets of the Company (including equity interests of a Company subsidiary) or any Company subsidiary representing 20% or more of the consolidated assets of the Company and its subsidiaries;

 

   

issuance or sale by the Company of equity interests representing 20% or more of the voting power (or 20% or more of the aggregate number of all outstanding Shares) of the Company;

 

   

transaction in which any person will acquire beneficial ownership or the right to acquire beneficial ownership or any group has been formed which beneficially owns or has the right to acquire beneficial ownership of, equity interests representing 20% or more of the voting power (or 20% or more of the aggregate number of all outstanding Shares) of the Company; or

 

   

any combination of the foregoing (in each case, other than the Merger).

The Merger Agreement defines a “Superior Proposal” as a written and bona fide Acquisition Proposal for 50.1% or more of the voting power or assets of the Company made by a third party that the Company Board has determined in its good faith judgment, a