DEFM14A 1 d811474ddefm14a.htm DEFM14A DEFM14A
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

 

Filed by the Registrant  ☒                            Filed by a party other than the Registrant  ☐

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material under §240.14a-12

VITAMIN SHOPPE, INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

     

  (2)  

Aggregate number of securities to which transaction applies:

 

     

  (3)  

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

 

     

  (4)  

Proposed maximum aggregate value of transaction:

 

     

  (5)  

Total fee paid:

 

     

  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

LOGO

VITAMIN SHOPPE, INC.

300 Harmon Meadow Blvd.

Secaucus, New Jersey 07094

November 12, 2019

Dear Vitamin Shoppe, Inc. Stockholder:

You are cordially invited to attend a special meeting (including any adjournments or postponements thereof, the “Special Meeting”) of stockholders of Vitamin Shoppe, Inc. (“Vitamin Shoppe” or the “Company”) to be held on Wednesday, December 11, 2019, at the offices of Kirkland & Ellis LLP, 601 Lexington Avenue, New York, New York 10022, at 10 a.m. Eastern Time.

At the Special Meeting, you will be asked to consider and vote on (i) a proposal to adopt the Agreement and Plan of Merger, dated August 7, 2019, as amended by the First Amendment to Agreement and Plan of Merger dated November 11, 2019 (as amended, the “Merger Agreement”), by and among Vitamin Shoppe, Franchise Group, Inc. (formerly known as Liberty Tax, Inc.) (“Parent”) and Valor Acquisition, LLC (“Merger Sub”), (ii) a proposal to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to the Company’s named executive officers that is based on or otherwise relates to the Merger Agreement and the transactions contemplated by the Merger Agreement (the “Compensation Proposal”) and (iii) a proposal to adjourn the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting.

Certain affiliates of Vintage Capital Management, LLC (“Vintage Capital”) are investors in Parent and its subsidiaries and certain Vintage Capital personnel are members of the board of directors of Parent. Vintage Capital is a value-oriented, operations-focused, private and public equity investor specializing in the defense, manufacturing and consumer sectors.

Pursuant to the terms of the Merger Agreement, Vitamin Shoppe will merge with and into Merger Sub, with Merger Sub continuing as the surviving company and a wholly owned subsidiary of Parent (the “Merger”). If the Merger is completed, you will be entitled to receive $6.50 in cash, without interest thereon and net of any applicable withholding of taxes, for each share of common stock (“common stock”) that you own (unless you have not voted in favor of the adoption of the Merger Agreement or consented thereto in writing and have properly exercised your statutory rights of appraisal in respect of such shares of common stock under Delaware law), which represents a premium of approximately 43% to its closing share price on August 7, 2019, and a premium of approximately 59% to the 30-day volume weighted average price for the period ended on August 7, 2019.

A special committee of the board of directors of the Company (the “Board of Directors”) comprised entirely of independent and disinterested directors (the “Special Committee”) reviewed and considered the terms and conditions of the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger. The Special Committee unanimously determined that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, are fair to, and in the best interests of, the Company and its stockholders, and recommended that the Board of Directors approve and declare advisable the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, and recommend that stockholders of the Company adopt the Merger Agreement.


Table of Contents

The Board of Directors, after considering the factors more fully described in the enclosed proxy statement, acting upon the unanimous recommendation of the Special Committee, has: (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, and in the best interests of, the Company and the stockholders; (ii) approved and declared advisable the Merger Agreement and the transactions contemplated thereby; (iii) recommended that the stockholders adopt the Merger Agreement; and (iv) directed that the Merger Agreement be submitted to the stockholders of the Company for their adoption. The Board of Directors recommends that you vote “FOR” the adoption of the Merger Agreement, “FOR” the Compensation Proposal and “FOR” the adjournment of the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting.

The enclosed proxy statement provides detailed information about the Special Meeting, the Merger Agreement and the Merger. A copy of the Merger Agreement is attached as Annex A to the proxy statement.

The proxy statement also describes the actions and determinations of the Special Committee and Board of Directors in connection with their evaluation of the Merger Agreement and the Merger. You should carefully read and consider the entire enclosed proxy statement and its annexes, including the Merger Agreement, as they contain important information about, among other things, the Merger and how it affects you.

Whether or not you plan to attend the Special Meeting in person, please sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope or grant your proxy electronically over the internet or by telephone (using the instructions provided in the enclosed proxy card). If you attend the Special Meeting and vote in person by ballot, your vote will revoke any proxy that you have previously submitted. The failure to vote will have the same effect as a vote against approval of the proposal to adopt the Merger Agreement.

If you hold your shares in “street name,” you should instruct your bank, broker or other nominee how to vote your shares in accordance with the voting form that you will receive from your bank, broker or other nominee. Your bank, broker or other nominee cannot vote on any of the proposals, including the proposal to adopt the Merger Agreement, without your instructions. If you hold your shares through a bank, broker or other nominee and want to vote in person at the Special Meeting, you must obtain a “legal proxy.” The failure to instruct your bank, broker or other nominee to vote your shares for approval of the proposal to adopt the Merger Agreement will have the same effect as a vote against approval of the proposal to adopt the Merger Agreement.

Your vote is very important, regardless of the number of shares that you own. We cannot complete the Merger unless the proposal to adopt the Merger Agreement is approved by the affirmative vote of the holders of at least a majority of the outstanding shares of common stock.

If you have any questions or need assistance voting your shares, please contact our proxy solicitor:

D.F. King & Co.

48 Wall Street, 22nd Floor

New York, NY 10005

Call Toll-free: (800) 758-5378

Banks and Brokers Call: (212) 269-5550

vsi@dfking.com

On behalf of the Board of Directors, I thank you for your support and appreciate your consideration of this matter.

 

Sincerely,

 

/s/ Alexander W. Smith

 

Alexander W. Smith

Chairman of the Board

The accompanying proxy statement is dated November 12, 2019 and, together with the enclosed form of proxy card, is first being mailed on or about November 12, 2019.


Table of Contents

LOGO

VITAMIN SHOPPE, INC.

300 Harmon Meadow Blvd.

Secaucus, New Jersey 07094

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON DECEMBER 11, 2019

Notice is hereby given that a special meeting of stockholders (including any adjournments or postponements thereof, the “Special Meeting”) of Vitamin Shoppe, Inc., a Delaware corporation (“Vitamin Shoppe” or the “Company”), will be held on Wednesday, December 11, 2019, at the offices of Kirkland & Ellis LLP, 601 Lexington Avenue, New York, New York 10022, at 10 a.m. Eastern Time, for the following purposes:

 

  1.

To consider and vote on the proposal to adopt the Agreement and Plan of Merger, dated August 7, 2019, as amended by the First Amendment to Agreement and Plan of Merger dated November 11, 2019 (as amended, the “Merger Agreement”), by and among Vitamin Shoppe, Franchise Group, Inc. (formerly known as Liberty Tax, Inc.) (“Parent”) and Valor Acquisition, LLC (“Merger Sub”). Pursuant to the terms of the Merger Agreement, Vitamin Shoppe will merge with and into Merger Sub, with Merger Sub continuing as the surviving company and a wholly owned subsidiary of Parent (the “Merger”);

 

  2.

To consider and vote on the proposal to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to the Company’s named executive officers that is based on or otherwise relates to the Merger Agreement and the transactions contemplated by the Merger Agreement (the “Compensation Proposal”); and

 

  3.

To consider and vote on any proposal to adjourn the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the Special Meeting.

Only stockholders of record as of the close of business on November 4, 2019, are entitled to notice of the Special Meeting and to vote at the Special Meeting or any adjournment, postponement or other delay thereof.

The board of directors of the Company (the “Board of Directors”), acting upon the unanimous recommendation of the special committee of the Board of Directors, recommends that you vote: (1) “FOR” the adoption of the Merger Agreement; (2) “FOR” the Compensation Proposal; and (3) “FOR” the adjournment of the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting.

Whether or not you plan to attend the Special Meeting in person, please sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope or grant your proxy electronically over the internet or by telephone (using the instructions provided in the enclosed proxy card). If you attend the Special Meeting and vote in person by ballot, your vote will revoke any proxy that you have previously submitted. If you hold your shares in “street name,” you should instruct your bank, broker or other nominee how to vote your shares in accordance with the voting form that you will receive from your bank, broker or other nominee. Your bank, broker or other nominee cannot vote on any of the proposals, including the proposal to adopt the Merger Agreement, without your instructions.

 

By Order of the Board of Directors,

/s/ Alexander W. Smith

 

Alexander W. Smith

Chairman of the Board

Dated: November 12, 2019


Table of Contents

YOUR VOTE IS IMPORTANT

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, WE ENCOURAGE YOU TO SUBMIT YOUR PROXY AS PROMPTLY AS POSSIBLE: (1) BY TELEPHONE; (2) THROUGH THE INTERNET; OR (3) BY SIGNING AND DATING THE ENCLOSED PROXY CARD AND RETURNING IT IN THE POSTAGE-PAID ENVELOPE PROVIDED. You may revoke your proxy or change your vote at any time before it is voted at the Special Meeting.

If you hold your shares in “street name,” you should instruct your bank, broker or other nominee how to vote your shares in accordance with the voting form that you will receive from your bank, broker or other nominee. Your broker or other agent cannot vote on any of the proposals, including the proposal to adopt the Merger Agreement, without your instructions.

If you are a stockholder of record, voting in person by ballot at the Special Meeting will revoke any proxy that you previously submitted. If you hold your shares through a bank, broker or other nominee, you must obtain a “legal proxy” in order to vote in person at the Special Meeting.

If you fail to (1) return your proxy card, (2) grant your proxy electronically over the internet or by telephone or (3) vote by ballot in person at the Special Meeting, your shares will not be counted for purposes of determining whether a quorum is present at the Special Meeting and, if a quorum is present, will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement, but will have no effect on the Compensation Proposal or the proposal to adjourn the Special Meeting.

You should carefully read and consider the entire accompanying proxy statement and its annexes, including the Merger Agreement, along with all of the documents incorporated by reference into the accompanying proxy statement, as they contain important information about, among other things, the Merger and how it affects you. If you have any questions concerning the Merger Agreement, the Merger, the Special Meeting or the accompanying proxy statement, would like additional copies of the accompanying proxy statement or need help voting your shares of the Company’s common stock, please contact our proxy solicitor:

D.F. King & Co.

48 Wall Street, 22nd Floor

New York, NY 10005

Call Toll-free: (800) 758-5378

Banks and Brokers Call: (212) 269-5550

vsi@dfking.com

 


Table of Contents

Table of Contents

 

     Page  

SUMMARY

     1  

Parties Involved in the Merger

     1  

The Merger

     2  

Merger Consideration

     2  

Material U.S. Federal Income Tax Consequences of the Merger

     3  

Appraisal Rights

     4  

Regulatory Approvals Required for the Merger

     5  

Delisting and Deregistration of Common Stock

     5  

Required Stockholder Approval

     5  

Closing Conditions

     6  

Financing of the Merger

     6  

Voting Agreement

     7  

The Special Meeting

     8  

Recommendation of the Vitamin Shoppe Board of Directors

     8  

Opinion of Vitamin Shoppe’s Financial Advisor

     8  

Interests of the Company’s Directors and Executive Officers in the Merger

     9  

Alternative Acquisition Proposals

     9  

Termination of the Merger Agreement

     10  

Effect on Vitamin Shoppe if the Merger is Not Completed

     10  

QUESTIONS AND ANSWERS

     12  

FORWARD-LOOKING STATEMENTS

     19  

THE SPECIAL MEETING

     21  

Date, Time and Place

     21  

Purpose of the Special Meeting

     21  

Record Date; Shares Entitled to Vote; Quorum

     21  

Vote Required; Abstentions and Broker Non-Votes

     21  

Shares Held by Vitamin Shoppe Directors and Executive Officers

     22  

Voting of Proxies

     22  

Revocability of Proxies

     23  

Board of Directors’ Recommendation

     23  

Solicitation of Proxies

     23  

Anticipated Date of Completion of the Merger

     24  

Appraisal Rights

     24  

Delisting and Deregistration of Vitamin Shoppe Common Stock

     25  

Other Matters

     25  

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on December 11, 2019

     25  

Householding of Special Meeting Materials

     25  

Questions and Additional Information

     25  

THE MERGER

     26  

Parties Involved in the Merger

     26  

Effect of the Merger

     27  

Effect on Vitamin Shoppe if the Merger is Not Completed

     27  

Merger Consideration

     27  

Background of the Merger

     28  

Recommendation of the Board of Directors and Reasons for the Merger

     37  

Certain Unaudited Prospective Financial Information

     42  

Opinion of Vitamin Shoppe’s Financial Advisor

     45  

Interests of the Company’s Directors and Executive Officers in the Merger

     54  

 

i


Table of Contents
     Page  

Financing of the Merger

     60  

Voting Agreement

     61  

Closing and Effective Time

     62  

Appraisal Rights

     62  

Accounting Treatment

     68  

Material U.S. Federal Income Tax Consequences of the Merger

     68  

Regulatory Approvals Required for the Merger

     71  

PROPOSAL 1: ADOPTION OF THE MERGER AGREEMENT

     72  

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

     72  

Closing and Effective Time

     73  

Merger Consideration

     73  

Exchange and Payment Procedures

     74  

Representations and Warranties

     75  

Conduct of Business Pending the Merger

     78  

The “Go-Shop” Period

     80  

The “No-Shop” Period

     81  

The Board of Directors’ Recommendation; Company Board Recommendation Changes

     82  

Employee Benefits

     84  

Treatment of Employee Share Purchase Plan

     85  

Efforts to Close the Merger; Antitrust Filings

     85  

Delisting and Deregistration of Common Shares of the Company

     87  

Financing

     87  

Indemnification and Insurance

     88  

Other Covenants

     89  

Conditions to the Closing of the Merger

     90  

Termination of the Merger Agreement

     91  

Termination Fees

     93  

Sole and Exclusive Remedy; Limitations of Liability

     94  

Specific Performance

     95  

Fees and Expenses

     96  

No Third Party Beneficiaries

     96  

Amendment

     96  

Governing Law

     96  

PROPOSAL 2: THE COMPANY’S COMPENSATION PROPOSAL

     97  

Vote Required and Board of Directors Recommendation

     97  

PROPOSAL 3: ADJOURNMENT OF THE SPECIAL MEETING

     98  

Vote Required and Board of Directors Recommendation

     98  

MARKET PRICES AND DIVIDEND DATA

     99  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     100  

FUTURE STOCKHOLDER PROPOSALS

     103  

WHERE YOU CAN FIND MORE INFORMATION

     104  

MISCELLANEOUS

     105  

ANNEX A MERGER AGREEMENT

     A-1  

ANNEX B OPINION OF VITAMIN SHOPPE’S FINANCIAL ADVISOR

     B-1  

ANNEX C SECTION 262 OF THE DGCL

     C-1  

ANNEX D VOTING AGREEMENT

     D-1  

ANNEX E FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER

     E-1  

 

ii


Table of Contents

SUMMARY

This summary highlights selected information from this proxy statement related to the merger of Vitamin Shoppe, Inc. with and into Valor Acquisition, LLC (the “Merger”), and may not contain all of the information that is important to you. To understand the Merger more fully and for a more complete description of the legal terms of the Merger, you should carefully read and consider this entire proxy statement and the annexes to this proxy statement, including the Merger Agreement (as defined below), along with all of the documents to which we refer in this proxy statement, as they contain important information about, among other things, the Merger and how it affects you. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under the caption, “Where You Can Find More Information.” The Merger Agreement is attached as Annex A to this proxy statement. You should carefully read and consider the entire Merger Agreement, which is the legal document that governs the Merger.

Except as otherwise specifically noted in this proxy statement, “Vitamin Shoppe,” “the Company,” “we,” “our,” “us” and similar words refer to Vitamin Shoppe, Inc., including, in certain cases, our subsidiaries. Throughout this proxy statement, we refer to Franchise Group, Inc. (formerly known as Liberty Tax, Inc.) as “Parent” and Valor Acquisition, LLC as “Merger Sub.” In addition, throughout this proxy statement we refer to the Agreement and Plan of Merger, dated August 7, 2019, by and among the Company, Parent and Merger Sub, as amended by the First Amendment to Agreement and Plan of Merger dated November 11, 2019, as the “Merger Agreement,” our common stock, par value $0.01 per share as “common stock” and the holders of our common stock as “stockholders.” Unless indicated otherwise, any other capitalized term used herein but not otherwise defined herein has the meaning assigned to such term in the Merger Agreement.

Parties Involved in the Merger (Page 24)

Vitamin Shoppe, Inc.

Vitamin Shoppe is an omni-channel specialty retailer of vitamins, minerals, herbs, specialty supplements, sports nutrition and other health and wellness products. The Company markets approximately 700 nationally recognized brands as well as its own brands, which include The Vitamin Shoppe®, BodyTech®, True Athlete®, Mytrition®, plnt®, ProBioCare®, fitfactor weight management system and Vthrive The Vitamin Shoppe. The Company’s common stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “VSI.”

Franchise Group, Inc.

Parent, through the operations of Liberty Tax Service, Buddy’s Home Furnishings, Sears Outlet Business, its indirect subsidiaries, franchises and operates a system of tax preparation, rent-to-own stores and discounted home goods retail locations. Liberty Tax Service franchises provide income tax services in the U.S. and Canada, and Liberty Tax Service operates over 3,100 tax offices in the U.S. and Canada. Through its online offerings and tax offices, Liberty Tax Service prepared approximately two million returns in fiscal year 2018. Buddy’s Home Furnishings franchises and operates rent-to-own stores that lease durable goods, such as electronics, residential furniture, appliances and household accessories, to customers on a rent-to-own basis. As of June 10, 2019, Buddy’s Home Furnishings operated 291 locations, primarily through franchise arrangements. The Sears Outlet Business is a retailer primarily focused on providing customers with in-store and online access to new, one-of-a kind, out-of-carton, discontinued, reconditioned, overstocked, and scratched and dented products across a broad assortment of merchandise categories, including home appliances, lawn and garden equipment, apparel, mattresses, sporting goods and tools, at prices that are significantly lower than list prices. As of October 23, 2019, the Sears Outlet Business operated 126 locations.

Valor Acquisition, LLC

Merger Sub is a wholly owned subsidiary of Parent and was formed on August 7, 2019, solely for the purpose of engaging in the transactions contemplated by the Merger Agreement, and has not engaged in any business activities other than in connection with the transactions contemplated by the Merger Agreement and arranging of equity and debt financing in connection with the Merger.



 

1


Table of Contents

Certain affiliates of Vintage Capital Management, LLC (“Vintage Capital”) are investors in Parent and its subsidiaries and certain Vintage Capital personnel are members of the board of directors of Parent. Vintage Capital is a value-oriented, operations-focused, private and public equity investor specializing in the defense, manufacturing and consumer sectors.

The Merger (Page 24)

Upon the terms and subject to the conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), Vitamin Shoppe will merge with and into Merger Sub, with Merger Sub continuing as the surviving company and as a wholly owned subsidiary of Parent (the “Surviving Company”). As a result of the Merger, Vitamin Shoppe’s common stock will no longer be publicly traded and will be delisted from the NYSE. In addition, Vitamin Shoppe’s common stock will be deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Vitamin Shoppe will no longer file periodic or current reports with the U.S. Securities and Exchange Commission (the “SEC”). If the Merger is completed, you will not own any limited liability company interests of the Surviving Company. The Merger will become effective upon the filing of a certificate of merger with, and its acceptance by, the Secretary of State of the State of Delaware (or at such later time as we, Parent and Merger Sub may agree and specify in the certificate of merger).

Merger Consideration (Page 25)

Common Stock

At the Effective Time, and without any action required by the Company, Parent, Merger Sub or any stockholder, each share of common stock (other than shares of common stock (A) held directly by the Company, Parent or Merger Sub, (B) owned by any direct or indirect wholly-owned subsidiary of the Company or Parent (other than Merger Sub) or (C) owned by stockholders who have not voted in favor of the adoption of the Merger Agreement or consented thereto in writing and who have properly exercised their statutory rights of appraisal in respect of such shares of common stock under Delaware law (the “Dissenting Shares” and, collectively, the “Excluded Shares”)) that is issued and outstanding as of immediately prior to the Effective Time will automatically be cancelled, extinguished and converted into the right to receive the merger consideration of $6.50 per share (the “Merger Consideration”), without interest thereon and less any applicable withholding taxes.

Treatment of Stock Options and Other Equity-Based Awards

In connection with the consummation of the Merger, Vitamin Shoppe’s equity awards will be treated as follows:

Vested and Unvested Options

At the Effective Time, each option to acquire shares of common stock (an “Option”) (whether vested or unvested) that is outstanding and unexercised as of immediately prior to the Effective Time will be cancelled and converted into the right to receive an amount in cash, less any required tax withholding, equal to the product of: (i) the Merger Consideration minus the exercise price per share of such Option and (ii) the total number of shares of common stock issuable upon exercise in full of such Option. Any Options outstanding at the Effective Time with an exercise price in excess of the Merger Consideration will be cancelled as of the Effective Time for no consideration.

Restricted Stock Units

At the Effective Time, each restricted stock unit (“RSU”) in respect of common stock that is outstanding as of immediately prior to the Effective Time will be cancelled and converted into the right to receive an amount in cash, less any required tax withholding, equal to the product of: (i) the Merger Consideration and (ii) the total number of shares of common stock subject to such RSUs.



 

2


Table of Contents

Performance Stock Units

At the Effective Time, each performance-based restricted stock unit (“PSU”) in respect of common stock that is outstanding as of immediately prior to the Effective Time will be cancelled and converted into the right to receive an amount in cash, less any required tax withholding, equal to the product of: (i) the Merger Consideration and (ii) the total number of shares of common stock subject to such PSU. The number of shares of common stock subject to a PSU will be equal to the number of shares determined in accordance with the applicable PSU award agreement as follows: for 2017 PSUs, 66.7% of target shares and for 2018 and 2019 PSUs, 100% of target shares.

Restricted Stock Awards

At the Effective Time, each restricted stock award (“RSA”) that is outstanding as of immediately prior to the Effective Time will be cancelled and converted into the right to receive an amount in cash, less any required tax withholding, equal to the product of: (i) the Merger Consideration and (ii) the total number of shares of common stock subject to such RSA.

Treatment of Dissenting Common Shares

Dissenting Shares will not be converted into, or represent the right to receive, the Merger Consideration. Stockholders of the Company who shall have neither voted in favor of the Merger nor consented thereto in writing and who shall have properly and validly exercised their statutory rights of appraisal in respect of shares of common stock held by such stockholders in accordance with Section 262 of the DGCL will be entitled to receive payment of the appraised value of such Dissenting Shares in accordance with the provisions of Section 262 of the DGCL (except that all Dissenting Shares held by stockholders of the Company who shall have failed to perfect or who shall have effectively withdrawn or lost their rights to appraisal of such Dissenting Shares pursuant to Section 262 of the DGCL will be deemed to have been converted into, and to have become exchangeable for, as of the Effective Time, the right to receive the Merger Consideration, without interest thereon, upon surrender of the certificates or uncertificated shares that formerly evidenced such shares of common stock as more fully described under the section of this proxy statement captioned “The Merger—Appraisal Rights”).

Litigation Relating to the Merger (Page 66)

On September 30, 2019, a purported stockholder of the Company commenced a federal securities action in the United States District Court for the District of New Jersey against the Company and its directors, captioned Shiva Stein v. Vitamin Shoppe, Inc., et al., No. 19 Civ. 18543 (D.N.J.). On October 1, 2019, a second purported Company stockholder commenced a putative securities class action in the United States District Court for the District of Delaware against the same defendants, captioned Jordan Rosenblatt v. Vitamin Shoppe, Inc., et al., No. 19 Civ. 1848 (D. Del.). On October 25, 2019, a third purported stockholder of the Company commenced a federal securities action in the United States District Court for the District of New Jersey against the same defendants, captioned Kathleen S. Bell v. Vitamin Shoppe, Inc., et al., No. 19 Civ. 19334 (D.N.J.). All three lawsuits were brought under Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, and challenge as allegedly materially false and misleading the disclosures the Company made in its September 30, 2019 preliminary proxy statement filed with the SEC in connection with the Merger. The complaints seek injunctive relief against the closing of the Merger pending additional disclosures, attorneys’ fees, and other relief. Other, similar lawsuits may follow. The Company believes that the lawsuits are without merit.

Material U.S. Federal Income Tax Consequences of the Merger (Page 66)

The receipt of cash in exchange for shares of common stock in the Merger will be a taxable transaction for U.S. federal income tax purposes. Such receipt of cash by each of our stockholders that is a U.S. Holder (as defined in



 

3


Table of Contents

the section of this proxy statement captioned “The Merger—Material U.S. Federal Income Tax Consequences of the Merger”) generally will result in the recognition of gain or loss in an amount measured by the difference, if any, between the amount of cash that such U.S. Holder receives in the Merger and such U.S. Holder’s adjusted tax basis in the shares of common stock surrendered in the Merger by such stockholder. A stockholder that is a Non-U.S. Holder (as defined in the section of this proxy statement captioned “The Merger—Material U.S. Federal Income Tax Consequences of the Merger”) generally will not be subject to U.S. federal income tax with respect to the exchange of common stock for cash in the Merger unless such Non-U.S. Holder has certain connections to the United States. Backup withholding may apply to payments made in exchange for shares of common stock pursuant to the Merger, unless certain certification procedures are complied with or a valid exemption is established. Please read the section of this proxy statement captioned “The Merger—Material U.S. Federal Income Tax Consequences of the Merger.” Stockholders are urged to consult their own tax advisors concerning the U.S. federal income tax consequences relating to the Merger in light of their particular circumstances and any consequences arising under U.S. federal estate, gift and other non-income tax laws or the laws of any state, local or non-U.S. jurisdiction.

Appraisal Rights (Page 61)

If the Merger is consummated and certain conditions are met, stockholders who continuously hold shares of common stock through the Effective Time who do not vote in favor of the adoption of the Merger Agreement and who properly demand appraisal of their shares and who do not withdraw their demands or otherwise lose their rights to seek appraisal will be entitled to seek appraisal of their shares in connection with the Merger under Section 262 (“Section 262”) of the General Corporation Law of the State of Delaware (the “DGCL”). This means that stockholders may be entitled to have their shares of common stock appraised by the Delaware Court of Chancery, and to receive payment in cash of the “fair value” of their shares of common stock, exclusive of any elements of value arising from the accomplishment or expectation of the Merger, together with interest to be paid on the amount determined to be fair value, if any, as determined by the court, as described further below. Due to the complexity of the appraisal process, stockholders who wish to seek appraisal of their shares are encouraged to seek the advice of legal counsel with respect to the exercise of appraisal rights.

Stockholders considering seeking appraisal should be aware that the fair value of their shares as determined pursuant to Section 262 could be more than, the same as or less than the value of the consideration that they would receive pursuant to the Merger Agreement if they did not seek appraisal of their shares of common stock.

To exercise appraisal rights, stockholders must: (1) submit a written demand for appraisal to Vitamin Shoppe before the vote is taken on the proposal to adopt the Merger Agreement; (2) not submit a proxy, or otherwise vote, in favor of the proposal to adopt the Merger Agreement; (3) continue to hold shares of common stock of record through the Effective Time; and (4) strictly comply with all other procedures for exercising appraisal rights under the DGCL. Failure to follow exactly the procedures specified under the DGCL may result in the loss of appraisal rights. In addition, the Delaware Court of Chancery will dismiss appraisal proceedings in respect of Vitamin Shoppe unless certain stock ownership conditions are satisfied by the stockholders seeking appraisal. The DGCL requirements for exercising appraisal rights are described in further detail in this proxy statement, which is qualified in its entirety by Section 262, the relevant section of the DGCL regarding appraisal rights. A copy of Section 262 is reproduced in Annex C to this proxy statement. If you hold your shares of common stock through a bank, broker or other nominee and you wish to exercise appraisal rights, you should consult with your bank, broker or other nominee to determine the appropriate procedures for the making of a demand for appraisal on your behalf by your bank, broker or other nominee. For more information, please see the section of this proxy statement captioned “The Merger—Appraisal Rights.”



 

4


Table of Contents

Regulatory Approvals Required for the Merger (Page 68)

Under the Merger Agreement, the Merger cannot be completed until the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), has expired or been terminated. For more information, please see the section of this proxy statement captioned “The Merger—Regulatory Approvals Required for the Merger.”

On September 4, 2019, Vitamin Shoppe and Parent made the filings required under the HSR Act. On September 13, 2019, the waiting period under the HSR Act was terminated early by the U.S. Federal Trade Commission (the “FTC”) and the Antitrust Division of the U.S. Department of Justice (the “DOJ”).

Delisting and Deregistration of Common Stock (Page 22)

If the Merger is completed, there will be no further market for our common stock, and it will be delisted from the NYSE and deregistered under the Exchange Act. As a result, following the Merger we will no longer file periodic or current reports with the SEC.

Required Stockholder Approval (Page 19)

The affirmative vote of the holders of a majority of the shares of common stock entitled to vote on the Merger Agreement is required to adopt the Merger Agreement (the “Requisite Stockholder Approval”). Approval of the proposal to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to Vitamin Shoppe’s named executive officers that is based on or otherwise relates to the Merger Agreement and the transactions contemplated by the Merger Agreement (the “Compensation Proposal”) requires the affirmative vote of a majority of the shares of common stock represented at the Special Meeting and entitled to vote on the Compensation Proposal (provided a quorum is present). The approval of the Compensation Proposal is advisory (non-binding) and is not a condition to the consummation of the Merger. Approval of the proposal to adjourn the Special Meeting, whether or not a quorum is present, requires the affirmative vote of a majority of the shares of common stock represented at the Special Meeting and entitled to vote on the proposal to adjourn the Special Meeting. For more information, please see the section of this proxy statement captioned “Special Meeting—Vote Required; Abstentions and Broker Non-Votes.”

As of the Record Date, our directors and executive officers beneficially owned and were entitled to vote an aggregate of 4,721,361 shares of common stock, representing approximately 19.6% of the shares of common stock outstanding as of the Record Date (and approximately 22.3% of the shares of common stock outstanding when taking into account Options, RSUs, PSUs and RSAs held by our directors and executive officers). Although none of them has entered into any agreement obligating them to do so, we currently expect that all of our directors and executive officers will vote all of their respective shares of common stock: (1) “FOR” the adoption of the Merger Agreement; (2) “FOR” the Compensation Proposal; and (3) “FOR” the proposal to adjourn the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting.

In connection with the Company entering into the Merger Agreement, Vintage Fourteen, L.P. (“Vintage Fourteen”), an affiliate of Vintage Capital, entered into a voting agreement with the Company, dated August 8, 2019 (the “Voting Agreement”). Pursuant to the Voting Agreement, Vintage Fourteen, which held approximately 14.8% of the outstanding common stock at the time of the execution of the Voting Agreement, has agreed to vote its shares of common stock in favor of the proposal to adopt the Merger Agreement. For more information, please see the section of this proxy statement captioned “The Merger—Voting Agreement.”



 

5


Table of Contents

Conditions to the Closing of the Merger (Page 88)

The obligations of Vitamin Shoppe, Parent and Merger Sub, as applicable, to consummate the Merger are subject to the satisfaction or waiver of customary conditions, including (among other conditions), the following:

 

   

the receipt of the Requisite Stockholder Approval;

 

   

the expiration or termination of the applicable waiting period under the HSR Act;

 

   

the absence of any Legal Restraint (as defined in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Termination of the Merger Agreement”);

 

   

the accuracy of the representations and warranties of Vitamin Shoppe, other than representations and warranties relating to the absence of any Company Material Adverse Effect (as defined in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Representations and Warranties”), in the Merger Agreement, subject to certain materiality qualifiers, as of the date of the Merger Agreement (or as of an earlier date, if made as of such earlier date) and as of the date of completion of the Merger as if made at and as of the date of completion of the Merger;

 

   

the accuracy of the representations and warranties of Vitamin Shoppe relating to the absence of any Company Material Adverse Effect in the Merger Agreement as of the date of completion of the Merger as if made at and as of the date of completion of the Merger;

 

   

the accuracy of the representations and warranties of Parent and Merger Sub in the Merger Agreement, subject to certain materiality qualifiers, as of the date of completion of the Merger (or as of an earlier date, if made as of such earlier date) as if made at and as of the date of completion of the Merger;

 

   

the absence of any Company Material Adverse Effect having occurred after the date of the Merger Agreement that is continuing as of the Effective Time;

 

   

the performance and compliance in all material respects by Vitamin Shoppe, Parent and Merger Sub of their respective covenants, obligations and conditions required to be performed and complied with by them under the Merger Agreement at or prior to the Effective Time; and

 

   

the delivery of an officer’s certificate by each of Vitamin Shoppe, Parent and Merger Sub certifying that the conditions as described in certain of the preceding bullets have been satisfied.

For more information, please see the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Conditions to the Closing of the Merger.”

Financing of the Merger (Page 58)

The obligation of Parent and Merger Sub to consummate the Merger is not subject to any financing condition. We anticipate that the total amount of funds necessary to complete the Merger and the related transactions, and to pay the fees and expenses required to be paid at the closing of the Merger by Parent and Merger Sub under the Merger Agreement, will be approximately $240 million in cash. This amount includes funds needed to: (1) pay stockholders the amounts due under the Merger Agreement and (2) make payments in respect of our outstanding equity-based awards payable at the Effective Time pursuant to the Merger Agreement.

In connection with the transactions contemplated by the Merger Agreement, Tributum, L.P., a Delaware limited partnership and affiliate of Vintage Capital (“Tributum”), has provided Parent with an equity commitment letter, dated as of August 7, 2019, that provides for an aggregate equity commitment of $70 million in cash (the “Equity Commitment Letter” and, such commitment, the “Equity Commitment”). We refer to the financing pursuant to the Equity Commitment Letter as the “Equity Financing.” The Equity Financing is conditioned on the consummation of the Merger in accordance with the Merger Agreement, as well as other customary conditions, including the simultaneous consummation of the Debt Financing (as defined below).



 

6


Table of Contents

Parent has also obtained commitment letters from JPMorgan Chase Bank, N.A. (“JPMorgan” and, such commitment letter, the “JPMorgan Commitment Letter”) and B. Riley FBR, Inc. (“B. Riley” and, such commitment letter, the “B. Riley Commitment Letter” and, together with the JPMorgan Commitment Letter, the “Debt Commitment Letters”). Pursuant to the JPMorgan Commitment Letter, JPMorgan has committed to provide additional senior secured revolving commitments in an aggregate principal amount of $100 million under that certain Amended and Restated Loan and Security Agreement dated as of January 20, 2011 (as amended, supplemented or otherwise modified prior to the date hereof, the “Existing Credit Agreement”), among Vitamin Shoppe Industries Inc., the other borrowers party thereto and JPMorgan, in its capacity as administrative agent and as sole lender, under which Vitamin Shoppe is currently a guarantor. Pursuant to the B. Riley Commitment Letter, B. Riley has committed to provide a senior secured term loan facility in an aggregate principal amount of $110 million (the “Term Loan Facility”). We refer to the financings pursuant to the Existing Credit Agreement and borrowings under the Term Loan Facility as the “Debt Financing.” The Debt Financing is conditioned on the consummation of the Merger in accordance with the Merger Agreement, as well as other customary conditions, including the simultaneous consummation of the Equity Financing.

The proceeds of the Equity Financing and the Debt Financing will be used to (i) fund the aggregate Merger Consideration and (ii) pay fees and expenses required to be paid at the closing of the Merger by Parent, Merger Sub and the Company contemplated by, and subject to the terms and conditions of, the Merger Agreement. Upon the terms and subject to the conditions of the Equity Commitment Letter, the Company has a contractual right to enforce the Equity Commitment Letter against Tributum and, under the terms and subject to the conditions of the Merger Agreement, the Company has the right to specifically enforce Parent’s obligation to consummate the Merger upon Parent’s receipt of the proceeds of the Equity Financing and the Debt Financing. For more information, please see the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Specific Performance.”

For more information about the Equity Financing and the Debt Financing, please see the section of this proxy statement captioned “The Merger—Financing of the Merger.”

Voting Agreement (Page 59)

In connection with the Company entering into the Merger Agreement, Vintage Fourteen, an affiliate of Vintage Capital, entered into the Voting Agreement with the Company on August 8, 2019, pursuant to which Vintage Fourteen has committed to vote its shares of common stock in favor of, and take certain other actions in furtherance of, the transactions contemplated by the Merger Agreement, including the Merger. At the time of the execution of the Voting Agreement, Vintage Fourteen held, in the aggregate, approximately 14.8% of the outstanding shares of common stock. The Voting Agreement obligates Vintage Fourteen to vote its common stock (i) in favor of the adoption of the Merger Agreement and any other matter or action necessary or appropriate to, or in furtherance of, the consummation of the Merger (including any proposal to adjourn the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting, and any proposal to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to the Company’s named executive officers in connection with the Merger) and (ii) against approval of any proposal made in opposition to, in competition with, or inconsistent with, the Merger Agreement or the Merger or any other transactions contemplated by the Merger Agreement. For more information, please see the section of this proxy statement captioned “The Merger—Voting Agreement.”



 

7


Table of Contents

The Special Meeting (Page 19)

Date, Time and Place

A special meeting of stockholders to consider and vote on the proposal to adopt the Merger Agreement will be held on Wednesday, December 11, 2019, at Kirkland & Ellis LLP, 601 Lexington Avenue, New York, New York 10022, at 10 a.m. Eastern Time (including any adjournments or postponements thereof, the “Special Meeting”).

Record Date; Shares Entitled to Vote

You are entitled to vote at the Special Meeting if you owned shares of common stock at the close of business on November 4, 2019 (the “Record Date”). Each stockholder shall be entitled to one vote for each share of common stock owned at the close of business on the Record Date.

Quorum

As of the Record Date, there were 4,721,361 shares of common stock outstanding and entitled to vote at the Special Meeting. The holders of a majority of the shares of common stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, will constitute a quorum at the Special Meeting.

Recommendation of the Vitamin Shoppe Board of Directors (Page 21)

After careful consideration, the board of directors of the Company (the “Board of Directors”), upon the unanimous recommendation of the special committee of the Board of Directors (the “Special Committee”), and after considering various factors described in the section of this proxy statement captioned “The Merger—Recommendation of the Board of Directors and Reasons for the Merger,” has (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, and in the best interests of, the Company and the stockholders, (ii) approved and declared advisable the Merger Agreement and the transactions contemplated thereby, (iii) recommended that the stockholders adopt the Merger Agreement and (iv) directed that the Merger Agreement be submitted to the stockholders for their adoption.

Accordingly, the Board of Directors recommends that you vote “FOR” the adoption of the Merger Agreement, “FOR,” on an advisory (non-binding) basis, the Compensation Proposal and “FOR” the adjournment of the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting.

Opinion of Vitamin Shoppe’s Financial Advisor (Page 43)

In connection with the Merger, BofA Securities, Inc. (referred to, together with its predecessor, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as “BofA Merrill Lynch”), Vitamin Shoppe’s financial advisor, delivered to the Board of Directors and the Special Committee a written opinion, dated August 7, 2019, as to the fairness, from a financial point of view and as of the date of the opinion, to the stockholders of Vitamin Shoppe’s common stock (other than Vintage Capital and its affiliates) of the Merger Consideration to be received by such stockholders in the Merger. The full text of the written opinion, dated August 7, 2019, of BofA Merrill Lynch, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex B to this proxy statement and is incorporated by reference herein in its entirety. BofA Merrill Lynch provided its opinion to the Board of Directors and the Special Committee (each in its capacity as such) for the benefit and use of the Board of Directors and the Special Committee in connection with and for purposes of its evaluation of the Merger Consideration from a financial point of view. BofA Merrill Lynch’s opinion does not address any other aspect of the Merger and no opinion or view was expressed as to the relative merits of the Merger in comparison to other



 

8


Table of Contents

strategies or transactions that might be available to Vitamin Shoppe or in which Vitamin Shoppe might engage or as to the underlying business decision of Vitamin Shoppe to proceed with or effect the Merger. BofA Merrill Lynch’s opinion does not constitute a recommendation to any stockholder as to how to vote or act in connection with the proposed Merger or any other matter.

Interests of the Company’s Directors and Executive Officers in the Merger (Page 52)

When considering the recommendation of the Special Committee and the Board of Directors that you vote to approve the proposal to adopt the Merger Agreement, you should be aware that certain members of the Special Committee, the Board of Directors and executive officers of the Company have economic interests in the Merger that may be different from, or are in addition to, the interests of stockholders generally. The Special Committee and the Board of Directors were aware of and considered these interests to the extent that they existed at the time, among other matters, in approving the Merger Agreement and the Merger and recommending that the Merger Agreement be adopted by stockholders.

Vitamin Shoppe’s executive officers are participants in the Vitamin Shoppe Executive Severance Pay Policy (the “Severance Plan”) maintained by the Company that provides for severance benefits if their employment is terminated under certain circumstances following a change in control of the Company, including the Merger. Furthermore, pursuant to the Merger Agreement, equity awards held by the Company’s executive officers and directors will generally be cancelled in exchange for cash payment upon consummation of the Merger.

For more information, please see the section of this proxy statement captioned “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger.”

Alternative Acquisition Proposals (Page 78)

The “Go-Shop” Period

Under the Merger Agreement, from the date of the Merger Agreement until 12:01 a.m., New York City time, on September 6, 2019 (the “No-Shop Period Start Date”), the Company and its subsidiaries and each of their respective directors, officers, employees, investment bankers, attorneys, accountants and other advisors or representatives (collectively, “Representatives”) had the right to, among other things and subject to certain conditions: (1) solicit, initiate, propose or induce the making, submission or announcement of, or encourage, facilitate or assist, any proposal or offer that constitutes, or that could constitute, an Acquisition Proposal (as defined in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—The “Go-Shop Period”) and (2) engage in, enter into, continue or otherwise participate in, any discussions or negotiations with any persons with respect to any Acquisition Proposal and cooperate with or assist or participate in or facilitate any such inquiries, proposals, offers, discussions or negotiations or any effort or attempt to make any Acquisition Proposals, as further described under the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—The “Go-Shop Period.”

If the Company terminates the Merger Agreement for the purpose of entering into an acquisition agreement in respect of an Acquisition Proposal (as defined in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—The “Go-Shop Period”) made prior to the No-Shop Period Start Date, the Company is required to pay a termination fee in an amount equal to the reasonable and documented out-of-pocket costs and expenses (including attorneys’ fees) incurred by Parent in connection with the Merger and other transactions contemplated by the Merger Agreement, which amount shall not exceed $3,240,000. If the Company terminates the Merger Agreement for the purpose of entering into an acquisition agreement in respect of an Acquisition Proposal made after the No-Shop Period Start Date, the Company is required to pay a termination fee of $5,670,000. For more information, please see the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Termination Fees.”



 

9


Table of Contents

The “No-Shop” Period

Under the Merger Agreement, from the No-Shop Period Start Date until the Effective Time, the Company has agreed not to, and to instruct and use its reasonable best efforts to cause its Representatives not to, directly or indirectly, among other things and subject to certain conditions: (1) solicit, initiate, propose or induce the making, submission or announcement of, or knowingly encourage, facilitate or assist, any proposal or offer that is or could reasonably be expected to constitute an Acquisition Proposal; (2) furnish to any person any non-public information relating to the Company in a way that could reasonably be expected to lead to an Acquisition Proposal; (3) participate or engage in discussions or negotiations with any person with respect to an Acquisition Proposal (subject to certain exceptions); (4) approve, adopt, endorse or recommend an Acquisition Proposal (or any offer or proposal that could lead to an Acquisition Proposal); or (5) authorize or enter into any letter of intent, memorandum of understanding, merger agreement, acquisition agreement or other contract relating to an Acquisition Proposal (or any offer or proposal that could lead to an Acquisition Proposal), other than an Acceptable Confidentiality Agreement (as defined under the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—The “No-Shop Period”).

Notwithstanding the foregoing restrictions, under certain specified circumstances, from the date of the Merger Agreement and continuing until the Company’s receipt of the Requisite Stockholder Approval, the Company and the Board of Directors (and the Special Committee) may, among other things, after giving Parent reasonably prompt notice of its intent to do so, participate or engage in discussions or negotiations with, furnish non-public information relating to the Company or any of its subsidiaries to, or afford access to the business, properties, assets, books, records or other non-public information, or to any personnel, of the Company or any of its subsidiaries pursuant to an Acceptable Confidentiality Agreement to, any person or its Representatives that has made, renewed or delivered to the Company an Acquisition Proposal after the date of the Merger Agreement that did not result from any material breach of certain provisions of the Merger Agreement, and otherwise facilitate such Acquisition Proposal or assist such person (and its Representatives and financing sources) with such Acquisition Proposal (in each case, if requested by such person), if the Board of Directors (or the Special Committee) has determined in good faith (after consultation with its financial advisor and outside legal counsel) that such Acquisition Proposal either constitutes a Superior Proposal or is reasonably likely to lead to a Superior Proposal. For more information, please see the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—The “No-Shop Period.”

Termination of the Merger Agreement (Page 89)

In addition to the circumstances described above, Parent and the Company have certain rights to terminate the Merger Agreement under customary circumstances, including by mutual agreement, the imposition of laws or non-appealable court orders that make the Merger illegal or otherwise prohibit the Merger, certain uncured breaches of the Merger Agreement by the other party, if the Merger has not been consummated by 11:59 p.m., New York City time, on May 7, 2020, and if the stockholders fail to adopt the Merger Agreement at the Special Meeting (or any adjournment or postponement thereof). Under certain specified circumstances, Vitamin Shoppe or Parent may be required to pay the other party a termination fee in connection with the termination of the Merger Agreement. For more information, please see the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Termination of the Merger Agreement.”

Effect on Vitamin Shoppe if the Merger is Not Completed (Page 25)

If the Merger Agreement is not adopted by stockholders, or if the Merger is not completed for any other reason:

 

(i)

the stockholders will not be entitled to, nor will they receive, any payment for their respective shares of common stock pursuant to the Merger Agreement;



 

10


Table of Contents
(ii)

(A) Vitamin Shoppe will remain an independent public company, (B) the common stock will continue to be listed and traded on the NYSE and registered under the Exchange Act and (C) Vitamin Shoppe will continue to file periodic and current reports with the SEC; and

 

(iii)

under certain specified circumstances, Vitamin Shoppe or Parent may be required to pay the other party a termination fee in connection with the termination of the Merger Agreement. For more information, please see the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Termination Fees.”



 

11


Table of Contents

QUESTIONS AND ANSWERS

The following questions and answers address some commonly asked questions regarding the Merger, the Merger Agreement and the Special Meeting. These questions and answers may not address all questions that are important to you. You should carefully read and consider the more detailed information contained elsewhere in this proxy statement and the annexes to this proxy statement, including the Merger Agreement, along with all of the documents we refer to in this proxy statement, as they contain important information about, among other things, the Merger and how it affects you. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under the caption “Where You Can Find More Information.”

 

Q:

Why am I receiving these materials?

 

A:

The Board of Directors is furnishing this proxy statement and form of proxy card to the stockholders in connection with the solicitation of proxies to be voted at the Special Meeting.

 

Q:

When and where is the Special Meeting?

 

A:

The Special Meeting will take place on Wednesday, December 11, 2019, at the offices of Kirkland & Ellis LLP, 601 Lexington Avenue, New York, New York 10022, at 10 a.m. Eastern Time.

 

Q:

What am I being asked to vote on at the Special Meeting?

 

A:

You are being asked to vote on the following proposals:

 

   

to adopt the Merger Agreement pursuant to which Vitamin Shoppe will merge with and into Merger Sub, and Merger Sub will continue as a wholly owned subsidiary of Parent;

 

   

to approve, on an advisory (non-binding) basis, the Compensation Proposal; and

 

   

to approve the adjournment of the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting.

 

Q:

Who is entitled to vote at the Special Meeting?

 

A:

Stockholders as of the Record Date are entitled to notice of the Special Meeting and to vote at the Special Meeting. Each stockholder shall be entitled to cast one vote on each matter properly brought before the Special Meeting for each share of common stock owned at the close of business on the Record Date.

 

Q:

May I attend the Special Meeting and vote in person?

 

A:

Yes. All stockholders as of the Record Date may attend the Special Meeting and vote in person. Seating will be limited. Stockholders will need to present proof of ownership of shares of common stock, such as a bank or brokerage account statement, and a form of personal identification to be admitted to the Special Meeting. No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the Special Meeting.

Even if you plan to attend the Special Meeting in person, to ensure that your shares will be represented at the Special Meeting we encourage you to sign, date and return the enclosed proxy card in the accompanying prepaid reply envelope or grant your proxy electronically over the internet or by telephone (using the instructions provided in the enclosed proxy card). If you attend the Special Meeting and vote in person by ballot, your vote will revoke any proxy previously submitted.

 

12


Table of Contents

If you hold your shares in “street name,” you should instruct your bank, broker or other nominee how to vote your shares in accordance with the voting form that you will receive from your bank, broker or other nominee. Your broker or other agent cannot vote on any of the proposals, including the proposal to adopt the Merger Agreement, without your instructions. If you hold your shares in “street name,” you may not vote your shares in person at the Special Meeting unless you obtain a “legal proxy” from your bank, broker or other nominee.

 

Q:

How does the Board of Directors recommend that I vote?

 

A:

The Board of Directors, acting upon the unanimous recommendation of the Special Committee, recommends that you vote: (1) “FOR” adoption of the Merger Agreement; (2) “FOR,” on an advisory (non-binding) basis, the Compensation Proposal; and (3) “FOR” the adjournment of the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting.

 

Q:

What will I receive if the Merger is completed?

 

A:

Upon completion of the Merger, you will be entitled to receive the Merger Consideration, without interest thereon and net of any applicable withholding of taxes, for each share of common stock that you own, unless you have properly exercised and not withdrawn your appraisal rights, and followed the procedures in the manner prescribed by Section 262. For example, if you own 100 shares of common stock, you will receive $650.00 in cash in exchange for your shares of common stock, without any interest, and net of any applicable withholding of taxes.

 

Q:

What vote is required to adopt the Merger Agreement?

 

A:

The affirmative vote of the holders of a majority of the outstanding shares of common stock is required to adopt the Merger Agreement.

If a quorum is present at the Special Meeting, the failure of any stockholder of record to: (1) submit a signed proxy card; (2) grant a proxy over the internet or by telephone (using the instructions provided in the enclosed proxy card); or (3) vote in person by ballot at the Special Meeting will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement. If you hold your shares in “street name” and a quorum is present at the Special Meeting, the failure to instruct your bank, broker or other nominee how to vote your shares will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement. If a quorum is present at the Special Meeting, abstentions will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement.

 

Q:

What happens if the Merger is not completed?

 

A:

If the Merger Agreement is not adopted by stockholders or if the Merger is not completed for any other reason, stockholders will not receive any payment for their shares of common stock. Instead, Vitamin Shoppe will remain an independent public company, our common stock will continue to be listed and traded on the NYSE and registered under the Exchange Act, and we will continue to file periodic and current reports with the SEC.

Under certain specified circumstances, Vitamin Shoppe or Parent may be required to pay the other party a termination fee in connection with the termination of the Merger Agreement, as described in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Termination Fees.”

 

13


Table of Contents
Q:

Why are the stockholders being asked to cast an advisory (non-binding) vote to approve the Compensation Proposal?

 

A:

The Exchange Act and applicable SEC rules thereunder require Vitamin Shoppe to seek an advisory (non-binding) vote with respect to certain payments that may be paid or become payable to its named executive officers in connection with the Merger.

 

Q:

What vote is required to approve the Compensation Proposal?

 

A:

The affirmative vote of the holders of a majority of the shares of common stock present in person or represented by proxy at the Special Meeting and entitled to vote on the subject matter (provided a quorum is present) is required for approval of the Compensation Proposal.

 

Q:

What will happen if the stockholders do not approve the Compensation Proposal at the Special Meeting?

 

A:

Approval of the Compensation Proposal is not a condition to the completion of the Merger. The vote with respect to the Compensation Proposal is an advisory (non-binding) vote and will not be binding on Vitamin Shoppe. Therefore, if the other requisite stockholder approvals are obtained and the Merger is completed, the amounts payable under the Compensation Proposal will continue to be payable to the Company’s named executive officers in accordance with the terms and conditions of the applicable agreements.

 

Q:

What vote is required to approve the adjournment of the Special Meeting?

 

A:

Approval of the adjournment of the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting, whether or not a quorum is present, requires the affirmative vote of the holders of a majority of the shares of common stock represented and entitled to vote on the matter at the Special Meeting.

 

Q:

What do I need to do now?

 

A:

You should carefully read and consider this entire proxy statement and the annexes to this proxy statement, including the Merger Agreement, along with all of the documents that we refer to in this proxy statement, as they contain important information about, among other things, the Merger and how it affects you. Then sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying reply envelope, or grant your proxy electronically over the internet or by telephone (using the instructions provided in the enclosed proxy card), so that your shares can be voted at the Special Meeting, unless you wish to seek appraisal. If you hold your shares in “street name,” please refer to the voting forms provided by your bank, broker or other nominee to vote your shares.

 

Q:

Should I surrender my shares now?

 

A:

No. After the Merger is completed, a nationally recognized bank or trust company reasonably acceptable to the Company (the “Payment Agent”) will send each stockholder of record a letter of transmittal and written instructions that explain how to exchange shares of common stock represented by such stockholder’s book-entry shares for the Merger Consideration.

 

Q:

What happens if I sell or otherwise transfer my shares of common stock after the Record Date but before the Special Meeting?

 

A:

The Record Date for the Special Meeting is earlier than the date of the Special Meeting and the date the Merger is expected to be completed. If you sell or transfer your shares of common stock after the Record

 

14


Table of Contents
  Date but before the Special Meeting, unless special arrangements (such as provision of a proxy) are made between you and the person to whom you sell or otherwise transfer your shares and each of you notifies Vitamin Shoppe in writing of such special arrangements, you will transfer the right to receive the Merger Consideration, if the Merger is completed, to the person to whom you sell or transfer your shares, but you will retain your right to vote those shares at the Special Meeting. Even if you sell or otherwise transfer your shares of common stock after the Record Date, we encourage you to sign, date and return the enclosed proxy card in the accompanying reply envelope or grant your proxy electronically over the internet or by telephone (using the instructions provided in the enclosed proxy card).

 

Q:

What happens if I sell my shares of common stock after the Special Meeting but before the Effective Time?

 

A:

If you transfer your shares of common stock after the Special Meeting but before the Effective Time, you will have transferred your right to receive the Merger Consideration to the person to whom you transfer your shares. To receive the Merger Consideration, you must hold your shares of common stock through consummation of the Merger.

 

Q:

Do any of the Company’s directors or officers have interests in the Merger that may differ from or be in addition to my interests as a stockholder?

 

A:

Yes. In considering the recommendation of the Special Committee and the Board of Directors with respect to the proposal to adopt the Merger Agreement, you should be aware that our directors and executive officers have interests in the Merger that may be different from, or in addition to, those of the stockholders generally, as set forth below. The Special Committee and the Board of Directors were aware of and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement and the Merger, and in recommending that the Merger Agreement be adopted by its stockholders. These interests include: (i) the cancelation and payment of Options, RSUs, PSUs and RSAs; (ii) certain severance and other separation benefits that may be payable upon termination of employment following the effective time of the Merger; and (iii) entitlement to continued indemnification and insurance coverage under the Merger Agreement.

 

Q:

What is the difference between holding shares as a stockholder of record and as a beneficial owner?

 

A:

If your shares are registered directly in your name with our transfer agent, Computershare Shareowner Services, you are considered, with respect to those shares, to be the “stockholder of record.” In this case, this proxy statement and your proxy card have been sent directly to you by Vitamin Shoppe or its Representatives.

If your shares are held through a bank, broker or other nominee, you are considered the “beneficial owner” of shares of common stock held in “street name.” In that case, this proxy statement has been forwarded to you by your bank, broker or other nominee who is considered, with respect to those shares, to be the stockholder of record. As the beneficial owner, you have the right to direct your bank, broker or other nominee how to vote your shares by following their instructions for voting. You are also invited to attend the Special Meeting. However, because you are not the stockholder of record, you may not vote your shares in person at the Special Meeting unless you obtain a “legal proxy” from your bank, broker or other nominee.

 

Q:

How many votes do I have?

 

A:

You are entitled to one vote for each share of common stock that you held of record at the close of business on the Record Date.

 

Q:

What is a quorum?

 

A:

The presence at the Special Meeting, in person or represented by proxy, of the holders of a majority of the aggregate voting power of the common stock outstanding on the Record Date will constitute a quorum,

 

15


Table of Contents
  permitting the conduct of business at the Special Meeting. Abstentions and “broker non-votes” are counted as present for purposes of determining whether a quorum is present.

 

Q:

How may I vote?

 

A:

If you are a stockholder of record (that is, if your shares of common stock are registered in your name with Computershare Shareowner Services, our transfer agent), there are four ways to vote:

 

   

by signing, dating and returning the enclosed proxy card in the accompanying prepaid reply envelope;

 

   

by visiting the internet at the address on your proxy card;

 

   

by calling toll-free (within the U.S. or Canada) at the phone number on your proxy card; or

 

   

by attending the Special Meeting and voting in person by ballot.

A control number, located on your proxy card, is designed to verify your identity and allow you to vote your shares of common stock, and to confirm that your voting instructions have been properly recorded when voting electronically over the internet or by telephone (using the instructions provided in the enclosed proxy card). Please be aware that, although there is no charge for voting your shares, if you vote electronically over the internet or by telephone, you may incur costs such as internet access and telephone charges for which you will be responsible.

Even if you plan to attend the Special Meeting in person, you are strongly encouraged to vote your shares of common stock by proxy. If you are a stockholder of record or if you obtain a “legal proxy” to vote shares that you beneficially own, you may still vote your shares of common stock in person by ballot at the Special Meeting even if you have previously voted by proxy. If you are present at the Special Meeting and vote in person by ballot, your previous vote by proxy will not be counted.

If your shares are held in “street name” through a bank, broker or other nominee, you may vote through your bank, broker or other nominee by completing and returning the voting form provided by your bank, broker or other nominee, or, if such a service is provided by your bank, broker or other nominee, electronically over the internet or by telephone. To vote over the internet or by telephone through your bank, broker or other nominee, you should follow the instructions on the voting form provided by your bank, broker or nominee.

 

Q:

If my broker holds my shares in “street name,” will my broker vote my shares for me?

 

A:

No. Your bank, broker or other nominee is permitted to vote your shares on any proposal currently scheduled to be considered at the Special Meeting only if you instruct your bank, broker or other nominee how to vote. You should follow the procedures provided by your bank, broker or other nominee to vote your shares. Without instructions, your shares will not be voted on such proposals, which will have the same effect as a vote against adoption of the Merger Agreement, but will have no effect on the Compensation Proposal or the proposal to adjourn the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting.

 

Q:

May I change my vote?

 

A:

Yes. If you are a stockholder of record, you may change your vote or revoke your proxy at any time before it is exercised at the Special Meeting by:

 

   

written notice of revocation to our Corporate Secretary at Vitamin Shoppe, Inc., 300 Harmon Meadow Blvd., Secaucus, New Jersey 07094;

 

   

timely submission of a valid, later-dated proxy via mail, the internet or the telephone; or

 

   

voting by ballot at the Special Meeting.

 

16


Table of Contents

If you hold your shares of common stock in “street name,” you should contact your bank, broker or other nominee for instructions regarding how to change your vote. You may also vote in person at the Special Meeting if you obtain a “legal proxy” from your bank, broker or other nominee.

 

Q:

What is a proxy?

 

A:

A proxy is your legal designation of another person to vote your shares of common stock. The written document describing the matters to be considered and voted on at the Special Meeting is called a “proxy statement.” The document used to designate a proxy to vote your shares of common stock is called a “proxy card.” Sharon M. Leite and David M. Kastin are the proxy holders for the Special Meeting, with full power of substitution and re-substitution.

 

Q:

If a stockholder gives a proxy, how are the shares voted?

 

A:

Regardless of the method you choose to vote, the individuals named on the enclosed proxy card, or your proxies, will vote your shares in the way that you indicate. When completing the internet or telephone process or the proxy card, you may specify whether your shares should be voted for or against or to abstain from voting on all, some or none of the specific items of business to come before the Special Meeting.

If you properly sign your proxy card but do not mark the boxes showing how your shares should be voted on a matter, the shares represented by your properly signed proxy will be voted: (1) “FOR” the adoption of the Merger Agreement; (2) “FOR,” on an advisory (non-binding) basis, the Compensation Proposal; and (3) “FOR” the adjournment of the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting.

 

Q:

What should I do if I receive more than one set of voting materials?

 

A:

Please sign, date and return (or grant your proxy electronically over the internet or by telephone using the instructions provided in the enclosed proxy card) each proxy card and voting instruction card that you receive.

You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting forms. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting form for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one name, you will receive more than one proxy card.

 

Q:

Where can I find the voting results of the Special Meeting?

 

A:

Vitamin Shoppe intends to publish final voting results in a Current Report on Form 8-K to be filed with the SEC following the Special Meeting. All reports that Vitamin Shoppe files with the SEC are publicly available when filed. For more information, please see the section of this proxy statement captioned “Where You Can Find More Information.”

 

Q:

When do you expect the Merger to be completed?

 

A:

We are working toward completing the Merger as quickly as possible and currently expect to complete the Merger in the fourth quarter of 2019. However, the exact timing of completion of the Merger cannot be predicted because the Merger is subject to the closing conditions specified in the Merger Agreement, many of which are outside of our control.

 

17


Table of Contents
Q:

Who can help answer my questions?

 

A:

If you have any questions concerning the Merger, the Special Meeting or this proxy statement, would like additional copies of this proxy statement or need help voting your shares of common stock, please contact our proxy solicitor:

D.F. King & Co.

48 Wall Street, 22nd Floor

New York, NY 10005

Call Toll-free: (800) 758-5378

Banks and Brokers Call: (212) 269-5550

vsi@dfking.com

 

18


Table of Contents

FORWARD-LOOKING STATEMENTS

This proxy statement contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, those that contain, or are identified by, words such as “outlook,” “guidance,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” “could” or the negative version of these words or other comparable words. Forward-looking statements may include, but are not limited to, statements relating to any proposed transaction with Parent (the “proposed transaction”). These statements are subject to various risks and uncertainties, many of which are outside the Company’s control, including, among others, the risks detailed in our filings with the SEC, including in our most recent filings on Forms 10-K and 10-Q, factors and matters described or incorporated by reference in this proxy statement, and the following factors:

 

   

the risk that the proposed transaction may not be completed in a timely manner or at all, which may adversely affect the Company’s business and the price of the Company’s common stock;

 

   

risks related to the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement or any agreement that may be entered into with the Bidder;

 

   

the failure to obtain the requisite stockholder approval of the proposed transaction or required regulatory approvals or the failure to satisfy any of the other conditions to the completion of the proposed transaction;

 

   

the effect of the announcement or pendency of the proposed transaction on the ability of the Company to retain and hire key personnel and maintain relationships with its customers, suppliers, partners and others with whom it does business, or on its operating results and business generally;

 

   

risks associated with the diversion of management’s attention from ongoing business operations due to the proposed transaction;

 

   

legal proceedings related to the proposed transaction;

 

   

uncertainties as to Parent’s ability to obtain financing in order to consummate the proposed transaction; and

 

   

and costs, charges or expenses resulting from the proposed transaction.

Actual results may differ materially from anticipated results or outcomes discussed in any forward-looking statement. Additional factors that could cause actual results to differ materially from forward-looking statements include:

 

   

the strength of the economy;

 

   

changes in the overall level of consumer spending;

 

   

the performance of the Company’s products within the prevailing retail environment;

 

   

implementation of our strategy;

 

   

compliance with regulations, certifications and best practices with respect to the development, manufacture, sale and marketing of the Company’s products;

 

   

management changes;

 

   

maintaining appropriate levels of inventory;

 

   

changes in tax policy;

 

   

ecommerce relationships;

 

   

disruptions of manufacturing, warehouse or distribution facilities or information systems; and

 

19


Table of Contents
   

regulatory environment and other specific factors discussed herein and in other SEC filings by the Company.

The Company believes that all forward-looking statements are based on reasonable assumptions when made; however, the Company cautions that it is impossible to predict actual results or outcomes or the effects of risks, uncertainties or other factors on anticipated results or outcomes with certainty and that, accordingly, one should not place undue reliance on these statements. Forward-looking statements speak only as of the date when made and the Company undertakes no obligation to update these statements in light of subsequent events or developments.

 

20


Table of Contents

THE SPECIAL MEETING

The enclosed proxy is solicited on behalf of the Board of Directors for use at the Special Meeting.

Date, Time and Place

We will hold the Special Meeting on Wednesday, December 11, 2019 at the offices of Kirkland & Ellis LLP, 601 Lexington Avenue, New York, New York 10022, at 10 a.m. Eastern Time.

Purpose of the Special Meeting

At the Special Meeting, we will ask stockholders to vote on proposals to: (1) adopt the Merger Agreement; (2) approve, on an advisory (non-binding) basis, the Compensation Proposal; and (3) adjourn the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting.

Record Date; Shares Entitled to Vote; Quorum

Only stockholders of record as of the Record Date are entitled to notice of the Special Meeting and to vote at the Special Meeting. A list of stockholders entitled to vote at the Special Meeting will be available at our headquarters, 300 Harmon Meadow Blvd., Secaucus, New Jersey 07094, during regular business hours for a period of no less than 10 days before the Special Meeting and at the place of the Special Meeting during the meeting.

As of the Record Date, there were 4,721,361 shares of common stock outstanding and entitled to vote at the Special Meeting.

The holders of a majority of the shares of common stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, will constitute a quorum at the Special Meeting. In the event that a quorum is not present at the Special Meeting, it is expected that the meeting will be adjourned to solicit additional proxies.

Vote Required; Abstentions and Broker Non-Votes

The affirmative vote of the holders of a majority of the outstanding shares of common stock is required to adopt the Merger Agreement. As of the Record Date, 2,360,681 shares of common stock constitute a majority of the outstanding shares of common stock. Adoption of the Merger Agreement by stockholders is a condition to the completion of the Merger.

The affirmative vote of the holders of a majority of the shares of common stock represented at the Special Meeting and entitled to vote on the Compensation Proposal (provided a quorum is present) is required to approve, on an advisory (non-binding) basis, the Compensation Proposal.

Approval of the proposal to the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting, whether or not a quorum is present, requires the affirmative vote of the holders of a majority of the shares of common stock represented at the Special Meeting and entitled to vote on the matter at the Special Meeting.

If a stockholder abstains from voting, that abstention will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement and “AGAINST” the proposal to approve, on an advisory (non-binding) basis, the Compensation Proposal. For stockholders who attend the meeting or are represented by

 

21


Table of Contents

proxy and abstain from voting, the abstention will have the same effect as a vote “AGAINST” any proposal to adjourn the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting.

Each “broker non-vote” will also count as a vote “AGAINST” the proposal to adopt the Merger Agreement, but will have no effect on the Compensation Proposal or any proposal to adjourn the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting. A “broker non-vote” generally occurs when a bank, broker or other nominee holding shares on your behalf does not vote on a proposal because the bank, broker or other nominee has not received your voting instructions and lacks discretionary power to vote the shares. “Broker non-votes,” if any, will be counted for the purpose of determining whether a quorum is present.

Shares Held by Vitamin Shoppe Directors and Executive Officers

As of the Record Date, our directors and executive officers beneficially owned and were entitled to vote, in the aggregate, 4,721,361 shares of common stock, representing approximately 19.6% of the shares of common stock outstanding as of the Record Date (and approximately 22.3% of the shares of common stock outstanding when taking into account Options, RSUs, PSUs and RSAs held, in the aggregate, by our directors and executive officers).

Although none of them has entered into any agreement obligating them to do so, we currently expect that all of our directors and executive officers will vote all of their respective shares of common stock: (1) “FOR” adoption of the Merger Agreement; (2) “FOR,” on an advisory (non-binding) basis, the Compensation Proposal; and (3) “FOR” the adjournment of the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting.

Voting of Proxies

If your shares are registered in your name with our transfer agent, Computershare Shareowner Services, you may cause your shares to be voted by returning a signed and dated proxy card in the accompanying prepaid envelope, or you may vote in person at the Special Meeting. Additionally, you may grant a proxy electronically over the internet or by telephone (using the instructions provided in the enclosed proxy card). You must have the enclosed proxy card available, and follow the instructions on the proxy card, in order to grant a proxy electronically over the internet or by telephone. Based on your proxy cards or internet and telephone proxies, the proxy holders will vote your shares according to your directions.

If you plan to attend the Special Meeting and wish to vote in person, you will be given a ballot at the Special Meeting. If your shares are registered in your name, you are encouraged to vote by proxy even if you plan to attend the Special Meeting in person. If you attend the Special Meeting and vote in person by ballot, your vote will revoke any previously submitted proxy.

Voting instructions are included on your proxy card. All shares represented by properly signed and dated proxies received in time for the Special Meeting will be voted at the Special Meeting in accordance with the instructions of the stockholder. Properly signed and dated proxies that do not contain voting instructions will be voted: (1) “FOR” adoption of the Merger Agreement; (2) “FOR,” on an advisory (non-binding) basis, the Compensation Proposal; and (3) “FOR” the adjournment of the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting.

If your shares are held in “street name” through a bank, broker or other nominee, you may vote through your bank, broker or other nominee by completing and returning the voting form provided by your bank, broker or

 

22


Table of Contents

other nominee or attending the Special Meeting and voting in person with a “legal proxy” from your bank, broker or other nominee. If such a service is provided, you may vote over the internet or telephone through your bank, broker or other nominee by following the instructions on the voting form provided by your bank, broker or other nominee. If you do not return your bank’s, broker’s or other nominee’s voting form, do not vote via the internet or telephone through your bank, broker or other nominee, if possible, or do not attend the Special Meeting and vote in person with a “legal proxy” from your bank, broker or other nominee, it will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement but will not have any effect on the Compensation Proposal or the proposal to adjourn the Special Meeting.

Revocability of Proxies

If you are a stockholder of record, you may change your vote or revoke your proxy at any time before it is exercised at the Special Meeting by:

 

   

written notice of revocation to our Corporate Secretary at Vitamin Shoppe, Inc., 300 Harmon Meadow Blvd., Secaucus, New Jersey 07094;

 

   

timely submission of a valid, later-dated proxy via mail, the internet or the telephone; or

 

   

voting by ballot at the Special Meeting.

If you have submitted a proxy, your appearance at the Special Meeting will not have the effect of revoking your prior proxy provided that you do not vote in person or submit an additional proxy or revocation, which, in each case, will have the effect of revoking your proxy.

If you hold your shares of common stock in “street name,” you should contact your bank, broker or other nominee for instructions regarding how to change your vote. You may also vote in person at the Special Meeting if you obtain a “legal proxy” from your bank, broker or other nominee.

Any adjournment, postponement or other delay of the Special Meeting, including for the purpose of soliciting additional proxies, will allow stockholders who have already sent in their proxies to revoke them at any time prior to their use at the Special Meeting as adjourned, postponed or delayed.

Board of Directors’ Recommendation

After careful consideration, the Board of Directors, upon the unanimous recommendation of the Special Committee, and after considering various factors described in the section of this proxy statement captioned “The Merger—Recommendation of the Board of Directors and Reasons for the Merger,” has: (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, and in the best interests of, the Company and the stockholders; (ii) approved and declared advisable the Merger Agreement and the transactions contemplated thereby; (iii) recommended that the stockholders adopt the Merger Agreement; and (iv) directed that the Merger Agreement be submitted to the stockholders for their adoption.

Accordingly, the Board of Directors recommends that you vote “FOR” the adoption of the Merger Agreement, “FOR,” on an advisory (non-binding) basis, the Compensation Proposal and “FOR” the adjournment of the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting.

Solicitation of Proxies

The expense of soliciting proxies will be borne by Vitamin Shoppe. We have retained D.F. King & Co. (“D.F. King”), a proxy solicitation firm, to solicit proxies in connection with the Special Meeting at a cost of approximately $25,000, plus expenses. We will also indemnify D.F. King against losses arising out of its

 

23


Table of Contents

provision of these services on our behalf. In addition, we may reimburse banks, brokers and other nominees representing beneficial owners of shares for their expenses in forwarding soliciting materials to such beneficial owners. Proxies may also be solicited by our directors, officers and employees, personally or by telephone, email, fax, over the internet or other means of communication. No additional compensation will be paid for such services.

Anticipated Date of Completion of the Merger

Assuming timely satisfaction of necessary closing conditions, including the approval by stockholders of the proposal to adopt the Merger Agreement, we anticipate that the Merger will be consummated in the fourth quarter of 2019.

Appraisal Rights

If the Merger is consummated, stockholders who continuously hold shares of common stock through the Effective Time who do not vote in favor of the adoption of the Merger Agreement and who properly demand appraisal of their shares and do not withdraw their demands or otherwise lose their rights to seek appraisal will be entitled to appraisal of their shares in connection with the Merger under Section 262. This means that stockholders who perfect their appraisal rights, who do not thereafter withdraw their demand for appraisal, and who follow the procedures in the manner prescribed by Section 262 will be entitled to have their shares appraised by the Delaware Court of Chancery and to receive payment in cash of the “fair value” of their shares of common stock, exclusive of any elements of value arising from the accomplishment or expectation of the Merger, as determined by the Delaware Court of Chancery, together with interest, if any, to be paid on the amount determined to be fair value (or in certain circumstances described in further detail in the section of this proxy statement captioned “The Merger—Appraisal Rights,” on the difference between the amount determined to be the fair value and the amount paid by the Surviving Company in the Merger to each stockholder entitled to appraisal prior to the entry of judgment in any appraisal proceeding). Due to the complexity of the appraisal process, stockholders who wish to seek appraisal of their shares are encouraged to review Section 262 carefully and to seek the advice of legal counsel with respect to the exercise of appraisal rights.

Stockholders considering seeking appraisal should be aware that the fair value of their shares as determined pursuant to Section 262 could be more than, the same as or less than the value of the consideration that they would receive pursuant to the Merger Agreement if they did not seek appraisal of their shares.

To exercise your appraisal rights, you must: (1) submit a written demand for appraisal to Vitamin Shoppe before the vote is taken on the adoption of the Merger Agreement; (2) not submit a proxy, or otherwise vote, in favor of the proposal to adopt the Merger Agreement; (3) continue to hold your shares of common stock of record through the Effective Time; and (4) strictly comply with all other procedures for exercising appraisal rights under Section 262. Your failure to follow exactly the procedures specified under Section 262 may result in the loss of your appraisal rights. In addition, the Delaware Court of Chancery will dismiss appraisal proceedings in respect of the Merger unless certain stock ownership conditions are satisfied by the stockholders seeking appraisal. The DGCL requirements for exercising appraisal rights are described in further detail in the section of this proxy statement captioned “The Merger—Appraisal Rights,” which is qualified in its entirety by Section 262, the relevant section of the DGCL regarding appraisal rights. A copy of Section 262 is reproduced and attached as Annex C to this proxy statement and incorporated herein by reference. If you hold your shares of common stock through a bank, brokerage firm or other nominee and you wish to exercise appraisal rights, you should consult with your bank, brokerage firm or other nominee to determine the appropriate procedures for the making of a demand for appraisal by your bank, brokerage firm or other nominee.

 

24


Table of Contents

Delisting and Deregistration of Vitamin Shoppe Common Stock

If the Merger is completed, there will be no further market for our common stock, and it will be delisted from the NYSE and deregistered under the Exchange Act. As a result, following the Merger we will no longer file periodic or current reports with the SEC.

Other Matters

At this time, we know of no other matters to be voted on at the Special Meeting. If any other matters properly come before the Special Meeting, your shares of common stock will be voted in accordance with the discretion of the appointed proxy holders.

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on December 11, 2019

The proxy statement is available at investors.vitaminshoppe.com.

Householding of Special Meeting Materials

We have adopted a procedure approved by the SEC called “householding.” Under this procedure, stockholders of record who have the same address and last name will receive only one copy of this proxy statement, unless one or more of these stockholders notifies us that they wish to continue receiving individual copies. This procedure will reduce our printing costs and postage fees. Stockholders who participate in householding will continue to receive separate proxy cards.

If you are eligible for householding, but you and other stockholders of record with whom you share an address currently receive multiple copies of this proxy statement, or if you hold stock in more than one account, and in either case you wish to receive only a single copy of our disclosure documents for your household, please make a written request to the Corporate Secretary, Vitamin Shoppe, Inc., 300 Harmon Meadow Blvd., Secaucus, New Jersey 07094 or call (201) 868-5959. If multiple stockholders of record who have the same address received only one copy of this proxy statement and would like to receive additional copies, or if they would like to receive a copy for each stockholder living at that address in the future, send a written request to the address above. Upon such written request, we will promptly deliver separate proxy statements to any stockholders who receive one paper copy at a shared address.

Beneficial owners can request information about householding from their brokers, banks or other stockholders of record.

Questions and Additional Information

If you have any questions concerning the Merger, the Special Meeting or this proxy statement, would like additional copies of this proxy statement or need help voting your shares of common stock, please contact our proxy solicitor:

D.F. King & Co.

48 Wall Street, 22nd Floor

New York, NY 10005

Call Toll-free: (800) 758-5378

Banks and Brokers Call: (212) 269-5550

vsi@dfking.com

 

25


Table of Contents

THE MERGER

This discussion of the Merger is qualified in its entirety by reference to the Merger Agreement and the Amendment (as defined below), which are attached to this proxy statement as Annex A and Annex E, respectively, and incorporated into this proxy statement by reference. You should carefully read and consider the entire Merger Agreement, which is the legal document that governs the Merger, because it contains important information about the Merger and how it affects you.

Parties Involved in the Merger

Vitamin Shoppe, Inc.

300 Harmon Meadow Blvd.

Secaucus, New Jersey 07094

(201) 868-5959

Vitamin Shoppe is an omni-channel specialty retailer of vitamins, minerals, herbs, specialty supplements, sports nutrition and other health and wellness products. The Company markets approximately 700 nationally recognized brands as well as its own brands, which include The Vitamin Shoppe®, BodyTech®, True Athlete®, Mytrition®, plnt®, ProBioCare®, fitfactor weight management system and Vthrive The Vitamin Shoppe. The common stock is listed on the NYSE under the symbol “VSI.”

Franchise Group, Inc.

1716 Corporate Landing Parkway

Virginia Beach, Virginia 23454

(757) 493-8855

Parent, through the operations of Liberty Tax Service, Buddy’s Home Furnishings, Sears Outlet Business, its indirect subsidiaries, franchises and operates a system of tax preparation, rent-to-own stores and discounted home goods retail locations. Liberty Tax Service franchises provide income tax services in the U.S. and Canada, and Liberty Tax Service operates over 3,100 tax offices in the U.S. and Canada. Through its online offerings and tax offices, Liberty Tax Service prepared approximately two million returns in fiscal year 2018. Buddy’s Home Furnishings franchises and operates rent-to-own stores that lease durable goods, such as electronics, residential furniture, appliances and household accessories, to customers on a rent-to-own basis. As of June 10, 2019, Buddy’s Home Furnishings operated 291 locations, primarily through franchise arrangements. The Sears Outlet Business is a retailer primarily focused on providing customers with in-store and online access to new, one-of-a kind, out-of-carton, discontinued, reconditioned, overstocked, and scratched and dented products across a broad assortment of merchandise categories, including home appliances, lawn and garden equipment, apparel, mattresses, sporting goods and tools, at prices that are significantly lower than list prices. As of October 23, 2019, the Sears Outlet Business operated 126 locations.

Valor Acquisition, LLC

c/o Franchise Group, Inc.

1716 Corporate Landing Parkway

Virginia Beach, Virginia 23454

(757) 493-8855

Merger Sub is a wholly owned subsidiary of Parent and was formed on August 7, 2019, solely for the purpose of engaging in the transactions contemplated by the Merger Agreement, and has not engaged in any business activities other than in connection with the transactions contemplated by the Merger Agreement and arranging of the equity and debt financing in connection with the Merger.

Certain affiliates of Vintage Capital are investors in Parent and its subsidiaries and certain Vintage Capital personnel are members of the board of directors of Parent. Vintage Capital is a value-oriented, operations-focused, private and public equity investor specializing in the defense, manufacturing and consumer sectors.

 

26


Table of Contents

Effect of the Merger

Upon the terms and subject to the conditions of the Merger Agreement, Vitamin Shoppe will merge with and into Merger Sub, with Merger Sub continuing as the Surviving Company. As a result of the Merger, Merger Sub will continue as a wholly owned subsidiary of Parent, and our common stock will no longer be publicly traded and will be delisted from the NYSE. In addition, our common stock will be deregistered under the Exchange Act, and we will no longer file periodic or current reports with the SEC. If the Merger is completed, you will not own any limited liability company interests of the Surviving Company.

The Merger will become effective upon the filing of a certificate of merger with, and its acceptance by, the Secretary of State of the State of Delaware (or at such later time as we, Parent and Merger Sub may agree and specify in the certificate of merger).

Effect on Vitamin Shoppe if the Merger is Not Completed

If the Merger Agreement is not adopted by stockholders, or if the Merger is not completed for any other reason:

 

  1.

the stockholders will not be entitled to, nor will they receive, any payment for their respective shares of common stock pursuant to the Merger Agreement;

 

  2.

(i) Vitamin Shoppe will remain an independent public company, (ii) the common stock will continue to be listed and traded on the NYSE and registered under the Exchange Act and (iii) Vitamin Shoppe will continue to file periodic and current reports with the SEC;

 

  3.

we anticipate that stockholders will be subject to similar types of risks and uncertainties as those to which they are currently subject, including risks and uncertainties with respect to the Company’s business, prospects and results of operations, as such may be affected by, among other things, the highly competitive industry in which Vitamin Shoppe operates and economic conditions;

 

  4.

the price of our common stock may decline significantly, and if that were to occur, it is uncertain when, if ever, the price of our common stock would return to the price at which it trades as of the date of this proxy statement;

 

  5.

the Board of Directors will continue to evaluate other strategic alternatives but does not currently believe that such alternatives are as beneficial to Vitamin Shoppe and its stockholders as the proposed transaction with Parent; and

 

  6.

under certain specified circumstances, Vitamin Shoppe or Parent may be required to pay the other party a termination fee in connection with the termination of the Merger Agreement. For more information, please see the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Termination Fees.”

Merger Consideration

At the Effective Time, each share of common stock (other than Excluded Shares, which include, for example, shares of common stock owned by stockholders who have properly exercised their statutory rights of appraisal in accordance with Section 262) outstanding as of immediately prior to the Effective Time will be automatically cancelled, extinguished and converted into the right to receive the Merger Consideration, without interest thereon and net of any applicable withholding of taxes.

After the Merger is completed, you will have the right to receive the Merger Consideration in respect of each share of common stock that you own (without interest and net of any applicable withholding of taxes), but you will no longer have any rights as a stockholder (except that stockholders who properly exercise their appraisal rights will have a right to receive payment of the “fair value” of their shares as determined pursuant to an appraisal proceeding, as contemplated by Delaware law). For more information, please see the section of this proxy statement captioned “The Merger—Appraisal Rights.”

 

27


Table of Contents

Background of the Merger

The Board of Directors, with the assistance of the Company’s management and the Company’s advisors, regularly evaluates the Company’s strategic direction, potential operational changes and ongoing business plans, including in light of the Company’s performance, competitive dynamics, macroeconomic developments and industry trends, with a view toward enhancing stockholder value. As part of this evaluation, the Board of Directors has from time to time considered a variety of strategic alternatives for the Company, including continuation of the Company’s current business plan as an independent public company, the sale of the Company to potential strategic or financial sponsor parties and various other alternatives to realize stockholder value.

As part of this regular review, from time to time, the Board of Directors and the Company’s management have engaged in discussions with various parties that contacted the Company or its advisors to express an interest in a potential transaction involving the Company. During the course of this review, the Company sought the advice and assistance of BofA Merrill Lynch. The Company selected BofA Merrill Lynch on the basis of BofA Merrill Lynch’s experience in transactions similar to those being reviewed, its reputation in the investment community and its familiarity with the Company and its business.

In June 2017, a representative of a private equity fund (“Party A”) expressed preliminary interest in a potential acquisition of the Company. During the course of further discussions with the Company, Party A indicated that, in order to make a proposal, it would need access to non-public due diligence information. On September 15, 2017, the Company entered into a confidentiality agreement with Party A, which contained a standstill obligation that terminated in part upon the signing of the Merger Agreement, to facilitate a due diligence exercise and to permit Party A to privately submit an acquisition proposal to the Company. On November 14, 2017, the Company received a written indication of interest from Party A in which Party A expressed interest in acquiring the Company at a price of $5.25 per share in cash, subject to completion of further due diligence and other conditions. Between November 14, 2017 and February 23, 2018, the Company continued to facilitate a due diligence exercise by Party A to allow Party A to improve its price. On February 23, 2018, Party A reconfirmed its proposed price of $5.25 per share in cash. On March 15, 2018, the Company received a written indication of interest from Party A in which Party A expressed interest in acquiring the Company at a price of $5.80 per share in cash, subject to completion of further due diligence and other conditions. While the Company did not believe Party A’s proposal was a sufficient basis for further engagement regarding a sale of the Company, between November 2017 and May 2018, Party A and the Company continued discussions regarding potential transactions involving the Company, including a minority investment, commercial arrangement or consulting agreement. None of these transactions progressed to a definitive stage.

In October 2017, a representative of a private equity fund (“Party B”) expressed preliminary interest in a potential acquisition of the Company. On November 20, 2017, the Company entered into a confidentiality agreement with Party B containing a standstill obligation that terminated in part upon the signing of the Merger Agreement to permit Party B to privately submit an acquisition proposal to the Company. Following the execution of Party B’s confidentiality agreement, the Company facilitated a due diligence exercise by Party B. Party B did not submit a proposal to acquire the Company.

In November 2017, a representative of a private equity fund (“Party C”) expressed preliminary interest in a potential acquisition of the Company. Although the Company offered to enter into a confidentiality agreement between Party C and the Company, Party C did not enter into such a confidentiality agreement or make a specific proposal.

In December 2017, a representative of a private equity fund (“Party D”) expressed preliminary interest in a potential acquisition of the Company. On January 24, 2018, the Company received a written indication of interest from Party D in which Party D expressed interest in acquiring the Company at a price of $7.00 to $8.00 per share in cash, subject to completion of due diligence and other conditions. On February 6, 2018, the Company entered into a confidentiality agreement with Party D containing a standstill obligation that terminated in part upon the signing of the Merger Agreement to permit Party D to privately submit an acquisition proposal to the Company.

 

28


Table of Contents

From time to time beginning in December 2017, representatives of the Company engaged in routine investor relations discussions with Brian Kahn, Managing Partner of Vintage Capital and a member of the board of directors of Parent, regarding, among other things, the business and financial performance of the Company. These discussions did not address any potential acquisition of the Company by Vintage Capital and at no time during such discussions was an acquisition proposal made to the Company by Vintage Capital.

On February 22, 2018, Party D notified the Company that it was unable to provide an updated indication of price, transaction terms or financing.

On March 9, 2018, Vintage Capital delivered a notice of its intent to nominate a slate of ten nominees for election as directors at the Company’s 2018 Annual Meeting of Stockholders (the “2018 Annual Meeting”) in opposition to director nominees recommended by the Board of Directors.

Between March 9, 2018 and March 18, 2018, the Company and its advisors engaged in discussions with representatives of Vintage Capital (including Mr. Kahn) regarding its proposal and related matters, which did not include a potential acquisition of the Company by Vintage Capital.

On March 13, 2018, Party D notified the Company that it did not intend to submit a revised indication of interest.

On March 18, 2018, Vintage Capital entered into a joint filing and solicitation agreement with Shah Capital Management, Inc. (together with its affiliates, “Shah Capital”), pursuant to which Vintage Capital and Shah Capital agreed to form a “group” for the purpose of seeking representation on the Board of Directors at the 2018 Annual Meeting.

From mid-March 2018 until late April 2018, Mr. Kahn and Himanshu Shah, President and Chief Investment Officer of Shah Capital, engaged in multiple discussions with the members of the Board of Directors relating to the terms of a potential agreement between the Company and Vintage Capital and Shah Capital regarding the composition of the Board of Directors.

On April 20, 2018, the Company entered into separate cooperation agreements with each of Vintage Capital (the “Vintage Capital Cooperation Agreement”) and Shah Capital (the “Shah Capital Cooperation Agreement”) regarding, among other things, the composition of the Board of Directors. Pursuant to the Vintage Capital Cooperation Agreement, the Company agreed to appoint Melvin L. Keating to the Board of Directors and Mr. Kahn irrevocably withdrew his director nomination notice for the 2018 Annual Meeting. Pursuant to the Shah Cooperation Agreement, the Company agreed to appoint each of Mr. Shah and Sing Wang to the Board of Directors. The Vintage Capital Cooperation Agreement and the Shah Capital Cooperation Agreement also required Vintage Capital and Shah Capital to abide by standstill provisions that would prohibit such parties from taking a variety of potential actions with respect the Company, including forming a group with each other with respect to an acquisition of the Company or otherwise.

On April 16, 2019, Mr. Kahn informed Alexander W. Smith, the Non-Executive Chairman of the Board of Directors, by telephone that Vintage Capital had preliminary interest in considering an acquisition of the Company at a price between $8.00 and $9.00 per share. Between April 16, 2019 and April 30, 2019, Messrs. Smith and Kahn held several telephone conversations, during which Mr. Kahn requested access to due diligence.

On April 30, 2019, the Board of Directors, with representatives of the Company’s senior management and Kirkland & Ellis LLP (“Kirkland”) present, held a meeting to discuss the expression of interest that Mr. Kahn had made to Mr. Smith. The representatives of Kirkland reviewed the fiduciary duties of the Board of Directors and discussed process considerations for the evaluation of an unsolicited expression of interest to acquire the Company. The Board of Directors also discussed considerations relating to (i) Vintage Capital’s ownership of approximately 15% of the Company’s common stock, (ii) Vintage Capital’s appointment of Mr. Keating to the Board of Directors pursuant to the Vintage Capital Cooperation Agreement, (iii) Shah Capital’s ownership of

 

29


Table of Contents

approximately 18% of the Company’s common stock, (iv) Shah Capital’s appointment of Mr. Shah and Mr. Wang pursuant to the Shah Cooperation Agreement and (v) the standstill obligations applicable to Vintage Capital and Shah Capital under the Vintage Capital Cooperation Agreement and the Shah Capital Cooperation Agreement, respectively, and that such obligations would prohibit Vintage Capital and Shah Capital from forming a group with respect to an acquisition of the Company or otherwise taking a variety of actions with respect to the Company.

At the same meeting, the Board of Directors determined that, in light of the stock ownership of Vintage Capital and Shah Capital and the representation of persons designated by Vintage Capital and Shah Capital on the Board of Directors, the Board of Directors would form a special committee (the “Special Committee”) consisting of directors who were neither affiliated with nor appointed by Vintage Capital or Shah Capital and who were not members of management, and appointed Deborah M. Derby, David H. Edwab, Guillermo Marmol, Mr. Smith and Timothy J. Theriault to the Special Committee, with Mr. Smith appointed chairman of the Special Committee. The Special Committee was authorized to, among other things, (i) review and evaluate the indication of interest from Vintage Capital and any other strategic transaction involving the Company, (ii) identify, review and evaluate other possible strategic transactions involving the Company, including the Company’s stand-alone business prospects, (iii) recommend, reject or seek to modify the terms of a possible transaction or any other such alternatives and (iv) negotiate the terms of a possible transaction involving the Company. The Board of Directors also resolved that the Board of Directors would not recommend a potential transaction involving the Company or any alternative thereto without a prior favorable recommendation by the Special Committee.

On May 17, 2019, the Special Committee held a meeting, which was attended by members of the Company’s senior management and representatives of Kirkland and BofA Merrill Lynch. At the meeting, the members of the Company’s senior management reviewed with the Special Committee the May Projections (as described in this proxy statement under the caption “Certain Unaudited Prospective Financial Information”), which the Special Committee had instructed management to prepare in the context of evaluating the preliminary indication of interest received from Vintage Capital. The Special Committee reviewed with management the key drivers and rationale behind the May Projections in light of the shifting retail landscape and the current status of the Company’s initiatives, which were at various stages of implementation. The Special Committee approved the May Projections, subject to the implementation of additional detail by management, to be received and approved by the Special Committee at a subsequent meeting.

On May 23, 2019, the Special Committee held a meeting, which was attended by members of the Company’s senior management and representatives of Kirkland and BofA Merrill Lynch. At the meeting, representatives of BofA Merrill Lynch discussed with the Special Committee, among other things, preliminary financial analyses of the preliminary indication of interest received from Vintage Capital. The Special Committee discussed potential responses to Vintage Capital, including whether to engage with Vintage Capital and the extent to which the Special Committee should explore other strategic alternatives. At the conclusion of the meeting, the Special Committee authorized the Company to facilitate a due diligence exercise by Vintage Capital to determine whether Vintage Capital could submit a revised expression of interest that could be further evaluated by the Special Committee following Vintage Capital’s due diligence.

On May 30, 2019, to facilitate Vintage Capital’s due diligence investigation, the Company entered into a confidentiality agreement with Vintage Capital containing a standstill provision. From and after May 30, 2019, the Company facilitated due diligence by Vintage Capital and its representatives.

On June 7, 2019, the Special Committee held a meeting, which was attended by representatives of Kirkland and BofA Merrill Lynch. The representatives of BofA Merrill Lynch reviewed with the Special Committee an indicative list of other parties that could potentially be interested in pursuing a potential transaction involving the Company, including six financial sponsors that were selected based on their experience and interest in retail and turnaround situations and one strategic party that was selected based on its business initiatives and operations within the sector in which the Company operates. The Special Committee directed BofA Merrill Lynch to contact

 

30


Table of Contents

each of the parties on the indicative list to gauge each such party’s interest in a potential transaction involving the Company.

Between June 10, 2019 and June 13, 2019, BofA Merrill Lynch, at the direction of the Special Committee, contacted the six financial sponsors and one strategic party from the indicative list of potentially interested parties identified during the June 7, 2019 meeting of the Special Committee. Between June 14, 2019 and June 24, 2019, the Company entered into confidentiality agreements with three of these financial sponsors, which are respectively referred to herein as “Party E,” “Party F” and “Party G,” and entered into an extended confidentiality agreement with Party D. Each confidentiality agreement entered into by the Company contained a standstill provision that permitted the private submission of an acquisition proposal to the Company upon the signing of the Merger Agreement. After executing these confidentiality agreements, each of Party D, Party E and Party F was granted access to the electronic data room containing due diligence information about the Company. Party G did not receive access to the electronic data room.

On June 19, 2019, representatives of Vintage Capital and potential debt financing sources for Vintage Capital, including B. Riley, participated in a meeting at Kirkland’s offices with members of the Company’s senior management and representatives of BofA Merrill Lynch to discuss the Company’s business and outlook.

On June 25, 2019, representatives of Party D participated in a meeting at Kirkland’s offices with members of the Company’s senior management and representatives of BofA Merrill Lynch to discuss the Company’s business and outlook.

Later on June 25, 2019, the Special Committee held a meeting, which was attended by members of the Company’s senior management and representatives of Kirkland and BofA Merrill Lynch. At the meeting, the Special Committee received an update on the current status of discussions with parties who had been contacted by BofA Merrill Lynch on behalf of the Special Committee. The representatives of BofA Merrill Lynch noted that each of Vintage Capital, Party D, Party E, Party F and Party G had executed a confidentiality agreement with the Company, two additional potential bidders declined to enter into a confidentiality agreement with the Company and one additional potential bidder, a strategic party, had yet to respond to BofA Merrill Lynch’s outreach. In addition, the Special Committee discussed with BofA Merrill Lynch and the members of the Company’s senior management the meetings with Vintage Capital and Party D. The members of the Special Committee reviewed and approved the May Projections, which reflected the additional detail that had been implemented by management following the May 17, 2019 meeting of the Special Committee.

Later on June 25, 2019, representatives of Party E participated in a telephonic meeting with members of the Company’s senior management and representatives of BofA Merrill Lynch to discuss the Company’s business and operations and certain financial projections.

On June 26, 2019, Party G contacted representatives of BofA Merrill Lynch and informed such representatives that Party G would not be submitting an indication of interest to acquire the Company.

During the course of June and July 2019, Vintage Capital and its potential financing sources continued their review of information in the electronic data room and their due diligence investigation of the Company.

On July 3, 2019, Mr. Kahn contacted representatives of BofA Merrill Lynch to submit a revised verbal indication of interest on behalf of Vintage Capital to potentially acquire the Company at a price of $7.00 per share (the “July Vintage Capital Indication of Interest”).

Also on July 3, 2019, Party F contacted representatives of BofA Merrill Lynch and informed such representatives that Party F would not be submitting an indication of interest to acquire the Company.

On July 5, 2019, at the direction of the Special Committee, BofA Merrill Lynch invited Party D to submit a written preliminary, non-binding indication of interest in a potential transaction involving the Company.

 

31


Table of Contents

On July 8, 2019, Party E contacted representatives of BofA Merrill Lynch and informed such representatives that Party E would not be submitting an indication of interest to acquire the Company.

On July 9, 2019, the Special Committee held a meeting, which was attended by representatives of Kirkland and BofA Merrill Lynch. The Special Committee discussed the July Vintage Capital Indication of Interest, and representatives of BofA Merrill Lynch discussed with the Special Committee BofA Merrill Lynch’s preliminary financial analyses of the July Vintage Capital Indication of Interest. The Special Committee also discussed recent interactions with each of Vintage Capital and other potentially interested parties, noting that only Vintage Capital and Party D remained interested in pursuing a potential transaction involving the Company. The Special Committee also discussed views of the July Vintage Capital Indication of Interest in light of the challenges faced by the Company’s business and the industry in which the Company operates. The representatives of Kirkland reviewed with the Special Committee the fiduciary duties of the Special Committee in the context of a potential acquisition of the Company and the legal framework applicable to a potential transaction involving the Company. Thereafter, the Special Committee instructed BofA Merrill Lynch to inform Vintage Capital that it should seek to increase the price per share reflected in the July Vintage Capital Indication of Interest.

On the same day, at the instruction of the Special Committee, representatives of BofA Merrill Lynch informed Vintage Capital that Vintage Capital would need to increase its price per share contemplated by the July Vintage Capital Indication of Interest in order for the Special Committee to consider a transaction with Vintage Capital to be compelling.

On July 10, 2019, Party D submitted a written non-binding indication of interest for an all-cash acquisition of the Company at a price between $5.00 and $6.00 per share. Party D also indicated that it could complete its due diligence investigation of the Company within 60 days.

On July 12, 2019, the Special Committee held a meeting, which was attended by members of the Company’s senior management and representatives of Kirkland and BofA Merrill Lynch. The Special Committee discussed with the representatives of BofA Merrill Lynch updates regarding BofA Merrill Lynch’s discussions with Party D and Vintage Capital, including Party D’s July 10, 2019 indication of interest. The representatives of BofA Merrill Lynch noted for the Special Committee that, on July 11, 2019, Vintage Capital had requested financial due diligence discussions with members of the Company’s senior management and access to the Company’s existing lenders to discuss a potential renegotiation of the Company’s existing credit facility. At the conclusion of the meeting, it was the consensus of the Special Committee that (i) BofA Merrill Lynch should instruct Party D that Party D’s proposed acquisition price of $5.00 to $6.00 per share would need to be increased for Party D to remain competitive in the process for a potential transaction involving the Company, (ii) BofA Merrill Lynch should arrange for the financial due diligence discussions requested by Vintage Capital and (iii) in light of the potential that the Company’s lenders might alter their perception of the Company due to the potential transaction involving the Company and the potential resulting changes in the Company’s relationship with such lenders, BofA Merrill Lynch should instruct Vintage Capital that Vintage Capital should not engage in discussions with the Company’s existing lenders at that time.

On July 15, 2019, representatives of BofA Merrill Lynch informed Party D, on behalf of the Special Committee, that Party D would need to increase its proposed acquisition price in order to remain competitive in the process. On the same day, Party D informed representatives of BofA Merrill Lynch that it would not be willing to increase further its price, and therefore it would not be submitting a revised indication of interest to acquire the Company.

On July 17, 2019, a draft of the Merger Agreement was made available to Vintage Capital in the electronic data room. The initial draft of the Merger Agreement contemplated, among other things, (i) a termination fee payable by the Company of 2.5% of the equity value of the Company in the event of entry by the Company into a “Superior Proposal” (as described in this proxy statement under the caption “Proposal 1: Adoption of the Merger Agreement—The “Go-Shop” Period”), among other fee triggers, and a termination fee of 1.0% of the equity

 

32


Table of Contents

value of the Company in the event of entry by the Company into a Superior Proposal with any bidder making an Acquisition Proposal during the go-shop period, (ii) a “reverse” termination fee payable by Parent of 10.0% of the equity value of the Company in the event that Parent did not complete the Merger at the time it would otherwise be required to consummate the Merger, among other fee triggers, and (iii) a 59-day go-shop period.

On July 23, 2019, the Special Committee held a meeting, which was attended by members of the Company’s senior management. At the meeting, members of the Company’s senior management reviewed with the Special Committee an updated set of financial projections, which the Special Committee had requested that management prepare to include additional years and to take into account, among other things, developments in the Company’s business since the preparation of the May Projections, including slower than expected implementation of the Company’s initiatives; the continuing uncertainty and headwinds in the retail environment; sales trends, including in light of the Company’s lower than expected financial performance during the present quarter and the expectation that such trends would continue; the performance of new stores; evolution of the store base and declines in store traffic. During an executive session, the Special Committee determined that the May Projections did not sufficiently account for the foregoing factors in light of the uncertainty in the retail industry, including management’s history of missing forecasted financial results and the Company’s historic difficulty in accurately preparing financial projections in the context of a declining retail environment, and that the Special Committee would not approve the financial projections presented to the Special Committee at the meeting, but instead instructed the Company’s management to prepare a revised set of financial projections that sufficiently reflected such factors.

Also on July 23, 2019, the Company provided Mr. Kahn with updates regarding the Company’s lower than expected financial performance for the quarter ended June 29, 2019. On the same day, Ms. Leite and representatives of BofA Merrill Lynch held a telephone conversation with Mr. Kahn to discuss such financial performance.

On July 25, 2019, the Special Committee held a meeting, which was attended by members of the Company’s senior management. At the meeting, members of the Company’s senior management reviewed with the Special Committee the July Projections (as described in this proxy statement under the caption “Certain Unaudited Prospective Financial Information”), which were prepared by the Company’s management. As directed by the Special Committee, the July Projections took into account developments in the Company’s business since the preparation of the May Projections, including the slower than expected implementation of the Company’s initiatives; the continuing uncertainty and headwinds in the retail environment; sales trends, including in light of the Company’s lower than expected financial performance during the present quarter and the expectation that such trends would continue; the performance of new stores; evolution of the store base and declines in store traffic, among other things. At the conclusion of the meeting, the Special Committee approved the July Projections and authorized Mr. Smith to provide BofA Merrill Lynch with the July Projections and direct BofA Merrill Lynch to utilize the July Projections for purposes of BofA Merrill Lynch’s valuation analyses in connection with a potential transaction involving the Company.

On July 27, 2019, representatives of BofA Merrill Lynch held a telephone conversation with Mr. Kahn to discuss Vintage Capital’s financial due diligence regarding the Company and timing for submitting Vintage Capital’s markup of the Merger Agreement and revised bid price. Following this discussion, Vintage Capital was provided with the July Projections on July 28, 2019.

Also on July 27, 2019, Ms. Leite and Mr. Knight held a telephone conversation with Mr. Kahn to discuss certain items in connection with Vintage Capital’s financial due diligence investigation of the Company.

On July 31, 2019, Mr. Smith held a telephone conversation with Mr. Kahn during which Mr. Kahn, in his capacity as a member of Parent’s Board of Directors and on behalf of Parent, submitted an indication of interest for an all-cash acquisition of the Company by Parent at a price of $6.50 per share (the “July Parent Indication of Interest”). Mr. Kahn communicated to Mr. Smith that any acquisition of the Company would be effected by Parent and not Vintage Capital.

 

33


Table of Contents

Later on July 31, 2019, Troutman Sanders LLP (“Troutman”), counsel to Parent, sent a markup of the Merger Agreement to Kirkland. Troutman’s markup of the Merger Agreement contemplated, among other things, (i) a termination fee payable by the Company of 4.0% of the equity value of the Company in the event of entry by the Company into a Superior Proposal, among other fee triggers, and a termination fee of 2.0% of the equity value of the Company in the event of entry by the Company into a Superior Proposal with any bidder making an Acquisition Proposal during the go-shop period, (ii) a “reverse” termination fee payable by Parent of 5.0% of the equity value of the Company in the event that Parent did not complete the transaction at the time it would otherwise be required to consummate the Merger, among other fee triggers, and (iii) a 29-day go-shop period.

Also on July 31, 2019, the Board of Directors held a regularly scheduled meeting, which was attended by representatives of Kirkland and BofA Merrill Lynch. Mr. Keating recused himself from all presentations by the Company’s advisors and all deliberations of the Board of Directors because of the fact that he was designated to the Board of Directors by Vintage Capital. At the meeting, the Board of Directors discussed, among other things, updates regarding the process in respect of a potential transaction involving the Company, including Party E’s decision not to pursue a transaction involving the Company, the $5.00 to $6.00 indication of interest received from Party D and Party D’s statement that it would not increase its bid price range and the July Parent Indication of Interest communicated by Mr. Kahn to Mr. Smith earlier on July 31, 2019. Representatives of BofA Merrill Lynch reviewed with the Board of Directors BofA Merrill Lynch’s updated preliminary valuation analyses. Kirkland provided the Board of Directors with an overview of the markup of the Merger Agreement submitted by Parent. Mr. Smith reviewed with the Board of Directors a BofA Merrill Lynch memorandum disclosing certain relationships between BofA Merrill Lynch and its affiliates, on the one hand, and the Company and certain other parties involved in the transaction, on the other hand, including the Call Spread Transactions (as defined and described below in the section captioned “The Merger—Opinion of Vitamin Shoppe’s Financial Advisor”), provided in writing by BofA Merrill Lynch prior to the meeting.

Also on July 31, 2019, Parent executed a joinder to the Company’s confidentiality agreement with Vintage Capital.

On August 1, 2019, Mr. Smith held a telephone conversation with Mr. Kahn to seek additional details regarding the July Parent Indication of Interest, including Parent’s expected sources of financing and the status thereof.

On August 2, 2019, Kirkland sent a markup of the Merger Agreement to Troutman. Kirkland’s markup of the Merger Agreement contemplated, among other things, (i) a termination fee payable by the Company of 2.75% of the equity value of the Company in the event of entry by the Company into a Superior Proposal, among other fee triggers, and a termination fee of 1.375% of the equity value of the Company in the event of entry by the Company into a Superior Proposal with any bidder making a qualifying proposal during the go-shop period, (ii) a “reverse” termination fee payable by Parent of 8.0% of the equity value of the Company in the event that Parent did not complete the transaction at the time it would otherwise be required to consummate Merger, among other fee triggers, and (iii) a 45-day go-shop period.

On August 3, 2019, Mr. Smith held a telephone conversation with Mr. Kahn to discuss the status of Parent’s indication of interest, including the debt and equity commitment letters that Parent would submit in connection with its proposal.

On the same day, representatives of BofA Merrill Lynch held a telephone conversation with Mr. Kahn regarding the financing for Parent’s indication of interest. Mr. Kahn also discussed with the representatives of BofA Merrill Lynch the strategic logic of the combination, including Parent’s ongoing shift in strategic focus.

On August 4, 2019, Troutman sent a markup of the Merger Agreement to Kirkland. Troutman’s markup of the Merger Agreement contemplated, among other things, (i) a termination fee payable by the Company of 3.5% of the equity value of the Company in the event of entry by the Company into a Superior Proposal, among other fee triggers, and a termination fee of 2.0% of the equity value of the Company in the event of entry by the Company

 

34


Table of Contents

into a Superior Proposal with any bidder making a qualifying proposal during the go-shop period, (ii) a “reverse” termination fee payable by Parent of 6.5% of the equity value of the Company in the event that Parent did not complete the transaction at the time it would otherwise be required to consummate the Merger, among other fee triggers, and (iii) a 29-day go-shop period.

On the same day, representatives of BofA Merrill Lynch and Kirkland held a telephone conversation with Mr. Kahn to discuss the financing of Parent’s indication of interest to acquire the Company for $6.50 per share, the equity to be provided to Parent to partially finance the transaction, the structure of the potential transaction involving the Company and Parent, Parent’s recently announced shift in strategic direction and Parent’s strategy between signing and closing of the potential transaction involving the Company and Parent.

Between August 5, 2019 and the execution of the Merger Agreement, Mr. Smith and, at the direction of the Special Committee, representatives of BofA Merrill Lynch had ongoing conversations with Mr. Kahn regarding the status and terms of the potential transaction and representatives of Kirkland had ongoing conversations with representatives of Troutman regarding these topics.

Also on August 5, 2019, the Special Committee held a meeting, which was attended by representatives of Kirkland and BofA Merrill Lynch. The representatives of Kirkland provided the Special Committee with an overview of the Merger Agreement, related ancillary documents and the structure of the potential transaction involving Parent and the Company. The representatives of BofA Merrill Lynch provided the Special Committee with an update regarding BofA Merrill Lynch’s discussions with Parent, Parent’s equity and debt financing.

On August 6, 2019, Kirkland sent a markup of the Merger Agreement to Troutman. Kirkland’s markup of the Merger Agreement contemplated, among other things, (i) a termination fee of 1.5% of the equity value of the Company in the event of entry by the Company into a Superior Proposal with any bidder making a qualifying proposal during the go-shop period, (ii) a “reverse” termination fee payable by Parent of 7.0% of the equity value of the Company in the event that Parent did not complete the transaction at the time it would otherwise be required to consummate the Merger, among other fee triggers, and (iii) a 40-day go-shop period.

On August 7, 2019, Troutman sent a markup of the Merger Agreement to Kirkland. Troutman’s markup of the Merger Agreement contemplated, among other things, (i) a termination fee of 2.0% of the equity value of the Company in the event of entry by the Company into a Superior Proposal with any bidder making a qualifying proposal during the go-shop period, (ii) a “reverse” termination fee payable by Parent of 6.5% of the equity value of the Company in the event that Parent did not complete the transaction at the time it would otherwise be required to consummate the transaction and (iii) a 29-day go-shop period.

Later that day, the parties held an all hands conference call in which representatives of Kirkland, BofA Merrill Lynch, Troutman, Willkie Farr & Gallagher LLP (“Willkie”), counsel to Vintage Capital, and B. Riley, a debt financing source for Parent, participated. The parties discussed, among other things, the debt commitment letters to be provided by B. Riley and JPMorgan, the Equity Commitment Letter and the Merger Agreement.

Later on August 7, 2019, Kirkland sent a markup of the Merger Agreement to Troutman. Kirkland’s markup of the Merger Agreement contemplated, among other things, (i) in the event of entry by the Company into a Superior Proposal with any bidder making a qualifying proposal during the go-shop period, a termination fee in an amount equal to the reasonable and documented out-of-pocket costs and expenses (including attorneys’ fees) incurred by Parent in connection with the Merger, not to exceed 2.0% of the equity value of the Company, (ii) a “reverse” termination fee payable by Parent of 7.0% of the equity value of the Company in the event that Parent did not complete the transaction at the time it would otherwise be required to consummate the Merger, among other fee triggers, and (iii) a 44-day go-shop period.

Later that day, Troutman sent a markup of the Merger Agreement to Kirkland. Troutman’s markup of the Merger Agreement contemplated, among other things, a 29-day go-shop period, but substantially accepted the other provisions set forth in Kirkland’s August 7, 2019 draft of the Merger Agreement.

 

35


Table of Contents

During the evening of August 7, 2019, the Special Committee and the Board of Directors held a joint meeting attended by representatives of Kirkland and BofA Merrill Lynch. Mr. Keating recused himself from all presentations by the Company’s advisors, all deliberations of the Board of Directors and the vote of the Board of Directors because of the fact that he was designated to the Board of Directors by Vintage Capital. At the meeting, the Special Committee and the Board of Directors reviewed their fiduciary duties with Kirkland. Kirkland also reviewed the key terms of the Merger Agreement and the related ancillary documents with the Special Committee and the Board of Directors. Next, representatives of BofA Merrill Lynch reviewed with the Board of Directors an updated version of the BofA Merrill Lynch memorandum disclosing certain relationships between BofA Merrill Lynch and its affiliates, on the one hand, and the Company and certain other parties involved in the transaction, on the other hand, including the Call Spread Transactions. BofA Merrill Lynch then provided the Special Committee and the Board of Directors with an update on the process in respect of a potential transaction involving the Company and discussed various valuation perspectives. BofA Merrill Lynch reviewed its financial analysis of the proposed transaction and rendered to the Special Committee and the Board of Directors its oral opinion, subsequently confirmed in writing, to the effect that, as of August 7, 2019 and based upon and subject to the assumptions and limitations set forth therein, the consideration to be received in the Merger by the holders of the shares of common stock (other than Vintage Capital and its affiliates) was fair, from a financial point of view, to such holders.

The Special Committee recommended that the Board of Directors approve and declare advisable the Merger Agreement and the Merger. Thereafter, the Board of Directors determined that the Merger Agreement and the Merger were fair to, advisable and in the best interests of the Company and its stockholders. The Board of Directors approved the Merger Agreement and the Merger and recommended that the stockholders vote to adopt the Merger Agreement at the Special Meeting. The Board of Directors then reviewed the go-shop process with the representatives of BofA Merrill Lynch and Kirkland.

Following the August 7, 2019 joint meeting of the Special Committee and the Board of Directors, Kirkland and Troutman exchanged final drafts of the Merger Agreement and other related ancillary agreements. Kirkland also exchanged final drafts of the Equity Commitment Letter and the Voting Agreement with Willkie.

On August 8, 2019, the parties exchanged executed copies of the Merger Agreement and other related ancillary agreements, including the Voting Agreement, the Debt Commitment Letters and the Equity Commitment Letter.

Later on August 8, 2019, the parties announced the execution of the Merger Agreement and the go-shop period commenced. On the same day, at the direction of the Special Committee, representatives of BofA Merrill Lynch began contacting potential counterparties to an alternative transaction with the Company in connection with the go-shop period.

During the go-shop period, at the direction of the Special Committee, representatives of BofA Merrill Lynch contacted 73 parties, including 11 strategic and 62 financial parties. Four of these parties entered into confidentiality agreements with the Company and were granted access to the electronic data room maintained by the Company.

On August 29, 2019, representatives of a strategic party (“Party H”), Party H’s financial advisor and a potential debt financing source for Party H participated in a meeting with members of the Company’s senior management and representatives of BofA Merrill Lynch to discuss the Company’s business and operations and certain financial projections.

On September 5, 2019, the Company received a proposal to acquire the Company from Party H, proposing an all-cash acquisition of the Company at a price of $7.25 per share (the “Go-Shop Proposal”).

The go-shop period concluded at 12:01 a.m. New York City time on September 6, 2019 and the Company became subject to the “no-shop” restrictions described in this proxy statement under the caption “Proposal 1: Adoption of the Merger Agreement—The “No-Shop” Period.”

 

36


Table of Contents

Also on September 6, 2019, the Special Committee held a meeting attended by Ms. Leite and Messrs. Shah and Wang, members of the Board of Directors, in addition to representatives of Kirkland and BofA Merrill Lynch. At the meeting, the Special Committee discussed with the representatives of BofA Merrill Lynch and Kirkland updates regarding the “go-shop” process. The Special Committee then discussed with the representatives of BofA Merrill Lynch and Kirkland the Go-Shop Proposal, including background information regarding Party H. Representatives of Kirkland reviewed the legal framework applicable to the receipt of the Go-Shop Proposal and the directors’ duties. The Special Committee then considered the legal, financial, timing, financing and other aspects of the Go-Shop Proposal and discussed with the representatives of BofA Merrill Lynch and Kirkland the merits and potential risks of the Go-Shop Proposal.

At the same meeting, following the discussion described above, the Special Committee determined that Party H qualified as an “Excluded Party” (as described in this proxy statement under the caption “Proposal 1: Adoption of the Merger Agreement—Termination Fees”) under the Merger Agreement. At the conclusion of the meeting, the Special Committee determined in good faith, after consultation with BofA Merrill Lynch and Kirkland, that the Go-Shop Proposal was reasonably likely to lead to a Superior Proposal. The Special Committee then authorized and directed the Company’s management and the representatives of BofA Merrill Lynch and Kirkland to negotiate with Party H in compliance with the Merger Agreement. No determination was made by the Special Committee as to whether the Go-Shop Proposal was a Superior Proposal. The Special Committee did not change its recommendation in favor of the Merger Agreement and the transactions contemplated thereby.

On September 9, 2019, the Company issued a press release disclosing the existence of the Go-Shop Proposal, in addition to the Special Committee’s determination that Party H had been designated as an Excluded Party and that the Go-Shop Proposal was reasonably likely to lead to a Superior Proposal under the Merger Agreement.

Between September 9, 2019 and September 23, 2019, the Company continued to provide due diligence information to Party H and facilitate access to potential financing sources for Party H.

On September 20, 2019, representatives of Party H’s financial advisor informed representatives of BofA Merrill Lynch that Party H continued to conduct due diligence and seek committed financing in connection with the Go-Shop Proposal.

On September 23, 2019, in light of the failure of Party H to obtain committed financing, the Company determined to cease negotiations with Party H as of such date and filed a Current Report on Form 8-K disclosing the cessation of negotiations with Party H.

Recommendation of the Board of Directors and Reasons for the Merger

Recommendation of the Board of Directors

After careful consideration, the Board of Directors, upon the unanimous recommendation of the Special Committee, and after considering various factors described in this section of the proxy statement, has (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, and in the best interests of, the Company and the stockholders; (ii) approved and declared advisable the Merger Agreement and the transactions contemplated thereby, including the Merger; (iii) recommended that the stockholders adopt the Merger Agreement; and (iv) directed that the Merger Agreement be submitted to the stockholders for their adoption. Mr. Keating recused himself from all presentations by the Company’s advisors, all deliberations of the Board of Directors on these topics and the vote of the Board of Directors because of the fact that he was designated to the Board of Directors by Vintage Capital.

The Board of Directors recommends that you vote “FOR” the adoption of the Merger Agreement, “FOR” the Compensation Proposal and “FOR” the adjournment of the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting.

 

37


Table of Contents

Reasons for Recommendation

Special Committee

In evaluating the Merger Agreement and the transactions contemplated thereby, including the Merger, the Special Committee consulted with the Company’s senior management, as well as BofA Merrill Lynch and Kirkland. In the course of making its recommendation to the Board of Directors, the Special Committee considered numerous factors, including the following non-exhaustive list of factors which the Special Committee believed supported its recommendation and determination (not in any relative order of importance):

 

   

Cash Merger Consideration. The Special Committee considered that the form of consideration to be paid to stockholders of the Company in the Merger will be all cash and considered the certainty of value and liquidity of such cash consideration, including that all-cash consideration would avoid long-term business risk.

 

   

Merger Consideration. The Special Committee considered the:

 

   

historical market prices, volatility and trading information with respect to the shares of the Company’s common stock;

 

   

fact that the Merger Consideration represents a premium of approximately 43% to the closing price of shares of the Company’s common stock on August 7, 2019; and

 

   

fact that the Merger Consideration represents a premium of approximately 59% to the 30-day volume weighted average price for the period ended on August 7, 2019.

 

   

Standalone Business Prospects of the Company. The Special Committee believed that the Merger Consideration was more favorable to the stockholders than the likely value that would result from remaining an independent public company. This belief was based on, among other things, the Special Committee’s assessment of:

 

   

the Company’s business, operations and management and its historical, current and projected financial performance, results of operations and financial condition, including the fact that the Company has not recently achieved certain performance goals;

 

   

management’s business plan for the Company, taking into account the potential benefits and risks associated with pursuing such business plan;

 

   

the uncertainty of attaining management’s internal financial projections, including those set forth in the section of this proxy statement captioned “Certain Unaudited Prospective Financial Information”;

 

   

the potential impact of industry and macroeconomic factors on the Company’s future prospects and ability to achieve its performance goals; and

 

   

certainty of value and liquidity to stockholders of the cash Merger Consideration, including eliminating the effect of long-term business and execution risk, relative to the uncertainty that the Company’s stock price would trade at or above the Merger Consideration for any extended period in the foreseeable future based on a consideration of all of the factors above.

 

   

Strategic Alternatives. The Special Committee considered that, prior to the execution of the Merger Agreement, it had actively sought proposals from other parties it believed were potentially interested in a transaction involving the Company (as more fully described above under the caption “—Background of the Merger”), including that:

 

   

seven financial sponsors and two strategic companies, including Parent, were contacted or came forth during the process in an effort to obtain the best price reasonably available to the stockholders;

 

   

of the parties identified in the immediately preceding bullet point, only one party other than Parent made a proposal to the Company; and

 

38


Table of Contents
   

during the go-shop period, the Company would be permitted to solicit, initiate, propose or induce the making, submission or announcement of, or encourage, facilitate or assist, any proposal or offer that constituted, or that could constitute, an Acquisition Proposal from a person other than Parent, and that the Company could terminate the Merger Agreement to accept a Superior Proposal from such person as long as the Company complied with certain procedures in the Merger Agreement, as more fully described under the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement.”

 

   

Negotiation Process. The Special Committee considered the fact that the terms of the Merger Agreement were the result of arm’s-length negotiations conducted by the Company, with the knowledge and at the direction of the Special Committee, and with the assistance of financial and legal advisors.

 

   

Financial Advisor Opinion. The Special Committee considered the opinion of BofA Merrill Lynch, dated August 7, 2019, delivered to the Board of Directors and the Special Committee as to the fairness, from a financial point of view and as of the date of the opinion, to the stockholders (other than Vintage Capital and its affiliates) of the Merger Consideration to be received by such stockholders in the Merger, as more fully described in the section of this proxy statement captioned “Opinion of Vitamin Shoppe’s Financial Advisor.”

 

   

Terms of the Merger Agreement. The Special Committee considered the terms of the Merger Agreement, as more fully described in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement,” including the:

 

   

fact that Parent would be required to pay the Company a termination fee of $11,340,000 if the Company terminates the Merger Agreement under certain circumstances;

 

   

Company’s right to specific performance to prevent breaches of the Merger Agreement;

 

   

Company’s right to specific performance to cause the Equity Financing contemplated by the Equity Commitment Letter to be funded, subject to certain conditions;

 

   

Company’s right during the go-shop period to solicit, initiate, propose or induce the making, submission or announcement of, or encourage, facilitate or assist, any proposal or offer that constituted, or that could constitute, an Acquisition Proposal from a person other than Parent, and that the Company could terminate the Merger Agreement to accept a Superior Proposal from such person or change its recommendation in response to a Superior Proposal as long as the Company complied with certain procedures in the Merger Agreement; and

 

   

right of the Board of Directors (or the Special Committee) to change its recommendation in response to an Intervening Event if the Board of Directors (or the Special Committee) determines in good faith (after consultation with its financial advisor and outside legal counsel) that the failure to do so would be reasonably expected to cause the Board of Directors (or the Special Committee) to violate its fiduciary duties under applicable law, subject to certain conditions.

 

   

Voting Agreement. The Special Committee considered the terms of the Voting Agreement, which will terminate upon certain circumstances, including the earliest to occur of (i) the Effective Time, (ii) the valid termination of the Merger Agreement, (iii) the occurrence of a Company Board Recommendation Change (as defined below), (iv) the conclusion of the Special Meeting (including any adjournment or postponement thereof) and any other meeting (whether annual or special and whether or not an adjourned or postponed meeting) of the stockholders, however called, at which the vote in respect of the matters contemplated by the Voting Agreement is taken, and (v) as to any particular stockholder of the Company that is a party to the Voting Agreement, the date of any amendment, waiver or modification of the Merger Agreement without such stockholder’s prior written consent that has the effect of (a) decreasing the Merger Consideration, (b) changing the form of merger consideration, (c) extending the Termination Date, or (d) imposing any material restrictions or additional material

 

39


Table of Contents
 

conditions on the consummation of the Merger or the payment of the merger consideration or otherwise in a manner material and adverse to such stockholder.

 

   

Appraisal Rights. The Special Committee considered the fact that stockholders that do not vote to approve the Merger Agreement and that comply with the requirements of the DGCL will have the right to dissent from the Merger and to demand appraisal of the “fair value” of their shares of common stock under the DGCL, as more fully described in the section of this proxy statement captioned “Appraisal Rights.”

 

   

Termination Date. The Special Committee considered its view that the Termination Date on which Parent or the Company, subject to certain exceptions, can terminate the Merger Agreement allows for sufficient time to consummate the Merger.

 

   

Other Risks, Restrictions and Uncertainties. In the course of its deliberations, the Special Committee also considered various risks, restrictions and uncertainties related to entering into the Merger Agreement and consummating the Merger, including:

 

   

Risk of Non-Consummation. The Special Committee considered the possibility that the Merger might not be consummated and that (i) the price of the Company’s common stock would likely decrease because the current market price may reflect a market assumption that the Merger will be consummated, (ii) the Company, in certain circumstances, may be required to pay Parent a termination fee of $3,240,000 or $5,670,000, (iii) the Company may experience difficulties in obtaining financing from changed perceptions regarding the Company’s competitive position, management, liquidity or other aspects of its business, (iv) the Company may be unable to find a partner willing to engage in a transaction on terms as favorable as those set forth in the Company’s agreements with Parent and Merger Sub, (v) stockholders would not realize the anticipated benefits of the Merger, (vi) the Company’s business, operations and financial results could suffer in the event that the Merger is not consummated and (vii) the announcement of the Merger Agreement and pendency of the Merger, or the failure to complete the Merger, may cause substantial harm to the Company’s relationships with its employees (including making it more difficult to attract and retain key personnel), vendors and customers.

 

   

Transaction Costs. The Special Committee considered the fact that the Company has incurred, and will continue to incur, significant transaction costs and expenses in connection with the Merger, regardless of whether consummated and, if the Merger is not consummated, the Company may be required to pay its own expenses associated with the Merger Agreement and the Merger and the fact that the Company’s directors, senior management and other employees will have expended extensive time and effort and will have experienced significant distractions from their work prior to the execution of the Merger Agreement and during the pendency of the Merger.

 

   

Future Growth. The Special Committee considered the fact that, subsequent to the completion of the Merger, the Company would no longer exist as an independent public company and that stockholders of the Company will have no ongoing equity interest in the Surviving Company, meaning that the stockholders will cease to participate in any future earnings or growth or to benefit from any potential future appreciation in value of the Company.

 

   

Non-Solicitation. The Special Committee considered the fact that, under the terms of the Merger Agreement, the Company is unable to solicit other Acquisition Proposals after the No-Shop Period Start Date.

 

   

Business Restrictions. The Special Committee considered the restrictions on the conduct of the Company’s business prior to the consummation of the Merger, including the requirement that the Company conduct its business in the ordinary course, subject to specific limitations and exceptions, which may delay or prevent the Company from undertaking business opportunities that may arise before the completion of the Merger and that, absent the Merger Agreement, the Company might have pursued.

 

40


Table of Contents
   

Tax Consequences. The Special Committee considered the fact that as an all-cash transaction the Merger generally would be taxable to stockholders that were U.S. Holders for U.S. federal income tax purposes, although the Special Committee believed that this was mitigated by the fact that the entire consideration payable in the Merger would be cash, providing a cash amount for the payment of any taxes due

 

   

Regulatory Approval and Risk of Pending Actions. The Special Committee considered the fact that the completion of the Merger would require regulatory clearances and approvals and the satisfaction of certain other closing conditions, including that no Company Material Adverse Effect has occurred, that are not entirely within the Company’s control, and that there is no Legal Restraint preventing the consummation of the Merger.

 

   

Litigation Risk. The Special Committee considered the risk of litigation in connection with the Merger, and the fact that litigation in connection with transactions such as the Merger is common and potentially costly and distracting to the Company’s directors, management and employees.

 

   

Financing Failure. The Special Committee considered the risk that, while the Merger Agreement is not subject to any financing condition, if Parent fails to obtain sufficient financing, the Merger is unlikely to be consummated.

 

   

Requisite Stockholder Approval. The Special Committee considered the fact that the Merger is subject to the adoption of the Merger Agreement by the affirmative vote of the holders of at least a majority of the outstanding shares of the Company’s common stock.

Board of Directors

In the course of (i) determining that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, and in the best interests of, the Company and its stockholders, (ii) approving and declaring advisable the Merger Agreement and the transactions contemplated thereby, including the Merger, (iii) resolving to recommend that the stockholders adopt the Merger Agreement and (iv) directing that the Merger Agreement be submitted to the stockholders for their adoption, the Board of Directors considered, among other things, the same factors considered by the Special Committee in its deliberations (as described above) and the Special Committee’s unanimous recommendation that the Board of Directors (i) determine that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, and in the best interests of, the Company and the stockholders, (ii) approve and declare advisable the Merger Agreement and the transactions contemplated thereby, including the Merger and (iii) recommend that the stockholders adopt the Merger Agreement.

In addition, the Board of Directors considered the opinion of BofA Merrill Lynch, dated August 7, 2019, delivered to the Board of Directors and the Special Committee as to the fairness, from a financial point of view and as of the date of the opinion, to the stockholders (other than Vintage Capital and its affiliates) of the Merger Consideration to be received by such stockholders in the Merger, as more fully described in the section of this proxy statement captioned “Opinion of Vitamin Shoppe’s Financial Advisor.”

The foregoing discussion of reasons for the Special Committee’s and Board of Directors’ respective recommendations and determinations is not meant to be exhaustive, but instead is intended to address the principal factors considered by the Special Committee and the Board of Directors. In view of the wide variety of factors considered by the Special Committee and the Board of Directors in connection with their respective evaluations of the Merger and the complexity of these matters, the Special Committee and the Board of Directors did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its respective recommendations and determinations. Rather, in considering the information and factors described above, individual members of the Special Committee and the Board of Directors each applied his or her own personal judgment to the process and may have given differing weights to differing factors. The Special Committee collectively reached the unanimous conclusion to recommend the

 

41


Table of Contents

Merger to the Board of Directors, and the Board of Directors collectively reached the conclusion to approve the Merger, based on the totality of the information presented. The explanation of the factors and reasoning set forth above contain forward-looking statements that should be read in conjunction with the section of this proxy statement captioned “Forward-Looking Statements.”

In considering the recommendation and determination of the Special Committee and the Board of Directors that stockholders vote in favor of adoption of the Merger Agreement, stockholders of the Company should be aware that the Company’s directors and officers have interests in the Merger that may be different from, or in addition to, other stockholders of the Company. The Special Committee and the Board of Directors were aware of and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement and the Merger. For more information on these interests see the section of the proxy statement captioned “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger.”

Certain Unaudited Prospective Financial Information

While the Company has from time to time provided limited financial guidance to investors, the Company has not, as a matter of course, otherwise publicly disclosed internal projections as to future performance, earnings or other results due to, among other reasons, the unpredictability of the underlying assumptions and estimates. However, in connection with the Merger, the Company’s management prepared certain non-public financial projections as to the potential future performance of the Company for the years 2019 through 2021 (referred to as the “May Projections”), which were provided to the Special Committee in May 2019 in connection with their evaluation of the transaction. At the direction of the Special Committee, the May Projections were further updated by the Company’s management for the years 2019 through 2023 and in July 2019 were provided to the Special Committee in connection with its evaluation of the Merger and to BofA Merrill Lynch in connection with its financial analyses, including BofA Merrill Lynch’s financial analyses described in the section of this proxy statement captioned “—Opinion of Vitamin Shoppe’s Financial Advisor” (referred to as the “July Projections” and, together with the May Projections, the “Management Projections”). The Management Projections were also provided to Parent for its use in connection with its evaluation of the Merger. For more information, see the section of this proxy statement captioned “—Background of the Merger.”

The below summary of the Management Projections is included for the purpose of providing stockholders access to certain non-public information that was furnished to certain parties in connection with the Merger, and such information may not be appropriate for other purposes, and is not included to influence the voting decision of any stockholder or whether any stockholder should seek appraisal rights with respect to common stock. The inclusion of the Management Projections should not be regarded as an indication that the Company or anyone who received the Management Projections then considered, or now considers, them a reliable prediction of future events, and the Management Projections should not be relied upon as such.

The Management Projections were not prepared with a view toward public disclosure or with a view toward complying with the published guidelines of the SEC regarding projections or accounting principles generally accepted in the United States (“GAAP”), or the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information. Neither the Company’s independent auditor nor any other independent accountant has compiled, examined, or performed any procedures with respect to the Management Projections, nor have they expressed any opinion or any other form of assurance on such information or its achievability. The Management Projections contain projections of adjusted gross profits, adjusted SG&A, adjusted EBIT, adjusted EBITDA and unlevered free cash flow, each of which are non-GAAP financial measures within the meaning of the applicable rules and regulations of the SEC, which are financial performance measures that are not calculated in accordance with GAAP. These non-GAAP financial measures should not be viewed as a substitute for GAAP financial measures, and may be different from non-GAAP financial measures used by other companies. Accordingly, these non-GAAP financial measures should be considered together with, and not as an alternative to, financial measures prepared in accordance with GAAP.

 

42


Table of Contents

Although the Management Projections are presented with numerical specificity, they reflect numerous estimates and assumptions made by the Company’s management with respect to industry performance, general business, economic, regulatory, market and financial conditions and other future events, as well as matters specific to the Company’s business, all of which are difficult or impossible to predict accurately and many of which are beyond the Company’s control. The Management Projections reflect subjective judgment in many respects and thus are susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. As such, the Management Projections constitute forward-looking information and are subject to many risks and uncertainties that could cause actual results to differ materially from the results forecasted in the Management Projections, including, but not limited to, the strength of the economy, changes in the overall level of consumer spending, the performance of the Company’s products within the prevailing retail environment, implementation of the Company’s strategy, compliance with regulations, certifications and best practices with respect to the development, manufacture, sale and marketing of the Company’s products, management changes, maintaining appropriate levels of inventory, changes in tax policy, ecommerce relationships, disruptions of manufacturing, warehouse or distribution facilities or information systems, regulatory environment and other factors discussed in this proxy statement and in other reports filed by or furnished to the SEC by the Company. There can be no assurance that the Management Projections will be realized or that actual results will not be significantly higher or lower than forecast. The Management Projections cover several years and such information by its nature becomes less reliable with each successive year.

The Management Projections were developed by the Company’s management without giving effect to the Merger or the other transactions contemplated by the Merger Agreement or any changes to the Company’s operations or strategy that may be implemented after the consummation of the Merger, including any costs incurred in connection with the Merger or costs related to other transactions contemplated by the Merger Agreement. In addition, the Management Projections will be affected by the Company’s ability to achieve strategic goals, objectives and targets over the applicable periods. The Management Projections reflect assumptions as to certain business decisions that are subject to change. The Management Projections cannot, therefore, be considered a guarantee of future operating results, and this information should not be relied on as such.

In addition, the Management Projections have not been updated or revised to reflect information, circumstances, events or results after the date they were prepared or as of the date of this proxy statement, and except as required by applicable securities laws, the Company does not intend to update or otherwise revise the Management Projections or the specific portions presented to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the underlying assumptions are shown to be in error.

The inclusion of the Management Projections herein should not be deemed an admission or representation by the Company that the Company views such Management Projections as material information, particularly in light of the inherent risks and uncertainties associated with such long-range forecasts. No representation is made by the Company or any other person regarding the Management Projections or the Company’s ultimate performance compared to such information. In light of the foregoing factors, and the uncertainties inherent in the Management Projections, stockholders are cautioned not to place undue, if any, reliance on the Management Projections. The Management Projections should be evaluated, if at all, in conjunction with the historical consolidated financial statements and other information contained in the Company public filings with the SEC.

May Projections

The following is a summary of the May Projections. The May Projections were based on numerous variables and assumptions, including the following key assumptions:

 

   

Base business supported by new initiatives which are at various stages of implementation (focused on enhancing product offering, differentiating the customer experience, optimizing the store base and expanding digital and ecommerce capabilities).

 

43


Table of Contents
   

Additional strategic initiatives in place to extend the Vitamin Shoppe brand to new channels and expand customer reach.

 

   

Gross margin to remain stable—change in consolidated gross margin reflects shift in sales channel mix.

 

   

Continued improvement in operating efficiency focused on enhancing productivity and optimally utilizing the Company’s asset base.

 

   

Focus on enterprise cost and opportunities to reduce operating expenses and streamline the business.

 

   

Redirect capital spend to less capital intensive and/or high return projects.

 

   

Maintain working capital discipline to free up cash to support initiatives.

 

     For the Year Ending December 31,  

(dollars in millions)

     2019E         2020E         2021E    

Net sales

   $ 1,091     $ 1,121     $ 1,198  

% Growth

     (2.1 %)      2.8     6.9

Gross margin

   $ 545     $ 557     $ 590  

% Margin

     50.0     49.7     49.2

Adjusted gross profits(1)

   $ 344     $ 355     $ 384  

% Margin

     31.5     31.7     32.0

Adjusted SG&A(2)

     (328     (329     (344

% Net sales

     30.1     29.3     28.7

Adjusted EBIT(3)

   $ 16     $ 26     $ 40  

% Margin

     1.4     2.4     3.3

Depreciation & amortization

     41       39       37  

Adjusted EBITDA(4)

   $ 56     $ 65     $ 77  

% Margin

     5.2     5.8     6.4

Selected Cash Flow Items

      

Capital expenditures

   $ 31     $ 27     $ 30  

Change in NWC

     8       (1     (3

Tax rate

     28.0     28.0     28.0

Unlevered free cash flow(5)

   $ 28     $ 30     $ 33  

 

Certain amounts in the above table may reflect rounding adjustments.

(1)

Adjusted gross profits is defined as gross margin, less occupancy costs, less warehouse & transportation costs, less capitalized inventory costs.

(2)

Adjusted SG&A is defined as advertising, store payroll and operating expenses, and corporate expenses excluding one-time lease termination fees and management realignment expenses.

(3)

Adjusted EBIT is defined as adjusted gross profits, less adjusted SG&A.

(4)

Adjusted EBITDA is defined as adjusted EBIT, plus depreciation & amortization.

(5)

Unlevered free cash flow is defined as tax effected adjusted EBIT, plus depreciation & amortization, less capital expenditures, plus change in net-working capital (“NWC”).

July Projections

The following is a summary of the July Projections. The July Projections were based on numerous variables and assumptions, including the following key assumptions:

 

   

Retail business reflects an updated view on the number of new store openings and closures.

 

   

Direct-to-consumer channels impacted by store count assumption, specifically Auto Delivery and Only Me, as stores play a critical role in new customer acquisition.

 

44


Table of Contents
   

Promising momentum seen in other areas (for example, wholesale or new business).

 

   

Variable expenses associated with stores such as operating payroll, occupancy and operating expenses reflective of store count assumption.

 

   

Assumed flat corporate expense growth to help offset impact of channel shift.

 

   

Warehouse and transportation cost held constant as a rate of sales.

 

   

Capital expenditures reflective of new store openings assumption.

 

     For the Year Ending December 31,  

(dollars in millions)

   2019E     2020E     2021E     2022E     2023E  

Net sales

   $ 1,070     $ 1,034     $ 1,018     $ 1,017     $ 1,016  

% Growth

     (4.0 %)      (3.4 %)      (1.5 %)      (0.1 %)      (0.1 %) 

Gross margin

   $ 546     $ 520     $ 505     $ 497     $ 489  

% Margin

     51.0     50.3     49.6     48.9     48.1

Adjusted gross profits(1)

   $ 348     $ 330     $ 318     $ 313     $ 308  

% Margin

     32.5     31.9     31.2     30.8     30.3

Adjusted SG&A(2)

     (330     (318     (309     (304     (299

% Net sales

     30.8     30.8     30.4     29.9     29.4

Adjusted EBIT(3)

   $ 17     $ 12     $ 9     $ 10     $ 10  

% Margin

     1.6     1.2     0.9     1.0     1.0

Depreciation & amortization

     41       38       37       34       32  

Adjusted EBITDA(4)

   $ 58     $ 50     $ 46     $ 44     $ 42  

% Margin

     5.4     4.8     4.5     4.3     4.1

Selected Cash Flow Items

          

Capital expenditures

   $ 31     $ 24     $ 24     $ 24     $ 24  

Change in NWC

     1       1       (1     (3     (4

Tax rate

     27.0     28.0     28.0     28.0     28.0

Unlevered free cash flow(5)

   $ 7 (6)    $ 25     $ 18     $ 14     $ 12  

 

Certain amounts in the above table may reflect rounding adjustments.

(1)

Adjusted gross profits is defined as gross margin, less occupancy costs, less warehouse & transportation costs, less capitalized inventory costs.

(2)

Adjusted SG&A is defined as advertising, store payroll and operating expenses, and corporate expenses excluding one-time lease termination fees and management realignment expenses.

(3)

Adjusted EBIT is defined as adjusted gross profits, less adjusted SG&A.

(4)

Adjusted EBITDA is defined as adjusted EBIT, plus depreciation & amortization.

(5)

Unlevered free cash flow is defined as tax effected adjusted EBIT, plus depreciation & amortization, less capital expenditures, plus change in NWC.

(6)

Unlevered free cash flow was only estimated for the third and fourth quarters of 2019.

Opinion of Vitamin Shoppe’s Financial Advisor

Vitamin Shoppe has retained BofA Merrill Lynch to act as Vitamin Shoppe’s financial advisor in connection with the Merger. BofA Merrill Lynch is an internationally recognized investment banking firm which is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. Vitamin Shoppe selected BofA Merrill Lynch to act as Vitamin Shoppe’s financial advisor in connection with the Merger on the basis of BofA Merrill Lynch’s experience in transactions similar to the Merger, its reputation in the investment community and its familiarity with Vitamin Shoppe and its business.

On August 7, 2019, at a meeting of the Board of Directors and the Special Committee, BofA Merrill Lynch delivered to the Board of Directors and the Special Committee an oral opinion, which was confirmed by delivery

 

45


Table of Contents

of a written opinion dated August 7, 2019, to the effect that, as of the date of the opinion and based on and subject to various assumptions and limitations described in the opinion, the Merger Consideration to be received in the Merger by stockholders (other than Vintage Capital and its affiliates) was fair, from a financial point of view, to such stockholders.

The full text of BofA Merrill Lynch’s written opinion to the Board of Directors and the Special Committee, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex B to this proxy statement and is incorporated by reference herein in its entirety. The following summary of BofA Merrill Lynch’s opinion is qualified in its entirety by reference to the full text of the opinion. BofA Merrill Lynch delivered its opinion to the Board of Directors and the Special Committee for the benefit and use of the Board of Directors and the Special Committee (each in its capacity as such) in connection with and for purposes of its evaluation of the Merger Consideration from a financial point of view. BofA Merrill Lynch’s opinion does not address any other aspect of the Merger and no opinion or view was expressed as to the relative merits of the Merger in comparison to other strategies or transactions that might be available to Vitamin Shoppe or in which Vitamin Shoppe might engage or as to the underlying business decision of Vitamin Shoppe to proceed with or effect the Merger. BofA Merrill Lynch’s opinion does not address any other aspect of the Merger and does not constitute a recommendation to any stockholder as to how to vote or act in connection with the proposed Merger or any other matter.

In connection with rendering its opinion, BofA Merrill Lynch has, among other things:

 

   

reviewed certain publicly available business and financial information relating to Vitamin Shoppe;

 

   

reviewed certain internal financial and operating information with respect to the business, operations and prospects of Vitamin Shoppe furnished to or discussed with BofA Merrill Lynch by the management of Vitamin Shoppe, including the July Projections, relating to Vitamin Shoppe prepared by the management of Vitamin Shoppe;

 

   

discussed the past and current business, operations, financial condition and prospects of Vitamin Shoppe with members of senior management of Vitamin Shoppe;

 

   

reviewed the trading history for Vitamin Shoppe’s common stock and a comparison of that trading history with the trading histories of other companies BofA Merrill Lynch deemed relevant;

 

   

compared certain financial and stock market information of Vitamin Shoppe with similar information of other companies BofA Merrill Lynch deemed relevant;

 

   

compared certain financial terms of the Merger to financial terms, to the extent publicly available, of other transactions BofA Merrill Lynch deemed relevant;

 

   

considered the results of BofA Merrill Lynch’s efforts on behalf of Vitamin Shoppe to solicit, at the direction of Vitamin Shoppe, indications of interest from third parties with respect to a possible acquisition of all or a portion of Vitamin Shoppe;

 

   

reviewed a draft, dated August 7, 2019, of the Merger Agreement (the “Draft Agreement”); and

 

   

performed such other analyses and studies and considered such other information and factors as BofA Merrill Lynch deemed appropriate.

In arriving at its opinion, BofA Merrill Lynch assumed and relied upon, without independent verification, the accuracy and completeness of the financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with it and relied upon the assurances of the management of Vitamin Shoppe that they were not aware of any facts or circumstances that would make such information or data inaccurate or misleading in any material respect. With respect to the July Projections, BofA Merrill Lynch was advised by Vitamin Shoppe, and assumed, that they were reasonably prepared on bases reflecting the best currently available

 

46


Table of Contents

estimates and good faith judgments of the management of Vitamin Shoppe as to the future financial performance of Vitamin Shoppe. BofA Merrill Lynch did not make and was not provided with any independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of Vitamin Shoppe, nor did it make any physical inspection of the properties or assets of Vitamin Shoppe. BofA Merrill Lynch did not evaluate the solvency or fair value of Vitamin Shoppe or Parent under any state, federal or other laws relating to bankruptcy, insolvency or similar matters. BofA Merrill Lynch assumed, at the direction of Vitamin Shoppe, that the Merger would be consummated in accordance with its terms, without waiver, modification or amendment of any material term, condition or agreement and that, in the course of obtaining the necessary governmental, regulatory and other approvals, consents, releases and waivers for the Merger, no delay, limitation, restriction or condition, including any divestiture requirements or amendments or modifications, would be imposed that would have an adverse effect on Vitamin Shoppe or the contemplated benefits of the Merger. BofA Merrill Lynch also assumed, at the direction of Vitamin Shoppe, that the final executed Merger Agreement would not differ in any material respect from the Draft Agreement reviewed by it.

BofA Merrill Lynch expressed no opinion or view as to any terms or other aspects or implications of the Merger (other than the Merger Consideration to the extent expressly specified in its opinion), including, without limitation, the form or structure of the Merger, the form or structure, or any terms or other aspects or implications, of any related transactions, any voting or support agreements or any governance or other arrangements, agreements or understandings entered into in connection with or related to the Merger or otherwise. BofA Merrill Lynch’s opinion was limited to the fairness, from a financial point of view, of the Merger Consideration to be received by the stockholders (other than Vintage Capital and its affiliates) and no opinion or view was expressed with respect to any consideration received in connection with the Merger by the stockholders of any class of securities, creditors or other constituencies of any party. In addition, no opinion or view was expressed with respect to the fairness (financial or otherwise) of the amount, nature or any other aspect of any compensation to any of the officers, directors or employees of any party to the Merger, or class of such persons, relative to the Merger Consideration or otherwise. Furthermore, no opinion or view was expressed as to the relative merits of the Merger in comparison to other strategies or transactions that might be available to Vitamin Shoppe or in which Vitamin Shoppe might engage or as to the underlying business decision of Vitamin Shoppe to proceed with or effect the Merger. BofA Merrill Lynch also did not express any opinion or view with respect to, and BofA Merrill Lynch relied, with Vitamin Shoppe’s consent, upon the assessments of representatives of Vitamin Shoppe regarding, legal, regulatory, accounting, tax and similar matters relating to Vitamin Shoppe and the Merger (including the contemplated benefits thereof), as to which BofA Merrill Lynch understood that Vitamin Shoppe obtained such advice as it deemed necessary from qualified professionals. In addition, BofA Merrill Lynch expressed no opinion or recommendation as to how any stockholder should vote or act in connection with the Merger or any other matter.

BofA Merrill Lynch’s opinion was necessarily based on financial, economic, monetary, market and other conditions and circumstances as in effect on, and the information made available to BofA Merrill Lynch as of, the date of its opinion. It should be understood that subsequent developments may affect its opinion, and BofA Merrill Lynch does not have any obligation to update, revise or reaffirm its opinion. The issuance of BofA Merrill Lynch’s opinion was approved by a fairness opinion review committee of BofA Merrill Lynch. Except as described in this summary, Vitamin Shoppe imposed no other limitations on the investigations made or procedures followed by BofA Merrill Lynch in rendering its opinion.

The discussion set forth below in the section of this proxy statement captioned “Summary of Material Vitamin Shoppe Financial Analyses” represents a brief summary of the material financial analyses presented by BofA Merrill Lynch to the Board of Directors and the Special Committee in connection with its opinion. The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses performed by BofA Merrill Lynch, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses performed by BofA Merrill Lynch. Considering the data set forth in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions

 

47


Table of Contents

underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by BofA Merrill Lynch.

Summary of Material Vitamin Shoppe Financial Analyses

Selected Publicly Traded Companies Analysis. BofA Merrill Lynch reviewed publicly available financial and stock market information for Vitamin Shoppe and the following 12 publicly traded companies in the specialty retail industry:

 

   

Sprouts Farmers Market, Inc.

 

   

Best Buy Co., Inc.

 

   

Party City Holdco Inc.

 

   

GNC Holdings, Inc.

 

   

Sally Beauty Holdings, Inc.

 

   

DICK’s Sporting Goods, Inc.

 

   

Natural Grocers by Vitamin Cottage, Inc.

 

   

Signet Jewelers Limited

 

   

The Michaels Companies, Inc.

 

   

Hibbett Sports, Inc.

 

   

Bed, Bath & Beyond Inc.

 

   

GameStop Corp.

BofA Merrill Lynch reviewed, among other things, enterprise values of the selected publicly traded companies, calculated as equity values based on closing stock prices on August 6, 2019, plus debt, preferred equity and non-controlling interest (as applicable), and less cash and cash equivalents and marketable securities (as applicable), as a multiple of 2019 estimated earnings before interest, taxes, depreciation and amortization, commonly referred to as EBITDA. The overall low to high calendar year 2019 EBITDA multiples observed for the selected publicly traded companies were 0.8x to 8.2x (with an average of 5.1x and a median of 5.4x). BofA Merrill Lynch then applied calendar year 2019 EBITDA multiples of 2.5x to 4.0x derived from the selected publicly traded companies to Vitamin Shoppe’s calendar year 2019 estimated adjusted EBITDA of $58 million to determine implied per share equity values. Estimated financial data of the selected publicly traded companies were based on publicly available research analysts’ estimates, and estimated financial data of Vitamin Shoppe were based on the July Projections. This analysis indicated the following approximate implied per share equity value reference ranges for Vitamin Shoppe (rounded to the nearest $0.05), as compared to the Merger Consideration:

 

Implied Per Share Equity Value

Reference Range for Vitamin Shoppe

  

Merger Consideration

$4.00 – $7.45    $6.50

No company used in this analysis is identical or directly comparable to Vitamin Shoppe. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the public trading or other values of the companies to which Vitamin Shoppe was compared.

Selected Precedent Transactions Analysis. BofA Merrill Lynch reviewed, to the extent publicly available, financial information relating to the following 17 selected transactions involving companies in “turnaround”

 

48


Table of Contents

transactions, which involved targets in financial distress at the time of the transaction (as determined by BofA Merrill Lynch based on its judgment and experience):

 

Acquiror

  

Target

•  Berkshire Hathaway Inc.

  

•  Fruit of the Loom, Inc.

•  V.F. Corporation

  

•  Nautica Enterprises, Inc.

•  Apax Partners

  

•  Tommy Hilfiger Corporation

•  Fruit of the Loom, Inc.

  

•  V.F. Corporation (intimate apparel business)

•  Golden Gate Capital

  

•  Express Brand

•  The Dress Barn, Inc.

  

•  Tween Brands, Inc.

•  Golden Gate Capital

  

•  Eddie Bauer Holdings Inc.

•  Advent International Corp.

  

•  Charlotte Russe Inc.

•  Bi-Lo LLC

  

•  Winn-Dixie Stores, Inc.

•  Gildan Activewear Inc.

  

•  Anvil Holdings, Inc.

•  Leonard Green & Partners L.P.

  

•  Lucky Brand

•  Oaktree Capital Manager

  

•  Billabong International Limited

•  Capmark Financial Group Inc.

  

•  Orchard Brands Corp.

•  Boardriders, Inc.

  

•  Billabong International Limited

•  JD Sports Fashion Plc

  

•  The Finish Line, Inc.

•  Ames Watson, LLC

  

•  The Lids Sports Group

•  Elliot Associates, L.P.

  

•  Barnes & Noble, Inc.

BofA Merrill Lynch also reviewed, to the extent publicly available, financial information relating to the following 14 selected transactions involving companies in the specialty retail sector:

 

Acquiror

  

Target

•  Leonard Green & Partners, L.P.

  

•  Jo-Ann Stores, Inc.

•  Leonard Green & Partners, L.P. and CVC Capital Partners

  

•  BJ’s Wholesale Club, Inc.

•  Thomas H. Lee Partners, L.P.

  

•  Party City Holdings, Inc.

•  Ares Management, L.P.

  

•  Smart & Final Stores, Inc.

•  Office Depot, Inc.

  

•  OfficeMax Incorporated

•  Jarden Corporation

  

•  Yankee Candle Investments LLC

•  Signet Jewelers Limited

  

•  Zale Corporation

•  Dollar Tree, Inc.

  

•  Family Dollar Stores, Inc.

•  BC Partners Inc.

  

•  PetSmart, Inc.

•  CVC Capital Partners

  

•  Petco Animal Supplies, Inc.

•  Apollo Global Management, LLC

  

•  The Fresh Market, Inc.

•  Amazon.com, Inc.

  

•  Whole Foods Market, Inc.

•  Sycamore Partners

  

•  Staples, Inc.

•  Apollo Global Management, LLC

  

•  Smart & Final Stores, Inc.

BofA Merrill Lynch reviewed transaction values, calculated as the enterprise value implied for the target company, computed as the aggregate consideration payable in the selected transaction, plus debt, preferred equity and non-controlling interest (as applicable), and less cash and cash equivalents and marketable securities (as applicable) of the target company, as a multiple of the target company’s estimated LTM EBITDA. The overall low to high estimated LTM EBITDA multiples for the selected turnaround transactions and specialty retail transactions were 3.3x to 9.0x (with an average of 5.1x and a median of 4.7x for those transactions since 2016) and 4.5x to 18.4x (with an average of 7.2x and a median of 6.7x for those transactions since 2016), respectively. BofA Merrill Lynch then applied estimated LTM EBITDA multiples of 3.5x to 5.5x derived from the selected transactions to Vitamin Shoppe’s LTM estimated adjusted EBITDA (as of June 29, 2019) of $55 million to determine implied per share equity values. Estimated financial data of the selected transactions were based on publicly available information. Estimated financial data of Vitamin Shoppe were based on the July Projections.

 

49


Table of Contents

This analysis indicated the following approximate implied per share equity value reference ranges for Vitamin Shoppe (rounded to the nearest $0.05), as compared to the Merger Consideration:

 

Implied Per Share Equity Value

Reference Range for Vitamin Shoppe

  

Merger Consideration

$5.95 – $10.35    $6.50

No company, business or transaction used in this analysis is identical or directly comparable to Vitamin Shoppe or the Merger. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the acquisition or other values of the companies, business segments or transactions to which Vitamin Shoppe and the Merger were compared.

Discounted Cash Flow Analysis. BofA Merrill Lynch performed a discounted cash flow analysis of Vitamin Shoppe to calculate the estimated present value of the standalone unlevered, after-tax free cash flows that Vitamin Shoppe was forecasted to generate during Vitamin Shoppe’s third and fourth quarters of fiscal year 2019 through fiscal year 2023 based on the July Projections. BofA Merrill Lynch calculated terminal values for Vitamin Shoppe by applying exit adjusted EBITDA multiples of 2.5x to 4.0x to Vitamin Shoppe’s fiscal year 2023 estimated adjusted EBITDA. The cash flows and terminal values were then discounted to present value as of June 30, 2019, assuming a mid-year convention for cash flows, using discount rates ranging from 8.50% to 10.50%, which were based on an estimate of Vitamin Shoppe’s weighted average cost of capital. From the resulting enterprise values, BofA Merrill Lynch deducted net debt as of June 29, 2019 to derive equity values. This analysis indicated the following approximate implied per share equity value reference ranges for Vitamin Shoppe (rounded to the nearest $0.05) as compared to the Merger Consideration:

 

Implied Per Share Equity Value

Reference Range for Vitamin Shoppe

  

Merger Consideration

$3.35 – $5.45    $6.50

Other Factors

BofA Merrill Lynch also noted certain additional factors that were not considered part of BofA Merrill Lynch’s material financial analyses with respect to its opinion but were referenced for informational purposes, including, among other things, the following:

 

   

historical trading prices of the common stock during the 52-week period ended August 6, 2019, which ranged from $3.32 to $13.95; and

 

   

publicly available research analysts’ perspectives on Vitamin Shoppe, which generally indicated one-year price targets for the common stock ranging from $4.00 to $8.00.

Miscellaneous

The discussion set forth above in the section of this proxy statement captioned “Summary of Material Vitamin Shoppe Financial Analyses” is a summary of the material financial analyses presented by BofA Merrill Lynch to the Board of Directors and the Special Committee in connection with its opinion and is not a comprehensive description of all analyses undertaken or factors considered by BofA Merrill Lynch in connection with its opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to partial analysis or summary description. BofA Merrill Lynch believes that its analyses summarized above must be considered as a whole. BofA Merrill Lynch further believes that selecting portions of its analyses and the factors considered or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying BofA

 

50


Table of Contents

Merrill Lynch’s analyses and opinion. The fact that any specific analysis has been referred to in the summary above is not meant to indicate that such analysis was given greater weight than any other analysis referred to in the summary.

In performing its analyses, BofA Merrill Lynch considered industry performance, general business and economic conditions and other matters, many of which are beyond the control of Vitamin Shoppe and Parent. The estimates of the future performance of Vitamin Shoppe in or underlying BofA Merrill Lynch’s analyses are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those estimates or those suggested by BofA Merrill Lynch’s analyses. These analyses were prepared solely as part of BofA Merrill Lynch’s analysis of the fairness, from a financial point of view, to the stockholders (other than Vintage Capital and its affiliates) of the Merger Consideration to be received by such stockholders and were provided to the Board of Directors and the Special Committee in connection with the delivery of BofA Merrill Lynch’s opinion. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold or the prices at which any securities have traded or may trade at any time in the future. Accordingly, the estimates used in, and the ranges of valuations resulting from, any particular analysis described above are inherently subject to substantial uncertainty and should not be taken to be BofA Merrill Lynch’s view of the actual value of Vitamin Shoppe.

The type and amount of consideration payable in the Merger was determined through negotiations between Vitamin Shoppe and Parent, rather than by any financial advisor, and recommended by the Special Committee and approved by the Board of Directors. The decision to enter into the Merger Agreement was solely that of the Board of Directors, and such decision was made upon the recommendation of the Special Committee. As described above, BofA Merrill Lynch’s opinion and analyses were only one of many factors considered by the Board of Directors and the Special Committee in their respective evaluations of the proposed Merger and should not be viewed as determinative of the views of the Board of Directors, the Special Committee or management with respect to the Merger or the Merger Consideration.

Vitamin Shoppe has agreed to pay BofA Merrill Lynch for its services in connection with the Merger a transaction fee estimated to be approximately $4,000,000, $1,000,000 of which was payable upon delivery of its opinion and the remainder of which is contingent upon consummation of the Merger. Vitamin Shoppe also has agreed to reimburse BofA Merrill Lynch for its expenses incurred in connection with BofA Merrill Lynch’s engagement and to indemnify BofA Merrill Lynch, any controlling person of BofA Merrill Lynch and each of their respective directors, officers, employees, agents and affiliates against specified liabilities, including liabilities under the federal securities laws.

BofA Merrill Lynch and its affiliates comprise a full service securities firm and commercial bank engaged in securities, commodities and derivatives trading, foreign exchange and other brokerage activities, and principal investing as well as providing investment, corporate and private banking, asset and investment management, financing and financial advisory services and other commercial services and products to a wide range of companies, governments and individuals. In the ordinary course of their businesses, BofA Merrill Lynch and its affiliates may invest on a principal basis or on behalf of customers or manage funds that invest, make or hold long or short positions, finance positions or trade or otherwise effect transactions in equity, debt or other securities or financial instruments (including derivatives, bank loans or other obligations) of Vitamin Shoppe, certain of its affiliates, Parent and certain of its affiliates (including Vintage Capital and certain of its affiliates and portfolio companies).

BofA Merrill Lynch and its affiliates in the past have provided, currently are providing, and in the future may provide, investment banking, commercial banking and other financial services to Vitamin Shoppe and certain of its affiliates and have received or in the future may receive compensation for the rendering of these services, including (i) having acted or acting as financial advisor to Vitamin Shoppe in connection with its review of strategic alternatives and related matters, (ii) having provided or providing certain trading services to Vitamin Shoppe and/or certain of its affiliates, and (iii) having provided or providing certain treasury management

 

51


Table of Contents

products and services to Vitamin Shoppe and/or certain of its affiliates. From August 1, 2017 through July 31, 2019, BofA Merrill Lynch and its affiliates derived aggregate revenues from Vitamin Shoppe and certain of its affiliates of approximately $2 million for investment and corporate banking services.

In addition, BofA Merrill Lynch and its affiliates in the past have provided, currently are providing, and in the future may provide, investment banking, commercial banking and other financial services to Parent and certain of its affiliates, including Vintage Capital and certain of its affiliates and portfolio companies, and have received or in the future may receive compensation for the rendering of these services, including (i) having acted or acting as a lender under certain term loans, letters of credit, credit and leasing facilities and other credit arrangements of Parent and/or certain of its affiliates, (ii) having provided or providing certain foreign exchange trading services to Parent and/or certain of its affiliates, (iii) having provided or providing certain managed investments services and products to Parent and/or certain of its affiliates, and (iv) having provided or providing certain treasury management products and services to Parent and/or certain of its affiliates, including Vintage Capital and/or certain of its affiliates and portfolio companies. From August 1, 2017 through July 31, 2019, BofA Merrill Lynch and its affiliates derived aggregate revenues from Parent and certain of its affiliates, including Vintage Capital and certain of its affiliates and portfolio companies, of approximately $2 million for investment and corporate banking services.

Call Spread Transactions

Concurrent with Vitamin Shoppe’s issuance in December 2015 of $143.75 million aggregate principal amount of 2.25% convertible senior notes due 2020 (the “Convertible Notes”), Vitamin Shoppe entered into separate convertible note hedge transactions (referred to as the “Convertible Note Hedge Transactions”) and issuer warrant transactions (referred to as the “Issuer Warrant Transactions” and, collectively with the Convertible Note Hedge Transactions, the “Call Spread Transactions”). The Call Spread Transactions were entered into with two banks (each, a “Call Spread Counterparty” and, collectively, the “Call Spread Counterparties”), including Bank of America, N.A. (“BANA”), an affiliate of BofA Merrill Lynch. BANA, acting as principal for its own account, was the Call Spread Counterparty in respect of 50% of the aggregate notional amount of the Call Spread Transactions.

The Call Spread Transaction consisted of the purchase by Vitamin Shoppe from the Call Spread Counterparties of call options in respect of the number of shares of Vitamin Shoppe’s common stock initially underlying the Convertible Notes and with an initial strike price equal to the initial conversion price of the Convertible Notes of approximately $39.742, and the sale by Vitamin Shoppe to such Call Spread Counterparties of warrants in respect of the same number of shares of Vitamin Shoppe’s common stock and with an initial strike price of $52.989, in each case subject to certain adjustments. The Convertible Note Hedge Transactions were intended to partially offset the dilution that could occur upon conversion of the Convertible Notes, and the Issuer Warrant Transactions offset the cost to Vitamin Shoppe of the Convertible Note Hedge Transactions.

If the Merger is consummated, the holders of the Convertible Notes may put their Convertible Notes for par in accordance with the terms of the Convertible Notes, which would result in the Call Spread Counterparties having no payment obligation under the Convertible Note Hedge Transactions and the options underlying the Convertible Note Hedge Transactions expiring unexercised. This would result in a contractual benefit to the Call Spread Counterparties, because the Call Spread Counterparties’ obligations under the Convertible Note Hedge Transactions would be less than the fair value of the Convertible Note Hedge Transactions.

If the Merger is consummated, each outstanding Issuer Warrant Transaction would terminate in accordance with its terms and the applicable Call Spread Counterparty would be entitled to receive an early termination cash payment from Vitamin Shoppe, which will be determined by each Call Spread Counterparty as the determining party with respect to its Issuer Warrant Transaction in good faith and using commercially reasonable procedures in order to produce a commercially reasonable result. Such early termination cash payment will vary depending on a variety of factors, including the date on which the Merger is consummated, the remaining term of the Issuer

 

52


Table of Contents

Warrant Transactions at such date, the merger consideration per share of Vitamin Shoppe’s common stock, the volatility of Vitamin Shoppe’s common stock before and after the announcement of the Merger, hedge unwind costs and applicable interest rates. The consummation of the Merger could result in Vitamin Shoppe paying BANA an amount that is greater than, equal to, or less than the amount Vitamin Shoppe would have paid or delivered to BANA upon exercise, expiration or termination of its Issuer Warrant Transaction in the absence of the Merger.

In addition, following the announcement of the Merger, the Call Spread Counterparties may adjust the terms of the Issuer Warrant Transactions, regardless of whether the Merger is consummated. Each Call Spread Counterparty will determine, in good faith and in a commercially reasonable manner as calculation agent with respect to its Issuer Warrant Transaction, the economic effect of such an announcement on the value of its Issuer Warrant Transaction and may take into account a number of factors, including, for example, the stock price and changes in volatility, stock loan rate, liquidity and expected dividends of Vitamin Shoppe’s common stock in determining whether an adjustment to its Issuer Warrant Transaction is appropriate. Each Call Spread Counterparty may make additional adjustments to its Issuer Warrant Transaction following the announcement of the withdrawal, discontinuation, termination or other change to the Merger.

Under the Call Spread Transactions to which it was a counterparty, BANA had market exposure to the price of shares of Vitamin Shoppe’s common stock. It is standard industry practice, and BANA’s ordinary practice, to engage in hedging activities to reduce market exposure to the price of the common stock underlying derivative transactions such as the Call Spread Transactions. Such hedging included BANA either purchasing or selling shares of the common stock or related instruments to offset the exposure to the common stock that BANA had under the Call Spread Transactions. BANA’s hedging was intended to substantially reduce BANA’s exposure under the Call Spread Transactions to changes in the price of shares of the common stock.

Hedging does not fully offset every risk or change in market conditions. Hedging is designed to offset a range of normal price movements under a range of typical market conditions, based on publicly available information, and thus might not fully offset extraordinary market events or conditions (such as the announcement of a merger transaction) that might have a material effect on the price, volatility or other characteristics of shares of common stock. BANA’s hedging activity was at its own risk and might result in a loss or profit to BANA in an amount that might be less than or greater than the expected contractual benefit or obligation to BANA under the Call Spread Transactions it entered into. BANA’s ultimate loss or profit with respect to the Call Spread Transactions after taking into account its hedging activity would depend on many factors, including the original net premium received by BANA for the Call Spread Transactions, the price at which BANA established its initial hedge position in respect of the Call Spread Transactions, the deliveries or payments made or received pursuant to the Call Spread Transactions, the profit and loss realized by BANA in connection with rebalancing its stock hedge positions during the term of the Call Spread Transactions (such rebalancing occurring as frequently as intra-day), and the premium or other amounts paid, and payments received, in connection with entering into or maintaining any option position or other derivative transaction used to hedge the Call Spread Transactions, the volatility of shares of the common stock and the prices at which BANA would close out these hedge positions. The amount of any loss or profit would not be known until all of the Call Spread Transactions to which BANA was a party would have been terminated and BANA would have completed all of its related hedge unwind activities. In accordance with industry practices, BofA Merrill Lynch maintains an enterprise information wall reasonably designed to prevent the unauthorized disclosure of confidential information by or to employees in its investment banking division to or by employees on the “public” side of BofA Merrill Lynch, including the employees who undertake these hedging and other market transactions. However, a portion of any gain or loss BANA experiences with respect to the Call Spread Transactions, including any termination payment, may be shared with BofA Merrill Lynch’s investment banking division.

BANA has advised Vitamin Shoppe that, assuming the Merger is consummated and all holders of the Convertible Notes put their notes for par, BANA expects, as of September 26, 2019, to realize a contractual benefit under the Call Spread Transactions of less than $100,000. The amount of any such contractual benefit

 

53


Table of Contents

will not be known until the Call Spread Transactions have been exercised, expired or terminated in accordance with their terms and BANA and its affiliates have completed all of their unwind activities.

The indenture governing the Convertible Notes and the confirmations containing the terms of the Call Spread Transactions were included as exhibits to Vitamin Shoppe’s current report on Form 8-K filed by Vitamin Shoppe with the SEC on December 10, 2015. All references in this section captioned “—Opinion of Vitamin Shoppe’s Financial Advisor—Call Spread Transactions” to share counts, conversion prices and strike prices may change from time to time in accordance with the terms of the relevant confirmations.

Interests of the Company’s Directors and Executive Officers in the Merger

Vitamin Shoppe executive officers and directors have interests in the Merger that may be different from, or in addition to, those of stockholders generally. In considering the recommendations of the Special Committee and the Board of Directors, including that you vote to approve the proposal to adopt the Merger Agreement, you should be aware of these interests. In reaching their decisions to make such recommendations and to approve the Merger, the Special Committee and the Board of Directors were aware of these interests and considered them, along with other matters described in the section captioned “The Merger—Recommendation of the Board of Directors and Reasons for the Merger.” As described in more detail below, these interests include:

 

   

the cancelation of outstanding Options at the Effective Time in exchange for a cash payment equal to the product of (i) the Merger Consideration minus the exercise price per share of such Option and (ii) the total number of shares of common stock issuable upon exercise in full of such Option (and Options with an exercise price equal to or less than the Merger Consideration cancelled for no consideration);

 

   

the cancelation of each outstanding RSU at the Effective Time in exchange for a cash payment equal to the product of (i) the Merger Consideration and (ii) the total number of shares of common stock subject to such RSUs;

 

   

the cancelation of each outstanding PSU at the Effective Time in exchange for a cash payment equal to the product of (i) the Merger Consideration and (ii) the total number of shares of common stock subject to such PSU. The number of shares of common stock subject to a PSU will be equal to the number of shares determined in accordance with the applicable PSU award agreement as follows: for 2017 PSUs, 66.7% of target shares and for 2018 and 2019 PSUs, 100% of target shares;

 

   

the cancelation of each outstanding RSA at the Effective Time in exchange for a cash payment equal to the product of (i) the Merger Consideration and (ii) the total number of shares of common stock subject to such RSA;

 

   

the opportunity to receive enhanced severance and other benefits in the event of a qualifying termination of employment within two years following the Effective Time under the Severance Plan;

 

   

the opportunity to receive, under the Vitamin Shoppe Performance Cash Award Agreements, accelerated payment of then-outstanding cash incentive awards subject to performance-based vesting conditions (the “Performance Cash Awards”) in the event of a qualifying termination of employment within two years following the Effective Time;

 

   

the opportunity for members of the Special Committee to receive an aggregate amount not to exceed $300,000 in respect of their services in furtherance of the Merger; and

 

   

the entitlement to the indemnification benefits in favor of Vitamin Shoppe directors and executive officers, as described in more detail in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Indemnification and Insurance.”

 

54


Table of Contents

Payments to Executive Officers in Respect of Equity Awards

At the Effective Time, each Option, RSU, PSU and RSA will be cancelled and converted into the right to receive the Merger Consideration as described in the section of this proxy statement captioned “—Treatment of Stock Options and Other Equity-Based Awards” above.

The table below sets forth the total amount payable at the closing of the Merger in respect of such Company equity-based awards for each Vitamin Shoppe executive officer and director based on (i) the number of outstanding Options, (ii) the number of outstanding RSUs, (iii) the number of outstanding PSUs at the level of achievement of the performance goals applicable to such award as specified in the applicable PSU award agreement, (iv) the number of RSAs and (v) the total value of the Options, RSUs, PSUs and RSAs, in each case, that was held by such executive officer or director as of November 5, 2019, the latest practicable date to determine such amounts before the filing of this proxy statement. These numbers do not forecast any grants, additional issuances, dividends, additional deferrals or forfeitures of equity-based awards following the date of this proxy statement. Depending on when the Effective Time occurs, certain equity-based awards shown in the table may vest in accordance with their terms. The total value of the Options, RSUs, PSUs and RSAs is determined by multiplying the number of Options by the excess, if any, of the Merger Consideration over the exercise price per share of such Option, and by multiplying the number of shares of common stock subject to RSUs, PSUs and RSAs by the Merger Consideration.

Summary of Outstanding Vitamin Shoppe Equity Awards

 

Name

   Options
(#)
    RSUs
(#)
     PSUs
(#)
     RSAs
(#)
     Amount
($)
 

Named Executive Officers

             

Sharon Leite

     —         —          168,150        47,445        1,401,368  

Billy Wafford(1)

     —         —          —          —          —    

David Mock(2)

     141,777       31,250        47,855        18,978        899,827  

David M. Kastin

     8,012 (7)      —          36,101        29,368        425,549  

Colin Watts(3)

     —         —          —          —          —    

Brenda Galgano(4)

     —         —          —          —          —    

Charles D. Knight(5)

     —         —          24,778        25,080        324,077  

Stacey Renfro

     —         —          38,502        33,814        470,054  

Executive Officers

             

Teresa Orth

     18,012 (7)      —          36,101        29,368        425,548  

Neal Panza

     —         —          10,218        11,678        142,324  

Andrew Laudato

     —         —          25,547        29,197        355,836  

Directors

             

Alexander W. Smith(6)

     —         14,920        —          —          96,980  

Deborah M. Derby

     —         39,002        —          —          253,513  

David H. Edwab

     2,030 (7)      33,120        —          —          215,280  

Melvin L. Keating

     —         19,893        —          —          129,305  

Guillermo Marmol

     —         14,920        —          —          96,980  

Himanshu H. Shah

     —         19,893        —          —          129,305  

Timothy J. Theriault

     —         14,920        —          —          96,980  

Sing Wang

     —         14,920        —          —          96,980  

 

(1)

Billy Wafford was previously the Chief Financial Officer of Vitamin Shoppe, his employment ended April 5, 2019.

(2)

David Mock resigned from his position as Executive Vice President—Chief Merchandising Officer of Vitamin Shoppe on May 31, 2019. Mr. Mock is continuing to serve as a consultant from June 1, 2019 to December 31, 2019. He will not receive any termination benefits in connection with the merger.

 

55


Table of Contents
(3)

Colin Watts was previously the Chief Executive Officer of Vitamin Shoppe, his employment ended May 31, 2018. He will not receive any termination benefits or accelerated vesting related to the equity awards in connection with the merger.

(4)

Brenda Galgano was previously the Chief Executive Officer of Vitamin Shoppe, her employment ended June 5, 2018. She will not receive any termination benefits or accelerated vesting related to the equity awards in connection with the merger.

(5)

Charles D. Knight was promoted to Chief Financial Officer of Vitamin Shoppe on May 20, 2019.

(6)

Alexander Smith was previously the Executive Chairman of Vitamin Shoppe. On August 27, 2018, he transitioned to the position of Non-Executive Chairman.

(7)

The options were granted at a strike price greater than the Merger Consideration and are therefore currently valued at $0.

Executive Severance Pay Policy

Vitamin Shoppe maintains the Severance Plan, which provides for severance and other continued benefits for selected executives in the event of an involuntary termination meeting the conditions described in the Severance Plan. In the event an eligible executive is terminated by Vitamin Shoppe without “cause” (as defined below) or by the executive due to an “adverse change in status” (as defined below) upon or within two years following the Effective Date, and subject to the executive’s execution and non-revocation of a release of claims in favor of Vitamin Shoppe, the Severance Plan provides that the named executive officers will be entitled to receive the following severance payments:

 

   

a lump sum cash payment equal to the product of (A) the sum of (x) the executive’s base salary in effect prior to any reduction that constitutes an adverse change in status, plus (y) the executive’s target annual bonus and (B) 2.00 and paid 65 days following the date of the termination;

 

   

if Vitamin Shoppe’s performance equals or exceeds the performance targets in the annual bonus or cash incentive plan for the year in which the Effective Time occurs, a lump sum cash payment equal to the greater of the target or actual annual bonus or cash incentive plan payment the executive would have received for service in the final calendar year of employment, prorated based on the number of full calendar months of service completed and paid at the time annual bonuses are paid by Vitamin Shoppe to similarly situated executives;

 

   

continued payment by Vitamin Shoppe of the employer portion of COBRA premiums (including the executive’s spouse and eligible dependents), for a period of 18 months following the executive’s separation from service, or such earlier date as the executive becomes eligible for insurance coverage from a subsequent employer or becomes eligible for Medicare;

 

   

reasonable executive-level outplacement services for a period of one year following the executive’s date of termination; and

 

   

payment of all accrued but unused vacation as of the date of termination.

For purposes of the Severance Plan, “cause” includes any of the following with respect to an executive: (i) theft or misappropriation of funds or other property of Vitamin Shoppe; (ii) alcoholism or drug abuse, either of which materially impair the ability of the executive to perform his/her duties and responsibilities to Vitamin Shoppe or is injurious to the business of Vitamin Shoppe; (iii) the conviction of, or pleading guilty or nolo contendere, to a felony or any other crime involving moral turpitude; (iv) intentionally causing Vitamin Shoppe to violate any local, state or federal law, rule or regulation that harms or may harm Vitamin Shoppe in any material respect; (v) gross negligence or willful misconduct in the conduct or management of Vitamin Shoppe which materially affects Vitamin Shoppe, not remedied (if susceptible to remedy) within 30 days after receipt of written notice from Vitamin Shoppe; (vi) willful refusal to comply with any significant policy, directive or decision of the chief executive officer, any other executive(s) of Vitamin Shoppe to whom the executive reports of a lawful business purpose or willful refusal to perform the duties reasonably assigned to the executive by the chief executive

 

56


Table of Contents

officer, any other executive(s) of Vitamin Shoppe to whom the executive reports consistent with the executive’s functions, duties and responsibilities, in each case, in any material respect, not remedied (if susceptible to remedy) within 30 days after receipt of written notice from Vitamin Shoppe; (vii) breach (other than by reason of physical or mental illness, injury, or condition) of any other material obligation to Vitamin Shoppe that is or could reasonably be expected to result in material harm to Vitamin Shoppe not remedied (if susceptible to remedy) within 30 days after receipt of written notice of such breach from Vitamin Shoppe; (viii) violation of Vitamin Shoppe’s operating and/or financial/accounting procedures which results in material loss to Vitamin Shoppe, as determined by Vitamin Shoppe; (ix) the death or disability of the executive; or (x) violation of Vitamin Shoppe’s confidentiality, non-compete or non-solicit requirements or code of business conduct.

For purposes of the Severance Plan, “adverse change in status” generally includes either of the following which occurs without the written consent of the executive (i) a material adverse change in the executive’s base salary and/or target annual bonus, function, duties, title or responsibilities from those in effect at the time of a change in control of Vitamin Shoppe, including the Merger; or (ii) if the executive is required to permanently commute or relocate more than a 25-mile radius from Vitamin Shoppe’s office location at the time of a change in control of Vitamin Shoppe, including the Merger but only if such new commute increases the executive’s commute prior to the change.

For an estimate of the value of the payments and benefits described above that would become payable under the Severance Plan to Vitamin Shoppe’s named executive officers, see the section of this proxy statement captioned “—Golden Parachute Compensation.” We estimate that the aggregate amount payable to Ms. Orth and Messrs. Panza and Laudato (the Vitamin Shoppe executive officers who are not named executive officers) pursuant to the terms of the Severance Plan (excluding the value of accelerating Vitamin Shoppe equity-based awards) would equal approximately $3,693,780, assuming consummation of the Merger on November 5, 2019, and that each executive officer incurred a severance-qualifying termination of employment immediately following the consummation of the Merger. This estimate is based on compensation and benefit levels in effect as of November 5, 2019, and if compensation and benefit levels are changed after such date, the actual value of the severance payments and benefits to which Vitamin Shoppe executive officers who are not named executive officers are entitled may be different from those provided herein.

Performance Cash Awards

Vitamin Shoppe executive officers hold Performance Cash Awards that will continue to be outstanding subject to their terms, with all applicable performance goals deemed achieved at “target” performance, following the consummation of the Merger. In the event of an involuntary termination by Vitamin Shoppe without “cause” or by the executive due to an “adverse change in status” upon or within two years following the Effective Date, any outstanding and unpaid portion of the Performance Cash Awards will vest and become payable at “target” level performance.

For purposes of the Performance Cash Awards, “cause” has substantially the same meaning as “cause” for purposes of the Severance Plan and “adverse change in status” generally includes either of the following which occurs without the written consent of the executive: (i) a material adverse change in the executive’s total compensation, function, duties, title or responsibilities from those in effect at the time of a change in control of Vitamin Shoppe, including the Merger; or (ii) the executive is required to permanently commute or relocate more than a 50-mile radius from Vitamin Shoppe’s office location at the time of a change in control of Vitamin Shoppe, including the Merger, but only if such new commute increases the executive’s commute prior to the change.

For an estimate of the value of the payments and benefits described above that would become payable under the Performance Cash Awards to Vitamin Shoppe’s named executive officers, please see the section of this proxy statement captioned “—Golden Parachute Compensation.” We estimate that the aggregate amount payable to Ms. Orth and Messrs. Panza and Laudato (the Vitamin Shoppe executive officers who are not named executive

 

57


Table of Contents

officers) pursuant to the terms of the Performance Cash Awards would equal approximately $225,000, assuming that the consummation of the Merger on November 5, 2019, and that each executive officer incurred a termination without cause immediately following the consummation of the Merger.

Employment Arrangements Following the Merger

As of the date of this proxy statement, none of Vitamin Shoppe’s executive officers have reached an understanding on potential employment or other retention terms with the Surviving Company, and no Vitamin Shoppe executive officers have entered into any definitive agreements or arrangements regarding employment or other retention with the Surviving Company following the consummation of the Merger. However, prior to the Effective Time, Parent may initiate discussions regarding employment or other retention terms and may enter into definitive agreements regarding employment or retention for certain of Vitamin Shoppe employees, to be effective as of the Effective Time.

Golden Parachute Compensation

The table below, captioned “Potential Change in Control Payments to Named Executive Officers,” along with its footnotes, sets forth the information required by Item 402(t) of Regulation S-K regarding compensation payable to named executive officers whose compensation is subject to an advisory vote of the stockholders as described below in the section of the proxy statement captioned “Proposal 2: The Company’s Compensation Proposal.” The named executive officers of Vitamin Shoppe are the chief executive officer, former chief executive officers, chief financial officer, former chief financial officer, and three other most highly compensated executive officers, as determined for purposes of its most recent annual proxy statement (each of whom we refer to as a “named executive officer”). The table assumes the consummation of the Merger occurred on November 5, 2019, the latest practicable date to determine such amounts prior to the filing of this proxy statement and the employment of the named executive officer was terminated without “cause” or for “adverse change in status” on such date.

Potential Change in Control Payments to Executive Officers

 

Name

   Cash
($)(6)
     Equity
($)(7)
     Perquisites/
Benefits
($)(8)
     Total
($)(9)
 

Sharon Leite

     3,725,584        1,401,368        20,271        5,147,223  

Billy Wafford(1)

     —          —          —          —    

David Mock(2)

     —          899,827        —          899,827  

David M. Kastin

     1,348,829        425,549        20,271        1,794,649  

Colin Watts(3)

     —          —          —          —    

Brenda Galgano(4)

     —          —          —          —    

Alexander Smith(5)

     —          96,980        —          96,980  

Charles D. Knight

     1,598,828        324,077        20,271        1,943,176  

Stacey Renfro

     1,643,924        470,054        20,271        2,134,249  

 

(1)

Billy Wafford’s employment ended April 5, 2019. He will not receive any termination benefits or accelerated vesting related to his equity or cash awards in connection with the Merger.

(2)

David Mock resigned from his position on May 31, 2019. He will not receive any termination benefits in connection with the Merger.

(3)

Colin Watts’s employment ended May 31, 2018. He will not receive any termination benefits or accelerated vesting related to his equity or cash awards in connection with the Merger.

(4)

Brenda Galgano was previously the Chief Executive Officer of Vitamin Shoppe and her employment ended June 5, 2018. She will not receive any termination benefits or accelerated vesting related to her equity or cash awards in connection with the Merger.

(5)

Alexander Smith was previously the Executive Chairman of Vitamin Shoppe. On August 27, 2018, he transitioned to the position of Non-Executive Chairman. He will not receive any termination benefits in connection with the Merger.

 

58


Table of Contents
(6)

As described above in the sections captioned “—Executive Severance Pay Policy” and “—Performance Cash Awards,” the cash termination payments to the named executive officers consist of (i) a lump sum cash payment equal to the result of multiplying (A) the sum of (x) the executive’s base salary in effect prior to any reduction that constitutes an adverse change in status, plus (y) the executive’s target annual bonus by (B) 2.00, (ii) if Vitamin Shoppe’s performance equals or exceeds the performance targets in the annual bonus or cash incentive plan, a cash payment equal to the value of any annual bonus or cash incentive plan payment the executive would have received for service in the final calendar year of employment, which we assume for purposes of this table is achieved at 100% of target, prorated based on the number of full calendar months of service completed, (iii) payment of all accrued but unused vacation as of the date of termination and (iv) accelerated payment of any then-outstanding Performance Cash Awards assuming target performance. The amounts shown assume a Merger closing date and termination of employment on November 5, 2019, the latest practicable date before the filing of this proxy statement. The above payments are “double-trigger” in nature as they will only be payable in the event of a termination of employment without cause or for an adverse change in status following the completion of the Merger.

The cash termination payments described in this column (6) include the following components:

 

Name

   Base
Salary
Severance
($)
     Bonus
Severance

($)
     Pro-Rata
Bonus
Severance
($)
     Accrued
Vacation
($)
     Performance
Cash
Awards

($)
     Total
($)
 

Sharon Leite

     1,400,000        1,400,000        583,333        17,251        325,000        3,725,584  

Billy Wafford

     —          —          —          —          —          —    

David Mock

     —          —          —          —          —          —    

David M. Kastin

     783,475        352,564        146,902        15,888        50,000        1,348,829  

Colin Watts

     —          —          —          —          —          —    

Brenda Galgano

     —          —          —          —          —          —    

Alexander Smith

     —          —          —          —          —          —    

Charles D. Knight

     900,000        450,000        187,500        11,328        50,000        1,598,828  

Stacey Renfro

     900,000        450,000        187,500        25,174        81,250        1,643,924  

 

(7)

As described above in the section captioned “—Treatment of Stock Options and other Equity-Based Awards,” the equity amounts consist of the cancelled and converted to cash payments of vested and unvested Options, RSUs, PSUs and RSAs. The amounts shown are based on the number of such equity-based awards held by each named executive officer as of November 5, 2019, the latest practicable date to determine such amounts before the filing of this proxy statement. The amounts shown do not attempt to forecast any grants, additional issuances, dividends, additional deferrals or forfeitures of equity-based awards following the date of this proxy statement. The above payments are “single-trigger” in nature as they are payable immediately following the completion of the Merger regardless of whether a termination of employment occurs.

The equity payments described in this column (7) include the following components:

 

Name

   Options
($)
     RSUs
($)
     PSUs
($)
     RSAs
($)
     Total
($)
 

Sharon Leite

     —          —          1,092,975        308,393        1,401,368  

Billy Wafford

     —          —          —          —          —    

David Mock

     262,287        203,125        311,058        123,357        899,827  

David M. Kastin

     —          —          234,657        190,892        425,549  

Colin Watts

     —          —          —          —          —    

Brenda Galgano

     —          —          —          —          —    

Alexander Smith

     —          —          —          96,980        96,980  

Charles D. Knight

     —          —          161,057        163,020        324,077  

Stacey Renfro

     —          —          250,263        219,791        470,054  

 

59


Table of Contents
(8)

As described above in the section captioned “—Executive Severance Pay Policy,” the severance benefits to the named executive officers consist of (i) $18,771 attributable to continued employer portion of COBRA premiums (including the executive’s spouse and eligible dependents), for a period of 18 months following the executive’s separation from service, and (ii) $1,500 attributable to reasonable executive-level outplacement services for one year following the executive’s date of termination. The above payments are “double-trigger” in nature as they will only be payable in the event of a termination of employment without cause or for adverse change in status following the completion of the Merger. The amounts reflected in the column above reflect health benefits rates in effect as of November 5, 2019; therefore if benefits levels change between the date of this proxy statement and the closing of the Merger, such amounts will change.

(9)

The amounts in this column represent the total of all compensation in columns (6), (7) and (8). The “single-trigger” and “double-trigger” components of the aggregate total compensation amounts, respectively, for each executive officer are as follows:

 

Name

   Single-Trigger
Payments
($)
     Double-Trigger
Payments
($)
 

Sharon Leite

     1,401,368        3,745,855  

Billy Wafford

     —          —    

David Mock

     899,827        —    

David M. Kastin

     425,549        1,369,100  

Colin Watts

     —          —    

Brenda Galgano

     —          —    

Alexander Smith

     96,980        —    

Charles D. Knight

     324,077        1,619,099  

Stacey Renfro

     470,054        1,664,195  

Any amounts shown in the tables above that are subject to the golden parachute excise tax under Section 4999 of the Internal Revenue Code may be subject to reduction to the extent such reduction would result in the named executive officer retaining a greater after-tax amount of such payment.

Financing of the Merger

The obligation of Parent and Merger Sub to consummate the Merger is not subject to any financing condition.

We anticipate that the total amount of funds necessary to complete the Merger and the related transactions, and to pay the fees and expenses required to be paid at the completion of the Merger by Parent and Merger Sub under the Merger Agreement, will be approximately $240 million in cash. This amount includes funds needed to: (1) pay stockholders the amounts due under the Merger Agreement and (2) make payments in respect of our outstanding equity-based awards payable at the Effective Time pursuant to the Merger Agreement.

Equity Financing

In connection with the transactions contemplated by the Merger Agreement, Tributum and Parent have entered into the Equity Commitment Letter. Pursuant to the Equity Commitment Letter, Tributum has provided Parent with an aggregate equity commitment of $70 million in cash.

The Equity Commitment Letter provides, among other things, that: (1) the Company is an express third-party beneficiary thereof in connection with the Company’s exercise of its rights related to specific performance under the Merger Agreement; and (2) none of Parent or Tributum will raise any objections to the granting of an injunction, specific performance or other equitable relief in connection with the exercise of such third-party beneficiary rights. The Equity Financing is conditioned on the consummation of the Merger in accordance with the Merger Agreement, as well as other customary conditions, including the simultaneous consummation of the Debt Financing.

 

60


Table of Contents

The proceeds of the Equity Financing will be available to (i) fund the aggregate Merger Consideration and (ii) pay fees and expenses required to be paid at the closing of the Merger by Parent, Merger Sub and the Company contemplated by, and subject to the terms and conditions of, the Merger Agreement.

Debt Financing

Parent has also obtained the JPMorgan Commitment Letter from JPMorgan and the B. Riley Commitment Letter from B. Riley. Pursuant to the JPMorgan Commitment Letter, JPMorgan has committed to provide additional senior secured revolving commitments in an aggregate principal amount of $100 million under the Existing Credit Agreement. Pursuant to the B. Riley Commitment Letter, B. Riley has committed to provide the senior secured Term Loan Facility in an aggregate principal amount of $110 million.

The Debt Financing is conditioned on the consummation of the Merger in accordance with the Merger Agreement, as well as other customary conditions, including the simultaneous consummation of the Equity Financing.

The proceeds of the Debt Financing will be available to (i) fund the aggregate Merger Consideration and (ii) pay fees and expenses required to be paid at the closing of the Merger by Parent, Merger Sub and the Company contemplated by, and subject to the terms and conditions of, the Merger Agreement.

If any portion of the Debt Financing becomes unavailable on the terms and conditions contemplated in the Debt Commitment Letters, Parent must use its reasonable best efforts to arrange, as promptly as practicable following the occurrence of such unavailability (and in any event no later than the date on which the marketing period expires), to obtain alternative financing from alternative sources on terms not materially worse and conditions not materially less favorable in the aggregate to Parent than those contained in the Debt Commitment Letters and the related fee letters and in an amount sufficient to assure the availability at the Effective Time of the amount necessary to (i) make payments in connection with the Merger and related fees and (ii) repay, prepay or discharge certain outstanding indebtedness of Vitamin Shoppe.

Voting Agreement

Concurrently with the execution of the Merger Agreement, Vintage Fourteen entered into the Voting Agreement with Vitamin Shoppe. The following summary describes the material provisions of the Voting Agreement. The description of the Voting Agreement in this summary and elsewhere in this proxy statement are not complete and are qualified in their entirety by reference to the Voting Agreement, a copy of which is attached to this proxy statement as Annex D and incorporated into this proxy statement by reference. We encourage you to read the Voting Agreement carefully and in its entirety because this summary may not contain all the information about the Voting Agreement that is important to you. The rights and obligations of the signatories to the Voting Agreement are governed by the express terms of the Voting Agreement and not by this summary or any other information contained in this proxy statement.

At the time of the execution of the Voting Agreement, Vintage Fourteen had held approximately 14.8% of the outstanding shares of common stock.

Voting Provisions

Under the Voting Agreement, Vintage Fourteen has, among other things, agreed to vote its shares of common stock owned as of the date of the Voting Agreement (the “Covered Shares”) (i) in favor of the adoption of the Merger Agreement and any other matter or action necessary or appropriate to, or in furtherance of, the consummation of the Merger (including any proposal to adjourn the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting and any proposal to approve, on an advisory (non-binding) basis,

 

61


Table of Contents

the compensation that may be paid or become payable to the Company’s named executive officers in connection with the Merger) and (ii) against approval of any proposal made in opposition to, in competition with, or inconsistent with, the Merger Agreement or the Merger or any other transactions contemplated by the Merger Agreement.

Restrictions on Granting of Proxies

Pursuant to the Voting Agreement, Vintage Fourteen has agreed that during the term of the Voting Agreement, Vintage Fourteen will not (i) enter into any agreement or understanding with, or give instructions to, any person to vote or cause to be voted any of its shares of common stock in any manner inconsistent with the voting provisions described above, (ii) grant any proxies or power of attorney with respect to any of its shares of common stock in any manner inconsistent with the voting provisions described above or (iii) or take any other action that would prevent or impair its ability to satisfy its obligations under the Voting Agreement.

Waiver of Appraisal Rights

Under the Voting Agreement, Vintage Fourteen has waived and agreed not to assert or perfect any rights of appraisal or rights to dissent from the Merger under Section 262 with respect to all of the Covered Shares.

Termination

The obligations and rights under the Voting Agreement will terminate upon the earliest of (i) the Effective Time, (ii) the termination of the Merger Agreement in accordance with its terms, (iii) the occurrence of a Company Board Recommendation Change, (iv) the conclusion of the Special Meeting and any other meeting of the stockholders at which the vote in respect of the matters contemplated by the Voting Agreement is taken and (v) the date of any amendment, waiver or modification of the Merger Agreement without the prior written consent of Vintage Fourteen that decreases the Merger Consideration, changes the form of the Merger Consideration, extends the Termination Date (as defined in the section of this proxy statement captioned “Proposal 1: Adoption of the Merger Agreement—Termination of the Merger Agreement”) or imposes any material restrictions on the consummation of the Merger or the payment of the Merger Consideration in a manner material and adverse to Vintage Fourteen.

First Amendment to Agreement and Plan of Merger

On November 11, 2019, Vitamin Shoppe, Merger Sub and Parent entered into the First Amendment to Agreement and Plan of Merger (the “Amendment”) which, among other things, provides that Vitamin Shoppe will merge with and into Merger Sub, with Merger Sub continuing as the Surviving Company and a wholly owned subsidiary of Parent.

Closing and Effective Time

The closing of the Merger will take place no later than (i) the third business day following the satisfaction or waiver in accordance with the Merger Agreement of all of the conditions to closing of the Merger (as described under the caption, “Proposal 1: Adoption of the Merger Agreement—Conditions to the Closing of the Merger”), other than conditions that by their terms are to be satisfied at the closing of the Merger, but subject to the satisfaction or waiver of such conditions, or (ii) such other time as Parent, Merger Sub and the Company mutually agree in writing.

Appraisal Rights

If the Merger is consummated, stockholders who continuously hold shares of common stock through the Effective Time who do not vote in favor of the adoption of the Merger Agreement and who properly demand

 

62


Table of Contents

appraisal of their shares and who do not withdraw their demands or otherwise lose their rights of appraisal will be entitled to appraisal of their shares in connection with the Merger under Section 262. 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, which is attached to this proxy statement as Annex C and incorporated herein by reference. The following summary does not constitute any legal or other advice and does not constitute a recommendation that stockholders exercise their appraisal rights under Section 262. All references in Section 262 and in this summary to a “stockholder” are to the stockholder of record of shares of common stock unless otherwise expressly noted herein. Only a stockholder of record of shares of common stock is entitled to demand appraisal of the shares registered in that holder’s name. A person having a beneficial interest in shares of common stock held of record in the name of another person, such as a bank, broker, trust or other nominee, must act promptly to cause the stockholder of record to follow the steps summarized below properly and in a timely manner to perfect appraisal rights. If you hold your shares of common stock through a bank, broker or other nominee and you wish to exercise appraisal rights, you should consult with your bank, broker or the other nominee.

Under Section 262, if the Merger is completed, stockholders who: (1) submit a written demand for appraisal of their shares; (2) do not vote in favor of the adoption of the Merger Agreement; (3) continuously are the stockholders of record of such shares through the Effective Time; and (4) otherwise exactly follow the procedures set forth in Section 262 will be entitled to have their shares appraised by the Delaware Court of Chancery and to receive payment in cash of the “fair value” of the shares of common stock, exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with interest, if any, to be paid on the amount determined to be fair value as determined by the court. However, after an appraisal petition has been filed, the Delaware Court of Chancery will dismiss appraisal proceedings as to all stockholders who have asserted appraisal rights unless (i) the total number of shares for which appraisal rights have been pursued and perfected exceeds 1% of the outstanding shares of common stock as measured in accordance with subsection (g) of Section 262; or (ii) the value of the aggregate Merger Consideration in respect of the shares of common stock for which appraisal rights have been pursued and perfected exceeds $1 million (conditions (i) and (ii) referred to as the “ownership thresholds”). Unless the Delaware Court of Chancery, in its discretion, determines otherwise for good cause shown, interest on an appraisal award will accrue and compound quarterly from the Effective Time through the date the judgment is paid at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during such period. However, at any time before the Delaware Court of Chancery enters judgment in the appraisal proceedings, the Surviving Company may voluntarily pay to each stockholder entitled to appraisal an amount in cash pursuant to subsection (h) of Section 262, in which case such interest will accrue after the time of such payment only on an amount that equals the difference, if any, between the amount so paid and the “fair value” of the shares as determined by the Delaware Court of Chancery, in addition to any interest accrued prior to the time of such voluntary cash payment, unless paid at such time. The Surviving Company is under no obligation to make such voluntary cash payment prior to such entry of judgment.

Under Section 262, where a merger agreement is to be submitted for adoption at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, must notify each of its stockholders who was such on the record date for notice of such meeting with respect to shares for which appraisal rights are available that appraisal rights are available and include in the notice a copy of Section 262. This proxy statement constitutes Vitamin Shoppe’s notice to stockholders that appraisal rights are available in connection with the Merger, and the full text of Section 262 is attached to this proxy statement as Annex C. In connection with the Merger, any stockholder who wishes to exercise appraisal rights, or who wishes to preserve such stockholder’s right to do so, should review Annex C carefully. Failure to strictly comply with the requirements of Section 262 in a timely and proper manner may result in the loss of appraisal rights under the DGCL. A stockholder who loses his, her or its appraisal rights will be entitled to receive the Merger Consideration described in the Merger Agreement. Moreover, because of the complexity of the procedures for exercising the right to seek appraisal of shares of common stock, Vitamin Shoppe believes that if a stockholder considers exercising such rights, that stockholder should seek the advice of legal counsel.

 

63


Table of Contents

Stockholders wishing to exercise the right to seek an appraisal of their shares of common stock must do ALL of the following:

 

   

the stockholder must not vote in favor of the proposal to adopt the Merger Agreement;

 

   

the stockholder must deliver to Vitamin Shoppe a written demand for appraisal before the vote on the Merger Agreement at the Special Meeting;

 

   

the stockholder must continuously hold the shares from the date of making the demand through the Effective Time (a stockholder will lose appraisal rights if the stockholder transfers the shares before the Effective Time); and

 

   

the stockholder (or any person who is the beneficial owner of shares of common stock held either in a voting trust or by a nominee on behalf of such person) or the Surviving Company must file a petition in the Delaware Court of Chancery requesting a determination of the fair value of the shares within 120 days after the Effective Time. The Surviving Company is under no obligation to file any petition and has no present intention of doing so.

In addition, one of the ownership thresholds must be met.

Because a proxy that does not contain voting instructions will, unless revoked, be voted in favor of the adoption of the Merger Agreement, a stockholder who submits a proxy and who wishes to exercise appraisal rights must instruct the proxy to vote against the adoption of the Merger Agreement or abstain from voting its shares.

Filing Written Demand

Any stockholder wishing to exercise appraisal rights must deliver to Vitamin Shoppe, before the vote on the adoption of the Merger Agreement at the Special Meeting at which the proposal to adopt the Merger Agreement will be submitted to stockholders, a written demand for the appraisal of the stockholder’s shares, and that stockholder must not vote or submit a proxy in favor of the adoption of the Merger Agreement. A stockholder exercising appraisal rights must hold of record the shares on the date the written demand for appraisal is made and must continue to hold the shares of record through the Effective Time. A proxy that is submitted and does not contain voting instructions will, unless revoked, be voted in favor of the adoption of the Merger Agreement, and it will constitute a waiver of the stockholder’s right of appraisal and will nullify any previously delivered written demand for appraisal. Therefore, a stockholder who submits a proxy and who wishes to exercise appraisal rights must submit a proxy containing instructions to vote against the adoption of the Merger Agreement or to abstain from voting on the adoption of the Merger Agreement. Voting against the adoption of the Merger Agreement or abstaining from voting or failing to vote on the proposal to adopt the Merger Agreement will not, in and of itself, constitute a written demand for appraisal satisfying the requirements of Section 262. The written demand for appraisal is in addition to and separate from any proxy or vote on the adoption of the Merger Agreement. A proxy or vote against the adoption of the Merger Agreement will not constitute a demand for appraisal. A stockholder’s failure to make the written demand for appraisal prior to the taking of the vote on the adoption of the Merger Agreement at the Special Meeting will constitute a waiver of appraisal rights.

Only a stockholder of record of shares of common stock is entitled to demand appraisal rights for the shares registered in that holder’s name. A demand for appraisal in respect of shares of common stock must be executed by or on behalf of the stockholder of record, and must reasonably inform Vitamin Shoppe of the identity of the holder and state that the person intends thereby to demand appraisal of the stockholder’s shares in connection with the Merger. If the shares are owned of record in a fiduciary or representative capacity, such as by a trustee, guardian or custodian, such demand must be executed by or on behalf of the record owner, and if the shares are owned of record by more than one person, as in a joint tenancy and tenancy in common, the demand must be executed by or on behalf of all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute a demand for appraisal on behalf of a stockholder 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.

 

64


Table of Contents

STOCKHOLDERS WHO HOLD THEIR SHARES IN BROKERAGE OR BANK ACCOUNTS OR OTHER NOMINEE FORMS AND WHO WISH TO EXERCISE APPRAISAL RIGHTS SHOULD CONSULT WITH THEIR BANK, BROKER OR OTHER NOMINEE, AS APPLICABLE, TO DETERMINE THE APPROPRIATE PROCEDURES FOR THE BANK, BROKER OR OTHER NOMINEE TO MAKE A DEMAND FOR APPRAISAL OF THOSE SHARES. A PERSON HAVING A BENEFICIAL INTEREST IN SHARES HELD OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A BANK, BROKER OR OTHER NOMINEE, MUST ACT PROMPTLY TO CAUSE THE STOCKHOLDER OF RECORD TO FOLLOW PROPERLY AND IN A TIMELY MANNER THE STEPS NECESSARY TO PERFECT APPRAISAL RIGHTS.

All written demands for appraisal pursuant to Section 262 should be mailed or delivered to:

Vitamin Shoppe, Inc.

Attention: David M. Kastin

300 Harmon Meadow Blvd.

Secaucus, New Jersey 07094

Any stockholder who has delivered a written demand to Vitamin Shoppe and 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 Vitamin Shoppe 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 Company. No appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder without the approval of the Delaware Court of Chancery, and such approval may be conditioned upon such terms as the Delaware Court of Chancery deems just; provided, however, that this shall not affect the right of any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party to withdraw such stockholder’s demand for appraisal and to accept the Merger Consideration within 60 days after the Effective Time. If an appraisal proceeding is commenced and Vitamin Shoppe, as the Surviving Company, 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 demand in accordance with the proviso in the immediately preceding sentence, if the Delaware Court of Chancery does not approve the dismissal of an appraisal proceeding with respect to a stockholder, 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 Merger Consideration being offered pursuant to the Merger Agreement.

Notice by the Surviving Company

If the Merger is completed, within 10 days after the Effective Time, the Surviving Company will notify each stockholder who has properly made a written demand for appraisal pursuant to Section 262, and who has not voted in favor of the adoption of the Merger Agreement, that the Merger has become effective and the effective date thereof.

Filing a Petition for Appraisal

Within 120 days after the Effective Time, but not thereafter, the Surviving Company or any stockholder who has complied with Section 262 and is entitled to appraisal under Section 262 (including for this purpose any beneficial owner of the relevant shares) may commence an appraisal proceeding by filing a petition in the Delaware Court of Chancery, with a copy served on the Surviving Company in the case of a petition filed by a stockholder (or beneficial owner), demanding a determination of the fair value of the shares held by all stockholders entitled to appraisal. The Surviving Company is under no obligation, and has no present intention, to file a petition, and stockholders should not assume that the Surviving Company will file a petition or initiate any negotiations with respect to the fair value of the shares of common stock. Accordingly, any stockholders who

 

65


Table of Contents

desire to have their shares appraised should initiate all necessary action to perfect their appraisal rights in respect of their shares of common stock within the time and in the manner prescribed in Section 262. The failure of a stockholder to file such a petition within the period specified in Section 262 could nullify the stockholder’s previous written demand for appraisal.

Within 120 days after the Effective Time, any stockholder who has complied with the requirements of Section 262 and who is entitled to appraisal rights thereunder will be entitled, upon written request, to receive from the Surviving Company 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 Vitamin Shoppe has received demands for appraisal, and the aggregate number of stockholders of such shares. The Surviving Company must give this statement to the requesting stockholder within 10 days after receipt by the Surviving Company of the request for such a statement or within 10 days after the expiration of the period for delivery of demands for appraisal, whichever is later. A beneficial owner of shares of common stock 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 seeking appraisal or request from the Surviving Company the foregoing statements. As noted above, however, the demand for appraisal can only be made by a stockholder of record.

If a petition for an appraisal is duly filed by a stockholder and a copy thereof is served upon the Surviving Company, the Surviving Company will then be obligated within 20 days after such service to file with the Delaware Register in Chancery a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached. Upon the filing of any such petition, the Delaware Court of Chancery may order that notice of the time and place fixed for the hearing on the petition be mailed to the Surviving Company and all of the stockholders shown on the written statement described above at the addresses stated therein. Such notice will also be published at least one week before the day of the hearing in a newspaper of general circulation published in the City of Wilmington, Delaware, or in another publication determined by the court. The costs of these notices are borne by the Surviving Company. After notice to stockholders as required by the court, the Delaware Court of Chancery is empowered to conduct a hearing on the petition to determine those stockholders who have complied with Section 262 and who have become entitled to appraisal rights thereunder. The Delaware Court of Chancery may require the stockholders who demanded payment for their shares to submit their stock certificates (if any) to the Delaware Register in Chancery for notation thereon of the pendency of the appraisal proceedings and, if any stockholder fails to comply with the direction, the Delaware Court of Chancery may dismiss that stockholder from the proceedings. The Delaware Court of Chancery will dismiss appraisal proceedings as to all stockholders who have asserted appraisal rights if neither of the ownership thresholds is met.

Determination of Fair Value

After determining the stockholders entitled to appraisal and that at least one of the ownership thresholds described above has been satisfied as to stockholders seeking appraisal rights, the appraisal proceeding will be conducted in accordance with the rules of the Delaware Court of Chancery, including any rules specifically governing appraisal proceedings. Through such proceeding, the Delaware Court of Chancery will determine the “fair value” of the shares of common stock, 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. In determining fair value, the Delaware Court of Chancery will take into account all relevant factors. Unless the court in its discretion determines otherwise for good cause shown, interest from the Effective Time through the date of payment of the judgment will be compounded quarterly and will 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. However, at any time before the Delaware Court of Chancery enters judgment in the appraisal proceedings, the Surviving Company may pay to each stockholder entitled to appraisal an amount in cash, in which case such interest will accrue after the time of such payment only on an amount that equals the difference, if any, between the amount so paid and the “fair value” of the shares as determined by the Delaware Court of Chancery, in addition to any interest accrued prior to the time of such voluntary payment, unless paid at such time.

 

66


Table of Contents

In Weinberger v. UOP, Inc., the Supreme Court of Delaware 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 which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered, and that “[f]air 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 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 Supreme Court of Delaware 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.” 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.

Stockholders considering seeking appraisal should be aware that the fair value of their shares as so determined by the Delaware Court of Chancery 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 opinion of an investment banking firm as to the fairness from a financial point of view of the consideration payable in a Merger is not an opinion as to, and does not in any manner address, fair value under Section 262. No representation is made as to the outcome of the appraisal of fair value as determined by the Delaware Court of Chancery, 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 Vitamin Shoppe nor Parent anticipates offering more than the Merger Consideration to any stockholder exercising appraisal rights, and each of Vitamin Shoppe and Parent reserves the rights to make a voluntary cash payment pursuant to subsection (h) of Section 262 and to assert, in any appraisal proceeding, that for purposes of Section 262, the “fair value” of a share of common stock is less than the Merger Consideration. If a petition for appraisal is not timely filed, or if neither of the ownership thresholds described above has been satisfied as to stockholders seeking appraisal rights, then the right to an appraisal will cease. The costs of the appraisal proceedings (which do not include attorneys’ fees or the fees and expenses of experts) may be determined by the Delaware Court of Chancery and charged upon the parties as the Delaware Court of Chancery deems equitable under the circumstances. Upon application of a stockholder, the Delaware Court of Chancery may also order that 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, be charged pro rata against the value of all the shares entitled to be appraised. In the absence of such determination or assessment, each party bears its own expenses.

If any stockholder who demands appraisal of his, her or its shares of common stock under Section 262 fails to perfect, or effectively loses or withdraws, such holder’s right to appraisal, the stockholder’s shares of common stock will be deemed to have been converted at the Effective Time into the right to receive the Merger Consideration, without interest. A stockholder will fail to perfect, or effectively lose or withdraw, the stockholder’s right to appraisal if no petition for appraisal is filed within 120 days after the Effective Time, if neither of the ownership thresholds described above has been satisfied as to stockholders seeking appraisal rights or if the stockholder delivers to the Surviving Company a written withdrawal of the stockholder’s demand for appraisal and an acceptance of the Merger Consideration in accordance with Section 262.

From and after the Effective Time, no stockholder who has demanded appraisal rights will be entitled to vote such shares of common stock for any purpose or to receive payment of dividends or other distributions on the stock, except dividends or other distributions on the stockholder’s shares of common stock, if any, payable to stockholders as of a time prior to the Effective Time. If no petition for an appraisal is filed, if neither of the ownership thresholds described above has been satisfied as to the stockholders seeking appraisal rights, or if the stockholder delivers to the Surviving Company a written withdrawal of the demand for an appraisal and an

 

67


Table of Contents

acceptance of the Merger and the Merger Consideration, either within 60 days after the Effective Time or thereafter with the written approval of the Surviving Company, then the right of such stockholder to an appraisal will cease. Once a petition for appraisal is filed with the Delaware Court of Chancery, however, the appraisal proceeding may not be dismissed as to any stockholder without the approval of the court, and such approval may be conditioned upon such terms as the court deems just; provided, however, that the foregoing shall not affect the right of any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party to withdraw such stockholder’s demand for appraisal and to accept the terms offered upon the Merger within 60 days after the Effective Time.

Failure to comply strictly with all of the procedures set forth in Section 262 may result in the loss of a stockholder’s statutory appraisal rights. Consequently, any stockholder wishing to exercise appraisal rights is encouraged to consult legal counsel before attempting to exercise those rights.

Litigation Relating to the Merger

On September 30, 2019, a purported stockholder of the Company commenced a federal securities action in the United States District Court for the District of New Jersey against the Company and its directors, captioned Shiva Stein v. Vitamin Shoppe, Inc., et al., No. 19 Civ. 18543 (D.N.J.). On October 1, 2019, a second purported Company stockholder commenced a putative securities class action in the United States District Court for the District of Delaware against the same defendants, captioned Jordan Rosenblatt v. Vitamin Shoppe, Inc., et al., No. 19 Civ. 1848 (D. Del.). On October 25, 2019, a third purported stockholder of the Company commenced a federal securities action in the United States District Court for the District of New Jersey against the same defendants, captioned Kathleen S. Bell v. Vitamin Shoppe, Inc., et al., No. 19 Civ. 19334 (D.N.J.). All three lawsuits were brought under Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, and challenge as allegedly materially false and misleading the disclosures the Company made in its September 30, 2019 preliminary proxy statement filed with the SEC in connection with the Merger. The complaints seek injunctive relief against the closing of the Merger pending additional disclosures, attorneys’ fees, and other relief. Other, similar lawsuits may follow. The Company believes that the lawsuits are without merit.

Accounting Treatment

The Merger will be accounted for as a “purchase transaction” for financial accounting purposes.

Material U.S. Federal Income Tax Consequences of the Merger

The following is a discussion of material U.S. federal income tax consequences of the Merger that may be relevant to U.S. Holders and Non-U.S. Holders (each as defined below) of shares of common stock whose shares are converted into the right to receive cash pursuant to the Merger. This discussion is based upon the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations promulgated under the Code, court decisions, published positions of the Internal Revenue Service (the “IRS”), and other applicable authorities, all as in effect on the date of this proxy statement and all of which are subject to change or differing interpretations at any time, possibly with retroactive effect. This discussion is limited to stockholders who hold their shares of common stock as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment purposes).

This discussion is general in nature and does not address all of the tax consequences that may be relevant to stockholders in light of their particular circumstances. For example, this discussion does not address tax consequences that may be applicable to:

 

   

stockholders who may be subject to special treatment under U.S. federal income tax laws, such as banks or other financial institutions; tax-exempt organizations; retirement or other tax deferred accounts; S corporations, partnerships or any other entities or arrangements treated as partnerships or

 

68


Table of Contents
 

pass-through entities for U.S. federal income tax purposes (or an investor in a partnership, S corporation or other pass-through entity); insurance companies; mutual funds; dealers in stocks and securities; traders in securities that elect to use the mark-to-market method of accounting for their securities; regulated investment companies; real estate investment trusts; entities subject to the U.S. anti-inversion rules; controlled foreign corporations; passive foreign investment companies; holders that own or have owned (directly, indirectly or constructively) five percent or more of Vitamin Shoppe’s common stock (by vote or value); or former citizens or residents of the United States;

 

   

stockholders holding the shares as part of a hedging, constructive sale or conversion, straddle or other risk reduction transaction;

 

   

stockholders that received their shares of common stock in a compensatory transaction, through a tax qualified retirement plan or pursuant to the exercise of options or warrants;

 

   

U.S. Holders whose functional currency is not the U.S. dollar;

 

   

stockholders who hold their common stock through a bank, financial institution or other entity, or a branch thereof, located, organized or resident outside the United States;

 

   

stockholders subject to special tax accounting rules as a result of any item of gross income with respect to the shares of common stock being taken into account in an “applicable financial statement” (as defined in the Code); or

 

   

tax consequences to stockholders that do not vote in favor of the Merger and properly demand appraisal of their shares under the DGCL.

This discussion does not describe any tax consequences arising under the laws of any state, local or non-U.S. jurisdiction and does not consider any aspects of U.S. federal tax law other than income taxation, such as the U.S. federal estate, or gift tax or the alternative minimum tax. In addition, this discussion does not address any tax consequences arising under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010 or under the Foreign Account Tax Compliance Act of 2010 (including the Treasury Regulations and administrative guidance promulgated thereunder and any intergovernmental agreements entered into in connection therewith).

If a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of shares of common stock, then the tax treatment of a partner in such partnership will generally depend upon the status of the partner and the activities of the partner and the partnership. Partnerships holding shares of common stock and partners therein are urged to consult their tax advisors regarding the consequences of the Merger.

We have not sought, and do not intend to seek, any ruling from the IRS with respect to the statements made and the conclusions reached in the following summary, and no assurance can be given that the IRS will agree with the views expressed herein, or that a court will not sustain any challenge by the IRS in the event of litigation.

THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATIONAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR TAX ADVICE. WE URGE YOU TO CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO YOU IN CONNECTION WITH THE MERGER IN LIGHT OF YOUR OWN PARTICULAR CIRCUMSTANCES, INCLUDING U.S. FEDERAL INCOME, ESTATE, GIFT AND OTHER NON-INCOME TAX CONSEQUENCES, AND TAX CONSEQUENCES UNDER STATE, LOCAL OR NON-U.S. TAX LAWS OR TAX TREATIES.

U.S. Holders

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of shares of common stock that is for U.S. federal income tax purposes:

 

   

an individual who is a citizen or resident of the United States;

 

69


Table of Contents
   

a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or any state thereof or the District of Columbia;

 

   

an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or

 

   

a trust (1) that is subject to the primary supervision of a court within the United States and the control of one or more United States persons as defined in Section 7701(a)(30) of the Code; or (2) that has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.

The receipt of cash by a U.S. Holder in exchange for shares of common stock pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes. In general, such U.S. Holder’s gain or loss will be equal to the difference, if any, between the amount of cash received and the U.S. Holder’s adjusted tax basis in the shares surrendered pursuant to the Merger. Gain or loss must be determined separately for each block of shares (that is, shares acquired at the same cost in a single transaction). A U.S. Holder’s adjusted tax basis generally will equal the amount that such U.S. Holder paid for the shares. Such gain or loss generally will be long-term capital gain or loss if such U.S. Holder’s holding period in such shares is more than one year at the time of the Merger. A reduced tax rate on capital gain generally will apply to long-term capital gain of a non-corporate U.S. Holder (including individuals). The deductibility of capital losses is subject to limitations.

Non-U.S. Holders

For purposes of this discussion, a “Non-U.S. Holder” is a beneficial owner of common stock that is not a U.S. Holder or an entity classified as a partnership for U.S. federal income tax purposes. Any gain realized by a Non-U.S. Holder pursuant to the Merger generally will not be subject to U.S. federal income tax unless:

 

   

the gain is effectively connected with a trade or business of such Non-U.S. Holder in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base maintained by such Non-U.S. Holder in the United States), in which case such gain generally will be subject to U.S. federal income tax at rates generally applicable to U.S. persons, and, if the Non-U.S. Holder is a corporation, such gain may also be subject to the branch profits tax at a rate of 30% (or a lower rate under an applicable income tax treaty);

 

   

such Non-U.S. Holder is a nonresident alien individual who is present in the United States for 183 days or more in the taxable year of that disposition and certain other conditions are met, in which case such gain will be subject to U.S. federal income tax at a rate of 30% (or a lower rate under an applicable income tax treaty), which gain may be offset by certain U.S. source capital losses of such Non-U.S. Holder; or

 

   

Vitamin Shoppe is or has been a “United States real property holding corporation” within the meaning of Section 897(c) of the Code (“USRPHC”), at any time within the shorter of the five-year period preceding the Merger or such Non-U.S. Holder’s holding period with respect to the applicable shares of common stock, and certain other conditions are satisfied. Although there can be no assurances in this regard, we believe that we are not, and have not been, a USRPHC at any time during the five-year period preceding the Merger.

Information Reporting and Backup Withholding

Information reporting and backup withholding may in certain circumstances apply to payments made in exchange for shares of common stock pursuant to the Merger. Backup withholding generally will not apply to (i) a U.S. Holder that furnishes a correct taxpayer identification number and certifies that such stockholder is not subject to backup withholding on a properly completed and executed IRS Form W-9 (or a substitute or successor form) or (ii) a Non-U.S. Holder that certifies its foreign status on a properly completed and executed applicable IRS Form W-8 (or a substitute or successor form) or that otherwise establishes an exemption from backup withholding. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be claimed as a refund or a credit against the stockholder’s U.S. federal income tax liability, provided that the required information is timely furnished to the IRS.

 

70


Table of Contents

Regulatory Approvals Required for the Merger

General

Vitamin Shoppe and Parent have agreed to use their reasonable best efforts to take all action necessary to comply with all regulatory notification requirements, and, subject to certain limitations, to obtain all regulatory approvals required to consummate the Merger and the other transactions contemplated by the Merger Agreement. These approvals include, for example, approval under, or notifications pursuant to, the HSR Act and any other applicable antitrust laws (whether domestic or foreign).

HSR Act and U.S. Antitrust Matters

Under the HSR Act and the rules promulgated thereunder, certain acquisitions may not be completed until information has been furnished to the DOJ and the FTC, and the applicable HSR Act waiting period has expired or been terminated. The Merger is subject to the provisions of the HSR Act and therefore cannot be completed until Vitamin Shoppe and Parent file a notification and report form with the FTC and the DOJ under the HSR Act and the applicable waiting period has expired or been terminated. Vitamin Shoppe and Parent made the necessary filings with the FTC and the DOJ on September 4, 2019. The applicable waiting period under the HSR Act would have expired at 11:59 pm ET on October 4, 2019, but, on September 13, 2019, the waiting period under the HSR Act was terminated early by the FTC and the DOJ.

At any time before or after consummation of the Merger, notwithstanding the termination or expiration of the waiting period under the HSR Act, the FTC or the DOJ could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the Merger, seeking divestiture of substantial assets of the parties, or seeking to require the parties to license or hold separate assets or terminate existing relationships and contractual rights. At any time before or after the completion of the Merger, and notwithstanding the termination or expiration of the waiting period under the HSR Act, any state or foreign jurisdiction could take such action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the completion of the Merger or seeking divestiture of substantial assets of Vitamin Shoppe (or its subsidiaries), or Parent or Merger Sub (or their respective controlled affiliates). Private parties may also seek to take legal action under the antitrust laws under certain circumstances. We cannot be certain that a challenge to the Merger will not be made or that, if a challenge is made, we will prevail.

Other Regulatory Approvals

One or more governmental agencies may impose a condition, restriction, qualification, requirement or limitation when it grants the necessary approvals and consents. Third parties may also seek to intervene in the regulatory process or litigate to enjoin or overturn regulatory approvals, any of which actions could significantly impede or even preclude obtaining required regulatory approvals. There is currently no way to predict how long it will take to obtain all of the required regulatory approvals or whether such approvals will ultimately be obtained and there may be a substantial period of time between the approval by stockholders and the completion of the Merger.

Although we expect that all required regulatory clearances and approvals will be obtained, we cannot assure you that these regulatory clearances and approvals will be timely obtained, obtained at all or that the granting of these regulatory clearances and approvals will not involve the imposition of additional conditions on the completion of the Merger, including the requirement to divest assets, or require changes to the terms of the Merger Agreement. These conditions or changes could result in the conditions to the Merger not being satisfied.

 

71


Table of Contents

PROPOSAL 1: ADOPTION OF THE MERGER AGREEMENT

The following summary describes the material provisions of the Merger Agreement. The descriptions of the Merger Agreement in this summary and elsewhere in this proxy statement are not complete and are qualified in their entirety by reference to the Merger Agreement and the Amendment, copies of which are attached to this proxy statement as Annex A and Annex E, respectively, and incorporated into this proxy statement by reference. You should carefully read and consider the entire Merger Agreement, as amended, which is the legal document that governs the Merger, because this summary may not contain all the information about the Merger Agreement that is important to you. The rights and obligations of the parties are governed by the express terms of the Merger Agreement and not by this summary or any other information contained in this proxy statement.

The representations, warranties, covenants and agreements described below and included in the Merger Agreement (1) were made only for purposes of the Merger Agreement and as of specific dates, (2) were made for the benefit of the parties to the Merger Agreement, and (3) may be subject to important qualifications, limitations and supplemental information agreed to by the Company, Parent and Merger Sub in connection with negotiating the terms of the Merger Agreement. In addition, the representations and warranties may have been included in the Merger Agreement for the purpose of allocating contractual risk between the Company, Parent and Merger Sub rather than to establish matters as facts, and may be subject to standards of materiality applicable to such parties that differ from those applicable to investors. Stockholders are not third-party beneficiaries under the Merger Agreement and should not place undue reliance on the representations, warranties, covenants and agreements or any descriptions thereof as characterizations of the actual state of facts or condition of the Company, Parent or Merger Sub or any of their respective affiliates or businesses. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosure. In addition, you should not place undue reliance on the covenants in the Merger Agreement as actual limitations on the respective businesses of the Company, Parent and Merger Sub, because the parties may take certain actions that are either expressly permitted in the confidential disclosure letter to the Merger Agreement or as otherwise consented to by the appropriate party, which consent may be given without prior notice to the public. The Merger Agreement is described below, and included as Annex A, only to provide you with information regarding its terms and conditions, and not to provide any other factual information regarding the Company, Parent, Merger Sub or their respective businesses. Accordingly, the representations, warranties, covenants and other agreements in the Merger Agreement should not be read alone, and you should read the information provided elsewhere in this proxy statement and in the Company’s filings with the SEC regarding the Company and its business.

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

The Merger Agreement provides that, upon the terms and subject to the conditions of the Merger Agreement and in accordance with the applicable provisions of the DGCL and the Limited Liability Company Act of the State of Delaware (the “DLLCA”), at the Effective Time: (1) the Company will be merged with and into Merger Sub, (2) the separate corporate existence of the Company will thereupon cease, and (3) Merger Sub will continue as the Surviving Company. The Merger will become effective at the Effective Time. At and after the Effective Time, the Surviving Company will possess all of the property, rights, privileges, powers and franchises of the Company and Merger Sub, and all debts, liabilities and duties of the Company and Merger Sub will become the debts, liabilities and duties of the Surviving Company.

At the Effective Time, the manager(s) of the Surviving Company will consist of the manager(s) of Merger Sub as of immediately prior to the Effective Time, each to hold office until their respective successors are duly elected or appointed and qualified or their earlier death, resignation or removal, in each case as provided in the organizational documents of the Surviving Company and applicable law. At the Effective Time, the officers of the Company as of immediately prior to the Effective Time will become the officers of the Surviving Company, each to hold office until their respective successors are duly appointed or their earlier death, resignation or

 

72


Table of Contents

removal, in each case as provided in the organizational documents of the Surviving Company and by applicable law. At the Effective Time, the certificate of formation of Merger Sub as in effect immediately prior to the Merger will become the certificate of formation of the Surviving Company until thereafter amended in accordance with the applicable provisions of the DLLCA and such certificate of formation. At the Effective Time, the limited liability company agreement of Merger Sub as in effect immediately prior to the Effective Time will become the limited liability company agreement of the Surviving Company, until thereafter amended in accordance with the applicable provisions of the DLLCA and such limited liability company agreement.

Closing and Effective Time

The closing of the Merger will take place (1) on a date to be agreed upon by the Company, Parent and Merger Sub that is no later than the third business day after the satisfaction or waiver of all conditions to the closing of the Merger (described below under the section of this proxy statement captioned “—Conditions to the Closing of the Merger”) (other than those conditions to be satisfied at the closing of the Merger) or (2) such other time, location and date agreed to in writing by the Company, Parent and Merger Sub. On the Closing Date (as defined in the Merger Agreement), the Company, Parent and Merger Sub shall cause the Merger to be consummated pursuant to the DGCL and the DLLCA by filing a certificate of merger with the Secretary of State of the State of Delaware in accordance with the applicable provisions of the DGCL and the DLLCA. The time at which the Merger will become effective shall be the time that such certificate of merger is filed with and accepted for record by the Secretary of State of the State of Delaware (or such later time as may be agreed in writing by the Company, Parent and Merger Sub and specified in the certificate of merger).

Merger Consideration

Common Stock

At the Effective Time, and without any action required by the Company, Parent, Merger Sub or any stockholder, each share of common stock (other than Excluded Shares) that is issued and outstanding as of immediately prior to the Effective Time will automatically be cancelled, extinguished and converted into the right to receive the Merger Consideration, without interest thereon and less any applicable withholding taxes.

Outstanding Options, RSUs, PSUs and RSAs

At the Effective Time, each RSU outstanding as of immediately prior to the Effective Time (whether vested or unvested) will, without any action on the part of the Company, Parent, Merger Sub or the holder thereof, be cancelled and converted into the right to receive an amount in cash, without interest and subject to any applicable withholding taxes, equal to: (1) the amount of the Merger Consideration, multiplied by (2) the total number of shares of common stock underlying such RSU. At the Effective Time, each PSU outstanding as of immediately prior to the Effective Time (whether vested or unvested) will, without any action on the part of the Company, Parent, Merger Sub or the holder thereof, be cancelled and converted into the right to receive an amount in cash, without interest and subject to any applicable withholding taxes, equal to: (1) the amount of the Merger Consideration, multiplied by (2) the total number of shares of common stock underlying such PSU. For purposes of the previous sentence, the number of shares of common stock subject to a PSU award with performance-based vesting in which the performance period is still outstanding as of the Effective Time will be deemed to be the number of shares of common stock eligible to vest in accordance with the applicable PSU award agreement. At the Effective Time, each Option outstanding immediately prior to the Effective Time (whether vested or unvested) will, without any action on the part of the Company, Parent, Merger Sub or the holder thereof, be cancelled and converted into the right to receive an amount in cash, without interest and subject to any applicable withholding taxes, equal to: (1) the amount of the Merger Consideration (less the exercise price per share attributable to such Option), multiplied by (2) the total number of shares of common stock underlying such Option. Options with a per share exercise price equal to or greater than the Merger Consideration will be cancelled without payment. At the Effective Time, each RSA outstanding immediately prior to the Effective

 

73


Table of Contents

Time (whether vested or unvested) will, without any action on the party of the Company, Parent, Merger Sub or the holder thereof, be cancelled and converted into the right to receive an amount in cash, without interest and subject to any applicable withholding taxes, equal to: (1) the amount of the Merger Consideration multiplied by (2) the total number of shares of common stock underlying such RSAs.

Treatment of Dissenting Common Shares

Dissenting Shares will not be converted into, or represent the right to receive, the Merger Consideration. Stockholders of the Company who shall have neither voted in favor of the Merger nor consented thereto in writing and who shall have properly and validly exercised their statutory rights of appraisal in respect of shares of common stock held by such stockholders in accordance with Section 262 of the DGCL will be entitled to receive payment of the appraised value of such Dissenting Shares in accordance with the provisions of Section 262 of the DGCL (except that all Dissenting Shares held by stockholders of the Company who shall have failed to perfect or who shall have effectively withdrawn or lost their rights to appraisal of such Dissenting Shares pursuant to Section 262 of the DGCL will be deemed to have been converted into, and to have become exchangeable for, as of the Effective Time, the right to receive the Merger Consideration, without interest thereon, upon surrender of the certificates or uncertificated shares that formerly evidenced such shares of common stock as more fully described under the section of this proxy statement captioned “The Merger—Appraisal Rights”).

Exchange and Payment Procedures

Not less than ten business days prior to the closing of the Merger, Parent will select a Payment Agent reasonably acceptable to the Company to make payments of the Merger Consideration to stockholders. At or prior to the closing of the Merger, Parent shall deposit or cause to be deposited with the Payment Agent an amount in cash equal to the aggregate consideration to which stockholders become entitled pursuant to the Merger Agreement.

Promptly following the Effective Time (and in any event within three business days), Parent and the Surviving Company shall cause the Payment Agent to mail to each holder of record as of immediately prior to the Effective Time (other than stockholders of Excluded Shares other than Dissenting Shares) of  (1) a certificate or certificates that immediately prior to the Effective Time represented outstanding shares of common stock (other than Excluded Shares other than Dissenting Shares) (the “Certificates,” if any), and (2) uncertificated shares of common stock that represented outstanding shares of common stock (other than Excluded Shares other than Dissenting Shares) (the “Uncertificated Shares”) (A) in the case of Certificates, a letter of transmittal in customary form; and (B) in the case of Certificates and Uncertificated Shares, instructions for effecting the surrender of the Certificates and Uncertificated Shares in exchange for the Merger Consideration payable in respect thereof. Upon receipt of an “agent’s message” by the Payment Agent (or such other evidence, if any, of transfer as the Payment Agent may reasonably request) in the case of a book-entry transfer of Uncertificated Shares, the stockholders of such Uncertificated Shares will be entitled to receive in exchange therefor an amount in cash equal to the product obtained by multiplying (1) the aggregate number of shares of common stock represented by such holder’s transferred Uncertificated Shares; by (2) the Merger Consideration.

If any cash deposited with the Payment Agent is not claimed within one year after the Effective Time, such cash will be returned to Parent (or the Surviving Company as directed by Parent), together with any interest or other income received with respect to the Payment Fund, and any stockholders that were issued and outstanding immediately prior to the Merger who have not complied with the exchange procedures in the Merger Agreement will thereafter look only to Parent, as general creditors thereof, for any claim to the Merger Consideration. Any cash deposited with the Payment Agent that remains unclaimed by holders of Certificates or Uncertificated Shares immediately prior to the time at which such amounts would otherwise escheat to, or become the property of, any governmental authority, will, to the extent permitted by applicable law, become the property of the Surviving Company free and clear of any claims or interest of any person previously entitled thereto.

 

74


Table of Contents

Representations and Warranties

The Merger Agreement contains representations and warranties of the Company, Parent and Merger Sub.

Some of the representations and warranties in the Merger Agreement and made by the Company are qualified as to “materiality” or “Company Material Adverse Effect.” For purposes of the Merger Agreement, “Company Material Adverse Effect” means, with respect to the Company, any change, event, development, circumstance or effect (each, an “Effect”) that, individually or taken together with all other Effects that have occurred prior to the date of determination of the occurrence of the Company Material Adverse Effect, (a) has had a materially adverse effect on the business, assets, financial condition or results of operations of the Company and its subsidiaries, taken as a whole, or (b) prevents or materially impairs or delays, or would reasonably be expected to prevent or materially impair or delay, the ability of the Company to perform its obligations under the Merger Agreement or to consummate the Merger and the transactions contemplated by the Merger Agreement, except that none of the following, and no Effects arising out of or resulting from the following (in each case, by itself or when aggregated), will be deemed to be or constitute a Company Material Adverse Effect or will be taken into account when determining whether a Company Material Adverse Effect has occurred or may, would or could occur (except, in each case of the first six bullets below, to the extent that such Effect has had a disproportionate adverse effect on the Company relative to other companies of a similar size operating in the industries in which the Company and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact may be taken into account in determining whether a Company Material Adverse Effect has occurred):

 

   

changes in general economic conditions, or changes in conditions in the global, international or regional economy generally;

 

   

changes in conditions in the financial markets, credit markets or capital markets in the United States or any other country or region of the world, including (1) changes in interest rates or credit ratings, (2) changes in exchange rates for the currencies of any country, or (3) any suspension of trading in securities (whether equity, debt, derivative or hybrid securities) generally on any securities exchange or over-the-counter market;

 

   

changes in conditions in the industries in which the Company and its subsidiaries conduct business that generally affect other participants in such industries;

 

   

any geopolitical conditions, outbreak of hostilities, acts of war, sabotage, cyberterrorism (including by means of cyber-attack by or sponsored by a Governmental Authority), terrorism or military actions (including any escalation or general worsening of any such hostilities, acts of war, sabotage, cyberterrorism, terrorism or military actions);

 

   

earthquakes, volcanic activity, hurricanes, tsunamis, tornadoes, floods, mudslides, wild fires or other natural disasters, force majeure events, weather conditions, epidemics and other similar events in the United States, or any other country or region of the world;

 

   

changes in regulatory, legislative or political conditions in the United States or any other country or region of the world;

 

   

any Effect resulting from the announcement of the Merger Agreement or the pendency or consummation of the Merger, including the impact thereof on the relationships, contractual or otherwise, of the Company and its subsidiaries with employees, suppliers, lenders, lessors, customers, partners, regulators, governmental authorities, vendors or any other third person (provided, however, that this clause will not apply to the Company’s representation and warranty with respect to the absence of conflicts with the Company’s organizational documents and the Company’s contracts or to references to Company Material Adverse Effect as used in any representation or warranty to the extent that such representation or warranty addresses the consequences resulting from the execution or announcement of the Merger Agreement or the pendency of the Merger);

 

   

the compliance by any party with the terms of the Merger Agreement, including any action taken or refrained from being taken pursuant to or in accordance with the Merger Agreement;

 

75


Table of Contents
   

any action taken or refrained from being taken, in each case to which Parent has expressly approved, consented to or requested in writing following the date of the Merger Agreement;

 

   

changes or proposed changes in GAAP or other accounting standards or in any applicable laws (or the enforcement or interpretation of any of the foregoing);

 

   

changes in the price or trading volume of shares of common stock, in and of itself  (it being understood that any cause of such change may be deemed to constitute, in and of itself, a Company Material Adverse Effect and may be taken into consideration when determining whether a Company Material Adverse Effect has occurred);

 

   

any failure, in and of itself, by the Company and its subsidiaries to meet (1) any public estimates or expectations of the Company’s revenue, earnings or other financial performance or results of operations for any period; or (2) any budgets, plans, projections or forecasts of its revenues, earnings or other financial performance or results of operations (it being understood that any cause of any such failure may be deemed to constitute, in and of itself, a Company Material Adverse Effect and may be taken into consideration when determining whether a Company Material Adverse Effect has occurred);

 

   

the availability or cost of equity, debt or other financing to Parent or Merger Sub;

 

   

any stockholder litigation relating to the Merger or other legal proceeding threatened, made or brought by any of the current or former stockholders of the Company (on their own behalf or on behalf of the Company) against the Company, any of its executive officers or other employees or any member of the Board of Directors arising out of the Merger (it being understood that the underlying facts related to such legal proceeding may be deemed to constitute, in and of themselves, a Company Material Adverse Effect);

 

   

the Company or its operating subsidiaries’ marketing and sale of products containing cannabidiol/CBD; and

 

   

any regulatory action taken with regard to any products sold (but not manufactured) by the Company in the ordinary course of business.

In the Merger Agreement, the Company has made customary representations and warranties to Parent and Merger Sub that are subject, in some cases, to specified exceptions and qualifications contained in the Merger Agreement. These representations and warranties relate to, among other things:

 

   

due organization, valid existence, good standing and authority and qualification to conduct business with respect to the Company and its subsidiaries;

 

   

the Company’s power and authority to enter into and perform the Merger Agreement and to consummate the Merger;

 

   

the organizational documents of the Company and specified subsidiaries;

 

   

the necessary approval of the Company’s Board of Directors;

 

   

the rendering of BofA Merrill Lynch’s fairness opinion to the Board of Directors and the Special Committee;

 

   

the inapplicability of anti-takeover statutes to the Merger;

 

   

the necessary vote of stockholders of the Company in connection with the Merger Agreement;

 

   

the absence of any conflict or violation of organizational documents of the Company, or existing contracts of, or laws applicable to, the Company or its subsidiaries, or the resulting creation of any lien upon the Company’s properties or assets (or any properties or assets of any of the Company’s subsidiaries) due to the Merger Agreement and the performance thereof;

 

   

required consent, approval, order or authorization of, filing or registration with, or notification to any governmental authority in connection with the Merger Agreement and performance thereof;

 

76


Table of Contents
   

the capital structure and outstanding equity awards of the Company;

 

   

the absence of any undisclosed security, option, warrant or other right exchangeable for or convertible into shares of common stock;

 

   

the absence of any contract relating to the voting of, requiring registration of, or granting any preemptive rights, anti-dilutive rights or rights of first refusal or other similar rights with respect to any of the Company’s securities;

 

   

the accuracy, compliance with law and required filings of certain of the Company’s SEC filings and financial statements;

 

   

the Company’s disclosure controls and procedures;

 

   

the Company’s internal accounting controls and procedures;

 

   

the absence of certain undisclosed liabilities;

 

   

the conduct of the business of the Company and its subsidiaries in the ordinary course of business since December 29, 2018 and the absence of a Company Material Adverse Effect since December 29, 2018;

 

   

the existence and validity of specified categories of the Company’s and certain of its subsidiaries’ material contracts, and absence of breach or default pursuant to any such material contracts;

 

   

relationships with suppliers;

 

   

real property leased or subleased by the Company and its subsidiaries;

 

   

environmental matters;

 

   

trademarks, patents, copyrights and other intellectual property matters;

 

   

tax matters;

 

   

employee benefit plans;

 

   

labor matters;

 

   

the Company’s and its subsidiaries’ compliance with laws and possession of necessary permits;

 

   

litigation matters;

 

   

insurance matters;

 

   

absence of certain contracts, transactions, arrangements or understandings between the Company or any of its subsidiaries and any Affiliate (as defined in the Merger Agreement) or related person;

 

   

payment of fees to brokers in connection with the Merger Agreement; and

 

   

anti-corruption matters and compliance with various applicable laws including the Foreign Corrupt Practices Act of 1977.

In the Merger Agreement, Parent and Merger Sub have made customary representations and warranties to the Company that are subject, in some cases, to specified exceptions and qualifications contained in the Merger Agreement. These representations and warranties relate to, among other things:

 

   

due organization, good standing and authority and power to conduct business with respect to Parent and Merger Sub, and availability of the organizational documents of Parent and Merger Sub;

 

   

Parent and Merger Sub’s power and authority to enter into and perform the Merger Agreement and the enforceability of the Merger Agreement;

 

   

the absence of any conflict or violation of any organizational documents, existing contracts, applicable laws or the resulting creation of any lien upon Parent’s or Merger Sub’s properties or assets due to the Merger Agreement and the performance thereof;

 

77


Table of Contents
   

required governmental consents and regulatory filings in connection with the Merger Agreement;

 

   

the absence of certain litigation, orders and investigations;

 

   

ownership of common stock;

 

   

payment of fees to brokers in connection with the Merger;

 

   

operations of Merger Sub;

 

   

the absence of any required consent of holders of any capital stock of, or other equity or voting interests in, Parent and the approval of Parent as the only approval of the membership interests of Merger Sub necessary to approve the Merger Proposal;

 

   

matters with respect to Parent and Merger Sub’s financing and sufficiency of funds;

 

   

the absence of any contract, arrangement or understanding prohibiting any potential provider of debt or equity financing from providing debt or equity financing or financial advisory services in connection with a transaction relating to the Company or any of its subsidiaries;

 

   

the absence of any arrangements with any stockholder, director, officer, employee or other Affiliate of the Company related to the Merger;

 

   

the solvency of the Surviving Company and its subsidiaries following the consummation of the Merger and the transactions contemplated by the Merger Agreement;

 

   

the exclusivity and terms of the representations and warranties made by the Parent, Merger Sub and the Company; and

 

   

accuracy of information supplied by Parent or Merger Sub for inclusion in this proxy statement or other required Company filings.

The representations and warranties contained in the Merger Agreement will terminate at the Effective Time of the Merger.

Conduct of Business Pending the Merger

The Merger Agreement provides that, except as: (1) contemplated by the Merger Agreement, (2) set forth in certain sections of the Company’s confidential disclosure letter, (3) approved by Parent (which approval shall not be unreasonably withheld, conditioned or delayed) or (4) required by applicable law, at all times during the period of time commencing with the execution and delivery of the Merger Agreement and continuing until the earlier to occur of the termination of the Merger Agreement and the Effective Time, the Company shall, and shall cause each of its subsidiaries to use its reasonable best efforts to:

 

   

subject to the restrictions and exceptions in the Merger Agreement, conduct its business and operations in the ordinary course of business consistent with past practice;

 

   

maintain its existence in good standing pursuant to applicable law;

 

   

maintain its cash management policies and practices; and

 

   

preserve intact, in all material respects, its business organization, material assets and existing relationships with customers, suppliers, governmental authorities, and others having material business relationships with the Company or its subsidiaries.

In addition, the Company has also agreed that, except as (1) expressly contemplated by the Merger Agreement, (2) approved by Parent (which approval shall not be unreasonably withheld, conditioned or delayed), (3) set forth in certain sections of the Company’s confidential disclosure letter or (4) required by applicable law, at all times during the period of time commencing with the execution and delivery of the Merger Agreement and continuing

 

78


Table of Contents

until the earlier to occur of the termination of the Merger Agreement and the Effective Time, the Company shall not, and shall cause its subsidiaries not to, among other things, subject to certain specified exceptions set forth in the Merger Agreement:

 

   

amend, modify, waive, rescind or otherwise change any organizational document of the Company or any of its subsidiaries;

 

   

liquidate, dissolve, merge, consolidate, restructure, recapitalize or otherwise reorganize;

 

   

issue, sell, deliver, or agree or commit to issue, sell, or deliver any Company Securities (as defined in the Merger Agreement);

 

   

acquire, repurchase or redeem any Company Securities;

 

   

adjust, split, combine or reclassify any shares of capital stock, or issue or authorize or propose the issuance of any other Company Securities in respect of, in lieu of or in substitution for, shares of its capital stock or other equity or voting interest;

 

   

declare, set aside or pay any dividend or other distribution;

 

   

pledge or encumber any shares of capital stock or other equity or voting interest, modify the terms of any shares of capital stock or other equity or voting interest, or enter into any agreement with respect to the voting or registration of shares of Company Securities;

 

   

incur, assume or suffer certain indebtedness or issue any debt securities;

 

   

assume, guarantee, endorse or otherwise become liable or responsible for the obligations of any other person, except with respect to obligations of direct or indirect wholly owned subsidiaries of the Company;

 

   

make any loans, advances or capital contributions to, or investments in, any other person;

 

   

mortgage or pledge (or otherwise encumber) any assets, tangible or intangible, or create or suffer to exist any lien thereupon;

 

   

enter into, adopt, amend, modify, or terminate any Employee Plan or plan, agreement or arrangement that would constitute an Employee Plan if in effect as of the date of the Merger Agreement;

 

   

increase or accelerate the vesting of the compensation of any director, officer, independent contractor, or former or current employee of the Company or any of its subsidiaries, or hire or replace any employees;

 

   

revalue in any material respect any of its properties or assets, including writing off notes or accounts receivable, other than in the ordinary course of business, or make any material change in any of its accounting principles or practices;

 

   

settle any pending or threatened material legal proceeding;

 

   

make or change any material tax election, file any material amended tax return, enter into any closing agreement with a governmental authority with respect to material taxes, settle any material tax claim or proceeding, surrender any right to claim a refund of a material amount of taxes, consent to any extension or waiver of the limitation period applicable to any material income tax claim or assessment, prepare or file any tax return in a manner inconsistent with past practice, change any tax accounting period, or change any tax accounting method;

 

   

incur or commit to incur any capital expenditures;

 

   

enter into, amend or modify in any material respect, terminate, cancel or waive or relinquish any material right or claim under, any (1) contract that if so entered into, modified, amended, terminated, cancelled, waived or relinquished would have a Company Material Adverse Effect; or (2) Material Contract (as defined in the Merger Agreement);

 

79


Table of Contents
   

engage in any transaction with, or enter into any agreement, arrangement or understanding with, any Affiliate of the Company or other person covered by Item 404 of Regulation S-K promulgated by the SEC that would be required to be disclosed pursuant to Item 404;

 

   

make any acquisition or disposition of any material asset or business;

 

   

enter into any joint venture;

 

   

fail to maintain insurance policies in such amounts and against such risks and losses as are consistent with past practice; or

 

   

enter into agreements to do any of the foregoing.

The “Go-Shop” Period

Under the Merger Agreement, from the date of the Merger Agreement until the No-Shop Period Start Date, the Company and its subsidiaries and their respective Representatives had the right to, among other things: (1) solicit, initiate, propose or induce the making, submission or announcement of, or encourage, facilitate or assist, any proposal or offer that constitutes, or that could constitute, an Acquisition Proposal; (2) pursuant to an Acceptable Confidentiality Agreement, furnish to any person and its Representatives any information (including non-public information and data) relating to the Company or any of its subsidiaries and affording access to the business, properties, assets, books, records or other non-public information, or to any personnel, of the Company or any of its subsidiaries (other than Parent, Merger Sub or any designees of Parent or Merger Sub) to any person (and its Representatives, including potential financing sources of such person); provided, that the Company was required to provide to Parent and Merger Sub any material non-public information or data that was provided by or on behalf of the Company to any person given such access that was not previously made available to Parent or Merger Sub prior to or promptly (and, in any event, within 48 hours) following the time it was provided to such person or its Representatives; and (3) engage in, enter into, continue or otherwise participate in, any discussions or negotiations with any person (and their respective Representatives, including potential financing sources of such person) with respect to any Acquisition Proposal (or inquiries, proposals or offers or other efforts or attempts that could lead to an Acquisition Proposal) and cooperate with or assist or participate in or facilitate any such inquiries, proposals, offers, discussions or negotiations or any effort or attempt to make any Acquisition Proposals, including granting a waiver, amendment or release under any pre-existing standstill or similar provision to the extent necessary to allow for an Acquisition Proposal to be made to the Board of Directors (or the Special Committee) or amendment to an Acquisition Proposal to be made to the Company or the Board of Directors (or the Special Committee).

For purposes of this proxy statement and the Merger Agreement:

“Acceptable Confidentiality Agreement” means an agreement with the Company that is either (i) in effect as of the execution and delivery of the Merger Agreement; or (ii) executed, delivered and effective after the execution and delivery of the Merger Agreement, in either case containing provisions that require any counterparty thereto (and any of its Affiliates and Representatives named therein) that receive material non-public information of, or with respect to, the Company to keep such information confidential; provided, however, that, in each case, the confidentiality and use provisions contained therein are no less restrictive in the aggregate to such counterparty (and any of its Affiliates and Representatives as provided therein) than the terms of the letter agreement, dated July 31, 2019, by and between Parent and the Company (the “Confidentiality Agreement”) (it being understood that such agreement need not contain any “standstill” or similar provisions or otherwise prohibit the making of any Acquisition Proposal). If the confidentiality and use provisions of such Acceptable Confidentiality Agreement are less restrictive in the aggregate to such counterparty (and any of its Affiliates and Representatives named therein) than the terms of the Confidentiality Agreement, then, notwithstanding the foregoing, such agreement will be deemed to be an Acceptable Confidentiality Agreement if the Company offers to amend the Confidentiality Agreement so as to make the confidentiality and use provisions of the Confidentiality Agreement as restrictive in the aggregate as the confidentiality agreement signed by such counterparty.

 

80


Table of Contents

“Acquisition Proposal” means any offer or proposal (other than an offer or proposal by Parent or Merger Sub) to engage in an Acquisition Transaction.

“Acquisition Transaction” means any transaction or series of related transactions (other than the Merger) involving:

 

  (i)

any direct or indirect purchase or other acquisition by any person or Group (as defined in the Merger Agreement), whether from the Company or any other person(s), of shares of common stock representing more than 15% of the common stock outstanding after giving effect to the consummation of such purchase or other acquisition, including pursuant to a tender offer or exchange offer by any person or Group that, if consummated in accordance with its terms, would result in such person or Group beneficially owning more than 15% of the common stock outstanding after giving effect to the consummation of such tender or exchange offer;

 

  (ii)

any direct or indirect purchase or other acquisition by any person or Group of more than 15% of the consolidated assets of the Company and its subsidiaries taken as a whole (measured by the fair market value thereof as of the date of such purchase or acquisition); or

 

  (iii)

any merger, consolidation, business combination, recapitalization, reorganization, liquidation, dissolution or other transaction involving the Company or any of its subsidiaries pursuant to which any person or Group would, directly or indirectly, hold shares of common stock representing more than 15% of the common stock outstanding after giving effect to the consummation of such transaction.

“Superior Proposal” means any bona fide written Acquisition Proposal for an Acquisition Transaction on terms that the Board of Directors (or the Special Committee) has determined in good faith (after consultation with its financial advisor and outside legal counsel) would be more favorable, from a financial point of view, to the stockholders of the Company (in their capacity as such) than the Merger (taking into account any legal, regulatory, financial, timing, financing and other aspects of such proposal and any revisions to the Merger Agreement made or proposed in writing by Parent prior to the time of such determination). For purposes of the reference to an “Acquisition Proposal” in this definition, all references to “15%” in the definition of “Acquisition Transaction” will be deemed to be references to “50%.”

The “No-Shop” Period

Subject to the procedures and terms associated with the receipt of a Superior Proposal set forth in the Merger Agreement, from the No-Shop Period Start Date until the earlier to occur of the termination of the Merger Agreement and the Effective Time, the Company has agreed not to, and to cause its subsidiaries and its and their respective directors, officers and employees not to, and to instruct and use its reasonable best efforts to cause its and its subsidiaries’ unaffiliated Representatives not to, directly or indirectly:

 

   

solicit, initiate, propose or induce the making, submission or announcement of, or knowingly encourage, facilitate or assist, any proposal or offer that is or could reasonably be expected to constitute an Acquisition Proposal;

 

   

furnish to any person any non-public information relating to the Company or any of its subsidiaries or afford to any person access to the business, properties, assets, books, records or other non-public information, or to any personnel, of the Company or any of its subsidiaries (other than to Parent, Merger Sub or any designees of Parent or Merger Sub), in any such case with the intent to induce the making, submission or announcement of, or to knowingly encourage, facilitate or assist, any proposal or offer that is or could reasonably be expected to constitute an Acquisition Proposal or any inquiries or the making of any proposal that could reasonably be expected to lead to an Acquisition Proposal;

 

   

participate or engage in discussions or negotiations with any person with respect to an Acquisition Proposal (subject to certain exceptions);

 

81


Table of Contents
   

approve, adopt, endorse or recommend an Acquisition Proposal (or any offer or proposal that could lead to an Acquisition Proposal); or

 

   

authorize or enter into any letter of intent, memorandum of understanding, merger agreement, acquisition agreement or other contract relating to an Acquisition Proposal (or any offer or proposal that could lead to an Acquisition Proposal), other than an Acceptable Confidentiality Agreement.

In addition, from the start of the No-Shop Period Start Date until the earlier to occur of the termination of the Merger Agreement and the Effective Time, the Company has agreed to, and to cause its subsidiaries and its and their respective directors, officers and employees to and to instruct and use its reasonable best efforts to cause its and its subsidiaries’ unaffiliated Representatives to, promptly cease and terminate (or cause to be terminated) any discussions or negotiations with any person and its Affiliates and Representatives that would be prohibited by the Merger Agreement and cease providing any further non-public information with respect to the Company or any Acquisition Proposal to any such person or its Representatives.

Notwithstanding these restrictions, under certain circumstances, from the date of the Merger Agreement and continuing until the Company’s receipt of the Requisite Stockholder Approval, the Company and the Board of Directors (and/or the Special Committee) may, after giving Parent reasonably prompt notice of its intent to do so, directly or indirectly through one or more of their Representatives, participate or engage in discussions or negotiations with, furnish non-public information relating to the Company or any of its subsidiaries to, or afford access to the business, properties, assets, books, records or other non-public information, or to any personnel, of the Company or any of its subsidiaries pursuant to an Acceptable Confidentiality Agreement to, any person or its Representatives that has made, renewed or delivered to the Company an Acquisition Proposal after the date of the Merger Agreement that did not result from a material breach of the “No-Shop” restrictions set forth in the Merger Agreement, and otherwise facilitate such Acquisition Proposal or assist such person (and its Representatives and financing sources) with such Acquisition Proposal (in each case, if requested by such person), if and only if, the Board of Directors (or the Special Committee) has determined in good faith (after consultation with its financial advisor and outside legal counsel) that such Acquisition Proposal either constitutes a Superior Proposal or is reasonably likely to lead to a Superior Proposal. The Company must promptly make available to Parent any material non-public information concerning the Company and its subsidiaries that is provided to any such person or its Representatives that was not previously made available to Parent.

The Board of Directors’ Recommendation; Company Board Recommendation Changes

As described above, and subject to the provisions described below, the Board of Directors, acting upon the unanimous recommendation of the Special Committee, has made the recommendation that the stockholders of the Company vote “FOR” the Merger Proposal.

Except as specifically provided in the Merger Agreement, at no time after the date of the Merger Agreement may the Board of Directors (or the Special Committee) take any of the following actions (any such action, a “Company Board Recommendation Change”):

 

   

fail to make, withhold, withdraw, amend, qualify or modify the Company Board Recommendation (as defined in the Merger Agreement) in a manner adverse to Parent or make any public statement that is inconsistent with the Company Board Recommendation;

 

   

adopt, approve or recommend to the stockholders of the Company an Acquisition Proposal;

 

   

fail to publicly recommend against any Acquisition Proposal or fail to reaffirm the Company Board Recommendation, in either case within ten business days (or such fewer number of days as remains prior to the Special Meeting) after such Acquisition Proposal is made public (it being understood that a “stop, look and listen” statement by the Board of Directors (or the Special Committee) to the stockholders of the Company pursuant to Rule 14d-9(f) under the Exchange Act shall not be deemed to be a Company Board Recommendation Change) or after any written request by Parent to do so

 

82


Table of Contents
 

(provided, that Parent may only make such request once with respect to any Acquisition Proposal in the absence of any modification or revision to the price, conditions or other material terms of such Acquisition Proposal);

 

   

fail to include the Company Board Recommendation in this proxy statement;

 

   

publicly propose to do any of the foregoing; or

 

   

cause or permit the Company or any of its subsidiaries to enter into an Alternative Acquisition Agreement (as defined the Merger Agreement).

Notwithstanding the restrictions described above, and subject to the procedures described in the subsequent paragraph, prior to the receipt of the Requisite Stockholder Approval, the Board of Directors (or the Special Committee) may effect a Company Board Recommendation Change if  (1) the Company has received a bona fide written Acquisition Proposal that the Board of Directors (or the Special Committee) has determined in good faith (after consultation with its financial advisor and outside legal counsel) constitutes a Superior Proposal; or (2) in response to an Intervening Event (as defined below), as further described below.

The Board of Directors (or the Special Committee) may effect a Company Board Recommendation Change with respect to an Acquisition Proposal or authorize the Company to terminate the Merger Agreement to enter into a definitive Alternative Acquisition Agreement with respect to an Acquisition Proposal substantially concurrently with the termination of the Merger Agreement, in each case, if:

 

   

following the Notice Period (as defined below), the Board of Directors (or the Special Committee) determines in good faith (after consultation with its financial advisor and outside legal counsel) that such Acquisition Proposal continues to constitute a Superior Proposal and that, after taking into account any revisions to the Merger Agreement made or proposed by Parent in writing, the failure to do so would be reasonably expected to cause the Board of Directors (or the Special Committee) to violate its fiduciary duties under applicable law;

 

   

the Company has complied in all material respects with its obligations pursuant to the Merger Agreement with respect to such Acquisition Proposal;

 

   

(1) the Company has provided prior written notice to Parent at least four business days in advance (the “Notice Period”) to the effect that the Board of Directors (or the Special Committee) has (A) received a Superior Proposal and (B) intends to (x) effect a Company Board Recommendation Change with respect to such Acquisition Proposal or (y) authorize the Company to terminate the Merger Agreement to enter into a definitive Alternative Acquisition Agreement with respect to such Acquisition Proposal substantially concurrently with the termination of the Merger Agreement absent any revision to the terms and conditions of the Merger Agreement, which notice will specify the basis for such actions, including the identity of the person or group making such Acquisition Proposal, the material terms thereof and copies of all material relevant documents relating to such Acquisition Proposal), (2) during the Notice Period, the Company and its Representatives have kept Parent and its Representatives reasonably informed of  the status of such Acquisition Proposal and the material terms of any such Acquisition Proposal (including promptly after receipt providing to Parent copies of any additional or revised Acquisition Agreements) and (3) the Company and its Representatives, during the Notice Period, must have negotiated with Parent and its Representatives in good faith (to the extent that Parent desires to so negotiate) to make such adjustments to the terms and conditions of the Merger Agreement so that the Board of Directors (or the Special Committee) would no longer determine that the failure to make a Company Board Recommendation Change in response to such Acquisition Proposal would be reasonably expected to cause the Board of Directors (or the Special Committee) to violate its fiduciary duties under applicable law; provided, however, that in the event of any material revisions to such Acquisition Proposal, the Company shall be required to deliver a new written notice to Parent and to comply with the requirements of the Merger Agreement with respect to such new written notice (it being understood that the “Notice Period” in respect of such new written notice will be the longer of two business days and the number of business days remaining in the Notice Period); and

 

83


Table of Contents
   

in the event of any termination of the Merger Agreement in order to cause or permit the Company or any of its subsidiaries to enter into an Alternative Acquisition Agreement with respect to such Acquisition Proposal, the Company shall have terminated the Merger Agreement in accordance with its terms, including paying (or causing to be paid) the applicable Company Termination Fee.

The Board of Directors may effect a Company Board Recommendation Change in response to an Intervening Event if:

 

   

the Board of Directors (or the Special Committee) determines in good faith (after consultation with its financial advisor and outside legal counsel) that the failure to do so would be reasonably expected to cause the Board of Directors (or the Special Committee) to violate its fiduciary duties under applicable law;

 

   

the Company has provided prior written notice to Parent at least three business days in advance to the effect that the Board of Directors (or the Special Committee) has (1) so determined and (2) resolved to effect a Company Board Recommendation Change pursuant to the applicable terms of the Merger Agreement, which notice will specify the applicable Intervening Event in reasonable detail; and

 

   

prior to effecting such Company Board Recommendation Change, the Company and its Representatives, during such three business day period, must have negotiated with Parent and its Representatives in good faith (to the extent that Parent desires to so negotiate) to make such adjustments to the terms and conditions of the Merger Agreement so that the Board of Directors (or the Special Committee) would no longer determine that the failure to make a Company Board Recommendation Change in response to such Intervening Event would be reasonably expected to cause the Board of Directors (or the Special Committee) to violate its fiduciary duties under applicable law.

An “Intervening Event” means a material event, change, effect, development, condition, circumstance or occurrence that affects or would be reasonably likely to affect (i) the business, financial condition or results of operations of the Company and its subsidiaries, taken as a whole, or (ii) the stockholders of the Company, in either case that (a) is not known by the Board of Directors as of the date of the Merger Agreement or that was not reasonably foreseeable as of the date of the Merger Agreement and (b) does not relate to any Acquisition Proposal; provided, however, that in no event shall any of the following constitute or be deemed an Intervening Event: (i) changes in the stock price of the Company, as such, it being understood that, subject to the other limitations set forth in this definition, one or more events underlying a change in the Company’s stock price may qualify as an Intervening Event; (ii) any event, change or circumstance relating to Parent, Merger Sub or any of their respective Affiliates; or (iii) the timing of any regulatory approvals or other action by or in respect of any governmental authority with respect to the Merger.

Employee Benefits

The Merger Agreement provides that, for a period of one year following the Effective Time or, if earlier, their termination of employment or other service, each individual who is an employee of the Company or any of its subsidiaries immediately prior to the Effective Time and continues to be an employee of Parent or one of its subsidiaries (including the Surviving Company) immediately following the Effective Time (a “Continuing Employee”) will be provided with compensation benefits that, taken as a whole, are no less favorable in the aggregate than the compensation benefits (but excluding equity-based, defined benefit, and retiree welfare benefits or compensation) provided to such Continuing Employee immediately prior to the Effective Time under the Employee Plans (as defined in the Merger Agreement) (each a “Comparable Plan”). In each case, and without limiting the foregoing, base salary or base wage rate, and annual target cash incentive compensation opportunity will not be decreased below levels in effect immediately prior to the Effective Time during the one-year period following the Effective Time for any Continuing Employee employed during that period. During the one-year period following the Effective Time, the Surviving Company shall (and Parent shall cause the Surviving Company to) provide severance benefits to eligible employees in accordance with the Company’s Employee Plans as in effect on the date of the Merger Agreement.

 

84


Table of Contents

To the extent a Comparable Plan or Company Plan (defined below) is made available to any Continuing Employee at or after the Effective Time, the Surviving Company and its subsidiaries will grant such Continuing Employee credit for all service with the Company and its subsidiaries before the Effective Time for purposes of eligibility to participate and vesting where length of service is relevant (including for purposes of vacation accrual and severance entitlement), except where the service credit would result in duplication of coverage or benefits for the same period of service (where prior service credit is not awarded to similarly situated employees, or under any equity-based, defined benefit, or retiree welfare benefits or compensation). In addition, each Continuing Employee will be immediately eligible to participate, without any waiting period, in any and all employee benefit plans sponsored by the Surviving Company and its subsidiaries (other than the Employee Plans and other employee benefit, compensation and severance plans, programs, agreements and arrangements (including equity-based benefits or compensation) of the Surviving Company or any of its subsidiaries (each a “Company Plan”)) (such plans, the “New Plans”) to the extent that coverage pursuant to any such New Plan replaces coverage pursuant to a corresponding Company Plan in which such Continuing Employee participates immediately before the Effective Time (the “Old Plan”) to the extent the Continuing Employee had previously satisfied the requirements to participate in such comparable Old Plan. For purposes of each New Plan that provides life insurance, medical, dental, pharmaceutical, vision or disability benefits to any Continuing Employee, the Surviving Company and its subsidiaries shall use commercially reasonable efforts to cause all waiting periods, pre-existing condition exclusions, evidence of insurability requirements and actively-at-work or similar requirements of such New Plan to be waived for the Continuing Employee and his or her covered dependents to the extent waived or satisfied under any comparable Old Plan, and the Surviving Company and its subsidiaries shall use commercially reasonable efforts to cause any eligible expenses incurred by the Continuing Employee and his or her covered dependents during the portion of the plan year of the Old Plan that ends on the date that such Continuing Employee’s participation in the corresponding New Plan begins to be given full credit pursuant to such New Plan for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable to such Continuing Employee and his or her covered dependents for the applicable plan year as if the amounts had been paid according to such New Plan. The accounts of each Continuing Employee pursuant to any New Plan that is a flexible spending plan will be credited by the Surviving Company and its subsidiaries with any unused balance in the account of such Continuing Employee under an Old Plan that was a flexible spending plan.

Treatment of Employee Share Purchase Plan

The Merger Agreement provides that the Company shall take such actions as necessary to (1) provide that no new exercise period under the Employee Stock Purchase Plan of the Company shall commence after the date of the Merger Agreement, and no individual participating in, or eligible to participate in, the Employee Stock Purchase Plan of the Company shall be permitted (A) to increase the rate of his or her payroll deductions thereunder from the rate in effect on the date of the Merger Agreement or to commence new contributions or (B) to make other non-payroll contributions to the Employee Stock Purchase Plan of the Company on or following the date of the Merger Agreement and (2) terminate the Employee Stock Purchase Plan of the Company, and all outstanding rights thereunder as of immediately prior to the Effective Time, effective at or prior to the Effective Time.

Efforts to Close the Merger; Antitrust Filings

Each of the parties has agreed to use its reasonable best efforts to take, or cause to be taken, all actions, to do, or cause to be done, all things and to assist and cooperate with the other parties in doing (or causing to be done) all things, in each case as are necessary, proper or advisable pursuant to applicable law or otherwise to consummate and make effective, in the most expeditious manner practicable, the Merger, including by (1) causing the closing conditions to the Merger to be satisfied, (2) obtaining all consents, waivers, approvals, orders and authorizations from governmental authorities and making all registrations, declarations and filings with governmental authorities, in each case that are necessary or advisable to consummate the Merger, (3) obtaining all consents, waivers and approvals and delivering all notifications pursuant to any material contracts in connection with the

 

85


Table of Contents

Merger Agreement and the consummation of the Merger so as to maintain and preserve the benefits to the Surviving Company of such material contract as of and following the consummation of the Merger, and (4) executing and delivering any contracts and other instruments that are reasonably necessary to consummate the Merger.

The parties have also agreed to make certain regulatory filings as described in more detail under the section of this proxy statement captioned “The Merger—Regulatory Approvals Required for the Merger,” including filing with the FTC and the Antitrust Division of the DOJ a Notification and Report Form relating to the Merger Agreement and the Merger as required by the HSR Act within 20 business days following the date of the Merger Agreement, the filing fee to be split equally between Parent and Merger Sub, on the one hand, and the Company, on the other hand. Each of Parent and the Company shall (1) cooperate and coordinate (and shall cause its respective Affiliates to cooperate and coordinate) with the other in the making of such filings, (2) supply the other (or shall cause the other to be supplied) with any information that may be required in order to make such filings, and (3) supply (or shall cause to be supplied) any additional information that reasonably may be required or requested by the FTC, the DOJ or other governmental authorities of any other applicable jurisdiction in which any such filing is made. Each of Parent and Merger Sub shall (and shall cause their respective Affiliates to, if applicable), on the one hand, and the Company shall (and shall cause its Affiliates to), on the other hand, promptly inform the other of any communication from any governmental authority regarding the Merger in connection with such filings. If any party or Affiliate thereof receives any comments or a request for additional information or documentary material from any governmental authority with respect to the Merger pursuant to the HSR Act or any other antitrust laws applicable to the Merger, then such party shall make (or shall cause to be made), as soon as reasonably practicable and after consultation with the other parties, an appropriate response to such request. No party may extend any waiting period or enter into any agreement or understanding with any governmental authority without the permission of the other parties, which shall not be unreasonably conditioned, withheld or delayed.

In furtherance and not in limitation of the foregoing, Parent and Merger Sub shall, and shall cause their respective Affiliates to, take all actions reasonably necessary to avoid or eliminate each and every impediment under any antitrust law so as to enable the consummation of the Merger to occur as promptly as reasonably practicable (and in any event prior to the Termination Date), including taking all actions requested by any governmental authority, or reasonably necessary to resolve any objections that may be asserted by any governmental authority with respect to the Merger under any antitrust law. Parent shall oppose fully and vigorously any request for, the entry of, and seek to have vacated or terminated, any order, judgment, decree, injunction or ruling of any governmental authority that could restrain, prevent or delay any required consents pursuant to any antitrust laws applicable to the Merger, including by defending through litigation, any action asserted by any person in any court or before any governmental authority and by exhausting all avenues of appeal, including appealing properly any adverse decision or order by any governmental authority, it being understood that the costs and expenses of all such actions shall be borne by Parent.

Nothing in the Merger Agreement will require the Company or any of its subsidiaries or Affiliates to take, or agree to take, any action the effectiveness of which is not conditioned on the closing occurring.

The parties have agreed to (and will cause their respective subsidiaries to), subject to any restrictions under applicable laws, (1) promptly notify the other parties of, and, if in writing, furnish the others with copies of  (or, in the case of oral communications, advise the others of the contents of) any substantive communication received by such person from a governmental authority or a private party in connection with the Merger and permit the other parties to review and discuss in advance (and to consider in good faith any comments made by the other parties in relation to) any proposed draft notifications, formal notifications, filing, submission or other written communication (and any analyses, memoranda, white papers, presentations, correspondence or other documents submitted therewith) made in connection with the Merger to a governmental authority, (2) keep the other parties informed with respect to the status of any such submissions and filings to any governmental authority in connection with the Merger and any developments, meetings or discussions with any governmental authority in

 

86


Table of Contents

respect thereof, including with respect to (A) the receipt of any non-action, action, clearance, consent, approval or waiver, (B) the expiration of any waiting period, (C) the commencement or proposed or threatened commencement of any investigation, litigation or administrative or judicial action or proceeding under applicable laws, including any proceeding initiated by a private party, and (D) the nature and status of any objections raised or proposed or threatened to be raised by any governmental authority with respect to the Merger, and (3) not independently participate in any meeting, hearing, proceeding or discussions (whether in person, by telephone or otherwise) with or before any governmental authority in respect of the Merger without giving the other parties reasonable prior notice of such meeting or discussions and, unless prohibited by such governmental authority, the opportunity to attend or participate.

Each of Parent and Merger Sub has agreed that, between the date of the Merger Agreement and the closing of the Merger, it shall not, and shall not permit any of its subsidiaries or Affiliates to take any actions that would reasonably be expected to result in any material delay in obtaining, or to result in the failure to obtain, any regulatory approvals required in connection with the Merger, or which would otherwise reasonably be expected to prevent or delay the Merger in any material respect, including entering into or consummating any contracts or arrangements for an acquisition (by stock purchase, merger, consolidation, purchase of assets, license or otherwise) of any ownership interest, assets or rights of any person that would reasonably be expected to result in any material delay in obtaining, or to result in the failure to obtain, any regulatory approvals required in connection with the Merger, or which would otherwise reasonably be expected to prevent or delay the Merger in any material respect.

Delisting and Deregistration of Common Shares of the Company

Prior to the Effective Time, the Company shall cooperate with Parent and use its reasonable best efforts to take, or cause to be taken, all actions and do, or cause to be done, all things reasonably necessary, proper or advisable on its part pursuant to applicable law and the rules and regulations of the NYSE to cause the delisting of the common stock from the NYSE as promptly as practicable after the Effective Time and the deregistration of the common stock pursuant to the Exchange Act as promptly as practicable after such delisting.

Financing

Cooperation with Debt Financing

Although the obligation of Parent and Merger Sub to consummate the Merger is not subject to any financing condition (including, without limitation, consummation of any debt financing), the Company has agreed that, prior to the Effective Time, it will use its reasonable best efforts, and will cause each of its subsidiaries to use its respective reasonable best efforts, to provide Parent with all cooperation reasonably requested by Parent to assist it in causing the conditions to the Debt Commitment Letters to be satisfied or as is otherwise customary and reasonably requested by Parent in connection with the Debt Financing, including using reasonable best efforts in connection with certain actions specified in the Merger Agreement.

Notwithstanding the foregoing, neither Company nor any of its subsidiaries are required to (1) waive or amend any terms of the Merger Agreement or agree to pay any fees or reimburse any expenses prior to the Effective Time for which it has not received prior reimbursement or is not otherwise indemnified by or on behalf of Parent, (2) cause any closing condition with respect to the Merger to fail to be satisfied, (3) enter into any definitive certificate, agreement, arrangement, document or instrument prior to the Effective Time, (4) give any indemnities that are effective prior to the Effective Time, or (5) take any action that, in the good faith determination of the Company, would unreasonably interfere with the conduct of the business of the Company and its subsidiaries or breach any confidentiality obligations of the Company or any of its subsidiaries. In addition, no action, liability or obligation of the Company, any of its subsidiaries or any of their respective Representatives pursuant to any certificate, agreement, arrangement, document or instrument relating to the Debt Financing will be effective until the Effective Time, and neither the Company nor any of its subsidiaries will be required to take any action

 

87


Table of Contents

pursuant to any certificate, agreement, arrangement, document or instrument that is not contingent on the consummation of the Merger or that must be effective prior to the Effective Time. Nothing in the Merger Agreement with respect to the Debt Financing will require (A) any Representative of the Company or any of its subsidiaries to deliver any certificate or opinion or take any other action with respect to the Debt Financing specified in the Merger Agreement that could reasonably be expected to result in personal liability to such Representative; or (B) the Board of Directors (or the Special Committee) to approve any financing or contracts related thereto prior to the Effective Time.

In addition, Parent will (1) reimburse the Company for any reasonable and documented out-of-pocket costs and expenses (including attorneys’ fees) incurred by the Company, its subsidiaries or any of their respective Representatives in connection with the cooperation or obligations of the Company, its subsidiaries and their respective Representatives described herein, promptly upon request by the Company following termination of the Merger Agreement pursuant to its terms and (2) indemnify and hold harmless the Company, its subsidiaries and their respective Representatives from and against any and all liabilities, losses, damages, claims, costs, expenses (including attorneys’ fees), interest, awards, judgments, penalties and amounts paid in settlement suffered or incurred by them in connection with their cooperation in arranging the Debt Financing pursuant to the Merger Agreement or the provision of information utilized in connection therewith (other than arising from (A) historical financial information related to the Company and its subsidiaries provided expressly for use in connection with the Debt Financing or (B) the gross negligence, fraud, willful misconduct, intentional misrepresentation or intentional breach of the Merger Agreement by the Company, its subsidiaries or any of their respective Representatives).

Indemnification and Insurance

The Merger Agreement provides that the Surviving Company and its subsidiaries will (and Parent will cause the Surviving Company and its subsidiaries to) honor and fulfill, in all respects, the obligations of the Company and its subsidiaries pursuant to any indemnification agreements between the Company and any of its subsidiaries or Affiliates, on the one hand, and any of their respective current or former directors, officers, employees or agents (and any person who becomes a director, officer, employee or agent of the Company or any of its subsidiaries prior to the Effective Time), on the other hand (each, together with such person’s heirs, executors and administrators, an “Indemnified Person”) in effect on the date of the Merger Agreement and made available to Parent. In addition, during the period commencing at the Effective Time and for six years thereafter, the Surviving Company and its subsidiaries will (and Parent will cause the Surviving Company and its subsidiaries to) cause the organizational documents of the Surviving Company and its subsidiaries to contain provisions with respect to indemnification, exculpation and advancement of expenses that are at least as favorable as the indemnification, exculpation and advancement of expenses provisions set forth in the organizational documents of the subsidiaries of the Company as of the date of the Merger Agreement. During such six-year period, such provisions may not be repealed, amended or otherwise modified in any manner except as required by applicable law.

In addition, the Merger Agreement provides that, during the six-year period commencing at the Effective Time, the Surviving Company will (and Parent will cause the Surviving Company to) indemnify and hold harmless, to the fullest extent permitted by applicable law or pursuant to any indemnification agreements with the Company and any of its subsidiaries or Affiliates in effect on the date of the Merger Agreement, each Indemnified Person from and against any costs, fees and expenses (including reasonable attorneys’ fees and investigation expenses), judgments, fines, penalties, losses, claims, damages, liabilities and amounts paid in settlement or compromise in connection with any legal proceeding, whether civil, criminal, administrative or investigative, whether asserted, to the extent that such legal proceeding arises, directly or indirectly, out of, or pertains, directly or indirectly, to (1) the fact that an Indemnified Person is or was a director, officer, employee or agent of the Company or such subsidiary or Affiliate, and (2) any action or omission, or alleged action or omission occurring at or prior to the Effective Time (including in connection with the approval of the Merger Agreement and the consummation of the Merger), in such Indemnified Person’s capacity as a director, officer, employee or agent of the Company or

 

88


Table of Contents

any of its subsidiaries or other Affiliates, or taken at the request of the Company or such subsidiary or Affiliate (including in connection with serving at the request of the Company or such subsidiary or Affiliate as a director, officer, employee, agent, trustee or fiduciary of another person (including any employee benefit plan)), except that if, at any time prior to the sixth anniversary of the Effective Time, any Indemnified Person delivers to Parent a written notice asserting a claim for indemnification pursuant to certain applicable provisions of the Merger Agreement, then the claim asserted in such notice will survive the sixth anniversary of the Effective Time until such claim is fully and finally resolved. The Merger Agreement also provides that, in the event of any such legal proceeding, the Surviving Company will advance all fees and expenses (including fees and expenses of any counsel) as incurred by an Indemnified Person in the defense of such legal proceeding; provided, that the person to whom expenses are advanced provides an undertaking to repay such expenses if it is ultimately determined that such person is not entitled to indemnification, and only to the extent required by applicable law or applicable organizational documents of the Company and its subsidiaries or applicable indemnification agreements. Notwithstanding anything to the contrary in the Merger Agreement, none of Parent, the Surviving Company nor any of their respective Affiliates will settle or otherwise compromise or consent to the entry of any judgment with respect to, or otherwise seek the termination of, any legal proceeding for which indemnification may be sought by an Indemnified Person pursuant to the Merger Agreement unless such settlement, compromise, consent or termination includes an unconditional release of all Indemnified Persons from all liability arising out of such legal proceeding. Any determination required to be made with respect to whether the conduct of any Indemnified Person complies or complied with any applicable standard will be made by independent legal counsel selected by the Surviving Company (which counsel will be reasonably acceptable to such Indemnified Person), the fees and expenses of which will be paid by the Surviving Company.

In addition, without limiting the foregoing, unless the Company has purchased a “tail” policy from an insurance carrier with the same or better credit rating as the Company’s current directors’ and officers’ liability insurance carrier, prior to the Effective Time (which the Company may purchase, provided that the premium for such insurance does not exceed 200% of the annual premiums currently paid), the Merger Agreement requires, for a period of at least six years commencing at the Effective Time, the Surviving Company to (and Parent to cause the Surviving Company to) maintain for the benefit of the directors and officers of the Company and its subsidiaries, at any time prior to the Effective Time, directors’ and officers’ liability insurance policies in respect of acts or omissions occurring at or prior to the Effective Time on terms that are no less favorable than those of the Company’s directors’ and officers’ liability insurance. The Surviving Company will not be required to pay premiums for such policy to the extent such premiums exceed, on an annual basis, 200% of the amount paid by the Company for coverage for its last full fiscal year, and if the premium for such insurance coverage would exceed such amount then the Surviving Company shall be obligated to obtain a policy with the greatest coverage available for a cost not exceeding such amount from an insurance carrier with the same or better credit rating as the Company’s current directors’ and officers’ liability insurance carrier.

For more information, please refer to the section of this proxy statement captioned “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger.”

Other Covenants

Stockholder Meeting

The Company has agreed to take all action necessary in accordance with the DGCL, the organizational documents of the Company and the rules of the NYSE to establish a record date for, duly call and give notice of a meeting of its stockholders, and, as promptly as reasonably practicable following the mailing of this proxy statement to the stockholders of the Company, convene and hold such a meeting for the purpose of obtaining the Requisite Stockholder Approval.

Litigation Relating to the Merger

Prior to the Effective Time, each party to the Merger Agreement will: (1) provide the other parties with prompt notice of all stockholder litigation relating to the Merger; (2) keep the other parties reasonably informed with

 

89


Table of Contents

respect to the status thereof; (3) give the other parties the opportunity to “participate” (as such term is used in the Merger Agreement) in the defense, settlement or prosecution of any such litigation; and (4) consult with the other parties with respect to the defense, settlement and prosecution of any such litigation. No party to the Merger Agreement may compromise, settle or come to an arrangement regarding, or agree to compromise, settle or come to an arrangement regarding, any such litigation without the other parties’ written consent (such consent not to be unreasonably withheld, conditioned or delayed).

Charter Amendment

Parent agreed to modify its proposed amendment to its certificate of incorporation (the “Parent Charter Amendment”), to provide that the Merger and the other transactions contemplated by the Merger Agreement will not be subject to any approval or requirement set forth in the Parent Charter Amendment.

Conditions to the Closing of the Merger

The respective obligations of Parent and Merger Sub, on the one hand, and the Company, on the other hand, to consummate the Merger are subject to the satisfaction or waiver (where permitted by applicable law) of each of the following conditions:

 

   

the receipt of the Requisite Stockholder Approval;

 

   

the expiration or termination of the applicable waiting period (and any extensions thereof) under the HSR Act; and

 

   

the absence of any Legal Restraint (as defined below).

In addition, the obligations of Parent and Merger Sub to consummate the Merger are subject to the satisfaction or waiver (where permitted by applicable law) of each of the following additional conditions, any of which may be waived exclusively by Parent:

 

   

the representations and warranties of the Company relating to organization, good standing, corporate power, enforceability, anti-takeover laws, requisite stockholder approval, certain aspects of the Company’s capitalization and brokers (A) that are not qualified by Company Material Adverse Effect or other materiality qualifiers being true and correct in all material respects as of the date of the Merger Agreement and as of the Closing Date as if made at and as of the Closing Date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty will be true and correct in all material respects as of such earlier date) and (B) that are qualified by Company Material Adverse Effect or other materiality qualifiers being true and correct in all respects as of the date of the Merger Agreement and as of the Closing Date as if made at and as of the Closing Date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty will be true and correct in all respects as of such date);

 

   

the representations and warranties of the Company relating to the absence of any Company Material Adverse Effect being true and correct in all respects as of the Closing Date as if made at and as of the Closing Date;

 

   

the other representations and warranties of the Company set forth elsewhere in the Merger Agreement being true and correct (without giving effect to any materiality or Company Material Adverse Effect qualifications set forth therein) as of the date of the Merger Agreement and as of the Closing Date as if made at and as of the Closing Date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty will be true and correct (without giving effect to any materiality or Company Material Adverse Effect qualifications set forth therein) as of such earlier date), except for such failures to be so true and correct that, individually or in the aggregate, would not have, or would not reasonably be expected to have, a Company Material Adverse Effect;

 

90


Table of Contents
   

the Company having performed and complied in all material respects with the covenants, obligations and conditions of the Merger Agreement required to be performed and complied with by it at or prior to the closing of the Merger;

 

   

the absence of any Company Material Adverse Effect having occurred after the date of Merger Agreement that is continuing as of the Effective Time; and

 

   

the receipt by Parent and Merger Sub of a certificate of the Company, validly executed for and on behalf of the Company and in its name by a duly authorized executive officer thereof, certifying that the conditions as described in the preceding five bullets have been satisfied.

In addition, the obligation of the Company to consummate the Merger is subject to the satisfaction or waiver (where permitted by applicable law) of each of the following additional conditions, any of which may be waived exclusively by the Company:

 

   

the representations and warranties of Parent and Merger Sub set forth in the Merger Agreement being true and correct as of the Closing Date as if made at and as of the Closing Date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty will be so true and correct in all respects as of such earlier date), except for any failure to be so true and correct that would not, individually or in the aggregate, prevent or materially delay the consummation of the Merger or the ability of Parent and Merger Sub to perform their respective covenants and obligations pursuant to the Merger Agreement;

 

   

Parent and Merger Sub having performed and complied in all material respects with the covenants, obligations and conditions of the Merger Agreement required to be performed and complied with by Parent and Merger Sub at or prior to the closing of the Merger; and

 

   

the receipt by the Company of a certificate of Parent and Merger Sub, validly executed for and on behalf of Parent and Merger Sub and in their respective names by a duly authorized officer thereof, certifying that the conditions described in the preceding two bullets have been satisfied.

Termination of the Merger Agreement

The Merger Agreement may be terminated at any time prior to the Effective Time, whether before or after receipt of the Requisite Stockholder Approval (except as otherwise specified), only as follows:

 

   

by mutual written agreement of the Company and Parent;

 

   

by either the Company or Parent if:

 

   

a law or injunction (whether temporary, preliminary or permanent) enacted or issued by any governmental authority of competent jurisdiction prohibiting or otherwise making illegal the consummation of the Merger has been enacted, entered, promulgated or enforced and be continuing in effect (any such law or injunction, a “Legal Restraint”) and has become final and nonappealable, except that the right to terminate the Merger Agreement pursuant to this bullet point will not be available to any party (i) that has failed to use its reasonable best efforts to resist, appeal, obtain consent pursuant to, resolve or lift, as applicable, such Legal Restraint or (ii) if such Legal Restraint was primarily caused by, or primarily resulted from, such party’s breach of, or failure to perform or comply with, any of its covenants or agreements under the Merger Agreement;

 

   

the Merger has not been consummated by 11:59 p.m., New York City time, on May 7, 2020 (the “Termination Date”), except that the right to terminate the Merger Agreement pursuant to this bullet point will not be available to any party whose action or failure to act (which action or failure to act constitutes a breach by such party of the Merger Agreement) has been the primary cause of, or primarily resulted in, either the failure to satisfy the conditions to the obligations of the terminating party to consummate the Merger prior to the Termination Date or the failure of the Effective Time to have occurred prior to the Termination Date; or

 

91


Table of Contents
   

the Company fails to obtain the Requisite Stockholder Approval at the Special Meeting (or any adjournment or postponement thereof) at which a vote is taken on the Merger, except that the right to terminate the Merger Agreement pursuant to this bullet point will not be available to any party whose action or failure to act (which action or failure to act constitutes a breach by such party of the Merger Agreement) has been the cause of, or resulted in, the failure to obtain the Requisite Stockholder Approval at the Special Meeting (or any adjournment or postponement thereof);

 

   

by the Company if:

 

   

Parent or Merger Sub has breached or failed to perform any of its respective representations, warranties, covenants or other agreements set forth in the Merger Agreement such that certain conditions set forth in the Merger Agreement are not satisfied, except that if such breach is capable of being cured by the Termination Date, the Company will not be entitled to terminate the Merger Agreement prior to the delivery by the Company to Parent of written notice of such breach at least 30 days prior to such termination, it being understood that the Company will not be entitled to terminate the Merger Agreement if such breach has been cured prior to the end of such 30-day period, except that the Company will not have the right to terminate the Merger Agreement pursuant to this bullet point if the Company is then in material breach of the Merger Agreement so as to cause any of the conditions set forth in the Merger Agreement relating to the breach or failure to perform the Company’s representations, warranties, covenants or other agreements set forth in the Merger Agreement not to be capable of being satisfied;

 

   

prior to receipt of the Requisite Stockholder Approval, (1) the Company has received a Superior Proposal; (2) the Board of Directors (or the Special Committee) has authorized the Company to enter into an Alternative Acquisition Agreement with respect to such Superior Proposal; and (3) concurrently with such termination the Company pays the Company Termination Fee due to Parent in accordance with the terms of the Merger Agreement; or

 

   

(1) all of the conditions to Parent’s obligation to consummate the Merger have been and continue to be satisfied (other than those conditions that by their terms are to be satisfied at the closing of the Merger, each of which is capable of being satisfied at the closing of the Merger) or waived, (2) the Company has irrevocably notified Parent in writing five business days prior to such termination that (A) the Company is ready, willing and able to consummate the Merger, and (B) all conditions to the Company’s obligation to consummate the Merger have been satisfied (other than those conditions that by their terms are to be satisfied at the closing of the Merger, each of which is capable of being satisfied at the closing of the Merger) or waived, (3) the Company has given Parent written notice at least one business day prior to such termination stating the Company’s intention to terminate the Merger Agreement pursuant to its terms if Parent and Merger Sub fail to consummate the Merger on the date required pursuant to the Merger Agreement, and (4) Parent and Merger Sub fail to consummate the closing of the Merger within two business days from the date by required pursuant to the Merger Agreement;

 

   

by Parent if:

 

   

the Company has breached or failed to perform any of its representations, warranties, covenants or other agreements set forth in the Merger Agreement such that certain conditions set forth in the Merger Agreement are not satisfied, except that if such breach is capable of being cured by the Termination Date, Parent will not be entitled to terminate the Merger Agreement prior to the delivery by Parent to the Company of written notice of such breach at least 30 days prior to such termination, it being understood that Parent will not be entitled to terminate the Merger Agreement if such breach has been cured prior to the end of such 30-day period; provided, however, that Parent is not then in material breach of the Merger Agreement so as to cause any of the conditions set forth in the Merger Agreement relating to the breach or failure to perform Parent’s representations, warranties, covenants or other agreements set forth in the Merger Agreement not to be capable of being satisfied; or

 

92


Table of Contents
   

the Board of Directors (or the Special Committee) has effected a Company Board Recommendation Change.

In the event that the Merger Agreement is terminated pursuant to the termination rights above, the Merger Agreement will be of no further force or effect without liability of any party to the other parties, as applicable, except certain sections of the Merger Agreement will survive the termination of the Merger Agreement and remain in full force and effect, including, among others, terms relating to confidentiality, reimbursement of expenses, indemnification and public statements and disclosure.

Notwithstanding the foregoing, subject to certain exception, nothing in the Merger Agreement will relieve any party from any liability for any willful and material breach of the Merger Agreement prior to the termination of the Merger Agreement. In addition, no termination of the Merger Agreement will affect the rights or obligations of any party pursuant to the Confidentiality Agreement, which rights, obligations and agreements will survive the termination of the Merger Agreement in accordance with their respective terms.

Termination Fees

Parent will be entitled to receive the Company Termination Fee from the Company if the Merger Agreement is terminated:

 

   

by either Parent or the Company (as applicable) because the Effective Time has not occurred by the Termination Date, the Company has failed to obtain the Requisite Stockholder Approval or the Company has breached or failed to perform any of its representations, warranties, covenants or agreements contained in the Merger Agreement, which breach or failure to perform would result in a failure of a condition to Parent’s obligation to consummate the Merger, subject to other terms and conditions discussed above, if (1) prior to such termination, an Acquisition Proposal for an Acquisition Transaction has been publicly announced and not publicly withdrawn or otherwise abandoned; and (2) within 12 months following such termination of the Merger Agreement, either an Acquisition Transaction is consummated or the Company enters into a definitive agreement providing for the consummation of an Acquisition Transaction and such Acquisition Transaction is subsequently consummated, then the Company shall promptly (and in any event within three Business Days after such consummation) pay, or cause to be paid, to Parent the Company Termination Fee by wire transfer of immediately available funds to an account or accounts designated in writing by Parent (provided, that, for purposes of the termination fee discussed in this bullet point, all references to “15%” in the definition of “Acquisition Transaction” will be deemed to be references to “50%”);

 

   

by Parent because the Board of Directors (or the Special Committee) has effected a Company Board Recommendation Change, in which case the Company will promptly (and in any event within three business days after such termination) pay, or cause to be paid, to Parent the Company Termination Fee; or

 

   

by the Company because prior to receipt of the Requisite Stockholder Approval, (1) the Company has received a Superior Proposal and (2) the Board of Directors (or the Special Committee) has authorized the Company to enter into an Alternative Acquisition Agreement with respect to such Superior Proposal, in which case the Company will concurrently with such termination pay, or cause to be paid, to Parent the Company Termination Fee.

“Company Termination Fee” means (i) if payable in connection with an Acquisition Proposal made by an Excluded Party prior to the No-Shop Period Start Date, an amount equal to the reasonable and documented out-of-pocket costs and expenses (including attorneys’ fees) incurred by Parent in connection with the Merger and other transactions contemplated by the Merger Agreement, which amount shall not exceed $3,240,000, and (ii) if payable in any other circumstance, an amount equal to $5,670,000.

 

93


Table of Contents

“Excluded Party” means any person or group of persons that includes any person or group of persons from whom the Company or any of its representatives has received a written Acquisition Proposal prior to the No-Shop Period Start Date.

The Company will be entitled to receive an amount equal to $11,340,000 (the “Parent Termination Fee”) from Parent if the Merger Agreement is terminated:

 

   

by the Company, if Parent or Merger Sub has breached or failed to perform any of its respective representations, warranties, covenants or other agreements contained in the Merger Agreement, which breach or failure to perform would result in a failure of a condition to the Company’s obligation to consummate the Merger, subject to other terms and conditions discussed above;

 

   

by the Company, at any time prior to the Effective Time (whether prior to or after the receipt of the Requisite Stockholder Approval), if (1) all of the conditions to Parent’s obligation to consummate the Merger have been and continue to be satisfied (other than those conditions that by their terms are to be satisfied at the closing of the Merger, each of which is capable of being satisfied at the closing of the Merger) or waived; (2) the Company has irrevocably notified Parent in writing five business days prior to such termination that (A) the Company is ready, willing and able to consummate the Merger, and (B) all conditions to the Company’s obligation to consummate the Merger have been satisfied (other than those conditions that by their terms are to be satisfied at the closing of the Merger, each of which is capable of being satisfied at the closing of the Merger) or waived; (3) the Company has given Parent written notice at least one Business Day prior to such termination stating the Company’s intention to terminate the Agreement pursuant to the terms thereof if Parent and Merger Sub fail to consummate the Merger on the date required pursuant to the Merger Agreement; and (4) Parent and Merger Sub fail to consummate the Merger within two business days from the date required pursuant to the Merger Agreement; or

 

   

by either Parent or the Company (as applicable) because the Effective Time has not occurred by the Termination Date and at the time of such termination the Company could have terminated the Merger Agreement pursuant to the first and second immediately preceding bullet points under the third bullet point of the section of this proxy statement captioned “Termination of the Merger Agreement.”

Sole and Exclusive Remedy; Limitations of Liability

The Company’s receipt of the Parent Termination Fee, the Company’s receipt of payments to the extent owed by Parent pursuant to Section 8.3(e) of the Merger Agreement, the Company’s right to enforce its rights under the Confidentiality Agreement, the Reimbursement Obligations (as defined in the Merger Agreement), the Company’s right to specific performance pursuant to Section 9.8 of the Merger Agreement and the Company’s right to seek damages for a willful and material breach are the sole and exclusive remedies of the Company against (i) Parent or Merger Sub; (ii) the former, current and future holders of any equity, controlling persons, agents, Affiliates (other than Parent or Merger Sub), Representatives, members, managers, general or limited partners, stockholders and assignees of each of Parent and Merger Sub (collectively, the “Parent Related Parties”); and (iii) the Financing Sources (as defined in the Merger Agreement) in respect of the Merger Agreement, the Merger, any agreement executed in connection with the Merger Agreement or the transactions contemplated thereby, including the Debt Financing. Upon payment of such amounts, none of the Parent Related Parties or the Financing Sources will have any further liability or obligation to the Company relating to or arising out of the Merger Agreement, the Merger, any agreement executed in connection with the Merger Agreement or the transactions contemplated thereby (except that the parties (or their Affiliates) will remain obligated with respect to, and the Company and its subsidiaries may be entitled to remedies with respect to, the Confidentiality Agreement, Section 8.2 of the Merger Agreement and Section 8.3(a) of the Merger Agreement, as applicable). If the Company elects to terminate the Merger Agreement and receive payment of the Parent Termination Fee, other than the right to receive payment of the Parent Termination Fee, any payments to the extent owed by Parent pursuant to Section 8.3(e) of the Merger Agreement, and payment of the Reimbursement Obligations, the

 

94


Table of Contents

Company shall not be entitled to any monetary damages or other monetary remedies for any losses, damages or liabilities suffered as a result of the failure of the transactions contemplated by the Merger Agreement to be consummated or for a breach or failure to perform under the Merger Agreement. The Company has acknowledged that none of the Financing Sources (and/or any of their Affiliates and/or their or their Affiliates’ officers, directors, employees, controlling persons, advisors, agents, attorneys or representatives) shall have any liability to the Company or any former, current and future holders of any equity, controlling persons, agents, Affiliates, Representatives, members, managers, general or limited partners, stockholders and assignees of each of the Company, its subsidiaries and each of their respective Affiliates (collectively, the “Company Related Parties”) under the Merger Agreement or for any claim made by the Company or any Company Related Party based on the transactions contemplated by the Merger Agreement, including any dispute relating to, or arising from, the Debt Financing, the Financing Letters or the performance thereof; provided, that the foregoing shall not limit the rights and/or remedies of Parent or Merger Sub or any Parent Related Party in respect of the Debt Financing under the Debt Commitment Letters.

Parent’s receipt of the Company Termination Fee, Parent’s receipt of payments to the extent owed by the Company pursuant to Section 8.3(e) of the Merger Agreement, Parent’s right to specific performance pursuant to Section 9.8 of the Merger Agreement and Parent’s right to seek damages for a willful and material breach will be the sole and exclusive remedies of Parent and Merger Sub and each of their respective Affiliates against (i) the Company, its subsidiaries and each of their respective Affiliates; and (ii) the Company Related Parties in respect of the Merger Agreement, the Merger, any agreement executed in connection with the Merger Agreement and the transactions contemplated thereby. Upon payment of such amount, none of the Company Related Parties will have any further liability or obligation to Parent or Merger Sub relating to or arising out of the Merger Agreement, the Merger, any agreement executed in connection with the Merger Agreement or the transactions contemplated thereby (except that the parties (or their Affiliates) will remain obligated with respect to, and the Company and its subsidiaries may be entitled to remedies with respect to, the Confidentiality Agreement, Section 8.2 of the Merger Agreement and Section 8.3(a) of the Merger Agreement, as applicable).

Specific Performance

The parties have agreed in the Merger Agreement that irreparable damage for which monetary damages, even if available, would not be an adequate remedy would occur in the event that the parties do not perform the provisions of the Merger Agreement in accordance with its specified terms or otherwise breach such provisions. The parties have agreed that, subject to certain specified limitations in the Merger Agreement, they will be entitled, in addition to any other remedy to which they are entitled at law or in equity, to an injunction, specific performance and other equitable relief to prevent breaches (or threatened breaches) of the Merger Agreement and to enforce specifically the terms and provisions of the Merger Agreement. The parties have also agreed that (i) by seeking the remedies provided for in Section 9.8 of the Merger Agreement, a party shall not in any respect waive its right to seek any other form of relief that may be available to such party under the Merger Agreement; and (ii) nothing set forth in Section 9.8 of the Merger Agreement shall require any party to institute any proceeding for (or limit any party’s right to institute any proceeding for) specific performance under Section 9.8 of the Merger Agreement prior or as a condition to exercising any termination right under Article VIII of the Merger Agreement (and pursuing damages after such termination), nor shall the commencement of any legal proceeding pursuant to Section 9.8 of the Merger Agreement or anything set forth in Section 9.8 of the Merger Agreement restrict or limit any party’s right to terminate the Merger Agreement in accordance with the terms of Article VIII of the Merger Agreement or pursue any other remedies under the Merger Agreement that may be available.

Notwithstanding the foregoing, the Company’s right to a remedy of specific performance in connection with enforcing Parent’s obligation to cause the Equity Financing to be funded and to consummate the Merger will be subject to the requirements that:

 

   

all of the conditions set forth in Section 7.1 and Section 7.2 of the Merger Agreement have been satisfied (other than those conditions that by their terms are to be satisfied at the closing of the Merger, each of which is capable of being satisfied at the closing of the Merger);

 

95


Table of Contents
   

the Debt Financing has been funded or will be funded at the closing of the Merger if the Equity Financing is funded at the closing of the Merger;

 

   

Parent and Merger Sub have failed to complete the closing of the Merger by the date that the Merger is required to have occurred pursuant to the Merger Agreement; and

 

   

the Company has irrevocably confirmed in writing that, if specific performance is granted and the Equity Financing and the Debt Financing are funded, then the Company would take such actions that are required by of it by the Merger Agreement to cause the closing of the Merger to occur.

In no event will the Company be entitled to enforce or seek to enforce specifically Parent’s obligation to cause the Equity Financing to be funded or to complete the Merger if the Debt Financing has not been funded (or will not be funded at the closing of the Merger if the Equity Financing is funded at the closing of the Merger).

Fees and Expenses

Except in specified circumstances, whether or not the Merger is consummated, all fees and expenses incurred in connection with the Merger Agreement and the Merger will be paid by the party incurring such fees and expenses.

No Third Party Beneficiaries

Except as set forth in the Merger Agreement, the respective representations, warranties and covenants of the parties in the Merger Agreement are solely for the benefit of the other parties in accordance with and subject to the terms of the Merger Agreement, and the Merger Agreement is not intended to, and shall not, confer upon any other person any rights or remedies thereunder.

Amendment

The Merger Agreement may be amended by the parties in writing at any time before or after receipt of the Requisite Stockholder Approval. Certain provisions related to the Financing Sources in the Merger Agreement may not be amended, modified or altered without the prior written consent of the Financing Sources.

Governing Law

The Merger Agreement is governed by Delaware law.

First Amendment to Agreement and Plan of Merger

On November 11, 2019, Vitamin Shoppe, Merger Sub and Parent entered into the Amendment, which, among other things, provides that Vitamin Shoppe will merge with and into Merger Sub, with Merger Sub continuing as the Surviving Company and a wholly owned subsidiary of Parent.

The Board of Directors recommends that you vote “FOR” the Merger Proposal.

 

96


Table of Contents

PROPOSAL 2: THE COMPANY’S COMPENSATION PROPOSAL

Under Section 14A of the Exchange Act and the applicable SEC rules issued thereunder, the Company is required to submit a proposal to our stockholders to approve, on an advisory (non-binding) basis, the Compensation Proposal. The compensation that will or may be payable to the Company’s named executive officers is summarized in the section captioned “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger.” The Board of Directors encourages you to review carefully the named executive officer Merger-related compensation information disclosed in this proxy statement. Accordingly, the Company is asking you to approve the following resolution:

“RESOLVED, that the stockholders of the Company approve, on an advisory (non-binding) basis, the compensation that will or may become payable to the Company’s named executive officers that is based on or otherwise relates to the Merger as disclosed pursuant to Item 402(t) of Regulation S-K in the section entitled “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger.””

The vote on the Compensation Proposal is a vote separate and apart from the vote on the proposal to adopt the Merger Agreement. Accordingly, you may vote to approve the proposal to adopt the Merger Agreement and vote not to approve the Compensation Proposal or vice versa. Because the vote on the Compensation Proposal is advisory only, it will not be binding on the Company. Accordingly, if the Merger Agreement is adopted and the Merger is completed, the compensation will be payable, subject only to the conditions applicable thereto, regardless of the outcome of the vote on the Compensation Proposal.

Vote Required and Board of Directors Recommendation

Approval, on an advisory (non-binding) basis, of the Compensation Proposal requires the affirmative vote of the holders of a majority of the shares of common stock represented at the Special Meeting and entitled to vote on the Compensation Proposal (provided a quorum is present). Assuming a quorum is present, (i) a failure to vote in person or by proxy at the Special Meeting will have no effect on the outcome of the Compensation Proposal, (ii) abstentions will be treated as votes cast and, therefore, will have the same effect as a vote against the Compensation Proposal and (iii) broker “non-votes” (if any) will have no effect on the outcome of the Compensation Proposal. Shares of common stock represented by properly executed, timely received and unrevoked proxies will be voted in accordance with the instructions indicated thereon. If a stockholder returns a signed proxy card without indicating voting preferences on such proxy card, the shares of common stock represented by that proxy will be counted as present for purposes of determining the presence of a quorum for the Special Meeting and all of such shares will be voted as recommended by the Board of Directors.

The Board of Directors recommends that you vote “FOR” this proposal.

 

97


Table of Contents

PROPOSAL 3: ADJOURNMENT OF THE SPECIAL MEETING

We are asking you to approve a proposal to adjourn the Special Meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting. If stockholders approve the proposal to adjourn the Special Meeting, we could adjourn the Special Meeting and any adjourned session of the Special Meeting and use the additional time to solicit additional proxies, including solicitation proxies from stockholders that have previously returned properly executed proxies voting against adoption of the Merger Agreement. Among other things, approval of the proposal to adjourn the Special Meeting could mean that, even if we had received proxies representing a sufficient number of votes against adoption of the Merger Agreement such that the proposal to adopt the Merger Agreement would be defeated, we could adjourn the Special Meeting without a vote on the adoption of the Merger Agreement and seek to convince the holders of those shares to change their votes to votes in favor of adoption of the Merger Agreement. Additionally, we may seek to adjourn the Special Meeting if a quorum is not present or otherwise at the discretion of the chairman of the Special Meeting.

Vote Required and Board of Directors Recommendation

Approval of the proposal to adjourn the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement at the time of the Special Meeting, whether or not a quorum is present, requires the affirmative vote of a majority of the shares of common stock represented at the Special Meeting and entitled to vote on the proposal to adjourn the Special Meeting.

The Board of Directors recommends that you vote “FOR” this proposal.

 

98


Table of Contents

MARKET PRICES AND DIVIDEND DATA

Our common stock is listed on the NYSE under the symbol “VSI.” As of November 5, 2019, there were 24,098,671 shares of common stock outstanding held by approximately 24 stockholders of record. The actual number of stockholders is greater than this number of stockholders of record and includes stockholders who are beneficial owners, but whose shares are held in “street name” by brokers and other nominees. We have never declared or paid any cash dividends on our common stock.

On November 8, 2019, the latest practicable trading day before the filing of this proxy statement, the closing price for our common stock on the NYSE was $6.47 per share. You are encouraged to obtain current market quotations for our common stock.

Following the Merger, there will be no further market for our common stock and it will be delisted from the NYSE and deregistered under the Exchange Act. As a result, following the Merger we will no longer file periodic or current reports with the SEC.

 

99


Table of Contents

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the beneficial ownership of our common stock as of November 5, 2019 by:

 

   

each person or group of affiliated persons, who we know to beneficially own more than 5% of our common stock;

 

   

each of our named executive officers;

 

   

each of our directors; and

 

   

all of our current named executive officers and directors as a group.

The percentage ownership information shown in the table is based on 24,098,671 shares of our common stock outstanding as of November 5, 2019.

We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power over securities. Except in cases where community property laws apply or as indicated in the footnotes to this table, we believe that each stockholder identified in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the stockholder. Shares of common stock subject to Options that are exercisable within 60 days of November 5, 2019 and RSUs that vest within 60 days of such date are considered outstanding and beneficially owned by the person holding the options or RSUs for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

 

100


Table of Contents

Unless otherwise noted below, the address of each of the individuals and entities named in the table below is c/o Vitamin Shoppe, Inc., 300 Harmon Meadow Blvd., Secaucus, New Jersey 07094. The information provided in the table is based on our records, information filed with the SEC and information provided to us, except where otherwise noted.

 

Name of Beneficial Owner

   Shares of Common
Stock Beneficially
Owned**
     Percent of
Common Stock
Outstanding
 

Greater than 5% Stockholders:

     

The Vanguard Group, Inc.(1)

     1,276,200        5.3

Dimensional Fund Advisors LP(2)

     1,694,849        7.0

BlackRock Inc.(3)

     1,535,035        6.4

Shah Capital Management, Inc.(4)

     4,241,342        17.6

Vintage Capital Management, LLC(5)

     3,587,255        14.9

FMR LLC(6)

     1,645,611        6.8

Named Executive Officers and Directors:

     

Sharon Leite(7)

     5,500            

Billy Wafford(8)

     36,492            

David Mock(9)

     47,259            

Charles D. Knight(10)

     —          —    

David M. Kastin(11)

     13,863            

Colin Watts

     14,706            

Brenda Galgano

     24,021            

Stacey Renfro(12)

     —          —    

Deborah M. Derby(13)

     33,798            

David H. Edwab(13)

     39,052            

Melvin L. Keating(13)

     22,365            

Guillermo G. Marmol(13)

     59,425            

Alexander W. Smith(13)

     80,343            

Himanshu H. Shah(4)(13)

     4,287,559        17.8

Timothy J. Theriault(13)

     29,525            

Sing Wang(13)

     22,365            

All directors and executive officers as a group (19 persons)

     4,761,145        19.8

 

*

Represents less than 1%.

**

For purposes of this table, “beneficial ownership” is determined in accordance with Rule 13d-3 under the Exchange Act, pursuant to which a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock with respect to which such person has (or has the right to acquire within 60 days) sole or shared voting power or investment power.

(1)

Based solely on a Schedule 13G/A filed with the SEC on February 11, 2019 by The Vanguard Group, Inc. At that time, The Vanguard Group, Inc. reported sole voting power as to 2,936 shares, sole dispositive power as to 1,273,264 shares and shared dispositive power as to 2,936 shares and listed its address as 100 Vanguard Blvd., Malvern, Pennsylvania 19355.

(2)

Based solely on a Schedule 13G/A filed with the SEC on February 8, 2019 by Dimensional Fund Advisors LP (“Dimensional”). Dimensional reported sole voting power as to 1,582,147 and sole dispositive power as to 1,694,849 shares, and Dimensional listed its address as Building One 6300 Bee Cave Road Austin, Texas, 78746.

(3)

Based solely on a Schedule 13G/A filed with the SEC on February 6, 2019 by BlackRock Inc. At that time, BlackRock Inc. reported sole voting power as to 1,535,035 shares and sole dispositive power as to 1,535,035 shares and listed its address as 55 East 52nd Street, New York, New York 10022.

(4)

Based solely on a Schedule 13D/A filed with the SEC on April 24, 2018 by Shah Capital, Shah Capital Opportunity Fund LP. (“Shah LP”) and Himanshu H. Shah (“Shah” and, together with Shah Capital and Shah LP, the “Shah Reporting Persons”). At that time, Shah Capital reported shared voting and dispositive

 

101


Table of Contents
  power as to 4,241,342 shares and Shah LP reported shared voting and dispositive power to 3,857,642 shares. Based solely on a Form 4 filed with the SEC on August 1, 2019, Shah reported sole voting and dispositive power as to 56,164 shares and shared voting and dispositive power as to 4,241,342 shares. The Shah Reporting Persons listed their address as 8601 Six Forks Road, Ste. 630, Raleigh, NC 27615.
(5)

Based solely on a Schedule 13D/A filed with the SEC on August 8, 2019 by Vintage Capital Management, LLC, Kahn Capital Management, LLC and Brian R. Kahn (collectively, the “Kahn Reporting Persons”). At that time, the Kahn Reporting Persons reported shared voting and dipositive power as to 3,587,255 shares and listed their address as 4705 S. Apopka Vineland Road, Suite 206, Orlando, FL 32819. The Kahn Reporting Persons disclaim beneficial ownership of these shares for all purposes.

(6)

Based solely on a Schedule 13G/A filed with the SEC on February 13, 2019 by FMR LLC and Abigail P. Johnson (collectively, the “FMR Reporting Persons”). At that time, the FMR Reporting Persons reported sole voting power as to 127,156 shares and sole dipositive power as to 1,645,611 shares and listed their address as 245 Summer Street, Boston, Massachusetts 02210.

(7)

The shares reported do not include: (i) 168,150 unvested PSUs, which are scheduled to vest on December 25, 2021, (ii) 23,722 unvested RSAs, which are scheduled to vest on March 8, 2021 and (iii) 23,723 unvested RSAs, which are scheduled to vest on March 8, 2022.

(8)

Based solely on a Form 4 filed with the SEC on March 8, 2019 by Billy Wafford. Mr. Wafford resigned from his position as Executive Vice President and Chief Financial Officer of the Company as of April 5, 2019. Upon his departure from the Company on April 5, 2019, all of his unvested equity was forfeited.

(9)

The shares reported do not include: (i) 47,259 shares of common stock issuable under options scheduled to become exercisable on January 16, 2020, (ii) 47,259 shares of common stock issuable under options scheduled to become exercisable on January 16, 2021, (iii) 31,250 unvested PSUs, which are scheduled to vest on December 26, 2020, (iv) 16,605 unvested PSUs, which are scheduled to vest on December 25, 2021, (v) 15,625 unvested RSUs, which are scheduled to vest on July 30, 2020, (vi) 15,625 unvested RSUs, which are scheduled to vest on July 30, 2021, (vii) 9,489 unvested RSAs, which are scheduled to vest on March 8, 2021 and (viii) 9,489 unvested RSAs, which are scheduled to vest on March 8, 2022.

(10)

The shares reported do not include: (i) 10,126 unvested PSUs, which are scheduled to vest on December 26, 2020, (ii) 14,652 unvested PSUs, which are scheduled to vest on December 25, 2021, (iii) 3,375 unvested RSAs, which are scheduled to vest on August 10, 2020, (iv) 5,839 unvested RSAs, which are scheduled to vest on March 8, 2021, (v) 3,325 unvested RSAs, which are scheduled to vest on May 20, 2021, (vi) 3,376 unvested RSAs, which are scheduled to vest on August 10, 2021, (vii) 5,839 unvested RSAs, which are scheduled to vest on March 8, 2022 and (viii) 3,326 unvested RSAs, which are scheduled to vest on May 20, 2022.

(11)

The shares reported do not include: (i) 7,853 unvested PSUs, which are scheduled to vest on December 28, 2019, (ii) 20,645 unvested PSUs, which are scheduled to vest on December 26, 2020, (iii) 10,218 unvested PSUs, which are scheduled to vest on December 25, 2021, (iv) 6,881 unvested RSAs, which are scheduled to vest on January 16, 2020, (v) 3,927 unvested RSAs, which are scheduled to vest on March 10, 2020, (vi) 6,882 unvested RSAs, which are scheduled to vest on January 16, 2021, (vii) 5,839 unvested RSAs, which are scheduled to vest on March 8, 2021 and (viii) 5,839 unvested RSAs, which are scheduled to vest on March 8, 2022.

(12)

The shares reported do not include: (i) 38,502 unvested PSUs, which are scheduled to vest on December 25, 2021, (ii) 7,418 unvested RSAs, which are scheduled to vest on November 9, 2020, (iii) 9,489 unvested RSAs, which are scheduled to vest on March 8, 2021, (iv) 7,418 unvested RSAs, which are scheduled to vest on November 9, 2021 and (v) 9,489 unvested RSAs, which are scheduled to vest on March 8, 2022.

(13)

The shares reported do not include 9,947 unvested RSUs, which are scheduled to vest in two equal installments on April 1, 2020 and July 1, 2020.

 

102


Table of Contents

FUTURE STOCKHOLDER PROPOSALS

If the Merger is completed, we will have no public stockholders and there will be no public participation in any future meetings of stockholders of Vitamin Shoppe. However, if the Merger is not completed, stockholders will continue to be entitled to attend and participate in stockholder meetings.

We will hold the regular annual meeting of our stockholders in 2020 only if the Merger is not completed.

Proposals of stockholders that are intended to be considered for inclusion in our proxy statement relating to our regular annual stockholders meeting in 2020 (if held), must be received by us at our principal executive offices at 300 Harmon Meadow Blvd., Secaucus, New Jersey 07094, Attention: Secretary, by December 27, 2019, and must satisfy the conditions established by the SEC, including Rule 14a-8 promulgated under the Exchange Act, and in our bylaws for stockholder proposals in order to be included in our proxy statement for that meeting. Please note that if we hold our regular annual stockholders meeting in 2020, and we do so more than 30 days before or after June 5, 2020 (the one-year anniversary date of the 2019 Annual Meeting of Stockholders), we will disclose the new deadline by which stockholder proposals must be received under Item 5 of Part II of our earliest possible Quarterly Report on Form 10-Q or, if impracticable, by any means reasonably determined to inform stockholders.

Under our bylaws, in order for a matter to be deemed properly presented by a stockholder, timely notice must be received by our Corporate Secretary at our principal executive offices not less than 90 days nor more than 120 days prior to the anniversary of the date of the preceding year’s annual meeting of stockholders. Please note, however, that in the event that no annual meeting was held in the previous year or if the date of the annual meeting is advanced by more than 30 days prior to or delayed by more than 30 days after the anniversary date of the previous year’s annual meeting, then, for notice by the stockholder to be timely, it must be so received by our Corporate Secretary not later than the close of business on the tenth day following the day on which notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs. In the case of a special meeting, timely notice must be delivered and received not less than 90 days prior to the date on which the special meeting is proposed to be held.

A stockholder who intends to bring other proper business for presentation at our 2020 annual meeting (if held) must give proper notice no earlier than February 6, 2020 and no later than March 7, 2020 to the Secretary of the Company, in writing, at our principal executive offices at Vitamin Shoppe, Inc., 300 Harmon Meadow Blvd., Secaucus, New Jersey 07094. The notice must include information specified in our bylaws, including information concerning the proposal and the proponent’s ownership of common stock. Proposals not meeting these requirements will not be entertained at the annual meeting. In addition, if a stockholder submits a proposal that does not comply with the advance notice requirements above, the proxies may exercise authority to vote in accordance with their best judgment on any such proposal.

In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice under our bylaws. A copy of our amended and restated bylaws may be obtained by accessing our filings on the SEC’s website at www.sec.gov. You may also contact our Corporate Secretary at our principal executive offices for a copy of the relevant bylaw provisions regarding the requirements for making stockholder proposals and nominating director candidates.

 

103


Table of Contents

WHERE YOU CAN FIND MORE INFORMATION

Vitamin Shoppe files annual, quarterly and special reports, proxy statements and other information with the SEC. Any reports, statements or other information that we file with the SEC are available to the public at www.sec.gov. You also may obtain free copies of the documents we file with the SEC, including this proxy statement, by going to the Investor Relations page of our corporate website at investors.vitaminshoppe.com. The information provided on our website, other than copies of the documents listed below that have been filed with the SEC, is not part of this proxy statement, and therefore is not incorporated herein by reference.

Statements contained in this proxy statement, or in any document incorporated by reference in this proxy statement regarding the contents of any contract or other document, are not necessarily complete and each such statement is qualified in its entirety by reference to that contract or other document filed as an exhibit with the SEC. The SEC allows us to “incorporate by reference” into this proxy statement documents we file with the SEC. This means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be a part of this proxy statement, and later information that we file with the SEC will update and supersede that information. We incorporate by reference the documents listed below and any documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this proxy statement and before the date of the Special Meeting.

 

   

Vitamin Shoppe’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018, filed on February 26, 2019;

 

   

Vitamin Shoppe’s Quarterly Reports on Form 10-Q for the fiscal quarters ended March 30, 2019, filed on May 8, 2019 and June 29, 2019, filed on August 8, 2019; and

 

   

Vitamin Shoppe’s Current Reports on Form 8-K, filed on March 26, 2019, April 9, 2019, May 2, 2019, May 22, 2019, June 6, 2019 and September 9, 2019, and the Form 8-K filed August 8, 2019 containing Items 1.01, 8.01 and 9.01.

Notwithstanding the foregoing, information furnished under Items 2.02 and 7.01 of any Current Report on Form 8-K, including the related exhibits, is not incorporated by reference into this proxy statement.

Any person, including any beneficial owner, to whom this proxy statement is delivered may request copies of this proxy statement and any of the documents incorporated by reference into this proxy statement from our proxy solicitor at the contact information below. Documents incorporated by reference are available without charge, excluding any exhibits to those documents unless the exhibit is specifically incorporated by reference into those documents. If you would like to request documents from us, please do so at least five business days before the date of the Special Meeting in order to receive timely delivery of those documents prior to the Special Meeting.

If you have any questions about this proxy statement, the Special Meeting or the Merger after reading this proxy statement, please contact our proxy solicitor at:

D.F. King & Co.

48 Wall Street, 22nd Floor

New York, NY 10005

Call Toll-free: (800) 758-5378

Banks and Brokers Call: (212) 269-5550

vsi@dfking.com

 

104


Table of Contents

MISCELLANEOUS

Vitamin Shoppe has supplied all information relating to Vitamin Shoppe, and Parent has supplied, and Vitamin Shoppe has not independently verified, all of the information relating to Parent and Merger Sub contained in this proxy statement.

You should rely only on the information contained in this proxy statement, the annexes to this proxy statement and the documents that we incorporate by reference in this proxy statement in voting on the Merger. We have not authorized anyone to provide you with information that is different from what is contained in this proxy statement. This proxy statement is dated November 12, 2019. You should not assume that the information contained in this proxy statement is accurate as of any date other than that date (or as of an earlier date if so indicated in this proxy statement), and the mailing of this proxy statement to stockholders does not create any implication to the contrary. This proxy statement does not constitute a solicitation of a proxy in any jurisdiction where, or to or from any person to whom, it is unlawful to make a proxy solicitation.

 

105


Table of Contents

ANNEX A

MERGER AGREEMENT

AGREEMENT AND PLAN OF MERGER

by and among

LIBERTY TAX, INC.,

VALOR ACQUISITION, LLC

and

VITAMIN SHOPPE, INC.

Dated as of August 7, 2019


Table of Contents

TABLE OF CONTENTS

 

         Page  

Article I DEFINITIONS & INTERPRETATIONS

     A-1  

1.1

  Certain Definitions      A-1  

1.2

  Additional Definitions      A-10  

1.3

  Certain Interpretations      A-12  

Article II THE MERGER

     A-13  

2.1

  The Merger      A-13  

2.2

  The Effective Time      A-13  

2.3

  The Closing      A-14  

2.4

  Effect of the Merger      A-14  

2.5

  Certificate of Incorporation and Bylaws      A-14  

2.6

  Directors and Officers      A-14  

2.7

  Effect on Capital Stock      A-15  

2.8

  Equity Awards      A-16  

2.9

  Exchange of Certificates      A-17  

2.10

  No Further Ownership Rights in Company Common Stock      A-19  

2.11

  Lost, Stolen or Destroyed Certificates      A-19  

2.12

  Required Withholding      A-19  

Article III REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     A-20  

3.1

  Organization; Good Standing      A-20  

3.2

  Corporate Power; Enforceability      A-20  

3.3

  Company Board Approval; Fairness Opinion; Anti-Takeover Laws      A-20  

3.4

  Requisite Stockholder Approval      A-21  

3.5

  Non-Contravention      A-21  

3.6

  Requisite Governmental Approvals      A-21  

3.7

  Company Capitalization      A-21  

3.8

  Subsidiaries      A-22  

3.9

  Company SEC Reports      A-23  

3.10

  Company Financial Statements; Internal Controls      A-23  

3.11

  No Undisclosed Liabilities      A-24  

3.12

  Absence of Certain Changes      A-24  

3.13

  Material Contracts      A-24  

3.14

  Suppliers      A-24  

3.15

  Real Property      A-24  

3.16

  Environmental Matters      A-25  

3.17

  Intellectual Property      A-25  

3.18

  Tax Matters      A-26  

3.19

  Employee Plans      A-27  

3.20

  Labor Matters      A-29  

3.21

  Permits      A-29  

3.22

  Compliance with Laws      A-29  

3.23

  Legal Proceedings; Orders      A-30  

3.24

  Insurance      A-30  

3.25

  Related Person Transactions      A-30  

3.26

  Brokers      A-30  

3.27

  Anti-Corruption Compliance      A-30  

 

A-i


Table of Contents

TABLE OF CONTENTS

(Continued)

 

         Page  

Article IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

     A-31  

4.1

  Organization; Good Standing      A-31  

4.2

  Power; Enforceability      A-31  

4.3

  Non-Contravention      A-31  

4.4

  Requisite Governmental Approvals      A-31  

4.5

  Legal Proceedings; Orders      A-32  

4.6

  Ownership of Company Common Stock      A-32  

4.7

  Brokers      A-32  

4.8

  Operations of Merger Sub      A-32  

4.9

  No Parent Vote or Approval Required      A-32  

4.10

  Financing      A-32  

4.11

  No Exclusive Arrangements      A-34  

4.12

  No Stockholder or Management Arrangements      A-34  

4.13

  Solvency      A-34  

4.14

  Exclusivity of Representations and Warranties      A-34  

4.15

  Parent and Merger Sub Information      A-35  

Article V INTERIM OPERATIONS OF THE COMPANY

     A-35  

5.1

  Affirmative Obligations of the Company Pending the Merger      A-35  

5.2

  Forbearance Covenants of the Company Pending the Merger      A-36  

5.3

  No Solicitation      A-38  

5.4

  No Control of the Other Party’s Business      A-42  

Article VI ADDITIONAL COVENANTS

     A-42  

6.1

  Required Action and Forbearance; Efforts      A-42  

6.2

  Antitrust Filings      A-43  

6.3

  Proxy Statement and Other Required SEC Filings      A-44  

6.4

  Company Stockholder Meeting      A-45  

6.5

  Financing      A-46  

6.6

  Financing Cooperation      A-48  

6.7

  Anti-Takeover Laws      A-50  

6.8

  Access      A-50  

6.9

  Section 16(b) Exemption      A-51  

6.10

  Directors’ and Officers’ Exculpation, Indemnification and Insurance      A-51  

6.11

  Employee Matters      A-53  

6.12

  Company ESPP      A-54  

6.13

  Obligations of Merger Sub      A-54  

6.14

  Public Statements and Disclosure      A-55  

6.15

  Transaction Litigation      A-55  

6.16

  Stock Exchange Delisting; Deregistration      A-55  

6.17

  Additional Agreements      A-55  

6.18

  No Exclusive Arrangements      A-55  

6.19

  Stockholder and Management Agreements      A-55  

6.20

  Financial Statements      A-56  

6.21

  Parent Actions      A-56  

 

A-ii


Table of Contents

TABLE OF CONTENTS

(Continued)

 

         Page  

Article VII CONDITIONS TO THE MERGER

     A-56  

7.1

  Conditions to Each Party’s Obligations to Effect the Merger      A-56  

7.2

  Conditions to the Obligations of Parent and Merger Sub      A-56  

7.3

  Conditions to the Company’s Obligations to Effect the Merger      A-57  

Article VIII TERMINATION

     A-58  

8.1

  Termination      A-58  

8.2

  Manner and Notice of Termination; Effect of Termination      A-59  

8.3

  Fees and Expenses      A-59  

Article IX GENERAL PROVISIONS

     A-61  

9.1

  Survival of Representations, Warranties and Covenants      A-61  

9.2

  Notices      A-62  

9.3

  Assignment      A-62  

9.4

  Confidentiality      A-63  

9.5

  Entire Agreement      A-63  

9.6

  Third Party Beneficiaries      A-63  

9.7

  Severability      A-63  

9.8

  Remedies      A-64  

9.9

  Governing Law      A-65  

9.10

  Consent to Jurisdiction      A-65  

9.11

  WAIVER OF JURY TRIAL      A-65  

9.12

  No Recourse      A-66  

9.13

  Company Disclosure Letter References      A-66  

9.14

  Counterparts      A-66  

9.15

  Amendment      A-66  

9.16

  Extension; Waiver      A-67  

 

A-iii


Table of Contents

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”) is made and entered into as of August 7, 2019, by and among Liberty Tax, Inc., a Delaware corporation (“Parent”), Valor Acquisition, LLC, a Delaware limited liability company and a wholly owned subsidiary of Parent (“Merger Sub”), and Vitamin Shoppe, Inc., a Delaware corporation (the “Company”). Each of Parent, Merger Sub and the Company is sometimes referred to as a “Party.” All capitalized terms that are used in this Agreement have the respective meanings given to them in this Agreement.

RECITALS

WHEREAS, the Parties intend that, subject to the terms and conditions hereinafter set forth, Merger Sub shall merge with and into the Company (the “Merger”), with the Company continuing as the surviving corporation in the Merger, on the terms and subject to the conditions of this Agreement and in accordance with the General Corporation Law of the State of Delaware (“DGCL”);

WHEREAS, the board of directors of the Company (the “Company Board”), acting upon the unanimous recommendation of a special committee of the Company Board (the “Company Special Committee”), has (a) determined that this Agreement and the transactions contemplated hereby, including the Merger, are fair to, and in the best interests of, the Company and the Company Stockholders; (b) approved and declared advisable this Agreement and the transactions contemplated hereby, including the Merger; (c) recommended that the Company Stockholders adopt this Agreement; and (d) directed that this Agreement be submitted to the Company Stockholders for their adoption;

WHEREAS, (a) the Board of Directors of Parent and the sole member of Merger Sub have unanimously (i) determined that this Agreement and the transactions contemplated hereby, including the Merger, are fair to, and in the best interests of, Parent and Merger Sub, respectively; and (ii) approved and declared advisable this Agreement and the transactions contemplated hereby, including the Merger; and (b) the board of directors of Merger Sub has (i) recommended the adoption of this Agreement by the sole member of Merger Sub; and (ii) directed that this Agreement be submitted to the sole member of Merger Sub for adoption; and

WHEREAS, Parent, Merger Sub and the Company desire to (a) make certain representations, warranties, covenants and agreements in connection with this Agreement and the Merger; and (b) prescribe certain conditions with respect to the consummation of the Merger.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing premises and the representations, warranties, covenants and agreements set forth herein, as well as other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted, and intending to be legally bound hereby, Parent, Merger Sub and the Company agree as follows:

ARTICLE I

DEFINITIONS & INTERPRETATIONS

1.1 Certain Definitions. For all purposes of and pursuant to this Agreement, the following capitalized terms have the following respective meanings:

(a) “Acceptable Confidentiality Agreement” means an agreement with the Company that is either (i) in effect as of the execution and delivery of this Agreement; or (ii) executed, delivered and effective after the

 

A-1


Table of Contents

execution and delivery of this Agreement, in either case containing provisions that require any counterparty thereto (and any of its Affiliates and representatives named therein) that receive material non-public information of, or with respect to, the Company to keep such information confidential; provided, however, that, in each case, the confidentiality and use provisions contained therein are no less restrictive in the aggregate to such counterparty (and any of its Affiliates and representatives as provided therein) than the terms of the Confidentiality Agreement (it being understood that such agreement need not contain any “standstill” or similar provisions or otherwise prohibit the making of any Acquisition Proposal). If the confidentiality and use provisions of such Acceptable Confidentiality Agreement are less restrictive in the aggregate to such counterparty (and any of its Affiliates and representatives named therein) than the terms of the Confidentiality Agreement, then, notwithstanding the foregoing, such agreement will be deemed to be an Acceptable Confidentiality Agreement if the Company offers to amend the Confidentiality Agreement so as to make the confidentiality and use provisions of the Confidentiality Agreement as restrictive in the aggregate as the confidentiality agreement signed by such counterparty.

(b) “Acquisition Proposal” means any offer or proposal (other than an offer or proposal by Parent or Merger Sub) to engage in an Acquisition Transaction.

(c) “Acquisition Transaction” means any transaction or series of related transactions (other than the Merger) involving:

(i) any direct or indirect purchase or other acquisition by any Person or Group, whether from the Company or any other Person(s), of shares of Company Common Stock representing more than 15% of the Company Common Stock outstanding after giving effect to the consummation of such purchase or other acquisition, including pursuant to a tender offer or exchange offer by any Person or Group that, if consummated in accordance with its terms, would result in such Person or Group beneficially owning more than 15% of the Company Common Stock outstanding after giving effect to the consummation of such tender or exchange offer;

(ii) any direct or indirect purchase or other acquisition by any Person or Group of more than 15% of the consolidated assets of the Company and its Subsidiaries taken as a whole (measured by the fair market value thereof as of the date of such purchase or acquisition); or

(iii) any merger, consolidation, business combination, recapitalization, reorganization, liquidation, dissolution or other transaction involving the Company or any of its Subsidiaries pursuant to which any Person or Group would, directly or indirectly, hold shares of Company Common Stock representing more than 15% of the Company Common Stock outstanding after giving effect to the consummation of such transaction.

(d) “Affiliate” means, with respect to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person. For purposes of this definition, the term “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of that Person, whether through the ownership of voting securities or partnership or other ownership interests, by contract or otherwise; provided, however, for the purposes of the definition of “Transaction Litigation” and for purposes of Section 1.3(q), Section 4.4, Section 4.5, Section 4.6, Section 4.7, Section 6.2 and Section 6.8, in no event shall Parent, Merger Sub or any of their respective Subsidiaries be considered an “Affiliate” of Vintage or any of its Affiliates (other than Parent, Merger Sub and their respective Subsidiaries) or any investment fund affiliated with Vintage, or vice versa.

(e) “Antitrust Law” means the Sherman Antitrust Act, 15 U.S.C. §§ 1-7; the Clayton Antitrust Act, 15 U.S.C. §§ 12-27, 29 U.S.C. §§ 52-53; the HSR Act, the Federal Trade Commission Act, 15 U.S.C. §§ 41-58, and all other Laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade or significant impediments or lessening of competition or the creation or strengthening of a dominant position through merger or acquisition, in any case that are applicable to the Merger.

 

A-2


Table of Contents

(f) “Audited Company Balance Sheet” means the consolidated balance sheet (and the notes thereto) of the Company and its consolidated Subsidiaries as of December 29, 2018 set forth in the Company’s Annual Report on Form 10-K filed by the Company with the SEC for the fiscal year ended December 29, 2018.

(g) “Business Day” means any day other than Saturday or Sunday or a day on which commercial banks are authorized or required by Law to be closed in New York, New York.

(h) “Code” means the Internal Revenue Code of 1986, as amended.

(i) “Company Common Stock” means the common stock, par value $0.01 per share, of the Company.

(j) “Company ESPP” means the Employee Stock Purchase Plan of the Company.

(k) “Company Intellectual Property” means any Intellectual Property that is owned by the Company or any of its Subsidiaries.

(l) “Company Material Adverse Effect” means any change, event, development, circumstance or effect (each, an “Effect”) that, individually or taken together with all other Effects that have occurred prior to the date of determination of the occurrence of the Company Material Adverse Effect, (a) has had a materially adverse effect on the business, assets, financial condition or results of operations of the Company and its Subsidiaries, taken as a whole, or (b) prevents or materially impairs or delays, or would reasonably be expected to prevent or materially impair or delay, the ability of the Company to perform its obligations under this Agreement or to consummate the Merger and the transactions contemplated hereby; provided, however, that none of the following, and no Effects arising out of or resulting from the following (in each case, by itself or when aggregated) will be deemed to be or constitute a Company Material Adverse Effect or will be taken into account when determining whether a Company Material Adverse Effect has occurred or may, would or could occur (subject to the limitations set forth below):

(i) changes in general economic conditions, or changes in conditions in the global, international or regional economy generally;

(ii) changes in conditions in the financial markets, credit markets or capital markets in the United States or any other country or region of the world, including (A) changes in interest rates or credit ratings; (B) changes in exchange rates for the currencies of any country; or (C) any suspension of trading in securities (whether equity, debt, derivative or hybrid securities) generally on any securities exchange or over-the-counter market;

(iii) changes in conditions in the industries in which the Company and its Subsidiaries conduct business that generally affect other participants in such industries;

(iv) any geopolitical conditions, outbreak of hostilities, acts of war, sabotage, cyberterrorism (including by means of cyber-attack by or sponsored by a Governmental Authority), terrorism or military actions (including any escalation or general worsening of any such hostilities, acts of war, sabotage, cyberterrorism, terrorism or military actions);

(v) earthquakes, volcanic activity, hurricanes, tsunamis, tornadoes, floods, mudslides, wild fires or other natural disasters, force majeure events, weather conditions, epidemics, and other similar events in the United States or any other country or region of the world;

(vi) changes in regulatory, legislative or political conditions in the United States or any other country or region of the world;

 

A-3


Table of Contents

(vii) any Effect resulting from the announcement of this Agreement or the pendency or consummation of the Transaction, including the impact thereof on the relationships, contractual or otherwise, of the Company and its Subsidiaries with employees, suppliers, lenders, lessors, customers, partners, regulators, Governmental Authorities, vendors or any other third Person (provided, however, that this clause (vii) shall not apply to Section 3.5 or references to “Company Material Adverse Effect” as used in any representation or warranty contained in this Agreement (including for purposes of satisfying Section 7.2(a)) to the extent that such representation or warranty addresses the consequences resulting from the execution or announcement of this Agreement or the pendency of the Transaction);

(viii) the compliance by any Party with the terms of this Agreement, including any action taken or refrained from being taken pursuant to or in accordance with this Agreement;

(ix) any action taken or refrained from being taken, in each case to which Parent has expressly approved, consented to or requested in writing following the date of this Agreement;

(x) changes or proposed changes in GAAP or other accounting standards or in any applicable Laws (or the enforcement or interpretation of any of the foregoing);

(xi) changes in the price or trading volume of the Company Common Stock, in and of itself (it being understood that any cause of such change may be deemed to constitute, in and of itself, a Company Material Adverse Effect and may be taken into consideration when determining whether a Company Material Adverse Effect has occurred);

(xii) any failure, in and of itself, by the Company and its Subsidiaries to meet (A) any public estimates or expectations of the Company’s revenue, earnings or other financial performance or results of operations for any period; or (B) any budgets, plans, projections or forecasts of its revenues, earnings or other financial performance or results of operations (it being understood that any cause of any such failure may be deemed to constitute, in and of itself, a Company Material Adverse Effect and may be taken into consideration when determining whether a Company Material Adverse Effect has occurred);

(xiii) the availability or cost of equity, debt or other financing to Parent or Merger Sub;

(xiv) any Transaction Litigation or other Legal Proceeding threatened, made or brought by any of the current or former Company Stockholders (on their own behalf or on behalf of the Company) against the Company, any of its executive officers or other employees or any member of the Company Board arising out of the Transaction (it being understood that the underlying facts related to such Legal Proceeding may be deemed to constitute, in and of themselves, a Company Material Adverse Effect);

(xv) any matters expressly disclosed on Section 1.1(l) of the Company Disclosure Letter; and