SHF Schiff Nutrition International, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

SCHEDULE 14C INFORMATION

INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

 

Check the appropriate box:

 

x

Preliminary Information Statement

 

¨

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

 

¨

Definitive Information Statement

SCHIFF NUTRITION INTERNATIONAL, INC.

(Name of Registrant as Specified in its Charter)

Payment of Filing Fee (Check the appropriate box):

 

¨

No fee required.

 

x

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

 

(1)

Title of each class of securities to which transaction applies:

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

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

 

 

 

(2)

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

 

 

 

(3)

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

 

  

 

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

 

(4)

Proposed maximum aggregate value of transaction:

$1,330,636,593.59

 

 

 

(5)

Total fee paid:

$181,498.83

 

 

 

¨

Fee paid previously with preliminary materials.

 

¨

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

 

(1)

Amount Previously Paid:

 

  

 

 

(2)

Form, Schedule or Registration Statement No:

 

  

 

 

(3)

Filing party:

 

  

 

 

(4)

Date Filed:

 

  

 

 

 

 

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PRELIMINARY COPY—SUBJECT TO COMPLETION AND CONSUMMATION OF THE OFFER

2002 South 5070 West

Salt Lake City, Utah 84104

NOTICE OF ACTION BY WRITTEN CONSENT AND APPRAISAL RIGHTS

AND

INFORMATION STATEMENT

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

[ — ], 2012

To our Stockholders:

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

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

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

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

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

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

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

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

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

BY ORDER OF THE BOARD OF DIRECTORS,

Tarang P. Amin

President and Chief Executive Officer

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

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

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TABLE OF CONTENTS

 

		Page
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS			iii
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS			vii
SUMMARY			viii
The Companies			viii
The Offer			ix
The Merger			ix
The Merger Consideration			ix
Reasons for the Merger			ix
Required Stockholder Approval for the Merger			x
Opinion of Houlihan Lokey			x
The Merger Agreement			xi
Interests of Our Directors, Executive Officers and Affiliates in the Merger			xiii
Material United States Federal Income Tax Consequences			xiii
Regulatory Matters			xiii
Appraisal Rights			xiv
Procedures for Receiving Merger Consideration			xiv
Market Price of Class A Common Stock			xiv
THE COMPANIES			1
Schiff Nutrition International, Inc.			1
Reckitt Benckiser Group plc			1
Reckitt Benckiser LLC			1
Ascot Acquisition Corp.			1
THE TRANSACTIONS			2
Background to the Transactions			2
Recommendation of Our Board of Directors and Its Reasons for the Recommendation			15
Opinion of Houlihan Lokey			19
Financial Information and Projections			28
Treatment of Company Options, Company RSUs and Company Restricted Shares			37
Interests of Our Directors, Executive Officers and Affiliates in the Merger			37
Regulatory Matters			45
Appraisal Rights			45
Material United States Federal Income Tax Consequences			49
Delisting and Deregistration of Class A Common Stock			51
THE MERGER AGREEMENT			52
Explanatory Note Regarding the Merger Agreement			52
The Offer			52
Terms and Conditions of the Offer			52
Extensions of the Offer; Subsequent Offering Period			53
Effect of the Merger; Directors and Officers; Certificate of Incorporation and Bylaws			53
Closing; When the Merger Becomes Effective			54
Short Form Merger			54
The Company’s Board of Directors			54
Top-Up Option			55
Merger Consideration			56
Procedures for Payment of Merger Consideration			57
Transfers of Ownership and Lost Stock Certificates			57
Representations and Warranties			58
Material Adverse Effect			59
Interim Operations of the Company			60

 

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Necessary Efforts			62
Written Consent			63
Non-Solicitation of Acquisition Proposals			63
Company Board Recommendation			64
Employee Benefit Matters			65
Indemnification and Insurance			65
Conditions to the Merger			66
Termination of the Merger Agreement			66
Breakup Fee			67
Fees and Expenses			68
Amendment and Waiver			68
Guarantee of Ultimate Parent			68
STOCK OWNERSHIP OF BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT			70
WHERE YOU CAN FIND MORE INFORMATION			73

 

ANNEXES
Annex A		Agreement and Plan of Merger
Annex B		Written Consent
Annex C		Section 262 of the Delaware General Corporation Law
Annex D		Opinion of Houlihan Lokey Capital, Inc.

 

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QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS

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

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

 

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

 

A:

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

 

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

 

A:

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

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

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

 

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

 

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

 

A:

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

 

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

 

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

 

Q:	What happens if the Merger is not completed?

 

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

 

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

 

A:

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

 

Q:	Why did I receive this information statement?

 

A:

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

 

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

 

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

 

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

 

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

 

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

 

Q:	Should I send in my Share certificates now?

 

A:

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

 

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

 

A:

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

 

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

 

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

 

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

 

A:

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

 

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

 

A:

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

 

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

 

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

 

A:

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

 

Q:	Who can help answer my questions?

 

A:

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

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

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

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

 

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THE COMPANIES

Schiff Nutrition International, Inc.

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

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

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

Reckitt Benckiser Group plc

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

Reckitt Benckiser LLC

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

Ascot Acquisition Corp.

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

 

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THE TRANSACTIONS

Background to the Transactions

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

 

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

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

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

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

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

Eric Weider

Chairman of the Board

Schiff Nutrition International, Inc.

2002 South 5070 West

Salt Lake City, Utah 84104

Dear Mr. Weider:

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

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

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

 

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

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

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

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

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

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

 

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

 

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

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

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

 

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

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

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

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

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

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

 

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

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

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

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

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

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

 

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

Schiff Nutrition International, Inc.

2002 South 5070 West

Salt Lake City, UT 84104-4726

Attention: General Counsel

Facsimile No.: (801) 975-1924

Re: Agreement and Plan of Merger

Dear Mr. Milsten:

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

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

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

 

 

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CC:

Sullivan & Cromwell LLP

125 Broad Street

New York, NY 10004

Attention: Matthew G. Hurd

Facsimile No.: (212) 558-3588

Latham & Watkins LLP

140 Scott Drive

Menlo Park, California 94062

Attention: Tad Freese

Jamie Leigh

Facsimile No.: (650) 463-2600

Schiff Nutrition International, Inc.

2101 Park Avenue, Suite 101

Emeryville, CA 94608

Attention: General Counsel

Facsimile No.: (510) 922-1271

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

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

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

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

 

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

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

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

The Offer was consummated on [ — ].

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

Recommendation of the Company Board.

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

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

 

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Reasons for the Recommendation of the Company Board.

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

 

•

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

 

•

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

 

•

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

 

•

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

 

•

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

 

•

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

 

•

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

 

•

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

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

 

•

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

 

•

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

 

•

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

 

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

 

•

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

 

•

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

 

•

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

 

•

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

 

•

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

 

•

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

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

 

•

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

 

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

 

•

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

 

•

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

 

•

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

 

•

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

 

•

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

 

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Opinion of Houlihan Lokey

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

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

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

 

•

reviewed the following agreements and documents:

 

•

final draft of the Merger Agreement;

 

•

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

 

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

 

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

 

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

 

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

 

•

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

 

•

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

 

•

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

 

•

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

 

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•

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

 

•

conducted such other financial studies, analyses and inquiries and considered such other information and factors as Houlihan Lokey deemed appropriate.

Houlihan Lokey relied upon and assumed, without independent verification, the accuracy and completeness of all data, material and other information furnished, or otherwise made available, to Houlihan Lokey, discussed with or reviewed by Houlihan Lokey, or publicly available, and did not assume any responsibility with respect to such data, material and other information. In addition, the management of the Company advised Houlihan Lokey, and Houlihan Lokey assumed, that the financial projections (and adjustments thereto) reviewed by Houlihan Lokey were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of the management of the Company as to the future financial results and condition of the Company, and Houlihan Lokey expressed no opinion with respect to such projections or the assumptions on which they are based. In reaching its opinion conclusions, upon the advice of the management of the Company, Houlihan Lokey assumed that the estimated Synergies it reviewed were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of the management of the Company and that the Synergies will be realized in the amounts and the time periods indicated thereby, and Houlihan Lokey expressed no opinion with respect to such Synergies or the assumptions on which they are based. Houlihan Lokey relied upon and assumed, without independent verification, that there was no change in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of the Company since the respective dates of the most recent financial statements and other information, financial or otherwise, provided to Houlihan Lokey that would be material to its analyses or its opinion, and that there is no information or any facts that would make any of the information reviewed by Houlihan Lokey incomplete or misleading.

Houlihan Lokey relied upon and assumed, without independent verification, that (a) the representations and warranties of all parties to the agreements identified above and all other related documents and instruments that are referred to therein are true and correct, (b) each party to all such agreements and other related documents and instruments will fully and timely perform all of the covenants and agreements required to be performed by such party, (c) all conditions to the consummation of the Offer and the Merger will be satisfied without waiver thereof, and (d) the Offer and the Merger will be consummated in a timely manner in accordance with the terms described in all such agreements and other related documents and instruments, without any amendments or modifications thereto. Houlihan Lokey also relied upon and assumed, without independent verification, that (i) the Offer and the Merger will be consummated in a manner that complies in all respects with all applicable international, federal and state statutes, rules and regulations, and (ii) all governmental, regulatory, and other consents and approvals necessary for the consummation of the Offer and the Merger will be obtained and that no delay, limitations, restrictions or conditions will be imposed or amendments, modifications or waivers made that would have an effect on the Offer or the Merger, or the Company or any expected benefits of the Offer or the Merger that would be material to Houlihan Lokey’s analyses or its opinion. In addition, Houlihan Lokey relied upon and assumed, without independent verification, that the final forms of any draft documents identified above would not differ in any respect from the drafts of said documents.

Furthermore, in connection with its opinion, Houlihan Lokey was not requested to make, and did not make, any physical inspection or independent appraisal or evaluation of any of the assets, properties or liabilities (fixed, contingent, derivative, off-balance-sheet or otherwise) of the Company or any other party, nor was Houlihan Lokey provided with any such appraisal or evaluation. Houlihan Lokey did not estimate, and expressed no opinion regarding, the liquidation value of any entity or business. Houlihan Lokey did not undertake an independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which the Company is or may be a party or is or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which the Company is or may be a party or is or may be subject. Houlihan Lokey also expressed no opinion as to the price or range of prices at which (i) shares of Class A Common Stock will trade, or (ii) shares of Class B Common Stock may be transferable, at any time.

 

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Houlihan Lokey’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Houlihan Lokey as of the date of its opinion. Houlihan Lokey did not undertake, and was under no obligation, to update, revise, reaffirm or withdraw its opinion, or otherwise comment on or consider events occurring or coming to its attention after the date of its opinion.

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

Houlihan Lokey was not requested to opine as to, and its opinion did not express an opinion as to or otherwise address, among other things: (i) the underlying business decision of the Company, Parent, Ultimate Parent, their respective security holders or any other party to proceed with or effect the Offer and the Merger, (ii) the terms of any arrangements, understandings, agreements or documents related to, or the form, structure or any other portion or aspect of, the Offer or the Merger or otherwise (other than the Offer Price and Merger Consideration), including, without limitation, the form or structure of the Offer or the Merger or any terms, aspects or implications of any support agreements, standstill agreements or other arrangements, agreements or understandings entered into in connection with the Offer or the Merger or otherwise, (iii) the fairness of any portion or aspect of the Offer or the Merger to the holders of any class of securities (including, without limitation, the holders of Class B Common Stock), creditors or other constituencies of the Company, Parent, Ultimate Parent or to any other party, except if and only to the extent expressly set forth in the last sentence of its opinion, (iv) the relative merits of the Offer or the Merger as compared to any alternative business strategies or transactions that might be available for the Company, Parent, Ultimate Parent or any other party, (v) the fairness of any portion or aspect of the Offer or the Merger to any one class or group of the Company’s, Parent’s, Ultimate Parent’s or any other party’s security holders or other constituents vis-à-vis any other class or group of the Company’s, Parent’s, Ultimate Parent’s or such other party’s security holders or other constituents (including, without limitation, the allocation of any consideration between, amongst or within such classes or groups of security holders (including, without limitation, classes of Shares) or other constituents), (vi) whether or not the Company, Parent, Ultimate Parent, their respective security holders or any other party is receiving or paying reasonably equivalent value in the Offer or the Merger, (vii) the solvency, creditworthiness or fair value of the Company, Parent, Ultimate Parent or any other participant in the Offer or the Merger, or any of their respective assets, under any applicable laws relating to bankruptcy, insolvency, fraudulent conveyance or similar matters, or (viii) the fairness, financial or otherwise, of the amount, nature or any other aspect of any compensation to or consideration payable to or received by any officers, directors or employees of any party to the Offer and the Merger, any class of such persons or any other party, relative to the Offer Price or otherwise. In rendering its opinion, Houlihan Lokey was not requested to, and did not, take into account different classes or attributes of the Shares or the individual circumstances of specific holders with respect to control, voting or other rights or aspects which may distinguish such holders. Furthermore, no opinion, counsel or interpretation was intended in matters that require legal, regulatory, accounting, insurance, tax or other similar professional advice. Houlihan Lokey assumed that such opinions, counsel or interpretations have been or will be obtained from the appropriate professional sources. Furthermore, Houlihan Lokey relied, with the consent of the Company, on the assessments by the Company and its advisors, as to all legal, regulatory, accounting, insurance and tax matters with respect to the Company, Parent, Ultimate Parent and the Offer, the Merger or otherwise.

In preparing its opinion to the Company Board, Houlihan Lokey performed a variety of analyses, including those described below. The summary of Houlihan Lokey’s analyses is not a complete description of the analyses underlying Houlihan Lokey’s opinion. The preparation of a fairness opinion is a complex process involving various quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytical methods employed and the adaptation and application of these methods to the unique facts and circumstances presented. As a consequence, neither a fairness opinion nor its underlying analyses is readily

 

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susceptible to summary description. Houlihan Lokey arrived at its opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any individual analysis, methodology or factor. Accordingly, Houlihan Lokey believes that its analyses and the following summary must be considered as a whole and that selecting portions of its analyses, methodologies and factors or focusing on information presented in tabular format, without considering all analyses, methodologies and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying Houlihan Lokey’s analyses and opinion. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques.

In performing its analyses, Houlihan Lokey considered general business, economic, industry and market conditions, financial and otherwise, and other matters as they existed on, and could be evaluated as of, the date of the opinion. Houlihan Lokey’s analyses involved judgments and assumptions with regard to industry performance, general business, economic, regulatory, market and financial conditions and other matters, many of which are beyond the control of the Company, such as the impact of competition on the business of the Company and on the industry generally, industry growth and the absence of any material change in the financial condition and prospects of the Company or the industry or in the markets generally. No company, transaction or business used in Houlihan Lokey’s analyses for comparative purposes is identical to the Company, the Offer or the Merger and an evaluation of the results of those analyses is not entirely mathematical. Houlihan Lokey believes that mathematical derivations (such as determining average and median) of financial data are not by themselves meaningful and should be considered together with qualities, judgments and informed assumptions. The estimates contained in the Company’s analyses and the implied reference range values indicated by Houlihan Lokey’s analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, any analyses relating to the value of assets, businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond the control of the Company. Much of the information used in, and accordingly the results of, Houlihan Lokey’s analyses are inherently subject to substantial uncertainty.

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

The following is a summary of the material analyses reviewed by Houlihan Lokey with the Company Board in connection with Houlihan Lokey’s opinion rendered on November 21, 2012. The order of the analyses does not represent relative importance or weight given to those analyses by Houlihan Lokey. The analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the analyses. Considering the data in the tables below without considering the full narrative description of the analyses, as well as the methodologies underlying, and the assumptions, qualifications and limitations affecting, each analysis, could create a misleading or incomplete view of Houlihan Lokey’s analyses.

For purposes of its analyses, Houlihan Lokey reviewed a number of financial and operating metrics, including:

 

•

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

 

•

EBITDA.

 

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•

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

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

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

 

Enterprise Value as a Multiple of:
		LTM Adjusted EBITDA				NFY Adjusted EBITDA
Herbalife Ltd.			7.6x				7.1x
Nu Skin Enterprises Inc.			6.8x				6.3x
Glanbia plc			12.1x				11.7x
Vitamin Shoppe, Inc.			14.8x				13.5x
USANA Health Sciences Inc.			5.9x				5.3x
Atrium Innovations Inc.			6.7x				6.5x
Perrigo Co.			13.6x				11.8x
Prestige Brands Holdings, Inc.			11.8x				9.8x
The Hain Celestial Group, Inc.			17.9x				14.7x

 

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

 

Enterprise Value as a Multiple of:
		LTM Adjusted EBITDA				NFY Adjusted EBITDA
Mean			10.8x				9.6x
Median			11.8x				9.8x

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

 

Implied Per Share Equity Reference Range for the Company based on LTM Adjusted EBITDA		Implied Per Share Equity Reference Range for the Company  based on 2013 FYE Adjusted EBITDA				Per Share Offer Price
$16.25 - $21.75		$	17.40 - $24.51			$	42.00

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

 

Announcement Date		Acquiror		Target		Transaction Value/ LTM EBITDA
08/20/2012		Church & Dwight Co. Inc.		Avid Health Inc.			11.2x
04/02/2012		Schiff Nutrition International, Inc.		Airborne Inc.			12.5x
01/19/2011		Glanbia PLC		Bio-Engineered Supplements & Nutrition			8.3x
01/04/2011		Atrium Biotech Investments (subsidiary of Atrium Innovations)		Seroyal International Inc.			7.5x
07/15/2010		The Carlyle Group		NBTY Inc.			7.7x
01/21/2010		Martek Biosciences Corp., Subsidiary of Royal DSM N.V.		Amerifit Brands, Inc.			8.9x
09/21/2009		Atrium Innovations Inc.		Garden of Life Inc.			11.2x

 

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

 

Announcement Date		Acquiror		Target		Transaction Value/ LTM EBITDA
08/25/2008		Glanbia PLC		Optimum Nutrition Inc.			NA
02/09/2007		Ares Management LLC and Ontario Teachers Pension		GNC Corporation			10.9x
02/06/2006		CK Life Sciences International		Vitaquest International LLC			11.2x
09/06/2006		Glanbia PLC		Seltzer Ingredients Inc.			NA
06/06/2005		NBTY Inc.		Solgar Inc.			NA
07/19/2004		Bayer AG		Roche Consumer Health			12.0x
04/02/2004		Ripplewood Holdings LLC and Activated Holdings LLC		Shaklee’s Worldwide Business			8.0x
10/16/2003		Apollo Management LLC		GNC Corp.			8.1x
06/10/2003		NBTY Inc.		Rexall Sundown Inc.			NA
08/16/2002		Fremont Partners		Nellson Nutraceutical			9.5x
09/03/2002		DSM N.V.		Roche’s Vitamins			5.9x
04/10/2002		Herbalife Ltd. Backed by Whitney & Co. and Golden Gate Capital		Herbalife International Inc.			5.0x

 

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

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

 

Transaction Value as a Multiple of LTM Adjusted EBITDA
		Transactions from 2009-2012				All Transactions
Mean			9.6x				9.2x
Median			8.9x				8.9x

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

 

Implied Per Share Equity Reference Range for the Company based on LTM Adjusted EBITDA		Per Share Offer Price
$12.59 - $19.92		$42.00

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

 

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

 

Implied Per Share Equity Reference Range for the Company		Per Share Offer Price
$29.84 - $35.34		$42.00

Other Factors

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

 

Trading Period Prior to October 30, 2012		Class A Common Stock Closing Stock Price		Implied Premium of Per Share Offer Price over Average Closing Stock Price of Class A Common Stock
1 day		$23.19		81.1%
5 days		$23.32		80.1%
10 days		$23.68		77.4%
1 month		$24.04		74.7%
3 month		$21.42		96.0%
6 months		$19.32		117.4%
1 year		$15.53		170.4%

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

 

Announcement Date		Acquiror		Target		Implied Premiums Paid
						1 Trading Day				5 Trading Days				1 Calendar Month
10/14/2011		Unilever		Concern Kalina OAO			54.5	%			52.7	%			129.3	%
01/09/2011		DuPont Denmark Holding ApS		Danisco A/S			25.5	%			27.5	%			43.4	%
11/08/2010		TPG Capital L.P.		Avon Products Company Limited			34.5	%			37.0	%			34.5	%
09/27/2010		Conopco Inc. (Subsidiary of Unilever)		Alberto Culver Company			19.1	%			18.4	%			19.8	%
07/15/2010		The Carlyle Group		NBTY Inc.			46.8	%			55.6	%			47.7	%
01/14/2010		Shiseido Co. Ltd.		Bare Escentuals Inc.			42.9	%			38.5	%			46.2	%
12/21/2009		Sanofi-Aventis		Chattem Inc.			33.6	%			36.0	%			40.7	%

 

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

 

Implied Premiums Paid
		1 Trading Day				5 Trading Days				1 Calendar Month
Mean			36.7	%			38.0	%			51.7	%
Median			34.5	%			37.0	%			43.4	%

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

Other Matters

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

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

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

 

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

Financial Information and Projections

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

 

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

 

Financial Information (As of October 12, 2012)
($ in ‘000s)
Income statement
Fiscal Year End (FYE) 5/31		2012A 1,2				2013E				2014E				2015E				2016E 3				CAGR ‘13-’16
Joint		$	96,953			$	101,996			$	105,056			$	108,208			$	111,454				3.0	%
Growth							5.2	%			3.0	%			3.0	%			3.0	%
Mega Red		$	71,560			$	102,893			$	128,617			$	147,909			$	170,096				18.2	%
Growth							43.8	%			25.0	%			15.0	%			15.0	%
Airborne		$	71,531			$	81,200			$	86,072			$	91,236			$	96,710				6.0	%
Growth							13.5	%			6.0	%			6.0	%			6.0	%
Probiotics		$	19,657			$	28,828			$	31,134			$	33,625			$	36,315				8.0	%
Growth							46.7	%			8.0	%			8.0	%			8.0	%
Specialty		$	20,420			$	22,033			$	22,033			$	22,033			$	22,033				—
Growth							7.9	%			—				—				—
Bars		$	9,240			$	9,630			$	9,630			$	9,630			$	9,630				—
Growth							4.2	%			—				—				—
Direct			—			$	1,986			$	4,620			$	14,810			$	25,000				132.6	%
Growth							—				132.6	%			220.6	%			68.8	%
Total branded		$	289,361			$	348,566			$	387,161			$	427,450			$	471,237				10.6	%
Growth							20.5	%			11.1	%			10.4	%			10.2	%
Private label		$	37,398			$	36,498			$	29,867			$	24,441			$	20,000				(18.2	%)
Growth							(2.4	%)			(18.2	%)			(18.2	%)			(18.2	%)
Other		$	45				—				—				—				—
Total Net Sales		$	326,805			$	385,064			$	417,028			$	451,891			$	491,237				8.5	%
Growth							17.8	%			8.3	%			8.4	%			8.7	%
Gross Margin
Forecast							51.9	%			55.0	%			56.0	%			56.5	%
Forecast pro forma			49.7	%			54.0	%			55.0	%			56.0	%			56.5	%
Gross Profit
Forecast						$	200,017			$	229,365			$	253,059			$	277,549				11.5	%
Forecast pro forma		$	162,400			$	208,068	4		$	229,365			$	253,059			$	277,549				10.1	%
Selling & Marketing		$	74,906			$	88,476			$	98,002			$	106,194			$	115,441				9.3	%
as % of net sales			22.9	%			23.0	%			23.5	%			23.5	%			23.5	%
Other operating expenses		$	53,161			$	49,443				54,005				58,068				61,356				7.5	%
as % of net sales			16.3	%			12.8	%			13.0	%			12.9	%			12.5	%
EBIT
Forecast						$	62,098			$	77,359			$	88,797			$	100,753				17.5	%
Margin							16.1	%			18.6	%			19.7	%			20.5	%
Forecast pro forma		$	34,333			$	70,149			$	77,359			$	88,797			$	100,753				12.8	%
Margin			10.5	%			18.2	%			18.6	%			19.7	%			20.5	%
Non recurring adjustments
Transaction costs (2012A) Purchase
Accounting (2013E)		$	7,866			$	2,525				—				—				—

 

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Fiscal Year End (FYE) 5/31		2012A 1,2				2013E				2014E				2015E				2016E 3				CAGR ‘13-’16
Adjusted EBIT
Forecast						$	64,623			$	77,359			$	88,797			$	100,753				16.0	%
Margin							16.8	%			18.6	%			19.7	%			20.5	%
Forecast pro forma		$	42,199			$	70,149			$	77,359			$	88,797			$	100,753				12.8	%
Margin			12.9	%			18.2	%			18.6	%			19.7	%			20.5	%
Depreciation		$	4,232			$	4,324			$	3,025			$	3,300			$	3,900
Amortization		$	2,029			$	6,056			$	6,000			$	5,650			$	5,800
D&A		$	6,261			$	10,380			$	9,025			$	8,950			$	9,700
Stock based compensation		$	2,911			$	4,059			$	5,500			$	5,700			$	6,100
Adjusted EBITDA
Forecast						$	79,062			$	91,884			$	103,447			$	116,553				13.8	%
Margin							20.5	%			22.0	%			22.9	%			23.7	%
Forecast pro forma		$	51,371			$	84,588			$	91,884			$	103,447			$	116,553				11.3	%
Margin			15.7	%			22.0	%			22.0	%			22.9	%			23.7	%
Cash flow items
FYE 5/31		2012A 1,2				2013E				2014E				2015E				2016E
Capex		$	2,732			$	5,000			$	3,000			$	6,000			$	4,000
as % of net sales			0.8	%			1.3	%			0.7	%			1.3	%			0.8	%
as % of depreciation			65	%			116	%			99	%			182	%			103	%
Working capital		$	41,055			$	35,700			$	38,663			$	41,895			$	45,543
as % of net sales			12.6	%			9.3	%			9.3	%			9.3	%			9.3	%
Change in working capital						$	(5,355	)		$	2,963			$	3,232			$	3,648
Free cash flow calculation
FYE 5/31						2013E				2014E				2015E				2016E
EBIT						$	62,098			$	77,359			$	88,797			$	100,753
Plus: Amortization non deductible						$	3,792			$	3,481			$	3,383			$	3,300
EBITA						$	65,890			$	80,840			$	92,180			$	104,053
Less: taxes on EBITA						$	(25,038	)		$	(30,719	)		$	(35,028	)		$	(39,540	)
Plus: depreciation						$	4,324			$	3,025			$	3,300			$	3,900
Plus: deductible amortization						$	2,264			$	2,519			$	2,267			$	2,500
Plus: purchase accounting adjustment						$	2,525				—				—				—
Less: capex						$	(5,000	)		$	(3,000	)		$	(6,000	)		$	(4,000	)
Less: change in working capital						$	5,355			$	(2,963	)		$	(3,232	)		$	(3,648	)
Free Cash Flows (FCF)						$	50,320			$	49,701			$	53,486			$	63,265
Plus: stock based compensation						$	4,059			$	5,500			$	5,700			$	6,100
Adjusted FCF						$	54,379			$	55,201			$	59,186			$	69,365
Other
Corporate tax rate							38.0	%			38.0	%			38.0	%			38.0	%

Note

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

 

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

 

3

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

 

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

 

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

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

 

Financial Information (As of October 29, 2012)
($ in ‘000s)
Income statement
Fiscal Year End (FYE) 5/31		2012A 1,2				2013E				2014E				2015E				2016E				2017E 3				CAGR ‘13-’16
Joint		$	96,953			$	101,996			$	105,056			$	108,208			$	111,454								3.0	%
Growth							5.2	%			3.0	%			3.0	%			3.0	%
Mega Red		$	71,560			$	102,893			$	128,617			$	147,909			$	170,096								18.2	%
Growth							43.8	%			25.0	%			15.0	%			15.0	%
Airborne		$	71,531			$	81,200			$	86,072			$	91,236			$	96,710								6.0	%
Growth							13.5	%			6.0	%			6.0	%			6.0	%
Probiotics		$	19,657			$	28,828			$	31,134			$	33,625			$	36,315								8.0	%
Growth							46.7	%			8.0	%			8.0	%			8.0	%
Specialty		$	20,420			$	22,033			$	22,914			$	23,830			$	24,784								4.0	%
Growth							7.9	%			4.0	%			4.0	%			4.0	%
Bars		$	9,240			$	9,630			$	10,015			$	10,415			$	10,832								4.0	%
Growth							4.2	%			4.0	%			4.0	%			4.0	%
Direct			—			$	1,986			$	4,620			$	14,810			$	25,000								132.6	%
Growth							—				132.6	%			220.6	%			68.8	%
Total branded		$	289,361			$	348,566			$	388,428			$	430,034			$	475,191								10.9	%
Growth							20.5	%			11.4	%			10.7	%			10.5	%
Private label		$	37,398			$	36,498			$	29,867			$	24,441			$	20,000								(18.2	%)
Growth							(2.4	%)			(18.2	%)			(18.2	%)			(18.2	%)
Other		$	45				—				—				—				—
Total Net Sales		$	326,805			$	385,064			$	418,295			$	454,475			$	495,191			$	539,554				8.7	%
Growth							17.8	%			8.6	%			8.6	%			9.0	%			9.0	%
Gross Margin
Forecast							51.9	%			55.0	%			56.0	%			56.5	%			56.5	%
Forecast pro forma			49.7	%			54.0	%			55.0	%			56.0	%			56.5	%
Gross Profit
Forecast						$	200,017			$	230,062			$	254,506			$	279,783			$	304,848				11.8	%
Forecast pro forma		$	162,400			$	208,068	4		$	230,062			$	254,506			$	279,783								10.4	%
Selling & Marketing		$	74,906			$	88,476			$	98,299			$	106,802			$	116,370								9.6	%
as % of net sales			22.9	%			23.0	%			23.5	%			23.5	%			23.5	%
Other operating expenses		$	53,161			$	49,443			$	54,169			$	58,400			$	61,849								7.7	%
as % of net sales			16.3	%			12.8	%			13.0	%			12.9	%			12.5	%

 

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Fiscal Year End (FYE) 5/31		2012A 1,2				2013E				2014E				2015E				2016E				2017E 3				CAGR ‘13-’16
EBIT
Forecast						$	62,098			$	77,594			$	89,304			$	101,564			$	111,163				17.8	%
Margin							16.1	%			18.6	%			19.7	%			20.5	%			20.6	%
Forecast pro forma		$	34,333			$	70,149			$	77,594			$	89,304			$	101,564								13.1	%
Margin			10.5	%			18.2	%			18.6	%			19.7	%			20.5	%
Non recurring adjustments
Transaction costs (2012A) Purchase Accounting (2013E)		$	7,866			$	2,525				—				—				—
Adjusted EBIT
Forecast						$	64,623			$	77,594			$	89,304			$	101,564								16.3	%
Margin							16.8	%			18.6	%			19.7	%			20.5	%
Forecast pro forma		$	42,199			$	70,149			$	77,594			$	89,304			$	101,564								13.1	%
Margin			12.9	%			18.2	%			18.6	%			19.7	%			20.5	%
Depreciation		$	4,232			$	4,324			$	3,025			$	3,300			$	3,900			$	4,249
Amortization		$	2,029			$	6,056			$	6,000			$	5,650			$	5,800			$	5,820
D&A		$	6,261			$	10,380			$	9,025			$	8,950			$	9,700			$	10,069
Stock based compensation		$	2,911			$	4,059			$	5,500			$	5,700			$	6,100
Adjusted EBITDA
Forecast						$	79,062			$	92,119			$	103,954			$	117,364			$	121,232				14.1	%
Margin							20.5	%			22.0	%			22.9	%			23.7	%			22.5	%
Forecast pro forma		$	51,371			$	84,588			$	92,119			$	103,954			$	117,364								11.5	%
Margin			15.7	%			22.0	%			22.0	%			22.9	%			23.7	%

Cash flow items

 

FYE 5/31		2012A 1,2				2013E				2014E				2015E				2016E				2017E 3
Capex		$	2,732			$	5,000			$	3,000			$	6,000			$	4,000			$	4,358
as % of net sales			0.8	%			1.3	%			0.7	%			1.3	%			0.8	%			0.8	%
as % of depreciation			65	%			116	%			99	%			182	%			103	%			103	%
Working capital		$	41,055			$	35,700			$	38,781			$	42,135			$	45,910
as % of net sales			12.6	%			9.3	%			9.3	%			9.3	%			9.3	%
Change in working capital						$	(5,355	)		$	3,081			$	3,354			$	3,775			$	4,113

 

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Free cash flow calculation

 

FYE 5/31		2013E				2014E				2015E				2016E				2017E
EBIT		$	62,098			$	77,594			$	89,304			$	101,564			$	111,163
Plus: Amortization non deductible		$	4,004			$	3,948			$	3,598			$	3,748			$	3,768
EBITA		$	66,102			$	81,542			$	92,902			$	105,312			$	114,930
Less: taxes on EBITA		$	(25,119	)		$	(30,986	)		$	(35,303	)		$	(40,018	)		$	(43,673	)
Plus: depreciation		$	4,324			$	3,025			$	3,300			$	3,900			$	4,249
Plus: deductible amortization		$	2,052			$	2,052			$	2,052			$	2,052			$	2,052
Less: capex		$	(5,000	)		$	(3,000	)		$	(6,000	)		$	(4,000	)		$	(4,358	)
Less: change in working capital		$	5,355			$	(3,081	)		$	(3,354	)		$	(3,775	)		$	(4,113	)
Free Cash Flows (FCF)		$	47,714			$	49,552			$	53,597			$	63,470			$	69,087
Plus: stock based compensation		$	4,059			$	5,500			$	5,700			$	6,100
Adjusted FCF		$	51,773			$	55,052			$	59,297			$	69,570
Other
Corporate tax rate			38.0	%			38.0	%			38.0	%			38.0	%			38.0	%

Note

 

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

 

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

 

3

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

 

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

 

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

($ in ‘000s)

 

EBIT
FYE 2012A 1		$	34,333
Reconciliation
Plus: Depreciation		$	198
Plus: Incremental Amortization		$	(3,304	)
Plus: Acquisition related		$	3,471
Plus: Other non-recurring		$	150
Plus: Airborne G&A synergies 2		$	8,072
As Adjusted with Synergies		$	42,920
Pro Forma Adjusted EBITDA
FYE 2012A1		$	51,371
Reconciliation
Less: Stock-Based Compensation		$	(2,911	)
Plus: Other non-recurring		$	2,362
Plus: Airborne cogs synergies—realized		$	779
Plus: Airborne G&A synergies 2		$	8,072
As Adjusted with Synergies		$	59,673

 

1	Same figures as presented in financial information charts dated October 12 and 29, 2012 above.

2	General and administrative expenses at Airborne eliminated, with the exception of insurance expense.

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

 

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

Last Twelve Months (LTM) Ended August 31, 2012

($ in ‘000s)

 

Net sales		$	337,597
Cost of goods sold		$	171,388
Gross profit		$	166,208
Total operating expenses		$	127,114
Income from operations (EBIT)		$	39,095
Other income (expense):
Interest income		$	46
Interest expense		$	(13,813	)
Other, net		$	56
Total other income (expense)		$	(13,711	)
Income before income taxes		$	25,383
Income tax expense		$	9,646
Net income		$	15,738
Adjusted Pro Forma Net Income
Net income		$	15,738
Less: PF Interest expense		$	(2,339	)
Less: PF Amortization expense		$	(720	)
Plus: Acquisition related		$	4,387
Plus: Inventory charge		$	1,550
Plus: Airborne cogs synergies—realized		$	779
Plus: Other non-recurring		$	1,982
Plus: Airborne G&A synergies			—
Total adjustments		$	5,639
Less: tax expense		$	(2,143	)
Total AT adjustments		$	3,496
Pro Forma Adjusted Net Income		$	19,234
Adjusted Pro Forma EBITDA
EBIT		$	39,095
Plus: Depreciation		$	4,190
Plus: Amortization		$	6,212
Plus: Acquisition related		$	4,387
Plus: Inventory charge		$	1,550
Plus: Airborne cogs synergies—realized		$	779
Plus: Other non-recurring		$	1,832
Plus: Airborne G&A synergies			—
Total adjustments		$	18,950
Pro Forma Adjusted EBITDA		$	58,045

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

 

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

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

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

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

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

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

 

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Treatment of Company Options, Company RSUs and Company Restricted Shares

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

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

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

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

Overview.

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

Consideration for Shares at the Effective Time of the Merger.

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

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

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

 

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

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

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

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

 

		Value of Vested Company Options				Value of Unvested Company Options that vest immediately prior to the Offer Acceptance Time				Value of Company RSUs				Value of Unvested Company Restricted Shares				Value of Unpaid Dividend Acceleration				Total Cash Payment with Respect to all Equity Compensation
Directors
Tarang P. Amin*		$	18,122,500.68			$	17,573,358.40				—			$	5,498,220.00				—			$	41,194,079.08
Ronald L. Corey		$	1,478,250.00				—			$	2,625,672.00			$	89,880.00			$	84,570.90			$	4,278,372.90
Matthew T. Hobart			—				—				—				—				—				—
Michael Hyatt			—				—				—			$	465,318.00				—			$	465,318.00
Eugene B. Jones			—				—				—			$	465,318.00				—			$	465,318.00
Roger H. Kimmel		$	1,006,625.00				—			$	2,330,874.00			$	293,790.00			$	100,189.80			$	3,731,478.80
George F. Lengvari			—				—				—			$	631,218.00				—			$	631,218.00
William E. McGlashan, Jr.			—				—				—				—				—				—
Brian T. Swette			—				—				—			$	424,158.00				—			$	424,158.00
Eric Weider			—				—				—				—				—				—
Richard G. Wolford			—				—				—			$	509,586.00				—			$	509,586.00
Other Named Executive Officers
Joseph W. Baty		$	1,176,100.00			$	4,704,400.00			$	5,037,396.00				—			$	383,801.60			$	11,301,697.60
Scott K. Milsten		$	920,700.00			$	3,682,800.00				—				—				—			$	4,603,500.00
Jennifer Steeves-Kiss		$	990,080.00			$	3,960,320.00				—				—				—			$	4,950,400.00
All Directors and Named Executive Officers (14 persons)		$	23,694,255.68			$	29,920,878.40			$	9,993,942.00			$	8,377,488.00			$	568,562.30			$	72,555,126.38

 

*	Mr. Amin is also a named executive officer.

 

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Transaction Bonus Agreements.

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

Pro Rata Bonuses.

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

Executive Employment Agreements.

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

 

•

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

 

•

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

 

•

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

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

 

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

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

 

•

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

 

•

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

 

•

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

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

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

 

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

 

•

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

 

•

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

 

•

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

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

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

 

Name		Cash ($)(1)				Equity ($)(2)				Perquisites/ Benefits  ($)(3)				Tax Reimbursement  ($)				Other ($)				Total
Tarang P. Amin		$	6,425,000.00			$	23,071,578.40			$	27,026.64				—				—			$	29,523,605.04
Joseph W. Baty		$	1,179,471.05			$	10,125,597.60			$	11,200.68				—				—			$	11,316,269.33
Scott K. Milsten		$	926,666.67			$	3,682,800.00			$	11,522.40				—				—			$	4,620,989.07
Jennifer Steeves-Kiss		$	853,333.33			$	3,960,320.00			$	5,749.20				—				—			$	4,819,402.53

 

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

 

Name		Cash Severance ($)				Transaction Bonus  ($)				Pro-Rata Bonus  ($)
Tarang P. Amin		$	900,000.00			$	5,000,000.00			$	525,000.00
Joseph W. Baty		$	970,929.38				—			$	208,541.67
Scott K. Milsten		$	325,000.00			$	450,000.00			$	151,666.67
Jennifer Steeves-Kiss		$	275,000.00			$	450,000.00			$	128,333.33

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

 

(2)

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

 

Name		Aggregate Value of “in-the money” Company Stock Options that would Vest				Aggregate Value of Company RSUs				Aggregate Value of Unpaid Dividends on Company RSUs and Company Restricted Shares				Aggregate Value of Company Restricted Shares that would Vest				Total
Tarang P. Amin		$	17,573,358.40				—				—			$	5,498,220.00			$	23,071,578.40
Joseph W. Baty		$	4,704,400.00			$	5,037,396.00			$	383,801.60				—			$	10,125,597.60
Scott K. Milsten		$	3,682,800.00				—				—				—			$	3,682,800.00
Jennifer Steeves-Kiss		$	3,960,320.00				—				—				—			$	3,960,320.00

 

(3)

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

Directors’ and Officers’ Insurance and Indemnification.

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

 

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

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

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

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

Employee Matters.

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

 

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

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

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

Agreements with Executive Officers and Directors.

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

Agreement with Rothschild.

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

Tender and Support Agreements.

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

 

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Standstill Agreement, Stockholders Agreement and Registration Rights Agreement.

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

Stockholder Written Consent.

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

Certain Interests of the Principal Stockholders.

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

Regulatory Matters

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

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

Appraisal Rights

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

 

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

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

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

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

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

 

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

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

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

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

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

 

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

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

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

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

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

 

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

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

Material United States Federal Income Tax Consequences

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

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

 

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insurance companies;

 

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banks or other financial institutions;

 

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mutual funds;

 

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tax-deferred or other retirement accounts;

 

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holders subject to the alternative minimum tax;

 

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partnerships, S corporations or other pass-through entities;

 

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tax-exempt organizations;

 

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

 

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controlled foreign corporations or passive foreign investment companies;

 

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

 

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

 

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

 

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

 

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

 

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

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

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

 

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an individual citizen or resident of the United States;

 

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

 

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

 

•

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

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

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

U.S. Holders

Payments with Respect to Shares

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

Information Reporting and Backup Withholding

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

 

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Non-U.S. Holders

Payments with Respect to Shares

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

 

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

 

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

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

Information Reporting and Backup Withholding

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

Delisting and Deregistration of Class A Common Stock

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

 

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THE MERGER AGREEMENT

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

Explanatory Note Regarding the Merger Agreement

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

The Offer

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

Terms and Conditions of the Offer

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

 

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

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

Extensions of the Offer; Subsequent Offering Period

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

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

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

 

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

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

Closing; When the Merger Becomes Effective

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

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

Short Form Merger

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

The Company’s Board of Directors

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

 

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

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

Top-Up Option

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

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

 

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

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

Merger Consideration

Conversion of Shares

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

Treatment of Company Options and Other Equity-Based Awards

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

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

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

Procedures for Payment of Merger Consideration

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

 

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

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

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

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

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

Transfers of Ownership and Lost Stock Certificates

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

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

 

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Representations and Warranties

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

 

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organization, qualification and subsidiaries;

 

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capitalization;

 

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

 

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non-contravention of laws, charter documents and contracts;

 

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required filings and consents;

 

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permits and compliance with laws;

 

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SEC filings and financial statements;

 

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internal controls;

 

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state takeover laws;

 

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undisclosed liabilities;

 

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absence of certain changes since June 1, 2012;

 

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employee benefit plans;

 

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labor and other employment matters;

 

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contracts;

 

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litigation;

 

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environmental matters;

 

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intellectual property;

 

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tax matters;

 

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insurance;

 

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properties and assets;

 

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real property;

 

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delivery of fairness opinion;

 

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

 

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brokers and financial advisors;

 

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related party transactions;

 

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certain regulatory matters;

 

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

 

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the termination of the Bayer Merger Agreement.

 

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

 

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organization and qualification;

 

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

 

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non-contravention of laws, charter documents and contracts;

 

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required filings and consents;

 

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litigation;

 

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ownership of Shares;

 

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sufficiency of funds;

 

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ownership of Purchaser;

 

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no prior activities of Purchaser;

 

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management arrangements;

 

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brokers and financial advisors; and

 

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

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

Material Adverse Effect

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

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

Interim Operations of the Company

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

•

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

 

•

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

 

•

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

 

•

pre-pay any long-term debt; or

 

•

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

Necessary Efforts

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

 

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

Written Consent

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

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

Non-Solicitation of Acquisition Proposals

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

 

•

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

 

•

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

 

•

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

 

•

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

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

 

•

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

 

•

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

 

•

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

 

•

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

 

•

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

 

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

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

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

 

•

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

 

•

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

 

•

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

 

•

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

 

•

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

The Merger Agreement defines a “Superior Proposal” as a written and bona fide Acquisition Proposal for 50.1% or more of the voting power or assets of the Company made by a third party that the Company Board has determined in its good faith judgment, after consultation with its outside legal counsel and with its financial advisors, is reasonably likely to be consummated in accordance with its terms, taking into account all legal, financial (including the availability of committed financing) and regulatory aspects of the proposal and the person making the proposal and would, if consummated, result in a transaction that is more favorable to the Company’s stockholders, from a financial point of view, than the Merger.

Company Board Recommendation

Subject to the provisions described below, neither the Company Board nor any committee thereof may:

 

•

withhold, withdraw or qualify (or modify in a manner adverse to Parent) (or publicly propose to withhold, withdraw, qualify or so modify) the approval, recommendation or declaration of advisability by the Company Board or any such committee of the Merger Agreement, the Offer, the Merger or any of the other transactions contemplated thereby;

 

•

adopt, approve, recommend, or otherwise declare advisable (or publicly propose to adopt, approve, recommend or otherwise declare advisable) the adoption of any Acquisition Proposal;

 

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•

submit any Acquisition Proposal or any matter related thereto to the vote of the stockholders of the Company; or

 

•

authorize, commit, resolve or agree to take any such actions.

Notwithstanding the foregoing, if (i) the Company has received a bona fide written Acquisition Proposal from a third party that was not solicited, initiated, encouraged or facilitated in material breach of the provisions of the Merger Agreement and that the Company Board determines in good faith, after consultation with outside counsel and its financial advisors, constitutes a Superior Proposal and (ii) the Company Board determines in good faith, after consultation with its financial advisor and its outside counsel, that changing the Company Board Recommendation with respect to such Superior Proposal is necessary in order for the members of the Company Board to comply with their fiduciary duties under applicable Law, then the Company Board may, at any time prior to but not after the time at which the Written Consent is executed and delivered pursuant to the terms of the Merger Agreement, make such a change in the Company Board Recommendation with respect to such Superior Proposal and to terminate the Merger Agreement to enter into any agreement, letter of intent, memorandum of understanding, agreement in principle or Contract providing for or otherwise relating to such Superior Proposal.

Employee Benefit Matters

Pursuant to the terms of the Merger Agreement, for 12 months following the Effective Time, Parent will provide, and will cause to be provided, to each employee of the Company and its subsidiaries who continues to be employed by Parent or any of its subsidiaries annual base salary or base wages and short-term target cash incentive compensation opportunities that are no less favorable than the annual base salary or base wages and short-term target cash incentive compensation opportunities provided to such Company employees immediately prior to the Effective Time. After the Effective Time, Parent must also provide pension, health and welfare benefits to such Company employees who work more than 20 hours per week that are at least as favorable in the aggregate to those provided to similarly situated employees of Parent, although Parent may elect to continue Company employees who work more than 20 hours per week in their existing Company benefit plans for a transition period. The Merger Agreement further requires that the Company or the Surviving Corporation, as applicable, honor in accordance with the terms of employment, severance and change of control agreements and arrangements previously disclosed to Parent.

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

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

Indemnification and Insurance

Pursuant to the Merger Agreement, for a period of six years from and after the Effective Time, Parent will agree to indemnify and hold harmless all past and present directors and officers of the Company to the same extent such persons are indemnified as of the date of the Merger Agreement by the Company pursuant to applicable law, the Company’s certificate of incorporation and bylaws and the Indemnification Agreements

 

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arising out of acts or omissions in their capacity as directors or officers of the Company or any of its subsidiaries occurring at or prior to the Effective Time. Parent will also agree to cause the indemnification agreements in existence on the date of the Merger Agreement with any of the directors, officers or employees of the Company to continue in full force and effect in accordance with their terms following the Effective Time and advance expenses (including reasonable legal fees and expenses) incurred in the defense of any proceedings with respect to such matters in accordance with the procedures set forth in the Indemnification Agreements.

Pursuant to the Merger Agreement, for six years after the Effective Time, Parent must cause the certificate of incorporation and bylaws of the Surviving Corporation to contain provisions no less favorable with respect to exculpation and indemnification of directors and officers of the Company for periods at or prior to the Effective Time than are currently set forth in the Company’s existing certificate of incorporation. The Merger Agreement also requires that Parent cause the indemnification agreements in existence on the date of the Merger Agreement with any of the directors, officers or employees of the Company to continue in full force and effect in accordance with their terms following the Effective Time.

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

Conditions to the Merger

The Merger Agreement provides that the obligations of the parties to consummate the Merger are subject to the satisfaction or written waiver of certain conditions.

The following are conditions to the respective obligations of each party to consummate the Merger:

 

•

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

 

•

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

 

•

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

Termination of the Merger Agreement

The Merger Agreement may be terminated and the Offer and the Merger abandoned by mutual written consent prior to the Effective Time, or by either party in the event that (i) the time at which Purchaser accepts, for the first time, for payment the Shares validly tendered and not properly withdrawn pursuant to the Offer and satisfying the Minimum Condition (the “Offer Acceptance Time”) has not occurred on or before April 1, 2013

 

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(the “Outside Date”) or (ii) a final and non-appealable order or ruling has been issued by a court or other governmental entity restraining, enjoining or otherwise prohibiting the consummation of the Offer, the Merger or imposing a non-required remedy, and the terminating party has used its reasonable best efforts to resist, resolve or lift, as applicable, such order or ruling.

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

The Merger Agreement may be terminated by Parent (i) if there is an uncured inaccuracy in any representation or warranty of the Company contained in the Merger Agreement or the Company has breached any of its covenants in the Merger Agreement such that relevant conditions to the Offer are not satisfied and such inaccuracy or breach is not capable of cure or at least fifteen calendar days has elapsed since the date of delivery of written notice by Parent to the Company of such inaccuracy or breach, or (ii) if, within 24 hours after the execution and delivery of the Merger Agreement by the parties, (A) the Written Consent has not been delivered to the Company or (B) the Company has not delivered to Parent a certified copy of such Written Consent.

Breakup Fee

The Company will be required to pay to Parent a termination fee equal to $22.0 million (the “Breakup Fee”) if the Merger Agreement is terminated because:

 

•

the Company Board, concurrently with the termination of the definitive Merger Agreement by the Company, causes the Company to enter into any agreement, letter of intent, memorandum of understanding, agreement in principle or contract providing for or otherwise relating to a Superior Proposal;

 

•

the Effective Time has not occurred on or before the Outside Date and prior to the date of such termination, an Acquisition Proposal from a third party has been made known to the Company Board;

 

•

there is an uncured inaccuracy in any representation or warranty of the Company contained in the Merger Agreement or the Company has breached any of its covenants in the Merger Agreement such that relevant conditions to closing are not satisfied and such inaccuracy or breach is not capable of cure or at least fifteen calendar days has elapsed since the date of delivery of written notice by Parent to the Company of such inaccuracy or breach, and prior to the date of such termination, an Acquisition Proposal from a third party has been made known to the Company Board; or

 

•

(i) the Written Consent has not been delivered to the Company or (ii) the Company has not delivered to Parent a certified copy of such Written Consent, in each case within 24 hours after the execution and delivery of the definitive Merger Agreement by the parties,

and in each case, if the Company enters into a definitive written agreement providing for the consummation of any Acquisition Proposal or if any Acquisition Proposal is consummated on or prior to the 12-month anniversary of the termination of the Merger Agreement. As used in this section, “Acquisition Proposal” has the meaning described in “The Merger Agreement—Non-Solicitation of Acquisition Proposals”, except that the references to “20%” will be deemed to be references to “a majority.”

 

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Fees and Expenses

All costs and expenses (including fees and expenses payable to representatives) incurred in connection with the Merger Agreement, the transaction documents, the Merger and the other transactions contemplated by the Merger Agreement will be paid by the party incurring such costs or expense, whether or not the Merger is consummated.

Amendment and Waiver

The Merger Agreement may be amended by the Company, Parent and Purchaser by action taken by or on behalf of their respective Boards of Directors at any time prior to the Effective Time, whether before or after adoption of the Merger Agreement by the stockholders of the Company, if any is required, or of Purchaser; provided, however, that, after adoption of the Merger Agreement by such stockholders, no amendment may be made which, by law or in accordance with the rules of any relevant stock exchange, requires further approval by such stockholders without obtaining such further approval. The Merger Agreement may not be amended except by an instrument in writing signed by the parties thereto.

At any time prior to the Effective Time, Parent and Purchaser, on the one hand, and the Company, on the other hand, may (i) extend the time for the performance of any of the obligations or other acts of the other, (ii) waive any uncured inaccuracies in the representations and warranties of the other contained in the Merger Agreement or in any document delivered pursuant thereto and (iii) waive compliance by the other with any of the agreements or conditions contained in the Merger Agreement. Any such extension or waiver will be valid only if set forth in an instrument in writing signed by the party or parties to be bound thereby. Any such extension or waiver or any failure to insist on strict compliance with an obligation, covenant, agreement or condition will not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.

Guarantee of Ultimate Parent

The Merger Agreement provides that Ultimate Parent will unconditionally guarantee the performance by both Parent and Purchaser of their payment and performance obligations under the Merger Agreement (the “Guarantee”). The Guarantee will expire and be of no further force and effect as of 60 days following the Effective Time.

Other Agreements

The Tender and Support Agreements

Each of Weider and TPG entered into Tender and Support Agreements, among Parent, Purchaser and such stockholder, which, among other things obligates such stockholder, solely in its capacity as a stockholder, (i) to tender all its Shares in the Offer, (ii) to restrict the transfer of its Shares except under certain circumstances, and (iii) to agree to be bound by the non-solicitation provisions in the Merger Agreement. The Company is not be a party to the Tender and Support Agreements. As of November 26, 2012, Weider is the record holder of 7,486,574 Class B Shares and TPG is the record holder of 7,486,574 Class A Shares. Such Shares constitute approximately 85.14% of the total outstanding voting power of Shares as of such date.

In addition, in connection with the execution of the Merger Agreement, certain executive officers and directors of the Company also entered into D&O Agreements, among Parent, Purchaser and such officer or director, pursuant to which each such executive officer or director, among other matters, agreed to (i) tender in the Offer, or any subsequent offering period, as applicable, all Shares held by such person and (ii) with respect to each Company Option held by such person following the Offer Acceptance Time, refrain from exercising such Company Option prior to its cancellation in the Merger, except as otherwise permitted under such agreements. The Company is not a party to the Tender and Support Agreements.

As of November 26, 2012, Weider is the record holder of 7,486,574 Class B Shares and TPG is the record holder of 7,486,574 Class A Shares. The officers and directors that are party to a D&O Agreement beneficially own,

 

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as of November 26, 2012, in the aggregate 3,522,894 Shares, excluding Shares that are also the subject of the Tender and Support Agreement executed by Weider and including Shares issuable upon vesting of Company RSUs and Company Restricted Shares and upon vesting and exercise of Company Options. As of November 26, 2012, the Shares subject to the Tender and Support Agreement and D&O Agreements collectively represent approximately 85.15% and 54.28% of the total outstanding voting power and total number of outstanding Shares, respectively, assuming in each case that all Shares issuable upon vesting and, if applicable, exercise of Company RSUs, Company Restricted Shares and Company Options were issued and outstanding.

The table below sets forth those certain directors and officers who have executed a D&O Agreement and the ownership by such individuals of the Shares, Shares issuable upon vesting of Company RSUs, Shares issuable upon vesting of the Company Restricted Shares and Shares issuable upon vesting and/or exercise of Company Options, each as of November 26, 2012:

 

Name of director or officer		Class A Shares(1)				Class A Shares issuable upon vesting of Company RSUs				Class A Shares issuable upon vesting of Company Restricted Shares				Class A Shares issuable upon vesting and exercise of Company Options
William E. McGlashan, Jr.			—				—				—				—
Tarang P. Amin			703,640				—				130,910				1,063,643
Scott K. Milsten			30,000				—				—				150,000
Ronald L. Corey			84,871				62,516				2,140				40,000
Richard G. Wolford			14,299				—				12,505				—
Richard F. Baruch Jr.			—				—				—				160,000
Michael Hyatt			47,106				—				11,079				—
Matthew T. Hobart			—				—				—				—
Joseph W. Baty			243,564				119,938				—				190,000
Jon Fieldman			32,200				—				—				161,000
Jennifer Steeves-Kiss			32,000				—				—				160,000
George F. Lengvari			67,603				—				15,401				—
Eugene B. Jones			47,106				—				11,079				—
Eric Weider*			7,577,709				—				—				—
Brian T. Swette			22,273				—				11,581				—

 

*	Number includes 7,486,574 Shares which are also the subject of the Tender and Support Agreement with Weider.

(1)	Includes Class A Shares which may be purchased upon the exercise of stock options that are currently vested or vest within 60 days of November 26, 2012 and unvested shares of restricted stock as of November 26, 2012.

Confidentiality Agreement

The Company and Ultimate Parent are parties to a Confidentiality Agreement, dated as of November 16, 2012 (the “Confidentiality Agreement”), pursuant to which, and subject to certain exceptions, the Ultimate Parent agreed to keep strictly confidential and not to disclose non-public information of the Company and the Company’s subsidiaries delivered or made available to the Ultimate Parent or any of its officers, managers, directors, general partners, employees, outside counsel, accountants, consultants or other representatives, in connection with the consideration by the parties of a possible negotiated transaction between them, except in accordance with the terms of the Confidentiality Agreement. The Ultimate Parent agreed not to solicit certain of the Company’s employees for a two-year period following the execution of the Confidentiality Agreement.

 

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STOCK OWNERSHIP OF BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT

The following table sets forth information that has been provided to us regarding the beneficial ownership of our Class A Common Stock and Class B Common Stock as of November 26, 2012 for (i) each person or entity who is known to us to beneficially own more than 5 percent of the outstanding shares of our Class A Common Stock or Class B Common Stock; (ii) each person who is a director of the Company; (iii) each of the named executive officers of the Company; and (iv) all current directors and executive officers as a group. The Class B Common Stock is entitled to 10 votes per share and converts on a one for one basis into shares of the Class A Common Stock.

Except as noted, the person or entity listed has sole voting and investment power with respect to the shares shown in this table.

 

		Shares Beneficially Owned(1)																Percent of Total Voting Power
		Number of Shares								Percent
		Class A(2)				Class B				Class A(3)				Class B
Directors and Named Executive Officers:
Eric Weider(4)			7,577,709				7,486,574				34.67	%			100.00	%			85.24	%
George F. Lengvari(5)			67,603				—				0.31	%			0.00	%			0.07	%
Tarang P. Amin			703,640				—				3.22	%			0.00	%			0.72	%
Ronald L. Corey			84,871				—				0.39	%			0.00	%			0.09	%
Matthew T. Hobart			—				—				0.00	%			0.00	%			0.00	%
Michael Hyatt			47,106				—				0.22	%			0.00	%			0.05	%
Eugene B. Jones			47,106				—				0.22	%			0.00	%			0.05	%
Roger H. Kimmel			179,192				—				0.82	%			0.00	%			0.19	%
William E. McGlashan, Jr.			—				—				0.00	%			0.00	%			0.00	%
Brian T. Swette			22,273				—				0.10	%			0.00	%			0.02	%
Richard G. Wolford			14,299				—				0.07	%			0.00	%			0.01	%
Joseph W. Baty			243,564				—				1.11	%			0.00	%			0.25	%
Scott K. Milsten			30,000				—				0.14	%			0.00	%			0.03	%
Jennifer Steeves-Kiss			32,000				—				0.15	%			0.00	%			0.03	%
Directors and executive officers as a group (14 persons)			9,049,363				7,486,574				41.40	%			100.00	%			86.13	%
Other Stockholders:
Weider Health and Fitness(4) 21100 Erwin Street Woodland Hills, CA 91367			7,486,574				7,486,574				34.25	%			100.00	%			85.14	%
TPG STAR SNI, L.P.(6) 301 Commerce St., Suite 3300 Fort Worth, Texas 76102			7,486,574				7,486,574				34.25	%			100.00	%			85.14	%
GAMCO Investors Inc.(7) One Corporate Center Rye, NY 10580-1422			4,405,754				—				20.16	%			0.00	%			4.55	%

 

(1)

Based on 21,858,086 shares of Class A Common Stock and 7,486,574 shares of Class B Common Stock outstanding on November 26, 2012. Except for information based on Schedules 13D or 13G, as indicated in the footnotes hereto, beneficial ownership is stated as of November 26, 2012 and includes shares underlying options exercisable within 60 days of that date held by each person, as if such shares were outstanding on that date.

 

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(2)

Includes shares of Class A Common Stock which may be purchased upon the exercise of stock options that are currently vested or vest within 60 days of November 26, 2012 and unvested shares of restricted stock as of November 26, 2012, as set forth in the table below. The shares of restricted stock are subject to certain vesting and forfeiture requirements.

 

Director or Named Executive Officer		Options				Company Restricted Shares
Eric Weider(4)			—				—
George F. Lengvari(5)			—				15,401
Tarang P. Amin			540,003				130,910
Ronald L. Corey			40,000				2,140
Matthew T. Hobart			—				—
Michael Hyatt			—				11,079
Eugene B. Jones			—				11,079
Roger H. Kimmel			27,500				6,995
William E. McGlashan, Jr.			—				—
Brian T. Swette			—				11,581
Richard G. Wolford			—				12,505
Joseph W. Baty			38,000				—
Scott K. Milsten			30,000				—
Jennifer Steeves-Kiss			32,000				—
Directors and executive officers as a group (14 persons)			707,503				201,690

Does not include 57,661, 54,753 and 119,938 restricted stock units that are currently vested or vest within 60 days of November 26, 2012 and are held by Messrs. Corey, Kimmel and Baty, respectively, for a total of 232,352 of such restricted stock units held by all current directors and executive officers as a group. Each restricted stock unit represents the right to receive one share of our Class A Common Stock. Each of the holders has elected to defer the receipt of the shares to be issued upon conversion of the restricted stock units until a specified future date that is not within 60 days of November 26, 2012.

 

(3)	Does not give effect to the conversion of Class B Common Stock.

(4)

Eric Weider has sole voting and investment power over 91,135 of the 7,577,709 shares of Class A Common Stock shown above. As disclosed on a Schedule 13D/A filed on November 16, 2012, Weider Health and Fitness is the record holder of 7,486,574 shares of the Class B Common Stock, and is a direct, wholly owned subsidiary of MLE Holdings Company (“MLE”). Eric Weider currently has direct and indirect control of MLE (and certain of its affiliates). Weider Health and Fitness, Eric Weider and MLE (together, the “Weider Persons”) have shared dispositive power over the 7,486,574 shares of the Class B Common Stock held by Weider Health and Fitness. Eric Weider disclaims beneficial ownership of the shares of Class B Common Stock that may be deemed beneficially owned by him, except to the extent of his pecuniary interest in such shares, which pecuniary interest is derived from his direct and indirect ownership interest in MLE.

The Weider Persons may be deemed to have shared voting power with the TPG Persons (as defined in footnote 6 below) over the 7,486,574 shares of the Company’s Class A Common Stock and the 7,486,574 shares of the Company’s Class B Common Stock held by TPG and the Weider Persons, respectively, as a result of certain provisions in that certain Stockholders Agreement, dated as of October 14, 2010 (the “Stockholders Agreement”), by and between Weider Health and Fitness and TPG. Except to the extent the Weider Persons may be deemed to have beneficial ownership over such shares as a result of the Stockholders Agreement pursuant to Rule 13d-4 under the Exchange Act, the Weider Persons expressly disclaim beneficial ownership of these shares for purposes of Section 13(d) of the Exchange Act.

The shares of Class A Common Stock and the shares of Class B Common Stock that may be beneficially owned by the TPG Persons and the Weider Persons collectively represented 85.14% of the total voting power of our shares of Common Stock as of November 26, 2012.

 

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(5)

Does not include 410,997 shares of Class A Common Stock held by Bayonne Settlement, a trust organized under the laws of Jersey (U.K.), of which family members of George F. Lengvari are included among the beneficiaries. Bayonne Settlement is administered by an independent trustee, and Mr. Lengvari has neither the power to dispose of nor to vote the shares. Mr. Lengvari disclaims beneficial ownership of such shares.

(6)

Based on a Schedule 13D/A filed on November 16, 2012 by TPG Group Holdings (SBS) Advisors, Inc. (“Group Advisors”), David Bonderman and James G. Coulter (together with TPG, the “TPG Persons”), TPG directly owns 7,486,574 shares of the Class A Common Stock. Group Advisors is the general partner of TPG Group Holdings (SBS), L.P., which is the sole member of TPG Holdings I-A, LLC, which is the general partner of TPG Holdings I, L.P., which is the sole member of TPG STAR GenPar Advisors, LLC, which is the general partner of TPG STAR GenPar, L.P., which is the general partner of TPG STAR, L.P., which is the sole manager and controlling member of TPG. Due to their affiliations, Group Advisors and Messrs. Bonderman and Coulter are deemed to have beneficial ownership of the shares owned directly by TPG to the extent of the greater of their respective direct or indirect pecuniary interests in the profits or capital accounts of TPG. Group Advisors and Messrs. Bonderman and Coulter expressly disclaim beneficial ownership of shares in excess of such amounts.

The TPG Persons may be deemed to have shared voting power with the Weider Persons over the 7,486,574 shares of the Class A Common Stock and 7,486,574 shares of the Company’s Class B Common Stock held by the TPG Persons and the Weider Persons, respectively, as a result of certain provisions in the Stockholders Agreement. Except to the extent the TPG Persons may be deemed to have beneficial ownership over such shares as a result of the Stockholders Agreement pursuant to Rule 13d-4 under the Exchange Act, the TPG Persons expressly disclaim beneficial ownership of such shares for purposes of Section 13(d) of the Exchange Act.

The shares of Class A Common Stock and the shares of Class B Common Stock that may be beneficially owned by the TPG Persons and the Weider Persons collectively represented 85.14 percent of the total voting power of our shares of Common Stock as of November 26, 2012.

 

(7)

Based on Schedule 13D/A filed on November 8, 2012 and November 2, 2012 by GAMCO Investors Inc. (“GAMCO Investors”), Mario J. Gabelli and various entities which he directly or indirectly controls or for which he acts as chief investment officer. Gabelli Funds, LLC (“Gabelli Funds”), GAMCO Asset Management, Inc. (“GAMCO Asset”), Teton Advisers, Inc. (“Teton Advisers”), MJG Associates, Inc. (“MJG”) and Gabelli Securities, Inc. (“GSI”) own 1,372,300, 2,183,555, 834,399, 3,000 and 12,500 shares of Class A common stock, respectively. Due to their affiliations, Mario Gabelli, GAMCO Investors and GGCP, Inc. (“GGCP”), are deemed to have beneficial ownership of the shares owned beneficially by Gabelli Funds, GAMCO Asset, Teton Advisers, MJG and GSI. Subject to certain limitations, each of Gabelli Funds, GAMCO, Teton Advisers, MJG and GSI has sole disposition and voting power over the shares of Class A common stock held by it, except that GAMCO Asset does not have voting power over 3,700 of its shares. Mario Gabelli, GAMCO Investors and GGCP have indirect voting power with respect to shares beneficially owned directly by Gabelli Funds, GAMCO Asset, Teton Advisers, and MJG. Subject to certain limitations, a Proxy Voting Committee has indirect voting power over the shares held by Gabelli Funds.

 

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WHERE YOU CAN FIND MORE INFORMATION

The Company files annual, quarterly and current reports and other documents with the SEC. These reports and other documents contain additional information about the Company. Stockholders may read and copy any reports, statements or other information filed by the Company at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of this information by mail from the public reference section of the SEC at 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates. Please call the SEC at (800) SEC-0330 for further information on the operation of the public reference room. The Company’s SEC filings made electronically are available to the public at the SEC’s website located at www.sec.gov. Stockholders can also obtain free copies of our SEC filings through the “Investor Relations” section of the Company’s website at www.schiffnutrition.com. Our website address is being provided as an inactive textual reference only. The information provided on our website, other than the copies of the documents listed or referenced below that have been or will be filed with the SEC, is not part of this information statement, and therefore is not incorporated herein by reference.

The SEC allows the Company to “incorporate by reference” information that it files with the SEC in other documents into this information statement. This means that the Company may disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this information statement. This information statement and the information that the Company files later with the SEC may update and supersede the information incorporated by reference. Such updated and superseded information will not, except as so modified or superseded, constitute part of this information statement.

The Company incorporates by reference each document it files under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the initial filing of this information statement and before the Effective Time. The Company also incorporates by reference in this information statement the following documents filed by it with the SEC under the Exchange Act:

 

Schiff Filings		Periods
Annual Report on Form 10-K		Fiscal Year ended May 31, 2012
Quarterly Reports on Form 10-Q		Fiscal Quarter ended August 31, 2012
Current Reports on Forms 8-K and 8-K/A		Filed June 13, 2012, October 30, 2012, November 20, 2012, November 21, 2012, November 27, 2012
Portions of Definitive Proxy Statement on Schedule 14A Incorporated by Reference in the Form 10-K		Filed September 21, 2012

The Company undertakes to provide without charge to each person to whom a copy of this information statement has been delivered, upon request, by first class mail or other equally prompt means, a copy of any or all of the documents incorporated by reference in this information statement, other than the exhibits to these documents, unless the exhibits are specifically incorporated by reference into the information that this information statement incorporates. You may obtain documents incorporated by reference by requesting them in writing or by telephone at the following address and telephone number:

SCHIFF NUTRITION INTERNATIONAL, INC.

2002 SOUTH 5070 WEST

SALT LAKE CITY, UTAH 84104

(801) 975-5000

Ultimate Parent, Parent and Purchaser have supplied, and the Company has not independently verified, the information in this information statement relating to Ultimate Parent, Parent and Purchaser.

 

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Some banks, brokers and other nominee record holders may be participating in the practice of “householding” information statements. This means that only one copy of this information statement may have been sent to multiple stockholders in your household. We will promptly deliver a separate copy upon request.

Please direct your inquiry or request by mail or telephone to the Company at the above address and telephone number. If you want to receive separate copies of the information statement in the future, or if you are receiving multiple copies and would like to receive only one copy per household, you should contact your bank, broker or other nominee record holder, or you may contact us at the above address and telephone number.

Stockholders should not rely on information that purports to be made by or on behalf of the Company other than that contained in or incorporated by reference in this information statement. The Company has not authorized anyone to provide information on behalf of the Company that is different from that contained in this information statement. This information statement is dated [ — ], 2012. No assumption should be made that the information contained in this information statement is accurate as of any date other than that date, and the mailing of this information statement will not create any implication to the contrary. Notwithstanding the foregoing, in the event of any material change in any of the information previously disclosed, the Company will, where relevant and if required by applicable law, update such information through a supplement to this information statement.

 

 

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ANNEX A

EXECUTION VERSION

AGREEMENT AND PLAN OF MERGER

among

Reckitt Benckiser LLC,

Ascot Acquisition Corp.,

Schiff Nutrition International, Inc.

and

Reckitt Benckiser Group plc

(solely for purposes of Section 6.17 hereof)

Dated as of November 21, 2012

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TABLE OF CONTENTS

 

				Page
ARTICLE 1		THE OFFER			A-2
1.1		The Offer			A-2
1.2		Company Actions			A-4
1.3		Directors			A-5
1.4		Top-Up Option			A-7
ARTICLE 2		THE MERGER			A-8
2.1		The Merger			A-8
2.2		Closing and Effective Time of the Merger			A-9
ARTICLE 3		CONVERSION OF SECURITIES IN THE MERGER			A-9
3.1		Conversion of Securities			A-9
3.2		Payment for Securities; Surrender of Certificates			A-9
3.3		Dissenting Shares			A-11
3.4		Treatment of Company Options, Company RSUs and Restricted Shares; Stock Plans			A-12
ARTICLE 4		REPRESENTATIONS AND WARRANTIES OF THE COMPANY			A-13
4.1		Organization and Qualification; Subsidiaries			A-13
4.2		Capitalization			A-14
4.3		Authority			A-15
4.4		No Conflict			A-15
4.5		Required Filings and Consents			A-16
4.6		Permits; Compliance With Law			A-16
4.7		SEC Filings; Financial Statements			A-17
4.8		Internal Controls			A-18
4.9		State Takeover Laws			A-18
4.10		No Undisclosed Liabilities			A-18
4.11		Absence of Certain Changes or Events			A-19
4.12		Employee Benefit Plans			A-19
4.13		Labor and Other Employment Matters			A-21
4.14		Contracts			A-21
4.15		Litigation			A-23
4.16		Environmental Matters			A-23
4.17		Intellectual Property			A-23
4.18		Tax Matters			A-25
4.19		Insurance			A-26
4.20		Properties and Assets			A-26
4.21		Real Property			A-27
4.22		Opinion of Financial Advisor			A-27
4.23		Required Vote			A-27
4.24		Brokers			A-27
4.25		Related Party Transactions			A-27
4.26		Certain Regulatory Matters			A-27
4.27		Information Supplied			A-29
4.28		Bayer Merger Agreement			A-29
ARTICLE 5		REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB			A-29
5.1		Organization and Qualification			A-29
5.2		Authority			A-29
5.3		No Conflict			A-30

 

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(Continued)

 

				Page
5.4		Required Filings and Consents			A-30
5.5		Litigation			A-30
5.6		Ownership of Company Common Stock			A-31
5.7		Sufficient Funds			A-31
5.8		Ownership of Merger Sub; No Prior Activities			A-31
5.9		Management Arrangements			A-31
5.10		Brokers			A-31
5.11		Information Supplied			A-31
ARTICLE 6		COVENANTS			A-32
6.1		Conduct of Business by the Company Pending the Closing			A-32
6.2		Access to Information; Confidentiality			A-34
6.3		Non-Solicitation			A-34
6.4		Stockholder Written Consent; Preparing of Information Statement			A-36
6.5		Appropriate Action; Consents; Filings			A-37
6.6		Certain Notices			A-38
6.7		Public Announcements			A-38
6.8		Employee Benefit Matters			A-38
6.9		Indemnification of Directors and Officers			A-40
6.10		State Takeover Laws			A-41
6.11		Parent Agreement Concerning Merger Sub			A-41
6.12		Section 16 Matters			A-41
6.13		Stock Exchange Delisting; Deregistration			A-41
6.14		Stockholder Litigation			A-41
6.15		Domain Names			A-41
6.16		Short Form Merger			A-41
6.17		Guarantee of Guarantor			A-41
ARTICLE 7		CONDITIONS TO CONSUMMATION OF THE MERGER			A-42
7.1		Conditions to Obligations of Each Party Under This Agreement			A-42
ARTICLE 8		TERMINATION, AMENDMENT AND WAIVER			A-42
8.1		Termination			A-42
8.2		Effect of Termination			A-43
8.3		Amendment			A-44
8.4		Waiver			A-44
ARTICLE 9		GENERAL PROVISIONS			A-44
9.1		Non-Survival of Representations and Warranties			A-44
9.2		Fees and Expenses			A-44
9.3		Notices			A-45
9.4		Certain Definitions			A-45
9.5		Terms Defined Elsewhere			A-50
9.6		Headings			A-52
9.7		Severability			A-52
9.8		Entire Agreement			A-52
9.9		No Third Party Beneficiaries			A-52
9.10		Assignment			A-52
9.11		Mutual Drafting; Interpretation			A-53

 

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(Continued)

 

				Page
9.12		Governing Law; Consent to Jurisdiction; Waiver of Trial by Jury			A-53
9.13		Counterparts			A-54
9.14		Specific Performance			A-54
Exhibit A		Form of Certificate of Incorporation of the Surviving Corporation
Exhibit B		Form of Bylaws of the Surviving Corporation
Exhibit C		Form of Stockholder Written Consent
Exhibit D		Certain Holders of Shares
Annex I		Conditions to the Offer

 

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AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER, dated as of November 21, 2012 (this “ Agreement ”), is entered into by and among Reckitt Benckiser LLC, a Delaware limited liability company (“ Parent ”), Ascot Acquisition Corp., a Delaware corporation and a wholly-owned Subsidiary of Parent (“ Merger Sub ”), and Schiff Nutrition International, Inc., a Delaware corporation (the “ Company ”) and, solely for the purposes of Section 6.17 hereof, Reckitt Benckiser Group plc, a public limited company organized under the laws of England and Wales (“ Guarantor ”). All capitalized terms used in this Agreement will have the meanings assigned to such terms in Section 9.4 or as otherwise defined elsewhere in this Agreement.

RECITALS

WHEREAS, on November 16, 2012, Merger Sub commenced a cash tender offer (as it may be amended or supplemented from time to time as permitted under this Agreement, the “ Offer ”) to acquire all of the issued and outstanding shares of Class A common stock, par value $0.01 per share (the “ Class A Common Stock ”), and Class B common stock, par value $0.01 per share (the “ Class B Common Stock ”), of the Company (the Class A Common Stock and the Class B Common Stock, together, the “ Company Common Stock ”) (which shares of Company Common Stock are hereinafter referred to as the “ Shares ”), for $42.00 per share of Company Common Stock (such amount, or any higher amount per share paid pursuant to the Offer, being the “ Offer Price ”), net to holder in cash, without interest;

WHEREAS, following the consummation of the Offer, upon the terms and conditions set forth in this Agreement, the parties hereto intend that Merger Sub will be merged with and into the Company, with the Company continuing as the Surviving Corporation (the “ Merger ”), in accordance with the General Corporation Law of the State of Delaware (the “ DGCL ”), whereby each issued and outstanding Share (other than Shares to be cancelled in accordance with Section 3.1(b) and other than Dissenting Shares) will be converted into the right to receive the Offer Price;

WHEREAS, the Company has terminated the Agreement and Plan of Merger dated as of October 29, 2012, by and among Bayer HealthCare, LLC (“ Bayer ”), Willow Road Company and the Company (the “ Bayer Merger Agreement ”) in accordance with its terms;

WHEREAS, in connection with the termination of the Bayer Merger Agreement and entry into this Agreement, the Company has paid to Bayer the Breakup Fee (as defined in the Bayer Merger Agreement) of $22,000,000 pursuant to Section 7.2(b) of the Bayer Merger Agreement;

WHEREAS, in furtherance of the Offer and the Merger, Parent, Merger Sub and the Company shall cooperate to amend the Offer Documents (as defined below) to reflect the terms of this Agreement;

WHEREAS, the Board of Directors of the Company (the “ Company Board ”) has, upon the terms and subject to the conditions set forth herein, (i) determined that the Offer, the Merger and the other transactions contemplated by this Agreement are fair to and in the best interests of the Company and its stockholders, (ii) approved and declared advisable this Agreement, the Offer, the Merger and the other transactions contemplated hereby in accordance with the requirements of the DGCL, (iii) recommended that the Company’s stockholders vote their Shares in favor of adopting this Agreement by written consent in lieu of a meeting and (iv) resolved to recommend that the Company’s stockholders accept the Offer and tender their Shares pursuant to the Offer (the “ Company Board Recommendation ”);

WHEREAS, the Boards of Directors of Parent and Merger Sub have, upon the terms and subject to the conditions set forth herein, (i) determined that the Offer, the Merger and the other transactions contemplated by this Agreement are fair to and in the best interests of Parent and Merger Sub and their respective stockholders

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and (ii) approved and declared advisable this Agreement, the Offer, the Merger and the other transactions contemplated hereby;

WHEREAS, as a condition to and inducement to Parent’s and Merger Sub’s willingness to enter into this Agreement, simultaneously with the execution of this Agreement and with the approval of the Company, certain stockholders of the Company are entering into tender and support agreements with Parent and Merger Sub (the “ Tender and Support Agreements ”);

WHEREAS, as a condition to and inducement to Parent’s and Merger Sub’s willingness to enter into this Agreement, simultaneously with the execution of this Agreement, certain directors and officers of the Company are entering into agreements (each, a “ D&O Agreement ”) with Parent and Merger Sub pursuant to which such directors and officers have agreed to (i) subject to the terms of Section 3.4 , tender in the Offer, or any Subsequent Offering Period, as applicable, all Shares held by them (including (a) Restricted Shares, (b) Shares issuable upon vesting of Company RSUs and (c) Shares issuable upon the permitted exercise of Company Options prior to any Expiration Date or the expiration of any Subsequent Offering Period, as applicable, in each case, on the terms and subject to the conditions set forth in such D&O Agreements) and (ii) with respect to each Company Option held by them following the Offer Acceptance Time, refrain from exercising such Company Option prior to its cancellation in the Merger (except as otherwise permitted under such D&O Agreements); and

WHEREAS, Parent, Merger Sub and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Offer and the Merger and also to prescribe various conditions to the Offer and the Merger.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual covenants and premises contained in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties to this Agreement, intending to be legally bound, agree as follows:

ARTICLE 1

THE OFFER

1.1 The Offer .

(a) On the date of commencement of the Offer (within the meaning of Rule 14d-2 under the Exchange Act), Guarantor, Parent and Merger Sub filed with the SEC a Tender Offer Statement on Schedule TO with respect to the Offer (together with all amendments and supplements thereto and including exhibits thereto, the “ Schedule TO ”) that incorporated by reference the Offer to Purchase and form of the related letter of transmittal, form of summary advertisement and such other customary documents included therein (the Schedule TO, the Offer to Purchase and such other documents pursuant to which the Offer is being made, the “ Offer Documents ”).

(b) Subject to the conditions of this Agreement, as promptly as practicable but in no event later than three Business Days after the date hereof, Merger Sub shall, and Parent shall cause Merger Sub to, amend the offer to purchase (as so amended and supplemented, the “ Offer to Purchase ”) and the other Offer Documents, in each case in accordance with the terms of this Agreement, (as so amended and supplemented, the “ Amended Offer Documents ”), including to reflect the conditions set forth in Annex I (the “ Offer Conditions ”) and file with the SEC the Amended Offer Documents.

(c) Merger Sub expressly reserves the right to (i) increase the Offer Price, (ii) waive any Offer Condition (provided, that Merger Sub will not waive the Minimum Condition without the prior written consent of the Company) and (iii) make any other changes in the terms and conditions of the Offer not inconsistent with the

 

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terms of this Agreement, in each case subject to extending the Offer as required by applicable Law; provided, however, that unless otherwise provided by this Agreement, without the prior written consent of the Company, Merger Sub shall not (A) decrease the Offer Price, (B) change the form of consideration payable in the Offer, (C) decrease the maximum number of Shares sought to be purchased in the Offer, (D) add to, or impose conditions to the Offer, other than the Offer Conditions, (E) amend or modify any of the Offer Conditions or any of the terms of the Offer in a manner adverse to the holders of Shares or that would, individually or in the aggregate, reasonably be expected to prevent, materially delay or impair the ability of Parent or Merger Sub to consummate the Offer, the Merger or the other transactions contemplated hereby, (F) waive or change the Minimum Condition (provided, that Merger Sub may, at its sole discretion prior to the expiration of the Offer, waive or change the Minimum Condition to remove the proviso in the definition of such term requiring that the calculation of the total outstanding voting power of the Shares be made on a fully-diluted basis; provided further, that Merger Sub (i) provides written notification of such determination to the Company and (ii) provides any notification or modification to the Amended Offer Documents with respect thereto, to the extent required by applicable Law, in each case at least five Business Days prior to any scheduled Expiration Date) or (G) extend or otherwise change the Expiration Date in a manner other than as required or permitted by this Agreement. The Offer may not be withdrawn prior to the Expiration Date (or any Expiration Date, as extended pursuant to the terms of this Agreement), unless this Agreement is terminated in accordance with Article 8 . Notwithstanding anything to the contrary in this Agreement, the Offer Price shall be adjusted appropriately to reflect the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Shares), cash dividend, reorganization, recapitalization, reclassification, combination, exchange of shares or other like change with respect to the Shares, occurring on or after the date of this Agreement and prior to the Offer Acceptance Time, and such adjustment to the Offer Price shall provide to the holders of Shares the same economic effect as contemplated by this Agreement prior to such action; provided, that nothing in this sentence shall be construed to permit the Company to take any action with respect to its securities that is prohibited by the terms of this Agreement.

(d) Unless extended pursuant to and in accordance with the terms of this Agreement, the Offer shall initially be scheduled to expire at 11:59 p.m. (New York City time) on the date that is the later of (i) December 14, 2012 or (ii) the date that is five (5) Business Days following the date of filing with the SEC of the Amended Offer Documents (for this purpose calculated in accordance with Rule 14d-1(g)(3) under the Exchange Act) (the “ Initial Expiration Date ”) or, in the event the Initial Expiration Date has been extended pursuant to and in accordance with this Agreement, the date and time to which the Offer has been so extended (the Initial Expiration Date, or such later date and time to which the Initial Expiration Date has been extended pursuant to and in accordance with this Agreement, is referred to as the “ Expiration Date ”).

(e) The Offer shall be extended from time to time as follows:

(i) If on the scheduled Expiration Date, the Minimum Condition has not been satisfied or any of the other Offer Conditions have not been satisfied (other than conditions that by their nature are to be satisfied at any time prior the Offer Acceptance Time), or waived by Parent or Merger Sub if permitted hereunder, then prior to the then scheduled Expiration Date Merger Sub shall extend the Offer for one or more periods of not more than five (5) Business Days each (or such other number of Business Days as the parties may agree) and ending no later than the Outside Date in order to permit the satisfaction of such conditions (subject to the right of Merger Sub to waive any Offer Condition, other than the Minimum Condition (except as provided in Section 1.1(c)), in accordance with this Agreement); provided , that nothing in this Section 1.1(e)(i) shall be deemed to impair, limit or otherwise restrict in any manner the right of Parent or the Company to terminate this Agreement pursuant to Article 8 hereof; and

(ii) Merger Sub shall, and Parent shall cause Merger Sub to, extend the Offer for any period or periods required by applicable Law, interpretation or position of the SEC or its staff or the New York Stock Exchange LLC (the “ NYSE ”) or its staff, in each case applicable to the Offer, provided that Merger Sub shall not be required to extend the Offer beyond the Outside Date.

 

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(f) Merger Sub may (and the Amended Offer Documents shall reserve the right of Merger Sub to) provide for a subsequent offering period (within the meaning of Rule 14d-11 promulgated under the Exchange Act) in compliance with Rule 14d-11 promulgated under the Exchange Act (a “ Subsequent Offering Period ”) of not fewer than three (3) Business Days nor more than twenty (20) Business Days (for this purpose calculated in accordance with Rule 14d-1(g)(3) under the Exchange Act) immediately following the expiration of the Offer; provided, that Merger Sub shall offer a Subsequent Offering Period of three (3) Business Days at the request of the Company if, immediately following the expiration of the Offer, the Short Form Threshold has not been reached and cannot be reached through the immediate exercise of the Top-Up Option hereunder in accordance with its terms. Subject to the terms and conditions set forth in this Agreement and the Offer, Parent shall cause Merger Sub to, and Merger Sub shall, accept for payment and pay for all Shares validly tendered during such Subsequent Offering Period as promptly as practicable after any such Shares are tendered and in any event in compliance with Rule 14e-1(c) under the Exchange Act. Parent shall provide or cause to be provided to Merger Sub on a timely basis the funds necessary to purchase and pay for any and all Shares that Merger Sub becomes obligated to accept for payment and purchase pursuant to the Offer and shall cause Merger Sub to fulfill all of Merger Sub’s covenants, agreements and obligations in respect of the Offer and this Agreement, in each case to the extent such covenants and payment obligations are to be performed or made at or prior to Closing. Parent and Merger Sub shall, and each of Parent and Merger Sub shall ensure that all of their respective Affiliates shall, tender any Shares held by them into the Offer.

(g) Merger Sub shall not terminate the Offer prior to any scheduled Expiration Date without the prior written consent of the Company, except if this Agreement is terminated pursuant to Article 8 . In the event that this Agreement is terminated pursuant to the terms hereof, Merger Sub shall, and Parent shall cause Merger Sub to, (i) promptly (and in any event within twenty-four (24) hours of such termination), irrevocably and unconditionally terminate the Offer, (ii) not acquire any Shares pursuant to the Offer and (iii) cause any depository acting on behalf of Merger Sub to promptly return, in accordance with applicable Law, all tendered Shares to the registered holders thereof.

(h) The Company shall cooperate fully in the preparation of the Amended Offer Documents to reflect the terms of this Agreement and the Company and its counsel shall be given a reasonable opportunity to review the Amended Offer Documents before they are filed with the SEC. Parent and Merger Sub agree that they shall cause the Amended Offer Documents and all exhibits, amendments or supplements thereto filed by either Parent or Merger Sub with the SEC to comply in all material respects with the Exchange Act and the rules and regulations thereunder and other applicable Laws. Without limiting the generality of the foregoing, the Company will furnish to the Parent and Merger Sub the information relating to it required by the Exchange Act to be set forth in the Amended Offer Documents, including in connection with communicating the Offer to the record and beneficial holders of the Shares. Each of Parent and Merger Sub shall use its reasonable best efforts to resolve all SEC comments with respect to the Amended Offer Documents as promptly as reasonably practicable after receipt thereof. Each of Parent, Merger Sub and the Company agrees to correct any information provided by it for use in the Amended Offer Documents which shall have become false or misleading. Each of Parent and Merger Sub shall as soon as reasonably practicable notify the Company of the receipt of any comments from the SEC with respect to the Amended Offer Documents and any request by the SEC for any amendment to the Amended Offer Documents or for additional information and shall provide the Company with copies of all such comments and correspondence. Prior to filing or mailing the Amended Offer Documents (or any amendment or supplement thereto) or responding to any comments of the SEC (or the staff of the SEC) with respect thereto, each of Parent and Merger Sub shall provide the Company a reasonable opportunity to review and to propose comments on such document or response and shall, in good faith, consider and incorporate the reasonable comments of the Company.

1.2 Company Actions .

(a) No later than three (3) Business Days following the date of this Agreement, the Company shall file with the SEC, and shall promptly thereafter disseminate to holders of Shares, as and to the extent required by applicable federal securities Laws, a Tender Offer Solicitation/Recommendation Statement on Schedule 14D-9

 

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(together with any exhibits, amendments or supplements thereto, the “ Schedule 14D-9 ”) that shall reflect the Company Board Recommendation. The Company agrees that it will cause the Schedule 14D-9 to comply in all material respects with the Exchange Act and other applicable Laws. Without limiting the generality of the foregoing, each of Parent and Merger Sub will furnish to the Company the information relating to it required by the Exchange Act to be set forth in the Schedule 14D-9. The Company shall use its reasonable best efforts to resolve all SEC comments with respect to the Schedule 14D-9 as promptly as reasonably practicable after receipt thereof. Each of Parent, Merger Sub and the Company agrees to correct any information provided by it for use in the Schedule 14D-9 which shall have become false or misleading. The Company shall as soon as reasonably practicable notify Parent and Merger Sub of the receipt of any comments from the SEC with respect to the Schedule 14D-9 and any request by the SEC for any amendment to the Schedule 14D-9 or for additional information and shall provide Parent with copies of all such comments and correspondence. Prior to filing or mailing the Schedule 14D-9 (or any amendment or supplement thereto) or responding to any comments of the SEC (or the staff of the SEC) with respect thereto, the Company shall provide Parent a reasonable opportunity to review and to propose comments on such document or response and shall, in good faith, consider and incorporate the reasonable comments of Parent.

(b) In connection with the Offer, the Company shall cause its transfer agent to promptly furnish Parent with a list of the Company’s record stockholders, mailing labels and any available listing or computer file containing the names and addresses of all record holders of Shares, any non-objecting beneficial owner lists and any available listings of securities positions of record holders of Shares held in stock depositories, in each case, to the Company’s knowledge, true and correct as of the most recent practicable date, and shall provide to Parent such additional information (including updated lists of stockholders, mailing labels and lists of securities positions) and such other assistance as Parent may reasonably request in connection with communicating the Offer to the record and beneficial holders of Shares. Parent and Merger Sub and their agents shall hold in confidence the information contained in any such labels, listings and files, shall use such information only in connection with the Offer and the Merger and, if this Agreement shall be terminated, shall, upon request, deliver, and shall use their reasonable efforts to cause their agents to deliver, to the Company (or destroy) all copies and any extracts or summaries from such information then in their possession or control or under the control of any of their representatives or agents in accordance with the terms of the Confidentiality Agreement.

1.3 Directors .

(a) Promptly upon the Offer Acceptance Time and all times thereafter, subject to compliance with applicable Laws and the applicable rules and regulations of the NYSE Listed Company Manual, Merger Sub shall be entitled to designate such number of directors, rounded up to the next whole number, on the Company Board as is equal to the product of (i) the total number of directors on the Company Board (after giving effect to the directors designated by Merger Sub pursuant to this sentence) multiplied by (ii) the percentage that the aggregate voting power of Shares at such time beneficially owned by Parent, Merger Sub and any of their Affiliates bears to the total voting power of Shares then issued and outstanding. As used in this Agreement, the terms “beneficial ownership” (and its correlative terms) shall have the meaning assigned to such term in Rule 13d-3 under the Exchange Act. The Company shall, upon Merger Sub’s request at any time following the Offer Acceptance Time, take all such actions necessary to (A) appoint to the Company Board the individuals designated by Merger Sub and permitted to be so designated by the first sentence of this Section 1.3(a) , including, but not limited to, promptly filling vacancies or newly created directorships on the Company Board, promptly increasing the size of the Company Board (including by amending the bylaws of the Company if necessary so as to increase the size of the Company Board) and/or promptly securing the resignations of such number of its incumbent directors as are necessary or desirable to enable Merger Sub’s designees to be so elected or designated to the Company Board, and (B) cause Merger Sub’s designees to be so appointed at such time. The Company shall, upon Merger Sub’s request following the Offer Acceptance Time, also cause Persons elected or designated by Merger Sub to constitute the same percentage (rounded up to the next whole number) as is on the Company Board of each committee of the Company Board to the extent permitted by applicable Laws and the NYSE Listed Company Manual. The Company’s obligations under this Section 1.3(a) shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. The Company shall take all actions

 

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required pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 in order to fulfill its obligations under this Section 1.3(a) , including mailing to stockholders the information required by Section 14(f) of the Exchange Act and Rule 14f-1 not later than such time as is necessary to enable Merger Sub’s designees to be designated to the Company Board at the Offer Acceptance Time. Merger Sub shall and Parent shall cause Merger Sub to supply the Company with, and be solely responsible for, information with respect to Merger Sub’s designees and Parent’s and Merger Sub’s respective officers, directors and affiliates to the extent required by Section 14(f) of the Exchange Act and Rule 14f-1. The provisions of this Section 1.3(a) are in addition to and shall not limit any rights that any of Merger Sub, Parent or any of their respective Affiliates may have as a record holder or beneficial owner of Shares as a matter of applicable Laws with respect to the election of directors or otherwise.

(b) In the event that Merger Sub’s designees are designated to the Company Board pursuant to Section 1.3(a) , then, until the Effective Time, the Company shall cause the Company Board to maintain three (3) directors who are members of the Company Board on the date hereof and who are not officers, directors or employees of Parent, Merger Sub, or any of their Affiliates, each of whom shall be an “independent director” under Section 303A.00 of the NYSE Listed Company Manual and eligible to serve on the Company’s audit committee under the Exchange Act and NYSE Listed Company Manual (the “ Continuing Directors ”), and at least one of whom shall be an “audit committee financial expert” as defined in Items 407(d)(5)(ii) and (iii) of Regulation S-K; provided, however, that if the number of Continuing Directors is reduced below three for any reason, the Company shall take all necessary action (including creating a committee of the Company Board) so that the remaining Continuing Director(s) shall be entitled to elect or designate another Person (or Persons) to fill such vacancy, and such Person (or Persons) shall be deemed to be a Continuing Director for purposes of this Agreement. If no Continuing Director then remains, the other directors on the Company Board shall designate three Persons who are not officers, directors or employees of Parent, Merger Sub, or any of their affiliates, each of whom shall be an “independent director” under Section 303A.00 of the NYSE Listed Company Manual and eligible to serve on the Company’s audit committee under the Exchange Act and NYSE Listed Company Manual, and at least one of whom shall be an “audit committee financial expert” as defined in Items 407(d)(5)(ii) and (iii) of Regulation S-K, to fill such vacancies and such Persons shall be deemed Continuing Directors for all purposes of this Agreement. Notwithstanding anything in this Agreement to the contrary, if Merger Sub’s designees constitute a majority of the Company Board after the Offer Acceptance Time and prior to the Effective Time, then the affirmative vote of a majority of the Continuing Directors (or in the case where there are two or fewer Continuing Directors, the concurrence of all Continuing Directors) shall (in addition to the approval rights of the Company Board or the stockholders of the Company as may be required by the Company Organizational Documents or applicable Laws) be required (i) for the Company to amend, modify or terminate this Agreement, (ii) for the Company to extend the time for the performance of any of the obligations or other acts of Parent or Merger Sub hereunder, (iii) to exercise or waive any of the Company’s material rights, benefits or remedies hereunder, (iv) for any amendment to the Company Organizational Documents that adversely affects or would reasonably be expected to adversely affect the stockholders of the Company (other than Parent, Merger Sub or any of their Affiliates), or (v) to take any other action of the Company Board under or in connection with this Agreement if such action would adversely affect (in a non-de minimis manner), or would reasonably be expected to adversely affect (in a non-de minimis manner), the holders of Shares (other than Parent, Merger Sub or any of their Affiliates); provided, however, such affirmative vote of a majority of the Continuing Directors shall in no event be required for the consummation of the Top-Up Option or the Merger in accordance with this Agreement. The Continuing Directors shall have, and Parent shall cause the Continuing Directors to have, the authority to retain such counsel (which may include current counsel to the Company or the Company Board) in reasonable circumstances and other advisors at the expense of the Company as determined by the Continuing Directors, and the authority to institute any action on behalf of the Company to enforce performance of this Agreement or any of the Company’s rights hereunder, in each case until the Closing. Following the Offer Acceptance Time and prior to the Effective Time, unless required by applicable Law or applicable fiduciary duties or for removal for good cause, neither Parent nor Merger Sub shall take any action to remove any Continuing Director.

 

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1.4 Top-Up Option .

(a) The Company hereby grants to Parent and Merger Sub an option (the “ Top-Up Option ”) to purchase from the Company the number of Shares (such shares, the “ Top-Up Option Shares ”) equal to the lesser of (i) the number of Shares that, when added to the number of Shares owned by Parent and its Subsidiaries at the time of exercise of the Top-Up Option, constitutes one share more than 90% of the number of Shares that would be outstanding in each class of Company Common Stock immediately after the issuance of all Shares subject to the Top-Up Option on a fully diluted basis or (ii) the aggregate number of Shares that the Company is authorized to issue under its articles of incorporation, but that are not issued and outstanding (and are not subscribed for or otherwise committed to be issued) at the time of exercise of the Top-Up Option, at a price per share of Company Common Stock equal to the Offer Price. The Top-Up Option shall terminate upon the earlier to occur of (A) the Effective Time and (B) the termination of this Agreement in accordance with its terms.

(b) The Top-Up Option may be exercised by Parent or Merger Sub once in whole and not in part on or prior to the fifth Business Day after the later of the Offer Acceptance Time and the expiration of any Subsequent Offering Period pursuant to Section 1.1(f) , if applicable, if at such time, Parent, Merger Sub or any Subsidiary of Parent or Merger Sub do not own in the aggregate at least 90% of the total then-outstanding shares of each class of Company Common Stock (determined on a fully diluted basis); provided, however, that the obligation of the Company to deliver the Top-Up Option Shares is subject to the conditions that (i) no Order of any Governmental Entity shall restrain, enjoin or otherwise prohibit the exercise of the Top-Up Option or the delivery of the Top-Up Option Shares in respect of such exercise; and (ii) Merger Sub has accepted for payment and paid for all Shares validly tendered in the Offer and not withdrawn.

(c) The aggregate purchase price payable for the Top-Up Option Shares shall be determined by multiplying the number of Top-Up Option Shares by the Offer Price. Such purchase price may be paid by Parent or Merger Sub, at its election, either (i) entirely in cash, (ii) by payment in cash of no less than $0.01 per share and payment of the balance by executing and delivering to the Company a promissory note (with full recourse to Parent) having a principal amount equal to the difference between the purchase price and the aggregate par value of the Top-Up Option Shares or (iii) any combination thereof. Any such promissory note shall bear interest at the applicable federal rate as determined for U.S. income tax purposes, shall mature on the first anniversary of the date of execution and delivery of such promissory note and may be prepaid at any time without premium or penalty.

(d) If they elect to exercise the Top-Up Option, Parent or Merger Sub shall deliver to the Company a written notice setting forth (i) the number of Shares that will be owned by Parent and Merger Sub immediately preceding the purchase of the Top-Up Option Shares together with the number of Top-Up Option Shares, (ii) the manner in which Parent or Merger Sub intends to pay the applicable exercise price and (iii) the place and time at which the closing of the purchase of the Top-Up Option Shares is to take place, which shall take place not later than five (5) Business Days following the Offer Acceptance Time or the expiration of any Subsequent Offering Period pursuant to Section 1.1(f) . The Company shall, as soon as practicable following receipt of such notice (and in no event later than the Top-Up Option closing date), notify Parent and Merger Sub in writing of the number of Shares then outstanding and the number of Top-Up Option Shares. At the closing of the purchase of the Top-Up Option Shares, Parent or Merger Sub shall cause to be delivered to the Company the consideration required to be delivered in exchange for the issuance of the Top-Up Option Shares, and the Company shall cause to be issued and delivered to Parent or Merger Sub (as the case may be) a certificate or certificates representing the Top-Up Option Shares or, at Parent’s or Merger Sub’s request or otherwise if the Company does not then have certificated Shares, the applicable number of non-certificated Shares represented by book-entry (“ Book-Entry Shares ”). Such certificates or Book-Entry Shares may include any legends required by applicable Laws. Without the prior written consent of the Company, the right to exercise the Top-Up Option granted pursuant to this Agreement shall not be assigned by Parent or Merger Sub except in connection with an assignment in compliance with Section 9.10 . Any attempted assignment in violation of this Section 1.4(d) shall be null and void.

 

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(e) Parent and Merger Sub acknowledge that the Top-Up Option Shares that Merger Sub may acquire upon exercise of the Top-Up Option will not be registered under the Securities Act and will be issued in reliance upon an exemption thereunder for transactions not involving a public offering. Parent and Merger Sub represent and warrant to the Company that Merger Sub is, and will be upon the purchase of the Top-Up Option Shares, an “Accredited Investor,” as defined in Rule 501 of Regulation D under the Securities Act. Merger Sub agrees that the Top-Up Option and the Top-Up Option Shares to be acquired upon exercise of the Top-Up Option, if any, are being and will be acquired by Merger Sub for the purpose of investment and not with a view to, or for resale in connection with, any distribution thereof in violation of the Securities Act.

ARTICLE 2

THE MERGER

2.1 The Merger .

(a) Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the DGCL, at the Effective Time, Merger Sub will be merged with and into the Company. As a result of the Merger, the separate corporate existence of Merger Sub will cease, and the Company will continue as the surviving corporation of the Merger (the “ Surviving Corporation ”). The Merger will have the effects set forth in the applicable provisions of the DGCL. Without limiting the generality of the foregoing, at the Effective Time, all of the property, rights, privileges, immunities, powers and franchises of the Company and Merger Sub will vest in the Surviving Corporation, and all of the debts, liabilities and duties of the Company and Merger Sub will become the debts, liabilities and duties of the Surviving Corporation.

(b) At the Effective Time, the certificate of incorporation of the Surviving Corporation will, by virtue of the Merger, be amended so as to read in its entirety in the form set forth as Exhibit A hereto, until thereafter changed or amended as provided therein or by applicable Law. In addition, the Company and the Surviving Corporation will take all necessary action such that, at the Effective Time, the bylaws of the Surviving Corporation will be amended so as to read in its entirety in the form set forth as Exhibit B hereto, until thereafter changed or amended as provided therein or by applicable Law.

(c) The directors of Merger Sub immediately prior to the Effective Time will, from and after the Effective Time, be the initial directors of the Surviving Corporation, each to hold office in accordance with the certificate of incorporation and bylaws of the Surviving Corporation until their respective successors have been duly elected, designated or qualified, or until their earlier death, resignation or removal in accordance with the certificate of incorporation and bylaws of the Surviving Corporation. The officers of the Company immediately prior to the Effective Time, from and after the Effective Time, will continue as the officers of the Surviving Corporation, each to hold office in accordance with the certificate of incorporation and bylaws of the Surviving Corporation until their respective successors have been duly elected, designated or qualified, or until their earlier death, resignation or removal in accordance with the certificate of incorporation and bylaws of the Surviving Corporation.

(d) If at any time after the Effective Time, the Surviving Corporation determines, in its sole discretion, or is advised, that any deeds, bills of sale, instruments of conveyance, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of either of the Company or Merger Sub acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger or otherwise to carry out this Agreement, then the officers and directors of the Surviving Corporation shall be authorized to execute and deliver, in the name and on behalf of either the Company or Merger Sub, all such deeds, bills of sale, instruments of conveyance, assignments and assurances and to take and do, in the name and on behalf of each of such corporations or otherwise, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title or interest in, to and under such rights, properties or assets in the Surviving Corporation or otherwise to carry out this Agreement.

 

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2.2 Closing and Effective Time of the Merger . The closing of the Merger (the “ Closing ”) will take place at 10:00 a.m., Eastern time, on a date to be specified by the parties (the “ Closing Date ”), as promptly as practicable after the satisfaction or waiver of all of the conditions set forth in Article 7 but in any event no later than the second Business Day thereafter (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions at the Closing), at the offices of Latham & Watkins LLP, 885 Third Avenue, New York, New York, unless another time, date or place is agreed to in writing by the parties hereto. On the Closing Date, or on such other date as Parent and the Company may agree to in writing, Parent, Merger Sub and the Company will cause a certificate of merger (the “ Certificate of Merger ”), to be executed and filed with the Secretary of State of the State of Delaware in accordance with the relevant provisions of the DGCL and will make all other filings or recordings required under the DGCL. The Merger will become effective at the time the Certificate of Merger will have been duly filed with the Secretary of State of the State of Delaware or such other date and time as is agreed upon by the parties and specified in the Certificate of Merger, such date and time hereinafter referred to as the “ Effective Time .”

ARTICLE 3

CONVERSION OF SECURITIES IN THE MERGER

3.1 Conversion of Securities . At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or the holders of any of the following securities:

(a) Conversion of Company Common Stock . Each Share issued and outstanding immediately prior to the Effective Time, other than Shares to be cancelled in accordance with Section 3.1(b) and other than Dissenting Shares, will be converted into the right to receive the Offer Price, payable to the holder in cash, without interest (the “ Merger Consideration ”), upon surrender of the certificate formerly representing such Shares in accordance with Section 3.2 . At the Effective Time, all of the Shares shall cease to be outstanding, shall be cancelled and shall cease to exist, and each Certificate that immediately prior to the Effective Time represented any of the Shares (other than Shares to be cancelled in accordance with Section 3.1(b) and other than Dissenting Shares) shall thereafter represent only the right to receive the Merger Consideration, without interest.

(b) Cancellation of Treasury Stock and Parent-Owned Stock . All Shares that are held in the treasury of the Company or owned of record by any Company Subsidiary, and all Shares owned of record by Parent, Merger Sub or any of their respective wholly-owned Subsidiaries, will be cancelled and will cease to exist, with no payment being made with respect thereto.

(c) Merger Sub Common Stock . Each share of common stock, par value $0.01 per share, of Merger Sub (the “ Merger Sub Common Stock ”) issued and outstanding immediately prior to the Effective Time will be converted into and become one newly and validly issued, fully paid and nonassessable share of common stock, par value $0.01 per share, of the Surviving Corporation, and such shares shall constitute the only outstanding shares of capital stock of the Surviving Corporation. From and after the Effective Time, all certificates representing Merger Sub Common Stock shall be deemed for all purposes to represent the number of shares of common stock of the Surviving Corporation into which they were converted in accordance with the preceding sentence.

3.2 Payment for Securities; Surrender of Certificates .

(a) Paying Agent . At or prior to the Effective Time, Parent will designate a reputable bank or trust company, mutually agreeable to both Parent and the Company, to act as the paying agent for purposes of effecting the payment of the Merger Consideration in connection with the Merger (the “ Paying Agent ”). At or promptly after the Effective Time, Parent or Merger Sub will deposit, or cause to be deposited, with the Paying Agent the aggregate Merger Consideration to which holders of Shares will be entitled at the Effective Time pursuant to this Agreement, together with the aggregate Option Payments and RSU Payments (except to the extent that Parent determines to make any such Option Payments or RSU Payments to employees through the

 

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payroll of the Surviving Corporation). Such funds will be invested by the Paying Agent as directed by Parent, in its sole discretion, pending payment thereof by the Paying Agent to the holders of the Shares. Earnings from such investments will be the sole and exclusive property of Parent, and no part of such earnings will accrue to the benefit of holders of Shares.

(b) Procedures for Surrender . As promptly as practicable after the Effective Time, Parent will cause the Paying Agent to mail to each holder of record of a certificate or certificates that represented Shares (the “ Certificates ”) or Book-Entry Shares, in each case, which Shares were converted into the right to receive the Merger Consideration at the Effective Time pursuant to this Agreement: (i) a letter of transmittal, which will specify that delivery will be effected, and risk of loss and title to the Certificates will pass, only upon delivery of the Certificates to the Paying Agent, and will otherwise be in such form and have such other provisions as Parent or the Paying Agent may reasonably specify and (ii) instructions for effecting the surrender of the Certificates or Book-Entry Shares in exchange for payment of the Merger Consideration. Upon surrender of Certificates and Book-Entry Shares for cancellation to the Paying Agent or to such other agent or agents as may be appointed by Parent, and upon delivery of a letter of transmittal, duly executed and in proper form, with respect to such Certificates or Book-Entry Shares, the holder of such Certificates or Book-Entry Shares will be entitled to receive the Merger Consideration for each Share formerly represented by such Certificates and for each Book-Entry Share. Any Certificates and Book-Entry Shares so surrendered will forthwith be cancelled. All cash paid upon the surrender for exchange of Certificates and Book-Entry Shares will be deemed to have been paid in full satisfaction of all rights pertaining to Shares formerly represented by such Certificates or Book-Entry Shares. If payment of the Merger Consideration is to be made to a Person other than the Person in whose name any surrendered Certificate is registered, it will be a condition precedent of payment that the Certificate so surrendered will be properly endorsed or will be otherwise in proper form for transfer, and the Person requesting such payment will have paid any transfer or similar Taxes required by reason of the payment of the Merger Consideration to a Person other than the registered holder of the Certificate so surrendered or will have established to the satisfaction of the Paying Agent that such Taxes either have been paid or are not payable. Any other transfer or similar Taxes incurred in connection with the transactions contemplated by this Agreement will be paid by the Person required to make such payment by applicable Law. Payment of the Merger Consideration with respect to Book-Entry Shares will only be made to the Person in whose name such Book-Entry Shares are registered. Until surrendered as contemplated hereby, each Certificate or Book-Entry Share will be deemed at any time after the Effective Time to represent only the right to receive the Merger Consideration in cash as contemplated by this Agreement, without any interest accruing thereon.

(c) Transfer Books; No Further Ownership Rights in Shares . At the Effective Time, the stock transfer books of the Company will be closed and thereafter there will be no further registration of transfers of Shares on the records of the Company. From and after the Effective Time, the holders of Certificates and Book-Entry Shares outstanding immediately prior to the Effective Time will cease to have any rights with respect to such Shares except as otherwise provided for herein or by applicable Law. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, then (subject to compliance with the exchange procedures of Section 3.2(b) ) they will be cancelled and exchanged as provided in this Agreement.

(d) Termination of Fund; Abandoned Property; No Liability . At any time following the first anniversary of the Effective Time, the Surviving Corporation will be entitled to require the Paying Agent to deliver to it any funds (including any interest accrued with respect thereto) made available to the Paying Agent and not disbursed to holders of Certificates or Book-Entry Shares, and thereafter such holders will be entitled to look only to the Surviving Corporation (subject to abandoned property, escheat or other similar Laws) only as general creditors thereof with respect to the Merger Consideration payable upon due surrender of their Certificates or Book-Entry Shares and compliance with the procedures in Section 3.2(b) , without interest. If, prior to six years after the Effective Time (or otherwise immediately prior to such time on which any payment in respect hereof would escheat to or become the property of any Governmental Entity pursuant to any applicable abandoned property, escheat or similar Laws), any holder of Certificates or Book-Entry Shares has not complied with the procedures in Section 3.2(b) to receive payment of the Merger Consideration to which such holder

 

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would otherwise be entitled, the payment in respect of such Certificates or Book-Entry Shares will, to the extent permitted by applicable Law, become the property of the Surviving Corporation, free and clear of all claims or interest of any Person previously entitled thereto. Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying Agent will be liable to any holder of a Certificate or Book-Entry Shares for Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law.

(e) Lost, Stolen or Destroyed Certificates . In the event that any Certificates have been lost, stolen or destroyed, the Paying Agent will issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, the Merger Consideration payable in respect thereof pursuant to Section 3.1(a) hereof; provided, however, that Parent may, in its discretion and as a condition precedent to the payment of such Merger Consideration, require the owners of such lost, stolen or destroyed Certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Parent, Merger Sub, the Surviving Corporation or the Paying Agent with respect to the Certificates alleged to have been lost, stolen or destroyed.

(f) Withholding Rights . Each of Parent and the Surviving Corporation shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Shares such amounts as it is required to deduct and withhold with respect to the making of such payment under the Code or any other applicable state, local or foreign Tax Law. Except for payments to employees of the Company with respect to Company Restricted Shares, Option Payments or RSU Payments, before making any such deduction or withholding, Parent or the Surviving Corporation, as applicable, shall give the Company notice of the intention to make such deduction or withholding, and such notice, which shall include the authority, basis and method of calculation for the proposed deduction or withholding, shall be given at least a commercially reasonable period of time before such deduction or withholding is required, in order for the Company to obtain reduction of or relief from such deduction or withholding. To the extent that amounts are so withheld by the Surviving Corporation or Parent, as the case may be, such withheld amounts (i) shall be remitted by Parent or the Surviving Corporation, as applicable, to the applicable Governmental Entity and (ii) shall be treated for all purposes of this Agreement as having been paid to the holder of Shares in respect of which such deduction and withholding was made by the Surviving Corporation or Parent, as the case may be.

3.3 Dissenting Shares . Notwithstanding anything in this Agreement to the contrary, Shares outstanding immediately prior to the Effective Time and held by a holder who is entitled to demand and has properly demanded appraisal for such Shares in accordance with, and who complies in all respects with, Section 262 of the DGCL (such Shares, the “ Dissenting Shares ”) will not be converted into the right to receive the Merger Consideration, and will instead represent the right to receive only the payment provided by Section 262 of the DGCL. If any such holder fails to perfect or otherwise waives, withdraws or loses his right to appraisal under Section 262 of the DGCL, then the right of such holder to receive such payment in respect of such Dissenting Shares will cease and such Dissenting Shares will be deemed to have been converted, as of the Effective Time, into and will be exchangeable solely for the right to receive the Merger Consideration, without interest. The Company will give Parent prompt notice of any demands received by the Company for appraisal of Shares, attempted withdrawals of such demands and any other instruments served pursuant to the DGCL and received by the Company relating to rights to be paid the fair value of Dissenting Shares, and Parent will have the right to participate in all negotiations and Proceedings with respect to such demands. The Company will not, except with the prior written consent of Parent, make any payment with respect to, or settle or compromise or offer to settle or compromise, any such demands, or approve any withdrawal of any such demands, or agree to do any of the foregoing. If any appraisal is made of Dissenting Shares and the Top-Up Option was exercised prior to the Effective Time, then the cash received and/or value of the promissory note received by the Company in payment of the exercise price of the Top-Up Option shall be treated as if it were not paid to or received by the Company and the Top-Up Shares issued upon the exercise of the Top-Up Option shall be treated as if they were not issued or outstanding in connection with the determination of the fair value of the Dissenting Shares in accordance with the applicable provisions of the DGCL.

 

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3.4 Treatment of Company Options, Company RSUs and Restricted Shares; Stock Plans .

(a) Treatment of Company Options . Prior to the Effective Time, the Company Board (or, if appropriate, any committee thereof) will adopt resolutions and take all other actions necessary and appropriate to provide that, immediately prior to the Effective Time, each unexpired and unexercised option to purchase Shares (the “ Company Options ”), under any stock option plan of the Company, including the 1997 Equity Participation Plan or the 2004 Incentive Award Plan, or any other plan, agreement or arrangement (the “ Company Stock Option Plans ”), whether or not then exercisable or vested, will be cancelled and, in exchange therefor, each former holder of any such cancelled Company Option will only be entitled to receive, in consideration of the cancellation of such Company Option and in full settlement therefor, a payment in cash of an amount equal to the product of (A) the total number of Shares previously subject to such Company Option and (B) the excess, if any, of the Merger Consideration over the exercise price per Share previously subject to such Company Option (such amounts payable hereunder being referred to as the “ Option Payments ”). From and after the Effective Time, any such cancelled Company Option will no longer be exercisable by the former holder thereof, but will only entitle such holder to the payment of the Option Payment.

(b) Treatment of Company RSUs . Prior to the Offer Acceptance Time, the Company Board (or, if appropriate, any committee thereof) will adopt resolutions and take all other actions necessary and appropriate to provide that, immediately prior to the Offer Acceptance Time, but conditioned upon the consummation of the Offer, each outstanding restricted stock unit awarded pursuant to any Company Stock Option Plan (the “ Company RSUs ”), will vest and become free of any restrictions and the Company will as promptly as practicable thereafter deliver with respect to such Company RSU (i) shares of Company Common Stock (such that such shares may be tendered in the Offer) and (ii) the amount of any declared but unpaid dividends to the holder thereof in settlement of each such Company RSU. At the Effective Time, each share of Company Common Stock issued in respect of the Company RSUs (that has not otherwise been tendered in the Offer or in any Subsequent Offering Period) will be converted into the right to receive the Merger Consideration in accordance with Section 3.1(a) (such amounts payable under this Section 3.4(b) being referred to as the “ RSU Payments ”). To the extent any such canceled Company RSU is subject to a deferred payment schedule pursuant to the applicable distribution provisions of Section 409A of the Code so that the RSU Payments cannot be paid to the holder within such period without the holder’s incurrence of a penalty Tax and interest penalties under Section 409A of the Code, then any RSU Payments otherwise payable to the holder of such canceled Company RSU will be distributed in accordance with Section 409A of the Code and the applicable Treasury Regulations thereunder.

(c) Treatment of Company Restricted Shares . Prior to the Offer Acceptance Time, the Company Board (or, if appropriate, any committee thereof) will adopt resolutions and take all other actions necessary and appropriate to provide that, immediately prior to the Offer Acceptance Time, but conditioned upon the consummation of the Offer, each outstanding restricted share awarded pursuant to any Company Stock Option Plan (the “ Company Restricted Shares ”), will vest and become free of any restrictions (such that such shares may be tendered in the Offer), and the Company will deliver with respect to such Company Restricted Share the amount of any declared but unpaid dividends to the holder thereof in settlement of each such Company Restricted Share. At the Effective Time, each Company Restricted Share (that has not otherwise been tendered in the Offer or in any Subsequent Offering Period) will be converted into the right to receive the Merger Consideration in accordance with Section 3.1(a) .

(d) Termination of Company Stock Option Plans . After the Effective Time, all Company Stock Option Plans will be terminated and no further Company Options, Company RSUs, Company Restricted Shares or other rights with respect to Shares will be granted thereunder.

(e) Corporate Actions . At or prior to the Effective Time, the Company, the Company Board and the compensation committee of the Company Board, as applicable, shall adopt any resolutions and take any actions which are necessary to effectuate the provisions of this Section 3.4 . The Company shall take all actions necessary

 

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to ensure that from and after the Effective Time neither Parent nor the Surviving Corporation will be required to deliver to any Person any Shares or other Equity Interests of the Company, the Surviving Corporation or any other Person pursuant to or in settlement of Company Options, Company RSUs, Company Restricted Shares or other rights with respect to Shares.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth in (i) the Company SEC Documents filed prior to the date hereof (but excluding any disclosure contained in such Company SEC Documents under the heading “Risk Factors” or “Cautionary Note Regarding Forward-Looking Statements” or similar heading and any other disclosures contained or referenced therein of factors or risks that are predictive, cautionary or forward looking in nature), (ii) the disclosure schedule delivered by the Company to Parent and Merger Sub prior to the execution of this Agreement (the “ Company Disclosure Schedule ”) (with each exception set forth in the Company Disclosure Schedule being identified by reference to, or grouped under a heading referring to, a specific individual section or subsection of this Agreement and relating only to such section or subsection; provided, however, that a matter disclosed with respect to one representation and warranty shall also be deemed to be disclosed with respect to each other representation and warranty to which the matter disclosed reasonably relates, but only to the extent that such relationship is reasonably apparent on the face of the disclosure contained in the Company Disclosure Schedule), the Company hereby represents and warrants to Parent and Merger Sub as follows:

4.1 Organization and Qualification; Subsidiaries .

(a) The Company is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware.

(b) The Company has all requisite corporate power and corporate authority to own, lease and operate its properties and assets and to carry on its business as it is now being conducted. The Company is duly qualified to do business in each jurisdiction where the ownership, leasing or operation of its properties or assets or the conduct of its business requires such qualification, except where the failure to be so qualified or in good standing, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect. Each Subsidiary of the Company (each, a “ Company Subsidiary ”) is a corporation or other legal entity duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or organization and has all requisite corporate or organizational, as the case may be, power and authority to own, lease and operate its properties and assets and to carry on its business as it is now being conducted. Each Company Subsidiary is duly qualified to do business in each jurisdiction where the ownership, leasing or operation of its properties or assets or the conduct of its business requires such qualification, except where the failure to be so qualified or in good standing, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect.

(c) The Company has made available to Parent and Merger Sub accurate and complete copies of the currently effective amended and restated certificate of incorporation of the Company (the “ Company Certificate ”) and amended and restated bylaws of the Company (the “ Company Bylaws ”), and the certificate of incorporation and bylaws, or equivalent organizational or governing documents, of each Company Subsidiary, and each of these organizational and governing documents is in full force and effect on the date hereof. The Company is not in violation of the Company Certificate or Company Bylaws, and the Company Subsidiaries are not in material violation of their respective organizational or governing documents.

(d) Section 4.1(d) of the Company Disclosure Schedule sets forth an accurate and complete list of the Company Subsidiaries, together with the jurisdiction of organization or incorporation, as the case may be, of each Company Subsidiary.

 

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4.2 Capitalization .

(a) The authorized capital stock of the Company consists of (i) 50,000,000 shares of Class A Common Stock, (ii) 25,000,000 shares of Class B Common Stock, and (iii) 10,000,000 shares of preferred stock, par value $0.01 per share (the “ Company Preferred Stock ”). As of the close of business on November 20, 2012, there are 21,858,086 shares of Class A Common Stock issued and outstanding (including 201,690 shares of Class A Common Stock subject to Company Restricted Shares). As of the close of business on November 20, 2012, there are 7,486,574 shares of Class B Common Stock issued and outstanding and no shares of Company Preferred Stock issued and outstanding. All of the outstanding Shares have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights. Since the close of business on November 20, 2012 through the date of this Agreement, there have been (A) no material changes in the number of issued and outstanding Class A Common Stock, (B) no change in the number of issued and outstanding shares of Class B Common Stock and (C) no change in the number of issued and outstanding shares of Company Preferred Stock.

(b) As of the close of business on November 20, 2012, the Company has no shares of Company Common Stock or Company Preferred Stock reserved for or otherwise subject to issuance, except for (i) 2,786,143 shares of Class A Common Stock reserved for issuance pursuant to the exercise of outstanding Company Options under the Company Stock Option Plans and (ii) 272,101 shares of Class A Common Stock reserved for issuance pursuant to outstanding Company RSUs. Section 4.2(b) of the Company Disclosure Schedule sets forth an accurate and complete list of (A) each holder of Company Options, Company Restricted Shares and Company RSUs, (B) the number of Company Options, Company Restricted Shares and Company RSUs held by such holder as of the date hereof, (C) the number and class of Shares subject to each such Company Option and Company RSU (i.e., the original amount less exercises and any cancellations), (D) the exercise price of each such Company Option and (E) the amount of declared but unpaid dividends with respect to each Company Restricted Share and Company RSU. Neither the Company nor any of the Company Subsidiaries has any outstanding bonds, debentures, notes, or other obligations the holders of which have the right to vote (or convertible into or exercisable for securities having the right to vote) with the stockholders of the Company or any Company Subsidiary on any matter.

(c) Except for Company Options to purchase not more than 2,786,143 shares of Class A Common Stock and 272,101 shares of Class A Common Stock issuable pursuant to outstanding Company RSUs, as of the close of business on November 20, 2012, there are no options to acquire Shares. Other than as set forth in the previous sentence, there are no options, warrants, calls, conversion rights, stock appreciation rights, redemption rights, repurchase rights or other preemptive or outstanding rights, agreements, arrangements, commitments or other Contracts of any character obligating the Company or any Company Subsidiary to issue or sell any Shares or other Equity Interests of the Company or any Company Subsidiary or any securities obligations convertible or exchangeable into or exercisable for, or giving any Person a right to subscribe for or acquire, any securities of the Company or any of the Company Subsidiaries, and no securities or obligations evidencing such rights are authorized, issued or outstanding. As of the date of this Agreement, there are no outstanding rights, agreements, arrangements or commitments of any character obligating the Company or any Company Subsidiary to repurchase, redeem or otherwise acquire any Shares or other Equity Interests of the Company or any Company Subsidiary.

(d) As of the close of business on November 20, 2012, the sum of (i) the issued and outstanding shares of Class A Common Stock (including shares of Class A Common Stock subject to Company Restricted Shares) plus (ii) the shares of Class A Common Stock subject to outstanding Company Options plus (iii) the shares of Class A Common Stock subject to outstanding Company RSUs does not exceed 25,040,912.

(e) There are no outstanding contractual obligations of the Company or any Company Subsidiary (i) affecting the voting rights of, (ii) requiring the repurchase, redemption or disposition of, or containing any right of first refusal with respect to, (iii) requiring the registration for sale of or (iv) granting any preemptive or antidilutive rights with respect to, any Shares or other Equity Interests in the Company or any Company Subsidiary.

 

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(f) Section 4.2(f) of the Company Disclosure Schedule sets forth, for each Company Subsidiary, as applicable: (i) the number of its outstanding shares of capital stock or other Equity Interests and type(s) of such outstanding shares of capital stock or other Equity Interests and (ii) the record owner(s) thereof. The Company or another Company Subsidiary owns, directly or indirectly, all of the issued and outstanding shares of capital stock or other Equity Interests of each of the Company Subsidiaries, free and clear of any Liens (other than Liens for Taxes not yet due and payable), and all of such shares of capital stock or other Equity Interests have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights. Except for Equity Interests in the Company Subsidiaries, neither the Company nor any Company Subsidiary owns directly or indirectly any Equity Interest in any Person, or has any obligation or has made any commitment to acquire any such Equity Interest, to provide funds to, or to make any investment (in the form of a loan, capital contribution or otherwise) in, any Company Subsidiary or any other Person.

(g) Each Company Option (i) was granted in compliance with all applicable Laws and all of the terms and conditions of the Company Stock Option Plan pursuant to which it was issued, (ii) has an exercise price per share of Company Common Stock equal to or greater than the fair market value of such a share of Company Common Stock on the date of such grant, (iii) has a grant date identical to or after the date on which such Company Option was actually approved by the Company Board or an authorized committee or subcommittee thereof, and (iv) qualifies for the Tax and accounting treatment afforded to such Company Option in the Company’s Tax Returns and the Company Financial Statements, respectively.

4.3 Authority .

(a) The Company has all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby, including the Offer and the Merger, subject to obtaining the Company Stockholder Approval. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby, including the Offer and the Merger, have been duly authorized by all necessary corporate action, and no other corporate proceedings on the part of the Company and no stockholder votes or written consents are necessary to authorize this Agreement or to consummate the transactions contemplated hereby other than the Company Stockholder Approval and the filing of the Certificate of Merger with the Secretary of the State of Delaware. This Agreement has been duly and validly executed and delivered by the Company and, assuming due authorization, execution and delivery by Parent and Merger Sub, constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency or other similar Laws, now or hereafter in effect, affecting creditors’ rights generally and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.

(b) At a meeting duly called and held prior to the execution and delivery of this Agreement, the Company Board adopted resolutions by which the Company Board (i) determined that the Offer and the Merger and the other transactions contemplated by this Agreement are fair to and in the best interests of the Company and its stockholders, (ii) approved and declared advisable this Agreement, the Offer, the Merger and the other transactions contemplated hereby, in accordance with the requirements of the DGCL, (iii) recommended that the Company’s stockholders vote their Shares in favor of adopting this Agreement by written consent in lieu of a meeting, (iv) resolved to recommend that the Company’s stockholders accept the Offer and tender their shares of Company Common Stock pursuant to the Offer and (v) authorized the Top-Up Option, the issuance of the Top-Up Shares and the form of promissory note deliverable by Merger Sub in consideration of the Top-Up Shares, and, as of the date hereof, none of the aforesaid actions by the Company Board has been amended, rescinded or modified.

4.4 No Conflict . None of the execution, delivery or performance of this Agreement by the Company, the consummation by the Company of the Offer, the Merger or any other transaction contemplated by this Agreement, or the Company’s compliance with any of the provisions of this Agreement will (with or without

 

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notice or lapse of time, or both): (a) subject to obtaining the Company Stockholder Approval, conflict with or violate any provision of the Company Certificate or Company Bylaws or any equivalent organizational or governing documents of any Company Subsidiary; (b) assuming the accuracy of the representations set forth in Section 5.6(a) and that all consents, approvals, authorizations and permits described in Section 4.5 have been obtained and all filings and notifications described in Section 4.5 have been made and any waiting periods thereunder have terminated or expired, conflict with or violate any Law applicable to the Company or any Company Subsidiary or any of their respective properties or assets; (c) assuming that all consents, approvals, authorizations and permits described in Section 4.5 have been obtained and all filings and notifications described in Section 4.5 have been made and any waiting periods thereunder have terminated or expired, require any consent or approval under, violate, conflict with, result in any breach of or any loss of any benefit under, or constitute a change of control or default under, or result in termination or give to others any right of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien upon any of the respective properties or assets of the Company or any Company Subsidiary pursuant to, any Company Material Contract; or (d) assuming that all consents from third parties to any applicable Contracts described in Section 4.4 of the Company Disclosure Schedule have been obtained and all filings and notifications described in Section 4.5 of the Company Disclosure Schedule have been made and any waiting periods thereunder have terminated or expired, constitute or result in the loss or impairment of, payment of any additional amounts with respect to, or the consent of any other Person being required in respect of, the Company’s or any of the Company Subsidiaries’ right to own or use any Intellectual Property Rights, except, with respect to any of clauses (b), (c) and (d), for any such conflicts, violations, consents, breaches, losses, changes of control, defaults, other occurrences or Liens which, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect.

4.5 Required Filings and Consents . None of the execution, delivery or performance of this Agreement by the Company, the consummation by the Company of the Offer, the Merger or any other transaction contemplated by this Agreement, or the Company’s compliance with any of the provisions of this Agreement will require (with or without notice or lapse of time, or both) any consent, approval, authorization or permit of, or filing or registration with or notification to, any Governmental Entity, other than (a) the filing and recordation of the Certificate of Merger as required by the DGCL, (b) the Company Stockholder Approval, (c) compliance with any applicable requirements of the HSR Act and other applicable foreign or supranational antitrust and competition laws set forth in Section 4.5 of the Company Disclosure Schedule, (d) compliance with the applicable requirements of the Securities Exchange Act of 1934 (the “ Exchange Act ”), (e) compliance with the applicable requirements of the Securities Act, (f) compliance with any applicable foreign or state securities or Blue Sky Laws, (g) filings with the United States Securities and Exchange Commission (the “ SEC ”) as may be required by the Company in connection with this Agreement and the transactions contemplated hereby, (h) such filings as may be required under the rules and regulations of the NYSE and (i) where the failure to obtain such consents, approvals, authorizations or permits of, or to make such filings, registrations with or notifications to any Governmental Entity, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect.

4.6 Permits; Compliance With Law .

(a) The Company and each Company Subsidiary holds all material authorizations, permits, certificates, exemptions, approvals, orders, consents, franchises, variances, exemptions and registrations of any Governmental Entity (the “ Company Permits ”) necessary for the operation of the Business. The Company and each Company Subsidiary is in compliance with the terms of the Company Permits, except where the failure to be in compliance with any Company Permits, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect. No suspension, modification, revocation or cancellation of any of the Company Permits is pending.

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violation of, any Law applicable to the Company or any Company Subsidiary or by which any property or asset of the Company or any Company Subsidiary is or was bound, except for any conflicts, defaults, violations, investigations or charges that, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect and (ii) no investigation or review by any Governmental Entity with respect to the Company or any Company Subsidiary has been pending or, to the knowledge of the Company, threatened, except for such investigations or reviews, the outcomes of which if determined adversely to the Company or any Company Subsidiary, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect. Neither the Company nor any Company Subsidiary has received any notice or communication of any material noncompliance with any such Laws that has not been cured as of the date hereof.

(c) None of the Company, the Company Subsidiaries or any of their Representatives has directly or indirectly offered, paid or accepted any remuneration or other thing of value that is prohibited by applicable Law, including under the United States Foreign Corrupt Practices Act of 1977. None of the Company, the Company Subsidiaries or any of their Representatives has directly or indirectly made or agreed to make any contribution, gift, bribe, rebate, payoff, influence payment, kickback or similar payment to any Person, including (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured, (iii) to obtain special concessions or pay for special concessions already obtained or (iv) in connection with the approval or regulatory status of the Company Products or the facilities in which the Company Products are manufactured, packaged or stored, or from which the Company Products are initially distributed.

4.7 SEC Filings; Financial Statements .

(a) Since May 31, 2010, the Company has timely filed or otherwise furnished (as applicable) all registration statements, prospectuses, forms, reports, certifications, statements and other documents required to be filed or furnished by it under the Securities Act or the Exchange Act, as the case may be, together with all certifications required pursuant to the Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act ”) (such documents and any other documents filed by the Company or any Company Subsidiary with the SEC, as have been supplemented, modified or amended since the time of filing, collectively, the “ Company SEC Documents ”). As of their respective effective dates (in the case of the Company SEC Documents that are registration statements filed pursuant to the requirements of the Securities Act) and as of their respective SEC filing dates (in the case of all other Company SEC Documents), or in each case, if amended prior to the date hereof, as of the date of the last such amendment, the Company SEC Documents (i) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading and (ii) complied in all material respects with the applicable requirements of the Exchange Act or the Securities Act, as the case may be, the Sarbanes-Oxley Act and the applicable rules and regulations of the SEC thereunder. None of the Company Subsidiaries is required to file any forms, reports or other documents with the SEC. All of the audited consolidated financial statements and unaudited consolidated interim financial statements of the Company and the consolidated Company Subsidiaries included in the Company SEC Documents, including the related notes and schedules (collectively, the “ Company Financial Statements ”) (A) have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of interim financial statements, for normal and recurring year-end adjustments) and (B) fairly present in all material respects the consolidated financial position and the consolidated results of operations, cash flows and changes in stockholders’ equity of the Company and the consolidated Company Subsidiaries as of the dates and for the periods referred to therein (except as may be indicated in the notes thereto or, in the case of interim financial statements, for normal and recurring year-end adjustments).

(b) Neither the Company nor any of the Company Subsidiaries is a party to, nor has any commitment to become a party to, any joint venture, off-balance sheet partnership or similar Contract (including any Contract or arrangement relating to any transaction or relationship between or among the Company, on the one hand, and any unconsolidated affiliate, including any structured finance, special purpose or limited purpose entity or Person, on the other hand), or any “off-balance sheet arrangements” (as defined in Item 303(a) of Regulation S-K

 

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promulgated by the SEC), where the result, purpose or intended effect of such Contract is to avoid disclosure of any material transaction involving, or material liabilities of, the Company in its published financial statements or other Company SEC Documents.

(c) Without limiting the generality of Section 4.7(a) , since May 31, 2010, (i) Deloitte & Touche LLP and KPMG LLP have not resigned or been dismissed as independent public accountants of the Company as a result of or in connection with any disagreement with the Company on a matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, (ii) no executive officer of the Company has failed in any respect to make, without qualification, the certifications required of him or her under Section 302 or 906 of the Sarbanes-Oxley Act with respect to any form, report or schedule filed by the Company with the SEC since the enactment of the Sarbanes-Oxley Act, and neither the Company nor any of its executive officers has received notice from any Governmental Entity challenging or questioning the accuracy, completeness or manner of the filing of the certification required by the Sarbanes-Oxley Act and made by the Company’s principal executive officer and principal financial officer and (iii) no enforcement action has been initiated or, to the knowledge of the Company, threatened against the Company by the SEC relating to disclosures contained in any Company SEC Document.

(d) Except as permitted by the Exchange Act, including Sections 13(k)(2) and (3) or rules of the SEC, since the enactment of the Sarbanes-Oxley Act, neither the Company nor any of its affiliates has made, arranged or modified (in any material way) any extensions of credit in the form of a personal loan to any executive officer or director of the Company.

4.8 Internal Controls . The Company maintains a system of internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company, (ii) provide reasonable assurance that receipts and expenditures of the Company are being made in accordance with authorizations of management of the Company and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on its financial statements. The Company (A) has designed and maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) to ensure that material information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure and (B) has disclosed to the Company’s auditors and the audit committee of the Company Board (x) any significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting that adversely affect in any material respect the Company’s ability to record, process, summarize and report financial information, and has identified for the Company’s auditors and audit committee of the Company Board any material weaknesses in internal control over financial reporting and (y) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.

4.9 State Takeover Laws . Assuming the accuracy of the representations set forth in Section 5.6(a) , no “fair price,” “moratorium,” “control share acquisition” or other anti-takeover Law, including Section 203 of the DGCL will apply with respect to or as a result of the execution of this Agreement or the consummation of the Offer, the Merger or the other transactions contemplated hereby or by the Tender and Support Agreements.

4.10 No Undisclosed Liabilities . Except for those liabilities and obligations (a) as reflected in or reserved against on the May 31, 2012 audited consolidated balance sheet of the Company included in the Company Financial Statements prior to the date of this Agreement, (b) incurred in the ordinary course of business consistent with past practice since the date of such consolidated balance sheet, (c) incurred pursuant to this

 

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Agreement or in connection with the transactions contemplated hereby or (d) as would not reasonably be expected to have a Company Material Adverse Effect, neither the Company nor any Company Subsidiary has any liabilities or obligations.

4.11 Absence of Certain Changes or Events . From June 1, 2012 through the date of this Agreement:

(a) The Company and the Company Subsidiaries have conducted their respective businesses in all material respects in the ordinary course of business.

(b) There has not occurred, arisen or come into existence any fact, change, event, development or circumstance, or any worsening thereof, which has had or would reasonably be expected to have a Company Material Adverse Effect.

(c) There has not been any declaration, accrual, setting aside or payment of any dividend or other distribution with respect to any shares of capital stock of the Company or any of the Company Subsidiaries (except for dividends or other distributions by any direct or indirect wholly-owned Company Subsidiary to the Company or to any wholly-owned Company Subsidiary).

(d) There has not been any material change in any method of financial accounting or financial accounting practice or internal controls (including internal controls over financial reporting) by the Company or any Company Subsidiary.

(e) Except to the extent required by applicable Laws, there has not been (A) any (x) increase in the compensation payable or to become payable to the directors, officers or employees of the Company or the Company Subsidiaries or (y) payment to any director or officer of the Company or the Company Subsidiaries of any material bonus, making to any director or officer of the Company or the Company Subsidiaries of any material profit-sharing or similar payment, or grant to any director or officer of the Company or the Company Subsidiaries of any rights to receive severance, termination, retention or Tax gross-up compensation or benefits (in each case, except for increases, payments or grants in the ordinary course of business and consistent with past practice) or (B) any establishment, adoption, entry into or amendment of any collective bargaining, bonus, profit sharing, thrift, compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any director, officer or employee of the Company or any Company Subsidiary.

4.12 Employee Benefit Plans .

(a) Section 4.12(a) of the Company Disclosure Schedule sets forth a complete and accurate list of each Company Benefit Plan. With respect to each Company Benefit Plan, the Company has provided to Merger Sub complete and accurate copies of (i) each such Company Benefit Plan, including any material amendments thereto, and descriptions of all material terms of any such plan that is not in writing, (ii) each trust, insurance, annuity or other funding Contract related thereto, (iii) all summary plan descriptions, including any summary of material modifications, and any other material notice or description provided to retired, former or current employees, officers, consultants, independent contractors or directors of the Company or any Company Subsidiary (“ Service Providers ”), (iv) the most recent financial statements and actuarial or other valuation reports prepared with respect thereto, (v) the most recently received IRS determination letter, if any, issued by the IRS with respect to any Company Benefit Plan that is intended to qualify under Section 401(a) of the Code, (vi) the most recent annual report on Form 5500 (and all schedules thereto) required to be filed with the IRS with respect thereto and (vii) all other material filings and material correspondence with any Governmental Entity (including any correspondence regarding actual or, to the knowledge of the Company, threatened audits or investigations) with respect to each Company Benefit Plan.

(b) Each Company Benefit Plan (and any related trust or other funding vehicle) has been established, maintained and administered in all material respects in accordance with its terms and is in compliance in all material respects with ERISA, the Code and all other applicable laws.

 

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(c) The Company has no Company Benefit Plans that are maintained primarily for the benefit of Service Providers outside of the United States.

(d) Each Company Benefit Plan that is intended to be qualified under Section 401(a) of the Code has timely received or applied for a favorable determination letter or is entitled to rely on a favorable opinion letter from the IRS, in either case, that has not been revoked and, to the knowledge of the Company, no event or circumstance exists that has adversely affected or would reasonably be expected to adversely affect such qualification or exemption. None of the Company, any Company Subsidiary, any Company Benefit Plan, any trustee, administrator or other third-party fiduciary or party-in-interest, with respect to any Company Benefit Plan, has engaged in any breach of fiduciary responsibility or non-exempt prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) which could result in the imposition of a material penalty assessed pursuant to Section 502(i) of ERISA or a material Tax imposed by Section 4975 of the Code on the Company or any Company Subsidiary.

(e) No Proceeding has been brought, or is overtly threatened in written communication with the Company, against or with respect to any Company Benefit Plan, including any audit or inquiry by the IRS or the United States Department of Labor (other than routine claims for benefits arising under such plans).

(f) No Company Benefit Plan is, and neither the Company nor any ERISA Affiliate thereof sponsors, maintains, contributes to, or has ever sponsored, maintained, contributed to, or has any actual or contingent liability with respect to any (i) single employer plan or other pension plan that is subject to Section 302 or Title IV of ERISA or Section 412 of the Code, (ii) “multiple employer plan” within the meaning of Section 413(c) of the Code, (iii) any “multiemployer plan” within the meaning of Section 3(37) of ERISA) or (iv) multiple employer welfare arrangement (within the meaning of Section 3(4) of ERISA).

(g) None of the execution, delivery or performance of this Agreement by the Company, the consummation by the Company of any transaction contemplated by this Agreement, nor the Company’s compliance with any of the provisions of this Agreement (alone or in conjunction with any other event, including any termination of employment on or following the Effective Time), will result in any “parachute payment” under Section 280G of the Code. The Company has made available to Parent copies of any Section 280G calculations prepared (whether or not final) with respect to any disqualified individual in connection with the transactions contemplated by this Agreement.

(h) The Company does not have any liability in respect of, or obligation to provide, post-retirement health, medical, disability, life insurance benefits or other welfare benefits for Service Providers (or the spouses, dependent or beneficiaries of any Service Providers), whether under a Company Benefit Plan or otherwise, except as required to comply with Section 4980B of the Code or any similar law.

(i) None of the execution, delivery or performance of this Agreement by the Company, the consummation by the Company of the Offer, the Merger or any other transaction contemplated by this Agreement, or the Company’s compliance with any of the provisions of this Agreement will (either alone or in conjunction with any other event, including any termination of employment on or following the Effective Time) (i) entitle any Service Provider to any compensation or benefit, (ii) accelerate the time of payment or vesting, increase the amount of payment, or trigger any payment or funding, of any compensation or benefit or trigger any other material obligation under any Company Benefit Plan, (iii) trigger any funding (through a grantor trust or otherwise) of compensation, equity award or other benefits, (iv) otherwise give rise to any material liability under any Company Benefit Plan or (v) limit or restrict the right to merge, materially amend, terminate or transfer the assets of any Company Benefit Plan on or following the Effective Time.

(j) No Company Benefit Plan provides for any gross-up, reimbursement or additional payment by reason of any Tax imposed under Section 409A or Section 4999 of the Code. Each Company Benefit Plan that constitutes a nonqualified deferred compensation plan (within the meaning of Section 409A of the Code) is set

 

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forth in Section 4.12(j) of the Company Disclosure Schedule and has been maintained and operated in material good faith documentary and operational compliance with Section 409A or the Code or an available exemption therefrom, other than any instance where such non-compliance can be corrected without a material Liability to the Person either under an Internal Revenue Service correction program or under the principles set forth in Proposed Treasury Regulation 1.409A-4.

4.13 Labor and Other Employment Matters .

(a) The Company is in compliance in all material respects with all applicable Laws respecting labor, employment, immigration, fair employment practices, terms and conditions of employment, workers’ compensation, occupational safety, plant closings, compensation and benefits, and wages and hours.

(b) The Company is not and has not been a party to any collective bargaining, employee association or works council or similar Contract, and there are not, to the knowledge of the Company, any union, employee association or works council organizing activities concerning any Service Provider. The Company has not recognized any trade union, whether voluntarily or in terms of any statutory procedure as set out in any applicable law. There have been no labor strikes, slowdowns, work stoppages, picketings, negotiated industrial actions or lockouts pending or, to the knowledge of the Company, threatened, against the Company. There is no unfair labor practice charge against the Company or any of the Company Subsidiaries pending before the National Labor Relations Board or any comparable labor relations authority and there is no pending or, to the knowledge of the Company, threatened grievance, charge, complaint, audit or investigation by or before any Governmental Entity with respect to any Service Providers in their capacities as such.

(c) In the three years prior to the date of this Agreement, the Company has not effectuated a plant closing or mass layoff, as defined in the Worker Adjustment and Retraining Notification Act, 29 U.S.C. §§ 2101, et. seq., affecting any one or more sites of employment or one or more facilities or operating units within any site of employment or facility of the Company.

(d) The Company has made available to Parent with respect to each current Service Provider (other than non-employee directors of the Company or any Company Subsidiary), including any current Service Provider who is on a leave of absence of any nature, paid or unpaid, authorized or unauthorized, including disability, family or other leave, sick leave or on layoff status subject to recall the following as of the date hereof: (i) the name of such Service Provider and the date as of which such Service Provider was originally hired by the Company or any Company Subsidiary, as applicable, and whether such Service Provider is on an active or inactive status, (ii) such Service Provider’s title, pay grade and supervisor name, (iii) such Service Provider’s annualized compensation as of the date of this Agreement, including base salary, vacation and paid time off accrual amounts, bonus and commission potential, severance pay potential and any other compensation forms, if applicable, (iv) whether such Service Provider is not fully available to perform work because of a qualified disability or other leave and, if applicable, the type of leave (e.g., disability, workers compensation, family or other leave protected by applicable Law) and the anticipated date of return to full service, (v) whether such Service Provider is employed by the Company or one of the Company Subsidiaries, and, if by any of the Company Subsidiaries, the name of the Company Subsidiaries, (vi) the facility at which such Service Provider is deemed to be located, and (vii) any outstanding equity awards held by such Service Provider.

4.14 Contracts .

(a) Section 4.14(a) of the Company Disclosure Schedule sets forth an accurate and complete list of each Contract to which the Company or any Company Subsidiary is a party to or bound by which falls within any of the following categories:

(i) any Contract that (A) limits or restricts in any material respect to the Company or any Company Subsidiary from competing or engaging in any line of business or in any geographic area, (B) grants any “most favored nation” status to Persons other than the Company or the Company Subsidiaries or (C) is a minimum purchase or “take or pay” Contract;

 

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(ii) any Contract that by its terms limits the payment of dividends or other distributions to stockholders by the Company or any Company Subsidiary;

(iii) any Contract relating to indebtedness for borrowed money or any financial guaranty in excess of $2,500,000 individually;

(iv) any Contract that contains a put, call or similar right pursuant to which the Company or any of the Company Subsidiaries could be required to purchase or sell, as applicable, any Equity Interests of any Person or assets that have a fair market value or purchase price of more than $2,500,000;

(v) any material lease, sublease or other Contract with respect to the Leased Real Property;

(vi) any Contract with any customers or licensees of, or suppliers to, the Company or any Company Subsidiary which involved payments to or from the Company or any Company Subsidiary in the most recent 12 month period of in excess of $2,500,000;

(vii) any Contract containing any standstill or similar provision pursuant to which the Company or any Company Subsidiary would be prohibited from acquiring assets or securities of another Person;

(viii) any Contract evidencing a partnership, joint venture or other similar arrangement;

(ix) any Contract between or among the Company or any Company Subsidiary, on the one hand, and any directors, executive officers (as such term is defined in the Exchange Act) or any beneficial owner of 5% or more of any class of capital stock of the Company (other than the Company) or any affiliate of the foregoing, on the other hand, other than employment, indemnification, stock option or similar Contracts entered into in the ordinary course of business;

(x) any Contract relating to an acquisition, divestiture, merger or similar transaction that has continuing indemnification or other contingent payment obligations;

(xi) any Contract that is a license or other Contract pursuant to which (A) the Company or any of the Company Subsidiaries has licensed or otherwise granted rights in or to any of the Company’s Intellectual Property Rights to any Person (other than standard non-disclosure Contracts and standard non-exclusive licenses granted in the ordinary course of business), or (B) any Person has licensed or sublicensed to the Company or any of the Company Subsidiaries, or otherwise authorized the Company or any of the Company Subsidiaries to use, any third-party Intellectual Property Rights that are material to the Company (other than non-disclosure Contracts and standard, unmodified, off-the-shelf Software commercially available on standard terms from third-party vendors (e.g., Microsoft Windows));

(xii) any “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC); and

(xiii) any other Contract which by its terms would prohibit the consummation of the Offer, the Merger or any other transaction contemplated by this Agreement.

Each Contract of the type described in this Section 4.14(a) is referred to herein as a “ Company Material Contract. ” Accurate and complete copies of each Company Material Contract have been made available by the Company to Parent, or publicly filed with the SEC, in each case prior to the date of this Agreement.

(b) (i) Each Company Material Contract is a valid and binding obligation of the Company or the Company Subsidiaries and, to the knowledge of the Company, of the other party or parties thereto, in accordance with its terms, and is in full force and effect except that (x) such enforcement may be subject to applicable

 

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bankruptcy, insolvency or other similar laws, now or hereafter in effect, affecting creditors’ rights generally and (y) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any Proceeding therefor may be brought; (ii) the Company and each Company Subsidiary has in all material respects performed all obligations required to be performed by it under each Company Material Contract and, to the knowledge of the Company, each other party to each Company Material Contract has in all material respects performed all obligations required to be performed by it under such Company Material Contract; and (iii) none of the Company or any Company Subsidiary has received written notice of any material violation or material default under (nor, to the knowledge of the Company, does there exist any condition which upon the passage of time or the giving of notice or both would cause such a material violation of or material default under) any Company Material Contract.

4.15 Litigation .

(a) There is no civil, criminal or administrative suit, claim, action, hearing, arbitration, investigation or other proceeding (a “ Proceeding ”), other than civil claims exclusively for money damages not in excess of $500,000, pending or, to the knowledge of the Company, threatened against the Company or any Company Subsidiary.

(b) Neither the Company nor any Company Subsidiary is subject to any outstanding order, writ, injunction, judgment, award, decree, ruling or determination of any Governmental Entity (each, an “ Order ”).

4.16 Environmental Matters .

(a) Each of the Company and the Company Subsidiaries is now and since January 1, 2009 has been in compliance in all material respects with all applicable Environmental Laws. The Company has obtained, or has made timely and complete application for renewal of, and is in compliance in all material respects with, all Environmental Permits necessary for the conduct and operation of the Business as now being conducted.

(b) There is not now and since January 1, 2009 there has not been any Hazardous Substances generated, treated, stored, transported, disposed of, released, or otherwise existing on, under, about, or emanating from or to, any property currently owned, leased or operated by the Company and the Company Subsidiaries, any property previously owned, leased or operated by the Company and the Company Subsidiaries at the time the Company or the Company Subsidiaries, as applicable owned, leased or operated said property, except in compliance with, and as would not result in material liability under, any applicable Environmental Laws.

(c) Since January 1, 2009, the Company and the Company Subsidiaries have not received any written notice of alleged liability for, or any investigation or written inquiry regarding, any release or threatened release of Hazardous Substances or alleged violation of, or non-compliance with, any Environmental Law.

(d) Neither the Company nor any of the Company Subsidiaries is subject to any Order or Contract with any Governmental Entity or any indemnity or other agreement with any third party relating to liability or obligations under any Environmental Law.

(e) The Company has made available to Parent prior to the date of this Agreement true, correct and complete copies of any environmental reports, studies, assessments, and other material environmental information in its possession relating to the Company, the Company Subsidiaries and their current or former properties or operations.

4.17 Intellectual Property .

(a) General . Section 4.17(a)(i) - (iv)  of the Company Disclosure Schedule sets forth with respect to the Intellectual Property Rights registered or applied for in the name of the Company or any Company Subsidiary (“ Registered Intellectual Property, ” and together with other Intellectual Property Rights owned or purported to be owned by the Company or any Company Subsidiary, the “ Owned Intellectual Property ”): (i) for each patent and

 

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patent application, the patent number or application serial number for each jurisdiction in which the patent or application has been filed, the respective jurisdiction where filed, the date filed or issued, and the present status thereof; (ii) for each trademark, tradename or service mark that is registered, for which a pending application for registration has been filed, the application serial number or registration number, the jurisdiction where filed, the date filed or granted, and the class of goods covered, in each case, if applicable; (iii) for any URL or Internet domain name, the registration date, any renewal date and name of the Internet domain name registrar; and (iv) for each copyrighted work for which a registration has been filed, the registration number, date of registration and the jurisdiction in which the copyright has been filed. All Intellectual Property Rights issued or registered to the Company or any Company Subsidiary are subsisting, and to knowledge of the Company, valid and enforceable. Section 4.17(a) of the Company Disclosure Schedule lists all material licenses granted to the Company or any of the Company Subsidiaries to Intellectual Property Rights applicable to the Company Products and the Business (“ Licensed Intellectual Property ”), other than standard, unmodified, off-the-shelf Software commercially available on standard terms from third-party vendors (e.g., Microsoft Windows).

(b) Sufficiency . The Company and the Company Subsidiaries own or have valid and sufficient rights to all Intellectual Property Rights and to use Technology that claim or cover the Company Products, or that are incorporated in or necessary for the design, manufacture, use, distribution or sale of the Company Products as currently marketed (collectively referred to herein as the “ Material Intellectual Property ”). To the knowledge of the Company, the Material Intellectual Property (other than standard, unmodified, off-the-shelf Software commercially available on standard terms from third-party vendors (e.g., Microsoft Windows)) constitutes all Intellectual Property Rights and Technology necessary for the conduct of the Business as presently conducted, including for the design, manufacture, use, distribution and sale of the Company Products. Nothing in this subsection (b) shall be deemed a representation or warranty of non-infringement of third party Intellectual Property Rights.

(c) Ownership . The Company or each Company Subsidiary exclusively owns the Owned Intellectual Property, free and clear of Liens (other than Permitted Liens). The Company and each Company Subsidiary’s rights in and to the Owned Intellectual Property will not be impaired or cease to be valid and enforceable, and no license to Licensed Intellectual Property will terminate or expire, or be modified adversely to the Company or any of the Company Subsidiaries, in each case by reason of the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby. To the knowledge of the Company, neither the execution, delivery or performance of this Agreement, nor the consummation of the Offer, the Merger or the other transactions contemplated hereby, will trigger or create any license under or Lien on any Intellectual Property Rights owned or held by Parent or any of its affiliates under the terms of any Contract to which the Company or any Company Subsidiary is a party. All of the Company’s and each Company Subsidiary’s current and former employees, officers, contractors and consultants have executed valid and enforceable Intellectual Property Rights assignment and confidentiality agreements for the benefit of the Company and such Company Subsidiary.

(d) Absence of Claims; Non-infringement . To the knowledge of the Company, neither the conduct of the Business nor the design, manufacture, use, distribution or sale of the Company Products by the Company or any Company Subsidiary infringes, misappropriates or otherwise violates the Intellectual Property Rights of any other Person. No Proceedings have been instituted in the last three years or are pending, or to the knowledge of the Company are threatened against, the Company or any Company Subsidiary, that challenge the Company’s or any Company Subsidiary’s ownership of Owned Intellectual Property or right to use the Licensed Intellectual Property. To the knowledge of the Company, no interference, opposition, reissue, reexamination, or other similar proceeding is or has been pending or, to the knowledge of the Company, threatened, in which the scope, validity, or enforceability of any of the Owned Intellectual Property is being or has been, contested or challenged. Since May 31, 2009, the Company has not received any written notice alleging the invalidity or unenforceability of the Owned Intellectual Property (excluding, for clarity, all correspondence with patent authorities with respect to ordinary course patent prosecution activities), or any misappropriation of any other Person’s Trade Secrets by the research, development, manufacture, use, distribution or sale of any Company Product. Since May 31, 2009, no

 

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Person has notified the Company that it is claiming any ownership of or right to use any Owned Intellectual Property. The Owned Intellectual Property is not subject to any outstanding Order of an arbitrator or court or other Governmental Entity affecting adversely the rights of the Company or any Company Subsidiary with respect thereto (excluding communications and decisions made in the ordinary course of patent prosecution). To the knowledge of the Company, no Person has infringed upon, misappropriated or otherwise violated any rights in or to any of the Material Intellectual Property, or is currently doing so.

(e) Licenses to Third Parties . Section 4.17(e) of the Company Disclosure Schedule lists all Contracts pursuant to which any Person has been granted any license under, or otherwise has received or acquired any right to use (whether or not currently exercisable), the Owned Intellectual Property. Neither the Company nor any Company Subsidiary is bound by, and no Owned Intellectual Property is subject to, any Contract containing any covenant or other provision that in any way limits or restricts the ability of the Company or any Company Subsidiary to use, exploit, assert, or enforce any of the Owned Intellectual Property anywhere in the world.

(f) Protection of Intellectual Property Rights . All of the registrations and pending applications with or to governmental or regulatory bodies with respect to the Owned Intellectual Property have been timely and duly filed, and prosecution of such applications has been diligently conducted, except in each case as the Company or a Company Subsidiary has elected in its reasonable business judgment to abandon or permit to lapse a registration or application, and as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. The Company and each Company Subsidiary has taken reasonable steps (including, entering into written confidentiality and nondisclosure agreements with officers, directors, subcontractors, employees, licensees and customers in connection with its assets or the Business) to safeguard and maintain the secrecy and confidentiality of Trade Secrets that are material to the Business.

(g) Software . The Company and each of the Company Subsidiaries maintain and use reasonable efforts to enforce policies and procedures regarding data security, privacy, data transfer and the use of data that enable the Company and the Company Subsidiaries to comply with all applicable Laws, except where the failure to maintain and be in compliance with such policies would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. The Company and each of the Company Subsidiaries has used commercially reasonable efforts to prevent the introduction into any Software owned by the Company or the Company Subsidiaries, or into any computer system or network owned or controlled by the Company or any Company Subsidiary, and to the knowledge of the Company, such Software, systems and networks do not contain, any “back door,” “drop dead device,” “time bomb,” “Trojan horse,” “virus,” or “worm” (as such terms are commonly understood in the software industry) or any other code designed or intended to have any of the following functions: disrupting or disabling, the operation of, or providing unauthorized access to, a computer system or network or other device on which such code is stored or installed. To the knowledge of the Company, since May 31, 2010, no Person has gained unauthorized access to any of the computer systems, networks or data used by the Company or any of the Company Subsidiaries that would compromise to any material degree the value or confidentiality of such computer systems, networks or data or that would necessitate that the Company or any Company Subsidiary notify a third Person of such unauthorized access.

4.18 Tax Matters .

(a) Tax Returns . The Company and each Company Subsidiary have timely filed (taking into account any extension of time within which to file) all material Tax Returns required to have been filed by or with respect to the Company or any Company Subsidiaries, and all such Tax Returns are true, complete and accurate in all material respects. No claim has been made in the past three years in writing by a Governmental Entity in a jurisdiction where the Company or any Company Subsidiary does not file Tax Returns that the Company or any Company Subsidiary is or may be subject to material Taxes in such jurisdiction.

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those Taxes that are being contested in good faith by appropriate proceedings and for which reserves have been established in accordance with GAAP.

(c) Audits, Investigations or Claims . No deficiencies for any amount of material Taxes have been proposed or assessed in writing against any of the Company and the Company Subsidiaries by any Governmental Entity. Neither the Company nor any of the Company Subsidiaries (i) is the subject of any currently ongoing Tax audit or other proceeding with respect to material Taxes and (ii) has waived any statute of limitations in respect of any Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency, which waiver or extension is currently in effect.

(d) Tax Sharing Agreements . Neither the Company nor any Company Subsidiary has any liability under any agreement for the sharing, indemnification or allocation of Taxes (other than customary provisions for Taxes contained in credit, lease or other commercial agreements the primary purposes of which do not relate to Taxes).

(e) Other Entity Liability . None of the Company or any Company Subsidiary has any liability for the Taxes of any Person (other than Taxes of the Company and the Company Subsidiaries) under Treasury regulation Section 1.1502-6 (or any similar provision of state, local or foreign law), or as a transferee or successor, by Contract or otherwise (excluding customary Tax indemnification provisions in ordinary course commercial Contracts not primarily relating to Taxes, such as gross-up obligations in financing agreements or Tax escalation provisions in leases).

(f) Withholding . Each of the Company and the Company Subsidiaries has withheld and, to the extent required by Law, paid to the appropriate Governmental Entity all material Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party.

(g) Spin-Offs . Neither the Company nor any Company Subsidiary has been a “distributing corporation” or a “controlled corporation” (within the meaning of section 355 of the Code) in a transaction intended to qualify under section 355 of the Code within the past two years.

(h) Listed Transactions . Neither the Company nor any Company Subsidiary has entered into any “ listed transaction ” within the meaning of Treasury Regulation Section 1.6011-4(b)(2).

4.19 Insurance . The Company and each Company Subsidiary maintains insurance coverage with reputable and financially sound insurers, or maintains self-insurance practices, in such amounts and covering such risks as are in accordance with customary industry practice for companies engaged in businesses similar to that of the Company and the Company Subsidiaries. The Company has made available to Parent accurate and complete copies of all material insurance policies and all material self-insurance programs and arrangements relating to the business, assets and operations of the Company and the Company Subsidiaries (the “ Insurance Policies ”). Each of the Insurance Policies is in full force and effect, all premiums due and payable thereon have been paid and the Company and the Company Subsidiaries are in compliance in all material respects with the terms and conditions of such Insurance Policies. Since May 31, 2010, neither the Company nor any Company Subsidiary has received any written notice regarding any invalidation or cancellation of any Insurance Policy that has not been renewed in the ordinary course without any lapse in coverage.

4.20 Properties and Assets . Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, (i) the Company or the Company Subsidiaries, as the case may be, have valid and subsisting ownership interests in all of the material tangible personal property reflected in the May 31, 2012 audited consolidated balance sheet included in the Company SEC Reports prior to the date hereof as being owned by the Company or any Company Subsidiaries or acquired after the date thereof (except tangible personal properties sold or otherwise disposed of since the date thereof in the ordinary course of business), free and clear of all Liens, other than Permitted Liens and (ii) the tangible personal property owned by the Company

 

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or the Company Subsidiaries is in satisfactory operating condition and repair for its continued use as it has been used in all material respects, subject to reasonable wear and tear.

4.21 Real Property .

(a) Section 4.21(a) of the Company Disclosure Schedule sets forth (i) an accurate and complete list of all real property leased or subleased by the Company or any Company Subsidiary (collectively, the “ Leased Real Property ”), (ii) the address for each Leased Real Property and (iii) the name of the third party lessor(s) thereof, the date of the lease contract relating thereto and all amendments thereof. The Company and each Company Subsidiary have a valid and subsisting leasehold interest in all Leased Real Property leased by them, in each case free and clear of all Liens, other than Permitted Liens.

(b) Neither the Company nor any of the Company Subsidiaries owns any real property or is a party to any Contract or otherwise has any obligation to acquire any real property.

(c) Neither the Company nor any Company Subsidiary has received written notice of any Proceedings in eminent domain, condemnation or other similar Proceedings that are pending, and, to the knowledge of the Company, there are no such Proceedings threatened, affecting any portion of the Leased Real Property.

4.22 Opinion of Financial Advisor . The Company Board has received the opinion (the “ Fairness Opinion ”) of Houlihan Lokey Capital, Inc. (“ Houlihan ”) to the effect that, based upon and subject to the assumptions, qualifications and other matters set forth therein, as of the date of such opinion, the Offer Price to be received in the Offer and the Merger Consideration to be received in the Merger by the holders of Class A Common Stock is fair to such stockholders from a financial point of view.

4.23 Required Vote . Assuming the accuracy of the representations set forth in Section 5.6(a) , the affirmative vote or written consent of the holders of Shares representing a majority of the voting power of the outstanding shares of the Company Common Stock entitled to vote thereon (the “ Required Vote ”) is the only vote required of the holders of any class of capital stock of the Company to adopt this Agreement (the “ Company Stockholder Approval ”).

4.24 Brokers . Except for the Company’s obligations to Houlihan and to Rothschild, neither the Company nor any stockholder, director, officer, employee or affiliate of the Company, has incurred or will incur on behalf of the Company or any Company Subsidiary, any brokerage, finders’, advisory or similar fee in connection with the transactions contemplated by this Agreement, including the Merger. The Company has heretofore made available to Parent accurate and complete copies of all agreements between the Company and each of (a) Houlihan and (b) Rothschild, pursuant to which either such firm would be entitled to any payment, commission, fees or expenses in connection with the Merger or any other transactions contemplated by this Agreement.

4.25 Related Party Transactions . There are no outstanding amounts payable to or receivable from, or advances by the Company or any Company Subsidiary to, and neither the Company nor any Company Subsidiary is otherwise a creditor or debtor to, or party to any material Contract or transaction with, any holder of 5% or more of the Company Common Stock or any director, officer, or affiliate of the Company or any Company Subsidiary, or to any relative of any of the foregoing, except for employment or compensation agreements or arrangements with directors and officers of the Company or the Company Subsidiaries.

4.26 Certain Regulatory Matters . Except as would not, individually or in the aggregate, be reasonably likely to have a Company Material Adverse Effect:

(a) Each Company Product subject to the Federal Food, Drug and Cosmetic Act (the “ FDCA ”), the Food and Drug Administration (“ FDA ”) regulations promulgated thereunder, or similar legal provisions in any domestic or foreign jurisdiction has, since May 31, 2009, been manufactured, packaged, labeled, marketed, sold and distributed in compliance with all applicable requirements under the FDCA or similar applicable Laws.

 

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(b) Since May 31, 2009, (i) neither the Company nor any Company Subsidiary has received any written notice or other communication from the FDA or any other Governmental Entity in any domestic or foreign jurisdiction alleging any violation of any Law by the Company or any Company Subsidiary applicable to any Company Product and (ii) no Governmental Entity in any domestic or foreign jurisdiction having legal responsibility for the regulation of the Company Products has served any written notice, warning letter, untitled letter, regulatory letter, FDA Form 483, or any other similar written communication on the Company or any Company Subsidiary (A) alleging or asserting that their businesses were or are in violation of any Law; (B) alleging or asserting that the Company or any Company Subsidiary was or is the subject of any pending or threatened Governmental Entity investigation, Proceeding or inquiry, (C) revoking, or threatening to revoke, or refusing, or threatening to refuse, to renew any Company Permits (D) contesting any authorization for use, use of, or labeling or promotion of any Company Products; (E) commencing, or threatening in writing to initiate, any action to request the recall of any Company Products; (F) commencing, or threatening in writing to initiate, any action to enjoin, limit or challenge the manufacture, distribution, marketing, labeling, advertising or promotion of any Company Products, regardless of where manufactured; or (G) commencing or threatening in writing to initiate an import detention, import alert, or any other restriction on the importation of any Company Products or ingredients used to formulate Company Products.

(c) Since May 31, 2009, the Company and the Company Subsidiaries have at all times marketed and distributed the Company Products in material compliance with applicable Laws and Orders, and none of the marketing and promotional materials used with respect to any Company Products, including without limitation the labels and labeling and websites for the Company Products, is or has been false or misleading in any material respect.

(d) To the knowledge of the Company, the manufacture of the Company Products by, or on behalf of, the Company and the Company Subsidiaries has, since May 31, 2009, been conducted in compliance with applicable Laws and Orders, including the FDA’s good manufacturing practice regulations and regulations governing dietary supplement quality control. The processes used to produce the Company Products are designed so that each Company Product will conform to the specifications established therefor over the shelf life of such Company Product and will be safe for its intended use.

(e) Since May 31, 2009, neither the Company nor any of the Company Subsidiaries has either voluntarily or involuntarily initiated, conducted or issued any recall, field notification, field correction, market withdrawal or replacement, inventory destruction, safety alert, stock recovery or replacement or other notice relating to an alleged lack of safety or regulatory compliance of any Company Product. To the knowledge of the Company, there are no facts or circumstances that, individually or in the aggregate, would be reasonably expected to cause (1) the recall, market withdrawal or replacement of any Company Product; (2) a change in the marketing classification or a material change in the labeling of any such Company Product; or (3) a termination or suspension of the marketing, or seizure, of a Company Product.

(f) To the knowledge of the Company, no officer, employee or representative of the Company or any Company Subsidiary has made an untrue statement of a material fact or fraudulent statement to the FDA or any other Governmental Entity, failed to disclose a material fact required to be disclosed to the FDA or any other Governmental Entity, or committed an act, made a statement, or failed to make a statement that, at the time such disclosure was made, would reasonably be expected to provide a basis for the FDA or any other Governmental Entity to invoke its policy respecting “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities,” set forth in 56 Fed. Reg. 46191 (September 10, 1991) or any similar policy, such as FDA Compliance Policy Guide 120.100. To the knowledge of the Company, the Company and the Company Subsidiaries have not used in any capacity the services of any individual or entity debarred under 21 U.S.C. § 335a(a) or any similar laws, rules or regulations in connection with a Company Product, and none of the Company, the Company Subsidiaries or, to the knowledge of the Company, any of their respective directors, officers, agents or employees, has engaged in any conduct that has resulted, or would reasonably be expected to result, in debarment under 21 U.S.C. § 335a(a) or any similar laws, rules or regulations.

 

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(g) Since March 30, 2012, the Company and each Company Subsidiary has complied with, and is currently in compliance, in all material respects, with all provisions of the Stipulated Final Judgment and Order for Injunctive and Other Equitable Relief entered into between Airborne, Inc. and the FTC, including but not limited to, substantiation requirements, compliance monitoring requirements, reporting requirements, and record-keeping requirements.

4.27 Information Supplied . None of the information supplied or to be supplied by the Company for inclusion or incorporation by reference in the Amended Offer Documents, the Schedule 14D-9 or the Information Statement will, when filed with the SEC, when amended or supplemented and when first mailed or disseminated to the Company’s stockholders, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading, except that no representation or warranty is made by the Company with respect to statements made therein based on information supplied by Parent or Merger Sub in writing expressly for inclusion therein. The Schedule 14D-9 and the Information Statement will comply as to form in all material respects with the provisions of the Exchange Act and any other applicable federal securities Laws.

4.28 Bayer Merger Agreement . The Company has (a) terminated the Bayer Merger Agreement in accordance with its terms and has no further obligations thereunder, (b) paid to Bayer the Breakup Fee (as defined in the Bayer Merger Agreement) of $22,000,000 pursuant to Section 7.2(b) of the Bayer Merger Agreement and (c) instructed Bayer to return to the Company or destroy any non-public information previously furnished to Bayer or to Bayer’s Representatives by or on behalf of the Company or any Company Subsidiary.

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

Except as set forth in the Disclosure Schedule delivered by Parent and Merger Sub to the Company prior to the execution of this Agreement (the “ Parent Disclosure Schedule ”) (with each exception set forth in the Parent Disclosure Schedule being identified by reference to, or grouped under a heading referring to, a specific individual section or subsection of the Agreement and relating only to such section or subsection; provided, however, that a matter disclosed with respect to one representation or warranty shall also be deemed to be disclosed with respect to each other representation or warranty to which the matter disclosed reasonably relates, but only to the extent that such relationship is reasonably apparent on the face of the disclosure contained in the Parent Disclosure Schedule), Parent and Merger Sub hereby represent and warrant to the Company as follows:

5.1 Organization and Qualification . Parent is a limited liability company, duly organized, validly existing and in good standing under the Laws of the State of Delaware. Merger Sub is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware. Parent has all requisite limited liability company power and authority, and Merger Sub has all requisite corporate power and authority, to own, lease and operate their respective properties and assets and to carry on their respective businesses as they are now being conducted. Each of Parent and Merger Sub is duly qualified to do business in each jurisdiction where the ownership, leasing or operation of its properties or assets or the conduct of its business requires such qualification, except where the failure to be so qualified or in good standing, individually or in the aggregate, would not reasonably be expected to have a Parent Material Adverse Effect.

5.2 Authority . Each of Parent and Merger Sub has all necessary limited liability company or corporate, respectively, power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby, including the Offer and the Merger. The execution and delivery of this Agreement by each of Parent and Merger Sub, as applicable, and the consummation by Parent and Merger Sub of the transactions contemplated hereby, including the Offer and the Merger, have been duly authorized by all necessary corporate action, and no other corporate proceedings on the part of Parent or Merger

 

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Sub and no stockholder votes are necessary to authorize this Agreement or to consummate the transactions contemplated hereby, subject to the adoption of this Agreement (following its execution) by Parent as the sole stockholder of Merger Sub. This Agreement has been duly and validly executed and delivered by Parent and Merger Sub, and assuming due authorization, execution and delivery by the Company, constitutes the valid and binding obligation of Parent and Merger Sub, enforceable against Parent and Merger Sub in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency or other similar Laws, now or hereafter in effect, affecting creditors’ rights generally and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any Proceeding therefor may be brought.

5.3 No Conflict . None of the execution, delivery or performance of this Agreement by Parent or Merger Sub, the consummation by Parent or Merger Sub of the Offer, the Merger or any other transaction contemplated by this Agreement, or compliance by Parent or Merger Sub with any of the provisions of this Agreement will (with or without notice or lapse of time, or both): (a) conflict with or violate any provision of the certificate of incorporation or by-laws or similar organizational and governing documents of Parent or Merger Sub; (b) assuming that all consents, approvals, authorizations and permits described in Section 5.4 have been obtained and all filings and notifications described in Section 5.4 have been made and any waiting periods thereunder have terminated or expired, conflict with or violate any Law applicable to Parent or Merger Sub or any other Subsidiary of Parent (each a “ Parent Subsidiary ” and, collectively, the “ Parent Subsidiaries ”) or any of their respective properties or assets; or (c) assuming that all consents, approvals, authorizations and permits described in Section 5.4 have been obtained and all filings and notifications described in Section 5.4 have been made and any waiting periods thereunder have terminated or expired, require any consent or approval under, violate, conflict with, result in any breach of or any loss of any benefit under, or constitute a default under, or result in termination or give to others any right of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien upon any of the respective properties or assets of Parent, Merger Sub or any Parent Subsidiary pursuant to, any Contract, to which Parent, Merger Sub or any Parent Subsidiary is a party, except, with respect to clauses (b) and (c), for any such conflicts, violations, consents, breaches, losses, defaults, other occurrences or Liens which, individually or in the aggregate, would not reasonably be expected to have a Parent Material Adverse Effect.

5.4 Required Filings and Consents . None of the execution, delivery or performance of this Agreement by Parent and Merger Sub, the consummation by Parent and Merger Sub of the Offer, the Merger or any other transaction contemplated by this Agreement, or compliance by Parent or Merger Sub with any of the provisions of this Agreement will require (with or without notice or lapse of time, or both) any consent, approval, authorization or permit of, or filing or registration with or notification to, any Governmental Entity, other than (a) the filing of the Certificate of Merger as required by the DGCL, (b) compliance with any applicable requirements of the HSR Act and the other applicable foreign or supranational antitrust and competition laws set forth in Section 5.4 of the Parent Disclosure Schedule, (c) compliance with the applicable requirements of the Exchange Act, (d) compliance with the applicable requirements of the Securities Act, (e) compliance with any applicable foreign or state securities or Blue Sky Laws, (f) filings with the SEC as may be required by Parent or Merger Sub in connection with this Agreement and the transactions contemplated hereby, (g) such filings as may be required under the rules and regulations of the NYSE and (h) where the failure to obtain such consents, approvals, authorizations or permits of, or to make such filings, registrations with or notifications to any Governmental Entity, individually or in the aggregate, would not reasonably be expected to have a Parent Material Adverse Effect.

5.5 Litigation .

(a) There is no Proceeding pending or, to the knowledge of Parent, threatened against Parent or Merger Sub that, individually or in the aggregate, would reasonably be expected to have a Parent Material Adverse Effect or challenges the validity of the Offer or the Merger.

 

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(b) Neither Parent nor Merger Sub is subject to any outstanding Order that, individually or in the aggregate, has had or would reasonably be expected to have a Parent Material Adverse Effect.

5.6 Ownership of Company Common Stock .

(a) Neither Parent nor Merger Sub is, nor at any time during the last three years has it been, an “interested stockholder” of the Company as defined in Section 203 of the DGCL (other than as contemplated by this Agreement and the Support Agreements).

(b) Neither Parent nor any of its Subsidiaries owns (beneficially or otherwise) any Shares or other Equity Interests in the Company or any options, warrants or other rights to acquire Company Common Stock or other Equity Interests in the Company (or any other economic interest through derivative securities or otherwise in the Company) (other than as contemplated by this Agreement and the Support Agreements).

5.7 Sufficient Funds . Parent and Merger Sub will have all of the funds available as and when needed that are necessary to consummate the Offer and the Merger and to perform their respective obligations under this Agreement.

5.8 Ownership of Merger Sub; No Prior Activities .

(a) Merger Sub was formed solely for the purpose of engaging in the transactions contemplated by this Agreement.

(b) Except for obligations or liabilities incurred in connection with its incorporation or organization and the transactions contemplated by this Agreement, Merger Sub has not and will not prior to the Closing Date have incurred, directly or indirectly, through any Subsidiary or affiliate, any obligations or liabilities or engaged in any business activities of any type or kind whatsoever or entered into any agreements or arrangements with any Person.

5.9 Management Arrangements . As of the date hereof, except as previously disclosed to the Company, none of Parent or Merger Sub, or their respective executive officers, directors or affiliates, has entered into any agreement, arrangement or understanding with any of the executive officers, directors or affiliates of the Company that is currently in effect or would become effective in the future (upon consummation of the Offer, the Merger or otherwise) and that would be required to be disclosed under Item 1005(d) of Regulation M-A under the Exchange Act.

5.10 Brokers . Other than Morgan Stanley & Co. Limited, neither Parent, Merger Sub nor any of their respective stockholders, directors, officers, employees or affiliates, has incurred or will incur on behalf of Parent, Merger Sub or any Parent Subsidiary, any brokerage, finders’, advisory or similar fee in connection with the transactions contemplated by this Agreement.

5.11 Information Supplied . None of the information supplied or to be supplied by Parent or Merger Sub for inclusion or incorporation by reference in the Amended Offer Documents, the Schedule 14D-9 or the Information Statement will, when filed with the SEC, when amended or supplemented and when first mailed or disseminated to the Company’s stockholders, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading, except that no representation or warranty is made by Parent or Merger Sub with respect to statements made therein based on information supplied by the Company in writing expressly for inclusion therein. The Amended Offer Documents will comply as to form in all material respects with the provisions of the Exchange Act and any other applicable federal securities Laws.

 

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ARTICLE 6

COVENANTS

6.1 Conduct of Business by the Company Pending the Closing . The Company covenants and agrees that, between the date of this Agreement and the Effective Time, except as set forth in Section 6.1 of the Company Disclosure Schedule or as permitted by any other provision of this Agreement, unless Parent will otherwise agree in writing (which agreement will not be unreasonably withheld, delayed or conditioned), the Company will, and will cause each Company Subsidiary to, conduct its operations in the ordinary course of business and use commercially reasonable efforts to preserve substantially intact its business organization and maintain existing relations and goodwill with customers, suppliers and employees in the ordinary course of business consistent with past practice. Without limiting the foregoing, and as an extension thereof, except as set forth in Section 6.1 of the Company Disclosure Schedule or as permitted by any other provision of this Agreement, the Company will not (unless required by applicable Law), and will not permit any Company Subsidiary to, between the date of this Agreement and the Effective Time, directly or indirectly, do, or agree to do, any of the following without the prior written consent of Parent (which consent will not be unreasonably withheld, delayed or conditioned):

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

(b) issue, sell, pledge, dispose of, grant, transfer or encumber, or authorize the issuance, sale, pledge, disposition, grant, transfer, or encumbrance of, any shares of capital stock of, or other Equity Interests in, the Company or any Company Subsidiary of any class, or securities convertible into, or exchangeable or exercisable for, any shares of such capital stock or other Equity Interests, or any options, warrants or other rights of any kind to acquire any shares of such capital stock or other Equity Interests or such convertible or exchangeable securities, or any other ownership interest (including, without limitation, any such interest represented by Contract right), of the Company or any Company Subsidiary, other than the issuance of Shares (i) upon the vesting of Company RSUs or Company Restricted Shares, (ii) the exercise of Company Options outstanding as of the date hereof in accordance with their terms or (iii) in connection with the Top-Up Option;

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

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

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

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

 

 

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

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

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

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

(k) terminate, cancel or amend any Company Material Contract, or cancel, modify or waive any rights thereunder, or enter into or amend any Contract that, if existing on the date hereof, would be a Company Material Contract;

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

(m) except to the extent required by (i) applicable Law, (ii) the existing terms of any Company Benefit Plan, (iii) contractual commitments or corporate policies with respect to severance or termination pay as in existence on the date hereof and listed on Section 6.1(m) of the Company Disclosure Schedule or (iv) as otherwise provided on Section 6.1(m) of the Company Disclosure Schedule: (A) increase in any manner the compensation, bonus or benefits payable or to become payable to its Service Providers (except for increases in the ordinary course of business consistent with past practice in base salaries or base wages of employees of the Company or any Company Subsidiary); (B) grant any additional rights to severance or termination pay to, or enter into any severance agreement with, any Service Provider, or establish, adopt, enter into or amend any Company Benefit Plan; (C) grant any new awards under any Company Benefit Plan, (D) amend or modify any outstanding award under any Company Benefit Plan, (E) take any action to amend, waive or accelerate the vesting criteria or vesting requirements of payment of any compensation or benefit under any Company Benefit Plan or remove any existing restrictions in any Company Benefit Plans or awards made thereunder, (F) take any action to accelerate the payment, or to fund or in any other way secure the payment, of compensation or benefits under any Company Benefit Plan, to the extent not already provided in any such Company Benefit Plan or (G) change any actuarial or other assumptions used to calculate funding obligations with respect to any Company Benefit Plan or to change the manner in which contributions to such plans are made or the basis on which such contributions are determined, except as may be required by GAAP or applicable laws;

(n) forgive any loans to Service Providers or any of their respective affiliates;

(o) make any material change in accounting policies, practices, principles, methods or procedures, other than as required by GAAP or by a Governmental Entity;

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

(q) compromise, settle or agree to settle any Proceeding (including any Proceeding relating to this Agreement or the transactions contemplated hereby) other than compromises, settlements or agreements in the ordinary course of business that involve only the payment of monetary damages not in excess of $2,500,000

 

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individually or $5,000,000 in the aggregate, in any case without the imposition of equitable relief on, or the admission of wrongdoing by, the Company or any Company Subsidiary;

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

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

(t) pre-pay any long-term debt; or

(u) authorize or enter into any Contract or otherwise make any commitment, in each case to do any of the foregoing in clauses (a) through (t).

6.2 Access to Information; Confidentiality . Except as required pursuant to any confidentiality agreement or similar agreement or arrangement to which the Company or any Company Subsidiary is a party (which such Person will use commercially reasonable efforts to cause the counterparty thereto to waive), and except as would result in the loss or waiver of any attorney-client, work product or other applicable privilege, from the date of this Agreement to the Effective Time, the Company will, and will cause each Company Subsidiary and each of their respective directors, officers, employees, accountants, consultants, legal counsel, advisors, agents and other representatives, (collectively, “ Representatives ” and, with respect to the Company and the Company Subsidiaries, the “ Company Representatives ”) to: (i) provide to Parent and Merger Sub and their respective Representatives (the “ Parent Representatives ”) reasonable access at reasonable times during normal operating hours upon prior notice to the officers, employees, agents, properties, offices and other facilities of such party and its Subsidiaries and to the books and records thereof (including Tax Returns) and (ii) furnish promptly such information concerning the business, properties, Contracts, assets, liabilities, personnel and other aspects of such party and its Subsidiaries as Parent or the Parent Representatives may reasonably request, provided that no investigation pursuant to this Section 6.2 shall affect or be deemed to modify any representation or warranty made by the Company herein or any of the conditions to the obligations of the parties hereto under this Agreement. The information referred to in the previous sentence shall be subject to the Confidentiality Agreement, dated November 16, 2012, by and between the Company and Parent (the “ Confidentiality Agreement ”).

6.3 Non-Solicitation .

(a) Except as permitted by this Section 6.3, the Company will, and it will cause the No-Shop Representatives to:

(i) (A) immediately cease and cause to be terminated any solicitation, encouragement, activities, discussions or negotiations with any Persons that may be ongoing with respect to any Acquisition Proposal, (B) take the necessary steps to promptly inform such Persons of the obligations set forth in this Section 6.3 , (C) immediately instruct each Person that has previously executed a confidentiality agreement in connection with such Person’s consideration of an Acquisition Proposal to return to the Company or destroy any non-public information previously furnished to such Person or to any Person’s Representatives by or on behalf of the Company or any Company Subsidiary, and (D) enforce (and not release, waive, amend or modify the provisions of) any confidentiality, non-solicit, non-use or standstill agreements entered into with any Person; and

 

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(ii) not, directly or indirectly: (A) solicit, initiate, seek or knowingly encourage or facilitate or take any action to solicit, initiate or seek or knowingly encourage or facilitate any inquiry, expression of interest, proposal or offer that constitutes or would reasonably be expected to lead to an Acquisition Proposal, (B) enter into, participate in, maintain or continue any discussions or negotiations relating to, any Acquisition Proposal with any Person other than Parent or Merger Sub, (C) furnish to any Person other than Parent or Merger Sub any information that the Company believes or should reasonably expect would be used in connection with, or for the purposes of formulating, any Acquisition Proposal, (D) enter into any agreement, letter of intent, memorandum of understanding, agreement in principle or Contract providing for or otherwise relating to any Acquisition Proposal (each, an “ Alternative Acquisition Agreement ”) or (E) submit any Acquisition Proposal or any matter related thereto to the vote of the stockholders of the Company. No later than 48 hours after the date hereof, the Company will notify Parent in writing of the identity of any Person that submitted an Acquisition Proposal within one year prior to the date hereof.

Without limiting the generality of the foregoing, the parties hereto acknowledge and hereby agree that any violation of the restrictions set forth in this Section 6.3 by any No-Shop Representative will be deemed to be a breach of this Section 6.3 by the Company.

(b) From and after the date of this Agreement, the Company will promptly (and in any event within 24 hours) provide Parent with: (i) a written description of any inquiry, expression of interest, proposal or offer relating to an Acquisition Proposal (including any modification thereto), or any request for information that would reasonably be expected to lead to an Acquisition Proposal, that is received by the Company or any Company Subsidiary or any No-Shop Representative from any Person (other than Parent or Merger Sub) including in such description the identity of the Person from which such inquiry, expression of interest, proposal, offer or request for information was received (the “ Other Interested Party ”); and (ii) a copy of each material written communication and a summary of each material oral communication transmitted by or on behalf of the Other Interested Party or any of its Representatives to the Company, any Company Subsidiary or any No-Shop Representative or transmitted on behalf of the Company, any Company Subsidiary or any No-Shop Representative to the Other Interested Party or any of its Representatives.

(c) Subject to Section 6.3(d) , neither the Company Board nor any committee thereof will (i) withhold, withdraw or qualify (or modify in a manner adverse to Parent) (or publicly propose to withhold, withdraw, qualify or so modify) the approval, recommendation or declaration of advisability by the Company Board or any such committee of this Agreement, the Offer, the Merger or any of the other transactions contemplated hereby, (ii) adopt, approve, recommend, or otherwise declare advisable (or publicly propose to adopt, approve, recommend or otherwise declare advisable) the adoption of any Acquisition Proposal, (iii) submit any Acquisition Proposal or any matter related thereto to the vote of the stockholders of the Company, or (iv) authorize, commit, resolve or agree to take any such actions (each such action set forth in clauses (i) through (iv) being referred to as a “ Change of Board Recommendation ”).

(d) Notwithstanding anything to the contrary contained in this Article 6, if (i) the Company has received a bona fide written Acquisition Proposal from a third party that was not solicited, initiated, encouraged or facilitated in material breach of the provisions of this Agreement and that the Company Board determines in good faith, after consultation with outside counsel and its financial advisors, constitutes a Superior Proposal, and (ii) the Company Board determines in good faith, after consultation with its financial advisor and its outside counsel, that making a Change of Board Recommendation with respect to such Superior Proposal is necessary in order for the members of the Company Board to comply with their fiduciary duties under applicable Law, then the Company Board may, at any time prior to but not after the time at which the Stockholder Written Consent is executed and delivered to Parent in accordance with Section 6.4(a) , (y) effect the type of Change of Board Recommendation provided for in Section 6.3(c)(i) with respect to such Superior Proposal and (z) terminate this Agreement to enter into an Alternative Acquisition Agreement with respect to such Superior Proposal.

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or complying with the provisions of Rule 14d–9 promulgated under the Exchange Act or (ii) making any disclosure to the stockholders of the Company that the Company Board determines to make in good faith (after consultation with its outside counsel) in order to fulfill its fiduciary duties under, or in order to otherwise comply with, applicable Law, in each case, so long as (A) any such disclosure includes the Company Board Recommendation, without any modification or qualification thereof and (B) does not contain either an express Change of Board Recommendation or any other statements by or on behalf of the Company Board as would reasonably be expected to have the same effect as a Change of Board Recommendation.

6.4 Stockholder Written Consent; Preparing of Information Statement .

(a) Immediately after the execution of this Agreement and in lieu of calling a meeting of the Company’s stockholders, the Company shall submit the form of Stockholder Written Consent attached hereto as Exhibit C (the “ Stockholder Written Consent ”) to those of the Company’s stockholders listed on Exhibit D. If the Stockholder Written Consent is duly executed by the Company’s stockholders by the Required Vote and is delivered to the Company in accordance with Section 228 of the DGCL, then, as promptly as practicable thereafter, the Company shall deliver to Parent a copy (including by facsimile or other electronic image scan transmission) of the Stockholder Written Consent, certified as correct and complete by an executive officer of the Company.

(b) If the Stockholder Written Consent is not executed by the stockholders of the Company by the Required Vote, or a copy (including by facsimile or other electronic image scan transmission) thereof is not delivered by the Company to Parent pursuant to Section 6.4(a) , in each case within 24 hours after the execution and delivery of this Agreement by the parties hereto, Parent shall have the right to terminate this Agreement as set forth in Section 8.1(c) .

(c) As soon as reasonably practicable following the due execution and delivery of the Stockholder Written Consent by the Company’s stockholders by the Required Vote, but in any event not later than the fifth Business Day following the date of this Agreement, the Company shall prepare and file with the SEC an information statement of the type contemplated by Rule 14c–2 under the Exchange Act related to the Merger and this Agreement (such information statement, including any amendment or supplement thereto, the “ Information Statement ”). The Information Statement shall also contain (i) the notice of action by written consent required by Section 228(e) of the DGCL and (ii) the notice of availability of appraisal rights and related disclosure required by Section 262 of the DGCL. Parent, Merger Sub and the Company will cooperate with each other in the preparation of the Information Statement. Without limiting the generality of the foregoing, each of Parent and Merger Sub will furnish to the Company the information relating to it required by the Exchange Act to be set forth in the Information Statement. The Company shall use its reasonable best efforts to resolve all SEC comments with respect to the Information Statement as promptly as reasonably practicable after receipt thereof and to have the Information Statement cleared by the staff of the SEC as promptly as reasonably practicable after such filing. Each of Parent, Merger Sub and the Company agrees to correct any information provided by it for use in the Information Statement which shall have become false or misleading. The Company shall as soon as reasonably practicable notify Parent and Merger Sub of the receipt of any comments from the SEC with respect to the Information Statement and any request by the SEC for any amendment to the Information Statement or for additional information and shall provide Parent with copies of all such comments and correspondence. Prior to filing or mailing the Information Statement (or any amendment or supplement thereto) or responding to any comments of the SEC (or the staff of the SEC) with respect thereto, the Company shall provide Parent a reasonable opportunity to review and to propose comments on such document or response and shall, in good faith, consider and incorporate the reasonable comments of Parent. Promptly after the Information Statement has been cleared by the SEC or after 10 calendar days have passed since the date of filing of the preliminary Information Statement with the SEC without notice from the SEC of its intent to review the Information Statement, the Company shall promptly file with the SEC the Information Statement in definitive form as contemplated by Rule 14c–2 promulgated under the Exchange Act substantially in the form previously cleared or filed with the SEC, as the case may be, and mail a copy of the Information Statement to the Company’s stockholders of record in accordance with Sections 228 and 262 of the DGCL.

 

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6.5 Appropriate Action; Consents; Filings .

(a) The Company and Parent will use their reasonable best efforts to (i) take, or cause to be taken, all appropriate action and do, or cause to be done, all things necessary, proper or advisable under applicable Law or otherwise to consummate and make effective the transactions contemplated by this Agreement as promptly as practicable, (ii) obtain, or cause their affiliates to obtain, from any Governmental Entities any consents, licenses, permits, waivers, approvals, authorizations or orders required to be obtained by Parent or the Company or any of their respective Subsidiaries, or to avoid any action or proceeding by any Governmental Entity (including, without limitation, those in connection with the HSR Act), in connection with the authorization, execution and delivery of this Agreement and the consummation of the transactions contemplated herein, including without limitation the Offer and the Merger and (iii) as promptly as reasonably practicable, and in any event within three Business Days after the date hereof, make, or cause their affiliates to make, all necessary filings, and thereafter make any other required submissions, and pay any fees due in connection therewith, with respect to this Agreement, the Offer and the Merger required under (A) the Exchange Act, and any other applicable federal or state securities Laws, (B) the HSR Act and (C) any other applicable Law; provided, that the Company and Parent will cooperate with each other in connection with (x) preparing and filing the Information Statement, (y) determining whether any action by or in respect of, or filing with, any Governmental Entity is required, in connection with the consummation of the Offer and the Merger and (z) seeking any such actions, consents, approvals or waivers or making any such filings. The Company and Parent will furnish, and cause their affiliates to furnish, to each other all information required for any application or other filing under the rules and regulations of any applicable Law in connection with the transactions contemplated by this Agreement.

(b) The Company and Parent will give (or will cause their respective affiliates to give) any notices to third parties, and use, and cause their respective affiliates to use, their commercially reasonable efforts to obtain any third-party consents, (i) necessary, proper or advisable to consummate the transactions contemplated by this Agreement (including delivering prepayment notices to lenders under the Company’s senior credit agreement provided such notices are conditioned upon occurrence of the Offer Acceptance Time) or (ii) required to be disclosed in the Company Disclosure Schedule or the Parent Disclosure Schedule, as applicable.

(c) Without limiting the generality of anything contained in this Section 6.5 , each party hereto will, and will cause their affiliates to: (i) give the other parties prompt notice of the making or commencement of any request, inquiry, investigation, action or legal proceeding by or before any Governmental Entity with respect to the Merger or any of the other transactions contemplated by this Agreement; (ii) keep the other parties informed as to the status of any such request, inquiry, investigation, action or legal proceeding; and (iii) promptly inform the other parties of any communication to or from the Federal Trade Commission, the Department of Justice or any other Governmental Entity regarding the Merger. Each party hereto will consult and cooperate, and will cause its affiliates to consult and cooperate, with the other parties and will consider in good faith the views of the other parties in connection with any filing, analysis, appearance, presentation, memorandum, brief, argument, opinion or proposal made or submitted in connection with the Merger or any of the other transactions contemplated by this Agreement. In addition, except as may be prohibited by any Governmental Entity or by any Law, in connection with any such request, inquiry, investigation, action or legal proceeding, each party hereto will permit, and will cause its affiliates to permit, authorized Representatives of the other parties to be present at each meeting or conference relating to such request, inquiry, investigation, action or legal proceeding and to have access to and be consulted in connection with any document, opinion or proposal made or submitted to any Governmental Entity in connection with such request, inquiry, investigation, action or legal proceeding.

(d) Each of Parent, Merger Sub and the Company will, and will cause its affiliates to, (i) cooperate and coordinate with each other in the making of any filings or submissions that are required to be made under any applicable Competition Laws or requested to be made by any Governmental Entity in connection with the transactions contemplated by this Agreement, (ii) supply each other or each other’s outside counsel with any information that may be required or requested by any Governmental Entity in connection with such filings or submissions, (iii) supply any additional information that may be required or requested by the Federal Trade

 

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Commission, the Department of Justice or other Governmental Entities in which any such filings or submissions are made under any applicable Competition Laws as promptly as practicable, and (iv) use its reasonable best efforts to cause the expiration or termination of the applicable waiting periods under any applicable Competition Laws as soon as reasonably practicable. Without limiting the generality of the foregoing, Parent will not, and will not permit any of its Subsidiaries to, enter into or publicly announce an agreement to form a joint venture, strategic alliance or strategic partnership or to acquire any assets, business or company if such agreement, individually or in the aggregate, would reasonably be expected to cause any of the conditions set forth in Article 7 not to be satisfied or would reasonably be expected to have the effect of preventing, materially impairing, materially delaying or otherwise materially and adversely affecting the consummation of the Merger.

(e) Nothing contained in this Section 6.5 will require, or be construed to require, Parent or any of its affiliates to proffer to, or agree to, sell, divest, lease, license, transfer, dispose of or otherwise encumber or hold separate, before or after the Effective Time, any of the assets, licenses, operations, rights, products or businesses held by any of them prior to the Effective Time, or any interest therein, or to agree to any material change (including through a licensing arrangement) or restriction on, or other impairment of Parent’s or any of its affiliates’ ability to own, manage or operate, any such assets, licenses, operations, rights, products or businesses, or any interest therein, or Parent’s ability to vote, transfer, receive dividends or otherwise exercise full ownership rights with respect to the stock of the Surviving Corporation (any of the actions referred to in this Section 6.5(e) , a “ Non-Required Remedy ”).

(f) Notwithstanding anything to the contrary in this Agreement, nothing contained in this Agreement will give Parent or Merger Sub, directly or indirectly, the right to control or direct the operations of the Company prior to the Offer Acceptance Time. Prior to the Effective Time, the Company will exercise, consistent with the terms and conditions of this Agreement, complete control and supervision over its operations.

6.6 Certain Notices . From and after the date of this Agreement until the Effective Time, each party hereto will promptly notify the other party hereto of (a) the occurrence, or non-occurrence, of any event that would be likely to cause any condition to the obligations of any party to effect the Merger or any other transaction contemplated by this Agreement not to be satisfied or (b) the failure of such party to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it pursuant to this Agreement which would reasonably be expected to result in any condition to the obligations of any party to effect the Merger or any other transaction contemplated by this Agreement not to be satisfied; provided, however, that the delivery of any notice pursuant to this Section 6.6 will not cure any breach of any representation, warranty, covenant or agreement contained in this Agreement or otherwise limit or affect the remedies available hereunder to the party receiving such notice.

6.7 Public Announcements . The Company, Parent and Merger Sub agree that the initial joint press release and other announcements concerning the execution and delivery of this Agreement will be substantially in the form provided to each other prior to the date hereof (with such changes as the parties may mutually agree). Each of the Company, Parent and Merger Sub agrees that no subsequent public release or announcement concerning the transactions contemplated hereby will be issued by any party without the prior written consent of the Company and Parent (which consent will not be unreasonably withheld or delayed), except as such release or announcement may be required by applicable Law or the rules or regulations of any applicable United States securities exchange or regulatory or governmental body to which the relevant party or its affiliates is subject, in which case the party required to make the release or announcement will use its reasonable best efforts to allow each other party reasonable time to comment on such release or announcement in advance of such issuance.

6.8 Employee Benefit Matters .

(a) For a period of twelve months following the Effective Time, Parent will provide, or will cause to be provided, to those employees of the Company who continue to be employed by Parent and Parent Subsidiaries (individually, “ Company Employee ” and collectively, “ Company Employees ”) annual base salary or base wages

 

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and short-term target cash incentive compensation opportunities that are no less favorable than the annual base salary or base wages and short-term target cash incentive compensation opportunities provided to such Company Employees immediately prior to the Effective Time. After the Effective Time, Parent will provide pension, health and welfare benefits to Company Employees who work more than 20 hours per week that are at least as favorable in the aggregate to those provided to similarly situated Parent employees; provided, that Parent may elect to continue Company Employees who work more than 20 hours per week in their existing Company Benefit Plans for a transition period.

(b) For purposes of vesting, eligibility to participate and levels of benefits (but not benefit accrual under any defined benefit plan or frozen benefit plan of Parent or vesting under any equity incentive plan) under the 401(k) plan, severance pay plan, vacation plan, short term disability plan, active employee medical, dental, vision and prescription drug plan, active employee life insurance plan and service award of Parent and the Parent Subsidiaries in which Company Employees first become eligible to participate after the Effective Time (the “ New Plans ”), Parent shall use reasonable best efforts to credit each Company Employee with his or her years of service with the Company before the Effective Time, to the same extent as such Company Employee was entitled, before the Effective Time, to credit for such service under any similar Company Benefit Plan in which such Company Employee participated or was eligible to participate immediately prior to the Effective Time; provided that the foregoing will not apply for purposes of qualifying for subsidized early retirement benefits, retiree medical benefits or life benefits, or to the extent that its application would result in a duplication of benefits with respect to the same period of service. In addition, Parent will use its commercially reasonable efforts to cause (i) each Company Employee to be immediately eligible to participate, without any waiting time, in any and all New Plans and (ii) for purposes of each New Plan providing medical, dental, pharmaceutical and/or vision benefits to any Company Employee, all pre-existing condition exclusions and actively-at-work requirements of such New Plan to be waived for such Company Employee and his or her covered dependents, to the extent such conditions were inapplicable or waived under the comparable Company Benefit Plans in which such Company Employee participated immediately prior to the Effective Time.

(c) For the terms of the agreements or arrangements, the Company or the Surviving Corporation, as applicable, will, and Parent will cause the Surviving Corporation to, honor, in accordance with their terms, the employment, severance and change of control agreements and arrangements that are listed on Section 6.8(c) of the Company Disclosure Schedule.

(d) From and after the date of this Agreement until the Effective Time, prior to making any written or formal oral communications to Service Providers pertaining to compensation or benefit matters that are affected by the transactions contemplated by this Agreement, each party will provide the other party hereto with a copy of the intended communication, the other party hereto shall have a reasonable period of time to review and comment on the communication, and Parent and the Company shall cooperate in providing any such mutually agreeable communication; provided, however, that the foregoing shall not apply to any individualized communications between Parent and a Company Employee regarding such Company Employee’s service after the Closing or any individualized negotiations regarding offers of employment by Parent to such Company Employee for post-Closing service. Between the date of this Agreement and the Effective Time, the Company will use its reasonable best efforts to assist Parent in entering into Parent’s standard documents relating to compensation and benefits in respect of periods after the Effective Time with each of the Company Employees.

(e) Nothing in this Agreement will require the continued employment of any Person, and except as expressly set forth in this Section 6.8 and as set forth on Section 6.8 of the Company Disclosure Schedule, no provision of this Agreement will prevent Parent or the Surviving Corporation from amending or terminating any Company Benefit Plan or benefit plans of any Parent or Parent Subsidiaries.

(f) The Company and Parent acknowledge and agree that all provisions contained in this Section 6.8 with respect to employees are included for the sole benefit of the respective parties and will not create any right in any other Person, including any employees, former employees, any participant in any Company Benefit Plan

 

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or any beneficiary thereof, nor will require the Company to continue or amend any particular benefit plan after the consummation of the transactions contemplated by this Agreement for any employee or former employee of the Company, and any such plan may be amended or terminated in accordance with its terms and Applicable Law.

6.9 Indemnification of Directors and Officers .

(a) For a period of six years from and after the Effective Time, Parent and the Surviving Corporation will indemnify and hold harmless all past and present directors and officers of the Company to the same extent such Persons are indemnified as of the date of this Agreement by the Company pursuant to applicable Law, the Company Certificate, the Company Bylaws and indemnification agreements in existence on the date of this Agreement with any directors and officers of the Company arising out of acts or omissions in their capacity as directors or officers of the Company or any Company Subsidiary occurring at or prior to the Effective Time. Parent and the Surviving Corporation will advance expenses (including reasonable legal fees and expenses) incurred in the defense of any Proceedings with respect to the matters subject to indemnification pursuant to this Section 6.9(a) in accordance with the procedures set forth in the indemnification agreements in existence on the date of this Agreement.

(b) For a period of six years from and after the Effective Time, Parent will cause the certificate of incorporation and bylaws of the Surviving Corporation to contain provisions no less favorable with respect to exculpation and indemnification of directors and officers of the Company for periods at or prior to the Effective Time than are currently set forth in the Company Certificate. Parent will cause the indemnification agreements in existence on the date of this Agreement with any of the directors, officers or employees of the Company to continue in full force and effect in accordance with their terms following the Effective Time.

(c) For six years from and after the Effective Time, Parent will cause the Surviving Corporation to maintain for the benefit of the Company’s directors and officers, as of the date of this Agreement and as of the Effective Time, an insurance and indemnification policy that provides coverage for events occurring prior to the Effective Time (the “ D&O Insurance ”) that is substantially equivalent to and in any event not less favorable in the aggregate than the Company’s existing policy (accurate and complete copies which have been previously provided to Parent) or, if substantially equivalent insurance coverage is unavailable, the best available coverage; provided, however, that the Surviving Corporation will not be required to pay an annual premium for the D&O Insurance in excess of 250% of the last annual premium paid prior to the date of this Agreement. The provisions of the immediately preceding sentence will be deemed to have been satisfied if prepaid policies have been obtained prior to the Effective Time, which policies provide such directors and officers with coverage for an aggregate period of six years with respect to claims arising from facts or events that occurred on or before the Effective Time, including, without limitation, in respect of the transactions contemplated by this Agreement. If such prepaid policies have been obtained prior to the Effective Time, Parent will cause the Surviving Corporation to maintain such policies in full force and effect, and continue to honor the obligations thereunder. If the Company elects to purchase such prepaid policies prior to the Effective Time, the Company (i) will not purchase policies with claims limits in excess of the Company’s current policies or expend in connection therewith an amount in excess of 250% of the last annual premium paid prior to the date of this Agreement, and (ii) will consult and reasonably coordinate with Parent in connection with such purchase.

(d) In the event Parent or the Surviving Corporation (i) consolidates with or merges into any other Person and will not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any Person, then proper provision will be made so that such continuing or surviving corporation or entity or transferee of such assets, as the case may be, will assume the obligations set forth in this Section 6.9 .

(e) The obligations under this Section 6.9 will (i) continue, notwithstanding any six year limitation referred to above, until the final disposition of any action, suit, proceeding or investigation brought or commenced during such six year period and (ii) not be terminated or modified in such a manner as to adversely

 

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affect any indemnitee to whom this Section 6.9 applies without the consent of such affected indemnitee (it being expressly agreed that the indemnitees to whom this Section 6.9 applies will be third party beneficiaries of this Section 6.9 ).

6.10 State Takeover Laws . If any “control share acquisition,” “fair price,” “business combination” or other anti-takeover Laws becomes or is deemed to be applicable to the Company, Parent, Merger Sub, Offer or the Merger, including the acquisition of Shares pursuant thereto, the Support Agreements or any other transaction contemplated by this Agreement, then the Company Board will take all action necessary to render such Law inapplicable to the foregoing.

6.11 Parent Agreement Concerning Merger Sub . Parent agrees to cause Merger Sub to comply with its obligations under this Agreement.

6.12 Section 16 Matters . Prior to the Effective Time, the Company Board, or an appropriate committee of non-employee directors thereof, will adopt a resolution consistent with the interpretive guidance of the SEC so that the disposition by any officer or director of the Company who is a covered Person of the Company for purposes of Section 16 of the Exchange Act (“ Section 16 ”) of Shares (including Company Restricted Shares), Company RSUs or Company Options pursuant to this Agreement, and the Merger will be an exempt transaction for purposes of Section 16.

6.13 Stock Exchange Delisting; Deregistration . The Company and Parent will cooperate and use their respective reasonable best efforts to cause the delisting of the shares of Company Common Stock from the NYSE and the deregistration of such shares as promptly as practicable following the Effective Time in compliance with applicable Law.

6.14 Stockholder Litigation . The Company will promptly provide Parent with any pleadings and correspondence relating to any Proceedings involving the Company or any of its officers or directors relating to this Agreement or the transactions contemplated hereby and will keep Parent reasonably informed regarding the status of any such Proceedings. The Company will consult and reasonably coordinate with Parent with respect to the defense or settlement of any such Proceeding, and no such settlement will be agreed to without the prior written consent of Parent (such consent not to be unreasonably withheld, delayed or conditioned).

6.15 Domain Names . Prior to the Closing, the Company will use its commercially reasonable efforts to cause the Internet domain names set forth on Section 4.17(c)(16) of the Company Disclosure Schedule to be assigned to the Company or any Company Subsidiary.

6.16 Short Form Merger . Notwithstanding anything to the contrary contained in this Agreement, if Parent shall own by virtue of the Offer or otherwise at least 90% of the outstanding shares of each class of Company Common Stock (the “ Short Form Threshold ”), the parties hereto shall take all necessary and appropriate action to cause the merger of Merger Sub and the Company to become effective as soon as reasonably practicable after such acquisition without a stockholders’ meeting in accordance with Section 253 of the DGCL.

6.17 Guarantee of Guarantor .

(a) Guarantor is executing this Agreement to guarantee the performance by each of Parent and Merger Sub of its payment and performance obligations under this Agreement. Guarantor hereby guarantees unconditionally Parent and Merger Sub’s payment obligations in and performance under this Agreement. This guarantee shall apply regardless of any amendments, variations, alterations, waivers or extensions to this Agreement whether or not Guarantor received notice of the same and Guarantor waives all need for notice of the same. This guarantee shall expire and be of no further force and effect as of 60 days following the Effective Time.

 

 

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(b) Guarantor is a corporation, duly organized, validly existing and in good standing under the Laws of England and Wales and has all requisite corporate power and authority to own, lease and operate their respective properties and assets and to carry on their respective businesses as they are now being conducted. Guarantor indirectly owns all of the issued and outstanding capital stock of Parent.

(c) Guarantor has all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Guarantor and the performance of Guarantor of its obligations hereunder have been duly authorized by all necessary corporate action, and no other corporate proceedings on the part of Guarantor and no stockholder votes are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Guarantor, and assuming due authorization, execution and delivery by the Company, constitutes the valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency or other similar Laws, now or hereafter in effect, affecting creditors’ rights generally and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any Proceeding therefor may be brought.

ARTICLE 7

CONDITIONS TO CONSUMMATION OF THE MERGER

7.1 Conditions to Obligations of Each Party Under This Agreement . The respective obligations of each party to consummate the Merger will be subject to the satisfaction or written waiver at or prior to the Effective Time of each of the following conditions:

(a) (i) This Agreement shall have been adopted by the Company’s stockholders by the Required Vote, and the Information Statement shall have been cleared by the SEC and been mailed to stockholders of the Company (in accordance with Regulation 14C of the Exchange Act) at least twenty calendar days prior to the Closing or (ii) all conditions of Section 253 of the DGCL required to be satisfied to effect the Merger as a Short Form Merger shall have been satisfied.

(b) No temporary restraining order, preliminary or permanent injunction or other Order issued by any court of competent jurisdiction or other Law preventing the consummation of the Merger shall be in effect.

(c) Merger Sub (or Parent on Merger Sub’s behalf) shall have accepted for payment and paid for all of the shares of Company Common Stock validly tendered pursuant to the Offer and not withdrawn.

ARTICLE 8

TERMINATION, AMENDMENT AND WAIVER

8.1 Termination . This Agreement may be terminated, and the Offer and the Merger contemplated hereby may be abandoned by action taken or authorized by the Board of Directors of the terminating party or parties, whether before or after adoption of this Agreement by the stockholders of the Company or of Merger Sub:

(a) By mutual written consent of Parent and the Company, by action of their respective Boards of Directors, at any time prior to the Effective Time;

(b) By either the Company or Parent, if any court of competent jurisdiction or other Governmental Entity has issued an Order or taken any other action permanently restraining, enjoining or otherwise prohibiting the consummation of the Offer or the Merger or imposing a Non-Required Remedy, which Order or other action has become final and nonappealable (which Order the party seeking to terminate this Agreement has used its reasonable best efforts to resist, resolve or lift, as applicable, subject to the provisions of Section 6.5 );

 

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(c) By Parent, if, within 24 hours after execution and delivery of this Agreement by the parties hereto, (i) a duly executed Stockholder Written Consent evidencing adoption of this Agreement by the Company’s stockholders by the Required Vote shall not have been delivered to the Company or (ii) the Company shall not have delivered to Parent a certified copy of such Stockholder Written Consent, in each case, pursuant to and in accordance with Section 6.4(a) ;

(d) By the Company, concurrently with the Company Board’s causing the Company to enter into an Alternative Acquisition Agreement with respect to a Superior Proposal in accordance with Section 6.3(d) ; provided, however, that the right to terminate this Agreement pursuant to this Section 8.1(d) will not be available unless the Company shall have complied in all material respects with Section 6.3 ;

(e) By Parent or the Company, if the Offer Acceptance Time has not occurred on or before April 1, 2013 (the “ Outside Date ”); provided , however , that the right to terminate this Agreement pursuant to this Section 8.1(f) will not be available to any party whose breach of this Agreement has been the primary cause or primarily resulted in the failure of the Offer Acceptance Time to have occurred on or before the Outside Date;

(f) By Parent, if: (i) there is an Uncured Inaccuracy in any representation or warranty of the Company contained in this Agreement or a breach of any covenant of the Company contained in this Agreement, in any case, such that any condition to the Offer in Section 2(c) or Section 2(d) of Annex I is not satisfied, (ii) Parent has delivered to the Company written notice of such Uncured Inaccuracy or breach (a “ Breach Notice ”) and (iii) either such Uncured Inaccuracy or breach is not capable of cure or, if curable, has not been cured in all material respects prior to the earlier of (x) the Outside Date and (y) the fifteenth calendar day after delivery of such Breach Notice to the Company;

(g) By the Company, if: (i) there is an Uncured Inaccuracy in any representation or warranty of Parent or Merger Sub contained in this Agreement or breach of any covenant of Parent or Merger Sub contained in this Agreement that has had or is reasonably likely to have, individually or in the aggregate, a Parent Material Adverse Effect, (ii) the Company has delivered to Parent written notice of such Uncured Inaccuracy or breach and (iii) either such Uncured Inaccuracy or breach is not capable of cure or, if curable, has not been cured in all material respects prior to the earlier of (x) the Outside Date and (y) the fifteenth calendar day after delivery of such written notice to Parent.

8.2 Effect of Termination .

(a) In the event of termination of this Agreement by either the Company or Parent as provided in Section 8.1 , this Agreement will forthwith become void and of no effect, and there will be no liability or obligation on the part of Parent, Merger Sub or the Company or their respective Subsidiaries, officers or directors except (i) with respect to the last sentence of Section 6.2 , this Section 8.2 and Article 9 and (ii) with respect to any liabilities or damages incurred or suffered by a party as a result of the willful and material breach by another party of any of its representations, warranties, covenants or other agreements set forth in this Agreement.

(b) In the event that this Agreement is terminated pursuant to Section 8.1(d) , then the Company will pay to Parent concurrent with such termination a termination fee of $22 million (the “ Breakup Fee ”).

(c) In the event that this Agreement is terminated pursuant to Section 8.1(e) or Section 8.1(f) , and prior to the date of termination of this Agreement an Acquisition Proposal shall have been made known to the Company Board and is not definitively withdrawn prior to the thirtieth calendar day prior to the date of termination (with respect to any termination pursuant to Section 8.1(e) ) or the fifth calendar day prior to the delivery of the applicable Breach Notice (with respect to any termination pursuant to Section 8.1(f) ), and on or prior to the 12-month anniversary of the termination of this Agreement, (x) the Company enters into a definitive written agreement providing for the consummation of any Acquisition Proposal or (y) any Acquisition Proposal is consummated, then on the earlier to occur of the event described in clause (x) of this sentence and the event described in clause (y) of this sentence, the Company will pay to Parent the Breakup Fee (provided, that for

 

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purposes of this Section 8.2(c) , the term “Acquisition Proposal” will have the meaning assigned to such term in Section 9.4 , except that the references to “20%” will be deemed to be references to “a majority”).

(d) In the event that this Agreement is terminated pursuant to Section 8.1(c) , and on or prior to the 12-month anniversary of the termination of this Agreement, (x) the Company enters into a definitive written agreement providing for the consummation of any Acquisition Proposal or (y) any Acquisition Proposal is consummated, then on the earlier to occur of (x) and (y), the Company will pay to Parent the Breakup Fee ( provided that, for purposes of this Section 8.2(d) , the term “Acquisition Proposal” will have the meaning assigned to such term in Section 9.4 , except that the references to “20%” will be deemed to be references to “a majority”).

(e) All payments under this Section 8.2 will be made by wire transfer of immediately available funds to an account designated in writing by Parent. Each of the Company, Parent and Merger Sub acknowledges that (i) the agreements contained in this Section 8.2 are an integral part of the transactions contemplated by this Agreement and (ii) without these agreements, Parent, Merger Sub and the Company would not enter into this Agreement.

8.3 Amendment . This Agreement may be amended by the Company, Parent and Merger Sub by action taken by or on behalf of their respective Boards of Directors at any time prior to the Effective Time, whether before or after adoption of this Agreement by the stockholders of the Company or of Merger Sub; provided, however, that, after adoption of this Agreement by such stockholders, no amendment may be made which, by Law or in accordance with the rules of any relevant stock exchange, requires further approval by such stockholders without obtaining such further approval. This Agreement may not be amended except by an instrument in writing signed by the parties hereto.

8.4 Waiver . At any time prior to the Effective Time, Parent and Merger Sub, on the one hand, and the Company, on the other hand, may (i) extend the time for the performance of any of the obligations or other acts of the other, (ii) waive any Uncured Inaccuracies in the representations and warranties of the other contained herein or in any document delivered pursuant hereto and (iii) waive compliance by the other with any of the agreements or conditions contained herein. Any such extension or waiver will be valid only if set forth in an instrument in writing signed by the party or parties to be bound thereby, but such extension or waiver or failure to insist on strict compliance with an obligation, covenant, agreement or condition will not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.

ARTICLE 9

GENERAL PROVISIONS

9.1 Non-Survival of Representations and Warranties . None of the representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement will survive the Effective Time. This Section 9.1 will not limit any covenant or agreement of the parties hereto which by its terms contemplates performance after the Effective Time.

9.2 Fees and Expenses . Subject to Section 8.2 , all Expenses incurred by the parties hereto will be borne solely and entirely by the party which has incurred the same.

 

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9.3 Notices . Any notices or other communications required or permitted under, or otherwise given in connection with, this Agreement will be in writing and will be deemed to have been duly given (i) when delivered or sent if delivered in Person or sent by facsimile transmission (provided confirmation of facsimile transmission is obtained) or (ii) on the next Business Day if transmitted by international overnight courier, in each case as follows:

If to Parent or Merger Sub, addressed to it at:

Reckitt Benckiser LLC

Morris Corporate Center IV

399 Interpace Parkway

P.O. Box 225

Parsippany, NJ 07054-0225

Attention:

Kelly Slavitt

Facsimile No.: (973) 404-5676

with a copy to (for information purposes only):

Paul, Weiss, Rifkind, Wharton & Garrison, LLP

1285 Avenue of the Americas

New York, NY 10019

Attention:

Toby S. Myerson

Kelley D. Parker

Steven J. Williams

Facsimile No.: (212) 757-3990

If to the Company, addressed to it at:

Schiff Nutrition International, Inc.

1201 Park Avenue, Suite 101

Emeryville, CA 94608

Attention:

General Counsel

Facsimile No.: (510) 922-1271

with a copy to (for information purposes only):

Latham & Watkins LLP

140 Scott Drive

Menlo Park, California 94062

Attention:

Tad Freese

Jamie Leigh

Facsimile No.: (650) 463-2600

9.4 Certain Definitions . For purposes of this Agreement, the term:

“ Acquisition Proposal ” means any offer or proposal concerning any (a) merger, joint venture, partnership, consolidation, dissolution, liquidation, tender offer, recapitalization, reorganization, share exchange, business combination or similar transaction involving the Company or any Company Subsidiary, (b) sale, lease or other disposition of assets of the Company (including Equity Interests of a Company Subsidiary) or any Company Subsidiary representing 20% or more of the consolidated assets of the Company and the Company Subsidiaries, (c) issuance or sale by the Company of Equity Interests representing 20% or more of the voting power (or 20% or more of the aggregate number of all outstanding Shares) of the Company, (d) transaction in which any Person will acquire beneficial ownership or the right to acquire beneficial ownership or any group has been formed

 

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which beneficially owns or has the right to acquire beneficial ownership of, Equity Interests representing 20% or more of the voting power (or 20% or more of the aggregate number of all outstanding Shares) of the Company or (e) any combination of the foregoing (in each case, other than the Merger).

“ affiliate ” means a Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the first-mentioned Person.

“ beneficial ownership ” (and related terms such as “ beneficially owned ” or “ beneficial owner ”) has the meaning set forth in Rule 13d-3 under the Exchange Act.

“ Blue Sky Laws ” means any state securities, “blue sky” or takeover law.

“ Business ” means the business conducted by the Company or the Company Subsidiaries in the design, development, research, use, manufacture or sale of the Company Products.

“ Business Day ” means any day other than Saturday, Sunday and any day on which commercial banks in the City of London, England or in the County of New York, New York are required or permitted by Law to close.

“ CERCLA ” means the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. § 9601 et seq.).

“ Code ” means the Internal Revenue Code of 1986.

“ Company Benefit Plans ” means all “employee benefit plans” as defined in Section 3(3) of ERISA and all bonus, stock option, stock purchase, stock appreciation rights, restricted stock, stock-based or other equity-based, incentive, profit-sharing, deferred compensation, vacation, insurance, medical, welfare, fringe, retirement, retiree medical or life insurance, supplemental retirement, severance, termination or change in control or other benefit plans, programs or arrangements, and all employment, consulting, termination, severance or other contracts or agreements, whether or not in writing and whether or not funded, to which the Company or any Company Subsidiary is a party, with respect to which the Company or any Company Subsidiary has any obligation or which are maintained, contributed to or sponsored by the Company or any Company Subsidiary for the benefit of any current or former employee, officer, director or consultant of the Company or any Company Subsidiary.

“ Company Material Adverse Effect ” means any change, event, development, condition, occurrence or effect that: (i) is, or would reasonably be expected to be, materially adverse to the business, financial condition, assets, liabilities or results of operations of the Company and the Company Subsidiaries, taken as a whole; provided, however, that none of the following will be deemed in themselves, either alone or in combination, to constitute, and that none of the following will be taken into account in determining whether there has been or will be, a Company Material Adverse Effect: (a) any change generally affecting the economy, financial markets or political, economic or regulatory conditions in the United States; (b) general financial, credit or capital market conditions, including interest rates or exchange rates, or any changes therein; (c) any change that generally affects the nutritional supplement industry in the United States to the extent the Company and the Company Subsidiaries are not materially and disproportionately affected thereby; (d) any change proximately caused by the negotiation, execution, announcement, pendency or pursuit of the transactions contemplated hereby, including the Merger, including any litigation resulting therefrom (provided, however, that the exception in this clause (d) shall not apply to references to “Company Material Adverse Effect” in the representations and warranties set forth in Section 4.4 and Section 4.5 ); (e) any change proximately caused by the Company’s compliance with the terms of this Agreement, or action taken, or failure to act, to which Parent has consented; (f) acts of war (whether or not declared), the commencement, continuation or escalation of a war, acts of armed hostility, sabotage or terrorism or other international or national calamity or any material worsening of such conditions threatened or existing as of the date of this Agreement to the extent the Company and the Company Subsidiaries are not materially and disproportionately affected thereby; (g) changes in Laws after the date hereof, to the extent the

 

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Company and the Company Subsidiaries are not materially and disproportionately affected thereby; (h) changes in GAAP after the date hereof, to the extent the Company and the Company Subsidiaries are not materially and disproportionately affected thereby; (i) any failure by the Company to meet any published or internally prepared estimates of revenues, earnings or other economic performance for any period ending on or after the date of this Agreement (it being understood that the facts and circumstances giving rise to such failure may be deemed to constitute, and may be taken into account in determining whether there has been, a Company Material Adverse Effect to the extent that such facts and circumstances are not otherwise described in clauses (a)-(h) or (j) of the definition); or (j) a decline in the price of the Company Common Stock on the NYSE or any other market in which such securities are quoted for purchase and sale (it being understood that the facts and circumstances giving rise to such decline may be deemed to constitute, and may be taken into account in determining whether there has been, a Company Material Adverse Effect to the extent that such facts and circumstances are not otherwise described in clauses (a)-(i) of the definition); or (ii) prevents or materially delays, or would reasonably be expected to prevent or materially delay, consummation of the Offer, the Merger or performance by the Company of any of its material obligations under this Agreement.

“ Company Product ” means each of MegaRed®, Move Free®, Airborne®, Tiger’s Milk®, Sustenex®, Digestive Advantage®, Schiff® Vitamins and any other product manufactured or marketed by the Company or any Company Subsidiary.

“ Competition Law ” means any merger control law or regulation that is applicable to the transactions contemplated by this Agreement.

“ Contracts ” means any legally binding contract, agreement, indenture, note, bond, loan, license, instrument, lease or any other legally binding commitment, plan or arrangement, whether oral or written.

“ control ” (including the terms “ controlled by ” and “ under common control with ”) means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of stock or as trustee or executor, by Contract or credit arrangement or otherwise.

“ Environmental Laws ” means any and all international, federal, state, local or foreign Laws, statutes, ordinances, regulations, treaties, policies, guidance, rules, judgments, orders, writs, court decisions or rule of common law, stipulations, injunctions, consent decrees, permits, restrictions and licenses, which (a) regulate or relate to the protection or clean-up of the environment; the use, treatment, storage, transportation, handling, disposal or release of Hazardous Substances, the preservation or protection of waterways, groundwater, drinking water, air, wildlife, plants or other natural resources; or the health and safety of Persons or property, including protection of the health and safety of employees; or (b) impose liability or responsibility with respect to any of the foregoing, including CERCLA, or any other law of similar effect.

“ Environmental Permits ” means any permit, approval, identification number, license and other authorization required under any applicable Environmental Law.

“ Equity Interest ” means any share, capital stock, partnership, member or similar interest in any Person, and any option, warrant, right or security (including debt securities) convertible, exchangeable or exercisable thereto or therefor.

“ ERISA ” means the Employee Retirement Income Security Act of 1974.

“ ERISA Affiliate ” of any entity means any other entity which, together with such entity, would be treated as a single employer under Section 414 of the Code.

“ Expenses ” includes all out-of-pocket expenses (including all fees and expenses of counsel, accountants, investment bankers, financing sources, experts and consultants to a party hereto and its affiliates) incurred by a party or on its behalf in connection with or related to the authorization, preparation, negotiation, execution and

 

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performance of this Agreement and the transactions contemplated hereby, including the preparation, printing, filing and mailing of the Information Statement and any solicitation of stockholder approvals and all other matters related to the transactions contemplated by this Agreement.

“ GAAP ” means generally accepted accounting principles as applied in the United States.

“ Governmental Entity ” means any nation, federal, state, county municipal, local or foreign government, or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory, taxing or administrative functions of or pertaining to government, including any court thereof.

“ group ” has the meaning ascribed to in the Exchange Act, except where the context otherwise requires.

“ Hazardous Substances ” means any pollutant, chemical, substance, and any toxic, infectious, carcinogenic, reactive, corrosive, ignitable or flammable chemical, or chemical compound, or hazardous substance, material or waste, or any infectious agent or biological material, whether solid, liquid or gas, that is subject to regulation, control or remediation under any Environmental Laws, including without limitation, any quantity of asbestos in any form, urea formaldehyde, PCBs, radon gas, mold, crude oil or any fraction thereof, all forms of natural gas, petroleum products or by-products or derivatives.

“ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

“ Intellectual Property Rights ” means all (a) U.S. and foreign patents and patent applications and disclosures relating thereto (and any patents that issue as a result of those patent applications), and any renewals, reissues, reexaminations, extensions, continuations, continuations-in-part, divisions and substitutions relating to any of the patents and patent applications, as well as all related foreign patent and patent applications that are counterparts to such patents and patent applications, (b) U.S. and foreign trademarks, service marks, trade dress, logos, trade names and corporate names, whether registered or unregistered, and the goodwill associated therewith, together with any registrations and applications for registration thereof, (c) U.S. and foreign copyrights and rights under copyrights, whether registered or unregistered, including moral rights, and any registrations and applications for registration thereof, (d) rights in databases and data collections (including knowledge databases, customer lists and customer databases) under the laws of the United States or any other jurisdiction, whether registered or unregistered, and any applications for registration therefor, (e) Trade Secrets, (f) URL and Internet domain name registrations, (g) inventions (whether or not patentable) and improvements thereto, (h) all claims and causes of action arising out of or related to infringement or misappropriation of any of the foregoing and (i) other proprietary, industrial or intellectual property rights now known or hereafter recognized in any jurisdiction worldwide.

“ IRS ” means the United States Internal Revenue Service.

“ knowledge ” of a Person means the actual knowledge of the Chief Executive Officer, the Chief Financial Officer, the Vice President and Controller or the General Counsel of the Person; provided, that, for purposes of Section 4.26 hereof, the knowledge of the Company shall also include the actual knowledge of the Chief Medical Officer or the Senior Vice President – Operations of the Company.

“ Law ” means any federal, state, local or foreign law, statute, code, ordinance, rule, regulation, order, judgment, writ, stipulation, award, injunction, decree or arbitration award or finding.

“ Lien ” means any lien, mortgage, pledge, conditional or installment sale agreement, encumbrance, covenant, condition, restriction, charge, option, lease, license, right of first refusal, easement, security interest, deed of trust, right-of-way, encroachment, community property interest or other claim or restriction of any nature, whether voluntarily incurred or arising by operation of Law (including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, and any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset).

 

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“ No-Shop Representatives ” means, collectively, (a) the Company’s Representatives, (b) the Company Subsidiaries and each of their respective Representatives, (c) TPG Capital, L.P., its affiliates, and each of their respective Representatives and (d) Weider Health and Fitness, its affiliates, and each of their respective Representatives.

“ Offer Acceptance Time ” means the time at which Merger Sub accepts, for the first time, for payment the Shares validly tendered and not properly withdrawn pursuant to the Offer and satisfying the Minimum Condition.

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

“ Permitted Liens ” means (a) Liens for Taxes not yet due and payable or that are being contested in good faith by appropriate proceedings, (b) Liens in favor of vendors, carriers, warehousemen, repairmen, mechanics, workmen, materialmen, construction or similar liens or other encumbrances arising by operation of Law and (c) Liens that do not materially detract from the value or materially interfere with any present or intended use of such property or assets.

“ Person ” means an individual, corporation, limited liability company, partnership, association, trust, unincorporated organization, other entity or group (as defined in Section 13(d) of the Exchange Act).

“ Securities Act ” means the Securities Act of 1933.

“ Short Form Merger ” means a short form merger pursuant to Section 253 of the DGCL.

“ Software ” means computer software, programs and databases in any form, including Internet web sites, web content and links, source code, executable code, tools, menus, and all versions, updates, corrections, enhancements and modifications thereof, and all related documentation related thereto.

“ Subsidiary ” of Parent, the Company or any other Person means any corporation, partnership, joint venture or other legal entity of which Parent, the Company or such other Person, as the case may be (either alone or through or together with any other Subsidiary), owns, directly or indirectly, a majority of the stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation, partnership, joint venture or other legal entity.

“ Specified Governmental Entity ” means any Governmental Entity in the United States or any State thereof.

“ Superior Proposal ” means a written and bona fide Acquisition Proposal (except the references therein to “20%” will be replaced by “50.1%” and the parenthetical phrases in clauses (c) and (d) therein will, in each instance, be replaced by the phrase “and 50.1% or more of each class of equity securities”) made by a third party that the Company Board has determined in its good faith judgment, after consultation with its outside legal counsel and with its financial advisors, is reasonably likely to be consummated in accordance with its terms, taking into account all legal, financial (including the availability of committed financing) and regulatory aspects of the proposal and the Person making the proposal and would, if consummated, result in a transaction that is more favorable to the Company’s stockholders, from a financial point of view, than the Merger (after giving effect to all adjustments to the terms thereof which may be irrevocably offered by Parent).

“ Taxes ” means any and all taxes (together with any and all interest, penalties and additions thereto) imposed by any Governmental Entity, including income, franchise, windfall or other profits, gross receipts, property, sales, use, net worth, capital stock, payroll, employment, social security, workers’ compensation, unemployment compensation, excise, withholding, ad valorem, stamp, transfer, value-added and gains tax.

 

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“ Tax Return ” means any report, return (including information return), claim for refund or declaration filed with any Governmental Entity with respect to Taxes, including any schedule or attachment thereto, and including any amendments thereof.

“ Technology ” means tangible embodiments of Intellectual Property Rights, whether in electronic, written or other media, including Software, technical documentation, specifications, designs, build instructions, test reports, schematics, algorithms, formulae, test vectors, databases, lab notebooks, processes, prototypes, materials, samples, studies, or other know-how and other works of authorship.

“ Trade Secrets ” means trade secrets and other rights in know-how and confidential or proprietary information (including any business plans, designs, technical data, customer data, financial information, pricing and cost information, bills of material, or other similar information).

“ Treasury Regulations ” means regulations promulgated by the United States Department of the Treasury under the Code.

“ Uncured Inaccuracy ” with respect to a representation or warranty of a party to the Agreement as of a particular date will be deemed to exist only if such representation or warranty is inaccurate as of such date as if such representation or warranty were made as of such date, and the inaccuracy in such representation or warranty has not been cured in all material respects since such date; provided, however, that if such representation or warranty by its terms speaks as of the date of the Agreement or as of another particular date, then there will not be deemed to be an Uncured Inaccuracy in such representation or warranty unless such representation or warranty was inaccurate as of the date of the Agreement or such other particular date, respectively, and the inaccuracy in such representation or warranty has not been cured in all material respects since such date.

9.5 Terms Defined Elsewhere . The following terms are defined elsewhere in this Agreement, as indicated below:

 

Term		Section
Agreement		Preamble
Alternative Acquisition Agreement		6.3(a)(ii)
Amended Offer Documents		1.1(b)
Bayer Merger Agreement		Recitals
Book-Entry Shares		1.4(d)
Breach Notice		8.1(f)
Breakup Fee		8.2(b)
Certificate of Merger		2.2
Certificates		3.2(b)
Chancery Court		9.12(b)
Change of Board Recommendation		6.3(d)
Class A Common Stock		Recitals
Class B Common Stock		Recitals
Closing		2.2
Closing Date		2.2
Company		Preamble
Company Board		Recitals
Company Board Recommendation		Recitals
Company Bylaws		4.1(c)
Company Certificate		4.1(c)
Company Common Stock		Recitals
Company Disclosure Schedule		4
Company Employee		6.8(a)

 

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Term		Section
Company Financial Statements		4.7(a)
Company Material Contract		4.14(a)
Company Options		3.4(a)
Company Permits		4.6(a)
Company Preferred Stock		4.2(a)
Company Representatives		6.2
Company Restricted Shares		3.4(c)
Company RSUs		3.4(b)
Company SEC Documents		4.7(a)
Company Stock Option Plans		3.4(a)
Company Stockholder Approval		4.23
Company Subsidiary		4.1(b)
Confidentiality Agreement		6.2
Continuing Directors		1.3(b)
D&O Agreement		Recitals
D&O Insurance		6.9(c)
DGCL		Recitals
Dissenting Shares		3.3
Effective Time		2.2
Exchange Act		4.5
Expiration Date		1.1(d)
Fairness Opinion		4.22
FDA		4.26(a)
FDCA		4.26(a)
Guarantor		Preamble
Houlihan		4.22
Information Statement		6.4(c)
Initial Expiration Date		1.1(d)
Insurance Policies		4.19
Leased Real Property		4.21(a)
Licensed Intellectual Property		4.17(a)
Material Intellectual Property		4.17(b)
Merger		Preamble
Merger Consideration		3.1(a)
Merger Sub		Preamble
Merger Sub Common Stock		3.1(c)
New Plans		6.8(b)
Non-Required Remedy		6.5(e)
NYSE		1.1(e)(ii)
Offer		Recitals
Offer Conditions		1.1(b)
Offer Documents		1.1(a)
Offer Price		Recitals
Offer to Purchase		1.1(b)
Option Payments		3.4(a)
Order		4.15(b)
Other Interested Party		6.3(b)
Outside Date		8.1(e)
Owned Intellectual Property		4.17(a)
Parent		Preamble
Parent Disclosure Schedule		5

 

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Term		Section
Parent Representatives		6.2
Parent Subsidiary		5.3
Paying Agent		3.2(a)
Proceeding		4.15(a)
Registered Intellectual Property		4.17(a)
Representatives		6.2
Required Vote		4.23
RSU Payments		3.4(b)
Sarbanes-Oxley Act		4.7(a)
Schedule 14D-9		1.2(a)
Schedule TO		1.1(a)
SEC		4.5
Section 16		6.12
Service Providers		4.12(a)
Shares		Recitals
Short Form Threshold		6.16
Stockholder Written Consent		6.2(b)
Subsequent Offering Period		1.1(f)
Surviving Corporation		2.1(a)
Tender and Support Agreements		Recitals
Top-Up Option		1.4(a)
Top-Up Option Shares		1.4(a)

9.6 Headings . The headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement.

9.7 Severability . If any term or other provision of this Agreement is determined to be invalid, illegal or incapable of being enforced by reason of any rule of Law or public policy, all other conditions and provisions of this Agreement will nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party hereto. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto will negotiate in good faith to modify this Agreement so as to effect the original intent of the parties hereto as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible.

9.8 Entire Agreement . This Agreement (together with the Exhibits, Parent Disclosure Schedules and Company Disclosure Schedules and the other documents delivered pursuant hereto) and the Confidentiality Agreement constitute the entire agreement of the parties hereto and supersede all prior agreements and undertakings, both written and oral, among the parties hereto, or any of them, with respect to the subject matter hereof and.

9.9 No Third Party Beneficiaries . Except as provided in Section 6.9 only, the parties hereto hereby agree that their respective representations, warranties and covenants set forth herein are solely for the benefit of the other parties hereto, in accordance with and subject to the terms of this Agreement, and this Agreement is not intended to, and does not, confer upon any Person other than the parties hereto any rights or remedies hereunder, including, without limitation, the right to rely upon the representations and warranties set forth herein. The parties hereto further agree that the rights of third party beneficiaries under Section 6.9 shall not arise unless and until the Effective Time occurs. The representations and warranties in this Agreement are the product of negotiations among the parties hereto and are for the sole benefit of the parties hereto.

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of their respective rights and obligations to any direct or indirect Parent Subsidiary prior to the mailing of the Information Statement, but no such assignment will relieve Parent or Merger Sub, as the case may be, of its obligations hereunder.

9.11 Mutual Drafting; Interpretation . Each party hereto has participated in the drafting of this Agreement, which each party acknowledges is the result of extensive negotiations between the parties. If an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties, and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any provision. For purposes of this Agreement, whenever the context requires: the singular number will include the plural, and vice versa; the masculine gender will include the feminine and neuter genders; the feminine gender will include the masculine and neuter genders; and the neuter gender will include masculine and feminine genders. As used in this Agreement, the words “include” and “including,” and variations thereof, will not be deemed to be terms of limitation, but rather will be deemed to be followed by the words “without limitation.” Except as otherwise indicated, all references in this Agreement to “Sections,” “Exhibits,” “Annexes” and “Schedules” are intended to refer to Sections of this Agreement and Exhibits, Annexes and Schedules to this Agreement. All references in this Agreement to “$” are intended to refer to U.S. dollars. Except as otherwise expressly provided herein, any Law defined or referred to herein will refer to such Law as amended and the rules and regulations promulgated thereunder. Unless otherwise specifically provided for herein, the term “or” will not be deemed to be exclusive.

9.12 Governing Law; Consent to Jurisdiction; Waiver of Trial by Jury .

(a) This Agreement will be governed by, and construed in accordance with, the Laws of the State of Delaware, without regard to laws that may be applicable under conflicts of laws principles (whether of the State of Delaware or any other jurisdiction) that would cause the application of the Laws of any jurisdiction other than the State of Delaware.

(b) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the Court of Chancery of the State of Delaware (the “ Chancery Court ”), or, if the Chancery Court lacks subject matter jurisdiction of the action or proceeding, any Federal court of the United States of America sitting in Delaware, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the agreements delivered in connection herewith or the transactions contemplated hereby or thereby or for recognition or enforcement of any judgment relating thereto, and each of the parties hereto hereby irrevocably and unconditionally (i) agrees not to commence any such action or proceeding except in such court, (ii) agrees that any claim in respect of any such action or proceeding may be heard and determined in such court, (iii) waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any such action or proceeding in any such court and (iv) waives, to the fullest extent permitted by Law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. Each of the parties hereto agrees that a final judgment in any such action or proceeding will be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law. Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.3 . Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by Law.

(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,

 

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EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF SUCH WAIVERS, (II) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (III) IT MAKES SUCH WAIVERS VOLUNTARILY AND (IV) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.12(c) .

9.13 Counterparts . This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed will be deemed to be an original but all of which taken together will constitute one and the same agreement.

9.14 Specific Performance . The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties hereto will be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court referred to in Section 9.12(b) , this being in addition to any other remedy to which they are entitled at Law or in equity.

 

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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.

 

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ANNEX I

CONDITIONS OF THE OFFER

Notwithstanding any other terms or provisions of the Offer or the Merger Agreement, Merger Sub shall not be obligated to accept for payment or, subject to the rules and regulations of the SEC (including Rule 14e-1(c) promulgated under the Exchange Act), pay for, and (subject to any such rules and regulations) may, to the extent expressly permitted by the Merger Agreement, delay the acceptance for payment of, or payment for, any validly tendered shares of Company Common Stock (the “ Shares ”) pursuant to the Offer (and not theretofore accepted for payment or paid for), if:

(1) immediately prior to the expiration of the Offer (as extended in accordance with the Merger Agreement), there shall not have been validly tendered and not validly withdrawn that number of Shares that when added to the Shares then beneficially owned by Parent and its Subsidiaries would represent, after giving effect to the Offer Acceptance Time and the conversion of shares of Class B Common Stock into shares of Class A Common Stock, one Share more than fifty percent (50%) of the total outstanding voting power of the Shares; provided, that such calculation shall be made on a fully diluted basis so that all Shares issuable upon the exercise, conversion or exchange of any options, rights and securities exercisable or convertible into Shares then outstanding (other than any Shares issuable pursuant to the Top-Up Option and any Shares issuable upon the exercise of any Company Option held by a director or officer of the Company who has executed a D&O Agreement) regardless of whether or not then vested are treated as outstanding for purposes of such calculation (such condition in this clause (1) being, the “ Minimum Condition ”); or

(2) any of the following events or conditions shall exist as of the applicable scheduled Expiration Date of the Offer:

(a) The waiting period applicable to the consummation of the Offer under the HSR Act shall have failed to expire or shall failed to have been earlier terminated.

(b) (i) A Specified Governmental Entity shall have issued an Order or taken any other action restraining, enjoining or otherwise prohibiting the consummation of the Offer or the Merger or imposing a Non-Required Remedy, (ii) there shall be pending, or threatened in writing, any Proceeding by any Specified Governmental Entity seeking to restrain or prohibit the consummation of the Offer or the Merger or to impose a Non-Required Remedy, other than in connection with any Proceeding involving the Company or any of its officers or directors relating to this Agreement or the transactions contemplated hereby which is brought by or on behalf of stockholders of the Company, whether as an individual or a purported class or derivative action; and (iii) there shall be a statute, rule, regulation, judgment, order or injunction enacted, entered, enforced, promulgated or which is deemed applicable pursuant to an authoritative interpretation by or on behalf of a Governmental Entity to the Offer or the Merger, other than the application to the Offer or the Merger of applicable waiting periods under the HSR Act, that has the effect of making the Offer or the Merger illegal or which has the effect of prohibiting or otherwise preventing the consummation of the Offer or the Merger or imposing a Non-Required Remedy.

(c) (i) Any representation or warranty of the Company contained in Section 4.2(a) (third sentence only), Section 4.2(d) , Section 4.3 and Section 4.11(b) of this Agreement shall not be true and correct in all respects, as of the date of this Agreement and as of the Expiration Date with the same force and effect as if made on and as of such date, except for any representation and warranty that is expressly made as of a specific date or time (in which case not true and correct in all respects as of such date or time), (ii) any representation or warranty of the Company contained in (A) the first and fourth sentences of Section 4.2(a) , (B) the third sentence of Section 4.2(b) or (C) any of the second and third sentences of Section 4.2(c) of this Agreement shall not be true and correct in all material respects, as of the date of this Agreement and as of the Expiration Date with the same force and effect as if made on and as of such date, except for any representation and warranty that is expressly

 

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made as of a specific date or time (in which case not true and correct in all material respects as of such date or time), or (iii) any other representations and warranties of the Company contained in the Agreement (without giving effect to any references to any Company Material Adverse Effect or materiality qualifications and other qualifications based upon the concept of materiality or similar phrases contained therein) shall not be true and correct in all respects as of the date of this Agreement and as of the Expiration Date with the same force and effect as if made on and as of such date, except for any representation and warranty that is expressly made as of a specific date or time (in which case not true and correct in all respects as of such date or time), except as has not had and would not reasonably be expected to have, individually or in the aggregate with all other such failures to be true or correct, a Company Material Adverse Effect.

(d) The Company shall have failed to perform and comply in all material respects with the agreements and covenants to be performed or complied with by it under this Agreement and any such breach or failure to do so shall not have been cured.

(e) Since the date of this Agreement, there shall have occurred, arisen or come into existence any fact, change, event, development or circumstance, or any worsening thereof, which has had a Company Material Adverse Effect.

(f) Parent shall not have received a certificate of the Company, executed by an executive officer of the Company, dated as of the Expiration Date, certifying that the conditions set forth in subsections 2(c) , 2(d) and 2(e) of this Annex I have been satisfied.

(g) The Merger Agreement shall have been terminated in accordance with its terms.

The foregoing conditions are for the sole benefit of Parent and Merger Sub and may be waived by Parent and Merger Sub, in whole or in part at any time and from time to time, in the sole discretion of Parent and Merger Sub prior to the expiration of the Offer, and all conditions (except, subject to Section 1.1(c)(iii)(F), for the Minimum Condition) may be waived by Parent or Merger Sub in their sole discretion in whole or in part at any applicable time or from time to time, in each case subject to the terms and conditions of the Merger Agreement and the applicable rules and regulations of the SEC. The failure by Parent or Merger Sub at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time.

Capitalized terms used in this Annex I and not otherwise defined shall have the respective meanings assigned thereto in the Agreement to which this Annex I is attached (the “ Merger Agreement ”).

 

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EXHIBIT A

SECOND AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

SCHIFF NUTRITION INTERNATIONAL, INC.

FIRST. The name of the corporation is Schiff Nutrition International, Inc. (the “ Corporation ”).

SECOND. The address of the Corporation’s registered office in the State of Delaware is 1209 Orange Street, Wilmington, County of New Castle, 19801. The name of its registered agent at such address is The Corporation Trust Company.

THIRD. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “ DGCL ”).

FOURTH. The total number of shares which the Corporation shall have authority to issue is 1,000 shares of Common Stock, par value $0.01 per share.

FIFTH. The board of directors of the Corporation is expressly authorized to adopt, amend or repeal bylaws of the Corporation.

SIXTH. Elections of directors need not be by written ballot except and to the extent provided in the bylaws of the Corporation.

SEVENTH. The number of directors of the corporation shall be fixed by, or in the manner provided in, the bylaws of the Corporation.

EIGHTH. Any action required or permitted to be taken at any annual or special meeting of stockholders of the Corporation, including but not limited to the election of directors, may be taken without a meeting, without prior notice, and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of the outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitles to vote thereon were present and voted.

NINTH. The Corporation shall, to the fullest extent permitted by Delaware law, indemnify any person (the “ Indemnitee ”) who is or was involved in any manner (including, without limitation, as a party or a witness) in any threatened, pending or completed investigation, claim, action, suit or proceeding, whether civil, criminal, administrative or investigative (including, without limitation, any action, suit or proceeding brought by or in the right of the Corporation to procure a judgment in its favor) (a “ Proceeding ”) by reason of the fact that the Indemnitee is or was a director or officer of the Corporation, or is or was serving another entity in such capacity at the request of the Corporation, against all expenses and liabilities actually and reasonably incurred by the Indemnitee in connection with the defense or settlement of such Proceeding (including attorneys’ fees).

TENTH. To the fullest extent permitted by the DGCL, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director.

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EXHIBIT B

SECOND AMENDED AND RESTATED BYLAWS

of

SCHIFF NUTRITION INTERNATIONAL, INC.

EFFECTIVE             ,     ,

ARTICLE I

Stockholders

Section 1.1. Annual Meetings . An annual meeting of stockholders shall be held for the election of directors at such date, time and place either within or without the State of Delaware as may be designated by the Board of Directors from time to time. Any other proper business may be transacted at the annual meeting.

Section 1.2. Special Meetings . Special meetings of stockholders may be called at any time by the Chairman of the Board, if any, the Vice Chairman of the Board, if any, the CEO, the President, the Secretary, the Board of Directors, or the holders of record of not less than a majority of outstanding shares of stock entitled to vote on a matter at the meeting, to be held at such date, time and place either within or without the State of Delaware as may be stated in the notice of the meeting. A special meeting of stockholders shall be called by the Secretary upon the written request, stating the purpose of the meeting, of stockholders who together own of record a majority of the outstanding shares of each class of stock entitled to vote at such meeting.

Section 1.3. Notice of Meetings . Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation.

Section 1.4. Adjournments . Any meeting of stockholders, annual or special, may be adjourned from time to time, to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

Section 1.5. Quorum . At each meeting of stockholders, except where otherwise provided by law or the certificate of incorporation or these bylaws, the holders of a majority of the outstanding shares of stock entitled to vote on a matter at the meeting, present in person or represented by proxy, shall constitute a quorum. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum. In the absence of a quorum of the holders of any class of stock entitled to vote on a matter, the holders of such class so present or represented may, by majority vote, adjourn the meeting of such class from time to time in the manner provided by Section 1.4 of these bylaws until a quorum of such class shall be so present or represented.

Section 1.6. Organization . Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in the absence of the Chairman of the Board by the Vice Chairman of the Board, if any, or in the absence of the Vice Chairman of the Board by the CEO, or in the absence of the CEO by the President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such

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designation by a chairman chosen at the meeting. The Secretary, or in the absence of the Secretary an Assistant Secretary, shall act as secretary of the meeting, but in the absence of the Secretary and any Assistant Secretary the chairman of the meeting may appoint any person to act as secretary of the meeting. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of the stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) the determination of when the polls shall open and close for any given matter to be voted on at the meeting; (iii) rules and procedures for maintaining order at the meeting and the safety of those present; (iv) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (v) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (vi) limitations on the time allocated to questions or comments by participants.

Section 1.7. Voting; Proxies . Unless otherwise provided in the certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by such stockholder which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power, regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the Corporation. Voting at meetings of stockholders need not be by written ballot and need not be conducted by inspectors unless the holders of a majority of the outstanding shares of all classes of stock entitled to vote thereon present in person or represented by proxy at such meeting shall so determine. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. In all other matters, unless otherwise provided by law or by the certificate of incorporation or these bylaws, the affirmative vote of the holders of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders.

Section 1.8. Fixing Date for Determination of Stockholders of Record .

(a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

(b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the

 

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Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.

(c) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

Section 1.9. List of Stockholders Entitled to Vote . The Secretary, or such other officer of the Corporation who has charge of the stock ledger of the Corporation, shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, for a period of at least ten days prior to the meeting, either (i) on a reasonable accessible electronic network, provided that the information required to gain access to such list is provided with the notice of meeting or (ii) during ordinary course business hours, at the principal place of business of the Corporation. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present.

Section 1.10. Consent of Stockholders in Lieu of Meeting . Unless otherwise provided in the certificate of incorporation or by law, any action required by law to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to (i) its registered office in the State of Delaware by hand or by certified mail or registered mail, return receipt requested, (ii) its principal place of business, or (iii) an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered in the manner required by these bylaws, written consents signed by a sufficient number of holders to take action are delivered to the Corporation by delivery to (i) its registered office in the State of Delaware by hand or by certified or registered mail, return receipt requested, (ii) its principal place of business, or (iii) an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of stockholders to take the action were delivered to the Corporation as provided in this Section 1.10.

 

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ARTICLE II

Board of Directors

Section 2.1. Powers; Number; Qualifications . The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, except as may be otherwise provided by law or in the certificate of incorporation. The Board of Directors shall consist of one or more members, the number thereof to be initially fixed by the Sole Incorporator of the Corporation and thereafter to be determined from time to time by the Board. Directors need not be stockholders.

Section 2.2. Election; Term of Office; Resignation; Removal; Vacancies . Each director shall hold office until his or her successor is elected and qualified or until his or her earlier death, resignation, disqualification or removal. Any director may resign at any time from the Board of Directors or any committee thereof upon notice given in writing or by electronic transmission to the Board of Directors or to the CEO, the President or the Secretary of the Corporation. Such resignation shall take effect at the time specified therein or, if no time is specified, immediately, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. Any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. Unless otherwise provided in the certificate of incorporation or these bylaws, vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class or from any other cause may be filled by a majority of the directors then in office, although less than a quorum, or by the sole remaining director. Any director elected or appointed to fill a vacancy shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal.

Section 2.3. Regular Meetings . Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board may from time to time determine, and if so determined notice thereof need not be given.

Section 2.4. Special Meetings . Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the Chairman of the Board, if any, by the Vice Chairman of the Board, if any, by the CEO, by the President or by any two directors. Notice thereof stating the place, date, and hour of the meeting shall be given to each director (or, in the case of a committee, to each member of such committee) either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone or electronic transmission on twenty-four (24) hours’ notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances.

Section 2.5. Participation in Meetings by Conference Telephone Permitted . Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board of Directors, or any committee designated by the Board or subcommittee thereof, may participate in a meeting of the Board or of such committee or subcommittee thereof, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 2.5 shall constitute presence in person at such meeting.

Section 2.6. Quorum; Vote Required for Action . At all meetings of the Board of Directors a majority of the then appointed Board shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board unless the certificate of incorporation or these bylaws shall require a vote of a greater number. In case at any meeting of the Board a quorum shall not be present, the members of the Board present may adjourn the meeting from time to time until a quorum shall be present.

Section 2.7. Organization . Meetings of the Board of Directors shall be presided over by the Chairman of the Board, if any, or in the absence of the Chairman of the Board by the Vice Chairman of the Board, if any, or in the

 

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absence of the Vice Chairman of the Board by the CEO, or in the absence of the CEO by the President, or in their absence by a chairman chosen at the meeting. The Secretary, or in the absence of the Secretary an Assistant Secretary, shall act as secretary of the meeting, but in the absence of the Secretary and any Assistant Secretary the chairman of the meeting may appoint any person to act as secretary of the meeting.

Section 2.8. Action by Directors Without a Meeting . Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or of such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmissions or transmissions are filed with the minutes of proceedings of the Board or committee.

Section 2.9. Compensation of Directors . No director serving on the Board of Directors or any committee thereof will receive any compensation therefor from the Corporation; provided that nothing herein shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.

ARTICLE III

Committees

Section 3.1. Committees . The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors or in these bylaws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by law to be submitted to stockholders for approval, (ii) adopting, amending or repealing these bylaws or (iii) removing or indemnifying directors.

Section 3.2. Committee Rules . Unless the Board of Directors otherwise provides, each committee designated by the Board may adopt, amend and repeal rules for the conduct of its business. In the absence of a provision by the Board or a provision in the rules of such committee to the contrary, a majority of the entire authorized number of members of such committee shall constitute a quorum for the transaction of business, the vote of a majority of the members present at a meeting at the time of such vote if a quorum is then present shall be the act of such committee, and in other respects each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article II of these bylaws.

ARTICLE IV

Officers

Section 4.1. Officers; Election . As soon as practicable after the annual meeting of stockholders in each year, the Board of Directors shall elect a CEO and a Secretary, and it may, if it so determines, elect from among its members a Chairman of the Board and a Vice Chairman of the Board. The Board may also elect a President, one or more Vice Presidents, one or more Assistant Vice Presidents, one or more Assistant Secretaries, a Treasurer

 

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and one or more Assistant Treasurers and such other officers as the Board may deem desirable or appropriate and may give any of them such further designations or alternate titles as it considers desirable. Any number of offices may be held by the same person unless the certificate of incorporation or these bylaws otherwise provide.

Section 4.2. Term of Office; Resignation; Removal; Vacancies . Unless otherwise provided in the resolution of the Board of Directors electing any officer, each officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any officer may resign at any time upon written notice to the Board or to the President or the Secretary of the Corporation. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. The Board may remove any officer with or without cause at any time. Any such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation, but the election of an officer shall not of itself create contractual rights. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled by the Board at any regular or special meeting.

Section 4.3. Powers and Duties . The officers of the Corporation shall have such powers and duties in the management of the Corporation as shall be stated in these bylaws or in a resolution of the Board of Directors which is not inconsistent with these bylaws and, to the extent not so stated, as generally pertain to their respective offices, subject to the control of the Board. The Secretary shall have the duty to record the proceedings of the meetings of the stockholders, the Board of Directors and any committees in a book to be kept for that purpose. The Board may require any officer, agent or employee to give security for the faithful performance of his or her duties.

Section 4.4. CEO . The CEO shall, subject to the control of the Board of Directors and, if there is one, the Chairman of the Board of Directors, have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The CEO shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these bylaws, the Board of Directors or the CEO. In the absence or disability of the Chairman of the Board of Directors, or if there is no Chairman of the Board of Directors, the CEO shall preside at all meetings of the stockholders and, provided the CEO is also a director, at the Board of Directors. The CEO shall also perform such other duties and may exercise such other powers as may from time to time be assigned to such officer by these bylaws or by the Board of Directors.

Section 4.5. President . At the request of the CEO or in the CEO’s absence or in the event of the CEO’s inability or refusal to act (and if there is no Chairman of the Board of Directors), the President shall perform the duties of the CEO and, when so acting, shall have all the powers and be subject to all the restrictions of the CEO. The President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there is no Chairman of the Board of Directors and no President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the CEO or in the event of the inability or refusal of the CEO to act, shall perform the duties of the CEO, and when so acting, shall have all the powers of and be subject to all the restrictions upon the CEO.

Section 4.6. Secretary . The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all of the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for committees of the Board of Directors when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board of Directors or the CEO, to whom the Secretary shall report. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there is no Assistant Secretary, than either the Board of Directors or the CEO may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation

 

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and the Secretary or any Assistant Secretary, if there is one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest to the affixing by such officer’s signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be.

ARTICLE V

Stock

Section 5.1. Stock Certificates and Uncertificated Shares . The shares of stock in the Corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of the Corporation’s stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate theretofore issued until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board, every holder of stock represented by certificates shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman or Vice Chairman of the Board, if any, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, representing the number of shares of stock registered in certificate form owned by such holder. If such certificate is manually signed by one officer or manually countersigned by a transfer agent or by a registrar, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.

Except as otherwise expressly provided by law, the rights and obligations of the holders of uncertificated shares and the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical.

Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates . The Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.

Section 5.3. Transfers . Stock of the Corporation shall be transferable in the manner prescribed by applicable law and in these bylaws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by such person’s attorney lawfully constituted in writing and upon the surrender of the certificate therefore, properly endorsed for transfer and payment of all necessary transfer taxes; provided, however, that such surrender and endorsement or payment of taxes shall not be required in any case in which the officers of the Corporation shall determine to waive such requirement. Every certificate exchanged, returned, or surrendered to the Corporation shall be marked “ Cancelled, ” with the date of cancellation, by the Secretary or Assistant Secretary of the Corporation or the transfer agent thereof. No transfer of stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred.

 

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ARTICLE VI

Dividends

Section 6.1. Declaration . Dividends upon the capital stock of the corporation, subject to any restrictions contained in the Delaware General Corporation Law or the provisions of the certificate of incorporation, if any, may be declared by the Board of Directors at any regular or special meeting. Dividends may be paid in cash, in property or in shares of capital stock, subject to the provisions of the certificate of incorporation.

Section 6.2. Reserve . Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, thinks proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interest of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.

ARTICLE VII

Miscellaneous

Section 7.1. Fiscal Year . The fiscal year of the Corporation shall be determined by the Board of Directors.

Section 7.2. Seal . The Corporation may have a corporate seal which shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

Section 7.3. Checks, Notes, Drafts, Etc. All checks, notes, drafts or other orders for the payment of money of the Corporation shall be signed, endorsed or accepted in the name of the Corporation by such officer, officers, person or persons as from time to time may be designated by the Board of Directors or by an officer or officers authorized by the Board of Directors to make such designation.

Section 7.4. Waiver of Notice of Meetings of Stockholders, Directors and Committees . Whenever notice is required to be given by law or under any provision of the certificate of incorporation or these bylaws, a written waiver thereof or a waiver by electronic transmission, signed or given by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any waiver of notice unless so required by the certificate of incorporation or these bylaws.

Section 7.5. Indemnification . To the fullest extent permitted by the certificate of incorporation, the Corporation shall indemnify its officers and directors and, in the sole discretion of the Board of Directors, may indemnify its employees and agents.

ARTICLE VIII

Amendment

Section 8.1. Amendment of Bylaws . These bylaws may be amended or repealed, in whole or in part, and new bylaws adopted, by the stockholders or by the Board of Directors.

 

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EXHIBIT C

WRITTEN CONSENT

OF

CERTAIN STOCKHOLDERS

OF

SCHIFF NUTRITION INTERNATIONAL, INC.

 

 

Pursuant to Section 228 of the

Delaware General Corporation Law

 

 

The undersigned stockholders of Schiff Nutrition International, Inc., a Delaware corporation (the “ Company ”), acting pursuant to Section 228 of the Delaware General Corporation Law (the “ DGCL ”) and Section 7 of the Amended and Restated Bylaws of the Company, consenting together as a single class, do hereby irrevocably consent to the adoption of the following recitals and resolutions without the necessity of a meeting of the stockholders of the Company:

Adoption of the Merger Agreement

WHEREAS , there has been submitted to the undersigned stockholders of the Company an Agreement and Plan of Merger (the “ Merger Agreement ”), dated as of November 21, 2012, by and among Reckitt Benckiser LLC, a Delaware limited liability company (“ Parent ”), Ascot Acquisition Corp., a Delaware corporation and a wholly-owned Subsidiary of Parent (“ Merger Sub ”), and Schiff Nutrition International, Inc., a Delaware corporation (the “ Company ”) and, solely for the purposes of Section 6.17 thereof, Reckitt Benckiser Group plc, a public limited company organized under the laws of England and Wales, which provides for the merger of Merger Sub with and into the Company (the “ Merger ”), with the Company to continue as the surviving corporation of the Merger;

WHEREAS , capitalized terms used but not otherwise defined in this written consent (this “ Written Consent ”) have the meanings set forth in the Merger Agreement;

WHEREAS , the Company Board has (i) determined that the Merger and the other transactions contemplated by the Merger Agreement are fair to and in the best interests of the Company and its stockholders, (ii) approved and declared advisable the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement in accordance with the requirements of the DGCL and (iii) recommended that the Company’s stockholders vote their Shares in favor of adopting the Merger Agreement;

WHEREAS , pursuant to the terms and conditions of the Merger Agreement, each stockholder of the Company will be entitled to receive $42.00 for each Share held by them immediately prior to the Effective Time, payable net to the stockholder in cash, without interest;

WHEREAS , the affirmative vote or written consent of the holders of Shares representing a majority of the voting power of the outstanding shares of the Company Common Stock entitled to vote thereon is the only vote required of the holders of any class of capital stock of the Company to adopt the Merger Agreement;

WHEREAS , the undersigned stockholders of the Company own, together, 7,486,574 shares of Class A Common Stock and 7,486,574 shares of Class B Common Stock, representing in the aggregate approximately 85.16% of the voting power of the outstanding Company Common Stock; and

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WHEREAS , the undersigned stockholders of the Company have reviewed the Merger Agreement and such other information as they believe necessary to make an informed decision concerning their vote on the adoption of the Merger Agreement, and the undersigned have had the opportunity to consult with their own legal, tax and/or financial advisor(s) regarding the consequences to them of the Merger, the Merger Agreement and the execution of this Written Consent.

NOW, THEREFORE, BE IT:

RESOLVED , that the undersigned, in their capacity as stockholders of the Company, hereby adopt the Merger Agreement and approve in all respects the Merger and the other transactions contemplated by the Merger Agreement; and be it

FURTHER RESOLVED , that this written consent may be signed in one or more counterparts, each of which shall be deemed an original, and all of which shall constitute one instrument and that this written consent shall be irrevocable and filed with the minutes of the proceedings of the stockholders of the Company.

[Signature page follows]

 

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IN WITNESS WHEREOF, each of the undersigned has executed this Written Consent on the date first set forth underneath its name below.

 

 

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EXHIBIT D

Weider Health and Fitness

TPG STAR SNI, L.P.

 

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ANNEX B

WRITTEN CONSENT

OF

CERTAIN STOCKHOLDERS

OF

SCHIFF NUTRITION INTERNATIONAL, INC.

 

 

Pursuant to Section 228 of the

Delaware General Corporation Law

 

 

The undersigned stockholders of Schiff Nutrition International, Inc., a Delaware corporation (the “ Company ”), acting pursuant to Section 228 of the Delaware General Corporation Law (the “ DGCL ”) and Section 7 of the Amended and Restated Bylaws of the Company, consenting together as a single class, do hereby irrevocably consent to the adoption of the following recitals and resolutions without the necessity of a meeting of the stockholders of the Company:

Adoption of the Merger Agreement

WHEREAS , there has been submitted to the undersigned stockholders of the Company an Agreement and Plan of Merger (the “ Merger Agreement ”), dated as of November 21, 2012, by and among Reckitt Benckiser LLC, a Delaware limited liability company (“ Parent ”), Ascot Acquisition Corp., a Delaware corporation and a wholly-owned Subsidiary of Parent (“ Merger Sub ”), and Schiff Nutrition International, Inc., a Delaware corporation (the “ Company ”) and, solely for the purposes of Section 6.17 thereof, Reckitt Benckiser Group plc, a public limited company organized under the laws of England and Wales, which provides for the merger of Merger Sub with and into the Company (the “ Merger ”), with the Company to continue as the surviving corporation of the Merger;

WHEREAS , capitalized terms used but not otherwise defined in this written consent (this “ Written Consent ”) have the meanings set forth in the Merger Agreement;

WHEREAS , the Company Board has (i) determined that the Merger and the other transactions contemplated by the Merger Agreement are fair to and in the best interests of the Company and its stockholders, (ii) approved and declared advisable the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement in accordance with the requirements of the DGCL and (iii) recommended that the Company’s stockholders vote their Shares in favor of adopting the Merger Agreement;

WHEREAS , pursuant to the terms and conditions of the Merger Agreement, each stockholder of the Company will be entitled to receive $42.00 for each Share held by them immediately prior to the Effective Time, payable net to the stockholder in cash, without interest;

WHEREAS , the affirmative vote or written consent of the holders of Shares representing a majority of the voting power of the outstanding shares of the Company Common Stock entitled to vote thereon is the only vote required of the holders of any class of capital stock of the Company to adopt the Merger Agreement;

WHEREAS , the undersigned stockholders of the Company own, together, 7,486,574 shares of Class A Common Stock and 7,486,574 shares of Class B Common Stock, representing in the aggregate approximately 85.16% of the voting power of the outstanding Company Common Stock; and

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WHEREAS , the undersigned stockholders of the Company have reviewed the Merger Agreement and such other information as they believe necessary to make an informed decision concerning their vote on the adoption of the Merger Agreement, and the undersigned have had the opportunity to consult with their own legal, tax and/or financial advisor(s) regarding the consequences to them of the Merger, the Merger Agreement and the execution of this Written Consent.

NOW, THEREFORE, BE IT:

RESOLVED , that the undersigned, in their capacity as stockholders of the Company, hereby adopt the Merger Agreement and approve in all respects the Merger and the other transactions contemplated by the Merger Agreement; and be it

FURTHER RESOLVED , that this written consent may be signed in one or more counterparts, each of which shall be deemed an original, and all of which shall constitute one instrument and that this written consent shall be irrevocable and filed with the minutes of the proceedings of the stockholders of the Company.

[Signature page follows]

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I N W I T N ES S WH E R EOF , each of the undersigned has executed this Written Consent on the date first set forth underneath its name below.

 

[Signature Page to Written Consent of Certain Stockholders of Schiff Nutrition International, Inc.]

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ANNEX C

Section 262 of the General Corporation Law of the State of Delaware

§ 262. Appraisal rights.

(a) Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to § 228 of this title shall be entitled to an appraisal by the Court of Chancery of the fair value of the stockholder’s shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word “stockholder” means a holder of record of stock in a corporation; the words “stock” and “share” mean and include what is ordinarily meant by those words; and the words “depository receipt” mean a receipt or other instrument issued by a depository representing an interest in 1 or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository.

(b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected pursuant to § 251 (other than a merger effected pursuant to § 251(g) of this title), § 252, § 254, § 255, § 256, § 257, § 258, § 263 or § 264 of this title:

(1) Provided, however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of the meeting of stockholders to act upon the agreement of merger or consolidation, were either (i) listed on a national securities exchange or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in § 251(f) of this title.

(2) Notwithstanding paragraph (b)(1) of this section, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to §§ 251, 252, 254, 255, 256, 257, 258, 263 and 264 of this title to accept for such stock anything except:

a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof;

b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or depository receipts in respect thereof) or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or held of record by more than 2,000 holders;

c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing paragraphs (b)(2)a. and b. of this section; or

d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the foregoing paragraphs (b)(2)a., b. and c. of this section.

(3) In the event all of the stock of a subsidiary Delaware corporation party to a merger effected under § 253 or § 267 of this title is not owned by the parent immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation.

(c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all

 

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or substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as is practicable.

(d) Appraisal rights shall be perfected as follows:

(1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for notice of such meeting (or such members who received notice in accordance with § 255(c) of this title) with respect to shares for which appraisal rights are available pursuant to subsection (b) or (c) of this section that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section and, if 1 of the constituent corporations is a nonstock corporation, a copy of § 114 of this title. Each stockholder electing to demand the appraisal of such stockholder’s shares shall deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of such stockholder’s shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such stockholder’s shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or

(2) If the merger or consolidation was approved pursuant to § 228, § 253, or § 267 of this title, then either a constituent corporation before the effective date of the merger or consolidation or the surviving or resulting corporation within 10 days thereafter shall notify each of the holders of any class or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of this section and, if 1 of the constituent corporations is a nonstock corporation, a copy of § 114 of this title. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holder’s shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holder’s shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder’s shares in accordance with this subsection. An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more than 10 days prior to the date the notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given.

 

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(e) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with subsections (a) and (d) of this section hereof and who is otherwise entitled to appraisal rights, may commence an appraisal proceeding by filing a petition in the Court of Chancery demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party shall have the right to withdraw such stockholder’s demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of subsections (a) and (d) of this section hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement shall be mailed to the stockholder within 10 days after such stockholder’s written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) of this section hereof, whichever is later. Notwithstanding subsection (a) of this section, a person who is the beneficial owner of shares of such 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 or request from the corporation the statement described in this subsection.

(f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed 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 by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation.

(g) At the hearing on such petition, the Court shall determine the stockholders who have complied with this section and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder.

(h) After the Court determines the stockholders entitled to an appraisal, the appraisal proceeding shall be conducted in accordance with the rules of the Court of Chancery, including any rules specifically governing appraisal proceedings. Through such proceeding the Court shall determine the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. Unless the Court in its discretion determines otherwise for good cause shown, interest from the effective date of the merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the merger and the date of payment of the judgment. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion, proceed to trial upon the appraisal prior to the final determination of the stockholders entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has submitted such stockholder’s certificates of stock to the Register in Chancery, if such is

 

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required, may participate fully in all proceedings until it is finally determined that such stockholder is not entitled to appraisal rights under this section.

(i) The Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Court’s decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any state.

(j) The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney’s fees and the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal.

(k) From and after the effective date of the merger or consolidation, no stockholder who has demanded appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of such stockholder’s demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall 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 this provision 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 or consolidation within 60 days after the effective date of the merger or consolidation, as set forth in subsection (e) of this section.

(l) The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation.

 

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ANNEX D

 

November 21, 2012

Schiff Nutrition International, Inc.

2002 South 5070 West

Salt Lake City, UT 84104-4726

Attn: Board of Directors

Dear Board of Directors:

We understand that Reckitt Benckiser LLC (the “Acquiror”), Ascot Acquisition Corp., a wholly-owned subsidiary of the Acquiror (“Sub”), Schiff Nutrition International, Inc. (the “Company”), and Reckitt Benckiser Group plc (the “Parent”), propose to enter into the Agreement (as defined below) pursuant to which, among other things, (a) Sub will continue a tender offer to purchase all issued and outstanding shares of (i) Class A common stock, par value $0.01 per share (“Class A Common Stock”), of the Company and (ii) Class B common stock, par value $0.01 per share (“Class B Common Stock”, and, together with the Class A Common Stock, the “Company Common Stock”), of the Company (such tender offer, the “Offer”) at a price of $42.00 per share, net to holder in cash, without interest (the “Offer Price”), and (b) following the consummation of the Offer, Sub will merge with and into the Company (the “Merger” and, together with the Offer, the “Transaction”) and that, in connection with the Transaction, each issued and outstanding share of Company Common Stock will be cancelled and converted into the right to receive the Offer Price, without interest (the “Merger Consideration” and, together with the Offer Price, the “Consideration”).

The Board of Directors of the Company (the “Board”) has requested that Houlihan Lokey Capital, Inc. (“Houlihan Lokey”) provide an opinion (the “Opinion”) to the Board as to whether, as of the date hereof, the Consideration to be received in the Transaction by the holders of Class A Common Stock, collectively as a group, is fair to such holders from a financial point of view.

In connection with this Opinion, we have made such reviews, analyses and inquiries as we have deemed necessary and appropriate under the circumstances. Among other things, we have:

 

1.

reviewed the following agreements and documents:

 

a.

Draft labeled “Execution Version” of Agreement and Plan of Merger, dated as of November 21, 2012, by and among the Acquiror, Sub, the Company and the Parent (the “Agreement”);

 

b.

Draft labeled “Final Form” of Letter Agreement, dated November 21, 2012, between the Acquiror, Sub and the director and officer holders of Company Common Stock party thereto;

 

c.

Draft labeled “Execution Version” of Letter Agreement, dated November 21, 2012, between TPG Star SNI, L.P., the Acquiror and Sub;

 

d.

Draft labeled “Execution Version” of Letter Agreement, dated November 21, 2012, between Weider Health and Fitness, the Acquiror and Sub; and

 

e.

Amended and Restated Certificate of Incorporation of Schiff Nutrition International, Inc., filed with the Delaware Secretary of State on October 25, 2005;

 

123 North Wacker Drive, 4th Floor   —   Chicago, Illinois 60606   —   tel.312.456.4700   —   fax.312.346.0951   —   www.HL.com

Broker/dealer services through Houlihan Lokey Capital, Inc. Investment advisory services through Houlihan Lokey Financial Advisors, Inc.

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2.

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

 

3.

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

 

4.

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

 

5.

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

 

6.

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

 

7.

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

 

8.

conducted such other financial studies, analyses and inquiries and considered such other information and factors as we deemed appropriate.

We have relied upon and assumed, without independent verification, the accuracy and completeness of all data, material and other information furnished, or otherwise made available, to us, discussed with or reviewed by us, or publicly available, and do not assume any responsibility with respect to such data, material and other information. In addition, management of the Company has advised us, and we have assumed, that the financial projections (and adjustments thereto) reviewed by us have been reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of such management as to the future financial results and condition of the Company, and we express no opinion with respect to such projections or the assumptions on which they are based. Furthermore, upon the advice of the management of the Company, we have assumed that the estimated Synergies reviewed by us have been reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of the management of the Company and that the Synergies will be realized in the amounts and the time periods indicated thereby, and we express no opinion with respect to such Synergies or the assumptions on which they are based. We have relied upon and assumed, without independent verification, that there has been no change in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of the Company since the respective dates of the most recent financial statements and other information, financial or otherwise, provided to us that would be material to our analyses or this Opinion, and that there is no information or any facts that would make any of the information reviewed by us incomplete or misleading.

We have relied upon and assumed, without independent verification, that (a) the representations and warranties of all parties to the agreements identified in item 1 above and all other related documents and instruments that are referred to therein are true and correct, (b) each party to all such agreements and such other related documents and instruments will fully and timely perform all of the covenants and agreements required to be performed by such party, (c) all conditions to the consummation of the Transaction will be satisfied without waiver thereof, and (d) the Transaction will be consummated in a timely manner in accordance with the terms described in the such agreements and such other related documents and instruments, without any amendments or modifications thereto. We have relied upon and assumed, without independent verification, that (i) the Transaction will be consummated in a manner that complies in all respects with all applicable international, federal and state statutes, rules and regulations, and (ii) all governmental, regulatory, and other consents and approvals necessary

 

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for the consummation of the Transaction will be obtained and that no delay, limitations, restrictions or conditions will be imposed or amendments, modifications or waivers made that would have an effect on the Transaction, or the Company or any expected benefits of the Transaction that would be material to our analyses or this Opinion. In addition, we have relied upon and assumed, without independent verification, that the final forms of any draft documents identified above will not differ in any respect from the drafts of said documents.

Furthermore, in connection with this Opinion, we have not been requested to make, and have not made, any physical inspection or independent appraisal or evaluation of any of the assets, properties or liabilities (fixed, contingent, derivative, off-balance-sheet or otherwise) of the Company or any other party, nor were we provided with any such appraisal or evaluation. We did not estimate, and express no opinion regarding, the liquidation value of any entity or business. We have undertaken no independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which the Company is or may be a party or is or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which the Company is or may be a party or is or may be subject. We are also not expressing any opinion as to the price or range of prices at which (i) shares of Class A Common Stock will trade, or (ii) shares of Class B Common Stock may be transferable, at any time.

This Opinion is necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to us as of, the date hereof. We have not undertaken, and are under no obligation, to update, revise, reaffirm or withdraw this Opinion, or otherwise comment on or consider events occurring or coming to our attention after the date hereof.

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

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

Houlihan Lokey and certain of its affiliates have in the past provided and are currently providing investment banking, financial advisory and other financial services to the Company and one or more security holders, affiliates and/or portfolio companies of investment funds affiliated or associated with TPG Capital (“TPG Capital”, collectively with private equity and investment funds affiliated or associated therewith and the portfolio companies thereof, “TPG”), which we understand collectively directly or indirectly own a significant interest in the Company, for which Houlihan Lokey and its affiliates have received, and may receive, compensation, including, among other things, (a) having provided valuation and transaction advisory services to TPG, (b) having acted as financial advisor to TPG in connection with its acquisition of Ontex International, which transaction closed in November, 2010, (c) having acted as financial advisor to British Vita Unlimited, an affiliate of TPG, in connection with a sale of part of one of its divisions, which transaction closed in September 2012, and (d) having acted as financial advisor to the Company in connection with its acquisition of Airborne, which transaction closed in March 2012. Houlihan Lokey and certain of its affiliates may provide investment banking, financial advisory and other financial services to the Company, the Acquiror, the Parent, TPG, other participants in the Transaction or certain of their respective affiliates or security holders in the future, for which Houlihan Lokey and its affiliates may receive compensation. In addition, Houlihan Lokey and certain of its affiliates and certain of our and their respective employees may have committed to invest in private equity or other investment funds managed or advised by TPG Capital, other participants in the Transaction or certain of their respective affiliates, and in portfolio companies of such funds, and may have co-invested with TPG, other participants in the

 

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Transaction or certain of their respective affiliates or security holders, and may do so in the future. Furthermore, in connection with bankruptcies, restructurings, and similar matters, Houlihan Lokey and certain of its affiliates may have in the past acted, may currently be acting and may in the future act as financial advisor to debtors, creditors, equity holders, trustees and other interested parties (including, without limitation, formal and informal committees or groups of creditors) that may have included or represented and may include or represent, directly or indirectly, or may be or have been adverse to, the Company, the Acquiror, the Parent, TPG, other participants in the Transaction or certain of their respective affiliates or security holders, for which advice and services Houlihan Lokey and its affiliates have received and may receive compensation.

Houlihan Lokey has also acted as financial advisor to the Company in connection with, and has participated in certain of the negotiations leading to, the Transaction and will receive a fee for such services, a substantial portion of which is contingent upon the consummation of the Transaction. In addition, we will receive a fee for rendering this Opinion, which is not contingent upon the successful completion of the Transaction. The Company has agreed to reimburse certain of our expenses and to indemnify us and certain related parties for certain potential liabilities arising out of our engagement.

We have not been requested to opine as to, and this Opinion does not express an opinion as to or otherwise address, among other things: (i) the underlying business decision of the Company, the Acquiror, the Parent, their respective security holders or any other party to proceed with or effect the Transaction, (ii) the terms of any arrangements, understandings, agreements or documents related to, or the form, structure or any other portion or aspect of, the Transaction or otherwise (other than the Consideration to the extent expressly specified herein), including, without limitation, the form or structure of the Transaction or any terms, aspects or implications of any support agreement, standstill agreement or other arrangements, agreements or understandings entered into in connection with the Transaction or otherwise, (iii) the fairness of any portion or aspect of the Transaction to the holders of any class of securities (including, without limitation, the holders of Class B Common Stock), creditors or other constituencies of the Company, the Acquiror, the Parent, or to any other party, except if and only to the extent expressly set forth in the last sentence of this Opinion, (iv) the relative merits of the Transaction as compared to any alternative business strategies or transactions that might be available for the Company, the Acquiror, the Parent or any other party, (v) the fairness of any portion or aspect of the Transaction to any one class or group of the Company’s, the Acquiror’s, the Parent’s or any other party’s security holders or other constituents vis-à-vis any other class or group of the Company’s, the Acquiror’s, the Parent’s or such other party’s security holders or other constituents (including, without limitation, the allocation of any consideration between, amongst or within such classes or groups of security holders (including, without limitation, classes of Company Common Stock) or other constituents), (vi) whether or not the Company, the Acquiror, the Parent, their respective security holders or any other party is receiving or paying reasonably equivalent value in the Transaction, (vii) the solvency, creditworthiness or fair value of the Company, the Acquiror, the Parent, or any other participant in the Transaction, or any of their respective assets, under any applicable laws relating to bankruptcy, insolvency, fraudulent conveyance or similar matters, or (viii) the fairness, financial or otherwise, of the amount, nature or any other aspect of any compensation to or consideration payable to or received by any officers, directors or employees of any party to the Transaction, any class of such persons or any other party, relative to the Consideration or otherwise. In rendering this Opinion, we have not been requested to, and did not, take into account different classes or attributes of Company Common Stock or the individual circumstances of specific holders with respect to control, voting or other rights or aspects which may distinguish such holders. Furthermore, no opinion, counsel or interpretation is intended in matters that require legal, regulatory, accounting, insurance, tax or other similar professional advice. It is assumed that such opinions, counsel or interpretations have been or will be obtained from the appropriate professional sources. Furthermore, we have relied, with the consent of the Company, on the assessments by the Company and its advisors, as to all legal, regulatory, accounting, insurance and tax matters with respect to the Company, the Acquiror, the Parent and the Transaction or otherwise. The issuance of this Opinion was approved by a committee authorized to approve opinions of this nature.

 

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Based upon and subject to the foregoing, and in reliance thereon, it is our opinion that, as of the date hereof, the Consideration to be received in the Transaction by the holders of Class A Common Stock, collectively as a group, is fair to such holders from a financial point of view.

Very truly yours,

 

HOULIHAN LOKEY CAPITAL, INC.

 

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