As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

12/22/16  Fantex, Inc.                      DEF 14C    12/22/16    1:1.7M                                   Merrill Bridge/FA

Document/Exhibit                   Description                      Pages   Size 

 1: DEF 14C     Definitive Proxy Information Statement              HTML    712K 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14C

 

Information Statement Pursuant to Section 14(c) of the

Securities Exchange Act of 1934

 

Check the appropriate box:

 

 

 

FANTEX, INC.

(Name of Registrant as Specified In Its Charter)

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

FANTEX, INC.

330 Townsend Street, Suite 234

San Francisco, California 94107

INFORMATION STATEMENT

NOTICE OF ACTION TAKEN BY WRITTEN CONSENT OF MAJORITY STOCKHOLDER

 

THIS IS NOT A NOTICE OF A MEETING OF STOCKHOLDERS AND NO STOCKHOLDERS MEETING WILL BE HELD TO CONSIDER ANY MATTER DESCRIBED HEREIN.

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

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these transactions, passed upon the merits or fairness of these transactions or passed upon the adequacy or accuracy of the disclosure in the Information Statement. Any representation to the contrary is a criminal offense.

As used herein (except as expressly indicated or unless the context otherwise requires), references to “the Company,” “we,” “our” and “us” refer to Fantex, Inc., and references to “Fantex Holdings,” or our “parent” refer to Fantex Holdings, Inc.

This Information Statement has been filed with the Securities and Exchange Commission (the “SEC”) and is being furnished to the holders of the outstanding and voting shares of stock of Fantex, Inc., a Delaware corporation (the “Company”). The purpose of this Information Statement is to provide notice that Fantex Holdings, Inc. (“Fantex Holdings”), the holder of approximately 94.2% of the outstanding shares of the common stock of the Company, par value $0.0001 per share (including each outstanding series of tracking stock, the “Common Stock”), has, by written consent, approved of the corporate actions described below. The Board of Directors of the Company (the “Board”) has fixed the close of business on December 1, 2016 as the record date for the determination of stockholders who are entitled to receive this Information Statement.

The Board and Fantex Holdings have approved amendments to the Company’s Certificate of Incorporation to effect a reverse stock split of the Company’s Common Stock at an exchange ratio of 1-for-200 shares of outstanding Common Stock (the “Reverse Split”), promptly followed by a forward stock split of the Company’s outstanding Common Stock, at an exchange ratio of 200-for-1 shares of outstanding Common Stock (the “Forward Split” and together with the Reverse Split, the “Reverse/Forward Split”). Such amendments will not change the par value per share or the number of authorized shares of Common Stock. Holders of less than one share of Fantex Series Vernon Davis Convertible Tracking Stock, Fantex Series EJ Manuel Convertible Tracking Stock, Fantex Series Mohamed Sanu Convertible Tracking Stock, Fantex Series Alshon Jeffery Convertible Tracking Stock, Fantex Series Michael Brockers Convertible Tracking Stock and Fantex Series Jack Mewhort Convertible Tracking Stock as a result of the Reverse Split will be cashed out at the rate of $2.73 per pre-split share of Fantex Series Vernon Davis Convertible Tracking Stock, $1.91 per pre-split share of Fantex Series EJ Manuel Convertible Tracking Stock, $12.41 per pre-split share of Fantex Series Mohamed Sanu Convertible Tracking Stock, $11.08 per pre-split share of Fantex Series Alshon Jeffery Convertible Tracking Stock, $10.59 per pre-split share of Fantex Series Michael Brockers Convertible Tracking Stock and $12.29 per pre-split share of Fantex Series Jack Mewhort Convertible Tracking Stock.  Holders of at least one share of a particular tracking stock as a result of the Reverse Split will not be entitled to receive any cash payment in regards to that series. In addition, registered holders of the Company’s Fantex Sports Portfolio 1 Units will not be entitled to receive any cash payment, and the total number of Units and the total number of shares of Common Stock included in each such Unit will not change as a result of the Reverse/Forward Split.

The proposed Certificate of Amendment to the Company’s Certificate of Incorporation effecting the reverse stock split is attached to this Information Statement as Annex A-1 (the “Reverse Split Amendment”) and the proposed Certificate of Amendment to the Company’s Certificate of Incorporation effecting the forward stock split is attached to this Information Statement as Annex A-2 (the “Forward Split Amendment”). The Reverse Split Amendment will become effective upon its filing with the Office of the Secretary of State of the State of Delaware not sooner than 20 calendar days following the date this Information Statement is first furnished to our stockholders. The Forward Split

Amendment will become effective upon its filing with the Office of the Secretary of State of the State of Delaware, expected to be the day following the effective date of the Reverse Split Amendment.

Although the Reverse/Forward Split has been approved by the holders of the requisite majority of the shares of our Common Stock, the Board reserves the right, in its discretion, to abandon the Reverse/Forward Split before it becomes effective, if it determines that abandoning the Reverse/Forward Split is in the best interests of the Company or its stockholders.

The intended effect of the Reverse/Forward Split is to ensure that the number of record holders of our Common Stock will be below 300 so that we will be eligible to terminate the public registration of our Common Stock under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Provided that the Reverse/Forward Split has the intended effect, we will file to deregister our Common Stock with the SEC. We will in such case no longer be required to file periodic reports with the SEC, although stockholders will be entitled to access of certain Company information under Delaware law. The Company expects that the deregistration of its Common Stock under the Exchange Act will eliminate the significant expense required to comply with its Exchange Act reporting obligations and the SEC’s proxy rules. The Company estimates the annual savings to be approximately $550,000 in tangible expenses, in addition to considerable saved senior management time and effort spent on compliance and disclosure matters attributable to the Company’s Exchange Act filings, instead of managing and growing our business. The purpose of the Reverse/Forward Split is to provide small stockholders (holding fewer than 200 shares) with a liquidity event whereby their shares will be converted to cash.

Under Section 228 of the Delaware General Corporation Law, which is not otherwise restricted by our certificate of incorporation, stockholder action may be taken by written consent without a meeting of stockholders and the Reverse/Forward Split may be approved by the written consent of the holders of a majority of our Common Stock. Accordingly, your approval is not required and is not being sought. You do not have dissenters’ rights of appraisal.

Pursuant to Rule 14c-2 under the Exchange Act, the Reverse/Forward Split cannot become effective until at least 20 calendar days after the date this Information Statement has been filed with the SEC and has been furnished to the Company’s stockholders. We anticipate filing the amendments to the Company’s Certificate of Incorporation with the State of Delaware after the expiration of the 20-day period, and such amendments are expected to become effective on or about January 20, 2017 (the “Effective Date”). The Company will pay all costs associated with the distribution of this Information Statement to the Company’s stockholders, including the costs of printing and mailing. The Company will request brokerage houses, nominees, custodians, fiduciaries and other like parties to forward the Notice to the beneficial owners of the Common Stock held of record by them.

This Information Statement will serve as notice required under Section 228(e) of the Delaware General Corporation Law.

This Information Statement is dated December 22, 2016 and is first being furnished to our stockholders on or about December 28, 2016.

Information Statement Materials

The Company is furnishing this Information Statement to stockholders of the Company via mailing printed copies of these materials to each stockholder. The Company is not soliciting proxy or consent authority, but is furnishing an information statement pursuant to 17 C.F.R. §240.14c-2.

TABLE OF CONTENTS

 

Page 

 

 

 

 

SUMMARY OF TERM SHEET

We are providing this summary term sheet for your convenience. It highlights material information in this Information Statement, but you should realize that it does not describe all of the details of the Reverse/Forward Split (as defined below) to the same extent that such details are described in the body of this Information Statement. We urge you to read the entire Information Statement and the related letter of transmittal carefully because they contain the full details of the Reverse/Forward Split. This summary term sheet is qualified in its entirety by reference to the more detailed information appearing elsewhere in, or accompanying, this Information Statement and the attached amendments to the Company’s Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”).

 

 

 

 

 

 

SPECIAL FACTORS 

Structure of the Reverse/Forward Split

On November 16, 2016, our entire Board by written consent in lieu of a meeting, approved the Reverse/Forward Split and certain amendments to the Company’s Certificate of Incorporation required in order to effectuate the Reverse/Forward Split. On November 16, 2016, the holders of a majority of outstanding shares of the Company’s Common Stock, by written consent in lieu of a meeting, approved the Reverse/Forward Split and certain amendments to the Company’s Certificate of Incorporation required in order to effectuate the Reverse/Forward Split. Copies of the proposed Certificates of Amendment to the Certificate of Incorporation are attached as Annexes A-1 and A-2.

The Company has only one class of securities entitled to vote on the Reverse/Forward Split. Each share of Common Stock has the right to one vote. As of December 1, 2016 (the “Record Date”), there were 107,115,633 shares of Common Stock issued and outstanding. The Reverse/Forward Split was approved by the written consent of the holder of 100,939,556.474 shares or 94.2% of the issued and outstanding shares of Common Stock as of November 16, 2016.

The Reverse/Forward Split is comprised of a reverse stock split (the “Reverse Split”) pursuant to which each 200 shares of Common Stock registered in the name of a stockholder immediately prior to the effective time of the Reverse Split will be converted into one share of Common Stock, followed immediately by a forward stock split (the “Forward Split”), pursuant to which each share of Common Stock outstanding upon consummation of the Reverse Split will be converted into 200 shares of Common Stock. Holders of less than one share of Fantex Series Vernon Davis Convertible Tracking Stock, Fantex Series EJ Manuel Convertible Tracking Stock, Fantex Series Mohamed Sanu Convertible Tracking Stock, Fantex Series Alshon Jeffery Convertible Tracking Stock, Fantex Series Michael Brockers Convertible Tracking Stock and Fantex Series Jack Mewhort Convertible Tracking Stock as a result of the Reverse Split will be cashed out at the rate of $2.73 per pre-split share of Fantex Series Vernon Davis Convertible Tracking Stock, $1.91 per pre-split share of Fantex Series EJ Manuel Convertible Tracking Stock, $12.41 per pre-split share of Fantex Series Mohamed Sanu Convertible Tracking Stock, $11.08 per pre-split share of Fantex Series Alshon Jeffery Convertible Tracking Stock, $10.59 per pre-split share of Fantex Series Michael Brockers Convertible Tracking Stock and $12.29 per pre-split share of Fantex Series Jack Mewhort Convertible Tracking Stock. 

 

Beneficial owners of at least one share of any of the Company’s outstanding series of tracking stock as a result of the Reverse Split will not be entitled to receive any cash payment with respect to such shares.

 

In addition, beneficial owners of the Company’s Fantex Sports Portfolio 1 Units will not be entitled to receive any cash payment, and the total number of Units and the total number of shares of Common Stock included in each such Unit will not change as a result of the Reverse/Forward Split.

The Reverse/Forward Split can be illustrated with the following examples:

 

 

 

Stockholders who hold shares in a book-entry account are not required to take any action to receive a cash payment.

Although the Reverse/Forward Split has been approved by the holders of the requisite majority of the shares of Common Stock of the Company, the Board reserves the right, in its discretion, to abandon the Reverse/Forward Split prior to the proposed Effective Date if it determines that abandonment is in the best interests of the Company or the stockholders. Factors that may lead the Board to abandon the Reverse/Forward Split may include, among other things, increased transaction costs to consummate the transaction, changes in the current economic environment, and an adverse response from the markets in which the Company operates or adverse responses from our stockholders. If such a determination to abandon the Reverse/Forward Split is made by the Board, our stockholders would be notified through the filing of a Current Report with the SEC on Form 8-K.

The Reverse/Forward Split will not materially change the rights, preferences or limitations of those stockholders who will retain an interest in the Company subsequent to the consummation of the Reverse/Forward Split.

Dissenter’s and Appraisal Rights

The Delaware General Corporation Law does not provide for dissenter’s rights or appraisal rights for the Reverse/Forward Split.

Background and Cost 

The Board has determined that the Reverse/Forward Split is fair to and in the best interest of all of our stockholders, including those stockholders owning shares being cashed out pursuant to the Reverse/Forward Split and those who will retain an equity interest in our Company subsequent to the consummation of the Reverse/Forward Split.

The Reverse/Forward Split is not expected to affect in and of itself our current business plan or operations, except for the anticipated cost and management time savings associated with termination of our obligations to file periodic reports under the Exchange Act with the SEC. Once we deregister our Common Stock under the Exchange Act, we will not be required to provide our stockholders with periodic, annual, quarterly or other reports regarding the Company, although we may, in our discretion, provide certain information to our stockholders on an annual basis. We do not intend, but may in our discretion elect, to distribute press releases for material and other events. We will continue to hold meetings as required under Delaware law, including annual meetings, or to take actions by written consent of stockholders in lieu of meetings. Under Delaware Law, stockholders will be entitled to (i) the stock ledger; (ii) a list of stockholders and (iii) the Corporation’s other books and records.

We estimate that we will pay approximately $131,000 to cash out holders of less than one share as a result of the Reverse Split. In addition, we anticipate incurring approximately $90,000 in advisory, legal, financial, accounting and other fees and costs in connection with the Reverse/Forward Split. The Company has sufficient cash on hand to cover the cost of cashing out holders of less than one share as a result of the Reverse Split and the related fees and costs of implementing the Reverse/Forward Split and this Information Statement. The Company will not be using borrowed funds to finance the cost of the Reverse/Forward Split, there are no conditions relating to the use of the cash to cover the cost of the Reverse/Forward Split, and there are no alternative financing arrangements or alternative financing plans in place to cover the ultimate cost of the Reverse/Forward Split. The estimated costs consist of the following, although actual costs may vary.

 

The following officers of the Company were utilized to prepare and file the Information Statement and this statement: Cornell “Buck” French, President, Chief Executive Officer; William Garvey, Chief Legal Officer, and Secretary, and Ted Monohon, Chief Accounting Officer, Vice President and Controller. No other persons are directly or indirectly employed, retained or compensated to make solicitations or recommendations in connection with this transaction.

Reasons for the Reverse/Forward Split 

The primary purpose of the Reverse/Forward Split is to ensure that the number of holders of our Common Stock will be below 300 so that we can terminate the registration of our Common Stock under Section 12(g) of the Exchange Act. The Reverse/Forward Split is expected to result in the elimination of the expenses related to our disclosure and reporting requirements under the Exchange Act. For some time, the Company’s board of directors has expressed concern about the expense of continuing to comply with the periodic reporting requirements of the Exchange Act given the small size of the Company, the financials and operating losses of the Company, and the extremely low trading volume of shares of our Common Stock. The Board therefore decided to consider whether it should remain a reporting company. The Board believes that any material benefit derived from continued registration under the Exchange Act is outweighed by the cost, including the cost and tangible and intangible burdens associated with compliance with the Sarbanes-Oxley Act of 2002.

The Board believes that the significant costs are not justified because we have not been able to realize many of the benefits that publicly traded companies sometimes realize. The Board does not believe that we are in a position to use our status as a public company to raise capital through sales of securities in a public offering, or otherwise to access the public markets to raise equity capital.

Our Common Stock’s limited trading volume and public float have also hindered our stockholders’ ability to sell their shares, which has prevented them from realizing the full benefits of holding publicly traded stock. Our low market capitalization has resulted in limited interest from market makers or financial analysts who might report on our activity to the investment community. Because the Common Stock has been thinly traded, any attempt to trade a large block of shares in the public markets, to the extent possible, would risk a significant impact on the market price of our Common Stock. The Board believes that it is unlikely that our market capitalization and trading liquidity will increase significantly in the foreseeable future.

The overall executive time expended on the preparation and review of our public filings is likely to continue to increase rather than decrease. Since we have relatively few executive personnel, these indirect costs can be significant relative to our overall expenses and, although there will be no direct monetary savings with respect to these indirect costs when the Reverse/Forward Split is effected and we cease filing periodic reports with the SEC, the time currently devoted by management to our public company reporting obligations could be devoted to other purposes, such as operational

concerns to further our business objectives and the interests of our stockholders. The Board believes that it is in our best interests and the best interests of our stockholders to eliminate the administrative, financial and additional accounting burdens associated with periodic reporting to the SEC by consummating the Reverse/Forward Split at this time rather than continue to subject the Company to these burdens.

Strategic Alternatives Considered 

While considering the merits of the Reverse/Forward Split, the Board and certain of the Company’ affiliates, Fantex Holdings, David Beirne and Cornell “Buck” French (such affiliates, collectively, the “Holdings Affiliates”), evaluated a number of strategic alternatives. In evaluating the risks and benefits of each strategic alternative, the Board and the Holdings Affiliates determined that the Reverse/Forward Split would be the simplest and most cost-effective approach to achieve the purposes described above. The Board and Holdings Affiliates considered the following alternatives:

Fairness of the Reverse/Forward Split to Stockholders

The Company and Holdings Affiliates are each independently required, under Item 1014(a) of Regulation M-A (17 C.F.R. §229.1014), to determine whether it or he (as the case may be) reasonably believes that a going private transaction, such as the Reverse/Forward Split, is fair or unfair to its unaffiliated stockholders. The Board, by unanimous approval on behalf of the Company, and each of the Holdings Affiliates, independently and in their capacities as affiliates of the Company, have made that determination and, for the reasons set forth below, have reached a decision that the Reverse/Forward Split is fair to the unaffiliated stockholders.

In cashing out fractional shares held by stockholders in connection with the Reverse/Forward, Split, the Company has determined to pay such stockholders the higher of the fair value of such shares as determined by the independent valuation firm described below and the Company’s own internal estimates of fair value. The Board and each of the Holdings Affiliates believes that this cash out value represents the best opportunity for the small holders of its tracking stocks to liquidate their holdings at fair value. In coming to the determination that the Reverse/Forward Split is fair to the unaffiliated stockholders, the Board, on behalf of the Company, considered a number of factors as set forth below. Each of the Holdings Affiliates, in determining whether he or it believes that the Reverse/Forward Split is fair to the Company’s unaffiliated stockholders, expressly adopted the factors considered by the Board.

Internal Valuations

In assessing the fairness of the Reverse/Forward Split to the unaffiliated stockholders, the Board, on behalf of the Company, and each of the Holdings Affiliates, on its own behalf, considered our own internal periodic valuations of our outstanding series of tracking stocks. We have entered into brand contracts with 20 professional athletes pursuant to which we have acquired a minority interest in specified categories of the future income of such athletes (referred to herein as “acquired brand income” or “ABI”), and have created seven series of convertible tracking stocks that are intended to track and reflect the economic performance of the related brand contract(s) with the associated athletes. On a not less than quarterly basis, we complete a valuation of each of our tracking stocks, although we generally do not update the on-field statistical performance data used in our valuation models, including those that we use to estimate career longevity and potential future playing contracts, more frequently than on an annual basis based on a full season of on-field statistical performance data, or at such time as there is a material event that we believe would have a long-term material impact on these estimates and the potential brand income resulting from these estimates.

In analyzing the value per share of our tracking stocks, we use attributed net equity for each tracking stock as our basis for determining fair value.  We attribute the following assets and liabilities to each of our tracking stocks to arrive at attributed net equity as follows:

We also attribute the following additional assets and liabilities to a tracking stock:

 

In determining fair value, we believe that items of cash and cash equivalents, amounts due to us under a brand contract from the contract party and amounts due to our parent are all sufficiently close to realization that their book values are equivalent to fair value. No discounts to their values were assumed in our tracking stock fair value assessment.

 

The valuation process for our brand contract assets was completed as of September 30, 2016 and we did not update the on-field statistical performance data used in our valuation models, including those that we used to estimate career longevity and potential future playing contracts.

 

Our internal valuation professionals are responsible for estimating fair value based on various factors including:

 

 

 

 

In addition, we consider a number of qualitative factors to develop estimates used in our models, including:

 

 

We consider these factors to estimate brand income for use in a discounted cash flow model. These estimates include amounts based on existing contracts as well as our estimates of amounts to be received for anticipated future contracts. With respect to existing contracts we consider that certain amounts are reasonably assured of realization, but that most earnings from existing contracts depend on continued satisfactory performance.

 

To determine the amount of the purchase price of a brand contract and a current fair value we apply discount rates to our estimates of earnings. In general, we apply lower discount rates to amounts associated with existing contracts, particularly portions of those contracts that have a higher degree of certainty of payment, and higher discount rates to amounts associated with future potential earnings under existing contracts and to potential earnings under anticipated future contracts. Further, discount rates rise over time to reflect that uncertainty increases over time.

 

Our internal valuation professionals document their considerations of this data that is then reviewed by management, including our Chief Executive Officer and Chief Accounting Officer. The approved valuation is used to determine the fair value of the brand contract.

 

The following table shows the results of our September 30, 2016 valuations (unaudited) for each of the brand contracts related to a tracking stock that is subject to being cashed out in the Reverse-Forward stock split:

 

 

For the brand contracts listed above, in accordance with our management and attribution policies, we attribute assets, liabilities, income and expenses to our tracking stocks to reflect or "track" the economic performance of the associated brand contract. Accordingly, we have attributed 95% of the ABI from the brand contracts to the associated tracking stock and expenses directly attributable to those tracking stocks, such as promotional and marketing-related expenses. We also assign a share of our general liabilities and expenses, such as the management fee from our parent, to the tracking stocks.

 

Per our attribution policy, we then attributed the assets and liabilities of each tracking stock, resulting in the per share fair value calculations as of September 30, 2016 (unaudited) for the below tracking stocks that are subject to being cashed out in connection with the Reverse/Forward Split.

 

This methodology is consistent with the valuation process we used to determine the attributed asset and liability values disclosed in our quarterly and annual reports filed under the Exchange Act as well as our recent private placement offering completed in July 2016.

 

For further information regarding our methods for estimating our contract parties’ projected career length and player contract values, see Note 5  to our Annual Report on Form 10-K for the year ended December 31, 2015, which is incorporated by reference herein.

 

Third Party Valuation Reports

In assessing the fairness of the Reverse/Forward Split to the unaffiliated stockholders, the Board, on behalf of the Company, and each of the Holdings Affiliates, on its own behalf, also considered the valuation reports prepared by an independent third party valuation firm, Timan LLC, or Timan, with respect to the value of the tracking stocks. The

Timan valuation reports did not, however, contain any opinion with respect to the fairness of the Reverse/Forward Split, and neither the Board, on behalf of the Company, nor any of the Holdings Affiliates based its fairness determination on the reports prepared by Timan.

In analyzing the value per share of the Company’s tracking stocks, Timan utilized a discounted cash flow model to calculate the net present value of the Company’s future expected cash flows under its brand contracts. Timan determined that the discounted cash flow model was the most appropriate valuation methodology for determining the fair market value of the tracking stocks because an investment in any tracking stock is characterized by a series of cash flows under the brand contract with a terminal value pay-out of approximately nil. To determine the net present value of the Company’s future expected cash flows under its brand contracts, Timan applied different discount rates to cash flows under the brand contracts based on the likelihood that such cash flows will occur and the expected timing of such cash flows. These discount rates were determined by high-yield bond market yields, adjusted to take into consideration the prices at which shares of the Company’s tracking stocks were sold (as part of the Units comprised of fractional shares of tracking stocks) to third-parties in an arms-length private placement transaction that closed in July 2016.  The Timan valuations of the tracking stocks were based on the contractual value of the brand assets related to the applicable tracking stock, as required by the Company’s certificate of incorporation, did not include any discount for lack of marketability or liquidity nor any minority interest discount (including that such series of tracking may not have the rights contractually or otherwise, to receive dividends). The Timan valuations also considered recent sales of tracking stock in the open market and historical market prices.

Based on the analyses described above, Timan concluded that the fair market values per share of the Company’s tracking stocks were as follows:  

 

 

 

The Board determined to engage Timan to conduct a valuation of each outstanding tracking stock effected by the Reverse/Forward Split based on Timan’s familiarity with the Company and its business. Founded in 2006, Timan has completed valuation analyses for more than 2,500 companies in a variety of industries. The personnel assigned to this engagement has more than 20 years of financial services experience, including experience gained prior to joining Timan. Such experience is also broadly based both in terms of industries and transactions for which such personnel provided financial advisory services. During the past two years, Timan has prepared reports evaluating the fair value of Fantex Holdings’ Common Stock for purposes of compliance with Section 409A of the Internal Revenue Code of 1986, as amended. During such time, Timan has received aggregate compensation of $5,100 for the year ended December 31, 2015 and $10,000 for the nine months ended September 30, 2016, in connection with the preparation of such fair value reports. Because of Timan’s familiarity with the Company and its business, the Board did not consider any other alternative independent valuation firms.

In conducting the valuation of the Company’s tracking stocks, Timan relied on principally information received from the Company, including management responses to questionnaires and other supplemental documents and financial information. Timan did not undertake to further verify the supplemental documents or financial information.

The Company instructed Timan to conduct its valuation of the tracking stocks in accordance with the definition of “Fair Value” in the Company’s certificate of incorporation. The Company did not otherwise impose any other limitations on the scope of Timan’s valuations.

The reports prepared by Timan will be made available for inspection and copy at the principal executive offices of the Company and Holdings Affiliates during regular business hours by any interested equity security holder of the Company or representative who has been so designated in writing. See “Where You Can Find More Information” below.

Previous Purchase Prices

In assessing the fairness of the Reverse/Forward Split to the unaffiliated stockholders, the Board, on behalf of the Company, and each of the Holdings Affiliates, on its own behalf, also took into account (i) the purchase prices paid by third party purchasers of the Company’s unit securities in its private placement of such securities on July 22, 2016, (ii) the purchase prices paid by the Company when it repurchased shares of its tracking stocks from the Holdings Affiliates in connection with the private placement of the Units, and (iii) the purchase prices paid by the Holdings Affiliates in the initial public offerings of tracking stocks occurring within the past two years. Although the foregoing purchase prices derived directly from the Company’s internal valuations of the fair value of the tracking stocks, as described above under “—Internal Valuations,” the Board and the Holdings Affiliates gave such purchase prices additional weight (compared to the weight ascribed to its own internal valuation analyses) because the purchase prices were paid by independent third-party purchasers following arms-length negotiations, except to the extent purchased by Holdings or its affiliates.

Current and Historical Market Prices

In assessing the fairness of the Reverse/Forward Split to the unaffiliated stockholders, the Board, on behalf of the Company, and each of the Holdings Affiliates, on its own behalf, did not give significant weight to current or historical market prices. With respect to current market prices, following the closure in August 2016 of the alternative trading system (“ATS”) operated by Company’s affiliated broker-dealer, Fantex Brokerage Services LLC (“FBS”), the tracking stocks are no longer listed on any securities exchange or other trading Platform, and there have been no trades since that time. Prior to that time, there was very limited liquidity of the shares of the Company’s tracking stocks, and historical market prices of the tracking stocks were lower than what the Board and the Holdings Affiliates believed to be fair values of the tracking stocks.

Other Valuation Factors

In assessing the fairness of the Reverse/Forward Split to the unaffiliated stockholders, the Board, on behalf of the Company, and each of the Holdings Affiliates, on its own behalf, also took into account the attributed net book value for shares of our tracking stocks, because the attributed net book value for the tracking stocks is equivalent to the fair

value of the tracking stocks. In addition, the Board and Holdings Affiliates took into account the Company’s current tangible and intangible assets, overall financial condition, anticipated expenses, financing prospects, current and potential strategic relationships and competitive developments in the Company’s line of business.

The Board and Holdings Affiliates did not give any weight to the liquidation value of the brand assets underlying the Company’s tracking stocks, because the Company’s certificate of incorporation requires that the assessment of fair value exclude any discount for lack of marketability or liquidity or any minority interest discount (including that such series may not have the rights contractually or otherwise, to receive dividends). 

 

Neither the Company and nor any Holdings Affiliate is aware of any firm offer made by an unaffiliated person during the past two years for the merger or consolidation of the Company, the sale or other transfer of all or any substantial part of the assets of the Company, or a purchase of the Company’s securities that would enable to holder to exercise control over the Company.

 

Procedural Fairness of the Reverse/Forward Split

As stated above, the Board, on behalf of the Company, and the Holdings Affiliates are each independently required, under Item 1014(a) of Regulation M-A (17 C.F.R. §229.1014), to determine whether it or he reasonably believes that a going private transaction, such as the Reverse/Forward Split, is procedurally fair or unfair to its unaffiliated stockholders. The Board, on behalf of the Company, and each of  the Holdings Affiliates, in their capacities as affiliates of the Company, have made that determination and, for the reasons set forth below, has reached a decision that the Reverse/Forward Split is procedurally fair to all unaffiliated stockholders, including both (i) stockholders who will receive cash payments in connection with the Reverse/Forward Split and will not be continuing stockholders of the Company and (ii) stockholders who will retain an equity interest in the Company.

In reaching this conclusion, the Board, on behalf of the Company, and each of the Holdings Affiliates, on its own behalf, considered that there is currently very limited liquidity of these shares and what little trading activity there has been has been at prices lower than what the Board and the Holdings Affiliates believe is fair value. Absent the Reverse/Forward Split, the Board and Holdings Affiliates believe that the small, unaffiliated stockholders whose fractional shares are cashed out in the Reverse/Forward Split would likely not have another opportunity for liquidity in the foreseeable future.

In addition, the Board, on behalf of the Company, and each of the Holdings Affiliates, on its own behalf, considered that Fantex Holdings would continue to control over 94% of the voting shares of the Company after the Reverse/Forward Split, such that the Reverse/Forward Split would not cause a change in control of the Company and the interests of remaining stockholders would not be substantially diminished. Further, the cash out of certain stockholders in connection with the Reverse/Forward Split is anticipated to affect fewer than 24,000 shares, or approximately 0.02%, of the Common Stock of the Company.

The Reverse/Forward Split was approved unanimously by the Board, including all of the directors of the Company who are not employees of the Company. No director dissented to or abstained from voting on the Reverse/Forward Split. The Board did not create a Special Committee or retain independent counsel in light of the Board’s determination that the interests of its stockholders were protected by the independent directors on the Board who voted unanimously to approve the Reverse/Forward Split.

The Board determined not to condition the approval of the Reverse/Forward Split on approval by a majority of stockholders being cashed out for several reasons. First, these holders are necessarily very small holders with a very limited number of shares. In order to reach a majority vote by such holders the Company would have to expend significant resources soliciting such shareholders to return a proxy card, and the Board believes that even with a solicitation effort many of these holders might still not vote. In that case the Company would be at risk of expending significant resources on a proxy statement and special meeting process without the costs savings that would result from the Reverse/Forward Split and ability to deregister.

The Board also did not retain an unaffiliated representative to act solely on behalf of the unaffiliated cashed-out stockholders for purposes of negotiating the terms of the Reverse/Forward Split or preparing a report concerning the fairness of the Reverse/Forward Split. The Board determined not to retain such a representative because a majority vote of such unaffiliated stockholders is not required under Delaware law and therefore retaining a representative of such stockholders would not affect the outcome of the transaction.

The Board did not grant cashed-out stockholders access to our corporate files, except as provided under Delaware law. The Board determined that this Information Statement, together with our other filings with the SEC, provides adequate information for cashed-out stockholders.

The Board also determined that the process leading up to the approval of the Reverse/Forward Split was procedurally fair to the stockholders because of the structural fairness of the Reverse/Forward Split.

U. S. Federal Income Tax Consequences of the Reverse/Forward Split

The following discussion is a general summary of certain U.S. federal income tax consequences of the Reverse/Forward Split that may be relevant to U.S. Holders (as defined below) of our Common Stock, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or non-U.S. tax laws are not discussed. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations promulgated thereunder (the “Treasury Regulations”), judicial decisions, and published rulings and administrative pronouncements of the U.S. Internal Revenue Service (the “IRS”), in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a holder of our Common Stock. We have not sought and will not seek an opinion of counsel or any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position to that discussed below regarding the tax consequences of the Reverse/Forward Split.

 

This discussion is limited to holders who hold their shares of Common Stock 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 consequences relevant to a holder’s particular circumstances, including the impact of the Medicare contribution tax on net investment income. In addition, it does not address consequences relevant to holders subject to special rules, including, without limitation:

If an entity treated as a partnership for U.S. federal income tax purposes holds shares of the Common Stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding shares of the Common Stock and the

partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.

 

THIS DISCUSSION IS FOR INFORMATION PURPOSES ONLY AND IS NOT INTENDED AS TAX ADVICE. HOLDERS OF SHARES OF COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE REVERSE/FORWARD SPLIT ARISING UNDER OTHER U.S. FEDERAL TAX LAWS (INCLUDING ESTATE AND GIFT TAX LAWS), UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.

 

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of shares of Common Stock that for U.S. federal income tax purposes is or is treated as: (1) an individual who is a citizen or resident of the United States; (2) a corporation created or organized under the laws of the United States, any state thereof, or the District of Columbia; (3) an estate the income of which is subject to U.S. federal income tax regardless of its source; or (4) a trust that (a) is subject to the primary supervision of a U.S. court and the control of one of more “United States persons” (within the meaning of Section 7701(a)(30) of the Code), or (b) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes.

Stockholders Who Retain their Shares of Common  Stock Post Reverse/Forward Split

We believe that a U.S. Holder who does not receive any cash in the Reverse/Forward Split generally should not recognize gain or loss or have dividend income upon the Reverse/Forward Split. Such a U.S. Holder should generally have the same adjusted tax basis and holding period in their shares of Common Stock as they had in such stock immediately prior to the Reverse/Forward Split.

We believe that a stockholder who receives cash in the Reverse/Forward Split (i.e., a stockholder who holds less than one share as a result of the Reverse Split) will be treated as having such shares redeemed in a taxable transaction governed by Section 302 of the Code and, depending on a stockholder’s situation, the transaction will be taxed as either: (a) a sale or exchange of the redeemed shares, in which case the stockholder will recognize gain or loss equal to the difference between the cash payment and the stockholder’s tax basis for the redeemed shares; or (b) a cash distribution which is treated: (i) first, as a taxable dividend to the extent of allocable earnings and profits, if any; (ii) second, as a tax-free return of capital to the extent of the stockholder’s tax basis in the redeemed shares; and (iii) finally, as gain from the sale or exchange of the redeemed shares. Amounts treated as gain or loss from the sale or exchange of redeemed shares will be capital gain or loss. Amounts treated as a taxable dividend are ordinary income to the recipient; however, a corporate taxpayer (other than an S corporation) may be allowed a dividend received deduction subject to applicable limitations and other special rules.

Stockholders Who Receive Cash

We believe that a U.S. Holder who receives cash in the Reverse/Forward Split (i.e., a stockholder of record who holds less than one share of Common Stock as a result of the Reverse Split) will be treated as having such shares redeemed in a taxable transaction governed by Section 302 of the Code and, depending on the holder’s situation, the transaction will be taxed as either: (a) a sale or exchange of the redeemed shares, in which case the U.S. Holder will recognize gain or loss equal to the difference between the cash payment and the U.S. Holder’s tax basis for the redeemed shares; or (b) a cash distribution which is treated: (i) first, as a taxable dividend to the extent of the Company’s allocable earnings and profits, if any; (ii) second, as a tax-free return of capital to the extent of the U.S. Holder ’s tax basis in the redeemed shares; and (iii) finally, as gain from the sale or exchange of the redeemed shares. Amounts treated as gain or loss from the sale or exchange of redeemed shares will be capital gain or loss. Amounts treated as a taxable dividend are ordinary income to the recipient; however, (i) a corporate taxpayer (other than an S corporation) may be allowed a dividends received deduction subject to applicable limitations and other special rules., and (ii) dividends received by non-corporate taxpayers may be eligible for preferential tax rates.  The deductibility of capital losses is subject to limitations.

Under Section 302 of the Code, a redemption of shares of Common Stock from a U.S. Holder  as part of the Reverse/Forward Split will be treated as a sale or exchange of the redeemed shares of Common Stock if:

 

These three tests are applied by taking into account not only shares of Common Stock that a U.S. Holder actually owns, but also shares of Common Stock that the U.S. Holder constructively owns pursuant to Section 318 of the Code.  Under the constructive ownership rules of Section 318 of the Code, a U.S. Holder is deemed to constructively own shares owned by certain related individuals and entities in which the holder has an interest in addition to shares of Common Stock directly owned by the U.S. Holder. For example, an individual U.S. Holder is considered to own shares of Common Stock owned by or for his or her spouse and his or her children, grandchildren and parents (“family attribution”). In addition, a U.S. Holder is considered to own a proportionate number of shares owned by estates or certain trusts in which the holder has a beneficial interest, by partnerships in which the holder is a partner, and by corporations in which 50% or more in value of the stock is owned directly or indirectly by or for such U.S. Holder. Similarly, shares directly or indirectly owned by beneficiaries of estates of certain trusts, by partners of partnerships and, under certain circumstances, by stockholders of corporations may be considered owned by these entities (“entity attribution”). A U.S. Holder is also deemed to own shares which the holder has the right to acquire by exercise of an option or by conversion or exchange of a security. Constructively owned shares may be reattributed to another taxpayer. For example, shares attributed to one taxpayer as a result of entity attribution may be attributed from that taxpayer to another taxpayer through family attribution.

A U.S. Holder who receives cash in the Reverse/Forward Split and does not constructively own any shares of post-Reverse/Forward Split Common Stock or other stock in the Company will have his or her interest in the Company completely terminated by the Reverse/Forward Split and will therefore receive sale or exchange treatment on his or her pre-Reverse/Forward Split Common Stock. That is, such a U.S. Holder will recognize gain or loss equal to the difference between the cash payment and the holder’s tax basis for his or her shares of pre-Reverse/Forward Split Common Stock.

A U.S. Holder who receives cash in the Reverse/Forward Split and would only constructively own shares of post-Reverse/Forward Split Common Stock as a result of family attribution may be able to avoid constructive ownership of the shares of post-Reverse/Forward Split Common Stock by waiving family attribution and thus be treated as having had his or her interest in the Company completely terminated by the Reverse/Forward Split. Among other things, waiving family attribution requires: (i) that the a U.S. Holder have no interest in the Company (including as an officer, director, employee or stockholder) other than an interest as a creditor and does not acquire such an interest during the ten-year period immediately following the Reverse/Forward Split other than stock acquired by bequest or inheritance; and (ii) including an election to waive family attribution in the holder’s tax return for the year in which the Reverse/Forward Split occurs.  

A U.S. Holder who receives cash in the Reverse/Forward Split and immediately after the Reverse/Forward Split constructively owns shares of post-Reverse/Forward Split Common Stock must compare: (i) his, her or its percentage ownership immediately before the Reverse/Forward Split (i.e., the number of voting shares actually or constructively owned by him, her or it immediately before the Reverse/Forward Split divided by the number of voting shares outstanding immediately before the Reverse/Forward Split) with (ii) his, her or its percentage ownership immediately after the Reverse/Forward Split (i.e., the number of voting shares constructively owned by his, her or it immediately after the Reverse/Forward Split divided by the number of voting shares outstanding immediately after the Reverse/Forward Split).  

If the U.S. Holder’s post-Reverse/Forward Split ownership percentage of Common Stock is less than 80% of the holder’s pre-Reverse/Forward Split ownership percentage of Common Stock, the receipt of cash is “substantially disproportionate” with respect to the U.S. Holder, and the holder will therefore receive sale or exchange treatment on the portion of his, her or its shares of pre-Reverse Split Common Stock exchanged for cash.  

If the receipt of cash by a U.S. Holder fails to constitute an “exchange” under the “substantially disproportionate” test or the “complete termination” test, the receipt of cash may constitute an “exchange” under the “not essentially equivalent to a dividend” test. The receipt of cash by a U.S. Holder will be “not essentially equivalent to a dividend” if the transaction results in a “meaningful reduction” of the holder’s proportionate interest in the Company.  If: (i) the a U.S. Holder exercises no control over the affairs of the Company (e.g., is not an officer, director or high ranking employee), (ii) the U.S. Holder’s relative stock interest in the Company is minimal, and (iii) the a U.S. Holder’s post-Reverse/Forward Split ownership percentage of Common Stock is less than the holder’s pre-Reverse/Forward Split ownership percentage of Common Stock, the receipt of cash will generally not be essentially equivalent to a dividend with respect to the U.S. Holder and the U.S. Holder will therefore receive sale or exchange treatment.  

In all other cases, cash received by a U.S. Holder who immediately after the Reverse/Forward Split constructively owns shares of post-Reverse/Forward Split Common Stock will be treated: (i) first, as a taxable dividend to the extent of allocable current or accumulated earnings and profits, if any; (ii) second, as a tax-free return of capital to the extent of the holder’s tax basis in the redeemed shares; and (iii) finally, as gain from the sale or exchange of the redeemed shares.

Termination of Exchange Act Registration

Our Common Stock is currently registered under the Exchange Act. Our Common Stock is not listed on any stock exchange. We are permitted to terminate such registration if there are fewer than 300 record holders of outstanding shares of our Common Stock. As of December 1, 2016, we had approximately 1,054 holders of record of our Common Stock. Upon the effectiveness of the Reverse/Forward Split, we expect to have approximately 200 holders of our Common Stock. We intend to terminate the registration of our Common Stock under the Exchange Act promptly after the Effective Date.

Termination of registration under the Exchange Act will substantially reduce the information which we will be required to furnish to our stockholders under the Exchange Act. After deregistration of our shares, our stockholders will have access to our corporate books and records to the extent provided by the Delaware General Corporation Law, and to any additional disclosures required by our directors’ and officers’ fiduciary duties to the Company and our stockholders.

We estimate that termination of registration of our Common Stock under the Exchange Act will save us an estimated $550,000 per year in legal, accounting, printing and other expenses, and will also enable our management to devote more time to our operations. By reducing the Company’s number of stockholders to fewer than 300 and deregistering our Common Stock under the Exchange Act as intended, based on historical expenses, the Company expects to save (i) approximately $450,000 per year in professional fees and expenses for the preparation and filing of reports required by the Exchange Act and (ii) approximately $100,000 per year in other costs related to being a publicly reporting entity, such as Edgarization and XBRL costs, printing and mailing costs, expenses for compliance with the internal control and procedure requirements associated with Sarbanes-Oxley, the Dodd-Frank Act and regulatory compliance issues applicable to public entities, other than internal personnel expenses. The termination of the Company’s public reporting obligations will also alleviate a significant amount of time and effort previously required of the Company’s employees in preparing and reviewing the periodic reports and filings required of public entities under the Exchange Act and the pressure and expense of hiring staff to satisfy the regulatory and accounting reporting requirements.

 

Certain Information Concerning the Company

Fantex’s administrative and principal executive office is located at Fantex, Inc., 330 Townsend Street, Suite 234, San Francisco, California 94107 and its telephone number is (415) 592-5950.

Effect of the Reverse/Forward Split on the Number of Authorized and Issued Shares

As of December 1, 2016, 107,115,633 shares of the Company’s Common Stock were issued and outstanding, out of 1,507,115,633 authorized shares. The total number of authorized shares of Common Stock will not change as a result of the Reverse/Forward Split. The table below illustrates the estimated effect on the number of authorized shares available for issuance as a result of the Reverse/Forward Split. Significantly, the cash out of stockholders in connection with the Reverse/Forward Split is expected to affect approximately 24,000 shares, or approximately 0.02%, of the issued and outstanding Common Stock of the Company.

 

 

The shares cashed out in the Reverse/Forward Split will be held as treasury stock and will be available to be reissued at a future date.

Trading Market and Price

There is no established public trading market for shares of our Platform Common Stock. The following table sets forth the high and low bid quotations for our tracking stocks for the periods indicated, as reported on the FBS ATS through August 24, 2016. Such quotations are without retail mark-up, mark-down or commission and may not necessarily represent an actual transaction. After August 24, 2016, these securities could only be traded in the OTC Markets, also referred to as the “grey sheets.” There is no broker-dealer currently making any market in our securities.

 

Dividends Paid by the Company

The Company’s board of directors is permitted, but not required, to declare and pay dividends on Platform Common Stock or any of its tracking stocks in an amount up to the “available dividend amount” for the applicable series, to the extent permitted by the Delaware General Corporation Law. 

The amount and timing of distributions to the Company’s Common Stockholders is determined by the Company’s board of directors and is based upon a review of various factors including current market conditions, the Company’s liquidity needs, and legal and contractual restrictions on the payment of distributions. The available dividend amount for any tracking stock is, as of any particular date, an amount equal to the lesser of (a) total assets of the Company legally available for the payment of dividends under Delaware law and (b) an amount equal to (i) the excess of the total assets attributed to the applicable tracking stock over the total liabilities attributed to such tracking stock, less the par value of the outstanding shares of such tracking stock; or (ii) if there is no such excess, the attributable income of the tracking stock for the fiscal year in which the dividend is being declared and/or the preceding fiscal year. The available dividend amount for the Company’s Platform Common Stock is as of any date an amount equal to the amount of the Company’s total assets legally available for the payment of dividends under Delaware law, less the aggregate amount of the “available dividend amount” for all of the Company’s then outstanding tracking stocks. 

The Company’s board of directors may change its dividend policy at any time and from time to time, and the Company may retain some or all available funds and future income to support the Company’s operations and, in certain circumstances, invest some of the available funds attributed to a series to further enhance that series’ associated brand, exercise a co-investment right pursuant to the Company’s brand contract with the brand, or acquire additional ABI in the associated brand if the Company believes that those would be more productive uses of some or all of the available funds. However, the Company’s board of directors will not in any event change the definition of “available dividend amount” for any series of the Company’s Common Stock or declare dividends on any series of the Company’s Common Stock in excess of the “available dividend amount” for that series. The Company’s board of directors has discretion to declare a dividend on any series of common stock without declaring a dividend on any other series of Common Stock.

The following table shows the frequency and amounts of cash dividends paid by the Company since January 1, 2014 with respect to the subject securities.