Sequential Brands Group, Inc. Annual Report 2017

FY2017 Annual Report · Sequential Brands Group, Inc.
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A N N U A L 
R E P O R T

2017 SEQUENTIAL BRANDS GROUP ANNUAL REPORT
LETTE R FROM THE CEO

My Fellow Shareholders, 

2017 was a strong and productive year for Sequential Brands Group. It was a year spent on activation 
and  organic  growth  as  we  continue  to  build  a  best  in  class  global  brand  management  and  media 
company.  Our business had solid growth across our powerful portfolio of consumer brands in the 
home,  active  and  fashion  lifestyle  spaces.  We  also  demonstrated  improved  operating  leverage 
resulting in higher margins. In addition, we strengthened our management team with the addition of 
our new President of Home, Carolyn D’Angelo, and the recent appointment of our new CFO Peter Lops. 

Across our portfolio, we have solid momentum and a strong pipeline of new opportunities for each 
of our core brands. A few highlights include category and distribution expansion for the GAIAM yoga 
and wellness brand; new celebrity global brand ambassadors for our key active brands; expansion 
into  China  for  our  AVIA  brand;  additional  distribution  for  our  Joe’s  brand;  a  new  beauty  category 
extension  for  Jessica  Simpson;  new  season  premieres  of  Martha  Stewart’s  television  shows  on 
VH1  and  PBS;  the  launch  of  the  Martha  Stewart  brand  on  QVC  in  multiple  new  categories;  the 
launch of the Martha Stewart pets business on QVC and Amazon; the debut of the Martha Stewart 
crafts  collection  through  a  direct  partnership  with  Michaels;  and  new  brick  and  mortar 
distribution  for  the  Emeril  Lagasse  brand. 

For 2018 and beyond, our team is dedicated to brand building, licensing, and activation activities for 
all of our brands, as well as a prioritized focus on new business development. To that end, we have 
bolstered our resources in the areas of business development and are particularly focused on the 
following untapped growth opportunities:  international, e-commerce, strategic brand integrations, 
domestic category and distribution growth and new media and other digital opportunities. In parallel 
with these growth initiatives, we are committed to improving our capital structure to provide us with 
greater flexibility. 

With our strong team in place, the growth activation underway and our commitment to improve our 
debt structure, we are energized by the prospects ahead of us. 

I’d like to personally thank all of our dedicated employees, our partners, our licensees, our lenders, 
our Board of Directors and last, but certainly not least, our valued stockholders. Thank you for your 
continued commitment to the long-term success of Sequential.

Sincerely, 

Karen Murray 
CHIEF EXECUTIVE OFFICER 
Member of the Board of Directors

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
(cid:2)

□

Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the ﬁscal year ended December 31, 2017

Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the transition period from

to

.

Commission ﬁle number 001-37656

SEQUENTIAL BRANDS GROUP, INC.

(Exact name of registrant as speciﬁed in its charter)

Delaware
(State or other jurisdiction
of incorporation or organization)

47-4452789
(I.R.S. Employer
Identiﬁcation No.)

601 West 26th Street, 9th Floor
New York, New York 10001
(Address of principal executive offices) (Zip code)

(646) 564-2577
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Common Stock, par value $0.01 per share
(Title of each class)

The Nasdaq Stock Market LLC
(Name of each exchange on which registered)

the

is not

the registrant

required to ﬁle reports pursuant

to Section 13 or Section 15(d) of

Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as deﬁned in Rule 405 of the Securities Act. Yes (cid:4) No (cid:2)
Indicate by check mark if
Act. Yes (cid:4) No (cid:2)
Indicate by check mark whether the registrant (1) has ﬁled all reports required to be ﬁled by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to ﬁle such
reports), and (2) has been subject to such ﬁling requirements for the past 90 days. Yes (cid:2) No (cid:4)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such ﬁles). Yes (cid:2) No (cid:4)
Indicate by check mark if disclosure of delinquent ﬁlers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in deﬁnitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. □
Indicate by check mark whether the registrant is a large accelerated ﬁler, an accelerated ﬁler, a non-accelerated ﬁler, or a smaller
reporting company. See the deﬁnitions of ‘‘large accelerated ﬁler,’’ ‘‘accelerated ﬁler,’’ ‘‘smaller reporting company’’ and ‘‘emerging
growth company’’ in Rule 12b-2 of the Exchange Act. □
Large accelerated ﬁler □
Non-accelerated ﬁler □ (Do not check if a smaller reporting company)
Emerging growth company □
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised ﬁnancial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as deﬁned in Rule 12b-2 of the Act). Yes (cid:4) No (cid:2)
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant on June 30, 2017, the last
business day of the registrant’s most recently completed second ﬁscal quarter was $156,660,120 (based on the closing sales price of
the registrant’s common stock on that date).
At February 28, 2018, the registrant had 63,347,124 shares of common stock, $0.01 par value, outstanding.

Accelerated ﬁler (cid:2)
Smaller reporting company □

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement for its annual meeting of stockholders to be held on June 8, 2018 are incorporated by
reference in Items 10 through 14 of Part III of this Annual Report on Form 10-K.

SEQUENTIAL BRANDS GROUP, INC.

INDEX TO FORM 10-K

PART I

Item 1.

Business

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1A.

Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 2.

Item 3.

Item 4.

PART II

Item 5.

Item 6.

Item 7.

Properties

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . .

Item 8.

Item 9.

Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 9A.

Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

Item 10.

Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . .

Item 11.

Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 12.

Security Ownership of Certain Beneﬁcial Owners and Management and Related
Stockholder Matters

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 13.

Certain Relationships and Related Transactions, and Director Independence . . . . . . . . .

Item 14.

Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART IV

Item 15.

Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 16.

Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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PART I

Unless otherwise noted, references in this Annual Report on Form 10-K to the ‘‘Sequential Brands
Group’’, ‘‘Company,’’ ‘‘our Company,’’ ‘‘we,’’ ‘‘us,’’ ‘‘our’’ or similar pronouns refer to Sequential Brands
Group, Inc. and its subsidiaries. References to other companies may include their trademarks, which are the
property of their respective owners.

This 2017 Annual Report on Form 10-K, including the sections entitled ‘‘Risk Factors,’’ ‘‘Management’s
Discussion and Analysis of Financial Condition and Results of Operations’’ and ‘‘Business,’’ contains
‘‘forward-looking statements’’ within the meaning of the Private Securities Litigation Reform Act of 1995,
Section 27A of the Securities Act of 1933, as amended (the ‘‘Securities Act’’) and Section 21E of the
Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’). We use words such as ‘‘future,’’ ‘‘seek,’’
‘‘could,’’ ‘‘can,’’ ‘‘predict,’’ ‘‘believe,’’ ‘‘intend,’’ ‘‘expect,’’ ‘‘anticipate,’’ ‘‘plan,’’ ‘‘may,’’ ‘‘will,’’ ‘‘should,’’
‘‘estimate,’’ ‘‘potential,’’ ‘‘project’’ and similar expressions to identify forward-looking statements. Such
statements include, among others, those concerning our expected ﬁnancial performance and strategic and
operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future
events. You are cautioned that any such forward-looking statements are not guarantees of future performance
and that a number of risks and uncertainties could cause actual results to differ materially from those
anticipated in the forward-looking statements. Such risks and uncertainties include, but are not limited to the
following: (i) risks and uncertainties discussed in the reports that the Company has ﬁled with the Securities
and Exchange Commission (the ‘‘SEC’’); (ii) general economic, market or business conditions; (iii) the
Company’s ability to identify suitable targets for acquisitions and to obtain ﬁnancing for such acquisitions on
commercially reasonable terms; (iv) the Company’s ability to timely achieve the anticipated results of recent
acquisitions and any potential
the Company’s ability to successfully integrate
acquisitions into its ongoing business; (vi) the potential impact of the consummation of recent acquisitions or
any potential
licensees,
customers and competitors; (vii) the Company’s ability to achieve and/or manage growth and to meet target
metrics associated with such growth; (viii) the Company’s ability to successfully attract new brands and to
identify suitable licensees for its existing and newly acquired brands; (ix) the Company’s substantial level of
indebtedness, including the possibility that such indebtedness and related restrictive covenants may adversely
affect the Company’s future cash ﬂows, results of operations and ﬁnancial condition and decrease its operating
ﬂexibility; (x) the Company’s ability to achieve its guidance; (xi) continued market acceptance of the
Company’s brands; (xii) changes in the Company’s competitive position or competitive actions by other
companies; (xiii) licensees’ ability to fulﬁll their ﬁnancial obligations to the Company; (xiv) concentrations of
the Company’s licensing revenues with a limited number of licensees and retail partners; and (xv) other
circumstances beyond the Company’s control.

future acquisitions on the Company’s relationships,

including with employees,

future acquisitions;

(v)

Forward-looking statements speak only as of

the date they are made and are based on current
expectations and assumptions. You should not put undue reliance on any forward-looking statement. We are
not under any obligation, and we expressly disclaim any obligation, to update forward-looking statements to
reﬂect actual
factors affecting forward-looking
information, except
to the extent required by applicable securities laws. If we do update one or more
forward-looking statements, no inference should be drawn that we will make additional updates with respect
to such or other forward-looking statements.

results, changes in assumptions or changes in other

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Item 1. Business

Corporate Overview

We own a portfolio of consumer brands in the home, active and fashion categories, including Martha
Stewart, Jessica Simpson, AND1, Avia, Joe’s Jeans, GAIAM and Heelys. We aim to maximize the value of our
brands by promoting, marketing and licensing the brands through various distribution channels, including to
retailers, wholesalers and distributors in the United States and in certain international territories. Our core
strategy is to enhance and monetize the global reach of our existing brands, and to pursue additional strategic
acquisitions to grow the scope of and diversify our portfolio of brands.

Our business is designed to maximize the value of our brands through license agreements with partners
that are responsible for manufacturing and distributing our licensed products and, with the exception of our
Martha Stewart brand, primarily responsible for the design of such licensed products. Our brands are licensed
for a broad range of product categories, including apparel, footwear, eyewear, fashion accessories and home
goods, as well as, with respect to our Martha Stewart brand, food, wine and a variety of media related assets,
such as magazines, books and other print and digital content. We seek to select
licensees who have
demonstrated the ability to produce and sell quality products in their respective licensed categories and have
the capability to meet or exceed the minimum sales thresholds and guaranteed minimum royalty payments that
we generally require.

We license our brands to both wholesale and direct-to-retail licensees. In a wholesale license, a wholesale
supplier is granted rights (typically on an exclusive basis) to a single or small group of related product
categories for a particular brand for sale to multiple accounts within an approved channel of distribution and
territory. In a direct-to-retail license, a single retailer is granted the right (typically on an exclusive basis) to
sell branded products in a broad range of product categories through its brick and mortar stores and
e-commerce sites. As of December 31, 2017, we had more than one-hundred ﬁfty licensees, with wholesale
licensees comprising a signiﬁcant majority.

Strategy

We own, manage, and maximize the long-term value of a diversiﬁed portfolio of global consumer brands.
We aim to acquire well-known consumer brands with high potential for growth and strong brand awareness.
We additionally seek to diversify our portfolio by evaluating the strength of targeted brands and the expected
viability and sustainability of future royalty streams. Upon the acquisition of a brand, we partner with leading
wholesalers and retailers to drive incremental value and maximize brand equity. We focus on certain key
initiatives in our licensing and brand management business. These initiatives include:

• Maximizing the value of our existing brands by creating efficiencies, adding additional product
categories, expanding distribution and retail presence and optimizing sales through innovative
marketing that increases consumer brand awareness and loyalty;

•

•

•

Expanding through ecommerce channels;

Developing international expansion through additional licenses, partnerships and other arrangements
with leading retailers and wholesalers outside the United States; and

Acquiring consumer brands (or the rights to such brands) with high consumer awareness, broad
appeal and applicability to a wide range of product categories.

Licensing Relationships

Our license agreements typically require a licensee to pay us royalties based upon net sales and, in most
cases, contain guaranteed minimum royalties. Our license agreements also require licensees to support the
brands by either paying or spending contractually guaranteed minimum amounts for the marketing and
advertising of the respective licensed brands. As of February 28, 2018, we had contractual rights to receive an
aggregate of $379.5 million in minimum royalty and marketing and advertising revenue from our licensees
through the balance of the current terms of such licenses, excluding any renewals.

Our license agreements stipulate speciﬁc geographical territories and distribution channels in which the
licensed products may be sold. Currently, the majority of our revenues are from license agreements with

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stipulated distribution territories in the United States. As we grow our existing brands and acquire new brands,
we intend to increase the share of our international revenue, primarily through additional licenses, partnerships
and other arrangements.

We believe our business model enables us to use our brand management expertise to continue to grow
our portfolio of brands and generate new revenue streams without signiﬁcantly changing our infrastructure.
We believe our business model provides numerous beneﬁts, including:

•

•

•

•

Potential for ﬁnancial upside without the investment and management risks and capital demands
associated with traditional wholesale operating companies;

Diversiﬁcation resulting from both broad demographic appeal and distribution through a range of
distribution channels;

Growth opportunity through expansion of existing brands into new categories and geographic areas
and through acquisitions; and

Reduced operational risks because inventory and other typical wholesale operating functions are the
responsibilities of our licensees.

Our licensing revenues are concentrated with certain licensees and retail partners. During the year ended
December 31, 2017, three licensees represented at least 10% of net revenue, each accounting for 11% of the
Company’s net revenue. For additional information, see ‘‘Risk Factors Risks Related to our Business — A
substantial portion of our licensing revenue is concentrated with a limited number of licensees and retail
partners, such that the loss of a licensee or retail partner could materially decrease our revenue and cash
ﬂows’’ in Item 1A.

Description of Our Brands

Martha Stewart

In December 2015, we acquired the Martha Stewart brand through the acquisition of Martha Stewart
Living Omnimedia (‘‘MSLO’’). MSLO was founded in 1997 by Martha Stewart, an Emmy Award-winning
television show host, entrepreneur, bestselling author of 90 books, and America’s most trusted lifestyle expert
and teacher. Millions of people rely on Martha Stewart as a source of useful ‘‘how-to’’ information for all
aspects of everyday living — cooking, entertaining, gardening, home renovating, collecting, organizing,
crafting, holidays, healthy living and pets. The Martha Stewart brand reaches approximately 100 million
consumers across all media and merchandising platforms each month. Her branded products are found in over
70 million households and have a growing retail presence in thousands of locations. We currently license the
Martha Stewart brand to various licensees, including retailers such as Macy’s, The Home Depot, Staples and
Michaels.
In the third quarter of 2017, we launched the Martha Stewart brand on QVC in four
categories — apparel, skin care, garden, and food — with several additional categories planned for 2018.
Additionally, we initiated our direct-to-retail partnership with Michaels in the fourth quarter of 2017 beginning
with Halloween products, followed by the development of the full line planned to be in stores for spring 2018.
The Martha Stewart wine and meal kit delivery partnerships, both direct-to-consumer online business models,
successfully completed their ﬁrst full year of operation.

Jessica Simpson

in the Jessica Simpson brand,

In April 2015, we acquired a majority interest

including the Jessica
Simpson Collection master license and other rights. Founded in 2005, the Jessica Simpson Collection is a
signature lifestyle concept inspired by and designed in collaboration with Jessica Simpson. The growing brand
offers multiple product categories including footwear, apparel, fragrance, fashion accessories, maternity
apparel, girls’ clothing and home products. The brand is supported by best-in-class licensees and has strong
department store distribution through Dillard’s, Macy’s, Belk, Lord & Taylor and Nordstrom, among other
independent retailers. We have a license agreement with Camuto Group to manufacture and distribute
footwear under the Jessica Simpson Collection. The Jessica Simpson Collection is currently available in over
3,000 points of distribution worldwide.

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AND1

We acquired the AND1 brand in August 2014 as part of the Galaxy transaction. Founded in 1993, AND1
prides itself on being the original street basketball brand focusing on the everyday player. Key licensees for
the AND1 brand include E.S. Originals, Inc. (‘‘ESO’’) for footwear and High Life, LLC for apparel. In
the AND1 brand is licensed in product categories, such as hosiery, underwear, off-court/casual
addition,
footwear and other accessories. The AND1 brand is offered through Wal-Mart stores, sporting goods retailers
and related e-commerce sites in the United States and has a strong distribution network reaching over 20
countries. In 2017, AND1 introduced an innovative line of graffiti street basketballs and continued the
expansion of the AND1 sock program at Walmart.

Avia

We acquired the Avia brand in August 2014 as part of the Galaxy transaction. Founded in 1979, Avia is
best known for running and activewear products designed to unite performance and function for athletes of
every level. Since we acquired Avia, we have expanded its licensed product categories to include wearable
ﬁtness accessories, hosiery, sports bags and various other accessory products. The Avia brand is primarily
offered through Wal-Mart stores in the United States, with additional distribution through specialty retailers
and related e-commerce sites, such as Modell’s Sporting Goods, as well as globally in numerous countries. In
2017, Avia strengthened its share within Walmart and initiated international partnerships in Argentina and
Central America.

GAIAM

We acquired the GAIAM brand on July 1, 2016. Founded in 1996 as an eco-living catalog company,
GAIAM evolved into a yoga brand by producing and distributing yoga videos and related products through
multiple channels of distribution. GAIAM has since expanded to include a full line of apparel, yoga mats,
yoga mat bags, yoga blocks and straps, yoga and ﬁtness props, balance balls, bags, active sitting products,
including our balance ball chair, ﬁtness kits and various other accessories. GAIAM is dedicated to making
yoga, ﬁtness and wellness accessible to all through a wide distribution network that consists of approximately
38,000 retail doors, 19,000 store-within-a-stores, 5,000 category management locations, e-commerce, and a
mobile platform which features Yoga Studio, a leading paid app for Apple, mobile and tablet devices with
over 1 million downloads to date. We currently license the GAIAM brand to various licensees, including Fit
For Life, LLC for yoga sporting goods and High Life, LLC for apparel. In 2017, we signed an agreement
with Jessica Biel to serve as the brand ambassador for the Gaiam brand. In addition to generating brand
awareness, this agreement includes the development of an ‘‘upstairs’’ line of apparel for distribution at better
department stores and through online channels. Also in 2017, Gaiam successfully executed a yoga studio
experiential concept in the Lord & Taylor ﬂagship store in New York City, with plans to expand that program
to other stores in 2018, and continued our relationship with Rodney Yee, America’s premiere yoga instructor.

Joe’s Jeans

In September 2015, we acquired the Joe’s Jeans brand. Founded in 2001, Joe’s Jeans is a casual chic
global lifestyle brand synonymous with classic, modernized wardrobe staples ranging from premium denim to
handcrafted collection pieces, and from contemporary accessories to footwear. Concurrently with the
acquisition, we entered into a long-term license agreement for the brand’s core categories with GBG USA Inc.
Joe’s Jeans branded products are available at better department stores and specialty boutiques in the United
States and internationally. In 2017, we expanded our offerings with kids apparel, intimate apparel and men’s
belts and small
leather goods. Joe’s Jeans marketing campaigns featured top model Taylor Hill for the
women’s business and Julian Edelman for the men’s business. Also in 2017, the brand continued to expand
internationally in Japan and Mexico.

Ellen Tracy

We acquired the Ellen Tracy brand in March 2013. Founded in 1949, Ellen Tracy is a leading fashion
lifestyle brand focusing on polished and sophisticated style for modern women. The Ellen Tracy brand is
timeless silhouettes and classic signature prints. Product offerings currently
known for quality tailoring,
include apparel, outerwear, sleepwear,
intimate apparel, hosiery, eyewear, fragrance, fashion accessories,
swimwear and luggage. Licensees for the Ellen Tracy brand include GBG USA Inc. for sportswear and

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dresses, Amerex for outerwear and swimwear, and Komar for sleepwear and intimate apparel. In addition, the
Ellen Tracy brand has been licensed for jewelry, bath and body gifts, cosmetics and home. The Ellen Tracy
brand is offered in premium and regional department and specialty stores throughout the United States as well
as globally. In 2017, Ellen Tracy expanded its offerings with handbags and continued its collaboration with
top model Irina Shayk, featuring her in the marketing campaigns and jointly creating a limited edition apparel
collection.

Emeril Lagasse

In December 2015, we acquired the Emeril Lagasse brand through the acquisition of MSLO. Emeril
Lagasse is the chef/proprietor of 12 restaurants throughout the United States, and the best-selling author of 19
cookbooks. As a national TV personality, he has hosted more than 2,000 shows on the Food Network, is the
food correspondent for ABC’s ‘‘Good Morning America’’, appeared as a guest judge on Bravo’s hit food
series, ‘‘Top Chef’’ and in 2017 entered his ﬁfth season of ‘‘Emeril’s Florida’’ on the Cooking Channel.
Licensees for the Emeril Lagasse brand primarily include various food and kitchen preparation manufacturers
for product categories such as cookware, cutlery and food and coffee products. Emeril Lagasse branded
products are available in department stores, supermarkets and specialty stores within the United States, as well
as through QVC. In 2017, the Emeril Lagasse brand expanded its cutlery and cookware product categories
with key retailers, including Costco and Sam’s Club.

William Rast

Conceptualized and founded by Justin Timberlake and Trace Ayala in 2005, the William Rast brand is a
lifestyle fashion brand rounded in the iconography of biker culture with designs that embody the
‘‘new America’’ sensibility and deliver an edgy yet tailored collection of premium denim, ready to wear and
outerwear for both men and women. Product offerings include denim, sportswear, tailored apparel, fashion
accessories, outerwear and hosiery. Licensees for the William Rast brand include One Jeanswear for men’s and
women’s apparel, Level 8 Apparel LLC for outerwear and Marr International for eyewear. Distribution
includes Macy’s, Dillard’s and other regional department stores.

Heelys

We acquired the Heelys brand in January 2013. Founded in 1999, the Heelys brand has been a breakout
success in the world of action sports among children and teens with its innovative, patented dual-purpose
wheeled footwear, featuring a stealth removable wheel in the heel. Heelys continues to grow into the ultimate
kids’ active lifestyle brand. The primary licensee for the Heelys brand is BBC International LLC for wheeled
footwear and related accessories. The Heelys brand is offered through department stores, sporting goods
retailers, related e-commerce sites, as well as Heelys’ own e-commerce site in the United States and over 75
additional countries.

Revo

We acquired the Revo brand in August 2013. Revo is a performance eyewear brand designed for the
active consumer and has been the leader in polarized lens technology since it was founded in 1985. Revo
sunglasses were ﬁrst created by utilizing lens technology developed by NASA as solar protection for satellites.
The Revo brand has continued to build on its tradition of technology and innovation by offering the clearest
and most advanced high-contrast polarized sunglasses available. The Revo brand is licensed on a worldwide
basis to B. Robinson Optical, Inc. for sunglasses and related categories and is distributed through retail
locations.

Caribbean Joe

We acquired the Caribbean Joe brand in March 2013 as part of the Brand Matter Acquisition. Founded
in 1999, the Caribbean Joe brand is a casual, island inspired, lifestyle brand. Originally rooted in apparel,
Caribbean Joe’s product offerings have expanded to include swimwear, accessories, and home textiles.
Licensees for the Caribbean Joe brand include the Moret Group for women’s apparel and Mainstream for
women’s sportswear. The Caribbean Joe brand is distributed in the United States through mid-tier department
stores, specialty stores, e-commerce sites and off-price retailers as well as internationally through specialty
retailers and distributors.

5

DVS

We acquired a 65% interest in the DVS brand in June 2012 through a joint venture with Elan Polo
International, Inc. (‘‘Elan Polo’’), a global organization which designs, sources and delivers men’s, women’s
and children’s shoes to retailers around the world. The DVS brand is a footwear brand dedicated to inspiring
youth to have fun and always push forward and is best known for its great style, technical features and input
of some of the best action sports athletes in the world. Product offerings for the brand currently include
footwear, backpacks and accessories. The primary licensee for the DVS brand is Elan Polo for footwear, with
distribution through specialty street skating and other specialty stores in the United States and internationally.

The Franklin Mint

We acquired The Franklin Mint brand in November 2013. Founded in 1964, The Franklin Mint
is
acknowledged as the ‘‘Gold Standard’’ in the collectible and gift giving arena. The Franklin Mint brand has
been licensed in multiple categories, including coins, models, jewelry, games, décor, giftables, seasonal, and
co-branded products through license agreements. The Franklin Mint brand is currently offered via the
franklinmint.com website.

Linens N Things

We acquired the Linens N Things brand in August 2014 as part of the Galaxy transaction. Founded in
1975, Linens N Things grew to be one of North America’s largest retailers of home textiles, housewares and
decorative home accessories. Today home products featuring the Linens N Things brand are distributed via
various retail locations.

SPRI

We acquired the SPRI brand in July 2016 as part of the GAIAM transaction. Founded in 1983 as the
Sports Performance Rehabilitative Institute, SPRI pioneered a line of rubber resistance products in the
ﬁtness & training category. Over the past 30 years, SPRI has grown to be a leading cross ﬁt training brand,
offering a full line of ﬁtness accessories, training tools and educational materials. The SPRI brand today
focuses on distribution in both the commercial ﬁtness (gyms, ﬁtness clubs and hotels) and retail ﬁtness
channels. The SPRI brand continues to show growth through expansion at Target with the ‘‘Ignite’’ by SPRI
collection.

Nevados

We acquired the Nevados brand in August 2014 as part of the Galaxy transaction. Founded in 1990, the
Nevados brand was inspired by the 17,000 — foot Los Nevados National Natural Park in the Colombian
Andes Mountains range. With a dedication to comfort and durability, Nevados offers hiking boots and outdoor
shoes to make sure you see the great outdoors, and enjoy every step of the way. Today the brand is distributed
through Amazon, as well as select specialty stores in the United States and internationally.

FUL

We acquired the FUL brand in November 2014. Founded in 2014 in Memphis, Tennessee the FUL
brand’s objective is to provide comfortable, functional bags with a fashion edge using the music world as
inspiration. Today the FUL brand offers a full line of luggage sets, bags, backpacks, tech items and travel
gear. Distribution for the brand focuses mostly within the mass market, clubs, and digital commerce channels
of distribution.

Business Segment

We have a single operating and reportable segment, as described more fully in ‘‘Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Reportable Segment’’ in Item 7.
See Item 6 of this Annual Report on Form 10-K for measures of our net revenues, consolidated net income
(loss) and total assets as of December 31, 2017 and 2016, and for the years ended December 31, 2017, 2016
and 2015.

6

Corporate Organization/Information

We were formed on June 5, 2015, for the purpose of effecting the merger of Singer Merger Sub, Inc.
with and into SQBG, Inc. (previously known as Sequential Brands Group, Inc.) (SEC File No. 001-36082)
(‘‘Old Sequential’’) and the merger of Madeline Merger Sub,
Inc. with and into MSLO (SEC
File No. 001-15395), with Old Sequential and MSLO each surviving the merger as wholly owned subsidiaries
of us (the ‘‘Mergers’’). Prior to the Mergers, we did not conduct any activities other than those incidental to
its formation and the matters contemplated in the Agreement and Plan of Merger, dated as of June 22, 2015,
as amended, by and among MSLO, Old Sequential, us, Singer Merger Sub, Inc. and Madeline Merger Sub,
Inc. (the ‘‘Merger Agreement’’). On December 4, 2015, pursuant to the Merger Agreement, Old Sequential
and MSLO completed the strategic combination of their respective businesses and became wholly owned
subsidiaries of the Company. Old Sequential was the accounting acquirer in the Mergers;
the
historical consolidated ﬁnancial statements for Old Sequential for periods prior to the Mergers are considered
to be the historical ﬁnancial statements of Sequential Brands Group, Inc. and thus, our consolidated ﬁnancial
statements for ﬁscal 2015 reﬂect Old Sequential’s consolidated ﬁnancial statements for period from January 1,
2015 through December 4, 2015, and Sequential Brand Group Inc.’s thereafter.

therefore,

Old Sequential’s common stock began trading on the Nasdaq Stock Market (‘‘Nasdaq’’) under the ticker

‘‘SQBG’’ on September 24, 2013, and we succeeded to Old Sequential’s listing on December 7, 2015.

Old Sequential was incorporated under the laws of the State of Delaware in 1982. In the second half of
2011, Old Sequential transitioned its business model to focus on licensing and brand management. Prior to
this, Old Sequential designed, marketed and provided, on a wholesale basis, branded apparel and apparel
accessories, as well as operated retail stores to sell our branded products. In the second half of 2011, Old
Sequential discontinued its wholesale distribution of branded apparel and apparel accessories, liquidated its
existing inventory and closed its remaining retail stores. To reﬂect its business transition, in March 2012, Old
Sequential changed its corporate name from People’s Liberation, Inc. to Sequential Brands Group, Inc.

Competition

We operate in a highly competitive market, both for our individual brands and for the Company as a

whole.

Our brands are subject to extensive competition from various domestic and foreign brands. Each of our
brands has a number of competitors within its speciﬁc product categories and distribution channels that
compete with the product categories and distribution channels in which our brands’ products are sold. Our
brands also compete within the retail stores and other distribution channels that carry such brand’s product
lines with other products offered by these retail stores and distribution channel in the respective product
categories,
including with products sold under our partners’ private labels. We also compete with the
e-commerce businesses of these stores and other websites that sell similar retail goods. Competitive factors
include design, style, quality, price, name recognition, service and advertising.

In addition, we face competition in establishing and maintaining licensee relationships for our existing
brands. Competitors may seek to enter into brand licensing arrangements with our current or potential
licensees, which may inhibit our ability to enter into or maintain licensing arrangements. In addition, the
retailers that currently sell our branded products may develop their own brands or acquire brands rather than
purchase products from our licensees, which could make it more difficult for our licensees to achieve their
sales targets.

We also compete with traditional apparel and consumer brand companies, as well as other brand
for acquisitions of accretive brands, particularly brands with high consumer

management companies,
awareness, broad appeal and applicability to a wide range of product categories.

7

Trademarks

Our trademarks and associated marks are registered or pending registration with the U.S. Patent and
Trademark Office in block letter and/or logo formats, as well as in combination with a variety of ancillary
marks for use with respect to a broad range of product categories, including footwear, eyewear, apparel,
fragrance, handbags, backpacks, watches, home goods and various other goods and services. We intend to
renew these registrations as appropriate prior to their expiration. In addition, we register our trademarks in
other countries and regions around the world. We also have domestic, foreign and international intellectual
property coverage for the technology and designs for several brands, for Heelys wheeled footwear and certain
Gaiam yoga-related products. We own the rights to 62 U.S. issued patents and 57 foreign issued patents
within 24 territories, along with several pending U.S. and foreign patent applications and industrial designs.
Further, in connection with the acquisition of the Martha Stewart brand, we are also the owners of domestic
and international design and utility patents covering certain Martha Stewart Crafts paper punches.

We monitor on an ongoing basis unauthorized use and ﬁlings of our trademarks and patents and rely
primarily upon a combination of federal, state and local laws, as well as contractual restrictions, to protect our
intellectual property rights, both domestically and internationally.

Seasonality

Our business is affected by seasonality in the businesses of many of our licensees. Historically, this can
result in higher revenues during our third and fourth quarters, which includes the holiday retail season in the
United States. We recognized 23% and 27% of our annual revenues during the third quarter of 2017 and
2016, respectively. We recognized 28% and 29% of our annual revenues during the fourth quarter of 2017 and
2016, respectively. Our seasonality may change as we continue to grow our business.

Employees

As of February 28, 2018, we had a total of 144 employees and area-speciﬁc consultants working to
support our continuing operations. None of our employees are represented by a labor union. We consider our
relationship with our employees to be satisfactory.

Available Information

Our corporate website address is www.sequentialbrandsgroup.com. The information contained on our
website is not part of this report. We ﬁle our annual, quarterly and current reports and other information with
the SEC. These reports, and any amendments to these reports, are made available on our website and can be
viewed and downloaded free of charge as soon as reasonably practicable after such reports are ﬁled with or
furnished to the SEC. The public may read and copy any materials ﬁled with the SEC at the SEC’s Public
Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may also obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition,
the SEC
maintains an internet site that contains annual, quarterly and current reports, proxy and information statements
and other
information regarding issuers that ﬁle electronically with the SEC, which is available at
www.sec.gov.

8

Item 1A. Risk Factors

Our operations and ﬁnancial results are subject to various risks and uncertainties that could adversely
affect our business, ﬁnancial condition, results of operations, cash ﬂows, prospects and/or the trading price of
our common stock. Although the risks and uncertainties listed below are those that we consider signiﬁcant,
material risks and uncertainties that are not presently known to us may also adversely affect our business,
ﬁnancial condition or results of operations. In evaluating our business and an investment in our securities, you
should consider the following risk factors, in addition to the other information presented in this report, as well
as the other reports we ﬁle from time to with the SEC:

Risks Related to Our Acquisitions
If we are unable to identify and successfully acquire additional brands or to ﬁnance the acquisition of such
brands, our rate of growth may be reduced and, even if additional trademarks are acquired, we may not
realize anticipated beneﬁts due to integration or licensing difficulties.

A key component of our growth strategy is the acquisition of additional brands. In 2016, we acquired
GAIAM, and in 2015, we acquired Jessica Simpson, Joe’s Jeans, Martha Stewart and Emeril Lagasse and are
continually exploring new acquisition opportunities. However, we face extensive competition for new brand
acquisitions, both from other brand management companies as well as traditional consumer brand companies,
retailers and private equity groups, which could increase the price of the acquisitions and make it more
difficult for us to ﬁnd suitable acquisition targets. In addition, even if we successfully acquire additional
brands or the rights to use additional brands, we may not be able to achieve or maintain proﬁtability levels
that justify our investment in, or realize planned beneﬁts with respect to, those additional brands.

Although we seek to temper our acquisition risks, all acquisitions, whether they are of additional
intellectual property assets or of the companies that own them, entail numerous risks, any of which could
detrimentally affect our results of operations and/or the value of our equity. These risks include, among others:

•

•

•

•

•

•

•

•

unanticipated costs associated with the target acquisition;

negative effects on reported results of operations from acquisition related charges and amortization
of acquired intangibles;

diversion of management’s attention from other business concerns;

the challenges of maintaining focus on, and continuing to execute, core strategies and business plans
as our brand and license portfolio grows and becomes more diversiﬁed;

inability to ﬁnd suitable licensees for our newly acquired brands;

adverse effects on our existing licensing relationships, including our existing licensees terminating
their license agreements with us;

potential difficulties associated with the retention of key employees and the assimilation of any other
employees, who may be retained by us in connection with or as a result of our acquisitions; and

risks of entering new domestic and international markets (whether it be with respect to new licensed
product categories or new licensed product distribution channels) or markets in which we have
limited prior experience.

In the event we acquire intellectual property assets or the companies that own them, our due diligence
reviews are subject to inherent uncertainties and may not reveal all potential risks. We may therefore fail to
discover or inaccurately assess undisclosed or contingent liabilities, including liabilities for which we may
have responsibility as a successor to the seller or the target company. In addition, as a successor, we may be
responsible for any past or continuing violations of law by the seller or the target company. Although we
generally attempt
to seek contractual protections through representations, warranties and indemnities, we
cannot be sure that we will obtain such provisions in our acquisitions or that such provisions will fully protect
us from all unknown, contingent or other liabilities or costs. Finally, claims against us relating to any
acquisition may necessitate our seeking claims against the seller for which the seller may not, or may not be
able to,
indemnify us or that may exceed the scope, duration or amount of the seller’s indemniﬁcation
obligations.

9

Acquiring additional brands could also have a signiﬁcant effect on our ﬁnancial condition and could
cause substantial ﬂuctuations in our liquidity, cash balances and quarterly and yearly results of operations.
Acquisitions could result
in the recording of signiﬁcant goodwill and intangible assets on our ﬁnancial
statements, the amortization or impairment of which would reduce our reported earnings in subsequent years.
We cannot make assurances with respect to the timing, likelihood or ﬁnancial or business effect of any
possible transaction. Moreover, our ability to grow through the acquisition of additional brands will also
depend on the availability of capital to complete the necessary acquisition arrangements. We may elect to
pursue acquisitions through debt ﬁnancing or the issuance of shares of our common stock or convertible
securities. The use of equity as transaction consideration could dilute our common stock, reduce our earnings
per share or reduce the market price of our common stock. We cannot guarantee that our stockholders will
achieve greater returns as a result of any future acquisitions we complete.

We may not realize all of the anticipated beneﬁts of our completed acquisitions or those beneﬁts may take
longer to realize than expected.

Our ability to realize the anticipated beneﬁts of our acquisitions depends, to a large extent, on our ability
to implement changes to acquired businesses in a manner that facilitates growth opportunities and realizes
anticipated synergies. We will be required to devote signiﬁcant management attention, resources and costs to
realigning the business practices and operations of acquired businesses to our brand management model. We
generally expect to beneﬁt from operational synergies from our acquisitions resulting from the consolidation
of capabilities and elimination of redundancies, as well as greater efficiencies from increased scale and market
integration. However,
the beneﬁts expected from
acquisitions and could adversely affect current revenues and investments in future growth, which could
adversely affect our results of operations. We cannot be certain that we will not be required to implement
further realignment activities, make additions or other changes to our workforce based on other cost reduction
measures or changes in the markets and industry in which we compete. In addition, future business conditions
and events may impact our ability to continue to realize any beneﬁts of these initiatives. If we are not able to
successfully achieve these objectives, the anticipated beneﬁts of our acquisitions, including the Mergers, may
not be realized fully or at all or may take longer to realize than expected.

this process may preclude or

impede realization of

The failure to successfully integrate certain businesses and operations as a result of our acquisitions in the
expected time frame may adversely affect our future results.

in consolidating certain businesses and functions of

Historically, our acquired businesses have operated as independent companies. We may face signiﬁcant
challenges
integrating their
organizations, procedures, policies and operations, addressing differences in the business cultures and retaining
key personnel. The integration process and other disruptions resulting from the business combinations
mentioned above may also disrupt each company’s ongoing businesses or cause inconsistencies in standards,
controls, procedures and policies that adversely affect our relationships with employees, business partners,
customers and others with whom we have business or other dealings, or limit our ability to achieve the
anticipated beneﬁts of the Mergers. In addition, difficulties in integrating the businesses mentioned above
could harm our reputation.

these businesses,

If we are not able to successfully combine our businesses in an efficient, effective and timely manner, the
anticipated beneﬁts and cost savings of the acquisitions may not be realized fully, or at all, or may take longer
to realize than expected, and the value of our common stock may be affected adversely.

Our success depends in part on the continued success of the Martha Stewart brands and the reputation and
popularity of Ms. Martha Stewart. Any adverse reactions to publicity relating to Ms. Stewart, or the loss of
her services, could adversely affect our revenues and results of operations as well as our ability to maintain
or generate a consumer base.

We believe that maintaining and enhancing the Martha Stewart brand is critical to our business, ﬁnancial
condition and results of operations. The Martha Stewart brand may be negatively impacted by a number of
factors, including the reputation of its content and products, the uniqueness and relevance of Martha Stewart
branded content, and the reputation and popularity of Ms. Stewart. If we fail to maintain and enhance the
Martha Stewart brand, or if excessive expenses are incurred in an effort to do so, our business, ﬁnancial
condition and results of operations could be materially and adversely affected.

10

Moreover, we believe Ms. Stewart’s image, reputation, popularity and talent are material to our success.
While Ms. Stewart is a member of our board of directors, has been named Chief Creative Officer and has
entered into an employment agreement and certain license agreements with us, we cannot assure that she will
be able to, or will continue to, serve in those capacities for any speciﬁc period. An extended or permanent
loss of her services or any repeated or sustained negative shifts in public or industry perceptions of her could
have a material adverse effect on our business.

We have incurred, and expect to continue to incur, signiﬁcant transaction costs in connection with our
acquisitions.

In connection with our acquisitions, we have incurred and expect to continue to incur signiﬁcant costs
and expenses, including ﬁnancial advisory, legal, accounting, consulting and other advisory fees and expenses,
reorganization and restructuring costs, litigation defense costs, severance/employee beneﬁt-related expenses,
ﬁling fees, printing expenses and other related charges. There are also a large number of processes, policies,
procedures, operations, technologies and systems that must be integrated in connection with our acquisitions.
While we assumed that a certain level of expenses would be incurred in connection with the acquisitions,
there are many factors beyond our control that could affect the total amount or timing of the integration and
implementation expenses. There may also be additional unanticipated signiﬁcant costs in connection with
acquisitions that we may not recoup. These costs and expenses could reduce the beneﬁts and income we
expect to achieve from our acquisitions.

Risks Related to Our Business

The failure of our licensees to fulﬁll their ﬁnancial obligations with respect to royalty payments under their
license agreements or to otherwise adequately produce, market and sell products bearing our brand names
in their license categories could have a material adverse effect on our business, ﬁnancial condition and
results of operations.

Our revenues are almost entirely dependent on royalty payments made to us pursuant

to license
agreements entered into with licensees of our brands. These license agreements often require that licensees
advance payment to us of a portion of the sales royalty payments due thereunder and, in most cases, provide
for guaranteed minimum royalty payments. The failure of our licensees to satisfy their ﬁnancial obligations
under these agreements, or their inability to operate successfully or at all, could result in a breach of an
agreement, early termination of an agreement, non-renewal of an agreement or an amendment of an agreement
to reduce the guaranteed minimum royalty payments or sales royalties due thereunder, each of which could
eliminate some or all of that revenue stream. A decrease or elimination of revenue could have a material
adverse effect on our ﬁnancial condition, results of operation and cash ﬂows.

During the term of a license agreement, our revenues and the value of our brands substantially depend
upon our licensee’s ability to maintain the quality and marketability and market acceptance of the branded
products licensed to such licensee and their failure to do so could negatively affect consumer perception of
our brands and harm our future growth and prospects. Further, the failure of our licensees to meet their
production, manufacturing and distribution requirements, or a weak economy or softness in the retail, apparel
or home goods sectors, could cause our licensees to default on their obligations to make guaranteed minimum
royalty payments to us or cause a decline in their sales and potentially decrease the amount of royalty
payments in excess of guaranteed minimum royalty payments due to us. In addition, our licensees’ inability to
maintain market acceptance of our brands or our failure to monitor our licensees’ compliance with their
license agreements or take appropriate corrective action when necessary may subject our intellectual property
assets to cancellation, loss of rights or devaluation and any devaluation of our trademarks or other intellectual
property could cause a material impairment in the carrying value of such intellectual property, potentially
resulting in a charge as an expense to our results of operations. If such developments occur or our licensees
are otherwise not successful, the value and recognition of our brands, as well as our business, ﬁnancial
condition and results of operations, could be materially adversely affected.

11

Our business depends on continued market acceptance of our brands and the products bearing these
brands.

The retail

industry is highly susceptible to changes in consumer preferences and continued market
acceptance of our brands and our licensees’ products, as well as market acceptance of any future products
bearing our brands and is subject to a high degree of uncertainty. In order to generate revenues and proﬁts,
our licensees must develop product offerings that appeal to consumers. We generally retain rights to monitor
the products our licensee’s design and produce and may retain the right to preview and approve such products,
we cannot assure you that licensees will develop, market and sell products that appeal to consumers. Any
signiﬁcant changes in consumer preferences or any inability on our licensees’ part to anticipate or react to
such changes could reduce demand for our branded products and erode the competitiveness of such products,
which would negatively affect our ﬁnancial condition, results of operations and cash ﬂows.

The continued success of our brands and branded products and market acceptance of new products and
product categories also depend on our ability to continually improve the effectiveness of our marketing efforts.
We devote signiﬁcant resources and expenditures to promoting our brands and new product launches, but there
can be no assurance as to our continued ability to effectively execute our marketing programs. To the extent
our licensees misjudge the market for our brands and branded products, or our marketing efforts are
unsuccessful, our business, results of operations and prospects will be adversely affected.

We have incurred a substantial amount of indebtedness in connection with our acquisitions, which could
adversely affect our ﬁnancial condition and results of operations.

As of December 31, 2017, we had outstanding net indebtedness of $630.6 million, as described more

fully in Note 9 to our consolidated ﬁnancial statements.

Our high level of indebtedness increases the possibility that we may be unable to generate cash sufficient
to pay when due the principal of, interest on or other amounts due in respect of such indebtedness. In
addition, we may incur additional debt from time to time to ﬁnance strategic acquisitions, investments, joint
to the restrictions contained in the documents that govern our
ventures or for other purposes, subject
indebtedness. If we incur additional debt, the risks associated with our leverage, including our ability to
service debt, would increase.

Our increased level of indebtedness could have other important consequences, which include, but are not

limited to, the following:

•

•

•

•

•

•

a substantial portion of our cash ﬂow from operations could be required to pay principal and interest
on our debt;

our interest expense could increase if interest rates increase because our borrowings generally bear
interest at ﬂoating rates;

our
leverage could increase our vulnerability to general economic downturns and adverse
competitive and industry conditions, placing us at a disadvantage compared to those of our
competitors that are less leveraged;

our debt service obligations could limit our ﬂexibility in planning for, or reacting to, changes in our
business and in the brand licensing industry;

our failure to comply with the ﬁnancial and other restrictive covenants in the documents governing
our indebtedness could result
if not cured or waived, results in
foreclosure on substantially all of our assets; and

in an event of default

that,

our level of debt may restrict us from raising additional ﬁnancing on satisfactory terms to fund
strategic acquisitions, investments, joint ventures and other general corporate requirements.

We cannot be certain that our earnings will be sufficient to allow us to pay principal and interest on our
debt and meet our other obligations. If we do not have sufficient earnings, we may be required to seek to
reﬁnance all or part of our then existing debt, sell assets, make additional borrowings or sell more securities,
none of which we can guarantee that we will be able to do and which, if accomplished, may adversely
affect us.

12

We are subject to a number of restrictive covenants under our debt arrangements, including customary
operating restrictions and customary ﬁnancial covenants. Our business, ﬁnancial condition and results of
operations may be adversely affected if we are unable to maintain compliance with such covenants.

Our outstanding debt is generally guaranteed jointly and severally by each of our domestic subsidiaries.
Our and our subsidiaries’ obligations under the July 2016 Debt Facilities (as deﬁned in Note 9 to our
consolidated ﬁnancial statements) and the associated guarantees are secured, in each case, by ﬁrst priority
liens (subject, in the case of the Amended GSO Credit Agreement, to the liens under the Amended BoA Credit
Agreement on, and security interests in, substantially all of the present and after acquired assets of us and
each of our subsidiaries, subject to certain customary exceptions). The July 2016 Debt Facilities contain a
including representations relating to the
number of restrictive covenants, representations and warranties,
intellectual property owned by us and our subsidiaries and the status of our material license agreements. In
addition, the July 2016 Debt Facilities include covenants and events of default, including, in the case of the
Amended BoA Credit Agreement, requirements that we (i) maintain a positive net income, (ii) satisfy a
maximum loan to value ratio (as calculated pursuant to the Amended BoA Credit Agreement) and (iii) satisfy
a maximum consolidated ﬁrst
to the Amended BoA Credit
lien leverage ratio (as calculated pursuant
Amendment), and, in the case of the Amended GSO Credit Agreement, to satisfy (i) a maximum consolidated
total leverage ratio (as calculated pursuant to the Amended GSO Credit Agreement) and (ii) a maximum
consolidated ﬁrst lien leverage ratio (as calculated pursuant to the Amended GSO Credit Agreement).

If our business, ﬁnancial condition or results of operations are adversely affected by one or more of the
risk factors described in this Annual Report on Form 10-K or elsewhere in our ﬁlings with the SEC, we may
be unable to maintain compliance with these ﬁnancial covenants. If we fail to comply with such covenants,
our lenders could demand immediate payment of amounts outstanding. Under such circumstances, we would
need to seek alternative ﬁnancing sources to fund our ongoing operations and to repay amounts outstanding
and satisfy our other obligations under our existing borrowing and ﬁnancing arrangements. Such ﬁnancing
may not be available on favorable terms, or at all. Consequently, we may be restricted in how we fund
ongoing operations and strategic initiatives and deploy capital and in our ability to make acquisitions. As a
result, our business, ﬁnancial condition and results of operations may be further adversely affected if we are
unable to maintain compliance with our debt covenants.

We may require additional capital to ﬁnance the acquisition of additional brands, and our inability to raise
such capital on beneﬁcial terms or at all could limit our growth.

We may, in the future, require additional capital to help fund all or part of potential acquisitions. If, at
the time required, we do not have sufficient cash to ﬁnance those additional capital needs, we will need to
raise additional funds through equity and/or debt ﬁnancing. We cannot guarantee that, if and when needed,
additional ﬁnancing will be available to us on acceptable terms or at all. If additional capital is needed and is
either unavailable or cost prohibitive, our growth may be limited as we may need to change our business
strategy to slow the rate of, or eliminate, our expansion plans. In addition, any additional ﬁnancing we
undertake could impose additional covenants upon us that restrict our operating ﬂexibility, and, if we issue
equity securities to raise capital, our existing stockholders may experience dilution or the new securities may
have rights senior to those of our common stock.

We have experienced rapid growth in recent years. If we fail to manage this or any future growth, our
business, ﬁnancial condition and results of operations could be negatively affected.

We have grown dramatically in recent years, principally as a result of acquisitions. For example, our
revenues were $88.3 million in 2015, $155.5 million in 2016 and $167.5 million in 2017. During this period,
we have acquired several brands (or rights to use those brands and trademarks) and increased our total number
of licensees to over one-hundred ﬁfty. Furthermore, we continue to evaluate and pursue appropriate acquisition
opportunities to the extent we believe that such opportunities would be in the best interests of our company
and our stockholders. This signiﬁcant growth has placed considerable demands on our management and other
resources and continued growth could place additional demands on such resources. Our ability to compete
effectively and to manage future growth, if any, will depend on the sufficiency and adequacy of our current
resources and infrastructure and our ability to continue to identify, attract and retain personnel to manage our
brands and the businesses we may acquire. We cannot assure you that our personnel, systems, procedures and

13

controls will be adequate to support our operations and properly oversee our brands. The failure to support
our operations effectively and properly oversee our brands could cause harm to our brands and have a material
adverse effect on our brands’ fair values and our business, ﬁnancial condition and results of operations. In
addition, we may be unable to leverage our core competencies in managing apparel brands to managing
brands in new product categories or other businesses we may acquire.

We or our licensees may not be able to continue to compete successfully because of intense competition
within our licensees’ markets, the strength of some of their competitors or other factors.

Our trademark licenses are for products primarily in the apparel, footwear, eyewear, fashion and home
accessories markets, in which our licensees face intense competition. Competitive factors in these markets
include design, quality, price, style, name recognition, service and advertising. Changing customer preferences
and the limited availability of shelf space can adversely affect the competitive position of our licensees’
products. Many of our
licensees’ competitors have greater ﬁnancial, distribution, marketing and other
resources than our licensees and have achieved signiﬁcant name recognition for their brands. Our licensees
may be unable to successfully compete in the markets for their products, which would adversely affect our
revenues and cash ﬂows, and we may not be able to continue to compete successfully with respect to our
licensing arrangements.

the
We and our licensees are subject
United States, foreign manufacturing and the price, availability and quality of raw materials, which could
result in interruptions to their operations or increase their operating costs, thereby affecting their ability to
deliver goods to the market, reducing or delaying their sales and decreasing our revenues.

to risks and uncertainties relating to operating outside of

We market and license our brands outside the United States, and many of our licensees operate outside
the United States. We face numerous risks in doing business outside the United States, including: (i) unusual
or burdensome foreign laws or regulatory requirements or unexpected changes to those laws or requirements;
(ii) tariffs, trade protection measures, import or export licensing requirements, trade embargoes, sanctions and
other trade barriers; (iii) competition from foreign companies; (iv) less effective and less predictable protection
and enforcement of our intellectual property; (v) changes in the political or economic condition of a speciﬁc
country or region (including, without
limitation, as a result of political unrest), particularly in emerging
markets; (vi) ﬂuctuations in the value of foreign currency versus the U.S. dollar and the cost of currency
exchange; (vii) potentially adverse tax consequences; and (viii) cultural differences in the conduct of business.
Any one or more of such factors could impact current or future international sales of our brands or inhibit our
ability to expand internationally. In addition, our business practices in international markets are subject to the
requirements of the U.S. Foreign Corrupt Practices Act and all other applicable anti-bribery laws, any
violation of which could subject us to signiﬁcant ﬁnes, criminal sanctions and other penalties.

Further, a signiﬁcant portion of the products sold by our licensees are manufactured overseas. There are
substantial risks associated with foreign manufacturing, including (i) changes in laws relating to quotas, and
the payment of tariffs and duties, (ii) ﬂuctuations in foreign currency exchange rates, (iii) shipping delays and
(iv) international political, regulatory and economic developments. Further, our licensees may experience
ﬂuctuations in the price, availability and quality of fabrics and raw materials used by them in their
manufactured apparel or purchased ﬁnished goods. Any of these risks could increase our licensees’ operating
costs. Our licensees also import ﬁnished products and assume all risk of loss and damage with respect to these
goods once they are shipped by their suppliers. If these goods are destroyed or damaged during shipment, the
revenues of our licensees could be reduced as a result of our licensees’ inability to deliver or their delay in
delivering their products. A reduction in the revenues generated by our licensees would reduce the amount of
our royalty revenues in excess of guaranteed minimum royalty payments and, in extreme circumstances, result
in failures to make guaranteed minimum royalty payments to us.

A substantial portion of our licensing revenue is concentrated with a limited number of licensees and retail
partners, such that the loss of a licensee or retail partner could materially decrease our revenue and cash
ﬂows.

Our licensing revenues are concentrated with a limited number of licensees and retail partners. During
the year ended December 31, 2017, three licensees represented at least 10% of net revenue, each accounting
for 11% of the Company’s net revenue. During the year ended December 31, 2016, one licensee represented

14

at least 10% of net revenue, accounting for 11% of the Company’s net revenue. Our revenue and cash ﬂows
would be materially and adversely affected if any of them were to have ﬁnancial difficulties affecting their
ability to make payments, elected not to renew or extend any existing license agreements or arrangements
with us or signiﬁcantly reduced their sales of these licensed products under any of these license agreements or
arrangements, and we were not able to replace the revenue generated by such licensees.

We may not be able to adequately protect our intellectual property rights, which could compromise our
competitive position and decrease the value of our brands.

We own, through our wholly-owned and majority-owned subsidiaries, U.S. federal trademark registrations
and foreign trademark registrations for our brands that are vital to the success and further growth of our
business. In addition, we own domestic, foreign and international intellectual property registrations for the
technology and designs incorporated into Martha Stewart Crafts paper punches, Heelys wheeled footwear,
Gaiam yoga products and Revo eyewear. The loss of or inability to enforce our proprietary rights could
if any third party
materially and adversely affect our business and ﬁnancial condition. For
independently develops similar products to those marketed and distributed by our licensees or manufactures
knock-offs of such products, it may harm the reputation of our brands, decrease their value or cause a decline
the laws of foreign countries may provide
in our licensees’ sales and thus our revenues. Additionally,
inadequate protection for intellectual property rights, making it difficult
to enforce such rights in those
countries.

instance,

We may need to bring legal claims to enforce or protect our intellectual property rights. Any litigation,
whether successful or unsuccessful, could result in substantial costs and diversions of resources and negatively
impact our business operations. In addition, notwithstanding the rights we have secured in our intellectual
property, third parties may bring claims against us or our licensees alleging that we or our licensees have
infringed on their intellectual property rights or that our or our licensees’ intellectual property rights are not
valid. Any claims against us or our licensees, with or without merit, could be time consuming and costly to
defend or litigate and therefore could adversely affect our business. In addition, to the extent that any of our
intellectual property assets is deemed to violate the proprietary rights of third parties in any litigation or
proceeding or as a result of any claim, then we and our licensees may be prevented from using it, which
could cause a breach or termination of license agreements. If our licensees are prevented from using the
intellectual property we have licensed to them, the revenues of our licensees will be reduced with respect to
those intellectual property assets, and the related royalty payments we receive could be reduced. Litigation
with respect to our intellectual property or breaches of our license agreements could result in a judgment or
monetary damages.

We depend upon the services of our key executives, including our Chief Executive Officer, Ms. Karen
Murray. If we lose the services of Ms. Murray or other key executives, we may not be able to fully
implement our business plan and future growth strategy, which would harm our business and prospects.

Our success is largely dependent upon the expertise and knowledge of our Chief Executive Officer,
Ms. Karen Murray, and other key members of the executive team, whom we rely upon to formulate our
business strategies. Our key executives leadership and experience in the licensing industry is important to the
successful implementation of our business and marketing strategy. We do not carry key person life insurance
covering our key executives, with the exception of Ms. Martha Stewart. The loss of the services of our key
executives could have a material adverse effect on our business prospects, ﬁnancial condition, results of
operations and cash ﬂows.

Our results of operations may ﬂuctuate signiﬁcantly, which may make it difficult
performance and result in volatility in our stock price.

to predict our

We have in the past experienced substantial variations in our revenue and results of operations from
quarter to quarter, and we expect to continue to experience such substantial variations. This variability is
affected by numerous factors, including:

•

•

the timing of the introduction of new licensed products by our licensees;

the level of consumer acceptance of our brands and licensed products;

15

•

•

•

•

seasonality resulting in higher revenues in our third and fourth quarters, in part because of the
holiday retail season;

general economic and industry conditions that affect consumer spending and retailer purchasing;

the availability of viable licensees that meet our brand criteria; and

the timing of marketing expenditures.

Because of these ﬂuctuations in our revenues, operating expenses and cash ﬂows it may be difficult to
make period-to-period comparisons of our result of operations and liquidity and it may be difficult for
securities analysts and investors to predict our performance. As a result, our results of operations in any
particular quarter may be below the expectations of securities analysts or investors. Fluctuations in our
performance and the failure to meet analyst expectations could cause declines or volatility in our stock price.

Demand for our brands and branded products may be materially and adversely affected by reductions in
disposable income, which in turn depends on general economic conditions and the global economy.

Our performance is subject to worldwide economic conditions and their impact on levels of consumer
spending that affect not only the ultimate consumer, but also retailers and distributors, who license our brands.
Consumer spending has ﬂuctuated signiﬁcantly and may become depressed or be subject to deterioration in
the near future. The worldwide apparel and consumer products industries are heavily inﬂuenced by general
economic cycles. Purchases of apparel, footwear, eyewear and accessories tend to decline in periods of
recession or uncertainty regarding future economic prospects, as disposable income declines. During periods
of recession or economic uncertainty, our licensees may not be able to maintain or increase sales of our
branded products to existing customers, make sales to new customers, open or operate new retail stores or
maintain sales levels at existing stores. As a result, our results of operations may be adversely and materially
affected by downward trends in the United States or global economy.

The market price of our common stock has declined signiﬁcantly and may be volatile, which could reduce
the demand for our common stock.

The publicly traded shares of our common stock have experienced, and may continue to experience,
signiﬁcant price ﬂuctuations, ranging between $9.14 and $1.36 during our last two ﬁscal years. Due to the
continued, sustained decline in our stock price, we recorded a goodwill impairment charge of $304.1 million
in the fourth quarter of 2017. See Note 8 to our consolidated ﬁnancial statements for further information on
our goodwill impairment. Future decreases or volatility in our stock price could reduce demand for our
common stock, regardless of our operating performance. The trading price of our common stock could also
change signiﬁcantly over short periods of time in response to write-downs or actual or anticipated variations
in our quarterly results of operations, announcements by us, our licensees or our respective competitors,
factors affecting our licensees’ markets generally or changes in national or regional economic conditions.

Our largest stockholders control a signiﬁcant percentage of our common stock and are represented on our
board of directors, which may enable such stockholders, alone or together with our other signiﬁcant
stockholders, to exert inﬂuence over corporate transactions and other matters affecting the rights of our
stockholders.

As of February 28, 2018, Tengram Capital Partners Gen2 Fund, L.P. (‘‘Tengram’’) beneﬁcially owns
approximately 12.0%, Carlyle Galaxy Holdings, L.P. (‘‘Carlyle’’) beneﬁcially owns approximately 10.1% and
Ms. Martha Stewart beneﬁcially owns approximately 12.7% of our outstanding shares of common stock.
Mr. William Sweedler, chairman of our board of directors, is a principal of Tengram, Mr. Rodney Cohen is a
director and managing director of Carlyle, and Ms. Martha Stewart became a director in connection with the
individually or
closing of the Mergers. As a result, each of Tengram, Carlyle and Ms. Martha Stewart,
collectively, are able to exercise substantial
inﬂuence over our board of directors and matters requiring
stockholder approval, including the election of directors and approval of signiﬁcant corporate actions, such as
mergers and other business combination transactions.

Circumstances may occur in which the interests of these stockholders could conﬂict with the interests of
our other stockholders. The voting power of these stockholders also could discourage others from seeking to
acquire control of us, which may reduce the market price of our common stock.

16

We may be deemed a former shell company and therefore resales of shares of our restricted common stock
in reliance on Rule 144 may be subject to additional requirements and Rule 144 may be unavailable at all
if we fail to comply with our reporting obligations.

resales of our

From time to time we have issued shares of our common stock in transactions exempt from registration
requirements, and such shares are ‘‘restricted securities’’ within the meaning of Rule 144. Rule 144 generally
permits the resale, subject to various terms and conditions, of restricted securities after they have been held
for six months. However, one of our predecessors was a former shell company and, as a result, securities laws
also might deem us to be a former shell company. If we are deemed a former shell company, Rule 144 may
be unavailable for
restricted common stock unless we have satisﬁed certain reporting
requirements under the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’), for the
twelve months preceding the time of sale. However, we cannot assure you that future reports or other
materials will be ﬁled as necessary to maintain the availability of the exemption under Rule 144. If we are
deemed a former shell company and we fail to comply with our reporting obligations under the Exchange Act,
Rule 144 will be unavailable to holders of our restricted common stock, which may limit the holders’ ability
to sell such restricted shares. In addition, because of the on-going reporting requirements under Rule 144,
restrictive legends on certiﬁcates for shares of our common stock cannot be removed except in connection
with an actual sale that is subject to an effective registration statement under, or an applicable exemption from
the registration requirements of, the Securities Act.

While we audit our licensees from time to time in the ordinary course, we otherwise rely on the accuracy of
our licensees’ retail sales reports for reporting and collecting our revenues, and if these reports are
untimely or incorrect, our revenue could be delayed or inaccurately reported.

Under our existing agreements, our licensees pay us licensing fees based in part on the retail value of
products sold. We rely on our licensees to accurately report the retail sales in collecting our license fees,
preparing our ﬁnancial reports, projections, budgets, and directing our sales and marketing efforts. All of our
license agreements permit us to audit our licensees. If any of our licensee reports understate the retail sales of
products they sell, we may not collect and recognize revenue to which we are entitled, or may endure
signiﬁcant expense to obtain compliance.

We do not foresee paying dividends in the foreseeable future.

We have not paid dividends on our common stock and do not anticipate paying dividends in the
foreseeable future. Instead, we plan to retain any earnings to maintain and expand our existing licensing
operations, further develop our brands and ﬁnance the acquisition of additional brands.

We have a signiﬁcant amount of intangible assets, including our trademarks, recorded on our balance
sheet. As a result of changes in market conditions and declines in the estimated fair value of these assets,
we have been required to write-down all of our goodwill and a portion of our other intangible assets and
may be required to record impairments of our intangible assets in the future which could adversely affect
our results of operations.

instead are subject

As of December 31, 2017, intangible assets represented $1.0 billion, or 90.7% of our total consolidated
assets. Under current accounting principles generally accepted in the United States (‘‘GAAP’’), indeﬁnite-lived
to impairment evaluation based on related
intangible assets are not amortized, but
least annually. Our trademarks are reviewed for
estimated fair values, with such testing to be done at
impairment whenever events or changes in circumstances indicate that
the carrying amount may not be
recoverable. Any write-down of
intangible assets resulting from future periodic evaluations would, as
applicable, either decrease our net income or increase our net loss and those decreases or increases could be
material. We recorded non-cash impairment charges of $36.5 million for indeﬁnite-lived intangible assets for
certain brands in the third quarter of 2017; the impairments arose due to reduced contractual minimums or
reduced sales forecasts in key distribution channels for these brands. Due to the continued, sustained decline
in our stock price, we recorded a goodwill impairment charge of $304.1 million in the fourth quarter of 2017.
See Note 7 and Note 8 to our consolidated ﬁnancial statements for further information on these impairment
charges.

17

Our use of certain tax attributes may be limited.

We have signiﬁcant net operating losses (‘‘NOLs’’). A valuation allowance has been provided as of
December 31, 2017 which primarily relates to state net operating losses and capital loss carryforwards. As of
December 31, 2017, we have federal NOLs available to carryforward to future periods of $195.6 million
which begin expiring in 2024 and we have state NOLs available to carryforward to future periods of
$205.7 million which begin expiring in 2018. We have foreign tax credits available to carryforward to future
periods of $1.6 million as of December 31, 2017 which began expiring in 2017. We have experienced several
changes of ownership under Section 382 of the Internal Revenue Code of 1986, as amended (the ‘‘Code’’)
which place various limitations on the use of NOLs. The limitation on NOLs is based upon a formula
provided under Section 382 of the Code that utilizes the fair market value of us and prevailing interest rates at
the time of the ownership change. An ‘‘ownership change’’ is generally a 50% increase in ownership over a
three-year period by stockholders who directly or indirectly own at least ﬁve percent of a company’s stock.
The limitations on the use of the NOLs under Section 382 could affect our ability to offset future taxable
income.

We may be a party to litigation in the normal course of business, which could affect our ﬁnancial position
and liquidity.

From time to time, we may be made a party to litigation in the normal course of business. For example,
as the owner of a trademark, we may be named as a defendant in a lawsuit relating to a product designed and
manufactured by a licensee of that trademark. If we are alleged to have infringed the intellectual property
rights of another party, any resulting litigation could be costly and could damage our reputation. Litigation
also diverts the time and resources of management, regardless of the merits of the claim. In most cases, our
licensees under the existing license agreements are obligated to defend and indemnify us, as licensor, and our
affiliates with respect to such litigation. We also maintain insurance for certain risks, but it is not possible to
obtain insurance to protect against all possible liabilities. Although historically the litigation involving us has
not been material to our ﬁnancial position or our liquidity, any litigation has an element of uncertainty and if
any such litigation were to be adversely determined and/or a licensee were to fail to properly indemnify us
and/or we did not have appropriate insurance coverage, such litigation could affect our ﬁnancial position and
liquidity.

Our business, ﬁnancial condition and results of operations could suffer in the event of security breaches,
cyber-attacks or unauthorized disclosures of personal information.

In conducting their business, including their e-commerce business, our licensees and retail partners obtain
and transmit conﬁdential information about their customers, including credit card information, through their
websites and their information technology systems. To the best of our knowledge, our licensees and retail
partners have not experienced any material misappropriation,
loss or other unauthorized disclosure of
conﬁdential or personally identiﬁable information as a result of a security breach or cyber-attack. If our
licensees or retail partners experience such a security breach or cyber-attack, it could adversely affect their
business and operations, including damaging their reputation and their relationships with their customers,
exposing them to risks of litigation and liability, all of which could have a material adverse effect on their
ability to meet their minimum net sales requirements and to make guaranteed minimum royalty payments to
us in accordance with the terms of their respective license agreements. We cannot assure you that our
licensees and retail partners will not experience any future security breaches, cyber-attacks or unauthorized
disclosures. In addition, as a result of recent security breaches at a number of prominent retailers, the media
and public scrutiny of information security and privacy has become more intense and the regulatory
environment has become more uncertain. As a result, our licensees and retail partners may incur signiﬁcant
costs to comply with laws regarding the protection and unauthorized disclosure of personal information, which
could also negatively affect their ability to generate sales and make royalty payments to us, resulting in a
material adverse effect on our business, ﬁnancial condition and results of operations.

Item 1B. Unresolved Staff Comments

None.

18

Item 2. Properties

Our principal offices are located at 601 West 26th Street, 9th Floor, New York, New York 10001, and our

telephone number is (646) 564-2577.

We lease the following properties as of December 31, 2017:

Location
New York, NY
New York, NY
Los Angeles, CA

Type
Corporate Headquarters
Office and Showroom
Office

Square Footage
(Approximate)
70,000
10,900
4,724

Expiration Date
December 31, 2033
September 12, 2024
July 31, 2020

On February 21, 2017, the Company amended the lease of its corporate headquarters which extends the
lease through December 31, 2033 and effective in February 2018,
lowers the rented square footage to
approximately 63,000 square feet of corporate office space and 7,000 square feet of other rentable space. On
January 12, 2018, the Company amended the lease of its corporate headquarters, effective in February 2018,
to increase the rented square footage by approximately 12,300 square feet.

We believe that the facilities we utilize are well maintained, in good operating condition and adequate to

meet our current and foreseeable needs.

Item 3. Legal Proceedings

MSLO Stockholder Complaint

In connection with the merger of MSLO in December 2015, the following 13 putative stockholder class
action lawsuits have been ﬁled in the Court of Chancery of the State of Delaware: (1) David Shaev Proﬁt
Sharing Plan f/b/o David Shaev v. Martha Stewart Living Omnimedia Inc. et. al., ﬁled on June 25,
2015; (2) Malka Raul v. Martha Stewart Living Omnimedia Inc. et. al., ﬁled on June 26, 2015; (3) Daniel
Lisman v. Martha Stewart Living Omnimedia Inc. et. al., ﬁled on June 29, 2015; (4) Matthew Sciabacucchi v.
Martha Stewart Living Omnimedia Inc. et. al., ﬁled on July 2, 2015; (5) Harold Litwin v. Martha Stewart
Living Omnimedia Inc. et. al., ﬁled on July 5, 2015; (6) Richard Schiffrin v. Martha Stewart, ﬁled on July 7,
(7) Cedric Terrell v. Martha Stewart Living Omnimedia Inc. et. al., ﬁled on July 8, 2015;
2015;
(8) Dorothy Moore v. Martha Stewart Living Omnimedia Inc. et. al., ﬁled on July 8, 2015; (9) Paul
Dranove v. Pierre De Villemejane. et. al., ﬁled on July 8, 2015; (10) Phuc Nguyen v. Martha Stewart Living
Omnimedia Inc. et. al., ﬁled on July 10, 2015; (11) Kenneth Steiner v. Martha Stewart Living Omnimedia Inc.
et. al., ﬁled on July 16, 2015; (12) Karen Gordon v. Martha Stewart et. al., ﬁled on July 27, 2015 against the
MSLO Board of Directors, Sequential, Madeline Merger Sub, Singer Merger; and (13) Anne Seader v. Martha
Stewart Living Omnimedia, Inc. et. al., ﬁled on July 28, 2015. All of the 13 class action lawsuits name the
Old Sequential, MSLO, the MSLO board of directors, Madeline Merger Sub, Inc., Singer Merger Sub, Inc.
and the Company as defendants and allege that (a) members of the MSLO board of directors breached their
ﬁduciary duties and (b) Old Sequential, MSLO, Madeline Merger Sub, Inc., Singer Merger Sub Inc. and the
Company aided and abetted such alleged breaches of ﬁduciary duties by the MSLO board of directors. On
August 18, 2015, the Delaware Chancery Court issued an order consolidating these actions for all purposes
under the caption In re Martha Stewart Living Omnimedia, Inc., et. al. to be the operative complaint in the
consolidated action. On January 12, 2016, after the consummation of the Mergers,
the plaintiffs ﬁled a
Veriﬁed Consolidated Amended Class Action Complaint, naming Ms. Martha Stewart, the Company, Old
Sequential, Madeline Merger Sub, Inc. and Singer Merger Sub, Inc. and alleging that (a) Ms. Stewart
breached her ﬁduciary duties to MSLO’s stockholders and (b) the Company, Old Sequential, Madeline Merger
Sub, Inc. and Singer Merger Sub, Inc. aided and abetted Ms. Stewart’s breach of her ﬁduciary duties. On
April 4, 2016, Ms. Stewart and the Sequential defendants ﬁled respective motions to dismiss the Veriﬁed
Consolidated Amended Class Action Complaint. On June 15, 2016, Lead Plaintiffs sought leave to amend the
complaint and ﬁle the Veriﬁed Second Amended Class Action Complaint, which Judge Slights granted on
July 14, 2016. On July 18, 2016, Lead Plaintiffs ﬁled the Veriﬁed Second Amended Class Action Complaint
against Defendants, asserting that Ms. Stewart breached her ﬁduciary duties and asserting that Sequential,
Madeline Merger Sub, Singer Merger Sub, and Holdings aided and abetted the alleged breach of ﬁduciary
duties. On July 28, 2016, Ms. Stewart and the Sequential defendants ﬁled respective motions to dismiss the

19

Veriﬁed Second Amended Class Action Complaint. On October 26, 2016, Lead Plaintiffs ﬁled their opposition
to Defendants’ motions to dismiss. On November 29, 2016, Ms. Stewart and the Sequential Defendants ﬁled
reply briefs in further supports of their motions to dismiss the Veriﬁed Second Amended Class Action
Complaint. Oral argument on the motions to dismiss occurred on March 22, 2017. In August 2017, the Court
ruled in favor of Ms. Stewart and the Sequential defendants on the motions to dismiss. The Lead Plaintiffs did
not appeal the ruling. This matter is resolved.

General Legal Matters

From time to time, we are involved in legal matters arising in the ordinary course of business. While we
believe that such matters are currently not material, there can be no assurance that matters arising in the
ordinary course of business for which we are, or could be, involved in litigation, will not have a material
adverse effect on our business, ﬁnancial condition or results of operations. Contingent liabilities arising from
potential litigation are assessed by management based on the individual analysis of these proceedings and on
the opinion of our lawyers and legal consultants.

With respect to our outstanding legal matters, based on our current knowledge, we believe that the
amount or range of reasonably possible loss will not, either individually or in the aggregate, have a material
adverse effect on our business, ﬁnancial condition or results of operations. However, the outcome of such
legal matters is inherently unpredictable and subject to signiﬁcant uncertainties. Further, regardless of the
outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of
management resources and other factors.

Item 4. Mine Safety Disclosures

Not applicable.

20

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities

Common Stock

The following table sets forth, for the periods indicated, the high and low sales prices for the common

stock, as determined from quotations on Nasdaq.

High

Low

Year Ended December 31, 2017

Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter

Year Ended December 31, 2016

Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter

$3.02
$4.08
$4.06
$5.20

$8.49
$8.46
$9.14
$7.93

$1.36
$2.55
$2.81
$3.30

$4.10
$6.56
$5.40
$5.37

On February 28, 2018, the closing sales price of our common stock as reported on Nasdaq was $1.98 per

share. As of February 28, 2018, there were approximately 1,168 holders of record of our common stock.

Dividends

We have not paid or declared cash distributions or dividends on our common stock during the last two
ﬁscal years or any subsequent interim period. We do not intend to pay cash dividends on our common stock
in the near future. We currently intend to retain all earnings, if and when generated, to ﬁnance our operations.
The declaration of cash dividends in the future will be determined by the Board based upon our earnings,
ﬁnancial condition, capital requirements, contractual obligations which may prohibit the payment of dividends,
including our current or any future indebtedness, and other relevant factors. Our ability to pay dividends on
our common stock and repurchase our common stock is restricted by certain of our current indebtedness and
may be restricted or prohibited under future indebtedness.

21

Equity Compensation Plan

The table below sets forth the information regarding our equity compensation plans as of December 31,

2017:

Plan category
Equity compensation plans approved by security
. . . . . . . . . . . . . . . . . . . . . . . . .

holders(1)

Equity compensation plans not approved by

security holders(2)

. . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Number of securities
to be issued upon
exercise of outstanding
options, warrants and
rights
(a)

Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)

Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reﬂected in
column (a))
(c)

416,001

438,160
854,161

$9.98

$6.17

—

N/A
—

(1) Consists of options to purchase our common stock issued under our 2005 Stock Incentive Plan (the
‘‘2005 Stock Incentive Plan’’) and the Sequential Brands Group, Inc. 2013 Stock Incentive Compensation
Plan (the ‘‘2013 Stock Incentive Plan’’). The 2005 Stock Incentive Plan was replaced by the 2013 Stock
Incentive Plan. No new grants were granted under the 2005 Stock Incentive Plan since August 2013,
when the 2013 Stock Incentive Plan came into effect. For a description of our 2013 Stock Incentive Plan,
see Note 14 to our consolidated ﬁnancial statements.

(2) Consists of warrants to purchase our common stock issued outside of the equity compensation plans in

connection with certain completed ﬁnancings and acquisitions.

Recent Sales of Unregistered Securities

There were no sales of unregistered securities during the period covered by this Annual Report on
Form 10-K that were not previously disclosed in a Quarterly Report on Form 10-Q or a Current Report on
Form 8-K.

Common Stock Repurchase Programs

During the quarter ended December 31, 2017, we repurchased 9,146 shares of our common stock from
employees for income tax withholdings related to the vesting of restricted stock. We do not currently have in
place a repurchase program with respect to our common stock.

Period

October 1 − 31 . . . . . . .
November 1 − 30 . . . . . .
December 1 − 31 . . . . . .
Total . . . . . . . . . . . . . . . .

(a)
Total Number of
Shares (or Units)
Purchased(1)

—
2,704
6,442
9,146

(b)
Average Price Paid
per Share (or Unit)
$ —
$1.64
$1.78

(c)
Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs
N/A
N/A
N/A
—

(d)
Maximum Number
(or Approximate Dollar
Value) of Shares
(or Units) that May
Yet Be Purchased
Under the
Plans or Programs
N/A
N/A
N/A
—

(1) During the fourth quarter of 2017, 9,146 shares were purchased from employees for tax withholding

purposes related to the vesting of restricted stock and restricted stock units.

22

Stock Performance Graph

The following graph compares the yearly percentage change in the cumulative total stockholder return on
our common stock during the period beginning on December 31, 2012 and ending on December 31, 2017
with the cumulative total return on the Standard & Poor’s 500 Composite Index (‘‘S&P 500’’) and a Custom
Peer Group, which includes Carter’s Inc., Cherokee, Inc., Columbia Sportswear Company, Perry Ellis
International, Inc., Guess ? Inc., Hanesbrands, Inc., Iconix Brand Group Inc., PVH Corp. and Xcel Brands Inc.
The comparison assumes that $100 was invested on December 31, 2012 in our common stock, S&P 500 and
Custom Peer Group. The stock performance shown on the graph should not be considered indicative of future
performance.

Comparison of Cumulative Five Year Total Return
Among Sequential Brands Group, Inc., the S&P 500 index,
and a Custom Peer Group

$300

$250

$200

$150

$100

$50

$0

2012

2013

2014

2015

2016

2017

Sequential Brands Group, Inc.

S&P 500 Index

Peer Group

23

Item 6. Selected Financial Data

The following table presents our selected historical ﬁnancial data for the periods indicated. The selected
historical ﬁnancial data has been derived from our audited consolidated ﬁnancial statements referred to under
Item 8 of this Annual Report on Form 10-K. The following selected historical ﬁnancial data should be read in
conjunction with the consolidated ﬁnancial statements and notes thereto that appear elsewhere in this Annual
Report on Form 10-K and in ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations’’ set forth in Item 7 of this Annual Report on Form 10-K. The historical consolidated ﬁnancial
statements for Old Sequential for periods prior to the Mergers are considered to be the historical ﬁnancial
statements of Sequential Brands Group, Inc. and thus, our consolidated ﬁnancial statements for ﬁscal 2015
reﬂect Old Sequential’s consolidated ﬁnancial statements for the period from January 1, 2015 through
December 4, 2015 and for ﬁscal years 2014 and 2013 and Sequential Brand Group Inc.’s thereafter. For more
information see
‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Items Affecting Comparability of Period Presented’’ set forth in Item 7 of this Annual Report on
Form 10-K. We have not declared dividends during the periods presented below.

Consolidated Statements of Operations

. . . . . . . . . . . . . . . . . . . . . $

Data:
Net revenue
. . . . . . . . . . . . . . . .
Operating expenses
Impairment charges
. . . . . . . . . . . . . . . .
(Loss) income from operations . . . . . . . . .
(Loss) income from continuing operations. .
Loss from discontinued operations, net of

tax . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated net (loss) income . . . . . . . . .
Net income attributable to noncontrolling

2017

Year Ended December 31,
2015
(in thousands, except share and per share data)

2014

2016

167,464 $
79,443
340,628
(252,607)
(181,546)

155,528 $
85,392
—
70,136
6,631

88,262 $
58,611
—
29,651
2,416

41,837 $
29,806
—
12,031
(646)

—
(181,546)

—
6,631

—
2,416

—
(646)

(422)

2013

22,653
16,845
—
5,808
(11,142)

(6,244)
(17,386)

(588)

interest

. . . . . . . . . . . . . . . . . . . . . . .

(4,172)

(7,452)

(5,287)

Net loss attributable to Sequential Brands

Group, Inc. and Subsidiaries . . . . . . . . . $ (185,718) $

(821) $

(2,871) $

(1,068) $

(17,974)

Basic and diluted loss per share:

Continuing operations . . . . . . . . . . . . . $
Discontinued operations . . . . . . . . . . . .
Attributable to Sequential Brands Group,

(2.95) $
—

(0.01) $
—

(0.07) $
—

(0.04) $
—

(0.66)
(0.35)

Inc. and Subsidiaries . . . . . . . . . . . . $

(2.95) $

(0.01) $

(0.07) $

(0.04) $

(1.01)

Basic and diluted weighted average

common shares outstanding . . . . . . . . . 62,861,743

61,912,410

41,177,523

29,964,604

17,713,140

Consolidated Balance Sheet Data:

Cash . . . . . . . . . . . . . . . . . . . . . . . . $
. . . . . . . .
Working capital (as deﬁned)
Intangible assets, net
. . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . .
Long-term debt, including current

2017

2016

As of December 31,
2015
(in thousands)

2014

2013

18,902
32,111
995,170
1,097,211

$

19,133
26,778
1,030,212
1,434,863

$

41,560
49,594
872,277
1,289,837

$ 22,521
23,584
303,039
526,363

$ 25,125
17,745
115,728
153,605

portion . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . .

630,597
353,538

645,035
537,568

542,065
525,649

175,500
264,900

57,931
81,169

24

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read together with our consolidated ﬁnancial statements
and related notes thereto included elsewhere in this Annual Report on Form 10-K, as well as the disclosures
about forward-looking statements in Item 1 and the section ‘‘Risk Factors’’ contained in Item 1A. This
discussion summarizes the signiﬁcant factors affecting our consolidated operating results, ﬁnancial condition
and liquidity and cash ﬂows for the ﬁscal year ended December 31, 2017. Except for historical information,
the matters discussed in this Management’s Discussion and Analysis of Financial Condition and Results of
Operations are forward-looking statements that involve risks and uncertainties and are based upon judgments
concerning various factors that are beyond our control.

Licensing and Brand Management Business

We own a portfolio of consumer brands in the home, active and fashion categories, including Martha
Stewart, Jessica Simpson, AND1, Avia and Joe’s Jeans, GAIAM and Heelys. We aim to maximize the value of
our brands by promoting, marketing and licensing the brands through various distribution channels, including
to retailers, wholesalers and distributors in the United States and in certain international territories. Our core
strategy is to enhance and monetize the global reach of our existing brands, and to pursue additional strategic
acquisitions to grow the scope of and diversify our portfolio of brands.

We aim to acquire well-known consumer brands with high potential for growth and strong brand
awareness. We additionally seek to diversify our portfolio by evaluating the strength of targeted brands and
the expected viability and sustainability of future royalty streams. Upon the acquisition of a brand, we partner
with leading wholesalers and retailers to drive incremental value and maximize brand equity. We focus on
certain key initiatives in our licensing and brand management business. These initiatives include:

• Maximizing the value of our existing brands by creating efficiencies, adding additional product
categories, expanding distribution and retail presence and optimizing sales through innovative
marketing that increases consumer brand awareness and loyalty;

•

•

•

Expanding through ecommerce channels;

Developing international expansion through additional licenses, partnerships and other arrangements
with leading retailers and wholesalers outside the United States; and

Acquiring consumer brands (or the rights to such brands) with high consumer awareness, broad
appeal and applicability to a wide range of product categories.

Our business is designed to maximize the value of our brands through license agreements with partners
that are responsible for manufacturing and distributing our licensed products and, with the exception of our
Martha Stewart brand, primarily responsible for the design of such licensed products. Our brands are licensed
for a broad range of product categories, including apparel, footwear, eyewear, fashion accessories and home
goods, as well as, with respect to our Martha Stewart brand, food, wine, and a variety of media related assets,
licensees who have
such as magazines, books and other print and digital content. We seek to select
demonstrated the ability to produce and sell quality products in their respective licensed categories and have
the capability to meet or exceed the minimum sales thresholds and guaranteed minimum royalty payments that
we generally require.

We license our brands to both wholesale and direct-to-retail licensees. In a wholesale license, a wholesale
supplier is granted rights (typically on an exclusive basis) to a single or small group of related product
categories for a particular brand for sale to multiple accounts within an approved channel of distribution and
territory. In a direct-to-retail license, a single retailer is granted the right (typically on an exclusive basis) to
sell branded products in a broad range of product categories through its brick and mortar stores and
e-commerce sites. As of December 31, 2017, we had more than one-hundred ﬁfty licensees, with wholesale
licensees comprising a signiﬁcant majority.

Our license agreements typically require a licensee to pay us royalties based upon net sales and, in most
cases, contain guaranteed minimum royalties. Our license agreements also require licensees to support the
brands by either paying or spending contractually guaranteed minimum amounts for the marketing and
advertising of the respective licensed brands. As of February 28, 2018 we had contractual rights to receive an

25

aggregate of $379.5 million in minimum royalty and marketing and advertising revenue from our licensees
through the balance of the current terms of such licenses, excluding any renewals.

Items Affecting Comparability of Periods Presented

We were formed on June 5, 2015, for the purpose of effecting the merger of Singer Merger Sub, Inc.
with and into SQBG, Inc. (previously known as Sequential Brands Group, Inc.) (SEC File No. 001-36082)
(‘‘Old Sequential’’) and the merger of Madeline Merger Sub,
Inc. with and into MSLO (SEC
File No. 001-15395), with Old Sequential and MSLO each surviving the merger as wholly owned subsidiaries
of us (the ‘‘Mergers’’). Prior to the Mergers, we did not conduct any activities other than those incidental to
its formation and the matters contemplated in the Agreement and Plan of Merger, dated as of June 22, 2015,
as amended, by and among MSLO, Old Sequential, us, Singer Merger Sub, Inc., and Madeline Merger Sub,
Inc. (the ‘‘Merger Agreement’’). On December 4, 2015, pursuant to the Merger Agreement, Old Sequential
and MSLO completed the strategic combination of their respective businesses and became wholly owned
the
subsidiaries of the Company. Old Sequential was the accounting acquirer in the Mergers;
historical consolidated ﬁnancial statements for Old Sequential for period prior to the Mergers are considered
to be the historical ﬁnancial statements of Sequential Brands Group, Inc. and thus, our consolidated ﬁnancial
statements for ﬁscal 2015 reﬂect Old Sequential’s consolidated ﬁnancial statements for period from January 1,
2015 through December 4, 2015, and Sequential Brands Group Inc.’s thereafter.

therefore,

Recently Issued Accounting Standards

Refer

to ‘‘Recently Issued Accounting Standards’’ in Note 2 of Notes to Consolidated Financial

Statements included in this Form 10-K.

Critical Accounting Policies, Judgments and Estimates

The preparation of our consolidated ﬁnancial statements in conformity with GAAP requires management
to exercise its judgment. We exercise considerable judgment with respect to establishing sound accounting
policies and in making estimates and assumptions that affect the reported amounts of our assets and liabilities,
our recognition of revenues and expenses, and our disclosure of commitments and contingencies at the date of
the ﬁnancial statements. On an on-going basis, we evaluate our estimates and judgments. We base our
including our historical experience, knowledge of our
estimates and judgments on a variety of factors,
business and industry and current and expected economic conditions, that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. We periodically re-evaluate our estimates
and assumptions with respect to these judgments and modify our approach when circumstances indicate that
modiﬁcations are necessary. While we believe that the factors we evaluate provide us with a meaningful basis
for establishing and applying sound accounting policies, we cannot guarantee that the results will always be
accurate. Since the determination of these estimates requires the exercise of judgment, actual results could
differ from such estimates.

A description of signiﬁcant accounting policies that require us to make estimates and assumptions in the

preparation of our consolidated ﬁnancial statements is as follows:

Revenue Recognition. We have entered into various license agreements that provide revenues based on
guaranteed minimum royalty payments and advertising/marketing fees with additional royalty revenues based
on a percentage of deﬁned sales. Guaranteed minimum royalty payments and advertising/marketing revenue
are recognized on a straight-line basis over the term of each contract year, as deﬁned in each license
agreement. Royalty payments exceeding the guaranteed minimum royalty payments are recognized as income
during the period corresponding to the licensee’s sales. Payments received as consideration for the grant of a
license are recorded as deferred revenue at the time payment is received and recognized ratably as revenue
over the term of the license agreement. Advanced royalty payments are recorded as deferred revenue at the
time payment
is received and recognized as revenue when earned. Revenue is not recognized unless
collectability is reasonably assured.

If license agreements are terminated prior to the original licensing period, we recognize revenue in the

amount of any contractual termination fees, unless such amounts are deemed non-recoverable.

26

With respect

to editorial content for books, we receive advance payments from our publishers and
recognize revenue when manuscripts are delivered to and accepted by the publishers. Revenue is also earned
from book publishing when sales on a unit basis exceed the advanced royalty.

Television sponsorship revenues are generally recorded ratably across the period when new episodes

initially air.

We entered into a transaction with a media company for which we receive advertising credits as part of
the consideration exchanged for trademark licensing rights. This transaction is recorded at the estimated fair
value of the advertising credits received, as their fair value is deemed more readily determinable than the fair
value of the trademark licensing right provided by the Company, in accordance with ASC 845, Nonmonetary
Transactions. The fair value of the advertising credits are recorded as revenue and in other assets when
earned, and expensed when the advertising credits are utilized. We recorded revenue of $3.7 million for the
year ended December 31, 2017 related to the advertising credits earned. We did not record any expense
related to the advertising credits as they have not yet been utilized.

including goodwill, when performing its goodwill

Goodwill and Intangible Assets. Goodwill is tested for impairment at the reporting unit level (operating
segment or one level below an operating segment) on an annual basis (on October 1st) and between annual
tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a
reporting unit below its carrying value. The Company considers its market capitalization and the carrying
value of its assets and liabilities,
test. In
evaluating goodwill for impairment, we ﬁrst assess qualitative factors to determine whether it is more likely
than not that the fair value of a reporting unit is less than its carrying amount. Qualitative factors considered
include, for example, macroeconomic and industry conditions, overall ﬁnancial performance, and other
relevant entity-speciﬁc events. If we bypass the qualitative assessment, or conclude that it is more likely than
not that the fair value of a reporting unit is less than its carrying value, we then perform a quantitative
goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill
impairment to be recognized, if any. If the carrying value of the reporting unit’s goodwill exceeds the implied
fair value of the goodwill, an impairment loss is recognized in the amount of that excess, not to exceed the
carrying amount of goodwill. See Note 2 — Summary of Signiﬁcant Accounting Policies in Notes to our
consolidated ﬁnancial statements for further information.

impairment

Intangible assets represent trademarks, customer agreements and patents related to our brands and a
favorable lease. Finite-lived intangible assets are amortized on a straight-line basis over the estimated useful
lives of the assets. Indeﬁnite-lived intangible assets are not amortized, but instead are subject to impairment
evaluation. The carrying value of intangible assets and other ﬁnite-lived assets is reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Indeﬁnite-lived intangible assets are tested for impairment on an annual basis (on October 1st)
and between annual tests if an event occurs or circumstances change that indicate that the carrying amount of
the indeﬁnite-lived intangible asset may not be recoverable.

When conducting its impairment assessment of indeﬁnite-lived intangible assets, we initially perform a
qualitative evaluation of whether it is more likely than not that the asset is impaired. If it is determined by a
qualitative evaluation that it is more likely than not that the asset is impaired, we then test the asset for
recoverability. Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of the asset
to its future discounted net cash ﬂows. If the carrying amount of such assets are
considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.

Assumptions used in our fair value estimates are as follows: (i) discount rates; (ii) projected annual
revenue growth rates; and (iii) projected long-term growth rates. Our estimates also factor in economic
conditions and expectations of management which may change in the future based on period-speciﬁc facts and
circumstances.

27

Due to the identiﬁcation of impairment

indicators during the quarter ended September 30, 2017,
speciﬁcally the impairment of certain tradenames due to reduced contractual minimums or reduced sales
forecasts in key distribution channels,
testing of its goodwill and
indeﬁnite-lived assets at September 30, 2017, which replaced its October 1st annual test. As a result of its
testing, the Company recorded a non-cash impairment charge of $36.5 million relating to its indeﬁnite-lived
intangible assets during the quarter ended September 30, 2017.

the Company performed impairment

Due to the identiﬁcation of impairment indicators during the quarter ended December 31, 2017, the
Company performed impairment testing of its goodwill and indeﬁnite-lived assets at December 31, 2017. As a
result of its testing, the Company recorded a non-cash goodwill impairment charge of $304.1 million during
the quarter ended December 31, 2017.

During the year ended December 31, 2016, we changed our annual

testing date from
December 31 to October 1. We believe this new date is preferable because it allows for more timely
completion of the annual impairment test prior to the end of our annual ﬁnancial reporting period. This
change in accounting principle did not delay, accelerate or avoid an impairment charge. We have determined
that it would be impracticable to objectively determine projected cash ﬂow and related valuation estimates that
would have been used as of each October 1 of prior reporting periods without the use of hindsight. As such,
we applied the change in annual impairment testing date prospectively beginning October 1, 2016.

impairment

Income Taxes. Current income taxes are based on the respective periods’ taxable income for federal,
foreign and state income tax reporting purposes. Deferred tax liabilities and assets are determined based on
the difference between the ﬁnancial statement and income tax bases of assets and liabilities, using statutory
tax rates in effect for the year in which the differences are expected to reverse. In accordance with
ASU No. 2015-17 ‘‘Balance Sheet Classiﬁcation of Deferred Taxes’’, all deferred income taxes are reported
and classiﬁed as non-current. A valuation allowance is required if, based on the weight of available evidence,
it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management
considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based on consideration of these items and new tax provisions
under the Tax Act, primarily the new limitation on interest expense deductions, management has determined
that enough certainty exists to warrant the release of the valuation allowance recorded against substantially all
of the Company’s deferred tax assets as of December 31, 2017. See Note 15 to our consolidated ﬁnancial
statements for further information on the release of the our valuation allowance.

The Company applies the FASB guidance on accounting for uncertainty in income taxes. The guidance
clariﬁes the accounting for uncertainty in income taxes recognized in an enterprise’s ﬁnancial statements in
accordance with other authoritative GAAP and prescribes a recognition threshold and measurement process for
ﬁnancial statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. The guidance also addresses derecognition, classiﬁcation, interest and penalties, accounting in interim
periods, disclosure and transition. During the year ended December 31, 2017, the Company did not have any
reserves or accrued interest and penalties recorded through current income tax expense in accordance with
ASC 740, Income Taxes (‘‘ASC 740’’). During the year ended December 31, 2016, the Company released its
$0.3 million reserve of certain unrecognized tax beneﬁts along with $0.3 million of accrued interest and
penalties through current income tax expense in accordance with ASC 740. Interest and penalties related to
uncertain tax positions, if any, are recorded in income tax expense. Tax years that remain open for assessment
for federal and state tax purposes include the years ended December 31, 2014 through December 31, 2017.

for

Stock-Based Compensation. We account

stock-based compensation under ASC Topic 718,
Compensation — Stock Compensation, which requires companies to measure and recognize compensation
expense for all stock-based payments at fair value. Compensation cost for restricted stock is measured using
the quoted market price of our common stock at the date the common stock is granted. For restricted stock
and restricted stock units, for which restrictions lapse with the passage of time (‘‘time-based restricted
stock’’), compensation cost is recognized on a straight-line basis over the period between the issue date and
the date that restrictions lapse. Time-based restricted stock is included in total shares of common stock
outstanding upon the lapse of applicable restrictions. For restricted stock, for which restrictions are based on
performance measures (‘‘performance stock units’’ or ‘‘PSUs’’), restrictions lapse when those performance

28

measures have been deemed achieved. Compensation cost for PSUs is recognized on a straight-line basis
during the period from the date on which the likelihood of the PSUs being earned is deemed probable and
(x) the end of the ﬁscal year during which such PSUs are granted or (y) the date on which awards of such
PSUs may be approved by the compensation committee of
the Company’s board of directors (the
‘‘Compensation Committee’’) on a discretionary basis, as applicable. PSUs are included in total shares of
common stock outstanding upon the lapse of applicable restrictions. PSUs are included in total diluted shares
of common stock outstanding when the performance measures have been deemed achieved but the PSUs have
not yet been issued.

Fair value cost for stock options and warrants, in accordance with accounting for stock-based payment
under GAAP, is calculated using the Black-Scholes valuation model based on awards ultimately expected to
vest and expensed on a straight-line basis over the requisite service period of the grant. The Company elected
to early adopt the provisions of ASU 2016-09 and reduces compensation cost for actual forfeitures as they
occur. Prior to the adoption to ASU 2016-09, the Company’s estimated forfeiture rate utilized in calculating
compensation cost was zero percent based on the Company’s limited historical forfeiture experience.

At each subsequent reporting period prior to the lapse of restrictions on warrants, time-based restricted
stock and PSUs granted to non-employees, the Company remeasures the aggregate compensation cost of such
the end of such reporting period and revises the straight-line
grants using the Company’s fair value at
recognition of compensation cost in line with such remeasured amount.

Contingent Consideration. We recognize the acquisition-date fair value of contingent consideration as
part of the consideration transferred in exchange for the acquiree or assets of the acquiree in a business
combination. The contingent consideration is classiﬁed as either a liability or equity in accordance with
ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and
Equity. If classiﬁed as a liability, the liability is remeasured to fair value at each subsequent reporting date
until the contingency is settled. Increases in fair value are recorded as losses, while decreases are recorded as
gains. If classiﬁed as equity, contingent consideration is not remeasured and subsequent settlement
is
accounted for within equity.

Reportable Segment. An operating segment, in part, is a component of an enterprise whose operating
results are regularly reviewed by the chief operating decision maker (the ‘‘CODM’’) to make decisions about
resources to be allocated to the segment and assess its performance. Operating segments may be aggregated
only to a limited extent. Our CODM, the Chief Executive Officer, reviews ﬁnancial information presented on
a consolidated basis, accompanied by disaggregated information about revenues for purposes of making
operating decisions and assessing ﬁnancial performance. Accordingly, we have determined that we have a
single operating and reportable segment. In addition, we have no foreign operations or any assets in foreign
locations. Nearly all of our operations consist of a single revenue stream, which is the licensing of our
trademark portfolio, with an immaterial portion of revenues derived from television, book, café operations and
certain commissions.

29

Results of Operations

Comparison of the Years Ended December 31, 2017 and 2016

The following table summarizes our results of operations for the years indicated and is derived from our

consolidated ﬁnancial statements:

Years Ended December 31,

2017

2016

Change
(Dollars)

Change
(Percentage)

(in thousands, except percentages)

Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from operations . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense
Interest expense, net
. . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income before income taxes . . . . . . . . . . . . . . .
(Beneﬁt from) provision for income taxes . . . . . . . . . . .
Consolidated net (loss) income . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interest . . . . . .
Net loss attributable to Sequential Brands Group, Inc.

$ 167,464
79,443
340,628
(252,607)
1,583
59,891
(314,081)
(132,535)
(181,546)
(4,172)

$155,528
85,392
—
70,136
3,810
50,538
15,788
9,157
6,631
(7,452)

$ 11,936
(5,949)
340,628
(322,743)
(2,227)
9,353
(329,869)
(141,692)
(188,177)
3,280

and Subsidiaries

. . . . . . . . . . . . . . . . . . . . . . . . . .

$(185,718)

$

(821)

$(184,897)

7.7%
(7.0)%
100.0%
(460.2)%
(58.5)%
18.5%
(2,089.4)%
(1,547.4)%
2,837.8%
(44.0)%
(22,521.0)%

Net Revenue. The increase in net revenue for the year ended December 31, 2017 as compared to the
year ended December 31, 2016 is primarily attributable to the acquisition of GAIAM, Inc. during the third
quarter of 2016 and increased revenues in the Avia, Joe’s Jeans, and Ellen Tracy brands offset by decreased
revenues in the Martha Stewart brand. Net revenue for the year ended December 31, 2017 consists primarily
of licensing revenue earned from our license agreements relating to the Martha Stewart, Jessica Simpson,
GAIAM, Avia, AND1, Joe’s Jeans and Ellen Tracy brands. Net revenue for the year ended December 31, 2016
consists primarily of licensing revenue earned from our license agreements relating to the Martha Stewart,
Jessica Simpson, Avia, AND1, GAIAM, Ellen Tracy and Joe’s Jeans brands.

Operating expenses. Operating expenses decreased $5.9 million for the year ended December 31, 2017
to $79.4 million compared to $85.4 million for the year ended December 31, 2016. This decrease was
primarily driven by a decrease in restructuring costs of $3.2 million, stock-based compensation costs of
$1.8 million, professional fees of $3.2 million, deal advisory costs of $3.0 million, advertising costs of
$2.8 million, and rent costs of $1.7 million, partially offset by increased stock-based compensation and
severance of $6.7 million in connection with the Company’s CEO transition, increased compensation costs of
$1.2 million, $1.0 million of higher expenses related to the Martha & Snoop’s Potluck Dinner Party show,
and increased contributions of $0.9 million.

Impairment charges. During the year ended December 31, 2017 we recorded non-cash impairment
charges of $304.1 related to our goodwill and $36.5 million for indeﬁnite-lived intangible assets related to the
trademarks of ﬁve of our non-core brands: Caribbean Joe, Revo, Franklin Mint, Nevados, and FUL. Fair
value for each trademark was determined based on estimates of future discounted cash ﬂows. The trademark
impairments arose due to reduced contractual minimums or reduced sales forecasts in key distribution
channels for these brands. The goodwill impairment was triggered in the fourth quarter of 2017 by the
continued decline of our stock price and the related decline in our market capitalization. During the fourth
quarter of 2017, our stock price and market capitalization declined approximately 41%, consistent with the
decline in market capitalization of similar companies in our sector.

Other expense. Other expense during the year ended December 31, 2017 consists of a $1.9 million loss
recorded in connection with the sale of available-for-sale securities and other immaterial items partially offset
by MSLO pre-acquisition sales tax refunds of $0.1 million and other immaterial items. Other expense during
the year ended December 31, 2016 consists of
the impairment of our available-for-sale securities of
$4.4 million partially offset by other immaterial items.

30

Interest expense, net. The year-over-year increase in net interest expense of $9.4 million is primarily
due to an increase in interest incurred under our loan agreements. Interest expense, net during the year ended
December 31, 2017 includes interest incurred under our loan agreements of $55.1 million, non-cash interest
related to the amortization of deferred ﬁnancing costs of $3.9 million and non-cash interest of $0.9 million
related to the accretion of the present value of guaranteed contractual payments assumed through certain of
the Company’s acquisitions. Interest expense during the year ended December 31, 2016 includes interest
incurred under our loan agreements and interest rate caps of $46.2 million, non-cash interest related to the
amortization of deferred ﬁnancing costs of $2.8 million and the write-off of $0.3 million of deferred ﬁnancing
costs as a result of an extinguishment a portion of
in accordance with
ASC 470 — Debt
in connection with the Company’s entry into the Amended BoA Credit Agreement.
Additionally, we expensed non-cash interest of $1.2 million related to the accretion of the present value of
guaranteed contractual payments assumed through certain of the Company’s acquisitions in 2015.

the BoA Credit Agreement

Income taxes. The beneﬁt from income taxes for the year ended December 31, 2017 primarily
represents a tax beneﬁt recognized due to the decrease in deferred tax liabilities as a result of the reduction in
the future corporate tax rate from 35% to 21% and the release of the valuation allowance recorded against
substantially all of the Company’s deferred tax assets prior to December 31, 2017, offset by the non-tax
deductible goodwill impairment. The provision for income taxes for the year ended December 31, 2016
represents the non-cash deferred tax expense created by the amortization of certain acquired trademarks for
tax but not book purposes and taxes for state, local and foreign jurisdictions. The 2016 effective tax rate
differed from the statutory tax rate primarily due to beneﬁts from taxes attributable to noncontrolling interest,
changes in valuation allowance, change in state tax rates and a reversal of unrecognized tax beneﬁts.

Noncontrolling interest. Noncontrolling interest for the year ended December 31, 2017 represents net
income allocations of $5.8 million to With You, Inc., a member of With You LLC (the partnership between us
and Jessica Simpson), $0.6 million to Elan Polo International,
Inc., a member of DVS LLC, and
$(2.2) million to JALP, LLC, a member of FUL IP Holdings, LLC. Noncontrolling interest for the year ended
December 31, 2016 represents net income allocations of $6.5 million to With You, Inc., a member of With
You LLC (the partnership between us and Jessica Simpson), $0.6 million to Elan Polo International, Inc., a
member of DVS LLC, and $0.4 million to JALP, LLC, a member of FUL IP Holdings, LLC.

Comparison of the Years Ended December 31, 2016 and 2015

The following table summarizes our results of operations for the periods indicated and is derived from

our consolidated ﬁnancial statements:

Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . .
Other expense (income) . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net
. . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . .
Provision for (beneﬁt from) income taxes . . . . . . . . . . .
Consolidated net income . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interest . . . . . .
Net loss attributable to Sequential Brands Group, Inc.

Years Ended December 31,

2016

2015

Change
(Dollars)

Change
(Percentage)

(in thousands, except percentages)

$155,528
85,392
70,136
3,810
50,538
15,788
9,157
6,631
(7,452)

$88,262
58,611
29,651
(1,133)
29,725
1,059
(1,357)
2,416
(5,287)

$67,266
26,781
40,485
4,943
20,813
14,729
10,514
4,215
(2,165)

76.2%
45.7%
136.5%
(436.3)%
70.0%
1,390.8%
(774.8)%
(174.5)%
40.9%

and Subsidiaries

. . . . . . . . . . . . . . . . . . . . . . . . . .

$

(821)

$ (2,871)

$ 2,050

71.4%

Net Revenue. The increase in net revenue for the year ended December 31, 2016 as compared to the
year ended December 31, 2015 is primarily attributable to the acquisition of GAIAM, Inc. during the third
quarter of 2016 and the acquisitions of the Martha Stewart, Jessica Simpson, Joe’s Jeans and Emeril Lagasse
brands which occurred between the second and fourth quarters of 2015. Net revenue for the year ended
December 31, 2016 consists primarily of licensing revenue earned from our license agreements relating to the

31

Martha Stewart, Jessica Simpson, Avia, AND1, GAIAM, Ellen Tracy and Joe’s Jeans brands. Net revenue for
the year ended December 31, 2015 consists of licensing revenue earned primarily from our license agreements
related to our Jessica Simpson, AND1, Avia, Ellen Tracy and Martha Stewart brands.

Operating expenses. Operating expenses increased $26.8 million for the year ended December 31, 2016
to $85.4 million compared to $58.6 million for the year ended December 31, 2015. Excluding incremental
costs incurred on a go forward basis after the Mergers of $33.6 million, operating expenses decreased
$6.8 million. This decrease was primarily driven by lower acquisition related costs of $6.4 million and
restructuring charges of $5.6 million, partially offset by higher compensation costs of $2.5 million and rent
and office expenses of $1.8 million.

Other (expense) income. Other (expense) income during the year ended December 31, 2016 consists of
the impairment of our available-for-sale securities of $4.4 million partially offset by other immaterial items.
Other income during the year ended December 31, 2015 consists of a gain on the sale of the People’s
Liberation brand of $0.7 million, and a purchase price adjustment of $0.4 million related to our acquisition of
Galaxy Brand Holdings, Inc.

incurred under our

loan agreements and interest

Interest expense, net. The year-over-year increase in net interest expense of $20.8 million is primarily
due to an increase in interest incurred under our loan agreements. Interest expense during the year ended
rate swaps of
December 31, 2016 includes interest
$46.2 million, non-cash interest related to the amortization of deferred ﬁnancing costs of $2.8 million and the
write-off of $0.3 million of deferred ﬁnancing costs as a result of an extinguishment a portion of the BoA
Credit Agreement in accordance with ASC 470 — Debt in connection with the Company’s entry into the
Amended BoA Credit Agreement. Additionally, we expensed non-cash interest of $1.2 million related to the
accretion of the present value of guaranteed contractual payments assumed through certain of the Company’s
acquisitions in 2015. Interest expense during the year ended December 31, 2015 includes interest incurred
under our loan agreements and interest rate swaps of $21.9 million, non-cash interest related to the
amortization of deferred ﬁnancing costs of $1.5 million and the write-off of $2.1 million of deferred ﬁnancing
costs as a result of an extinguishment of debt in accordance with ASC 470 — Debt in connection with loan
agreements entered into for the acquisition of With You LLC. In addition, the Company expensed $2.7 million
of deferred ﬁnancing costs as a result of an extinguishment of debt with ASC 470 — Debt in connection with
the Company’s entry into the 2015 Term Loans. During the year ended December 31, 2015, the Company
recorded amortization of debt discount related to the Equity Issuance in the amount of $0.1 million within
non-cash interest expense. Because the 2015 Term Loan Agreement with GSO was deemed an extinguishment,
management determined that the remaining unamortized debt discount from the Existing Second Lien Credit
Agreement was written off in accordance with ASC 470 Debt. The Company wrote off $1.4 million during the
year ended December 31, 2015 within interest expense related to the debt discount. Additionally, we expensed
non-cash interest of a de minimis amount related to the accretion of the present value of guaranteed
contractual payments assumed through certain of the Company’s acquisitions in 2015.

Income taxes. The provision for (beneﬁt from) income taxes for the years ended December 31, 2016
and 2015 represents the non-cash deferred tax expense created by the amortization of certain acquired
trademarks for tax but not book purposes and taxes for state, local and foreign jurisdictions. The effective tax
rate differs from the statutory tax rate primarily due to beneﬁts from taxes attributable to noncontrolling
interest, changes in valuation allowance, change in state tax rates and a reversal of unrecognized tax beneﬁts.
In conjunction with the acquisition of MSLO during 2015, our deferred tax rate decreased as a result of
changes in our state tax rates which resulted in a beneﬁt of $7.9 million.

increase in noncontrolling interest

Noncontrolling interest. The year-over-year

from continuing
operations was primarily driven by our acquisition of the Jessica Simpson brand. Noncontrolling interest from
continuing operations for the year ended December 31, 2016 represents net income allocations of $6.5 million
to With You, Inc., a member of With You LLC (the partnership between us and Jessica Simpson), $0.6 million
to Elan Polo International, Inc., a member of DVS LLC, and $0.4 million to JALP, LLC, a member of FUL
IP Holdings, LLC. Noncontrolling interest from continuing operations for the year ended December 31, 2015
represents net income allocations to With You LLC of $4.7 million and Elan Polo International, Inc. of
$0.6 million.

32

Liquidity and Capital Resources

Liquidity

As of December 31, 2017, we had cash on hand, including restricted cash, of $20.4 million and a net
working capital balance (deﬁned below) of $32.1 million. Additionally, we had outstanding debt obligations
under our loan agreements of $644.7 million excluding $14.1 million of deferred ﬁnancing fees. As of
December 31, 2016, we had cash on hand, including restricted cash, of $20.7 million and a net working
capital balance (deﬁned below) of $26.8 million. Additionally, we had outstanding debt obligations under our
loan agreements of $663.0 million excluding $18.0 million of deferred ﬁnancing fees. Net working capital is
deﬁned as current assets minus current liabilities, excluding restricted cash and discontinued operations. We
believe that cash from continuing operations and our currently available cash (including available borrowings
under our existing ﬁnancing arrangements) will be sufficient
to satisfy our anticipated working capital
requirements for the foreseeable future. Overall, we do not expect any negative effects to our funding sources
that would have a material effect on our liquidity. We intend to continue ﬁnancing future brand acquisitions
through a combination of cash from operations, bank ﬁnancing and the issuance of additional equity and/or
debt securities. See Note 9 to our consolidated ﬁnancial statements for a description of certain ﬁnancing
transactions consummated by us. There are no material capital expenditure commitments as of December 31,
2017.

Cash Flows from Continuing Operations

Cash ﬂows from continuing operations for operating, ﬁnancing and investing activities for the years

ended December 31, 2017, 2016 and 2015 are summarized in the following table:

Operating activities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities
Net (decrease) increase in cash from continuing operations . . .

Operating Activities

Years Ended December 31,
2016
(in thousands)
$ 43,602
(152,888)
87,423
$ (21,863)

$

2017

$ 28,210
2,853
(31,294)
(231)
$

2015

(5,641)
(341,846)
366,736
$ 19,249

Net cash provided by operating activities from continuing operations decreased $15.4 million to
$28.2 million for the year ended December 31, 2017 as compared to net cash provided by operations of
$43.6 million for the year ended December 31, 2016. The $15.4 million decrease was primarily attributable to
a decrease in net income of $188.2 million, decrease in deferred revenue of $25.5 million and a decrease in
prepaid expenses and other assets of $8.7 million, partially offset by increases in non-cash items of
$196.2 million, changes in accounts payable and accrued expenses of $5.2 million on a year-over-year basis
and increases in accounts receivable of $3.9 million, other liabilities of $1.7 million.

Investing Activities

Net cash provided by investing activities from continuing operations increased $155.8 million to
$2.9 million for the year ended December 31, 2017 compared to net cash used in investing activities of
$(152.9) million for the year ended December 31, 2016. This increase is driven primarily by $147.6 million of
cash used for acquisitions during the year ended December 31, 2016 compared to no cash used for
acquisitions during the year ended December 31, 2017. During the year ended December 31, 2017, we sold
our available-for-sales securities for $5.8 million and we purchased $3.1 million of property and equipment.
During the year ended December 31, 2016, we purchased $3.3 million of property and equipment and we
the Company’s
deposited $1.5 million of cash with a ﬁnancial
cash-collateralized letter of credit facilities.

institution required as collateral

for

Financing Activities

Net cash used in ﬁnancing activities from continuing operations for the year ended December 31,
2017 amounted to $31.3 million compared to net cash provided by ﬁnancing activities of $87.4 million for the
year ended December 31, 2016. The primary driver for the change was the receipt of $132.0 million of loan

33

proceeds to ﬁnance the acquisition of GAIAM, Inc. offset by $13.1 million of related ﬁnancing fees and
expenses paid during the year ended December 31, 2016 absent for the year ended December 31, 2017.
During the year ended December 31, 2017, we made principal payments of $28.3 million under our loan
agreements in accordance with contractual
terms, $7.4 million of distributions to certain noncontrolling
interest partners, partially offset by additional borrowings of $10 million under our Revolving Loans. During
the year ended December 31, 2016, we made principal payments of $19.0 million under our loan agreements
in accordance with contractual
terms and $6.8 million of distributions to certain noncontrolling interest
partners. During the year ended December 31, 2017, we repurchased common stock from employees for tax
withholding purposes related to the vesting of restricted stock of $1.2 million as compared to $0.6 million
during the year ended December 31, 2016.

Debt

As of December 31, 2017, we were party to a Third Amended and Restated First Lien Credit Agreement
with Bank of America, N.A. as administrative and collateral agent and a Third Amended and Restated Credit
Agreement with Wilmington Trust, National Association as administrative agent and collateral agent, referred
to as our loan agreements. Refer to Note 9 to our consolidated ﬁnancial statements for a discussion of our
borrowings and the terms of these debt facilities. As of December 31, 2017 and 2016, our long-term debt,
including current portion, was $644.7 million and $663.0 million, excluding $14.1 million and $18.0 million
of deferred ﬁnancing fees, respectively. As of December 31, 2017 and 2016, we had $5.5 million and
$9.0 million, respectively, of availability under the current revolving credit facility (the ‘‘Revolving Credit
Facility’’), subject to meeting certain leverage ratios. We may request an increase in (i) the Revolving Credit
Facility and Tranche A Loans as would not cause the consolidated ﬁrst lien leverage ratio, determined on a
pro forma basis after giving effect to any such increase, to exceed 2.33:1.00 and (ii) the Tranche A-1 Loans,
as would not cause the consolidated ﬁrst lien leverage ratio, determined on a pro forma basis after giving
effect to any such increase, to exceed (a) with respect to any increase, the proceeds of which will be used
solely to ﬁnance an acquisition, 2.50:100 and (b) with respect to any other increase, 2.40:1.00, subject to the
satisfaction of certain conditions in the Amended BoA Credit Agreement. We may request one or more
additional term loan facilities or the increase of term loan commitments under the GSO Credit Agreement as
would not cause the consolidated total leverage ratio, determined on a pro forma basis after giving effect to
any such addition and increase, to exceed 6.00:1.00, subject to the satisfaction of certain conditions in the
GSO Credit Agreement. We made $28.3 million of principal repayments under our loan agreements during the
year ended December 31, 2017 and we had additional borrowings of $10 million under our Revolving Loans.

Contractual Obligations

Our material contractual obligations as of December 31, 2017 are summarized as follows:

Contractual Obligations

Operating leases
. . . . . . . . . . . . .
Guaranteed payments in connection
. . . . . . . . . . .

with acquisitions

Long-term debt obligations:

Payments Due by Period

Total

Less than
1 Year

$ 80,134

$ 2,170

1 − 3 Years
(in thousands)
$11,350

4 − 5 Years

After
5 Years

$ 10,977

$55,637

7,677

3,475

4,202

—

—

2016 Term Loans . . . . . . . . . . .
2016 Revolving Loan . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .

Total

551,913
92,787
$732,511

28,300
—
$33,945

56,600
—
$72,152

467,013
92,787
$570,777

—
—
$55,637

Future Capital Requirements

We believe cash on hand and cash from operations will be sufficient to meet our capital requirements for
the twelve months following the ﬁling of these ﬁnancial statements. We intend to continue ﬁnancing future
brand acquisitions through a combination of cash from operations, bank ﬁnancing and the issuance of
additional equity or debt securities. The extent of our future capital requirements will depend on many factors,

34

including our results of operations and growth through the acquisition of additional brands, and we cannot be
certain that we will be able to obtain additional ﬁnancing in sufficient amounts or on acceptable terms in the
near future, if at all.

Off-Balance Sheet Arrangements

At December 31, 2017 and 2016, we did not have any relationships with unconsolidated entities or
ﬁnancial partnerships, such as entities often referred to as structured ﬁnance or special purpose entities, which
would have been established for
facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes. As a result, we are not exposed to any ﬁnancing, liquidity, market or
credit risk that could arise if we had engaged in such relationships.

the purpose of

Recent Accounting Pronouncements

See Note 2 to our consolidated ﬁnancial statements for a full description of

recent accounting
pronouncements including the respective expected dates of adoption and effects on ﬁnancial conditions and
results of operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We limit exposure to foreign currency ﬂuctuations by requiring payment under the majority of our
licenses to be denominated in U.S. dollars. One of our licenses is denominated in Canadian dollars. If there
were an adverse change in the exchange rate from Canadian to U.S. dollars of 10%, the expected effect on net
income would be immaterial.

Our earnings may also be affected by changes in LIBOR interest rates as a result of our loan agreements.
As further discussed in Note 9 to our consolidated ﬁnancial statements, we have entered into interest rate caps
to mitigate the effects of a change in LIBOR interest rates. An increase in LIBOR interest rates of one percent
affecting the loan agreements would not have had a material effect on our results of operations during
the years ended December 31, 2017, 2016 and 2015.

Item 8. Financial Statements and Supplementary Data

The ﬁnancial statements and supplementary data required to be submitted in response to this Item 8 are
set forth after Part IV, Item 15 of this Annual Report on Form 10-K and are incorporated by reference into
this Item 8.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and
procedures (as deﬁned in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2017, the
end of the period covered by this report. Based on, and as of the date of such evaluation, the Chief Executive
Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures were
effective as of December 31, 2017 such that the information required to be disclosed in our reports ﬁled or
submitted to the SEC 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 our
management, including our principal executive officer and principal ﬁnancial officer, as appropriate, to allow
timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over ﬁnancial
reporting (as deﬁned in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over
ﬁnancial reporting is a process designed under the supervision of our Chief Executive Officer and Chief
Financial Officer to provide reasonable assurance regarding the reliability of ﬁnancial reporting and the

35

preparation of our ﬁnancial statements for external reporting purposes in accordance with GAAP. Internal
control over ﬁnancial reporting includes those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reﬂect the transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of ﬁnancial
statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance
with authorizations of our management and directors; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a
material effect on the ﬁnancial statements.

Our management, under the supervision and with the participation of our Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of our internal control over ﬁnancial reporting as of the
end of the period covered by this report. In making this assessment, our management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework, as issued in 2013. Based on our management’s assessment, our management
concluded that our internal control over ﬁnancial reporting was effective as of December 31, 2017, based on
those criteria.

Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with
policies or procedures may deteriorate. The effectiveness of our internal controls over ﬁnancial reporting as of
December 31, 2017 has been audited by CohnReznick LLP, an independent registered public accounting ﬁrm,
as stated in their report provided below.

Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over ﬁnancial reporting during the quarter ended
December 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal
control over ﬁnancial reporting.

36

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Sequential Brands Group, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Sequential Brands Group, Inc. and Subsidiaries’ (the Company’s) internal control over
ﬁnancial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). In our opinion, the Company maintained, in all material respects, effective internal control over
ﬁnancial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated
Framework (2013) issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United Stated) (PCAOB), the consolidated balance sheets and the related consolidated statements of
operations, comprehensive (loss) income, changes in equity and cash ﬂows and the ﬁnancial statement
schedule listed in the index appearing under Item 15 of the Company and our report dated March 16, 2018,
expressed an unqualiﬁed opinion.

Basis for Opinion

The Company’s management

is responsible for maintaining effective internal control over ﬁnancial
reporting, and for its assessment of the effectiveness of internal control over ﬁnancial reporting included in the
accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the Company’s internal control over ﬁnancial reporting based on our audit. We are
a public accounting ﬁrm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we
to obtain reasonable assurance about whether effective internal control over
plan and perform the audit
ﬁnancial reporting was maintained in all material respects. Our audit of internal control over ﬁnancial
reporting included obtaining an understanding of internal control over ﬁnancial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Deﬁnition and Limitations of Internal Control over Financial Reporting

A company’s internal control over ﬁnancial reporting is a process designed to provide reasonable
assurance regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external
purposes in accordance with generally accepted accounting principles. A company’s internal control over
ﬁnancial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
the transactions and dispositions of the assets of the
in reasonable detail, accurately and fairly reﬂect
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
ﬁnancial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) 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 the
ﬁnancial statements.

Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

/s/ CohnReznick LLP

New York, NY
March 16, 2018

37

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item will be contained under the captions ‘‘Directors and Executive
Officers’’ and ‘‘Corporate Governance’’ in the deﬁnitive proxy statement
the annual meeting of
stockholders to be held on June 8, 2018 (the ‘‘Proxy Statement’’) to be ﬁled with the SEC within 120 days
after December 31, 2017, which information is incorporated herein by reference in response to this item.

for

Code of Ethics

We have adopted a Code of Ethics applicable to all members of our Board and to all of our employees
and executive officers, including our Chief Executive Officer and Chief Financial Officer. The Code of Ethics
constitutes a ‘‘code of ethics’’ as deﬁned by applicable SEC rules and a ‘‘code of conduct’’ as deﬁned by
at
ethics
applicable Nasdaq
www.sequentialbrandsgroup.com in the section titled ‘‘Investor Relations — Corporate Governance.’’ You may
also request a copy of the Code of Ethics by writing or calling us at:

our website

rules. Our

located

posted

code

on

of

is

SEQUENTIAL BRANDS GROUP, INC.

Attn: Investor Relations
601 West 26th Street, 9th Floor
New York, New York 10001
Tel.: (646) 564-2577

Any amendment or waiver of the Code of Ethics pertaining to a member of our Board or one of our

executive officers will be disclosed on our website within four business days.

Item 11. Executive Compensation

The information required by this item will be contained under the caption ‘‘Executive Compensation’’ in

the Proxy Statement, which information is incorporated herein by reference in response to this item.

Item 12. Security Ownership of Certain Beneﬁcial Owners and Management and Related Stockholder
Matters

The information required by this item will be contained under the caption ‘‘Security Ownership of
Certain Beneﬁcial Owners and Management’’ in the Proxy Statement, which information is incorporated
herein by reference in response to this item.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item will be contained under the captions ‘‘Certain Relationships and
Related Transactions’’ and ‘‘Corporate Governance’’ in the Proxy Statement, which information is incorporated
herein by reference in response to this item.

Item 14. Principal Accounting Fees and Services

The information required by this item will be contained under the caption ‘‘Principal Accounting Fees
and Services’’ in the Proxy Statement, which information is incorporated herein by reference in response to
this item.

38

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) Documents ﬁled as part of this report

1.

Financial Statements.

See Index to Consolidated Financial Statements, which appears on page F-1 hereof. The ﬁnancial
statements listed in the accompanying Index to Consolidated Financial Statements are ﬁled herewith
in response to this Item.

2.

Financial Statement Schedules.

Schedule II — Valuation and Qualifying Accounts is required to be ﬁled by Item 8 of the Annual
Report on Form 10-K.

All other schedules are omitted because the information is inapplicable or presented in the Notes to
the Consolidated Financial Statements.

3.

Exhibits. See Item 15(b) below.

(b) Exhibits. We have ﬁled, or incorporated by reference into this Annual Report on Form 10-K, the exhibits
listed on the accompanying Index to Exhibits immediately following the signature page of this Annual
Report on Form 10-K.

(c) Financial Statement Schedule. See Item 15(a) above.

Item 16. Form 10-K Summary

Not Applicable.

39

(This page intentionally left blank) 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Audited Financial Statements:

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Balance Sheets at December 31, 2017 and 2016 . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016 and 2015 . .

Page

F-2

F-3

F-4

Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31,

2017, 2016 and 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-5

Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017, 2016 and
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016

and 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-6

F-8

F-10

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Sequential Brands Group, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Sequential Brands Group, Inc. and
Subsidiaries (the ‘‘Company’’) as of December 31, 2017 and 2016, and the related consolidated statements of
operations, comprehensive (loss) income, changes in equity, and cash ﬂows for each of the years in the
three-year period ended December 31, 2017, and the related notes. Our audits of the consolidated ﬁnancial
statements included the ﬁnancial statement schedule listed in the index appearing under Item 15 (collectively
referred to as the consolidated ﬁnancial statements). In our opinion, the consolidated ﬁnancial statements
present fairly, in all material respects, the ﬁnancial position of the Company as of December 31, 2017, and
2016, and the results of its operations and its cash ﬂows for each of the years in the three-year period ended
December 31, 2017, in conformity with accounting principles generally accepted in the United States of
America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the Company’s internal control over ﬁnancial reporting as of December 31,
issued by the
2017, based on criteria established in Internal Control — Integrated Framework (2013)
Committee of Sponsoring Organizations of
report dated
March 16, 2018, expressed an unqualiﬁed opinion.

the Treadway Commission (COSO), and our

Basis for Opinion

These consolidated ﬁnancial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the Company’s consolidated ﬁnancial statements based on our
audits. We are a public accounting ﬁrm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit
to obtain reasonable assurance about whether the consolidated ﬁnancial
statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the consolidated ﬁnancial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on
a test basis, evidence regarding the amounts and disclosures in the consolidated ﬁnancial statements. Our
audits also included evaluating the accounting principles used and signiﬁcant estimates made by management,
as well as evaluating the overall presentation of the consolidated ﬁnancial statements. We believe that our
audits provide a reasonable basis for our opinion.

/s/ CohnReznick LLP

We have served as the Company’s auditor since 2013.

New York, NY
March 16, 2018

F-2

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)

December 31,

2017

2016

Current Assets:

Assets

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Property and equipment, net
Intangible assets, net
Goodwill
Other assets

$

18,902
1,531
60,102
—
8,635
89,170
7,035
995,170
—
5,836
$1,097,211

Current Liabilities:

Liabilities and Equity

Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term deferred revenue, net of current portion . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

19,126
28,300
8,102
55,528
602,297
11,845
67,799
6,204
743,673

$

19,133
1,521
53,195
7,673
4,366
85,888
7,674
1,030,212
307,744
3,345
$1,434,863

$

18,915
28,300
10,374
57,589
616,735
13,909
200,357
8,705
897,295

Commitments and Contingencies

Equity:

Preferred stock Series A, $0.01 par value; 10,000,000 shares authorized; none
issued and outstanding at December 31, 2017 and 2016 . . . . . . . . . . . . .

Common stock, $0.01 par value; 150,000,000 shares authorized; 63,652,721

and 62,602,041 shares issued at December 31, 2017 and 2016,
respectively, and 63,227,727 and 62,504,355 shares outstanding at
December 31, 2017 and 2016, respectively . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . .
Accumulated deﬁcit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost; 424,994 shares and 97,686 shares at December 31,

—

—

635
508,444
80
(225,369)

624
502,564
(144)
(39,651)

2017 and 2016, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Sequential Brands Group, Inc. and Subsidiaries stockholders’ equity . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Noncontrolling interest

(1,799)
281,991
71,547
353,538
$1,097,211

(638)
462,755
74,813
537,568
$1,434,863

See Notes to Consolidated Financial Statements.

F-3

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)

$

Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from operations . . . . . . . . . . . . . . . . . . . . .
Other expense (income)
. . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income before income taxes . . . . . . . . . . . . . . . . . .
(Beneﬁt from) provision for income taxes . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interest . . . . . . . .
Net loss attributable to Sequential Brands Group, Inc. and

$

$

Year Ended December 31,
2016
155,528
85,392
—
70,136
3,810
50,538
15,788
9,157
6,631
(7,452)

2017
167,464
79,443
340,628
(252,607)
1,583
59,891
(314,081)
(132,535)
(181,546)
(4,172)

2015

88,262
58,611
—
29,651
(1,133)
29,725
1,059
(1,357)
2,416
(5,287)

Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (185,718)

$

(821)

$

(2,871)

Loss per share attributable to Sequential Brands Group, Inc.

and Subsidiaries:
Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Weighted-average common shares outstanding:

$

(2.95)

$

(0.01)

$

(0.07)

Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . .

62,861,743

61,912,410

41,177,523

See Notes to Consolidated Financial Statements.

F-4

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)

Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other comprehensive (loss) income:

Unrealized gain (loss) on available-for-sale securities . . . . . . .
Reclassiﬁcation adjustment related to impairment of

available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain (loss) on interest rate caps . . . . . . . . . . . . . .
Unrealized gain on interest rate hedging transactions . . . . . . .
Other comprehensive income (loss)
. . . . . . . . . . . . . . . . . . . .
Comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income attributable to noncontrolling interest . . .
Comprehensive (loss) income attributable to Sequential Brands

2017
$(181,546)

Year Ended December 31,
2016
$ 6,631

2015
$ 2,416

—

2,062

(6,437)

—
224
—
224
(181,322)
(4,172)

4,375
(144)
29
6,322
12,953
(7,452)

—
—
7
(6,430)
(4,014)
(5,287)

Group, Inc. and Subsidiaries

. . . . . . . . . . . . . . . . . . . . . . .

$(185,494)

$ 5,501

$(9,301)

See Notes to Consolidated Financial Statements.

F-5

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(in thousands, except share data)

Preferred Stock

Common Stock

Shares Amount

Shares

Amount

Additional
Paid-in
Capital

Accumulated
Other
Comprehensive
Loss

Accumulated
Deﬁcit

Treasury Stock

Shares Amount

Total
Sequential
Brands Group,
Inc. and
Subsidiaries
Stockholders’
Equity

Noncontrolling
Interest

Total
Equity

. —

$— 39,300,580

$ 39

$295,719

$

(36)

$(35,959)

197,784 $(1,643)

$258,120

$ 6,780

$264,900

. —

—

253,666

—

710

. —

—

97,087

—

1,295

—

—

710

—

710

—

—

1,295

—

1,295

—

—

—
—

—

—

—

7

(6,437)

—

—

—

—

—

—

—

—

—

—
—

—

—

—

—

—

—
—

—

—

—

—

—

— 185,937
6,397
—

—

—

—

—

—

223

11,496

(1,876)

7

(6,437)

— 149,927

(1,513)

(1,513)

— (347,711)

3,156

—

—

—

—

(2,871)

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—
—

—

—

—

—

—

—

—

—

185,937
6,397

223

11,496

(1,876)

7

(6,437)

(1,513)

—

—

65,094

65,094

(3,000)

(3,000)

5,287

5,287

— 20,014,726
382,986
—

20
—

185,917
6,397

—

—

—

—

—

—

38,400

—

223

740,740

1

11,495

—

—

(1,876)

—

—

—

—

—

—

—

—

—

—

—

—

—

—

— 545

(545)

—

—

—

—

—

—

—

—

—

—

—

—

—

746,567

5

6,399

Balance at January 1, 2015 .
Issuance of common stock
in connection with stock
.
option exercises
Issuance of common stock

.

.

.

in connection with
acquisition of With You
.
.
.
LLC . . .
Issuance of common stock

.

.

.

.

.

in connection with
acquisition of Martha
Stewart Living
.
Omnimedia .

.
Stock-based compensation.
Issuance of common stock

.

.

.

.

.

.

in connection with
warrant exercise .

.
Issuance of common stock
in connection with debt
.
ﬁnancing .
Stock registration costs in
connection with Martha
Stewart Living
Omnimedia acquisition .
Unrealized gain on interest

.

.

.

.

.

.

. —
. —

. —

. —

. —

.

.

.

.

. —

rate hedging
transactions .
.
Unrealized loss on
available-for-sale
.
securities .

.

.

.

.

.
Repurchase of common
.

.
Retirement of treasury stock

stock . .

.

.

.

.

.

.

.

.

. —

. —

Common stock par value

change in connection with
Martha Stewart Living
Omnimedia acquisition .

. —

Noncontrolling interest

.

recorded in connection
with acquisition
.
.
Noncontrolling interest
.

.
Net income attributable to
noncontrolling interest

distribution .

.

.

.

Net loss attributable to

common stockholders

Balance at December 31,
.

2015 . . . .

.

.

.

.

.

.

.

.

.

.

.

Stock-based compensation.
Issuance of Galaxy Brand
Holdings, Inc. holdback
.
.
.
shares . .
Unrealized gain on interest

.

.

.

.

.

. —

. —

. —

. —

. —

. —

$— 60,480,474

$605

$496,179

$(6,466)

$(38,830)

— $ — $451,488

$74,161

$525,649

(2,871)

—

(2,871)

. —

— 1,375,000

14

(14)

rate hedging
transactions .

.

.

.

.

.

.

. —

—

—

—

—

—

—

29

—

—

—

—

—

—

—

—

—

6,404

—

29

—

—

—

6,404

—

29

See Notes to Consolidated Financial Statements.

F-6

in connection with
Martha Stewart Living
Omnimedia acquisition .

. —

—

(347,711) —

(3,156)

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY − (continued)
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(in thousands, except share data)

Preferred Stock

Common Stock

Shares Amount

Shares

Amount

Additional
Paid-in
Capital

Accumulated
Other
Comprehensive
Loss

Accumulated
Deﬁcit

Treasury Stock

Shares Amount

Total
Sequential
Brands Group,
Inc. and
Subsidiaries
Stockholders’
Equity

Noncontrolling
Interest

Total
Equity

Unrealized gain and

.

.

.

.

.

.

.

.

reclassiﬁcation adjustment
on available-for-sale
.
securities .

.
Unrealized loss on interest
.
.

rate caps

stock . .

.
Repurchase of common
.
Noncontrolling interest
.

distribution .

.
Net income attributable to
noncontrolling interest

.

.

.

.

.

.

.

.

.

.

.

Net loss attributable to

common stockholders

Balance at December 31,
.

2016 . . . .

.

.

.

.

.

.

.

.

.

.

.

rate caps

Stock-based compensation.
Stock registration costs .
.
Unrealized gain on interest
.
.

.
Repurchase of common
.
Noncontrolling interest
.

distribution .

.
Net income attributable to
noncontrolling interest

stock . .

.

.

.

.

.

.

.

.

.

Net loss attributable to

common stockholders

Balance at December 31,
.

2017 . . . .

.

.

.

.

.

.

. —

. —

. —

. —

. —

. —

. —

. —
. —

. —

. —

. —

. —

. —

.

.

.

.

.

.

.

.

.

.

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

6,437

(144)

—

—

—

—

—

—

—

—

—

—

— (97,686)

(638)

—

—

(821)

—

—

—

—

—

—

6,437

(144)

(638)

—

—

—

—

—

6,437

(144)

(638)

(6,800)

(6,800)

7,452

7,452

(821)

—

(821)

$— 62,602,041

$624

$502,564

$ (144)

$ (39,651)

(97,686) $ (638) $ 462,755

$74,813

$ 537,568

— 1,050,680
—
—

—

—

—

—

—

—

—

—

—

—

11
—

—

—

—

—

—

5,900
(20)

—

—

—

—

—

—
—

224

—

—

—

—

—
—

—

—
—

—

—
—

—

5,911
(20)

224

— (327,308)

(1,161)

(1,161)

—
—

—

—

5,911
(20)

224

(1,161)

—

—

(185,718)

—

—

—

—

—

—

—

(7,438)

(7,438)

4,172

4,172

— (185,718)

— (185,718)

. —

$— 63,652,721

$635

$508,444

$

80

$(225,369)

(424,994) $(1,799) $ 281,991

$71,547

$ 353,538

See Notes to Consolidated Financial Statements.

F-7

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

2017

Year Ended December 31,
2016
(Note 2)

2015

Cash Flows From Operating Activities

Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(181,546) $

6,631

$

2,416

Adjustments to reconcile net (loss) income to net cash provided by

(used in) operating activities:
Provision for bad debts
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
Impairment of available-for-sale securities
Amortization of deferred ﬁnancing costs and debt discount
. . . .
Impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of trademark . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Income from equity method investment
Loss on disposal of property and equipment
. . . . . . . . . . . . . .
Realized loss on available-for-sale securities . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in operating assets and liabilities:

Accounts receivable
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . .
Deferred revenue
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Provided By (Used in) Operating Activities From

689
4,788
5,911
—
3,862
340,628
—
(22)
2
1,916
(132,669)

295
4,765
6,404
4,375
3,111
—
—
(9)
447
—
9,581

201
1,893
6,397
—
7,722
—
(700)
—
57
—
(1,834)

(7,596)
(6,350)
59
(3,336)
1,874

(11,464)
2,347
(5,132)
22,126
125

(9,244)
2,988
(15,329)
46
(254)

Continuing Operations

. . . . . . . . . . . . . . . . . . . . . . . .

28,210

43,602

(5,641)

Cash Used In Operating Activities From Discontinued

Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . .

Cash Provided By (Used in) Operating Activities

—
28,210

(564)
43,038

(210)
(5,851)

Cash Flows From Investing Activities

Cash paid for acquisitions, net of cash acquired . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Cash paid for equity method investment
Investments in intangible assets, including registration and renewal
costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sale of available-for-sale securities . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property and equipment
. . . . . . . . . . . . . .
Purchase of available-for-sale securities . . . . . . . . . . . . . . . . . . .
Changes in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of trademark . . . . . . . . . . . . . . . . . . . . . . . .
Cash Provided by (Used In) Investing Activities . . . . . . . .

— (146,883)
(704)
—

(328,044)
—

(335)
5,757
(3,061)
2
—
(10)
500
2,853

(500)

(437)

(3,325)
45
—
(1,521)
—
(152,888)

(1,462)
5
(12,048)
—
140
(341,846)

See Notes to Consolidated Financial Statements.

F-8

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS − (continued)
(in thousands)

2017

Year Ended December 31,
2016
(Note 2)

2015

Cash Flows From Financing Activities

Proceeds from debt and long-term borrowings
. . . . . . . . . . . . . .
Proceeds from sale of common stock . . . . . . . . . . . . . . . . . . . . .
Proceeds from options exercised . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from warrants exercised . . . . . . . . . . . . . . . . . . . . . . .
Stock registration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of interest rate caps . . . . . . . . . . . . . . . . . . . . . . . . . .
Guaranteed payments in connection with acquisitions
. . . . . . . . .
Payment of ﬁnancing costs
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest distributions
Cash (Used in) Provided By Financing Activities
. . . . . . .
Net (Decrease) Increase In Cash . . . . . . . . . . . . . . . . . . .
Cash − Beginning of year
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash − End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 10,000
—
—
—
(20)
(28,300)
—
(4,375)
—
(1,161)
(7,438)
(31,294)
(231)
19,133
$ 18,902

$132,000
—
—
—
—
(19,000)
(1,248)
(3,750)
(13,141)
(638)
(6,800)
87,423
(22,427)
41,560
$ 19,133

$390,179
10,000
710
223
(1,876)
(15,679)
—
(3,100)
(9,208)
(1,513)
(3,000)
366,736
19,039
22,521
$ 41,560

Supplemental Disclosures Of Cash Flow Information

Cash paid for:
Interest
Taxes

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non-cash Investing And Financing Activities

$ 55,755
163
$

$ 45,308
178
$

$ 19,288
1,059
$

Accrued purchases of property and equipment at year end . . . . . .
Unrealized gain (loss) on available-for-sale securities during the

year

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Unrealized gain (loss) on interest rate caps during the year . . . . . .
Common stock issued in connection with acquisitions . . . . . . . . .
Noncontrolling interest recorded in connection with acquisitions . .
Receivable for sale of trademark . . . . . . . . . . . . . . . . . . . . . . . .

Guaranteed contractual payments recorded on acquisitions . . . . . .

Debt discount recorded on sale of common stock to debtholders . .

$

$

$
$
$
$

$

$

152

$

10

$

—

— $ 2,062

$ (6,437)

224

$
— $
— $
— $

— $

— $

(144)

—
$
— $187,232
— $ 65,094
560
— $

— $ 16,474

— $

1,496

See Notes to Consolidated Financial Statements.

F-9

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 1 — ORGANIZATION AND NATURE OF OPERATIONS

Overview

Sequential Brands Group, Inc. (the ‘‘Company’’ or ‘‘New Sequential’’) owns a portfolio of consumer
brands in the fashion, active and home categories. The Company aims to maximize the strategic value of its
brands by promoting, marketing and licensing its global brands through various distribution channels,
including to retailers, wholesalers and distributors in the United States and in certain international territories.
The Company’s core strategy is to enhance and monetize the global reach of its existing brands, and to pursue
additional strategic acquisitions to grow the scope of and diversify its portfolio of brands. The Company
licenses brands to both wholesale and direct-to-retail licensees. In a wholesale license, a wholesale supplier is
granted rights (typically on an exclusive basis) to a single or small group of related product categories for a
particular brand for sale to multiple accounts within an approved channel of distribution and territory. In a
direct-to-retail license, a single retailer is granted the right (typically on an exclusive basis) to sell branded
products in a broad range of product categories through its brick and mortar stores and e-commerce sites. As
of December 31, 2017, the Company had more than one-hundred ﬁfty licensees, with wholesale licensees
comprising a signiﬁcant majority.

The Company was formed on June 5, 2015, for the purpose of effecting the merger of Singer Merger
Sub, Inc. with and into SQBG, Inc. (formerly known as Sequential Brands Group, Inc.) (‘‘Old Sequential’’)
and the merger of Madeline Merger Sub, Inc. with and into Martha Stewart Living Omnimedia, Inc.
(‘‘MSLO’’), with Old Sequential and MSLO each surviving the merger as wholly-owned subsidiaries of the
Company (the ‘‘Mergers’’). Prior to the Mergers, the Company did not conduct any activities other than those
incidental to its formation and the matters contemplated in the Agreement and Plan of Merger, dated as of
June 22, 2015, as amended, by and among the Company, MSLO, Old Sequential, Singer Merger Sub, Inc.,
and Madeline Merger Sub, Inc. (the ‘‘Merger Agreement’’). On December 4, 2015, pursuant to the Merger
Agreement, Old Sequential and MSLO completed the strategic combination of their respective businesses and
became wholly-owned subsidiaries of the Company. Old Sequential was the accounting acquirer in the
Mergers; therefore, the historical consolidated ﬁnancial statements for Old Sequential for periods prior to the
Mergers are considered to be the historical ﬁnancial statements of the Company and thus, the Company’s
consolidated ﬁnancial statements reﬂect Old Sequential’s consolidated ﬁnancial statements for the period from
January 1, 2015 through December 4, 2015, and the Company’s consolidated ﬁnancial statements thereafter.
References to ‘‘the Company’’ when referring to periods prior to the consummation of the Mergers on
December 4, 2015 are references to Old Sequential.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated ﬁnancial statements include the accounts of the Company and its
wholly-owned and majority-owned subsidiaries. All signiﬁcant inter-company accounts and transactions have
been eliminated in the consolidation.

Use of Estimates

The preparation of consolidated ﬁnancial statements in conformity with accounting principles generally
accepted in the United States (‘‘GAAP’’) requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated ﬁnancial statements and the reported amounts of revenues and expenses during the reporting
periods.

Making estimates requires management to exercise signiﬁcant judgment. It is at least reasonably possible
that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the

F-10

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (continued)

consolidated ﬁnancial statements, which management considered in formulating its estimate, could change in
the near
results could differ
signiﬁcantly from estimates.

term due to one or more future conﬁrming events. Accordingly, actual

Discontinued Operations

The Company accounted for the closure of its wholesale operations during 2013 as discontinued
operations in accordance with the guidance provided in the Financial Accounting Standards Board (‘‘FASB’’)
Accounting Standards Codiﬁcation (‘‘ASC’’) 360, Accounting for Impairment or Disposal of Long-Lived
Assets, and ASC 205, Presentation of Financial Statements, which requires that only a component of an entity
or a group of components of an entity, that represents a strategic shift that has, or will have, a major effect on
the reporting entity’s operations that has been disposed of or is classiﬁed as held for sale and has operations
and cash ﬂows that can be clearly distinguished from the rest of the entity be reported as discontinued
operations and assets held for sale. In the period a component of an entity has been disposed of or classiﬁed
as held for sale, the results of operations for the periods presented are reclassiﬁed into separate line items in
the statements of operations. Assets and liabilities are also reclassiﬁed into separate line items on the related
balance sheets for the periods presented. The statements of cash ﬂows for the periods presented are also
reclassiﬁed to reﬂect the results of discontinued operations as separate line items.

Revenue Recognition

The Company has entered into various license agreements that provide revenues based on guaranteed
minimum royalty payments and advertising/marketing fees with additional
royalty revenues based on
a percentage of deﬁned sales. Guaranteed minimum royalty payments and advertising/marketing revenue are
recognized on a straight-line basis over the term of each contract year, as deﬁned in each license agreement.
Royalty payments exceeding the guaranteed minimum royalty payments are recognized as income during the
period corresponding to the licensee’s sales. Payments received as consideration for the grant of a license are
recorded as deferred revenue at the time payment is received and recognized ratably as revenue over the term
of the license agreement. Advanced royalty payments are recorded as deferred revenue at the time payment is
received and recognized as revenue when earned. Revenue is not recognized unless collectability is reasonably
assured.

If license agreements are terminated prior to the original

licensing period,

the Company recognizes

revenue in the amount of any contractual termination fees, unless such amounts are deemed non-recoverable.

With respect to editorial content for books, the Company receives advance payments from the Company’s
publishers and recognizes revenue when manuscripts are delivered to and accepted by the publishers. Revenue
is also earned from book publishing when sales on a unit basis exceed the advanced royalty.

Television sponsorship revenues are generally recorded ratably across the period when new episodes

initially air.

In 2017, the Company entered into a transaction with a media company for which it receives advertising
credits as part of the consideration exchanged for trademark licensing rights. This transaction is recorded at
the estimated fair value of the advertising credits received, as their fair value is deemed more readily
determinable than the fair value of the trademark licensing right provided by the Company, in accordance with
ASC 845, Nonmonetary Transactions. The fair value of the advertising credits are recorded as revenue and in
other assets when earned, and expensed when the advertising credits are utilized. The Company recorded
revenue of $3.7 million for the year ended December 31, 2017 related to the advertising credits earned. The
Company did not record any expense related to the advertising credits as they have not yet been utilized.

F-11

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (continued)

Restricted Cash

Restricted cash at December 31, 2017 consists of cash deposited with a ﬁnancial institution required as

collateral for the Company’s cash-collateralized letter of credit facilities.

Accounts Receivable

Accounts receivable are recorded net of allowances for doubtful accounts, based on the Company’s
ongoing discussions with its licensees and other customers and its evaluation of their creditworthiness,
payment history and account aging. Accounts receivable balances deemed to be uncollectible are charged to
the allowance for doubtful accounts after all means of collection have been exhausted and the potential for
recovery is considered remote. The allowance for doubtful accounts was $0.6 million and $0.2 million at
December 31, 2017 and 2016, respectively.

The Company’s accounts

receivable, net amounted to $60.1 million and $53.2 million as of
December 31, 2017 and 2016, respectively. Three licensees accounted for approximately 53% (25%, 15%, and
13%) of the Company’s total consolidated accounts receivable, net balance as of December 31, 2017 and four
licensees accounted for approximately 49% (14%, 13%, 12% and 10%) of the Company’s total consolidated
accounts receivable, net balance as of December 31, 2016. The Company does not believe the accounts
receivable balances from these licensees represents a signiﬁcant collection risk based on past collection
experience.

Investments

The Company had marketable securities that were classiﬁed as available-for-sale securities under
ASC 320, Investments — Debt and Equity Securities. Such available-for-sale securities were reported at fair
value in the consolidated balance sheets and, at the time of purchase, were reported in the consolidated
statements of cash ﬂows as an investing activity. The Company reviewed its available-for-sale securities at
each reporting period to determine whether a decline in fair value was other-than-temporary. Any decline in
fair value that was determined to be other-than-temporary would result in an adjustment for an impairment
charge in the consolidated statements of operations. The primary factors the Company considered in its
determination were (i) the length of time that the fair value of the available-for-sale security was below the
Company’s carrying value, (ii) the ﬁnancial condition and operating performance of the available-for-sale
security, (iii) the reason for decline in fair value and (iv) the Company’s intent and ability to hold the
investment in available-for-sale security for a period of time sufficient to allow for a recovery in fair value.
Realized gains and losses from the sale of available-for-sale securities,
if any, were determined on a
speciﬁc-identiﬁcation basis.

During the second quarter of 2017, the Company sold its available-for-sale securities for $5.8 million.
The book cost basis of the available-for-sale securities was approximately $7.7 million, which was determined
using the speciﬁc identiﬁcation method. The sale resulted in a net realized loss of $1.9 million, which is
the year ended
recorded in other expense (income)
December 31, 2017.

in the consolidated statement of operations for

F-12

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (continued)

The unrealized gains and losses on the available-for-sale securities held by the Company as of

December 31, 2016 are set forth below.

Historical Cost

Cost Basis

Estimated Fair Value

(in thousands)

Gross Unrealized
Losses
Gains

December 31, 2016

Available-for-sale securities . . . . .

$12,048

$7,673

$7,673

$ — $ —

Equity Method Investment

For investments in entities over which the Company exercises signiﬁcant inﬂuence but which do not meet
the requirements for consolidation, the Company uses the equity method of accounting. On July 1, 2016, the
Company acquired a 49.9% noncontrolling interest in Gaiam Pty. Ltd. in connection with its acquisition of
Gaiam Brand Holdco, LLC (see Note 5). The value of the Company’s equity method investment was
$0.8 million and $0.7 million as of December 31, 2017 and 2016, respectively, and is included in other assets
in the consolidated balance sheets. The Company’s share of earnings from its equity method investee, which
was not material for the years ended December 31, 2017 and 2016, is included in other (income) expense in
the consolidated statements of operations.

The Company evaluates its equity method investment for impairment whenever events or changes in
circumstances indicate that the carrying amounts of such investment may not be recoverable. The difference
between the carrying value of the equity method investment and its estimated fair value is recognized as an
impairment charge when the loss in value is deemed other-than-temporary.

Goodwill and Intangible Assets

Goodwill represents the excess of purchase price over the fair value of net assets acquired in business
combinations accounted for under the purchase method of accounting. On an annual basis and as needed, the
Company tests goodwill and indeﬁnite lived trademarks for impairment through the use of discounted cash
ﬂow models. Other intangibles with determinable lives, including certain trademarks, customer agreements,
patents and a favorable lease, are evaluated for the possibility of impairment when certain indicators are
present, and are otherwise amortized on a straight-line basis over the estimated useful lives of the assets
(currently ranging from 2 to 15 years). Assumptions used in our discounted cash ﬂow models are as follows:
(i) discount rates; (ii) projected average revenue growth rates; and (iii) projected long-term growth rates. Our
estimates also factor in economic conditions and expectations of management, which may change in the future
based on period-speciﬁc facts and circumstances.

Due to the identiﬁcation of impairment indicators during the quarter ended September 30, 2017, the
Company performed impairment testing of its goodwill and indeﬁnite-lived assets at September 30, 2017,
which replaced its October 1st annual test. As a result of its testing, the Company recorded a non-cash
impairment charge of $36.5 million relating to its indeﬁnite-lived intangible assets during the quarter ended
September 30, 2017.

Due to the identiﬁcation of impairment indicators during the quarter ended December 31, 2017, the
Company performed impairment testing of its goodwill and indeﬁnite-lived assets at December 31, 2017. As a
result of its testing, the Company recorded a non-cash goodwill impairment charge of $304.1 million during
the quarter ended December 31, 2017. See Notes 3, 7 and 8 for further details.

During the year ended December 31, 2016, the Company changed its annual impairment testing date
from December 31 to October 1. The Company believes this new date is preferable because it allows for more
timely completion of the annual impairment test prior to the end of its annual ﬁnancial reporting period. This
change in accounting principle did not delay, accelerate or avoid an impairment charge. The Company has

F-13

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (continued)

determined that it would be impracticable to objectively determine projected cash ﬂow and related valuation
estimates that would have been used as of each October 1 of prior reporting periods without the use of
hindsight. As such,
testing date prospectively
beginning October 1, 2016.

the Company applied the change in annual

impairment

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization. Maintenance
and repairs are charged to expense as incurred. Upon retirement or other disposition of property and
equipment, applicable cost and accumulated depreciation and amortization are removed from the accounts and
any gains or losses are included in results of operations.

Depreciation and amortization of property and equipment is computed using the straight-line method

based on estimated useful lives of the assets as follows:

Furniture and ﬁxtures
Computer hardware/equipment
Leasehold improvements

Computer software
Automobiles and trucks
Websites

Deferred Financing Costs

5 years
5 to 7 years
Term of the lease or the estimated life of the
related improvements, whichever is shorter.
5 years
5 years
3 years

Direct costs incurred in connection with issuing debt securities or obtaining debt or other credit
arrangements are recorded as deferred ﬁnancing costs as a deduction of the carrying value of debt and are
amortized as interest expense, using the effective interest method, over the term of the related debt. Debt
discounts are amortized to interest expense over the term of the related debt.

Treasury Stock

Treasury stock is recorded at cost as a reduction of equity in the consolidated balance sheets.

Preferred Stock

Preferred stock subject to mandatory redemption (if any) is classiﬁed as a liability instrument and is
measured at fair value. The Company classiﬁes conditionally redeemable preferred stock (if any), which
includes preferred stock that features redemption rights that are either within the control of the holder or
subject to redemption upon the occurrence of uncertain events not solely within the Company’s control, as
temporary equity. At all other times, the Company classiﬁes preferred stock as a component of equity.

The Company’s preferred stock does not feature any redemption rights within the holders’ control or
conditional redemption features not solely within its control as of December 31, 2017 and 2016. Accordingly,
all issuances of preferred stock are presented as a component of equity. The Company did not have any
preferred stock outstanding as of December 31, 2017 and 2016.

Common Stock Purchase Warrants and Derivative Financial Instruments

The Company classiﬁes as equity any contracts that (i) require physical settlement or net-share settlement
or (ii) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement
or net-share settlement). The Company classiﬁes as assets or liabilities any contracts that (i) require net-cash
settlement (including a requirement to net cash settle the contract if an event occurs and if that event is
outside the Company’s control) or (ii) gives the counterparty a choice of net-cash settlement or settlement in

F-14

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (continued)

shares (physical settlement or net-share settlement). The Company assesses classiﬁcation of its common stock
purchase warrants and other freestanding derivatives, if any, at each reporting date to determine whether a
change in classiﬁcation between assets and liabilities is required. The Company determined that
its
outstanding common stock purchase warrants satisﬁed the criteria for classiﬁcation as equity instruments at
December 31, 2017 and 2016.

Advertising

Advertising costs related to media ads are charged to expense as of the ﬁrst date the advertisements take
place. Advertising costs related to campaign ads, such as production and talent, are expensed over the term of
the related advertising campaign. Advertising expenses included in operating expenses approximated
$6.9 million, $9.6 million and $8.7 million for the years ended December 31, 2017, 2016 and 2015,
respectively. As of December 31, 2017 and 2016, the Company had $0.4 million of capitalized advertising
costs recorded on the consolidated balance sheets.

Stock-Based Compensation

Compensation cost for restricted stock is measured using the quoted market price of the Company’s
common stock at the date the common stock is granted. For restricted stock and restricted stock units, for
is
which restrictions lapse with the passage of time (‘‘time-based restricted stock’’), compensation cost
recognized on a straight-line basis over the period between the issue date and the date that restrictions lapse.
Time-based restricted stock is included in total shares of common stock outstanding upon the lapse of
applicable restrictions. For
for which restrictions are based on performance measures
(‘‘performance stock units’’ or ‘‘PSUs’’), restrictions lapse when those performance measures have been
deemed achieved. Compensation cost for PSUs is recognized on a straight-line basis during the period from
the date on which the likelihood of the PSUs being earned is deemed probable and (x) the end of the ﬁscal
year during which such PSUs are granted or (y) the date on which awards of such PSUs may be approved by
the compensation committee of the Company’s board of directors (the ‘‘Compensation Committee’’) on a
discretionary basis, as applicable. PSUs are included in total shares of common stock outstanding upon the
lapse of applicable restrictions. PSUs are included in total diluted shares of common stock outstanding when
the performance measures have been deemed achieved but the PSUs have not yet been issued.

restricted stock,

Fair value cost for stock options and warrants is calculated using the Black-Scholes valuation model and
is expensed on a straight-line basis over the requisite service period of the grant. The Company elected to
early adopt
the provisions of ASU 2016-09 ‘‘Simplifying the Accounting for Share-Based Payments’’
(‘‘ASU 2016-09’’) and reduces compensation cost for actual forfeitures as they occur. Prior to the adoption to
the Company’s estimated forfeiture rate utilized in calculating compensation cost was
ASU 2016-09,
zero percent based on the Company’s limited historical forfeiture experience.

At each subsequent reporting period prior to the lapse of restrictions on warrants, time-based restricted
stock and PSUs granted to non-employees, the Company remeasures the aggregate compensation cost of such
grants using the Company’s stock price at the end of such reporting period and revises the straight-line
recognition of compensation cost in line with such remeasured amount.

Income Taxes

Current income taxes are based on the respective periods’ taxable income for federal, foreign and state
income tax reporting purposes. Deferred tax liabilities and assets are determined based on the difference
between the ﬁnancial statement and income tax bases of assets and liabilities, using statutory tax rates in
effect for the year in which the differences are expected to reverse. In accordance with ASU No. 2015-17
‘‘Balance Sheet Classiﬁcation of Deferred Taxes’’, all deferred income taxes are reported and classiﬁed as
non-current. A valuation allowance is required if, based on the weight of available evidence, it is more likely
than not that some portion or all of the deferred tax assets will not be realized.

F-15

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (continued)

The Company applies the FASB guidance on accounting for uncertainty in income taxes. The guidance
clariﬁes the accounting for uncertainty in income taxes recognized in an enterprise’s ﬁnancial statements in
accordance with other authoritative GAAP and prescribes a recognition threshold and measurement process for
ﬁnancial statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. The guidance also addresses derecognition, classiﬁcation, interest and penalties, accounting in interim
periods, disclosure and transition. During the year ended December 31, 2017, the Company did not have any
reserves or interest and penalties to record through current income tax expense in accordance with ASC 740,
Income Taxes (‘‘ASC 740’’). During the year ended December 31, 2016,
the Company released its
$0.3 million reserve of certain unrecognized tax beneﬁts along with $0.3 million of accrued interest and
penalties through current income tax expense in accordance with ASC 740. Interest and penalties related to
uncertain tax positions, if any, are recorded in income tax expense. Tax years that remain open for assessment
for federal and state tax purposes include the years ended December 31, 2014 through December 31, 2017.

Earnings Per Share

Basic earnings per share (‘‘EPS’’) is computed by dividing net income (loss) attributable to Sequential
Brands Group, Inc. and Subsidiaries by the weighted-average number of common shares outstanding during
the reporting period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all
potentially dilutive common shares outstanding during the reporting period, including stock options, PSUs and
warrants, using the treasury stock method, and convertible debt, using the if-converted method. Diluted EPS
excludes all potentially dilutive shares of common stock if their effect is anti-dilutive. The shares used to
calculate basic and diluted EPS consist of the following:

Basic weighted-average common shares outstanding . .
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition hold back shares . . . . . . . . . . . . . . . . . .
Unvested restricted stock . . . . . . . . . . . . . . . . . . . . .
Performance based restricted stock . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted weighted-average common shares outstanding. .

2017
62,861,743
—
—
—
—
—
62,861,743

Year Ended December 31,
2016
61,912,410
—
—
—
—
—
61,912,410

2015
41,177,523
—
—
—
—
—
41,177,523

The computation of diluted EPS for the years ended December 31, 2017, 2016 and 2015 excludes the
common stock equivalents of the following potentially dilutive securities because their inclusion would be
anti-dilutive:

Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition hold back shares . . . . . . . . . . . . . . . . . .
Unvested restricted stock . . . . . . . . . . . . . . . . . . . . .
Performance based restricted stock . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

Concentration of Credit Risk

Year Ended December 31,
2016
125,535
172,814
122,167
407,303
7,977
835,796

2015
502,831
1,375,000
173,987
70,519
87,256
2,209,593

2017

—
—
166,607
65,087
—
231,694

Financial instruments which potentially expose the Company to credit risk consist primarily of cash,
restricted cash, accounts receivable and available-for-sale securities. Cash is held to meet working capital
needs and future acquisitions. Restricted cash is pledged as collateral for a comparable amount of irrevocable

F-16

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (continued)

standby letters of credit for certain of the Company’s leased properties. Substantially all of the Company’s
cash, restricted cash and available-for-sale securities are deposited with high quality ﬁnancial institutions. At
times, however, such cash, restricted cash and available-for-sale securities may be in deposit accounts that
exceed the Federal Deposit Insurance Corporation insurance limit. The Company has not experienced any
losses in such accounts as of December 31, 2017.

Concentration of credit risk with respect to accounts receivable is minimal due to the collection history

and the nature of the Company’s revenues.

Customer Concentrations

The Company recorded net revenues of $167.5 million, $155.5 million and $88.3 million during the years
ended December 31, 2017, 2016 and 2015, respectively. During the year ended December 31, 2017, three
licensees represented at least 10% of net revenue, each accounting for 11% of the Company’s net revenue.
During the year ended December 31, 2016, one licensee represented at least 10% of net revenue, accounting
for 11% of the Company’s net revenue. During the year ended December 31, 2015, two licensees represented
at least 10% of net revenue, accounting for 17% and 16% of the Company’s net revenue.

Loss Contingencies

The Company recognizes contingent losses that are both probable and estimable. In this context, probable
means circumstances under which events are likely to occur. The Company records legal costs pertaining to
contingencies as incurred.

Contingent Consideration

The Company recognizes the acquisition-date fair value of contingent consideration as part of the
consideration transferred in exchange for the acquiree or assets of the acquiree in a business combination. The
contingent consideration is classiﬁed as either a liability or equity in accordance with ASC 480-10, Accounting
for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. If classiﬁed as a
liability, the liability is remeasured to fair value at each subsequent reporting date until the contingency is
settled. Increases in fair value are recorded as losses, while decreases are recorded as gains. If classiﬁed as
equity, contingent consideration is not remeasured and subsequent settlement is accounted for within equity.

Noncontrolling Interest

Noncontrolling interest recorded for the year ended December 31, 2017 represents income allocations to
Elan Polo International, Inc., a member of DVS Footwear International, LLC (‘‘DVS LLC’’) and With You,
Inc., a member of With You LLC (the partnership between the Company and Jessica Simpson) and a loss
allocation to JALP, LLC (‘‘JALP’’), a member of FUL IP Holdings, LLC (‘‘FUL IP’’). Noncontrolling interest
recorded for the year ended December 31, 2016 represents income allocations to DVS LLC, With You, Inc.
and JALP. Noncontrolling interest recorded for the year ended December 31, 2015 represents income
allocations to DVS LLC and With You, Inc. The following table sets forth the noncontrolling interest for
the years ended December 31, 2017, 2016 and 2015:

With You LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DVS LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FUL IP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interests . . . . . . . .

F-17

2017

2015

Year Ended December 31,
2016
(in thousands)
$6,525
564
363
$7,452

$4,677
610
—
$5,287

$ 5,816
581
(2,225)
$ 4,172

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (continued)

The following table sets forth the noncontrolling interest as of December 31, 2017 and 2016:

DVS LLC

FUL IP

With You
LLC

Total

Balance at January 1, 2016 . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interests . . . . . . .
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2016 . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to noncontrolling interests
. .
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2017 . . . . . . . . . . . . . . . . . .

$2,696
564
(609)
2,651
581
(564)
$2,668

(in thousands)

4,411
363
—
4,774
(2,225)
(363)
$ 2,186

67,054
6,525
(6,191)
67,388
5,816
(6,511)
$66,693

$74,161
7,452
(6,800)
74,813
4,172
(7,438)
$71,547

In connection with the acquisition of With You LLC on April 8, 2015,

the Company recorded a
noncontrolling interest of $65.1 million in the consolidated statement of changes in equity during the year
ended December 31, 2015.

Reportable Segment

An operating segment, in part, is a component of an enterprise whose operating results are regularly
reviewed by the chief operating decision maker (the ‘‘CODM’’) to make decisions about resources to be
allocated to the segment and assess its performance. Operating segments may be aggregated only to a limited
extent. The Company’s CODM, the Chief Executive Officer, reviews ﬁnancial information presented on a
consolidated basis, accompanied by disaggregated information about
revenues for purposes of making
operating decisions and assessing ﬁnancial performance. Accordingly, the Company has determined that it has
a single operating and reportable segment. In addition, the Company has no foreign operations or any assets in
foreign locations. Nearly all of the Company’s operations consist of a single revenue stream, which is the
licensing of its trademark portfolio, with an immaterial portion of revenues derived from television, book, café
operations and certain commissions.

Recently Issued Accounting Standards

ASU No. 2017-12, ‘‘Targeted Improvements to Accounting for Hedging Activities’’

In August 2017, the FASB issued ASU No. 2017-12, ‘‘Targeted Improvements to Accounting for Hedging
Activities’’ (‘‘ASU 2017-12’’). ASU 2017-12 amends the hedge accounting recognition and presentation
requirements in ASC 815, Derivatives and Hedging. The amendments in ASU 2017-12 are intended to
improve the transparency and understandability of information about an entity’s risk management activities
and simplify the application of hedge accounting.

ASU 2017-12 is effective for annual and interim periods beginning after December 15, 2018, and early
adoption is permitted. The Company does not expect the adoption of ASU 2017-12 to have a material impact
on the Company’s consolidated ﬁnancial statements.

ASU No. 2017-09, ‘‘FASB Amends the Scope of Modiﬁcation Accounting for Share-Based Payment
Arrangements’’

In May 2017, the FASB issued ASU No. 2017-09, ‘‘FASB Amends the Scope of Modiﬁcation Accounting
for Share-Based Payment Arrangements’’ (‘‘ASU 2017-09’’). ASU 2017-09 provides guidance on the types of
changes to the terms or conditions of share-based payment awards to which an entity would be required to
apply modiﬁcation accounting under ASC 718, Compensation — Stock Compensation. Speciﬁcally, an entity
would not apply modiﬁcation accounting if the fair value, vesting conditions, and classiﬁcation of the awards
are the same immediately before and after the modiﬁcation.

F-18

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (continued)

ASU 2017-09 is effective for annual and interim periods beginning after December 15, 2017, and early
adoption is permitted. The Company does not expect the adoption of ASU 2017-09 to have a material impact
on the Company’s consolidated ﬁnancial statements.

ASU No. 2017-04, ‘‘Simplifying the Test for Goodwill Impairment’’

In January 2017, the FASB issued ASU No. 2017-04, ‘‘Simplifying the Test for Goodwill Impairment’’
(‘‘ASU 2017-04’’). ASU 2017-04 removes the requirement to compare the implied fair value of goodwill with
its carrying amount as part of Step 2 of the goodwill impairment test. As a result, under ASU 2017-04, an
entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a
reporting unit with its carrying amount and should recognize an impairment charge for the amount by which
the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed
the total amount of goodwill allocated to that reporting unit.

ASU 2017-04 is effective prospectively for annual and interim periods beginning on or after
December 15, 2019, and early adoption is permitted on testing dates after January 1, 2017. The Company
adopted the provisions of ASU 2017-04 during the ﬁrst quarter of 2017. The adoption of ASU 2017-04 did
not have a material impact on the Company’s consolidated ﬁnancial statements.

ASU No. 2017-01, ‘‘FASB Clariﬁes the Deﬁnition of a Business’’

In January 2017, the FASB issued ASU No. 2017-01, ‘‘FASB Clariﬁes the Deﬁnition of a Business’’
(‘‘ASU 2017-01’’). ASU 2017-01 clariﬁes the deﬁnition of a business in ASC 805. The amendments in
ASU 2017-01 are intended to make application of the guidance more consistent and cost-efficient.

ASU 2017-01 is effective for annual and interim periods beginning after December 15, 2017, with early
adoption permitted for transactions that occurred before the issuance date of effective date of the standard if
the transactions were not reported in ﬁnancial statements that have been issued or made available for issuance.
The Company does not expect the adoption of ASU 2017-01 to have a material impact on the Company’s
consolidated ﬁnancial statements.

ASU No. 2016-18, ‘‘Restricted Cash — a consensus of the FASB Emerging Issues Task Force’’

In November 2016, the FASB issued ASU No. 2016-18, ‘‘Restricted Cash — a consensus of the FASB
Emerging Issues Task Force’’ (‘‘ASU 2016-18’’). ASU 2016-18 amends ASC 230 to add or clarify guidance
on the classiﬁcation and presentation of restricted cash in the statement of cash ﬂows. Upon adoption of
ASU 2016-18, an entity should include in its cash and cash-equivalent balances in the statement of cash ﬂows
those amounts that are deemed to be restricted cash and restricted cash equivalents.

ASU 2016-18 is effective for annual and interim periods beginning after December 15, 2017, and early
adoption is permitted for all entities. The Company does not expect the adoption of ASU 2016-18 to have a
material impact on the Company’s consolidated ﬁnancial statements.

ASU No. 2016-15, ‘‘Classiﬁcation of Certain Cash Receipts and Cash Payments’’

In August 2016, the FASB issued ASU No. 2016-15, ‘‘Classiﬁcation of Certain Cash Receipts and Cash
Payments’’ (‘‘ASU 2016-15’’). ASU 2016-15 amends the guidance in ASC 230 on the classiﬁcation of certain
cash receipts and payments in the statement of cash ﬂows. The primary purpose of ASU 2016-15 is to reduce
the diversity in practice that has resulted from the lack of consistent principles on this topic.

ASU 2016-15 is effective for annual and interim periods beginning after December 15, 2017, and early
adoption is permitted for all entities. Entities must apply the guidance retrospectively to all periods presented
but may apply it prospectively from the earliest date practicable if retrospective application would be
impracticable. The Company does not expect the adoption of ASU 2016-15 to have a material impact on the
Company’s consolidated ﬁnancial statements.

F-19

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (continued)

ASU No. 2016-02, ‘‘Leases’’

In February 2016, the FASB issued ASU No. 2016-02, ‘‘Leases’’ (‘‘ASU 2016-02’’). The core principle
of ASU 2016-02 is that an entity should recognize on its balance sheet assets and liabilities arising from a
lease. In accordance with that principle, ASU 2016-02 requires that a lessee recognize a liability to make lease
payments (the lease liability) and a right-of-use asset representing its right to use the underlying leased asset
for the lease term. The recognition, measurement, and presentation of expenses and cash ﬂows arising from a
lease by a lessee will depend on the lease classiﬁcation as a ﬁnance or operating lease.

ASU 2016-02 is effective for annual and interim periods beginning after December 15, 2018, and early
adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2016-02 will
have on the Company’s consolidated ﬁnancial statements.

ASU No. 2016-01,
Instruments’’

‘‘Amending Guidance on Classiﬁcation and Measurement of Financial

In February 2016, the FASB issued ASU No. 2016-01, ‘‘Amending Guidance on Classiﬁcation and
Measurement of Financial Instruments’’ (‘‘ASU 2016-01’’). ASU 2016-01 amends the guidance in U.S. GAAP
on the classiﬁcation and measurement of ﬁnancial instruments. Although ASU 2016-01 retains many current
requirements, it signiﬁcantly revises an entity’s accounting related to (1) the classiﬁcation and measurement of
investments in equity securities and (2) the presentation of certain fair value changes for ﬁnancial liabilities
measured at fair value. ASU 2016-01 also amends certain disclosure requirements associated with the fair
value of ﬁnancial instruments.

ASU 2016-01 is effective for annual and interim periods beginning after December 15, 2017. The
impact on the Company’s

the adoption of ASU 2016-01 to have a material

Company does not expect
consolidated ﬁnancial statements.

ASU No. 2014-09, ‘‘Revenue from Contracts with Customers (Topic 606)’’

In May 2014, the Financial Accounting Standards Board (‘‘FASB’’) issued ASU No. 2014-09, ‘‘Revenue
from Contracts with Customers’’ (‘ASU 2014-09’). ASU 2014-09 provides guidance for revenue recognition
and affects any entity that either enters into contracts with customers to transfer goods or services or enters
revenue recognition
the transfer of nonﬁnancial assets, and supersedes the current
into contracts for
requirements in Topic 605, ‘‘Revenue Recognition,’’ and most industry-speciﬁc guidance. The core principle
of ASU 2014-09 is the recognition of revenue when a company transfers promised goods or services to
customers in an amount that reﬂects the consideration to which the company expects to be entitled to in
exchange for those goods or services. ASU 2014-09 deﬁnes a ﬁve-step process to achieve this core principle
and, in doing so, will require greater use of judgment and estimates than under the current guidance. The
FASB subsequently issued amendments providing additional guidance, clariﬁcation, and practical expedients
as follows:

•

•

In August 2015, the FASB delayed the effective date of this standard by one year, such that the new
revenue guidance is now effective for ﬁscal years beginning after December 15, 2017
(i.e., calendar years beginning on January 1, 2018), and interim periods therein.

In April 2016,
the FASB issued ASU No. 2016-10, ‘‘Revenue from Contracts with Customers
(Topic 606): Identifying Performance Obligations and Licensing,’’ which amends certain aspects of
the guidance in ASU 2014-09 related to identifying performance obligations and applying the new
revenue guidance to licensing transactions.

F-20

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (continued)

•

•

the FASB issued ASU No. 2016-12, ‘‘Revenue from Contracts with Customers
In May 2016,
(Topic 606): Narrow-Scope Improvements and Practical Expedients,’’ which addresses topics of
collectability, presentation of sales tax collected from customers, non-cash consideration, contract
modiﬁcations and completed contracts at transition, and transition disclosures.

In December 2016, the FASB issued ASU No. 2016-20, ‘‘Technical Corrections and Improvements
to Topic 606, Revenue from Contracts with Customers,’’ to provide further clariﬁcation on various
elements of the new revenue guidance.

ASU 2014-09 is effective for annual and interim periods beginning on or after December 15, 2017, and
early adoption is permitted as of the original effective date, December 31, 2016. The Company has reviewed
its various revenue streams for our existing contracts under the ﬁve-step process provided by ASU 2014-09
and expects that the impact of adoption of this guidance will be immaterial to our ﬁnancial statements and
related disclosures. The Company is continuing its assessment of potential changes to our internal controls
under ASU 2014-09. The Company will adopt the standard effective the ﬁrst quarter of 2018 and apply the
amendments using the modiﬁed retrospective method.

NOTE 3 — FAIR VALUE OF FINANCIAL INSTRUMENTS

ASC 820-10, Fair Value Measurements and Disclosures (‘‘ASC 820-10’’), deﬁnes fair value, establishes
a framework for measuring fair value in GAAP and provides for expanded disclosure about fair value
measurements. ASC 820-10 applies to all other accounting pronouncements that require or permit fair value
measurements.

The Company determines or calculates the fair value of ﬁnancial instruments using quoted market prices
in active markets when such information is available or using appropriate present value or other valuation
techniques, such as discounted cash ﬂow analyses, incorporating available market discount rate information for
similar types of instruments while estimating for non-performance and liquidity risk. These techniques are
signiﬁcantly affected by the assumptions used, including the discount rate, credit spreads and estimates of
future cash ﬂows.

Assets and liabilities typically recorded at fair value on a non-recurring basis to which ASC 820-10

applies include:

•

•

non-ﬁnancial assets and liabilities initially measured at fair value in an acquisition or business
combination, and

long-lived assets measured at fair value due to an impairment assessment under ASC 360-10-15,
Impairment or Disposal of Long-Lived Assets.

This topic deﬁnes fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date and establishes a
three-level hierarchy, which encourages an entity to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. ASC 820-10 requires that assets and liabilities recorded
at fair value be classiﬁed and disclosed in one of the following three categories:

•

•

Level 1 — inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities
that the Company has the ability to access.

Level 2 — inputs utilize other-than-quoted prices that are observable, either directly or indirectly.
Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs
such as interest rates and yield curves that are observable at commonly quoted intervals.

F-21

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 3 — FAIR VALUE OF FINANCIAL INSTRUMENTS − (continued)

•

Level 3 — inputs are unobservable and are typically based on the Company’s own assumptions,
including situations where there is little, if any, market activity. Both observable and unobservable
inputs may be used to determine the fair value of positions that are classiﬁed within the Level 3
classiﬁcation.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value
hierarchy. In such cases, the Company classiﬁes such ﬁnancial assets or liabilities based on the lowest level
input that is signiﬁcant to the fair value measurement in its entirety. The Company’s assessment of the
signiﬁcance of a particular input to the fair value measurement in its entirety requires judgment and considers
factors speciﬁc to the asset or liability.

During the year ended December 31, 2017, the Company recorded non-cash impairment charges of
$36.5 million for indeﬁnite-lived intangible assets related to the trademarks of ﬁve of the Company’s non-core
brands: Caribbean Joe, Revo, Franklin Mint, Nevados, and FUL. Fair value for each trademark was
determined based on the income approach using estimates of future discounted cash ﬂows, a Level 3 measure
within the fair value hierarchy. The impairments arose due to reduced contractual minimums or reduced sales
forecasts in key distribution channels for these brands. When an intangible asset’s useful life is no longer
considered to be indeﬁnite, it must be amortized over the remaining period that it is expected to contribute to
cash ﬂows. The Company determined that certain trademarks which had been impaired during the year ended
December 31, 2017 should no longer be classiﬁed as indeﬁnite-lived intangible assets. The Company recorded
less than $0.1 million in amortization during the year ended December 31, 2017 related to these trademarks.
The following table shows the change in indeﬁnite-lived assets for the year ended December 31, 2017:

Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment charges
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassiﬁed to ﬁnite-lived intangible assets
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,
2017
(in thousands)
$1,025,260
2,383
(36,505)
(461)
$ 990,677

During the year ended December 31, 2017, the Company recorded a non-cash goodwill impairment
charge of $304.1 million. The quantitative evaluation of goodwill impairment included an assessment of fair
value under the Income Approach using estimates of future discounted cash ﬂows, a Level 3 measure within
the fair value hierarchy. See Note 8 for further details.

F-22

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 3 — FAIR VALUE OF FINANCIAL INSTRUMENTS − (continued)

As of December 31, 2017 and 2016, there were no assets or liabilities that are required to be measured at
fair value on a recurring basis, except for the Company’s available-for-sale securities (see Note 2), interest
rate cap (see Note 9), the contingent earn outs relating to the Linens ‘N Things brand (the ‘‘LNT Contingent
Earn Out’’) and Legacy Payments (as deﬁned in Note 5) for Ms. Martha Stewart. The following table sets
forth the carrying value and the fair value of the Company’s ﬁnancial assets and liabilities required to be
disclosed at December 31, 2017 and 2016:

Financial Instrument

Level

12/31/2017

12/31/2016

12/31/2017

12/31/2016

Carrying Value

Fair Value

(in thousands)

Available-for-sale securities . . . . . . . . . . . .
Interest rate cap . . . . . . . . . . . . . . . . . . . .
2016 Term Loans . . . . . . . . . . . . . . . . . . .
2016 Revolving Loan . . . . . . . . . . . . . . . .
LNT Contingent earn outs . . . . . . . . . . . . .
Legacy Payments . . . . . . . . . . . . . . . . . . .

1
2
2
2
3
3

7,673
— $
$
1,104
$582,500
$ 80,500

$
$ 1,239
$551,913
$ 92,787
$
$ 2,256

— $
$

— $
$

1,995

$
$
1,239
$542,655
$ 92,389

7,673
— $
$
1,104
$551,324
$ 60,755
—
1,995

— $
$

2,256

The carrying amounts of the Company’s cash, restricted cash, accounts receivable and accounts payable

approximate fair value due to their short-term maturities.

On November 30, 2016, the Company entered into interest rate cap agreements related to its 1-month
London Interbank Offered Rate (‘‘LIBOR’’) rates related to the Company’s loan agreements (the ‘‘2016 Cap
Agreements’’) with certain ﬁnancial institutions. The 2016 Cap Agreements have a $500 million notional
value, strike rate of 1.50% and mature on November 23, 2018. The Company recorded its interest rate caps on
the consolidated balance sheets at fair value using Level 2 inputs. The valuation technique used to determine
the fair value of the 2016 Cap Agreements approximated the net present value of future cash ﬂows, taking
into account current interest rates.

The Company’s risk management objective and strategy with respect to the 2016 Cap Agreements is to
reduce its exposure to variability in expected future cash outﬂows (forecasted interest payments) attributable to
change in 1-month LIBOR rates, the designated benchmark interest rate being hedged, relating to a portion of
its outstanding ﬂoating-rate debt. The 2016 Cap Agreements protect the Company from increases in hedged
cash ﬂows on its ﬂoating-rate debt attributable to changes in 1-month LIBOR rates above the strike rate.
Should 1-month LIBOR rates exceed 1.50% on a rate reset date during the terms of the 2016 Cap
Agreements, the ﬁnancial institutions will pay the Company for an amount equivalent to the excess interest
over the strike rate. To the extent the hedging relationship is perfectly effective, changes in the fair value of
the hedging instrument each period will be deferred in accumulated other comprehensive loss in the statement
of changes in equity, and the upfront hedging instrument purchase price will be reclassiﬁed to Interest
expense, net
If hedge
ineffectiveness exists, accumulated other comprehensive loss will be adjusted to a balance that reﬂects the
lesser of either the cumulative change in the fair value of the hedging or the cumulative change in the fair
value of the hypothetically ‘‘perfect’’ derivative. The amount of ineffectiveness, if any, recorded in earnings
would be equal to the excess of the cumulative change in the fair value of the hedging instrument over the
cumulative change in the fair value of the hypothetical derivative.

in the consolidated statements of operations according to its caplet values.

The components of the 2016 Cap Agreements as of December 31, 2017 are as follows:

LIBOR based loans

. . . . . . . . . . . . . . . . . . . . .

$500,000

Notional Value

Derivative
Asset
(in thousands)
$80

Derivative
Liability

$—

F-23

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 3 — FAIR VALUE OF FINANCIAL INSTRUMENTS − (continued)

For purposes of this fair value disclosure, the Company based its fair value estimate for the 2016 Term
Loans, 2016 Revolving Loan, 2015 Term Loans and 2015 Revolving Loan (each, as deﬁned in Note 9) on its
internal valuation whereby the Company applied the discounted cash ﬂow method to its expected cash ﬂow
payments due under the loan agreements based on interest rates as of December 31, 2017 and 2016 for debt
with similar risk characteristics and maturities.

On the date of the acquisition of Galaxy Brand Holdings, Inc., no value was assigned to the LNT
Contingent Earn Out based on the remote probability that the Linens ‘N Things brand will achieve the
performance measurements which expired on December 31, 2017. As of December 31, 2017 and 2016, the
LNT Contingent Earn Out had no value. The LNT Contingent Earn Out was not achieved during the year
ended December 31, 2017.

In connection with the acquisition of Martha Stewart Living Omnimedia (‘‘MSLO’’), beginning with
three and
calendar years commencing on or after January 1, 2026,
one-half percent (3.5%) of Gross Licensing Revenues (as deﬁned in Ms. Stewart’s employment agreement) for
each such calendar year for the remainder of Ms. Stewart’s life (with a minimum of ﬁve (5) years of
payments, to be made to Ms. Stewart’s estate if Ms. Stewart dies before December 31, 2030) (the ‘‘Legacy
Payments’’). The Company determined the acquisition date fair value of Legacy Payments due to Ms. Martha
Stewart was $1.7 million and updated the MSLO purchase price during the year ended December 31, 2016
(see Note 5). The Company recorded $0.3 million of accretion during the each of
the years ended
December 31, 2017 and 2016 related to the Legacy Payments and recorded the expense within interest
expense, net in the consolidated statements of operations.

the Company will pay Ms. Stewart

NOTE 4 — DISCONTINUED OPERATIONS OF WHOLESALE BUSINESS

During the year ended December 31, 2016, the Company released its $0.6 million reserve of certain
unrecognized tax beneﬁts through current income tax expense in accordance with ASC 740. In addition, the
Company wrote off the remaining assets and liabilities, a net de minimis amount, within other (expense)
income in the consolidated statements of operations. The Company did not record any additional costs relating
to discontinued operations of its former wholesale business during the year ended December 31, 2015. As of
December 31, 2015, costs attributable to the former wholesale business mainly represented lease termination
costs and professional and other fees.

NOTE 5 — ACQUISITIONS

Acquisition of Gaiam Brand Holdco, LLC

On July 1, 2016, the Company, together with its wholly-owned subsidiary, SBG-Gaiam Holdings LLC
(formerly known as Stretch & Bend Holdings LLC), a Delaware limited liability company (‘‘SBG-Gaiam’’ or
the ‘‘Purchaser’’) completed the acquisition pursuant
to the terms of the Membership Interest Purchase
Agreement (the ‘‘MIPA’’) with GAIAM, Inc., a Colorado corporation (‘‘Seller’’) pursuant to which Purchaser
agreed to acquire the branded consumer business of Seller for a total purchase price of $145.7 million in cash.
As part of the transaction, SBG-Gaiam acquired Seller’s yoga, ﬁtness and wellness product business, which
include the GAIAM and SPRI brands. In tandem with the transaction, the Company signed long-term licensing
agreements for the brands’ core categories, which became effective upon closing.

As part of the MIPA, the Company paid $1.9 million to Seller for severance related charges to employees
of GAIAM, Inc. Also as part of the MIPA, the Company acquired a 49.9% noncontrolling interest in Gaiam
Pty. Ltd, which is recorded under the equity method of accounting. The acquisition was accounted for under
the acquisition method of accounting. Accordingly, the acquired assets were recorded at their estimated fair
values, and operating results for the GAIAM and SPRI brands are included in the Company’s consolidated
ﬁnancial statements from the effective date of the acquisition, July 1, 2016.

F-24

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 5 — ACQUISITIONS − (continued)

The Company made the following updates to the purchase price during the year ended December 31,

2017 in connection with ﬁnalizing the valuation of the Gaiam Brand Holdco, LLC acquisition (in thousands):

Allocated to:
Goodwill
Trademarks
Equity method investment

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(3,621)
3,568
53
$ —

The ﬁnal allocation of the purchase price is summarized as follows (in thousands):

Total consideration paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$147,587

Allocated to:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Equity method investment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$145,923
1,084
757
23
(200)
$147,587

The Company and Gaiam Brand Holdco, LLC elected to treat the acquisition as an asset acquisition
under section 338(h)(10) of the United States Internal Revenue Service tax code. As such, the Company did
not record a deferred tax liability in connection with the acquisition.

Goodwill arising from the acquisition mainly consists of the synergies of an ongoing licensing and brand
management business. Trademarks have been determined by management to have an indeﬁnite useful life and,
accordingly, no amortization is recorded in the Company’s consolidated statement of operations. Goodwill and
trademarks are tested for impairment on an annual basis or sooner, if an event occurs or circumstances change
that indicate that the carrying amount of the goodwill or trademarks may not be recoverable. The Company
incurred legal and other costs related to the transaction of $3.8 million, which have been recognized in
operating expenses in the consolidated statement of operations during the year ended December 31, 2016.

Total revenues and income from continuing operations since the date of the acquisition of the GAIAM
and SPRI brands, included in the consolidated statements of operations for the year ended December 31, 2016,
are $12.0 million and $11.1 million, respectively.

Acquisition of Martha Stewart Living Omnimedia

On December 4, 2015, Old Sequential and MSLO, consummated the transactions contemplated by the
Merger Agreement. Effective on December 4, 2015 as of the effective time under the Merger Agreement (the
‘‘Effective Time’’), Singer Merger Sub, Inc. and Madeline Merger Sub, Inc., each wholly-owned subsidiaries
of the Company, merged with and into Old Sequential and MSLO, respectively, with Old Sequential and
MSLO surviving the mergers as wholly-owned subsidiaries of the Company (the ‘‘Mergers’’), in accordance
with the Merger Agreement. The Mergers were approved by the stockholders of MSLO at a special meeting
of the MSLO stockholders on December 2, 2015 and by a majority of Old Sequential’s stockholders on
June 22, 2015. As a result of the Mergers, the Company became the ultimate parent of Old Sequential, MSLO
and each of their respective subsidiaries.

Under the terms of the Merger Agreement, subject to each stockholder’s election and proration, allocation
and certain limitations set forth in the Merger Agreement, each issued and outstanding share of MSLO’s
Class A common stock, par value $0.01 per share, and Class B Common stock, par value $0.01 per share

F-25

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 5 — ACQUISITIONS − (continued)

(collectively, the ‘‘MSLO Common Stock’’), was converted into the right to receive either $6.15 in cash (the
‘‘MSLO Cash Consideration’’) or a number of fully-paid and nonassessable shares of the Company’s common
stock, par value $0.01 per share, together with cash, in lieu of fractional shares of common stock, equal to the
MSLO Cash Consideration divided by $8.8393. Each issued and outstanding share of Old Sequential’s
to receive one fully-paid and nonassessable share of the
common stock was converted into the right
Company’s common stock (‘‘the Sequential Merger Consideration’’).

As the aggregate amount of cash to be paid to MSLO stockholders was ﬁxed in the Merger Agreement at
$176,681,757 and as the cash election was oversubscribed, cash elections were subject to proration to ensure
that the total amount of cash paid to MSLO stockholders in the aggregate equals $176,681,757. As a result,
MSLO stockholders received in the aggregate 19,980,787 shares of common stock and $176,681,757 in cash.
In addition,
the Company paid an additional $40,314 to cover fractional shares. In the aggregate, Old
Sequential stockholders received 40,436,798 shares of the Company’s common stock.

As part of the Merger Agreement, the Company also issued 33,939 shares of the Company’s common

stock to MSLO’s former Chief Executive Officer, Mr. Daniel W. Dienst.

Shares of MSLO’s common stock were suspended from trading on the NYSE prior to the open of trading
on December 4, 2015. Shares of Old Sequential’s common stock were suspended from trading on the Nasdaq
prior to the open of trading on December 7, 2015 and shares of the Company’s common stock began trading
on the Nasdaq at the open of trading on December 7, 2015 under the ticker symbol ‘‘SQBG’’.

Beginning with calendar years commencing on or after January 1, 2026,

the Company will pay
Ms. Stewart three and one-half percent (3.5%) of Gross Licensing Revenues (as deﬁned in Ms. Stewart’s
employment agreement) for each such calendar year for the remainder of Ms. Stewart’s life (with a minimum
of ﬁve (5) years of payments, to be made to Ms. Stewart’s estate if Ms. Stewart dies before December 31,
2030) (the ‘‘Legacy Payments’’). The Legacy Payments shall be made regardless of the time or reason for
Ms. Stewart’s termination of employment. The Company determined that the acquisition date fair value of
Ms. Martha Stewart’s Legacy Payment (as deﬁned in Note 3) was $1.7 million and updated the preliminary
purchase price.

As part of the Merger Agreement, the Company paid $14.2 million to MSLO employees for outstanding

stock options and restricted stock units each employee held to acquire shares of MSLO common stock.

The Company made the following updates to the purchase price and measurement period reclassiﬁcations
during the year ended December 31, 2016 in connection with completing the valuation of the MSLO
acquisition:

Allocated to:

Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks
Customer agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legacy payments
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

826
1,717
(11,249)
16,398
(8)
(40)
(1,749)
(5,895)
—

F-26

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 5 — ACQUISITIONS − (continued)

The Mergers were accounted for under the acquisition method of accounting. Accordingly, the acquired
assets were recorded at their estimated fair values, and operating results for the Martha Stewart(cid:5) brand are
included in the Company’s consolidated ﬁnancial statements from the effective date of
the Mergers,
December 4, 2015.

The allocation of the purchase price is summarized as follows (in thousands, except share amounts):

Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of common stock issued (20,014,726 shares) . . . . . . . . . . . . . . . . . . . .
Total consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 176,722
185,937
$ 362,659

Allocated to:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Trademarks
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Guaranteed contractual payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments to seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consideration paid to MSLO employees/directors for stock awards . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legacy payments
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities
Other deferred revenue
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 39,095
17,524
1,524
5,376
958
128,713
329,770
632
(11,158)
(12,826)
(3,250)
(14,227)
(1,749)
(452)
(1,717)
(115,554)
$ 362,659

Goodwill arising from the acquisition mainly consists of the synergies of an ongoing licensing and brand
management business. Trademarks have been determined by management to have an indeﬁnite useful life and,
accordingly, no amortization is recorded in the Company’s consolidated statement of operations. Goodwill and
trademarks are tested for impairment on an annual basis or sooner, if an event occurs or circumstances change
that indicate that the carrying amount of the goodwill or trademarks may not be recoverable. Customer
agreements are amortized on a straight-line basis over their expected useful lives of four years. The Company
incurred legal and other costs related to the transaction of $0.5 million and $5.8 million, which have been
recognized in operating expenses in the accompanying consolidated statement of operations during the years
ended December 31, 2016 and 2015, respectively.

Total revenues and loss from continuing operations from the Effective Time included in the consolidated
statement of operations for the year ended December 31, 2015, are $5.4 million and $6.1 million, respectively.

Acquisition of Joe’s Jeans

On September 8, 2015, the Company and Joe’s Holdings LLC, a newly formed Delaware limited liability
company and wholly-owned subsidiary of the Company (‘‘Joe’s Holdings’’), entered into an asset purchase
agreement (the ‘‘Joe’s Jeans Purchase Agreement’’) with Joe’s Jeans Inc., a Delaware corporation, as part of a
series of transactions by Joe’s Jeans, pursuant to which Joe’s Holdings purchased, among other things, certain

F-27

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 5 — ACQUISITIONS − (continued)

intellectual property assets used or held for use in Joe’s Jeans’ business operated under the brand names
‘‘Joe’s Jeans,’’ Joe’s,’’ ‘‘Joe’s JD’’ and ‘‘else’’ for an aggregate cash purchase price of $67.0 million (the
‘‘Joe’s Jeans Acquisition’’).

On September 11, 2015 (the ‘‘Joe’s Jeans Closing Date’’), the transactions contemplated by the Joe’s
Jeans Purchase Agreement were consummated concurrently with the transactions contemplated by the asset
purchase agreement, dated as of September 8, 2015 (the ‘‘GBG Asset Purchase Agreement’’), by and between
Joe’s Jeans and GBG USA Inc. (‘‘GBG’’). As of the Joe’s Jeans Closing Date, Joe’s Jeans retained 32 Joe’s
Jeans branded retail stores and will dispose of certain stores in accordance with terms of the Joe’s Jeans
Purchase Agreement and the GBG Asset Purchase Agreement. Furthermore, on the Joe’s Jeans Closing Date,
pursuant to the terms of the Joe’s Jeans Purchase Agreement and the GBG Asset Purchase Agreement, Joe’s
Holdings and GBG made non-refundable deposits of $2.5 million and $1.5 million, respectively, into an
escrow account to be used by Joe’s Jeans to offset net costs and expenses related to the operation and
disposition of such stores. Subject to certain limitations on Joe’s Jeans’ aggregate net liability with respect to
these costs and expenses and subject to the completion of certain other pending transactions by Joe’s Jeans,
such costs and expenses in excess of the amounts deposited into the escrow account on the Joe’s Jeans
Closing Date will be borne by Joe’s Holdings and Joe’s Jeans.

In connection with the acquisition, the Company also incurred an obligation for (i) $0.8 million in
guaranteed contractual payments and (ii) $1.7 million under a loan payoff agreement payable to the Joe’s
Jeans founder, Mr. Joseph Dahan.

The Joe’s Jeans Acquisition was accounted for under the acquisition method of accounting. Accordingly,
the acquired assets were recorded at their estimated fair values, and operating results for the Joe’s Jeans brand
are included in the Company’s consolidated ﬁnancial statements from the effective date of the acquisition,
September 11, 2015.

The allocation of the purchase price is summarized as follows (in thousands):

Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Guaranteed contractual payments
Total consideration paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Allocated to:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Trademarks
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$71,168
826
$71,994

$ 1,060
70,862
72
$71,994

Goodwill arising from the acquisition mainly consists of the synergies of an ongoing licensing and brand
management business. The Company’s goodwill is deductible for tax purposes and will be amortized over a
period of 15 years. Trademarks have been determined by management to have an indeﬁnite useful life and,
accordingly, no amortization is recorded in the Company’s consolidated statement of operations. Goodwill and
trademarks are tested for impairment on an annual basis or sooner, if an event occurs or circumstances change
that indicate that the carrying amount of the goodwill or trademarks may not be recoverable. Customer
agreements are amortized on a straight-line basis over their expected useful lives of four years. The Company
incurred legal and other costs related to the transaction of $2.0 million, which have been recognized in
operating expenses in the accompanying consolidated statement of operations during the year ended
December 31, 2015.

F-28

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 5 — ACQUISITIONS − (continued)

Total revenues and income from continuing operations from the Joe’s Jeans Closing Date, included in the

consolidated statements of operations for the year ended December 31, 2015, are both $1.5 million.

Acquisition of Jessica Simpson

On April 8, 2015, the Company consummated transactions pursuant to the purchase agreement, dated as
of April 1, 2015 (the ‘‘JS Purchase Agreement’’) with With You, Inc., a California corporation (‘‘WYI’’),
Corny Dog, Inc., a California corporation (together with WYI,
the ‘‘WYI Sellers’’), With You LLC, a
Delaware limited liability company, and Jessica Simpson, in her capacity as the sole stockholder of each of
the WYI Sellers. With You LLC owns all assets related to (i) the worldwide business of creating, designing,
developing, manufacturing, marketing, selling and licensing all consumer related lifestyle products, including,
but not limited to, all categories within the fashion, home, beauty, personal care, baby, crafts, pets, holiday,
seasonal, bridal, celebrations, travel, ﬂoral and food industry segments, with certain exclusions, of the Jessica
Simpson brand, (ii) the exploitation of intellectual property and related rights associated with the celebrity and
personality rights, subject to certain exceptions, of Jessica Simpson and (iii) all lines of business reasonably
related or ancillary thereto (including the establishment and operation of retail stores).

Pursuant to the terms of the JS Purchase Agreement, the Company purchased membership interests in
With You LLC for an aggregate purchase price consisting of (a) $119.3 million in cash, (b) $2.8 million of
guaranteed contractual payments and (c) $1.3 million of equity utilizing the closing stock price of $13.34 on
April 8, 2015. After giving effect
the
Company owns 62.5% of the outstanding membership interests in With You LLC and WYI owns 37.5% of
the outstanding membership interests in With You LLC. In connection with the JS Purchase Agreement, the
Company and WYI entered into an operating agreement for With You LLC, pursuant to which the Company
and WYI agreed to certain rights and obligations with respect to the governance of With You LLC.

to the transactions contemplated by the JS Purchase Agreement,

The acquisition was accounted for under the acquisition method of accounting. Accordingly, the acquired
assets were recorded at their estimated fair values, and operating results for the Jessica Simpson brand are
included in the Company’s consolidated ﬁnancial statements from the effective date of the acquisition.

The allocation of the purchase price is summarized as follows (in thousands):

Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Guaranteed contractual payments
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of common stock issued (97,087 shares) . . . . . . . . . . . . . . . . . . . . . . .
Total consideration paid by Sequential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$119,250
2,822
1,295
$123,367

Allocated to:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks
Customer agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 3,480
184,475
506
(65,094)
$123,367

Goodwill arising from the acquisition mainly consists of the synergies of an ongoing licensing and brand
management business. The Company’s goodwill is deductible for tax purposes and will be amortized over a
period of 15 years. Trademarks have been determined by management to have an indeﬁnite useful life and,
accordingly, no amortization is recorded in the Company’s consolidated statement of operations. Goodwill and
trademarks are tested for impairment on an annual basis or sooner, if an event occurs or circumstances change
that indicate that the carrying amount of the goodwill or trademarks may not be recoverable. Customer
agreements are amortized on a straight-line basis over their expected useful lives of four years. The Company

F-29

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 5 — ACQUISITIONS − (continued)

incurred legal and other costs related to the transaction of $2.8 million, which have been recognized in
operating expenses in the accompanying consolidated statement of operations during the year ended
December 31, 2015.

Total

revenues and income from continuing operations from the date of

the acquisition through
December 31, 2015, included in the consolidated statements of operations for the year ended December 31,
2015, are $18.2 million and $9.4 million, respectively.

NOTE 6 — PROPERTY AND EQUIPMENT

Property and equipment is summarized as follows:

Furniture and ﬁxtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer hardware/equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Websites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automobiles and trucks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .

Property and equipment, net

Property and equipment

December 31,

2017

2016

(in thousands)

$ 6,164
1,198
5,937
974
400
140
14,813
(7,778)
$ 7,035

$ 4,390
1,173
4,803
974
400
146
11,886
(4,212)
$ 7,674

In February 2017, the Company sold an automobile for a de minimis amount. The Company recorded a
de minimis loss which is recorded in the consolidated statement of operations for
the year ended
December 31, 2017. As discussed in Note 18, in February 2016, the Company wrote-off $0.4 million of
leasehold improvements due to moving its corporate headquarters. In March 2016,
the Company sold
computer equipment for a de minimis amount. The Company recorded a de minimis loss which is recorded in
the consolidated statement of operations for the year ended December 31, 2016. In November 2015, the
Company sold office equipment for a de minimis amount. The Company recorded a loss of $0.1 million which
is recorded in the consolidated statements of operations for the year ended December 31, 2015. There were no
impairments of property and equipment recorded in the consolidated statements of operations for the years
ended December 31, 2017, 2016 and 2015. Depreciation and amortization expense amounted to $3.8 million,
$3.5 million and $0.8 million for the years ended December 31, 2017, 2016 and 2015, respectively.

F-30

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 7 — INTANGIBLE ASSETS

Intangible assets are summarized as follows:

December 31, 2017

Finite-lived intangible assets:

Useful Lives
(years)

Trademarks . . . . . . . . . . . . . . . . . . . . . . . . .
Customer agreements . . . . . . . . . . . . . . . . . .
Favorable lease . . . . . . . . . . . . . . . . . . . . . .
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5 − 15
4
2
10

Indeﬁnite-lived intangible assets:

Trademarks . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .

Intangible assets, net

December 31, 2016

Finite-lived intangible assets:

Useful Lives
(years)

Trademarks . . . . . . . . . . . . . . . . . . . . . . . . .
Customer agreements . . . . . . . . . . . . . . . . . .
Favorable lease . . . . . . . . . . . . . . . . . . . . . .
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15
4
2
10

Indeﬁnite-lived intangible assets:

Trademarks . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .

Intangible assets, net

Gross
Carrying
Amount

$5,462
2,832
537
665
$9,496

Gross
Carrying
Amount

$4,981
2,832
537
665
$9,015

Accumulated
Amortization
(in thousands)

$(1,913)
(2,257)
(537)
(296)
$(5,003)

Accumulated
Amortization
(in thousands)

$(1,558)
(1,738)
(537)
(230)
$(4,063)

Net
Carrying
Amount

$

3,549
575
—
369
4,493

990,677
$995,170

Net
Carrying
Amount

$

3,423
1,094
—
435
4,952

1,025,260
$1,030,212

Future annual estimated amortization expense is summarized as follows:

Years ending December 31,
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(in thousands)
$ 875
683
495
492
469
1,479
$4,493

Amortization expense amounted to $0.9 million, $1.3 million and $1.1 million for the years ended

December 31, 2017, 2016 and 2015, respectively.

Finite-lived intangible assets represent

trademarks, customer agreements and patents related to the
Company’s brands and a favorable lease. Finite-lived assets are amortized on a straight-line basis over the
estimated useful lives of the assets. Indeﬁnite-lived intangible assets are not amortized, but instead are subject
to impairment evaluation. The carrying value of ﬁnite-lived intangible assets and other long-lived assets is
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The trademarks of Martha Stewart, Jessica Simpson, Avia, AND1, Nevados,

F-31

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 7 — INTANGIBLE ASSETS − (continued)

Linens-n-Things, Heelys, Joe’s Jeans, Gaiam, Emeril, Revo, Caribbean Joe, Ellen Tracy and FUL have been
determined to have an indeﬁnite useful life and accordingly, consistent with ASC Topic 350, no amortization
has been recorded in the Company’s consolidated statements of operations. Instead, each of these intangible
assets are tested for impairment annually and as needed on an individual basis as separate single units of
the time of
accounting, with any related impairment charge recorded to the statement of operations at
determining such impairment. The annual evaluation of
the Company’s indeﬁnite-lived trademarks is
performed as of October 1, the beginning of the Company’s fourth ﬁscal quarter.

When conducting its impairment assessment of indeﬁnite-lived intangible assets, the Company initially
performs a qualitative evaluation of whether it is more likely than not that the asset is impaired. If it is
determined by a qualitative evaluation that it is more likely than not that the asset is impaired, the Company
then tests the asset for recoverability. The Company tests its indeﬁnite-lived intangible assets for recovery in
accordance with ASC-820-10-55-3D which states, ‘‘The income approach (‘‘Income Approach’’) converts
future amounts (for example cash ﬂows) in income and expenses in a single current (that is, discounted)
amount. When the Income Approach is used, fair value measurement reﬂects current market expectations
about those future amounts. The Income Approach is based on the present value of future earnings expected
to be generated by a business or asset. Income projections for a future period are discounted at a rate
commensurate with the degree of risk associated with future proceeds. A residual or terminal value is also
added to the present value of the income to quantify the value of the business beyond the projection period.’’
As such, recoverability of assets to be held and used is measured by a comparison of the carrying amount of
the asset to its expected future discounted net cash ﬂows. If the carrying amount of such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of
the assets exceeds the recoverability of the assets. Assumptions used in our estimates are as follows:
(i) discount rates; (ii) projected annual revenue growth rates; and (iii) projected long-term growth rates. Our
estimates also factor in economic conditions and expectations of management which may change in the future
based on period-speciﬁc facts and circumstances. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.

Due to the identiﬁcation of impairment indicators during the quarter ended September 30, 2017, the
Company performed impairment testing of its goodwill and indeﬁnite-lived assets at September 30, 2017,
which replaced its October 1st annual test. As a result of its testing, during the quarter ended September 30,
2017, the Company recorded a non-cash impairment charge of $36.5 million relating to its indeﬁnite-lived
intangible assets related to the trademarks of Caribbean Joe, Revo, Franklin Mint, Nevados, and FUL. The
impairments arose due to reduced contractual minimums or reduced sales forecasts in key distribution
testing performed at
channels for these brands. In addition,
December 31, 2017, the Company performed impairment testing of its indeﬁnite-lived assets at December 31,
2017, noting no additional impairment of its indeﬁnite-lived intangible assets. See Note 8 — Goodwill for
further details. When an intangible asset’s useful life is no longer considered to be indeﬁnite, it must be
amortized over the remaining period that it is expected to contribute to cash ﬂows. The Company determined
that certain trademarks which had been impaired during the year ended December 31, 2017 should no longer
be classiﬁed as indeﬁnite-lived intangible assets. The Company recorded less than $0.1 million in amortization
during the year ended December 31, 2017 related to these trademarks. There was no impairment of intangible
assets or other long-lived assets recognized during the years ended December 31, 2016 and 2015.

in connection with its goodwill

impairment

On February 24, 2015,

the Company sold the People’s Liberation brand to a third party for
(i) $0.7 million in cash and a note receivable and (ii) an earn-out of $1.0 million in cash (the ‘‘Earn-out’’) in
the event that total gross sales of products under the People’s Liberation brand equal or exceed $30.0 million
during the 2015 calendar year (the ‘‘People’s Liberation Sale Price’’). As a result of the sale, the Company
recorded a gain of $0.7 million because the People’s Liberation brand had no carrying value on the
Company’s consolidated balance sheet. The gain is recorded in other expense (income) in the consolidated

F-32

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 7 — INTANGIBLE ASSETS − (continued)

statement of operations during the year ended December 31, 2015. The third party agreed to pay the Company
one-ﬁfth of the People’s Liberation Sale Price upon closing and one-ﬁfth of the People’s Liberation Sale Price
on the anniversary of the closing for the next four years. The Company reported the short-term portion of the
receivable in prepaid expenses and other current assets and the long-term portion in other assets in the
consolidated balance sheets as of December 31, 2017 and 2016. The Earn-out was not achieved during the
year ended December 31, 2015, as total gross sales of products under the People’s Liberation brand did not
equal or exceed $30.0 million.

NOTE 8 — GOODWILL

Goodwill is summarized as follows:

Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment for acquisition of Martha Stewart Living Omnimedia,

Inc.(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Adjustment for) and acquisition of Gaiam Brand Holdco, LLC(a)
.
Impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2017

2016

(in thousands)

$ 307,744

$314,288

—
(3,621)
(304,123)
—
$

(11,249)
4,705
—
$307,744

(a) Goodwill from the acquisitions of Martha Stewart Living Omnimedia, Inc. and Gaiam, Inc. represents the
excess of the purchase price over the fair value of net assets acquired under the acquisition method of
accounting.

tests,

the Company performed impairment

Goodwill is tested for impairment at the reporting unit level (the Company has determined that it has a
single reporting unit) on an annual basis (October 1st) and between annual
tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of a reporting unit below its
carrying value. As discussed below, during the current year, due to impairment indicators noted in between
annual
testing at September 30, 2017, which replaced its
October 1st annual test. In evaluating goodwill for impairment, the Company ﬁrst assesses qualitative factors
to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying
amount. Qualitative factors considered include, for example, macroeconomic and industry conditions, overall
ﬁnancial performance and other relevant entity-speciﬁc events. If the Company bypasses the qualitative
assessment, or concludes that it is more likely than not that the fair value of its reporting unit is less than its
carrying value, it then performs a quantitative impairment test to identify potential goodwill impairment and
measure the amount of goodwill impairment to be recognized, if any. If the carrying value of the reporting
unit’s goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in the amount
of that excess, not to exceed the carrying amount of goodwill.

Due to impairment indicators noted during the third quarter of 2017, speciﬁcally the impairment of
certain tradenames due to reduced contractual minimums or reduced sales forecasts in key distribution
channels, the Company, with the assistance of a third party valuation specialist, performed a quantitative
assessment at September 30, 2017, which replaced its October 1st annual test. Fair value for the quantitative
assessment was determined under an income approach using estimates of discounted future cash ﬂows (the
‘‘Income Approach’’). The Income Approach relies on assumptions such as the Company’s projected future
earnings and appropriate discount rates.

F-33

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 8 — GOODWILL − (continued)

Signiﬁcant assumptions used in the Income Approach were as follows: (i) discount rates; (ii) projected
annual revenue growth rates; and (iii) projected long-term growth rates. Our estimates also factor in economic
conditions and expectations of management which may change in the future based on period-speciﬁc facts and
circumstances. The Company corroborated the results of the Income Approach by reconciling to within a
reasonable range of the Company’s market capitalization, (calculated as total common shares outstanding
multiplied by the common equity price per share, as adjusted for a control premium factor). The control
premium was estimated based upon control premiums observed in comparable market
transactions.
Reconciling items identiﬁed included the beneﬁt of the Company’s fully reserved tax assets for which the
market may not have been giving full value and depressed market multiples experienced by the entities within
our brand licensing peer group. Based on the results of the quantitative assessment, the Company determined
that goodwill was not impaired as of September 30, 2017.

there was a fourth quarter impairment

Due to additional impairment indicators noted during the fourth quarter of 2017, speciﬁcally a sharp and
the Company
continued decline in its stock price and the related decline in its market capitalization,
determined that
test was
required to be performed at December 31, 2017. During the fourth quarter of 2017, the Company’s stock price
and market capitalization declined approximately 41%, consistent with the decline in market capitalization of
similar companies in the Company’s sector. The Company evaluated the fair value of its reporting unit under
the Income Approach (in the same manner as noted above in its assessment at September 30, 2017), adjusting
its assumptions to reﬂect additional market risk in the discount rate (from 10.25% to 11.25%), as well as
adjusted future effective tax rates, noting that the fair value of its reporting unit indicated by the Income
Approach at December 31, 2017 was no longer in excess of its carrying value.

indicator and a quantitative impairment

At December 31, 2017, after comparing the results of the Income Approach to the market capitalization
approach,
the Company noted it could no longer corroborate the results of the Income Approach by
reconciling to within a reasonable range of the Company’s market capitalization, including an assumed control
premium. As discussed above, the two primary differences between the market approach and income approach
were determined to be the Company’s fully reserved tax assets, for which the market may not have been
giving full value and depressed market multiples experienced by all entities within the brand licensing peer
group. The reconciliation was signiﬁcantly impacted by the decreased market capitalization, as well as the
enactment in December 2017 of the Tax Cuts and Jobs Act, which reduced the aforementioned reconciling
item for fully reserved tax assets. As such, the Company determined that the value indicated by the market
capitalization approach, calculated using the December 31, 2017 closing stock price of $1.78 and an estimated
control premium factor of 20%, was the most appropriate measure of the fair value of the Company as of
December 31, 2017. Based on this analysis, the fair value of the Company’s single reporting unit was below
its carrying value by an amount greater than the carrying value of goodwill, and the Company recorded an
impairment charge of $304.1 million in the fourth quarter of 2017 to fully write off its goodwill.

NOTE 9 — LONG-TERM DEBT

The components of long-term debt are as follows:

Secured Term Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolving Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Unamortized deferred ﬁnancing costs
. . .
Total long-term debt, net of unamortized deferred ﬁnancing costs
. . . . . . . . . . . . . . . . . . . . .
Less: current portion of long-term debt
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$551,913
92,787
(14,103)
630,597
28,300
$602,297

$582,500
80,500
(17,965)
645,035
28,300
$616,735

December 31,

2017

2016

(in thousands)

F-34

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 9 — LONG-TERM DEBT − (continued)

July 2016 Debt Facilities

On July 1, 2016 (the ‘‘Closing Date’’), the Company and certain of its subsidiaries entered into (i) the
Third Amended and Restated First Lien Credit Agreement (the ‘‘Amended BoA Credit Agreement’’) with
Bank of America, N.A., as administrative agent and collateral agent and the lenders party thereto and (ii) the
Third Amended and Restated Credit Agreement (the ‘‘Amended GSO Credit Agreement’’) with Wilmington
Trust, National Association, as administrative agent and collateral agent (the ‘‘GSO Agent’’) and the lenders
party thereto. Such agreements amended, restated and replaced the debt facilities described below under
‘‘December 2015 Debt Facilities’’, as described more fully below. The Company used a portion of the
proceeds of the $287.5 million loans made to the Company under the Amended BoA Credit Agreement and
the $415.0 million loans made to the Company under the Amended GSO Credit Agreement to fund the
payment of the purchase price with respect to the acquisition of the Gaiam Brand Holdco, LLC and costs and
expenses incurred in connection with such acquisition and related transactions.

The Amended BoA Credit Agreement provides for several ﬁve-year credit facilities, consisting of
(i) Tranche A Term Loans in an aggregate principal amount of $133.0 million (the ‘‘Tranche A Loans’’),
(ii) Tranche A-1 Term Loans in an aggregate principal amount of $44.5 million (the ‘‘Tranche A-1 Loans’’
and, together with the Tranche A Loans, the ‘‘BoA Term Loans’’) and (iii) revolving credit commitments in
the aggregate principal amount of $110.0 million (the ‘‘Revolving Credit Facility’’ and, the loans under the
Revolving Credit Facility, the ‘‘Revolving Loans’’). On the Closing Date, the total amount outstanding under
the Amended BoA Credit Agreement was $258.0 million, including (i) $133.0 million of Tranche A Loans,
(ii) $44.5 million of Tranche A-1 Loans and (iii) $80.5 million of borrowing under the Revolving Loans.

The loans under the Amended BoA Credit Agreement bear interest, at the Company’s option, at a rate
equal to (i) with respect to the Revolving Loans and the Tranche A Loans (a) the LIBOR rate plus 3.50% per
annum or (b) the base rate plus 2.50% per annum and (ii) with respect to the Tranche A-1 Loans (a) the
LIBOR rate plus 7.00% per annum or (b) the base rate plus 6.00% per annum. The undrawn portions of the
commitments under the Revolving Credit Facility are subject to a commitment fee of 0.375% per annum.

in certain cases,

The Company may make voluntary prepayments of the loans outstanding under the Amended BoA Credit
Agreement, subject to the payment of customary ‘‘breakage’’ costs with respect to LIBOR-based borrowings
and,
to the prepayment premium set forth in the Amended BoA Credit Agreement.
Additionally, the Company is mandated to make prepayments (without payment of a premium or penalty)
under the Amended BoA Credit Agreement amounting to: (i) the loans outstanding under the Amended BoA
Credit Agreement plus, (a) where intellectual property is disposed, 50.0% of the disposed intellectual
property’s orderly liquidation value, and (b) where any other assets constituting collateral are disposed or upon
the receipt of certain insurance proceeds, 100% of the net proceeds thereof, subject to certain reinvestment
rights; and (ii) the Tranche A-1 Loans to the extent that the outstanding principal amount thereof exceeds
10.0% of the orderly liquidation value of the registered trademarks owned by the BoA Facility Loan Parties.
On September 30, 2016,
the BoA Term Loans commenced amortization in quarterly installments of
$5.0 million.

The Amended BoA Credit Agreement contains customary representations and warranties and customary
affirmative and negative covenants applicable to the BoA Facility Loan Parties and their subsidiaries.
Moreover, the Amended BoA Credit Agreement contains ﬁnancial covenants that require the BoA Facility
Loan Parties and their subsidiaries to (i) maintain a positive net income (as deﬁned), (ii) satisfy a maximum
loan to value ratio set at 50.0% (applicable to the Revolving Loans and Tranche A Loans) and (iii) satisfy a
maximum consolidated ﬁrst lien leverage ratio, initially set at 2.80:1.00, decreasing over the term of the
Amended BoA Credit Agreement until reaching the ﬁnal maximum ratio of 2.50:1.00 for the ﬁscal quarter
ending September 30, 2018 and thereafter.

F-35

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 9 — LONG-TERM DEBT − (continued)

The Amended BoA Credit Agreement contains certain customary events of default, including a change of
control. If an event of default occurs and is not cured within any applicable grace period or not waived, the
Bank of America Agent, at the request of the lenders under the Amended BoA Credit Agreement, must take
various actions, including, without limitation, the acceleration of amounts due under the Amended BoA Credit
Agreement.

The Company may request an increase in (i) the Revolving Credit Facility and Tranche A Loans as
would not cause the consolidated ﬁrst lien leverage ratio, determined on a pro forma basis after giving effect
to any such increase, to exceed 2.33:1.00 and (ii) the Tranche A-1 Loans, as would not cause the consolidated
ﬁrst lien leverage ratio, determined on a pro forma basis after giving effect to any such increase, to exceed
(a) with respect to any increase, the proceeds of which will be used solely to ﬁnance an acquisition, 2.50:100
and (b) with respect to any other increase, 2.40:1.00, subject to the satisfaction of certain conditions in the
Amended BoA Credit Agreement. At December 31, 2017, the Company is in compliance with the covenants
included in the Amended BoA Credit Agreement.

The Amended GSO Credit Agreement provides for a six-year $415.0 million senior secured term loan
facility. The Company may request one or more additional term loan facilities or the increase of term loan
commitments under the Amended GSO Credit Agreement as would not cause the consolidated total leverage
ratio, determined on a pro forma basis after giving effect to any such addition and increase, to exceed
6.00:1.00, subject to the satisfaction of certain conditions in the Amended GSO Credit Agreement.

The loans under the Amended GSO Credit Agreement bear interest, at the Company’s option, at a rate
equal to either (i) the LIBOR rate plus an applicable margin of 8.25% or 9.00% per annum or (ii) the base
rate plus an applicable margin of 7.25% or 8.00% per annum, in each case based upon the consolidated total
leverage ratio.

The Company may make voluntary prepayments of the loans outstanding under the Amended GSO Credit
Agreement, subject to the payment of customary ‘‘breakage’’ costs with respect to LIBOR-based borrowings
and, in certain cases, to the prepayment premium set forth in the Amended GSO Credit Agreement. The
Company is mandated to make prepayments (without payment of a premium or penalty) of loans outstanding
under the Amended GSO Credit Agreement amounting to: (i) where intellectual property is disposed, 50.0% of
the disposed intellectual property’s orderly liquidation value, (ii) where any other asset constituting collateral
is disposed or upon the receipt of certain insurance proceeds, 100% of the net proceeds thereof, subject to
certain reinvestment rights, and (iii) any consolidated excess cash ﬂow, in an amount equal to (a) in the event
the consolidated total leverage ratio is at least 4.00:1.00, 75% thereof, (b) in the event the consolidated total
leverage ratio is less than 4.00:1.00 but at least 3.00:1.00, 50% thereof and (c) in the event the consolidated
total leverage ratio is less than 3.00:1.00, 0% thereof. On March 31, 2017, the Loans under the Amended
GSO Credit Agreement commenced amortization in quarterly installments, equal to 2.00% per annum of the
original aggregate principal amount thereof.

The Amended GSO Credit Agreement contains customary representations and warranties and customary
affirmative and negative covenants applicable to the GSO Facility Loan Parties and their subsidiaries.
Moreover, the Amended GSO Credit Agreement contains ﬁnancial covenants that require the GSO Facility
Loan Parties and their subsidiaries to satisfy (i) a maximum consolidated total leverage ratio, initially set at
7.25:1.00, decreasing over the term of the Amended GSO Credit Agreement until reaching the ﬁnal maximum
ratio of 6.50:1.00 for the ﬁscal quarter ending September 30, 2018 and thereafter and (ii) a maximum
consolidated ﬁrst lien leverage ratio, initially set at 2.80:1.00, decreasing over the term of the Amended GSO
the ﬁscal quarter ending
reaching the ﬁnal maximum ratio of 2.50:1.00 for
Credit Agreement until
September 30, 2018 and thereafter. At December 31, 2017, the Company is in compliance with the covenants
included in the Amended GSO Credit Agreement.

F-36

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 9 — LONG-TERM DEBT − (continued)

The Amended GSO Credit Agreement contains certain customary events of default, including a change of
control. If an event of default occurs and is not cured within any applicable grace period or is not waived, the
GSO Agent, at the request of the lenders under the Amended GSO Credit Agreement, is required to take
various actions, including, without limitation, the acceleration of amounts due thereunder.

The Company may request one or more additional term loan facilities or the increase of term loan
commitments under the GSO Credit Agreement as would not cause the consolidated total leverage ratio,
determined on a pro forma basis after giving effect to any such addition and increase, to exceed 6.00:1.00,
subject to the satisfaction of certain conditions in the GSO Credit Agreement.

During the year ended December 31, 2016, the Company incurred legal and other fees associated with
debt ﬁnancing in connection with the acquisition of Gaiam, Inc. of $13.1 million which have been recorded as
deferred ﬁnancing costs and included in Long-term debt, net of current portion in the consolidated balance
sheets. These legal and other fees are being amortized using the effective interest method over the term of the
Amended BoA Credit Agreement and Amended GSO Credit Agreement. The Company expensed $0.3 million
of deferred ﬁnancing costs as a result of a partial extinguishment of the BoA Credit Agreement (as deﬁned
below) in accordance with ASC 470 — Debt in connection with the Company’s entry into the Amended BoA
Credit Agreement.

December 2015 Debt Facilities

On December 4, 2015, in conjunction with the acquisition of MSLO, the Company, Old Sequential and
certain other subsidiaries of the Company entered into an amendment to the Second Amended and Restated
First Lien Credit Agreement (the ‘‘Amendment’’), dated as of April 8, 2015 (as amended, restated, amended
and restated, supplemented or otherwise modiﬁed prior to the date hereof, the ‘‘BoA Credit Agreement’’), by
and among, Old Sequential, the guarantors party thereto, the lenders party thereto (the ‘‘BoA Lenders’’) and
Bank of America, N.A., as administrative agent and collateral agent (in such capacity, the ‘‘BoA Agent’’).

The Amendment had an effective date of December 4, 2015, and amended certain provisions under the
BoA Credit Agreement to, among other things, (i) permit the consummation of the Mergers, (ii) permit,
subject to the satisfaction of certain conditions, the increase in the aggregate revolving commitments and term
loans under the BoA Credit Agreement by such amounts as would not cause the consolidated ﬁrst lien
leverage ratio, determined on a pro forma basis after giving effect to any such increase, to exceed 2.00:1.00,
(iii) permit the inclusion of not less than (a) $30.0 million of EBITDA representing EBITDA generation by
MSLO, (b) $8.0 million of EBITDA representing EBITDA generation by Joe’s Holdings and (c) fees and
expenses incurred and associated with the Mergers and the acquisition of Joe’s Holdings in certain provisions
that relate to calculation of the consolidated ﬁrst lien leverage ratio, (iv) permit the incurrence of indebtedness
under the GSO Term Loan Agreement (deﬁned below) and (v) designated the Company as the ‘‘borrower’’
under the BoA Credit Agreement. Additionally, the Amendment provided for an additional $8.0 million of
Tranche A-1 Term Loans which were made, on December 4, 2015, to the Company by the BoA Lenders.

On December 4, 2015, the Company, Old Sequential and the BoA Agent entered into a Joinder and
Assumption Agreement (the ‘‘Joinder and Assumption Agreement’’), pursuant to which Old Sequential was
discharged from its obligations, liabilities and rights as the ‘‘borrower’’ under the BoA Credit Agreement and
the Company assumed all such obligations, liabilities and rights and was designated as the ‘‘borrower’’ under
the BoA Credit Agreement for all purposes thereunder.

In addition, on December 4, 2015, the Company, Old Sequential and certain other subsidiaries of the
Company entered into a new Second Amended and Restated Credit Agreement (the ‘‘GSO Term Loan
Agreement’’) with Wilmington Trust, National Association, as administrative agent and collateral agent (in
such capacity, the ‘‘GSO Term Loan Agent’’), and the lenders party to the existing Amended and Restated
Second Lien Credit Agreement, dated as of April 8, 2015 (as amended, restated, amended and restated,

F-37

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 9 — LONG-TERM DEBT − (continued)

supplemented or otherwise modiﬁed prior to the date hereof, the ‘‘Existing Second Lien Credit Agreement’’),
by and among, Old Sequential, the guarantors party thereto, the lenders party thereto and Wilmington Trust,
National Association, as administrative agent and collateral agent (in such capacity,
the ‘‘Second Lien
Agent’’).

The GSO Term Loan Agreement provided for a six-year $368.0 million senior secured term loan facility
(the ‘‘Facility’’), which consisted of (i) $215.5 million of loans outstanding under the Existing Second Lien
Credit Agreement and (ii) $152.5 million of new term loans which were made, on December 4, 2015, to the
Company by the lenders party to the GSO Term Loan Agreement.

The GSO Term Loan Agreement, together with the Term Loan A and Term Loan A-1 tranches of the
line of the BoA Credit

BoA Credit Agreement represented the 2015 Term Loans. The revolving credit
Agreement represented the 2015 Revolving Loan.

The Company used the proceeds of the new loans to fund the payment of the purchase price, costs and

expenses incurred in connection with the Mergers and related transactions.

The Company had the option to request the addition of one or more additional term loan facilities or the
increase of term loan commitments under the Facility by such amounts as would not cause the consolidated
total leverage ratio, determined on a pro forma basis after giving effect to any such addition and increase, to
exceed 6.00:1.00, which additions and increase are subject to the satisfaction of certain conditions set forth in
the GSO Term Loan Agreement.

The loans under the Facility bore interest, at the Company’s option, at a rate equal to either (i) LIBOR
rate plus an applicable margin ranging from 8.00% to 8.75% per annum or (ii) the base rate plus an applicable
margin ranging from 7.00% to 7.75% per annum, in each case based upon the consolidated total leverage ratio
and/or the consolidated net leverage ratio. Speciﬁcally, the applicable margin with respect to LIBOR loans
under the GSO Term Loan Agreement were as set forth below:

Consolidated Total Leverage Ratio
> 6.00 : 1.00 . . . . . . . . . . . . . . . . . . . . .
≥ 4.75 : 1.00 ≤ 6.00 : 1.00 . . . . . . . . . . .
< 4.75 : 1.00 . . . . . . . . . . . . . . . . . . . . .

Consolidated Net Leverage Ratio

≥ 5.75 : 1.00
≥ 4.50 : 1.00 ≤ 5.75 : 1.00
< 4.50 : 1.00

Applicable
Margin − LIBOR
Loans
8.75%
8.25%
8.00%

The Company’s obligations under the GSO Term Loan Agreement and any hedging or cash management
obligations entered into by the Company or any of its current and future domestic restricted subsidiaries (the
‘‘Subsidiary Guarantors’’ and, together with the Company, the ‘‘Loan Parties’’) with a lender under the GSO
Term Loan Agreement, the New Agreement Agent or an affiliate of any such person were guaranteed by the
Company and each Subsidiary Guarantor. The Company’s and the Subsidiary Guarantors’ obligations under
the GSO Term Loan Agreement were secured by substantially all of their assets, subject to certain customary
exceptions.

The Company was required to make mandatory prepayments of loans outstanding under the Facility
(without payment of a premium or penalty) (i) in the case of any disposition of intellectual property, the then
applicable LTV Percentage (as deﬁned in the BoA Credit Agreement) of the orderly liquidation value thereof,
(ii) in the case of any other disposition of any other assets, 100% of the net proceeds thereof, subject to
certain reinvestment rights, and (iii) in the case of any Consolidated Excess Cash Flow (as deﬁned in the GSO
Term Loan Agreement), 50% thereof, which shall decrease to 0% if the consolidated total leverage ratio is
less than 3.00:1.00. The loans under the Facility were not subject to amortization.

F-38

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 9 — LONG-TERM DEBT − (continued)

The Company could have made, in whole or in part, voluntarily prepayments of the loans outstanding
under the Facility. Such voluntarily prepayments were subject to the payment of customary ‘‘breakage’’ costs
with respect to LIBOR-based borrowings and in certain cases to the prepayment premium set forth in the
GSO Term Loan Agreement.

investments,

restrictions on liens,

The GSO Term Loan Agreement contained customary representations and warranties and customary
affirmative and negative covenants applicable to the Loan Parties and their subsidiaries, including, without
limitation,
restricted
indebtedness,
payments and prepayment of indebtedness. The GSO Term Loan Agreement contained ﬁnancial covenants that
required the Loan Parties and their subsidiaries to (i) not exceed a maximum consolidated total leverage ratio
initially set at 7.25:1.00, which decreases periodically over the term of the GSO Term Loan Agreement until
the ﬁnal maximum ratio of 6.75:1.00 is reached for the ﬁscal quarter ending September 30, 2019 and
thereafter and (ii) not exceed a maximum consolidated ﬁrst lien leverage ratio initially set at 2.47:1.00, which
decreases periodically over the term of the GSO Term Loan Agreement until the ﬁnal maximum ratio of
2.30:1.00 is reached for the ﬁscal quarter ending September 30, 2019 and thereafter.

fundamental changes, dispositions,

The GSO Term Loan Agreement contained customary events of default, including, without limitation,
payment defaults, covenant defaults, breaches of certain representations and warranties, cross defaults to
certain material indebtedness, certain events of bankruptcy and insolvency, certain events under the Employee
Retirement Income Security Act of 1974, material judgments and a change of control. If an event of default
occurred and was not cured within any applicable grace period or was not waived, the New Agreement Agent,
at the request of the lenders under the GSO Term Loan Agreement, was required to take various actions,
including, without limitation, the acceleration of amounts due thereunder. The Company was in compliance
with the covenants throughout the existence of the GSO Term Loan Agreement.

In connection with the BoA Credit Agreement and the GSO Term Loan Agreement, the BoA Agent and
the New Agreement Agent had entered into an Intercreditor Agreement, dated as of December 4, 2015 (the
‘‘Intercreditor Agreement’’), which was acknowledged by the Company and the guarantors party thereto. The
Intercreditor Agreement established various inter-lender terms, including, without limitation, priority of liens,
permitted actions by each party, application of proceeds, exercise of remedies in the case of a default,
incurrence of additional indebtedness, releases of collateral and limitations on the amendment of the BoA
Credit Agreement and the GSO Loan Agreement without the consent of the other party.

September 2015 Debt Facilities

On September 11, 2015, the Company amended the debt arrangements described under ‘‘April 2015 Debt
Facilities’’. On such date as further discussed in Note 5, in connection with consummation of the transactions
contemplated by the Joe’s Jeans Purchase Agreement and the GBG Asset Purchase Agreement, the Company
entered into an Incremental Joinder Agreement, First Amendment to the Amended and Restated Second Lien
Credit Agreement (the ‘‘Incremental Facility Amendment’’), by and among the Company,
the guarantors
named therein, the lenders party thereto from time to time and Wilmington Trust, National Association, as
administrative agent and collateral agent thereunder, to the A&R Second Lien Credit Agreement (as deﬁned
below under ‘‘April 2015 Debt Facilities’’. The Incremental Facility Amendment amended certain provisions
of the A&R Second Lien Credit Agreement relating to the change of control which constitutes an event of
default and an investment covenant, increased the amount of incremental term loans that can be issued under
the A&R Second Lien Credit Agreement to $56.0 million and provided for a borrowing of $56.0 million of
such term loans which were used,
together with the proceeds of a borrowing in a principal amount of
$18.0 million under the Company’s A&R First Lien Credit Agreement and the proceeds of the Equity Issuance
(as deﬁned below), to consummate the transactions contemplated by the Joe’s Jeans Purchase Agreement and
other permitted investments. On November 4, 2015, the Company entered into a Second Amendment to the
Amended and Restated Second Lien Credit Agreement (the ‘‘Second Lien Credit Agreement Amendment’’),

F-39

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 9 — LONG-TERM DEBT − (continued)

by and among the Company, the guarantors named therein, the lenders party thereto from time to time and
Wilmington Trust, National Association, as administrative agent and collateral agent thereunder, to the A&R
Second Lien Credit Agreement. The Second Lien Credit Agreement Amendment had an effective date of
September 30, 2015, and amended certain provisions under the A&R Second Lien Credit Agreement that
relate to the consolidated total leverage ratio covenant, to permit the inclusion of not less than $8.0 million of
EBITDA representing EBITDA generation by the Joe’s Jeans business and the inclusion of fees and expenses
incurred on or prior to September 11, 2015, and associated with the acquisition of the Joe’s Jeans business.
The Second Lien Credit Agreement Amendment also increased the compliance level of the loan-to-value ratio
to 141% from 128%. In addition, on September 11, 2015, the Company entered into a Limited Consent and
Waiver to the A&R First Lien Credit Agreement, pursuant to which the administrative agent and the required
lenders thereunder have consented to an increase of $5.0 million through December 31, 2015 in the general
investment bucket under the A&R First Lien Credit Agreement.

the Company for aggregate consideration equal

On September 11, 2015, in connection with the transactions contemplated by the Joe’s Jeans Purchase
Agreement and the GBG Asset Purchase Agreement, certain affiliates of GSO Capital subscribed for and
purchased 740,740 shares of common stock of
to
$10.0 million (the ‘‘Equity Issuance’’) in accordance with the equity commitments entered into in connection
with the transactions contemplated by the MSLO Merger Agreement. The fair value of the common stock was
determined to be $11.5 million using the closing stock price on September 11, 2015 of $15.52. The fair value
of the common stock in excess of consideration received in the amount of $1.5 million was recorded as a
discount to the A&R Second Lien Credit Agreement and a corresponding increase to additional paid-in capital.
This amount was being accreted to non-cash interest expense over the contractual term of the A&R Second
Lien Credit Agreement, which expires pursuant to its terms on April 8, 2021. Because the 2015 Term Loan
Agreement with GSO was deemed an extinguishment, management determined that
the remaining
unamortized debt discount from the Existing Second Lien Credit Agreement was written off in accordance
with ASC 470 Debt. The Company wrote off $1.4 million during the year ended December 31, 2015 within
Interest expense, net within the consolidated statement of operations related to the debt discount.

During the year ended December 31, 2015, the Company incurred legal and other fees associated with
debt ﬁnancing in connection with the Joe’s Jeans Acquisition of $1.6 million, $0.2 million of which was
included in operating expenses in the consolidated statements of operations as it was related to the amendment
and restatement of the A&R Loan Agreements which was deemed as a modiﬁcation of debt in accordance
with ASC 470 — Debt. Such legal and other fees directly associated with the A&R Loan Agreements have
been recorded as deferred ﬁnancing costs and included in other assets in the consolidated balance sheets, and
were being amortized as non-cash interest expense, using the effective interest method, over the term of the
A&R Loan Agreements.

April 2015 Debt Facilities

in connection with the JS Purchase Agreement,

On April 8, 2015 (the ‘‘JS Effective Date’’), the Company amended the debt arrangements discussed
the
under ‘‘April 2014 Debt Facilities’’. On such date,
Company entered into (i) the Second Amended and Restated First Lien Credit Agreement, among the
Company, the guarantors party thereto, the lenders party thereto from time to time and Bank of America,
N.A., as administrative agent and collateral agent thereunder (as so amended and restated, the ‘‘A&R First
Lien Credit Agreement’’), which provides for a $85.0 million tranche A term loan facility, a $15.0 million
tranche A-1 term loan facility, a revolving credit facility of up to $90.0 million and a swing line sub-facility
of up to $10.0 million and (ii) the Amended and Restated Second Lien Credit Agreement with GSO Capital
Partners LP (‘‘GSO Capital’’), among the Company,
the guarantors party thereto and Wilmington Trust,
National Association, as administrative agent and collateral agent thereunder (as so amended and restated, the
‘‘A&R Second Lien Credit Agreement’’ and, together with the A&R First Lien Credit Agreement, the ‘‘A&R
Loan Agreements’’), which provides for a term loan facility of up to $159.5 million, consisting of the existing

F-40

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 9 — LONG-TERM DEBT − (continued)

term loans in the amount of $90.0 million and up to $69.5 million of new term loans. On the JS Effective
Date, the Company had an aggregate amount outstanding of $300.2 million, consisting of (i) $100.0 million
term loans under the A&R First Lien Credit Agreement and $159.5 million term loans under the A&R Second
Lien Credit Agreement (such term loans, the ‘‘A&R Term Loans’’) and (ii) $40.7 million under the revolving
credit facility of the A&R First Lien Credit Agreement (the ‘‘A&R Revolving Loan’’). In addition, the A&R
First Lien Credit Agreement provides for incremental borrowings of up to $60.0 million following the JS
Effective Date, to be allocated 25% to the revolving credit facility and 75% to the tranche A term loan facility,
and the A&R Second Lien Credit Agreement provides for incremental borrowings of up to $40.0 million for
general corporate purposes of the Company and its subsidiaries, in each case, subject to certain customary
conditions.

The proceeds from the borrowings under

the A&R Loan Agreements were used to ﬁnance the
transactions contemplated by the JS Purchase Agreement pursuant to the terms of the JS Purchase Agreement,
to pay fees and expenses in connection therewith and for other general corporate purposes. After the JS
Effective Date, the Company expects to use the proceeds of any borrowings under the revolving credit facility
of the A&R First Lien Credit Agreement for working capital, capital expenditures and other general corporate
purposes of the Company and its subsidiaries and any borrowings under the incremental facilities of the A&R
First Lien Credit Agreement for working capital purposes and/or for permitted acquisitions.

Term loan borrowings under the A&R First Lien Credit Agreement are subject

to amortization of
principal quarterly beginning on June 30, 2015 in equal amounts of $4.0 million; provided that
if the
borrowings have not been prepaid with the proceeds of a capital raise by the Company within one year of the
JS Effective Date and as described below, then the Company will be required to repay the borrowings in
quarterly amounts of $5.0 million until such time as such capital raise and such prepayment occur. Term loan
borrowings under the A&R First Lien Credit Agreement will mature on the ﬁfth anniversary of the Effective
Date. Borrowings under the A&R First Lien Credit Agreement bear interest at LIBOR or a base rate, plus, in
each case, an applicable margin that ﬂuctuates from (a) 3.50% to 3.75% for LIBOR loans, with respect to
revolving loan borrowings and the outstanding tranche A term loan and from 1.50% to 1.75% for base rate
loans, with respect to revolving loan borrowings and the outstanding tranche A term loan and (b) 4.50% to
4.75% for LIBOR loans, with respect to the outstanding tranche A-1 term loan and from 2.50% to 2.75% for
base rate loans, with respect to the outstanding tranche A-1 term loan, in each case, based on the Company’s
Loan to Value Ratio (as deﬁned in the A&R First Lien Credit Agreement). All voluntary and mandatory
prepayments of the term loan borrowings will be applied ﬁrst to prepay the tranche A-1 term loans.

Term loan borrowings under the A&R Second Lien Credit Agreement were not subject to amortization
and were expected to mature on the sixth anniversary of the JS Effective Date. Borrowings under the A&R
Second Lien Credit Agreement bore interest at LIBOR or a base rate, plus, in each case, an applicable margin
that ﬂuctuates from (a) 8.00% to 10.00% for LIBOR loans and (b) from 7.00% to 9.00% for base rate loans,
based on the Company’s Consolidated Total Leverage Ratio and Consolidated Net Leverage Ratio (each, as
deﬁned in the A&R Second Lien Credit Agreement) as at the end of the immediately preceding ﬁscal quarter.
Speciﬁcally,
to LIBOR loans under the A&R Second Lien Credit
Agreement is as set forth below:

the applicable margin with respect

Consolidated Total Leverage Ratio
≥ 6.5 : 1.00 . . . . . . . . . . . . . . . . . . . . .
> 4.00 : 1.00 < 6.50 : 1.00 . . . . . . . . . . . .
≥ 4.00 : 1.00 . . . . . . . . . . . . . . . . . . . . .

Consolidated Net Leverage Ratio

≥ 6.25 : 1.00
> 3.75 : 1.00 < 6.25 : 1.00
≥ 3.75 : 1.00

Applicable
Margin − LIBOR
Loans
10.00%
9.00%
8.00%

F-41

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 9 — LONG-TERM DEBT − (continued)

Subject

to the terms of the Intercreditor Agreement, borrowings under the A&R First Lien Credit
Agreement are voluntarily prepayable from time to time, in whole or in part, and borrowings under the A&R
Second Lien Credit Agreement are voluntarily prepayable after the ﬁrst anniversary of the JS Effective Date,
in whole or in part; provided that
the Company may, on a one-time basis, prepay up to 25% of the
outstanding principal of the borrowings during the one year period prior to the JS Effective Date. Such
voluntary prepayments are subject in certain cases to the payment of customary ‘‘breakage’’ costs with respect
to LIBOR-based borrowings and prepayment premiums as provided in the respective A&R Loan Agreement.
Mandatory prepayments of the borrowings under the A&R Loan Agreements are required (x) in the case of
any dispositions of intellectual property, the then applicable LTV Percentage (as deﬁned in the A&R First Lien
Credit Agreement) of the orderly liquidation value thereof, (y) in the case of any other dispositions, 100% of
the net proceeds thereof and (z) with respect to the A&R First Lien Credit Agreement, upon receipt of the
aggregate net proceeds of any capital raise with proceeds in excess of $50.0 million, such amount as will
cause the Company’s Loan to Value Ratio to be at least 5% less than such Loan to Value Ratio immediately
prior to giving effect to such prepayment, in each case, subject to certain exceptions set forth in the A&R
Loan Agreements.

the Company (each, an ‘‘A&R Guarantor’’ and, collectively,

The Company’s obligations under the A&R Loan Agreements are guaranteed jointly and severally by
the ‘‘A&R
each domestic subsidiary of
Guarantors’’), other than Immaterial Subsidiaries (as deﬁned in the A&R Loan Agreements) and certain other
excluded subsidiaries and subject to certain other exceptions set forth in the A&R Loan Agreements and the
related loan documents (such guarantees provided by the A&R Guarantors, the ‘‘A&R Guarantees’’). The
Company’s and the A&R Guarantors’ obligations under the A&R Loan Agreements and the A&R Guarantees
are,
in the case of the A&R Second Lien Credit
Agreement,
the A&R First Lien Credit Agreement) on, and security interests in,
substantially all of the present and after-acquired assets of the Company and each A&R Guarantor, subject to
certain customary exceptions.

in each case, secured by ﬁrst priority liens (subject,

to the liens under

After the JS Effective Date, borrowings under the revolving credit facility of the A&R First Lien Credit
Agreement and any incremental borrowings under the A&R Loan Agreements are subject to (x) there being no
default or event of default, (y) the representations and warranties of the Company and the A&R Guarantors
contained in the A&R First Lien Credit Agreement and any other related loan document being true and correct
in all material respects as of the date of such borrowings (except (i) to the extent such representations and
warranties refer speciﬁcally to an earlier date, in which case they shall be true and correct as of such date and
(ii) in the case of any representation and warranty qualiﬁed by materiality, they shall be true and correct in all
respects) and (z) certain other customary conditions.

The A&R Loan Agreements include customary representations and warranties, including representations
relating to the intellectual property owned by the Company and its subsidiaries and the status of the
Company’s material license agreements. The A&R Loan Agreements also include customary covenants and
events of default, including, in the case of the A&R First Lien Credit Agreement, requirements that the
Company satisfy a minimum positive net income test and maintain a minimum Loan to Value Ratio (as
calculated pursuant to the A&R First Lien Credit Agreement), and, in the case of the A&R Second Lien Credit
Agreement, requirements that the Company satisfy a minimum positive net income test, maintain a total
leverage ratio and maintain a minimum Loan to Value Ratio (as calculated pursuant to the A&R Second Lien
Credit Agreement). Covenants in the A&R Loan Agreements also include certain limitations on the
Company’s and its subsidiaries’ ability to incur indebtedness, grant
liens on their assets, consummate
acquisitions and make fundamental changes to the Company (including mergers and consolidations), dispose
of their assets, make investments, loans, advances and enter into guarantees, pay dividends and make other
restricted payments, prepay or amend certain indebtedness and material license agreements, enter into affiliate

F-42

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 9 — LONG-TERM DEBT − (continued)

transactions and issue equity interests, in each case, subject to certain exceptions as set forth in the A&R Loan
Agreements. The Company was in compliance with its covenants throughout the existence of the A&R Loan
Agreements.

In connection with the A&R First Lien Credit Agreement and the A&R Second Lien Credit Agreement,
Bank of America, N.A., as the administrative agent under the A&R First Lien Credit Agreement, and
Wilmington Trust, National Association, as the administrative agent under the A&R Second Lien Credit
Agreement, entered into a ﬁrst amendment to intercreditor agreement, dated as of the Effective Date (the
‘‘First Amendment to Intercreditor Agreement’’), which was acknowledged by the Company and the A&R
Guarantors and amended the Intercreditor Agreement. The Intercreditor Agreement, as amended by the First
Amendment to Intercreditor Agreement, establishes various inter-lender terms, including, but not limited to,
priority of liens, permitted actions by each party, application of proceeds, exercise of remedies in the case of a
default, incurrence of additional indebtedness releases of collateral and limitations on the amendment of the
respective A&R Loan Agreements without consent of the other party.

August 2014 Debt Facilities

On August 15, 2014,

the Company amended the debt arrangement discussed under

‘‘2013 Debt
Facilities’’. On such date, in connection with the acquisition of Galaxy Brand Holdings, Inc., the Company
entered into (i) an Amended and Restated First Lien Credit Agreement, among the Company, the guarantors
party thereto, the lenders party thereto from time to time and Bank of America, N.A., as administrative agent
and collateral agent thereunder (as so amended and restated, the ‘‘First Lien Credit Agreement’’), which
provided for a term loan of up to $75.0 million, a revolving credit facility of up to $25.0 million and a swing
line sub-facility of up to $10.0 million and (ii) a Second Lien Credit Agreement with GSO Capital, among the
Company, the guarantors party thereto and Wilmington Trust, National Association, as administrative agent
and collateral agent thereunder (the ‘‘Second Lien Credit Agreement’’ and, together with the First Lien Credit
Agreement,
the ‘‘2014 Loan Agreements’’), which provided for a term loan of up to $90.0 million. In
addition, the First Lien Credit Agreement provided for incremental borrowings of up to $60.0 million, to be
allocated pro rata between the term loan and the revolving credit facility, and the Second Lien Credit
Agreement provided for incremental borrowings of up to $70.0 million for the purpose of consummating
permitted acquisitions, in each case, subject to certain customary conditions.

On August 15, 2014, $75.0 million was drawn as a term loan under the First Lien Credit Agreement and
$90.0 million was drawn as a term loan under the Second Lien Credit Agreement (together, the ‘‘2014 Term
Loans’’) and $15.0 million was drawn as a revolving loan under the First Lien Credit Agreement (the ‘‘2014
Revolving Loan’’). The proceeds from the Second Term Loans and the Revolving Loan were primarily used
to ﬁnance the Galaxy Acquisition pursuant to the terms of the Galaxy Merger Agreement (each, as deﬁned in
Note 5), to repay the Company’s existing indebtedness, including the 2013 Term Loans (as deﬁned below),
and to pay fees and expenses in connection therewith.

Term loan borrowings under the First Lien Credit Agreement were subject to amortization of principal
(x) in an amount equal to $1.5 million for the ﬁrst payment and (y) thereafter, quarterly, in equal amounts of
$3.0 million and were scheduled to mature on August 15, 2019. Borrowings under the First Lien Credit
Agreement bore interest at LIBOR or a base rate, plus, in each case, an applicable margin that ﬂuctuated from
3.50% to 3.75% for LIBOR loans and from 1.50% to 1.75% for base rate loans, in each case, based on the
Company’s loan to value ratio, as described in the First Lien Credit Agreement.

Borrowings under the Second Lien Credit Agreement were not subject

to amortization and were
scheduled to mature on August 15, 2020. Borrowings under the Second Lien Credit Agreement bore interest at
LIBOR plus 8.00% and were subject to a LIBOR ﬂoor of 1.00%.

F-43

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 9 — LONG-TERM DEBT − (continued)

Borrowings under the First Lien Credit Agreement were voluntarily prepayable from time to time, in
whole or in part, and borrowings under the Second Lien Credit Agreement were voluntarily prepayable after
August 15, 2015, in whole or in part, subject in certain cases to the payment of customary ‘‘breakage’’ costs
with respect
to LIBOR-based borrowings and prepayment premiums as provided in the respective Loan
Agreement. Mandatory prepayments of the borrowings under the Loan Agreements were required (x) in the
case of any dispositions of intellectual property, 50% of the orderly liquidation value thereof, (y) in the case
of any other dispositions, 100% of the net proceeds thereof and (z) at each ﬁscal year end, in the amount of
30% of the Consolidated Excess Cash Flow (as deﬁned in the respective 2014 Loan Agreements) of the
to certain exceptions set forth in the 2014 Loan
Company and its subsidiaries,
Agreements.

in each case, subject

The Company’s obligations under the 2014 Loan Agreements were guaranteed jointly and severally by
each domestic subsidiary of the Company (each, a ‘‘Guarantor’’ and, collectively, the ‘‘Guarantors’’), other
than Immaterial Subsidiaries (as deﬁned in the Loan Agreements) and certain other excluded subsidiaries and
subject to certain other exceptions set forth in the 2014 Loan Agreements and the related loan documents
(such guarantees provided by the Guarantors,
the ‘‘Guarantees’’). The Company’s and the Guarantors’
obligations under the 2014 Loan Agreements and the Guarantees were, in each case, secured by ﬁrst priority
liens (subject, in the case of the Second Lien Credit Agreement, to the liens under the First Lien Credit
Agreement) on, and security interests in, substantially all of the present and after-acquired assets of the
Company and each Guarantor, subject to certain customary exceptions.

In connection with the First Lien Credit Agreement and the Second Lien Credit Agreement, Bank of
America, N.A., as the administrative agent under the First Lien Credit Agreement, and Wilmington Trust,
National Association, as the administrative agent under the Second Lien Credit Agreement, entered into an
intercreditor agreement, dated as of August 15, 2014 (the ‘‘Intercreditor Agreement’’), which was
acknowledged by the Company and the Guarantors. The Intercreditor Agreement established various
inter-lender terms, including, but not limited to, priority of liens, permitted actions by each party, application
of proceeds, exercise of remedies in the case of a default, incurrence of additional indebtedness releases of
collateral and limitations on the amendment of respective 2014 Loan Agreements without consent of the other
party.

In addition, the 2014 Loan Agreements included covenants and events of default, including, in the case
of the First Lien Credit Agreement, requirements that the Company satisﬁed a minimum positive net income
test and maintained a minimum loan to value ratio (as calculated pursuant to the First Lien Credit Agreement)
and, in the case of the Second Lien Credit Agreement, maintained a total leverage ratio and a minimum loan
to value ratio (as calculated pursuant to the Second Lien Credit Agreement).

As further discussed above, each of the 2014 Loan Agreements was amended and restated in its entirety
the
the

in connection with the Company’s entry into the JS Purchase Agreement and consummation of
transactions contemplated therein. The Company was in compliance with its covenants throughout
existence of the 2014 Term Loans and 2014 Revolving Loan.

During the year ended December 31, 2014, the Company incurred legal and other fees associated with
the Company’s entry into the 2014 Loan Agreements of $4.7 million. During the year ended December 31,
the Company expensed the portion of the legal and other fees related to the Second Lien Loan
2014,
Agreement under the Legacy Term Loans in an approximate amount of $0.7 million when the Second Lien
Loan Agreement was repaid on August 15, 2014.

2013 Debt Arrangements

Prior to the Company’s entry into the 2014 Loan Agreements, in connection with the acquisition of
Brand Matter, LLC, on March 28, 2013, the Company entered into (i) a ﬁrst lien loan agreement (the ‘‘First

F-44

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 9 — LONG-TERM DEBT − (continued)

Lien Loan Agreement’’), which provided for term loans of up to $45.0 million (the ‘‘First Lien Term Loan’’)
and (ii) a second lien loan agreement (the ‘‘Second Lien Loan Agreement’’ and, together with the First Lien
Loan Agreement, the ‘‘2013 Loan Agreements’’), which provided for term loans of up to $20.0 million (the
‘‘Second Lien Term Loan’’ and, together with the First Lien Term Loan, the ‘‘2013 Term Loans’’). The
proceeds from the 2013 Term Loans were used to fund the acquisition of Brand Matter, LLC, to repay
existing debt, to pay fees and expenses in connection therewith, to ﬁnance capital expenditures and for general
corporate purposes. The 2013 Term Loans were secured by substantially all of the assets of the Company and
were further guaranteed and secured by each of the domestic subsidiaries of the Company, other than DVS
LLC, SBG Revo Holdings, LLC and SBG FM, LLC, subject to certain exceptions set forth in the 2013 Loan
Agreements. In connection with the Second Lien Loan Agreement, the Company issued ﬁve-year warrants to
purchase up to an aggregate of 285,160 shares of the Company’s common stock at an exercise price of $4.50
per share. In December 2013, the Company obtained the written consent of each of the lenders to the 2013
Loan Agreements and, in connection therewith, SBG Revo Holdings, LLC agreed to become a Loan Party (as
deﬁned in the 2013 Loan Agreements) under each of the 2013 Loan Agreements, which transaction became
effective in February 2014.

The 2013 Term Loans were drawn in full on March 28, 2013 and were scheduled to mature on
March 28, 2018. The 2013 Loan Agreements were repaid in full on August 15, 2014. The Company was in
compliance with its covenants throughout the existence of the 2013 Term Loans.

Interest Expense

Interest expense during the year ended December 31, 2017 includes interest incurred under our loan
agreements and interest rate caps of $55.1 million and non-cash interest related to the amortization of deferred
ﬁnancing costs of $3.9 million. Additionally, we expensed non-cash interest of $0.9 million related to the
accretion of the present value of guaranteed contractual payments assumed through certain of the Company’s
acquisitions in 2015.

Interest expense during the year ended December 31, 2016 includes interest incurred under our loan
agreements and interest rate caps of $46.2 million, non-cash interest related to the amortization of deferred
ﬁnancing costs of $2.8 million and the write-off of $0.3 million of deferred ﬁnancing costs as a result of an
extinguishment a portion of the BoA Credit Agreement in accordance with ASC 470 — Debt in connection
with the Company’s entry into the Amended BoA Credit Agreement. Additionally, we expensed non-cash
interest of $1.2 million related to the accretion of the present value of guaranteed contractual payments
assumed through certain of the Company’s acquisitions in 2015.

Interest expense during the year ended December 31, 2015 includes interest incurred under our loan
agreements and interest rate swaps of $21.9 million, non-cash interest related to the amortization of deferred
ﬁnancing costs of $1.5 million and the write-off of $2.1 million of deferred ﬁnancing costs as a result of an
extinguishment of debt in accordance with ASC 470 — Debt in connection with loan agreements entered into
for the acquisition of With You LLC. In addition, the Company expensed $2.7 million of deferred ﬁnancing
costs as a result of an extinguishment of debt with ASC 470 — Debt in connection with the Company’s entry
into the 2015 Term Loans. During the year ended December 31, 2015, the Company recorded amortization of
debt discount related to the Equity Issuance in the amount of $0.1 million within non-cash interest expense.
Because the 2015 Term Loan Agreement with GSO was deemed an extinguishment, management determined
that the remaining unamortized debt discount from the Existing Second Lien Credit Agreement was written off
in accordance with ASC 470 Debt. The Company wrote off $1.4 million during the year ended December 31,
2015 within interest expense related to the debt discount. Additionally, we expensed non-cash interest of a de
minimis amount related to the accretion of the present value of guaranteed contractual payments assumed
through certain of the Company’s acquisitions in 2015.

F-45

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 9 — LONG-TERM DEBT − (continued)

Interest Rate Caps

On November 30, 2016, the Company entered into interest rate cap agreements related to its 1-month
LIBOR rates related to the 2016 Cap Agreements with certain ﬁnancial institutions. The 2016 Cap Agreements
have a $500 million notional value, strike rate of 1.50% and mature on November 23, 2018. The Company
recorded its interest rate caps on the consolidated balance sheets at fair value using Level 2 inputs. The
valuation technique used to determine the fair value of the 2016 Cap Agreements approximated the net present
value of future cash ﬂows, taking into account current interest rates.

The Company’s risk management objective and strategy with respect to the 2016 Cap Agreements is to
reduce its exposure to variability in expected future cash outﬂows (forecasted interest payments) attributable to
change in 1-month LIBOR rates, the designated benchmark interest rate being hedged, relating to a portion of
its outstanding ﬂoating-rate debt. The 2016 Cap Agreements protect the Company from increases in hedged
cash ﬂows on its ﬂoating-rate debt attributable to changes in 1-month LIBOR rates above the strike rate.
Should 1-month LIBOR rates exceed 1.50% on a rate reset date during the terms of the 2016 Cap
Agreements, the ﬁnancial institutions will pay the Company for an amount equivalent to the excess interest
over the strike rate. To the extent the hedging relationship is perfectly effective, changes in the fair value of
the hedging instrument each period will be deferred in accumulated other comprehensive loss in the statement
of changes in equity, and the upfront hedging instrument purchase price will be reclassiﬁed to interest
expense, net
If hedge
ineffectiveness exists, accumulated other comprehensive loss will be adjusted to a balance that reﬂects the
lesser of either the cumulative change in the fair value of the hedging or the cumulative change in the fair
value of the hypothetically ‘‘perfect’’ derivative. The amount of ineffectiveness, if any, recorded in earnings
would be equal to the excess of the cumulative change in the fair value of the hedging instrument over the
cumulative change in the fair value of the hypothetical derivative.

in the consolidated statements of operations according to its caplet values.

Interest Rate Swaps

During 2015, the Company entered into an interest rate swap agreement related to term loans (the ‘‘2015
Swap Agreement’’). The Company recorded its interest rate swap on the consolidated balance sheets at fair
value using Level 2 inputs. The 2015 Swap Agreement ended on December 30, 2016. During 2014, the
Company entered into an interest rate swap agreement related to the Second Term Loans (the ‘‘2014 Swap
Agreement’’). The 2014 Swap Agreement ended December 31, 2015.

The objective of the swap agreement was to reduce the variability in cash ﬂows for interest payments
associated with the loan agreements, which are based on the 1-month LIBOR rates. The Company formally
documented the swap agreement as a cash ﬂow hedge of the Company’s exposure to 1-month LIBOR.
Because the critical terms of the swap agreement and the hedged items coincided at inception (e.g., notional
amount, interest rate reset dates, interest rate payment dates, maturity/expiration date and underlying index),
the hedge was expected to completely offset changes in expected cash ﬂows due to ﬂuctuations in the 1-month
LIBOR rate over the term of the hedge. The effectiveness of the hedge relationship was periodically assessed
during the life of the hedge by comparing the current terms of the swap agreement and the loan agreements to
assure they continue to coincide and through an evaluation of the continued ability of the respective
counterparties to honor their obligations under the 2015 Swap Agreement. When the key terms no longer
match exactly, hedge effectiveness (both prospective and retrospective)
is assessed by evaluating the
cumulative dollar offset for the actual hedging instrument relative to a hypothetical derivative whose terms
exactly match the terms of the hedged item. Because the notional amounts of the Company’s swap agreement
the Company assessed the
no longer matched the notional amounts of
ineffectiveness of the swap agreement and determined that differences were immaterial during the year ended
December 31, 2016.

the loan agreements exactly,

F-46

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 9 — LONG-TERM DEBT − (continued)

Debt Maturities

As of December 31, 2017, the Company’s debt maturities for the next ﬁve years and thereafter on a

calendar year basis are as follows:

Total

2018

2019

2016 Term Loans . . . . . . . . $551,913
92,787
2016 Revolving Loan . . . . .
. . . . . . . . . . . . . . . . $644,700
Total

$28,300
—
$28,300

$28,300
—
$28,300

2020
(in thousands)
$28,300
—
$28,300

2021

2022

Thereafter

$ 93,513
92,787
$186,300

$373,500
—
$373,500

$—
—
$—

NOTE 10 — ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

December 31,

2017

2016

(in thousands)

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,627

$ 2,445

Accrued Expenses

Guaranteed payments in connection with acquisitions − current
. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total accounts payable and accrued expenses . . . . . . . . . . . . . .

3,295
3,215
4,928
2,804
3,257
$19,126

4,089
3,981
3,576
1,142
3,682
$18,915

NOTE 11 — LEASES

Operating Leases

The Company leases the following spaces as of December 31, 2017:

Location
New York, NY
New York, NY
Los Angeles, CA

Type
Corporate Headquarters
Office and Showroom
Office

Square Footage
(Approximate)
70,000
10,900
4,724

Expiration Date
December 31, 2033
September 12, 2024
July 31, 2020

On February 21, 2017, the Company amended the lease of its corporate headquarters which extends the
lease through December 31, 2033 and effective in February 2018,
lowers the rented square footage to
approximately 63,000 square feet of corporate office space and 7,000 square feet of other rentable space. On
January 12, 2018, the Company amended the lease of its corporate headquarters, effective in February 2018,
to increase the rented square footage by approximately 12,300 square feet.

Total rent expense for the years ended December 31, 2017, 2016 and 2015 amounted to $6.1 million,

$8.1 million and $1.5 million, respectively.

The Company also has an operating lease for its photocopiers. The photocopier lease expires on

September 30, 2020.

F-47

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 11 — LEASES − (continued)

Future annual minimum payments due under the leases for the next ﬁve years and thereafter are

summarized as follows:

Year Ending December 31,
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Future sublease income due under sublease agreements is summarized as follows:

Year Ending December 31,
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(in thousands)
$ 2,170
5,716
5,634
5,481
5,496
55,637
$80,134

(in thousands)
$350
175
$525

Capital Lease

As part of the acquisition of MSLO, the Company acquired a capital lease obligation entered into by
MSLO on February 1, 2015 for computer equipment. The lease provides for a $0.7 million obligation which
ended on February 1, 2017.

The present value of these minimum lease payments was $0.7 million. Imputed interest was immaterial.
The present value of the minimum lease payments, along with associated accumulated amortization of the
capital lease, was included within Property and equipment, net on the consolidated balance sheets as of
December 31, 2017 and 2016. Ownership of the computer equipment transfers to the Company at the end of
the lease term. Accordingly,
lease is being amortized over
the computer equipment under this capital
ﬁve years, consistent with the Company’s normal depreciation policy for owned computer assets.

NOTE 12 — COMMITMENTS AND CONTINGENCIES

MSLO Stockholder Complaint

In connection with the merger of MSLO in December 2015, the following 13 putative stockholder class
action lawsuits have been ﬁled in the Court of Chancery of the State of Delaware: (1) David Shaev Proﬁt
Sharing Plan f/b/o David Shaev v. Martha Stewart Living Omnimedia Inc. et. al., ﬁled on June 25, 2015;
(2) Malka Raul v. Martha Stewart Living Omnimedia Inc. et. al., ﬁled on June 26, 2015; (3) Daniel Lisman v.
Martha Stewart Living Omnimedia Inc. et. al., ﬁled on June 29, 2015; (4) Matthew Sciabacucchi v. Martha
Stewart Living Omnimedia Inc. et. al., ﬁled on July 2, 2015; (5) Harold Litwin v. Martha Stewart Living
Omnimedia Inc. et. al., ﬁled on July 5, 2015; (6) Richard Schiffrin v. Martha Stewart, ﬁled on July 7, 2015;
(7) Cedric Terrell v. Martha Stewart Living Omnimedia Inc. et. al., ﬁled on July 8, 2015; (8) Dorothy
Moore v. Martha Stewart Living Omnimedia Inc. et. al., ﬁled on July 8, 2015; (9) Paul Dranove v. Pierre De
Villemejane. et. al., ﬁled on July 8, 2015; (10) Phuc Nguyen v. Martha Stewart Living Omnimedia Inc. et. al.,
ﬁled on July 10, 2015; (11) Kenneth Steiner v. Martha Stewart Living Omnimedia Inc. et. al., ﬁled on July 16,
2015; (12) Karen Gordon v. Martha Stewart et. al., ﬁled on July 27, 2015 against the MSLO Board of
Directors, Sequential, Madeline Merger Sub, Singer Merger; and (13) Anne Seader v. Martha Stewart Living
Omnimedia, Inc. et. al., ﬁled on July 28, 2015. All of the 13 class action lawsuits name the Old Sequential,
MSLO, the MSLO board of directors, Madeline Merger Sub, Inc., Singer Merger Sub, Inc. and the Company
as defendants and allege that (a) members of the MSLO board of directors breached their ﬁduciary duties and

F-48

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 12 — COMMITMENTS AND CONTINGENCIES − (continued)

(b) Old Sequential, MSLO, Madeline Merger Sub, Inc., Singer Merger Sub Inc. and the Company aided and
abetted such alleged breaches of ﬁduciary duties by the MSLO board of directors. On August 18, 2015, the
Delaware Chancery Court issued an order consolidating these actions for all purposes under the caption In re
Martha Stewart Living Omnimedia, Inc., et. al. to be the operative complaint in the consolidated action. On
January 12, 2016, after the consummation of the Mergers (as deﬁned below), the plaintiffs ﬁled a Veriﬁed
Consolidated Amended Class Action Complaint, naming Ms. Martha Stewart, the Company, Old Sequential,
Madeline Merger Sub, Inc. and Singer Merger Sub, Inc. and alleging that (a) Ms. Stewart breached her
ﬁduciary duties to MSLO’s stockholders and (b) the Company, Old Sequential, Madeline Merger Sub, Inc. and
Singer Merger Sub, Inc. aided and abetted Ms. Stewart’s breach of her ﬁduciary duties. On April 4, 2016,
Ms. Stewart and the Sequential defendants ﬁled respective motions to dismiss the Veriﬁed Consolidated
Amended Class Action Complaint. On June 15, 2016, Lead Plaintiffs sought leave to amend the complaint and
ﬁle the Veriﬁed Second Amended Class Action Complaint, which Judge Slights granted on July 14, 2016. On
July 18, 2016, Lead Plaintiffs ﬁled the Veriﬁed Second Amended Class Action Complaint against Defendants,
asserting that Ms. Stewart breached her ﬁduciary duties and asserting that Sequential, Madeline Merger Sub,
Singer Merger Sub, and Holdings aided and abetted the alleged breach of ﬁduciary duties. On July 28, 2016,
Ms. Stewart and the Sequential defendants ﬁled respective motions to dismiss the Veriﬁed Second Amended
Class Action Complaint. On October 26, 2016, Lead Plaintiffs ﬁled their opposition to Defendants’ motions to
dismiss. On November 29, 2016, Ms. Stewart and the Sequential Defendants ﬁled reply briefs in further
supports of their motions to dismiss the Veriﬁed Second Amended Class Action Complaint. Oral argument on
the motions to dismiss occurred on March 22, 2017. In August 2017, the Court ruled in favor of Ms. Stewart
and the Sequential defendants on the motions to dismiss. The Lead Plaintiffs did not appeal the ruling. This
matter is resolved.

General Legal Matters

From time to time, the Company is involved in legal matters arising in the ordinary course of business.
While the Company believes that such matters are currently not material, there can be no assurance that
matters arising in the ordinary course of business for which the Company is, or could be,
involved in
litigation, will not have a material adverse effect on its business, ﬁnancial condition or results of operations.
Contingent liabilities arising from potential litigation are assessed by management based on the individual
analysis of these proceedings and on the opinion of the Company’s lawyers and legal consultants.

Guaranteed Payments

The Company has certain guaranteed payments in connection with acquisitions. Future payments of these

guaranteed payments, less imputed interest, are as follows:

Year Ending December 31,
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(in thousands)
$3,295
2,628
1,000
—
—
2,256
$9,179

NOTE 13 — PREFERRED STOCK

As of December 31, 2017 and 2016, the Company had 10,000,000 shares of preferred stock authorized
with a par value of $0.01 per share, none of which were designated or issued and outstanding. The board of
directors of the Company (the ‘‘BOD’’) is authorized, with the limitations and restrictions set forth in the
Company’s certiﬁcate of incorporation, to designate from time to time the terms of the preferred stock.

F-49

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 13 — PREFERRED STOCK − (continued)

On February 3, 2012, Old Sequential designated a series of preferred stock entitled ‘‘Series A Preferred
Stock’’. The Certiﬁcate of Designation set forth the rights, preferences, privileges and restrictions of the
Series A Preferred Stock, which included the following:

•

•

•

•

•

•

the authorized number of shares of Series A Preferred Stock is 19,400, having a par value $0.001
per share and a stated value of $1,000 per share (‘‘Stated Value’’);

holders of Series A Preferred Stock are not entitled to dividends or any liquidation preference;

Series A Preferred Stock may only be transferred by a holder of such stock to a transferee if such
transfer also includes a transfer to the transferee of $1,000 in principal amount of Debentures for
each one share of transferred Series A Preferred Stock;

holders of Series A Preferred Stock vote together as a single class with the holders of common stock
that each share of
on all matters requiring approval of the holders of common stock, except
Preferred Stock is entitled to 381 votes per share (which is the number of shares of common stock a
Debenture holder would receive if it converted $1,000 in principal amount of Debentures into
common stock at the Conversion Price), which number of votes per share is subject to adjustment in
the case of stock splits, stock dividends, combinations of shares and similar
recapitalization
transactions relating to the Company’s common stock;

as long as any shares of Series A Preferred Stock are outstanding, the Company will not, without the
affirmative vote of the holders of a majority of the then outstanding shares of the Series A Preferred
Stock, (a) alter or change adversely the powers, preferences or rights given to the Series A Preferred
Stock or alter or amend the Certiﬁcate of Designation, (b) amend the Company’s certiﬁcate of
incorporation or other charter documents in any manner that adversely affects any rights of such
holders, (c) increase the number of authorized shares of Series A Preferred Stock, or (d) enter into
any agreement with respect to any of the foregoing; and

upon conversion of the principal amount of a Debenture, in whole or in part, into shares of common
stock or upon the repayment of the principal amount of a Debenture, in whole or in part, by the
Company, the Company has the right to and will redeem from the Debenture holder at a price of
$0.001 per share, a number of shares of Series A Preferred Stock determined by dividing (i) the
outstanding principal amount of the Debenture that has been repaid or converted into common stock,
as applicable by (ii) the Stated Value.

NOTE 14 — STOCK INCENTIVE PLAN, OPTIONS AND WARRANTS

Stock Options

Old Sequential

On January 5, 2006, the Company adopted the 2005 Stock Incentive Plan (the ‘‘2005 Stock Incentive
Plan’’), which authorized the granting of a variety of stock-based incentive awards. The 2005 Stock Incentive
Plan was administered by the Company’s BOD, or a committee appointed by the BOD, which determined the
recipients and terms of the awards granted. The 2005 Stock Incentive Plan provided for the issuance of both
incentive stock options (‘‘ISOs’’) and non-qualiﬁed stock options (‘‘NQOs’’). ISOs could only be granted to
employees and NQOs could be granted to directors, officers, employees, consultants, independent contractors
and advisors. The 2005 Stock Incentive Plan provided for a total of 366,667 shares of common stock to be
reserved for issuance under the 2005 Stock Incentive Plan.

On July 24, 2013, the BOD approved and adopted the 2013 Stock Incentive Plan. The 2013 Stock
Incentive Plan replaced the 2005 Stock Incentive Plan. No new grants will be granted under the 2005 Stock
Incentive Plan as of July 24, 2013. Grants that were made under the 2005 Stock Incentive Plan prior to the
BOD’s approval and adoption of the 2013 Stock Incentive Plan will continue to be administered in effect in

F-50

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 14 — STOCK INCENTIVE PLAN, OPTIONS AND WARRANTS − (continued)

accordance with their terms. The 2013 Stock Incentive Plan became effective on July 24, 2013 and, subject to
the right of the BOD to amend or terminate the 2013 Stock Incentive Plan in accordance with terms and
conditions thereof, will remain in effect until all shares of the Company’s common stock reserved for issuance
thereunder have been delivered and any restrictions on such shares have lapsed. Notwithstanding the
foregoing, no shares of the Company’s common stock may be granted under the 2013 Stock Incentive Plan on
or after July 24, 2023.

New Sequential

On December 4, 2015, in connection with the Mergers, the Company ﬁled a registration statement,
whereby The Sequential Brands Group, Inc. 2013 Stock Incentive Compensation Plan authorizes the issuance
of not more than 2,500,000 shares of the registrant’s Common Stock.

The 2013 Stock Incentive Plan is administered by the Compensation Committee. Under the 2013 Stock
Incentive Plan, the Compensation Committee is authorized to grant awards to employees, consultants and any
other persons to whom the 2013 Stock Incentive Plan is applicable and to determine the number and types of
such awards and the terms, conditions, vesting and other limitations applicable to each such award. The
Compensation Committee has the power to interpret the 2013 Stock Incentive Plan and to adopt such rules
and regulations as it considers necessary or appropriate for purposes of administering the 2013 Stock Incentive
Plan.

The following types of awards or any combination of awards may be granted under the 2013 Stock
Incentive Plan: (i) NQOs, (ii) stock appreciation rights, (iii) restricted stock, (iv) restricted stock units,
(v) other stock-based awards, (vi) dividend equivalents and (vii) cash-based awards. The aggregate number of
shares of the Company’s common stock that are reserved for awards to be granted under the 2013 Stock
Incentive Plan is 2,500,000 shares, subject to adjustments for stock splits, recapitalizations and other speciﬁed
events.

Stock-based Compensation Expense

The fair value of options is estimated on the date of grant using the Black-Scholes option pricing model.
The valuation determined by the Black-Scholes pricing model is affected by the Company’s stock price as
well as assumptions regarding a number of highly complex and subjective variables. These variables include,
but are not limited to, expected stock price volatility over the term of the awards, and actual and projected
employee stock option exercise behaviors. The risk free rate is based on the U.S. Treasury rate for the
expected life at the time of grant, volatility is based on the average long-term implied volatilities of peer
companies and the expected life is based on the estimated average of the life of options using the simpliﬁed
method as prescribed by Staff Accounting Bulletin Topic 14 Share-Based Payment. The Company utilizes the
simpliﬁed method to determine the expected life of the options due to insufficient exercise activity during
recent years as a basis from which to estimate future exercise patterns. The expected dividend assumption is
based on the Company’s history and expectation of dividend payouts.

The Company elected to early adopt the provisions of ASU 2016-09 and will reduce compensation cost
for actual forfeitures as they occur. Prior to the adoption to ASU 2016-09, the Company’s estimated forfeiture
rate utilized in calculating compensation cost was zero percent based on the Company’s limited historical
forfeiture experience.

F-51

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 14 — STOCK INCENTIVE PLAN, OPTIONS AND WARRANTS − (continued)

The following table summarizes the Company’s stock option activity for the years ended December 31,

2017, 2016 and 2015:

Number of
Options

Weighted-Average
Exercise Price

Weighted-
Average
Remaining
Contractual Life
(in Years)

Aggregate
Intrinsic Value

(in thousands, except share and per share data)

Outstanding − January 1, 2015 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . .
Outstanding − January 1, 2016 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . .
Outstanding − January 1, 2017 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . .
Outstanding − December 31, 2017 . . . .

373,167
10,000
(253,666)
—
129,501
—
—
—
129,501
—
—
(45,500)
84,001

Exercisable − December 31, 2017 . . . . .

84,001

$ 4.91
12.93
(2.80)
—
9.65
—
—
—
9.65
—
—
(11.49)
$ 8.65

$ 8.65

2.0

$3,166

3.3

2.3

2.1

2.1

148

—

$ —

$ —

A summary of the changes in the Company’s unvested stock options is as follows:

Unvested − January 1, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested − January 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested − January 1, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested − December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . .

Number of
Options
40,500
10,000
(29,500)
—
21,000
—
(16,000)
—
5,000
—
(5,000)
—
—

Weighted-
Average Grant
Date Fair
Value
$ 2.74
2.97
(2.85)
—
2.71
—
(2.94)
—
1.96
—
(1.96)
—
$ —

The Company did not grant any stock options during the years ended December 31, 2017 and 2016.

F-52

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 14 — STOCK INCENTIVE PLAN, OPTIONS AND WARRANTS − (continued)

During the year ended December 31, 2015, the Company granted an aggregate of 10,000 stock options to
employees for future services. These stock options are exercisable over a ﬁve-year term and vested on
December 31, 2015. These stock options had a fair value of less than $0.1 million using the Black-Scholes
option-pricing model with the following weighted-average assumptions:

Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.90%
0.00%
32.10%
3.00 years

The Company did not

record compensation pertaining to these grants during the year ended
December 31, 2017 and 2016. The Company recorded less than $0.1 million during the year ended
December 31, 2015 as compensation expense pertaining to these grants.

During the year ended December 31, 2014, the Company granted an aggregate of 38,500 stock options to
employees for future services. These stock options are exercisable over a ﬁve-year term and vest over a period
of one to three years. These stock options had a fair value of $0.1 million using the Black-Scholes
option-pricing model with the following weighted-average assumptions:

Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.04%
0.00%
37.32%
3.00 − 3.5 years

The Company recorded less than $0.1 million during each of the years ended December 31, 2017 and 2016

and $0.1 million during the year ended December 31, 2015, as compensation expense pertaining to these grants.

Total compensation expense related to stock options for the years ended December 31, 2017, 2016 and
2015 was less than $0.1 million, less than $0.1 million and $0.1 million, respectively. At December 31, 2017,
there is no unrecognized compensation expense related to stock options.

Warrants

The following table summarizes the Company’s outstanding warrants:

Number of
Warrants

Weighted-
Average Exercise
Price

Weighted-
Average
Remaining
Contractual Life
(in Years)

(in thousands, except share and per share data)

Outstanding − January 1, 2015 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . .
Outstanding − January 1, 2016 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . .
Outstanding − January 1, 2017 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . .
Outstanding − December 31, 2017 . . . .
Exercisable − December 31, 2017 . . . . .

640,160
200,000
(38,400)
—
801,760
—
—
—
801,760
—
—
(31,600)
770,160
770,160

$ 6.04
13.32
(5.76)
—
7.87
—
—
—
7.87
—
—
—
$ 7.95
$ 7.95

3.1

4.1

3.1

2.2
2.2

F-53

Aggregate
Intrinsic Value

$4,501

1,377

51

$ —
$ —

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 14 — STOCK INCENTIVE PLAN, OPTIONS AND WARRANTS − (continued)

A summary of the changes in the Company’s unvested warrants is as follows:

Unvested − January 1, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested − January 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested − January 1, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested − December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . .

Number of
Warrants
15,000
200,000
(65,000)
—
150,000
—
(100,000)
—
50,000
—
(50,000)
—
—

Weighted-
Average Grant
Date Fair Value
$3.05
6.32
5.57
—
6.32
—
6.32
—
6.32
—
6.32
—
$ —

The Company did not grant any warrants during the years ended December 31, 2017 and 2016.

During the year ended December 31, 2015, the Company issued ten-year warrants to purchase up to an
aggregate of 200,000 shares of
the Company’s common stock at an exercise price of $13.32 to a
non-employee. These warrants had a fair value of $1.3 million using the Black-Scholes option-pricing model
with the following weighted-average assumptions:

Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.16%
0.00%
45.84%
7.25 years

The Company recorded less than $0.1 million, $0.2 million and $0.4 million during the years ended
December 31, 2017, 2016 and 2015, respectively as compensation expense pertaining to this grant. The
Company marks-to-market the expense for the warrants granted to the non-employee.

Total compensation expense related to warrants for the years ended December 31, 2017, 2016 and 2015
was less than $0.1 million, $0.2 million, and $0.4 million, respectively. At December 31, 2017 there is no
unrecognized compensation expense related to warrants.

F-54

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 14 — STOCK INCENTIVE PLAN, OPTIONS AND WARRANTS − (continued)

Restricted Stock

A summary of the time-based restricted stock activity for the years ended December 31, 2017, 2016 and

2015 is as follows:

Unvested − January 1, 2015 . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . .
Unvested − January 1, 2016 . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . .
Unvested − January 1, 2017 . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . .
Unvested − December 31, 2017 . . . . . .

Weighted-
Average Grant
Date Fair Value

Weighted-
Average
Remaining
Vesting Period
(in Years)

(in thousands, except share and per share data)

$ 6.30
12.74
6.96
8.81
5.57
8.08
8.45
3.60
(6.73)
$ 7.23

1.9

1.8

2.1

1.8

Aggregate
Intrinsic Value

$3,470

510

—

$ —

Number of
Shares

512,586
189,602
(291,535)
410,653
80,903
(232,769)
258,787
111,112
(174,363)
195,536

During the year ended December 31, 2017, the Company granted 111,112 shares of time-based restricted
stock to members of the Company’s board of directors. These shares had a grant date fair value of
$0.4 million and vest over a period of one year. The Company recorded $0.3 million during the year ended
December 31, 2017 as compensation expense pertaining to these grants.

During the year ended December 31, 2016, the Company accelerated the vesting of 32,500 shares of
time-based restricted stock in connection with restructuring activities. The Company recorded $0.2 million
during the year ended December 31, 2016 as compensation expense pertaining to these restructuring activities.

During the year ended December 31, 2016,

the Company granted (i) 70,548 shares of time-based
restricted stock to members of the Company’s BOD and (ii) 10,355 shares of time-based restricted stock to a
non-employee pursuant to a partnership agreement. These shares had a grant date fair value of $0.5 million
and vest over a period of one to ﬁve years. The Company recorded $0.1 million and $0.3 million during
the years ended December 31, 2017 and 2016, respectively, as compensation expense pertaining to these
grants.

During the year ended December 31, 2015,

the Company granted (i) 15,000 shares of time-based
restricted stock to an employee for future services, (ii) 24,452 shares of time-based restricted stock to
members of the Company’s BOD and (iii) 150,150 shares of time-based restricted stock to a non-employee
pursuant to a partnership agreement. These shares had a grant date fair value of $2.4 million and vest over a
period of one to four years. The Company recorded less than $0.1 million during the year ended
December 31, 2017 and $0.5 million during each of the years ended December 31, 2016 and 2015 as
compensation expense pertaining to these grants. The Company marks-to-market the expense for the shares of
time-based restricted stock granted to the non-employee.

During the year ended December 31, 2014,

the Company granted (i) 137,500 shares of time-based
restricted stock to employees, (ii) 100,000 shares of time-based restricted stock to a consultant for future
services and (iii) 23,120 shares of time-based restricted stock to members of the Company’s BOD. These
shares of time-based restricted stock had a grant date fair value of $1.8 million and vest over a period of one
to three and one-half years. The Company marks-to-market the expense for the shares of restricted stock

F-55

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 14 — STOCK INCENTIVE PLAN, OPTIONS AND WARRANTS − (continued)

granted to the consultant. The Company recorded $0.1 million, $0.6 million and $0.7 million during the years
ended December 31, 2017, 2016 and 2015, respectively, as compensation expense pertaining to these grants.

Total compensation expense related to time-based restricted stock grants for the year ended December 31,
2017, 2016 and 2015 was $0.6 million, $1.6 million, and $2.3 million, respectively. Total unrecognized
compensation expense related to time-based restricted stock grants at December 31, 2017 amounted to
$0.3 million and is expected to be recognized over a weighted average period of 1.8 years.

Restricted Stock Units

A summary of the time-based restricted stock unit activity for the years ended December 31, 2017, 2016

and 2015 is as follows:

Unvested − January 1, 2015 . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . .
Unvested − January 1, 2016 . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . .
Unvested − January 1, 2017 . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . .
Forfeited or Canceled . . . . . . . . . . .
Unvested − December 31, 2017 . . . . . .

Weighted-
Average Grant
Date Fair Value

Weighted-
Average
Remaining
Vesting Period
(in Years)

(in thousands, except share and per share data)

Aggregate
Intrinsic Value

$ —
14.33
—
14.33
7.03
(14.33)
8.52
3.18
(8.29)
(4.89)
$ 3.89

—

3.0

2.5

2.2

$—

—

—

$—

Number of
Shares

—
100,000
—
100,000
260,000
(33,333)
326,667
688,836
(219,103)
(60,000)
736,400

During the year ended December 31, 2017, the Company granted 52,083 time-based restricted stock units
to a consultant for future services. These shares of time-based restricted stock units had a grant date fair value
of $0.1 million and vest over a period of six months. The Company recorded less than $0.1 million during the
year ended December 31, 2017 as compensation expense pertaining to these grants.

During the year ended December 31, 2017, the Company accelerated the vesting of 16,667 shares of
time-based restricted stock units for an employee pursuant to their termination agreement. Total compensation
expense related to these shares of $0.1 million was recorded as operating expenses in the consolidated
statement of operations for the year ended December 31, 2017.

During the year ended December 31, 2017,

the Company granted 200,000 time-based restricted
stock units to certain employees for future services and 276,753 time-based restricted stock units to a
consultant for future services. These shares of time-based restricted stock units had a grant date fair value of
$1.4 million and vest over a period of three years. The Company recorded $0.2 million during the year ended
December 31, 2017 as compensation expense pertaining to these grants.

During the year ended December 31, 2017,

the Company granted 100,000 time-based restricted
stock units to the Company’s Chief Executive Officer pursuant to an employment agreement, dated April 3,
2017. These shares of time-based restricted stock units had a grant date fair value of $0.4 million and vest
over a period of three years. The Company recorded $0.1 million during the year ended December 31, 2017
as compensation expense pertaining to this grant.

F-56

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 14 — STOCK INCENTIVE PLAN, OPTIONS AND WARRANTS − (continued)

During the year ended December 31, 2017, the Company accelerated the vesting of 66,667 shares of
time-based restricted stock units for the Company’s former Chief Executive Officer in connection with the
CEO transition. Total compensation expense related to these shares of $0.7 million was recorded as operating
expenses in the consolidated statement of operations for the year ended December 31, 2017.

During the year ended December 31, 2017, the Company granted 60,000 time-based restricted stock units
to the Company’s former Chief Financial Officer pursuant
to an amended employment agreement, dated
January 3, 2017. These shares of time-based restricted stock units had a grant date fair value of $0.3 million
and a vesting period of two years. Upon the former Chief Financial Officer’s departure, these shares were
forfeited prior to vesting during the year ended December 31, 2017. Compensation expense previously
recognized was reversed during the year ended December 31, 2017.

During the year ended December 31, 2017, the Company accrued $1.5 million in stock compensation
expense for an employee performance-based bonus pursuant to their employment agreement. The bonus is to
be paid in restricted stock in ﬁrst quarter of 2018, based on the average closing stock price for the 30 days
preceding March 1, 2018. The shares will be fully vested on grant date.

During the year ended December 31, 2016, the Company granted 260,000 shares of time-based restricted
stock units to employees for future services. These shares of time-based restricted stock had a grant date fair
value of $1.8 million and vest over a period of three years. The Company recorded $0.7 million and
$0.2 million during the years ended December 31, 2017 and 2016, respectively, as compensation expense
pertaining to this grant.

During the year ended December 31, 2015,

the Company granted 100,000 time-based restricted
stock units to the Company’s Chief Executive Officer pursuant to an amended and restated employment
agreement, dated April 14, 2015 (the ‘‘A&R CEO Employment Agreement’’). These shares had a grant date
fair value of $1.4 million and vest over a period of four years. The Company recorded less than $0.1 million
and $0.4 million during the years ended December 31, 2017 and 2016, respectively, as compensation expense
pertaining to these grants.

Total compensation expense related to time-based restricted stock units grants for the years ended
December 31, 2017, 2016 and 2015 was $1.8 million, $0.6 million and $0.3 million, respectively. Total
accrued compensation expense related to performance-based restricted stock units for
the year ended
December 31, 2017 was $1.5 million. Total unrecognized compensation expense related to time-based
restricted stock units grants at December 31, 2017 amounted to $2.1 million and is expected to be recognized
over a weighted average period of 2.2 years.

F-57

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 14 — STOCK INCENTIVE PLAN, OPTIONS AND WARRANTS − (continued)

Performance Stock Units

A summary of the PSUs activity for the years ended December 31, 2017, 2016 and 2015 is as follows:

Unvested − January 1, 2015 . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . .
Forfeited or Cancelled . . . . . . . . . . .
Unvested − January 1, 2016 . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . .
Forfeited or Cancelled . . . . . . . . . . .
Unvested − January 1, 2017 . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . .
Forfeited or Cancelled . . . . . . . . . . .
Unvested − December 31, 2017 . . . . . .

Weighted-
Average Grant
Date Fair Value

Weighted-
Average
Remaining
Vesting Period
(in Years)

(in thousands, except share and per share data)

Aggregate
Intrinsic Value

$ 10.23
14.33
(9.33)
(13.81)
10.98
7.23
(9.58)
(11.89)
8.18
3.17
(10.97)
(7.22)
$ 5.83

2.1

$3,904

1.4

2.4

96

—

2.0

$ —

Number of
Shares

1,325,000
200,000
(210,500)
(6,000)
1,308,500
2,134,100
(317,833)
(321,400)
2,803,367
716,600
(701,233)
(773,100)
2,045,634

During the year ended December 31, 2017, the Company granted 200,000 PSUs to an employee upon
their commencement of employment with the Company. These PSUs had a grant date fair value of
$0.7 million and vest over a period of three years and require achievement of certain of the Company’s
performance metrics within each ﬁscal year for such PSUs to be earned. The Company did not record any
compensation expense during the year ended December 31, 2017 as the likelihood of these PSUs being earned
was not probable.

On July 25, 2017, the Compensation Committee voted to approve, on a discretionary basis, an award of
41,600 PSUs to employees and consultants. The fair value and expense recorded for such PSUs was based on
the closing price of the Company’s common stock on the date the modiﬁcation of the performance metric was
communicated to employees and consultants. The Company did not record any compensation expense during
the year ended December 31, 2017 as the likelihood of these PSUs being earned was not probable.

During the year ended December 31, 2017, the Company granted 300,000 PSUs to the Company’s Chief
Executive Officer. These PSUs had a grant date fair value of $0.8 million and vest over a period of
three years and require achievement of certain of the Company’s performance metrics within each ﬁscal year
for such PSUs to be earned. The Company did not record any compensation expense during the year ended
December 31, 2017 as the likelihood of these PSUs being earned was not probable.

During the year ended December 31, 2017, the Company granted 175,000 PSUs to the Company’s Chief
Executive Officer pursuant to an employment agreement, dated April 3, 2017. These PSUs had a grant date
fair value of $0.7 million and vest over a period of three years and require achievement of certain of the
Company’s performance metrics within each ﬁscal year for such PSUs to be earned. The Company did not
record any compensation expense during the year ended December 31, 2017 as the likelihood of these PSUs
being earned was not probable.

During the year ended December 31, 2017, the Company accelerated the vesting of 200,000 PSUs for the
Company’s former Chief Executive Officer in connection with the CEO transition. Total compensation expense

F-58

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 14 — STOCK INCENTIVE PLAN, OPTIONS AND WARRANTS − (continued)

related to these PSUs of $2.9 million was recorded as operating expenses in the consolidated statement of
operations for the year ended December 31, 2017.

On February 28, 2017, the Compensation Committee voted to approve, on a discretionary basis, an award
of 164,978 PSUs to employees and consultants. Included in the above award were 60,000 PSUs and 36,000
PSUs for the Company’s former Chief Executive Officer and Chief Financial Officer, respectively. The fair
value and expense recorded for such PSUs was based on the closing price of the Company’s common stock
on the date the modiﬁcation of the performance metric was communicated to employees and consultants. Total
compensation expense related to these PSUs of $0.6 million was recorded as operating expenses in the
consolidated statements of operations for the year ended December 31, 2017.

During the year ended December 31, 2016, the Company accelerated the vesting of 108,500 PSUs in
connection with restructuring activities. Total compensation expense related to these PSUs of $0.5 million was
recorded as operating expenses in the consolidated statement of operations for the year ended December 31,
2016.

During the year ended December 31, 2016, the Company granted 2,104,100 PSUs to employees and
consultants and 30,000 PSUs to an employee upon the commencement of his employment with the Company.
These PSUs had a grant date fair value of $15.4 million, vest over a period of three years and require
achievement of certain of the Company’s performance metrics within each ﬁscal year for such PSUs to be
earned. The Company recorded less than $0.1 million during the year ended December 31, 2016 as
compensation expense in the consolidated statement of operations pertaining to these PSUs as the likelihood
of a portion of these PSUs being earned became probable. The Company did not record any compensation
expense during the year ended December 31, 2017 as the likelihood of these PSUs being earned was not
probable.

On February 23, 2016, the Compensation Committee voted to approve, on a discretionary basis, an award
of 69,994 PSUs to employees and consultants. Included in the above award were 20,000 PSUs and 12,000
PSUs for the Company’s Chief Executive Officer and Chief Financial Officer, respectively. The fair value and
expense recorded for such PSUs was based on the closing price of the Company’s common stock on the date
the modiﬁcation of
the performance metric was communicated to employees and consultants. Total
compensation expense related to these PSUs of $0.4 million was recorded as operating expenses in the
consolidated statement of operations for the year ended December 31, 2016.

On February 24, 2015, the Compensation Committee voted to approve, on a discretionary basis, an award
of 198,000 PSUs to employees and consultants under the 2013 Stock Incentive Compensation Plan. Included
in the above award were 60,000 PSUs and 36,000 PSUs for the Company’s Chief Executive Officer and Chief
Financial Officer, respectively. The fair value and expense recorded for such PSUs was based on the closing
price of
the performance metric was
communicated to employees. Total compensation expense related to these PSUs of $2.0 million was recorded
as operating expenses in the consolidated statement of operations for the year ended December 31, 2015.

the Company’s common stock on the date the modiﬁcation of

In addition, during the year ended December 31, 2015, the Compensation Committee approved, on a
discretionary basis, an award of 12,500 PSUs to an employee upon the commencement of his employment
with the Company. The fair value and expense recorded for such PSUs was based on the closing price of the
Company’s common stock on the date the modiﬁcation of the performance metric was communicated to the
employee. Total compensation expense related to these PSUs of approximately $0.1 million was recorded as
operating expenses in the consolidated statement of operations for the year ended December 31, 2015.

During the year ended December 31, 2014, the Company granted 990,000 PSUs to employees and
consultants. These PSUs had a grant date fair value of $9.5 million and vest over a period of three years.
These PSUs require achievement of certain of the Company’s performance metrics within each ﬁscal year for

F-59

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 14 — STOCK INCENTIVE PLAN, OPTIONS AND WARRANTS − (continued)

such PSUs to be earned. The Company recorded $2.9 million and $1.2 million during the years ended
December 31, 2016 and 2015, respectively as compensation expense in the consolidated statement of
operations pertaining to these PSUs as the performance metrics were achieved.

During the year ended December 31, 2014, the Company granted 50,000 PSUs to an employee upon the
commencement of his employment with the Company. These PSUs had a grant date fair value of $0.3 million
and vest over a period of four years. These PSUs require achievement of certain of the Company’s
performance metrics within each ﬁscal year for such PSUs to be earned. The Company did not record
compensation expense during each of the years ended December 31, 2016 and 2015 pertaining to these PSUs
as the performance metrics were not achieved.

During the year ended December 31, 2014, the Company granted 250,000 PSUs to an employee upon the
commencement of his employment with the Company. These PSUs had a grant date fair value of $3.4 million
and vest over a period of two years. These PSUs require achievement of certain of the Company’s
performance metrics, which began in 2015, within each ﬁscal year for such PSUs to be earned. The Company
did not record compensation expense during the years ended December 31, 2016 and 2015 pertaining to these
PSUs as the performance metrics were not achieved.

During the year ended December 31, 2014, the Company granted 35,000 PSUs to employees. These
PSUs had a grant date fair value of $0.4 million and vest over a period of two to three years. These PSUs
require achievement of certain of the Company’s performance metrics, which began in 2015, within each
ﬁscal year for such PSUs to be earned. The Company recorded $0.1 million during each of the years ended
December 31, 2016 and 2015 as compensation expense in the consolidated statement of operations pertaining
to these PSUs as the performance metrics were achieved. The Company did not record any compensation
expense during the year ended December 31, 2017 as the likelihood of these PSUs being earned was not
probable.

Total compensation expense related to the PSUs for the years ended December 31, 2017, 2016 and 2015

was $3.5 million, $4.0 million and $3.4 million, respectively.

NOTE 15 — INCOME TAXES

The (beneﬁt from) provision for income taxes from continuing operations consists of the following:

2017

For the Year Ended December 31,
2016
(in thousands)

2015

Federal:

Current provision . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred provision . . . . . . . . . . . . . . . . . . . . . . . . .

Foreign:

Current provision . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred provision . . . . . . . . . . . . . . . . . . . . . . . . .

State:

Current provision . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred provision . . . . . . . . . . . . . . . . . . . . . . . . .

(Beneﬁt from) provision for income taxes

. . . . . . . . . . .

$

— $ (111)
10,145
10,034

(131,344)
(131,344)

$

34
9,771
9,805

134
—
134

206
—
206

340
—
340

—
(1,325)
(1,325)
$(132,535)

(519)
(564)
(1,083)
$ 9,157

103
(11,605)
(11,502)
$ (1,357)

F-60

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 15 — INCOME TAXES − (continued)

The difference between the (beneﬁt from) provision for income taxes and the expected income tax
provision determined by applying the statutory federal and state income tax rates to pre-tax accounting income
from continuing operations are as follows:

Federal statutory rate . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes, net of federal tax beneﬁt . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment
Non-deductible transaction costs . . . . . . . . . . . . . . . . . .
Noncontrolling interest
. . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible compensation . . . . . . . . . . . . . . . . . . . .
Foreign taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Tax Cuts and Jobs Act
. . . . . . . . . . . . . . . . . . . . . . . .
Change in state tax rates . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FIN 48 reversal

The Tax Cuts and Jobs Act

For the Year Ended December 31,
2016
35.0%
0.2
—
0.7
(16.5)
43.2
2.2
1.3
1.1
—
(5.5)
(3.7)
58.0%

2017
35.0%
0.1
(33.9)
—
0.6
29.5
(0.1)
(0.1)
(0.7)
11.8
—
—
42.2%

2015
35.0%
9.7
—
123.3
(174.7)
548.4
33.4
32.1
6.3
—
(741.7)
0.0
(128.2)%

On December 22, 2017,

the U.S. enacted the Tax Cuts and Jobs Act (‘‘Tax Act’’) that

instituted
fundamental changes to the taxation of multinational corporations. The Tax Act
includes changes to the
taxation of foreign earnings by implementing a dividend exemption system, expansion of the current
anti-deferral rules, a minimum tax on low-taxed foreign earnings and new measures to deter base erosion. The
Tax Act also includes a permanent reduction in the corporate tax rate to 21%, repeal of the corporate
alternative minimum tax, expensing of capital investment, and limitation of the deduction for interest expense.
Furthermore, as part of the transition to the new tax system, a one-time transition tax is imposed on a
U.S. shareholder’s historical undistributed earnings of foreign affiliates. Although the Tax Act is generally
effective January 1, 2018, GAAP requires recognition of the tax effects of new legislation during the reporting
period that includes the enactment date, which was December 22, 2017.

As a result of the impacts of the Tax Act, the SEC provided guidance that allows the Company to record
provisional amounts for those impacts, with the requirement that the accounting be completed in a period not
to exceed one year from the date of enactment. As of December 31, 2017, the Company has not completed
the accounting for certain tax effects of the Tax Act. Therefore, we have recorded provisional amounts for the
effects of the Tax Act. The primary impact of the Tax Act related to the re-measurement of deferred tax assets
and liabilities resulting from the change in the corporate tax rate (‘‘Corporate Tax Rate Change’’).

Corporate Tax Rate Change

For the year ended December 31, 2017, we recorded a tax beneﬁt of approximately $73 million due to a

decrease in deferred tax liabilities as a result of the reduction in the corporate tax rate from 35% to 21%.

At the date of enactment, the Company had a deferred tax liability for the excess of its net book value
over its tax basis of its U.S. assets and liabilities that will generate future taxable income in excess of book
income. Due to the Tax Act, this additional taxable income will be subject to tax at a lower corporate tax rate,
consequently reducing the Company’s deferred tax liability as of the date of enactment.

F-61

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 15 — INCOME TAXES − (continued)

The Company also reevaluated the need for a valuation allowance as a result of changes made by the Tax
Act. As more fully described below, the Company determined that it has become more likely than not that it
will realize substantially all of its deferred tax assets.

The components of the Company’s consolidated deferred income tax balances as of December 31, 2017

and 2016 are as follows:

Deferred income tax assets

Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . .
Capital loss carryforwards
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets − ﬁnite life . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant & equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credits
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue
Available-for-sale securities
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other

Deferred income tax liability − long-term

Intangible assets − Indeﬁnite-lived . . . . . . . . . . . . . . . . . . . . . . .

Less: Valuation Allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred income tax liability − long-term . . . . . . . . . . . . . . . . .

December 31,

2017

2016

(in thousands)

$ 54,909
1,885
6,809
716
3,587
(64)
2,274
2,973
—
1,772
1,187
76,048

(126,443)
(126,443)
(17,404)
$ (67,799)

$ 83,248
1,280
11,090
1,668
4,544
1,028
1,910
617
1,600
3,302
653
110,940

(200,468)
(200,468)
(110,829)
$(200,357)

Deferred income taxes arise principally from net operating loss (‘‘NOL’’) carryforwards and intangible
asset deferred tax assets and liabilities. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the deferred income tax assets will not
be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based on consideration of these items and new tax provisions
under the Tax Act, primarily the new limitation on interest expense deductions, management has determined
that enough certainty exists to warrant the release of the valuation allowance recorded against substantially all
the Company’s deferred tax assets as of December 31, 2017. As of December 31, 2017 and 2016, a valuation
allowance of $17.4 million and $110.8 million, respectively, has been recognized for deferred income taxes
that may not be realized by the Company in future periods. The valuation allowance at December 31, 2017
primarily relates to state net operating losses and capital loss carryforwards.

The taxable temporary difference related to indeﬁnite-lived trademarks, which are currently amortized for
tax purposes, will reverse when such assets are disposed of or impaired. Because the period for their reversal
is not determinable, the net deferred tax liability of $200.4 million as December 31, 2016 attributable to
indeﬁnite-lived trademarks could not be used to offset the deferred tax assets.

F-62

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 15 — INCOME TAXES − (continued)

The Company has federal NOLs available to carryforward to future periods of $195.6 million as of
December 31, 2017 which begin expiring in 2024. The Company has state NOLs available to carryforward to
future periods of $205.7 million as of December 31, 2017 which begin expiring in 2018. The Company has
foreign tax credits available to carryforward to future periods of $1.6 million as of December 31, 2017 which
began expiring in 2017. The Company has experienced several changes of ownership under Section 382 of the
Internal Revenue Code of 1986, as amended (the ‘‘Code’’) which places various limitations on the NOLs. The
limitations on NOLs are based upon a formula provided under Section 382 of the Code that is based on the
fair market value of the Company and prevailing interest rates at the time of the ownership change. An
‘‘ownership change’’ is generally a 50% increase in ownership over a three-year period by stockholders who
directly or indirectly own at least ﬁve percent of a company’s stock. The limitations on the use of the NOLs
under Section 382 could affect the Company’s ability to offset future taxable income.

The Company currently ﬁles U.S. federal tax returns and various state tax returns. Tax years that remain
federal and state purposes include years ended December 31, 2014 through

for

open for assessment
December 31, 2017.

A reconciliation of the consolidated liability for gross unrecognized income tax beneﬁts (excluding

penalties and interest) is as follows:

December 31,

2017

2016

(in thousands)

Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases in prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases in prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases in current year tax positions . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements with taxing authorities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year

$—
—
—
—
—
—
$—

$ 270
(270)
—
—
—
—
$ —

During the year ended December 31, 2016, the Company released its $0.3 million reserve of certain
unrecognized tax beneﬁts through current income tax expense in accordance ASC 740. The Company has no
remaining unrecognized tax beneﬁts at December 31, 2017.

The Company recognizes interest and penalties related to unrecognized tax beneﬁts in the tax provision.
During the year ended December 31, 2016, the Company recognized a gain of $0.3 million and a charge of
less than $0.1 million related to interest and penalties, respectively. The Company has no remaining interest
and penalties related to unrecognized tax beneﬁts at December 31, 2017.

NOTE 16 — RELATED PARTY TRANSACTIONS

Consulting Services Agreement with Tengram Capital Partners, L.P.
Management L.P.)

(f/k/a Tengram Capital

Pursuant to an agreement with Tengram Capital Partners, L.P., formerly known as Tengram Capital
Management, L.P. (‘‘TCP’’), an affiliate of Tengram Capital Partners Gen2 Fund, L.P., which is one of the
Company’s largest stockholders, the Company has engaged TCP, effective as of January 1, 2013, to provide
services to the Company pertaining to (i) mergers and acquisitions, (ii) debt and equity ﬁnancing and
(iii) such other related areas as the Company may reasonably request from time to time (the ‘‘TCP
Agreement’’). TCP is entitled to receive compensation of $1.0 million, including fees and reimbursement of
out-of-pocket expenses in connection with performing its services under the TCP Agreement. The TCP
Agreement remains in effect for a period continuing through the earlier of ﬁve years or the date on which

F-63

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 16 — RELATED PARTY TRANSACTIONS − (continued)

TCP and its affiliates cease to own in excess of 5% of the outstanding shares of common stock in the
Company. On August 15, 2014, the Company consummated transactions pursuant to an agreement and plan of
merger, dated as of June 24, 2014 (the ‘‘Galaxy Merger Agreement’’) with SBG Universe Brands LLC, a
Delaware limited liability company and the Company’s direct wholly-owned subsidiary (‘‘LLC Sub’’),
Universe Galaxy Merger Sub, Inc., a Delaware corporation and direct wholly-owned subsidiary of LLC Sub,
Galaxy Brand Holdings, Inc. and Carlyle Galaxy Holdings, L.P. (such transactions, collectively, the ‘‘Galaxy
Acquisition’’). In connection with the Galaxy Merger Agreement, the Company and TCP entered into an
amendment to the TCP Agreement (the ‘‘Amended TCP Agreement’’), pursuant to which, among other things,
TCP is entitled to receive annual fees of $0.9 million beginning with ﬁscal year 2014.

The Company paid TCP $0.9 million, $0.9 million, and $1.4 million for services under the Amended
TCP Agreement during the years ended December 31, 2017, 2016 and 2015, respectively. These amounts are
included in operating expenses in the Company’s consolidated ﬁnancial statements. At December 31, 2017 and
2016, there were no amounts due to TCP for services. In connection with the consummation of the acquisition
of MSLO, a $2.5 million transaction fee was paid to TCP during the year ended December 31, 2015.

Additionally, in July 2013, the Company entered into a consulting arrangement with an employee of TCP
(the ‘‘TCP Employee’’), pursuant to which the TCP Employee provides legal and other consulting services at
the request of the Company from time to time. The TCP Employee was also issued 125,000 shares of
restricted stock, vesting over a four-year period and 180,000 PSUs, vesting over three years in increments of
20% for 2014, 20% for 2015 and 60% for 2016. During the year ended December 31, 2016, the TCP
employee was granted 200,000 PSUs, vesting over three years in increments of 33.3% for 2017, 33.3% for
2018 and 33.4% for 2019. The Company paid the TCP Employee $0.3 million, $0.4 million and $0.6 million
for services under the consulting arrangement during the years ended December 31, 2017, 2016 and 2015,
respectively. These amounts are included in operating expenses in the Company’s consolidated ﬁnancial
statements. At December 31, 2017, less than $0.1 million was due to the TCP Employee. At December 31,
2016, there were no amounts due to the TCP Employee.

Transactions with E.S. Originals, Inc.

A division president of the Company maintains a passive ownership interest in one of the Company’s
licensees, E.S. Originals, Inc. (‘‘ESO’’). The Company receives royalties from ESO under license agreements
for certain of the Company’s brands in the footwear category. The Company recorded $18.1 million,
$17.0 million and $14.8 million of revenue for the years ended December 31, 2017, 2016 and 2015,
respectively, for royalties and advertising revenue earned from ESO license agreements. At December 31,
2017 and 2016, the Company had $8.0 million and $7.1 million recorded as accounts receivable from ESO in
the consolidated balance sheets, respectively.

In addition, the Company entered into a license-back agreement with ESO under which the Company
reacquired the rights to certain international territories in order to re-license these rights to an unrelated party.
The Company recorded approximately $0.1 million in license-back expense for the year ended December 31,
2017.

Acquisition of FUL

On November 17, 2014, the Company made a strategic investment in FUL IP. FUL IP is a collaborative
investment between the Company and JALP. FUL IP was formed for the purpose of licensing the FUL
trademark to third parties in connection with the manufacturing, distribution, marketing and sale of FUL
branded bags, backpacks, duffels, luggage and apparel accessories. JALP contributed the FUL trademark with
a fair value of $8.9 million. In exchange for a 50.5% economic interest in FUL IP the Company paid JALP
$4.5 million. JALP’s minority member interest in FUL IP has been reﬂected as noncontrolling interest on the
Company’s consolidated balance sheets. One of the Company’s directors, Mr. Al Gossett, has a partial
ownership interest in JALP. There was $(2.2) million and $0.4 million of noncontrolling interest recorded

F-64

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 16 — RELATED PARTY TRANSACTIONS − (continued)

during the years ended December 31, 2017 and 2016, respectively. No noncontrolling interest was recorded
during the years ended December 31, 2015.

Investment in Available-for-Sale Securities

As further discussed in Note 2, in September 2015, the Company purchased available-for-sale securities
of an unaffiliated third-party publicly traded company from Tengram Capital Partners, L.P., which is an
affiliate of Tengram Capital Partners Gen2 Fund, L.P., one of the Company’s largest stockholders, for an
aggregate purchase price of $12.0 million (plus related transaction expenses), which was the purchase price
paid by Tengram Capital Partners, L.P. upon the acquisition of such available-for-sale securities in open
market transactions. The Company did not pay a fee or any compensation to Tengram Capital Partners, L.P. in
connection with the Company’s investment
in the available-for-sale securities. During the year ended
December 31, 2017, the Company sold its available-for-sale securities for $5.8 million.

IP License Agreement and Intangible Asset Agreement

In connection with the transactions contemplated by the Mergers, MSLO entered into an Amended and
Restated Asset License Agreement (‘‘Intangible Asset Agreement’’) and Amended and Restated Intellectual
Property License and Preservation Agreement (‘‘IP License Agreement’’ and, together with the Intangible
Asset Agreement, the ‘‘IP Agreements’’) pursuant to which Ms. Martha Stewart licensed certain intellectual
property to MSLO. The IP Agreements grant the Company the right to use of certain properties owned by
Ms. Stewart.

The Intangible Asset Agreement has an initial term commencing at December 4, 2015 and ending on
December 31, 2020, provided that the term will automatically be renewed for ﬁve additional calendar years
ending December 31, 2025 (subject to earlier termination as provided in the employment agreement) if either
the aggregate gross licensing revenues (as deﬁned in the employment agreement) for calendar years 2018
through 2020 exceed $195 million or the gross licensing revenues for calendar year 2020 equal or exceed
$65 million. During the term of the Intangible Asset Agreement with the Company, Lifestyle Research Center
LLC will be entitled to receive a guaranteed annual payment of $1.7 million, which amounts are being paid in
connection with the Mergers regardless of Ms. Stewart’s continued employment with the Company plus
reimbursable expenses. The Company has paid Lifestyle Research Center LLC $3.3 million and $1.8 million
in connection with the guaranteed payment and other related services during the years ended December 31,
2017 and 2016, respectively.

During the term of the IP License Agreement with the Company, Ms. Stewart will be entitled to receive a
guaranteed annual payment of $1.3 million, which amounts are being paid in connection with the Mergers
regardless of Ms. Stewart’s continued employment with the Company. During each year ended December 31,
2017 and 2016, the Company made payments of $1.3 million to Ms. Stewart in connection with the terms of
the IP Licenses Agreement. The IP License Agreement is perpetual.

During the years ended December 31, 2017 and 2016, the Company expensed non-cash interest of
$0.6 million and $0.8 million, respectively, related to the accretion of the present value of these guaranteed
contractual payments. At December 31, 2017, there was $6.4 million due under the IP Agreements of which
$2.8 million is recorded in accounts payable and accrued expenses and $3.6 million is recorded in other
long-term liabilities. At December 31, 2016, there was $8.8 million due under the IP Agreements of which
$2.8 million is recorded in accounts payable and accrued expenses and $6.0 million is recorded in other
long-term liabilities.

F-65

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 16 — RELATED PARTY TRANSACTIONS − (continued)

Registration Rights Agreement

On June 22, 2015, Martha Stewart, the Martha Stewart Family Limited Partnership, Alexis Stewart, the
Martha Stewart 1999 Family Trust, the Martha Stewart 2000 Family Trust and the Martha and Alexis Stewart
Charitable Foundation (collectively, the ‘‘Stewart Stockholders’’) entered into an agreement (the ‘‘Registration
Rights Agreement’’) with the Company, which grants the Stewart Stockholders certain ‘‘demand’’ registration
rights for up to two offerings of greater than $15 million each, certain ‘‘S-3’’ registration rights for up to three
offerings of greater than $5 million each and ‘‘piggyback’’ registration rights with respect to the shares of the
to the Merger
Company’s common stock held by the Stewart Stockholders (whether
Agreement or acquired thereafter) and their transferees. All reasonable expenses incident to such registrations
generally are required to be borne by the Company. The Registration Rights Agreement became effective on
December 4, 2015.

issued pursuant

NOTE 17 — PROFIT SHARING PLAN

The Company has established a 401(k) proﬁt-sharing plan for the beneﬁt of eligible employees. The
Company may make contributions to the plan as determined by the BOD. The Company accrued a matching
contribution of $0.5 million, $0.5 million and $0.2 million for the years ended December 31, 2017, 2016, and
2015, respectively.

NOTE 18 — RESTRUCTURING

The Company did not incur restructuring charges during the year ended December 31, 2017.

During the year ended December 31, 2016, the Company recorded $3.2 million of restructuring charges
in connection with headcount reductions and lease termination costs. The charges incurred during the year
ended December 31, 2016 consisted of $1.7 million of severance and related beneﬁts associated with
headcount reductions, $0.8 million of professional fees, $0.3 million in contract
termination fees and
$0.4 million of leasehold improvement write-offs due to moving the corporate headquarters. During the year
ended December 31, 2015, the Company recorded $8.7 million of restructuring charges in connection with
headcount reductions, contract termination costs and lease termination costs. The charges incurred during the
year ended December 31, 2015 consisted of $5.5 million of severance and related beneﬁts associated with
headcount reductions, $0.7 million of professional fees, $1.6 million in contract termination fees and $0.9 of
asset write-offs. The associated employee headcount reductions in connection with the reduction in workforce
since inception were 65 employees. These charges are included in operating expenses in the consolidated
statement of operations. The Company does not expect to incur any additional charges associated with these
actions.

On a cumulative basis, the Company has recorded $11.9 million of restructuring charges in connection
with the acquisition of MSLO, headcount reductions and contract termination costs. The associated employee
headcount reductions in connection with the reduction in workforce since inception were 65 employees. All
restructuring charges incurred are included in operating expenses in the consolidated statement of operations.

There is no restructuring accrual as of December 31, 2017. A restructuring accrual of $1.5 million as of
December 31, 2016 is included in accounts payable and accrued expenses on the consolidated balance sheets.
This accrual included amounts provided for contract termination fees. The Company has paid $10.5 million in
cash related to these initiatives as of December 31, 2017.

F-66

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 18 — RESTRUCTURING − (continued)

Changes in the restructuring accruals during ﬁscal 2017 and 2016 were as follows:

Severance &
Related
Beneﬁts

Contract
Termination
Costs

Professional
Fees

Total Accrual

Balance at January 1, 2016 . . . . . . . . . . . . .
Charges to expense . . . . . . . . . . . . . . . . .
Amounts paid . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2016 . . . . . . . . . . .
Charges to expense . . . . . . . . . . . . . . . . .
Amounts paid . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2017 . . . . . . . . . . .

$ 4,644
1,687
(6,331)
—
—
—
$ —

NOTE 19 — QUARTERLY DATA (UNAUDITED)

(in thousands)
$

$ 1,628
326
(454)
1,500
—
(1,500)
$ —

579
755
(1,334)
—
—
—
$ —

$ 6,851
2,768
(8,119)
1,500
—
(1,500)
$ —

Unaudited quarterly consolidated ﬁnancial information for 2017 and 2016 is summarized as follows:

2017
Net revenue . . . . . . . . . . . . . . . .
Income (loss) from operations . . . .
Income (loss) before income taxes .
. . .
Consolidated net income (loss)
Net (income) loss attributable to

First
Quarter

$39,400
15,992
1,540
955

Second
Quarter

Third
Quarter
(in thousands, except per share data)

Fourth
Quarter(1)

Full Year

$42,144
24,244
7,566
4,451

$ 39,025
(13,551)
(28,574)
(24,732)

$ 46,895
(279,292)
(294,613)
(162,220)

$ 167,464
(252,607)
(314,081)
(181,546)

noncontrolling interests . . . . . . .

(2,135)

(1,921)

552

(668)

(4,172)

Net (loss) income attributable to
Sequential Brands Group, Inc.
and Subsidiaries . . . . . . . . . . . .

Basic (loss) earnings per share:

Attributable to Sequential Brands
Group, Inc. and Subsidiaries . .

Diluted (loss) earnings per share:

Attributable to Sequential Brands
Group, Inc. and Subsidiaries . .

(1,180)

2,530

(24,180)

(162,888)

(185,718)

$ (0.02)

$

0.04

$

(0.38)

$

(2.58)

$ (0.02)

$

0.04

$

(0.38)

$

(2.58)

(1) During the fourth quarter of 2017, the Company recorded a non-cash positive beneﬁt of $132.4 million
due to tax reform impact and non-cash impairment charges of $304.1 million related to the Company’s
goodwill.

F-67

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017, 2016 AND 2015

NOTE 18 — RESTRUCTURING − (continued)

2016
Net revenue . . . . . . . . . . . . . . . .
Income from operations . . . . . . . .
Income before income taxes
. . . . .
Consolidated net income . . . . . . . .
Net income attributable to

First
Quarter

$34,008
12,031
1,434
1,035

Second
Quarter

Third
Quarter
(in thousands, except per share data)

Fourth
Quarter(1)

Full
Year

$34,154
13,234
2,635
1,616

$41,952
21,772
7,180
3,322

$45,414
23,099
4,539
658

$155,528
$ 70,136
$ 15,788
6,631
$

noncontrolling interests . . . . . . .

(2,111)

(1,681)

(2,022)

(1,638)

$ (7,452)

Net income (loss) attributable to
Sequential Brands Group, Inc.
and Subsidiaries . . . . . . . . . . . .

Basic (loss) earnings per share:

Attributable to Sequential Brands
Group, Inc. and Subsidiaries . .

Diluted (loss) earnings per share:

Attributable to Sequential Brands
Group, Inc. and Subsidiaries . .

(1,076)

(65)

1,300

(980)

$

(821)

$ (0.02)

$ (0.00)

$

0.02

$ (0.02)

$ (0.02)

$ (0.00)

$

0.02

$ (0.02)

(1) During the fourth quarter of 2016, the Company recorded an impairment of available-for-sale securities
of $4.4 million and a gain of $0.2 million related to the write-off of acquired assets and estimated
liabilities assumed during certain of the Company’s acquisitions.

F-68

Schedule II — Valuation and Qualifying Accounts
Sequential Brands Group, Inc.
(in thousands)

Description
Reserves and allowance deducted from asset

accounts:

Accounts receivable(a):
Year Ended December 31, 2017 . . . . . . . . . . . . .
Year Ended December 31, 2016 . . . . . . . . . . . . .
Year Ended December 31, 2015 . . . . . . . . . . . . .

Balance at
Beginning of
Period

Additions
Charged to
Costs and
Expenses

Deductions

Balance at End
of Period

$221
$271
$169

$689
$475
$201

$(333)
$(525)
$ (99)

$577
$221
$271

(a) These amounts include reserves for doubtful accounts.

F-69

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Exhibit
Number

2.1

2.2

2.3

2.4

3.1

3.2

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

INDEX TO EXHIBITS

Exhibit Title

Incorporation of Sequential Brands Group,

Agreement and Plan of Merger, dated as of June 22, 2015, by and among Martha Stewart Living
Omnimedia, Inc. (SEC File No. 001-15395) (‘‘MSLO’’), Madeline Merger Sub, Inc., SQBG, Inc.
(previously known as Sequential Brands Group, Inc.) (SEC File No. 001-36082) (‘‘SQBG’’),
Singer Merger Sub., Inc. and Sequential Brands Group, Inc. Incorporated by reference to
Exhibit 2.1 to SQBG’s Current Report on Form 8-K ﬁled on June 22, 2015.*
Letter Agreement, dated as of October 22, 2015, by and among Sequential Brands Group, Inc.,
SQBG, Inc., Martha Stewart Living Omnimedia, Inc., Singer Merger Sub, Inc. and Madeline
Merger Sub, Inc. Incorporated by reference to Exhibit 2.2 to our Registration Statement on
Form S-4/A ﬁled October 22, 2015.
Purchase Agreement, dated as of April 1, 2015, by and among SQBG, With You, Inc., Corny
Dog, Inc., With You LLC and Jessica Simpson. Incorporated by reference to Exhibit 2.1 to
SQBG’s Quarterly Report on Form 10-Q ﬁled May 6, 2015.*
Membership Interest Purchase Agreement, dated as of June 10, 2016, between SBG-Gaiam
Holdings, LLC (formerly known as Stretch & Bend Holdings, LLC), Sequential Brands Group,
Inc. and GAIAM, Inc. Incorporated by reference to Exhibit 2.1 to Sequential Brands Group,
Inc.’s Current Report on Form 8-K ﬁled with the Securities and Exchange Commission on
May 16, 2016.*
Amended and Restated Certiﬁcate of
Inc.
Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K, ﬁled as an 8-K12B,
on December 4, 2015.
Amended and Restated Bylaws of Sequential Brands Group, Inc., effective as of December 4,
2015. Incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K, ﬁled as an
8-K12B, ﬁled on December 4, 2015.
Form of
Registration Statement on Form SB-2 (File No. 333-130930) ﬁled on January 9, 2006.
Preemptive Rights and Board Nominee Agreement by and between Sequential Brands Group,
Inc. (as successor to SQBG) and Tennman WR-T, Inc. effective as of October 1, 2011.
Incorporated by reference to Exhibit 10.9 to SQBG’s Quarterly Report on Form 10-Q ﬁled on
November 21, 2011.
Amended and Restated Employment Agreement, dated as of April 1, 2015, by and between
SQBG and Yehuda Shmidman. Incorporated by reference to Exhibit 10.6 to SQBG’s Quarterly
Report on Form 10-Q ﬁled on May 6, 2015.†
2015 Restricted Stock Unit Award Agreement, dated as of April 14, 2015, by and between SQBG
and Yehuda Shmidman. Incorporated by reference to Exhibit 10.7 to the SQBG’s Quarterly
Report on Form 10-Q ﬁled May 6, 2015.†
Employment Agreement, dated as of June 3, 2014, by and between SQBG and Gary Klein.
Incorporated by reference to Exhibit 10.1 to SQBG’s Quarterly Report on Form 10-Q ﬁled on
August 14, 2014.†
Asset Purchase Agreement, dated as of September 8, 2015, by and among SQBG, Joe’s Jeans
Inc. and Joe’s Holdings LLC. Incorporated by reference to Exhibit 10.1 to SQBG’s Current
Report on Form 8-K ﬁled September 14, 2015.*
Incorporated by reference to
Sequential Brands Group,
Exhibit 10.1 to our Registration Statement on Form S-8 (Registration No. 333-208343) ﬁled on
December 4, 2015.†
2005 Stock Incentive Plan of People’s Liberation. Incorporated by reference to Exhibit 10.2 to
our Registration Statement on Form S-8 (Registration No. 333-208343) ﬁled on December 4,
2015.†

Incorporated by reference to Exhibit 10.12 to SQBG’s

Inc. 2013 Stock Incentive Plan.

Indemnity Agreement.

E-1

Exhibit
Number

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

10.18

10.19

10.20

10.21

Exhibit Title

Registration Rights Agreement, dated as of August 15, 2014, by and between SQBG and Carlyle
Equity Opportunity GP, L.P., as the representative of the former stockholders and optionholders
of Galaxy Brand Holdings, Inc. Incorporated by reference to Exhibit 10.1 to SQBG’s Current
Report on Form 8-K ﬁled on August 18, 2014.
Form of Common Stock Purchase Warrant. Incorporated by reference to Exhibit 10.5 to SQBG’s
Current Report on Form 8-K ﬁled on August 18, 2014.
Registration Rights Agreement, dated as of June 22, 2015, by and among Sequential Brands
Group, Inc., Martha Stewart, Martha Stewart Family Limited Partnership, Alexis Stewart, the
Martha Stewart 1999 Family Trust, the Martha Stewart 2000 Family Trust and the Martha and
Alexis Stewart Charitable Foundation.
Incorporated by reference to Exhibit 10.2 to our
Registration Statement on Form S-4 (File No. 333-205940) ﬁled on July 30, 2015.
Employment Agreement, dated as of June 22, 2015, by and between the Company and Martha
Stewart. Incorporated by reference to Exhibit 99.1 to SQBG’s Current Report on Form 8-K ﬁled
on June 23, 2015.†
Amended and Restated Intellectual Property License and Preservation Agreement, dated as of
June 22, 2015, by and between Martha Stewart and MSLO. Incorporated by reference to
Exhibit 10.2 to Martha Stewart Living Omnimedia, Inc.’s Current Report on Form 8-K ﬁled on
June 23, 2015.†
Amended and Restated Intangible Asset License Agreement, dated as of June 22, 2015, by and
between Lifestyle Research Center, LLC and MSLO. Incorporated by reference to Exhibit 10.3 to
Martha Stewart Living Omnimedia, Inc.’s Current Report on Form 8-K ﬁled on June 23, 2015.†
Assignment and Assumption Agreement, dated as of March 4, 2016, by and between SQBG, Inc.
and Sequential Brands Group, Inc. Incorporated by reference to Exhibit 10.35 to our Annual
Report on Form 10-K ﬁled on March 14, 2016.†
Form of Sequential Brands Group, Inc. 2013 Stock Incentive Compensation Plan Nonqualiﬁed
Stock Option Award Agreement and form of related Notice. Incorporated by reference to
Exhibit 10.35 to our Annual Report on Form 10-K ﬁled on March 14, 2016.†
Form of Sequential Brands Group, Inc. 2013 Stock Incentive Compensation Plan Restricted
Stock Award Agreement and form of related Notice. Incorporated by reference to Exhibit 10.35
to our Annual Report on Form 10-K ﬁled on March 14, 2016.†
Form of Sequential Brands Group, Inc. 2013 Stock Incentive Compensation Plan Performance
Stock Unit Award Agreement. Incorporated by reference to Exhibit 10.35 to our Annual Report
on Form 10-K ﬁled on March 14, 2016.†
Assignment and Assumption Agreement dated as of May 10, 2016, between SBG-Gaiam
Holdings, LLC (formerly known as Stretch & Bend Holdings, LLC), Sequential Brands Group,
Inc. and Fit for Life LLC. Incorporated by reference to Exhibit 10.1 to our Current Report on
Form 8-K ﬁled with the Securities and Exchange Commission on May 16, 2016.
Third Amended and Restated Credit Agreement, dated as of July 1, 2016, between Sequential
Brands Group, Inc., certain subsidiaries of Sequential Brands Group, Inc. named therein, Bank of
America, N.A., as administrative agent and collateral agent and the lenders party thereto.
Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K ﬁled with the
Securities and Exchange Commission on July 7, 2016.
Third Amended and Restated Credit Agreement, dated as of July 1, 2016, between Sequential
Inc. named therein,
Brands Group,
Wilmington Trust, National Association, as administrative agent and collateral agent and the
lenders party thereto. Incorporated by reference to Exhibit 10.3 to our Current Report on
Form 8-K ﬁled with the Securities and Exchange Commission on July 7, 2016.

Inc., certain subsidiaries of Sequential Brands Group,

E-2

Exhibit
Number

10.22

10.23

10.24

21.1+
23.1+
31.1+

31.2+

32.1+

Exhibit Title

Amendment No. 1, dated as of July 1, 2016,
to the Intercreditor Agreement, dated as of
December 4, 2015, between Bank of America, N.A., as administrative agent and collateral agent
and Wilmington Trust, National Association, as administrative agent and collateral agent, and
acknowledged by Sequential Brands Group, Inc. and the guarantors party thereto. Incorporated
by reference to Exhibit 10.4 to our Current Report on Form 8-K ﬁled with the Securities and
Exchange Commission on July 7, 2016.
Employment agreement, dated as of August 22, 2016, by and between Sequential Brands Group,
Inc. and Andrew Cooper. Incorporated by reference to Exhibit 10.1 to Sequential Brands Group,
Inc.’s Current Report on Form 8-K ﬁled with the Securities and Exchange Commission on
August 24, 2016.†
Employment agreement, dated as of March 22, 2017, by and between Sequential Brands Group,
Inc. and Karen Murray. Incorporated by reference to Exhibit 10.1 to Sequential Brands Group,
Inc.’s Current Report on Form 8-K ﬁled with the Securities and Exchange Commission on March
28, 2017.†
Subsidiaries of Sequential Brands Group, Inc.
Consent of Independent Registered Public Accounting Firm.
Certiﬁcation of Principal Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)
and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
Certiﬁcation of Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)
and 15d-14(a) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
Certiﬁcation of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
XBRL Instance Document

101.INS+
101.SCH+ XBRL Taxonomy Extension Schema Document
101.CAL+ XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF+ XBRL Taxonomy Extension Deﬁnition Linkbase Document
101.LAB+ XBRL Taxonomy Extension Label Linkbase Document
101.PRE+ XBRL Taxonomy Extension Presentation Linkbase Document

*

†

+

Pursuant to Item 601(b)(2) of Regulation S-K, the schedules to this agreement have been omitted. The
Registrant undertakes to supplementally furnish a copy of the omitted schedules to the Securities and
Exchange Commission upon request.
Each a management contract or compensatory plan or arrangement required to be ﬁled as an exhibit to
this Annual Report on Form 10-K.
Filed herewith.

E-3

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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

SIGNATURES

Date: March 16, 2018

SEQUENTIAL BRANDS GROUP, INC.

/s/ Karen Murray
By: Karen Murray
Title: Chief Executive Officer (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below

by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name

/s/ Karen Murray
Karen Murray

/s/ Andrew Cooper
Andrew Cooper

/s/ William Sweedler
William Sweedler

/s/ Rodney Cohen
Rodney Cohen

/s/ Al Gossett
Al Gossett

/s/ Aaron Hollander
Aaron Hollander

/s/ Gary Johnson
Gary Johnson

/s/ Stewart Leonard, Jr.
Stewart Leonard, Jr.

/s/ Martha Stewart
Martha Stewart

Title

Date

Chief Executive Officer, Director
(Principal Executive Officer)

March 16, 2018

President and Interim Chief Financial Officer
(Principal Financial and Accounting Officer)

March 16, 2018

Chairman of the Board of Directors

March 16, 2018

March 16, 2018

March 16, 2018

March 16, 2018

March 16, 2018

March 16, 2018

March 16, 2018

Director

Director

Director

Director

Director

Director

S-1

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SUBSIDIARIES OF SEQUENTIAL BRANDS GROUP, INC.

EXHIBIT 21.1

Name

SQBG, Inc.

Sequential Licensing, Inc.
William Rast Licensing, LLC
Heeling Sports Limited
Brand Matter, LLC
SBG Revo Holdings, LLC
SBG FM, LLC
SBG Universe Brands, LLC

Galaxy Brands, LLC

GBT Promotions LLC
Basketball Marketing Company, Inc.

American Sporting Goods Corp.
LNT Brands LLC
Joe’s Holding LLC
DVS Footwear International, LLC

FUL IP Holdings LLC
With You, LLC

Martha Stewart Living Omnimedia, Inc.

Martha Stewart, Inc.
Body & Soul Omnimedia, Inc.
MSO IP Holdings, Inc.
MSLO Productions, Inc.
MSLO Productions − Home, Inc.
MSLO Productions − EDF, Inc.
Flour Productions, Inc.
MSLO Shared IP Sub, LLC
MSLO Emeril Acquisition Sub, LLC
Emeril Primetime Music, Inc.
Emeril Primetime Productions, Inc.
Good Thing Productions, Inc.

SBG-Gaiam Holdings, LLC

Gaiam Brand Holdco, LLC
Gaiam Americas, Inc.
Modern Lotus Ltd
Gaiam Limited (UK)
Gaiam PTY

State of Incorporation

Ownership Percentage

Delaware
California
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware

Delaware
Delaware
Delaware
Connecticut
Delaware
California
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Colorado
United Kingdom
United Kingdom
Australia

100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%

65%, except 60% of distributable
assets upon dissolution

50.5%
62.5%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
49.9%

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent

to the incorporation by reference in the registration statements on Form S-8 (File
No. 333-215508), Form S-3 (File No. 333-208120) and Form S-8 (File No. 333-208343) of Sequential Brands
Group, Inc. of our reports dated March 16, 2018 on our audits of the consolidated ﬁnancial statements and
ﬁnancial statement schedule of Sequential Brands Group, Inc. and Subsidiaries as of December 31, 2017 and
2016 and each of the years in the three-year period ended December 31, 2017, and the effectiveness of
internal control over ﬁnancial reporting of Sequential Brands Group, Inc. and Subsidiaries as of December 31,
2017, included in this Annual Report on Form 10-K of Sequential Brands Group. Inc. for the year ended
December 31, 2017.

/s/ CohnReznick LLP

New York, New York
March 16, 2018

Certiﬁcation of Principal Executive Officer Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

EXHIBIT 31.1

I, Karen Murray, certify that:

1. I have reviewed this Annual Report on Form 10-K of Sequential Brands Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the ﬁnancial statements, and other ﬁnancial information included in this
report, fairly present in all material respects the ﬁnancial condition, results of operations and cash ﬂows of the
registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as deﬁned in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over ﬁnancial reporting (as deﬁned in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

b) Designed such internal control over ﬁnancial reporting, or caused such internal control over
ﬁnancial reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external purposes in
accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over ﬁnancial reporting that
occurred during the registrant’s most recent ﬁscal quarter (the registrant’s fourth ﬁscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect,
the
registrant’s internal control over ﬁnancial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over ﬁnancial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent functions):

a) All signiﬁcant deﬁciencies and material weaknesses in the design or operation of internal control
over ﬁnancial reporting, which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report ﬁnancial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a

signiﬁcant role in the registrant’s internal control over ﬁnancial reporting.

Date: March 16, 2018

/s/ Karen Murray
Karen Murray
Chief Executive Officer

Certiﬁcation of Principal Financial Officer Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

EXHIBIT 31.2

I, Andrew Cooper, certify that:

1. I have reviewed this Annual Report on Form 10-K of Sequential Brands Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the ﬁnancial statements, and other ﬁnancial information included in this
report, fairly present in all material respects the ﬁnancial condition, results of operations and cash ﬂows of the
registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as deﬁned in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over ﬁnancial reporting (as deﬁned in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

b) Designed such internal control over ﬁnancial reporting, or caused such internal control over
ﬁnancial reporting to be designed under our supervision, to provide reasonable assurance regarding the
reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external purposes in
accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over ﬁnancial reporting that
occurred during the registrant’s most recent ﬁscal quarter (the registrant’s fourth ﬁscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect,
the
registrant’s internal control over ﬁnancial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over ﬁnancial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent functions):

a) All signiﬁcant deﬁciencies and material weaknesses in the design or operation of internal control
over ﬁnancial reporting, which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report ﬁnancial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a

signiﬁcant role in the registrant’s internal control over ﬁnancial reporting.

Date: March 16, 2018

/s/ Andrew Cooper
Andrew Cooper
President and Interim Chief Financial Officer

CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

EXHIBIT 32.1

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, in connection with the ﬁling of the Annual Report on Form 10-K for the Year Ended December 31,
2017 (the ‘Report’) by Sequential Brands Group, Inc. (‘Registrant’), the undersigned hereby certify that, to the
best of their knowledge:

1.

2.

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and

The information contained in the Report fairly presents,
condition and results of operations of Registrant.

in all material respects,

the ﬁnancial

Date: March 16, 2018

Date: March 16, 2018

/s/ Karen Murray
Karen Murray
Chief Executive Officer (Principal Executive Officer)

/s/ Andrew Cooper
Andrew Cooper
President and Interim Chief Financial Officer
(Principal Financial and Accounting Officer)

A signed original of this written statement required by Section 906 has been provided to Sequential
Brands Group, Inc. and will be retained by Sequential Brands Group, Inc. and furnished to the Securities and
Exchange Commission or its staff upon request.

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CORPORATE INFORMATION 

Board of Directors 

Karen Murray 
Chief Executive Officer and Secretary 
Sequential Brands Group, Inc. 
Class I Director   

Martha Stewart  
Chief Creative Officer 
Sequential Brands Group, Inc. 
Class I Director   

Gary Johnson (2, 3) 
Chairman, CAN Capital   
Class II Director  

Al Gossett (1, 2, 3) 
President and Chief Executive Officer 
Gossett Motor Cars 
Class III Director  

William Sweedler 
Co-Founder and Managing Partner 
Tengram Capital Partners 
Class I Director, Chairman of the Board 

Rodney S. Cohen 
Managing Director and Co-Head Carlyle 
Growth Partners and Carlyle Equity  
Opportunity Fund 
Class II Director 

Stewart Leonard, Jr. (1, 3) 
President and Chief Executive Officer 
Stew Leonard’s 
Class II Director 

Aaron Hollander (1, 2) 
Chairman, Chief Executive Officer and 
President, First Aviation Services, Inc. 
Class III Director  

1 – Audit Committee Member   2 – Compensation Committee Member   3 – Governance Committee Member 

Management 

Karen Murray 
Chief Executive Officer and Secretary 

Martha Stewart  
Chief Creative Officer 

Corporate Office 

Peter Lops 
Chief Financial Officer 

Andrew Cooper 
President 

Sequential Brands Group, Inc. 
601 West 26th Street, 9th Floor 
New York, NY 10001 
www.sequentialbrandsgroup.com 

Annual Meeting 

Friday June 8, 2018 10:00 a.m. at the Company’s Corporate Office 

Independent Auditors 

CohnReznick LLP 
1301 Avenue of the Americas 
New York, NY 10019 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Transfer Agent   

Computershare Trust Co. N.A. 
Tel.: (877) 373-6374 
Outside U.S. Tel.: (781) 575-2879 

Mailing Addresses: 

Shareholder correspondence should be mailed to: 

Computershare 
Attn: Shareholder Services 
P.O. Box 505000  
Louisville, KY 40233-5000 

Overnight correspondence should be sent to: 

Computershare 
462 South 4th Street  
Suite 1600  
Louisville, KY 40202  

Questions and Inquires via Website: http://www.computershare.com 
Hearing Impaired # TDD: (800) 952-9245 

Information Requests 

A copy of the Company’s Annual Report on Form 10-K, including the 
exhibits thereto, as filed with the Securities and Exchange Commission is 
available free of charge to stockholders either on the Company’s 
website or upon request to: 

Sequential Brands Group, Inc. 
Attn: Investor Relations 
601 West 26th Street, 9th Floor 
New York, NY 10001 
Tel.: (646) 564-2577 

About Sequential Brands Group, Inc. 

Sequential  Brands  Group,  Inc.  (Nasdaq:  SQBG)  owns,  promotes,  markets,  and  licenses  a  portfolio  of 
consumer brands in the fashion, active and home categories.  Sequential seeks to ensure that its brands 
continue  to  thrive  and  grow  by  employing  strong  brand  management,  design  and  marketing 
teams.  Sequential has licensed and intends to license its brands in a variety of consumer categories to 
retailers, wholesalers and distributors in the United States and around the world.  For more information, 
please  visit  Sequential's  website  at: www.sequentialbrandsgroup.com.   To  inquire  about  licensing 
opportunities, please email: newbusiness@sbg-ny.com. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
C O R P O R A T E 
H E A D Q U A R T E R S

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