SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
NAUTICA ENTERPRISES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.10 per share
2) Aggregate number of securities to which transaction applies:
33,985,500 shares of Common Stock and options to purchase an
aggregate of 4,744,750 shares of Common Stock
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined): $17.00
4) Proposed maximum aggregate value of transaction: $600,836,677
5) Total fee paid: $120,167.34
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
[Nautica LOGO] [Date]
Dear Stockholder:
You are cordially invited to attend the special meeting of stockholders
of Nautica Enterprises, Inc., a Delaware corporation ("Nautica"), to be held on
___, 2003, at 10:00 a.m. local time, at the offices of the Company, 40 West 57th
Street, 8th Floor, New York, New York 10019.
At the special meeting you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger, dated as of July
7, 2003, pursuant to which V.F. Corporation, a Pennsylvania corporation, ("VF")
has agreed to acquire Nautica. If Nautica stockholders approve the merger
agreement and the merger is completed, each of your shares of Nautica common
stock will be canceled and converted automatically into the right to receive
$17.00 in cash without interest. The cash you receive in the merger in exchange
for your shares of Nautica common stock will be subject to U.S. federal income
tax and also may be taxed under applicable state, local and foreign tax laws.
Your board of directors, by the unanimous vote of the directors (with
David Chu and Steven Tishman abstaining) at the board meeting called to
consider the merger agreement, has determined that the merger agreement is
advisable, has approved and adopted the merger agreement and recommends that
Nautica stockholders vote "FOR" approval and adoption of the merger agreement.
Mr. Chu abstained due to agreements he independently entered into with VF
relating to VF's purchase of his interests related to the "Nautica" name and
mark and to his future employment by VF. Mr. Tishman abstained due to his
position as Managing Director of Rothschild Inc., which acted as Nautica's
financial advisor in connection with the merger.
The accompanying proxy statement provides you with detailed information
about the proposed merger and the special meeting. Please give this material
your careful attention. You may also obtain more information about Nautica from
documents we have filed with the Securities and Exchange Commission.
Nautica common stock is listed on the National Market System of the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
under the trading symbol "NAUT." On [record date], the closing price of Nautica
common stock on the NASDAQ was $_____ per share.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES OF NAUTICA
COMMON STOCK YOU OWN. BECAUSE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF OUR ISSUED AND
OUTSTANDING SHARES OF COMMON STOCK ENTITLED TO VOTE THEREON, A FAILURE TO VOTE
WILL COUNT AS A VOTE AGAINST THE MERGER. ACCORDINGLY, YOU ARE REQUESTED PROMPTLY
TO VOTE YOUR SHARES BY USING A TOLL-FREE NUMBER OR VIA THE INTERNET AS DESCRIBED
IN THE ENCLOSED PROXY CARD OR BY COMPLETING, SIGNING AND DATING THE PROXY CARD
AND RETURNING IT IN THE ENVELOPE
2
PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. Voting in this
manner will not prevent you from voting your shares in person if you
subsequently choose to attend the special meeting.
Thank you for your cooperation.
Very truly yours,
/s/ Harvey Sanders
Harvey Sanders
Chairman and Chief Executive Officer
THIS PROXY STATEMENT IS DATED ___, 2003, AND IS
FIRST BEING MAILED TO STOCKHOLDERS ON OR ABOUT ___, 2003.
NAUTICA ENTERPRISES, INC.
-------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [DAY] ____, 2003
-------------------
New York, New York
[Date]
To the Stockholders of NAUTICA ENTERPRISES, INC.
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of
Nautica Enterprises, Inc, a Delaware corporation ("Nautica"), will be held on
____, 2003, at 10:00 a.m. local time, at the offices of Nautica, 40 West 57th
Street, 8th Floor, New York, New York 10019 for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of July 7, 2003, by and among Nautica,
V.F. Corporation, a Pennsylvania corporation ("VF"), and Voyager Acquisition
Corporation, a Delaware corporation and a wholly-owned subsidiary of VF. A copy
of the merger agreement is attached as Appendix A to the accompanying proxy
statement. Pursuant to the terms of the merger agreement, Voyager Acquisition
Corporation will merge with and into Nautica, with Nautica continuing as the
surviving corporation and becoming a wholly-owned subsidiary of VF, and each
share of common stock of Nautica, other than those shares held by the
stockholders, if any, who properly exercise their appraisal rights under
Delaware law, will be converted into the right to receive $17.00 in cash without
interest.
2. To transact such other business as may properly come before the
special meeting or any adjournment or postponement of the meeting.
Only stockholders of record at the close of business on [record date]
are entitled to notice of and to vote at the special meeting and at any
adjournment or postponement of the special meeting. All stockholders of record
are cordially invited to attend the special meeting in person. To assure your
representation at the meeting in case you cannot attend, however, you are urged
to vote your shares by using a toll-free number or via the Internet following
the instructions on the enclosed proxy card or by marking, signing, dating and
returning the proxy card as promptly as possible in the postage prepaid envelope
enclosed for that purpose. Any stockholder attending the special meeting may
vote in person even if he or she has returned a proxy card.
Nautica stockholders have the right to dissent from the merger and
obtain payment in cash of the fair value of their shares of common stock under
applicable provisions of Delaware law. In order to perfect and exercise
appraisal rights, stockholders must give written demand for appraisal of their
shares before the taking of the vote on the merger at the special meeting and
must not vote in favor of the merger. A copy of the applicable Delaware
statutory provisions is included as Appendix E to the accompanying proxy
statement, and a summary of these
2
provisions can be found under "Dissenters' Rights of Appraisal" in the
accompanying proxy statement.
The approval and adoption of the merger agreement requires the approval
of the holders of a majority of the outstanding shares of Nautica common stock
entitled to vote thereon. In the event that there are not sufficient votes to
approve the proposed merger at the time of the special meeting, the special
meeting may be adjourned in order to permit further solicitation by Nautica.
By Order of the Board of Directors
/s/ Harvey Sanders
Harvey Sanders
Chairman and Chief Executive Officer
Please do not send your stock certificates at this time. If the merger agreement
is approved and adopted, you will be sent instructions regarding the surrender
of your stock certificates.
TABLE OF CONTENTS
SUMMARY.......................................................................3
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION...................9
THE PARTIES TO THE MERGER....................................................11
THE SPECIAL MEETING OF NAUTICA STOCKHOLDERS..................................12
Time, Place and Purpose of the Special Meeting............................12
Who Can Vote at the Special Meeting.......................................12
Vote Required.............................................................12
Voting By Proxy...........................................................13
THE MERGER...................................................................14
Background of the Merger..................................................14
Nautica's Reasons for the Merger..........................................18
Recommendation of Nautica's Board of Directors............................20
Interests of Nautica's Directors and Executive Officers in the Merger.....20
FAIRNESS OPINIONS DELIVERED TO NAUTICA'S BOARD OF DIRECTORS..................25
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.......................41
REQUIRED REGULATORY APPROVALS AND OTHER MATTERS..............................43
THE MERGER AGREEMENT.........................................................44
The Merger................................................................44
Effective Time of the Merger..............................................44
Consideration to be Received in the Merger................................44
Exchange Procedures.......................................................44
Representations and Warranties............................................45
Conduct of Business Pending the Merger....................................46
No Solicitation of Acquisition Proposals..................................47
Stock Plans and Other Employee Benefits...................................49
Indemnification; Directors' and Officers' Insurance.......................50
Additional Covenants......................................................51
Conditions to Consummation of the Merger..................................52
Termination and the Effects of Termination................................53
Expenses..................................................................55
Amendment and Waiver......................................................56
VOTING AGREEMENT.............................................................57
DAVID CHU AGREEMENTS.........................................................59
Purchase Agreement........................................................59
New Chu Employment Agreement..............................................62
MARKET PRICE OF NAUTICA COMMON STOCK.........................................65
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............66
DISSENTERS' RIGHTS OF APPRAISAL..............................................67
OTHER MATTERS................................................................70
WHERE YOU CAN FIND MORE INFORMATION..........................................71
i
APPENDIX A - Agreement and Plan of Merger
APPENDIX B - Voting Agreement
APPENDIX C-1 -Purchase Agreement
APPENDIX C-2 - Chu Employment Agreement
APPENDIX D-1 - Rothschild Fairness Opinion
APPENDIX D-2 - Bear Stearns Fairness Opinion
APPENDIX E - Delaware General Corporation Law
ii
SUMMARY
This summary does not contain all of the information that is important
to you. You should carefully read the entire proxy statement to fully understand
the merger. The merger agreement is attached as Appendix A to this proxy
statement. We encourage you to read the merger agreement because it is the legal
document that governs the merger.
PROPOSED ACQUISITION (PAGE 14)
o Stockholder Vote. You are being asked to vote to approve and adopt
a merger agreement with respect to a merger in which Nautica will
be acquired by VF.
o Price for Your Stock. As a result of the merger, you will receive
$17.00 in cash, without interest, for each of your shares of
Nautica common stock.
o The Acquiror. VF, a Pennsylvania corporation, is the world's
largest apparel company and a leader in jeanswear, intimate
apparel, workwear and daypacks. Its principal brands include
Lee(R), Wrangler(R), Riders(R), Rustler(R), Vanity Fair(R),
Vassarette(R), Bestform(R), Lily of France(R), Lee Sport(R),
JanSport(R), Eastpak(R), Red Kap(R) and The North Face(R).
BOARD RECOMMENDATION (PAGE 20)
Nautica's board of directors, by the unanimous vote of the directors
(with David Chu and Steven Tishman abstaining), has determined that the merger
agreement is advisable, has approved and adopted the merger agreement and
recommends that Nautica stockholders vote "FOR" approval and adoption of the
merger agreement. See "The Merger -- Recommendation of Nautica's Board of
Directors."
NAUTICA'S REASONS FOR THE MERGER (PAGE 18)
Nautica's board of directors carefully considered the terms of the
proposed transaction and Nautica's strategic alternatives in deciding to enter
into the merger agreement and to recommend that stockholders vote "FOR" approval
and adoption of the merger agreement. Among the considerations were:
o the merger consideration of $17.00 per share in cash, which price
was at the high end of VF's indication of interest range, was
higher than any sales price per share during the preceding 23
months and represented a 58% and 29% premium to the closing prices
of $10.77 and $13.19 on June 10, 2003 and July 3, 2003,
respectively, which are the last trading dates immediately
preceding the first announcements of the Barington Group proxy
solicitation and the merger, respectively;
o the written opinions of Rothschild Inc. ("Rothschild"), Nautica's
financial advisor, and Bear, Stearns & Co. Inc. ("Bear Stearns"),
dated July 6, 2003, delivered to the board of directors, each to
the effect that, as of that date and based upon and subject to the
matters and assumptions stated in the opinions, the merger
4
consideration was fair, from a financial point of view, to the
Nautica stockholders other than VF, Voyager Acquisition Corporation
and the stockholders of Nautica who have signed a voting agreement
with VF (the "public stockholders");
o a review of Nautica's prospects in remaining independent and the
potential for alternative transactions;
o the terms of the merger agreement;
o the independent agreements reached between David Chu and VF
relating to the sale by him of his interests related to the
"Nautica" name and mark;
o the likelihood of closing;
o employee matters; and
o taxability to, and no participation in future growth by,
stockholders.
For more detailed information regarding Nautica's reasons for the
merger, see "The Merger -- Nautica's Reasons for the Merger."
FAIRNESS OPINIONS (PAGE 25)
Each of Rothschild and Bear Stearns delivered to Nautica's board of
directors its written opinion, dated July 6, 2003, to the effect that, as of
that date and based upon and subject to the matters and assumptions stated in
that opinion, the merger consideration of $17.00 in cash per share was fair from
a financial point of view to Nautica's public stockholders. See "Fairness
Opinions Delivered to Nautica's Board of Directors."
VOTING AGREEMENT (PAGE 57)
In connection with the merger, VF, Voyager Acquisition Corporation,
Harvey Sanders, the Harvey Sanders Grantor Retained Income Trust and David Chu
have entered into a voting agreement pursuant to which each of Mr. Sanders, the
Trust and Mr. Chu has agreed, severally and not jointly, to vote all of the
shares of Nautica common stock that he or it owns in favor of approval and
adoption of the merger agreement at the special meeting of stockholders. As of
the record date, there were 3,943,387 of these shares in the aggregate,
representing approximately 11.6% of the outstanding shares of Nautica common
stock. See "Voting Agreement."
A copy of the voting agreement is attached as Appendix B to this proxy
statement.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES (PAGE 41)
The merger will be a taxable transaction to you. For United States
federal income tax purposes, your receipt of cash in exchange for your shares of
Nautica common stock generally may cause you to recognize a gain or loss
measured by the difference, if any, between the cash you receive in the merger
and your tax basis in your shares of Nautica common stock. You
5
should consult your own tax advisor for a full understanding of the merger's tax
consequences that are particular to you. See "Material United States Federal
Income Tax Consequences."
THE SPECIAL MEETING OF STOCKHOLDERS (PAGE 12)
o PLACE, DATE AND TIME. The special meeting will be held at 10:00
a.m. local time at 40 West 57th Street, 8th Floor, New York, New
York 10019, on ___, 2003.
o WHAT VOTE IS REQUIRED FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT. The approval and adoption of the merger agreement
requires the approval of the holders of a majority of the
outstanding shares of Nautica common stock entitled to vote
thereon. The failure to vote has the same effect as a vote against
approval and adoption of the merger agreement. Stockholders who
together own approximately 11.6% of the outstanding shares of
Nautica common stock have already agreed to vote in favor of
approval and adoption of the merger agreement. See "Voting
Agreement."
o WHO CAN VOTE AT THE MEETING. You can vote at the special meeting
all of the shares of Nautica common stock you own of record as of
[record date], which is the record date for the special meeting. If
you own shares that are registered in someone else's name, for
example, a broker, you need to direct that person to vote those
shares or obtain an authorization from them and vote the shares
yourself at the meeting. As of the close of business on [record
date], there were [number outstanding] shares of Nautica common
stock outstanding held by approximately 300 holders of record.
o PROCEDURE FOR VOTING. You can vote your shares by attending the
special meeting and voting in person, by voting by telephone, by
the Internet or by mailing the enclosed proxy card. You may revoke
your proxy at any time before the vote is taken at the meeting. To
revoke your proxy, you must either advise the Secretary of Nautica
in writing, or deliver a new proxy dated after the date of the
proxy being revoked, before your common stock has been voted at the
special meeting, or attend the meeting and vote your shares in
person. Merely attending the special meeting will not constitute
revocation of your proxy.
If your shares are held in "street name" by your broker, you should
instruct your broker on how to vote your shares using the
instructions provided by your broker. If you do not instruct your
broker to vote your shares, it has the same effect as a vote
"AGAINST" approval and adoption of the merger agreement.
See "The Special Meeting of Nautica Stockholders."
DISSENTERS' RIGHTS OF APPRAISAL (PAGE 67)
Delaware law provides you with appraisal rights in the merger. This
means that if you are not satisfied with the amount you are receiving in the
merger, you are entitled to have the value of your shares determined by the
Delaware Court of Chancery and to receive payment based on that valuation. The
ultimate amount you receive as a dissenting stockholder in an
6
appraisal proceeding may be more or less than, or the same as, the amount you
would have received in the merger. To exercise your appraisal rights, you must
deliver a written objection to the merger to Nautica at or before the special
meeting and you must not vote in favor of approval and adoption of the merger
agreement. Your failure to follow exactly the procedures specified under
Delaware law will result in the loss of your appraisal rights. See "Dissenters'
Rights of Appraisal."
NAUTICA STOCK PRICE (PAGE 65)
Shares of Nautica are listed on the National Market System of the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
under the trading symbol "NAUT." On June 10, 2003, which was the last trading
day before the Barrington proxy contest was announced, Nautica common stock
closed at $10.77 per share. On July 3, 2003, which was the last trading day
before we announced the merger, Nautica common stock closed at $13.19 per share.
The average closing stock price of Nautica common stock over the three-month
period ended July 3, 2003 was $11.05 per share. See "Market Price for Nautica
Common Stock."
WHEN THE MERGER WILL BE COMPLETED (PAGE 44)
We are working to complete the merger as soon as possible. We
anticipate completing the merger in September of 2003, subject to receipt of
stockholder approval and satisfaction of other requirements, including the
conditions described immediately below. See "The Merger Agreement -- Effective
Time of the Merger."
CONDITIONS TO COMPLETING THE MERGER (PAGE 52)
The completion of the merger depends on a number of conditions being
satisfied, including the following:
o approval and adoption of the merger agreement by the stockholders
of Nautica in accordance with Delaware law;
o expiration or termination of the Hart-Scott-Rodino waiting period;
o the absence of any legal restraint blocking the merger;
o the satisfaction of all actions or filings with any governmental
authority required to permit the consummation of the merger, the
failure of which to be obtained would be reasonably likely to have
a material adverse effect on Nautica or VF;
o Nautica's and VF's performing in all material respects all
requisite obligations, and the representations and warranties of
each of VF and Nautica being true in all material respects as of
the effective time of the merger;
o no action by the United States Federal Trade Commission or the
United States Department of Justice exists that seeks to restrain
the merger or is reasonably likely to have a material adverse
effect on Nautica or VF;
7
o no federal or state statute is promulgated that is likely to make
illegal or restrain the merger or have a material adverse effect on
Nautica or VF;
o the parties receive all documents reasonably requested from each
other relating to corporate existence and authority to carry out
the merger agreement;
o holders of not more than 12.5% of outstanding shares have demanded
appraisal in accordance with Delaware law; and
o the transaction contemplated by the purchase agreement among VF,
David Chu and David Chu and Company, Inc. shall have closed or will
close substantially contemporaneously with the effective time of
the merger.
If law permits, either Nautica or VF could choose to waive a condition
to its obligation to complete the merger even though that condition has not been
satisfied. See "The Merger Agreement -- Conditions to Consummation of the
Merger."
TERMINATION OF THE MERGER AGREEMENT (PAGE 53)
Nautica and VF can mutually agree at any time to terminate the merger
agreement without completing the merger, even if the stockholders of Nautica
have approved it. Also, under certain circumstances either Nautica or VF can
decide, without the consent of the other, to terminate the agreement prior to
the effective time of the merger, even if the stockholders of Nautica have
approved the merger agreement. See "The Merger Agreement -- Termination and the
Effects of Termination."
Nautica will be required to pay a termination fee of $18 million to VF
if the merger agreement is terminated under certain circumstances. See "The
Merger Agreement -- Termination and the Effects of Termination" and "--
Expenses."
DAVID CHU AGREEMENTS (PAGE 59)
Certain agreements have been entered into between VF and David Chu, a
director and executive officer of Nautica, in connection with the merger.
Nautica is not a party to any of these agreements. VF has entered into a
purchase agreement with Mr. Chu and David Chu and Company, Inc. (the "Chu
Company"), a Delaware corporation wholly-owned by Mr. Chu to which Mr. Chu has
assigned all of his rights and interests relating to the Nautica name and mark.
The purchase agreement provides that VF will acquire all of the Chu Company's
rights related to the "Nautica" trademark, including its rights to receive a
portion of Nautica's net royalty income. Under the purchase agreement, VF will
pay the Chu Company $38 million upon the effective time of the merger and $33
million on each of the third and fourth anniversaries of the effective time. The
Chu Company will also have the right to receive payments in each of the five
successive full fiscal years of VF commencing with the fiscal year ending
January 1, 2005 in the event an annual gross royalty revenue threshold is
exceeded.
Mr. Chu has also entered into an employment and consulting agreement
(the "Chu employment agreement"), which will become effective upon the
completion of the merger and
8
the closing of the purchase under the purchase agreement, providing for Mr. Chu
to serve as the CEO of the Nautica branded wholesale business.
The purchase agreement and Chu employment agreement are attached to
this proxy statement as Appendices C-1 and C-2, respectively. See "David Chu
Agreements."
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER THAT DIFFER FROM
YOUR INTERESTS (PAGE 20)
Some of Nautica's directors and executive officers have interests in
the merger that are different from, or are in addition to, their interests as
stockholders in Nautica. Nautica's board of directors knew about these
additional interests and considered them when it approved and adopted the merger
agreement. See "The Merger -- Interests of Nautica's Directors and Executive
Officers in the Merger."
SHARES HELD BY DIRECTORS AND EXECUTIVE OFFICERS (PAGE 66)
As of [record date], approximately 18.4% of the outstanding shares of
Nautica common stock were beneficially owned by directors and executive officers
of Nautica and its affiliates. Nautica expects all of these shares to be voted
in favor of the proposal to approve and adopt the merger agreement. Certain
stockholders have agreed with VF, pursuant to the voting agreement described
above, to vote their shares, which represent approximately 11.6% of the shares
of Nautica common stock outstanding on the record date, in favor of approval and
adoption of the merger agreement. See "Security Ownership by Certain Beneficial
Owners and Management" and "Voting Agreement."
PROCEDURE FOR RECEIVING MERGER CONSIDERATION (PAGE 44)
VF will appoint an exchange agent to coordinate the payment of the cash
merger consideration following the merger. The exchange agent will send you
written instructions for surrendering your certificates and obtaining the cash
merger consideration after we have completed the merger. Do not send in your
Nautica share certificates now. See "The Merger Agreement -- Exchange
Procedures."
QUESTIONS
If you have additional questions about the merger or other matters
discussed in this proxy statement after reading this proxy statement, you should
contact:
Nautica Enterprises, Inc.
40 West 57th Street
New York, NY 10019
Attention: Vice President-Investor Relations
Telephone: (212) 541-5757
9
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This proxy statement, and the documents to which we refer you in this
proxy statement, contain forward-looking statements based on estimates and
assumptions. Forward-looking statements include information concerning possible
or assumed future results of operations of each of VF and Nautica as well as
information relating to the merger. There are forward-looking statements
throughout this proxy statement, including, among others, under the headings
"Summary," "The Merger" and "Fairness Opinions Delivered to Nautica's Board of
Directors," and in statements containing the words "believes," "expects,"
"anticipates," "intends," "estimates" or other similar expressions. For each of
these statements, Nautica claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.
You should be aware that forward-looking statements involve known and
unknown risks and uncertainties. Although we believe that the expectations
reflected in these forward-looking statements are reasonable, we cannot assure
you that the actual results or developments we anticipate will be realized, or
even if realized, that they will have the expected effects on the business or
operations of each of Nautica and VF. These forward-looking statements speak
only as of the date on which the statements were made.
In addition to other factors and matters contained or incorporated in
this document, we believe the following factors could cause actual results to
differ materially from those discussed in the forward-looking statements:
o financial performance of each of VF and Nautica through completion
of the merger;
o volatility in the stock markets;
o the timing of, and regulatory and other conditions associated with,
the completion of the merger;
o intensified competitive pressures in the markets in which we
compete;
o risks associated with other consolidations, restructurings or other
ownership changes in the retail or apparel industry;
o the loss of key employees;
o general economic conditions;
o the risk that Nautica will experience operational difficulties with
its distribution facility;
o the overall level of consumer spending on apparel;
o dependence on sales to a limited number of large department store
customers;
o risks related to extending credit to customers;
10
o actions of existing or new competitors and changes in economic,
political or health conditions in the markets where Nautica sells
or sources its products, including with respect to SARS;
o downturn or generally reduced shopping activity caused by public
safety concerns;
o changes in trends in the market segments in which Nautica competes;
o risks associated with uncertainty relating to Nautica's ability to
launch, support and implement new product lines;
o changes in the costs of raw materials, labor and advertising;
o the ability to secure and protect trademarks and other intellectual
property rights;
o the risk that the cost of transitioning the Nautica Europe business
to licensing or other key arrangements will be more than
anticipated or that Nautica will not be able to negotiate
acceptable terms; and
o the impact that any labor disruption at Nautica's ports of entry
could have on timely product deliveries.
11
THE PARTIES TO THE MERGER
NAUTICA ENTERPRISES, INC. Nautica is a Delaware corporation with its
executive offices located at 40 West 57th Street, New York, New York 10019. Its
telephone number is (212) 541-5757. Through its subsidiaries, Nautica designs,
sources, markets and distributes apparel under the following brands: Nautica;
Nautica Competition; Nautica Jeans Company; Earl Jean; John Varvatos; E.
Magrath; and Byron Nelson. Nautica's subsidiaries include:
o Nautica Apparel, Inc., headquartered in New York, a licensing
company for a wide range of products, including men's athletic
footwear, accessories and fragrance;
o Nautica International, Inc., headquartered in New York, a
wholesaler of men's brand name sportswear and outerwear;
o Nautica Retail USA, Inc., headquartered in New York, a retailer of
full price and outlet stores for Nautica's brand name men's
apparel;
o Nautica Furnishings, Inc., headquartered in New York, a wholesaler
of men's robes and sleepwear collections;
o Nautica Jeans Company, headquartered in New York, a designer,
manufacturer, distributor and marketing company for men's and
women's denim and related apparel;
o Earl Jean, Inc., headquartered in New York, a designer,
manufacturer, wholesaler and retailer of women's jeanswear and
related apparel;
o John Varvatos Company, headquartered in New York, a manufacturer of
men's sportswear; and
o The E. Magrath Apparel Company, headquartered in Texas, a
manufacturer and retailer of golf sportswear collections.
V.F. CORPORATION. VF is a Pennsylvania corporation with its principal
place of business and principal office at 105 Corporate Center Boulevard,
Greensboro, North Carolina, 27408. Its telephone number is (336) 424-6000. VF's
common shares are listed on the New York Stock Exchange under the trading symbol
"VFC."
VF is the world's largest apparel company and a leader in jeanswear,
intimate apparel, workwear and daypacks. Its principal brands include Lee(R),
Wrangler(R), Riders(R), Rustler(R), Vanity Fair(R), Vassarette(R), Bestform(R),
Lily of France(R), Lee Sport(R), JanSport(R), Eastpak(R), Red Kap(R) and The
North Face(R).
12
THE SPECIAL MEETING OF NAUTICA STOCKHOLDERS
TIME, PLACE AND PURPOSE OF THE SPECIAL MEETING
The special meeting will be held on ___________, 2003 at 10:00 a.m.
local time at 40 West 57th Street, 8th Floor, New York, New York 10019. The
purpose of the special meeting is to consider and vote on the proposal to
approve and adopt the merger agreement.
Nautica's board of directors has, by the unanimous vote of the
directors (with Messrs. Chu and Tishman abstaining), determined that the merger
agreement is advisable, has approved and adopted the merger agreement and
recommends that Nautica stockholders vote "FOR" approval and adoption of the
merger agreement.
WHO CAN VOTE AT THE SPECIAL MEETING
The holders of record of Nautica common stock as of the close of
business on [record date], which is the record date for the special meeting, are
entitled to receive notice of and to vote at the special meeting. If you own
shares that are registered in someone else's name, for example, a broker, you
need to direct that person to vote those shares or obtain an authorization from
them and vote the shares yourself at the meeting. On the record date, there were
[number outstanding] shares of Nautica common stock outstanding held by
approximately 300 holders of record.
VOTE REQUIRED
The approval and adoption of the merger agreement requires the
affirmative vote of the holders of a majority of the outstanding shares of
Nautica common stock entitled to vote. Each share of common stock is entitled to
one vote. Failure to vote your proxy by telephone or by the Internet, to return
a properly executed proxy card or to vote in person will have the same effect as
a vote "AGAINST" approval and adoption of the merger agreement. Stockholders who
together own approximately 11.6% of the outstanding shares of Nautica common
stock have already agreed to vote in favor of approval and adoption of the
merger agreement.
See "Voting Agreement."
Under the rules of the New York Stock Exchange, brokers who hold shares
in street name for customers have the authority to vote on "routine" proposals
when they have not received instructions from beneficial owners. However,
brokers are precluded from exercising their voting discretion with respect to
the approval of non-routine matters such as the approval and adoption of the
merger agreement and, as a result, absent specific instructions from the
beneficial owner of such shares, brokers are not empowered to vote those shares,
referred to generally as "broker non-votes." Abstentions and broker non-votes
will be treated as shares that are present and entitled to vote at the special
meeting for purposes of determining whether a quorum exists and will have the
same effect as votes "AGAINST" approval and adoption of the merger agreement.
The holders of a majority of the outstanding shares of Nautica common
stock entitled to be cast as of the record date, represented in person or by
proxy, will constitute a quorum for purposes of the special meeting. A quorum is
necessary to hold the special meeting. Once a
13
share is represented at the special meeting, it will be counted for the purpose
of determining a quorum and any adjournment of the special meeting, unless the
holder is present solely to object to the special meeting. However, if a new
record date is set for an adjourned meeting, then a new quorum will have to be
established.
VOTING BY PROXY
This proxy statement is being sent to you on behalf of the board of
directors of Nautica for the purpose of requesting that you allow your shares of
Nautica common stock to be represented at the special meeting by the persons
named in the enclosed proxy card. All shares of Nautica common stock represented
at the meeting by proxies voted by telephone or the Internet or by properly
executed proxy cards will be voted in accordance with the instructions indicated
on that proxy. If you vote by telephone or by the Internet or you sign and
return a proxy card without giving voting instructions, your shares will be
voted as recommended by Nautica's board of directors. The board recommends a
vote "FOR" approval and adoption of the merger agreement.
The persons named in the proxy card will use their own judgment to
determine how to vote your shares regarding any matters not described in this
proxy statement that are properly presented at the special meeting. Nautica does
not know of any matter to be presented at the meeting other than the proposal to
approve and adopt the merger agreement.
You may revoke your proxy at any time before the vote is taken at the
meeting. To revoke your proxy, you must either advise the Vice
President-Investor Relations of Nautica in writing, deliver a proxy dated after
the date of the proxy you wish to revoke, submit a new proxy by telephone or by
the Internet or attend the meeting and vote your shares in person. Merely
attending the special meeting will not constitute revocation of your proxy.
If your Nautica common stock is held in street name, you will receive
instructions from your broker, bank or other nominee that you must follow to
have your shares voted. Your broker or bank may allow you to deliver your voting
instructions via telephone or the Internet.
Nautica will pay the cost of this proxy solicitation. In addition to
soliciting proxies by mail, directors, officers and employees of Nautica may
solicit proxies personally and by telephone. None of these persons will receive
additional or special compensation for soliciting proxies. Nautica will, upon
request, reimburse brokers, banks and other nominees for their expenses in
sending proxy materials to their customers who are beneficial owners and
obtaining their voting instructions. Nautica has engaged Mellon Investor
Services LLC to assist in the solicitation of proxies for the meeting and will
pay Mellon Investor Services LLC a fee of approximately $7,000, plus
reimbursement of out-of-pocket expenses. The address of Mellon Investor Services
LLC is P.O. Box 3315, South Hackensack, NJ 07606. Mellon Investor Services LLC's
telephone number is (800) 370-1163.
14
THE MERGER
The discussion of the merger in this proxy statement is qualified by
reference to the merger agreement, the voting agreement, the purchase agreement,
and the Chu employment agreement, which are attached to this proxy statement as
Appendices A, B, C-1 and C-2, respectively. You should read each agreement
carefully.
BACKGROUND OF THE MERGER
Nautica's senior management team has periodically reviewed and assessed
various business trends and conditions impacting Nautica and the apparel
business generally and has regularly updated the Nautica board of directors
regarding these matters. From time to time, Nautica's senior management also has
reviewed with its board of directors the range of strategic options potentially
available to Nautica, including the status of Nautica's three-phase growth
program. The first phase, which began several years ago, included putting in
place initiatives to improve operational efficiencies. The second phase, which
began last year, entails reviewing Nautica's product lines in order to improve
performance, including refining its men's sportswear business, moving its Earl
Jean business to new headquarters and consolidating functions, reducing direct
sale and wholesale presence in Europe and exploring improvements to Nautica's
Rockefeller Plaza flagship store, among other initiatives. In particular, the
board of directors and management set a specific timeline for evaluating certain
of Nautica's underperforming smaller businesses. The third phase, involving
long-term growth, consists of focusing on sales growth and improving
profitability of established brands. This three-phase strategy has been
implemented in the face of certain adverse trends, including a generally
difficult retail environment, continued underperformance of Nautica's men's
sportswear business due to, among other things, competitive pressures at the
department store level and other business challenges and reduced consumer
traffic in outlet malls due to the continued sluggish economy.
In this context, in late April 2003, Harvey Sanders, the Chairman and
Chief Executive Officer of Nautica, received an unsolicited telephone call from
Mackey McDonald, the Chief Executive Officer of VF. During the call, Mr.
McDonald expressed a general interest in VF possibly acquiring Nautica. On May
6, 2003, Mr. Sanders telephoned Mr. McDonald and indicated that Nautica would be
interested in discussing a possible acquisition of Nautica by VF. During the
call, a follow-up video conference meeting was scheduled for May 8, 2003.
On May 8, 2003, a video conference meeting took place among Steven
Tishman (a member of the board of directors of Nautica), Mr. McDonald and
certain of VF's senior management team to discuss certain general business and
financial matters concerning Nautica. At the end of the meeting, Mr. McDonald
expressed his interest in learning more about Nautica. A meeting in New York
City involving Messrs. McDonald and Sanders was scheduled for May 20, 2003 and
the execution of a confidentiality agreement was discussed.
On May 20, 2003, Messrs. Sanders and Tishman met with Mr. McDonald and
Eric Wiseman, Vice President of VF and the Chairman of its Global Intimate
Apparel Division, to further discuss the business and operations of Nautica. On
May 27, 2003, Nautica and VF executed a confidentiality agreement.
During the period from May 27 through June 5, 2003, Mr. Sanders, Wayne
Marino, Nautica's Chief Financial Officer, and Mr. Tishman continued discussions
on behalf of Nautica
15
with management and other representatives of VF regarding the advantages and
potential terms of a business combination. The discussions included a number of
requests by VF for financial and other information and a series of video
conferences, telephone conferences and in-person meetings among Messrs. Sanders,
Marino and Tishman and management and other representatives of VF. During this
period of continued discussions and based on VF's efforts, on or about June 5,
2003, Mr. McDonald advised Nautica of an indication of interest range of $15.00
to $17.00 per share, subject to completion of due diligence, execution of
definitive agreements and other work by VF. In addition, Mr. McDonald requested
access to additional senior management of Nautica for further due diligence
purposes.
On June 6, 2003, Mr. Sanders received a letter from Barington Companies
Equity Partners, L.P. that it and certain other parties, which are collectively
referred to in this document as the "Barington Group", intended to, among other
proposals, nominate three persons to be elected as directors at Nautica's 2003
annual meeting of stockholders scheduled to be held on July 8, 2003.
On June 10, 2003, Mr. Sanders told the board of directors of Nautica of
the preliminary discussions between Nautica and VF. He advised the board of
directors of events that had transpired, including the indication of interest
range, subject to VF's satisfactory completion of due diligence, execution of
definitive agreements and other work. Following discussions, Nautica's board of
directors authorized Mr. Sanders to move forward with the discussions and
provide VF with additional financial and other information. At the same meeting,
Mr. Sanders advised the board of directors of the Barington Group letter. That
same day, the Barington Group filed with the Securities and Exchange Commission
a preliminary proxy statement relating to its proposals to be considered
at Nautica's annual meeting. From time to time thereafter, the Barington Group
and Nautica made public disclosures and SEC filings relating to the proxy
contest, including the announcement by the Barington Group on June 20, 2003 that
one of its nominees was withdrawn from consideration.
During the period from June 10 through July 6, 2003, VF delivered to
Nautica further detailed requests for operational, financial and legal due
diligence items. In response, Nautica consolidated the requested information in
a data room and representatives of VF reviewed the information. During this
period, numerous in-person and telephone conferences took place between
management and other representatives of Nautica and VF. As more detailed due
diligence continued, Messrs. Sanders and Tishman communicated to VF and its
investment bankers the requirement that VF's ultimate price be at the high end
of its indication of interest range. Throughout this period, in addition to the
board meetings held during the period, Mr. Sanders informally advised board
members from time to time as to certain developments with respect to both VF and
the Barington Group.
On June 20, 2003, Nautica announced in a press release and filing with
the SEC that it was engaged in discussions with respect to the possible
acquisition of Nautica. Subsequent to such announcement, neither Nautica nor any
of its advisors received any third party offers or bona fide indications of
interest with respect to any alternative transactions.
Also during this period, independently of the board of directors and
management of Nautica, David Chu negotiated, on his own behalf, directly with VF
with respect to Mr. Chu's interests relating to the "Nautica" name and mark and
his employment by Nautica following an acquisition of Nautica by VF. On June 12,
2003, Mr. Chu met Mr. McDonald for the first time
16
and discussed the potential transaction and the possible role that Mr. Chu might
continue to have with Nautica. From June 21 through June 26, 2003, Mr. Chu and
his counsel had discussions with Mr. McDonald and a representative of Citigroup
Global Markets Inc., the financial advisor to VF, regarding the principal terms
of both a sale by Mr. Chu of his rights relating to the "Nautica" name and mark
and his continuing employment by Nautica following an acquisition. Thereafter,
through July 6, 2003, Mr. Chu's counsel and counsel to VF exchanged drafts and
negotiated the specific terms of the purchase agreement and the Chu employment
agreement executed on July 7, 2003. See "David Chu Agreements."
On June 27, 2003, Nautica advised VF of its updated financial forecast
for Nautica's fiscal year ending in 2004. On or about this date, Mr. Marino had
a teleconference with certain representatives of VF, to discuss the recent
forecast. This discussion included the impact of the forecast on Nautica's
fiscal year ending in 2004. In light of the progress of discussions, on or about
June 27, 2003, Nautica authorized its counsel to respond to drafts of the merger
agreement and related legal documents in connection with a proposed transaction
that had been furnished by counsel to VF. From that date, drafts of the legal
documents were repeatedly negotiated, revised and distributed.
On June 28, 2003, with others participating by phone, Mr. McDonald, a
representative of Citigroup Global Markets Inc., and a partner in Davis Polk &
Wardwell, VF's counsel, met with Messrs. Sanders, Marino and Tishman as well as
a partner in Hughes Hubbard & Reed LLP, Nautica's counsel, and Roger Kimmel,
Vice Chairman of Rothschild, Inc. In the meeting, VF indicated that its current
indicative price for Nautica, based upon its analysis of all information and the
recent forecast, was in the middle of the indication of interest range
previously stated by VF. In response, Mr. Sanders advised VF's representatives
that he could not recommend proceeding with a business combination unless VF's
indicative price was at least $17 per share, which was at the highest end of the
indication of interest range. In reply, Mr. McDonald stated that assuming
favorable direct discussions by VF with Nautica's retail customers and division
Presidents, VF might be able to reach a price at the highest end of the
indication of interest range. Mr. Sanders indicated willingness to grant VF
permission to conduct direct discussions with certain of Nautica's retail
customers.
On July 1, 2003, following VF's due diligence calls to certain of
Nautica's retail customers and its further review of Nautica's products at
Nautica's New York showrooms, among other things, VF raised its indication of
interest to the highest end of the proposed range, subject to its direct access
to Nautica's divisional Presidents, completion of remaining due diligence
matters, resolution of remaining issues in the proposed merger agreement and
other legal documents, and approval by VF's board of directors, among other
things. On July 1, 2003 and July 2, 2003, upon authorization from Mr. Sanders,
senior management of VF met with division Presidents of Nautica.
On July 2, 2003, the Nautica board of directors met in person with all
members present to discuss, among other things, the status of the proposed
transaction with VF. At the meeting, the board of directors, with Mr. Tishman
recused, approved the engagement of Rothschild as Nautica's financial advisor in
connection with the merger (including with respect to providing a fairness
opinion) and as co-advisor with respect to Nautica's ongoing proxy contest and
approved the engagement of Bear Stearns with respect to providing a fairness
opinion in connection with the merger and as co-advisor with respect to
Nautica's ongoing proxy contest. During that meeting, the board of directors
received
17
o a review of certain fiduciary duties of the board from Hughes
Hubbard & Reed LLP;
o an update from Nautica's senior management as to the status of
negotiations;
o a description by and preliminary document drafts from counsel to
Mr. Chu as to the proposed terms reached between Mr. Chu and VF
with respect to, among other things, the sale by Mr. Chu and his
wholly-owned company, David Chu and Company, Inc., of their rights
related to the "Nautica" name and mark and his post-transaction
employment by VF;
o a detailed preliminary presentation from representatives of
Rothschild (other than Mr. Tishman), Nautica's financial advisor,
which, along with Bear Stearns, had been engaged to provide a
fairness opinion to Nautica in connection with a transaction, which
presentation outlined and discussed the financial terms of the
proposed transaction with VF pursuant to preliminary written
financial analyses that were previously distributed to the board at
the meeting; and
o a presentation from Hughes Hubbard & Reed LLP as to the principal
terms of the proposed merger agreement and certain other legal
documents to be signed by Nautica in connection with the proposed
transaction (the current drafts of which had been distributed to
the board prior to the meeting) and certain other matters.
At the conclusion of the meeting, the board of directors agreed that, assuming
negotiations continued favorably as to remaining issues, it would meet on July
6, 2003 to further consider the proposed transaction.
On July 4, 2003, the members of the board of directors received a
complete set of draft legal and financial documentation relating to the proposed
merger to be reviewed by them in connection with the scheduled July 6, 2003
meeting of the board.
On July 6, 2003, Nautica's board of directors met in person with all
members present to consider the proposed transaction. The board received
presentations from Nautica's counsel, Hughes Hubbard & Reed LLP and Latham &
Watkins LLP, special counsel to Nautica, as to the board members' fiduciary
duties, including in the context of the proposed merger. Due to the proposed
agreements between Mr. Chu and VF, Mr. Chu abstained from discussions and voting
with respect to the merger agreement and the transactions contemplated thereby.
Due to Mr. Tishman's position as Managing Director of Rothschild, which is
eligible to earn fees contingent on the completion of the merger, he abstained
from voting with respect to the merger agreement and the transactions
contemplated thereby. Mr. Sanders updated the board as to the status of
negotiations. Also, final detailed presentations were made by representatives of
Rothschild (other than Mr. Tishman) and by representatives of Bear Stearns as to
their firms' respective financial analyses as described below under "Fairness
Opinions
18
Delivered to Nautica's Board of Directors." In connection with these
presentations, the board received the oral opinion from each of Rothschild and
Bear Stearns, later confirmed by delivery of written opinions dated July 6,
2003, that as of that date and subject to the matters and assumptions set forth
in the opinions, the $17.00 per share cash consideration to be received in the
merger by Nautica's public stockholders was fair from a financial point of view
to such stockholders. In addition, Hughes Hubbard & Reed LLP reviewed with the
board in detail the terms of the merger agreement, voting agreement, change in
control agreements (see "-- Interests of Nautica's Directors and Executive
Officers in the Merger") and the amendment to Nautica's existing rights
agreement. Counsel to Mr. Chu also presented to the board of directors a summary
of the principal terms of Mr. Chu's and Chu Company's proposed agreements with
VF and answered questions from the board regarding the proposed agreements,
whereupon Mr. Chu and his counsel departed the meeting and Hughes Hubbard & Reed
LLP also discussed those agreements with the board of directors. Following the
return to the meeting of Mr. Chu and his counsel, Nautica's legal and financial
advisors answered questions from the board about the proposed merger and related
transactions, and, after further discussion, the board first approved the change
in control agreements, then approved the amendment to Nautica's rights agreement
excepting the merger and took actions necessary to exempt the merger agreement
and the other agreements contemplated thereby from certain antitakeover
provisions under Delaware law and then approved the merger agreement. On the
same day, the boards of directors of VF and Voyager Acquisition Corporation met
and approved the merger.
On July 7, 2003, the parties finalized and signed the definitive merger
agreement and other transaction documents and issued press releases announcing
the merger. Nautica's press release included an announcement that, in light of
the merger announcement, its annual meeting of stockholders was postponed to a
later date. On the afternoon of July 7, the Barington Group announced that it
was discontinuing its proxy contest.
As discussed above, the John Varvatos Company, which we refer to as
the "JV Company," was one of Nautica's underperforming smaller businesses being
evaluated by Nautica's board of directors and management. Following those
discussions, management retained a valuation firm to evaluate the JV Company in
order to better inform Nautica as to possible alternatives with respect thereto.
VF, upon its announcement of the merger, publicly stated that it has not yet
decided what actions, if any, it intends to take relating to the JV Company. Mr.
Sanders and Mr. Varvatos have each indicated to VF that, in the event that it
decides to sell the JV Company, they might be interested in discussing the
possibility of a post-merger transaction. Notwithstanding such indications of
interest, no proposals regarding the terms of any such transaction have been
made by any party and there is no arrangement or understanding that any such
proposals will be made or considered. See "Existing Transition and Employment
Agreements" for a discussion of, among other things, Mr. Varvatos' rights with
respect to the JV Company.
NAUTICA'S REASONS FOR THE MERGER
Nautica's board of directors consulted with senior management and
Nautica's financial and legal advisors and considered a number of factors,
including those set forth below, in reaching its decision to approve the merger
agreement and the transactions contemplated by the merger agreement, and to
recommend that Nautica's stockholders vote "FOR" approval and adoption of the
merger agreement.
o Merger Consideration. Nautica's board of directors considered the
$17.00 per share cash consideration that the stockholders will
receive if the merger is consummated and the likelihood that it
will deliver greater value to the stockholders than might be
expected if Nautica remained independent. The board
19
considered that the $17 per share price was at the high end of VF's
indication of interest range, was higher than any sales price per
share during the preceding 23 months and represented a 58% and 29%
premium to the closing prices of $10.77 and $13.19 on June 10, 2003
and July 3, 2003, respectively, which are the dates immediately
preceding the first announcements of the Barington Group proxy
solicitation and the merger, respectively.
o Fairness Opinions. Nautica's board of directors considered the
presentations made by Rothschild, Nautica's financial advisor, and
by Bear Stearns discussed further under "Fairness Opinions
Delivered to Nautica's Board of Directors," and Rothschild's and
Bear Stearns' oral opinions, subsequently confirmed by delivery of
written opinions dated July 6, 2003, to the effect that, as of that
date and subject to the matters and assumptions stated in the
opinions, the merger consideration to be received by Nautica's
public stockholders was fair, from a financial point of view, to
such stockholders. The full text of these opinions are attached to
this proxy statement as Appendices D-1 and D-2.
o Review of Prospects in Remaining Independent. Nautica's board of
directors considered Nautica's financial condition, results of
operations and business and earnings prospects if it were to remain
independent in light of the relevant factors, including the
progress of Nautica's three-stage strategy, various adverse apparel
and retail industry conditions, the consolidation and other
developments occurring in the apparel industry, and also considered
the potential availability of alternative transactions.
o Terms of the Merger Agreement. The Nautica board of directors
considered the terms of the merger agreement, including the terms
relating to termination of the merger agreement and the terms of
the voting agreement. The board of directors noted that the voting
agreement and the termination payment provisions of the merger
agreement could have the effect of discouraging alternative
proposals for a business combination between Nautica and a third
party but that such provisions are customary for transactions of
this size and type. The board of directors also noted that the
merger agreement (i) permits Nautica and its board to respond to a
bona fide acquisition proposal that the board determines is
reasonably likely to result in a superior proposal; provided that
Nautica would be required to pay VF a fee of $18 million if it
terminates the merger agreement to enter into an alternative
transaction and also in certain other circumstances, and (ii) does
not contain any financing contingency provisions.
o David Chu Agreements. The board of directors considered the
circumstances of the proposed David Chu Agreements. It noted that
these agreements had been negotiated independently among the
parties thereto, which did not include Nautica or its counsel, and
that compliance by Mr. Chu and the Chu Company with these
agreements are a material condition to VF's obligations to
consummate the merger, which condition is not in the control of
Nautica. It further noted that the indication of interest range was
determined by VF before Mr. Chu had his initial contact with VF
with respect to the David Chu Agreements. See "David Chu
Agreements."
20
o Likelihood of Closing. The board of directors considered the
limited nature of the closing conditions included in the merger
agreement, including the likelihood that the merger would be
approved by requisite regulatory authorities and that the merger
agreement would be approved and adopted by Nautica's stockholders.
o Employee Compensation and Benefits. The board considered that
certain directors and officers of Nautica may receive certain
benefits different from those of stockholders as described under
"-- Interests of Nautica's Officers and Directors in the Merger."
o Taxability; No Participation in Future Growth. The board of
directors also considered that the merger will be a taxable
transaction to Nautica's stockholders and that because Nautica
stockholders are receiving cash for their stock, they will not
participate in the future growth of either Nautica or VF.
The foregoing discussion of the information and factors considered by
Nautica's board of directors, while not exhaustive, includes the material
factors considered by the board of directors. In view of the variety of factors
considered in connection with its evaluation of the merger, Nautica's board of
directors did not find it practicable to, and did not, quantify or otherwise
assign relative or specific weight or values to any of these factors, and
individual directors may have given different weights to different factors.
RECOMMENDATION OF NAUTICA'S BOARD OF DIRECTORS
After careful consideration, Nautica's board of directors has, by the
unanimous vote of the directors (with Messrs. Chu and Tishman abstaining),
determined that the merger agreement is advisable, has approved and adopted the
merger agreement and recommends that Nautica stockholders vote "FOR" approval
and adoption of the merger agreement.
INTERESTS OF NAUTICA'S DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
Some of Nautica's directors and executive officers have interests in
the merger that are different from, or are in addition to, their interests as
stockholders in Nautica. Nautica's board of directors knew about these
additional interests and considered them when they approved the merger
agreement. These interests include the following:
Retention Bonus Pool. Some officers and key employees, as determined by
senior management of Nautica, will be eligible to receive a retention bonus
payment from a $450,000 retention bonus pool, which will be payable at the
effective time of the merger.
Supplemental Fees to Specified Directors. The board of directors
approved (with all recipient directors abstaining) a $25,000 supplemental
director fee to each of Israel Rosenzweig, Robert B. Banks and Ronald G. Weiner
in consideration of, among other things, such director's significant time and
effort devoted to Nautica in connection with the merger agreement and the
transactions
21
contemplated thereby. In addition, the merger agreement provides for
reimbursement of expenses and per diem payments of $3,000 per day, under certain
circumstances, for certain time and effort that may be devoted by them with
respect to certain indemnified proceedings, if any.
Stock Options. Some of the officers and directors of Nautica hold
unvested stock options to purchase shares of common stock of Nautica. At or
immediately prior to the effective time of the merger, such options, as well as
any outstanding vested options, whether or not exercisable or vested, will be
cancelled and, promptly after the effective time, VF will pay or will cause the
surviving corporation to pay to each option holder for each option an amount in
cash, determined by the excess of the merger consideration over the applicable
exercise price of the option multiplied by the number of shares of common stock
each holder could have purchased (assuming full vesting of all options) had such
holder exercised such option in full immediately prior to the effective time. In
the case of any option granted under the Nautica Enterprises, Inc. 1996 Stock
Incentive Plan (Amended and Restated) if the "change of control price" (as
defined under the plan) is higher than the merger consideration, such change of
control price shall be substituted for the merger consideration in the preceding
sentence. The aggregate amount of cash to be paid to option holders in
connection with the merger is expected to be approximately $23.1 million, or
approximately $14.6 million after giving effect to the tax benefits relating
thereto.
New Change of Control Agreements. On July 6, 2003, Nautica's board of
directors approved change of control agreements with Paulette McCready Pipher
(President of Nautica Jeans Company and Nautica Children's Company, wholly-owned
subsidiaries of Nautica) and Wayne Marino (Nautica's Chief Financial Officer).
The agreement with Ms. McCready Pipher and the agreement with Mr. Marino provide
that in the event of a termination of employment within two years after a change
of control (as defined in the agreement) of Nautica, including the merger, (i)
by Nautica for any reason other than for cause (as defined in the agreement) or
other than on account of the employee's death, permanent disability or
retirement or (ii) by the employee for good reason (as defined in the
agreement), in which case the employee must provide a proposed notice of such
termination within 90 days of the occurrence of the basis for such good reason
termination, the employee will be entitled to receive the following:
o payment in cash in the amount of two times the annual
base salary in effect immediately before the change of control or
immediately before the date of termination, whichever is greater;
o payment in cash in the amount of fifty percent of the highest
annual bonus during the preceding three years;
o for a period of 24 months following termination, continuation of
health and welfare benefits substantially comparable to the
coverage provided by Nautica immediately prior to the change of
control for active employees of equivalent rank;
o for a period of 24 months following termination, continuation of
perquisites substantially comparable to the perquisites provided by
Nautica to the employee immediately prior to the change of control
or, at the option of Nautica, payment in cash equal to two-thirds
of the cost (without discount for present
22
value) of providing the continuation of such perquisites;
o with respect to Mr. Marino, for a period of 24 months following
termination, continuation of any housing allowance substantially
comparable to the housing allowance provided by Nautica to Mr.
Marino immediately prior to the change of control or, at the option
of Mr. Marino, payment in cash equal to two-thirds of
the cost (without discount for present value) of providing the
continuation of such housing allowance; and
o professional outplacement services.
As of the date hereof, the maximum amounts currently payable to Ms.
McCready Pipher and Mr. Marino under the terms of the agreements discussed above
are $1,419,512 and $632,598, respectively.
In addition, in the event of Ms. McCready Pipher's or Mr. Marino's
termination before the payment of an incentive or bonus award under Nautica's
management incentive plan or other bonus plan or program for Nautica's fiscal
year ending February 28, 2004, Ms. McCready Pipher or Mr. Marino would be
entitled to payment of any such incentive or bonus award, to the extent
Nautica's performance targets are achieved for the fiscal year, as though she or
he were employed with Nautica for the entire fiscal year.
The change of control agreements with Ms. McCready Pipher and Mr.
Marino provide that if any payment made by Nautica to or for their benefit
(whether or not paid pursuant to the terms of the change of control agreement)
would be nondeductible by Nautica for federal income tax purposes because of
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), then
the aggregate present value of amounts payable to or for their benefit pursuant
to the change of control agreement will be reduced to an amount (expressed in
present value) which maximizes the aggregate present value of such payments
without causing any such payments to be nondeductible by Nautica because of
Section 280G of the Code.
Existing Transition and Employment Agreements.
Nautica has transition agreements with Messrs. Sanders and Chu, each
dated July 11, 1991, which will only become effective upon a change of control
event, and thereafter will continue for a term of three years. Upon completion
of the merger, Mr. Chu's new employment and consulting agreement, described in
"David Chu Agreements -- New Chu Employment Agreement," will supersede the
transition agreement and other prior agreements and understandings with Nautica,
whether written or oral, concerning the subject matters covered by the new
agreement.
The transition agreements with Messrs. Sanders and Chu provide that if
Nautica (or any new entity resulting from the change of control event)
terminates the employment of the executive other than for "cause" (as defined in
the agreements) or permanent disability, or if the executive terminates his
employment for "good reason" (as defined in the agreements), prior to
23
the termination of the transition agreement, then the executive will be entitled
to receive the following: (i) a lump-sum payment equal to the excess of (A) the
product of 2.90 multiplied by the "base amount" as determined for the executive
within the meaning of Section 280G of the Internal Revenue Code over (B) the
value on the date of the change of control event of the non-cash benefits
provided under (ii), (iv), (v) and (vi); (ii) life, disability, accident and
group health insurance benefits substantially similar to those which the
executive was receiving immediately prior to the change of control event for a
three-year period after termination of the executive's employment; (iii)
immediate vesting in all non-vested benefits accrued under all bonus plans,
long-term incentive compensation plans, stock option plans, restricted stock or
similar plans or any other deferred compensation plans or other fringe benefits
or perquisites of Nautica which Nautica maintains and under which the executive
was entitled to benefits; (iv) the use of professional outplacement services by
qualified consultants retained by the executive at the expense of Nautica; (v)
automobiles or vehicles (or allowances in respect thereof) which had theretofore
been made available to the executive for a three-year period after the
termination of employment; and (vi) all amounts in respect of club association
or similar fees and dues covering the executive for a three-year period after
the termination of employment. The maximum amount currently payable to Mr.
Sanders and Mr. Chu under such agreements is $5,448,508 and $6,087,908,
respectively.
The current employment agreement between Nautica and Mr. Varvatos,
President of John Varvatos Company ("JVC"), entered into as of October 1, 1999
and continuing until February 28, 2005 (subject to automatic extension in
three-year segments unless either party provides notice of non-extension), also
provides for the benefits listed under (i) through (vi) above, but only in the
event that Mr. Varvatos terminates the agreement upon a change of control event.
The maximum amount currently payable to Mr. Varvatos under the change of control
provision of such agreement is $2,177,924. In the event that Mr. Varvatos is
terminated by Nautica for any reason other than for cause (as defined in the
agreement) or other than on account of Mr. Varvatos' death or permanent
disability, Nautica will pay him, on the date of such termination, an amount
equal to the lesser of (i) 12 months base salary then in effect, if more than 12
months of the employment term remain; or (ii) the annual base salary remaining
for the employment term if less than 12 months of the term remain.
In addition to the change of control and termination provisions set
forth above, the employment agreement with Mr. Varvatos provides that if during
Mr. Varvatos' term of employment, Mr. Sanders is no longer employed by Nautica,
then Nautica must exercise one of the following options: (i) spin-off to
Nautica's stockholders the shares of JVC with Mr. Varvatos serving as its Chief
Executive Officer; (ii) sell JVC to Mr. Varvatos at fair market value; or (iii)
pay to Mr. Varvatos an annual amount equal to 10% of JVC's net income (after
taxes) for so long as he remains JVC's Chief Executive Officer; provided,
however, that the annual payments will continue to be made to Mr. Varvatos if he
ceases to be JVC's Chief Executive Officer because of a termination by Nautica
without cause. Nautica can elect to cease making the annual payments provided
for in clause (iii) above by making a lump sum payment to Mr. Varvatos in an
amount equal to two times JVC's average annual net income (after taxes) for the
prior three years. The lump sum payment shall not exceed $50 million.
During fiscal year 2003, Mr. Varvatos was entitled to receive a salary
of $735,000. Thereafter, the salary will be increased in an amount to be
determined by the Board of Directors, subject to a minimum increase of no less
than 5% (unless mutually agreed upon to be less). Mr.
24
Varvatos is entitled to annual bonuses in accordance with Nautica's policies in
effect from time to time for other employees of comparable seniority.
Under his agreement, Mr. Varvatos has assigned to Nautica all of his
right, title and interest in and to the names John Varvatos, Varvatos and John
Varvatos Company, and any derivations thereof.
Nautica has also entered into split-dollar agreements with trusts
established by each of Mr. Sanders and Mr. Chu dated as of January 1995, and
with Mr. Varvatos dated as of May 2000. Pursuant to each of the agreements,
Nautica pays the annual premium on specified life insurance policies owned by
each of the trusts and by Mr. Varvatos, net of the amount of the "economic
benefit" attributable to each of the employees. The amount of the premiums paid
by Nautica constitutes indebtedness from each of the trusts and Mr. Varvatos to
Nautica and is secured by collateral assignments of each of the insurance
policies to Nautica. The premium payable by Nautica in fiscal 2003 for the
benefit of Mr. Sanders' trust was $57,231, for Mr. Chu's trust, $49,402 and for
Mr. Varvatos, $89,336. Due to considerations raised by the Sarbanes-Oxley Act of
2002, Nautica has ceased paying premiums under such split-dollar life insurance
policies. The face value of the policy for Mr. Sanders' trust is $5,000,000, for
Mr. Chu's trust, $5,050,000 and for Mr. Varvatos, $5,000,000.
Indemnification. Nautica's restated certificate of incorporation and
the merger agreement contain provisions regarding indemnification of the
directors and officers of Nautica and the merger agreement provides for the
maintenance of directors' and officers' insurance for a period of six years
after the effective time of the merger. See "The Merger Agreement --
Indemnification; Directors' and Officers' Insurance."
25
FAIRNESS OPINIONS DELIVERED TO NAUTICA'S BOARD OF DIRECTORS
ROTHSCHILD INC.
Nautica retained Rothschild to act as its financial advisor in
connection with the proposed merger. Nautica selected Rothschild based on its
reputation and experience. As part of its investment banking business,
Rothschild regularly engages in the valuation of businesses and their securities
in connection with mergers and acquisitions, restructurings, private placements
and other matters.
In connection with this engagement, the board of directors requested
that Rothschild evaluate the fairness, from a financial point of view, of the
merger consideration to be received by the holders of Nautica's common stock
(other than VF, Voyager Acquisition Corporation and the members of the
management of Nautica who have signed voting agreements with VF in connection
with the merger agreement). On July 6, 2003, at a meeting of the board of
directors held to evaluate the proposed merger, Rothschild delivered to the
board of directors an oral opinion, which opinion was confirmed by delivery of a
written opinion dated the same date, to the effect that, as of that date and
based on and subject to the matters described in its opinion, the merger
consideration was fair, from a financial point of view, to the holders of
Nautica common stock (other than VF, Voyager Acquisition Corporation and the
members of the management of Nautica who have signed voting agreements with VF
in connection with the merger agreement).
The type and amount of consideration payable in the merger was
determined through negotiation between Nautica and VF and the decision to
approve the merger and related transactions was solely that of Nautica and its
board of directors. Rothschild was not authorized by Nautica or its board of
directors to conduct, nor did Rothschild conduct, a solicitation of third party
indications of interest for the acquisition of all or any part of Nautica. No
other instructions or limitations were imposed by the board of directors on
Rothschild with respect to the investigations made or procedures followed by
Rothschild in rendering its opinion.
The full text of Rothschild's written opinion dated July 6, 2003, which
describes the assumptions made, procedures followed, matters considered and
limitations on the review undertaken, is attached to this proxy statement as
Appendix D-1. We encourage you to read this opinion in its entirety.
Rothschild's opinion was provided for the information of the board of directors
in connection with its evaluation of the merger, is limited to the fairness,
from a financial point of view, of the merger consideration and does not address
any other aspect of the merger or any related transaction. Rothschild's opinion
is not intended to and does not constitute a recommendation to any stockholder
as to how such stockholder should vote or act with respect to any matters
relating to the merger or any related transaction. Rothschild's opinion does not
address the merits of the underlying decision by Nautica to engage in the
merger, the consideration the stockholders may have received in an alternative
transaction, or the relative merits of the merger as compared to any alternative
transaction or business strategy that may be available to Nautica.
In arriving at its opinion, Rothschild:
o reviewed a draft of the merger agreement dated July 6, 2003 and
related documents;
26
o reviewed publicly available business and financial information
relating to Nautica;
o reviewed audited and unaudited financial statements and other
financial and operating data of Nautica;
o reviewed financial forecasts relating to Nautica provided to or
discussed with Rothschild by Nautica's management;
o held discussions with Nautica's management regarding the past and
current operations and financial condition and prospects of
Nautica;
o compared the financial performance of Nautica with those of
publicly traded companies which Rothschild deemed to be relevant in
evaluating Nautica;
o reviewed, to the extent publicly available, the financial terms of
public transactions which Rothschild deemed to be relevant in
evaluating the merger;
o discussed the proposed merger with Nautica's management, board of
directors, advisors and other representatives; and
o considered other factors and information as Rothschild deemed
appropriate in arriving at its opinion.
In rendering its opinion, Rothschild did not assume any obligation
independently to verify any information utilized or considered by Rothschild in
formulating its opinion and relied on such information being accurate and
complete in all material respects. With respect to financial forecasts for
Nautica provided to or otherwise discussed with Rothschild by Nautica's
management, Rothschild was advised, and assumed, that these forecasts were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of Nautica's management as to the future financial performance of
Nautica and the other matters covered. Rothschild expressed no view as to the
reasonableness of these forecasts and projections or the assumptions on which
they are based. Rothschild also assumed that there had not occurred any material
change in the assets, financial condition, results of operations, business or
prospects of Nautica since the dates on which the most recent financial
statements or other financial and business information relating to Nautica were
made available to Rothschild. Rothschild further assumed that, in all respects
material to its analysis, the representations and warranties contained in the
merger agreement are true and correct, each of Nautica and VF will perform all
of the covenants and agreements to be performed by it under the merger agreement
and that the merger and related transactions would be consummated in all
material respects in accordance with the terms and conditions described in the
merger agreement without any waiver or modification and that all material
governmental, regulatory and other consents and approvals necessary for the
consummation of the merger and related transactions would be obtained.
Rothschild did not assume responsibility for making any independent evaluation,
appraisal or physical inspection of any of the assets or liabilities, contingent
or otherwise, of Nautica. Rothschild's opinion was necessarily based on
information available, and financial, stock market and other conditions and
circumstances existing and disclosed, to Rothschild as of the date of its
opinion. Accordingly,
27
although subsequent developments may affect Rothschild's opinion, Rothschild has
not assumed any obligation to update, revise or reaffirm its opinion.
In preparing its opinion, Rothschild performed a variety of financial
and comparative analyses. Described below is a summary of the material analyses
performed by Rothschild. The summary of these analyses is not a comprehensive
description of all analyses and factors considered by Rothschild. The
preparation of a fairness opinion is a complex analytical process that involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the particular
circumstances and, therefore, a fairness opinion is not readily susceptible to
summary description. Rothschild believes that its analyses must be considered as
a whole and that selecting portions of its analyses and factors or focusing on
information presented in tabular format, without considering all analyses and
factors or the narrative description of the analyses, could create a misleading
or incomplete view of the processes underlying its analyses and opinion.
Rothschild employed several analytical methodologies and no one method
of analysis should be regarded as critical to the overall conclusion reached by
Rothschild. Each analytical technique has inherent strengths and weaknesses, and
the nature of the available information may further affect the value of
particular techniques. The conclusion reached by Rothschild is based on all
analyses and factors taken as a whole and also on application of Rothschild's
experience and judgment, which conclusion may involve significant elements of
subjective judgment and qualitative analysis. Rothschild therefore gives no
opinion as to the value or merit standing alone of any one or more parts of the
analyses it performed. In its analyses, Rothschild considered industry
performance, general business, economic, market and financial conditions and
other matters existing as of the date of its opinion, many of which are beyond
the control of Nautica. No company, transaction or business used in those
analyses as a comparison is identical to Nautica or the proposed merger, and an
evaluation of those analyses is not entirely mathematical. Rather, the analyses
involve complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the companies, business segments or transactions
analyzed.
The estimates contained in Rothschild's analyses and the valuation
ranges resulting from any particular analysis are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less favorable than those suggested by its analyses. In
addition, analyses relating to the value of businesses or securities do not
necessarily purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, Rothschild's
analyses and estimates are inherently subject to substantial uncertainty.
Rothschild's opinion and analyses were only one of many factors
considered by the board of directors in its evaluation of the merger and should
not be viewed as determinative of the views of Nautica's board of directors or
management with respect to the proposed merger or the merger consideration.
The following is a summary of the material financial analyses performed
by Rothschild in connection with the rendering of its opinion dated July 6, 2003
to the board of directors. The financial analyses summarized below include
information presented in tabular format. In order to fully understand
Rothschild's financial analyses, the tables must be read together with the text
28
of each summary. The tables alone do not constitute a complete description of
the financial analyses. Considering the data below without considering the full
narrative description of the financial analyses, including the methodologies and
assumptions underlying the analyses, could create a misleading or incomplete
view of Rothschild's financial analyses.
Market Price Analysis
Rothschild reviewed the historical closing prices for Nautica common
stock for the periods June 10, 2002 through June 10, 2003 (the last trading day
prior to the public announcement of the Barington Companies Equity Partners,
L.P. proposal to seek board seats at Nautica's 2003 annual meeting) and July 3,
2002 through July 3, 2003 (the last trading day prior to Nautica's board of
directors' meeting held to evaluate the proposed merger). This analysis
reflected the following low and high closing prices for Nautica common stock
during such periods, as compared to the per share merger consideration:
Low and High Closing Prices
of Nautica Common Stock by Per Share
Respective Period Merger Consideration
--------------------------- --------------------
June 10, 2002 to June 10, 2003 $9.01 - $13.50 $17.00
July 3, 2002 to July 3, 2003 $9.01 - $13.36 $17.00
Selected Public Companies Analysis
Rothschild analyzed the market values and trading multiples of Nautica
and selected publicly traded companies with lines of business, or operating and
financial characteristics, generally similar to those of Nautica. Using publicly
available information, Rothschild analyzed the market values and trading
multiples of Nautica and the following four publicly traded companies that
primarily target the market for men's apparel, referred to below as the "Tier I
Companies," and the following four apparel companies that target less specific
markets, referred to below as the "Tier II Companies":
Tier I Companies Tier II Companies
---------------- -----------------
Perry Ellis International, Inc. Jones Apparel Group, Inc.
Phillips-Van Heusen Corporation Kellwood Company
Polo Ralph Lauren Corporation Liz Claiborne, Inc.
Tommy Hilfiger Corporation V.F. Corporation
All multiples were based on closing stock prices on July 3, 2003.
Estimated financial data for the selected companies were based on publicly
available research analysts' estimates and estimated financial data for Nautica
were based on internal estimates provided by Nautica's management. Rothschild
reviewed enterprise values of the selected companies as multiples of, among
other things, calendar year 2002, latest 12 months, commonly referred to as LTM,
and
29
estimated calendar years 2003 and 2004 revenues, earnings before interest,
taxes, depreciation and amortization, commonly referred to as EBITDA, and
earnings before interest and taxes, commonly referred to as EBIT. Rothschild
calculated enterprise values as equity value, plus total debt and minority
interest, less cash and cash equivalents. Rothschild also reviewed equity values
of the selected companies as a multiple of, among other things, calendar year
2002, latest 12 months and estimated calendar years 2003 and 2004 net income.
Rothschild used the median point for each of these metrics to develop a range of
multiples of latest 12 months and estimated calendar years 2003 and 2004
revenues, EBITDA, EBIT and net income, which Rothschild then applied to
financial data of Nautica for the most closely corresponding periods in order to
derive an implied per share equity reference range for Nautica. Utilizing the
respective multiples for the Tier I Companies, which Rothschild deemed to be
most relevant, these analyses indicated the following implied per share equity
reference ranges for Nautica by reference to Nautica's corresponding periods:
Implied Per Share Equity Reference Range
Methodology for Nautica
----------- -----------
Revenues FY 2003 Actual $15.91-$19.56
FY 2004 Estimated $10.29-$14.25
FY 2005 Estimated $10.48-$14.42
EBITDA FY 2003 Actual $14.57-$18.81
FY 2004 Estimated $10.99-$14.99
FY 2005 Estimated $10.99-$15.43
EBIT FY 2003 Actual $12.57-$15.52
FY 2004 Estimated $9.19-$11.64
FY 2005 Estimated $9.41-$12.21
Net Income FY 2003 Actual $9.10-$10.94
FY 2004 Estimated $9.29-$10.79
FY 2005 Estimated $9.53-$11.36
Rothschild placed particular weight on multiples of enterprise value to
estimated fiscal year 2004 EBITDA in deriving the following approximate implied
per share equity reference range for Nautica, which Rothschild compared to the
per share merger consideration:
Implied Per Share Equity
Reference Range for Nautica Per Share Merger Consideration
--------------------------- ------------------------------
$11.00 - $14.50 $17.00
30
Selected Precedent Transactions Analysis
Using publicly available information and estimates, Rothschild analyzed
the transaction value multiples paid or proposed to be paid in the following
eight selected transactions announced since June 2001 involving companies in the
apparel and apparel-oriented specialty retail industries, which Rothschild
deemed to be relevant:
Acquiror Target
-------- ------
Kellwood Company Kasper ASL
Leonard Green & Partners, LP Varsity Brands, Inc.
Perry Ellis International, Inc. Salant Corporation
Berkshire Hathaway Inc. Garan, Incorporated
Designs, Inc. Casual Male Corp.
Berkshire Partners LLC William Carter Co.
Charming Shoppes, Inc Lane Bryant Inc. (division of The Limited Inc.)
Jones Apparel Group, Inc. McNaughton Apparel Group Inc.
Rothschild compared transaction values in the selected transactions as
multiples of latest 12 months revenues, EBITDA and EBIT. Rothschild used the
median point for each of these metrics to develop a range of multiples of latest
12 months revenues, EBITDA and EBIT, which Rothschild then applied to
corresponding financial data of Nautica in order to derive an implied per share
equity reference range for Nautica. These analyses indicated the following
approximate implied per share equity reference ranges for Nautica by reference
to Nautica's corresponding periods:
Implied Per Share Equity Reference Range
Methodology for Nautica
----------- -----------
FY 2003A Revenue $9.63- $13.76
FY 2003A EBITDA $13.15-$17.84
FY 2003A EBIT $12.87-$15.88
Rothschild placed particular weight on multiples of enterprise value to
actual fiscal year 2003 EBITDA in deriving the following approximate implied per
share equity reference range for Nautica, which Rothschild compared to the per
share merger consideration:
31
Implied Per Share Equity
Reference Range for Nautica Per Share Merger Consideration
$13.25 - $17.75 $17.00
Discounted Cash Flow Analysis
Rothschild calculated the estimated present value of the stand-alone,
unlevered, after-tax free cash flows that Nautica is forecast to generate over
fiscal years 2004 through 2008 using financial forecasts provided to Rothschild
by Nautica's management. Rothschild then calculated an estimated range of
terminal values for Nautica by applying terminal EBITDA multiples ranging from
3.5x to 5.0x to Nautica's calendar year 2008 estimated EBITDA. The present value
of the cash flows and terminal values were calculated using discount rates
ranging from 10.5% to 12.5%. This analysis indicated the following approximate
implied per share equity reference range for Nautica, as compared to the per
share merger consideration:
Implied Per Share Equity
Reference Range for Nautica Per Share Merger Consideration
--------------------------- ------------------------------
$14.75 - $19.50 $17.00
Selected Premiums Paid Analysis
Rothschild reviewed the premiums paid in 31 public transactions
completed between January 1, 2000 and July 3, 2003 with transaction values
between $400 million and $600 million, excluding transactions involving
technology and telecommunications companies and financial institutions, which
Rothschild did not deem to be relevant. Rothschild reviewed the purchase prices
paid in the selected transactions relative to the target company's average
closing stock prices one week and four weeks prior to public announcement of the
transaction. Rothschild then applied the premiums implied by the purchase prices
paid in the selected transactions over these specified periods to the closing
prices of Nautica common stock one week and four weeks prior to June 10, 2003
(the last trading date prior to the public announcement of the Barington
Companies Equity Partners, L.P. proposal to seek board seats at Nautica's 2003
annual meeting) in order to derive an implied equity reference range for
Nautica. This analysis indicated the following approximate implied per share
equity reference range for Nautica, as compared to the per share merger
consideration:
Implied Per Share Equity
Reference Range for Nautica Per Share Merger Consideration
--------------------------- ------------------------------
$14.00 - $15.00 $17.00
32
Leveraged Buyout Analysis
Using the financial forecasts provided to Rothschild by Nautica's
management, Rothschild performed a leveraged buyout analysis to determine the
potential price per share, under current market conditions, that a leveraged
buyout purchaser could theoretically pay for Nautica. In performing this
analysis, Rothschild assumed that (1) acquisition financing could be obtained in
the high yield and bank finance markets at a cost of 11% and 6%, respectively,
in an amount not to exceed 3.50x projected fiscal year 2004 EBITDA, (2) a
minimum internal rate of return from 25% to 30% on equity invested over a 5 year
period would be required and (3) a leveraged buyout purchaser would realize
value upon a liquidity event based on a multiple of EBITDA that is equivalent to
the EBITDA multiple paid by the purchaser in the initial leveraged buyout
transaction. This analysis indicated the following approximate implied per share
equity reference range for Nautica, as compared to the per share merger
consideration:
Implied Per Share Equity
Reference Range for Nautica Per Share Merger Consideration
--------------------------- ------------------------------
$13.00 - $14.00 $17.00
Miscellaneous
Under the terms of its engagement, Nautica has agreed to pay Rothschild
for its financial advisory services a transaction fee based on a percentage of
the total consideration, including outstanding indebtedness assumed, payable in
the merger. The aggregate fee payable to Rothschild currently is estimated to be
approximately $5,900,000, which fee is contingent upon completion of the merger.
Nautica also has agreed to reimburse Rothschild for reasonable expenses incurred
by Rothschild in performing its services, including fees and expenses of its
legal counsel, and to indemnify Rothschild and related persons against
liabilities, including liabilities under the federal securities laws, arising
out of its engagement. The terms of Rothschild's fee arrangements were
negotiated at arm's length between Nautica and Rothschild. Rothschild was also
engaged by Nautica to act as its financial adviser in connection with its 2003
annual meeting of stockholders and has received fees in the amount of $100,000
for such services. Steven H. Tishman, a Managing Director of Rothschild, is a
member of the board of directors of Nautica and has received customary director
fees from Nautica for serving in this capacity. In the ordinary course of
business, Rothschild and its affiliates may actively trade or hold the
securities of Nautica and VF for their own account or for the account of
customers and, accordingly, may at any time hold a long or short position in
those securities.
BEAR, STEARNS & CO. INC.
Under a letter agreement dated as of July 2, 2003, the board of
directors of Nautica engaged Bear Stearns to render a fairness opinion in
connection with a possible transaction with VF. The board of directors of
Nautica engaged Bear Stearns to render a fairness opinion based on Bear Stearn's
experience and expertise in similar transactions. The board engaged Bear
Stearns to render the second fairness opinion in light of Steven Tishman's
position as both a director of Nautica and a Managing Director of Rothschild and
in light of the pending proxy contest. Bear
33
Stearns, as part of its investment banking business, is continuously engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes.
At the July 6, 2003 meeting of Nautica's board of directors Bear
Stearns delivered its oral opinion, subsequently confirmed in writing, that, as
of July 6, 2003, and based upon and subject to the assumptions, qualifications
and limitations set forth in its opinion, the merger consideration of $17.00 per
share is fair, from a financial point of view, to the stockholders of Nautica
excluding VF, Voyager Acquisition Corporation and those stockholders who are
entering into a voting agreement with VF with respect to their shares of
Nautica's common stock.
We have attached as Appendix D-2 to this document the full text of Bear
Stearns' written opinion and urge you to read the opinion in its entirety. The
opinion sets forth the assumptions made, some of the matters considered and
qualifications and limitations on the review undertaken by Bear Stearns, and is
incorporated herein by reference. The summary of Bear Stearns' opinion set forth
below is qualified in its entirety by reference to the full text of such
opinion. In reading the discussion of the fairness opinion set forth below,
Nautica stockholders should be aware that Bear Stearns' opinion:
o was provided to the Nautica's board of directors for its benefit
and use;
o did not constitute a recommendation to the board of directors of
Nautica in connection with the merger;
o does not constitute a recommendation to any Nautica stockholder as
to how to vote in connection with the merger;
o did not address Nautica's underlying business decision to pursue
the merger, the relative merits of the merger as compared to any
alternative business strategies that might exist for Nautica or the
effects of any other transaction in which Nautica might engage; and
o does not express any opinion as to the price or range of prices at
which the shares of common stock of Nautica would trade subsequent
to the announcement of the merger.
Although Bear Stearns evaluated the fairness, from a financial point of
view, of the merger consideration to the stockholders of Nautica excluding VF,
Voyager Acquisition Corporation and those stockholders who are entering into a
voting agreement with respect to their shares of Nautica common stock, the
merger consideration itself was determined by Nautica and VF through
arm's-length negotiations. Nautica did not provide specific instructions to, or
place any limitations on, Bear Stearns with respect to the procedures to be
followed or factors to be considered by it in performing its analyses or
providing its opinion.
34
Bear Stearns Opinion
Nautica retained Bear Stearns to evaluate and render a fairness opinion
with respect to the merger. In connection with rendering its opinion, Bear
Stearns, among other things:
o reviewed a draft of the merger agreement dated July 5, 2003;
o reviewed Nautica's Annual Reports to Stockholders and Annual
Reports on Form 10-K for the fiscal years ended March 3, 2001,
March 2, 2002, and March 1, 2003 and its Reports on Form 8-K for
the three years ended the date of the opinion;
o reviewed certain operating and financial information relating to
Nautica's business and prospects, including projections for the
five years ending March 1, 2008, all as prepared and provided to
Bear Stearns by Nautica's management;
o met with certain members of Nautica's senior management to discuss
Nautica's business, operations, historical and projected financial
results and future prospects;
o reviewed the historical prices, trading multiples and trading
volume of the common shares of Nautica;
o reviewed publicly available financial data, stock market
performance data and trading multiples of companies which Bear
Stearns deemed generally comparable to Nautica;
o reviewed the terms of recent mergers and acquisitions involving
companies, which Bear Stearns deemed generally comparable to
Nautica and the merger;
o performed discounted cash flow analyses based on the projections
for Nautica furnished to Bear Stearns; and
o conducted such other studies, analyses, inquiries and
investigations as Bear Stearns deemed appropriate.
In arriving at its opinion, Bear Stearns has not performed or obtained
any independent appraisal of the assets or liabilities (contingent or otherwise)
of Nautica, nor has Bear Stearns been furnished with any such appraisals. Bear
Stearns has assumed that the merger will be consummated in a timely manner and
in accordance with the terms of the merger agreement without any limitations,
restrictions, conditions, amendments or modifications, regulatory or otherwise,
that collectively would have a material effect on Nautica or the merger
consideration.
Bear Stearns has relied upon and assumed, without independent
verification, the accuracy and completeness of the financial and other
information including, without limitation, the projections provided to it by
Nautica. With respect to Nautica's projected financial results, Bear Stearns
relied on representations that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the senior
management of Nautica as to the expected future performance of Nautica. Bear
Stearns has not assumed any responsibility for the independent verification of
any such information or of the projections provided to it, and Bear
35
Stearns has further relied upon the assurances of the senior management of
Nautica that they are unaware of any facts that would make the information and
projections provided to it incomplete or misleading. Bear Stearns assumes no
responsibility for updating or revising its opinion based on circumstances or
events occurring after the date of the Bear Stearns opinion.
Summary of Analyses
The following is a brief summary of the material analyses performed by
Bear Stearns and presented to the Nautica board of directors in connection with
rendering its fairness opinion.
Some of the financial analyses summarized below include summary data
and information presented in tabular format. In order to understand fully the
financial analyses, the summary data and tables must be read together with the
full text of the analyses. Considering the summary data and tables alone could
create a misleading or incomplete view of Bear Stearns' financial analyses.
Comparison of Merger Consideration to Unaffected and Historical Stock
Prices. Bear Stearns compared the merger consideration to be received by Nautica
stockholders of $17.00 per share to Nautica's stock price as of June 10, 2003
(the last trading day prior to the public announcement of the Barington
Companies Equity Partners, L.P. proposal to seek board seats at Nautica's 2003
annual meeting), June 19, 2003 (the day before Nautica announced it was engaged
in discussions regarding its sale), July 3, 2003 (one trading day prior to
announcement of the merger) and stock prices one month, three months, six
months, one year and two years preceding June 10, 2003, June 19, 2003 and July
3, 2003. The merger consideration to be received by Nautica stockholders
represents a 58% premium to the June 10, 2003 closing price of $10.77, a 42%
premium to the June 19, 2003 closing price of $11.99 and a 31% premium to the
July 3, 2003 closing price of $12.99.
Premium of the Merger Consideration Relative To
------------------------------------------------------------------
June 10, 2003 June 19, 2003 July 3, 2003
----------------- ----------------- --------------
Two Years 34.6% 35.5% 37.2%
One Year 54.1% 54.3% 54.2%
Six Months 63.1% 62.0% 59.6%
Three Months 67.9% 62.3% 54.2%
One Month 64.9% 54.4% 37.1%
Calculation of Nautica's Enterprise Value at the Merger. For purposes
of analyzing the merger consideration to be received by Nautica stockholders,
Bear Stearns calculated the enterprise value, referred to in this summary as
"Enterprise Value," of Nautica by adding the equity value of Nautica's common
stock (including calculating the values of in-the-money options with a deduction
for the exercise prices) and Nautica's total long term debt outstanding as of
March 1, 2003 and subtracting Nautica's cash and cash equivalents outstanding as
of March 1, 2003.
Bear Stearns calculated multiples of Nautica's Enterprise Value to
Nautica's earnings before interest, taxes, depreciation and amortization,
referred to in this summary as "EBITDA,"
36
for the fiscal years ending March 2, 2002 and March 1, 2003 and estimated EBITDA
for the fiscal years ending March 2004 and March 2005. Bear Stearns calculated
multiples of Nautica's stock price to Nautica's earnings per share, referred to
in this summary as "EPS," for the fiscal years ending March 2, 2002 and March 1,
2003 and estimated EPS for the fiscal years ending March 2004 and March 2005.
Comparable Company Analysis. Bear Stearns analyzed selected historical
and projected operating information provided by Nautica management, stock price
performance data and valuation multiples for Nautica and compared this data to
that of ten publicly traded companies deemed by Bear Stearns to be generally
comparable to Nautica. Bear Stearns utilized the earnings forecasts for these
companies from publicly available data, First Call and select Wall Street equity
research reports. In conducting its analysis, Bear Stearns analyzed the
multiples in the following subsets of comparable companies.
o Selected companies with a market capitalization greater than $1
billion and less than $5 billion referred to below as "Mid-Cap";
and
o Selected companies with a market capitalization less than $1
billion, referred to below as "Low-Cap".
The companies included in the Bear Stearns analysis were:
Mid-Cap
o Liz Claiborne, Inc.
o Jones Apparel Group, Inc.
o V.F. Corporation
o Polo Ralph Lauren Corporation
Low-Cap
o Kellwood Company
o Phillips-Van Heusen Corporation
o Tommy Hilfiger Corporation
o Perry Ellis International
o Guess?, Inc.
o Kenneth Cole Productions, Inc.
Bear Stearns reviewed, among other things, the comparable companies'
multiples of (i) Enterprise Value to fiscal year 2003 actual EBITDA, (ii)
Enterprise Value to fiscal year 2004 estimated EBITDA, (iii) share price to
calendar year 2003 estimated EPS, and (iv) share price to calendar year 2004
estimated EPS. Fiscal year 2003 actual EBITDA refers to actual last 12 months
EBITDA for the comparable companies and actual EBITDA for the fiscal year ending
March 2003 for Nautica. Fiscal year 2004 estimated EBITDA refers to one year
forward projected EBITDA for the comparable companies and projected EBITDA for
the fiscal year ending March 2004 for Nautica. The multiples were based on
closing stock prices for the
37
comparable companies on July 3, 2003, except in the case of Tommy Hilfiger
Corporation, for which Bear Stearns analyzed the implied multiples based on the
closing prices on July 3, 2003 and March 26, 2003 (the day before the Wall
Street Journal reported that Jones Apparel Group, Inc. had held talks to acquire
Tommy Hilfiger Corporation).
The table below summarizes the analysis.
Enterprise Value/EBITDA Price/EPS
------------------------------------- -------------------------------------
FY 2003A FY 2004E CY 2003E CY 2004E
---------------- ----------------- ---------------- -----------------
Mid-Cap
High 8.4x 7.6x 13.8x 12.3x
Harmonic Mean 6.6x 6.5x 11.7x 10.8x
Low 5.4x 6.0x 10.2x 9.4x
Low-Cap
High 12.9x 11.4x 14.7x 12.5x
Harmonic Mean 5.5x 5.3x 9.1x 8.4x
Low 2.2x 2.5x 5.0x 5.1x
Combination of Mid-Cap and Low-Cap
High 12.9x 11.4x 14.7x 12.5x
Harmonic Mean 5.3x 5.3x 9.5x 8.9x
Low 2.2x 2.5x 5.0x 5.1x
--------------------------------------------------------------------------------------------------------------
"Harmonic Mean" is calculated based on the average of the reciprocals
of the multiples and gives equal weight to equal dollar investments in the
securities whose ratios are being averaged.
Bear Stearns compared the multiples implied in the merger of 6.6x
fiscal year 2003 actual EBITDA, 7.8x fiscal year 2004 estimated EBITDA, 17.9x
calendar year 2003 estimated EPS and 16.8x calendar year 2004 estimated EPS with
the range and harmonic mean of the Mid-Cap, Low-Cap and Combination of the
Mid-Cap and Low-Cap. This analysis indicated a range of implied equity values
per share for Nautica common stock of $11.00 to $14.50, which Bear Stearns
compared to the merger consideration of $17.00 per share.
Comparable Precedent Transactions Analysis. Bear Stearns analyzed 18
merger and acquisition transactions involving companies in the apparel industry
which Bear Stearns deemed generally comparable to Nautica and the merger. Bear
Stearns reviewed, among other things, the ratio of the comparable companies'
enterprise value implied in the respective transactions to their last twelve
months (pre-acquisition) EBITDA, referred to in this summary as "LTM EBITDA".
The precedent transactions in the Bear Stearns analysis were:
o Kellwood Company / Kasper A. S. L., Limited
o Liz Claiborne, Inc. / Juicy Couture
o Perry Ellis International / Salant Corporation
o Phillips-Van Heusen Corporation / Calvin Klein Industries
38
o Jones Apparel Group, Inc. / l. e. i. (RSV Sport, Inc.)
o Berkshire Hathaway Inc. / Garan Incorporated
o Kellwood Company / Gerber Childrenswear
o Jones Apparel Group, Inc. / Gloria Vanderbilt Apparel Corporation
o Berkshire Hathaway Inc. / Fruit of the Loom International, Ltd.
o Berkshire Partners, LLC / The William Carter Company
o Nautica Enterprises, Inc. / Earl Jean Inc.
o Jones Apparel Group, Inc. / McNaughton Apparel Group Inc.
o LVMH Moet Hennessy Louis Vuitton / Donna Karan International Inc.
o H.I.G. Capital / Happy Kids Inc.
o Jones Apparel Group, Inc. / Nine West Group
o Perry Ellis International / Supreme International
o Vestar Capital Partners, Inc. / St. Johns Knits Inc.
o Jones Apparel Group, Inc. / Sun Apparel Inc.
The table below summarizes the analysis.
Enterprise Value/LTM EBITDA
------------------------------------------
High 9.4x
Harmonic Mean 5.5x
Low 2.6x
--------------------------------------------------------------------------
In the case of the LVMH / Donna Karan International transaction, Bear
Stearns analyzed the precedent transaction under two scenarios: (i) assuming
Gabrielle Studio Inc., licensor of Donna Karan, and Donna Karan International
were merged entities, and (ii) assuming Gabrielle Studio and Donna Karan
International were separate stand-alone entities.
Bear Stearns compared the multiple implied in the merger of 6.6x 2003
actual EBITDA with the range and harmonic mean of the precedent transactions.
This analysis indicated a range of implied equity values per share for Nautica
common stock of $13.00 to $17.50, which Bear Stearns compared to the merger
consideration of $17.00 per share.
Discounted Cash Flow Analysis. Bear Stearns calculated the estimated
present value of the stand-alone, unlevered after-tax free cash flows for the
five years ending March 2008 based on projections provided to Bear Stearns by
Nautica management. Bear Stearns then calculated an implied range of terminal
values for Nautica under two methodologies: (i) by applying a range of perpetual
growth rates of unlevered net income of (1%) to 1% and (ii) by applying a range
of terminal year exit multiples of EBITDA of 3.5x to 5.5x. The present value of
the free cash flows and terminal values were discounted using a range of
illustrative discount rates of 10.5% to 12.5%.
39
Bear Stearns compared the range of implied equity values per share for
Nautica common stock to the merger consideration of $17.00 per share as follows:
Implied Equity Value per Share
--------------------------------------
Based on perpetual growth rates in unlevered net income of (1%) to 1%
and illustrative discount rates of 10.5% to 12.5% $14.57 - $18.85
Based on terminal year exit multiples of EBITDA of 3.5x to 5.5x and
illustrative discount rates of 10.5% to 12.5% $14.13 - $19.50
------------------------------------------------------------------------------------------------------------------
Miscellaneous. In connection with rendering its opinion, Bear Stearns
conducted other analyses as it deemed appropriate, including reviewing Nautica's
historical and estimated financial and operating performance, analyzing selected
Wall Street equity research reports on, and earnings and other estimates for
apparel companies, reviewing and comparing certain financial data and valuation
parameters for Nautica and reviewing available information regarding the
institutional holdings of Nautica common stock. In addition, Bear Stearns
examined publicly available information relating to trends in the apparel
industry.
The preparation of a fairness opinion is a complex process and involves
various judgments and determinations as to the most appropriate and relevant
assumptions and financial analyses and the application of those methods to the
particular circumstances involved. Such an opinion is therefore not readily
susceptible to partial analysis or summary description, and taking portions of
the analyses set out above, without considering the analysis as a whole, would
in the view of Bear Stearns, create an incomplete and misleading picture of the
processes underlying the analyses considered in rendering the Bear Stearns
opinion. Bear Stearns did not form an opinion as to whether any individual
analysis or factor, whether positive or negative, considered in isolation,
supported or failed to support the Bear Stearns opinion. In arriving at its
opinion, Bear Stearns considered the results of all its analyses and did not
attribute any particular weight to any one analysis or factor. The analyses
performed by Bear Stearns, particularly those based on estimates and
projections, are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than suggested by
such analyses. With respect to the analysis of comparable companies summarized
above, no public company utilized as a comparison is identical to Nautica. In
addition, none of the precedent transactions or the companies they involve are
identical to the merger or Nautica. Accordingly, an analysis of publicly traded
comparable companies and comparable precedent transactions is not mathematical;
rather, it involves complex considerations and judgments concerning the
differences in financial and operating characteristics of the companies and
precedent transactions and other factors that could affect the public trading
values of Nautica and the companies and precedent transactions to which they
were compared. The analyses do not purport to be appraisals or to reflect the
prices at which any securities may trade at the present time or at any time in
the future. In addition, the Bear Stearns opinion was just one of the many
factors taken into consideration by Nautica's board of directors. Consequently,
Bear Stearns' analysis should not be viewed as determinative of the decision of
Nautica's board of directors or Nautica's management with respect to the
fairness of the merger consideration, from a financial point of view, to the
stockholders of Nautica excluding VF, Voyager Acquisition Corporation and those
40
stockholders who are entering into a voting agreement with VF in connection with
the merger agreement.
Pursuant to the terms of its engagement letter with Bear Stearns,
Nautica has agreed to pay Bear Stearns a fee of $875,000 which became payable
upon the rendering of the Bear Stearns opinion. In addition, Nautica has agreed
to reimburse Bear Stearns for all reasonable out-of-pocket expenses incurred by
Bear Stearns in connection with its engagement and the merger, including
reasonable fees and disbursements of its legal counsel. Bear Stearns was also
engaged by Nautica to act as its financial advisor in connection with its 2003
annual meeting of stockholders and has received fees in the amount of $125,000
for such services. Nautica has agreed to indemnify Bear Stearns against certain
liabilities in connection with its engagement, including certain liabilities
under the federal securities laws.
In the ordinary course of business, Bear Stearns and its affiliates may
actively trade the equity and debt securities and/or bank debt of Nautica and/or
VF for its own account and for the account of its customers and, accordingly,
may at any time hold a long or short position in such securities or bank debt.
41
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of United States federal income tax
consequences of the merger relevant to beneficial holders of Nautica common
stock whose shares are converted to cash in the merger. The discussion is for
general information only and does not purport to consider all aspects of federal
income taxation that might be relevant to beneficial holders of Nautica common
stock. The discussion is based on current provisions of the Internal Revenue
Code of 1986, existing, proposed and temporary regulations promulgated
thereunder, rulings, administrative pronouncements and judicial decisions,
changes to which could materially affect the tax consequences described herein
and could be made on a retroactive basis. The discussion applies only to
beneficial holders of Nautica common stock in whose hands shares are capital
assets within the meaning of Section 1221 of the Internal Revenue Code of 1986
and may not apply to beneficial holders who acquired their shares pursuant to
the exercise of employee stock options or other compensation arrangements with
Nautica or hold their shares as part of a hedge, straddle or conversion
transaction or who are subject to special tax treatment under the Internal
Revenue Code of 1986 (such as dealers in securities, insurance companies, other
financial institutions, regulated investment companies, tax-exempt entities, S
corporations and taxpayers subject to the alternative minimum tax). In addition,
this discussion does not discuss the federal income tax consequences to a
beneficial holder of Nautica common stock who, for United States federal income
tax purposes, is a non-resident alien individual, a foreign corporation, a
foreign partnership or a foreign estate or trust, nor does it consider the
effect of any state, local or foreign tax laws.
The receipt of cash for Nautica common stock pursuant to the merger
will be a taxable transaction for United States federal income tax purposes. In
general, a beneficial holder who receives cash in exchange for shares pursuant
to the merger will recognize gain or loss for federal income tax purposes equal
to the difference, if any, between the amount of cash received and the
beneficial holder's adjusted tax basis in the shares surrendered for cash
pursuant to the merger. Gain or loss will be determined separately for each
block of shares (i.e., shares acquired at the same cost in a single transaction)
surrendered for cash pursuant to the merger. Such gain or loss will be capital
gain or loss, and will be long-term capital gain or loss if the beneficial
holder's holding period for such shares is more than one year at the time of
consummation of the merger.
Backup withholding at a 28% rate may apply to cash payments a
beneficial holder of shares receives pursuant to the merger. Backup withholding
generally will apply only if the beneficial holder fails to furnish a correct
taxpayer identification number, or otherwise fails to comply with applicable
backup withholding rules and certification requirements. Each beneficial holder
should complete and sign the substitute Form W-9 that will be part of the letter
of transmittal to be returned to the exchange agent in order to provide the
information and certification necessary to avoid backup withholding, unless an
applicable exemption exists and is otherwise proved in a manner acceptable to
the exchange agent. Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules will be allowable as a refund or
credit against a beneficial holder's United States federal income tax liability
provided the required information is furnished to the Internal Revenue Service.
42
Because individual circumstances may differ, each beneficial holder of
shares is urged to consult such beneficial holder's own tax advisor as to the
particular tax consequences to such beneficial holder of the merger, including
the application and effect of state, local, foreign and other tax laws.
43
REQUIRED REGULATORY APPROVALS AND OTHER MATTERS
The consummation of the merger is subject to the regulatory approvals
that are described below. While Nautica has no reason to believe it will not be
possible to obtain these regulatory approvals in a timely manner and without the
imposition of burdensome conditions, there is no certainty that these approvals
will be obtained within the period of time contemplated by the merger agreement
or on conditions that would not be detrimental to the combined company or at
all.
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, (the "HSR Act") and the rules promulgated thereunder, VF and Nautica
cannot complete the merger until they notify and furnish information to the
Federal Trade Commission and the Antitrust Division of the U.S. Department of
Justice, and specified waiting period requirements are satisfied. VF and Nautica
filed notification and report forms under the HSR Act with the FTC and the
Antitrust Division on July 16, 2003, and the waiting period is currently
scheduled to expire at 11:59 p.m. on August 15, 2003, unless otherwise
terminated or extended by the antitrust agencies.
Under the HSR Act, as amended, and the rules promulgated thereunder,
Mr. Chu, the Chu Company and VF cannot complete the sale of assets contemplated
by the purchase agreement until they notify and furnish information to the
Federal Trade Commission and the Antitrust Division of the U.S. Department of
Justice, and specified waiting period requirements are satisfied. Mr. Chu, the
Chu Company and VF plan to file a notification and report form under the HSR Act
with the FTC and the Antitrust Division shortly. The consummation of the
transactions contemplated by the purchase agreement is a condition under the
merger agreement to VF's obligation to consummate the merger.
At any time before or after completion of the merger, the FTC or the
Antitrust Division could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
consummation of the merger or the purchase under the purchase agreement or
seeking divestiture of substantial assets of VF or Nautica. Private parties may
also bring actions under the antitrust laws under certain circumstances.
Although VF and Nautica believe that the merger and the purchase under the
purchase agreement are legal under the antitrust laws, there can be no assurance
that a challenge to the merger or the purchase under the purchase agreement on
antitrust grounds will not be made or, if made, that it will not be successful.
See also "The Merger Agreement -- Conditions to Consummation of the Merger."
Other Matters
On July 16, 2003, Nautica was served with a complaint as filed by
William Steiner and others against Nautica and its directors in the Court of
Chancery of the State of Delaware, Civil Action No. 20425-NC. The complaint
alleges, among other things, that the proposed merger agreement is unfair to
Nautica's public stockholders, that the defendants have failed to maximize
stockholder value and that the director defendants breached their fiduciary
duties. In the complaint, the plaintiffs have demanded certain remedies,
including preliminarily and permanently enjoining the merger. Nautica believes
that the complaint is without merit and intends to vigorously defend the action.
44
THE MERGER AGREEMENT
This section describes the material terms of the merger agreement. The
description in this section is not complete. You should read the merger
agreement, and the other information that is contained in this proxy statement,
carefully and in its entirety for a more complete understanding of the merger.
The complete text of the merger agreement is attached to this proxy statement as
Appendix A and is incorporated by reference into this proxy statement.
THE MERGER
Voyager Acquisition Corporation, a newly formed, wholly-owned
subsidiary of VF (the "Merger Subsidiary"), will merge with and into Nautica.
Merger Subsidiary, which is a Delaware corporation, was created solely for the
purposes of the merger and has no significant assets and no operations of its
own.
EFFECTIVE TIME OF THE MERGER
The merger will become effective upon the filing of a certificate of
merger with the Secretary of State of the State of Delaware or at a later time
as specified in the certificate of merger. The effective time of the merger will
take place on a date that is not later than the fifth business day after certain
of the conditions contained in the merger agreement have been satisfied or
waived or, at a time as VF and Nautica agree.
CONSIDERATION TO BE RECEIVED IN THE MERGER
At the time the merger becomes effective, each issued and outstanding
share of common stock, except shares held by stockholders exercising dissenters'
rights, will be converted into the right to receive $17.00 in cash without
interest from VF. Shares of common stock held as treasury stock or owned by VF
and its subsidiaries will be canceled at the effective time of the merger.
EXCHANGE PROCEDURES
Prior to the effective time, VF will appoint an exchange agent
reasonably acceptable to Nautica for the purpose of exchanging certificates
representing shares of common stock for the merger consideration. Prior to the
effective time, VF will deposit in trust with the exchange agent the funds
sufficient to pay the merger consideration to the stockholders.
As soon as practicable after the effective time of the merger, the
exchange agent will mail to each former holder of record of common stock a
letter with instructions on how to exchange stock certificates for the cash
merger consideration.
Please do not send in your stock certificates until you receive the
letter of transmittal and instructions from the exchange agent. Do not return
your stock certificates with the enclosed proxy card. If your shares of common
stock are held through a broker, your broker will surrender your shares for
cancellation.
45
After you mail the letter of transmittal, duly executed and completed
in accordance with its instructions, and your stock certificates to the exchange
agent, VF will cause your check to be mailed to you. The stock certificates you
surrender will be canceled. After the completion of the merger, there will be no
further transfers of common stock, and stock certificates presented for transfer
after the completion of the merger will be canceled and exchanged for the merger
consideration. If payment is to be made to a person other than the registered
holder of the shares of Nautica common stock, the certificate surrendered must
be properly endorsed or otherwise in proper form for transfer and any transfer
or other taxes must be paid by the person requesting the payment or that person
must establish to the exchange agent's satisfaction that such tax has been paid
or is not payable.
If your Nautica stock certificates have been lost, stolen or destroyed,
upon making an affidavit of that fact, and if required by the surviving
corporation, posting a bond as indemnity against any claim with respect to the
certificates, the exchange agent will issue merger consideration in exchange for
your lost, stolen, or destroyed stock certificates.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains a number of customary representations and
warranties made by Nautica and VF relating to themselves and their respective
subsidiaries. Nautica has made representations and warranties regarding, among
other things:
o its due incorporation, good standing and qualification;
o its corporate power, authority and action;
o governmental filings required to be made by it in connection with
the merger;
o the absence of certain specified violations as a result of the
merger agreement;
o its capital stock;
o its subsidiaries;
o its SEC filings;
o its financial statements;
o its proxy statement materials;
o the absence of certain changes or events;
o the absence of undisclosed material liabilities;
o its compliance with laws and court orders;
o litigation and regulatory actions;
o its tax matters;
46
o its labor matters;
o its employee benefit plans;
o its intellectual property;
o the full force and effect of certain contracts;
o antitakeover statutes and its rights agreement;
o its use of brokers or finders; and
o the opinion of financial advisors.
VF has made representations and warranties regarding, among other
things:
o its due incorporation, good standing and authority;
o its corporate authority and action;
o governmental filings required to be made by it in connection with
the merger;
o the absence of certain specified violations as a result of the
merger agreement;
o its information included in proxy statement materials;
o its use of brokers and finders;
o the availability of funds necessary to consummate the merger; and
o the purchase agreement.
CONDUCT OF BUSINESS PENDING THE MERGER
During the period from the signing of the merger agreement until the
merger becomes effective, Nautica has agreed, subject to limited exceptions,
that, among other things, it:
o will carry on its business in the ordinary course consistent with
past practice and will use its reasonable efforts to preserve its
business organizations and relationships with third parties and to
keep available the services of its present officers and employees;
o will not adopt or propose any change to its restated certificate of
incorporation or bylaws;
o will not, and will not permit its subsidiaries to, merge or
consolidate with any other entity, acquire a material amount of
assets of any other entity or acquire more than 30% of the
outstanding capital stock or other equity interests of any other
entity; provided that in no event shall the purchase price for any
such acquisition of assets, capital stock or other equity interests
by Nautica or any of its
47
subsidiaries exceed $1 million for any such individual acquisition
or $5 million in the aggregate for all such acquisitions;
o will not, and will not permit its subsidiaries to, sell, lease,
license or otherwise dispose of any significant subsidiary or any
material amount of assets, securities or property except pursuant
to existing contracts or commitments, or in the ordinary course
consistent with past practice;
o will not make or change any tax election, change any annual tax
accounting period, change any method of tax accounting, file any
amended tax return or settle any dispute that would materially
increase tax liability or reduce any material tax asset;
o will not, and will not permit any of its subsidiaries to, knowingly
take any action that would make certain of Nautica's
representations and warranties inaccurate in any material respect
at or prior to the effective time;
o will not agree, commit to or enter into any agreement to take any
of the actions discussed above.
NO SOLICITATION OF ACQUISITION PROPOSALS
Nautica has agreed that neither it nor its subsidiaries shall:
o solicit, initiate or knowingly take any action designed to
facilitate the submission of any acquisition proposal (as defined
below);
o engage in any discussions or negotiations with, or furnish any
nonpublic information relating to Nautica or any of its
subsidiaries or knowingly afford access to their respective
business, properties, assets, books or records (other than those
generally accessible to the public) to, any third party that to the
knowledge of Nautica is seeking to make, or has made, an
acquisition proposal;
o amend or grant any waiver or release under any standstill or
similar agreement with respect to any class of equity securities of
Nautica or any of its subsidiaries;
o amend or grant any waiver or release or approve any transaction or
redeem rights under Nautica's existing rights agreement;
o approve any transaction under Section 203 of the General
Corporation Law of Delaware;
o approve of any person becoming an "interested stockholder" under
such section; or
o enter into any agreement with respect to an acquisition proposal,
except permitted confidentiality agreements or agreements
constituting a superior proposal (as defined below).
48
Notwithstanding the foregoing, Nautica and its board of directors may,
in response to a bona fide acquisition proposal that the board of directors
determines is reasonably likely to result in a superior proposal, make or engage
in certain of the actions proscribed above, subject to certain limitations;
provided that in no event shall the board of directors of Nautica be prevented
from:
o taking any action that a court of competent jurisdiction orders
Nautica to take;
o making with respect to an acquisition proposal a
"stop-look-and-listen" communication in compliance with Rule
14d-9(f) under the Securities Exchange Act of 1934; or
o complying with Rules 14e-2(a) or 14d-9 under the Securities
Exchange Act of 1934 or making such disclosure to Nautica's
stockholders as is necessary for its board of directors to comply
with its fiduciary duties under applicable law.
Notwithstanding the foregoing, however, the board of directors shall
not take certain of the actions proscribed above unless Nautica delivers to VF
substantially and contemporaneously therewith written notice thereof. In
addition, Nautica must notify VF within 48 hours after receipt by it of any
acquisition proposal or any request by a third party for information or access
that to the knowledge of Nautica is seeking to make, or has made, an acquisition
proposal.
An "acquisition proposal" means, other than the transactions
contemplated by the merger agreement, any offer or proposal by a third party
relating to (A) any acquisition or purchase, direct or indirect, of 40% or more
of the consolidated assets of Nautica and its subsidiaries, taken as a whole, or
more than 40% of the voting securities of Nautica or any of its subsidiaries
whose assets, individually or in the aggregate, constitute more than 40% of the
consolidated assets of Nautica, (B) any tender offer (including a self-tender
offer) or exchange offer that, if consummated, would result in such third
party's beneficially owning 40% or more of any class of equity or voting
securities of Nautica or any of its subsidiaries whose assets, individually or
in the aggregate, constitute more than 40% of the consolidated assets of Nautica
or (C) a merger, consolidation, share exchange, business combination, sale of
substantially all the assets, reorganization, recapitalization, liquidation,
dissolution or similar transaction involving Nautica or any of its subsidiaries
whose assets, individually or in the aggregate, constitute more than 40% of the
consolidated assets of Nautica.
A "superior proposal" means any bona fide, unsolicited written
acquisition proposal for at least a majority of the outstanding shares of common
stock or 50% or more of the consolidated assets of Nautica and its subsidiaries
on terms that the board of directors determines in good faith by a majority vote
(excluding absent or abstaining directors), after taking into account, among
other things, all the terms and conditions of the acquisition proposal,
including any break-up fees, expense reimbursement provisions and conditions to
consummation, is more favorable and provides greater value to Nautica's
stockholders and which the board of directors of Nautica believes is reasonably
likely to be able to be consummated.
Nautica has also agreed to terminate any activities, discussions or
negotiations with any parties regarding acquisition proposals conducted prior to
the execution of the merger agreement
49
and notify VF promptly of receipt of any acquisition proposal and its material
terms, including the identity of the person making the acquisition proposal.
STOCK PLANS AND OTHER EMPLOYEE BENEFITS
Stock Options
At or immediately prior to the effective time, each option to purchase
shares of Nautica's common stock granted under any employee stock option or
compensation plan or arrangement of Nautica, whether or not exercisable or
vested, will be canceled, and VF or Merger Subsidiary will pay an amount in cash
to each option holder, determined for each option to purchase a share of common
stock by multiplying the excess of merger consideration per share over the
applicable exercise price per share of the option (assuming full vesting of all
options) had such holder exercised such option in full immediately prior to the
effective time; provided that in the case of any option under Nautica's 1996
Stock Incentive Plan (Amended and Restated) if the "change of control price" (as
defined under this plan) is higher than the merger consideration, such change of
control price shall be substituted for the merger consideration.
Prior to the effective time, Nautica will use its reasonable efforts
(without the expenditure of any funds) to obtain any consents from holders of
options to purchase shares of common stock granted under Nautica's stock option
or compensation plans or arrangements that Nautica deems reasonably necessary to
accomplish the transactions contemplated in the first paragraph of this
subsection. Payment may be withheld in respect of any employee stock option
until necessary consents are obtained.
Prior to the effective time, Nautica will take, or cause the plan
administrator to take, any actions that Nautica deems reasonably necessary under
its State-O-Maine, Inc. 1989 Employee Incentive Stock Plan to effect the
transactions contemplated above with respect to stock options under the 1989
plan using merger consideration.
Other Employee Benefits
Nautica and VF have agreed, after completion of the merger:
o to honor and assume and agree to perform the obligations of Nautica
or any of its subsidiaries under employee plans and all employment,
severance, termination, change of control, consulting and
collective bargaining agreements to which Nautica or any of its
subsidiaries is a party to the extent Nautica or any of its
subsidiaries would have been required to perform such plan or
agreement;
o for at least one year following the effective time, subject to
applicable law, VF will provide to employees of Nautica and its
subsidiaries as of the effective time, except employees covered by
collective bargaining agreements to which Nautica or any of its
subsidiaries is a party, benefits materially no less favorable than
those currently provided by Nautica and its subsidiaries to such
employees or, at the election of VF, materially no less favorable,
in the aggregate, than the benefits provided from time to time to
similarly situated employees of VF and its subsidiaries (other than
any stock option or other equity based incentive plan
50
currently provided by Nautica), and VF will cause to be provided to
any transferred employee who is terminated during the one-year
period following the effective time, severance benefits no less
favorable than those currently provided to a similarly situated
employee under any severance pay plan, policy, arrangement or
guideline of Nautica or its subsidiaries. VF has the right to
amend, modify or terminate any employee plan or international plan;
o each employee of Nautica will receive service credit for all
periods of employment with Nautica and its affiliates or
predecessors prior to the effective time for purposes of
participation eligibility and vesting (other than for benefit
accrual purposes) under any employee benefit plan of VF or its
affiliates in which such employee participates after the effective
time to the extent that such service was recognized under any
analogous plan of Nautica or its affiliates immediately prior to
the effective time; and
o for purposes of each new or existing employee benefit plan of VF or
its affiliates providing medical, dental, pharmaceutical or vision
benefits to any employee of Nautica or its subsidiaries, VF or its
affiliates will waive all pre-existing condition exclusions and
actively-at-work requirements of such new or existing employee
benefit plan of VF or its affiliates to be waived for such employee
and his or her covered dependents, to the extent the exclusions
were not applicable or requirements were waived under the
corresponding employee plan of Nautica or its subsidiaries, and VF
or its affiliates will take into account any eligible expenses
incurred by employees and covered dependents during the portion of
the plan year ending on the date participation in the VF benefit
plan begins to take such into account for purposes of satisfying
all deductible, coinsurance and maximum out-of-pocket requirements.
The foregoing will not be deemed for the benefit of, or enforceable by,
any person not a party to the agreement, including, any employee of the
surviving corporation, or any of their respective affiliates nor will it be
deemed to limit the surviving corporation's or its affiliates' ability to modify
or eliminate any employee plan or international plan.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
After the merger, the surviving corporation will, and VF will cause the
surviving corporation to, indemnify and hold harmless the individuals who are
now, or have been at any time prior to the execution of the merger agreement or
who become such prior to the effective time, a director or officer of Nautica or
any of its subsidiaries against all specified costs arising from or relating to
or otherwise in respect of any actual or threatened claim or action arising out
of matters existing before or at the effective time of the merger. In addition,
the merger agreement provides for reimbursement of expenses and per diem
payments of $3,000 per day under certain circumstances to each of Israel
Rosenzweig, Robert B. Banks and Ronald G. Weiner in connection with certain time
and effort that may be devoted by them with respect to certain indemnified
proceedings, if any.
The surviving corporation will provide, for a period of six years after
the merger becomes effective, directors' and officers' liability insurance
covering indemnified persons under
51
Nautica's officers' and directors' liability insurance policy on terms with
respect to coverage and amounts no less favorable than those of the policy in
effect as of the execution of the merger agreement, provided that, subject to
certain exceptions, the surviving corporation will not be obligated to pay
premiums in excess of 250% of the annualized policy premium based on a rate as
of the execution of the merger agreement.
ADDITIONAL COVENANTS
The merger agreement contains additional covenants regarding the
conduct of the parties prior to the merger, some of which are described below.
Reasonable Best Efforts
Subject to the terms of the merger agreement, Nautica and VF will use
their reasonable efforts to take, or cause to be taken, all actions and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations, to consummate the transactions contemplated by the merger
agreement.
Stockholder Meetings
Nautica will cause a meeting of its stockholders to be duly called and
held as soon as reasonably practicable following the clearance of the proxy
statement by the SEC for the purpose of voting on the approval and adoption of
the merger agreement and the merger. Subject to specified exceptions relating to
superior proposals, Nautica's board of directors will recommend approval and
adoption of the merger by Nautica's stockholders. In connection with such
meeting, Nautica will (i) promptly prepare and file with the SEC, use reasonable
efforts to have cleared by the SEC and thereafter mail to its stockholders as
promptly as practicable the proxy statement and all other proxy materials for
such meeting, (ii) subject to specified exceptions relating to superior
proposals, use reasonable efforts to obtain the necessary approvals by its
stockholders of the merger agreement and the transactions contemplated thereby
and (iii) otherwise comply with all legal requirements applicable to such
meeting.
Regulatory Applications; Consents
Nautica, VF and their respective subsidiaries will cooperate and use
reasonable efforts to prepare all documentation, to effect all filings, notices,
applications, consents, registrations, approvals, permits or authorizations
with, to or of all third parties and governmental authorities necessary to
consummate the transactions contemplated by the merger agreement.
Covenants Relating to David Chu
Prior to the effective time, VF will (a) use its reasonable efforts to
consummate the closing of the purchase agreement with David Chu and the Chu
Company, (b) perform its obligations under that agreement, (c) not amend that
agreement, (d) not terminate that agreement, (e) promptly send to Nautica a copy
of any notice received in connection with that agreement and the transactions
contemplated thereby and (f) promptly notify Nautica of any significant
developments relating to that agreement and the transactions contemplated
thereby.
52
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of the parties to the merger agreement are subject to
the fulfillment or waiver of various conditions as described in this section.
Conditions to VF's, Merger Subsidiary's and Nautica's Obligations
VF and Nautica are obligated to complete the merger only if each of the
following conditions is satisfied or waived:
o the merger agreement must be approved and adopted by the
stockholders of Nautica in accordance with the Delaware General
Corporation Law;
o no provision of any applicable law or regulation and no judgment,
injunction, order or decree of a court of competent jurisdiction
prohibits the consummation of the merger;
o any applicable waiting period under HSR Act relating to the merger
has expired or been terminated; and
o all required actions by or filings with governmental authorities
must have been taken, made or obtained where the failure to do so
would be reasonably likely to have a material adverse effect on
Nautica or VF.
Conditions to the Obligations of VF and Merger Subsidiary
VF will be obligated to complete the merger only if each of the
following conditions is satisfied or waived:
o Nautica must have performed in all material respects all of its
obligations required by the merger agreement to be performed by it
at or prior to the effective time, the representations and
warranties of Nautica must be true in all material respects, except
for any representations already qualified by materiality, which
need to be true in all respects, at and as of the effective time
and VF must have received a certificate to that effect signed by an
executive officer of Nautica;
o there are no instituted or pending actions (or investigations or
other inquiries reasonably likely to result in an action or
proceeding) by the United States Federal Trade Commission or the
United States Department of Justice before any court or
governmental authority (i) challenging or seeking to make illegal,
to delay materially, restrain or prohibit the consummation of the
merger or seeking to obtain material damages, (ii) seeking to
restrain or prohibit VF's ownership or operation of all or any
material portion of the business or assets of Nautica and its
subsidiaries, taken as a whole, or of VF and its subsidiaries,
taken as a whole, or to compel VF or any of its subsidiaries or
affiliates to dispose of or hold separate all or any material
portion of the business or assets of Nautica and its subsidiaries,
or of VF and its subsidiaries, taken as a whole, or (iii) that
otherwise is reasonably likely to have a material adverse effect on
Nautica, VF or any party's ability to
53
consummate the merger agreement; provided that VF used its
reasonable efforts to challenge the action or proceeding (or
investigation or other inquiry);
o after the date of the merger agreement, there has not been any
federal or state statute enacted, enforced or promulgated by the
federal or certain state governments or governmental authorities
that, in the reasonable judgment of VF, is likely, directly or
indirectly, to result in any of the consequences referred to in
clauses (i)-(iii) of the immediately preceding bullet point;
o VF has received all documents it may reasonably request relating to
the existence of Nautica and its significant subsidiaries and the
authority of Nautica to enter into and perform the merger
agreement, all in form and substance reasonably satisfactory to VF;
o the holders of not more than 12.5% of the outstanding shares of
common stock have demanded appraisal of their shares in accordance
with the Delaware General Corporation Law; and
o the transactions contemplated by the purchase agreement among Mr.
Chu, the Chu Company and VF shall have been closed or will be
closed substantially contemporaneously with the effective time,
with certain exceptions.
Conditions to the Obligations of Nautica
Nautica will be obligated to complete the merger only if each of the
following conditions is satisfied or waived:
o VF and Merger Subsidiary must have performed in all material
respects all of their obligations required by the merger agreement
to be performed by them at or prior to the effective time, the
representations and warranties of VF must be true in all material
respects, except for any representations already qualified by
materiality, which need to be true in all respects, at and as of
the effective time; and
o Nautica has received all documents it may reasonably request
relating to the existence of VF and Merger Subsidiary and the
authority of VF and Merger Subsidiary to enter into and perform the
merger agreement, all in form and substance reasonably satisfactory
to Nautica.
TERMINATION AND THE EFFECTS OF TERMINATION
The merger agreement may be terminated under the circumstances
described in this section. In some cases, this may require Nautica to pay a
termination fee as described below.
Termination by VF or Nautica
The merger agreement may be terminated and the merger may be abandoned
at any time prior to the effective time of the merger:
54
o by the mutual consent of VF and Nautica;
o by VF or Nautica, if:
o the merger has not been consummated on or before February 7,
2004;
o the merger is illegal or prohibited by United States law or
regulation or any judgment, injunction, order or decree of any
court or governmental body having competent jurisdiction
enjoining Nautica, VF or Merger Subsidiary from consummating
the merger is entered and has become final and nonappealable;
provided that the party seeking to terminate has used its
reasonable efforts to challenge the judgment, injunction, order
or decree; or
o the merger agreement has not been approved and adopted in
accordance with the Delaware General Corporation Law by
Nautica's stockholders at the stockholder meeting (or any
postponement or adjournment thereof);
o by VF, if at any time prior to the approval and adoption of the
merger agreement by Nautica's stockholders, the board of directors
of Nautica has failed to make or withdrawn, or modified in a manner
adverse to VF, its approval or recommendation of the merger
agreement or the merger, approved, recommended or endorsed an
acquisition proposal or failed to call the stockholder meeting in
accordance with the merger agreement; or
o by VF, if a breach of any representation or warranty or failure to
perform any covenant or agreement on the part of Nautica set forth
in the merger agreement has occurred that would cause certain
conditions to VF's and Merger Subsidiary's obligation to consummate
the merger not to be satisfied and incapable of being satisfied by
February 7, 2004; or
o by VF, if Nautica has knowingly, willfully and materially breached
any of its covenants with respect to calling a meeting of the
Nautica stockholders with respect to the merger, recommending the
merger to the stockholders, filing with the SEC documents relating
thereto or not soliciting or engaging in discussions, among other
things, with respect to an alternative acquisition proposal; or
o by Nautica, if a breach of any representation or warranty or
failure to perform any covenant or agreement on the part of VF or
Merger Subsidiary as set forth in the merger agreement has occurred
that would cause certain conditions to Nautica's obligation to
consummate the merger not to be satisfied and incapable of being
satisfied by February 7, 2004; or
o by Nautica, if the board of directors of Nautica authorizes it to
enter into a binding written agreement concerning a superior
proposal; provided that Nautica follows the written notification
procedures and specified waiting periods stipulated in the merger
agreement.
55
The party desiring to terminate the merger agreement must give notice
to the other party, other than pursuant to termination by mutual written
agreement.
EXPENSES
Each party will bear all costs and expenses incurred by it in
connection with the merger agreement; provided that VF and Nautica each will pay
50% of any fees and expenses, other than attorneys' and accounting fees and
expenses, incurred in respect of the printing, filing and mailing hereof and any
amendments or supplements hereto.
Nautica will pay VF (by wire transfer of immediately available funds) a
fee of $18 million if:
o VF terminates the merger agreement on the basis that Nautica's
board of directors fails to make as required, or withdraws or
modifies in a manner adverse to VF, its approval or
recommendation to Nautica's stockholders regarding the merger
agreement or the merger, approves, recommends or endorses an
alternative acquisition proposal or fails to call the special
meeting that is the subject hereof;
o VF terminates the merger agreement on the basis that Nautica
willfully, knowingly and materially breaches certain of its
obligations under the merger agreement;
o Nautica terminates the merger agreement on the basis that its
board of directors authorizes it to enter into a binding
written agreement constituting a superior proposal, subject to
certain opportunities of VF to make at least as favorable an
offer and certain procedural requirements, among other things;
or
o the consummation of any of the transactions described in
clauses (A) through (D) below within eight months of the
termination of the merger agreement by either party because the
merger has not been consummated by February 7, 2004, with
certain exceptions, or the merger agreement has not been
approved by Nautica's stockholders as contemplated thereby if
prior to such termination or stockholder meeting, as the case
may be, there has been made a bona fide acquisition proposal
pursuant to which Nautica stockholders would receive cash,
securities or other consideration having an aggregate value in
excess of $17.00 per share of common stock and which bona fide
acquisition proposal had been outstanding at the time of
termination or the stockholder meeting, as the case may be: (A)
Nautica merges with or into, or is acquired by merger or
otherwise by, a third party; (B) a third party acquires more
than 50% of the total assets of Nautica and its subsidiaries,
taken as a whole; (C) a third party acquires more than 50% of
the outstanding shares of Nautica's common stock; or (D)
Nautica adopts or implements a plan of liquidation,
recapitalization or share repurchase of more than 50% of the
outstanding shares of its common stock or an extraordinary
dividend relating to more than 50% of
56
such outstanding shares or 50% of the assets of Nautica and its
subsidiaries, taken as a whole, subject to certain additional
circumstances.
AMENDMENT AND WAIVER
Subject to applicable law, any provision of the merger agreement may be
amended or waived prior to the effective time, but only by written notice signed
by each party in the case of an amendment and signed by each party against whom
the waiver is to be effective in the case of a waiver; provided that, after
approval and adoption of the merger agreement by the stockholders of Nautica and
without their further approval, no amendment or waiver will reduce the amount or
change the kind of consideration to be received in exchange for the shares of
common stock or effect any other change not permitted by Section 251(d) of the
Delaware General Corporation Law.
57
VOTING AGREEMENT
This section describes the material terms of the voting agreement among
VF, Merger Subsidiary, Harvey Sanders, the Harvey Sanders Grantor Retained
Income Trust and David Chu. The description is not complete. You should read the
voting agreement, and the other information that is contained in this proxy
statement, carefully and in its entirety for a more complete understanding of
the voting agreement. The complete text of the voting agreement is attached to
this proxy statement as Appendix B and is incorporated by reference into this
proxy statement.
In connection with the merger, Mr. Sanders, the Harvey Sanders Grantor
Retained Income Trust and Mr. Chu, each of whom or which we refer to as an
"agreeing stockholder", have entered into a voting agreement with VF and Merger
Subsidiary, dated as of July 7, 2003. Pursuant to the voting agreement, the
agreeing stockholders have agreed, severally and not jointly, to vote all of
their respective shares of Nautica common stock, which in the aggregate consists
of 3,943,387 shares or approximately 11.6% of the outstanding shares, in favor
of approval and adoption of the merger agreement.
During the period, which we refer to as the "agreement period",
beginning on July 7, 2003 and ending on the earlier of the effective time of the
merger and the termination of the merger agreement, each agreeing stockholder
has agreed to vote the shares specified on a schedule to the voting agreement,
which we refer to as its "scheduled securities", and any other shares such
agreeing stockholder is entitled to vote at the time of such vote, which we
refer to as "additional securities", to approve and adopt the merger agreement,
the merger and all agreements related to the merger that are specifically
contemplated by the merger agreement at any meeting of the stockholders of
Nautica, and at any adjournment thereof or pursuant to action by written
consent, at or by which such merger agreement, the merger or such agreements are
submitted for the vote of the stockholders of Nautica.
In addition, during the agreement period, each agreeing stockholder has
agreed that he or it will not vote any of his or its scheduled securities or
additional securities in favor of any other merger, consolidation, sale of
assets, reorganization, recapitalization, liquidation or winding up of Nautica
or any other extraordinary transaction involving Nautica or any corporate action
the consummation of which would either frustrate in any material respect the
purposes of, or prevent or delay the consummation of, the transactions
contemplated by the merger agreement.
During the agreement period, each agreeing stockholder has irrevocably
appointed VF as his or its proxy to vote such stockholder's scheduled securities
and additional securities for the matters contemplated above.
During the agreement period, each agreeing stockholder has agreed
generally that he or it will not, directly or indirectly,
o solicit, initiate or knowingly take any action designed to
facilitate the submission of any acquisition proposal; or
o engage in negotiations or discussions with, or furnish any
nonpublic information relating to Nautica or any of its
subsidiaries or knowingly afford access to the
58
properties, books or records of Nautica or any of its subsidiaries
to, any third party that to the knowledge of such agreeing
stockholder is seeking to make, or has made, an acquisition
proposal.
Each agreeing stockholder has agreed to notify VF promptly and in no
event later than 48 hours after receipt by such stockholder in such capacity of
any acquisition proposal or of any request for information relating to Nautica
or any of its subsidiaries or for access to the business, properties, assets,
books or records of Nautica or any of its subsidiaries (other than such
components of such business, properties or assets that are generally accessible
to the public) by any third party that to the knowledge of such stockholder is
seeking to make, or has made, an acquisition proposal.
Each agreeing stockholder has agreed not to exercise any rights to
demand appraisal of any shares owned by such stockholder in connection with the
merger.
Each agreeing stockholder has agreed that if he or it sells, transfers,
assigns, encumbers or otherwise disposes of any scheduled shares during the
agreement period, such stockholder shall require the transferee to accede to the
voting agreement.
The voting agreement will terminate, and the proxy granted in such
agreement will cease to be irrevocable, upon either the expiration of the
agreement period or the termination of the merger agreement for any reason,
including in connection with a superior proposal.
59
DAVID CHU AGREEMENTS
PURCHASE AGREEMENT
This section describes the material terms of the purchase agreement
among VF, the Chu Company and Mr. Chu. The description in this section is not
complete. You should read the purchase agreement, and other information that is
contained in this proxy statement, carefully and in its entirety for a more
complete understanding of the purchase agreement. The complete text of the
purchase agreement is attached to this proxy statement as Appendix C-1 and is
incorporated by reference into this proxy statement.
Purchase and Sale
Pursuant to the purchase agreement, and subject to the conditions set
forth in that agreement, VF agrees to purchase from the Chu Company and the Chu
Company agrees to sell to VF, the "purchased rights." The purchased rights
include:
o all of the rights and interests of the Chu Company in, to and under
the existing royalty agreement among Nautica, Nautica Apparel, Inc.
and Mr. Chu, which rights and interests Mr. Chu had assigned to the
Chu Company;
o all of the rights, title and interest of the Chu Company in and to
the "Nautica" name and mark, which rights, title and interest Mr.
Chu had assigned to the Chu Company; and
o any and all rights, title and interest that the Chu Company may
have in and to the intellectual property owned, held or used by
Nautica or any of its subsidiaries.
Purchase Price
The purchase price for the purchased rights will be $104 million,
payable at the times and in the manner set forth below. In addition, there are
also "contingent payments" that are payable at the times and in the manner set
forth below.
Closing
The closing of the purchase and sale of the purchased rights will occur
on the date of the effective time of the merger. At the closing VF will pay $38
million to the Chu Company.
The portion of the $104 million not paid at closing will be paid to the
Chu Company in two installments, $33 million on the third anniversary of the
effective time of the merger and $33 million on the fourth anniversary of the
effective time of the merger.
Contingent Payments
The "contingent payments" are determined based on the "royalty revenue
amount," which is calculated based on a "royalty revenue period." A "royalty
revenue period" is any of the five successive full fiscal years of VF commencing
with the fiscal year ending January 1, 2005. The "royalty revenue amount" means,
for any royalty revenue period, the aggregate gross
60
revenue accrued in respect of such fiscal year net of any write-offs for
uncollectable receivables, by VF and its subsidiaries under any license, royalty
agreement or other arrangement pursuant to which any entity, other than VF or
any of its subsidiaries, has been granted or obtained rights to use the Nautica
name and mark.
If the "royalty revenue amount" exceeds $34.7 million for any royalty
revenue period, VF will pay to Chu Company 31.7% of such excess. Each such
payment is a "contingent payment."
In the event that the effective time of the merger occurs during the
third quarter of Nautica's fiscal year 2004, Chu Company will receive the full
quarterly royalty payment due under the royalty agreement in respect of the
third fiscal quarter. In the event that the effective time occurs after the end
of the third quarter but prior to the end of Nautica's fiscal year 2004, Chu
Company will not receive any quarterly royalty payment in respect of the fourth
quarter of fiscal 2004.
Representations and Warranties
The purchase agreement contains a number of customary representations
and warranties made by Chu Company and David Chu, which we refer to as the "DC
parties," to VF and by VF to the DC parties.
Covenants of the DC Parties
From the date of the purchase agreement to the closing, the DC parties
will not take any action that would make any of their representations or
warranties inaccurate in any respect at or as of any time prior to the effective
time.
The DC parties will not, from and after the date of the purchase
agreement, use or attempt to register the Nautica name and mark or any
confusingly similar mark. The DC parties also agree after the effective time not
to oppose, attempt to cancel or challenge any applications or registrations for,
or Nautica's or VF's rights in and to, the Nautica name and mark or any
substantially similar trademarks or service marks.
Mr. Chu will take all action necessary to cause the Chu Company to
perform its obligations under the purchase agreement and to consummate the
transactions contemplated in the purchase agreement.
Covenant Relating to Chu's Rights
From the date of the purchase agreement until the earlier of the
effective time of the merger or the termination of the purchase agreement, the
DC parties will not, and will instruct their investment bankers, attorneys or
other advisors or representatives not to:
o solicit or initiate the submission of any proposal or offer to
purchase or acquire any or all of the purchased rights; or
61
o participate in any discussions or negotiations with any person or
entity, or furnish to any person or entity any non-public
information, with respect to an acquisition of the DC parties
rights.
These restrictions, however, are not applicable to any person or entity
with or to whom the board of directors of Nautica is permitted pursuant to the
"no solicitation" provisions of the merger agreement to engage in negotiations
or discussions, or furnish information, with respect to an acquisition proposal.
Conditions to Closing
The obligations of VF and the DC parties to consummate the closing are
subject to the satisfaction of the following conditions:
o the merger closing shall have occurred or shall occur substantially
simultaneously with the closing of the purchase agreement.
o no provision of applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the
closing.
o any applicable waiting period under the HSR Act relating to the
transactions contemplated by the purchase agreement shall have
expired or been terminated.
The obligation of VF to consummate the closing is subject to the
satisfaction of the following conditions:
o The DC parties shall have performed in all material respects all of
their obligations required to be performed by them under the
purchase agreement on or prior to the effective time.
o The representations and warranties of the DC parties shall be true
in all material respects at and as of the effective time as if made
at and as of such date.
o No action, suit, investigation or proceeding shall be pending
against the DC parties or affecting any of the purchased rights
before any court, arbitrator, governmental body, agency or official
that would reasonably be expected to have an adverse effect on the
purchased rights.
The obligation of the DC parties to consummate the closing is subject
to the satisfaction of the following conditions:
o VF shall have performed in all material respects all of its
obligations required to be performed by it under the purchase
agreement on or prior to the effective time.
o The representations and warranties of VF shall be true in all
material respects at and as of the effective time as if made at and
as of such date.
62
Termination
The purchase agreement may be terminated at any time prior to the
effective time:
o by mutual written agreement of VF and the DC parties.
o by either VF or the DC parties if the merger agreement has been
terminated.
o by either VF or the DC parties if consummation of the transactions
contemplated by the purchase agreement would violate any
nonappealable final order, decree or judgment of any court or
governmental body.
NEW CHU EMPLOYMENT AGREEMENT
This section describes the material terms of the new Chu employment
agreement. The description in this section is not complete. You should read the
Chu employment agreement, and the other information that is contained in this
proxy statement, carefully and in its entirety for a more complete understanding
of the Chu employment agreement. The complete text of the Chu employment
agreement is attached to this proxy statement as Appendix C-2 and is
incorporated by reference into this proxy statement.
David Chu entered into an employment and consulting agreement, dated as
of July 7, 2003, which will become effective upon the completion of the merger
and the closing of the purchase under the purchase agreement and which we refer
to as the "Chu employment agreement", a copy of which is attached as Appendix
C-2. Upon completion of the merger and the closing of the purchase under the
purchase agreement, the Chu employment agreement will supersede his transition
agreement, dated July 11, 1991 described above under "The Merger - Interests of
Nautica's Directors and Executive Officers in the Merger". Under the Chu
employment agreement, Mr. Chu would be employed by the surviving corporation in
the merger as the Chief Executive Officer of the division of VF that constitutes
the Nautica branded wholesale business, with an annual base salary of $625,000,
for a term commencing on the completion of the merger and ending on December 31,
2005, unless terminated earlier. If Mr. Chu is continuously employed by the
surviving corporation during the employment term, for an annualized consulting
fee of $500,000 he will provide advisory and consulting services to the
surviving corporation during the period from January 1, 2006 until the earlier
of December 31, 2008 or the date on which the surviving corporation notifies Mr.
Chu that it no longer wishes to receive his consulting services. During the
employment term, Mr. Chu will have a target bonus opportunity each year equal to
100% of his base salary, payable if the target performance goals for such year
are achieved. If the performance goals are not achieved, he will receive a bonus
in proportion to the performance level achieved but only if such level is at
least 80% of the target performance for that year. If the performance goals are
exceeded, Mr. Chu will receive a greater amount in proportion to the level
achieved, up to a maximum of 150% of the target bonus.
However, for the periods described below, the Chu employment agreement
provides for annual incentive awards as follows:
o If the completion of the merger occurs before January 1, 2004, for
calendar year 2003, Mr. Chu will be entitled to an annual incentive
award equal to his fiscal
63
year 2004 annual incentive award under Nautica's incentive award
plan, multiplied by approximately 0.833.
o If the completion of the merger occurs on or after January 1, 2004,
for calendar year 2004, Mr. Chu will be entitled to (i) an annual
incentive award equal to the annual incentive award described in
the paragraph above multiplied by a fraction, the numerator of
which is the number of days that he was employed during the period
that begins on the date of the completion of the merger and ends on
December 31, 2004 and the denominator of which is 365 days plus
(ii) the annual incentive award to which he was entitled under
Nautica's incentive award plan for fiscal year 2004 multiplied by a
fraction the numerator of which is the number of days during the
period that begins on March 1, 2003 and ends on the day immediately
preceding the date of the completion of the merger and the
denominator of which is 365.
On the date of the completion of the merger and the closing of the
purchase under the purchase agreement, Mr. Chu will be granted an option to
purchase 100,000 shares of common stock of VF at the fair market value of such
common stock on the date of the grant. This option will vest in thirds on each
of the first, second and third anniversaries of the date of the grant, and will
have an eight-year term, with certain exceptions based on various types of
termination. In the event of a change of control, as defined in the Chu
employment agreement, the option will vest in full.
Subject to Mr. Chu's continued compliance with the non-competition,
non-interference and non-solicitation provisions of the Chu employment agreement
and provided that Mr. Chu signs a release of all claims in connection with his
employment, among other things, if his employment is terminated by the employer
without cause, or if he terminates his employment for good reason, or if his
employment is terminated by the employer other than for cause within two years
after a change in control, in all cases prior to December 31, 2005 he shall be
entitled to certain compensation, including the following:
o base salary which would otherwise be due to him through December
31, 2005;
o an annual incentive award for each remaining year in the period
ending on December 31, 2005 equal to the target bonus;
o immediate vesting as to 100% of the shares underlying the stock
option described above, which would remain exercisable for a period
of 180 days;
o immediate vesting as to 100% of the shares underlying any other
option granted to Mr. Chu pursuant to a plan of VF, which would
remain exercisable for a period of 180 days, only if Mr. Chu's
employment is terminated by the employer without cause or if Mr.
Chu terminates his employment for good reason, in either case
within two years after a change in control;
o the balance of any unpaid incentive awards earned for performance
periods which have been completed;
64
o any expense reimbursements due to Mr. Chu; and
o any other benefits in accordance with applicable plans and programs
of the employer.
If Mr. Chu's employment is terminated prior to December 31, 2005 for
any reason other than by the employer without cause or by Mr. Chu for good
reason, Mr. Chu or his estate or beneficiaries will be entitled to:
o base salary which would otherwise be due to Mr. Chu through the
date on which such termination of employment occurs;
o the balance of any unpaid incentive awards earned for performance
periods which have been completed;
o any expense reimbursements due to Mr. Chu; and
o any other benefits in accordance with applicable plans and programs
of the employer.
Under the Chu employment agreement, Mr. Chu has agreed not to compete
with VF or the surviving corporation during the period from the effective date
of the Chu employment agreement through December 31, 2005. Mr. Chu has also
agreed not to compete with the Nautica branded wholesale business division of VF
during the period that he is providing advisory and consulting services to the
surviving corporation. In addition, the Chu employment agreement requires Mr.
Chu to maintain the confidentiality of certain information of VF and the
surviving corporation at all times during his employment with the surviving
corporation and after termination of his employment. Mr. Chu is also required to
assign to the surviving corporation all conceptions and developments made by Mr.
Chu during his employment with the surviving corporation.
65
MARKET PRICE OF NAUTICA COMMON STOCK
Nautica common stock is listed on NASDAQ under the trading symbol
"NAUT." The following table sets forth, for the periods indicated, the high and
low sales prices per share for Nautica common stock as reported on NASDAQ:
HIGH LOW
---- ---
FISCAL 2002
First Quarter Ended June 2, 2001............................. $ 21.20 $ 14.47
Second Quarter Ended September 1, 2001....................... 21.65 12.83
Third Quarter Ended December 1, 2001......................... 14.76 10.46
Fourth Quarter Ended March 2, 2002........................... 14.49 12.57
FISCAL 2003
First Quarter Ended June 1, 2002............................. $ 16.22 $ 12.94
Second Quarter Ended August 31, 2002......................... 13.75 10.98
Third Quarter Ended November 30, 2002........................ 12.38 8.06
Fourth Quarter Ended March 1, 2003........................... 12.37 9.45
FISCAL 2004
First Quarter Ended May 31, 2003............................. $ 10.55 $ 10.10
Second Quarter (through July ___, 2003)...................... __ __
The closing price per share on NASDAQ of Nautica common stock on
July 3, 2003, which was the last full trading day immediately preceding the
public announcement of the proposed merger, was $13.19. On , which
is the latest practicable date prior to the date of this proxy statement, the
closing price for Nautica common stock on NASDAQ was $____.
As of [record date], there were [number outstanding] shares of Nautica
common stock outstanding held by approximately 300 holders of record.
66
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning the beneficial
ownership of Nautica's common stock by (i) directors and executive officers
(designated under the rules of the Securities and Exchange Commission) and all
directors and executive officers as a group (ten persons) and (ii) all persons
or groups that are known to Nautica to beneficially own five percent or more of
Nautica's common stock. Unless indicated otherwise, the information below is
current as of July 16, 2003, and each named beneficial owner possesses sole
voting and investment power with respect to all shares. On [record date],
Nautica had [number outstanding] shares of common stock outstanding. Unless
otherwise indicated, the address of each person listed in the table is c/o
Nautica Enterprises, Inc., 40 West 57th Street, New York, NY 10019.
NAME OF AMOUNT BENEFICIALLY PERCENT OF
BENEFICIAL OWNER OWNED(1)(2) CLASS(%)
---------------- ----------- --------
Robert B. Bank.......................................................... 32,000 *
David Chu............................................................... 1,768,887 5.0
Paulette McCready Pipher................................................ 163,700 *
Israel Rosenzweig....................................................... 20,000 *
Harvey Sanders.......................................................... 4,598,440 13.1
Charles H. Scherer...................................................... 21,000 *
Steven H. Tishman....................................................... 3,000 *
John Varvatos........................................................... 116,000 *
Ronald G. Weiner........................................................ 27,500 *
All Directors and Executive Officers as a group......................... 6,750,527 18.4
FMR Corp. and related parties (3)....................................... 3,580,000 10.5
Royce & Associates, Inc. (4)............................................ 2,931,000 8.6
------------
* Indicates holdings of less than 1%.
(1) Directly and indirectly. The inclusion of securities owned by others as
beneficially owned by the respective nominees and officers does not
constitute an admission that such securities are beneficially owned by
them. All of the named individuals have, except as set forth in Note 2
below, sole voting and investment powers with respect to the aforesaid
shares.
(2) Includes the following shares which may be acquired pursuant to
existing stock options which are exercisable within 60 days of July 16,
2003: Robert B. Bank - 32,000; David Chu -- 1,331,940; Paulette
McCready Pipher -- 163,700; Israel Rosenzweig -- 20,000; Harvey Sanders
-- 1,092,000; Charles H. Scherer -- 20,000; Steven H. Tishman -- 1,000;
John Varvatos -- 116,000; and, Ronald G. Weiner -- 20,000. With respect
to Mr. Sanders, includes 1,200,000 shares owned by the Harvey Sanders
Grantor Retained Income Trust. Such trust has sole voting and
investment power with respect to such shares.
(3) Information is based upon statements filed under Section 13 of the
Securities Exchange Act of 1934 reporting shareholdings as of December
31, 2002. In addition to FMR Corp., related parties on the filing are
Fidelity Low Priced Stock Fund, Fidelity Management and Research
Company, Edward C. Johnson 3d (Chairman of FMR Corp.) and Abigail P.
Johnson (Director of FMR Corp.) The reporting persons have sole
dispositive power with respect to all 3,580,000 shares. The address for
FMR Corp. and related parties is 82 Devonshire Street, Boston,
Massachusetts 02109.
(4) Information is based upon statements filed under Section 13 of the
Securities Exchange Act of 1934 reporting shareholdings as of December
31, 2002. Royce & Associates, Inc. is deemed to have sole voting and
dispositive power with respect to all 2,931,000 shares. The address for
Royce & Associates, Inc. is 1414 Avenue of the Americas, New York, New
York 10019.
67
DISSENTERS' RIGHTS OF APPRAISAL
Under the Delaware General Corporation Law, if you do not wish to
accept the cash payment provided for in the merger agreement, you have the right
to dissent from the merger and to receive payment in cash for the fair value of
your Nautica common stock. Nautica stockholders electing to exercise appraisal
rights must comply with the provisions of Section 262 of the Delaware General
Corporation Law in order to perfect their rights. Nautica will require strict
compliance with the statutory procedures. A copy of Section 262 is attached to
this proxy statement as Appendix E.
The following is intended as a brief summary of the material provisions
of the Delaware statutory procedures required to be followed by a stockholder in
order to dissent from the merger and perfect appraisal rights. This summary,
however, is not a complete statement of all applicable requirements and is
qualified in its entirety by reference to Section 262 of the Delaware General
Corporation Law, the full text of which appears in Appendix E of this proxy
statement.
Section 262 requires that stockholders be notified that appraisal
rights will be available not less than 20 days before the special meeting to
vote on the merger. A copy of Section 262 must be included with such notice.
This proxy statement constitutes Nautica's notice to its stockholders of the
availability of appraisal rights in connection with the merger in compliance
with the requirements of Section 262. If you wish to consider exercising your
appraisal rights, you should carefully review the text of Section 262 contained
in Appendix E since failure to timely and properly comply with the requirements
of Section 262 will result in the loss of your appraisal rights under Delaware
law.
If you elect to demand appraisal of your shares, you must satisfy each
of the following conditions:
o You must deliver to Nautica a written demand for appraisal of your
shares before the vote with respect to the merger is taken. This
written demand for appraisal must be in addition to and separate
from any proxy or vote abstaining from or voting against approval
and adoption of the merger agreement. Voting against or failing to
vote for approval and adoption of the merger agreement by itself
does not constitute a demand for appraisal within the meaning of
Section 262.
o You must not vote in favor of approval and adoption of the merger
agreement. A vote in favor of the approval and adoption of the
merger agreement, by proxy or in person, will constitute a waiver
of your appraisal rights in respect of the shares so voted and will
nullify any previously filed written demands for appraisal.
If you fail to comply with either of these conditions and the merger is
completed, you will be entitled to receive the cash payment for your shares of
Nautica common stock as provided for in the merger agreement, but you will have
no appraisal rights with respect to your shares of Nautica common stock.
All demands for appraisal should be addressed to the Vice
President-Investor Relations at Nautica Enterprises, Inc., 40 West 57th Street,
New York, New York 10019, before the vote on
68
the merger is taken at the special meeting, and should be executed by, or on
behalf of, the record holder of the shares of Nautica common stock. The demand
must reasonably inform Nautica of the identity of the stockholder and the
intention of the stockholder to demand appraisal of his, her or its shares.
To be effective, a demand for appraisal by a holder of Nautica common
stock must be made by, or in the name of, such registered stockholder, fully and
correctly, as the stockholder's name appears on his or her stock certificate(s)
and cannot be made by the beneficial owner if he or she does not also hold the
shares of record. The beneficial holder must, in such cases, have the registered
owner submit the required demand in respect of those shares.
If shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of a demand for appraisal should be
made in that capacity; and if the shares are owned of record by more than one
person, as in a joint tenancy or tenancy in common, the demand should be
executed by or for all joint owners. An authorized agent, including an
authorized agent for two or more joint owners, may execute the demand for
appraisal for a stockholder of record; however, the agent must identify the
record owner or owners and expressly disclose the fact that, in executing the
demand, he or she is acting as agent for the record owner. A record owner, such
as a broker, who holds shares as a nominee for others, may exercise his or her
right of appraisal with respect to the shares held for one or more beneficial
owners, while not exercising this right for other beneficial owners. In that
case, the written demand should state the number of shares as to which appraisal
is sought. Where no number of shares is expressly mentioned, the demand will be
presumed to cover all shares held in the name of the record owner.
If you hold your shares of Nautica common stock in a brokerage account
or in other nominee form and you wish to exercise appraisal rights, you should
consult with your broker or the other nominee to determine the appropriate
procedures for the making of a demand for appraisal by the nominee.
Within 10 days after the effective time of the merger, the surviving
corporation must give written notice that the merger has become effective to
each Nautica stockholder who has properly filed a written demand for appraisal
and who did not vote in favor of the merger. At any time within 60 days after
the effective time, any stockholder who has demanded an appraisal has the right
to withdraw the demand and to accept the cash payment specified by the merger
agreement for his or her shares of Nautica common stock. Within 120 days after
the effective time, either the surviving corporation or any stockholder who has
complied with the requirements of Section 262 may file a petition in the
Delaware Court of Chancery demanding a determination of the fair value of the
shares held by all stockholders entitled to appraisal. The surviving corporation
has no obligation to file such a petition in the event there are dissenting
stockholders. Accordingly, the failure of a stockholder to file such a petition
within the period specified could nullify the stockholder's previously written
demand for appraisal.
If a petition for appraisal is duly filed by a stockholder and a copy
of the petition is delivered to the surviving corporation, the surviving
corporation will then be obligated, within 20 days after receiving service of a
copy of the petition, to provide the Chancery Court with a duly verified list
containing the names and addresses of all stockholders who have demanded an
appraisal of their shares. After notice to dissenting stockholders, the Chancery
Court is
69
empowered to conduct a hearing upon the petition, and to determine those
stockholders who have complied with Section 262 and who have become entitled to
the appraisal rights provided thereby. The Chancery Court may require the
stockholders who have demanded payment for their shares to submit their stock
certificates to the Register in Chancery for notation thereon of the pendency of
the appraisal proceedings; and if any stockholder fails to comply with that
direction, the Chancery Court may dismiss the proceedings as to that
stockholder.
After determination of the stockholders entitled to appraisal of their
shares of Nautica common stock, the Chancery Court will appraise the shares,
determining their fair value exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate of
interest. When the value is determined, the Chancery Court will direct the
payment of such value, with interest thereon accrued during the pendency of the
proceeding, if the Chancery Court so determines, to the stockholders entitled to
receive the same, upon surrender by such holders of the certificates
representing those shares.
In determining fair value, the Chancery Court is required to take into
account all relevant factors. You should be aware that the fair value of your
shares as determined under Section 262 could be more, the same, or less than the
value that you are entitled to receive under the terms of the merger agreement.
Costs of the appraisal proceeding may be imposed upon the surviving
corporation and the stockholders participating in the appraisal proceeding by
the Chancery Court as the Chancery Court deems equitable in the circumstances.
Upon the application of a stockholder, the Chancery Court may order all or a
portion of the expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorneys' fees
and the fees and expenses of experts, to be charged pro rata against the value
of all shares entitled to appraisal. Any stockholder who had demanded appraisal
rights will not, after the effective time, be entitled to vote shares subject to
that demand for any purpose or to receive payments of dividends or any other
distribution with respect to those shares, other than with respect to payment as
of a record date prior to the effective time; however, if no petition for
appraisal is filed within 120 days after the effective time of the merger, or if
the stockholder delivers a written withdrawal of his or her demand for appraisal
and an acceptance of the merger within 60 days after the effective time of the
merger, then the right of that stockholder to appraisal will cease and that
stockholder will be entitled to receive the cash payment for shares of his, her
or its Nautica common stock pursuant to the merger agreement. Any withdrawal of
a demand for appraisal made more than 60 days after the effective time of the
merger may only be made with the written approval of the surviving corporation
and must, to be effective, be made within 120 days after the effective time.
In view of the complexity of Section 262, Nautica stockholders who may
wish to dissent from the merger and pursue appraisal rights should consult their
legal advisors.
70
OTHER MATTERS
You should rely only on the information contained in this proxy
statement to vote your shares at the special meeting. We have not authorized
anyone to provide you with information that is different from what is contained
in this proxy statement. This proxy statement is dated ____, 2003. You should
not assume that the information contained in this proxy statement is accurate as
of any date other than that date, and the mailing of this document to
stockholders is not intended to create any implication to the contrary.
If you want to include a proposal in the proxy statement for Nautica's
2004 Annual Meeting of Stockholders (if held), please send the proposal to us at
40 West 57th Street, New York, New York 10019, Attn: Vice President - Investor
Relations. Proposals submitted pursuant to SEC Rule 14a-8 must be received on or
before February 6, 2004 to be included in next year's proxy statement. Under SEC
Rule 14a-4, we will be able to use proxies given to us for the 2004 Annual
Meeting to vote for or against any stockholder proposal submitted other than
pursuant to Rule 14a-8 at our discretion unless the proposal is submitted to us
on or before 60 days before next year's Annual Meeting of Stockholders. If the
proposal is submitted before that deadline, we will retain our discretion to
vote proxies we receive as long as we include in our proxy statement information
on the nature of the proposal and how we intend to exercise our voting
discretion and the proponent does not issue a proxy statement. The 2004 Annual
Meeting of Stockholders will be held only if the merger is not completed.
Our board of directors does not intend to bring before the special
meeting of stockholders any matters other than those set forth herein, and has
no present knowledge that any other matters will or may be brought before the
special meeting of stockholders by others. If, however, any other matters
properly come before the special meeting of stockholders, it is the intention of
the persons named in the enclosed form of proxy to vote the proxies in
accordance with their judgment.
71
WHERE YOU CAN FIND MORE INFORMATION
Nautica files annual, quarterly and current reports, proxy statements
and other information with the SEC. VF files annual reports, current reports and
other information with the SEC. You may read and copy this information at the
following location of the SEC:
Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. You may also obtain copies of this information by mail
from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. Nautica's and VF's public filings
are also available to the public from document retrieval services, and Nautica's
public filings are also available to the public at the Internet website
maintained by the SEC at http://www.sec.gov.
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") dated as of July 7,
2003 among Nautica Enterprises, Inc., a Delaware corporation (the "COMPANY"), VF
Corporation, a Pennsylvania corporation ("PARENT"), and Voyager Acquisition
Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent
("MERGER SUBSIDIARY").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of the Company, Parent and
Merger Subsidiary have approved and deemed it advisable that the respective
stockholders of Merger Subsidiary and the Company approve and adopt this
Agreement pursuant to which, among other things, Parent would acquire the
Company by means of a merger of Merger Subsidiary with and into the Company on
the terms and subject to the conditions set forth in this Agreement;
WHEREAS, concurrently with the execution and delivery of this
Agreement, and as a condition and inducement to Parent's and Merger Subsidiary's
willingness to enter into this Agreement, Harvey Sanders, the Harvey Sanders
Grantor Retained Income Trust and David Chu are entering into a Voting Agreement
(the "VOTING AGREEMENT") with respect to the voting of Common Stock with respect
to the Merger;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements herein contained, the
parties hereto agree as follows:
ARTICLE 1
Definitions
Section 1.01. Definitions. (a) The following terms, as used herein,
have the following meanings:
"ACQUISITION PROPOSAL" means, other than the transactions contemplated
by this Agreement, any offer or proposal by a Third Party relating to (A) any
acquisition or purchase, direct or indirect, of 40% or more of the consolidated
assets of the Company and its Subsidiaries, taken as a whole, or over 40% of the
voting securities of the Company or any of its Subsidiaries whose assets,
individually or in the aggregate, constitute more than 40% of the consolidated
assets of the Company, (B) any tender offer (including a self-tender offer) or
exchange offer that, if consummated, would result in such Third Party's
beneficially owning 40% or more of any class of equity or voting securities of
the Company or any of its Subsidiaries whose assets, individually or in the
aggregate, constitute more than 40% of the consolidated assets of the Company or
(C) a merger, consolidation, share exchange, business combination, sale of
substantially all the assets, reorganization, recapitalization, liquidation,
dissolution or other similar transaction involving the Company or any of its
Subsidiaries whose assets, individually or in the aggregate, constitute more
than 40% of the consolidated assets of the Company.
"AFFILIATE" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person.
A-1
"BALANCE SHEET" means the consolidated balance sheet of the Company and
its Subsidiaries as of March 1, 2003 and the footnotes thereto set forth in the
Company 10-K.
"BALANCE SHEET DATE" means March 1, 2003.
"BUSINESS DAY" means a day, other than Saturday, Sunday or other day on
which commercial banks in New York, New York are authorized or required by law
to close.
"CHU AGREEMENTS" means the Chu Purchase Agreement and the Employment
and Consulting Agreement dated as of the date of this Agreement among David Chu,
Merger Subsidiary and Parent, as guarantor and third party beneficiary.
"CHU PURCHASE AGREEMENT" means the Purchase Agreement dated as of the
date of this Agreement among Parent, David Chu and Company, Inc. and David Chu.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" means the common stock, $0.10 par value, of the Company,
together with the associated Preferred Stock Purchase Rights.
"COMPANY 10-K" means the Company's annual report on Form 10-K for the
fiscal year ended March 1, 2003.
"COMPANY MATERIAL ADVERSE EFFECT" means a material adverse effect on
the financial condition, business or results of operations of the Company and
its Subsidiaries, taken as a whole, or on the Company's ability to consummate
the transactions contemplated by this Agreement or to perform its obligations
under this Agreement, other than, in the case of any of the foregoing, any such
effect arising out of, resulting from or caused by, (x) the economy, financial
markets or regulatory or political conditions in general and not specifically
relating to, or having the effect of specifically relating to or having a
materially disproportionate effect on, the Company or any of its Subsidiaries,
(y) the industries in which the Company or any of its Subsidiaries operate and
not specifically relating to, or having the effect of specifically relating to
or having a materially disproportionate effect (relative to most other industry
participants) on, the Company or any of its Subsidiaries or (z) any loss of
employees, labor dispute, employee strikes, slowdowns, job actions or work
stoppages or labor union activities occurring after execution of this Agreement
by all parties hereto or resulting from the announcement of this Agreement or
the Chu Agreements and the transactions contemplated hereby or thereby.
"DELAWARE LAW" means the General Corporation Law of the State of
Delaware.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" of any entity means any other entity that, together
with such entity, would be treated as a single employer under Section 414 of the
Code.
"GOVERNMENTAL AUTHORITY" means any court, administrative agency or
commission or other federal, state, local or foreign governmental or regulatory
authority, agency, body or instrumentality.
A-2
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
"INTELLECTUAL PROPERTY RIGHT" means any (i) trademark, service mark,
trade dress, logo, domain name, trade name and corporate name and all goodwill
associated therewith and (ii) mask work, copyright, patent, software license,
other database, domain name, invention, trade secret, know-how (including any
registrations or applications for registration of any of the foregoing) or any
other similar type of proprietary intellectual property right.
"INTERNATIONAL PLAN" means any material employment, severance or
similar contract or arrangement (whether or not written) or any plan, policy,
fund, program or arrangement or contract providing for defined benefit, pension
or retirement benefits, unfunded deferred compensation, profit-sharing,
post-retirement health or life insurance benefits, stock options, stock
appreciation rights or other stock-based compensation that (i) is not a
governmental, statutory or mandated plan, (ii) is entered into, maintained,
administered or contributed to by the Company or any of its Subsidiaries and
(iii) covers any employee or former employee of the Company or any of its
Subsidiaries outside the United States.
"KNOWLEDGE" of any Person that is not an individual means the actual
knowledge (without any inquiry) of such Person's executive officers.
"LIEN" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse claim of
any kind in respect of such property or asset. For purposes of this Agreement, a
Person shall be deemed to own subject to a Lien any property or asset that it
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such property or asset.
"1933 ACT" means the Securities Act of 1933, as amended.
"1934 ACT" means the Securities Exchange Act of 1934, as amended.
"OTHER SUBSIDIARIES" means the Subsidiaries of the Company that are not
Significant Subsidiaries.
"PARENT MATERIAL ADVERSE EFFECT" means a material adverse effect on
either Parent's or Merger Subsidiary's ability to consummate the transactions
contemplated by this Agreement or to perform its obligations under this
Agreement.
"PERSON" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
"PREFERRED STOCK PURCHASE RIGHTS" means the rights issued by the
Company pursuant to the Rights Agreement, as adjusted pursuant to the terms
thereof.
"RIGHTS AGREEMENT" means the Rights Agreement dated as of November 2,
2001, as amended, between the Company and Mellon Investor Services LLC.
A-3
"SEC" means the Securities and Exchange Commission.
"SERIES A PREFERRED STOCK" means the Series A Junior Participating
Preferred Stock, par value $0.01, of the Company.
"SIGNIFICANT SUBSIDIARY" means (i) the Subsidiaries of the Company
listed in Section 4.06(a) of the Company Disclosure Schedule and (ii) any other
Subsidiary of the Company that would constitute a "significant subsidiary"
within the meaning of Rule 1-02 of Regulation S-X of the SEC.
"SUBSIDIARY" means, with respect to any Person, any entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at any time directly or indirectly owned by such Person.
"THIRD PARTY" means any Person as defined in this Agreement or in
Section 13(d) of the 1934 Act, other than Parent and its Affiliates and their
respective advisors and agents (acting in such capacity).
Any reference in this Agreement to a statute shall be to such statute,
as amended from time to time, and to the rules and regulations promulgated
thereunder.
Each of the following terms is defined in the Section set forth
opposite such term:
TERM SECTION
---- -------
Agreement............................................... Preamble
Certificates............................................ 2.04
Company................................................. Preamble
Company Disclosure Schedule............................. 6.07
Company Securities...................................... 4.05
Company Stockholder Meeting............................. 6.02
Company Stock Option.................................... 2.06
Company Stockholder Approval............................ 6.02
Current SEC Documents................................... 4.10
Dissenting Shares....................................... 2.05
Effective Time.......................................... 2.01
e-mail.................................................. 11.01
Employee Plans.......................................... 4.16
End Date................................................ 10.01
Exchange Agent.......................................... 2.04
GAAP.................................................... 4.08
Indemnified Person...................................... 7.03
Merger.................................................. 2.01
Merger Consideration.................................... 2.03
Merger Subsidiary....................................... Preamble
Merger Subsidiary Common Stock.......................... 2.03
Multiemployer Plan...................................... 4.16
A-4
TERM SECTION
---- -------
1989 Plan............................................... 2.06
1996 Plan............................................... 2.06
Other Subsidiary Securities............................. 4.06
Parent.................................................. Preamble
Payment Event........................................... 11.04
Preferred Stock......................................... 4.05
Proceedings Cooperation................................. 7.03
Proxy Contest........................................... 4.11
Proxy Statement......................................... 4.09
SEC Documents........................................... 4.07
Significant Subsidiary Securities....................... 4.06
Specified Directors..................................... 7.03
Superior Proposal....................................... 6.03
Superior Proposal Agreement............................. 10.01
Surviving Corporation................................... 2.01
Tax..................................................... 4.14
Tax Asset............................................... 4.14
Tax Return.............................................. 4.14
Taxing Authority........................................ 4.14
Third Party Beneficiary................................. 11.05
Transferred Employees................................... 7.04
United States Bank...................................... 2.04
Union Contract.......................................... 4.15
Voting Agreement........................................ Recitals
ARTICLE 2
The Merger
Section 2.01. The Merger. (a) Subject to the terms and conditions of
this Agreement, at the Effective Time, Merger Subsidiary shall be merged (the
"MERGER") with and into the Company in accordance with Delaware Law, whereupon
the separate existence of Merger Subsidiary shall cease, and the Company shall
be the surviving corporation and shall continue its corporate existence under
Delaware Law (the "SURVIVING CORPORATION").
(b) As soon as practicable after satisfaction or, to the extent
permitted hereunder, waiver of all conditions to the Merger, the Company and
Merger Subsidiary shall file a certificate of merger with the Delaware Secretary
of State and make all other filings or recordings required by Delaware Law in
connection with the Merger. The Merger shall become effective at such time (the
"EFFECTIVE TIME") as the certificate of merger is duly filed with the Delaware
Secretary of State (or at such later time as may be specified in the certificate
of merger).
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, powers, privileges and franchises and be subject to all
of the obligations, liabilities, restrictions and disabilities of the Company
and Merger Subsidiary, all as provided under Delaware Law.
A-5
Section 2.02. Consummation. Unless this Agreement shall have been
terminated and the Merger shall have been abandoned pursuant to Section 10.01,
and subject to the satisfaction or waiver of the conditions set forth in Article
9, the consummation of the Merger shall take place at 10:00 a.m., New York City
time, at the offices of Davis Polk & Wardwell, 450 Lexington Avenue, New York,
New York, as soon as possible, but in no event later than 5 Business Days, after
satisfaction or waiver of the conditions set forth in Sections 9.01(a) and
9.01(c), or at such other time or place as Parent and the Company may agree.
Section 2.03. Conversion of Shares. At the Effective Time:
(a) each share of Common Stock held as treasury stock or owned by
Parent or any Subsidiary of Parent immediately prior to the Effective Time shall
be canceled, and no payment shall be made with respect thereto;
(b) each share of common stock, par value $.01 per share, of Merger
Subsidiary ("MERGER SUBSIDIARY COMMON STOCK") outstanding immediately prior to
the Effective Time shall be converted into and become one share of common stock,
par value $0.10 per share, of the Surviving Corporation with the same rights,
powers and privileges as the shares so converted; and
(c) each share of Common Stock outstanding immediately prior to the
Effective Time shall, except as otherwise provided in Section 2.03(a) or as
provided in Section 2.05 with respect to shares of Common Stock as to which
appraisal rights have been exercised, be converted into the right to receive in
cash from Parent an amount equal to $17.00 (the "MERGER CONSIDERATION").
Section 2.04. Surrender and Payment. (a) Prior to the Effective Time,
Parent shall appoint an agent reasonably acceptable to the Company (the
"EXCHANGE AGENT") for the purpose of exchanging certificates representing shares
of Common Stock (the "CERTIFICATES") for the Merger Consideration, and Parent
and Exchange Agent shall enter into an exchange agreement which shall, in form
and substance, be reasonably acceptable to the Company. Prior to the Effective
Time, Parent shall deposit or cause to be deposited with the Exchange Agent in a
separate fund established for the benefit of the holders of shares of Common
Stock, cash sufficient to pay the aggregate Merger Consideration required to be
paid for all of the Certificates at the Effective Time. For purposes of
determining the Merger Consideration to be so deposited, Parent shall assume
that no holder of shares of Common Stock will perfect appraisal rights with
respect to such shares. Any cash deposited with the Exchange Agent shall not be
used for any purpose other than as set forth in this Article 2 and shall be
invested by the Exchange Agent as directed by Parent or the Surviving
Corporation in: (A) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America with a remaining term at the time of acquisition thereof not in excess
of 90 days, (B) money market accounts or certificates of deposit maturing within
90 days of the acquisition thereof and issued by a bank or trust company
organized under the laws of the United States of America or a State thereof
having a combined capital surplus in excess of $500,000,000 (a "UNITED STATES
BANK"), (C) commercial paper issued by a domestic corporation and given a rating
of no lower than A1 by Standard & Poor's Corporation and P1 by Moody's Investors
Service, Inc. with a remaining term at the time of acquisition thereof not in
excess of 90 days or
A-6
(D) demand deposits with any United States Bank. The earnings and interest
thereon shall be paid to Parent or as Parent directs. As soon as practicable
(but not more than three Business Days) after the Effective Time, Parent shall
send, or shall cause the Exchange Agent to send, to each holder of record of
shares of Common Stock at the Effective Time, a letter of transmittal and
instructions for use in effecting the surrender of a Certificate in exchange for
payment of the Merger Consideration (which shall (i) be in a form reasonably
acceptable to each of Parent and the Company and (ii) specify that the delivery
shall be effected, and risk of loss and title shall pass, only upon proper
delivery of the Certificates to the Exchange Agent) for use in such exchange.
(b) Each holder of shares of Common Stock that have been converted into
the right to receive the Merger Consideration shall be entitled to receive, upon
surrender to the Exchange Agent of a Certificate, together with a properly
completed letter of transmittal, the Merger Consideration in respect of the
Common Stock represented by a Certificate. Such payment of the Merger
Consideration shall be sent to such holder of shares of Common Stock promptly
after receipt of such Certificate and letter of transmittal by the Exchange
Agent. Until so surrendered or transferred, as the case may be, each such
Certificate shall represent after the Effective Time for all purposes only the
right to receive such Merger Consideration.
(c) If any portion of the Merger Consideration is to be paid to a
Person other than the Person in whose name the surrendered Certificate is
registered, it shall be a condition to such payment that (i) either such
Certificate shall be properly endorsed or shall otherwise be in proper form for
transfer and (ii) the Person requesting such payment shall pay to the Exchange
Agent any transfer or other taxes required as a result of such payment to a
Person other than the registered holder of such Certificate or establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(d) After the Effective Time, there shall be no further registration of
transfers of shares of Common Stock. If, after the Effective Time, Certificates
are presented to the Surviving Corporation, they shall be canceled and exchanged
for the Merger Consideration provided for, and in accordance with the procedures
set forth, in this Article 2.
(e) Any portion of the Merger Consideration deposited with the Exchange
Agent pursuant to Section 2.04(a) that remains unclaimed by the holders of
shares of Common Stock twelve months after the Effective Time shall be returned
to Parent, upon demand, and any such holder who has not exchanged shares of
Common Stock for the Merger Consideration in accordance with this Section 2.04
prior to that time shall thereafter look only to Parent for payment of the
Merger Consideration without any interest thereon. Notwithstanding the
foregoing, Parent shall not be liable to any holder of shares of Common Stock
for any amounts paid to a public official pursuant to applicable abandoned
property, escheat or similar laws. Any amounts remaining unclaimed by holders of
shares of Common Stock two years after the Effective Time (or such earlier date,
immediately prior to such time when the amounts would otherwise escheat to or
become property of any Governmental Authority) shall become, to the extent
permitted by applicable law, the property of Parent free and clear of any claims
or interest of any Person previously entitled thereto.
A-7
(f) Any portion of the Merger Consideration deposited with the Exchange
Agent pursuant to Section 2.04(a) to pay for shares for which appraisal rights
have been perfected shall be returned to the Surviving Corporation, upon demand.
Section 2.05. Dissenting Shares. Notwithstanding Section 2.02, shares
of Common Stock which are issued and outstanding immediately prior to the
Effective Time and which are held by a holder who has not voted such shares of
Common Stock in favor of the Merger, who shall have delivered a written demand
for appraisal of such shares of Common Stock in the manner provided by Delaware
Law and who, as of the Effective Time, shall not have effectively withdrawn or
lost such right to appraisal ("DISSENTING SHARES") shall not be converted into a
right to receive the Merger Consideration. The holders thereof shall be entitled
only to such rights as are granted by Section 262 of Delaware Law. Each holder
of Dissenting Shares who becomes entitled to payment for such shares of Common
Stock pursuant to Section 262 of Delaware Law shall receive payment therefor
from the Surviving Corporation in accordance with Delaware Law; provided,
however, that (i) if any such holder of Dissenting Shares shall have failed to
establish his entitlement to appraisal rights as provided in Section 262 of
Delaware Law, (ii) if any such holder of Dissenting Shares shall have
effectively withdrawn his demand for appraisal of such Shares or lost his right
to appraisal and payment for his shares of Common Stock under Section 262 of
Delaware Law or (iii) if neither any holder of Dissenting Shares nor the
Surviving Corporation shall have filed a petition demanding a determination of
the value of all Dissenting Shares within the time provided in Section 262 of
Delaware Law, such holder shall forfeit the right to appraisal of such shares of
Common Stock and each such share of Common Stock shall be treated as if it had
been converted, as of the Effective Time, into a right to receive the Merger
Consideration, without interest thereon, from Parent as provided in Section 2.02
hereof. The Company shall give Parent prompt notice of any demands received by
the Company for appraisal of shares of Common Stock, and Parent shall have the
right to participate in all negotiations and proceedings with respect to such
demands. The Company shall not, except with the prior written consent of Parent,
make any payment with respect to, or settle or offer to settle, any such
demands.
Section 2.06. Stock Options. (a) At or immediately prior to the
Effective Time, each option to purchase shares of Common Stock granted under any
employee stock option or compensation plan or arrangement of the Company (each,
a "COMPANY STOCK OPTION"), whether or not exercisable or vested, shall be
canceled, and Parent shall pay or shall cause the Surviving Corporation to pay
each holder at or promptly after the Effective Time for each such option
surrendered an amount in cash determined by multiplying (i) the excess of the
Merger Consideration over the applicable exercise price of such option by (ii)
the number of shares of Common Stock such holder could have purchased (assuming
full vesting of all options) had such holder exercised such option in full
immediately prior to the Effective Time; provided, however, that in the case of
any Company Stock Option under the Nautica Enterprises, Inc. 1996 Stock
Incentive Plan (Amended and Restated) (the "1996 PLAN"), if the "Change of
Control Price" (as defined under the 1996 Plan) is higher than the Merger
Consideration, such Change of Control Price shall be substituted for the Merger
Consideration in clause (i) above.
(b) Prior to the Effective Time, the Company shall use its reasonable
efforts (without the expenditure of any funds) to obtain any consents from
holders of options to purchase shares of Common Stock granted under the
Company's stock option or compensation plans or
A-8
arrangements that the Company deems reasonably necessary to accomplish the
transactions contemplated by Section 2.06(a). Notwithstanding any other
provision of this Section 2.06, payment may be withheld in respect of any
employee stock option until such necessary consents are obtained.
(c) Prior to the Effective Time, the Company shall take, or shall cause
the plan administrator to take, any actions that the Company deems reasonably
necessary under the State-O-Maine, Inc. 1989 Employee Incentive Stock Plan (the
"1989 PLAN") to effect the transactions contemplated by Section 2.06(a) with
respect to Company Stock Options under the 1989 Plan using the Merger
Consideration as provided in clause (i) of Section 2.05(a).
Section 2.07. Adjustments. If, during the period between the date of
this Agreement and the Effective Time, any change in the outstanding shares of
capital stock of the Company shall occur, including by reason of any
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, or any stock dividend thereon with a record date during
such period, the Merger Consideration and any other amounts payable pursuant to
this Agreement shall be appropriately adjusted.
Section 2.08. Withholding Rights. Each of the Surviving Corporation and
Parent shall be entitled to deduct and withhold from the consideration otherwise
payable to any Person pursuant to this Article 2 such amounts as it is required
to deduct and withhold with respect to the making of such payment under any
provision of federal, state, local or foreign tax law. If the Surviving
Corporation or Parent, as the case may be, so withholds amounts, such amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of the shares of Common Stock in respect of which the Surviving
Corporation or Parent, as the case may be, made such deduction and withholding.
Section 2.09. Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
Person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such Person of a bond, in
such reasonable amount as the Surviving Corporation may direct, as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent will issue, in exchange for such lost, stolen or destroyed
Certificate, the Merger Consideration to be paid in respect of the shares of
Common Stock represented by such Certificate, as contemplated by this Article 2.
ARTICLE 3
The Surviving Corporation
Section 3.01. Restated Certificate of Incorporation. The restated
certificate of incorporation of the Company in effect immediately prior to the
Effective Time shall be the restated certificate of incorporation of the
Surviving Corporation until amended in accordance with Delaware Law.
Section 3.02. Bylaws. The bylaws of the Company in effect immediately
prior to the Effective Time shall be the bylaws of the Surviving Corporation
until amended in accordance with Delaware Law.
A-9
Section 3.03. Directors and Officers. From and after the Effective
Time, until successors are duly elected or appointed and qualified in accordance
with Delaware Law, (i) the directors of Merger Subsidiary immediately prior to
the Effective Time shall be the directors of the Surviving Corporation and (ii)
the officers of the Company immediately prior to the Effective Time shall be the
officers of the Surviving Corporation.
ARTICLE 4
Representations and Warranties of the Company
The Company represents and warrants to Parent that:
Section 4.01. Corporate Existence and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has all corporate powers and all governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted, except for those licenses, authorizations,
permits, consents and approvals the absence of which would not be reasonably
likely to have, individually or in the aggregate, a Company Material Adverse
Effect. The Company is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction where such qualification is
necessary, except for those jurisdictions where failure to be so qualified would
not be reasonably likely to have, individually or in the aggregate, a Company
Material Adverse Effect. The Company has heretofore made available to Parent
true and complete copies of the restated certificate of incorporation and bylaws
of the Company as currently in effect.
Section 4.02. Corporate Authorization. (a) The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby are within the Company's corporate
powers and, except for the required approval of the Company's stockholders in
connection with the consummation of the Merger, have been duly authorized by all
necessary corporate action on the part of the Company. The affirmative vote of
the holders of a majority of the outstanding shares of Common Stock is the only
vote of the holders of any of the Company's capital stock necessary in
connection with the consummation of the Merger. This Agreement has been duly
executed and delivered by the Company and, assuming due and valid authorization,
execution and delivery of this Agreement by Parent and Merger Subsidiary,
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except that such enforceability (i)
may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting or relating to the enforcement of creditors' rights generally and (ii)
is subject to general principles of equity.
(b) At a meeting duly called and held, the Company's Board of Directors
has (i) determined that this Agreement and the transactions contemplated hereby
are advisable to the Company's stockholders, (ii) approved this Agreement and
the transactions contemplated hereby for purposes of Section 203 of Delaware
Law, (iii) approved and adopted an amendment to the Rights Agreement to render
the Preferred Stock Purchase Rights inapplicable to this Agreement and the
transactions contemplated hereby, (iv) approved and adopted this Agreement and
the transactions contemplated hereby and (v) resolved (subject to Section
6.03(b)) to recommend approval and adoption of this Agreement by its
stockholders.
A-10
Section 4.03. Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby require no action by or in respect of,
or filing with, any Governmental Authority, other than (i) the filing of a
certificate of merger with respect to the Merger with the Delaware Secretary of
State, (ii) compliance with any applicable requirements of the HSR Act, (iii)
compliance with any applicable requirements of the 1934 Act and the rules and
regulations promulgated thereunder, (iv) as disclosed in Section 4.03 of the
Company Disclosure Schedule and (v) actions or filings, the failure of which to
take or make would not be reasonably likely to have, individually or in the
aggregate, a Company Material Adverse Effect.
Section 4.04. Non-contravention. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby do not and will not (i) result in any
violation or breach of any provision of the restated certificate of
incorporation or bylaws of the Company, (ii) assuming compliance with the
matters referred to in Section 4.03 and the receipt of the Company Stockholder
Approval, result in a violation or breach of any provision of any applicable
law, statute, ordinance, rule, regulation, judgment, injunction, order, or
decree, (iii) subject to obtaining the Third Party consents and other approvals
set forth in Section 4.04(iii) of the Company Disclosure Schedule, require any
consent by any Person under, constitute a default, or an event that, with or
without notice or lapse of time or both, would constitute a default under, or
cause or permit the termination, cancellation, acceleration or loss of any
benefit to which the Company or any of its Subsidiaries is entitled under any
provision of any agreement or other instrument binding upon the Company or any
of its Subsidiaries that requires the payment to or from the Company or any of
its Subsidiaries of more than $250,000 per year, or any governmental license,
franchise, permit or other similar authorization relating to the assets or
business of the Company and its Subsidiaries or (iv) result in the creation or
imposition of any Lien on any asset of the Company or any of its Subsidiaries,
except for such violations or breaches referred to in clause (ii) and for such
failures to obtain any such consent, defaults, terminations, cancellations,
accelerations, losses or Liens referred to in clauses (iii) and (iv) that would
not be reasonably likely to have, individually or in the aggregate, a Company
Material Adverse Effect.
Section 4.05. Capitalization. (a) The authorized capital stock of the
Company consists of (i) 100,000,000 shares of Common Stock and (ii) 2,000,000
shares of preferred stock, par value $0.01 per share (the "PREFERRED STOCK") of
which 400,000 shares have been designated Series A Preferred Stock. As of the
close of business on July 3, 2003 there were outstanding 33,595,900 shares of
Common Stock and no shares of Preferred Stock. As of the close of business on
June 10, 2003 there were employee stock options to purchase an aggregate of
4,744,750 shares of Common Stock (of which options to purchase an aggregate of
3,808,800 shares of Common Stock were exercisable). All outstanding shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable. No Subsidiary of the Company owns any shares
of capital stock of the Company.
(b) Except as set forth in this Section 4.05 and for changes since June
10, 2003 resulting from the exercise of employee stock options outstanding on
such date, there are (i) no outstanding sharesof capital stock or voting
securities of the Company (ii) no outstanding securities of the Company
convertible into or exchangeable for shares of capital stock or voting
securities of the Company or (iii) except for the Preferred Stock Purchase
Rights, no outstanding
A-11
options or other rights to acquire from the Company, or other obligation of the
Company to issue, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of the Company (the
items in clauses, (i), (ii), and (iii) being referred to collectively as the
"COMPANY SECURITIES"). Except as set forth in Section 4.05(b) of the Company
Disclosure Schedule, there are no outstanding obligations of the Company or any
of its Subsidiaries to repurchase, redeem or otherwise acquire any of the
Company Securities.
Section 4.06. Subsidiaries. (a) Except as set forth in Section 4.06(a)
of the Company Disclosure Schedule, each Significant Subsidiary is a corporation
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has all corporate powers and all governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted, except for those licenses, authorizations,
permits, consents and approvals the absence of which would not be reasonably
likely to have, individually and in the aggregate, a Company Material Adverse
Effect. Each Other Subsidiary is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, except for such failures to be duly incorporated, validly
existing and in good standing which, individually or in the aggregate, would not
be reasonably likely to have a Company Material Adverse Effect. Each Other
Subsidiary has all corporate powers and all governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted, except for those powers, licenses, authorizations,
permits, consents and approvals the absence of which would not be reasonably
likely to have, individually and in the aggregate, a Company Material Adverse
Effect. Each Subsidiary of the Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where such
qualification is necessary, except for those jurisdictions where failure to be
so qualified would not be reasonably likely to have, individually or in the
aggregate, a Company Material Adverse Effect. As of the date of this Agreement,
all Significant Subsidiaries of the Company and their respective jurisdictions
of incorporation and jurisdictions in which they are qualified to do business
are identified in Section 4.06(a) of the Company Disclosure Schedule.
(b) All of the outstanding capital stock of, or other voting securities
or ownership interests in, each Significant Subsidiary, is owned by the Company,
directly or indirectly, free and clear of any Lien and free of any other
limitation or restriction (including any restriction on the right to vote, sell
or otherwise dispose of such capital stock or other voting securities or
ownership interests), other than restrictions imposed by federal and state
securities laws and other than any Lien that is not material in the context of
the Significant Subsidiary in question. There are no outstanding (i) securities
of the Company or any of its Significant Subsidiaries convertible into or
exchangeable for shares of capital stock or other voting securities or ownership
interests in any Significant Subsidiary of the Company or (ii) options or other
rights to acquire from the Company or any Significant Subsidiary, or other
obligation of the Company or any Significant Subsidiary to issue, any capital
stock or other voting securities or ownership interests in, or any securities
convertible into or exchangeable for any capital stock or other voting
securities or ownership interests in, any Significant Subsidiary (the items in
clauses (i) and (ii) being referred to collectively as the "SIGNIFICANT
SUBSIDIARY SECURITIES"). There are no outstanding obligations of the Company or
any of its Subsidiaries to repurchase, redeem or otherwise acquire any of the
Significant Subsidiary Securities.
A-12
(c) Except for such exceptions that, individually or in the aggregate,
would not be reasonably likely to have a Company Material Adverse Effect, all of
the outstanding capital stock of, or other voting securities or ownership
interests in, each Other Subsidiary, is owned by the Company, directly or
indirectly, free and clear of any Lien and free of any other limitation or
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other voting securities or ownership
interests), other than restrictions imposed by federal and state securities
laws. Except for such exceptions that, individually or in the aggregate, would
not be reasonably likely to have a Company Material Adverse Effect, there are no
outstanding (i) securities of the Company or any Other Subsidiary convertible
into or exchangeable for shares of capital stock or other voting securities or
ownership interests in any Other Subsidiary or (ii) options or other rights to
acquire from the Company or any Other Subsidiary, or other obligation of the
Company or any Other Subsidiary to issue, any capital stock or other voting
securities or ownership interests in, or any securities convertible into or
exchangeable for any capital stock or other voting securities or ownership
interests in, any Other Subsidiary (the items in clauses (i) and (ii) being
referred to collectively as the "OTHER SUBSIDIARY SECURITIES"). There are no
outstanding obligations of the Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any of the Other Subsidiary Securities, except for
such obligations that, individually or in the aggregate, would not be reasonably
likely to have a Company Material Adverse Effect.
Section 4.07. SEC Filings. (a) The Company has made available to the
Parent (i) the Company's annual reports on Form 10-K for its fiscal years ended
March 2, 2002 and March 1, 2003, (ii) its proxy or information statements
relating to meetings of, or actions taken without a meeting by, the stockholders
of the Company held or scheduled to be held from March 1, 2003 to the date of
this Agreement, and (iii) all of its other reports, statements, schedules and
registration statements filed with the SEC since March 1, 2003 (the documents
referred to in this Section 4.07(a), collectively, the "SEC DOCUMENTS").
(b) As of its filing date, each SEC Document complied as to form in all
material respects with the applicable requirements of the 1933 Act and the 1934
Act, as the case may be.
(c) As of its filing date (or, if amended or superseded by a filing
prior to the date of this Agreement, on the date of such filing), each SEC
Document filed pursuant to the 1934 Act did not contain any untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading.
(d) Each SEC Document that is a registration statement, as amended or
supplemented, if applicable, filed pursuant to the 1933 Act, as of the date such
registration statement or amendment became effective, did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
Section 4.08. Financial Statements. The audited consolidated financial
statements of the Company and its Subsidiaries included in the SEC Documents
fairly present in all material respects, in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis (except as may be
indicated in the notes thereto), the consolidated financial
A-13
position of the Company and its Subsidiaries as of the dates thereof and their
consolidated results of operations and cash flows for the periods then ended.
Section 4.09. Disclosure Documents. The proxy statement of the Company
to be filed with the SEC in connection with the Merger (the "PROXY STATEMENT")
and any amendments or supplements thereto will, when filed, comply as to form in
all material respects with the applicable requirements of the 1934 Act. At the
time the Proxy Statement or any amendment or supplement thereto is first mailed
to stockholders of the Company, and at the time such stockholders vote on
adoption of this Agreement, the Proxy Statement, as supplemented or amended, if
applicable, will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
The representations and warranties contained in this Section 4.09 will not apply
to statements or omissions included in the Proxy Statement based upon
information furnished to the Company in writing by Parent specifically for use
therein.
Section 4.10. Absence of Certain Changes. Since the Balance Sheet Date,
except as disclosed in the Company 10-K or any SEC Document filed subsequent to
the filing of the Company 10-K but prior to the date of this Agreement
(collectively, the "CURRENT SEC DOCUMENTS"), as set forth in Section 4.10 of the
Company Disclosure Schedule or as may be affected by actions permitted to be
taken pursuant to Section 6.01 or actions specifically contemplated to be taken
by this Agreement, the business of the Company and its Subsidiaries has been
conducted in the ordinary course consistent with past practices and since the
Balance Sheet Date, except as disclosed in the Current SEC Documents or as set
forth in Section 4.10 of the Company Disclosure Schedule, there has not been:
(a) any event, occurrence or circumstance that has had or would be
reasonably likely to have, individually or in the aggregate, a Company Material
Adverse Effect;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or any
repurchase, redemption or other acquisition by the Company or any of its
Subsidiaries of any outstanding shares of capital stock or other securities of,
or other ownership interests in, the Company or any of its Subsidiaries;
(c) any amendment of any material term of any outstanding security of
the Company or any of its Subsidiaries;
(d) any incurrence, assumption or guarantee by the Company or any of
its Subsidiaries of any indebtedness for borrowed money other than in the
ordinary course of business and in amounts and on terms consistent with past
practices;
(e) any making of any loan, advance or capital contributions to or
investment in any Person other than loans, advances or capital contributions to
or investments in its wholly-owned Subsidiaries or otherwise in the ordinary
course of business consistent with past practices;
(f) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of the Company or any of
its Subsidiaries that would
A-14
be reasonably likely to have, individually or in the aggregate, a Company
Material Adverse Effect;
(g) any change in any method of accounting or accounting principles or
practice by the Company or any of its Subsidiaries, except for any such change
required by reason of a concurrent change in GAAP;
(h) any (i) grant of any severance or termination pay to (or amendment
to any existing arrangement with) any director, officer or employee of the
Company or any of its Subsidiaries (other than pursuant to the terms of existing
plans, policies, agreements or arrangements, including the Company's severance
policy guidelines previously made available to Parent, or in the ordinary course
of business with respect to any non-officer employee whose annual base salary
does not exceed $150,000), (ii) material increase in benefits payable under any
existing severance or termination pay policies or employment agreements, (iii)
entering into any employment, deferred compensation or other similar agreement
(or any amendment to any such existing agreement) with any director, officer or
(other than any such agreement or amendment entered into in the ordinary course
of business, which will not result in liability to the Company upon termination
of employment in an amount in excess of $150,000 per employee) employee of the
Company or any of its Subsidiaries, (iv) establishment, adoption or amendment
(except as required by applicable law or contemplated by this Agreement) of any
collective bargaining (but only through the date of this Agreement), bonus,
profit-sharing, thrift, pension, retirement, deferred compensation, stock
option, restricted stock or other material benefit plan or arrangement covering
any director, officer or employee of the Company or any of its Subsidiaries or
(v) material increase in compensation, bonus or other benefits payable to any
director or officer of the Company or any of its Subsidiaries;
(i) through the date immediately preceding the date of this Agreement,
any organized labor dispute, other than routine individual grievances, or any
activity or proceeding by a labor union or representative thereof to organize
any employees of the Company or any of its Subsidiaries, which employees were
not subject to a collective bargaining agreement at the Balance Sheet Date, or
any lockouts, strikes, slowdowns, work stoppages or, to the knowledge of the
Company, threats thereof by or with respect to such employees; or
(j) as of the date of this Agreement, any Tax election made or changed,
any annual Tax accounting period changed, any method of Tax accounting adopted
or changed, any amended Tax Returns or claims for Tax refunds filed, any closing
agreement entered into with a Taxing Authority, or any Tax claim, audit or
assessment settled which would be reasonably likely to have a Company Material
Adverse Effect.
Section 4.11. No Undisclosed Material Liabilities. Except as set forth
in Section 4.11 of the Company Disclosure Schedule, there are no liabilities or
obligations of the Company or any of its Subsidiaries of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise,
other than:
(a) liabilities or obligations disclosed and provided for in the
Balance Sheet or the Current SEC Documents;
A-15
(b) liabilities or obligations incurred in connection with that certain
proxy contest relating to the annual meeting of the Company's stockholders
currently scheduled for July 8, 2003 (or the election of directors thereat) (the
"PROXY CONTEST");
(c) liabilities or obligations under this Agreement;
(d) liabilities or obligations incurred in connection with the
transactions contemplated by this Agreement or the Chu Agreements;
(e) liabilities or obligations incurred after the Balance Sheet Date in
the ordinary course of business and consistent with past practice;
(f) liabilities or obligations arising under the terms of (but not from
any breach of default under) any agreement, contract or other instrument binding
upon the Company or any of its Subsidiaries, including any agreement, contract
or other instrument that is entered into after the date of this Agreement, as
long as entering into such agreement, contract or other instrument does not
violate any provision of this Agreement;
(g) liabilities or obligations arising out of, resulting from or caused
by any loss of employees, labor dispute, employee strikes, slowdowns, job
actions or work stoppages or labor union activities that are incurred or arise
after the execution of this Agreement by all parties hereto or result from the
announcement of this Agreement and the Chu Agreements and the transactions
contemplated hereby and thereby;
(h) liabilities or obligations specifically addressed in any of the
other representations or warranties made by the Company herein (disregarding any
thresholds specified therein); and
(i) other liabilities or obligations that, individually or in the
aggregate, would not be reasonably likely to have a Company Material Adverse
Effect.
Section 4.12. Compliance with Laws and Court Orders. Except as set
forth in Section 4.12 of the Company Disclosure Schedule or as disclosed in the
Current SEC Documents, the Company and each of its Subsidiaries is and since
January 1, 2001 has been in compliance with, and to the knowledge of the Company
is not under investigation with respect to and has not been threatened to be
charged with or given notice of any violation of, any applicable law, statute,
ordinance, rule, regulation, judgment, injunction, order or decree, except for
failures to comply or violations that would not be reasonably likely to have,
individually or in the aggregate, a Company Material Adverse Effect.
Section 4.13. Litigation. Except (a) as set forth in Section 4.13 of
the Company Disclosure Schedule, (b) as disclosed in the Current SEC
Documents,(c) for any action, suit, investigation or proceeding relating to,
arising out of or resulting from the transactions contemplated by this Agreement
or the Chu Agreements, the announcement of this Agreement or the Chu Agreements,
the announcement of such transactions or the Proxy Contest, there is no action,
suit, investigation or proceeding (or any basis therefor) pending against, or,
to the knowledge of the Company, threatened against, the Company, any of its
Subsidiaries or any present or former officer or director (in such officer's or
director's capacity as such) of the Company or any of its Subsidiaries or any
Person for whom the Company or any of its
A-16
Subsidiaries is directly liable or any of the respective properties of the
Company or any of its Subsidiaries before any court or arbitrator or before or
by any Governmental Authority that would be reasonably likely to have,
individually or in the aggregate, a Company Material Adverse Effect.
Section 4.14. Taxes. Except as set forth in Section 4.14 of the Company
Disclosure Schedule and except for failures, violations, inaccuracies, omissions
or proceedings which would not be reasonably likely to have a Company Material
Adverse Effect:
(a) all Tax Returns required by applicable law to be filed with any
Taxing Authority by, or on behalf of, the Company or any of its Subsidiaries
have been filed when due in accordance with all applicable laws, and all such
Tax Returns were, at the time of filing, true and complete in all material
respects;
(b) the Company and each of its Subsidiaries has paid (or has had paid
on its behalf) or has withheld and remitted to the appropriate Taxing Authority
all Taxes due and payable, or, where payment is not yet due, has established (or
has had established on its behalf) in accordance with GAAP an adequate accrual
for all Taxes through the end of the last period for which the Company and its
Subsidiaries ordinarily record items on their respective books;
(c) the income and franchise Tax Returns of the Company and its
Subsidiaries through the Tax year ended February 27, 1999 have been examined and
closed or are Tax Returns with respect to which the applicable period for
assessment under applicable law, after giving effect to extensions or waivers,
has expired;
(d) there is no claim, audit, action, suit, proceeding or investigation
now pending or, to the Company's knowledge, threatened in writing against or
with respect to the Company or its Subsidiaries in respect of any Tax;
(e) during the two-year period ending on the date of this Agreement,
neither the Company nor any of its Subsidiaries was a distributing corporation
or a controlled corporation in a transaction intended to be governed by Section
355 of the Code;
(f) neither the Company nor any of its Subsidiaries is a party to any
understanding or arrangement described in Section 6111(d) of the Code, or
participated in a "reportable transaction" as defined in Treasury Regulations
Section 1.6011-4(b), in each case after the applicable effective date; and
(g) Section 4.14 of the Company Disclosure Schedule contains a list, as
of the date of this Agreement, of all jurisdictions (whether foreign or
domestic) in which the Company or any of its Subsidiaries currently files Tax
Returns.
(h) "TAX" means (i) any tax, governmental fee or other like assessment
or charge of any kind whatsoever (including, but not limited to, withholding on
amounts paid to or by any Person), together with any interest, penalty, addition
to tax or additional amount imposed by any governmental authority (a "TAXING
AUTHORITY") responsible for the imposition of any such tax (domestic or
foreign), and any liability for any of the foregoing as transferee, (ii) in the
case of the Company or any of its Subsidiaries, liability for the payment of any
amount of the type
A-17
described in clause (i) as a result of being or having been before the Effective
Time a member of an affiliated, consolidated, combined or unitary group, or a
party to any agreement or arrangement, as a result of which liability of the
Company or any of its Subsidiaries to a Taxing Authority is determined or taken
into account with reference to the activities of any other Person, and (iii)
liability of the Company or any of its Subsidiaries for the payment of any
amount as a result of being party to any Tax Sharing Agreement or with respect
to the payment of any amount imposed on any person of the type described in (i)
or (ii) as a result of any existing express or implied agreement or arrangement
(including, but not limited to, an indemnification agreement or arrangement).
"TAX RETURN" means any report, return, document, declaration or other
information or filing required to be supplied to any Taxing Authority with
respect to Taxes, including information returns, any documents with respect to
or accompanying payments of estimated Taxes, or with respect to or accompanying
requests for the extension of time in which to file any such report, return,
document, declaration or other information. "TAX ASSET" means any net operating
loss, net capital loss, investment tax credit, foreign tax credit, charitable
deduction or any other credit or tax attribute that could be carried forward or
back to reduce Taxes (including without limitation deductions and credits
related to alternative minimum Taxes).
Section 4.15. Labor Matters. Section 4.15 of the Company Disclosure
Schedule contains a complete list as of the date of this Agreement of all
collective bargaining agreements or other contracts with any labor organization
or other representative of the Company's employees in connection with their
employment with the Company (each, a "UNION CONTRACT" and collectively, the
"UNION CONTRACTS"). Complete copies of each Union Contract have been made
available to Parent.
Section 4.16. Employee Benefit Plans. (a) Excluding International
Plans, Section 4.16 of the Company Disclosure Schedule contains a correct and
complete list identifying each (i) material "employee benefit plan," as defined
in Section 3(3) of ERISA, (ii) material employment, severance or similar
contract, plan, arrangement or policy, (iii) other plan or arrangement providing
for stock option or other stock related rights or (iv) other material plan or
arrangement (written or oral) providing for bonuses or incentive compensation,
profit-sharing, or deferred compensation, which is maintained, administered or
contributed to by the Company or any ERISA Affiliate and covers any employee or
former employee of the Company or any of its Subsidiaries, or with respect to
which the Company or any of its Subsidiaries has any material liability. Except
for those plans filed as part of the SEC Documents, copies of such plans (and,
if applicable, related trust or funding agreements) and all amendments thereto
and any summary plan descriptions have been made available to Parent together
with the most recent annual report (Form 5500 including, if applicable, Schedule
B thereto) and tax return (Form 990) prepared in connection with any such plan
or trust. Such plans are referred to collectively herein as the "EMPLOYEE
PLANS."
(b) Neither the Company nor any ERISA Affiliate nor, to the knowledge
of the Company, any predecessor thereof, sponsors, maintains or contributes to,
or has in the past sponsored, maintained or contributed to, any Employee Plan
subject to Title IV of ERISA (other than a Multiemployer Plan), with such
exceptions as would not be reasonably likely to have a Company Material Adverse
Effect.
A-18
(c) Except as set forth in Section 4.16 of the Company Disclosure
Schedule, as of the date of this Agreement, neither the Company nor any ERISA
Affiliate contributes to any multiemployer plan, as defined in Section 3(37) of
ERISA (a "MULTIEMPLOYER Plan"). The Company has made available to Parent a copy
of the most recent estimate dated prior to the date of this Agreement of the
potential withdrawal liability payable by the Company and any ERISA Affiliate of
the Company if a full or partial withdrawal by the Company and each of its ERISA
Affiliates occurred, to the extent that such estimate has been provided by the
Multiemployer Plan.
(d) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter, or has pending
or has time remaining in which to file, an application for such determination
from the Internal Revenue Service, and to the knowledge of the Company, there is
no event or condition which would reasonably be likely to result in the
revocation or non-issuance of any such favorable determination letter. The
Company has made available to Parent copies of the most recent (as of the date
of this Agreement) Internal Revenue Service determination letters with respect
to each such Employee Plan. Except as set forth in Section 4.16 of the Company
Disclosure Schedule, each Employee Plan has been maintained in material
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code, which are applicable to such Employee Plan, with such exceptions as
would not be reasonably likely, individually or in the aggregate, to have a
Company Material Adverse Effect. Except as set forth in Section 4.16 of the
Company Disclosure Schedule, no events have occurred with respect to any
Employee Plan that could result in payment or assessment by or against the
Company of any excise taxes under Sections 4972, 4975, 4976, 4977, 4979, 4980B,
4980D, 4980E or 5000 of the Code, with such exceptions as would not be
reasonably likely to have, individually or in the aggregate, a Company Material
Adverse Effect.
(e) Except as set forth in Section 4.16 of the Company Disclosure
Schedule, the consummation of the transactions contemplated by this Agreement
will not (either alone or together with any other event) entitle any employee or
independent contractor of the Company or any of its Subsidiaries to severance
pay or accelerate the time of payment or vesting or trigger any payment of
funding (through a grantor trust or otherwise) of compensation or benefits
under, increase the amount payable or trigger any other material obligation
pursuant to, any Employee Plan.
(f) Except as set forth in Section 4.16 of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries has any liability in
respect of post-retirement health, medical or life insurance benefits for
retired, former or current employees of the Company or its Subsidiaries except
as required to avoid excise tax under Section 4980B of the Code or as may be
required under other applicable law.
(g) Except as set forth in Section 4.16 of the Company Disclosure
Schedule or as otherwise contemplated by this Agreement, there has been no
amendment to, written interpretation or announcement (whether or not written) by
the Company or any of its Affiliates relating to, or change in employee
participation or coverage under, an Employee Plan which would increase
materially the expense of maintaining such Employee Plan above the level of the
A-19
expense incurred in respect thereof for the fiscal year ended immediately prior
to the date of this Agreement.
(h) Except as set forth in Section 4.16 of the Company Disclosure
Schedule, all contributions and payments required to be made under each Employee
Plan have been timely made or accrued in accordance with GAAP.
(i) Except as set forth in Section 4.16 of the Company Disclosure
Schedule, there is no action, suit, investigation, audit or proceeding pending
against or, to the knowledge of the Company, threatened against or involving,
any Employee Plan before any Governmental Authority with such exceptions as
would not be reasonably likely to have a Company Material Adverse Effect.
(j) Section 4.16 of the Company Disclosure Schedule sets forth each
material International Plan that is a defined benefit pension plan, except for
any International Plan that is a governmental, statutory or mandated plan. Each
such International Plan has been maintained in substantial compliance with its
terms and in substantial compliance with applicable laws and the requirements of
any trust deed under which each such International Plan was established, except
for such exceptions to the foregoing which, in the aggregate, would not be
reasonably likely to have a Company Material Adverse Effect.
Section 4.17. Intellectual Property. The Company and its Subsidiaries
own or possess adequate licenses or other rights to use all Intellectual
Property Rights necessary to conduct the business as currently conducted, except
where the failure to own or possess such licenses or rights has not had and
would not be reasonably likely to have a Company Material Adverse Effect. Except
as set forth in Section 4.17 of the Company Disclosure Schedule, to the
knowledge of the Company, none of the Company or any of its Subsidiaries has
infringed, misappropriated or otherwise violated any Intellectual Property Right
of any other Person, except for such infringements, misappropriations or
violations that, individually or in the aggregate, would not be reasonably
likely to have a Company Material Adverse Effect. Except as set forth in Section
4.17 of the Company Disclosure Schedule or as would not be reasonably likely to
have a Company Material Adverse Effect, to the knowledge of the Company, no
Person has materially infringed, misappropriated or otherwise violated any
material Intellectual Property Right of the Company or its Subsidiaries. Section
4.17 of the Company Disclosure Schedule contains a list as of the date of this
Agreement of all agreements pursuant to which the Company or any of its
Subsidiaries grants to a Third Party the right to use any of its Intellectual
Property Rights for purposes of manufacturing, distributing or selling products
and pursuant to which (x) the Company and its Subsidiaries reasonably expect to
receive annual payments of more than $500,000 or (y) the Company and its
Subsidiaries received payments of more than $500,000 during the fiscal year
ended March 1, 2003.
Section 4.18. Certain Contracts. Except as disclosed in the Current SEC
Documents, each contract or agreement to which the Company or any of its
Subsidiaries is a party or by which any of them is bound is in full force and
effect, and neither the Company nor any of its Subsidiaries, nor, to the
knowledge of the Company, any other party thereto, is in breach of, or default
under, any such contract or agreement, and no event has occurred that with
notice or passage of time or both would constitute such a breach or default
thereunder by the Company or
A-20
any of its Subsidiaries, or, to the knowledge of the Company, any other party
thereto, except for such failures to be in full force and effect and such
breaches and defaults which, in the aggregate, would not be reasonably likely to
have a Company Material Adverse Effect.
Section 4.19. Antitakeover Statutes And Rights Agreement. (a) The
Company has taken all action necessary to render the limitations contained in
Section 203 of Delaware Law inapplicable to the Merger, this Agreement, the
Voting Agreement and the transactions contemplated hereby and thereby.
(b) The Company has taken all action necessary to render the Preferred
Stock Purchase Rights issued pursuant to the terms of the Rights Agreement
inapplicable to the Merger, this Agreement, the Voting Agreement and the
transactions contemplated hereby and thereby.
Section 4.20. Finder's Fees. Except for Rothschild Inc. and Bear,
Stearns & Co. Inc., copies of whose engagement agreements have been provided to
Parent, there is no investment banker, broker, finder or other intermediary that
has been retained by or is authorized to act on behalf of the Company or any of
its Subsidiaries who is entitled to any fee or commission from the Company or
any of its Subsidiaries in connection with the transactions contemplated by this
Agreement.
Section 4.21. Opinion of Financial Advisors. The Company has received
the opinions of Rothschild Inc. and Bear, Stearns & Co. Inc., financial advisors
to the Company, to the effect that, as of the date of this Agreement, the Merger
Consideration is fair to the Company's stockholders (other than Parent, Merger
Subsidiary, Harvey Sanders, the Harvey Sanders Grantor Retained Income Trust and
David Chu) from a financial point of view.
Section 4.22. Disclaimer of Other Representations and Warranties.
EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS ARTICLE 4, THE
COMPANY MAKES NO OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AND
THE COMPANY HEREBY DISCLAIMS ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES,
WHETHER BY THE COMPANY, ANY SUBSIDIARY OF THE COMPANY, OR ANY OF THEIR
RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES OR ANY
OTHER PERSON, WITH RESPECT TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREBY, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO PARENT, MERGER SUBSIDIARY,
OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR
REPRESENTATIVES, OR ANY OTHER PERSON, OF ANY DOCUMENTATION OR OTHER INFORMATION
BY THE COMPANY, ANY SUBSIDIARY OF THE COMPANY, OR ANY OF THEIR RESPECTIVE
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR REPRESENTATIVES, OR ANY OTHER PERSON,
WITH RESPECT TO ANY OF THE FOREGOING.
ARTICLE 5
Representations and Warranties of Parent
Parent represents and warrants to the Company that:
A-21
Section 5.01. Corporate Existence and Power. Each of Parent and Merger
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
corporate powers and all governmental licenses, authorizations, permits,
consents and approvals required to carry on its business as now conducted,
except for those licenses, authorizations, permits, consents and approvals the
absence of which would not be reasonably likely to have, individually or in the
aggregate, a Parent Material Adverse Effect. Parent has heretofore made
available to the Company true and complete copies of the certificate of
incorporation and bylaws of Parent and Merger Subsidiary as currently in effect.
Since the date of its incorporation, Merger Subsidiary has not engaged in any
activities other than in connection with or as contemplated by this Agreement.
Section 5.02. Corporate Authorization. The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby are within the corporate powers of Parent and Merger Subsidiary and have
been duly authorized by all necessary corporate action. This Agreement has been
duly executed and delivered by Parent and Merger Subsidiary and, assuming due
and valid authorization, execution and delivery of this Agreement by the
Company, constitutes a valid and binding obligation of Parent and Merger
Subsidiary enforceable against Parent and Merger Subsidiary in accordance with
its terms, except that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to the
enforcement of creditors' rights generally and (ii) is subject to general
principles of equity.
Section 5.03. Governmental Authorization. The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby require no action by or in respect of, or filing with, any Governmental
Authority other than (i) the filing of a certificate of merger with respect to
the Merger with the Delaware Secretary of State, (ii) compliance with any
applicable requirements of the HSR Act, (iii) compliance with any applicable
requirements of the 1934 Act and the rules and regulations promulgated
thereunder and (iv) actions or filings, the failure of which to take or make
would not be reasonably likely to have, individually or in the aggregate, a
Parent Material Adverse Effect.
Section 5.04. Non-contravention. The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby do not and will not (i) result in any violation or breach of any
provision of the certificate of incorporation or bylaws of Parent or Merger
Subsidiary, (ii) assuming compliance with the matters referred to in Section
5.03, result in a violation or breach of any provision of any applicable law,
statute, ordinance, rule, regulation, judgment, injunction, order or decree,
(iii) require any consent or other action by any Person under, constitute a
default under, or cause or permit the termination, cancellation, acceleration or
the loss of any benefit to which Parent or any of its Subsidiaries is entitled
under any provision of any agreement or other instrument binding upon Parent or
any of its Subsidiaries or any governmental license, franchise, permit or other
similar authorization relating to, the assets or business of the Parent and its
Subsidiaries or (iv) result in the creation or imposition of any Lien on any
asset of the Parent or any of its Subsidiaries, except for such violations or
breaches referred to in clause (ii) and for such failures to obtain any such
consent or other action, defaults,
A-22
terminations, cancellations, accelerations, losses or Liens referred to in
clauses (iii) and (iv) that would not be reasonably likely to have, individually
or in the aggregate, a Parent Material Adverse Effect.
Section 5.05. Disclosure Documents. None of the information provided or
to be provided by Parent for inclusion in the Proxy Statement or any amendment
or supplement thereto, at the time the Proxy Statement or any amendment or
supplement thereto is first mailed to stockholders of the Company and at the
time the stockholders vote on adoption of this Agreement, will contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
Section 5.06. Finders' Fees. Except for Citigroup Global Markets Inc.
and Financo, Inc., whose fees will be paid by Parent, there is no investment
banker, broker, finder or other intermediary that has been retained by or is
authorized to act on behalf of Parent who is entitled to any fee or commission
from the Company or any of its Affiliates upon consummation of the transactions
contemplated by this Agreement.
Section 5.07. Financing. Parent will have at the Effective Time
sufficient funds available to enable it to consummate the transactions
contemplated hereby.
Section 5.08. Chu Purchase Agreement. The representations and
warranties of Parent contained in the Chu Purchase Agreement are true and
correct in all material respects. The Chu Purchase Agreement is in full force
and effect
ARTICLE 6
Covenants of the Company
The Company agrees that:
Section 6.01. Conduct of the Company. Except as set forth in Section
6.01 of the Company Disclosure Schedule, from the date of this Agreement until
the Effective Time, the Company and its Subsidiaries shall conduct their
business in the ordinary course consistent with past practice and shall use
reasonable efforts to preserve intact their business organizations and
relationships with third parties and to keep available the services of their
present officers and employees. Without limiting the generality of the
foregoing, from the date of this Agreement until the Effective Time, except as
set forth in Section 6.01 of the Company Disclosure Schedule or as contemplated
by this Agreement:
(a) the Company shall not adopt or propose any change to its restated
certificate of incorporation or bylaws;
(b) the Company shall not, and shall not permit any of its Subsidiaries
to, merge or consolidate with any other Person, acquire a material amount of
assets of any other Person or acquire more than 30% of the outstanding capital
stock or other equity interests of any other Person; provided that in no event
shall the purchase price for any such acquisition of assets, capital stock or
other equity interests exceed $1 million for any such individual acquisition or
$5 million in the aggregate for all such acquisitions;
A-23
(c) the Company shall not, and shall not permit any of its Subsidiaries
to, sell, lease, license or otherwise dispose of any Significant Subsidiary or
any material amount of assets, securities or property except either (i) pursuant
to existing contracts or commitments or (ii) in the ordinary course consistent
with past practice;
(d) the Company shall not, and shall not permit any of its Subsidiaries
to, knowingly take any action that would make any representation and warranty of
the Company contained in Section 4.01, 4.04, 4.05, 4.06, 4.08, 4.09, 4.10(b),
4.10(d), 4.10(e), 4.10(h) or 4.19 inaccurate in any material respect at, or as
of any time prior to, the Effective Time; or
(e) the Company shall not, and shall not permit any of its Subsidiaries
to, agree or commit to do any of the foregoing.
Section 6.02. Stockholder Meeting; Proxy Material. The Company shall
cause a meeting of its stockholders (the "COMPANY STOCKHOLDER MEETING") to be
duly called and held as soon as reasonably practicable following the clearance
of the Proxy Statement by the SEC for the purpose of voting on the approval and
adoption of this Agreement and the Merger. Subject to Section 6.03(b), the Board
of Directors of the Company shall recommend approval and adoption of this
Agreement and the Merger by the Company's stockholders. In connection with such
meeting, the Company shall (i) promptly prepare and file with the SEC, use
reasonable efforts to have cleared by the SEC and thereafter mail to its
stockholders as promptly as practicable the Proxy Statement and all other proxy
materials for such meeting, (ii) subject to Section 6.03(b), use reasonable
efforts to obtain the necessary approvals by its stockholders of this Agreement
and the transactions contemplated hereby (the "COMPANY STOCKHOLDER APPROVAL")
and (iii) otherwise comply with all legal requirements applicable to such
meeting.
Section 6.03. No Solicitation; Other Offers. (a) From and after the
execution of this Agreement by all of the parties hereto until the earlier of
the Effective Time and the termination of this Agreement pursuant to Article 10,
neither the Company nor any of its Subsidiaries shall, and the Company and its
Subsidiaries shall instruct its or their officers, directors, employees,
investment bankers, attorneys, accountants, consultants or other agents or
advisors not to, directly or indirectly, (i) solicit, initiate or knowingly take
any action designed to facilitate the submission of any Acquisition Proposal,
(ii) engage in any discussions or negotiations with, or furnish any nonpublic
information relating to the Company or any of its Subsidiaries or knowingly
afford access to the business, properties, assets, books or records of the
Company or any of its Subsidiaries (other than such components of such
businesses, properties or assets that are generally accessible to the public)
to, any Third Party that to the knowledge of the Company is seeking to make, or
has made, an Acquisition Proposal, (iii) (A) amend or grant any waiver or
release under any standstill or similar agreement with respect to any class of
equity securities of the Company or any of its Subsidiaries, (B) amend or grant
any waiver or release or approve any transaction or redeem rights under the
Rights Agreement, (C) approve any transaction under Section 203 of Delaware Law
or (D) approve of any Person becoming an "interested stockholder" under Section
203 of Delaware Law and/or (iv) enter into any agreement with respect to an
Acquisition Proposal (other than a confidentiality agreement pursuant to Section
6.03(b)(ii) or a Superior Proposal Agreement in accordance with Section
10.01(d)(ii)(B)).
A-24
(b) Notwithstanding the foregoing, the Board of Directors of the
Company, directly or indirectly through advisors, agents or other
intermediaries, may, in response to a bona fide Acquisition Proposal the
Company's Board of Directors determines in good faith is reasonably likely to
result in a Superior Proposal (provided such Acquisition Proposal is not
received in violation of Section 6.03(a)), (i) engage in negotiations or
discussions with the Third Party making such Acquisition Proposal, (ii) furnish
to such Third Party nonpublic information relating to, and afford access to the
business, properties, assets, books and records of, the Company or any of its
Subsidiaries pursuant to an appropriate confidentiality agreement (a copy of
which shall be provided for informational purposes only to Parent), (iii) fail
to make, withdraw or modify in a manner adverse to Parent its recommendation to
its stockholders referred to in Section 6.02, (iv) amend or grant any waiver
referred to in Section 6.03(a)(iii)(A), (v) take any of the actions referred to
in Section 6.03(a)(iii)(B)-(D), but only in connection with entry into a
Superior Proposal Agreement in accordance with Section 10.01(d)(ii)(B) and/or
(vi) enter into a Superior Proposal Agreement in accordance with Section
10.01(d)(ii)(B). Nothing contained herein shall prevent the Board of Directors
of the Company from (i) taking any action that any court of competent
jurisdiction orders the Company to take, (ii) making with respect to an
Acquisition Proposal a "stop-look-and-listen" communication of the nature
contemplated in, and otherwise in compliance with, Rule 14d-9(f) under the 1934
Act as a result of receiving an Acquisition Proposal or (iii) with regard to an
Acquisition Proposal, complying with Rules 14e-2(a) or 14d-9 under the 1934 Act
or making such disclosure to the Company's stockholders as, in the good faith
judgment of the Company's Board of Directors, is necessary for the Company's
Board of Directors to comply with its fiduciary duties to the Company's
stockholders under applicable law. Unless this Agreement is previously
terminated in accordance with Article 10, the Company shall submit this
Agreement to its stockholders at the Company Stockholder Meeting, even if the
Board of Directors of the Company determines at any time after the date of this
Agreement that it is no longer advisable or recommends that the stockholders of
the Company reject it.
(c) The Board of Directors of the Company shall not take any of the
actions referred to in clauses (i) through (iv) of the first sentence of the
preceding subsection unless the Company delivers to Parent no later than
substantially contemporaneously with the taking of such action a written notice
advising Parent that it is taking (or will take) such action. In addition, the
Company shall notify Parent promptly (but in no event later than 48 hours) after
receipt by the Company (or any of its advisors) of any Acquisition Proposal or
of any request for information relating to the Company or any of its
Subsidiaries or for access to the business, properties, assets, books or records
of the Company or any of its Subsidiaries (other than such components of such
businesses, properties or assets that are generally accessible to the public) by
any Third Party that to the knowledge of the Company is seeking to make, or has
made, an Acquisition Proposal. The Company shall provide such notice orally and
in writing and shall identify the Third Party making, and the material terms and
conditions of, any such Acquisition Proposal, indication or request. The Company
shall keep Parent informed in all material respects, on a prompt basis, of the
status and material details of any such Acquisition Proposal, indication or
request. The Company shall, and shall cause its Subsidiaries and the advisors,
employees and other agents of the Company and any of its Subsidiaries to, cease
immediately and cause to be terminated any and all existing activities,
discussions or negotiations, if any, with any Third Party conducted prior to the
execution of this Agreement by all parties hereto with respect to any
Acquisition Proposal.
A-25
"SUPERIOR PROPOSAL" means any bona fide, unsolicited written
Acquisition Proposal for at least a majority of the outstanding shares of Common
Stock or 50% or more of the consolidated assets of the Company and its
Subsidiaries on terms that the Board of Directors of the Company determines in
good faith by a majority vote (excluding absent or abstaining directors), after
taking into account, among other things, all the terms and conditions of the
Acquisition Proposal, including any break-up fees, expense reimbursement
provisions and conditions to consummation, are more favorable and provide
greater value to the Company's stockholders in their capacity as such than as
provided hereunder and which the Board of Directors of the Company believes is
reasonably likely to be able to be consummated.
Section 6.04. Tax Matters. (a) Except as otherwise required by
applicable law or with the consent of Parent (which consent shall not be
unreasonably withheld or delayed), neither the Company nor any of its
Subsidiaries shall make or change any Tax election, change any annual Tax
accounting period, adopt or change any method of tax accounting, file any
amended Tax Returns or claims for Tax refunds, enter into any closing agreement
with a Taxing Authority or settle or compromise any Tax claim, audit or
assessment if any such action or omission, considered in the aggregate, would
have the effect of materially increasing the Tax liability or reducing any
material Tax Asset of the Company or any of its Subsidiaries.
(b) All transfer, documentary, sales, use, stamp, registration, value
added and similar Taxes and fees (including any penalties and interest) imposed
upon the Company or any of its Subsidiaries, or any of its stockholders, in
connection with the Merger (including any real property transfer tax and any
similar Tax) shall be paid by the Company when due, and the Company shall, at
its own expense, file all necessary Tax returns and other documentation with
respect to all such Taxes and fees, and, if required by applicable law, the
Company shall join in the execution of any such Tax returns and other
documentation.
Section 6.05. Access to Information. From the date of this Agreement
until the Effective Time, subject to applicable law, upon reasonable notice and
during normal business hours, the Company shall (i) give to Parent, its counsel,
financial advisors, auditors and other authorized representatives reasonable
access to the offices, properties, employees, books and records of the Company
and its Subsidiaries, (ii) furnish to Parent, its counsel, financial advisors,
auditors and other authorized representatives such financial and operating data
and other information as such Persons may reasonably request and (iii) instruct
its employees, counsel, financial advisors, auditors and other authorized
representatives to cooperate with Parent in its investigation. Any investigation
pursuant to this Section shall be conducted in such manner as not to interfere
unreasonably with the conduct of the business of the Company and its
Subsidiaries. No information or knowledge obtained in any investigation pursuant
to this Section shall affect or be deemed to modify any representation or
warranty made by any party hereunder. In addition to and not in limitation of
the foregoing, the Company shall make available to Parent copies of each
Internal Revenue Service determination letter received after the date of this
Agreement with respect to any Employee Plan referred to in the first sentence of
Section 4.16(d).
Section 6.06. Notices of Certain Events. The Company shall promptly
notify Parent of:
A-26
(a) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the transactions
contemplated by this Agreement;
(b) any material notice or other material communication from any
Governmental Authority in connection with the transactions contemplated by this
Agreement; and
(c) any actions, suits, claims, investigations or proceedings commenced
or, to its knowledge, threatened against, relating to or involving or otherwise
affecting the Company or any of its Subsidiaries, as the case may be, that, if
pending on the date of this Agreement, would have been required to have been
disclosed pursuant to Sections 4.12, 4.13, 4.14 or 4.16, as the case may be, or
that relate to the consummation of the transactions contemplated by this
Agreement.
Section 6.07. Disclosure Schedule. On the date of this Agreement, the
Company has delivered to Parent a schedule (the "COMPANY DISCLOSURE SCHEDULE"),
accompanied by a certificate signed by an authorized officer of the Company
stating the Company Disclosure Schedule is being delivered pursuant to this
Section 6.07. The Company Disclosure Schedule constitutes an integral part of
this Agreement. A matter set forth in one item of the Company Disclosure
Schedule need not be set forth in any other item of the Company Disclosure
Schedule so long as its relevance to the other sections or subsections of the
Company Disclosure Schedule or section of the Agreement is reasonably apparent
on the face of the information disclosed in the Company Disclosure Schedule. The
fact that any item of information is disclosed in the Company Disclosure
Schedule shall not be construed to mean that such information is required to be
disclosed by this Agreement. Such information and the dollar thresholds set
forth herein shall not be used as a basis for interpreting the terms "material"
or "Company Material Adverse Effect" or other similar terms in this Agreement.
ARTICLE 7
Covenants of Parent
Parent agrees that:
Section 7.01. Obligations of Merger Subsidiary. Parent shall take all
action necessary to cause Merger Subsidiary to perform its obligations under
this Agreement and to consummate the Merger on the terms and conditions set
forth in this Agreement.
Section 7.02. Voting of Shares. Parent shall vote any shares of Common
Stock beneficially owned by it or any of its Subsidiaries in favor of adoption
of this Agreement at the Company Stockholder Meeting.
Section 7.03. Director and Officer Liability. Parent shall cause the
Surviving Corporation, and the Surviving Corporation hereby agrees, to do the
following:
(a) From and after the Effective Time, the Surviving Corporation shall,
and Parent shall cause the Surviving Corporation to, indemnify and hold harmless
any Person who is now, or has been at any time prior to the date of this
Agreement or who becomes such prior to the Effective Time, an officer or
director of the Company or any of its Subsidiaries (each, an
A-27
"INDEMNIFIED PERSON") from and against, and defend any Indemnified Person from
and reimburse any Indemnified Person for, (i) any and all losses, claims,
damages, costs, expenses (including reasonable attorneys' fees), fines,
liabilities and judgments and amounts that are paid in settlement arising out of
or in connection with any claim, action, suit, proceeding or investigation (A)
to the extent based on, or arising out of, the fact that such Person is or was a
director or officer of the Company or any of its Subsidiaries pertaining to any
action or omission existing or occurring at or prior to the Effective Time and
whether asserted or claimed prior to, at or after the Effective Time or (B) to
the extent based on, or arising out of, or pertaining to, (1) this Agreement or
the transactions contemplated hereby (including without limitation the Chu
Agreements) or (2) the Proxy Contest, and (ii) without limitation to clause (i),
to the fullest extent permitted by Delaware Law or any other applicable laws or
provided under the Company's restated certificate of incorporation and bylaws in
effect on the date of this Agreement; provided that such indemnification shall
be subject to any limitation imposed from time to time under applicable law. The
Surviving Corporation will, and the Parent will cause the Surviving Corporation
to, promptly advance all reasonable out-of-pocket expenses (including reasonable
attorneys' fees) of each Indemnified Person in connection with any such claim,
action, suit, investigation or proceeding with respect to which such Indemnified
Person is seeking indemnification hereunder as such reasonable out-of-pocket
expenses are incurred (subject to having received an undertaking from such
Indemnified Person to reimburse such expenses if it is subsequently determined
that the Indemnified Person is not entitled to indemnification under applicable
law). In addition, the Surviving Corporation shall pay a per diem fee of $3,000
per day to each Specified Director, for each day spent by such Specified
Director in preparing for, traveling to, cooperating or testifying in connection
with, any claim, action, suit, proceeding or investigation for which such
Specified Director is required to be indemnified pursuant to this Section
7.03(a) ("PROCEEDINGS COOPERATION") (such amount to be pro rated for any day on
which less than eight hours is so spent), but only after such Specified Director
has engaged in Proceedings Cooperation for a total of two days (or, if longer,
16 hours) in connection with any Proceedings Cooperation after the date of this
Agreement, provided that the aggregate amount of per diem fees payable hereunder
to all Specified Directors shall not exceed $150,000. Each of Israel Rosenzweig,
Robert B. Banks, and Ronald G. Weiner shall constitute "SPECIFIED DIRECTORS".
Parent shall be jointly and severally liable with the Surviving
Corporation for the performance of the Surviving Corporation's obligations under
this Section 7.03(a) and Section 7.03(b).
Upon receipt by an Indemnified Person of actual notice of a claim,
action or proceeding against such Indemnified Person in respect of which
indemnity may be sought pursuant to this Section 7.03(a), such Indemnified
Person shall promptly notify the Surviving Corporation with respect thereto. In
addition, an Indemnified Person shall promptly notify the Surviving Corporation
after any action is commenced (by way of service with a summons or other legal
process giving information as to the nature and basis of the claim) against such
Indemnified Person. In any event, failure so to notify the Surviving Corporation
shall not relieve the Surviving Corporation or Parent from any liability which
the Surviving Corporation or Parent may have on account of this indemnity or
otherwise, except to the extent the Surviving Corporation shall have been
materially prejudiced by such failure. The Surviving Corporation may, at its
election (such election to be made within 30 days of receipt of the summons or
other
A-28
legal process referred to above), and, if requested by an Indemnified Person,
shall (within 30 days of receipt of a request thereto), assume the defense of
and control any litigation or proceeding in respect of which indemnity may be
sought hereunder (with, in the case of any litigation or proceeding brought in
federal or state court in the State of Delaware or the State of New York,
counsel of international stature having a principal office in New York, and, in
the case of any other litigation or proceeding, with counsel of national
stature), including the employment of counsel reasonably satisfactory to the
Indemnified Person and the payment of the fees and expenses of such counsel, in
which event, except as provided below, the Surviving Corporation shall not be
liable for the fees and expenses of any other counsel retained by an Indemnified
Person in connection with such litigation or proceeding. The Indemnified Person
may assume the defense of and control any such litigation or proceeding in the
event that the Surviving Corporation is not in good faith pursuing the defense
of such matter or if within the applicable period specified in the immediately
preceding sentence the Surviving Corporation shall not assume the defense of
such matter. In the case of any proceeding or litigation the defense and control
of which the Indemnified Person shall have assumed in accordance with the
immediately preceding sentence (and in the case of clauses (i) and (ii) of the
next succeeding sentence), (i) the Indemnified Party may retain its own counsel,
(ii) the Surviving Corporation shall, and the Parent shall cause the Surviving
Corporation to, pay all reasonable fees and expenses of such counsel promptly
after receipt of any invoices with respect thereto (subject to having received
an undertaking from such Indemnified Person to reimburse such expenses if it is
subsequently determined that the Indemnified Person is not entitled to
indemnification under applicable law), and (iii) the Surviving Corporation shall
use reasonable efforts to assist in the defense of any such matter. In any such
litigation or proceeding the defense of which the Surviving Corporation shall
have so assumed and be pursuing in good faith, any Indemnified Person shall have
the right to participate in (but not control) such litigation or proceeding and
to retain its own counsel, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Person unless (i) the Surviving Corporation and
such Indemnified Person shall have mutually agreed in writing to the retention
of such counsel or (ii) the named parties to any such litigation or proceeding
(including any impleaded parties) include the Surviving Corporation and such
Indemnified Person and representation of both parties by the same counsel would,
in the good faith opinion of counsel to the Surviving Corporation, be
inappropriate due to actual or potential differing interests between the
Surviving Corporation and such Indemnified Person. In any litigation or
proceeding of which the Surviving Corporation shall have assumed the defense,
the Surviving Corporation shall not settle such matter without the prior written
consent of the Indemnified Person (which consent shall not be unreasonably
withheld or delayed) and no Indemnified Person shall be required to agree to
settle such matter unless such settlement (x) includes an unconditional release
of such Indemnified Person from all liability arising out of or in connection
with such matter, (y) does not include any admission of fault, culpability or a
failure to act by, or on behalf of, such Indemnified Person or payment of any
money by such Indemnified Person and (z) does not result in the imposition
against such Indemnified Person of injunctive or other equitable relief. The
Surviving Corporation shall not be liable for any settlement of any litigation
or proceeding effected without its written consent (which consent shall not be
unreasonably withheld or delayed), but if settled with such consent or if there
be a final judgment for the plaintiff, the Surviving Corporation agrees to
indemnify the Indemnified Person from and against any loss or liability by
reason of such settlement or judgment; provided that if the Surviving
Corporation shall not have assumed and pursued in good faith the defense of
A-29
any litigation or proceeding, the Indemnified Person may settle any such
litigation or proceeding with the consent of the Surviving Corporation, in which
case the Surviving Corporation shall be liable for such settlement and promptly
indemnify the Indemnified Person from and against any liability by reason of
such settlement.
(b) For six years after the Effective Time, the Surviving Corporation
shall provide officers' and directors' liability insurance in respect of acts or
omissions occurring prior to the Effective Time covering each such Indemnified
Person currently covered by the Company's officers' and directors' liability
insurance policy on terms with respect to coverage and amount no less favorable
than those of such policy in effect on the date of this Agreement; provided
that, in satisfying its obligation under this Section 7.03(b), the Surviving
Corporation shall not be obligated to pay premiums in excess of 250% of the
annualized premium for such policy based on the rate thereof as of the date of
this Agreement, which amount Company has disclosed to Parent prior to the date
of this Agreement. If, during such six-year period, such insurance coverage
cannot be obtained at all or can be obtained only for an amount in excess of
250% of the Company's annual premium therefor, the Parent shall use its
reasonable efforts to cause to be obtained as much directors' and officers'
liability insurance coverage as can be obtained for an amount equal to 250% of
the Company's annual premium therefor in effect at the Effective Time, on terms
and conditions substantially similar to the Company's then existing directors'
and officers' liability insurance.
(c) If Parent, the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other Person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its properties
and assets to any Person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Parent or
the Surviving Corporation, as the case may be, shall assume all of the
obligations set forth in this Section 7.03.
(d) The rights of each Indemnified Person under this Section 7.03 shall
be in addition to any rights to indemnification and exculpation of personal
liability that such Person may have under the restated certificate of
incorporation or bylaws of the Company or the certificate of incorporation or
bylaws of any of its Subsidiaries, or under Delaware Law or any other applicable
laws or under any agreement of any Indemnified Person with the Company or any of
its Subsidiaries. These rights shall survive consummation of the Merger and are
intended to benefit, and shall be enforceable by, each Indemnified Person, his
or her heirs and his or her personal representatives.
Section 7.04. Parent Employee Matters.
(a) Parent shall cause the Surviving Corporation and/or any of its
Subsidiaries, as applicable, effective on and after the Effective Time, to honor
and assume and agree to perform the obligations of the Company or any of its
Subsidiaries under the Employee Plans and all employment, severance,
termination, change of control, consulting and collective bargaining agreements
to which the Company or any Subsidiary is a party, in each case, to the extent
the Company or any of its Subsidiaries would have been required to perform such
plan or agreement.
A-30
(b) Parent agrees that, for at least one year following the Effective
Time, subject to applicable law, Parent will provide, or cause to be provided,
to the individuals who are employees of the Company and its Subsidiaries as of
the Effective Time except employees covered by collective bargaining agreements
to which the Company or any Subsidiary of the Company is a party, with respect
to whom Section 7.04(a) shall apply (the "TRANSFERRED EMPLOYEES") benefits
materially no less favorable in the aggregate than those currently provided by
the Company and its Subsidiaries to such employees or, at the election of
Parent, materially no less favorable, in the aggregate than the benefits
provided from time to time to similarly situated employees of Parent and its
Subsidiaries (other than any stock option or other equity based incentive plan
currently provided by the Company), and Parent shall cause to be provided to any
Transferred Employee who is terminated during the one-year period following the
Effective Time, severance benefits no less favorable than those currently
provided to a similarly situated employee under any severance pay plan, policy,
arrangement or guideline of the Company or its Subsidiaries. Notwithstanding the
foregoing, nothing herein shall otherwise limit Parent's right to amend, modify
or terminate any Employee Plan or International Plan.
(c) Parent agrees that each employee of the Company will receive
service credit for all periods of employment with the Company and its Affiliates
or any predecessors thereto prior to the Effective Time for all purposes of
participation eligibility and vesting (other than for benefit accrual purposes)
under any employee benefit plan of Parent or its Affiliates in which such
employee participates after the Effective Time to the extent that such service
was recognized under any analogous plan of the Company or its Affiliates in
effect immediately prior to the Effective Time.
(d) For purposes of each new or existing employee benefit plan of
Parent or its Affiliates providing medical, dental, pharmaceutical or vision
benefits to any employee of the Company or its Subsidiaries, Parent or its
Affiliates shall cause all pre-existing condition exclusions and
actively-at-work requirements of such new or existing employee benefit plan of
Parent or its Affiliates to be waived for such employee and his or her covered
dependents, to the extent such exclusions were not applicable or requirements
were waived under the corresponding Employee Plan, and Parent or its Affiliates
shall cause any eligible expenses incurred by such employee and his or her
covered dependents during the portion of the plan year of the Employee Plan
ending on the date such employee's participation in the corresponding new or
existing employee benefit plan of Parent or its Affiliates begins to be taken
into account under such new or existing employee benefit plan of Parent or its
Affiliates for purposes of satisfying all deductible, coinsurance and maximum
out-of-pocket requirements applicable to such employee and/or his or her covered
dependents for the applicable plan year as if such amounts had been paid in
accordance with such new or existing employee benefit plan.
(e) Nothing in this Section 7.04 will be or be deemed to be for the
benefit of or enforceable by, any person who is not a party hereto, including,
without limitation, any employee of the Company, the Surviving Corporation or
any of their respective Affiliates or shall be deemed to limit the Surviving
Corporation's or its Affiliates' ability to modify or eliminate any Employee
Plan or International Plan.
A-31
ARTICLE 8
Covenants of Parent and the Company
The parties hereto agree that:
Section 8.01. Reasonable Efforts. (a) Subject to the terms and
conditions of this Agreement, Company and Parent shall use reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement, including (i)
preparing and filing as promptly as practicable with any Governmental Authority
or other third party all documentation to effect all necessary filings, notices,
petitions, statements, registrations, submissions of information, applications
and other documents, (ii) obtaining and maintaining all approvals, consents,
registrations, permits, authorizations and other confirmations required to be
obtained from any Governmental Authority that are necessary, proper or advisable
to consummate the transactions contemplated by this Agreement and (iii) using
all reasonable efforts to lift or rescind any injunction or restraining order or
other order adversely affecting the ability of the parties to consummate the
transactions contemplated hereby and using all reasonable efforts to defend any
litigation seeking to enjoin, prevent or delay the consummation of the
transactions contemplated hereby or seeking material damages in connection with
this Agreement or the transactions contemplated hereby.
(b) In furtherance and not in limitation of the foregoing, each of (i)
Parent and the Company shall make an appropriate filing of a Notification and
Report Form pursuant to the HSR Act with respect to the transactions
contemplated hereby as promptly as practicable and in any event within ten
Business Days after the date of this Agreement and to supply as promptly as
practicable any additional information and documentary material that may be
requested pursuant to the HSR Act and to take all other actions necessary to
cause the expiration or termination of the applicable waiting periods under the
HSR Act as soon as practicable and (ii) Parent, Merger Subsidiary and the
Company shall use reasonable efforts to satisfy the conditions to such party's
obligations to consummate the transactions contemplated by this Agreement.
Section 8.02. Certain Filings. The Company and Parent shall cooperate
with one another (i) in connection with the preparation of the Proxy Statement,
(ii) in determining whether any action by or in respect of, or filing with, any
Governmental Authority is required in connection with the consummation of the
transactions contemplated by this Agreement and (iii) in taking such actions or
making any such filings, furnishing information required in connection therewith
or with the Proxy Statement and seeking to timely obtain any consents and
approvals listed in Section 4.04(iii) of the Company Disclosure Schedule.
Section 8.03. Public Announcements. Parent and the Company shall
consult with each other before issuing any press release or making any other
public statement with respect to this Agreement or the transactions contemplated
hereby and, except as may be required by applicable law, order of a court of
competent jurisdiction or any listing agreement with or rule of any national
securities exchange or Nasdaq, shall not issue any such press release or make
any such other public statement without the consent of the other party (which
consent shall not be unreasonably withheld or delayed).
A-32
Section 8.04. Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of the Company or Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or Merger Subsidiary, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to and under any
of the rights, properties or assets of the Company acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger.
Section 8.05. Confidentiality. Prior to the Effective Time and after
any termination of this Agreement, each of Parent and the Company shall hold,
and shall use its reasonable efforts to cause its officers, directors,
employees, accountants, counsel, consultants, advisors and agents to hold, in
confidence, unless compelled to disclose by judicial or administrative process
or by other requirements of law, all confidential documents and information
concerning the other party furnished to it or its Affiliates in connection with
the transactions contemplated by this Agreement, except to the extent that such
information can be shown to have been (i) previously known on a non-confidential
basis by such party from a source other than the other party or its Subsidiaries
or their advisors, provided that to such party's knowledge such source was not
prohibited from disclosing such information to such party by a contractual,
legal or fiduciary obligation to the other party or its Subsidiaries or their
advisors, (ii) in the public domain through no fault of such party or (iii)
later lawfully acquired by such party on a non-confidential basis from sources
other than the other party or its Subsidiaries or their advisors, provided that
to such party's knowledge, after due inquiry, such source is not prohibited from
disclosing such information to such party by a contractual, legal or fiduciary
obligation to the other party or its Subsidiaries or their advisors; provided
that each of Parent and the Company may disclose such information to its
officers, directors, employees, accountants, counsel, consultants, advisors and
agents in connection with the transactions contemplated by this Agreement so
long as such party informs such Persons of the confidential nature of such
information and directs them to treat it confidentially. Notwithstanding any
other provision of this Agreement, each of Parent and the Company may disclose
the tax treatment and tax structure of the transactions contemplated by this
Agreement (including any materials, opinions or analyses relating to such tax
treatment or tax structure, but without disclosure of identifying information
or, except to the extent relating to such tax structure or tax treatment, any
nonpublic commercial or financial information, except as otherwise required by
applicable securities laws). Moreover, notwithstanding any other provision of
this Agreement, there shall be no limitation on Parent's or the Company's
ability to consult any tax adviser, whether or not independent from Parent,
Company or their respective Affiliates, regarding the tax treatment or tax
structure of the transactions contemplated by this Agreement. Each of Parent and
the Company shall satisfy its obligation to hold any such information in
confidence if it exercises the same care with respect to such information as it
would take to preserve the confidentiality of its own similar information. If
this Agreement is terminated, each of Parent and the Company shall, and shall
use its reasonable efforts to cause its officers, directors, employees,
accountants, counsel, consultants, advisors and agents to, destroy or deliver to
the other party, upon request, all documents and other materials, and all copies
thereof, that it or its Affiliates obtained, or that were obtained on their
behalf, from the other party in connection with this Agreement and that are
subject to such confidence.
A-33
Section 8.06. Chu Purchase Agreement. Prior to the Effective Time,
Parent shall (a) use its reasonable efforts to consummate the "Closing" under
and as defined in the Chu Purchase Agreement (including using reasonable efforts
to seek specific enforcement thereof), (b) perform its obligations (including
any obligation to make payments) under the Chu Purchase Agreement in all
respects in strict compliance therewith, (c) not amend the Chu Purchase
Agreement in any respect, (d) not terminate the Chu Purchase Agreement, (e)
promptly send to the Company a copy of any notice received in connection with
the Chu Purchase Agreement and the transactions contemplated thereby and (f)
promptly notify the Company of any significant developments relating to the Chu
Purchase Agreement and the transactions contemplated thereby.
ARTICLE 9
Conditions to the Merger
Section 9.01. Conditions to Obligations of Each Party. The obligations
of the Company, Parent and Merger Subsidiary to consummate the Merger are
subject to the satisfaction or waiver (to the extent permitted by applicable
law) of the following conditions:
(a) this Agreement shall have been approved and adopted by the
stockholders of the Company in accordance with Delaware Law;
(b) no provision of any applicable law or regulation and no judgment,
injunction, order or decree of a court of competent jurisdiction shall prohibit
the consummation of the Merger;
(c) any applicable waiting period under the HSR Act relating to the
Merger shall have expired or been terminated; and
(d) all actions by or in respect of, or filings with, any Governmental
Authority required to permit the consummation of the Merger, the failure to
obtain which would be reasonably likely, individually or in the aggregate, to
have a Company Material Adverse Effect or a Parent Material Adverse Effect,
shall have been taken, made or obtained.
Section 9.02. Conditions to the Obligations of Parent and Merger
Subsidiary. The obligations of Parent and Merger Subsidiary to consummate the
Merger are subject to the satisfaction or waiver (to the extent permitted by
applicable law) of the following further conditions:
(a) (i) the Company shall have performed in all material respects all
of its obligations hereunder required to be performed by it at or prior to the
Effective Time, (ii) the representations and warranties of the Company contained
in this Agreement and in any certificate or other writing delivered by the
Company pursuant hereto shall be true in all material respects at and as of the
Effective Time as if made at and as of such time (except to the extent a
representation or warranty is expressly made as of a time other than the
Effective Time, in which case such representation or warranty shall be true in
all material respects at and as of such time); provided, however, that any such
representation or warranty that is qualified by any standard of materiality or
Company Material Adverse Effect shall be true in all respects in the form
written and (iii) Parent shall have received a certificate signed by an
executive officer of the Company to the foregoing effect;
A-34
(b) there shall not have been instituted or pending any action or
proceeding (or any investigation or other inquiry that is reasonably likely to
result in such action or proceeding) by the United States Federal Trade
Commission or the United States Department of Justice before any court or
Governmental Authority (i) challenging or seeking to make illegal, to delay
materially or otherwise directly or indirectly to restrain or prohibit the
consummation of the Merger or seeking to obtain material damages, (ii) seeking
to restrain or prohibit Parent's ownership or operation (or that of its
respective Subsidiaries or Affiliates) of all or any material portion of the
business or assets of the Company and its Subsidiaries, taken as a whole, or of
Parent and its Subsidiaries, taken as a whole, or to compel Parent or any of its
Subsidiaries or Affiliates to dispose of or hold separate all or any material
portion of the business or assets of the Company and its Subsidiaries, taken as
a whole, or of Parent and its Subsidiaries, taken as a whole, or (iii) that
otherwise is reasonably likely to have a Company Material Adverse Effect or
Parent Material Adverse Effect; provided that Parent shall have used its
reasonable efforts to challenge such action or proceeding (or investigation or
other inquiry);
(c) there shall not have been after the date of this Agreement any
federal or state statute enacted, enforced or promulgated by any government or
governmental authority or agency of the United States or any state in which
either Parent, the Company or their respective Subsidiaries conducts a material
amount of business that, in the reasonable judgment of Parent, is likely,
directly or indirectly, to result in any of the consequences referred to in
clauses (i) through (iii) of paragraph (b) above;
(d) Parent shall have received all documents it may reasonably request
relating to the existence of the Company and its Significant Subsidiaries and
the authority of the Company to enter into and perform this Agreement, all in
form and substance reasonably satisfactory to Parent;
(e) the holders of not more than 12.5% of the outstanding shares of
Common Stock shall have demanded appraisal of their shares in accordance with
Delaware Law; and
(f) the transactions contemplated by the Chu Purchase Agreement to be
consummated at the "Closing" thereunder shall have been consummated or shall be
consummated substantially contemporaneously with the Effective Time; provided
that this clause (f) shall not apply if Parent shall have refused to consummate
such "Closing" in breach of its obligation to do so under the Chu Purchase
Agreement.
Section 9.03. Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Merger are subject to the
satisfaction or waiver (to the extent permitted by applicable law) of the
following further conditions:
(a) (i) each of Parent and Merger Subsidiary shall have performed in
all material respects all of its obligations hereunder required to be performed
by it at or prior to the Effective Time, (ii) the representations and warranties
of Parent and Merger Subsidiary contained in this Agreement and in any
certificate or other writing delivered by Parent or Merger Subsidiary pursuant
hereto, shall be true in all material respects at and as of the Effective Time
as if made at and as of such time (except to the extent a representation or
warranty is expressly made as of a time other than the Effective Time, in which
case such representation or warranty shall be true in
A-35
all material respects at and as of such time); provided, however that any such
representation or warranty that is qualified by any standard of materiality or
Parent Material Adverse Effect shall be true in all respects in the form written
and (iii) the Company shall have received a certificate signed by an executive
officer of the Parent and the Merger Subsidiary to the foregoing effect; and
(b) the Company shall have received all documents it may reasonably
request relating to the existence of Parent and Merger Subsidiary and the
authority of Parent and Merger Subsidiary to enter into and perform this
Agreement, all in form and substance reasonably satisfactory to Company.
ARTICLE 10
Termination
Section 10.01. Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time (notwithstanding
any approval of this Agreement by the stockholders of the Company):
(a) by mutual written agreement of the Company and Parent;
(b) by either the Company or Parent, if:
(i) the Merger has not been consummated on or before February 7,
2004 (the "END DATE");
(ii) (A) there shall be any United States law or regulation that
makes consummation of the Merger illegal or otherwise prohibited or (B)
any judgment, injunction, order or decree of any court or governmental
body having competent jurisdiction enjoining the Company, Merger
Subsidiary or Parent from consummating the Merger is entered and such
judgment, injunction, judgment or order shall have become final and
nonappealable; provided that the party seeking to terminate this
Agreement pursuant to this clause (b)(ii)(B) shall have used its
reasonable efforts to challenge such judgment, injunction, order or
decree; or
(iii) this Agreement shall not have been approved and adopted in
accordance with Delaware Law by the Company's stockholders at the
Company Stockholder Meeting (or any postponement or adjournment
thereof);
(c) by Parent, if:
(i) at any time prior to the adoption and approval of this
Agreement by the Company's stockholders, the Board of Directors of the
Company shall have (A) failed to make or withdrawn, or modified in a
manner adverse to Parent, its approval or recommendation of this
Agreement or the Merger, (B) approved, recommended or endorsed any
Acquisition Proposal or (C) failed to call the Company Stockholder
Meeting in accordance with Section 6.02;
A-36
(ii) a breach of any representation or warranty or failure to
perform any covenant or agreement on the part of the Company set forth
in this Agreement shall have occurred that would cause the condition
set forth in Section 9.02(a) not to be satisfied, and such condition is
incapable of being satisfied by the End Date; or
(iii) the Company shall have knowingly, willfully and materially
breached any of its obligations under Section 6.02 or 6.03; or
(d) by the Company, if:
(i) a breach of any representation or warranty or failure to
perform any covenant or agreement on the part of the Parent or Merger
Subsidiary set forth in this Agreement shall have occurred that would
cause the condition set forth in Section 9.03(a) not to be satisfied,
and such condition is incapable of being satisfied by the End Date; or
(ii) (A) the Board of Directors of the Company authorizes the
Company, subject to complying with the terms of this Agreement, to
enter into a binding written agreement concerning a transaction that
constitutes a Superior Proposal (a "SUPERIOR PROPOSAL AGREEMENT") and
the Company notifies Parent, in writing and at least 48 hours prior to
such termination (which notice need only be given once with respect to
any Acquisition Proposal or amendment thereto), promptly of its
intention to enter into such a Superior Proposal Agreement, attaching
the most current draft of such Superior Proposal Agreement (or a
description of all material terms and conditions thereof), and (B)
Parent does not make, within 48 hours of receipt of such written
notification, an offer that the Board of Directors of the Company
determines in good faith, is at least as favorable to the stockholders
of the Company as such Superior Proposal (it being understood and
agreed that (1) the Company shall not enter into any such Superior
Proposal Agreement during the first 36 hours of such 48-hour period and
(2) the Company may enter into any such Superior Proposal Agreement
during the last 12 hours of such 48-hour period, provided that any such
Superior Proposal Agreement entered into during such 12-hour period
shall provide that it shall terminate upon an offer by Parent that the
Board of Directors of the Company determines in good faith is at least
as favorable to the stockholders of the Company as such Superior
Proposal) and (C) the Company substantially simultaneously with such
termination pursuant to this clause 10.01(d)(ii) pays to Parent in
immediately available funds the amounts required to be paid pursuant to
Sections 11.04(b). The Company agrees to notify Parent promptly if its
intention to enter into a written agreement referred to in its
notification shall change at any time after giving such notification.
The party desiring to terminate this Agreement pursuant to this Section 10.01
(other than pursuant to Section 10.01(a)) shall give notice of such termination
to the other party.
Section 10.02. Effect of Termination. If this Agreement is terminated
pursuant to Section 10.01, this Agreement shall become void and of no effect
without liability of any party (or any stockholder, director, officer, employee,
agent, consultant or representative of such party) to the other party hereto;
provided that, if such termination shall result from the willful failure of
either party to perform in all material respects any of its covenants contained
in this Agreement,
A-37
such party shall be fully liable for any and all liabilities and damages
incurred or suffered by the other party as a result of such failure. The
provisions of this Section 10.02 and Sections 8.05, 11.04, 11.05, 11.06, 11.07,
11.08, 11.09, 11.10 and 11.11 shall survive any termination hereof pursuant to
Section 10.01.
ARTICLE 11
Miscellaneous
Section 11.01. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including facsimile transmission and
electronic mail ("E-MAIL") transmission, so long as a receipt of such e-mail is
requested and received) and shall be given,
if to Parent or Merger Subsidiary, to:
VF Corporation
105 Corporate Center Boulevard
Greensboro, NC 27408
Attention: Candace Cummings
Facsimile No.: (336) 424-7696
E-mail: candace_cummings@vfc.com
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attention: George R. Bason, Jr.
Facsimile No.: (212) 450-3340
E-mail: bason@dpw.com
if to the Company, to:
Nautica Enterprises, Inc.
40 West 57th Street
7th Floor
New York, NY 10019
Attention: Mr. Harvey Sanders
Facsimile No.: (212) 632-4353
E-mail: harvey.sanders@nautica.com
with a copy to:
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, NY 10004
Attention: Kenneth A. Lefkowitz
A-38
Facsimile No.: (212) 422-4726
E-mail: lefkowit@hugheshubbard.com
or to such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. All such notices,
requests and other communications shall be deemed received on the date of
receipt by the recipient thereof if received prior to 5:00 p.m. on a Business
Day in the place of receipt. Otherwise, any such notice, request or
communication shall be deemed to have been received on the next succeeding
Business Day in the place of receipt.
Section 11.02. Nonsurvival of Representations and Warranties. The
representations, warranties and agreements contained herein and in any
certificate or other writing delivered pursuant hereto shall not survive the
Effective Time, except that the agreements set forth in Article 2 and Article 3
and Sections 7.03, 7.04, 8.04, 11.05, 11.06, 11.07, 11.08, 11.09, 11.10, 11.11
and 11.12 shall survive the Effective Time and remain in effect in accordance
with their respective terms.
Section 11.03. Amendments and Waivers. (a) Subject to applicable law,
any provision of this Agreement may be amended or waived prior to the Effective
Time whether before or after any vote of the stockholders of the Company
contemplated hereby if, but only if, such amendment or waiver is in writing and
is signed, in the case of an amendment, by each party to this Agreement or, in
the case of a waiver, by each party against whom the waiver is to be effective;
provided that, after the adoption of this Agreement by the stockholders of the
Company and without their further approval, no such amendment or waiver shall
reduce the amount or change the kind of consideration to be received in exchange
for the shares of Common Stock or effect any other change not permitted by
Section 251(d) of Delaware Law.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
Section 11.04. Expenses. (a) Except as otherwise provided herein, all
costs and expenses incurred in connection with this Agreement shall be paid by
the party incurring such cost or expense. Notwithstanding the foregoing, Parent
and the Company each shall pay 50% of any fees and expenses, other than
attorneys' and accounting fees and expenses, incurred in respect of the
printing, filing and mailing of the Proxy Statement and any amendments or
supplements therto.
(b) If a Payment Event (as hereinafter defined) occurs, the Company
shall pay Parent (by wire transfer of immediately available funds) a fee of $18
million (i) if pursuant to (x) or (z) below within two Business Days of the
occurrence of such Payment Event or, (ii) if pursuant to (y) below,
substantially simultaneously with the occurrence of such Payment Event.
"PAYMENT EVENT" means (x) the termination of this Agreement pursuant to
(1) Section 10.01(c)(i) or (2) Section 10.01(c)(iii) (based on a willful,
knowing and material breach by the
A-39
Company of its obligations under Section 6.02 or 6.03), (y) the termination of
this Agreement pursuant to Section 10.01(d)(ii) or (z) the consummation of any
of the transactions described in clauses (A) through (D) within 8 months of the
termination of this Agreement pursuant to Sections 10.01(b)(i) (except for any
such termination following a refusal by Parent to consummate the Merger based
solely on the failure of the condition specified in Section 9.02(a)(ii) or
9.02(d) to be fulfilled) or 10.01(b)(iii) if prior to such termination (or, in
the case of a termination pursuant to Section 10.01(b)(iii), prior to the
Company Stockholder Meeting), there shall have been made a bona fide Acquisition
Proposal pursuant to which stockholders of the Company would receive cash,
securities or other consideration having an aggregate value, when taken together
with the value of any securities of the Company or its Subsidiaries otherwise
held by such stockholders after such event, in excess of $17.00 per share of
Common Stock and which bona fide Acquisition Proposal shall have been
outstanding at the time of such termination (or, in the case of a termination
pursuant to Section 10.01(b)(iii), at the time of the Company Stockholder
Meeting): (A) the Company merges with or into, or is acquired, directly or
indirectly, by merger or otherwise by, a Third Party; (B) a Third Party,
directly or indirectly, acquires more than 50% of the total assets of the
Company and its Subsidiaries, taken as a whole; (C) a Third Party, directly or
indirectly, acquires more than 50% of the outstanding shares of Common Stock; or
(D) the Company adopts or implements a plan of liquidation, recapitalization or
share repurchase relating to more than 50% of the outstanding shares of Common
Stock or an extraordinary dividend relating to more than 50% of such outstanding
shares or 50% of the assets of the Company and its Subsidiaries, taken as a
whole, provided that no Payment Event shall be considered to have occurred as
described in this clause (z) unless in connection with the transaction described
in clauses (A), (B), (C) or (D) the stockholders of the Company shall have
received, within 8 months of such termination of this Agreement, cash,
securities or other consideration having an aggregate value, when taken together
with the value of any securities of the Company or its Subsidiaries otherwise
held by such stockholders after such event, in excess of $17.00 per share of
Common Stock.
(c) The Company acknowledges that the agreements contained in this
Section 11.04 are an integral part of the transactions contemplated by this
Agreement and that, without these agreements, Parent and Merger Subsidiary would
not enter into this Agreement. Accordingly, if the Company fails promptly to pay
any amount due to Parent pursuant to this Section 11.04, it shall also pay any
costs and expenses incurred by Parent or Merger Subsidiary in connection with a
legal action to enforce this Agreement that results in a judgment against the
Company for such amount.
(d) Parent and Merger Subsidiary agree that the payment set forth in
Section 11.04(b), if such payment is payable and is actually paid, shall be the
sole and exclusive remedy of Parent and Merger Subsidiary upon a termination of
this Agreement pursuant to Sections 10.01(b)(i), 10.01(b)(iii), 10.01(c)(i),
10.01(c)(iii) or 10.01(d)(ii), and such remedy shall be limited to the sum
stipulated in Section 11.04(b), regardless of the circumstances giving rise to
such termination.
Section 11.05. Binding Effect; Benefit; Assignment. (a) The provisions
of this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. No provision of this
Agreement is intended to confer any rights, benefits, remedies, obligations or
liabilities hereunder upon any Person other than the
A-40
parties hereto and their respective successors and assigns, except that the
parties hereto agree and acknowledge that the agreements and covenants contained
in Section 7.03 are intended for the direct and irrevocable benefit of the
Indemnified Persons described therein and their respective heirs or legal
representatives (each, a "THIRD PARTY BENEFICIARY"), and that each such Third
Party Beneficiary, although not a party to this Agreement, shall be and is a
direct and irrevocable third party beneficiary of such agreements and covenants
and shall have the right to enforce such agreements and covenants against the
Surviving Corporation and Parent in all respects fully and to the same extent as
if such Third Party Beneficiary were a party hereto.
(b) No party may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the consent of each other
party hereto, except that Parent or Merger Subsidiary may transfer or assign, in
whole or from time to time in part, to one or more of their Affiliates, the
right to enter into the transactions contemplated by this Agreement, but any
such transfer or assignment shall not relieve Parent or Merger Subsidiary of its
obligations hereunder. Any attempted assignment in violation of this Section
shall be null and void and shall have no effect.
Section 11.06. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the conflicts of law rules of such state.
Section 11.07. Jurisdiction. The parties hereto agree that any suit,
action or proceeding seeking to enforce any provision of, or based on any matter
arising out of or in connection with, this Agreement or the transactions
contemplated hereby shall be exclusively brought in any federal court located in
the State of Delaware or any Delaware state court, and each of the parties
hereby irrevocably consents to the jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest extent permitted by law, any objection
that it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
Process in any such suit, action or proceeding may be served on any party
anywhere in the world, whether within or without the jurisdiction of any such
court. Without limiting the foregoing, each party agrees that service of process
on such party as provided in Section 11.01 shall be deemed effective service of
process on such party.
Section 11.08. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
Section 11.09. Counterparts. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received a counterpart
hereof signed by all of the other parties hereto.
Section 11.10. Entire Agreement. This Agreement (including the
documents and instruments referred to herein) and, subject to the immediately
following sentence, the
A-41
Confidentiality Agreement dated May 27, 2003 between the Company and Parent
constitute the entire agreement between the parties with respect to the subject
matter of this Agreement and supersedes all prior agreements and understandings,
both oral and written, between the parties with respect to the subject matter of
this Agreement. The Company and Parent hereby agree that paragraphs 1, 3 (but
only the first sentence thereof), 8, 9, 11, 12, 13 and 16 of such
Confidentiality Agreement are terminated, and shall be of no further force and
effect, effective immediately.
Section 11.11. Captions. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.
Section 11.12. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party. Upon such
a determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the fullest extent possible.
A-42
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
NAUTICA ENTERPRISES, INC.
By: /s/ Harvey Sanders
----------------------------------------
Name: Harvey Sanders
Title: President and Chief
Executive Officer
VF CORPORATION
By: /s/ Mackey J. McDonald
----------------------------------------
Name: Mackey J. McDonald
Title: Chairman, President & CEO
VOYAGER ACQUISITION
CORPORATION
By: /s/ Candace S. Cummings
----------------------------------------
Name: Candace S. Cummings
Title: Vice President
A-43
APPENDIX B
VOTING AGREEMENT
In consideration of VF Corporation, a Pennsylvania corporation
("PARENT"), and Voyager Acquisition Corporation, a Delaware corporation and
wholly-owned subsidiary of Parent ("MERGER SUBSIDIARY"), entering into on the
date hereof an Agreement and Plan of Merger (the "MERGER AGREEMENT") dated as of
the date hereof with Nautica Enterprises, Inc., a Delaware corporation (the
"COMPANY"), which provides, among other things, that Merger Subsidiary, upon the
terms and subject to the conditions thereof, will be merged with and into the
Company (the "MERGER") and each outstanding share of common stock, $0.10 par
value, of the Company (the "COMMON STOCK") will be converted into the right to
receive the Merger Consideration (as defined in the Merger Agreement), each of
the undersigned holders (each, a "STOCKHOLDER" and together, the "STOCKHOLDERS")
of shares of Common Stock agrees with Parent and Merger Subsidiary as follows:
1. During the period (the "AGREEMENT PERIOD") beginning on the date
hereof and ending on the earlier of (i) the Effective Time (as defined in the
Merger Agreement) and (ii) the termination of the Merger Agreement, each
Stockholder hereby agrees to vote the shares of Common Stock set forth opposite
its name in Schedule A hereto (the "SCHEDULE A SHARES") and any other shares of
Common Stock such Stockholder is entitled to vote at the time of such vote
("ADDITIONAL SHARES") to approve and adopt the Merger Agreement, the Merger and
all agreements related to the Merger that are specifically contemplated by the
Merger Agreement and any actions directly and reasonably related thereto that
are specifically contemplated by the Merger Agreement at any meeting or meetings
of the stockholders of the Company, and at any adjournment thereof or pursuant
to action by written consent, at or by which such Merger Agreement, the Merger,
such agreements or such other actions, are submitted for the consideration and
vote of the stockholders of the Company. Notwithstanding any provision of this
Voting Agreement to the contrary, nothing in this Voting Agreement shall limit
or restrict any Stockholder from acting in such Stockholder's capacity as a
director or officer of the Company (it being understood that this Agreement
shall apply to Stockholders solely in Stockholders' capacity as Stockholders of
the Company).
2. During the Agreement Period, each Stockholder hereby agrees that it
will not vote any of its Schedule A Shares or Additional Shares in favor of the
approval of any other merger, consolidation, sale of assets, reorganization,
recapitalization, liquidation or winding up of the Company or any other
extraordinary transaction involving the Company or any corporate action the
consummation of which would either frustrate in any material respect the
purposes of, or prevent or delay the consummation of, the transactions
contemplated by the Merger Agreement.
3. During the Agreement Period, each Stockholder hereby irrevocably
appoints Parent as proxy for and on behalf of such Stockholder to vote
(including, without limitation, the taking of action by written consent) such
Stockholder's Schedule A Shares and Additional Shares, for and in the name,
place and stead of such Stockholder for the matters and in the manner
contemplated by paragraph 1 above.
B-1
4. During the Agreement Period, each Stockholder will not, directly or
indirectly, (i) solicit, initiate or knowingly take any action designed to
facilitate the submission of any Acquisition Proposal (as defined in the Merger
Agreement) or (ii) engage in negotiations or discussions with, or furnish any
nonpublic information relating to the Company or any of its Subsidiaries (as
defined in the Merger Agreement) or knowingly afford access to the properties,
books or records of the Company or any of its Subsidiaries (other than such
components of such businesses, properties or assets that are generally
accessible to the public) to, any Third Party (as defined in the Merger
Agreement) that to the knowledge of such Stockholder is seeking to make, or has
made, an Acquisition Proposal. Each Stockholder agrees to notify Parent promptly
(but in no event later than 48 hours) after receipt by such Stockholder in such
capacity (or any of its advisors) of any Acquisition Proposal or of any request
for information relating to the Company or any of its Subsidiaries or for access
to the business, properties, assets, books or records of the Company or any of
its Subsidiaries (other than such components of such businesses, properties or
assets that are generally accessible to the public) by any Third Party that to
the knowledge of such Stockholder is seeking to make, or has made, an
Acquisition Proposal. Each Stockholder agrees to keep Parent fully informed, in
all material respects, on a prompt basis, of the status and material details of
any such Acquisition Proposal, indication or request of which he is aware. The
provisions of this Section 4 shall not be construed to limit acts taken by any
Stockholder in his capacity as an officer or director of the Company and any
such action by the Stockholder in his capacity as a director or officer of the
Company that is taken in accordance with Section 6.03 of the Merger Agreement
(or any action by David Chu in accordance with Section 8(c) of the Purchase
Agreement) shall be deemed not to be a violation of this Voting Agreement.
5. Each Stockholder hereby agrees not to exercise any rights
(including, without limitation, under Section 262 of the Delaware General
Corporation Law) to demand appraisal of any shares of Common Stock owned by such
Stockholder in connection with the Merger.
6. Each Stockholder hereby represents and warrants to Parent that as of
the date hereof:
(a) Such Stockholder (i) owns beneficially all of the shares of Common
Stock set forth opposite such Stockholder's name in Schedule A hereto, (i) has
the full legal capacity to enter into, execute and deliver this Voting Agreement
without the consent or approval of any other Person (as defined in the Merger
Agreement) and (ii) has not entered into any voting agreement with or granted
any Person any proxy (revocable or irrevocable) with respect to such shares
(other than this Voting Agreement).
(b) Such Stockholder has duly executed and delivered this Agreement.
(c) No investment banker, broker or finder is entitled to a commission
or fee from such Stockholder in respect of this Agreement based upon any
arrangement or agreement made by or on behalf of such Stockholder.
7. If any provision of this Voting Agreement shall be invalid or
unenforceable under applicable law, such provision shall be ineffective to the
extent of such invalidity or
B-2
unenforceability only, without in any way affecting the remaining provisions of
this Voting Agreement.
8. This Voting Agreement may be executed in two or more counterparts
each of which shall be an original with the same effect as if the signatures
hereto and thereto were upon the same instrument.
9. The parties hereto agree that if for any reason any party hereto
shall have failed to perform its obligations under this Voting Agreement, then
the party seeking to enforce this Agreement against such non-performing party
shall be entitled to specific performance and injunctive and other equitable
relief, and the parties hereto further agree to waive any requirement for the
securing or posting of any bond in connection with the obtaining of any such
injunctive or other equitable relief. This provision is without prejudice to any
other rights or remedies, whether at law or in equity, that any party hereto may
have against any other party hereto for any failure to perform its obligations
under this Voting Agreement.
10. This Voting Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the
conflict of law rules of such state.
11. The Stockholder will, upon request, execute and deliver any
additional documents reasonably necessary or desirable to complete and
effectuate the covenants contained herein.
12. This Voting Agreement shall terminate, and the proxy granted herein
shall cease to be irrevocable, upon the expiration of the Agreement Period and
thereafter this Voting Agreement shall be of no further force or effect and
there shall be no liability on the part of any proxy with respect thereto.
13. The Stockholder hereby agrees that if it sells, transfers, assigns,
encumbers or otherwise disposes (each, a "TRANSFER") of any Schedule A Shares
during the Agreement Period, such Stockholder shall require the transferee of
such Schedule A Shares to execute and deliver to Parent, Merger Subsidiary and
the Company a voting agreement identical in form to this Voting Agreement except
for the identity of the Stockholder prior to or concurrent with the consummation
of such Transfer.
14. Nothing in this Agreement, express or implied, shall confer on any
person other than the parties hereto, and their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement. The obligations of each Stockholder under this Agreement shall
be several and not joint.
15. All notices, requests and other communications to any party
hereunder shall be in writing (including telecopy or similar writing) and shall
be given,
B-3
If to Parent or Merger Subsidiary, to:
VF Corporation
105 Corporate Center Boulevard
Greensboro, North Carolina 27408
Attention: Candace Cummings
Facsimile: 336-424-7696
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: George R. Bason, Jr.
Facsimile: 212-450-3800
If to Mr. Harvey Sanders, to:
Mr. Harvey Sanders
Nautica Enterprises, Inc.
40 West 57th Street
7th Floor
New York, New York 10019
Facsimile: 212-632-4353
with a copy to:
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, New York 10004
Attention: Kenneth A. Lefkowitz
Facsimile: 212-422-4726
If to the Harvey Sanders Grantor Retained Income Trust, to:
Charles M. Modlin, Esq.
As trustee under the Harvey Sanders Grantor Retained
Income Trust
Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
New York, New York 10022
Facsimile No.: 212-735-8708
B-4
If to Mr. David Chu, to:
Mr. David Chu
610 Park Avenue
New York, New York 10021
Facsimile No.: 212-517-8638
with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Daniel S. Sternberg
Facsimile: 212-225-3999
or such other address or facsimile number as such party may hereafter specify
for the purpose of notice to the other parties hereto. Each such notice, request
or other communication shall be effective (a) if given by facsimile, when such
facsimile is transmitted to the facsimile number specified in this Section and
the appropriate facsimile confirmation is received or (b) if given by any other
means, when delivered at the address specified in this Section.
IN WITNESS WHEREOF, the parties hereto have executed this Voting
Agreement as of the 7th day of July, 2003.
VF CORPORATION
By: /s/ Mackey J. McDonald
------------------------------------
Name: Mackey J. McDonald
Title: Chairman, President & CEO
VOYAGER ACQUISITION
CORPORATION
By: /s/ Candace S. Cummings
------------------------------------
Name: Candace S. Cummings
Title: Vice President
HARVEY SANDERS
/s/ Harvey Sanders
------------------------------------
B-5
HARVEY SANDERS GRANTOR
RETAINED INCOME TRUST
By: /s/ Charles M. Modlin, Trustee
------------------------------------
Charles M. Modlin, Trustee
DAVID CHU
/s/ David Chu
------------------------------------
B-6
SCHEDULE A
----------
Shares of Company
Stockholder Common Stock
----------- ------------
Harvey Sanders 2,104,394
Harvey Sanders Grantor Retained
Income Trust 1,200,000
David Chu 409,947
B-7
APPENDIX C-1
PURCHASE AGREEMENT
AGREEMENT dated as of July 7, 2003 among VF Corporation, a Pennsylvania
corporation ("VF"), David Chu and Company, Inc., a Delaware corporation ("DC &
CO."), and Mr. David Chu, an individual ("DC" and collectively with DC & Co.,
the "DC PARTIES").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this
Agreement, Nautica Enterprises, Inc., a Delaware corporation ("NAUTICA"), VF and
Voyager Acquisition Corporation, a Delaware corporation and wholly-owned
subsidiary of VF ("MERGER SUBSIDIARY"), are entering into an Agreement and Plan
of Merger (the "MERGER AGREEMENT") pursuant to which Merger Subsidiary will be
merged with and into Nautica and the surviving corporation will become a
wholly-owned subsidiary of VF (the "MERGER");
WHEREAS, Nautica (formerly State-O-Maine, Inc.), Nautica Apparel, Inc.,
a Delaware corporation ("NAUTICA APPAREL"), and DC are parties to a Royalty
Agreement dated as of July 1, 1987 (as such agreement has been subsequently
clarified and modified on May 18, 1988 and March 1, 1990, the "ROYALTY
AGREEMENT");
WHEREAS, DC has heretofore assigned all of his rights and interests in,
to and under the Royalty Agreement and all of his right, title and interest in
and to the Nautica Name and Mark (as defined herein) to DC & Co.;
WHEREAS, VF desires to purchase from DC & Co. the Purchased Rights (as
defined herein) and DC & Co. desires to sell, transfer, assign and deliver to VF
the Purchased Rights, in each case, upon the terms and subject to the conditions
set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
Section 1. Definitions. The following terms, as used herein, have the
following meanings:
"AFFILIATE" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such other Person.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day
on which banks in the State of New York are required or permitted to close.
"CLOSING DATE" means the date of the Closing.
C-1-1
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"LIEN" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse claim of
any kind in respect of such property or asset.
"MERGER CLOSING" means the "Effective Time" of the Merger pursuant to
the Merger Agreement.
"NAUTICA NAME AND MARK" means the name and mark "Nautica" and any and
all variations and permutations thereto.
"PERSON" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
"ROYALTY REVENUE AMOUNT" means, for any Royalty Revenue Period, the
aggregate gross revenue accrued in respect of such period (whether received
during or following the end of such period), net of any write-offs for
uncollectable receivables, by VF and its Subsidiaries (which term shall include,
after the Merger, Nautica or any of its Subsidiaries) under any license, royalty
agreement or other arrangement or understanding of any nature, whether
heretofore or hereafter existing or entered into, pursuant to which any Person
(other than VF or any of its Subsidiaries, which term shall include, after the
Merger, Nautica or any of its Subsidiaries) has been granted or has obtained, or
is granted or obtains, rights to use the Nautica Name and Mark. For the
avoidance of doubt, any such gross revenue of VF or any of its Subsidiaries, on
the one hand, from VF or any of its Subsidiaries, on the other hand, shall be
excluded from the calculation of Royalty Revenue Amount. For purposes of the
foregoing definition, such gross revenue and any such write-offs accrued shall
be determined in accordance with the practices, assumptions and procedures
utilized by Nautica in determining the amounts of payments under the Royalty
Agreement for the fiscal year ended March 1, 2003, but in all events in
accordance with generally accepted accounting principles.
"ROYALTY REVENUE PERIOD" means each of the five successive full fiscal
years of VF commencing with the fiscal year ending January 1, 2005.
"SUBSIDIARY" means, with respect to any Person, any entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at any time directly or indirectly owned by such Person.
Section 2. Purchase and Sale. Upon the terms and subject to the
conditions of this Agreement, VF agrees to purchase from DC & Co. and DC& Co.
agrees to (and DC agrees to cause DC & Co. to) sell, transfer, assign and
deliver to VF at the Closing, free and clear of all Liens, (i) all of its rights
and
C-1-2
interests in, to and under the Royalty Agreement, (ii) all of its right, title
and interest in and to the Nautica Name and Mark and any common law or copyright
rights relating to the Nautica Name and Mark, together with the goodwill
associated therewith, or with that part of the goodwill connected with the use
of and symbolized by the Nautica Name and Mark, and the right to sue and recover
for, and the right to the profits or damages due or accrued arising out of or in
connection with any and all past, present or future infringements or passing off
or dilution of or damage or injury to the Nautica Name and Mark or such goodwill
and (iii) any and all right, title and interest that it may otherwise have in
and to the intellectual property owned, held or used by Nautica or any of its
Subsidiaries, and the right to sue and recover for, and the right to the profits
or damages due or accrued arising out of or in connection with any and all past,
present or future infringements or passing off or dilution of or damage or
injury to such intellectual property (collectively, the items referred in (i),
(ii) and (iii) are referred to as the "PURCHASED RIGHTS").
Section 3. Purchase Price. The purchase price (the "PURCHASE PRICE")
for the Purchased Rights shall be (i) the amount of $104 million, payable at the
times and in the manner provided for in Section 4 (the "FIXED AMOUNT") plus (ii)
the Contingent Payments (as hereafter defined), payable at the times and in the
manner provided for in Section 5. For income tax purposes, VF and DC & Co. agree
that they will report any payments under this Agreement as made in exchange
solely for the Purchased Rights, except to the extent of imputed interest as
required under the Internal Revenue Code of 1986, as amended.
Section 4. Closing. (a) The closing (the "CLOSING") of the purchase and
sale of the Purchased Rights hereunder shall take place at the offices of Davis
Polk & Wardwell, 450 Lexington Avenue, New York, New York, on the date of the
Merger Closing, subject to satisfaction of the conditions set forth in Section
12, or at such other time or place as VF and the DC Parties may agree. At the
Closing:
(i) VF shall deliver to DC & Co. $38,000,000 in immediately
available funds by wire transfer to one or more accounts designated by
DC& Co., by notice to VF, which notice shall be delivered not later
than two Business Days prior to the Closing Date (or if not so
designated, then by one or more certified or official bank checks
payable in immediately available funds to the order of DC & Co.
aggregating such amount).
(ii) DC & Co. and VF shall enter into an Assignment Agreement
substantially in the form attached hereto as Exhibit A, and DC & Co.
shall deliver to VF such bills of sale, endorsements, consents,
assignments and other good and sufficient instruments of conveyance and
assignment as the parties and their respective counsel shall deem
reasonably necessary or appropriate to vest in VF all right, title and
interest in, to and under the Purchased Rights.
C-1-3
(b) The portion of the Fixed Amount not payable at the Closing shall be
paid by VF to DC & Co. as follows:
(i) $33,000,000 on the third anniversary of the Closing Date (or if
such day is not a Business Day, on the next succeeding Business Day);
and
(ii) $33,000,000 on the fourth anniversary of the Closing Date (or
if such day is not a Business Day, on the next succeeding Business
Day),
in each case, in immediately available funds by wire transfer to one or
more accounts designated by DC& Co., by notice to VF, which notice
shall be delivered not later than two Business Days prior to the due
date for payment (or if not so designated, then by one or more
certified or official bank checks payable in immediately available
funds to the order of DC & Co. aggregating such amount).
Section 5. Contingent Payments. (a) If the Royalty Revenue Amount for
any Royalty Revenue Period exceeds $34,700,000, VF shall pay to DC & Co., within
90 days following the end of such Royalty Revenue Period, an amount in cash
equal to 31.7% of such excess (each such payment, a "CONTINGENT PAYMENT") in
immediately available funds by wire transfer to one or more accounts designated
by DC& Co., by notice to VF, which notice shall be delivered not later than five
Business Days prior to such due date for payment (or if not so designated, then
by one or more certified or official bank checks payable in immediately
available funds to the order of DC & Co. aggregating such amount).
(b) In the event the Closing Date occurs during the third quarter of
Nautica's fiscal year 2004, DC & Co. shall receive, and after the Merger
Closing, VF shall cause Nautica to pay, the full quarterly royalty payment due
under the Royalty Agreement in respect of the third fiscal quarter, such
quarterly royalty payment to be determined in accordance with the practices,
assumptions and procedures utilized by Nautica in determining the amount of
payments under the Royalty Agreement for the fiscal year ended March 1, 2003,
but in all events in accordance with generally accepted accounting principles;
in the event the Closing Date occurs after the end of the third quarter but
prior to the end of Nautica's fiscal year 2004, DC& Co. shall not receive any
quarterly royalty payment in respect of the fourth quarter of fiscal 2004.
(c) At the time each Contingent Payment is due, VF shall deliver to DC
& Co. a written statement (each, a "PAYMENT STATEMENT") setting forth the amount
of the Contingent Payment payable pursuant to this Section 5 with respect to the
applicable Royalty Revenue Period and the calculation thereof.
C-1-4
(d) DC & Co. and/or its authorized representatives shall have the right
one time with respect to each Royalty Revenue Period (although such right may
also be exercised as to multiple periods (up to three periods at any one time)
at the same time), during normal business hours and upon reasonable prior
notice, during the Royalty Revenue Periods and for two years after the end of
the last Royalty Revenue Period, to audit and copy those books, records and
supporting documentation of VF (and to the extent VF can make them available,
the workpapers of VF's accountants) pertaining to transactions giving rise to or
otherwise relating to the determination of the Royalty Revenue Amounts and the
Contingent Payments, and may have access to employees of VF and its Affiliates
who are responsible for overseeing or are involved in calculating the Royalty
Revenue Amounts and the Contingent Payments for purposes of asking questions and
obtaining information relating to such calculations. Acceptance by DC & Co. of
any Contingent Payment shall not preclude DC & Co. from questioning its
correctness.
Section 6. Representations and Warranties of the DC Parties. The DC
Parties, jointly and severally, represent and warrant to VF as of the date
hereof and (except with respect to the representation and warranty contained in
Section 6(h) below) as of the Closing Date that:
(a) DC & Co. is a corporation duly incorporated, validly existing and
in good standing under the laws of Delaware. DC & Co. has all corporate powers
and all material governmental licenses, authorizations, permits, consents and
approvals required to carry on its business as now conducted. The execution,
delivery and performance by DC & Co. of this Agreement and the consummation of
the transactions contemplated hereby are within the corporate powers of DC & Co.
and have been duly authorized by all necessary corporate action on the part of
DC & Co. DC is a U.S. citizen and has the legal capacity to enter into this
Agreement. This Agreement constitutes a valid and binding agreement of the DC
Parties enforceable against each of the DC Parties in accordance with its terms,
except that such enforceability (i) may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity.
(b) Except for actions and filings as may be required under the HSR
Act, the execution, delivery and performance by the DC Parties of this Agreement
and the consummation of the transactions contemplated hereby require no action
by or in respect of, or filing with, any governmental body, agency or official.
(c) The execution, delivery and performance by the DC Parties of this
Agreement and the consummation of the transactions contemplated hereby do not
and will not (e) violate the certificate of incorporation or bylaws of DC & Co.,
(f) assuming compliance with the matters referred to in Section 6(b), violate
any applicable law, rule, regulation, judgment, injunction, order or decree
which violation would have a material adverse effect on the Purchased Rights or
the transactions contemplated by this Agreement, (e) require any consent or
other
C-1-5
action by any Person under, conflict with, violate, contravene, constitute
a default under or give rise to any right of termination, cancellation or
acceleration of any right or obligation of the DC Parties or to a loss of any
benefit to which either of the DC Parties is entitled, in each case that would
have an adverse effect on the Purchased Rights, under any provision of any
agreement or other instrument binding upon either of the DC Parties or by which
any of the Purchased Rights is or may be bound (except with respect to Liens on
the Purchased Rights in favor of HSBC Holdings plc and/or its Affiliates, which
Liens shall be fully released on or prior to the Closing) or (e) result in the
creation or imposition of any Lien on any Purchased Rights.
(d) Neither of the DC Parties has at any time sold, transferred,
assigned or otherwise disposed of any of their respective rights or interests
in, to or under the Purchased Rights, except (i) for the assignment by DC of all
of his rights and interests in, to and under the Royalty Agreement and all of
his right, title and interest in and to the Nautica Name and Mark to DC & Co.,
(ii) Liens on the Purchased Rights in favor of HSBC Holdings plc and/or its
Affiliates, which Liens shall be fully released on or prior to the Closing, and
(iii) pursuant to the letter agreement, dated as of July 1, 1987, between DC and
Harvey Sanders (which letter agreement was rescinded on December 1, 1988). DC &
Co. will deliver the Purchased Rights to VF (or, at VF's request, to Nautica) at
the Closing free and clear of all Liens.
(e) DC possesses no rights or interests in, to or under the Royalty
Agreement or the Nautica Name and Mark, or any other rights that in the hands of
DC & Co. would constitute "Purchased Rights", except for any rights or interests
he may have in his capacity as the sole stockholder of DC & Co.
(f) A true, correct and complete copy of the Royalty Agreement has been
delivered to VF prior to the date hereof, and such agreement has not been
amended, modified or supplemented (other than by the letter agreement dated as
of May 18, 1988 among Nautica (formerly State-O-Maine, Inc.), Nautica Apparel,
DC and Harvey Sanders, and the letter agreement dated as of March 1, 1990 among
Nautica (formerly State-O-Maine, Inc.), Nautica Apparel, Nautica International,
Inc., DC & Co. and DC, true, correct and complete copies of which have been
delivered to VF prior to the date hereof), and such agreement is in full force
and effect.
(g) For the fiscal year ended March 1, 2003, DC & Co. received payments
of $9,305,282 from Nautica pursuant to Section 4 of the Royalty Agreement.
(h) As of the date of this Agreement, there is no action, suit,
investigation or proceeding pending against, or to the knowledge of the DC
Parties, threatened against or affecting the DC Parties or any of the Purchased
Rights before any court or arbitrator or any governmental body, agency or
official which could have any effect on the Purchased Rights or which in any
manner
C-1-6
challenges or seeks to prevent, enjoin, alter or materially delay the
transactions contemplated by this Agreement.
(i) Neither of the DC Parties or any of their Affiliates (other than
Nautica and its Subsidiaries) has at any time licensed, or in any way
authorized, any Person (other than Nautica and its Subsidiaries) to use the
Nautica Name and Mark.
(j) There is no investment banker, broker, finder or other intermediary
which has been retained by or is authorized to act on behalf of the DC Parties
who might be entitled to any fee or commission in connection with the
transactions contemplated by this Agreement.
Section 7. Representations and Warranties of VF. VF represents and
warrants to the DC Parties as of the date hereof and (except with respect to the
representation and warranty contained in Section 7(f) below) as of the Closing
Date that:
(a) VF is a corporation duly incorporated, validly existing and in good
standing under the laws of Pennsylvania. VF has all corporate powers and all
material governmental licenses, authorizations, permits, consents and approvals
required to carry on its business as now conducted.
(b) The execution, delivery and performance by VF of this Agreement and
the consummation of the transactions contemplated hereby are within the
corporate powers of VF and have been duly authorized by all necessary corporate
action on the part of VF. This Agreement constitutes a valid and binding
agreement of VF enforceable against VF in accordance with its terms, except that
such enforceability (i) may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting or relating to the enforcement of creditors' rights
generally and (ii) is subject to general principles of equity.
(c) Except for actions and filings as may be required under the HSR
Act, the execution, delivery and performance by VF of this Agreement and the
consummation of the transactions contemplated hereby require no material action
by or in respect of, or material filing with, any governmental body, agency or
official.
(d) The execution, delivery and performance by VF of this Agreement and
the consummation of the transactions contemplated hereby do not and will not (v)
violate the certificate of incorporation or bylaws of VF or (vi) assuming
compliance with the matters referred to in Section 7(c), violate any applicable
law, rule, regulation, judgment, injunction, order or decree which violation
would have a material adverse effect on the transactions contemplated by this
Agreement or (vii) require any consent or other action by any Person under,
conflict with, violate, contravene, constitute a default under or give rise to
any right of termination, cancellation or acceleration of any right or
obligation of VF or to a
C-1-7
loss of any benefit to which VF is entitled, in each case that would have an
adverse effect on the ability of VF to perform its obligations hereunder under
any provision of any agreement or other instrument binding upon VF.
(e) VF has, or will have, sufficient cash, available lines of credit or
other sources of immediately available funds to enable it to make payment of the
Purchase Price.
(f) As of the date of this Agreement, there is no action, suit,
investigation or proceeding pending against, or to the knowledge of VF
threatened against or affecting, VF before any court or arbitrator or any
governmental body, agency or official which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay the transactions contemplated by this
Agreement.
(g) Except for Citigroup Global Markets Inc. and Financo, Inc., whose
fees will be paid by VF, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of VF
who might be entitled to any fee or commission from the DC Parties or any of
their Affiliates upon consummation of the transactions contemplated by this
Agreement.
Section 8. Covenants of the DC Parties. (a) From the date hereof until
the Closing Date, the DC Parties will not take or agree or commit to take any
action that would make any representation or warranty of the DC Parties
hereunder inaccurate in any respect at, or as of any time prior to, the Closing
Date.
(b) The DC Parties shall not (i) from and after the date hereof, use or
attempt to register the Nautica Name and Mark or any confusingly similar mark
thereto or (ii) from and after the Closing Date, oppose, attempt to cancel or in
any way challenge any applications or registrations for, or Nautica's or VF's
rights in and to, the Nautica Name and Mark or any substantially similar
trademarks or service marks.
(c) From and after the date hereof until the Closing Date (or, if
earlier, the termination of this Agreement in accordance with its terms), the DC
Parties shall not, and shall instruct their investment bankers, attorneys or
other advisors or representatives not to, directly or indirectly, (i) solicit or
initiate the submission of any Buyout Proposal (as hereinafter defined) or (ii)
participate in any discussions or negotiations with any Person, or furnish to
any Person any non-public information, with respect to a Buyout Proposal;
provided, that the prohibition contained in this Section 8(c)(ii) shall not be
applicable to any Person with or to whom, at any given time, the Board of
Directors of Nautica is permitted pursuant to Section 6.03(b) of the Merger
Agreement to engage in negotiations or discussions, or furnish information, with
respect to an "Acquisition Proposal" (as defined in the Merger Agreement). For
purposes of this Section 8(c), "BUYOUT
C-1-8
PROPOSAL" means any proposal or offer to purchase or acquire any or all of the
Purchased Rights, other than the transactions contemplated hereby.
(d) DC shall take all action necessary to cause DC & Co. to perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby on the terms and conditions set forth herein.
Section 9. Reasonable Efforts; Further Assurances. Subject to the terms
and conditions of this Agreement, VF and the DC Parties will use their
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary or desirable under applicable laws and
regulations to consummate the transactions contemplated by this Agreement. The
DC Parties and VF agree to execute and deliver such other documents,
certificates, agreements and other writings and to take such other actions as
may be necessary or desirable in order to consummate expeditiously the
transactions contemplated by this Agreement and to vest in VF, at the Closing,
good and marketable title to the Purchased Rights. Without limiting the
generality of the foregoing, upon receipt of a written request from VF, after
the Closing the DC Parties will promptly furnish all necessary documentation (to
the extent reasonably available to them) relating to or supporting chain of
title to confirm VF's ownership of all right, title and interest in and to the
Nautica Name and Mark, provide testimony at any time in connection with any
proceedings affecting the right, title, interest or benefit of VF in, to or
under the Nautica Name and Mark and sign and deliver all papers, take all
rightful oaths, and do all acts which, in any case, may be reasonably necessary
for vesting title after the Closing to the Nautica Name and Mark in VF, its
successors, assigns and legal representatives or nominees. In the event the DC
Parties fail to execute such documentation after a reasonable period of time
following receipt of notice, the DC Parties hereby appoint VF with full and
complete authority and power of attorney to act in the stead of the DC Parties
and to execute and record as their attorney-in-fact such transfer documentation.
Notwithstanding the foregoing provisions of this Section 9, prior to the Closing
neither VF nor any of its Affiliates shall (nor shall they request or cause
Nautica to) oppose, attempt to cancel or in any way challenge any applications
or registrations for, or Nautica's or the DC Parties' rights in and to, the
Nautica Name and Mark or take any action that would be deleterious to, or
inconsistent with, the DC Parties' right, title and interest in, to and under
the Purchased Rights.
Section 10. Licensing Decisions. The DC Parties hereby acknowledge and
agree that following the Closing VF shall, in its sole discretion, be entitled
to make any and all determinations relating to licensing or otherwise granting
rights to use the Nautica Name and Mark, and shall owe no duty (fiduciary or
otherwise) to the DC Parties with respect to such determinations.
Section 11. Public Announcements. The parties agree to consult with
each other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby and will not
issue any such press release or make any such public statement prior to such
C-1-9
consultation; provided that, if VF has made a good faith effort to consult with
the DC Parties prior to making such release or statement, VF may issue or make
any press releases and public statements the making of which may be required by
applicable law or any listing agreement with any national securities exchange.
Section 12. Conditions to Closing. (a) The obligations of VF and the DC
Parties to consummate the Closing are subject to the satisfaction of the
following conditions:
(i) The Merger Closing shall have occurred or shall occur
substantially simultaneously with the Closing hereunder.
(ii) No provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit the consummation
of the Closing.
(iii) Any applicable waiting period under the HSR Act relating
to the transactions contemplated hereby shall have expired or been
terminated.
(b) The obligation of VF to consummate the Closing is subject to the
satisfaction of the following further conditions:
(i) The DC Parties shall have performed in all material
respects all of their obligations hereunder required to be performed by
them on or prior to the Closing Date.
(ii) The representations and warranties of the DC Parties
contained in this Agreement and in any certificate or other writing
delivered by the DC Parties pursuant hereto shall be true in all
material respects at and as of the Closing Date as if made at and as of
such date (other than any representation and warranty that is expressly
made as of a time other than the Closing Date).
(iii) No action, suit, investigation or proceeding shall be
pending against the DC Parties or affecting any of the Purchased Rights
before any court or arbitrator or any governmental body, agency or
official that would reasonably be expected to have an adverse effect on
the Purchased Rights.
(c) The obligation of the DC Parties to consummate the Closing is
subject to the satisfaction of the following further conditions:
(i) VF shall have performed in all material respects all of
its obligations hereunder required to be performed by it on or prior to
the Closing Date.
C-1-10
(ii) The representations and warranties of VF contained in
this Agreement and in any certificate or other writing delivered by VF
pursuant hereto shall be true in all material respects at and as of the
Closing Date as if made at and as of such date (other than any
representation and warranty that is expressly made as of a time other
than the Closing Date).
Section 13. Survival; No Other Representations. (a) The representations
and warranties of the parties hereto contained in this Agreement or in any
certificate or other writing delivered pursuant hereto or in connection herewith
shall survive the Closing.
(b) Except for the representations and warranties contained in Section
6, (i) neither the DC Parties nor any other Person has made any representation
or warranty (whether express or implied) on behalf of the DC Parties, any of
their Affiliates or any of their respective employees, agents or representatives
regarding the Royalty Agreement, Nautica, Nautica Apparel or any transactions
contemplated by this Agreement and (ii) the DC Parties hereby disclaim any such
representation or warranty, notwithstanding the delivery or disclosure to VF or
its employees, agents or representatives of any information, documents or other
material, including without limitation any projections, estimates or budgets.
Except for the representations and warranties contained in Section 7, (i)
neither VF nor any other Person has made any representation or warranty (whether
express or implied) on behalf of VF, any of its Affiliates or any of its
employees, agents or representatives regarding any transactions contemplated by
this Agreement and (ii) VF hereby disclaims any such representation or warranty,
notwithstanding the delivery or disclosure to the DC Parties or Nautica or their
employees, agents or representatives of any information, documents or other
material.
Section 14. Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by mutual written agreement of VF and the DC Parties;
(b) by either VF or the DC Parties if the Merger Agreement shall have
been terminated pursuant to the terms thereof;
(c) by either VF or the DC Parties if consummation of the transactions
contemplated hereby would violate any nonappealable final order, decree or
judgment of any court or governmental body having competent jurisdiction.
The party desiring to terminate this Agreement pursuant to clause (b)
or (c) above shall give notice of such termination to the other party.
Section 15. Effect of Termination. If this Agreement is terminated as
permitted by Section 14, such termination shall be without liability of any
party (or any stockholder, director, officer, employee, agent, consultant or
C-1-11
representative of such party) to the other parties to this Agreement and no
party shall have any obligation to the others hereunder. The provisions of this
Section 15 and Sections 16 through 27 shall survive any termination pursuant to
Section 14.
Section 16. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmission and,
if an electronic mail address is given below, electronic mail ("E-MAIL")
transmission, so long as a receipt of such e-mail is requested and received) and
shall be given,
if to VF, to:
VF Corporation
105 Corporate Center Boulevard
Greensboro, North Carolina 27408
Attention: Candace Cummings
Facsimile No.: (336) 424-7696
E-mail: candace_cummings@vfc.com
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: George R. Bason, Jr.
Facsimile No.: (212) 450-3800
E-mail: bason@dpw.com
if to the DC Parties, to:
Mr. David Chu
610 Park Avenue
New York, New York 10021
Facsimile No.: 212-517-8638
and to:
DC & Company, Inc.
c/o Mr. David Chu
610 Park Avenue
New York, New York 10021
Facsimile No.: 212-517-8638
with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Daniel S. Sternberg
C-1-12
Facsimile No.: 212-225-3999
E-mail: dsternberg@cgsh.com
or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. All such notices,
requests and other communications shall be deemed received on the date of
receipt by the recipient thereof if received prior to 5:00 p.m. in the place of
receipt and such day is a Business Day in the place of receipt. Otherwise, any
such notice, request or communication shall be deemed not to have been received
until the next succeeding Business Day in the place of receipt.
Section 17. Amendment and Waivers. (b) Any provision of this Agreement
may be amended or waived if, but only if, such amendment or waiver is in writing
and is signed, in the case of an amendment, by each party to this Agreement, or
in the case of a waiver, by the party against whom the waiver is to be
effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
Section 18. Expenses. Except as otherwise provided herein, all costs
and expenses incurred in connection with this Agreement shall be paid by the
party incurring such cost or expense.
Section 19. No Right of Set-off. Each of VF, on the one hand, and the
DC Parties, on the other hand, may set-off any payment obligation or amount that
it owes under this Agreement to the other (or the other's permitted successors
and assigns) against any payment obligation or amount owed by the other (or the
other's permitted successors and assigns) to it or them under this Agreement.
Except as otherwise provided in the immediately preceding sentence, all amounts
payable pursuant to this Agreement shall be paid without reduction, set-off or
counterclaim of any kind (including, without limitation, any reduction, set-off
or counterclaim arising under or relating to the Merger Agreement or to the
Employment and Consulting Agreement entered into as of the date hereof between
DC and VF).
Section 20. Successors and Assigns. The provisions of this Agreement
shall be binding on and inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, successors and permitted assigns;
provided that no party may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the consent of each other
party hereto; except that (a) VF may transfer or assign, in whole or from time
to time in part, to one or more of its Affiliates, the right to purchase all or
a portion of the Purchased Rights, but no such transfer or assignment will
relieve VF of its
C-1-13
obligations hereunder and (b) DC & Co. may transfer or assign, in whole or from
time to time in part, to any Person the right to receive payments of the Fixed
Amount, but no such transfer or assignment will relieve the DC Parties of their
obligations hereunder. The foregoing shall not be construed to restrict any
transfer by VF or any of its Affiliates of any of the Purchased Rights after the
Closing.
Section 21. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the conflicts of law rules of such state.
Section 22. Jurisdiction. The parties hereto agree that any suit,
action or proceeding seeking to enforce any provision of, or based on any matter
arising out of or in connection with, this Agreement or the transactions
contemplated hereby shall be brought exclusively in the United States District
Court for the Southern District of New York or any New York State court sitting
in New York City, so long as one of such courts shall have subject matter
jurisdiction over such suit, action or proceeding, and each party hereto
irrevocably waives, to the fullest extent permitted by law, any objection that
it may now or hereafter have to the laying of the venue of any such suit, action
or proceeding in any such court or that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum. Process in
any such suit, action or proceeding may be served on any party anywhere in the
world, whether within or without the jurisdiction of any such court. Without
limiting the foregoing, each party agrees that service of process on such party
as provided in Section 16 shall be deemed effective service of process on such
party.
Section 23. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
Section 24. Counterparts; Effectiveness; Third Party Beneficiaries.
This Agreement may be signed in any number of counterparts, each of which shall
be an original, with the same effect as if the signatures thereto and hereto
were upon the same instrument. This Agreement shall become effective when each
party hereto shall have received a counterpart hereof signed by all of the other
parties hereto. No provision of this Agreement is intended to confer any rights,
benefits, remedies, obligations or liabilities hereunder upon any Person other
than the parties hereto and their respective heirs, executors, administrators,
successors and permitted assigns.
Section 25. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement.
C-1-14
Section 26. Captions. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof.
Section 27. Specific Performance. The parties hereto agree that
irreparable damage would occur if any provision of this Agreement were not
performed in accordance with the terms hereof and that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
or to enforce specifically the performance of the terms and provisions hereof,
in addition to any other remedy to which they are entitled at law or in equity.
IN WITNESS WHEREOF the parties have executed this Agreement on the date
first above written.
DAVID CHU
/s/ David Chu
------------------------------------
DAVID CHU AND COMPANY, INC.
By: /s/ David Chu
------------------------------------
Name: David Chu
Title: President
VF CORPORATION
By: /s/ Mackey J. McDonald
------------------------------------
Name: Mackey J. McDonald
Title: Chairman, President & CEO
C-1-15
APPENDIX C-2
EMPLOYMENT AND CONSULTING AGREEMENT
This Employment and Consulting Agreement (the "AGREEMENT") dated as of
July 7, 2003 is entered into by and among David Chu (the "EXECUTIVE"), Voyager
Acquisition Corporation, a Delaware corporation (the "COMPANY") and wholly-owned
subsidiary of VF Corporation, a Pennsylvania corporation (the "PARENT"), and
Parent, as guarantor and third party beneficiary.
WHEREAS, concurrently with the execution and delivery of this
Agreement, Nautica Enterprises, Inc., a Delaware corporation ("NAUTICA"), the
Parent and the Company are entering into an Agreement and Plan of Merger (the
"MERGER AGREEMENT") pursuant to which the Company will be merged with and into
Nautica (the "MERGER") and the surviving corporation will become a wholly-owned
subsidiary of the Parent, with references to the "Company" following the Merger
being understood as referring to the surviving corporation; and the Parent, the
Executive and an affiliate of the Executive are entering into a Purchase
Agreement (the "PURCHASE AGREEMENT") pursuant to which the Parent will acquire
certain intellectual property from such affiliate of the Executive (the
"PURCHASE"); and
WHEREAS, upon consummation of the Merger, the Company desires to secure
(i) the continued services and employment of the Executive on behalf of the
Division (as hereafter defined) for a term of two years or until the Executive's
employment shall be terminated in accordance with this Agreement and (ii) at the
Company's request, after the Executive's employment is terminated in accordance
with the terms of this Agreement, the continued advisory and consulting services
of the Executive for a maximum term of three years.
NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein, the parties hereto agree as follows:
Section 1. Definitions.
(a) "BASE SALARY" shall mean the annual rate of salary provided for in
Section 5 of this Agreement.
(b) "CAUSE" shall mean (i) any act or omission which constitutes a
material breach by the Executive of this Agreement; (ii) a conviction or plea of
guilty or nolo contendere to a felony (or indictable offense) or a misdemeanor
(or summary conviction offense) involving moral turpitude; (iii) the Executive's
grossly negligent or willful violation of corporate policy or reasonable and
appropriate directions from senior management of the Parent; or (iv) a material
breach of the Executive's fiduciary duties.
(c) "CHANGE IN CONTROL" shall mean:
(i) a change in control of the Parent of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A, as in effect on the date hereof, promulgated under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT");
provided, that, without limitation, such a change in control shall be
deemed to have occurred if:
C-2-1
(A) any "PERSON" (as such term is used in ss.13(d)
and ss.14(d) of the Exchange Act), except for (1) those
certain trustees under Deeds of Trust dated August 21, 1951
and under the Will of John E. Barbey, deceased (a "Trust" or
the "TRUSTS"), and (2) any employee benefit plan of the Parent
or any subsidiary company of the Parent, or any entity holding
voting securities of the Parent for or pursuant to the terms
of any such plan (a "BENEFIT Plan" or the "BENEFIT PLANS"), is
or becomes the "beneficial owner" (within the meaning of Rule
13d-3 under the Exchange Act), directly or indirectly, of
securities of the Parent representing 20% or more of the
combined voting power of the Parent's then outstanding
securities;
(B) there occurs a contested proxy solicitation of
the Parent's shareholders that results in the contesting party
obtaining the ability to vote securities representing 30% or
more of the combined voting power of the Parent's then
outstanding securities; or
(C) there occurs a sale, exchange, transfer or other
disposition of substantially all of the assets of the Parent
to another entity, except to an entity controlled directly or
indirectly by the Parent, or a merger, consolidation or other
reorganization of the Parent in which the Parent is not the
surviving entity, or a plan of liquidation or dissolution of
the Parent other than pursuant to bankruptcy or insolvency
laws is adopted; or
(ii) a sale by the Parent of substantially all of the assets
of Nautica.
Notwithstanding Clause (c)(i)(A) above to the contrary, a change in control
shall not be deemed to have occurred if a Person becomes the beneficial owner,
directly or indirectly, of securities of the Parent representing 20% or more of
the combined voting power of the Parent's then outstanding securities solely as
the result of an acquisition by the Parent or any subsidiary company of the
Parent of voting securities of the Parent which, by reducing the number of
shares outstanding, increases the proportionate number of shares beneficially
owned by such Person to 20% or more of the combined voting power of the Parent's
then outstanding securities; provided, however, that if a Person becomes the
beneficial owner of 20% or more of the combined voting power of the Parent's
then outstanding securities by reason of share purchases by the Parent or any
subsidiary company of the Parent and shall, after such share purchases by the
Parent or a subsidiary company of the Parent, become the beneficial owner,
directly or indirectly, of any additional voting securities of the Parent, then
a change in control of the Parent shall be deemed to have occurred with respect
to such Person under Clause (c)(i)(A) above. Notwithstanding the foregoing, in
no event shall a change in control of the Parent be deemed to occur under Clause
(c)(i)(A) above with respect to the Trusts or Benefit Plans. Clauses (c)(i)(A)
and (c)(i)(B) to the contrary notwithstanding, the Board may, by resolution
adopted by at least two-thirds of the directors who were in office at the date a
change in control occurred, declare that a change in control described in
Clauses (c)(i)(A) or (c)(i)(B) has become ineffective for purposes of this
Agreement if all of the following conditions then exist: (1) the declaration is
made prior to the death, disability or termination of employment of the
Executive and within 120 days of the change in control; and (2) no Person,
except for (x) the Trusts, and (y) the Benefit Plans, either is the beneficial
owner, directly or indirectly, of securities of the Parent representing 10% or
more of the combined voting power of the Parent's outstanding securities or has
the ability or power to
C-2-2
vote securities representing 10% or more of the combined voting power of the
Parent's then outstanding securities. If such a declaration shall be properly
made, no benefits shall be payable hereunder as a result of such prior but now
ineffective change in control, but benefits shall remain payable and this
Agreement shall remain enforceable as a result of any other change in control
unless it is similarly declared to be ineffective.
(d) "Common Stock" shall mean the common stock of the Parent.
(e) "Conceptions and Developments" shall have the meaning set forth in
Section 12 of this Agreement.
(f) "Confidential Information" shall have the meaning set forth in
(g) "Consulting Services" shall have the meaning set forth in Section
10 of this Agreement.
(h) "Consulting Term" shall have the meaning set forth in Section 10 of
this Agreement.
(i) "Covered Conceptions and Developments" shall have the meaning set
forth in Section 12 of this Agreement.
(j) "Disability" shall mean a disability entitling the Executive to
receive disability benefits under the Company's group long-term disability
insurance policy as in effect from time to time.
(k) "Division" shall mean the Nautica branded wholesale business,
whether or not organized and operated by the Company as a separate business unit
and without regard to the corporate entity or entities that operates such
business.
(l) "Effective Date" shall have the meaning set forth in Section 2 of
this Agreement.
(m) "Employment Term" shall have the meaning set forth in Section 3 of
this Agreement.
(n) "Fair Market Value" shall mean the average of the reported high and
low sales price of the Common Stock (rounded up to the nearest one-tenth of a
dollar) on the date on which the Fair Market Value is to be determined (or if
there was no reported sale on such date, the next preceding date on which any
reported sale occurred) on the principal exchange or in such other principal
market on which the Common Stock is trading.
(o) "Good Reason" shall mean the occurrence of any of the following
events without the Executive's written consent:
(i) a reduction in the Executive's Base Salary or Target Bonus
opportunity as a percentage of Base Salary; or
C-2-3
(ii) a material diminution in the Executive's duties, a change
in the Executive's title or the assignment to the Executive of duties
which are materially inconsistent with his duties as contemplated by
Section 4 of this Agreement; or
(iii) the relocation of Executive's principal work location
outside Manhattan, New York; or
(iv) any material breach by the Company of its obligations
under this agreement which is not cured within 30 business days after
written notice thereof is delivered by Executive to the Company; or
(v) the sale or other disposition of the Division.
(p) "GROUP" shall have the meaning set forth in Section 11 of this
Agreement.
(q) "INITIAL OPTION" shall have the meaning set forth in Section 7 of
this Agreement.
(r) "INTELLECTUAL PROPERTY RIGHTS" shall have the meaning set forth in
Section 12 of this Agreement.
(s) "IP PERIOD" shall have the meaning set forth in Section 12 of this
Agreement.
(t) "TARGET BONUS" shall have the definition set forth in Section 6 of
this Agreement.
(u) "TRANSITION AGREEMENT" shall mean the Transition Agreement dated
July 11, 1991 between Nautica (formerly State-O-Maine, Inc.) and the Executive.
Section 2. Effective Date. This Agreement shall become effective upon
the "Effective Time" of the Merger pursuant to the Merger Agreement and the
closing of the Purchase pursuant to the Purchase Agreement (the "EFFECTIVE
DATE"). If either the Merger Agreement or the Purchase Agreement is terminated,
in each case for any reason, then this Agreement shall become null and void and,
notwithstanding any provisions to the contrary set forth herein, including
provisions that purport to survive termination, this Agreement shall not survive
any termination pursuant to this sentence and neither party shall have any
obligation to the other hereunder.
Section 3. Term of Employment Services. The term of the Executive's
employment hereunder shall commence on the Effective Date and shall continue
until December 31, 2005, unless the Executive's employment is terminated before
in accordance with the terms of this Agreement (such term, the "EMPLOYMENT
TERM").
Section 4. Employment Term Position, Duties and Responsibilities.
During the Employment Term, the Executive shall serve as the Chief Executive
Officer of the Division. During the Employment Term, the Executive shall devote
such time and attention to the business and affairs of the Company and the
Division as shall be necessary to discharge his responsibilities hereunder and
shall use his best efforts, skills and abilities to promote the Company's and
the Division's interests. During the Employment Term, the Company shall provide
the Executive with office space within the space utilized by the Division's
design
C-2-4
operations and with an executive office within the space utilized by the
Company's executive offices, each of which shall be substantially comparable to
the Executive's offices prior to the Effective Date.
Section 5. Base Salary. During the Employment Term, subject to the
Executive's continued employment hereunder, the Executive shall be paid an
annualized Base Salary of $625,000, payable in accordance with the regular
payroll practices of the Company.
Section 6. Annual Incentive Award. (a) During the Employment Term,
subject to the Executive's continued employment hereunder, the Executive shall
have a target bonus opportunity each year equal to 100% of his Base Salary (the
"TARGET BONUS"), payable in that amount if the target performance goals for such
year are achieved. If the target performance goals are not achieved, the
Executive shall receive a lesser amount in proportion to the performance level
achieved, provided, however, that the Executive shall only be entitled to such
lesser amount if at least 80% of target performance is achieved. If such
performance goals are exceeded, the Executive shall receive a greater amount in
proportion to the level achieved, up to a maximum of 150% of the Target Bonus.
The Company shall establish the performance goals for the relevant calendar year
prior to the beginning of such year in consultation with the Executive. Except
as otherwise provided herein, the Executive shall be paid his annual incentive
awards under this Section 6 no later than other senior executives of the Parent
are paid their annual incentive awards, but in no case later than 90 calendar
days following the end of the performance period to which any such award
relates.
(b) Notwithstanding the foregoing, the Executive's annual incentive
awards for the following periods shall be as described below:
(i) In the event that the Effective Date occurs prior to
January 1, 2004, for calendar year 2003, the Executive shall be
entitled to an annual incentive award equal to his fiscal year 2004
annual incentive award under Nautica's incentive award plan, multiplied
by a fraction the numerator of which is 5 and the denominator of which
is 6.
(ii) In the event that the Effective Date occurs on or after
January 1, 2004, for calendar year 2004, the Executive shall be
entitled to an annual incentive award equal to (A) the annual incentive
award for the Company's fiscal year 2004 determined in accordance with
Paragraph 6(a) above, multiplied by a fraction the numerator of which
is the number of days that the Executive was employed by the Company
during the period that begins on the Effective Date and ends on
December 31, 2004 and the denominator of which is 365, plus (B) the
Executive's annual incentive award under Nautica's incentive award plan
for fiscal year 2004 multiplied by a fraction the numerator of which is
the number of days during the period that begins on March 1, 2003 and
ends on the day immediately preceding the Effective Date and the
denominator of which is 365.
Section 7. Long-term Incentive Awards. (a) Initial Option Grant. On the
Effective Date, the Company shall grant to the Executive an option to purchase
100,000 shares of Common Stock at the Fair Market Value of the Common Stock on
the date of grant (an "INITIAL OPTION"). The Initial Option shall vest in thirds
on each of the first, second and third anniversaries of the date of grant and
shall have an eight-year term; provided, however, that (i) if during the
C-2-5
Employment Term the Executive's employment is terminated by the Company for
Cause or by the Executive voluntarily without Good Reason, the Initial Option
shall be immediately forfeited in full and shall automatically expire upon such
termination of employment; (ii) if during the Employment Term the Executive's
employment terminates by reason of the death of the Executive or if the
Employment Term expires in accordance with Section 3 hereof, the Initial Option
shall continue to vest and remain outstanding and exercisable until the third
anniversary of such termination or expiration, at which time it shall
automatically expire; (iii) if during the Employment Term the Executive's
employment terminates by reason of the disability of the Executive, the Initial
Option shall continue to vest and remain outstanding and exercisable until the
first anniversary of such termination, at which time it shall automatically
expire; (iv) if during the Employment Term the Executive's employment is
terminated by the Company without Cause or by the Executive for Good Reason, the
provisions of Section 9(a) hereof shall apply; and (v) the Initial Option shall
vest in full upon the occurrence of a Change in Control. Except as otherwise
provided in this Agreement, the Initial Option shall be made on terms and
conditions consistent with options granted to other senior executives of the
Parent under the Parent's incentive plan.
(b) Ongoing Performance Awards. During the Employment Term, subject to
the Executive's continued employment hereunder, the Executive shall be entitled
to participate in any annual equity award program for senior executives of the
Parent as may be in effect from time to time, in accordance with the terms of
any such program, on the same basis as other senior executives of the Parent.
Section 8. Employee Benefit Programs. (a) During the Employment Term,
the Executive shall be entitled to participate in all employee pension and
welfare benefit plans and programs of the type made available to the senior
executives of the Parent's principal business units and to the Company's
employees generally, as such plans or programs may be in effect from time to
time, including, without limitation, pension, profit sharing, savings and other
retirement plans or programs, 401(k), medical, dental, hospitalization,
short-term and long-term disability and life insurance plans, accidental death
and dismemberment protection, travel accident insurance, and any other pension
or retirement plans or programs and any other employee welfare benefit plans or
programs that may be sponsored by the Company from time to time, including any
plans that supplement the above-listed types of plans or programs, whether
funded or unfunded.
(b) During the Employment Term, the Executive shall be entitled to
reimbursement for reasonable business and travel expenses incurred by him,
subject to the Company's or the Parent's expense reimbursement policy, whichever
is more favorable, as in effect from time to time; provided, the Executive shall
be entitled to first-class air travel in connection with up to eight
international voyages per year. During the Employment Term, the Company shall
provide the Executive with (i) one executive assistant selected by the
Executive, provided, that at the Executive's election and expense, the Company
shall provide the Executive with a second executive assistant selected by the
Executive and (ii) reimbursement for the lease, insurance, maintenance, housing
and repair of the car provided to the Executive prior to the Effective Date.
Section 9. Termination of Employment. (a) Termination without Cause or
for Good Reason. Subject to the Executive's continued compliance with Section 13
of this Agreement,
C-2-6
and provided that the Executive signs a release of all claims in connection with
his employment with the Company and the termination thereof in a form
satisfactory to the Company and the Executive (but not releasing any claims
relating to the Purchase Agreement or any rights in the nature of
indemnification or contribution, whether under the Merger Agreement, the
certificate of incorporation of the Company or otherwise), if, in all cases
prior to December 31, 2005, the Executive's employment is terminated by the
Company without Cause or if the Executive terminates his employment for Good
Reason, or if the Executive's employment is terminated by the Company within two
years after a Change in Control (other than for Cause), the Executive shall be
entitled to:
(i) Base Salary which would otherwise be due to him through
December 31, 2005, payable in accordance with the regular payroll
practices of the Company;
(ii) an annual incentive award for each remaining year in the
period ending on December 31, 2005 (including the year in which such
termination of employment occurred) equal to the Target Bonus, payable
in accordance with Section 6 of this Agreement;
(iii) immediate vesting as to 100% of the shares underlying
the Initial Option, which shall remain exercisable for a period of 180
days;
(iv) solely if the Executive's employment is terminated by the
Company without Cause or if the Executive terminates his employment for
Good Reason, in either case within two years after a Change in Control,
immediate vesting as to 100% of the shares underlying any other option
granted to the Executive pursuant to a plan of the Parent, which shall
remain exercisable for a period of 180 days;
(v) the balance of any additional incentive awards earned for
performance periods which have been completed, but which have not yet
been paid;
(vi) any expense reimbursements due to the Executive; and
(vii) other benefits, if any, in accordance with applicable
plans and programs of the Company.
(b) Other Termination. If the Executive's employment with the Company
is terminated prior to December 31, 2005 for any reason other than by the
Company without Cause or by Executive for Good Reason, the Executive or his
estate or beneficiaries shall be entitled to:
(i) Base Salary which would otherwise be due to the Executive
through the date on which such termination of employment occurs;
(ii) the balance of any incentive awards earned for
performance periods which have been completed, but which have not yet
been paid;
(iii) any expense reimbursements due to the Executive; and
C-2-7
(iv) other benefits, if any, in accordance with applicable
plans and programs of the Company.
(c) No Mitigation; No Offset. In the event of any termination of
employment under this Section 9, the Executive shall be under no obligation to
seek other employment and there shall be no offset against amounts due to the
Executive under this Agreement on account of any remuneration attributable to
any subsequent employment that he may obtain.
Section 10. Consulting Services. (a) Provided that the Executive is
continuously employed by the Company during the Employment Term, the Executive
shall provide advisory and consulting services ("CONSULTING SERVICES") to the
Company in accordance with this Section 10 during the period from January 1,
2006 until the earlier of December 31, 2008 or the date on which the Company
notifies the Executive that it no longer wishes to receive Consulting Services
(the "CONSULTING TERM"). The Executive shall, during the Consulting Term, render
such Consulting Services to the Company and the Division as may be reasonably
requested by the Company; provided, that Executive shall not be required to
devote more than 60 hours per month to the provision of such services. Such
Consulting Services shall be related to such matters relating to the Division as
the Company may designate from time to time.
(b) During the Consulting Term, subject to the Executive's continued
compliance with Section 13 of this Agreement, the Executive shall be paid an
annualized consulting fee of $500,000, payable monthly in arrears commencing on
the last day of the first month of the Consulting Term and on the last day of
each month thereafter during the Consulting Term.
(c) During the Consulting Term, the Company shall reimburse the
Executive for reasonable business-related expenses incurred by him in connection
with the performance of the Consulting Services, subject to the Company's
policies relating to business-related expenses as in effect from time to time
and the submission of an adequately documented expense report, as the Company
may require.
Section 11. Confidential Information. The Executive acknowledges that,
in the course of his employment, he has had and will have access to and has
become and will become aware of and informed of confidential and/or proprietary
information that is a competitive asset of the Parent, the Company, their
subsidiaries and affiliates (the "GROUP"), including, without limitation the
terms of agreements or arrangements between any members of the Group and any
third parties, marketing strategies, marketing methods, development ideas and
strategies, personnel training and development programs, financial results,
strategic plans and demographic analyses, trade secrets, business plans, product
designs, statistical data, and any non-public information concerning the Group,
its employees, suppliers, resellers, or customers, other than (i) information
which is otherwise available in the public domain (other than by reason of the
breach by the Executive of this Agreement) and (ii) generic information of the
type that would generally be known by individuals of the Executive's level of
experience in the apparel industry that does not pertain in a unique way to the
Group (collectively, "CONFIDENTIAL INFORMATION"). The Executive will keep all
Confidential Information in strict confidence while employed by the Company and
thereafter and will not directly or indirectly make known, divulge, reveal,
furnish, make available or use any Confidential Information (except in good
faith in the course of his regular authorized duties on behalf of the Company or
the Division and for the benefit of the
C-2-8
Company or the Division). The Executive's obligations of confidentiality
hereunder will survive the termination of this Agreement, until and unless any
such Confidential Information becomes, through no fault of the Executive,
generally known to the public or the Executive is required by law to make
disclosure (after giving the Company notice and an opportunity to contest such
requirement). The Executive's obligations under this Section 11 are in addition
to, and not in limitation or preemption of, all other obligations of
confidentiality which the Executive may have to the Company under general legal
or equitable principles.
Section 12. Employee Conceptions and Developments. The Company shall
own all Intellectual Property Rights in and to, and, for the duration of such
Intellectual Property Rights have the exclusive rights of commercial
exploitation with respect to, all Conceptions and Developments made individually
or jointly by Executive while Executive is employed by the Company (the "IP
PERIOD"). Any application made within six months after the IP Period to register
or protect Intellectual Property Rights in any Conceptions and Developments as
to which Executive was an inventor, author or assignor shall be presumed to have
been originally made during the IP Period and subject to the Company's ownership
pursuant to the foregoing sentence. For purposes hereof, the term "CONCEPTIONS
AND DEVELOPMENTS" means all creative, expressive, branding or technological
conceptions, discoveries and developments of any nature, including without
limitation conceptions for products and processes, inventions, designs,
writings, graphics, animations and other works or authorship, specifications,
drawings, methods, formulas and branding proposals, and any implementations,
improvements, derivative works or modifications thereof relating to the business
of the Company, and the term "INTELLECTUAL PROPERTY RIGHTS" means all U.S. and
foreign patents, copyrights, trademarks, trade secret, publicity and similar
rights. (including without limitation any and all common law rights), and all
rights of priority under international conventions to make application with
respect thereto. All Conceptions and Developments arising during the IP Period
by virtue of either of the first two sentences of this Section 12 are referred
to as the "COVERED CONCEPTIONS AND DEVELOPMENTS". Executive shall be obligated
to assign to the Company all inventions included in the Covered Conceptions and
Developments. All works of authorship included in the Covered Conceptions and
Developments shall be deemed "works made for hire" to the maximum extent they
may qualify as such under 17 U.S.C. Section 101, and otherwise the copyright
therein shall be deemed to have been fully assigned by Executive to the Company
at the time such works were made. All Covered Conceptions and Developments,
whether or not patentable, shall be promptly disclosed to the Company in
writing, and shall be held in confidence by Executive and treated as
"Confidential Information" subject to Section 11 of this Agreement, until such
time as the Company, in its sole determination, shall elect to make the subject
matter thereof publicly known. Executive agrees that, at the expense of the
Company, he will, without additional compensation, take any such further action,
including the rendering of all lawful testimony and assistance, and the
execution and delivery to such instruments as the Company may reasonably require
from time to time, to perfect, effectuate, register, record or enforce the
Company's rights or interests in any of the Covered Conceptions and
Developments. The Executive hereby irrevocably appoints the Company to be the
Executive's attorney-in-fact to act in Executive's name, place and stead to do
and execute any such act or instrument for the purpose of this Section 12. The
Company shall be under no liability to account to the Executive for any revenue
or profit derived or resulting from the use, exploitation or licensing of any of
the Covered Conceptions or Developments subject to this Section 12 (other than
pursuant to the terms of the Purchase Agreement).
C-2-9
Section 13. Noncompetition, Noninterference and Nonsolicitation. (a)
Subject to the geographic limitation of Section 13(b) hereof, the Executive (i)
during the period from the Effective Date through December 31, 2005 shall not,
directly or indirectly, on his behalf or on behalf of any other person, firm,
corporation, association or other entity, as an employee or otherwise, engage
in, or in any way be concerned with or negotiate for, or acquire or maintain any
ownership interest in any business or activity which is the same as or
competitive with that conducted by the Parent or the Company at the termination
of his employment by the Company, or which was engaged in or developed by the
Parent or the Company at any time during the Employment Term for specific
implementation in the immediate future by the Parent or the Company; and (ii)
during the Consulting Term shall not, directly or indirectly, on his behalf or
on behalf of any other person, firm, corporation, association or other entity,
as an employee or otherwise, engage in, or in any way be concerned with or
negotiate for, or acquire or maintain any ownership interest in any business or
activity which is the same as or directly competitive with that conducted by the
Division at the termination of his employment by the Company, or which was
engaged in or developed by the Division at any time during the Employment Term
for specific implementation in the immediate future by the Division.
Notwithstanding the foregoing, the Executive shall not be construed to be in
violation of this Section 13 solely by reason of (i) owning, directly or
indirectly, any stock or other securities of a corporation (or comparable
interest in any other form of business organization or entity) that has any
class of securities registered under Section 12 of the Securities Exchange Act
of 1934 if the Executive's interest does not exceed 10% of the outstanding
capital stock of such corporation (or comparable interest in such other
organization or entity), (ii) owning, directly or indirectly, any stock or other
securities of a corporation (or comparable interest in any other form of
business organization or entity) that does not have any class of securities
registered under Section 12 of the Securities Exchange Act of 1934 if the
Executive's interest does not exceed 25% of the outstanding capital stock of
such corporation (or comparable interest in such other organization or entity),
or (iii) serving as a non-executive director (non-employee and not involved in
the management of any such company) on the board of directors of a corporation
(or in a similar capacity with respect to any other organization or entity), in
each of clauses (i), (ii) and (iii) regardless of whether or not such
corporation (or other business organization or entity) has a business that is
the same or competitive with any business of the Parent or the Company
(including, without limitation, the Division).
(b) The Executive acknowledges that each of the Parent and the Company
is engaged in business throughout the United States and in various foreign
countries and that the Parent and the Company each intend to expand the
geographic scope of its activities. Accordingly and in view of the nature of his
position and responsibilities, the Executive agrees that the provisions of this
Section 13 shall be applicable to each state and each foreign country,
possession or territory in which the Parent and/or the Company may be engaged in
business during the Employment Term and Consulting Term.
(c) The Executive agrees that during the period from the Effective Date
through December 31, 2005 and during the Consulting Term, the Executive will
not, directly or indirectly, for himself or on behalf of any third party at any
time in any manner, (i) request or cause any of the Parent's or the Company's
customers to cancel, terminate, reduce or otherwise adversely modify any
existing or continuing business relationship with the Parent and/or the Company;
(ii) solicit, entice, persuade, induce, request or otherwise cause any employee,
officer
C-2-10
or agent of the Parent and/or the Company (other than clerical employees) to
refrain from rendering services to the Parent and/or the Company or to terminate
his or her relationship, contractual or otherwise, with the Parent and/or the
Company; other than through a general advertisement or public solicitation not
directed specifically to employees of the Parent or the Company; or (iii) induce
or attempt to influence any supplier to cease or refrain from doing business or
to decline to do business with the Parent, the Company or any of their
subsidiaries.
(d) The Executive acknowledges and recognizes the highly competitive
nature of the businesses of the Parent and the Company and agrees that if the
Executive breaches any provision of this Section 13, and does not cure such
breach within 30 business days after the receipt of written notice from the
Company or the Parent, the Executive shall not be entitled to any further
payments or benefits pursuant to this Agreement.
Section 14. Equitable Remedies. (a) The Executive acknowledges that his
compliance with the covenants in Sections 11, 12 and 13 of this Agreement is
necessary to protect the good will and other proprietary interests of the
Company and that, in the event of any violation by the Executive of the
provisions of Sections 11, 12 and 13 of this Agreement, the Company will sustain
serious, irreparable and substantial harm to its business, the extent of which
will be difficult to determine and impossible to remedy by an action at law for
money damages. Accordingly, the Executive agrees that, in the event of such
violation or threatened violation by the Executive, the Executive shall not
assert in response to any claim for injunctive or other equitable relief the
defense that the Company or Parent has an adequate remedy at law for any such
violation. The Executive further agrees that, in the event any of the provisions
of Sections 11, 12 and 13 of this Agreement are determined by a court of
competent jurisdiction to be contrary to any applicable statute, law or rule, or
for any reason to be unenforceable as written, such court may modify any of such
provisions so as to permit enforcement thereof as thus modified.
(b) Notwithstanding any other provisions of this Agreement, the
provisions of Sections 11, 12, and 14 shall survive and remain in effect
notwithstanding the termination of this Agreement or a breach by the Company or
the Executive of any other terms of this Agreement.
Section 15. Parent Guarantee. The Parent hereby guarantees the
Company's obligations under Sections 5, 6, 7, 8, 9, 10 and 23 of this Agreement.
Section 16. Third Party Beneficiary. The Executive hereby agrees and
acknowledges that the Parent shall be a third party beneficiary to the
agreements made under Sections 11, 12, 13 and 14 of this Agreement and that the
Parent shall have the right to enforce such agreements directly to the extent it
deems such enforcement necessary or advisable to protect its rights hereunder.
Section 17. Representations. (a) The Company and the Parent
individually represent and warrant that each is fully authorized and empowered
to enter into this Agreement and that the performance of the obligations of each
under this Agreement will not violate any agreement between it and any other
person, firm or organization. The Executive represents that the performance of
his obligations under this Agreement will not violate any agreement between him
C-2-11
and any other person, firm or organization that would be violated by the
performance of his obligations under this Agreement.
(b) None of the Executive or any of his immediate family members or
affiliates (i) owns, controls or has any interest in any material asset or other
property used in connection with the business of Nautica and its subsidiaries
(other than assets being transferred pursuant to the Purchase Agreement) or (ii)
has any material interest in any business (corporate or otherwise) that is in
competition with the business of Nautica and its subsidiaries.
Section 18. Entire Agreement. This Agreement contains the entire
understanding and agreement between the Company and the Executive concerning the
subject matter hereof and supersedes the Transition Agreement and all prior
agreements, understandings, discussions, negotiations and undertakings, whether
written or oral, between the Company and the Executive with respect thereto. The
Executive agrees and acknowledges that the Transition Agreement shall not be in
force and effect and the Executive shall have no rights or entitlements to any
payments, benefits or protections thereunder.
Section 19. Amendment or Waiver. No provision in this Agreement may be
amended unless such amendment is agreed to in writing and signed by the
Executive and an authorized officer of the Company. No waiver by the Company or
by the Executive of any breach by the other party to this Agreement of any
condition or provision contained in this Agreement to be performed by such other
party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Executive or an authorized officer of the Company, as the case may
be.
Section 20. Severability. In the event that any provision or portion of
this Agreement shall be determined to be invalid or unenforceable for any
reason, in whole or in part, the remaining provisions of this Agreement shall be
unaffected thereby and shall remain in full force and effect to the fullest
extent permitted by law so as to achieve the purposes of this Agreement.
Section 21. Governing Law and Disputes. (a) This Agreement shall be
governed and construed in accordance with the laws of New York without reference
to principles of conflict of laws.
(b) The parties hereto agree that any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby shall be
brought exclusively in the United States District Court for the Southern
District of New York or any New York State court sitting in New York City, so
long as one of such courts shall have subject matter jurisdiction over such
suit, action or proceeding and irrevocably waive, to the fullest extent
permitted by law, any objection that the parties may now or hereafter have to
the laying of the venue of any such suit, action or proceeding in any such court
or that any such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum. Process in any such suit, action or proceeding
may be served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 22 shall be
deemed effective service of process on such party.
C-2-12
Section 22. Notices. All notices and other communications required or
permitted hereunder shall be in writing (including facsimile transmission and,
if an electronic mail ("E-MAIL") address is given below, e-mail transmission, so
long as receipt of such e-mail is requested and received) and shall be deemed
given,
if to the Parent, Company or the Division:
c/o VF Corporation
105 Corporate Center Boulevard
Greensboro, North Carolina 27408
Attention: Candace Cummings
Facsimile No.: (336) 424-7696
E-mail: candace_cummings@vfc.com
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: George R. Bason, Jr.
Facsimile No.: (212) 450-3800
E-mail: bason@dpw.com
if to the Executive:
Mr. David Chu
610 Park Avenue
New York, New York 10021
Facsimile No.: (212) 517-8638
with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Daniel S. Sternberg
Facsimile No.: 212-225-3999
E-mail: dsternberg@cgsh.com
or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. All such notices,
requests and other communications shall be deemed received on the date of
receipt by the recipient thereof if received prior to 5:00 p.m. in the place of
receipt and such day is a business day in the place of receipt. Otherwise, any
such notice, request or communication shall be deemed not to have been received
until the next succeeding business day in the place of receipt.
C-2-13
Section 23. Indemnification/Insurance. The Company will indemnify the
Executive to the fullest extent authorized by law, whether or not the Executive
is made a party or witness to, or target of, any action, suit, proceeding,
investigation, or governmental review, whether criminal, civil, administrative,
or investigative, for any reasonable expenses incurred by the Executive because
he is or was a director, officer, or employee of the Company or serves or served
for any other entity as a director, officer, or employee at the Parent's or the
Company's request; provided, however, that the Executive must repay the Company
for any fees or costs advanced under this indemnification if the final
determination of an arbitrator or a court of competent jurisdiction declares
(following appeals, if any), after the expiration of the time within which
judicial review (if permitted) of such determination may be perfected, that
indemnification by the Company (i) was not permissible under applicable law or
(ii) related to acts or omissions involving or resulting from the Executive's
fraudulent or willful misconduct. The Company's indemnification of the Executive
shall include all reasonable costs, expenses, fees, fines, penalties (including
the reasonable fees and expenses of such legal counsel as the Executive selects)
the Executive incurs in connection with the defense of or response to any such
matter. The Company will pay all such sums when the Executive incurs them,
subject only to repayment if required by law or as provided above (relating to
fraudulent or willful misconduct). The Company shall cause the Executive to be
covered by directors and officers insurance to the extent and on the same terms
as such coverage is made generally available to senior executives of the Company
or to senior executives of the principal business units of the Parent.
Section 24. Headings. The headings of the sections contained in this
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any provision of this Agreement.
Section 25. Counterparts. This Agreement may be executed in two or more
counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
DAVID CHU
/s/ David Chu
--------------------------------------
VOYAGER ACQUISITION
CORPORATION
By: /s/ Candace S. Cummings
------------------------------------
Name: Candace S. Cummings
Title: Vice President
C-2-14
VF CORPORATION, as guarantor and
third party beneficiary
By: /s/ Mackey J. McDonald
------------------------------------
Name: Mackey J. McDonald
Title: Chairman, President & CEO
C-2-15
APPENDIX D-1
[Rothschild Letterhead]
July 6, 2003
CONFIDENTIAL
------------
Board of Directors
Nautica Enterprises, Inc.
40 West 57th Street
New York, New York 10019
Members of the Board of Directors:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to the holders of the common stock, par value $0.10 per
share, of Nautica Enterprises, Inc. ("Nautica") ("Nautica Common Stock") other
than V.F. Corporation ("Acquiror"), Voyager Acquisition Corporation ("Merger
Sub"), and the members of the management of Nautica who have signed voting
agreements with Acquiror (the "Public Stockholders"), of the consideration to be
received by the Public Stockholders pursuant to the terms of the Agreement and
Plan of Merger (the "Merger Agreement"), among Nautica, Acquiror and Merger Sub.
The Merger Agreement provides, among other things, for the merger of Merger Sub,
a wholly-owned subsidiary of Acquiror, with and into Nautica, as a result of
which Nautica will become a wholly-owned subsidiary of Acquiror (the
"Transaction"). As a result of the Transaction, each share of Nautica Common
Stock not owned directly or indirectly by Nautica or the Acquiror will be
converted into the right to receive $17.00 per share in cash (the
"Consideration"). The terms and conditions of the Transaction are more fully set
forth in the Merger Agreement.
In arriving at our opinion, we have, among other things, (i) reviewed
the draft dated July 6, 2003 of the Merger Agreement and certain related
documents; (ii) reviewed certain publicly available business and financial
information relating to Nautica; (iii) reviewed certain audited and unaudited
financial statements relating to Nautica and certain other financial and
operating data, including financial forecasts, concerning Nautica's business
provided to or discussed with us by Nautica management; (iv) held discussions
with Nautica management regarding the past and current operations and financial
condition and prospects of Nautica; (v) compared the financial performance of
Nautica with those of certain other publicly traded companies that we deemed to
be relevant; (vi) reviewed, to the extent publicly available, the financial
terms of certain transactions that we deemed to be relevant; (vii) discussed the
terms of the Transaction with Nautica and its other advisors and consultants;
and (viii) considered such other factors and information as we deemed
appropriate.
Rothschild Inc. Telephone 212-403-3500
1251 Avenue of the Americas Facsimile 212-403-3501
New York, NY 10020 www.rothschild.com
CFUS# 161714
D-1-1
Board of Directors
Nautica Enterprises, Inc.
July 6, 2003
Page 2
In connection with our review, we have not assumed any obligation
independently to verify any information utilized or considered by us in
formulating our opinion, and we have relied on such information being accurate
and complete in all material respects. With respect to the financial forecasts
for Nautica provided to or otherwise discussed with us, we have been advised,
and have assumed, that such forecasts have been reasonably prepared on bases
reflecting the best available estimates and judgments of Nautica management as
to the future financial performance of Nautica and the other matters covered
thereby. We express no view as to the reasonableness of such forecasts and
projections or the assumptions on which they are based. We also have assumed
that there has not occurred any material change in the assets, financial
condition, results of operations, business or prospects of Nautica since the
respective dates on which the most recent financial statements or other
financial and business information relating to Nautica were made available to
us. We further have assumed that, in all respects material to our analysis, the
representations and warranties contained in the Merger Agreement are true and
correct, each of the parties to the Merger Agreement will perform all of the
covenants and agreements to be performed by it under the Merger Agreement and
that the Transaction will be consummated in all material respects in accordance
with the terms and conditions described in the Merger Agreement without any
waiver or modification thereof. We have also assumed that the material
governmental regulatory or other approvals and consents required in connection
with the consummation of the Transaction will be obtained. We have not assumed
responsibility for making an independent evaluation, appraisal or physical
inspection of any of the assets or liabilities (contingent or otherwise) of
Nautica. We have also assumed that the final Merger Agreement is substantially
the same as the July 6, 2003 draft of the Merger Agreement reviewed by us.
Our opinion is based on economic, monetary, market and other conditions
as in effect on, and the information made available to us as of, the date
hereof. Accordingly, although subsequent developments may affect this opinion,
we have not assumed any obligations to update, revise or reaffirm this opinion.
In connection with the preparation of this Opinion, we were not authorized by
Nautica or its Board of Directors to conduct, nor have we conducted, a
solicitation of third party indications of interest for the acquisition of all
or any part of Nautica.
We are serving as financial advisor to Nautica in connection with the
Transaction and are entitled to certain fees for our services, the payment of
which is contingent upon consummation of the Transaction. We are also currently
acting as financial advisor to Nautica in connection with Nautica's 2003 annual
meeting of stockholders and will receive certain fees for such services. As you
know, Steven H. Tishman, a Managing Director of Rothschild, is a member of the
Board of Directors of Nautica. In the ordinary course of business, we and our
affiliates may trade the securities of Nautica or Acquiror for our own and/or
their own accounts or for the accounts of customers and may, therefore, at any
time hold a long or short position in such securities.
Rothschild Inc. Telephone 212-403-3500
1251 Avenue of the Americas Facsimile 212-403-3501
New York, NY 10020 www.rothschild.com
CFUS# 161714
D-1-2
Board of Directors
Nautica Enterprises, Inc.
July 6, 2003
Page 3
This opinion is for the information of the Board of Directors of
Nautica in connection with its evaluation of the Transaction, and does not
constitute a recommendation to any stockholder as to how such stockholder should
vote on the proposed Transaction. This opinion is limited to the fairness, from
a financial point of view, to the Public Stockholders of the Consideration to be
received by them pursuant to the Transaction, and Rothschild expresses no
opinion as to the merits of the underlying decision by Nautica to engage in the
Transaction or as to any aspect of the Transaction other than the Consideration
to be received by the Public Stockholders. We express no opinion as to the
consideration the Public Stockholders may have received in an alternative
transaction, or on the relative merits of the Transaction as compared to any
alternative transaction or business strategy that may be available to Nautica.
This opinion may not be disclosed publicly in any manner without our
prior written approval and must be treated as confidential; provided, however,
that this opinion may be included in its entirety in any proxy statement to be
distributed to holders of Nautica Common Stock in connection with the
Transaction.
Based upon the foregoing and other factors we deem relevant and in
reliance thereon, it is our opinion that, as of the date hereof, the
Consideration to be received by the Public Stockholders pursuant to the
Transaction is fair to the Public Stockholders from a financial point of view.
Very truly yours,
ROTHSCHILD INC.
Rothschild Inc. Telephone 212-403-3500
1251 Avenue of the Americas Facsimile 212-403-3501
New York, NY 10020 www.rothschild.com
CFUS# 161714
D-1-3
APPENDIX D-2
[Bear Stearns Letterhead]
July 6, 2003
The Board of Directors
Nautica Enterprises, Inc.
40 West 57th Street
New York, NY 10019
Gentlemen:
We understand that Nautica Enterprises, Inc. ("Nautica") and V.F. Corporation
("VF") is considering entering into an Agreement and Plan of Merger (the
"Agreement") pursuant to which Voyager Acquisition Corporation ("Merger Sub"), a
wholly-owned subsidiary of VF, will be merged with and into Nautica (the
"Merger"), whereupon the separate existence of Merger Sub will cease and Nautica
will be the surviving entity (the "Surviving Corporation"). Each share of common
stock, $0.10 par value per share, of Nautica ("Nautica Common Stock")
outstanding, together with the associated Preferred Stock Purchase Rights, will
be converted into the right to receive $17.00 in cash (the "Consideration to be
Received"). You have provided us with a draft of the Agreement, which sets out
more fully the terms of the Merger.
You have asked us to render our opinion as to whether the Consideration to be
Received is fair, from a financial point of view, to the shareholders of Nautica
excluding VF, Merger Sub and those shareholders who are entering into a Voting
Agreement (as such term is defined in the Agreement) with respect to their
shares of Nautica Common Stock.
In the course of performing our review and analyses for rendering this opinion,
we have:
o reviewed a draft of the Agreement dated July 5, 2003;
o reviewed Nautica's Annual Reports to Shareholders and Annual Reports on
Form 10-K for the fiscal years ended March 3, 2001, March 2, 2002, and
March 1, 2003 and its Reports on Form 8-K for the three years ended the
date hereof;
o reviewed certain operating and financial information relating to Nautica's
business and prospects, including projections for the five years ending
March 1, 2008, all as prepared and provided to us by Nautica's management;
o met with certain members of Nautica's senior management to discuss
Nautica's business, operations, historical and projected financial results
and future prospects;
o reviewed the historical prices, trading multiples and trading volume of the
common shares of Nautica;
o reviewed publicly available financial data, stock market performance data
and trading multiples of companies which we deemed generally comparable to
Nautica;
D-2-1
Nautica Enterprises, Inc.
July 6, 2003
Page 2
o reviewed the terms of recent mergers and acquisitions involving companies
which we deemed generally comparable to Nautica and the Merger;
o performed discounted cash flow analyses based on the projections for
Nautica furnished to us; and
o conducted such other studies, analyses, inquiries and investigations as we
deemed appropriate.
We have relied upon and assumed, without independent verification, the accuracy
and completeness of the financial and other information including, without
limitation, the projections provided to us by Nautica. With respect to Nautica's
projected financial results, we have relied on representations that they have
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the senior management of Nautica as to the expected
future performance of Nautica. We have not assumed any responsibility for the
independent verification of any such information or of the projections provided
to us, and we have further relied upon the assurances of the senior management
of Nautica that they are unaware of any facts that would make the information
and projections provided to us incomplete or misleading. We have assumed that
the final Agreement is substantially the same as the draft of the Agreement
dated July 5, 2003 that was provided to us.
In arriving at our opinion, we have not performed or obtained any independent
appraisal of the assets or liabilities (contingent or otherwise) of Nautica, nor
have we been furnished with any such appraisals. We have assumed that the Merger
will be consummated in a timely manner and in accordance with the terms of the
Agreement without any limitations, restrictions, conditions, amendments or
modifications, regulatory or otherwise, that collectively would have a material
effect on Nautica or the Consideration to be Received.
We do not express any opinion as to the price or range of prices at which the
shares of common stock of Nautica may trade subsequent to the announcement of
the Merger.
We have been asked to render an opinion in connection with the Merger and will
receive a customary fee for such services. We are also currently acting as
financial advisor to Nautica in connection with Nautica's 2003 annual meeting
with shareholders and will receive customary fees for such services. In the
ordinary course of business, Bear Stearns and its affiliates may actively trade
the equity and debt securities and/or bank debt of Nautica and/or VF for our own
account and for the account of our customers and, accordingly, may at any time
hold a long or short position in such securities or bank debt.
It is understood that this letter is intended for the benefit and use of the
Board of Directors of Nautica and does not constitute a recommendation to the
Board of Directors of Nautica or any holders of Nautica common stock as to how
to vote in connection with the Merger. This opinion does not address Nautica's
underlying business decision to pursue the Merger, the relative merits of the
Merger as compared to any alternative business strategies that might exist for
Nautica or the effects of any other transaction in which Nautica might engage.
This letter is not to be used for any other purpose, or be reproduced,
disseminated, quoted from or referred to at any time, in whole or in part,
without our prior written consent; provided, however, that this letter may be
included in its entirety in any proxy statement to be distributed to the holders
of Nautica common stock in connection with the Merger. Our opinion is subject to
the assumptions and conditions contained herein and is necessarily based on
economic, market and other conditions, and the information made available to us,
as of the date hereof. We assume no responsibility for updating or revising our
opinion based on circumstances or events occurring after the date hereof.
D-2-2
Nautica Enterprises, Inc.
July 6, 2003
Page 3
Based on and subject to the foregoing, it is our opinion that, as of the date
hereof, the Consideration to be Received is fair, from a financial point of
view, to the shareholders of Nautica excluding VF, Merger Sub and those
shareholders who are entering into a Voting Agreement with respect to their
shares of Nautica Common Stock.
Very truly yours,
BEAR, STEARNS & CO. INC.
By:
------------------------------
Senior Managing Director
D-2-3
APPENDIX E
DELAWARE GENERAL CORPORATION LAW
Section 262. Appraisal Rights. (a) Any stockholder of a corporation of
this State who holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with subsection (d) of this section
and who has neither voted in favor of the merger or consolidation nor consented
thereto in writing pursuant to ss. 228 of this title shall be entitled to an
appraisal by the Court of Chancery of the fair value of the stockholder's shares
of stock under the circumstances described in subsections (b) and (c) of this
section. As used in this section, the word "stockholder" means a holder of
record of stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of a
nonstock corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss. 251 (other than a merger effected pursuant to ss.
251(g) of this title), ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or ss. 264 of
this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of
stock, which stock, or depository receipts in respect thereof, at the
record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000
holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the
vote of the stockholders of the surviving corporation as provided in
subsection (f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares
of any class or series of stock of a constituent corporation if the
holders thereof are required by the terms of an agreement of merger or
consolidation pursuant to sec.ss. 251, 252, 254, 257, 258, 263 and 264
of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of stock
(or depository receipts in respect thereof) or
E-1
2
depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities
exchange or designated as a national market system security on
an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs
a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs
a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under ss. 253 of this title is
not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was
such on the record date for such meeting with respect to shares for
which appraisal rights are available pursuant to subsection (b) or (c)
hereof that appraisal rights are available for any or all of the shares
of the constituent corporations, and shall include in such notice a
copy of this section. Each stockholder electing to demand the appraisal
of such stockholder's shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand
for appraisal of such stockholder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of
the stockholder and that the stockholder intends thereby to demand the
appraisal of such stockholder's shares. A proxy or vote against the
merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective
date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that
the merger or consolidation has become effective; or
E-2
3
(2) If the merger or consolidation was approved pursuant to
ss. 228 or ss. 253 of this title, then, either a constituent
corporation, before the effective date of the merger or consolidation,
or the surviving or resulting corporation within ten days thereafter,
shall notify each of the holders of any class or series of stock of
such constituent corporation who are entitled to appraisal rights of
the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy
of this section. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the
date of mailing of such notice, demand in writing from the surviving or
resulting corporation the appraisal of such holder's shares. Such
demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holder's shares. If such notice
did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send
a second notice before the effective date of the merger or
consolidation notifying each of the holders of any class or series of
stock of such constituent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second notice to
all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only
be sent to each stockholder who is entitled to appraisal rights and who
has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall
be not more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the effective date of
the merger or consolidation, the record date shall be such effective
date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the
day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days
E-3
4
after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by one or more publications at
least one week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders
E-4
5
of shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of such
stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
E-5
NAUTICA ENTERPRISES, INC.
SPECIAL MEETING OF STOCKHOLDERS OF
NAUTICA ENTERPRISES, INC.
________, 2003
10:00 A.M. LOCAL TIME
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND
MAY BE REVOKED PRIOR TO ITS EXERCISE.
The undersigned stockholder(s) of Nautica Enterprises, Inc. (the "Company")
hereby appoint(s) Harvey Sanders and Wayne A. Marino, and each of them, as
proxies and attorneys-in-fact, each with full power of substitution, for and in
the name of the undersigned at the Special Meeting of Stockholders of the
Company to be held on ________, 2003, and at any and all adjournments thereof,
to vote all common shares of said Company held of record by the undersigned on
[record date], as if the undersigned were present and voting the shares.
(TO BE SIGNED ON REVERSE SIDE)
________________________________________________________________________________
Address Change/Comments (Mark the corresponding box on the reverse side)
________________________________________________________________________________
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS Mark Here
DIRECTED. IF NO DIRECTION IS GIVEN, THIS PROXY for Address
WILL BE VOTED FOR EACH ITEM AND IN ACCORDANCE WITH Change or |_|
THE PROXIES' DISCRETION ON SUCH OTHER BUSINESS Comments
THAT MAY PROPERLY COME BEFORE THE MEETING TO THE PLEASE SEE REVERSE SIDE
EXTENT PERMITTED BY LAW.
The Board of Directors Recommends a Vote FOR Items 1 and 2.
FOR AGAINST ABSTAIN
1. To approve and adopt the Agreement and Plan of
Merger, dated as of July 7, 2003 (the "Merger |_| |_| |_|
Agreement"), by and among Nautica (the
"Company"), VF Corporation and Voyager
Acquisition Corporation ("Merger Subsidiary")
providing for the merger (the "Merger") of Merger
Subsidiary with and into the Company, and to
authorize the Merger and other transactions
contemplated thereby.
FOR AGAINST ABSTAIN
2. To vote to adjourn the Special Meeting to solicit
additional proxies in the event that the number |_| |_| |_|
of proxies sufficient to approve and adopt the
Merger Agreement has not been received by
the date of the Special Meeting.
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Special Meeting of Stockholders
or any postponement or adjournment of the Meeting
Please disregard if you have previously provided your consent decision.
|_|
By checking the box to the right, I consent to future delivery of
annual reports, proxy statements, prospectuses and other materials and
shareholder communications electronically via the Internet at a
webpage which will be disclosed to me. I understand that the Company
may no longer distribute printed materials to me for any future
shareholder meeting until such consent is revoked. I understand that I
may revoke my consent at any time by contacting the Company's transfer
agent, Mellon Investor Services LLC, Ridgefield Park, NJ and that
costs normally associated with electronic delivery, such as usage and
telephone charges as well as any costs I may incur in printing
documents, will be my responsibility.
I plan to attend the meeting. |_|
Signature____________________Signature____________________Date____________, 2003
Note: Please sign exactly as your name(s) appear on Proxy. If held in joint
tenancy, all persons must sign. Trustees, administrators, etc., should include
title and authority. Corporations should provide full name of corporation and
title of authorized officer signing the proxy.
--------------------------------------------------------------------------------
^ Detach here from proxy voting card. ^
Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Internet and telephone voting is available through 11PM Eastern Time
the day prior to annual meeting day.
Your telephone or Internet vote authorizes the named proxies to vote your shares
in the same manner as if you marked, signed and returned your proxy card.
----------------------------------- ------------------------------------- ---------------------
Internet Telephone Mail
http://www.eproxy.com/naut 1-800-435-6710
Mark, sign and date
Use the Internet to vote your Use any touch-tone telephone to your proxy card
proxy. Have your proxy card in vote your proxy. Have your proxy and
hand when you access the web OR card in hand when you call. You will OR return it in the
site. You will be prompted to enter be prompted to enter your control enclosed postage-paid
your control number, located in number, located in the box below, envelope.
the box below, to create and and then follow the directions given.
submit an electronic ballot.
----------------------------------- ------------------------------------- ---------------------
If you vote your proxy by Internet or by telephone,
you do NOT need to mail back your proxy card.
________________________________________________________________________________
--------------------------------------------------------------------------------
^ Detach here from proxy voting card. ^
You can now access your Nautica account online.
Access your Nautica stockholder account online via Investor ServiceDirect (R)
(ISD).
Mellon Investor Services LLC agent for Nautica, now makes it easy and convenient
to get current information on your shareholder account. After a simple, and
secure process of establishing a Personal Identification Number (PIN), you are
ready to log in and access your account to:
o View account status o Make address changes
o View certificate history o Establish/change your PIN
Visit us on the web at http://www.melloninvestor.com
and follow the instructions shown on this page.
Step 1: FIRST TIME USERS - Establish a PIN
You must first establish a Personal Identification Number (PIN) online by
following the directions provided in the upper right portion of the web screen
as follows. You will also need your Social Security Number (SSN) or Investor ID
available to establish a PIN.
The confidentiality of your personal information is protected using secure
socket layer (SSL) technology.
o SSN or Investor ID
-------------
o Then click on the Establish PIN button
-------------
Please be sure to remember your PIN, or maintain it in a secure place for future
reference.
Step 2: Log in for Account Access
You are now ready to log in. To access your account please enter your:
o SSN or Investor ID
o PIN
------
o Then click on the Submit button
------
If you have more than one account, you will now be asked to select the
appropriate account.
Step 3: Account Status Screen
You are now ready to access your account information. Click on the appropriate
button to view or initiate transactions.
o Certificate History
o Issue Certificate
o Address Change
For Technical Assistance Call 1-877-978-7778 between
9am-7pm Monday-Friday Eastern Time