EXHIBIT D
CONTRIBUTION AGREEMENT
This Contribution Agreement ("Agreement") is entered into as of May
16, 2005 (the "Agreement Date"), by and among HIBERNATION HOLDING COMPANY, INC.,
a Delaware company (the "Buyer"), and those persons set forth on Schedule 1
(each a "Contributor" and, collectively, the "Contributors").
W I T N E S S E T H :
WHEREAS, the Contributors own shares of common stock (the "Company
Common Stock") of The Vermont Teddy Bear Co., Inc., a New York corporation (the
"Company"), and/or shares of Series A Preferred Stock (the "Company Series A
Stock") of the Company;
WHEREAS, pursuant to an Agreement and Plan of Merger of even date
herewith (the "Merger Agreement"), the Company is to be merged with and into
Hibernation Company, Inc., a wholly-owned subsidiary of the Buyer, with the
Company as the surviving entity (the "Merger");
WHEREAS, each Contributor desires on the Closing Date (as defined in
the Merger Agreement), prior to the effectiveness of the Merger, to contribute
the number of shares of the Company Common Stock and the Company Series A
Preferred Stock set forth opposite such Contributor's name on Schedule 1
(collectively, the "Rollover Shares") in exchange for the issuance by the Buyer
to such Contributor of the number shares of the common stock of Buyer (the
"Buyer Common Stock") and of the Series A Preferred Stock of the Buyer (the
"Buyer Series A Stock") set forth opposite such Contributor's name on Schedule 1
(the Buyer Common Stock and the Buyer Series A Stock will be referred to herein,
together, as the "Buyer Shares); and
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto represent, warrant and agree as follows:
1. Contribution. On the Closing Date, and immediately prior to the
effectiveness of the Merger, each Contributor shall contribute, transfer,
assign, convey and deliver to the Buyer the shares of the Company Common
Stock and the shares of the Company Series A Preferred Stock set forth
opposite such Contributor's name on Schedule 1 under the respective
headings "Company Common Stock Contributed to the Buyer" and "Company
Series A Stock Contributed to the Buyer." On the Closing Date, each
Contributor shall surrender the certificate or certificates (properly
endorsed for transfer) representing such shares to the Buyer at its
principal office.
2. Shares of Buyer Stock. On the Closing Date, and immediately prior to the
effectiveness of the Merger, the Buyer shall issue and sell to each
Contributor, in exchange for such Contributor's contribution of shares
pursuant to Section 1, the number of shares of the Buyer Common Stock and
the Buyer Series A Stock set forth opposite such Contributor's name on
Schedule 1 under the respective headings "Buyer Common Stock Issued to
Contributor" and "Buyer Series A Stock Issued to Contributor." On the
Closing Date, the Buyer shall deliver
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to each Contributor a certificate or certificates evidencing the shares of
the Buyer Common Stock and the Buyer Series A Stock, as applicable, to be
issued to such Contributor pursuant to this Section 2.
3. Representation and Warranties.
(a) Each Contributor represents and warrants severally, but not jointly,
as follows:
(i) As of the Agreement Date he or she owns, and that as of the
Closing Date he or she shall own, the Buyer Shares to be contributed
by such Contributor to the Buyer pursuant to Section 1 above free
and clear of all liens, encumbrances and restrictions of any nature.
Each Contributor further represents and warrants that as of the
Agreement Date he or she has, and as of the Closing Date he or she
shall have, full power and authority to contribute to the Buyer the
shares to be contributed pursuant to Section 1 above.
(ii) He or she is an "accredited investor" within the meaning of
that term as it is defined in Rule 501 under the Securities Act of
1933, as amended (the "Securities Act"), and understands that term
to mean that either (i) his or her net worth as of the date hereof
(i.e., excess of total assets over total liabilities), inclusive of
homes, home furnishings and automobiles, either individually or
jointly with his or her spouse, exceeds $1,000,000 or (ii) his or
her individual income exceeded $200,000, or jointly with his or her
spouse exceeded $300,000, in each of the previous two years and he
or she reasonably expects his or her income to exceed $200,000, or
jointly with his or her spouse to exceed $300,000, in the current
year.
(iii) He or she is a bona fide domiciliary (not a temporary or
transient resident) of the jurisdiction specified on Schedule 1 to
this Agreement.
(b) The Buyer represents and warrants that, on the Closing Date, the
shares of Buyer Common Stock and Buyer Series A Stock to be issued and sold to
such Contributor pursuant to Section 2 will be duly authorized, fully paid and
non-assessable.
4. Acknowledgements of Certain Contingencies. Each Contributor acknowledges
and agrees to the following:
(a) On or after the Closing Date, the Buyer will adopt an equity
incentive plan for employees, consultants and other service
providers (the "Incentive Plan"). It is currently anticipated that
the number of shares of Buyer Common Stock reserved for issuance
under the Incentive Plan will be equal to twelve percent (12%) of
the fully-diluted capitalization of the Company on a consolidated
basis (consolidating outstanding options in the Company and the
Buyer's equity in the Company).
(b) (i) Following the Merger, the Company will be owned as follows:
Approximately 5% to 10% of the Company's fully-diluted equity will
consist of options to purchase Common Stock in the Company that are
currently held by certain employees of the Company who are expected
to continue holding their options instead of being cashed out in the
Merger.
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(This percentage will vary depending upon how many option holders
elect to be cashed out in the Merger.) The remainder of the
Company's fully-diluted equity (approximately 90% to 95%) will be
owned by the Buyer.
(ii) The Buyer's current intention is for the Buyer to issue, on or
about the Closing Date, approximately 2,690,000 shares of its Series
B Preferred Stock (the "Buyer Series B Stock"), for aggregate
proceeds of approximately $17,500,000,000 (the "Financing"), or
$6.50 per share. The rights, privileges and preferences of the Buyer
Common Stock, the Buyer Series A Stock and the Buyer Series B Stock
will initially be as set forth in the Buyer's Certificate of
Incorporation attached hereto as Exhibit A (the "Charter"). The
Buyer also expects approximately 1,200,000 shares of Common Stock of
the Buyer to be outstanding, and warrants to purchase up to 175,000
shares of Common Stock of the Buyer to be outstanding, in each case
for the account of stockholders and a warrant holder who are
expected to be rolling over their existing Company shares and
warrants to the Buyer. The Contributors acknowledge and agree that
the amount of the Series B Preferred Stock to be issued may change
based upon the amount of Common Stock contributed per this agreement
and the number of that options that are cashed out. The above-listed
estimated capitalization of the Buyer must be considered in light of
the fact that the Buyer is expected to own between 90% and 95% of
the Company on a fully-diluted basis, taking into account the
options described in 4(b)(i) above.
(iii) The Buyer expects to fund the Merger transactions as follows:
(A) approximately $17,500,000 in Series B Preferred equity as
described above, (B) approximately $7,800,000 in Common Stock (B)
approximately $1,548,000 in rollover Series A Preferred equity, (C)
approximately $14,500,000 in senior debt financing (including the
assumption of the existing capital lease obligations of the
Company), (D) approximately $6,500,000 in subordinated debt
financing, and (E) approximately $6,100,000 of cash on hand of the
Company. The Contributors acknowledge and agree that, in the event
that the amount of the cash consideration payable in connection with
the Merger shall increase, or if, in accordance with the provisions
of the Merger Agreement, the Company requires additional working
capital, the Buyer may issue on or about the Closing Date,
additional shares of Buyer Series B Stock for $6.50 per share, and
the Contributors' percentage interest in the equity of the Buyer
represented by their shares of Buyer Common Stock will be reduced
accordingly.
(c) Each Contributor acknowledges that the Buyer is a newly formed
company, and that its only significant assets and liabilities will
be (i) the assets and liabilities described above, and (ii) its
ownership interest in the Company as its majority-owned subsidiary.
The Contributor has been granted access to information and materials
concerning the Buyer and the Company, including without limitation
their current and proposed capitalization and debt structures,
sufficient to permit him or her to make an investment decision with
respect to the Buyer Shares he or she is acquiring, and has had the
opportunity to his or her satisfaction to question and to receive
answers from representatives of the Company with respect to the
Company and representatives of the Buyer with respect to the Buyer
Common Stock and the Buyer Shares. Each Contributor confirms that he
or she has not relied upon any representations or warranties made by
the Buyer, the Company or any of their respective agents except as
set forth herein or in the Merger Agreement, and
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acknowledges that no such other representations or warranties have
been made to him by the Buyer, the Company or any of their
respective agents. Each Contributor has reviewed the Merger
Agreement either alone or with the assistance of counsel, and fully
understands its provisions.
(d) Each Contributor acknowledges and recognizes that (i) the Buyer
Shares are being offered and sold under one or more of the
exemptions from registration provided for in Section 4(2) of the
Securities Act, Rule 506 of Regulation D under the Securities Act,
and any applicable state securities laws, and the Buyer Shares may
not be resold in the absence of such registration or the
availability of an exemption therefrom; (ii) the offering and sale
of the Buyer Shares have not been reviewed and approved by the
United States Securities and Exchange Commission (the "SEC") or by
any state securities authority, and any representation to the
contrary is a criminal offense; and (iii) there will be no public
market for the Buyer Shares and he or she may therefore be required
to maintain the investment in the Buyer Shares indefinitely.
(e) Each Contributor is making this investment for his or her own
account and not with a view to resale or distribution of the Buyer
Shares or any portion thereof.
(f) Each Contributor has taken into account and understands all of the
risks involved in its investment in the Buyer, which include,
without limitation, the risks concerning the Company set forth in
the Company's various filings with the SEC, and risks particular to
the Buyer and its proposed capitalization and debt structure and the
proposed capital structure of the Company following the Merger
(including that certain existing options to purchase common stock of
the Company will remain outstanding following the Merger).
(g) Each Contributor understands and acknowledges that certificates
representing the Buyer Shares will bear an appropriate legend
prohibiting the disposition thereof except in compliance with the
Securities Act and any applicable state securities laws.
5. Further Assurances. Each of the parties hereby agrees from time to time to
execute and deliver, perform and/or cause the performance of such further
and other transfers, assignments, stockholder consents, stockholder votes
and other documents and do all matters and things which may be convenient
or necessary to (i) more fully transfer to and vest in the Buyer all
right, title and interest in and to the Rollover Shares, (ii) vest in each
Contributor all right, title and interest in and to the shares of the
Buyer Common Stock and the Buyer Series A Stock issued to the Contributors
hereunder, (iii) to adopt the Equity Incentive Plan, (iv) to adopt the
Charter and consummate the Financing and (iv) otherwise to cause to occur,
effectuate, and carry out the intentions of this Agreement.
6. Indemnification. Each Contributor, severally and not jointly, agrees to
protect, defend, indemnify, and hold harmless the Buyer (including without
limitation controlling persons, officers, directors, partners, agents, and
employees of each Buyer) against and in respect of any and all losses,
liabilities, deficiencies, damages, costs, or expenses, or actions in
respect thereof (including reasonable legal fees and expenses), as and
when incurred, caused by any breach of any of the representations,
warranties or covenants of such Contributor contained
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herein. The remedies set forth in this Section 6 shall not be exclusive
and shall be in addition to all other rights and remedies available to the
Buyer under and in connection with this Agreement and the other
agreements, documents and instruments contemplated hereby.
7. Entire Agreement. This Agreement, together with the Merger Agreement and
the documents and agreements executed in connection therewith, represents
the entire understanding and agreement between the parties hereto with
respect to the subject matter hereof and supersedes all other agreements,
negotiations, understandings and representations (if any) made by and
between such parties.
8. Termination. This Agreement will terminate, and will be of no further
force or effect, in the event that the Merger Agreement is terminated for
any reason.
9. Binding Effect. All of the terms and provisions of this Agreement, whether
so expressed or not, shall be binding upon, inure to the benefit of, and
be enforceable by the parties and their respective administrators,
executors, legal representatives, heirs, beneficiaries, partners,
successors and permitted assigns.
10. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
11. GOVERNING LAW. THIS AGREEMENT AND ALL TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS OF SAID STATE.
[Signatures follow]
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IN WITNESS WHEREOF, the parties hereto have executed this Contribution
Agreement under seal, effective as of the date first written above.
HIBERNATION HOLDING COMPANY, INC.
By: ___________________________________
Xxxxxx Xxxxxxxxx
Vice President - Finance
[Signature Page to Contribution Agreement]
COUNTERPART SIGNATURE PAGE
to Contribution Agreement
with Hibernation Holding Company, Inc.
CONTRIBUTOR:
By: ___________________________________
Name:
Title: (if applicable)
[Signature Page to Contribution Agreement]
SCHEDULE 1
TO
CONTRIBUTION AGREEMENT
Buyer
Name and Company Company Common
Address of Company Common Stock Series A Stock Stock Issued Buyer Series A
Domicile of Common Stock Contributed to the Contributed to to Stock Issued to
Contributor Owned Buyer he Buyer Contributor Contributor
------------------ ------------ ------------------ --------------- ------------ ---------------
Xxxxx Xxxxx 326,712 200,000 - 200,000 -
000 Xxx Xxxxxxxxx
X.X. Xxx 000000
Xxxxxxxxx Xxxxxxx,
XX 00000
Xxxxx and Xxxxxxx 3,581 2,686 - 2,686 -
Xxxxxxxxx
X.X. Xxx 000
Xxxxxx, XX 00000
Xxxxxxx Xxxxxxx 45,027 45,027 - 45,027 -
FreshTracks Capital
X.X. Xxx 000
0 Xxxx Xxxxxx, Xxx
Xxxxx
Xxxxxxxxxx, XX
00000
Split Rock Fund, 12,000 9,000 - 9,000 -
LLC
c/o Xxxxxxxx
Xxxxxxx
X.X. Xxx 000
0000 Xxxxxx Xxxx
Xxxxxxxxx, XX
00000-0000
Xxxx Xxxxxx 1,197,297 309,691 90 (with an 309,691 90 (with an
000 Xxxxxx Xxx. initial initial
Mill Valley, CA liquidation liquidation
94941 preference of preference of
$1,548,000 (or $1,548,000 (or
whatever is the whatever is the
accrued amount accrued amount
on the on
effective the effective
date of the date
Merger of the Merger
Agreement), Agreement),
which is the which is the
base base
on which future on which future
dividends will dividends will
accrue) accrue)
Xxxxxxxxx X. Xxxxxx 354,710 354,710 - 354,710 -
0000 Xxxxxxxxx
Xxxx
Xxxxxxxxx, XX 00000
921,114
EXHIBIT A
