Item
1.01 Entry Into a Material Definitive Agreement.
Merger
Agreement
On
August 28, 2019, Castle Brands Inc., a Florida corporation (the “Company”), entered into an Agreement and Plan of
Merger (the “Merger Agreement”) with Austin, Nichols & Co., Inc., a Delaware corporation and affiliate of Pernod
Ricard S.A. (“Parent”), and Parent’s newly-formed subsidiary, Rook Merger Sub, Inc., a Florida corporation (“Merger
Sub”). Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Merger Agreement.
Under the Merger Agreement, Merger
Sub will commence a cash tender offer (the “Offer”) to purchase all of the Company’s issued and outstanding
shares (the “Shares”) of common stock, par value $0.01 per share (“Common Stock”), at a price of $1.27
per Share in cash, without interest (less any applicable withholding taxes) (the “Offer Price”).
Merger
Sub will begin the Offer as soon as reasonably practicable and no later than September 19, 2019, and the Offer will
expire on the 20th business day beginning with (and including) the day of commencement of the Offer, unless extended
in accordance with the terms of the Merger Agreement and applicable law (the “Expiration Date”). Merger Sub is required
to extend the Offer for one or more periods of two to ten business days each, or such longer period(s) as Parent and the Company
may otherwise agree, following the Expiration Date if any of the conditions to the Offer have not been satisfied or waived
by Merger Sub by the Expiration Date.
The
obligation of Parent and Merger Sub to complete the Offer is subject to customary closing conditions, including: (1) at
least a majority of the outstanding Shares on a fully-diluted basis having been validly tendered and not withdrawn
prior to the expiration of the Offer (the “Minimum Condition”); (2) the expiration or early termination of the waiting
period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended; and (3) there having occurred no change in recommendation
by the Company’s Board of Directors (the “Company Board”). Neither the Offer nor the Merger is subject to a
financing condition.
If
Merger Sub achieves ownership of 80% of the outstanding Shares through the Offer, including any exercise of the Top-Up Option
described below, it has agreed to promptly effect the merger of Merger Sub with and into the Company (the “Merger”)
in accordance with the “short-form” merger procedures under the Florida Business Corporation Act, without a vote or
any further action by the Company’s shareholders. Otherwise, the Company will need to obtain the affirmative vote
or consent of the holders of a majority of the outstanding shares of Common Stock to adopt the Merger Agreement prior to consummating
the Merger. At the effective time of the Merger under the Florida Business Corporation Act (the “Effective Time”),
each issued and outstanding Share, other than any Shares held in the treasury of the Company, owned by Parent, Merger Sub or any
of their respective subsidiaries, or owned by shareholders who properly exercise dissenters’ rights, if applicable, under
the Florida Business Corporation Act, will be converted into the right to receive an amount equal to the Offer Price.
In
the Merger Agreement, the Company granted to Merger Sub an irrevocable option (the “Top-Up Option”), on the terms
and subject to the conditions in the Merger Agreement (including the Minimum Condition), to purchase from the Company
at the Offer Price, a number of newly-issued Shares equal to the lowest number of Shares that, when added to the number of Shares
owned by Parent and its subsidiaries immediately prior to exercise of the Top-Up Option, would constitute one share more than
80% of the Shares outstanding immediately after the issuance of the Top-Up Shares on a fully-diluted basis (the “Top-Up
Option Shares”). The Top-Up Option is only exercisable once in whole and not in part at any time following the date on which
Merger Sub accepts for payment and pays for Shares pursuant to the Offer until the tenth business day thereafter. The Top-Up Option
was granted and the Top-Up Shares, if any, will be issued pursuant to an applicable exemption from registration requirements under
the Securities Act of 1933, as amended.
The
Merger Agreement contains representations, warranties and covenants customary for a transaction of this nature.
The Company is subject to an agreement to
not solicit Takeover Proposals for a period commencing on the date of the Merger Agreement until the earlier of the Effective
Time and termination of the Merger Agreement or, subject to the exceptions that the Company may enter into discussions
concerning or provide information to a third party in connection with a Superior Proposal and the Company Board may, in response
to a Superior Proposal or Intervening Event, under certain conditions, make a Company Adverse Recommendation or, solely with respect
to a Superior Proposal, terminate the Merger Agreement in order to enter into an alternative acquisition agreement.
The Merger Agreement also includes customary
termination provisions for the Company and Merger Sub and provides that, in connection with the termination of the Merger Agreement
under specified circumstances (including, without limitation, before receipt of any necessary shareholder vote, the Company Board
authorizing the Company to enter into an alternative acquisition agreement regarding a Superior Proposal or the Company Board changing
its Company Board Recommendation), the Company would be required to pay Parent a termination fee of $10,000,000 (the “Termination
Fee”).
Under
the Merger Agreement, (I) each stock option outstanding as of the Effective Time will be fully vested and cancelled and converted
into the right to receive an amount in cash, without interest, equal to the product of (a) the aggregate number of shares of Common
Stock subject to such stock option immediately prior to the Effective Time, multiplied by (b) the excess, if any, of the Offer
Price over the per share exercise price of such stock option, less any taxes required to be withheld, and (II) each restricted
stock award outstanding as of the Effective Time will be fully vested and converted into the right to receive an amount in cash,
without interest, equal to the product of (a) the aggregate number of shares of Common Stock in respect of such restricted stock
award multiplied by (b) the Offer Price, less any taxes required to be withheld.
The
foregoing description of the Merger Agreement does not purport to be complete and is subject to, and qualified in its entirety
by, the full text of the Merger Agreement, which is attached as Exhibit 2.1 hereto and is incorporated herein by reference. The
Merger Agreement has been included to provide investors with information regarding its terms. The representations, warranties
and covenants contained in the Merger Agreement were made only for purposes of such agreement and as of specific dates, were solely
for the benefit of the parties to such agreement, may be subject to limitations agreed upon by the contracting parties, including
being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to such agreement
instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties
that differ from those applicable to investors. Investors are not third-party beneficiaries under the Merger Agreement and should
not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state
of facts or condition of the parties thereto or any of their respective subsidiaries or affiliates. Moreover, information concerning
the subject matter of representations and warranties may change after the date of the Merger Agreement, which subsequent information
may or may not be fully reflected in the Company’s public disclosures.
Tender
and Support Agreement
Phillip
Frost, M.D. and related entities, Richard Lampen, President and Chief Executive Officer of the Company, and Mark Andrews,
Chairman of the Company Board, who collectively own approximately 37% (approximately 40% on a fully-diluted basis)
of the outstanding shares of Common Stock of the Company, entered into a tender and support agreement (the “Tender and Support
Agreement”) with Parent and Merger Sub in which they agreed to, among other things, (x) tender all shares of Common Stock
of the Company owned by such shareholders in the Offer and (y) vote such shares in favor of the Merger and any related matters
on which such shareholders may be called to vote. The Tender and Support Agreement would terminate upon certain circumstances,
including upon termination of the Merger Agreement, the Effective Time or the termination of such Tender and Support Agreement
by mutual written consent of the parties thereto.
The
foregoing description of the Tender and Support Agreement does not purport to be complete and is qualified in its entirety by
reference to the Tender and Support Agreement, which is filed as Exhibit 10.1 hereto and is incorporated herein by reference.