<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
BERINGER WINE ESTATES HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2080 68-0370340
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1000 PRATT AVENUE
ST. HELENA, CALIFORNIA 94574
(707) 963-7115
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PETER F. SCOTT
SENIOR VICE PRESIDENT, FINANCE AND OPERATIONS AND CHIEF FINANCIAL OFFICER
BERINGER WINE ESTATES HOLDINGS, INC.
1000 PRATT AVENUE
ST. HELENA, CALIFORNIA 94574
(707) 963-7115
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
GREGG F. VIGNOS RONALD S. BEARD
JOHN L. DONAHUE GREGORY J. CONKLIN
SALLY BRAMMELL GAVIN A. BESKE
WILLIAM A. HINES GIBSON, DUNN & CRUTCHER LLP
PILLSBURY MADISON & SUTRO LLP 333 SOUTH GRAND AVENUE
P.O. BOX 7880 44TH FLOOR
SAN FRANCISCO, CA 94120 LOS ANGELES, CA 90071
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
PROPOSED
MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Common Stock, $0.0001 par value...... 5,270,000 shares $23.00 $121,210,000 $36,730
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 420,000 shares that the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Calculated pursuant to Rule 457(a) based upon an estimate of the maximum
offering price.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 27, 1997
[LOGO]
4,850,000 SHARES
BERINGER WINE ESTATES HOLDINGS, INC.
CLASS B COMMON STOCK
(PAR VALUE $.0001 PER SHARE)
----------
Of the 4,850,000 shares of Class B Common Stock offered, 4,250,000 shares are
being offered by the Underwriters to the public and 600,000 shares are being
offered by the Company directly to the holders of its Series A Non-Voting Pay-
in-Kind Preferred Stock. The Underwriters will not participate in, or receive
any discount or commission on, any sales of the Class B Common Stock to such
holders.
Of the 4,250,000 shares of Class B Common Stock offered by the Underwriters,
3,400,000 shares are being offered hereby in the United States and 850,000
shares are being offered in a concurrent international offering outside the
United States. The initial public offering price and the aggregate underwriting
discount per share will be identical for both offerings. See "Underwriting".
The Company has two classes of Common Stock, Class B Common Stock, which is
offered hereby, and Class A Common Stock. Holders of Class B Common Stock are
entitled to one vote per share and holders of Class A Common Stock are entitled
to twenty votes per share. Class A Common Stock is convertible at any time into
Class B Common Stock on a one-for-one basis. Immediately after the completion
of this offering, the holders of Class B Common Stock will hold shares
representing approximately 35% of the aggregate voting power of the Company's
outstanding capital stock.
Prior to this offering, there has been no public market for the Class B
Common Stock of the Company. It is currently estimated that the initial public
offering price per share will be between $21.00 and $23.00. For factors to be
considered in determining the initial public offering price, see
"Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN RISKS
RELEVANT TO AN INVESTMENT IN THE CLASS B COMMON STOCK.
Application has been made for quotation of the Class B Common Stock on the
Nasdaq National Market under the symbol "BERW".
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT(1)(2) COMPANY(3)
----------------- -------------- -----------
<S> <C> <C> <C>
Per Share.......................... $ $ $
Total(4)........................... $ $ $
</TABLE>
- ------
(1) The 600,000 shares of Class B Common Stock which the Company is hereby
offering directly to holders of its Series A Non-Voting Pay-in-Kind
Preferred Stock will be sold at $ , the initial public offering price
less the underwriting discount.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting".
(3) Before deducting estimated expenses of $1,100,000 payable by the Company.
(4) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 336,000 shares of Class B Common Stock at the initial
public offering price per share, less the underwriting discount, solely to
cover over-allotments. Additionally, the Company has granted the
International Underwriters a similar option with respect to an additional
84,000 shares as part of the concurrent international offering. If such
options are exercised in full, the total initial public offering price,
underwriting discount and proceeds to the Company will be $ , $
and $ , respectively. See "Underwriting".
----------
The shares of Class B Common Stock offered hereby are offered severally by
the Underwriters, as specified herein, subject to receipt and acceptance by
them and subject to their right to reject any order in whole or in part. It is
expected that certificates for the shares will be ready for delivery in New
York, New York on or about , 1997, against payment therefor in
immediately available funds.
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
HAMBRECHT & QUIST
SMITH BARNEY INC.
----------
The date of this Prospectus is , 1997
<PAGE>
[Photographs of Rhine House in center (historic Beringer family residence on
Beringer Winery Grounds). Right hand margin lists Company's brands. In each
corner, photographs of following Company Wineries: Chateau Souverain, Stag's
Leap Winery, Chateau St. Jean, and Meridian. Between photos of Wineries are
photos of bottles of Company Wines.]
BERINGER, MERIDIAN VINEYARDS, CHATEAU ST. JEAN, NAPA RIDGE, CHATEAU
SOUVERAIN AND STAGS' LEAP ARE REGISTERED TRADEMARKS OF THE COMPANY. THIS
PROSPECTUS ALSO INCLUDES TRADE NAMES AND TRADEMARKS OF COMPANIES OTHER THAN
BERINGER.
----------------
The Company intends to furnish to its stockholders annual reports containing
audited consolidated financial statements and quarterly reports containing
unaudited interim financial information for the first three fiscal quarters of
each fiscal year of the Company.
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS B COMMON
STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS
IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH
THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and the notes thereto
appearing elsewhere in this Prospectus. Except as set forth in the consolidated
financial statements and notes thereto or as otherwise specified herein, all
information in this Prospectus assumes no exercise of the Underwriters' over-
allotment options and reflects (1) a two-for-one stock split of the Class A and
Class B Common Stock, (2) the exercise of all outstanding warrants for Class B
Common Stock on or prior to the closing of this offering and (3) the redemption
of all of the Company's outstanding shares of Series A Non-Voting Pay-in-Kind
Preferred Stock (the "Series A Preferred Stock") and prepayment of its 12 1/2%
Senior Subordinated Notes Due January 10, 2006 (the "Subordinated Notes") upon
the closing of this offering. See "Description of Capital Stock" and
"Underwriting". Unless otherwise specified or the context requires otherwise,
the terms "Beringer" and the "Company" mean Beringer Wine Estates Holdings,
Inc. and each of its consolidated subsidiaries, and all references in this
Prospectus to 750ml premium wine sold in U.S. food stores refer to sales of
domestic wine only. In addition, statements in this Prospectus relating to the
differential between 1.5L and 750ml sales are management estimates based on
U.S. food store data compiled by Information Resources Inc. ("IRI").
THE COMPANY
Beringer is a leading producer of premium California varietal table wines,
marketed under the Beringer, Meridian Vineyards, Chateau St. Jean, Napa Ridge,
Chateau Souverain and Stags' Leap brand names. With this portfolio of brands,
the Company has captured the number one share of 750ml premium wines sold in
U.S. food stores for each of the last four years, and in fiscal 1997 had a
14.3% volume share of this market. The Company is well positioned across its
entire portfolio, with a top five market share for nine of the eleven largest
selling varietals in U.S. food stores. In one key varietal category, White
Zinfandel, Beringer holds a commanding 37.7% dollar share of these 750ml wines
sold in U.S. food stores, while selling at an approximate 15% price premium
over the second leading White Zinfandel brand. Beringer White Zinfandel also
generates the largest dollar sales of any wine stock keeping unit ("SKU") sold
in U.S. food stores. Beringer focuses exclusively on the premium wine market
and its wines are widely recognized for their quality. In 1990, Beringer
Private Reserve Cabernet Sauvignon was named "Wine of the Year" by Wine
Spectator magazine. In 1996, Beringer Private Reserve Chardonnay received the
same honor. This same magazine named eight of the Company's wines to its list
of "Top 100" wines of the world in 1996, a record number for a wine company. In
addition, in June 1997, Beringer was named "The Best Overall Winery in America"
in a poll of over 11,000 wine consumers by Wine Spectator magazine.
Beringer's rigorous attention to quality, the strength of its brand portfolio
and its pursuit of strategic acquisitions have enabled the Company to grow its
net revenues at a compound annual rate of 14%, from $159.2 million in fiscal
1993 to $269.4 million in fiscal 1997. Over the same period, net income grew at
a compound annual rate of 27.1%, from $7.7 million to $20.1 million, excluding
purchase accounting adjustments related to the acquisition of the Company and
Chateau St. Jean and Stags' Leap wineries. The Company attributes its
leadership position in the rapidly growing premium wine market to its (1) high
quality wines which compete in every price segment of the premium wine market,
(2) focus on consumer marketing, (3) control over approximately 48% of its
grape requirements (excluding White Zinfandel requirements) and (4)
professional management team with an average of 19 years of industry
experience.
3
<PAGE>
Beringer was founded in 1876 and is the oldest continuously operating winery
in Napa Valley. Through a series of vineyard acquisitions over the last ten
years, management has assembled extensive strategic acreage positions in the
prime growing regions of Napa, Sonoma, Lake, Santa Barbara and San Luis Obispo
Counties. Ownership of these vineyards enables the Company to control a source
of high quality premium wine grapes at an attractive cost. For example, in
1996, the average cost per ton of producing Chardonnay grapes on the Company's
Santa Barbara vineyards was $825, compared to a weighted average price paid for
Santa Barbara Chardonnay grapes of $1,450 and a spot market price that reached
$2,400 in the same year.
Over the past twenty years, there has been a shift in consumer preferences in
the U.S. from generic or "jug" wines to high quality, premium varietal wines.
The Company estimates that shipments of premium 750ml varietal wines have grown
from 3.4% of total case volume of California table wines in 1980 to over 25% of
total case volume in 1996. Because premium wines sell at higher price points
than jug wines, the Company estimates that this 25% volume share represents
approximately $2.2 billion, or 51% of total dollar sales of California wines
sold at wholesale. Over this period, the compound annual growth of premium
varietal case volume was approximately 15.2% and annual dollar sales growth was
approximately 18.6%. The Company believes that this major shift in consumer
preferences has occurred due to (1) the maturing "baby-boomer" generation
entering its prime wine consumption period, (2) a growing consumer interest in
premium wines in general, (3) a growing interest in and sophistication about
food which lends itself to expanded consumption of premium wines and (4) the
improving quality and reputation of California premium wines.
Throughout this shift in consumer preferences, Beringer has utilized
sophisticated consumer marketing to build substantial brand loyalty and
significant market share in the rapidly expanding premium wine market. During
the 1990s, this marketing and brand building expertise has helped the Company
expand existing brands and launch new brands. For example, Beringer White
Zinfandel's dollar share has grown from 25.5% of 750ml White Zinfandel sales in
U.S. food stores in 1991 to 37.7% in 1996. In fiscal 1997, Beringer White
Zinfandel's sales in U.S. food stores were 26% greater than the number two wine
SKU. Meridian Vineyards, a brand launched by the Company in 1990, now has the
number two market share for all Chardonnay brands retailing for over $8 per
bottle, with growth in case volume of 48% from fiscal 1996 to fiscal 1997. The
Company expects further growth in Meridian Vineyards sales through Merlot and
Cabernet Sauvignon brand extensions, as well as additional growth in Chardonnay
sales.
STRATEGY
Beringer's objective is to strengthen its leadership position in the premium
wine market and thereby increase its revenues and profits. The Company's
strategy for achieving this objective has several key elements.
MANAGEMENT OF A MULTI-BRAND PORTFOLIO. The Company markets a portfolio of six
brands from the major California premium growing areas across all premium price
segments. The Company believes this multi-brand portfolio provides
opportunities for growth at each price point without diluting the value of any
individual brand. Further, the Company believes that this portfolio offers
consumers a choice of familiar and appealing products that are differentiated
by varietal, region and price, while providing distributors with a broad
assortment of brands for their selling efforts. To supplement its domestic
brands and meet the growing U.S. demand for premium wine, the Company has been
working with winemakers in Italy, Chile and southern France to produce high
quality wines which will compete in the rapidly growing $7 to $10 a bottle
market segment.
4
<PAGE>
FOCUS ON HIGH QUALITY ACROSS ALL BRANDS. The Company believes it has
consistently offered consumers high quality wines that are an excellent value
in each price segment of the premium wine market. The Company's team of 14
experienced winemakers produces these wines by using high quality premium wine
grapes and state-of-the-art equipment in each stage of the winemaking process.
The Company's success in producing high quality wines is evidenced by the
acclaim afforded to the Company's entire brand portfolio by a number of the
leading wine writers. For example, in 1996, eight of the Company's wines were
included in Wine Spectator's "Top 100" wines of the world, more than any other
wine company since Wine Spectator began the survey in 1988. Furthermore, in the
September 1996 edition of Food & Wine magazine, Robert Parker, a prominent wine
writer, remarked "[i]f I had to pick the California winery with the finest
record for quality, it would be Beringer Vineyards, which has set the standard
for several great wines."
CONTROL OF PREMIUM GRAPE SUPPLIES AND VINEYARDS. Premium varietal grapes are
the most important determinant of wine quality and represent a significant
component of product cost. The Company produces a larger percentage of its
grape requirements (excluding White Zinfandel requirements) than most of its
competitors, enabling it to (1) control grape quality, (2) control the most
important component of cost and (3) help assure continuity of grape supply.
Beringer either owns or controls through long-term leases approximately 9,400
plantable acres in California's prime wine growing regions of Napa, Sonoma,
Lake, Santa Barbara, and San Luis Obispo Counties. In 1996, the Company
produced approximately 48% of its grape requirements (excluding White Zinfandel
requirements) with grapes grown on its owned or controlled vineyards. To meet
its White Zinfandel requirements, the Company's strategy is to purchase grapes
or bulk wine, primarily through long-term contracts.
PURSUIT OF STRATEGIC ACQUISITIONS. The current consolidation of the
California wine industry is being hastened by the ongoing consolidation of the
industry's distributor network. The Company has taken advantage of this trend
by purchasing the Chateau St. Jean and Stags' Leap wineries in the last two
years. Acquiring attractively positioned wineries allows the Company to augment
its brand portfolio and to achieve operating efficiencies by integrating sales,
marketing and administrative functions of acquired wineries with those of its
existing California wineries, resulting in significant cost savings. By adding
Chateau St. Jean to Beringer's distributor network, the Company was able to
increase case sales of Chateau St. Jean outside of California by 30% and raise
prices in the first full year following its acquisition. In addition, the
Company believes Beringer's professional management can often improve wine
quality and increase the productivity of acquired wineries, thereby increasing
sales and profitability. The Company intends to make strategic winery
acquisitions on a highly selective basis.
EMPHASIS ON CONSUMER MARKETING. The Company utilizes sophisticated marketing
strategies more typically employed by consumer packaged goods companies,
including advertising, product publicity and packaging initiatives in consumer
marketing, as well as extensive trade marketing targeted at distributors and
retail channels. The Company has advertised its Beringer brand on the radio
since 1985 and its Meridian Vineyards brand on television since 1994. The
Company believes this advertising has contributed to the compound growth in
case sales of Beringer White Zinfandel of 12.4% per year since calendar year
1991, and has helped drive Meridian Vineyards Chardonnay to the number two
market share position for Chardonnay retailing for over $8 a bottle in U.S.
food stores.
COMMITMENT OF PROFESSIONAL AND EXPERIENCED MANAGEMENT TEAM. The Company
believes its professional management team's depth and experience in both the
wine and branded consumer packaged goods industries will be important in
guiding the Company's growth. Since its acquisition from the Beringer family in
1971, the Company has been run by a professional management team. The average
tenure of senior management of the Company in the wine industry is 19 years and
their average tenure at the Company is 14 years.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
($ THOUSANDS, EXCEPT PER SHARE DATA)
The Company was incorporated for the purpose of acquiring Beringer Wine
Estates Company and its wholly owned subsidiaries. The acquisition from Nestle
Holdings, Inc. of all of the outstanding common stock of Beringer Wine Estates
Company by the Company occurred on January 1, 1996 (the "Acquisition"). The
Company constitutes the successor company ("New Beringer") and is reflected in
the historical results of operations beginning on January 1, 1996. The
historical results of operations through December 31, 1995 are the results of
Beringer Wine Estates Company and its consolidated subsidiaries ("Old
Beringer").
<TABLE>
<CAPTION>
OLD BERINGER NEW BERINGER
------------------------------------------ -------------------
SIX MONTHS YEAR
YEAR ENDED JUNE 30, ENDED SIX MONTHS ENDED
---------------------------- DECEMBER 31, ENDED JUNE JUNE 30,
1993 1994 1995 1995 30, 1996 1997
-------- -------- -------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues........... $159,176 $180,836 $202,010 $106,867 $124,863 $269,460
Cost of goods sold(1).. 79,871 90,004 101,287 54,114 93,626 177,829
Gross profit(2)........ 79,305 90,832 100,723 52,753 31,237 91,631
Operating income
(loss)(3)............. 20,911 25,433 34,805 16,556 (4,783) 12,984
Interest expense....... (7,619) (7,007) (5,730) (2,214) (12,830) (26,401)
Income (loss) before
taxes(4).............. 13,862 18,949 30,122 14,467 (17,358) (12,525)
Net income (loss)(5)... 7,659 10,469 16,753 8,086 (9,365) (5,449)
Preferred dividends
and accretion of
discount.............. -- -- -- -- 2,054 4,920
-------- -------- -------- -------- -------- --------
Net income (loss)
allocable to common
stockholders.......... $ 7,659 $ 10,469 $ 16,753 $ 8,086 $(11,419) $(10,369)
======== ======== ======== ======== ======== ========
Loss per share
Primary.............. $ (1.04) $ (0.85)
======== ========
Supplemental(6): $ (0.26)
========
Weighted average
common shares
outstanding(7)
Primary.............. 10,978 12,184
======== ========
Supplemental......... 17,034
========
OTHER FINANCIAL DATA:
Depreciation and
amortization(8)....... $ 9,671 $ 9,790 $ 10,457 $ 5,234 $ 4,497 $ 9,120
EBITDA(9).............. 31,152 35,746 46,309 21,915 32,100 66,304
Capital expenditures... 15,489 16,904 10,763 7,082 3,031 33,956
</TABLE>
<TABLE>
<CAPTION>
OLD BERINGER NEW BERINGER AS ADJUSTED(10)
-------------------------- ----------------- ---------------
AT JUNE 30, AT JUNE 30, AT JUNE 30,
-------------------------- ----------------- ---------------
1993 1994 1995 1996 1997 1997
-------- -------- -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........ $ 12,408 $ 7,650 $ 27,955 $209,129 $209,711 $209,711
Total assets........... 278,579 286,454 289,922 438,742 467,184 467,184
Total long-term debt... -- -- -- 289,244 319,112 263,669
Total long-term
obligations........... 256 -- -- 317,531 356,072 266,288
Redeemable preferred
stock, common stock
and other
stockholders' equity.. 140,411 140,880 158,326 77,484 78,334 133,776
</TABLE>
- -------
(1) In accordance with purchase accounting rules applied to the Company's
acquisitions, inventory was increased to fair market value. Due to this
inventory step-up, cost of goods sold increased in the six months ended
June 30, 1996 and the year ended June 30, 1997 by $32,131 and $43,308,
respectively.
(2) Gross profit without the inventory step-up would have been $63,368 and
$134,939 in the six months ended June 30, 1996 and the year ended June 30,
1997, respectively.
(3) If the inventory step-up had not occurred, operating income would have been
$27,348 and $56,292 for the six months ended June 30, 1996 and for the year
ended June 30, 1997, respectively.
(4) If the inventory step-up had not occurred, income (loss) before income
taxes would have been $14,773 and $30,783 for the six months ended June 30,
1996 and for the year ended June 30, 1997, respectively.
(5) If the inventory step-up had not occurred, net income (loss) would have
been $9,593 and $20,086 for the six months ended June 30, 1996 and for the
year ended June 30, 1997, respectively.
(6) Supplemental earnings per share (i) illustrates the effect on earnings per
share of the repurchase of all the outstanding shares of Series A Preferred
Stock ($38,500), repayment of all of the outstanding Subordinated Notes
($38,150), including a prepayment penalty of $3,150, and repayment of
$16,015 of the line of credit and $6,000 of long-term debt with the
estimated net proceeds from this offering, as if such transactions occurred
at the beginning of the applicable period and (ii) gives effect to the
issuance of the 4,850,000 shares of Class B Common Stock offered hereby, as
if such shares were outstanding at the beginning of the applicable period.
See Note 1 of Notes to Consolidated Financial Statements.
(7) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of shares used in computing earnings per share.
(8) Includes amortization of goodwill from 1993 to 1995, which goodwill was
eliminated in connection with the Acquisition.
(9) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. For the six months ended June 30, 1996 and the year ended
June 30, 1997, $32,131 and $43,308, respectively, of inventory step-up are
included in EBITDA. EBITDA is not a measure of financial performance under
generally accepted accounting principles and should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity.
(10) Assumes the issuance and sale of the 4,850,000 shares of Class B Common
Stock offered hereby occurred on June 30, 1997. See note (6) above.
6
<PAGE>
SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
The supplemental consolidated financial data set forth below are presented
herein to reflect on a pro forma basis the comparative consolidated financial
data without the inventory step-up included in the audited results for the six
month period ended June 30, 1996 and the year ended June 30, 1997. On January
1, 1996, an investment group led by TPG Partners, L.P. and its affiliates
(collectively "TPG") acquired the Company from a subsidiary of Nestle S.A.
("Nestle"). This transaction was accounted for as a purchase, resulting in new
basis of assets and liabilities effective January 1, 1996. This information
should be read in conjunction with the Consolidated Financial Statements and
notes thereto included elsewhere in this Prospectus and "Selected Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
($ THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $159,176 $180,836 $202,010 $231,730 $269,460
Cost of goods sold(1)... 79,871 90,004 101,287 115,609 134,521
Gross profit(1)......... 79,305 90,832 100,723 116,121 134,939
Operating income (1).... 20,911 25,433 34,805 43,904 56,292
Interest expense........ (7,619) (7,007) (5,730) (15,044) (26,401)
Income before taxes(1).. 13,862 18,949 30,122 29,240 30,783
Taxes(2)................ 6,203 8,480 13,369 11,560 10,697
Net income.............. $ 7,659 $ 10,469 $ 16,753 $ 17,680 $ 20,086
======== ======== ======== ======== ========
</TABLE>
- --------
(1) For the years ended June 30, 1996 and 1997, cost of goods sold was reduced
and gross profit, operating income and income before taxes were effectively
increased by $32,131 and $43,308, respectively, as a result of the
inventory step-up.
(2) For the years ended June 30, 1996 and 1997, income taxes have been computed
on net income after adding back the amount of the inventory step-up.
7
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THE OFFERINGS
<TABLE>
<C> <S>
Class B Common Stock Offered:
United States Offering............. 3,400,000 shares
International Offering............. 850,000 shares
Company Offering(1)................ 600,000 shares
Total............................ 4,850,000 shares
Common Stock to be Outstanding after
the Offering:
Class A Common Stock............... 1,529,970 shares
Class B Common Stock............... 16,547,834 shares(2)
Total............................ 18,077,804 shares
Voting Rights:
Class A Common Stock............... Twenty votes per share
Class B Common Stock............... One vote per share
Use of Proceeds..................... Redemption of all outstanding shares of
Series A Preferred Stock, prepayment of
the Subordinated Notes, partial prepayment
of line of credit and long-term senior
debt, working capital and general
corporate purposes. See "Use of Proceeds".
Proposed Nasdaq National Market
symbol............................. BERW
</TABLE>
- --------
(1) Direct offering by the Company to holders of Series A Preferred Stock.
(2) Excludes 1,374,426 shares of Class B Common Stock reserved for issuance
upon exercise of stock options outstanding at August 15, 1997. See
"Capitalization", "Management--Employee Benefit Plans", and Note 11 of
Notes to Consolidated Financial Statements.
RISK FACTORS
See "Risk Factors" beginning on page 9 for a description of certain risks
relevant to an investment in the Class B Common Stock.
8
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following information in
conjunction with the other information contained in this Prospectus before
purchasing the Class B Common Stock offered hereby. Except for historical
information contained herein, the matters discussed in this Prospectus are
forward-looking statements that are subject to certain risks and uncertainties
that could cause actual results to differ materially from those set forth in
such forward-looking statements. Such risks and uncertainties include, without
limitation, the Company's ability to implement its business strategies or to
compete effectively with domestic and foreign premium wine producers and the
possibility of a shift in consumer preferences.
DEPENDENCE UPON CONSUMER SPENDING AND PREFERENCES
The success of the Company's business depends upon a number of factors
related to the level of consumer spending, including the general state of the
economy and consumer confidence in future economic conditions. In its fiscal
year ended June 30, 1997, approximately 25% of the Company's wine sales were
concentrated in California and approximately 25% of such sales were
concentrated in the States of New York, New Jersey, Texas, Illinois,
Pennsylvania and Florida. Changes in national consumer spending or consumer
spending in these and other regions can affect both the quantity and price
level of wines that customers are willing to purchase at restaurants or
through retail outlets. Reduced consumer confidence and spending may result in
reduced demand for the Company's products, limitations on its ability to
increase prices and increased selling and promotional expenses.
Approximately 78% of the Company's net revenues in its fiscal year ended
June 30, 1997 were concentrated in its top three selling varietal wines. Sales
of White Zinfandel, Chardonnay and Cabernet Sauvignon accounted for 40.4%,
26.2% and 10.9% of the Company's fiscal 1997 net revenues, respectively. A
sudden and unexpected shift in consumer preferences or a reduction in sales of
wine generally or in wine varietals or types, particularly White Zinfandel,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
COMPETITION
The premium table wine industry is intensely competitive and highly
fragmented. The Company's wines compete in all of the premium wine segments
with many other premium wines produced domestically and abroad, with imported
wines coming primarily from France, Italy and Chile. The Company's wines also
compete with popular-priced generic wines and with other alcoholic and, to a
lesser degree, nonalcoholic beverages, for shelf space in retail stores and
for marketing focus by the Company's independent distributors, many of which
carry extensive brand portfolios. The wine industry has also experienced
significant consolidation in recent years and many of the Company's
competitors have significantly greater capital resources than the Company.
SEASONALITY OF WINE BUSINESS AND QUARTERLY FLUCTUATIONS IN RESULTS OF
OPERATIONS
The Company has experienced, and expects to continue to experience, seasonal
and quarterly fluctuations in net revenues, cost of goods sold and net income.
Sales volume tends to increase in advance of, and to decrease following,
holiday periods and the date price increases go into effect. In addition,
sales volume tends to decrease when distributors begin a quarter with larger
than standard inventory levels. The timing of releases for certain wines can
also have an impact on quarterly results. Further, sales volume tends to
decrease during the summer months. Thus, the Company typically reports lower
earnings in its first fiscal quarter and, with the current inventory step-up,
expects to report a loss for the first quarter of fiscal 1998. The Company's
level of borrowing fluctuates throughout the year, generally peaking during
the second or third fiscal quarter, as a result of harvest costs and the
timing of contractual payments to grape growers. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Seasonality and
Quarterly Results".
9
<PAGE>
The Company is managed to achieve broad, long-term strategic objectives. In
certain instances, the Company may make decisions that it believes will
enhance its long-term growth and profitability, even if such decisions depress
quarterly earnings.
AGRICULTURAL ISSUES
Winemaking and grape growing are subject to a variety of agricultural risks.
Various diseases and pests and extreme weather conditions can materially and
adversely affect the quality and quantity of grapes available to the Company,
thereby materially and adversely affecting the quality and supply of the
Company's wines and, consequently, its business, financial condition and
results of operations. Future government restrictions regarding the use of
certain materials used in grape growing may have a material adverse effect on
vineyard costs and production.
Grape growing requires adequate water supplies. The Company supplies its
vineyards' water needs through wells and reservoirs located on its properties.
While the Company believes it has adequate water supplies for all of its
vineyards, a substantial loss of grape crops or growing vines caused by
inadequate water supplies would have a material adverse effect on the
Company's business, financial condition and results of operations.
Phylloxera, a pest that feeds on susceptible grape rootstocks, has infested
many California vineyards. Phylloxera causes the vine to become economically
unproductive within two to three years of infestation. Although the Company
has experienced significant infestation of its owned and leased vineyards, it
has pursued a replanting program since recognizing the problem. The Company
has approximately 1,026 acres of phylloxera infested vineyards that need to be
replanted over the next four years. The Company believes that the location of
much of its susceptible vineyard acreage in Santa Barbara, with its sandy soil
composition, has a reduced likelihood of phylloxera infestation; however,
there can be no assurance that phylloxera will not infest these vineyards.
Replanted vines generally take three to five years to bear grapes in
commercial quantities. In addition, there can be no assurance that the
rootstocks the Company is now using in its planting and replanting programs
will not become susceptible to existing or new strains of phylloxera, plant
insects or diseases, including, but not limited to, Pierce's Disease or Fan
Leaf Virus, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Phylloxera".
GRAPE SUPPLY
The quality and quantity of grape supply is determined by a combination of
factors, including weather conditions during the growing season, diseases and
pests and industry-wide planting efforts. The adequacy of grape supply is
influenced by consumer demand for wine. While the Company believes that it can
secure a sufficient supply of grapes from its own production and from grape
supply contracts with independent growers, there can be no assurance that
grape supply shortages will not occur. A shortage in the supply of wine grapes
could result in an increase in the price of some or all grape varieties and a
corresponding increase in the cost to the Company of its wine production,
particularly with respect to White Zinfandel, for which virtually all of the
Company's grapes are externally sourced. Such an increase in the cost of
producing the Company's wines could have a material adverse effect on the
Company's business, financial condition and results of operations.
Demand for premium wines currently exceeds supply of premium wine grapes,
giving wineries a degree of pricing flexibility. However, new vineyards are
rapidly being planted and old vineyards are being replanted to greater
densities, with the expected result of significantly increasing the supply of
premium wine grapes and the amount of wine which will be produced. This
expected increase in grape production could result in an excess of supply over
demand and force wineries to reduce or not increase prices, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Grape Supply and Vineyard Ownership".
10
<PAGE>
DEPENDENCE ON DISTRIBUTION NETWORK
The Company sells its products principally to distributors for resale to
restaurants and retail outlets. Sales to the Company's largest distributor,
and to the Company's ten largest distributors combined, represented
approximately 30% and 59%, respectively, of the Company's net revenues during
fiscal 1997. Sales to the Company's ten largest distributors are expected to
continue to represent a substantial majority of the Company's net revenues in
the future. The laws and regulations of several states prohibit changes of
distributors, except under certain limited circumstances, making it difficult
to terminate a distributor without reasonable cause, as defined by applicable
statutes. The resulting difficulty or inability to replace distributors, poor
performance of the Company's major distributors or the Company's inability to
collect accounts receivable from its major distributors could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Industry Background".
CAPITAL REQUIREMENTS AND LEVERAGE
The premium wine industry is a capital-intensive business which requires
substantial capital expenditures to develop and acquire vineyards and to
improve or expand wine production. Further, the farming of vineyards and
acquisition of grapes and bulk wine require substantial amounts of working
capital. The Company was acquired in a leveraged transaction at the beginning
of 1996 and since that time has financed its operations and capital spending
principally through borrowings. At June 30, 1997, the Company's total
indebtedness was approximately $319.1 million. After this offering, assuming
net proceeds of $98.7 million, the Company intends to reduce total
indebtedness to approximately $263.6 million. See "Use of Proceeds" and
"Description of Credit Agreements". The Company projects the need for
significant capital spending and increased working capital requirements over
the next several years which will require additional borrowings or other
financing. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources".
The Company's substantial leverage has several important consequences to
holders of its Common Stock, including the following: (1) the Company has
significant fixed interest and principal repayment obligations requiring the
expenditure of substantial amounts of cash; (2) the Company's earnings may be
materially adversely affected by increases in interest rates; (3) the Company
may not be able to obtain financing when required or such financing may not be
available on reasonable terms; and (4) the Company's existing senior debt
covenants restrict, among other things, its ability to pay dividends on its
capital stock and to incur additional indebtedness. See "Description of Credit
Agreements". The Company's leverage could also have a material adverse effect
on the Company's business, financial condition and results of operations by
limiting its ability to withstand competitive pressure and adverse economic
conditions (including a downturn in its business or increased inflation or
interest rates) or to take advantage of significant business opportunities
that may arise, such as product line and brand extensions, acquisitions or
joint ventures.
GOVERNMENT REGULATION
The wine industry is subject to extensive regulation by the Federal Bureau
of Alcohol, Tobacco and Firearms and various foreign agencies, state liquor
authorities and local authorities. These regulations and laws dictate such
matters as licensing requirements, trade and pricing practices, permitted
distribution channels, permitted and required labeling, advertising and
relations with wholesalers and retailers. Expansion of the Company's existing
facilities and development of new vineyards and wineries may be limited by
present and future zoning ordinances, environmental restrictions and other
legal requirements. In addition, new regulations or requirements or increases
in excise taxes, income taxes, property and sales taxes and international
tariffs, could materially adversely affect the financial results of the
Company. The Company can provide no assurance that
11
<PAGE>
there will not be future legal or regulatory challenges to the industry, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
CONSUMER PERCEPTION OF HEALTH ISSUES
While a number of research studies suggest that various health benefits may
result from the moderate consumption of alcohol, other studies conclude or
suggest that alcohol consumption does not have any health benefits and may in
fact increase the risk of stroke, cancer and other illnesses. If an
unfavorable report on alcohol consumption gains general support, it could have
a material adverse effect on the Company's business, financial condition and
results of operations.
ENVIRONMENTAL ISSUES
The Company uses pesticides and other hazardous substances in the operation
of its business. If hazardous substances are discovered on, or emanating from,
any of the Company's properties and their release presents a threat of harm to
public health or the environment, the Company may be held strictly liable for
the cost of remediation. Payment of any such costs could have a material
adverse effect on the Company's business, financial condition and results of
operations.
QUALITY CONTROL; OPERATING HAZARDS
The Company's operations are subject to certain hazards and liability risks,
such as potential contamination, through tampering or otherwise, of
ingredients or products. Contamination of any of the Company's wines could
result in the need for a product recall which could significantly damage the
Company's reputation for product quality. The Company believes that its
reputation for product quality is one of its principal competitive advantages.
Damage to its reputation for quality would have a material adverse effect on
the Company's business, financial condition and results of operations.
Although the Company maintains insurance against certain risks under various
general liability and product liability insurance policies, the Company's
insurance may not be adequate or may not continue to be available at a price
or on terms satisfactory to the Company.
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend in large part upon the continued services
of a number of key employees. The loss of the services of one or more of the
Company's key personnel could have a material adverse effect on the Company.
In addition, if one or more of the Company's key employees resigns from the
Company to join a competitor or to form a competing company, the loss of such
personnel to any such competitor could have a material adverse effect on the
Company's business, financial condition and results of operations. In the
event of the loss of any such personnel, there can be no assurance that the
Company would be able to prevent the unauthorized disclosure or use of its
trade secrets, practices or procedures by such personnel.
FOREIGN COUNTRY EXPOSURE
The Company conducts some of its import and export activity for wine and
packaging supplies in foreign currency. Accordingly, there is a risk that a
shift in certain foreign exchange rates or the imposition of unforeseen and
adverse trade regulations could adversely impact the costs of these items and
have an adverse impact on the Company's profitability.
In addition, the imposition of unforeseen and adverse trade regulations
could have an adverse effect on the Company's imported wine operations and
thus on the Company's business, financial condition and results of operations.
The Company does not believe its foreign exchange risk and international
operations exposure is material at this time, but its increasing involvement
with international transactions may increase these risks in the future.
12
<PAGE>
TRADEMARKS
The Company's wines are branded consumer products, and the Company's efforts
to distinguish its wines from those of its competitors depends, in part, on
the strength and vigilant enforcement of its trademarks. There can be no
assurance that competitors will refrain from using trademarks, tradenames or
trade dress which dilute the Company's intellectual property rights, and any
such actions may require the Company to become involved in litigation to
protect such rights. Any such litigation could involve substantial financial
expenditures and the diversion of management's time and attention. The
dilution of the Company's trademarks could have a material adverse effect on
the Company's business, financial condition and results of operations.
ACQUISITIONS; GROWTH STRATEGY
The Company's growth strategy has included the acquisition of wineries,
brands and vineyards. The Company's future growth through acquisitions, if
any, will depend, in part, on the continued availability of suitable
acquisition candidates at favorable prices and on favorable terms and
conditions. Additional acquisitions may result in non-cash charges, such as
inventory step-ups, that reduce reported earnings. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Acquisitions entail a risk that businesses acquired will not perform in
accordance with expectations. Further, there can be no assurance that the
Company will be successful in integrating operations acquired from other
companies, and such difficulties may divert management's attention from other
business concerns and lead to the potential loss of key employees of either
the Company or the acquired operations.
CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER MEASURES
The Company has two classes of Common Stock: Class A Common Stock, which is
entitled to 20 votes per share, and Class B Common Stock, which is entitled to
one vote per share. Assuming TPG purchases its pro rata share of the 600,000
shares offered directly by the Company hereby, TPG will own or control
following this offering 1,190,946 shares of Class A Common Stock and 8,686,565
shares of Class B Common Stock, representing approximately 77.8% and 52.5% of
all the outstanding Class A and Class B Common Stock, respectively, and 68.9%
of the combined voting power of both classes of Common Stock. Consequently,
following this offering TPG will be able to elect all of the Company's Board
of Directors, thereby ensuring that TPG will continue to direct the business,
policies and management of the Company. In addition, following this offering
the Company's Certificate of Incorporation will authorize the issuance and
sale of 5,000,000 shares of Preferred Stock with rights, preferences and
privileges as fixed by the Board of Directors without further approval of or
action by the stockholders. The Preferred Stock could be issued on terms that
are unfavorable to the holders of Class B Common Stock or that could make a
takeover or change in control of the Company more difficult.
ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK
PRICE
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price of the Class B Common Stock will be
determined by negotiations between the Company and the representatives of the
Underwriters, and may not be indicative of the market price of the Class B
Common Stock after this offering. The Company has made application for
quotation of the Class B Common Stock on the Nasdaq National Market. However,
there can be no assurance that an active trading market will develop or be
sustained for the Class B Common Stock or that the Class B Common Stock will
trade in the public market at or above the initial public offering price. See
"Underwriting".
The stock market has from time to time experienced extreme price and volume
volatility. In addition, the market price of the Class B Common Stock may be
influenced by a number of factors,
13
<PAGE>
including investor perceptions of the Company and comparable public companies,
changes in conditions or trends in the wine industry or in the industries of
the Company's significant customers, and changes in general economic and other
conditions. Factors such as quarter-to-quarter variations in the Company's net
revenues and earnings could also cause the market price of the Class B Common
Stock to fluctuate significantly.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Class B Common Stock (including shares
issued upon the exercise of employee stock options or upon conversion of the
Class A Common Stock) in the public market following this offering could
adversely affect the market price of the Class B Common Stock. Although only
the 4,250,000 shares being sold by the Underwriters in this offering will be
available for sale in the public market immediately after this offering,
approximately 14.0 million shares of Class B Common Stock issued or issuable
upon exercise of stock options or conversion of outstanding shares of Class A
Common Stock will be eligible for sale in the public market beginning 180 days
after the date of this Prospectus, subject to the volume and manner of sale
limitations imposed by Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"). See "Shares Eligible for Future Sale".
DILUTION
The initial public offering price will be substantially higher than the book
value per share of the Class B Common Stock. Investors purchasing Class B
Common Stock in this offering will therefore incur immediate, substantial
dilution in the net tangible book value of their shares. In addition,
investors purchasing shares of Class B Common Stock in this offering will
incur additional dilution to the extent outstanding stock options are
exercised. See "Dilution".
14
<PAGE>
THE COMPANY
Beringer is a leading producer of premium California varietal table wines,
marketed under the Beringer, Meridian Vineyards, Chateau St. Jean, Napa Ridge,
Chateau Souverain and Stags' Leap brand names. With this portfolio of brands,
the Company has captured the number one share of 750ml premium wines sold in
U.S. food stores for each of the last four years, and in fiscal 1997 had a
14.3% volume share of this market. The Company is well positioned across its
entire portfolio, with a top five market share for nine of the eleven largest
selling varietals in U.S. food stores. In one key varietal category, White
Zinfandel, Beringer holds a commanding 37.7% dollar share of these 750ml wines
sold in U.S. food stores, while selling at an approximate 15% price premium
over the second leading White Zinfandel brand. Beringer White Zinfandel also
generates the largest dollar sales of any SKU sold in U.S. food stores.
Beringer focuses exclusively on the premium wine market and its wines are
widely recognized for their quality. In 1990, Beringer Private Reserve
Cabernet Sauvignon was named "Wine of the Year" by Wine Spectator magazine. In
1996, Beringer Private Reserve Chardonnay received the same honor. This same
magazine named eight of the Company's wines to its list of "Top 100" wines of
the world in 1996, a record number for a wine company. In addition, in June
1997, Beringer was named "The Best Overall Winery in America" in a poll of
over 11,000 wine consumers by Wine Spectator magazine.
Beringer's rigorous attention to quality, the strength of its brand
portfolio and its pursuit of strategic acquisitions have enabled the Company
to grow its net revenues at a compound annual rate of 14%, from $159.2 million
in fiscal 1993 to $269.4 million in fiscal 1997. Over the same period, net
income grew at a compound annual rate of 27.1%, from $7.7 million to $20.1
million, excluding purchase accounting adjustments related to the acquisition
of the Company and Chateau St. Jean and Stags' Leap wineries. The Company
attributes its leadership position in the rapidly growing premium wine market
to its (1) high quality wines which compete in every price segment of the
premium wine market, (2) focus on consumer marketing, (3) control over
approximately 48% of its grape requirements (excluding White Zinfandel
requirements) and (4) professional management team with an average of 19 years
of industry experience.
Beringer was founded in 1876 and is the oldest continuously operating winery
in Napa Valley. Through a series of vineyard acquisitions over the last ten
years, management has assembled extensive strategic acreage positions in the
prime growing regions of Napa, Sonoma, Lake, Santa Barbara and San Luis Obispo
Counties. Ownership of these vineyards enables the Company to control a source
of high quality premium wine grapes at an attractive cost. For example, in
1996, the average cost per ton of producing Chardonnay grapes on the Company's
Santa Barbara vineyards was $825, compared to a weighted average price paid
for Santa Barbara Chardonnay grapes of $1,450 and a spot market price that
reached $2,400 in the same year.
Over the past twenty years, there has been a shift in consumer preferences
in the U.S. from generic or "jug" wines to high quality, premium varietal
wines. The Company estimates that shipments of premium 750ml varietal wines
have grown from 3.4% of total case volume of California table wines in 1980 to
over 25% of total case volume in 1996. Because premium wines sell at higher
price points than jug wines, the Company estimates that this 25% volume share
represents approximately $2.2 billion, or 51% of total dollar sales of
California wines sold at wholesale. Over this period, the compound annual
growth of premium varietal case volume was approximately 15.2% and annual
dollar sales growth was approximately 18.6%. The Company believes that this
major shift in consumer preferences has occurred due to (1) the maturing
"baby-boomer" generation entering its prime wine consumption period, (2) a
growing consumer interest in premium wines in general, (3) a growing interest
in and sophistication about food which lends itself to expanded consumption of
premium wines and (4) the improving quality and reputation of California
premium wines.
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<PAGE>
Throughout this shift in consumer preferences, Beringer has utilized
sophisticated consumer marketing to build substantial brand loyalty and
significant market share in the rapidly expanding premium wine market. During
the 1990s, this marketing and brand building expertise has helped the Company
expand existing brands and launch new brands. For example, Beringer White
Zinfandel's dollar share has grown from 25.5% of 750ml White Zinfandel sales
in U.S. food stores in 1991 to 37.7% in 1996. In fiscal 1997, Beringer White
Zinfandel's sales in U.S. food stores were 26% greater than the number two
wine SKU. Meridian Vineyards, a brand launched by the Company in 1990, now has
the number two market share for all Chardonnay brands retailing for over $8
per bottle, with growth in case volume of 48% from fiscal 1996 to fiscal 1997.
The Company expects further growth in Meridian Vineyards sales through Merlot
and Cabernet Sauvignon brand extensions, as well as additional growth in
Chardonnay sales.
STRATEGY
Beringer's objective is to strengthen its leadership position in the premium
wine market and thereby increase its revenues and profits. The Company's
strategy for achieving this objective has several key elements.
MANAGEMENT OF A MULTI-BRAND PORTFOLIO. The Company markets a portfolio of
six brands from the major California premium growing areas across all premium
price segments. The Company believes this multi-brand portfolio provides
opportunities for growth at each price point without diluting the value of any
individual brand. Further, the Company believes that this portfolio offers
consumers a choice of familiar and appealing products that are differentiated
by varietal, region and price, while providing distributors with a broad
assortment of brands for their selling efforts. To supplement its domestic
brands and meet the growing U.S. demand for premium wine, the Company has been
working with winemakers in Italy, Chile and southern France to produce high
quality wines which will compete in the rapidly growing $7 to $10 a bottle
market segment.
FOCUS ON HIGH QUALITY ACROSS ALL BRANDS. The Company believes it has
consistently offered consumers high quality wines that are an excellent value
in each price segment of the premium wine market. The Company's team of 14
experienced winemakers produces these wines by using high quality premium wine
grapes and state-of-the-art equipment in each stage of the winemaking process.
The Company's success in producing high quality wines is evidenced by the
acclaim afforded to the Company's entire brand portfolio by a number of the
leading wine writers. For example, in 1996, eight of the Company's wines were
included in Wine Spectator's "Top 100" wines of the world, more than any other
wine company since Wine Spectator began the survey in 1988. Furthermore, in
the September 1996 edition of Food & Wine magazine, Robert Parker, a prominent
wine writer, remarked "[i]f I had to pick the California winery with the
finest record for quality, it would be Beringer Vineyards, which has set the
standard for several great wines."
CONTROL OF PREMIUM GRAPE SUPPLIES AND VINEYARDS. Premium varietal grapes are
the most important determinant of wine quality and represent a significant
component of product cost. The Company produces a larger percentage of its
grape requirements (excluding White Zinfandel requirements) than most of its
competitors, enabling it to (1) control grape quality, (2) control the most
important component of cost and (3) help assure continuity of grape supply.
Beringer either owns or controls through long-term leases approximately 9,400
plantable acres in California's prime wine growing regions of Napa, Sonoma,
Lake, Santa Barbara, and San Luis Obispo Counties. In 1996, the Company
produced approximately 48% of its grape requirements (excluding White
Zinfandel requirements) with grapes grown on its owned or controlled
vineyards. To meet its White Zinfandel requirements, the Company's strategy is
to purchase grapes or bulk wine, primarily through long-term contracts.
16
<PAGE>
PURSUIT OF STRATEGIC ACQUISITIONS. The current consolidation of the
California wine industry is being hastened by the ongoing consolidation of the
industry's distributor network. The Company has taken advantage of this trend
by purchasing the Chateau St. Jean and Stags' Leap wineries in the last two
years. Acquiring attractively positioned wineries allows the Company to
augment its brand portfolio and to achieve operating efficiencies by
integrating sales, marketing and administrative functions of acquired wineries
with those of its existing California wineries, resulting in significant cost
savings. By adding Chateau St. Jean to Beringer's distributor network, the
Company was able to increase case sales of Chateau St. Jean outside of
California by 30% and raise prices in the first full year following its
acquisition. In addition, the Company believes Beringer's professional
management can often improve wine quality and increase the productivity of
acquired wineries, thereby increasing sales and profitability. The Company
intends to make strategic winery acquisitions on a highly selective basis.
EMPHASIS ON CONSUMER MARKETING. The Company utilizes sophisticated marketing
strategies more typically employed by consumer packaged goods companies,
including advertising, product publicity and packaging initiatives in consumer
marketing, as well as extensive trade marketing targeted at distributors and
retail channels. The Company has advertised its Beringer brand on the radio
since 1985 and its Meridian Vineyards brand on television since 1994. The
Company believes this advertising has contributed to the compound growth in
case sales of Beringer White Zinfandel of 12.4% per year since calendar year
1991, and has helped drive Meridian Vineyards Chardonnay to the number two
market share position for Chardonnay retailing for over $8 a bottle in U.S.
food stores.
COMMITMENT OF PROFESSIONAL AND EXPERIENCED MANAGEMENT TEAM. The Company
believes its professional management team's depth and experience in both the
wine and branded consumer packaged goods industries will be important in
guiding the Company's growth. Since its acquisition from the Beringer family
in 1971, the Company has been run by a professional management team. The
average tenure of senior management of the Company in the wine industry is 19
years and their average tenure at the Company is 14 years.
Beringer was family-owned until 1971, when it was acquired by a subsidiary
of Nestle. On January 1, 1996, an investment group led by TPG acquired the
Company. The Company's principal executive offices are located at 1000 Pratt
Avenue, St. Helena, California 94574 and its telephone number is (707) 963-
7115.
DIVIDEND POLICY
Since its acquisition from Nestle Holdings, Inc., the Company has not
declared or paid cash dividends on its capital stock and does not anticipate
paying any cash dividends in the foreseeable future. The Company currently
intends to retain its earnings, if any, for the development and expansion of
its business. The Company's credit agreement contains certain provisions
restricting its ability to pay dividends. See "Description of Credit
Agreement".
17
<PAGE>
USE OF PROCEEDS
The proceeds to the Company from the sale of the 4,850,000 shares of Class B
Common Stock offered hereby are estimated to be $98,664,500 ($107,303,900 if
the Underwriters' over-allotment options are exercised in full), assuming an
initial public offering price of $22.00 per share and after deducting
estimated underwriting discounts and offering expenses. The Company currently
intends to use the net proceeds of this offering as follows: (1) approximately
$38.5 million to redeem all outstanding shares of Series A Preferred Stock,
(2) approximately $38.1 million to prepay the Subordinated Notes (including
$3.1 million in prepayment penalties), (3) approximately $16.0 million to
repay a portion of its line of credit and (4) approximately $6.0 million to
repay long-term debt. The Company will use any remaining proceeds of this
offering for working capital and other general corporate purposes. The cost,
timing and amount of funds required by the Company cannot be precisely
determined at this time and will be based upon numerous factors. The Board of
Directors has broad discretion in determining how the proceeds of this
offering will be applied. Pending such uses, the Company intends to invest the
proceeds of this offering in short-term, investment grade interest-bearing
obligations.
CAPITALIZATION
The following table sets forth at June 30, 1997 the capitalization of the
Company and the pro forma capitalization of the Company, as adjusted to give
effect to the sale of the 4,850,000 shares of Class B Common Stock being
offered by the Company at an assumed initial public offering price of $22.00
per share and the application of the estimated net proceeds therefrom as set
forth under "Use of Proceeds".
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
AS REPORTED AS ADJUSTED
----------- -----------
($ MILLIONS)
<S> <C> <C>
Line of credit......................................... $104.0 $ 87.9
Long-term debt......................................... 215.1 175.7
------ ------
Total debt........................................... 319.1 263.6
------ ------
Redeemable preferred stock:
Redeemable Series A Preferred Stock, $.0001 par
value; 4,000,000 shares authorized; 369,640 shares
issued and outstanding; no shares issued and
outstanding as adjusted............................. 34.3 --
------ ------
Common stock and other stockholders' equity:
Class A Common Stock, $.0001 par value;
2,000,000 shares authorized; 1,019,980 shares issued
and outstanding..................................... -- --
Class B Common Stock, $.0001 par value;
40,000,000 shares authorized; 11,716,212 shares
issued and outstanding; 16,847,824 shares issued and
outstanding as adjusted(1).......................... -- --
Notes receivable from stockholders................... (.6) (.6)
Warrants............................................. 1.8 --
Additional paid-in-capital........................... 57.6 153.9
Accumulated deficit.................................. (14.8) (19.5)
------ ------
Total common stock and other stockholders' equity.... 44.0 133.8
------ ------
Total capitalization................................. $397.4 $397.4
====== ======
</TABLE>
- --------
(1) Assumes exercise of all outstanding warrants to purchase shares (431,612)
of Class B Common Stock, and excludes 1,434,426 shares of Class B Common
Stock reserved for issuance upon exercise of stock options outstanding at
June 30, 1997. See "Management--Employee Benefit Plans" and Note 11 of
Notes to Consolidated Financial Statements.
18
<PAGE>
DILUTION
The net tangible book value of the Company as of June 30, 1997 was
$43,995,000, assuming exercise of all outstanding warrants to purchase shares
of Class B Common Stock, or $3.34 per share. "Net tangible book value per
share" represents the amount of total tangible assets less total liabilities
of the Company, divided by the number of shares of Common Stock outstanding.
After giving effect to (1) the sale of the 4,850,000 shares of Class B Common
Stock offered hereby (at an assumed initial public offering price of $22.00
per share and after deduction of estimated underwriting discounts and offering
expenses) and (2) the application of the net proceeds therefrom in the manner
described under "Use of Proceeds", the pro forma net tangible book value of
the Company as of June 30, 1997 would have been $133,775,500, or $7.42 per
share. This represents an immediate increase in net tangible book value of
$4.08 per share to existing stockholders and an immediate dilution in net
tangible book value of $14.58 per share to new investors purchasing shares in
this offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price......................... $22.00
------
Net tangible book value before offering..................... $ 3.34
Increase attributable to new investors...................... 4.08
------
Pro forma net tangible book value after offering.............. 7.42
------
Dilution to new investors..................................... $14.58
======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1997,
the number of shares of Common Stock purchased from the Company, total
consideration paid and the average price paid per share by the existing
stockholders and new investors who purchase Class B Common Stock pursuant to
this offering (based upon an assumed initial public offering price of $22.00
per share and before deduction of estimated underwriting discounts and
offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 13,167,804 73.1% $ 59,443,000 36.0% $ 4.51
New investors............. 4,850,000 26.9 105,842,000 64.0 21.82
---------- ----- ------------ -----
Total................... 18,017,804 100.0% $165,285,000 100.0% $ 9.17
========== ===== ============ =====
</TABLE>
The above computations assume (1) exercise of all outstanding warrants to
purchase shares of Class B Common Stock and (2) no exercise of the
Underwriters' over-allotment options or of any outstanding stock options, but
does not include the shares issued on August 15, 1997 upon exercise of an
outstanding option. As of June 30, 1997, there were outstanding options to
purchase an aggregate of 1,434,426 shares of Class B Common Stock at a
weighted average exercise price of $6.25 per share. To the extent these
options are exercised, purchasers of Class B Common Stock offered hereby will
incur further dilution. See "Description of Capital Stock", "Management--
Employee Benefit Plans--1996 Stock Option Plan" and Note 11 of Notes to
Consolidated Financial Statements.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
($ THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data set forth below should be read in conjunction
with the Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus. The statement of operations data set forth below
for the years ended June 30, 1995 and 1997 and for the six months ended
December 31, 1995 and June 30, 1996 and the balance sheet data at June 30,
1996 and 1997 have been derived from audited financial statements included
elsewhere in this Prospectus, which have been audited by Price Waterhouse LLP.
The statement of operations data for the years ended June 30, 1993 and 1994
and the balance sheet data at June 30, 1993, 1994 and 1995 have been derived
from unaudited financial statements of the Company which, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results of operations of
the Company for the unaudited periods.
The Company was incorporated for the purpose of acquiring Beringer Wine
Estates Company and its wholly owned subsidiaries. The acquisition from Nestle
Holdings, Inc. of all of the outstanding common stock of Beringer Wine Estates
Company by the Company occurred on January 1, 1996. The Company constitutes
the successor company ("New Beringer") and is reflected in the historical
results of operations beginning on January 1, 1996. The historical results of
operations through December 31, 1995 are the results of Beringer Wine Estates
Company and its consolidated subsidiaries ("Old Beringer").
<TABLE>
<CAPTION>
OLD BERINGER NEW BERINGER
------------------------------------------ -------------------
SIX MONTHS SIX MONTHS YEAR
YEAR ENDED JUNE 30, ENDED ENDED ENDED
---------------------------- DECEMBER 31, JUNE 30, JUNE 30,
1993 1994 1995 1995 1996 1997
-------- -------- -------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues.......... $159,176 $180,836 $202,010 $106,867 $124,863 $269,460
Cost of goods sold(1). 79,871 90,004 101,287 54,114 93,626 177,829
Gross profit(2)....... 79,305 90,832 100,723 52,753 31,237 91,631
Operating income
(loss)(3)............ 20,911 25,433 34,805 16,556 (4,783) 12,984
Interest expense...... (7,619) (7,007) (5,730) (2,214) (12,830) (26,401)
Income (loss) before
taxes(4)............. 13,862 18,949 30,122 14,467 (17,358) (12,525)
Net income (loss)(5).. 7,659 10,469 16,753 8,086 (9,365) (5,449)
Preferred dividends
and accretion of
discount............. 2,054 4,920
-------- -------- -------- -------- -------- --------
Net income (loss)
allocable to common
stockholders(5)...... $ 7,659 $ 10,469 $ 16,753 $ 8,086 $(11,419) $(10,369)
======== ======== ======== ======== ======== ========
Loss per share
Primary............. $ (1.04) $ (0.85)
======== ========
Supplemental(6)..... $ (0.26)
========
Weighted average
common shares
outstanding(7)
Primary............. 10,978 12,184
======== ========
Supplemental(6)..... 17,034
========
</TABLE>
<TABLE>
<CAPTION>
OLD BERINGER NEW BERINGER
-------------------------- -----------------
AT JUNE 30, AT JUNE 30,
-------------------------- -----------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................. $ 12,408 $ 7,650 $ 27,955 $209,129 $209,711
Total assets.................... 278,579 286,454 289,922 438,742 467,184
Total long-term debt............ -- -- -- 289,244 319,112
Total long-term obligations..... 256 -- -- 317,581 356,072
Redeemable preferred stock,
common stock and other
stockholders' equity........... 140,411 140,880 158,326 77,484 78,334
</TABLE>
- -------
(1) In accordance with purchase accounting rules applied to the Company's
acquisitions, inventory was increased to fair market value. Due to this
inventory step-up, cost of goods sold increased in the six months ended
June 30, 1996 and the year ended June 30, 1997 by $32,131 and $43,308,
respectively.
(2) Gross profit without the inventory step-up would have been $63,368 and
$134,939 in the six months ended June 30, 1996 and the year ended June 30,
1997, respectively.
(3) If the inventory step-up had not occurred, operating income would have
been $27,348 and $56,292 for the six months ended June 30, 1996 and for
the year ended June 30, 1997, respectively.
(4) If the inventory step-up had not occurred, income (loss) before income
taxes would have been $14,773 and $30,783 for the six months ended June
30, 1996 and for the year ended June 30, 1997, respectively.
(5) If the inventory step-up had not occurred, net income (loss) would have
been $9,593 and $20,086 for the six months ended June 30, 1996 and for the
year ended June 30, 1997, respectively.
(6) Supplemental earnings per share (i) illustrates the effect on earnings per
share of the repurchase of all the outstanding shares of Series A
Preferred Stock ($38,500), repayment of all of the outstanding
Subordinated Notes ($38,150), including a prepayment penalty of $3,150,
and repayment of $16,015 of the line of credit and $6,000 of long-term
debt with the estimated net proceeds from this offering, as if such
transactions occurred at the beginning of the applicable period and (ii)
gives effect to the issuance of the 4,850,000 shares of Class B Common
Stock offered hereby, as if such shares were outstanding at the beginning
of the applicable period. See Note 1 of Notes to Consolidated Financial
Statements.
(7) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the determination of shares used in computing earnings per
share.
20
<PAGE>
SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
The supplemental consolidated financial data set forth below are presented
herein to reflect on a pro forma basis the comparative consolidated financial
data without the inventory step-up included in the audited results for the six
month period ended June 30, 1996 and the year ended June 30, 1997. On January
1, 1996, an investment group led by TPG acquired the Company from Nestle. This
transaction was accounted for as a purchase, resulting in new basis of assets
and liabilities effective January 1, 1996. This information should be read in
conjunction with the Consolidated Financial Statements and notes thereto
included elsewhere in this Prospectus, and "Selected Consolidated Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
($ THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $159,176 $180,836 $202,010 $231,730 $269,460
Cost of goods sold(1)... 79,871 90,004 101,287 115,609 134,521
Gross profit(1)......... 79,305 90,832 100,723 116,121 134,939
Operating income(1)..... 20,911 25,433 34,805 43,904 56,292
Interest expense........ (7,619) (7,007) (5,730) (15,044) (26,401)
Income before taxes(1).. 13,862 18,949 30,122 29,240 30,783
Taxes(2)................ 6,203 8,480 13,369 11,560 10,697
Net income.............. $ 7,659 $ 10,469 $ 16,753 $ 17,680 $ 20,086
======== ======== ======== ======== ========
</TABLE>
- --------
(1) For the years ended June 30, 1996 and 1997, cost of goods sold was reduced
and gross profit, operating income and income before taxes were
effectively increased by $32,131 and $43,308, respectively, as a result of
the inventory step-up.
(2) For the years ended June 30, 1996 and 1997, income taxes have been
computed on net income after adding back the amount of the inventory step-
up.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data", "Supplemental Consolidated Financial
Data" and the Company's Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus. For a discussion of certain
considerations relevant to an investment in the Class B Common Stock, see
"Risk Factors".
OVERVIEW
Beringer Vineyards was founded in 1876. The business remained family owned
until 1971, when it was acquired by a subsidiary of Nestle. On January 1,
1996, an investment group led by TPG acquired the Company from Nestle
Holdings, Inc. (the "Acquisition"). Thereafter, the Company's operations were
expanded with the acquisitions of Chateau St. Jean in April 1996 and Stags'
Leap Winery in February 1997.
The Acquisition and the related accounting treatment have impacted the
Company's financial results in two significant ways. Financial results have
been most significantly impacted by an increase in the cost of goods sold
resulting from the increase of inventory balances to their fair market values
less costs of completion and disposal (the "inventory step-up") in accordance
with purchase accounting rules applied to record the Acquisition. See "--
Effect of Inventory Step-Up". In addition, the Company's earnings have been
negatively affected by significant increases in interest expense related to
the debt incurred to finance the Acquisition. See "--Effect of Leveraged
Acquisition".
EFFECT OF INVENTORY STEP-UP
The Acquisition was recorded using the purchase accounting method. Under
this method, the purchase price is allocated to the assets and liabilities of
the acquired company in the order of their liquidity and based on their
estimated fair market values at the time of the transaction. When the Company
was acquired in January 1996, $101.9 million of the purchase price in excess
of book value was allocated to the Company's inventory on hand at the
transaction date. Subsequent acquisitions have resulted in additional
inventory step-ups. The 1996 purchase of Chateau St. Jean generated
$6.4 million in inventory step-up, while the 1997 acquisition of Stags' Leap
Winery generated $14.6 million in inventory step-up. The Company uses the
"first-in, first-out" ("FIFO") method of inventory accounting. As the
inventory on hand at the transaction dates is sold in the normal course of
business under the FIFO method of accounting, costs of the wine sold are
charged to cost of goods sold, including the amount of the inventory step-up
allocated to the wine sold. As this inventory step-up is charged to cost of
goods sold, it reduces the Company's gross profit and its overall operating
results. The charges to cost of goods sold resulting from the inventory step-
up are non-cash items and are expected to affect the Company's reported
performance at decreasing levels through fiscal year 2000. As the inventory
step-up will affect the Company's reported financial results only in the near
term, the Company's historical results for 1996 and 1997 are not indicative of
the Company's future performance. See "--Results of Operations".
22
<PAGE>
The following table illustrates the actual and projected effects of the
inventory step-up:
INVENTORY STEP-UP
($ MILLIONS)
<TABLE>
<CAPTION>
REMAINING
INVENTORY CHARGE TO IN YEAR-
STEP-UP COST OF END
YEAR ENDED JUNE 30, ADDED GOODS SOLD INVENTORY
------------------- --------- ---------- ---------
<S> <C> <C> <C>
1996....................................... $108.3(1) $32.1 $76.2
1997....................................... 14.6(2) 43.3 47.5
1998(3).................................... -- 27.0 20.5
1999(3).................................... -- 17.0 3.5
2000(3).................................... -- 3.5 0.0
</TABLE>
- --------
(1) Of this amount, $101.9 million was allocated to inventory on hand at the
time of the Acquisition and $6.4 million was allocated to inventory
acquired when the Company purchased Chateau St. Jean.
(2) Step-up attributable to the Company's acquisition of Stags' Leap Winery in
1997.
(3) These Company estimates are based on a number of assumptions, including in
particular projections with respect to the Company's sales of wine. The
Company believes these assumptions are reasonable based on information
presently available. Changes in events and circumstances, however, may
occur, and therefore there can be no assurance that these estimates will
prove to be accurate.
The chart below sets forth the Company's selected statements of operations
data for the fiscal years ended June 30, 1995, 1996 and 1997 with and without
the inventory step-up.
SUMMARY AS REPORTED AND PRO FORMA STATEMENT OF OPERATIONS
($ MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
PRO FORMA
WITHOUT INVENTORY
AS REPORTED STEP-UP
--------------------- -----------------
1995 1996 1997 1996 1997
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues.......................... $202.0 $231.7 $269.4 $ 231.7 $ 269.4
Cost of goods sold (without inventory
step-up)............................. 101.3 115.6 134.5 115.6 134.5
Inventory step-up..................... -- 32.1 43.3 -- --
------ ------ ------ -------- --------
Gross profit.......................... 100.7 84.0 91.6 116.1 134.9
Operating expenses.................... 65.9 72.2 78.6 72.2 78.6
------ ------ ------ -------- --------
Operating income...................... 34.8 11.8 13.0 43.9 56.3
Interest and other.................... 4.7 14.7 25.5 14.7 25.5
------ ------ ------ -------- --------
Income (loss) before income taxes..... 30.1 (2.9) (12.5) 29.2 30.8
Income taxes (benefit)................ 13.3 (1.6) (7.1) 11.6 10.7
------ ------ ------ -------- --------
Net income (loss)..................... 16.8 (1.3) (5.4) 17.6 20.1
Less preferred dividend and accretion
of discount.......................... -- 2.1 4.9 2.1 4.9
------ ------ ------ -------- --------
Net income (loss) allocable to common
stockholders......................... $ 16.8 $ (3.4) $(10.3) $ 15.5 $ 15.2
====== ====== ====== ======== ========
</TABLE>
23
<PAGE>
EFFECT OF LEVERAGED ACQUISITION
In financing the Acquisition, the Company incurred both senior and
subordinated long-term debt and obtained a revolving line of credit that is
classified as long term due to its expiration date of January 2001.
Historically, financing was provided to the Company by Nestle through interest
bearing advances. At December 31, 1995, outstanding advances totaled
$95.8 million. This amount was repaid as part of the acquisition of the
Company from Nestle. At June 30, 1996, $4.0 million of purchase price remained
outstanding and was repaid in August 1996.
Since the Acquisition, the credit arrangements have been restructured and
the new credit facilities have been used, in conjunction with cash from
operations, to finance the Company's operating needs, capital expenditures and
acquisitions. At June 30, 1997, long-term debt outstanding was $215.1 million
and the line of credit balance was $104.0 million, leaving $42.5 million
available under the terms of this line, after taking into consideration an
outstanding letter of credit of $3.5 million. Interest expense (excluding $0.6
million of interest payments capitalized to ongoing development activities)
incurred as a result of these obligations in 1997 was $26.3 million. The
Company intends to use the net proceeds from this offering to (1) retire all
of the outstanding Subordinated Notes (approximately $38.1 million, including
$3.1 million in prepayment penalties), (2) repay a portion of its line of
credit (approximately $16.0 million), (3) repay a portion of its long-term
senior debt (approximately $6.0 million) and (4) redeem all of the Series A
Preferred Stock (approximately $38.5 million). Assuming retirement of such
debt and repurchase of such preferred stock at the expected offering date, the
Company's interest expense will be reduced by approximately $4.0 million in
fiscal 1998 and by approximately $6.3 million for a full year, and preferred
dividends and accretion of discount will be reduced by approximately $2.1
million in fiscal 1998 and by approximately $4.9 million for a full year. See
"Use of Proceeds" and "Liquidity and Capital Resources".
SEASONALITY AND QUARTERLY RESULTS
The Company has experienced and expects to continue to experience seasonal
and quarterly fluctuations in its net revenues. Historically, the Company has
reported its highest net revenues in the second fiscal quarter (October--
December), as sales volumes tend to increase in advance of holiday periods,
and tend to decrease during the summer months. Thus, the Company typically
reports lower earnings in the first quarter, and due to the inventory step-up
expects to report a loss for the first quarter of fiscal 1998.
The following table illustrates the seasonality of the Company's net
revenues for each of the most recent eight fiscal quarters:
QUARTERLY NET REVENUES
($ MILLIONS)
<TABLE>
<CAPTION>
FISCAL 1996 QUARTER ENDED FISCAL 1997 QUARTER ENDED
-------------------------------- --------------------------------
SEPT. 30 DEC. 31 MAR. 31 JUN. 30 SEPT. 30 DEC. 31 MAR. 31 JUN. 30
-------- ------- ------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $42.7 $64.2 $61.5 $63.3 $56.0 $77.1 $67.4 $68.9
Percent of annual net
revenues............... 18.4% 27.7% 26.6% 27.3% 20.8% 28.6% 25.0% 25.6%
</TABLE>
Grower payments and grape and bulk wine purchases result in increases in
seasonal borrowing requirements following each harvest. Most grape contracts
require a partial payment within 30 days of delivery with the balance paid at
later dates as specified in the contract. The Company typically makes
approximately two-thirds of its payments during the second fiscal quarter,
with many final payments due in the third quarter. As a result of harvest
costs and the timing of contract grape and grape and bulk wine purchase
payments, the Company's inventory related cash requirements generally peak
during the second or third fiscal quarter. Cash requirements also fluctuate
depending on the level and timing of capital spending, marketing and
advertising campaigns, and acquisitions.
24
<PAGE>
RESULTS OF OPERATIONS
The following table illustrates selected statement of operations data for
the periods indicated, expressed as a percentage of net revenues:
PERCENTAGE OF NET REVENUES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
PRO FORMA
WITHOUT INVENTORY
AS REPORTED STEP-UP
-------------------- ------------------
1995 1996 1997 1996 1997
----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues........................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold (without inven-
tory step-up)...................... 50.1 49.9 49.9 49.9 49.9
Inventory step-up................... -- 13.9 16.1 -- --
----- ----- ----- -------- --------
Gross profit........................ 49.9 36.2 34.0 50.1 50.1
Operating expenses.................. 32.7 31.1 29.2 31.2 29.2
----- ----- ----- -------- --------
Operating income.................... 17.2 5.1 4.8 18.9 20.9
Interest and other.................. 2.3 6.4 9.4 6.3 9.5
----- ----- ----- -------- --------
Income (loss) before income taxes... 14.9 (1.3) (4.6) 12.6 11.4
Income taxes (benefit).............. 6.6 (0.7) (2.6) 5.0 4.0
----- ----- ----- -------- --------
Net income (loss)................... 8.3% (0.6)% (2.0)% 7.6% 7.4%
===== ===== ===== ======== ========
</TABLE>
THREE YEARS ENDED JUNE 30, 1997
NET REVENUES
The Company's net revenues have been increasing steadily over the past three
years due to volume growth, price increases and product mix improvements, as
well as the acquisitions of Chateau St. Jean and Stags' Leap wineries.
The following table illustrates the Company's net revenues and volumes for
the past three years:
NET REVENUES
($ AND VOLUME MILLIONS, EXCEPT PER CASE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Beringer.................................................. $135.2 $149.7 $160.3
Meridian Vineyards........................................ 18.6 24.7 39.0
All other California brands............................... 44.9 48.8 59.4
Imports................................................... 3.3 8.5 10.7
------ ------ ------
Total..................................................... $202.0 $231.7 $269.4
====== ====== ======
Volume (9L cases-all brands).............................. 4.57 5.00 5.42
Net revenues per case..................................... $44.20 $46.34 $49.70
====== ====== ======
</TABLE>
Net revenues increased 14.7%, from $202.0 million in fiscal 1995 to $231.7
million in fiscal 1996, and increased 16.3% to $269.4 million from fiscal 1996
to fiscal 1997. The Company's case volume grew by 9.2%, from 4.57 million
cases in fiscal 1995 to 5.00 million cases in fiscal 1996, and by 8.5% to 5.42
million cases in fiscal 1997. In addition to this volume growth, prices on
many products within the entire portfolio were increased and the mix of
products sold improved so that the average price per unit increased 5.0%, from
$44.16 in fiscal 1995 to $46.37 in fiscal 1996, and 7.1% to $49.68 in fiscal
1997. While strong consumer demand and reduced supplies have allowed recent
price increases, there can be no assurance that future price increases will be
possible. See "Risk Factors--
25
<PAGE>
Grape Supply". Net revenues generated from "All Other California Brands" in
fiscal 1997 increased by $10.6 million over fiscal 1996 net revenues to $59.4
million. Net revenues from "All Other Brands" for the six months ended June
30, 1996 and the year ended June 30, 1997 include $4.5 million and
$17.6 million, respectively, from Chateau St. Jean which was acquired in April
1996. In addition, growth in net revenues for "All Other California Brands" in
fiscal year 1997 was provided in part by the acquisition of Stags' Leap Winery
in February 1997.
Net revenues are calculated by deducting Federal and California excise taxes
from gross revenues. The excise tax rate is charged on a gallonage basis and
has remained unchanged during these periods. Excise tax has averaged
approximately $2.51 per case for the past three years and is declining as a
percentage of gross revenues as the average selling price increases.
COST OF GOODS SOLD
Cost of goods sold includes the costs of raw materials (grapes and bulk
wine), packaging, winemaking, bottling, freight, warehousing and overhead on
winery facilities and equipment (primarily depreciation and property tax).
Cost of goods sold increased significantly in both 1996 and 1997, increasing
45.9% from $101.3 million in fiscal 1995 to $147.7 million in fiscal 1996 and
20.4% to $177.8 million in fiscal 1997. These increases of $46.5 million and
$30.1 million, respectively, were heavily influenced by the inventory step-up,
which was charged to cost of goods sold for six months in 1996 and a full year
in 1997. Included in the $147.7 million in cost of goods sold for 1996 was
$32.1 million of inventory step-up and included in the $177.8 million for 1997
was $43.3 million of inventory step-up. When inventory step-up is excluded
from the measurement of cost of goods sold, increases in 1996 and 1997 were
$14.3 million and $18.9 million, respectively. These increases in cost of
goods sold of 14.1% and 16.4%, respectively, are due primarily to increases in
volume during 1996 and 1997. Volume increased approximately 9.2% in 1996 and
8.5% in 1997. The remaining increase in cost of goods sold was due to product
mix improvements and higher unit costs.
The increase in cost per case without the inventory step-up (from $22.14 in
1995 to $23.14 in 1996 and to $24.80 in 1997) reflects changes in the mix of
products sold toward higher value and higher cost items and also reflects
increases in the cost of grapes and bulk wine used in the Company's products.
The increase in cost of grapes and bulk wine has resulted from the combined
effect of smaller than normal harvests in 1995 and 1996 as well as increases
in industry-wide demand for grapes. The Company's cost of grapes, measured on
a per ton basis, increased by approximately 20% between the harvests of 1994
and 1996, due in part to the increase in grape costs and in part to a
favorable shift in the Company's product mix. All other components of product
cost have remained relatively constant when measured on a unit basis.
GROSS PROFIT
The Company's gross profit decreased 16.6% from $100.7 million in fiscal
1995 to $84.0 million in fiscal 1996. Gross profit increased 9.1% in 1997 to
$91.6 million. The decrease in 1996 was due to the effect of the $32.1 million
of inventory step-up charged to cost of goods sold for the last six months of
the fiscal year. Although gross profit for fiscal 1997 reflects a full year
impact of $43.3 million of inventory step-up, volume increases and
improvements in unit revenue resulted in an increase in gross profit. Gross
profit as a percent of net revenues decreased from 49.9% in fiscal 1995 to
36.2% in fiscal 1996 and to 34.0% in fiscal 1997. These percentages, when
calculated without the effect of the inventory step-up, remained constant at
approximately 50% in each year.
26
<PAGE>
The following table illustrates the Company's gross profit with and without
the effect of the inventory step-up:
GROSS PROFIT WITH AND WITHOUT INVENTORY STEP-UP
($ AND VOLUME MILLIONS, EXCEPT PER CASE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------
PRO FORMA
WITHOUT INVENTORY
AS REPORTED STEP-UP
---------------------- ------------------
1995 1996 1997 1996 1997
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues........................ $202.0 $231.7 $269.4 $ 231.7 $ 269.4
Cost of goods sold.................. 101.3 115.6 134.5 115.6 134.5
Inventory step-up................... 0.0 32.1 43.3 0.0 0.0
------ ------ ------ -------- --------
Gross profit...................... $100.7 $ 84.0 $ 91.6 $ 116.1 $ 134.9
====== ====== ====== ======== ========
As a percent of net revenues...... 49.9% 36.2% 34.0% 50.1% 50.1%
Volume (9L cases)................... 4.57 5.00 5.42 5.00 5.42
Gross profit per case............. $22.04 $16.80 $16.90 $ 23.22 $ 24.89
====== ====== ====== ======== ========
</TABLE>
Although the Company's gross profit per case has declined since 1995, when
calculated without the effect of the inventory step-up, the Company's gross
profit per case increased by 5.5% from $22.02 in fiscal 1995 to $23.24 in
fiscal 1996 and by 7.1% to $24.88 in fiscal 1997. These increases resulted
from price increases and product mix enhancements that exceeded increases in
product costs (without the impact of the inventory step-up).
OPERATING EXPENSES
Operating expenses consist of sales and marketing overhead, advertising,
merchandising and trade-related expenses, as well as general and
administrative expenses. Operating expenses increased 9.6% from $65.9 million
in fiscal 1995 to $72.2 million in fiscal 1996 and by 8.9% to $78.6 million in
fiscal 1997. These increases are primarily a result of increases in sales and
marketing expenses. The Company has increased its advertising and
merchandising expenses, as it continues to differentiate its products from
those of its competitors and build consumer brand loyalty. While operating
expenses have increased over this three-year period, the ratio of operating
expenses to net revenues has decreased from 32.6% in fiscal 1995 to 31.2% in
fiscal 1996 and to 29.2% in fiscal 1997, primarily due to price increases and,
to a lesser extent, economies of scale.
OPERATING INCOME
Operating income decreased 66.2% from $34.8 million in fiscal 1995 to $11.8
million in fiscal 1996 due primarily to the impact of the inventory step-up
and increased 10.3% to $13.0 million in 1997. Excluding the inventory step-up,
operating income has increased steadily, increasing 26.2% in 1996 to $43.9
million and 28.2% in 1997 to $56.3 million. When measured without the
inventory step-up, operating income has increased both as a percentage of net
revenues and on a per case basis primarily due to price increases and product
mix enhancements. Operating income as a percent of net revenues decreased from
17.2% in fiscal 1995 to 5.1% in fiscal 1996 and to 4.8% in fiscal 1997.
Calculated without the effect of the inventory step-up, operating income as a
percent of net revenues increased from 17.2% in fiscal 1995 to 18.9% in fiscal
1996 and to 20.9% in fiscal 1997. Operating income per case decreased from
$7.61 in fiscal 1995 to $2.36 in fiscal 1996 and to $2.39 in fiscal 1997. When
calculated without the effect of the inventory step-up, operating income per
case increased from $7.61 in fiscal 1995 to $8.79 in fiscal 1996 and to $10.38
in fiscal 1997.
27
<PAGE>
The following table sets forth the Company's operating income and related
data for the past three years:
OPERATING INCOME WITH AND WITHOUT INVENTORY STEP-UP
($ MILLIONS, EXCEPT PER CASE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
PRO FORMA
WITHOUT
INVENTORY
AS REPORTED STEP-UP
-------------------- -------------
1995 1996 1997 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Operating income............................. $34.8 $11.8 $13.0 $43.9 $56.3
As a percent of net revenues................. 17.2% 5.1% 4.8% 18.9% 20.9%
Operating income per case.................... $ 7.61 $ 2.36 $ 2.39 $ 8.79 $10.38
</TABLE>
INTEREST AND OTHER EXPENSE
Interest expense increased significantly in the second half of fiscal 1996
and all of fiscal 1997 as a result of debt incurred in connection with the
Acquisition. Interest expense increased 164.9% to $15.1 million in fiscal 1996
and 74.8% to $26.4 million in fiscal 1997. The Company expects to use a
portion of the proceeds of this offering to reduce debt which will reduce
interest expense accordingly. See "Use of Proceeds". The Company's average
cost of debt was 6.2% in fiscal 1995, 8.1% in fiscal 1996 and 8.6% in fiscal
1997. The Company secured long-term interest rate contracts on most of its
outstanding bank debt in order to fix its interest cost, thereby minimizing
the impact of any adverse interest rate movements.
Other income and expense consists primarily of non-operating income and
expense items. These items have tended to fluctuate from year to year and have
not represented significant components of the income statement when measured
as a percent of net income. Other income and expense as measured on a net
basis amounted to income of $1.0 million in fiscal 1995, $0.4 million in
fiscal 1996 and $0.9 million in fiscal 1997.
INCOME (LOSS) BEFORE INCOME TAXES
The Company reported income before income taxes of $30.1 million in fiscal
1995 and losses before income taxes of $2.9 million in fiscal 1996 and $12.5
million in fiscal 1997. The results for fiscal 1996 and fiscal 1997 were
affected by the inventory step-up charged to cost of goods sold and the
increased interest expense described above. When evaluating income before
income taxes, it is meaningful to view trends without the impact of the
inventory step-up.
The following table illustrates the Company's income before income taxes for
the past three years:
INCOME BEFORE INCOME TAXES WITH AND WITHOUT INVENTORY STEP-UP
($ MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------
PRO FORMA WITHOUT
AS REPORTED INVENTORY STEP-UP
--------------------- ------------------
1995 1996 1997 1996 1997
----- ----- ------ -------- --------
<S> <C> <C> <C> <C> <C>
Income (loss) before income taxes . $30.1 $(2.9) $(12.5) $29.2 $30.8
As a percent of net revenues....... 14.9% (1.3)% (4.6)% 12.6% 11.4%
</TABLE>
When viewed without the effect of the inventory step-up, income before
income taxes varies little over the three-year period and shows decreases as a
percent of net revenues. This result occurs because increases in operating
income (without the effect of the inventory step-up) are offset by increases
in interest expense.
28
<PAGE>
INCOME TAXES (BENEFIT)
The Company records income taxes using the liability method. Accordingly,
the calculation of income taxes includes both a current provision, which
represents the federal and state taxes the Company expects to currently pay,
and a deferred provision or benefit. The deferred provision or benefit
represents the change from period to period in the differences between the tax
and financial reporting bases of the Company's assets and liabilities.
In fiscal 1995 (prior to any purchase accounting) the tax provision was at a
rate of 44.4%. After the Acquisition, the Company reported book losses
primarily due to the absorption of inventory step-up through cost of goods
sold. The rate of tax benefit on these losses resulted from differences
between book and tax bases of inventory and property and the amortization of
tax goodwill, which is not recognized for book purposes. In fiscal years 1996
and 1997, the effective tax benefit rates were (55.8%) and (56.5%),
respectively. Due to the on-going amortization of the tax goodwill (which is
deductible for tax purposes but not reflected in the financial statements),
the Company expects to report an effective income tax rate for 1998 which is
lower than the statutory rate.
NET INCOME
As a result of the inventory step-up and higher interest expense associated
with the Acquisition, the Company generated net losses in fiscal 1996 and
fiscal 1997. When evaluating net income, it is again meaningful to view trends
without the effect of the inventory step-up.
The following table illustrates the Company's net income for the past three
years:
NET INCOME WITH AND WITHOUT INVENTORY STEP-UP
($ MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
PRO FORMA WITHOUT
AS REPORTED INVENTORY STEP-UP
-------------------- ------------------
1995 1996 1997 1996 1997
----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Net income (loss).................... $16.8 $(1.3) $(5.4) $ 17.6 $ 20.1
As a percent of net revenues......... 8.3% (0.6)% (2.0)% 7.6% 7.4%
</TABLE>
When viewed without the effect of the inventory step-up, the Company's
income on an after tax basis shows modest increases over the three year period
ended June 30, 1997. As discussed above, the Company's increases in operating
income (without the effect of the inventory step-up) were offset by increases
in interest expense resulting in minimal changes in income before income taxes
and net income. Since the Acquisition, net income to Common Stock has been
reduced by dividends on the Series A Preferred Stock, which totaled $2.1
million in the year ended June 30, 1996 and $4.9 million in the year ended
June 30, 1997. The Company intends to use a portion of the proceeds of this
offering to redeem all of the outstanding Series A Preferred Stock. See "Use
of Proceeds".
29
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position at June 30, 1995, 1996 and 1997 is
presented below:
WORKING CAPITAL
($ MILLIONS)
<TABLE>
<CAPTION>
AT JUNE 30,
---------------------------------
PRO
FORMA WITHOUT
INVENTORY
STEP-UP
AND TREATMENT
OF THE LINE
OF CREDIT
AS REPORTED AS SHORT TERM
------------------- -------------
1995 1996 1997 1996 1997
----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Working capital............................... $28.0 $209.1 $209.7 $ 22.9 $ 58.2
</TABLE>
The Company's working capital position has been significantly affected by
the inventory step-up and by the change in the terms of its line of credit.
The inventory step-up contributed $76.2 million to inventory balances at June
30, 1996, of which $47.5 million remained in inventory balances at June 30,
1997. Further, the classification of the Company's line of credit as long-term
debt (due to its expiration date of January 2001) results in a substantial
reduction in current liabilities at June 30, 1996 and 1997. Amounts due to
Nestle prior to the Acquisition were current in nature. Line of credit
balances were $86.0 million at June 30, 1996 and $104.0 million at June 30,
1997. In addition, the Company had an outstanding letter of credit of $3.5
million at June 30, 1997.
When reducing current assets for the inventory step-up and increasing
current liabilities by reflecting the line of credit balance as current,
working capital declined in 1996 to $22.9 million and increased in 1997 to
$58.2 million.
This 18.2% decline in pro forma working capital from $28.0 million in 1995
to $22.9 million in 1996 occurred primarily because the line of credit balance
increased by $30.8 million over the short-term obligations outstanding at
June 30, 1995, while inventory balances (excluding the inventory step-up)
increased by only $26.9 million. Pro forma working capital increased by
154.1%, from $22.9 million in fiscal 1996 to $58.2 million in fiscal 1997 as
inventory balances (excluding the inventory step-up) increased $34.8 million
while borrowings under the line of credit decreased by $6.0 million.
During fiscal 1995, 1996 and 1997, the Company's cash from operations was
supplemented by borrowings on its line of credit, additional long-term debt
and issuance of Common and Preferred Stock. Funds obtained from these sources
were used to support acquisitions, capital expenditures and increases in
working capital. During this period, the Company invested $54.8 million in
capital expenditures consisting primarily of property acquisitions, vineyard
development, facility capacity expansion, warehousing and computer systems. In
addition, the Company invested $51.5 million for the acquisitions of the
Chateau St. Jean and Stags' Leap wineries. Further, the Company increased its
investment in working capital (primarily inventory and accounts receivable,
exclusive of amounts associated with the acquisitions) by $32.8 million during
this period.
Management expects the Company's working capital needs to continue to grow
as the business expands. Investment in both inventory and trade receivables
are expected to increase as the business grows. Capital expenditures are
expected to continue to grow in fiscal 1998. Current plans are for aggregate
capital expenditures of approximately $45.0 million in fiscal 1998, of which
the majority will be for vineyard acquisition and development. Although the
Company is not currently in discussions with respect to any acquisitions that
would have a material effect on the Company's operations, the Company intends
to continue to pursue acquisition opportunities both domestically and
internationally. The Company believes investments in capital expenditures and
working capital will, for the foreseeable future, be financed through
operating cash flows and capacity in existing credit facilities.
30
<PAGE>
The net proceeds from this offering will be used to redeem the Series A
Preferred Stock, prepay the Subordinated Notes (including $3.1 million in
prepayment penalties) and reduce its long-term debt. Management believes the
Company's cash requirements will require additional borrowings under the line
of credit over the next several years. The line of credit, which expires in
January 2001, allows for a maximum outstanding balance of $150.0 million. The
outstanding balance at June 30, 1997 was $104.0 million. As of June 30, 1997,
the Company's lenders included a syndicate of institutional lenders which have
provided $181.7 million in secured, long-term debt. Interest and principal on
the debt are payable quarterly, with a final maturity date of July 16, 2005.
31
<PAGE>
BUSINESS
INTRODUCTION
Beringer is a leading producer of premium California varietal table wines,
marketed under the Beringer, Meridian Vineyards, Chateau St. Jean, Napa Ridge,
Chateau Souverain and Stags' Leap brand names. With this portfolio of brands,
the Company has, for the last four years, captured the number one share of
750ml premium wines sold in U.S. food stores for each of the last four years,
and in fiscal 1997 had a 14.3% volume share of this market. The Company is
well positioned across its entire portfolio, with a top five market share for
nine of the eleven largest selling varietals in U.S. food stores. In one key
varietal category, White Zinfandel, Beringer holds a commanding 37.7% dollar
share of these 750ml wines sold in U.S. food stores, while selling at an
approximate 15% price premium over the second leading White Zinfandel brand.
Beringer White Zinfandel also generates the largest dollar sales of any wine
SKU sold in U.S. food stores. Beringer focuses exclusively on the premium wine
market and its wines are widely recognized for their quality. In 1990,
Beringer Private Reserve Cabernet Sauvignon was named "Wine of the Year" by
Wine Spectator magazine. In 1996, Beringer Private Reserve Chardonnay received
the same honor. This same magazine named eight of the Company's wines to its
list of "Top 100" wines of the world in 1996, a record number for a wine
company. In addition in June 1997, Beringer was named "The Best Overall Winery
in America" in a poll of over 11,000 wine consumers by Wine Spectator
magazine.
Beringer's rigorous attention to quality, the strength of its brand
portfolio and its pursuit of strategic acquisitions have enabled the Company
to grow its net revenues at a compound annual rate of 14%, from $159.2 million
in fiscal 1993 to $269.4 million in fiscal 1997. Over the same period, net
income grew at a compound annual rate of 27.1%, from $7.7 million to $20.1
million, excluding purchase accounting adjustments related to the acquisition
of the Company and Chateau St. Jean and Stags' Leap wineries . The Company
attributes its leadership position in the rapidly growing premium wine market
to its (1) high quality wines which compete in every price segment of the
premium wine market, (2) focus on consumer marketing, (3) control over
approximately 48% of its grape requirements (excluding White Zinfandel
requirements) and (4) professional management team with an average of 19 years
of industry experience.
Beringer was founded in 1876 and is the oldest continuously operating winery
in Napa Valley. Through a series of vineyard acquisitions over the last ten
years, management has assembled extensive strategic acreage positions in the
prime growing regions of Napa, Sonoma, Lake, Santa Barbara and San Luis Obispo
Counties. Ownership of these vineyards enables the Company to control a source
of high quality premium wine grapes at an attractive cost. For example, in
1996, the average cost per ton of producing Chardonnay grapes on the Company's
Santa Barbara vineyards was $825, compared to a weighted average price paid
for Santa Barbara Chardonnay grapes of $1,450 and a spot market price that
reached $2,400 in the same year.
Over the past twenty years, there has been a shift in consumer preferences
in the U.S. from generic or "jug" wines to high quality, premium varietal
wines. The Company estimates that shipments of premium 750ml varietal wines
have grown from 3.4% of total case volume of California table wines in 1980 to
over 25% of total case volume in 1996. Because premium wines sell at higher
price points than jug wines, the Company estimates that this 25% volume share
represents approximately $2.2 billion, or 51% of total dollar sales of
California wines sold at wholesale. Over this period, the compound annual
average growth of premium varietal case volume was approximately 15.2% and
annual dollar sales growth was approximately 18.6%. The Company believes that
this major shift in consumer preferences has occurred due to (1) the maturing
"baby-boomer" generation entering its prime wine consumption period, (2) a
growing consumer interest in premium wines in general, (3) a growing interest
in and sophistication about food which lends itself to expanded consumption of
premium wines and (4) the improving quality and reputation of California
premium wines.
32
<PAGE>
Throughout this shift in consumer preferences, Beringer has utilized
sophisticated consumer marketing to build substantial brand loyalty and
significant market share in the rapidly expanding premium wine market. During
the 1990s, this marketing and brand building expertise has helped the Company
expand existing brands and launch new brands. For example, Beringer White
Zinfandel's dollar share has grown from 25.5% of 750ml White Zinfandel sales
in U.S. food stores in 1991 to 37.7% in 1996. In fiscal 1997, Beringer White
Zinfandel's sales in U.S. food stores were 26% greater than the number two
wine SKU. Meridian Vineyards, a brand launched by the Company in 1990, now has
the number two market share for all Chardonnay brands retailing for over $8
per bottle, with growth in case volume of 48% from fiscal 1996 to fiscal 1997.
The Company expects further growth in Meridian Vineyards sales through Merlot
and Cabernet Sauvignon brand extensions, as well as additional growth in
Chardonnay sales.
STRATEGY
Beringer's objective is to strengthen its leadership position in the premium
wine market and thereby increase its revenues and profits. The Company's
strategy for achieving this objective has several key elements.
MANAGEMENT OF A MULTI-BRAND PORTFOLIO. The Company markets a portfolio of
six brands from the major California premium growing areas across all premium
price segments. The Company believes this multi-brand portfolio provides
opportunities for growth at each price point without diluting the value of any
individual brand. Further, the Company believes that this portfolio offers
consumers a choice of familiar and appealing products that are differentiated
by varietal, region and price, while providing distributors with a broad
assortment of brands for their selling efforts. To supplement its domestic
brands and meet the growing U.S. demand for premium wine, the Company has been
working with winemakers in Italy, Chile and southern France to produce high
quality wines which will compete in the rapidly growing $7 to $10 a bottle
market segment.
FOCUS ON HIGH QUALITY ACROSS ALL BRANDS. The Company believes it has
consistently offered consumers high quality wines that are an excellent value
in each price segment of the premium wine market. The Company's team of 14
experienced winemakers produces these wines by using high quality premium wine
grapes and state-of-the-art equipment in each stage of the winemaking process.
The Company's success in producing high quality wines is evidenced by the
acclaim afforded to the Company's entire brand portfolio by a number of the
leading wine writers. For example, in 1996, eight of the Company's wines were
included in Wine Spectator's "Top 100" wines of the world, more than any other
wine company since Wine Spectator began the survey in 1988. Furthermore, in
the September 1996 edition of Food & Wine magazine, Robert Parker, a prominent
wine writer, remarked "[i]f I had to pick the California winery with the
finest record for quality, it would be Beringer Vineyards, which has set the
standard for several great wines."
CONTROL OF PREMIUM GRAPE SUPPLIES AND VINEYARDS. Premium varietal grapes are
the most important determinant of wine quality and represent a significant
component of product cost. The Company produces a larger percentage of its
grape requirements (excluding White Zinfandel requirements) than most of its
competitors, enabling it to (1) control grape quality, (2) control the most
important component of cost and (3) help assure continuity of grape supply.
Beringer either owns or controls through long-term leases approximately 9,400
plantable acres in California's prime wine growing regions of Napa, Sonoma,
Lake, Santa Barbara, and San Luis Obispo Counties. In 1996, the Company
produced approximately 48% of its grape requirements (excluding White
Zinfandel requirements) with grapes grown on its owned or controlled
vineyards. To meet its White Zinfandel requirements, the Company's strategy is
to purchase grapes or bulk wine, primarily through long-term contracts.
33
<PAGE>
PURSUIT OF STRATEGIC ACQUISITIONS. The current consolidation of the
California wine industry is being hastened by the ongoing consolidation of the
industry's distributor network. The Company has taken advantage of this trend
by purchasing the Chateau St. Jean and Stags' Leap wineries in the last two
years. Acquiring attractively positioned wineries allows the Company to
augment its brand portfolio and to achieve operating efficiencies by
integrating sales, marketing and administrative functions of acquired wineries
with those of its existing California wineries, resulting in significant cost
savings. By adding Chateau St. Jean to Beringer's distributor network, the
Company was able to increase case sales of Chateau St. Jean outside of
California by 30% and raise prices in the first full year following its
acquisition. In addition, the Company believes Beringer's professional
management can often improve wine quality and increase the productivity of
acquired wineries, thereby increasing sales and profitability. The Company
intends to make strategic winery acquisitions on a highly selective basis.
EMPHASIS ON CONSUMER MARKETING. The Company utilizes sophisticated marketing
strategies more typically employed by consumer packaged goods companies,
including advertising, product publicity and packaging initiatives in consumer
marketing, as well as extensive trade marketing targeted at distributors and
retail channels. The Company has advertised its Beringer brand on the radio
since 1985 and its Meridian Vineyards brand on television since 1994. The
Company believes this advertising has contributed to the compound growth in
case sales of Beringer White Zinfandel of 12.4% per year since calendar year
1991, and has helped drive Meridian Vineyards Chardonnay to the number two
market share position for 750ml Chardonnay retailing for over $8 a bottle in
U.S. food stores.
COMMITMENT OF PROFESSIONAL AND EXPERIENCED MANAGEMENT TEAM. The Company
believes its professional management team's depth and experience in both the
wine and branded consumer packaged goods industries will be important in
guiding the Company's growth. Since its acquisition from the Beringer family
in 1971, the Company has been run by a professional management team. The
average tenure of senior management of the Company in the wine industry is 19
years and their average tenure at the Company is 14 years.
INDUSTRY BACKGROUND
California produces the vast majority of premium wine produced in the United
States. In recent years, growth in consumption of California table wine has
accelerated significantly. According to Gomberg, Frederikson & Associates, an
industry research and consulting firm ("Gomberg"), since 1980 the case volume
of California premium table wine shipments has increased at a compound annual
rate of approximately 14%, as measured in 9 liter cases. In 1996, California
table wine shipments in the U.S. reached an all-time high of 136 million
cases.
In the United States, wine is generally distributed through a "three-tier"
distribution network. Most wineries sell wine to distributors, who typically
sell dozens to hundreds of individual wine brands, as well as distilled
spirits, beer and non-alcoholic beverages, to retail liquor and food stores
and for consumption "on-premise" in restaurants and hotels. A distributor
generally has the right to sell a brand within a specific geographic area and
typically employs a sales staff which services all classes of retail outlets.
The Company believes that, because large wineries offering a multi-brand
portfolio constitute a large percentage of a distributor's sales and generally
employ a large sales staff, they often receive greater distributor attention.
Wine sales in food stores are allowed in 37 states; the remaining 13 states,
primarily on the eastern seaboard and in the southeast, prohibit wine sales in
food stores. Club stores represent a relatively recent, but rapidly expanding,
addition to the distribution channel. Finally, a significant amount of premium
wine is sold in restaurants and hotels.
Industry data indicating where Americans purchase wine are incomplete. While
retail information compiled by IRI through the use of electronic scanners in
food stores has a high degree of accuracy,
34
<PAGE>
sales through other categories of retail outlets, such as warehouse stores and
club stores, are not systematically reported. The Company believes that U.S.
food stores account for a substantial percentage of total retail wine sales.
Unless otherwise indicated, all market share data herein has been compiled
using IRI data.
U.S. food store 750ml premium wine sales are dominated by four varietal
wines, with the top three accounting for 68% of all premium wine sales by case
volume in 1996. As illustrated in the chart below, Chardonnay is the largest
selling varietal premium wine, representing 30% of U.S. food store case
volume, followed by White Zinfandel with 23% of food store case volume. The
four varietals depicted below have grown from 72% of total case volume of U.S.
food store premium wine sales in 1991 to 77% in 1996 and to 78% in the first
six months of 1997.
[Pie Chart illustrating market shares for
sales in 1996 of following varitals:]
Merlot 9%
Cabernet Sauvignon 15%
Chardonnay 30%
White Zinfandel 23%
All Other 23%
35
<PAGE>
Through June 1997, retail sales trends in U.S. food stores indicate that
Merlot (+17%) and White Zinfandel (+9%) are demonstrating the strongest growth
among the leading domestically produced varietal wines.
[Bar chart of Volume of Key Varietals (750 left axis shows percentage growth
from June 22, 1996 to June 22, 1997 (from -10% to 20%) Right axis shows
varietals: Chardonnay (+2%); White Zinfandel (+9%); Cabernet-Savignon (+2%);
Merlot (+17%); Savignon Blanc (-5%) and All Other (-8%)]
Gomberg reported that sales of imported table wines grew at a compound
annual rate of 17.6% from 1994 to 1996, and in 1996 accounted for 19% of total
U.S. table wine sales. Varietal wines, particularly Cabernet Sauvignon,
Chardonnay, Merlot and Sauvignon Blanc from wine-growing regions which have
not been major suppliers of wine to the U.S. market in the past, such as
Chile, Australia and southern France, represent a substantial part of this
growth. The Company believes that sales of imported varietal wines,
particularly in the $5 to $8 per bottle price range, will continue to grow in
the U.S.
Further, the Company believes that the linkage between red wine consumption
and health, which was first widely reported in the United States in 1991, has
provided a sustained increase in the demand for red wine. See "Risk Factors--
Consumer Perception of Health Issues".
PREMIUM MARKET SEGMENTATION
Gomberg has tiered the premium wine market into three price segments.
POPULAR PREMIUM SEGMENT
Wines retailing for $3 to $7 per 750ml bottle are in the popular premium
segment. The Company estimates that this price segment accounted for 37% of
total U.S. 750ml premium wine case sales in calendar year 1996. Popular
premium wines are made from grapes grown both in California's Central Valley
and coastal vineyards. These wines are generally not aged in oak barrels, or
are aged for a shorter period of time than superpremium and ultrapremium
wines.
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SUPERPREMIUM SEGMENT
Wines retailing for $7 to $14 per 750ml bottle are in the superpremium
segment. Superpremium wines typically are made from grapes grown in the
coastal vineyard areas of California, and are produced using traditional, more
expensive and time-consuming winemaking techniques such as barrel fermentation
and aging. The Company believes that the $8 to $10 per bottle price range is
the largest and fastest growing within the superpremium segment and that the
$10 price point currently represents an important point of price resistance
for many consumers. Chardonnay dominates this price segment, but Cabernet
Sauvignon and Merlot are heavily represented as well. Several of the Company's
products sell in the $8 to $10 per bottle price range and the Company plans to
introduce additional products to take advantage of the growth in this key
segment. Superpremium wines translate flavors and images of the highest
quality wines to more accessible price points. These wines have a major on-
premise presence (restaurant and hotel sales).
ULTRAPREMIUM SEGMENT
Wines retailing for over $14 per 750ml bottle are in the ultrapremium
segment. This segment is characterized by selected imports and wines from
vineyards primarily located in the premium California growing regions of Napa,
Sonoma, Lake, Santa Barbara, San Luis Obispo and Monterey Counties. Red wines,
particularly Cabernet Sauvignon and Merlot, make up a major percentage of
ultrapremium wine sales, while Chardonnay is the dominant white wine in this
price range. These wines are typically consumed in restaurants or at home on
special occasions, and have the highest image among wine-knowledgeable
consumers. Wine press recognition and wine collector interest is most
important to sales of wines in this segment.
As illustrated in the following chart, the Company estimates that total
750ml premium wines sales from all three price segments in 1996 generated
approximately $2.2 billion in winery revenues, which would equal 51% of the
estimated $4.3 billion in total U.S. wine shipments. The Company estimates
that 1996 shipments of 750ml premium wines totaled 34.6 million cases,
representing approximately 25% of total case volume.
1996 CALIFORNIA TABLE WINE SALES AND VOLUME BY SEGMENT(1)
<TABLE>
<CAPTION>
SALES VOLUME
----------------------------------- ------------------------------
COMPOUND
ANNUAL
COMPOUND GROWTH
DOLLARS ANNUAL GROWTH CASES SINCE
(IN MILLIONS) PERCENT SINCE 1980 (IN MILLIONS) PERCENT 1980
------------- ------- ------------- ------------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Popular premium
(750ml)(2)............. $ 800.0 19.0% N/A 18.5 14.0% N/A
Superpremium (750ml).... 990.0 23.0 17.0% 12.7 9.0 14.0%
Ultrapremium (750ml).... 380.0 9.0 25.0 3.4 2.0 25.0
-------- ----- ---- ----- ----- ----
750ml premium
subtotal(2)............ 2,170.0 51.0 18.6 34.6 25.0 15.2
1.5L premium(2)......... 770.0 18.0 N/A 22.9 17.0 N/A
-------- ----- ---- ----- ----- ----
Total premium........... 2,940.0 69.0 18.6 57.5 42.0 15.2
All other............... 1,310.0 31.0 2.2 78.6 58.0 (1.4)
-------- ----- ---- ----- ----- ----
Total................... $4,250.0 100.0% 8.7% 136.1 100.0% 1.7%
======== ===== ==== ===== ===== ====
</TABLE>
- --------
(1) Derived from Gomberg.
(2) The Company has estimated the differential between 1.5L and 750ml popular
premium sales on the basis of IRI data.
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BRAND PORTFOLIO
The Company's portfolio of six California premium wine brands and a
selection of imported premium wine brands compete in all three market
segments.
[Table showing Premium Wine Segments in which Beringer Brands sell. Vertical
column listing brands and horizontal axis listing market segments: popular,
super and ultrapremium.
Beringer - all three market segments
Meridian - superpremium segment
Chateau St. Jean - super and ultrapremium segments
Napa Ridge - popular and superpremium segments
Chateau Souverain - superpremium segment
Stags' Leap - ultrapremium segment
Imported Wines - all three premium segments]
BERINGER VINEYARDS
Beringer Vineyards, founded in 1876 and the oldest continuously operating
winery in Napa Valley, is the Company's flagship brand and enjoys a 10.8%
market volume share of 750ml premium U.S. food store wine sales. Beringer
competes in all three premium wine segments. Beringer's brand reputation is
recognized by premium wine consumers, and Beringer consistently scores at the
highest level in independent consumer surveys on brand awareness and consumer
purchase frequency. In June 1997, a poll of over 11,000 consumers conducted by
Wine Spectator magazine named Beringer "The Best Overall Winery in America".
Furthermore, in the September 1996 edition of Food & Wine magazine, Robert
Parker, a prominent wine writer, remarked "[i]f I had to pick the California
winery with the finest record for quality, it would be Beringer Vineyards,
which has set the standard for several great wines."
POPULAR PREMIUM. Led by Beringer White Zinfandel, with a 37.7% dollar share
in 1996 of U.S. food store sales of 750ml White Zinfandel, Beringer is well
positioned in the popular premium wine segment. White Zinfandel accounted for
23% of all 750ml wines sold in U.S. food stores in 1996. While selling at an
approximate 15% price premium to the second leading White Zinfandel brand,
Beringer White Zinfandel also has the largest dollar sales of any 750ml wine
SKU in U.S. food stores, nearly 26% higher than the next largest selling wine
SKU. In 1991, Beringer White Zinfandel represented a 25.5% dollar share of the
total White Zinfandel food store market and grew to 37.7% in 1996, an annual
growth rate in market share of 8.1%. Beringer is also the food store market
share leader for 750ml sales of Chenin Blanc and Gamay Beaujolais.
SUPERPREMIUM. In the superpremium price segment, Beringer offers a range of
appellation wines from California's Napa Valley, Knights Valley and North
Coast including its Napa Valley Chardonnay and Knights Valley Cabernet
Sauvignon. Both wines have long been recognized as market leaders, with
Beringer Chardonnay representing the largest selling Napa Valley Chardonnay in
U.S. food stores in 1996. These wines are produced primarily from grapes grown
on Company owned and leased vineyards. The Company believes that the $8 to $10
per bottle price range is a particularly attractive and growing market
segment. The Company intends to introduce new products under the Beringer
brand in this price range.
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ULTRAPREMIUM. Beringer has numerous product offerings that compete in the
ultrapremium price segment and which the Company believes are recognized as
among the highest quality wines in the world. In 1990, Beringer Private
Reserve Cabernet Sauvignon was named "Wine of the Year" by Wine Spectator. In
1996, Beringer Private Reserve Chardonnay received the same honor, the only
white wine selected for this award. Wine writers consistently recognize
Beringer Howell Mountain Merlot as one of the finest Merlots produced in
California.
The Company believes its success in the superpremium and ultrapremium
segments is attributable to (1) its over 2,500 acres of high-quality vineyards
in Napa Valley and Knights Valley, (2) its Napa Valley winemaking facilities,
(3) its substantial annual investment in equipment and new, primarily French,
oak barrels, and (4) the 18-year collaboration between its winemaking and
vineyard management teams.
MERIDIAN VINEYARDS
Meridian Vineyards product offerings compete primarily in the superpremium
price segment. The focus of the brand is its award-winning Santa Barbara
Chardonnay, retailing at $8 to $10 per bottle, which the Company believes is
the fastest growing price segment in the superpremium wine market. This wine
is made from grapes grown at the Company's approximately 3,900 acres of
producing vineyards in Santa Barbara and San Luis Obispo Counties and is
supported by an extensive television advertising campaign.
The Company believes that Meridian Vineyards is one of the most successful
superpremium wine brands introduced in the last ten years. It was launched by
the Company in 1990. The Company has grown Chardonnay case sales at a compound
annual rate of 41% from 1990 to 1996. In fiscal 1997, unit sales of Meridian
Chardonnay increased by 48%. In the seven years since its introduction by the
Company, Meridian Vineyards Chardonnay has become the number two selling
Chardonnay in U.S. food stores in the over $8 per bottle price range.
The Company is extending the Meridian Vineyards brand by increasing its
focus on Cabernet Sauvignon and Merlot, California's two leading red
varietals, and believes it has the potential to significantly increase its
sales in these varietals. Meridian Vineyards also offers a "Reserve" style
Chardonnay and Pinot Noir, which compete in the ultrapremium segment and have
received favorable reviews from wine writers.
The Company intends to plant over 2,000 additional acres in Santa Barbara
during the next several years. The Company also plans to expand Meridian
Vineyards' winery, which has been designed to produce large quantities of high
quality, barrel-aged superpremium wines at competitive costs.
CHATEAU ST. JEAN
Competing in the superpremium and ultrapremium price segments, Chateau St.
Jean produces a range of high quality varietal wines from California's Sonoma
County. Founded in 1974, this winery has been a leader in the development of
premium Chardonnay wines from Sonoma County, particularly single-vineyard
designated wines. The Company believes that Chateau St. Jean Robert Young
Vineyard Chardonnay and Belle Terre Vineyard Chardonnay are among the most
recognized and acclaimed single-vineyard wines in California. Chateau St. Jean
has also become known in recent years for Cabernet Sauvignon and Merlot. The
Company intends to expand its production of these wines, while continuing to
focus on Chardonnay as the lead item of this brand.
The Company acquired Chateau St. Jean in 1996 and, since its acquisition,
has fully integrated it with existing operations. The Company has expanded
Chateau St. Jean's oak barrel and other winery
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<PAGE>
investments in an effort to improve the quality and increase the volume of
Chateau St. Jean wines. By adding Chateau St. Jean to Beringer's distributor
network, the Company was able to increase case volume sales of Chateau St.
Jean outside of California by 30% while raising prices in the first full year
following its acquisition.
Chateau St. Jean has long been recognized as one of California's premier
wineries, as most recently demonstrated in the June 1997 consumer poll by Wine
Spectator, in which Chateau St. Jean was named among the top ten wineries in
America and among the top five Chardonnay wineries in California. Five wines
from Chateau St. Jean were included in Wine Spectator's "Top 100" wines of the
world in 1996.
NAPA RIDGE
Napa Ridge was introduced in 1986 as a popular premium brand. The Company
believes that Napa Ridge has become widely recognized as one of the leading
"value" wines in California. In a June 1997 poll of over 11,000 consumers by
Wine Spectator, Napa Ridge was named the number two value winery in America.
The grapes used in Napa Ridge wines come primarily from the coastal regions of
California, and the wines are produced at several of the Company's wineries.
In recent years, the Company's investment in the quality of Napa Ridge
wines, including the extensive use of oak barrel aging, has allowed the
Company to increase prices to the point where much of the brand is selling at
or above $7 per bottle.
CHATEAU SOUVERAIN
Founded in Napa Valley in 1943, Chateau Souverain competes in the
superpremium wine segment, with products retailing primarily in the $10 to $12
per bottle price range. In 1973, the winery was relocated to Sonoma's
Alexander Valley, and in 1986 the Company purchased the winery. The Company
believes the quality and reputation of Chateau Souverain wines have grown
steadily in the last ten years. Chateau Souverain focuses on red wines,
primarily Cabernet Sauvignon, Merlot and Zinfandel, and owns over 300 acres of
estate vineyards in Alexander Valley. In a June 1997 Wine Spectator poll of
over 11,000 consumers, Chateau Souverain was selected as one of the top ten
value wineries in America.
STAGS' LEAP WINERY
Stags' Leap Winery, purchased by the Company in early 1997, is a small,
ultrapremium winery located in the famed Stags Leap District of Napa Valley.
The winery focuses on red wines, with Cabernet Sauvignon, Merlot and Petite
Syrah accounting for 80% of its sales. Its 90 acres of estate vineyards are
the site of the original vineyard planting in the Stags Leap District. A
substantial portion of Stags' Leap Winery's sales is concentrated in
restaurants. The Company intends to increase the production volume of Stags'
Leap Winery wines, while seeking to further enhance their quality and
reputation.
IMPORTED WINES
The Company has marketed imported wine in the United States for over 25
years. The Company's strategy is to provide imported wine brands in the
popular premium and superpremium wine segments from wine-producing regions of
the world with a reputation for quality and value. The Company complements
this primary strategy with a limited number of niche ultrapremium brands,
including Travaglini and Cune, which are marketed to a narrower consumer base.
GABBIANO (ITALY). The Company acquired the exclusive right to distribute
Gabbiano in the United States in 1995. Gabbiano is one of the leading brands
of Italian Chianti in the United States, having
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<PAGE>
recently achieved a number two market share of all 750ml Chianti sold in U.S.
food stores. Gabbiano sales are also heavily focused on the Italian restaurant
market.
CAMPANILE (ITALY). The Company developed and introduced the Campanile brand
of Italian wines in 1996. The brand is focused on Pinot Grigio, Merlot and
Chardonnay sold in the superpremium segment. Campanile sales are concentrated
in restaurants and hotels for on-premise consumption.
TARAPACA (CHILE). The Company acquired the exclusive U.S. marketing rights
to Tarapaca in 1996 and introduced the brand in selected markets late that
year. Tarapaca is a well-known premium brand in Chile with a modern winery and
over 1200 acres of vineyards. Tarapaca produces Cabernet Sauvignon,
Chardonnay, Merlot and Sauvignon Blanc wines, for sale primarily in the
popular premium price segment. The Company has an active program of technical
collaboration with Tarapaca to develop appropriate wine styles for the U.S.
market. To take advantage of the rapidly growing market for Chilean wines, the
Company intends to introduce Tarapaca wines nationally in the second half of
1997.
RIVEFORT OF FRANCE (FRANCE). The Company has developed and owns the
"Rivefort" brand which is produced in southern France and will compete in the
superpremium segment. The Company's California winemakers have collaborated
with French winemakers for over 10 years to develop this brand. The Company
believes the availability and quality of varietal wines in southern France
provides a significant opportunity to market Rivefort of France in the U.S.
for less than $9 per bottle. The Company intends to introduce Rivefort of
France into selected U.S. markets in 1997 and to devote substantial marketing
and winemaking resources to expanding Rivefort of France sales in the future.
MARKETING
The Company believes that its strong marketing programs, which are directed
both to consumers and wholesale and retail trade buyers, have been and will
continue to be critical elements of its long-term success.
CONSUMER MARKETING
The Company's consumer marketing programs are directed by a professional
marketing staff that combines consumer packaged goods marketing, training and
experience with wine industry knowledge. The Company utilizes a brand
management system in which a team is responsible for the marketing of each
brand.
ADVERTISING. Although broadcast advertising has been infrequently used in
the premium wine market, the Company has been advertising Beringer on the
radio since 1985 and Meridian Vineyards on television since 1994. The Company
believes that television advertising has helped to grow Meridian Vineyards to
the number two Chardonnay sold for over $8 a bottle in U.S. food stores only
seven years after its launch by the Company. Case sales of Meridian Chardonnay
have grown at a compound annual rate of 41% from 1990 to 1996. Fiscal 1997
unit sales of Meridan Chardonnay increased by 48% over the prior fiscal year.
The Company intends to substantially expand its broadcast advertising in the
future. The Company also engages in consumer and trade print advertising
designed to efficiently reach the primary target audience for its higher-
priced, ultrapremium wines.
PRODUCT PUBLICITY. Product publicity is a major marketing priority of the
Company. The Company's public relations staff has worked with many prominent
wine writers and wine publications in the U.S. for a number of years. This
staff and the Company's winemakers also travel together extensively throughout
the U.S. to promote the Company's wines.
PACKAGING. The Company believes that unique and attractive packaging is
important to stimulate sales of premium wines, particularly in large retail
food, drug and club store outlets. The Company's
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<PAGE>
packaging seeks to combine traditional elements of wine labeling with unique
designs to differentiate its brands and create strong visual impact.
WINE HOSPITALITY. The Company maintains extensive retail and hospitality
programs at four of its wineries--Beringer, Meridian Vineyards, Chateau St.
Jean and Chateau Souverain. Together, these wineries receive more than 350,000
visitors per year who are given the opportunity to tour the winery and sample
a selection of wines. The Company believes its winery hospitality program is
among the largest in California and is effective in creating brand awareness
and building consumer brand loyalty.
TRADE MARKETING
DISTRIBUTOR SALES MANAGEMENT. Beringer's field sales force of approximately
60 persons supports a network of distributors in the United States. The
Company chooses its distributors on the basis of their: (1) focus on premium
wine; (2) overall market strength; and (3) management skills and financial
strength. United States wine distributors represent many brands of premium
wine, across all price segments. The Company believes that its high sales
volume and multi-brand portfolio make it attractive to the Company's
distributors, as demonstrated by the 14.5 year average time its top 10
distributors have represented the Company's brands. In particular, Beringer
White Zinfandel has the largest dollar sales of any 750ml wine SKU in U.S.
food stores, nearly 26% higher than the next largest selling SKU.
The Company also believes that the strength of its distributor relationships
and past success in marketing its brands enhance the effectiveness of its new
product introductions.
SPECIALIZED SALES MANAGEMENT AND EDUCATION. The Company's sales managers
focus on specialized retail channels. The Company maintains relationships with
many national restaurant, hotel and retail store chains, which control a
substantial amount of premium wine volume in the United States. The Company
also offers extensive food and wine education programs which allow the Company
to build strong, long-term relationships with national retail accounts by
providing innovative training and marketing programs that assist these
accounts in increasing their premium wine sales.
The Company manages its European export program through its wholly owned
subsidiary, Beringer Vineyards (Europe) S.A., headquartered in Switzerland.
The Company expects to increasingly focus sales and marketing resources on
export markets.
GRAPE SUPPLY AND VINEYARD OWNERSHIP
The Company's extensive vineyard holdings enable it to exert a high degree
of control over grape quality, quantity and cost. The Company currently owns,
or controls through long-term leases, 13,659 acres, of which approximately
9,400 are plantable. A total of approximately 6,200 of these plantable acres
are currently producing grapes and the remainder are in development or are
expected to begin development in the next three years. The Company owns or
controls vineyards in California's North Coast in Napa, Sonoma and Lake
Counties, and in California's Central Coast in Santa Barbara and San Luis
Obispo Counties.
In addition to the cost of grapes, two key components of grape supply are
critical for wineries:
. Quality--Grape quality is the most important factor in producing high
quality wine. Vineyard location, soil type, climate, and viticultural
techniques combine to determine grape quality. Winemaking techniques,
modern equipment, and barrel aging can improve wine quality and
consistency, but high quality wine can only be produced from high
quality grapes.
. Quantity--Grape quantity dictates the final quantity of wine produced.
Grapes, like any other agricultural product, are subject to annual
variations in production (i.e., yield per acre). In
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<PAGE>
some years the average yield per acre of a specific vineyard can vary
dramatically below or above the long-term averages. Additionally, grape
quantity cannot be increased quickly to keep pace with rapid increases
in market demand for any particular varietal. The first harvest of
commercial quantities is not expected until the third or fourth year
after planting, with full yields not realized until about the fifth or
sixth year. Accordingly, grape quantity is often a constraint on wine
sales regardless of market demand.
The Company's product sourcing strategy is to: (1) control a significant
portion of its requirements for high quality premium varietal grapes from
owned or leased vineyards; (2) purchase, under long-term agreements, high
quality premium varietal grapes from independent grape growers in the prime
grape growing regions for its super and ultrapremium wines; and (3) purchase
grapes and bulk wine for its White Zinfandel wine under long-term contracts.
The Company believes that ownership and control of vineyards affords it a
competitive cost advantage. For example, in 1996, the average per ton cost of
producing Chardonnay grapes on the Company's Santa Barbara vineyards was $825,
compared to a weighted average price paid for Santa Barbara Chardonnay grapes
of $1,450 and a spot market price that reached $2,400 in the same year.
Approximately 64% of the Company's 1996 supply of Chardonnay and Cabernet
Sauvignon grapes was sourced from owned or controlled vineyards. In accordance
with the Company's strategy of sourcing its White Zinfandel wine through long-
term agreements, only 1.4% of grapes for the Company's White Zinfandel wine
was sourced internally during the 1996 harvest. In order to control the
quality of its purchased wine, the Company's winemakers spend significant time
at the wineries from which bulk wine is purchased.
The Company controls approximately 2,200 acres of property through long-term
leases. While lease terms vary among the properties, the Company leases land
for a period of time long enough to plant or replant a vineyard and realize a
favorable economic return. Generally, these leases have an initial term of 25
to 30 years, with some form of extension or purchase option at the end of the
initial term. Of the total acres leased by the Company, over 80% have 10 or
more years and over 75% have 20 or more years remaining on their terms.
The Company believes its extensive vineyard holdings enhance its ability to
predict and control grape costs and provide the Company with a competitive
advantage. Additionally, the Company believes that by controlling a high
percentage of its needs for premium varietal grapes (particularly Chardonnay
and Cabernet Sauvignon), grape quality, and therefore wine quality, can be
enhanced.
PHYLLOXERA
Phylloxera, a microscopic aphid-like pest that feeds on susceptible grape
rootstocks, has infested many of California's vineyards during the past ten
years. Although phylloxera does not impair the quality of grapes or cause any
known human health risks, it does slowly destroy the rootstock and cause its
yields to gradually decline. Accordingly, the supply of high quality grapes
has been reduced, and the price of grapes has increased dramatically as supply
from the premium growing regions has fallen relative to demand.
The Company began replanting phylloxera-infested vineyards in 1989 with what
it believes to be phylloxera-resistant rootstock. As of June 30, 1997, the
Company had replanted 1,393 acres at a cost of approximately $20.0 million in
Napa, Sonoma, and San Luis Obispo Counties. The Company believes that its
vineyard acreage in Santa Barbara, with its sandy soil composition, has a
reduced likelihood of phylloxera infestation; however, there can be no
assurance that phylloxera will not infest these vineyards. The Company
believes that approximately 1,026 additional vineyard acres have been
affected, and these acres are scheduled to be replanted over the next four
years.
While replanting due to phylloxera has been costly and has presented a grape
supply problem for the Company, there are three favorable effects of the
replanting on the Company: (1) the Company
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<PAGE>
believes that it is further along in this redevelopment process than many of
its major competitors; (2) many of the Company's replanted vineyards had
already reached the end of their economic life (which averages 24 to 30
years); and (3) the Company believes the newly planted vineyards will be more
economically productive than the previous vineyards. Modern viticultural
techniques are employed when replanting, including more dense spacing and new
trellising systems, and the Company expects such techniques to result in
higher yielding vineyards with enhanced grape quality.
WINEMAKING
The Company's winemaking philosophy is to utilize high quality grapes and
equipment to produce excellent quality wine for each brand within the
Company's portfolio. Each of the Company's six domestic brands has a winemaker
dedicated to the production of all wines for that brand. Each of the Company's
wineries has modern equipment that is appropriate for the style and scale of
wines produced. In addition, the Company emphasizes traditional barrel aging
as an integral part of its winemaking process.
The Company's research and development department manages its experimental
winemaking and grape growing programs. The findings and conclusions of this
program offer valuable assistance and insight, which are used by the
winemaking and vineyard management staff. The winemaking, vineyard management
and research and development groups work closely together to achieve the
common goal of producing consistently high quality wines for each brand within
the Company's portfolio.
FACILITIES AND PRODUCTION
The Company's production facilities consist of approximately 852,031 square
feet of space at six wineries located in the Napa Valley, Paso Robles in San
Luis Obispo County and the Alexander and Sonoma Valleys in Sonoma County. Over
the past five years, the Company has invested significant amounts of capital
in these facilities, adding many winery improvements, including new
fermentation and barrel storage capacity and equipment.
The Company's operational strategy for these facilities is to: (1) fully
utilize their capacities with the flexibility of producing six brands through
shared crushing, processing, bottling and storage; and (2) selectively utilize
outside contract capacities (crushing, processing, storage) to capitalize on
growth opportunities while attempting to minimize capital investments. The
Company believes that its complete product line provides production synergies
through the ability to transfer grapes, supplies, wines and oak barrels among
its wineries and to allocate bottling, storage and other production capacity
on a system-wide basis.
The Company will require additional capacity at its winery facilities to
support volume growth in future years. While crushing capacity is somewhat
dependent on the mix of grape varietals being crushed and, most importantly,
the time period over which the grapes arrive to be crushed, the estimated
capacity of these facilities is 60,000 tons. During the 1996 harvest, 49,500
tons were crushed at the Company's wineries, allowing for some growth in grape
crush capacity. The Company has and will continue to increase its crush
capacity as necessary in accordance with the growth of its brands.
Oak barrel storage capacity provides a one year capacity cushion for the
Company. Additional barrel storage capacity must be added as volume increases.
The Company plans to support its additional requirements with owned and leased
storage capacity.
The Company intends to increase stainless steel storage capacity annually to
keep pace with growth of the business. The Company does not have excess
stainless steel capacity and increases in stainless storage have been included
in future years' capital expenditure plans.
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<PAGE>
COMPETITION
The premium table wine industry is intensely competitive and highly
fragmented. The Company's wines compete in all of the premium wine segments
with many other premium wines produced domestically and abroad, with imported
wines coming primarily from France, Italy and Chile. The Company's wines also
compete with popular-priced generic wines and with other alcoholic and, to a
lesser degree, nonalcoholic beverages, for shelf space in retail stores and
for marketing focus by the Company's independent distributors, many of which
carry extensive brand portfolios. The wine industry has also experienced
significant consolidation in recent years and many of the Company's
competitors have significantly greater capital resources than the Company.
GOVERNMENT REGULATION
The wine industry is subject to extensive regulation by the Federal Bureau
of Alcohol, Tobacco and Firearms and various foreign agencies, state liquor
authorities and local authorities. These regulations and laws dictate such
matters as licensing requirements, trade and pricing practices, permitted
distribution channels, permitted and required labeling, advertising and
relations with wholesalers and retailers. Expansion of the Company's existing
facilities and development of new vineyards and wineries may be limited by
present and future zoning ordinances, environmental restrictions and other
legal requirements. In addition, new regulations or requirements or increases
in excise taxes, income taxes, property and sales taxes and international
tariffs, could materially adversely affect the financial results of the
Company. The Company can provide no assurance that there will not be future
legal or regulatory challenges to the industry, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
EMPLOYEES
As of August 1, 1997, the Company had approximately 610 regular full-time
employees. The Company also employs part-time and seasonal workers for
vineyard development, bottling operations, and hospitality functions.
Approximately 90 employees at Beringer Vineyards are covered by a collective
bargaining agreement. Since 1972, there have been no labor stoppages or
strikes and the Company is not aware of any material disputes with its
employees. The Company considers its relations with its employees to be good.
TRADEMARKS
The Company has obtained federal trademark registrations for wine for the
"Beringer", "Meridian Vineyards", "Chateau St. Jean", "Chateau Souverain",
"Stags' Leap" and "Napa Ridge" marks. The Company also has foreign
registrations for wine in those countries to which it exports these brands.
Each of the United States trademark registrations is renewable indefinitely so
long as the Company is making a bona fide usage of the trademark.
LEGAL PROCEEDINGS
The Company is a party to a lawsuit involving environmental contamination at
its Asti winery. However, this contamination occurred prior to the Acquisition
and a subsidiary of Nestle retained full responsibility for the prosecution
and defense of, and any liability resulting from, all claims connected with
this matter.
The Company is not a party to any other material legal proceedings.
45
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Walter T. Klenz(1)...... 52 President, Chief Executive Officer and Chairman
of the Board of Directors
Robert E. Steinhauer.... 56 Senior Vice President-Vineyard Operations
Edward B. Sbragia....... 48 Senior Vice President and Winemaster
Peter F. Scott.......... 44 Senior Vice President, Finance and Operations
and Chief Financial Officer
Janelle E. Thompson..... 48 Vice President, Marketing and Hospitality
Richard G. Carter....... 53 Vice President, Sales
Martin L. Foster........ 51 Vice President, Finance and Treasurer
A. Tor Kenward.......... 49 Vice President, Winery Communications
Thomas W. Peterson...... 45 Vice President-Sonoma Operations and Winemaking
Douglas W. Roberts...... 45 Vice President, General Counsel and Secretary
Richard Adams(2)........ 46 Director
David Bonderman......... 54 Director
Randy Christofferson(2). 40 Director
James G. Coulter(1)(3).. 37 Director
Timm F. Crull(3)........ 66 Director
William A. Franke(3).... 60 Director
E. Michael Moone(1)..... 57 Director
William S. Price III(1). 41 Director
Jesse Rogers(3)......... 40 Director
George A. Vare(1)(2).... 60 Director
</TABLE>
- --------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
WALTER T. KLENZ has been a director of the Company since January 1996 and
became Chairman of the Board in August 1997. Mr. Klenz joined the Company in
1976 as director of marketing for the Beringer brand, and has served as
President and Chief Executive Officer of the Company since 1990. From 1984
until 1990, he served as Senior Vice President Finance/Operations.
ROBERT E. STEINHAUER joined the Company in 1979 and has served as Senior
Vice President- Vineyard Operations since 1989.
EDWARD B. SBRAGIA joined the Company in 1976 and has served as Senior Vice
President and Winemaster since 1989.
PETER F. SCOTT joined the Company in June 1997 as Senior Vice President,
Finance and Operations and Chief Financial Officer. He served as Chief
Financial Officer of Kendall-Jackson Winery, Ltd. from 1990 until joining the
Company.
JANELLE E. THOMPSON joined the Company in 1982 and has served as Vice
President, Marketing and Hospitality since 1987.
RICHARD G. CARTER joined the Company in 1975 and was appointed Vice
President, Sales.
46
<PAGE>
MARTIN L. FOSTER joined the Company in 1992 as Vice President, Finance and
Treasurer. From 1988 to 1992, he was Senior Vice President, Finance and
Administration at Guild Wineries.
A. TOR KENWARD joined the Company in 1977 and has served as Vice President,
Winery Communications since 1986.
THOMAS W. PETERSON joined the Company in 1986 and has served as the
Company's Vice President-Sonoma Operations and Winemaking since 1996.
DOUGLAS W. ROBERTS joined the Company in 1976 and has served as Secretary
since 1990. He was appointed Vice President and General Counsel in 1997.
RICHARD ADAMS joined the Company's Board of Directors in January 1996. Mr.
Adams is managing partner of the law firm Worsham, Forsythe & Wooldridge,
L.L.P. He has been employed by that firm since 1978 and has been managing
partner since 1988.
DAVID BONDERMAN joined the Company's Board of Directors in January 1996. Mr.
Bonderman is a principal of Texas Pacific Group, a partnership he co-founded
in 1992. He currently serves on the Boards of Directors of Continental
Airlines, Inc., Ducati Motorcycles S.P.A., Creditcon Asia, Realty Information
Group, Denbury Resources, Inc., Ryanair, Ltd., Bell & Howell Company, Virgin
Cinemas Limited and Washington Mutual, Inc.
RANDY CHRISTOFFERSON joined the Company's Board of Directors in January
1996. Since 1995 Mr. Christofferson has served as President of First USA Bank,
and from 1990 to 1995 held various positions in the travel and related service
business of American Express. He currently serves on the Boards of Directors
of First USA Bank and First USA Federal Savings Bank.
JAMES G. COULTER joined the Company's Board of Directors in January 1996 and
served as Co-Chairman of the Board from January 1996 to August 1997.
Mr. Coulter is a principal of Texas Pacific Group, a partnership he co-founded
in 1992. Mr. Coulter currently serves on the Boards of Directors of several
companies, including America West Airlines, Inc. ("America West"), Virgin
Cinemas Limited, Genesis Eldercare, Inc. and Paradyne Partners, L.P.
TIMM F. CRULL joined the Company's Board of Directors in January 1996. Mr.
Crull was Chairman of the Board of Nestle USA from 1991 to 1994, and is
currently a member of the Boards of Directors of BankAmerica Corporation,
Hallmark Cards, Dreyer's Grand Ice Cream, Inc. and Smart & Final Inc.
WILLIAM A. FRANKE joined the Company's Board of Directors in January 1996.
Since February 1997, Mr. Franke has been Chairman and Chief Executive Officer
of America West Holdings Corporation and since 1992 has been Chairman of the
Board of its principal subsidiary, America West. He served as America West's
Chief Executive Officer from 1993 to 1997. Mr. Franke is the owner and
president of Franke & Company, Inc., a financial advisory firm, and a managing
partner of Newbridge Latin America, L.P., a private equity investment fund. He
is also a director of Central Newspapers, Inc., publisher of the Phoenix and
Indianapolis morning newspapers, and Phelps Dodge Corporation, a major mining
and manufacturing company. He is Chairman of the Board of Airplanes Limited
and a controlling trustee and Chairman of Airplanes U.S. Trust, entities
involved in aircraft financing and leasing.
E. MICHAEL MOONE joined the Company's Board of Directors in January 1996.
Mr. Moone has been Chairman of Napa Valley Kitchens in St. Helena, California,
Chairman of Luna Vineyards in Napa, California and Chairman and a managing
partner of Silverado Partners since 1995. From 1990 to 1992, Mr. Moone served
as President and Chief Executive Officer of Stouffer Foods Corporation, where
he also served as President of Nestle Frozen Food Company. He is currently a
member of the Board of Directors of Ruiz Mexican Foods, Inc. and Clos du Val
Winery.
47
<PAGE>
WILLIAM S. PRICE III joined the Company's Board of Directors in January 1996
and served as Co-Chairman of the Board from January 1996 to August 1997.
Mr. Price is a principal of Texas Pacific Group, a partnership he co-founded
in 1992. Mr. Price is currently Chairman of the Board of Favorite Brands
International, Inc. and serves on the Boards of Directors of Continental
Airlines, Inc., Continental Micronesia, Belden & Blake Company, Inc., Del
Monte Company, Inc., Denbury Resources, Inc., and Vivra Specialty Partners,
Inc. Mr. Price is also an officer of the general partner of Newbridge
Investment Partners.
JESSE ROGERS joined the Company's Board of Directors in January 1996. Since
1989, Mr. Rogers has been an officer of Bain & Company, Inc., the
international strategic consulting firm, where he currently serves as a
director. He is currently a member of the Board of Directors of Ruiz Food
Products, Inc. and the United Way of the Bay Area.
GEORGE A. VARE joined the Company's Board of Directors in January 1996.
Since 1995, Mr. Vare has been President of Luna Vineyards and a managing
partner of Silverado Partners. From 1991 to 1994, Mr. Vare was President and
Chief Executive Officer of the Henry Wine Group, then the fourth largest
California wine wholesaler.
The Board of Directors currently has eleven (11) directors. All directors
are elected to hold office until the next annual meeting of stockholders and
until their successors have been elected. Officers are elected at the first
Board of Directors meeting following the stockholders' meeting at which the
directors are elected and serve at the discretion of the Board of Directors.
There are no family relationships among any of the directors or executive
officers of the Company.
BOARD COMMITTEES, COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has established an Audit Committee, a Compensation
Committee and an Executive Committee. The Audit Committee reviews the results
and scope of the annual audit and the services provided by the Company's
independent accountants. The Compensation Committee makes recommendations to
the Board of Directors with respect to the Company's general and specific
compensation policies and practices and administers the Company's stock plans.
The Executive Committee manages the Company's business affairs when the full
Board of Directors is not in session.
There were no interlocks or other relationships among the Company's
executive officers and directors that are required to be disclosed under
applicable executive compensations disclosure requirements.
COMPENSATION OF DIRECTORS
Directors of the Company who do not receive compensation as officers or
employees of the Company or its affiliates (a "Non-Employee Director") receive
$2,500 for each Company Board meeting attended. Such amount is payable, at the
option of each Non-Employee Director, in (i) cash, (ii) 50% cash and 50%
shares of Class B Common Stock or (iii) shares of Class B Common Stock (in
each case, any shares of Class B Common Stock awarded are valued at fair
market value at the time of the applicable Board meeting). Additionally,
members of the Executive Committee, Audit Committee and Compensation Committee
receive $1,000 for each committee meeting attended. The Company also
reimburses its directors' expenses incurred for travel to and from meetings
and provides each director ten cases of wine per year. Additionally, pursuant
to the 1996 Stock Plan, directors (other than partners of Silverado Partners
or persons employed by TPG Partners, L.P.) are eligible to receive non-
qualified stock options in consideration for their services as directors,
although to date no such awards have been made. The Company does not pay any
additional compensation to directors who receive compensation as officers or
employees of the Company or its affiliates. In lieu of the aforementioned
compensation, E. Michael Moone receives an annual fee of $25,000 for his
services as a director and as Chairman of the Executive Committee.
48
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid to the Company's Chief
Executive Officer and to the Company's four most highly compensated executive
officers other than the Chief Executive Officer whose total annual salary and
bonus exceeded $100,000, for services rendered in all capacities to the
Company during the fiscal year ended June 30, 1997. No options were granted to
any of these executive officers in the fiscal year ended June 30, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
----------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(2)
--------------------------- -------- -------- ----------------
<S> <C> <C> <C>
Walter T. Klenz(3)........................ $287,500 $255,000 $474,275
President and Chief Executive Officer
Robert E. Steinhauer(4)................... 147,000 92,576 281,187
Senior Vice President, Vineyard
Operations
Edward B. Sbragia......................... 156,666 103,210 258,181
Senior Vice President and Winemaster
Richard G. Carter(5)...................... 160,000 73,319 155,999
Vice President, Sales
Janelle E. Thompson(6).................... 139,000 78,040 128,711
Vice President, Marketing and Hospitality
</TABLE>
- --------
(1) "Other Annual Compensation" column omitted, as such compensation did not
exceed the lesser of $50,000 or 10% of the total of any named executive
officer's salary and bonus.
(2) Of these amounts, with respect to each of the above-named executive
officers, $16,275, $7,187, $8,181, $6,999 and $6,511, respectively,
represent matching contributions made by the Company under its 401(k)
plan. The remainder of these amounts was paid by the former owner of the
Company as a Stay Bonus (the "Bonus") in September 1996, pursuant to an
agreement made with each of these employees in September 1995. These
agreements were made in connection with the Acquisition and required that
these individuals continue their employment with the Company until
September 1996.
(3) Mr. Klenz deferred $249,179 of the Bonus.
(4) Mr. Steinhauer deferred $46,288 of the Bonus.
(5) Mr. Carter deferred $46,902 of the Bonus.
(6) Ms. Thompson deferred $73,901 of the Bonus.
EMPLOYEE BENEFIT PLANS
1996 STOCK OPTION PLAN
The Beringer Wine Estates Holdings, Inc. 1996 Stock Option Plan (the "1996
Option Plan") was adopted by the Board of Directors, effective January 16,
1996. The 1996 Option Plan was amended and restated effective August 25, 1997,
subject to stockholder approval. The 1996 Option Plan provides for options in
the form of incentive stock options ("ISOs") and nonstatutory stock options
("NSOs"). Employees, directors and consultants of the Company are eligible for
the grant of NSOs. Only employees are eligible for the grant of ISOs.
A total of 2,205,604 shares of Class B Common Stock has been reserved for
issuance under the 1996 Option Plan. Any shares that have been reserved but
not issued pursuant to grants during any calendar year shall remain available
for grant during any subsequent calendar year.
49
<PAGE>
The 1996 Option Plan is administered by the Compensation Committee. The
"Compensation Committee" is defined as the full Board of Directors or a
committee designated by the Board of Directors to administer the 1996 Option
Plan. The committee's membership will enable the 1996 Option Plan to qualify
under Rule 16b-3 of the Exchange Act with regard to the grant of options to
persons who are subject to Section 16 of the Exchange Act. The Board of
Directors may amend the 1996 Option Plan as desired without further action by
the Company's stockholders except as required by applicable law. The 1996
Option Plan will continue in effect until terminated by the Board or, with
respect to ISOs, for a term of 10 years from its original adoption date,
whichever is earlier.
The consideration for each option granted under the 1996 Option Plan will be
established by the Compensation Committee, but in no event will the option
price for ISOs be less than 100% of the fair market value of the Class B
Common Stock on the date of grant. NSOs will have such terms and be
exercisable in such manner and at such times as the Compensation Committee may
determine.
The 1996 Option Plan provides that, in the event of a merger or
reorganization of the Company, outstanding options shall be subject to the
agreement of merger or reorganization.
As of August 15, 1997, options to purchase a total of 676,446 shares of
Class B Common Stock have been granted under the 1996 Option Plan. Such
options have per share exercise prices ranging from $5.00 to $30.00, or a
weighted average per share exercise price of $6.61. None of such options have
been exercised.
EMPLOYEE STOCK PURCHASE PLAN
The 1997 Employee Stock Purchase Plan (the "ESPP") was adopted by the Board
of Directors on August 25, 1997, to be effective upon the completion of this
offering. The ESPP provides employees of the Company with an opportunity to
purchase shares of Class B Common Stock at a discount and pay for their
purchases through payroll deductions. All expenses incurred in connection with
the implementation and administration of the ESPP will be paid by the Company.
A pool of 200,000 shares of Class B Common Stock has been reserved for
issuance under the ESPP (subject to anti-dilution provisions). Each regular,
full-time and part-time employee who works an average of over 20 hours per
week will be eligible to participate in the ESPP, provided the employee is
employed as of the first day of the offering period.
Eligible employees may elect to contribute up to 15% of their cash
compensation to purchasing shares under the ESPP. At the end of each three-
month purchase period, the Company will apply the amount contributed by the
participant during that period to purchase shares of Class B Common Stock for
him or her. The purchase price will be equal to 85% of the lower of (a) the
market price of Class B Common Stock immediately before the beginning of the
applicable "offering period" or (b) the market price of Class B Common Stock
on the last business day of the purchase period. In general the offering
period is 12 months. The value of the Class B Common Stock purchased each
calendar year (measured at the beginning of the offering periods) may not
exceed $25,000 per participant. Participants may withdraw their contributions
at any time before the close of the accumulation period.
50
<PAGE>
CERTAIN TRANSACTIONS
In connection with the Company's incorporation in May 1995, the Company
issued an aggregate of 5,000 shares of its common stock for an aggregate
purchase price of $5,000 to certain of its directors and officers. Of the
persons to whom such stock was issued, E. Michael Moone and George A. Vare are
current directors of the Company. In December 1995, in connection with the
Acquisition, such shares were converted into an aggregate of 70,000 shares of
Class A Common Stock and 630,000 shares of Class B Common Stock, having an
estimated aggregate fair market value of $3.5 million.
On January 1, 1996, pursuant to a Stock Purchase Agreement among the
Company, Nestle Holdings and TPG, the Company acquired all of the outstanding
capital stock of Wine World Estates (now Beringer Wine Estates Company) in
exchange for cash of $75.0 million and a secured promissory note in the amount
of $275.0 million (the "Acquisition Note"). In connection with and immediately
prior to consummation of the Acquisition, the Company sold to TPG, for cash
consideration of approximately $45.6 million, 50,000 shares of Series A
Preferred Stock at a price of $89.70 per share, 770,000 shares of Class A
Common Stock at a price of $5.00 per share, and 7,443,824 shares of Class B
Common Stock at a price of $5.00 per share; the Company also issued two
promissory notes payable to TPG in the aggregate amount of $37.4 million (the
"TPG Notes"). In connection with the Acquisition, the Company paid fees to (i)
Silverado Partners of $1.5 million, (ii) Bain & Co., a consulting firm of
which Jesse Rogers, a current director of the Company, is a managing director,
of $1.0 million, and (iii) TPG of approximately $2.58 million.
Also in connection with the Acquisition, certain directors of the Company
affiliated with Silverado Partners received options to purchase an aggregate
of 697,980 shares of Class B Common Stock at an exercise price of $6.00. Of
the persons to whom such options were issued, Messrs. Vare and Moone are
current directors of the Company. See "Description of Capital Stock--Silverado
Options".
On January 16, 1996, the Company repaid the Acquisition Note and the TPG
Notes in full with proceeds from the following transactions: (1) the sale of
168,000 shares of Class A Common Stock at a price of $5.02 per share,
1,614,766 shares of Class B Common Stock at a price of $5.02 per share (with
respect to both Class A Common Stock and Class B Common Stock, the purchase
price was equivalent to $5.00 per share plus an amount equal to interest
thereon at 10% per annum accruing from January 1, 1996 through January 15,
1996), and 250,000 shares of Series A Preferred Stock at a price of $90.31 per
share ($89.70 per share plus an amount equal to dividends thereon accruing
from January 1, 1996 to January 15, 1996); (2) the issuance of Subordinated
Notes in the aggregate principal amount of $35 million, net of a $1.8 million
original issue discount, and the concurrent sale of warrants to purchase an
aggregate of 431,612 shares of Class B Common Stock; and (3) the incurrence of
long-term indebtedness in the amount of $256.0 million under the Company's
credit agreement, dated as of January 16, 1996. See "Description of Credit
Agreement". The stock issued in January 1996 was purchased by executive
officers Klenz, Steinhauer, Sbragia, Kenward, Carter and Thompson, by
directors Vare and Moone, by stockholders TPG and Silverado Partners and by
the holders of the Subordinated Notes. Certain of the executive officers,
including Messrs. Klenz, Sbragia and Kenward, paid 50% of the purchase price
of such shares with a full recourse note bearing interest at the prime rate,
payable at maturity, which is generally ten years from the date of purchase.
In March 1996, in connection with the acquisition of the Chateau St. Jean
winery, the Company sold 945,000 shares of Class B Common Stock to certain of
its existing stockholders, including TPG, Silverado Partners and Messrs. Moone
and Vare at a price of $5.00 per share.
In September 1996, pursuant to the terms of Securities Purchase Agreements
between the Company and each purchaser, the Company sold to certain of its
employees, including all executive officers of the Company, an aggregate of
3,548 shares of Series A Preferred Stock at a price of $89.70 per share,
11,980 shares of Class A Common Stock at a price of $5.00 per share and
224,380 shares of Class B Common Stock at a price of $5.00 per share. The
Company has certain repurchase rights with respect to such shares, which
rights expire upon the closing of this offering.
51
<PAGE>
In February 1997, in connection with the Company's acquisition of the stock
and certain assets of Stags' Leap Winery and certain real estate of The
Newhall Land and Farming Company, the Company sold an aggregate of 833,334
shares of Class B Common Stock at a purchase price of $6.00 per share to
certain of its existing stockholders and employees, including TPG, Silverado
Partners, Messrs. Moone and Vare, and all of the Company's current executive
officers except Mr. Scott.
Purchasers of the Series A Preferred Stock, Class A Common Stock and Class B
Common Stock have included, among others, the following executive officers,
directors and five percent stockholders of the Company:
<TABLE>
<CAPTION>
CLASS A CLASS B SERIES A
COMMON STOCK(1) COMMON STOCK PREFERRED STOCK
--------------- ------------ ---------------
<S> <C> <C> <C>
Entities Affiliated with TPG...... 858,964 9,525,248 176,477
Entities and Persons Affiliated
with Silverado Partners(2)....... 110,956 1,693,994 20,523
David Bonderman(3)................ 858,964 9,525,248 176,477
James G. Coulter(3)............... 858,964 9,525,248 176,477
William S. Price III(3)........... 858,964 9,525,248 176,477
E. Michael Moone(4)............... 96,956 1,385,430 20,523
George A. Vare(5)................. 82,956 1,078,778 20,523
Walter T. Klenz................... 3,980 53,714 1,185
Edward B. Sbragia................. 1,856 28,344 552
Robert E. Steinhauer(6)........... 1,856 28,344 552
Richard G. Carter................. 796 16,198 237
Janelle E. Thompson............... 796 16,198 237
A. Tor Kenward.................... 796 16,198 237
Thomas W. Peterson................ 630 13,622 187
Martin L. Foster.................. 630 13,698 187
Douglas W. Roberts................ 316 8,520 93
</TABLE>
- --------
(1) Shares of Class A Common Stock are convertible at any time at the option
of the holder into shares of Class B Common Stock on a 1-for-1 basis.
(2) Includes shares purchased by Silverado Partners, Messrs. Moone and Vare,
the Moone Family Partnership, Vare Family Partners and Silverado Equity
Partners, L.P. Also includes shares issuable to Messrs. Moone and Vare
upon exercise of the Silverado Options.
(3) Includes shares purchased by TPG Partners, L.P., TPG Parallel I, L.P.,
Wine World Equity Partners, L.P. and TPG GenPar, L.P. Messrs. Coulter,
Price and Bonderman, directors of the Company, are directors, executive
officers and stockholders of TPG Advisors, Inc., the general partner of
TPG GenPar, L.P., which is in turn the general partner of each of TPG
Partners, L.P. and TPG Parallel I, L.P. TPG Partners, L.P. is the general
partner of Wine World Equity Partners, L.P.
(4) Includes shares purchased by the Moone Family Partnership and Silverado
Partners and shares issuable upon exercise of the Silverado Options.
(5) Includes shares purchased by Vare Family Partners, LP and Silverado
Partners and shares issuable upon exercise of the Silverado Options.
(6) Includes shares purchased by the Robert E. Steinhauer and Verna Steinhauer
1992 Trust.
The Company has granted the investors listed above certain registration
rights with respect to the shares of Class B Common Stock issued or issuable
upon conversion of their Class A Common Stock
52
<PAGE>
or exercise of the Silverado Options. See "Shares Eligible for Future Sale"
and "Description of Capital Stock--Registration Rights".
In December 1990, the Company entered into a warehouse lease agreement with
a partnership in which Messrs. Klenz and Moone hold interests. In the years
ended June 30, 1995, 1996 and 1997, the Company recorded rent expense under
such lease of $768,000, $768,000 and $948,000, respectively. Minimum rental
payments to be paid for the fiscal year ending June 30, 1998 are expected to
be $948,000.
In both April 1996 and February 1997, the Company paid Silverado Partners
certain consulting fees of $500,000 in connection with the Company's purchase
of the Chateau St. Jean and Stags' Leap wineries. TPG was also paid consulting
fees totaling $500,000 in connection with the Company's acquisition of Chateau
St. Jean Winery.
In May 1997, the Company entered into a relationship with Napa Valley
Kitchens to distribute certain of its gourmet food products. Mr. Moone is
Chairman of the Board of Directors of Napa Valley Kitchens.
The Company has entered into indemnification agreements with each of its
directors and executive officers. The agreements require the Company to
indemnify such individuals for certain liabilities to which they may be
subject as a result of their affiliation with the Company, to the fullest
extent permitted by Delaware law.
The Company believes that the foregoing transactions were in its best
interests. As a matter of policy these transactions were, and all future
transactions between the Company and its officers, directors or principal
stockholders will be, approved by a majority of the independent and
disinterested members of the Board of Directors, on terms no less favorable to
the Company than could be obtained from unaffiliated third parties and in
connection with bona fide business purposes of the Company.
53
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Class A and Class B Common Stock as of August 15,
1997, and as adjusted to reflect the sale by the Company of the shares of
Class B Common Stock offered hereby, by: (1) each person who is known by the
Company to beneficially own more than 5% of the Company's Class A and Class B
Common Stock, (2) each of the Company's directors, (3) each of the Company's
officers named under "Management--Summary Compensation Table" and (4) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING(2)
--------------------------------- ---------------------------------
NUMBER OF NUMBER OF PERCENT OF NUMBER OF NUMBER OF PERCENT OF
CLASS A CLASS B TOTAL VOTING CLASS A CLASS B TOTAL VOTING
BENEFICIAL OWNERS SHARES SHARES POWER(1) SHARES SHARES POWER
- ----------------- --------- ---------- ------------ --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Entities Affiliated with
Texas Pacific Group(3). 1,190,946 8,337,738 76.8% 1,190,946 8,686,565 68.9%
201 Main Street
24th Floor
Fort Worth, TX 76102
Entities Affiliated with
Silverado Partners(4).. 166,434 1,638,516 11.7% 166,434 1,679,082 10.5%
1776 2nd Street
Napa, CA 94559
James G. Coulter(5)..... 1,190,946 8,337,738 76.8% 1,190,946 8,686,565 68.9%
William S. Price III(5). 1,190,946 8,337,738 76.8% 1,190,946 8,686,565 68.9%
David Bonderman(5)...... 1,190,946 8,337,738 76.8% 1,190,946 8,686,565 68.9%
E. Michael Moone(6)..... 145,434 1,336,952 10.1% 145,434 1,377,518 9.0%
George A. Vare(7)....... 124,434 1,037,300 8.4% 124,434 1,077,866 7.5%
Walter T. Klenz......... 5,970 51,724 * 5,970 54,066 *
Richard Adams........... -- 1,916 * -- 1,916 *
Randy Christofferson.... -- 1,916 * -- 1,916 *
William A. Franke....... -- 1,916 * -- 1,916 *
Timm F. Crull........... -- 1,416 * -- 1,416 *
Jesse Rogers............ -- 1,416 * -- 1,416 *
Edward B. Sbragia....... 2,784 27,416 * 2,784 28,507 *
Robert Steinhauer(8).... 2,784 27,416 * 2,784 28,507 *
Richard G. Carter....... 1,194 15,800 * 1,194 16,269 *
Janelle E. Thompson..... 1,194 15,800 * 1,194 16,269 *
All Directors and
Executive Officers
as a group
(20 persons)(9)....... 1,374,864 10,173,842 89.1% 1,374,864 10,570,090 80.0%
</TABLE>
- --------
* Less than 1% of the outstanding shares of Common Stock.
(1) In calculating the percent of total voting power, the voting power of
shares of Class A Common Stock (twenty votes per share) and Class B Common
Stock (one vote per share) has been aggregated.
(2) Assumes that each holder of Series A Preferred Stock purchases the full
pro rata share allocated to such holder of the 600,000 shares of Class B
Common Stock offered hereby directly by the Company.
54
<PAGE>
(3) Includes 961,662 shares of Class A Common Stock and 6,712,300 shares of
Class B Common Stock held by TPG Partners, L.P.; 95,838 shares of Class A
Common Stock and 668,948 shares of Class B Common Stock held by TPG
Parallel I L.P.; 133,446 shares of Class A Common Stock and 949,240 shares
of Class B Common Stock held by Wine World Equity Partners, L.P.; and
7,248 shares of Class B Common Stock held by TPG GenPar, L.P. (TPG
Partners, L.P., TPG Parallel I, L.P. Wine World Equity Partners, L.P. and
TPG GenPar, L.P. are referred to collectively herein as the "TPG
Affiliates"). TPG Advisors, Inc. is the general partner of TPG GenPar,
L.P., which in turn is the general partner of each of TPG Partners, L.P.
and TPG Parallel I L.P. TPG Partners, L.P. is the general partner of Wine
World Equity Partners, L.P.
(4) Includes 103,434 Shares of Class A Common Stock and 735,736 Class B Common
Stock held by Silverado Equity Partners L.P. ("Silverado Partners"),
42,000 shares of Class A Common Stock and 322,024 shares of Class B Common
Stock held by E. Michael Moone, 21,000 shares of Class A Common Stock and
an aggregate of 161,798 shares of Class B Common Stock held by George A.
Vare and Vare Family Partners, LP. Also includes 418,788 shares subject to
exercisable options held by Messrs. Moone and Vare.
(5) Includes 1,190,946 shares of Class A Common Stock and 8,337,738 shares of
Class B Common Stock held by the TPG Affiliates. Messrs. Bonderman,
Coulter, and Price, directors of the Company, are each directors,
executive officers and shareholders of TPG Advisors, Inc., and hence may
be deemed to share voting and investment power with respect to the shares
held by the TPG Affiliates. Each of Messrs. Bonderman, Coulter and Price
disclaim their beneficial ownership of shares held by the TPG Affiliates
except to the extent of their proportionate interest in such entities.
(6) Includes 103,434 shares of Class A Common Stock and 735,736 shares of
Class B Common Stock held by Silverado Partners. Mr. Moone, a director of
the Company, is a Managing Partner of Silverado Partners, and as such, may
be deemed to share voting and investment power with respect to such
shares. Mr. Moone disclaims beneficial ownership except to the extent of
his proportionate interest therein. Also includes 17,102 shares of Class B
Common Stock held by the Moone Family Partnership, L.P., as to which Mr.
Moone has shared voting and investment power, and 279,192 shares of Class
B Common Stock subject to an exercisable option.
(7) Includes 103,434 shares of Class A Common Stock and 735,736 shares of
Class B Common Stock held by Silverado Partners. Mr. Vare, a director of
the Company, is a Managing Partner of Silverado Partners, and as such, may
be deemed to share voting and investment power with respect to such
shares. Mr. Vare disclaims beneficial ownership except to the extent of
his proportionate interest therein. Also includes 8,552 shares of Class B
Common Stock held by Vare Family Partners, LP as to which Mr. Vare has
shared voting and investment power, and 139,596 shares of Class B Common
Stock subject to an exercisable option.
(8) Includes 2,784 shares of Class A Common Stock and 27,416 shares of Class B
Common Stock held by the Robert E. Steinhauer and Verna Steinhauer 1992
Trust as to which Mr. Steinhauer has shared voting and investment power.
(9) Includes shares held by the TPG Affiliates and Silverado Partners which
are affiliated with certain directors.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company, will consist of 4,000,000 shares of Class A Common Stock, par value
$0.0001 per share, 40,000,000 shares of Class B Common Stock, $0.0001 par
value, and 5,000,000 shares of undesignated Preferred Stock, par value $0.0001
per share. Of the 30,000,000 shares of Class B Common Stock authorized,
1,019,980 have been reserved for issuance upon conversion of outstanding Class
A Common Stock, 2,605,604 have been reserved for issuance pursuant to the
Company's stock plans, and 4,850,000 are being offered hereby.
COMMON STOCK
The Company's Common Stock consists of Class A Common Stock and Class B
Common Stock. As of August 15, 1997, there were 1,529,970 shares of Class A
Common Stock outstanding held by approximately 50 stockholders of record and
11,266,222 shares of Class B Common Stock outstanding held by approximately 50
stockholders of record.
Each share of Class A Common Stock is entitled to twenty votes and each
share of Class B Common Stock is entitled to one vote on all matters submitted
to a vote of the stockholders of the Company. Generally, all matters to be
voted upon by stockholders must be approved by a majority of the votes
entitled to be cast by all shares of Class A Common Stock and Class B Common
Stock, voting together as a single class. Subject to preferences that may be
applicable to any then outstanding Preferred Stock, holders of Class A Common
Stock and Class B Common Stock are entitled to receive ratably such dividends,
if any, as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy". Dividends payable in shares of
Common Stock or in options or similar rights to acquire shares of Common Stock
or in securities convertible into or exchangeable for shares of Common Stock
may be paid only in shares of or in options or similar rights to the Company's
Class B Common Stock. In the event of a liquidation, dissolution or winding up
of the Company, holders of the Common Stock are entitled to share ratably in
all assets remaining after payment of liabilities and the liquidation
preference of any then outstanding Preferred Stock or any class or series of
stock ranking prior to the Class A Common Stock and Class B Common Stock.
There are no redemption or sinking fund provisions applicable to the shares of
Common Stock.
The Class A Common Stock is convertible at any time at the option of the
holder, on a one-for-one basis, into shares of Class B Common Stock.
Additionally, the Class A Common Stock is automatically convertible into
shares of Class B Common Stock, on a one-for-one basis, with the approval of a
majority of the shares of Class A Common Stock, upon the closing of this
offering. The Common Stock has no preemptive or other subscription rights and
there are no redemption or sinking fund provisions applicable to the Common
Stock. All outstanding shares of Common Stock are, and the Common Stock to be
outstanding upon completion of this offering will be, fully paid and
nonassessable.
PREFERRED STOCK
Upon the closing of this offering, the Company expects to redeem all
outstanding shares of its Series A Preferred Stock. See Note 9 of Notes to
Consolidated Financial Statements for a description of the currently
outstanding Preferred Stock. Following this offering, the Company's
Certificate of Incorporation will be restated to delete all references to the
Series A Preferred Stock and 5,000,000 shares of undesignated Preferred Stock
will be authorized. The Board of Directors will have the authority, without
further action by the stockholders, to issue from time to time the Preferred
Stock in one or more series and to fix the number of shares, designations,
preferences, powers, and relative, participating, optional or other special
rights and the qualifications or restrictions thereof. The
56
<PAGE>
preferences, powers, rights and restrictions of different series of Preferred
Stock may differ with respect to dividend rates, amounts payable on
liquidation, voting rights, conversion rights, redemption provisions, sinking
fund provisions and other matters. The issuance of Preferred Stock could
decrease the amount of earnings and assets available for distribution to
holders of Common Stock or affect adversely the rights and powers, including
voting rights, of the holders of Common Stock, and may have the effect of
delaying, deferring or preventing a change in control of the Company. The
Company has no present plan to issue any shares of Preferred Stock.
SILVERADO OPTIONS
In January 1996, in connection with the Acquisition, the Company issued
options to certain members of its Board of Directors affiliated with Silverado
Partners (the "Silverado Options") for the purchase of an aggregate of 697,980
shares of Class B Common Stock, at an exercise price of $6.00 per share. The
Silverado Options are exercisable at any time prior to January 16, 2006, but
only during the one-month period from December 15 of each calendar year to
January 15 of the next calendar year; provided, however, that the Silverado
Options will become exercisable at any time subsequent to the closing of this
offering. As of July 31, 1997, none of the Silverado Options had been
exercised. Under the terms of the Amended and Restated Stockholders' Rights
Agreement and Voting Agreement dated as of June 7, 1996 (the "Stockholders'
Agreement"), holders of the Silverado Options are entitled to certain
registration rights with respect to the shares issuable upon exercise of the
Silverado Options. See "--Registration Rights".
REGISTRATION RIGHTS
Pursuant to the Stockholders' Agreement, the holders of approximately 14.0
million shares of Class B Common Stock, including shares of Class B Common
Stock issuable upon conversion of Class A Common Stock or the exercise of
options, including the Silverado Options (collectively, the "Registrable
Shares"), are entitled to certain rights with respect to the registration of
such shares under the Securities Act. If the Company proposes to register any
of its securities under the Securities Act, either for its own account or for
the account of other security holders, holders of the Registrable Shares are
entitled to notice of such registration and are entitled to include, at the
Company's expense, such shares therein, provided among other conditions, that
the underwriters have the right to limit the number of Registrable Shares
included in such registration. Additionally, commencing 180 days after the
closing of this offering, and subject to certain conditions and limitations,
Silverado Partners and certain affiliates (the "Silverado Entities") and TPG
have the right to require the Company to file a registration statement under
the Securities Act to register all or any part of their Registrable Shares
(provided that with respect to such a request made by one of the Silverado
Entities there shall be no more than one such registration statement in any
one year). New York Life Insurance Company and certain entities affiliated
with Crescent/Mach I Partners, L.P. are entitled to similar demand
registration rights which take effect immediately upon the consummation of
this offering. Further, the holders of Registrable Shares may require the
Company to register all or any portion of their Registrable Shares on Form S-
3, when such form becomes available to the Company, subject to certain
conditions and limitations.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Delaware Law"), an anti-takeover law. In general,
the statute prohibits a publicly held Delaware corporation from engaging in a
business combination with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved by the
Board of Directors and the holders of at least
57
<PAGE>
66 2/3% of the outstanding voting stock of the corporation (excluding shares
held by the interested stockholder). A "business combination" includes a
merger, asset sale or other transaction resulting in financial benefit to the
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within the three prior years, did own) 15%
or more of the corporation's voting stock. This statutory prohibition does not
apply if, upon consummation of the transaction in which any person becomes an
interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock of the corporation (excluding shares held by persons
who are both directors and officers or by certain stock option plans).
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Certificate of Incorporation that
limit the liability of its directors for monetary damages for breach of their
fiduciary duty as directors, except for liability that cannot be eliminated
under Delaware Law. Delaware Law provides that directors of a company will not
be personally liable for monetary damages for breach of their fiduciary duty
as directors, except for liability (1) any breach of their duty of loyalty to
the Company or its stockholders, (2) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3)
unlawful payment of dividend or unlawful stock repurchase or redemption, as
provided in Section 174 of the Delaware Law, or (4) any transaction from which
the director derived an improper personal benefit.
The Company's Bylaws also provide that the Company shall indemnify its
directors and officers to the fullest extent permitted by Delaware Law. The
Company has entered into separate indemnification agreements with its
directors and officers that could require the Company, among other things, to
indemnify them against certain liabilities that may arise by reason of their
status or service as directors and to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified.
The Company believes that the limitation of liability provision in its
Certificate of Incorporation and these indemnification agreements will
facilitate the Company's ability to continue to attract and retain qualified
individuals to serve as directors and officers of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class B Common Stock is BankBoston,
N.A.
LISTING
Application has been made for the quotation of the Class B Common Stock on
the Nasdaq National Market under the symbol "BERW". The Company has not
applied to list its Common Stock on any other exchange or quotation system.
58
<PAGE>
DESCRIPTION OF CREDIT AGREEMENT
The following is a summary of certain provisions of the Company's Second
Amended and Restated Credit Agreement, dated as of February 28, 1997, by and
among the Company, Pacific Coast Farm Credit Services, ACA ("PCFC") other
banks and lenders party thereto (collectively, the "Lenders") and PCFC, as
agent on behalf of the Lenders (the "Credit Agreement"). Such summary does not
purport to be complete and is qualified in its entirety by all of the
provisions of such agreements, which was filed as an exhibit to the
Registration Statement of which this Prospectus forms a part.
The Credit Agreement provides for a senior secured credit facility
consisting of (1) a term loan of $182.5 million (the "Term Loan") divided into
tranches of $20 million ("Term Loan Tranche A") and $162.5 million ("Term Loan
Tranche B"), and (2) a revolving credit facility (the "Revolving Facility") of
up to $150 million, which includes a $10 million letter of credit subfacility.
Interest on outstanding Term Loan indebtedness accrues at a fixed rate
determined by reference to the particular Term Loan tranche and the interest
period selected by the Company. The Company is obligated to make payments of
principal and interest on such indebtedness on a quarterly basis. Principal
and interest on indebtedness currently outstanding under the Term Loan is
payable as follows: (1) with respect to $20 million of indebtedness
outstanding under Term Loan Tranche A, interest and principal are payable
quarterly, commencing on April 1, 1999, in an amount approximating the equal
amortization of such principal and interest based on the Fixed Rate Average in
effect on January 16, 1999 and amortized over a period of 17.5 years from
January 16, 1999; and (2) with respect to $162 million of indebtedness
outstanding under Term Loan Tranche B, interest and principal are payable
quarterly, commencing on April 1, 1997, in accordance with principal amounts
set forth in a schedule to the Credit Agreement amortized over a period of
19.5 years from January 16, 1997.
Outstanding indebtedness under the Revolving Facility bears interest at a
variable rate equal to the sum of (1) the higher of the prime rate or the rate
announced by the equal amortization of Bank of America NT & SA from time to
time as its reference rate and (2) a margin of 0.75% per annum, subject to
reduction in the event the Company attains certain funded debt/EBITDA ratios.
The Company may, at its option, elect to pay interest on all or any portion of
outstanding indebtedness under the Revolving Facility at a fixed interest rate
in accordance with procedures set forth in the Credit Agreement.
The Credit Agreement further provides for mandatory prepayment of certain
outstanding amounts in the event the Company sells real estate and certain
other fixed assets, incurs additional indebtedness other than purchase money
indebtedness, issues additional stock or makes a payment on account of the
principal portion of any subordinated debt.
The obligations of the Company under the Credit Agreement are secured by
substantially all of the assets of the Company, including cash, accounts
receivable, equipment, intellectual property and real property, as well as the
stock of certain of the Company's subsidiaries.
The Credit Agreement sets forth certain financial tests which the Company is
obligated to satisfy on a consolidated basis. These tests include a funded
debt/EBITDA ratio, a leverage ratio, a current ratio, a minimum net worth and
a debt coverage ratio. The Credit Agreement also contains a number of
affirmative and negative covenants relating to such matters as maintenance of
corporate existence and conduct of business, maintenance of insurance,
performance of agreements, incurrence of additional indebtedness, maintenance
of equipment and fixtures, the granting or existence of certain liens, sale of
assets, purchase of real estate, payment in respect of subordinated debt and
termination of real property leases.
59
<PAGE>
The financial and other covenants in the Credit Agreement may prevent the
Company from carrying out a transaction or taking other action otherwise
determined by the Board of Directors to be in the best interests of the
Company. For example, the covenant regarding limitations on incurrence of
indebtedness may preclude the Company from making an acquisition (whether by
merger or some other form). See "Risk Factors--Capital Requirements and
Leverage".
The Credit Agreement also contains a number of Events of Default, including
without limitation the following: failure to pay interest, principal or
expenses under the Credit Agreement and related documents when due and
payable; breach of the covenants, representations, warranties and other
provisions of the Credit Agreement and related documents; the institution of
certain voluntary or involuntary insolvency actions by or against the Company;
the acquisition by Beringer Wine Estates Holding, Inc. of any assets other
than the stock of Beringer Wine Estates; the Company's failure to obtain a
stay or discharge of an uninsured judgment against it in excess of $50,000;
the occurrence of an event of default under, or the termination of, any
guaranty relating to the Company's obligations under the Credit Agreement; the
Company's failure to make payment under any agreement to which it is a party
involving indebtedness in excess of $1,000,000; certain events relating to
ERISA involving a liability in certain cases exceeding $50,000 or liabilities
exceeding in the aggregate $100,000; and payment of principal with respect to
the Company's subordinated debt. Upon the occurrence of an Event of Default,
the Lenders have the right, in addition to other available remedies, to
terminate the Term Loan and the Revolving Facility, to declare all
indebtedness immediately due and payable, and to thereafter pursue applicable
remedies against any and all collateral securing payment of such indebtedness.
The maturity date under the Revolving Facility is January 16, 2001 and the
maturity date of the Term Loan is July 16, 2005.
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for the Class B
Common Stock, and no predictions can be made regarding the effect, if any,
that sales of shares or the availability of shares for sale will have on the
market price prevailing from time to time. As described below, only a limited
number of shares will be available for sale shortly after this offering due to
certain contractual and legal restrictions on resale. Nevertheless, sales of
substantial amounts of Class B Common Stock in the public market after these
restrictions lapse could adversely affect the prevailing market price.
Upon completion of this offering, the Company will have outstanding
1,529,970 shares of Class A Common Stock and 16,547,834 shares of Class B
Common Stock (assuming the Underwriters' over-allotment option is not
exercised). The Class A Common Stock is convertible on a share-for-share basis
into Class B Common Stock and must be converted to effect any public sale of
such stock. The 4,250,000 shares of Class B Common Stock being sold to the
public by the Underwriters hereby will be freely tradable (other than by an
"affiliate" of the Company) without restriction or registration under the
Securities Act. All remaining shares of Class B Common Stock were issued and
sold by the Company in private transactions ("Restricted Shares") and are
eligible for public sale if registered under the Securities Act or sold in
accordance with Rule 144 or 701 thereunder. For purposes of Rule 144, an
"affiliate" of an issuer is a person that directly, or indirectly through one
or more intermediaries, controls or is controlled by, or is under common
control with, such issuer.
The Company's directors, executive officers and certain stockholders, who
collectively hold an aggregate of approximately 1,000,000 shares of Class A
Common Stock and approximately 11 million shares of Class B Common Stock, and
who may acquire additional shares of Class B Common Stock in this offering,
have agreed pursuant to certain agreements that they will not sell, either
publicly or privately, any Class B Common Stock owned by them without the
prior written consent of the representatives of the Underwriters for a period
of 180 days from the date of this Prospectus (the "Lockup Period"). Following
the expiration of the Lockup Period, approximately 14.0 million shares of
Class B Common Stock, including shares issuable upon conversion of Class A
Common Stock and shares issuable upon the exercise of certain options, will be
available for sale in the public market subject to compliance with Rule 144 or
Rule 701, including approximately 12.0 million shares eligible for sale under
Rule 144(k). In addition, the Company has agreed that, during the Lockup
Period, subject to certain exceptions, that it will not issue, sell, offer or
agree to sell other than pursuant to the ESPP, grant any options for the sale
of (other than stock options under the Company's stock plans) or otherwise
dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable for Common Stock, other than
pursuant to this offering. See "Underwriting".
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an affiliate of the Company, or a holder of
Restricted Shares who owns beneficially shares that were not acquired from the
Company or an affiliate of the Company within the previous year, would be
entitled to sell within any three-month period a number of shares that does
not exceed the greater of (1) 1% of the then outstanding shares of Class B
Common Stock (approximately 165,000 shares immediately after this offering,
assuming no exercise of the Underwriters' over-allotment option) or (2) the
reported average weekly trading volume of the Class B Common Stock on the
Nasdaq National Market during the four calendar weeks preceding the date on
which notice of the sale is filed with the Securities and Exchange Commission
(the "Commission"). Sales under Rule 144 are subject to certain requirements
relating to manner of sale, notice and availability of current public
information about the Company. However, a person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days immediately preceding the sale, and who has owned
beneficially Restricted Shares for at least two years, is entitled to sell
such shares under Rule 144(k) without regard to the volume limitations,
manner-of-sale provisions or notice requirements. The foregoing is a summary
of Rule 144 and is not intended to be a complete description of it.
61
<PAGE>
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its
employees, directors, officers, consultants or advisers prior to the closing
of this offering, pursuant to written compensatory benefit plans or written
contracts relating to the compensation of such persons. In addition, the
Commission has indicated that Rule 701 will apply to stock options granted by
the Company under its employee benefit plans before this offering, along with
the shares acquired upon exercise of such options. Securities issued in
reliance on Rule 701 are deemed to be Restricted Shares and, beginning 90 days
after the date of this Prospectus (unless subject to the contractual
restrictions described above for the Lockup Period), may be sold by persons
other than affiliates of the Company subject only to the manner-of-sale
provisions of Rule 144 and by affiliates of the Company under Rule 144 without
compliance with its two-year minimum holding period requirements.
The Company intends to file registration statements on Form S-8 under the
Securities Act covering approximately 2.6 million shares of Class B Common
Stock reserved for issuance under the Company's stock plans. Such registration
statements are expected to be filed soon after the date of this Prospectus and
will automatically become effective upon filing. Accordingly, shares
registered under such registration statements will be available for sale in
the public market, unless such shares are subject to vesting restrictions with
the Company or the contractual restrictions described above. See "Management--
Employee Benefit Plans--1996 Stock Option Plan", and "--Employee Stock
Purchase Plan".
In addition, after this offering, the holders of approximately 14.0 million
shares of Class B Common Stock and Class B Common Stock issuable upon
conversion of the Class A Common Stock or the exercise of options will be
entitled to certain rights to cause the Company to register the sale of such
shares under the Securities Act. Registration of such shares under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act (except for shares purchased by
affiliates of the Company) immediately upon the effectiveness of such
registration. See "Description of Capital Stock--Registration Rights".
62
<PAGE>
LEGAL MATTERS
The validity of the Class B Common Stock offered hereby and certain other
legal matters will be passed upon for the Company by Pillsbury Madison & Sutro
LLP, San Francisco, California. Certain legal matters in connection with this
offering will be passed upon for the Underwriters by Gibson, Dunn & Crutcher
LLP, Los Angeles, California.
EXPERTS
The financial statements as of June 30, 1996 and 1997 and for the years
ended June 30, 1995 and 1997 and the six months ended December 31, 1995 and
June 30, 1996 included in this Prospectus and the financial statement
schedules included in the Registration Statement have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under the
Securities Act with respect to the Class B Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Class B Common Stock offered
hereby, reference is hereby made to such Registration Statement, exhibits and
schedules. Statements contained in this Prospectus regarding the contents of
any contract or other document are not necessarily complete; with respect to
each such contract or document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. A copy of the Registration Statement, including
the exhibits and schedules thereto, may be inspected without charge at the
principal office of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549; the New York Regional Office located at 7 World Trade Center, 13th
Floor, New York, New York 10048; and the Chicago Regional Office located at
Citicorp Center, Chicago, Illinois 60661. Copies of such material may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of the fees prescribed by
the Commission. In addition, the Commission maintains a World Wide Web site on
the Internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
63
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets as of June 30, 1996 and 1997................. F-3
Consolidated Statements of Operations for the years ended June 30, 1995
and 1997 and for the six months ended December 31, 1995 and June 30,
1996.................................................................... F-4
Consolidated Statements of Changes in Common Stock and Other Stockhold-
ers' Equity for the year ended June 30, 1995 and the six months ended
December 31, 1995....................................................... F-5
Consolidated Statements of Changes in Common Stock and Other Stockhold-
ers' Equity for the six months ended June 30, 1996 and the year ended
June 30, 1997........................................................... F-6
Consolidated Statements of Cash Flows for the years ended June 30, 1995
and 1997 and for the six months ended December 31, 1995 and June 30,
1996.................................................................... F-7
Notes to Consolidated Financial Statements............................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Beringer Wine Estates Holdings, Inc.
The stock split described in Note 1 to the consolidated financial statements
has not been consummated at August 27, 1997. When it has been consummated, we
will be in a position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the
financial position of Beringer Wine Estates Holdings, Inc. and its
subsidiaries at June 30, 1997 and 1996, and the results of their
operations, and their cash flows for the years ended June 30, 1995 and 1997
and the six month periods ended December 31, 1995 and June 30, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above."
PRICE WATERHOUSE LLP
San Francisco, California
August 15, 1997
F-2
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
------------------
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 14,223 $ 115
Accounts receivable-trade, net............................ 23,484 28,226
Inventories............................................... 208,069 214,097
Prepaids and other current assets......................... 3,994 5,024
-------- --------
Total current assets..................................... 249,770 247,462
Property, plant and equipment, net......................... 182,520 212,378
Investments................................................ 88 267
Notes receivable from affiliate............................ 930 --
Other assets, net.......................................... 5,434 7,077
-------- --------
Total assets............................................ $438,742 $467,184
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON STOCK
AND OTHER STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade.................................... $ 9,053 $ 10,114
Book overdraft liability.................................. -- 2,001
Accrued promotion expenses................................ 1,429 2,461
Accrued payroll, bonuses and benefits..................... 4,059 3,661
Accrued interest.......................................... 5,034 5,998
Other accrued expenses.................................... 1,538 5,698
Income taxes payable...................................... 946 --
Deferred tax liabilities.................................. 13,742 4,104
Current portion of long-term debt......................... 816 3,714
Due to Nestle (Note 12)................................... 4,024 --
-------- --------
Total current liabilities................................ 40,641 37,751
Line of credit............................................. 86,000 104,000
Long-term debt, less current portion....................... 202,428 211,398
Deferred tax liabilities................................... 32,189 29,368
Other liabilities.......................................... -- 6,333
-------- --------
Total liabilities........................................ 361,258 388,850
-------- --------
Commitments and contingencies (Notes 12 and 13)
Redeemable preferred stock:
Redeemable Series A Preferred Stock, $0.0001 par value;
stated at redemption value, less non-accreted discount of
$2,836,000 and $2,738,000, including cumulative dividends
in arrears; 2,000,000 shares authorized; 319,389 and
369,640 shares issued and outstanding.................... 29,103 34,341
-------- --------
Common stock and other stockholders' equity:
Class A Common Stock, $0.0001 par value; 4,000,000 shares
authorized; 1,008,000 and 1,019,980 shares issued and
outstanding.............................................. -- --
Class B Common Stock, $0.0001 par value; 40,000,000 shares
authorized; 10,639,590 and 11,716,212 shares issued and
outstanding.............................................. 1 1
Notes receivable from stockholders........................ (340) (636)
Warrants (Note 11)........................................ 1,848 1,848
Additional paid-in-capital................................ 56,237 57,594
Accumulated deficit....................................... (9,365) (14,814)
-------- --------
Total common stock and other stockholders' equity....... 48,381 43,993
-------- --------
Total redeemable preferred stock, common stock and other
stockholders' equity..................................... 77,484 78,334
-------- --------
Total liabilities redeemable preferred stock, common
stock and other stockholders' equity................... $438,742 $467,184
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OLD BERINGER NEW BERINGER
----------------------- -------------------
SIX MONTHS SIX MONTHS YEAR
YEAR ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, JUNE 30,
1995 1995 1996 1997
---------- ------------ ---------- --------
<S> <C> <C> <C> <C>
Gross revenues................... $213,742 $113,057 $131,227 $282,801
Less excise taxes................ 11,732 6,190 6,364 13,341
-------- -------- -------- --------
Net revenues..................... 202,010 106,867 124,863 269,460
Cost of goods sold............... 101,287 54,114 93,626 177,829
-------- -------- -------- --------
Gross profit..................... 100,723 52,753 31,237 91,631
Selling and marketing expense.... 55,631 29,608 30,690 67,701
General and administrative expense 8,375 5,633 5,330 10,946
Amortization of goodwill......... 1,912 956 -- --
-------- -------- -------- --------
Operating income (loss).......... 34,805 16,556 (4,783) 12,984
Other income (expense):
Interest expense................ (5,730) (2,214) (12,830) (26,401)
Other, net...................... 1,047 125 255 892
-------- -------- -------- --------
Income (loss) before income taxes
................................ 30,122 14,467 (17,358) (12,525)
(Provision for) benefit of income
taxes........................... (13,369) (6,381) 7,993 7,076
-------- -------- -------- --------
Net income (loss)................ $ 16,753 $ 8,086 (9,365) (5,449)
======== ========
Cumulative preferred stock divi-
dend and accretion of discount.. (2,054) (4,920)
-------- --------
Net loss allocable to common
stockholders.................... $(11,419) $(10,369)
======== ========
Loss per share:
Primary......................... $ (1.04) $ (0.85)
======== ========
Supplemental (unaudited) (Note
1)............................. $ (0.26)
========
Weighted average number of common
shares and equivalents outstanding:
Primary......................... 10,978 12,184
======== ========
Supplemental (unaudited)........ 17,034
========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK AND OTHER STOCKHOLDERS'
EQUITY
YEAR ENDED JUNE 30, 1995 AND SIX MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------- PAID-IN- RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1994............ 51 $51 $125,581 $15,248 $140,880
Net income......................... 16,753 16,753
Contributions from stockholder..... 693 693
--- --- -------- ------- --------
Balance at June 30, 1995............ 51 51 126,274 32,001 158,326
Net income......................... 8,086 8,086
Contributions from stockholder..... 17 17
Dividends paid to stockholder...... (5,000) (5,000)
--- --- -------- ------- --------
Balance at December 31, 1995........ 51 $51 $126,291 $35,087 $161,429
=== === ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK AND OTHER STOCKHOLDERS'
EQUITY
SIX MONTHS ENDED JUNE 30, 1996 AND THE YEAR ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
CLASS A COMMON CLASS B COMMON NOTES
STOCK STOCK RECEIVABLE ADDITIONAL
-------------- --------------- FROM PAID-IN ACCUMULATED
SHARES $'S SHARES $'S STOCKHOLDERS WARRANTS CAPITAL DEFICIT TOTAL
--------- ---- ---------- ---- ------------ -------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1996.................... 70,000 $ -- 630,000 $ -- $ -- $ -- $ 5 $ -- $ 5
Net loss............... (9,365) (9,365)
Issuance of stock...... 938,000 -- 10,009,590 1 (340) 58,286 57,947
Issuance of stock
warrants.................. 1,848 1,848
Preferred stock divi-
dend and accretion of
discount............... (2,054) (2,054)
--------- ---- ---------- ---- ----- ------ ------- -------- -------
Balance at June 30,
1996.................... 1,008,000 -- 10,639,590 1 (340) 1,848 56,237 (9,365) 48,381
Net loss............... (5,449) (5,449)
Issuance of stock...... 11,980 -- 1,076,622 -- (402) 6,277 5,875
Repayment of notes re-
ceivable from stock-
holders................ 106 106
Preferred stock divi-
dend and accretion of
discount............... (4,920) (4,920)
--------- ---- ---------- ---- ----- ------ ------- -------- -------
Balance at June 30,
1997.................... 1,019,980 $ -- 11,716,212 $ 1 $(636) $1,848 $57,594 $(14,814) $43,993
========= ==== ========== ==== ===== ====== ======= ======== =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OLD BERINGER NEW BERINGER
----------------------- -------------------
SIX MONTHS SIX MONTHS YEAR
YEAR ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, JUNE 30,
1995 1995 1996 1997
---------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................... $16,753 $ 8,086 $ (9,365) $(5,449)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Deferred taxes................................................................. 1,522 968 (8,930) (15,596)
Depreciation................................................................... 8,547 4,278 1,873 5,429
Amortization................................................................... 1,910 956 397 970
Provision for doubtful accounts................................................ 1 -- -- 210
Other.......................................................................... (7) (189) 33 (17)
Change in assets and liabilities:
Accounts receivable-trade...................................................... (526) (91) (688) (4,139)
Inventories.................................................................... 445 (24,536) 48,864 17,412
Prepaids and other assets...................................................... (1,312) (463) (95) (2,786)
Accounts payable-trade......................................................... 3,540 4,427 (4,938) 1,991
Book overdraft liability....................................................... -- -- -- 2,001
Accrued promotion expenses..................................................... 631 (228) 234 1,032
Accrued payroll, bonuses and benefits.......................................... (956) 608 1,236 (398)
Accrued interest............................................................... 327 (1,810) 5,034 964
Other accrued expenses......................................................... 803 1,219 (900) 1,137
Income taxes payable........................................................... 7,101 3,114 946 (946)
Other liabilities.............................................................. -- -- -- 6,333
------- ------- --------- -------
Net cash provided by (used in) operating activities........................... 38,779 (3,661) 33,701 8,148
------- ------- --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property, plant and equipment................................... (10,763) (7,082) (3,031) (33,956)
Dispositions of property, plant and equipment................................... 1,146 997 -- 187
Beringer Acquisition (Note 2)................................................... -- -- (271,798) --
CSJ Acquisition (Note 2)........................................................ -- -- (31,176) --
SLW Acquisition (Note 2)........................................................ -- -- -- (20,351)
Distributions from investments.................................................. 148 -- 86 --
Proceeds from notes receivable from affiliate................................... -- -- 350 --
------- ------- --------- -------
Net cash used in investing activities......................................... (9,469) (6,085) (305,569) (54,120)
------- ------- --------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from line of credit................................................ -- -- 86,000 18,000
Proceeds from long-term debt.................................................... -- -- 203,152 12,500
Repayments of long-term debt.................................................... -- -- -- (816)
Net proceeds (repayment) of amounts due to Nestle............................... (26,920) 11,589 (91,738) (4,024)
Issuance of common stock........................................................ -- -- 54,417 5,780
Issuance of preferred stock..................................................... -- -- 27,049 318
Issuance of stock warrants...................................................... -- -- 1,848 --
Proceeds from notes receivable from stockholders................................ -- -- -- 106
Contributions from Nestle....................................................... -- 17 -- --
------- ------- --------- -------
Net cash provided by (used in) financing activities............................. (26,920) 11,606 280,728 31,864
------- ------- --------- -------
Net increase (decrease) in cash................................................. 2,390 1,860 8,860 (14,108)
Cash at beginning of the period................................................. 1,113 3,503 5,363 14,223
------- ------- --------- -------
Cash at end of the period....................................................... $ 3,503 $ 5,363 $ 14,223 $ 115
======= ======= ========= =======
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
Beringer Wine Estates Holdings, Inc. (BWEH or the Company), a Delaware
corporation, was incorporated for the purpose of acquiring Beringer Wine
Estates Company and its wholly owned subsidiaries. The acquisition from Nestle
Holdings, Inc. (Nestle) of all of the outstanding common stock of Beringer
Wine Estates Company by BWEH took place on January 1, 1996 (Note 2). BWEH
constitutes the successor company (New Beringer). The historical results of
operations through December 31, 1995 are the results of Beringer Wine Estates
Company and its consolidated subsidiaries (Old Beringer).
The Company is engaged in the operation of vineyards and wineries and the
production and sale of premium bottled wine. The majority of its operations
are carried out in California. The Company sells its wine principally in the
United States to distributors for resale to retail outlets and restaurants. A
substantial portion of its sales are concentrated in California and, to a
lesser extent, the States of New York, New Jersey, Texas, Illinois,
Pennsylvania and Florida. Export sales for all periods presented account for
approximately 4% of net revenues, with major markets in Europe, Canada and
Asia.
Prior to December 1995, NOTG Holdings, Inc. (NOTG), a wholly owned
subsidiary of Nestle, owned all of the outstanding stock of Alexander Cairns &
Sons Ltd. (ACS), which in turn owned all of the outstanding stock of A.C.
Wines, Inc. (ACW), which in turn owned all of the outstanding stock of
Beringer Wine Estates Company (formerly Wine World Estates Company). In
December 1995, NOTG, ACS and ACW were merged with and into Beringer Wine
Estates Company. As each of these entities was under the common control of
Nestle, these transfers and exchanges have been accounted for at historical
cost in a manner consistent with that used in pooling of interest accounting.
Consequently, the accompanying consolidated financial statements have been
presented as though these transfers and exchanges occurred on July 1, 1994.
On August 25, 1997, the Board of Directors approved an increase of the
authorized shares of Class A and Class B Common Stock to 4,000,000 and
40,000,000 shares, respectively. On this date, the Board also authorized a 2-
for-1 stock split of all outstanding Class A and Class B Common Stock and all
options and warrants exercisable for such stock then outstanding. Accordingly,
all references in the consolidated financial statements referring to Common
Stock shares, share prices, per share amounts, stock plans, and warrants have
been adjusted retroactively to reflect this stock split. These actions must be
approved by the Company's stockholders.
On August 25, 1997, the Board of Directors approved the following: (a) a
change in voting rights of Class A Common Stock from fifty to twenty votes per
share, (b) a conversion provision allowing all holders of Class A Common Stock
the right to increase their shares of Class A Common Stock by fifty percent by
converting, on a one-for-one basis, Class B Common Stock into Class A Common
Stock, (c) an increase in the number of shares which may be issued under the
1996 Stock Option Plan (Note 11) from 705,604 to 2,205,604, (d) authorization
of 5,000,000 shares of undesignated Preferred Stock, par value $0.0001 per
share, and (e) adoption of the 1998 Stock Option Plan (Note 11). These actions
must be approved by the Company's stockholders.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation. The consolidated financial statements include the
accounts of BWEH and all of its subsidiaries. All significant intercompany
transactions and balances have been eliminated. The Company's investments in
corporations and partnerships, the more significant of which includes a 33
percent interest in Pressoir Deutz and a 50 percent interest in Calcork, are
accounted for using the equity method as the Company has the ability to
exercise significant influence over the operating and financial policies of
the investees, but does not have the ability to control them. The Company's
equity
F-8
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
share of net income (loss) from investees is not significant and is included
in other income (expense), net in the accompanying Consolidated Statements of
Operations.
Use of estimates. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories. Inventories are valued at the lower of cost or market.
Inventory costs for wine and supplies are determined using the first-in,
first-out (FIFO) method. Costs associated with growing crops are recorded as
inventory and are recognized as wine inventory in the year in which the
related crop is harvested. In accordance with general practice in the wine
industry, wine inventories are included in current assets, although a portion
of such inventories may be aged for periods longer than one year.
Property, plant and equipment. Property, plant and equipment is stated at
the lower of cost or, if impaired, the fair value at date of impairment.
Property, plant and equipment, including vineyards infested with phylloxera,
are deemed to be impaired if, on an undiscounted basis, the sum of the
estimated future cash flows is less than the carrying amount of the asset.
Maintenance and repairs are expensed as incurred. Costs incurred in developing
vineyards, including related interest costs, are capitalized until the
vineyards become commercially productive.
Depreciation and amortization is computed using the straight-line method
over the estimated useful lives of the assets amounting to 15 to 25 years for
vineyards, 40 years for buildings, and 5 to 30 years for machinery and
equipment. Estimated useful lives of vineyards infested with phylloxera are
adjusted to the Company's estimate of the remaining productive life of the
vineyards, and currently range from 1 to 5 years. Leasehold improvements are
amortized over the estimated useful lives of the improvements or the terms of
the related lease, whichever is shorter.
Allowance for doubtful accounts. Accounts receivable-trade are presented net
of an allowance for doubtful accounts totaling $174,000 and $251,000 at June
30, 1996 and 1997, respectively.
Goodwill. Through December 31, 1995, Goodwill was amortized on a straight-
line basis over 17 years. The Goodwill was eliminated in connection with the
acquisition of the Company on January 1, 1996 (Note 2).
Other assets. Other assets include loan fees and long-term prepaid lease
costs. Loan fees are amortized over the terms of the related loans. Prepaid
lease costs will be offset against future operating lease obligations.
Income taxes. Income taxes are recorded using the liability method. Under
this method, deferred taxes are determined by applying current tax rates to
the differences between the tax and financial reporting bases of the Company's
assets and liabilities. In estimating future tax consequences, all expected
future events are considered, except for potential income tax law or rate
changes.
Advertising costs. The Company expenses costs relating to advertising either
as the costs are incurred or the first time the advertising takes place. Point
of sale materials are accounted for as prepaid expenses and charged to
advertising expense as utilized. Advertising expense, including point of sale
materials charged to expense, totaled $11,305,000, $15,616,000, $6,655,000 and
$4,518,000 for the years ended June 30, 1995 and 1997, and for the six months
ended December 31, 1995 and June 30, 1996, respectively.
F-9
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Major customers. The Company sells the majority of its wines through
distributors in the United States and through brokers and agents in export
markets. There is a common ownership in several distributorships in different
states that, when considered to be one entity, represented 17.8%, 29.8%, 17.0%
and 18.6%, respectively, of net revenues for the years ended June 30, 1995 and
1997 and for the six months ended December 31, 1995 and June 30, 1996. Trade
accounts receivable from these distributors at June 30, 1996 and 1997 totaled
$4,636,000 and $7,396,000, respectively. There is another distributor whose
purchases accounted for 15.9%, 16.2% and 13.9% of net revenues for the year
ended June 30, 1995 and for the six months ended December 31, 1995 and June
30, 1996. Trade accounts receivable from this distributor at June 30, 1996
totaled $4,547,000.
Fair value of financial instruments. The fair value of the Company's long-
term debt and line of credit is estimated based on the current rates offered
to the Company for financings of the same remaining maturities. The carrying
amount of the Company's long-term debt and line of credit approximates fair
value. It is not practicable to estimate the fair value of notes receivable
from affiliate or amounts due to Nestle at June 30, 1996, due to the related
party relationships involved. It is also not practicable to estimate the fair
value of the redeemable preferred stock because it is not traded in the open
market and hence its value is not readily determinable.
Forward Exchange Contracts. The Company has only a limited involvement with
forward exchange contracts and does not use them for trading purposes. Forward
exchange contracts are used to manage exchange rate risks on certain purchase
commitments, generally French oak barrels, denominated in foreign currencies.
Gains and losses relating to firm purchase commitments are deferred and are
recognized as adjustments of carrying amounts or in income when the hedged
transaction occurs. The Company had no forward exchange contracts outstanding
at June 30, 1996 or 1997.
Stock based compensation. On July 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 123 (FAS 123), Accounting for Stock-Based
Compensation, which allows companies to measure compensation cost in
connection with their employee stock compensation plans either using a fair
value based method or to continue to use an intrinsic value based method. The
Company will continue to use the intrinsic value based method prescribed by
Accounting Principles Board Opinion No. 25 (APB 25) and its related
Interpretations, which generally does not result in compensation cost. The
Company's stock option plans are discussed in Note 11.
Loss per share. Loss per common share is computed using the weighted average
number of Class A and B common and common equivalent shares, if dilutive,
outstanding during each period. Common equivalent shares consist of stock
options and warrants (using the "treasury stock" method). Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83, such
computations include all common and common equivalent shares issued within the
twelve months preceding the initial filing date of the Company's Registration
Statement as if they were outstanding for all periods presented, using the
treasury stock method and an assumed initial public offering price, regardless
of their anti-dilutive impact. Earnings per share for Old Beringer have not
been presented as they are not considered meaningful in light of the
significant changes in capital structure resulting from the Company's
acquisition of Old Beringer. All share, per share and common stock amounts
used for purposes of calculating primary earnings per share have been adjusted
retroactively to give effect to the stock split described above.
For the supplemental loss per common and common equivalent share
calculation, common shares anticipated to be sold by the Company to the public
pursuant to a public offering
F-10
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
contemplated in October 1997 were added to the weighted average number of
common shares computed for primary loss per share to determine the supplemental
weighted average number of common shares outstanding. Supplemental net income
was determined assuming the public offering took place on July 1, 1996 and
generated net proceeds of $20.34 per share. It was also assumed that the net
proceeds, estimated to be $98,665,000, were used to repurchase all of the
outstanding shares of preferred stock, repay all of the outstanding senior
subordinated notes, including a prepayment penalty (Note 6), and $16,015,000
and $6,000,000 of the line of credit and long-term debt, respectively. The
resulting reduction in net loss from adding back the preferred stock dividend
and accretion of discount and interest expense, and the additional net loss
from the extraordinary loss on the early redemption of the subordinated notes,
net of income taxes, were $4,920,000, $3,807,000 and $2,833,000, respectively,
for the year ended June 30, 1997 was added to net income to determine
supplemental net income. Supplemental net income was divided by the
supplemental weighted average number of common shares outstanding to determine
supplemental earnings per share.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 (FAS 128), Earnings per Share. This Statement establishes new
accounting standards for the computation and manner of presentation of the
Company's earnings per share. The Company will be required to adopt the
provisions of FAS 128 for the quarter ending December 31, 1997. Earlier
application is not permitted. The Company does not believe the adoption of FAS
128 will have a material impact on earnings per share data.
2. ACQUISITIONS
On January 1, 1996, pursuant to a Stock Purchase Agreement among the Company,
Nestle, and TPG Partners, L.P. (TPG), the Company acquired all of the then
outstanding common stock of Beringer Wine Estates Company from Nestle (the
"Beringer Acquisition"). The Company financed the acquisition through the
issuance of common and preferred stock (Notes 9 and 10), the issuance of senior
subordinated notes and the incurrence of long-term indebtedness under the
Company's credit agreement (Note 6) which eliminated short-term mezzanine
financing provided by the seller.
On April 1, 1996, pursuant to an Asset Purchase Agreement between the Company
and Suntory International Corporation (Suntory), the Company acquired the net
assets of Chateau St. Jean from Suntory (the "CSJ Acquisition"). On February
28, 1997, pursuant to a Stock and Asset Purchase Agreement between the Company
and Stags' Leap Winery, Inc., Stags' Leap Associates, and various individuals,
the Company acquired all of the outstanding common stock of Stags' Leap Winery,
Inc. and certain assets from Stags' Leap Associates and the various individuals
(the "SLW Acquisition").
Each acquisition has been accounted for using the purchase method of
accounting. The total cost of each acquisition follows (in thousands):
<TABLE>
<CAPTION>
BERINGER CSJ SLW
ACQUISITION ACQUISITION ACQUISITION
----------- ----------- -----------
<S> <C> <C> <C>
Cash paid, net of cash purchased............ $258,262 $29,312 $19,197
Amount due to seller........................ 95,762 -- 2,850
Acquisition costs........................... 17,036 1,864 1,154
-------- ------- -------
Total purchase price....................... $371,060 $31,176 $23,201
======== ======= =======
</TABLE>
F-11
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The allocation of purchase price to the assets acquired and liabilities
assumed has been made using estimated fair values at the applicable dates of
acquisition based on independent appraisals and on studies performed by
management. The purchase price allocations are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
BERINGER CSJ SLW
ACQUISITION ACQUISITION ACQUISITION
----------- ----------- -----------
<S> <C> <C> <C>
Fair market value of assets acquired, net
of cash purchased:
Accounts receivable..................... $ 20,169 $ 2,627 $ 813
Inventories............................. 231,489 23,057 20,046
Property, plant and equipment........... 178,557 10,942 12,300
Other................................... 17,153 2,360 740
-------- ------- -------
447,368 38,986 33,899
Fair value in excess of purchase price
offset against non-current assets
acquired................................. -- (5,750) (7,388)
Liabilities assumed....................... (21,436) (400) (173)
Deferred tax liabilities.................. (54,872) (1,660) (3,137)
-------- ------- -------
$371,060 $31,176 $23,201
======== ======= =======
</TABLE>
Results of operations of the CSJ Acquisition and SLW Acquisition are
included in the Consolidated Statements of Operations since their respective
acquisition dates. The following pro forma unaudited information has been
prepared assuming that the CSJ Acquisition had taken place on July 1, 1995 and
the SLW Acquisition had taken place on July 1, 1996 (in thousands, except per
share data):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED SIX MONTHS YEAR ENDED
DECEMBER 31, ENDED JUNE JUNE 30,
1995 30, 1996 1997
------------ ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net revenues............ $118,072 $133,312 $273,730
Operating income (loss). 15,574 (6,310) 11,790
Net loss allocable to
common stockholders.... 6,120 (13,734) (11,486)
Loss per share.......... -- $ (1.25) $ (0.94)
</TABLE>
The pro forma results have been prepared for comparative purposes only and
include adjustments for increased costs of sales as a result of the step-up to
fair value in the basis of the inventory acquired, increased interest expense
on acquisition debt, and adjustments to depreciation based on the fair market
value of the property, plant and equipment acquired. This pro forma financial
information is not necessarily indicative of the results of operations that
would have occurred had the transactions been effected on the assumed dates.
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1996 1997
-------- --------
<S> <C> <C>
Bulk wine.................................................... $114,882 $ 89,890
Cased goods and retail....................................... 77,867 104,485
Crop costs and supplies...................................... 15,320 19,722
-------- --------
$208,069 $214,097
======== ========
</TABLE>
F-12
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Included in inventories at June 30, 1996 and 1997 is $76,199,000 and
$47,468,000, respectively, of step-up remaining from the acquisitions (Notes 2
and 14). During the six month period ended June 30, 1996 and the year ended
June 30, 1997, inventories at their respective acquisition dates that had
absorbed $32,131,000 and $43,308,000, respectively, of step-up were sold and
recorded in cost of goods sold.
4. PROPERTY, PLANT AND EQUIPMENT
The cost and accumulated depreciation of property, plant and equipment
consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------------
1996 1997
-------- --------
<S> <C> <C>
Land........................................................ $ 58,736 $ 66,562
Vineyards................................................... 37,517 56,462
Machinery and equipment..................................... 47,138 51,920
Buildings................................................... 25,809 27,856
Leasehold improvements...................................... 7,455 7,676
Furniture and fixtures...................................... 1,491 1,668
Vineyards under development................................. 7,168 10,648
Construction in progress.................................... 1,466 2,783
-------- --------
186,780 225,575
Less accumulated depreciation............................... (4,260) (13,197)
-------- --------
$182,520 $212,378
======== ========
</TABLE>
Included in fixed assets are $1,081,000, $636,000, $603,000 and $306,000 of
interest capitalized for the years ended June 30, 1995 and 1997, and for the
six months ended December 31, 1995 and June 30, 1996, respectively. All
property, plant and equipment is pledged as collateral for amounts owing under
the Credit Agreement and Notes Agreement (Note 6).
5. OTHER ASSETS
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------
1996 1997
------ ------
<S> <C> <C>
Loan fees....................................................... $4,844 $5,240
Prepaid lease costs and other................................... 839 2,579
------ ------
5,683 7,819
Less accumulated amortization................................... (249) (742)
------ ------
$5,434 $7,077
====== ======
</TABLE>
6. LONG-TERM DEBT AND LINE OF CREDIT AGREEMENT
In connection with the acquisition of the Company in January 1996, the
Company entered into a Credit Agreement with several financial institutions
and sold senior subordinated notes (Notes Agreement) to certain investors. In
connection with the sale of the senior subordinated notes, the investors also
received 308,294 and 123,318 Class A and Class B Stock Warrants, respectively
(Note 11).
The Credit Agreement provides for a senior secured credit facility
consisting of a term loan with two separate tranches and a secured revolving
line of credit for working capital advances and standby
F-13
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
letters of credit. The line of credit expires on January 16, 2001 and has a
maximum credit available of $150,000,000. The maximum credit available will be
reduced if the value or amount of certain assets of the Company which
determine the borrowing base for the line of credit fall below specified
levels. The maximum credit available will also be reduced to the extent of any
outstanding amounts due to growers. At June 30, 1996 and 1997, the Company had
drawn $86,000,000 and $104,000,000 on the credit line. Also, at June 30, 1997,
the Company had an outstanding letter of credit related to a vineyard lease
for $3,500,000. Unused availability under the credit line was therefore
$42,500,000 at June 30, 1997. Interest under the credit line, which is payable
quarterly, accrues at a rate determined under various bank interest programs
(7.94% to 8.69% at June 30, 1997). The Company may, at its option, elect to
convert all or any portion of outstanding indebtedness under the line of
credit to a fixed interest rate. The Company must pay a quarterly commitment
fee equal to 0.50% per annum of the average daily amount by which the maximum
credit available exceeds the outstanding balance on the credit line.
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1997
--------- ---------
<S> <C> <C>
Term loan, Tranche B; secured by all properties;
interest rates determined under various bank interest
programs (7.61% to 8.38% at June 30, 1997); interest
payable quarterly; principal payable quarterly
commencing April 1, 1997; due July 16, 2005........... $150,000 $161,684
Term loan, Tranche A; secured by all properties;
interest rates determined under various bank interest
programs (7.41% to 8.32% at June 30, 1997); interest
payable quarterly; principal payable quarterly
commencing April 1, 1999; due July 16, 2005........... 20,000 20,000
Senior subordinated notes, less unamortized original
issue discount of $1,756,000 and $1,572,000 at June
30, 1996 and 1997, respectively; secured by all
properties; subordinated to both term loans and
amounts outstanding under the line of credit; interest
at 12.50%; interest payable quarterly; due January 10,
2006.................................................. 33,244 33,428
--------- ---------
203,244 215,112
Less current portion................................... (816) (3,714)
--------- ---------
$202,428 $211,398
========= =========
</TABLE>
Aggregate annual maturities of long-term debt at June 30, 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
- -----------
<S> <C>
1998.................................................................. $ 3,714
1999.................................................................. 4,155
2000.................................................................. 4,926
2001.................................................................. 5,330
2002.................................................................. 5,766
Thereafter............................................................ 192,793
--------
216,684
Less unamortized original issue discount.............................. (1,572)
--------
$215,112
========
</TABLE>
F-14
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The terms of the Credit Agreement and the Notes Agreement contain, among
other provisions, requirements for maintaining certain working capital and
other financial ratios, and limit the Company's ability to pay dividends,
merge, alter the existing capital structure, incur indebtedness and acquire or
sell assets. The Credit Agreement contains provisions requiring prepayment of
a portion of the outstanding principal balance based on certain defined excess
cash flow calculations. The bank has waived this provision as it relates to
the June 30, 1996 and 1997 calculations.
Prior to January 16, 2000, the Company may at its option redeem the Senior
Subordinated Notes (Notes), in whole or in part, at a redemption price equal
to the sum of the aggregate principal amount of the Notes being redeemed plus
accrued and unpaid interest to the date of redemption, plus a penalty equal to
the present value of the originally scheduled principal and related interest
thereon, through the original maturity date, in excess of the amount of
principal being redeemed. Between January 16, 2000 and 2005, the Company may
at its option redeem the Notes, in whole or in part, at a redemption price
equal to the sum of the aggregate principal amount of the Notes being redeemed
multiplied by a redemption price factor which declines from 106.9% at January
16, 2000 to 100.0% at January 16, 2005, plus accrued and unpaid interest to
the date of redemption. Additionally, within thirty days after the closing of
an initial public offering, the Company at its option may redeem up to 50% of
the outstanding Notes at a redemption price equal to the sum of the aggregate
principal amount of the Notes being redeemed multiplied by a redemption price
factor which declines from 110% to 107% from January 16, 1996 to 2000, plus
accrued and unpaid interest to the date of redemption.
7. EMPLOYEE BENEFIT PLANS
Through December 31, 1995, the Company participated in Nestle's defined
benefit pension plan and 401(k) savings plan. Costs (charged by Nestle)
relating to participation in the defined benefit pension plan totaled $543,000
and $271,000 for the year ended June 30, 1995 and the six months ended
December 31, 1995. Contributions by the Company for the year ended June 30,
1995 and the six months ended December 31, 1995 to the 401(k) savings plan
totaled $338,000 and $175,000, respectively. These plans were terminated on
January 1, 1996 in connection with the acquisition of the Company (Note 2).
On January 1, 1996, the Company established a new 401(k) savings plan which
covers substantially all employees of the Company. Under this plan, employees
can elect to contribute up to 15% (subject to certain limits prescribed by tax
law) of their annual pay to the plan. The Company makes a matching
contribution of $.50 for every dollar the employees contribute to the plan up
to 6% of the employee's pay. The Company may also make an annual contribution
to the plan solely at the discretion of the Board of Directors of the Company.
Employees are immediately 100% vested in the Company's matching contributions
and vest ratably over four service years in any discretionary contributions
made by the Company. Contributions by the Company for the six months ended
June 30, 1996 and for the year ended June 30, 1997 totaled $616,000 and
$910,000, respectively, including discretionary contributions of $384,000 and
$500,000, respectively.
8. INCOME TAXES
The Company has recorded its provision for income taxes and deferred tax
balances as if it were a stand alone entity for the year ended June 30, 1995
and the six months ended December 31, 1995. Prior to the sale of the Company
on January 1, 1996, the Company's accounts were included with Nestle for tax
filing purposes. Accordingly, the Company's current income taxes at June 30,
1995 and December 31, 1995 are payable to Nestle. Nestle has indemnified the
Company for any future liabilities arising from prior year tax returns.
F-15
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31, 1995 JUNE 30, 1996 JUNE 30, 1997
------------- ----------------- ---------------- -------------
<S> <C> <C> <C> <C>
Current provision:
Federal................ $ 9,223 $4,269 $ 741 $ 6,617
State.................. 2,624 1,144 196 1,903
------- ------ ------- -------
11,847 5,413 937 8,520
------- ------ ------- -------
Deferred provision
(benefit):
Federal................ 1,134 657 (6,936) (12,100)
State.................. 388 311 (1,994) (3,496)
------- ------ ------- -------
1,522 968 (8,930) (15,596)
------- ------ ------- -------
$13,369 $6,381 $(7,993) $(7,076)
======= ====== ======= =======
</TABLE>
Income tax provision (benefit) differs from the amount computed by
multiplying the statutory federal income tax rate times income (loss) before
income taxes, due to the following:
<TABLE>
<CAPTION>
SIX
YEAR SIX MONTHS MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30, JUNE 30,
1995 1995 1996 1997
-------- ------------ -------- --------
<S> <C> <C> <C> <C>
Federal statutory tax (benefit) rate... 35.0% 35.0% (35.0%) (35.0%)
State income taxes, net of federal
benefit............................... 6.7% 6.3% (6.7%) (8.3%)
Amortization of tax basis goodwill..... -- -- (5.3%) (14.7%)
Amortization of book basis goodwill.... 2.2% 2.3% -- --
Other.................................. 0.5% 0.5% 0.9% 1.5%
----- ----- ------ ------
44.4% 44.1% (46.1%) (56.5%)
===== ===== ====== ======
</TABLE>
The approximate effect of temporary differences that give rise to deferred
tax balances are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------------
1996 1997
-------- --------
<S> <C> <C>
Gross deferred tax assets
Liabilities and accruals................................... $ 560 $ 4,338
State taxes................................................ 69 150
-------- --------
629 4,488
-------- --------
Gross deferred tax liabilities
Property, plant and equipment.............................. (32,189) (29,368)
Inventories................................................ (14,371) (8,592)
-------- --------
(46,560) (37,960)
-------- --------
Net deferred tax liabilities................................ $(45,931) $(33,472)
======== ========
</TABLE>
F-16
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. REDEEMABLE PREFERRED STOCK
The Company has authorized 2,000,000 shares of Series A Preferred Stock
(Preferred Stock) with a par value of $0.0001 per share. The Preferred Stock
is non-voting and senior to all other classes and series of the Company's
stock. The Preferred Stock has a semi-annual dividend rate per share of 7% of
the liquidation value of $100 per share. Dividends are cumulative and are
accrued and payable semi-annually from the date of issuance. All dividends on
the Preferred Stock are paid in additional shares of Preferred Stock for the
first ten payment dates. Thereafter, dividends shall be paid in cash to the
extent they do not cause an event of default under the Company's credit
agreements. The liquidation value of the Preferred Stock, in the event of an
involuntary conversion, is equal to the previously stated liquidation value of
$100 per share.
In January and September 1996, the Company issued 300,000 shares and 3,548
shares, respectively, of Preferred Stock, resulting in net proceeds to the
Company of $27,049,000 and $318,000, respectively. During the period ended
June 30, 1996 and the year ending June 30, 1997 dividends to be paid in
additional shares of Preferred Stock amounting to 19,389 and 46,703 shares
were accrued.
The Company may, at its option, redeem the Preferred Stock, in whole or in
part, at a redemption price per share equal to the liquidation value of $100
per share plus accrued and unpaid dividends to the date of redemption. The
Company is required to redeem all outstanding Preferred Stock in January 2008
at a price per share equal to the liquidation value of $100 per share plus
accrued and unpaid dividends to the date of redemption.
10. COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
The Company has authorized 4,000,000 shares of Class A Common Stock, par
value $0.0001 per share, and 40,000,000 shares of Class B Common Stock, par
value $0.0001 per share. Each share of Class A Common Stock is entitled to
twenty votes and each share of Class B Common Stock is entitled to one vote on
all matters submitted to a vote of the stockholders of the Company. Generally,
all matters to be voted upon by stockholders must be approved by a majority of
the votes entitled to be cast by all shares of Class A Common Stock and Class
B Common Stock, voting together as a single class. Holders of Class A Common
Stock and Class B Common Stock are entitled to receive ratably such dividends,
if any, as may be declared by the Board of Directors, subject to preferences
applicable to any then outstanding preferred stock. In the event of
liquidation, dissolution or winding up of the Company, holders of the Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any then outstanding preferred
stock (Note 9).
The Class A Common Stock is convertible at the option of the holder, on a
one-for-one basis, into shares of Class B Common Stock. Additionally, in the
event the Company completes a public offering of not less than $50,000,000 and
is listed on a nationally recognized stock exchange, and upon the approval of
a majority of the shares of Class A Common Stock, the Class A stockholders can
be required to convert their shares into shares of Class B Common Stock on a
one-for-one basis.
In January 1996, the Company issued 938,000 shares and 9,058,590 shares,
respectively, of Class A Common Stock and Class B Common Stock, resulting in
net proceeds to the Company of $49,692,000, net of notes receivable from
stockholders of $340,000. In March 1996, the Company issued 945,000 shares of
Class B Common Stock, resulting in net proceeds to the Company of
F-17
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$4,725,000. In September 1996, the Company issued 11,980 shares and 224,380
shares, respectively, of Class A Common Stock and Class B Common Stock,
resulting in net proceeds to the Company of $825,000, net of notes receivable
from stockholders of $356,000. In March 1997, the Company issued 833,334
shares of Class B Common Stock, resulting in net proceeds to the Company of
$4,955,000, net of notes receivable from stockholders of $46,000.
In lieu of cash compensation, the Company has also issued 6,000 and 18,908
shares of Class B Common Stock to Directors for the six month period ended
June 30, 1996 and the year ended June 30, 1997, respectively.
Notes receivable from stockholders, who are also employees of the Company,
bear interest at the prime rate (8.25% and 8.50% at June 30, 1996 and 1997,
respectively), are due ten years from their date of issuance, and are secured
by the underlying security. The notes become due upon termination of the
holders' employment or upon sale of the underlying security.
11. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
The Company has a stock option plan and two option agreements and is in the
process of formalizing an employee stock purchase plan that are described
below. The Company applies APB 25 and related Interpretations in accounting
for its plans. No compensation cost has been recognized for its stock option
plans because grants have been made at exercise prices at or above estimated
fair market value of the common stock.
The fair value of the common stock on the date of grant for 1,264,000 of the
1,434,000 total options granted under its stock option plan and option
agreements approximated $5-$6 per share, which was determined based on the
approximate purchase value for the Company on January 1, 1996 (Note 2). The
remaining options were granted at exercise prices ranging from $6 to $30 per
share. Had the minimum value of the options been calculated in accordance with
FAS 123, net loss allocable to common stockholders would have been $11,786,000
and $10,594,000, respectively, and loss per share would have been $(1.07) and
$(0.87), respectively, for the period ended June 30, 1996 and the period ended
June 30, 1997.
For purposes of calculating compensation cost under FAS 123, the minimum
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in fiscal 1996 and 1997, respectively: dividend
yield of 0% for all years; expected volatility of 0% for all years; risk-free
interest rates of 5.56% and 6.66%; and, expected lives of three to seven years
for all years.
STOCK OPTION PLANS
The Company has one option plan and two option agreements: the 1996 Stock
Option Plan, the MAR Stock Option Agreement and the Silverado Stock Option
Agreement. Each was approved in 1996.
Under the 1996 Stock Option Plan, the Company is authorized to grant both
incentive and non-qualified stock options for up to 705,604 shares of Class B
Common Stock. Options vest over five years and expire after ten years from the
date of grant. The vested portion of each option may only be exercised during
the one-month period from December 15 of the applicable calendar year through
January 15 of the next calendar year. The Company has granted 676,446 stock
options under this plan at June 30, 1997.
F-18
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under the MAR Stock Option Agreement, the Company is authorized to grant
stock options for up to 60,000 shares of Class B Common Stock. Each option is
immediately vested from the date of grant and no option will be exercisable
after ten years from the date of grant. The Company has granted 60,000 stock
options under this agreement at June 30, 1997. In August 1997, all 60,000 of
the outstanding stock options were exercised.
Under the Silverado Stock Option Agreement, the Company is authorized to
grant both incentive and non-qualified stock options for up to 697,980 shares
of Class B Common Stock. Each option is immediately vested from the date of
grant and will expire after ten years from the date of grant. Each option may
only be exercised during the one-month period from December 15 of the
applicable calendar year through January 15 of the next calendar year. The
Company has granted 697,980 stock options under this agreement at June 30,
1997.
Information regarding these option plans for the fiscal years 1996 and 1997
is as follows:
<TABLE>
<CAPTION>
OPTION SHARES OUTSTANDING
------------------------------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE OPTIONS EXERCISE OPTIONS
FOR GRANT GRANTED PRICE EXERCISABLE
---------- --------- -------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1996........... -- -- --
Options authorized................... 1,263,584 --
Options granted...................... (1,203,584) 1,203,584 $5.58
---------- ---------
Balance at June 30, 1996............. 60,000 1,203,584 $5.58 697,980
Options authorized................... 200,000
Options granted...................... (230,842) 230,842 $9.71
---------- ---------
Balance at June 30, 1997............. 29,158 1,434,426 $6.25 875,134
========== =========
</TABLE>
The weighted average exercise price of options exercisable at June 30, 1996
and 1997 was $6.00, and $5.80 per share, respectively. Since inception of the
option plans, through June 30, 1997, no options have been exercised or
forfeited or have expired. At June 30, 1997, a total of approximately
1,463,584 shares of Class B Common Stock have been reserved for issuance under
the Company's stock option plans.
The following table summarizes information about options outstanding at June
30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTURAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
-------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$5-$6 1,394,426 8.7 $ 5.35 875,134 $5.80
$30 40,000 9.9 $30.00 --
--------- -------
1,434,426 875,134
========= =======
</TABLE>
Pending approval by the stockholders, the Company has adopted the 1998 Stock
Option Plan and has reserved 200,000 shares of Class B Common Stock for
issuance thereunder. The plan provides the Board of Directors the
authorization to grant both incentive and non-qualified stock options to
F-19
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
selected employees at an exercise price not less than 100% of the fair market
value on the date of grant. The options will vest over a period determined on
the date of grant and will expire after ten years from the date of grant.
STOCK WARRANTS
In connection with the sale of the senior subordinated notes (Note 6), the
Company issued 308,294 and 123,318, respectively, of detachable Series A and
Series B Stock Warrants to the senior subordinated note holders. The warrants
were allocated an imputed fair value of $1,848,000 on the date of issuance,
resulting in a discount in face amount of the senior subordinated notes, using
the Black--Scholes Option pricing model with the following weighted average
assumptions: dividend yield of 0%; expected volatility of 45%; risk free
interest rate of 5.23%; and an expected life of 10 years. Each Series A and
Series B Stock Warrant provides the holder the right to purchase one share of
Class B Common Stock in exchange for one Series A or Series B Stock Warrant
plus one cent. The Series A and Series B Stock Warrants are exercisable at any
time through January 2006, with the right to exercise terminating in the event
the Company completes a public offering of not less than $50,000,000 and is
listed on a nationally recognized stock exchange.
EMPLOYEE STOCK PURCHASE PLAN
Pending approval by the stockholders, the Company has adopted the 1997
Employee Stock Purchase Plan (ESPP) and has reserved 200,000 shares of Class B
Common Stock for issuance under the ESPP. The ESPP allows eligible employees
the right to purchase Class B Common Stock at the lower of 85% of the fair
value on the date the Company grants the right to purchase or 85% of the fair
value on the date of purchase. Employees, through payroll deductions of no
more than 15% of their base compensation, subject to certain other limits, may
exercise their rights to purchase for the period specified in the related
offering. All expenses incurred in connection with the implementation and
administration of the ESPP will be paid by the Company.
12. RELATED PARTY TRANSACTIONS
The Company regularly enters into transactions with related parties on terms
which management believes are similar to like transactions with third parties.
The Company recorded rent expense of $768,000, $948,000, $384,000 and
$384,000 for the years ended June 30, 1995 and 1997, and for the six months
ended December 31, 1995 and June 30, 1996, respectively, related to the lease
of warehouse space from a partnership consisting of directors and employees of
the Company.
Minimum rental payments under this non-cancelable operating lease at June
30, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- --------------------
<S> <C>
1998..................................................................... $ 948
1999..................................................................... 948
2000..................................................................... 948
2001..................................................................... 948
2002..................................................................... 1,152
Thereafter............................................................... 4,608
------
$9,552
======
</TABLE>
F-20
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company had a note receivable due upon demand from Pressoir Deutz
totaling $930,000 at June 30, 1996, bearing interest at 9%. By mutual
agreement, the amount was offset against the Company's trade payable to
Pressoir Deutz for purchased sparkling wine during fiscal 1997.
During the years ended June 30, 1995 and 1997, and for the six months ended
December 31, 1995 and June 30, 1996, the Company purchased sparkling wine from
Pressoir Deutz totaling $1,271,000, $2,563,000, $1,137,000 and $458,000,
respectively. The amount due to Pressoir Deutz for these purchases at June 30,
1996 totaled $240,800 and is included in accounts payable-trade in the
consolidated balance sheets. No amount was due at June 30, 1997.
During the years ended June 30, 1995 and 1997, and for the six months ended
December 31, 1995 and June 30, 1996, the Company incurred fees for cork
processing to Calcork totaling $298,000, $466,000, $169,000 and $88,000,
respectively. No amounts are due to Calcork at June 30, 1996 and 1997 for
these services.
During its ownership, Nestle provided management, legal, tax and other
services to its subsidiaries. These services were allocated by Nestle to its
subsidiaries, including Beringer Wine Estates Company, based on estimated
annual usage. Management believes that the basis of allocation was reasonable
and does not believe that expenses that would have been incurred on a stand-
alone basis would be materially different from the allocated amount. These
expenses are included in general and administrative expense and totaled
$1,934,000 and $950,000 for the year ended June 30, 1995 and the six months
ended December 31, 1995, respectively.
In addition to the aforementioned services, the Company also regularly
borrowed monies from Nestle for capital and operating requirements. The amount
due Nestle at December 31, 1995 totaled $95,762,000, bearing interest at 7%
per annum, and was due upon demand. This amount was repaid as part of the
purchase price paid to Nestle. At June 30, 1996, there was $4,024,000 of
purchase price remaining outstanding which was paid in August 1996.
13. COMMITMENTS AND CONTINGENCIES
In addition to the related party leases disclosed in Note 11, the Company
leases some of its office space, warehousing facilities, vineyards and
equipment under non-cancelable and month-to-month operating leases. Certain of
these leases have options to renew. Rental cost under these operating leases
amounted to $5,862,000, $9,578,000, $3,434,000 and $4,111,000, respectively,
for the years ended June 30, 1995 and 1997, and for the six months ended
December 31, 1995 and June 30, 1996. Minimum rental payments under non-
cancelable operating leases at June 30, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- --------------------
<S> <C>
1998.................................................................... $ 7,929
1999.................................................................... 7,396
2000.................................................................... 7,370
2001.................................................................... 7,400
2002.................................................................... 6,491
Thereafter.............................................................. 21,119
-------
$57,705
=======
</TABLE>
F-21
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has contracted with various growers and certain wineries to
supply a significant portion of its future grape requirements and a portion of
its future bulk wine requirements. While most of these contracts call for
prices to be determined by market conditions, several contracts provide for
minimum grape purchase prices.
The Company is subject to litigation in the ordinary course of business. In
the opinion of management, after consultation with legal counsel, the ultimate
outcome of existing litigation will not have a material adverse effect on the
Company's consolidated financial condition, results of operations, or cash
flows.
14. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for income taxes were $4,516,000, $9,287,000, $2,297,000 and
$45,000 for the years ended June 30, 1995 and 1997, and for the six months
ended December 31, 1995 and June 30, 1996, respectively. Cash payments for
interest, net of amounts capitalized, were $4,322,000, $24,128,000, $3,421,000
and $7,160,000 for the years ended June 30, 1995 and 1997, and for the six
months ended December 31, 1995 and June 30, 1996, respectively.
During the year ended June 30, 1997, the Company and Pressoir Deutz agreed
to offset the remaining balance ($930,000) of the note receivable from
Pressoir Deutz against the Company's payable to Pressoir Deutz for purchased
sparkling wine (Note 11). During the six months ended June 30, 1996, in
connection with the acquisition (Note 2), the Company extinguished a liability
for acquisition costs of $3,500,000 through the issuance of shares of common
stock. The Company declared a dividend of $5,000,000 to Nestle during the six
months ended December 31, 1995. The dividend was added to the amount due to
Nestle. During the year ended June 30, 1995, the Company and Nestle agreed to
reclassify a note payable to it totalling $693,000 to additional paid-in-
capital.
F-22
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company has agreed to sell to each of the U.S. Underwriters named below,
and each of such U.S. Underwriters for whom Goldman, Sachs & Co., Donaldson,
Lufkin & Jenrette Securities Corporation, Hambrecht & Quist LLC and Smith
Barney Inc. are acting as representatives (the "Representatives"), has
severally agreed to purchase from the Company, the respective number of shares
of Class B Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
CLASS B
UNDERWRITER COMMON STOCK
----------- ------------
<S> <C>
Goldman, Sachs & Co. ...........................................
Donaldson, Lufkin & Jenrette Securities Corporation.............
Hambrecht & Quist LLC...........................................
Smith Barney Inc. ..............................................
---------
Total......................................................... 3,400,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered
through them hereby, if any are taken.
The U.S. Underwriters propose to offer such shares of Class B Common Stock
in part directly to the public at the initial public offering price set forth
on the cover page of this Prospectus and in part to certain securities dealers
at such price less a concession of $ per share. The U.S. Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to certain brokers and dealers. After the shares of Class B Common Stock
are released for sale to the public, the offering price and other selling
terms may from time to time be varied by the Representatives.
The Company has entered into an underwriting agreement (the "International
Underwriting Agreement") with the underwriters of the international offering
(the "International Underwriters") providing for the concurrent offer and sale
of 850,000 shares of Class B Common Stock in an international offering outside
the United States. The initial public offering price and aggregate
underwriting discounts and commissions per share for the two offerings are
identical. The closing of the offering made hereby is a condition to the
closing of the international offering, and vice versa. The representatives of
the International Underwriters are Goldman Sachs International, Donaldson,
Lufkin & Jenrette International, Hambrecht & Quist LLC and Smith Barney Inc.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of
the U.S. Underwriters named herein has agreed that, as a part of the
distribution of the shares of Class B Common Stock offered by them as part of
the U.S. offering and subject to certain exceptions, it will offer, sell or
deliver the shares of Class B Common Stock, directly or indirectly, only in
the United States of America (including the States and the District of
Columbia), its territories, its possessions and other areas subject to its
jurisdiction
U-1
<PAGE>
(the "United States") and to U.S. persons, which term shall mean, for purposes
of this paragraph, (i) any individual who is a resident of the United States
or (ii) any corporation, partnership or other entity organized in or under the
laws of the United States or any political subdivision thereof and whose
office most directly involved with the purchase is located in the United
States. Each of the International Underwriters has agreed pursuant to the
Agreement Between that, as a part of the distribution of the shares offered as
a part of the international offering, and subject to certain exceptions, it
will (i) not, directly or indirectly, offer, sell or deliver shares of Class B
Common Stock (a) in the United States or to any U.S. persons or (b) to any
person who it believes intends to reoffer, resell or deliver the shares in the
United States or to any U.S. persons, and (ii) cause any dealer to whom it may
sell such shares at any concession to agree to observe a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Class B Common Stock as may be mutually agreed. The price of any shares so
sold shall be the initial public offering price, less an amount not greater
than the selling concession.
The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of
336,000 additional shares of Class B Common Stock solely to cover over-
allotments, if any. If the U.S. Underwriters exercise their over-allotment
option, the U.S. Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares to be purchased by each of them, as shown in the foregoing
table, bears to the 3,400,000 shares of Class B Common Stock offered by the
U.S. Underwriters to the public hereby. The Company has granted the
International Underwriters a similar option to purchase up to an aggregate of
84,000 additional shares of Class B Common Stock.
The Company and certain stockholders who own in the aggregate 1,529,970
shares of Class A Common Stock and 11,697,837 shares of Class B Common Stock
have agreed that, during the period beginning from the date of this Prospectus
and continuing to and including the date 180 days after the date of this
Prospectus, they will not offer, sell, contract to sell or otherwise dispose
of any shares of Class A or Class B Common Stock or other securities of the
Company which are substantially similar to the shares of Class A or Class B
Common Stock or securities which are convertible or exchangeable into Class A
or Class B Common Stock or securities which are substantially similar to the
shares of Class A or Class B Common Stock without the prior written consent of
the Representatives, except for the shares of Class B Common Stock offered in
connection with the concurrent U.S. and international offerings.
In addition to the 4,250,000 shares of Class B Common Stock offered by the
U.S. and International Underwriters to the public, the Company is hereby
offering 600,000 shares of Class B Common Stock directly to holders of the
Series A Preferred Stock. The Underwriters will not participate in, or receive
any discount or commission on, any sale of such shares being sold by the
Company directly to such holders. The closing of the U.S. and international
offerings through the Underwriters is conditioned upon the closing of the
Company's direct offering of such 600,000 shares.
The Representatives have informed the Company that they do not expect sales
to accounts over which the Underwriters have discretionary authority to exceed
five percent of the total number of shares of Class B Common Stock offered by
them.
Prior to this offering, there has been no public market for the shares of
Class B Common Stock. The initial public offering price will be negotiated
among the Company, the Representatives and the representatives of the
International Underwriters. Among the factors to be considered in determining
the initial public offering price of the Class B Common Stock, in addition to
prevailing market conditions, are the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
U-2
<PAGE>
Application has been made for quotation of the Class B Common Stock on the
Nasdaq National Market under the symbol "BERW".
The Company has agreed to indemnify the several Underwriters against certain
liabilities including liabilities under the Securities Act of 1993.
In connection with this offering, the Underwriters may purchase and sell
shares of Class B Common Stock in the open market. These transactions may
include over-allotment and stabilizing transactions and purchases to cover
syndicate short positions created in connection with this offering.
Stabilizing transactions consist of certain bids or purchases for the purpose
of preventing or retarding a decline in the market price of the Class B Common
Stock; and syndicate short positions involve the sale by the Underwriters of a
greater number of shares of Class B Common Stock than they are required to
purchase from the Company in this offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the shares of Class B Common Stock sold in this
offering may be reclaimed by the syndicate if such shares are repurchased by
the syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Class B Common
Stock, which may be higher than the price that might otherwise prevail in the
open market; and these activities, if commenced, may be discontinued at any
time. These transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise.
Certain of the Underwriters have provided from time to time, and expect to
provide in the future, investment banking services to the Company and its
affiliates, for which such Underwriters have received and will receive
customary fees and commissions.
This Prospectus may be used by Underwriters and dealers in connection with
offers and sales of the Class B Common Stock, including shares initially sold
in the international offering to persons located in the United States.
U-3
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
The Company............................................................... 15
Dividend Policy........................................................... 17
Use of Proceeds........................................................... 18
Capitalization............................................................ 18
Dilution.................................................................. 19
Selected Consolidated Financial Data...................................... 20
Supplemental Consolidated Financial Data.................................. 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 32
Management................................................................ 46
Certain Transactions...................................................... 51
Principal Stockholders.................................................... 54
Description of Capital Stock.............................................. 56
Description of Credit Agreement........................................... 60
Shares Eligible for Future Sale........................................... 61
Legal Matters............................................................. 63
Experts................................................................... 63
Additional Information.................................................... 63
Index to Consolidated Financial Statements................................ F-1
Underwriting ............................................................. U-1
</TABLE>
---------------
UNTIL , 1997 (THE 25TH DAY AFTER THE DATE OF THIS PROSPECTUS), ALL DEAL-
ERS EFFECTING TRANSACTIONS IN THE CLASS B COMMON STOCK, WHETHER OR NOT PARTIC-
IPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS OR WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,850,000 SHARES
BERINGER WINE
ESTATES HOLDINGS, INC.
CLASS B COMMON STOCK
(PAR VALUE $.0001 PER SHARE)
--------------
[LOGO]
--------------
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
HAMBRECHT & QUIST
SMITH BARNEY INC.
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions. All amounts are estimated except the Securities and Exchange
Commission registration fee, the National Association of Securities Dealers,
Inc. filing fee and the Nasdaq Stock Market listing fee.
<TABLE>
<CAPTION>
PAYABLE BY
REGISTRANT
----------
<S> <C>
SEC registration fee............................................. $ 36,730
National Association of Securities Dealers, Inc. filing fee...... 12,621
Nasdaq Stock Market listing fee.................................. 50,000
Blue Sky fees and expenses....................................... 5,000
Accounting fees and expenses..................................... 400,000
Legal fees and expenses.......................................... 350,000
Printing and engraving expenses.................................. 200,000
Registrar and Transfer Agent's fees.............................. 15,000
Miscellaneous fees and expenses.................................. 24,393
----------
Total ......................................................... $1,100,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). Article VII of the
Registrant's Restated Certificate of Incorporation (Exhibit 3.(i)1 hereto) and
Article V of the Registrant's Bylaws (Exhibit 3.(ii)2 hereto) provide for
indemnification of the Registrant's directors, officers, employees and other
agents to the extent and under the circumstances permitted by the Delaware
General Corporation Law. The Registrant has also entered into agreements with
its directors and officers that will require the Registrant, among other
things, to indemnify them against certain liabilities that may arise by reason
of their status or service as directors or officers to the fullest extent not
prohibited by law.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by the
Underwriters of the Registrant, its directors and officers, and by the
Registrant of the Underwriters, for certain liabilities, including liabilities
arising under the Act, and affords certain rights of contribution with respect
thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since May 1995, the Registrant has sold and issued the following
unregistered securities (share numbers and dollar amounts do not reflect the
two-for-one split to be effected in connection with this offering):
(a) In May 1995, the Registrant sold 5,000 shares of Common Stock to
accredited investors for an aggregate consideration of $5,000 in cancellation
of indebtedness. The Registrant relied on the exemption provided by Rule 506
under Regulation D and Section 4(2) of the Act. In December 1995, these shares
were converted into an aggregate of 35,000 shares of Class A Common and
315,000 shares of Class B Common Stock in connection with the Acquisition.
II-1
<PAGE>
(b) In January 1996, the Registrant sold to accredited investors (i) 50,000
shares of Series A Preferred Stock at a price of $89.70 per share and 147,000
shares of Series A Preferred Stock at a price of $90.31 per share, (ii)
385,000 shares of Class A Common Stock at a price of $10.00 per share and
78,960 shares of Class A Common Stock at a price of $10.04 per share and (iii)
3,721,930 shares of Class B Common Stock at a price of $10.00 per share and
758,940 shares of Class B Common Stock at a price of $10.04 per share, for an
aggregate consideration of $67,242,301. The Registrant relied on the exemption
provided by Rule 506 under Regulation D and Section 4(2) of the Act.
(c) In January 1996, the Registrant sold to certain employees (i) 3,000
shares of Series A Preferred Stock at a price of $90.31 per share, (ii) 5,040
shares of Class A Common Stock at a price of $10.04 per share and (iii) 48,443
of Class B Common Stock at a price of $10.04 per share, for an aggregate
consideration of $807,850. The Registrant relied on the exemption provided for
by Rule 701 under the Act and Section 4(2) of the Act.
(d) In January 1996, the Registrant issued warrants to purchase 215,806
shares of Class B Common Stock to accredited investors at an exercise price of
$.01, in partial consideration for such accredited investors' lending
$35,000,000 to the Registrant in exchange for subordinated notes of equal
value. The Registrant relied on the exemption provided by Rule 506 under
Regulation D and Section 4(2) of the Act.
(e) In January 1996, the Registrant sold an option to purchase 348,990
shares of Class B Common Stock, at an exercise price of $12.00 to accredited
investors at a price of $.05 per share, for an aggregate consideration of
$17,450. The Registrant relied on the exemption provided by Section 4(2) of
the Act.
(f) In March 1996, the Registrant sold a total of 472,500 shares of Class B
Common Stock to accredited investors at a price of $10.00 per share, for an
aggregate consideration of $4,725,000. The Registrant relied on the exemption
provided by Rule 506 under Regulation D and Section 4(2) of the Act.
(g) In September 1996, the Registrant sold to certain employees (i) 3,548
shares of Series A Preferred Stock at a price of $89.70 per share, (ii) 5,990
shares of Class A Common Stock at a price of $10.00 per share and (iii)
112,190 shares of Class B Common Stock at a price of $10.00 per share, for an
aggregate consideration of $1,500,000. The Registrant relied on the exemption
provided for by Rule 701 under the Act and Section 4(2) of the Act.
(h) In February 1997, the Registrant sold 389,717 shares of Class B Common
Stock to accredited investors at a price of $12.00 per share, for an aggregate
consideration of $4,676,604. The Registrant relied on the exemption provided
by Rule 506 under Regulation D and Section 4(2) of the Act.
(i) In February 1997, the Registrant sold 26,950 shares of Class B Common
Stock to employees at a price of $12.00 per share, for an aggregate
consideration of $323,400. The Registrant relied on the exemption provided for
by Rule 701 under the Act and Section 4(2) of the Act.
(j) On August 15, 1997, the Registrant issued 30,000 shares of Class B
Common Stock pursuant to the exercise of an option granted to a consultant of
the Company. The Company relied on the exemption provided for by Section 4(2)
of the Act. The option was exercised at $10.00 per share for aggregate
consideration of $300,000.
The recipients of the above-described securities represented their intention
to acquire the securities for investment only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock
certificates and warrants issued in such transactions. All recipients had
adequate access, through employment or other relationships, to information
about the Registrant.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Stock Purchase Agreement by and among Nestle Holdings, Inc., NOTG
Holdings, Inc., Silverado Partners Acquisition Corp. and TPG
Partners, L.P., dated as of November 17, 1995, as amended on
December 28, 1995.
3.(i)1 Certificate of Incorporation.
3.(i)2* Form of Certificate of Amendment of Restated Certificate of
Incorporation to be filed prior to the effective date of this
Registration Statement.
3.(i)3* Form of Restated Certificate of Incorporation, to be filed upon the
closing of the offering to which this Registration Statement
relates.
3.(ii)1 Bylaws of the Registrant.
3.(ii)2* Proposed Amended and Restated Bylaws of the Registrant.
4.1 Form of Common Stock Certificate.
5.1* Legal opinion of Pillsbury Madison & Sutro LLP.
10.1 Registrant's 1996 Stock Option Plan ("1996 Stock Plan").
10.2 Form of Incentive Stock Option Agreement under the 1996 Stock Plan.
10.3 Form of Nonstatutory Stock Option Agreement under the 1996 Stock
Plan.
10.4 Registrant's Employee Stock Purchase Plan.
10.5 Registrant's 1998 Stock Option Plan.
10.6 Form of Indemnity Agreement between the Registrant and its officers
and directors.
10.7 Second Amended and Restated Credit Agreement between Beringer Wine
Estates Company and Pacific Coast Farm Credit Services, ACA, as
agent on behalf of several lenders, dated as of February 28, 1997.
10.8 Amended and Restated Stockholders Rights Agreement and Voting
Agreement by and between the Registrant and certain holders of the
Registrant's Common Stock, dated as of June 7, 1996.
10.9* Wine Distributorship Agreement between Registrant and Southern Wine
& Spirits of America, Inc. effective as of October 1, 1996, as
amended.
10.10 Grape, Juice and Wine Purchase Agreement between Delicato Vineyards
and the Registrant dated December 31, 1996.+
10.11 Five Year Evergreen Contract for White Zinfandel Wine from Lodi
between Registrant and Bronco Wine Company dated May 15, 1997, as
revised June 3, 1997.+
10.12* Form of Silverado Option Agreement.
11.1 Statement Regarding Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP (included on page II-7 of this
Registration Statement).
23.2* Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 5.1).
24.1 Power of Attorney (included on pages II-5 and II-6 of this
Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
- --------
+ Confidential Treatment requested with respect to certain portion of these
agreements.
* To be filed by amendment.
II-3
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II Valuation and Qualifying Accounts
Schedules other than those referred to above have been omitted because they
are not applicable or not required or because the information is included
elsewhere in the Financial Statements or the notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Act shall be deemed to be part of this registration statement as of the time
it was declared effective.
(2) For the purpose of determining any liability under the Act, each post-
effective amendment that contains a form of prospectus shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) It will provide to the underwriters at the closing(s) specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of St. Helena, State of
California, on the 27th day of August, 1997.
BERINGER WINE ESTATES HOLDINGS, INC.
/s/ Walter T. Klenz
By __________________________________
Walter T. Klenz
President and Chief Executive
Officer and
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Walter T. Klenz, Peter F. Scott and Douglas W.
Roberts, and each of them, his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments, including post-effective amendments, to this Registration
Statement, and any registration statement relating to the offering covered by
this Registration Statement and filed pursuant to Rule 462(b) under the
Securities Act of 1933, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that each of
said attorneys-in-fact and agents or their substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Walter T. Klenz President and Chief August 27, 1997
____________________________________ Executive Officer
Walter T. Klenz (Principal Executive
Officer) and Director
/s/ Peter F. Scott Senior Vice President, August 27, 1997
____________________________________ Finance and Operations and
Peter F. Scott Chief Financial Officer
(Principal Financial
Officer and Accounting
Officer)
____________________________________ Director August 27, 1997
James G. Coulter
____________________________________ Director August 27, 1997
William S. Price III
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Richard Adams Director August 27, 1997
____________________________________
Richard Adams
/s/ David Bonderman Director August 27, 1997
____________________________________
David Bonderman
/s/ Randy Christofferson Director August 19, 1997
____________________________________
Randy Christofferson
/s/ Timm F. Crull Director August 27, 1997
____________________________________
Timm F. Crull
/s/ William A. Franke Director August 25, 1997
____________________________________
William A. Franke
/s/ E. Michael Moone Director August 27, 1997
____________________________________
E. Michael Moone
/s/ Jesse Rogers Director August 20, 1997
____________________________________
Jesse Rogers
/s/ George A. Vare Director August 27, 1997
____________________________________
George A. Vare
</TABLE>
II-6
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated August 15, 1997, except
as to the stock split described in Note 1 which is as of August 25, 1997,
relating to the financial statements of Beringer Wine Estates Holding, Inc.,
which appears in such Prospectus. We also consent to the application of such
report to the Financial Statement Schedules for the years ended June 30, 1995
and 1997 and the six month periods ended December 31, 1995 and June 30, 1996
listed under Item 16(b) of this Registration Statement when such schedules are
read in conjunction with the financial statements referred to in our report.
The audits referred to in such report also included these schedules. We also
consent to the references to us under the headings "Experts" and "Selected
Consolidated Financial Data" in such Prospectus. However, it should be noted
that Price Waterhouse LLP has not prepared or certified such "Selected
Consolidated Financial Data."
PRICE WATERHOUSE LLP
San Francisco, California
August 27, 1997
II-7
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
OF YEAR EXPENSES DEDUCTIONS OF YEAR
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1995:
Allowance for uncollectible
accounts $176 $ 1 $ (2) $175
PERIOD ENDED DECEMBER 31, 1995:
Allowance for uncollectible
accounts 175 -- (1) 174
PERIOD ENDED JUNE 30, 1996:
Allowance for uncollectible
accounts 174 -- -- 174
YEAR ENDED JUNE 30, 1997:
Allowance for uncollectible
accounts 174 210 (133) 251
</TABLE>
<PAGE>
EXHIBIT 1.1
BERINGER WINE ESTATES HOLDINGS, INC.
CLASS B COMMON STOCK
(PAR VALUE $.0001 PER SHARE)
______________
UNDERWRITING AGREEMENT
(U.S. VERSION)
_________________________
, 1997
Goldman, Sachs & Co.,
Donaldson, Lufkin & Jenrette Securities Corporation,
Hambrecht & Quist LLC,
Smith Barney Inc.,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
555 California Street
San Francisco, California 94104
Ladies and Gentlemen:
Beringer Wine Estates Holdings, Inc., a Delaware corporation (the
"Company"), proposes, subject to the terms and conditions stated herein, to
issue and sell to the Underwriters named in Schedule I hereto (the
"Underwriters") an aggregate of 3,400,000 shares (the "Firm Shares") and, at the
election of the Underwriters, up to 336,000 additional shares (the "Optional
Shares") of Class B Common Stock, par value $.0001 per share ("Stock"), of the
Company (the Firm Shares and the Optional Shares that the Underwriters elect to
purchase pursuant to Section 2 hereof being collectively called the "Shares").
It is understood and agreed to by all parties that the Company is
concurrently entering into an agreement (the "International Underwriting
Agreement") providing for the sale by the Company of up to a total of 934,000
shares of Stock (the "International Shares"), including the overallotment option
thereunder, through arrangements with certain underwriters outside the United
States (the "International Underwriters"), for whom Goldman Sachs International,
Donaldson, Lufkin & Jenrette International, Hambrecht & Quist LLC and Smith
Barney Inc. are acting as lead managers. Anything herein or therein to the
contrary notwithstanding, the respective closings under this Agreement and the
International Agreement are hereby expressly made conditional on one another and
on the closing of the purchase and sale of the Direct Shares (as defined below).
The Underwriters hereunder and the International Underwriters are simultaneously
entering into an Agreement between U.S. and International Underwriting
Syndicates (the "Agreement between Syndicates") which provides, among other
things, for the transfer of shares of Stock between the two syndicates. Two
forms of prospectus are to be used in connection with the offering and sale of
shares of Stock contemplated by the foregoing, one relating to the Shares
hereunder and the other relating to the International Shares. The latter form
of prospectus will be identical to the former except for certain substitute
pages. Except as used in Sections 2, 3, 4, 9 and 11 herein, and except as the
<PAGE>
context may otherwise require, references hereinafter to the Shares shall
include all the shares of Stock which may be sold pursuant to either this
Agreement or the International Underwriting Agreement, and references herein to
any prospectus whether in preliminary or final form, and whether as amended or
supplemented, shall include both the U.S. and the international versions
thereof.
It is understood and agreed to by all parties that the Company is
concurrently entering into an agreement (the "Direct Sale Agreement") with
certain holders of its Series A Non-Voting Pay-in-Kind Preferred Stock (the
"Preferred Stockholders") providing for the sale by the Company to the Preferred
Stockholders of an aggregate of 600,000 shares of Stock (the "Direct Shares").
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-....) (the
"Initial Registration Statement") in respect of the Shares and Direct
Shares has been filed with the Securities and Exchange Commission (the
"Commission"); the Initial Registration Statement and any post-effective
amendment thereto, each in the form heretofore delivered to you, and,
excluding exhibits thereto, to you for each of the other Underwriters, have
been declared effective by the Commission in such form; other than a
registration statement, if any, increasing the size of the offering (a
"Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b) under
the Securities Act of 1933, as amended (the "Act"), which became effective
upon filing, no other document with respect to the Initial Registration
Statement has heretofore been filed with the Commission; and no stop order
suspending the effectiveness of the Initial Registration Statement, any
post-effective amendment thereto or the Rule 462(b) Registration Statement,
if any, has been issued and no proceeding for that purpose has been
initiated or threatened by the Commission (any preliminary prospectus
included in the Initial Registration Statement or filed with the Commission
pursuant to Rule 424(a) of the rules and regulations of the Commission
under the Act, is hereinafter called a "Preliminary Prospectus"; the
various parts of the Initial Registration Statement and the Rule 462(b)
Registration Statement, if any, including all exhibits thereto and
including the information contained in the form of final prospectus filed
with the Commission pursuant to Rule 424(b) under the Act in accordance
with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to
be part of the Initial Registration Statement at the time it was declared
effective or such part of the Rule 462(b) Registration Statement, if any,
became or hereafter becomes effective, each as amended at the time such
part of the registration statement became effective, are hereinafter
collectively called the "Registration Statement"; and such final
prospectus, in the form first filed pursuant to Rule 424(b) under the Act,
is hereinafter called the "Prospectus");
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein;
2
<PAGE>
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the Company
by an Underwriter through Goldman, Sachs & Co. expressly for use therein;
(d) Neither the Company nor any of its direct or indirect subsidiaries
(hereinafter, "subsidiaries") has sustained since the date of the latest
audited financial statements included in the Prospectus any material loss
or interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Prospectus; and, since the respective dates as of
which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock or short-
term or long-term debt of the Company or any of its subsidiaries or any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries, otherwise than as set forth or contemplated
in the Prospectus;
(e) The Company and its subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all
personal property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held
under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries;
(f) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware and
each subsidiary of the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, in each case with power and authority
(corporate and other) to own its properties and conduct its business as
described in the Prospectus, and has been duly qualified as a foreign
corporation for the transaction of business and is in good standing under
the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, or is subject
to no material liability or disability by reason of the failure to be so
qualified in any such jurisdiction;
(g) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and non-
assessable and conform to the description of the Stock contained in the
Prospectus; and all of the issued shares of capital
3
<PAGE>
stock of each subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and (except for
directors' qualifying shares) are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or claims;
(h) The unissued Shares and Direct Shares to be issued and sold by the
Company to the Underwriters hereunder and under the International
Underwriting Agreement and to the Preferred Stockholders under the Direct
Sales Agreement, respectively, have been duly and validly authorized and,
when issued and delivered against payment therefor as provided herein, in
the International Underwriting Agreement and the Direct Sale Agreement,
will be duly and validly issued and fully paid and non-assessable and will
conform to the description of the Stock contained in the Prospectus;
(i) The issue and sale of the Shares and Direct Shares by the Company
hereunder and under the International Underwriting Agreement and the Direct
Sale Agreement and the compliance by the Company with all of the provisions
of this Agreement and the International Underwriting Agreement and the
Direct Sale Agreement and the consummation of the transactions herein and
therein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any of its subsidiaries is
a party or by which the Company or any of its subsidiaries is bound or to
which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such action result in any violation of
the provisions of the Certificate of Incorporation or By-laws of the
Company or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of
its subsidiaries or any of their properties; and no consent, approval,
authorization, order, registration or qualification of or with any such
court or governmental agency or body is required for the issue and sale of
the Shares or the Direct Shares or the consummation by the Company of the
transactions contemplated by this Agreement, the International Underwriting
Agreement and the Direct Sale Agreement, except the registration under the
Act of the Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required under state or foreign
securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters and the International
Underwriters and the purchase by the Preferred Stockholders of the Direct
Shares;
(j) Neither the Company nor any of its subsidiaries is in violation of
its Certificate of Incorporation, By-laws or other governing documents or
in default in the performance or observance of any obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument to which it is a
party or by which it or any of its properties may be bound, except for any
such defaults as would not, individually or in the aggregate, have a
material adverse effect on the general affairs, management, financial
position, stockholders' equity, results of operations or prospects of the
Company and its subsidiaries (a "Material Adverse Effect");
(k) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock, and under the caption "Underwriting",
insofar as they purport to describe the provisions of the laws and
documents referred to therein, are accurate, complete and fair;
4
<PAGE>
(l) Other than as set forth or contemplated in the Prospectus, there
are no legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property of the Company
or any of its subsidiaries is the subject which, if determined adversely to
the Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the current or future
consolidated financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; and, to the best of the
Company's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(m) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
(n) All outstanding shares of the capital stock of Beringer Wine
Estates Company, a Delaware corporation ("Beringer Estates"), are owned
directly by the Company; and Beringer Estates is the only subsidiary of the
Company that is material to the financial position, stockholders' equity or
results of operations of the Company and its subsidiaries. Beringer
Vineyards (Europe) S.A., a Swiss corporation, and Beringer Wine Estates
Foreign Sales Corporation, a Barbados corporation, are the only
subsidiaries of the Company incorporated in a jurisdiction other than a
State, territory or possession of the United States and neither the assets
of nor the revenues generated by either of such subsidiaries is material to
the general affairs, management, financial position, stockholders' equity
or results of operations of the Company;
(o) Price Waterhouse LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder;
(p) The Company and its subsidiaries own or possess adequate licenses
or other rights to use all trademarks, service marks, trade names,
copyrights and know-how necessary to conduct the business currently
conducted by the Company and its subsidiaries as described in the
Prospectus, except where the failure to own or possess adequate licenses or
other rights to use any of the foregoing would not have a Material Adverse
Effect; and, except as disclosed in the Prospectus, neither the Company nor
any of its subsidiaries has received any notice of infringement of or
conflict with (or knows of any such infringement of or conflict with)
rights of others with respect to its trademarks, service marks, trade
names, copyrights or know-how, except with respect to such infringements or
conflicts as do not have a Material Adverse Effect; and, except as
disclosed in the Prospectus, the Company and its subsidiaries do not in the
conduct of their businesses as currently conducted as described in the
Prospectus, infringe or conflict with any right of any third party known to
the Company or any of its subsidiaries, except for such infringements or
conflicts that do not have a Material Adverse Effect;
(q) The Company and its subsidiaries have obtained and have maintained
in good standing any and all licenses, permits, consents and authorizations
required to be obtained by them under all laws or regulations relating to
their respective businesses, including, without limitation, laws or
regulations relating to the importation, manufacture, production, wholesale
and retail sale, storage, labeling and distribution of wine
5
<PAGE>
(collectively, the "Laws"), and all such licenses, permits, consents and
authorizations remain in full force and effect. The Company and each of its
subsidiaries are in compliance with the Laws in all material respects and
there is no pending or, to the Company's or any of its subsidiaries'
knowledge, threatened, action or proceeding against the Company or any of
its subsidiaries relating to the Laws, other than any such actions or
proceedings which, individually or in the aggregate, if adversely
determined, would not have a material adverse effect on the current or
future consolidated financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; and
(r) Except as disclosed in the Prospectus, there is no pending or, to
the Company's knowledge, threatened proceeding, citation or notice of
violation under any environmental law or regulation applicable to the
Company or any of its subsidiaries or any of its or their equipment,
business or assets. There are no past or present events, conditions,
activities or practices that may prevent continued compliance by the
Company and its subsidiaries with any environmental law or regulation, or
that may give rise to any material liability with respect thereto, or
otherwise form the basis of any claim, action, proceeding or investigation
(1) under any environmental law or regulation, (2) based on or related to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge or release of
any hazardous material or (3) resulting from exposure to workplace hazards,
except for any such events, conditions, activities, practices, liabilities,
claims, actions, proceedings and investigations which, individually or in
the aggregate, if adversely determined, would not have a material adverse
effect on the current or future consolidated financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries. Neither the Company nor any of its subsidiaries is required
to make any material capital or other expenditures to comply with any
environmental law or regulation nor is there any reasonable basis upon
which any governmental authority could take any action that would require
any such material expenditure.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $........................, the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto and
(b) in the event and to the extent that the Underwriters shall exercise the
election to purchase Optional Shares as provided below, the Company agrees to
issue and sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company, at the purchase price
per share set forth in clause (a) of this Section 2, that portion of the number
of Optional Shares as to which such election shall have been exercised (to be
adjusted by you so as to eliminate fractional shares) determined by multiplying
such number of Optional Shares by a fraction, the numerator of which is the
maximum number of Optional Shares which such Underwriter is entitled to purchase
as set forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the maximum number of Optional Shares that all of the
Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 336,000 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the
6
<PAGE>
Company otherwise agree in writing, earlier than two or later than ten business
days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company, shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., through the facilities of the Depository Trust Company
("DTC"), for the account of such Underwriter, against payment by or on behalf of
such Underwriter of the purchase price therefor by wire transfer of federal
funds. The Company will cause the certificates representing the Shares to be
made available for checking and packaging at least twenty-four hours prior to
the Time of Delivery (as defined below) with respect thereto at the office of
DTC or its designated custodian (the "Designated Office"). The time and date of
such delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m.,
New York City time, on ............., 1997 or such other time and date as
Goldman, Sachs & Co. and the Company may agree upon in writing, and, with
respect to the Optional Shares, 9:30 a.m., New York time, on the date specified
by Goldman, Sachs & Co. in the written notice given by Goldman, Sachs & Co. of
the Underwriters' election to purchase such Optional Shares, or such other time
and date as Goldman, Sachs & Co. and the Company may agree upon in writing.
Such time and date for delivery of the Firm Shares is herein called the "First
Time of Delivery", such time and date for delivery of the Optional Shares, if
not the First Time of Delivery, is herein called the "Second Time of Delivery",
and each such time and date for delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the
cross receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(l) hereof, will be delivered at the
offices of Gibson, Dunn & Crutcher LLP, One Montgomery Street, San
Francisco, California 94104 (the "Closing Location"), and the Shares will
be delivered at the Designated Office, all at such Time of Delivery. A
meeting will be held at the Closing Location at .......p.m., New York City
time, on the New York Business Day next preceding such Time of Delivery, at
which meeting the final drafts of the documents to be delivered pursuant to
the preceding sentence will be available for review by the parties hereto.
For the purposes of this Section 4, "New York Business Day" shall mean each
Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York are generally authorized or obligated by
law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus which shall be disapproved by you promptly after reasonable
notice thereof; to advise you, promptly after it receives notice thereof,
of the time when any amendment to the Registration Statement has been filed
or becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish you with copies thereof; to
advise you, promptly after it receives notice thereof, of the issuance
7
<PAGE>
by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus, of the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any
such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for additional
information; and, in the event of the issuance of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or
prospectus or suspending any such qualification, promptly to use its best
efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete the
distribution of the Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to
furnish the Underwriters with copies of the Prospectus in New York City in
such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months
after the time of issue of the Prospectus in connection with the offering
or sale of the Shares and if at such time any event shall have occurred as
a result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or, if for any other reason it shall be
necessary during such period to amend or supplement the Prospectus in order
to comply with the Act, to notify you and upon your request to prepare and
furnish without charge to each Underwriter and to any dealer in securities
as many copies as you may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which will correct
such statement or omission or effect such compliance, and in case any
Underwriter is required to deliver a prospectus in connection with sales of
any of the Shares at any time nine months or more after the time of issue
of the Prospectus, upon your request but at the expense of such
Underwriter, to prepare and deliver to such Underwriter as many copies as
you may request of an amended or supplemented Prospectus complying with
Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and the
rules and regulations thereunder (including, at the option of the Company,
Rule 158);
(e) During the period beginning from the date hereof and continuing to
and including the date 180 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder and under the International Underwriting Agreement and Direct
Sale Agreement, any securities of the Company that are substantially
similar to the Shares, including but not limited to the Company's Class A
8
<PAGE>
Common Stock or any other securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee stock
option or purchase plans existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of this
Agreement), without your prior written consent;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company
and its consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the first
three quarters of each fiscal year (beginning with the fiscal quarter
ending after the effective date of the Registration Statement),
consolidated summary financial information of the Company and its
subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to
deliver to you (i) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any
national securities exchange on which any class of securities of the
Company is listed; and (ii) such additional information concerning the
business and financial condition of the Company as you may from time to
time reasonably request (such financial statements to be on a consolidated
basis to the extent the accounts of the Company and its subsidiaries are
consolidated in reports furnished to its stockholders generally or to the
Commission);
(h) To use the net proceeds received by it from the sale of the Shares
and Direct Shares pursuant to this Agreement, the International
Underwriting Agreement and the Direct Sale Agreement in the manner
specified in the Prospectus under the caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
Nasdaq National Market ("NASDAQ");
(j) To file with the Commission such reports on Form SR as may be
required by Rule 463 under the Act;
(k) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) by 10:00 p.m., Washington, D.C. time, on the date of this
Agreement, and the Company shall at the time of filing either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or
give irrevocable instructions for the payment of such fee pursuant to Rule
111(b) under the Act; and
(l) Prior to the execution and delivery of this Agreement, to obtain
and deliver to the Underwriters a written agreement from each of the
parties (other than the Company) to the Amended and Restated Stockholders
Rights Agreement and Voting Agreement, dated as of June 7, 1996, by and
among the Company and such other parties (the "Stockholders Agreement"),
and the Company's directors and officers who are not parties to the
Stockholders Agreement (collectively with such parties, the "Designated
Company Persons"), providing that such persons will not, during a period
beginning from the date hereof and continuing to and including the date 180
days after the First Trade
9
<PAGE>
Date, offer, sell, contract to sell or otherwise dispose of any Stock,
Class A Common Stock or any other securities of the Company, other than (i)
as a gift or gifts, or transfers to family trusts provided the donee or
donees thereof agree in writing to be bound by this restriction, or (ii)
with the prior written consent of Goldman, Sachs & Co.
6. The Company covenants and agrees with the several Underwriters that the
Company will pay or cause to be paid the following: (i) the fees, disbursements
and expenses of the Company's counsel and accountants in connection with the
registration of the Shares and Direct Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the International Underwriting
Agreement, the Agreement between Syndicates, the Selling Agreement, the Blue Sky
Memorandum, closing documents (including compilations thereof) and any other
documents in connection with the offering, purchase, sale and delivery of the
Shares and Direct Shares; (iii) all expenses in connection with the
qualification of the Shares for offering and sale under state securities laws as
provided in Section 5(b) hereof, including the fees and disbursements of counsel
for the Underwriters in connection with such qualification and in connection
with the Blue Sky survey; (iv) all fees and expenses in connection with listing
the Shares and Direct Shares on NASDAQ; (v) the filing fees incident to, and the
fees and disbursements of counsel for the Underwriters in connection with,
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of the sale of the Shares; (vi) the cost of preparing stock
certificates; (vii) the cost and charges of any transfer agent or registrar; and
(viii) all other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically provided for in this
Section. In addition, the Company agrees to cause the Direct Sale Agreement to
be executed and delivered by all parties thereto before or concurrently with the
execution and delivery of this Agreement. It is understood, however, that,
except as provided in this Section, and Sections 8 and 11 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of
their counsel, stock transfer taxes on resale of any of the Shares and Direct
Shares by them, and any advertising expenses connected with any offers they may
make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
5(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 p.m.,
Washington, D.C. time, on the date of this Agreement; no stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been
complied with to your reasonable satisfaction;
(b) Gibson, Dunn & Crutcher LLP, counsel for the Underwriters, shall
have furnished to you such opinion or opinions (a draft of each such
opinion is attached as Annex II(a) hereto), dated such Time of Delivery,
with respect to the matters covered in paragraphs (i), (ii), (vi), (x) and
(xii) of subsection (c) below, as well as to the effect that the Company is
not an entity "controlled" by an "investment company", as such terms are
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defined in the Investment Company Act, and such other related matters as
you may reasonably request, and such counsel shall have received such
papers and information as they may reasonably request to enable them to
pass upon such matters;
(c) Pillsbury Madison & Sutro LLP, counsel for the Company, shall have
furnished to you their written opinion (a draft of each such opinion is
attached as Annex II(b) hereto), dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares being delivered at such Time of Delivery
and the Direct Shares) have been duly and validly authorized and
issued and are fully paid and nonassessable; and the Shares and Direct
Shares conform to the description of the Stock contained in the
Prospectus;
(iii) The Company and Beringer Estates have been duly qualified
as foreign corporations for the transaction of business in the State
of California, and the Company and its subsidiaries are in good
standing under the laws of each other jurisdiction in which they are
so qualified;
(iv) Each United States subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation; and all of the
issued shares of capital stock of each such subsidiary have been duly
and validly authorized and issued, are fully paid and non-assessable,
and (except for directors' qualifying shares) are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims (such counsel being entitled to rely in respect of
the opinion in this clause upon opinions of local counsel and in
respect of matters of fact upon certificates of executive officers of
the Company or its subsidiaries);
(v) To such counsel's knowledge (and after a search of the
dockets of the United States District Courts for the Northern District
of California and Delaware, the Delaware Chancery Court and the
California State Superior Courts located in San Francisco and Napa
Counties) and other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any
of its subsidiaries is a party or of which any property of the Company
or any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the
current or future consolidated financial position, stockholders'
equity or results of operations of the Company and its subsidiaries;
and, to such counsel's knowledge, no such proceedings are threatened
or contemplated by governmental authorities or threatened by others;
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(vi) This Agreement, the International Underwriting Agreement and
the Direct Sale Agreement have been duly authorized, executed and
delivered by the Company;
(vii) Neither the issue and sale of the Shares being delivered
at such Time of Delivery by the Company nor the issue and sale of the
Direct Shares being delivered to the Preferred Stockholders at the
closing of such issue and sale (the "Direct Sale Closing"), nor the
compliance by the Company with all of the provisions of this
Agreement, the International Underwriting Agreement and the Direct
Sale Agreement, nor the consummation of the transactions herein and
therein contemplated will conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument known to such counsel to which the
Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound or to which any of the property or
assets of the Company or any of its subsidiaries is subject, nor will
such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of the Company or any statute
or any order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the Company or
any of its subsidiaries or any of their properties;
(viii) No consent, approval, authorization, order, registration
or qualification of or with any such court or governmental agency or
body is required for the issue and sale of the Shares or the Direct
Shares or the consummation by the Company of the transactions
contemplated by this Agreement, the International Underwriting
Agreement and the Direct Sale Agreement, except the registration under
the Act of the Shares and the Direct Shares, and such consents,
approvals, authorizations, registrations or qualifications as may be
required under state or foreign securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the
Underwriters and the International Underwriters and the purchase, by
the Preferred Stockholders of the Direct Shares;
(ix) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or other
governing documents;
(x) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute
a summary of the terms of the Stock, under the caption "Certain U.S.
Tax Considerations Applicable to Non-U.S. Holders of Class B Common
Stock" and under the caption "Underwriting", insofar as they purport
to describe the provisions of the laws and documents referred to
therein, are fair and accurate summaries thereof;
(xi) The Company is not an "investment company" as such term is
defined in the Investment Company Act;
(xii) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior
to such Time of Delivery (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the
requirements of the Act and the rules and regulations thereunder,
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although they do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, except for those referred to
in the opinion in subsection (x) of this Section 7(c); they have no
reason to believe that, as of its effective date, the Registration
Statement or any further amendment thereto made by the Company prior
to such Time of Delivery (other than the financial statements and
related statements and related schedules therein, as to which such
counsel need express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading or that, as of its date, the Prospectus or any further
amendment or supplement thereto made by the Company prior to such Time
of Delivery (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion) contained
an untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading or that, as
of such Time of Delivery, either the Registration Statement or the
Prospectus or any further amendment or supplement thereto made by the
Company prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such counsel
need express no opinion) contains an untrue statement of a material
fact or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; and they do not know of any amendment to
the Registration Statement required to be filed or of any contracts or
other documents of a character required to be filed as an exhibit to
the Registration Statement or required to be described in the
Registration Statement or the Prospectus which are not filed or
described as required; and that, in connection with the matters
addressed in this paragraph, they performed the following
investigation with respect to all real property purportedly owned or
leased by the Company or any of its subsidiaries: (1) a lien and
encumbrance search, (2) a review of title insurance policies obtained
by the Company, and (3) a review of lease agreements relating to real
property leased by the Company or any of its subsidiaries;
(xiii) The Company and each of its subsidiaries have all
necessary licenses from the California Department of Alcohol Beverage
Control and necessary permits from the U.S. Bureau of Alcohol, Tobacco
and Firearms which these regulatory agencies require to permit the
manufacture and sale of alcoholic beverages;
(xiv) No authorization, approval or consent of either the
California Department of Alcoholic Beverage Control or the U.S. Bureau
of Alcohol, Tobacco and Firearms is required for the sale of the Stock
by the Company to the Underwriters pursuant to this Agreement;
(xv) To such counsel's knowledge, there are no actions, suits or
proceedings pending or threatened against the Company or any of its
subsidiaries by the California Department of Alcohol Beverage Control
or the U.S. Bureau of Alcohol, Tobacco and Firearms to suspend or
revoke the licenses and permits referred to in paragraph (c)(xiii)
above; and
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(xvi) The Direct Sale Closing has occurred.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction outside the United States.
(d) Sughrue, Mion, Zinn, MacPeak & Seas, PLLC, special counsel to the
Company, shall have furnished to you their written opinion (a draft of each
such opinion is attached as Annex II(c) hereto), dated such Time of
Delivery, in form and substance satisfactory to you, to that effect that:
(i) The statements made in the Prospectus under the heading
"Business - Trademarks", to the extent that they constitute matters of
law or legal conclusions, have been reviewed by such counsel and
fairly present the information disclosed therein.
(ii) The Company is the sole owner of the following United States
trademark registrations for wine:
1,354,578 for "BERINGER";
1,987,337 for "STAGS' LEAP";
1,116,457 for "STAGS' LEAP & DESIGN";
1,116,456 for "STAGS' LEAP VINEYARD";
2,047,396 for "CHATEAU SOUVERAIN";
2,050,704 for "NAPA RIDGE";
1,685,514 for "COASTAL RIDGE";
2,032,043 for "MERIDIAN VINEYARDS"; and
1,685,517 for "CHATEAU ST. JEAN".
(iii) The Company is the sole owner of the following trademark
registrations in the countries indicated below:
"BERINGER" in Aruba, Barbados, Canada, Finland, Hong Kong,
Ireland, Italy, Japan, South Korea, Netherlands Antilles,
Singapore, Republic of China (Taiwan), Thailand, Trinidad &
Tobago and the United Kingdom;
"BERINGER VINEYARDS" in Benelux;
"BERINGER VINEYARDS & CASTLE DESIGN" in Austria, France,
Germany, Liechtenstein, Monaco, Spain, Sweden and Switzerland;
"NAPA RIDGE" in Aruba, Barbados, Canada, Japan, South Korea,
Netherlands Antilles, Singapore, Republic of China (Taiwan) and
Thailand;
"CHATEAU SOUVERAIN" in Aruba, Barbados, Canada, Denmark,
Netherlands Antilles and Switzerland;
"SOUVERAIN" in Canada;
"MERIDIAN" in Canada; and
"COASTAL RIDGE" in Austria, Benelux, Denmark, Finland,
France, Germany, Ireland, Italy, Liechtenstein, Monaco, Norway,
Spain, Sweden, Switzerland and the United Kingdom.
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The Company is also the owner of pending United States applications for
registration of "ALLUVIUM", "CAMPANILE", "CHATEAU ST. JEAN LA PETITE. . .",
"RIVEFORT", "HUDSON ESTATE", "HUDSON HOUSE CUVEE" and "WINE ESTATES COMPANY" for
wine. The Company is also the owner of the following pending applications for
trademark registration outside the United States: "RIVEFORT" in France and
"BERINGER" in China (English and Chinese).
The right to use the trademarks of United States registrations 1,354,578,
1,685,514,1,116,457 and 1,116,456 has become incontestable pursuant to the
provisions of Title 15, Section 1065, of the United States Code.
(e) Douglas W. Roberts, the Company's General Counsel, shall have
furnished to you his written opinion (a draft of such opinion is attached
as Annex II(d) hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) Neither the Company nor any of its subsidiaries is in default
in the performance or observance of any obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which
it is a party or by which it or any of its properties may be bound,
except for such defaults that do not have a Material Adverse Effect;
and
(ii) Each of the Company and its United States subsidiaries has
been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, or is subject to no
material liability or disability by reason of failure to be so
qualified in any such jurisdiction (such counsel being entitled to
rely upon opinions of local counsel and in respect of matters of fact
upon certificates of executive officers of the Company, provided that
he states that he believes that both you and he are justified in
relying on such opinions and certificates and provided that signed
originals of such opinions and certificates have been furnished to
you);
(f) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of
any post-effective amendment to the Registration Statement filed subsequent
to the date of this Agreement and also at each Time of Delivery, Price
Waterhouse LLP shall have furnished to you a letter or letters, dated the
respective dates of delivery thereof, in form and substance satisfactory to
you, to the effect set forth in Annex I hereto;
(g)(i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus,
and (ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock or
short-term or long-term debt of the Company or any of its subsidiaries or
any change, or any development involving a prospective change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or
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contemplated in the Prospectus, the effect of which, in any such case
described in Clause (i) or (ii), is in the judgment of the Representatives
so material and adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Shares being
delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(h) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on NASDAQ; (ii) a
suspension or material limitation in trading in the Company's securities on
NASDAQ; (iii) a general moratorium on commercial banking activities
declared by either Federal or New York or California State authorities; or
(iv) the outbreak or escalation of hostilities involving the United States
or the declaration by the United States of a national emergency or war, if
the effect of any such event specified in this Clause (iv) in the judgment
of the Representatives makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares being delivered at
such Time of Delivery on the terms and in the manner contemplated in the
Prospectus;
(i) The Shares to be sold at such Time of Delivery shall have been
duly listed for quotation on NASDAQ;
(j) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from each of the Company Designated
Persons, substantially to the effect set forth in subsection 5(e) hereof in
form and substance satisfactory to you;
(k) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement;
(l) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as to
the performance by the Company of all of its obligations hereunder to be
performed at or prior to such Time of Delivery, as to the matters set forth
in subsections (a) and (e) of this Section and as to such other matters as
you may reasonably request;
(m) The Company shall have effected a two-to-one split of its Class A
Common Stock and reduced the number of votes per share from 20 to 10; and
the Company shall have restructured its Board of Directors so as to reduce
the maximum number of members from 15 to 11; and
(n) The Direct Sale Closing shall have occurred.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to
which such Underwriter may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment
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or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending
any such action or claim as such expenses are incurred; provided, however,
that the Company shall not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the Registration Statement or
the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or
alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance
upon and in conformity with written information furnished to the Company by
such Underwriter through Goldman, Sachs & Co. expressly for use therein;
and will reimburse the Company for any legal or other expenses reasonably
incurred by the Company in connection with investigating or defending any
such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the omission
so to notify the indemnifying party shall not relieve it from any liability
which it may have to any indemnified party otherwise than under such
subsection. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying
party shall not be liable to such indemnified party under such subsection
for any legal expenses of other counsel or any other expenses, in each case
subsequently incurred by such indemnified party, in connection with the
defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified
party, effect the settlement or compromise of, or consent to the entry of
any judgment with respect to, any pending or threatened action or claim in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to
such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all
liability arising out
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of such action or claim and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of any
indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Shares.
If, however, the allocation provided by the immediately preceding sentence
is not permitted by applicable law or if the indemnified party failed to
give the notice required under subsection (c) above, then each indemnifying
party shall contribute to such amount paid or payable by such indemnified
party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one
hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Shares
purchased under this Agreement (before deducting expenses) received by the
Company bear to the total underwriting discounts and commissions received
by the Underwriters with respect to the Shares purchased under this
Agreement, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates
to information supplied by the Company on the one hand or the Underwriters
on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this subsection (d) were
determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which
does not take account of the equitable considerations referred to above in
this subsection (d). The amount paid or payable by an indemnified party as
a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (d) shall be deemed
to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this subsection (d) to contribute are several
in proportion to their respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same
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terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters
under this Section 8 shall be in addition to any liability which the
respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and to
each person, if any, who controls the Company within the meaning of the
Act.
9. (a) If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder at a Time of
Delivery, you may in your discretion arrange for you or another party or
other parties to purchase such Shares on the terms contained herein. If
within thirty-six hours after such default by any Underwriter you do not
arrange for the purchase of such Shares, then the Company shall be entitled
to a further period of thirty-six hours within which to procure another
party or other parties satisfactory to you to purchase such Shares on such
terms. In the event that, within the respective prescribed periods, you
notify the Company that you have so arranged for the purchase of such
Shares, or the Company notifies you that it has so arranged for the
purchase of such Shares, you or the Company shall have the right to
postpone such Time of Delivery for a period of not more than seven days, in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby
be made necessary. The term "Underwriter" as used in this Agreement shall
include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to
such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased does not exceed one-eleventh of the
aggregate number of all the Shares to be purchased at such Time of
Delivery, then the Company shall have the right to require each non-
defaulting Underwriter to purchase the number of Shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro
rata share (based on the number of Shares which such Underwriter agreed to
purchase hereunder) of the Shares of such defaulting Underwriter or
Underwriters for which such arrangements have not been made; but nothing
herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-eleventh of the aggregate
number of all the Shares to be purchased at such Time of Delivery, or if
the Company shall not exercise the right described in subsection (b) above
to require non-defaulting Underwriters to purchase Shares of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to the
Second Time of Delivery, the obligations of the Underwriters to purchase
and of the Company to sell the Optional Shares) shall thereupon terminate,
without liability on the part of any non-defaulting Underwriter or the
Company, except for the expenses to be borne by the Company and the
Underwriters as provided in Section 6 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing herein shall
relieve a defaulting Underwriter from liability for its default.
19
<PAGE>
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter in respect of the Shares not so
delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Secretary; provided, however, that any notice
to an Underwriter pursuant to Section 8(c) hereof shall be delivered or sent by
mail, telex or facsimile transmission to such Underwriter at its address set
forth in its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Company by you upon
request. Any such statements, requests, notices or agreements shall take effect
at the time of receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us one for each of the Company and for each of the Representatives
plus one for each counsel counterparts hereof, and
20
<PAGE>
upon the acceptance hereof by you, on behalf of each of the Underwriters, this
letter and such acceptance hereof shall constitute a binding agreement between
each of the Underwriters and the Company. It is understood that your acceptance
of this letter on behalf of each of the Underwriters is pursuant to the
authority set forth in a form of Agreement among Underwriters (U.S. Version),
the form of which shall be submitted to the Company for examination upon
request, but without warranty on your part as to the authority of the signers
thereof.
Very truly yours,
Beringer Wine Estates Holdings, Inc.
By:
_______________________________________
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
Donaldson, Lufkin & Jenrette Securities Corporation
Hambrecht & Quist LLC
Smith Barney Inc.
By:
_________________________________________
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
21
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
- -----------
<S> <C> <C>
Goldman, Sachs & Co. ......................
Donaldson, Lufkin & Jenrette
Securities Corporation....................
Hambrecht & Quist LLC......................
Smith Barney Inc. .........................
[NAMES OF OTHER UNDERWRITERS]..............
Total....................... 3,400,000 336,000
</TABLE>
22
<PAGE>
ANNEX I
Pursuant to Section 7(f) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial forecasts
and/or pro forma financial information) examined by them and included in the
Prospectus or the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the Act and the related
published rules and regulations thereunder; and, if applicable, they have made a
review in accordance with standards established by the American Institute of
Certified Public Accountants of the unaudited consolidated interim financial
statements, selected financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from audited financial
statements of the Company for the periods specified in such letter, as indicated
in their reports thereon, copies of which have been furnished to the
representatives of the Underwriters (the "Representatives") and are attached
hereto;
(iii) They have made a review in accordance with standards established by
the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the Prospectus as indicated in
their reports thereon copies of which are attached hereto and on the basis of
specified procedures including inquiries of officials of the Company who have
responsibility for financial and accounting matters regarding whether the
unaudited condensed consolidated financial statements referred to in paragraph
(vi)(A)(i) below comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations, nothing came to their attention that caused them to believe that
the unaudited condensed consolidated financial statements do not comply as to
form in all material respects with the applicable accounting requirements of the
Act and the related published rules and regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company for the
five most recent fiscal years included in the Prospectus agrees with the
corresponding amounts (after restatements where applicable) in the audited
consolidated financial statements for such five fiscal years;
(v) They have compared the information in the Prospectus under selected
captions with the disclosure requirements of Regulation S-K and on the basis of
limited procedures specified in such letter nothing came to their attention as a
result of the foregoing procedures that caused them to believe that this
information does not conform in all material respects with the disclosure
requirements of Items 301, 302, 402 and 503(d), respectively, of Regulation S-K;
23
<PAGE>
(vi) On the basis of limited procedures, not constituting an examination
in accordance with generally accepted auditing standards, consisting of a
reading of the unaudited financial statements and other information referred to
below, a reading of the latest available interim financial statements of the
Company and its subsidiaries, inspection of the minute books of the Company and
its subsidiaries since the date of the latest audited financial statements
included in the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and such other
inquiries and procedures as may be specified in such letter, nothing came to
their attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published rules and regulations, or (ii) any material
modifications should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus for them to be in
conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding
items in the unaudited consolidated financial statements from which
such data and items were derived, and any such unaudited data and
items were not determined on a basis substantially consistent with the
basis for the corresponding amounts in the audited consolidated
financial statements included in the Prospectus;
(C) the unaudited financial statements which were not included in
the Prospectus but from which were derived any unaudited condensed
financial statements referred to in Clause (A) and any unaudited
income statement data and balance sheet items included in the
Prospectus and referred to in Clause (B) were not determined on a
basis substantially consistent with the basis for the audited
consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder or the pro
forma adjustments have not been properly applied to the historical
amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise of
options and stock appreciation rights, upon earn-outs of performance
shares and upon conversions of convertible securities, in each case
which were outstanding on the date of the latest financial statements
included in the Prospectus) or any increase in the consolidated long-
term debt of the Company and its subsidiaries, or any decreases in
consolidated net current assets or stockholders' equity or other items
specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with
amounts shown in the latest balance sheet included in the Prospectus,
except in each case for changes,
24
<PAGE>
increases or decreases which the Prospectus discloses have occurred or
may occur or which are described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in Clause (E) there were any decreases in consolidated net revenues
or operating profit or the total or per share amounts of consolidated
net income or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each case
as compared with the comparable period of the preceding year and with
any other period of corresponding length specified by the
Representatives, except in each case for decreases or increases which
the Prospectus discloses have occurred or may occur or which are
described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and (vi)
above, they have carried out certain specified procedures, not constituting an
examination in accordance with generally accepted auditing standards, with
respect to certain amounts, percentages and financial information specified by
the Representatives, which are derived from the general accounting records of
the Company and its subsidiaries, which appear in the Prospectus, or in Part II
of, or in exhibits and schedules to, the Registration Statement specified by the
Representatives, and have compared certain of such amounts, percentages and
financial information with the accounting records of the Company and its
subsidiaries and have found them to be in agreement.
25
<PAGE>
Exhibit 2.1
STOCK PURCHASE AGREEMENT
by and among
Nestle Holdings, Inc.
as "Seller",
NOTG Holdings, Inc.
as the "Company",
Silverado Partners Acquisition Corp.
as "Buyer"
and
TPG Partners, L.P.
as "TPG"
Dated: November 17, 1995
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I. DEFINITIONS............................................. 1
1.1 Defined Terms........................................... 1
1.2 Knowledge............................................... 4
1.3 Other Defined Terms..................................... 4
ARTICLE II. PURCHASE AND SALE OF STOCK.............................. 6
2.1 Transfer of Stock....................................... 6
2.2 Consideration for Stock................................. 6
2.3 Net Working Capital Adjustment.......................... 7
ARTICLE III. CLOSING................................................. 8
3.1 Closing................................................. 8
3.2 Documents to be Delivered............................... 8
3.3 Tax Elections........................................... 9
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLER AND
THE COMPANY............................................. 10
4.1 Organization............................................ 10
4.2 Authorization........................................... 10
4.3 Capitalization.......................................... 10
4.4 Subsidiaries............................................ 11
4.5 Absence of Certain Changes or Events.................... 11
4.6 Assets.................................................. 13
4.7 Real Property........................................... 13
4.8 Condition of the Improvements........................... 14
4.9 Contracts and Commitments............................... 14
4.10 No Conflict or Violation................................ 15
4.11 Consents and Approvals.................................. 16
4.12 Financial Statements.................................... 16
4.13 Absence of Undisclosed Liability........................ 16
4.14 Litigation.............................................. 16
4.15 Labor Matters........................................... 16
4.16 Compliance with Law..................................... 17
4.17 No Brokers.............................................. 17
4.18 No Other Agreements to Sell the Assets or the Company... 17
4.19 Proprietary Rights...................................... 17
4.20 Employee Benefit Plans.................................. 18
</TABLE>
i
<PAGE>
TABLE OF CONTENTS (continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
4.21 Tax Matters............................................. 22
4.22 Insurance............................................... 23
4.23 Environmental Matters................................... 23
4.24 Replanting.............................................. 24
4.25 Condition of Products................................... 24
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER AND
TPG..................................................... 25
5.1 Organization of Buyer and TPG........................... 25
5.2 Authorization........................................... 25
5.3 Consents and Approvals.................................. 25
5.4 No Brokers.............................................. 25
5.5 No Conflict or Violation................................ 25
5.6 Capitalization.......................................... 26
5.7 Acknowledgements........................................ 26
ARTICLE VI. ACTIONS BY SELLER, THE COMPANY AND BUYER
PRIOR TO THE CLOSING.................................... 27
6.1 Maintenance of Business................................. 27
6.2 Certain Prohibited Transactions......................... 27
6.3 Access to Information................................... 29
6.4 Consents and Reasonable Efforts......................... 29
6.5 Notification of Certain Matters......................... 30
6.6 No Mergers, Consolidations, Sale of Stock, Etc.......... 30
6.7 Transfer of Proprietary Rights.......................... 30
6.8 Updated Disclosure Schedules............................ 30
6.9 Elimination of Intercompany Payables, Intercompany
Indebtedness, Intercompany Receivables and Certain Other
Indebtedness............................................ 31
6.10 Fee Title Policies...................................... 31
ARTICLE VII. CONDITIONS TO SELLER'S AND THE COMPANY'S
OBLIGATIONS............................................. 31
7.1 Representations, Warranties and Covenants............... 31
7.2 Consents................................................ 31
7.3 No Governmental Proceeding or Litigation................ 32
7.4 Opinion of Counsel...................................... 32
7.5 Certificates............................................ 32
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS (continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
7.6 Corporate Documents..................................... 32
7.7 HSR Act................................................. 32
7.8 Termination of Certain Agreements....................... 32
7.9 Reportable Event Notice................................. 32
7.10 Seller Note and Collateral Documents.................... 32
7.11 Environmental Indemnification Agreement................. 33
ARTICLE VIII. CONDITIONS TO BUYER'S AND TPG'S OBLIGATIONS............. 33
8.1 Representations, Warranties and Covenants............... 33
8.2 Consents................................................ 33
8.3 No Governmental Proceeding or Litigation................ 34
8.4 Opinion of Counsel...................................... 34
8.5 Certificates............................................ 34
8.6 Corporate Documents..................................... 34
8.7 HSR Act................................................. 34
8.8 Non-Foreign Status...................................... 34
8.9 Environmental Indemnification Agreement................. 34
ARTICLE IX. COVENANT NOT TO COMPETE................................. 34
9.1 Covenant Not to Compete................................. 34
ARTICLE X. ACTIONS BY SELLER, THE COMPANY AND BUYER
AFTER THE CLOSING....................................... 36
10.1 Books and Records....................................... 36
10.2 Further Assurances...................................... 36
10.3 Employee Plans.......................................... 37
10.4 Administrative Tax Matters.............................. 41
10.5 Insurance............................................... 42
ARTICLE XI. SURVIVAL AND INDEMNIFICATION............................ 42
11.1 Survival................................................ 42
11.2 Indemnification by Seller............................... 43
11.3 Indemnification by Buyer................................ 43
11.4 Tax Indemnifications.................................... 43
11.5 Insurance Proceeds...................................... 44
11.6 Indemnification Procedures.............................. 44
11.7 Mitigation.............................................. 45
</TABLE>
iii
<PAGE>
TABLE OF CONTENTS (continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
11.8 Cooperation............................................. 46
11.9 Limitations............................................. 46
11.10 Purchase Price Adjustment............................... 47
11.11 Exclusive Remedy........................................ 47
ARTICLE XII. MISCELLANEOUS........................................... 47
12.1 Termination............................................. 47
12.2 Assignment.............................................. 48
12.3 Notices; Transfer of Funds.............................. 48
12.4 Choice of Law........................................... 49
12.5 Entire Agreement; Amendments and Waivers................ 49
12.6 Counterparts............................................ 50
12.7 Invalidity.............................................. 50
12.8 Headings................................................ 50
12.9 Expenses................................................ 50
12.10 Publicity............................................... 50
12.11 Confidential Information................................ 50
12.12 No Third-Party Beneficiary.............................. 51
12.13 Representation of Counsel; Mutual Negotiation........... 51
12.14 No Reliance on Other Information........................ 51
12.15 Release of TPG.......................................... 52
</TABLE>
iv
<PAGE>
EXHIBITS
Exhibit
-------
A Form of Seller Note
B Form of Environmental Indemnification Agreement
C Form of Opinion of Buyer's Counsel
D Form of Opinion of Seller's Counsel
v
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
This Stock Purchase Agreement, dated as of November 17, 1995 is by and
among Silverado Partners Acquisition Corp., a California corporation ("Buyer"),
and TPG Partners, L.P., a Delaware limited partnership ("TPG"), on the one hand,
and Nestle Holdings, Inc., a Delaware corporation ("Seller") and NOTG Holdings,
Inc., a Delaware corporation (the "Company"), on the other hand.
RECITALS
--------
A. Seller owns 1,000 shares of Common Stock of the Company,
constituting all of the outstanding capital stock (the "Stock") of the Company.
The Company owns all of the outstanding stock of Alexander Cairns & Sons Ltd.,
Inc., a Maryland corporation, which in turn owns all of the outstanding capital
stock of A.C. Wines, Inc., a Delaware corporation, which in turn owns all of the
outstanding capital stock of Wine World Estates Company, a Delaware corporation
("Wine World"). Through Wine World and its other subsidiary corporations, the
Company operates vineyards and wineries and produces and sells wine (the
"Business").
B. Buyer desires to purchase from Seller, and Seller desires to
transfer to Buyer, all of the Stock subject to the terms and conditions of this
Agreement.
C. In order to induce Seller to enter into this Agreement, TPG has
agreed to become a party to this Agreement and to undertake specified
obligations herein.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
-----------
1.1 Defined Terms. As used herein, the terms below shall have the
-------------
following meanings:
"Assets" shall mean the assets reflected on the Statement of Net
Assets, together with those assets acquired (less those assets disposed of) in
the ordinary course of business since the Statement Date.
<PAGE>
"Books and Records" shall mean all records held by Seller, the Company
-----------------
or its Subsidiaries pertaining to the Company, its Subsidiaries and their
respective predecessors, including without limitation all corporate books and
records of the Company and its Subsidiaries, disc or tape files, printouts,
runs, or other computer-prepared information, excluding any information in such
books, records and other materials which do not relate to the Company, its
Subsidiaries or their respective predecessors.
"Buyer Disclosure Schedule" shall mean the schedules attached hereto
-------------------------
which set forth exceptions to the representations and warranties contained in
Article V hereof, and certain other information called for by Article V hereof
and certain other provisions of this Agreement, in each case as updated pursuant
to Section 6.8 hereof.
"Closing Date" shall mean January 1, 1996, or such other date as may
------------
be mutually agreed upon in writing by Seller and Buyer.
"Code" shall mean the Internal Revenue Code of 1986, as may be amended
----
from time to time.
"Contracts" shall mean any of the contracts, agreements, obligations,
---------
indebtedness, leases or other commitments, including any amendments thereto,
whether written or oral, to which the Company or any of its Subsidiaries is a
party or by which the Assets are bound, including without limitation all
documents and instruments described in Section 4.9 (a)-(h) hereof.
"Damages" shall mean the amount of any loss, claim, demand, liability,
-------
obligations, damage, deficiency, assessment, judgment, penalty, cost or expense
(including reasonable attorneys' fees), net of any insurance proceeds or tax
benefits received with respect thereto.
"Encumbrances" shall mean, with respect to any asset, any claim, lien,
------------
pledge, option, charge, easement, security interest, right-of-way, encroachment,
encumbrance or other rights of third parties, whether voluntarily incurred or
arising by operation of law, affecting such asset.
"Facilities" shall mean the vineyards, crushing facilities,
----------
warehouses, administration buildings and all other related facilities located on
the real property which is owned or leased by the Company or its Subsidiaries.
"Financial Statements" shall mean (i) the consolidated Statement of
--------------------
Income for the Company and its Subsidiaries for each of the years ended as of
December 31, 1993 and December 31, 1994, and for the six-month period ended as
of the Statement Date, and (ii) the Statement of Net Assets, in each case
together with the notes thereon.
"Fixtures and Equipment" shall mean all of the furniture, fixtures,
----------------------
furnishings, machinery, vehicles and equipment owned by the Company or the
Subsidiaries and located in,
2
<PAGE>
at or upon the Facilities as of the Statement Date plus all additions,
replacements or deletions since the Statement Date in the ordinary course of the
Business.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
-------
of 1976.
"Interest Rate" shall mean the prime rate as published from time to
-------------
time by Bank of America in the Wall Street Journal.
"Material Adverse Effect" shall mean a change in, or an event which
-----------------------
has an effect on, the Business that is materially adverse to the Business or
financial condition as of the date hereof of the Company and its Subsidiaries,
taken as a whole, or on the ability of Seller to consummate the transactions
contemplated hereby.
"Net Working Capital" shall mean the current assets less the current
-------------------
liabilities of the Company and its Subsidiaries determined on a consolidated
basis in accordance with generally accepted accounting principles (as modified
in Schedule 4.12) in a manner consistent with the accounting policies used in
the preparation of the Statement of Net Assets, except that intercompany
receivables and intercompany payables shall be excluded in accordance with
Section 6.9.
"Permitted Encumbrances" shall mean (i) statutory liens for current
----------------------
taxes or assessments not yet due or delinquent or the validity of which is being
contested in good faith by appropriate proceedings, (ii) mechanics', carriers',
workers', repairers' and other similar liens arising or incurred in the ordinary
course of business and not yet due or delinquent or the validity of which is
being contested in good faith by appropriate proceedings, (iii) Encumbrances set
forth in the preliminary title reports issued by First American Title Insurance
Company with respect to the Fee Owned Properties, and identified in Schedule
1.1, which Buyer has been provided with the right to review prior to the date
hereof, and (iv) other Encumbrances which in the aggregate do not materially
interfere with the operation of the Business as it is presently being conducted.
"Post-Closing Taxable Period" shall mean any taxable period, or
---------------------------
portion thereof, that begins after the Closing Date.
"Pre-Closing Taxable Period" shall mean any taxable period, or portion
--------------------------
thereof, that ends on or before the Closing Date.
"Representative" shall mean any officer, director, principal,
--------------
attorney, agent, employee or other representative.
"Seller Affiliated Group" shall mean the affiliated group of
-----------------------
corporations that includes Seller and each corporation that joins with Seller in
filing consolidated federal (or combined state) income Tax returns.
"Seller Disclosure Schedule" shall mean the schedules attached hereto
--------------------------
which set forth exceptions to the representations and warranties contained in
Article IV hereof, and certain
3
<PAGE>
other information called for by Article IV hereof and certain other provisions
of this Agreement, in each case as updated pursuant to Section 6.8 hereof.
"Seller Note" shall mean that certain secured promissory note to be
-----------
delivered by Buyer to Seller as of the Closing Date, substantially in the form
attached as Exhibit A hereto with such changes as may be mutually agreed by
Buyer and Seller. The Seller Note shall be in the principal amount of
$275,000,000, shall bear simple interest at an annual rate of 8%, subject to
increase in the event of default, shall be payable in full on January 15, 1996,
and shall be secured by a pledge of all of the Stock and all of the
Subsidiaries' capital stock, together with the personal property assets of the
Company and the Subsidiaries and such other security of Buyer, the Company or
the Subsidiaries as Seller in its sole discretion deems necessary or advisable.
"Statement of Net Assets" shall mean the Statement of Net Assets of
-----------------------
the Company and its Subsidiaries prepared on a consolidated basis as of June 30,
1995, together with the notes thereon.
"Statement Date" shall mean June 30, 1995.
--------------
"Straddle Period" shall mean any taxable period beginning before and
---------------
ending after the Closing Date.
"Subsidiaries" shall mean all corporations, partnerships, joint
------------
ventures or other entities in which the Company, directly or indirectly, owns
greater than 50% of the outstanding shares of capital stock, partnership
interests or other equity interests, including without limitation Wine World.
1.2 Knowledge. "To the best knowledge of Seller" or similar phrase
---------
shall mean that Joseph Weller, Peter D. Argentine, Mario Corti, Frederick Hull,
James H. Ball, Kristin Adrian, Walter Klenz or Martin Foster has current actual
knowledge of the accuracy of such statement, without any duty of investigation
or inquiry, except that with respect to Sections 4.7(b) and 4.23, and with
respect to the list of agreements set forth on Schedules 4.9(c)(5), (6) and (7),
inquiry shall be made of Robert Steinhauer.
1.3 Other Defined Terms. The following terms shall have the meanings
-------------------
defined for such terms in the Sections set forth below:
Term Section
---- ---------
Audited TPG Balance Sheet 5.6
Base Purchase Price 2.2
Benefit Arrangement 4.20(a)
Business Recitals
Buyer's Plan 10.3(b)
CERCLA 4.23
4
<PAGE>
Term Section
---- ---------
Claim Notice 11.6(a)
Closing 3.1
Collective Bargaining Agreement 10.3(a)
Company Benefit Arrangement 4.20(a)
Company Employee Plan 4.20(a)
Company Multiemployer Pension Plan 4.20(a)
Company Welfare Plan 4.20(a)
Confidentiality Agreement 12.5
Covered Wine World Person 10.3(a)
DTSC 4.23
Employee Plans 4.20(a)
Environmental Laws 4.23
Environmental Permits 4.23
EPA 4.23
ERISA 4.20(a)
ERISA Affiliate 4.20(a)
ERISA Affiliate Multiemployer Pension Plan 4.20(a)
ERISA Affiliate Pension Plan 4.20(a)
ESP 10.3(a)
Excluded Plans 10.3(c)
Fee Owned Property 4.6
Final Purchase Price 2.3(c)
Former Wine World Employee 10.3(a)
GenPar 5.1
Hazardous Materials 4.23
Indemnified Party 11.5
Indemnifying Party 11.5
KEIP 10.3(a)
Knoxville Lease 6.2(a)
Leases 4.6
MLIP 10.3(a)
Multiemployer Pension Plan 4.20(a)
Multiemployer Welfare Plan 4.20(a)
Nestle Benefit Arrangement 4.20(a)
Nestle Employee Plan 4.20(a)
Nestle Pension Plan 4.20(a)
Nestle Welfare Plan 4.20(a)
Non-Owned Trademarks 4.19
Owned Trademarks 4.19
PBGC 4.20(a)
Pension Plan 4.20(a)
Personnel 4.5(b)
Proprietary Rights 4.19
5
<PAGE>
Term Section
---- ---------
Real Property 4.6
Retirement Plan 10.3(a)
Returns 4.21(a)
Savings Plan 10.3(a)
SWDA 4.23
Seller Financing Documents 7.10
Seller's Controlled Group 10.3(a)
SPN 4.19
Statement of Net Working Capital 2.3(a)
Stock Recitals
Stock Plans 10.3(a)
Tax 4.21
Threshold Amount 11.9
Trademarks 4.19
Unaudited TPG Balance Sheet 5.6
Welfare Plan 4.20(a)
Wine World Recitals
Wine World Benefit Arrangement 4.20(a)
Wine World Employee 10.3(a)
Wine World Employee Plans 4.20(a)
Wine World Pension Plan 4.20(a)
ARTICLE II.
PURCHASE AND SALE OF STOCK
--------------------------
2.1 Transfer of Stock. Upon the terms and subject to the conditions
-----------------
contained herein, Seller will sell, convey, transfer, assign and deliver to
Buyer, and Buyer will acquire on the Closing Date, 1,000 shares of the Stock.
2.2 Consideration for Stock. (a) Upon the terms and subject to the
-----------------------
conditions contained herein, as consideration for the purchase of 1,000 shares
of the Stock, TPG shall pay, or cause Buyer to pay (in which case Buyer shall
pay), a purchase price consisting of (i) Seventy-Five Million Dollars
($75,000,000), as adjusted pursuant to Section 2.2(b), payable by delivery to
Seller of a certified or cashier's check representing funds available on the
first business day following the Closing Date and (ii) the Seller Note in the
principal amount of $275,000,000 (the $75,000,000 cash purchase price, as
adjusted pursuant to Section 2.2(b), together with the $275,000,000 in principal
amount of the Seller Note are referred to herein as the "Base Purchase Price").
(b) In the event that on or prior to Closing, the Company or any
Subsidiary purchases the Real Property which is subject to the lease dated
November 10, 1988
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between the predecessor of Wine World and the Trentadue Testamentary Trust, the
$75,000,000 cash portion of the Base Purchase Price shall be increased by an
amount equal to the cash consideration (and any associated costs of the
transaction, including closing costs and the insurance) for which the Company or
any of its Subsidiaries obligated in connection with the purchase of such Real
Property.
2.3 Net Working Capital Adjustment.
------------------------------
(a) Within sixty (60) days after the Closing Date, Buyer shall
deliver to Seller a statement audited by Price Waterhouse, L.L.P. setting forth
its calculation of the Net Working Capital as of the Closing Date, prepared as
described herein (the "Statement of Net Working Capital"). The Statement of Net
Working Capital shall be prepared in accordance with the definition of Net
Working Capital and shall give effect to the elimination of intercompany
receivables and payables between Seller or its affiliates on the one hand, and
the Company or its Subsidiaries on the other, as provided in Section 6.9 hereof.
Seller and KPMG Peat Marwick, L.L.P. shall have the right to be present to
observe the taking of any physical inventory in conjunction with the preparation
of Buyer's calculation of the Statement of Net Working Capital and may review
and examine the procedures, books, records and work papers used in its
preparation.
(b) Unless Seller, within sixty (60) days after receipt of the
Statement of Net Working Capital, notifies Buyer that it objects to the
computation contained therein, specifying the basis for such objection, Buyer's
calculation of the closing Net Working Capital shall be binding upon the
parties. The computation of the Net Working Capital shall not be disputed as to
accounting principles so long as the principles and procedures used to compute
it are consistent with those described in the definition of Net Working Capital
in Section 1.1 hereof. If Buyer and Seller are unable to agree upon the
calculation of Net Working Capital within sixty (60) days after any such
notification has been given by Seller or within a mutually agreed to extended
time period, the controversy shall be referred to a mutually acceptable
independent accounting firm for a final determination thereof. Such
determination shall be binding upon the parties, absent manifest error. The
parties shall share equally the fees and expenses of such firm.
(c) The Base Purchase Price shall be either increased by the amount
by which the final closing Net Working Capital exceeds $131,150,000 or decreased
by the amount by which $131,150,000 exceeds the final closing Net Working
Capital (the Base Purchase Price as so increased or decreased being referred to
herein as the "Final Purchase Price"). Notwithstanding the foregoing, if the
total net adjustment to the Base Purchase Price that would be made by reason of
the foregoing is less than $250,000, such adjustment shall not be made and the
Final Purchase Price shall equal the Base Purchase Price.
(d) Any Base Purchase Price adjustment payment required under Section
2.3(c) shall be delivered in accordance with the instructions of the appropriate
recipient, together with interest thereon for each day from and including the
Closing Date to, but excluding, the date of payment, at a rate per annum equal
to the Interest Rate, (i) within the lesser of sixty-five (65) days after
delivery by Buyer of the Statement of Net Working Capital, or five (5) business
days
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<PAGE>
after Seller notifies Buyer that it does not object to the Statement of Net
Working Capital; or (ii) if Seller shall have objected to the Statement of Net
Working Capital, within five (5) business days following final determination of
the disputed items pursuant to Section 2.3(b).
(e) Any delivery or payment called for by this Article II on or prior
to a date which is not a business day shall be deemed timely made if made on the
next business day following such date.
ARTICLE III.
CLOSING
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3.1 Closing. The closing of the transactions contemplated herein
-------
(the "Closing") shall be held on the Closing Date at the offices of Latham &
Watkins, 633 West Fifth Street, Los Angeles, California, unless the parties
hereto otherwise agree. For purposes of any calculation or determination
required to be made by any of the parties following Closing, except as provided
for federal income tax purposes in Section 3.3(a), the Closing shall be deemed
to have been effective as of 12:01 a.m. on the Closing Date.
3.2 Documents to be Delivered. To effect the transfer referred to in
-------------------------
Section 2.1 and the delivery of the consideration described in Section 2.2
hereof, Seller and Buyer shall, on the Closing Date, deliver the following:
(a) Seller shall deliver to Buyer certificates evidencing 1,000
shares of the Stock, free and clear of any Encumbrances of any nature
whatsoever, duly endorsed in blank for transfer or accompanied by stock powers
duly executed in blank.
(b) Seller and Buyer shall each deliver all documents required to be
delivered pursuant to Articles VII and VIII.
(c) TPG or Buyer shall deliver the Base Purchase Price (including the
Seller Note) as provided in Section 2.2.
(d) All instruments and documents executed and delivered to Buyer
pursuant hereto shall be in form and substance, and shall be executed in a
manner, reasonably satisfactory to Buyer. All instruments and documents
executed and delivered to Seller pursuant hereto shall be in form and substance,
and shall be executed in a manner, reasonably satisfactory to Seller.
(e) Seller shall deliver to Buyer all Books and Records, to the
extent reasonably separable (including by duplication and/or reasonable
redaction) from the books and records of Seller concerning operations of Seller
other than the Business; provided that all Books and Records located at the
Facilities on the Closing Date shall be deemed to have been so delivered.
8
<PAGE>
(f) Seller and Buyer shall deliver to each other the Environmental
Indemnification Agreement in the form attached as Exhibit B hereto.
3.3 Tax Elections.
-------------
(a) Seller and Buyer agree that Buyer may make an election under
Section 338(g) of the Code, and that, if a Section 338(g) election is made by
the Buyer, Buyer and Seller jointly shall make an election under Section
338(h)(10) of the Code. Seller and Buyer acknowledge that the federal income
tax effect of the Sections 338(g) and 338(h)(10) elections will be to cause the
Company and the Subsidiaries to be treated (1) as having sold all of their
assets in a single taxable transaction on the Closing Date, while a member of
the Seller Affiliated Group (the "Deemed Asset Sale"), and (2) as then having
completely liquidated pursuant to Sections 332 and 337 of the Code. Seller
shall pay, and shall hold Buyer, the Company and its Subsidiaries harmless from,
federal income Taxes resulting from the inclusion of any gain or loss with
respect to the Deemed Asset Sale in the consolidated federal income tax return
of Seller pursuant to valid elections under Sections 338(g) and 338(h)(10).
Buyer and Seller shall execute IRS Form 8023 prior to or at the Closing. Buyer
shall retain custody of the executed Form 8023, and all required attachments
thereto, and shall timely file the Form 8023 with the appropriate office(s) of
the IRS. Promptly after such filing, Buyer shall provide Seller with a
photocopy of the executed Form 8023 (including all attachments) as filed.
(b) Seller and Buyer intend the foregoing elections to be effective,
if possible, for state (as well as federal) income and franchise tax purposes
and shall timely execute and file any documents that may be required under any
applicable state law, rule or regulation for such elections (or any
corresponding elections under state law, rule or regulation), to be effective
for state tax purposes. Seller shall pay, and shall hold Buyer, the Company and
its Subsidiaries harmless from, all state income and franchise Taxes resulting
from the inclusion of any gain or loss with respect to a state tax equivalent to
the Deemed Asset Sale in any state income or franchise tax return of Seller or,
if applicable, the Company and the Subsidiaries pursuant to valid elections
under Sections 338(g) and 338(h)(10) and any applicable state law, rule or
regulation.
(c) Seller and Buyer agree that the total deemed consideration shall
be allocated among the required assets in the manner set forth on Schedule 3.3.
The parties shall make all reports, returns, claims and other statements and
actions consistent with the allocation set forth on Schedule 3.3, and shall not
make any inconsistent written statements, including, but not limited to, written
statements on any Tax return or during the course of any Tax audit, except to
the extent required by law or to the extent required by generally accepted
accounting principles in the preparation of audited financial statements; it
being understood that in addition to the above obligations each party shall use
all reasonable efforts to cause compliance by third parties in the preparation
of audited financial statements.
9
<PAGE>
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE COMPANY
--------------------------------------------------------
Except as set forth in the Seller Disclosure Schedule, Seller and the
Company hereby represent and warrant to Buyer, as of the date hereof, as
follows:
4.1 Organization
------------
(a) Seller. Seller is duly organized, validly existing and in good
------
standing under the laws of the State of Delaware.
(b) Company. The Company is duly organized, validly existing and in
-------
good standing under the laws of the State of Delaware, has full corporate power
and authority to conduct its business as it is presently being conducted and to
own and lease its properties and Assets. The Company is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which such qualification is necessary under the applicable law as a result of
the conduct of its business or the ownership of its properties and where the
failure to be so qualified would have a Material Adverse Effect. Each
jurisdiction in which the Company is qualified to do business as a foreign
corporation is listed on Schedule 4.1.
4.2 Authorization
-------------
(a) Seller. Seller has all necessary corporate power and authority
------
and has taken all corporate action necessary to enter into this Agreement, to
consummate the transactions contemplated hereby and to perform its obligations
hereunder. This Agreement has been duly executed and delivered by Seller and is
a legal, valid and binding obligation of Seller enforceable against Seller in
accordance with its terms, except as limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
generally or by equitable principles (whether considered in an action at law or
in equity).
(b) Company. The Company has all necessary corporate power and
-------
authority and has taken all corporate action necessary to enter into this
Agreement, to consummate the transactions contemplated hereby and to perform its
obligations hereunder. This Agreement has been duly executed and delivered by
the Company and is a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditors' rights generally or by equitable principles (whether
considered in an action at law or in equity).
4.3 Capitalization. The Company has authorized 1,000 shares of
--------------
Common Stock, no par value, 1,000 shares of which are issued and outstanding.
All of the Company's outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and non-assessable. There are
no outstanding or authorized subscriptions, options, warrants, calls,
commitments or any other rights evidencing the right to purchase any securities
of the Company.
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<PAGE>
4.4 Subsidiaries.
------------
(a) Schedule 4.4 sets forth a complete and accurate list of all of
the Subsidiaries, all of which are, directly or indirectly, wholly-owned by the
Company. Schedule 4.4 also sets forth the jurisdiction of incorporation of each
of the Subsidiaries, each jurisdiction in which such Subsidiary is qualified to
do business and the number of shares of such Subsidiary outstanding. Schedule
4.4 sets forth a complete and accurate list of all of the corporations,
partnerships and other entities, other than the Subsidiaries, in which the
Company or its Subsidiaries have an equity interest. Schedule 4.4 also sets
forth the jurisdiction of incorporation of each of such corporations,
partnerships and other entities, each jurisdiction in which such entity is
qualified to do business and the percentage of the outstanding equity interests
of each such entity which are owned by the Company.
(b) The outstanding shares of such Subsidiaries have been duly
authorized and validly issued, are fully paid and non-assessable, and are owned
by the Company free and clear of any Encumbrances. There are no outstanding or
authorized subscriptions, options, warrants, calls, commitments or any other
rights evidencing the right to purchase any securities of any of the
Subsidiaries. Each of the Subsidiaries is a corporation duly organized, validly
existing and in good standing under the jurisdiction of its incorporation, with
full corporate power and authority to own its properties and conduct its
business as it is presently being conducted, and is duly qualified and in good
standing to transact business in each jurisdiction (listed in Schedule 4.4) in
which such qualification is necessary under the applicable law as a result of
the conduct of its business or the ownership of its properties, and where the
failure to be so qualified would have a Material Adverse Effect.
4.5 Absence of Certain Changes or Events. Except as set forth in
------------------------------------
Schedule 4.5 and except as otherwise contemplated by this Agreement, since the
Statement Date, other than in the ordinary course of business consistent with
past practice, there has not been any:
(a) material adverse change in the Business or financial condition of
the Company and its Subsidiaries, taken as a whole;
(b) (i) increase in the compensation payable or to become payable by
the Company or any Subsidiary to any of its officers, employees or agents
(collectively, "Personnel") whose total base compensation for services rendered
to the Company or any Subsidiary is currently at an annual rate of more than
$100,000, (ii) increase in bonus, incentive compensation, service award or other
like benefit granted, made or accrued, contingently or otherwise, for or to the
credit of any of the Personnel, (iii) employee welfare, pension, retirement,
profit-sharing or similar payment or arrangement made or agreed to by the
Company or any Subsidiary for any Personnel except pursuant to the existing
plans and arrangements described in Schedule 4.20, or (iv) new employment
agreement to which the Company or any Subsidiary is a party;
(c) addition to or material modification of the employee benefit
plans, arrangements or practices described in Schedule 4.20 affecting Personnel
other than (i) contributions made for 1995 in accordance with the normal
practices of the Company or any Subsidiary,
11
<PAGE>
(ii) the extension of coverage to other Personnel who became eligible after the
Statement Date, or (iii) amendments giving effect to the covenants contained in
Section 10.3 hereof;
(d) sale, assignment or transfer of any of the Assets of the Company
or any Subsidiary, having a value in excess of $100,000.
(e) cancellation of any indebtedness owed to the Company or any
Subsidiary or waiver of any rights of substantial value to the Company or any
Subsidiary, in either case having a value in excess of $25,000;
(f) amendment, cancellation or termination of any Contract, license
or other instrument material to the Company or any Subsidiary;
(g) capital expenditure or the execution of any lease or any
incurring of liability therefor by the Company or any Subsidiary, involving
payments in excess of $100,000 in the aggregate;
(h) failure to repay when due any material obligation of the Company
or any Subsidiary, except in the ordinary course of business or where such
failure would not have a Material Adverse Effect;
(i) change in accounting methods or practices by the Company or any
Subsidiary which would have a Material Adverse Effect on the Financial
Statements;
(j) revaluation by the Company or any Subsidiary of any of its
respective Assets, including without limitation, writing off notes or accounts
receivable;
(k) damage, destruction or loss not covered by insurance and
materially adversely affecting any of the material properties, Business or
Assets of the Company or any Subsidiary;
(l) mortgage, pledge or other encumbrance of any material Assets of
the Company or any Subsidiary;
(m) declaration, setting aside or payment of dividends or
distributions in respect of any capital stock of the Company or any redemption,
purchase or other acquisition of any of the Company's equity securities;
(n) issuance by the Company or any Subsidiary of, or commitment of
the Company or any Subsidiary to issue, any shares of stock or other equity
securities or obligations or securities convertible into or exchangeable for
shares of stock or other equity securities;
(o) indebtedness incurred by the Company or any Subsidiary for
borrowed money or any commitment to borrow money entered into by the Company or
any Subsidiary, or any loans made or agreed to be made by the Company or any
Subsidiary;
12
<PAGE>
(p) liabilities incurred by the Company or any Subsidiary involving
$100,000 or more, or any material increase or material change in any assumptions
underlying or methods of calculating any bad debt, contingency or other
reserves; or
(q) agreement by the Company or any Subsidiary to do any of the
foregoing.
4.6 Assets. Schedule 4.6 sets forth a complete list of all real
------
property interests of the Company or its Subsidiaries, including (a) all fee
simple interests in the owned Facilities (the "Fee Owned Property") and (b) all
leases of Facilities, including any amendments thereto (the "Leases"), and with
respect to the Leases, sets forth the term, annual or monthly rent, renewal
options and approximate acreage leased. A true and correct copy of each such
Lease, as in effect on the date hereof, has been made available for Buyer's
review. Except as set forth in Schedule 4.6, the Fee Owned Property and the
property subject to the Leases (collectively, the "Real Property") is all of the
real property which is used in the operation of the Business (excluding any real
property which is owned, leased or used in any operations of corporations,
partnerships and other entities, other than the Subsidiaries, in which the
Company or its Subsidiaries have an equity interest). The Company or its
Subsidiaries have good title to the personal property reflected on the Statement
of Net Assets or acquired in the ordinary course of business since the Statement
Date, except for such Assets which have been disposed of in the ordinary course
of business since the Statement Date, free of any Encumbrances, other than
Permitted Encumbrances.
4.7 Real Property
-------------
(a) Fee Owned. Except for Permitted Encumbrances and as set forth on
---------
Schedule 4.7, the Company or the applicable Subsidiary enjoys peaceful and
undisturbed possession of the Fee Owned Property. There are no pending
condemnation proceedings related to any of the Fee Owned Property and neither
the Company nor any Subsidiary has received any notice from any governmental
entity threatening any such condemnation action. None of the Fee Owned Property
is subject to any commitment, right of first refusal or other arrangement for
the sale or transfer thereof to any third party, or the required lease thereof
to any other occupant, other than the Company or any of its Subsidiaries, except
as set forth on Schedule 4.7 and except for any leases which do not materially
interfere with the operation of the Business at such location.
(b) Leases. Each of the Leases is in full force and effect and
------
provides the Company or the applicable Subsidiary with peaceful and undisturbed
possession of the real property which is the subject of such Lease, except for
Permitted Encumbrances and the rights of each landlord thereunder. Except as
may occur in connection with the transactions contemplated by this Agreement,
there are no uncured defaults, breaches or violations by the Company or the
applicable Subsidiary under any of the Leases, which default, breach or
violation would likely give rise to the termination of any leasehold interest
and which termination would have a Material Adverse Effect. Buyer has been
provided with correct and complete copies of each of the Leases, as in effect on
the date hereof. The Company, or the applicable Subsidiary, has in all material
respects performed all the obligations required to be performed by it in
13
<PAGE>
accordance with each of the Leases, except where the failure to perform would
not have a Material Adverse Effect, and except as set forth on Schedule 4.7.
Neither the Company nor any applicable Subsidiary has received any written
notice of default, breach or violation under any of the Leases, which such
default, breach or violation could give rise to the termination of the leasehold
interest and which termination would have a Material Adverse Effect, nor has the
Company or any applicable Subsidiary sent any landlord (under any of the
material Leases) any notice that such landlord is in default or that the tenant
intends to terminate such Lease for any reason. To Seller's knowledge, there are
no pending or threatened condemnation proceedings against any of the real
property which is subject to the Leases. Except as set forth in Schedule 4.7,
neither the Company nor the applicable Subsidiary has assigned, sublet or
otherwise transferred any of the rights granted it under each of the Leases,
except for such circumstances which do not materially interfere with the
operation of the Business at such location or are otherwise in the ordinary
course of business.
4.8 Condition of the Improvements. The structures and other
-----------------------------
improvements located on the Facilities are in good operating condition and
repair (except for ordinary wear and tear and any defect the cost of repairing
which would not be material), are sufficient for the operation of the Business
as presently conducted and are in conformity in all material respects with all
applicable laws, ordinances, orders, regulations and other requirements
(including applicable zoning, motor vehicle safety or standards, occupational
safety and health laws and regulations, but excluding laws and regulations
relating to the protection of the environment, which are addressed in Section
4.23 hereof) relating thereto currently in effect, except where the failure to
conform would not have a Material Adverse Effect. The Fixtures and Equipment
located on the Facilities are sufficient for the operation of the Business as
presently conducted.
4.9 Contracts and Commitments. Except as set forth in Schedule 4.9,
-------------------------
neither the Company nor any Subsidiary is a party to (or in the case of clause
(d) below, licensee under) any written or oral:
(a) commitment, contract, guaranty, note, loan, evidence of
indebtedness, purchase order (other than purchase orders entered into in the
ordinary course of business) or letter of credit involving any obligation or
liability on the part of the Company or any Subsidiary of more than $100,000 and
not cancelable (without liability) within ninety (90) days;
(b) lease of personal property (other than a lease entered into in
the ordinary course of business) involving any annual expense in excess of
$50,000 and not cancelable (without liability) within ninety (90) days (Schedule
4.9 indicates with respect to each lease listed thereon a general description of
the leased items, term, annual rent and renewal options);
(c) contracts and commitments not otherwise described above or listed
in Schedule 4.9 and otherwise materially affecting the Business under contracts
not in the ordinary course of business;
(d) material governmental or regulatory licenses or permits required
to conduct the Business as presently conducted;
14
<PAGE>
(e) contracts or agreements containing covenants limiting the freedom
of the Company or any Subsidiary to engage in any line of business or compete
with any person;
(f) employment contracts, including without limitation, contracts to
employ executive officers and other contracts with officers or directors of the
Company or any Subsidiary;
(g) contract relating to the advertising of the products of the
Company and its Subsidiaries requiring payments in excess of $100,000; or
(h) franchise agreement (other than any distributorship agreement
which may be viewed as franchise agreements under applicable state law).
Neither the Company nor any Subsidiary is (and, to the best knowledge
of Seller, no other party is) in material breach or violation of, or default
under any of the Contracts or other instruments described in (a)-(h) above or
listed on Schedule 4.9, the breach or violation of which would either
individually or in the aggregate have a Material Adverse Effect. Each of the
Contracts described in (a)-(h) above or listed on Schedule 4.9 is in full force
and effect and is a valid and binding obligation of the Company, and to the best
knowledge of Seller, the other party thereto. A correct and complete copy of
each such Contract has been made available for Buyer's review.
4.10 No Conflict or Violation.
------------------------
(a) Seller. Neither the execution and delivery of this Agreement nor
------
the consummation of the transactions contemplated hereby will result in (i) a
violation of or a conflict with any provision of the Certificate of
Incorporation or Bylaws of Seller, (ii) a breach of, or a default under, any
term or provision of any contract, agreement, indebtedness, lease, Encumbrance,
commitment, license, franchise, permit, authorization or concession to which
Seller is a party or by which the Assets are bound, which breach or default
would have a Material Adverse Effect or (iii) assuming the filings required
under the HSR Act are made and the applicable waiting period shall have expired
or been earlier terminated, a violation by Seller of any statute, rule,
regulation, ordinance, code, order, judgment, writ, injunction, decree or award,
which violation would have a Material Adverse Effect.
(b) Company. Assuming the consents referred to in Schedule 4.11 are
-------
obtained, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will result in (i) a
violation of or a conflict with any provision of the Certificate of
Incorporation or Bylaws of the Company or any of its Subsidiaries, (ii) a breach
of, or a default under, any term or provision of any Contract, Lease,
Encumbrance, license, franchise, permit, authorization or concession to which
the Company or any of its Subsidiaries is a party or by which the Assets are
bound, which breach or default would have a Material Adverse Effect, (iii)
assuming the filings required under the HSR Act are made and the applicable
waiting period shall have expired or been earlier terminated, a violation by the
Company or any of its Subsidiaries of any statute, rule, regulation, ordinance,
code, order,
15
<PAGE>
judgment, writ, injunction, decree or award, which violation would have a
Material Adverse Effect, or (iv) an imposition of any material Encumbrance,
restriction or charge on the Business or on any of the Assets.
4.11 Consents and Approvals. Except as set forth in Schedule 4.11, no
----------------------
material consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority, or any other person
or entity, is required to be made or obtained by Seller, the Company or any
Subsidiary in connection with the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby other
than the filings required under the HSR Act.
4.12 Financial Statements. The Financial Statements are attached
--------------------
hereto as Schedule 4.12. Except as otherwise set forth in Schedule 4.12, the
Financial Statements are complete, are in accordance with the Books and Records,
accurately reflect the Assets, liabilities, financial condition and results of
operations of the Company and its Subsidiaries in accordance with generally
accepted accounting principles consistently applied, and contain and reflect all
necessary adjustments for a fair presentation of the financial condition and
results of operations of the Company and its Subsidiaries as of the date
thereof.
4.13 Absence of Undisclosed Liability. To the best knowledge of
--------------------------------
Seller, neither the Company nor any Subsidiary has any material obligations or
liabilities, except for those (a) that are reflected or reserved on the
Statement of Net Assets or disclosed in the notes thereto, (b) that arise in the
ordinary course of business and consistent with past practice since the
Statement Date, (c) that are described or disclosed in the Seller Disclosure
Schedule, (d) that arise under Contracts which are disclosed on Schedule 4.9 or
(e) that are not required to be disclosed because they are in the ordinary
course of business or do not meet materiality thresholds set forth in this
Agreement.
4.14 Litigation. Schedule 4.14 sets forth all material orders, writs,
----------
injunctions, judgments or decrees outstanding and in effect, and suits,
litigations, proceedings, arbitral actions, governmental investigations or labor
disputes (other than routine grievance procedures or routine, uncontested claims
for benefits under any benefit plans) (collectively, "Actions") (except for
Actions that have been filed but not served on the Company or its Subsidiaries)
pending or, to the best knowledge of Seller, threatened against the Company or
its Subsidiaries which (i) could reasonably involve potential liability to the
Company or its Subsidiaries in excess of $100,000, which liability is uninsured
or subject to deductibles or retention levels in excess of $100,000 or (ii)
could individually or in the aggregate, have a Material Adverse Effect.
4.15 Labor Matters. Except as set forth in Schedule 4.15, (i) neither
-------------
the Company nor any Subsidiary is a party to any labor agreement with respect to
its employees with any labor organization, group or association and (ii) within
the prior three years, neither the Company nor any Subsidiary has experienced
any attempt by organized labor or its representatives to make the Company or
its Subsidiaries conform to demands of organized labor relating to its employees
or to enter into a binding agreement with organized labor that would cover
employees of the Company or its Subsidiaries. The Company and each Subsidiary
is in
16
<PAGE>
material compliance with all applicable laws respecting employment practices,
terms and conditions of employment and wages and hours. To the best knowledge of
Seller, there is no unfair labor practice charge or complaint against the
Company or its Subsidiaries pending before the National Labor Relations Board or
any other governmental agency arising out of the activities of the Company or
any Subsidiary. There is no labor strike or labor disturbance pending, or to the
best knowledge of the Company and Seller, threatened against the Company or any
Subsidiary; and neither the Company nor any Subsidiary is experiencing a work
stoppage or other material labor difficulty.
4.16 Compliance with Law. Except as described in Schedule 4.23,
-------------------
neither the Company nor any Subsidiary has received any written notice from any
governmental or regulatory authority to the effect that it is in violation of
any applicable laws or regulations where such violation would have a Material
Adverse Effect, and to the best knowledge of Seller, the Company and its
Subsidiaries are not in violation of any applicable laws or regulations where
such violation would have a Material Adverse Effect.
4.17 No Brokers. Except as set forth on Schedule 4.17, none of
----------
Seller, the Company or any Subsidiary has any obligation to pay any finder's
fee, brokerage commission or similar payment in connection with the transactions
contemplated hereby.
4.18 No Other Agreements to Sell the Assets or the Company. None of
-----------------------------------------------------
Seller, the Company or any Subsidiary has any legal obligation, absolute or
contingent, to any other person or firm to sell the Assets, to sell or to effect
a sale of capital stock of the Company or any Subsidiary or to effect any
merger, consolidation or other reorganization of the Company or any Subsidiary
or to enter into any agreement with respect thereto.
4.19 Proprietary Rights. All registrations of trademarks and of other
------------------
marks and trade names, all pending applications for any such registrations, and
all other trademarks, service marks, licensed marks and other marks and trade
names, whether or not registered, which are used in the Business (collectively,
the "Trademarks") are listed on Schedule 4.19. Except for those Trademarks
which are identified on Schedule 4.19 as being owned by a third party (the "Non-
Owned Trademarks"), upon the transfer pursuant to Section 6.7, all of the
Trademarks and the goodwill in the Business associated therewith (the "Owned
Trademarks") will be owned by the Company or its Subsidiaries. None of Seller,
Societe des Produits Nestle S.A. ("SPN"), Nestle S.A., the Company or its
Subsidiaries has granted to any person any rights to receive royalties or
similar payments in respect of the Trademarks or in respect of any other trade
rights, trade secrets, designs, plans, specifications or other proprietary
rights, or any goodwill associated with the foregoing, owned by the Company or
its Subsidiaries and used in the Business (together with the Owned Trademarks,
the "Proprietary Rights"). Except as set forth in Schedule 4.19 or as
contemplated by Section 6.7, none of SPN, Nestle S.A., the Company nor its
Subsidiaries has any licenses granted by or to them or any other written
agreements to which they are a party, pursuant to which any material rights to
the Proprietary Rights have been granted. Except as set forth in Schedule 4.19,
no proceedings have been instituted against or notices received by the Seller,
SPN, Nestle S.A., the Company or its Subsidiaries that are presently outstanding
alleging that the use of the Proprietary Rights by the Company or its
Subsidiaries infringes upon or
17
<PAGE>
otherwise violates any rights of a third party in or to such Proprietary Rights.
Except as set forth in Schedule 4.19, to the best knowledge of Seller, (i) the
use of the Proprietary Rights by the Company or its Subsidiaries is not
infringing upon or otherwise violating the rights of any third party in or to
such Proprietary Rights (subject to the rights of Seller, SPN or Nestle S.A.)
and (ii) there are no claims outstanding alleging the foregoing.
4.20 Employee Benefit Plans
----------------------
(a) Definitions. The following terms, when used in this Section 4.20,
-----------
in Section 7.9, and in Section 10.3, shall have the following meanings. Any of
these terms may, unless the context otherwise requires, be used in the singular
or the plural depending on the reference.
(i) Benefit Arrangement, Company Benefit Arrangement, Wine
------------------------------------------------------
World Benefit Arrangement and Nestle Benefit Arrangement. "Benefit
--------------------------------------------------------
Arrangement" shall mean any employment, consulting, severance or other
similar contract, arrangement or policy and each plan, arrangement, or
program which provides for insurance coverage (including any self-insured
arrangements), disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits, life, health, disability or
accident benefits or for deferred compensation, profit-sharing bonuses,
stock options, stock appreciation rights, stock purchases or other forms of
incentive compensation or post-retirement insurance, compensation or
benefits which is not a Welfare Plan, a Pension Plan or a Multiemployer
Plan. "Company Benefit Arrangement" shall mean any Benefit Arrangement
which is entered into, maintained, or contributed to, as the case may be,
by the Company or any Subsidiary and which provides benefits to any
employee or former employee of the Company or any Subsidiary with respect
to his or her relationship with the Company or any Subsidiary. "Wine World
Benefit Arrangement" shall mean any Company Benefit Arrangement which does
not provide benefits to employees or former employees of Seller or any
subsidiary of Seller other than the Company or any Subsidiary. "Nestle
Benefit Arrangement" shall mean any Company Benefit Arrangement other than
a Wine World Benefit Arrangement.
(ii) Employee Plans, Company Employee Plans, Wine World
--------------------------------------------------
Employee Plans and Nestle Employee Plans. "Employee Plans" shall mean all
----------------------------------------
Benefit Arrangements, Multiemployer Plans, Pension Plans and Welfare Plans.
"Company Employee Plans" shall mean all Employee Plans which are entered
into, maintained, or contributed to, as the case may be, by the Company or
any Subsidiary and which provides benefits to any employee or former
employee of the Company or any Subsidiary with respect to his or her
relationship with the Company or any Subsidiary. "Wine World Employee
Plans" shall mean any Company Employee Plan which does not provide benefits
to employees or former employees of Seller or any subsidiary of Seller
other than the Company or any Subsidiary. "Nestle Employee Plan" shall mean
any Company Employee Plan other than a Wine World Employee Plan.
18
<PAGE>
(iii) ERISA. "ERISA" shall mean the Employee Retirement Income
-----
Security Act of 1974, as amended.
(iv) ERISA Affiliate. "ERISA Affiliate" shall mean any entity
---------------
which is a member of a "controlled group of corporations" with or under
"common control" with Nestle S.A. as defined in Section 414(b) or (c) of
the Code.
(v) Multiemployer Pension Plan, Company Multiemployer Pension
---------------------------------------------------------
Plan and ERISA Affiliate Multiemployer Pension Plan. "Multiemployer
---------------------------------------------------
Pension Plan" shall mean any "employee pension benefit plan" as defined in
Section 3(2) of ERISA which is a "multiemployer plan," as defined in
Section 4001(a)(3) of ERISA. "Company Multiemployer Pension Plan" shall
mean any Multiemployer Pension Plan to which the Company or any Subsidiary
contributes and which covers any employee or former employee of the Company
or any Subsidiary with respect to their relationship with the Company or
any Subsidiary. "ERISA Affiliate Multiemployer Pension Plan" shall mean
any Multiemployer Pension Plan to which any ERISA Affiliate contributes or
has contributed in the current or any of the prior five years.
(vi) Multiemployer Welfare Plan and Company Multiemployer
----------------------------------------------------
Welfare Plan. "Multiemployer Welfare Plan" shall mean any "employee welfare
------------
benefit plan" as defined in Section 3(1) of ERISA which is a "multiemployer
plan," as defined in Section 3(37) of ERISA. "Company Multiemployer Welfare
Plan" shall mean any Multiemployer Welfare Plan to which the Company or any
Subsidiary contributes and which covers any employee or former employee of
the Company or any Subsidiary with respect to their relationship with the
Company or any Subsidiary.
(vii) PBGC. "PBGC" shall mean the Pension Benefit Guaranty
----
Corporation.
(viii) Pension Plan, Company Pension Plan, Wine World Pension
------------------------------------------------------
Plan, Nestle Pension Plan and ERISA Affiliate Pension Plan. "Pension Plan"
----------------------------------------------------------
shall mean any "employee pension benefit plan" as defined in Section 3(2)
of ERISA, other than a Multiemployer Pension Plan. "Company Pension Plan"
shall mean any Pension Plan which the Company or any Subsidiary maintains
or contributes to, as the case may be, and which provides benefits to any
employee or former employee of the Company or any Subsidiary with respect
to his or her relationship with the Company or any Subsidiary. "Wine World
Pension Plan" shall mean any Company Pension Plan which does not provide
benefits to employees or former employees of Seller or any subsidiary of
Seller other than the Company or its Subsidiaries. "Nestle Pension Plan"
shall mean any Company Pension Plan other than a Wine World Pension Plan.
"ERISA Affiliate Pension Plan" shall mean any Pension Plan maintained or
contributed to by any ERISA Affiliate in the current or any of the prior
three years.
(ix) Subsidiary. "Subsidiary" shall mean, solely for purposes
----------
of this Section 4.20 and Section 10.3, any corporation or partnership in an
unbroken chain
19
<PAGE>
of corporations or partnerships beginning with Seller which is an ERISA
Affiliate of Seller.
(x) Welfare Plan, Company Welfare Plan, Wine World Welfare
------------------------------------------------------
Plan and Nestle Welfare Plan. "Welfare Plan" shall mean any "employee
----------------------------
welfare benefit plan" as defined in Section 3(1) of ERISA, other than a
Multiemployer Welfare Plan. "Company Welfare Plan" shall mean any Welfare
Plan which the Company or any Subsidiary maintains or contributes to, as
the case may be, and which provides benefits to any employee or former
employee of the Company or any Subsidiary with respect to his or her
relationship with the Company or any Subsidiary. "Wine World Welfare Plan"
shall mean any Company Welfare Plan which does not provide benefits to
employees or former employees of Seller or any subsidiary of Seller other
than the Company or any Subsidiary. "Nestle Welfare Plan" shall mean any
Company Welfare Plan other than a Wine World Welfare Plan.
(b) Disclosure; Delivery of Copies of Relevant Documents and Other
--------------------------------------------------------------
Information. Schedule 4.20 contains a complete list of all Company Employee
- -----------
Plans. True and complete copies of each of the following documents have been
delivered by the Company to Buyer: (i) each Company Welfare Plan and Company
Pension Plan and all amendments thereto and the current summary plan
description, if any, for each such plan, (ii) each material Company Benefit
Arrangement, and (iii) each Annual Report on Form 5500 Series filed with any
governmental agency for each Wine World Welfare Plan for the most recent plan
year.
(c) Representations. Except as set forth in Schedule 4.20, Seller and
---------------
the Company represents as follows:
(i) Company Pension Plans; ERISA Affiliate Pension Plans.
----------------------------------------------------
(A) No "accumulated funding deficiency" for which an
excise tax is due or would be due in the absence of a waiver as
defined in Section 412 of the Code or as defined in Section 302(a)(3)
of ERISA, whichever may apply, exists with respect to any Company
Pension Plan. To the best knowledge of Seller, no "accumulated funding
deficiency" for which an excise tax is due or would be due in the
absence of a waiver as defined in Section 412 of the Code or as
defined in Section 302(a)(3) of ERISA, whichever may apply, exists
with respect to any ERISA Affiliate Pension Plan, which would have a
Material Adverse Effect.
(B) Neither the Company nor any Subsidiary is required to
provide security to a Company Pension Plan under Section 401(a)(29) of
the Code. To the best knowledge of Seller, neither the Company nor
any Subsidiary is required to provide security to an ERISA Affiliate
Pension Plan under Section 401(a)(29) of the Code, which would have a
Material Adverse Effect.
20
<PAGE>
(C) There are no Wine World Pension Plans. The only
Company Pension Plans are Nestle Pension Plans.
(D) The Company and each Subsidiary have paid all
premiums due the PBGC with respect to each Company Pension Plan for
which such premiums are required to be paid. No filing has been made
by the Company or any Subsidiary with the PBGC, and no proceeding has
been commenced by the PBGC, within the prior three years to terminate
any Company Pension Plan. To the best knowledge of Seller, and except
to the extent there would be no Material Adverse Effect (i) each ERISA
Affiliate has paid all premiums due the PBGC with respect to each
ERISA Affiliate Pension Plan for which such premiums are required to
be paid and (ii) no filing has been made by any ERISA Affiliate with
the PBGC, and no proceeding has been commenced by the PBGC, within the
prior three years to terminate any ERISA Affiliate Pension Plan.
(E) To the best knowledge of Seller, each Company Pension
Plan has been administered so as to comply with applicable laws except
where the failure to so comply would not have a Material Adverse
Effect.
(ii) Company Multiemployer Pension Plans; ERISA Affiliate
----------------------------------------------------
Multiemployer Pension Plans.
---------------------------
(A) Neither the Company nor any Subsidiary has withdrawn
from a Company Multiemployer Pension Plan in a "complete withdrawal"
or a "partial withdrawal" as defined in Sections 4203 and 4205 of
ERISA, respectively, so as to result in a liability to the Company
which has not been fully paid. To the best knowledge of Seller, no
ERISA Affiliate has withdrawn from an ERISA Affiliate Multiemployer
Pension Plan in a "complete withdrawal" or a "partial withdrawal" as
defined in Sections 4203 and 4205 of ERISA, respectively, so as to
result in a material liability to the Company which has not been fully
paid.
(B) To the best knowledge of Seller, with respect to each
ERISA Affiliate Multiemployer Pension Plan: (i) no such plan has been
terminated or has been in reorganization under ERISA so as to result
in any material liability to the Company or any Subsidiary under Title
IV of ERISA; and (ii) no proceeding has been initiated by any person
(including the PBGC) to terminate any such plan so as to result in any
such material liability.
(iii) Company Welfare Plans. To the best knowledge of
---------------------
Seller, each Company Welfare Plan has been administered so as to comply
with applicable laws except where the failure to so comply would not have a
Material Adverse Effect.
21
<PAGE>
(iv) Company Benefit Arrangements. To the best knowledge
----------------------------
of Seller, each Company Benefit Arrangement has been administered so as to
comply with applicable laws except where the failure to so comply would not
have a Material Adverse Effect.
(v) No Severance or Accelerated Benefits Triggered.
----------------------------------------------
Except as otherwise provided in Section 10.3, no severance, extraordinary
compensation or similar payments are payable to any Wine World Employee,
nor are any benefits of any Wine World Employee accelerated, under the
terms of any Employee Plan or agreement with an employee as a consequence
of the transaction contemplated by this Agreement which would result in a
liability for the Company or its Subsidiaries after the Closing Date for
actions taken on or before the Closing Date.
(vi) No Liens. Neither the Company, any Subsidiary nor any
--------
of the Assets are subject to any lien under ERISA or the Code.
4.21 Tax Matters.
-----------
(a) Filing of Tax Returns. All returns, statements, reports and forms
---------------------
required to be filed with any taxing authority on or before the Closing Date
with respect to any Tax of the Company or of any of the Subsidiaries, including
any return of an affiliated or combined group that includes the Company
(collectively, the "Returns"), have been or will be timely filed, except such
Returns the failure of which to be timely filed would not have a Material
Adverse Effect. Except as set forth on Schedule 4.21, to the best knowledge of
Seller, there are no actual or proposed tax deficiencies, assessments or
adjustments with respect to the Company and its Subsidiaries, the Business or
any of the Assets.
(b) Payment of Taxes. All Taxes, shown to be payable on the Returns
----------------
referred to in Section 4.21(a), shall have been paid, or an adequate reserve (in
conformity with generally accepted accounting principles or international
accounting standards, as applicable) has been established therefor, and neither
the Company nor any of its Subsidiaries have any material liability for Taxes in
excess of the amounts so paid or reserves so established.
For the purposes of this Agreement, any federal, state, local or
foreign income, sales, use, transfer, employment, payroll, personal property,
occupancy or other tax, levy, impost, fee, imposition, assessment or similar
charge, together with any related addition to tax, interest or penalty thereon,
is referred to as a "Tax."
(c) Except as set forth on Schedule 4.21, neither the Company nor the
Subsidiaries is party to any pending action or proceeding, nor to the best
knowledge of Seller, is any such action or proceeding threatened by any
governmental authority for the assessment or collection of Taxes.
(d) There are no liens for Taxes except for liens for property taxes
not yet delinquent and except for current Taxes not yet due and payable.
22
<PAGE>
(e) Except as set forth on Schedule 4.21, neither the Company nor any
of the Subsidiaries is party to any Tax sharing, Tax allocation, Tax indemnity
or statute of limitations extension or waiver agreement, nor has the Company or
any of the Subsidiaries been included in any consolidated, combined or unitary
Return with any entity other than Seller in the preceding five (5) taxable
years.
(f) The Company and the Subsidiaries do not have and have not had a
permanent establishment in any foreign country, as defined in any applicable tax
treaty or convention between the United States and such foreign country.
(g) There are no outstanding requests for a ruling by any taxing
authority.
4.22 Insurance. Schedule 4.22 contains a complete summary of the
---------
policies or binders of insurance and a general description of the type of
coverage currently applicable to the Company and its Subsidiaries. Such
policies are in full force and effect on the date hereof but will cease to cover
the Company and its Subsidiaries on the Closing Date.
4.23 Environmental Matters. For purposes hereof, the term
---------------------
"Environmental Laws" shall mean any laws or regulations of any federal, state,
or local governmental or regulatory authority enacted or promulgated as of the
date of this Agreement which govern the generation, management, handling, use,
emission, discharge or release of Hazardous Materials. For purposes hereof, the
term "Hazardous Materials" shall mean any explosives, radioactive materials,
polychlorinated biphenyls, petroleum and petroleum by-products, "hazardous
waste," as defined by Section 1004(5) of the Solid Waste Disposal Act, as
amended ("SWDA"), 42 U.S.C. (S) 6903(5), and California Health and Safety Code
(S) 25117 as amended as of the date hereof, and regulations of the U.S.
Environmental Protection Agency ("EPA") and the California Department of Toxic
Substances Control ("DTSC") promulgated thereunder as of the date hereof, and
"hazardous substances," as defined by Section 101(14) of the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA"), 42 U.S.C. (S) 9601(14), and California Health and Safety Code (S)
25316 as amended as of the date hereof, and EPA and DTSC regulations promulgated
thereunder as of the date hereof. Except as set forth in Schedule 4.23:
(a) the Company and each of its Subsidiaries are in material
compliance with all applicable Environmental Laws;
(b) the Company and each of its Subsidiaries have obtained and are in
material compliance with all necessary permits, licenses and authorizations
currently in effect and required by any governmental or regulatory authority
pursuant to any Environmental Laws ("Environmental Permits");
(c) none of the Company or any of its Subsidiaries have received any
written notice from any governmental or regulatory authority alleging that any
of the Facilities is currently or was, during the past two years, in violation
of any applicable Environmental Laws or Environmental Permits;
23
<PAGE>
(d) none of the Company or any of its Subsidiaries have operated or,
to the best knowledge of Seller, have owned any "underground storage tanks," as
defined by Section 9001 of the SWDA, 42 U.S.C. (S) 6991, or California Health
and Safety Code (S) 25281 as amended as of the date hereof, at any of the
Facilities for the storage of Hazardous Materials;
(e) there is no outstanding civil, criminal or administrative action,
suit, hearing or proceeding pending or, to the best knowledge of Seller,
threatened, and to the best knowledge of Seller, there is no outstanding
investigation by any governmental or regulatory authority pending or threatened,
against the Company or any of its Subsidiaries pursuant to any Environmental
Laws or pursuant to California common law as of the date hereof governing the
release of Hazardous Materials;
(f) none of the Company or any of its Subsidiaries have received any
written notice alleging that the Company or any Subsidiary is liable for any
"removal" or "remedial action" as defined in Sections 101(23) and 101(24) of
CERCLA, 42 U.S.C. (S)(S) 9601(23) and 9601(24), and California Health and Safety
Code (S)(S) 25322 and 25323 as amended as of the date hereof, or any other
remediation of Hazardous Materials required by any Environmental Laws governing
cleanup or remediation of Hazardous Materials or by California common law as of
the date hereof governing the release of Hazardous Materials, which removal,
remedial action or remediation arises from the disposal, handling, treatment,
storage or release of Hazardous Materials by the Company or any Subsidiary;
(g) none of the Company or any of its Subsidiaries have released into
the environment a "reportable quantity," as defined by Section 102 of CERCLA, 42
U.S.C. (S) 9602, California Health and Safety Code (S) 25359.4, or California
Water Code (S)(S) 13271 and 13272 as amended as of the date hereof, and
regulations of EPA, DTSC and the State Water Resources Control Board promulgated
thereunder as of the date hereof, of any Hazardous Materials at any of the
Facilities, except in material compliance with all applicable Environmental
Laws;
(h) there are no polychlorinated biphenyls in any article, container
or equipment owned by the Company or any Subsidiary at any of the Facilities and
no friable asbestos-containing materials at any of the Facilities, the condition
of which, in either case, could reasonably be expected to pose a material risk
to the health and safety of any employees, agents, invitees or other persons;
and
(i) there are no liens held by any governmental or regulatory
authority pursuant to Section 107(l) of CERCLA or any analogous Environmental
Laws with respect to any Facility.
4.24 Replanting. Wine World has replanted certain of its vineyards
----------
substantially in accordance with the schedule set forth on Schedule 4.24.
4.25 Condition of Products. All products sold by the Company or its
---------------------
Subsidiaries in the last five years have, met all applicable requirements under
the federal Food Drug and Cosmetic Act and applicable Bureau of Alcohol, Tobacco
and Firearms regulations.
24
<PAGE>
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF BUYER AND TPG
-----------------------------------------------
Except as set forth in the Buyer Disclosure Schedule, Buyer and TPG
hereby jointly and severally represent and warrant to Seller, as of the date
hereof, as follows:
5.1 Organization of Buyer and TPG. Buyer is a corporation, duly
-----------------------------
organized, validly existing and in good standing under the laws of the State of
California and has full corporate power and authority to conduct its business
and to own and lease its properties. Each of TPG and its general partner TPG
GenPar, L.P. ("GenPar"), is a limited partnership, duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
full partnership power and authority to conduct its business and to own its
assets. The general partner of GenPar, TPG Advisors, Inc., is a corporation,
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full corporate power and authority to conduct its
business and to own its assets.
5.2 Authorization. Buyer has all necessary corporate power and
-------------
authority, and TPG has all necessary partnership power and authority, to enter
into this Agreement, and each of them has taken all necessary corporate or
partnership action to consummate the transactions contemplated hereby and to
perform its obligations hereunder. This Agreement has been duly executed and
delivered by Buyer and TPG and is a legal, valid and binding obligation of each
of Buyer and TPG, enforceable against each of them in accordance with its terms,
except as limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to creditors' rights generally or by equitable principles
(whether considered in an action at law or in equity). Buyer has all necessary
corporate power and authority to execute the Seller Note, and has taken all
necessary corporate action to consummate the transactions contemplated thereby
and to perform its obligations thereunder. The Seller Note, when executed and
delivered by Buyer, will be the legal, valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms.
5.3 Consents and Approvals. No material consent, approval or
----------------------
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority, or any other person or entity, is required to be made
or obtained by Buyer or TPG in connection with the execution, delivery and
performance of this Agreement or the Seller Note and the consummation of the
transactions contemplated hereby or thereby other than the filings required
under the HSR Act.
5.4 No Brokers. Except as set forth on Schedule 5.4, which schedule
----------
shall be included herein as of the Closing, neither Buyer, TPG nor any affiliate
of Buyer or TPG has or will have any obligation to pay any finder's fee,
brokerage commission or similar payment in connection with the transactions
contemplated hereby. In no event shall Seller or its affiliates have any
liability for any such fees or payments.
25
<PAGE>
5.5 No Conflict or Violation. Neither the execution and delivery of
------------------------
this Agreement or the Seller Note nor the consummation of the transactions
contemplated hereby or thereby will result in (a) a violation of or a conflict
with any provision of the Certificate of Incorporation or Bylaws of Buyer or the
Certificate of Limited Partnership or Agreement of Limited Partnership of TPG,
(b) a breach of, or a default under, any term or provision of any contract,
agreement, indebtedness, lease, commitment, license, franchise, permit,
authorization or concession to which Buyer or TPG is a party, which breach or
default would have a material adverse effect on the business or financial
condition of Buyer or TPG or their respective ability to consummate the
transactions contemplated hereby, or (c) assuming the filings required under the
HSR Act are made and the applicable waiting period shall have expired or been
earlier terminated, a violation by Buyer or TPG of any statute, rule,
regulation, ordinance, code, order, judgment, writ, injunction, decree or award,
which violation would have a material adverse effect on the business or
financial condition of Buyer or TPG or their respective ability to consummate
the transactions contemplated hereby.
5.6 Capitalization. Immediately following the Closing, Buyer will
--------------
have a capitalization substantially as set forth in Schedule 5.6(a). Upon
Buyer's receipt of its permanent financing with respect to the purchase of the
Stock and repayment of all amounts due under the Seller Note, Buyer will have a
consolidated capitalization substantially as set forth in Schedule 5.6(b). TPG
has delivered to Seller copies of its audited balance sheet as of December 31,
1994, together with the report of KPMG Peat Marwick, L.L.P. thereon (the
"Audited TPG Balance Sheet"), and the unaudited balance sheet of TPG as of
September 30, 1995 (the "Unaudited TPG Balance Sheet"). The Audited TPG Balance
Sheet is complete, in accordance with the books and records of TPG, fairly and
accurately reflects the assets, liabilities and financial condition of TPG in
accordance with generally accepted accounting principles consistently applied,
and contains and reflects all necessary adjustments for a fair presentation of
the financial condition of TPG as of the date thereof. The Unaudited TPG
Balance Sheet is complete, in accordance with the books and records of TPG, and
fairly and accurately reflects the assets, liabilities and financial condition
of TPG in accordance with generally accepted accounting principles consistently
applied. Since December 31, 1994, there has been no material adverse change in
the business or financial condition of TPG or its ability to consummate the
transactions contemplated hereby.
5.7 Acknowledgements.
----------------
(a) Financing. Buyer has obtained commitments for financing or
---------
otherwise has financing available sufficient to consummate the transactions
contemplated by this Agreement, including the repayment of the Seller Note, and
to fund the working capital requirements of the Company and its Subsidiaries
after the Closing. Buyer and TPG acknowledge that receipt of sufficient
financing is not a condition to their obligation to consummate the transactions
contemplated by this Agreement.
26
<PAGE>
(b) Phylloxera. Buyer and TPG expressly acknowledge that a
----------
substantial portion of the vineyards owned or leased by the Company or its
Subsidiaries have required and will continue to require replanting due to
phylloxera infestation. Buyer and TPG have had the opportunity to investigate
and understand the risks relating to such infestation. In no event and under no
circumstances shall Seller or any of its Representatives or affiliates have any
liability to Buyer, TPG, the Company or any of its Subsidiaries for the costs of
such replanting, regardless of whether such costs exceed or fall short of any
current projections made by Wine World relating to the costs of such replanting.
(c) Consents. Buyer and TPG acknowledge that Buyer and TPG shall have
--------
the responsibility to take all action required (and Seller shall have no
responsibility) (i) to obtain, prior to Closing, any consents, approvals and
agreements which may be required of, and give those notices which may be
required to be given to, all third parties under any Contracts, Leases or
otherwise on account of the transactions contemplated hereby, (ii) to obtain,
prior to Closing, any replacement letters of credit or other guarantees required
by the lessor under any Lease on account of the transactions contemplated hereby
and (iii) to obtain, prior to Closing, the release of Seller and its affiliates
from any obligations including guarantees under Contracts (other than the glass
supply agreements set forth on Schedule 4.9(c)(9)), Leases (including the
Knoxville Lease) and other arrangements, unless Seller and its affiliates are
satisfied in their sole discretion with other arrangements offered by Buyer or
TPG, which arrangements may include the provision of a letter of credit in favor
of Seller and its affiliates. The failure to obtain such consents, approvals,
agreements or replacement letters of credit or releases or to provide such
notices shall not constitute the failure of any condition to Buyer's or TPG's
obligation to consummate the transactions contemplated by this Agreement, and
such failure will neither result in a reduction of the purchase price payable
hereunder nor give Buyer or TPG any right of indemnification or other recovery
against Seller.
(d) Due Diligence. Buyer and TPG acknowledge that they have had an
-------------
opportunity to review the Contracts and Leases and otherwise to perform due
diligence with respect to the documents contained in the data room to which
Buyer, TPG and their Representatives have been provided access.
ARTICLE VI.
ACTIONS BY SELLER, THE COMPANY AND
----------------------------------
BUYER PRIOR TO THE CLOSING
--------------------------
6.1 Maintenance of Business. From the date hereof through the
-----------------------
Closing Date, the Company and each of its Subsidiaries shall use their best
efforts to carry on the Business in the ordinary course consistent with past
practice and consistent with fulfilling customer demand which is not induced by
activities prohibited by Section 6.2(j).
6.2 Certain Prohibited Transactions. Except as otherwise
-------------------------------
contemplated by this Agreement, and except for such actions as are reasonably
necessary to obtain the release of Seller
27
<PAGE>
and its affiliates from any Leases and Contracts to which Seller or its
affiliates are a party or by which their assets are bound (including entering
into Contracts or Leases which may contain terms less favorable to the Company
or its Subsidiaries than those currently contained in such Leases and
Contracts), from the date hereof through the Closing Date, without the prior
written consent of Buyer, neither the Company nor any of its Subsidiaries shall:
(a) incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise become responsible for obligations of any other individual,
partnership, firm or corporation, or make any loans or advances to any
individual, partnership, firm or corporation, except in the ordinary course of
business and consistent with past practice, except for intercompany borrowings
and repayment of such borrowings, and except for any actions which may be
reasonably required to obtain the unconditional release of Nestle Food Company
as guarantor in connection with the real property lease dated October 1, 1972
between the predecessor of Wine World and Knoxville Associates, as amended (the
"Knoxville Lease"), including without limitation the obtaining of a letter of
credit or other arrangement sufficient to obtain such a release;
(b) issue any shares of its capital stock or any other securities or
any securities convertible into shares of its capital stock or any other
securities;
(c) pay, or incur any obligation to pay, any dividend on its capital
stock (other than cash dividends paid prior to the Closing Date) or make or
incur any obligation to make any distribution or redemption with respect to
capital stock;
(d) make any change to its Certificate of Incorporation or Bylaws;
(e) mortgage, pledge or otherwise encumber any of its properties or
Assets or sell, transfer or otherwise dispose of any of its properties or Assets
or cancel, release or assign any indebtedness owed to it or any claims held by
it, except in the ordinary course of business and consistent with past practice;
(f) make any investment of a capital nature either by purchase of
stock or securities, contributions to capital, property transfer or otherwise,
or by the purchase of any property or assets of any other individual,
partnership, firm or corporation, except in the ordinary course of business and
consistent with past practice, and except for the purchase by the Company or its
Subsidiaries of the Real Property which is subject to the lease dated November
10, 1988 between the predecessor of Wine World and the Trentadue Testamentary
Trust;
(g) enter into, amend or terminate any Contract, Lease or other
material agreement, except in the ordinary course of business and consistent
with past practice, and except for any amendments required pursuant to Sections
6.4 or 7.8; provided, however, that Wine World may terminate the lease
identified on Schedule 4.6 as the Duckhorn Vineyards Lease.
(h) agree to the amendment or termination of any governmental permit,
license or authorization necessary for the conduct of the Business;
28
<PAGE>
(i) enter into, amend or modify any employment, benefit or severance
agreement or other agreement with any employee of the Company or the
Subsidiaries in a manner that results in an increase in costs of the Company or
the Subsidiaries or grant any increase in the compensation payable to or to
become payable by the Company or any Subsidiary to any employee, except such
increases as are required by preexisting contracts or compensation policies or
that are in the ordinary course of business and consistent with past practices;
or
(j) other than in the ordinary course of business, engage in any
promotional sales or discount activity with customers of the Business, which
promotional sales or discount activity has or could reasonably be expected to
have the effect of accelerating to pre-Closing periods sales to the trade that
would otherwise be expected to occur in the post-Closing periods.
6.3 Access to Information. Seller shall cause the Company and its
---------------------
Subsidiaries to cooperate with Buyer and provide Buyer and its authorized
Representatives for a period of time until the Closing Date reasonable access to
the Facilities, and will permit Buyer and its authorized Representatives to make
such inspections and conduct such interviews and inquiries as Buyer may
reasonably require in connection with Buyer's review of the Business. Buyer
shall conduct all such inspections and other information gathering described
above only (a) at Buyer's sole cost and expense, (b) during regular business
hours, and (c) in a manner which will not unduly interfere with the operation of
the Business. Any and all such information gathered by Buyer as a result of, or
in connection with, such information gathering shall be kept strictly
confidential and shall not be revealed to, or discussed with, any person other
than the authorized Representatives of Buyer who agree to comply with the
Confidentiality Agreement and the provisions of this Section. In the event the
Closing is not consummated, such information shall be returned to the Company or
destroyed in accordance with this Agreement and the Confidentiality Agreement.
Buyer shall indemnify Seller, the Company and its Subsidiaries and hold them
harmless from and against any and all Damages arising out of or resulting from
the Buyer's information gathering pursuant to this Agreement. The limitations
set forth in Section 11.9(a) shall not apply to this indemnification.
6.4 Consents and Reasonable Efforts.
-------------------------------
(a) Within five business days after execution and delivery of this
Agreement, TPG, Buyer, Seller and the Company shall make all filings required
under the HSR Act. Seller and the Company will, as soon as practicable,
following the date hereof, commence reasonable efforts to obtain all consents,
approvals and agreements of, and to give all notices and make all other filings
with, any third parties, including governmental authorities, necessary to
authorize, approve or permit the full and complete sale, conveyance, assignment
or transfer of all of the Stock, and TPG and Buyer shall cooperate with Seller
and the Company with respect thereto, provided that TPG and Buyer shall have the
responsibility to take all action required (and Seller shall have no
responsibility) (i) to obtain, prior to Closing, any consents, approvals and
agreements which may be required of, and give those notices and make other
filings with, such third parties as set forth on Schedule 6.4, (ii) to obtain,
prior to Closing, any replacement letters of credit or other guarantees required
by the lessor under any Lease on account of the transactions contemplated hereby
and (iii) to obtain, prior to Closing, the unconditional release
29
<PAGE>
of Seller and its affiliates from any obligations including guarantees under
Contracts (other than the glass supply agreements set forth on Schedule
4.9(c)(9)), Leases (including the Knoxville Lease) and other arrangements,
unless Seller and its affiliates are satisfied in their sole discretion with
other arrangements offered by Buyer or TPG, which arrangements may include the
provision of a letter of credit in favor of Seller and its affiliates. Without
limiting the foregoing, in the event that Seller and its affiliates are not
released from their obligations under leases of barrels, vehicles, computers and
other equipment on or prior to Closing, Buyer, the Company or the Subsidiaries
shall provide Seller with an indemnity and security arrangements satisfactory to
Seller and its affiliates, in their sole discretion, including but not limited
to a letter of credit which secures the performance by Buyer, the Company and
its Subsidiaries of such indemnity and of all obligations under such leases, and
provided that following the Closing, Buyer and the Company shall continue to use
their best efforts to obtain the release of Seller and its affiliates from such
leases. In addition, (i) Buyer and the Company shall indemnify Seller and its
affiliates for any Damages arising in connection with the glass supply
agreements referred to above after the Closing to the extent such Damages arise
from actions or inactions by Buyer, the Company, the Subsidiaries or any of
their affiliates, and (ii) Seller shall indemnify Buyer, the Company and the
Subsidiaries for any Damages arising in connection with such glass supply
agreements after the Closing to the extent such Damages arise from actions or
inactions by Seller or its affiliates. The limitations set forth in Section
11.9(a) shall not apply to the indemnities referred to in this Section 6.4(a).
(b) In addition, subject to the terms and conditions herein provided,
each of the parties hereto covenants and agrees to use its best efforts to take,
or cause to be taken, all action or do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated hereby and to cause
the fulfillment of the parties' obligations hereunder.
6.5 Notification of Certain Matters. From the date hereof through
-------------------------------
the Closing Date, Seller shall give prompt written notice to Buyer and TPG, and
Buyer and TPG shall give prompt written notice to Seller, of (i) the occurrence,
or failure to occur, of any event which occurrence or failure would be likely to
cause any representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect any time from the date hereof to the Closing
Date and (ii) any material failure of Seller or the Company on the one hand, or
Buyer or TPG on the other, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder, and each party shall
use all reasonable efforts to remedy same.
6.6 No Mergers, Consolidations, Sale of Stock, Etc. From the date
----------------------------------------------
hereof through the Closing Date, neither the Company, Seller, nor any of their
respective Representatives will solicit, initiate or encourage any inquiries or
proposals or enter into or continue any discussions, negotiations or agreements
relating to the sale or exchange of the Stock, or the merger of the Company
with, or the direct or indirect disposition of a significant amount of the
Company's Assets or Business to, any person other than Buyer or its affiliates.
6.7 Transfer of Proprietary Rights. Prior to the Closing, Seller
------------------------------
shall transfer or cause the transfer to Wine World of all Proprietary Rights
which are owned by Seller or any
30
<PAGE>
of its affiliates, together with the goodwill in the business associated
therewith. Except for the Non-Owned Trademarks, the Proprietary Rights to be so
transferred, together with the Proprietary Rights owned by the Company and the
Subsidiaries, are in all material respects all those used in the Business.
6.8 Updated Disclosure Schedules. From the date hereof through the
----------------------------
Closing Date, Seller and the Company shall update that portion of the Seller
Disclosure Schedule relating to the representations and warranties contained in
Article IV hereof, and Buyer and TPG shall update that portion of the Buyer
Disclosure Schedule relating to the representations and warranties contained in
Article V hereof, in each case to reflect changes thereto through the Closing
Date.
6.9 Elimination of Intercompany Payables, Intercompany Indebtedness,
----------------------------------------------------------------
Intercompany Receivables and Certain Other Indebtedness. Except as set forth on
- -------------------------------------------------------
Schedule 6.9, on or prior to the Closing Date, Seller and its affiliates shall
cause by repayment, restructuring or forgiveness the elimination of the full
amount of all intercompany payables and intercompany indebtedness owed to any of
them by the Company or its Subsidiaries, net of any intercompany receivables
owed to the Company or its Subsidiaries by Seller and its affiliates. The
existing line of credit between the Company and Bank of America pursuant to that
certain Business Loan Agreement dated as of May 3, 1993, as amended, shall not
have any amounts outstanding thereunder.
6.10 Fee Title Policies. Prior to the Closing Date, Seller and Buyer
------------------
shall cause First American Title Insurance Company to deliver to Buyer CLTA
owners' policies of title insurance insuring that the Company or its
Subsidiaries are vested with fee title to the Fee Owned Properties (with the
insured amount equal to the mutually-agreed upon fair market value thereof) and
containing a "street access" endorsement and containing exceptions only for
Permitted Encumbrances. Seller and Buyer shall share equally the cost of the
premiums for such policies.
ARTICLE VII.
CONDITIONS TO SELLER'S AND THE COMPANY'S OBLIGATIONS
----------------------------------------------------
The obligations of Seller and/or the Company to consummate the
transactions provided for hereby are subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any of which may be
waived by the Seller in writing:
7.1 Representations, Warranties and Covenants. All representations
-----------------------------------------
and warranties of Buyer and TPG contained in this Agreement (without regard to
any updates made to such representations and warranties pursuant to Section 6.8
on or prior to the Closing Date) shall be true and correct in all material
respects at and as of the Closing Date as if such representations and warranties
were made at and as of the Closing Date, and Buyer and TPG shall have performed
in all material respects all agreements and covenants required hereby to be
performed by either of them prior to or at the Closing Date. There shall be
delivered to Seller
31
<PAGE>
a certificate (signed by the President or a Vice President of Buyer and an
officer of the general partner of TPG) to the foregoing effect.
7.2 Consents. All consents, approvals and waivers from governmental
--------
authorities necessary to permit Seller to transfer the Stock to Buyer as
contemplated hereby shall have been obtained, unless the failure to obtain any
such consent, approval or waiver would not have a Material Adverse Effect.
Notwithstanding the foregoing, the failure to obtain any of the consents set
forth on Schedule 7.2 shall not be deemed to cause a failure of the condition
set forth in this Section 7.2.
7.3 No Governmental Proceeding or Litigation. No proceeding by any
----------------------------------------
governmental authority shall have been instituted seeking to enjoin or otherwise
prevent transactions contemplated hereby.
7.4 Opinion of Counsel. Buyer shall have delivered to Seller an
------------------
opinion of counsel to Buyer, which shall be a firm of national standing, dated
as of the Closing Date, in form and substance reasonably acceptable to Seller,
to the effect set forth in Exhibit C hereto. In rendering such opinion, such
counsel may rely as they deem advisable as to factual matters, upon certificates
and assurances of public officials and officers of Buyer.
7.5 Certificates. Buyer and TPG will furnish Seller with such
------------
certificates of its officers and others to evidence compliance with the
conditions set forth in this Article VII as may be reasonably requested by
Seller.
7.6 Corporate Documents. Seller shall have received from Buyer
-------------------
resolutions adopted by the board of directors of Buyer approving this Agreement
and the transactions con templated hereby, certified by Buyer's corporate
secretary.
7.7 HSR Act. The applicable waiting period, including any extension
-------
thereof, under the HSR Act shall have expired or been earlier terminated.
7.8 Termination of Certain Agreements and Related Matters. All
-----------------------------------------------------
property, casualty or general liability insurance policies to which Seller or
any of its affiliates are a party and which benefit the Company or its
Subsidiaries shall have been terminated or amended on or prior to the Closing
such that Seller and such affiliates shall have no liability or continuing
obligations thereunder. Buyer, the Company and its Subsidiaries shall deliver
to Seller all consents, releases, documents, instruments, security (including
letters of credit), indemnities and other arrangements required by Section
6.4(a).
7.9 Reportable Event Notice. The thirty days advance notice period
-----------------------
under ERISA Section 4043(b) shall have expired or been waived in whole or in
part by the PBGC. In addition, the PBGC shall have neither taken nor threatened
to take any action to terminate any ERISA Affiliate Pension Plan, nor requested
that any additional contribution or security be made or provided to the PBGC or
any such plan, in connection with the transactions contemplated by this
Agreement.
32
<PAGE>
7.10 Seller Note and Collateral Documents. Buyer shall have executed
------------------------------------
and delivered to Seller the Seller Note, and the Company and the Subsidiaries
shall have executed and delivered to Seller guarantees of Buyer's obligations
under the Seller Note, each of which shall be in form and substance satisfactory
to Seller and its counsel. Buyer, the Company and the Subsidiaries additionally
shall have executed and delivered to Seller (and, where applicable, caused to be
filed or recorded) such collateral documents and instruments in form and
substance satisfactory to Seller and its counsel which give Seller valid and
perfected security interests in such real or personal property collateral as
Seller in its sole discretion deems necessary or appropriate, including without
limitation: (i) the Stock, (ii) all of the outstanding capital stock of the
Subsidiaries, and (iii) all personal property, tangible or intangible, of Buyer,
the Company or the Subsidiaries. Buyer, the Company and the Subsidiaries
additionally shall have executed, delivered and recorded with applicable
recording offices instruments in form and substance satisfactory to Seller and
its counsel which reflect the grant of either a mortgage or a negative pledge
with respect to all of the Real Property. Buyer shall have delivered to Seller
(i) all certificates evidencing the pledged Stock endorsed in blank, (ii) an
opinion of counsel, which shall be a form of national standing, dated as of the
Closing Date, in form and substance reasonably acceptable to Seller, addressing
the enforceability of the foregoing documents and instruments, the validity and
perfection of the security interests created thereby, and such other matters as
Seller's counsel reasonably may request, and (iii) a Financial Condition
Certificate dated the Closing Date (which shall be executed by the chief
financial officer of Buyer) demonstrating that the fair salable value of the
assets of Buyer a consolidated basis will exceed the probable liability on its
debts, that Buyer will be able to pay its debts as they mature and that Buyer
will not have unreasonably small capital to conduct its business. Seller shall
have received such opinions of value, other appropriate factual information and
expert advice supporting the conclusions reached in such letter as Seller may
reasonably request, all in form and substance satisfactory to Seller. The Seller
Financing Documents and the foregoing legal opinion and solvency certificate
(collectively, the "Seller Financing Documents"), shall contain all provisions
determined by Seller to be necessary for the protection of its rights as a first
priority secured creditor.
7.11 Environmental Indemnification Agreement. Buyer shall have
---------------------------------------
executed and delivered to Seller the Environmental Indemnification Agreement
attached as Exhibit B hereto.
ARTICLE VIII.
CONDITIONS TO BUYER'S AND TPG'S OBLIGATIONS
-------------------------------------------
The obligations of Buyer and TPG to consummate the transactions
provided for hereby are subject to the satisfaction, on or prior to the Closing
Date, of each of the following conditions, any of which may be waived by the
Buyer and TPG in writing:
8.1 Representations, Warranties and Covenants. All representations
-----------------------------------------
and warranties of Seller and the Company contained in this Agreement (without
regard to any updates made to such representations and warranties pursuant to
Section 6.8 on or prior to the Closing
33
<PAGE>
Date) shall be true and correct in all material respects at and as of the
Closing Date as if such representations and warranties were made at and as of
the Closing Date, and Seller and the Company shall have performed in all
material respects all agreements and covenants required hereby to be performed
by either of them prior to or at the Closing Date. There shall be delivered to
Buyer a certificate (signed by the President or a Vice President of each of
Seller and the Company (or in the case of the Company by such officers of Wine
World)) to the foregoing effect.
8.2 Consents. All consents, approvals and waivers from governmental
--------
authorities necessary to permit Seller to transfer the Stock to Buyer as
contemplated hereby shall have been obtained, unless the failure to obtain any
such consent, approval or waiver would not have a material adverse effect upon
Buyer or TPG or upon their respective ability to consummate the transactions
contemplated hereby. Notwithstanding the foregoing, the failure to obtain any of
the consents set forth on Schedule 8.2 shall not be deemed to cause a failure of
the condition set forth in this Section 8.2.
8.3 No Governmental Proceeding or Litigation. No proceeding by any
----------------------------------------
governmental authority shall have been instituted seeking to enjoin or
otherwise prevent the transactions contemplated hereby.
8.4 Opinion of Counsel. Seller shall have delivered to Buyer an
------------------
opinion of the general counsel of Seller, dated as of the Closing Date, in form
and substance reasonably satisfactory to Buyer, to the effect set forth in
Exhibit D hereto. In rendering such opinion, such counsel may rely as they deem
advisable as to factual matters, upon certificates and assurances of public
officials and officers of the Company and Seller.
8.5 Certificates. Seller and the Company shall furnish Buyer with
------------
such certificates of the respective officers of Seller and the Company (which in
the case of the Company may include the executive officers of Wine World) to
evidence compliance with the conditions set forth in this Article VIII as may be
reasonably requested by Buyer.
8.6 Corporate Documents. Buyer shall have received from Seller and
-------------------
the Company resolutions adopted by the respective boards of directors of Seller
and the Company approving this Agreement and the transactions contemplated
hereby, certified by the corporate secretary of each of Seller and the Company.
8.7 HSR Act. The applicable waiting period, including any extension
-------
thereof, under the HSR Act shall have expired or been earlier terminated.
34
<PAGE>
8.8 Non-Foreign Status. Buyer shall have received from Seller a non-
------------------
foreign affidavit certifying that Seller is exempt from withholding, and is not
a "foreign person," within the meaning of Section 1445 of the Code.
8.9 Environmental Indemnification Agreement. Seller shall have
---------------------------------------
executed and delivered to Buyer the Environmental Indemnification Agreement
attached as Exhibit B hereto.
ARTICLE IX.
COVENANT NOT TO COMPETE
-----------------------
9.1 Covenant Not to Compete. Seller acknowledges and agrees that the
-----------------------
Business is conducted, and the products of the Company and its Subsidiaries are
marketed, throughout the United States and that its reputation and goodwill are
an integral part of its business success throughout the areas where they conduct
the Business. If Seller deprives Buyer of any of the Company's or the
Subsidiaries' goodwill or in any manner utilizes its reputation and goodwill in
competition with the Company or the Subsidiaries, Buyer will be deprived of the
benefits it has bargained for pursuant to this Agreement. Although the parties
hereto place no monetary value upon this covenant not to compete, this covenant
is necessary to transfer the business and goodwill of the Company to Buyer
effectively. Accordingly, as an inducement for Buyer to enter into this
Agreement, Seller agrees that for a period of three (3) years after the Closing
Date, Seller shall not, without Buyer's prior written consent, directly or
indirectly, own, manage, operate, join, control or participate in the ownership,
management, operation or control of, or be connected as a partner, consultant or
otherwise with, any profit or non-profit business or organization in any part of
the United States, which, directly or indirectly, sells wine; provided that,
notwithstanding the foregoing, Seller and its respective affiliates may
hereafter purchase, or otherwise become affiliated with or participate with, any
individual, entity, or organization which, directly or indirectly, competes with
the Business if not more than 15% of the aggregate gross revenues of such
individual, entity or organization for its most recently completed fiscal year
were derived from the sale of wine at wholesale (and Seller and its affiliates
may hereafter acquire a controlling interest in any individual, entity or
organization that is engaged in such business, even if more than 15% of the
aggregate gross revenues of such individual, entity or organization for its most
recently completed fiscal year were derived from such business, so long as
Seller shall use reasonable efforts to divest, as soon as reasonably
practicable, a portion of its interest in such enterprise relating to such
business such that the 15% gross revenues test set forth above would not be
exceeded after giving effect to such divestiture); and provided, further that
nothing herein shall prevent Seller from engaging in any retail sales of wine
and wine related products whether in connection with the lodging or restaurant
business of Seller or otherwise. Seller further acknowledges that the employees
of the Company and its Subsidiaries are an integral part of the Business and its
success. Accordingly, Seller agrees that for a period of three (3) years after
the Closing Date it will not (and will cause its Representatives not to) solicit
any Wine World officer set forth on Schedule 9.1 to terminate his or her
employment with Buyer, the Company or the Subsidiaries. In the event the
agreement in this Article IX shall be determined by any court of competent
jurisdiction to be unenforceable by reason of its extending for too great a
period of time or over too great a geographical area or by reason of its being
too
35
<PAGE>
extensive in any other respect, it shall be interpreted to extend only over the
maximum period of time for which it may be enforceable, and/or over the maximum
geographical area as to which it may be enforceable and/or to the maximum extent
in all other respects as to which it may be enforceable, all as determined by
such court in such action.
Seller acknowledges that a breach of the covenants contained in this
Article IX will cause irreparable damage to Buyer, the exact amount of which
will be difficult to ascertain, and that the remedies at law for any such breach
will be inadequate. Accordingly, Seller agrees that if Seller breaches the
covenant contained in this Article IX, in addition to any other remedy which may
be available at law or in equity, Buyer shall be entitled to specific
performance and injunctive relief, without posting bond or other security.
ARTICLE X.
ACTIONS BY SELLER, THE COMPANY
AND BUYER AFTER THE CLOSING
---------------------------
10.1 Books and Records.
-----------------
(a) For a period of ten years following the Closing Date, each of
Buyer, Seller and the Company will, and the Company will cause its Subsidiaries
to, (i) cooperate with and make available to the other party and its
Representatives, during normal business hours, all Books and Records (including
the right to make copies thereof), information and employees (without
substantial disruption of employment) retained and remaining in existence after
the Closing which are necessary or useful in connection with any investigation,
dispute, litigation, tax inquiry, audit or compliance with applicable
securities, tax, environmental or other laws and regulations, or any other
matter (including claims pursuant to Article XI) requiring any such Books and
Records, information or employees for any reasonable business purpose; (ii) keep
all such Books and Records and information in existence and in good order for
such period of time as the other party is entitled to access thereto pursuant to
this Section 10.1(a); and (iii) cooperate with and make available to the other
party any employees employed by such party after the Closing in order to provide
statements, participate in depositions, provide testimony or otherwise assist
(including serving as experts or other witnesses) in connection with the matters
described above in Section 10.1(a)(i). The party requesting any such Books and
Records, information or employees shall bear out-of-pocket costs and expenses
(excluding reimbursement for salaries and employee benefits) reasonably incurred
in connection with providing such Books and Records, information or employees.
(b) Each party shall (i) provide the other with such assistance as
may reasonably be requested by any of them in connection with (A) any Books and
Records, information and employees requested hereunder and (B) the preparation
of any return, audit, claim for refund or other examination by any authority or
judicial or administrative proceedings relating to any potential liability
hereunder, (ii) retain and provide the other with any records or other
information that may be relevant to such audit, examination, proceeding or
determination,
36
<PAGE>
and (iii) provide the other with any final determination of any such audit,
examination, proceeding, or determination. Without limiting the generality of
the foregoing, each party hereto shall retain, until the applicable statute of
limitations (including any extensions) have expired, copies of all Tax returns,
support work schedules, and other records or information that may be relevant to
such returns for all Pre-Closing Taxable Periods and shall not destroy or
otherwise dispose of any such records without first providing the other party
with a reasonable opportunity to review and copy the same.
10.2 Further Assurances. On and after the Closing Date, Seller, the
------------------
Company (and the Company will cause its Subsidiaries) and Buyer will take all
appropriate action and execute all documents, instruments or conveyances of any
kind which may be reasonably necessary or advisable to carry out any of the
provisions hereof, including without limitation, putting Buyer in possession and
operating control of the Assets and the Business (provided that such action
shall be without out-of-pocket cost or other liability of any kind to any
party).
10.3 Employee Plans.
--------------
(a) Definitions. The terms defined in Section 4.20 hereof shall have
-----------
the same meanings whenever they are used in this Section 10.3. In addition, the
following terms shall have the following meanings whenever used in this Section
10.3:
(i) Collective Bargaining Agreement. "Collective Bargaining
-------------------------------
Agreement" shall mean any agreement between Seller, the Company or any
Subsidiary and any union or other employee representative and which covers
the terms of employment of any employee of the Company or any Subsidiary,
including, without limitation, any offer under which Seller, the Company or
any Subsidiary is operating pending the resolution of any labor dispute in
existence on the Closing Date.
(ii) Covered Wine World Person. "Covered Wine World Person"
-------------------------
shall mean each Wine World Employee, Former Wine World Employee, and
dependent or qualified beneficiary of a Wine World Employee or Former Wine
World Employee who immediately prior to the Closing Date is covered under
any Nestle Employee Plan in any capacity.
(iii) ESP. "ESP" shall mean the Nestle USA Executive Savings
---
Plan as in existence on the Closing Date.
(iv) Former Wine World Employee. "Former Wine World Employee"
--------------------------
shall mean a person who is not an employee of Seller or any of its
subsidiaries on the Closing Date and who was an employee of the Company or
any Subsidiary on the day prior to his termination of employment from
Seller's Controlled Group.
(v) Wine World Employee. "Wine World Employee" shall mean any
-------------------
person who is an employee of the Company or any Subsidiary on the Closing
Date.
37
<PAGE>
(vi) KEIP. "KEIP" shall mean the Nestle USA Key Executive
----
Insurance Plan as in existence on the Closing Date.
(vii) MLIP. "MLIP" shall mean the Nestle USA Management Life
----
Insurance Plan as in existence on the Closing Date.
(viii) Retirement Plan. "Retirement Plan" shall mean the Nestle
---------------
USA Retirement Plan as in existence on the Closing Date.
(ix) Savings Plan. "Savings Plan" shall mean the Nestle USA
------------
Savings Plan as in existence on the Closing Date.
(x) Seller's Controlled Group. "Seller's Controlled Group"
-------------------------
shall mean Seller and any entity which is a member of a "controlled group
of corporations" with or under "common control" with Seller as defined in
Section 414(b) or (c) of the Code.
(xi) Stock Plans. "Stock Plans" shall mean the Nestle USA Stock
-----------
Appreciation Rights Plan and the Nestle USA 1990 Corporate Phantom Stock
Plan, as in existence on the Closing Date.
(xii) TERP. "TERP" shall mean the Nestle USA Top Executive
----
Retirement Program as in existence on the Closing Date.
(b) Retirement Plan and Savings Plan. The Closing Date shall be the
--------------------------------
date of "termination of employment" of each Wine World Employee under the
Retirement Plan and Savings Plan for all purposes, including eligibility for the
commencement of benefits, and no Wine World Employee shall accrue additional
benefits, or receive additional contributions or allocations, under any of such
plans as a result of employment with the Company or any Subsidiary after the
Closing Date. Within one month after the Closing Date, but effective as of the
Closing Date, Buyer shall cause the Company and the Subsidiaries to adopt and
maintain a retirement plan ("Buyer's Plan") intended to be qualified under
Section 401(a) and Section 401(k) of the Code. Buyer's Plan shall include a
matching employer contribution no less favorable to employees than the employer
contribution contained in the Savings Plan (which employer matching contribution
shall be maintained in effect for at least one year after the Closing Date).
(c) Nestle Welfare Benefit Plans and Nestle Benefit Arrangements.
------------------------------------------------------------
The Closing Date shall be the date of "termination of employment" of each Wine
World Employee under each Nestle Welfare Benefit Plan and each Nestle Benefit
Arrangement and shall be the date of cessation of participation of each Covered
Wine World Person under all Nestle Welfare Benefit Plans and all Nestle Benefit
Arrangements. To the extent that any such Nestle Welfare Benefit Plans and
Nestle Benefit Arrangements have incurred claims on the Closing Date which have
not been paid by the Closing Date, such incurred but unpaid claims shall be paid
under the Nestle Welfare Benefit Plan or Nestle Benefit Arrangement in
accordance with its terms and Buyer shall cause the Company to reimburse Seller
for the amount of such claims which are paid
38
<PAGE>
after the Closing Date by Seller or its affiliates. Notwithstanding the
preceding sentences, any Wine World Employee who as of the Closing Date
satisfies the age, service and other eligibility requirements for retiree health
coverage and retiree life insurance under any Nestle Welfare Benefit Plan shall
be provided with an opportunity to elect to commence such retiree health
coverage and retiree life insurance under such plan as of the Closing Date,
provided that such Wine World Employee makes a timely election for such coverage
or insurance not later 30 days after the Closing Date. Such coverage and
insurance shall be subject to all the terms and conditions of the relevant
Nestle Welfare Benefit Plans, including the rights of Seller or its affiliates
to amend or terminate such plans. To the extent the cost of any such coverage or
insurance is payable by the employer or plan sponsor, such cost shall be borne
by Seller or its affiliates after the Closing Date. Except as agreed between
Buyer and Seller prior to the Closing Date, immediately after the Closing Date
and for one year thereafter, Buyer shall cause the Company or one of its
Subsidiaries to establish replacement Welfare Benefit Plans and Benefit
Arrangements, other than "Excluded Plans" (as defined in this subsection (c)),
substantially comparable to the Welfare Benefit Plans and Benefit Arrangements
in effect immediately prior to the Closing Date for the Covered Wine World
Persons so that there is no interruption in their coverage. Such replacement
Welfare Benefit Plans and Benefit Arrangements shall be equivalent in all
material respects to the Nestle Welfare Benefit Plans and Nestle Benefit
Arrangements which they are replacing and shall not contain any "preexisting
condition" exclusion or "actively at work" requirement which would cause any of
the Covered Wine World Persons or any existing medical condition of the Covered
Wine World Persons to be excluded from the replacement Welfare Benefit Plan or
Benefit Arrangement. Neither Buyer, the Company nor any Subsidiary shall provide
any incentive or inducement to any Covered Wine World Person to choose to be
covered by the health care continuation provisions of any Nestle Welfare Benefit
Plan, including but not limited to payment of any Covered Wine World Person's
premium for such health care continuation coverage. Buyer shall cause the
Company or its Subsidiaries to reimburse Seller for the cost of providing health
care continuation coverage for any Covered Wine World Person who elects to
receive such coverage from a Nestle Welfare Benefit Plan to the extent such cost
is in excess of the premiums for such coverage paid by such Covered Wine World
Person. For purposes of this subsection (c), Excluded Plans shall mean adoption
assistance plans, financial planning plans, long term care plans, retiree
benefits plans, retirement plans, equity incentive plans and "top hat" and
similar plans (including, but not limited to, the TERP, ESP, KEIP and MLIP).
(d) Wine World Welfare Benefit Plans and Wine World Benefit
-------------------------------------------------------
Arrangements. Following the Closing Date, the Company and its Subsidiaries
- ------------
shall, subject to any right which may exist to amend or terminate any Wine World
Welfare Benefit Plan or Wine World Benefit Arrangement, continue all Wine World
Welfare Benefit Plans and Wine World Benefit Arrangements and satisfy all
obligations arising thereunder. Specifically, and not by way of limitation, the
Company and each Subsidiary shall recognize Wine World Employees' vacation time
and sick leave earned but unused prior to the Closing Date under the relevant
Wine World Welfare Benefit Plans and Wine World Benefit Arrangements. The
Company and its Subsidiaries shall, until at least the first anniversary of the
Closing Date, continue to permit earned but unused vacation time and sick leave
credits to be utilized in the same manner as permitted immediately prior to the
Closing Date. Notwithstanding the preceding sentences, Seller or Nestle USA,
Inc.
39
<PAGE>
shall be solely liable for payments under cooperation incentive agreements set
forth on Schedule 4.5(b)(ii)(B).
(e) Company Multiemployer Pension Plans and Company Multiemployer
-------------------------------------------------------------
Welfare Plans. Buyer shall cause the Company and each Subsidiary to continue to
- -------------
participate in and to continue to contribute to all Company Multiemployer
Pension Plans and Multiemployer Welfare Plans to the extent such participation
and contribution are required by any Collective Bargaining Agreement in effect
as of the Closing Date. Such participation and contribution shall continue so
long as cessation of participation or contribution would be a violation of any
such Collective Bargaining Agreement.
(f) Severance Benefits. Buyer and Seller hereby agree that the
------------------
transaction contemplated by this Agreement shall not constitute a termination of
employment for purposes of determining a Wine World Employee's eligibility for
severance benefits under any Company Employee Plan. Any severance payments due
to a Wine World Employee after the Closing Date (regardless of whether the
termination of employment occurred prior to, contemporaneous with or subsequent
to the Closing Date) shall be the sole responsibility of the Company and the
Subsidiaries.
(g) Salary, Bonus and Deferred Compensation. Following the Closing
---------------------------------------
Date, the Company and each Subsidiary shall continue Wine World Employees'
salaries and bonus payments, at no less than the levels of such salaries and
bonuses currently paid to employees having similar job classifications
(excluding any amounts payable in connection with the transactions contemplated
by this Agreement), during their continued employment with the Company or any
Subsidiary, until such salaries and bonuses are changed by the Company or any
Subsidiary in the ordinary course of business, but in no event shall the level
of such salaries or bonuses be decreased prior to the first anniversary of the
Closing Date. Any bonuses (including without limitation, sales incentive
payments) payable to a Wine World Employee or Former Wine World Employee after
the Closing Date (regardless of whether the service to which such bonuses relate
was performed prior to, contemporaneous with, or subsequent to the Closing Date)
shall be the sole responsibility of the Company and the Subsidiaries, except as
otherwise provided in subsections (h) and (j) below and except for the
cooperation incentive agreements set forth on Schedule 4.5(b)(ii)(B).
(h) TERP and ESP. The Closing Date shall be the date of "termination
------------
of employment" of each Wine World Employee under the TERP and ESP for all
purposes, including eligibility for the commencement of benefits, and no Wine
World Employee shall accrue additional benefits, or receive additional
contributions or allocations, under any of such plans as a result of employment
with the Company or any Subsidiary after the Closing Date. Any amounts payable
to or with respect to a Wine World Employee or a Former Wine World Employee
after the Closing Date under the TERP or the ESP shall be the sole
responsibility of the Seller or its affiliates after the Closing Date.
(i) KEIP and MLIP. The provisions of this Section, and not those of
-------------
Section 10.3(c) or 10.3(d) above, shall govern the obligations of the parties
with respect to the KEIP and
40
<PAGE>
the MLIP. The Closing Date shall be the date of "termination of employment" of
each Wine World Employee under the KEIP and MLIP for all purposes, including
eligibility for the commencement of benefits, and no further premium
contributions shall be made with respect to any Wine World Employee under the
KEIP and MLIP as a result of employment with the Company or any Subsidiary after
the Closing Date, except as provided under the KEIP and MLIP with respect to any
Wine World Employee who is eligible to retire as of the Closing Date. Any
premium contributions payable with respect to a Wine World Employee or a Former
Wine World Employee after the Closing Date under the KEIP and MLIP shall be the
sole responsibility of the Seller or its affiliates after the Closing Date.
Seller or one of its remaining affiliates after the Closing Date shall retain
all rights of the "Company" and "Employer" under the KEIP and MLIP, including
but not limited to all such rights in any insurance policies issued in
connection with the KEIP and MLIP which cover any Wine World Employees and
Former Wine World Employees.
(j) Stock Plans. The provisions of this Section 10.3(j), and not
-----------
those of Section 10.3(c), 10.3(d) or 10.3(g) above, shall govern the obligations
of the parties with respect to the Stock Plans. Except as otherwise provided in
the agreements referenced in Schedule 4.5(b)(ii)(B) and James Tonjum's deferred
compensation agreement as referenced in Schedule 4.20, the Closing Date shall be
the date of "termination of employment" of each Wine World Employee under the
Stock Plans for all purposes, including eligibility for the commencement of
benefits, and no further contributions, grants or allocations shall be made with
respect to any Wine World Employee under the Stock Plans as a result of
employment with the Company or any Subsidiary after the Closing Date. Any
amounts payable with respect to a Wine World Employee or a Former Wine World
Employee after the Closing Date under the Stock Plans shall be the sole
responsibility of the Seller or its affiliates after the Closing Date.
10.4 Administrative Tax Matters.
--------------------------
(a) Filing of Tax Returns and Payment of Taxes.
------------------------------------------
(i) Seller. Seller shall prepare and timely file (or cause to
------
be prepared and timely filed), in a manner consistent with prior years, (a)
a consolidated federal income Tax return (and, if applicable, a combined
state Tax return) for the Seller Affiliated Group for the taxable year
including the Closing Date, including therein the Company and the
Subsidiaries for the Pre-Closing Taxable Period and (b) any state, local
and foreign Tax return for, including or required to be filed by the
Company or the Subsidiaries for any Pre-Closing Taxable Period. Seller
shall pay (or cause to be paid) all Taxes due and payable with respect to
the Tax returns required to be filed (or required to be caused to be filed)
by Seller pursuant to this Section 10.4 or otherwise with respect to any
Pre-Closing Taxable Period.
(ii) Buyer. Buyer shall prepare and timely file (or cause to
-----
be prepared and timely filed) any Tax return for, including or required to
be filed by the Company or the Subsidiaries for any Post-Closing Taxable
Period. Buyer shall pay (or cause to be
41
<PAGE>
paid) all Taxes due and payable with respect to the Tax returns required to
be filed (or required to be caused to be filed) by Buyer pursuant to this
Section 10.4.
(iii) Straddle Period. Buyer will prepare and file any Tax
---------------
return for any Straddle Period. Buyer shall deliver to Seller a copy of
each such Tax return at least 15 days prior to the proposed filing date
thereof. Buyer agrees to consider in good faith any issues raised by
Seller upon review of such returns. The Tax liability with respect to such
Straddle Period shall be borne and paid (or caused to be paid) by Seller
and Buyer on the basis of an allocation between the Pre-Closing Period and
the Post-Closing Period as if each such period were a separate taxable
year.
(b) Refunds. Seller shall be entitled to any refund (net of any
-------
applicable Tax) of any and all Taxes of Seller, the Company and the Subsidiaries
for all Pre-Closing Taxable Periods. Buyer shall be entitled to any refund (net
of any applicable Tax) of any and all Taxes of Buyer, the Company and the
Subsidiaries for all Post-Closing Taxable Periods. Any refunds with respect to
Straddle Period shall be allocated under the principles set forth in Section
10.4(a)(iii).
(c) Contests and Audits. Upon the receipt by Buyer, the Company, the
-------------------
Subsidiaries or Seller of notice of any pending or threatened Tax audit or
assessment which may affect the liability for Taxes as to which there is an
obligation of indemnity under Section 11.4, Buyer or Seller, as the case may be,
shall promptly notify the other in writing of the receipt of such notice. The
party having the obligation of indemnity under Section 11.4 (the "Controlling
Party") shall have the sole right to control, and to represent the interests of
all affected taxpayers in, any Tax audit or administrative, judicial or other
proceeding and to employ counsel of its choice at its expense. The party other
than the Controlling Party shall execute and deliver to the Controlling Party,
promptly upon request, such powers of attorney authorizing the Controlling Party
to extend statutes of limitation, receive refunds and take such other actions
that the Controlling Party reasonably considers to be appropriate or helpful in
exercising its control rights pursuant to this Section 10.4.
(d) Cooperation. Seller, on the one hand, and Buyer, on the other
-----------
hand, agree to cooperate with each other in the manner described in Section 10.1
with respect to the preparation of any return for Taxes, any claim for refund or
audit, and the prosecution or defense of any claim, suit, or proceeding relating
the any proposed adjustment.
10.5 Insurance. On and after the Closing Date until the Final
---------
Purchase Price has been fully paid, the Company and its Subsidiaries will
maintain property and casualty insurance at levels reasonable for the Business.
42
<PAGE>
ARTICLE XI.
SURVIVAL AND INDEMNIFICATION
----------------------------
11.1 Survival. The representations and warranties of Seller and the
--------
Company contained in Sections 4.1 through 4.4, 4.20 and 4.21 hereof (in each
case, as updated pursuant to Section 6.8 and as in effect on the Closing Date)
shall survive the Closing Date and shall terminate only when the applicable
statutes of limitations with respect to the liabilities in question expire. The
representations and warranties of Seller and the Company contained in Sections
4.13 and 4.19 hereof (in each case, as updated pursuant to Section 6.8 and as in
effect on the Closing Date) shall survive the Closing Date and shall terminate
on the third anniversary of the Closing Date. The representations and
warranties of Seller and the Company contained in Section 4.23 hereof shall
terminate on the Closing Date. All other representations and warranties of
Seller, the Company and Buyer contained herein (in each case, as updated
pursuant to Section 6.8 and as in effect on the Closing Date) shall survive the
Closing Date and shall terminate eighteen months after the Closing Date. The
representations and warranties of TPG contained herein shall terminate on the
Closing Date. Upon the termination of a representation or warranty in
accordance with the foregoing, such representation or warranty shall have no
further force or effect for any purpose under this Agreement, including Sections
11.2 and 11.3 hereof, provided that, any representation or warranty in respect
of which indemnity may be sought under Section 11.2 or 11.3, and the indemnity
with respect thereto, shall survive the time at which it would otherwise
terminate pursuant to this Section 11.1 if notice of the inaccuracy or breach
thereof giving rise to such right of indemnity shall have been given to the
party against whom such indemnity may be sought prior to such time, provided
that such claim is made in accordance with the provisions hereof. The election
by any party to consummate the transactions contemplated by this Agreement,
notwithstanding such party's actual knowledge of the inaccuracy of any
representation or warranty contained herein, shall constitute a waiver by such
party of any claim for indemnification arising out of the breach of such
representation or warranty.
11.2 Indemnification by Seller. Seller shall indemnify Buyer, the
-------------------------
Company and the Subsidiaries, and hold each of them harmless from and against
any and all Damages incurred by any of them in connection with, arising out of
or resulting from (a) any breach or inaccuracy of any representation or warranty
made by Seller or the Company in this Agreement (in each case, as updated
pursuant to Section 6.8 and as in effect on the Closing Date) or (b) any failure
by Seller or, prior to the Closing, the Company, to perform in a timely manner
any agreement, covenant or obligation of Seller or the Company pursuant to this
Agreement.
11.3 Indemnification by Buyer. Prior to the Closing, Buyer and TPG
------------------------
and, after the Closing, Buyer, the Company and its Subsidiaries, shall indemnify
Seller and hold it harmless from and against any and all Damages incurred by it
in connection with, arising out of or resulting from (a) any breach or
inaccuracy of any representation or warranty made by Buyer or TPG in this
Agreement (as updated pursuant to Section 6.8 and as in effect on the Closing
Date) or (b) any failure by Buyer, TPG or, after the Closing, the Company, to
perform in a timely manner any agreement, covenant or obligation of Buyer, TPG
or the Company pursuant to this Agreement.
43
<PAGE>
11.4 Tax Indemnifications. In addition to the foregoing:
--------------------
(a) Seller shall indemnify and hold harmless Buyer, the Company and
the Subsidiaries, and each of their respective affiliates, successors and
assigns, from and against (i) any and all Taxes of the Seller Affiliated Group
or any member thereof, including the Company and the Subsidiaries, for any Pre-
Closing Taxable Period and its allocable portion of the Straddle Period and (ii)
any and all Taxes of the Seller Affiliated Group (other than Taxes attributable
to the Company and the Subsidiaries) imposed under or by Treasury Regulation
Section 1.1502-6 or any similar law, rule or regulation administered by any
taxing authority. Notwithstanding the foregoing, Seller shall not be required
to indemnify Buyer, the Company or the Subsidiaries for Taxes to the extent of
the total amount of accruals or current liabilities for Taxes set forth on the
final Statement of Net Working Capital.
(b) Buyer shall indemnify and hold harmless Seller and its respective
affiliates, successors and assigns, from and against (i) any and all Taxes of
Buyer, the Company and the Subsidiaries for any Post-Closing Taxable Period and
its allocable portion of the Straddle Period; and (ii) any and all Taxes payable
as a result of any event occurring on the Closing Date, but after the Closing,
which is outside of the ordinary course of business and outside the control of
Seller and its affiliates, other than as a result of the Section 338(h)(10)
election made pursuant to Section 3.3 hereof.
11.5 Insurance Proceeds. With respect to any claim required to be
------------------
indemnified pursuant to this Agreement, so long as the Indemnifying Party (as
defined below) has complied with its indemnification obligations on such claim,
(i) to the extent available, the Indemnified Party (as defined below) shall
assign to the Indemnifying Party any applicable proceeds under any insurance
policy which covers the matter which is the subject of the indemnification and
shall take reasonable steps to insure that the Indemnifying Party obtains the
benefits of such policy, including providing any notices as required under such
policy; and (ii) if the Indemnified Party receives insurance proceeds with
respect to any Damages paid by the Indemnifying Party, then the Indemnified
Party shall reimburse the Indemnifying Party in an amount equivalent to such
proceeds up to the amount actually paid by the Indemnifying Party. For purposes
of this Article XI, the term "Indemnifying Party" shall mean the party against
whom indemnification is claimed pursuant to Sections 11.2, 11.3 or 11.4, as
applicable. For purposes of this Article XI, the term "Indemnified Party" shall
mean the party (on behalf of itself or its Representatives or affiliates)
claiming to be entitled to the benefit of indemnification pursuant to Sections
11.2, 11.3 or 11.4, as applicable.
11.6 Indemnification Procedures.
--------------------------
(a) Procedures Relating to Indemnification. Except as to matters
--------------------------------------
covered by Sections 10.4(c) and (d), in the event that any lawsuit, enforcement
action, or other proceeding is filed against an Indemnified Party with respect
to any third-party claim or the Indemnified Party receives notice of, or becomes
aware of, a condition or event which otherwise entitles or may entitle such
party to the benefit of any indemnity hereunder, written notice thereof (the
"Claim Notice") shall be given to the Indemnifying Party in good faith, as
promptly as
44
<PAGE>
practicable and in any event within ten (10) business days after receipt of
notice or service of the notice, complaint, citation or summons; provided that
the failure of an Indemnified Party to give such Claim Notice shall not relieve
the Indemnifying Party of its obligations under this Agreement, except to the
extent that the Indemnifying Party is prejudiced by such failure to give such
Claim Notice. Notwithstanding the foregoing, a Claim Notice that relates to a
representation or warranty that is subject to a survival period set forth in
Section 11.1 must be made within such survival period, whether or not the
Indemnifying Party is prejudiced by any failure to give the Claim Notice. The
Claim Notice shall describe in reasonable detail the nature of the claim,
including an estimate, to the extent readily available, of the amount of Damages
that have been or may be suffered or incurred by the Indemnified Party
attributable to such claim, the basis of the Indemnified Party's request for
indemnification under this Agreement and all information in the Indemnified
Party's possession relating to such claim which can be reasonably provided
without undue delay or expense.
(b) Conduct of Defense. After receipt of such Claim Notice, the
------------------
Indemnifying Party shall be entitled, if it so elects, to take control of the
investigation, defense, settlement, negotiation, trial or other resolution of a
claim or the remediation of any condition or event which otherwise entitles the
Indemnified Party to the benefit of any indemnity hereunder, and to employ and
engage attorneys of its own choice to handle and defend the claim (including any
appeal, if such Indemnifying Party elects to make an appeal), or in the case of
a condition or event, to employ such persons and to take such actions as it
deems necessary to remediate such condition or event, at the Indemnifying
Party's cost, risk and expense. If requested by the Indemnifying Party, the
Indemnified Party agrees to reasonably and in good faith cooperate with the
Indemnifying Party and its counsel in contesting any claim which the
Indemnifying Party elects to contest, including the making of any related
counterclaim against the person asserting the third-party claim or any cross-
complaint against any person or providing statements or testimony in connection
therewith. If the Indemnifying Party does not, within 10 business days after
receipt of the Claim Notice, notify the Indemnified Party in writing that the
Indemnifying Party has elected to assume the defense of the claim, the
Indemnified Party shall be entitled to take control of the claim, to a final
conclusion or settlement. The cost and expense of such claim shall be reimbursed
by the Indemnifying Party (if it is subsequently finally judicially determined
that the Indemnifying Party is or was obligated to defend or indemnify the
Indemnified Party), provided that the Indemnified Party has promptly and
vigorously prosecuted the claim to a final conclusion or settlement.
Notwithstanding the foregoing, the Indemnified Party shall be entitled to
conduct its own defense at the cost and expense of the Indemnifying Party if the
Indemnified Party establishes that the conduct of its defense by the
Indemnifying Party would reasonably be likely to prejudice materially the
Indemnified Party due to a conflict of interest between the Indemnified Party
and the Indemnifying Party; and provided further that in any event the
Indemnified Party may participate in such defense at its own expense.
(c) Settlement. In the event that the Indemnified Party settles any
----------
claim without the prior written consent of the Indemnifying Party, the
Indemnifying Party shall have no further indemnification obligations under this
Article XI with respect to such claim; provided, however, that if the
Indemnifying Party refuses to defend or otherwise handle such claim and it is
subsequently determined that the Indemnifying Party is or was obligated to
defend or
45
<PAGE>
indemnify the Indemnified Party with respect to such claim, then the
Indemnifying Party shall remain obligated with respect to such settlement
amount. If the Indemnifying Party shall control the defense of any such claim,
the Indemnifying Party shall obtain the prior written consent of the Indemnified
Party (which shall not be unreasonably withheld) before entering into any
settlement of a claim or ceasing to defend such claim if, pursuant to or as a
result of such settlement or cessation, injunctive or other equitable relief
shall be imposed against the Indemnified Party or if such settlement or
cessation does not expressly and unconditionally release the Indemnified Party
from all liabilities and obligations with respect to such claim, without
prejudice. In the event that the Indemnifying Party proposes a settlement to any
claim with respect to which the Indemnifying Party is or was entitled to defend,
which settlement is satisfactory to the party instituting such claim, and the
Indemnified Party withholds its consent to such settlement, and thereafter a
final judgment is entered against the Indemnifying Party or Indemnified Party
pursuant to which Damages exceed the amount of the proposed settlement, then in
such case the Indemnifying Party shall have no obligation to indemnify the
Indemnified Party under this Article XI against and in respect of the amount by
which the Damages resulting from such final judgment exceed the amount of the
proposed settlement.
11.7 Mitigation. Each Indemnified Party shall have an obligation to
----------
mitigate Damages under this Agreement, and to that end each party shall use its
best efforts and shall consult and cooperate with each other with a view towards
mitigating claims, losses, liabilities, Damages, deficiencies, costs and
expenses that may give rise to claims for indemnification under this Article XI.
11.8 Cooperation. In the event that any action, suit, proceeding or
-----------
investigation relating hereto or to the transactions contemplated by this
Agreement is commenced, whether before or after the Closing, the parties hereto
agree to cooperate and use reasonable efforts to vigorously defend against and
respond thereto and make available to each other such personnel, witnesses,
books, records, documents or other information within its control that are
necessary or appropriate for such defense; provided that, subject to Section
11.6(a), the Indemnifying Party shall reimburse the Indemnified Party for its
out-of-pocket expenses incurred in connection therewith.
11.9 Limitations. Except as otherwise specified in Sections 6.3 and
-----------
6.4(a):
(a) Seller shall not be liable to Buyer, the Company or the
Subsidiaries under this Agreement for any Damages pursuant to Sections 11.2(a)
and 11.4(a) (except as to federal income, state income and franchise taxes)
unless and until (i) the Damages actually incurred by Buyer, the Company or the
Subsidiaries after the Closing for each claim for indemnity under Sections
11.2(a) and 11.4(a) (except as to federal income, state income and franchise
taxes) exceed $100,000 and (ii) the aggregate amount for all such Damages due
Buyer, the Company or the Subsidiaries (excluding Damages incurred in any
individual claim of less than $100,000) exceeds an accumulated total of
$1,000,000 (the "Threshold Amount"), and thereafter the total amount of all such
Damages in excess of $100,000 per claim actually incurred (excluding the first
$1,000,000) shall be indemnifiable. For purposes of determining whether the
$100,000 per
46
<PAGE>
claim limit has been satisfied, individual claims involving substantially
similar or related circumstances shall be aggregated.
(b) Neither (i) Seller's aggregate liability under Sections 11.2
and 11.4(a) for all claims for Damages incurred by Buyer, the Company or the
Subsidiaries, together with any liability of Seller under the Environmental
Indemnification Agreement, nor (ii) Buyer's and TPG's aggregate liability under
Sections 11.3 and 11.4(b) for all claims for Damages incurred by Seller shall in
any event exceed, in either case (i) or (ii), the Final Purchase Price
determined as set forth in Section 2.2.
(c) In no event shall any party be liable for any incidental,
consequential, indirect or special losses or damages (including, without
limitation, lost profits, lost revenues and loss of business), whether
foreseeable or not, whether occasioned by any failure to perform or the breach
of any representation, warranty, covenant or other obligation under this
Agreement for any cause whatsoever; provided, however, that a breach of
representation contained in Section 4.25 which causes injury to a person shall
constitute reasonable Damages to the extent set forth in Article XI.
(d) Buyer agrees that all rights of indemnification and
contribution, if any, existing in favor of the present or former officers,
directors, employees, fiduciaries and agents of the Company or any of its
Subsidiaries as provided in the Certificate of Incorporation or Bylaws of the
Company or its Subsidiaries, as applicable, as in effect as of the date hereof,
with respect to matters occurring prior to the Closing Date shall survive the
Closing Date and shall continue in full force and effect for a period of not
less than the applicable statute of limitations.
(e) Nothing herein shall relieve either party of any liability to
make any payment expressly required to be made by such party pursuant to this
Agreement.
11.10 Purchase Price Adjustment. Amounts paid for indemnification
-------------------------
under these provisions shall be deemed to be adjustments to the purchase price
payable under Section 2.2.
11.11 Exclusive Remedy. Except as to matters covered by Sections
----------------
6.3, 6.4(a) and Article IX, the rights of Buyer under this Article XI shall be
the exclusive remedy of Buyer with respect to claims based upon a breach or
alleged breach of the representations, warranties and covenants of Seller or the
Company contained herein. Except as to matters covered by Sections 6.3, 6.4(a)
and Article IX, the rights of Seller under this Article XI shall be the
exclusive remedy of Seller with respect to claims based upon a breach or alleged
breach of the representations, warranties and covenants of Buyer and TPG
contained herein. Except as expressly set forth in this Agreement, neither
Seller nor any of its Representatives or affiliates makes or has made any
representations or warranties, express or implied, in connection with the
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, except as expressly set forth in this Agreement, (i) the Assets
shall be transferred to Buyer pursuant to this Agreement in their present
condition, "AS IS" and without any warranty, express or implied; and (ii) no
patent or latent physical condition or defect in any of the Assets, whether or
not now known or discovered shall affect the rights of either party.
47
<PAGE>
ARTICLE XII.
MISCELLANEOUS
-------------
12.1 Termination.
-----------
(a) Termination. This Agreement may be terminated at any time prior
-----------
to Closing:
(i) By mutual written consent of Buyer and Seller;
(ii) By Buyer or Seller if the Closing shall not have occurred
on or before January 31, 1996; provided however, that this provision shall
not be available to Buyer if Seller has the right to terminate this
Agreement under clause (a)(iv) of this Section 12.1, and this provision
shall not be available to Seller if Buyer has the right to terminate this
Agreement under clause (a)(iii) of this Section 12.1;
(iii) By Buyer if there is a material breach of any
representation or warranty set forth in Article IV hereof or any covenant
or agreement to be complied with or performed by Seller pursuant to the
terms of this Agreement or the failure of a condition set forth in Article
VIII to be satisfied (and such condition is not waived in writing by Buyer)
on or prior to the Closing Date, or the occurrence of any event which
results or would result in the failure of a condition set forth in Article
VIII to be satisfied on or prior to the Closing Date, provided that Buyer
may not terminate this Agreement prior to the Closing Date if Seller has
not had an adequate opportunity to cure such failure; or
(iv) By Seller if there is a material breach of any
representation or warranty set forth in Article V hereof or of any covenant
or agreement to be complied with or performed by TPG or Buyer pursuant to
the terms of this Agreement or the failure of a condition set forth in
Article VII to be satisfied (and such condition is not waived in writing by
Seller) on or prior to the Closing Date, or the occurrence of any event
which results or would result in the failure of a condition set forth in
Article VII to be satisfied on or prior to the Closing Date; provided that
Seller may not terminate this Agreement prior to the Closing Date if TPG or
Buyer, as applicable, has not had an adequate opportunity to cure such
failure.
(b) In the Event of Termination. In the event of termination of this
---------------------------
Agreement:
(i) Each party will redeliver all documents, work papers and
other material of any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the
party furnishing the same; and
(ii) No party hereto shall have any liability or further
obligation to any other party to this Agreement, except as stated in
Sections 12.9, 12.10 or 12.11 or
48
<PAGE>
in subsections (i) or (ii) of this Section 12.1(b), and except for any
willful breach of this Agreement occurring prior to the proper termination
of this Agreement.
12.2 Assignment. Neither this Agreement nor any of the rights or
----------
obligations hereunder may be assigned by Seller or the Company without the prior
written consent of Buyer, or by Buyer or TPG without the prior written consent
of Seller. Subject to the foregoing, this Agreement and each provision therein
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, and no other person shall have any right,
benefit or obligation hereunder.
12.3 Notices; Transfer of Funds. Unless otherwise provided
--------------------------
herein, any notice, request, instruction or other document to be given hereunder
by any party to the others shall be in writing and delivered in person or by
courier, telegraphed, telexed or by facsimile transmission or mailed by
certified mail, postage prepaid, return receipt requested (such mailed notice to
be effective on the date such receipt is acknowledged), as follows:
If to Seller or the Company: James H. Ball, Esq.
Senior Vice President and General Counsel
Nestle Holdings, Inc.
c/o Nestle USA, Inc.
800 North Brand Boulevard
Glendale, California 91203
With copies to: Kristin Adrian, Esq.
Vice President and Deputy
General Counsel
Nestle USA, Inc.
345 Spear Street
San Francisco, CA 94105
Mary Ellen Kanoff, Esq.
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
49
<PAGE>
If to Buyer: Silverado Partners Acquisition Corp.
P.O. Box 6230
Napa, California 94581
Attn: David I. Freed
With a copy to: C. Richard Lemon
Dickenson, Peatman & Fogarty
809 Coombs Street
Napa, California 94559
If to TPG: James J. O'Brien
Texas Pacific Group
201 Main Street, No. 2420
Fort Worth, Texas 76102
With a copy to: Gregg Vignos, Esq.
Pillsbury, Madison & Sutro
225 Bush Street
San Francisco, California 94104
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
12.4 Choice of Law. This Agreement shall be construed,
-------------
interpreted and the rights of the parties determined in accordance with the laws
of the State of New York without reference to its choice of law provisions.
12.5 Entire Agreement; Amendments and Waivers. This Agreement,
----------------------------------------
together with all exhibits and schedules hereto, constitutes the entire
agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, except for those certain letter
agreements dated June 2, 1995 between Buyer and its Representatives on the one
hand, and Nestle USA, Inc. on the other hand (collectively, the "Confidentiality
Agreement"), which Confidentiality Agreement shall remain in full force and
effect through the Closing Date. No supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
12.6 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.
50
<PAGE>
12.7 Invalidity. In the event that any one or more of the
----------
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement or any other such instrument.
12.8 Headings. The headings of the Articles and Sections herein
--------
are inserted for convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
12.9 Expenses. Seller and Buyer will share equally the cost of
--------
any document and transfer taxes and any sales, use or other taxes imposed by
reason of the transfer of the Stock provided hereunder and any deficiency,
interest or penalty asserted with respect thereto. Except as otherwise provided
herein, Seller, Buyer and TPG will each be liable for its own, and Seller shall
be liable for the Company's, costs and expenses incurred in connection with the
negotiation, preparation, execution or performance of this Agreement.
12.10 Publicity. Except as otherwise required by law or legal
---------
process, no party shall issue any press release or make any public statement
regarding the transactions contemplated hereby, without the prior written
approval of the other party, and the parties hereto shall issue a mutually
acceptable press release as soon as practicable after the execution of this
Agreement and/or the Closing Date.
12.11 Confidential Information. The parties acknowledge that the
------------------------
transaction described herein is of a confidential nature and shall not be
disclosed except to Representatives, or as required by law, until such time as
the parties make a public announcement regarding the transaction as provided in
Section 12.10. None of Seller, Buyer or TPG shall make any public disclosure of
the specific terms of this Agreement, except as required by law. In connection
with the negotiation of this Agreement and the preparation for the consummation
of the transactions contemplated hereby, each party acknowledges that it will
have access to confidential information relating to the other party. Each party
shall treat such information as confidential, preserve the confidentiality
thereof and not duplicate or use such information, except to give duplicates to
Representatives, in connection with the transactions contemplated hereby.
Seller, at a time and in a manner which it reasonably determines, may notify
employees, unions and bargaining agents as well as lessors under the Leases and
the Company's and the Subsidiaries' distributors of the fact of the subject
transaction. In the event of the termination of this Agreement for any reason
whatsoever, each party shall return to the other all documents, work papers and
other material (including all copies thereof) obtained in connection with the
transactions contemplated hereby and will use all reasonable efforts, including
instructing its employees and others who have had access to such information, to
keep confidential and not to use any such information, unless such information
is now, or is hereafter disclosed, through no act or omission of such party, in
any manner making it available to the general public. The obligations of the
parties and their Representatives set forth in this Section 12.11 shall be in
addition to, and shall in no way diminish, the obligations of the parties and
their Representatives set forth in the Confidentiality Agreement.
51
<PAGE>
12.12 No Third-Party Beneficiary. The provisions of this
--------------------------
Agreement are for the benefit only of the parties hereto, and no third party may
seek to enforce, or benefit from, these provisions. The parties specifically
disavow any desire or intention to create any third party beneficiary hereunder,
and specifically declare that no person or entity, except for the parties and
their successors, shall have any right hereunder nor any right of enforcement
hereof.
12.13 Representation of Counsel; Mutual Negotiation. Each party
---------------------------------------------
has had the opportunity to be represented by counsel of its choice in
negotiating this Agreement. This Agreement shall therefore be deemed to have
been negotiated and prepared at the joint request, direction, and construction
of the parties, at arm's-length, with the advice and participation of counsel,
and will be interpreted in accordance with its terms without favor to any party.
The parties' respective counsel may not be disqualified from representing their
clients in indemnification or other disputes arising out of this transaction by
virtue of such counsel's prior representation of the other party in an unrelated
matter.
12.14 No Reliance on Other Information. Except for the
--------------------------------
representations and warranties contained in this Agreement, neither Seller nor
the Company nor Wine World nor any Representative or affiliate or other person
acting for any of them makes any other representation or warranty, express or
implied, with respect to the Company, Wine World, the Assets, Business,
financial condition or prospects or the execution, delivery or performance by
Seller and the Company of this Agreement or with respect to the transactions
contemplated hereby, and Seller and the Company hereby disclaim any such
representation or warranty, whether oral or written, whether by Seller, the
Company or Wine World or any of their respective Representatives or affiliates
or any other person. Buyer and TPG acknowledge that none of Seller, the
Company, Wine World or any other person has made any representation or warranty,
express or implied, as to the accuracy or completeness of any information
regarding Seller, the Company or Wine World not included in this Agreement or
the Seller Disclosure Schedule attached hereto, and neither Seller, the Company,
Wine World nor any other person will have or be subject to any liability to
Buyer, TPG or any other person resulting from the distribution to Buyer and TPG,
or Buyer's or TPG's use of, any such information (including, without limitation,
any brochures, offering memoranda or other publications distributed in
connection with the sale of Stock or in any presentation by the management of
Wine World and any estimates of anticipated performance of the business of the
Company or its Subsidiaries.)
12.15 Release of TPG. Notwithstanding anything to the contrary
--------------
contained in this Agreement, TPG shall be released from all of its obligations
under this Agreement upon the Closing of the transactions contemplated by this
Agreement (including receipt of the certified or cashiers' check representing
the cash portion of the Base Purchase Price), without further action on the part
of any party hereto.
52
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
or have caused this Agreement to be duly executed on their respective behalf by
their respective officers thereunto duly authorized, as of the day and year
first above written.
Nestle Holdings, Inc. Silverado Partners Acquisition Corp.
("Seller") ("Buyer")
By: /s/ Peter D. Argentine By: /s/ C. Richard Lemon
---------------------------- -----------------------
Name: Peter D. Argentine Name: C. Richard Lemon
----------------------- ------------------
Title: Senior Vice President Title: Vice President
---------------------- -----------------
NOTG Holdings, Inc. TPG Partners, L.P.
(the "Company") ("TPG")
By: /s/ Peter D. Argentine By: TPG GenPar, L.P.
---------------------------- Its General Partner
Name: Peter D. Argentine
-----------------------
Title: Senior Vice President
----------------------
By: TPG Advisors, Inc.
Its General Partner
By: /s/ William S. Price III
-----------------------------
Name: /s/ William S. Price III
-------------------------
Title: Vice President
------------------------
S-1
<PAGE>
EXHIBIT C
FORM OF OPINION OF BUYER'S COUNSEL
(a) Buyer is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of California. Buyer has the
corporate power and authority to execute and deliver this Agreement and the
Seller Note and to consummate the transactions contemplated hereby and thereby
and all requisite corporate action has been taken by the Board of Directors of
Buyer to authorize the execution, delivery and performance of this Agreement and
the Seller Note by Buyer;
(b) Each of this Agreement and the Seller Note has been duly executed
and delivered by Buyer and is the valid and binding obligation of Buyer,
enforceable against it in accordance with its terms, except as limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditors' rights generally or by equitable principles (whether
considered in an action at law or in equity);
(c) Neither the execution and delivery of this Agreement and the
Seller Note by Buyer nor the consummation of the transactions contemplated
hereby or thereby will (i) violate the Certificate of Incorporation or Bylaws of
Buyer, (ii) violate any federal or state statute, rule or regulation applicable
to Buyer; or (iii) to the knowledge of such counsel, violate any judgment,
decree, injunction, writ or order applicable to Buyer; and
(d) No authorization, consent, order, permit or approval of, or
filing with, any United States federal or state governmental body is necessary,
under any statute or rule known to such counsel, for the consummation by Buyer
of the transactions contemplated on its part hereby other than filings under the
HSR Act.
C-1
<PAGE>
EXHIBIT D
FORM OF OPINION OF SELLER'S COUNSEL
(a) Seller is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware. Seller has the
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby and all requisite corporate
action has been taken by the Board of Directors of Seller to authorize the
execution, delivery and performance of this Agreement by Seller;
(b) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware. The Company has
the corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby and all requisite corporate
action has been taken by the Board of Directors of the Company to authorize the
execution, delivery and performance of this Agreement by the Company;
(c) This Agreement has been duly executed and delivered by the
Company and Seller and is the valid and binding obligation of the Company and
Seller, enforceable against each of them in accordance with its terms, except as
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditors' rights generally or by equitable principles (whether
considered in an action at law or in equity), and subject to other customary
exceptions, including without limitation the unenforceability under certain
circumstances of covenants not to compete;
(d) The Company's authorized capital stock consists of 1,000 shares
of Common Stock, no par value, of which 1,000 shares are issued and outstanding.
All of the Company's outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable. To the best
knowledge of such counsel, Seller has marketable title to all of the outstanding
shares of the Stock free and clear of all Encumbrances with full right, power
and authority to transfer and sell said shares to Buyer;
(e) To the best knowledge of such counsel, there are not outstanding
any subscriptions, calls, commitments, warrants or options for the purchase of
shares of any capital stock or other securities of the Company or any Subsidiary
or any securities convertible into or exchangeable for shares of capital stock
or other securities issued by the Company or any Subsidiary, or any other
commitments of any kind for the issuance of additional shares of capital stock
or other securities by the Company or any Subsidiary;
(f) Each of the Subsidiaries of the Company is a corporation duly
incorporated, validly existing and in good standing under the laws of its state
of its incorporation, and has full corporate power and authority to carry on its
Business as now conducted and to own, lease and operate its properties; each
such Subsidiary is qualified to transact business in all jurisdictions where
such qualification is necessary; and all of the outstanding shares of capital
stock of each such Subsidiary have been duly authorized and validly issued and
are fully paid and non-
D-1
<PAGE>
assessable; and except as set forth in the Seller Disclosure Schedule, the
Company owns, directly or indirectly, all of the outstanding capital stock of
each of the Subsidiaries;
(g) Except as set forth in the Seller Disclosure Schedule, to the
best knowledge of such counsel, no action, suit, proceeding or claim is pending
or threatened against the Company any of its Subsidiaries, the Assets or the
transactions contemplated by this Agreement;
(h) Neither the execution and delivery of this Agreement by Seller or
the Company nor the consummation of the transactions contemplated hereby will
(i) violate the Certificate of Incorporation or Bylaws of Seller or the Company,
(ii) violate any federal or California statute, rule or regulation applicable to
Seller or the Company or any of its Subsidiaries; or (iii) to the knowledge of
such counsel, violate any judgment, decree, injunction, writ or order applicable
to Seller or the Company or any of its Subsidiaries; and
(i) No authorization, consent, order, permit or approval of, or
filing with, any United States federal or state governmental body is necessary,
under any statute or rule known to such counsel, for the consummation by Seller
or the Company of the transactions contemplated on each of their parts hereby,
except as set forth in this Agreement, the Seller Disclosure Schedule or those
the absence of which would not have a Material Adverse Effect.
D-2
<PAGE>
FIRST AMENDMENT
TO
STOCK PURCHASE AGREEMENT
This First Amendment (this "Amendment"), dated as of December 28,
1995, to the Stock Purchase Agreement, dated as of November 17, 1995, by and
among Silverado Partners Acquisition Corp., a California corporation ("Buyer"),
and TPG Partners, L.P., a Delaware limited partnership ("TPG"), on the one hand,
and Nestle Holdings, Inc., a Delaware corporation ("Seller") and NOTG Holdings,
Inc., a Delaware corporation ("NOTG"), on the other hand (the "Agreement"), is
by and among Seller, Wine World Estates Company, a Delaware corporation ("Wine
World"), Buyer, Wine Acquisition Corporation, a Delaware corporation and wholly-
owned subsidiary of Buyer ("Merger Sub") and TPG. Wine World is the successor
to NOTG, which merged with and into Wine World prior to the date hereof.
Capitalized terms not otherwise defined herein have the meanings given to them
in the Agreement.
WHEREAS, Seller, NOTG, Buyer and TPG previously have entered into the
Agreement, pursuant to which Buyer agreed to purchase from Seller, and Seller
agreed to sell to Buyer, all of the outstanding capital stock of NOTG, which was
the parent corporation of Wine World prior to its merger into Wine World;
WHEREAS, the parties desire to amend the Agreement to effect Buyer's
acquisition of Wine World through a merger of Merger Sub with and into Wine
World, with Wine World as the surviving corporation following such merger (the
"Merger") in accordance with the terms and conditions of Section 251 of the
General Corporation Law of the State of Delaware (the "GCL");
WHEREAS, the parties desire to amend certain provisions of the
Agreement as more fully set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. Mergers of NOTG, ACS and ACW with and into Wine World. The
-----------------------------------------------------
parties acknowledge that prior to the Closing Date, each of NOTG, Alexander
Cairns & Sons Ltd., Inc., a Maryland corporation ("ACS") and A.C. Wines, Inc., a
Delaware corporation ("ACW") have been merged with and into Wine World, the
separate existence of each of NOTG, ACS and ACW has ceased, and Wine World has
continued as the surviving corporation following such mergers. The parties
agree that nothing in the Agreement shall be deemed to prevent or restrict the
foregoing mergers, and no default shall be deemed to have occurred under the
Agreement as a result thereof. By operation of such mergers, Wine World shall
succeed to all of the assets, rights and privileges and assume all liabilities
and obligations of NOTG under the Agreement. From and after the effective date
of the mergers of NOTG, ACS and ACW into Wine World, all references in the
Agreement (including the schedules and exhibits thereto) to the "Company" shall
be deemed to be references to Wine World, and all representations, warranties
and covenants of the "Company" shall be representations, warranties and
covenants of Wine World, as fully as if they originally had been made by Wine
World.
<PAGE>
2. Defined Terms.
-------------
(a) The following defined terms contained in the Agreement are hereby
amended to read in full, and are incorporated into Section 1.1 of the Agreement,
as follows:
"Net Working Capital" shall mean the current assets less the
current liabilities of the Company and its Subsidiaries determined on a
consolidated basis in accordance with generally accepted accounting
principles (as modified in Schedule 4.12) in a manner consistent with the
accounting policies used in the preparation of the Statement of Net Assets,
except that intercompany receivables and intercompany payables shall be
excluded in accordance with Section 6.9.
"Seller Note" shall mean that certain secured promissory note to
be delivered by the Company to Seller as of the Closing Date, substantially
in the form attached as Exhibit A hereto with such changes as may be
mutually agreed upon by Buyer and Seller prior to Closing. The Seller Note
shall be in the principal amount of $275,000,000, shall bear simple
interest at an annual rate of 8%, subject to increase in the event of
default, shall be payable in full on January 16, 1996, shall be guaranteed
by Buyer and shall be secured by a pledge of all of the Stock and all of
the Subsidiaries' capital stock, together with the personal property assets
and certain real property of the Company and Buyer and such other security
of Buyer, the Company or the Subsidiaries as Seller in its sole discretion
deems necessary or advisable.
"Stock" shall mean the 51,000 outstanding shares of common stock,
par value $1,000 per share, of Wine World which immediately prior to the
Closing will be owned by Seller.
"Subsidiaries" shall mean all corporations, partnerships, joint
ventures or other entities in which the Company, directly or indirectly,
owns greater than 50% of the outstanding shares of capital stock,
partnership interests or other equity interests.
(b) Section 1.3 of the Agreement is hereby amended to include the
following new defined terms, or to amend the cross-reference for an existing
defined term, as follows:
Term Section
---- -------
Constituent Corporations 2.2
Effective Date 2.3
Gamble Guaranty 6.11(a)
Gamble Release 6.11(a)
Interest Amount 2.4(d)
Issuing Bank 6.11(a)
Lease Letter of Credit 6.11(a)
Measurement Date 6.11(a)
Merger Consideration 2.5
Statement of Net Working Capital 2.6(a)
Surviving Corporation 2.1
2
<PAGE>
(c) All references in the Agreement to the "Base Purchase Price" are
hereby amended to refer to the "Merger Consideration" as defined in Section
2.5(a) contained below in this Amendment, and all references in the Agreement to
the "Final Purchase Price" are hereby amended to refer to the Merger
Consideration as adjusted pursuant to Section 2.6 contained below in this
Amendment.
(d) All references in the Agreement to the "Agreement" and all
references in this Amendment to the "Agreement" are hereby deemed to incorporate
by reference this Amendment.
3. Amendment of Article II. Article II of the Agreement is hereby
-----------------------
amended to read in full as follows:
"ARTICLE II
----------
The Merger
----------
Section 2.1 The Merger. Upon the Effective Date, in accordance with
----------
this Agreement and the GCL, Merger Sub shall be merged with and into the
Company, the separate existence of Merger Sub (except as may be continued by
operation of law) shall cease, and the Company shall continue as the surviving
corporation. As constituted from and after the Effective Date, the Company
hereinafter is sometimes referred to as the "Surviving Corporation."
Section 2.2 Effect of the Merger. Upon the effectiveness of the
--------------------
Merger, the Surviving Corporation shall thereupon and thereafter possess all the
rights, privileges, immunities and franchises, of a public as well as of a
private nature, of the Company and Merger Sub (the "Constituent Corporations");
all property, real, personal and mixed, and all debts due on whatever account
and all choses in action, and all and every other interest, of or belonging to
or due each of the Constituent Corporations shall be vested in the Surviving
Corporation without further act or deed; and the title to any real estate, or
any interest therein, vested in the Company, Merger Sub or the Surviving
Corporation shall not revert or be in any way impaired by reason of the Merger.
The Surviving Corporation shall thenceforth be responsible and liable for all
the liabilities and obligations of each of the Constituent Corporations so
merged; any claim existing or action or proceeding pending by or against any of
the Constituent Corporations may be prosecuted as if the Merger had not taken
place, or the Surviving Corporation may be substituted in its place. The
Surviving Corporation shall have all the rights, privileges, immunities and
powers and shall be subject to all the duties and liabilities of a corporation
organized under the GCL, and neither the rights of creditors nor any liens upon
the respective properties of the Constituent Corporations and the Surviving
Corporation shall be impaired by the Merger; all with the effect set forth in
the GCL.
Section 2.3 Consummation of the Merger. Upon the satisfaction or
--------------------------
waiver of the conditions contained in this Agreement, the parties hereto will
cause the Merger to be consummated by filing with the Secretary of State of
Delaware a certificate of merger in such form as agreed upon by Buyer and
Seller, and as required by, and executed in accordance with, the relevant
provisions of the GCL, with such merger to be effective as of the Closing Date
(the effective time of the Merger is referred to herein as the "Effective
Date"). The parties hereto agree that this Amendment shall constitute an
agreement of merger between the Company and Merger Sub which satisfies the
requirements of Section 251(b) of the GCL. Each of Seller as the sole
stockholder of the Company and Buyer as the sole stockholder of Merger Sub, by
executing this Amendment, waives the requirements for the notice of the meeting
and the meeting referred to in Section 251(c) of the GCL and consents to the
Merger pursuant to Section 228 of the GCL.
3
<PAGE>
Section 2.4 Restated Certificate of Incorporation; Bylaws; Directors
--------------------------------------------------------
and Officers. The Certificate of Incorporation and Bylaws of the Surviving
- ------------
Corporation shall be the Certificate of Incorporation and Bylaws of the Company,
as in effect immediately prior to the Effective Date, until thereafter amended
as provided therein and under the GCL. The directors of the Surviving
Corporation shall be the directors of Merger Sub holding office immediately
prior to the Effective Date, and the officers of the Surviving Corporation shall
be the officers of the Company holding office immediately prior to the Effective
Date.
Section 2.5 Conversion of Securities. At the Effective Date, by
------------------------
virtue of the Merger and without any action on the part of the Company, Merger
Sub, the Surviving Corporation or the holders of any of the following
securities:
(a) The shares of Stock of the Company issued and outstanding
immediately prior to the Effective Date shall be cancelled and extinguished and
be converted into and become a right to receive, in the aggregate, (i) Seventy-
Five Million Dollars ($75,000,000), payable by delivery to Seller of a certified
or cashier's check representing funds available on the first business day
following the Closing Date and (ii) the Seller Note in the principal amount of
Two Hundred Seventy-Five Million Dollars ($275,000,000) (the $75,000,000
certified or cashier's check, together with the Seller Note in the principal
amount of $275,000,000 are referred to herein as the "Merger Consideration").
Seller hereby waives all dissenters' appraisal and other rights arising under
Section 262 of the GCL with respect to its shares of Stock in the Merger.
(b) Each share of common stock, par value $.01 per share, of Merger
Sub issued and outstanding immediately prior to the Effective Date shall be
converted into and become one validly issued, fully paid and nonassessable share
of common stock of the Surviving Corporation.
(c) All notes and other debt instruments of Merger Sub and the
Company which are outstanding at the Effective Date shall continue to be
outstanding subsequent to the Effective Date as debt instruments of the
Surviving Corporation, if permitted by their respective terms and provisions.
(d) Concurrently with the payment of the Merger Consideration, the
Company shall pay to Seller the additional amount of $13,125.00 representing
interest on the $75,000,000 portion of the Merger Consideration from the Closing
Date to the time the $75,000,000 becomes available to Seller (the "Interest
Amount"). The Interest Amount shall be paid by certified or cashier's check to
Seller in the same manner as the Merger Consideration as provided in subsection
(a) above.
Section 2.6 Net Working Capital Adjustment.
------------------------------
(a) Within sixty (60) days after the Closing Date, Buyer shall
deliver to Seller a statement audited by Price Waterhouse, L.L.P. setting forth
its calculation of the Net Working Capital as of the Closing Date, prepared as
described herein (the "Statement of Net Working Capital"). The Statement of Net
Working Capital shall be prepared in accordance with the definition of Net
Working Capital and shall give effect to the elimination of intercompany
receivables and payables between Seller or its affiliates on the one hand, and
the Company or its Subsidiaries on the other, as provided in Section 6.9 hereof.
Seller and KPMG Peat Marwick, L.L.P. shall have the right to be present to
observe the taking of any physical inventory in conjunction with the preparation
of Buyer's calculation of the Statement of Net Working Capital and may review
and examine the procedures, books, records and work papers used in its
preparation.
4
<PAGE>
(b) Unless Seller, within sixty (60) days after receipt of the
Statement of Net Working Capital, notifies Buyer that it objects to the
computation contained therein, specifying the basis for such objection, Buyer's
calculation of the closing Net Working Capital shall be binding upon the
parties. The computation of the Net Working Capital shall not be disputed as to
accounting principles so long as the principles and procedures used to compute
it are consistent with those described in the definition of Net Working Capital
in Section 1.1 hereof. If Buyer and Seller are unable to agree upon the
calculation of Net Working Capital within sixty (60) days after any such
notification has been given by Seller or within a mutually agreed to extended
time period, the controversy shall be referred to a mutually acceptable
independent accounting firm for a final determination thereof. Such
determination shall be binding upon the parties, absent manifest error. The
parties shall share equally the fees and expenses of such firm.
(c) The Company shall pay to Seller the amount by which the final
closing Net Working Capital exceeds $131,150,000, or Seller shall pay to the
Company the amount by which $131,150,000 exceeds the final closing Net Working
Capital, such payment to be made in accordance with Section 2.6(d), and in
either case such payment shall be deemed an adjustment to the Merger
Consideration payable pursuant to Section 2.5. Notwithstanding the foregoing,
if the total net payment that would be made by reason of the foregoing is less
than $250,000, such payment shall not be made and there will be no adjustment to
the Merger Consideration.
(d) Any payment required under Section 2.6(c) shall be delivered by
wire transfer of immediately available funds in accordance with the instructions
of the appropriate recipient, together with interest thereon for each day from
and including the Closing Date to, but excluding, the date of payment, at a rate
per annum equal to the Interest Rate, (i) within the lesser of sixty-five (65)
days after delivery by Buyer of the Statement of Net Working Capital, or five
(5) business days after Seller notifies Buyer that it does not object to the
Statement of Net Working Capital; or (ii) if Seller shall have objected to the
Statement of Net Working Capital, within five (5) business days following final
determination of the disputed items pursuant to Section 2.6(b)."
4. Amendment of Section 3.2. Section 3.2 of the Agreement is hereby
------------------------
amended to read as follows:
"3.2 Documents to be Delivered. To effect the Merger described in
-------------------------
Section 2.1 and the conversion of the securities described in Section 2.5
hereof, Seller, Buyer and the Company shall, on the Closing Date, deliver the
following:
(a) Seller shall deliver to Buyer, for surrender to and cancellation
by the Company, the certificate representing the Stock, free and clear of any
Encumbrances of any nature whatsoever and duly endorsed in blank for transfer or
accompanied by stock powers duly executed in blank.
(b) The Company shall issue and deliver to Buyer a certificate
representing 51,000 shares of common stock, par value $1,000 per share, of the
Company (which shall constitute all of the Company's outstanding capital stock
immediately following the Merger), and Buyer shall immediately upon such
issuance deliver such certificate to Seller, together with stock powers duly
executed in blank, as collateral for the Seller Note.
(c) Seller and Buyer shall each deliver all documents required to be
delivered pursuant to Articles VII and VIII.
5
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(d) The Company shall deliver to Seller the Merger Consideration
(including the Seller Note) as provided in Section 2.5.
(e) All instruments and documents executed and delivered to Buyer
pursuant hereto shall be in form and substance, and shall be executed in a
manner, reasonably satisfactory to Buyer (except as provided in Section 7.10).
All instruments and documents executed and delivered to Seller pursuant hereto
shall be in form and substance, and shall be executed in a manner, reasonably
satisfactory to Seller.
(f) Seller shall deliver to Buyer all Books and Records, to the
extent reasonably separable (including by duplication and/or reasonable
redaction) from the books and records of Seller concerning operations of Seller
other than the Business; provided that all Books and Records located at the
Facilities on the Closing Date shall be deemed to have been so delivered.
(g) Seller and Buyer shall execute and deliver to each other the
Environmental Indemnification Agreement in the form attached as Exhibit B
hereto."
5. Amendment of Section 3.3(a). Section 3.3(a) of the Agreement is
---------------------------
hereby amended to insert a new fifth sentence which shall read as follows:
"Seller shall have the right to review and approve any required
attachments to the Form 8023, and Buyer shall not file the Form 8023 with the
IRS until Seller has reviewed and approved such attachments as being in
compliance with the provisions of this Section 3.3."
6. Amendment of Section 4.3. The first sentence of Section 4.3 of
------------------------
the Agreement is hereby amended to read as follows:
"The Company has authorized 100,000 shares of Common Stock, $1,000 par
value per share, 51,000 shares of which are issued and outstanding."
7. Amendment of Section 4.20(a). Section 4.20(a) of the Agreement
----------------------------
is hereby amended to delete subsection 4.20(a)(ix) in its entirety.
8. Amendment of Section 5.2. The last two sentences of Section 5.2
------------------------
of the Agreement are hereby amended to read as follows:
"Buyer has all necessary corporate power and authority to guarantee
the Seller Note, and has taken all necessary corporate action to consummate the
transactions contemplated thereby and to perform its obligations thereunder.
The guarantee of the Seller Note, when executed and delivered by Buyer, will be
the legal, valid and binding obligation of Buyer enforceable against Buyer in
accordance with its terms."
9. Amendment of Section 5.3. Section 5.3 of the Agreement is hereby
------------------------
amended to read as follows:
"No material consent, approval or authorization of, or declaration,
filing or registration with, any governmental or regulatory authority, or any
other person or entity, is required to be made or obtained by Buyer or TPG in
connection with the execution, delivery and performance of this Agreement
or the guarantee of the Seller Note and the consummation of the transactions
contemplated hereby or thereby other than the filings required under the HSR
Act."
6
<PAGE>
10. Amendment of Section 5.4. The second sentence of Section 5.4 of
------------------------
the Agreement is hereby amended to read as follows:
"In no event shall Seller or its affiliates have any liability for any
such fees and payments, including fees and payments payable to the entities set
forth on Schedule 5.4."
11. Amendment of Section 5.5. Section 5.5 of the Agreement is hereby
------------------------
amended to read as follows:
"Neither the execution and delivery of this Agreement or the guarantee
of the Seller Note nor the consummation of the transactions contemplated hereby
or thereby will result in (a) a violation of or conflict with any provision of
the Certificate of Incorporation or Bylaws of Buyer or the Certificate of
Limited Partnership or Agreement of Limited Partnership of TPG, (b) a breach of,
or default under, any term or provision of any contract, agreement,
indebtedness, lease, commitment, license, franchise, permit, authorization or
concession to which Buyer or TPG is a party, which breach or default would have
a material adverse effect on the business or financial condition of Buyer or TPG
or their respective ability to consummate the transactions contemplated hereby,
or (c) assuming the filings required under the HSR Act are made and the
applicable waiting period shall have expired or been earlier terminated, a
violation by Buyer or TPG of any statute, rule, regulation, ordinance, code,
order, judgment, writ, injunction, decree or award, which violation would have a
material adverse effect on the business or financial condition of Buyer or TPG
or their respective ability to consummate the transactions contemplated hereby."
12. Amendment of Section 5.6. The first two sentences of Section 5.6
------------------------
of the Agreement are hereby amended to read as follows:
"Immediately following the Closing, the Company will have a
capitalization substantially as set forth in Schedule 5.6(a). Upon the
Company's receipt of its permanent financing with respect to the Merger and
repayment of all amounts due under the Seller Note, the Company will have a
capitalization substantially as set forth in Schedule 5.6(b)."
13. Addition of Section 5.8. A new Section 5.8 is hereby added to
-----------------------
the Agreement to read as follows:
"5.8 Authority of Merger Sub. Merger Sub is a corporation, duly
-----------------------
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to conduct its business and
to own and lease its properties. Merger Sub has all necessary corporate power
and authority to enter into this Agreement, and has taken all necessary
corporate action to consummate the transactions contemplated hereby and to
perform its obligations hereunder. This Agreement has been duly executed and
delivered by Merger Sub and is a legal, valid and binding obligation of Merger
Sub, enforceable against Merger Sub in accordance with its terms, except as
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditors' rights generally or by equitable principles (whether
considered in an action at law or in equity). No material consent, approval or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority, or any other person or entity, is required to be made
or obtained by Merger Sub in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby. Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will result in (a) a
violation of or a conflict with any provision of the Certificate of
Incorporation or Bylaws of Merger Sub, (b) a breach of, or a default under, any
term or provision of any contract, agreement, indebtedness, lease, commitment,
license,
7
<PAGE>
franchise, permit, authorization or concession to which Merger Sub is a party,
which breach or default would have a material adverse effect on the business or
financial condition of Merger Sub or its ability to consummate the transactions
contemplated hereby, or (c) a violation by Merger Sub of any statute, rule,
regulation, ordinance, code, order, judgment, writ, injunction, decree or award,
which violation would have a material adverse effect on the business or
financial condition of Merger Sub or its ability to consummate the transactions
contemplated hereby."
14. Addition of Section 5.9. A new Section 5.9 is hereby added to
-----------------------
the Agreement to read as follows:
"Upon the Closing and until the prepayment of the Seller Note in full,
the capitalization of Buyer shall be as set forth in Exhibit F attached hereto.
The holders of the Bridge Note and Series A Preferred Stock to be issued by
Buyer at Closing (as reflected on Exhibit F) will be TPG Partners, L.P., and TPG
Parallel I, L.P. The holders of the Common Stock will be TPG Partners, L.P.,
TPG Parallel I, L.P., E. Michael Moone, C. Richard Lemon, David I. Freed and
George Vare. The Bridge Note will be executed in the form attached hereto as
Exhibit G."
15. Amendment of Section 6.2(c). Section 6.2(c) of the Agreement is
---------------------------
hereby amended to read as follows:
"(c) pay, or incur any obligation to pay, any dividend on its capital
stock (other than cash dividends paid prior to the Closing Date, except that,
from December 26, 1995 to the Closing Date, Seller shall not cause the payment
of any cash dividends that would cause the Company to hold less than $5 million
in cash as of the Closing Date; it being understood that Seller is not making
any representation regarding the amount of cash held by the Company as of the
Closing) or make or incur any obligation to make any distribution or redemption
with respect to capital stock";
16. Confirmation of Release under Section 6.4(a). For purposes of
--------------------------------------------
the third sentence of Section 6.4(a), Seller confirms that it has received a
satisfactory release of it or its affiliates' obligations under leases of
barrels, vehicles, computers and other equipment on or prior to Closing.
17. Amendment of Section 6.10. Section 6.10 of the Agreement is
-------------------------
hereby amended to read as follows:
"Prior to the Closing Date, Seller and Buyer shall cause First
American Title Insurance Company to deliver to Buyer CLTA owners' policies of
title insurance insuring that the Company or its Subsidiaries are vested with
fee title to the Fee Owned Properties (with the insured amount equal to the
mutually-agreed upon fair market value thereof) and containing a `street access'
endorsement for all such properties (other than the property located in Napa
County, California identified as the De Carle property on Schedule 4.6 hereto)
and containing exceptions only for Permitted Encumbrances. Seller and Buyer
shall share equally the cost of the premiums for such policies."
18. Addition of Section 6.11. A new Section 6.11 is hereby added to
-------------------------
the Agreement to read as follows:
"6.11 Release of Seller and its Affiliates under Knoxville Lease.
----------------------------------------------------------
Notwithstanding anything to the contrary contained in Section 6.4 of the
Agreement, the parties agree that, on or prior to 2:00 p.m. PST on January 16,
1996, Buyer and the Company shall either (i) obtain the unconditional release of
Seller and all of its affiliates from the guaranty of the Knoxville Lease
executed (and from time
8
<PAGE>
to time extended) by The Nestle Company, Inc. and its successors (the "Gamble
Guaranty"), by delivering to Seller a document, executed by the lessor under
such lease, which contains language in substantially the form set forth in
Exhibit E hereto, with only such changes as may be approved by Seller in its
reasonable discretion (the "Gamble Release") or (ii) deliver to Seller a
multiple-draw, irrevocable standby letter of credit, renewable annually in favor
of Seller and its affiliates in form and substance reasonably satisfactory to
Seller in its reasonable discretion, and issued by a banking institution
satisfactory to Seller (the "Issuing Bank"), which letter of credit shall secure
the performance by Buyer and the Company of all of their obligations set forth
in Section 6.12 below (the "Lease Letter of Credit"). In the event the Issuing
Bank gives Seller notice that it will not renew the Lease Letter of Credit,
Buyer and the Company shall provide Seller with a replacement letter of credit
acceptable under the criteria set forth in this Section 6.11, and if Seller is
not provided with such a replacement, Seller may draw down on the Lease Letter
of Credit, provided that in the event that Buyer and the Company subsequently
provide to Seller a replacement letter of credit acceptable under the criteria
set forth in this Section 6.11, Seller shall be obligated to, at the request of
Buyer, return to Buyer the funds drawn upon the prior letter of credit, or Buyer
may elect to reduce the amount of the replacement letter of credit by the amount
of funds so drawn. The Lease Letter of Credit shall permit Seller to make draws
thereon by requiring Seller only to deliver to the Issuing Bank an officer's
certificate of Seller certifying that (i) Buyer or the Company have failed to
perform their obligations set forth in Section 6.12 below or (ii) Buyer and the
Company have not provided Seller with the requisite replacement letter of credit
under the circumstances described in the preceding sentence. The Lease Letter of
Credit shall be in an initial amount not less than $9,600,000 and may be reduced
as of any date (the "Measurement Date") to an amount equal to $9,600,000 less
the total amount of basic rent paid by the Company under paragraph (3) of the
Knoxville Lease (including Additional Annual Net Rent or Supplemental Annual Net
Rent as defined therein) from the Closing Date to the Measurement Date, less the
total amount of any payments made to Seller by the Issuing Bank under the Lease
Letter of Credit for claims resulting from the failure of Buyer or the Company
to comply with their obligations under paragraph (3) of the Knoxville Lease;
provided that the amount of the Lease Letter of Credit shall never be less than
an amount equal to (x) 425 acres minus the number of acres that, from the
Closing Date to the Measurement Date, have been replanted by the Company with
phylloxera-resistant rootstock, times (y) $20,000 per acre. Seller shall apply
any amounts received by Seller under the Lease Letter of Credit to satisfy its
obligations under the Gamble Guaranty and for costs and expenses of Seller and
its affiliates reasonably related thereto. At the time the Gamble Release is
delivered to Seller, the obligations of Buyer and the Company under the Lease
Letter of Credit shall terminate and, upon receipt of the Gamble Release, Seller
shall return the Lease Letter of Credit to the Company.
19. Addition of Section 6.12. A new Section 6.12 is hereby added to
------------------------
the Agreement to read as follows:
"6.12 Knoxville Lease Indemnification. The Company agrees to, and
-------------------------------
Buyer agrees to cause the Company and its Subsidiaries to, perform all of its
obligations under the Knoxville Lease, as the same may be amended from time to
time, until such time as Buyer and the Company shall have delivered to Seller
the executed Gamble Release. Buyer, the Company, and its Subsidiaries jointly
and severally, agree to indemnify and hold harmless Seller and its affiliates
from and against all Damages incurred by Seller or its affiliates after the
Closing Date (i) as a result of any breach or alleged breach by the Company or
its Subsidiaries of its obligations under the Knoxville Lease occurring on or
after the Closing Date, or (ii) arising under the Gamble Guaranty on or after
the Closing Date. The Company further agrees that it will not enter into any
amendment to the Knoxville Lease without obtaining from the lessor thereunder an
executed Gamble Release in form and substance satisfactory to Seller. The
indemnification set forth in this Section 6.12 shall be subject to all of the
provisions of Article XI hereof, except that such indemnification shall not be
subject to any of the limitations set forth in Section 11.9
9
<PAGE>
hereof, and provided that the obligations set forth in this Section 6.12 shall
not terminate until Seller and its affiliates have been unconditionally released
from all obligations under the Gamble Guaranty in accordance with Exhibit E and
all applicable statutes of limitations with respect to any claims which may be
brought against Seller or its affiliates thereunder have expired.
20. Addition of Section 6.13. A new Section 6.13 is hereby added to
------------------------
the Agreement to read as follows:
"6.13 Payment of Travel Charges. The Company agrees to pay directly
-------------------------
to the credit provider the full amount of all invoices forwarded to the Company
by Seller, or otherwise received by the Company, for travel charges and expenses
of Company employees incurred prior to the Closing Date, promptly upon their
receipt, at any time up to 60 days following the Closing. Such amounts shall be
considered as current liabilities to be reflected on the Statement of Net
Working Capital.
21. Addition of Section 6.14. A new Section 6.14 is hereby added to
------------------------
the Agreement to read as follows:
"6.14 Clearance of Title Defects. Seller agrees that, from and after
--------------------------
the Closing Date, and until April 15, 1996, if and to the extent requested by
Buyer based upon requirements imposed upon Buyer or the Company by their
lenders, Seller shall use its commercially reasonable efforts to assist Buyer
and the Company in removing or clearing any exceptions to, or other defects in,
title to the Fee Owned Property; provided, however, that Seller shall not be
obligated to incur any out-of-pocket costs and expenses (including without
limitation attorneys' fees) associated with such removal or clearance of
exceptions and defects."
22. Amendment of Section 7.10. Section 7.10 of the Agreement is
-------------------------
hereby amended to read as follows:
"7.10 Seller Note and Collateral Documents. The Company shall have
------------------------------------
executed and delivered to Seller the Seller Note, and Buyer shall have executed
and delivered to Seller a guarantee of the Company's obligations under the
Seller Note, each of which shall be in form and substance satisfactory to Seller
and its counsel. Buyer and the Company additionally shall have executed and
delivered to Seller (and, where applicable, caused to be filed or recorded) such
collateral documents and instruments in form and substance satisfactory to
Seller and its counsel which give Seller valid and perfected first priority
security interests in such real or personal property collateral as Seller in its
sole discretion deems necessary or appropriate, including without limitation:
(i) the outstanding common stock of the Company owned by Buyer following the
Merger, (ii) all of the outstanding capital stock of the Subsidiaries, and (iii)
all personal property, tangible or intangible, of Buyer or the Company. The
Company additionally shall have executed, delivered and recorded with applicable
recording offices instruments in form and substance satisfactory to Seller and
its counsel which reflect the grant of either a deed of trust or a negative
pledge with respect to all of the Fee Owned Property. Buyer shall have
delivered to Seller (i) all certificates evidencing the pledged stock of the
Company endorsed in blank, (ii) an opinion of counsel, which shall be a firm of
national standing, dated as of the Closing Date, in form and substance
reasonably acceptable to Seller, addressing the enforceability of the foregoing
documents and instruments, the validity and perfection of the security interests
created thereby, and such other matters as Seller's counsel reasonably may
request, (iii) a Subordination Agreement dated as of the Closing Date rendering
any indebtedness of Buyer or the Company to TPG and its affiliates subordinate
in right of payment to the prior payment in full of all obligations of Buyer or
the Company under the Seller Financing Documents, and (iv) a Financial Condition
Certificate dated the Closing Date (which shall be
10
<PAGE>
executed by the chief financial officer of the Company) demonstrating that the
fair salable value of the assets of the Company on a consolidated basis will
exceed the probable liability on its debts, that the Company will be able to pay
its debts as they mature and that the Company will not have unreasonably small
capital to conduct its business. Seller shall have received such opinions of
value, other appropriate factual information and expert advice supporting the
conclusions reached in such letter as Seller may reasonably request, all in form
and substance satisfactory to Seller. The documents and instruments described in
this Section 7.10 (such documents and instruments, except for the opinion of
counsel and the Financial Condition Certificate, are hereinafter referred to as
the "Seller Financing Documents"), shall contain all provisions determined by
Seller to be necessary for the protection of its rights as a first priority
secured creditor."
23. Amendment of Section 10.3(b). Section 10.3(b) of the Agreement
----------------------------
is hereby amended to read as follows:
"(b) Retirement Plan and Savings Plan. The Closing Date shall be the
--------------------------------
date of "termination of employment" of each Wine World Employee under the
Retirement Plan for all purposes, including eligibility for the commencement of
benefits, and shall also be the date of "termination of employment" of each Wine
World Employee under the Savings Plan for all purposes except for eligibility to
commence receipt of benefits. No Wine World Employee shall accrue additional
benefits, or receive additional contributions or allocations, under any of such
plans as a result of employment with the Company or any Subsidiary after the
Closing Date.
Within one week after the Closing Date, but effective as of the
Closing Date, Buyer shall cause the Company to adopt and maintain a defined
contribution plan (the "Buyer's Plan") intended to be qualified under Sections
401(a) and 401(k) of the Code. The Buyer's Plan shall cover all Wine World
Employees who participate in the Savings Plan immediately prior to the Closing
Date (the "Savings Plan Participants"). The Buyer's Plan shall be substantially
similar to the Savings Plan, have features concerning the timing and method of
distributions such that a mandatory transfer from the Savings Plan to the
Buyer's Plan of account balances attributable to the Savings Plan Participants
will not cause a violation of Section 411(d)(6) of the Code, and credit the
Savings Plan Participants with all of their years of service with the Company
and other members of Seller's Controlled Group for all purposes under Buyer's
Plan. The Buyer's Plan shall include a matching employer contribution no less
favorable to employees than the employer contribution contained in the Savings
Plan (which employer matching contribution shall be maintained in effect for at
least one year after the Closing Date). Within two months after the Closing
Date, Buyer shall submit the Buyer's Plan to the IRS for a favorable
determination that the Buyer's Plan is qualified under Sections 401(a) and
401(k) of the Code.
As soon as practicable after the Closing Date (but not later than
January 31, 1996), Seller shall cause the assets and liabilities of the Savings
Plan attributable to the account of each Savings Plan Participant or the
beneficiaries or alternate payee(s) of each Savings Plan Participant (including
any outstanding loans of each Savings Plan Participant and the promissory notes
relating to such loans) to be transferred by the trustee of the Savings Plan to
the trustee of the Buyer's Plan, which Buyer shall cause to accept the transfer.
The parties shall use their best efforts to cause the transfer to occur on or
before January 10, 1996. Seller shall cause any appropriate amendments to be
made to the Savings Plan, including an amendment that provides for 100% vesting
of the accounts of each Savings Plan Participant, and Buyer shall cause any
appropriate provisions to be included in the Buyer's Plan, which are necessary
to carry out the provisions of this Section 10.3(b) with respect to such
respective plans. The obligations of Seller and Buyer to effectuate the transfer
described in this Section 10.3(b) shall be conditioned on receiving evidence
reasonably satisfactory to Seller or Buyer, as appropriate, that such transfer
will not
11
<PAGE>
adversely affect the qualified status of the Savings Plan or the Buyer's Plan
under Sections 401(a) or 401(k) of the Code. During the period between the
Closing Date and the transfer of account balances described in this paragraph,
Buyer shall cause the Company and its Subsidiaries to, by payroll deduction,
withhold any required payments on any loans from the Savings Plan to the Savings
Plan Participants and shall forward such payments to the Savings Plan without
delay. Seller shall provide Buyer with a list of such required payments from
time to time."
24. Notices. All notices to be given under the Agreement to the
-------
Company after the Effective Date shall be given in the manner prescribed by
Section 12.3 of the Agreement, except that the addressee of such notice shall
be:
Walter T. Klenz
President
Wine World Estates Company
P.O. Box 111
St. Helena, California 94574
with a copy to: James J. O'Brien
Texas Pacific Group
201 Main Street, No. 2420
Fort Worth, Texas 76102
James G. Coulter
Texas Pacific Group
600 California Street, Suite 1850
San Francisco, California 94108
Gregg Vignos, Esq.
Pillsbury, Madison & Sutro
225 Bush Street
San Francisco, California 94104
25. Schedules. Schedules 4.1, 4.4, 4.6, 4.9(a), the section of
---------
4.9(d) entitled Wine World California Licenses/Permits, 4.9(g), 4.23, 5.4 and
5.6 of the Agreement are hereby deleted and the attached Schedules 4.1, 4.4,
4.6, the sections of 4.9(d) entitled Wine World California Licenses/Permits and
Wine World List of Water Rights, Licenses and Permits, 4.9(g), Schedules 4.5 and
4.9(c)(5) are amended to add the items set forth on the attached Addition
thereto, 4.23, 5.4 and 5.6 are hereby substituted in their place and
incorporated herein by reference. Schedule 4.14 is hereby amended to delete
items 5 and 8. Schedule 4.19 is hereby amended to delete the Centanni mark
(Reg. No. 1533533) and the Chateau Souverain mark (Reg. No. 1470886) from the
list of registered trademarks attached to Schedule 4.19. Schedule 4.20 is
hereby amended to add a reference to Steve Brown's deferred compensation under
the Sunmark benefit plan as set forth on the attached copy of page 3 of Schedule
4.20.
26. Exhibits. Exhibit A (Form of Seller Note) to the Agreement is
--------
hereby deleted and the attached Exhibit A (Form of Seller Note) is hereby
substituted in its place and incorporated herein by reference. Exhibit B
(Environmental Indemnification Agreement) to the Agreement is hereby deleted and
the attached Exhibit B (Environmental Indemnification Agreement) is hereby
substituted in its place and
12
<PAGE>
incorporated herein by reference. Exhibit C (Form of Opinion of Buyer's Counsel)
to the Agreement is hereby deleted and the attached Exhibit C (Form of Opinion
of Buyer's Counsel) is hereby substituted in its place and incorporated herein
by reference. Paragraph (d) of Exhibit D (Form of Opinion of Seller's Counsel)
to the Agreement is hereby amended to read as follows:
"The Company's authorized capital stock consists of 100,000 shares of
Common Stock, $1000 par value per share, of which 51,000 shares are issued and
outstanding immediately prior to the Effective Date. All of the Company's
shares of Common Stock outstanding immediately prior to the Effective Date have
been duly authorized and validly issued and are fully paid and nonassessable.
To the best knowledge of such counsel, Seller has marketable title to all of the
outstanding shares of Common Stock of the Company free and clear of all
Encumbrances. Upon the filing of the certificate of merger referred to in
Section 2.3 of the Agreement with the Secretary of State of Delaware, the Merger
will become effective in accordance with the Agreement and the GCL, and each
outstanding share of Common Stock of the Company will be cancelled and
extinguished and be converted into the right to receive, in the aggregate, the
Merger Consideration and each outstanding share of common stock of Merger Sub
will be converted into one validly issued, fully paid and nonassessable share of
common stock of the Surviving Corporation."
A new Exhibit E (Release), Exhibit F (Buyer Ownership Structure) and
Exhibit G (Bridge Note) in the forms attached hereto are hereby added to the
Agreement and incorporated herein by reference.
27. Terms and Conditions. Except as specifically modified herein,
--------------------
all other terms and conditions of the Agreement shall remain in full force and
effect.
13
<PAGE>
IN WITNESS WHEREOF, this Amendment has been signed by or on behalf of
each of the parties as of the day first above written.
"SELLER": NESTLE HOLDINGS, INC.
By: /s/ Peter D. Argentine
------------------------------------------
Name: Peter D. Argentine
Title: Senior Vice President -
Planning and Development
"WINE WORLD" or the "COMPANY": WINE WORLD ESTATES COMPANY
By: /s/ Walter T. Klenz
------------------------------------------
Name: Walter T. Klenz
Title: President
"BUYER": SILVERADO PARTNERS ACQUISITION CORP.
By: /s/ David I. Freed
------------------------------------------
Name: David I. Freed
Title: Vice President
"MERGER SUB": WINE ACQUISITION CORPORATION
By: /s/ Justin T. Chang
------------------------------------------
Name: Justin T. Chang
Title: Vice President
"TPG": TPG PARTNERS, L.P.
By: TPG GenPar, L.P.
Its General Partner
By: TPG Advisors, Inc.
Its General Partner
By: /s/ Justin T. Chang
------------------------------------------
Name: Justin T. Chang
Title: Vice President
S-1
<PAGE>
EXHIBIT C
FORM OF OPINION OF BUYER'S COUNSEL
1. Buyer is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of California. Buyer has the
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby and all requisite corporate
action has been taken by the Board of Directors of Buyer to authorize the
execution, delivery and performance of this Agreement by Buyer;
2. This Agreement has been duly executed and delivered by Buyer and
is the valid and binding obligation of Buyer, enforceable against it in
accordance with its terms, except as limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
generally or by equitable principles (whether considered in an action at law or
in equity);
3. The Seller Note has been duly executed and delivered by the
Company and is the valid and binding obligation of the Company, enforceable
against it in accordance with its terms, except as limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
creditors' rights generally or by equitable principles (whether considered in an
action at law or in equity);
4. Neither the execution and delivery of this Agreement by Buyer nor
the consummation of the transactions contemplated hereby will (i) violate the
Certificate of Incorporation or Bylaws of Buyer, (ii) violate any federal or
state statute, rule or regulation applicable to Buyer; or (iii) to the knowledge
of such counsel, violate any judgment, decree, injunction, writ or order
applicable to Buyer; and
5. Neither the execution and delivery of the Seller Note by the
Company nor the performance thereof will (i) violate the Certificate of
Incorporation or Bylaws of the Company, (ii) violate any federal or state
statute, rule or regulation applicable to the Company; or (iii) to the knowledge
of such counsel, violate any judgment, decree, injunction, writ or order
applicable to the Company; and
6. No authorization, consent, order, permit or approval of, or
filing with, any United States federal or state governmental body is necessary,
under any statute or rule known to such counsel, for the consummation by Buyer
of the transactions contemplated on its part hereby, other than filings under
the HSR Act, or for the performance by the Company of its obligations under the
Seller Note.
C-1
<PAGE>
EXHIBIT E
RELEASE
Lessor hereby releases and discharges Nestle Food Company and its predecessors,
successors and affiliates (collectively, "Nestle") from any and all liabilities
or obligations, past or present, known or unknown, accrued or not accrued, fixed
or contingent, arising under (i) the Lease dated October 1, 1972 between Launce
E. Gamble and George F. Gamble, as lessor, and Premium Wines Inc., as lessee, as
such lease has been amended from time to time, or (ii) the Guaranty originally
executed by The Nestle Company, Inc. on September 15, 1972, as extended and
reaffirmed from time to time thereafter, with respect to the foregoing Lease.
Lessor agrees that the foregoing Guaranty henceforth shall be terminated and be
of no further force or effect, and that no claim may be brought against Nestle
under such Guaranty at any time, regardless of when any such claim may have
arisen or been incurred.
E-1
<PAGE>
EXHIBIT G
"THE INDEBTEDNESS EVIDENCED BY THIS INSTRUMENT IS SUBORDINATED TO THE
PRIOR PAYMENT IN FULL OF THE OBLIGATIONS (AS DEFINED IN THE SUBORDINATION
AGREEMENT HEREINAFTER REFERRED TO) PURSUANT TO, AND TO THE EXTENT PROVIDED IN,
THE SUBORDINATION AGREEMENT DATED AS OF JANUARY 1, 1996 BY THE MAKER HEREOF AND
PAYEE NAMED HEREIN IN FAVOR OF NESTLE HOLDINGS, INC."
SUBORDINATED PROMISSORY NOTE
(Bridge Note)
January 1, 1996
$________________
FOR VALUE RECEIVED, Silverado Partners Acquisition Corp., a California
corporation (the "Payor"), hereby promises to pay on demand after the later of
(i) January 30, 1996 or (ii) the payment in full of the Seller Note (as such
term is defined in the Subordination Agreement referred to above) to
______________________ ("Payee"), at _______________________, or at such other
place as may be designated from time to time in writing by Payee, in lawful
money of the United States, the principal sum of ______________________
($___________). This Note shall bear interest at the lower of 10% per annum or
the maximum rate of interest permitted by law, if 10% per annum exceeds the
maximum rate of interest permitted by law, payable at maturity. Interest shall
accrue daily.
Subject to the terms of the Subordination Agreement, this Note may be
prepaid at the option of Payor, in full or in part, at any time and from time to
time without premium or penalty. All payments and pre-payments shall be
allocated first to accrued but unpaid interest and then to principal.
If this Note is not paid in accordance with its terms and is placed in
the hands of an attorney for collection, or if suit be instituted hereon, Payor
shall pay to Payee, in addition to principal and accrued interest, all costs of
collection of the principal and accrued interest, including, without limitation,
reasonable attorneys' fees for the enforcement of this Note.
Payor hereby expressly waives presentment, protest and demand, notice
of protest, demand, dishonor and nonpayment of this Note and all other notices
of any kind. This Note shall be governed by Texas law.
G-2
<PAGE>
IN WITNESS WHEREOF, Payor has caused this Note to be executed on its
behalf by the undersigned, thereunto duly authorized, as of the date first set
forth above.
SILVERADO PARTNERS ACQUISITION CORP.
By:_________________________________
G-3
<PAGE>
EXHIBIT 3.(i)1
CERTIFICATE OF INCORPORATION
OF
BERINGER WINE ESTATES HOLDINGS, INC.
ARTICLE I
NAME OF CORPORATION
The name of this Corporation is
Beringer Wine Estates Holdings, Inc.
ARTICLE II
REGISTERED OFFICE
The address of the registered office of the Corporation in the State
of Delaware is 9 East Loockerman Street, in the City of Dover 19901, County of
Kent, and the name of its registered agent at that address is National
Registered Agents, Inc.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE IV
AUTHORIZED CAPITAL STOCK
A. AUTHORIZED SHARES.
-----------------
1. Number of Shares. The total number of shares which the
----------------
Corporation shall have authority to issue, the number of shares of each class,
and the par value of each share or each class are as follows:
The aggregate number of shares which the Corporation shall have
authority to issue is 22,000,000, divided into 2,000,000 shares of preferred
stock and 20,000,000 shares of common stock as follows:
<PAGE>
<TABLE>
<CAPTION>
Name of Class Number of Shares Par Value
- ------------- ---------------- ---------
<S> <C> <C>
Preferred Stock ("Preferred Stock") of 2,000,000 $.0001
which 1,000,000 shares are designated as
Series A Non-Voting Pay-in-Kind
Preferred Stock, par value $.0001 per
share
Class A Common Stock 2,000,000 $.0001
Class B Common Stock 18,000,000 $.0001
</TABLE>
A description of the different classes and series of the Corporation's
stock and a statement of the designations, and the relative rights, preferences,
and limitations of the shares of each class of and series of such stock are set
forth below in this Article IV.
2. Preferred Stock. The undesignated Preferred Stock may be divided
---------------
into such number of series as the Board may determine. The Board also is hereby
vested with authority to fix by resolution or resolutions the designations and
the powers, preferences and relative, participating, optional or other special
rights, and qualifications limitations or restrictions thereof, including,
without limitation, the voting rights, dividend rights, dividend rate,
conversion or exchange rights, rights and terms of redemption (including sinking
fund provisions) and liquidation preference, of any series of shares of
Preferred Stock, and to fix the number of shares constituting any such series,
and to increase or decrease the number of shares of any outstanding series (but
not below the number of shares thereof then outstanding). In case the number of
shares of any outstanding series shall be so decreased, the shares constituting
such decrease shall, upon the taking of any action required by applicable law,
be deemed to become shares of undesignated Preferred Stock.
B. SERIES A PREFERRED STOCK.
------------------------
The following is a statement of the powers, preferences, rights,
qualifications, limitations and restrictions of the series, consisting of
1,000,000 shares, $.0001 par value, of the Series A Non-Voting Pay-in-Kind
Preferred Stock.
1. Designation and Amount. The shares of such series of Preferred
----------------------
Stock shall be designated as "Series A Non-Voting Pay-in-Kind Preferred Stock"
(the "Series A Preferred Stock"), and the number of shares constituting such
series shall be 1,000,000, including up to 700,000 shares of Series A Preferred
Stock issued as dividends on the Series A Preferred Stock pursuant to Section 3
hereof. The initial liquidation preference of the Series A Preferred Stock and
related Series A Preferred Stock Rights shall be $100 per share (the
"Liquidation Value").
2. Rank. The Series A Preferred Stock shall, with respect to
----
dividend rights and rights on liquidation, winding up and dissolution, rank:
(i) senior to both the Common Stock, and to all classes and series of stock of
the Corporation now or hereafter authorized, issued or outstanding which by
their terms expressly provide that they are junior to the Series A Preferred
Stock as to dividend distributions and distributions upon the liquidation,
winding up and dissolution of the Corporation or which do not specify
2
<PAGE>
their rank (collectively with the Common Stock, the "Junior Securities"); (ii)
on a parity with each other class of capital stock or series of Preferred Stock
issued by the Corporation after June 30, 1996 the terms of which specifically
provide that such class or series will rank on a parity with the Series A
Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding up and dissolution of the Corporation (collectively
referred to as "Parity Securities"), provided, however, that any such Parity
-------- -------
Securities that were not approved by the holders of Series A Preferred Stock in
accordance with Article IV.B.7.(b) hereof shall be deemed to be Junior
Securities and not Parity Securities; and (iii) junior to each other class of
capital stock or other series of Preferred Stock issued by the Corporation after
June 30, 1996 the terms of which have been approved by the holders of the Series
A Preferred Stock in accordance with Article IV.B.7.(b) hereof and which
specifically provide that such class or series will rank senior to the Series A
Preferred Stock as to dividend distributions or distributions upon the
liquidation, winding up and dissolution of the Corporation (collectively
referred to as "Senior Securities").
3. Dividends. (a) The holders of shares of the Series A Preferred
---------
Stock shall be entitled to receive, out of funds legally available therefor,
dividends per share at the annual rate of fourteen percent (14%) of the
Liquidation Value. Such dividends shall be cumulative and shall accrue and be
payable in equal semi-annual amounts per share of seven percent (7%) of the
Liquidation Value per share on July 16 and January 16 in each year (each of such
dates being a "Dividend Payment Date"), to holders of record at the close of
business on the date specified by the Board at the time such dividend is
declared (the "Record Date"), in preference to dividends on the Junior
Securities, commencing on the Dividend Payment Date next succeeding June 30,
1996. Any such Record Date shall be not less than 10 days and not more than 30
days prior to the relevant Dividend Payment Date. All dividends with respect to
shares of Series A Preferred Stock shall be paid in additional shares of Series
A Preferred Stock and not in cash for the first 10 Dividend Payment Dates.
Thereafter, dividends shall be paid in cash so long as the payment of such
dividends (or the payment by Beringer Wine Estates Company, a Delaware
corporation, of a dividend or other distribution to the Corporation in order to
pay such dividends) would not directly or indirectly (with the passage of time
or the giving of notice) cause a default or an event of default under any
indebtedness of the Corporation or any corporation or other entity directly or
indirectly controlled by the Corporation for borrowed money. Non-cash dividend
payments shall be made by issuing shares (or fractions thereof) of Series A
Preferred Stock with an aggregate liquidation preference equal to the amount of
such dividends. All dividends paid with respect to shares of Series A Preferred
Stock pursuant to this Section 3 shall be paid pro rata to the holders entitled
thereto. All shares of Series A Preferred Stock issued as a dividend with
respect to the Series A Preferred Stock will thereupon be duly authorized,
validly issued, fully paid and nonassessable. Dividends not paid in cash shall
be paid in additional shares of Series A Preferred Stock.
(b) In the case of shares of Series A Preferred Stock issued prior to
June 30, 1996, dividends shall accrue and be cumulative from January 1, 1996.
In the case of shares of Series A Preferred Stock issued subsequent to June 30,
1996, dividends shall accrue and be cumulative from the Specific Issue Date
relating thereto. In the case of shares of Series A Preferred Stock issued in
lieu of cash dividends they shall accrue and be cumulative from the date of
issue if issued with respect to a dividend payment date of January 16 and from
the next January 16 if issued with respect to a dividend payment due on July 16.
3
<PAGE>
(c) Each fractional share of Series A Preferred Stock outstanding
shall be entitled to a ratably proportionate amount of all dividends accruing
with respect to each outstanding share of Series A Preferred Stock pursuant to
subparagraph (a) of this Article IV.B.3, and all such dividends with respect to
such outstanding fractional shares shall be cumulative and shall accrue (whether
or not declared), and shall be payable in the same manner and at such times as
provided for in paragraph (a) of this Article IV.B.3 with respect to dividends
on each outstanding share of Series A Preferred Stock. Each fractional share of
Series A Preferred Stock outstanding shall also be entitled to a ratably
proportionate amount of any other distributions made with respect to each
outstanding share of Series A Preferred Stock, and all such distributions shall
be payable in the same manner and at the same time as distributions on each
outstanding share of Series A Preferred Stock.
(d) (i) So long as any shares of the Series A Preferred Stock are
outstanding, the Corporation shall not, without the prior consent of the holders
of at least two-thirds of the outstanding Series A Preferred Stock, make any
payment on account of, or set apart for payment money for a sinking or other
similar fund for, the purchase redemption or retirement of, any Junior
Securities or any warrants, rights, calls or options exercisable for or
convertible into any Junior Securities, whether directly or indirectly, and
whether in cash, obligations or shares of the Corporation or other property
(other than dividends or distributions payable in additional shares of Junior
Securities to holders of Junior Securities), and shall not permit any
corporation or other entity directly or indirectly controlled by the Corporation
to purchase or redeem any Junior Securities or any warrants, rights, calls or
options exercisable for or convertible into any Junior Securities, except for
repurchases of Junior Securities from employees upon termination of employment
pursuant to agreements approved by the Board.
(ii) So long as any shares of the Series A Preferred Stock are
outstanding, the Corporation shall not, without the prior consent of the holders
of at least two-thirds of the outstanding Series A Preferred Stock, except as
permitted in clause (d)(i) above or in this clause (d)(ii), declare, pay or set
apart for payment any dividend or make any distribution or payment on any Junior
Securities or Parity Securities, or make any payment on account of, or set apart
for payment money for a sinking or other similar fund for, the purchase,
redemption or retirement of, Parity Securities or any warrants, rights, calls or
options exercisable for or convertible into any Parity Securities, whether
directly or indirectly, and whether in cash, obligations or shares of the
Corporation or other property (other than dividends or distributions payable in
additional shares of Parity Securities to holders of Parity Securities), and
shall not permit any corporation or other entity directly or indirectly
controlled by the Corporation to purchase or redeem any Parity Securities or any
warrants, rights, calls or options exercisable for or convertible into any
Parity Securities, and the Corporation shall not, and shall not permit any
corporation or other entity directly or indirectly controlled by the Corporation
to, make any such declaration, payment, setting apart for payment, purchase,
redemption, retirement or distribution; provided, however, that, to the extent
-------- -------
permitted by law and so long as cash dividends on the Series A Preferred Stock
have been paid for the current and any prior periods for which cash dividends
should be paid and any Series A Preferred Stock issued in respect of dividends
paid in kind shall have been redeemed, the Corporation may pay cash dividends on
the Common Stock, without the prior consent of the holders of the Series A
Preferred Stock, but only out of retained earnings or current income and only
if, after giving effect to such dividend, the aggregate amounts of all
allocations or payments of dividends, purchases, redemptions or retirements of
capital stock and warrants rights or options and all such other distributions
("Restricted Payments") made during the period
4
<PAGE>
beginning January 16, 1996 to and including the date of the making of such
dividend payment in question would not cause such Restricted Payments to exceed
fifty percent (50%) of consolidated net income of the Corporation for the period
beginning January 16, 1996 to the date of the making of such dividend payment
computed on a cumulative basis for said entire period (or if such consolidated
net income is a deficit figure, then minus one hundred percent (100%) of such
deficit).
4. Liquidation Preference. (a) In the event of any voluntary or
----------------------
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, each holder of shares of Series A Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders an amount in cash equal to one hundred percent
(100%) of the Liquidation Value for each share of Series A Preferred Stock then
outstanding held by such holder, plus an amount in cash equal to all accrued but
unpaid dividends (including all Series A Preferred Stock Rights) thereon to the
date of liquidation, dissolution or winding up, before any payment shall be made
or any assets distributed to the holders of any of the Junior Securities. If
the assets of the Corporation are not sufficient to pay in full the liquidation
payments payable to the holders of outstanding shares of the Series A Preferred
Stock and any Parity Securities, then the holders of all such shares shall share
ratably in such distribution of assets in accordance with the amount which would
be payable on such distribution if the amounts to which the holders of
outstanding shares of Series A Preferred Stock and the holders of outstanding
shares of such Parity Securities are entitled were paid in full.
(b) For the purposes of this Article IV.B.4, the voluntary sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Corporation or the consolidation or merger of the Corporation with any one or
more other corporations (other than a consolidation or merger with or into a
wholly-owned subsidiary of the corporation or into another corporation or entity
in which the holders of the capital stock of the Corporation own at least fifty
percent (50%) of the voting securities of the surviving entity) shall be deemed
to be a voluntary or involuntary liquidation, dissolution or winding up of the
Corporation (such that holders of the Series A Preferred Stock shall be entitled
to receive the amounts provided in Article IV.B.4.(a) unless the Corporation has
previously redeemed the outstanding Series A Preferred Stock).
5. Optional Redemption; Required Redemption. (a) The Corporation
----------------------------------------
may, at its option, redeem in whole at any time or in part from time to time
(and, if in part, pro rata from each holder), in the manner hereinafter
provided, shares of Series A Preferred Stock, at a redemption price per share,
payable in cash, equal to one hundred percent (100%) of the Liquidation Value
thereof plus an amount equal to one hundred percent (100%) of the sum of accrued
and unpaid dividends thereon (including an amount equal to a prorated dividend
from the last Dividend Payment Date immediately prior to the redemption date).
(b) (i) In the event that the Corporation shall redeem shares of
Series A Preferred Stock pursuant to Article IV.B.5.(a) or (c) hereof, notice of
such redemption shall be mailed by first-class mail, postage prepaid, not less
than 30 days or more than 60 days prior to the redemption date to the holders of
record of the shares to be redeemed at their respective addresses as they shall
appear in the records of the Corporation; provided, however, that failure to
-------- -------
give such notice or any defect therein or in the mailing thereof shall not
affect the validity of the proceedings for the redemption of any shares so to be
redeemed except as to the holder to whom the Corporation has failed to give such
notice
5
<PAGE>
or except as to the holder to whom notice was defective. Each such notice shall
state: (A) the redemption date; (B) the number of shares of Series A Preferred
Stock to be redeemed and, if less than all the shares held by such holder are to
be redeemed, the number of such shares to be redeemed and the manner in which
such shares were selected for redemption; (C) the redemption price per share;
(D) the place or places where certificates for such shares are to be surrendered
for payment of the redemption price; and (E) that dividends on the shares to be
redeemed will cease to accrue on such redemption date (unless the Corporation
defaults in the payment of the redemption price, in which case such rights shall
continue until the redemption price is paid).
(ii) Notice by the Corporation having been mailed as provided in
Article IV.B.5.(b)(i) hereof, and provided that on or before the applicable
redemption date funds, if any, necessary for such redemption shall have been set
aside by the Corporation, separate and apart from its other funds, in trust for
the pro rata benefit of the holders of the shares so called for or entitled to
redemption, so as to be and to continue to be available therefor, then, from and
after the redemption date (unless the Corporation defaults in the payment of the
redemption price, in which case such rights shall continue until the redemption
price is paid), dividends on the shares of Series A Preferred Stock so called
for or entitled to redemption shall cease to accrue, and said shares shall no
longer be deemed to be outstanding and shall not have the status of shares of
Series A Preferred Stock, and all rights of the holders thereof as stockholders
of the Corporation (except the right to receive the applicable redemption price
and any accrued and unpaid dividends from the Corporation to the date of
redemption) shall cease. Upon surrender of the certificates for any shares so
redeemed (properly endorsed or assigned for transfer, if the Board shall so
require and a notice by the Corporation shall state), such shares shall be
redeemed by the Corporation at the applicable redemption price as aforesaid. In
case fewer than all the shares represented by any such certificate are redeemed,
a new certificate or certificates shall be issued representing the unredeemed
shares without cost to the holder thereof.
(c) On the earlier of (i) the closing of a Change of Control
Transaction or (ii) July 16, 2006, to the extent permitted by applicable law,
the Corporation shall purchase and redeem all outstanding Series A Preferred
Stock and Series A Preferred Stock Rights at a price per share, payable in cash,
equal to one hundred percent (100%) of the Liquidation Value of the shares to be
purchased and redeemed plus an amount equal to one hundred percent (100%) of the
sum of accrued and unpaid dividends thereon (including an amount equal to a
prorated dividend from the last Dividend Payment Date immediately prior to the
redemption date). The Corporation shall provide notice of redemption in
accordance with the provisions of Article IV.B.5.(b). If the funds of the
Corporation legally available for redemption of the Series A Preferred Stock are
insufficient to redeem all such shares, those funds which are legally available
shall be used to redeem the maximum possible number of such shares on a pro rata
--------
basis as to all holders of shares of Series A Preferred Stock whose shares are
being redeemed. At any time thereafter when additional funds of the Corporation
become legally available for the redemption of the Series A Preferred Stock,
such funds will immediately be used to redeem the balance (or, on a pro rata
--------
basis, the maximum portion permissible) of the outstanding shares of Series A
Preferred Stock to be redeemed pursuant to this Article IV.B.5.(c). Dividends
shall continue to accrue and accumulate on any shares of Series A Preferred
Stock that shall not have been redeemed by the Corporation pursuant to this
Section IV.B.5(c).
6. Reacquired Shares. Shares of Series A Preferred stock that have
-----------------
6
<PAGE>
been issued and reacquired in any manner, including shares reacquired by
purchase or redemption, shall not be reissued as shares of Series A Preferred
Stock and shall (upon compliance with any applicable provisions of the laws of
the State of Delaware) have the status of authorized and unissued shares of the
class of Preferred Stock undesignated as to series and may be redesignated and
reissued as part of any series of Preferred Stock other than the Series A
Preferred Stock.
7. Voting Rights. In addition to any voting rights provided by law,
-------------
the holders of Series A Preferred Stock shall have the following voting rights:
(a) General. Except as required in this Article IV and as otherwise
-------
required by law, shares of Series A Preferred Stock (including shares received
as dividends thereon) shall have no voting rights.
(b) Voting Rights On Extraordinary Matters. In addition to any vote
--------------------------------------
or consent of stockholders required by law, the approval of holders of two-
thirds of the outstanding shares of Series A Preferred Stock, voting as a class,
shall be required: (i) to amend the Certificate of Incorporation of the
Corporation to increase the authorized number of shares of Preferred Stock or to
authorize the creation or issuance, or the increase in the authorized amount, of
any Parity Securities or Senior Securities, or to authorize the creation or
issuance of securities convertible into or exchangeable for, or options,
warrants or other rights to acquire, any Parity Securities or Senior Securities;
(ii) to reclassify any series of Junior Securities to Senior Securities or
Parity Securities; (iii) to amend, repeal or change any of the provisions of the
Certificate of Incorporation of the Corporation or the provisions of this
Article IV in any manner that would alter or change the powers, preferences or
special rights of the shares of Series A Preferred Stock so as to affect them
adversely, including without limitation changing the voting percentage required
for approval by the holders of Series A Preferred Stock of the foregoing
matters; (iv) otherwise to restrict the rights, preferences or privileges of the
Series A Preferred Stock; or (v) to authorize the consolidation or merger of the
Corporation with or into another Person (whether or not the Corporation is the
Surviving Person), or the sale, assignment, transfer, lease, conveyance or other
disposal of all or substantially all of its properties or assets in one or more
related transactions to another Person unless, in either case: (A) the
Corporation is the Surviving Person or the Surviving Person is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia, and (B) the Series A Preferred Stock remains
outstanding or is converted into or exchanged for and becomes shares of the
Surviving Person (if other than the Corporation), having in respect of the
Surviving Person substantially the same powers, preferences and relative
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereon, that the Series A Preferred Stock had
immediately prior to such transaction and such corporation will have no class of
shares either authorized or outstanding ranking prior to or on a parity with the
Series A Preferred Stock except the same number of shares ranking prior to or on
a parity with the Series A Preferred Stock and having the same rights and
preferences as the shares of the Corporation authorized and outstanding
immediately preceding any such transaction.
8. Certain Covenants. Any holder of Series A Preferred Stock may
-----------------
proceed to protect and enforce its rights and the rights of such holders by any
available remedy by proceeding at law or in equity to protect and enforce any
such rights, whether for the specific enforcement of any provision herein or in
aid of the exercise of any power granted herein, or to enforce any other proper
remedy.
7
<PAGE>
C. COMMON STOCK.
------------
All shares of Class A Common Stock and Class B Common Stock shall be
identical and will entitle the holders thereof to the same rights and
privileges, except as otherwise provided herein.
1. Voting. Except as otherwise expressly provided in this
------
Certificate of Incorporation or otherwise required by law, the holders of the
Common Stock shall exclusively possess all voting power. Each holder of the
Class A Common Stock shall be entitled to fifty (50) votes and each holder of
Class B Common Stock shall be entitled to one vote for each share held on all
matters submitted to stockholders of the Corporation, whether by vote at a
meeting or for action by written consent. Except as otherwise provided herein
or required by law, holders of Class A Common Stock and Class B Common Stock
shall vote together as a single class on all matters submitted to stockholders
of the Corporation.
2. Dividends and Other Distributions. Subject to any rights to
---------------------------------
receive dividends to which the holders of the shares of the Preferred Stock and
any class or series of the Corporation ranking prior to the Class A Common Stock
and Class B Common Stock with respect to the payment of dividends or the
distribution of assets on liquidation, dissolution or winding up of the
Corporation may be entitled, the holders of the Class A Common Stock and Class B
Common Stock shall be entitled to receive, when, if and as declared by the
Board, such dividends of cash, stock or property as the Board shall from time to
time declare from funds legally available therefor. If any dividend is paid on
any class of Common Stock, such dividend or distribution shall be paid on all
classes of Common Stock in the same amount per share and any stock split,
reverse stock split or recapitalization of any class of Common Stock shall apply
equally to all classes of Common Stock; provided, however, that in the case of
-------- -------
dividends payable in shares of Common Stock or options warrants or rights to
acquire shares of Common Stock or securities convertible into or exchangeable
for shares of Common Stock, the shares, options, warrants or rights to acquire
or securities so payable shall be payable only in shares of, or options,
warrants or rights to acquire or securities convertible into or exchangeable
for, Class B Common Stock.
3. Liquidation. Upon any liquidation, dissolution, or winding up of
-----------
the Corporation, whether voluntary or involuntary, after payment or provision
for payment of the debts and other liabilities of the Corporation and the
amounts to which the holders of the Preferred Stock and any other class or
series of the Corporation's capital stock ranking prior to the Class A Common
Stock and Class B Common Stock shall be entitled, the holders of Class A Common
Stock and Class B Common Stock shall be entitled to share ratably in the
remaining assets of the Corporation. Neither the merger or consolidation of the
Corporation, nor the sale, lease or conveyance of all or substantially all of
its assets, shall be deemed to be a liquidation, dissolution or winding up of
the Corporation within the meaning of this Article IV.C.3.
4. Conversion.
-----------
(a) Holders of Class A Common Stock shall have the right, at their
individual options and at any time, to convert any or all shares of Class A
Common Stock held by them to the same number of shares of Class B Common Stock
by delivering to the Corporation a notice of their intent to so convert their
shares of Class A Common Stock and surrendering the certificate or certificates
representing such shares. The
8
<PAGE>
Corporation shall promptly issue and deliver the certificate or certificates
evidencing the shares of Class B Common Stock issuable upon conversion in
accordance with the holders instructions. Such conversion, to the extent
permitted by law, shall be deemed to occur as of the close of business on the
date on which the holder's notice of intent is received and the holder's shares
of Class A Common Stock are surrendered. Class B Common Stock issued under this
Article IV.C.4 shall be deemed duly authorized, validly issued, fully paid and
nonassessable. Subject to approval of a majority of the shares of the Class
A Common Stock, the Class A Common Stock shall be automatically converted on a
one-for-one basis into shares of Class B Common Stock effective upon the closing
of a Qualified IPO.
(b) In the case of any reorganization, reclassification or change of
shares of the Class B Common Stock (other than a change in par value or from par
to no par value or as a result of a subdivision or combination), or in the case
of any consolidation of the Corporation with one or more corporations or a
merger of the Corporation with another corporation, or in the case of any sale,
lease or other disposition or all or substantially all of the assets of the
Corporation, each holder of a share of Class A Common Stock at the time
outstanding shall be entitled to convert such share into the kind and amount of
shares of stock and other securities and properties (including cash) receivable
upon such reorganization, reclassification, change of shares, consolidation,
merger, sale lease or other disposition, by a holder of the number of shares of
Class B Common Stock into which such shares of Class A Common Stock might have
been converted immediately prior to such reorganization, reclassification,
change of shares, consolidation, merger, sale, lease or other disposition. In
the event of such a reorganization, reclassification, change of shares,
consolidation, merger, sale, lease or other disposition, effective provisions
shall be made in the charter of the resulting or surviving corporation or other
wise for the protection of the conversion rights of the shares of Class A Common
Stock as nearly equivalent as practicable, into any such other shares of stock
and other securities and property deliverable upon conversion of shares of Class
B Common Stock into which such Class A Common Stock might have been converted
immediately prior to such event.
(c) The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Class B Common Stock, solely for the
purpose of issuance upon conversion of outstanding shares of Class A Common
Stock, such number of shares of Class B Common Stock as shall from time to time
be issuable upon the conversions of all the outstanding shares of Class A Common
Stock. If any shares of Class B Common Stock required to be reserved for
purposes of conversion hereunder (i) require registration with or approval of
any governmental authority under any federal or state law before such shares of
Class B Common Stock may be issued upon conversion or (ii) are listed on any
national or regional securities exchange or the NASDAQ National Market System,
the Corporation shall use its commercially reasonable efforts and incur
commercially reasonable costs to cause such shares to be fully registered,
approved, or listed as the case may be prior to the effective time of such
conversion.
(d) The Corporation shall pay all documentary stamp or other
transactional taxes attributable to the issuance or delivery of shares of Class
B Common Stock upon conversion of any shares of Class A Common Stock; provided,
--------
however, that the Corporation shall not be required to pay any taxes which may
- -------
be payable in respect of any transfer involved in the issuance or delivery of
any certificate for shares of Class B Common Stock in a name other than that of
the registered holder of shares of Class A Common Stock converted.
9
<PAGE>
ARTICLE V
LIABILITY AND INDEMNIFICATION
To the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (the "Delaware Law"), a
director of the Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
The Corporation shall indemnify, in the manner and to the fullest extent
permitted by the Delaware Law, any person (or the estate of any person) who is
or was a party to, or is threatened to be made a party to, any threatened,
pending or completed action, suit or proceeding, whether or not by or in the
right of the Corporation, and whether civil, criminal, administrative,
investigative or otherwise, by reason of the fact that such person is or was a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, limited liability company, trust or other enterprise. The
Corporation may indemnify, in the manner and to the fullest extent permitted by
the Delaware Law, any person (or the estate of any person) who is or was a party
to, or is threatened to be made a party to, any threatened, pending or completed
action, suit or proceeding, whether or not by or in the right of the
Corporation, and whether civil, criminal, administrative, investigative or
otherwise, by reason of the fact that such person is or was an employee or agent
of the Corporation, or is or was serving at the request of the Corporation as an
employee or agent of another corporation, partnership, joint venture, limited
liability company, trust or other enterprise. Expenses incurred by any such
director or officer in defending any such action, suit or proceeding shall be
advanced by the Corporation prior to the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such director,
officer, employee or agent to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified as authorized by the
Delaware Law and this Article V. Expenses incurred by any such employee or
agent in defending any such action, suit or proceeding may be advanced by the
Corporation, as authorized by the Board in the specific case, prior to the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director, officer, employee or agent to repay such amount
if it shall ultimately be determined that he or she is not entitled to be
indemnified as authorized by the Delaware Law and this Article V. The
Corporation may, to the fullest extent permitted by the Delaware Law, purchase
and maintain insurance on behalf of any such director, officer, employee or
agent against any liability which may be asserted against such person. To the
fullest extent permitted by the Delaware Law, the indemnification provided
herein shall include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement and, in the manner provided by the Delaware Law. The
indemnification provided herein shall not be deemed to limit the right of the
Corporation to indemnify any other person for any such expenses to the fullest
extent permitted by the Delaware Law, nor shall it be deemed exclusive of any
other rights to which any person seeking indemnification from the Corporation
may be entitled under any agreement, vote of stockholders or disinterested
directors, or otherwise, both as to action in such person's official capacity
and as to action in another capacity while holding such office.
No repeal or modification of the foregoing paragraph shall adversely
affect any right or protection of a director of the Corporation existing by
virtue of the foregoing paragraph at the time of such repeal or modification.
10
<PAGE>
ARTICLE VI
AMENDMENT
1. Certificate of Incorporation. In addition to any affirmative
----------------------------
vote required by applicable law or any other provision of this Certificate of
Incorporation or specified in any agreement, and in addition to any voting
rights granted to or held by the holders of Common Stock or Preferred Stock,
alteration, addition, amendment, repeal or rescission (any "change") of any
provision of this Certificate of Incorporation shall be approved by the vote of
holders of a majority of the voting power of the Class A Common Stock and Class
B Common Stock, voting as a single class.
2. Bylaws. In furtherance and not in limitation of the powers
------
conferred by statute, the Board is expressly authorized to make, repeal, alter,
amend and rescind the Bylaws of the Corporation.
3. Other Corporate Documents. Copies of the Stockholders Agreement
-------------------------
which is referenced by this Certificate of Incorporation is available free of
charge to stockholders upon written request to the Secretary of the Corporation
at the Corporation's principal office. The Stockholders Agreement may be
amended in accordance with its terms and any references herein are to include
the latest amendment, if any, to the Stockholders Agreement.
ARTICLE VII
CREDITOR COMPROMISE OR ARRANGEMENT
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
Section 291 of Title 8 of the Delaware Code or on application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
ARTICLE VIII
ELECTION OF DIRECTORS; EXECUTIVE COMMITTEE
Elections of directors need not be by written ballot unless the bylaws
of the Corporation shall so provide.
11
<PAGE>
The business and affairs of the Corporation shall be managed under the
direction of the Board, except that there shall be an Executive Committee of the
Board. The Executive Committee shall consist of five members, all of whom shall
be directors of the Corporation. The members of the Executive Committee shall
not be designated by the Board but shall, instead, consist of: (1) the Chief
Executive Officer of the Corporation; (2) one member appointed by the Silverado
Directors (as that term is defined in the Stockholders Agreement), and (3) three
members appointed by the TPG Directors (as that term is defined in the
Stockholders Agreement).
ARTICLE IX
DEFINITIONS
For purposes of this Certificate of Incorporation, the following terms
shall have the meanings indicated, and all capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to such terms in the Delaware
Law, as in effect on the date hereof:
"Board" shall mean the Board of Directors of the Corporation.
"Change of Control Transaction" shall have the meaning as defined in
the Stockholders Agreement.
"Class A Common Stock" shall mean the Class A Common Stock of the
Corporation.
"Class B Common Stock" shall mean the Class B Common Stock of the
Corporation.
"Common Stock" shall mean collectively the Class A Common Stock and
the Class B Common Stock.
"Person" shall mean any individual, firm, corporation, partnership,
limited liability company or other entity, and shall include any successor (by
merger or otherwise) of such entity.
"Qualified IPO" shall mean a sale by the Corporation of Common Stock
in an underwritten (firm commitment) public offering registered under the
Securities Act of 1933, with gross proceeds to the Corporation of not less than
$50 million, resulting in the listing of the Common Stock on a nationally
recognized stock exchange, including without limitation, the NASDAQ National
Market System.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations adopted by the Securities and Exchange Commission
thereunder.
"Series A Preferred Stock Rights" shall mean, with respect to any
shares of Series A Preferred Stock, at any time, each share, or fraction
thereof, of Series A Preferred Stock representing an amount equal to any unpaid
dividends on a share of such Series A Preferred Stock accrued beginning on the
Specific Issue Date relating to such shares.
"Specific Issue Date" shall mean with respect to any shares of Series
A
12
<PAGE>
Preferred Stock issued after June 30, 1996, the date on which such shares of
Series A Preferred Stock are issued.
"Stockholders Agreement" shall mean that certain Amended and Restated
Stockholders Rights Agreement and Voting Agreement, among the Corporation and
the stockholders of the Corporation, as amended from time to time.
"Surviving Person" shall mean the continuing or surviving Person of a
merger, consolidation or other corporate combination, the Person receiving a
transfer of all or a substantial part of the properties and assets of the
Corporation, or the Person consolidating with or merging into the Corporation in
a merger, consolidation or other corporate combination in which the Corporation
is the continuing or surviving Person, but in connection with which the
Preferred Stock or Common Stock of the Corporation is exchanged or converted
into the securities of any other such Person or the right to receive cash or any
other property.
13
<PAGE>
ARTICLE IX
INCORPORATOR
The name and mailing address of the incorporator of the corporation
is:
Molly T. O'Connell
c/o Gibson, Dunn & Crutcher
1228 N Street, Suite 5
Sacramento, CA 95814
THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation to do business both within and without the
State of Delaware, and in pursuance of the Delaware General Corporation Law,
does make and file this Certificate.
/s/ Molly T. O'Connell
------------------------------------
Molly T. O'Connell, Incorporator
Dated: May 9, 1996
14
<PAGE>
EXHIBIT 3.(ii)1
BERINGER WINE ESTATES HOLDINGS, INC.
(A DELAWARE CORPORATION)
BYLAWS
(AMENDED AS OF AUGUST 24, 1997)
ARTICLE I
OFFICES
-------
SECTION 1.01 Registered Office. The registered office of
------------------
Beringer Wine Estates Holdings, Inc. (hereinafter called the Corporation) in the
State of Delaware shall be at 9 East Loockerman Street, Dover, Kent County,
Delaware 19901, and the name of the registered agent in charge thereof shall be
National Registered Agents, Inc.
SECTION 1.02 Other Offices. The Corporation may also have
--------------
an office or offices at such other place or places, either within or without the
State of Delaware, as the Board of Directors (hereinafter called the Board) may
from time to time determine or as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
SECTION 2.01 Annual Meetings. Annual meetings of the
----------------
stockholders of the Corporation for the purpose of electing directors and for
the transaction of such other proper business as may come before such meetings
may be held at such time, date and place as the Board shall determine by
resolution.
SECTION 2.02 Special Meetings. A special meeting of the
-----------------
stockholders for the transaction of any proper business may be called at any
time only: (i) by a majority of the authorized number of directors (ii) by the
Chairman of the Board, (iii) by a committee of the Board that has been duly
designated by the Board and whose power and authority, as provided in a
resolution by the Board or in these Bylaws, includes the power to call such
meetings or (iv) one or more stockholders holding, in the aggregate, no less
than ten percent (10%) of the voting power of the Corporation.
SECTION 2.03 Place of Meetings. All meetings of the
------------------
stockholders shall be held at such places, within or without the State of
Delaware, as may from time to time be designated by the person or persons
calling the respective
<PAGE>
meeting and specified in the respective notices or waivers of notice thereof.
SECTION 2.04 Notice of Meetings. Except as otherwise
-------------------
required by law, notice of each meeting of the stockholders, whether annual or
special, shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting to each stockholder of record entitled to vote at
such meeting by delivering a typewritten or printed notice thereof to him
personally, or by depositing such notice in the United States mail, in a postage
prepaid envelope, directed to him at his post office address furnished by him to
the Secretary of the Corporation for such purpose or, if he shall not have
furnished to the Secretary his address for such purpose, then at his post office
address last known to the Secretary, or by transmitting a notice thereof to him
at such address by telegraph, cable, or wireless. Except as otherwise expressly
required by law, no publication of any notice of a meeting of the stockholders
shall be required. Every notice of a meeting of the stockholders shall state
the place, date and hour of the meeting, and, in the case of a special meeting,
shall also state the purpose or purposes for which the meeting is called.
Notice of any meeting of stockholders shall not be required to be given to any
stockholder who shall have waived such notice and such notice shall be deemed
waived by any stockholder who shall attend such meeting in person or by proxy,
except a stockholder who shall attend such meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Except as otherwise
expressly required by law, notice of any adjourned meeting of the stockholders
need not be given if the time and place thereof are announced at the meeting at
which the adjournment is taken.
SECTION 2.05 Quorum. Except in the case of any meeting for
-------
the election of directors summarily ordered as provided by law, the holders of
record of a majority in voting interest of the shares of stock of the
Corporation entitled to be voted thereat, present in person or by proxy, shall
constitute a quorum for the transaction of business at any meeting of the
stockholders of the Corporation or any adjournment thereof. In the absence of a
quorum at any meeting or any adjournment thereof, a majority in voting interest
of the stockholders present in person or by proxy and entitled to vote thereat
or, in the absence therefrom of all the stockholders, any officer entitled to
preside at, or to act as secretary of, such meeting may adjourn such meeting
from time to time. At any such adjourned meeting at which a quorum is present
any business may be transacted which might have been transacted at the meeting
as originally called.
2
<PAGE>
SECTION 2.06 Voting.
------
(a) Shares of its own stock belonging to the Corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors in such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary capacity shall
be entitled to vote such stock. Persons whose stock is pledged shall be entitled
to vote, unless in the transfer by the pledgor on the books of the Corporation
he shall have expressly empowered the pledgee to vote thereon, in which case
only the pledgee, or his proxy, may represent such stock and vote thereon. Stock
having voting power standing of record in the names of two or more persons,
whether fiduciaries, members of a partnership, joint tenants in common, tenants
by entirety or otherwise, or with respect to which two or more persons have the
same fiduciary relationship, shall be voted in accordance with the provisions of
the General Corporation Law of the State of Delaware.
(b) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by his proxy appointed by an instrument in
writing, subscribed by such stockholder or by his attorney thereunto authorized
and delivered to the secretary of the meeting; provided, however, that no proxy
shall be voted or acted upon after three years from its date unless said proxy
shall provide for a longer period. The attendance at any meeting of a
stockholder who may theretofore have given a proxy shall not have the effect of
revoking the same unless he shall in writing so notify the secretary of the
meeting prior to the voting of the proxy. At any meeting of the stockholders
all matters, except as otherwise provided in the Certificate of Incorporation,
in these Bylaws or by law, shall be decided by the vote of a majority in voting
interest of the stockholders present in person or by proxy and entitled to vote
thereat and thereon, a quorum being present. The vote at any meeting of the
stockholders on any question need not be by ballot, unless so directed by the
chairman of the meeting. On a vote by ballot each ballot shall be signed by the
stockholder voting, or by his proxy, if there be such proxy, and it shall state
the number of shares voted. Except as otherwise provided by law or as otherwise
provided in the Certificate of Incorporation, each outstanding share of Class A
Common Stock shall be entitled to fifty (50) votes and each outstanding share
of Class B Common Stock shall be entitled to one (1) vote on each matter
submitted to a vote of the stockholders.
SECTION 2.07 List of Stockholders. The Secretary of the
---------------------
Corporation shall prepare and make, at least
3
<PAGE>
ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
SECTION 2.08 Voting Procedures and Inspectors of Elections.
----------------------------------------------
The Corporation shall, in advance of any meeting of the stockholders, appoint
one or more inspectors to act at the meeting and make a written report thereof.
The Corporation may designate one or more persons as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate inspectors
is able to act at a meeting of stockholders, the person presiding at the meeting
shall appoint one or more inspectors to act at the meeting. Each inspector,
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his ability.
SECTION 2.09 Action Without Meeting. Any action required to
-----------------------
be taken at any annual or special meeting of stockholders of the Corporation, or
any action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the Corporation by delivery to its registered office
in Delaware, its principal place of business or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Every written consent shall bear the date of
signature of each stockholder who signs the consent and no written consent shall
be effective to take the corporate action referred to therein unless, within
sixty days of the earliest dated consent signed by a sufficient number of holder
to take action are delivered to the Corporation. Delivery made to the
Corporation's registered office shall be by hand or by
4
<PAGE>
certified or registered mail, return receipt requested. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE III
BOARD OF DIRECTORS
------------------
SECTION 3.01 General Powers. The property, business and
---------------
affairs of the Corporation shall be managed by the Board.
SECTION 3.02 Number and Term of Office. The number of
--------------------------
directors shall be eleven (11). Directors need not be stockholders. Each of
the directors of the Corporation shall hold office until his successor shall
have been duly elected and shall qualify or until he shall resign or shall have
been removed in the manner hereinafter provided.
SECTION 3.03 Election of Directors. The directors shall be
----------------------
elected annually by the stockholders of the Corporation and the persons
receiving the greatest number of votes, up to the number of directors to be
elected, shall be the directors.
SECTION 3.04 Resignations. Any director of the Corporation
-------------
may resign at any time by giving written notice to the Board or to the Secretary
of the Corporation. Any such resignation shall take effect at the time
specified therein, or, if the time be not specified, it shall take effect
immediately upon its receipt; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 3.05 Vacancies. Except as otherwise provided in the
----------
Certificate of Incorporation, any vacancy in the Board, whether because of
death, resignation, disqualification, an increase in the number of directors, or
any other cause, may be filled by vote of the majority of the remaining
directors, although less than a quorum, or by the sole remaining director. Each
director so chosen to fill a vacancy shall hold office until his successor shall
have been elected and shall qualify or until he shall resign or shall have been
removed in the manner hereinafter provided.
SECTION 3.06 Place of Meeting, Etc. The Board may hold any
----------------------
of its meetings at such place or places within or without the State of Delaware
as the Board may from time to time by resolution designate or as shall be
designated by the person or persons calling the meeting or in the notice or
5
<PAGE>
a waiver of notice of any such meeting. Directors may participate in any regular
or special meeting of the Board by means of conference telephone or similar
communications equipment pursuant to which all persons participating in the
meeting of the Board can hear each other, and such participation shall
constitute presence in person at such meeting.
SECTION 3.07 First Meeting. The Board shall meet as soon as
--------------
practicable after each annual election of directors and notice of such first
meeting shall not be required.
SECTION 3.08 Regular Meetings. Regular meetings of the
-----------------
Board may be held at such times as the Board shall from time to time by
resolution determine. If any day fixed for a regular meeting shall be a legal
holiday at the place where the meeting is to be held, then the meeting shall be
held at the same hour and place on the next succeeding business day not a legal
holiday. Except as provided by law, further notice of regular meetings need not
be given.
SECTION 3.09 Special Meetings. Special meetings of the
-----------------
Board shall be held whenever called by the Chairman of the Board or a majority
of the authorized number of directors. Except as otherwise provided by law or
by these Bylaws, notice of the time and place of each such special meeting shall
be mailed to each director, addressed to him at his residence or usual place of
business, at least five (5) days before the day on which the meeting is to be
held, or shall be sent to him at such place by telegraph, telecopy or cable or
be delivered personally not less than forty-eight (48) hours before the time at
which the meeting is to be held. Except where otherwise required by law or by
these Bylaws, notice of the purpose of a special meeting need not be given.
Notice of any meeting of the Board shall be deemed to be waived as to any
director who is present at such meeting, except a director who shall attend such
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
SECTION 3.10 Quorum and Manner of Acting. Except as
----------------------------
otherwise provided in these Bylaws or by law, the presence of a majority of the
authorized number of directors shall be required to constitute a quorum for the
transaction of business at any meeting of the Board, and all matters shall be
decided at any such meeting, a quorum being present, by the affirmative votes of
a majority of the directors present. In the absence of a quorum, a majority of
directors present at any meeting may adjourn the same from time to time until a
quorum shall be present. Notice of any adjourned
6
<PAGE>
meeting need not be given. The directors shall act only as a Board, and the
individual directors shall have no power as such.
SECTION 3.11 Action by Consent. Any action required or
------------------
permitted to be taken at any meeting of the Board or of any committee thereof
may be taken without a meeting if a written consent thereto is signed by all
members of the Board or of such committee, as the case may be, and such written
consent is filed with the minutes of proceedings of the Board or committee.
SECTION 3.12 Removal of Directors. Subject to the
---------------------
provisions of the Certificate of Incorporation, any director may be removed at
any time, either with or without cause, by the affirmative vote of the
stockholders having a majority of the voting power of the Corporation given at a
special meeting of the stockholders called for the purpose.
SECTION 3.13 Compensation. The directors shall receive only
-------------
such compensation for their services as directors as may be allowed by
resolution of the Board. The Board may also provide that the Corporation shall
reimburse each such director for any expense incurred by him on account of his
attendance at any meetings of the Board or Committees of the Board. Neither the
payment of such compensation nor the reimbursement of such expenses shall be
construed to preclude any director from serving the Corporation or its
subsidiaries in any other capacity and receiving compensation therefor.
SECTION 3.14 Committees.
-----------
(a) Executive Committee. The Executive Committee, to the extent
--------------------
permitted by law, shall have and may exercise when the Board is not in session
all powers of the Board in the management of the business and affairs of the
Corporation, including, without limitation, the power and authority to call a
special meeting of stockholders, to declare a dividend or to authorize the
issuance of stock, except such committee shall not have the power or authority
to amend the Certificate of Incorporation (except that a committee may, to the
extent authorized in the resolution or resolutions providing for the issuance of
shares of stock adopted by the Board as provided in subsection (a) of (S) 151 of
the Delaware General Corporation Law, fix the designations and any preferences
or rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the Corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes or stock of the Corporation or
fix the number of
7
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shares of any series of stock or authorize the increase or decrease of the
shares of any series), to adopt an agreement of merger or consolidation, to
recommend to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, to recommend to the
stockholders of the Corporation a dissolution of the Corporation or a revocation
of a dissolution or to amend these Bylaws; provided, however, that upon the
-------- -------
effectiveness of a proposed amendment to Section 141(c) of the General
Corporation Law of the State of Delaware to permit a committee of a board of
directors to exercise powers not permitted by this section if a corporation so
elects, the corporation shall be governed by the provision or provisions of
Section 141(c) as so amended, which permit the exercise of such additional
powers and any limitations of the powers of the Executive Committee set forth in
this Section 3.14 that are not required by such provisions of Section 141(c), as
so amended, shall have no further force or effect and the Executive Committee
shall have all of the powers permitted by such provision or provisions of
Section 141 (c) as so amended. The Executive Committee shall consist of five (5)
members, all of whom shall be directors of the Corporation. The members of the
Executive Committee shall not be designated by the Board but shall, instead,
consist of: (i) the Chief Executive Officer of the Corporation; (ii) one (1)
member appointed by the Silverado Directors (as that term is defined in the
Amended and Restated Stockholders Rights Agreement and Voting Agreement among
the Corporation and the Stockholders of the Corporation, as amended from time to
time (the "Stockholders Agreement")), and (iii) three (3) members appointed by
the TPG Directors (as that term is defined in the Stockholders Agreement).
(b) Other Committees. The Board may, by resolution passed by a
-----------------
majority of the Board, from time to time appoint such other committees as may be
permitted by law. Such other committees appointed by the Board shall consist of
one (1) or more members of the Board and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees.
(c) Term. The members of all committees of the Board shall serve a
-----
term coexistent with that of the Board which shall have appointed such
committee. The Board, subject to the provisions of subsections (a) or (b) of
this Section 3.14, may at any time increase or decrease the number of members of
a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board. Subject to the provisions of
Section 3.14 (a), the Board may at any time for any reason remove any individual
committee member and the
8
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Board may fill any committee vacancy created by death, resignation, removal or
increase in the number of members of the committee. Subject to Section 3.14 (a),
the Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member.
(d) Meetings. Unless the Board shall otherwise provide, regular
---------
meetings of the Executive Committee or any other committee appointed pursuant to
this Section 3.14 shall be held at such times and places as are determined by
the Board, or by any such committee, and when notice thereof has been given to
each member of such committee, no further notices of such regular meetings need
be given thereafter. Special meetings of any such committee may be held at any
place which has been determined from time to time by such committee, and may be
called by any director who is a member of such committee, upon written notice to
the members of such committee of the time and place of such special meeting
given in the manner provided for the giving of written notice to members of the
Board of the time and place of special meetings of the Board. Notice of any
special meeting of any committee may be waived in writing at any time before or
after the meeting and will be waived by any director by attendance thereat,
except when the director attends such special meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. A majority of the
authorized number of members of any such committee shall constitute a quorum for
the transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of such committee.
ARTICLE IV
OFFICERS
--------
SECTION 4.01 Number. The officers of the Corporation shall
-------
be the Chairman of the Board (or Co-Chairmen of the Board), the President, one
or more Vice Presidents (the number thereof and their respective titles to be
determined by the Board), a Secretary and a Treasurer.
SECTION 4.02 Election, Term of Office and Qualifications.
--------------------------------------------
The officers of the Corporation, except such
9
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officers as may be appointed in accordance with Section 4.03, shall be elected
annually by the Board at the first meeting thereof held after the election
thereof. Each officer shall hold office until his successor shall have been duly
chosen and shall qualify or until his resignation or removal in the manner
hereinafter provided.
SECTION 4.03 Assistants, Agents and Employees, Etc. In
--------------------------------------
addition to the officers specified in Section 4.01, the Board may appoint other
assistants, agents and employees as it may deem necessary or advisable,
including one or more Assistant Secretaries, and one or more Assistant
Treasurers, each of whom shall hold office for such period, have such authority,
and perform such duties as the Board may from time to time determine. The Board
may delegate to any officer of the Corporation or any committee of the Board the
power to appoint, remove and prescribe the duties of any such assistants, agents
or employees.
SECTION 4.04 Removal. Any officer, assistant, agent or
--------
employee of the Corporation may be removed, with or without cause, at any time:
(i) in the case of an officer, assistant, agent or employee appointed by the
Board, only by resolution of the Board; and (ii) in the case of any other
officer, assistant, agent or employee, by any officer of the Corporation or
committee of the Board upon whom or which such power of removal may be conferred
by the Board.
SECTION 4.05 Resignations. Any officer or assistant may
-------------
resign at any time by giving written notice of his resignation to the Board or
the Secretary of the Corporation. Any such resignation shall take effect at the
time specified therein, or, if the time be not specified, upon receipt thereof
by the Board or the Secretary, as the case may be; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
SECTION 4.06 Vacancies. A vacancy in any office because of
----------
death, resignation, removal, disqualification, or other cause, may be filled for
the unexpired portion of the term thereof in the manner prescribed in these
Bylaws for regular appointments or elections to such office.
SECTION 4.07 The Chairman of the Board. A Chairman of the
--------------------------
Board, when present, shall preside at all meetings of the stockholders and the
Board. A Chairman of the Board shall perform other duties commonly incident to
this office and shall also perform such other duties and have such other powers
as the Board shall designate from time to time. If there is no President, then
a Chairman of the Board shall also serve as the Chief Executive Officer of the
10
<PAGE>
corporation and shall have the powers and duties prescribed in Section 4.08.
SECTION 4.08 The President. The President of the
--------------
Corporation shall be the chief executive officer of the Corporation and shall
have, subject to the control of the Board, general and active supervision and
management over the business of the Corporation and over its several officers,
assistants, agents and employees.
SECTION 4.09 The Vice Presidents. Each Vice President shall
--------------------
have such powers and perform such duties as the Board may from time to time
prescribe. In case of the absence or inability to act of the President and the
Chairman of the Board, upon the request of the Board, a Vice President shall
perform the duties of the President and when so acting, shall have all the
powers of, and be subject to all the restrictions upon, the President.
SECTION 4.10 The Secretary. The Secretary shall, if
--------------
present, record the proceedings of all meetings of the Board, of the
stockholders, and of all committees of which a secretary shall not have been
appointed in one or more books provided for that purpose; he shall see that all
notices are duly given in accordance with these Bylaws and as required by law;
he shall be custodian of the seal of the Corporation and shall affix and attest
the seal to all documents to be executed on behalf of the Corporation under its
seal; and, in general, he shall perform all the duties incident to the office of
Secretary and such other duties as may from time to time be assigned to him by
the Board.
SECTION 4.11 The Treasurer. The Treasurer shall have the
--------------
general care and custody of the funds and securities of the Corporation, and
shall deposit all such funds in the name of the Corporation in such banks, trust
companies or other depositories as shall be selected by the Board. He shall
receive, and give receipts for, moneys due and payable to the Corporation from
any source whatsoever. He shall exercise general supervision over expenditures
and disbursements made by officers, agents and employees of the Corporation and
the preparation of such records and reports in connection therewith as may be
necessary or desirable. He shall, in general, perform all other duties incident
to the office of Treasurer and such other duties as from time to time may be
assigned to him by the Board.
SECTION 4.12 Compensation. The compensation of the officers
-------------
of the Corporation shall be fixed from time to time by the Board. None of such
officers shall be prevented from receiving such compensation by reason of the
fact that he is also a director of the Corporation. Nothing contained
11
<PAGE>
herein shall preclude any officer from serving the Corporation, or any
subsidiary corporation, in any other capacity and receiving such compensation by
reason of the fact that he is also a director of the Corporation. Nothing
contained herein shall preclude any officer from serving the Corporation, or any
subsidiary corporation, in any other capacity and receiving proper compensation
therefor.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
----------------------------------------------
SECTION 5.01 Execution of Contracts. The Board, except as
-----------------------
in these Bylaws otherwise provided, may authorize any officer or officers, agent
or agents, to enter into any contract or execute any instrument in the name of
and on behalf of the Corporation, and such authority may be general or confined
to specific instances; and unless so authorized by the Board or by these Bylaws,
no officer, agent or employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or in any amount.
SECTION 5.02 Checks, Drafts, Etc. All checks, drafts or
--------------------
other orders for payment of money, notes or other evidence of indebtedness,
issued in the name of or payable to the Corporation, shall be signed or endorsed
by such person or persons and in such manner as, from time to time, shall be
determined by resolution of the Board. Each such officer, assistant, agent or
attorney shall give such bond, if any, as the Board may require.
SECTION 5.03 Deposits. All funds of the Corporation not
---------
otherwise employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies or other depositories as the Board
may select, or as may be selected by any officer or officers, assistant or
assistants, agent or agents, or attorney or attorneys of the Corporation to whom
such power shall have been delegated by the Board. For the purpose of deposit
and for the purpose of collection for the account of the Corporation, the
President, any Vice President or the Treasurer (or any other officer or
officers, assistant or assistants, agent or agents, or attorney or attorneys of
the Corporation who shall from time to time be determined by the Board) may
endorse, assign and deliver checks, drafts and other orders for the payment of
money which are payable to the order of the Corporation.
SECTION 5.04 General and Special Bank Accounts. The Board
----------------------------------
may from time to time authorize the opening and
12
<PAGE>
keeping of general and special bank accounts with such banks, trust companies or
other depositories as the Board may select or as may be selected by any officer
or officers, assistant or assistants, agent or agents, or attorney or attorneys
of the Corporation to whom such power shall have been delegated by the Board.
The Board may make such special rules and regulations with respect to such bank
accounts, not inconsistent with the provisions of these Bylaws, as it may deem
expedient.
ARTICLE VI
SHARES AND THEIR TRANSFER
-------------------------
SECTION 6.01 Certificates for Stock. Every owner of stock
-----------------------
of the Corporation shall be entitled to have a certificate or certificates, to
be in such form as the Board shall prescribe, certifying the number and class of
shares of the stock of the Corporation owned by him. The certificates
representing shares of such stock shall be numbered in the order in which they
shall be issued and shall be signed in the name of the Corporation by the
President or a Vice President, and by the Secretary or an Assistant Secretary or
by the Treasurer or an Assistant Treasurer. Any of or all of the signatures on
the certificates may be a facsimile. In case any officer, transfer agent or
registrar who has signed, or whose facsimile signature has been placed upon, any
such certificate, shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, such certificate may nevertheless
be issued by the Corporation with the same effect as though the person who
signed such certificate, or whose facsimile signature shall have been placed
thereupon, were such officer, transfer agent or registrar at the date of issue.
A record shall be kept of the respective names of the persons, firms or
corporations owning the stock represented by such certificates, the number and
class of shares represented by such certificates, respectively, and the
respective dates thereof, and in case of cancellation, the respective dates of
cancellation. Every certificate surrendered to the Corporation for exchange or
transfer shall be canceled, and no new certificate or certificates shall be
issued in exchange for any existing certificate until such existing certificate
shall have been so canceled, except in cases provided for in Section 6.04.
SECTION 6.02 Transfers of Stock. Transfers of shares of
-------------------
stock of the Corporation shall be made only on the books of the Corporation by
the registered holder thereof, or by his attorney thereunto authorized by power
of attorney duly executed and filed with the Secretary, or with a transfer clerk
or a transfer agent appointed as provided in Section 6.03, and upon surrender of
the certificate or
13
<PAGE>
certificates for such shares properly endorsed and the payment of all taxes
thereon. The person in whose name shares of stock stand on the books of the
Corporation shall be deemed the owner thereof for all purposes as regards the
Corporation. Whenever any transfer of shares shall be made for collateral
security, and not absolutely, such fact shall be so expressed in the entry of
transfer if, when the certificate or certificates shall be presented to the
Corporation for transfer, both the transferor and the transferee request the
Corporation to do so.
SECTION 6.03 Regulations. The Board may make such rules and
------------
regulations as it may deem expedient, not inconsistent with these Bylaws,
concerning the issue, transfer and registration of certificates for shares of
the stock of the Corporation. It may appoint, or authorize any officer or
officers to appoint, one or more transfer clerks or one or more transfer agents
and one or more registrars, and may require all certificates for stock to bear
the signature or signatures of any of them.
SECTION 6.04 Lost, Stolen, Destroyed, and Mutilated
--------------------------------------
Certificates. In any case of loss, theft, destruction, or mutilation of any
- -------------
certificate of stock, another may be issued in its place upon proof of such
loss, theft, destruction, or mutilation and upon the giving of a bond of
indemnity to the Corporation in such form and in such sum as the Board may
direct; provided, however, that a new certificate may be issued without
requiring any bond when, in the judgment of the Board, it is proper so to do.
SECTION 6.05 Fixing Date for Determination of Stockholders
---------------------------------------------
of Record. In order that the Corporation may determine the stockholders
- ----------
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors, and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of such meeting. If no
other record is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of the stockholders
shall be at the close of business on the date next preceding the date on which
notice is given, or, if notice is waived, at the close of business on the date
next preceding the date on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of such meeting; provided, however,
that the Board may fix a new record date for the adjourned meeting.
14
<PAGE>
ARTICLE VII
INDEMNIFICATION
---------------
SECTION 7.01 Directors and Officers. The Corporation shall
-----------------------
indemnify to the fullest extent permitted by the Delaware General Corporation
Law any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a director or
officer of the Corporation or is or was serving at the request of the
Corporation as a director or officer of another corporation or of a partnership,
joint venture, limited liability company, trust or other enterprise (including
services with respect to an employee benefit plan), against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, that he had reasonable cause to believe that his
conduct was unlawful. The provisions of this section shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth by the Delaware
General Corporation Law.
SECTION 7.02 Derivative Claims Against Directors and
---------------------------------------
Officers. The Corporation shall indemnify any person who was or is a party or
- ---------
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director or officer of the
Corporation, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation
15
<PAGE>
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper. The
provisions of this section shall not be deemed to be exclusive or to limit in
any way the circumstances in which a person may be deemed to have met the
applicable standard of conduct set forth by the Delaware General Corporation
Law.
SECTION 7.03 Employees and Agents. The Corporation may
---------------------
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he is or was an
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as an, employee or agent of another corporation, partnership, joint
venture, limited liability company, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, that he had reasonable cause to believe that his
conduct was unlawful.
Section 7.04 Derivative Claims Against Agents. The
---------------------------------
Corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, limited liability company, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to
16
<PAGE>
be in or not opposed to the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation unless and only to
the extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
SECTION 7.05 Determination of Right to Indemnification. Any
------------------------------------------
indemnification under Sections 7.01, 7.02, 7.03 or 7.04 of this Article VII
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director
or officer, is proper in the circumstances because he has met the applicable
standard of conduct set forth in Sections 7.01, 7.02, 7.03 and 7.04 of this
Article. Such determination shall be made by (i) a majority of the directors
who are not parties to such action, suit or proceeding, even though less than a
quorum, or (ii) if there are no such directors or if such directors so direct,
by independent legal counsel in a written opinion,
SECTION 7.06 Expenses. Notwithstanding the other provisions
---------
of this Article VII, to the extent that a director, officer, employee or agent
of the Corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Sections 7.01, 7.02, 7.03 or 7.04
of this Article VII, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
SECTION 7.07 Advancement of Expenses. Expenses incurred by
------------------------
an officer or director of the Corporation in defending a civil or criminal
action, suit or proceeding described in Sections 7.01 or 7.02 shall be paid by
the Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt, if required by Delaware law, of an undertaking by or on
behalf of the director or officer to repay such amount unless it shall be
determined ultimately that he is entitled to be indemnified by the Corporation
as authorized in this Article VII. Such expenses incurred by other employees
and agents may be so paid upon such terms and conditions, if any, as the Board
deems appropriate.
17
<PAGE>
Notwithstanding the foregoing, unless otherwise determined pursuant to
Section 7.08 of this Article VII, no advance shall be made by the Corporation if
a determination is reasonably and promptly made (1) by the Board by a majority
vote of a quorum consisting of directors who were not parties to the proceeding,
or (2) if such quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, that the facts known to the decision making party at the time such
determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the Corporation.
SECTION 7.08 Enforcement. Without the necessity of entering
------------
into an express contract, all rights to indemnification and advances to
directors and officers under this Article VII shall be deemed to be contractual
rights and be effective to the same extent and as if provided for in a contract
between the Corporation and the director or officer. Any right to
indemnification or advances granted by this Article VII to a director or officer
shall be enforceable by or on behalf of the person holding such right in any
court of competent jurisdiction if (i) the claim for indemnification or advances
is denied, in whole or in part, or (ii) no disposition of such claim is made
within ninety (90) days of request therefor. The claimant in such enforcement
action, if successful in whole or in part, shall be entitled to be paid also the
expense of prosecuting his claim. The Corporation shall be entitled to raise as
a defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the Delaware General Corporation Law for
the Corporation to indemnify the claimant for the amount claimed. Neither the
failure of the Corporation (including its Board, independent legal counsel or
its stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the Corporation
(including the Board, independent legal counsel or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that claimant has not met the applicable
standard of conduct.
SECTION 7.09 Non-Exclusivity. The indemnification provided
----------------
by this Article VII shall not be deemed exclusive of any other rights to which
those seeking indemnification may be entitled under any Bylaws, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in
his official capacity and as to action
18
<PAGE>
in another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors administrators of such a person.
SECTION 7.10 Insurance. Upon resolution passed by the
----------
Board, the Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article VII.
SECTION 7.11 Successors. For the purposes of this Article
-----------
VII, references to "the Corporation" include constituent corporations absorbed
in a consolidation or merger as well as the resulting or surviving corporation,
so that any person who is or was a director, officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another constituent corporation,
partnership, joint venture, limited liability company, trust or other enterprise
shall stand in the same position under the provisions of this Article VII with
respect to the resulting or surviving corporation as he would if he had served
the resulting or surviving corporation in the same capacity.
SECTION 7.12 Certain Definitions. For purposes of this
--------------------
Article VII, references to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on a person
with respect to any employee benefit plan; and references to "serving at the
request of the Corporation" shall include any service as a director, officer,
employee or agent of the corporation which imposes duties on, or involves
services by, such director, officer, employee, or agent with respect to an
employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Article VII.
SECTION 7.13 Saving Clause. If this Article VII or any
--------------
portion hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each director
and executive
19
<PAGE>
officer to the full extent not prohibited by any applicable portion of this
Article VII that shall not have been invalidated, or by any other applicable
law.
ARTICLE VIII
MISCELLANEOUS
-------------
SECTION 8.01 Seal. The Board shall provide a corporate
-----
seal, which shall be in the form of a circle and shall bear the name of the
Corporation and words and figures showing that the Corporation was incorporated
in the State of Delaware and the year of incorporation.
SECTION 8.02 Waiver of Notices. Whenever notice is required
------------------
to be given by these Bylaws or the Certificate of Incorporation or by law, the
person entitled to said notice may waive such notice in writing, either before
or after the time stated therein, and such waiver shall be deemed equivalent to
notice.
SECTION 8.03 Amendments. These Bylaws, or any of them
-----------
except Section 3.02, may be altered, amended or repealed, and new Bylaws may be
made, (i) by the Board, by vote of a majority of the number of directors then in
office as directors, acting at any meeting or pursuant to a written consent of
the Board, or (ii) by the stockholders, at any annual meeting or pursuant to a
written consent of stockholders, without previous notice, or at any special
meeting of stockholders, provided that notice of such proposed amendment,
modification, repeal or adoption is given in the notice of special meeting. Any
Bylaws made or altered by the stockholders may be altered or repealed by either
the Board or the stockholders.
20
<PAGE>
CERTIFICATE OF SECRETARY
The undersigned, being the duly elected Secretary of Beringer Wine
Estates Holdings, Inc., a Delaware corporation, hereby certifies that the Bylaws
to which this Certificate is attached were duly adopted by the Board of
Directors of said Corporation on August 24, 1997.
/s/ Douglas W. Roberts
----------------------------
Douglas W. Roberts
Secretary
<PAGE>
EXHIBIT 4.1
See Legends on Reverse
Number BERINGER WINE ESTATES HOLDINGS, INC. Class B Common Stock
CB- Incorporated Under the Laws of the Shares
--- State of Delaware -------------
See Reverse for
Statement Relating to
Rights, Preferences,
Privileges and
Restriction.
THIS CERTIFICATE IS TRANSFERABLE CUSIP
IN NEW YORK, NY OR BOSTON, MA
THIS CERTIFIES THAT __________________________________________ is the
owner of ______________________________________________________________________
fully paid and nonassessable shares of Class B Common Stock, par value $.0001
per share, of
BERINGER WINE ESTATES HOLDINGS, INC.
transferable only on the books of the Corporation by the holder hereof in person
or by attorney upon surrender of this Certificate properly endorsed. This
Certificate is not countersigned and registered by the Transfer Agent and
Registrar.
Each share of Class B Common Stock is entitled to one vote per share.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized offices and its corporate seal to be hereunto
affixed this ___ day of _________________.
- ---------------------------- ---------------------------
Secretary President and Chief
Executive Officer
Countersigned and Registered: Bank Boston, N.A., Transfer Agent and Registrar
Authorized Signature
<PAGE>
A STATEMENT OF THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS GRANTED TO
OR IMPOSED UPON EACH CLASS OR SERIES OF SHARES AUTHORIZED TO BE ISSUED AND UPON
THE HOLDERS THEREOF MAY BE OBTAINED, UPON REQUEST AND WITHOUT CHARGE, FROM THE
SECRETARY OF THE CORPORATION AT THE CORPORATION'S PRINCIPAL OFFICES.
- --------------------------------------------------------------------------------
For Value Received, ________________ hereby sells, assigns and transfers unto
___________________________________ ____________ Shares of Class B Common Stock
represented by the within Certificate, and does hereby irrevocably constitute
and appoint _________________ attorney to transfer said Shares on the books of
the within named Corporation with full power of substitution in the premises.
DATED: ______________________ SIGNED: ______________________________
IN PRESENCE OF: _____________________________
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.1
BERINGER WINE ESTATES HOLDINGS, INC.
1996 STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. PURPOSE........................................... 1
SECTION 2. DEFINITIONS....................................... 1
(a) "Board of Directors".............................. 1
(b) "Code"............................................ 1
(c) "Committee"....................................... 1
(d) "Company"......................................... 2
(e) "Employee"........................................ 2
(f) "Exercise Price".................................. 2
(g) "Fair Market Value"............................... 2
(h) "ISO"............................................. 3
(i) "Nonstatutory Option"............................. 3
(j) "Option".......................................... 3
(k) "Optionee"........................................ 3
(l) "Outside Director"................................ 3
(m) "Plan"............................................ 3
(n) "Service"......................................... 3
(o) "Share"........................................... 3
(p) "Stock"........................................... 4
(q) "Stock Option Agreement".......................... 4
(r) "Subsidiary"...................................... 4
SECTION 3. ADMINISTRATION.................................... 4
(a) Committee Membership.............................. 4
(b) Committee Procedures.............................. 4
(c) Committee Responsibilities........................ 4
SECTION 4. ELIGIBILITY....................................... 6
(a) General Rule...................................... 6
(b) ISOs.............................................. 6
SECTION 5. STOCK SUBJECT TO PLAN............................. 6
(a) Basic Limitation.................................. 6
(b) Additional Shares................................. 7
SECTION 6. TERMS AND CONDITIONS OF OPTIONS................... 7
(a) Stock Option Agreement............................ 7
(b) Number of Shares.................................. 7
(c) Exercise Price.................................... 7
(d) Withholding Taxes................................. 7
(e) Exercisability and Term........................... 8
(f) Nontransferability................................ 8
(g) Exercise of Options on Termination of Service..... 8
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
(h) No Rights as a Shareholder........................ 9
(i) Modification, Extension and Assumption of Options. 9
(j) Restrictions on Transfer of Shares................ 9
SECTION 7. PAYMENT FOR SHARES................................ 9
(a) General Rule...................................... 9
(b) Surrender of Stock................................ 9
(c) Promissory Notes.................................. 10
(d) Cashless Exercise................................. 10
SECTION 8. ADJUSTMENT OF SHARES.............................. 10
(a) General........................................... 10
(b) Reorganizations................................... 10
(c) Reservation of Rights............................. 11
SECTION 9. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.......... 11
(a) Effective Date.................................... 11
(b) Elections to Receive Nonstatutory Options......... 11
(c) Number and Terms of Nonstatutory Options.......... 11
SECTION 10. LEGAL REQUIREMENTS................................ 12
SECTION 11. NO EMPLOYMENT RIGHTS.............................. 12
SECTION 12. DURATION AND AMENDMENTS........................... 12
(a) Term of the Plan.................................. 12
(b) Right to Amend or Terminate the Plan.............. 12
(c) Effect of Amendment or Termination................ 13
SECTION 13. EXECUTION......................................... 13
</TABLE>
-ii-
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
1996 STOCK OPTION PLAN
(AMENDED AND RESTATED EFFECTIVE AS OF AUGUST 25, 1997)
SECTION 1. PURPOSE.
- ------------------
The purpose of the Plan is to offer selected employees, directors and
consultants an opportunity to acquire a proprietary interest in the success of
the Company, or to increase such interest, to encourage such selected persons to
remain in the employ of the Company and to attract new employees with
outstanding qualifications by purchasing Shares of the Company's Common Stock.
The Plan provides for the grant of Options to purchase Shares. Options granted
under the Plan may include Nonstatutory Options as well as Incentive Stock
Options intended to qualify under section 422 of the Internal Revenue Code. The
Plan was initially adopted effective as of January 16, 1996 and is hereby
amended and restated effective as of August 25, 1997.
SECTION 2. DEFINITIONS.
- -----------------------
(a) "Board of Directors" shall mean the Board of Directors of the Company,
------------------
as constituted from time to time.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Committee" shall mean the full Board of Directors and/or a committee
---------
of the Board of Directors which is authorized to administer the Plan under
Section 3. The Committee shall have membership composition which enables the
Plan to qualify under Rule 16b-3 with regard to the grant of Options to persons
who are subject to Section 16 of the Securities Exchange Act of 1934. The Board
may also appoint one or more separate committees of the Board, each composed of
one or more directors of the Company who need not qualify under Rule 16b-3,
-1-
<PAGE>
who may administer the Plan with respect to employees who are not subject to
Section 16 of the Exchange Act, may grant Options under the Plan to such
employees and may determine all terms of such Options.
(d) "Company" shall mean Beringer Wine Estates Holdings, Inc., a
-------
California corporation.
(e) "Employee" shall mean (i) any individual who is a common-law employee
--------
of the Company or of a Subsidiary, (ii) a member of the Board of Directors, or
(iii) a consultant who performs services for the Company or a Subsidiary.
Service as a member of the Board of Directors or as a consultant shall be
considered employment for all purposes of the Plan except the second sentence of
Section 4(a).
(f) "Exercise Price" shall mean the amount for which one Share may be
--------------
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.
(g) "Fair Market Value" shall mean the fair market value of a Share, as
-----------------
determined by the Committee in good faith as follows:
(i) If the Common Shares were traded over-the-counter on the date in
question but were not classified as a national market issue, then the Fair
Market Value shall be equal to the mean between the last reported
representative bid and asked prices quoted by the Nasdaq system for such
date;
(ii) If the Common Shares were traded over-the-counter on the date in
question and were classified as a national market issue, then the Fair
Market Value shall be equal to the last-transaction price quoted by the
Nasdaq system for such date;
-2-
<PAGE>
(iii) If the Common Shares were traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date; and
(iv) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith on such
basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in the Western Edition of The Wall Street
---------------
Journal. Such determination shall be conclusive and binding on all persons.
- -------
(h) "ISO" shall mean an employee incentive stock option described in
---
section 422(b) of the Code.
(i) "Nonstatutory Option" shall mean an employee stock option that is not
-------------------
an ISO.
(j) "Option" shall mean an ISO or Nonstatutory Option granted under the
------
Plan and entitling the holder to purchase Shares.
(k) "Optionee" shall mean an individual who holds an Option.
--------
(l) "Outside Director" shall mean a member of the Board of Directors who
----------------
is not a common-law employee of the Company or a Subsidiary.
(m) "Plan" shall mean this Beringer Wine Estates Holdings, Inc. 1996 Stock
----
Option Plan.
(n) "Service" shall mean service as an Employee.
-------
(o) "Share" shall mean one share of Stock, as adjusted in accordance with
-----
Section 8 (if applicable).
-3-
<PAGE>
(p) "Stock" shall mean the Class B Common Stock, par value $.0001 per
-----
share, of the Company, and such other stock as may be substituted therefor in
accordance with the adjustment provisions of the Plan.
(q) "Stock Option Agreement" shall mean the agreement between the Company
----------------------
and an Optionee which contains the terms, conditions and restrictions pertaining
to his or her Option.
(r) "Subsidiary" shall mean any corporation, of which the Company and/or
----------
one or more other Subsidiaries own not less than 50 percent of the total
combined voting power of all classes of outstanding stock of such corporation.
A corporation that attains the status of a Subsidiary on a date after the
adoption of the Plan shall be considered a Subsidiary commencing as of such
date.
SECTION 3. ADMINISTRATION.
- ---------------------------
(a) Committee Membership. The Plan shall be administered by the
--------------------
Committee, which shall consist of members of the Board of Directors. The
members of the Committee shall be appointed by the Board of Directors. If no
Committee has been appointed, the entire Board of Directors shall constitute the
Committee.
(b) Committee Procedures. The Board of Directors shall designate one of
--------------------
the members of the Committee as chairperson. The Committee may hold meetings at
such times and places as it shall determine. The acts of a majority of the
Committee members present at meetings at which a quorum exists, or acts reduced
to or approved in writing by all Committee members, shall be valid acts of the
Committee.
(c) Committee Responsibilities. Subject to the provisions of the Plan,
--------------------------
the Committee shall have full authority and discretion to take the following
actions:
(i) To interpret the Plan and to apply its provisions;
-4-
<PAGE>
(ii) To adopt, amend or rescind rules, procedures and forms relating
to the Plan;
(iii) To authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of the Plan;
(iv) To determine when Options are to be granted under the Plan;
(v) To select the Optionees;
(vi) To determine the number of Shares to be made subject to each
Option;
(vii) To prescribe the terms and conditions of each Option, including
(without limitation) the Exercise Price, to determine whether such Option
is to be classified as an ISO or as a Nonstatutory Option, and to specify
the provisions of the Stock Option Agreement relating to such Option;
(viii) To amend or terminate any outstanding Stock Option Agreement;
(ix) To determine the disposition of an Option in the event of an
Optionee's divorce or dissolution of marriage;
(x) To correct any defect, supply any omission, or reconcile any
inconsistency in the Plan and any Option;
(xi) To prescribe the consideration for the grant of each Option
under the Plan and to determine the sufficiency of such consideration; and
(xii) To take any other actions deemed necessary or advisable for the
administration of the Plan.
All decisions, interpretations and other actions of the Committee shall be
final and binding on all Optionees, and all persons deriving their rights from
an Optionee. No member of the Committee shall be liable for any action that he
or she has taken or has failed to take in good faith with respect to the Plan or
any Option.
-5-
<PAGE>
SECTION 4. ELIGIBILITY.
- -----------------------
(a) General Rule. Only Employees, as defined in Section 2(e), shall be
------------
eligible for designation as Optionees by the Committee. In addition, only
individuals who are employed as common-law employees by the Company or a
Subsidiary shall be eligible for the grant of ISOs.
(b) ISOs. Only Employees who are common-law employees of the Company, a
----
Parent or a Subsidiary shall be eligible for the grant of ISOs. In addition, an
Employee who owns more than five percent (5%) of the total combined voting power
of all classes of outstanding stock of the Company or any of its Parents or
Subsidiaries shall not be eligible for the grant of an ISO unless the
requirements set forth in section 422(c)(5) of the Code are satisfied.
SECTION 5. STOCK SUBJECT TO PLAN.
- ---------------------------------
(a) Basic Limitation. Shares offered under the Plan shall be authorized
----------------
but unissued Shares. The aggregate number of Shares which may be issued under
the Plan (upon exercise of Options) shall not exceed 1,102,802 Shares, subject
to adjustment pursuant to Section 8. The number of Shares which are subject to
Options outstanding at any time under the Plan shall not exceed the number of
Shares which then remain available for issuance under the Plan. The Company,
during the term of the Plan, shall at all times reserve and keep available
sufficient Shares to satisfy the requirements of the Plan.
(b) Additional Shares. In the event that any outstanding Option for any
-----------------
reason expires or is canceled or otherwise terminated, the Shares allocable to
the unexercised portion of such Option shall again be available for the purposes
of the Plan.
-6-
<PAGE>
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
- -------------------------------------------
(a) Stock Option Agreement. Each grant of an Option under the Plan shall
----------------------
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Committee deems appropriate for inclusion in a Stock
Option Agreement. The provisions of the various Stock Option Agreements entered
into under the Plan need not be identical.
(b) Number of Shares. Each Stock Option Agreement shall specify the
----------------
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 8. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.
(c) Exercise Price. Each Stock Option Agreement shall specify the
--------------
Exercise Price. The Exercise Price of an ISO shall not be less than one hundred
percent (100%) of the Fair Market Value of a Share on the date of grant.
Subject to the preceding sentence, the Exercise Price under any Option shall be
determined by the Committee in its sole discretion. The Exercise Price shall be
payable in a form described in Section 7.
(d) Withholding Taxes. As a condition to the exercise of an Option, the
-----------------
Optionee shall make such arrangements as the Committee may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with such exercise. The Optionee shall also make
such arrangements as the Committee may require for the satisfaction of any
federal, state, local or foreign withholding tax obligations that may arise in
connection with the disposition of Shares acquired by exercising an Option.
(e) Exercisability and Term. Each Stock Option Agreement shall specify
-----------------------
the date when all or any installment of the Option is to become exercisable.
The Stock Option Agreement
-7-
<PAGE>
shall also specify the term of the Option; provided that the term of an ISO
shall in no event exceed ten (10) years from the date of grant. A Stock Option
Agreement may provide for accelerated exercisability in the event of the
Optionee's death, disability or retirement or other events and may provide for
expiration prior to the end of its term in the event of the termination of the
Optionee's service. The Committee may determine, at the time of granting an
Option or thereafter, that such Option shall become fully exercisable as to all
Common Shares subject to such Option in the event that a Change in Control
occurs with respect to the Company.
(f) Nontransferability. Except as provided in the applicable Stock Option
------------------
Agreement, no Option shall be transferable by the Optionee other than by will or
by the laws of descent and distribution. An Option may be exercised during the
lifetime of the Optionee only by him or by his guardian or legal representative.
No Option or interest therein may be transferred, assigned, pledged or
hypothecated by the Optionee during his lifetime, whether by operation of law or
otherwise, or be made subject to execution, attachment or similar process.
(g) Exercise of Options on Termination of Service. Each Option shall set
---------------------------------------------
forth the extent to which the Optionee shall have the right to exercise the
Option following termination of the Optionee's service with the Company and its
Subsidiaries. Such provisions shall be determined in the sole discretion of the
Committee, need not be uniform among all Options issued pursuant to the Plan,
and may reflect distinctions based on the reasons for termination of employment.
(h) No Rights as a Shareholder. An Optionee, or a transferee of an
--------------------------
Optionee, shall have no rights as a shareholder with respect to any Shares
covered by an Option until the date of the issuance of a stock certificate for
such Shares.
(i) Modification, Extension and Assumption of Options. Within the
-------------------------------------------------
limitations of the Plan, the Committee may modify, extend or assume outstanding
Options or may accept the
-8-
<PAGE>
cancellation of outstanding Options (whether granted by the Company or another
issuer) in return for the grant of new Options for the same or a different
number of Shares and at the same or a different Exercise Price or for other
consideration.
(j) Restrictions on Transfer of Shares. Any Shares issued upon exercise
----------------------------------
of an Option shall be subject to such rights of repurchase, rights of first
refusal and other transfer restrictions as the Committee may determine. Such
restrictions shall be set forth in the applicable Stock Option Agreement and
shall apply in addition to any restrictions that may apply to holders of Shares
generally.
SECTION 7. PAYMENT FOR SHARES.
- ------------------------------
(a) General Rule. The entire Exercise Price of Shares issued under the
------------
Plan shall be payable in lawful money of the United States of America at the
time when such Shares are purchased, except as provided in Subsections (b), (c)
and (d) below.
(b) Surrender of Stock. To the extent that a Stock Option Agreement so
------------------
provides, payment may be made all or in part with Shares which have already been
owned by the Optionee or the Optionee's representative for any time period
specified by the Committee and which are surrendered to the Company in good form
for transfer. Such Shares shall be valued at their Fair Market Value on the
date when the new Shares are purchased under the Plan.
(c) Promissory Notes. To the extent that a Stock Option Agreement so
----------------
provides, payment may be made all or in part with a full recourse promissory
note executed by the Optionee. The interest rate and other terms and conditions
of such note shall be determined by the Committee. The Committee may require
that the Optionee pledge his or her Shares to the Company for the purpose of
securing the payment of such note. In no event shall the stock certificate(s)
representing such Shares be released to the Optionee until such note is paid in
full.
-9-
<PAGE>
(d) Cashless Exercise. To the extent that a Stock Option Agreement so
-----------------
provides and a public market for the Shares exists, payment may be made all or
in part by delivery (on a form prescribed by the Committee) of an irrevocable
direction to a securities broker to sell Shares and to deliver all or part of
the sale proceeds to the Company in payment of the aggregate Exercise Price.
SECTION 8. ADJUSTMENT OF SHARES.
- --------------------------------
(a) General. In the event of a subdivision of the outstanding Stock, a
-------
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Shares in an amount that has a material effect on the value
of Shares, a combination or consolidation of the outstanding Stock into a lesser
number of Shares, a recapitalization, a reclassification or a similar
occurrence, the Committee shall make appropriate adjustments in one or more of
(i) the number of Shares available for future grants under Section 5, (ii) the
number of Shares covered by each outstanding Option or (iii) the Exercise Price
under each outstanding Option.
(b) Reorganizations. In the event that the Company is a party to a merger
---------------
or reorganization, outstanding Options shall be subject to the agreement of
merger or reorganization.
(c) Reservation of Rights. Except as provided in this Section 8, an
---------------------
Optionee shall have no rights by reason of (i) any subdivision or consolidation
of shares of stock of any class, (ii) the payment of any dividend or (iii) any
other increase or decrease in the number of shares of stock of any class. Any
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or Exercise Price of Shares
subject to an Option. The grant of an Option pursuant to the Plan shall not
affect in any way the right or
-10-
<PAGE>
power of the Company to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure, to merge or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its business or assets.
SECTION 9. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.
- ----------------------------------------------------
(a) Effective Date. No provision of this Article 9 shall be effective
--------------
unless and until the Board of Directors has determined to implement such
provision.
(b) Elections to Receive Nonstatutory Options. An Outside Director may
-----------------------------------------
elect to receive his or her annual retainer payments and meeting fees from the
Company in the form of cash, Nonstatutory Options, or a combination thereof.
Such Nonstatutory Options shall be issued under the Plan. An election under
this Article 9 shall be filed with the Company on the prescribed form and
subject to such filing deadlines and election procedures as shall be established
by the Committee.
(c) Number and Terms of Nonstatutory Options. The number of Nonstatutory
----------------------------------------
Options to be granted to Outside Directors in lieu of annual retainers and
meeting fees that would otherwise be paid in cash shall be calculated in a
manner determined by the Board. The terms of such Nonstatutory Options shall
also be determined by the Board.
SECTION 10. LEGAL REQUIREMENTS.
- -------------------------------
Shares shall not be issued under the Plan unless the issuance and delivery
of such Shares complies with (or is exempt from) all applicable requirements of
law, including (without limitation) the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder, state securities laws and
regulations, and the regulations of any stock exchange on which the Company's
securities may then be listed.
-11-
<PAGE>
SECTION 11. NO EMPLOYMENT RIGHTS.
- ---------------------------------
No provision of the Plan, nor any Option granted under the Plan, shall be
construed to give any person any right to become, to be treated as, or to remain
an Employee. The Company and its Subsidiaries reserve the right to terminate
any person's Service at any time and for any reason.
SECTION 12. DURATION AND AMENDMENTS.
- ------------------------------------
(a) Term of the Plan. The amended and restated Plan, as set forth herein,
----------------
shall become effective on the date of its adoption by the Board of Directors,
subject to the approval of the Company's shareholders within twelve (12) months
after its adoption by the Board of Directors. The Plan shall terminate
automatically ten (10) years after its initial effective date of the Plan, and
may be terminated on any earlier date pursuant to Subsection (b) below.
(b) Right to Amend or Terminate the Plan. The Board of Directors may
------------------------------------
amend the Plan at any time and from time to time. Rights and obligations under
any Option granted before amendment of the Plan shall not be materially altered,
or impaired adversely, by such amendment, except with consent of the person to
whom the Option was granted. An amendment of the Plan shall be subject to the
approval of the Company's stockholders only to the extent required by applicable
laws, regulations or rules.
(c) Effect of Amendment or Termination. No Shares shall be issued or sold
----------------------------------
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Option previously granted under the
Plan.
-12-
<PAGE>
SECTION 13. EXECUTION.
- ----------------------
To record the Amendment and Restatement of the Plan by the Board of
Directors, the Company has caused its authorized officer to execute the same as
of August 24, 1997.
BERINGER WINE ESTATES HOLDINGS, INC.
By /s/ Douglas W. Roberts
-----------------------------------
As Its Vice President, General Counsel
-------------------------------
and Secretary
-------------------------------
-13-
<PAGE>
Exhibit 10.2
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE
SILVERADO PARTNERS ACQUISITION CORP.
1996 STOCK OPTION PLAN (GROUP A)
This Incentive Stock Option Agreement (the "Agreement"), is made as
of __________, 1996 , by and between Silverado Partners Acquisition Corp., a
California close corporation (the "Company"), and ___________________________
("Optionee").
Recitals
WHEREAS, the Company has adopted the 1996 Stock Option Plan (the
"Plan"), which Plan is incorporated herein by reference and made a part of this
Agreement; and
WHEREAS, Optionee is an employee of the Company, a Parent or a
Subsidiary, as defined in the Plan, and the Company has determined that it would
be to the advantage and interest of the Company and its shareholders to grant
the option provided for herein to Optionee under the Plan as an inducement to
remain in the service of the Company, a Parent or a Subsidiary and as an
incentive for increased efforts during such service.
Agreement
NOW, THEREFORE, in consideration of the foregoing recitals, and the
terms, conditions, and covenants contained herein, the parties hereto hereby
agree as follows:
1. Grant of Option. The Company hereby grants to Optionee the right
---------------
and option to purchase, on the terms and conditions hereinafter set forth, all
or any part of an aggregate of 18,501 shares of the presently authorized but
unissued shares of Class B Common Stock of the Company (the "Option Stock") .
The purchase price shall be $10.00 per share (the "Option Price"). In the event
that Optionee is a person who owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, a Parent or a
Subsidiary (a "10% Shareholder"), the Option Price is not less than 110% of the
per share Fair Market Value (as defined herein) of the Option Stock as of the
date hereof, and the Option Price in no event is less than 100% of the per share
Fair Market Value of the Option Stock as of the date hereof. The number of
shares subject to this option and the Option Price are subject to adjustment
under certain circumstances, as provided in the Plan.
For purposes of this Agreement, the "Fair Market Value" of the Option
Stock shall be determined in the following manner: (i) if the Common Stock of
the Company (the "Common Stock") is publicly traded, Fair Market Value shall be
on any date the average of the closing bid and asked price quotation for the
Common Stock on that date (or if none on that date, on the next most recent date
on which the Common Stock was traded) as reported in the Wall Street Journal if
--------------------
the Common Stock is traded on NASDAQ, or, if the Common Stock is traded on the
NASDAQ National Market System or listed on any stock exchange, Fair Market
Value shall be closing sale price on the relevant date as reported in the Wall
----
Street Journal (or if there are no sales for such date, then for the last
- ---------------
preceding business day on which there were sales); (ii) if the Common Stock
is not publicly traded, Fair Market Value shall be an amount per share
determined on the basis of the price at which shares of the Common Stock could
reasonably be expected to be sold in an arms-length transaction, for cash, other
than on an installment basis, to a person not employed by, controlled by, in
control of or under common control with the Company. This determination shall
be made by the Board of Directors of the Company (the "Board"), giving due
consideration to recent transactions involving shares of the Common Stock, if
any, earnings
<PAGE>
of the Company to the date of such determination, the effect of the transfer
restrictions to which the Option Stock are subject under law and this Plan, the
absence of a public market for the Common Stock, and such other matters as the
Board deems pertinent. This determination shall, if reasonable, be conclusive
and binding notwithstanding the possibility that other persons might reach a
different, and also reasonable, determination.
2. Term and Exercisability of Option. This option shall become
---------------------------------
exercisable in installments such that one-third of the option shall become
exercisable on the first, second and third anniversaries, respectively, of the
date hereof.
The term "Vested Option Shares" as used herein shall refer to the
portion of this option that has become exercisable in accordance with the
preceding sentence but has not yet been exercised. To the extent not exercised,
all Vested Option Shares shall accumulate and be exercisable, in whole or in
part, in any subsequent installment period but in no event later than the tenth
anniversary of the date of this Agreement (hereinafter referred to as the
"Termination Date"). If Optionee is a 10% Shareholder, the Termination Date of
this option shall in no event be later than five years from the date hereof.
Upon the closing of a sale, in one or more transactions, by TPG
Partners, L.P., a Delaware limited partnership ("TPG"), of at least fifty-one
percent (51%) of the aggregate shares of Class A Common Stock and Class B
Common Stock purchased by TPG pursuant to that certain Subscription Agreement,
dated as of December 29, 1995, as amended as of January 16, 1996, by and among
the Company, TPG, TPG Parallel I, L.P., a Delaware limited partnership,
("TPGI"), Silverado Equity Partners, L.P., a Delaware limited partnership
("SEP"), Wine World Equity Partners, L.P., a Delaware limited partnership
("WEP"), and certain other investors, whether the sale is made through a public
offering or by private sale to a third party (such sale constituting a
"Triggering Event"), any and all portions of this option that have not vested at
the time of the Triggering Event immediately will become Vested Option Shares.
3. Expiration of Option. The period for exercising this option (the
--------------------
"Option Period") will end on the Termination Date; provided, however, that:
(a) if Optionee ceases to be a bona fide employee of the Company,
a Parent or a Subsidiary (other than by death, disability or termination for
Cause, as defined below) during the Option Period, this option shall thereafter
be exercisable prior to the Termination Date or for 30 days after the
termination of Optionee's employment, whichever shall first occur, and this
option shall then be exercisable only to the extent that it was exercisable
under the provisions of Section 2 hereof at the time of such cessation of
employment. If Optionee is absent from work with the Company, a Parent or a
Subsidiary because of his or her disability or if he or she is on leave of
absence for the purpose of serving the government of the country in which the
principal place of employment of Optionee is located, either in a military or
civilian capacity, or for such other purpose or reason as the Board or the
Committee administering the Plan (the "Committee") may approve, Optionee shall
not be deemed during the period of any such absences by virtue of such absence
alone, to have terminated his or her employment with the Company, a Parent or a
Subsidiary, except as the Board or the Committee may otherwise expressly
provide; and
(b) if Optionee has become disabled while employed by the Company,
a Parent or a Subsidiary, prior to the Termination Date or for six months after
termination of Optionee's employment, whichever shall first occur, this option
shall thereafter be exercisable prior to the Termination Date or for six months
after the termination of Optionee's employment, whichever shall first occur, and
this option shall then be exercisable only to the extent that it was exercisable
under the provisions of Section 2 hereof at the time of such cessation of
employment; and,
(c) if Optionee should die while in the employ of the Company, a
Parent or a Subsidiary, or within the exercise periods or periods of absence
described in subsections (a) and (b)
2
<PAGE>
above, this option may, within a period of one year from the date of Optionee's
death, be exercised by Optionee's legal representative, or by the person or
persons to whom Optionee's right, under this option shall pass by will or by the
applicable laws of descent and distribution, but only if, and to the extent,
this option was exercisable by Optionee under the provisions of Section 2 hereof
at the time of his or her death and only prior to the Termination Date; and
(d) if Optionee's employment with the Company, a Parent or a
Subsidiary is terminated for Cause, the Option shall terminate immediately upon
termination of employment, notwithstanding subsections (a), (b) and (c) above.
Employment shall be deemed terminated for Cause if Optionee is determined by the
Board to have willfully breached his or her duty in the course of employment or
association or to have committed an act of embezzlement, fraud, dishonesty or
deliberate disregard of the rules of the Company, a Parent or a Subsidiary or
engaged in any conduct which constitutes unfair competition with the Company, a
Parent or a Subsidiary.
4. Manner of Exercise. This option may be exercised as to Vested
------------------
Option Shares (i) once per year during the one-month period from December 15 to
January 15, (ii) following or in connection with a Triggering Event, (iii) as
provided in Section 5 hereof or (iv) to the extent of participation in a sale
pursuant to Section 7 hereof. Optionee may exercise this option with respect to
all or any part of the Option Stock then subject to such exercise as follows:
(a) by giving the Company written notice of such exercise
specifying the number of shares of Option Stock as to which this option is so
exercised and (i) by delivering an amount equal to the aggregate Option Price of
such Option Stock in the form of cash or a check, bank draft, or postal or
express money order payable to the order of the Company in lawful money of the
United States, or, (ii) if the Board or Committee, in its sole discretion,
consents thereto, by delivering a promissory note in such form and bearing such
rate of interest and term as the Board or the Committee shall, in its
discretion, establish, or, (iii) if the closing of a sale by the Company of
Common Stock in an underwritten (firm commitment) public offering registered
under the Securities Act of 1933, as amended (the "Securities Act"), has
occurred, with gross proceeds to the Company of not less than $50 million,
resulting in the listing of the Common Stock on a nationally recognized stock
exchange, including without limitation, the NASDAQ National Market System (such
a sale being a "Qualified IPO"), by delivering shares of Class B Common Stock
previously acquired by Optionee and/or options, with any shares of Class B
Common Stock and/or options so delivered being valued at their respective Fair
Market Values on the date of exercise less, in the case of options, the exercise
price thereof; and
(b) if required by the Company, by giving satisfactory assurance
in writing, signed by Optionee or his or her legal representative, as the case
may be, that such shares are being purchased for investment only and not with a
view to the distribution thereof; provided, however, that such assurance shall
be deemed inapplicable to (i) any sale of such shares by Optionee subject to a
registration statement covering such sale, which has heretofore been (or may
hereafter be) filed and become effective under the Securities Act, and is
current and with respect to which no stop order suspending the effectiveness
thereof has been issued, and (ii) any other sale of such shares with respect to
which, in the opinion of counsel for the Company, such assurance is not required
to be given in order to comply with the provisions of the Securities Act; and
As soon as practicable after receipt of such written notice of
exercise from Optionee, the Company shall, without transfer or issue tax or
other incidental expenses to Optionee, deliver to Optionee at the office of the
Company, or such other place as may be mutually acceptable to the Company and
Optionee, a certificate or certificates for such shares, which certificate or
certificates may bear such legend or legends with respect to restriction or
transfer thereof as counsel for the Company deems to be required by applicable
provisions of law and this Agreement; provided, however, that nothing herein
shall be deemed to impose upon the Company any obligation to deliver any shares
of Option Stock to Optionee if, in the opinion of counsel for the Company doing
so would violate any provision of:
3
<PAGE>
(i) the Securities Act; (ii) the Securities Exchange Act of 1934, as amended
(the "Exchange Act"); (iii) any applicable listing requirements of any national
securities exchange; (iv) any state securities regulation or "Blue Sky" law; or
(v) requirements under any other law or regulation applicable to the issuance or
transfer of such shares. In no event shall the Company be required to take any
affirmative action to comply with any of such laws, regulations or requirements,
nor shall the Company be liable for any failure to deliver shares of Option
Stock because such shares have not been registered or because a registration
statement with respect thereto is not current or because such delivery would
otherwise be in violation of any applicable law or regulation.
In no event shall the Company be required to issue fractional shares
of Option Stock, and this option shall not be exercisable except in respect of
whole shares of Option Stock.
5. Adjustments. If there should be any change in the Option Stock,
-----------
through merger, consolidation, reorganization, recapitalization,
reincorporation, stock split, reverse stock split, stock dividend, or other
change in the corporate structure of the Company, an appropriate and
proportionate adjustment shall be made by the Company in the number and/or type
of the Option Stock and in the Option Price in order to preserve, but not
increase, the benefit to Optionee. The grant of this option shall not affect in
any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or to sell or
transfer all or any part of its business or assets. Anything herein contained
to the contrary notwithstanding, (a) upon dissolution or liquidation of the
Company, other than in connection with a reorganization, merger, or
consolidation of the Company with one or more entities as a result of which the
Company is not the surviving entity or as a result of which the outstanding
shares of Common Stock are exchanged or converted into cash or property or
securities not issued by the Company, or upon a sale of all or substantially all
the property of the Company (an "Asset Sale") or the acquisition, in one
transaction, by another entity or person or persons acting in concert of
securities of the Company representing more than 80% of the voting power of the
then outstanding securities of the Company (a "Stock Sale"), or (b) upon
dissolution or liquidation of the Company, in connection with such a
reorganization, merger, consolidation, Asset Sale or Stock Sale where the
surviving or acquiring corporation does not, prior to or concurrent with the
succession to the business of the Company, assume this option (subject to any
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code")), or replace this option with a new option of comparable value, this
option, in either case, shall terminate and thereupon become null and void.
Notwithstanding the foregoing, if the surviving or acquiring corporation does
not assume this option, Optionee shall have the right, during the period
following adoption by the Board of the plan of, or agreement with respect to,
such dissolution, liquidation, reorganization, merger, consolidation, Asset Sale
or Stock Sale and prior to or concurrently with consummation of such plan or
agreement (or such date not more than 20 days prior thereto as is specified by
the Board), to exercise this option in full, notwithstanding the vesting
provisions of Section 2 hereof.
6. Assignment or Transfer.
----------------------
6.1. Restrictions on Assignability and Transferability.
-------------------------------------------------
(a) This option shall, during Optionee's lifetime, be
exercisable only by him or her, and neither this option nor any right hereunder
shall be transferable by Optionee otherwise than by will or the laws of descent
and distribution. In the event of any attempt by Optionee to alienate, assign,
pledge, hypothecate, or otherwise dispose of this option or of any right
hereunder except as provided for herein, or in the event of the levy of any
attachment, execution, or similar process upon the rights or interest hereby
conferred, this option shall thereupon become null and void and of no effect.
Under such rules and regulations as the Board or the Committee may establish
pursuant to the terms of the Plan, a beneficiary may be designated with respect
to this option in the event of the death of Optionee. If the estate of Optionee
is the beneficiary with respect to this option, any
4
<PAGE>
rights with respect to this option may be transferred to the person or entity
(including a trust) entitled thereto under the will of Optionee or pursuant to
the laws of descent and distribution.
(b) The shares of Option Stock issued upon exercise of this
option shall not be transferred except upon compliance with the provisions of
the Securities Act, the Articles of Incorporation of the Company, as amended
from time to time (the "Articles") and this Agreement, and any attempted
transfer other than in accordance with the terms hereof and the Articles is void
ab initio and transfers no right, title or interest in or to such shares of
- -- ------
Option Stock, whether now owned or hereafter acquired, to the purported
transferee, buyer, donee, assignee or encumbrance holder. Optionee agrees that
he or she will not transfer any shares of Option Stock without the prior
approval of the Company until the earlier of January 16, 2006 or the occurrence
of a Triggering Event.
6.2. Notice of Proposed Transfers; Securities Law Compliance. Prior
-------------------------------------------------------
to any proposed transfer permitted under Section 6.1 hereof of any shares of
Option Stock, unless there is in effect a registration statement under the
Securities Act covering the proposed transfer, Optionee shall give written
notice to the Company of Optionee's intention to effect such transfer. Each
such notice shall describe the manner and circumstances of the proposed transfer
in sufficient detail, and shall be accompanied by either (i) a written opinion
of legal counsel who shall be reasonably satisfactory to the Company addressed
to the Company and reasonably satisfactory in form and substance to the
Company's counsel, to the effect that the proposed transfer may be effected
without registration under the Securities Act, (ii) a "no action" letter from
the staff of the Securities and Exchange Commission or any other federal agency
at the time administering the Securities Act (the "Commission") to the effect
that the distribution of such Option Stock without registration will not result
in recommendation by the staff of the Commission that action be taken with
respect thereto, or (iii) such other showing that may be reasonably satisfactory
to legal counsel to the Company, whereupon the holder of such Option Stock shall
be entitled to transfer such Option Stock in accordance with the terms of the
notice delivered by the holder to the Company. Notwithstanding the foregoing,
the requirements of clauses (i), (ii), or (iii) above need not be satisfied with
respect to transactions in compliance with either Rule 144 under the Securities
Act ("Rule 144") or Rule 701 under the Securities Act ("Rule 701"), so long as
the Company is furnished with satisfactory evidence of compliance with either of
these Rules.
6.3. Permitted Transfers. Subject to compliance with the provisions
-------------------
of Section 6.2 hereof, if applicable, the following transfers of shares of
Option Stock may be made: (i) transfers pursuant to Rule 144 or Rule 701; (ii)
transfers upon death of Optionee to Optionee's heirs, executors, administrators,
testamentary trustees, legatees or beneficiaries; (iii) transfers to the Company
upon termination of employment, pursuant to agreements permitting the Company to
make such repurchases approved by the Board; (iv) transfers pursuant to Sections
7 and/or 9 hereof; or, (v) subject to Section 6.2 hereof, transfers approved by
a majority of the Board who are not controlling, controlled by or under the
common control of the transferor; provided, however, that except for transfers
described in clauses (i), (iii) or (iv) of this Section 6.3, the transferee
shall agree in writing to be bound by the Articles and the terms of this
Agreement to the same extent as if such transferee were a party hereto and
subject to any conditions set forth below.
7. Tag-Along Rights.
----------------
7.1. The Rights. If TPG or its affiliates (a "Selling Shareholder")
----------
negotiates or receives and elects to accept one or more bona fide offers to
purchase shares of Common Stock (a "Purchase Offer"), and such Selling
Shareholder, pursuant to the terms of the Amended and Restated Shareholders
Rights Agreement and Voting Agreement, dated as of January 16, 1996, by and
among the Company, TPG, TPGI, SEP, WEP and certain other investors (the
"Shareholders Agreement"), promptly notifies Optionee in writing of the terms
and conditions of such Purchase Offer and the number of shares of Common Stock
proposed for sale pursuant to the Purchase Offer (the "Tag-Along Rights
Notice"), Optionee shall have the right, exercisable upon written notice to the
Selling Shareholder within 10 days after the date of the Tag-Along Rights Notice
(the "Tag-Along Exercise Period"), to participate in
5
<PAGE>
accordance with the terms and conditions set forth in this Section 7 in the
Selling Shareholder's sale of Common Stock pursuant to the specified terms and
conditions of such Purchase Offer. To the extent Optionee exercises such right
of participation, the number of shares of Common Stock that the Selling
Shareholder may sell pursuant to such Purchase Offer shall be correspondingly
reduced. The right of participation shall be subject to the following terms and
conditions:
(a) Participation shall be limited to Class B Common Stock. If a
Selling Shareholder is selling securities other than Class B Common Stock.
Optionee may not participate except with the consent of the Selling Shareholder.
(b) Optionee may sell all or any part of that number of shares
of Option Stock purchased upon exercise of this option and owned by Optionee
that is not in excess of the product obtained by multiplying (i) the number of
shares of Class B Common Stock covered by the Purchase Offer that the Selling
Shareholder may sell by (ii) a fraction, the numerator of which is the number of
shares of Option Stock at the time owned by Optionee, and the denominator of
which is the total number of shares of Class B Common Stock then outstanding on
a fully diluted basis.
6
<PAGE>
7.2. Procedures.
----------
(a) During the Tag-Along Exercise Period, Optionee may effect
his, her or its participation in the sale by delivering to the Selling
Shareholder for transfer to the maker(s) of the Purchase Offer (the "Purchaser")
, with a copy to the Company, one or more stock certificates, properly endorsed
for transfer, accompanied by a written election to participate in the sale with
respect to a specified number of shares of Option Stock (the "Election Number"),
with the certificate or certificates so delivered representing at least the
Election Number of such shares.
(b) The stock certificate or certificates that Optionee delivers
pursuant to subsection (a) above shall be transferred by the Company to the
Purchaser in consummation of the sale of the applicable securities pursuant to
the terms and conditions specified in the Tag-Along Rights Notice to Optionee,
and the Company shall promptly thereafter remit to Optionee that portion of the
sale proceeds to which Optionee is entitled by reason of his or her
participation in such sale and any stock certificate or certificates
representing any remaining shares not sold in such sale.
7.3. Future Rights. The exercise or non-exercise of the rights of
-------------
Optionee to participate in one or more sales of securities made by a Selling
Shareholder shall not adversely affect the rights of Optionee to participate in
subsequent sales by a Selling Shareholder pursuant to this Section 7.
7.4. Limits and Termination. The provisions of this Section 7 shall
----------------------
not pertain or apply to: (a) sales by a Selling Shareholder of not more than 5%
of his, her, or its Class B Common Stock; (b) transfers made in accordance with
the provisions of Section 6.3 hereof; (c) sales in connection with a Qualified
IPO and (d) Change of Control Transactions, as defined in the Shareholders
Agreement, in which the rights provided in Section 6 of the Shareholders
Agreement are exercised. The provisions of this Section 7 shall cease to be of
any further force and effect upon the closing of a Qualified IPO.
7.5. No Additional Rights as a Shareholder. Neither Optionee nor any
-------------------------------------
person entitled to exercise Optionee's rights in the event of his or her death
shall have any of the rights of a shareholder with respect to the Option Stock
except to the extent the certificates for the Option Stock, or a portion
thereof, shall have issued upon the exercise of this option.
8. Bring-Along Rights. The terms and provisions of Section 6 of
------------------
the Shareholders Agreement are incorporated herein by reference as if set forth
in haec verba. Optionee agrees that he or she will vote his or her shares of
- -- ---- -----
Class B Common Stock in accordance with the terms and provisions of Section 6 of
the Shareholders Agreement, and take all actions necessary to satisfy any and
all obligations contemplated by Section 6 of the Shareholders Agreement.
9. Right of Repurchase.
-------------------
(a) In the event that any of the events specified in Section 9(b)
hereof occur, then, with respect to any of the Option Stock acquired upon
exercise of this option prior to the occurrence of such event, within 90 days
following the occurrence of such event, and, with respect to any of the Option
Stock acquired upon exercise of this option pursuant to Section 3 hereof after
occurrence of such event, within 90 days following the date of such exercise,
(in either case, the "Repurchase Period"), the Company shall have the option,
but not the obligation, to repurchase all, but not a portion of, such Option
Stock from Optionee, or his or her legal representative, as the case may be, at
a price equal to the Fair Market Value of such shares (the "Repurchase
Option"). The Repurchase Option shall be exercised by the Company giving
Optionee, or his or her legal representative, written notice of its intention to
exercise the Repurchase Option on or before the last day of the Repurchase
Period. The Company may, in exercising the Repurchase Option, designate one or
more nominees to purchase the Option Stock, either with or without the
participation of the Company.
7
<PAGE>
(b)
(1) The receivership, bankruptcy or other creditor's
proceeding regarding Optionee or the taking of any of the Option Stock by legal
process, such as a levy of execution, whether or not Optionee is employed by the
Company or any Parent or Subsidiary of the Company. The Repurchase Period shall
commence on the date the Company receives actual notice of the commencement of
pendency of the receivership, bankruptcy or other creditor's proceeding or the
date of such taking, as the case may be. The Fair Market Value of the Option
Stock shall be determined as of the last day of the month preceding the month in
which the proceeding involved commenced or the taking occurred;
(2) Distribution of any of the Option Stock by Optionee to
his or her spouse as such spouse's joint or community interest pursuant to a
decree of dissolution, property settlement agreement or for any other reason,
except as may be otherwise permitted by the Company, whether or not Optionee is
employed by the Company or any Parent or Subsidiary of the Company. The
Repurchase Period shall be deemed to commence on the day the Company receives
actual notice of such distribution. The Fair Market Value of the Option Stock
shall be determined as of the last day of the month preceding the month in which
the decree, agreement or, if there is no decree or agreement, the distribution
occurs; or
(3) Optionee voluntarily terminates his or her employment
with the Company (whether by resignation, retirement or otherwise) or is
terminated for Cause.
(c) The Repurchase Option shall terminate upon the occurrence of
a Triggering Event.
10. Effect of Tender of Purchase Price. Notwithstanding the failure
----------------------------------
of the holder of any stock certificate evidencing all or any part of the Option
Stock to deliver the same to the Company for cancellation, and upon tender by
the Company or its nominee of the purchase price for any of the Option Stock in
accordance with the terms of this Agreement, such Option Stock and the
certificates representing same shall forthwith and without further action be
deemed to be canceled and forfeited.
11. Restrictions on Transfer. Except as otherwise may be permitted
------------------------
by this Agreement, Optionee shall not sell, transfer (by gift or otherwise),
assign, hypothecate, pledge, grant a security interest in, or in any other way
dispose of or alienate this option or any shares of Option Stock, and any
attempt to effect any such transaction shall be null and void ab initio and of
-- ------
no force and effect.
12. Legends and Termination of Rights. All share certificates
---------------------------------
representing the Option Stock shall bear a legend or legends revealing the
existence of the restrictions imposed by this Agreement. The provisions of
Section 8f shall cease to be applicable to the Option Stock at such time as the
Common Stock is listed on any national stock exchange or the NASDAQ National
Market System.
13. Effect of Certain Actions. In the event that (i) shares of
-------------------------
Option Stock are exchanged for or changed into any different class or series of
securities issued by the Company or any other corporation as the result of any
merger, consolidation, or sale of assets followed by liquidation,
reclassification or reorganization, or (ii) any additional shares of Common
Stock or any other securities shall be distributed with respect to the Option
Stock as a stock dividend, stock split, partial liquidation or dividend, then
all such securities shall be subject to the terms and provisions of Sections 7,
8 and 9 hereof and shall be deemed to be included in the term "Option Stock" as
used herein. As used herein, the term "Company" shall include any other
corporation which shall succeed to substantially all of the business and assets
of the Company as the result of any merger, consolidation, sale of assets, or
reorganization.
8
<PAGE>
14. Optionee's Employment Obligations. Optionee agrees that, during
---------------------------------
the period of his or her employment by the Company, a Parent or a Subsidiary, he
or she shall faithfully and to the best of his or her ability devote his or her
time, energy or skill to the service of the Company, Parent or Subsidiary, and
to the promotion of its interests, subject to vacations, military service leave,
sick leave and other bona fide absences in accordance with the regular policies
and practices of, or any written agreement between Optionee and, the Company,
Parent or Subsidiary which employs Optionee. Subject to any contrary terms of
any written employment contract, the Company, the Parent or the Subsidiary which
employs Optionee shall have the right to terminate or change the terms of
employment of Optionee at any time and for any reason whatsoever. Nothing
herein shall limit Optionee's right to terminate his or her employment.
15. Notices. All notices, consents, requests instructions, approvals
-------
and other communications under this Agreement shall be in writing and shall be
deemed to have been delivered (i) on the date indicated on the return receipt as
the date of delivery or refusal if mailed by registered or certified mail,
postage prepaid, return receipt requested, (ii) upon courier confirmation of
receipt if sent by overnight courier, (iii) when receipt is acknowledged when
sent or delivered by telex or facsimile, and (iv) upon delivery at the addresses
set forth below. A party may change its address for notice upon giving notice of
such change in accordance with the provisions of this Section 15.
16. Finality of Decisions. All decisions of the Board or the
---------------------
Committee upon any question arising under the Plan or under this Agreement shall
be final and binding.
17. Participation in Other Plans. Nothing herein contained shall
----------------------------
affect Optionee's right to participate in and receive benefits from and in
accordance with the then current provisions of any pension, insurance, or other
stock option or employment welfare plan or program of the Company.
18. Binding Effect of Agreement. Except as set forth in Section 5
---------------------------
hereof, this Agreement shall be binding upon and inure to the benefit of any
successors or assigns of the Company or Optionee.
19. Agreement Subject to Plan. This Agreement is entered into
-------------------------
pursuant to, and is subject to, the provisions of the Plan and it is intended to
and shall be interpreted in a manner which will comply therewith. In the event
of a conflict between any provision of this Agreement and the Plan, the
provisions of the Plan shall govern. Capitalized terms not otherwise defined
herein shall have the meanings given them in the Plan.
20. Governing Law. The interpretation, performance and enforcement
-------------
of this Agreement shall be governed by the laws of the State of California.
21. Tax Information and Notice of Disqualifying Disposition. This
-------------------------------------------------------
option is intended to be eligible for treatment as an Incentive Stock Option
under Section 422 of the Code. Whether this option will receive such tax
treatment will depend, in part, on actions by Optionee after exercise of this
option. For example, if Optionee does not exercise this option within 30 days
of termination of Optionee's employment, other than as a result of Optionee's
death or disability, or within one year of termination of Optionee's employment
as a result of Optionee's disability, Optionee may lose the benefits of Section
422. In addition, if Optionee disposes of any of the Option Stock within two
years after the date of grant of this option or within one year of the date of
exercise of this option with respect to such shares, Optionee may lose the
benefits of Section 422. Other factors not discussed herein may also affect the
tax consequences of this transaction. Accordingly, the Company makes no
representations by way of the Plan, this Agreement, or otherwise, with respect
to the actual tax effect of the grant or exercise of this option or the
subsequent disposition, including, without limitation, repurchase by the Company
or its nominee pursuant to Section 8 hereof, of any of the Option Stock.
9
<PAGE>
If Optionee sells or makes a disposition (within the meaning of
Section 422 of the Code) of any of the Option Stock acquired pursuant to
exercise of this option prior to the later of (a) one year from the date such
Option Stock was acquired, or (b) two years from the Date of Grant of this
option, Optionee agrees to give written notice to the Company of such
disposition. The notice shall include Optionee's name, the number, exercise
price and exercise date of the shares disposed of, and the date of disposition.
22. Withholding Taxes. By accepting this option, Optionee, for
-----------------
himself or herself and his or her transferees by will or the laws of descent and
distribution, agrees that whenever shares of Option Stock are to be issued by
reason of the exercise of this option, Optionee or such other person who is to
receive such Option Stock will, if requested by the Company, remit to the
Company, prior to the delivery of any certificate or certificates for such
shares, all or any part of an amount in cash determined by the Company in its
discretion to be sufficient to satisfy federal, state and local withholding tax
requirements which the Company, or its counsel, determine may be payable with
respect to such exercise. At the discretion of the Board or Committee, payment
of withholding taxes may be made by delivery of Common Stock or Options (valued
at their respective Fair Market Values on the date of delivery) to the Company.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed on its behalf, and Optionee has heretofore set his or her hand,
effective the day and year first above written, which is the date of grant of
this option.
SILVERADO PARTNERS ACQUISITION CORP.
By:
-----------------------------
Title:
--------------------------
OPTIONEE
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Address:
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INCENTIVE STOCK OPTION AGREEMENT
UNDER THE
SILVERADO PARTNERS ACQUISITION CORP.
1996 STOCK OPTION PLAN
(GROUP B)
This Incentive Stock Option Agreement (the "Agreement"), is made as
of __________, 1996, by and between Silverado Partners Acquisition Corp., a
California close corporation (the "Company"), and ("Optionee").
Recitals
WHEREAS, the Company has adopted the 1996 Stock Option Plan (the
"Plan"), which Plan is incorporated herein by reference and made a part of this
Agreement; and
WHEREAS, Optionee is an employee of the Company, a Parent or a
Subsidiary, as defined in the Plan, and the Company has determined that it would
be to the advantage and interest of the Company and its shareholders to grant
the option provided for herein to Optionee under the Plan as an inducement to
remain in the service of the Company, a Parent or a Subsidiary and as an
incentive for increased efforts during such service.
Agreement
NOW, THEREFORE, in consideration of the foregoing recitals, and the
terms, conditions, and covenants contained herein, the parties hereto hereby
agree as follows:
1. Grant of Option. The Company hereby grants to Optionee the right
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and option to purchase, on the terms and conditions hereinafter set forth, all
or any part of an aggregate of 8,015 shares of the presently authorized but
unissued shares of Class B Common Stock of the Company (the "Option Stock") .
The purchase price shall be $10.00 per share (the "Option Price"). In the event
that Optionee is a person who owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, a Parent or a
Subsidiary (a "10% Shareholder"), the Option Price is not less than 110% of the
per share Fair Market Value (as defined herein) of the Option Stock as of the
date hereof, and the Option Price in no event is less than 100% of the per share
Fair Market Value of the Option Stock as of the date hereof. The number of
shares subject to this option and the Option Price are subject to adjustment
under certain circumstances, as provided in the Plan.
For purposes of this Agreement, the "Fair Market Value" of the Option
Stock shall be determined in the following manner: (i) if the Common Stock of
the Company (the "Common Stock") is publicly traded, Fair Market Value shall be
on any date the average of the closing bid and asked price quotation for the
Common Stock on that date (or if none on that date, on the next most recent date
on which the Common Stock was traded) as reported in the Wall Street Journal if
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the Common Stock is traded on NASDAQ, or, if the Common Stock is traded on the
NASDAQ National Market System or listed on any stock exchange, Fair Market
Value shall be closing sale price on the relevant date as reported in the Wall
----
Street Journal (or if there are no sales for such date, then for the last
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preceding business day on which there were sales); (ii) if the Common Stock
is not publicly traded, Fair Market Value shall be an amount per share
determined on the basis of the price at which shares of the Common Stock could
reasonably be expected to be sold in an arms-length transaction, for cash, other
than on an installment basis, to a person not employed by, controlled by, in
control of or under common control with the Company. This determination shall
be made by the Board of Directors of the Company (the "Board"),
<PAGE>
giving due consideration to recent transactions involving shares of the Common
Stock, if any, earnings of the Company to the date of such determination, the
effect of the transfer restrictions to which the Option Stock are subject under
law and this Plan, the absence of a public market for the Common Stock, and such
other matters as the Board deems pertinent. This determination shall, if
reasonable, be conclusive and binding notwithstanding the possibility that other
persons might reach a different, and also reasonable, determination.
2. Term and Exercisability of Option. This option shall become
---------------------------------
exercisable in installments such that one-half of the option shall become
exercisable on the fourth and fifth anniversaries, respectively, of the date
hereof.
The term "Vested Option Shares" as used herein shall refer to the
portion of this option that has become exercisable in accordance with the
preceding sentence but has not yet been exercised. To the extent not exercised,
all Vested Option Shares shall accumulate and be exercisable, in whole or in
part, in any subsequent installment period but in no event later than the tenth
anniversary of the date of this Agreement (hereinafter referred to as the
"Termination Date"). If Optionee is a 10% Shareholder, the Termination Date of
this option shall in no event be later than five years from the date hereof.
Upon the closing of a sale, in one or more transactions, by TPG
Partners, L.P., a Delaware limited partnership ("TPG"), of at least fifty-one
percent (51%) of the aggregate shares of Class A Common Stock and Class B
Common Stock purchased by TPG pursuant to that certain Subscription Agreement,
dated as of December 29, 1995, as amended as of January 16, 1996, by and among
the Company, TPG, TPG Parallel I, L.P., a Delaware limited partnership ("TPGI"),
Silverado Equity Partners, L.P., a Delaware limited partnership ("SEP"), Wine
World Equity Partners, L.P., a Delaware limited partnership ("WEP"), and certain
other investors, whether the sale is made through a public offering or by
private sale to a third party (such sale constituting a "Triggering Event"), any
and all portions of this option that have not vested at the time of the
Triggering Event immediately will become Vested Option Shares.
3. Expiration of Option. The period for exercising this option (the
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"Option Period") will end on the Termination Date; provided, however, that:
(a) if Optionee ceases to be a bona fide employee of the Company,
a Parent or a Subsidiary (other than by death, disability or termination for
Cause, as defined below) during the Option Period, this option shall thereafter
be exercisable prior to the Termination Date or for 30 days after the
termination of Optionee's employment, whichever shall first occur, and this
option shall then be exercisable only to the extent that it was exercisable
under the provisions of Section 2 hereof at the time of such cessation of
employment. If Optionee is absent from work with the Company, a Parent or a
Subsidiary because of his or her disability or if he or she is on leave of
absence for the purpose of serving the government of the country in which the
principal place of employment of Optionee is located, either in a military or
civilian capacity, or for such other purpose or reason as the Board or the
Committee administering the Plan (the "Committee") may approve, Optionee shall
not be deemed during the period of any such absences by virtue of such absence
alone, to have terminated his or her employment with the Company, a Parent or a
Subsidiary, except as the Board or the Committee may otherwise expressly
provide; and
(b) if Optionee has become disabled while employed by the
Company, a Parent or a Subsidiary, prior to the Termination Date or for six
months after termination of Optionee's employment, whichever shall first occur,
this option shall thereafter be exercisable prior to the Termination Date or for
six months after the termination of Optionee's employment, whichever shall first
occur, and this option shall then be exercisable only to the extent that it was
exercisable under the provisions of Section 2 hereof at the time of such
cessation of employment; and,
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(c) if Optionee should die while in the employ of the Company, a
Parent or a Subsidiary, or within the exercise periods or periods of absence
described in subsections (a) and (b) above, this option may, within a period of
one year from the date of Optionee's death, be exercised by Optionee's legal
representative, or by the person or persons to whom Optionee's right, under this
option shall pass by will or by the applicable laws of descent and distribution,
but only if, and to the extent, this option was exercisable by Optionee under
the provisions of Section 2 hereof at the time of his or her death and only
prior to the Termination Date; and
(d) if Optionee's employment with the Company, a Parent or a
Subsidiary is terminated for Cause, the Option shall terminate immediately upon
termination of employment, notwithstanding subsections (a), (b) and (c) above.
Employment shall be deemed terminated for Cause if Optionee is determined by the
Board to have willfully breached his or her duty in the course of employment or
association or to have committed an act of embezzlement, fraud, dishonesty or
deliberate disregard of the rules of the Company, a Parent or a Subsidiary or
engaged in any conduct which constitutes unfair competition with the Company, a
Parent or a Subsidiary.
4. Manner of Exercise. This option may be exercised as to Vested
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Option Shares (i) once per year during the one-month period from December 15 to
January 15, (ii) following or in connection with a Triggering Event (iii) as
provided in Section 5 hereof or (iv) to the extent of participation in a sale
pursuant to Section 7 hereof. Optionee may exercise this option with respect to
all or any part of the Option Stock then subject to such exercise as follows:
(a) by giving the Company written notice of such exercise
specifying the number of shares of Option Stock as to which this option is so
exercised and (i) by delivering an amount equal to the aggregate Option Price of
such Option Stock in the form of cash or a check, bank draft, or postal or
express money order payable to the order of the Company in lawful money of the
United States, or, (ii) if the Board or Committee, in its sole discretion,
consents thereto, by delivering a promissory note in such form and bearing such
rate of interest and term as the Board or the Committee shall, in its
discretion, establish, or, (iii) if the closing of a sale by the Company of
Common Stock in an underwritten (firm commitment) public offering registered
under the Securities Act of 1933, as amended (the "Securities Act"), has
occurred, with gross proceeds to the Company of not less than $50 million,
resulting in the listing of the Common Stock on a nationally recognized stock
exchange, including without limitation, the NASDAQ National Market System (such
a sale being a "Qualified IPO"), by delivering shares of Class B Common Stock
previously acquired by Optionee and/or options, with any shares of Class B
Common Stock and/or options so delivered being valued at their respective Fair
Market Values on the date of exercise less, in the case of options, the exercise
price thereof; and
(b) if required by the Company, by giving satisfactory assurance
in writing, signed by Optionee or his or her legal representative, as the case
may be, that such shares are being purchased for investment only and not with a
view to the distribution thereof; provided, however, that such assurance shall
be deemed inapplicable to (i) any sale of such shares by Optionee subject to a
registration statement covering such sale, which has heretofore been (or may
hereafter be) filed and become effective under the Securities Act, and is
current and with respect to which no stop order suspending the effectiveness
thereof has been issued, and (ii) any other sale of such shares with respect to
which, in the opinion of counsel for the Company, such assurance is not required
to be given in order to comply with the provisions of the Securities Act; and
As soon as practicable after receipt of such written notice of
exercise from Optionee, the Company shall, without transfer or issue tax or
other incidental expenses to Optionee, deliver to Optionee at the office of the
Company, or such other place as may be mutually acceptable to the Company and
Optionee, a certificate or certificates for such shares, which certificate or
certificates may bear such legend or legends with respect to restriction or
transfer thereof as counsel for the Company deems to be required by applicable
provisions of law and this Agreement; provided, however, that nothing
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herein shall be deemed to impose upon the Company any obligation to deliver any
shares of Option Stock to Optionee if, in the opinion of counsel for the Company
doing so would violate any provision of: (i) the Securities Act; (ii) the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); (iii) any
applicable listing requirements of any national securities exchange; (iv) any
state securities regulation or "Blue Sky" law; or (v) requirements under any
other law or regulation applicable to the issuance or transfer of such shares.
In no event shall the Company be required to take any affirmative action to
comply with any of such laws, regulations or requirements, nor shall the Company
be liable for any failure to deliver shares of Option Stock because such shares
have not been registered or because a registration statement with respect
thereto is not current or because such delivery would otherwise be in violation
of any applicable law or regulation.
In no event shall the Company be required to issue fractional shares
of Option Stock, and this option shall not be exercisable except in respect of
whole shares of Option Stock.
5. Adjustments. If there should be any change in the Option Stock,
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through merger, consolidation, reorganization, recapitalization,
reincorporation, stock split, reverse stock split, stock dividend, or other
change in the corporate structure of the Company, an appropriate and
proportionate adjustment shall be made by the Company in the number and/or type
of the Option Stock and in the Option Price in order to preserve, but not
increase, the benefit to Optionee. The grant of this option shall not affect in
any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or to sell or
transfer all or any part of its business or assets. Anything herein contained
to the contrary notwithstanding, (a) upon dissolution or liquidation of the
Company, other than in connection with a reorganization, merger, or
consolidation of the Company with one or more entities as a result of which the
Company is not the surviving entity or as a result of which the outstanding
shares of Common Stock are exchanged or converted into cash or property or
securities not issued by the Company, or upon a sale of all or substantially all
the property of the Company (an "Asset Sale") or the acquisition, in one
transaction, by another entity or person or persons acting in concert of
securities of the Company representing more than 80% of the voting power of the
then outstanding securities of the Company (a "Stock Sale"), or (b) upon
dissolution or liquidation of the Company, in connection with such a
reorganization, merger, consolidation, Asset Sale or Stock Sale where the
surviving or acquiring corporation does not, prior to or concurrent with the
succession to the business of the Company, assume this option (subject to any
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code")), or replace this option with a new option of comparable value, this
option, in either case, shall terminate and thereupon become null and void.
Notwithstanding the foregoing, if the surviving or acquiring corporation does
not assume this option, Optionee shall have the right, during the period
following adoption by the Board of the plan of, or agreement with respect to,
such dissolution, liquidation, reorganization, merger, consolidation, Asset Sale
or Stock Sale and prior to or concurrently with consummation of such plan or
agreement (or such date not more than 20 days prior thereto as is specified by
the Board), to exercise this option in full, notwithstanding the vesting
provisions of Section 2 hereof.
6. Assignment or Transfer.
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6.1. Restrictions on Assignability and Transferability.
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(a) This option shall, during Optionee's lifetime, be exercisable
only by him or her, and neither this option nor any right hereunder shall be
transferable by Optionee otherwise than by will or the laws of descent and
distribution. In the event of any attempt by Optionee to alienate, assign,
pledge, hypothecate, or otherwise dispose of this option or of any right
hereunder except as provided for herein, or in the event of the levy of any
attachment, execution, or similar process upon the rights or interest hereby
conferred, this option shall thereupon become null and void and of no effect.
Under such rules and regulations as the Board or the Committee may establish
pursuant to the terms of the Plan, a beneficiary may be designated with respect
to this option in the event of
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the death of Optionee. If the estate of Optionee is the beneficiary with respect
to this option, any rights with respect to this option may be transferred to the
person or entity (including a trust) entitled thereto under the will of Optionee
or pursuant to the laws of descent and distribution.
(b) The shares of Option Stock issued upon exercise of this
option shall not be transferred except upon compliance with the provisions of
the Securities Act, the Articles of Incorporation of the Company, as amended
from time to time (the "Articles") and this Agreement, and any attempted
transfer other than in accordance with the terms hereof and the Articles is void
ab initio and transfers no right, title or interest in or to such shares of
- -- ------
Option Stock, whether now owned or hereafter acquired, to the purported
transferee, buyer, donee, assignee or encumbrance holder. Optionee agrees that
he or she will not transfer any shares of Option Stock without the prior
approval of the Company until the earlier of January 16, 2006 or the occurrence
of a Triggering Event.
6.2. Notice of Proposed Transfers; Securities Law Compliance. Prior
-------------------------------------------------------
to any proposed transfer permitted under Section 6.1 hereof of any shares of
Option Stock, unless there is in effect a registration statement under the
Securities Act covering the proposed transfer, Optionee shall give written
notice to the Company of Optionee's intention to effect such transfer. Each
such notice shall describe the manner and circumstances of the proposed transfer
in sufficient detail, and shall be accompanied by either (i) a written opinion
of legal counsel who shall be reasonably satisfactory to the Company addressed
to the Company and reasonably satisfactory in form and substance to the
Company's counsel, to the effect that the proposed transfer may be effected
without registration under the Securities Act, (ii) a "no action" letter from
the staff of the Securities and Exchange Commission or any other federal agency
at the time administering the Securities Act (the "Commission") to the effect
that the distribution of such Option Stock without registration will not result
in recommendation by the staff of the Commission that action be taken with
respect thereto, or (iii) such other showing that may be reasonably satisfactory
to legal counsel to the Company, whereupon the holder of such Option Stock shall
be entitled to transfer such Option Stock in accordance with the terms of the
notice delivered by the holder to the Company. Notwithstanding the foregoing,
the requirements of clauses (i), (ii), or (iii) above need not be satisfied with
respect to transactions in compliance with either Rule 144 under the Securities
Act ("Rule 144") or Rule 701 under the Securities Act ("Rule 701"), so long as
the Company is furnished with satisfactory evidence of compliance with either of
these Rules.
6.3. Permitted Transfers. Subject to compliance with the provisions
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of Section 6.2 hereof, if applicable, the following transfers of shares of
Option Stock may be made: (i) transfers pursuant to Rule 144 or Rule 701; (ii)
transfers upon death of Optionee to Optionee's heirs, executors, administrators,
testamentary trustees, legatees or beneficiaries; (iii) transfers to the Company
upon termination of employment, pursuant to agreements permitting the Company to
make such repurchases approved by the Board; (iv) transfers pursuant to Sections
7 and/or 9 hereof; or, (v) subject to Section 6.2 hereof, transfers approved by
a majority of the Board who are not controlling, controlled by or under the
common control of the transferor; provided, however, that except for transfers
described in clauses (i), (iii) or (iv) of this Section 6.3, the transferee
shall agree in writing to be bound by the Articles and the terms of this
Agreement to the same extent as if such transferee were a party hereto and
subject to any conditions set forth below.
7. Tag-Along Rights.
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7.1. The Rights. If TPG or its affiliates (a "Selling Shareholder")
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negotiates or receives and elects to accept one or more bona fide offers to
purchase shares of Common Stock (a "Purchase Offer"), and such Selling
Shareholder, pursuant to the terms of the Amended and Restated Shareholders
Rights Agreement and Voting Agreement, dated as of January 16, 1996, by and
among the Company, TPG, TPGI, SEP, WEB and certain other investors (the
"Shareholders Agreement"), promptly notifies Optionee in writing of the terms
and conditions of such Purchase Offer and the number of shares of Common Stock
proposed for sale pursuant to the Purchase Offer (the "Tag-Along Rights
Notice"), Optionee shall have the right, exercisable upon written notice to the
Selling Shareholder within 10 days
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after the date of the Tag-Along Rights Notice (the "Tag-Along Exercise Period"),
to participate in accordance with the terms and conditions set forth in this
Section 7 in the Selling Shareholder's sale of Common Stock pursuant to the
specified terms and conditions of such Purchase Offer. To the extent Optionee
exercises such right of participation, the number of shares of Common Stock that
the Selling Shareholder may sell pursuant to such Purchase Offer shall be
correspondingly reduced. The right of participation shall be subject to the
following terms and conditions:
(a) Participation shall be limited to Class B Common Stock. If a
Selling Shareholder is selling securities other than Class B Common Stock.
Optionee may not participate except with the consent of the Selling Shareholder.
(b) Optionee may sell all or any part of that number of shares of
Option Stock purchased upon exercise of this option and owned by Optionee that
is not in excess of the product obtained by multiplying (i) the number of shares
of Class B Common Stock covered by the Purchase Offer that the Selling
Shareholder may sell by (ii) a fraction, the numerator of which is the number of
shares of Option Stock at the time owned by Optionee, and the denominator of
which is the total number of shares of Class B Common Stock then outstanding on
a fully diluted basis.
7.2. Procedures.
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(a) During the Tag-Along Exercise Period, Optionee may effect
his, her or its participation in the sale by delivering to the Selling
Shareholder for transfer to the maker(s) of the Purchase Offer (the "Purchaser")
, with a copy to the Company, one or more stock certificates, properly endorsed
for transfer, accompanied by a written election to participate in the sale with
respect to a specified number of shares of Option Stock (the "Election Number"),
with the certificate or certificates so delivered representing at least the
Election Number of such shares.
(b) The stock certificate or certificates that Optionee delivers
pursuant to subsection (a) above shall be transferred by the Company to the
Purchaser in consummation of the sale of the applicable securities pursuant to
the terms and conditions specified in the Tag-Along Rights Notice to Optionee,
and the Company shall promptly thereafter remit to Optionee that portion of the
sale proceeds to which Optionee is entitled by reason of his or her
participation in such sale and any stock certificate or certificates
representing any remaining shares not sold in such sale.
7.3. Future Rights. The exercise or non-exercise of the rights of
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Optionee to participate in one or more sales of securities made by a Selling
Shareholder shall not adversely affect the rights of Optionee to participate in
subsequent sales by a Selling Shareholder pursuant to this Section 7.
7.4. Limits and Termination. The provisions of this Section 7 shall
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not pertain or apply to: (a) sales by a Selling Shareholder of not more than 5%
of his, her, or its Class B Common Stock; (b) transfers made in accordance with
the provisions of Section 6.3 hereof; (c) sales in connection with a Qualified
IPO and (d) Change of Control Transactions, as defined in the Shareholders
Agreement, in which the rights provided in Section 6 of the Shareholders
Agreement are exercised. The provisions of this Section 7 shall cease to be of
any further force and effect upon the closing of a Qualified IPO.
7.5. No Additional Rights as a Shareholder. Neither Optionee nor any
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person entitled to exercise Optionee's rights in the event of his or her death
shall have any of the rights of a shareholder with respect to the Option Stock
except to the extent the certificates for the Option Stock, or a portion
thereof, shall have issued upon the exercise of this option.
8. Bring-Along Rights. The terms and provisions of Section 6 of the
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Shareholders Agreement are incorporated herein by reference as if set forth in
--
haec verba. Optionee agrees that he or
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she will vote his or her shares of Class B Common Stock in accordance with the
terms and provisions of Section 6 of the Shareholders Agreement, and take all
actions necessary to satisfy any and all obligations contemplated by Section 6
of the Shareholders Agreement.
9. Right of Repurchase.
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(a) In the event that any of the events specified in Section 9(b)
hereof occur, then, with respect to any of the Option Stock acquired upon
exercise of this option prior to the occurrence of such event, within 90 days
following the occurrence of such event, and, with respect to any of the Option
Stock acquired upon exercise of this option pursuant to Section 3 hereof after
occurrence of such event, within 90 days following the date of such exercise,
(in either case, the "Repurchase Period"), the Company shall have the option,
but not the obligation, to repurchase all, but not a portion of, such Option
Stock from Optionee, or his or her legal representative, as the case may be, at
a price equal to the Fair Market Value of such shares (the "Repurchase
Option"). The Repurchase Option shall be exercised by the Company giving
Optionee, or his or her legal representative, written notice of its intention to
exercise the Repurchase Option on or before the last day of the Repurchase
Period. The Company may, in exercising the Repurchase Option, designate one or
more nominees to purchase the Option Stock, either with or without the
participation of the Company.
(b)
(1) The receivership, bankruptcy or other creditor's
proceeding regarding Optionee or the taking of any of the Option Stock by legal
process, such as a levy of execution, whether or not Optionee is employed by the
Company or any Parent or Subsidiary of the Company. The Repurchase Period shall
commence on the date the Company receives actual notice of the commencement of
pendency of the receivership, bankruptcy or other creditor's proceeding or the
date of such taking, as the case may be. The Fair Market Value of the Option
Stock shall be determined as of the last day of the month preceding the month in
which the proceeding involved commenced or the taking occurred;
(2) Distribution of any of the Option Stock by Optionee to
his or her spouse as such spouse's joint or community interest pursuant to a
decree of dissolution, property settlement agreement or for any other reason,
except as may be otherwise permitted by the Company, whether or not Optionee is
employed by the Company or any Parent or Subsidiary of the Company. The
Repurchase Period shall be deemed to commence on the day the Company receives
actual notice of such distribution. The Fair Market Value of the Option Stock
shall be determined as of the last day of the month preceding the month in which
the decree, agreement or, if there is no decree or agreement, the distribution
occurs; or
(3) Optionee voluntarily terminates his or her employment
with the Company (whether by resignation, retirement or otherwise) or is
terminated for Cause.
(c) The Repurchase Option shall terminate upon the occurrence of
a Triggering Event.
10. Effect of Tender of Purchase Price. Notwithstanding the failure
----------------------------------
of the holder of any stock certificate evidencing all or any part of the Option
Stock to deliver the same to the Company for cancellation, and upon tender by
the Company or its nominee of the purchase price for any of the Option Stock in
accordance with the terms of this Agreement, such Option Stock and the
certificates representing same shall forthwith and without further action be
deemed to be canceled and forfeited.
11. Restrictions on Transfer. Except as otherwise may be permitted
------------------------
by this Agreement, Optionee shall not sell, transfer (by gift or otherwise),
assign, hypothecate, pledge, grant a security interest in, or in any other way
dispose of or alienate this option or any shares of Option
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Stock, and any attempt to effect any such transaction shall be null and void ab
--
initio and of no force and effect.
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12. Legends and Termination of Rights. All share certificates
---------------------------------
representing the Option Stock shall bear a legend or legends revealing the
existence of the restrictions imposed by this Agreement. The provisions of
Section 8f shall cease to be applicable to the Option Stock at such time as the
Common Stock is listed on any national stock exchange or the NASDAQ National
Market System.
13. Effect of Certain Actions. In the event that (i) shares of
-------------------------
Option Stock are exchanged for or changed into any different class or series of
securities issued by the Company or any other corporation as the result of any
merger, consolidation, or sale of assets followed by liquidation,
reclassification or reorganization, or (ii) any additional shares of Common
Stock or any other securities shall be distributed with respect to the Option
Stock as a stock dividend, stock split, partial liquidation or dividend, then
all such securities shall be subject to the terms and provisions of Sections 7,
8 and 9 hereof and shall be deemed to be included in the term "Option Stock" as
used herein. As used herein, the term "Company" shall include any other
corporation which shall succeed to substantially all of the business and assets
of the Company as the result of any merger, consolidation, sale of assets, or
reorganization.
14. Optionee's Employment Obligations. Optionee agrees that, during
---------------------------------
the period of his or her employment by the Company, a Parent or a Subsidiary, he
or she shall faithfully and to the best of his or her ability devote his or her
time, energy or skill to the service of the Company, Parent or Subsidiary, and
to the promotion of its interests, subject to vacations, military service leave,
sick leave and other bona fide absences in accordance with the regular policies
and practices of, or any written agreement between Optionee and, the Company,
Parent or Subsidiary which employs Optionee. Subject to any contrary terms of
any written employment contract, the Company, the Parent or the Subsidiary which
employs Optionee shall have the right to terminate or change the terms of
employment of Optionee at any time and for any reason whatsoever. Nothing
herein shall limit Optionee's right to terminate his or her employment.
15. Notices. All notices, consents, requests instructions, approvals
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and other communications under this Agreement shall be in writing and shall be
deemed to have been delivered (i) on the date indicated on the return receipt as
the date of delivery or refusal if mailed by registered or certified mail,
postage prepaid, return receipt requested, (ii) upon courier confirmation of
receipt if sent by overnight courier, (iii) when receipt is acknowledged when
sent or delivered by telex or facsimile, and (iv) upon delivery at the addresses
set forth below. A party may change its address for notice upon giving notice of
such change in accordance with the provisions of this Section 15.
16. Finality of Decisions. All decisions of the Board or the
---------------------
Committee upon any question arising under the Plan or under this Agreement shall
be final and binding.
17. Participation in Other Plans. Nothing herein contained shall
----------------------------
affect Optionee's right to participate in and receive benefits from and in
accordance with the then current provisions of any pension, insurance, or other
stock option or employment welfare plan or program of the Company.
18. Binding Effect of Agreement. Except as set forth in Section 5
---------------------------
hereof, this Agreement shall be binding upon and inure to the benefit of any
successors or assigns of the Company or Optionee.
19. Agreement Subject to Plan. This Agreement is entered into
-------------------------
pursuant to, and is subject to, the provisions of the Plan and it is intended to
and shall be interpreted in a manner which will comply therewith. In the event
of a conflict between any provision of this Agreement and the Plan, the
provisions of the Plan shall govern. Capitalized terms not otherwise defined
herein shall have the meanings given them in the Plan.
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20. Governing Law. The interpretation, performance and enforcement
-------------
of this Agreement shall be governed by the laws of the State of California.
21. Tax Information and Notice of Disqualifying Disposition. This
-------------------------------------------------------
option is intended to be eligible for treatment as an Incentive Stock Option
under Section 422 of the Code. Whether this option will receive such tax
treatment will depend, in part, on actions by Optionee after exercise of this
option. For example, if Optionee does not exercise this option within 30 days
of termination of Optionee's employment, other than as a result of Optionee's
death or disability, or within one year of termination of Optionee's employment
as a result of Optionee's disability, Optionee may lose the benefits of Section
422. In addition, if Optionee disposes of any of the Option Stock within two
years after the date of grant of this option or within one year of the date of
exercise of this option with respect to such shares, Optionee may lose the
benefits of Section 422. Other factors not discussed herein may also affect the
tax consequences of this transaction. Accordingly, the Company makes no
representations by way of the Plan, this Agreement, or otherwise, with respect
to the actual tax effect of the grant or exercise of this option or the
subsequent disposition, including, without limitation, repurchase by the Company
or its nominee pursuant to Section 8 hereof, of any of the Option Stock.
If Optionee sells or makes a disposition (within the meaning of
Section 422 of the Code) of any of the Option Stock acquired pursuant to
exercise of this option prior to the later of (a) one year from the date such
Option Stock was acquired, or (b) two years from the Date of Grant of this
option, Optionee agrees to give written notice to the Company of such
disposition. The notice shall include Optionee's name, the number, exercise
price and exercise date of the shares disposed of, and the date of disposition.
22. Withholding Taxes. By accepting this option, Optionee, for
-----------------
himself or herself and his or her transferees by will or the laws of descent and
distribution, agrees that whenever shares of Option Stock are to be issued by
reason of the exercise of this option, Optionee or such other person who is to
receive such Option Stock will, if requested by the Company, remit to the
Company, prior to the delivery of any certificate or certificates for such
shares, all or any part of an amount in cash determined by the Company in its
discretion to be sufficient to satisfy federal, state and local withholding tax
requirements which the Company, or its counsel, determine may be payable with
respect to such exercise. At the discretion of the Board or Committee, payment
of withholding taxes may be made by delivery of Common Stock or Options (valued
at their respective Fair Market Values on the date of delivery) to the Company.
9
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed on its behalf, and Optionee has heretofore set his or her hand,
effective the day and year first above written, which is the date of grant of
this option.
SILVERADO PARTNERS ACQUISITION CORP.
By:
-----------------------------
Title:
--------------------------
OPTIONEE
--------------------------------
Address:
------------------------
--------------------------------
10
<PAGE>
Exhibit 10.3
NON-QUALIFIED STOCK OPTION AGREEMENT
UNDER THE
SILVERADO PARTNERS ACQUISITION CORP.
1996 STOCK OPTION PLAN (GROUP A)
This Non-Qualified Stock Option Agreement (the "Agreement"), is made
as of __________, 1996 , by and between Silverado Partners Acquisition Corp., a
California close corporation (the "Company"), and ___________________________
("Optionee").
Recitals
WHEREAS, the Company has adopted the 1996 Stock Option Plan (the
"Plan"), which Plan is incorporated herein by reference and made a part of this
Agreement; and
WHEREAS, Optionee is an employee of the Company, a Parent or a
Subsidiary, as defined in the Plan, and the Company has determined that it would
be to the advantage and interest of the Company and its shareholders to grant
the option provided for herein to Optionee under the Plan as an inducement to
remain in the service of the Company, a Parent or a Subsidiary and as an
incentive for increased efforts during such service.
Agreement
NOW, THEREFORE, in consideration of the foregoing recitals, and the
terms, conditions, and covenants contained herein, the parties hereto hereby
agree as follows:
1. Grant of Option. The Company hereby grants to Optionee the right
---------------
and option to purchase, on the terms and conditions hereinafter set forth, all
or any part of an aggregate of ______ shares of the presently authorized but
unissued shares of Class B Common Stock of the Company (the "Option Stock") .
The purchase price shall be $10.00 per share (the "Option Price"). The Option
Price in no event is less than 85% of the per share Fair Market Value of the
Option Stock as of the date hereof. The number of shares subject to this option
and the Option Price are subject to adjustment under certain circumstances, as
provided in the Plan.
For purposes of this Agreement, the "Fair Market Value" of the Option
Stock shall be determined in the following manner: (i) if the Common Stock of
the Company (the "Common Stock") is publicly traded, Fair Market Value shall be
on any date the average of the closing bid and asked price quotation for the
Common Stock on that date (or if none on that date, on the next most recent date
on which the Common Stock was traded) as reported in the Wall Street Journal if
--------------------
the Common Stock is traded on NASDAQ, or, if the Common Stock is traded on the
NASDAQ National Market System or listed on any stock exchange, Fair Market
Value shall be closing sale price on the relevant date as reported in the Wall
----
Street Journal (or if there are no sales for such date, then for the last
- ---------------
preceding business day on which there were sales); (ii) if the Common Stock
is not publicly traded, Fair Market Value shall be an amount per share
determined on the basis of the price at which shares of the Common Stock could
reasonably be expected to be sold in an arms-length transaction, for cash, other
than on an installment basis, to a person not employed by, controlled by, in
control of or under common control with the Company. This determination shall
be made by the Board of Directors of the Company (the "Board"), giving due
consideration to recent transactions involving shares of the Common Stock, if
any, earnings
<PAGE>
of the Company to the date of such determination, the effect of the transfer
restrictions to which the Option Stock are subject under law and this Plan, the
absence of a public market for the Common Stock, and such other matters as the
Board deems pertinent. This determination shall, if reasonable, be conclusive
and binding notwithstanding the possibility that other persons might reach a
different, and also reasonable, determination.
2. Term and Exercisability of Option. This option shall become
---------------------------------
exercisable in installments such that one-third of the option shall become
exercisable on the first, second and third anniversaries, respectively, of the
date hereof.
The term "Vested Option Shares" as used herein shall refer to the
portion of this option that has become exercisable in accordance with the
preceding sentence but has not yet been exercised. To the extent not exercised,
all Vested Option Shares shall accumulate and be exercisable, in whole or in
part, in any subsequent installment period but in no event later than the tenth
anniversary of the date of this Agreement (hereinafter referred to as the
"Termination Date").
Upon the closing of a sale, in one or more transactions, by TPG
Partners, L.P., a Delaware limited partnership ("TPG"), of at least fifty-one
percent (51%) of the aggregate shares of Class A Common Stock and Class B
Common Stock purchased by TPG pursuant to that certain Subscription Agreement,
dated as of December 29, 1995, as amended as of January 16, 1996, by and among
the Company, TPG, TPG Parallel I, L.P., a Delaware limited partnership,
("TPGI"), Silverado Equity Partners, L.P., a Delaware limited partnership
("SEP"), Wine World Equity Partners, L.P., a Delaware limited partnership
("WEP"), and certain other investors, whether the sale is made through a public
offering or by private sale to a third party (such sale constituting a
"Triggering Event"), any and all portions of this option that have not vested at
the time of the Triggering Event immediately will become Vested Option Shares.
3. Expiration of Option. The period for exercising this option (the
--------------------
"Option Period") will end on the Termination Date; provided, however, that:
(a) if Optionee ceases to be a bona fide employee of the Company,
a Parent or a Subsidiary (other than by death, disability or termination for
Cause, as defined below) during the Option Period, this option shall thereafter
be exercisable prior to the Termination Date or for 30 days after the
termination of Optionee's employment, whichever shall first occur, and this
option shall then be exercisable only to the extent that it was exercisable
under the provisions of Section 2 hereof at the time of such cessation of
employment. If Optionee is absent from work with the Company, a Parent or a
Subsidiary because of his or her disability or if he or she is on leave of
absence for the purpose of serving the government of the country in which the
principal place of employment of Optionee is located, either in a military or
civilian capacity, or for such other purpose or reason as the Board or the
Committee administering the Plan (the "Committee") may approve, Optionee shall
not be deemed during the period of any such absences by virtue of such absence
alone, to have terminated his or her employment with the Company, a Parent or a
Subsidiary, except as the Board or the Committee may otherwise expressly
provide; and
(b) if Optionee has become disabled while employed by the Company,
a Parent or a Subsidiary, prior to the Termination Date or for six months after
termination of Optionee's employment, whichever shall first occur, this option
shall thereafter be exercisable prior to the Termination Date or for six months
after the termination of Optionee's employment, whichever shall first occur, and
this option shall then be exercisable only to the extent that it was exercisable
under the provisions of Section 2 hereof at the time of such cessation of
employment; and,
(c) if Optionee should die while in the employ of the Company, a
Parent or a Subsidiary, or within the exercise periods or periods of absence
described in subsections (a) and (b)
2
<PAGE>
above, this option may, within a period of one year from the date of Optionee's
death, be exercised by Optionee's legal representative, or by the person or
persons to whom Optionee's right, under this option shall pass by will or by the
applicable laws of descent and distribution, but only if, and to the extent,
this option was exercisable by Optionee under the provisions of Section 2 hereof
at the time of his or her death and only prior to the Termination Date; and
(d) if Optionee's employment with the Company, a Parent or a
Subsidiary is terminated for Cause, the Option shall terminate immediately upon
termination of employment, notwithstanding subsections (a), (b) and (c) above.
Employment shall be deemed terminated for Cause if Optionee is determined by the
Board to have willfully breached his or her duty in the course of employment or
association or to have committed an act of embezzlement, fraud, dishonesty or
deliberate disregard of the rules of the Company, a Parent or a Subsidiary or
engaged in any conduct which constitutes unfair competition with the Company, a
Parent or a Subsidiary.
4. Manner of Exercise. This option may be exercised as to Vested
------------------
Option Shares (i) once per year during the one-month period from December 15 to
January 15, (ii) following or in connection with a Triggering Event, (iii) as
provided in Section 5 hereof or (iv) to the extent of participation in a sale
pursuant to Section 7 hereof. Optionee may exercise this option with respect to
all or any part of the Option Stock then subject to such exercise as follows:
(a) by giving the Company written notice of such exercise
specifying the number of shares of Option Stock as to which this option is so
exercised and (i) by delivering an amount equal to the aggregate Option Price of
such Option Stock in the form of cash or a check, bank draft, or postal or
express money order payable to the order of the Company in lawful money of the
United States, or, (ii) if the Board or Committee, in its sole discretion,
consents thereto, by delivering a promissory note in such form and bearing such
rate of interest and term as the Board or the Committee shall, in its
discretion, establish, or, (iii) if the closing of a sale by the Company of
Common Stock in an underwritten (firm commitment) public offering registered
under the Securities Act of 1933, as amended (the "Securities Act"), has
occurred, with gross proceeds to the Company of not less than $50 million,
resulting in the listing of the Common Stock on a nationally recognized stock
exchange, including without limitation, the NASDAQ National Market System (such
a sale being a "Qualified IPO"), by delivering shares of Class B Common Stock
previously acquired by Optionee and/or options, with any shares of Class B
Common Stock and/or options so delivered being valued at their respective Fair
Market Values on the date of exercise less, in the case of options, the exercise
price thereof; and
(b) if required by the Company, by giving satisfactory assurance
in writing, signed by Optionee or his or her legal representative, as the case
may be, that such shares are being purchased for investment only and not with a
view to the distribution thereof; provided, however, that such assurance shall
be deemed inapplicable to (i) any sale of such shares by Optionee subject to a
registration statement covering such sale, which has heretofore been (or may
hereafter be) filed and become effective under the Securities Act, and is
current and with respect to which no stop order suspending the effectiveness
thereof has been issued, and (ii) any other sale of such shares with respect to
which, in the opinion of counsel for the Company, such assurance is not required
to be given in order to comply with the provisions of the Securities Act; and
As soon as practicable after receipt of such written notice of
exercise from Optionee, the Company shall, without transfer or issue tax or
other incidental expenses to Optionee, deliver to Optionee at the office of the
Company, or such other place as may be mutually acceptable to the Company and
Optionee, a certificate or certificates for such shares, which certificate or
certificates may bear such legend or legends with respect to restriction or
transfer thereof as counsel for the Company deems to be required by applicable
provisions of law and this Agreement; provided, however, that nothing herein
shall be deemed to impose upon the Company any obligation to deliver any shares
of Option Stock to Optionee if, in the opinion of counsel for the Company doing
so would violate any provision of:
3
<PAGE>
(i) the Securities Act; (ii) the Securities Exchange Act of 1934, as amended
(the "Exchange Act"); (iii) any applicable listing requirements of any national
securities exchange; (iv) any state securities regulation or "Blue Sky" law; or
(v) requirements under any other law or regulation applicable to the issuance or
transfer of such shares. In no event shall the Company be required to take any
affirmative action to comply with any of such laws, regulations or requirements,
nor shall the Company be liable for any failure to deliver shares of Option
Stock because such shares have not been registered or because a registration
statement with respect thereto is not current or because such delivery would
otherwise be in violation of any applicable law or regulation.
In no event shall the Company be required to issue fractional shares
of Option Stock, and this option shall not be exercisable except in respect of
whole shares of Option Stock.
5. Adjustments. If there should be any change in the Option Stock,
-----------
through merger, consolidation, reorganization, recapitalization,
reincorporation, stock split, reverse stock split, stock dividend, or other
change in the corporate structure of the Company, an appropriate and
proportionate adjustment shall be made by the Company in the number and/or type
of the Option Stock and in the Option Price in order to preserve, but not
increase, the benefit to Optionee. The grant of this option shall not affect in
any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or to sell or
transfer all or any part of its business or assets. Anything herein contained
to the contrary notwithstanding, (a) upon dissolution or liquidation of the
Company, other than in connection with a reorganization, merger, or
consolidation of the Company with one or more entities as a result of which the
Company is not the surviving entity or as a result of which the outstanding
shares of Common Stock are exchanged or converted into cash or property or
securities not issued by the Company, or upon a sale of all or substantially all
the property of the Company (an "Asset Sale") or the acquisition, in one
transaction, by another entity or person or persons acting in concert of
securities of the Company representing more than 80% of the voting power of the
then outstanding securities of the Company (a "Stock Sale"), or (b) upon
dissolution or liquidation of the Company, in connection with such a
reorganization, merger, consolidation, Asset Sale or Stock Sale where the
surviving or acquiring corporation does not, prior to or concurrent with the
succession to the business of the Company, assume this option (subject to any
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code")), or replace this option with a new option of comparable value, this
option, in either case, shall terminate and thereupon become null and void.
Notwithstanding the foregoing, if the surviving or acquiring corporation does
not assume this option, Optionee shall have the right, during the period
following adoption by the Board of the plan of, or agreement with respect to,
such dissolution, liquidation, reorganization, merger, consolidation, Asset Sale
or Stock Sale and prior to or concurrently with consummation of such plan or
agreement (or such date not more than 20 days prior thereto as is specified by
the Board), to exercise this option in full, notwithstanding the vesting
provisions of Section 2 hereof.
6. Assignment or Transfer.
----------------------
6.1. Restrictions on Assignability and Transferability.
-------------------------------------------------
(a) This option shall, during Optionee's lifetime, be
exercisable only by him or her, and neither this option nor any right hereunder
shall be transferable by Optionee otherwise than by will or the laws of descent
and distribution. In the event of any attempt by Optionee to alienate, assign,
pledge, hypothecate, or otherwise dispose of this option or of any right
hereunder except as provided for herein, or in the event of the levy of any
attachment, execution, or similar process upon the rights or interest hereby
conferred, this option shall thereupon become null and void and of no effect.
Under such rules and regulations as the Board or the Committee may establish
pursuant to the terms of the Plan, a beneficiary may be designated with respect
to this option in the event of the death of Optionee. If the estate of Optionee
is the beneficiary with respect to this option, any
4
<PAGE>
rights with respect to this option may be transferred to the person or entity
(including a trust) entitled thereto under the will of Optionee or pursuant to
the laws of descent and distribution.
(b) The shares of Option Stock issued upon exercise of this
option shall not be transferred except upon compliance with the provisions of
the Securities Act, the Articles of Incorporation of the Company, as amended
from time to time (the "Articles") and this Agreement, and any attempted
transfer other than in accordance with the terms hereof and the Articles is void
ab initio and transfers no right, title or interest in or to such shares of
- -- ------
Option Stock, whether now owned or hereafter acquired, to the purported
transferee, buyer, donee, assignee or encumbrance holder. Optionee agrees that
he or she will not transfer any shares of Option Stock without the prior
approval of the Company until the earlier of January 16, 2006 or the occurrence
of a Triggering Event.
6.2. Notice of Proposed Transfers; Securities Law Compliance. Prior
-------------------------------------------------------
to any proposed transfer permitted under Section 6.1 hereof of any shares of
Option Stock, unless there is in effect a registration statement under the
Securities Act covering the proposed transfer, Optionee shall give written
notice to the Company of Optionee's intention to effect such transfer. Each
such notice shall describe the manner and circumstances of the proposed transfer
in sufficient detail, and shall be accompanied by either (i) a written opinion
of legal counsel who shall be reasonably satisfactory to the Company addressed
to the Company and reasonably satisfactory in form and substance to the
Company's counsel, to the effect that the proposed transfer may be effected
without registration under the Securities Act, (ii) a "no action" letter from
the staff of the Securities and Exchange Commission or any other federal agency
at the time administering the Securities Act (the "Commission") to the effect
that the distribution of such Option Stock without registration will not result
in recommendation by the staff of the Commission that action be taken with
respect thereto, or (iii) such other showing that may be reasonably satisfactory
to legal counsel to the Company, whereupon the holder of such Option Stock shall
be entitled to transfer such Option Stock in accordance with the terms of the
notice delivered by the holder to the Company. Notwithstanding the foregoing,
the requirements of clauses (i), (ii), or (iii) above need not be satisfied with
respect to transactions in compliance with either Rule 144 under the Securities
Act ("Rule 144") or Rule 701 under the Securities Act ("Rule 701"), so long as
the Company is furnished with satisfactory evidence of compliance with either of
these Rules.
6.3. Permitted Transfers. Subject to compliance with the provisions
-------------------
of Section 6.2 hereof, if applicable, the following transfers of shares of
Option Stock may be made: (i) transfers pursuant to Rule 144 or Rule 701; (ii)
transfers upon death of Optionee to Optionee's heirs, executors, administrators,
testamentary trustees, legatees or beneficiaries; (iii) transfers to the Company
upon termination of employment, pursuant to agreements permitting the Company to
make such repurchases approved by the Board; (iv) transfers pursuant to Sections
7 and/or 9 hereof; or, (v) subject to Section 6.2 hereof, transfers approved by
a majority of the Board who are not controlling, controlled by or under the
common control of the transferor; provided, however, that except for transfers
described in clauses (i), (iii) or (iv) of this Section 6.3, the transferee
shall agree in writing to be bound by the Articles and the terms of this
Agreement to the same extent as if such transferee were a party hereto and
subject to any conditions set forth below.
7. Tag-Along Rights.
----------------
7.1. The Rights. If any Shareholder of the Company (a "Selling
----------
Shareholder") negotiates or receives and elects to accept one or more bona fide
offers to purchase shares of Common Stock (a "Purchase Offer"), and such Selling
Shareholder, pursuant to the terms of the Amended and Restated Shareholders
Rights Agreement and Voting Agreement, dated as of January 16, 1996, by and
among the Company, TPG, TPGI, SEP, WEP and certain other investors (the
"Shareholders Agreement"), promptly notifies Optionee in writing of the terms
and conditions of such Purchase Offer and the number of shares of Common Stock
proposed for sale pursuant to the Purchase Offer (the "Tag-Along Rights
Notice"), Optionee shall have the right, exercisable upon written notice to the
Selling Shareholder within 10 days after the date of the Tag-Along Rights Notice
(the "Tag-Along Exercise Period"), to participate in
5
<PAGE>
accordance with the terms and conditions set forth in this Section 7 in the
Selling Shareholder's sale of Common Stock pursuant to the specified terms and
conditions of such Purchase Offer. To the extent Optionee exercises such right
of participation, the number of shares of Common Stock that the Selling
Shareholder may sell pursuant to such Purchase Offer shall be correspondingly
reduced. The right of participation shall be subject to the following terms and
conditions:
(a) Participation shall be limited to Class B Common Stock. If a
Selling Shareholder is selling securities other than Class B Common Stock.
Optionee may not participate except with the consent of the Selling Shareholder.
(b) Optionee may sell all or any part of that number of shares
of Option Stock purchased upon exercise of this option and owned by Optionee
that is not in excess of the product obtained by multiplying (i) the number of
shares of Class B Common Stock covered by the Purchase Offer that the Selling
Shareholder may sell by (ii) a fraction, the numerator of which is the number of
shares of Option Stock at the time owned by Optionee, and the denominator of
which is the total number of shares of Class B Common Stock then outstanding on
a fully diluted basis.
6
<PAGE>
7.2. Procedures.
----------
(a) During the Tag-Along Exercise Period, Optionee may effect
his, her or its participation in the sale by delivering to the Selling
Shareholder for transfer to the maker(s) of the Purchase Offer (the "Purchaser")
, with a copy to the Company, one or more stock certificates, properly endorsed
for transfer, accompanied by a written election to participate in the sale with
respect to a specified number of shares of Option Stock (the "Election Number"),
with the certificate or certificates so delivered representing at least the
Election Number of such shares.
(b) The stock certificate or certificates that Optionee delivers
pursuant to subsection (a) above shall be transferred by the Company to the
Purchaser in consummation of the sale of the applicable securities pursuant to
the terms and conditions specified in the Tag-Along Rights Notice to Optionee,
and the Company shall promptly thereafter remit to Optionee that portion of the
sale proceeds to which Optionee is entitled by reason of his or her
participation in such sale and any stock certificate or certificates
representing any remaining shares not sold in such sale.
7.3. Future Rights. The exercise or non-exercise of the rights of
-------------
Optionee to participate in one or more sales of securities made by a Selling
Shareholder shall not adversely affect the rights of Optionee to participate in
subsequent sales by a Selling Shareholder pursuant to this Section 7.
7.4. Limits and Termination. The provisions of this Section 7 shall
----------------------
not pertain or apply to: (a) sales by a Selling Shareholder of not more than 5%
of his, her, or its Class B Common Stock; (b) transfers made in accordance with
the provisions of Section 6.3 hereof; (c) sales in connection with a Qualified
IPO and (d) Change of Control Transactions, as defined in the Shareholders
Agreement, in which the rights provided in Section 6 of the Shareholders
Agreement are exercised. The provisions of this Section 7 shall cease to be of
any further force and effect upon the closing of a Qualified IPO.
7.5. No Additional Rights as a Shareholder. Neither Optionee nor any
-------------------------------------
person entitled to exercise Optionee's rights in the event of his or her death
shall have any of the rights of a shareholder with respect to the Option Stock
except to the extent the certificates for the Option Stock, or a portion
thereof, shall have issued upon the exercise of this option.
8. Bring-Along Rights. The terms and provisions of Section 6 of
------------------
the Shareholders Agreement are incorporated herein by reference as if set forth
in haec verba. Optionee agrees that he or she will vote his or her shares of
- -- ---- -----
Class B Common Stock in accordance with the terms and provisions of Section 6 of
the Shareholders Agreement, and take all actions necessary to satisfy any and
all obligations contemplated by Section 6 of the Shareholders Agreement.
9. Right of Repurchase.
-------------------
(a) In the event that any of the events specified in Section 9(b)
hereof occur, then, with respect to any of the Option Stock acquired upon
exercise of this option prior to the occurrence of such event, within 90 days
following the occurrence of such event, and, with respect to any of the Option
Stock acquired upon exercise of this option pursuant to Section 3 hereof after
occurrence of such event, within 90 days following the date of such exercise,
(in either case, the "Repurchase Period"), the Company shall have the option,
but not the obligation, to repurchase all, but not a portion of, such Option
Stock from Optionee, or his or her legal representative, as the case may be, at
a price equal to the Fair Market Value of such shares (the "Repurchase
Option"). The Repurchase Option shall be exercised by the Company giving
Optionee, or his or her legal representative, written notice of its intention to
exercise the Repurchase Option on or before the last day of the Repurchase
Period. The Company may, in exercising the Repurchase Option, designate one or
more nominees to purchase the Option Stock, either with or without the
participation of the Company.
7
<PAGE>
(b) The Company shall have the Repurchase Option in the event
that any of the following occur:
(1) The receivership, bankruptcy or other creditor's
proceeding regarding Optionee or the taking of any of the Option Stock by legal
process, such as a levy of execution, whether or not Optionee is employed by the
Company or any Parent or Subsidiary of the Company. The Repurchase Period shall
commence on the date the Company receives actual notice of the commencement of
pendency of the receivership, bankruptcy or other creditor's proceeding or the
date of such taking, as the case may be. The Fair Market Value of the Option
Stock shall be determined as of the last day of the month preceding the month in
which the proceeding involved commenced or the taking occurred;
(2) Distribution of any of the Option Stock by Optionee to
his or her spouse as such spouse's joint or community interest pursuant to a
decree of dissolution, property settlement agreement or for any other reason,
except as may be otherwise permitted by the Company, whether or not Optionee is
employed by the Company or any Parent or Subsidiary of the Company. The
Repurchase Period shall be deemed to commence on the day the Company receives
actual notice of such distribution. The Fair Market Value of the Option Stock
shall be determined as of the last day of the month preceding the month in which
the decree, agreement or, if there is no decree or agreement, the distribution
occurs; or
(3) Optionee voluntarily terminates his or her employment
with the Company (whether by resignation, retirement or otherwise) or is
terminated for Cause.
(c) The Repurchase Option shall terminate upon the occurrence of
a Triggering Event.
10. Effect of Tender of Purchase Price. Notwithstanding the failure
----------------------------------
of the holder of any stock certificate evidencing all or any part of the Option
Stock to deliver the same to the Company for cancellation, and upon tender by
the Company or its nominee of the purchase price for any of the Option Stock in
accordance with the terms of this Agreement, such Option Stock and the
certificates representing same shall forthwith and without further action be
deemed to be canceled and forfeited.
11. Restrictions on Transfer. Except as otherwise may be permitted
------------------------
by this Agreement, Optionee shall not sell, transfer (by gift or otherwise),
assign, hypothecate, pledge, grant a security interest in, or in any other way
dispose of or alienate this option or any shares of Option Stock, and any
attempt to effect any such transaction shall be null and void ab initio and of
-- ------
no force and effect.
12. Legends and Termination of Rights. All share certificates
---------------------------------
representing the Option Stock shall bear a legend or legends revealing the
existence of the restrictions imposed by this Agreement. The provisions of
Section 8f shall cease to be applicable to the Option Stock at such time as the
Common Stock is listed on any national stock exchange or the NASDAQ National
Market System.
13. Effect of Certain Actions. In the event that (i) shares of
-------------------------
Option Stock are exchanged for or changed into any different class or series of
securities issued by the Company or any other corporation as the result of any
merger, consolidation, or sale of assets followed by liquidation,
reclassification or reorganization, or (ii) any additional shares of Common
Stock or any other securities shall be distributed with respect to the Option
Stock as a stock dividend, stock split, partial liquidation or dividend, then
all such securities shall be subject to the terms and provisions of Sections 7,
8 and 9 hereof and shall be deemed to be included in the term "Option Stock" as
used herein. As used herein, the term "Company" shall include any other
corporation which shall succeed to substantially all of the business and assets
of the Company as the result of any merger, consolidation, sale of assets, or
reorganization.
8
<PAGE>
14. Optionee's Employment Obligations. Optionee agrees that, during
---------------------------------
the period of his or her employment by the Company, a Parent or a Subsidiary, he
or she shall faithfully and to the best of his or her ability devote his or her
time, energy or skill to the service of the Company, Parent or Subsidiary, and
to the promotion of its interests, subject to vacations, military service leave,
sick leave and other bona fide absences in accordance with the regular policies
and practices of, or any written agreement between Optionee and, the Company,
Parent or Subsidiary which employs Optionee. Subject to any contrary terms of
any written employment contract, the Company, the Parent or the Subsidiary which
employs Optionee shall have the right to terminate or change the terms of
employment of Optionee at any time and for any reason whatsoever. Nothing
herein shall limit Optionee's right to terminate his or her employment.
15. Notices. All notices, consents, requests instructions, approvals
-------
and other communications under this Agreement shall be in writing and shall be
deemed to have been delivered (i) on the date indicated on the return receipt as
the date of delivery or refusal if mailed by registered or certified mail,
postage prepaid, return receipt requested, (ii) upon courier confirmation of
receipt if sent by overnight courier, (iii) when receipt is acknowledged when
sent or delivered by telex or facsimile, and (iv) upon delivery at the addresses
set forth below. A party may change its address for notice upon giving notice of
such change in accordance with the provisions of this Section 15.
16. Finality of Decisions. All decisions of the Board or the
---------------------
Committee upon any question arising under the Plan or under this Agreement shall
be final and binding.
17. Participation in Other Plans. Nothing herein contained shall
----------------------------
affect Optionee's right to participate in and receive benefits from and in
accordance with the then current provisions of any pension, insurance, or other
stock option or employment welfare plan or program of the Company.
18. Binding Effect of Agreement. Except as set forth in Section 5
---------------------------
hereof, this Agreement shall be binding upon and inure to the benefit of any
successors or assigns of the Company or Optionee.
19. Agreement Subject to Plan. This Agreement is entered into
-------------------------
pursuant to, and is subject to, the provisions of the Plan and it is intended to
and shall be interpreted in a manner which will comply therewith. In the event
of a conflict between any provision of this Agreement and the Plan, the
provisions of the Plan shall govern. Capitalized terms not otherwise defined
herein shall have the meanings given them in the Plan.
20. Governing Law. The interpretation, performance and enforcement
-------------
of this Agreement shall be governed by the laws of the State of California.
21. Tax Information and Notice of Disqualifying Disposition. This
-------------------------------------------------------
option is intended to be eligible for treatment as an Incentive Stock Option
under Section 422 of the Code.
9
<PAGE>
22. Withholding Taxes. By accepting this option, Optionee, for
-----------------
himself or herself and his or her transferees by will or the laws of descent and
distribution, agrees that whenever shares of Option Stock are to be issued by
reason of the exercise of this option, Optionee or such other person who is to
receive such Option Stock will, if requested by the Company, remit to the
Company, prior to the delivery of any certificate or certificates for such
shares, all or any part of an amount in cash determined by the Company in its
discretion to be sufficient to satisfy federal, state and local withholding tax
requirements which the Company, or its counsel, determine may be payable with
respect to such exercise. At the discretion of the Board or Committee, payment
of withholding taxes may be made by delivery of Common Stock or Options (valued
at their respective Fair Market Values on the date of delivery) to the Company.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed on its behalf, and Optionee has heretofore set his or her hand,
effective the day and year first above written, which is the date of grant of
this option.
SILVERADO PARTNERS ACQUISITION CORP.
By:
-----------------------------
Title:
--------------------------
OPTIONEE
--------------------------------
Address:
------------------------
--------------------------------
10
<PAGE>
EXHIBIT 10.4
BERINGER WINE ESTATES COMPANY
1997 EMPLOYEE STOCK PURCHASE PLAN
<PAGE>
BERINGER WINE ESTATES COMPANY
1997 EMPLOYEE STOCK PURCHASE PLAN
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SECTION 1 - INTRODUCTION................................................... 1
1.1 Purpose........................................................... 1
1.2 Stock Purchase Plan............................................... 1
1.3 Effective Date and Term........................................... 1
1.4 Participating Subsidiaries........................................ 1
1.5 Stock Subject to Plan............................................. 1
SECTION 2 - DEFINITIONS.................................................... 1
SECTION 3 - ENROLLMENT AND CONTRIBUTIONS................................... 3
3.1 Eligibility for Enrollment........................................ 3
3.2 Enrollment Procedure.............................................. 3
3.3 Contributions..................................................... 3
3.4 Option Accounts................................................... 4
3.5 No Funding of Accounts............................................ 4
SECTION 4 - GRANT AND EXERCISE OF OPTION................................... 4
4.1 Grant of Options; Terms........................................... 4
4.2 Purchase of Stock; Price.......................................... 5
4.3 Option Accounts................................................... 5
4.4 Section 16 Requirements........................................... 6
4.5 No Interest on Account Balances................................... 6
SECTION 5 - TERMINATION OF ENROLLMENT...................................... 6
5.1 Termination of Enrollment......................................... 6
5.2 Distributions to Employee......................................... 7
5.3 Beneficiaries..................................................... 7
SECTION 6 - PLAN ADMINISTRATION............................................ 7
6.1 Committee......................................................... 7
6.2 Committee Powers.................................................. 7
6.3 Committee Actions................................................. 8
6.4 Member Who is Participant......................................... 8
6.5 Information Required from Company................................. 8
6.6 Information Required from Employees............................... 8
6.7 Uniform Rules and Administration.................................. 9
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 7 - AMENDMENT AND TERMINATION...................................... 9
7.1 Amendment......................................................... 9
7.2 Termination....................................................... 9
7.3 Rights Upon Termination........................................... 9
SECTION 8 - GENERAL PROVISIONS............................................. 9
8.1 No Transfer or Assignment......................................... 9
8.2 Equal Rights and Privileges.......................................10
8.3 Rights as Stockholder.............................................10
8.4 Rights as Employee................................................10
8.5 Costs.............................................................10
8.6 Application of Funds..............................................10
8.7 Reports...........................................................10
8.8 Actions by Company................................................10
8.9 Governmental Approval.............................................10
8.10 Stockholder Approval.............................................10
8.11 Applicable Law...................................................10
8.12 Gender and Number................................................10
8.13 Headings.........................................................10
</TABLE>
-ii-
<PAGE>
BERINGER WINE ESTATES COMPANY
1997 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
SECTION 1 - INTRODUCTION
- ------------------------
1.1 Purpose. The purpose of the Beringer Wine Estates Company 1997
-------
Employee Stock Purchase Plan is to provide eligible employees of the Company and
its Subsidiaries the opportunity to acquire a proprietary interest in the
Company and thereby provide employees with an additional incentive to contribute
to the long-term profitability and success of the Company and its Subsidiaries.
The Plan is for the exclusive benefit of eligible employees of the Company and
its Subsidiaries.
1.2 Stock Purchase Plan. The Plan is a stock purchase plan that is
-------------------
intended to satisfy all requirements of Section 423 of the Internal Revenue Code
of 1986, as amended. Any provision of the Plan inconsistent with Code Section
423 will, without further act or amendment by the Company, be reformed to comply
with Code Section 423.
1.3 Effective Date and Term. The Plan will be effective ____________,
-----------------------
1997, subject to approval of the Plan by the stockholders of the Company within
twelve months after its adoption by the Board of Directors. The Plan shall
continue in effect for a term of one (1) year unless sooner terminated by the
Company.
1.4 Participating Subsidiaries. A Subsidiary of the Company as of the
--------------------------
Effective Date will be deemed to have adopted the Plan for its eligible
Employees as of the Effective Date.
1.5 Stock Subject to Plan.
---------------------
(a) The Stock subject to purchase under the Plan will be shares of
the Company's authorized but unissued shares or previously issued shares of
Stock reacquired and held by the Company or shares acquired in the market.
The aggregate number of shares of Stock that may be purchased under the
Plan will not exceed three hundred thousand (300,000) shares. All shares of
Stock purchased under the Plan will count against this limitation.
(b) In case of a reorganization, recapitalization, stock split,
reverse stock split, stock dividend, combination of shares, merger,
consolidation, offering of rights or other change in the capital structure
of the Company, the Committee may make such adjustment as it deems
appropriate in the number, kind and purchase price of shares of Stock
available for purchase under the Plan, subject to Section 7.1.
SECTION 2 - DEFINITIONS
- -----------------------
For purposes of this Plan, the following words and phrases, whether or not
capitalized, have the meanings specified below, unless the context plainly
requires a different meaning:
2.1 "Beneficiary" means a person to whom all or a portion of the shares or
-------------
cash amounts due to the Employee under this Plan will be paid if the Employee
dies before receiving such shares or cash amounts.
<PAGE>
2.2 "Board" means the Board of Directors of the Company.
-----
2.3 "Code" means the Internal Revenue Code of 1986, as amended, and
----
all regulations thereunder.
2.4 "Committee" means the individuals appointed by the Board to
---------
administer the Plan.
2.5 "Company" means Beringer Wine Estates Company.
-------
2.6 "Compensation" means wages, salary and commissions for services
------------
rendered paid to an Employee by the Company or any Participating Subsidiary
during the applicable period specified in the Plan, including amounts
contributed by the Employee to any plan or plans established by the Company or
Participating Subsidiary in accordance with sections 125 or 401(k) of the Code
or to any nonqualified deferred compensation plan or plans established by the
Company or Participating Subsidiary. Bonuses paid to an Employee shall not be
included in Compensation.
2.7 "Employee" means any common-law employee of the Company or a
--------
Participating Subsidiary who is customarily employed for more than twenty hours
per week and more than five months in a calendar year.
2.8 "Enrollment Date" means the first business day of the Offering
---------------
Period.
2.9 "Fair Market Value" means the fair market value of one share of
-----------------
Stock as of a particular day, which shall generally be the average of the high
and low price per share of Stock on the New York Stock Exchange, or such other
valuation method determined by the Committee.
2.10 "Offering Date" means the first day of the Offering Period.
-------------
2.11 "Offering Period" means _______, 1997 through _______, 199__.
---------------
2.12 "Option Account" means the Account maintained on behalf of the
--------------
Employee under Section 3.4 to which contributions to the Plan are credited and
from which amounts are withdrawn to exercise options on a Termination Date.
2.13 "Participating Subsidiary" means a Subsidiary which is
------------------------
participating in the Plan in accordance with Section 1.4.
2.14 "Plan" means the Beringer Wine Estates Company 1997 Employee Stock
----
Purchase Plan, as described in this document.
2.15 "Stock" means the Class B Common Stock of the Company.
-----
2.16 "Subsidiary" means any corporation that is a member of a
----------
controlled group of corporations (as defined in section 414(b) of the Code)
which includes the Company; any trade or business (whether or not incorporated)
which is under common control (as defined in section 414(c) of the Code) with
the Company; and any organization (whether or not incorporated) which is a
member of an affiliated service group (as defined in section 414(m) of the Code)
-2-
<PAGE>
which includes the Company; and any other entity required to be aggregated with
the Company under section 414(o) of the Code.
2.17 "Termination Date" means the last day of each three calendar month
------------------
period beginning with the three calendar month period that ends on ________,
199_.
SECTION 3 - ENROLLMENT AND CONTRIBUTIONS
- ----------------------------------------
3.1 Eligibility for Enrollment.
--------------------------
(a) An Employee may enroll in the Plan for the Offering Period
unless one of the following applies:
(i) The Employee would, immediately upon enrollment, own
directly or indirectly, or hold options or rights to acquire, an
aggregate of five percent (5%) or more of the total combined voting
power or value of all outstanding shares of all classes of the
Company or any Subsidiary; or
(ii) The Employee is not employed by the Company or a
Participating Subsidiary on the Enrollment Date.
The rules of section 424(d) of the Code shall apply in determining
the stock ownership of an Employee for purposes of this Section 3.1(a).
(b) The Committee will notify an Employee that the Employee is
eligible to enroll in the Plan and make available to each eligible Employee
the necessary enrollment forms before the Offering Period.
3.2 Enrollment Procedure.
--------------------
(a) To enroll in the Plan for the Offering Period, an Employee must
file an enrollment form with the Company and elect to make contributions
under the Plan in accordance with Section 3.3. The enrollment form must be
received by the Company at least fifteen (15) calendar days prior to the
Enrollment Date and must state the contribution rate and method of payment
elected by the Employee for the Offering Period.
(b) An Employee who enrolls in the Plan will be enrolled in the
Plan for the duration of the Offering Period unless (i) the Employee files
a written notice of withdrawal in accordance with Section 5.1 (a)(i) or
(ii) the Employee's enrollment is terminated in accordance with the
applicable of Section 5.1(a)(ii), (iii) or (iv).
3.3 Contributions.
-------------
(a) To enroll for the first time in the Plan for the Offering
Period, an Employee must elect to make a contribution under the Plan (i) by
means of payroll deduction for each payroll period within the Offering
Period, or (ii) by lump sum payment by check or in cash to the Company on
or before the fifteenth day of the third month of the Offering Period.
(b) An Employee may elect to make payroll deduction contributions
in amounts not less than one percent (1%) of Compensation per payroll
period and not
-3-
<PAGE>
more than the lesser of (i) fifteen percent (15%) of Compensation for the
Offering Period (or such other amount as the Committee may establish from
time to time and communicate to Employees) or (ii) a percentage of
Compensation for each payroll period that ensures that the limit on the
purchase of shares of Stock specified in Section 4.1 is not exceeded for
the Offering Period.
(c) An Employee may elect to make a lump sum payment in an amount
not less than one percent (1%) of Compensation for the Offering Period and
not more than the lesser of (i) fifteen percent (15%) of Compensation for
the Offering Period (or such other amount as the Committee may establish
from time to time and communicate to Employees) or (ii) a percentage of
Compensation for the Offering Period that ensures that the limit on the
purchase of shares of stock specified in Section 4.1 is not exceeded for
the Offering Period.
(d) Payroll deductions will commence with the first payroll
period that begins within the Offering Period and will be made in
conformity with the Company's payroll deduction schedule and practices.
(e) Except as provided in Section 5.1, an Employee may elect to
increase, decrease or discontinue contributions only as of the beginning of
the first payroll period of a three calendar month period beginning with
the three calendar month period which starts on ______, 199__ and by giving
written notice to the Committee at least fifteen (15) calendar days before
such payroll period takes effect.
3.4 Option Accounts. All contributions made by an Employee under the
---------------
Plan will be credited to an Option Account maintained by the Company on behalf
of the Employee. The Company will make the credit as soon as practicable after
the contributions are withheld from the Employee's Compensation or paid by the
Employee to the Company.
3.5 No Funding of Accounts. No cash shall be set aside with respect to
----------------------
an Option Account until it is credited thereto. Nothing contained in this Plan
and no action taken pursuant to the provisions hereof shall create or be
construed to create a trust of any kind, or a fiduciary relationship between the
Company and any Employee or any other person with respect to an Option Account.
Amounts credited to an Option Account at any time and from time to time shall be
paid from the general funds of the Company. To the extent that any person
acquires a right to receive the benefit of amounts credited to an Option
Account, such right shall be that of an unsecured general creditor of the
Company.
SECTION 4 - GRANT AND EXERCISE OF OPTION
- ----------------------------------------
4.1 Grant of Options; Terms. Enrollment in the Plan for the Offering
-----------------------
Period will constitute the grant by the Company of an option to purchase shares
of Stock under the Plan during the Offering Period. All Employees granted
options shall have the same rights and privileges as required by section 423(b)
(5) of the Code. Each option will be subject to the following terms:
(a) The option price will be as specified in Section 4.2.
(b) Except as limited in (e) below, the number of shares of Stock
subject to the option will equal the number of shares of Stock that can be
purchased at the option price specified in Section 4.2 with the aggregate
amount credited to the
-4-
<PAGE>
Employee's Option Account as of the Termination Date. Such number of shares
shall be determined to three decimal places.
(c) The option will be exercised on each Termination Date during
the Offering Period.
(d) The payment by an Employee for the shares of Stock purchased
under an option will be made only through payroll deduction or by lump sum
in accordance with Section 3.3.
(e) The number of shares of Stock subject to the option for any
Employee (when taken together with all other options held by such Employee
under the Plan and under any other stock purchase plan of the Company or a
Subsidiary at any time during the calendar year in which the option is
granted) will not exceed the number derived by dividing twenty five
thousand dollars ($25,000) by the Fair Market Value of a share of Stock on
the Offering Date.
(f) The option will expire on the earliest of (i) the last
Termination Date of the Offering Period or (ii) the date on which the
Employee's enrollment in the Plan terminates.
4.2 Purchase of Stock; Price.
------------------------
(a) As soon as practicable after each Termination Date, the Company
will apply to the purchase of shares of Stock the amounts credited to each
Employee's Option Account as of such Termination Date. The Company may
aggregate the amounts in all Option Accounts when purchasing such shares of
Stock, provided that shares so purchased shall be allocated to the Option
Accounts for each Participant in proportion to the amounts withdrawn from
each Participant's Option Account.
(b) The cost of each share of Stock purchased on a Termination Date
shall be the lower of:
(i) Eighty five percent (85%) of the Fair Market Value of the
Stock on the Offering Date, or
(ii) Eighty five percent (85%) of the fair market value of the
Stock on the Termination Date.
4.3 Option Accounts.
---------------
(a) Following a Termination Date, all whole shares of Stock
purchased on behalf of an Employee on such Termination Date shall be
distributed to such Employee as soon as practicable after the date which is
six (6) months following such Termination Date; provided however, that if
the Employee dies or retires before the six (6) month period has elapsed
from the Termination Date, such Employee (or the Employee's Beneficiary, as
the case may be) may elect to receive distribution of shares of Stock in
the Employee's Option Account as soon as practicable following the date of
such Employee's retirement or death. The term "retirement" for purposes of
this Section 4.3 means termination of employment with the Company after
attaining age fifty-five (55) and completing ten (10) years of service with
the Company. Cash representing a fractional share shall remain in the
Employee's Option Account until the
-5-
<PAGE>
next Termination Date unless the Employee is not enrolled as of such
Termination Date; any case in lieu of fractional share remaining on
termination of the Plan shall be distributed to the Employee. Dividends
payable with respect to shares of Stock credited to the Employee's Option
Account will be credited to the Employee's Option Account to be used to
purchase additional shares of Stock on the next subsequent Termination
Date.
(b) In the event the amount withheld through payroll deductions
or paid by the Employee with respect to the Offering Period exceeds the
option price of the shares available for purchase for such Employee for the
Offering Period, the excess of the amount so withheld over the option price
of the shares so purchased for the Employee shall be returned to the
Employee without interest.
(c) No Employee may sell or transfer Stock credited to the
Employee's Option Account until any date which is six (6) months following
the Termination Date as of which such shares of Stock were purchased.
4.4 Section 16 Requirements. Notwithstanding any other provision of
-----------------------
the Plan, the Committee may impose such conditions as may be required to satisfy
the requirements of Section 16 of the Securities Exchange Act of 1934 and the
rules promulgated thereunder.
4.5 No Interest on Account Balances. No interest or other earnings
-------------------------------
will be credited to any Option Account with respect to (a) amounts credited
thereto during the Offering Period or (b) amounts to be returned to the
Employee. Neither the Committee nor the Company shall have any obligation to
invest or otherwise manage amounts credited to an Option Account, other than to
apply such amounts to the purchase of Stock in accordance with the terms of this
Plan.
SECTION 5 - TERMINATION OF ENROLLMENT.
- -------------------------------------
5.1 Termination of Enrollment.
--------------------------
(a) An Employee's enrollment in the Plan will terminate under the
following circumstances:
(i) An Employee's enrollment will terminate as of the date
that is at least fifteen (15) calendar days after the Employee
files with the Company a written notice of withdrawal.
(ii) An Employee's enrollment will terminate following the
termination of employment with the Company and all Participating
Subsidiaries at such time as the Employee is entitled to no
further Compensation.
(iii) An Employee's enrollment will terminate as of the date
on which the Employee would own directly or indirectly, or hold
options or rights to acquire, an aggregate of five percent (5%) or
more of the total combined voting power or value of all
outstanding shares of all classes of the Company or any
Subsidiary.
(iv) An Employee's enrollment will terminate immediately
upon a violation of Section 8.1.
-6-
<PAGE>
(b) An Employee whose enrollment in the Plan terminates under this
Section may again enroll in the Plan as of the first payroll period of a
three calendar month period beginning with the three calendar month period
which starts on __________, 199_, if the Employee satisfies the eligibility
conditions of Section 3.1 as of such date.
(c) An Employee's election to discontinue contributions under
Section 3.3 will not constitute a termination of enrollment under this
Section.
5.2 Distributions to Employee.
-------------------------
(a) As soon as practicable after an Employee's enrollment in the
Plan terminates under this Section, the Company will take the following
actions:
(i) The Company will pay to the Employee all amounts credited
to the Employee's Option Account as of the date of termination; and
(ii) Subject to Section 4.3, the Company will distribute to
the Employee certificates representing any shares of Stock previously
purchased under the Plan of which the Employee is the beneficial
owner but which have not been distributed prior to the date of
termination.
(b) If an Employee's enrollment terminates as a result of death, or
if the Employee's death occurs before the Employee receives a distribution
under this Section, all amounts payable under this Section to the Employee
will be paid to the Employee's Beneficiary.
5.3 Beneficiaries.
-------------
(a) An Employee may designate one or more persons (concurrently,
contingently or successively) to whom amounts credited to the Option
Account and certificates evidencing shares of Stock purchased on the
Employee's behalf under the Plan will be distributed if the Employee dies
before receiving complete payment of such amounts and shares. Any such
designation must be made on a form provided by the Company for this
purpose, will be effective on the date received by the Company and may be
revoked by the Employee at any time.
(b) If no designated beneficiary survives the Employee, then
payment shall be made to the Employee's estate.
SECTION 6 - PLAN ADMINISTRATION
- -------------------------------
6.1 Committee. The Plan will be administered by the Committee.
---------
6.2 Committee Powers.
----------------
(a) The Committee will have all powers appropriate to administer
the Plan including, but not limited to, the following:
-7-
<PAGE>
(i) To determine all questions that may arise under the Plan,
including the power to determine the rights or eligibility of an
Employee or their Beneficiaries;
(ii) To construe the terms of the Plan and to remedy
ambiguities, inconsistencies or omissions;
(iii) To adopt such rules of procedure and prescribe such forms
as it considers appropriate for the proper administration of the Plan
and are consistent with the Plan;
(iv) To enforce the Plan provisions and the rules of procedure
which it adopts;
(v) To employ agents, attorneys, accountants, actuaries or
other persons, and to allocate or delegate to them such powers,
rights and duties as it considers appropriate for the proper
administration of the Plan.
(b) The Committee will have such further powers and duties as may
be elsewhere specified in the Plan.
6.3 Committee Actions. The actions of the Committee may be taken either
-----------------
at a meeting by a majority of its members, or in writing without a meeting if
all members of the Committee sign such writing. In taking action:
(a) The Committee may delegate authority to a specific member(s) of
the Committee to carry out such duties as the Committee may assign;
(b) A member of the Committee may by writing delegate any or all
of their rights, powers, duties and discretions to any other member of the
Committee, with the consent of the latter; and
(c) When there is an even division of opinion among the members of
the Committee as to a matter, the Board of Directors of the Company will
decide the matter, provided, however, that no member of the Board of
Directors may vote on such a matter if it concerns such member's individual
rights, privileges or obligations under the Plan.
6.4 Member Who is Participant. If a member of the Committee is an
-------------------------
Employee, such member may not decide any matter relating to the member's
participation or Option Account or how the Option Account is to be paid to the
member that the member would not have the right to decide in the absence of
membership on the Committee, and no Employee will receive any compensation for
services as a member of the Committee.
6.5 Information Required from Company. The Company will furnish the
---------------------------------
Committee with such data and information as the Committee deems appropriate to
administer the Plan. The records of the Company as to an Employee's Compensation
will be conclusive on all persons unless determined by the Committee to be
clearly incorrect.
6.6 Information Required from Employees. Each person entitled to benefits
-----------------------------------
under the Plan must furnish the Company from time to time in writing such
person's mailing address, each change of mailing address and such other data and
information as the Committee deems appropriate to administer the Plan. Any
communication, statement or notice mailed with postage
-8-
<PAGE>
prepaid to any person at the last mailing address filed with the Company will be
binding upon such person for all purposes of the Pla n.
6.7 Uniform Rules and Administration. The Committee will administer
--------------------------------
the Plan on a nondiscriminatory basis and will apply uniform rules to all
persons similarly situated.
SECTION 7 - AMENDMENT AND TERMINATION
- -------------------------------------
7.1 Amendment.
---------
(a) The Company reserves the right to amend the Plan from time to
time subject to the following limitations:
(i) No amendment will be made without the prior approval of
the stockholders of the Company if the amendment will (1) increase
the number of shares of Stock reserved for purchase under the
Plan, (2) materially modify the eligibility conditions or
materially increase the benefits available under the Plan or (3)
cause the options granted under the Plan to fail to meet the
requirements of Code Section 423.
(ii) No amendment will make any change in an option granted
previously and outstanding which adversely affects the rights of
an Employee with respect to such option.
(iii) No amendment will reduce the amount of an Employee's
Option Account balance.
(b) The Company may delegate to the Committee or its officers the
power to amend the Plan as the Company deems appropriate, subject to the
limitations of this Section.
7.2 Termination. Although the Company intends to maintain the Plan
-----------
indefinitely, the Plan is entirely voluntary on the part of the Company and the
continuance of the Plan should not be construed as a contractual obligation of
the Company. Accordingly, the Company reserves the right to terminate the Plan
at any time.
7.3 Rights Upon Termination.
-----------------------
(a) If the Plan terminates, the Committee may elect to terminate
all outstanding options to purchase shares of Stock under the Plan either
immediately or upon completion of the purchase of shares of Stock on the
next following Termination Date.
(b) If the Committee terminates an option to purchase shares of
Stock prior to the expiration of the option, all amounts contributed to the
Plan which remain in an Employee's Option Account will be returned to the
Employee as soon as practicable.
SECTION 8 - GENERAL PROVISIONS
- ------------------------------
8.1 No Transfer or Assignment. The rights of an Employee under the
-------------------------
Plan may not be sold, pledged, assigned or transferred, voluntarily or
involuntarily, in any manner other
-9-
<PAGE>
than by will or the laws of descent and distribution. Any such attempted sale,
pledge, assignment or transfer shall be without effect. An Employee's rights
and all options granted under the Plan shall only be exercisable during his or
her lifetime by such Employee.
8.2 Equal Rights and Privileges. All Employees who are granted options
---------------------------
under the Plan for the Offering Period will have equal rights and privileges
with respect to such option.
8.3 Rights as Stockholder. The grant of an option to purchase shares of
---------------------
Stock under the Plan will not confer upon an Employee any rights as a
stockholder of the Company with respect to shares of Stock subject to the
option. An Employee will become a stockholder with respect to shares of Stock
subject to an option under the Plan only when the purchase of such shares of
Stock is completed as of a Termination Date.
8.4 Rights as Employee. The Plan is not a contract of employment, and the
------------------
grant of an option to purchase shares of Stock under the Plan will not confer
upon any Employee the right to be retained in the employ of the Company or any
Subsidiary.
8.5 Costs. All costs and expenses incurred in the administration of the
-----
Plan will be paid by the Company and its Subsidiaries. Any brokerage fees for
the sale of shares of Stock by an Employee will be borne by the Employee.
8.6 Application of Funds. All proceeds received by the Company from the
--------------------
sale of Stock under the Plan will be used for general corporate purposes.
8.7 Reports. The Company will provide or cause to be provided to each
-------
Employee an annual report of the Employee's contributions under the Plan for
each Plan Year and the shares of Stock purchased with such contributions.
8.8 Actions by Company. Any action taken by the Company with respect to
------------------
the Plan will be by resolution of its Board of Directors or by a person or
persons authorized by resolution of its Board of Directors.
8.9 Governmental Approval. The Plan and any offering or sale made to
---------------------
Employees under the Plan is subject to any governmental approvals or consents
that are or may become applicable in connection herewith.
8.10 Stockholder Approval. The Plan is subject to approval by the holders
--------------------
of a majority of the shares present in person or by proxy and voting at the
meeting at which the Plan is considered and shall not be effective without such
approval.
8.11 Applicable Law. The Plan will be governed by the laws of the State of
--------------
California, without regard to the law of conflicts of such state, to the extent
that federal law does not preempt such laws.
8.12 Gender and Number. When the context permits, words in the Plan used
-----------------
in the masculine gender include the feminine gender, words in the singular
include the plural and words in the plural include the singular.
8.13 Headings. All headings in the Plan are included solely for ease of
--------
reference and do not bear on the interpretation of the text.
-10-
<PAGE>
EXHIBIT 10.5
BERINGER WINE ESTATES HOLDINGS, INC.
1998 STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. PURPOSE............................................. 1
SECTION 2. DEFINITIONS......................................... 1
(a) "Board of Directors"................................ 1
(b) "Code".............................................. 1
(c) "Committee"......................................... 1
(d) "Company"........................................... 1
(e) "Employee".......................................... 1
(f) "Exercise Price".................................... 2
(g) "Fair Market Value"................................. 2
(h) "ISO"............................................... 2
(i) "Nonstatutory Option"............................... 3
(j) "Option"............................................ 3
(k) "Optionee".......................................... 3
(l) "Plan".............................................. 3
(m) "Service"........................................... 3
(n) "Share"............................................. 3
(o) "Stock"............................................. 3
(p) "Stock Option Agreement"............................ 3
(q) "Subsidiary"........................................ 3
SECTION 3. ADMINISTRATION...................................... 3
(a) Committee Membership................................ 3
(b) Committee Procedures................................ 4
(c) Committee Responsibilities.......................... 4
SECTION 4. ELIGIBILITY......................................... 5
(a) General Rule........................................ 5
(b) ISOs................................................ 5
SECTION 5. STOCK SUBJECT TO PLAN............................... 5
(a) Basic Limitation.................................... 5
(b) Additional Shares................................... 6
SECTION 6. TERMS AND CONDITIONS OF OPTIONS..................... 6
(a) Stock Option Agreement.............................. 6
(b) Number of Shares.................................... 6
(c) Exercise Price...................................... 6
(d) Withholding Taxes................................... 7
(e) Exercisability and Term............................. 7
(f) Nontransferability.................................. 7
(g) Exercise of Options on Termination of Service....... 7
(h) No Rights as a Shareholder.......................... 8
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(i) Modification, Extension and Assumption of Options... 8
(j) Restrictions on Transfer of Shares.................. 8
SECTION 7. PAYMENT FOR SHARES.................................. 8
(a) General Rule........................................ 8
(b) Surrender of Stock.................................. 8
(c) Promissory Notes.................................... 9
(d) Cashless Exercise................................... 9
SECTION 8. ADJUSTMENT OF SHARES................................ 9
(a) General............................................. 9
(b) Reorganizations..................................... 10
(c) Reservation of Rights............................... 10
SECTION 9. LEGAL REQUIREMENTS.................................. 10
SECTION 10. NO EMPLOYMENT RIGHTS................................ 10
SECTION 11. DURATION AND AMENDMENTS............................. 11
(a) Term of the Plan.................................... 11
(b) Right to Amend or Terminate the Plan................ 11
(c) Effect of Amendment or Termination.................. 11
SECTION 12. EXECUTION........................................... 12
</TABLE>
-ii-
<PAGE>
BERINGER WINE ESTATES HOLDINGS, INC.
1998 STOCK OPTION PLAN
(EFFECTIVE AS OF AUGUST 25, 1997)
SECTION 1. PURPOSE.
- -------------------
The purpose of the Plan is to offer selected employees an opportunity to
acquire a proprietary interest in the success of the Company, or to increase
such interest, to encourage such selected persons to remain in the employ of the
Company and to attract new employees with outstanding qualifications by
purchasing Shares of the Company's Common Stock. The Plan provides for the
grant of Options to purchase Shares. Options granted under the Plan may include
Nonstatutory Options as well as Incentive Stock Options intended to qualify
under section 422 of the Internal Revenue Code. The Plan was adopted by the
Board of Directors on August 25, 1997, and is effective as of that date.
SECTION 2. DEFINITIONS.
- -----------------------
(a) "Board of Directors" shall mean the Board of Directors of the Company,
------------------
as constituted from time to time.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Committee" shall mean the full Board of Directors and/or a committee
---------
of the Board of Directors which is authorized to administer the Plan under
Section 3.
(d) "Company" shall mean Beringer Wine Estates Holdings, Inc., a
-------
California corporation.
(e) "Employee" shall mean any individual who is a common-law employee of
--------
the Company or of a Subsidiary.
-1-
<PAGE>
(f) "Exercise Price" shall mean the amount for which one Share may be
--------------
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.
(g) "Fair Market Value" shall mean the fair market value of a Share, as
-----------------
determined by the Committee in good faith as follows: (i) If the Common
Shares were traded over-the-counter on the date in question but were not
classified as a national market issue, then the Fair Market Value shall be
equal to the mean between the last reported representative bid and asked
prices quoted by the Nasdaq system for such date;
(ii) If the Common Shares were traded over-the-counter on the date in
question and were classified as a national market issue, then the Fair
Market Value shall be equal to the last-transaction price quoted by the
Nasdaq system for such date;
(iii) If the Common Shares were traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date; and
(iv) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith on such
basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in the Western Edition of The Wall Street
---------------
Journal. Such determination shall be conclusive and binding on all persons.
- -------
(h) "ISO" shall mean an employee incentive stock option described in
---
section 422(b) of the Code.
-2-
<PAGE>
(i) "Nonstatutory Option" shall mean an employee stock option that is not
-------------------
an ISO.
(j) "Option" shall mean an ISO or Nonstatutory Option granted under the
------
Plan and entitling the holder to purchase Shares.
(k) "Optionee" shall mean an individual who holds an Option.
--------
(l) "Plan" shall mean this Beringer Wine Estates Holdings, Inc. 1997 Stock
----
Option Plan.
(m) "Service" shall mean service as an Employee.
-------
(n) "Share" shall mean one share of Stock, as adjusted in accordance with
-----
Section 8 (if applicable).
(o) "Stock" shall mean the Class B Common Stock, par value $.0001 per
-----
share, of the Company, and such other stock as may be substituted therefor in
accordance with the adjustment provisions of the Plan.
(p) "Stock Option Agreement" shall mean the agreement between the Company
----------------------
and an Optionee which contains the terms, conditions and restrictions pertaining
to his or her Option.
(q) "Subsidiary" shall mean any corporation, of which the Company and/or
----------
one or more other Subsidiaries own not less than 50 percent of the total
combined voting power of all classes of outstanding stock of such corporation.
A corporation that attains the status of a Subsidiary on a date after the
adoption of the Plan shall be considered a Subsidiary commencing as of such
date.
SECTION 3. ADMINISTRATION.
- ---------------------------
(a) Committee Membership. The Plan shall be administered by the
--------------------
Committee, which shall consist of members of the Board of Directors. The
members of the Committee shall be
-3-
<PAGE>
appointed by the Board of Directors. If no Committee has been appointed, the
entire Board of Directors shall constitute the Committee.
(b) Committee Procedures. The Board of Directors shall designate one of
--------------------
the members of the Committee as chairperson. The Committee may hold meetings at
such times and places as it shall determine. The acts of a majority of the
Committee members present at meetings at which a quorum exists, or acts reduced
to or approved in writing by all Committee members, shall be valid acts of the
Committee.
(c) Committee Responsibilities. Subject to the provisions of the Plan,
--------------------------
the Committee shall have full authority and discretion to take the following
actions:
(i) To interpret the Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms relating
to the Plan;
(iii) To authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of the Plan;
(iv) To determine when Options are to be granted under the Plan;
(v) To select the Optionees;
(vi) To determine the number of Shares to be made subject to each
Option;
(vii) To prescribe the terms and conditions of each Option, including
(without limitation) the Exercise Price, to determine whether such Option
is to be classified as an ISO or as a Nonstatutory Option, and to specify
the provisions of the Stock Option Agreement relating to such Option;
(viii) To amend or terminate any outstanding Stock Option Agreement;
(ix) To determine the disposition of an Option in the event of an
Optionee's divorce or dissolution of marriage;
-4-
<PAGE>
(x) To correct any defect, supply any omission, or reconcile any
inconsistency in the Plan and any Option;
(xi) To prescribe the consideration for the grant of each Option
under the Plan and to determine the sufficiency of such consideration; and
(xii) To take any other actions deemed necessary or advisable for the
administration of the Plan.
All decisions, interpretations and other actions of the Committee shall be
final and binding on all Optionees, and all persons deriving their rights from
an Optionee. No member of the Committee shall be liable for any action that he
or she has taken or has failed to take in good faith with respect to the Plan or
any Option.
SECTION 4. ELIGIBILITY.
- -----------------------
(a) General Rule. Only Employees, as defined in Section 2(e), shall be
------------
eligible for designation as Optionees by the Committee. In addition, no
employee who is subject to Section 16 of the Securities Exchange Act of 1934
shall be eligible for designation as an Optionee.
(b) ISOs. Any Option designated an ISO shall comply with any applicable
----
requirement imposed on such an Option by Section 422 of the Code.
SECTION 5. STOCK SUBJECT TO PLAN.
- ---------------------------------
(a) Basic Limitation. Shares offered under the Plan shall be authorized
----------------
but unissued Shares. The aggregate number of Shares which may be issued under
the Plan (upon exercise of Options) shall not exceed 100,000 Shares, subject to
adjustment pursuant to Section 8. The number of Shares which are subject to
Options outstanding at any time under the Plan shall not
-5-
<PAGE>
exceed the number of Shares which then remain available for issuance under the
Plan. The Company, during the term of the Plan, shall at all times reserve and
keep available sufficient Shares to satisfy the requirements of the Plan.
(b) Additional Shares. In the event that any outstanding Option for any
-----------------
reason expires or is canceled or otherwise terminated, the Shares allocable to
the unexercised portion of such Option shall again be available for the purposes
of the Plan.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
- -------------------------------------------
(a) Stock Option Agreement. Each grant of an Option under the Plan shall
----------------------
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Committee deems appropriate for inclusion in a Stock
Option Agreement. The provisions of the various Stock Option Agreements entered
into under the Plan need not be identical.
(b) Number of Shares. Each Stock Option Agreement shall specify the
----------------
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 8. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.
(c) Exercise Price. Each Stock Option Agreement shall specify the
--------------
Exercise Price. The Exercise Price of an ISO shall not be less than one hundred
percent (100%) of the Fair Market Value of a Share on the date of grant.
Subject to the preceding sentence, the Exercise Price under any Option shall be
determined by the Committee in its sole discretion. The Exercise Price shall be
payable in a form described in Section 7.
-6-
<PAGE>
(d) Withholding Taxes. As a condition to the exercise of an Option, the
-----------------
Optionee shall make such arrangements as the Committee may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with such exercise. The Optionee shall also make
such arrangements as the Committee may require for the satisfaction of any
federal, state, local or foreign withholding tax obligations that may arise in
connection with the disposition of Shares acquired by exercising an Option.
(e) Exercisability and Term. Each Stock Option Agreement shall specify
-----------------------
the date when all or any installment of the Option is to become exercisable.
The Stock Option Agreement shall also specify the term of the Option; provided
that the term of an ISO shall in no event exceed ten (10) years from the date of
grant. A Stock Option Agreement may provide for accelerated exercisability in
the event of the Optionee's death, disability or retirement or other events and
may provide for expiration prior to the end of its term in the event of the
termination of the Optionee's service. The Committee may determine, at the time
of granting an Option or thereafter, that such Option shall become fully
exercisable as to all Common Shares subject to such Option in the event that a
Change in Control occurs with respect to the Company.
(f) Nontransferability. Except as provided in the applicable Stock Option
------------------
Agreement, no Option shall be transferable by the Optionee other than by will or
by the laws of descent and distribution. An Option may be exercised during the
lifetime of the Optionee only by him or by his guardian or legal representative.
No Option or interest therein may be transferred, assigned, pledged or
hypothecated by the Optionee during his lifetime, whether by operation of law or
otherwise, or be made subject to execution, attachment or similar process.
(g) Exercise of Options on Termination of Service. Each Option shall set
---------------------------------------------
forth the extent to which the Optionee shall have the right to exercise the
Option following termination of the Optionee's service with the Company and its
Subsidiaries. Such provisions shall be
-7-
<PAGE>
determined in the sole discretion of the Committee, need not be uniform among
all Options issued pursuant to the Plan, and may reflect distinctions based on
the reasons for termination of employment.
(h) No Rights as a Shareholder. An Optionee, or a transferee of an
--------------------------
Optionee, shall have no rights as a shareholder with respect to any Shares
covered by an Option until the date of the issuance of a stock certificate for
such Shares.
(i) Modification, Extension and Assumption of Options. Within the
-------------------------------------------------
limitations of the Plan, the Committee may modify, extend or assume outstanding
Options or may accept the cancellation of outstanding Options (whether granted
by the Company or another issuer) in return for the grant of new Options for the
same or a different number of Shares and at the same or a different Exercise
Price or for other consideration.
(j) Restrictions on Transfer of Shares. Any Shares issued upon exercise
----------------------------------
of an Option shall be subject to such rights of repurchase, rights of first
refusal and other transfer restrictions as the Committee may determine. Such
restrictions shall be set forth in the applicable Stock Option Agreement and
shall apply in addition to any restrictions that may apply to holders of Shares
generally.
SECTION 7. PAYMENT FOR SHARES.
- ------------------------------
(a) General Rule. The entire Exercise Price of Shares issued under the
------------
Plan shall be payable in lawful money of the United States of America at the
time when such Shares are purchased, except as provided in Subsections (b), (c)
and (d) below.
(b) Surrender of Stock. To the extent that a Stock Option Agreement so
------------------
provides, payment may be made all or in part with Shares which have already been
owned by the Optionee or the Optionee's representative for any time period
specified by the Committee and
-8-
<PAGE>
which are surrendered to the Company in good form for transfer. Such Shares
shall be valued at their Fair Market Value on the date when the new Shares are
purchased under the Plan.
(c) Promissory Notes. To the extent that a Stock Option Agreement so
----------------
provides, payment may be made all or in part with a full recourse promissory
note executed by the Optionee. The interest rate and other terms and conditions
of such note shall be determined by the Committee. The Committee may require
that the Optionee pledge his or her Shares to the Company for the purpose of
securing the payment of such note. In no event shall the stock certificate(s)
representing such Shares be released to the Optionee until such note is paid in
full.
(d) Cashless Exercise. To the extent that a Stock Option Agreement so
-----------------
provides and a public market for the Shares exists, payment may be made all or
in part by delivery (on a form prescribed by the Committee) of an irrevocable
direction to a securities broker to sell Shares and to deliver all or part of
the sale proceeds to the Company in payment of the aggregate Exercise Price.
SECTION 8. ADJUSTMENT OF SHARES.
- --------------------------------
(a) General. In the event of a subdivision of the outstanding Stock, a
-------
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Shares in an amount that has a material effect on the value
of Shares, a combination or consolidation of the outstanding Stock into a lesser
number of Shares, a recapitalization, a reclassification or a similar
occurrence, the Committee shall make appropriate adjustments in one or more of
(i) the number of Shares available for future grants under Section 5, (ii) the
number of Shares covered by each outstanding Option or (iii) the Exercise Price
under each outstanding Option.
-9-
<PAGE>
(b) Reorganizations. In the event that the Company is a party to a merger
---------------
or reorganization, outstanding Options shall be subject to the agreement of
merger or reorganization.
(c) Reservation of Rights. Except as provided in this Section 8, an
---------------------
Optionee shall have no rights by reason of (i) any subdivision or consolidation
of shares of stock of any class, (ii) the payment of any dividend or (iii) any
other increase or decrease in the number of shares of stock of any class. Any
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or Exercise Price of Shares
subject to an Option. The grant of an Option pursuant to the Plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
SECTION 9. LEGAL REQUIREMENTS.
- ------------------------------
Shares shall not be issued under the Plan unless the issuance and delivery
of such Shares complies with (or is exempt from) all applicable requirements of
law, including (without limitation) the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder, state securities laws and
regulations, and the regulations of any stock exchange on which the Company's
securities may then be listed.
SECTION 10. NO EMPLOYMENT RIGHTS.
- ---------------------------------
No provision of the Plan, nor any Option granted under the Plan, shall be
construed to give any person any right to become, to be treated as, or to remain
an Employee. The Company
-10-
<PAGE>
and its Subsidiaries reserve the right to terminate any person's Service at any
time and for any reason.
SECTION 11. DURATION AND AMENDMENTS.
- ------------------------------------
(a) Term of the Plan. The amended and restated Plan, as set forth herein,
----------------
shall become effective on the date of its adoption by the Board of Directors,
subject to the approval of the Company's shareholders within twelve (12) months
after its adoption by the Board of Directors. The Plan shall terminate
automatically ten (10) years after its initial effective date of the Plan, and
may be terminated on any earlier date pursuant to Subsection (b) below.
(b) Right to Amend or Terminate the Plan. The Board of Directors may
------------------------------------
amend the Plan at any time and from time to time. Rights and obligations under
any Option granted before amendment of the Plan shall not be materially altered,
or impaired adversely, by such amendment, except with consent of the person to
whom the Option was granted. An amendment of the Plan shall be subject to the
approval of the Company's stockholders only to the extent required by applicable
laws, regulations or rules.
(c) Effect of Amendment or Termination. No Shares shall be issued or sold
----------------------------------
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Option previously granted under the
Plan.
-11-
<PAGE>
SECTION 12. EXECUTION.
- ----------------------
To record the Amendment and Restatement of the Plan by the Board of
Directors, the Company has caused its authorized officer to execute the same as
of August 24, 1997.
BERINGER WINE ESTATES HOLDINGS, INC.
By /s/ Douglas W. Roberts
-------------------------------------
As Its Vice President, General Counsel
---------------------------------
and Secretary
---------------------------------
-12-
<PAGE>
Exhibit 10.6
INDEMNITY AGREEMENT
-------------------
THIS INDEMNITY AGREEMENT, dated as of __________, 1997, between Beringer
Wine Estates Holdings, Inc., a Delaware corporation (the "Corporation"), and
________________ (the "Indemnitee").
W I T N E S S E T H:
WHEREAS, Indemnitee is a member of the board of directors of the
Corporation (the "Board of Directors") or is an officer of the Corporation, and
in such capacity is performing a valuable service for the Corporation; and
WHEREAS, Indemnitee is willing to serve, continue to serve, and take on
additional service for or on behalf of the Corporation on the condition that he
or she be indemnified as herein provided; and
WHEREAS, it is intended that Indemnitee shall be paid promptly by the
Corporation all amounts necessary to effectuate in full the indemnity provided
herein:
NOW THEREFORE, in consideration of the premises and the covenants in this
Agreement, and intending to be legally bound hereby, the parties hereto agree as
follows:
1. Services by Indemnitee. Indemnitee agrees to serve as a director or
----------------------
officer of the Corporation so long as he or she is duly appointed or elected and
qualified in accordance with the applicable provisions of the Certificate of
Incorporation and Bylaws of the Corporation or any subsidiary of the Corporation
and until such time as he or she resigns or fails to stand for election or is
removed from his or her position. Indemnitee may at any time and for any reason
resign or be removed from such position (subject to any other contractual
obligation or other obligation imposed by operation of law), in which event the
Corporation shall have no obligation under this Agreement to continue Indemnitee
in any such position.
2. Indemnification.
---------------
(a) The Corporation shall indemnify Indemnitee against Expenses and
Liabilities in connection with any Proceeding arising out of acts or omissions
of Indemnitee occurring during Indemnitee's service as a director or as an
officer of the Corporation to the fullest extent permitted by applicable law or
<PAGE>
the Certificate of Incorporation of the Corporation in effect on the date hereof
or as such law or Certificate of Incorporation may from time to time be amended
(but, in the case of any such amendment, only to the extent such amendment
permits the Corporation to provide broader indemnification rights than the law
or Certificate of Incorporation permitted the Corporation to provide before such
amendment). The right to indemnification provided in the Certificate of
Incorporation shall be presumed to have been relied upon by Indemnitee in
serving or continuing to serve the Corporation and shall be enforceable as a
contract right. Without diminishing the scope of the indemnification provided
by this Section 2, the Corporation shall indemnify Indemnitee whenever he or she
is or was a party or is threatened to be made a party to any Proceeding,
including without limitation any such Proceeding brought by or in the right of
the Corporation, because he or she is or was a director or officer of the
Corporation or because of anything done or not done by Indemnitee in such
capacity, against Expenses and Liabilities actually and reasonably incurred by
Indemnitee or on his or her behalf in connection with such Proceeding, including
the costs of any investigation, defense, settlement or appeal, except that no
indemnification shall be made with respect to any claim, issue or matter if
Indemnitee was finally adjudged to be liable to the Corporation by a court of
competent jurisdiction due to his or her gross negligence or willful misconduct
unless and to the extent that a Delaware Court of Chancery or the court in which
the action was heard determines that Indemnitee is entitled to indemnification
for such amounts as the court deems proper. In addition to, and not as a
limitation of, the foregoing, the rights of indemnification of Indemnitee
provided under this Agreement shall include those rights set forth in Sections
3, 7, 8 and 13 below.
(b) Indemnitee shall be paid promptly by the Corporation all amounts
necessary to effectuate the foregoing indemnity.
3. Advancement of Expenses. All reasonable Expenses incurred by or on
-----------------------
behalf of Indemnitee shall be advanced from time to time by the Corporation to
Indemnitee within thirty (30) days after the Corporation's receipt of a written
request for an advance of Expenses, whether prior to or after final disposition
of a Proceeding (except to the extent that there has been a Final Adverse
Determination that Indemnitee is not entitled to be indemnified for such
Expenses), including without limitation any Proceeding brought by or in the
right of the Corporation. The written request for an advancement of any and all
Expenses under this paragraph shall contain reasonable detail of the Expenses
incurred by Indemnitee. If required by law at the time of such advance,
Indemnitee hereby agrees to repay the amounts advanced if it is ultimately
determined that Indemnitee is not
-2-
<PAGE>
entitled to be indemnified pursuant to the terms of this Agreement.
4. Limitations. The foregoing indemnity and advancement of Expenses shall
-----------
apply only to the extent that Indemnitee has not been indemnified and reimbursed
pursuant to such insurance as the Corporation may maintain for Indemnitee's
benefit, or otherwise; provided, however, that notwithstanding the availability
of such other indemnification and reimbursement, Indemnitee may claim
indemnification and advancement of Expenses pursuant to this Agreement by
assigning to the Corporation, at its request, Indemnitee's claims under such
insurance to the extent Indemnitee has been paid by the Corporation.
5. Insurance and Funding. The Corporation may purchase and maintain
---------------------
insurance to protect itself and/or Indemnitee against any Expenses and
Liabilities in connection with any Proceeding to the fullest extent permitted by
applicable laws. The Corporation may create a trust fund, grant an interest or
use other means (including, without limitation, a letter of credit) to ensure
the payment of such amounts as may be necessary to effect indemnification or
advancement of Expenses as provided in this Agreement.
6. Procedure for Determination of Entitlement to Indemnification.
-------------------------------------------------------------
(a) Whenever Indemnitee believes that he or she is entitled to
indemnification pursuant to this Agreement, Indemnitee shall submit a written
request for indemnification to the Corporation. Any request for indemnification
shall include sufficient documentation or information reasonably available to
Indemnitee to support his or her claim for indemnification. Indemnitee shall
submit such claim for indemnification within a reasonable time not to exceed
five years after any judgment, order, settlement, dismissal, arbitration award,
conviction, acceptance of a plea of nolo contendere or its equivalent, final
termination or other disposition or partial disposition of any Proceeding,
whichever is the later date for which Indemnitee requests indemnification. The
President or the Secretary or other appropriate officer shall, promptly upon
receipt of Indemnitee's request for indemnification, advise the Board of
Directors in writing that Indemnitee has made such request. Determination of
Indemnitee's entitlement to indemnification shall be made not later than ninety
(90) days after the Corporation's receipt of his or her written request for such
indemnification.
(b) The Indemnitee shall be entitled to select the forum in which
Indemnitee's request for indemnification will be heard, which selection shall be
included in the written request for
-3-
<PAGE>
indemnification required in Section 6(a). The forum shall be any one of the
following:
(i) The stockholders of the Corporation;
(ii) A quorum of the Board of Directors consisting of Disinterested
Directors;
(iii) Independent Legal Counsel, who shall make the determination in
a written opinion; or
(iv) A panel of three arbitrators, one selected by the Corporation,
another by Indemnitee and the third by the first two arbitrators selected.
If for any reason three arbitrators are not selected within thirty (30)
days after the appointment of the first arbitrator, then selection of
additional arbitrators shall be made by the American Arbitration
Association. If any arbitrator resigns or is unable to serve in such
capacity for any reason, the American Arbitration Association shall select
such arbitrator's replacement. The arbitration shall be conducted pursuant
to the commercial arbitration rules of the American Arbitration Association
now in effect.
If Indemnitee fails to make such designation, his or her claim shall be
determined by an appropriate court of the State of Delaware.
7. Fees and Expenses of Independent Legal Counsel. The Corporation agrees
----------------------------------------------
to pay the reasonable fees and expenses of Independent Legal Counsel or a panel
of three arbitrators should such Counsel or such panel of arbitrators be
retained to make a determination of Indemnitee's entitlement to indemnification
pursuant to Section 6 of this Agreement, and to fully indemnify such Counsel or
arbitrators against any and all expenses and losses incurred by any of them
arising out of or relating to this Agreement or their engagement pursuant
hereto.
8. Remedies of Indemnitee.
----------------------
(a) In the event that (i) a determination pursuant to Section 6 hereof is
made that Indemnitee is not entitled to indemnification, (ii) advances of
Expenses are not made pursuant to this Agreement, (iii) payment has not been
timely made following a determination of entitlement to indemnification pursuant
to this Agreement, or (iv) Indemnitee otherwise seeks enforcement of this
Agreement, Indemnitee shall be entitled to a final adjudication in an
appropriate court of the State of Delaware of his or her rights. The
Corporation shall not oppose Indemnitee's right to seek any such adjudication.
-4-
<PAGE>
(b) In the event that a determination that Indemnitee is not entitled to
indemnification, in whole or in part, has been made pursuant to Section 6
hereof, the decision in the judicial proceeding provided in paragraph (a) of
this Section 8 shall be made de novo and Indemnitee shall not be prejudiced by
reason of a determination that he or she is not entitled to indemnification.
(c) If a determination that Indemnitee is entitled to indemnification has
been made pursuant to Section 6 hereof or otherwise pursuant to the terms of
this Agreement, the Corporation shall be bound by such determination in the
absence of (i) a misrepresentation or omission of a material fact by Indemnitee
or (ii) a specific finding (which has become final) by an appropriate court of
the State of Delaware that all or any part of such indemnification is expressly
prohibited by law.
(d) In any court proceeding pursuant to this Section 8, the Corporation
shall be precluded from asserting that the procedures and presumptions of this
Agreement are not valid, binding and enforceable. The Corporation shall
stipulate in any such court that the Corporation is bound by all the provisions
of this Agreement and is precluded from making any assertion to the contrary.
(e) Expenses reasonably incurred by Indemnitee in connection with his or
her request for indemnification under this Agreement, seeking enforcement of
this Agreement or to recover damages for breach of this Agreement shall be borne
by the Corporation.
9. Modification, Waiver, Termination and Cancellation. No supplement,
--------------------------------------------------
modification, termination, cancellation or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver.
10. Subrogation. In the event of payment under this Agreement, the
-----------
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Corporation effectively to
bring suit to enforce such rights.
11. Notice by Indemnitee and Defense of Claim. Indemnitee shall promptly
-----------------------------------------
notify the Corporation in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
-5-
<PAGE>
matter, whether civil, criminal, administrative or investigative, but the
omission so to notify the Corporation will not relieve it from any liability
which it may have to Indemnitee if such omission does not prejudice the
Corporation's rights. If such omission does prejudice the Corporation's rights,
the Corporation will be relieved from liability only to the extent of such
prejudice; nor will such omission relieve the Corporation from any liability
which it may have to Indemnitee otherwise than under this Agreement. With
respect to any Proceeding as to which Indemnitee notifies the Corporation of the
commencement thereof:
(a) The Corporation will be entitled to participate therein at its own
expense; and
(b) The Corporation jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Indemnitee; provided, however, that the Corporation shall not be
entitled to assume the defense of any Proceeding if Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Corporation and Indemnitee with respect to such Proceeding. After notice from
the Corporation to Indemnitee of its election to assume the defense thereof, the
Corporation will not be liable to Indemnitee under this Agreement for any
Expenses subsequently incurred by Indemnitee in connection with the defense
thereof, other than reasonable costs of investigation or as otherwise provided
below. Indemnitee shall have the right to employ his or her own counsel in such
Proceeding but the fees and expenses of such counsel incurred after notice from
the Corporation of its assumption of the defense thereof shall be at the expense
of Indemnitee unless:
(i) The employment of counsel by Indemnitee has been authorized by
the Corporation;
(ii) Indemnitee shall have reasonably concluded that counsel engaged
by the Corporation may not adequately represent Indemnitee; or
(iii) The Corporation shall not in fact have employed counsel to
assume the defense in such Proceeding or shall not in fact have assumed
such defense and be acting in connection therewith with reasonable
diligence;
in each of which cases the fees and expenses of such counsel shall be at the
expense of the Corporation.
(c) The Corporation shall not settle any Proceeding in any manner which
would impose any penalty or limitation on
-6-
<PAGE>
Indemnitee without Indemnitee's written consent; provided, however, that
Indemnitee will not unreasonably withhold his or her consent to any proposed
settlement.
12. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to:
-------------------
-------------------
-------------------
-------------------
(b) If to the Corporation, to:
Beringer Wine Estates Holdings, Inc.
1000 Pratt Avenue
St. Helena, California 94574
Attention: Legal Department
or to such other address as may have been furnished to Indemnitee by the
Corporation or to the Corporation by Indemnitee, as the case may be.
13. Nonexclusivity. The rights of Indemnitee hereunder shall not be
--------------
deemed exclusive of any other rights to which Indemnitee may now or in the
future be entitled under the Delaware General Corporation Law, the Corporation's
Certificate of Incorporation or Bylaws, or any agreements, vote of stockholders,
resolution of the Board of Directors or otherwise.
14. Certain Definitions.
-------------------
(a) "Disinterested Director" shall mean a director of the Corporation who
is not or was not a party to the Proceeding in respect of which indemnification
is being sought by Indemnitee.
(b) "Expenses" shall include all direct and indirect costs (including,
without limitation, attorneys' fees, retainers, court costs, transcripts, fees
of experts, witness fees, travel expenses, duplicating costs, printing and
binding costs, telephone charges, postage, delivery service fees, all other
disbursements or out-of-pocket expenses and reasonable compensation for time
spent by Indemnitee for which he or she is otherwise not compensated by the
Corporation) actually and
-7-
<PAGE>
reasonably incurred in connection with a Proceeding or establishing or enforcing
a right to indemnification under this Agreement, applicable law or otherwise;
provided, however, that "Expenses" shall not include any Liabilities.
(c) "Final Adverse Determination" shall mean that a determination that
Indemnitee is not entitled to indemnification shall have been made pursuant to
Section 6 hereof and either (1) a final adjudication in a Delaware court
pursuant to Section 8(a) hereof shall have denied Indemnitee's right to
indemnification hereunder, or (2) Indemnitee shall have failed to file a
complaint in a Delaware court pursuant to Section 8(a) for a period of one
hundred twenty (120) days after the determination made pursuant to Section 6
hereof.
(d) "Indemnification Period" shall mean the period of time during which
Indemnitee shall continue to serve as a director or as an officer of the
Corporation, and thereafter so long as Indemnitee shall be subject to any
possible Proceeding arising out of acts or omissions of Indemnitee as a director
or as an officer of the Corporation.
(e) "Independent Legal Counsel" shall mean a law firm or a member of a law
firm selected by the Corporation and approved by Indemnitee (which approval
shall not be unreasonably withheld) and that neither is presently nor in the
past five (5) years has been retained to represent: (i) the Corporation, in any
material matter, or (ii) any other party to the Proceeding giving rise to a
claim for indemnification hereunder. Notwithstanding the foregoing, the term
"Independent Legal Counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Corporation or Indemnitee in an
action to determine Indemnitee's right to indemnification under this Agreement.
(f) "Liabilities" shall mean liabilities of any type whatsoever including,
but not limited to, any judgments, fines, ERISA excise taxes and penalties,
penalties and amounts paid in settlement (including all interest assessments and
other charges paid or payable in connection with or in respect of such
judgments, fines, penalties or amounts paid in settlement) of any proceeding.
(g) "Proceeding" shall mean any threatened, pending or completed action,
claim, suit, arbitration, alternate dispute resolution mechanism, investigation,
administrative hearing or any other proceeding whether civil, criminal,
administrative or investigative, including any appeal therefrom.
-8-
<PAGE>
15. Binding Effect, Duration and Scope of Agreement. This Agreement shall
-----------------------------------------------
be binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Corporation), spouses, heirs
and personal and legal representatives. This Agreement shall continue in effect
during the Indemnification Period, regardless of whether Indemnitee continues to
serve as a director or as an officer.
16. Severability. If any provision or provisions of this Agreement (or
------------
any portion thereof) shall be held to be invalid, illegal or unenforceable for
any reason whatsoever:
(a) the validity, legality and enforceability of the remaining provisions
of this Agreement shall not in any way be affected or impaired thereby; and
(b) to the fullest extent legally possible, the provisions of this
Agreement shall be construed so as to give effect to the intent of any provision
held invalid, illegal or unenforceable.
17. Governing Law and Interpretation of Agreement. This Agreement shall
---------------------------------------------
be governed by and construed and enforced in accordance with the laws of the
State of Delaware, as applied to contracts between Delaware residents entered
into and to be performed entirely within Delaware. If the laws of the State of
Delaware are hereafter amended to permit the Corporation to provide broader
indemnification rights than said laws permitted the Corporation to provide prior
to such amendment, the rights of indemnification and advancement of expenses
conferred by this Agreement shall automatically be broadened to the fullest
extent permitted by the laws of the State of Delaware, as so amended.
18. Consent to Jurisdiction. The Corporation and Indemnitee each
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of Delaware.
19. Entire Agreement. This Agreement represents the entire agreement
----------------
between the parties hereto, and there are no other agreements, contracts or
understandings between the parties hereto with respect to the subject matter of
this Agreement, except as specifically referred to herein or as provided in
Section 13 hereof.
-9-
<PAGE>
20. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute one and the same Agreement.
BERINGER WINE ESTATES HOLDINGS, INC.
By:
--------------------------
Its:
-------------------------
------------------------------
-10-
<PAGE>
Exhibit 10.7
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of February 28, 1997
among
BERINGER WINE ESTATES COMPANY
as Borrower
and
PACIFIC COAST FARM CREDIT SERVICES, ACA
COBANK, ACB
BANK OF AMERICA NT&SA
GENERAL ELECTRIC CAPITAL CORPORATION
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.
RABOBANK NEDERLAND, NEW YORK BRANCH
THE FIRST NATIONAL BANK OF BOSTON
as Lenders
and
PACIFIC COAST FARM CREDIT SERVICES, ACA
as the Agent for the Lenders
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I. GENERAL TERMS........................................................................ 3
1.1 Certain Defined Terms................................................................ 3
1.2 Accounting Terms..................................................................... 32
1.3 Certain Matters of Construction...................................................... 32
ARTICLE II. AMOUNT AND TERMS OF CREDIT........................................................... 33
2.1 Revolving Advances................................................................... 33
2.2 Term Loan............................................................................ 37
2.3 Mandatory Prepayments; Application Thereof........................................... 39
2.4 Other Prepayments.................................................................... 42
2.5 Interest on Revolving Advances....................................................... 44
2.6 Interest on Term Loan................................................................ 46
2.7 Other Interest Provisions............................................................ 50
2.8 Fees................................................................................. 53
2.9 Purchase of Farm Credit Stock........................................................ 55
2.10 Receipt of Payments.................................................................. 56
2.11 Application and Allocation of Payments Prior to the Occurrence
of an Event of Default............................................................. 56
2.12 Accounting........................................................................... 57
2.13 Taxes................................................................................ 57
2.14 Capital Adequacy..................................................................... 58
2.15 Eligible Accounts.................................................................... 59
2.16 Eligible Inventory................................................................... 61
2.17 Valuation of Inventory............................................................... 64
2.18 Eligible Wine Barrels................................................................ 64
2.19 Requests to Refinance Revolving Loan................................................. 64
ARTICLE III. COLLATERAL........................................................................... 65
3.1 Borrower's Obligations............................................................... 65
3.2 Further Assurances................................................................... 65
ARTICLE IV. CONDITIONS PRECEDENT TO ADVANCES..................................................... 66
4.1 Conditions to Initial Revolving Advance, Initial Letter of Credit Obligation
and Term Loan........................................................................ 66
4.2 Conditions to Each Revolving Advance, Letter of Credit Obligation and the Term Loan.. 69
4.3 Conditions to Advances on Second Restatement Closing Date............................ 69
4.4 Conditions to Newhall Advance........................................................ 71
ARTICLE V. REPRESENTATIONS AND WARRANTIES....................................................... 72
5.1 Corporate Existence; Compliance with Law............................................. 72
5.2 Executive Offices.................................................................... 72
5.3 Subsidiaries......................................................................... 73
5.4 Corporate Power; Authorization; Enforceable Obligations.............................. 73
5.5 Solvency............................................................................. 73
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
5.6 Financial Statements................................................................. 73
5.7 Projections.......................................................................... 74
5.8 Ownership of Property; Liens......................................................... 74
5.9 No Default........................................................................... 75
5.10 Burdensome Restrictions.............................................................. 76
5.11 Labor Matters........................................................................ 76
5.12 Other Ventures....................................................................... 76
5.13 Investment Company Act............................................................... 76
5.14 Margin Regulations................................................................... 77
5.15 Taxes................................................................................ 77
5.16 ERISA................................................................................ 78
5.17 No Litigation........................................................................ 79
5.18 Brokers.............................................................................. 80
5.19 Stock Acquisition.................................................................... 80
5.20 Outstanding Stock; Options; Warrants, Etc............................................ 80
5.21 Employment and Labor Agreements...................................................... 80
5.22 Patents, Trademarks, Copyrights, and Licenses........................................ 80
5.23 Full Disclosure...................................................................... 81
5.24 Liens................................................................................ 81
5.25 No Material Adverse Effect........................................................... 81
5.26 Hazardous Materials.................................................................. 81
5.27 Insurance Policies................................................................... 82
5.28 Deposit and Disbursement Accounts.................................................... 83
5.29 PACA................................................................................. 83
5.30 Correctness of Disclosure Schedule................................................... 83
ARTICLE VI. FINANCIAL STATEMENTS AND INFORMATION................................................. 84
6.1 Reports and Notices.................................................................. 84
6.2 Communication with Accountants....................................................... 86
ARTICLE VII. AFFIRMATIVE COVENANTS................................................................ 87
7.1 Maintenance of Existence and Conduct of Business..................................... 87
7.2 Payment of Obligations............................................................... 88
7.3 Agent's and Lenders' Bank Fees....................................................... 88
7.4 Books and Records.................................................................... 88
7.5 Litigation........................................................................... 89
7.6 Insurance............................................................................ 89
7.7 Compliance with Laws................................................................. 90
7.8 Agreements........................................................................... 90
7.9 Supplemental Disclosure.............................................................. 90
7.10 Employee Plans....................................................................... 91
7.11 Environmental Matters................................................................ 91
7.12 Subsidiary........................................................................... 91
7.13 Maintenance of Equipment and Fixtures................................................ 91
7.14 Syndication.......................................................................... 92
7.15 Payment of Grower Payables........................................................... 92
7.16 Payment of Leases.................................................................... 92
7.17 Interest Rate Protection............................................................. 92
7.18 Notification Regarding Subordinated Debt............................................. 92
7.19 Proceeds of Second Restatement Stock................................................. 93
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VIII. NEGATIVE COVENANTS................................................................... 93
8.1 Mergers, Etc. ....................................................................... 93
8.2 Investments; Loans and Advances...................................................... 93
8.3 Indebtedness......................................................................... 94
8.4 Capital Structure.................................................................... 96
8.5 Maintenance of Business.............................................................. 97
8.6 Transactions with Affiliates......................................................... 97
8.7 Guaranteed Indebtedness.............................................................. 97
8.8 Liens................................................................................ 97
8.9 Sales of Assets...................................................................... 98
8.10 Cancellation of Claims. ............................................................ 99
8.11 Events of Default.................................................................... 99
8.12 Restricted Payments.................................................................. 99
8.13 Payment or Modification of Subordinated Debt.........................................100
8.14 Limitation on Purchase of Real Property..............................................100
8.15 Termination of Real Property Leases..................................................100
8.16 ERISA................................................................................100
8.17 Maintenance Capital Expenditures.....................................................101
8.18 Non-Maintenance Capital Expenditures.................................................102
8.19 Hazardous Materials..................................................................105
8.20 PACA License.........................................................................106
8.21 Financial Covenants..................................................................106
8.22 Compliance With Subordinated Debt Documents..........................................107
8.22 No Purchase of Newhall Property Without Term Lenders' Making Newhall Advance.........107
ARTICLE IX. INDEMNITY............................................................................107
9.1 Indemnification......................................................................107
9.2 No Control...........................................................................108
ARTICLE X. EVENTS OF DEFAULT; RIGHTS AND REMEDIES...............................................109
10.1 Events of Default....................................................................109
10.2 Acceleration; Remedies...............................................................112
10.3 Distribution and Application of Amounts Received After an Event of Default...........114
10.4 Waivers by Borrower..................................................................115
ARTICLE XI. AGENCY...............................................................................116
11.1 Appointment..........................................................................116
11.2 Delegation of Duties.................................................................116
11.3 Limitation of Liability..............................................................116
11.4 Reliance by Agent....................................................................117
11.5 Notice of Default....................................................................117
11.6 Non-Reliance on Agent and the Other Lenders..........................................118
11.7 Indemnification......................................................................118
11.8 Payments.............................................................................119
11.9 Agent in Its Individual Capacity.....................................................119
11.10 Successor Agent......................................................................119
11.11 Applicability of this Article to Borrower............................................120
ARTICLE XII. ASSIGNMENTS AND PARTICIPATIONS.......................................................120
12.1 Successors and Assigns...............................................................120
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
12.2 Assignments..........................................................................120
12.3 Participations.......................................................................122
12.4 Disclosure...........................................................................123
ARTICLE XIII. MISCELLANEOUS........................................................................123
13.1 Complete Agreement; Modification of Agreement........................................123
13.2 Fees and Expenses....................................................................124
13.3 Access and Annual Audit..............................................................125
13.4 Set-off; Sharing.....................................................................126
13.5 No Waiver by Agent or Lenders........................................................127
13.6 Remedies.............................................................................127
13.7 Severability.........................................................................128
13.8 Parties..............................................................................128
13.9 Conflict of Terms....................................................................128
13.10 Authorized Signature.................................................................128
13.11 GOVERNING LAW........................................................................128
13.12 Notices..............................................................................129
13.13 Survival.............................................................................132
13.14 Section Titles.......................................................................132
13.15 Counterparts.........................................................................132
13.16 Performance Always Due on Business Day...............................................132
13.17 MUTUAL WAIVER OF JURY TRIAL..........................................................132
13.18 Revival of Obligations...............................................................132
13.19 Time of the Essence..................................................................133
13.20 No Third Party Beneficiaries.........................................................134
13.21 Payments in Immediately Available Funds..............................................134
</TABLE>
iv
<PAGE>
INDEX OF EXHIBITS
-----------------
Exhibit A - Form of Borrowing Base Certificate
Exhibit B - Lenders' Percentages
Exhibit C - Schedule of Documents
Exhibit C-1 - Third Amendment Schedule
Exhibit C-2 - Second Restatement Schedule
Exhibit D - Form of Notice of Revolving Advance
Exhibit E - Form of Bill of Sale
Exhibit F - Schedule of Special Real Property
Exhibit G - Form of Certification Regarding Compliance
with Financial Covenants
Exhibit H - Term Loan Tranche B Principal Amortization
Schedule
v
<PAGE>
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT ("Agreement"), dated
as of February 28, 1997, is by and among BERINGER WINE ESTATES COMPANY, a
Delaware corporation ("Borrower"), formerly known as WINE WORLD ESTATES COMPANY
("Wine World"), and PACIFIC COAST FARM CREDIT SERVICES, ACA, ("Pacific Coast"),
COBANK, ACB ("CoBank"), BANK OF AMERICA NT&SA ("Bank of America"), GENERAL
ELECTRIC CAPITAL CORPORATION ("GE Capital"), COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., RABOBANK NEDERLAND, NEW YORK BRANCH ("Rabobank") and THE
FIRST NATIONAL BANK OF BOSTON ("Bank of Boston") (collectively, "Lenders" and
individually, a "Lender") and PACIFIC COAST FARM CREDIT SERVICES, ACA, as agent
for Lenders (in such capacity, "Agent") with respect to the following facts:
RECITALS
--------
A. Borrower owns and operates several vertically integrated wineries. On
or about January 1, 1996, Borrower consummated a transaction (the "Stock
Acquisition") involving the following elements: (i) Borrower merged with Wine
Acquisition Corporation, a Delaware corporation, with Borrower being the
surviving entity, and (ii) in payment for the shares in Borrower held by Nestle
Holdings, Inc. ("Nestle"), Borrower tendered a cash payment to Nestle and also
issued to Nestle a Promissory Note dated January 1, 1996 for Two Hundred
Seventy-Five Million Dollars ($275,000,000) (the "Nestle Debt"), which
Promissory Note was secured by various real and personal property owned by
Borrower.
B. Borrower originally requested that Lenders provide Borrower with a
senior secured credit facility in the maximum aggregate principal amount of up
to Three Hundred Twenty Million Dollars ($320,000,000), consisting of two
tranches, a revolving credit facility in the maximum aggregate amount of up to
One Hundred Fifty Million Dollars ($150,000,000) (which included a letter of
credit subfacility in the maximum amount of Ten Million Dollars ($10,000,000))
and a term loan in the maximum aggregate amount of up to One Hundred Seventy
Million Dollars ($170,000,000), the proceeds of which Borrower used for its
ordinary working capital needs, to assist in retiring the Nestle Debt and to
facilitate the purchase of certain assets from Chateau St. Jean, a California
corporation, as more fully set forth in that certain Asset Purchase Agreement
dated as of March 22, 1996, by and between Chateau St. Jean, Suntory
International Corp. and Borrower (the asset purchase transaction is hereafter
referred to as the "Chateau St. Jean Acquisition").
C. Lenders provided Borrower with the requested senior secured credit
facility as evidenced by that certain Credit Agreement (the "Original Credit
Agreement"), by and among,
1
<PAGE>
Borrower, Lenders and Agent, dated as of January 16, 1996 as amended by a First
Amendment, Second Amendment and Third Amendment by and among, Borrower, Lenders
and Agent.
D. Subsequent to the execution of the Original Credit Agreement by
Borrower, the Board of Directors of Wine World and Silverado Partners
Acquisition Corp., a California corporation ("SPAC"), as the sole shareholder of
Wine World, each adopted resolutions authorizing an amendment to the Certificate
of Incorporation of Wine World to change the name of Wine World to Beringer Wine
Estates Company.
E. Subsequent to the authorization of the Wine World name change, SPAC
reincorporated in the state of Delaware through the merger of SPAC with and into
Beringer Wine Estates Holdings, Inc., a Delaware corporation ("BWEH"), a newly
formed Delaware corporation having no material assets or liabilities at the time
of the merger, pursuant to the terms of an agreement and plan of merger by and
between SPAC and BWEH.
F. In connection with the name change of Wine World and the merger of
SPAC with and into BWEH, Borrower requested that the Lenders amend and restate
the Original Credit Agreement to reflect the Wine World name change and the
merger of SPAC with and into BWEH. Lenders agreed and Borrower, Lenders, and
Agent entered into an Amended and Restated Credit Agreement dated as of June 7,
1996.
G. Borrower has entered into an agreement with various individuals to
purchase the stock of Stag's Leap Winery, Inc. ("Stag's Leap") and to purchase
certain real property and personal property related thereto (such stock and real
property are hereafter referred to as the "Stag's Leap Assets" and the
transaction by which such assets were acquired is hereafter referred to as the
"Stag's Leap Acquisition") pursuant to a Stock and Asset Purchase Agreement
dated as of January 31, 1997 and certain other documents referred to therein
(collectively, the "Stag's Leap Acquisition Agreements"). Borrower has entered
into an agreement to purchase certain real property and related personal
property (the "Newhall Property") from The Newhall Land and Farming Company
("Newhall") pursuant to an agreement and certain other documents referred to
therein (collectively, the "Newhall Acquisition Agreements"). (The transaction
by which the Newhall Property is acquired is hereafter referred to as the
"Newhall Acquisition.")
H. Borrower has requested that Lenders increase the Term Loan by Twelve
Million Five Hundred Thousand Dollars ($12,500,000) to facilitate Borrower's
acquisition of the Stag's Leap Assets and the Newhall Property. Borrower has
further requested that Lenders agree to certain other changes to the Agreement.
2
<PAGE>
I. The Lenders are willing to agree to the above request on the terms and
conditions set forth herein and in the documents executed in connection
herewith.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto agree as follows:
ARTICLE I.
GENERAL TERMS
-------------
1.1 Certain Defined Terms. As used in this Agreement, all terms defined
----------------------
in the preamble to this Agreement shall have the meanings set forth therein, and
the following terms shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms defined):
"Account Debtor" shall mean any Person who may become obligated to
Borrower under, with respect to, or on account of, an account.
"Acquisition Agreements" shall mean the Stock Purchase Agreement by
and among Nestle and various other parties dated November 17, 1995, as amended
by that certain First Amendment to Stock Purchase Agreement dated as of December
29, 1995, and all exhibits, schedules, amendments, modifications, or supplements
thereto and any other documents, instruments, and agreements delivered by any
party in connection with such Stock Purchase Agreement or the transactions
contemplated thereby or the Stock Acquisition.
"Affiliate" shall mean, (a) with respect to any Person, (i) each
Person that, directly or indirectly, owns or controls, whether beneficially, or
as a trustee, guardian or other fiduciary, ten percent (10%) or more of the
Stock having ordinary voting power in the election of directors of such Person,
(ii) each Person that controls, is controlled by or is under common control with
such Person or any Affiliate of such Person or (iii) each of such Person's
officers, directors, joint venturers and partners, and (b) with respect to
Borrower, (I) each Person, officer, director, joint venturer and partner
described in clause (a), together with (II) Wine World Equity Partners, L.P.,
Silverado Equity Partners, L.P., David Freed, George Vare, Michael Moone, and
Richard Lemon. For the purpose of this definition, "control" of a Person shall
mean the possession, directly or indirectly, of the power to direct or cause the
direction of its management or policies, whether through the ownership of voting
securities, by contract or otherwise.
3
<PAGE>
"Agency Fee" shall have the meaning ascribed to such term in Section
2.8(b).
"Agent" means Pacific Coast, but solely in its capacity as Agent
hereunder and not in any other capacity.
"Agreement" shall mean this Second Amended and Restated Credit
Agreement, including all amendments, modifications, and supplements hereto and
any appendices, exhibits, or schedules to any of the foregoing, and, if the
context shall so require, shall refer to any previous versions of this Agreement
that may from time to time have been in effect.
"Agricultural Real Property" shall mean real property other than
Winery Real Property and Special Real Property.
"Assignment and Acceptance" shall have the meaning ascribed to such
term in Section 12.2(a).
"Authorized Financial Representative" shall mean a person listed on
the Certificate of Financial Representatives delivered by Borrower to Lenders
pursuant to the Schedule of Documents or any person subsequently designated by
Borrower as an Authorized Financial Representative in a written notice delivered
by Borrower to Agent.
"Bankruptcy Code" shall mean 11 U.S.C. (S)(S) 101, et seq., as in
-- ---
effect from time to time.
"Barrel Maintenance Capital Expenditures" shall mean Maintenance
Capital Expenditures for the acquisition, replacement, refurbishing, improvement
or repair of American oak wine barrels used in connection with wineries owned by
Borrower at the Closing Date or acquired in the Chateau St. Jean Acquisition or
the Stag's Leap Acquisition, determined in accordance with GAAP.
"Base Term Loan Amount" shall mean (a) sixty-nine percent (69%) of the
value of the real property (including leasehold interests for which a deed of
trust and a landlord's agreement in favor of and satisfactory to Agent have been
executed and delivered) securing the Obligations, minus (b) the amount of all
-----
principal payments made by Borrower on account of the Term Loan pursuant to
Section 2.2(c). The value of such real property shall be determined by the Real
Estate Valuation Schedule previously delivered by Agent to Borrower, unless
Agent decides to require, on or after January 16, 1999, updated appraisals, the
cost of which shall be paid by Borrower, in which case the value shall be
determined by such updated appraisals but only if such updated appraisals show a
decline in value).
4
<PAGE>
"BATF" shall mean the federal Bureau of Alcohol, Tobacco and Firearms
or any successor thereto.
"Borrower" shall mean Beringer Wine Estates Company, a Delaware
corporation, formerly known as Wine World Estates Company.
"Borrower's Knowledge" means to the actual knowledge of Borrower's
chief executive officer, chief financial officer, controller, assistant
controller, vice president of field or vineyard operations, vice presidents for
winery operations, and vice president for human resources, provided that if any
--------
such position shall be eliminated, then the equivalent replacement position
shall be included in each case without any implication that such individual has
undertaken particular investigation of the matter in question.
"Borrowing Base" shall mean an amount equal to the following:
(a) eighty percent (80%) of the value of Eligible Accounts, the value
being the amount invoiced by Borrower, less any discount for prompt
payment or other discount available to the Account Debtor; plus
----
(b) sixty percent (60%) of the value, net of any temporary price
promotions (historically defined in Borrower's financial records under
the categories of depletion expense, purchase allowance, free goods,
bonus packs, and other), of Eligible Inventory consisting of Cased
Goods Inventory, as determined in accordance with Section 2.16; plus
----
(c) fifty-five percent (55%) of the value of Eligible Inventory, other
than Cased Goods Inventory, as determined in accordance with Section
2.16; plus
----
(d) eighty-five percent (85%) of Cash Invested in Growing Crops;
provided, that the maximum amount outstanding against Cash Invested in
--------
Growing Crops at any one time shall not exceed (i) during the crop
year ending November 30, 1996, the lesser of (A) eighty-five percent
(85%) of the maximum amount of Cash Invested in Growing Crops approved
by Lenders in connection with approval of the crop budget for such
crop year, and (B) Fifteen Million Dollars ($15,000,000) and (ii)
during subsequent crop years, the lesser of (A) eighty-five percent
(85%) of the maximum amount of Cash Invested in Growing Crops approved
by Lenders in connection with approval of the crop budget for such
year, or (B) Fifteen Million Dollars ($15,000,000) plus six percent
(6%) per annum for each crop year after the
5
<PAGE>
crop year ending November 30, 1996, compounded annually; plus
(e) seventy percent (70%) of the following: (i) one hundred percent
(100%) of the value of Eligible Wine Barrels that are less than one
(1) year old, (ii) seventy-five percent (75%) of Eligible Wine Barrels
that are one (1) year old or more, but less than two (2) years old,
(iii) fifty percent (50%) of Eligible Wine Barrels that are two (2)
years old or more, but less than three (3) years old, and (iv) twenty-
five (25%) percent of Eligible Wine Barrels that are three (3) years
old or more, but less than four (4) years old, in each case as
determined by Section 2.18; minus
-----
(f) the aggregate amount of Grower Payables outstanding from time to
time; minus
-----
(g) such other reserves as Agent may reasonably deem necessary from
time to time.
"Borrowing Base Certificate" shall mean a certificate in the form
attached hereto as Exhibit A.
"Business Day" shall mean any day that is not a Saturday, a Sunday, or
a day on which banks are required or permitted to be closed in the State of
California.
"BWEH" shall mean Beringer Wine Estates Holdings, Inc., a Delaware
corporation, successor by merger to SPAC.
"Capital Expenditures" shall mean, for any period and with respect to
any Person, the aggregate of all expenditures (whether paid in cash or other
consideration or accrued as a liability and including that portion of Capital
Leases that is capitalized on the balance sheet of such Person including in
connection with a sale-leaseback transaction) by such Person and its
Subsidiaries for the acquisition or leasing of fixed or capital assets or
additions to equipment (including replacements, capitalized repairs and
improvements during such period) which are required to be capitalized under GAAP
on a consolidated balance sheet of such Person and its Subsidiaries. Capital
Expenditures shall not include (i) the actual value received for existing
equipment either traded-in at time of purchase of new equipment or sold in the
ordinary course of business (but only to the extent such equipment is replaced),
and (ii) expenditures made from insurance proceeds.
"Capital Lease" shall mean, with respect to any Person, any lease of
any property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, either would
6
<PAGE>
be required to be classified and accounted for as a capital lease on a balance
sheet of such Person or otherwise be disclosed as such in a note to such balance
sheet, other than, in the case of Borrower, any such lease under which Borrower
is the lessor.
"Capital Lease Obligation" shall mean, with respect to any Capital
Lease, the amount of the obligation of the lessee thereunder that, in accordance
with GAAP, would appear on a balance sheet of such lessee in respect of such
Capital Lease or otherwise be disclosed in a note to such balance sheet.
"Cash Collateral Account" shall have the meaning assigned to it in
Section 2.1(h).
"Cased Goods Inventory" shall mean finished bottled and labeled wine
that has been placed in cases and is ready for delivery to customers, and as to
which all taxes which are due have been paid.
"Cash Equivalents" shall mean (i) securities issued, guaranteed or
insured by the United States of America or any of its agencies with maturities
of not more than ninety (90) days from the date acquired, (ii) certificates of
deposit with maturities of not more than ninety (90) days from the date acquired
that have been issued by a United States Federal or state chartered commercial
bank of recognized standing, which bank has capital and unimpaired surplus in
excess of $500,000,000, based on its most recent publicly available financial
statements, and which bank or its holding company has a short-term commercial
paper rating of at least A-1 or the equivalent by Standard & Poor's Corporation
or at least P-1 or the equivalent by Moody's Investors Services, Inc., (iii)
commercial paper or finance company paper issued by any Person incorporated
under the laws of the United States of America or any state thereof and having a
rating of at least A-1 or the equivalent by Standard & Poor's Corporation or at
least P-1 or the equivalent by Moody's Investors Services, Inc., in each case
with maturities of not more than ninety (90) days from the date acquired, and
(iv) investments in any money market funds registered under the Investment
Company Act of 1940 that is approved by Agent, which approval shall not
unreasonably be withheld.
"Cash Invested in Growing Crops" shall mean the actual amount directly
expended by Borrower for production of growing crops but only to the extent that
such expenditures were included in the annual crop operating budget submitted to
Agent pursuant to Section 6.1(g) and were approved by Requisite Lenders, such
approval not to be unreasonably withheld, but shall not include (a) expenditures
for vineyard development or planting, (b) payments on any Indebtedness, and (c)
rental payments under leases for vineyards.
7
<PAGE>
"Charges" shall mean all federal, state, county, city, municipal,
local, foreign, or other governmental taxes (including, without limitation,
taxes owed to either (A) PBGC or (B) BATF or any other federal, state or local
governmental agency in connection with the sale of alcoholic beverages) at the
time due and payable, levies, assessments, charges, liens, claims or
encumbrances upon or relating to (i) the Collateral, (ii) the Obligations, (iii)
the employees, payroll, income, or gross receipts of Borrower, (iv) Borrower's
ownership or use of any of its assets, or (v) any other aspect of Borrower's
business.
"Closing Date" shall mean January 16, 1996, the date on which Lenders
made the first advance to Borrower under the Original Credit Agreement.
"Code" shall mean the Uniform Commercial Code of the jurisdiction with
respect to which such term is used, as in effect from time to time.
"Collateral" shall mean any and all property of Borrower or any
Guarantor in which Agent, for the benefit of Lenders, now or hereafter has a
Lien to secure all or any part of the Obligations or the obligations of such
Guarantor to Agent and Lenders.
"Collection Account" shall mean a bank account in the name of Agent at
a bank chosen by Borrower and reasonably acceptable to Agent which shall be,
unless otherwise consented to by Agent, the same bank at which the Disbursement
Account is maintained.
"Commitment Fee" shall have the meaning assigned to it in Section
2.8(a).
"Compensation" shall mean, with respect to any Person, all payments
and accruals commonly considered to be compensation, including, without
limitation, all wages, salary, deferred payment arrangements, bonus payments and
accruals, profit sharing arrangements, payments in respect of stock option or
phantom stock option or similar arrangements, stock appreciation rights or
similar rights, incentive payments, pension or employment benefit contributions
or similar payments, made to or accrued for the account of such Person or
otherwise for the direct or indirect benefit of such Person.
"Consolidated Adjusted Current Assets" shall mean, as at any date of
determination, the current assets of Borrower and its Subsidiaries, determined
on a consolidated basis in conformity with GAAP, adjusted to exclude (i) cash,
(ii) Cash Equivalents, and (iii) any non-cash step-ups in the stated value of
inventories resulting from the Stock Acquisition, the Chateau St. Jean
Acquisition, or the Stag's Leap Acquisition.
8
<PAGE>
"Consolidated Adjusted Current Liabilities" shall mean, as at any date
of determination, the current liabilities of Borrower and its Subsidiaries,
determined on a consolidated basis in conformity with GAAP, adjusted to exclude
(i) all short term Consolidated Funded Debt, (ii) current maturities of long
term debt, (iii) Deferred Taxes, (iv) all Obligations with respect to the
Revolving Loan, and (v) any obligation owing to Lenders to make any Excess Cash
Flow Payment pursuant to Section 2.3(b).
"Consolidated Cash Flow" shall mean, for any period, for Borrower and
its Subsidiaries on a consolidated basis, the sum (without duplication) of: (a)
Consolidated Net Income; plus (b) the sum of (i) federal, state, local, and
----
foreign income taxes, (ii) extraordinary non-cash losses, (iii) interest expense
(including the interest portion of any capitalized lease obligations), (iv)
lease expenses with respect to the Designated Operating Leases, (v) depletion,
depreciation and amortization, (vi) losses on asset sales, and (vii) any
periodic effect of any non-cash step-ups in the stated value of inventories
resulting from the Stock Acquisition, the Chateau St. Jean Acquisition, or the
Stag's Leap Acquisition; minus (c) the sum of (I) extraordinary gains, (II)
-----
gains on asset sales, (III) cash taxes payable, and (IV) the greater of (x)
actual quarterly Maintenance Capital Expenditures over the immediately preceding
four quarters, or (y) Four Million Four Hundred Thousand Dollars ($4,400,000);
provided, that for purposes of determining Consolidated Cash Flow, Maintenance
- --------
Capital Expenditures shall not include Phylloxera Capital Expenditures.
"Consolidated Current Assets" shall mean, as at any date of
determination, the current assets of Borrower and its Subsidiaries, determined
on a consolidated basis in conformity with GAAP, adjusted to (i) exclude any
remaining unamortized step-ups in the stated value of inventories resulting from
the Stock Acquisition, the Chateau St. Jean Acquisition, or the Stag's Leap
Acquisition, and (ii) exclude any current asset consisting of Deferred Taxes
resulting from the Stock Acquisition, the Chateau St. Jean Acquisition, or the
Stag('s) Leap Acquisition.
"Consolidated Current Liabilities" shall mean, as at any date of
determination, the current liabilities of Borrower and its Subsidiaries,
determined on a consolidated basis in conformity with GAAP, adjusted to (i)
include all Obligations with respect to the Revolving Loan, (ii) exclude any
obligation owing to Lenders to make any Excess Cash Flow Payment pursuant to
Section 2.3(b), and (iii) exclude any liability for Deferred Taxes associated
with the step-ups in the stated value of inventories resulting from the Stock
Acquisition, the Chateau St. Jean Acquisition, or the Stag's Leap Acquisition,
as long as such deferred tax liability will not result in a cash tax payment
over the next twelve (12) months.
9
<PAGE>
"Consolidated Debt Coverage Ratio" shall mean, as at any date of
determination, the ratio of Consolidated Cash Flow for any period to
Consolidated Debt Service for such period.
"Consolidated Debt Service" shall mean, for any period, for Borrower
and its Subsidiaries on a consolidated basis, the sum (without duplication) of
the following: (i) cash interest expense (including the interest portion of any
capitalized lease obligations); (ii) scheduled principal payments (including the
principal portion of capitalized lease obligations); (iii) scheduled payments on
the Designated Operating Leases; and (iv) cash dividends paid or declared.
"Consolidated EBITDA" shall mean, for any period, for Borrower and its
Subsidiaries on a consolidated basis, the sum (without duplication) of: (a)
Consolidated Net Income; plus (b) the sum of (i) Federal, state, local, and
foreign income taxes, (ii) interest expense (including the interest portion of
any capitalized lease obligations), (iii) depletion, depreciation and
amortization, (iv) any periodic effect of any non-cash step-ups in the stated
value of inventories resulting from the Stock Acquisition, the Chateau St. Jean
Acquisition, or the Stag's Leap Acquisition, (v) losses on asset sales, and (vi)
all other non-cash expenses; minus (c) the sum of (I) gains on asset sales, and
-----
(II) extraordinary gains.
"Consolidated Funded Debt" shall mean, as at any date of
determination, for Borrower and its Subsidiaries on a consolidated basis, the
sum (without duplication) of: (a) indebtedness for borrowed money or for the
deferred purchase price of property or services (including reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured, but excluding obligations to trade
creditors incurred in the ordinary course of business), (b) all obligations
evidenced by notes, bonds, debentures or similar instruments, (c) all Capital
Lease Obligations, (d) amounts owing under the Obligations, and (e) amounts
owing under the Subordinated Debt.
"Consolidated Funded Debt to Consolidated EBITDA Ratio" shall mean, as
at any date of determination, the ratio of Consolidated Funded Debt, as of such
date of determination, to Consolidated EBITDA for the rolling four-quarter
period ending upon such date of determination.
"Consolidated Net Income" shall mean, for any period, on a
consolidated basis, the net income, if any, of Borrower and its Subsidiaries,
determined in accordance with GAAP.
"Consolidated Net Loss" shall mean, for any period, on a consolidated
basis, the net loss, if any, of Borrower and its Subsidiaries, determined in
accordance with GAAP.
10
<PAGE>
"Consolidated Net Worth" shall mean, as at any date of determination,
the amount, if any, by which Consolidated Total Assets exceeds Consolidated
Total Liabilities.
"Consolidated Total Assets" shall mean, as at any date of
determination, all assets of Borrower and its Subsidiaries, as determined in
accordance with GAAP.
"Consolidated Total Liabilities" shall mean, as at any date, on a
consolidated basis, all liabilities of Borrower and its Subsidiaries, as
determined in accordance with GAAP.
"Consolidated Working Capital" shall mean, as at any date, for
Borrower and its Subsidiaries on a Consolidated Basis, Consolidated Adjusted
Current Assets, minus Consolidated Adjusted Current Liabilities.
-----
"Cost of Funds Rate" shall mean, at any time, the yield of the
applicable Farm Credit Medium Term Notes, as made available by the Federal Farm
Credit Banks Funding Corporation, most closely matching a one year, two year,
three year, five year, seven year or nine and one-half year Fixed Rate Interest
Period upon the maturity of such Interest Period.
"Default" shall mean any event or circumstance which, with the passage
of time or the giving of notice or both, would unless remedied or waived, become
an Event of Default.
"Default Rate" shall mean: (a) with respect to Revolving Advances
bearing interest at the Variable Rate, a rate of interest equal to the higher of
(i) the Prime Rate, or (ii) the Reference Rate, in either case plus a margin of
three and three-quarters percent (3.75%) per annum; (b) with respect to
Revolving Advances bearing interest at a Fixed Rate, a rate of interest that is
three percent (3.00%) per annum higher than the otherwise applicable Fixed Rate
(until the expiration of the applicable Interest Period at which time such
Revolving Advances shall be treated the same as Revolving Advances bearing
interest at the Variable Rate); (c) with respect to the Letter of Credit
Maintenance Fee, a fee that is three percent (3.00%) per annum higher than the
otherwise applicable Letter of Credit Maintenance Fee; (d) with respect to any
principal portion of the Term Loan, a rate of interest that is three percent
(3.00%) per annum higher than the rate otherwise applicable to such principal
portion of the Term Loan, provided, that upon the expiration of any Interest
--------
Period during the continuance of an Event of Default, the relevant portion of
the Term Loan shall thereafter bear interest until cure or waiver of the Event
of Default at the Discount Rate, plus a margin of five and thirty-five one
hundredths percent (5.35%) per annum; and (e) with respect to all other
Obligations (including interest on Revolving Advances not paid when due,
interest on the Term Loan not paid when due, and
11
<PAGE>
payment of costs, fees, and expenses provided for under any Loan Document), a
rate of interest equal to the higher of (I) the Prime Rate, or (II) the
Reference Rate, in either case plus a margin of three and three-quarters percent
(3.75%) per annum.
"Deferral Amount" shall have the meaning set forth in Section 2.3(b).
"Deferred Taxes" shall mean, as to any Person, as at any date of
determination, accrued or assessed taxes that would be due and payable in the
year accrued or assessed, but for a statutory or regulatory provision providing
or allowing for payment at a later date, determined in accordance with GAAP.
"Designated Operating Leases" shall mean all operating leases under
which Borrower is the lessee, excluding leases of real property.
"Direct Compensation" shall mean, with respect to any Person, all
payments and accruals commonly considered to be such Person's base salary and
shall not include bonus payments and accruals, profit sharing arrangements,
payments in respect of stock option or phantom stock option or similar
arrangements, stock appreciation rights or similar rights, incentive payments,
pension or employment benefit contributions or similar payments made to on
accrued for the account of such Person or otherwise for the direct or indirect
benefit of such Person.
"Disbursement Account" shall mean a bank account at a bank chosen by
Borrower and reasonably acceptable to Agent, having the following
characteristics: (a) the account will be in the name of Agent, (b) the account
will be an account in which Lenders will wire advances under the Revolving Loan,
and (c) the bank will be instructed by Agent to transfer funds into an account
designated by Borrower.
"Disclosure Schedule" shall mean the Amended Disclosure Schedule
delivered by Borrower to Agent and Lenders pursuant to Item 1.6 of the Third
Amendment Schedule, as supplemented by the Second Amended Disclosure Schedule
referred to in the Second Restatement Schedule.
"Discount Rate" shall mean, at any time, the ninety (90) day Farm
Credit Notes Discount Note Rate then available from the Federal Farm Banks
Funding Corporation.
"DOL" shall mean the United States Department of Labor or any
successor thereto.
"Draw Amount" shall have the meaning assigned to it in Section 2.1(g).
12
<PAGE>
"Eligible Accounts" shall have the meaning assigned to it in Section
2.15.
"Eligible Inventory" shall have the meaning assigned to it in Section
2.16.
"Eligible Wine Barrels" shall have the meaning assigned to it Section
2.18.
"Environmental Laws" shall mean all federal, state and local laws,
statutes, ordinances and regulations, now or hereafter in effect, and in each
case as amended or supplemented from time to time, and any judicial or
administrative interpretation thereof, including, without limitation, any
applicable judicial or administrative order, consent decree or judgment,
relative to the applicable real estate, relating to the regulation and
protection of human health, safety, the environment and natural resources
(including ambient air, surface water, groundwater, wetlands, land surface or
subsurface strata, wildlife, aquatic species and vegetation). Environmental
Laws include the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. (S)(S) 9601 et seq.) ("CERCLA");
-- ----
the Hazardous Material Transportation Act, as amended (49 U.S.C. (S)(S) 1801 et
--
seq.); the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7
- ---
U.S.C. (S)(S) 136 et seq.); the Resource Conservation and Recovery Act, as
-- ---
amended (42 U.S.C. (S)(S) 6901 et seq.) ("RCRA"); the Toxic Substance Control
-- ---
Act, as amended (15 U.S.C. (S)(S) 2601 et seq.); the Clean Air Act, as amended
-- ---
(42 U.S.C. (S)(S) 7401 et seq.); the Federal Water Pollution Control Act, as
-- ---
amended (33 U.S.C. (S)(S) 1251 et seq.); the Occupational Safety and Health Act,
-- ---
as amended (29 U.S.C. (S)(S) 651 et seq.); and the Safe Drinking Water Act, as
-- ---
amended (42 U.S.C. (S)(S) 300(f) et seq.), and any and all regulations
-- ---
promulgated thereunder, and all analogous state and local counterparts or
equivalents and any transfer of ownership notification or approval statutes.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974
(or any successor legislation thereto), as amended from time to time, and any
regulations promulgated thereunder.
"ERISA Affiliate" shall mean, with respect to Borrower, any trade or
business (whether or not incorporated) under common control with Borrower and
which, together with Borrower, are treated as a single employer within the
meaning of Section 4001(a) of ERISA.
"ERISA Event" shall mean, with respect to Borrower or any ERISA
Affiliate, (i) a Reportable Event with respect to a Title IV Plan or a
Multiemployer Plan; (ii) the withdrawal of Borrower or any ERISA Affiliate from
a Title IV Plan subject to
13
<PAGE>
Section 4063 of ERISA during a plan year in which it was a substantial employer,
as defined in Section 4001(a)(2) of ERISA; (iii) the complete or partial
withdrawal of Borrower or any ERISA Affiliate from any Multiemployer Plan; (iv)
the filing of a notice of intent to terminate a Title IV Plan or the treatment
of a plan amendment as a termination under Section 4041 of ERISA; (v) the
institution of a proceeding to terminate a Title IV Plan or Multiemployer Plan
by the PBGC; (vi) the failure to make required contributions to a Qualified
Plan; or (vii) any other event or condition which might reasonably be expected
to constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan
or the imposition of any liability under Title IV of ERISA, other than PBGC
premiums due but not delinquent under Section 4007 of ERISA.
"Eurodollar Business Day" shall mean a business day on which banks
generally in the City of London are open for interbank or foreign exchange
transactions.
"Event of Default" shall have the meaning assigned to it in Section
10.1.
"Excess Cash Flow" shall mean, for any Fiscal Year, for Borrower and
its Subsidiaries on a consolidated basis, the sum (without duplication) of the
following: (a) Consolidated Net Income; plus (b) the sum of (i) federal, state,
----
local, and foreign income taxes, (ii) decreases in Consolidated Working Capital;
(iii) extraordinary non-cash losses, (iv) depletion, depreciation and
amortization, (v) interest expense, (vi) Net Proceeds from asset sales, (vii)
any periodic effect of any non-cash step-up in the stated value of inventory
resulting from the Stock Acquisition, and (viii) losses from asset sales
(determined in accordance with GAAP); minus (c) the sum of (I) increases in
-----
Consolidated Working Capital, (II) extraordinary gains, (III) gains from asset
sales (determined in accordance with GAAP), (IV) cash paid interest expense, (V)
cash taxes paid or payable without duplication for the period being measured,
(VI) actual Maintenance Capital Expenditures, and (VII) the sum of (A) scheduled
repayments of principal on the Term Loan, Capital Lease Obligations and Purchase
Money Indebtedness for such Fiscal Year, (B) any voluntary prepayments of
principal on the Term Loan made during such Fiscal Year, and (C) the amount of
any permanent reduction of the Maximum Revolving Loan occurring during such
Fiscal Year in accordance with Section 2.1(l) but not to exceed the amount, if
any, by which the principal balance of the Revolving Loan on the first day of
such Fiscal Year exceeded the principal balance of the Revolving Loan on the
last day of such Fiscal Year.
"Excess Cash Flow Payment" shall have the meaning set forth in Section
2.3(b).
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<PAGE>
"Fees" shall mean any fees referred to in Section 2.8(a), the Agency
Fee, the Facility Fee (unless such fee is waived pursuant to Section 2.8(c)),
the Unused Commitment Fee, the Letter of Credit Fees, any prepayment surcharge,
and any other fees due either to Agent or any Lender pursuant to the Loan
Documents.
"Financials" shall mean the financial statements referred to in
Section 5.6.
"First Amendment" shall mean the Consent to Assignments and Waiver and
First Amendment to Credit Agreement dated as of January 22, 1996 among Borrower,
Lenders and Agent.
"Fiscal Month" shall mean any of the monthly accounting periods of
Borrower.
"Fiscal Quarter" shall mean any of the quarterly accounting periods of
Borrower.
"Fiscal Year" shall mean the 12-month period of Borrower ending
December 31 of each year. Subsequent changes of the fiscal year of Borrower
shall not change the term "Fiscal Year," unless Agent shall consent in writing
to such change.
"Fixed Asset" shall mean (a) real property, or an interest in real
property (but does not include crops growing or to be grown), (b) equipment, or
an interest in equipment (other than equipment, such as wine barrels of a type
that is eligible for inclusion in the Borrowing Base), and (c) trademarks,
tradenames, and other intellectual property, or any licenses or other interests
therein; provided that, for purposes of allocating proceeds between the
--------
Revolving Loan and the Term Loan, a disposition of an interest in intellectual
property or any other Fixed Asset shall be deemed to occur under this Agreement
only if the intellectual property or other Fixed Asset itself is the subject of
the disposition, not upon the sale or other disposition of any assets other than
Fixed Assets the value of which may have been enhanced by the intellectual
property or the Fixed Asset.
"Fixed Rate" shall mean: (a) with respect to any portion of the
Revolving Loan that Borrower elects at any time pursuant to Section 2.5(c) to
convert to a fixed rate of interest, the applicable LIBO Rate as of the date of
such election plus a margin equal to two and one-quarter percent (2.25%), or
such lower margin, if any, for which Borrower qualifies under Section 2.5(d);
(b) with respect to the initial selection on or prior to the Closing Date of
rates for the Term Loan, the rates and applicable margins provided in Section
2.6(a); and (c) with respect to any selection on or after January
15
<PAGE>
16, 1997 of rates for the Term Loan, the rates and applicable margins provided
in Section 2.6(b).
"Formula Yield" shall mean, with respect to each portion of the Term
Loan or the Revolving Loan to be prepaid and bearing interest at a Fixed Rate,
the interpolated yield to maturity between the two most actively traded U.S.
Treasury obligations which on the prepayment date have a maturity most closely
corresponding to the remaining life of such Fixed Rate portion.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time.
"General Maintenance Capital Expenditures" shall mean all Maintenance
Capital Expenditures other than Barrel Maintenance Capital Expenditures.
"General Prepayment" shall mean (a) a prepayment in full of all of the
Obligations, other than a prepayment in full fulfilling the requirements of
clause (d) of the definition of Special Prepayment, or (b) a partial prepayment
other than a Special Prepayment.
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof, and any agency, department or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Grower Payables" shall mean (i) amounts payable by Borrower to
growers of agricultural products which have been purchased by Borrower for
processing or which are otherwise used by Borrower in the production of wine or
wine products and shall include "grower payables," as referenced in Borrower's
financial records, and (ii) amounts payable by Borrower to wine processors or
other persons who have delivered notice to Borrower under California Civil Code
Section 3051a of the assertion of a lien under California Civil Code Section
3051.
"Guaranteed Indebtedness" shall mean, as to any Person, any obligation
of such Person guaranteeing any indebtedness, lease, dividend, or other
obligation ("primary obligations") of any other Person (the "primary obligor")
in any manner including, without limitation, any obligation or arrangement of
such Person (i) to purchase or repurchase any such primary obligation, (ii) to
advance or supply funds (a) for the purchase or payment of any such primary
obligation or (b) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency or any balance sheet
condition of the primary obligor, (iii) to purchase property, securities or
16
<PAGE>
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such primary
obligation, or (iv) to indemnify the owner of such primary obligation against
loss in respect thereof.
"Guarantor" shall mean any person that has guaranteed to Agent and/or
Lenders all or any portion of the Obligations.
"Hazardous Material" shall mean any substance, material or waste, the
generation, handling, storage, treatment or disposal of which is regulated by
any local or state government authority in any jurisdiction in which Borrower
has owned, leased or operated real property or disposed of hazardous materials,
or by the United States Government, including any material or substance which is
(i) defined as a "hazardous waste," "hazardous material," "hazardous substance,"
"extremely hazardous waste" or "restricted hazardous waste" or other similar
term of phrase under any such law, (ii) petroleum, (iii) designated as a
"hazardous substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C.
(S) 1251 et seq. (33 U.S.C. (S) 1321) or listed pursuant to Section 307 of the
-- ---
Clean Water Act (33 U.S.C. (S) 1317), (iv) defined as a "hazardous waste"
pursuant to Section 1004 of the Resource Conservation and Recovery Act, 42
U.S.C. (S) 6901, et seq. (42 U.S.C. (S) 6903), or (v) defined as a "hazardous
-- ---
substance" pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. (S) 9601, et seq. (42 U.S.C. (S)
-- ---
9601).
"Indebtedness" of any Person shall mean (i) all indebtedness of such
Person for borrowed money or for the deferred purchase price of property or
services (including reimbursement and all other obligations with respect to
surety bonds, letters of credit and bankers' acceptances, whether or not
matured, but excluding obligations to trade creditors incurred in the ordinary
course of business), (ii) all obligations evidenced by notes, bonds, debentures
or similar instruments, (iii) all indebtedness created or arising under any
conditional sale or other title retention agreements with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (iv) all Capital Lease Obligations, (v) all
Guaranteed Indebtedness, (vi) all Indebtedness referred to in clause (i), (ii),
(iii), (iv) or (v) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or in property (including accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness, (vii) the Obligations, and (viii) all liabilities
under Title IV of ERISA, other than PBGC premiums.
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<PAGE>
"Interest Determination Date" shall mean the date, as designated by
Borrower pursuant to Section 2.5 or Section 2.6, on which a portion of the
Revolving Advances or a portion of the Term Loan shall begin to bear interest at
a Fixed Rate.
"Interest Period" shall mean (a) with respect to any portion of
interest on Revolving Advances that Borrower elects to have bear interest at a
Fixed Rate, a period beginning on the Interest Determination Date and ending, at
Borrower's election, either thirty (30), sixty (60), ninety (90), one hundred
twenty (120), one hundred eighty (180), two hundred seventy (270), or three
hundred sixty (360) days thereafter, (b) with respect to interest on the Term
Loan Tranche A, a period beginning on the Interest Determination Date and
ending, at Borrower's election, either ninety (90) days, one (1) year, two (2)
years, three (3) years, five (5) years, or seven (7) years thereafter, and (c)
with respect to interest on the Term Loan Tranche B, a period beginning on the
Interest Determination Date and ending, at Borrower's election, either ninety
(90) days, one (1) year, two (2) years, three (3) years, five (5) years, seven
(7) years, or nine and one-half (9.5) years thereafter.
"IRC" shall mean the Internal Revenue Code of 1986, as amended, and
any successor thereto.
"IRS" shall mean the Internal Revenue Service, or any successor
thereto.
"Lenders" shall mean Pacific Coast, CoBank, Bank of America, GE
Capital, Rabobank, and Bank of Boston so long as each shall continue to hold any
portion of the Revolving Loan or Term Loan, and if at any time any of the
foregoing Lenders shall decide to assign or syndicate all or any portion of the
Revolving Loan or the Term Loan, such term shall include such assignee or such
other members of the syndicate.
"Letter of Credit Bank" shall have the meaning assigned thereto in
Section 2.1(f).
"Letter of Credit Maintenance Fee" shall mean a fee, calculated and
payable in accordance with Section 2.8(e), equal to one percent (1.00%) per
annum on the face amount of the applicable Letter of Credit; provided, that if,
--------
as of the end of any Fiscal Quarter, commencing with the Fiscal Quarter ending
on December 31, 1996, Borrower's Consolidated Funded Debt to Consolidated EBITDA
Ratio, for the period of such Fiscal Quarter and the three immediately preceding
Fiscal Quarters, calculated on a rolling basis, is less than 4.00:1, then such
fee shall be reduced from one percent (1.0%) per annum to three-quarters of one
percent (.75%) per annum. Any such reduction to the Letter of Credit Fee shall
become effective as of the third (3rd) Business Day after Borrower's delivery to
Agent of the financial
18
<PAGE>
statements required to be delivered to Agent pursuant to Section 6.1(c)
demonstrating to Agent's reasonable satisfaction Borrower's right to such
reduction. Borrower shall not be entitled to a lower margin under this
definition until after Borrower has delivered to Agent the quarterly financial
statement for the Fiscal Quarter ending December 31, 1996. Notwithstanding
anything to the contrary in the foregoing, if a Default or Event of Default
shall have occurred and be continuing, then the fee shall be one percent (1.0%),
subject to increase to the Default Rate pursuant to Section 2.7(d).
"Letter of Credit Obligations" shall mean all outstanding obligations
incurred by the Letter of Credit Bank, Agent or any Revolving Lender at the
request of Borrower, whether direct or indirect, contingent or otherwise, due or
not due, in connection with the issuance or guaranty, by the Letter of Credit
Bank, Agent, any Revolving Lender or another Person, of Letters of Credit. The
amount of such Letter of Credit Obligations at any time shall equal the maximum
amount which may be payable by or due to the Letter of Credit Bank, Agent or
Revolving Lenders thereupon or pursuant thereto at such time.
"Letters of Credit" shall mean commercial or standby letters of credit
issued at the request and for the account of Borrower for which Agent, the
Letter of Credit Bank, or any Revolving Lender has incurred Letter of Credit
Obligations.
"LIBO Rate" shall mean, for any Interest Determination Date, the rate
offered from time to time for U.S. Dollar deposits for the Interest Period
selected, as quoted by Telerate News Service on page 3750 recorded as of 11:00
A.M. London setting time (or, if the page 3750 of the Telerate News Service is
unavailable, the comparable reference on the Reuters Screen LIBOR Page or such
other quotation service as may be chosen by Agent) on the second full Eurodollar
Business Day preceding the beginning of the Interest Period; provided, that if
--------
two or more of such offered rates appear on Telerate (or on the Reuters Screen
LIBOR Page or alternative service, as the case may be), the "LIBO Rate" shall be
highest of the two rates quoted.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest or encumbrance, or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including any lease
or title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement perfecting a security interest under the Code or
comparable law of any jurisdiction).
19
<PAGE>
"Loan Documents" shall mean this Agreement, the Revolving Notes, the
Term Notes, the Security Documents, the Third Amendment Documents, and all other
agreements, instruments, documents, and certificates identified in the Schedule
of Documents, the Third Amendment Schedule, or the Second Restatement Schedule
in favor of Agent or any Lender and including all other pledges, powers of
attorney, consents, assignments, contracts and agreements whether heretofore,
now, or hereafter executed by or on behalf of Borrower or any of its Affiliates,
or any employee of Borrower or any of its Affiliates, and delivered to Agent or
any Lender in connection with this Agreement, or any previous versions of this
Agreement or the transactions contemplated thereby or hereby.
"Maintenance Capital Expenditures" shall mean Capital Expenditures of
Borrower and its Subsidiaries for or relating to (i) facility expenditures for
or relating to the replacement, refurbishing, improvement, or repair of
bottling, fermenting, barrel storage, or crushing assets and any hospitality
facility in existence at the Closing Date or acquired in the Chateau St. Jean
Acquisition or the Stag's Leap Acquisition, (ii) general vineyard planting,
replanting and irrigation capital expenditures for vineyards owned on the
Closing Date, vineyards acquired with the proceeds of the Newhall Advance, or
vineyards acquired in the Chateau St. Jean Acquisition or the Stag's Leap
Acquisition, including Phylloxera Capital Expenditures, and (iii) the
acquisition, replacement, refurbishing, improvement or repair of American oak
wine barrels used in connection with wineries owned by Borrower at the Closing
Date or acquired in the Chateau St. Jean Acquisition or the Stag's Leap
Acquisition, determined in accordance with GAAP.
"Material Adverse Effect" shall mean a material adverse effect on (i)
the business, assets, operations, or financial or other condition of Borrower,
(ii) Borrower's ability to pay the Obligations in accordance with the terms
thereof, or (iii) the Collateral or Agent's or Lenders' Liens on the Collateral
or the priority of any such Lien, or (iv) Agent's and Lenders' rights and
remedies under this Agreement and the other Loan Documents.
"Maximum Lawful Rate" shall have the meaning assigned to it in Section
2.7(e).
"Maximum Revolving Loan" shall mean One Hundred Fifty Million Dollars
($150,000,000); provided, that such amount shall be permanently reduced (i) by
--------
any amount paid with respect to the Revolving Loan pursuant to Sections 2.3(c),
2.3(d) or 2.3(e), and (ii) to any amount requested by Borrower and approved by
Agent and Lenders pursuant to Section 2.1(l).
"Minimum Payment Amount" shall mean, with respect to any sale of real
property by Borrower an amount equal to (a) if
20
<PAGE>
the principal balance of the Term Loan at the time of sale exceeds the Base Term
Loan Amount, one hundred percent (100%) of the Net Proceeds from such sale,
provided, that such Net Proceeds shall not be less than ninety-five percent
- --------
(95%) of the value for such real property as set forth on the Real Estate
Valuation Schedule previously delivered by Agent to Borrower, and (b) if the
principal balance of the Term Loan at the time of sale is equal to or less than
the Base Term Loan Amount, eighty percent (80%) of the Net Proceeds from such
sale, provided, that such Net Proceeds shall not be less than eighty percent
--------
(80%) of the value for such real property as set forth on such Real Estate
Valuation Schedule.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA, and to which Borrower or any ERISA Affiliate is
making, is obligated to make, has made or been obligated to make, contributions
on behalf of participants who are or were employed by any of them.
"Net Proceeds" shall mean, with respect to any sale of an asset of
Borrower, the proceeds remaining from the sale of such asset after the payment
of Purchase Money Indebtedness permitted by this Agreement that was secured by
the asset sold, after the payment of all escrow and closing fees, title costs,
broker's commissions, and sales or other excise taxes arising directly from such
sale; provided, that such proceeds shall not be reduced by the amount of any
--------
legal or other professional expenses (other than brokers' commissions) incurred
by Borrower in connection with such sale or any income or capital gains tax
arising from such sale.
"Newhall Advance" shall mean an advance of Seven Million Five Hundred
Thousand Dollars ($7,500,000) under Term Loan Tranche B that will be made on the
Newhall Advance Date to facilitate Borrower's acquisition of the Newhall
Property, but only if all conditions precedent for the making thereof shall have
been fulfilled by Borrower.
"Newhall Advance Date" shall mean the date on which the Newhall
Acquisition Agreements shall close, but only if all conditions precedent for
making of the Newhall Advance shall have been fulfilled by Borrower.
"Newly Acquired Capital Assets" shall mean real property and equipment
acquired by Borrower after the Closing Date through Non-Maintenance Capital
Expenditures, excluding equipment or fixtures attached to or used in connection
with the operation of a winery or vineyard property subject to a deed of trust
in favor of Agent.
"Non-Funding Lender" shall have the meaning assigned to it in Section
2.1(b).
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<PAGE>
"Non-Maintenance Capital Expenditures" shall mean (a) Capital
Expenditures, other than Maintenance Capital Expenditures, (b) expenditures for
current assets purchased in connection with the purchase of fixed assets
consisting of winery or vineyard property, and (c) expenditures for the purchase
of the stock or other ownership interests in enterprises that own and operate
winery property.
"Notice of Revolving Advance" shall have the meaning assigned to it in
Section 2.1(b).
"Obligations" shall mean all loans, advances, debts, liabilities, and
obligations, for the performance of covenants, tasks or duties or for payment of
monetary amounts (whether or not such performance is then required or
contingent, or amounts are liquidated or determinable and whether or not allowed
as a claim in any proceeding referred to in Section 10.1(i) or 10.1(j)) owing by
Borrower to Agent or to Lenders, and all covenants and duties regarding such
amounts, of any kind or nature, present or future, whether or not evidenced by
any note, agreement or other instrument, arising under any of the Loan
Documents, including any obligations owed in connection with any interest rate
swap undertaken with any Lender to meet the requirement of Section 7.17. This
term includes the Revolving Loan, the Letter of Credit Obligations, the Term
Loan, all principal, interest, Fees, charges, expenses, attorneys' fees and any
other sum chargeable to Borrower under this Agreement or any of the Loan
Documents.
"OSHA" shall mean the Occupational Safety and Health Act, 29 U.S.C.
(S)(S) 651, et seq., as amended from time to time, and the regulations
-- ---
promulgated thereunder.
"Other Lender" shall have the meaning assigned to it in Section
2.1(b).
"PACA" shall mean the Perishable Agricultural Commodities Act, 7
U.S.C. (S) 499e(c) (or any successor legislation thereto), as amended from time
to time, and any regulations promulgated thereunder.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor thereto.
"Pension Plan" shall mean an employee pension benefit plan, as defined
in Section 3(2) of ERISA (other than a Multiemployer Plan), which is not an
individual account plan, as defined in Section 3(34) of ERISA, and which
Borrower or, if a Title IV Plan, any ERISA Affiliate maintains, contributes to
or has an obligation to contribute to on behalf of participants who are or were
employed by any of them.
22
<PAGE>
"Percentage" shall mean, (a) as to each Revolving Lender with respect
to the Revolving Loan and the Letter of Credit Obligations, the applicable
percentage set forth opposite such Revolving Lender's name on Part 1 of Exhibit
B hereto, (b) as to each Term Lender with respect to the Term Loan, the
applicable percentage set forth opposite such Term Lender's name on Part 2 of
Exhibit B hereto, and (c) as to each Lender with respect to the Obligations in
their entirety, the applicable percentage set forth opposite such Lender's name
on Part 3 of Exhibit B hereto; as each may be modified, amended, restated or
supplemented from time to time; provided that upon an assignment by any Lender
--------
of any portion of the Revolving Loan or the Term Loan, the Percentages shall be
amended to reflect such assignment and upon the payment or prepayment of any
portion of the Term Loan or upon any reduction in the amount of the Maximum
Revolving Loan, the Percentages shall be amended to reflect such prepayment or
reduction.
"Permitted Encumbrances" shall mean the following encumbrances: (i)
Liens for taxes or assessments or other governmental Charges or levies, either
not yet due and payable or to the extent that nonpayment thereof is permitted by
the terms of Section 7.2(b); (ii) pledges or deposits securing obligations under
workmen's compensation, unemployment insurance, social security or public
liability laws or similar legislation; (iii) pledges or deposits securing bids,
tenders, contracts (other than contracts for the payment of money) or leases to
which Borrower is a party as lessee made in the ordinary course of business;
(iv) deposits securing public or statutory obligations of Borrower; (v) inchoate
and unperfected workers', mechanics', suppliers' or similar Liens arising in the
ordinary course of business; (vi) carriers', warehousemen's, or other similar
possessory Liens arising in the ordinary course of business and securing
indebtedness either not yet due and payable in an outstanding aggregate amount
not in excess of One Hundred Thousand Dollars ($100,000) at any time, or to the
extent that nonpayment thereof is permitted by the terms of Section 7.2(b);
(vii) Producers' Liens, so long as Borrower is not in default under its
agreements with the Producer or Producers benefitted thereby; (viii) the Liens
set forth on the schedule of permitted liens delivered by Borrower pursuant to
the Schedule of Documents to the extent approved by Agent; (ix) deposits
securing, or in lieu of, surety, appeal or customs bonds in proceedings to which
Borrower is a party; (x) an attachment or judgment Lien, but only for a period
of thirty (30) days following attachment of such Lien and such attachment or
judgment lien shall cease to be a Permitted Lien if the obligation that it
secures has not been satisfied or bonded during such thirty (30) day period;
(xi) zoning restrictions, easements, licenses, or other restrictions on the use
of real property or other minor irregularities in title (including leasehold
title) thereto, so long as the same do not materially impair the use, value, or
23
<PAGE>
marketability of such real property, leases or leasehold estates; (xii)
encumbrances listed as exceptions to title in the title policy received by Agent
at the Closing Date, but only to the extent that such encumbrances cover the
particular properties identified in such title policy as being covered by such
encumbrances, and (xiii) security interests securing Purchase Money Indebtedness
in Newly Acquired Capital Assets to the extent permitted by Section 8.3(b).
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Phylloxera Capital Expenditures" shall mean, for any period, the sum
of expenditures required to be capitalized under GAAP for or relating to
vineyard expenditures on phylloxera-infested acreage.
"Plan" shall mean, with respect to Borrower or any ERISA Affiliate, at
any time, an employee benefit plan, as defined in Section 3(3) of ERISA, which
Borrower maintains, contributes to or has an obligation to contribute to on
behalf of participants who are or were employed by any of them.
"Prime Rate" shall mean the "Prime" rate as published from time to
time in the Eastern Edition of The Wall Street Journal, regardless of whether
-----------------------
such rate is actually charged by any bank, or, in the event that The Wall Street
---------------
Journal ceases publication of such rate, in such other nationally recognized
- -------
financial publication of general circulation as Agent may, from time to time,
designate in writing based on Agent's reasonable determination that the rate so
published is comparable to the "Prime" rate published in the Eastern Edition of
The Wall Street Journal.
- -----------------------
"Producer" shall mean any producer of any agricultural product that
sells any product which is grown by him and which is subject to a producer's
lien pursuant to Article 9 (commencing with Section 55631), Chapter 6, Division
20 of the California Food and Agricultural Code, as now in effect or hereafter
amended.
"Producers' Liens" shall mean (i) liens in favor of Producers arising
pursuant to Article 9 (commencing with Section 55631), Chapter 6, Division 20 of
the California Food and Agricultural Code, as now in effect or hereafter
amended, and (ii) liens under California Civil Code Section 3051 of which
24
<PAGE>
Borrower has received notice as provided in California Civil Code Section 3051a.
"Projections" shall mean the projections referred to in Section 5.7.
"Purchase Money Indebtedness" means Indebtedness incurred solely for
the purchase of Newly Acquired Capital Assets; provided that such Indebtedness
--------
is secured by purchase money Liens on such assets, such Liens do not extend to
or cover any assets of Borrower or any Subsidiary other than such Newly Acquired
Capital Asset or a group of related Newly Acquired Capital Assets, and such
Liens secure the obligation to pay the purchase price and acquisition costs of
such Newly Acquired Capital Asset and interest thereon only, such Indebtedness
is incurred at the time of acquisition of such Newly Acquired Capital Asset, and
the fair market value of the Newly Acquired Capital Assets so secured is at
least equal to the amount of the Indebtedness secured thereby.
"Qualified Plan" shall mean an employee pension benefit plan, as
defined in Section 3(2) of ERISA, which is intended to be tax-qualified under
Section 401(a) of the IRC, and which Borrower or any ERISA Affiliate maintains,
contributes to or has an obligation to contribute to on behalf of participants
who are or were employed by any of them.
"Reference Rate" shall mean the rate of interest publicly announced
from time to time by Bank of America in San Francisco as its Reference Rate, or
such other rate of interest as Bank of America in San Francisco may hereafter
announce as the substitute for its Reference Rate.
"Regulatory Change" shall mean, with respect to any Lender, any change
after the Closing Date in federal, state, or foreign law or regulations
(including Regulation D) or the adoption or making after such date of any
interpretation, directive or request applying to a class of lenders including
such Lender of or under any Federal, state, or foreign law or regulations
(whether or not having the force of law and whether or not failure to comply
therewith would be unlawful) by any court or governmental or monetary authority
charged with the interpretation or administration thereof.
"Reportable Event" shall mean any of the events described in Section
4043(b)(1), (2), (3), (5), (6), or (9) of ERISA.
"Requisite Lenders" shall mean any combination of both (a) Lenders
holding Percentages of the Revolving Loan of sixty-six and two-thirds percent
(66.66%) or more and (b) Lenders
25
<PAGE>
holding Percentages of the Term Loan of sixty-six and two-thirds percent
(66.66%) or more.
"Restricted Payment" shall mean (i) the declaration of a payment of
any dividend or the occurrence of any liability to make any other payment or
distribution of cash or other property or assets in respect of Borrower's Stock,
(ii) any payment on account of the purchase, redemption or other retirement of
Borrower's Stock or any other payment or distribution made in respect thereof,
either directly or indirectly, or (iii) any payment, loan, contribution, or
other transfer of funds or other property to any Stockholder of Borrower except
for reasonably equivalent value.
"Retiree Welfare Plan" shall refer to any Welfare Plan providing for
continuing coverage or benefits for any participant or any beneficiary of a
participant after such participant's termination of employment, other than
continuation coverage provided pursuant to Section 4980B of the IRC and at the
sole expense of the participant or the beneficiary of the participant.
"Revolving Advance" shall have the meaning ascribed to such term in
Section 2.1(a).
"Revolving Lenders" shall mean Pacific Coast, CoBank, Bank of America,
GE Capital, Rabobank, and Bank of Boston, or any other Lender that holds a
Percentage of the Revolving Loan, but only in its capacity as the holder of such
interest.
"Revolving Loan" shall mean the aggregate amount of Revolving Advances
outstanding at any time.
"Revolving Loan Maturity Date" shall mean January 16, 2001; provided,
--------
that if the Obligations shall become due and payable in accordance with Section
10.2 or any other provision of this Agreement, then the Revolving Loan Maturity
Date shall be the date on which the Obligations become due and payable.
"Revolving Note" shall mean any promissory notes or similar instrument
delivered by Borrower to any Revolving Lender evidencing at any time any portion
of the Revolving Loan.
"Schedule of Accounts" shall mean a schedule, containing such
information regarding accounts receivable of Borrower as Agent shall reasonably
request, delivered by Borrower to Lender from time to time pursuant to the terms
of this Agreement or as and when requested by Agent.
"Schedule of Documents" shall mean the schedule, including all
appendices, exhibits or schedules thereto, listing certain documents and
information to be delivered in connection with the Loan Documents and the
transactions contemplated
26
<PAGE>
thereunder, substantially in the form attached hereto as Exhibit C as
supplemented and amended by the Third Amendment Schedule in the form attached
hereto as Exhibit C-1 and the Second Restatement Schedule attached hereto as
Exhibit C-2.
"Schedule of Inventory" a schedule, containing such information
regarding inventory of Borrower as Agent shall reasonably request, delivered by
Borrower to Lender from time to time pursuant to the terms of this Agreement or
as and when requested by Agent.
"Second Amendment" shall mean the Second Amendment to Credit Agreement
dated as of March 15, 1996 among Borrower, Lenders and Agent.
"Second Restatement Closing Date" shall mean the date on which the
modifications set forth in this Agreement shall become effective, which shall be
on or about the date set forth on the first page of this Agreement.
"Second Restatement Schedule" shall mean the schedule, including all
appendices, exhibits or schedules thereto, listing certain documents and
information to be delivered on or in connection with the Second Restatement
Closing Date and the transactions contemplated thereunder, in the form attached
hereto as Exhibit C-2.
"Second Restatement Stock" shall mean the shares of common Stock in
Borrower issued to BWEH for the purchase price of Five Million Dollars
($5,000,000), of which ninety percent (90%) shall be issued by the Second
Restatement Closing Date and ten percent (10%) shall be issued by the earlier of
(i) March 31, 1997, or (ii) the Newhall Advance Date.
"Security Agreements" shall mean each Security Agreement dated as of
January 16, 1996 entered into among Agent, for the benefit of each Lender, and
(a) Borrower and (b) Cork Processors, and the Amended and Restated Security
Agreement dated June 7, 1996 entered into among Agent, for the benefit of each
Lender, and BWEH, including all amendments, modifications, and supplements
thereto, as the same may be further amended from time to time.
"Security Documents" shall mean the Security Agreements, the Trademark
Assignments and the Stock Pledge Agreements, as identified on the Schedule of
Documents, as amended, and any other document pursuant to which Borrower or any
Affiliate of Borrower has granted or shall grant to Agent or to any Lender a
security interest in or Lien upon any property to secure any of the Obligations,
including all amendments, modifications and supplements thereto.
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<PAGE>
"Solvent" shall mean, when used with respect to any Person, that:
(i) the present fair salable value of such Person's assets is in
excess of the total amount of such Person's liabilities;
(ii) such Person is able to pay its debts as they become due; and
(iii) such Person does not have unreasonably small capital to carry
on such Person's business as theretofore operated and all businesses in
which such Person is about to engage.
"SPAC" shall mean Silverado Partners Acquisition Corp., a California
corporation, and its successors and assigns.
"Special Prepayment" shall mean: (a) a prepayment of proceeds received
from sale or other disposition of a Fixed Asset, (b) a prepayment of proceeds
received from an equity investment in common or preferred Stock of Borrower, (c)
a prepayment from Excess Cash Flow required by Section 2.3(b), and (d) if
Borrower requests Lenders to approve a proposed transaction which, if
consummated, would create an Event of Default solely under Section 10.1(l) and
Lenders decline to approve such a request, thus rendering it necessary for
Borrower to seek alternative financing in order to consummate such transaction,
then a repayment in full of the Obligations from such alternative financing
shall constitute a Special Prepayment so long as the repayment occurs within
three (3) months of such request.
"Special Real Property" shall mean those parcels of real property
identified in Exhibit F.
"Spill" shall have the meaning ascribed to such term in Section 5.26.
"Stag's Leap Advance" shall mean an advance of Five Million Dollars
($5,000,000) under Term Loan Tranche B that will be made on the Second
Restatement Closing Date to facilitate Borrower's acquisition of the Stag's Leap
Assets.
"Stock" shall mean all shares, options, warrants, general or limited
partnership interests, participations or other equivalents (regardless of how
designated) of or in a corporation, partnership or equivalent entity whether
voting or nonvoting, including, without limitation, common stock, preferred
stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of
the General Rules and Regulations promulgated by
28
<PAGE>
the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended).
"Stock Acquisition" shall have the meaning ascribed to such term in
Recital A.
"Stockholder" shall mean each holder of Stock of Borrower.
"Stock Pledge Agreements" shall mean the Stock Pledge Agreement dated
January 16, 1996, entered into among Agent, for the benefit of each Lender, and
Borrower, and the Amended and Restated Stock Pledge Agreement of even date
herewith entered into among Agent, for the benefit of each Lender, and BWEH,
including all amendments, modifications, and supplements thereto.
"Subject Property" shall have the meaning assigned to it in Section
9.1.
"Subordinated Debt" shall mean (a) all or any portion of those certain
12 1/2% Senior Subordinated Notes due January 10, 2006 in the amount of Thirty-
Five Million Dollars ($35,000,000) issued pursuant to a Securities Purchase
Agreement dated as of January 16, 1996, as the same may be modified or amended
from time to time, and (b) any other obligation that is subordinated in right or
time of payment to all or any portion of the Obligations, the terms of which
must be reasonably satisfactory to Agent and all Lenders.
"Subsidiary" shall mean, with respect to any Person, (i) any
corporation of which an aggregate of more than 50% of the outstanding Stock
having ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether, at the time, Stock of any other class
or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time, directly or indirectly,
owned legally or beneficially by such Person and/or one or more Subsidiaries of
such Person, or with respect to which any such Person has the right to vote or
designate the vote of 50% or more of such Stock whether by proxy, agreement,
operation of law or otherwise and (ii) any partnership, trust, limited liability
company, or other entity in which such Person and/or one or more Subsidiaries of
such Person shall have an interest (whether in the form of voting or
participation in profits or capital contribution) of more than 50% or of which
any such Person is a general partner or may exercise the powers of a general
partner, excluding Calcork, a California general partnership.
"Taxes" shall have the meaning assigned to it in Section 2.13(a).
29
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"Term Lenders" shall mean Pacific Coast, CoBank, and any other Lender
that holds a Percentage of the Term Loan, in its capacity as a holder of such
interest.
"Term Loan" shall mean a loan, consisting of Term Loan Tranche A and
Term Loan Tranche B, made by Term Lenders to Borrower on the Closing Date in the
original principal amount of One Hundred Sixty Million Dollars ($160,000,000),
which was subsequently increased to (i) One Hundred Seventy Million Dollars
($170,000,000) on the Third Amendment Closing Date, and (ii) One Hundred Eighty-
Two Million Five Hundred Thousand Dollars ($182,500,000) on the Second
Restatement Closing Date (of which Five Million Dollars ($5,000,000) was
advanced on the Second Restatement Closing Date and of which Seven Million Five
Hundred Thousand Dollars ($7,500,000) is committed to be advanced on the Newhall
Closing Date).
"Term Loan Maturity Date" shall mean July 16, 2005; provided, that if
--------
the Obligations shall become due and payable in accordance with Section 10.2 or
any other provision of this Agreement, then the Term Loan Maturity Date shall be
the date on which the Obligations become due and payable.
"Term Loan Tranche A" shall mean a portion of the original principal
amount of the Term Loan equal to Twenty Million Dollars ($20,000,000).
"Term Loan Tranche B" shall mean that portion of the principal amount
of the Term Loan not within the scope of Term Loan Tranche A, which meant that
the amount thereof (i) was, on the Closing Date, One Hundred Forty Million
Dollars ($140,000,000), (ii) was, on the Third Amendment Closing Date, One
Hundred Fifty Million Dollars ($150,000,000), and (iii) became, on the Second
Restatement Closing Date, One Hundred Fifty-Five Million Dollars ($155,000,000),
subject to increase to One Hundred Sixty-Two Million Five Hundred Thousand
Dollars ($162,500,000) on the Newhall Advance Date.
"Term Note" shall mean any promissory notes or similar instrument
delivered by Borrower to any Term Lender evidencing at any time any portion of
the Term Loan.
"Termination Date" shall mean the date on which (i) the Revolving Loan
and the Term Loan and any other Obligations under this Agreement have been
completely discharged and Borrower shall have no further right to borrow any
amounts under this Agreement, and (ii) Borrower shall have funded the amounts
required, if any, under the Loan Documents into the Cash Collateral Account in
respect of the Letter of Credit Obligations, if any, then outstanding.
30
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"Texas Pacific Group" shall mean TPG Partners, L.P., a Delaware
limited partnership and TPG Parallel I, L.P., a Delaware limited partnership.
"Third Amendment" shall mean the Third Amendment to Credit Agreement
dated as of April 1, 1996 among Borrower, Lenders and Agent.
"Third Amendment Closing Date" shall mean the date the Third Amendment
was executed by the Borrower, Lenders and Agent and delivered to the Agent.
"Third Amendment Documents" shall mean the Third Amendment and all
other agreements, instruments, documents, and certificates identified in the
Third Amendment Schedule in favor of Agent or any Lender and including all other
pledges, powers of attorney, consents, assignments, contracts and agreements
whether heretofore, now, or hereafter executed by or on behalf of Borrower or
any of its Affiliates, or any employee of Borrower or any of its Affiliates, and
delivered to Agent or any Lender in connection with the Third Amendment or the
transactions contemplated thereby.
"Third Amendment Schedule" shall mean the schedule, including all
appendices, exhibits or schedules thereto, listing certain documents and
information to be delivered in connection with the Third Amendment and the
transactions contemplated thereunder, in the form attached hereto as
Exhibit C-1.
"Title IV Plan" shall mean a Pension Plan, other than a Multiemployer
Plan, which is covered by Title IV of ERISA.
"Trademark Assignments" shall mean the Assignment for Security
(Trademarks and Trademark Licenses) dated as of January 16, 1996 entered into
among Agent, for the benefit of each Lender, and Borrower, including all
amendments, modifications and supplements thereto.
"Unfunded Pension Liability" shall mean, at any time, the aggregate
amount, if any, of the sum of (i) the amount by which the present value of all
accrued benefits under each Title IV Plan exceeds the fair market value of all
assets of such Title IV Plan allocable to such benefits in accordance with Title
IV of ERISA, all determined as of the most recent valuation date for each such
Title IV Plan using the actuarial assumptions in effect under such Title IV
Plan, and (ii) for a period of five (5) years following a transaction reasonably
likely to be covered by Section 4069 of ERISA, the liabilities (whether or not
accrued) that could be avoided by Borrower or any ERISA Affiliate as a result of
such transaction.
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"Variable Rate" shall mean a floating rate of interest equal to the
higher of (i) Prime Rate, or (ii) the Reference Rate, in either case plus a
----
margin of (x) for the period from the Closing Date to and including January 15,
1997, three quarters of one percent (0.75%) per annum, and (b) for the period on
and after January 16, 1997, three quarters of one percent (0.75%) per annum or
such lower margin, if any, for which Borrower qualifies under the provisions of
Section 2.5(b).
"Vineyard Maintenance Capital Expenditures" shall mean Maintenance
Capital Expenditures for the development and irrigation of vineyards.
"Welfare Plan" shall mean any welfare plan, as defined in Section 3(1)
of ERISA, which is maintained or contributed to by Borrower.
"Winery Real Property" shall mean any real property owned by Borrower
or any Subsidiary on which a winery is located or which is contiguous to or
integrally related to any real property on which a winery is located.
"Withdrawal Liability" shall mean, at any time, the aggregate amount
of the liabilities, if any, pursuant to Section 4201 of ERISA, and any increase
in contributions pursuant to Section 4243 of ERISA with respect to all
Multiemployer Plans.
1.2 Accounting Terms. Any accounting term used in this Agreement shall
----------------
have, unless otherwise specifically provided herein, the meaning customarily
given such term in accordance with GAAP, and all financial computations
hereunder shall be computed, unless otherwise specifically provided herein, in
accordance with GAAP consistently applied. That certain terms or computations
are explicitly modified by the phrase "in accordance with GAAP" shall in no way
be construed to limit the foregoing.
1.3 Certain Matters of Construction. The words "herein," "hereof,"
-------------------------------
"hereto," "hereunder," and other words of similar import refer to this Agreement
as a whole, including the Exhibits and Schedules hereto, as the same may from
time to time be amended, modified or supplemented, and not to any particular
section, subsection or clause contained in this Agreement. Any reference to a
"Section," "Exhibit," or "Schedule" shall refer to the relevant Section or,
Exhibit, or Schedule to this Agreement, unless specifically indicated to the
contrary. Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, feminine or neuter. The term "including" shall not be limiting or
exclusive, unless specifically indicated to the contrary. The term "real
property" shall include vines
32
<PAGE>
and trees affixed to such real property but shall not include crops, including
wine grapes, grown or growing on such property.
ARTICLE II.
AMOUNT AND TERMS OF CREDIT
--------------------------
2.1 Revolving Advances.
------------------
(a) Revolving Lenders Will Make Advances Available. Upon and subject
----------------------------------------------
to the terms and conditions hereof, the Revolving Lenders agree to make
available, from time to time, until the Revolving Loan Maturity Date, for
Borrower's use and upon the request of Borrower therefor, advances (each, a
"Revolving Advance") that shall not exceed, in the aggregate together with all
Letter of Credit Obligations, at any one time, the lesser of (i) an amount equal
to the Maximum Revolving Loan minus the aggregate amount of Grower Payables then
-----
outstanding, or (ii) the Borrowing Base. The amount of any Revolving Advance
shall be not less than One Million Dollars ($1,000,000) and shall be in integral
multiples of One Hundred Thousand Dollars ($100,000).
(b) Requests for Advances. If Borrower desires to receive a Revolving
---------------------
Advance, Borrower shall deliver a notice to Agent substantially in the form of
Exhibit D no later than 2:00 p.m. (California time) on the second Business Day
prior to the date of the proposed Revolving Advance. Each such notice (a
"Notice of Revolving Advance") shall be from an Authorized Financial
Representative. Agent and Revolving Lenders shall be entitled to rely upon and
shall be fully protected under this Agreement in relying upon any Notice of
Revolving Advance reasonably believed by Agent to be genuine. Agent shall
deliver notice of its receipt of the Notice of Revolving Advance to each
Revolving Lender on or before 11:00 a.m. (California time) on the Business Day
prior to the date of the proposed Revolving Advance, and each of the other
Revolving Lenders shall wire its Percentage of such Revolving Advance to the
Disbursement Account (with notice to Agent that such wire has been made) on or
before 11:00 a.m. (California time) on the date of the proposed Revolving
Advance. Upon the close of business on the date of the proposed Revolving
Advance, the funds in the Disbursement Account shall be made available to
Borrower by the bank at which the Disbursement Account is held, unless such bank
shall have been instructed by Agent to withhold such funds, which instructions
Agent may deliver if Agent has determined that Borrower has failed to fulfill
the applicable conditions set forth in Article IV. All notices delivered
pursuant to this Section 2.1(b) shall be delivered by facsimile to the facsimile
number set forth in Section 13.12 or to such other facsimile number as a party
hereto shall designate in writing pursuant to
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<PAGE>
the provisions of Section 13.12. The failure of any Revolving Lender (such
Revolving Lender, a "Non-Funding Lender") to make any Revolving Advance to be
made by it on the date specified therefor shall not relieve any other Revolving
Lender ("Other Lender") of its obligation to make its Revolving Advance on such
date, but neither any Other Lender nor Agent shall be responsible for the
failure of any Non-Funding Lender to make an Advance to be made by such Non-
Funding Lender.
(c) Maturity Date for Revolving Loan. The Revolving Loan shall mature
--------------------------------
and shall become due and payable in full on the Revolving Loan Maturity Date.
(d) Revolving Line of Credit. The Revolving Loan is a revolving line
------------------------
of credit and Borrower may borrow, repay principal, and reborrow in accordance
with the terms of this Agreement; provided that Borrower shall provide Agent
--------
with one (1) day's advance notice of any repayment. Repayments of principal
shall be in integral multiples of One Hundred Thousand Dollars ($100,000).
(e) Reliance on Borrowing Base Certificate. Borrower agrees that in
--------------------------------------
making any Revolving Advance or incurring any Letter of Credit Obligations
hereunder Agent and Revolving Lenders shall be entitled to rely upon the most
recent Borrowing Base Certificate delivered to Agent by Borrower. Borrower
further agrees that Agent and Revolving Lenders shall be under no obligation to
make any Revolving Advance or incur any Letter of Credit Obligations until such
time as Borrower shall have delivered a current Borrowing Base Certificate to
Agent and Revolving Lenders by the time required by Section 6.1(a).
(f) Availability of Letters of Credit. Borrower may from time to time
---------------------------------
request that Revolving Lenders make a Letter of Credit available to Borrower
upon the terms and conditions set forth in this Agreement; provided that no
--------
letter of credit may be issued for purposes of payment of workers compensation
insurance premiums, and provided that the format of the Letter of Credit and the
identity of the beneficiary are reasonably acceptable to the issuing bank. Upon
and subject to the terms and conditions hereof, Revolving Lenders shall make
available to Borrower such Letter of Credit. Borrower shall request the
issuance of a Letter of Credit by written notice to Agent not less than five (5)
Business Days prior to the requested date of issuance; provided, that Borrower
--------
shall not request a Letter of Credit and Revolving Lenders shall not cause the
issuance of a Letter of Credit if doing so would cause the aggregate amount of
all Letter of Credit Obligations at any one time outstanding (whether or not
then due and payable) to exceed Ten Million Dollars ($10,000,000) or if the
issuance of such Letter of Credit would cause the aggregate of all Letter of
Credit Obligations and the Revolving Loan to exceed the lesser of (i) an amount
equal to the Maximum
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<PAGE>
Revolving Loan minus the aggregate amount of Grower Payables outstanding from
-----
time to time, or (ii) the Borrowing Base; and provided further, that no Letter
-------- -------
of Credit shall have an expiry date which is later than (x) three hundred sixty-
five (365) days following the date of issuance thereof, or (y) the Revolving
Loan Maturity Date. Bank of America shall be issuer of all Letters of Credit;
provided, that the Revolving Lenders may by unanimous vote at any time select
- --------
another Revolving Lender to be such issuer, whereupon such other Revolving
Lender shall be the issuer of all Letter of Credit issued after such selection
(the issuer being the "Letter of Credit Bank"). At the time of each request by
Borrower that a Letter of Credit be issued, the Letter of Credit Bank, at its
option, may require Borrower to execute and deliver to the Letter of Credit Bank
an application for such Letter of Credit in the form customarily prescribed by
the Letter of Credit Bank to issue Letters of Credit (the "Applications") or
such other documents as the Letter of Credit Bank may reasonably require with
respect to the issuance of such Letters of Credit. This Agreement supersedes
any terms of the Applications which are inconsistent with the terms hereof,
including terms relating to the reimbursement of draws, payment of fees, and
defaults.
(g) Draw or Other Payment on Letters of Credit. In the event that the
------------------------------------------
Letter of Credit Bank, Agent or any Revolving Lender shall make any payment on
or pursuant to any Letter of Credit Obligation (the "Draw Amount"), such Draw
Amount shall be deemed to immediately constitute a Revolving Advance. Borrower
shall, within two (2) Business Days of being notified by Agent or such Revolving
Lender of the Draw Amount, pay to Agent for the benefit of the Letter of Credit
Bank an amount equal to the Draw Amount, together with interest on the Draw
Amount at the Variable Rate (or, if applicable, the Default Rate) from the date
of payment by the Letter of Credit Bank to the date of the payment by Borrower.
If Borrower fails to make the required payment to the Letter of Credit Bank,
then each Revolving Lender shall upon the request of Agent make a payment to the
Letter of Credit Bank of its Percentage of the Draw Amount and its Percentage of
interest on the Draw Amount. Such payment shall be considered a purchase by
such Revolving Lenders from the Letter of Credit Bank of their Percentages of
the Draw Amount, and interest thereon, and such payment shall neither increase
nor decrease the amounts owed by Borrower hereunder.
(h) Letters of Credit Outstanding on the Revolving Loan Maturity Date.
-----------------------------------------------------------------
In the event that any Letter of Credit Obligation, whether or not then due or
payable, shall for any reason be outstanding on the Revolving Loan Maturity
Date, Borrower will either (i) cause the underlying Letter of Credit to be
returned and canceled and Letter of Credit Bank's corresponding Letter of Credit
Obligation to be terminated, or (ii) pay to Agent, for the benefit of Revolving
Lenders, cash in an amount equal to the maximum amount then available to be
drawn
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<PAGE>
under the Letter of Credit. Such cash shall be held by Agent in a cash
collateral account (the "Cash Collateral Account") which shall be in the name,
sole dominion and control of Agent (as a cash collateral account) for the
benefit of Revolving Lenders and subject to the terms of this Section 2.1.
Borrower agrees to execute and deliver to Agent such documentation with respect
to the Cash Collateral Account as Agent may request, and Borrower hereby pledges
and grants to Agent a security interest in all such cash held in the Cash
Collateral Account from time to time and all interest thereon and the proceeds
thereof, as additional security for the payment of all amounts due in respect of
the Letter of Credit Obligations, whether or not then due.
(i) Application of Funds in Cash Collateral Account. From time to
-----------------------------------------------
time after cash is deposited in the Cash Collateral Account, Agent may apply
such cash then held in the Cash Collateral Account to the payment of any
amounts, in such order as Agent may elect, as shall be or shall become due and
payable by Borrower to the Letter of Credit Bank or to Revolving Lenders.
(j) Withdrawal of Funds in Cash Collateral Account. Neither Borrower
----------------------------------------------
nor any Person claiming on behalf of or through Borrower shall have any right to
withdraw any of the cash held in the Cash Collateral Account, except that upon
the termination of any Letter of Credit Obligation in accordance with its terms
and the payment of all amounts payable by Borrower to Agent, the Letter of
Credit Bank, and Revolving Lenders in respect thereof, any funds remaining in
the Cash Collateral Account in excess of the then remaining Letter of Credit
Obligations and any other outstanding Obligations to Agent, the Letter of Credit
Bank, or Revolving Lenders shall be returned to Borrower.
(k) No Obligation to Invest Funds in Cash Collateral Account. Neither
--------------------------------------------------------
Agent nor any other Person shall have any obligation to invest any cash
deposited in the Cash Collateral Account or to deposit any such cash in an
interest-bearing account.
(l) Voluntary Reduction of Maximum Revolving Loan. Borrower may, at
---------------------------------------------
any time upon ten (10) days prior notice to Agent and the Lenders, permanently
reduce the Maximum Revolving Loan to an amount determined by Borrower; provided,
--------
that (a) such reduction shall be ineffective if and to the extent that the
Requisite Term Lenders reasonably determine that such reduction would impair the
ability of Borrower to make either (i) regularly scheduled payments of interest
or principal under the Term Loan, or (ii) payments of Excess Cash Flow required
pursuant to Section 2.3(b), and (b) in no event may Borrower reduce the Maximum
Revolving Loan below One Hundred Fifteen Million Dollars ($115,000,000).
36
<PAGE>
2.2 Term Loan.
---------
(a) Advance of Term Loan. Upon and subject to the terms and
--------------------
conditions hereof, each Term Lender advanced to Borrower on the Closing Date
such Term Lender's Percentage of the Term Loan. On the Closing Date, the
aggregate amount of all such advances from all Term Lenders equalled One Hundred
Sixty Million Dollars ($160,000,000). Upon and subject to the terms and
conditions hereof, each Term Lender advanced to Borrower on the Third Amendment
Closing Date such Term Lender's Percentage of an additional Ten Million Dollar
advance under the Term Loan. On the Third Amendment Closing Date, the aggregate
amount of all such advances from all Term Lenders equalled One Hundred Seventy
Million Dollars ($170,000,000). Each Term Lender agrees that (i) on the Second
Restatement Closing Date, the maximum amount available to be borrowed under the
Term Loan shall increase by Twelve Million Five Hundred Thousand Dollars
($12,500,000) from One Hundred Seventy Million Dollars ($170,000,000) to One
Hundred Eighty-Two Million Five Hundred Thousand Dollars ($182,500,000), (ii) on
the Second Restatement Closing Date, each Term Lender shall advance to Borrower
its Term Lender's Percentage of the Five Million Dollars ($5,000,000) Stag's
Leap Advance, at which time the aggregate amount of all such advances from all
Term Lenders shall equal One Hundred Seventy-Five Million Dollars
($175,000,000), and (iii) on the Newhall Advance Date, if the Newhall Advance
Date shall occur, each Term Lender shall advance to Borrower its Term Lender's
Percentage of the Seven Million Five Hundred Thousand Dollars ($7,500,000)
Newhall Advance, at which time the aggregate amount of all such advances from
all Term Lenders shall equal One Hundred Eighty-Two Million Five Hundred
Thousand Dollars ($182,500,000).
(b) Term Notes. The Term Loan made by Term Lenders to Borrower shall
----------
be evidenced by the Term Notes to be executed and delivered by Borrower at the
Second Restatement Closing Date. The Term Notes shall represent the obligation
of Borrower to pay the Term Loan.
(c) Term Loan Interest and Principal Payments; Amortization. Borrower
-------------------------------------------------------
shall pay to Agent, for the benefit of Term Lenders, interest on the Term Loan
on a quarterly basis, in arrears, commencing on April 1, 1996, and continuing on
the first Business Day of each Fiscal Quarter thereafter until the Termination
Date; provided, that (i) with respect to a portion of Term Loan Tranche A equal
--------
to the Deferral Amount, Borrower shall pay to Agent commencing on July 1, 1997,
quarterly installments of principal and interest, which principal and interest
amounts shall be determined as of such July 1, 1997 date and shall approximate
the equal amortization of principal and interest based on the weighted average
of the Fixed Rates in effect as of such date over a period of nineteen and one-
quarter (19.25) years from such July 1, 1997 date, (ii) with respect to the
remainder
37
<PAGE>
of Term Loan Tranche A, from and after the third anniversary of the Closing Date
commencing on April 1, 1999, Borrower shall pay to Agent quarterly installments
of principal and interest, which principal and interest amounts shall be
determined as of such third anniversary and shall approximate the equal
amortization of principal and interest based on the weighted average of the
Fixed Rates in effect as of such third anniversary over a period of seventeen
and one-half (17.5) years from the third anniversary of the Closing Date, (iii)
with respect to One Hundred Fifty Million Dollars ($150,000,000) of Term Loan
Tranche B, from and after the first anniversary of the Closing Date commencing
April 1, 1997, Borrower shall pay to Agent quarterly installments of principal
determined in accordance with Exhibit H (subject to adjustment if there is a
reamortization pursuant to Section 2.2(d)), and all interest accrued thereon,
amortized over a period of nineteen and one-half (19.5) years from the first
(1st) anniversary of the Closing Date; and (iv) with respect to the remainder of
Term Loan Tranche B, commencing July 1, 1997, Borrower shall pay to Agent
quarterly installments of principal and interest, which principal and interest
amounts shall be determined as of such July 1, 1997 date and shall approximate
the equal amortization of principal and interest based on the weighted average
of the Fixed Rates in effect as of such date, amortized over a period of
nineteen and one-quarter (19.25) years from the Second Restatement Closing Date;
and provided, further, that all unpaid principal, accrued interest and other
--------
amounts evidenced by the Term Notes shall be due and payable in full on the Term
Loan Maturity Date.
(d) Application of Prepayments on Term Loan. All mandatory and other
---------------------------------------
prepayments applied to the Term Loan pursuant to Sections 2.3(b),(c),(d), and
(e) and 2.4 or any other provision of this Agreement shall be applied by Agent
first to Term Loan Tranche A until all principal, interest, and other amounts
owing thereunder shall have been paid in full. (Prepayments received prior to
April 1, 1999 shall be applied first to that portion of Term Loan Tranche A
referred to in clause (i) of Section 2.2(c) and then to that portion of Term
Loan Tranche A referred to in clause (ii) of Section 2.2(c). Prepayments
received on or after April 1, 1999 shall be applied pro-rata between that
portion of Term Loan Tranche A referred to in clause [i] of Section 2.2(c) and
that portion of Term Loan Tranche A referred to in clause (ii) of Section
2.2(c).) After full payment of Term Loan Tranche A, all such prepayments shall
be applied to Term Loan Tranche B until all principal, interest, and other
amounts owing thereunder shall have been paid in full. (Prepayments shall be
applied pro-rata between that portion of Term Loan Tranche B referred to in
clause (iv) of Section 2.2(c) and that portion of Term Loan Tranche B referred
to in clause (iii) of Section 2.2(c).) Except as otherwise provided below, all
such prepayments applied to principal under the Term Loan shall be applied in
inverse order of maturity, shall not reduce the amount of any future installment
of principal provided
38
<PAGE>
for under Section 2.2(c) (other than the payment due upon maturity of the Term
Loan or, if such final installment has already been prepaid, the most remote
remaining scheduled principal payment), and shall constitute a permanent
reduction of the Term Loan. Notwithstanding the immediately preceding sentence,
if (i) Term Loan Tranche A has been paid in full, (ii) Agent has received a
prepayment on Term Loan Tranche B which, when taken together with all previous
prepayments applied to Term Loan Tranche B, results in an aggregate prepayment
of not less than Twenty Million Dollars ($20,000,000), and (iii) no Default or
Event of Default has occurred and is continuing, then, upon Borrower's written
request in connection with such prepayment of any additional prepayment of Term
Loan Tranche B, Agent shall, on a one-time basis, without premium or fee,
reamortize the then remaining principal balance under Term Loan Tranche B in
equal, quarterly installments of principal and interest over the original
nineteen and one-half (19.5) year amortization period, less the portion of such
amortization period that has elapsed since the amortization commenced on the
first anniversary after the Closing Date. Borrower shall have the right to
designate the various Fixed Rate portions to which prepayments on the Term Loan
shall be applied and, in the absence of such designation, shall be applied to
the Fixed Rate portions maturing soonest.
2.3 Mandatory Prepayments; Application Thereof.
------------------------------------------
(a) Mandatory Prepayment of Revolving Loan and Letter of Credit
-----------------------------------------------------------
Obligations. If at any time, the outstanding balance of the Revolving Loan,
- -----------
when aggregated with the amount of outstanding Letter of Credit Obligations,
shall exceed the amount of the Maximum Revolving Loan, Borrower shall
immediately repay to Agent the outstanding Revolving Loan in the amount of such
excess. If at any time the outstanding balance of the Revolving Loan, when
aggregated with the amount of outstanding Letter of Credit Obligations, shall
exceed the amount of the Borrowing Base, Borrower shall immediately repay to
Agent the outstanding Revolving Loan in the amount of such excess. No
prepayment fee shall be payable with respect to any mandatory prepayment under
this Section 2.3(a). All mandatory prepayments under this Section 2.3(a) shall
be applied by Agent to the Obligations owing to the Revolving Lenders in
accordance with their respective Percentages.
(b) Mandatory Prepayment from Excess Cash Flow.
------------------------------------------
Subject to the terms and conditions set forth below, until such time as the
aggregate principal balance of the Term Loan has been reduced below the Base
Term Loan Amount, Borrower shall pay to Agent, within fifteen (15) days after
Borrower is required to deliver its annual audited financial statements to Agent
pursuant to Section 6.1(e), an amount equal to sixty percent (60%) of Borrower's
Excess Cash Flow for the immediately preceding Fiscal
39
<PAGE>
Year (each, an "Excess Cash Flow Payment"); provided that the Excess Cash Flow
Payment with respect to Excess Cash Flow during the Fiscal Year ending December
31, 1996 will be required only to the extent that such Excess Cash Flow Payment
exceeds Five Million Dollars ($5,000,000). (The amount of the Excess Cash Flow
Payment that would have been required by the first sentence of this Section
2.3(b), but which was not paid due to the proviso at the end of that sentence,
is hereafter referred to as the "Deferral Amount.") If the amount payable to
Agent for any Fiscal Year as provided above (other than 1996) would be less than
Five Million Dollars ($5,000,000), then the Excess Cash Flow Payment for such
Fiscal Year shall be increased to the lesser of (i) seventy-five percent (75%)
of such Excess Cash Flow, or (ii) Five Million Dollars ($5,000,000). If after
the increase described in the immediately preceding sentence the amount paid to
Agent for any Fiscal Year as provided above is less than Five Million Dollars
($5,000,000), then the amount of such shortfall shall be added to the minimum
amount payable from Excess Cash Flow for subsequent Fiscal Years, until such
shortfall has been received by Agent; provided that the amount payable shall
--------
never exceed seventy-five percent (75%) of Excess Cash Flow. If for any Fiscal
Year sixty percent (60%) of Borrower's Excess Cash Flow for such Fiscal Year
would exceed the amount necessary to reduce the balance below the Base Term Loan
Amount, then Borrower need only pay as much as is necessary to cause the
principal balance of the Term Loan to equal the Base Term Loan Amount. If at
the time Borrower is making an Excess Cash Flow Payment an appraisal of
Borrower's real property is in process and such appraisal when completed shows a
lower property value that changes the Base Term Loan Amount, then Borrower shall
make such additional Excess Cash Flow Payments to Agent as are necessary based
on the new Base Term Loan Amount. Amounts paid to Agent pursuant to this
Section 2.3(b) shall be applied as a permanent reduction to the Term Loan and
distributed to Term Lenders as provided in Section 2.2(d).
(c) Mandatory Prepayment from Sales of Assets. If at any time
-----------------------------------------
Borrower sells or otherwise disposes of real property in amounts permitted by
Section 8.9(b) of this Agreement, Borrower shall immediately pay to Agent the
Minimum Payment Amount with respect to such sale or disposition. Except for
such permitted sales of real property and except for the proceeds of equipment
being traded in or replaced in the ordinary course of business, if at any time
Borrower sells or otherwise disposes of any Fixed Assets, or sells or otherwise
disposes of any assets other than Fixed Assets outside of the ordinary course of
Borrower's business, Borrower shall immediately pay to Agent all of the Net
Proceeds of such sale or other disposition. In addition to the foregoing, if at
the end of one hundred eighty (180) days after disposition of a Fixed Asset by
Borrower, Lenders have released to Borrower aggregate proceeds from sales of
Fixed Assets in an amount that exceeds by Twenty Million
40
<PAGE>
Dollars ($20,000,000) the amount of such proceeds subsequently invested by
Borrower in "Productive Assets" (defined as assets used by Borrower in the same
type of business that Borrower is engaged in on the Closing Date), then a
mandatory prepayment shall be due from Borrower to Agent in the amount of such
excess, to be applied to either the Term Loan or the Revolving Loan as
designated by Borrower. All mandatory prepayments under this Section 2.3(c)
from the sale or other disposition of any Fixed Assets shall be applied by Agent
to the Term Loan in the manner provided in Section 2.2(d). All mandatory
prepayments under this Section 2.3(c) from the sale or other disposition of any
assets other than Fixed Assets shall be applied by Agent to the Revolving Loan.
Such amounts received by Revolving Lenders shall constitute a permanent
reduction in the Maximum Revolving Loan.
(d) Mandatory Prepayment from Issuance of Additional Indebtedness or
----------------------------------------------------------------
Equity. If at any time after the Closing Date Borrower incurs any additional
- ------
Indebtedness for borrowed money, other than Purchase Money Indebtedness, or
issues any additional Stock (other than the Second Restatement Stock), Borrower
shall immediately pay to Agent all proceeds of such incurrence or issuance. All
mandatory prepayments under this Section 2.3(d) shall be distributed by Agent to
Revolving Lenders and Term Lenders based on their Percentages of the
Obligations. Amounts received by Term Lenders pursuant to this Section 2.3(d)
shall constitute a permanent reduction of the Term Loan as provided in Section
2.2(d). Amounts received by Revolving Lenders shall constitute a permanent
reduction in the Maximum Revolving Loan.
(e) Mandatory Prepayment Upon Payment of Subordinated Debt. If at any
------------------------------------------------------
time Borrower shall make or tender any payment on account of the principal
portion of any Subordinated Debt that is not approved in writing by Agent,
Borrower shall make a mandatory prepayment to Agent, for the benefit of
Revolving Lenders and Term Lenders, in the amount of, and consisting of, such
payment or tendered payment. Such prepayment shall be distributed by Agent to
Revolving Lenders and Term Lenders based on their Percentages of the
Obligations. Amounts received by Term Lenders pursuant to this Section 2.3(e)
shall constitute a permanent reduction of the Term Loan as provided in Section
2.2(d). Amounts received by Revolving Lenders pursuant to this Section 2.3(e)
shall constitute a permanent reduction in the Maximum Revolving Loan.
(f) Mandatory Prepayment Upon Failure to Obtain Landlord/Lender
-----------------------------------------------------------
Agreements. If Borrower shall fail to obtain landlord/lender agreements and
- ----------
memorandum of landlord/lender agreements in form and substance acceptable to
Agent and Term Lenders on or before April 12, 1996 for Special Leased Property
having an aggregate value equal to or greater than Seven Hundred Twenty Five
Thousand Dollars ($725,000), Borrower shall on such date pay to Agent the sum of
Five Hundred Thousand Dollars
41
<PAGE>
($500,000) which sum shall constitute a permanent reduction of the Term Loan as
provided in Section 2.2(d). As used in this Section 2.3(f), the term "Special
Leased Property" shall mean those parcels of real property listed in the
Schedule of Value of Real Property referred to in the Third Amendment Schedule
of Documents as the "Special Leased Property."
2.4 Other Prepayments.
-----------------
(a) Prepayment in Full. Borrower shall have the right at any time to
------------------
voluntarily prepay the entire amount of the outstanding Revolving Loan and the
entire amount of the outstanding Term Loan and to terminate this Agreement upon
at least three (3) Business Days notice to Agent, without premium or penalty
except Borrower shall pay to Agent, for the benefit of Term Lenders, a
prepayment surcharge calculated in accordance with Section 2.3 or Section
2.4(d), and shall pay to Agent for the benefit of Revolving Lenders a prepayment
surcharge calculated in accordance with Section 2.4(d). Prepayment in full
shall be accompanied by the payment of all accrued and unpaid interest and all
Fees and other remaining Obligations, including, Borrower making arrangements,
in accordance with the terms and conditions of Section 2.1(h), for satisfaction
with respect to any outstanding Letter of Credit Obligation.
(b) Partial Prepayment of Term Loan. Borrower shall have the right at
-------------------------------
any time to voluntarily prepay any portion of the Term Loan upon at least three
(3) Business Days notice to Agent, without premium or penalty, except that
Borrower shall pay to Agent, for the benefit of Term Lenders, a prepayment
surcharge calculated in accordance with Section 2.4(c) if the prepayment is a
Special Prepayment, and shall pay to Agent for the benefit of Term Lenders a
prepayment surcharge calculated in accordance with Section 2.4(d) if the
prepayment is a General Prepayment. All voluntary partial prepayments of the
Term Loan shall be applied by Agent in the manner provided in Section 2.2(d).
Notwithstanding the foregoing, Borrower may only make a voluntary prepayment of
the Term Loan if (i) the source of such voluntary prepayment is the sale or
other disposition of a Fixed Asset or the proceeds of an issuance of debt or
equity permitted by this Agreement, or (ii) the voluntary prepayment is made no
earlier than the date of delivery of Borrower's audited financial statement for
the Fiscal Year ended December 31, 1996 and the aggregate amount of additional
prepayments in any particular year (other than those made pursuant to clause (i)
of this sentence) is not greater than the amount of Borrower's Excess Cash Flow
during the Fiscal Year preceding the Fiscal Year in which the voluntary
prepayment is made.
(c) Prepayment Surcharge for Special Prepayments. At the time that
--------------------------------------------
Borrower makes any Special Prepayment, whether such Special Prepayment is
voluntary on behalf of Borrower or
42
<PAGE>
mandatory under the terms of this Agreement, Borrower shall simultaneously pay
to Agent, for the benefit of Term Lenders and Revolving Lenders, a prepayment
surcharge for each Fixed Rate portion so prepaid calculated as follows:
(i) For each Fixed Rate portion of the Term Loan:
Loan:
(A) Calculate the difference between (1) the annual rate the Term Lenders
allocated (in accordance with their standard methodology) on the
Interest Determination Date to fund the amount being prepaid, and (2)
the annual rate the Term Lenders would allocate (in accordance with
such methodology) on the date of such prepayment to fund a new advance
in such amount for the remainder of the Interest Period for such Fixed
Rate portion. If the difference is negative, no prepayment surcharge
is payable.
(B) Divide the result in (A) above by four (4);
(C) For each quarter or portion thereof during which the amount prepaid
was scheduled to have been outstanding, however, in no such instance
beyond the remaining Interest Period for such Fixed Rate portion,
multiply the amount determined in (B) above by the amount prepaid
(such that there is a quarterly calculation for each quarter during
the remaining Interest Period for such Fixed Rate portion);
(D) Determine the present value of each quarterly calculation made under
(C) above, based upon the scheduled time that interest on the amount
prepaid would have been payable during the remaining Interest Period
for such Fixed Rate portion and a discount rate equal to the rate set
forth in (A)(2) above;
(E) Add all of the calculations made under (D) above. The result is the
prepayment surcharge; and
(ii) For each Fixed Rate portion of the Revolving Loan, the
prepayment surcharge shall be equal to any funding losses incurred by
Lenders as a result of such prepayment, including any loss or expense
arising from the redeployment of funds.
(d) Prepayment Surcharge for General Prepayment. At the time that
-------------------------------------------
Borrower makes any General Prepayment, whether such General Prepayment is
voluntary on behalf of Borrower or mandatory under the terms of this Agreement,
Borrower shall simultaneously pay to Agent, for the benefit of Term Lenders
and/or Revolving Lenders, as the case may be, a prepayment
43
<PAGE>
surcharge for each Fixed Rate portion of the Term Loan and the Revolving Loan so
prepaid, calculated as follows:
(i) For each Fixed Rate portion of the Term Loan, the prepayment
surcharge shall equal the sum of the respective present values of such
portion for each calendar quarter or portion of a calendar quarter
remaining from the date of such prepayment until the expiration of the
applicable Interest Period based on the sum of the Formula Yield in effect
on the date of such prepayment plus one-half percent (.50%), and treating
----
each portion of a calendar quarter as an entire quarter; and
(ii) For each Fixed Rate portion of the Revolving Loan, the
prepayment surcharge shall be equal to any funding losses incurred by
Lenders as a result of such prepayment, including any loss or expense
arising from the redeployment of funds.
2.5 Interest on Revolving Advances.
------------------------------
(a) Variable Rate. Revolving Advances hereunder shall bear interest
-------------
at the Variable Rate, unless Borrower elects to convert the interest rate to a
Fixed Rate for the period selected by Borrower in accordance with the provisions
of Section 2.5(c).
(b) Reduction in Margin Applicable to Variable Rate. On and after
-----------------------------------------------
January 16, 1997, the margin applicable to the Variable Rate shall be adjusted
on a quarterly basis in the manner and to the extent provided in this Section
2.5(b). If, as of the end of any Fiscal Quarter, commencing with the Fiscal
Quarter ending on December 31, 1996, Borrower's Consolidated Funded Debt to
Consolidated EBITDA Ratio, for the period of such Fiscal Quarter and the three
immediately preceding Fiscal Quarters, calculated on a rolling basis, falls
within any of the levels listed below, then the margin applicable to the
Variable Rate shall be adjusted, in the manner forth below, to the applicable
margin for such level listed below:
<TABLE>
<CAPTION>
Consolidated Funded Debt to Applicable
Consolidated EBITDA Ratio Level Margin
------------------------------- ----------
<S> <C>
4.75:1 or greater .75%
3.75:1 or greater, but less than 4.75:1 .50%
3.25:1 or greater, but less than 3.75:1 .25%
Less than 3.25:1 0.00%
</TABLE>
Any change to the applicable margin on or after January 16, 1997 shall become
effective as of the third (3rd) Business Day after Borrower's delivery to Agent
of the financial statements required to be delivered to Agent pursuant to
Section 6.1(c) demonstrating
44
<PAGE>
to Agent's reasonable satisfaction Borrower's right to such changed applicable
margin. Borrower shall not be entitled to a lower margin under this Section
2.5(b) until after Borrower has delivered to Agent the quarterly financial
statement for the Fiscal Quarter ending December 31, 1996. Notwithstanding
anything to the contrary in the foregoing, if a Default or Event of Default
shall have occurred and be continuing, then the applicable margin shall be
three-quarters of one percent (.75%), subject to increase to the Default Rate
pursuant to Section 2.7(d).
(c) Fixed Rate for Revolving Loan. Borrower may, from time to time,
-----------------------------
elect to convert all or a portion of the outstanding Revolving Advances to a
Fixed Rate; provided, that (i) at least four (4) Business Days prior to the
--------
proposed Interest Determination Date, Borrower has provided Agent with written
notice of such election, the requested Interest Determination Date, the amount
of the Revolving Advances to be converted, and the requested Interest Period for
the amount to be converted, (ii) at the time of delivery of such written notice
and upon the date of conversion, no Default or Event of Default exists under
this Agreement, (iii) at no time shall there be more than ten (10) outstanding
tranches of the Revolving Loan bearing interest at a Fixed Rate, (iv) the last
day of the Interest Period chosen by Borrower shall not extend beyond the
Revolving Loan Maturity Date, and (v) the amount converted to a Fixed Rate at
any one time shall be not less than One Million Dollars ($1,000,000) and any
amounts in excess thereof shall be in integral multiples of One Hundred Thousand
Dollars ($100,000). Whenever Borrower shall notify Agent of an election
pursuant to this Section 2.5(c), Agent shall so notify each Revolving Lender at
least three (3) Business Days prior to the proposed Interest Determination Date.
Any election by Borrower pursuant to this Section 2.5(c) shall be irrevocable
during the Interest Period selected by Borrower, and that portion of the
Revolving Loan so converted shall bear interest at the applicable Fixed Rate
until the expiration of the applicable Interest Period at which time, unless
another Fixed Rate has been duly elected by Borrower pursuant to this Section
2.5(c), the interest rate for such portion of the Revolving Loan will
automatically convert to the Variable Rate.
(d) Reduction in Margin Applicable to Fixed Rate Elections for
----------------------------------------------------------
Revolving Loan. On and after January 16, 1997, the margin applicable to the
- --------------
Fixed Rate shall be adjusted on a quarterly basis in the manner and to the
extent provided in this Section 2.5(d). If, as of the end of any Fiscal
Quarter, commencing with the Fiscal Quarter ending on December 31, 1996,
Borrower's Consolidated Funded Debt to Consolidated EBITDA Ratio, for the period
of such Fiscal Quarter and the three immediately preceding Fiscal Quarters,
calculated on a rolling basis, falls within any of the levels listed below, then
the margin applicable
45
<PAGE>
to the Fixed Rate for the next Fiscal Quarter shall be adjusted, in the manner
set forth below, to the applicable margin for such level listed below:
<TABLE>
<CAPTION>
Consolidated Funded Debt Applicable
to Consolidated EBITDA Ratio Level Margin
- ---------------------------------- ----------
<S> <C>
4.75:1 or greater 2.25%
3.75:1 or greater, but less than 4.75:1 2.05%
3.25:1 or greater, but less than 3.75:1 1.85%
2.75:1 or greater, but less than 3.25:1 1.60%
Less than 2.75:1 1.35%
</TABLE>
The first ratio shall be determined for the four quarters ending with the Fiscal
Quarter ending on December 31, 1996 and shall be determined on the third (3rd)
Business Day after Borrower's delivery to Agent of the financial statements for
such Fiscal Quarter required to be delivered to Agent pursuant to Section
6.1(c). Thereafter, any change to the applicable margin shall become effective
as of the third (3rd) Business Day after Borrower's delivery to Agent of the
financial statements required to be delivered to Agent pursuant to Section
6.1(c) demonstrating to Agent's reasonable satisfaction Borrower's right to such
changed applicable margin. Notwithstanding anything to the contrary in the
foregoing, if a Default or Event of Default shall have occurred and be
continuing on either the date that Borrower elects to convert a portion of the
Revolving Loan to a Fixed Rate or upon the Interest Determination Date, then
Borrower shall have no right to elect a Fixed Rate. If Borrower is nonetheless
permitted to elect a Fixed Rate, Borrower shall not be entitled to any reduction
in the applicable margin otherwise available under this Section 2.5(d).
2.6 Interest on Term Loan.
---------------------
(a) Election of Fixed Rates for Term Loan Upon Closing Date. The Term
-------------------------------------------------------
Loan shall bear interest at a Fixed Rate, as elected by Borrower in accordance
with the terms of this Agreement. At least five (5) Business Days prior to the
proposed Closing Date, Borrower shall have provided Agent with written notice of
the Interest Periods elected by Borrower for the Term Loan, which shall be
subject to the following conditions: (i) at least One Hundred Twenty Million
Dollars ($120,000,000) of the Term Loan advanced on the Closing Date shall be
subject to an Interest Period of not less than three (3) years, (ii) Borrower
may designate no more than four (4) separate Interest Periods for Term Loan
Tranche A, and no more than seven (7) separate Interest Periods for Term Loan
Tranche B, (iii) the last day of the Interest Period chosen by Borrower shall
not extend beyond the Term Loan Maturity Date, (iv) the amount of each portion
of the Term Loan designated for an Interest Period shall be not less than Five
Million Dollars ($5,000,000) plus additional
----
46
<PAGE>
incremental amounts of One Million Dollars ($1,000,000) or integral multiples
thereof, and (v) the ninety (90) day Interest Period shall expire on March 31,
1996, rather than on the ninetieth (90th) day. The designations made by
Borrower pursuant to this Section 2.6(a) shall be irrevocable during the
Interest Period selected by Borrower and any portion of the Term Loan so
designated shall bear interest at the applicable Fixed Rate until the expiration
of the applicable Interest Period. The Fixed Rates available upon the Closing
Date shall be as follows: (i) as to any ninety (90) day Interest Period, the
Discount Rate as of the date of such election plus the applicable margin listed
----
below, (ii) as to any one, two, or three year Interest Period, the rate offered
on U.S. Treasury Bonds of equivalent maturity as of the date of such election
plus the applicable margin listed below, and (iii) as to any five, seven, or
- ----
nine and one-half year Interest Period, the Average Life U.S. Treasury Bond rate
of equivalent maturity as of the date of such election plus the applicable
----
margin listed below:
<TABLE>
<CAPTION>
Interest Period Applicable Margin
--------------- -----------------
<S> <C>
90 days 2.35%
one year 2.25%
two years 2.25%
three years 2.35%
five years 2.60%
seven years 2.70%
to maturity 2.85%
</TABLE>
The chart set forth in Section 2.6(a) prior to the Third Amendment Closing Date
applied to Interest Periods commencing prior to the effectiveness of the Third
Amendment. The above chart shall apply to Interest Periods commencing on or
after the effectiveness of the Third Amendment (which shall include the
additional advance of Ten Million Dollars ($10,000,000) made as part of the
Third Amendment).
(b) Election of Fixed Rates for Term Loan After First Anniversary of
----------------------------------------------------------------
Closing Date. At any time after January 16, 1997, at least five (5) Business
- ------------
Days prior to the expiration of any Interest Period chosen by Borrower with
respect to a portion of the Term Loan, Borrower shall have provided Agent with
written notice of the subsequent Interest Period elected by Borrower for that
portion of the Term Loan. Subsequent elections shall be subject to the
following conditions: (i) Borrower may designate no more than four (4) separate
Interest Periods for Term Loan Tranche A, and no more than six (6) separate
Interest Periods for Term Loan Tranche B, (ii) the last day of an Interest
Period chosen by Borrower shall not extend beyond the Term Loan Maturity Date,
(iii) the amount of each portion of the Term Loan designated for an Interest
Period shall be in amounts reasonably acceptable to Agent, and (iv) if Borrower
shall elect a ninety
47
<PAGE>
(90) day Interest Period upon expiration of any Interest Period ending on or
about an anniversary of the Closing Date, then such ninety (90) day Interest
Period shall expire on March 31 of that year rather than on the ninetieth (90th)
day. The designations made by Borrower pursuant to this Section 2.6(b) shall be
irrevocable during the Interest Period selected by Borrower and any portion of
the Term Loan so designated shall bear interest at the applicable Fixed Rate
until the expiration of the applicable Interest Period. If Borrower shall not
have designated an Interest Period by the fifth (5th) Business Day required by
the first sentence of this Section 2.6(b), then, subject to Section 2.6(c),
Borrower shall be deemed to have designated an Interest Period of ninety (90)
days for the applicable portion of the Term Loan; provided; that if the Term
--------
Loan Maturity Date is less than ninety days (90) after such date, then Agent
shall select a shorter Interest Period. The Fixed Rates for Interest Periods
selected after January 16, 1997 shall be as follows: (i) as to any ninety (90)
day Interest Period, the Discount Rate as of the date of such election plus the
----
applicable margin listed below, and (ii) as to any one year, two year, three
year, five year, or seven year, the Cost of Funds Rate applicable to such
Interest Period plus the applicable margin listed below:
----
<TABLE>
<CAPTION>
Interest Period Applicable Margin
--------------- -----------------
<S> <C>
90 days 2.35%
one year 2.20%
two years 2.20%
three years 2.25%
five years 2.45%
seven years 2.60%;
</TABLE>
or such lower Fixed Rates, if any, to which Borrower may be entitled pursuant to
Section 2.6(c).
(c) Reduction in Margin Applicable to Fixed Rate Elections for Term
---------------------------------------------------------------
Loan. The margin applicable to each Fixed Rate to be selected after January 16,
- ----
1997 shall be adjusted on a quarterly basis in the manner and to the extent
provided in this Section 2.6(c). If, as of the end of any Fiscal Quarter,
commencing with the Fiscal Quarter ending December 31, 1996, Borrower's
Consolidated Funded Debt to Consolidated EBITDA Ratio, for the period of such
Fiscal Quarter and the three immediately preceding Fiscal Quarters, calculated
on a rolling basis, falls within any of the levels listed below, then the margin
applicable to each of the available Fixed Rates selected pursuant to Section
2.6(b) for the next Fiscal Quarter shall be adjusted in the
48
<PAGE>
manner set forth below to the applicable margin for such Fixed Rate for such
level listed below:
<TABLE>
<CAPTION>
Consolidated Funded Debt to Interest Periods &
Consolidated EBITDA Ratio Levels Applicable Margins
- -------------------------------- ------------------
================================================================================
1 or 2
90 Day Year 3 Year 5 Year 7 Year
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3.75:1 or 2.10% 1.95% 2.00% 2.20% 2.35%
greater, but
less than 4.75:1
- --------------------------------------------------------------------------------
3.25:1 or 1.85% 1.70% 1.75% 1.95% 2.10%
greater, but
less than 3.75:1
- --------------------------------------------------------------------------------
2.75:1 or 1.60% 1.45% 1.50 1.70% 1.85%
greater, but
less than 3.25:1
- --------------------------------------------------------------------------------
Less than 2.75:1 1.35% 1.20% 1.25% 1.45% 1.60%
================================================================================
</TABLE>
The first ratio shall be determined for the four quarters ending with the Fiscal
Quarter ending on December 31, 1996 and shall be determined on the third (3rd)
Business Day after Borrower's delivery to Agent of the financial statements for
such Fiscal Quarter required to be delivered to Agent pursuant to Section
6.1(c). Thereafter, the ratio shall change for future Fiscal Quarters as of the
third (3rd) Business Day after Borrower's delivery to Agent of the financial
statements required to be delivered to Agent pursuant to Section 6.1(c).
Notwithstanding anything to the contrary in the foregoing, (i) changes in the
ratios and applicable margins described above during any Interest Period shall
not affect the Fixed Rate for such Interest Period during such Interest Period,
and (ii) if a Default or Event of Default shall have occurred and be continuing
on the date that Borrower designates an Interest Period or on the Interest
Determination Date, Borrower shall not be entitled to the reduction provided for
by this Section 2.6(d).
(d) No Designation Upon Occurrence of a Default or Event of Default.
---------------------------------------------------------------
If a Default or Event of Default shall have occurred, then during the
continuance of such Default or Event of Default Borrower shall have no right to
designate an Interest Period. Any portion of a Term Loan covered by an Interest
Period that expires during the continuance of a Default or an Event of Default
shall bear interest after such expiration at the Default Rate until such time,
if any, as such Default shall cease to exist or such Event of Default shall be
waived or cured and Borrower shall make a subsequent designation of an Interest
Period in accordance with the terms of this Agreement.
49
<PAGE>
2.7 Other Interest Provisions.
-------------------------
(a) Interest Payment Dates. Interest shall be due and payable on the
----------------------
first day of each calendar quarter, commencing April 1, 1996, with respect to
all interest accrued on the Revolving Loan and the Term Loan during the
preceding calendar quarter; provided, that if any Interest Period shall mature
--------
prior to the first day of a calendar quarter, then interest accrued at a Fixed
Rate during the particular Interest Period shall be due and payable upon
expiration of the Interest Period. Interest accrued on the Revolving Loan but
not otherwise due and payable on the Revolving Loan Maturity Date shall become
due and payable on the Revolving Loan Maturity Date. Interest accrued on the
Term Loan but not otherwise due and payable on the Term Loan Maturity Date shall
become due and payable on the Term Loan Maturity Date.
(b) Payments Due on Business Days. If any installment of interest or
-----------------------------
any other amount payable under any Loan Document becomes due and payable on a
day other than a Business Day, the payment date for such payment shall be
extended to the next succeeding Business Day and, with respect to payments of
principal or other payments that bear interest (other than interest first due on
such date), interest thereon shall be payable at the then applicable rate during
such extension; provided, however, if any installment of interest relating to
-------- -------
(i) Revolving Advances that have been converted to a Fixed Rate or (ii) the Term
Loan, shall become due and payable on a Saturday, the payment date for such
payment shall be the preceding Business Day.
(c) Computation of Interest. All computations of interest on the Term
-----------------------
Loan shall be made by Agent on the basis of a three hundred sixty (360) day
year, based on four (4) equal quarterly periods. All computations of interest
on the Revolving Loan shall be made by Agent on the basis of a three hundred
sixty (360) day year, based on the actual number of days occurring in the period
for which such interest is payable. All computations of interest on the
Revolving Loan accruing at the Variable Rate shall be made by Agent on the basis
of a three hundred sixty five (365) day year, in each case for the actual number
of days occurring in the period for which such interest is payable. Interest
determined by reference to a floating rate (i.e., the Variable Rate or such
portions of the Default Rate bearing interest at a floating rate) shall be
determined on a daily basis for use in calculating the interest that is payable
for such day, and any change in the Variable Rate shall become effective on the
day such change occurs. Each determination by Agent of an interest rate
hereunder shall be conclusive and binding for all purposes, absent manifest
error or bad faith.
50
<PAGE>
(d) Default Rate. Any overdue principal of or interest with respect
------------
to any Revolving Advance, or the Term Loan, and the amount of any fees, costs,
or expenses that Borrower is obligated to pay to Agent or any Lender under this
Agreement or any Loan Document not paid when due, shall bear interest, payable
on demand, for each day until paid at a rate per annum equal to the Default
Rate. In addition, upon and after the occurrence of an Event of Default and
continuing until such Event of Default has been cured or waived in writing by
Agent in accordance with the terms of this Agreement, interest shall accrue on
the Obligations at the Default Rate. The interest rate increase to the Default
Rate shall take effect immediately upon the occurrence of an Event of Default,
without prior notice to Borrower.
(e) Interest Not to Exceed Maximum Lawful Rate. Notwithstanding
------------------------------------------
anything to the contrary set forth in this Agreement, if at any time until
payment in full of all of the Obligations, the rate of interest payable
hereunder exceeds the highest rate of interest permissible under any law which a
court of competent jurisdiction shall, in a final determination, deem applicable
hereto (the "Maximum Lawful Rate"), then in such event and so long as the
Maximum Lawful Rate would be so exceeded, the rate of interest payable hereunder
shall be equal to the Maximum Lawful Rate; provided, that if at any time
--------
thereafter the rate of interest payable hereunder is less than the Maximum
Lawful Rate, Borrower shall continue to pay interest hereunder at the Maximum
Lawful Rate until such time as the total interest received by (i) Revolving
Lenders from the making of the Revolving Loan or incurring the Letter of Credit
Obligations hereunder, and (ii) Term Lenders from making the Term Loan
hereunder, is equal to the total interest which such Lenders would have received
had the interest rate payable hereunder been (but for the operation of this
Section 2.7(e)) the interest rate payable since the Closing Date. Thereafter,
the interest rate payable hereunder shall be the rate of interest set forth
herein, unless and until the rate of interest again exceeds the Maximum Lawful
Rate, in which event this paragraph shall again apply. In no event shall the
total interest received by Lenders pursuant to the terms hereof exceed the
amount which Lenders could lawfully have received had the interest due hereunder
been calculated for the full term hereof at the Maximum Lawful Rate. In the
event the Maximum Lawful Rate is calculated pursuant to this Section 2.7(e),
such interest shall be calculated at a daily rate equal to the Maximum Lawful
Rate divided by the number of days in the year in which such calculation is
made. In the event that a court of competent jurisdiction, notwithstanding the
provisions of this Section 2.7(e), shall make a final determination that Lenders
have received interest hereunder or under any of the Loan Documents in excess of
the Maximum Lawful Rate, Revolving Lenders and Term Lenders shall, respectively,
to the extent permitted by applicable law, promptly apply such excess first to
any interest
51
<PAGE>
due and not yet paid under the Revolving Loan, Letter of Credit Obligations and
Term Loan, then to the outstanding principal of the Revolving Loan, and Term
Loan (without premium or penalty), and then to Fees and any other unpaid
Obligations and thereafter shall refund any excess to Borrower or as a court of
competent jurisdiction may otherwise order.
(f) Additional Fixed Rate Provisions. If at any time Agent reasonably
--------------------------------
determines that for any reason adequate and reasonable means do not exist for
ascertaining the LIBO Rate or the LIBO Rate generally becomes unavailable to
Agent or to any Lender, Agent shall promptly give notice thereof to Borrower,
and upon the giving of such notice, no new Fixed Rate may be selected by
Borrower, until Agent is reasonably able to ascertain the LIBO Rate and Agent
shall promptly notify Borrower at such time; provided, that Agent's
--------
determination under this Section 2.7(f) as to Borrower shall be in accordance
with its treatment of other borrowers under commercial loans generally. In the
event that any law, treaty, rule, regulation, or determination of a court or
governmental authority or any change therein or in the interpretation or
application thereof or compliance by Agent with any request or directive
(whether or not having the force of law) from any central bank or governmental
authority:
(i) shall subject Agent or any Lender to any tax of any kind
whatsoever with respect to any LIBO Rate, or change the basis of taxation of
payments to any Lender of principal, interest or any other amount payable under
any Loan Document (except for changes in the rate of tax on the overall net
income of a Lender); or
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan, or similar requirement against assets held by, or
deposits or other liabilities in or for the account of, advances or loans by, or
other credit extended by, or any other acquisition of funds by, any office of
any Lender; or
(iii) shall impose on any Lender any other condition; and the
result of any of the foregoing is to increase the cost to such Lender of making,
renewing, or maintaining any portion of the Revolving Loan or Term Loan with
interest rates tied to the LIBO Rate and/or to reduce any amount receivable by
any Lender in connection therewith;
then in any such case, Borrower shall pay to such Lender, immediately upon
demand, such amount or amounts as may be necessary to compensate such Lender for
any additional costs incurred by such Lender and/or reductions in amounts
received by such Lender which are attributable to LIBO Rates made available to
Borrower hereunder. In determining which costs incurred by a Lender and/or
reductions in amounts received by a Lender are
52
<PAGE>
attributable to such LIBO Rates, any reasonable allocation made by such Lender
among its operations shall be conclusive and binding upon Borrower; provided,
--------
that such Lender's determination under this Section 2.7(f) as to Borrower is in
accordance with its treatment of other borrowers under commercial loans
generally.
(g) Adjustment of Interest Rate Margins Upon Receipt of Annual Audited
------------------------------------------------------------------
Statement. Notwithstanding any other provision of this Agreement, if an
- ---------
adjustment to any margin applicable to the determination of any interest under
this Agreement was made based on a quarterly financial statement for a quarter
ending on December 31 of any year, and the audited financial statement when
delivered shows that Borrower did not qualify for such adjusted margin, then the
margin shall immediately be adjusted retroactively back to the date of
adjustment to the level for which Borrower qualifies based on such audited
financial statement and Borrower shall be assessed by Agent for interest accrued
at the difference between the rates and Borrower shall pay such difference to
Agent upon demand.
2.8 Fees. In addition to the other Fees listed in this Agreement,
----
Borrower shall pay to Agent the following Fees:
(a) Commitment Fee. Upon the Closing Date, Borrower paid to Agent for
--------------
the benefit of Lenders a commitment fee in the amount of Three Million Dollars
($3,000,000) and upon the Third Amendment Closing Date, Borrower paid to Agent
for the benefit of Lenders a subsequent commitment fee in the amount of One
Hundred Twenty Thousand Dollars ($120,000). On the Second Restatement Closing
Date, Borrower shall pay to Agent for the benefit of Lenders a commitment fee of
Eighteen Thousand Seven Hundred Fifty Dollars ($18,750) and an amendment fee of
One Hundred Sixty Thousand Dollars ($160,000). The foregoing fees shall be
distributed among Agent and Lenders as they shall agree. Borrower shall have no
part in determining how such fees are distributed among Lenders and Agent.
(b) Agency Fee. To compensate Agent for serving as Agent under this
----------
Agreement and under the Security Documents, Borrower shall pay to Agent for its
own account (i) a periodic fee in an amount and at the times set forth in a
letter of even date from Agent to Borrower or in such other subsequent letters
as may be entered into between Agent and Borrower, commencing on the Closing
Date and continuing until the Termination Date and (ii) such fees as were or may
be negotiated between Agent and Borrower and set forth in separate agreements
and which were paid to or are payable to Agent on the Third Amendment Closing
Date, on the Second Restatement Closing Date, and on any future amendments of
modifications of this Agreement or any Loan Documents (collectively, the "Agency
Fee").
53
<PAGE>
(c) Facility Fee. Upon the Closing Date, Borrower was obligated to
------------
pay to Agent for the benefit of Lenders a loan application fee (the "Facility
Fee") in the amount of One Million Five Hundred Thousand Dollars ($1,500,000).
The Facility Fee was to be paid directly to Agent from the initial Revolving
Advance made on the Closing Date. Agent and Lenders agreed to waive the full
amount of the Facility Fee due to delivery by Borrower and the Guarantors to
Agent and Lenders on the Closing Date a waiver, in form and substance
satisfactory to Agent and Lenders, of the "borrower's rights" provisions of the
Farm Credit Act of 1971, as amended.
(d) Unused Commitment Fee. In consideration of the commitment made by
---------------------
Revolving Lenders under this Agreement, from and after the Closing Date and
until the Revolving Loan Maturity Date, Borrower shall pay to Agent, for the
benefit of Revolving Lenders, a quarterly unused commitment fee (the "Unused
Commitment Fee") equal to one-half of one percent (.50%) per annum of the
average daily amount by which the Maximum Revolving Loan exceeds the outstanding
balance of the Revolving Loan plus the outstanding Letter of Credit Obligations;
----
provided, that the Unused Commitment Fee shall be subject to reduction as
- --------
provided below. If, as of the end of any Fiscal Quarter, commencing with the
Fiscal Quarter ending December 31, 1996, Borrower's Consolidated Funded Debt to
Consolidated EBITDA Ratio, for the period of such Fiscal Quarter and the three
immediately preceding Fiscal Quarters, calculated on a rolling basis, falls
within any of the levels listed below, then the Unused Commitment Fee for the
next Fiscal Quarter shall be adjusted in the manner set forth below to the
percentage for such level listed below:
<TABLE>
<CAPTION>
Consolidated Funded Debt to Unused
Consolidated EBITDA Ratio Level Commitment Fee
- ------------------------------- --------------
<S> <C>
4.75:1 or greater .50%
3.75:1 or greater, but less than 4.75:1 .375%
Less than 3.75:1 .25%
</TABLE>
The first ratio shall be determined for the four quarters ending with the Fiscal
Quarter ending on December 31, 1996 and shall be determined on the third (3rd)
Business Day after Borrower's delivery to Agent of the financial statements for
such Fiscal Quarter required to be delivered to Agent pursuant to Section
6.1(c). Thereafter, any change to the Unused Commitment Fee shall become
effective as of the third (3rd) Business Day after Borrower's delivery to Agent
of the financial statements required to be delivered to Agent pursuant to
Section 6.1(c) demonstrating to Agent's reasonable satisfaction Borrower's right
to such changed applicable margin. Notwithstanding anything to the contrary in
the foregoing, if a Default or Event of Default shall have occurred and be
continuing on the date that Borrower would otherwise be entitled to a reduction
in the Unused
54
<PAGE>
Commitment Fee, then the Unused Commitment Fee shall remain or become one-half
of one percent (.50%) per annum. The Unused Commitment Fee shall be paid to
Agent on (i) the fifth day of each calendar quarter, commencing April 5, 1996,
with respect to the previous calendar quarter, and (ii) the Revolving Loan
Maturity Date, with respect to the period from the last full calendar quarter
through the Revolving Loan Maturity Date. The Unused Commitment Fee shall be
allocated among Revolving Lenders pro rata in accordance with their respective
Percentages of the Revolving Loan. Notwithstanding the foregoing, if an
adjustment to the amount of the Unused Commitment Fee is made based on a
quarterly financial statement for a quarter ending on December 31 of any year,
and the audited financial statement when delivered shows that Borrower did not
qualify for such adjustment, then the Unused Commitment Fee shall immediately be
adjusted retroactively back to the date of adjustment to the level for which
Borrower qualifies based on such audited financial statement and Borrower shall
be assessed by Agent for the difference between the rates and Borrower shall pay
such difference to Agent upon demand.
(e) Letter of Credit Fee. Borrower shall pay to Agent, for the
--------------------
account of Revolving Lenders, the Letter of Credit Maintenance Fee (calculated
on the basis of a 360 day year and actual days elapsed), on the face amount of
all outstanding Letter of Credit Obligations, payable in arrears (i) for the
preceding calendar quarter, on first Business Day of the succeeding calendar
quarter, and (ii) on the Revolving Loan Maturity Date. Upon the occurrence and
during the continuance of an Event of Default, the Letter of Credit Maintenance
Fee shall be increased to the Default Rate, and shall be payable upon demand by
Agent. The Letter of Credit Maintenance Fee shall be allocated as follows:
one-quarter percent (.25%) per annum shall be due to the Letter of Credit Bank
and the balance of the Letter of Credit Maintenance Fee shall be allocated to
each Revolving Lender (including the Letter of Credit Bank) in accordance with
each Revolving Lender's Percentage of the Revolving Loans.) In addition to the
above, Borrower shall pay to the Letter of Credit Bank, or shall reimburse Agent
and Revolving Lenders for, all customary fees and charges of the Letter of
Credit Bank or like party in connection with the issuance, administration,
amendment, negotiation or payment of any Letter of Credit.
(f) Fees Cumulative and Non-Refundable. All Fees payable under any
----------------------------------
Loan Document shall be cumulative and all Fees shall be considered fully earned
on the date of payment and shall not be refundable under any circumstances.
2.9 Purchase of Farm Credit Stock. On the Closing Date, Borrower shall
-----------------------------
purchase One Thousand Dollars ($1,000) of stock in Pacific Coast Farm Credit
Services, ACA and shall execute and deliver to Pacific Coast Farm Credit
Services, ACA such documents as are reasonably necessary to consummate such
purchase. The
55
<PAGE>
purchase price for the stock shall be paid directly from the initial Revolving
Advance made on the Closing Date.
2.10 Receipt of Payments. Borrower shall make each payment under this
-------------------
Agreement not later than 10:30 A.M. (California time) on the day when due in
lawful money of the United States of America by wire transfer of immediately
available funds to the Collection Account. Borrower shall have advised Agent in
writing of each payment being made by Borrower no later than 2:00 p.m.
(California time) on the Business Day prior to the date of making of such
payment. For purposes of computing interest and fees and determining the amount
of funds available for borrowing by Borrower pursuant to Article II, payments of
immediately available funds by wire transfer deposited in the Collection Account
not later than 10:30 a.m. (California time) (and for which Agent has received
notice prior to the making of such payment) shall be deemed received by Agent
upon that Business Day. If payment shall be deposited later than 10:30 a.m.
(California time) on any particular Business Day (or if Agent was not given
prior notice of the payment by 2:00 p.m. (California time) on the Business Day
preceding the date of payment), such payment shall be deemed received on the
following Business Day. If Agent, in its sole discretion, determines to accept
from Borrower payment by checks, drafts, or similar non-cash items, payment
shall be deemed received by Agent two (2) Business Days after notice to Agent
and deposit of such payment in the Collection Account.
2.11 Application and Allocation of Payments Prior to the Occurrence of an
--------------------------------------------------------------------
Event of Default.
- ----------------
(a) Application of Payments. Borrower irrevocably waives the right to
-----------------------
direct the application of any and all payments at any time or times hereafter
received by Agent or Lenders from or on behalf of Borrower, and Borrower
irrevocably agrees that Agent and Lenders shall have the continuing exclusive
right to apply any and all such payments against the then due and payable
Obligations of Borrower as Agent and Lenders may deem advisable.
(b) Allocation of Payments. Agent shall allocate among the Lenders
----------------------
payments received from Borrower in the following manner:
(i) payments of Obligations that are owed to Agent shall be
retained by Agent;
(ii) payments of Obligations other than principal and interest
payments that are owed to Lenders shall be allocated to the Lenders in
accordance with each Lender's respective Percentage; and
56
<PAGE>
(iii) payments of principal and interest on account of the Term
Loan shall be allocated in accordance with each Term Lender's respective
Percentage of the Term Loan and payments of principal and interest on
account of the Revolving Loan shall be allocated in accordance with each
Revolving Lender's respective Percentage of the Revolving Loan; provided,
--------
that if any Term Lender's or Revolving Lender's pro rata share of the
aggregate outstanding principal amount of the Term Loan or the Revolving
Advances, respectively, is greater than such Lender's Percentage, then
principal payments shall be allocated to such Lender until its pro rata
share of the aggregate outstanding principal amount is equal to such
Lender's Percentage.
2.12 Accounting. Agent will provide a monthly accounting of (i)
----------
transactions under the Revolving Loan and (ii) the Letter of Credit Obligations,
and a quarterly accounting of transactions under the Term Loan to Borrower and
to Lenders. Each and every such accounting shall (absent manifest error) be
deemed final, binding, and conclusive upon Borrower and Lenders in all respects
as to all matters reflected therein, unless Borrower or a Lender, within one
hundred twenty (120) days after the date any such accounting is rendered, shall
notify Agent in writing of any objection which Borrower or such Lender may have
to any such accounting, describing the basis for such objection with
specificity. In that event, only those items expressly objected to in such
notice shall be deemed to be disputed by Borrower or such Lender. Agent's
determination, based upon the facts available, of any item objected to by
Borrower or a Lender in such notice shall (absent manifest error) be final,
binding, and conclusive on Borrower and Lenders, unless Borrower or such Lender
shall commence a judicial proceeding to resolve such objection within sixty (60)
days following Agent's notifying Borrower and Lenders of such determination.
2.13 Taxes.
-----
(a) Any and all payments by Borrower hereunder or under the Revolving
Notes or Term Notes shall be made, in accordance with this Section 2.13, free
and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, Charges, or withholdings, and all liabilities with
respect thereto, excluding taxes imposed on or measured by the net income of any
Lender by the jurisdiction under the laws of which such Lender is organized or
any political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, Charges, withholdings and liabilities being hereinafter referred to
as "Taxes"). If Borrower shall be required by law to deduct any Taxes from or
in respect of any sum payable hereunder or under any Revolving Note or Term Note
to any Lender, (i) the sum payable shall be increased as may be
57
<PAGE>
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.13) such Lender
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) Borrower shall make such deductions, and (iii)
Borrower shall pay the full amount deducted to the relevant taxing or other
authority in accordance with applicable law.
(b) In addition, Borrower agrees to pay any present or future stamp or
documentary taxes or any other sales, transfer, excise, mortgage recording, or
property taxes, Charges or similar levies that arise from any payment made
hereunder or under the Revolving Notes, Term Notes, or from the execution, sale,
transfer, delivery or registration of, or otherwise with respect to, this
Agreement or the Revolving Notes, Term Notes, the Loan Documents and any other
agreements and instruments contemplated thereby (hereinafter referred to as
"Other Taxes").
(c) Borrower shall indemnify each Lender for the full amount of Taxes
or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction
on amounts payable under this Section 2.13) paid by such Lender and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. This indemnification shall be made within thirty (30) days
from the date such Lender makes written demand therefor.
(d) Within thirty (30) days after the date of any payment of Taxes,
Borrower shall furnish to each Lender the original or a certified copy of a
receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement of
Borrower hereunder, the agreements and obligations of Borrower contained in this
Section 2.13 shall survive the payment in full of all Obligations and the
Termination Date.
2.14 Capital Adequacy.
----------------
(a) Borrower shall pay to Agent for the benefit of any Lender from
time to time on written request such amounts as such Lender may reasonably
determine to be necessary to compensate such Lender for any increased costs to
such Lender that it reasonably determines are attributable to any law or
regulation, or any interpretation, directive, or request (whether or not having
the force of law and whether or not failure to comply therewith would be
unlawful) of any court or governmental or monetary authority (i) following any
Regulatory Change or (ii) implementing after the Closing Date any risk-based
capital guideline or other capital requirement (whether or not having the force
of law and whether or not the failure to comply therewith
58
<PAGE>
would be unlawful) heretofore or hereafter issued by any Governmental Authority
in respect of such Lender's Percentage of the Revolving Loan, the Letter of
Credit Obligations or Term Loan (such compensation to include an amount equal to
any reduction of the rate of return on assets or equity of such Lender to a
level below that which such Lender could have achieved but for such law,
regulation, interpretation, directive or request); provided that with respect to
--------
this Section 2.14, each Lender shall treat Borrower as such Lender generally
treats its other similarly situated borrowers.
(b) Each Lender will furnish to Agent and Borrower a certificate
setting forth the basis and amount of each request by such Lender for
compensation under this Section 2.14. Determinations and allocations by any
Lender for purposes of this Section 2.14 of the effect of any Regulatory Change
pursuant to or of capital maintained pursuant to this Section 2.14, on its costs
or rate of return of maintaining Revolving Advances, Letter of Credit
Obligations or the Term Loan and or its commitment to make Revolving Advances or
the Term Loan or incur Letter of Credit Obligations, and of the amounts required
to compensate such Lender under this Section 2.14, shall be conclusive absent
manifest error or bad faith.
2.15 Eligible Accounts. To be an "Eligible Account," an account must be
------------------
set forth on the most recent Schedule of Accounts and must meet each and every
one of the following criteria:
(a) The account must arise from the sale of goods or the performance
of services by Borrower in the ordinary course of Borrower's business and come
within the definition of "account" as that term is used in Section 9106 of the
California Commercial Code.
(b) Borrower's right to receive payment on the account is absolute and
not contingent upon the fulfillment of any condition whatever and Borrower is
able to bring suit or otherwise enforce its remedies against the Account Debtor
through judicial process.
(c) The account is subject to no defense, counterclaim or setoff,
whether well-founded or otherwise. (Agent reserves the right to establish
appropriate reserves for the dilutive effect of promotional programs based on
the method which Borrower uses to accrue and account for such programs on its
financial statements).
(d) The account is a true and correct statement of a bona fide
indebtedness incurred in the amount of the account for merchandise sold and
accepted by the Account Debtor obligated upon such account.
59
<PAGE>
(e) An invoice, substantially in the form of one of the invoices
attached to the Certificate of Invoices identified in the Schedule of Documents,
or such other form of invoice as has been approved by Agent in writing, has been
sent to the Account Debtor.
(f) The account is owned by Borrower, is subject to a perfected first
priority security interest in favor of Agent for the benefit of Lenders, and is
not subject to any right, claim, or interest of any other Person except
Producers' Liens, if any.
(g) The account does not arise from a sale to or performance of
services for an employee, Affiliate (other than sales to Affiliates permitted
under Section 8.6), parent, or Subsidiary of Borrower, or an entity which has
common officers or directors with Borrower.
(h) The account is not the obligation of an Account Debtor that is the
federal government or a political subdivision thereof unless Agent has agreed to
the contrary in writing and Borrower has complied with the Federal Assignment of
Claims Acts of 1940, and any amendments thereto, with respect to such
obligation.
(i) The account is not the obligation of an Account Debtor located in
a foreign country.
(j) The account is not the obligation of an Account Debtor to whom
Borrower is or may become liable for goods sold or services rendered by the
Account Debtor to Borrower.
(k) The account does not arise with respect to goods which are
delivered on a cash-on-delivery basis or placed on consignment, guaranteed sale,
sale or return, or other terms by reason of which the payment by the Account
Debtor may be conditional.
(l) The account is not in default; provided, that an Account shall be
--------
deemed in default upon the occurrence of any of the following:
(i) The account is not paid within the earlier of (A) sixty (60)
days from its due date and (B) ninety (90) days from its original invoice
date;
(ii) For accounts from a state liquor board, the account is not
paid within the earlier of (A) ninety (90) days from its due date and (B)
one hundred twenty (120) days from its original invoice date; provided that
--------
the aggregate amount of all accounts that are not eligible under clause (i)
of this Section 2.15(l) and that are eligible
60
<PAGE>
only under this clause (ii) of this Section 2.15(l) shall not exceed Two
Million Five Hundred Thousand Dollars ($2,500,000) outstanding at any one
time;
(iii) Any Account Debtor obligated upon such Account suspends
business, makes a general assignment for the benefit of creditors, or fails
to pay its debts generally as they come due; or
(iv) Any petition is filed by or against any Account Debtor
obligated upon such Account under the Bankruptcy Code or any other
national, state or provincial receivership, insolvency relief or other law
or laws for the relief of debtors.
(m) The account does not, when added to all other Eligible Accounts
that are obligations of the Account Debtor, at any time result in a total sum
that exceeds twenty percent (20%) of the total balance then due on all accounts
that are Eligible Accounts; provided, that, when so requested by Borrower, Agent
--------
will consider increasing such twenty percent (20%) maximum for one or more
particular Account Debtors based on Agent's review of the respective credit
histories and creditworthiness of such Account Debtors.
(n) The account is not the obligation of an Account Debtor that is in
default (as defined in subparagraph (l)(i) above) on twenty percent (20%) or
more of accounts owed to Borrower.
(o) The account does not arise from any bill-and-hold or other sale of
goods which remain in Borrower's possession or under Borrower's control.
(p) The account is not the obligation of a distributor to whom
Borrower has discontinued sales of inventory for reasons related to the
creditworthiness of such distributor.
(q) The account is otherwise reasonably acceptable to Agent.
2.16 Eligible Inventory. To constitute "Eligible Inventory," inventory
------------------
must be set forth on the most recent Schedule of Inventory and must meet each
and every one of the following criteria:
(a) The inventory must be owned by Borrower, must be located in the
United States, must be subject to a perfected first priority security interest
in favor of Agent for the benefit of Lenders, and must be free and clear of all
Liens and rights of others, except Producers' Liens, if any.
61
<PAGE>
(b) The inventory must consist of bulk wine or bottled wine in cases.
(c) If the inventory is bottled wine, it must either
(i) located on premises owned by Borrower;
(ii) located on premises which are leased by Borrower and for
which Agent has received a landlord notification letter from Borrower in
form and substance reasonably satisfactory to Agent;
(iii) stored in a public warehouse for which Agent has received
a notification letter from Borrower in form and substance reasonably
acceptable to Agent.
(d) If the inventory consists of bulk wine, it must either be:
(i) located on premises owned by Borrower;
(ii) located on premises which are leased by Borrower and for
which Agent has received a notification letter from Borrower in form and
substance reasonably satisfactory to Agent; or
(iii) stored at a facility for which Agent has received a
notification letter from Borrower in form and substance reasonably
acceptable to Agent.
(e) If the inventory consists of bottled wine, the age of such bottled
wine shall not exceed the time periods set forth below for the types of wine set
forth below:
<TABLE>
<S> <C>
(i) white zinfandel 18 months
(ii) chardonnay 36 months
(iii) other white wines 24 months
(iv) proprietors reserve red 60 months
(v) other red 48 months
</TABLE>
(f) If the inventory has been purchased by Borrower from a third party
that was in possession of the inventory at the time it was sold to Borrower and
the purchase by Borrower is not accompanied by an immediate delivery of
possession of the inventory to Borrower followed by an actual and continued
change of possession of the inventory, such inventory shall not be Eligible
Inventory unless:
(i) Borrower's purchase of the bulk wine is evidenced by a
written contract or purchase order;
62
<PAGE>
(ii) With respect to each purchase, a bill of sale or other
evidence of the transfer, which shall be substantially in the form of
Exhibit E, must be executed by both Borrower and the seller and such
document must be duly recorded in the book of official records of the
county recorder of all counties in which any portion of the bulk wine is
located prior to the time that title to the bulk wine has passed to
Borrower;
(iii) All conditions to transfer of title from seller to
Borrower must have been fulfilled and Borrower must have delivered written
notice to the seller that the bulk wine has been accepted (or whatever
similar terminology is required by the contract);
(iv) With respect to each entity from whom Borrower purchases
bulk wine, Borrower shall have filed a financing statement fulfilling the
requirements of Section 3440.1(h)(1) of the California Civil Code and shall
have published a notice of intended transfer fulfilling the requirements of
Section 3440.1(h)(2) of the California Civil Code. Borrower shall be
considered having fulfilled those requirements if the financing statement
and the notice contain a general description of the character of the bulk
wine being transferred.
(g) Agent has reviewed and approved (such approval not to be
unreasonably withheld) of Borrower's insurance coverage with respect to such
Inventory.
(h) Agent has received, no less frequently than on a monthly basis,
and approved (such approval not to be unreasonably withheld) all written
inventory reports and reconciliations prepared by Borrower with respect to such
inventory in accordance with the requirements of the BATF.
(i) The inventory is not covered by a negotiable document of title
unless such document has been delivered to Agent.
(j) The inventory, in Agent's reasonable opinion, is not obsolete,
unsalable, damaged, or unfit for further processing.
(k) The inventory is not placed by Borrower on consignment or is not
sold on a "sale or return" basis as defined in California Commercial Code
Section 2-326.
(l) The inventory is of a type held for sale in the ordinary course of
Borrower's business.
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(m) The inventory is otherwise reasonably acceptable to Agent.
2.17 Valuation of Inventory. Inventory shall be valued by Agent on a
----------------------
periodic basis by a comparison of market industry data and the actual revenue
being derived by Borrower from sale of such inventory. Valuation shall be based
on the "market" value rather than Borrower's "cost." In determining market
value, Agent shall be entitled to use the Turrentine Collateral Value Report or
such other comparable reports as Agent shall deem appropriate.
2.18 Eligible Wine Barrels. To constitute "Eligible Wine Barrels," wine
---------------------
barrels must meet each and every one of the following criteria:
(a) The wine barrels are owned by Borrower (rather than leased) and
have not been leased by Borrower to any third party, must be located in the
United States, must be subject to a perfected first priority security interest
in favor of Agent for the benefit of Lenders, and must be free and clear of all
Liens and rights of others, except Producers' Liens, if any.
(b) The wine barrels are in good condition and are used or capable of
being used in the ordinary course of Borrower's business.
(c) The wine barrels are otherwise reasonably acceptable to Agent.
The value of Eligible Wine Barrels shall be reasonably determined by Agent on a
periodic basis using industry comparative data.
2.19 Requests to Refinance Revolving Loan. At any time after delivery to
------------------------------------
Lenders of Borrower's audited financial statements for the fiscal year ending
December 31, 1999, Borrower may, subject to the prepayment and other provisions
set forth in this Agreement, seek to refinance the Revolving Loan, and, in
connection with any such refinancing, request that the Term Lenders release or
subordinate their security interests in Borrower's accounts, inventory, or other
current assets to facilitate such refinancing. The Term Lenders may accept or
reject any such request, in their sole discretion, for any reason, based on the
facts and circumstances then existing; provided, that the Term Lenders shall
accept any such request if, as of the date of such refinancing, each and every
one of the following conditions is satisfied: (a) no Default or Event of Default
has occurred in the payment of any amount or in any financial covenant contained
in Section 8.21 at any time since the Closing Date; (b) no Default or Event of
Default exists at the time of such request and no material Default or Event of
Default of a kind other than those specified in clause (a) above
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has occurred within six (6) months prior to such request; (c) the aggregate
outstanding balance of the Term Loan is not more than sixty-two percent (62%) of
the aggregate appraised value of the real property securing the Term Loan
(based, if so requested by the Term Lenders, on new or updated appraisals
obtained at Borrower's expense from appraisers selected by the Term Lenders);
(d) the ratio of Consolidated Total Liabilities (as defined later in this
Section 2.19) as of the end of 1999 to the average of Consolidated EBITDA for
1998 and 1999 shall be less than 4.45:1; (e) the ratio of Consolidated Cash Flow
to Consolidated Debt Service for 1999 shall be not less than 1.40:1; (f)
Consolidated Net Worth as of the end of 1999 shall be not less than One Hundred
Twenty Five Million Dollars ($125,000,000); (g) Consolidated EBITDA for 1999
shall be at least ninety-five percent (95%) of Consolidated EBITDA for 1998; (h)
Borrower's latest quarterly financial statements do not show or indicate any
deterioration in Borrower's compliance with the conditions described in clauses
(d), (e), (f), and (g) above; (i) the Term Lenders reasonably determine that the
proposed revolving facility is adequate to meet Borrower's future financing
requirements; (j) there has occurred no event or circumstance that might
reasonably be expected to cause a deterioration in the financial condition of
Borrower during the remaining term of the Term Loan, and (k) the lender or
lenders providing the proposed revolving facility are prepared to enter into an
intercreditor or subordination agreement reasonably satisfactory to the Term
Lenders. As used in this Section 2.19, the term "Consolidated Total
Liabilities" means all liabilities of Borrower and its Subsidiaries, minus
-----
deferred taxes, determined in accordance with GAAP. Nothing in the foregoing is
intended to imply that Borrower shall have any right to repay or prepay the
Revolving Loan other than as set forth in this Agreement and the refinancing
referred to in this Section 2.19 shall, if it occurs, take place on the
Revolving Loan Maturity Date unless otherwise agreed by Borrower and Lenders.
ARTICLE III.
COLLATERAL
----------
3.1 Borrower's Obligations. The Obligations of Borrower to pay all sums
----------------------
due to Agent and the Lenders and to perform all other covenants and agreements
under this Agreement and the other Loan Documents to which Borrower is a party,
shall be secured by all Collateral to the extent provided in the Security
Documents.
3.2 Further Assurances. Borrower shall, at its sole cost and expense,
------------------
execute and deliver to the Agent for the benefit of the Lenders all such further
documents, instruments, and agreements and to perform all such other acts which
may be reasonably required in the opinion of the Agent to enable the
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Agent and the Lenders to perfect, protect, exercise, or enforce their respective
rights as the secured parties or beneficiaries under the Security Documents. To
the extent permitted by applicable law, Borrower hereby authorizes the Agent on
behalf of the Lenders to file financing statements and continuation statements
with respect to the security interests granted under the Security Documents in
favor of the Agent for the benefit of the Lenders and to execute such financing
statements and continuation statements on behalf of Borrower and hereby grants
Agent with a limited power-of-attorney to do so. Such power-of-attorney is
coupled with an interest and is irrevocable.
ARTICLE IV.
CONDITIONS PRECEDENT TO ADVANCES
--------------------------------
4.1 Conditions to Initial Revolving Advance, Initial Letter of Credit
-----------------------------------------------------------------
Obligation and Term Loan. Notwithstanding any other provision of this Agreement
- ------------------------
and without affecting in any manner the rights of Agent or Lenders hereunder,
Lenders shall not be obligated to make Revolving Advances or the Term Loan or to
incur any Letter of Credit Obligations, until the following conditions have been
satisfied, in Lenders' sole discretion:
(a) This Agreement or counterparts thereof shall have been duly
executed by, and delivered to, Borrower, Agent, and each Lender.
(b) Agent shall have received such documents, instruments and
agreements as any Lender shall reasonably request in connection with the
transactions contemplated by this Agreement, including the Security Documents
and other all documents, instruments, agreements, and schedules listed in the
Schedule of Documents each in form and substance reasonably satisfactory to
Agent.
(c) All of Borrower's material contracts and material liabilities
(whether fixed or contingent), including liabilities arising under any federal,
state, or local environmental laws, shall be acceptable to Lenders, and the
terms and conditions of the documents, if any, evidencing such obligations and
liabilities shall be in form and substance satisfactory to Lenders.
(d) Evidence satisfactory to Agent that Borrower has obtained consents
and acknowledgments of all Persons whose consents and acknowledgments may be
required to the terms and execution of this Agreement, the Loan Documents, and
the consummation of the transactions contemplated hereby and thereby, including
consents of all requisite Governmental Authorities.
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(e) Evidence that the insurance policies provided for in Section 5.27
are in full force and effect, certified by the insurer thereof, together with
appropriate evidence showing Agent as an additional insured with respect to all
liability coverage.
(f) Payment by Borrower of all fees and expenses (including allocated
costs of in-house counsel) incurred on or before the Closing Date by Agent or
any Lender which payment shall be made from the proceeds of the initial advance
under this Agreement.
(g) Delivery by Borrower to Agent of all existing environmental
reviews and audits, as well as other information pertaining to actual or
potential environmental claims, in form and substance satisfactory to Agent.
(h) Evidence satisfactory to Agent that Borrower has obtained consents
and acknowledgments of all requisite Governmental Authorities whose consents and
acknowledgments may be required to complete the Stock Acquisition, including any
consents required with respect to the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended from time to time, if applicable.
(i) As of the Closing Date, there shall have been (i) no litigation
commenced or threatened which would challenge any of the transactions
contemplated by this Agreement, (ii) no litigation commenced or threatened
which, if successful, would have any Material Adverse Effect on the business,
operations, or financial condition of Borrower (other than normal seasonal
fluctuations), (iv) no material increase in liabilities, liquidated or
contingent and no material decrease in the assets of Borrower or its Affiliates,
and (v) no other event or circumstance that constitutes or creates a Material
Adverse Effect.
(j) Delivery by Borrower to Agent and the Lenders of the financial
statements and certifications set forth in the Schedule of Documents, including
the following: (i) unaudited consolidated financial statements of Borrower for
the periods ended November 30, 1995 and December 31, 1995, together with a pro
forma balance sheet of Borrower and its Subsidiaries as of the closing date of
the Stock Acquisition, (ii) opening borrowing base certificate as of December
31, 1995, (iii) accounts receivable aging as of December 31, 1995, (iv)
inventory report as of December 31, 1995, (v) accounts payable aging and grower
payables list, each as of December 31, 1995, (vi) evidence of the receipt of all
necessary governmental and other consents and approvals, and (vii) selected
asset appraisals, each of which shall be satisfactory to Lenders.
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(k) Agent shall have received a copy of a file memorandum, in form and
substance satisfactory to Agent, prepared by a nationally-recognized firm of
certified public accountants in which such accounting firm indicates that it has
evaluated a reconciliation, prepared by a financial advisor to Nestle Holdings,
Inc., of the types of adjustments that would be necessary to conform the
financial statements referred to in Section 4.1(j) to GAAP, and noting any
issues or concerns that such accounting firm believes are raised by such
reconciliation and explaining the effect of the election under IRC (S)
338(h)(10). Borrower shall also provide such accounting firm with instructions
that it may communicate directly with Agent.
(l) Borrower shall be in compliance in all material respects, except
as disclosed by Borrower and deemed acceptable by Lenders and its counsel, with
all federal, state, and local laws and regulations, including those relating to
labor and environmental matters, including OSHA, and ERISA.
(m) Lenders shall have received opinions of legal counsel to Borrower
and Guarantor in form and substance satisfactory to Agent and Lenders.
(n) Agent and Lenders shall be satisfied that, after giving effect to
the initial funding and payment of all closing costs and transaction fees and
expenses, Borrower shall have aggregate unused borrowing availability under this
Agreement of at least Ten Million Dollars ($10,000,000).
(o) Agent and Lenders shall be satisfied that (i) SPAC shall have
received at least Eighty Million Dollars ($80,000,000) in consideration for its
common and preferred stock, (ii) Borrower shall have received from SPAC at least
Seventy-Six Million Five Hundred Thousand Dollars ($76,500,000), in cash in
consideration for Borrower's common stock, and (iii) the capital structure of
Borrower and its direct and indirect parent companies shall be in form and
substance and with documentation satisfactory to Agent and Lenders.
(p) Agent and Lenders shall be satisfied that Borrower shall have
obtained Thirty-Five Million Dollars ($35,000,000) in Subordinated Debt, the
terms of which shall be satisfactory to Agent and Lender and which shall be
subordinated to the Obligations in a manner satisfactory to Agent and Lenders.
(q) The purchase price paid in respect of the Stock Acquisition shall
not exceed Three Hundred Fifty Million Dollars ($350,000,000) (subject to any
working capital or purchase price adjustments required under the documentation
for the Stock Acquisition).
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(r) The aggregate amount of all cash fees and closing costs (including
those payable on the Closing Date to Lenders) in connection with the Stock
Acquisition and the financing transaction contemplated by this Agreement shall
not exceed Twelve Million Seven Hundred Fifty Thousand Dollars ($12,750,000),
and such fees and closing costs shall have been paid or fully reserved by
Borrower; provided, that such fees and closing costs may exceed Twelve Million
--------
Seven Hundred Fifty Thousand Dollars ($12,750,000) if the amount of the equity
investment referred to in Section 4.1(o) has been increased in an amount at
least equal to such excess.
4.2 Conditions to Each Revolving Advance, Letter of Credit Obligation and
---------------------------------------------------------------------
the Term Loan. It shall be a condition to the funding of the initial and each
- -------------
subsequent Revolving Advance and the Term Loan and the incurrence of the initial
and each subsequent Letter of Credit Obligation that the following statements
shall be true on the date of each such funding or advance:
(a) All of Borrower's representations and warranties contained herein
or in any of the Loan Documents shall be true and correct in all material
respects on and as of the Closing Date and the date of each such Revolving
Advance and the date any Letter of Credit Obligation is incurred as though made
on and as of such date, except to the extent that any such representation or
warranty expressly relates to an earlier date and for changes therein permitted
or contemplated by this Agreement.
(b) No event shall have occurred and be continuing, or would result
from the funding of any Revolving Advance or the Term Loan or the incurrence of
any Letter of Credit Obligation, which constitutes or would constitute a Default
or an Event of Default.
(c) After giving effect to each Revolving Advance, and the Letter of
Credit Obligations, the aggregate principal amount of the Revolving Loan and
Letter of Credit Obligations shall not exceed the lesser of (i) the Maximum
Revolving Loan minus the then outstanding amount of Grower Payables, or (ii) the
-----
Borrowing Base.
The acceptance by Borrower of the proceeds of (i) any Revolving Advance or (ii)
the Term Loan and the request by Borrower for the incurrence by Revolving
Lenders of Letter of Credit Obligations, as the case may be, shall be deemed to
constitute, as of the date of such acceptance, a representation and warranty by
Borrower that the conditions in this Section 4.2 have been satisfied.
4.3 Conditions to Advances on Second Restatement Closing Date.
---------------------------------------------------------
Notwithstanding any other provision of this Agreement and without affecting in
any manner the rights of Agent or Lenders
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<PAGE>
hereunder, Term Lenders shall not be obligated to make the Stag's Leap Advance
until the following conditions have been satisfied, in Term Lenders' sole
discretion:
(a) This Agreement or counterparts thereof shall have been duly
executed by, and delivered to, Borrower, Agent, and each Lender.
(b) Agent shall have received such documents, instruments and
agreements as any Lender shall reasonably request in connection with the
transactions contemplated by this Agreement, including the Security Documents
and other all documents, instruments, agreements, and schedules listed in the
Schedule of Documents each in form and substance reasonably satisfactory to
Agent.
(c) Payment by Borrower of all fees and expenses (including allocated
costs of in-house counsel) incurred on or before the Closing Date by Agent or
any Lender.
(d) Lenders shall have received opinions of legal counsel to Borrower
and Guarantor in form and substance satisfactory to Agent and Lenders.
(e) No Event of Default shall have occurred and be continuing nor
shall Borrower be in breach of the terms of this Agreement or any Loan Document,
regardless of whether such breach constitutes an Event of Default.
(f) Agent and Lenders shall have received such environmental reports
as they shall consider appropriate covering the Stag's Leap Property and the
provisions of such reports shall be satisfactory to Agent and Lenders.
(g) The Stag's Leap Acquisition shall have closed in accordance with
the Stag's Leap Acquisition Agreements, the form and substance of which must be
satisfactory to Agent and Lenders, in their sole discretion.
(h) Borrower shall have received Four Million Five Hundred Thousand
Dollars ($4,500,000) in cash as part of the purchase price for the Second
Restatement Stock.
(i) The holders of the Subordinated Debt shall have consented to the
Stag's Leap Acquisition and the Newhall Acquisition and to the Borrower's entry
into and performance under this Agreement, and the documents evidencing the
Subordinated Debt shall have been amended in a manner consistent with this
Agreement and with covenant amendments acceptable to Lenders.
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(j) The aggregate amount of all cash fees and closing costs (including
those payable on the Second Restated Closing Date to Agent and Lenders) in
connection with the Stag's Leap Acquisition and the financing transaction
contemplated by this Agreement, shall not exceed One Million Dollars
($1,000,000), and such fees and closing costs shall have been paid or fully
reserved by Borrower.
4.4 Conditions to Newhall Advance. Notwithstanding any other provision of
-----------------------------
this Agreement and without affecting in any manner the rights of Agent or
Lenders hereunder, Term Lenders shall not be obligated to make the Newhall
Advance until the following conditions have been satisfied, in Term Lenders'
sole discretion:
(a) The form and substance of all of the Newhall Acquisition
Agreements shall be satisfactory to Agent and Term Lenders and Agent and Term
Lenders shall be satisfied that the terms of the Newhall Acquisition Agreements
do not vary in a material manner from the letter of intent furnished to Agent
and Term Lenders prior to the Second Restatement Closing Date. Agent shall have
received such documents, instruments and agreements as any Lender shall
reasonably request in connection with the Newhall Advance, including revisions
to the Security Documents and other documents, instruments, agreements, and
schedules listed in the Schedule of Documents each in form and substance
reasonably satisfactory to Agent.
(b) All fees to be paid to any Affiliate of Borrower shall be
satisfactory to Agent.
(c) Payment by Borrower of all fees and expenses (including allocated
costs of in-house counsel) incurred on or before the Newhall Advance Date by
Agent.
(d) Lenders shall have received opinions of legal counsel to Borrower
and Guarantor in form and substance satisfactory to Agent and Lenders.
(e) No Event of Default shall have occurred and be continuing nor
shall Borrower be in breach of the terms of this Agreement or any Loan Document,
regardless of whether such breach constitutes an Event of Default.
(f) Agent and Lenders shall have received (i) an appraisal of the
Newhall Property showing a value in excess of Fifteen Million Dollars
($15,000,000), and (ii) such environmental reports as they shall consider
appropriate covering the Newhall Property and the provisions of such reports
shall be satisfactory to Agent and Lenders.
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(g) The Newhall Acquisition shall have closed in accordance with the
Newhall Acquisition Agreements and Borrower shall have entered into a lease of
approximately sixteen (16) acres of vineyard property adjacent to the Newhall
Property, the form and substance of which must be satisfactory to Agent, in its
sole discretion.
(h) Borrower shall have received Five Hundred Thousand Dollars
($500,000) in cash as part of the purchase price for the Second Restatement
Stock.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce Lenders to make the Revolving Loan and Term Loan and to
incur the Letter of Credit Obligations, as herein provided for, Borrower makes
the following representations and warranties to Lenders, each and all of which
shall be true and correct as of the date of execution and delivery of this
Agreement, and shall survive the execution and delivery of this Agreement:
5.1 Corporate Existence; Compliance with Law. Borrower (i) is a
----------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware; (ii) is duly qualified as a foreign corporation and in
good standing under the laws of state of California and of each jurisdiction
where its ownership or lease of property or the conduct of its business requires
such qualification (except for jurisdictions in which such failure to so qualify
or to be in good standing would not have a Material Adverse Effect); (iii) has
the requisite corporate power and authority and the legal right to own, pledge,
mortgage or otherwise encumber and operate all real property that it owns, to
lease the real property it operates under lease, and to conduct its business as
now, heretofore, and proposed to be conducted; (iv) has, or will by the Closing
Date have, all material licenses, permits, consents, or approvals from or by,
and has made all material filings with, and has given all material notices to,
all Governmental Authorities having jurisdiction, to the extent required for
such ownership, operation, and conduct; (v) is in compliance with its
certificate of incorporation and by-laws; and (vi) is in compliance with all
applicable provisions of law where the failure to comply would have a Material
Adverse Effect.
5.2 Executive Offices. The current location of Borrower's chief executive
-----------------
offices and principal place of business is the address set forth for the giving
of notices in Section 13.12.
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5.3 Subsidiaries. There currently exist no Subsidiaries of Borrower
------------
except for Cork Processors, Inc.
5.4 Corporate Power; Authorization; Enforceable Obligations. The
-------------------------------------------------------
execution, delivery, and performance by Borrower of the Loan Documents to which
it is a party, and all instruments and documents required to be delivered by
Borrower under any of the Loan Documents, and the creation of all Liens provided
for in any Loan Documents: (i) are within Borrower's corporate power; (ii) have
been duly authorized by all necessary or proper corporate action; (iii) are not
in contravention of any provision of Borrower's certificate of incorporation or
by-laws; (iv) will not violate any law or regulation, or any order or decree of
any court or governmental instrumentality; (v) will not conflict with or result
in the breach or termination of, constitute a default under or accelerate any
performance required by, any material indenture, mortgage, deed of trust, lease,
agreement or other instrument to which Borrower is a party or by which Borrower
or any of its property is bound; (vi) will not result in the creation or
imposition of any Lien upon any of the property of Borrower other than those in
favor of Lenders, all pursuant to the Loan Documents; and (vii) do not require
the consent or approval of any Governmental Authority or any other Person,
except for consents or approvals which have been duly obtained, made, or
complied with prior to the Closing Date or specifically waived in writing by
Lenders. At or prior to the Closing Date, each of the Loan Documents required
hereunder to be delivered at or prior to the Closing Date shall have been duly
executed and delivered on behalf of Borrower and each shall then constitute a
legal, valid, and binding obligation of Borrower, to the extent it is a party
thereto, enforceable against it in accordance with its terms except for general
principles of equity and the effect of bankruptcy, insolvency, and other laws
affecting the rights of creditors generally.
5.5 Solvency. After giving effect to the initial Revolving Advance, the
--------
initial Letter of Credit Obligations, and the Term Loan made on the Closing Date
and the payment of all estimated legal, accounting, and other Fees related
hereto and thereto, Borrower will be Solvent as of and on the Closing Date.
5.6 Financial Statements.
--------------------
(a) The pro forma balance sheets of Borrower and its Affiliates as of
the Closing Date delivered to Agent and Lenders pursuant to the Schedule of
Documents, have been prepared in accordance with GAAP and have been based on an
unaudited balance sheet of Borrower as of January 16, 1996, adjusted as if the
financing transactions contemplated hereunder had occurred as of the date of
such balance sheet and presents fairly on a pro forma basis the financial
position of Borrower at such date assuming the financing transactions had
actually occurred on such date.
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Such balance sheet shall show Stockholders' common equity in an amount of not
less than Eighty Million Dollars ($80,000,000).
(b) All of the balance sheets and statements of income, retained
earnings, and cash flows of the Borrower, copies of which have been furnished to
Lenders prior to the date of this Agreement, have been prepared in a manner
consistently applied throughout the periods involved and present fairly the
financial position of Borrower in each case as at the dates thereof, and the
results of operations and cash flows for the periods then ended (as to the
unaudited interim financial statements, subject to normal year-end audit
adjustments).
(c) Borrower, as of the Closing Date, had no obligations, contingent
liabilities, or liabilities for Charges, long-term leases or unusual forward or
long-term commitments which are not reflected in the pro forma balance sheet of
Borrower and which would, alone or in the aggregate, have a Material Adverse
Effect.
(d) There has been no material adverse change in the business, assets,
operations, prospects or financial or other condition of Borrower taken as a
whole since November 30, 1995.
5.7 Projections. The projections of Borrower's annual operating budgets,
-----------
balance sheets, and cash flow statements for the 1995, 1996, 1997, 1998, 1999,
and 2000 Fiscal Years (the "Projections"), copies of which have been delivered
to Lenders, disclose all material assumptions made with respect to general
economic, financial and market conditions in formulating such Projections. To
Borrower's Knowledge, no facts exist which would result in any material change
in any of such Projections. The Projections are based upon reasonable estimates
and assumptions, all of which are fair in light of current conditions, have been
prepared on the basis of the assumptions stated therein, and reflect the
reasonable estimate of Borrower of the results of operations and other
information projected therein.
5.8 Ownership of Property; Liens.
----------------------------
(a) Borrower owns good and marketable fee simple title to all of its
real estate, valid and marketable leasehold interests in all of its leases, and
good and marketable title to, or valid leasehold interests in, all of its other
properties and assets, and none of the properties and assets of Borrower are
subject to any Liens, except (i) Permitted Encumbrances and (ii) from and after
the Closing Date, the Lien in favor of Lenders pursuant to the Security
Documents; and Borrower has received all deeds, assignments, waivers, consents,
non-disturbance and recognition or similar agreements, bills of sale and other
documents, and duly effected all recordings, filings, and other actions
necessary to establish, protect and perfect Borrower's right, title, and
interest in and to all such property
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except where the failure to have received such documents or effected such
actions will not, in the aggregate, have a Material Adverse Effect.
(b) All real property owned or leased by Borrower on the Closing Date
is set forth on Parts (C) and (D) of the Disclosure Schedule. Borrower does not
own any other real property nor is Borrower a lessee or lessor under any Leases
other than as set forth therein. Neither Borrower nor, to Borrower's Knowledge,
any other party to any such Lease (i) is in default of its obligations
thereunder or (ii) has delivered or received any notice of default under any
such Lease, and no event has occurred which, with the giving of notice, the
passage of time or both, would constitute a default under any such Lease by
Borrower, except in each case for any default which would not have a Material
Adverse Effect.
(c) Borrower does not own or hold, and is not obligated under or a
party to, any option, right of first refusal or any other contractual right to
purchase, acquire, sell, assign or dispose of any real property owned or leased
by Borrower except as set forth in Parts (C) and (D) of the Disclosure Schedule.
(d) All permits required to have been issued to enable the real
property owned or leased by Borrower to be lawfully occupied and used for all of
the purposes for which they are currently occupied and used, have been lawfully
issued and are, as of the date hereof, in full force and effect, except for any
permit for which the failure of such permit to be issued and in full force and
effect would not have a Material Adverse Effect.
(e) Borrower has not received any notice, and to Borrower's Knowledge
does not have, any pending, threatened, or contemplated condemnation proceeding
affecting any real property owned or leased by Borrower or any part thereof, or
of any sale or other disposition of any real property owned or leased by
Borrower or any part thereof in lieu of condemnation.
(f) Except as set forth in the Disclosure Schedule, no portion of any
real property owned or leased by Borrower has suffered any material damage by
fire or other casualty loss or a Spill which has not heretofore been completely
repaired and restored to its original condition or is being remedied. Except as
set forth in Parts (C) and (D) of the Disclosure Schedule, no portion of any
real property owned or leased by Borrower is located in a special flood hazard
area as designated by any federal, or other Governmental Authority.
5.9 No Default. Borrower is not in default, and to Borrower's Knowledge
----------
no third party is in default, under or with respect to any contract, agreement,
lease or other instrument to
75
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which it is a party which default in each case or in the aggregate would have a
Material Adverse Effect. No Default or Event of Default has occurred and is
continuing.
5.10 Burdensome Restrictions. No contract, lease, agreement, or other
-----------------------
instrument to which Borrower is a party or is bound and no provision of
applicable law or governmental regulation has a Material Adverse Effect, or
insofar as Borrower can reasonably foresee, may have a Material Adverse Effect.
5.11 Labor Matters. There are no strikes or other labor disputes against
-------------
Borrower that are pending or, to Borrower's Knowledge, threatened which would
have a Material Adverse Effect. Hours worked by and payment made to employees
of Borrower have not been in violation of the Fair Labor Standards Act or any
other applicable law dealing with such matters which would have a Material
Adverse Effect. All payments due from Borrower on account of employee health
and welfare insurance which would have a Material Adverse Effect if not paid
have been paid or accrued as a liability on the books of Borrower. Except as
set forth in Part (V) of the Disclosure Schedule, Borrower does not have any
obligation under any collective bargaining agreement or any employment
agreement. There is no organizing activity involving Borrower pending or, to
Borrower's Knowledge, threatened by any labor union or group of employees.
There are, to Borrower's Knowledge, no representation proceedings pending or, to
Borrower's Knowledge, threatened with the National Labor Relations Board, and no
labor organization or group of employees of Borrower has made a pending demand
for recognition. Except as set forth in Part (G) of the Disclosure Schedule,
there are no complaints or charges against Borrower pending or, to Borrower's
Knowledge, threatened to be filed with any federal, state, local or foreign
court, governmental agency or arbitrator based on, arising out of, in connection
with, or otherwise relating to the employment or termination of employment by
Borrower of any individual. Borrower is not a contractor or subcontractor and
does not have a legal obligation to engage in affirmative action.
5.12 Other Ventures. Except as set forth in Part (Q) of the Disclosure
--------------
Schedule, Borrower is not engaged in any joint venture or partnership with any
other Person.
5.13 Investment Company Act. Borrower is not an "investment company" or an
----------------------
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended. The making of the Revolving Loan and Term Loan and the
incurrence of the Letter of Credit Obligations by Lenders, the application of
the proceeds and repayment thereof by Borrower and the consummation of the
transactions contemplated by this Agreement and the other Loan Documents will
not violate any
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provision of such Act or any rule, regulation, or order issued by the Securities
and Exchange Commission thereunder.
5.14 Margin Regulations. Borrower does not own any "margin security", as
------------------
that term is defined in Regulations G and U of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"), and the proceeds of the
Revolving Advances and Term Loan will be used only for the purposes contemplated
hereunder. The Revolving Advances and Term Loan will not be used, directly or
indirectly, for the purpose of purchasing or carrying any margin security, for
the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry any margin security or for any other purpose which
might cause any of the loans under this Agreement to be considered a "purpose
credit" within the meaning of Regulation G, T, U, or X of the Federal Reserve
Board. Borrower will not take or permit any agent acting on its behalf to take
any action which might cause this Agreement or any document or instrument
delivered pursuant hereto to violate any regulation of the Federal Reserve
Board.
5.15 Taxes. All federal, state, local, and foreign tax returns, reports,
-----
and statements, including information returns (Form 1120-S) required to be filed
by Borrower, have been filed with the appropriate Governmental Authority and all
Charges and other impositions shown thereon to be due and payable have been paid
prior to the date on which any fine, penalty, interest, or late charge may be
added thereto for nonpayment thereof, or any such fine, penalty, interest, late
charge, or loss has been paid. Borrower has paid when due and payable all
Charges required to be paid by it. Proper and accurate amounts have been
withheld by Borrower from their respective employees for all periods in full and
complete compliance with the tax, social security, and unemployment withholding
provisions of applicable federal, state, local and foreign law and such
withholdings have been timely paid to the respective governmental agencies.
None of Borrower's tax returns with respect to Borrower's corporate income are
currently being audited by the IRS or any other applicable Governmental
Authority. Borrower has not executed or filed with the IRS or any other
Governmental Authority any agreement or other document extending, or having the
effect of extending, the period for assessment or collection of any Charges or
any taxes owed by such Stockholder with respect to Borrower's corporate income.
Borrower has not filed a consent pursuant to IRC Section 341(f) or agreed to
have IRC Section 341(f)(2) apply to any dispositions of subsection (f) assets
(as such term is defined in IRC Section 341(f)(4)). None of the property owned
by Borrower is property which such company is required to treat as being owned
by any other Person pursuant to the provisions of IRC Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended, and in effect immediately prior to
the enactment of the Tax Reform Act of 1986 or is "tax-exempt use property"
within the meaning of IRC Section
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168(h). Borrower has not agreed or been requested to make any adjustment under
IRC Section 481(a) by reason of a change in accounting method or otherwise.
Borrower does not have any obligation under any written tax sharing agreement.
5.16 ERISA.
-----
(a) Part (Y) of the Disclosure Schedule lists all Plans maintained or
contributed to by Borrower and all Qualified Plans maintained or contributed to
by any ERISA Affiliate, and separately identifies the Title IV Plans,
Multiemployer Plans, any multiple employer plans subject to Section 4064 of
ERISA, unfunded Pension Plans, Welfare Plans and Retiree Welfare Plans.
(b) Each Qualified Plan, other than a Qualified Plan established in
1996, has been determined by the IRS to qualify under Section 401 of the IRC,
and the trusts created thereunder have been determined to be exempt from tax
under the provisions of Section 501 of the IRC, and to Borrower's Knowledge
nothing has occurred which would cause the loss of such qualification or tax-
exempt status. With respect to any Qualified Plan established in 1996,
application for a determination letter shall be filed with the IRS within the
remedial amendment period under the IRC.
(c) Each Plan is in compliance in all material respects with the
applicable provisions of ERISA and the IRC, including the filing of reports
required under the IRC or ERISA which are true and correct in all material
respects as of the date filed, and with respect to each Plan, other than a
Qualified Plan, all required contributions and benefits have been paid in
accordance with the provisions of each such Plan to the extent that the failure
to pay any such contribution or benefit would have a Material Adverse Effect.
(d) Neither Borrower nor any ERISA Affiliate, with respect to any
Qualified Plan, has failed to make any contribution or pay any amount due as
required by Section 412 of the IRC or Section 302 of ERISA or the terms of any
such plan to the extent that the failure to make any such contribution or pay
any amount would have a Material Adverse Effect.
(e) No Title IV Plan has any Unfunded Pension Liability.
(f) No ERISA Event or event described in Section 4062(e) of ERISA with
respect to any Title IV Plan has occurred or is reasonably expected to occur.
(g) There are no pending or, to Borrower's Knowledge, threatened
claims, actions or lawsuits (other than claims for benefits in the normal
course), asserted or instituted
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against (i) any Plan or its assets, (ii) any fiduciary with respect to any Plan
or (iii) Borrower or any ERISA Affiliate with respect to any Plan.
(h) Neither Borrower nor any ERISA Affiliate has incurred or
reasonably expects to incur any Withdrawal Liability (and no event has occurred
which, with the giving of notice under Section 4219 of ERISA, would result in
such liability) under Section 4201 of ERISA as a result of a complete or partial
withdrawal from a Multiemployer Plan.
(i) Within the last five (5) years, neither Borrower nor any ERISA
Affiliate has engaged in a transaction which resulted in a Title IV Plan with
Unfunded Liabilities being transferred outside of the "controlled group" (within
the meaning of Section 4001(a)(14) of ERISA) of any such entity.
(j) No plan which is a Retiree Welfare Plan provides for continuing
benefits or coverage for any participant or any beneficiary of a participant
after such participant's termination of employment (except as may be required by
Section 4980B of the IRC and at the sole expense of the participant or the
beneficiary of the participant) which would result in a liability in an amount
which would have a Material Adverse Effect. Borrower and each ERISA Affiliate
have complied with the notice and continuation coverage requirements of Section
4980B of the IRC and the regulations thereunder except where the failure to
comply would not result in any Material Adverse Effect.
(k) Borrower has not engaged in a prohibited transaction, as defined
in Section 4975 of the IRC or Section 406 of ERISA, in connection with any Plan,
which would subject Borrower (after giving effect to any exemption) to a
material tax on prohibited transactions imposed by Section 4975 of the IRC or
any other material liability.
(l) No liability under any Plan has been funded, nor has such
obligation been satisfied with, the purchase of a contract from an insurance
company that is not rated AA by Standard & Poor's Corporation and the equivalent
by each other nationally recognized rating agency.
5.17 No Litigation. Except as set forth in Part (G) of the Disclosure
-------------
Schedule, no action, claim or proceeding is now pending or, to Borrower's
Knowledge, threatened against Borrower, at law, in equity or otherwise, before
any court, board, commission, agency, or instrumentality of any federal, state,
or local government or of any agency or subdivision thereof, or before any
arbitrator or panel of arbitrators, which, if determined adversely, could have a
Material Adverse Effect, nor to Borrower's Knowledge does a state of facts exist
which is reasonably likely to give rise to such proceedings. None of the
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matters set forth in Part (G) of the Disclosure Schedule questions the validity
of any of the Loan Documents or any action taken or to be taken pursuant
thereto, or would have either individually or in the aggregate a Material
Adverse Effect.
5.18 Brokers. Except as set forth in Part (W) of the Disclosure Schedule,
-------
no broker or finder acting on behalf of Borrower brought about the obtaining,
making, or closing of the loans made pursuant to this Agreement or the
transactions contemplated by the Loan Documents and has no obligation to any
Person in respect of any finder's or brokerage fees in connection therewith.
5.19 Stock Acquisition. The Stock Acquisition has been duly consummated in
-----------------
accordance with the terms of the Acquisition Agreements. True and correct
copies of all of the Acquisition Agreements (including all exhibits, schedules
and amendments thereto) have been delivered to Agent. Borrower is not in
default under the Acquisition Agreements or under any instrument or document to
be delivered in connection therewith. The representations and warranties made
in the Acquisition Agreements by Borrower or its Affiliates which are parties
thereto will be true and correct in all material respects (except for changes
expressly provided for therein or herein) on and as of the Closing Date as
though made on and as of such date. All of the transactions engaged in by
Borrower as part of the Stock Acquisition were legal and valid and in compliance
with all applicable law. The debt owed to Nestle Holdings and paid with the
proceeds of the Term Loan and the initial advance of the Revolving Loan was, at
the time it was paid, an obligation of Borrower that was duly and validly owing.
5.20 Outstanding Stock; Options; Warrants, Etc. The certificate of
------------------------------------------
Borrower's corporate secretary delivered to Agent and Lenders pursuant to Item
1.12(A) of the Disclosure Schedule is complete and accurate. There are no
outstanding rights to purchase, options, warrants, or similar rights or
agreements pursuant to which Borrower may be required to issue or sell any Stock
or other equity security except as noted in such certificate.
5.21 Employment and Labor Agreements. Except as set forth in Part (V) of
-------------------------------
the Disclosure Schedule, there are no (i) employment, consulting or management
agreements covering management of Borrower or (ii) collective bargaining
agreements or other labor agreements covering any employees of Borrower. A true
and complete copy of each such agreement has been furnished to Agent.
5.22 Patents, Trademarks, Copyrights, and Licenses. Borrower owns all
---------------------------------------------
material licenses, patents, patent applications, copyrights, service marks,
trademarks, trademark
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applications, and trade names necessary to continue to conduct its business as
heretofore, presently, and in the future to be conducted by Borrower, each of
which is listed, together with Patent and Trademark Office application or
registration numbers, where applicable, in Part (R) of the Disclosure Schedule.
Except as set forth in Part (R) of the Disclosure Schedule, Borrower conducts
its business without infringement or claim of infringement of any license,
patent, copyright, service mark, trademark, trade name, trade secret or other
intellectual property right of others, except where such infringement or claim
of infringement would not have a Material Adverse Effect. There is no
infringement or claim of infringement by others of any material license, patent,
copyright, service mark, trademark, trade name, trade secret or other
intellectual property right of Borrower.
5.23 Full Disclosure. To Borrower's Knowledge, no information contained in
---------------
this Agreement, the other Loan Documents, the Projections, the Financials or any
written statement furnished by or on behalf of Borrower pursuant to the terms of
this Agreement, which has previously been delivered to Lenders, contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained herein or therein not misleading in light of
the circumstances under which made.
5.24 Liens. The Liens granted to Lenders pursuant to the Security Documents
-----
will at the Closing Date be fully perfected first priority Liens in and to the
Collateral described therein except for Permitted Encumbrances and as provided
in the Security Documents.
5.25 No Material Adverse Effect. No event has occurred since November 30,
--------------------------
1995 and is continuing which has had or could have a Material Adverse Effect.
5.26 Hazardous Materials. Except as set forth in Part (X) of the
-------------------
Disclosure Schedule, to Borrower's Knowledge, all real property owned and all
real property leased pursuant to the Leases by Borrower is free of significant
contamination from any Hazardous Material, including, without limitation, any
asbestos, PCB, radioactive substance, methane, volatile hydrocarbons and
industrial solvents. In addition, Part (X) of the Disclosure Schedule discloses
potential environmental liabilities of Borrower, that, to Borrower's Knowledge,
are (i) not related to noncompliance with the Environmental Laws or (ii)
associated with properties not owned, leased, subleased, or operated by
Borrower. Except as set forth in Part (X) of the Disclosure Schedule, to
Borrower's Knowledge, Borrower has not caused or suffered to occur any
significant discharge, spillage, uncontrolled loss, seepage, or filtration of
oil or petroleum or chemical liquids or solids, liquid or gaseous products, or
hazardous waste, or
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hazardous substance in violation of the Environmental Laws (a "Spill") at,
under, or within any real property which it owns or leases. Except as set forth
in Part (X) of the Disclosure Schedule, to Borrower's Knowledge, Borrower is not
involved in operations that are likely to lead to the imposition of any
liability or Lien on it, or any owner of any premises which it occupies, under
the Environmental Laws, and Borrower has not permitted any tenant or occupant of
such premises to engage in any such activity.
5.27 Insurance Policies. Item 1.9 of the Schedule of Documents lists all
------------------
insurance of any nature maintained for current occurrences by Borrower, as well
as a summary of the terms of such insurance. The insurance policies maintained
by Borrower include the following insurance coverage:
(a) "All Risk" physical damage insurance on all of Borrower's tangible
real and personal property and assets, wherever located, including without
limitation, bulk wine located at premises not owned or leased by Borrower and
covers, without limitation, fire and extended coverage, boiler and machinery
coverage, liquids, theft, burglary, explosion, collapse, and all other hazards
and risks ordinarily insured against by owners or users of such properties in
similar businesses. All policies of insurance on such real and personal
property contain an endorsement, in form and substance acceptable to Agent,
showing loss payable to Lenders (Form 438 BFU or its equivalent) and extra
expense and business interruption endorsements. Such endorsement, or an
independent instrument furnished to Agent, provides that the insurance companies
will give Agent at least thirty (30) days prior written notice before any such
policy or policies of insurance shall be altered or canceled and that no act or
default of Borrower or any other Person shall affect the right of Lenders to
recover under such policy or policies of insurance in case of loss or damage;
(b) Difference in conditions coverage including loss due to earthquake
and flood for all real property, inventory, and equipment to a limit of Ten
Million Dollars ($10,000,000) per occurrence and in the aggregate and subject to
a deductible of ten percent (10%) per location, per occurrence.
(c) comprehensive general liability insurance on an "occurrence basis"
against claims for personal injury, bodily injury and property damage with a
minimum limit of One Million Dollars ($1,000,000) per occurrence and Two Million
Dollars ($2,000,000) in the aggregate. Such coverage includes
premises/operations, broad form contractual liability, underground, explosion
and collapse hazard, independent contractors, broad form property coverage,
products and completed operations liability;
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(d) statutory limits of worker's compensation insurance which includes
employee's occupational disease and employer's liability in the amount of One
Million Dollars ($1,000,000) for each accident or occurrence;
(e) automobile liability insurance for all owned, non-owned or hired
automobiles against claims for personal injury, bodily injury, and property
damage with a minimum combined single limit of One Million Dollars ($1,000,000)
per occurrence; and
(f) umbrella insurance of Twenty-Five Million Dollars ($25,000,000)
per occurrence and Fifty Million Dollars ($50,000,000) in the aggregate.
All of such policies are in full force and effect and in form and with insurers
recognized as adequate by Agent, and provide coverage of such risks and for such
amounts as are customarily maintained for businesses of the scope and size of
Borrower's and as otherwise acceptable to Agent. Each insurance policy contains
a clause which provides that Agent's and Lenders' interest under such policy
shall not be invalidated by any act or omission to act of, or any breach of
warranty by, the insured, or by any change in the title, ownership or possession
of the insured property, or by the use of the property for purposes more
hazardous than is permitted in such policy. Borrower has delivered to Agent a
certificate of insurance that evidences the existence of each policy of
insurance, payment of all premiums therefor and compliance with all provisions
of this Agreement.
5.28 Deposit and Disbursement Accounts. Part (O) of the Disclosure
---------------------------------
Schedule lists all banks and other financial institutions at which Borrower
maintains deposits and/or other accounts, and such Schedule correctly identifies
the name, address and telephone number of each depository, the name in which the
account is held, a description of the purpose of the account, and the complete
account number.
5.29 PACA. Borrower is not a "dealer," "commission merchant," or "broker"
----
under PACA, and Borrower's assets are not subject to the trust provisions
provided for under PACA.
5.30 Correctness of Disclosure Schedule. The Disclosure Schedule delivered
----------------------------------
by Borrower to Agent and Lenders pursuant to Item 1.7 of the Schedule of
Documents is complete and correct in all material respects.
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ARTICLE VI.
FINANCIAL STATEMENTS AND INFORMATION
------------------------------------
6.1 Reports and Notices. Borrower covenants and agrees that it shall
-------------------
deliver to each Lender:
(a) Within twenty-five (25) days after the end of each calendar month,
the following information certified by an officer of Borrower: (i) a Borrowing
Base Certificate, as of the end of the previous calendar month, (ii) all
inventory reports prepared for the BATF by Borrower or any person storing or
holding juice, must, or wine for Borrower, (iii) an aged receivable trial
balance and an accounts payable aging, (iv) an updated Schedule of Accounts, (v)
an updated Schedule of Inventory, and (vi) the certification of the president,
chief executive officer, chief operating officer, chief financial officer or
corporate secretary of Borrower that all such reports and schedules are complete
and correct. Notwithstanding the foregoing, Agent may require that, prior to
making any Revolving Advance or incurring any Letter of Credit Obligation, it
receives a Borrowing Base Certificate from Borrower in form and detail
satisfactory to Agent;
(b) Within thirty (30) days after the end of each calendar month,
financial and other information certified by an officer of Borrower, including
(i) an internally-prepared statement of income and cash flow, balance sheet,
sales and distributor depletion reports, and management letter, each of which
would provide comparisons to the prior year's equivalent period and to budget,
and (ii) the certification of the president, chief executive officer, chief
operating officer, chief financial officer or corporate secretary of Borrower
that all such financial statements and schedules are complete and correct and
present fairly (subject to normal year-end adjustments), the financial position,
the results of operations and the statements of cash flows of Borrower as at the
end of such month and for the period then ended, and that there was no Default
or Event of Default in existence as of such time;
(c) Within thirty (30) days after the end of each Fiscal Quarter, (i)
a copy of the unaudited balance sheets of Borrower as of the close of such
quarter and the related statements of income and cash flows for that portion of
the Fiscal Year ending as of the close of such quarter, (ii) a copy of the
unaudited statements of income of Borrower for such quarter, all prepared in
accordance with GAAP (subject to normal year-end adjustments) and accompanied by
the certification of the president, chief executive officer, chief operating
officer, chief financial officer or corporate secretary of Borrower that all
such financial statements are complete and correct and present fairly in
accordance with GAAP (subject to normal year-
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end adjustments), the financial position, the results of operations and the
statements of cash flows of Borrower as at the end of such quarter and for the
period then ended, and that there was no Default or Event of Default in
existence as of such time, and (iii) a certificate in the form attached hereto
as Exhibit G, containing the certification of Borrower's chief financial officer
that Borrower has complied with all of the covenants set forth in Section 8.21
as of the end of such Fiscal Quarter;
(d) By the end of each calendar year, a detailed grape purchase
contract report for such calendar year's crush;
(e) Within ninety (90) days after the end of each Fiscal Year, audited
financial statements, consisting of balance sheets and statements of income and
retained earnings and cash flows, setting forth in comparative form in each case
the figures for the previous Fiscal Year, which financial statements shall be
prepared in accordance with GAAP, certified (only with respect to the financial
statements) without qualification by a firm of independent certified public
accountants of recognized national standing selected by Borrower and acceptable
to Agent, and accompanied by (i) a report from such accountants to the effect
that in connection with their audit examination, nothing has come to their
attention to cause them to believe that a Default or Event of Default had
occurred and that, to the best of their knowledge, Borrower was in compliance
with all the covenants set forth in Section 8.21 as of the end of such Fiscal
Year, (ii) the annual letter from Borrower's chief financial officer to such
accountants in connection with their audit examination detailing Borrower's
contingent liabilities and material litigation matters involving Borrower, (iii)
a certification of the president, chief executive officer, chief operating
officer, chief financial officer or corporate secretary of Borrower that all
such financial statements are complete and correct and present fairly in
accordance with GAAP the financial position, the results of operations and the
statements of cash flow of Borrower as at the end of such year and for the
period then ended and that there was no Default or Event of Default in existence
as of such time, and (iv) a certificate in the form attached hereto as Exhibit
G, containing the certification of Borrower's chief financial officer that
Borrower has complied with all of the covenants set forth in Section 8.21 as of
the end of such Fiscal Year;
(f) Before the end of each Fiscal Year, projections, approved by
Borrower's board of directors, of Borrower's income statements, balance sheets,
and cash flow statement, which integrate plans for personnel, Capital
Expenditures and facilities, prepared on a monthly basis for the following
Fiscal Year, which include (i) projected tax payments and reconciliations of tax
payments for the preceding calendar year, and (ii) estimated Grower Payables by
month;
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(g) Before November 1 of each year, a crop operating budget for the
forthcoming December 1 through November 30 period, containing such detail as
Agent shall reasonably request;
(h) No later than March 15, 1996, the balance sheet of Borrower as of
the Closing Date, prepared in accordance with GAAP certified by a firm of
independent certified public accountants of recognized national standing
selected by Borrower and acceptable to Agent;
(i) As soon as practicable, but in any event within one (1) Business
Day after Borrower becomes aware of the existence of any Default or Event of
Default, or any development or other information which would have a Material
Adverse Effect, telephonic notice specifying the nature of such Default or Event
of Default or development or information, including the anticipated effect
thereof, which notice shall be promptly confirmed in writing within three (3)
Business Days;
(j) Copies of all federal, state, local and foreign tax returns,
information returns and reports in respect of income, franchise or other taxes
on or measured by income (excluding sales, use or like taxes) filed by Borrower;
(k) Within five (5) Business Days after Borrower's receipt thereof,
copies of any notices to Borrower under California Civil Code Section 3051a;
(l) By April 25, 1997, a "cash tax payment forecast" for the period
1997-2001 prepared by Borrower's certified public accountants; and
(m) Such other information respecting Borrower's business, financial
condition or prospects as Agent may, from time to time, reasonably request.
6.2 Communication with Accountants.
------------------------------
(a) Prior to the occurrence of a Default or Event of Default, upon the
request of Agent and approval of such request by Borrower, which approval shall
not be unreasonably withheld, Borrower may authorize Agent to (i) communicate
directly with Borrower's independent certified public accountants and tax
advisors, and (ii) receive disclosure from such certified public accountants of
any and all financial statements and other supporting financial documents and
schedules including copies of any management letter with respect to the
business, financial condition and other affairs of Borrower.
(b) Following the occurrence of a Default or Event of Default, (i)
Agent shall be authorized to communicate directly with Borrower's independent
certified public accountants and tax
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advisors, (ii) such accountants and tax advisors shall be authorized to disclose
directly to Agent any and all financial information requested by Agent.
(c) At any time upon the request of Agent, Borrower shall deliver a
letter addressed to such accountants and tax advisors, which shall be reasonably
satisfactory to Agent and shall be generally similar to the letter delivered on
or about the Closing Date pursuant to the Schedule of Documents, instructing
them to comply with the provisions of this Section 6.2.
ARTICLE VII.
AFFIRMATIVE COVENANTS
---------------------
Borrower covenants and agrees that, unless Agent shall have otherwise
consented, from and after the date hereof Borrower shall comply with and observe
each of the following covenants and shall cause each of its Subsidiaries to
comply with and observe each of the following covenants, all references in this
Article VII applying to both Borrower and its Subsidiaries.
7.1 Maintenance of Existence and Conduct of Business. Borrower shall: (a)
------------------------------------------------
do or cause to be done all things necessary to preserve and keep in full force
and effect its corporate existence and its rights and franchises; (b) continue
to conduct its business substantially as now conducted or as otherwise permitted
hereunder; (c) at all times maintain, preserve, and protect all of its
trademarks and trade names, and preserve all the remainder of its property, in
use or useful in the conduct of its business and keep the same in good repair,
working order, and condition (taking into consideration ordinary wear and tear)
and from time to time make, or cause to be made, all needful and proper repairs,
renewals, and replacements, betterments and improvements thereto consistent with
industry practices, so that the business carried on in connection therewith may
be properly and advantageously conducted at all times, except where the failure
to do the above would not have a Material Adverse Effect; (d) transact business
only in such names set forth on Part (N) of the Disclosure Schedule, or such
other names as Borrower shall specify to Agent in writing not less than thirty
(30) days prior to the first date such name is used by Borrower; and (e) use
reasonable efforts to obtain and maintain all permits required to have been
issued to enable the real property owned or leased by Borrower to be lawfully
occupied and used for all of the purposes for which they are currently occupied
and used.
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7.2 Payment of Obligations.
----------------------
(a) Borrower shall, subject to Section 7.2(b), pay and discharge or
cause to be paid and discharged promptly all (A) Charges imposed upon it, its
income, and profits, or any of its property (real, personal, or mixed), and (B)
lawful claims for labor, materials, supplies, and services or otherwise before
any thereof shall become in default.
(b) Borrower may in good faith contest, by proper legal actions or
proceedings, the validity or amount of any Charges or claims arising under
Section 7.2(a); provided, that at the time of commencement of any such action or
--------
proceeding, and during the pendency thereof (i) adequate reserves with respect
thereto are maintained on the books of Borrower, in accordance with GAAP, (ii)
such contest operates to suspend collection of the contested Charges or claims
and is maintained and prosecuted continuously with diligence, (iii) none of the
Collateral would be subject to forfeiture or loss or any Lien by reason of the
institution or prosecution of such contest, (iv) no Lien shall exist, be imposed
or be attempted to be imposed for such Charges or claims during such action or
proceeding, (v) Borrower shall promptly pay or discharge such contested Charges
and all additional charges, interest, penalties, and expenses, if any, and shall
deliver to Agent evidence acceptable to Agent of such compliance, payment or
discharge, if such contest is terminated or discontinued adversely to Borrower,
and (vi) Agent has not advised Borrower in writing that Agent reasonably
believes that nonpayment or nondischarge thereof would have a Material Adverse
Effect.
(c) Notwithstanding anything to the contrary contained in Section
7.2(b) above, Borrower shall have the right to pay the Charges or claims
described in Section 7.2(a) and in good faith contest, by proper legal actions
or proceedings, the validity or amount of such Charges or claims.
7.3 Agent's and Lenders' Bank Fees. Borrower shall pay to Agent, on
------------------------------
demand, any and all reasonable fees, costs, or expenses that Agent or any Lender
shall pay to a bank or other similar institution arising out of or in connection
with (i) the forwarding to Borrower or any other Person on behalf of Borrower by
such Lender of proceeds of the Revolving Loan or Term Loan or (ii) the
incurrence of the Letter of Credit Obligations.
7.4 Books and Records. Borrower shall keep adequate records and books of
-----------------
account with respect to its business activities, in which proper entries,
reflecting all of its financial transactions, are made in accordance with GAAP
(except during the first year after the Closing Date for monthly statements
other than quarterly statements) and on a basis consistent with the Financials;
provided that Borrower shall make
- --------
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reasonable efforts to modify its accounting systems to enable Borrower to
provide monthly statements in accordance with GAAP and Borrower's monthly
statements shall, starting no later than the month ending January 31, 1997,
reflect all financial transactions in accordance with GAAP. Borrower shall
maintain its books and records and calculate all financial covenants based on
the FIFO basis of accounting.
7.5 Litigation. Borrower shall notify Agent in writing, promptly upon
----------
learning thereof, of any litigation commenced or threatened against Borrower,
and of the institution against it of any suit or administrative proceeding that
(a) may involve an amount in excess of Five Hundred Thousand Dollars ($500,000)
or (b) may have a Material Adverse Effect if adversely determined.
7.6 Insurance.
---------
(a) Borrower shall, at its sole cost and expense, maintain the
policies of insurance described in Section 5.27 in form and with insurers
recognized as adequate by Agent, and all such policies shall be in such amounts
as may be reasonably satisfactory to Agent. In addition, Borrower shall notify
Agent promptly of any occurrence causing a material loss or decline in value of
any real or personal property and the estimated (or actual, if available) amount
of such loss or decline. Borrower hereby directs all present and future
insurers under its "All Risk" policies of insurance to pay all proceeds payable
thereunder directly to Agent, subject to the rights, if any, of any holders of
Permitted Encumbrances with respect to such proceeds. Borrower irrevocably
makes, constitutes and appoints Agent (and all officers, employees, or agents
designated by Agent) as Borrower's true and lawful agent and attorney-in-fact
for the purpose of making, settling, and adjusting claims under the "All Risk"
policies of insurance, endorsing the name of Borrower on any check, draft,
instrument or other item of payment for the proceeds of such "All Risk" policies
of insurance, and for making all determinations and decisions with respect to
such "All Risk" policies of insurance; provided Agent agrees that it shall not
--------
exercise its right to settle or adjust any claim unless an Event of Default has
occurred and is continuing. In the event Borrower at any time or times
hereafter shall fail to obtain or maintain any of the policies of insurance
required above or to pay any premium in whole or in part relating thereto,
Agent, without waiving or releasing any Obligations or Default or Event of
Default hereunder, may at any time or times thereafter (but shall not be
obligated to) obtain and maintain such policies of insurance and pay such
premium and take any other action with respect thereto which Agent deems
advisable. All sums so disbursed by Agent, including reasonable attorneys'
fees, court costs, expenses and other charges relating thereto, shall be
payable, on demand, by Borrower to Agent and shall be additional Obligations
hereunder secured by the Collateral.
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(b) Agent reserves the right at any time, upon review of Borrower's
risk profile, to require additional forms and limits of insurance to, in Agent's
reasonable judgment, after consultation with Borrower, adequately protect
Lenders' interests.
(c) Borrower shall, if so requested by Agent, deliver to Agent, as
often as Agent may request, a report of a reputable insurance broker, reasonably
satisfactory to Agent with respect to its insurance policies.
7.7 Compliance with Laws.
--------------------
(a) Borrower shall comply with all federal, state and local laws and
regulations applicable to it, including, those relating to bonded wine making
operations, alcoholic beverage control, licensing, environmental, consumer
credit, truth-in-lending, ERISA, and labor matters, except where such
noncompliance would not have a Material Adverse Effect.
(b) Borrower shall comply with all statutory procedures under
California law necessary to exempt from the provisions of Section 3440 of the
California Civil Code any bulk juice, must, or wine owned by Borrower and stored
at any winery not owned or leased by Borrower, unless otherwise disclosed to
Agent.
7.8 Agreements. Borrower shall perform, within all required time periods
----------
(after giving effect to any applicable grace periods), all of its obligations
and enforce all of its rights under each agreement to which it is a party,
including any leases and customer contracts to which it is a party where the
failure to so perform and enforce would have a Material Adverse Effect.
Borrower shall not terminate or modify any provision of any agreement to which
it is a party which termination or modification could have a Material Adverse
Effect.
7.9 Supplemental Disclosure. From time to time as may be necessary (in
-----------------------
the event that such information is not otherwise delivered by Borrower to any
Lender pursuant to this Agreement), so long as there are Obligations outstanding
hereunder, Borrower will supplement each schedule or representation herein with
respect to any matter hereafter arising which, if existing or occurring at the
date of this Agreement, would have been required to be set forth or described in
such schedule or as an exception to such representation or which is necessary to
correct any information in such schedule or representation which has been
rendered inaccurate thereby; provided that such supplement to such schedule or
--------
representation shall not be deemed an amendment thereof unless otherwise
consented to by Agent.
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7.10 Employee Plans.
--------------
(a) Borrower shall notify Agent of any and all claims (other than
claims for benefits in the normal course), actions, or lawsuits asserted or
instituted, and of any threatened litigation or claims, against Borrower, or, to
Borrower's Knowledge, any ERISA Affiliate in connection with any Plan
maintained, at any time, by Borrower, or any ERISA Affiliate, or to which
Borrower, or any ERISA Affiliate has or had at any time any obligation to
contribute, or/and against any such Plan itself, or against any fiduciary of or
service provider to any such Plan (i) in an amount which may reasonably be
expected to be, if adversely determined, in excess of One Hundred Thousand
Dollars ($100,000) or (ii) which, if adversely determined, would have a Material
Adverse Effect.
(b) Borrower shall notify Agent of the occurrence of any "Reportable
Event" with respect to any Pension Plan of Borrower or any ERISA Affiliate.
7.11 Environmental Matters. Borrower shall (i) comply in all material
---------------------
respects with the Environmental Laws applicable to it, (ii) notify Agent
promptly after knowledge in the event of any Spill which is reportable to any
Governmental Authority upon any premises owned or occupied by it, and (iii)
promptly forward to Agent a copy of any order, notice, permit, application, or
any other communication or report received by Borrower in connection with any
such Spill or any other matter relating to the Environmental Laws that may
materially affect such premises. The provisions of this Section 7.11 shall
apply whether or not the Environmental Protection Agency, any other federal
agency or any state or local environmental agency has taken or threatened any
action in connection with the presence of any Spills or hazardous substances.
7.12 Subsidiary. Prior to forming any Subsidiary, Borrower shall (a)
----------
provide not less than thirty (30) days prior written notice to Agent, and (b)
receive the prior written consent of Agent consent shall not be unreasonably
withheld. As a condition to providing its consent to the formation of such
Subsidiary, Agent may require that the Subsidiary guarantee the full amount of
the Obligations and grant to Agent, for the benefit of Lenders, a Lien on and
security interest in all of such Subsidiary's property to secure such guaranty.
7.13 Maintenance of Equipment and Fixtures. Borrower shall keep and
-------------------------------------
maintain its equipment and fixtures (each as defined in the California
Commercial Code) in good operating condition sufficient for the continuation of
Borrower's business conducted on a basis consistent with past practices, and
Borrower shall provide or arrange for all maintenance and service and all
repairs necessary for such purpose.
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7.14 Syndication. Prior to and after the Closing Date, Borrower shall use
-----------
reasonable time and efforts to assist Lenders as necessary or appropriate to
effectuate any sale, assignment, or other syndication of the Revolving Loan or
Term Loan, including (i) the preparation of offering materials to be delivered
to potential lenders, (ii) the preparation of information and projections by
Borrower and its advisors relating to the Stock Acquisition and the financing
transaction contemplated by this Agreement, and (iii) the participation of the
relevant management in meetings with potential lenders.
7.15 Payment of Grower Payables. Borrower shall pay all Grower Payables as
--------------------------
and when due under the terms of Borrower's agreements with Borrower's account
debtors, except to the extent otherwise agreed by such account debtors and
except for Grower Payables being contested by Borrower in good faith.
7.16 Payment of Leases. Borrower shall pay as and when due all obligations
-----------------
owed by Borrower under any lease of real or personal property, except to the
extent otherwise agreed by the lessor thereof or to the extent that Borrower is
in good faith contesting its obligation to pay such obligation.
7.17 Interest Rate Protection. On or before February 15, 1996, Borrower
------------------------
shall have fixed pursuant to the terms of this Agreement, or shall have hedged
on terms satisfactory to Agent, for a period of not less than three (3) years,
not less than sixty percent (60%) of the aggregate of the outstanding balances
of the Revolving Loan and the Term Loan on the Closing Date. On or before
thirty (30) days after the Third Amendment Closing Date, Borrower shall have
fixed pursuant to the terms of this Agreement, or shall have hedged on terms
satisfactory to Agent, for a period of not less than three (3) years, not less
than Seventeen Million Dollars ($17,000,000) of the aggregate of the outstanding
balances of the Revolving Loan and the Term Loan that were advanced on the Third
Amendment Closing Date.
7.18 Notification Regarding Subordinated Debt. Borrower shall promptly
----------------------------------------
provide notice to Agent of the existence of any default or event of default by
Borrower under any document governing any Subordinated Debt, or of any breach by
Borrower of, or any failure by Borrower to observe or comply with, any provision
of any document governing any Subordinated Debt. Borrower shall promptly notify
Agent of any notice received by Borrower from any holder of any Subordinated
Debt or any representative acting on behalf of any holder of Subordinated Debt,
and provide Agent with a copy of any notice received, if such notice concerns or
references the existence of a default, an event of default, or a breach by
Borrower with respect to any Subordinated Debt or any remedy with respect
thereto.
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7.19 Proceeds of Second Restatement Stock. Borrower shall have obtained
------------------------------------
Five Million Dollars ($5,000,000) as payment for the Second Restatement Stock by
the earlier of (a) March 31, 1997, or (b) the Newhall Advance Date.
ARTICLE VIII.
NEGATIVE COVENANTS
------------------
Borrower covenants and agrees that, unless Agent shall have otherwise
consented, from and after the date hereof Borrower shall comply with and observe
each of the following covenants and shall cause each of its Subsidiaries to
comply with and observe each of the following covenants, all references in this
Article VIII applying on a consolidated basis to both Borrower and its
Subsidiaries.
8.1 Mergers, Etc. Borrower shall not, directly or indirectly, by
------------
operation of law or otherwise, merge with, consolidate with, acquire all or
substantially all of the assets or capital stock of, or otherwise combine with,
any Person or form any Subsidiary; provided, that so long as no Event of Default
--------
shall have occurred and be continuing, nothing in this Section 8.1 shall limit
the ability of Borrower to acquire new wineries, vineyards, or other similar
assets or properties so long as such acquisition does not constitute a breach of
Section 8.18.
8.2 Investments; Loans and Advances. Except as expressly permitted by
-------------------------------
Section 8.6, Borrower shall not make any investment in, or make or accrue loans
or advances of money to any Person, through the direct or indirect holding of
securities or otherwise; provided, that Borrower may: (a) make and maintain
--------
investments in Cash Equivalents, (b) make and maintain loans or advances to, any
of its wholly-owned Subsidiaries in an aggregate amount at any one time not to
exceed Two Million Dollars ($2,000,000) (provided that such wholly-owned
Subsidiaries have guaranteed all Obligations and secured such guarantee by a
first priority security interest in all of such Subsidiary's assets), (c)
maintain (but not increase except within the limitations permitted by clause (d)
of this Section 8.2) existing investments identified in Part Q of the Disclosure
Schedule, and (d) acquire the Stock of Stag's Leap Winery, Inc. for the amount
and on the terms set forth in the Stag's Leap Acquisition Agreements, and (e)
make and maintain investments in any joint venture or non-wholly-owned
Subsidiary; provided, that such investments shall only be permissible under this
--------
clause (e) if such joint venture or non wholly-owned Subsidiary is engaged in
the business of operating wineries, vineyards, or other related businesses; and
provided, further, that the aggregate amount invested after the Closing Date in
- --------
all investments permitted by this Section 8.2(e) shall (i) not exceed Five
Million Dollars ($5,000,000) from time
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<PAGE>
to time outstanding, and (ii) the sum of (x) the cost of such investment (as
determined by the Board of Directors of Borrower in good faith), and (y) the
aggregate cost of all such other investments (as determined by the Board of
Directors of Borrower in good faith) does not exceed Five Million Dollars
($5,000,000) less, to the extent that the aggregate fair market value of all
other such investments is less than the aggregate cost of such investments (in
each case, as determined by the Board of Directors of Borrower in good faith)
one hundred percent (100%) of such deficiency. Upon the occurrence of a Default
or Event of Default, Borrower shall liquidate all investments permitted under
this Section 8.2 and the proceeds of such liquidated investments shall be
immediately remitted to Agent on account of the Obligations.
8.3 Indebtedness.
------------
(a) Indebtedness Generally. Except as otherwise expressly permitted
----------------------
by this Agreement, Borrower shall not create, incur, assume, or permit to exist
any Indebtedness, except (i) Indebtedness secured by Liens permitted under
Section 8.8, (ii) the Revolving Loan, (iii) the Term Loan, (iv) all Deferred
Taxes, (v) all unfunded pension fund and other employee benefit plan obligations
and liabilities but only to the extent they are permitted to remain unfunded
under applicable law, (vi) Indebtedness under Capital Leases to the extent
permitted under this Agreement, but not to exceed Five Million Dollars
($5,000,000) at any time outstanding, (vii) Indebtedness in existence on the
Closing Date and identified on Part J of the Disclosure Schedule, (viii)
Purchase Money Indebtedness with respect to the acquisition of Newly Acquired
Capital Assets in an amount not to exceed the maximum set forth in Section
8.3(b), and (ix) Indebtedness for surety bonds obtained in the ordinary course
of business.
(b) Purchase Money Indebtedness for Acquisition of Newly Acquired
-------------------------------------------------------------
Capital Assets. Borrower may incur Purchase Money Indebtedness with respect to
- --------------
the acquisition of Newly Acquired Capital Assets, provided that (i) such
Indebtedness is secured only by the particular Newly Acquired Capital Asset or
related group of Newly Acquired Capital Assets, (ii) no Default or Event of
Default has occurred and is continuing or would occur as result of the incurring
of such Purchase Money Indebtedness, (iii) except with respect to the amounts
provided in Section 8.3(a) below, Borrower has delivered to Agent and Lenders
the annual audited financial statement for Borrower's Fiscal Year ending
December 31, 1996, (iv) the incurring of such Purchase Money Indebtedness does
not cause Borrower to fail to continue to achieve either of the ratios described
below upon which the right to incur such Purchase Money Indebtedness is based,
and (v) the cumulative amount of all such Purchase Money Indebtedness shall not
exceed up to the following cumulative levels:
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<PAGE>
(i) If the post-closing balance sheet provided by Borrower to
Lender pursuant to the Schedule of Documents, or any subsequent quarterly
financial statement provided by Borrower to Agent pursuant to Section
6.1(c), indicates a Consolidated Funded Debt to Consolidated EBITDA Ratio
of less than six to one (6.00:1.), then Borrower shall be entitled to incur
Purchase Money Indebtedness not to exceed Five Million Dollars ($5,000,000)
in the aggregate from and after the Closing Date;
(ii) If and at such time as the quarterly financial statements
provided by Borrower to Agent pursuant to Section 6.1(c) (subject to
adjustment if a subsequently delivered annual financial statement differs
from the quarterly statement), indicate that Borrower has both (x) achieved
a Consolidated Funded Debt to Consolidated EBITDA Ratio of less than five
to one (5.00:1) as of the end of the particular Fiscal Quarter, and (ii)
achieved a Consolidated Debt Coverage Ratio of not less than one and four-
tenths to one (1.40:1) for the period of four Fiscal Quarters ending as of
the end of the particular Fiscal Quarter, then (but only so long as
Borrower continues each quarter to achieve both ratios) Borrower shall be
entitled to incur Purchase Money Indebtedness not to exceed Ten Million
Dollars ($10,000,000) in the aggregate from and after the Closing Date;
(iii) If and at such time as the quarterly financial statements
provided by Borrower to Agent pursuant to Section 6.1(c) (subject to
adjustment if a subsequently delivered annual financial statement differs
from the quarterly statement), indicate that Borrower has both (i) achieved
a Consolidated Funded Debt to Consolidated EBITDA Ratio of less than four
to one (4.0:1) as of the end of the particular Fiscal Quarter, and (ii)
achieved a ratio of Consolidated Debt Coverage of not less than one and
four-tenths to one (1.40:1) for the period of four Fiscal Quarters ending
as of the end of the particular Fiscal Quarter, then (but only so long as
Borrower continues each quarter to achieve both ratios) Borrower shall be
entitled to incur Purchase Money Indebtedness not to exceed Fifteen Million
Dollars ($15,000,000) in the aggregate from and after the Closing Date;
(iv) If and at such time as the quarterly financial statements
provided by Borrower to Agent pursuant to Section 6.1(c) (subject to
adjustment if a subsequently delivered annual financial statement differs
from the quarterly statement), indicate that Borrower has both (i) achieved
a Consolidated Funded Debt to Consolidated EBITDA Ratio of less than three
and one-half to one (3.5:1) as of the end of the particular Fiscal Quarter,
and (ii) achieved a Consolidated Debt Coverage Ratio of not less than one
and four-tenths to one (1.40:1) for the period of four
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<PAGE>
Fiscal Quarters ending as of the end of the particular Fiscal Quarter, then
Borrower shall be entitled to incur Purchase Money Indebtedness not to
exceed Thirty Million Dollars ($30,000,000) in the aggregate from and after
the Closing Date;
(v) If and at such time as the quarterly financial statements
provided by Borrower to Agent pursuant to Section 6.1(c) (subject to
adjustment if a subsequently delivered annual financial statement differs
from the quarterly statement), indicate that Borrower has both (i) achieved
a Consolidated Funded Debt to Consolidated EBITDA Ratio of less than three
to one (3.0:1) as of the end of the particular Fiscal Quarter, and (ii)
achieved a Consolidated Debt Coverage Ratio of one and forty-five/one
hundredths to one (1.45:1) for the period of four Fiscal Quarters ending as
of the end of the particular Fiscal Quarter, then (but only so long as
Borrower continues each quarter to achieve both ratios and subject to the
last sentence of this Section 8.3(b)) there shall be no further dollar
limitations on Borrower's incurring Purchase Money Indebtedness under this
Section 8.3(b).
Notwithstanding the foregoing, if the cumulative amount of permitted Purchase
Money Indebtedness shall be increased because of Borrower's achieving both
applicable ratio requirements but, as of the end of a subsequent Fiscal Quarter,
Borrower shall fail to achieve both applicable ratio requirements, then the
cumulative amount of permitted Purchase Money Indebtedness shall be immediately
reduced to the greater of (i) the cumulative amount of Purchase Money
Indebtedness for which Borrower qualifies based on such subsequent financial
statement, or (ii) the cumulative amount of Purchase Money Indebtedness actually
incurred by Borrower prior to the end of such Fiscal Quarter. Similarly, if the
cumulative amount of permitted Purchase Money Indebtedness shall be increased
because of Borrower's achieving both applicable ratio requirements as of the end
of a Fiscal Quarter ending on December 31 of any year but the annual audited
financial statement subsequently delivered to Agent for such Fiscal Year
indicates that Borrower has failed to achieve both applicable ratio requirements
as of the end of such Fiscal Quarter, then the cumulative amount of permitted
Purchase Money Indebtedness shall be immediately reduced to the greater of (i)
the cumulative amount of Purchase Money Indebtedness for which Borrower
qualifies based on such annual audited financial statement, or (ii) the
cumulative amount of Purchase Money Indebtedness actually incurred by Borrower
prior to delivery of such annual audited financial statement.
8.4 Capital Structure.
-----------------
(a) Borrower shall not issue or agree to issue any of its respective
authorized but not outstanding shares of Stock (including treasury shares)
except for additional shares that may
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<PAGE>
be issued to BWEH in exchange for additional equity investment in Borrower;
provided, that all additional issued shares shall be pledged to Agent in
- --------
accordance with the Amended and Restated Stock Pledge Agreement provided by BWEH
to Agent dated as of even date herewith.
(b) Borrower shall not make any material changes in its capital
structure (including the issuance of any shares of stock, warrants, or other
securities convertible into stock or any revision of the terms of its
outstanding Stock) or amend its certificate of incorporation or by-laws without
the prior written consent of Requisite Lenders, which consent will not be
unreasonably withheld.
8.5 Maintenance of Business. Borrower shall not engage in any business
-----------------------
other than the production and sale of wine and wine-related products, which
business includes activities related to the acquisition and operation of
vineyards.
8.6 Transactions with Affiliates. Borrower shall not enter into or be a
----------------------------
party to any transaction with any Affiliate of Borrower, except (a) in
accordance with the terms of the management compensation incentive plan
identified in Part V of the Disclosure Schedule (to the extent such plan
includes recourse loans made by Borrower to senior management of Borrower for
purposes of financing fifty percent (50%) of the purchase price of stock being
acquired by such managers in BWEH, in amounts not to exceed Five Hundred
Thousand Dollars ($500,000); provided that such shall be permitted only if the
--------
full amount received by BWEH for such stock is forwarded by BWEH to Borrower as
a capital contribution, but only to the extent funds for such loan were
originally provided by Borrower), (b) for the payment of fees to be paid to
certain Affiliates to the extent identified in the schedule of fees identified
in Appendix M to the Schedule of Documents, and (c) in the ordinary course of
and pursuant to the reasonable requirements of Borrower's business and upon fair
and reasonable terms that are fully disclosed to Agent and are no less favorable
to Borrower than would be obtained in a comparable arm's-length transaction with
a Person not an Affiliate of Borrower.
8.7 Guaranteed Indebtedness. Borrower shall not incur any Guaranteed
-----------------------
Indebtedness except (a) by endorsement of instruments or items of payment for
deposit to the general account of Borrower, (b) for Guaranteed Indebtedness
incurred for the benefit of Borrower if the primary obligation is permitted by
this Agreement, (c) those obligations set forth in Part K of the Disclosure
Schedule, and (d) the guarantee of Subordinated Debt by Cork Processors and any
other Subsidiary with assets in excess of Five Million Dollars ($5,000,000).
8.8 Liens. Borrower shall not create or permit any Lien on any of its
-----
properties or assets except the Lien of Agent under the Loan Documents and
Permitted Encumbrances.
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8.9 Sales of Assets.
---------------
(a) Sales of Assets Other Than Real Property. Borrower shall not
----------------------------------------
sell, transfer (including any consensual transfer such as the execution of a
deed in lieu of foreclosure), convey, assign, or otherwise dispose of any of its
assets or properties (other than real property, which is governed by Sections
8.9(b), 8.9(c), and 8.9(d)); provided, that the foregoing shall not prohibit (i)
--------
the sale of Inventory in the ordinary course of business, (ii) the replacement
or trade-in of equipment in the ordinary course of business, (iii) the sale of
Borrower's interest in the Pressoir Deutz Winery, and (iv) the sale or other
disposal of used equipment, other than replacement or trade-in of equipment, in
the ordinary course of Borrower's business up to a net book value of Five
Hundred Thousand Dollars ($500,000) for all such equipment sold after the
Closing Date; and, provided, further, that the Net Proceeds from any such sale
--------
are immediately paid to Agent for application as provided in Section 2.3(c).
(b) Sales of Agricultural Real Property. Borrower shall not sell,
-----------------------------------
transfer (including any consensual transfer such as the execution of a deed in
lieu of foreclosure), convey, assign, or otherwise dispose of any Agricultural
Real Property owned by Borrower; provided, that Borrower may sell or otherwise
--------
dispose of Agricultural Real Property after the Closing Date having a value (as
set forth on the Real Estate Valuation Schedule identified in the Schedule of
Documents), when aggregated with all other Agricultural Real Property sold or
disposed of by Borrower after the Closing Date, as follows:
(i) with respect to Agricultural Real Property that is sold and
immediately leased back by Borrower at a market rate of rent for a period
of not less than fifteen (15) years, not more than Fifteen Million Dollars
($15,000,000); and
(ii) with respect to any other sales of Agricultural Real
Property, not more than Ten Million Dollars ($10,000,000);
and provided, further, that in each sale described in clauses (i) or (ii) above
--------
Borrower shall receive and immediately pay to Agent from the proceeds of sale
the Minimum Payment Amount with respect to such sale. The Fifteen Million
Dollar ($15,000,000) and Ten Million Dollar ($10,000,000) figures used above are
cumulative. Amounts paid to Agent pursuant to this Section 8.9(b) shall be
distributed to Term Lenders as a permanent reduction of the Term Loan as
provided in Section 2.3(c).
(c) Sales of Winery Real Property. Borrower shall not sell, transfer
-----------------------------
(including any consensual transfer such as the execution of a deed in lieu of
foreclosure), convey, assign, or otherwise dispose of any Winery Real Property.
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(d) Sales of Special Real Property. Borrower shall not sell, transfer
------------------------------
(including any consensual transfer such as the execution of a deed in lieu of
foreclosure), convey, assign, or otherwise dispose of any Special Real Property
unless Borrower receives and immediately pays to Agent from the proceeds of sale
the Minimum Payment Amount with respect to such sale. Amounts paid to Agent
pursuant to this Section 8.9(d) shall be distributed to Term Lenders as a
permanent reduction of the Term Loan as provided in Section 2.3(c).
8.10 Cancellation of Claims. Borrower shall not cancel any claim or debt
-----------------------
owing to it, except for reasonable consideration or in the ordinary course of
business.
8.11 Events of Default. Borrower shall not take or omit to take any
-----------------
action, which act or omission would constitute (a) a Default or an Event of
Default pursuant to, or noncompliance with any of, the terms of any of the Loan
Documents, or (b) a material default or an event of default (i) pursuant to, or
noncompliance with, any contract, lease, mortgage, deed of trust, or instrument
to which it is a party or by which it or any of its property is bound, or any
document creating a Lien, and (ii) which would have a Material Adverse Effect.
8.12 Restricted Payments. Borrower shall not make any Restricted Payments;
-------------------
provided, that so long as no Default or Event of Default then exists, has
- --------
occurred within the twelve (12) months immediately preceding such proposed
Restricted Payment, or would result from such Restricted Payment, Borrower may
pay dividends on its common stock to BWEH if all of the following requirements
are fulfilled: (a) the dividend is declared and paid no earlier than July 16,
2001; (b) Borrower shall have sufficient net profits pursuant to Section 170 of
the Delaware General Corporation Law with which to pay such dividend; (c)
Borrower's Net Worth as of the end of the immediately preceding fiscal quarter
was not less than One Hundred Seven Million Dollars ($107,000,000) and will not
be reduced to less than One Hundred Seven Million Dollars ($107,000,000) as a
result of such Restricted Payment, and (d) the aggregate amount of all such
Restricted Payments paid to BWEH in any Fiscal Year shall not exceed (i) fifty
percent (50%) of the amount of Consolidated Net Income for the Fiscal Year
ending December 31, 2000 for such dividends paid during such Fiscal Year, and
(ii) fifty percent (50%) of the aggregate amount of Consolidated Net Income
earned after December 31, 2000 for such dividends paid after such Fiscal Year;
and provided further that so long as no Default or Event of Default then exists,
-------- -------
or would result from such Restricted Payment, Borrower may pay dividends on its
common stock to BWEH in an amount sufficient to enable BWEH to (x) pay the
actual amount of BWEH's tax liability as the parent of a consolidated, combined,
or unitary group, including Borrower, and (y) pay its overhead and operating
expenses, not to exceed Two Hundred Fifty Thousand Dollars ($250,000) per Fiscal
Year.
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8.13 Payment or Modification of Subordinated Debt. Borrower shall not make
--------------------------------------------
payments on account of any Subordinated Debt except to the extent permissible
under the agreement by which such Subordinated Debt is subordinated to the
Obligations. Borrower shall not amend, supplement, or otherwise modify any
provisions of the any documents governing any Subordinated Debt, and shall not
refinance any portion of the Subordinated Debt, except on terms no less
favorable to Borrower and Lenders and those that have been disclosed in writing
to and approved by Agent.
8.14 Limitation on Purchase of Real Property. Borrower shall not acquire
---------------------------------------
an ownership interest in any real property except as permitted by Section 8.1
and with respect to which Agent has received, for the benefit of Lenders, a deed
of trust, a title insurance policy, and an environmental report, each in form
and substance reasonably satisfactory to Agent; provided that the foregoing
--------
requirement that Agent receive a deed of trust, a title insurance policy, and an
environmental report shall not apply to any real property for which Borrower has
obtained financing constituting permitted Purchase Money Indebtedness under
Section 8.3(b) if such Purchase Money Indebtedness shall equal or exceed fifty
percent (50%) of the purchase price and the terms of the Purchase Money
Indebtedness prohibit junior encumbrances (but only if Borrower has used
reasonable efforts to obtain the consent of the purchase money lender to a
junior encumbrance in favor or Agent). The requirements of the previous
sentence do not apply to real property leased by Borrower as tenant.
8.15 Termination of Real Property Leases. Borrower shall not agree to
-----------------------------------
terminate any leases of agricultural real property prior to the expiration of
the scheduled term thereof, or to allow or suffer any such leases to be
terminated prior to the expiration of the scheduled term thereof if, as a result
thereof, the total number of vineyard acres leased by Borrower as tenant shall
be less than One Thousand Four Hundred Fifty (1,450) acres, minus the aggregate
-----
acreage under such leases terminated upon the scheduled expiration thereof. The
failure by Borrower to exercise a renewal option, and to exercise by Borrower of
a purchase option, shall not be considered a termination "prior to the
expiration of the scheduled term" as such phrase is used in this Section 8.15.
8.16 ERISA. Without Agent's prior written consent, Borrower shall not
-----
acquire any new ERISA Affiliate that maintains or has an obligation to
contribute to a Pension Plan that has either an "accumulated funding
deficiency," as defined in Section 302 of ERISA, or any "unfunded vested
benefits," as defined in Section 4006(a)(3)(E)(iii) of ERISA in the case of any
plan other than a Multiemployer Plan and in Section 4211 of ERISA in the case of
a Multiemployer Plan. Additionally, Borrower shall not, without Agent's prior
written consent:
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<PAGE>
(a) terminate any Pension Plan that is subject to Title IV of ERISA
where such termination could reasonably be anticipated to result in liability to
Borrower in excess of Five Hundred Thousand Dollars ($500,000);
(b) permit any accumulated funding deficiency, as defined in Section
302(a)(2) of ERISA, to be incurred with respect to any Pension Plan which would
result in a Material Adverse Effect;
(c) fail to make any contributions or fail to pay any amounts due and
owing as required by the terms of any Plan before such contributions or amounts
become delinquent if the consequence of such delinquencies could, in the
aggregate, reasonably be expected to have a Material Adverse Effect;
(d) make a complete or partial withdrawal (within the meaning of
Section 4201 of ERISA) from any Multiemployer Plan that could reasonably be
anticipated to result in liability to Borrower in excess of Five Hundred
Thousand Dollars ($500,000); or
(e) at any time fail to provide Agent with copies of any Plan
documents or governmental reports or filings, if reasonably requested by Agent.
8.17 Maintenance Capital Expenditures.
--------------------------------
(a) Barrel Maintenance Capital Expenditures. Borrower shall not, in
---------------------------------------
any Fiscal Year, make Barrel Maintenance Capital Expenditures in excess of the
respective aggregate amounts set forth below:
<TABLE>
<CAPTION>
Barrel
Maintenance
Fiscal Year Cap. Ex.
- ----------- -----------
<S> <C>
1996 $1,450,000
1997 $1,570,000
1998 $1,590,000
1999 $1,610,000
2000 $1,740,000
Each Fiscal
Year Thereafter NO SUBLIMIT
</TABLE>
For purposes of the above limitation on Barrel Maintenance Capital Expenditures,
any expenditures made during any Fiscal Year in connection with barrels that
were leased rather than purchased, and that would have been considered Barrel
Maintenance Capital Expenditures had such expenditures been made in connection
with barrels that were owned by Borrower rather than leased, shall reduce the
permitted amount of Barrel Maintenance Capital Expenditures during such Fiscal
Year. Barrel Maintenance Capital Expenditures that are permitted during any
Fiscal Year
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<PAGE>
but not expended during such Fiscal Year may be carried forward on a cumulative
basis for the next two Fiscal Years. For Fiscal Year 2001 and thereafter,
Borrower shall not make Barrel Maintenance Capital Expenditures in amounts in
excess of those set forth above unless such excess amounts are provided in a
capital expenditure budget prepared by Borrower and approved by Agent and
Lenders. Borrower shall not make any Barrel Maintenance Capital Expenditures
during any such Fiscal Year in amounts in excess of those set forth above
(except for permitted carryover amounts from previous Fiscal Years) until Agent
and Lenders have approved such budget. Agent and Lenders shall not unreasonably
delay consideration of any proposed capital expenditures budget.
(b) General Maintenance Capital Expenditures. Borrower shall not, in
----------------------------------------
any Fiscal Year, make Vineyard Maintenance Capital Expenditures or General
Maintenance Capital Expenditures in excess of the respective aggregate amounts
set forth below:
<TABLE>
<CAPTION>
Vineyard General
Maintenance Maintenance
Fiscal Year Cap. Ex. Cap. Ex.
- ----------- ----------- -----------
<S> <C> <C>
1996 $5,800,000 $11,150,000
1997 $4,600,000 $ 8,500,000
1998 $6,100,000 $ 9,500,000
1999 $4,800,000 $ 7,500,000
2000 $2,000,000 $ 4,500,000
Each Fiscal
Year Thereafter NO SUBLIMIT $ 8,000,000
</TABLE>
Vineyard Maintenance Capital Expenditures that are permitted during any Fiscal
Year but not expended during such Fiscal Year may be carried forward on a
cumulative basis for the next two Fiscal Years; all other General Maintenance
Capital Expenditures may be carried forward on a cumulative basis without
limitation. For Fiscal Year 2001 and thereafter, Borrower shall not make
Vineyard Maintenance Capital Expenditures, or Maintenance Capital Expenditures
in amounts in excess of those set forth above unless such excess amounts are
provided in a capital expenditure budget prepared by Borrower and approved by
Agent and Lenders. Borrower shall not make any General Maintenance Capital
Expenditures during any such Fiscal Year in amounts in excess of those set forth
above (except for permitted carryover amounts from previous Fiscal Years) until
Agent and Lenders have approved such budget. Agent and Lenders shall not
unreasonably delay consideration of any proposed capital expenditures budget.
8.18 Non-Maintenance Capital Expenditures. Borrower shall not make or
------------------------------------
incur Non-Maintenance Capital Expenditures except for the Stag's Leap
Acquisition, the Newhall Acquisition, and except to the extent provided below.
So long as (i) no Default or Event of Default has occurred and is continuing or
would occur as result of the making or incurring of such Non-Maintenance Capital
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<PAGE>
Expenditures, (ii) except with respect to the amounts provided in Section
8.18(a) below, Borrower has delivered to Agent and Lenders the annual audited
financial statement for Borrower's Fiscal Year ending December 31, 1996, and
(iii) the making or incurring of such Non-Maintenance Capital Expenditures does
not cause Borrower to fail to continue to achieve either of the ratios upon
which the right to make such Non-Maintenance Capital Expenditure is based,
Borrower may make Non-Maintenance Capital Expenditures, based on its then
existing Consolidated Debt Coverage Ratio, and Consolidated Funded Debt to
Consolidated EBITDA Ratio, up to the following cumulative levels (which limits
shall not apply to the Stag's Leap Acquisition or the Newhall Acquisition,
neither of which shall count toward the aggregate expenditures permitted below):
(a) If the post-closing balance sheet provided by Borrower to Lender
pursuant to the Schedule of Documents, or a quarterly financial statement
provided by Borrower to Agent pursuant to Section 6.1(c), indicates a
Consolidated Funded Debt to Consolidated EBITDA Ratio of less than six to one
(6.00:1), then Borrower shall be entitled to incur or make Non-Maintenance
Capital Expenditures not to exceed Five Million Dollars ($5,000,000) in the
aggregate from and after the Closing Date;
(b) If and at such time as the quarterly financial statements provided
by Borrower to Agent after December 31, 1996 pursuant to Section 6.1(c) (subject
to adjustment if a subsequently delivered annual financial statement differs
from the quarterly statement), indicate that Borrower has both (i) achieved a
Consolidated Funded Debt to Consolidated EBITDA Ratio of less than six to one
(6.0:1) as of the end of the particular Fiscal Quarter, and (ii) achieved a
Consolidated Debt Coverage Ratio of not less than one and five-tenths to one
(1.50:1) for the period of four Fiscal Quarters ending as of the end of the
particular Fiscal Quarter, then (but only so long as Borrower continues each
quarter to achieve both ratios) Borrower shall be entitled to incur or make Non-
Maintenance Capital Expenditures not to exceed Twenty Million Dollars
($20,000,000) in the aggregate from and after the Closing Date;
(c) If and at such time as the quarterly financial statements provided
by Borrower to Agent after December 31, 1996 pursuant to Section 6.1(c) (subject
to adjustment if a subsequently delivered annual financial statement differs
from the quarterly statement), indicate that Borrower has both (i) achieved a
Consolidated Funded Debt to Consolidated EBITDA Ratio of less than five to one
(5.0:1) as of the end of the particular Fiscal Quarter, and (ii) achieved a
Consolidated Debt Coverage Ratio of not less than one and six-tenths to one
(1.60:1) for the period of four Fiscal Quarters ending as of the end of the
particular Fiscal Quarter, then (but only so long as Borrower continues each
quarter to achieve both ratios) Borrower shall be entitled to incur or make Non-
Maintenance Capital
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<PAGE>
Expenditures not to exceed Thirty-Five Million Dollars ($35,000,000) in the
aggregate from and after the Closing Date;
(d) If and at such time as the quarterly financial statements provided
by Borrower to Agent after December 31, 1996 pursuant to Section 6.1(c) (subject
to adjustment if a subsequently delivered annual financial statement differs
from the quarterly statement), indicate that Borrower has both (i) achieved a
Consolidated Funded Debt to Consolidated EBITDA Ratio of less than four and one-
half to one (4.5:1) as of the end of the particular Fiscal Quarter, and (ii)
achieved a Consolidated Debt Coverage Ratio of not less than one and seven-
tenths to one (1.70:1) for the period of four Fiscal Quarters ending as of the
end of the particular Fiscal Quarter, then (but only so long as Borrower
continues each quarter to achieve both ratios) Borrower shall be entitled to
incur or make Non-Maintenance Capital Expenditures not to exceed Fifty-Five
Million Dollars ($55,000,000) in the aggregate from and after the Closing Date;
(e) If and at such time as the quarterly financial statements provided
by Borrower to Agent after December 31, 1996 pursuant to Section 6.1(c) (subject
to adjustment if a subsequently delivered annual financial statement differs
from the quarterly statement), indicate that Borrower has both (i) achieved a
Consolidated Funded Debt to Consolidated EBITDA Ratio of less than four to one
(4.0:1) as of the end of the particular Fiscal Quarter, and (ii) achieved a
Consolidated Debt Coverage Ratio of not less than one and seventy-five/one
hundredths to one (1.75:1) for the period of four Fiscal Quarters ending as of
the end of the particular Fiscal Quarter, then Borrower shall be entitled to
incur or make Non-Maintenance Capital Expenditures not to exceed Seventy Million
Dollars ($70,000,000) in the aggregate from and after the Closing Date;
(f) If and at such time as the quarterly financial statements provided
by Borrower to Agent after December 31, 1996 pursuant to Section 6.1(c) (subject
to adjustment if a subsequently delivered annual financial statement differs
from the quarterly statement), indicate that Borrower has both (i) achieved a
Consolidated Funded Debt to Consolidated EBITDA Ratio of less than three and
one-half to one (3.5:1) as of the end of the particular Fiscal Quarter, and (ii)
achieved a Consolidated Debt Coverage Ratio of not less than one and seventy-
five/one hundredths to one (1.75:1) for the period of four Fiscal Quarters
ending as of the end of the particular Fiscal Quarter, then (but only so long as
Borrower continues each quarter to achieve both ratios) Borrower shall be
entitled to incur or make Non-Maintenance Capital Expenditures not to exceed
Ninety Million Dollars ($90,000,000) in the aggregate from and after the Closing
Date;
(g) If and at such time as the quarterly financial statements provided
by Borrower to Agent after December 31, 1996
104
<PAGE>
pursuant to Section 6.1(c) (subject to adjustment if a subsequently delivered
annual financial statement differs from the quarterly statement), indicate that
Borrower has both (i) achieved a Consolidated Funded Debt to Consolidated EBITDA
Ratio of less than three to one (3.0:1) as of the end of the particular Fiscal
Quarter, and (ii) achieved a Consolidated Debt Coverage Ratio of not less than
one and eight tenths to one (1.80:1) for the period of four Fiscal Quarters
ending as of the end of the particular Fiscal Quarter, then (but only so long as
Borrower continues each quarter to achieve both ratios and subject to the last
sentence of this Section 8.18) there shall be no further restrictions on
Borrower's incurring or making Non-Maintenance Capital Expenditures under this
Section 8.18.
Notwithstanding the foregoing, if the cumulative amount of permitted Non-
Maintenance Capital Expenditures shall be increased because of Borrower's
achieving both applicable ratio requirements but, as of the end of a subsequent
Fiscal Quarter, Borrower shall fail to achieve both applicable ratio
requirements, then the cumulative amount of permitted Non-Maintenance Capital
Expenditures shall be immediately reduced to the greater of (i) the cumulative
amount of Non-Maintenance Capital Expenditures for which Borrower qualifies
based on such subsequent financial statement, or (ii) the cumulative amount of
Non-Maintenance Capital Expenditures actually incurred or made by Borrower prior
to the end of such Fiscal Quarter. Similarly, if the cumulative amount of
permitted Non-Maintenance Capital Expenditures shall be increased because of
Borrower's achieving both applicable ratio requirements as of the end of a
Fiscal Quarter ending on December 31 of any year but the annual audited
financial statement subsequently delivered to Agent for such Fiscal Year
indicates that Borrower has failed to achieve both applicable ratio requirements
as of the end of such Fiscal Quarter, then the cumulative amount of permitted
Non-Maintenance Capital Expenditures shall be immediately reduced to the greater
of (i) the cumulative amount of Non-Maintenance Capital Expenditures for which
Borrower qualifies based on such annual audited financial statement, or (ii) the
cumulative amount of Non-Maintenance Capital Expenditures actually incurred by
Borrower prior to delivery of such annual audited financial statement.
8.19 Hazardous Materials. Except as set forth in Part (X) of the
-------------------
Disclosure Schedule, Borrower shall not and shall not knowingly permit any other
Person within the control of Borrower to cause or permit the presence, use,
generation, manufacture, installation, release, discharge, storage or disposal
of any Hazardous Materials on, under, in or about any of its real estate or the
transportation of any Hazardous Materials to or from any real estate where such
presence, use, generation, manufacture, installation, release, discharge,
storage or disposal would violate any Environmental Laws, the violation of which
would have a Material Adverse Effect.
105
<PAGE>
8.20 PACA License. Borrower shall not obtain or attempt to obtain a dealer
------------
license under the provisions of Section 499c of PACA.
8.21 Financial Covenants.
-------------------
(a) Current Ratio. Borrower shall not permit the ratio of (i)
-------------
Consolidated Current Assets to (ii) Consolidated Current Liabilities, as of the
last day of each Fiscal Quarter during the respective measurement periods listed
below, to be less than the correlative levels for such periods shown below:
<TABLE>
<CAPTION>
Measurement Minimum
Period Ratio
----------- -------
<S> <C>
Closing Date through December 31, 1997 1.20:1
January 1, 1998 through December 31, 1999 1.25:1
January 1, 2000 through Termination Date 1.30:1
</TABLE>
(b) Leverage Ratio. Borrower shall not permit the ratio of (i)
--------------
Consolidated Total Liabilities, adjusted to exclude (w) all Subordinated Debt,
and (x) all Deferred Taxes, to (ii) the sum of (y) Consolidated Net Worth, plus
(z) all Subordinated Debt, as of the last day of each Fiscal Quarter during the
respective measurement periods listed below, to be greater than the correlative
levels for such periods shown below:
<TABLE>
<CAPTION>
Measurement Maximum
Period Ratio
----------- -------
<S> <C>
Closing Date through November 30, 1998 3.50:1
December 1, 1998 through November 30, 1999 3.15:1
December 1, 1999 through November 30, 2000 2.95:1
December 1, 2000 through Termination Date 2.75:1
</TABLE>
(c) Minimum Net Worth. Borrower shall not permit its Consolidated Net
-----------------
Worth, as of the last day of each Fiscal Quarter, to be less than the applicable
"Minimum Net Worth Amount." The Minimum Net Worth Amount from the period
commencing on the Closing Date and continuing through September 30, 1996 shall
be Sixty-Five Million Dollars ($65,000,000). The Minimum Net Worth Amount shall
increase as of December 31, 1996 by an amount equal to eighty percent (80%) of
Consolidated Net Income for the Fiscal Year ending December 31, 1996. The
Minimum Net Worth Amount shall further increase by Five Million Dollars
($5,000,000) (which would be Seventy Million Dollars ($70,000,000) plus the
amount, if any, by which the Minimum Net Worth Amount was increased as of
December 31, 1996 due to the previous sentence) commencing on the Fiscal Quarter
ending March 31, 1997. The Minimum Net Worth Amount shall further increase as
of December 31, 1997 by an amount equal to eighty percent (80%) of Consolidated
Net Income for the Fiscal Year ending December 31, 1997 and shall further
increase each December 31 thereafter, through and including December 31, 2000,
by an
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<PAGE>
amount equal to eighty percent (80%) of Consolidated Net Income for the
particular Fiscal Year. The Minimum Net Worth Amount as of December 31, 2001
shall increase as of December 31, 2001 by an amount equal to fifty percent (50%)
of Consolidated Net Income for the Fiscal Year ending December 31, 2001 and
shall further increase each December 31 thereafter up to the Termination Date,
by an amount equal to fifty percent (50%) of Consolidated Net Income for the
particular Fiscal Year. If in any particular year, there shall be a
Consolidated Net Loss rather than Consolidated Net Income, the amount of such
Consolidated Net Loss shall not reduce or otherwise affect the calculation of
the Minimum Net Worth Amount.
(d) Debt Coverage Ratio. Borrower shall not permit the Consolidated
-------------------
Debt Coverage Ratio for the four Fiscal Quarters immediately preceding each
measurement date, as of the last day of each Fiscal Quarter during the
respective measurement periods listed below, to be less than the correlative
levels for such periods shown below:
<TABLE>
<CAPTION>
Measurement Minimum
Period Ratio
----------- -------
<S> <C>
December 31, 1996 through December 30, 1998 1.50:1
December 31, 1998 through December 30, 2000 1.60:1
December 31, 2000 through Termination Date 1.75:1
</TABLE>
8.22 Compliance With Subordinated Debt Documents. Borrower shall not
-------------------------------------------
breach, and shall not fail to observe or comply with, any provision of any
document governing any portion of any Subordinated Debt if such breach or
failure would, with the passage of time or the giving of notice or both,
constitute an event of default with respect to such Subordinated Debt, unless
the event of default that could arise from such breach or failure has been
waived in writing by the holders of the Subordinated Debt.
8.22 No Purchase of Newhall Property Without Term Lenders' Making Newhall
--------------------------------------------------------------------
Advance. Borrower shall not acquire the Newhall Property unless Term Lenders'
- -------
shall have made the Newhall Advance to Borrower.
ARTICLE IX.
INDEMNITY
---------
9.1 Indemnification. Borrower shall indemnify and hold Agent and Lenders
---------------
and Agent and Lenders' respective Affiliates, Subsidiaries, officers, directors,
employees, attorneys, and agents (each, an "Indemnified Person"), harmless from
and against any and all suits, actions, proceedings, claims, damages, losses,
liabilities and expenses (including reasonable attorneys' fees and disbursements
(including allocated costs of internal counsel)
107
<PAGE>
and other costs of investigations or defense, including those incurred upon any
appeal) which may be instituted or asserted against or incurred by such
Indemnified Person as a result of credit having been extended under this
Agreement and the other Loan Documents or in connection with or arising out of
the transactions contemplated hereunder and thereunder, including any claim,
action, suit, proceeding, loss, cost, damage, liability, deficiency, fine,
penalty, punitive damage, or expense (including reasonable attorneys' and
consultants' fees, investigation and laboratory fees, court costs and litigation
expenses), directly or indirectly resulting from, arising out of, or based upon
(i) the presence, release, use, manufacture, installation, generation,
discharge, storage, or disposal, at any time, of any Hazardous Materials on,
under, in or about, or the transportation of any such materials to or from, any
real property (the "Subject Property") owned, leased or operated by Borrower or
any Subsidiary of Borrower or any Guarantor, or (ii) the violation or alleged
violation by Borrower or any Subsidiary of Borrower or any Guarantor of any law,
statute, ordinance, order, rule, regulation, permit, judgment, or license
relating to the use, generation, manufacture, installation, release, discharge,
storage, or disposal of Hazardous Materials to or from the Subject Property;
which indemnity shall include, (A) any damage, liability, fine, penalty,
punitive damage, cost, or expense arising from or out of any claim, action,
suit, or proceeding for personal injury (including sickness, disease, death,
pain, or suffering), tangible or intangible property damage, compensation for
lost wages, business income, profits, or other economic loss, damage to the
natural resources or the environment, nuisance, pollution, contamination, leak,
spill, release, or other adverse effect on the environment, and (B) the cost of
any required or necessary repair, cleanup, treatment, remediation, or
detoxification of the Subject Property and the preparation and implementation of
any closure, disposal, remedial, or other required actions in connection with
the Subject Property; provided, that Borrower shall not be liable for any
--------
indemnification to such Indemnified Person to the extent that any such suit,
action, proceeding, claim, damage, loss, liability or expense was the result of
any action by such Indemnified Person or results from such Indemnified Person's
gross negligence or willful misconduct. NEITHER AGENT NOR ANY LENDER OR ANY
OTHER INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY
HERETO, ANY SUCCESSOR, ASSIGNEE, OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR
ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT,
PUNITIVE, EXEMPLARY, OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT
OF CREDIT HAVING BEEN EXTENDED UNDER THE LOAN DOCUMENTS.
9.2 No Control. Borrower hereby acknowledges and agrees that neither
----------
Agent nor any Lender (a) is now nor has ever been in control of the Subject
Property or Borrower's affairs, and (b) has the capacity through the provisions
of the Loan Documents to influence Borrower's conduct with respect to the
ownership, operation, or management of the Subject Property.
108
<PAGE>
ARTICLE X.
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
--------------------------------------
10.1 Events of Default. The occurrence of any one or more of the following
-----------------
events (regardless of the reason therefor) shall constitute an "Event of
Default" hereunder:
(a) Failure to Pay Principal.
------------------------
(i) Borrower shall fail to make any payment of principal owing
with respect to the Revolving Loan (including failure to pay any Letter of
Credit Obligations) or any regularly scheduled payment of principal owing with
respect to the Term Loan when due and payable and such failure shall remain
uncured for a period of two (2) Business Days; provided that the failure to make
--------
such payment may only be cured by paying the amount due together with interest
on such amount at the Default Rate.
(ii) Borrower shall fail to make any mandatory prepayment of
principal owing with respect to the Revolving Loan or the Term Loan when due and
payable.
(b) Failure to Pay Interest or Other Amounts Other than Expenses.
------------------------------------------------------------
Borrower shall fail to make any payment of interest on the Revolving Loan, the
Term Loan, or any other amount (other than expenses payable under any Loan
Document) owing with respect to the Revolving Loan, the Term Loan or any of the
other Obligations when due and payable or declared due and payable and such
failure shall remain uncured for a period of two (2) Business Days; provided
--------
that the failure to make such payment may only be cured by paying the amount due
together with interest on such amount at the Default Rate.
(c) Failure to Pay Expenses. Borrower shall fail to make any
-----------------------
payment of any expenses payable under any Loan Document, and such failure shall
have remained uncured for a period of ten (10) days after Borrower has received
notice of such failure from Agent; provided that the failure to make such
--------
payment may only be cured by paying the amount due together with interest on
such amount at the Default Rate.
(d) Failure to Deliver Monthly Borrowing Base Certificate. Borrower
-----------------------------------------------------
shall fail or neglect to deliver any Borrowing Base Certificate when required
pursuant to Section 6.1(a), and such failure shall remain uncured for a period
of ten (10) Business Days; provided, that such failure shall be curable only
--------
four (4) times during any calendar year and there shall be no cure period for a
fifth (5th) or any subsequent failure in any calendar year.
(e) Breach of Covenants or Other Provisions of This Agreement.
---------------------------------------------------------
Borrower shall fail or neglect to perform, keep, or
109
<PAGE>
observe any other provision of this Agreement or of any of the other Loan
Documents, and the same is by its nature incapable of being cured or shall
remain unremedied for a period ending on the first to occur of twenty (20) days
after Borrower shall receive written notice of any such failure from Agent or
thirty (30) days after Borrower shall become aware thereof. A breach by
Borrower of the financial covenants set forth in Section 8.21 are incapable of
being cured.
(f) Default Under Other Indebtedness.
--------------------------------
(i) A default shall occur under any other agreement, document,
or instrument to which Borrower is a party or by which Borrower or Borrower's
property is bound and such default involves the failure to make any payment
(whether of principal, interest, or otherwise) due (whether by scheduled
maturity, required prepayment, acceleration, demand, or otherwise, but only
after expiration of any cure periods provided by the underlying agreement,
document, or instrument) in respect of any Indebtedness of Borrower in excess of
One Million Dollars ($1,000,000).
(ii) A default shall occur under or with respect to the
Subordinated Debt consisting of Thirty Five Million Dollars ($35,000,000) in 12
1/2% Senior Subordinated Notes (as the same may be amended, modified, or
reconstituted from time to time) or any document evidencing such portion of
Subordinated Debt, whether or not such default involves the failure to make any
payment, if the occurrence of such default entitles any holder thereof to demand
payment of all or any portion of the principal portion of such Subordinated
Debt.
(g) Breach of Representation or Warranty. Any material
------------------------------------
representation or warranty herein or in any Loan Document or in any written
statement pursuant thereto or hereto, report, financial statement, or
certificate made or delivered to any Lender by Borrower shall be untrue or
incorrect, as of the date when made or deemed made (including those made or
deemed made pursuant to Section 4.2) and the same is by its nature incapable of
being cured or shall remain unremedied for a period ending on the first to occur
of twenty (20) days after Borrower shall receive written notice of any such
failure from Agent or thirty (30) days after Borrower shall become aware
thereof.
(h) Loss of Assets. (i) Any of the assets of Borrower shall be
--------------
attached, seized, levied upon, or subjected to a writ or distress warrant, or
come within the possession of any receiver, trustee, custodian, or assignee for
the benefit of creditors of Borrower and shall remain unstayed or undismissed
for thirty (30) consecutive days, (ii) any Person other than Borrower shall
apply for the appointment of a receiver, trustee or custodian for any of
Borrower's assets and such application shall remain unstayed or undismissed for
thirty (30) consecutive days, or (iii) Borrower shall have concealed, removed,
or
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<PAGE>
permitted to be concealed or removed, any part of its property, with intent to
hinder, delay, or defraud its creditors or any of them or made or suffered a
transfer of any of its property or the incurring of an obligation which may be
fraudulent under any bankruptcy, fraudulent conveyance or other similar law, in
each case only to the extent any of the events set forth in clauses (i), (ii) or
(iii) would, individually or in the aggregate, have a Material Adverse Effect.
(i) Involuntary Insolvency Actions. A case or proceeding shall have
------------------------------
been commenced against Borrower in a court having competent jurisdiction seeking
a decree or order (i) under the Bankruptcy Code, or any other applicable
federal, state, or foreign bankruptcy or other similar law, (ii) appointing a
custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar
official) of Borrower or of any substantial part of its properties, or (iii)
ordering the winding-up or liquidation of the affairs of Borrower and such case
or proceeding shall remain undismissed or unstayed for thirty (30) consecutive
days or such court shall enter a decree or order granting the relief sought in
such case or proceeding.
(j) Voluntary Insolvency Actions. Borrower shall (i) file a
----------------------------
petition seeking relief under the Bankruptcy Code, or any other applicable
federal, state or foreign bankruptcy or other similar law, (ii) consent to the
institution of proceedings thereunder or to the filing of any such petition or
to the appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, or sequestrator (or similar official) of Borrower or of any
substantial part of its properties, (iii) fail generally to pay its debts as
such debts become due, or (iv) take any corporate action in furtherance of any
such action.
(k) Judgments. Final judgment or judgments for the payment of money
---------
in excess of Fifty Thousand Dollars ($50,000) in the aggregate shall be rendered
against Borrower and the same shall not be (i) fully covered by insurance in
accordance with Section 7.6, or (ii) vacated, stayed, bonded, paid, or
discharged for a period of thirty (30) days.
(l) Change in Stockholders. BWEH shall fail to be the legal and
----------------------
beneficial owner of all of the issued and outstanding shares of common stock of
Borrower, or Texas Pacific Group shall, prior to an initial public offering for
BWEH, fail to control at least fifty-one percent (51%) of the voting shares of
BWEH, or after an initial public offering for BWEH, either (i) Texas Pacific
Group shall fail to control at least thirty-five percent (35%) of the voting
shares of BWEH, or (ii) any other Person and such Person's Affiliates shall
control more of the voting shares of BWEH than are controlled by Texas Pacific
Group.
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(m) Acquisitions by BWEH. BWEH shall acquire (by purchase,
--------------------
consolidation, merger or otherwise) any assets other than the stock of Borrower.
(n) ERISA. (i) With respect to any Plan, a prohibited transaction
-----
within the meaning of Section 4975 of the IRC or Section 406 of ERISA occurs
which in the reasonable determination of Agent could result in direct or
indirect liability to Borrower, (ii) with respect to any Title IV Plan, the
filing of a notice to voluntarily terminate any such plan in a distress
termination, (iii) with respect to any Multiemployer Plan, Borrower or any ERISA
Affiliate shall incur any Withdrawal Liability, (iv) with respect to any
Qualified Plan, Borrower or any ERISA Affiliate shall incur an accumulated
funding deficiency or request a funding waiver from the IRS, or (v) with respect
to any Title IV Plan or Multiemployer Plan which has an ERISA Event not
described in clauses (ii) - (iv) hereof, in the reasonable determination of
Agent there is a reasonable likelihood for termination of any such plan by the
PBGC; provided, that the events listed in clauses (i) - (v) hereof shall
--------
constitute Events of Default only if the liability, deficiency, or waiver
request of Borrower or any ERISA Affiliate, whether or not assessed, exceeds
Fifty Thousand Dollars ($50,000) in any case set forth in (i) - (v) above, or
exceeds One Hundred Thousand Dollars ($100,000) in the aggregate for all such
cases.
(o) Guaranties. There shall occur an Event of Default or an Event
----------
of Guaranty Default under and as defined in any guaranty of all or any part of
the Obligations by any Person or any such guarantor shall renounce, repudiate,
or terminate such guaranty.
(p) Payment of Principal With Respect to Subordinated Debt. Except
------------------------------------------------------
as approved by Agent in writing, Borrower shall make any payment of principal on
account of any Subordinated Debt or tender any payment of principal to any
holder of any Subordinated Debt.
10.2 Acceleration; Remedies.
----------------------
(a) Automatic Acceleration; Notice of Acceleration and Exercise of
--------------------------------------------------------------
Remedies. If an Event of Default shall occur and be continuing: (i) all
- --------
Obligations and any indebtedness of Borrower under any of the Loan Documents,
any term thereof to the contrary notwithstanding, shall at Lenders' option and
without notice be accelerated and become immediately due and payable without
presentment, demand, protest, or notice of dishonor, all of which are hereby
expressly waived by Borrower; (ii) the obligation, if any, of Lenders to make
further Revolving Advances or incur further Letter of Credit Obligations shall
immediately cease and terminate; and (iii) Agent may require that all Letter of
Credit Obligations be fully cash collateralized in accordance with the terms of
Section 2.2. Upon and after an Event of Default, Agent may send Borrower a
notice that all of the Obligations have been
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accelerated and are due in full (a "Notice of Acceleration"), which Notice of
Acceleration may be included in any notice from Agent to Borrower that an Event
of Default has occurred. Upon and after sending Borrower the Notice of
Acceleration, Agent and Lenders shall have all rights, powers, and remedies
available under each of the Loan Documents, and including the right to resort to
any or all Collateral for any Obligations and to exercise any or all of the
rights of a beneficiary or secured party with respect to the Collateral pursuant
to applicable law. All rights, powers and remedies of Agent and Lenders in
connection with each of the Loan Documents (x) may be exercised at any time by
them and from time to time after the occurrence and during the continuation of
an Event of Default, and after the sending of the Notice of Acceleration, (y)
are cumulative and not exclusive, and (z) shall be in addition to any other
rights, powers or remedies provided by law or equity.
(b) Payments to Third Parties. At its sole discretion and without
-------------------------
any obligation to do so, Agent may pay any amount to any Person as Agent deems
reasonably necessary to preserve the value of, avoid loss of or damage to, or
prevent foreclosure, sale, or forfeiture of any of the Collateral, including
bidding at or redeeming from any sale of Collateral; provided that Agent may
--------
make such payment no sooner than ten (10) calendar days before the date first
set for the event which could result in such loss, damage, sale, foreclosure, or
forfeiture; and provided further that Agent shall notify Borrower at least two
-------- -------
(2) calendar days in advance of making such payment of its intent to make such
payment, but such notice shall not obligate Agent to make such payment; and
provided further, the failure of Agent to give such advance notice shall not
- -------- -------
impair Agent's ability to make such payment and the legal effect thereof with
regard to such Person or the Collateral and Borrower's remedy with respect to
breach of the foregoing proviso shall be limited to monetary damages. Any
amounts paid or expended by Agent in connection herewith shall constitute
Obligations which shall be payable on demand and which shall bear interest at
the Default Rate from the date paid by Agent.
(c) Appointment of Receiver. After the occurrence of an Event of
-----------------------
Default and delivery of a Notice of Acceleration, Agent may (but shall not be
obligated to) seek to obtain the appointment of a receiver who shall be vested
with any and all such powers and rights as Agent may request of the court,
including the right (i) to sell the Collateral at one or more private or public
sales, (ii) to undertake cultivation, harvest, purchasing, processing, sales,
collections, or other work in connection with any Collateral (or any portion
thereof) in accordance with this Agreement and the other Loan Documents (or any
other plan of cultivation, harvest, processing, preservation or maintenance
approved by Agent and the receiver or the court), and (iii) to exercise any or
all such rights, powers or privileges as Borrower or Agent might exercise on its
own behalf.
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10.3 Distribution and Application of Amounts Received After an Event of
------------------------------------------------------------------
Default.
- -------
(a) Distribution of Amounts Received After an Event of Default. Any
----------------------------------------------------------
amounts received by Agent on account of the Obligations after an Event of
Default, whether from voluntary payment by Borrower, from a foreclosure sale, or
from some other source shall be distributed as follows: First, Agent may, but
shall not be obligated to, retain such amounts as are necessary to cover payment
of any fees, costs, or expenses due to Agent. Second, amounts shall be
distributed to Term Lenders and Revolving Lenders based on their Percentages of
the Obligations until each Lender has received payment of all interest then due
and owing to such Lender. Third, amounts shall be distributed to Term Lenders
and Revolving Lenders as follows: (i) if the source of such amount was the sale
or other disposition of a Fixed Asset, then such amount shall be distributed to
Term Lenders based on their Percentages of the Term Loan until such time as the
Obligations to the Term Lenders have been paid in full and any excess shall be
distributed to Revolving Lenders based on their Percentages of the Revolving
Loan, and (ii) if the source of such amount was from any source other than sale
or other disposition of a Fixed Asset, then such amount shall be distributed to
Revolving Lenders based on their Percentages of the Revolving Loan until such
time as the Revolving Loan has been paid in full and, if any Letter of Credit
Obligations remain outstanding, the Cash Collateral Account shall have been
funded in an amount equal to the Letter of Credit Obligations, and any excess
shall be distributed to Term Lenders based on their Percentages of the Term
Loan. Notwithstanding the foregoing, if a payment made after an Event of
Default is in an amount that would be sufficient to cure such Event of Default
or is believed by Agent to be intended by Borrower to cure such Event of
Default, then Agent may distribute the payment as necessary to permit cure of
such an Event of Default.
(b) Determining the Source of Funds; Resolution of Dispute Over
-----------------------------------------------------------
Source of Funds. In determining the source of funds used to make a payment,
- ---------------
Agent shall make an initial determination and shall distribute such funds as are
payable to each Lender in accordance with such determination. Within ten (10)
days after making a distribution, Agent shall deliver to each Lender a report
setting forth the basis for Agent's determination as to the source and
allocation of funds. Agent's determination shall be final and conclusive to the
extent described in the report delivered to each Lender unless any Lender shall
deliver written notice to Agent and all other Lenders that it disputes such
determination within thirty (30) days of Agent's delivery of the report referred
to in the previous sentence. Following the delivery of such a notice, Agent and
all Lenders shall negotiate in good faith to try and resolve the dispute. If
the dispute cannot be resolved within thirty (30) days after delivery of the
notice, then the dispute may be submitted by any Lender to arbitration.
Arbitration shall be conducted by one arbitrator
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appointed in accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect. The arbitrator shall consider the
dispute in San Francisco, California. The parties hereto agree that the
decision of the arbitrator shall be final, conclusive, and binding upon the
parties. In such arbitration, the Agent shall be neutral (although Pacific
Coast may participate in its role as a Lender if it so chooses). The arbitrator
shall not be authorized to award the fees, costs, or expenses incurred by a
Lender against another Lender, although such fees, costs, and expenses may by
charged by such Lender to the Borrower.
(c) Application of Payments. Borrower irrevocably waives the right
-----------------------
to direct the application of any and all payments at any time or times hereafter
received by Agent or Lenders from or on behalf of Borrower, and Borrower
irrevocably agrees that Agent and Lenders shall have the continuing exclusive
right to apply any and all such payments against the then due and payable
Obligations of Borrower as Agent and Lenders may deem advisable.
(d) Allocation of Payments among Lenders. Amounts distributed by
------------------------------------
Agent to Term Lenders shall be allocated in accordance with each Term Lender's
respective Percentage of the Term Loan. Amounts distributed by Agent to
Revolving Lenders shall be allocated in accordance with each Revolving Lender's
respective Percentage of the Revolving Loan. Amounts distributed by Agent to
all Lenders shall be allocated in accordance with each Lender's respective
Percentage of the Obligations. Notwithstanding the foregoing, if any Term
Lender's or Revolving Lender's pro rata share of the aggregate outstanding
principal amount of the Term Loan or the Revolving Loan or the Obligations is
greater than such Lender's Percentage, then payments shall be allocated to such
Lender until its pro rata share of the aggregate outstanding Term Loan,
Revolving Loan or Obligations, as the case may be, is equal to such Lender's
Percentage.
10.4 Waivers by Borrower. Except as otherwise provided for in this
-------------------
Agreement, Borrower waives (i) presentment, demand and protest and notice of
presentment, dishonor, notice of intent to accelerate, notice of acceleration,
protest, default, nonpayment, maturity, release, compromise, settlement,
extension, or renewal of any or all commercial paper, accounts, contract rights,
documents, instruments, chattel paper and guaranties at any time held by any
Lender on which Borrower may in any way be liable and hereby ratifies and
confirms whatever any Lender may do in this regard, (ii) all rights to notice
and a hearing prior to any Lender's taking possession or control of, or to any
Lender's replevy, attachment or levy upon, the Collateral or any bond or
security which might be required by any court prior to allowing such Lender to
exercise any of its remedies, and (iii) the benefit of all valuation, appraisal,
and exemption laws.
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ARTICLE XI.
AGENCY
------
11.1 Appointment. Each Lender hereby (a) irrevocably appoints Pacific
-----------
Coast as the agent of such Lender under this Agreement and the other Loan
Documents and as agent for the lending syndicate in the event any portion of the
Revolving Loan or Term Loan is hereafter syndicated, and (b) irrevocably
authorizes Agent to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to Agent by the terms of this Agreement
and the other Loan Documents, together with such other powers as are reasonably
incidental thereto. Notwithstanding anything to the contrary herein, Agent
shall have no duties, responsibilities, or fiduciary relationships with any
Lender, except those expressly set forth in this Agreement and the other Loan
Documents, and no implied covenants, responsibilities, duties, obligations, or
liabilities shall be read into this Agreement or the other Loan Documents or
otherwise exist against Agent.
11.2 Delegation of Duties. Agent may exercise any of its powers or execute
--------------------
any of its duties under this Agreement and the other Loan Documents by or
through one or more agents or attorneys-in-fact and shall be entitled to take,
and to rely on, advice of counsel concerning all matters pertaining to such
rights and duties. Agent may utilize the services of such agents and attorneys-
in-fact as Agent in its sole discretion reasonably determines, and all
reasonable fees and expenses of such agents and attorneys-in-fact shall be paid
by Borrower on demand. Agent shall not be responsible for the negligence or
misconduct of any agents or attorneys-in-fact selected by Agent with reasonable
care.
11.3 Limitation of Liability. Neither Agent nor its officers, directors,
-----------------------
employees, agents, attorneys, or Affiliates shall be (a) liable for any waiver,
consent, or approval given or any action taken or omitted to be given or taken
by them or by such Person under or in connection with this Agreement or the
other Loan Documents, or (b) responsible for the consequences of any oversight
or error in judgment by them or such Person whatsoever, except for their or such
Person's own gross negligence or willful misconduct. Agent shall not be
responsible for (v) the execution, validity, enforceability, effectiveness, or
genuineness of this Agreement or the other Loan Documents, (w) the
collectibility of any amounts owing under this Agreement or the other Loan
Documents, (x) the value, sufficiency, enforceability, or collectibility of any
collateral security therefor, (y) the failure by Borrower to perform its
obligations hereunder, or (z) the truth, accuracy, and completeness of the
recitals, statements, representations, or warranties made by Borrower or any
officer or agent thereof contained in this Agreement or the other Loan Documents
or in any certificate,
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report, statement, or other document referred to or provided for in, or received
by the Agent in connection with, this Agreement or the other Loan Documents.
11.4 Reliance by Agent. Agent shall not have any obligation (a) to
-----------------
ascertain or to inquire as to the observance or performance of any of the
conditions, covenants, or agreements in this Agreement or the other Loan
Documents or in any document, instrument, or agreement at any time constituting,
or intended to constitute, collateral security therefor, (b) to ascertain or
inquire as to whether any notice, consent, waiver, or request delivered to it
shall have been duly authorized or is genuine, accurate and complete, or (c) to
inspect the properties, books, or records of Borrower. Agent shall be entitled
to rely, and shall be fully protected in relying, (x) upon any note, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex, teletype, or telephonic message, statement, order, or
other document, instrument or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons,
or (y) upon advice and statements of legal counsel (including counsel to
Borrower), independent accountants, and other experts selected by Agent. Agent
may deem and treat the Lenders party hereto or to any Assignment and Acceptance
as a Lender for all purposes unless a written notice of the assignment,
negotiation, or transfer thereof, in accordance with the provisions of this
Agreement, shall have been delivered to Agent identifying the name of any
successor or assignee Lender. Agent shall be entitled to fail or refuse, and
shall be fully protected in failing or refusing, to take any action under this
Agreement or the other Loan Documents unless (a) it first shall receive such
advice or concurrence of the Lenders as it deems appropriate, or (b) it first
shall be indemnified to its satisfaction by the Lenders against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. In all cases Agent shall be fully protected
in acting, or in refraining from acting, under this Agreement or the other Loan
Documents in accordance with a request of the Lenders, and such request and any
action taken or failure to act pursuant thereto shall be binding upon all the
Lenders and all future Lenders.
11.5 Notice of Default. Agent shall not be deemed to have knowledge or
-----------------
notice of the occurrence of any Default or Event of Default unless Agent has
received notice from a Lender or Borrower referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"Notice of Default." If Agent receives such a notice or if the officers of
Agent administering the Revolving Loan and the Term Loan have actual knowledge
of the occurrence of a Default or an Event of Default, Agent promptly shall give
notice thereof to the Lenders. Agent shall take such action with respect to
such Default or Event of Default (unless such Default or Event of Default is
waived in accordance with the provisions of Section 13.1) as
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shall be directed by the Requisite Lenders; provided, that if the Requisite
--------
Lenders do not provide directions to Agent within a reasonable period of time
after the occurrence of an Event of Default, then Agent shall notify Borrower
that the Obligations have been accelerated and unless and until Agent shall have
received such directions, Agent may (but shall not be obligated to) take such
additional action, or refrain from taking such additional action, with respect
to such Default or Event of Default as it deems advisable in the best interests
of Lenders.
11.6 Non-Reliance on Agent and the Other Lenders. Each Lender expressly
-------------------------------------------
acknowledges that neither Agent nor any of its officers, directors, employees,
agents, attorneys, or Affiliates has made any representations or warranties to
it. Agent shall have no obligation or liability to any of the Lenders regarding
the creditworthiness or financial condition of Borrower. No act by Agent
hereinafter taken, including any review of Borrower, shall be deemed to
constitute any representation or warranty by Agent to any Lender. Each Lender
represents to Agent that, independently and without reliance upon Agent or any
other Lender and based on such documents and information as it has deemed
appropriate, it has made its own appraisal of and investigation into the
business, operations, property, financial, and other condition and
creditworthiness of Borrower and has made its own decision to make its Revolving
Advances, the Term Loan and to incur Letter of Credit Obligations hereunder and
to enter into this Agreement. Each Lender also represents that, independently
and without reliance upon Agent or any other Lender, and based on such documents
and information as it deems appropriate at the time, it shall continue to make
its own credit analysis, appraisals, and decisions in taking or not taking
action under this Agreement and the other Loan Documents and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition, and creditworthiness of
Borrower. Except for notices, reports and other documents expressly required to
be furnished to Lenders by Agent hereunder, Agent shall have no obligation or
liability to provide any Lender with any credit or other information concerning
the business, operations, property, financial and other condition or
creditworthiness of Borrower which may come into the possession of either of
Agent or any of its officers, directors, employees, agents, attorneys-in-fact,
or Affiliates.
11.7 Indemnification. Each of the Lenders shall indemnify, defend, and
---------------
hold harmless Agent in its capacity as such (to the extent not reimbursed by
Borrower and without limiting the obligation of Borrower to do so), ratably
according to their respective Percentages, from and against any and all claims,
demands, lawsuits, costs, expenses, fees, liabilities, obligations, losses,
damages, actions, recoveries, judgments, suits, costs, expenses, or
disbursements of any kind whatsoever, including interest, penalties, and
reasonable attorneys' fees and costs, whether direct, indirect, consequential or
incidental, which at any time (including at any time following the payment of
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the Revolving Notes and Term Notes and all other amounts payable hereunder or
thereunder) may be imposed on, incurred by, or asserted against Agent in any way
relating to, resulting from or arising out of this Agreement or the other Loan
Documents, the transactions contemplated hereby or any action taken or omitted
by the Agent under or in connection with any of the foregoing; provided, that no
--------
Lender shall be liable for the payment of any portion of such claims, demands,
lawsuits, costs, expenses, fees, liabilities, obligations, losses, damages,
actions, remedies, judgments, suits, costs, expenses, or disbursements to the
extent such result from Agent's gross negligence or willful misconduct. The
agreements in this Section 11.7 shall survive the payment of the Revolving Notes
and all other amounts payable hereunder and thereunder and shall be in addition
to and not in lieu of any other indemnification agreements set forth in the Loan
Documents.
11.8 Payments. If, in the opinion of Agent, the distribution of any amount
--------
received by Agent in such capacity under this Agreement or the other Loan
Documents might result in liability for Agent, Agent may refrain from making the
distribution thereof until Agent's right to make such distribution shall have
been adjudicated by a court of competent jurisdiction. If Agent so refrains
from making any distribution, the amount thereof shall be held in an interest
bearing account for the benefit of the Person or Persons ultimately determined
to be entitled to such distribution. If a court of competent jurisdiction shall
adjudge that any amount received from and distributed by Agent in such capacity
as Agent is to be repaid, each Person to whom any such distribution shall have
been made either (a) shall repay to Agent its proportionate share of the amount
so adjudged to be repaid or (b) shall repay the same in such manner and to such
Persons as shall be determined by such court.
11.9 Agent in Its Individual Capacity. The Agent in its individual
--------------------------------
capacity, and its Affiliates, may make loans and other financial accommodations
to, accept deposits from and generally engage in any kind of business with
Borrower as though Agent was not the Agent hereunder, subject only to such
restrictions as are generally applicable to all Lenders. With respect to the
portion of the Revolving Loan and Term Loan made by it and the Letter of Credit
Obligations incurred by it and its Revolving Note and Term Note, the Agent in
its individual capacity shall have the same benefits, rights, powers, and
privileges under this Agreement and the other Loan Documents as any Lender and
may exercise the same as though it were not Agent, and the terms "Lender,"
"Lenders," "Revolving Lender," "Revolving Lenders," "Term Lender" and "Term
Lenders" shall include the Agent in its individual capacity.
11.10 Successor Agent. Agent may resign as such upon ten (10) days' prior
---------------
written notice to the Lenders or the Requisite Lenders may terminate Agent upon
ten (10) days' written notice. If Agent shall resign or be terminated as such
under this Agreement, then the Requisite Lenders shall appoint from
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among Lenders a successor agent for Lenders. Upon acceptance of its appointment
as successor agent, (a) such successor agent shall succeed to the rights,
powers, privileges, and duties of Agent, (b) the retiring Agent shall be
discharged of all its obligations and liabilities in such capacity under this
Agreement and the other Loan Documents, (c) the term "Agent" shall mean such
successor agent effective upon its appointment, and (d) the retiring Agent's
rights, powers, and duties as Agent shall be terminated, without any other or
further act or deed on the part of such former Agent or any of the parties to
this Agreement. After any retiring Agent's resignation or termination hereunder
as Agent, the provisions of this Article XI shall continue to inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement.
11.11 Applicability of this Article to Borrower. Notwithstanding any
-----------------------------------------
other provision contained in this Article XI, the rights and obligations of
Borrower under this Agreement shall not be affected by any provision otherwise
included in this Article XI. The Borrower shall be permitted to rely on
communications from Agent which it reasonably believes are made on behalf of
Agent and, if specified therein, Lenders or the Requisite Lenders, and except as
otherwise set forth specifically herein, all notices and payments to be made by
Borrower hereunder shall be made to Agent. Further, if any Lender shall be in
default hereunder, such default shall not affect the right and obligations of
Borrower hereunder.
ARTICLE XII.
ASSIGNMENTS AND PARTICIPATIONS
------------------------------
12.1 Successors and Assigns. This Agreement and the other Loan Documents
----------------------
shall be binding on and shall inure to the benefit of Borrower, Agent, Lenders
and their respective successors and assigns, except as otherwise provided herein
or therein. Borrower may not assign, transfer, hypothecate, or otherwise convey
its rights, benefits, obligations, or duties hereunder or thereunder without the
prior express written consent of Lenders. Any purported assignment, transfer,
hypothecation, or other conveyance by Borrower without the prior express written
consent of all of the Lenders shall be void. Neither Agent nor any of Lender
may sell, assign, transfer, grant a participation in, or otherwise dispose of
all or any portion of its interest in this Agreement, the Revolving Notes, the
Term Notes or the other Loan Documents except as expressly provided herein.
12.2 Assignments.
-----------
(a) Conditions for Assignment. Each Lender may assign all or a
-------------------------
portion of its right, title, and interest under this Agreement and the other
Loan Documents (including all or a portion of the Revolving Loan or the Term
Loan at the time owing
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to it) to one or more banks or other financial institutions; provided, that (a)
--------
the assignees shall execute and deliver to the Agent an "Assignment and
Acceptance" in a form reasonably satisfactory to Agent, (b) a Lender may not
assign any interest without the prior approval of Agent and Borrower, which
approval shall not be unreasonably withheld, (c) the assignment shall be for an
amount not less than the lesser of (i) all of such Lender's Revolving Advances,
(ii) all of such Lender's Term Loan or (iii) Ten Million Seven Hundred Fourteen
Thousand Three Hundred Dollars ($10,714,300), (d) after giving effect to such
assignment, such Lender shall continue to hold an interest in the Revolving Loan
or the Term Loan, as the case may be, of not less than Ten Million Seven Hundred
Fourteen Thousand Three Hundred Dollars ($10,714,300) unless such assignment is
an assignment of all of such Lender's interest, (e) Pacific Coast shall not
assign any portion of the Term Loan held by it if as a result of such assignment
the aggregate Percentage held by Pacific Coast (including that portion of the
Term Loan participated by Pacific Coast to CoBank) shall be less than the amount
necessary to constitute the Requisite Lenders with respect to the Term Loan, (f)
Pacific Coast shall not assign any portion of the Revolving Loans held by it
(except for participations granted by Pacific Coast to CoBank) if such
assignment would cause the aggregate Percentage of the Revolving Loan held by
Pacific Coast and CoBank to be less than thirty three and one-third percent (33
1/3%), and (g) Bank of America shall not assign any portion of the Revolving
Loans held by it if such assignment would cause the aggregate Percentage of the
Revolving Loan held by Bank of America to be less than thirty three and one-
third percent (33 1/3%).
(b) Replacement of Transferor Lender by Assignee. Upon the sale,
--------------------------------------------
assignment, transfer or other disposition (other than the sale of a
participation) of any of a Lender's right, title, and interest under this
Agreement and the other Loan Documents to any assignee in accordance with this
Section 12.2, then upon the execution, delivery, and acceptance of the
Assignment and Acceptance, from and after the effective date specified therein,
(a) the transferor Lender no longer shall be a party to this Agreement and the
other Loan Documents, or have the rights, benefits, and obligations under this
Agreement or the other Loan Documents to the extent of the interest transferred
(except for such rights, benefits, and obligations that such Lender would retain
under this Agreement or the other Loan Documents upon payment in full of the
Obligations) and (b) the assignee shall become a Lender, shall succeed to the
rights and benefits and assume the obligations of such transferor Lender
hereunder and thereunder to the extent of the interest transferred.
(c) Borrower's Cooperation. Borrower hereby agrees that it shall
----------------------
(i) execute and deliver, at the reasonable request of Agent, any amendment to
any Loan Document to effectuate the provisions of this Section 12.2 and (ii) use
reasonable efforts to assist and cooperate with each Lender in any manner
reasonably
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requested by such Lender to effect the sale of participations in or assignments
of any of the Loan Documents or of any portion thereof or interest therein,
including assistance in the preparation of appropriate disclosure documents or
placement memoranda and provision of complete and correct information describing
Borrower and its affairs to potential participants and assignees. Borrower will
not be obligated to incur or reimburse Lender for any direct out-of-pocket costs
or expenses in connection with any such assignment, resale, syndication, or
participation except for expenses incurred by Pacific Coast in selling
participations on or about the Closing Date to CoBank, Agribank, FCB, and other
entities that are part of the Farm Credit System, all of which shall be payable
on the same terms and in the same manner as other expenses incurred by Pacific
Coast.
(d) Pledge of Rights. Notwithstanding any other provision in this
----------------
Agreement, any Lender may at any time create a security interest in, or pledge,
all or any portion of its rights under and interest in this Agreement in favor
of any entity to which all loans of this type are secured or pledged, including
any Federal Reserve Bank in accordance with Regulation A of the Federal Reserve
Board or U.S. Treasury Regulation 31 CFR (S) 203.14, and such entity or Federal
Reserve Bank may enforce such pledge or security interest in any manner
permitted under applicable law.
12.3 Participations. Any Lender may grant one or more participations in
--------------
its interest in the Revolving Loan and Term Loan; provided, that (a) such Lender
--------
shall remain a "Lender" for all purposes under this Agreement and such Lender
shall not be relieved of any of its duties under this Agreement, (b) any such
grant of a participation will be made in compliance with all applicable state or
federal laws, rules, and regulations, and (c) the participation shall be for an
amount not less than Five Million Dollars ($5,000,000), (d) after giving effect
to such participation, such Lender shall continue to hold an interest in the
Revolving Loan or the Term Loan, as the case may be, of not less than Five
Million Dollars ($5,000,000), and (e) except for the participation being granted
by Pacific Coast to CoBank which shall not be subject to any restrictions, no
Lender shall grant any participation under which the participant shall have
rights to approve any amendment to, waiver of, or consent under this Agreement
or the Loan Documents, except for those that require approval of all Lenders as
provided in Section 13.1. Except for CoBank which is a Lender and shall have
all of the rights of a Lender, the participant shall not have any rights under
this Agreement or any of the other Loan Documents entered into in connection
herewith (the participant's right against such Lender in respect of such
participation to be those set forth in the participation or other agreement
executed by such Lender and the participant relating thereto) and all amounts
payable to any Lender hereunder shall be determined as if such Lender had not
sold such participation. In no event shall any participant grant
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a participation in its participation interest in a Revolving Advance or in the
Term Loan without the prior written consent of Agent.
12.4 Disclosure. In connection with any assignments, participations, or
----------
offers therefor pursuant to this Article XII, each Lender shall be entitled to
provide to any assignee or participant or prospective assignee or participant
such information pertaining to Borrower as such Lender may deem appropriate or
such assignee or participant or prospective assignee or participant may request;
provided, that such assignee or participant or prospective assignee or
- --------
participant shall agree (a) to treat in confidence such information, (b) not to
disclose such information to any third party, and (c) not to make use of such
information for purposes of transactions other than contemplated by such
assignment or participation.
ARTICLE XIII.
MISCELLANEOUS
-------------
13.1 Complete Agreement; Modification of Agreement. The Loan Documents
----------------------------------------------
constitute the complete agreement between the parties with respect to the
subject matter hereof and may not be modified, altered, or amended except by an
agreement in writing signed by Borrower and the Requisite Lenders, except as
provided below. No amendment or waiver of any provision of this Agreement or
any Loan Document, nor consent to any departure by Borrower therefrom, shall in
any event be effective unless the same shall be in writing and signed by the
Requisite Lenders; provided, that to the extent such amendment, consent, or
--------
waiver would do any of the following, it shall not be effective unless signed by
all of the Lenders: (i) extend the final maturity date for payment of the
Revolving Loan or the Term Loan or the due date for any installment payment of
principal with respect to the Term Loan; (ii) reduce the interest rate or extend
the time of payment of interest (other than interest payable in connection with
mandatory prepayments under Section 2.3) or Fees payable under this Agreement or
reduce the amount of principal or Fees payable under this Agreement; (iii)
change the amount of the Maximum Revolving Loan; (iv) change the definitions of
Borrowing Base or Fixed Assets (or any defined term used therein) or make any
change in Sections 2.3 or 10.3; (v) release all or a substantial portion of the
Collateral; (vi) change the definition of "Requisite Lenders" or change this
Section 13.1; (vii) subordinate the priority of any lien or security interest
covering a material portion of collateral; (viii) make a material change in any
indemnity provided to any Lender; and (ix) increase the interest rate or fees
under, accelerate the payment of any portion of, or modify or waive the
subordination provisions with respect to, the Subordinated Debt.
Notwithstanding the foregoing, (i) any amendment that would result in a change
in the duties, rights, or obligations of Agent shall not be effective
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unless signed by Agent, and (ii) any provision of this Agreement setting forth
rights and duties of Lenders vis-a-vis each other or the rights and duties of
Lenders vis-a-vis Agent may be modified by Lenders and Agent without the consent
of Borrower.
13.2 Fees and Expenses. Borrower shall reimburse Agent and Lenders (but in
-----------------
the case of Lenders, except for clauses (a) and (b) below, only to the extent
such are incurred after the occurrence of a Default or Event of Default) for all
reasonable fees, costs, and expenses incurred in connection with:
(a) the preparation and negotiation of the Loan Documents (including
the reasonable fees and expenses of internal counsel and, with respect to Bank
of America, the cost of conducting a pre-closing audit of Borrower, and, with
respect to Agent only, appraisers and consultants, retained in connection with
the Loan Documents and the transactions contemplated thereby and advice in
connection therewith); or
(b) any amendment, modification, or waiver of, or consent with respect
to, any of the Loan Documents; or
(c) in the case of Agent only, any advice in connection with the
administration of the Revolving Loan, the Term Loan, this Agreement, any Loan
Document, or the Collateral, or the performance of Agent's duties under the Loan
Documents; or
(d) any litigation, contest, dispute, suit, proceeding, or action
(whether instituted by any Lender, Borrower or any other Person) in any way
relating to the Collateral, any of the Loan Documents or any other agreements to
be executed or delivered in connection therewith or herewith, including any
litigation, contest, dispute, suit, case, proceeding or action, and any appeal
or review thereof, in connection with a case commenced by or against Borrower or
any other Person that may be obligated to any Lender by virtue of this
Agreement, or the other Loan Documents, under the Bankruptcy Code, or any other
applicable federal, state or foreign bankruptcy or other similar law (including
the seeking of relief from the automatic stay or proposal of opposition to a
plan of reorganization); or
(e) any attempt to enforce any rights of Agent or any Lender against
Borrower or any other Person that may be obligated to any Lender by virtue of
any of the Loan Documents; or
(f) any attempt to (i) monitor the Revolving Loan or Term Loan, (ii)
evaluate, observe, assess Borrower or its affairs, and (iii) verify, protect,
evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of the
Collateral, including environmental and field inspections;
then, in any such event, the reasonable attorneys' and other professional and
service providers' fees (including internally-
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allocated costs of in-house counsel) arising from such services, including those
of any appellate proceedings, and all expenses, costs, charges, and other fees
incurred by such counsel and others in any way or respect arising in connection
with or relating to any of the events or actions described in this Section 13.2,
shall be payable, on demand, by Borrower to Agent and shall be additional
Obligations secured under this Agreement and the other Loan Documents by all of
the Collateral. Without limiting the generality of the foregoing, such
expenses, costs, charges and fees may include: paralegal fees, costs and
expenses; accountants', environmental advisors', appraisers' and investment
bankers' fees, costs and expenses; management and other consultants' fees, costs
and expenses; court costs and expenses; photocopying and duplicating expenses;
court reporter fees, costs and expenses; long distance telephone charges; air
express charges; telegram charges; secretarial overtime charges; and expenses
for travel, lodging and food paid or incurred in connection with the performance
of such legal or other advisory services.
13.3 Access and Annual Audit.
-----------------------
(a) Access. Borrower shall provide access to Agent (and if requested
------
by Agent, to any Lender as well) and any of its officers, employees, and agents,
or cause to be provided access to Agent and any of its officers, employees
and/or agents, exercisable as frequently as Agent reasonably determines to be
appropriate, upon reasonable advance notice (unless an Event of Default shall
have occurred and be continuing, in which event no notice shall be required and
Agent shall have access at any and all times), during normal business hours (or
at such other times as may reasonably be requested by Agent), to inspect the
properties and facilities of Borrower and to inspect, audit, and make extracts
from all of Borrower's records, files, and books of account. Borrower shall
make available to Agent and its counsel, as quickly as practicable under the
circumstances, originals or copies of all books, records, board minutes,
contracts, insurance policies, environmental audits, business plans, files,
financial statements (actual and pro forma), filings with federal, state and
local regulatory agencies, and other instruments and documents which Agent may
request. Borrower shall deliver any document or instrument reasonably necessary
for Agent, as it may from time to time request, to obtain records from any
service bureau maintaining records for Borrower, and shall maintain duplicate
records or supporting documentation on media, including computer tapes and discs
owned by Borrower. Prior to the occurrence of a Default or Event of Default,
upon the request of Agent and approval of such request by Borrower, which
approval shall not unreasonably be withheld, Borrower shall instruct any banking
or other financial institution to make available to Agent such information and
records as Agent may reasonably request. Following the occurrence of a Default
or Event of Default, Borrower shall instruct all of its banking and other
financial institutions to make available to Agent such information and
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<PAGE>
records as Agent may reasonably request. Without limiting the generality of the
foregoing, Borrower will permit Agent and/or any industry consultant acceptable
to Agent to inspect, review and evaluate Borrower's wine inventory, at
Borrower's locations and at premises not owned by or leased to Borrower upon
request by Agent.
(b) Annual Audit. Borrower shall cooperate with Agent in Agent's
------------
performance of an annual audit concerning Borrower's business. In addition to
other Fees payable to Agent hereunder, Borrower shall reimburse Agent for the
cost of performing such audit (which may included internally-allocated costs of
Agent or any Lender) in an amount not to exceed Twenty Thousand Dollars
($20,000) per audit. In conducting such audit, Agent may utilize the services
of and be accompanied by one or more Lenders.
13.4 Set-off; Sharing.
----------------
(a) In addition to any rights and remedies of Agent and any Lender
provided by law, each Lender shall have a security interest in any and all
deposits of Borrower (general or special, time or demand, provisional or final)
at any time held by any Lender which security interest shall secure the
Obligations. Upon the occurrence and during the continuance of an Event of
Default, provided that it has first received the written consent of Agent,
without prior notice to Borrower (any such notice being specifically waived by
Borrower to the fullest extent permitted by applicable law), each Lender may set
off and apply against any Obligations, whether matured or unmatured, of Borrower
to such Lender, any amount owing from the Lender to Borrower. No Lender shall
exercise any right of set-off it may have against any Borrower or any Guarantor
in connection with the Obligations without the prior written consent of Agent.
Each Lender promptly shall notify Borrower and Agent after any such setoff and
application made by any such Lender; provided, that failure to give such notice
--------
shall not affect the validity of such setoff and application.
(b) Each Lender agrees that:
(i) to the extent that it shall receive or shall have received or
collected, in respect of any of the Obligations, any payment or distribution of
any cash or other property of Borrower or any Guarantor at any time, including
by payment or distribution from Borrower or any Guarantor, by exercise of any
right of set-off or counterclaim, by liquidation of Collateral, as a
distribution in a bankruptcy, insolvency, or similar proceeding or otherwise,
and any such payment or distribution results in such Lender's receiving or
having received more than it would otherwise be entitled to receive under this
Agreement such Lender shall promptly deliver the same to Agent in cash or the
form received (except for the endorsement or the assignment of or by such Lender
where necessary), and
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Agent shall promptly distribute the same to all Lenders in the same manner as if
it were a payment to be distributed pursuant to this Agreement, and until so
delivered, the same shall be held in trust by such Lender as property of all
Lenders; and
(ii) to the extent that any payment or other transfer made under
this Agreement on account of the principal portion of any Obligations shall be
recovered (a "Returned Payment") from any Lender pursuant to any preference,
fraudulent transfer, or similar provision under any bankruptcy, insolvency, or
similar law or otherwise, each other Lender shall purchase from such Lender a
participation in its Percentage of such Returned Payment;
(c) To the extent that any Lender is required by the provisions of
Section 13.4(b) to purchase a participation from one or more other Lenders, such
purchase shall be effected by (i) the payment to Agent by the Lender making such
purchase of the amount required to be paid, and (ii) Agent's distribution of the
amount or amounts required to be paid to the respective Lender or Lenders from
whom such purchase is required to be made. Borrower agrees, to the fullest
extent it may effectively do so under applicable law, that any holder of a
participation in any Obligations, whether or not acquired pursuant to the
foregoing arrangements, may exercise any rights of set-off or counterclaim and
other rights with respect to such participation as fully as if such holder of a
participation were a direct creditor of Borrower in the amount of such
participation.
13.5 No Waiver by Agent or Lenders. Agent's or Lenders' failure, at any
-----------------------------
time or times, to require strict performance by Borrower of any provision of
this Agreement and any of the other Loan Documents shall not waive, affect, or
diminish any right of Agent or Lenders thereafter to demand strict compliance
and performance therewith. Any suspension or waiver by Agent or Lenders of an
Event of Default by Borrower under the Loan Documents shall not suspend, waive,
or affect any other Event of Default by Borrower under this Agreement and any of
the other Loan Documents whether the same is prior or subsequent thereto and
whether of the same or of a different type. None of the undertakings,
agreements, warranties, covenants, and representations of Borrower contained in
this Agreement or any of the other Loan Documents and no Default or Event of
Default by Borrower under this Agreement and no defaults by Borrower under any
of the other Loan Documents shall be deemed to have been suspended or waived by
Agent or Lenders, unless such suspension or waiver is by an instrument in
writing signed by an officer of Agent or Lenders, as the case may be, and
directed to Borrower specifying such suspension or waiver.
13.6 Remedies. Agents and Lenders' rights and remedies under this
--------
Agreement shall be cumulative and nonexclusive of any other rights and remedies
which Agent or any Lender may have under any other agreement, including the Loan
Documents, by
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<PAGE>
operation of law or otherwise. Recourse to the Collateral shall not be
required.
13.7 Severability. Wherever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
13.8 Parties. This Agreement and the other Loan Documents shall be
-------
binding upon, and inure to the benefit of, the successors of Borrower, each
Lender and the assigns, transferees and endorsees of each Lender.
13.9 Conflict of Terms. Except as otherwise provided in this Agreement or
-----------------
any of the other Loan Documents by specific reference to the applicable
provisions of this Agreement, if any provision contained in this Agreement is in
conflict with, or inconsistent with, any provision in any of the other Loan
Documents, the provision contained in this Agreement shall govern and control.
13.10 Authorized Signature. Unless Agent shall be notified by Borrower the
--------------------
contrary, the signature upon any document or instrument delivered pursuant
hereto by any officer or Authorized Financial Representative of Borrower shall
bind Borrower and be deemed to be the act of Borrower affixed pursuant to and in
accordance with resolutions duly adopted by Borrower's Board of Directors.
13.11 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE
-------------
LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY
AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE,
WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, AND ANY
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. BORROWER HEREBY CONSENTS AND
AGREES THAT THE SUPERIOR COURTS OF SAN FRANCISCO COUNTY, CALIFORNIA, OR, AT
AGENT'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
CALIFORNIA, SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDERS PERTAINING TO THIS AGREEMENT OR
TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. BORROWER EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH
BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING FOR SUCH LEGAL OR
- ----- --- ----------
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT, AND OTHER PROCESS
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<PAGE>
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN SECTION 13.12 OF THIS
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S.
MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR
OPERATE TO PRECLUDE ANY LENDER OR BORROWER FROM BRINGING SUIT OR TAKING OTHER
LEGAL ACTION IN ANY OTHER JURISDICTION.
13.12 Notices. Except as otherwise provided herein, whenever it is
-------
provided herein that any notice, demand, request, consent, approval,
declaration, or other communication shall or may be given or delivered to or
served upon any of the parties by another, or whenever any of the parties
desires to give or deliver or serve upon another any communication with respect
to this Agreement, each such notice, demand, request, consent, approval,
declaration, or other communication shall be in writing, shall be addressed to
the addresses set forth below, or such other or additional address as the
parties may notify each other of in writing, and shall be deemed to have been
sent, delivered, or given and received upon the earlier of: (a) if by
facsimile, upon transmission if transmission occurs between 8:00 a.m. and 5:00
p.m. on any Business Day; (b) if by Federal Express or other overnight or one-
day mail or delivery service, on the next Business Day following deposit with
such delivery service; (c) if by personal delivery, upon completion of delivery;
or (d) if by mail, three (3) Business Days after deposit in the U.S. Mail, first
class, postage prepaid:
(a) If to Pacific Coast, as a Lender or as Agent, at:
Pacific Coast Farm Credit Services
5560 South Broadway
Eureka, California 95503
Attention: Mr. Sean P. O'Day
Facsimile: (707) 442-1268
Pacific Coast Farm Credit Services
595 Arthur Road
Watsonville, California 95077
Attention: Mr. James G. Cooper
Facsimile: (408) 761-8695
Pacific Coast Farm Credit Services
8471 Brooks Road
Windsor, California 94592
Attention: Account Executive for Beringer Wine
Estates Company
Facsimile: (707) 838-3456
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With copies to:
Murphy, Weir & Butler
101 California Street, 39th Floor
San Francisco, California 94111
Attention: Randy Rogers, Esq.
Facsimile: (415) 421-7879
(b) If to CoBank:
CoBank
P.O. Box 5110
Denver, Colorado 80217
Attention: Mr. James M. Papai
Facsimile: (303) 694-5830
(c) If to Bank of America, at
Bank of America NT&SA
Santa Rosa Commercial Banking Group 1498
10 Santa Rosa Avenue
Santa Rosa, California 95404
Attention: Mr. David M. Meddaugh
Facsimile: (707) 525-2287
(d) If to GE Capital, at:
General Electric Capital Corporation
105 W. Madison St., Suite 1600
Chicago, Illinois 60602
Attention: Mr. Woodrow Broaders
Facsimile: (312) 419-5977
With copies to:
General Electric Capital Corporation
201 High Ridge Road
Stamford, CT 06927-5100
Attention: John A. Sirico, Esq.
Facsimile: (203) 316-7889
(e) If to Rabobank, at:
Rabobank Nederland
245 Park Avenue
New York, New York 10167
Attention: Corporate Services
Facsimile: (212) 916-7880
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With copies to:
Rabobank Nederland
3 Embarcadero Center, Suite 930
San Francisco, California 94111
Attention: Ms. Jessalyn W. Peters
Facsimile: (415) 986-8349
(f) If to Bank of Boston, at:
The First National Bank of Boston
100 Federal Street
Mail Stop 01-09-01
Boston, MA 02106
Attention: Ms. Diane Exter
Facsimile: (617) 434-4929
(g) If to Borrower, at:
Beringer Wine Estates Company
2000 Main Street
P.O. Box 111
St. Helena, California 94574
Attention: Walter T. Klenz, President
Facsimile: (707) 963-7248
With copies to:
Texas Pacific Group
201 Main Street, No. 2420
Fort Worth, Texas 76102
Attention: James J. O'Brien
Facsimile: (817) 871-4010
Texas Pacific Group
600 California Street, Suite 1850
San Francisco, California 94108
Attention: James G. Coulter
Facsimile: (415) 616-0420
and
Pillsbury Madison & Sutro LLP
235 Montgomery Street, Suite 1653
San Francisco, California 94104
Attention: James Brown, Esq.
Facsimile: (415) 983-1200
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Failure or delay in delivering
copies of any notice, demand, request, consent, approval, declaration, or other
communication to the persons designated above to receive copies
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shall in no way adversely affect the effectiveness of such notice, demand,
request, consent, approval, declaration, or other communication.
13.13 Survival. The representations and warranties of Borrower in this
--------
Agreement shall survive the execution, delivery and acceptance hereof by the
parties hereto and the closing of the transactions described herein or related
hereto.
13.14 Section Titles. The Section titles and Table of Contents contained
--------------
in this Agreement are and shall be without substantive meaning or content of any
kind whatsoever and are not a part of the agreement between the parties hereto.
13.15 Counterparts. This Agreement may be executed in any number of
------------
separate counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute one and the same instrument.
13.16 Performance Always Due on Business Day. To the extent that any date
--------------------------------------
under this Agreement is not a Business Day, then the payment or performance due
on such day shall be due on the next Business Day.
13.17 MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION
---------------------------
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED
BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND
FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT
THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE,
TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER
THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
13.18 Revival of Obligations.
----------------------
(a) Revival of Obligations. If any payment received by Agent or Lenders
----------------------
from any source on account of the Obligations, or any portion of Agent's or any
Lender's interest in any Collateral which has been applied by Agent or Lender in
satisfaction of any Obligations (a "Contested Payment"), is (before or after the
Revolving Loan Maturity Date or the Term Loan Maturity Date and regardless of
whether payment has been made hereunder) held to be invalid, set aside, void or
avoidable, or subject to any setoff, recoupment, or counterclaim, due to any
cause of action asserted by Borrower or Borrower's creditors or trustee in
bankruptcy for any reason, including preference, fraudulent conveyance, breach
of contract, or tort, or any portion of such Contested Payment is rescinded,
returned, assigned, or reconveyed by Agent or any Lender due to any such
holding, then the Obligations shall be revived, and continued in effect without
reduction or discharge for the Contested Payment
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to the extent of such rescission, return, assignment, or reconveyance by Agent
or Lender, until payment in full of the Obligations.
(b) Contested Payments. The determination whether any Contested Payment is
------------------
or should be rescinded, returned, assigned, or reconveyed shall be made by Agent
and Lenders in their sole discretion, provided, that if Agent and Lenders choose
--------
not to contest any such rescission, return, assignment, or reconveyance, Agent
shall so notify Borrower in writing and any guarantor of the Obligations (but
only such obligors as are not then a debtor under any case under the Bankruptcy
Code) and such obligor may, in its sole discretion, accept tender of defense of
such rescission, return, assignment, or reconveyance, upon the following terms
and conditions:
(i) within thirty (30) days after receipt of such notice from Agent,
the obligor shall notify Agent in writing of acceptance of tender of defense of
such rescission, return, assignment, or reconveyance (upon such notice to Agent,
the obligor shall become a "Contesting Obligor");
(ii) the Contesting Obligor shall, at its own cost, expense, and risk,
institute and diligently prosecute any legal action or proceeding as may be
necessary to contest such rescission, return, assignment, or reconveyance, and
shall pay and or satisfy any money judgment that may be entered against Agent or
Lenders in connection therewith;
(iii) the Contesting Obligor shall indemnify and hold Agent and
Lenders harmless from and against all costs and expenses, including reasonable
fees and expenses of attorneys, accountants, appraisers, and other professionals
which are expended or incurred by Agent in connection with such contest,
including in any litigation with respect thereto; and
(iv) the Contesting Obligor shall provide Agent with adequate
assurance of its financial and legal ability to perform under this Section
13.18(b).
If no obligor timely accepts tender of defense as a Contesting Obligor, or upon
the failure of any of the other terms and conditions set forth above, Agent and
Lenders may, in their sole discretion, rescind, return, assign, or reconvey such
Contested Payment. Any rescission, return, assignment, or reconveyance by Agent
or Lenders whether or not in connection with any action, proceeding, settlement,
or determination pursuant to this Section 13.18(b) shall cause the Obligations
to be revived as provided by Section 13.18(a).
13.19 Time of the Essence. Time is of the essence in every provision of
-------------------
this Agreement.
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13.20 No Third Party Beneficiaries. This Agreement is made and entered
----------------------------
into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other Person shall be a
third party beneficiary of, or have any direct or indirect cause of action or
claim in connection with, this Agreement or any other Loan Document.
13.21 Payments in Immediately Available Funds. All payments required to
---------------------------------------
made under this Agreement shall be made in immediately available funds.
13.22 Waivers of Events of Default. If an Event of Default has been waived
----------------------------
by Lenders in accordance with the provisions of this Agreement, then such Event
of Default shall no longer continue as an Event of Default.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement has been duly executed as of the
date first written above.
BERINGER WINE ESTATES COMPANY, formerly
known as Wine World Estates Company, as
Borrower
By: /s/ Douglas W. Roberts
----------------------------------------
Name: Douglas W. Roberts
--------------------------------------
Title: Secretary
-------------------------------------
PACIFIC COAST FARM CREDIT SERVICES, ACA,
as a Lender and as Agent
By: /s/ James Cooper
----------------------------------------
Name: James Cooper
--------------------------------------
Title: Vice President
-------------------------------------
CoBANK, ACB
as a Lender
By: /s/ James M. Papai
----------------------------------------
Name: James M. Papai
--------------------------------------
Title: Vice President
-------------------------------------
BANK OF AMERICA NT&SA,
as a Lender
By: /s/ David M. Meddaugh
----------------------------------------
Name: David M. Meddaugh
--------------------------------------
Title: Vice President
-------------------------------------
GENERAL ELECTRIC CAPITAL CORPORATION,
as a Lender
By: /s/ Shaun Pettit
----------------------------------------
Name: Shaun Pettit
--------------------------------------
Title: Duly Authorized Signatory
-------------------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
135
<PAGE>
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., RABOBANK NEDERLAND,
NEW YORK BRANCH, as a Lender
By: /s/ Michel De Konkoly Thege
-------------------------------------
Name: Michel De Konkoly Thege
-------------------------------------
Title: Deputy General Manager
-------------------------------------
By: /s/ Dana W. Hemenway
-------------------------------------
Name: Dana W. Hemenway
-------------------------------------
Title: Vice President
-------------------------------------
THE FIRST NATIONAL BANK OF BOSTON,
as a Lender
By: /s/ Timothy M. Barns
-------------------------------------
Name: Timothy M. Barns
-------------------------------------
Title: Division Executive
-------------------------------------
136
<PAGE>
GUARANTOR CONSENTS
------------------
Beringer Wine Estates Holdings, Inc., a Delaware corporation,
successor by merger to Silverado Partners Acquisition Corp., a California
corporation, a Guarantor under an Amended and Restated Guaranty dated June 7,
1996, and Cork Processors, Inc., a Delaware corporation, a Guarantor under a
Guaranty dated as of January 16, 1996, hereby each (i) ratify and reaffirm, as
of the date hereof, all of the provisions of its Amended and Restated Guaranty,
or its Guaranty, as the case may be, and its Amended and Restated Security
Agreement or Security Agreement, as the case may be, (ii) acknowledges receipt
of a copy of the Second Amended and Restated Credit Agreement dated as of
February 28, 1997 and (iii) consents to all of the provisions of the Second
Amended and Restated Credit Agreement.
BERINGER WINE ESTATES HOLDINGS, INC.,
a Delaware corporation, successor by
merger to Silverado Partners Acquisition
Corp.
By: /s/ Douglas W. Roberts
----------------------------------------
Name: Douglas W. Roberts
--------------------------------------
Title: Secretary
-------------------------------------
CORK PROCESSORS, INC., a Delaware
corporation
By: /s/ Douglas W. Roberts
----------------------------------------
Name: Douglas W. Roberts
--------------------------------------
Title: Secretary
-------------------------------------
137
<PAGE>
EXHIBIT 10.8
BERINGER WINE ESTATES HOLDINGS, INC.
AMENDED AND RESTATED STOCKHOLDERS RIGHTS AGREEMENT
AND VOTING AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDERS RIGHTS AGREEMENT AND VOTING
AGREEMENT (this "Agreement") is entered into as of June 7, 1996, by and among
the Company and each of the other parties executing a counterpart signature page
hereof.
RECITALS:
--------
WHEREAS, SPAC has issued shares of Preferred Stock and Common Stock to
certain of the Stockholders pursuant to a Subscription Agreement, dated as of
December 29, 1995, and amended as of January 16, 1996 (the "Subscription
Agreement");
WHEREAS, TPG has sold shares of SPAC Common Stock and SPAC has issued
shares of Preferred Stock to certain of the Stockholders pursuant to a
Securities Purchase Agreement, dated as of January 16, 1996 (the "TPG Securities
Purchase Agreement");
WHEREAS, WWE has issued Senior Subordinated Notes and SPAC has issued
Warrants to certain of the Stockholders pursuant to a Securities Purchase
Agreement, dated as of January 16, 1996, as amended (the "Note Purchase
Agreement");
WHEREAS, SPAC has issued shares of Preferred Stock and Common Stock to
certain of the Stockholders pursuant to Securities Purchase Agreements, dated as
of January 16, 1996 (the "Management Securities Purchase Agreements");
WHEREAS, SPAC has issued shares of Class B Common Stock to certain of
the Stockholders pursuant to a Securities Purchase Agreement, dated as of March
29, 1996 (the "March 1996 Securities Purchase Agreement");
WHEREAS, SPAC and certain of the Stockholders entered into a
Shareholder Rights Agreement and Voting Agreement, dated as of January 1, 1996
(the "Original Agreement");
WHEREAS, SPAC and the Stockholders have entered into an Amended and
Restated Shareholder Rights Agreement and Voting
<PAGE>
Agreement, dated as of January 16, 1996 (the "Amended Agreement"); and
WHEREAS, SPAC is being reincorporated as a Delaware corporation and,
in connection therewith, the Stockholders wish to amend and restate the Amended
Agreement and to enter into this Agreement with the Company.
AGREEMENT:
---------
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants, and conditions set forth in this
Agreement and in the Subscription Agreement, the parties hereby mutually agree
to amend and restate the Amended Agreement as follows:
1. Certain Definitions. As used in this Agreement, the following
-------------------
terms shall have the following respective meanings:
"Affiliate" of a person shall mean any person, controlling, controlled
---------
by, or under the common control of such person.
"Certificate" shall mean the Certificate of Incorporation of the
-----------
Company, as amended from time to time.
"Change of Control Transaction" shall mean a transaction, approved by
-----------------------------
TPG, in which all of the business, stock or assets of the Company are sold to a
party which is not an Affiliate of TPG or part of a group (as defined in Section
13(d)(3) of the Exchange Act) including TPG in an arm's-length transaction in
which the form and amount of consideration per share, if any, payable to the
holders of Preferred Stock or Common Stock is distributed pro rata based on
ownership of the Common Stock, and in which the other significant terms of the
transaction (including, but not limited to, indemnification or escrow
arrangements) apply, in all material respects, equally to TPG Stockholders and
to the other stockholders. The assumption of TPG of greater liability, in a
Change of Control Transaction, shall be deemed to constitute equal treatment.
If any holders of Common Stock are given an option as to the form and amount of
consideration to be received, all holders must be given the same option. A
Change of Control Transaction may take the form of a sale of all of the
outstanding voting stock of the Company, a
2
<PAGE>
merger or consolidation in which the holders of the outstanding voting stock of
the Company before the transaction do not own a majority of the outstanding
voting stock of the combined entity, a sale of all or substantially all the
assets of the Company or a reorganization in which a third party will acquire
all the voting power of the Company. The approval by TPG of a proposed Change of
Control Transaction shall be effective to trigger all rights and obligations
arising out of a Change of Control Transaction.
"Class A Common Stock" shall mean the Company's Class A Common Stock,
--------------------
par value $.0001 per share, then outstanding.
"Class B Common Stock" shall mean the Company's Class B Common Stock,
--------------------
par value $.0001 per share, then outstanding.
"Commission" shall mean the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean, collectively, the Company's Class A Common
------------
Stock and Class B Common Stock then outstanding.
"Company" shall mean Beringer Wine Estates Holdings, Inc., a Delaware
-------
corporation and its successors and assigns.
"Crescent" shall mean, collectively, Crescent/Mach I Partners, L.P., a
--------
Delaware limited partnership, TCW/Crescent Mezzanine Partners, L.P., a Delaware
limited partnership, TCW/Crescent Mezzanine Trust, a Delaware Business Trust,
and State Treasurer of Michigan, Custodian of the Michigan Public School
Employees' Retirement System, State Employees' Retirement System, Michigan State
Police Retirement System, and Michigan Judges Retirement System and such persons
to whom Crescent may Transfer Securities in a manner permitted by this
Agreement.
"Crescent Initiating Holders" shall mean, with respect to any
----------------------------
registration requested by Crescent, any Holder or Holders of a majority of the
then outstanding Registrable Securities held by Crescent.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
3
<PAGE>
"March 1996 Securities Purchase Agreement" shall mean the Securities
----------------------------------------
Purchase Agreement, dated as of March 29, 1996, pursuant to which the Company
has sold 472,500 shares of Class B Common Stock to Crescent, New York Life, the
Principals, SEP, TPG, TPGI and Wine World Equity Partners, L.P.
"Holder" or "Holders" shall mean any person listed on Exhibit A hereto
------ -------
holding Securities or Registrable Securities and any person holding Securities
or Registrable Securities to whom the registration rights under this Agreement
have been transferred in accordance with Section 4.10.
"New York Life" shall mean New York Life Insurance Company and such
-------------
persons to whom New York Life may Transfer Securities in a manner permitted by
this Agreement.
"New York Life Initiating Holders" shall mean, with respect to any
---------------------------------
registration requested by New York Life, any Holder or Holders of a majority of
the then outstanding Registrable Securities held by New York Life.
"Note Purchase Agreement" shall mean the Securities Purchase
-----------------------
Agreement, dated as of January 16, 1996, entered into between WWE, SPAC, the
Purchasers and the Guarantor as defined in such Agreement.
"Options" shall mean the options to purchase Common Stock granted to
-------
the Principals and the management of the Company pursuant to Sections 6.4 and
6.6 of the Subscription Agreement.
"Preferred Stock" shall mean shares of the Company's Series A Non-
---------------
Voting Pay-in-Kind Preferred Stock.
"Principals" shall mean E. Michael Moone, C. Richard Lemon, David I.
----------
Freed and George A. Vare.
"Purchaser Registrable Securities" shall mean: (i) any of the shares
--------------------------------
of Common Stock sold by TPG to the Purchasers pursuant to the TPG Securities
Purchase Agreement or sold by the Company to the Purchasers pursuant to the
March 1996 Securities Purchase Agreement; (ii) any of the shares of Class B
Common Stock issuable upon exercise of Warrants (as defined in the Note Purchase
Agreement); and (iii) any securities issued or issuable with respect to such
Common Stock of the Company referred to in clauses (i) and (ii) immediately
above by way of stock dividends
4
<PAGE>
or stock splits or in connection with a combination of shares, recapitalization,
merger, consolidation, or other reorganization or otherwise. As to any
particular Purchaser Registrable Securities, such securities will cease to be
Purchaser Registrable Securities when they have been distributed to the public
pursuant to an offering registered under the Securities Act or sold to the
public through a broker, dealer or market maker in compliance with Rule 144
under the Securities Act or any successor rule. The foregoing notwithstanding, a
security will not cease to be a Purchaser Registrable Security until all stop
transfer instructions and notations and restrictive legends with respect to such
security have been lifted or removed. For purposes of this Agreement, a Person
will be deemed to be a Holder whenever such Person has the right to acquire
directly or indirectly such Purchaser Registrable Securities (upon conversion or
exercise in connection with a transfer of securities or otherwise, but
disregarding any restrictions or limitations upon the exercise of such right),
whether or not such acquisition has actually been effected.
"Purchasers" shall mean New York Life and Crescent and shall include
----------
those persons to whom such persons may Transfer Securities in a manner permitted
by this Agreement.
"Qualified IPO" shall mean a sale by the Company of Common Stock in an
-------------
underwritten (firm commitment) public offering registered under the Securities
Act of 1933, with gross proceeds to the Company of not less than $50 million,
resulting in the listing of the Company's Common Stock on a nationally
recognized stock exchange, including without limitation, the NASDAQ National
Market System.
The terms "register," "registered," and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registrable Securities" shall mean (x) shares of Common Stock (i)
----------------------
issued or issuable upon conversion of the Class A Common Stock or exercise of
the Options, (ii) issued or issuable to the Stockholders pursuant to the
Subscription Agreement or the Securities Purchase Agreements, (iii) issued as a
dividend or other distribution with respect to, or in exchange
5
<PAGE>
or in replacement of, such Common Stock, excluding in all cases, however
(including exclusion from the calculation of the number of outstanding
Registrable Securities), any Registrable Securities sold by a person in a
transaction, including a transaction pursuant to a registration statement under
this Agreement or a transaction pursuant to Rule 144, in which rights under this
Agreement are not transferred in accordance with Section 4.10, and (y) to the
extent not duplicative, the Purchaser Registrable Securities.
"Registration Expenses" shall mean all expenses incurred by the
---------------------
Company in complying with Sections 4.1, 4.2 and 4.3 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, reasonable fees and disbursements of a
single special counsel for the Holders and Other Holders (as defined in Section
4.3(a)), blue sky fees and expenses, and accounting and auditing expenses
including the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the Company
which shall be paid in any event by the Company and excluding Selling Expenses).
"registration statement" means a registration statement under the
----------------------
Securities Act of the Company that covers any Registrable Securities pursuant to
the provisions of this Agreement, including the related prospectus, all
amendments and supplements to such registration statement, including pre-
effective and post-effective amendments, all exhibits thereto and material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
"Securities" shall mean shares of Preferred Stock, Class A Common
----------
Stock, Class B Common Stock, Warrants and Options and shall not include Senior
Subordinated Debt, except as specifically otherwise provided.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Securities Purchase Agreements" shall mean, collectively, the Note
------------------------------
Purchase Agreement, the Management
6
<PAGE>
Securities Purchase Agreements, the TPG Securities Purchase Agreement, the March
1996 Securities Purchase Agreement and the Securities Purchase Agreements by and
between the Company and certain members of management, pursuant to which the
Company intends to issue an additional $1,500,000 worth of Securities.
"Selling Expenses" shall mean all underwriting discounts and selling
----------------
commissions applicable to the sale.
"Senior Subordinated Debt" shall mean the 12-1/2% Senior Subordinated
------------------------
Notes issued by WWE pursuant to the Note Purchase Agreement and any securities
issued in exchange therefor or in refinancing thereof.
"Silverado Initiating Holders" shall mean, with respect to any
----------------------------
registration requested by the Silverado Stockholders, any Holder or Holders of
the lesser of (i) at least 75% of the Registrable Securities held by the
Silverado Stockholders or (ii) $5,000,000 of Registrable Securities (determined
by reference to the public or fair market value of those shares proposed to be
registered.
"Silverado Securities" shall mean the Preferred Stock, Common Stock
--------------------
and Options owned by the Silverado Stockholders.
"Silverado Stockholders" shall mean the Principals and Silverado
----------------------
Equity Partners, L.P., a Delaware limited partnership ("SEP") and persons to
whom the Principals or SEP may Transfer Securities subject to this Agreement.
"SPAC" shall mean Silverado Partners Acquisition Corp., a California
----
close corporation which is the predecessor of the Company.
"Stockholders" shall mean each person who has executed this Agreement
------------
and each person who is required to become a party to this Agreement in the
future in accordance with the terms hereof.
"TPG Initiating Holders" shall mean, with respect to any registration
----------------------
requested by the TPG Stockholders, any Holder or Holders of not less than 25% of
the then outstanding Registrable Securities held by the TPG Stockholders.
7
<PAGE>
"TPG Stockholders" shall mean TPG and its Affiliates (including Wine
----------------
World Equity Partners, L.P., a Delaware limited partnership) and those persons
to whom they may Transfer Securities subject to this Agreement.
"TPG" shall mean TPG Partners, L.P., a Delaware limited partnership
---
and its Affiliates.
"TPGI" shall mean TPG Parallel I, L.P., a Delaware limited partnership
----
and its Affiliates.
"Transfer" means a sale, assignment, encumbrance, gift, pledge,
--------
hypothecation or other disposition of Securities or any interest therein.
"Warrants" shall mean those Warrants issued pursuant to the Note
--------
Purchase Agreement and the related Warrant Agreement.
"WWE" shall mean Wine World Estates Company, a Delaware corporation
---
and a wholly-owned subsidiary of the Company.
2. Transferability.
---------------
2.1 Restrictions on Transferability.
-------------------------------
(a) The Securities issuable pursuant to the Subscription
Agreement, the Securities Purchase Agreements or upon exercise of the Options
and Warrants, shall not be Transferred except upon compliance with the
provisions of the Securities Act and this Agreement, and any attempted Transfer
other than in accordance with the terms hereof is void ab initio and transfers
---------
no right, title or interest in or to such securities, whether now owned or
hereafter acquired, to the purported transferee, buyer, donee, assignee or
encumbrance holder.
(b) Each of the Principals agrees that he will not Transfer any
Silverado Securities without TPG's prior approval until the earlier of January
16, 1999 or the closing of a Qualified IPO, except for Transfers permitted under
Section 2.5. Any such permitted Transfer shall be done pursuant to the terms of
this Agreement and each transferee shall become subject to the restrictions of
this Section 2.1(b) as if he were a Principal. Each party to this Agreement
will cause any proposed transferee (other than a transferee of securities sold
pursuant
8
<PAGE>
to a registration statement or pursuant to Rule 144 under the Securities Act) of
the Securities (or of the Common Stock which may be issued upon conversion of
the Class A Common Stock or the exercise of the Options and Warrants) to agree
in writing to take and hold such securities subject to the provisions and upon
the conditions specified in this Agreement.
2.2 Right of First Offer. In the event any Stockholder desires to
--------------------
Transfer any Securities other than pursuant to Section 2.5 (after January 16,
1999 with respect to Transfers by a Silverado Stockholder), the other
Stockholders shall have a right of first offer. Such right of first offer shall
be implemented pursuant to the terms of Section 3.
2.3 Restrictive Legend. Each certificate representing the Securities
------------------
that is held by a party hereto shall be stamped or otherwise imprinted with a
legend in the following form (in addition to any legend required under
applicable state securities laws):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT"). THE SECURITIES MAY NOT BE
SOLD OR OFFERED FOR SALE OR OTHERWISE DISTRIBUTED EXCEPT IN CONJUNCTION
WITH AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE ACT,
OR IN COMPLIANCE WITH RULE 144 OR PURSUANT TO ANOTHER EXEMPTION THEREFROM.
THE SECURITIES ARE ALSO SUBJECT TO PROVISIONS OF THE CERTIFICATE OF
INCORPORATION AND A STOCKHOLDERS RIGHTS AGREEMENT AND VOTING AGREEMENT,
WHICH CONTAIN RESTRICTIONS ON TRANSFER, RIGHTS OF FIRST OFFER, CO-SALE AND
BRING-ALONG PROVISIONS AND A VOTING AGREEMENT. COPIES OF THE CERTIFICATE
AND THE AGREEMENT MAY BE OBTAINED FROM THE SECRETARY OF THE COMPANY."
2.4 Notice of Proposed Transfers; Securities Law Compliance. Prior
-------------------------------------------------------
to any proposed Transfer of any Securities, unless there is in effect a
registration statement under the Securities Act covering the proposed Transfer,
the Holder thereof shall give written notice to the Company of such Holder's
intention to effect such Transfer. Each such notice shall describe the manner
and circumstances of the proposed Transfer in sufficient detail, and shall be
accompanied, unless the Board of
9
<PAGE>
Directors of the Company otherwise approves, by either (i) a written opinion of
legal counsel (which may be internal counsel) who shall be reasonably
satisfactory to the Company addressed to the Company and reasonably satisfactory
in form and substance to the Company's counsel, to the effect that the proposed
Transfer may be effected without registration under the Securities Act, (ii) a
"no action" letter from the staff of the Commission to the effect that the
distribution of such securities without registration will not result in
recommendation by the staff of the Commission that action be taken with respect
thereto, or (iii) such other showing that may be reasonably satisfactory to
legal counsel to the Company, whereupon the holder of such Securities shall be
entitled to Transfer such securities in accordance with the terms of the notice
delivered by the holder to the Company. Notwithstanding the foregoing, the
requirements of clauses (i), (ii), or (iii) above need not be satisfied with
respect to the following transactions: (A) Transfers by a Holder which is a
partnership to a general partner, limited partner or employee of such
partnership; and (B) Transfers by a Holder to an Affiliate of such Holder. In
addition, Transfers made by a Stockholder that is a state sponsored employee
benefit plan to a successor trust or fiduciary or pursuant to a statutory
reconstitution shall be expressly permitted, and the requirements of clauses
(i), (ii) or (iii) need not be satisfied.
2.5 Permitted Transfers. Subject to compliance with the applicable
-------------------
provisions of the Securities Act and Sections 2.1(b) and 2.4, the following
Transfers may be made without complying with Section 3 or Section 7, subject to
the transferee agreeing in writing to be bound by the terms of this Agreement to
the same extent as if such transferee were a party hereto and subject to any
conditions set forth below: (i) Transfers described in clauses (A) and (B) or
the last sentence of Section 2.4 hereof; (ii) Transfers upon death of an
individual Stockholder to such Stockholder's heirs, executors, administrators,
testamentary trustees, legatees or beneficiaries; (iii) Transfers by present or
future management Stockholders to the Company upon termination of employment,
pursuant to agreements permitting the Company to make such repurchases approved
by the Board of Directors of the Company; (iv) Redemptions or repurchases of the
Preferred Stock permitted, required, or contemplated by the Certificate or this
Agreement, respectively; (v) Transfers contemplated by Sections 6 and 7
10
<PAGE>
hereof; (vi) subject to Section 2.1, Transfers (other than by TPG or its
Affiliates) approved by a majority of the Board of Directors who are not
Affiliates of the transferor or transferee; (vii) Transfers by an individual
Stockholder by gift to his or her spouse or to the siblings, lineal descendants,
or ancestors of such individual or his or her spouse or to a trustee of any
trust of which such person or persons is/are beneficiaries, if, in the case of a
Transfer to a trust, the Transferor retains voting rights with respect to the
Securities being transferred; (viii) Transfers by the TPG Stockholders pursuant
to the TPG Securities Purchase Agreement; (ix) pledges of the Securities held by
Crescent/MACH I Partners, L.P. ("Mach I") to a trustee for the benefit of
secured noteholders pursuant to documents relating to the financing of Mach I;
or (x) Transfers pursuant to an effective registration statement under the
Securities Act.
3. Rights of First Offer.
---------------------
3.1 First Offer Rights. A Stockholder (following January 16,
------------------
1999 with respect to a Silverado Stockholder) may Transfer Preferred Stock,
Common Stock or Warrants, except as permitted in Section 2.5 hereof, only for a
cash purchase price (and/or a promissory note) and only in compliance with the
provisions of this Section 3. A Stockholder desiring to Transfer Securities in
compliance with this Section 3 (a "Selling Stockholder") shall first deliver
written notice to the Company (hereinafter referred to as the "Notice of Offer")
which Notice of Offer shall specify (i) the number of Securities owned by the
Selling Stockholder which such Selling Stockholder wishes to sell (the "Offered
Securities"); (ii) the proposed cash purchase price (including the terms of any
promissory note) for the Offered Securities (the "Offer Price"); and (iii) all
other terms and conditions of the offer. The Company shall promptly deliver a
copy of the Notice of Offer and the related documents to all other Stockholders.
The Notice of Offer shall constitute an irrevocable offer by the Selling
Stockholder to sell to the other Stockholders the Offered Securities at the
Offer Price for cash (including amounts payable under any promissory notes,
discounted as set forth below) under the same terms and conditions contained in
the Notice of Offer. For purposes of any computation of value made under this
Section 3, the present value of any amount to be paid in the future shall be
determined by discounting such amount to present value using an interest rate of
15%.
11
<PAGE>
3.2 Stockholder Notice. Within 20 days following the receipt by the
------------------
Company of the Notice of Offer, each other Stockholder desiring to purchase any
of the Offered Securities shall notify the Selling Stockholder as to the number
of Offered Securities, if any, that it is electing to purchase (such
notification shall be referred to hereinafter as the "Stockholder Acceptance").
The Stockholder Acceptance shall be deemed to be an irrevocable commitment to
purchase from the Selling Stockholder the number of Offered Securities set forth
in such Stockholder Acceptance (or such lesser amount as a result of any
reduction required). It is the agreement of the parties that the other
Stockholders as a group shall purchase all or none of the Offered Securities
(including any related Senior Subordinated Debt) unless the Selling Stockholder
elects to permit the other Stockholders to purchase less than all of the Offered
Securities. If the number of Offered Securities is less than the total number
included in all Stockholder Acceptances, then the number of Offered Securities
shall be allocated as nearly as practicable among each Stockholder who elected
to purchase Offered Securities in the proportion that the number of shares of
Common Stock held by such Stockholder bears to the total number of shares of
Common Stock outstanding (for purposes of these calculations, all outstanding
Options and Warrants shall be deemed to have been exercised) held by all other
Stockholders electing to purchase Offered Securities. Each Stockholder shall
have a right of over-subscription such that if any Stockholder having a similar
right fails to exercise such right to purchase its pro rata portion of the
Offered Securities, the Company shall promptly notify the other Stockholders and
such Stockholders may purchase the non-purchasing Stockholder's portion on a pro
rata basis, within five days of the date of the Company's notice.
Notwithstanding anything contained herein to the contrary, solely for purposes
of this Section 3, if a Selling Stockholder offers Senior Subordinated Debt as
part of a strip of securities to be sold together with the Offered Securities,
then a Stockholder Acceptance must include a pro rata share of such Senior
Subordinated Debt; provided, however, if such offer is not accepted, the Selling
Stockholder must include the offered Senior Subordinated Debt in any permitted
Transfer of the Offered Securities during the 90-day period referred to in
Section 3.3.
3.3 Sale by Selling Stockholder. If the other Stockholders do not
---------------------------
deliver sufficient Stockholder Acceptances
12
<PAGE>
within 20 days following the Company's receipt of the Notice of Offer providing
for the purchase by such Stockholders of all of the Offered Securities, the
Selling Stockholder (a) shall be under no obligation to sell any of the Offered
Securities to the other Stockholders, unless the Selling Stockholder so elects,
(b) may, within a period of 90 days from the expiration of the 20-day period
referred to above, date of the Notice of Offer, sell all, but not less than all,
the Offered Securities (including the related Senior Subordinated Debt, if any)
to one or more third parties (each a "Third Party Transferee"), for cash (and/or
promissory notes) at a price per share not less than 95% of the Offer Price
(provided that, if the sale to one or more third parties is 85% or more, but
less than 95%, of the Offer Price the Selling Stockholder shall advise the other
Stockholders of such lower price and the other Stockholders shall have five (5)
days to decide whether to purchase the Offered Securities at the lower Offer
Price) and on such other terms and conditions as are no more favorable to the
proposed Third Party Transferee than those specified in the Notice of Offer;
provided, however, that if there is more than one Third Party Transferee, the
Selling Stockholder in good faith must obtain binding and definitive commitments
to purchase all the Offered Securities within such 90-day period before any sale
to a Third Party Transferee of the Offered Shares may take place. Upon any such
sale, the Third Party Transferee of such Securities shall execute an agreement
in form and substance satisfactory to the Company and pursuant to which such
Third Party Transferee agrees that the Securities it acquired from the Selling
Stockholder are subject to the provisions of this Agreement. Any Third Party
Transferee to whom Securities are transferred pursuant to and in compliance with
this Section 3.3 shall, upon consummation of such transfer, be deemed a
Stockholder. If the Selling Stockholder does not complete the sale of the
Offered Securities at an Offer Price of at least 85% of the initial Offer Price
within such 90-day period, the provisions of this Section 3 shall again apply,
and no sale of Securities held by the Selling Stockholder shall be made
otherwise than in accordance with the terms of this Agreement. If a proposed
Transfer is initiated but not completed, the Stockholder initiating such
Transfer shall only be entitled to initiate another Transfer of Securities
subject to this Section 3 after the expiration of the applicable 90-day period.
13
<PAGE>
3.4 Closing. The closing of purchases of Offered Securities pursuant
-------
to this Section 3 shall take place within 45 days after the date of the Notice
of Offer at 11:00 A.M. local time at the principal offices of the Company, or at
such other date, time or place as the parties to the sale may agree. At such
closing, the Selling Stockholder(s) shall sell, transfer and deliver to
purchasing Stockholders full right, title and interest in and to the Offered
Securities (including Senior Subordinated Debt, if applicable) so purchased,
free and clear of all liens, security interests or adverse claims of any kind
and nature (except as otherwise set forth in the Certificate and this
Agreement), and shall deliver to the purchasing Stockholders a certificate or
certificates representing the Offered Securities (including Senior Subordinated
Debt, if applicable) sold, in each case duly endorsed for transfer or
accompanied by appropriate stock transfer powers duly endorsed with signatures
guaranteed by a commercial bank, trust company or registered broker dealer.
Simultaneously with delivery of such certificates, the purchasing Stockholders
shall deliver to the Selling Stockholder(s), by wire transfer of immediately
available funds to such bank and account as the Selling Stockholder(s) shall
designate, a cash amount equal to the product of the Offer Price and the number
of Offered Securities (including Senior Subordinated Debt, if applicable) being
acquired by such purchaser, in full payment of the purchase price of the Offered
Securities purchased. If any of the purchasing Stockholders fail to close the
purchase within 45 days after the date of the Notice of Offer (other than due to
the Selling Stockholder's inability to timely close), then the Selling
Stockholder shall be free to Transfer, to any person at any time and upon the
same or different terms, all or any portion of the Offered Securities proposed
to be Transferred and not so purchased, without compliance with any of the
provisions of this Section 3; provided that the eventual transferee executes a
signature page to this Agreement and thereby becomes bound by the provisions
hereof.
14
<PAGE>
3.5. TPG Stockholders. The provisions of this Section 3 shall
----------------
not apply to Transfers by the TPG Stockholders.
3.6 Purchasers. The provisions of this Section 3 shall not
----------
apply to Transfers by the Purchasers after January 16, 1999.
4. Registration Rights.
-------------------
4.1 Requested Registration. If, (x) following the 180 days
----------------------
after the closing of a Qualified IPO, the Company receives from either the
Silverado Initiating Holders or the TPG Initiating Holders a written request
that the Company effect a registration under the Securities Act (provided that
as to the Silverado Initiating Holders there shall be no more than one such
registration statement in any one year) or (y) at any time after the Company has
a class of equity securities registered under Section 12 of the Exchange Act,
the Company receives from the New York Life Initiating Holders or the Crescent
Initiating Holders a written request to effect a registration under the
Securities Act, the Company will:
(a) promptly give written notice of the proposed registration to
all other Holders; and
(b) as soon as practicable, use its reasonable best efforts to
effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws, and appropriate compliance
with applicable regulations issued under the Securities Act) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the Company
provided that (x) the New York Life Initiating Holders and the Crescent
Initiating Holders are each entitled to two registrations pursuant to this
Section 4.1, no more than one of which may be effected in any given 12-month
period; and (y) that the Company shall not be obligated to take any action to
effect any such registration, qualification, or compliance pursuant to this
Section 4.1:
15
<PAGE>
(i) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process
in effecting such registration, qualification, or compliance unless
the Company is already subject to service in such jurisdiction and
except as may be required by the Securities Act;
(ii) During the period of 180 days following the effective
date of the registration statement pertaining to a registered public
offering of securities of the Company for cash for its own account
(other than a registration relating solely to a Commission Rule 145
transaction or a registration relating solely to employee benefit
plans); or
(iii) With respect to the Silverado Initiating Holders,
after the Company has effected two registrations on behalf of the
Silverado Initiating Holders requesting registration pursuant to
this Section 4.1 and such registrations have been declared effective,
with respect to the New York Life Initiating Holders, after the
Company has effected two registrations on behalf of the New York Life
Initiating Holders requesting registrations pursuant to Section 4.1
and such registrations have been declared effective (subject to
paragraph (f)), and, with respect to the Crescent Initiating Holders,
after the Company has effected two registrations on behalf of the
Crescent Initiating Holders requesting registrations pursuant to
Section 4.1 and such registrations have been declared effective
(subject to paragraph (f)).
Subject to the foregoing clauses (i) through (iii) and to Section
4.1(d), the Company shall file a registration statement covering the Registrable
Securities so requested to be registered as soon as practicable after receipt of
the request of the Silverado Initiating Holders, the TPG Initiating Holders, the
New York Life Initiating Holders or the Crescent Initiating Holders, and in no
event later than 90 days after receipt of such request.
(c) Underwriting. If the Silverado Initiating Holders, the TPG
------------
Initiating Holders, the New York life Initiating
16
<PAGE>
Holders or the Crescent Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 4.1
and the Company shall include such information in the written notice referred to
in Section 4.1(a). The right of each Holder to registration pursuant to Section
4.1 shall be conditioned upon such Holder's participation in such underwriting
and the inclusion of such Holder's Registrable Securities in the underwriting to
the extent requested (unless otherwise mutually agreed by a majority in interest
of the Holders and such Holder) to the extent provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Silverado Initiating Holders, the
TPG Initiating Holders, the New York Life Initiating Holders or the Crescent
Initiating Holders, as the case may be; however, such selection shall be subject
to the approval of the Company, in its sole and absolute discretion.
Notwithstanding any other provision of this Section 4.1, if the Company and the
underwriter or underwriters determine that marketing factors require the number
of shares to be underwritten to be reduced and so advise the Silverado
Initiating Holders, the TPG Initiating Holders, the New York Life Initiating
Holders or the Crescent Initiating Holders, as the case may be, in writing, then
the Silverado Initiating Holders, the TPG Initiating Holders, the New York Life
Initiating Holders or the Crescent Initiating Holders, as the case may be,
shall so advise all Holders who have indicated to the Company that they intend
to participate in such underwriting and the number of Registrable Securities
that may be included in the registration and underwriting shall be allocated as
follows:
(i) Registrable Securities shares held by any person who is
not a Silverado Stockholder, in the case of a registration requested
by the Silverado Initiating Holders, who is not a New York Life
Initiating Holder or a permitted transferee thereof, in
17
<PAGE>
the case of a registration requested by the New York Life Initiating
Holders or who is not a Crescent Initiating Holder or a permitted
transferee thereof, in the case of a registration requested by the
Crescent Initiating Holders, shall first be excluded on a pro rata
basis on the basis of the number of Registrable Securities requested
to be included by such Holders;
(ii) if further reductions are required, Registered
Securities held by the Silverado Stockholders in the case of a
registration requested by the Silverado Initiating Holders or held by
all Holders in the case of a registration requested by the TPG
Initiating Holders or held by the New York Life Initiating Holders in
the case of a registration requested by the New York Life Initiating
Holders or held by the Crescent Initiating Holders in the case of a
registration requested by the Crescent Initiating Holders shall be
excluded in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities requested to be included by such
Holders.
In the event any Stockholder other than TPG (excluding for this
purpose, Wine World Equity Partners, L.P., a Delaware limited
partnership) is excluded as a result of the foregoing provisions from
a registration (other than a registration requested by the New York
Life Initiating Holders or the Crescent Initiating Holders), then such
Stockholder shall be entitled to sell, on a pro rata basis, the
excluded Registrable Securities, prior to any other Registrable
Securities, pursuant to the underwriters' over-allotment option.
No Registrable Securities excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such registration.
If any Holder disapproves of the terms of the underwriting, such
person may elect to withdraw therefrom by written notice to the Company, the
underwriter and the Silverado Initiating Holders, the TPG Initiating Holders,
the New York Life Initiating Holders or the Crescent Initiating Holders, as the
case may be. The Registrable Securities and/or other securities so withdrawn
from such underwriting shall also be withdrawn from such registration; provided,
however, that, if by the withdrawal of such Registrable Securities a greater
number of Registrable Securities held by other Holders may be included in such
18
<PAGE>
registration (up to the maximum of any limitation imposed by the underwriters),
then the Company shall offer to all Holders who have included Registrable
Securities in the registration the right to include additional Registrable
Securities in the same proportion used above in determining the underwriter
limitation.
If the underwriter or underwriters have not limited the number of
Registrable Securities to be underwritten, the Company may include securities
for its own account or the account of others in such registration if the
underwriter or underwriters so agree and if the number of Registrable Securities
that would otherwise have been included in such registration and underwriting
will not thereby be limited.
(d) Delay of Registration. If the Company shall furnish to the
---------------------
Silverado Initiating Holders, the TPG Initiating Holders, the New York Life
Initiating Holders or the Crescent Initiating Holders a certificate signed by
the President of the Company stating that, in the good faith discretion of the
Board of Directors of the Company, it would not be in the best interest of the
Company for such registration statement to be filed on or before the date filing
would be required then the Company may defer the filing of the registration
statement for a period or periods not in excess of an aggregate of 90 days, such
right to delay a request to be exercised by the Company not more than once in
any calendar year.
(e) Shelf Registration. (i) If any registration pursuant to this
------------------
Section 4.1 is requested by the Purchaser Initiating Holders to be a shelf
registration pursuant to Rule 415 under the Securities Act (a "Shelf
Registration"), the Company shall, within 90 days use all reasonable efforts to
file pursuant to Rule 415 under the Securities Act, a shelf registration
statement (a "Shelf Registration Statement") relating to the Purchaser
Registrable Securities requested to be so registered. The Company shall keep
such Shelf Registration Statement continuously effective for a period of 90 days
following the date on which the Commission declares such Shelf Registration
Statement effective under the Securities Act (subject to the extension pursuant
to Section 4.9 hereof), or such shorter period ending when all the Purchaser
Registrable Securities covered by such Shelf Registration Statement have been
sold.
19
<PAGE>
(ii) Upon the occurrence of any event that would cause the
Shelf Registration Statement (A) to contain an untrue or alleged untrue
statement of material fact, or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or (B) not to be effective and usable for resale of Purchaser
Registrable Securities during the period that such Shelf Registration Statement
is required to be effective and usable, the Company shall promptly file an
amendment to the Shelf Registration Statement, in the case of clause (A), to
correct any such misstatement or omission and, in the case of either clause (A)
or (B), use all reasonable efforts to cause such amendment to be declared
effective and such Shelf Registration Statement to become usable as soon as
practicable thereafter.
(f) Effective Registration Statement. A registration requested
--------------------------------
pursuant to this Section 4.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective;
provided, however, that if such registration statement does not become effective
after the Company has filed it solely by reason of the refusal to proceed by the
Holders (other than a refusal to proceed based upon the advice of counsel
relating to a matter with respect to the Company), then such registration shall
be deemed to have been effected unless the Silverado Initiating Holders, the TPG
Initiating Holders, the New York Life Initiating Holders or the Crescent
Initiating Holders, as the case may be, shall have elected to pay all
Registration Expenses referred to in Section 4.4 hereof in connection with such
registration, (ii) if, after the registration statement that relates to such
registration has become effective, such registration statement becomes subject
to any stop order, injunction or any order or requirement of the Commission or
other governmental agency or court for any reason and such order, injunction or
requirement is not promptly withdrawn or lifted, or (iii) the conditions to
closing specified in the purchase agreement or underwriting agreement entered
into in connection with such registration are not satisfied, other than by
reason of some act or omission by such Holders.
4.2 Form S-3. After the Company has qualified for the use of
--------
Form S-3, the Silverado Initiating Holders, the TPG Initiating Holders, the New
York Life Initiating Holders and the Crescent Initiating Holders each shall have
the right to registrations on Form S-3 (but not more than one registration in
20
<PAGE>
any twelve (12) month period shall be requested by each of the Silverado
Initiating Holders, the TPG Initiating Holders, the New York Life Initiating
Holders or the Crescent Initiating Holders) under this Section 4.2 (requests
shall be in writing and shall state the number of Registrable Securities to be
disposed of and the intended method of disposition of such shares by such Holder
or Holders); provided, however, that the Company shall not be required to effect
a registration pursuant to this Section 4.2 unless (a) the Holder or Holders
requesting registration propose to dispose of Registrable Securities which they
reasonably anticipate will have an aggregate disposition price (before deduction
of underwriting discounts and expenses of sale) of at least $5,000,000 and (b)
such Holder or Holders are not entitled to sell all of their shares within a
three-month period under Rule 144.
The Company shall give notice to all Holders of Registrable Securities
and all other Holders of the receipt of a request for registration pursuant to
this Section 4.2 and shall provide a reasonable opportunity for all Holders and
all other Holders to participate in the registration. Subject to the foregoing,
the Company will use all reasonable efforts to effect promptly the registration
of all Registrable Securities on Form S-3, as the case may be, to the extent
requested by the Holder or Holders thereof for purposes of disposition.
4.3 Company Registration.
--------------------
(a) Notice of Registration. If at any time or from time to time, the
----------------------
Company shall determine to register any of its Common Stock (including in a
Qualified IPO), for its own account or for the account of others, other than a
registration relating solely to employee benefit plans or a registration
relating solely to a Commission Rule 145 transaction or registration on any
registration form which does not include substantially the same information as
would be required to be included in a registration statement covering the sale
of Registrable Securities, the Company will:
(i) promptly give to (A) each Holder and (B) those other
stockholders of the Company who have "piggyback" registration rights
("Other Holders") written notice thereof; and
21
<PAGE>
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities
specified in a written request or requests by any Holder or Holders,
and all shares of Common Stock specified in a written request or
requests by the Other Holders, provided such written requests are
received by the Company within 20 days following receipt by such
Holders and the Other Holders of such notice from the Company.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving a firm commitment
underwriting, the Company shall so advise the Holders and the Other Holders as a
part of the written notice given pursuant to Section 4.3(a)(i). In such event,
the right of any Holder and the Other Holders to registration pursuant to this
Section 4.3 shall be conditioned upon such Holder's and the Other Holders'
participation in such underwriting and the inclusion of such Holder's
Registrable Securities and such Other Holders' Common Stock in the underwriting
to the extent provided herein. All Holders and Other Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 4.3, if the Company and the
underwriter or underwriters determine that marketing factors require limitation
of the number of shares to be underwritten, the underwriter may exclude from
such underwriting all or some of the shares proposed for registration on the
following basis:
(i) shares held by any person who does not have contractual
rights to cause the Company to register such shares shall first be
excluded;
(ii) if further reductions are required, any shares held
by the Other Holders will next be excluded, such reductions to be
allocated as nearly as practicable among each such Other Holder in the
proportion that the number of shares of Common Stock (on a fully
converted basis) held by such Other Holder
22
<PAGE>
bears to the total number of shares of Common Stock (on a fully
converted basis) held by all Other Holders seeking to register their
shares; and
(iii) if further reductions are required, Registrable
Securities and any shares held by the Holders will next be excluded,
such reductions to be allocated pro rata among such Holders based upon
the number of shares of Common Stock requested to be included by each
such Holder.
In the event any Stockholder other than the TPG Initiating Holders is
excluded as a result of the foregoing provisions from a registration (other than
a registration requested by the New York Life Initiating Holders or the Crescent
Initiating Holders), then such Stockholder shall be entitled to sell, on a pro
rata basis, the excluded Registrable Securities, prior to any other Registrable
Securities, pursuant to the underwriters' over-allotment option.
Except as provided in the last sentence of this paragraph, no shares
excluded from the underwriting by reason of the underwriter's marketing
limitation shall be included in such registration. If any Holder or Other
Holder disapproves of the terms of any such underwriting, such person may elect
to withdraw therefrom by written notice to the Company and the underwriter. The
Registrable Securities and/or other securities so withdrawn from such
underwriting shall also be withdrawn from such registration; provided, however,
that, if by the withdrawal of such shares a greater number of shares may be
included in such registration (up to the maximum of any limitation imposed by
the underwriters), then the Company shall offer to all Holders and Other Holders
who have included shares in the registration the right to include additional
shares in the same proportion used above in determining the underwriter
limitation.
4.4 Expenses of Registration. All Registration Expenses incurred
------------------------
in connection with one registration per year pursuant to Section 4.1 requested
by the Silverado Initiating Holders and one registration per year requested by
the TPG Initiating Holders and all Registration Expenses incurred in connection
with a registration pursuant to Section 4.2 or Section 4.3 (and pursuant to
Section 4.1 with respect to registrations requested by the New York Life
Initiating Holders and the Crescent Initiating Holders), including the
reasonable fees and expenses of one counsel for the Silverado Stockholders, the
TPG Stockholders and/or the New York Life Initiating Holders and the
23
<PAGE>
Crescent Initiating Holders, collectively shall be borne by the Company; and all
Selling Expenses shall be borne by the Holders of the Registrable Securities so
registered pro-rata on the basis of the number of shares so registered.
4.5 Registration Procedures. Whenever the Company is required to
-----------------------
register Registrable Securities pursuant to Sections 4.1, 4.2 or 4.3 hereof, the
Company will use all reasonable efforts to effect the registration to permit the
sale of such Registrable Securities in accordance with the intended method or
methods of disposition thereof, and pursuant thereto the Company will as
expeditiously as possible:
(a) prepare and file with the Commission as soon as practicable a
registration statement with respect to such Registrable Securities as prescribed
by Section 4 on a form available for the sale of the Registrable Securities by
the Holders thereof in accordance with the intended method or methods of
distribution thereof and use all reasonable efforts to cause each such
registration statement to become and remain effective; provided, however; that
before filing a registration statement, the Company will furnish the Holders of
Registrable Securities covered by such registration statement, the underwriters,
if any, and any attorney, accountant or other agent required by any such Holders
of Registrable Securities or underwriters (a) copies of all such documents
proposed to be filed, which documents will be subject to the review and comment
of such Holders, their counsel and underwriters, if any, and (ii) if requested,
financial and other information required by the Commission to be included in
such registration statement and all financial and other records, pertinent
corporate documents and properties of the Company customarily reviewed in
connection with an underwritten registration; and shall cause the officers,
directors and employees of the Company, counsel to the Company and independent
certified public accountants to Company, to respond to such inquiries and supply
all information, as shall be necessary, in the opinion of respective counsel to
such Holders and underwriters, to conduct a reasonable investigation within the
meaning of the Securities Act, and will not file any registration statement to
which the Holders of at least a majority of the
24
<PAGE>
Registrable Securities covered by such registration statement or the
underwriters, if any, shall reasonably object;
(b) prepare and file with the Commission such amendments, post-
effective amendments and prospectus supplements to such registration statement
as may be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement until the earlier of (i) the
period provided in Section 4.1 hereof (as such period may be extended pursuant
to Section 4.9 hereof) or (ii) such time as all such securities have been
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof set forth in such registration statement; provided, that the
Company shall be deemed not to have used all reasonable efforts to keep a
registration statement effective during the applicable period if it voluntarily
takes any action that results in the selling Holders of the Registrable
Securities covered thereby not being able to sell such Registrable Securities
during that period;
(c) furnish to each Holder of Registrable Securities covered by a
registration statement and to each underwriter; if any, such number of copies of
such registration statement, each amendment and post-effective amendment
thereto, the prospectus included in such registration statement (including each
preliminary prospectus and any supplement to such prospectus and any other
prospectus filed under Rule 424 of the Securities Act), in each case including
all exhibits, and such other documents as such seller may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
seller or to be disposed of by such underwriter (the Company hereby consenting
to the use, in accordance with all applicable laws, of each such registration
statement (or amendment or post-effective amendment thereto) and each such
prospectus (or preliminary prospectus or supplement thereto) by each such seller
and the underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by such registration statement or prospectus);
(d) use all reasonable efforts to register or qualify and, if
applicable, to cooperate with the selling Holders of Registrable Securities, the
underwriters, if any, and their respective counsel in connection with the
registration or
25
<PAGE>
qualification (or exemption from such registration or qualification) of, the
securities to be included in a registration statement for offer and sale under
the securities or blue sky laws of such jurisdictions as any selling Holder or
managing underwriters (if any) shall reasonably request, to keep each such
registration or qualification (or exemption therefrom) effective during the
period such registration statement is required to be kept effective and to do
any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the securities covered by the applicable
registration statement, provided, that the Company will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph or (ii) consent to
general service of process in any such jurisdiction;
(e) cause all such Registrable Securities to be listed on each
securities exchange on which securities of the same class as the Registrable
Securities are then listed and, if not so listed, to be listed on the NASD
automated quotation system and, if listed on the NASD automated quotation
system, use all reasonable efforts to secure designation of all such Registrable
Securities covered by such registration statement as a NASDAQ "national market
system security" within the meaning of Rule 11Aa2-1 under the Exchange Act or,
failing that, to secure NASDAQ authorization for such Registrable Securities
and, without limiting the generality of the foregoing, to use its reasonable
efforts to arrange for at least two market makers to register as such with
respect to such Registrable Securities with the NASD;
(f) provide a transfer agent and registrar for all such Registrable
Securities and a CUSIP number for all such Securities not later than the
effective date of such registration statement;
(g) comply with all applicable rules and regulations of the Commission
and make available to its security holders an earnings statement satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or
any similar rule promulgated under the Securities Act) no later than 45 days
after the end of any 12-month period (or 90 days after the end of any 12-month
period if such period is a fiscal year) (or in each case within such extended
period of time as may be permitted by the Commission for filing the applicable
report
26
<PAGE>
with the Commission) (i) commencing at the end of any fiscal quarter in
which Registrable Securities are sold to underwriters in a firm commitment or
best efforts under written offering or (ii) if not sold to underwriters in such
an offering, commencing on the first day of the first fiscal quarter of the
Company after the effective date of a registration statement, which earnings
statement shall cover said 12-month period;
(h) permit any Holder which, in its sole and exclusive judgment, might
be deemed to be an underwriter or a controlling person of the Company, to
participate in the preparation of such registration or comparable statement and
to require the insertion therein of material, furnished to the Company in
writing, which in the reasonable judgment of such Holder and its counsel should
be included;
(i) use all reasonable efforts to prevent the issuance of any order
suspending the effectiveness of a registration statement or suspending the
qualification (or exemption from qualification) of any of the securities
included therein for sale in any jurisdiction, and, in the event of the issuance
of any stop order suspending the effectiveness of a registration statement, or
of any order suspending the qualification of any securities included in such
registration statement for sale in any jurisdiction, the Company will use all
reasonable efforts promptly to obtain the withdrawal of such order at the
earliest possible moment;
(j) obtain "cold comfort" letters and updates thereof (which letters
and updates (in form, scope and substance) shall be reasonably satisfactory to
the managing underwriters, if any, and counsel to the selling Holders of
Registrable Securities) from the independent certified public accountants of the
Company (and, if necessary, any other independent certified public accountants
of any subsidiary of the Company or of any business acquired by the Company for
which financial statements and financial data are, or are required to be,
included in the registration statement), addressed to each of the underwriters,
if any, and each selling Holder of Registrable Securities, such letters to be in
customary form and covering matters of the type customarily covered in "cold
comfort" letters in connection with underwritten offerings and such other
matters as the underwriters, if any, or the Holders of a majority of the
Registrable Securities being sold may reasonably request;
27
<PAGE>
(k) obtain opinions of independent counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters, if any, and not objected
to by the Holders of a majority of the Registrable Securities being sold),
addressed to each selling Holder and each of the underwriters, if any, covering
the matters customarily covered in opinions of issuer's counsel requested in
underwritten offerings, such as the effectiveness of the registration statement
and such other matters as may be requested by the underwriters, if any;
(l) promptly (but in any event, within two business days) notify the
selling Holders of Registrable Securities, their counsel and the managing
underwriters, if any, and confirm such notice in writing:
(i) when a prospectus or any supplement or post-effective
amendment to such prospectus has been filed, and, with respect to a
registration statement or any post-effective amendment thereto, when the
same has become effective;
(ii) of any request by the Commission or any other Federal or
state governmental authority for amendments or supplements to a
registration statement or related prospectus or for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of a registration statement or of any order
preventing or suspending the use of any prospectus or the initiation of any
proceedings by any Person for that purpose;
(iv) if at any time the representations and warranties of the
Company contemplated by clause (i) of paragraph (q) below cease to be true
and correct in any material respect,
(v) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from
qualification of a registration statement or any of the Registrable
Securities for offer or sale under the securities or blue sky laws of
28
<PAGE>
any jurisdiction, or the contemplation, initiation or threatening, of any
proceeding for such purpose;
(vi) of the happening of any event that makes any statement made
in such registration statement untrue in any material respect or that
requires the making of any changes in such registration statement so that
it will 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, in light of the circumstances under which they were
made (in the case of any prospectus), not misleading; and
(vii) of the Company's reasonable determination that a post-
effective amendment to a registration statement would be appropriate.
(m) if requested by the managing underwriters, if any, or a Holder of
Registrable Securities being sold, promptly incorporate in a prospectus,
supplement or post-effective amendment and information as the managing
underwriters, if any and the Holders of a majority of the Registrable Securities
being sold reasonably request to be included therein relating to the sale of the
Registrable Securities, including, without limitation, information with respect
to the number of shares of Registrable Securities being sold to underwriters,
the purchase price being paid therefor by such underwriters and with respect to
any other terms of the underwritten offering of the Registrable Securities to be
sold in such offering, and make all required filings of such prospectus,
supplement or post-effective amendment promptly following notification of the
matters to be incorporated in such supplement or post-effective amendment;
(n) furnish to each selling Holder of Registrable Securities and the
managing underwriter, without charge, at least one signed copy of the
registration statement;
(o) cooperate with the selling Holders of Registrable Securities and
the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing in the Registrable Securities not bearing
any restrictive legends and in a form eligible for deposit with The Depository
Trust Company to be sold and cause such Registrable Securities to be in such
denominations and registered in such
29
<PAGE>
names as the managing underwriters, if any, or holder of Registrable Securities
may request at least three business days prior to any sale of Registrable
Securities to the underwriters;
(p) as promptly as practicable upon the occurrence of any event
contemplated by clause (l)(vi) above, prepare a supplement or post-effective
amendment to the registration statement, or file any other required documents so
that, as thereafter delivered to the purchasers of the Registrable Securities
being sold hereunder, the prospectus will not contain an untrue statement of a
material fact or an omission to state a material fact to be required to be
stated in a registration statement or prospectus or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(q) enter into such agreements (including underwriting agreements in
customary form, scope and substance) and take all such other actions in
connection therewith as the Holders of a majority of the Registrable Securities
being sold or the underwriters, if any, reasonably request in order to expedite
or facilitate the registration or the disposition of such Registrable
Securities, and in such connection, whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten
registration:
(i) make such representations and warranties to the Holders of
such Registrable Securities and the underwriters, if any, with respect to
the business of the Company and the registration statement, in form,
substance and scope as are customary made by issuers to underwriters in
underwritten offerings and confirm the same, if and when requested;
(ii) if an underwriting agreement is entered into, cause the
same to include the indemnification and contribution provisions and
procedures substantially similar to ( and use all reasonable efforts to
assure that such provisions are no less favorable to the selling Holders of
Registrable Securities than) those contained in Section 4.6 hereof with
respect to all parties to be indemnified pursuant to said Section (or, with
respect to the indemnification of such underwriters, such similar
30
<PAGE>
indemnification and contribution provisions as such underwriters shall
customarily require); and
(iii) deliver such documents and certificates as may be
requested by the Holders of a majority of the Registrable Securities being
sold and managing underwriters, if any, to evidence compliance with clause
(i) above and with any conditions contained in the underwriting agreement
or other similar agreement entered into by the Company;
The above shall be done at each closing under such underwriting or
similar agreement or as and to the extent otherwise reasonably requested by the
Holders of a majority of the Registrable Securities being sold.
(r) cooperate with each seller of Registrable Securities covered
by any registration statement and each underwriter, if any, participating in the
disposition of such Registrable Securities and their respective counsel in
connection with any filings required to be made with the NASD;
(s) use all reasonable efforts to take all other steps necessary
to effect the registration of the Registrable Securities covered by the
registration statement contemplated hereby.
Each Holder agrees by the acquisition of such Registrable Securities
that, upon receipt of written notice from the Company of the happening of any
event of the kind described in Section 4.5(l)(ii), 4.5(l)(iii), 4.5(l)(v),
4.5(l)(vi), or 4.5(l)(vii), such Holder will forthwith discontinue disposition
of such Registrable Securities covered by such registration statement until
such Holder's receipt of the copies of the supplemented or amended registration
statement contemplated by Section 4.5(p), or until it is advised in writing (the
"Advice") by the Company that the use of applicable prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such prospectus, and,
if so directed by the Company, such Holder shall deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such
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<PAGE>
notice. If the Company shall give any such notice, the time periods mentioned in
Section 4.1 hereof shall be extended by the number of days during such periods
from and including the date of the giving of such notice to and including the
date when each seller of Registrable Securities covered by such registration
statement receives (x) the copies of the supplemented or amended prospectus
contemplated by Section 4.5(p) hereof or (y) the Advice, as the case may be.
4.6 Indemnification and Contribution.
--------------------------------
(a) Company Indemnification. The Company will indemnify, to the
-----------------------
fullest extent permitted by law, each Holder (which term, for purposes of this
Section 4.6, shall be deemed to include Other Holders who include shares in a
registration), its Affiliates, each of its and its Affiliates' officers,
directors, employees, counsel, agents, representatives and partners, and each
person controlling within the meaning of Section 15 of the Securities Act or
Section 20 the Exchange Act, such Holder or its Affiliates, participating in any
registration, qualification, or compliance effected pursuant to this Section 4
with respect to Registrable Securities held by such Holder, each person
controlling the Company who is not participating in such registration,
qualification or compliance and each underwriter, if any, and each person who
controls any underwriter, against all claims, losses, damages, costs (including,
without limitation, costs of investigation and reasonable attorneys' fees and
disbursements, expenses and liabilities (or actions in respect thereof
collectively "Losses"), including any of the foregoing incurred in settlement of
any litigation, commenced or threatened, to which they may become subject under
the Securities Act, the Exchange Act, or other federal or state law, arising out
of or based on (i) any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other similar
document (including any related registration statement, notification, or the
like) incident to any such registration, qualification or compliance, or based
on any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances under which they were made, or (ii) any violation
by the Company of any federal, state, or common law rule or regulation
applicable to the Company in connection with any such registration,
qualification, or compliance, and will reimburse
32
<PAGE>
each such Holder, each of its Affiliates and its and its Affiliates' officers,
directors, employees, counsel, agents, representatives and partners, and each
person controlling such Holder or its Affiliates, each such person controlling
the Company who is not participating in such registration, qualification or
compliance, each such underwriter, and each person who controls any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating or defending any Losses, as incurred, provided
that the Company will not be liable to such Holder in any such case to the
extent that any such Losses arise out of or are based on any untrue statement or
omission, made in reliance on and in conformity with written information
furnished to the Company expressly for use in the registration statement by such
Holder.
(b) Holder Indemnification. Each Holder will, if Registrable
----------------------
Securities held by such Holder are included in the securities as to which such
registration, qualification, or compliance is being effected, indemnify the
Company, each of its directors and officers, each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company or such underwriter within the meaning of the Securities
Act, each other Holder and each Other Holder, and each of its officers,
directors, and partners and each person controlling such other Holder or Other
Holder, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on (i) any untrue statement (or alleged
untrue statement) by such Holder of a material fact contained in any such
registration statement, prospectus by such Holder, offering circular, or other
similar document, or any omission (or alleged omission) by such Holder to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made, and will reimburse the Company, such other Holders, such
directors, officers, persons, underwriters, or control persons for any legal or
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability, or action, as incurred, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular, or other document in
reliance upon and in conformity with written
33
<PAGE>
information furnished to the Company expressly for use in the registration
statement by such Holder, or (ii) any violation by such Holder, in connection
with a non-underwritten offering, of any federal, state, or common law rule or
regulation applicable to such Holder in connection with the distribution of
securities pursuant to a registration statement, and will reimburse the Company,
such other Holders, such directors, officers, persons, or control persons for
any legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability, or action,
as incurred; provided, however, that the obligations of each such Holder
hereunder shall be limited to an amount equal to the aggregate proceeds (net of
payment of all expenses) received by such Holder in such offering.
(c) Notice of Actions. Each party entitled to indemnification under
-----------------
this Section 4.6 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has received written notice of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume the
defense (including the payment of all fees and expenses incurred in connection
thereof) of any such claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense of such claim
or litigation, shall be approved by the Indemnified Party (whose approval shall
not unreasonably be withheld). Each Indemnified Party shall have the right to
employ separate counsel in such defense but the fees and expenses of such
counsel shall be at the expense of each such Indemnified Party unless the
representation of both parties by the same counsel would be inappropriate due to
actual or potential conflicts of interest or if the Indemnifying Party fails to
promptly assume the defense. No Indemnified Party shall be liable for any
settlement effected without its written consent. Each Indemnifying Party
agrees, jointly and severally, that it will not, without the Indemnified Party's
prior written consent, consent to entry of any judgment or settle or compromise
any pending or threatened claim, action or proceeding in respect of which
indemnification or contribution may be sought hereunder unless the foregoing
contains an unconditional release, in form and substance reasonably satisfactory
to the Indemnified Party, of the Indemnified Party from all liability and
obligation arising therefrom.
34
<PAGE>
The Indemnifying Party's liability to any Indemnified Party hereunder shall
not be extinguished solely because any other Indemnified Party is not entitled
to indemnity hereunder.
The Indemnification provided for under this Agreement will remain in full
force and effect regardless of any investigation made by or on behalf of the
Indemnified Party or any officer, director or controlling person of such
Indemnified Party, and will survive the Transfer of Registrable Securities. The
failure of any Indemnified Party or Parties to give notice as provided herein
shall relieve the Indemnifying Party of its obligations under this Section 4.6
only to the extent that such failure to give notice shall materially adversely
prejudice the Indemnifying Party in the defense of any such claim or any such
litigation. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
(d) Contribution. If the indemnification provided for in this Section
------------
4.6 is unavailable or insufficient to hold harmless an Indemnified Party under
Section 4.5(a) or (b) above, then each Indemnifying Party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in Section 4.6(a) or (b) above (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand and the Holders on the other from the offering of
the Shares and the relative fault of the Company on the one hand and the Holders
on the other in connection with the statements or omissions that resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. Relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Holders and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The Company and the Holders agree that it
would not be just and equitable if contributions pursuant to this Section 4.6(d)
were to be
35
<PAGE>
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to in the first
sentence of this Section 4.6(d). The amount paid or payable by an Indemnified
Party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this Section 4.6(d) shall be deemed to include any legal
or other expenses reasonably incurred by such Indemnified Party in connection
with investigating or defending against any action or claim which is the subject
of this Section 4.6(d). Notwithstanding the provisions of this Section 4.6(d),
no Holder shall be required to contribute any amount in excess of the proceeds
(net of payment of all expenses) received by such Holder in the registration. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Holders'
obligations in this Section 4.6(d) to contribute are several in proportion to
the number of Registrable Securities sold by each Holder participating in a
registration and not joint. Each party entitled to contribution agrees that upon
the service of a summons or other initial legal process upon it in any action
instituted against it in respect of which contribution may be sought, it shall
promptly give written notice of such service to the party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
of any such service shall not relieve the party from whom contribution may be
sought from any obligation it may have hereunder or otherwise (except as
specifically provided in Section 4.6(c) hereof). The indemnity and contribution
agreements contained in this Section 4.6 are in addition to any indemnity that
the Indemnifying Parties may have to the Indemnified Parties.
4.7 Information by Holder. Each Holder of Registrable Securities
---------------------
included in any registration shall furnish to the Company such information
regarding such Holder and the distribution proposed by such Holder as the
Company may reasonably request in writing and as shall be required in connection
with any registration, qualification, or compliance referred to in this Section
4.
4.8 Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission that may at any time permit
the sale of shares of
36
<PAGE>
Common Stock to the public without registration, after such time as a public
market exists for the Common Stock of the Company, the Company agrees to:
(a) Use its best efforts to facilitate the sale of shares of Common
Stock to the public, without registration under the Securities Act, pursuant to
Rule 144 under the Securities Act, provided that this shall not require the
Company to file reports under the Securities Act or the Exchange Act at any time
prior to the Company's being otherwise required to file such reports;
(b) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act at all times after
90 days after the effective date of the first registration under the Securities
Act filed by the Company for an offering of its securities to the general
public;
(c) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements);
(d) During any period in which the Company is not subject to Section 13
or 15(d) of the Exchange Act, make available the information required to be
provided by Rule 144A(d)(4);
(e) So long as a Holder owns any shares of Common Stock which constitute
restricted securities under Rule 144 to furnish to the Holder forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of said Rule 144 (at any time after 90 days after the
effective date of the first registration statement filed by the Company for an
offering of its securities to the general public), and of the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as a
Holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing a Holder to sell any such securities without
registration.
37
<PAGE>
4.9 "Market Stand-off" Agreement. Each Holder and the Company agree
---------------------------
not to sell or otherwise transfer or dispose of any Common Stock or other
securities of the Company (other than in a private transaction) held by it
during a period of 180 days (or such shorter period as the Company and the
underwriters may agree upon in connection with a Qualified IPO) following the
effective date of a registration statement of the Company filed under the
Securities Act in connection with a Qualified IPO. The Company may impose stop-
transfer instructions with respect to the shares (or securities) subject to the
foregoing restriction until the end of such period. If a request is made
pursuant to this Section 4.9, then the time period during which a Shelf
Registration is required to remain continuously effective for Holders of
Purchaser Registrable Securities pursuant to the terms of this Agreement shall
be extended for 97 days.
4.10 Transfer of Registration Rights. Subject to compliance with
-------------------------------
Sections 2 and 3 hereof, the rights granted under this Section 4 may be assigned
or otherwise conveyed in whole or in part by any Holder of Registrable
Securities to any transferee; provided that in each case the Company is given
written notice of the transfer, stating the name and address of said transferee
and said transferee's agreement to be bound by the provisions of this Agreement;
provided however, that any Holder of Registrable Securities may transfer to any
partner or retired partner of the Holder, or to any parent, subsidiary or other
person or entity which is an Affiliate of the Holder, the rights granted under
this Section 4, so long as the Company is given written notice of such
transferee's agreement to be bound by the provisions of this Agreement, without
meeting the other conditions set forth in this Section 4.10.
4.11 Certain Limitations in Connection with Future Grants of
------------------------------------------------------
Registration Rights. From and after the date of this Agreement, the Company
- -------------------
shall not enter into any agreement with any holder or prospective holder of any
securities of the Company providing for the granting to such holder of
registration rights unless such agreement:
(a) includes the equivalent of Section 4.9 as a term; and
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<PAGE>
(b) contains provisions substantially similar to those contained in
Section 4.3(b) with respect to the allocation of Registrable Securities to be
included in an underwritten public offering if marketing factors require a
limitation on the number of such securities to be included.
Notwithstanding the foregoing, from and after the date of this Agreement,
without the prior written consent of the Holders of a majority of the
Registrable Securities, the Company shall not enter into any agreement with any
person or persons providing for the granting to such holder of registration
rights superior to those granted to Holders pursuant to Section 4.1,4.2 or 4.3.
4.12 Covenants of Holders. (a) In the event any shares of Common Stock
--------------------
are offered or sold by any Holder in a registration, each such Holder will: (i)
advise the Company in writing of any offer, sale or other disposition by it of
any Common Stock in any manner other than as set forth in the registration
statement or any prospectus included therein on or before the respective dates
thereof; (ii) not effect any stabilization activity in connection with the
Company's Common Stock; (iii) not bid for or purchase, for any account in which
it has a beneficial interest, any Common Stock other than in transactions
permitted pursuant to Rule 10b-6 under the Exchange Act (if applicable); and
(iv) not, until it has sold all of such shares of Common Stock, attempt to
induce any person to purchase any Common Stock other than in transactions
permitted pursuant to Rule 10b-6.
(b) Each Holder shall, if requested by the Company or the managing
underwriter(s) in connection with any proposed registration and distribution
pursuant to this Agreement, (i) agree to sell the Registrable Securities on the
basis provided in any underwriting arrangements satisfactory to such Holder
entered into in connection therewith and (ii) complete and execute all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents customary in similar offerings (and the Company shall use all
reasonable efforts to assure that such agreements and documents contain
provisions that are no event less favorable to such Holder than the indemnities
provided herein).
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<PAGE>
5. Board of Directors.
------------------
5.1. Voting for the Election of Directors. Each of the Stockholders
------------------------------------
agrees on behalf of itself and any person to whom it Transfers any shares of
Common Stock (other than transferees of Securities owned by the Purchasers),
during the term of this Agreement and any extensions thereof, to hold all of the
shares of Common Stock registered in their respective names (and any securities
of the Company issued with respect to, or in exchange or substitution therefor
or upon conversion thereof) subject to, and to vote such Common Stock in
accordance with, the provisions of this Agreement in connection with the
election of directors.
5.2. Election Of Directors. The Certificate or Bylaws will provide
---------------------
for a 15 member Board of Directors. The members of the Company's Board of
Directors shall be nominated, elected, removed, and replaced in the following
manner:
(a) Selection. Four directors shall be selected by a majority of
---------
the Silverado Stockholders so long as they hold any shares of Common Stock (the
"Silverado Directors"). Eight directors shall be selected by a majority of the
TPG Stockholders so long as the TPG Stockholders hold any shares of Common Stock
(the "TPG Directors"). One director shall be the then current Chief Executive
Officer of the Company. Two directors shall be persons who are not Silverado
Stockholders or Affiliates of Silverado Stockholders ("Independent Directors").
The Independent Directors shall be selected by the Silverado Stockholders,
subject to the consent of the TPG Stockholders, whose consent shall not be
unreasonably withheld.
(b) Election. Each of the Stockholders (other than transferees of
--------
Securities owned by the Purchasers) hereby agrees that such person or entity
will vote his or her shares of Common Stock of the Company to elect those
directors selected according to (a) above.
(c) Removal And Replacement. Each of the Silverado Stockholders
-----------------------
and the TPG Stockholders hereby agrees that, absent the consent from the other,
such person or entity will not vote its shares of Common Stock of the Company
for the removal, without cause, of a director nominated by the other. In the
case of the removal of a director nominated by the Silverado
40
<PAGE>
Stockholders, each of the TPG Stockholders hereby agrees that such person or
entity will vote its shares of Common Stock of the Company to replace such
removed director only with the consent of the Silverado Stockholders. Further,
in the case of the removal of a director nominated by the TPG Stockholders, each
of the Silverado Stockholders hereby agrees that such person or entity will vote
its shares of Common Stock to replace such removed director only with the
consent of the TPG Stockholders.
(d) The parties agree that any director serving pursuant to the
terms of this Section 5 shall be entitled to continue to serve as a director on
a board on which he or she is now serving, including the boards of other
wineries (provided such other wineries are disclosed in writing to the Company
in connection with the execution of this Agreement). However, no director
serving pursuant to the terms of this Section 5 shall join the board of another
winery or corporation whose operations are related to the wine industry without
the approval of a majority of the directors of the Company.
6. Voting Agreement and Bring-Along Rights.
---------------------------------------
6.1 Bring-Along Rights.
------------------
(a) The Rights. In the event of a Change of Control Transaction
----------
approved by the Board, then (following transmittal of a notice to be provided by
the Company to the Stockholders no less than 20 days before the consummation of
the Change of Control Transaction) subject to the provisions of this Section 6,
all Stockholders shall cooperate in, and shall take all actions which TPG and
the Company deem reasonably necessary or desirable to consummate the Change of
Control Transaction, including, without limitation, (i) entering into agreements
with third parties on terms substantially identical or more favorable to such
Stockholders than those applicable to TPG (which agreements may require a
stockholder to sell all of his, her or its Securities and may, subject to the
provisions of this Section 6, require representations, indemnities, holdbacks,
and escrows), and (ii) obtaining all governmental consents and approvals
reasonably necessary or desirable to consummate such Change of Control
Transaction (to the extent such consents and approvals may be obtained without
any significant expense by the Stockholder, unless such expenses are reimbursed
by the Company).
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<PAGE>
(b) Conditions to Rights. The obligations of the Stockholders
--------------------
pursuant to this Section 6.1 are subject to the satisfaction of the following
conditions, unless such conditions are waived in writing by a particular
Stockholder only with respect to such Stockholder:
(i) Subject to clause (ii), upon the consummation of the
Change of Control Transaction, all of the holders of Preferred Stock or Common
Stock will receive the same form and amount of consideration per share of
Preferred Stock and Common Stock, respectively, or if any holders of Preferred
Stock or Common Stock are given an option as to the form and amount of
consideration to be received, all holders will be given the same option.
(ii) The Purchasers shall not be required to accept
consideration in a Change of Control Transaction in which the rights set forth
in this Section 6 are exercised other than for cash or equity securities
registered under the Exchange Act and listed the New York or American Stock
Exchange or the NASDAQ National Market ("Public Securities"). A Change of
Control Transaction involving consideration other than cash or Public Securities
may be effected and the rights provided in this Section 6 may be exercised if
the Purchasers receive consideration consisting solely of cash and Public
Securities in respect of their Securities, with the value of the consideration
receivable in such a Transaction determined in the manner described below. The
value shall initially be determined in good faith by the Board of Directors of
the Company and the Company shall provide written notice thereof to the
Stockholders. If no objection is made within 10 days, the value determined by
the Board of Directors shall be final and binding on the parties. If either New
York Life or the holders of a majority of the Securities purchased by Crescent
object in writing to such valuation within 10 days after receipt of notice from
the Company, the Company shall select an independent financial appraiser,
Purchasers holding a majority of the Securities then held by the Purchasers
shall select an independent financial appraiser, and the two financial
appraisers shall select a third independent financial appraiser to determine
value. The cost and expense of the appraisers shall be paid by the Company.
(iii) No Stockholder shall be obligated to pay more than his,
her or its pro-rata share of reasonable
42
<PAGE>
expenses incurred in connection with a consummated Change of Control Transaction
to the extent such costs are incurred for the benefit of all Stockholders and
are not otherwise paid by the Company or the acquiring party (costs incurred by
or on behalf of a Stockholder for his, her or its sole benefit will not be
considered costs of the transaction hereunder).
(iv) The only representation and warranty or covenant which
the Purchasers shall be required to make in connection with the Change of
Control Transaction is a representation and warranty with respect to its own
ownership of the Securities to be sold by it and its ability to convey title
thereto free and clear of liens, encumbrances or adverse claims; the liability
the Purchasers with respect to any representation and warranty made in
connection with a Change of Control Transaction shall be several and not joint
with any other person; such liability shall be limited to the amount of proceeds
actually received by such Purchaser in the Change of Control Transaction, and no
Purchaser shall be required to provide any indemnification or escrow (other than
a pro rata share of any escrow provided by all Stockholders) to anyone in
connection with the Change of Control Transaction, other than with respect to
the representations, warranties and covenants made by such Purchaser in
connection with the Change of Control Transaction; provided, however, that a
Purchaser shall not be obligated to participate in a Change of Control
Transaction unless such Purchaser is provided an opinion of counsel to the
effect that the sale in connection with such Change of Control Transaction is
not in violation of the registration or qualification requirements of federal or
applicable state securities laws, or, if such Purchaser is not provided with
such an opinion, the Company shall indemnify the Purchaser for any violation.
(c) Appointment of Purchaser Representative. If TPG enters into any
---------------------------------------
negotiation with respect to a Change of Control Transaction for which Rule 506
under the Securities Act (or any similar rule then in effect) may be available,
each Stockholder who is not an accredited investor (as such term is defined in
Rule 501 under the Securities Act) will, at the request of the Company, appoint
a purchaser representative (as such term is defined in Rule 501 under the
Securities Act) reasonably acceptable to the Company.
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6.2 Voting. Section 6.1 provides that, in certain circumstances,
------
the Stockholders must sell the Securities owned by them in connection with a
Change of Control Transaction. In order to implement the provisions of Section
6.1, each of the Stockholders by executing this Agreement hereby agrees to vote
or to execute and deliver written consents in respect of all Securities now
owned or hereafter registered in his or her name in connection with the approval
of a Change of Control Transaction. Each of the Stockholders affirms that his or
her agreement to vote for approval of a Change of Control Transaction is given
as a condition of this Agreement, the Subscription Agreement and the Securities
Purchase Agreements and as such is coupled with an interest and is irrevocable.
This voting agreement of the Stockholders shall remain in full force and effect
and be enforceable against any donee, transferee or assignee of the Securities
that is required to become a party to this Agreement. This voting agreement
shall remain in full force and effect until the termination of this Agreement.
It is understood that this voting agreement relates solely to a Change of
Control Transaction and does not constitute the agreement to vote or consent as
to any other matters.
6.3 Silverado Rights. Notwithstanding the provisions of Section
----------------
6.1, if a Change of Control Transaction occurs on or before January 16, 1999 and
the Silverado Stockholders do not receive, in connection therewith (together
with any prior amounts distributed to the Silverado Stockholders) cash,
securities or other property with a fair market value (as determined in good
faith by the Board) of at least $3.5 million plus an amount equal to 10% per
annum (not compounded) from January 16, 1996 to the proposed closing date of the
Change of Control Transaction, then the Silverado Stockholders collectively
shall have the option (the "Bring-Along Option") to purchase for cash ( and all
Stockholders shall be required to sell for cash) all but not less than all
Securities owned by the other Stockholders at the valuation proposed in the
Change of Control Transaction, subject to the satisfaction of the conditions in
6.1(b) and, to the extent more favorable to the other Stockholders, the last
sentence of this Section 6.3. The Silverado Stockholders may exercise the Bring-
Along Option by written notice to the other Stockholders not later than 15 days
following receipt of the notice of the Change of Control Transaction required in
Section 6.1 hereof. The closing of the
44
<PAGE>
Bring-Along Option shall take place within 45 days after the notice of exercise
of the Bring-Along Option. No representations, warranties or other indemnities
or escrows shall be required in connection with the exercise of the Bring-Along
Option.
6.4 Termination of Rights. The provisions of this Section 6 shall
---------------------
terminate and cease to be of any further force and effect following the
consummation of a Change of Control Transaction.
7. Tag-Along Rights.
----------------
7.1 The Tag-Along Rights Notice. If TPG or TPGI (a "Selling
---------------------------
Stockholder") negotiates or receives and elects to accept one or more bona fide
offers to purchase shares of Preferred Stock or shares of Common Stock (a
"Purchase Offer"), such Selling Stockholder, subject to other restrictions
contained herein, shall promptly notify in writing the other Stockholders (the
"Participating Stockholders") and the Company of the terms and conditions of
such Purchase Offer and the number of Securities proposed for sale pursuant to
the Purchase Offer (the "Tag-Along Rights Notice") and must include therewith a
copy of drafts of all materials relating to the Purchase Offer.
7.2 The Rights. The Participating Stockholders shall have the
----------
right, exercisable upon written notice to the Selling Stockholder within 20 days
after the date of the Tag-Along Rights Notice, to participate in accordance with
the terms and conditions set forth below in the Selling Stockholder's sale of
Debt, Preferred Stock or Common Stock pursuant to the specified terms and
conditions of such Purchase Offer. To the extent the Participating Stockholder
exercises such right of participation, the number of shares of Preferred Stock
or Common Stock that the Selling Stockholder may sell pursuant to such Purchase
Offer shall be correspondingly reduced. The right of participation shall be
subject to the following terms and conditions:
(a) Participation shall be limited to similar securities. If a
Selling Stockholder is selling Preferred Stock a Participating Stockholder must
sell Preferred Stock. If a Selling Stockholder is selling Common Stock a
Participating Stockholder must sell Common Stock. If a Selling Stockholder is
45
<PAGE>
selling a combination or strip of Securities, a Participating Stockholder to
participate must sell the same combination or strip of Securities, to the extent
such Participating Stockholder owns Securities of that type; provided that if a
Participating Stockholders does not own one or more of the particular Securities
being sold by the Selling Stockholder, such Participating Stockholder may
participate with respect to the type of Securities it owns.
(b) Each Participating Stockholder may sell all or any part of that
number of Securities being sold owned by such Participating Stockholder that is
not in excess of the product obtained by multiplying (i) the number of shares
of Preferred Stock and/or Common Stock covered by the Purchase Offer that the
Selling Stockholder may sell by (ii) a fraction, the numerator of which is the
number of shares of Preferred Stock and/or Common Stock (including Common Stock
issuable upon exercise of the Options and Warrants) of the Company at the time
owned by that Participating Stockholder, and the denominator of which is the
number of shares of Preferred Stock and/or Common Stock of the Company then
outstanding (including Common Stock issuable upon exercise of the Options and
Warrants). Fractions shall be computed separately for the Preferred Stock and
Common Stock.
(c) Nothing herein shall prevent TPG, a majority of the Securities
held by the Silverado Stockholders or a majority of the Securities held by New
York Life or a majority of the Securities held by Crescent from waiving their
rights under this Section 7.
7.3 Procedures. (a) Each Participating Stockholder may effect his,
----------
her or its participation in the sale by delivering to the Selling Stockholder,
with a copy to the Company, within the 10-day period specified under Section 7.2
above, for transfer to the maker(s) of the Purchase Offer, one or more
certificates or other instruments, properly endorsed for transfer, which shall
be accompanied by a written election to participate in the sale with respect to
the number of shares of Preferred Stock and/or Common Stock (the "Election
Number") and shall represent at least the Election Number of the Securities.
(b) The certificates and other instruments that the Participating
Stockholder delivers pursuant to Section 7.2 above shall be transferred by the
Company to the maker(s) of the
46
<PAGE>
Purchase Offer in consummation of the sale of the applicable Securities pursuant
to the terms and conditions specified in the Tag-Along Rights Notice to the
Participating Stockholder, and the Company shall promptly thereafter remit to
such Participating Stockholder that portion of the sale proceeds to which such
person is entitled by reason of his participation in such sale and any stock
certificates representing any remaining securities not sold in such sale;
provided however, that if there is any material change in the terms and
conditions of the transaction described in the Tag-along Rights Notice
(including, without limitation, any decrease in the purchase price) after a
Selling Stockholder makes the election set forth above, then such Selling
Stockholder has the right to withdraw from participation in such transaction any
or all Preferred Stock and/or Common Stock.
7.4 Future Rights. The exercise or non-exercise of the rights of
-------------
the Participating Stockholders to participate in one or more sales of Securities
made by a Selling Stockholder shall not adversely affect the rights of the
Participating Stockholders to participate in subsequent sales by a Selling
Stockholder pursuant to this Section 7.
7.5 Limits and Termination. The provisions of this Section 7 shall
----------------------
not pertain or apply to: (a) sales by a Selling Stockholder of not more than 5%
(when aggregated with all prior sales) of his her, or its Securities; (b)
Transfers made in accordance with the provisions of Sections 2.5 and, in the
case of Participating Stockholders, Section 7 hereof; (c) sales pursuant to an
effective registration statement under the Securities Act; (d) Change of Control
Transactions in which the rights provided in Section 6 are exercised; (c) sales
by TPG Stockholders pursuant to the TPG Securities Purchase Agreement and the
sale by TPG Stockholders of up to an additional $10 million of Preferred Stock
and an amount of Common Stock not to exceed $2.0 million, if sold as a strip.
The provisions of this Section 7 shall cease to be of any further force and
effect upon the closing of a Qualified IPO.
8. Other Covenants of Stockholders and the Company.
-----------------------------------------------
(a) Issuance of Additional Shares. The Company shall require any
-----------------------------
person to whom it issues shares of preferred stock or Common Stock to become a
party to this Agreement and agree to be bound by all the provisions hereof. The
parties
47
<PAGE>
hereto agree that any such additional purchaser shall become a party hereto
without further consent of the parties by signing this Agreement and being added
to the list of parties on Exhibit A hereto.
---------
(b) Additional Fee to MAR Enterprises, Inc. The parties to this
---------------------------------------
Agreement agree that TPG and the Silverado Stockholders will have the right to
cause the Company to pay MAR Enterprises, Inc. a fee of up to $2.0 million upon
the closing of a Qualified IPO or at such time, as TPG has received, on a
cumulative basis, an amount equal to its initial investment in the Company
(after the transactions contemplated by the Securities Purchase Agreement) plus
an amount in cash equal to the full amount of its dividends on the shares of
Preferred Stock.
9. Purchase Rights.
---------------
9.1 Right to Purchase New Securities. The Company hereby grants to
--------------------------------
each Stockholder the right to purchase, pro rata, all New Securities (as defined
in Section 9.2) which the Company may, from time to time, propose to sell and
issue after January 16, 1996 at the price and on the terms on which the Company
proposes to sell such New Securities. A Stockholder's pro rata share, for
purposes of this Section 9, shall be equal to a fraction (A) the numerator of
which is the number of shares of Common Stock (on a fully diluted basis assuming
exercise of all outstanding Options and Warrants) held by such Stockholder on
the date of the Company's written notice pursuant to Section 9.3 below; and (b)
the denominator of which is the number of shares of Common Stock outstanding (on
a fully diluted basis assuming exercise of all outstanding Options and Warrants)
on such date. The right to purchase New Securities shall be subject to the
following additional provisions of this Section 9.
9.2 Definitions. "New Securities" shall mean any capital stock
-----------
(including Common Stock or Preferred Stock) of the Company whether now
authorized or not, and rights, Options or warrants to purchase capital stock,
and securities of any type whatsoever that are, or may become, convertible into
or exchangeable for capital stock; provided, however, that the term New
Securities shall not include (i) securities issued upon conversion of preferred
stock or the Class A Common Stock; (ii) securities issued in connection with the
acquisition of another
48
<PAGE>
corporation or entity by the Company by merger, purchase of substantially all of
the assets or other reorganization whereby the Company acquires more than fifty
percent (50%) of the voting power or assets of such corporation or entity; (iii)
any borrowings, direct or indirect, from depository institutions or leasing
companies by the Company, whether or not presently authorized, including any
type of loan or payment evidenced by any type of debt instrument, regardless of
whether such borrowings have any equity features, including warrants, options or
other rights to purchase capital stock, or are convertible into capital stock of
the Company; (iv) Common Stock (including Options to purchase Common Stock),
issued to employees, consultants or directors of the Company pursuant to plans
or agreements approved by the Board of Directors; (v) securities issued pursuant
to any stock dividend, stock split, combination or other reclassification by the
Company of any of its capital stock; (vi) securities covered by a registration
statement which has been declared effective under the Securities Act; or (vi)
securities issued upon exercise of the Options or Warrants.
9.3 Required Notices. In the event the Company proposes to
----------------
undertake an issuance of New Securities it shall give each Stockholder written
notice, pursuant to the provisions of Section 10.6 hereof, of its intention,
describing the type of New Securities, the price, the number of shares and the
general terms upon which the Company proposes to issue the same. Each
Stockholder shall have thirty (30) days from the date of receipt of any such
notice to agree to purchase any or all of such stockholder's pro rata share of
such New Securities for the price and upon the general terms specified in the
notice by giving written notice to the Company and stating therein the quantity
of New Securities to be purchased.
9.4 Company's Right to Sell. In the event the existing
-----------------------
Stockholders fail to exercise the right of first refusal as to all New
Securities offered within said thirty (30) day period, the Company shall have
sixty (60) days thereafter to sell or enter into an agreement (pursuant to which
the sale of New Securities covered thereby shall be closed, if at all, within
sixty (60) days from the date of said agreement) to sell all such New Securities
respecting which the right to purchase provided in Section 9.1 was not
exercised, at a price and upon general terms no more favorable in any material
respect to the purchasers thereof than specified in the Company's notice. In the
event the
49
<PAGE>
Company has not sold within said sixty (60) day period or entered into an
agreement to sell all such New Securities within said sixty (60) day period (or
sold and issued all such New Securities in accordance with the foregoing within
sixty (60) days from the date of said agreement), the Company shall not
thereafter issue or sell any New Securities, without first offering such
securities to the Stockholders in the manner provided above.
9.5 Expiration of Rights. The rights provided under Section 9 hereof
--------------------
shall not apply to a Qualified IPO and shall expire on the effective date of a
registration statement filed with the Commission in connection with a Qualified
IPO (provided, that such right shall be reinstated if equity securities of the
Company are not sold pursuant to such registration statement).
9.6 Assignment. The rights provided in Section 9 hereof are
----------
nonassignable, except that (a) such rights are assignable by each Stockholder to
another Stockholder (or to a person who becomes a Stockholder upon Transfer of
shares to such person) or to an Affiliate of such Stockholder.
10. Miscellaneous.
-------------
10.1 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware applicable to
contracts between Delaware residents entered into and to be performed entirely
within the State of Delaware.
10.2 Certain Adjustments. In the event of any increase or
-------------------
decrease in the number of outstanding shares of the Company resulting from any
recapitalization, payment of a Common Stock dividend, stock split, combination
of shares, or any other increase or decrease in the number of such outstanding
shares effected without the Company's receipt of consideration therefor, any
maximum, minimum, or threshold number of shares of Common Stock referred to
herein shall be proportionately adjusted to reflect such increase or decrease
and any additional securities issued with respect to the Common Stock shall
become subject to the terms and conditions of this Agreement.
The provisions of this Agreement shall apply to the full extent
set forth herein with respect to any and all
50
<PAGE>
shares of capital stock of the Company or any successor or assign of the Company
(whether by merger, consolidation, sale of assets or otherwise) which may be
issued in respect of, in exchange for, or in substitution for the shares of
Preferred Stock or Common Stock, by combination, recapitalization,
reclassification, merger, consolidation or otherwise and the term "Preferred
Stock" or "Common Stock" shall include all such other securities. In the event
of any change in the capitalization of the Company, as a result of any stock
split, stock dividend or stock combination or otherwise, the provisions of this
Agreement shall be appropriately adjusted.
10.3 Enforcement. The parties expressly agree that the
-----------
provisions of this Agreement may be specifically enforced against each of the
parties hereto in any court of competent jurisdiction.
10.4 Successors and Assigns. Except as otherwise provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto.
10.5 Entire Agreement. This Agreement, together with the
----------------
Subscription Agreement, the Note Agreement, the Securities Purchase Agreement
and the Certificate, constitute the full and entire understanding and agreement
between the parties with regard to the subject matter hereof and supersede all
prior oral or written (and all contemporaneous oral) agreements or
understandings with respect to the subject matter hereof.
10.6 Notices, etc. All notices and other communications
------------
required or permitted hereunder shall be in writing and shall be mailed by
registered or certified mail, return receipt requested, postage prepaid, (except
with respect to New York Life, where notice shall only be by overnight courier
or by hand, messenger or facsimile transmission) or otherwise delivered by hand,
messenger or facsimile transmission, addressed: (a) if to a party listed on
Exhibit A or a transferee of such party, at such party's address as set forth
- ---------
on Exhibit A, or at such other address as such party or its transferee shall
---------
have furnished to the Company in writing, or (b) if to the Company, at 1000
Pratt Avenue, St. Helena, CA 94574 (telecopy number (707) 963-8560), Attention:
Douglas W. Roberts, with a copy to TPG Partners, L.P., 201 Main Street, Suite
2420, Fort
51
<PAGE>
Worth, Texas 76102 (telecopy number (817) 871-4000), Attention: James J.
O'Brien, or at such other address as the Company shall have furnished to the
parties listed on Exhibit A in writing.
---------
Each such notice or other communication shall for all purposes of
this Agreement be treated as effective or as having been given when delivered,
if delivered by hand or by messenger (or overnight courier), 24 hours after
confirmed receipt if sent by facsimile transmission or at the earlier of its
receipt or on the fifth day after mailing, if mailed, as aforesaid.
10.7 Delays or Omissions. No delay or omission to exercise any
-------------------
right, power or remedy accruing to any party hereto upon any breach or default
of the Company under this agreement, shall impair any such right, power or
remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereunder occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default therefore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement, or by law or otherwise afforded to any party, shall be
cumulative and not alternative.
10.8 Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which may be executed by less than all of the
parties hereto, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
10.9 Severability. If any provision of this Agreement shall be
------------
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
10.10 Amendments and Waivers. The provisions of this Agreement
----------------------
may be amended at any time and from time to time,
52
<PAGE>
and particular provisions of this Agreement may be waived, with and only with an
agreement or consent in writing signed by the Company and by the holders of at
least a majority of the shares held by each of (i) the Silverado Stockholders
and other Stockholders excluding the TPG Stockholders, New York Life and
Crescent, (ii) the TPG Stockholders, (iii) Crescent and (iv) New York Life.
10.11 Jurisdiction. The parties hereto irrevocably submit, in
------------
any legal action or proceeding relating to this Agreement, to the jurisdiction
of the courts of the State of Delaware and consent that any such action or
proceeding may be brought in such courts and waive any objection that they may
now or hereafter have to the venue of such action or proceeding in any such
court or that such action or proceeding was brought in an inconvenient forum;
provided that nothing herein shall prevent any Stockholder from bringing any
action in any other jurisdiction, provided, further that the State Treasurer of
Michigan as Custodian of various retirement systems shall not be subject to this
Section 10.11.
10.12 Termination. The provisions of this Agreement other than
-----------
Section 4 and Section 6 shall terminate upon the earlier of (a) the closing of a
Qualified IPO or (b) the tenth anniversary of the date of this Agreement. The
provisions of Section 4 shall terminate when all the Stockholders may sell
Securities owned by them without registration under the Securities Act and the
provisions of Section 6 shall terminate upon consummation of a Qualified IPO.
10.13 Voting Rights. Whenever this Agreement requires or
-------------
permits an action to be taken by the vote or written consent of Stockholders,
such vote or written consent shall, in the case of Subordinated Notes, be based
on the then outstanding principal amount of the Subordinated Notes, and in the
case of shares of Class A Common Stock and/or Class B Common stock, be based on
the total voting power rather than the number of shares of Class A Common Stock
or Class B Common Stock owned.
53
<PAGE>
The foregoing Stockholders Rights Agreement and Voting Agreement is
hereby executed as of the date first above written.
Beringer Wine Estates Holdings, Inc.,
a Delaware corporation
By: /s/ Richard Ekleberry
------------------------------
Name: Richard Ekleberry
----------------------------
Title: Vice President
---------------------------
Crescent/Mach I Partners, L.P.,
a Delaware limited partnership
By: TCW Asset Management Company, as
investment manager and attorney-in-fact
By: /s/ Jean-Marc Chapos
------------------------------
Name: Jean-Marc Chapos
----------------------------
Title: Managing Director
---------------------------
New York Life Insurance Company
By: /s/ John E. Schumacher
------------------------------
Name: John E. Schumacher
----------------------------
Title: Vice President
---------------------------
Silverado Equity Partners, L.P.,
a Delaware limited partnership
By: Silverado Partners Advisors, Inc.
By: /s/ C. Richard Lemon
------------------------------
Name: C. Richard Lemon
----------------------------
Title: Vice President
---------------------------
54
<PAGE>
State Treasurer of Michigan, Custodian of
the Michigan Public School Employees'
Retirement System, State Employees'
Retirement System, Michigan State Police
Retirement System, and Michigan Judges
Retirement System
By: /s/ Paul E. Rice
------------------------------
Name: Paul E. Rice
Title: Administrator, Alternative
Investments Division
TCW/Crescent Mezzanine Partners, L.P.,
a Delaware limited partnership
By: TCW/Crescent Mezzanine L.L.C., its
general partner
By: /s/ Jean-Marc Chapman
------------------------------
Name: Jean-Marc Chapman
----------------------------
Title: Managing Director
---------------------------
TCW/Crescent Mezzanine Trust,
a Delaware business trust
By: TCW/Crescent Mezzanine L.L.C., its
managing owner
By: /s/ Jean-Marc Chapman
------------------------------
Name: Jean-Marc Chapman
----------------------------
Title: Managing Director
---------------------------
55
<PAGE>
TPG Parallel I, L.P.,
a Delaware limited partnership
By: TPG GenPar, L.P.
By: TPG Advisors, Inc.
By: /s/ Richard Ekleberry
------------------------------
Name: Richard Ekleberry
----------------------------
Title: Vice President
---------------------------
TPG Partners, L.P.,
a Delaware limited partnership
By: TPG GenPar, L.P.
By: TPG Advisors, Inc.
By: /s/ Richard Ekleberry
------------------------------
Name: Richard Ekleberry
----------------------------
Title: Vice President
---------------------------
Wine World Equity Partners, L.P., a Delaware
limited partnership
By: TPG Partners, L.P.
By: TPG GenPar, L.P.
By: TPG Advisors, Inc.
By: /s/ Richard Ekleberry
------------------------------
Name: Richard Ekleberry
----------------------------
Title: Vice President
---------------------------
56
<PAGE>
/s/ Richard G. Carter
- ------------------------------
Richard G. Carter
/s/ David I. Freed
- ------------------------------
David I. Freed
/s/ A. Tor Kenward
- ------------------------------
A. Tor Kenward
/s/ Walter T. Klenz
- ------------------------------
Walter T. Klenz
/s/ C. Richard Lemon
- ------------------------------
C. Richard Lemon
/s/ E. Michael Moone
- ------------------------------
E. Michael Moone
/s/ Edward G. Sbragia
- ------------------------------
Edward G. Sbragia
/s/ Robert E. Steinhauer
- ------------------------------
Robert E. Steinhauer, individually and
as co-trustee of the Robert E.
Steinhauer and Verna Steinhauer 1992
Trust
/s/ Robert E. Steinhauer
- ------------------------------
Robert E. Steinhauer, as co-trustee of
the Robert E. Steinhauer and Verna
Steinhauer 1992 Trust
/s/ Janelle E. Thompson
- ------------------------------
Janelle E. Thompson
/s/ George A. Vare
- ------------------------------
George A. Vare
/s/ Peter A. Arbios
- ------------------------------
Peter A. Arbios
57
<PAGE>
/s/ James E. Barfield
- ------------------------------
James E. Barfield
/s/ Maryann Bautovich
- ------------------------------
Maryann Bautovich
/s/ Jon H. Biane
- ------------------------------
Jon H. Biane
/s/ David H. Biggar
- ------------------------------
David H. Biggar
/s/ Stuart H. Bockman
- ------------------------------
Stuart H. Bockman
/s/ Steven E. Brown
- ------------------------------
Steven E. Brown
/s/ George Buonaccorsi
- ------------------------------
George Buonaccorsi
/s/ Mora H. Cronin
- ------------------------------
Mora H. Cronin
/s/ Carmen A. Castaldi
- ------------------------------
Carmen A. Castaldi
/s/ Elaine R. Ellis
- ------------------------------
Elaine R. Ellis
/s/ James E. Frisinger, Jr.
- ------------------------------
James E. Frisinger, Jr.
/s/ Martin L. Foster
- ------------------------------
Martin L. Foster
/s/ William M. Foster
- ------------------------------
William M. Foster
/s/ Gary Jones
- ------------------------------
Gary Jones
58
<PAGE>
/s/ Edward E. Killian
- ------------------------------
Edward E. Killian
/s/ Jeffrey D. Marek
- ------------------------------
Jeffrey D. Marek
/s/ Charles M. Ortman
- ------------------------------
Charles M. Ortman
/s/ Thomas W. Peterson
- ------------------------------
Thomas W. Peterson
/s/ Douglas W. Roberts
- ------------------------------
Douglas W. Roberts
/s/ David J. Schlottman
- ------------------------------
David J. Schlottman
/s/ Mary Ann Tsai
- ------------------------------
Mary Ann Tsai
/s/ Douglas A. Walker
- ------------------------------
Douglas A. Walker
/s/ Eldon R. Wallingford, III
- ------------------------------
Eldon R. Wallingford, III
59
<PAGE>
EXHIBIT A
---------
LIST OF STOCKHOLDERS
Peter J. Arbios
2439 Shoreline Drive
Napa, California 94558
James Barfield
643 Pratt Avenue
St. Helena, California 94574
Jon H. Biane
721 South Carriage Circle
Anaheim, California 92807
David H. Biggar
Autumn Ridge Road
South Salem, New York 10590
Stuart Bockman
2414 Shoreline Drive
Napa, California 94558
George Buonaccorsi
2505 Rigdon Street
Napa, California 94558
Steven E. Brown
4 Skycrest Way
Napa, California 94558
Richard G. Carter
4046 Sugar Maple Drive
Danville, California 94506
Carmen A. Castaldi
1300 Burnham Lane
Batavia, Illinois 60510
Crescent/Mach I Partners, L.P.
c/o TCW Asset Management Company
11100 Santa Monica Boulevard, 20th Floor
Los Angeles, California 90025
<PAGE>
Moraig H. Cronin
1482 Sylvaner Avenue
St. Helena, California 94574
Elaine R. Ellis
1600 King Avenue
Napa, California 94559
Martin Foster
3429 Woodview Drive
Lafayette, California 94549
William M. Foster
5056 India Lake Drive
Acworth, Georgia 30102
David I. Freed
1776 2nd Street
Napa, California 94559
Curtis A. Burr and Mark A. Freed, as Trustees of
the Mark A. Freed Irrevocable Trust dated December 15, 1996
c/o Burr, Pilger & Mayer Inc.
600 California Street
San Francisco, California 94111
Curtis A. Burr and Deborah Freed, as Trustees of
the Deborah Freed Irrevocable Trust dated December 15, 1996
c/o Burr, Pilger & Mayer Inc.
600 California Street
San Francisco, California 94111
James E. Frisinger, Jr.
2275 Dry Creek Road
Napa, California 94558
Gary Jones
1706 Elk Grove
Richardson, Texas 75081
A. Tor Kenward
1815 Fir Hill Drive
St. Helena, California 94574
A-2
<PAGE>
Edward E. Killian
11870 Los Amigos Road
Healdsburg, California 95448
Walter T. Klenz
406 St. Andrews Drive
Napa, California 94558-1543
C. Richard Lemon
37 Cove Court
Napa, California 94559
MAR Enterprises, Inc.
37067 Shaker Boulevard
Hunting Valley, Ohio 44022
Attn: Tony Martino
Jeffrey D. Marek
12247 Toluca Drive
San Ramon, California 94583
E. Michael Moone
141 Canyon Court
Napa, California 94558
Moone Family Partnership, L.P.
c/o E. Michael Moone
141 Canyon Court
Napa, California 94558
New York Life Insurance Company
51 Madison Avenue
New York, New York 10010
Charles M. Ortman
1737 Sydney Street
San Luis Obispo, Californa 93401
Thomas W. Peterson
5785 St. Helena Road
Santa Rosa, California 95405
Douglas W. Roberts
2457 Vineyard Road
Novato, California 94947-3624
A-3
<PAGE>
Edward G. Sbragia
430 W. Grant Street
Healdsburg, California 95448
David J. Schlottman
1779 Central Avenue
Napa, California 94558
Silverado Equity Partners, L.P.
c/o Silverado Partners Advisors, Inc.
809 Coombs Street
Napa, California 94559
State Treasurer of Michigan
Treasury Building
430 W. Allegan
Lansing, Michigan 48922
Attn: Thomas L. Hufnagel
Robert E. Steinhauer and Verna Steinhauer, as Trustees of
the Robert E. Steinhauer and Verna Steinhauer 1992 Trust
1977 Vineyard Avenue
St. Helena, California 94574-1749
TCW/Crescent Mezzanine Partners, L.P.
c/o TCW/Crescent Mezzanine L.L.C.
11100 Santa Monica Boulevard, 20th Floor
Los Angeles, California 90025
TCW/Crescent Mezzanine Trust
c/o TCW/Crescent Mezzanine L.L.C.
11100 Santa Monica Boulevard, 20th Floor
Los Angeles, California 90025
TPG Parallel I, L.P.
c/o TPG GenPar, L.P.
c/o TPG Advisors, Inc.
201 Main Street, Suite 2420
Fort Worth, Texas 76102
TPG Partners, L.P.
c/o TPG GenPar, L.P.
c/o TPG Advisors, Inc.
201 Main Street, Suite 2420
Fort Worth, Texas 76102
A-4
<PAGE>
Janelle E. Thompson
3750 Hagen Road
Napa, California 94558
Mary Ann Tsai
21 Forrest Road
Novato, California 94947
George A. Vare
4204 Dry Creek Road
Napa, California 94558
Vare Family Partners, LP
c/o George A. Vare
4204 Dry Creek Road
Napa, California 94558
Douglas A. Walker
4100 Foxridge Way
Napa, California 94558
Eldon R. Wallingford, III
c/o Beringer Wine Estates Holdings, Inc.
1000 Pratt Avenue
St. Helena, California 94574
Wine World Equity Partners, L.P.
c/o TPG Partners, L.P.
c/o TPG GenPar, L.P.
c/o TPG Advisors, Inc.
201 Main Street, Suite 2420
Fort Worth, Texas 76102
A-5
<PAGE>
EXHIBIT 10.10
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED
AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
1996 GRAPE, JUICE AND WINE PURCHASE AGREEMENT
DELICATO VINEYARDS & BERINGER WINE ESTATES COMPANY
THIS AGREEMENT is between DELICATO VINEYARDS, a California Corporation,
- --------------
(hereinafter referred to as "DELICATO"), and BERINGER WINE ESTATES COMPANY, a
Delaware Corporation, (hereinafter referred to as "BERINGER"). DELICATO and
BERINGER are entities duly organized, validly existing, and in good standing
under the laws of the State of California, with the authority to carry on and do
business as hereinafter described. SAN BERNABE VINEYARDS is a wholly owned
subsidiary of DELICATO VINEYARDS representing vineyards located near King City,
Monterey County, and is hereinafter referred to as "VINEYARDS".
PURPOSE This Agreement shall provide a written confirmation of DELICATO's
- -------
obligation to provide for BERINGER, and BERINGER's obligation to purchase from
DELICATO, grapes produced from VINEYARDS (hereinafter referred to as "GRAPES"),
and juice to be produced from grapes from VINEYARDS (hereinafter referred to as
"JUICE"), and wine to be produced from grapes from VINEYARDS (hereinafter
referred to as "WINE") in the quantity and manner described herein. Specific
schedules for quantities, pricing, vineyard identification, and production
standards are incorporated into this Agreement by way of attached Exhibits as
follows:
EXHIBIT "A": BERINGER Schedule Of GRAPES, JUICE and WINE Quantities
And Price Per Unit
EXHIBIT "B": BERINGER Vineyard Block Assignment
EXHIBIT "C": BERINGER Grapes, Juice and Wine Standards
TERM The term of this Agreement shall be for the period commencing with the date
- ----
of this executed Agreement through the 2010 harvest.
PRICES The respective GRAPES prices are specified in EXHIBIT "A" and apply to
- ------
GRAPES on an F.O.B. roadside basis. The respective JUICE prices are specified in
EXHIBIT "A" and apply to JUICE on an F.O.B. Cypress Ridge Winery, King City,
basis. The respective WINE prices are specified in EXHIBIT "A" and apply to WINE
on an F.O.B. DELICATO, Manteca, basis.
PAYMENT Payment for GRAPES shall be made according to the shipments of GRAPES to
- -------
BERINGER as determined by Weigh Tags from certified scales by public weigh
master from where such GRAPES are received. Payment for JUICE and WINE shall be
made according to the shipments of JUICE and WINE to BERINGER as determined by
Weigh Tags from certified scales by public weigh master from where such JUICE or
WINE is shipped. For each harvest, a partial payment of one-third (1/3) of total
amount due to DELICATO from BERINGER shall be made on November 1st of the year
of harvest, a partial payment of one-third (1/3) of total amount due to DELICATO
from BERINGER shall be made on December 1st of the year of harvest, and a final
payment for the balance of the total amount due to DELICATO from BERINGER shall
be made on January 15th of the year following harvest.
In the event that BERINGER fails to pay any amounts for GRAPES, JUICE or
WINE provided for BERINGER according to the terms of this Agreement within
fifteen (15) days of the scheduled due date, DELICATO shall have the right to
withhold any future deliveries of GRAPES, JUICE and WINE during this period of
delinquency, in addition to any other remedies provided for by law or in this
Agreement. In addition to withholding deliveries, DELICATO may elect to collect
a Late Payment equal to the lesser of one and one-half percent (1.5%) per month
or the maximum allowable by law, on the outstanding balance owed for the period
of delinquency.
1
12/15/96
Initials:
BERINGER DELICATO
______________ ________________
<PAGE>
1996 Grape, Juice and Wine Purchase Agreement
revision of 12/15/96
Page 2
WARRANTY OF PLANTING AND VINEYARD MODIFICATION GRAPES or grapes that are
- ----------------------------------------------
utilized in the production of JUICE or WINE sold to BERINGER shall exclusively
originate from VINEYARDS located in Monterey County, California. DELICATO
represents that the vineyard block designations described in EXHIBIT "B" shall
be planted in 1997 and 1998 to the varieties of grapes on the approximate
acreage as indicated in EXHIBIT "B". DELICATO additionally warrants that
VINEYARDS shall be cultivated in accordance with good and prevailing vineyard
practices. DELICATO reserves the right to replant, remove, or graft vines in the
event that they become uneconomic to farm as a result of disease. In the event
that any such modification affects the supply commitment subject this Agreement,
DELICATO shall endeavor to substitute other suitable grapes from the vineyard
that are both acceptable to BERINGER and not committed to prior sale.
WARRANTY OF EXCLUSIVE SALE/TITLE & ENCUMBRANCES DELICATO represents that it has
- -----------------------------------------------
not sold or contracted to sell to anyone else GRAPES or the grapes that are
utilized in the production of JUICE and WINE herein sold to BERINGER, and that
said GRAPES, JUICE and WINE are now and will be kept free of any and all liens
and encumbrances except as may be secured for crop financing and/or working
capital with VINEYARDS' and DELICATO's lender.
Acceptance of GRAPES, JUICE and WINE by BERINGER shall occur upon the earlier of
1) shipment of GRAPES, JUICE or WINE from the respective F.O.B. point, 2)
approval by BERINGER of samples of GRAPES, JUICE or WINE, or 3) payment by
BERINGER for GRAPES, JUICE or WINE. It is expressly agreed that upon acceptance
of GRAPES, JUICE or WINE by BERINGER, title to said GRAPES, JUICE or WINE shall
immediately vest in BERINGER. BERINGER hereby grants to DELICATO a security
interest in the GRAPES, JUICE and WINE in order to secure BERINGER's obligations
hereunder. DELICATO will retain such security interest and any applicable
statutory lien in any such GRAPES, JUICE and W1NE until any amounts owed to
DELICATO by BERINGER hereunder are paid in full. DELICATO may, at its
discretion, file a UCC-1 Financing Statement and Security Agreement to provide
notice of its continuing security interest in all GRAPES, JUICE or WINE until
all payments are received. BERINGER agrees to cooperate in completing any
documentation in support of such retained interest.
DELICATO agrees to execute and deliver a Bill of Sale for the GRAPES, JUICE or
WINE herein sold to BERINGER. BERINGER will file the fully executed Bill Of Sale
with the San Joaquin County Recorder. Upon full payment of any amounts owed to
DELICATO by BERINGER hereunder, DELICATO hereby grants BERINGER a security
interest in the GRAPES, JUICE or WINE stored on DELICATO's premises in order to
secure BERINGER's interest therein. DELICATO agrees to execute and deliver to
BERINGER a UCC-1 Financing Statement and Security Agreement, provided by
BERINGER, so that BERINGER can provide notice of its continuing security
interest in all wine until it is shipped from DELICATO's premises.
INSURANCE, TAXES AND OTHER ASSESSMENTS As applicable to JUICE or WINE during the
- -------------------------------------
term of this Agreement, BERINGER shall maintain in full force and effect, normal
property insurance in the amounts at least sufficient to protect the interests
of both DELICATO and BERINGER in the JUICE or WINE. BERINGER shall provide a
certificate of insurance to DELICATO to show evidence of such coverage. Any such
policy or policies of insurance shall include waiver of subrogation clauses as
to any insured loss arising while the JUICE or WINE is in the possession or
under the control of DELICATO except for losses arising solely from DELICATO's
negligence or willful misconduct.
As applicable to GRAPES, JUICE and WINE, BERINGER is to pay all taxes and
assessments applicable to its owned property, including "California Vintner
fees".
Initials:
BERINGER DELICATO
______________ ________________
<PAGE>
1996 Grape, Juice and Wine Purchase Agreement
revision of 12/15/96
Page 3
PICKING & DELIVERY DELICATO shall provide BERINGER notification whereby DELICATO
- ------------------
believes the GRAPES or grapes that are utilized in the production of JUICE or
WINE are expected to be within the maturity ranges specified in EXHIBIT "C".
Mechanical harvesting of grapes shall be specifically permitted.
DELICATO shall endeavor to provide a minimum of 48 hours prior notice to
BERINGER so that BERINGER may elect to inspect harvesting equipment for
cleanliness and to enter VINEYARDS for purposes of ensuring the correctness of
the varietal status of the grapes duly harvested.
Not withstanding the foregoing, BERINGER may request Pinot Noir GRAPES
sold herein to be hand harvested into BERINGER furnished 1,000 pound bins.
DELICATO will review the resulting harvest labor requirements and will try to
facilitate BERINGER's request. If hand harvesting of all or any of Pinot Noir
GRAPES is deemed unfeasible in DELICATO's sole discretion, DELICATO shall not be
required to hand harvest Pinot Noir GRAPES. BERINGER agrees to reimburse
DELICATO for all tons hand harvested by an amount equal to (i) the then-current
going rate for hand picking less (ii) the then-current going rate for mechanical
harvesting.
WARRANTY OF GRAPE STANDARDS DELICATO warrants that all grapes delivered under
- ---------------------------
this Agreement for the production of JUICE or WINE shall at point of delivery be
sound, mature grapes of the variety and appellation represented, free from
commercial defects, in good merchantable condition, and are grapes suitable for
crushing into JUICE or WINE, at the state of maturity BERINGER specifies
hereunder, fully comply with all applicable Federal and State laws and
regulations, and at the time and at the point of delivery are not adulterated or
misbranded under the meaning of the Federal Food, Drug, and Cosmetic Act, or
regulations issued thereunder, and not an article which may not, under the
provisions of Section 404 or Section 505 of the Act, be introduced into
interstate commerce; and that there are not, in or on said grapes, pesticide
residues prohibited by, or in excess of tolerances established by the
Environmental Protection Agency or the Federal Food, Drug, and Cosmetic Act, or
regulations issued thereunder.
DELICATO further warrants that all GRAPES or grapes that are utilized in
the production of JUICE or WINE hereunder shall not have been treated with any
pesticide, the application of which does not conform to all local, state and
federal laws and regulations. The dosage and time of application of pesticides,
herbicides, nematicides, and other chemical applications must have been
controlled and recorded according to recommendations of the California
Department of Agriculture so that the residues are within tolerances for grapes
by law.
DELICATO shall become knowledgeable of the requirements of California
Proposition 65 (Safe Drinking Water and Toxic Enforcement Act of 1986),
including the continually updated list of chemicals and substances which pose a
significant risk of cancer or reproductive toxicity via ground water, food,
environment, occupational or other contamination.
No chemical listed pursuant to California Health and Safety 25249.8, as
such chemical may appear at Title 22, California Code of regulations, Section
12.000, as amended ("Proposition 65") shall be applied to any GRAPES or grapes
that are utilized in the production of JUICE or WINE without BERINGER's prior
written approval; any such approved application shall be made only for the
purpose for which BERINGER has given its prior written approval. Approval shall
require a written recommendation by a certified Pest Control Advisor. DELICATO
further guarantees and warrants that any GRAPES or grapes that are utilized in
the production of JUICE or WINE for which no request for application of
Proposition 65 chemicals is made or for which BERINGER does not approve such
application shall be free from such chemicals. BERINGER reserves the right not
to accept any GRAPES or grapes that are utilized in the production of JUICE or
WINE which do not conform to this provision and/or collect direct and
consequential damages.
Further, DELICATO agrees to make no chemical applications of any kind to
any GRAPES or grapes that are utilized in the production of JUICE or WINE
delivered hereunder
Initials:
BERINGER DELICATO
______________ ________________
<PAGE>
1996 Grape, Juice and Wine Purchase Agreement
revision of 12/15/96
Page 4
from August 1st or veraison, whichever comes first, through harvest, without the
prior written approval of BERINGER. DELICATO shall maintain complete and
accurate written records with respect to every pesticide application and shall
furnish the same to BERINGER prior to September 15th of each harvest year. As
used herein, "pesticide" includes, without limitation, all herbicides,
fungicides (including sulfur and sulfur-based compounds), insecticides and
miticides.
INSPECTION As it applies to GRAPES or grapes that are utilized in the production
- ----------
of JUICE or WINE, inspection shall be made at the point of grape delivery for
crushing. All grading and inspection shall be by the Director of the State of
California, Department of Food and Agriculture or County Agriculture
Commissioner, one of its deputies or inspectors, or other approved methods by
parties acceptable to DELICATO and BERINGER. DELICATO and BERINGER agree to
accept and be bound by the methods of such parties in the sampling, testing, and
grading for establishing sugar content (/0/Brix) to the nearest tenth of a
degree, the presence of material other than grapes (M.O.G.), Volatile Acid and
Ethyl Alcohol.
During the term of this Agreement, BERINGER's representatives shall have
the right to enter VINEYARD or processing facilities during normal business
hours upon notification of their arrival, for the purpose of inspecting,
testing, or observing the harvest and delivery of any such contracted grapes or
resulting juice or wine.
REJECTIONS DELICATO agrees that BERINGER shall have the right to reject any and
- ----------
all GRAPES, JUICE or WINE delivered or tendered which do not fully comply with
the standards set forth in this Agreement for said products by giving notice
verbally or in writing of any such rejection to DELICATO, provided, however,
that the rejection of any partial delivery or deliveries shall not relieve
either DELICATO or BERINGER from their obligation to deliver and receive the
balance of products purchased hereunder and to this extent this Agreement is
severable; provided further, that failure of BERINGER to reject any products
hereunder shall not constitute a waiver on its part and does not waive any part
of the DELICATO's warranties.
All GRAPES or grapes that are utilized in the production of JUICE or
WINE delivered hereunder shall be delivered in containers containing only one
(1) grape variety. Any containers containing more than one (1) variety shall be
rejected by BERINGER. Grapes of the same varieties but from different lots shall
also be delivered in separate containers. Any container containing more than one
(1) lot will be rejected by BERINGER.
BERINGER shall make its best faith effort to contact DELICATO as soon as
possible regarding any intended rejection in order to allow DELICATO an
opportunity to minimize any additional expenses in re-marketing or disposing of
such rejected delivery of product. In the event that rejection of GRAPES, JUICE
or WINE results from the actions of any third party, such as a contract hauler,
both parties shall cooperate to process and expedite the claim for damages with
that outside party.
MISCELLANEOUS
- -------------
In the event either party is unable to carry on its normal operations or
is compelled to reduce or suspend its operations because of forces beyond its
immediate reasonable control including, but not limited to, laws, court orders,
labor disputes, fire, war, weather, or acts of God, but excluding the financial
impairment or insolvency of either party, the party so affected shall, while so
affected, be relieved to that extent from performing its obligation hereunder.
In such event such party shall take all reasonable measures to remove the
disability and resume full performance hereunder at the earliest possible date.
This Agreement shall be governed by the laws of the State of California
including as to matters of validity, construction and performance. If there is a
dispute between the parties, both parties agree to meet in a good faith effort
to resolve the dispute. If there is no resolution, the parties will choose a
method of binding arbitration. If the method of arbitration cannot be agreed
Initials:
BERINGER DELICATO
______________ ________________
<PAGE>
1996 Grape, Juice and Wine Purchase Agreement
revision of 12/15/96
Page 5
upon in one week, then it will proceed according to the California Code of Civil
Procedure regarding arbitration.
This Agreement shall be deemed modified to the extent necessary to
comply with applicable valid State and Federal laws, rules or regulations
pursuant thereto and any applicable valid marketing order or agreement under
authority of State or Federal law.
This Agreement does not constitute either party as the agent, partner,
joint-venturer or legal representative of the other for any purpose whatsoever.
Neither party is granted an express or implied right or authority by the other
party to assume or create any obligation or responsibility on behalf of or in
the name of the other party.
No failure or omission by either party to insist upon or enforce any of
the terms hereof shall be deemed a waiver of such terms unless the same shall be
in writing and signed by the waiving party. Waiver of a term or default at any
time shall not be deemed a waiver of any other term or default, or of the same
term or default at another time.
Time is of the essence of this Agreement and each and every provision
thereof.
The titles contained in article headings of this Agreement are merely
for convenience and are not intended to give notice of all of the matter in the
articles following such titles. Said titles do not constitute any part of this
Agreement and are not to be considered in its interpretation.
If any part or parts of this Agreement are found to be illegal or
unenforceable, the remainder shall be considered severable, shall remain in full
force and effect, and shall be enforceable.
At the request of either party, the parties shall, execute, acknowledge,
and record a memorandum of this Agreement.
Neither party shall make public this Agreement or any announcements
related to this Agreement or the operations performed under this Agreement
without the written consent of the other party, except to the extent such
information is disclosed: (1) to any governmental or regulatory authority in the
course of its duties, (2) pursuant to subpoena or other legal process, (3) to
either party's lender or lenders, or (4) to a third party, in connection with
the sale of goods or products to such party, provided, however, such permitted
disclosure shall be limited to source information and, provided further, that
the financial details of this Agreement may not be disclosed to such party.
No renewal of this Agreement or modification or waiver of any of its
provisions, or any future representations, promises, conditions in connection
with its subject matter, shall be binding upon the parties unless made in
writing and signed on each of the parties behalf by its authorized officer.
This Agreement is binding upon the successors and assigns of the
parties; provided however this Agreement and the rights hereunder cannot be
assigned, in whole or in part, without the prior written consent of the parties.
Such consent shall not be unreasonably withheld. In the case of an assignment by
BERINGER, DELICATO's failure to consent will not be deemed unreasonable if
DELICATO reasonably believes that the assignee will be unable to perform its
obligations under this Agreement. Either party may assign any rights to payment
which may accrue to it hereunder to any third party, including a bank or
financial institution.
All notices shall be in writing, unless otherwise specifically provided
herein, and shall be deemed to have been given if delivered by hand or mailed by
registered or certified mail, postage prepaid, addressed as follows:
DELICATO: BERINGER:
Mr. Vincent Indelicato Robert E. Steinhauer and/or
DELICATO VINEYARDS George Buonaccorsi
12001 S. Hwy 99, Beringer Wine Estates Co.
Manteca, Ca. 95336 P.O. Box 111
St. Helena, CA 94574
(Fed. Express: 1000 Pratt Ave.)
Initials:
BERINGER DELICATO
______________ ________________
<PAGE>
1996 Grape, Juice and Wine Purchase Agreement
revision of 12/15/96
Page 6
Phone: (209)239-1215 Phone: (707)963-7115
FAX: (209) 239-8031 FAX: (707) 963-5054
ENTIRE AGREEMENT: This 1996 Grape, Juice and Wine Purchase Agreement contains
- ----------------
the entire agreement between the parties concerning the subject matter herein
and there are no understandings or agreements which are not set forth herein.
All EXHIBITS to this Agreement are hereby incorporated by this reference as if
set out in full.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
31st day of December, 1996.
DELICATO VINEYARDS BERINGER WINE ESTATES COMPANY
By: /s/ Vincent Indelcato By: /s/ Robert E. Steinhauer
______________________________ ______________________________
VINCENT INDELICATO
Its: President Its: Sr. Vice President - Vineyard
Operations
This Agreement is not valid unless signed or countersigned by a BERINGER and
DELICATO officer or duly authorized agent of BERINGER and DELICATO, with all
such signatures being executed within 30 days of the date shown above.
Initials:
BERINGER DELICATO
______________ ________________
<PAGE>
EXHIBIT "A"
1996 GRAPE, JUICE AND WINE PURCHASE AGREEMENT
BERINGER SCHEDULE OF GRAPES, JUICE AND WINE
QUANTITIES AND PRICE PER UNIT
For each harvest during the term of this Agreement, DELICATO is obligated to
provide for BERINGER, and BERINGER is obligated to purchase from DELICATO,
1) Pinot Noir GRAPES in the quantities stated below; and,
2) Chardornnay JUICE in the quantities stated below; and,
3) Chenin Blanc WINE in the quantities stated below; and,
4) Cabernet Sauvignon WINE in the quantities stated below;
5) Cabernet Franc WINE in the quantities stated below; and,
6) Merlot WINE in the quantities stated below.
The following quantities apply to each harvest for the entire duration of this
Agreement:
***
The quantities shown above reflect an estimate of VINEYARDS grape production
levels expected from the specific Block assignments and allocations described in
Exhibit "B". The final GRAPE quantities to be delivered by DELICATO to BERINGER
under this Agreement for each year shall be the actual grapes produced for each
of the respective Block assignments and allocations described in Exhibit "B".
The final JUICE or WINE quantities to be delivered by DELICATO to BERINGER under
this Agreement for each year shall be calculated by multiplying the actual
grapes produced for each of the respective Block assignments and allocations
described in Exhibit "B", by a yield factor of 170 gallons per ton of grapes.
EXHIBIT "A"
***[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.]
1
Initials:
BERINGER DELICATO
______________ ________________
<PAGE>
DELICATO shall promptly notify BERINGER of any change in the physical condition
of the Block assignments and allocations contained herein, or any projected
production shortfall, which might reasonably be expected to result in a change
of the estimated quantities shown above.
Not withstanding the foregoing, the maximum GRAPE, JUICE or WINE quantities to
be delivered by DELICATO to BERINGER under this Agreement for each year, and for
each variety, respectively, shall not exceed 105% of the quantities shown above.
For GRAPES delivered under this Agreement, F.O.B. roadside, and JUICE delivered
under this Agreement, F.O.B. Cypress Ridge Winery, King City, and for WINE
delivered under this Agreement, F.O.B. Delicato, Manteca, the following pricing
shall apply.
***
EXHIBIT "A"
***[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.]
2
BERINGER DELICATO
______________ ________________
<PAGE>
***
In addition to the above Chenin Blanc Wine Price, BERINGER shall reimburse
DELICATO for the cost to ship juice from GRAPES crushed at Cypress Ridge Winery
to DELICATO's Manteca facility.
EXHIBIT "A"
***[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.]
3
BERINGER DELICATO
______________ ________________
<PAGE>
EXHIBIT "B"
1996 GRAPE, JUICE AND WINE PURCHASE AGREEMENT
BERINGER VINEYARD BLOCK ASSIGNMENT
The following Block assignments and allocations shall be amended after the
vineyard has been planted.
***
EXHIBIT "B"
***[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.]
1
BERINGER DELICATO
______________ ________________
<PAGE>
[2 PAGES OF MAPS SHOWING ALLOCATION OF VINEYARD ACREAGE]
<PAGE>
EXHIBIT "C"
1996 GRAPE, JUICE AND WINE PURCHASE AGREEMENT
BERINGER GRAPES, JUICE AND WINE STANDARDS
For all GRAPES, JUICE or WINE herein delivered by DELICATO to BERINGER, the
following standards shall apply.
I.
GRAPES or grapes to be utilized in the production of JUICE or WINE for
BERINGER shall be harvested upon 48 hours advanced notice by VINEYARDS,
subject to reasonable harvesting, delivery and crushing availability by
DELICATO. Sugar content ranges are as indicated below. DELICATO shall sample
grapes no less than once every 10 days or at the request of BERINGER and
provide such fresh samples to either BERINGER or DELICATO for Brix and pH
analysis. Based on those results, BERINGER may advise DELICATO as to the time
of harvest. Grapes shall be deemed suitable for crushing for JUICE or WINE
only if at the time and place of delivery not less than 97.0% of the grapes
are free from defects and MOG combined as herein defined, and only if foreign
material as herein defined does not exceed 1.0% and Rot and/or Mold does not
exceed 2.0% by weight in each load or lot of grapes, and said grapes meet
such other standards as are provided for in this Agreement, in accordance
with normal wine industry standards then in effect.
BERINGER and DELICATO recognize that year to year variations in growing and
harvest conditions may result in slight variations of the GRAPES or grapes
used to produce JUICE or WINE in any given year, and both parties pledge to
cooperate in applying regional standards by competent farmers practicing good
husbandry in determining the GRAPE suitability, and reasonable industry
standards in determining JUICE or WINE suitability.
"Defect" is defined as decomposition or decay of the berry induced by
fungi or bacteria involving shrinkage or change in berry form, and sometimes
accompanied by open breaks in the skin not caused by mechanical means.
"Foreign Material Other Than Grapes" is defined as leaves, leaf stems,
canes, and any other materials foreign to grapes which may be in a load or
lot of grapes.
II.
Varietal verification shall be strictly tracked from origin to the point of
departure from DELICATO, King City, or DELICATO, Manteca. Such documentation
includes, but is not limited to, weight tags of each load representing such
load's vineyard name, block number, grape variety, date of delivery, location
of the vineyard, vehicle license number, point of receipt for crushing,
applicable cellar records, sufficient reference by map to identify the
vineyard and a statement or affidavit by DELICATO's representative certifying
the variety.
These documents and records necessary to prove that the GRAPES, JUICE or WINE
delivered to BERINGER was produced from the variety or vineyard specified
will be accurately maintained and available to BERINGER or applicable
regulatory inspectors for a period of three years after each shipment. These
records and documents will be available for inspection at DELICATO's Manteca
offices. Each transfer document showing movement of GRAPES, JUICE or WINE
from DELICATO to BERINGER will fully and accurately represent the correct
variety, vineyard, gallonage or other information pertinent to the lot
shipped.
For all JUICE herein delivered by DELICATO to BERINGER, the following standards
shall apply.
a) JUICE processing shall employ the use of "tank press" type pressing only.
b) The maximum temperature of JUICE shall be 40/o/ F at time of shipment.
c) JUICE shall have a maximum spin-solids content of 2 percent at time of
shipment.
"EXHIBIT "C"
1
BERINGER DELICATO
______________ ________________
<PAGE>
d) DELICATO shall add to the sulfur dioxide levels of JUICE at the discretion
of BERINGER.
e) BERINGER shall take delivery of JUICE within 48 hours of DELICATO's
notification of availability for shipment.
f) DELICATO and BERINGER agree to address additional reasonable industry
juicing standards as directed by BERINGER.
For all WINE herein delivered by DELICATO to BERINGER, the following standards
shall apply.
a) All WINE from white grape varieties, shall be processed to a heat and co1d
stable state of processing within the meaning of reasonable industry
standards.
b) All WINE from red grape varieties shall not include cold stabilization or
bentonite treatments, but shall include the option of one powder
filtration, at no additional charge, at BERINGER's option. Fermentation of
red grape varieties shall take place in increments of not more than 100
tons, and DELICATO shall endeavor to ferment in increments as small as it
has cooperage available. Upon mutual consent, the method and duration of
pumping over wine during red fermentation shall be determined by BERINGER.
c) DELICATO shall provide its own standard yeast strain, malo-latic strain and
bentonite if desired by BERINGER. Should BERINGER prefer to provide one or
more of these additives in place or in addition to DELICATO's standard
additives, DELICATO shall apply them without any addition or reduction of
charge to DELICATO or BERINGER.
d) DELICATO shall provide storage of WINE extending through July 31st of the
year following the respective year of harvest.
e) DELICATO and BERINGER agree to address additional reasonable industry wine-
making standards as directed by BERINGER.
The following sugar content standards for GRAPES or grapes used in the
production of JUICE or WINE shall apply. Measurement of such sugar content shall
be made on a load by load basis at the point of grape delivery for crushing as
provided for in this Agreement. BERINGER shall not be obligated to purchase
GRAPES, or JUICE or WINE produced from grapes, with a sugar content below the
Minimum Brix Level or above the Maximum Brix Level shown below.
<TABLE>
<CAPTION>
Minimum Target Maximum
Variety Brix Level Brix Level Brix Level
- -------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Pinot Noir 22.00/o/ 23.50/o/ 26.00/o/
Chardonnay 22.00/o/ 23.50/o/ 26.00/o/
Chenin Blanc 20.00/o/ 22.00/o/ 24.00/o/
Cabernet Sauvignon 22.00/o/ 23.50/o/ 26.00/o/
Cabernet Franc 22.00/o/ 23.50/o/ 26.00/o/
Merlot 22.00/o/ 23.50/o/ 26.00/o/
</TABLE>
EXHIBIT "C"
2
BERINGER DELICATO
______________ ________________
<PAGE>
EXHIBIT 10.11
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
[Logo of Joseph W. Ciatti Co., Inc.]
42 Miller Avenue Mill Valley CA 94941
Phone (415) 388-8301 FAX (415) 388-0528
REVISION
Order Confirmation #12847
Dated May 15, 1997
Revision Date: June 3, 1997
Seller: Bronco Wine Company
P0 Box 789
Ceres, CA 95307
Buyer: Beringer Wine Estates
PO Box 111
St. Helena, CA 94574
FIVE YEAR EVERGREEN CONTRACT FOR WHITE ZINFANDEL WINE
FROM LODI
1997-2001
***
1. This contract supersedes the following Lodi contracts:
NEW FIVE YEAR EVERGREEN CONTRACT FOR WHITE ZINFANDEL FROM LODI,
Order Confirmation #9029, dated January 27, 1995;
SIX YEAR EVERGREEN CONTRACT FOR WHITE ZINFANDEL FROM LODI, Order
Confirmation #10291, dated October 26, 1995;
SIX YEAR EVERGREEN CONTRACT FOR WHITE ZINFANDEL FROM LODI CONTRACT
III, Order Confirmation #10480, dated October 25, 1995; and
FIVE YEAR EVERGREEN CONTRACT FOR WHITE ZINFANDEL FROM LODI, Order
Confirmation #11478, dated June 24, 1996
2. Processing charge for tank pressing and arrested fermentation:
***
***[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.]
<PAGE>
[Logo of Joseph W. Ciatti Co., Inc.]
42 Miller Avenue Mill Valley CA 94941
Phone (415) 388-8301 FAX (415) 388-0528
Bronco Wine Company/Beringer Wine Estates
Order Confirmation #12847
Page 2
3. ***. If the White Zinfandel grape price is a verbal agreement between Bronco
Wine Company and M & R Packing, Bronco Wine Company will, in writing, contact
Beringer Wine Estates reporting the grape price and tonnage on each given
year. If there are any changes in tonnages and pricing made during or after
each crush year, Bronco Wine Company, in writing, will notify Beringer Wine
Estates. If there is a written agreement between Bronco Wine Company and M &
R Packing, Bronco Wine Company will submit the written agreement to Beringer
Wine Estates.
4. ***.
5. Finished White Zinfandel Wine.
6. Insurance on wine to be carried by Beringer Wine Estates.
7. Purchase contingent upon approval of samples.
8. Free storage until August 1 of the following crush year.
9. Terms for Grapes and Processing:
I. Cash
A. The first payment is equal to 1/3 of the purchase price and is due
upon approval of each tank or lot sampled, but not earlier than
October 1 and not later than October 31.
B. The second payment is equal to 1/3 of the purchase price and is due on
November 1.
C. The third payment is equal to 1/3 of the purchase price and is due
on December 1.
II. Extended payment option with interest - At the buyer's option, the second
and third payments may be extended until January 15 as provided below:
A. The first payment is equal to 1/3 of the purchase price and is due
upon approval of each tank or lot sampled, but not earlier than
October 1 and not later than October 31.
B. The second payment is due on January 15 and will include interest at
the prevailing Wells Fargo Bank prime rate plus 1.0%. The payment will
be for the 2/3 of the purchase price from November 1 to January 15
plus interest calculated on 1/3 of the purchase price from December
----
1 to January 15.
Adjustment: Any adjustment shall be paid by either party on April 1 of
----------
the year following the crush year.
10. White Zinfandel Wine to be based on standards worked out between Bronco Wine
Company and Beringer Wine Estates and Beringer Wine Estates' Processing
Parameters.
11. Any assessments on grapes or wine from marketing orders or government
mandated charges that relate to this contract will be paid by Beringer Wine
Estates at the time the assessment payment is due.
***[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.]
<PAGE>
[Logo of Joseph W. Ciatti Co., Inc.]
42 Miller Avenue Mill Valley CA 94941
Phone (415) 388-8301 FAX (415) 388-0528
Bronco Wine Company/Beringer Wine Estates
Order Confirmation #12847
Page 3
12. Evergreen Clause: The initial term of this agreement shall be for the period
commencing with the 1997 harvest through the 2001 harvest and shall continue
thereafter unless terminated as herein after provided. Either party may
terminated this agreement for any reason, advising the other party prior to
February 1 of any year of such desire to terminate, provided however, that
such notice shall not be given prior to January 1, 2000. In the event of a
notice to terminate, the agreement shall continue for the following two (2)
harvests.
BRONCO WINE COMPANY
- -------------------
Signed by /s/ Fred Franzia 6/17/97
_______________________________________________________________
Fred Franzia Date
BERINGER WINE ESTATES
- ---------------------
Signed by /s/ Martin Foster 6/5/97
_______________________________________________________________
Martin Foster Date
<PAGE>
ADDENDUM A
----------
All references to "wine" contained herein shall be deemed to include wine and/or
juice, as applicable.
Compliance with Laws Seller warrants that (a) Seller and its agents and
- --------------------
employees shall fully comply with all applicable federal, state and local
laws and regulations (collectively, "Laws") in the course of performing the
services (including farming practices) under this Agreement and delivering the
wine pursuant hereto, and (b) all wine, and the grapes from which the wine is
made, shall fully comply with all applicable Laws. Any breach or alleged breach
of the foregoing warranties shall entitle Wine World to immediately terminate
this Agreement.
Warranty of Exclusive Sale/Title & Encumbrances Seller represents that it has
- -----------------------------------------------
not sold or contracted to sell to anyone else the wine sold to Wine World
hereunder, and that said wine is now and will be kept free of any and all liens
and encumbrances except as may be secured for crop financing and/or working
capital with Seller's lender.
Indemnification Seller shall indemnify and hold Wine World harmless from all
- ---------------
claims, demands, actions and causes of action, and all expenses, including
without limitation, attorneys' fees, investigation expense and court costs,
resulting from Seller's performance of, or failure to perform, services pursuant
to this Agreement (including any breach of warranty or representation by
Seller), including without limitation all costs and expenses incurred in
connection with Seller's performance (or failure to perform) resulting in the
recall or market withdrawal of all or any of the wine delivered pursuant
hereto, whether voluntary or involuntary and however denominated or classified,
where such market withdrawal or product recall is deemed prudent by Wine World
in accordance with reasonable business practice or ordered by a court or
governmental agency of competent jurisdiction. The provisions of this
paragraph shall survive any termination of this Agreement.
Arbitration In case of any dispute or disagreement arising out of or connected
- -----------
with this agreement or the breach thereof, the parties hereto hereby agree to
submit said dispute or disagreement to the American Arbitration Association
("AAA") in San Francisco, California for a resolution within 120 days after
submission thereof to a single arbitrator. The parties hereto agree that AAA
shall select a single arbitrator to arbitrate any such matter. Any decision or
award by said arbitrator shall be binding, and except in cases of gross fraud or
misconduct by the arbitrator, the decision or award rendered with respect to
such dispute or disagreement shall not be appealable. In addition, the
prevailing party in such an arbitration proceeding shall be entitled to recover
its attorney's fees, all reasonable out-of-pocket costs and disbursements, as
well as any and all charges which may be made for
<PAGE>
the cost of the arbitration and the fees of the arbitrator. The provisions of
this paragraph shall survive any termination hereof.
Entire Agreement This Addendum A and the Agreement to which it is attached
- ----------------
contain the entire understanding off the parties regarding he subject matter.
<PAGE>
[Logo of Joseph W. Ciatti Co., Inc.]
42 Miller Avenue Mill Valley CA 94941
Phone (415) 388-8301 FAX (415) 388-0528
ADDENDUM B
----------
Technical Standards
- -------------------
1. All wine to be 100% Lodi Appellation and 98% Zinfandel varietal unless
concentrate is added to adjust brix.
2. Buyer desires grapes which achieve maturity with a range of 18.0 brix to
20.5 brix, with an average optimal grape maturity of 19.0 brix.
3. Wine Technical Specifications:
-----------------------------
* Alcohol
-individual lot range: 9.0 minimum, 10.5 maximum
-average of all lots: 9.5 target
* Residual Sugar
-individual lot range: 2.5 minimum, 3.0 maximum
-average of all lots: 2.8 target
Goal is to have the above specifications met without concentrate or high
proof additions.
4. Seller will advise buyer and buyer must provide approval before any high
proof or concentrate additives are added to the juice or wine. Seller will
pay costs of materials and processing for any additions necessary to
achieve targeted technical specifications.
5. Seller agrees to provide buyer's representative with reasonable access to
winery records, grape weight tags, juice and wine samples, processing
records, processing equipment and storage tanks including crushing,
pressing, fermentation and storage facilities as well as vineyards
designated or potentially designated for fulfilling buyer's contract.
6. Finished White Zinfandel wine will be heat stabilized, cold stabilized, and
powder filtered unless buyer agrees to accept wine "unfinished" or
"partially unfinished".
7. Any other technical standards to be agreed upon by Bronco Wine Company and
Beringer Wine Estates.
<PAGE>
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
COMPUTATION OF
COMPUTATION OF PRIMARY COMPUTATION OF FULLY DILUTED SUPPLEMENTAL
LOSS PER SHARE LOSS PER SHARE LOSS PER SHARE
---------------------------- ------------------------------- --------------
SIX MONTHS YEAR SIX MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1997
------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Weighted average number
of common shares
outstanding during the
period................. 10,978,145 12,134,670 10,978,145 12,134,670 12,134,670
Shares anticipated to be
sold by the Company to
the public pursuant to
a public offering...... 4,850,000
Common Stock equivalents
considered to be
outstanding for the
period presented(1).... -- 49,062 -- 49,062 49,062
------------ ------------ -------------- -------------- ------------
10,978,145 12,183,732 10,978,145 12,183,732 17,033,732
============ ============ ============== ============== ============
Net loss allocable to
common stockholders.... $(11,419,000) $(10,369,000) $ (11,419,000) $ (10,369,000) $(10,369,000)
============ ============ ============== ==============
Add back preferred stock
dividend and accretion
of discount, interest
on the senior
subordinated notes and
interest on the line of
credit and term debt,
net of income taxes.... 8,726,000
Less extraordinary loss
on the early redemption
of the senior
subordinated notes, net
of income taxes........ (2,833,000)
------------
$ (4,476,000)
============
Primary loss per share.. $ (1.04) $ (0.85)
============ ============
Fully diluted loss per
share.................. $ (1.04) $ (0.85)
============== ==============
Supplemental loss per
share (unaudited)...... $ (0.26)
============
</TABLE>
- --------
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, the calculation of Common Stock equivalents includes all common
and common equivalent shares issued within the twelve months preceding the
initial filing date of the Company's Registration Statement as if they
were outstanding for all periods presented, using the treasury stock
method and an assumed initial public offering price, regardless of their
anti-dilutive impact.
<PAGE>
EXHIBIT 21.1
Subsidiaries as of August 19, 1997:
- ----------------------------------
BERINGER VINEYARDS (EUROPE) S.A. (SWISS CORP.)
BERINGER WINE ESTATES SALES CO. (CA CORP.)
BERINGER FOREIGN SALES CORPORATION (BARBADOS CORP.)
CORK PROCESSORS, INC. (DEL. CORP.)
AND THE OPERATING COMPANY:
BERINGER WINE ESTATES COMPANY (DEL. CORP.)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 115
<SECURITIES> 0
<RECEIVABLES> 28,477
<ALLOWANCES> (251)
<INVENTORY> 214,097
<CURRENT-ASSETS> 247,462
<PP&E> 225,575
<DEPRECIATION> (13,197)
<TOTAL-ASSETS> 467,184
<CURRENT-LIABILITIES> (37,751)
<BONDS> (319,112)
(34,341)
0
<COMMON> (1)
<OTHER-SE> (48,380)
<TOTAL-LIABILITY-AND-EQUITY> (467,184)
<SALES> 269,460
<TOTAL-REVENUES> 269,460
<CGS> 177,829
<TOTAL-COSTS> 177,829
<OTHER-EXPENSES> 78,647
<LOSS-PROVISION> 210
<INTEREST-EXPENSE> 26,401
<INCOME-PRETAX> 12,525
<INCOME-TAX> (7,076)
<INCOME-CONTINUING> 5,449
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,449
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0.85
</TABLE>
